Economie et Commerce

India Macro Newsletter March, 2013

This review has been put together by Ms Pranjul Bhandari, Economist, Office of the Chief Economic Adviser and Ms Archana Naresh, OSD to Secretary, Economic Affairs. We would like to thank Dr. Arvind Mayaram, Secretary, Economic Affairs and Dr. Raghuram Rajan, Chief Economic Adviser, for their comments and valuable suggestions.

I. Macro-Economic Review

GDP Growth –

Growth in several activity indicators have improved since the first half of 2012-13. The production of capital goods has been rising over the last few months. While production and sales of consumer durable goods have been weak, production of consumer non-durable continue to be robust. The government has taken several important steps to kick-start the investment cycle such as clearing big-ticket projects through the Cabinet Committee on Investments (CCI) channel and providing investment sops in the budget. These are likely to show up in real activity data over 2013-14. Advance estimates of the winter agricultural crop are promising, especially for wheat and pulses.

(page 2)

Inflation –

Inflation has been declining across its different measures – Wholesale Price Index (WPI) inflation, Consumer Price Index (CPI) inflation and Purchasing Managers Index (PMI) input and output prices. WPI inflation has fallen considerably to 5.96 per cent in March, 2013 from 7.69 per cent in March, 2012. The non-food manufacturing component of the WPI, has fallen to an almost 40 month low of 3.48 per cent in March, 2013. After a hiatus of five months, CPI inflation has also moderated, and is likely to fall further over the next few months.

(page 5)

Fiscal Performance

– The revised estimate for the Central Government fiscal deficit is 5.2 per cent of GDP in 2012-13, lower than 5.7 per cent of GDP a year earlier. The Government has pegged its fiscal deficit estimate at 4.8 per cent of GDP for 2013-14, in line with the fiscal consolidation roadmap it had outlined last year. This is expected to come from higher tax surcharges, a one-time voluntary compliance scheme for service tax dues, increase in indirect tax on select goods and revenues from disinvestments and spectrum sales. On expenditure side, substantial savings are expected from cutting the subsidy bill, especially fuel subsidy. The split of expenditure has moved from non-plan towards the more growth enhancing plan expenditure.

(page 6)

External Sector and Trade –

The Current Account Deficit (CAD) surged to 6.7 per cent of GDP in the October to December, 2012 quarter led primarily by a sharp increase in merchandise imports, mainly gold and oil. Looking ahead, we expect some moderation in the CAD considering - the monthly merchandise trade deficit for February, 2013 has shown an appreciable decline, gold and oil prices have fallen significantly in April, 2013 and merchandise exports have shown some improvements.

(page 7)

Capital Markets-

An important element supporting India’s growth dynamics has been the significant growth in the foreign capital inflows over the last few years. Several measures have also been taken by the Government recently to encourage the availability of foreign funds for financing infrastructure. Measures have also been taken by Securities & Exchange Board of India (SEBI) and the RBI to remove regulatory hurdles and promote the growth of corporate bond markets.

(page 8)

Monthly Economic Review March, 2013


1. GDP Growth

The World Economic Outlook (WEO) points out that global economic prospects have improved but the road to recovery in the advanced economies will remain bumpy. Global growth for 2013 is now projected at 3.4 per cent which is weaker than the earlier projection of 3.5 per cent. Growth in advanced economies is projected to rise marginally in the second half of 2013 and further in 2014. Emerging and Developing Economies (EDEs) are now witnessing higher growth. GDP growth in EDEs is expected to improve from 5.2 per cent in 2012 to 5.4 per cent in 2013 and further to 5.9 per cent in 2014. In India, the GDP growth is expected to pick up from 4.5 per cent in 2012 to 5.9 per cent in 2013 and further to 6.4 per cent in 2014.

The Economic Survey 2012-13 estimates GDP growth rates to be in the range of 6.1 to 6.7 per cent in 2013-14.

The Government is making concerted efforts to boost economic growth by containing the fiscal deficit, keeping current account deficit and inflation under check and by channelizing savings and increasing investments.

Indeed, as this edition of the Newsletter will further elaborate, the fiscal deficit has fallen in line with the consolidation path outlined last year, inflation has fallen to below 6 per cent in March, 2013 and there are indications that the current account deficit will moderate over the next few months.

Activity indicators seem better than they were in the first half of 2012-13, despite a few festival demand induced upticks showing some reversal.

Current trends across sectors are discussed below –

i. Agriculture – Advance estimates of the production of food grains for 2012-13 are promising

The second advanced estimates of production of food grains for 2012-13 released by the Ministry of Agriculture project total food grains at 250 million tonnes (approximately).

The second advance estimate of the winter Rabi crop suggests a wheat output higher than last year’s bumper crop and

pulses production much higher than last year’s estimates.

While October-December, 2012 agricultural GDP was depressed due to poor monsoons of 2012,

the good Rabi crop is likely to show up in the January-March, 2013 and April-June, 2013 quarters.

Monthly Economic Review March, 2013


2011-12 2011-12 2012-13 2nd Adv Est Final Est 2nd Adv Est Rice Kharif 90.2 92.8 90.7 Rabi 12.6 12.6 11.1 Total 102.8 105.3 101.8 Wheat Rabi 88.3 94.9 92.3 Cereals Kharif 122.0 125.2 119.2 Rabi 111.1 117.0 113.4 Total 233.1 242.2 232.6 Total Pulses Kharif 6.4 6.1 5.5 Rabi 10.9 11.0 12.1 Total 17.3 17.1 17.6 Total Foodgrains Kharif 128.4 131.3 124.7 Rabi 122.0 128.1 125.5 Total 250.4 259.3 250.2 mln tonnes

Source: Ministry of Agriculture

ii. Industrial growth is better than in the first half of 2012-13. Capital goods index has shown a sharp uptick.

The Index of Industrial Production (IIP) registered a growth of 0.6 per cent (year-on-year) during February, 2013. More importantly, on a month-on-month basis, the IIP has grown at a faster 6 per cent annualized, seasonally adjusted, over the last three months. As per the use based classification index, the capital goods index has shown positive growth for five consecutive months.

198 218 238 258 278 298 318 Volatile Capital IIP Index Seasonally adjusted smoothed Capital Goods IIP Index* Index Note: The original IP Index is very volatile. To read through the noise, we first seasonally adjust the series and then take a 3-month moving average Underlying Momentum of the Capital Goods IIP

Source: Central Statistical Organization, CEIC

The seasonally adjusted HSBC Purchasing Managers Index (PMI) which is a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy continues to be expansionary at 52 in March, 2013 indicating an improvement in overall business conditions. While this is lower than 54.2 in February, 2013 it is pertinent to mention that an index reading above 50 indicates an overall expansion whereas below 50 index reading indicates an overall decline.

Monthly Economic Review March, 2013



iii. Consumer durables have been weak since the end of the festive season in end 2012. However, consumer non-durables continue to be robust.

Both the consumer durable component of the IIP and passenger vehicle sales have been weak lately. On the other hand, consumer non-durable component of the IIP continues to be in the positive territory.

-6 -5 -4 -3 -2 -101234 Index for Industrial Production Consumer Goods Consumer Goods: Durables Consumer Goods: Non Durables % mom, seasonally adjusted, 3mma

Source: Central Statistical Organization, CEIC

iv. Several measures are being taken by the Government to boost investments and remove infrastructure bottlenecks.

Foreign Investment Promotion Board (FIPB)

Recent approvals accorded by the Foreign Investment Promotion Board (FIPB) – a single window clearance for FDI proposals.

M/s Air Asia Investment Ltd., Malaysia

has been permitted to set up a joint venture company to undertake the business of operation of scheduled passenger airlines.

M/s Ingka Holding Overseas B.V.

was accorded approval in February, 2013 to set up a wholly owned subsidiary to undertake single brand retailing of IKEA products.

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