Published on March 14, 2014
Only 1 Vacancy ECONOMYMATTERSVolume 19 No. 02February 2014 Inside This Issue Cover Story UK Economy Growing at Fastest Rate Since 2007 Review of GDP, IIP, Inflation, Trade & BoP data Investment Tracker Article on Youth Unemployment by Planning Commission Officials Article on Employment Challenges in India & Beyond by Dr. Sher S. Verick, ILO Special Feature: Pushing Infrastructure Projects, Mr. Nirav Shah, HDFC Bank TheEmployment Conundrum
Global headwinds are slowly receding, paving the way for a much better 2014 than was earlierexpected.TheUSeconomyhashitaweakspotatthebeginningof2014probably duetoweatherrelateddisturbancesbutthiscouldprovetobetemporaryandwecould expect it to lead the front as far as revival in global growth is concerned, going forward. UKeconomyisalsoshowingsignsofpostingastrongpull-back.Chinaontheotherhand is facing the prospects of a slower growth this year. The latest government manufacturing PMI data showed that industrial activity slipped to eight month low of 50.2 in February 2014. Going forward, the pace of recovery in China will be crucial in liftingtheglobaleconomicprospectsoutofthedoldrums. On the domestic front, GDP growth for the third quarter of the current fiscal came at a subdued 4.7 per cent, eroding some of the cautious optimism that was starting to become visible over the last two months. With elections being announced, no new legislation or significant policy decisions can be expected due to code of conduct. However, this is an opportune time to take care of procedural simplifications, which would improve the ease of doing business in India and make the environment investment friendly in order to provide a fillip to growth. Industrial output meanwhile continued to remain in the negative territory for the third consecutive month in December 2013. We are especially concerned about the performance of the manufacturing sector, which continues to be in red. Negative growth of capital goods and consumer durables sector reinforces the view that escalating interest costs have been adversely impacting investment. Hence, we urge the Central Bank to start cutting interestratesattheearliest. In order to take advantage of India's demographic dividend, job opportunities have to be created on a large scale. Further, as the share of agriculture in GDP shrinks, so should its share in employment. Labour being rendered surplus from agriculture needs to be absorbed in either industry or services. However, the experience so far has not been encouraging in that employment has not increased to the extent it should have, given the high growth rates experienced in the last decade. Hence, one of the key challenges th forthe 12 Five Year Planwill be to createemploymentin the non-agriculturalsectorsso that the share of employment in agriculture declines in line with its share in GDP. Chandrajit Banerjee Director-General, CII 1 FOREWORD FEBRUARY 2014
Only 1 Vacancy The Employment Conundrum CONTENT Focus of the Month In order to take advantage of India's demographic dividend, job opportunities have to be created on a large scale. Further, as the shareofagricultureinGDPshrinks, so should its share in employment. Labour being rendered surplus from agriculture needs to be absorbed in either industry or services. However, the experience so far has not been encouraging in that employment has not increased to the extent it should have. In the 'Focus of the Month', we provide an analysis of the employment problem facing India currently. Inside This Issue 1 FEBRUARY 2014 Executive Summary .................................................03 Global Trends 04 UK Economy Growing at Fastest Rate since 2007 Domestic Trends Vote-on-Account, GDP, IIP, Inflation, Trade, BoP07 Investment Tracker 19 Economy Monitor ................................................... 47 Focus of the Month 29 Sector in Focus Travel & Tourism 23 Special Feature 45 New Investment Proposals Move Up Youth Unemployment in India Employment Challenges in India and Beyond Challenge of Employment in India Declining Participation of Women in the Workforce: An Overview Sunita Sanghi & A. Srija, Planning Commission Sher S. Verick, International Labour Organisation Alakh N. Sharma, Institute of Human Development Sharmila Kantha, CII Pushing Infrastructure Projects Nirav Shah, HDFC Bank The Employment Conundrum
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GlobalTrends DomesticTrends InvestmentTracker UK real GDP growth was kept unchanged at 0.7 per cent on q-o-q basis in the fourth quarter of 2013 (Q4 2013 henceforth), marking the fourth consecutive quarterly positive growth. Accordingly, UK real GDP grew by 1.8 per cent in 2013, its strongest rate since 2007, supported by a sharp drawdown in savings. Meanwhile, China is facing headwinds, with the latest government manufacturing PMI (seasonally-adjusted) slipping to eight month low of 50.2 in February 2014 from 50.5 in January 2014. A preliminary reading of the HSBCmanufacturingPMI,acompetingindextoofellto 48.3 in January 2014, well into contractionary territory, raisingredflagsfortheeconomy. GDP growth in the third quarter of the current fiscal came at 4.7 per cent as compared to 4.4 per cent in the previous quarter. Revival of agriculture and services was nullified by a de-growing industry with near static construction sector as an added worry. Adding to the worries was the performance by the industrial sector, whose output contracted for the third consecutive month in December 2013, despite a supportive base effect. Industrial output declined to 0.6 per cent in December 2013, albeit the magnitude of decline reduced from the -1.3 per cent print seen in the previous month. WPI based inflation, meanwhile, moderated to 8-month low of 5.05 per cent in January 2014ascomparedto6.2percentinthepreviousmonth on the back of fall in food prices and subdued manufacturing inflation. However, the rise in core inflation to 3 per cent, close to the RBI's comfort threshold,isacauseforconcern. Some positive news comes from the figures on new investment proposals for the third quarter (Q3FY2014), which recorded the highest level in previous five quarters. From a level of Rs 93 thousand crore in second quarter (Q2FY14), the new investment proposals jumped to Rs. 146 thousand crore in Q3. Combined with positive signals emerging from other indicators such as improving export prospects, declining current account deficit, reduction in exchange rate volatility and downward trend in inflation, jump in value of new investment proposals in Q3 lends support to the beginning of improvement in business sentiments. There is, however, a case for cautious optimism, as recovery still remains fragile and lopsided. The travel and tourism sector holds strategic importance in the Indian economy providing several socio economic benefits. Provision of employment, income and foreign exchange, development or expansion of other industries such as agriculture, construction, handicrafts etc. are some of the important economic benefits provided by the tourism sector. In addition, investments in infrastructural facilities such as transportation, accommodation and other tourism related services lead to an overall development of infrastructure in the economy. India has been witnessing steady growth in its travel and tourism sector over the past few years. Total tourist visits have increased at a rate of 16.3 per cent per annum from 577 million tourists in 2008 to 1057 million tourists in 2012. However, there are issues facing the sector such as lack of skilled & trained manpower, lack of focus on safety & security of tourists, provision of adequate healthcare facilities for tourist and lack of adequateinfrastructureinthecountry. Accelerating growth and expanding employment opportunities are the goals of economic policy. However, the growth process in the past decade has brought about significant changes in the structure of the Indian economy. Defying somewhat the conventional paradigm of development, the share of services in output has touched close to 60 per cent, a sharp rise from the 42 per cent in early 1990s. However, theemploymentshifthaslaggedbehindshiftinoutput. The share of services in employment is close to only 25 per cent. In contrast, share of agriculture in employment has remained high at around 50 per cent, while its share in GDP has moderated sharply. Hence, th one of the key challenges for the 12 Five Year Plan will be to create employment in the non-agricultural sectors so that the share of employment in agriculture declinesinlinewithitsshareinGDP. SectorinFocus:Travel&Tourism Focus of the Month: The Employment Conundrum EXECUTIVE SUMMARY 3 FEBRUARY 2014
4ECONOMY MATTERS GLOBAL TRENDS UK Economy Growing at Fastest Rate since 2007 a rise in exports and business investments, was good news for UK policymakers seeking a move away from an economyreliantondebt-fuelledhouseholdspending. As per the sectoral details available, consumer spending grew by 0.4 per cent in the final three months of the year, which was slower than the 0.9 per cent growth in the third quarter. However, with annual growth in consumerspendingof2.4percent,itwasstillthefastest rate of growth since 2007. On the external front, UK's trade position improved in the fourth quarter with the trade deficit narrowing to £6.6 billion from £8.2 billion in the third quarter after exports rose 0.4 per cent but imports fell 0.9 per cent. Over 2013 as a whole, export growthof0.8percentoutpaceda0.4percentgrowthin UK real GDP growth was kept unchanged at 0.7 per cent on q-o-q basis in the fourth quarter of 2013 (Q4 2013 henceforth), marking the fourth consecutive quarterly positive growth. Accordingly, UK real GDP grewby1.8percentin2013,itsstrongestratesince2007, according to the Office for National Statistics (ONS). Details showed a lesser dependence on consumer spending than previous quarters, which, combined with Source : Office for National Statistics (ONS) 2012 2013 Q32013 Q42013 PrivateConsumptionExpenditure 1.5 2.3 1.1 0.11 GeneralConsumptionExpenditure 1.6 0.9 0.6 0.31 GrossCapitalFormation(GCF) -0.5 1.4 7.9 1.09 -Exports 1.1 0.8 -2.8 0.42 -Imports 3.1 0.4 0.7 -0.9 GDP 0.3 1.8 0.8 0.7 Major Contributors to Real GDP Growth
5 was agriculture, forestry and fishing, where output fell by 0.1 per cent, revised down from a previously estimated0.5percentincrease. The Bank of England (BoE), in its latest Inflation Report, revisedUKGDPgrowthforecastfrom2.9 percentto3.4 per cent in 2014. In 2013, majority of private consumption expenditure (PCE) growth was supported by a sharp drawdown in savings. In case incomes don't grow, households will find it difficult to maintain PCE growth, which will have an adverse impact on GDP growth. Moreover, recent gains in employment have been due to subdued growth in productivity and lower wage growth, which does not bode well from a longer- termperspective. On the output side of the economy, industrial production growth was revised down to 0.5 per cent in the fourth quarter from an earlier estimate of 0.7 per cent, dragged down by falling North Sea oil and gas output. Manufacturing sector output growth too was revised downwards to 0.7 per cent from 0.9 per cent as originally estimated. Mining and quarrying output too shrank by 1.9 per cent. However, there was better news from the construction sector, with fourth-quarter outputreviseduptoshowgrowthof0.2percent,rather thanthe0.3percentfallinlastmonth'sestimate. The UK's service sector - which makes up more than three-quartersofeconomicoutput-roseby0.8percent in the fourth quarter, matching its performance in the previous quarter. The only "top level" industry to suffer China PMI Falls to 50.2 in Latest Sign of Persisting Slowdown February 2014 from 50.5 in January 2014, where any number of more than 50 indicates expansion. A preliminary reading of the HSBC manufacturing PMI, a competing index, fell to 48.3 in January 2014, well into contractionaryterritory. A closely watched gauge of China's manufacturing activity dropped to an eight-month low in February 2014, the latest sign of a slowdown in the country's factory sector. The government's official purchasing manager's index (seasonally-adjusted) fell to 50.2 in GLOBAL TRENDS attemptstocompensateforit. But the weaker number also points to doubts about the strength of China's economy at a time when other emerging markets are suffering from capital flight and China's economic data are muddled in the first few weeks of the year due to the Lunar New Year holiday, when factories shut down and consumers withdraw extra cash from the banking system. The holiday moves around from year to year, confounding statisticians' FEBRUARY 2014 China's Manufacturing PMI (Seasonally-Adjusted) 50.4 50.1 50.9 50.6 50.8 50.1 50.3 51.0 51.1 51.4 51.4 51.0 50.5 50.2 Jan/13 Feb/13 Mar/13 Apr/13 May/13 Jun/13 Jul/13 Aug/13 Sep/13 Oct/13 Nov/13 Dec/13 Jan/14 Feb/14 Source: National Bureau of Statistics
the holiday effect and persistent doubts about the qualityofChina'stradedata. The PMI for large companies fell to 50.7 from 51.4 the previous month. The gauges for small and medium- sized enterprises showed a contraction, in line with the preliminary reading of a separate manufacturing gauge released on 20th February, 2014 by HSBC Holdings Plc and Markit Economics. HSBC's Flash PMI, which is weighted more toward smaller companies, fell to 48.3 fromJanuary'sfinalreadingof49.5. concerns about China's domestic financial system are building. The central bank has been gradually moving to tightencreditconditions,amidfearsofamountingdebt loadthatcoulddestabilizetheeconomy. The PMI subindex for new export orders fell to 48.2 from 49.3, casting doubt on the strength of global demand for Chinese goods. China's exports in January rose 10.6 per cent from the same month of 2013, a strong performance that was nevertheless muddied by 6ECONOMY MATTERS Other Global Developments During the Month v v v v v v The entire growth in real GDP in Q4 2013 was driven by higher exports, which grew at the fastest pace in three years. Imports, on the other hand, grew more slowly, due to which net exports (exports less imports) contributed 1.1 percentage points to real GDP growth in Q4 2013. Almost half of this positive contribution from netexportswasoffsetbyadeclineinPCEandsharpdrawdownininventories. The Consumer Price Index (CPI) in the UK grew 1.9 per cent on y-o-y basis in the first month of 2014, lower than that in December 2013. After easing dramatically in the last quarter of 2013, inflation is unlikely to diverge sharply from the official target this year. The largest negative contribution came from 'recreation & culture', wherein inflation halved to 0.4 per cent last month, marking its lowest level since June 2012. On the other hand, the contribution of 'miscellaneous items'-especially personal care products and a range of insurance products- toinflationincreasedinJanuary2014. As per flash estimates, headline inflation in Euro Zone was stable at 0.8 per cent on y-o-y basis in February 2014, marking the same level for third consecutive month. While inflation in volatile items such as-food & energy- easedfurtherlastmonth,inflationinnon-volatileitemssuchasservicesandnon-energyindustrialgoodspicked up. Consequently, core inflation moved up from 0.8 per cent in January to 1.0 per cent in February 2014, the highestlevelinsixmonths. US real GDP for the fourth quarter of 2013 was revised downwards to 2.4 per cent from the 3.2 per cent advance estimatereleasedinJanuary2014. Fed Chairperson Yellen, in her testimony to the US Senate, reiterated that the Fed is likely to continue tapering asset purchases at a "measured" pace. She added that if there's a significant weakening of economic conditions,theFedwouldbe"opentoreconsidering"thepaceoftaper. China's inflation rate remained subdued in January 2014, despite rising food prices during the New Year celebrations. Consumer prices held steady at 2.5 per cent on y-o-y basis from a year earlier. The National Bureau of Statistics said there was a 3.7 per cent rise in food prices during the month, which included both the Western and Chinese New Years. China's inflation has slowed markedly since 2011, when the annual consumer price indexspikedto5.4percent. German real GDP grew 0.4 per cent on q-o-q basis in Q4 2013, higher than the market consensus of 0.3 per cent. GLOBAL TRENDS
7 Source : Union Budget 2014-15 FiscalConsolidation Achievetargetof3percentofGDPbyFY17andalwaysremainbelowthat. CurrentAccountDeficit Noroomforaversiontoforeigninvestment. PriceStability&Growth RBImuststrikebalancebetweenpricestability&growth. FinancialSectorReforms Recommendations of the Financial Sector Legislative Reforms Commission that require no change in legislationmustbeimplementedimmediately. Infrastructure UsePPPmodelwidelyandcreatenewfinancingstructures. Manufacturing Focus on manufacturing and especially on manufacturing for export. In order to achieve this waive off or rebatealltaxesthatgointoanexportedproduct. Subsidies Choosesubsidiesthatareabsolutelynecessaryandgivethemonlytotheabsolutelydeserving. Urbanisation Usenewmodelofgovernanceforrebuildingcities. SkillDevelopment Skill development must rank alongside secondary education, university education, total sanitation and universalhealthcareintheprioritiesoftheGovernment. Centre&StateRelations States should bear proportionate costs of implementing flagship programmes so that Centre can allocate moreresourcestocentralsubjects. 10 Commandments of the Finance Minister FEBRUARY 2014 Vote-on-Account Analysis is down and inflation is above the comfort zone. Under these circumstances, the Finance Minister attempted a fine balance to provide a fillip to economy and manufacturing, revive the 'feel good factor', while keeping the fiscal deficit under check. What is also commendable is the 10-point vision (see below table) laid out by the Finance Minister, which besides dwelling on the reduction in the twin deficits, provides emphasis to a balanced monetary policy, implementation of infrastructureprojectsanddevelopmentofcities. The Vote-on-Account, which was presented by the th Finance Minister in the Parliament on 17 February 2014, came at a time when the economy continues to be in the midst of a slowdown, the manufacturing sector is showingasubduedperformance,investmentsentiment DOMESTIC TRENDS
8ECONOMY MATTERS compared to the budgeted estimate of 4.8 per cent. We are however worried by the nature of this deficit compression. The fine-print of the budget reveals that bulk of the reduction in fiscal deficit has been achieved by cutting of plan expenditure, which is inimical for the pickupingrowth.Moreover,aspertherecentlyreleased data by CGA, fiscal deficit has touched 101.6 percent of the full year target during April-January FY14 compared with 89.4 percent at the same point a year ago. This has made the probability of the FM compressing the plan expenditure in order to meet his budget commitment of keeping the deficit at 4.6 per cent of GDP more probable. Presenting the last budget of the current incumbent UPA government, Finance Minister, while refrained from announcing any major changes in direct tax rates, tinkered with the indirect tax rates in order to prop up thegrowthofcertainailingsectors. CIIishappywiththe announcement of cutting of the excise duty on various segments of automobile, capital and consumer non- durables sectors. This is expected to help these sectors getbackonthegrowthtrackinmonthstocome. The fiscal deficit of the central government for 2013-14 has been re-estimated at 4.6 per cent of GDP as 1.3 3.0 4.2 3.7 5.2 4.9 5.2 5.32.5 5.4 6.5 4.8 5.7 4.9 4.6 5.1 7 6 5 4 3 2 1 0 FY08 FY09 FY10 FY11 FY12 FY13 FY14 (RE) FY15 (BE) Gross Fiscal Deficit (Rs Trillion) Fiscal Deficit/GDP (%) Fiscal Deficit Source: Union Budget 2014-15 Note: BE- Budget Estimates, RE – Revised Estimates rollover in fertilizer and petroleum subsidies to the tune of about Rs 650 billion. Under subsides, the biggest breach came on the fuel subsidy front, as it grew by 31.5 per cent in 2013-14 as compared to a decline budgeted to the tune of 33 per cent. For 2014-15, non-plan expenditure is budgeted to grow by 8.3 per cent; bulk of increasewillcomefromfoodsubsidy,whichisbudgeted to record the maximum jump to the tune of 25 per cent, in order to account for the implementation of the National Food Security Act throughout the country. In contrast, fuel subsidy is budgeted to decline by 25.8 per centovertherevisedestimatesof2013-14. According to the revised estimates for 2013-14, total expenditure recorded a decline to the tune of 4.5 per cent as per the revised estimates of 2013-14 compared with the budgeted estimates. Bulk of the decline in total expenditure was due to contraction in plan expenditure to the tune of 14.4 per cent. Continuous reduction in plan expenditure (by Rs 2.1 trillion vis-à-vis budgeted levels over the past 3 years) can dent the country's growth potential. In contrast, non-plan expenditure grewby0.4percentaspertherevisedestimatesof2013- 14 over the budgeted estimates. Out of the non-plan expenditure, total subsidies rose to 2.3 per cent of GDP compared to budgeted 2 per cent. This was despite the DOMESTIC TRENDS
9 expenditure compression needs to be kept in mind. Capital expenditure needs to be kept robust in order to revive the sagging investor sentiments while aiming for a compression on the revenue front. Encouragingly, in 2014-15, capital expenditure is budgeted to grow at 11.7 percentascomparedto10.8percentgrowthinrevenue expenditure. However, the share of revenue expenditure in total expenditure is still dominant as comparedtothatofcapitalexpenditure. Plan expenditure is budgeted to rise by 16.8 per cent in 2014-15, led by increase in both plan revenue and capital components. Plan revenue expenditure is expected to grow by 18.9 per cent whereas plan capital expenditure would register a growth of 9.0 per cent in 2014-15. Though, the fiscal deficit as a per cent of GDP is budgeted to moderate in 2014-15 underpinned by a moderation in non-plan expenditure, the nature of Source : Union Budget 2014-15 2013-14(RE)over2013-14(BE) 2014-15(BE)over2013-14(RE) FoodSubsidy 2.2 25.0 FertiliserSubsidy 3.0 0.0 PetroleumSubsidy 31.5 -25.8 OtherSubsidy -7.9 -55.2 TotalSubsides 10.6 0.1 Subsides Outgo (%) Source: Union Budget 2014-15 2013-14(RE)over2013-14(BE) 2014-15(BE)over2013-14(RE) NON-PLANEXPENDITURE 0.4 8.3 RevenueAccount 3.5 7.8 CapitalAccount -25.5 14.8 PLANEXPENDITURE -14.4 16.8 OnRevenueAccount -16.1 18.9 OnCapitalAccount -7.5 9.0 TotalCapitalExpenditure -16.7 11.7 TotalRevenueExpenditure -2.6 10.8 TotalExpenditure -4.5 10.9 Expenditure of Government (%) on the other hand was almost half that of the budgeted levels. Under gross tax revenue, corporation tax growth contracted by 6.2 per cent, while excise duty growth also contracted, albeit by a smaller clip as per revised estimates of 2013-14 over the budgeted estimates. Customs duty growth declined by 6.5 per cent over the same period. Sluggish macroeconomic growth, global headwinds and lower corporate profitability all resulted inmutedtaxcollectionsin2013-14. As far as the revenue side is concerned, economic downturn has dented government's revenue flow quite severely. Revenue receipts declined by 2.6 per cent in 2013-14 as compared to the budget estimates underpinned by 6.2 per cent contraction in tax revenue. It's pertinent to note however that non-tax revenue increased by 12.2 per cent due to the money garnered from the recent spectrum sales. Disinvestment revenue DOMESTIC TRENDS FEBRUARY 2014
manufacturing and came out with strong steps in the interim budget. For industry, the two issues of concern were revival in growth, particularly manufacturing, and fiscalconsolidation.Theinterimbudgetdeliversonboth fronts. It also sets a solid foundation for the next government'sfinances. In an election year, where the regular budget is to be presented by a new Government, Vote-on-Account was not expected to come out with any major policy announcements. That said, however, industry is pleased that the Finance Minister took note of the urgent need to counter slowdown in growth, investments and 10ECONOMY MATTERS per cent for the full year, the fourth quarter growth should come above 5 per cent. And if it happens, it will be the first above 5 per cent quarterly growth rate in seven consecutive quarters. As per the advance estimates, agriculture growth is expected to come at 4.6 per cent, while industrial sector growth will be lacklustre at 0.7 per cent in 2013-14. Services sector growth will remain almost unchanged from last year at 6.9percent. GDP growth in the third quarter of the current fiscal came at 4.7 per cent as compared to 4.4 per cent in the previousquarter.Revivalofagricultureandserviceswas nullified by a de-growing industry with near static construction sector as an added worry. With this, the GDP growth in the first three quarters (April-December 2013) stands at 4.5 per cent. Interestingly, in order to match the recently released advance estimates of 4.9 FY 13 FY14 (AE) DOMESTIC TRENDS Source: Union Budget 2014-15 2013-14(RE)over2013-14(BE) 2014-15(BE)over2013-14(RE) RevenueReceipts -2.6 13.4 -TaxRevenue -6.2 19.0 CorporateTax -6.2 14.6 IncomeTax -2.4 26.8 CustomsDuty -6.5 15.0 UnionExciseDuties 1.7 11.7 ServiceTax -8.4 30.7 -Non-TaxRevenue 12.1 -6.5 Growth in Government Receipts (%) GDP Growth Remains Weak in 3QFY14 4.5 4.9 1.4 4.6 1.0 0.7 7.0 6.9 FY 13 FY14 (AE) FY 13 FY14 (AE) FY 13 FY14 (AE) Total GDP Agriculture Industry Services y-o-y% GDP Expected at 4.9 per cent in 2013-14 Source : CSO
in April-December 2013. Private consumption expenditure growth moderated to 2.5 per cent in the third quarter from 3.0 per cent in the previous quarter. Mirroring the rise in government expenditure, government consumption growth accelerated to 4.0 percentfromlowof1.5percent. Demand side measure of GDP growth at 4.6 per cent matched that of supply side measure. Oddly this was supported largely by government spending. Investment continued to be weak and gross fixed capital formation contracted by an average of 1 per cent 11 (-1.6 per cent), manufacturing (-1.9 per cent) and electricity (5 per cent) are broadly in line with the IIP estimates seen so far. Services sector growth increased to 7.6 per cent in the third quarter as compared to 6.0 percentinthepreviousquarterdrivenbyrobustgrowth in its 'financing, insurance, real estate & business services' sub sectors. Community, social & personal services sector growth also galloped to 7.0 per cent due toriseingovernmentconsumptionexpenditure. In the third quarter, agricultural growth came lower- than-expected at 3.6 per cent, despite a low base of last year and the fact that third quarter is usually a strong farm growth quarter as most of the Kharif crop comes on stream then. This implies the fourth quarter would havetoregisterverystronggrowthfortheannualtarget to be met, which looks unlikely at the moment. Within industry,thetrajectoryofconstructionisworryingat0.6 per cent. Other components of industry, namely, mining DOMESTIC TRENDS FEBRUARY 2014 Source : CSO (y-o-y%) Q3FY13 Q1FY14 Q2FY14 Q3FY14 GDP at factor cost 4.4 4.4 4.4 4.7 Agriculture 0.8 2.7 4.6 3.6 Industry 1.7 0.2 2.3 -0.7 Services 6.9 6.7 6.0 7.6 Mining & quarrying -2.0 -2.8 -0.4 -1.6 Manufacturing 2.5 -1.2 1.0 -1.9 Construction 1.0 2.8 4.3 0.6 Electricity, gas & water supply 2.6 3.7 7.7 5.0 Trade, hotels, transport & communication 5.9 3.9 4.0 4.3 Financing, insurance, real estate & 10.2 8.9 10.0 12.5 business services Community, social & personal services 4.0 9.4 4.2 7.0 Supply-Side of Real GDP Source : CSO (y-o-y%) Q3FY13 Q1FY14 Q2FY14 Q3FY14 GDP at market prices 5.3 2.4 5.6 4.6 Private Consumption 5.1 1.9 3.0 2.5 Govt. Consumption 4.5 9.6 1.5 4.0 Fixed Investment 4.4 -3.7 1.8 -1.1 Exports -1.7 -1.2 14.8 11.4 Imports 3.6 2.6 2.1 -3.8 Demand-Side of Real GDP
manufacturing, capital and consumer goods. However, on a positive note, the sequential momentum as indicated by the movement in the seasonally-adjusted month-on-month series moved into the positive territory in during the month. On a cumulative basis, for the first nine months of the fiscal, industrial output has now contracted by 0.1 per cent as compared with a growthof0.7percentduringthesameperiodlastyear. Industrial sector output contracted for the third consecutive month in December 2013, despite a supportivebaseeffect. Industrialoutputdeclinedto0.6 per cent in December 2013, albeit the magnitude of decline reduced from the -1.3 per cent print seen in the previous month. The decline in IIP during the month was underpinned by contraction in its sub-sectors such as 12ECONOMY MATTERS equipment & apparatus' showed the highest negative growth of (-) 35.7 per cent, followed by (-) 26.1 per cent in 'Furniture; manufacturing' and (-) 22.1 per cent in 'Office, accounting & computing machinery'. Mining sector output which has declined by 1.8 per cent in the year till date so far, remained in the positive territory for the second consecutive month, growing by 0.4 per cent in December 2013 as compared to contraction of 3.1 per cent in the previous month. Barring a few intermittent months, electricity sector growth has remained on a strong footing this fiscal, growing at an average 5.6 per centinApril-December2013. On the sectoral front, manufacturing sector, which constitutes over 75 per cent of the index, declined by 1.6 per cent in December 2013 as against a contraction of 0.8 per cent a year ago. This is the sixth negative data printofmanufacturingoutputsofarinthisfiscalandhas elevated the upside risks to growth. In terms of industries, eight (8) out of the twenty two (22) industry groups (as per 2-digit NIC-2004) in the manufacturing sector showed negative growth during the month of December 2013 as compared to the corresponding month of the previous year of manufacturing sector. The industry group 'Radio, TV and communication Industrial Production Continues to Remain in a Weak Zone Outlook WeakthirdquarterGDPnumberswillerodesomeofthecautiousoptimismthatwasstartingtobecomevisibleover the last two months. With the country heading for general elections, passages of key economic legislations would have to wait till the formation of new government at the Centre. However, this is an opportune time to take care of procedural simplifications, which would improve the ease of doing business in India and make the environment investmentfriendlyinordertoprovideafilliptogrowth. DOMESTIC TRENDS y-o-y% SA m-o-m% Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 10 5 0 -5 2.0 -0.6 IIP Contracts for Third Consecutive Month Source: CSO
13 WPI Inflation Slips to 8-month Low in January 2014 months, moderated sharply to 16.6 per cent in January 2014 after it hit record high of 97.7 per cent in November-2013. The momentum indicator indicated by the seasonally-adjusted month-on-month series slipped into the negative territory during the reporting month. To be sure, consumer prices based inflation (CPI) too eased sharply to 2-year low of 8.8 per cent in January 2014 as compared to 9.9 per cent in the previous month. WPI based inflation moderated to 8-month low of 5.05 per cent in January 2014 as compared to 6.2 per cent in thepreviousmonthonthebackoffallinfoodpricesand subdued manufacturing inflation. However, the rise in core inflation to 3 per cent, close to the RBI's comfort threshold, is a cause for concern. Amongst the food prices, vegetable prices which have been the main driver behind pushing overall WPI higher in the last few hasnowremainedinredsincethestartingofthecurrent fiscal. Such a poor performance by the sector is a matter of concern as it is widely regarded as a proxy for consumption growth. Non-durables on the other hand remained in the positive territory, albeit showing a downward trend in December 2013 as compared to November 2013. Going ahead, we expect recovery in this component as good agricultural GDP this year will support rural demand, which will prop up non-durables evenifurbandemandremainsweak. On the use based front, the consistently volatile capital goods segment output declined by 3.0 per cent during the month. Consumer goods remain a drag on overall IP growth primarily led by the continuing weakness in the durables goods sector. During the reporting month, consumer goods output declined for the third consecutive month to 5.3 per cent in December 2013 as compared to -8.8 per cent in the previous month. It's pertinent to note here that output of consumer durables, one of the sub-sectors of consumer goods, DOMESTIC TRENDS FEBRUARY 2014 Apr-Dec Weight Dec-12 Oct-13 Nov-13 Dec-13 FY13 FY14 General 1000.0 -0.6 -1.6 -1.3 -0.6 0.7 -0.1 Manufacturing 755.3 -0.8 -1.8 -2.7 -1.6 0.7 -0.6 Mining 141.6 -3.1 -3.2 1.7 0.4 -1.8 -1.8 Electricity 103.2 5.2 1.3 6.3 7.5 4.5 5.6 Use-Based Basic 456.8 2.2 -1.4 2.7 2.4 2.7 1.3 Capital 88.3 -1.1 2.4 -0.1 -3.0 -10.1 -0.5 Intermediates 156.9 -0.2 2.2 3.4 4.5 1.6 3.0 ConsumerGoods 298.1 -3.6 -4.9 -8.8 -5.3 2.7 -3.0 -Durables 84.6 -8.1 -12.1 -21.5 -16.2 3.7 -12.9 -Nondurables 213.5 -0.5 2.2 2.1 1.6 1.8 5.7 Sectoral Growth Source: CSO Negative growth of 0.6 per cent for the third consecutive month, over the negative base of December 2012, continues to disappoint. CII is especially concerned about the performance of the manufacturing sector, which continues to be in red. Negative growth of capital goods and consumer durables sectors reinforces the view that escalating interest costs are adversely impacting investment. CII anticipates a pick-up in industrial production, goingforward,asdownsiderisksaregraduallyrecedingonaccountofanticipatedglobalrecovery. Outlook
was significant, with its inflation slipping to 21.9 per cent after having scaled a peak of 61 per cent in November- 2013. Food inflation, with 50 per cent weight contribution to CPI slipped to 9.9 per cent for the first time since April- 2012. While there was an across the board decline in inflationinfooditems,thecontributionfromvegetables 14ECONOMY MATTERS speed diesel inflation rose to 14.0 per cent during the month as compared to 17.0 per cent in the previous month. Going forward, we expect fuel inflation to moderate due to stabilisation witnessed in global crude pricesandtherecentstrengtheningoftheRupee. Manufacturing inflation remained subdued and broadly unchanged at 2.8 per cent in January 2014, led by across the board correction in prices. Non-food manufacturing or core inflation which is widely regarded as the proxy for demand-side pressures in the economy, however, increased to 3.0 per cent during the month as compared to 2.8 per cent in December 2013. In the coming months, we expect core WPI to remain at sub 3 per cent, RBI's comfort level for this inflation measure. Mirroring the sharp deceleration in primary food inflation, manufactured food products inflation also slowed down to 1.5 per cent in January 2014 from 1.8 per cent in thepreviousmonth. Primary inflation slipped to 6.8 per cent in January 2014 from 10.8 per cent in the previous month and average of 13.7 per cent seen in the last 4-months. This was mainly attributable to the sharp slowing down of food inflation to single-digits at 8.8 per cent as compared to high of almost 20 per cent in November 2013. Amongst primary food inflation, vegetable prices moderated to 16.6 per centafterithitrecordhighof97.7percentinNovember- 2013. Encouragingly, the decline in food inflation was broad-based,withpricesofcerealsandeggs,meat&fish too witnessing downward pressure during the month. Non-food inflation too moderated to 4.4 per cent as against 6.0 per cent in the previous month. Inflation in minerals declined to 0.2 per cent from 2.1 per cent in the previousmonth. Fuel inflation slowed down to 10.0 per cent in January 2014 as compared to 11.0 per cent in the previous month. Though on month-on-month basis, it did show a 0.7 per cent increase, driven by rise in prices LPG coupled with hike in prices for kerosene and high speed diesel. High- DOMESTIC TRENDS 7.5 5.05 10.4 8.8 12 10 8 6 4 2 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 WPI y-o-y% CPI (Combined) y-o-y% Both WPI & CPI Inflation Moderate Source : Office of Economic Advisor
15 per cent. This target looks difficult to be met in the currentcircumstances. Imports during February 2014 were valued at US$33.8 billion, posting a decline to the tune of 17.1 per cent over the same month last year, as weak domestic demand and restrictions on gold imports lowered non-oil imports by nearly 24.5 per cent on year-on-year basis. India imports almost all of the gold it consumes. The yellow metal is the country's second-biggest import after oil and was an important reason for driving the country's current account gap to a record high last year, pushing the rupee sharply lower. Oil imports contracted by 3.1 per cent during the month. Going forward, consumption goods import may pick up as household consumption improves. A revival in household demand would be supported by higher farm incomes due to a goodmonsoon. Exports contracted for the first time in eight months in February 2014 although a sharp decline in imports led by a fall in gold imports helped narrow trade deficit and ease the pressure on the external sector. Exports fell 3.7 per cent in February 2014 as compared to growth of 3.8 per cent in the previous month, dragged down by sector such as petroleum, engineering and pharmaceuticals. Exports had been growing at a double-digit rate until October but lost momentum in the last four months, signalling that the worst might not be all over as yet for the Indian economy. Cumulative value of exports for the first eleven months of the current fiscal (Apr-Feb) were valued at US$282.7 billion as against US$269.8 billion a year ago, thus registering a year-on-year growth of 4.8 per cent. Finance Minister in his Budget Speech for 2014- 15highlightedthatmerchandiseexportsareexpectedto end the current fiscal with estimated merchandise exports of US$326 billion, indicating a growth rate of 6.3 DOMESTIC TRENDS FEBRUARY 2014 General 100.0 7.3 7.5 6.2 5.05 7.5 6.0 Primary 20.1 11.4 15.3 10.8 6.8 10.0 10.5 -Food 14.3 12.3 19.7 13.1 8.8 9.9 13.5 -Non-Food 4.3 13.0 7.4 6.0 4.4 10.6 5.7 -Minerals 1.5 4.0 2.3 2.1 -0.2 9.9 0.3 Fuel 14.9 9.3 11.1 11.0 10.0 10.6 10.2 -Petrol 1.1 3.4 4.4 5.4 7.2 7.0 2.7 -HighSpeedDiesel 4.7 18.5 15.7 17.0 14.0 9.7 20.5 Manufacturing 65.0 4.9 2.9 2.6 2.8 5.6 2.8 -Food 10.0 8.7 2.4 1.8 1.5 8.1 3.6 -Non-food 55.0 4.2 3.0 2.8 3.0 5.1 2.7 April-Jan Weight Jan-13 Nov-13 Dec-13 Jan-14 FY13 FY14 Sectoral Components of Inflation Source: Office of Economic Advisor January month's inflation data print both at retail and wholesale level has been reassuring and conforms to RBI's expectation of a notable correction on account of decline in vegetable prices. Moreover, the lagged effects of effective monetary tightening since September 2013 would also exert an opposite force on inflation in the coming months.Consequently,weexpecttheRBItocutratesinitsforthcomingmonetarypolicyreview,inordertoprovide afilliptofallinggrowth. Outlook Trade Deficit Narrows as Imports Contraction Intensifies
16ECONOMY MATTERS year stands at US$128 billion; significantly lower than US$180billioninthecorrespondingperiodinFY2013. The trade deficit narrowed to US$8.1 billion in February 2014 as against US$9.9 billion in the previous month. The trade deficit during the first eleven months of the fiscal DOMESTIC TRENDS External Sector Performance (y-o-y %) Source: Ministry of Commerce Outlook The economic conditions in the U.S. and the Euro Zone are not very favorable for exports and we hope the Indian government will help the exporters by providing help by way of including more products and countries for Focus ProductSchemeandFocusmarketScheme,wherewehaveacomparativeadvantage.Alsoweneedtorelookatthe dutydrawbackrates.Thesemeasures,ifannouncedattheearliestwillgivethenecessarypushtotheindustrywhich canthenbenefittheindustryandhelpthemreachtheexporttarget. led to significant amount of capital inflows during the quarter. Consequently, on a BoP basis, there was a net accretion of US$19.1 billion to India's foreign exchange reserves in Q3 of 2013-14 as compared to a drawdown of US$10.4billionintheprecedingquarter.ThoughtheCAD has improved significantly in the last one year, the quality of adjustment is debatable. Bulk of the compressionhas been achieveddue to reductionin gold imports rather than from the much desirable pick up in exportsandinvisibles. The latest data released for the third quarter of 2013-14 shows that current account deficit (CAD) narrowed sharply to US$4.2 billion (0.9 per cent of GDP) in third quarter (Q3) of 2013-14 from US$31.9 billion (6.5 per cent of GDP) in same quarter of 2012-13 which is also lower than US$5.2 billion (1.2 per cent of GDP) in second quarter (Q2) of 2013-14. The lower CAD was primarily on account of a decline in the trade deficit as merchandise exports picked up and imports moderated, particularly gold imports. On the capital account, the reversal of portfolio flows and the policy induced FCNR (B) flows Decline in Trade Deficit Narrows Current Account Deficit in 3QFY14 20 10 0 -10 -20 -3.7 -17.1 Jun/12 Aug/12 Oct/12 Dec/12 Feb/13 Apr/13 Jun/13 Aug/13 Oct/13 Dec/13 Feb/14 Exports Imports
17 FEBRUARY 2014 35 30 25 20 15 10 5 0 8 7 6 5 4 3 2 1 0 31.9 18.1 21.8 5.2 4.2 6.7 3.6 4.9 1.2 0.9 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 CAD (US$ BN) CAD (as a % of GDP)- RHS Current Account Deficit Narrows Sharply Source: RBI billionascomparedtoUS$17.8billioninQ3of2012-13and US$3.9 billion in Q2 of 2013-14. As a result, the merchandise trade deficit (BoP basis) contracted by around 43 per cent to US$33.2 billion in Q3 of 2013-14 from US$58.4 billion a year ago. Within the invisible category, net services receipts improved during Q3 of 2013-14, essentially reflecting a decline in payments on account of services imports. Net services at US$18.1 billion recorded a growth of 8.9 per cent in Q3 of 2013-14 (y-o-y). On a BoP basis, merchandise exports increased by 7.5 per cent to US$79.8 billion in Q3 of 2013-14 (3.9 per cent in Q3 of 2012-13) on the back of significant growth especially in the exports of engineering goods, readymade garments, iron ore, marine products and chemicals. On the other hand, merchandise imports at US$112.9 billion, recorded a decline of 14.8 per cent in Q3 of 2013-14 as against an increase of 10.4 per cent in Q3 of 2012-13. Decline in imports in Q3 was primarily led by a steepdeclineingoldimports,whichamountedtoUS$3.1 Current Account Deficit Narrows in 3QFY14 (US$ billion) Q3FY13 Q2FY14 Q3FY14 Trade Balance -58.4 -33.3 -33.1 - Exports 74.2 81.2 79.8 - Imports 132.6 114.5 112.9 Invisibles 26.7 28.1 29.1 - Services 16.7 18.4 18.1 - Transfers 15.8 16.1 16.4 - Income -5.8 -6.3 -5.4 Current Account -31.8 -5.2 -4.2 CAB as a % of GDP -6.7 -1.2 -0.9 Source: RBI ofequity.Onnetbasis,capitalinflowsduringthequarter stood at US$23.8 billion, which were mainly buffered by US$21.4 billion of inflows under foreign currency non- resident (FCNR) deposits. Correspondingly, balance of paymentswitnessedahugeUS$19.1billionsurplusinQ3- thehighestsinceMarch2008. In the capital account, on net basis, both foreign direct investment and portfolio investment recorded inflows of US$6.1 billion and US$2.4 billion, respectively in Q3 of 2013-14. Within portfolio investment, the debt segment showednetoutflowinQ3which,however,wasoffsetby higher net inflows of US$6.2 billion under the category DOMESTIC TRENDS
18ECONOMY MATTERS DOMESTIC TRENDS The government's expenditure is divided under two broad heads-plan and non-plan. Non-plan expenditure constitutes bulk of the government's expenditure. According to estimates, it is expected to be 68.5 per cent of the government's total expenditure in the next financial year. In the current financial year, the proportion is estimated to be at over 70 per cent of the total expenditure. The plan expenditure of the government is normally associated with productive expenditure, which helps increase the productive capacity of the economy. It includes outlays for different sectors such as rural development and education. Non-plan expenditure, on the other hand, includes expenses on heads such as interest payment on government debt, subsidies, defence, pensions and other establishment costs of the government. A large part of this is obligatory in nature. For example, the government may cut allocation towards rural development or education if it falls short of funds, but it cannot cut interest payments on borrowed funds. Lower plan expenditure adversely impacts the growth prospects of the economy. So, it is important that government rationalizes expenditure on heads such as subsidies in the non-plan segment. This will help it contain the deficit and allow it to spend on activities that create assets and contribute to developmentinthelongrun. *Adapted from Mint dated February 21, 2014 Outlook The narrowingof currentaccountdeficit to 0.9 per cent of GDP duringOctober-December2013 quarter from 1.2 per cent in the last quarter is essentially on account of the decline in trade deficit and pick up in capital flows. However, this fall in CAD, looks transitory. The bulk of compression in trade deficit was driven by reduction in gold imports. Once these restrictions are lifted coupled with expected jump in non-oil and non-gold imports due to pick up in economic growth, we can see some rise in CAD in 2014-15. The bigger challenge then will be to attract inflows sufficienttofinancethebulgingCAD. Capital Account Records a Huge Jump in Inflows Source: RBI (US$ billion) Q3FY13 Q2FY14 Q3FY14 - Direct Investment 2.1 8.1 6.1 - Portfolio Investment 9.8 -6.6 2.4 Loans 10.8 -0.5 3.0 Banking Capital 5.2 1.2 15.8 Other Capital 3.5 -7.0 -3.0 Capital Account 31.5 -4.8 23.8 Overall BoP 0.7 -10.4 19.1 Know Your Facts: Plan & Non-Plan Expenditure *
New Investment Proposals Move Up 315.9 353.8 304.9 222.3 192.7 239.0 229.0 92.2 54.5 99.8 93.7 93.0 145.5 Dec- 10 Mar- 11 Jun- 11 Sep- 11 Dec- 11 Mar- 12 Jun- 12 Sep- 12 Dec- 12 Mar- 13 Jun- 13 Sep- 13 Dec- 13 Source: Calculated from Capex, CMIE INVESTMENT TRACKER 19 FEBRUARY 2014 crore in second quarter (Q2FY14), the new investment proposals jumped to Rs. 146 thousand crore in Q3 (Figure 1). Combined with positive signals emerging from other indicators such as improving export prospects, declining current account deficit, reduction in exchange rate volatility and downward trend in inflation, jump in value of new investment proposals in Q3 lends support to the beginning of improvement in business sentiments. There is, however, a case for cautious optimism, as recovery remains fragile and lopsided. At a time when various indicators are being keenly securitized to trace some signs of economic recovery, positive news comes from the figures on new investment proposals for the third quarter (Q3FY2014), recording the highest level in previous five quarters. From a level of Rs 93 thousand Figure 1: New Investment Proposals (Rs '000 crore)
investment proposals rising from 40 per cent in Q2 to 44 per cent in Q3FY2014, much higher than the average of 24percentsinceQ3FY2011. In contrast to manufacturing and electricity sectors, non-financial services (like hotel & tourism, trading, transport services, communication services, information technology etc) and construction & real estate are the two sectors that have continued to hold back the interest in overall new proposals. Services sector saw its share in new investment proposals shrinking from 18 per cent in Q2 to mere 6 per cent in Q3FY14, much below the average of 25 per cent since Q3FY2011. Even greater concern is that its share has persistently declined since Q2FY2012. Similarly, construction & real estate sector experienced contraction in its share to 5 per cent in Q3FY2014, droppingfrom6percentinQ2,muchbelowtheaverage of 10 per cent since Q3FY2011. The poor performance of non-financial services and construction sectors can largely be linked to slowdown in overall economic growthandrisinginterestrates. An analysis of sectoral (non-financial) performance of new investment proposals reveal that despite the sharp slowdown in manufacturing production in the current fiscal so far, the sector has managed to pull in an impressive performance in Q3FY2014 (Figure 2). This is evident from the fact that the share of new investment proposals in Q3FY14 stood at 41 per cent, up from 31 per cent in Q2 and much higher than the average of 35 per cent since Q3FY11. Further, the new investment proposals in manufacturing have shown a mild uptrend over the last several quarters, albeit with wide fluctuations (Figure 3). In view of the fact that growth in manufacturing production remains muted for the last many years even as the sector is desired to grow in the range of 10-12 per cent per annum, there is need for strengthening of uptrend by way of introducing various policy measures such as softer monetary policy, fast tracking clearances of held up projects and encouraging new investments by Central government, state government,localbodiesandRBI.Electricityistheother sector witnessing jump in new investment proposals in previous quarter, resulting in its share in total new INVESTMENT TRACKER 31 40 18 6 41 48 6 5 35 24 25 10 Manufacturing Electricity Services (other than financial) Construction & real estate Sep-13 Dec-13 Avg since Dec 10 Figure 2: Change in New Investment Proposals between Q2FY14 and Q3FY14 Source: Calculated from Capex, CMIE. 70 60 50 40 30 20 10 0 X X X X X X X X X X X X X Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Electricity Services (other than financial) Manufacturing Construction & real estate Figure 3: Trend in Sectoral Shares of New Investment Proposal (%) Source: Calculated from Capex, CMIE. 20ECONOMY MATTERS
Consequently, the share of private sector in total new investment proposals, which usually runs higher than the share of government, has worryingly not only fallen short of government share in recent quarters but has also been widening in the gap (Figure 5). Given the necessity of large investments needed to take the economy out of the current rock bottom slowdown, new investment by private sector will be equally critical foreconomicrevival. Analyzing the performance of new investment proposals in terms of ownership, it is interesting to note that the increase in new investment proposals has been led by the government; private sector continues to witness downward momentum (Figure 4). The government's new investment proposals, which wore a declining trend until Q3FY2013, have been picking up momentum in recent quarters, helping to mitigate the loss on account of fall in private investments. longer term, we prepared the ranking using the data from Q3FY2011 (Figure 7). In this list Gujarat, Andhra Pradesh, Karnataka, and Maharashtra, accounting for nearly 40 per cent of countries new investment proposals since Q3FY2011, emerged as the 4 largest investing states. In the current financial year, however, these four states have been pushed down in the ranking by many smaller states and the Maharashtra doesn't evenappearinthetop10. State-wise analysis of the new investment proposals reveal that the major investing states continue to perform poorly. In previous three quarters of current fiscal so far, the list of top 10 states, accounting for over 80 per cent of the total new investment proposals, has the major investing states either lying low in ranking or missing from the list (Figure 6). In order arrive at the list ofmajorstateswithlargestnewinvestmentproposalsin INVESTMENT TRACKER Figure 4: Trend in Government and Private Sectors New Investment Proposals (Rs '000 crore) 300 250 200 150 100 50 0 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Government Private sector Source: Calculated from Capex, CMIE. Figure 5: Trend in Shares of Government and Private Sector in New Investment Proposals (%) 100 80 60 40 20 0 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Government Private sector Source: Calculated from Capex, CMIE. 21 FEBRUARY 2014
Figure 6: Average Share of States in Investment Proposal During Q1, Q2 and Q3 FY2014 (%) Kerala 14% Jammu & Kashmir 13% West Bengal 11% Rajasthan 10%Gujarat 8% Orissa 8% Jharkhand 5% Karnataka 5% Tamil Nadu 4% Andhra Pradesh 4% Others18% Source: Calculated from Capex, CMIE. Figure 7: Average Share of States in New Investment Proposal from Q3FY2010 Karnataka 9% Others 32% Gujarat 10% Rajasthan 4% Madhya Pradesh 5% West Bengal 4% Andhra Pradesh 10% Maharashtra 9% Orissa 7% Tamil Nadu 6% Kerala 4% Source: Calculated from Capex, CMIE. financial services along with real estate sectors are not showing any sign of reversal in downward trend. In order to help strengthen the early signs of economy recovery and make it sustainable, the pick in government's new investment proposals must be increasingly complimented with private sector investments, which, in turn, would require rigorous and continuing policy interventions by the government as wellasRBI. Conclusion Pickupinnewinvestmentproposals,ledbygovernment owned projects, during third quarter of current fiscal is a welcome sign, especially as it owes its origin in manufacturing and electricity sectors. Maintaining the momentum, however, is crucial at a time when overall economic growth continues to remain tepid and non- INVESTMENT TRACKER 22ECONOMY MATTERS
Travel & Tourism GlobalTourismSector The travel and tourism industry has emerged as one of the largest and fastest growing economic sectors globally.AccordingtotheUnitedNationsWorldTourism Organization's (UNWTO) report "Tourism Highlights 2013", tourism's total contribution to worldwide GDP is approximately 9 per cent. Tourism exports in 2012 amounted to US$1.3 trillion, accounting for 6 per cent of theworld'sexports.Newtouristdestinations,especially those in the emerging markets, have started gaining prominence with traditional markets reaching maturity. Asia Pacific recorded the highest growth in the number of international tourist arrivals in 2012 at 7 per cent, followed by Africa at 6 per cent. International tourist arrivals are set to increase at a growth rate of 3.3 per cent per annum and amount to approximately 1.4 billion by2020and1.8billionby2030,implyinganincreaseof43 millioninternationaltouristarrivalseachyear. The present section reviews the travel & tourism sector based largely on the Report "Travel & Tourism: Potential, Opportunities and Enabling Framework for Sustainable Growth" prepared by the Confederation of Indian Industry (CII) and KPMG. The report discusses the potential of the travel & tourism sector in general, performance of tourism sector in various states of India, benefits of seamless, main issues in the tourism sector and key recommendations for the sector. SECTOR IN FOCUS 23 FEBRUARY 2014
24ECONOMY MATTERS Competitiveness Index. India has been witnessing steady growth in its travel and tourism sector over the past few years. Total tourist visits have increased at a rate of 16.3 per cent per annum from 577 million tourists 1 2 in2008 to1057milliontouristsin2012 . WiththeinternationaltouristarrivalsinIndia(peggedat 7.5 million in 2013) expected to witness an annual growth rate of 6.2 per cent over the next decade, visitor exports(expendituregeneratedbyforeigntourists)are expectedtoamounttoRs2,958billionby2023,growing 3 at 9.6 per cent per annum . This growth can mainly be attributed to the rising income levels and changing lifestyles, diverse tourism offerings and policy & infrastructural support by the government such as simplification of visa procedures and tax holidays for hotels. IndianTourismSector The travel and tourism sector holds strategic importance in the Indian economy, providing several socio-economic benefits. Provision of employment, earnings of foreign exchange, and expansion of other industries such as agriculture, construction, handicrafts etc. are some of the important economic benefits providedbythetourismsector.Inaddition,investments in infrastructural facilities such as transportation, accommodationandothertourismrelatedserviceslead to an overall development of infrastructure in the economy. According to the World Economic Forum's Travel and Tourism Competitiveness Report 2013, India th th ranked 11 in the Asia pacific region and 65 globally out of 140 economies ranked on travel and tourism SECTOR IN FOCUS Europe Asia Pacific Americas Africa Middle East 486 516 534 205 218 234 150 156 163 50 49 5258 55 52 2010 2011 2012 International Tourists Arrival (in millions) Source: UNWTO Tourism Highlights, 2013 563 669 748 865 1036 14 14 18 19 21 2008 2009 2010 2011 2012 Domestic Foreign Tourist Visits in India (in millions) Source: India Tourism Statistics 2008, 2009, 2010, 2011, Ministry of Tourism 1. India Tourism Statistics 2008, Ministry of Tourism 2. http://tourism.gov.in/writereaddata/CMSPagePicture/file/marketresearch/New/2012%20Data.pdf 3. WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices
25 CAGRof12percentfromtheestimatedRs2,222billionin 4 the year 2013 to Rs 6,818 billion by 2023 . The travel and tourism sector supported 25 million jobs in 2012, directly related to the tourism sector. Constituting 4.9 per cent of the total employment in the country in 2012, this is 5 expectedtoamountto31millionjobsby2023 . Impact of Tourism Sector on GDP & Employment The travel and tourism sector directly contributed Rs 1,920 billion to India's GDP in 2012, reflecting a CAGR of 14 per cent since 2007. This is forecasted to rise at a SECTOR IN FOCUS FEBRUARY 2014 1160 1228 1437 1674 1920 2222 2008 2009 2010 2011 2012 2013E Travel and Tourism Direct Contribution to GDP, Rs Billion Source: WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices investments lead to social development of an economy as infrastructure created for tourism purposes in areas of transportation, accommodation etc. can also be utilisedbythecommunityingeneral. Capital investment in the travel and tourism sector in 2012 was estimated at Rs 1,761.4 billion amounting to approximately 6.2 per cent of total investment in the Indian economy. It is expected to increase by 14.2 per cent in 2013, and witness further annual growth rate of 6 10.5percentby2023amountingtoRs5,459billion . Capital Investment in Tourism Sector Capital investments in the tourism sector include spendingbyallsectorsdirectlyinvolvedinthetraveland tourism industry. Spending by other industries on specific tourism assets such as new visitor accommodation and passenger transport equipment, as well as restaurants and leisure facilities for specific tourism use also form part of capital investments. Such 1556 1128 1319 1545 1761 2012 2008 2009 2010 2011 2012 2013E Capital Investment in Travel & Tourism Sector, Rs billion Source: WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices 4. WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices 5. A multiplier measures total change throughout the economy from one unit change for a given sector 6. WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices
26ECONOMY MATTERS The growth of the Indian travel and tourism industry is being impacted by several industry drivers. Some of thesedriversareasfollows: Growth of Tourism in India - Key Drivers & Trends KeyIssuesandSuggestions Further,someofthekey issuesfacingthesectorinclude lack of skilled & trained manpower, lack of focus on safety & security of tourists, provision of adequate healthcare facilities for tourist and lack of adequate infrastructureinthecountry. In order to address these key issues faced by the sector, some of the key recommendations for boosting the sector'sgrowtharesummarisedbelow: 1). Projection of India's image as a safe and secure tourist destination: Tourist Police Task Force has been established by various state governments for ensuring safety and security for tourists. Special sensitisation campaigns may be implemented for women tourists and to publicise these campaigns on global platforms. Health concerns for tourists visiting India also needs to bemitigated. 2). Attract private investment: Private sector players may be encouraged to participate in development of tourism infrastructure by provision of fiscal as well as non fiscal incentives. PPP projects and formation of Special Purpose Vehicles for mega tourism projects may berequired. 3). Infrastructural development: Investments in tourism infrastructure may include development of both tourism as well as civic infrastructure. This may also involve provision of way side amenities, tourist information bureaus and websites for providing requisite tourist information. Efforts towards enhancement of overall transport infrastructure in the form of good quality roads, rail network, airports, helipads, availability of tourist vehicles etc. may also be strengthened in order to improve the overall infrastructure. SECTOR IN FOCUS Growth of Tourism in India - Key Drivers & Trends Source: Report on 'Travel & Tourism: Potential, Opportunities and Enabling Framework for Sustainable aGrowth', published by CII & KPMG Domestic Tourism Inbound Tourism Outbound Tourism lHealthy economic growth and rising income levels lChanging consumer lifestyles lAvailability of low cost airlines lDiverse product offerings lEasy finance availability l lAttractive tour packages lHealthy economic growth lEasy finance availability lInternational events and increased business travel Rising disposable incomes with Indian consumers l lRich natural/cultural resources and geograohical diversity lGovernment inititiatives & policy support lMultiple marketing and promotion activities lHealthy economic growth levels lHost nation for major international events New product offerings
27 reach out to the young tech savvy global population. lFocused websites, exhaustive in content, user friendly and attractive in visual appeal may be developed in multiple languages of target countries. lParticipation in international events may be increased and a greater number of domestic tourism events and road shows may be organized in order to offset seasonality of tourist inflow. Events may be based on innovative themes of music, dance, sports, food, fruits, handicrafts, Indian culture and traditions,Indianvillages,festivalsetc. lCustomised tour packages may be developed keeping in mind the profile of visitors, budget and travel requirements. Comparative pricing of tourism products may also need to be considered after analysis of other tourism packagesandproductsavailable. 8). Differentiated tourism offerings for repeat travellers: Customized packages with different tourism products and discounts may be provided to repeat travelers in order to provide a different and enriching experienceoneachvisit. 9). Partnership oriented marketing: Travel trade partnerships may be extended beyond tour operators, guides etc. to partners from other industries such as international hotel chains, airlines or credit card companies. 10). Human resource development: Provision of additional training institutes, enhancing capacity of existing ones along with introduction of short term courses providing specific skills directed at hospitality and travel trade sector employees may be required for catering to the increased manpower and skill requirements. 11). Inclusive growth: There is a need to spread education and awareness on the importance of tourism sector and increase stakeholder participation involving the government, private sector and the community at large. Marketing campaigns like 'Atithidevo Bhava' may beimplementedatregularintervals. 4). Development of tourism destinations: An extensive market research and evaluation exercise may be undertaken in order to identify desired tourist destination attributes and major markets and segments. Identified tourist destinations may then be developed through flagship projects involving state gove
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