Description
After a promising start to the decade in 2010-11 with achievement like GDP growth of 8.4 per cent, bringing down fiscal deficit to 4.7 per cent from 6.4 of GDP in 2009-10, as well as containing current account deficit to 2.6 per cent from 2.8 per cent in 2009-10.
LOK SABHA SECRETARIAT
PARLIAMENT LIBRARY AND REFERENCE, RESEARCH, DOCUMENTATION
AND INFORMATION SERVICE (LARRDIS)
MEMBERS’ REFERENCE SERVICE
REFERENCE NOTE .
No.5/RN/Ref./2013
For the use of Members of Parliament Not for Publication
Current Economic Scenario
-----------------------------------------------------------------------------------------------------------------------
The reference material is for personal use of the Members in the discharge of their Parliamentary duties, and
is not for publication. This Service is not to be quoted as the source of the information as it is based on the
sources indicated at the end/in the text. This Service does not accept any responsibility for the accuracy or
veracity of the information or views contained in the note/collection.
Contents
1 Introduction 1
2. Economy in 2012-13 1
? GDP Growth Profile 1
? Per Capita Income 2
? Agriculture 3
? Industry 4
? External Sector 6
? Money 7
? Inflation 8
? Exchange Rate 8
? Foreign Investment Inflows 8
3. Central government?s Finances 8
4. Global Economic Situation and Prospects 10
5. Implication for India of Global Risk Scenarios 11
6. Prospects for Indian Economy in 2013-14 12
Current Economic Scenario
Introduction
After a promising start to the decade in 2010-11 with achievement like GDP
growth of 8.4 per cent, bringing down fiscal deficit to 4.7 per cent from 6.4 of GDP in
2009-10, as well as containing current account deficit to 2.6 per cent from 2.8 per cent
in 2009-10. GDP growth decelerated sharply to a nine year low of 6.5 per cent during
2011-12.
The slow down was reflected in all sectors of the economy but the industrial
sector suffered the sharpest deceleration which decelerated to 2.9 per cent during
2011-12 from 8.2 per cent in 2010-11. The centre?s finances for 2011-12 experienced
considerable slippage as key deficit indicators turned out to be much higher than
budgeted due to shortfall in tax revenues and overshooting of expenditure. The gross
fiscal deficit (GFD)-GDP ratio moved up to 5.8 per cent in 2011-12 compared to the
budgeted ratio of 4.6 per cent. The substantial increase in subsidies during 2011-12 on
account of high crude oil prices further impacted the deficit of the Government.
The year 2011-12, especially the second half, was characterised by a burgeoning
current account deficit (CAD), subdued equity inflows, depletion of foreign exchange
reserves, rising external debt and deteriorating international investment position
1
.
Inflation remained elevated at over 9 per cent in the first eight months of 2011-12,
before softening moderately in December and remained sticky in the range of 6.9-7.7
per cent
2
.
Economy in 2012-13
GDP Growth Profile: According to the first advance estimates of national income for
the year 2012-13 of the Central Statistics Office (CSO), the Indian economy is expected
to grow at its slowest pace in a decade at a mere 5 per cent in 2012-13, on the back of
dismal performance by the farm, manufacturing and services sectors, The estimate is
1
Reserve Bank of India (RBI), Annual Report 2011-12, p. 58, 66
2
Ibid, p. 31
-2-
lower than the 6.2 per cent growth clocked in 2011-12 and is the lowest since 2002-03,
when the economy grew by 4 per cent only
According to the CSO?s advance estimates, the growth in agriculture and allied
activities are likely to lowered to 1.8 per cent in 2012-13, compared to 3.6 per cent in
2011-12 and manufacturing growth is also expected to drop to 1.9 per cent in this fiscal,
from 2.7 per cent achieved during the last year. Services sector, including finance,
insurance, real estate and business services are likely to grow by 8.6 per cent during
this fiscal, against 11.7 per cent in the last fiscal. Meanwhile, mining and quarrying is
likely to be slightly better at 0.4 per cent, compared to a negative growth of 0.6 per cent
a year ago. Growth in construction is also likely to be 5.9 per cent in 2012-13, against
5.6 per cent last year
3
.
Advance Estimates of GDP at Factor Cost by Economic Activity
(at constant 2004-05 prices)
(Rs. in crore)
Source: Press Information Bureau (PIB) Release on Advance Estimates of National Income dated 7 February 2013
Per Capita Income
The per capita income at current price during 2012-13 is estimated to be
Rs. 68,747 as compared to Rs. 61,564 during 2011-12. India?s per capita income, a
3
Press Information Bureau (PIB) Release on Advance Estimates of National Income dated 7 February 2013
-3-
gauge for measuring living standard, is estimated to have gone up by 11.7 per cent to
Rs. 5729 per month in 2012-13
4
.
Agriculture: In the advance estimate of GDP for 2012-13, the CSO had pegged farm
growth at a three-year low of 1.8 per cent against last year's 3.6 per cent. Production of
foodgrain is expected to decline by 2.8 per cent as compared to the growth of 5.2 per
cent in the previous year.
According to the 2
nd
Advance Estimates of Production of foodgrains for 2012-13,
estimated foodgrain production in the 2012-13 crop marketing year (beginning June) is
250.14 million tonnes (mt), a little over nine mt less than last year owing to erratic
monsoon in many parts of the country.
The output of all crops, barring pulses and mustard, is expected to be less than
last year. Production of wheat in the ongoing rabi sowing season is expected to be 92.3
mt from 94.88 mt in last year. Production of rice, mainly grown during the kharif sowing
season, is estimated to be 101.8 mt from 105.31 mt in last year Coarse cereals'
production in 2012-13 at 38.5 mt, as against 42 mt last year. Production of protein-rich
food crops such as pulses is estimated to be better this year, especially that of gram.
Production of all pulses this year is estimated to be 17.6 mt, about 0.5 mt more than last
year. Oilseed production is expected at 29.5 mt, marginally less than last year's 29.8
mt.
Among cash crops, production of cotton this year is expected to 33.8 million
bales (a bale is 170 kg), about 1.40 mb less than last year. Sugarcane is expected to be
334.5 mt from 361.03 mt in last year. Jute is pegged at 11.13 million bales (a bale is
180 kg) in 2012-13, down from 11.4 million bales last year
5
.
Area Sown
As per reports received from different States, sowing of rabi crops is
progressing well in different parts of the country. Wheat has been sown in 298.19 lakh
4
Ibid
5
India, Department of Agriculture and Cooperation, 2
nd
Advance Estimates as on 8.2.2013
-4-
hectare as compared to 298.61 lakh hectare in rabi 2011. Total sown area stands at
616.75 lakh hectare as on February 2013 against 615.53 lakh hectare last year. While
wheat and rabi rice lag behind last year, pulses, coarse cereals and oilseeds have been
sown in more area than last year. Total rabi sown area crosses 616 Lakh hectares
exceed crop coverage at this time against 615 lakh hectares Last Year
6
.
Industry: Industrial growth has remained subdued since July 2011 due to weak global
demand, weak supply linkages, high import costs, and sluggish investment activities.
During 2012-13 (April to November), industrial growth slowed to 1.0 per cent. The
Industrial sector was mainly affected by the contraction in the output of capital goods
and the mining sector. Excluding capital goods, the growth rate of overall IIP during
April to November 2012 was 3.0 per cent. The slowdown in consumption demand has
affected the growth of motor vehicles, food products and apparel industries.
The subdued growth of the core industries has remained a drag on industrial
production. Policy uncertainties in areas such as iron ore and coal mining have
adversely affected the output of the steel and power industries. The recent initiatives
taken by the government for the allocation of new coal blocks and commencement of
production from Coal India Limited (CIL)?s new coalfields are expected to boost coal
output going forward. However, in the interim, constraints in infrastructure sector
remain
7
.
Growth Rate (in %)
Sector 2007-08 2008-09 2009-10 2010-11 2011-12 Apr-Dec
2011-12
Apr-Dec
2012-13
Coal 6.3 8.0 8.1 -0.2 1.2 -2.7 5.7
Crude Oil 0.4 -1.8 0.5 11.9 1.0 1.9 -0.4
Natural Gas 2.1 1.3 44.6 10.0 -8.9 -8.8 -13.3
Refinery Products 6.5 3.0 -0.4 3.0 3.1 4.0 6.9
Fertilizers -7.9 -3.9 12.7 0.0 0.4 -0.5 -3.4
Steel 6.8 1.9 6.0 13.2 7.0 9.1 3.6
Cement 8.1 7.2 10.5 4.5 6.7 5.8 6.1
Electricity 6.3 2.7 6.2 5.6 8.1 9.3 4.6
Overall Index 5.2 2.8 6.6 6.6 4.4 4.8 3.3
Source: PIB, Ministry of Commerce and Industry, Index of Eight Core Industries, dated 31.1.2013
6
Ibid
7
RBI, Macro Economic and Monetary Development, 3
rd
Quarter Review 2012-13, pp. 4-6
-5-
Growth in eight core infrastructure industries decelerated to 3.3 per cent during
April – December 2012 compared to 4.8 per cent during the corresponding period of the
previous year. While the production of coal, cement and petroleum refinery products
accelerated during the period, it was offset by the deceleration in the production of
electricity and steel
8
.
Coal production recorded a growth of 5.7 per cent during April-December 2012-13
compared to its negative growth at (-) 2.7 per cent during the same period of 2011-12.
Crude Oil production recorded a negative growth of (-) 0.4 per cent during April-
December 2012-13 compared to its growth at 1.9 per cent during the same period of
2011-12. Natural Gas production registered a negative growth of (-) 13.3 per cent
during April-December 2012-13 which was (-) 8.8 per cent during the same period of
2011-12. Petroleum Refinery Products (0.93% of Crude Throughput)* Petroleum
refinery production registered a growth of 6.9 per cent during April-December 2012-13
compared to its 4.0 per cent growth during the same period of 2011-12. Fertilizers
production registered a growth of (-) 3.4% during April-December 2012-13 compared to
its (-) 0.5% growth during the same period of 2011-12. Steel (Alloy +Non-Alloy) Steel
production registered 3.6% growth during April-December 2012-13 compared to its
9.1% growth during the same period of 2011-12. The cumulative growth of Cement
Production was 6.1% during April-December 2012-13 compared to its 5.8% growth
during the same period of 2011-12. Electricity generation decelerated sharply due to a
weak monsoon and shortages in coal supply. The cumulative growth of Electricity
generation was 4.6% during April-December 2012-13 compared to its 9.3% growth
during the same period of 2011-12
9
.
With investment activity remaining subdues, the prospects of a recovery in
industrial growth appear weak. The export channel also plays an important role for
industrial production. The revival of global growth is, therefore, crucial for industrial
recovery in India. There is strong co-movement between domestic and global IIP
10
.
8
Ibid
9
PIB, Ministry of Commerce and Industry, Index of Eight Core Industries, dated 31.1.2013
10
op.cit., 3
rd
Quarter Review 2012-13, p. 6
-6-
External Sector: India?s balance of payments which have deteriorated sharply in 2011-
12, showed some improvement in the first half of 2012-13, the merchandise trade deficit
in the first half of 2012-13 has remained at the same level compared to the first half of
2011-12 as fall in exports due to sluggish global demands almost equally
matched by import ontraction mainly reflecting slow down in domestic economic
activity.
Exports (including re-exports): India?s export performance continued to show the
adverse impact of low growth and uncertainty in the advanced as well as major
emerging markets and developing economies
11
. Cumulative value of exports for the
period April-December 2012 -13 was US $ 214099.77 million (Rs 1166438.69) as
against US $ 226551.09 million (Rs 1066668.31 crore) registering a negative growth of
5.50 per cent in Dollar terms and growth of 9.35 per cent in Rupee terms over the same
period last year
12
.
Imports
Import growth has surged since September 2012, mainly due to a pick-up in the
quantum of petroleum oil lubricant (POL). With the uptrend in the international price of
gold in recent months, gold imports stayed at an elevated level in recent months. On
the other hand, non-oil non-gold imports registered a decline, reflecting a slowdown in
domestic economic activity
13
.
Cumulative value of imports for the period April- December, 2012-13 was US $
361271.88 million (Rs. 1967521.83 crore) as against US $ 363867.81 million (Rs.
1714432.42 crore) registering a negative growth of 0.71 per cent in Dollar terms and
growth of 14.76 per cent in Rupee terms over the same period last year.
Crude Oil and Non-oil Imports
Oil imports during April-December, 2012-13 were valued at US $ 124520.8
11
op.cit, 2
nd
Quarter Review 2012-13, p. 16
12
India, Ministry of Commerce and Industry, Department of Commerce, A Press Release on India?s Foreign Trade
dated 11.1.2013
13
op.cit., 3
rd
Quarter Review 2012-13, p. 17
-7-
million which was 12.18 per cent higher than the oil imports of US $ 111002.9 million in
the corresponding period last year.
Non-oil imports during April - December, 2012-13 were valued at US $ 236751.1
million which was 6.37 per cent lower than the level of such imports valued at
US $ 252864.9 million in April - December, 2011-12
14
.
Trade Balance
With imports growth turning positive from September 2012 and export growth
remaining subdues, concerns regarding a deteriorating trade deficit have been
reinforced. The trade deficit for April - December, 2012-13 was estimated at US $ 147.2
billion which was 7.2% higher than the deficit of US $ 137.3 billion during April -
December, 2011-12.
Policy attempts so far has been to deftly balance the genuine interest of the gold
business, as also the need of the savers to hedge against inflation, against the
overwhelming need to dampen gold imports with a view to preserving current account
and macro-financial stability
15
.
Money
Broad money (M3) for 2012-13 up to January 11, 2013 (Rs. 81,115.7 billion)
increased by 10.2 per cent as compared to 10.5 per cent during the corresponding
period of the last year. The year-on-year growth, as on January 11, 2013 was 12.9 per
cent as compared to 15.7 per cent in the previous year. Reserve money (M
0
) during the
financial year 2012-13 up to January 11, 2013 (Rs. 14,795.4 billion) increased by 3.7
per cent as compared to 5.4 per cent in the corresponding period of the previous year.
The year-on-year variation revealed an increase of 2.0 per cent (as on January 11,
2013), compared to 12.7 per cent on the January 13 of the previous year
16
.
14
op.cit., A Press Release on India?s Foreign Trade dated 11.1.2013
15
op.cit., 3
rd
Quarter Review 2012-13, p. 17
16
RBI Monthly Bulletin, February 2013, p. 38
-8-
Inflation
The inflation decelerated to 7.7 per cent in first half of (April-September) of 2012-
13. WPI inflation was 8.07 per cent in September 2012, which was 8.01 per cent in
August 2012. It has fallen to 7.32 per cent in October 2012, 7.24 per cent in November,
7.18 per cent December 2012
17
and stood at 6.62 (provisional) for the month of January
2013
18
.
Exchange Rate
Slowdown in net capital inflows coupled with pressure in trade account balance
strained the exchange rate leading to depreciation of Rupee from Rs. 52.7 (per USD) at
end-September 2012 to Rs. 54.5 at end-November 2012. Pressure on Rupee continued
in December and it closed at Rs. 54.8 at end-December 2012
19
. As on January 23,
2013, the rupee showed lower depreciation over end-March 2012 compared to other
major emerging market developing economies (EMDEs) like Brazil, South Africa and
Argentina
20
.
Foreign Investment Inflow
Foreign Direct Investment (FDI): FDI have declined during 2012-13 for the period
April to December of the current fiscal, the inflows have been $16,946 million which
were $29, 277 million during April to December 2011
21
.
Foreign Institutional Investors (FII): During 2012-13 (upto January 23, 2013), FII?s
made net investments of Rs. 1,190 billion in the capital market compared with that of
Rs. 520 billion during the corresponding period in the previous year
22
.
Central Government Finances
According to the data released by the Controller General of Accounts, during
April to December 2012, fiscal deficit was 78.8% of the budget estimates substantially
17
India, Ministry of Finance, Mid-Year Economic Analysis, 2012-13
18
PIB Release of Ministry of Commerce and Industry dated 14.1.2013 and 14.3.2013
19
India, Ministry of Finance, Public Debt Management, October to December 2012, p. 4
20
RBI, Monthly Bulletin, February 2013, p. 47
21
India, Ministry of Commerce and Industry, A Fact Sheet on Foreign Direct Investment
22
op.cit., RBI, Monthly Bulletin, p. 48
-9-
better than 92.3% in the same period last fiscal. Fiscal deficit stood at Rs 4.04 lakh
crore during April-December, 2012-13. The government?s total expenditure in the first
nine months of the current fiscal 2012-13 stood at 66.5% of the budget estimate as
against 71.3% in the corresponding period previous during 2011-12. The government?s
plan expenditure also squeezed and stood at 56.8% of the budget estimate in the period
under review as against 62.7% in April-December, 2011-12. Non-plan spending was
also marginally lower than the previous fiscal at 71.7% of the budget estimate in first
nine months of the current fiscal compared to 75.9% in the last fiscal
23
.
Revenue collections remained sluggish at 61 per cent of budget estimates during
April-December 2012 (63.1 per cent in the previous year). The growth in collection of
corporation tax and excise duties remained modest due to continued growth
moderation, while customs duty collections were adversely impacted, reflecting the
deceleration in imports. Collections under personal income tax, however, remained
buoyant partly due to lower refunds compared to previous year. Non-tax revenue
receipts, at 52.5 per cent of budget estimates, were also significantly lower than the
receipts of 62.2 per cent during the corresponding period of the previous year due to the
poor response to spectrum auction and the reported staggering of auction receipts.
During April-December 2012, the total expenditure of the government was lower
at 66.5 per cent of the budget estimates (71.3 per cent in the previous year). The total
expenditure of the government during 2012-13, however, is likely to exceed budget
estimates mainly on account of non-plan revenue expenditure
24
.
Various measures undertaken by the Government since mid-September,
including liberalisation of FDI in retail, aviation, broadcasting and insurance, deferment
of general anti-avoidance rules (GAAR), reduction in withholding tax on overseas
borrowings by domestic companies and setting up of the Cabinet Committee on
Investment have significantly lifted market sentiment which, in due course, should spur
investment. Alongside, measures such as progressive deregulation of administered fuel
prices, with concerted efforts to adhere to fiscal discipline and carry forward
consolidation can potentially correct the twin deficits. These policy actions could help
23
India, Comptroller General of Accounts, Union Government Accounts at a Glance
24
op.cit., 3
rd
Quarter Review 2012-13, pp. 13-14
-10-
engender stable macroeconomic conditions and return the economy to its high growth
trajectory. Further reforms to raise productivity, improve competitiveness and manage
the supply constraints, including augmenting energy availability, are crucial for raising
the potential growth path in the medium-term.
Global Economic Situation and Prospects
As per The United Nation?s World Economic Situation and Prospects (WESP),
2013 report, four years after the eruption of the global financial crisis, the global
economy is still struggling to recover. During 2012, growth of the world economy has
weakened further. The global economy is expected to grow at 2.2 per cent in 2012, at
2.4 per cent in 2013 and 3.2 per cent in 2014.
Weaknesses in the major developed economies are at the root of the global
economic slowdown. The report stresses that most of them, but particularly those in
Europe, are trapped in a vicious cycle of high unemployment, financial sector fragility,
heightened sovereign risks, fiscal austerity and low growth. Several European
economies and the euro zone as a whole are already in recession, and euro zone
unemployment increased further to a record high of almost 12 per cent this year. The
US economy slowed significantly during 2012 and growth is expected to remain meager
at 1.7 per cent in 2013. Deflationary conditions continue to prevail in Japan. The
economic woes in Europe, Japan and the United States are spilling over to developing
countries through weaker demand for their exports and heightened volatility in capital
flows and commodity prices.
Economies in developing Asia have weakened considerably during 2012, as the
region?s growth engines, China and India, have shifted into lower gear. While a
significant deceleration in exports has been a key factor behind the slowdown, both
economies also face a number of structural challenges that hamper growth. Given
persistent inflationary pressures and large fiscal deficits, the scope for policy stimulus in
India and other South Asian countries is limited. China and many East Asian
economies, in contrast, possess much greater space for countercyclical policy.
-11-
According to the report, present policy stances fall short of what is needed to
spur economic recovery and address the jobs crisis. While policy efforts have been
significant, especially in the euro zone, in trying to redress sovereign debt distress, the
combination of fiscal austerity and expansionary monetary policies has had mixed
success so far in calming financial markets and even less so in strengthening economic
growth and job creation.
It is essential to change course in fiscal policy, the UN report says, and shift the
focus from short-term consolidation to robust economic growth with medium to long-
term fiscal sustainability. Premature fiscal austerity should be avoided and, while
necessary, fiscal consolidation should focus on medium-term, rather than short-term
adjustment.
The report stresses that the reorientation of fiscal policies should be
internationally coordinated and aligned with structural policies that support direct job
creation and green growth. It further recommends that monetary policies be better
coordinated internationally and regulatory reforms of financial sectors be accelerated in
order to stem exchange rate and capital flow volatility, which pose risks to the economic
prospects of developing countries. There is also a need to secure sufficient
development assistance to help the poorest nations accelerate progress towards
poverty reduction goals and invest in sustainable development.
As per the report, the prospects for the next two years continue to be
challenging. A worsening of the Euro area crisis, the fiscal cliff in the USA and a hard
lending in China could cause a new global crisis.
Implications for India of Global Risk Scenarios
According to the IMF Staff Report “India 2013 Article IV Consultation”, a
continued or broadened stagnation in global growth would weigh heavily on Indian
growth. India?s diversified trade patterns would not insulate it from global stagnation.
India?s growth, though not as export-dependent as that of Emerging Markets (EMs) in
other regions, would remain sluggish. IMF?s staff estimates indicate that for every
percentage point of lower global growth, India?s growth would be 0.5 percentage point
-12-
lower. The current account deficit would widen slightly due to growth differentials, while
slower growth would weigh heavily on India?s large fiscal deficit.
The impact of a euro area crisis would likely be similar to that of the global
financial crisis, but the quick rebound of 2009 is unlikely, given the weaker
macroeconomic environment and more constrained policy space. Given India?s greater
dependence on capital inflows compared to countries in the region, the financial
channel would have strong negative effects. The growth effect, mostly through the effect
of financing constraints on investment, would be large compared to regional EM peers,
weighing on the fiscal deficit, though import compression due to financing constraints
would likely bring down the current account deficit.
Prospects for Indian Economy in 2013-2014
A slow recovery is likely to shape up in 2013-14 with progressive implementation
of some of the reforms announced since mid-September 2012. These include, inter alia,
liberalisation of FDI in multi-brand retail, amendment of the Banking Regulation Act and
the setting up of the Cabinet Committee on Investments chaired by the Prime Minister
to expedite decisions on approvals/clearances for implementation of mega projects. The
setting up of debt funds to provide long-term resources for infrastructure projects would
help in reducing financing constraints currently facing the sector. Financing is also
expected to improve with the government accepting the major recommendations of the
Expert Committee on General Anti-Avoidance Rules (GAAR) that will bring about
greater clarity on taxation aspects. Global risks may have temporarily reduced in terms
of part resolution of the US „fiscal cliff? issues and financial fragility issues in the euro
area. However, going forward the euro area risks remain significant, as key economies
in the region are contracting. In this milieu, it is imperative that reform measures
continue to be executed efficiently and domestic inflation recedes further, to support
sustainable recovery in India
25
.
25
op.cit., 3
rd
Quarter Review 2012-13, p.20
doc_985155725.pdf
After a promising start to the decade in 2010-11 with achievement like GDP growth of 8.4 per cent, bringing down fiscal deficit to 4.7 per cent from 6.4 of GDP in 2009-10, as well as containing current account deficit to 2.6 per cent from 2.8 per cent in 2009-10.
LOK SABHA SECRETARIAT
PARLIAMENT LIBRARY AND REFERENCE, RESEARCH, DOCUMENTATION
AND INFORMATION SERVICE (LARRDIS)
MEMBERS’ REFERENCE SERVICE
REFERENCE NOTE .
No.5/RN/Ref./2013
For the use of Members of Parliament Not for Publication
Current Economic Scenario
-----------------------------------------------------------------------------------------------------------------------
The reference material is for personal use of the Members in the discharge of their Parliamentary duties, and
is not for publication. This Service is not to be quoted as the source of the information as it is based on the
sources indicated at the end/in the text. This Service does not accept any responsibility for the accuracy or
veracity of the information or views contained in the note/collection.
Contents
1 Introduction 1
2. Economy in 2012-13 1
? GDP Growth Profile 1
? Per Capita Income 2
? Agriculture 3
? Industry 4
? External Sector 6
? Money 7
? Inflation 8
? Exchange Rate 8
? Foreign Investment Inflows 8
3. Central government?s Finances 8
4. Global Economic Situation and Prospects 10
5. Implication for India of Global Risk Scenarios 11
6. Prospects for Indian Economy in 2013-14 12
Current Economic Scenario
Introduction
After a promising start to the decade in 2010-11 with achievement like GDP
growth of 8.4 per cent, bringing down fiscal deficit to 4.7 per cent from 6.4 of GDP in
2009-10, as well as containing current account deficit to 2.6 per cent from 2.8 per cent
in 2009-10. GDP growth decelerated sharply to a nine year low of 6.5 per cent during
2011-12.
The slow down was reflected in all sectors of the economy but the industrial
sector suffered the sharpest deceleration which decelerated to 2.9 per cent during
2011-12 from 8.2 per cent in 2010-11. The centre?s finances for 2011-12 experienced
considerable slippage as key deficit indicators turned out to be much higher than
budgeted due to shortfall in tax revenues and overshooting of expenditure. The gross
fiscal deficit (GFD)-GDP ratio moved up to 5.8 per cent in 2011-12 compared to the
budgeted ratio of 4.6 per cent. The substantial increase in subsidies during 2011-12 on
account of high crude oil prices further impacted the deficit of the Government.
The year 2011-12, especially the second half, was characterised by a burgeoning
current account deficit (CAD), subdued equity inflows, depletion of foreign exchange
reserves, rising external debt and deteriorating international investment position
1
.
Inflation remained elevated at over 9 per cent in the first eight months of 2011-12,
before softening moderately in December and remained sticky in the range of 6.9-7.7
per cent
2
.
Economy in 2012-13
GDP Growth Profile: According to the first advance estimates of national income for
the year 2012-13 of the Central Statistics Office (CSO), the Indian economy is expected
to grow at its slowest pace in a decade at a mere 5 per cent in 2012-13, on the back of
dismal performance by the farm, manufacturing and services sectors, The estimate is
1
Reserve Bank of India (RBI), Annual Report 2011-12, p. 58, 66
2
Ibid, p. 31
-2-
lower than the 6.2 per cent growth clocked in 2011-12 and is the lowest since 2002-03,
when the economy grew by 4 per cent only
According to the CSO?s advance estimates, the growth in agriculture and allied
activities are likely to lowered to 1.8 per cent in 2012-13, compared to 3.6 per cent in
2011-12 and manufacturing growth is also expected to drop to 1.9 per cent in this fiscal,
from 2.7 per cent achieved during the last year. Services sector, including finance,
insurance, real estate and business services are likely to grow by 8.6 per cent during
this fiscal, against 11.7 per cent in the last fiscal. Meanwhile, mining and quarrying is
likely to be slightly better at 0.4 per cent, compared to a negative growth of 0.6 per cent
a year ago. Growth in construction is also likely to be 5.9 per cent in 2012-13, against
5.6 per cent last year
3
.
Advance Estimates of GDP at Factor Cost by Economic Activity
(at constant 2004-05 prices)
(Rs. in crore)
Source: Press Information Bureau (PIB) Release on Advance Estimates of National Income dated 7 February 2013
Per Capita Income
The per capita income at current price during 2012-13 is estimated to be
Rs. 68,747 as compared to Rs. 61,564 during 2011-12. India?s per capita income, a
3
Press Information Bureau (PIB) Release on Advance Estimates of National Income dated 7 February 2013
-3-
gauge for measuring living standard, is estimated to have gone up by 11.7 per cent to
Rs. 5729 per month in 2012-13
4
.
Agriculture: In the advance estimate of GDP for 2012-13, the CSO had pegged farm
growth at a three-year low of 1.8 per cent against last year's 3.6 per cent. Production of
foodgrain is expected to decline by 2.8 per cent as compared to the growth of 5.2 per
cent in the previous year.
According to the 2
nd
Advance Estimates of Production of foodgrains for 2012-13,
estimated foodgrain production in the 2012-13 crop marketing year (beginning June) is
250.14 million tonnes (mt), a little over nine mt less than last year owing to erratic
monsoon in many parts of the country.
The output of all crops, barring pulses and mustard, is expected to be less than
last year. Production of wheat in the ongoing rabi sowing season is expected to be 92.3
mt from 94.88 mt in last year. Production of rice, mainly grown during the kharif sowing
season, is estimated to be 101.8 mt from 105.31 mt in last year Coarse cereals'
production in 2012-13 at 38.5 mt, as against 42 mt last year. Production of protein-rich
food crops such as pulses is estimated to be better this year, especially that of gram.
Production of all pulses this year is estimated to be 17.6 mt, about 0.5 mt more than last
year. Oilseed production is expected at 29.5 mt, marginally less than last year's 29.8
mt.
Among cash crops, production of cotton this year is expected to 33.8 million
bales (a bale is 170 kg), about 1.40 mb less than last year. Sugarcane is expected to be
334.5 mt from 361.03 mt in last year. Jute is pegged at 11.13 million bales (a bale is
180 kg) in 2012-13, down from 11.4 million bales last year
5
.
Area Sown
As per reports received from different States, sowing of rabi crops is
progressing well in different parts of the country. Wheat has been sown in 298.19 lakh
4
Ibid
5
India, Department of Agriculture and Cooperation, 2
nd
Advance Estimates as on 8.2.2013
-4-
hectare as compared to 298.61 lakh hectare in rabi 2011. Total sown area stands at
616.75 lakh hectare as on February 2013 against 615.53 lakh hectare last year. While
wheat and rabi rice lag behind last year, pulses, coarse cereals and oilseeds have been
sown in more area than last year. Total rabi sown area crosses 616 Lakh hectares
exceed crop coverage at this time against 615 lakh hectares Last Year
6
.
Industry: Industrial growth has remained subdued since July 2011 due to weak global
demand, weak supply linkages, high import costs, and sluggish investment activities.
During 2012-13 (April to November), industrial growth slowed to 1.0 per cent. The
Industrial sector was mainly affected by the contraction in the output of capital goods
and the mining sector. Excluding capital goods, the growth rate of overall IIP during
April to November 2012 was 3.0 per cent. The slowdown in consumption demand has
affected the growth of motor vehicles, food products and apparel industries.
The subdued growth of the core industries has remained a drag on industrial
production. Policy uncertainties in areas such as iron ore and coal mining have
adversely affected the output of the steel and power industries. The recent initiatives
taken by the government for the allocation of new coal blocks and commencement of
production from Coal India Limited (CIL)?s new coalfields are expected to boost coal
output going forward. However, in the interim, constraints in infrastructure sector
remain
7
.
Growth Rate (in %)
Sector 2007-08 2008-09 2009-10 2010-11 2011-12 Apr-Dec
2011-12
Apr-Dec
2012-13
Coal 6.3 8.0 8.1 -0.2 1.2 -2.7 5.7
Crude Oil 0.4 -1.8 0.5 11.9 1.0 1.9 -0.4
Natural Gas 2.1 1.3 44.6 10.0 -8.9 -8.8 -13.3
Refinery Products 6.5 3.0 -0.4 3.0 3.1 4.0 6.9
Fertilizers -7.9 -3.9 12.7 0.0 0.4 -0.5 -3.4
Steel 6.8 1.9 6.0 13.2 7.0 9.1 3.6
Cement 8.1 7.2 10.5 4.5 6.7 5.8 6.1
Electricity 6.3 2.7 6.2 5.6 8.1 9.3 4.6
Overall Index 5.2 2.8 6.6 6.6 4.4 4.8 3.3
Source: PIB, Ministry of Commerce and Industry, Index of Eight Core Industries, dated 31.1.2013
6
Ibid
7
RBI, Macro Economic and Monetary Development, 3
rd
Quarter Review 2012-13, pp. 4-6
-5-
Growth in eight core infrastructure industries decelerated to 3.3 per cent during
April – December 2012 compared to 4.8 per cent during the corresponding period of the
previous year. While the production of coal, cement and petroleum refinery products
accelerated during the period, it was offset by the deceleration in the production of
electricity and steel
8
.
Coal production recorded a growth of 5.7 per cent during April-December 2012-13
compared to its negative growth at (-) 2.7 per cent during the same period of 2011-12.
Crude Oil production recorded a negative growth of (-) 0.4 per cent during April-
December 2012-13 compared to its growth at 1.9 per cent during the same period of
2011-12. Natural Gas production registered a negative growth of (-) 13.3 per cent
during April-December 2012-13 which was (-) 8.8 per cent during the same period of
2011-12. Petroleum Refinery Products (0.93% of Crude Throughput)* Petroleum
refinery production registered a growth of 6.9 per cent during April-December 2012-13
compared to its 4.0 per cent growth during the same period of 2011-12. Fertilizers
production registered a growth of (-) 3.4% during April-December 2012-13 compared to
its (-) 0.5% growth during the same period of 2011-12. Steel (Alloy +Non-Alloy) Steel
production registered 3.6% growth during April-December 2012-13 compared to its
9.1% growth during the same period of 2011-12. The cumulative growth of Cement
Production was 6.1% during April-December 2012-13 compared to its 5.8% growth
during the same period of 2011-12. Electricity generation decelerated sharply due to a
weak monsoon and shortages in coal supply. The cumulative growth of Electricity
generation was 4.6% during April-December 2012-13 compared to its 9.3% growth
during the same period of 2011-12
9
.
With investment activity remaining subdues, the prospects of a recovery in
industrial growth appear weak. The export channel also plays an important role for
industrial production. The revival of global growth is, therefore, crucial for industrial
recovery in India. There is strong co-movement between domestic and global IIP
10
.
8
Ibid
9
PIB, Ministry of Commerce and Industry, Index of Eight Core Industries, dated 31.1.2013
10
op.cit., 3
rd
Quarter Review 2012-13, p. 6
-6-
External Sector: India?s balance of payments which have deteriorated sharply in 2011-
12, showed some improvement in the first half of 2012-13, the merchandise trade deficit
in the first half of 2012-13 has remained at the same level compared to the first half of
2011-12 as fall in exports due to sluggish global demands almost equally
matched by import ontraction mainly reflecting slow down in domestic economic
activity.
Exports (including re-exports): India?s export performance continued to show the
adverse impact of low growth and uncertainty in the advanced as well as major
emerging markets and developing economies
11
. Cumulative value of exports for the
period April-December 2012 -13 was US $ 214099.77 million (Rs 1166438.69) as
against US $ 226551.09 million (Rs 1066668.31 crore) registering a negative growth of
5.50 per cent in Dollar terms and growth of 9.35 per cent in Rupee terms over the same
period last year
12
.
Imports
Import growth has surged since September 2012, mainly due to a pick-up in the
quantum of petroleum oil lubricant (POL). With the uptrend in the international price of
gold in recent months, gold imports stayed at an elevated level in recent months. On
the other hand, non-oil non-gold imports registered a decline, reflecting a slowdown in
domestic economic activity
13
.
Cumulative value of imports for the period April- December, 2012-13 was US $
361271.88 million (Rs. 1967521.83 crore) as against US $ 363867.81 million (Rs.
1714432.42 crore) registering a negative growth of 0.71 per cent in Dollar terms and
growth of 14.76 per cent in Rupee terms over the same period last year.
Crude Oil and Non-oil Imports
Oil imports during April-December, 2012-13 were valued at US $ 124520.8
11
op.cit, 2
nd
Quarter Review 2012-13, p. 16
12
India, Ministry of Commerce and Industry, Department of Commerce, A Press Release on India?s Foreign Trade
dated 11.1.2013
13
op.cit., 3
rd
Quarter Review 2012-13, p. 17
-7-
million which was 12.18 per cent higher than the oil imports of US $ 111002.9 million in
the corresponding period last year.
Non-oil imports during April - December, 2012-13 were valued at US $ 236751.1
million which was 6.37 per cent lower than the level of such imports valued at
US $ 252864.9 million in April - December, 2011-12
14
.
Trade Balance
With imports growth turning positive from September 2012 and export growth
remaining subdues, concerns regarding a deteriorating trade deficit have been
reinforced. The trade deficit for April - December, 2012-13 was estimated at US $ 147.2
billion which was 7.2% higher than the deficit of US $ 137.3 billion during April -
December, 2011-12.
Policy attempts so far has been to deftly balance the genuine interest of the gold
business, as also the need of the savers to hedge against inflation, against the
overwhelming need to dampen gold imports with a view to preserving current account
and macro-financial stability
15
.
Money
Broad money (M3) for 2012-13 up to January 11, 2013 (Rs. 81,115.7 billion)
increased by 10.2 per cent as compared to 10.5 per cent during the corresponding
period of the last year. The year-on-year growth, as on January 11, 2013 was 12.9 per
cent as compared to 15.7 per cent in the previous year. Reserve money (M
0
) during the
financial year 2012-13 up to January 11, 2013 (Rs. 14,795.4 billion) increased by 3.7
per cent as compared to 5.4 per cent in the corresponding period of the previous year.
The year-on-year variation revealed an increase of 2.0 per cent (as on January 11,
2013), compared to 12.7 per cent on the January 13 of the previous year
16
.
14
op.cit., A Press Release on India?s Foreign Trade dated 11.1.2013
15
op.cit., 3
rd
Quarter Review 2012-13, p. 17
16
RBI Monthly Bulletin, February 2013, p. 38
-8-
Inflation
The inflation decelerated to 7.7 per cent in first half of (April-September) of 2012-
13. WPI inflation was 8.07 per cent in September 2012, which was 8.01 per cent in
August 2012. It has fallen to 7.32 per cent in October 2012, 7.24 per cent in November,
7.18 per cent December 2012
17
and stood at 6.62 (provisional) for the month of January
2013
18
.
Exchange Rate
Slowdown in net capital inflows coupled with pressure in trade account balance
strained the exchange rate leading to depreciation of Rupee from Rs. 52.7 (per USD) at
end-September 2012 to Rs. 54.5 at end-November 2012. Pressure on Rupee continued
in December and it closed at Rs. 54.8 at end-December 2012
19
. As on January 23,
2013, the rupee showed lower depreciation over end-March 2012 compared to other
major emerging market developing economies (EMDEs) like Brazil, South Africa and
Argentina
20
.
Foreign Investment Inflow
Foreign Direct Investment (FDI): FDI have declined during 2012-13 for the period
April to December of the current fiscal, the inflows have been $16,946 million which
were $29, 277 million during April to December 2011
21
.
Foreign Institutional Investors (FII): During 2012-13 (upto January 23, 2013), FII?s
made net investments of Rs. 1,190 billion in the capital market compared with that of
Rs. 520 billion during the corresponding period in the previous year
22
.
Central Government Finances
According to the data released by the Controller General of Accounts, during
April to December 2012, fiscal deficit was 78.8% of the budget estimates substantially
17
India, Ministry of Finance, Mid-Year Economic Analysis, 2012-13
18
PIB Release of Ministry of Commerce and Industry dated 14.1.2013 and 14.3.2013
19
India, Ministry of Finance, Public Debt Management, October to December 2012, p. 4
20
RBI, Monthly Bulletin, February 2013, p. 47
21
India, Ministry of Commerce and Industry, A Fact Sheet on Foreign Direct Investment
22
op.cit., RBI, Monthly Bulletin, p. 48
-9-
better than 92.3% in the same period last fiscal. Fiscal deficit stood at Rs 4.04 lakh
crore during April-December, 2012-13. The government?s total expenditure in the first
nine months of the current fiscal 2012-13 stood at 66.5% of the budget estimate as
against 71.3% in the corresponding period previous during 2011-12. The government?s
plan expenditure also squeezed and stood at 56.8% of the budget estimate in the period
under review as against 62.7% in April-December, 2011-12. Non-plan spending was
also marginally lower than the previous fiscal at 71.7% of the budget estimate in first
nine months of the current fiscal compared to 75.9% in the last fiscal
23
.
Revenue collections remained sluggish at 61 per cent of budget estimates during
April-December 2012 (63.1 per cent in the previous year). The growth in collection of
corporation tax and excise duties remained modest due to continued growth
moderation, while customs duty collections were adversely impacted, reflecting the
deceleration in imports. Collections under personal income tax, however, remained
buoyant partly due to lower refunds compared to previous year. Non-tax revenue
receipts, at 52.5 per cent of budget estimates, were also significantly lower than the
receipts of 62.2 per cent during the corresponding period of the previous year due to the
poor response to spectrum auction and the reported staggering of auction receipts.
During April-December 2012, the total expenditure of the government was lower
at 66.5 per cent of the budget estimates (71.3 per cent in the previous year). The total
expenditure of the government during 2012-13, however, is likely to exceed budget
estimates mainly on account of non-plan revenue expenditure
24
.
Various measures undertaken by the Government since mid-September,
including liberalisation of FDI in retail, aviation, broadcasting and insurance, deferment
of general anti-avoidance rules (GAAR), reduction in withholding tax on overseas
borrowings by domestic companies and setting up of the Cabinet Committee on
Investment have significantly lifted market sentiment which, in due course, should spur
investment. Alongside, measures such as progressive deregulation of administered fuel
prices, with concerted efforts to adhere to fiscal discipline and carry forward
consolidation can potentially correct the twin deficits. These policy actions could help
23
India, Comptroller General of Accounts, Union Government Accounts at a Glance
24
op.cit., 3
rd
Quarter Review 2012-13, pp. 13-14
-10-
engender stable macroeconomic conditions and return the economy to its high growth
trajectory. Further reforms to raise productivity, improve competitiveness and manage
the supply constraints, including augmenting energy availability, are crucial for raising
the potential growth path in the medium-term.
Global Economic Situation and Prospects
As per The United Nation?s World Economic Situation and Prospects (WESP),
2013 report, four years after the eruption of the global financial crisis, the global
economy is still struggling to recover. During 2012, growth of the world economy has
weakened further. The global economy is expected to grow at 2.2 per cent in 2012, at
2.4 per cent in 2013 and 3.2 per cent in 2014.
Weaknesses in the major developed economies are at the root of the global
economic slowdown. The report stresses that most of them, but particularly those in
Europe, are trapped in a vicious cycle of high unemployment, financial sector fragility,
heightened sovereign risks, fiscal austerity and low growth. Several European
economies and the euro zone as a whole are already in recession, and euro zone
unemployment increased further to a record high of almost 12 per cent this year. The
US economy slowed significantly during 2012 and growth is expected to remain meager
at 1.7 per cent in 2013. Deflationary conditions continue to prevail in Japan. The
economic woes in Europe, Japan and the United States are spilling over to developing
countries through weaker demand for their exports and heightened volatility in capital
flows and commodity prices.
Economies in developing Asia have weakened considerably during 2012, as the
region?s growth engines, China and India, have shifted into lower gear. While a
significant deceleration in exports has been a key factor behind the slowdown, both
economies also face a number of structural challenges that hamper growth. Given
persistent inflationary pressures and large fiscal deficits, the scope for policy stimulus in
India and other South Asian countries is limited. China and many East Asian
economies, in contrast, possess much greater space for countercyclical policy.
-11-
According to the report, present policy stances fall short of what is needed to
spur economic recovery and address the jobs crisis. While policy efforts have been
significant, especially in the euro zone, in trying to redress sovereign debt distress, the
combination of fiscal austerity and expansionary monetary policies has had mixed
success so far in calming financial markets and even less so in strengthening economic
growth and job creation.
It is essential to change course in fiscal policy, the UN report says, and shift the
focus from short-term consolidation to robust economic growth with medium to long-
term fiscal sustainability. Premature fiscal austerity should be avoided and, while
necessary, fiscal consolidation should focus on medium-term, rather than short-term
adjustment.
The report stresses that the reorientation of fiscal policies should be
internationally coordinated and aligned with structural policies that support direct job
creation and green growth. It further recommends that monetary policies be better
coordinated internationally and regulatory reforms of financial sectors be accelerated in
order to stem exchange rate and capital flow volatility, which pose risks to the economic
prospects of developing countries. There is also a need to secure sufficient
development assistance to help the poorest nations accelerate progress towards
poverty reduction goals and invest in sustainable development.
As per the report, the prospects for the next two years continue to be
challenging. A worsening of the Euro area crisis, the fiscal cliff in the USA and a hard
lending in China could cause a new global crisis.
Implications for India of Global Risk Scenarios
According to the IMF Staff Report “India 2013 Article IV Consultation”, a
continued or broadened stagnation in global growth would weigh heavily on Indian
growth. India?s diversified trade patterns would not insulate it from global stagnation.
India?s growth, though not as export-dependent as that of Emerging Markets (EMs) in
other regions, would remain sluggish. IMF?s staff estimates indicate that for every
percentage point of lower global growth, India?s growth would be 0.5 percentage point
-12-
lower. The current account deficit would widen slightly due to growth differentials, while
slower growth would weigh heavily on India?s large fiscal deficit.
The impact of a euro area crisis would likely be similar to that of the global
financial crisis, but the quick rebound of 2009 is unlikely, given the weaker
macroeconomic environment and more constrained policy space. Given India?s greater
dependence on capital inflows compared to countries in the region, the financial
channel would have strong negative effects. The growth effect, mostly through the effect
of financing constraints on investment, would be large compared to regional EM peers,
weighing on the fiscal deficit, though import compression due to financing constraints
would likely bring down the current account deficit.
Prospects for Indian Economy in 2013-2014
A slow recovery is likely to shape up in 2013-14 with progressive implementation
of some of the reforms announced since mid-September 2012. These include, inter alia,
liberalisation of FDI in multi-brand retail, amendment of the Banking Regulation Act and
the setting up of the Cabinet Committee on Investments chaired by the Prime Minister
to expedite decisions on approvals/clearances for implementation of mega projects. The
setting up of debt funds to provide long-term resources for infrastructure projects would
help in reducing financing constraints currently facing the sector. Financing is also
expected to improve with the government accepting the major recommendations of the
Expert Committee on General Anti-Avoidance Rules (GAAR) that will bring about
greater clarity on taxation aspects. Global risks may have temporarily reduced in terms
of part resolution of the US „fiscal cliff? issues and financial fragility issues in the euro
area. However, going forward the euro area risks remain significant, as key economies
in the region are contracting. In this milieu, it is imperative that reform measures
continue to be executed efficiently and domestic inflation recedes further, to support
sustainable recovery in India
25
.
25
op.cit., 3
rd
Quarter Review 2012-13, p.20
doc_985155725.pdf