The Growth Of Indian Economy

Published Date: 02 Nov 2017

Like a slow moving elephant the Indian economy moved upward slowly and steadily very much during the tenure 2002-2008. But after the subprime crisis the Indian economy started tumbling and it’s after effects are being seen till now. Various important and core sectors which contribute majorly to the GDP of the economy have showed a poor performance and the government is now currently is formulating some strategies and implementation which may help ease pressure on the economy. Some of which include librelization of policies and encoding new ones in favour of the sector’s and the economy, less corruption etc. The upcoming union budget on February 28,2012 for 2013-14 will have some policies and measures for the revival of the Indian economy and it is to see whether a fiscal balance and discipline is maintained or not.

Introduction

The Indian economy today stands as one of the most attractive and influential economy in the world. With the starting of the new millennium the country and its economy is considered as amongst the few super powers to be emerging and that to with a fast pace. In 2009 the GDP based on PPP stood at $ US 3.5 trillion making it the fourth largest economy. The country’s service industry and the manufacturing industry together contribute of more than70% to the Indian GDP

Indian economy is the fourth largest economy in the world on basis PPP, considered as one of the most attractive destinations for investment and business opportunities’ due to large and cheap workforce, sound macroeconomic fundamentals. Liberalization of trade, financial and tax reforms ad opening up the country’s gate to the foreign investments were some of the key steps taken which helped the Indian economy gain momentum and become one of the fastest growing face in the world

1991 regarded as the year in which a group of economist discussed about the growth of the Indian economy, finance minister Dr. Manmohan Singh liberalized and passed many reforms that opened the gate to country’s growing economy.

In the starting of the 21st century the country has achieved the a GDP of 8% just after which the great recession took place and is regarded as the 10th largest economy in the world . The rapid economic growth had declined the country’s poverty rate ie from 37.2% (2005) to 29.8% (2010).

The agricultural sector which is or was considered as the backbone of the economy after independence contributed only 17.5% to the GDP where as the overall contributor is considered to be the IT sector

On one hand the agricultural sector need a lot of attention and on the other the industrial sector is growing rapidly and at a very fast pace which in turn is providing employment to huge no. people and to keep up the pace with the developed and the developing countries.

The economies around the world are facing troubles but the news regarding the fallen growth rate of India to 5.3% which was the lowest in the seven years, might not seem important as compared to the economic crunch in euro zone

Literature Review

Serious economic downfall has been witnessed by the country’s economy during the current tenure

If the country would have maintained its noticeable growth rate during 2004-08, millions of poverty strickened people would have been above the line by now very quickly and the job sector could have seen a boon as majority of the young brigade will reach working age.

The country’s slowdown are mainly due to problems like high inflation, borrowing of too much money by the states, not letting the private firms take part in the economical activities and haulting of passing of big reforms. Graft, red tape and confusion all have harmed the domestic business and the investment

The remedies to these problems are being agreed not just by the foreign investors but the current government, are very obvious. The government must reform the tax and foreign investment rules and cutting the subsidy in the fuel prices. Special emphasis must eyed on the industrial and infrastructural projects which currently upcoming or ongoing.

Falling GDP, currency, investments have turned the dreams of the economy in to a midst of air. There remains a question which in unanswered uptill now "Can India pull itself back up there where it belonged some years ago?". If not then how much time or what would be the impact domestically and internationally

The government is not being able to overcome corruption, red tape, scam’s which is mostly contributing to the downfall. This is a serious infection which the government has caught hold off and its symptoms are being seen in the economy.

According to Dr.Vijay Kelkar in coordination with the finance minister said that there was a need for fiscal consolidation as it play a vital role in the country’s fiscal deficit. According to the committee this high fiscal deficit can dubitable due to-:

Increase in inflation

Weak investment and growth

Unemployment

Large fiscal deficit

Important points from the committee

Both investment and inflation have taken a toll of the fiscal areas of the economy affecting it seriously.

Due to unsatisfactory performance from the OMC’s, their overall recovery may create financial crisis and a possibility of breakdown of oil supply

The economy’s growth rate around 7% would create an adequate opportunities for employment around the country

The tax revenues have been less of around Rs. 60,000 cr. due to debilitated industrial output, less corporate tax etc.

Objective

To undermine and put forward the facts and causes which is hampering the Indian economy

Research Methodology

Indian Economy Overview

Despite the economic crisis which has taken the globe by storm, in the midst of this the Indian economy is growing, he said that the country’s investment rate is round about 33-34% and is expected to increase to 36% in the 12th 5 year plan (2012-17) (Anand Sharma, 2013).

According to Grant Thornton Global Dynamism Index the country has been adjourned as the 5th best country around the globe for their growing dynamic business. This index basically gives a point of view on how suitable a country’s environment is for conducting and offering a dynamic business

As per the survey of Deloitte Touche Tohmatsu Ltd (Deloitte) the country’s tax climate was considered favourable and the country continues to be an attractive investment decision and the country is expected to be the 2nd largest manufacturing hub followed by Brazil in the 3rd place

Some Important Developments

Net direct tax of the country rose by13.7% to368,322 cr. During April-December tenure of 2012 compared to previous collection of 323,956 cr. on 2011

Through ECB and FCCB’s the Indian cos. Gave raised around $4.29 billion in October 2012 so as to fund the mordernization and the mergers and acquisitions

As per a study conducted by Grant Thornton India the total value of PE and M&A in the country was amounted to $10.1billion.

As per Department of Industrial Policy and Promotion (DIPP) the FDI inflow in India was $187,804 million between April 2000 and December 2012 whereas the FDI equity inflow between April and December 2012 was $16,946 million

According to the data released by SEBI the FII’s made a net investment of $68.46 million in equity market and $14.92 million in debt market up till February 18, 2013

The CAGR of pharmaceutical industries in India is expected to grow at 14-17% in 2012-16 and the country is currently ranked among the top 5 emerging countries in pharma industries

The World Tea and Coffee Expo 2013 held in Mumbai from Feb 15-17 estimated that the coffee market in the country is expected to reach Rs 2,200 cr. market in the next 4 years

As per NASSCOM the country’s IT and BPO sector’s exports is expected to increase 12-14% and may touch $US 84-87 billion in the financial year 2014

The country’s manufacturing and the natural resources industries plan to spend Rs 40,800 cr on the IT products and services in 2013 which is a growth of 9.1% from 2012 and the telecom sector is expected to reach Rs 13,200 cr in 2013

In semiconductor sector the local sourcing and demand is estimated to be a record of $US 3.6 billion by 2012 and the market is forecasted to grow from $ US 6.03 billion in 2011 to $US 9.7 billion in 2015

According to the report by Indian Semiconductor Association and Frost & Sullivan the electronic system design and manufacturing is expected to reach $US94.2 billion in 2015 from $US 64.6 billion in 2011

The luxury car segement in the country is also set to boost over both medium and long term according to Mr.Philipp Von Sahr president of BMW Group India

As per the estimated by Ernst and Young and Confederation of Indian Industry (CII) the FM radio sector is expected to touch Rs 2,300 cr in the market within three years of roll of phases III licences and is proposed to reach Rs 1,400 cr mark during 2012-13 with approximately 245 private FM stations

The Indian infrastructure area would attract various investments from around the globe and is expected the investments to be worth around Rs 40,000 billion during 12th 5 year plan with 50% of the investments coming from the private sectors as per government’s projection

According to CSO, the real growth in the economic GDP is at 5.3% in the 2nd quarter of 2012 with industry registering 2.8%, agriculture 1.2% and services registering 7.2%

Table 1

GDP (Quarterly Estimate)

Industry

2010-2011

2011-12

2012-13

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

1.Agriculture, Forestry, Fishing

3.1

4.9

11.0

7.5

3.7

3.1

2.8

1.7

2.9

Industry

8.3

5.7

7.6

7.0

5.6

3.7

2.5

1.9

3.6

2.Mining & Quarrying

6.9

7.3

6.1

0.6

-0.2

-5.4

-2.8

4.3

0.1

3.Manufacturing

9.1

6.1

7.8

7.3

7.3

2.9

0.6

-0.3

0.2

4.Electricity, Gas, Water Supply

2.9

0.3

3.8

5.1

8.0

9.8

9.0

4.9

6.3

5.Construction

8.4

6.0

8.7

8.9

3.5

6.3

6.6

4.8

10.9

Services

10.0

9.1

7.7

10.6

10.2

8.8

8.9

7.9

6.9

6.Trade, Hotel, Transp & Comm.

12.6

10.6

9.7

11.6

13.8

9.5

10.0

7.0

4.0

7.Financing, Insurance, Real Estate & Business Services

10.0

10.4

11.2

10.0

9.4

9.9

9.1

10.0

10.8

8.Community, Social & Personal Services

4.4

4.5

-0.8

9.5

3.2

6.1

6.4

7.1

7.9

9.GDP at factor cost (1 to 8)

8.5

7.6

8.2

9.2

8.0

6.7

6.1

5.3

5.5

Source: CSO

Macro Economic Snapshots

The governments projection for the growth for financial year 2012-13 is between 5.7-5.9%

Moody’s labeled India sovereign rating as stable and forecasts the country’s GDP at 6% for 2013-14

India targets an average growth of 8% of the next 5 years from 2012-1.

The country’s FOREX reserves touched $ US 296.7 billion an increase by $US 39.6 million in the weak end of 28 December 2012

Graph 1

Source: Ministry of Finance

Graph 2

Source: RBI

The country has been showing some signs of growth of inflation

Inflation on October 2012 was the lowest in 8 months

Inflation on December 2012 was 7.18% the lowest in 3 years

Govt. took a great step on mechanism of direct transfer of subsidy to the poor as it would cut wasteful expences

Graph 3

Source: Ministry of Finance

Graph 4

Source: Ministry of Finance

In 2012 the FII inflow was around $US 22 billion which is the 2nd highest since 1993

For JP Morgan & chase co. the Indian stocks are the top selected among the BRICS nation in 2013

Graph 5

Source: SEBI & DIPP

Graph 6

Source: SEBI & DIPP

From August to December 2012 the rate of exchange had being stable more or less

From December 2012 the HSBC Markit India Manufacturing PMI from 53.7 in November 2012 rose to 54.7 in December 2012 which is highest in 6 months

Graph 7

Source: CEBC

There has been some fluctuation in the Indian exports but the equilibrium is being maintained. The exporters have been looking at new markets in Asia and Africa so as to overcome the international slowdown

Sops are being provided by the govt. to boost export

Graph 8

Source: Ministry of Finance and CSO

Graph 9

Source: Ministry of Finance and CSO

India’s rupee fall down

The Indian rupee has been falling very rapidly against dollar and other currencies as well in the market. It fell to a low of 53.92 against dollar due to weak economic performance. To curd the currency fall the RBI has intervened to sell dollars so as to save rupee. This effect is due to uncertainity in global market, slow inflows of funds from abroad and pressure from oil importers are also there which demand dollars so as to buy crude oil. According to some analysts the Indian currency could see a new record low due to prevalent international market conditions.

The Indian Government is producing the fact that the European economic slowdown has adversely affected the country’s economy ad remedies are being taken into action.

Ex Finance Minister Mr. Pranab Mukherjee said that the global slowdown due to Eurozone sovereign debt crisis has impacted the Indian economy through deceleration in exports, widening of trade and current account deficit, decline in capital flows, fall in the value of Indian rupee, stock market decline and lower economic growth.

Steps like supply of forex to curb the falling currency, increase in the foreign investments in the infrastructure industry, librelization of external commercial borrowings is being taken into action. The RBI has also taken steps to keep in check the speculation in the forex market which includes raising of the NRI deposit interest rates, easing availability of export credit and stipulation that 50 per cent of balances in the Exchange Earner's Foreign Currency Account be converted into rupees balances

The reasons for falling of currency are:

Current account deficit

Large widening of current account deficit due to rise in crude prices, imports of gold and silver.Oil constitutes around 21% of the country’s import bill, gold 11.5%(2012) an increase from the previous year(2011)9%. The rise in gold import is due to the fact that the yellow metal is used to hedge against inflation

Europe’s debt crisis

First the American economy collapsed then European economy suffered from the formers economy failure. Among the EU Portugal, Greece, Ireland contribute about 6% of the blocs GDP while from countries like Spain, Italy bad news keep coming out again and again. UK, France, Netherlands show 0% growth rate while the deutsche land has negative growth. Due to this the dollar and the euro currency could see come beating in the international market

Dollar outflows

Due to collapse of American economy the FII are withdrawing their money from Indian stock markets or selling the domestic stocks. Acc to the reports FII’ shave sold around $10 billion of domestic equities.

Macroeconomic conditions

Due to bad economic conditions the fiscal deficit and current account deficit are highest. The coalited UPA government has gone slow on policy reforms and librelizing certain norms . This has created a doubt in the foreign investors mind weather to invest or enter into the country full fledgedly or not.

New taxation rules

The country’s union budget (2012-13) proposed a clarification of tax rules of all the M&A held involving Indian company would come under the tax net. The international investors in the country wrote a letter to the PM regarding this and said that it would be difficult to conduct business with the country. Ex finance minister Mr. Pranab Mukherjee said that no case will be opened which involves M&A deals with Indian entity which was more than 6 years old. The current acquisition of Hutchison groups India’s operation was taken over by UK giant Vodafone for $11billion is currently under scanner.

The rupee depreciation will be beneficial to those IT sectors who earn revenue around 80-90% from the foreign market, even a fall of 1% has round impact of whooping 40bps which thereby helps Indian IT giant’s like TCS, HCL, Infosys

Economy Paralysis

The country’s economic slump is to be a 10 year low of 5% due to less production in factories and farms, shrinking of exports and fewer job offers

The estimates of country’s GDP putted forward by CSO comes at a time when the government is stuck between the rising prices and low growth rate

This slow growth rate is to be the worst since the 2002-03 drought hit and implying that India won’t be the second largest fastest growing economy. This collapsing of the economy will be reviewed by the finance minister P Chidambaram and soon some growth reviving measures would be taken. Due to inconsistent monsoon last year the agriculture output of 2012-13 was 1.8% hampering the food output as compared to last year’s 3.6%. RBI’s decision to increase rates has not stabilized the prices but inadverserly slumped the growth.

A sudden hault to the spending off by the Indian households are warning signals for the Indian economy and its falling growth rate. The auto industry says that due to high rates if interest and inflation are denting the consumers spending which can been see by the data of only 4.6% growth against last year’s 12.5%. The country’s investment process has also slowed down ie 29.9% against 30.6% last year

The 2012 GDP growth rate of other countries are as follows - :

China =7.8%

Indonesia = 6.04%

Russia = 3.6%

United States = 2.3%

Brazil =1%

United Kingdom = - 0.2%

India’s downgrade

The union budget is going to be announced soon and the Moody’s have warned the country that it could see further downgrading if the economy doesn’t seem to improve upon its debts and CAD. India now giving a marking of BAA-3(Stable) which is the lowest investment grade, this is almost equal to consider it a junk status and the Indian cos. may see it very difficult and expensive to attract investment from around the globe. Their competitors the S&P and the Fitch, have both given BBB – (Negative) sovereign rating. S&P have said that if further condition of the country deteriorates it will mark the economy as the junk status

Fitch along with Standard & Poor downgraded India’s outlook from stable to negative due to two main reasons corruption and absence/inadequate reforms. Ex Finance Minister Mr. Pranab Mukherjee said that the agencies took into account the old data and didn’t considered recent developments. Fitch also downgraded seven PSU’s namely IOC, PFC, GAIL, REC, NHPC, NTPC, SAIL

Fitch said due to delay in reforms and weaker economic growth the country will miss the fiscal deficit target of 5.1% in 2012-13. The agency pegged the fiscal deficit between 5.6-5.9% of the GDP and the forecast of the growth was estimated to be 6.5% in 2012-13 from its earlier projection of 7.5%. This rating can have the effect on the country’s cost and availability of the foreign currency borrowings for Indian firms and banks

It is said that India could be one of the BRIC (now BRICS) fallen country due to low GDP growth rate and political matters like corruption slow policy making and its downgradation

But on the other side the Moody’s rating of the country was revised stable ie Baa3 as on Nov 27,2012 based on the facts of its economic growth, high savings and investment rate but there were numerous challenges like poor physical and social infrastructure, high deficit and debt ratios, inflationary pressure and fluctuating and uncertain operating environment.

The second quarter GDP growth rate is estimated to be around 5.5% by the Moody’s

The country’s widening CAD is about round 5.4% of GDP, for the quart ended on 30 September 2012, due to high imports of gold, oil the country’s import may outface the exports

Graph 10

Source: RBI

Acc to Moody’s report released on Monday, 18, 2013 said that a loose and weak fiscal policy with fuel the inflation which thereby reduces or finishes the competitiveness between the import and export housing firms. Now finance minister Mr P. Chidambaram said he is committed to restricting the fiscal deficit to 5.4% of GDP this year and 4.8% in the next. Currently India has double the external debt to around $365 billion in the third quarter of 2012

Graph 11

Source: Ministry of Finance

Negetive Influence

Due to loss of currency, problems are bound to be created in the economy. This eventually leads to a high inflation, as the crude oil imports in the country is around 70% the Indian government will have to shell out more of rupee and due to oil price’s control the government may not soon pass the burden on the consumers. As the import’s start rising, inflation will also rise on further and will lead to fiscal deficit

India Inc. on the other hand will have to shell out more money to procure raw materials. For every rupee depreciated the OMC under recovery shoots up to around 9500 cr./year The students travelling abroad will have to pay more to their education.

In the stock market if a person is having a stock of an oil and gas company, fertilizer, tyre, or of infrastructure your returns will surely take a hit as they have to shell out more of rupee to get their raw material from abroad

The GDP

The Indian GDP slipped to a 9 year low at 5.3% in fourth quarter of FY 2011-12 since the lowest GDP recorded at 3.6% in the fourth quarter of FY 2002-03.The last time when the same growth was recorded was in the third quarter FY 2009-10 when global financial crisis occured. The fiscal year of 2011-12 ended with growth rate of 6.5%, but was low as compared to previous fiscal’s 8.4%.Upon the projected poll of the economists it was expected that the growth rate would somewhere fall around 6.1% in the fourth quarter.

The manufacturing and the service sector which are the main drivers of the growth and account nearly 77% of IIP (Index of Industrial Production) came around as low as 1.9% and 7.9% as compared to 7% and 10.6% a year ago. According to the data released by the commerce and industry ministry the infrastructure industries ended the fiscal period 2011-12 at 4.4% against 6.6% in 2010-11. The IIP was around 2.8% against 8.2% in 2010-11. The agriculture sector grew at 1.7% against 7.5% in the last fiscal. Foremost the industries of petroleum, coal and steel, electricity, cement were also the victims of slow growth rate.

Graph 12

Source: MOSPI

BSE Sensex recorded the lowest point of the day after the release of the data indicating that the Indian economy grew at a slow pace thus indicating that the corporate profits will take a dip. Nonetheless the job creativity has also taken a toll.

The euro zone debt crisis, high interest rates and lack of economic reforms highly affected the economic growth last year. Besides these the falling on Indian rupee against the dollar at a all time low of 57.92 also worsened the country’s economic condition thereby increasingly affecting the country’s current account deficit.

Graph 13

Source: MOSPI

Inflation Rate

As reported by the ministry of commerce and industry in the beginning of the new year the country’s inflation rate was recorded at 6.62%. The inflation rate was averaged around 7.8% highest being in 1974, September at 34.7% and lowest being in May, 1976 at -11.3%

Graph 14

Source: Ministry of Commerce and Industry

This was the lowest inflation rate in the past three years, this will help the central bank to ur more investment and spending and by reducing the interest rates. Due to high inflation the RBI was scared to cut the interest rates so as to revive the third largest economy of Asia.

In December 2012 the WPI inflation is 7.18% against 7.24% in the previous month, this mainly declined due to manufacturing of products like sugar, metals, chemicals etc. and fuels and the CPI inflation was 10.56% in December 2012 which is an increase from 9.9% in November 2012, it remains mainly high for vegetables, fish, cereals, pulses etc.

Table 2

WPI & CPI (Y-o-Y Basis Inflation %)

WPI

CPI-IW

CPI-AL

CPI-RL

Base

2004-05

2001

1986-87

1986-87

Dec – 11

7.74

6.49

6.37

6.72

Jan – 12

7.23

5.32

4.92

5.27

Feb – 12

7.56

7.57

6.34

6.68

Mar – 12

7.69

8.65

6.84

7.19

Apr – 12

7.5

10.22

7.84

8.01

May – 12

7.55

10.16

7.77

8.11

Jun – 12

7.58

10.05

8.03

8.54

Jul – 12

7.52

9.84

8.61

8.94

Aug – 12

8.01

10.31

9.18

9.34

Sep – 12

8.07

9.14

9.43

9.93

Oct – 12

7.32

9.6

9.85

9.84

Nov – 12

7.24

9.55

10.31

10.47

Dec – 12

7.18

-

-

-

Note: WPI Inflation for Nov & Dec 2012, CPI Inflation for Dec 2012 is provisional

NA: Release of Inflation CPI (NS) began from Jan 2012

Source: Ministry of Finance

Shrinking Industrial Output

In November 2012 the growth of industrial production was -0.1% as compared to 6% in the previous year. The mining sector had a negative growth rate of -5.5%, the manufacturing showed a growth of 0.3% and electricity showed growth by 2.4%

Table 3

IIP (% Change)

Industry

Apr-Nov (2011-12)

Apr-Nov (2012-13)

Nov 2011

General index

3.8

1.0

6.0

Mining

-2.4

-1.5

-3.5

Manufacturing

4.2

1.0

6.6

Electricity

9.5

4.4

14.6

Basic Goods

6.3

2.8

6.5

Capital Goods

-1.0

-11.1

-4.7

Intermediate Goods

-0.6

1.8

1.3

Consumer Goods

5.0

3.8

12.8

Durables

5.2

5.2

10.4

Non Durables

4.9

2.5

15.0

Source: Ministry of Finance

The 8 core industries comprising (cement, steel, natural gas, petroleum refinery, crude oil, coal, electricity, fertilizers) which have a weightage of 37.9% in IIP had a growth of 3.5% in April November (2012-13) prior to which they had a growth of 4.8% in 2011-12. In November 2012 their growth was reported to be 1.8% as compared to 7.8% in November 2011

Table 4

Growth in Core Industries (%)

Industry

Apr-Nov (2011-12)

Apr-Nov (2012-13)

Nov 2011

Coal

-4.0

6.7

4.9

Crude Oil

2.9

-0.5

-5.7

Natural Gas

-8.5

-13.1

-10.1

Refinery Prod.

4.4

7.2

11.2

Fertilizers

-0.7

-3.3

-6.7

Steel

8.9

3.4

10.5

Cement

4.8

6.7

17.0

Electricity

9.4

4.6

14.4

Overall Growth

4.8

3.5

7.8

Source: Ministry of Finance

Banking and Money

The RBI in the third quarter ie on December 18, 2012 decided to keep CRR at 4.25% (unchanged) and LAF at 8% (unchanged). The broad money showed an increase of 9.2% as compared to previous year’s 11%. The Y-o-Y growth on December 28, 2012 was 11.2% as compared to previous year’s 16%

The Broad Money (M3) (2012-13) increased by 9.2% as compared to Last year’s 11.0% and the Y-o-Y growth was 11.2% as compared to previous year’s 16%

Table 5

Money Stock: Components & Source

Rs. Billion

Item

Outstanding as on

Variation Over

2012

Financial Year

Year on Year

2011-12

2012-13

2011

Mar 31

Dec 28

%

%

%

M3

73,577.5

80,319.2

11.0

9.2

16.0

1 Components

1.1 Currency with Public

10,256.7

10,920.5

7.1

6.5

12.4

1.2 Demand Deposit with Banks

7,049.1

7,208.2

-0.5

2.3

-0.1

1.3 Time Deposit with Banks

56,243.5

62,175.1

13.5

10.5

19.2

1.4 ‘Other’ Deposit with Bank

28.2

15.4

-39.0

-45.3

-37.6

2 Sources (2.1+2.2+2.3+2.4+2.5)

2.1 Net Bank Credit to Govt.

23,716.1

25,957.7

13.0

9.5

24.7

2.1.1 Reserve Bank

5,357.4

5,504.7

2.1.2 Other Banks

18,358.8

20,453.1

12.8

11.4

16.8

2.2 Bank Credit to Commercial Sector

49,605.3

54,067.8

11.0

9.1

16.2

2.2.1 Reserve Bank

39.6

37.3

2.2.2 Other Banks

49,565.7

54,067.8

11.0

9.1

16.2

2.3 Net Foreign Exchange Asset of Banking Sector

15,437.8

16,385.1

14.5

6.1

18.3

2.4 Govt. Currency Liabilities to the Public

134.4

147.2

2.5

9.5

5.4

2.5 Banking Sectors Net Non Monetary Liabilities

15,316.2

16,276.0

18.8

6.3

35.7

2.5.1 Net Non Monetary Liabilities of RBI

6,038.4

7,285.1

69.2

20.6

81.7

Source: RBI & Ministry of Finance

During financial year the reserve money upto December 28,2012 showed an increase of 2.2% from 1.3% in the previous year corresponding to the same period

The bank rate as on December 28, 2012 was 9%, call money rates (borrowing & lending) were 8.07% as compared to previous year’s 9.11% on the same corresponding date last year

Table 6

Interest Rate/Policy Rate (%/Annum)

Item

2011 ( December 30)

CRR

6.0

Bank Rate

6.0

Repo Rate

8.5

Reverse Repo Rate

7.5

Prime Lending Rate (1)

10.0/10.75

Deposit Rate (2)

8.50/9.25

Call Money (3)

Borrowing

9.11

Lending

9.11

Prime lending rate relates to 5 major banks

Deposit rate relates to major banks for term deposit of more than 1 year maturity

Data covers 90-95% of total transactions reported by participants

Source: RBI

Agriculture

The year is categorized into 4 seasons

Winter – January to February

Pre Monsoon – March to May

South West Monsoon – June to September

Post Monsoon – October – December

More than 75% of the rain fall is caused by South West Monsoon

As per kharif crops advance estimates released by Ministry of Agriculture on September 24, 2012 the production of food grains in 2012-13 is estimated to be around 117.18 million

Table 7

Procurement ( Million Tonnes)

2009-10

2010-11

2011-12

Rice

32.03

34.2

35.04

Wheat

25.38

22.51

28.34

Total

57.41

56.71

63.68

As on August 2, 2012

As on December 21, 2012

Source: Ministry of Finance

External Sector

The exports declined by 4.2% in while the imports showed an increase by 6.3% November 2012 as compared to November 2011. The oil imports increased around 16.8% and the imports of non oil by 1.5% in November 2012 as compared to November 2011.

Table 8

Exports & Imports ($US Million)

Item

2010-11

(April-March)

2011-12

(April-March)

November

2011

2012

Exports

251136

304624

23270

22300

Imports

369769

489181

39102

41587

Oil Imports

105964

154906

12437

14522

Non Oil Imports

263805

334276

26666

27065

Trade Balance

-118633

-184558

-15833

-19287

Source: Ministry of Commerce & Industry

Table 9

Foreign Currency Assets

Amount

Variations

Rs Cr.

$ US Million

Rs Cr.

At the end of (over last year)

March 2008

1196023

299230

359426

March 2009

1231340

241676

35317

March 2010

1150778

254935

-80562

March 2011

1225999

274580

75221

March 2012

1333954

260742

107955

2012-12 (over last month)

April 2012

1373463

261512

39509

May 2012

1432560

253910

59097

June 2012

1449281

257376

16721

July 2012

1436343

257363

-12938

August 2012

1439861

258410

3518

September 2012

1374066

260748

-65795

October 2012

1413232

261141

39166

November 2012

1422065

260803

8833

December 2012

1437609

262446

15544

Source: RBI

Exchange Rate

There was depreciation of rupee against USD by 0.2%, against YEN it was 3.6%, against EURO was 1.8% and against POUND it was 0.7% in December 2012 against November 2012

Table 10

Rupee/Unit of Foreign Currency

USD

Pound Sterling

Japanese Yen

March 2009

51.228

72.904

0.525

March 2010

45.496

68.436

0.501

March 2011

44.968

72.707

0.549

March 2012

50.321

79.654

0.610

2012-13

April 2012

51.812

82.912

0.637

May 2012

54.473

86.732

0.683

June 2012

56.030

87.134

0.706

July 2012

55.494

86.517

0.702

August 2012

55.559

87.344

0.706

September 2012

54.605

87.866

0.699

October 2012

53.023

85.212

0.672

November 2012

54.775

87.537

0.676

December 2012

54.647

88.191

0.652

FEDAI Indicative Market Rate on Monthly Avg. Basis

Source: Ministry of Finance

Unemployment

The after effects of the low growth of the Indian economy is having a hard hitting impact of the young and working population. Maudlin economics revealed the state of unemployment around the globe with US having greater than 17%, Greece 60%, Spain 55%, Portugal 35%, France a little more and above than 25%

India is among the few countries those to have young working population of around 20% According to the latest reports released by the world bank the young brigade comprised of 9.9% males and 11.3% females in 2010 but this figures in 1985 was 8.3% and 8% respectively.)

Graph 15

Source: Ministry of Labour and Employment

Growth Enables & Resurrection of Indian Economy

Parliament Moves on Reforms

The Indian Parliament in its winter session approves and passes 17 legislation of which some important contains

FDI nod only multi brand retail

According to the Passage of Banking Laws Bill 2011 would enable the voting rights in equal proportion to the shareholders. It also strengthens and improves the regulatory and supervisory powers of RBI

Passing of The Prevention of Money Laundering in 2011

Companies Bill passed by Lok Sabha in 2011 making the headway for new company law and this bill has to be passed by Rajya Sabha before it becomes a law. It make the independent directors more accountable and in the other hand it improves corporate governance and CSR mandatory for certain set of companies

Govt. Move on Reforms

Fast track of Infrastructure projects worth 1,000 cr by the Cabinet Committee on Investment

The Prime Minister of India will be leading the chair committee of ministers of all ministries related to infrastructure so as to give time line to the current & upcoming projects

Land Acquisition Bill cleared by the Union Cabinet

SEBI tightens the Norms

Stopping of mini futures and options so as to protect the small investors

Boosting of corporate bond market so as bring the liquidity to the secondary market

ECB Norms

RBI has relaxed these norms for infrastructure finance companies. This will enable them to borrow 75% of their net worth without the approval of the RBI

Currency requirement hedging ris reduced to75% from 100%

Growth Stoppers

Industrial Slag

The Manufacturing sector which contributes about 80% of the industrial output has slowed as demands have been sluggish and due to high interest rates the companies are giving a serious thought of expansion

Weak Investment

High inflation and tight monetary conditions have deterred investment activity. Gross fixed capital formation (proxy for investment activity) has slowed at 29.9% against 30.6% last year

Slow Consumption

Consumptions estimate to remains at 59.7% of GDP as compared as compared to 59.2% last year due to high interest rates which keeps the consumer away from the market.

Expensive

Nowadays everything from food to medicines and all the basic ammenities cost a hefty to the consumers which is a result of falling rupee which in turn leading to inflation.

Recommendation

To encourage the households to spend more

Giving tax breaks to the consumers which is the best way to make expendable money

Urgent introduction of reforms in agricultural sector which is the most least productive and uninformed sector of the country

Introduction of GST scheme around the country

GST can save billions of dollars, boost economic growth, and most importantly cut corruption. It will unite the national markets by replacing excise and octroi duty with GST

The tax rate of 12% be brought down to 8% gradually fir it to be fit into the GST scheme

Allowing the integration of union excise duty and service tax into GST scheme

Should be clear and cut policies on land acquisition for industrialization across India

Creation of a national portal for tax payment which will enable the candidates to file for it or seek some changes or rectification and for this data mining and data warehousing framework should be developed using latest technology

Conclusion

CSO’s estimates the deficit growth of Indian GDP at 5.3% following with the nominal forecast growth at 11.7% this year while the ministry’s target is based at 14%.The upcoming budget on Feb 28 is likely to be based on CSO’s reports. The sensex fell to 0.3 % to 19,580.32. There has been increase in the yield on the 10 year government bonds by 2bps to 7.89%. The country’s has lost its status tag of second fastest growing economy to Indonesia which is currently growing at the rate of 6.04%.

The country’s economy is slow and steady and has a non evasive factors like corruption, inflation etc from which it has to do a hard work to bring it down to a substantial level. There is a strong possibility of 25bps cut by RBI

According to CRISIL the country’s economy will grow at 6.7% in 2013-14 and will be supported by, agriculture, low interest rates and high govt. spendings

Limitations

Heavy dependency on the agricultural sector

A large part of India still lives below the poverty line

Less literacy around the whole country

Corruption and Terrorism can hamper the face of the nation in terms of trade, economic growth etc.

Poor Infrastructure as compared to other Asian counterparts

High percentage of unemployment

Less mechanization