ECONOMY MATTERS Volume 01 No. 06 June 2013 Inside This Issue Rising Risks for Current Account Deficit Cover Story Foreword 1 Executive Summary 2 Comparison of Various Macro- economic Forecasts: 2013-14 3 Global Trends 4 Domestic Trends 8 Corporate Performance 11 Sector in Focus: Agriculture 15 Special Article: Rising Risks for Current Account Deficit 20 Economy Monitor 26
Global economies are witnessing two-speed recovery with the US economy showing firm signs of recovery, while growth in Euro Area still languishing in sub-optimal territory. Among the Asian economies, growth in Japan and China too continues to remain tepid. We discuss this in detail in the section on Global Trends in this month’s issue of Economy Matters. In the section on Domestic Trends, we analyze that the economic condition in the present scenario is in greater disarray than it was during the breakout of the global financial crisis of 2008-09, when both government as well as the RBI were quick to respond to the challenges and brought the economy back to recovery path within no time. In Corporate Performance, we examine the sectoral performance in the last fiscal in order to find the sectors which were badly hit in the wake of the current bout of economic crisis. The Sectoral spotlight for this issue is on Agriculture, a traditionally important sector of the Indian economy because of its enormous contribution in being the provider of basic source of livelihood to the most of the population in India. However in the recent past various challenges such as low agricultural yield, declining share of public investment, and lack of technological advancements have plagued the sector. We discuss the sector’s challenges and suggest measures to bolster its output. In the Special Article, we discuss India's deteriorating external position in the last few years, manifesting itself in a steady deterioration in the current account which slipped from a surplus at the start of the last decade to a huge deficit of 4.8 per cent in 2012-13. Bulk of the deterioration in current account is attributable to the sharp rise in merchandise trade deficit over the last decade. Ultimately, for India to contain its current account deficit at a more sustainable level of 2.0-2.5 per cent of GDP, it is essential that we ensure competitiveness of our goods and services, so that our imports are contained and exports boosted.
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ECONOMY MATTERSVolume 01 No. 06June 2013
Inside This Issue
Rising Risks for Current Account Deficit
Cover Story
Foreword 1
Executive Summary 2
Comparison of Various Macro-
economic Forecasts: 2013-14 3
Global Trends 4
Domestic Trends 8
Corporate Performance 11
Sector in Focus: Agriculture 15
Special Article: Rising Risks for
Current Account Deficit 20
Economy Monitor 26
Global economies are witnessing two-speed recovery with the US economy
showing firm signs of recovery, while growth in Euro Area is still languishing in
sub-optimal territory. Among the Asian economies, growth in Japan and
China too continues to remain tepid. The optimism shown by the US Federal
Reserve, in wake of encouraging economic indicators coming out of the US
economy, has led to worries about the possible tapering of its asset purchase
programme by end of the current year. The repercussions of this
development have been felt globally, highlighted by sharp strengthening of
the US dollar. The Indian Rupee too has felt the heat and weakened by more
than 10 per cent since the start of this fiscal.
On the domestic front, the economic condition in the present scenario is in
greater disarray than it was during the breakout of the global financial crisis of
2008-09, when both government as well as the RBI were quick to respond to
the challenges and brought the economy back to recovery path within no
time. The economic performance remains weak on all fronts, except for the
solace of moderating trend in WPI inflation. But this positive too runs the risk
of reversing soon in the wake of the sharp weakening of Rupee in recent
months. Clearly, the policy makers have their job cut out, given the intensity of
the slowdown currently. Some 'out of the box' measures are the need of the
hour.
India's external position has been worsening for some time, manifesting itself
in a steady deterioration in the current account which slipped from a surplus
at the start of the last decade to a huge deficit of 4.8 per cent in 2012-13. Bulk of
the deterioration in current account is attributable to the sharp rise in
merchandise trade deficit over the last decade. Widening of current account
deficit has led to sharp weakening of Rupee against the US$ amongst other
things. The financing of CAD also remains a problem with the capital flows
running the risk of reversing abruptly. Ultimately, for India to contain its
current account deficit at a more sustainable level of 2.0-2.5 per cent of GDP, it
is essential that we ensure competitiveness of our goods and services, so that
our imports are contained and exports boosted.
FOREWORD
1 JUNE 2013
Chandrajit Banerjee
Director-General, CII
Global economies are witnessing two-speed recovery with the US economy
showing firm signs of recovery, while growth in Euro Area is still languishing in
sub-optimal territory. Among the Asian economies, growth in Japan and
China too continues to remain tepid. The optimism shown by the US Federal
Reserve, in wake of encouraging economic indicators coming out of the US
economy, has led to worries about the possible tapering of its asset purchase
programme by end of the current year. The repercussions of this
development have been felt globally, highlighted by sharp strengthening of
the US dollar. The Indian Rupee too has felt the heat and weakened by more
than 10 per cent since the start of this fiscal.
On the domestic front, the economic condition in the present scenario is in
greater disarray than it was during the breakout of the global financial crisis of
2008-09, when both government as well as the RBI were quick to respond to
the challenges and brought the economy back to recovery path within no
time. The economic performance remains weak on all fronts, except for the
solace of moderating trend in WPI inflation. But this positive too runs the risk
of reversing soon in the wake of the sharp weakening of Rupee in recent
months. Clearly, the policy makers have their job cut out, given the intensity of
the slowdown currently. Some 'out of the box' measures are the need of the
hour.
India's external position has been worsening for some time, manifesting itself
in a steady deterioration in the current account which slipped from a surplus
at the start of the last decade to a huge deficit of 4.8 per cent in 2012-13. Bulk of
the deterioration in current account is attributable to the sharp rise in
merchandise trade deficit over the last decade. Widening of current account
deficit has led to sharp weakening of Rupee against the US$ amongst other
things. The financing of CAD also remains a problem with the capital flows
running the risk of reversing abruptly. Ultimately, for India to contain its
current account deficit at a more sustainable level of 2.0-2.5 per cent of GDP, it
is essential that we ensure competitiveness of our goods and services, so that
our imports are contained and exports boosted.
FOREWORD
1 JUNE 2013
Chandrajit Banerjee
Director-General, CII
2
EXECUTIVE SUMMARY
Global Trends
Domestic Trends
Corporate Performance
Growth movements across the major global economies
remain far from positive. Even as the US Federal
Reserve showed optimism about the recovering US
economy, growth in Euro Area has been constantly
plummeting to negative levels. Among the Asian
economies, waning growth prevails in Japan and China
as well. Aggressive monetary policy reforms were seen
in US, aimed at stimulating economy and lowering
unemployment, and Japan, aimed at combating deep-
rooted deflation; policy decisions in Europe though, are
yet to jolt the continent out of recession. A mix of
ingenuous and effective fiscal and monetary policies is
both indispensable and desirable in the current times.
The performance of almost all the economic indicators
in the current scenario remains weak with the only
exception of WPI inflation. But the recent sharp
depreciation in the Rupee has wiped out any such gains
as well. Admittedly, the economy is not passing through
the best of times. It will be not an exaggeration to say
that the domestic scenario looks to be in greater
disarray than it was during the global financial crisis of
2008-09, when both the government as well RBI were
quick to respond to the challenges and brought the
economy back to recovery path within no time.
The performance of Indian corporates across various
sectors remained mostly lackluster over the financial
year 2012-13. Though, rise in profitability, driven
considerably by declining input costs, especially cost of
interest, provided some cheer. Uninspiring demand in
the domestic economy and slackening of infrastructure
projects remained issues of concern. Our analysis
shows that in terms of profitability growth, sectors such
as Capital Goods, Auto & Auto Parts, Metals & Minerals,
Media & Entertainment and Consumer Durables
displayed worrying trends. Among the relatively
healthy sectors were Textile, Paper & Wood, Leather &
Rubber, FMCG and Health Care & Pharmaceuticals.
Moderate performance was displayed by Fertilizers &
Chemicals, Banks & Financial Institutions, Oil & Gas, IT &
Telecom, Construction & Construction Material and
Power sectors.
Agriculture has traditionally been an important sector
of the Indian economy because of its enormous
contribution in being the provider of basic source of
livelihood to the most of the population in India.
Globally India is amongst the leading producers of
various agricultural products and crops like milk, pulses
and jute etc. However in the recent past various
challenges such as low agricultural yield, declining share
of public investment, and lack of technological
a d v a n c e m e n t s h a v e p l a g u e d t h e s e c t o r .
Overdependence on monsoon has been another major
concern. As a result of these inefficiencies, food
inflation has been one of the adverse by-products. With
53 per cent arable land available, there is huge room for
i m p r o v e m e n t . I m m e n s e o p p o r t u n i t i e s i n
mechanization, food processing and food management
as well as branding supplemented by policy support
from the government can help India cement its position
as a global agricultural powerhouse.
India's external position has been worsening for some
time, manifesting itself in a steady deterioration in the
current account which slipped from a surplus at the
start of the last decade to a huge deficit of 4.8 per cent
of GDP in 2012-13. Our analysis shows that the bulk of the
deterioration in the current account deficit is
attributable to the sharp rise in merchandise trade
deficit in the last decade or so, when it jumped by over
14 times. Amongst the various sub-sectors of exports,
textile sector did the worst both in terms of decline in its
share in total exports and its growth rate over the last
decade. Amongst the imports, gold & silver and coal
products saw a sharp jump in their imports growth.
Ultimately, for India to contain its current account
deficit at a more sustainable level of 2.0-2.5 per cent of
GDP, it is essential that we ensure competitiveness of
our goods and services, so that our imports are
contained and exports boosted.
Sector in Focus: Agriculture
Special Article
ECONOMY MATTERS 3
Comparison of Various Macroeconomic Forecasts: 2013-14
3 JUNE 2013
CII 6.0-6.4 5.3 5.5-6.0 6.50 na
Citigroup 5.7 4.4 5.5 6.75 -4.1
Credit Suisse 6.5 5.8 5.9 6.75 -3.5
CRISIL 6.0 4.4 6.3 6.88 -4.5
DBS Bank 5.7 na 6.7 7.00 -4.0
Deustche Bank 6.0 2.7 5.7 6.50 -4.1
EIU 6.3 4.0 7.0 na -3.9
Goldman Sachs 6.4 na 6.0 7.00 -3.5
HSBC 6.0 5.0 6.1 7.25 -4.2
JP Morgan 5.8 na 6.3 7.00 -4.6
Morgan Stanley 5.9 na 6.2 7.00 -3.9
Nomura 5.2 na 5.5 6.75 -4.7
UBS 6.5 5.5 na 7.00 -4.4
Standard Chartered 6.0 na 6.3 7.00 -4.1
Real GDP Industrial Production WPI Inflation Interest Rate
(y-o-y%) (y-o-y%) (y-o-y%) (Repo Rate) % (as a % of GDP)
Current Acount
na: not available
2
EXECUTIVE SUMMARY
Global Trends
Domestic Trends
Corporate Performance
Growth movements across the major global economies
remain far from positive. Even as the US Federal
Reserve showed optimism about the recovering US
economy, growth in Euro Area has been constantly
plummeting to negative levels. Among the Asian
economies, waning growth prevails in Japan and China
as well. Aggressive monetary policy reforms were seen
in US, aimed at stimulating economy and lowering
unemployment, and Japan, aimed at combating deep-
rooted deflation; policy decisions in Europe though, are
yet to jolt the continent out of recession. A mix of
ingenuous and effective fiscal and monetary policies is
both indispensable and desirable in the current times.
The performance of almost all the economic indicators
in the current scenario remains weak with the only
exception of WPI inflation. But the recent sharp
depreciation in the Rupee has wiped out any such gains
as well. Admittedly, the economy is not passing through
the best of times. It will be not an exaggeration to say
that the domestic scenario looks to be in greater
disarray than it was during the global financial crisis of
2008-09, when both the government as well RBI were
quick to respond to the challenges and brought the
economy back to recovery path within no time.
The performance of Indian corporates across various
sectors remained mostly lackluster over the financial
year 2012-13. Though, rise in profitability, driven
considerably by declining input costs, especially cost of
interest, provided some cheer. Uninspiring demand in
the domestic economy and slackening of infrastructure
projects remained issues of concern. Our analysis
shows that in terms of profitability growth, sectors such
as Capital Goods, Auto & Auto Parts, Metals & Minerals,
Media & Entertainment and Consumer Durables
displayed worrying trends. Among the relatively
healthy sectors were Textile, Paper & Wood, Leather &
Rubber, FMCG and Health Care & Pharmaceuticals.
Moderate performance was displayed by Fertilizers &
Chemicals, Banks & Financial Institutions, Oil & Gas, IT &
Telecom, Construction & Construction Material and
Power sectors.
Agriculture has traditionally been an important sector
of the Indian economy because of its enormous
contribution in being the provider of basic source of
livelihood to the most of the population in India.
Globally India is amongst the leading producers of
various agricultural products and crops like milk, pulses
and jute etc. However in the recent past various
challenges such as low agricultural yield, declining share
of public investment, and lack of technological
a d v a n c e m e n t s h a v e p l a g u e d t h e s e c t o r .
Overdependence on monsoon has been another major
concern. As a result of these inefficiencies, food
inflation has been one of the adverse by-products. With
53 per cent arable land available, there is huge room for
i m p r o v e m e n t . I m m e n s e o p p o r t u n i t i e s i n
mechanization, food processing and food management
as well as branding supplemented by policy support
from the government can help India cement its position
as a global agricultural powerhouse.
India's external position has been worsening for some
time, manifesting itself in a steady deterioration in the
current account which slipped from a surplus at the
start of the last decade to a huge deficit of 4.8 per cent
of GDP in 2012-13. Our analysis shows that the bulk of the
deterioration in the current account deficit is
attributable to the sharp rise in merchandise trade
deficit in the last decade or so, when it jumped by over
14 times. Amongst the various sub-sectors of exports,
textile sector did the worst both in terms of decline in its
share in total exports and its growth rate over the last
decade. Amongst the imports, gold & silver and coal
products saw a sharp jump in their imports growth.
Ultimately, for India to contain its current account
deficit at a more sustainable level of 2.0-2.5 per cent of
GDP, it is essential that we ensure competitiveness of
our goods and services, so that our imports are
contained and exports boosted.
Sector in Focus: Agriculture
Special Article
ECONOMY MATTERS 3
Comparison of Various Macroeconomic Forecasts: 2013-14
3 JUNE 2013
CII 6.0-6.4 5.3 5.5-6.0 6.50 na
Citigroup 5.7 4.4 5.5 6.75 -4.1
Credit Suisse 6.5 5.8 5.9 6.75 -3.5
CRISIL 6.0 4.4 6.3 6.88 -4.5
DBS Bank 5.7 na 6.7 7.00 -4.0
Deustche Bank 6.0 2.7 5.7 6.50 -4.1
EIU 6.3 4.0 7.0 na -3.9
Goldman Sachs 6.4 na 6.0 7.00 -3.5
HSBC 6.0 5.0 6.1 7.25 -4.2
JP Morgan 5.8 na 6.3 7.00 -4.6
Morgan Stanley 5.9 na 6.2 7.00 -3.9
Nomura 5.2 na 5.5 6.75 -4.7
UBS 6.5 5.5 na 7.00 -4.4
Standard Chartered 6.0 na 6.3 7.00 -4.1
Real GDP Industrial Production WPI Inflation Interest Rate
(y-o-y%) (y-o-y%) (y-o-y%) (Repo Rate) % (as a % of GDP)
Current Acount
na: not available
4ECONOMY MATTERS
GLOBAL TRENDS
Gauging the Economic Performance of Major Economies
The Real Gross Domestic Product in US softened to 1.8
per cent on a y-o-y basis in the first quarter of 2013 as
compared to 2.4 per cent in the corresponding quarter
of previous fiscal. Positive contributions to growth were
made by personal consumption expenditure, whose
growth improved to 2.1 per cent against a 1.8 per cent in
the first quarter of 2012. An upturn was seen in the
growth of residential fixed investment to 12.8 per cent in
the first quarter of 2013 against 9.3 per cent in the
comparing period last year. However, sharp drop in non-
residential fixed investment to 4.1 per cent, against 12.5
per cent last year, resulted in large decline in the growth
of private domestic investment to 4.3 per cent in the first
quarter of 2013 against 14.1 per cent last year.
Growth
Growth movements across the major economies of the
world remain far from positive, as a downturn is visible
across continents. Even as the US Federal Reserve
showed optimism about the recovering US economy,
growth in Euro Area has been constantly plummeting to
negative levels. Among the Asian economies, waning
growth prevails in Japan and China as well. Aggressive
monetary policy reforms were seen in US, aimed at
stimulating economy and lowering unemployment, and
Japan, aimed at combating deep-rooted deflation;
policy decisions in Europe though, are yet to jolt the
continent out of recession.
and government final consumption expenditure fell
sharply to -1.2 per cent and -0.6 per cent respectively in
the reporting quarter, as compared to growth rates of
1.3 per cent and 1.0 per cent respectively last year. The
decline in gross fixed capital formation worsened to 5.5
In Euro Area, the GDP growth rate contracted further by
1.1 per cent on a y-o-y basis in the first quarter of the
current year as compared to -0.1 per cent seen in the first
quarter of 2012. Amongst the various sectors of GDP, the
growth of household final consumption expenditure
US GDP Growth (y-o-y%)
2.42.1
2.6
1.7 1.8
1Q12 2Q12 3Q12 4Q12 1Q13
Source: Bureau of Economic Analysis
5
Germany and Austria did moderately well during the
beginning of last year but crashed to flat growths
recently. Belgium, Netherlands and Spain faced
marginal negative growth rates during the past five
quarters; Slovenia, Italy and Portugal witnessed sharp
de-growth over the period.
per cent in the reporting quarter, as against decline of
1.2 per cent in the same period last year. The growth
trends among individual countries in the Euro Area were
varied (see below table). The figures in Estonia and
Slovak Republic remained in the positive territory
during 2012 and in the first quarter of 2013; Ireland,
trusts. Dragging on growth, private non-residential
investment witnessed de-growth to the tune of 5.2 per
cent in the first quarter of the current year, against 6.9
per cent in the corresponding period last year. Growth
in private consumption and government consumption
too saw decline to 1.1 per cent and 1.6 per cent
respectively, as compared to 3.9 per cent and 2.3 per
cent last year.
In the Asian continent, Japan saw its GDP growth
slipping to 0.2 per cent on a y-o-y basis, as compared
with growth to the tune of 3.2 per cent in the same
period last year. Growth of public investment
strengthened to 13.1 per cent as compared to 4.9 per
cent previously. Growth in private residential
investment improved significantly to 9.5 per cent
against a flat growth last year, with the Central Bank
injecting liquidity and purchasing real estate investment
Euro Area GDP Growth (y-o-y%)
-0.1
-0.5
-0.7
-1-1.1
1Q12 2Q12 3Q12 4Q12 1Q13
Source: European Central Bank
Country 1Q12 2Q12 3Q12 4Q12 1Q13
Austria 1.1 0.9 0.9 0.5 0.0
Belgium 0.2 -0.4 -0.4 -0.5 -0.6
Estonia 4.0 2.8 3.1 3.0 1.3
Finland 1.6 0.1 -0.7 -1.6 -2.2
France 0.3 0.1 0.0 -0.3 -0.4
Germany 1.3 1.0 0.9 0.3 -0.3
Ireland 2.1 0.8 0.9 0.0 NA
Italy -1.7 -2.5 -2.6 -2.8 -2.4
Luxembourg -0.3 0.6 -0.5 1.6 NA
Netherlands -0.9 -0.5 -1.3 -1.2 -1.3
Portugal -2.3 -3.2 -3.6 -3.8 -4.0
Slovak Republic 2.9 2.3 1.9 1.0 0.8
Slovenia -0.8 -2.3 -2.8 -2.8 -3.3
Spain -0.7 -1.4 -1.6 -1.9 -2.0
Euro Area -0.1 -0.5 -0.7 -1.0 -1.1
GDP growth (y-o-y %) for Major Euro Area countries
Source: European Central Bank
JUNE 2013
Note: NA- Not Available
4ECONOMY MATTERS
GLOBAL TRENDS
Gauging the Economic Performance of Major Economies
The Real Gross Domestic Product in US softened to 1.8
per cent on a y-o-y basis in the first quarter of 2013 as
compared to 2.4 per cent in the corresponding quarter
of previous fiscal. Positive contributions to growth were
made by personal consumption expenditure, whose
growth improved to 2.1 per cent against a 1.8 per cent in
the first quarter of 2012. An upturn was seen in the
growth of residential fixed investment to 12.8 per cent in
the first quarter of 2013 against 9.3 per cent in the
comparing period last year. However, sharp drop in non-
residential fixed investment to 4.1 per cent, against 12.5
per cent last year, resulted in large decline in the growth
of private domestic investment to 4.3 per cent in the first
quarter of 2013 against 14.1 per cent last year.
Growth
Growth movements across the major economies of the
world remain far from positive, as a downturn is visible
across continents. Even as the US Federal Reserve
showed optimism about the recovering US economy,
growth in Euro Area has been constantly plummeting to
negative levels. Among the Asian economies, waning
growth prevails in Japan and China as well. Aggressive
monetary policy reforms were seen in US, aimed at
stimulating economy and lowering unemployment, and
Japan, aimed at combating deep-rooted deflation;
policy decisions in Europe though, are yet to jolt the
continent out of recession.
and government final consumption expenditure fell
sharply to -1.2 per cent and -0.6 per cent respectively in
the reporting quarter, as compared to growth rates of
1.3 per cent and 1.0 per cent respectively last year. The
decline in gross fixed capital formation worsened to 5.5
In Euro Area, the GDP growth rate contracted further by
1.1 per cent on a y-o-y basis in the first quarter of the
current year as compared to -0.1 per cent seen in the first
quarter of 2012. Amongst the various sectors of GDP, the
growth of household final consumption expenditure
US GDP Growth (y-o-y%)
2.42.1
2.6
1.7 1.8
1Q12 2Q12 3Q12 4Q12 1Q13
Source: Bureau of Economic Analysis
5
Germany and Austria did moderately well during the
beginning of last year but crashed to flat growths
recently. Belgium, Netherlands and Spain faced
marginal negative growth rates during the past five
quarters; Slovenia, Italy and Portugal witnessed sharp
de-growth over the period.
per cent in the reporting quarter, as against decline of
1.2 per cent in the same period last year. The growth
trends among individual countries in the Euro Area were
varied (see below table). The figures in Estonia and
Slovak Republic remained in the positive territory
during 2012 and in the first quarter of 2013; Ireland,
trusts. Dragging on growth, private non-residential
investment witnessed de-growth to the tune of 5.2 per
cent in the first quarter of the current year, against 6.9
per cent in the corresponding period last year. Growth
in private consumption and government consumption
too saw decline to 1.1 per cent and 1.6 per cent
respectively, as compared to 3.9 per cent and 2.3 per
cent last year.
In the Asian continent, Japan saw its GDP growth
slipping to 0.2 per cent on a y-o-y basis, as compared
with growth to the tune of 3.2 per cent in the same
period last year. Growth of public investment
strengthened to 13.1 per cent as compared to 4.9 per
cent previously. Growth in private residential
investment improved significantly to 9.5 per cent
against a flat growth last year, with the Central Bank
injecting liquidity and purchasing real estate investment
Euro Area GDP Growth (y-o-y%)
-0.1
-0.5
-0.7
-1-1.1
1Q12 2Q12 3Q12 4Q12 1Q13
Source: European Central Bank
Country 1Q12 2Q12 3Q12 4Q12 1Q13
Austria 1.1 0.9 0.9 0.5 0.0
Belgium 0.2 -0.4 -0.4 -0.5 -0.6
Estonia 4.0 2.8 3.1 3.0 1.3
Finland 1.6 0.1 -0.7 -1.6 -2.2
France 0.3 0.1 0.0 -0.3 -0.4
Germany 1.3 1.0 0.9 0.3 -0.3
Ireland 2.1 0.8 0.9 0.0 NA
Italy -1.7 -2.5 -2.6 -2.8 -2.4
Luxembourg -0.3 0.6 -0.5 1.6 NA
Netherlands -0.9 -0.5 -1.3 -1.2 -1.3
Portugal -2.3 -3.2 -3.6 -3.8 -4.0
Slovak Republic 2.9 2.3 1.9 1.0 0.8
Slovenia -0.8 -2.3 -2.8 -2.8 -3.3
Spain -0.7 -1.4 -1.6 -1.9 -2.0
Euro Area -0.1 -0.5 -0.7 -1.0 -1.1
GDP growth (y-o-y %) for Major Euro Area countries
Source: European Central Bank
JUNE 2013
Note: NA- Not Available
7
Interest rates
The US Federal Funds Rate is currently at 0 to 0.25 per
cent per annum. The interest rate on the main
refinancing operations of the Euro Area was decreased
by 25 basis points to 0.50 per cent in May 2013, after a
gap of 10 months. This accommodative stance is aimed
at supporting prospects for a recovery in the current
atmosphere of weak economic sentiments.
The Bank of Japan intends to conduct money market
operations to increase the monetary base at an annual
pace of 60-70 trillion yen, which stood at 159.2 trillion
yen at the end of May 2013. The basic loan rate and
interest rate applied to complementary deposit facility
were unchanged at 0.3 per cent per annum and 0.1 per
cent per annum respectively since December 2008. The
People's Bank of China kept the base lending rate for
working capital at 6 per cent per annum, unchanged
since July 2012. In a shift from the prudent fiscal and
tight monetary policy in 2008, it is expected to follow a
pro-active fiscal policy and a moderately easy monetary
policy to stimulate the economy.
The connections between global events and trends in
Indian economy have been strong. Substantial impact
was seen on the rupee, which recorded the worst fall in
a decade among the Asian currencies, closing at an all-
time low of 60.6 against the US dollar on June 27. The
crash was attributed to massive capital outflows on
worries of withdrawal of the US stimulus, month-end
dollar demand from importers and reported cash
crunch in China.
Despite an uncertain and gloomy atmosphere ruling
over the global economies, there might be some
sanguinity after all, following policy initiatives in US and
Japan. Structural reforms to correct regional
imbalances in the Euro Area are expected. A mix of
ingenuous and effective fiscal and monetary policies is
both indispensible and desirable in the current times.
Quantitative Easing- Part
Three (QE3)
Ripples were created across the world as US Federal
Reserve Chairman, Ben Bernanke confirmed what
markets had anticipated for past few weeks - a
calibrated winding down of billion dollar bond buys
worth US$85 billion per month, which have infused
US$12 trillion of additional liquidity into global financial
markets since the global financial crisis of 2008-09 and
helped in keeping long-term interest rates low to boost
borrowing and spending. In its monetary policy meeting
held during June 18-19, 2013, Bernanke said that
economic activity has been expanding at a moderate
pace, longer-term inflation expectations have remained
stable, labor market conditions have shown
improvement, though the unemployment rate remains
elevated.
The Federal Open Market Committee felt that fiscal
policy is restraining economic growth. Confidence on
the private sector to propel the recovery, even with
lesser push from the Fed, reduced government
spending and higher taxes, drove the Fed's optimistic
stance. The withdrawal could begin later this year and
end by the middle of 2014, if the economy continues to
perform as expected. However, the Federal Reserve
maintained that its main Federal Fund Rate won't be
increased unless unemployment falls below 6.5 per
cent. To support a stronger economic recovery, the
Committee decided to continue purchasing additional
agency mortgage-backed securities at a pace of $40
billion per month and longer-term Treasury securities at
a pace of $45 billion per month. Taken together, these
actions should maintain downward pressure on longer-
term interest rates, support mortgage markets, and
help to make broader financial conditions more
accommodative.
JUNE 20136ECONOMY MATTERS
decline in growth of capital goods formation, while
private consumption remained the main contributor to
growth.
Real GDP growth in China tapered off in the first quarter
of 2013 to 7.7 per cent from 8.1 per cent in the first
quarter of 2012. The decline in growth was triggered by
firmly anchored in line with their aim of maintaining
inflation rates below, but close to 2 per cent over the
medium- term.
Among the Asian economies, Japan has been facing
prolonged near zero and negative inflation. However, in
wake of recent policy reforms, the CPI-based inflation
rate rose to 0.6 per cent during May 2013 as compared
to 0.1 per cent in April 2013. Inflation stood at -0.3 per
cent for first quarter of this fiscal as compared to 0.3 per
cent over the same period last year. The monetary
expansion campaign by Bank of Japan targets 2 per cent
inflation in less than 2 years.
In China, the CPI-based inflation for May 2013 softened
to 2.1 per cent, helped by moderation in vegetable
prices, from a rate of 2.4 per cent in April 2013, and a
much higher rate of 3.2 per cent in February 2013. The
inflation rate in the first quarter this year stood at 2.4 per
cent. China has set its inflation target for this year at 3.5
percent.
InflationIn US, inflation rates have been brought down steadily
for the past year. CPI-based inflation increased to 1.4 per
cent in May 2013 as compared to an all-time low of 1.1 per
cent in April 2013 mainly due to a rise in housing costs.
Inflation stood at 1.7 per cent in first quarter of the
current year as compared to 2.8 per cent in the same
period last year. The Federal Open Market Committee
anticipates that inflation over the medium-term will run
at or below its 2 per cent desired range.
In Euro Area, while CPI-based inflation hovered between
2.0 per cent to 3.0 per cent during the last two years, it
has come down consistently in the recent few months.
The CPI-based inflation rate stood at 1.4 per cent in May
2013 as compared to 1.2 per cent in April 2013. Inflation
for first quarter of the current year stood at 1.9 per cent
as compared to 2.7 per cent in the same period last year.
Inflation expectations for the Euro Area continue to be
Japan GDP Growth (y-o-y%)
Source: Bank of Japan
3.23.9
0.3 0.4 0.2
1Q12 2Q12 3Q12 4Q12 1Q13
China GDP Growth (y-o-y%)
8.1
7.6
7.4
7.9
7.7
1Q12 2Q12 3Q12 4Q12 1Q13
Source: National Bureau of Statistics
Monthly Inflation for 2013 (y-o-y %)
Source: Various Central Banks Websites
4.0
3.0
2.0
1.0
0.0
-1.0
Jan Feb Mar Apr May
USA Euro Area Japan China
Jan Feb Mar Apr May Jan Feb Mar Apr May Jan Feb Mar Apr May
7
Interest rates
The US Federal Funds Rate is currently at 0 to 0.25 per
cent per annum. The interest rate on the main
refinancing operations of the Euro Area was decreased
by 25 basis points to 0.50 per cent in May 2013, after a
gap of 10 months. This accommodative stance is aimed
at supporting prospects for a recovery in the current
atmosphere of weak economic sentiments.
The Bank of Japan intends to conduct money market
operations to increase the monetary base at an annual
pace of 60-70 trillion yen, which stood at 159.2 trillion
yen at the end of May 2013. The basic loan rate and
interest rate applied to complementary deposit facility
were unchanged at 0.3 per cent per annum and 0.1 per
cent per annum respectively since December 2008. The
People's Bank of China kept the base lending rate for
working capital at 6 per cent per annum, unchanged
since July 2012. In a shift from the prudent fiscal and
tight monetary policy in 2008, it is expected to follow a
pro-active fiscal policy and a moderately easy monetary
policy to stimulate the economy.
The connections between global events and trends in
Indian economy have been strong. Substantial impact
was seen on the rupee, which recorded the worst fall in
a decade among the Asian currencies, closing at an all-
time low of 60.6 against the US dollar on June 27. The
crash was attributed to massive capital outflows on
worries of withdrawal of the US stimulus, month-end
dollar demand from importers and reported cash
crunch in China.
Despite an uncertain and gloomy atmosphere ruling
over the global economies, there might be some
sanguinity after all, following policy initiatives in US and
Japan. Structural reforms to correct regional
imbalances in the Euro Area are expected. A mix of
ingenuous and effective fiscal and monetary policies is
both indispensible and desirable in the current times.
Quantitative Easing- Part
Three (QE3)
Ripples were created across the world as US Federal
Reserve Chairman, Ben Bernanke confirmed what
markets had anticipated for past few weeks - a
calibrated winding down of billion dollar bond buys
worth US$85 billion per month, which have infused
US$12 trillion of additional liquidity into global financial
markets since the global financial crisis of 2008-09 and
helped in keeping long-term interest rates low to boost
borrowing and spending. In its monetary policy meeting
held during June 18-19, 2013, Bernanke said that
economic activity has been expanding at a moderate
pace, longer-term inflation expectations have remained
stable, labor market conditions have shown
improvement, though the unemployment rate remains
elevated.
The Federal Open Market Committee felt that fiscal
policy is restraining economic growth. Confidence on
the private sector to propel the recovery, even with
lesser push from the Fed, reduced government
spending and higher taxes, drove the Fed's optimistic
stance. The withdrawal could begin later this year and
end by the middle of 2014, if the economy continues to
perform as expected. However, the Federal Reserve
maintained that its main Federal Fund Rate won't be
increased unless unemployment falls below 6.5 per
cent. To support a stronger economic recovery, the
Committee decided to continue purchasing additional
agency mortgage-backed securities at a pace of $40
billion per month and longer-term Treasury securities at
a pace of $45 billion per month. Taken together, these
actions should maintain downward pressure on longer-
term interest rates, support mortgage markets, and
help to make broader financial conditions more
accommodative.
JUNE 20136ECONOMY MATTERS
decline in growth of capital goods formation, while
private consumption remained the main contributor to
growth.
Real GDP growth in China tapered off in the first quarter
of 2013 to 7.7 per cent from 8.1 per cent in the first
quarter of 2012. The decline in growth was triggered by
firmly anchored in line with their aim of maintaining
inflation rates below, but close to 2 per cent over the
medium- term.
Among the Asian economies, Japan has been facing
prolonged near zero and negative inflation. However, in
wake of recent policy reforms, the CPI-based inflation
rate rose to 0.6 per cent during May 2013 as compared
to 0.1 per cent in April 2013. Inflation stood at -0.3 per
cent for first quarter of this fiscal as compared to 0.3 per
cent over the same period last year. The monetary
expansion campaign by Bank of Japan targets 2 per cent
inflation in less than 2 years.
In China, the CPI-based inflation for May 2013 softened
to 2.1 per cent, helped by moderation in vegetable
prices, from a rate of 2.4 per cent in April 2013, and a
much higher rate of 3.2 per cent in February 2013. The
inflation rate in the first quarter this year stood at 2.4 per
cent. China has set its inflation target for this year at 3.5
percent.
InflationIn US, inflation rates have been brought down steadily
for the past year. CPI-based inflation increased to 1.4 per
cent in May 2013 as compared to an all-time low of 1.1 per
cent in April 2013 mainly due to a rise in housing costs.
Inflation stood at 1.7 per cent in first quarter of the
current year as compared to 2.8 per cent in the same
period last year. The Federal Open Market Committee
anticipates that inflation over the medium-term will run
at or below its 2 per cent desired range.
In Euro Area, while CPI-based inflation hovered between
2.0 per cent to 3.0 per cent during the last two years, it
has come down consistently in the recent few months.
The CPI-based inflation rate stood at 1.4 per cent in May
2013 as compared to 1.2 per cent in April 2013. Inflation
for first quarter of the current year stood at 1.9 per cent
as compared to 2.7 per cent in the same period last year.
Inflation expectations for the Euro Area continue to be
Japan GDP Growth (y-o-y%)
Source: Bank of Japan
3.23.9
0.3 0.4 0.2
1Q12 2Q12 3Q12 4Q12 1Q13
China GDP Growth (y-o-y%)
8.1
7.6
7.4
7.9
7.7
1Q12 2Q12 3Q12 4Q12 1Q13
Source: National Bureau of Statistics
Monthly Inflation for 2013 (y-o-y %)
Source: Various Central Banks Websites
4.0
3.0
2.0
1.0
0.0
-1.0
Jan Feb Mar Apr May
USA Euro Area Japan China
Jan Feb Mar Apr May Jan Feb Mar Apr May Jan Feb Mar Apr May
9
contracting by 5.7 per cent as compared to 14.2 per cent
growth during 2008-09. Capital goods sector is
regarded as the indicator of investment activities in the
economy; hence the dismal performance by the sector
in the last fiscal does not bode well for the investment
outlook and meaningful economic recovery.
During the last fiscal, we saw industrial production
growth remaining weak uniformly for most months. The
overall growth logged was in fact the weakest industrial
output growth in the new base series starting from
2004-05. More importantly, it was characterised by the
worst performance ever by capital goods segment-
brought down inflation sharply. In fact the extent of
demand destruction was so severe that economy faced
deflation for a period of 2 months in 2009-10.
In contrast, in 2012-13, though economic growth
remained lower than the levels seen in 2008-09, but
inflation continued to remain above RBI's comfort zone
of 5-5.5 per cent. It has slipped below 5 per cent only in
the first two months of the current fiscal, with the latest
reading at 4.7 per cent in May 2013. The main reason for
inflation remaining high last year, despite sharp dip in
growth, is the imbalances emerging in the demand-
supply scenario, especially of food articles. As we will
discuss in this month's 'Sector in Focus' too, agricultural
production has lagged demand, thus leading to
shortages in food supply.
(B). WPI Inflation
WPI-based inflation averaged 7.4 per cent in 2012-13 as
compared to 8.1 per cent in 2008-09. Though inflation
averaged lower last year, food inflation, which remains
one of its most critical components as it has the most
profound impact on the common man, remained high.
Food inflation remained high at 9.3 per cent in 2012-13 as
compared to 8.9 per cent in 2008-09.
Again, 2008-09 was a year of two halves, with double-
digit inflation levels seen in the first two quarter of 2008-
09, followed by sharp softening. WPI-based inflation
dipped to a low of 1.6 per cent by March-2009 as
compared to a high of 11.2 per cent seen in August 2008.
The sharp shrinking of demand post the second quarter,
8ECONOMY MATTERS
DOMESTIC TRENDS
2012-13: An Encore of 2008-09 or Worse?
2012-13, while, the growth had dipped to 6.7 per cent in
2008-09 and recovered swiftly, thereafter, to 8.4 per
cent in 2009-10. Interestingly the moderation in growth
in the financial crisis year of 2008-09 was largely
underpinned by a sharp softening in agricultural and
industrial growth. The bellwether of the Indian
economy- the services sector continued to grow at a
healthy double-digit rate of 10.0 per cent then. In 2012-13
on the other hand, the moderation in growth was
broad-based with growth in all the three pivotal sectors
decelerating. From the demand-side too, in 2012-13, all
the domestic demand drivers slowed down with
investment growth falling to multi-year lows as
compared to still respectable performance in 2008-09.
In another indicator of slowing of growth, non-food
credit growth slumped to a decade low of 14 per cent in
2012-13, falling short of Reserve Bank of India's
projection of 16 per cent, as demand for loans from
companies remained weak. In 2008-09, however, it
stood at around 18 per cent.
Index of industrial production growth averaged 1.1 per
cent in 2012-13 as compared to 2.9 per cent in 2008-09.
The relatively healthy growth rate in 2008-09, however,
masks the strong negative trend in the data post
September 2008, when the actual crisis broke out with
the collapse of the Lehman Brothers. In the first seven
months of the fiscal (till October 2008), industrial
production growth averaged a healthy 7.5 per cent as
compared to -3.6 per cent in the five months thereafter.
In fact, industrial output remained in the negative
territory in the seven consecutive months starting from
December 2008.
As discussed in the section on global trends, the major
economies of the world continue facing turbulent
times, with only US seeing some glimmer of hope as it
saw a fall in its unemployment rate coupled with steady
improvement in its growth rates since the last two
quarters. The global gloom is finding a reflection in the
domestic scenario as well, with all the major economic
indicators showing little signs of turn-around. Decadal
low GDP growth, historic high current account deficits,
Rupee slipping below 60 per US$ and mild improvement
in industrial production numbers are currently
characterising the Indian economy.
The only silver lining visible seems to be the steady
moderation witnessed in the WPI based inflation rates,
giving RBI the necessary leg-room to cut interest rates in
order to spur growth. But the recent sharp depreciation
in the Rupee has narrowed down the scope of this
option. Admittedly, the economy is not passing through
the best of times. It will be not an exaggeration to say
that the domestic scenario looks to be in greater
disarray than it was during the global financial crisis of
2008-09, when both government as well as the RBI
were quick to respond to the challenges and brought
the economy back to recovery path within no time. In
this article, we would aim to provide a snapshot of
comparison of the present scenario with the period of
crisis in 2008-09 in terms of the major macroeconomic
indicators.
GDP growth moderated to a decadal low of 5 per cent in
( A ) . G D P a n d I n d u s t r i a l Production Growth
INDIA
Source: CSO
6.7
5.0
1.9
0.1
4.4
2.1
10.0
7.1
y-o-y%
FY09 FY13 FY09 FY13 FY09 FY13 FY09 FY13
Total GDP Agri Industry Services
15
10
5
0
-5
-10
y-o-y%
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
Industrial Production GrowthGDP Growth
JUNE 2013
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
12
10
8
6
4
2
0
y-o-y%
WPI Inflation
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
13
12
11
10
9
8
7
6
y-o-y%
Total Food Inflation (Primary and Manufacturing)
Source: Office of Economic Advisor
9
contracting by 5.7 per cent as compared to 14.2 per cent
growth during 2008-09. Capital goods sector is
regarded as the indicator of investment activities in the
economy; hence the dismal performance by the sector
in the last fiscal does not bode well for the investment
outlook and meaningful economic recovery.
During the last fiscal, we saw industrial production
growth remaining weak uniformly for most months. The
overall growth logged was in fact the weakest industrial
output growth in the new base series starting from
2004-05. More importantly, it was characterised by the
worst performance ever by capital goods segment-
brought down inflation sharply. In fact the extent of
demand destruction was so severe that economy faced
deflation for a period of 2 months in 2009-10.
In contrast, in 2012-13, though economic growth
remained lower than the levels seen in 2008-09, but
inflation continued to remain above RBI's comfort zone
of 5-5.5 per cent. It has slipped below 5 per cent only in
the first two months of the current fiscal, with the latest
reading at 4.7 per cent in May 2013. The main reason for
inflation remaining high last year, despite sharp dip in
growth, is the imbalances emerging in the demand-
supply scenario, especially of food articles. As we will
discuss in this month's 'Sector in Focus' too, agricultural
production has lagged demand, thus leading to
shortages in food supply.
(B). WPI Inflation
WPI-based inflation averaged 7.4 per cent in 2012-13 as
compared to 8.1 per cent in 2008-09. Though inflation
averaged lower last year, food inflation, which remains
one of its most critical components as it has the most
profound impact on the common man, remained high.
Food inflation remained high at 9.3 per cent in 2012-13 as
compared to 8.9 per cent in 2008-09.
Again, 2008-09 was a year of two halves, with double-
digit inflation levels seen in the first two quarter of 2008-
09, followed by sharp softening. WPI-based inflation
dipped to a low of 1.6 per cent by March-2009 as
compared to a high of 11.2 per cent seen in August 2008.
The sharp shrinking of demand post the second quarter,
8ECONOMY MATTERS
DOMESTIC TRENDS
2012-13: An Encore of 2008-09 or Worse?
2012-13, while, the growth had dipped to 6.7 per cent in
2008-09 and recovered swiftly, thereafter, to 8.4 per
cent in 2009-10. Interestingly the moderation in growth
in the financial crisis year of 2008-09 was largely
underpinned by a sharp softening in agricultural and
industrial growth. The bellwether of the Indian
economy- the services sector continued to grow at a
healthy double-digit rate of 10.0 per cent then. In 2012-13
on the other hand, the moderation in growth was
broad-based with growth in all the three pivotal sectors
decelerating. From the demand-side too, in 2012-13, all
the domestic demand drivers slowed down with
investment growth falling to multi-year lows as
compared to still respectable performance in 2008-09.
In another indicator of slowing of growth, non-food
credit growth slumped to a decade low of 14 per cent in
2012-13, falling short of Reserve Bank of India's
projection of 16 per cent, as demand for loans from
companies remained weak. In 2008-09, however, it
stood at around 18 per cent.
Index of industrial production growth averaged 1.1 per
cent in 2012-13 as compared to 2.9 per cent in 2008-09.
The relatively healthy growth rate in 2008-09, however,
masks the strong negative trend in the data post
September 2008, when the actual crisis broke out with
the collapse of the Lehman Brothers. In the first seven
months of the fiscal (till October 2008), industrial
production growth averaged a healthy 7.5 per cent as
compared to -3.6 per cent in the five months thereafter.
In fact, industrial output remained in the negative
territory in the seven consecutive months starting from
December 2008.
As discussed in the section on global trends, the major
economies of the world continue facing turbulent
times, with only US seeing some glimmer of hope as it
saw a fall in its unemployment rate coupled with steady
improvement in its growth rates since the last two
quarters. The global gloom is finding a reflection in the
domestic scenario as well, with all the major economic
indicators showing little signs of turn-around. Decadal
low GDP growth, historic high current account deficits,
Rupee slipping below 60 per US$ and mild improvement
in industrial production numbers are currently
characterising the Indian economy.
The only silver lining visible seems to be the steady
moderation witnessed in the WPI based inflation rates,
giving RBI the necessary leg-room to cut interest rates in
order to spur growth. But the recent sharp depreciation
in the Rupee has narrowed down the scope of this
option. Admittedly, the economy is not passing through
the best of times. It will be not an exaggeration to say
that the domestic scenario looks to be in greater
disarray than it was during the global financial crisis of
2008-09, when both government as well as the RBI
were quick to respond to the challenges and brought
the economy back to recovery path within no time. In
this article, we would aim to provide a snapshot of
comparison of the present scenario with the period of
crisis in 2008-09 in terms of the major macroeconomic
indicators.
GDP growth moderated to a decadal low of 5 per cent in
( A ) . G D P a n d I n d u s t r i a l Production Growth
INDIA
Source: CSO
6.7
5.0
1.9
0.1
4.4
2.1
10.0
7.1
y-o-y%
FY09 FY13 FY09 FY13 FY09 FY13 FY09 FY13
Total GDP Agri Industry Services
15
10
5
0
-5
-10
y-o-y%
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
Industrial Production GrowthGDP Growth
JUNE 2013
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
12
10
8
6
4
2
0
y-o-y%
WPI Inflation
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
13
12
11
10
9
8
7
6
y-o-y%
Total Food Inflation (Primary and Manufacturing)
Source: Office of Economic Advisor
10ECONOMY MATTERS
sharp depreciation of the Rupee was mainly led by
reversal of net FII inflows in the wake of the financial
crisis and not so much by the worsening of the external
account parameters. Moreover, Rupee is apparently
more vulnerable in the current period as compared to
2008-09, because of the following reasons:
High and rising trade and current account deficits
Higher reliance on short-term foreign capital than
the more stable FDI flows to finance the CAD
Rising growth concerns leading to shrinking growth
differential with advanced economies like US and
waning investor confidence
Declining net invisibles balance to cover CAD
Rapidly declining import cover in terms of months of
foreign exchange reserves
v
v
v
v
v
C). External Account
Current account deficit (CAD) remained high at 4.8 per
cent of GDP in 2012-13 as compared to 2.3 per cent of GDP
in 2008-09. Plunge in exports in the wake of global
demand destruction along with inelastic imports has led
to the steep widening of the merchandise trade deficit in
the last fiscal. Consequently, in 2012-13, the Rupee
weakened close to 5.3 per cent, ending the year at 54.4
per US$ compared to 51.7 per US$ at the beginning of the
year. In fact, Rupee has continued to slide in the current
fiscal too, having lost close to 12 per cent since the start
of the fiscal till just June 26th 2013.
However, during the crisis period of 2008-09, the extent
of weakening of the Rupee was much sharper. Rupee
lost close to a massive 28 per cent in value as it touched a
low of 51.1 per US$ by end-March 2009 as compared to a
high of 40.0 per US$ at the start of the fiscal year. The
Conclusion
The present macroeconomic scenario is in a much worse condition than it was during the global financial crisis of
2008-09. The performance of almost all the economic indicators in the current scenario remains weak with the only
exception of WPI inflation. Clearly, policy makers need to act decisively in the current period to bring the economy
back on growth track at the earliest, as the present situation is much weaker than the one prevailing in 2008-09.
11
Analysing Sectoral Performance in 2012-13
Textile, Paper & Wood, Leather & Rubber, FMCG and
Health Care & Pharmaceuticals. Moderate performance
was displayed by sectors such as Fertilizers & Chemicals,
Banks & Financial Institutions, Oil & Gas, IT & Telecom,
Construction & Construction Material and Power.
The analysis factors in the financial performance during
the past two fiscal years of a balanced panel of 3,040 1Indian firms, spread across 16 major sectors . The
information was extracted from the Ace Equity
database.
The performance of Indian corporates across various
sectors remained mostly lackluster over the financial
year 2012-13, though rise in profitability provided some
cheer. A respite in the form of declining cost of services
and raw materials, as well as cost of interest rate could
not do much to salvage the India Inc from a large fall in
net sales during the year. Our analysis shows that
profitability growth in sectors such as Capital Goods,
Auto & Auto Parts, Metals & Minerals, Media &
Entertainment and Consumer Durables displayed
worrying trends. Among the healthy sectors were
CORPORATE PERFORMANCE
Source: CII calculations using Ace Equity database
Growth in Overall Economy (y-o-y%)
22.5
10.9 11.76.2
-5.2
4.0
Net Sales Operating Profit PAT
FY12 FY13
to the year before, exception being the Textile sector.
Net sales growth in Textile sector improved to 13.2 per
cent in the last fiscal as compared to 11.1 per cent in 2011-
12, attributable largely to increased exports during the
period.
Aggregate net sales growth during 2012-13 stood at a
measly 10.9 per cent as compared to a healthy 22.5 per
cent in 2011-12, an outcome of uninspiring demand in the
domestic economy. During the previous year, growth in
net sales witnessed a decline in all sectors as compared
1 Auto & Auto Parts, Banks & Financial Institutions, Capital Goods, Construction & Construction Material, Consumer Durables, Fertilizers & Chemicals, FMCG, Health Care & Pharmaceuticals, IT & Telecom, Media & Entertainment, Metals & Minerals, Oil & Gas, Power, Textile, Paper & Wood, Leather and Rubber
Source: RBI
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
60
55
50
45
40
35
30
Rs per US$
Exchange Rate Movement Rising External Account Vulnerability
Trade deficit as a % of GDP 10.6 9.8
Current Account deficit as a % of GDP 4.8 2.3
Invisibles balance as a % of GDP 5.8 7.5
Domestic GDP growth % 5.0 6.7
Import Cover (no. of months) 7.0
Ratio of Short-term debt to total debt 24.8 19.3
Trade deficit 195.7 119.5
Invisibles balance 107.4 91.6
Current Account deficit 88.1 27.9
2012-13 2008-09
US$ billion
JUNE 2013
10ECONOMY MATTERS
sharp depreciation of the Rupee was mainly led by
reversal of net FII inflows in the wake of the financial
crisis and not so much by the worsening of the external
account parameters. Moreover, Rupee is apparently
more vulnerable in the current period as compared to
2008-09, because of the following reasons:
High and rising trade and current account deficits
Higher reliance on short-term foreign capital than
the more stable FDI flows to finance the CAD
Rising growth concerns leading to shrinking growth
differential with advanced economies like US and
waning investor confidence
Declining net invisibles balance to cover CAD
Rapidly declining import cover in terms of months of
foreign exchange reserves
v
v
v
v
v
C). External Account
Current account deficit (CAD) remained high at 4.8 per
cent of GDP in 2012-13 as compared to 2.3 per cent of GDP
in 2008-09. Plunge in exports in the wake of global
demand destruction along with inelastic imports has led
to the steep widening of the merchandise trade deficit in
the last fiscal. Consequently, in 2012-13, the Rupee
weakened close to 5.3 per cent, ending the year at 54.4
per US$ compared to 51.7 per US$ at the beginning of the
year. In fact, Rupee has continued to slide in the current
fiscal too, having lost close to 12 per cent since the start
of the fiscal till just June 26th 2013.
However, during the crisis period of 2008-09, the extent
of weakening of the Rupee was much sharper. Rupee
lost close to a massive 28 per cent in value as it touched a
low of 51.1 per US$ by end-March 2009 as compared to a
high of 40.0 per US$ at the start of the fiscal year. The
Conclusion
The present macroeconomic scenario is in a much worse condition than it was during the global financial crisis of
2008-09. The performance of almost all the economic indicators in the current scenario remains weak with the only
exception of WPI inflation. Clearly, policy makers need to act decisively in the current period to bring the economy
back on growth track at the earliest, as the present situation is much weaker than the one prevailing in 2008-09.
11
Analysing Sectoral Performance in 2012-13
Textile, Paper & Wood, Leather & Rubber, FMCG and
Health Care & Pharmaceuticals. Moderate performance
was displayed by sectors such as Fertilizers & Chemicals,
Banks & Financial Institutions, Oil & Gas, IT & Telecom,
Construction & Construction Material and Power.
The analysis factors in the financial performance during
the past two fiscal years of a balanced panel of 3,040 1Indian firms, spread across 16 major sectors . The
information was extracted from the Ace Equity
database.
The performance of Indian corporates across various
sectors remained mostly lackluster over the financial
year 2012-13, though rise in profitability provided some
cheer. A respite in the form of declining cost of services
and raw materials, as well as cost of interest rate could
not do much to salvage the India Inc from a large fall in
net sales during the year. Our analysis shows that
profitability growth in sectors such as Capital Goods,
Auto & Auto Parts, Metals & Minerals, Media &
Entertainment and Consumer Durables displayed
worrying trends. Among the healthy sectors were
CORPORATE PERFORMANCE
Source: CII calculations using Ace Equity database
Growth in Overall Economy (y-o-y%)
22.5
10.9 11.76.2
-5.2
4.0
Net Sales Operating Profit PAT
FY12 FY13
to the year before, exception being the Textile sector.
Net sales growth in Textile sector improved to 13.2 per
cent in the last fiscal as compared to 11.1 per cent in 2011-
12, attributable largely to increased exports during the
period.
Aggregate net sales growth during 2012-13 stood at a
measly 10.9 per cent as compared to a healthy 22.5 per
cent in 2011-12, an outcome of uninspiring demand in the
domestic economy. During the previous year, growth in
net sales witnessed a decline in all sectors as compared
1 Auto & Auto Parts, Banks & Financial Institutions, Capital Goods, Construction & Construction Material, Consumer Durables, Fertilizers & Chemicals, FMCG, Health Care & Pharmaceuticals, IT & Telecom, Media & Entertainment, Metals & Minerals, Oil & Gas, Power, Textile, Paper & Wood, Leather and Rubber
Source: RBI
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
60
55
50
45
40
35
30
Rs per US$
Exchange Rate Movement Rising External Account Vulnerability
Trade deficit as a % of GDP 10.6 9.8
Current Account deficit as a % of GDP 4.8 2.3
Invisibles balance as a % of GDP 5.8 7.5
Domestic GDP growth % 5.0 6.7
Import Cover (no. of months) 7.0
Ratio of Short-term debt to total debt 24.8 19.3
Trade deficit 195.7 119.5
Invisibles balance 107.4 91.6
Current Account deficit 88.1 27.9
2012-13 2008-09
US$ billion
JUNE 2013
13
materials, saw its profitability margins improving on the
back of increased domestic and global investment in the
For more details, Please Contact: Confederation of Indian Industry
The Mantosh Sondhi Centre, 23, Institutional Area, Lodi Road, New Delhi- 110003 (INDIA)Tel : +91-011-24629994-7, Fax: +91-011-24626149; Email: [email protected]
For more details, Please Contact: Confederation of Indian Industry
The Mantosh Sondhi Centre, 23, Institutional Area, Lodi Road, New Delhi- 110003 (INDIA)Tel : +91-011-24629994-7, Fax: +91-011-24626149; Email: [email protected]
Dr. Danish A. Hashim, Director- Economic Research
Economic Research ServicesCII's Economic Research Wing provides customised, comprehensive and in-depth research and analysis through its team of reputed and experienced economists.
Capable of efficiently catering to wide ranging research needs of various stakeholders including; industries, business
houses, government and international organizations.
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industry /region/ state to offer -
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on the economy
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v
v
v
InternationalCII works with international
organisations to offer -
Analysis of global economic
trends
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Management strategies
v
v
v
CII works in over 50 sectors
and offers -
Sector reports
Comprehensive business &
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Surveys
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v
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indicators to offer -
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CII Economic Research Advantages
Wide presence within India
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v
63 offices in India
10 centers of excellence
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7 overseas offices
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224 counterpart
organizations in 90 countries
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Access to over 7100 direct
and 90,000 indirect members
(including SMEs and MNCs)
Liason with government &
international organizations
A reference point for Indian Industry
Highly experienced team
vWell established team of
economists with expertise in
handling diverse topics and
sectors
For CII Economic Research Services, please contactDr. Danish A. Hashim, Director- Economic Research
23, Institutional Area, Lodi Road, New Delhi- 110 003, India, T: +91-11-2462 9994-7, Extn: 409, F: +91 -11-2462 6149, M: 9650446625, E: [email protected]
Research Projects
Business Research & Consulting
Customised Reports
Industry Surveys
Regular Publications
Notes
Economic Research ServicesCII's Economic Research Wing provides customised, comprehensive and in-depth research and analysis through its team of reputed and experienced economists.
Capable of efficiently catering to wide ranging research needs of various stakeholders including; industries, business
houses, government and international organizations.
Services Portfolio
Research Fields
EconomyCII conducts research by
industry /region/ state to offer -
Macroeconomic perspective
on the economy
Inputs for policy formulation
Forecasting of trends
v
v
v
InternationalCII works with international
organisations to offer -
Analysis of global economic
trends
Analysis of business trends
Management strategies
v
v
v
CII works in over 50 sectors
and offers -
Sector reports
Comprehensive business &
market research
Surveys
v
v
v
Industry Society & LivingCII analyses socio-economic
indicators to offer -
Research and analysis on
public policy
Social security and public
management systems
v
v
CII Economic Research Advantages
Wide presence within India
v
v
63 offices in India
10 centers of excellence
Large global footprint
v
v
7 overseas offices
Institutional partnership with
224 counterpart
organizations in 90 countries
v
v
Access to over 7100 direct
and 90,000 indirect members
(including SMEs and MNCs)
Liason with government &
international organizations
A reference point for Indian Industry
Highly experienced team
vWell established team of
economists with expertise in
handling diverse topics and
sectors
For CII Economic Research Services, please contactDr. Danish A. Hashim, Director- Economic Research
23, Institutional Area, Lodi Road, New Delhi- 110 003, India, T: +91-11-2462 9994-7, Extn: 409, F: +91 -11-2462 6149, M: 9650446625, E: [email protected]
Research Projects
Business Research & Consulting
Customised Reports
Industry Surveys
Regular Publications
Notes
Notes
Notes
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the
development of India, partnering industry, Government, and civil society, through advisory and consultative
processes.
CII is a non-government, not-for-profit, industry led and industry managed organization, playing a proactive role in
India's development process. Founded over 118 years ago, India's premier business association has over 7100
member organizations, from the private as well as public sectors, including SMEs and MNCs, and an indirect
membership of over 90,000 companies from around 257 national and regional sectoral associations.
CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and
enhancing efficiency, competitiveness and business opportunities for industry through a range of specialised
services and global linkages. It also provides a platform for consensus-building and networking on diverse issues.
Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship
programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives for integrated and