Eco Survey English

Economic Survey 2013-14“15”

pib.nic.inPRESS INFORMATION BUREAU

GOVERNMENT OF INDIA

INDIA HAS THE SECOND FASTEST GROWING SERVICES SECTOR WITHCOMPOUND ANNUAL GROWTH RATE AT 9.0 PER CENT

New Delhi, July 9th, 2014Ashadha 18, 1936

India has the second fastest growing services sector with its Compound Annual GrowthRate at 9.0 per cent, just below China’s 10.9 per cent, during 2001 to 2012. Also, India ranked12th in terms of services Gross Domestic Product (GDP) in 2012 among the world’s top 15countries in terms of GDP. While services share in World GDP was 65.9 per cent and inemployment was only 44 per cent in 2012, in India, they were 56.9 per cent and 28.1 per centrespectively.

GDPServices constitute a 57 per cent share in GDP at factor cost (at current prices) in 2013-14,

an increase of 6 percentage points over 2000-01. Despite deceleration, services GDP growth at6.8 per cent was above the 4.7 per cent overall GDP in 2013-14. The growth rate of the combinedcategory of trade, hotels, restaurants, transport, storage, and communications decelerated to 3.0per cent while financing, insurance, real estate, and business services grew robustly at 12.9 percent.

FDIIn 2013-14, FDI inflows to the services sector (top five sectors including construction)

declined sharply by 37.6 per cent to US$ 6.4 billion compared to an overall growth in FDIinflows at 6.1 per cent resulting in the share of the top five services in total FDI falling to nearlyone-sixth.

ExportsIndia’s increase in share in world services exports from 0.6 per cent in 1990 to 3.3 per

cent in 2013 was faster than in merchandise exports. Exports of software services, accounting for46 per cent of India’s total services exports, decelerated to 5.4 per cent in 2013-14, travel,accounting for a nearly 12 per cent share, witnessed negative growth of 0.4 per cent.

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Economic Survey, 2013-14“15”

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PRESS INFORMATION BUREAUGOVERNMENT OF INDIA

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The passage of the PFRDA Act, the shift of commodity futures trading, FSLRC reportwere the three major milestones of the year 2013-14

New Delhi, July 9th, 2014Ashadha 18 , 1936

The passage of the PFRDA Act, the shift of commodity futures trading into the Ministry ofFinance, and the presentation of the FSLRC report, were the three major milestones of the year2013-14.

In the banking sector gross NPAs of banks registered a sharp increase. Overall NPAs of thebanking sector increased from 2.36 per cent of total credit advanced in March 2011 to 4.40 percent of total credit advanced in December 2013.

The RBI has indentified five sectors -- infrastructure, iron and steel, textiles, aviation andmining as the stressed sectors.

The New Pension System (NPS), now National Pension System, represents a major reform ofIndian pension arrangements, and lays the foundation for a sustainable solution to ageing inIndia by shifting to an individual account, defined-contribution system.

Till 7 May 2014 a total of 67.11 lakh members have been enrolled under the NPS with a corpusof ` Rs. 51,147 crore.

The Swavalamban Scheme for workers in the unorganized sector launched in 2010, has nowbeen extended to five years for the beneficiaries enrolled in 2010-11, 2011-12, and 2012-13and thus the benefits of co-contribution under the Scheme would be available till 2016-17.

The FSLRC in its Report submitted on 24 March 2011 has given wide-rangingrecommendations, broadly in the nature of governance enhancing principles for enhancedconsumer protection, greater transparency in the functioning of financial sector regulators interms of their reporting system, greater clarity on their interface with the regulated entities andgreater transparency in the regulation making process by means of mandatory publicconsultations, incorporation of cost benefit analysis etc.

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Next Wave of Financial Reforms to Strengthen Institutional Foundations for a GlobalizedIndia


In a fast changing world, financial policy has to catch up with the needs of future Indiathat people are aspiring to build. The Economic Survey 2013-14 mentions that the next wave ofreforms will be through strengthening the institutional foundation – both laws and organizations– improving and polishing the financial processes; and by taking well-designed policy decisionsthat will enhance clarity, consistency, and transparency for a globalized India.

Growth rate of aggregate bank deposits marginally moderated to 14.1 per cent in 2013-14from 14.2 per cent in the previous year. The acceleration is mostly on account of large accretionto non-resident Indian (NRI) deposits. Growth in bank credit increased to 13.9 per cent in 2013-14, as compared to 14.1 per cent in 2012-13. The Reserve Bank of India (RBI) continued withthe policy of monetary easing during the first quarter of 2013-14 to support growth in the face ofmoderation of wholesale price index(WPI) inflation and reduced the repo rate by 25 basis points(bps) to 7.25 per cent in May 2013. Following the exceptional measures taken by RBI in Q22013-14, both deposit and lending rates firmed up by September, 2013.

The Economic Survey says that the factors impeding the pace of smooth monetary policytransmission to the credit market include rigidities in repricing for fixed deposits, size ofgovernment borrowings, level of non-performing assets (NPAs), high inflation and thesignificant presence of informal finance.

The survey says that the Indian banking sector, which exhibited considerable resiliencein the immediate aftermath of the global financial crisis, has been impacted by the global anddomestic economic slowdown over the last two years.

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Urgent Initiatives in Infrastructure, Iron and Steel, Textiles, Aviation, and Mining


The RBI in its Financial Stability Report, December, 2013 has indentified five sectors –infrastructure, iron and steel, textiles, aviation, and mining – as the stressed sectors. PSBs havehigh exposures to the “industry” sector in general and to such “stressed” sectors in particular.The survey mentions that the increase in NPAs of banks is mainly accounted for by switchoverto system-based identification of NPAs by PSBs, slowdown of economic growth, and aggressivelending by banks in the past, especially during good times. Asset quality in the banking systemhas deteriorated in the post-crisis years and among banks groups, PSBs had the highest level ofstress in terms of NPAs and restructured advances. Some recent initiatives taken by thegovernment to address the rising NPAs include:

Appointment of nodal officers in banks for recovery at their head offices/zonal offices/foreach Debts Recovery Tribunal (DRT).

Thrust on recovery of loss assets by banks and designating asset reconstructioncompanies (ARC) resolution agents of banks.

Directing the state-level bankers’ committees to be proactive in resolving issues with thestate governments.

Sanction of fresh loans on the basis of information sharing amongst banks.

Conducting sector/activity-wise analysis of NPAs. Close watch on NPAs by picking up early warning signals and ensuring timely corrective

steps by banks including early detection of sign of distress, amendments in recovery lawsand strengthening of credit appraisal and post credit monitoring.

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67.11 lakh members enrolled under the National Pension System with a corpus ofRs 51.14 crore.


The passage of PFRDA Act has been a major milestone of the year 2013-14. The Act vestsPFRDA with statutory status to allow it to perform its developmental role effectively and to extendthe social security cover to hitherto uncovered working population through the National PensionSystem(NPS). Introduced for the new recruits who join government service on or after January2004, the NPS represents a major reform of Indian pension arrangements, and lays the foundationfor a sustainable solution to ageing in India by shifting to an individual account, defined-contribution system. The Economic survey says till 7 May 2014 a total of 67.11 lakh membershave been enrolled under the NPS with a corpus of Rs 51,147 crore. The growth rate of membersand assets is likely to considerably accelerate from this foundation. From 1st May 2009, the NPSwas opened up for all citizens in India to join on a voluntary basis.

The Swavalamban Scheme for workers in the unorganized sector launched in 2010, hasnow been extended to five years for the beneficiaries enrolled in 2010-11, 2011-12, and 2012-13and thus the benefits of co-contribution under the Scheme would be available till 2016-17.

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Regulators Adopt Non-Legislative Aspects of FSLRC Report


The Financial Sector Legislative Reforms Commission (FSLRC) in its Report submitted on24 March 2011 has given wide-ranging recommendations, both legislative and non-legislativeaspects, on the institutional, legal, and regulatory framework, and operational changes in the Indianfinancial sector. The Economic Survey mentions that in October 2013 regulators decided to adoptthe non-legislative aspects of FSLRC recommendations. These are broadly in the nature ofgovernance enhancing principles for enhanced consumer protection, greater transparency in thefunctioning of financial sector regulators in terms of their reporting system, greater clarity on theirinterface with the regulated entities and greater transparency in the regulation making process bymeans of mandatory public consultations, incorporation of cost benefit analysis etc. Mosthouseholds are as yet cutoff from large parts of the financial system. The survey says next wave ofinfrastructure financing will require a capable bond market..

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Press Information Bureau

Government of India

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ECONOMIC SURVEY 2013-14

Record Production of Foodgrains & Oilseeds in 2013-14

Groundnut Records Highest Rate of Increase in Productivity

New Delhi: 9th July, 2014

The agriculture sector will see a record production of foodgrains and oilseeds inthe year 2013-14, according to the Economic Survey for 2013-14, released in New Delhitoday. As per the third Advance Estimates, the production of foodgrains is likely to toucha record output of 264.4 million tones (mt) in 2013-14 showing an increase of 2.88%over the previous year. Similarly, oilseeds are likely to have a record output of 32.4 mtshowing an increase of 4.85% over the previous year. The production of rice isexpected to be 106.3 mt and of wheat 95.8 mt. Cotton will touch a production of 36.5 mtin 2013-14. Overall, the agricultural sector is expected to grow at the rate of 4.7% in theyear 2013-14. The agriculture sector grew at a rate of 4.1% during the Eleventh FiveYear Plan (2007-08 to 2011-12).

The integrated scheme of oilseeds, pulses, oil palm and maize (ISOPOM) hasresulted in record production of 19.6 mt of pulses (i.e., 7.10% increase over previousyear), oilseeds production at a record of 32.4 mt (4.85% increase over previous year)and maize gave a record production of 24.2 mt (increase of 8.52% over previous year).The Technology Mission on Oilseeds and Oil Palm (TMO&OP) has been introduced inthe Twelfth Plan to realize substantial increase in domestic production of edibleoilseeds/oil, which is 50% short of the domestic demand. The emphasis of TMO&OPwill be on ‘focused’ and ‘integrated’ interventions.

In 2013-14, the higher production in case of most of the major crops has beenachieved by expanding area rather than yield/productivity. However, Groundnut withproductivity of 1723 kg/ha has shown the largest jump in yield i.e., 73.17% over theprevious year. Tur productivity at 857 kg/ha increased by 10.44% while yield of cotton(529 kg/ha) also showed an increase of 8.85%. Gram productivity (974 kg/ha) showedthe largest productivity decline i.e., 5.98% in 2013-14.

The net availability of foodgrains increased to 229.1 million tones i.e., anincrease of 15% over last year and that of edible oils increased to 12.7 kg per year in2013. The per capita net availability of foodgrains also rose to 186.4 kg per year in 2013from 162.1 kg per year in 2009.

Expansion in area and increases in the Minimum Support Prices of selectagricultural crops, have resulted in higher foodgrains production. As per the 3rd AE, theacreage under foodgrains increased to 126.2 million ha and to 28.2 million ha underoilseeds.

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Government of India

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Milk production touches a record high of 132.43 mt in 2012-13


India recorded a peak production of milk at 132.43 mt in the year 2012-13according to the Economic Survey for 2013-14, released in New Delhi today. Indiaranks first in global milk production and accounts for 17 per cent of world production.Milk production has become an important secondary source of income for 70 millionrural households engaged in dairying and for 70 per cent of the workforce thatcomprises women. The average year-on-year growth rate of milk at 4.04 per centvis-à-vis the world average of 2.2 per cent shows sustained growth in availability ofmilk and milk products for the growing population.

Globally India is the second largest producer of fruits and vegetables; the largestproducer of mango, banana, coconut, cashew, papaya, and pomegranate; and thelargest producer and exporter of spices. Horticulture production, estimated at 265million tones, exceeded the production of foodgrains and oilseeds in 2012-13, owingto an 8.6% increase in productivity of horticulture crops between 2008-09 and 2012-13. India ranks first in the productivity of grapes, banana, cassava, and papaya.

A comprehensive new scheme National Programme on Bovine Breeding andDairy Development was launched with the objective of enhancing milk productionand productivity in a sustainable manner. The National Dairy Plan Phase-I,


launched in March 2012 with the objectives of improving productivity of milchanimals, strengthening and expanding village-level infrastructure for milkprocurement, and providing producers greater access to the market in the dairysector continues. The number of milch animals increased from 62 million in 2000 to83.15 million in 2012, thus adding to the improved milch herd of the country.

India ranks second in world fish production, contributing about 5.4% of global fishproduction. It is also a major producer of fish through aquaculture. Total fishproduction during 2013-14 is estimated at 9.45 mt with 6.10 mt coming from theinland sector and 3.35 mt from the marine sector. The sector contributes about 1per cent to overall GDP and represents 4.6% of agricultural GDP.

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Government of India

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Agricultural Exports Increase by 5.1% in 2013-14, Marine Exports up by45%

Credit flow to agricultural sector exceeds target


Agricultural exports (including marine) grew by 5.1% in 2013-14 over 2012-13 to


US$ 37,292 million according to the Economic Survey 2013-14 released in NewDelhi today. Exports of marine products alone increased by 44.8% over the sameperiod.

Since the opening up of exports of rice in 2011, there has been a surge in itsshare in total exports from US$ 2575 million, in 2010-11 to US$ 7742 million in2013-14. Exports of total dairy, poultry, meat, and marine products have doubledtheir share in agricultural exports between 2008-09 and 2013-14.

A stable and long-term trade policy with respect to export of agricultural productsis essential for increasing productivity. Significantly, some policy changes weremade in recent years: exports of rice and wheat were permitted since 2011; andsince February 2013 processed and/or value added agricultural products wereexempted from export restrictions even if their base produce is subject to an exportban. These will benefit farmers, incentivize the development of the agro-processingsector, and enhance farm productivity.

During the last five years ending 2012-13, the food processing sector has beengrowing faster than the agriculture sector at an average annual growth rate ofaround 8.4%. With the decline in farm employment, additional employmentopportunities have to be created in agro based industries.

Agricultural credit flow achievement was Rs 7,30,765 crore as against the targetof Rs 7,00,000 crore in 2013-14. To facilitate clearance of arrears of previous sugarseasons and timely settlement of cane price for the current sugar season tosugarcane farmers, interest free bank loans of Rs 6600 crore was envisaged asadditional working capital to sugar mills. An incentive of Rs 3300 per ton for rawsugar production targeted for the export market was also given to sugar mills.

Due to higher procurement, stocks of foodgrains in Central Pool stood at 69.84mt as on June 1, 2014. Currently, India is in an anomalous situation of having largestocks of foodgrains with high food inflation.

Public expenditure (comprising public investments and input subsidies) has beenceding its share in total Gross Capital Formation of the agricultural sector to theprivate sector and was 14.7% in 2012-13. As a percentage of agricultural GDP alsoprivate investment has been rising and was 18.1% in 2012-13.

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Government of India

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Agriculture sector: Challenges & Reforms Required


The Economic Survey 2013-14 released in New Delhi today has highlightedseveral challenges and reforms required in the agriculture sector. The EconomicSurvey states that as a concomitant of growth, the share of agriculture and allied sectorin gross domestic product (GDP) declined to 15.2% during the Eleventh Plan andfurther to 13.9% in 2013-14 (provisional estimates—PE). While it still accounts forabout 54.6% of total employment (Census 2011), there has been a decline in theabsolute number of cultivators, which is unprecedented, from 127.3 million (Census2001) to 118.7 million (Census 2011).

According to the Economic Survey, growth rates of productivity in agriculturesector are far below global standards; productivity levels of rice and wheat havedeclined after the green revolution of the 1980s. Another issue is soil degradation dueto declining fertilizer-use efficiency.

Also, the food subsidy has increased substantially in the past few years. Foodsubsidy was Rs. 92,000 crore in 2013-14.

With 60 per cent of the total foodgrains and oilseeds produced being grown in thekharif season, and with just about 35 per cent of arable area being irrigated, Indianagriculture is still dependent on rainfall. The second long-range forcast for the currentyear by the IMD for monsoon season indicates that the monsoon rainfall is likely to be93 per cent of the LPA (model error ± 4 per cent), with 71 per cent probability of


subnormal/deficit rainfall and 70 per cent occurrence of EL Nino. The government hasput in place contingency measures in about 500 districts.

Currently, India is in an anomalous situation of being largely self-sufficient withlarge stocks of foodgrains on the one hand and registering high food inflation.

On domestic and international marketing, the plethora of governmentinterventions that were used to build a marketing set up have actually served as barriersto trade. Removing market distortions will create greater competition in markets,promote efficiency and growth and facilitate the creation of a national agriculturalmarket.

For establishing a national common market, the Economic Survey hasrecommended the following reforms:

I. Examine the APMC Act, EC Act, Land Tenancy Act, and any such legally createdstructures whose provisions are restrictive and create barriers to free trade.

II. Rigorously pursue alternate marketing initiatives, like direct marketing andcontract farming.

III. Examine inclusion of agriculture related taxes under the General Goods andServices Tax (GST)

IV. Establish stable trade policy based on tariff interventions instead of non-tarifftrade barriers.

V. Develop and initiate competition in the agro-processing sector. Incentivize theprivate sector to scale up investments.

VI. In this scenario of bumper production and stocks, a paradigm shift in the role ofthe government in all aspects of foodgrain production and distribution isnecessary.

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Government of India

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Agriculture sector: Challenges & Reforms Required


The Economic Survey 2013-14 released in New Delhi today has highlightedseveral challenges and reforms required in the agriculture sector. The EconomicSurvey states that as a concomitant of growth, the share of agriculture and allied sectorin gross domestic product (GDP) declined to 15.2% during the Eleventh Plan andfurther to 13.9% in 2013-14 (provisional estimates—PE). While it still accounts forabout 54.6% of total employment (Census 2011), there has been a decline in theabsolute number of cultivators, which is unprecedented, from 127.3 million (Census2001) to 118.7 million (Census 2011).

According to the Economic Survey, growth rates of productivity in agriculturesector are far below global standards; productivity levels of rice and wheat havedeclined after the green revolution of the 1980s. Another issue is soil degradation dueto declining fertilizer-use efficiency.

Also, the food subsidy has increased substantially in the past few years. Foodsubsidy was Rs. 92,000 crore in 2013-14.

With 60 per cent of the total foodgrains and oilseeds produced being grown in thekharif season, and with just about 35 per cent of arable area being irrigated, Indianagriculture is still dependent on rainfall. The second long-range forcast for thecurrent year by the IMD for monsoon season indicates that the monsoon rainfall is


likely to be 93 per cent of the LPA (model error ± 4 per cent), with 71 per centprobability of

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Government of India

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Developing countries must get judicious Carbon and Development Space in newclimate deals

Human- induced Greenhouse gas emissions are chiefly responsible for climatechange


The Economic Survey presented in Parliament says that the global climatecommunity faces a deadline for reaching an agreement in 2015, bringing in more than190 countries to pledge emission cuts for the post 2020 period. It is important that futureagreements should take into account developing countries concerns and requirementsfully. The issue of how developed and developing countries will be treated in theseglobal pacts is the most crucial aspect.

New climate deals must ensure that developing countries are granted the required“carbon space and development space”. Governments are currently working on two newagreements on climate change and sustainable development, both of which will be newglobal frameworks for action to be finalized next year. Following the Rio+20 mandate,the global community is working to develop a set of Sustainable Development Goals(SDGs), possibly to be integrated with Millennium Development Goals (MDGs), whenthey end in 2015.

The survey notes that Human- induced Greenhouse gas (GHG) emissions aregrowing and are chiefly responsible for climate change. The world is not on track forlimiting increase in global average temperature to below 2◦C, above pre-industrial levels.GHG emissions grew on average 2.2 per cent per year between 2000 and 2010,compared to 1.3 per cent per year between 1970 and 2000.

ECONOMIC SURVEY

As far as India is concerned, India’s per capita carbon emissions increased from0.8 metric tons to 1.7 metric tons in 2010, well below the world average of 4.9 metrictons in 2010. India has already committed that its per capita emissions will not exceedthose of the developed countries under any circumstances. India is making progress inimplementing national plans on climate change. It has reduced its CO2 emissions perunit GDP by 20 per cent between 1990 and 2011. There has been considerableprogress in achieving targets under National Action Plan on Climate Change. StateAction Plans on Climate Change for 9 states have been endorsed. The cumulative costsof India’s low carbon strategies have been estimated at around USD 834 billion at 2011prices, between 2010 and 2030. Even though India has accommodated the sustainabilityconcerns in the development path, it is constrained in its effort, as the magnitude ofresources required is very large. Raising new and additional resources for SDGs and thenon-capitalization of the Green Climate Fund is a matter of serious concern and maythreaten the credibility of the global negotiation process.

The global negotiations provide an excellent opportunity to ensure a fair burdensharing, cooperation between the rich and poor nations. At the heart of this challengenow lies a fair division of global rights and responsibilities. The survey calls for decisiveaction to achieve the goals of sustainable development and it underlines that the climatedeals must ensure that developing countries be given their fair share of carbon anddevelopment space.

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Economic Survey 2013-14


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New Delhi, July 9, 2014Ashadha 18,1936

HIGHLIGHTS INTERNATIONAL TRADE

Sharp fall in trade deficit, closes in by 27.8% to $ 137.5 billion. In

FY 2014-15 first quarter trade deficit declined by another 42.4%.

Exports grew by 4.1% over negative growth of 1.8% in 2012-13.

Exports log double digit growth in May, 2014 after a gap of 6

months.

Imports drop by 8.3%, after steep slowdown during the previous FY

2012-13. Trend continues in April-May, 2014 as imports fell by

13.2%.

Following government intervention, gold and silver imports fell by

40.1 percent to $33.4 billion in 2013-14.

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TRADE DEFICIT IMPROVES, FALLS SHARPLY BY 27.8 PERCENT

TURNAROUND IN EXPORTS, GROWS BY 4.1 PERCENT OVER MINUS 1.8PERCENT IN 2012-13

IMPORTS FELL BY 8.3 PERCENT AFTER STEEP SLOWDOWN DURINGPREVIOUS YEAR

New Delhi, July 9, 2014Ashadha 18,1936

TRADE DEFICIT

In the Financial year 2013-14 there were encouraging signs on theforeign trade front as India’s trade deficit recorded a sharp fall. The export-import deficit bridged in by 27.8%, from US$190.3 billion during 2012-13 to$137.5 billion. In Financial Year (FY) 2014-15 first quarter trade deficit declinedby another 42.4%.

The sharp fall in trade deficit was largely due to a fall in imports of goldand capital goods as non-Oil import deficit fell sharply to $35 billion from$87.2 billion during the previous FY. However, there was not much change inthe POL (Petroleum, Oil and Lubricants) deficit which was hovering at around

$100 billion in the last two years and constituted 36.7% of total imports during2013-14.

EXPORTS

In 2013-14 India’s exports stood at $312.6 billion as against the targeted$325 billion. This represented a turnaround of 4.1% growth rate from theprevious year’s negative growth of 1.8%. In the first quarter of current FY,export growth was slightly better at 5.3% in April, 2014 and for the first time insix months exports growth logged double digit growth at 12.4% in May, 2014.As regards sectoral performance, many sectors which recorded negative growthrate in 2012-13, have moved to the positive zone, barring gems and jewelleryand electronic goods. Many labour-intensive export sectors like textiles, leather,handicrafts and carpets have performed relatively better. While textiles exportsgrew by 14.6 percent, the exports in leather and leather manufacturers sectorrecorded a 16.7 percent jump, with the European Union and USA being themajor markets. The share of India’s textile exports to China also rose fromaround 2 percent in 2010-11 to 5 percent in 2012-13 and further to 7 percentin 2013-14.

The Services sector including travel, transportation and insuranceimproved slightly in 2013-14 with a 4 percent growth rate, compared to 2.4percent during the previous year.

IMPORTS

The sharp decline in trade deficit is largely attributable to a fall inimports. Imports dropped by 8.3%, after steep slowdown during the previous FY2012-13. Import growth had decelerated sharply from 32.3 percent in 2011-12

to 0.3 percent in 2012-13 and clocking a negative (-) 8.3 percent in 2013-14.The trend continued during April-May, 2014 as imports fell by 13.2%. On theback of several measures taken by the government, the value of gold andsilver imports fell by 40.1 percent to $33.4 billion in 2013-14, with the import ofyellow metal declining from 1,037 tonnes in 2012-13 to 664 tonnes.

OUTLOOK

The pick-up in India’s exports in April-May 2014, after five months oflow/negative growth, though a positive sign, is partly due to the low base. Thequarterly and monthly export and import growth performance of the world andmajor trading countries is also not very encouraging. Thus world trade andIndia’s exports are still fragile, the recent good performance notwithstanding.There is also the downside risk of external shocks like the latest increase inoil prices owing to the Iraq crisis.

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ECONOMICSURVEY 2013-14

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INDUSTRIAL GROWTH TO BE REVIVED BY CORPORATE SECTORINVESTMENT, PUSHING AHEAD CRITICAL REFORMS AND REMOVAL OF

INFRASTRUCTURE BOTTLENECKS

New Delhi, July 09, 2014

Noting that the industrial growth has slowed down considerably in the recent years, theEconomic Survey highlights the need for revival of corporate sector investment, pushing aheadwith critical reforms and removal of infrastructure bottlenecks . These key steps would reviveindustrial growth.

The main highlights of the Economic Survey relating to industrial performance are asbelow:-

The latest gross domestic product (GDP) estimates show that industry grew by just 1.0 percent in 2012-13 and slowed further in 2013-14, posting a modest increase of 0.4 per cent. Thekey reasons for poor performance have been contraction in mining activities and decelerationin manufacturing output. Manufacturing and mining sector GDP declined by 0.7 per cent and1.4 per cent respectively in 2013-14. The underlying cause of the poor performance of thesetwo sectors has been considerable deceleration in investment particularly by the privatecorporate sector during 2011-12 and 2012-13.

Further, slowdown in construction activities has resulted in capacity underutilization in thesteel and cement sectors. Steel and cement consumption rose by just 0.6 per cent and 3.0 percent respectively in 2013-14. As per the use-based industrial classification of IIP, the index ofcapital goods declined by 6.0 per cent in 2012-13 and further by 3.6 per cent in 2013-14.Continuing slowdown has impacted the performance of the corporate sector. Sales growth ofthe corporate sector particularly in respect of listed manufacturing companies for the privatesector, declined considerably from 25.3 per cent in Q1 of 2011-12 to 5.0 per cent in Q4 of2013-14.

As per the latest data available on gross capital formation by industry of use at constant(2004-05) prices, a sharp decline in the growth rates of the fixed investment of mining,manufacturing and private corporate sector has been estimated. The decline is far steeper incase of unregistered manufacturing pointing towards paucity of funds available to theinformal sector businesses. During 2013-14, FDI inflow (including equity inflows, reinvestedearnings and other capital) was US$ 36.4 billion. Net FDI inflows had been $ 21.6 billionduring 2013-14. Overall gross bank credit flow to industry has increased by 14.9 per cent in2013-14, lower in comparison with 20.9 per cent growth achieved in 2011-12 and 17.8 percent growth in 2012-13. Credit flow to mining remained near stagnant as it increased by mere0.05 per cent during 2013-14.

In order to boost manufacturing sector, the government has already announced setting up ofsixteen national investment and manufacturing zones (NIMZs). Of these, eight are along theDelhi Mumbai Industrial Corridor (DMIC). Besides, eight other NIMZs have been given in-principle approval, viz (i) Nagpur in Maharashtra, (ii) Chittoor in Andhra Pradesh, (iii) Medakin Andhra Pradesh (now Telengana), (iv) Prakasam in Andhra Pradesh; (v) Tumkur inKarnataka; (vi) Kolar in Karnataka; (vii) Bidar in Karnataka; and (viii) Gulbarga inKarnataka. The government has also been monitoring progress of Delhi-Mumbai IndustrialCorridor (DMIC), Chennai Bangalore Industrial Corridor (CBIC), Bengaluru-MumbaiEconomic Corridor (BMEC), East Coast Economic Corridor (ECEC) including Vizag-Chennai Industrial Corridor (VCIC) and Amritsar-Kolkata Industrial Corridor (AKIC).

In view of the ongoing industrial slowdown, the policy focus now needs to target key growthdrivers in the short term. One of the crucial drivers can be revival of the private corporatesector investment. The current industrial sector downturn presents an opportunity to pushahead with critical reforms and removal of infrastructure bottlenecks. Industrial policy needsto focus on labour-intensive and resource-based manufacturing in informal sector torejuvenate small businesses. In the medium term, challenge for the Indian manufacturing is tomove from lower tech to higher tech sectors, from lower value-added to higher value addedsectors and from lower productivity to higher productivity sectors.

The near term industrial outlook is conditional on continued improvements in the policyenvironment and quick return to peak investment rate. With the improvement in overallmacroeconomic environment, industry is expected to revive and growth can accelerategradually over the next two years.

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16 NATIONAL INVESTMENT AND MANUFACTURING ZONES(NIMZs) TO BOOSTMANUFACTURING SECTOR


In order to boost manufacturing sector, the government has already announced setting upof sixteen national investment and manufacturing zones (NIMZs). The National ManufacturingPolicy (NMP) has the objective of enhancing the share of manufacturing in GDP to 25 per centand creating 100 million jobs over a decade. The NMP provides for promotion of clusters andaggregation, especially through the creation of national investment and manufacturing zones(NIMZ). Till 2013-14, 16 NIMZs are being set up. Of these, eight are along the Delhi MumbaiIndustrial Corridor (DMIC). Besides, eight other NIMZs have been given in-principle approval:(i) Nagpur in Maharashtra, (ii) Chittoor in Andhra Pradesh, (iii) Medak in Andhra Pradesh (nowTelengana), (iv) Prakasam in Andhra Pradesh (v) Tumkur in Karnataka, (vi) Kolar in Karnataka,(vii) Bidar in Karnataka, and (viii) Gulbarga in Karnataka.

The DMIC project was launched in pursuance of a memorandum of understanding(MOU) signed between the Government of India and the Government of Japan in December,2006. The project, spans the states of Uttar Pradesh, Haryana, Rajasthan, Madhya Pradesh,Gujarat, and Maharashtra along the Western Dedicated Freight Corridor (DFC) of the Railways.The DMIC Development Corporation (DMICDC), incorporated in 2008, is the implementingagency for the project. The Master plans for all the nodes except the Dadri-Noida-GhaziabadInvestment Region in Uttar Pradesh have been completed and approved by the stategovernments. Land acquisition for the new industrial regions/ areas as well as for the early birdprojects identified for development as model initiatives is in different stages of progress indifferent states. The DMIC Trust has taken investment decisions on nine projects and action toimplement them has already been initiated by the DMICDC.

The Chennai-Bengaluru-Chitradurga industrial corridor (around 560 km) will benefit thestates of Karnataka, Andhra Pradesh, and Tamil Nadu. The Japan International CooperationAgency (JICA) Study Team undertook the Preliminary Study for Comprehensive IntegratedMaster Plan for Chennai-Bengaluru Industrial Corridor (CBIC) and identified a total of 25priority projects across various sectors aimed at removing infrastructural bottlenecks. Progresson these projects is being regularly monitored.

India and the United Kingdom have signed an MOU for the development of a newBengaluru-Mumbai Economic corridor (BMEC). A feasibility study has been undertaken and isscheduled to be completed during 2014. A joint steering group will be set up for the projectafter the feasibility study.

A concept note has been prepared by the Asian Development Bank (ADB) on an EastCoast Economic Corridor linking Kolkata-Chennai-Tuticorin and it has been decided to initiate afeasibility study with the help of the ADB. In view of the commitment made by the centralgovernment under the Andhra Pradesh Reorganisation Act, 2014, in the first phase of the studythe ADB will focus on the Vizag-Chennai Section so that a final view on the Chennai-VizagIndustrial Corridor may be taken within the timeline prescribed in the Act and further actiontaken accordingly.

The government has, in January 2014, accorded ‘in principle’ approval for setting up ofan Amritsar-Kolkata Industrial Corridor (AKIC) along a 150-200 km band on either side of theEaster Dedicated Freight Corridor(EDFC) in a phased manner. The proposed Corridorcomprises seven states: Punjab, Haryana, Uttarakhand, Uttar Pradesh, Bihar, Jharkhand and WestBengal. The government has also approved ‘in principle’ formation of an Amritsar-KolkataIndustrial Corridor Development Corporation (AKICDC). It is proposed to set up the AKICDCduring 2014-15 to kickstart work on the AKIC.

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STEPPING UP BUSINESS ENVIRONMENT


Over the next few years, the government, both at the centre and in states, has to considerways of improving the business environment for small businesses. While the long-term solutionis a wholesale revamping of the laws and regulations governing business, a number of steps canbe taken in the short term, and a number of policy experiments could be initiated for the longterm.

Steps in the Short Run:

1. Create a website with all the rules and regulations applicable to businesses across statesand the centre.

2. Review the existing regulatory landscape for outdated regulations which can safely bedone away with.

3. Strengthen grievance redressal mechanisms against inspections.

4. Minimize human interaction and shift reporting and data submission to an online-onlymode wherever possible.

5. Shift important decision making from the inspector to higher-level officers.

6. Create a system for self-certification and third-party certification.

7. Allow firms a time period to remedy faults and lack of compliance rather than penalizethem immediately.

8. The government could institute a ‘use it or lose it’ policy to free up locked land, whichcan be used for industrial estates, common facilities, incubators, etc.

9. The Apprenticeship Act should be amended.

Mid-term Steps:

1. Get states to share best practices on business regulations and see what can form thebasis for tried and tested regulatory change.

2. Based on these inputs, create a state-approved model regulatory structure that isavailable for businesses opening up in NIMZs.

Long-term Steps:

1. Indian legislation governing business needs to be thoroughly revamped. A committeecould be constituted with the mandate to propose a more streamlined and modern setof laws, especially in the areas of taxation, labour, environment, and safety.Preliminary work can be started here, but in controversial areas, the focus has to beon building consensus for the time being.

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Industrial Upturn Depends on Improved Policy Environment and Higher Investment Rates


The near-term industrial upturn is conditional on continued improvements in the policyenvironment and a quick return to peak investment rates. The HSBC India ManufacturingPurchasing Managers’ Index (PM) increased marginally from 51.3 in April to 51.4 in May, 2014.It indicates some improvement in manufacturing activities and domestic and exports orders.Lead indicators for the first two months of the current financial year for power generation andproduction of cement, steel, fertilizers, and coal show improvement. Railways freight earningsand exports have also picked up, raising hopes of increased industrial activity in the comingmonths. The index of eight core infrastructural supporting industries registered a growth of 4.2per cent in April 2014 as compared to 3.7 per cent growth recorded in April, 2013. Further IIP-based overall industrial growth was 3.4 per cent in April 2014 as compared to the 1.5 per centgrowth recorded in April, 2013.

With the improvement in overall macroeconomic environment, industry is expected torevive and growth can accelerate gradually over the next two years.

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NEED TO PROMOTE STRUCTURAL CHANGES IN MANUFACTURING IN THEMEDIUM TERM


Indian industry has immense potential for further strengthening the agro-processing,textiles and garments, and leather and footwear sectors with good prospects for sustainedemployment generation. But the medium-term challenge for Indian manufacturing is to movefrom lower to higher-tech sectors, from lower to higher value added sectors, and from lower tohigher productivity sectors. Medium-tech industries are primarily capital intensive and resourceprocessing and high-tech industries are mainly capital and technology intensive. In order topush the share of manufacturing in overall GDP to the projected 25 per cent, Indianmanufacturing need to capture the global market in sectors showing a rising trend in demand.These sectors are largely high technology and capital intensive. Such high-tech industries mayperform a less important role in sustaining employment but are critical for capital accumulationand skills development and for improving the knowledge base. To gain a firm footing in thesesectors, the policy thrust should be on pushing up the level of public and private expenditure ontechnology upgradation, research and development, innovation, and skill development.

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Moderate Deployment of Credit to Industries in 2013-14


Deployment of credit to industries moderated in 2013-14, even as credit to agricultureand allied activities, services, and personal loans picked up. Gross bank credit deployment tomedium and large industries has been comparatively lower in 2013-14. The credit flow to microand small enterprises has, however, shown robust growth. Deceleration in credit growth hasbeen observed in the mining, infrastructure, cement, coal, metals, and gems and jewellery sectorswhile in sectors such as food processing, construction, leather, rubber, glass, and paper, a pick-uphas been witnessed.

Overall credit flow to industry increased by 14.9 per cent in 2013-14, lower incomparison with the 20.9 per cent growth achieved in 2011-12 and 17.8 per cent in 2012-13.Credit flow to mining remained near stagnant at 0.05 per cent during 2013-14. In keeping withthe performance of the power sector during 2013-14, credit flow to the sector rose by 24.9 percent over the previous year. Looking at the individual sector-level credit absorption, petroleum,chemicals and chemical products, basic metals, transport, and all engineering sectors showedlower growth in gross bank credit flow during 2013-14, as compared to the previous year mainlyowing to the slowdown in these sectors.

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LOW AND STABLE INFLATION, TAX AND EXPENDITURE REFORM AND AWELL-FUNCTIONING MARKET ECONOMY A MUST TO IMPROVE LONG-TERM

GROWTH PROSPECTS


Investments can be revived by improving long term-growth prospects. For this, reformsare needed on three fronts: creating a framework for sustained low and stable inflation,setting public finances on a sustainable path by tax and expenditure reform, and creating thelegal and regulatory framework for a well-functioning market economy.

First, the government must ensure a low and stable inflation rate through fiscalconsolidation, establishing a monetary policy framework, and creating a competitive nationalmarket for food. Initiation of reforms on these fronts will reduce inflation uncertainty andrestore a stable business environment. Further lower inflationary expectations would

increase domestic household financial saving and make resources available for investment.

Second, public finances need to be put on a sustainable path. India needs sharp fiscalcorrection, a new Fiscal Responsibility and Budget Management (FRBM) Act with teeth,better accounting practices, greater transparency and improved budgetary management.Improvements on both tax and expenditure are needed to obtain high quality fiscaladjustment. The tax regime must be simple, predictable and stable. This requires a single-rategoods and services tax (GST), fewer exemptions in direct taxes, and a transformation of taxadministration. Government expenditure reform involves three elements: shifting subsidyprogrammes away from price subsidies to income support, a change in the focus ofgovernment spending towards provision of public goods, and a focus on outcomes through animprovement in systems of accountability. A focus on health and education outcomes, ratherthan inputs and expenditure must be a priority. Improvements in credit ratings, lowerinflation, lower cost of capital, and greater business confidence that would ensue will yieldshort-term benefits in response to long-term initiatives.

Third, the government faces the task of putting in place the legal foundations of a well-functioning market economy for India. This must be a carefully executed project as it involveslegislative, regulatory, and administrative changes. It involves both removing existingrestrictions where there is no market failure and building state capacity to allow businesses tooperate in a stable environment. This will help improve the ease of doing business. Whileproduct markets have seen reform in India, there is a pressing need to reform factor marketssuch as those for land, labour and capital. Reforming the financial sector would involvereducing financial repression through which the state usurps a large share of householdfinancial savings, financial sector regulatory reform and changing the laws and regulationsgoverning the flow of foreign capital into India.

Reforming the food market is a huge challenge. Restrictions on farmers to buy, sell andstore their produce to customers across the country and the world imposed by Indian lawsenacted in the 1950s and 60s have not been removed, even though restrictions on industrywere removed long ago. Restoring economic freedom of farmers and allowing them to bepart of a competitive national market is essential for controlling food inflation. There is ahuge opportunity today for Indian agriculture to be transformed through creation of marketsas well as state intervention in public goods such as rural infrastructure and training as well assetting up modern regulatory frameworks for warehousing and commodity futures.Rationalisation of subsidies on inputs such as fertilizer and food is essential. Governmentneeds to eventually move towards income support for farmers and poor households, so that

market forces are able to respond to changes in consumption and technology.

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FRESH THINKING ON A RESPONSIBLE FISCAL POLICY FRAMEWORKREQUIRED


Fresh thinking is required on a responsible fiscal policy framework. The fiscal situationof the central government is worse than it appears, given the acceleration of inflation from2006 to 2014. These inflation shocks effectively reduced the value of outstanding debt.This has harmed the interests of households but has reduced the debt burden of thegovernment. These inflation shocks are unlikely to recur in the future.

This warrants a fresh thinking on a responsible fiscal policy framework. This should feedinto a new FRBM Act. The modified Act needs to take into account business cycles and tohave penalties that are strong enough so that it cannot be ignored.

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GST TO BE A MAJOR MILESTONE FOR INDIRECT TAX REFORM

DTC REQUIRED AS A CLEAN MODERN REPLACEMENT FOR EXISTING ITLAWS


In a non-market economy, in addition to laws, taxes and subsidies are used forencouraging or discouraging activities that the central planner considers good for theeconomy. India’s complex tax system suffers from problems in both structures andadministration. Uneven and high tax rates and uneven tax treatment of similar economicactivities have induced distortions in the behavior of firms and households. Tax reform inIndia can improve the ease of doing business and promote efficiency and productivitygrowth.

There is consensus that the GST will be a major milestone for indirect tax reform inIndia. Replacing all existing indirect taxes by the GST will create a national market,eliminate cascading taxes, and align taxation of imports and exports correctly. This willimprove the competitiveness of production and export from India. The implementation of aCentral GST (CenGST) could be the first step towards the GST. Once the CenGST isimplemented, and the information technology system for CenGST has worked, estimationrisk will be lower and it will be easier for the centre and states to move to the GST.

Just as the GST is a transformation of indirect taxes, the DTC is required as a cleanmodern replacement for the existing income tax law. As with the GST, the key objectivemust be a simplification with a clean conceptual core, and the removal of a large number ofspecial cesses and exemptions that favour special interest groups. The tax system mustmove away from industrial policy, with incentives for one activity or another, towards asimple framework.

As with the GST, the DTC will yield gains by removing distortions of individualand corporate decision making, reducing compliance cost and litigation, and improving taxcollections.

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BIOMETRIC IDENTIFICATION TO IMPROVE SUBSIDY SCHEMES


Programmes such as food subsidy have huge overhead costs. In other cases, such as thefertilizer subsidy, the expenditures generate a distorted resource allocation that hampersproductivity. Besides, not all the money put into subsidy schemes reaches the poor.

Therefore, it is increasingly feasible to identify households below the poverty line andgive them cash. The new technologies of biometric identification, and payments throughmobile phones, have created a range of new possibilities for the design of programmes.These would lead to a reduction in poverty at a lower cost when compared with the presentsubsidy programmes.

Subsidy programmes are particularly problematic when they hamper changes in pricesand the consequent shifts in resource allocation which must take place. When the price ofdiesel rises, in the medium term, the economy shifts away from diesel. But this adaption isblocked if the price of diesel is not actually raised. When the purchase price for cereals israised, cereal production becomes more attractive, even though consumers might wantmore non-cereals.

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LIBERALISING AGRICULTURE


State APMC laws are a major hurdle to modernization of the food economy. They haveartificially created cartels of buyers who possess market power. APMCs remain a non-levelplaying field. In addition, some state governments have introduced barriers to trade within thecountry through taxation and technical requirements. The Essential Commodities Act 1955, anenabling Act which gives powers of intervention to state governments is incompatible with anintegrated competitive national market for food.

Parliament has the power to legislate a national market under the Constitution, whichgives it the ability to legislate the freedom to buy and sell, for farmers and traders, across statelines. This law can override state APMC laws and restrictions that have been placed on thefarmer’s right to sell food within and outside the state. Under such a law, APMCs wouldbecome one among many trading venues in a competitive market. Further, under theConstitution, Parliament can legislate the creation of a Commission that monitors the country foranti-competitive practices.

Alongside the removal of conventional interventions in the food economy, there is a needto place a priority upon the three national-level public goods in the field of food: production ofknowledge, financial regulation of futures trading, and information interventions that address themarket failure in warehousing.

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***PERFORMANCE OF CORE INDUSTRIES AND INFRASTRUCTURE SERVICES

SHOWS A MIXED TREND IN 2013-14;

SURVEY CALLS FOR ENHANCED INFRASTRUCTURE INVESTMENT, IMPROVINGPRODUCTIVITY AND REMOVING PROCEDURAL BOTTLENECKS

New Delhi: Ashadha 18, 1936July 09, 2014

Major sector-wise performance of core industries and infrastructure services during 2013-14 shows a mixed trend. While the growth in production of power and fertilizers was comparativelyhigher than in 2012-13, coal, steel, cement, and refinery production posted comparatively lowergrowth. The Economic Survey 2013-14 tabled in the Parliament today by the Finance Minister ShriArun Jaitley mentions that crude oil and natural gas production declined during 2013-14. Amonginfrastructure services, growth in freight traffic by railways and cargo handled by major ports and thecivil aviation sector (except import cargo) has been comparatively higher during 2013-14. In the roadsector the National Highways Authority of India (NHAI) posted negative growth of 33 per centduring 2013-14 as compared to the 26.5 per cent growth during 2012-13, says the Survey.

Concerning energy production, the Survey mentions that even though the domestic production ofenergy is projected to increase, import dependence will continue to be high, particularly for crude oilwhere nearly 78 per cent of the demand will have to be met from imports by the end of the twelfthPlan.

As per the Survey, the growth in power generation during 2013-14 (April-March) was 6.0 percent, as compared to 4.0 per cent during April 2012 to March 2013. The capacity-addition target forthe Twelfth Plan period is estimated at 88,537 MW. Against this target, 38,583 MW capacity hasbeen added till April 2014, which constitutes 43.6 per cent of the target envisaged in the TwelfthPlan. The individual targets achieved by the centre, states, and private sectors during this period are30.5 per cent, 47. 2 per cent, and 49.7 per cent respectively, says the Survey.

Regarding the performance of the coal sector in the first two years of the Twelfth Plan, theSurvey states that it has been subdued with domestic production at 556 MT in 2012-13 and 566 MT

in 2013-14. Overall domestic demand for coal during these two years was in the range of 715-720MT. Demand was mainly driven by the power generation sector, whereas demand in the iron andsteel and cement sectors had moderate growth rates. To fill the gap between domestic demand andsupply, the country imported about 146 MT during 2012-13 and about 169 MT of coal during April-January 2013-14 (provisional), the Survey adds. The Survey notes that in India the overall long termdemand for coal is closely linked to the performance of the main end-use sectors i.e., thermal power,iron and steel and cement. Sharp deceleration in the production of natural gas in the past two-threeyears has further increased the energy sector’s dependence on coal.

In the Road sector, the Survey states that a total length of 21,787 km of national highwayshas been completed till March 2014 under various phases of the NHDP. In spite of several constraintsdue to the economic downturn, the NHAI constructed 2844 km length in 2012-13, its highest everannual achievement. During 2013-14 a total of 1901 km of road construction was completed, adds theSurvey.

Regarding telecom sector, the Survey mentions that it has registered phenomenal growthduring the past few years and has become the second largest telephone network in the world, nextonly to China. The Survey observes that a series of reform measures by the government, innovationsin the wireless technology, and active participation by the private sector played an important role inthe growth of this sector. The Survey suggests that policy for better spectrum management throughtrading and sharing needs to be looked into so as to bring down the cost of spectrum.

Recognising the need for streamlining environmental clearances of infrastructure projects, theSurvey states “ There is need for better and more effective coordination amongst various centralministries/ institutions regarding integration of environmental concerns at the inception / planningstage of a project. The Survey further notes that rapid economic growth in recent years has putenormous pressure on existing infrastructure , particularly in transport, energy and communications.It observes unless it is significantly improved, infrastructure will continue to be a bottleneck forgrowth and an obstacle to poverty reduction.

Giving details of financing infrastructure, the Survey states that the latest available data on grossdeployment of bank credit to major infrastructure sectors shows that the rate of growth of bank creditmoderated from an average of 44.8 per cent in 2011-12 to 17.7 per cent in 2013-14. Power sector hadan over 50 per cent share in total credit flow to infrastructure. Both in terms of share in total credit toinfrastructure and rate of growth, the telecom sector witnessed consecutive decline in the last threeyears. The government has put in place a liberal FDI policy, under which FDI up to 100 per cent ispermitted under the automatic route in most sectors/activities. As a result, total FDI inflows intomajor infrastructure sectors registered a growth of 22.8 per cent in 2013-14 as compared to thecontraction of 60.9 per cent during 2012-13, the Survey adds.

From the infrastructure development perspective, the Survey states that while important issueslike delays in regulatory approvals, problems in land acquisition & rehabilitation, environmentalclearances, etc. need immediate attention, time overruns in the implementation of projects continue tobe one of the main reasons for underachievement in many of the infrastructure sectors.

In order to accelerate coal production in the short term, the Survey suggests the need to focus onbuilding critical feeder railways routes for coal for evacuation and movement of coal. Clearingpending environment and forest clearances and rehabilitation issues that have stalled coal productionby private captive blocks and Coal India Limited (CIL) subsidiaries also need to be accorded toppriority. The CIL encompasses the whole gamut of identification of coal reserves and detailedexploration followed by design and implementation and optimizing operations for coal extraction inits mines. The process of restructuring CIL needs to be pushed through swiftly to boost coalproduction, the Survey adds.

Long-term finance for infrastructure projects , the Survey says, one of the issues that needto be addressed in the context of the limitation of banks to finance such projects. Infrastructureprojects, given their long pay-back period, require long-term financing in order to be sustainable andcost effective. A robust and transparent issuance and trading process, uniform stamp duty acrossstates and a well-devised credit enhancement mechanism are some of the issues which needimmediate attention for development of the fixed instrument market in India, the Survey adds.

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DSM/UM/RM

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Economic Survey-2013-14


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Growth forecast for Next Fiscal to remain between 5.4 to 5.9 per cent.Improvements in Current Account and Fiscal deficits to spur higher growth in 2014-15

A record food grains production of over 264 million tonnes is estimated in 2013-14 indicatingan increase of 20 million tonnes in last 5 years


Indian economy is likely to grow in the range of 5.4 to 5.9 per cent in 2014-15overcoming the sub-5 per cent growth of Gross Domestic Product (GDP) witnessed over the lasttwo years. The growth slowdown in the last two years was broad based, affecting in particularthe industry sector. Inflation too declined during this period, but continued to be above thecomfort zone, owing primarily to the elevated level of food inflation. The Economic Survey 2014-15, presented by the Finance Minister Shri Arun Jaitley in the Lok Sabha predicts thatmoderation in inflation would ease the monetary policy stance and revive the confidence ofinvestors, and with the global economy expected to recover moderately, particularly on accountof performance in some advanced economies, the economy can look forward to better growthprospects in 2014-15 and beyond.

The survey also points out at the downside risks to the economy arising from a poormonsoon, the external environment and the poor investment climate. After recovering in 2009-10 and 2010-11 from the crisis and growth slowdown of 2008-09, GDP growth slowed to below 5per cent for two consecutive years, i.e. 2012-13 and 2013-14.

The survey notes that external sector witnessed a remarkable turnaround after the firstquarter of 2013-14 and the year ended with a Current Account Deficit of 1.7 per cent of GDP asagainst 4.7 per cent in 2012-13. Improvement is also observed on the fiscal front, with the fiscaldeficit declining from 5.7 per cent of GDP in 2011-12 to 4.9 per cent in 2012-13 and 4.5 per centin 2013-14. Aided by a favourable monsoon, the agriculture and allied sectors achieved a growthof 4.7 per cent in 2013-14 compared to its long term average of around 3 per cent (between1999-2000 and 2012-13). A record food grains production of 264.4 million tonnes is estimated in2013-14, as per the third Advance Estimates, indicating an increase of more than 20 milliontonnes over the average production during the previous five years. Horticulture production isestimated at 265 million tonnes in 2012-13 and for the first time has exceeded the production offood grains and oilseeds. The robustness of the agriculture and allied sector can be attributed tothe steady increase in gross capital formation (GCF) in this sector. In industry, the contraction inmining and quarrying for the second year in a row in 2013-14 and the negligible growth inmanufacturing over the past two years, indicate the severity of structural bottlenecks. Aslowdown is also noticed in services, in particular the internal trade, transport, and storage

sectors that are largely attributed to the loss of momentum in commodity-producing sectors,especially, the industry sector. Thus, the revival of the industrial sector, with its economy-widelinkages, is central to the revival of aggregate economic activity.

Referring to the demographic dividend, the survey states that India with a large andyoung population has a great demographic advantage. The proportion of working-agepopulation is likely to increase from approximately 58 per cent in 2001 to more than 64 per cent2021. While this provides opportunities, it also poses challenges. Policy makers have to designand execute development strategies that target this large young population.

Demographic advantage is unlikely to last indefinitely. Therefore timely action to makepeople healthy, educated and adequately skilled is of paramount importance.

The survey points out that the priority of the Government will be the revival of businesssentiments that could be at the heart of restarting the investment cycle. Aggregate demand(measured in terms of GDP at market prices) registered a growth of 5.0 per cent in 2013-14 vis-à-vis 4.7 per cent in 2012-13 primarily due to improvement in net exports. The decline in the rateof gross fixed capital formation in 2013-14 reflects subdued business sentiments.

The investment boom in India till 2007-08 was largely due to significant increase ininvestment by the private corporate sector. The steep reduction in the rate of private corporateinvestment, leading to slowdown in overall investment rate in the economy, in recent years,point towards the need for revival of business sentiments. The survey adds that developmentslike the dramatic improvement in the external economic situation with the current accountdeficit declining to manageable levels and reduction in the fiscal deficit in 2013-14, along withsome moderation in inflation, augur well for macroeconomic stabilization and revival of businessconfidence and investment.

In the above context, apart from fiscal consolidation, maintaining a stable externalbalance and further control of inflation, priorities for growth revival include streamliningimplementation procedures to restart the investment cycle; simplification of tax policy, repeal ofarchaic laws governing market access, expansion and entry/exit of firms and revamp of thedispute resolution mechanism for commercial disputes to lend greater predictability to policy;boost to physical infrastructure; and, reforms that enhance productivity in agriculture, etc. arecrucial.

Targeted measures by the government and RBI have improved the external economicsituation significantly, even as India remains exposed to risk on/off sentiments of investors andto policy shifts in advanced economies. Regaining growth momentum requires restoration ofdomestic macroeconomic balance and enhancing efficiency. To this end, the emphasis of policy

would have to remain on fiscal consolidation and removal of structural constraints. Thoughsome measures have been initiated to this end, reversion to a growth rate of around 7-8 percent can only occur beyond the ongoing and the next fiscal.

DSM/UM/RM/SNC/YSK/aka

“15”

Economic Survey-2013-14

PRESS INFORMATION BUREAU

GOVERNMENT OF INDIA

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ECONOMIC SURVEY ASKS THE GOVERNMENT TO MOVE TOWARDSA LOW AND STABLE INFLATION REGIME THROUGH FISCAL

CONSOLIDATION.

SURVEY CALLS FOR REVAMPING SOCIAL SECTOR SCHEMES LIKEMNREGA, NRHM, AND SSA;

FAVORS REFORMING THE FOOD MARKET.

New Delhi: Ashadha 18, 1936

July 09, 2014

GDP at constant prices is expected to grow in the range of 5.4 – 5.9 per cent in 2014-15. There aredownside risks to the economy arising from a poor monsoon, the external environment and the poorinvestment climate.GDP growth slowed to below 5 per cent for two consecutive years, i.e. 2012-13 and2013-14. The combination of domestic structural constraints, inflationary pressures, particularly foodinflation and uncertainty in the global economy, has affected growth and posed challenges formacroeconomic stability.The growth slowdown was broad based, affecting in particular the industrialsector.Aided by favourable monsoons, the agricultural and allied sector grew at 4.7 per cent in 2013-14.

In 2013-14 industry grew at 0.4 per cent. The key reasons for poor performance have been contraction inmining activities and deceleration in manufacturing output. Manufacturing and mining sector GDPdeclined by 0.7 per cent and 1.4 per cent respectively in 2013-14. The underlying cause of the poorperformance of these two sectors has been considerable deceleration in investment, particularly by theprivate corporate sectorduring 2011-12 and 2012-13. In infrastructure delays in regulatory approvals,problems in land acquisition & rehabilitation, environmental clearances and time overruns in theimplementation of projects are matters of concern.

Consumer price inflation declined from 10.21 per cent during FY 2013-14 to about 9.49 per cent in 2013-14. However, food inflation remained stubbornly high during FY 2013-14. Contribution of the commoditysub-groups, ‘fruits and vegetables’, as well as ‘egg, meat and fish’ to the food inflation has been very high.

India’s balance-of-payments position improved in 2013-14 with current account deficit (CAD) at US $ 32.4billion (1.7 per cent of GDP) as against US$ 88.2 billion (4.7 per cent of GDP) in 2012-13. India's exports atUS$ 312.6 billion grew by a positive 4.1 per cent compared to the previous year’s negative growth of 1.8percent. Import growth decelerated from 0.3 per cent in 2012-13 to a negative (-) 8.3 per cent in 2013-14,owing to fall in non-oil imports by 12.8 per cent primarily due to restrictions on gold imports. POL importsgrew marginally by 0.7 per cent.Services grew at 6.8 per cent in 2013-14. The growth rate of the combinedcategory of trade, hotels, and restaurants and transport, storage, and communications decelerated to 3.0 percent while financing, insurance, real estate, and business services grew robustly at 12.9 per cent. Challengesto the external environment remain as the global environment remains uncertain.

In 2013-14, public finances faced serious challenges. With a shortfall in tax revenues and disinvestmentreceipts and higher than budgeted subsidies, interest and pension payments, fiscal consolidation was mainlyachieved through a reduction in grants for creation of capital assets and capital expenditure. An important

factors in the increase in the Centre’s fiscal deficit after 2008-09 has been the sharp increase in subsidiesfrom 1.42 per cent of GDP in 2007-08 to 2.56 per cent of GDP in 2012-13. For 2013-14 (RE) the subsidybill is 2.26 per cent of GDP.

In the financial sector, leverage by infrastructure firms and deteriorating asset quality of the banking sectoremerged as a major concerns. Gross NPAs of banks increased from 2.36 per cent of total credit advanced inMarch 2011 to 4.40 per cent of total credit advanced in December 2013 with infrastructure, iron and steel,textiles, aviation and mining emerging as the stressed sectors.Reforming the financial sector would involvereducing financial repression through which the state usurps a large share of household financial savings,financial sector regulatory reform and changing the laws and regulations governing the flow of foreigncapital into India. The passage of the PFRDA Act, the shift of commodity futures trading into the Ministryof Financeand the first steps towards adoption of improved consumer protection and better regulatorypractices proposed by the Financial Sector Legislative Reforms Commission were the milestones infinancial sector reform in 2013-14.

The Survey identifies the need to address long run problemsto improve the investment climate. Itemphasizes the need for creating a framework for low and stable inflation, setting public finances on asustainable path by tax and expenditure reform, and creating the legal and institutionalframework for awell-functioning market economy.It calls for legislative and administrative reform for building statecapacity to allow businesses to operate in a stable environment and improve the ease of doing business.

The Survey calls for putting public finances on the sustainable path through fiscal correction, a new FiscalResponsibility and Budget Management (FRBM) Act with teeth, better accounting practices, greatertransparency and improved budgetary management. It argues that improvements on both tax andexpenditure are needed to obtain high quality fiscal adjustment.

It calls for a tax regime that is simple, predictable and stable consisting of a single-rate goods and servicestax (GST), fewer exemptions in direct taxes, and a transformation of tax administration. Governmentexpenditure reform should involve three elements: shifting subsidy programmes away from price subsidiesto income support, a change in the focus of government spending towards provision of public goods, and afocus on outcomes through an improvement in systems of accountability. For example, a focus on healthand education outcomes, rather than inputs and expenditure must be a priority.

The Survey recommends that the government needs to move towards a low and stable inflation regimethrough fiscal consolidation, establishing a monetary policy framework, and creating a competitive nationalmarket for food. Initiation of reforms on these fronts should reduce inflation uncertainty and restore a stablebusiness environment. Further lower inflationary expectations should increase domestic household financialsaving and make resources available for investment.

The Survey calls for reforming the food market. Restrictions on farmers to buy, sell and store their produceto customers across the country and the world imposed by Indian laws enacted in the 1950s and 60s havenot been removed, even though restrictions on industry were removed long ago. Restoring economicfreedom of farmers and allowing them to be part of a competitive national market is essential forcontrolling food inflation. There is a huge opportunity today for Indian agriculture to be transformedthrough creation of markets and well as state intervention in public goods such as rural infrastructure andtraining as well as setting up modern regulatory frameworks for warehousing and commodity futures.Rationalisation of subsidies on inputs such as fertilizer and food is essential. Government needs toeventually move towards income support for farmers and poor households, so that market forces are able torespond to changes in consumption and technology.

The Survey also discusses the need for revamping some of the social sector schemes such as MNREGA,NRHM, SSA, etc. It is felt that the outlays for the different schemes have not often translated fully intooutcomes owing to the poor delivery mechanism. Leveraging modern technology for efficient delivery ofprogrammes, removing the multiple layers of governance, simplifying procedures, and greater participatoryrole by the beneficiaries can help in creating a better delivery mechanism. There is a need for greater degreeof accessibility to information for the public, especially about the role, rights, and entitlements of the PRIs.Focused attention on raising the awareness levels and capacity-building activities at gram sabha level anddevolution of powers in real terms, i.e. funds, function, and functionaries to the PRIs will lead to better andmore effective planning, execution, monitoring and social audit of panchayat centric programmes.

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Fiscal Outcome of Central Government in 2013-14 achieved; Fiscal Deficit Contained at4.5% of the GDP

Fiscal Consolidation Remains Imperative for the Economy, says the Economic Survey


Proactive policy action helped government prevent the fiscal slide and remain in fiscalconsolidation mode in 2013-14. According to the Economic Survey 2013-14 released here today,the fiscal outcome of the central government in 2013-14 was in line with the targets set as per theMedium Term fiscal policy statements and was achieved despite the macroeconomic challengesof growth slowdown, elevated levels of global crude oil prices, and slow growth of investment.The fiscal deficit for 2013-14 has been contained at Rs 508149 crore (provisional) which is 4.5%of the GDP. The corresponding figure for 2012-13 was 4.9%. The primary deficit would be1.2% of the GDP in 2013-14 while the revenue deficit is 3.2%.

The revenue receipts in 2013-14 would be Rs 1015279 crore, 8.9% of the GDP. Thegross tax revenue in 2013-14 are provisionally estimated to be Rs 1133832 crore which is 10%of the GDP. The gross tax revenue has shown a decrease of 0.2% in terms of GDP over theprevious year. The shortfall is mainly due to the poor performance of indirect taxes. The totalindirect tax collection for 2013-14 has been Rs 496231 crore, while it was Rs 473792 crore in2012-13. The decline in expected revenue from indirect taxes was mainly on account of generaleconomic slowdown, reduction in duty rates (both customs and excise), lower volume of importsof dutiable goods, and various exemptions. The direct tax collection for 2013-14 has been Rs633473 crore. The percentage of direct tax revenues as part of GDP is 5.6% while indirect taxrevenues constitute 4.4% of the GDP.

The non-tax revenue during the year 2013-14 has gone up to Rs 199233 crore, showing asignificant increase of about 45% compared to the previous year, chiefly on account of dividendsand profits and interest receipts. Non-debt capital receipts which include recoveries of loans,disinvestment receipts and miscellaneous receipts decreased to Rs 36644 crore in RE 2013-14.

The disinvestment programme has had limited success due to subdued market conditionsand yielded Rs 27555 crore.

The total expenditure of the central government was Rs 1563485 crore which constituted13.1% of the GDP. The major subsidies went up to Rs 247596 crore, 2.2% of the GDP. Theinterest payments were Rs 377502 crore, 3.3% of GDP.

With the shortfall in tax revenues and disinvestment receipts, and higher than budgetedsubsidies, interest, and pension payments, the fiscal consolidation was mainly achieved through areduction in grants for creation of capital assets and capital expenditure.

To achieve the debt policy of maintaining stable, sustainable, prudent and market orientedactive debt management, the government conducted buyback and switching of securities which

resulted in reduction in market borrowings by Rs 15000 crore for 2013-14 to Rs 468902 crore. Tobroaden the investor base and develop a competitive market, the government introduced inflationindexed bonds. A positive change in the debt profile of the country has been the reduction of totaloutstanding liabilities of the central and state government, as a proportion of GDP which nowstands at 49.4%. India's central government liabilities-GDP ratio declined from 63.5 per cent in2002-03 to 49.8 per cent in 2013-14 (RE), because the high nominal GDP growth offset both thenew borrowing as well as the nominal interest payments, creditors have demanded.

Economic Survey says that despite the global and domestic challenges, the economyachieved its targeted fiscal consolidation in 2013-14 but this was done by cutting expenditure(majorly plan /capital expenditure) which is unsustainable for an economy. It says thataddressing the risk of food, fertilizer and petroleum subsidies is critical. Another challenge lies inimproving tax buoyancy, and overall shortfall in non-debt receipts could be contained withgreater efforts at mobilisation and reforms. Fiscal consolidation remains imperative for theeconomy, both in the current context and the years to come with the emphasis on maintaining thequality of adjustment. It is better to achieve fiscal consolidation partly through a higher tax- GDPratio than merely through reduction in the expenditure to GDP ratio, in view of the large unmetdevelopment needs.

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WPI Inflation Shows Sign of Receding fell to 5.98% during 2013-14

Food Inflation Remains High

Wholesale and Consumer Price Inflation expected to Decline


Economic Survey 2013-14 states that in comparison with previous years, inflation showedsigns of receding with average wholesale price index (WPI) inflation falling to a three-year low of5.98 per cent during 2013-14, compared to 7 and 9% over the previous two years. Consumer price


inflation, though higher than the WPI, has also exhibited signs of moderation with CPI (new-series) inflation declining from 10.21 per cent during FY 2013-14 to about 9.49 per cent in 2013-14. Food inflation, however, remained stubbornly high during FY 2013-14, reaching a peak of11.95% in third quarter.

High inflation, particularly food inflation, was the result of structural as well as seasonalfactors. Contribution of the commodity sub-groups, ‘fruits and vegetables’, as well as ‘egg, meatand fish’ to the food inflation has been very high.

Inflation in Non Food Manufactured Product (WPI core) has remained benign throughoutthe year, with average inflation moderated to four year low of 2.9 per cent in 2013-14, whichindicates that underlying pressures of broad-based inflation have somewhat eased.

IMF has projected that most global commodity prices are expected to remain flat during2014-15, which augurs well for inflation in emerging market and developing countries includingIndia. The WPI inflation is expected to moderate by the end of 2014. However, there are risks tothe outlook for inflation from a possible sub-normal monsoon during 2014-15 as predicted by theIMD on account of El-Nino effect, possible step up in the pass-through of international crude oilprices, and exchange rate volatility.

The course of gradual monetary easing that had started alongside some moderation ofinflationary pressures at the beginning of the financial year 2013-14 was disrupted in May 2013,following indications of possible tapering of the US Fed’s quantitative easing programme. TheRBI with a view to restoring stability to the foreign exchange market, hiked short term interest ratein July and compressed domestic money market liquidity.

Following the ebbing of volatility in the foreign exchange market, RBI initiatednormalisation of the exceptional measures in a calibrated manner since its mid-quarter review(MQR) of September 20, 2013. The interest rate corridor was realigned to normal monetary policyoperations with the MSF rate being reduced in three steps to 8.75 per cent between September 20,2013 and October 29, 2013.

RBI in its Third Quarter Review of Monetary Policy on January 28, 2014, hiked the reporate by 25 bps to 8 per cent on account of upside risks to inflation, to anchor inflation expectationsand to contain second round effects. The move was intended to set the economy securely on thedisinflationary path.

Liquidity conditions remained tight during the first half (H1) of 2013-14, mainly reflectingpolicy intent to stabilise the exchange market pressure. The elevated central government cashbalances with RBI (particularly in Q2 and Q4 of 2013-14), quarterly advance tax outflows, and

festival-induced increase in currency in circulation also contributed towards the tight liquidityphases in 2013-14. In order to prevent excessively worsening of liquidity conditions, which wouldhave impacted financing conditions, RBI undertook measures to inject liquidity through OMOpurchase auctions, overnight repo, MSF and variable rate term repos.

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Economic Survey Underlines Significant Improvement in BoP Position

New Delhi: July 09, 2014Ashadha 18, 1936

The India’s balance-of-payments position improved dramatically in 2013-14 withcurrent account deficit (CAD) at US $ 32.4 billion (1.7% of GDP) as against US $88.2 billion (4.7% of GDP) in 2012-13.

The annual average exchange rate of the Rupee went up from 47.92 per US dollar in2011-12 to Rs. 54.41 per US dollar in 2012-13 and further to Rs. 60.50 per US dollarin 2013-14.

India’s foreign exchange reserves increased from US $ 292.0 billion at end March2013 to US $ 304.2 billion at end March, 2014.

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India’s BoP Position Improves Dramatically in 2013-14


The Economic Survey 2013-14, presented today in the Lok Sabha by the UnionFinance Minister Shri Arun Jaitley, has noted that India’s Balance of Payments (BoP)position improved dramatically in 2013-14, particularly in the last three quarters. Thisowed in large part to measures taken by the Government and the Reserve Bank of India(RBI) and in some part, to the overall macroeconomic slowdown that fed into the externalsector. Current account deficit (CAD) declined sharply from a record high of US $ 88.2billion (4.7 per cent of gross domestic product GDP) in 2012-13 to US $ 32.4 billion (1.7 percent of GDP) in 2013-14. After staying at perilously unsustainable levels of well over 4.0per cent of GDP in 2011-12 and 2012-13, the improvement in BoP position is a welcomerelief and there is need to sustain the position going forward, the Survey noted.

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Annual Average Exchange Rate Goes Up


The Economic Survey 2013-14, presented today in the Lok Sabha by the UnionFinance Minister Shri Arun Jaitley, has noted that the annual average exchange rate of therupee went up from Rs. 47.92 per US dollar in 2011-12 to Rs. 54.41 per US dollar in 2012-13and further to Rs 60.50 per US dollar in 2013-14. The large depreciation of the rupee duringthe course of the year, notwithstanding sizeable accretion to reserves in 2013-14, couldpartly be attributed to frictional forces and partly to the role of expectations in the forexmarket. The rupee has stabilized recently, reflecting an overall sense of confidence in theforex market as in other markets.

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India’s Foreign Exchange Reserves Increase


The Economic Survey 2013-14, presented today in the Lok Sabha by the UnionFinance Minister Shri Arun Jaitley, has noted that India’s foreign exchange reservesincreased from US $ 292.0 billion at end March 2013 to US $ 304.2 billion at end march2014. The Survey underlined that India continues to be one of the countries that havesizeable foreign exchange reserves particularly considering that some of the other majorreserve holders are nations with large current account surpluses. Intervention in theforeign exchange markets by the RBI so as to manage the exchange rate of the rupee andguard against volatility without targeting a specific rate is behind the accumulation ofreserves generally. In the specific context of developments in 2013-14, the intervention wasto provide a measure of comfort against the elevated levels of vulnerability indicatorswhich are expressed as proportions of reserves.

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External Debt Remains within Manageable Limits


The Economic Survey 2013-14, presented today in the Lok Sabha by the UnionFinance Minister Shri Arun Jaitley, has noted that India’s external debt has remainedwithin manageable limits due to the external debt management policy, with prudentialrestrictions on debt varieties of capital inflows given the large interest differential. India’sexternal debt stock at end of March 2013 stood at US $ 404.9 billion (Rs. 2,200,410 crore),recording an increase of US$ 44.1 billion (12.2 per cent) over the previous year’s level of US$ 360.8 billion (Rs. 1,844,167 crore). External debt both at end March 2013 and end March2012 is higher than reported earlier in various publications owing to the inclusion ofsecuritized borrowings of banks as reported by the RBI in its external debt statistics.Component-wise, long-term debt increased by 9.1 per cent to US $ 308.2 billion at endMarch, 2013 from US $ 282.6 billion at end March 2012, while short-term debt refers tosuch debt in terms of original maturity unless otherwise stated, increased by 23.7 per centto US $ 96.7 billion from US $ 78.2 billion at end March 2012, reflecting elevated levels ofimports.

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Restrictions on Non-essential Imports to Arrest Negative Market Sentiments


The Economic Survey 2013-14, presented today in the Lok Sabha by the UnionFinance Minister Shri Arun Jaitley, has noted that as India had a large trade deficit in thefirst quarter, negative market perceptions led to sharper outflows in the foreign institutionalinvestors (FIIs) investment debt segment, leading to 13.0 per cent depreciation of the rupeebetween May 2013 and August 2013. The government swiftly moved to correct the situationthrough restrictions on non-essential imports like gold, custom duty hike in gold and silverto a peak of 10 per cent, and measures to augment capital flows through quasi-sovereignbonds and liberalization of external commercial borrowings.

The RBI also put in place a special swap window for foreign currency non-residentdeposit (banks) [(FCNR (B)] and banks’ overseas borrowings through which US$ 34 billionwas mobilized. The one-off flows arrested the negative market sentiments on the rupee and,in tandem with improvements in the BoP position, led to a sharp correction in the exchangerate and a net accretion to reserves in 2013-14.

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Sustaining Improvement in BoP Position – A Challenge


The Economic Survey 2013-14, presented today in the Lok Sabha by the UnionFinance Minister Shri Arun Jaitley, has noted that sustaining the improvement in the BoPposition in the medium term is a challenge. Given the uncertain global environment andthe frequent bouts of flight of capital on aversion to all kinds of risks, there is need to put inplace a mechanism for closely monitoring developments and assessing vulnerabilities so asto take measures to cope with the situation.

The Survey observed that the improvement in the BoP position during the latterhalf of 2013-14 was indeed swift and owed to exceptional measures like restrictions on non-essential imports and limited period incentives for certain varieties of capital flows and theimpact of overall economic slowdown on imports. Sustaining the robust outcome in themedium term is a challenge as some of the restrictions need to be gradually withdrawn andthere is a need to adjust not merely to the asset purchase taper by the US Fed but also tothe eventual exit from the accommodative monetary policy stance by the advancedeconomies.

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Long-term Borrowings Account for 78.2 per cent of Total External Debt


The Economic Survey 2013-14, presented today in the Lok Sabha by the UnionFinance Minister Shri Arun Jaitley, has noted that the maturity profile of India’s externaldebt indicates dominance of long-term borrowings. The long-term external debt accountedfor 78.2 per cent of total external debt at end-December 2013 vis-à-vis 76.1 per cent at end-March 2013. The long-term debt at end - December 2013 increased by US $ 25.1 billion(8.1 per cent) over the level at end-March 2013 while short-term debt declined by US $ 4.0billion (4.1 per cent), reflecting a fall in the levels of imports.

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Planning with Affirmative Action for Inclusion of Women and Children in Growth andDevelopment Process Focused


The Economic Survey 2013-14 presented by the Finance Minister Shri Arun Jaitely as precursorto the General Budget in the Lok Sabha today talks of inclusive development that incorporatessocial and financial inclusion and implementing social sector programmes like povertyalleviation and employment generation, social protection, rural infrastructure and development,urban infrastructure, education and skill development, heath, women and child development andwelfare and development of weaker sections. On women and child development, Shri Jaitelysaid that women and children constitute about 70 per cent of the population of the country andare vulnerable and lag behind in terms of many economic and social parameters. There is a needfor focused planning with affirmative action for inclusion of women and children in growth anddevelopment process with greater share in the decision making process. The new policies that areneeded to address violence against women and children including a new National Policy forChildren NPC 2013 for the realization of the rights of all children have been adopted. A speciallaw, the Protection of Children from Sexual Offences (POCSO) Act 2012 and the SexualHarassment of Women at Workplace (Prevention Prohibition and Redressal Act 2013 have beenenacted for greater inclusion of women and greater share of women in the decision makingprocess.

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Poverty ratio declines to 21.9 per centExpenditure on Education increases to 3.3 per cent of GDP

United Nation’s Human Development Report signifies existing gaps in Health andEducation indicators in India need to be bridged faster



The Economic Survey 2013-14 presented by the Finance Minister Shri Arun Jaitely hasasked policy makers to design and execute development strategies targeting the young populationthat was approximately 58 per cent in 2001 and will increase to more than 64 per cent in 2021. TheGovernment has to take timely action to make people healthy, educated and adequately skilled.Social-sector expenditure

Expenditure on social services by the general government (centre and states) as a proportion oftotal expenditure increased almost continuously from 23.8 per cent in 2008-09 to 25.2 per cent in2013-14 (Budget Estimates). As a percentage of the Gross Domestic Product (GDP), expenditureon social services increased from 6.8 per cent in 2008-09 to 7.2 per cent in 2013-14 (BE).

As a percentage of GDP, expenditure on education has gone up from 2.9 per cent in 2008-09 to3.3 per cent in 2013-14 (BE). There is need not only to increase it further, but also address qualityissues.

Expenditure on health is just 1.4 per cent of GDP. Though, in 2013-14, there was an increasein outlay by 7.44 per cent over the previous year still a lot more needs to be done to providequality and affordable healthcare for the large Indian population.Poverty

The poverty ratio (based on the Monthly Per Capita Expenditure (MPCE) of Rs.816 for ruralareas and Rs. 1000 for urban areas in 2011-12 at all India level), has declined from 37.2 per cent in2004-05 to 21.9 per cent in 2011-12. In absolute terms, the number of poor declined from 407.1million (40.71 crores) in 2004-05 to 269.3 million (26.93 crores) in 2011-12 with an averageannual decline of 2.2 percentage points during 2004-05 to 2011-12.India’s Human Development Rank and performance

According to the United Nations Human Development Report (HDR) 2013, India hasslipped down in HDI with its overall global ranking at 136 (out of the 186 countries) as against134 (out of 187 countries) as per HDR 2012. It is still in the medium human development categorywith countries including China, Egypt, Indonesia, South Africa and Vietnam. India’s HDI of 0.554in 2012 has slipped down a notch from 0.551 in 2011.

The existing gap in health and education indicators in India as compared to developedcountries and also many of the developing countries highlights the need for much faster and widerspread of basic health and education. Life expectancy at birth was 65.8 year compared to 81.3 yearin Norway, 73.7 year in China and 75.1 year in Sri Lanka as per HDR 2013. The Indianperformance in mean years of schooling (4.4 years) is even below that of Bangladesh and Pakistanwhich have lower per capita incomes. However, in terms of average annual HDI growth rate for2000-12, India is well ahead of many countries with high and very high human development.Inequality

Not only is inequality lower in India than many other countries, it has also decreased asreflected in a 9.2 per cent fall in its Gini coefficient from 36.8 during 2010-11 to 33.4 during

2011-12. As per the quintile income ratio, the inequality between the top and bottom quintiles inIndia was lower than in a large number of countries both developed and developing. The HDRmeasures inequality in terms of two indicators. The Gini Coefficient measures the deviation ofdistribution of income or consumption from a perfectly equally distribution among individualswithin a country. The quintile income ratio is a ratio of the average income of the richest 20 percent of the population to that of the poorest 20 per cent.Employment

During 2004-05 to 2011-12, employment growth (Compound Annual Growth Rate[CAGR])was only 0.5 per cent, compared to 2.8 per cent during 1999-2000 to 2004-05 as per usual status.Based on current daily status (CDS), CAGR was 1.2 per cent and 2.6 per cent respectively for thesame periods. However, unemployment rate in India continued to hover around 2 per cent underusual status (principal+subsidary) and fell under CDS steeply from 8.2 per cent in 2004-05 to 5.6per cent in 2011-12.Inter-state comparison

The inter-state comparisons of some major states which show varied performance furnish clearpolicy pointers like the need for greater focus on human development dimension while formulatingand implementing social-sector programmes and in devolution of funds to states.Inclusion of women

The Economic Survey says that empowerment of women is needed to reap the benefits of thetime bound demographic dividend. Greater inclusion of women involves not just a step up in thegender budget which has gone up from 2.79 per cent in 2005-06 to 5.83 per cent of the GBS in2013-14, but also a greater share of women in the decision-making process.

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Massive Investment Needed in Social Infrastructure, Skill Development and Empowermentof Women: Arun Jaitely


The Economic Survey 2013-14 presented by the Finance Minister Shri Arun Jaitely asprecursor to the General Budget presents an analysis of India’s Human Development basic

parameters and gives a new impetus to growth along with targeted policies aimed at both Financialand Social inclusion. It has listed that India’s performance continues to be below global average inmost of the HDI indicators like life expectancy at birth, mean years of schooling, expected years ofschooling and even per capita income. Finance Minister Shri Arun Jaitely said, massive efforts areneeded in the form of investment in social infrastructure, skill development and empowerment ofwomen.Among the Outlook and Challenges for the social sector outlined in the Economic Survey are asfollows:-

The outlook for India on the human development front could be positive given the largedemographic dividend waiting to be tapped. This demographic dividend will benefit India if itspopulation is healthy, educated and adequately skilled. Unleashing the time-bound potential ofdemographic dividend is the biggest challenge for India. This calls for massive investment insocial infrastructure, skill development and empowerment of women.

One of the challenges is to deal with multiple and sometimes overlapping programmes. Amere mark up each year in the Budget for existing programmes or starting some new programmeswill not suffice. What is needed is a ‘zero budgeting’ approach with a revamp, reorganization andconvergence of social-sector schemes with a minimum size prescribed for the schemes.

The outlays for the different schemes have not often translated fully into outcomes owingto the poor delivery mechanism. Leveraging modern technology for efficient delivery ofprogrammes, removing the multiple layers of governance, simplifying procedures, and greaterparticipatory role by the beneficiaries can help in creating a better delivery mechanism. There is aneed for greater degree of accessibility to information for the public, especially about the role,rights, and entitlements of the Panchayati Raj Institutions (PRIs). Focused attention on raising theawareness levels and capacity-building activities at gram sabha level and devolution of powers inreal terms, i.e. funds, function, and functionaries to the PRIs will lead to better and more effectiveplanning, execution, monitoring and social audit of panchayat centric programmes.

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Human Development to be Taken into Account in Formulating and Implementing SocialSector Programmes: Economic Survey 2013-14


The Economic Survey 2013-14 presented by the Finance Minister Shri Arun Jaitely asprecursor to the General Budget in the Lok Sabha today shows some interesting results of inter-statecomparisons of socio-economic development of select states based on available indicators fromvarious sources and furnish some clear policy pointers. While some states have done very well interms of growth indicators, they are poor performers in terms of other human developmentindicators. Shri Arun Jaitely said the Human Development dimension needs to be taken into accountin formulating and implementing social sector programmes and arriving at criteria for devolution offunds to states.

PopulationKerela is the best performing state in terms of the two indicators- Decadal growth of population (4.9per cent) and sex ratio (1084) and is well ahead of other states. Andhra Pradesh is a distant second interms of population growth and third in terms of sex ratio with Tamil Nadu in second place in termsof sex ratio. Bihar has the highest decadal growth of population (25.4) and Haryana the lowest sexratio (879).

GrowthBihar is the best performing state in terms of growth rate of both gross state domestic product(GSDP) 2012-13 (15.1 per cent and average GSDP 2005-06 to 2012-13 (9.9 per cent) and also percapita income growth 2012-13 (13.9 per cent). Madhya Pradesh, Gujarat and Kerela are other statesthat have performed well in all these indicators and well above the all India average. However, interms of absolute values of GSDP and per capita income, Maharashtra and Haryana respectively areat the top. While Tamil Nadu has the lowest growth in GSDP 2012-13 and Assam the lowest averageGSDP growth Rajasthan has the lowest per capita income growth in 2012-13.

PovertyPoverty estimates indicate that Bihar which had the second highest poverty headcount ratio (HCR) in2004-05 moved to first place in 2011-12 with the HCR at 33.7 per cent relegating Odisha to secondplace. Kerala had the lowest poverty (7.1 per cent) followed by Himachal Pradesh (8.1 per cent) andPunjab (8.3 per cent).

HealthInfant Mortality rate (IMR) in 2012 was the lowest in Kerala (12) and the highest in MadhyaPradesh (56) followed by Assam (55), Odisha, and Uttar Pradesh (53 each) against a national IMR of42. Birth rate was also lowest in Kerala (14.9) and highest in Bihar (27.7) against a national averageof 21.6. Death rate was lowest in Maharashtra and West Bengal (6.3) and highest in Odisha (8.5)against a national average of 7.0.

Social sector programmesProgress in terms of 24x7 primary and other health centre facilities under the National Rural HealthMission (NRHM) is highest in Karnataka (2328) followed by Tamil Nadu and Rajasthan, and lowestin Himachal Pradesh (156) and Haryana (398).

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