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Economic Survey of India 2011-12 - A FICCI Analysis
Economic Survey of India 2011-12 - A FICCI Analysis
Economic Survey of India 2011-12 - A FICCI Analysis
Economic Survey of India 2011-12 - A FICCI Analysis
Economic Survey of India 2011-12 - A FICCI Analysis
Economic Survey of India 2011-12 - A FICCI Analysis
Economic Survey of India 2011-12 - A FICCI Analysis
Economic Survey of India 2011-12 - A FICCI Analysis
Economic Survey of India 2011-12 - A FICCI Analysis
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Economic Survey of India 2011-12 - A FICCI Analysis

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An analysis done by FICCI on the latest Economic Survey of India release March 15, 2012

An analysis done by FICCI on the latest Economic Survey of India release March 15, 2012

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  1. ECONOMIC SURVEY 2011-12E c o n o m i c A ffa i r s a n d R e se a r c h D i v i si o n
  2. ECONOMIC SURVEY 2011 -12HIG HLIG HT S  Ec onom ic Sur vey puts the growth f orec as t f or 2012 - 13 at 7.6% (+/ - 0.25) and 2013- 14 f or ec as t at 8.6% :f is c al c ons olidation holds the k ey  T he gr owth r ate in indus tr ial output (index of indus t rial produc tion / IIP) rem ains a c aus e of c onc er n. Even though the lates t IIP f igures point towards a m arginal rec over y, doubts r em ain about the s us tainability of s uc h rebound  W ith ex por t gr owth witnes s ing a dis c ernible s lowdown, s urvey rais es c onc ern about the ex ter nal s ec tor. T he global s ituation rem ains dif f ic ult and any wor s ening m ay c aus e inc r eas e in protec tionis t m eas ures .  T he Sur vey c alls f or over hauling the FDI polic y regim e by addres s ing and f ine - tuning s ever al s ec tor al is s ues 1
  3. ECONOMIC SURVEY 2011 -12T able 1: Key Indicat ors Apr 2010- Unit 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Jan 20111. GDP and Related IndicatorsGDP (Current Market prices) % Growth 13.9 16.3 16.1 12.9 14.7 (PE) 18.8 (QE) 16.1 (AE)GDP (Factor cost 2004-05prices) % Growth 9.5 9.6 9.3 6.7 8.4 (PE) 8.4 (QE) 6.9 (AE)Savings Rate % of GDP 33.5 34.6 36.8 32 33.8 32.3 naCapital Formation (rate) % of GDP 34.7 35.7 38.1 34.3 36.6 35.1 naPer Capita Net National Income(factor cost at current prices) Rs 27123 31206 35825 40775 46117 53331 609722. ProductionFood Grains Mn tonnes 208.6 217.3 230.8 234.5 218.1 244.8 250.4^Index of Industrial Production % Growth 6.4 12.9 15.5 2.5 5.3 8.2 4.0 a 8.3Electricity Generation % Growth 5.2 7.3 6.3 2.7 6.1 5.5 9.4 b3. PricesInflation (WPI) (12 monthaverage) % Change 4.3 6.6 4.7 8.1 3.8 9.6 9.1 a 9.6Inflation (CPI) (IW) (average) % Change 4.4 6.7 6.2 9.1 12.4 10.4 8.4 a 10.94. External SectorExport (US$) % Change 23.4 22.6 29 13.6 -3.5 40.5 23.5 a 37.7Import (US $) % Change 33.8 24.5 35.5 20.7 -5.0 28.2 29.4 a 30.2Current Account Balance(CAB)/GDP % -1.2 -1 -1.3 -2.3 -2.8 -2.7 -3.60%Foreign Exchange Reserves USD billion 151.6 199.2 309.7 252 279.1 304.8 293.9* 299.2*Average Exchange Rate Rs/USD 44.27 45.25 40.26 45.99 47.42 45.55 47.56 a 45.635. Money and CreditBroad Money (M3) (annual) % change 16.9 21.3 21.4 19.3 16.8 16.0 14.4* 16.5*Scheduled Commercial BankCredit % change 30.8 28.1 22.3 17.5 16.9 21.5 16.4* 23.3*6. Fiscal Indicators (Centre)Gross Fiscal Deficit % of GDP 4.0 3.3 2.5 6 6.5 4.8 4.6Revenue Deficit % of GDP 2.5 1.9 1.1 4.5 5.2 3.2 3.4Primary Deficit % of GDP 0.4 -0.2 -0.9 2.6 3.2 1.8 1.6Source: Economic Survey 2011-12AE- Advance Estimate, QE- Quick Estimates, PE-Provisional Estimates^ Second Advance Estimatea April 2011-January 2012b Apr-Dec 2011*as on Jan 27, 2012% Apr-Sept 2011 2
  4. ECONOMIC SURVEY 2011 -12PUBLIC FINANCEThe Economic Survey believes that the growth in 2012-13 will increase to 7.6% (+/-0.25) from the currentyear projection at 6.9%. Additionally, in 2013-14 the Economic Survey projects 8.6% growth rate. FICCIbelieves that such growth rates are ambitious but echoes Economic Survey prognosis that fiscalconsolidation must be anchored in as a key assumption of achieving such an objective. In principle,FICCI believes that such a consolidation should be achieved by raising central government tax-GDP ratiofrom the current level of 10.5% and cutting down wasteful expenditures. The Economic Survey projects ththis ratio at 13% at the terminal year of the 12 Plan.T able 1: Component s of Receipts & Expenditure of the Central G ov ernment (% ofG DP at cur rent prices) 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 (BE) 1 Total Receipts(2+3) 13.7% 13.6% 14.3% 15.8% 15.9% 15.6% 14.1% 2 Revenue Receipts 9.4% 10.1% 10.9% 9.7% 8.9% 10.4% 8.9% 3 Capital Receipts 4.3% 3.5% 3.4% 6.2% 7.0% 5.3% 5.2% 4 Total Expenditure(5+6=7+8) 13.7% 13.6% 14.3% 15.8% 15.9% 15.6% 14.1% 5 Revenue Expenditure 11.9% 12.0% 11.9% 14.2% 14.1% 13.5% 12.3% 6 Capital Expenditure 1.8% 1.6% 2.4% 1.6% 1.7% 2.1% 1.8% 7 Plan Expenditure 3.8% 4.0% 4.1% 4.9% 4.7% 4.9% 5.0% 8 Non-plan Expenditure 9.9% 9.6% 10.2% 10.9% 11.2% 10.7% 9.2%Source: http://indiabudget.nic.in & FICCI estimatesThe growth in tax revenue over the last year as mentioned in the budgetary figure was not a difficult taskto achieve considering a CAGR of 17% in case of gross tax revenue collection. But collections till themonth of January 2012 were only 69% of the budgeted figure.T able 2: G row t h Rat es of Source of T ax Rev enue CAGR(period 2011-12 2006-07 2007-08 2008-09 2009-10 2010-11 ended 2011- (BE) 12) 1 Direct Tax 39% 35% 8% 18% 16% 21% 23% a. Income Tax 34% 37% 3% 25% 5% 24% 21% b. Corporation Tax 42% 34% 11% 15% 22% 20% 24% 2 Indirect Tax 21% 16% -3% -9% 41% 15% 12% a. Customs 33% 21% -4% -17% 63% 11% 15% b. Excise 6% 5% -12% -5% 34% 19% 7% c. Service Tax 63% 36% 19% -4% 22% 15% 24% 3 Gross Tax Revenue 29% 25% 2% 3% 27% 17% 17%Source: http://indiabudget.nic.in & FICCI EstimatesThe budgeted estimates of revenue and fiscal deficit for the year 2011-12 would not be attained given thecurrent scenario. The rising trend in subsidy payment and interest payments have been one of the mainreasons behind the increase in deficits. Disinvestment projected to be around Rs. 40,000 crores had onlyreached close to Rs 16,000 crores as on end February 2012. 3
  5. ECONOMIC SURVEY 2011 -12INDUST RYThe growth rate in industrial output (index of industrial production / IIP) remains a cause of concern. Eventhough the latest IIP figures point towards a marginal recovery, doubts have been expressed about thesustainability of such rebound (consumer non-durables expanded at 42.1% in Jan 2012). In fact, thebreadth of any possible growth revival in manufacturing sector has narrowed down in January 2012 (13out of 22 industries registering growth in January against 17 in November). Interestingly, if we strip out thevolatile food product and beverages category within the manufacturing sector (note that food & beveragescategory expanded by 92.1% in January 2012), the IIP growth had actually contracted in January 2012. Arevival in the private corporate investment (declined from 17.3% of GDP in 2007-08 to 12.1% in 2010-11)through a creation of enabling policy regime also holds the key to any pick-up in the IIP growth rate.T able 3: G row t h in IIP and it s M ajor Components (in per cent ) Weight Financial Year April- December 2008-09 2009-10 2010-11 2008 2009 2010 2011Overall 100 2.5 5.3 8.2 5.7 2.4 8.3 3.6Mining 14.16 2.6 7.9 5.2 3.2 7 6.9 -2.7Manufacturing 75.53 2.5 4.8 9 6.3 1.4 9 3.9Electricity 10.32 2.7 6.1 5.5 2.7 5.8 4.6 9.4Basic 45.68 1.7 4.7 6 2.2 3.9 5.7 6.1Capital 8.83 11.3 1 14.8 22.4 -8.2 18.4 -2.9Intermediates 15.69 0 6 7.4 1.5 4.1 8 -0.8Consumer 29.81 0.9 7.7 8.6 5 4.9 7.4 5.7Durables 8.46 11.1 17 14.2 16.1 12.6 13.8 5.3Non-durables 21.35 -5 1.4 4.3 -1.4 -0.4 2.5 6.1Source: http://indiabudget.nic.in.In the current year, the rate of growth of credit flow to industries moderated significantly. On year-on- yearbasis, credit growth to industry decelerated to 19.8 % in December 2011 from 31.6 % in December 2010.Moderation in rate of growth of credit was particularly large for the infrastructure and manufacturingsectors. The rate of growth of GCF in four broad sectors of industry comprising mining, manufacturing,electricity, and construction averaged 10.9 per cent during 2004-11, almost the same as the rate ofgrowth of GCF in the economy as a whole. A moderation in the growth of GCF in industry was reflected inthe data. 4
  6. ECONOMIC SURVEY 2011 -12T able 4: Sect ors w it nessing v olatility at use- based lev el (in per cent) Industry Weight Jan-12 Dec-12 Nov-12 Oct-12 Sep-12 Aug-12 2010-11 2009-10 Food & Beverages 72.8 92.60% 18.50% 29.60% 16.30% 6.40% 8.30% 7.00% -1.40%Publishing, printing & 10.8 56.10% 57.30% 69.10% 2.70% 8.60% 6.50% 11.20% -6.00% recorded media Fabricated Metal Products, except 30.9 18.60% 11.70% 17.20% 5.60% 11.10% 11.20% 15.30% 10.10% machinery & equipments Electrical machinery 19.8 -30.50% -48.80% -38.20% -59.00% -27.90% -5.30% 2.80% -13.50% & apparatus nec Motor vehicles, 40.6 16.40% 5.40% 25.40% -7.20% 5.60% 8.10% 30.30% 29.80%trailers & semi-trailersSource: mospi.nic.inINFRAST RUCT UREThe deficit in infrastructure sector has been a cause of concern for some time. However, the success ofpublic-private partnership (PPP) have paved the way for an investment of US $500 billion in infrastructuresectors through a mix of public and private sectors to reduce such deficits.As can be seen from Table 5, there has been a substantial improvement in growth in the power sector.Also it is worth mentioning growth in sectors such as cement, petroleum refinery, railway freight traffic,passengers handled at domestic terminals and above all the up gradation of highways by the NHAI. 5
  7. ECONOMIC SURVEY 2011 -12T able 5: G row t h in Core Indust ries & Infrastructure Serv ices (in %) Growth in core industries and infrastructure servcices ( in %) 2011-12 Sector 2006-07 2007-08 2008-09 2009-10 2010-11 (Apr-Dec) 1 Power 7.3 6.3 2.5 6.8 5.7 9.3 2 Coal 5.9 6 8.2 8 0 -2.7 3 Finished steel 12.2 6.8 13.2 3.2 9.6 5.7 4 Fertilizers 3.3 8.6 -2.6 13.2 1 -0.5 5 Cement 9.4 7.8 7.6 10.1 4.3 5.1 6 Petroleum: a) Crude oil 5.6 0.4 -1.8 0.5 11.9 1.9 b) Refinery 12.6 6.5 3 -0.4 3 4.1 c) Natural gas -1.4 2.1 1.4 44.8 9.9 -8.8 Railway revenue 9.2 9 4.9 6.6 3.8 4.7 7 earning freight traffic Cargo handled at 9.5 12 2.2 5.7 1.6 0.4 8 major ports 9 Civil aviation: Export cargo 3.6 7.5 3.4 10.4 13.4 -1.1 a) handled Import cargo 19.4 19.7 -5.7 7.9 20.6 1.4 b) handled Passengers handled at international 12.1 11.9 3.8 5.7 11.5 7.2 c) terminals Passengers handled 34 20.6 -12.1 14.5 16.1 17.5 at domestic terminals d) Telecommunications: Cellphone 85.4 38.3 80.9 47.3 18 -51 10 connections Roads: Upgradation 11 of i) NHAI -12.5 164.6 30.9 21.4 -33.3 8.9 ii) NH(O) & BRDB -10.5 12.5 17.3 4 -6.8 -36.5Source: Source: http://indiabudget.nic.in.Credit to infrastructure witnessed a growth of 34% in 2010-11 as compared to the previous year and agrowth rate of 48% when compared to 2006-07. However, there has been a negative growth in thepresent year with power and telecom performing much below their expected rate of growth. 6
  8. ECONOMIC SURVEY 2011 -12T able 6: Increment Flow of Bank Credit to Infrastructure (Rs crore ) Increment Flow of Bank Credit to Infrastructure (Rs crore) Growth 2010-11 vis-à- 2011 (Apr-Dec) vis-à- 2006-07 2007-08 2008-09 2009-10 2010-11 2010 (Apr-Dec) 2011 (Apr-Dec) vis 2009-10 vis 2010 (Apr-Dec) (growth rate) (growth rate)Infrastructure 30286 62220 64636 109916 146767 115291 70155 34% -39%Power 12994 21947 29372 63394 81355 66500 46241 28% -30%Telecom 1164 18663 12044 9036 41106 35200 9460 355% -73%Roads 5352 9429 12584 26509 19000 11430 16513 -28% 44%Other 10776 12179 10658 10956 5307 2153 16860 -52% 683%InfrastructureSource: Reserve Bank of IndiaThere has been a healthy inflow of FDI in the infrastructure sector during 2011 (April-December). Non-conventional energy, power and telecommunications have witnessed high rate of growth in the same timeperiod. However, there has not been any influx of FDI in the ports sector with minor investments in the airtransport sector.EXT ERNAL SECT O RThe Economic Survey has raised concerns regarding the external sector, with the export growthwitnessing a discernible slowdown in the past few months (for example y-0-y 81% growth rate in July2011 has plummeted to 10.1% in Jan 2012). The worsening of the current situation may result in increasein protectionist measures in developed countries, a point highlighted in Economic Survey.Likewise numbers pertaining to foreign investment inflows don’t seem too encouraging. The portfolioinvestments have fallen sharply from being $33 billion over April 2010-January 2011 to just $8.7 billionthis year (April 2011- January 2012). Nevertheless, the foreign direct investment seem to be providing acushion with inflows amounting to $ 38.4 billion during April 2011-Jan 2012 compared to $22.billion duringApril 2010-January 2011.The latest projections by IMF brought out in January 2012 have revised down the world trade growthestimates. World trade volume is forecasted to grow at 3.8% in 2012. Although India’s trade is unlikely tosee a direct repercussion but it would be essential to keep a cautious watch. Further, the oil import bill isset to rise e as the crude oil prices continue to remain over $100 per barrel.The Economic Survey puts forward for overhauling the FDI policy regime by addressing and fine-tuningseveral sectoral issues. In principle, the saving-investment gap in India during the last decade was 1.7%of GDP and the best way of covering this gap is by encouraging continued inflow of FDI into India. 7
  9. ECONOMIC SURVEY 2011 -12T able 7: Key Ext ernal Indicat orsItem 2006-07 2007-08 2008-09 2009-10 2010-11 2010-11 2011-12 H1 (April- H1 (April- Sept. Sept. 2010)PR 2011)PGrowth of Exports - BoP(%) 22.6 28.9 13.7 -3.5 37.3 30 40.6Growth of Imports - BoP(%) 21.4 35.1 19.8 -2.6 26.7 27.3 34.3Import Cover of FER (No. of Months) 12.5 14.4 9.8 11.1 9.6 10 7.9External Assistance (net)TC (%) 3.9 2 33 5.6 8 7.8 1.7ECB (net/TC(%) 35.6 21.2 106.3 3.9 20.2 14.6 25.8NRI Deposits/TC (%) 9.6 0.2 58 5.7 5.2 5.6 9.6 as % of GDPExports 13.6 13.4 15.2 13.4 14.8 13.9 16.5Imports 20.1 20.8 25 22 22.6 22.8 25.8Trade Balance -6.5 -7.4 -9.7 -8.7 -7.8 -8.9 -9.4Invisible Balance 5.5 6.1 7.5 5.9 5 5.1 5.8Goods and Services Balance -3.4 -4.2 -5.3 -6 -4.9 -6.1 -6Current Account Balance -1 -1.3 -2.3 -2.8 -2.7 -3.8 -3.8ECBs 1.7 1.8 0.6 0.1 0.7 0.7 1.2FDI (net) 0.8 1.3 1.8 1.3 0.6 0.9 1.3Portfolio Investment (net) 0.7 2.2 -1.2 2.4 1.8 3.1 0.1Total Capital Account (net) 4.7 8.6 0.5 3.8 3.7 5 4.5Source: Source: http://indiabudget.nic.in. 8

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