The revised estimates for Indian GDP growth in 2010-11 were 8.5%, slightly lower than the advance estimate of 8.6%. Key sectors like manufacturing, mining and quarrying saw lower growth than estimated. However, agriculture grew faster at 6.6% compared to the advance estimate of 5.4%. The services sector also saw upward revisions. For 2011-12, growth is projected to be around 8% given moderating investment growth and inflationary pressures.

1. Current State of Indian
Economy
June 2011
Page | 1

2. Current State of Indian Economy – June 20111
EXECUTIVE SUMMARY
GDP growth
 GDP growth figures for Q4, 2010-11, highlight an unmistakable downward trend. While in Q1, 2010-11, GDP
grew by 9.3 percent, in Q4, 2010-11, GDP growth came down to 7.8 percent.
 Sectors like manufacturing and mining & quarrying have seen considerable erosion of growth momentum over
the last one year.
 While consumption demand is still holding, a sharp decline in growth of investments is seen. Growth in Gross
Fixed Capital Formation [GFCF] has dipped from 17.4 percent in Q1, 2010-11 to 0.4 percent in Q4, 2010-11.
 Given the evolving situation, growth in 2011-12 is likely to be close to the 8 percent mark.
Quarterly Growth in GDP (2004-05 prices)
14
12
10
8
6
4
2
0
Q1 2010-11
Q2 2010-11
Q3 2010-11
Mining and quarrying Manufacturing Q4 2010-11
GDP at factor cost
Industrial Production
 Weakness in industrial production trend continues. In April 2011, IIP registered a growth of 6.3 percent. In
April 2010, growth in IIP was to the tune of 13.1 percent.
 Amongst the use based industrial groups, a similar streak of weakness is seen with growth in the capital goods
segment, intermediate goods segment and consumer goods segment slowing down from 35.5 percent, 11.9
percent and 13.8 percent respectively in April 2010 to 14.5 percent, 3.4 percent and 2.9 percent in April 2011.
IIP growth and Repo rate
14
13
12
11
10
9
8
7
6
5
4
Dec'10
Jan'11
Jun'10
Aug'10
May'10
Mar'11
Apr'10
Jul'10
Sep'10
Oct,10
Nov'10
Feb'11
Apr'11
IIP Repo rate
1
This report has been prepared by the Economic Affairs and Research Division, FICCI
Page | 2

3. Core Sector
 Data for April 2011 shows a perceptible decline in performance of the core sector with growth dipping from
8.5 percent in April 2010 to 4.6 percent in April 2011. Sectors like natural gas, fertilizers, cement and steel are
largely responsible for this poor performance. Growth in the coal sector however moved from (-) 2.9 percent
in April 2010 to 2.8 percent in April 2011.
Inflation
 The inflation situation in the economy continues to be a cause for concern. Despite large scale tightening of
the monetary policy by the RBI and other steps taken by the government, inflation continues to remain close
to the double digit mark.
 In May 2011, WPI based headline inflation stood at 9.1 percent. This is higher than 8.7 percent inflation
recorded in April 2011. Core inflation too has moved up from 8 percent in April 2011 to 8.6 percent in May
2011.
 Near term outlook for inflation is not too encouraging and there are chances that we may see inflation jump
to the double digit territory on a few occasions.
 High international oil prices, likely decontrol of diesel prices, high global food prices and hike in Minimum
Support Prices for the upcoming agriculture season are some of the factors that constitute the upside risks to
inflation.
Foreign Trade
 The strong momentum in exports, seen particularly during the second half of 2010-11, has continued in the
year 2011-12 as well.
 In April 2011 exports totaled US$ 23.8 billion and represented a growth of 34.4 percent over the same month
of the previous year when exports totaled US$ 17.7 billion.
 While this strong start in 2011-12 is encouraging, there are indications that this high growth will not be
sustained in the months ahead.
 Rising interest rates, rising raw materials costs and oil prices, withdrawal of incentive schemes like DEPB and
likely slowdown in Asian economies are some of the reason that have tempered the outlook for exports.
 In April 2011, our imports totaled US$ 32.8 billion and registered a growth of 14.1 percent over the same
month of the previous year when imports amounted to US$ 28.8 billion.
 With developments in the Middle East and North Africa region showing no signs of a let up and with OPEC
resisting any upward revision in daily oil production quota, oil prices are likely to remain firm in the near term.
This will continue to put pressure on India’s overall oil import bill.
 As regards non-oil imports, while a slowdown in the domestic economy could lead to some moderation in the
non-oil import bill, any large respite here can be ruled as prices of commodities other than oil are also firming
up.
Foreign Investments
 In 2010-11, foreign investment flows into India saw a dip of about 17 percent over the previous year. Further,
this dip is largely on account of a slowdown seen in case of FDI.
 In 2009-10, FDI inflows into India totaled US$ 37.7 billion. In 2010-11, this figure came down to US$ 27 billion.
 Data also shows that of out of the top 25 sectors, 15 sectors have seen a dip in FDI flows during April – Feb
2010-11 compared to the same period in 2009-10. Sectors like services, construction, housing and real estate,
telecommunication and agricultural services are the ones where investment flows have slowed down
considerably.
 In 2010-11, portfolio flows totaled US$ 31.5 billion and were only a tad below US$ 32.4 billion received in
2009-10.
 The outlook for portfolio flows in the current year is not too encouraging. Global fund managers are
particularly concerned over the evolving macro-economic situation with inflation showing limited signs of
abatement and growth slowing down at a fast clip.
Page | 3

4.  The re-emergence and intensification of the sovereign debt crisis in Europe and the expected halt of
quantitative easing policy in the US by the end of June 2011 are also downside factors for portfolio flows for
emerging markets including India.
Forex Reserves
 In April 2011, India’s foreign exchange reserves totaled US$ 313 billion.
 The increasing size of our foreign exchange reserves has drawn attention of the policymakers. Just some time
back, Dr. Kaushik Basu, Chief Economic Advisor, Ministry of Finance, had raised the question of India to
consider having a Sovereign Wealth Fund. In more recent times, a few independent analysts have opined that
a part of these huge reserves be deployed to import commodities which are or could be in short supply in the
economy.
Money and Banking
 The year on year growth in money supply in the period up to May 21, 2011 was 16.8 percent. Growth in the
corresponding period [up to May 22, 2010] in the previous year was 15.1 percent.
 The year on year growth in non-food credit in the period up to May 21, 2011 has been almost 22.1 percent.
This is higher than the credit growth target of 19 percent set by the RBI for the current year. Growth in
deposits in the period up to May 21, 2011 has been of the order of 17.4 percent and is in line with RBI target
growth of 17 percent for the current year.
 These numbers indicate that the trend seen in the previous year – of deposit growth lagging credit growth –
continues in the current financial year. The growth rate in deposits has picked up in recent months and to that
extent eased some pressure on the banks as they worked hard to maintain their margins.
Fiscal Situation
 The provisional estimates for 2010-11 for various fiscal variables show a definite improvement over the
revised estimates (RE), with a more than anticipated rise in revenue collection and reduction in expenditure.
The striking feature of the new estimates is the reduction in fiscal deficit [4.7 percent] number compared to
the revised estimate [5.1 percent] given during presentation of the union budget.
 Though the fiscal deficit numbers for 2010-11 are encouraging, maintaining fiscal discipline in 2011-12 is
looking increasingly difficult.
Corporate Sector Performance – Q4, 2010-11
 In the fourth quarter of fiscal 2010-11, corporate India turned out a good performance both in terms of sales
and profits. Such a performance is particularly noteworthy as it came at a time when overall expenses are
going up at a fast clip.
 Net sales of ‘All Industries’ in the fourth quarter of 2010-11 registered a growth of 23.5 percent. This is the
highest growth in net sales that we have seen in the last eight quarters.
 Further, while firms from the manufacturing sector saw an increase of 22.26 percent in net sales in the last
quarter of 2010-11, companies from the services (other than financial) sector saw sales going up by 27.46
percent.
 Within the manufacturing sector, growth in sales has been particularly strong in sectors such as textiles,
cement, steel and transport equipment. Performance of the food and beverages sector and the chemicals
sector lagged the average growth for the manufacturing sector as a whole.
 Total expenses for ‘All Industries’ went up by 23.52 percent in Q4, 2010-11. This growth is the highest seen in
last four quarters.
 Further, while the manufacturing sector saw total expenses rise by 21.68 percent in Q4, 2010-11, services
(other than financial) saw an increase of 31.29 percent.
 Within the manufacturing sector, the increase in total expenses in the quarter under review was particularly
high in sectors such as cement [48.12 percent] and steel [30.06 percent].
Page | 4

5. Growth in Net Sales (%) Growth in Total Expenses (%)
30 40
20 30
10 20
10
0
0
Q1 09-10
Q2 09-10
Q3 09-10
Q4 09-10
Q1 10-11
Q2 10-11
Q3 10-11
Q4 10-11
-10
Q1 09-10
Q2 09-10
Q3 09-10
Q4 09-10
Q1 10-11
Q2 10-11
Q3 10-11
Q4 10-11
-10
-20
-20
All industries All industries
Manufacturing Manufacturing
Services (other than financial) Services (other than financial)
Page | 5

6. Current State of Indian Economy – June 2011
INDEX
MACRO ECONOMY 7
 GDP Growth 7
 Industrial Production 9
 Core Sector 13
 Inflation 15
 Foreign Trade 18
 Foreign Investments 20
 Forex Reserves 23
 Exchange Rate 24
 Money and Banking 25
 Fiscal Situation 27
CORPORATE SECTOR PERFORMANCE – Q4, 2010-11 31
 All industries 31
 Textiles 33
 Cement 34
 Steel 35
 Chemicals 36
 Transportation 37
 Food and Beverages 38
ROUND UP OF KEY DEVELOPMENTS 39
 Draft National Manufacturing Policy 39
 RBI’s Financial Stability Report 39
CHARTS 40
 Industrial Production 40
 Inflation 42
 Foreign Trade and Foreign Investments 43
DATA ON INTEREST RATES 44

7. Current State of Indian Economy – June 2011
GDP Growth
The Central Statistical Organisation (CSO) has released the revised estimates for GDP for 2010-11.
Alongside, it also released the quarterly estimates for GDP for the fourth quarter of 2010-11.
According to the latest numbers made available by CSO, India’s GDP at factor cost at constant prices
registered an increase of 8.5 percent in the year 2010-11. This revised estimate of 8.5 percent growth
for GDP in 2010-11 is only a shade below the advance estimates that had pegged GDP growth for 2010-
11 at 8.6 percent.
This slight dip in overall GDP growth can be attributed to weaker performance in sectors such as ‘mining
and quarrying’, ‘manufacturing’, ‘trade, hotels, transport and communication’ and ‘financing, insurance,
real estate and business services’ than anticipated earlier.
In case of the agriculture and allied activities sector, we find that the revised estimates have pegged
growth in 2010-11 at 6.6 percent, which is much higher compared to the advance estimates that had put
growth at 5.4 percent.
In this context it is important to note that the third advance estimates of crop production released by
the Ministry of Agriculture have shown a significant upward revision as compared to second advance
estimates in the production of wheat [84.27 million tonnes from 81.47 million tonnes], pulses [17.29
million tonnes from 16.51 million tonnes], oilseeds [302.51 lakh tonnes from 278.48 lakh tonnes] and
sugarcane [340.54 million tonnes from 336.70 million tonnes]. These revisions are responsible for lifting
the GDP growth rate for agriculture and allied activities sector.
Another sector where we see a substantial upward revision in growth rate between the advance and
revised estimates is the ‘community, social and personal services’ sector. While in its advance estimate,
CSO had indicated a growth of 5.7 percent for this sector, in the revised estimates this figure has been
moved up to 7.0 percent. This revision comes on the back of a larger increase in total expenditure of the
central government than anticipated earlier.
The moderation in the expected pace of expansion of the ‘mining’ and ‘manufacturing’ sectors can be
related to certain adverse policy developments as well as hardening of the interest rates in the
economy. Further, as performance of the ‘financing, insurance, real estate and business services’ sector
is closely related to performance of the manufacturing sector, this sector too has seen a slippage in
growth between advance and revised estimates.
Table 1 – Growth in GDP at factor cost by economic activity (2004-05 prices)
2008-09 2009-10 2010-11 2010-11
(QE) (AE) (RE)
1 Agriculture, forestry and fishing -0.1 0.4 5.4 6.6
2 Mining and quarrying 1.3 6.9 6.2 5.8
3 Manufacturing 4.2 8.8 8.8 8.3
4 Electricity, gas and water supply 4.9 6.4 5.1 5.7
5 Construction 5.4 7.0 8.0 8.1
6 Trade, hotels, transport and communication 7.6 9.7 11.0 10.3
7 Financing, insurance, real estate and business services 12.5 9.2 10.6 9.9
8 Community, social and personal services 12.7 11.8 5.7 7.0
9 GDP at factor cost 6.8 8.0 8.6 8.5
QE: Quick Estimates AE: Advance Estimates RE: Revised Estimates Source – CSO, MOSPI, Govt. of India
Page | 7

8. Moving on to the quarterly estimates for GDP growth for the fourth quarter of 2010-11, we see that
although the economy’s performance is still decent at 7.8 percent, an unmistakable downward trend is
visible. Quarterly growth estimates show that GDP growth has come down from 9.3 percent in Q1,
2010-11 to 8.9 percent in Q2, 2010-11 to 8.3 percent in Q3, 2010-11 and further down to 7.8 percent in
Q4, 2010-11.
Amongst sectors, the ones that have seen a considerable erosion of growth momentum over the last
one year are ‘mining and quarrying’ and ‘manufacturing’. While in case of the former, the growth figures
have come down from 7.1 percent in Q1, 2010-11 to 1.7 percent in Q4, 2010-11, in case of the latter,
growth has moderated from 12.7 percent in Q1, 2010-11 to 5.5 percent in Q4, 2010-11.
The performance of the ‘agriculture and allied activities’ sector in the fourth quarter has been
particularly strong at 7.5 percent. The other sectors that have registered strong growth in Q4, 2010-11
are ‘electricity, gas and water supply’ [7.8 percent], construction [8.2 percent], ‘trade, hotels, transport
and communication’ [9.3 percent] and ‘financing, insurance, real estate and business services’ [9.0
percent].
Table 2 – Growth in GDP at factor cost by economic activity (2004-05 prices) – Quarterly numbers
Q1 Q2 Q3 Q4
2010-11 2010-11 2010-11 2010-11
1 Agriculture, forestry and fishing 2.4 5.4 9.9 7.5
2 Mining and quarrying 7.1 8.2 6.9 1.7
3 Manufacturing 12.7 10.0 6.0 5.5
4 Electricity, gas and water supply 5.6 2.8 6.4 7.8
5 Construction 7.7 6.7 9.7 8.2
6 Trade, hotels, transport and communication 12.6 10.9 8.6 9.3
7 Financing, insurance, real estate and business services 9.8 10.0 10.8 9.0
8 Community, social and personal services 8.2 7.9 5.1 7.0
9 GDP at factor cost 9.3 8.9 8.3 7.8
Source – CSO, MOSPI, Govt. of India
A look at quarterly GDP figures by expenditure class shows that growth in private final consumption
expenditure is maintained at a robust 8 percent even in the fourth quarter of the fiscal 2010-11.
However, what is worrisome is the trend in the growth numbers for gross fixed capital formation, which
shows that year on year growth has tapered from 17.4 percent in Q1, 2010-11 to just about 0.4 percent
in Q4, 2010-11. This is a clear indication of weakness in the investment activity level in the economy and
does not bode well for growth in the current year.
Table 3 – Growth in GDP at market prices by expenditure (2004-05 prices) – Quarterly numbers
Q1 2010- Q2 2010- Q3 2010- Q4 2010-
11 11 11 11
1 Private Final Consumption Expenditure 8.9 8.9 8.6 8.0
2 Government Final Consumption Expenditure 6.7 6.4 1.9 4.9
3 Gross Fixed Capital Formation 17.4 11.9 7.8 0.4
4 Change in Stocks 11.7 9.0 5.1 4.6
5 Valuables 28.0 21.2 18.5 32.3
6 Exports 10.0 10.7 24.8 25.0
7 Imports 15.5 11.6 0.4 10.3
8 GDP at Market Prices 9.4 9.1 9.2 7.7
Source – FICCI computations based on data provided by CSO, MOSPI, Govt. of India
Page | 8

9. With regard to GDP growth in the year 2011-12, it was noted even in our earlier report that the initial
guidance provided by Ministry of Finance of 9 percent growth is looking increasingly difficult to achieve.
With time even the government has come around this view and growth projection for the year 2011-12
has been lowered to 8 to 8.5 percent.
It is interesting to note that in FICCI’s most recent Economic Outlook Survey, results of which were
released in May 2011, the median forecast for GDP growth in the current year comes to 8 percent.
The inputs and projections provided by various participating economists in this survey show that while
the agriculture and allied activities sector is projected to grow by 3.7 percent this year, industry and
services sector are poised to grow by 8 percent and 9.2 percent respectively.
The key risks to growth in India in the current year are the negative impact of continuous tightening of
monetary policy by RBI and a slowdown in global growth due to high international oil prices. Further,
although the Indian Meteorological Department has projected a normal monsoon this year, we will have
to wait for more updates to get a clearer picture on the spatial distribution of the monsoon.
Projected GDP growth [India] in 2011-12 Projected growth [Sectors] in 2011-12
Organisation Projection in % 10 9.2
Morgan Stanley 7.7 8 8
8
IMF 7.8
6
FICCI 8.0 3.7
Nomura 8.0 4
DBS 8.0 2
CARE 8.0 0
Standard Chartered 8.1 GDP Agriculture Industry Services
Indicus 8.7 and allied
Dun and Bradstreet 8.8 activities
ADB 8.8
Source – FICCI Compilation Source – FICCI Economic Outlook Survey, May 2011
Industrial Production
The Central Statistical Organisation (CSO) has revised the base year for the industrial production data
series from 1993-94 to 2004-05. The new series also incorporates a much larger set of items2 that reflect
the contemporary production activity in the country and is expected to offer a better gauge of the
country’s industrial activity. The weighting diagram of the three major sectors under two digit level
indices and four different goods sectors under use – based classification has also changed to capture the
changing structure of economy effectively. The new set of weights that would now be followed is given
in the following table.
2
Some of the items included in the new series are mobile phones, digital cameras, fruit juices, laptops, new chemical items and
processed food.
Page | 9

10. Table 4 – Comparison of weights assigned in the Old and New series of IIP Indices
Sectors Old series New series
1993-94 Base Year 2004-05 Base Year
Two-digit level Indices
Mining 10.47 14.16
Manufacturing 79.36 75.53
Electricity 10.17 10.32
General Index 100.00 100.00
Use- based Index
Basic goods 35.57 45.68
Capital goods 9.26 8.83
Intermediate goods 26.51 15.69
Consumer goods 28.66 29.81
Durables 5.37 8.46
Non durables 23.30 21.35
General Index 100.00 100.00
Source – CSO, MOSPI, Govt. of India
As the above table shows, in the new series, while the weight of the mining sector has gone up that of
the manufacturing sector has gone down. Amongst the use based segments, while basic goods have
seen their weight go up substantially, intermediate goods have seen a reduction in the weight assigned
for construction of the index.
Even before data as per the new series for industrial production was brought out by CSO, economic
analysts had predicted that data as per the new series would provide an upward bias to growth as it
would incorporate ‘new fast growing sectors’ of the economy.
The new numbers have confirmed this and we see a substantial change in growth performance in 2010-
11 when we compare the results of the new series with the results based on the old series. It is also
interesting to note that the adverse impact on industrial production in the period following the global
slowdown is also accentuated as per the new series and this is reflected in the numbers for 2009-10.
As the data given in the next table shows, overall industrial production [as per the new series] registered
a growth of 8.2 percent in 2010-11. And this is much better than the 5.3 percent growth clocked in
2009-10. Further, a good part of industrial growth in 2010-11 was driven by the manufacturing sector,
which recorded a growth of 8.9 percent compared to a growth of 4.8 percent in 2009-10. The other two
sectors, mining and manufacturing, however saw their performance going down in 2010-11 compared
to 2009-10.
Coming to the use-based classification, we see that all sectors, barring consumer durables, saw an
improvement in performance in 2010-11 over 2009-10. And among the sectors that saw an
improvement in performance, the capital goods sector stands out as its growth improved from 1
percent in 2009-10 to 15 percent in 2010-11.
As mentioned earlier, these numbers, based on the new industrial production series, reflect a much
different and improved performance compared to results based on the old series.
Page | 10

11. Table 5 – Trends in Industrial Production – YOY growth in percent
2009-10 2010-11 2010-Apr 2011-Apr
Old New Old New Old New Old New
Series Series Series Series Series Series Series Series
General Index 10.5 5.3 7.8 8.2 16.6 13.1 4.4 6.3
Mining 9.9 7.9 5.9 5.2 12.0 9.2 2.1 2.2
Manufacturing 11.0 4.8 8.2 8.9 18.0 14.5 4.4 6.9
Electricity 6.0 6.1 5.6 5.5 6.9 6.5 6.4 6.4
Use-based industrial groups
Basic goods 7.2 4.7 6.3 6.0 9.1 6.7 5.6 7.3
Capital goods 20.9 1.0 9.5 15.0 64.1 35.5 2.5 14.5
Intermediate goods 13.6 6.0 8.8 7.2 10.8 11.9 2.4 3.4
Consumer goods 6.2 7.7 7.5 8.3 11.9 13.8 5.9 2.9
Durables 24.6 17.0 21.0 14.1 32.1 23.3 9.2 3.8
Non-durables 0.4 1.4 2.2 3.9 4.8 6.8 4.5 2.1
Source – CSO, MOSPI, Govt. of India
Coming now to the growth figures for the month of April 2011, we see that overall industrial production
[as per the new series] registered a growth of 6.3 percent. This performance is much weaker compared
to a growth of 13.1 percent registered in April 2010. Amongst other sectors a palpable slowdown is
noticeable in sectors such as mining and manufacturing with growth slowing from 9.2 percent and 14.5
percent respectively in April 2010 to 2.2 percent and 6.9 percent respectively in April 2011.
Amongst the use based industrial groups, a similar streak of weakness is seen with growth in the capital
goods segment, intermediate goods segment and consumer goods segment slowing down from 35.5
percent, 11.9 percent and 13.8 percent respectively in April 2010 to 14.5 percent, 3.4 percent and 2.9
percent in April 2011.
Table 6 – Trends in Industrial Production – YOY growth in percent [Old Series]
Month/ Mining Mfg Electricity General IIP Month/ Mining Mfg Electricity General IIP
Year growth Year growth
Dec'09 11.12 19.62 5.42 17.95 Dec'10 5.97 2.07 5.99 2.58
Jan'10 15.34 17.90 5.57 16.78 Jan'11 1.76 3.68 10.47 4.03
Feb'10 11.02 16.11 7.33 15.13 Feb'11 0.99 3.63 6.75 3.65
Mar'10 12.31 16.45 8.33 15.55 Mar'11 0.39 8.42 7.19 7.78
Apr'10 11.97 18.00 6.87 16.64 Apr'11 2.06 4.37 6.43 4.38
Source – CSO, MOSPI, Govt. of India
Table 7 – Trends in Industrial Production – YOY growth in percent [New Series]
Month/ Mining Mfg Electricity General IIP Month/ Year Mining Mfg Electricity General IIP
Year growth growth
Dec'09 7.52 10.24 5.45 9.50 Dec'10 5.93 8.72 5.97 8.17
Jan'10 11.61 14.48 5.55 13.33 Jan'11 1.69 8.09 10.49 7.52
Feb'10 8.17 15.30 7.35 13.73 Feb'11 0.95 7.21 6.76 6.44
Mar'10 11.07 16.31 8.33 14.94 Mar'11 0.27 10.35 7.18 8.87
Apr'10 9.20 14.45 6.53 13.08 Apr'11 2.15 6.88 6.44 6.30
Source – CSO, MOSPI, Govt. of India
The slow growth of the industrial sector seen in the month of April 2011 is part of a longer trend visible
since the close of 2010. As data given in the tables above show, industrial production numbers have
been weak for some time now and this trend is confirmed irrespective of the data series that one
Page | 11

12. chooses to evaluate. In fact, as per the old series, the slowdown in industrial growth is more
accentuated with growth in IIP being under 5 percent in four of the last five months.
If we look at the numbers for the industrial production as per the use based classification, we again see
a loss of momentum in industrial production in recent months. The only point of departure between
data based on the old and the new series is in the reported performance of the capital goods sector.
Using the old series, we see that capital goods production has registered negative growth in three of the
last five months with growth in April 2011 still being an anemic 2.53 percent. However, as per the new
series, capital goods production registered a growth of 15.4 percent and 14.5 percent in the months of
March and April 2011.These figures, which are not all that weak, will have to be monitored going ahead
to see if some trend is emerging here.
Table 8 – Trends in Industrial Production – Use Based / YOY growth in percent [Old Series]
Month/ Year Basic Capital Intermediate Consumer
Total Durable Non-durable
Dec'09 8.35 42.89 23.50 10.45 41.04 2.96
Jan'10 11.47 57.93 22.23 0.42 28.21 -7.02
Feb'10 8.53 46.68 15.85 6.27 29.09 -0.83
Mar'10 10.79 36.00 13.54 9.27 32.57 1.50
Apr'10 9.12 64.10 10.82 11.88 32.12 4.83
Source – CSO, MOSPI, Govt. of India
Table 9 – Trends in Industrial Production – Use Based / YOY growth in percent [Old Series]
Month/ Year Basic Capital Intermediate Consumer
Total Durable Non-durable
Dec'10 6.10 -9.00 6.79 3.50 19.48 -1.89
Jan'11 7.57 -18.06 7.75 12.22 23.88 7.89
Feb'11 6.03 -18.15 8.61 11.04 23.46 6.00
Mar'11 4.39 13.56 6.14 8.16 12.74 6.15
Apr'11 5.63 2.53 2.37 5.92 9.19 4.47
Source – CSO, MOSPI, Govt. of India
Table 10 – Trends in Industrial Production – Use Based / YOY growth in percent [New Series]
Month/ Year Basic Capital Intermediate Consumer goods
Total Durable Non-durable
Dec'09 5.81 4.84 12.44 15.08 46.45 0.20
Jan'10 8.74 14.28 14.19 18.61 57.40 0.01
Feb'10 5.61 39.41 10.34 16.61 28.89 8.73
Mar'10 7.35 48.60 10.97 12.62 12.96 12.36
Apr'10 6.66 35.48 11.89 13.82 23.28 6.75
Source – CSO, MOSPI, Govt. of India
Table 11 – Trends in Industrial Production – Use Based / YOY growth in percent [New Series]
Month/ Year Basic Capital Intermediate Consumer
Total Durable Non-durable
Dec'10 7.80 20.16 8.08 3.57 7.78 0.65
Jan'11 7.68 5.35 7.39 8.23 12.49 5.02
Feb'11 5.58 -4.05 5.75 12.13 18.23 7.49
Mar'11 6.26 15.40 1.80 11.67 13.92 9.86
Apr'11 7.31 14.46 3.43 2.87 3.80 2.07
Source – CSO, MOSPI, Govt. of India
Page | 12

13. It was mentioned even in our earlier report that the rising interest rates in the economy have started
having a bearing on industrial activity. Recent news reports indicating increase in inventories with
automobile dealers, decline in steel imports, slowdown in cement sales, fewer inquiries for purchase of
commercial vehicles and build up of unsold stocks with real estate players are all symptomatic of a
slowdown and highlight how consumption and investment demand are responding to the evolving
interest rate scenario. Such developments have created a negative perception and depressed the
confidence level of corporate India.
Table 12 – Projects under implementation stalled and new projects announced
Under Implementation Stalled New Projects
Qtr ending Nos Rs Crore Nos Rs Crore
Jun 2009 257 281384 654 242061
Sep 2009 293 337359 760 382118
Dec 2009 308 311214 1047 458435
Mar 2010 330 318251 1169 572300
Jun 2010 338 305545 1178 708103
Sep 2010 376 272760 993 356784
Dec 2010 390 291816 982 292872
Mar 2011 389 274366 989 252912
Source – CMIE
In this context it may be mentioned that once the pace of investments, which is crucial for overall
growth of the economy, loses momentum, it is difficult to bring it back. Unfortunately, we may just be
standing at the tipping point of such a situation. The data on projects under implementation stalled and
new projects announced provided by the Centre for Monitoring the Indian Economy (CMIE) confirms
that the pace of investments has taken a beating. As the table given above shows while the total
number of projects under implementation stalled has been slowly inching up over the last one year, the
total number of new projects announced in a quarter has been falling during the same time.
When we view the trends in GDP growth and gross fixed capital formation presented in the earlier
section along with the trends in industrial production and new investment intentions of corporate India,
we reach the conclusion that the health of the economy is not in the best of states and that some urgent
action is required to arrest this slowdown in investments.
In fact, in FICCI’s most recent Business Confidence Survey, members of corporate India had indicated the
following five point strategy for the authorities to revitalize industrial and economic growth in the
country –
 Lower interest rates, particularly the cost of credit to SMEs.
 Fasten the pace of implementation of infrastructure projects.
 Check the incessant rise in price of industrial inputs and raw materials.
 Continue with incentives offered to exporters.
 Maintain fiscal discipline.
Core Sector
The composition of the core sector has also undergone a change with two new segments being added to
the existing list of six industries. These two new segments are fertilizers and natural gas and with the
addition of these segments the combined weight of core sector in IIP has increased from 27 percent to
37.9 percent. As part of this revision, weights of the existing sectors have also seen some change and
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14. base year has also been revised to 2004-05. The new expanded list of sectors that now make up the core
sector along with the weights attached is presented in the following table.
Table 13 – Segments of the Core Sector
Segment Weight in the old series Weight in the new series
Overall Index 26.68 37.90
Coal 3.22 4.38
Crude Oil 4.17 5.21
Natural Gas - 1.71
Refinery Products 2.00 5.94
Fertilizers - 1.25
Steel 5.13 6.68
Cement 1.99 2.41
Electricity 10.17 10.32
Source – Office of Economic Adviser, MOC&I, Govt of India
If we look at the numbers for the core sector as per the new series, we see that this sector registered a
growth of 5.7 percent during the year 2010-11. This growth was lower than the growth of 6.6 percent
that was posted in the year 2009-10. At the disaggregated level, the sectors that saw a weaker
performance in the year 2010-11 vis-à-vis 2009-10 are coal, natural gas, fertilizers, cement and
electricity. The remaining sectors namely crude oil, refinery products and steel saw an improvement in
performance in 2010-11 over 2009-10.
Table 14 – Growth in the core sector – New series
2009-10 2010-11 April 2010 April 2011
(Apr-March) (Apr-March)
Overall 6.64 5.72 8.50 4.62
Coal 8.12 -0.30 -2.96 2.84
Crude Oil 0.55 11.94 5.16 10.97
Natural Gas 44.59 9.97 54.11 -9.32
Refinery Products -0.45 2.98 5.34 6.62
Fertilizers 12.69 -0.02 7.83 -1.33
Steel 6.05 8.89 12.91 4.80
Cement 10.53 4.52 8.76 -1.06
Electricity 6.17 5.48 6.89 6.79
Source – Office of Economic Adviser, MOC&I, Govt of India
As the data given in the table above shows, performance of the coal sector nose-dived in 2010-11 with
growth plummeting from 8.12 percent in 2009-10 to (–) 0.3 percent in 2010-11. The main reason why
production in the coal sector remained almost flat in 2010-11 is the tough stance and stringent
environmental norms with regard to coal mining adopted by the Ministry for Environment and Forests.
Additionally, law and order problems in select mining areas of the country also had a bearing on overall
coal production.
Just like coal, performance of the natural gas sector also deteriorated with growth slipping from a high
of 44.6 percent in 2009-10 to just about 10 percent in 2010-11. This dip in growth of natural gas
production can be ascribed to the fall in natural gas production in the KG D6 basin operated by Reliance.
The performance of the fertilizer sector has also been lackluster with growth slowing down dramatically
from 12.69 percent in 2009-10 to a negative 0.02 percent in 2010-11. This poor state of affairs in the
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15. fertilizer sector can be attributed to reported shortages in availability and supply of both coal and
natural gas.
In case of the cement sector, the growth numbers show a drop from 10.53 percent in 2009-10 to 4.52
percent in 2010-11. As mentioned in our earlier report, this drop can be attributed to rising cost of raw
materials (particularly coal) and difficulties in getting environmental clearances. Slowdown in the
execution of government projects in recent months particularly in the five poll bound states has also had
an impact on cement sector. Additionally, there are reports that the construction sector is facing
shortages of labour and this has affected cement dispatches and production.
The slowdown in growth in the electricity sector from 6.17 percent in 2009-10 to 5.48 percent in 2010-
11 can mainly be attributed to poor performance in the thermal power generation segment that
accounts for nearly 65 percent of the total generation capacity in the country. Thermal power
generation suffered a major setback during the last fiscal due to shortage of coal and delays in providing
fuel linkages to thermal plants. A considerable number of power projects were said to get delayed
because of uncertainty in the availability and supply of coal. The Ministry of Environment and Forest
(MoE&F) categorized 203 coal blocks as 'no go' mining zones and this has also contributed to supply
shortfalls. According to estimates given by Ministry of Coal, these 203 coal blocks could have generated
around 1.3 lakh MW of power annually, thus, helping attain the yearly target for the year.
Amongst the sectors that saw an improvement in performance in 2010-11 over the previous year, crude
oil stands out as growth in this sector jumped from 0.55 percent in 2009-10 to 11.94 percent in 2010-11.
This growth was driven by companies in the private sector and the joint sector and their share in
domestic oil production improved from 15.6 percent in 2009-10 to 25.7 percent in 2010-11. Reliance
Industries and Cairn India showed exemplary performance and contributed the maximum to this
increase in oil output during the year.
The latest numbers for the month of April 2011 show that there has been a perceptible decline in the
performance of the core sector with growth dipping from 8.5 percent in April 2010 to 4.62 percent in
April 2011. Sectors like natural gas, fertilizers, cement and steel are largely responsible for this poor
performance. A positive take away from April 2011 numbers is the performance of the coal sector,
which grew by 2.84 percent.
Inflation
The inflation situation in the economy continues to be a cause for concern. Despite large scale
tightening of the monetary policy by the RBI and other steps taken by the government, inflation
continues to remain close to the double digit mark.
Data shows that WPI based headline inflation stood at 10 percent in the year 2010-11. This is not only
much higher compared to the average inflation rate of 3.6 percent seen in 2009-10 but also way above
the 5 percent mark considered as the ‘growth promoting inflation level’ or the ‘normal inflation level’ by
the RBI.
Latest numbers on inflation are available for the month of May 2011 and these show that headline
inflation stood at 9.1 percent in May 2011. Although it is slightly lower than 10.5 percent inflation
registered in May 2010, it is still too high as per RBI’s standards. Data on the month on month growth in
WPI based inflation also shows that the underlying inflationary pressures in the economy are
maintained. The month on month growth in inflation in May 2011 stood at 0.7 percent. In the previous
two months – March and April – the corresponding figures stood at 0.9 percent and 0.7 percent
respectively.
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16. Looking at inflation data at the disaggregated level throws up an interesting trend. For most part of the
year 2010, it was the ‘Primary Articles’ segment which contributed substantially to overall inflation.
Further, within the ‘Primary Articles’ segment, it was ‘Food Articles’ where inflation was at an
uncomfortably high level throughout 2010. However, beginning 2011, we see that the contribution of
the other two broad segments, namely ‘Fuel & Power’ and ‘Manufactured Goods’, to overall inflation
has gone up swiftly while that of ‘Primary Articles’ has come down. It is however important to note that
while inflation in case of ‘Food Articles’ may be trending down, it is still high for any comfort.
Further, while inflationary pressures seen in case ‘Fuel and Power’ can be attributed to the increase in
prices of items like petrol and coal, the buildup of inflationary pressure in manufactured goods is largely
the result of rising prices of raw materials and industrial inputs and which are being passed on by
manufacturers in the final prices of their products.
With inflationary pressures slowly spreading to all the three broad segments of WPI, the RBI has also
drawn attention towards inflation getting increasingly generalized.
In fact, if we look at the numbers for core inflation, which captures the non-volatile components of WPI,
then we see that over time the gap between headline inflation and core inflation has been coming
down. In fact in the month of May 2011, core inflation stood at 8.6 percent. This was not only higher
compared to core inflation in the month of April 2011 (8.0 percent) but also close to overall inflation
rate, which, as previously mentioned, stood at 9.1 percent in May 2011. Further, if we look at the
numbers for month on month growth of core inflation, then we see that while in April 2011, the MOM
growth stood at 0.1 percent, in May 2011, it went up to 0.5 percent.
Table 15 – WPI based Inflation – YOY growth in Percent
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
10 10 10 10 10 10 10 10 10 11 11 11 11 11
All Commodities 10.9 10.5 10.3 10.0 8.9 9.0 9.1 8.2 9.4 9.5 9.5 9.7 8.7 9.1
I Primary Articles 21.4 20.4 20.1 19.1 16.0 18.2 18.1 14.7 18.4 18.4 15.9 13.4 12.0 11.3
(A) Food Articles 20.5 21.4 21.0 18.5 15.0 16.3 14.6 10.1 15.1 16.7 11.0 9.4 8.7 8.4
a. Fruits and Veg 14.3 15.8 18.9 13.2 3.3 12.2 12.4 7.9 25.8 40.0 16.1 18.9 17.6 17.4
b. Milk 27.9 28.4 26.2 26.1 26.9 24.1 21.0 18.0 18.3 13.8 12.5 4.4 4.7 6.4
c. Eggs, meat, fish 38.6 45.5 39.0 31.4 27.0 29.5 27.4 18.9 19.4 15.7 12.7 13.5 10.7 6.4
d. Condiments and spices 35.4 36.1 39.7 43.5 39.9 32.5 30.2 23.8 37.7 37.7 30.8 20.4 16.6 16.1
(B) Non-food articles 18.1 14.8 15.8 15.3 15.8 20.8 25.7 25.5 25.4 26.6 34.4 27.3 27.3 22.3
a. Fibers 17.1 15.8 18.1 16.2 15.7 36.3 42.3 44.7 47.1 56.2 89.2 87.7 86.1 59.0
Raw cotton 16.2 14.5 17.3 13.2 13.1 35.3 43.7 46.6 47.5 59.6 101.4 103.0 101.2 68.4
Raw Jute 17.8 13.7 14.9 23.8 22.9 43.8 34.3 40.0 44.1 38.7 38.5 38.7 39.0 40.0
b. Oil seeds 6.5 2.3 2.1 2.2 2.5 4.7 7.5 3.1 3.3 3.5 7.9 10.9 10.0 12.2
(C) Minerals 34.6 25.3 22.1 31.6 23.8 26.8 29.4 29.5 30.6 16.1 17.7 15.2 7.4 11.9
a. Metallic minerals 36.4 29.9 43.7 63.3 59.8 55.1 64.2 69.9 63.7 24.6 23.6 25.8 13.0 13.1
II Fuel and power 13.6 14.4 13.9 13.3 12.5 11.1 11.0 10.3 11.3 11.4 12.4 12.5 13.3 12.3
(A) Coal 7.9 7.9 7.9 7.9 7.9 7.9 3.8 0.2 0.2 0.1 3.9 13.3 15.9 13.3
(B) Mineral oils 18.4 18.1 17.1 15.9 16.0 13.6 14.6 14.5 15.9 16.7 17.1 14.7 15.4 15.9
(C) Electricity 3.4 8.6 8.6 8.6 5.0 5.0 5.0 5.0 5.0 3.6 3.6 3.6 3.6 -1.3
III Manufactured products 6.4 5.9 5.6 5.8 5.2 5.0 5.1 5.0 5.4 5.3 6.3 7.4 6.2 7.3
(A) Food products 9.1 7.1 6.1 7.3 4.6 3.6 3.8 1.1 1.4 -0.1 0.0 2.4 5.7 7.3
(B) Beverages, tobacco 7.8 7.5 7.4 7.3 6.8 6.3 6.4 6.0 5.7 9.6 8.6 8.8 7.4 7.9
(C ) Textiles 11.3 11.3 10.2 10.1 10.4 9.8 10.1 11.7 12.3 13.2 15.6 18.3 14.1 15.9
(D) Wood and wood products 7.4 5.7 4.8 4.9 4.7 2.8 1.4 2.2 2.1 4.6 3.8 3.6 2.0 4.7
(E) Paper and paper products 5.1 3.7 3.4 4.6 5.1 5.3 5.4 5.7 4.6 5.7 7.1 8.4 6.0 7.0
(F) Leather and leather products -0.8 0.0 -1.2 0.0 0.1 -0.1 -1.4 -1.8 -1.4 -2.5 -1.2 -1.5 -1.2 -1.4
(G) Rubber and rubber products 4.9 4.7 5.2 5.0 4.6 4.7 6.2 7.5 7.8 9.2 9.6 10.6 9.2 8.7
(H) Chemicals and products 5.5 5.2 5.2 4.4 4.3 4.6 4.9 5.2 5.0 5.5 6.6 7.4 6.0 7.1
(I ) Non-metallic mineral products 3.1 3.9 2.1 3.1 2.1 1.6 2.5 2.1 3.0 2.5 2.5 3.7 3.2 3.0
(J) Basic metal, alloys 8.8 8.4 8.2 7.9 7.5 7.2 7.7 7.8 9.2 8.5 11.1 11.7 7.1 7.9
(K) Machinery and machine tools 2.2 2.0 2.2 2.3 2.4 3.4 3.1 2.9 3.5 3.3 3.4 3.2 2.6 3.2
(L) Transport, equpt and parts 2.7 2.9 2.9 3.8 2.9 2.9 3.0 2.7 2.7 2.9 3.0 3.6 2.2 4.0
Source – Office of Economic Adviser, MOC&I, Govt of India
Coming now to the segment wise analysis, we see that prices in the ‘Manufactured Goods’ category
registered an increase of 6.3 percent in the year 2010-11. The corresponding figure in 2009-10 was 1.8
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17. percent. Further, as per the latest data available, ‘Manufactured Goods’ segment recorded an inflation
of 7.3 percent in May 2011. Looking at the sub-categories within this broad group, we see that sectors
like food products, beverages and tobacco, paper and paper products, rubber and plastic products,
chemical and chemical products, and basic metals and metal products are seeing significant inflation. As
already mentioned, the buildup in prices in many of these industries is largely due to increasing cost
pressures which manufacturers are now finding difficult to absorb.
In case of the ‘Fuel and Power’, overall inflation in 2010-11 stood at 12.2 percent. The corresponding
figure in 2009-10 was (-) 2.1 percent. Further, as per the latest data available, this segment recorded an
inflation of 12.3 percent in May 2011. Inflation in this segment is being driven by high and rising prices
of items like coal and mineral oils. One may recall that petrol prices in the country are now being
regularly aligned with international prices following decontrol of the price mechanism and this is having
a bearing on overall inflation in this broad category.
Finally, in case of the ‘Primary Articles’ category overall inflation in 2010-11 stood at 17.7 percent. The
corresponding figure in 2009-10 was 12.7 percent. Further, in the month of May 2011, this segment
recorded an inflation of 11.3 percent. Although over time inflation in this segment has been showing
signs of moderation and which have come on the back of inflation going down in case of food articles,
the non-food articles segment has seen a trend of rising inflation. In fact, in May 2011, inflation in the
non-food articles segment stood at a high 22.3 percent. High and rising prices of fibers like raw cotton
and raw jute are responsible for high inflation seen in case of non-food articles.
With regard to outlook for inflation in the months ahead, it may be mentioned that at least in the first
half of the current year, overall inflation is likely to remain sticky at the present levels. In fact there are
good chances that we may see a jump back to the double digit territory on a few occasions. And the
factors that lie behind this prognosis are given below.
First, international crude oil prices continue to remain high. With developments in the Middle East and
North Africa region showing no signs of abatement and with OPEC countries in their most recent
meeting [June 8, 2011] failing to reach a consensus on increasing their daily oil production quota, there
are limited chances of oil prices coming down in the near future. A slowdown in global growth in 2011
that is widely anticipated could put a lid to international oil prices but any large scale downward revision
is being ruled out at this moment. As a result, we can expect inflationary pressures in the ‘Fuel and
Power’ category to continue. Moreover, this pressure could further mount once the government
announces decontrol of diesel and LPG prices.
Second, in the context of inflation in the ‘Fuel and Power’ segment, one must also take note of the rising
prices of coal. Recent media reports show that coal production target for 2011-12 has been cut down
primarily on account of rising concerns over environmental issues. Coal shortage of nearly 142 million
tonnes is expected in 2011-12 and our imports this year could be as much as 114 million tonnes. Besides
power generation, this situation of coal shortage does not augur well even for the price line in case of
coal.
Third, global food prices are likely to remain firm in the near term. According to recent reports brought
out by FAO, global food prices would continue to remain a concern in 2011. The FAO has warned that
while the harvest this year would be critical, restoring market balances will take some time. Hence, we
can expect upward pressures on food prices in the global markets to persist. As global food prices have a
bearing on food prices in India, we have another element that is not likely to work in favour of bringing
inflation down.
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18. Fourth, the government has recently announced a hike in the Minimum Support Prices [MSP] for goods
like paddy, soybean and corn for the upcoming agricultural season. This increase in MSP will also have a
bearing on the trend in food prices in the near term. There are chances that food inflation may
accelerate once the new crop comes into the market in October 2011.
Given the above factors, we expect concerns on inflation to remain on the policy agenda through the
year 2011. Further, with policy rate hikes by RBI having failed to deliver on the stated objective of
reining in inflationary pressures and bringing down inflationary expectations, it is time that government
actively pursues supply side measures to curtail inflation.
Foreign Trade
Financial year 2010-11 was exceptionally good for Indian exporters. With overall exports amounting to
US$ 245.5 billion, the sector registered a growth of 37.7 percent in 2010-11 over the previous year. And
this was a record growth witnessed in exports since independence.
Further, when we look at the monthly data for exports for the year 2010-11 as given in the table below,
we see that growth in exports has been particularly strong since November 2010. While during the
period April to October 2010, exports grew at an average rate of 26.8 percent, overall growth was much
higher in the remaining part of the year. In fact, during November 2010 and March 2011, India’s exports
grew at a whopping 44.3 percent on average.
The onset of recovery in the global economy, which was led by the emerging economies, coupled with
continuation of export sops announced by the government as part of the fiscal packages offered during
the crisis period gave the sector the much needed impetus. The support provided by the government in
the form of measures such as interest subvention of 2 percent on pre and post shipment export credit
was instrumental in reviving the badly hit labor intensive export oriented industries.
Table 16 – Exports and Imports in US$ billion / YOY growth in percent
Exports Imports Trade Petroleum Non-POL Export Import
balance crude & items growth growth
products imports
imports
2010-Apr 17.7 28.8 -11.0 9.5 19.3 42.2 48.9
2010-May 15.7 26.6 -10.9 8.6 18.0 27.57 32.61
2010-June 19.3 25.9 -6.7 7.8 18.1 41.5 12.4
2010-July 16.0 26.5 -10.5 8.2 18.3 11.7 22.0
2010-Aug 16.4 27.1 -10.6 6.9 20.2 21.0 20.6
2010-Sep 18.1 25.1 -7.0 7.5 17.6 23.9 16.7
2010-Oct 17.7 28.6 -11.0 8.1 20.6 19.4 10.4
2010-Nov 20.2 25.3 -5.2 7.4 17.9 35.0 1.4
2010-Dec 25.6 28.2 -2.6 8.4 19.7 55.2 -0.3
2011-Jan 21.4 31.4 -10.0 9.6 21.8 37.5 24.4
2011-Feb 23.6 31.7 -8.1 8.2 23.5 49.7 21.1
2011-Mar 29.1 34.7 -5.6 9.4 25.3 43.9 17.3
2011-Apr 23.8 32.8 -9.0 10.2 22.6 34.4 14.1
Source – CMIE
In addition, the strategy of the government to continue exploring new and diverse markets for India’s
exports proved to be truly rewarding. Destination wise data available for the period April-December
2010 shows a significant increase in exports to regions like Latin America, Africa and other Asian
countries. For a long time India’s exports had been concentrated in US and the European countries and
the crisis provided a good opportunity to explore these other markets. India’s exports to Africa grew by
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19. 44.9 percent, to Asia by 43 percent and to Middle East by 31 percent during April-December 2010 over
the corresponding period in 2009-10.
Given this exemplary performance in exports, Commerce Minister, Mr. Anand Sharma, recently
indicated that India should be able to achieve exports of US$ 500 billion by the year 2013-14. He also
pointed out that sectors like engineering goods, petroleum products, gems and jewellery, drugs and
pharmaceuticals have done particularly well during the year 2010-11. Engineering goods were India’s
top exports in the year 2010-11 amounting to US$ 60 billion and registering a growth of over 80 percent
vis-à-vis the previous year. Further, while readymade garments registered a growth of 42.9 percent in
the year 2010-11 over 2009-10, gems and jewellery and pharmaceuticals both witnessed a growth of
about 15 percent. Petroleum products recorded a growth of 50.5 percent in 2010-11.
The strong momentum in exports, seen particularly during the second half of 2010-11, has continued in
the year 2011-12 as well. Latest numbers available for the month of April 2011 show that exports in this
month amounted to US$ 23.8 billion and represented a growth of 34.4 percent over the same month of
the previous year when exports totaled US$ 17.7 billion.
While this strong start in the year 2011-12 is encouraging, there are indications that this high growth
may not be sustained in the months ahead. And there are both domestic and external reasons that
make such a forecast likely. In fact in FICCI’s latest Survey on Exports, which was completed in the
month of May 2011, exporters indicated that going ahead their performance could weaken on account
of the following factors –
Firstly, the interest subvention of 2 percent on pre and post shipment credit announced to support the
exporters during the slowdown owing to the crisis came to an end in March 2011. The exporters now
have to pay a higher rate of interest to the banks for obtaining export credit. Further, this is happening
at a time when the lending rates are already going up following the increase in the base rates of the
banks and this would impact the production cost structure of the exporters.
Secondly, the DEPB scheme is finally coming to an end. As this is coming in quick succession following
the withdrawal of interest subvention, the exporters are finding themselves under reasonable pressure
to maintain competitiveness in the global market. Although most recent reports show that the
government has agreed to an extension of the DEPB scheme by another three months i.e. till September
20113, a large section of the exporting community feel that India’s exports are still not robust enough
and that such incentives should not be completely done away with. Exporters are hoping that during the
intervening three month period, the government would evolve an alternate scheme that would support
exporters.
Thirdly, off late there has been a significant increase in exports from India to Asian countries. However,
with inflation emerging as concern in other Asian countries as well and the central banks responding by
raising interest rates, the demand in this region is likely to face some moderation. This will certainly
have some bearing on India’s exports to the Asian market.
Fourthly, rising raw material costs and oil prices is also having a bearing on the exporters. Almost three
quarters of the respondents in FICCI’s latest Export Survey said that they are facing difficulty due to high
raw material prices. The textile sector is facing the heat due to surging cotton and yarn prices, the
chemical sector is being impacted due to increasing polymer prices, processed foods segment is facing
the brunt of high fruit and vegetable prices and engineering goods are being affected by high steel
3
The DEPB scheme was to come to a close by end June 2011. However, the government has decided to extend it by another
three months.
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20. prices. It is also important to note that rising crude oil prices have increased the inland transportation
cost and even the international ocean freight rates have moved up recently.
While the aforementioned factors are likely to dampen the buoyancy seen in exports in recent times,
one must also take note of the state of the global economy as this has a bearing on the performance of
India’s exports. Latest estimates provided by the IMF show that global growth is expected to moderate
in the year 2011. According to the IMF, the global economy is expected to grow by 4.4 percent in the
year 2011. In 2010, the global economy grew by 5.0 percent. The IMF has also indicated that the world
trade volume is likely to grow by 7.4 percent in 2011 as against a growth of 12.4 percent seen in 2010.
The general slowdown in the global economy and global trade volumes projected for 2011 is also a
downside risk to India’s export performance in the current year.
Coming to imports next, we see that in the year 2010-11 our imports totaled US$ 350.4 billion. This
represents an increase of about 21.8 percent over the previous year’s imports of about US$ 287.6
billion. During the year 2010-11, imports of both petroleum crude and products (POL) and non-
petroleum crude and products (Non POL) went up. While POL imports amounted to US$ 101.7 billion in
2010-11 and posted a growth of 16.7 percent over the previous year, non-POL imports amounted to US$
248.7 billion and registered a growth of 24.0 percent over the previous year.
Latest data available shows that in the month of April 2011 our imports totaled US$ 32.8 billion and
registered a growth of 14.1 percent over the same month of the previous year when imports amounted
to US$ 28.8 billion.
In the context of this rise in imports, it is important to take note of the rising international prices of oil,
which have pushed our POL import bill upwards. Otherwise in terms of volume there hasn’t been a
significant increase in POL imports. Price of oil in the international market has been moving up over the
last year with the spot price for Brent crude ruling around US$ 113 a barrel – an increase of 45 percent
over the previous year – in the last week of May 2011.
With developments in the Middle East and North Africa region showing no signs of a let up and with
OPEC in its last meeting deciding not to hike the overall quota for oil production, oil prices are likely to
remain firm in the near term. This will continue to put pressure on India’s overall oil import bill. As
regards non-oil imports, while a slowdown in the domestic economy could lead to some moderation in
the non-oil import bill, any large respite here can be ruled as prices of commodities other than oil are
also firming up. Another point to take note of is the likely increase in imports of LNG in 2011 due to
shortfall in RIL’s KG D6 block. This too would lead to an increase in India’s import bill as imported gas is
nearly 3 times as costly compared to gas supplied by Reliance.
With exports likely to come under pressure and imports showing little signs of easing in the coming
months, the trade balance in 2011-12 could widen.
Foreign Investments
Data on total foreign investment flows into the country shows that in 2010-11, foreign investment flows
into India saw a dip of about 17 percent over the previous year. Further, when we look at the two main
components of foreign investment, namely foreign direct investment and portfolio investment, we see
that the dip is largely on account of a slowdown seen in case of FDI. As the table below shows, FDI flows
into India in 2009-10 were to the tune of US$ 37.7 billion and in 2010-11 this figure came down to US$
27 billion. Portfolio flows, which were to the tune of US$ 32.4 billion in 2009-10, saw a marginal dip to
about US$ 31.5 billion in 2010-11.
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21. Table 17 – Foreign Investment Flows in US$ Million
Year FDI YoY Portfolio YoY FII* YoY Total Investment YoY
Growth Investments Growth Growth (FDI+ Portfolio) Growth
2000-01 4,029 2,760 1,847 6,789
2001-02 6,130 52.1 2,021 -26.8 1,505 -18.5 8,151 20.1
2002-03 5,035 -17.9 979 -51.6 377 -75.0 6,014 -26.2
2003-04 4,322 -14.2 11,377 1,062.1 10,918 2,796.0 15,699 161.0
2004-05 6,051 40.0 9,315 -18.1 8,686 -20.4 15,366 -2.1
2005-06 8,961 48.1 12,492 34.1 9,926 14.3 21,453 39.6
2006-07 22,826 154.7 7,003 -43.9 3,225 -67.5 29,829 39.0
2007-08 34,835 52.6 27,271 289.4 20,328 530.3 62,106 108.2
2008-09 37,838 8.6 -13,855 -150.8 -15,017 -173.9 23,983 -61.4
2009-10(P) 37,763 -0.2 32,376 -333.7 29,048 -293.4 70,139 192.5
2010-11(P) 27,024 -28.4 31,471 -2.8 29,422 1.3 58,495 -16.6
* FII is included in Portfolio Investment Source – Reserve Bank of India
If we look at the figures for FDI over the last few years, we see that the quantum received in 2010-11
was the lowest in the last four years. Quarterly numbers further highlight that FDI flows in the fourth
quarter of 2010-11 were the lowest since the third quarter of 2007-08. This clear slowing down in the
flow of FDI funds towards India should be a matter of concern for the authorities.
Further, data on sector wise FDI flows into India for the period April to February 2010-11 shows that out
of a total of top 25 sectors, 15 sectors saw a dip in FDI flows in 2010-11 compared to flows in the
previous year. And out of these 15 sectors, it is sectors like services, construction activities, housing and
real estate, telecommunication and agricultural services that have taken the biggest hit in terms of
inflows compared to corresponding period of the previous year i.e. 2009-10.
Table 18 – Sector Wise Foreign Direct Investment Flows in US$ Million
Sector 2010-11 2009-10 % change % to total % to total
(Apr- Feb) (Apr- Feb) in 2010-11 FDI FDI
US$ million US$ million vis-à-vis Inflows Inflows
2009-10 (Apr- Feb (Apr- Feb
2010-11) 2009-10)
1 Services sector 3,274.02 4,184.64 -21.76 ↓ 17.84 17.02
2 Telecommunications 1,410.14 2,495.34 -43.49 ↓ 7.68 10.26 ↓
3 Automobile 1,320.38 1,009.34 30.82 7.19 4.12
4 Power 1,236.76 1,335.70 -7.41 ↓ 6.74 5.48
5 Housing and real estate 1,109.33 2,703.50 -58.97 ↓ 6.04 11.01 ↓
6 Construction 1,071.64 2,810.18 -61.87 ↓ 5.84 11.29 ↓
7 Metallurgical industries 1,044.37 372.83 180.12 5.69 1.51
8 Computer software / hardware 766.24 872.88 -12.22 ↓ 4.18 3.52
9 Cement and gypsum products 607.58 33.64 1,706.12 3.31 0.13
10 Petroleum and natural gas 562.38 223.43 151.70 3.06 0.94
11 Industrial machinery 553.49 246.27 124.75 3.02 0.99
12 Trading 473.39 560.23 -15.50 ↓ 2.58 2.27
13 Information and broadcasting 406.37 467.39 -13.06 ↓ 2.21 1.9
14 Chemicals other than fertilizers 383.69 346.19 10.83 2.09 1.39
15 Hotel and tourism 301.43 707.93 -57.42 ↓ 1.64 2.86 ↓
16 Sea transport 290.46 275.21 5.54 1.58 1.1
17 Consultancy services 237.87 340.65 -30.17 ↓ 1.30 1.38 ↓
18 Hospital and diagnostic centres 231.63 129.49 78.88 1.26 0.52
19 Drugs and pharmaceuticals 211.53 210.39 0.54 1.15 0.85
20 Non-conventional energy 181.94 497.91 -63.46 ↓ 0.99 1.96 ↓
21 Food processing 166.37 262.71 -36.67 ↓ 0.91 1.05 ↓
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22. 22 Electrical equipments 154.36 641.41 -75.93 ↓ 0.84 2.61 ↓
23 Textiles 108.46 139.03 -21.99 ↓ 0.59 0.56
24 Agricultural services 41.75 1,317.06 -96.83 ↓ 0.23 5.43 ↓
25 Miscellaneous industries 1,323.01 1,003.14 31.89 7.24 4.03
Source – SIA Newsletter, DIPP
As this slowdown in FDI is happening at a time when the country is preparing plans to achieve a target
growth of 9 to 9.5 percent over the 12th Plan Period, it becomes important to get to the core of this issue
and take corrective action. FDI flows are an important source of funds for us and have in the past
supplemented domestic resources for meeting investment requirements in a whole host of sectors.
FICCI’s interaction with economists, policy experts and analysts shows that the emergence of other
competing economies, particularly in the Asian region, could be one of the factors that lie behind this
slowdown in FDI flows towards India. While this proposition requires further research, economists and
policy experts concur with the view that there are tangible factors linked to India which could also be
responsible for making foreign investors a little wary for committing more funds. And amongst these
domestic factors, two issues stand out.
First is the state of the macro-economy, which is far from comfortable. With inflation remaining
stubbornly high, growth slowing down due to aggressive monetary tightening by RBI and the
government throwing limited light on how the fiscal deficit target of 4.6 percent for the current year
would be achieved, investors may have been prompted to get into a ‘wait and watch’ mode before the
domestic situation improves.
Second set comprises factors such as environment sensitive policies being pursued with respect to
certain sectors, slow movement on resolving the land acquisition problem and issues of governance and
corruption that have been grabbing headlines and showing the country in poor light. As all of these
issues have a bearing on the perception and confidence level of foreign investors, these may have
limited FDI inflows into the country.
In this context, it may be reiterated that completion of the much awaited FDI policy reforms in sectors
such as insurance, defence and multi-brand retail would also give a boost to overall FDI flows into the
country.
Coming to portfolio investments, as already mentioned, in 2010-11 portfolio flows totaled US$ 31.5
billion and were only a tad below US$ 32.4 billion received in the previous year. FIIs, which form a major
component of portfolio investments, were to the tune of US$ 29.4 billion in 2010-11 and saw little
change from the figure for the previous year which was US$ 29 billion. While portfolio flows stood
higher than FDI flows last year, the outlook for funds flows on portfolio account going ahead is also not
too encouraging.
Given continuous monetary policy tightening by the central bank, interest rates are on an upswing. This
coupled with rising prices of raw materials is likely to have an adverse impact on the profit margins of
firms across sectors in the year ahead. As this would constrain the capacity of firms to distribute
dividends, FIIs are likely to take a conservative view on India and Indian companies as they do their
return on investment calculations. Signs of this are already emerging as in a recent survey [June 2011]
conducted by the Bank of America Merrill Lynch amongst global fund managers, India was placed
amongst the least favourite equity market by Asia-Pacific investors.
Additionally, with the RBI contemplating tightening of rules relating to exit of foreign investors and
private equity funds who put their money in Indian firms, investors’ sentiments are expected to further
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23. weaken. The re-emergence and intensification of the sovereign debt crisis in Europe and the expected
halt of quantitative easing policy in the US by the end of June 2011 are also downside factors for
portfolio flows for emerging markets including India.
It may be mentioned that the Finance Minister of India, Pranab Mukherjee, tried to allay fears of fund
managers and foreign institutions investors focused on India at recent conference. He urged FIIs to be
optimistic about Indian growth story and to take a long term view on its performance rather getting
disturbed with the short term developments and statistics.
As a measure of assurance, the Finance Minister told fund managers that the government would
continue to take investor friendly policies and has already started the next generation financial sector
reforms such as widening and deepening of the Indian securities markets, liberalizing the policy on
foreign capital flows, strengthening the regulatory and other institutional architecture and reducing
transaction cost in the securities markets.
These announcements however did little to reduce concerns amongst fund managers, who are looking
for better management of the macro-economy and forward movement on crucial economic reforms.
Forex Reserves
India’s foreign exchange reserves increased as we moved ahead in fiscal 2010-11. As data given
in the table below shows, while in April 2010, India’s foreign exchange reserves totaled US$
279.6 billion, in September 2010 this figure had increased to US$ 292.9 billion. Most recent
numbers show that the country’s foreign exchange reserves have shot up further crossing the
US$ 300 billion mark. With this level of reserves, India is amongst the ten largest holders of foreign
exchange reserves in the world.
Table 19 – Foreign Exchange Reserves in US$ Million
Forex Reserves
April 2010 279,633
May 2010 273,544
June 2010 275,710
July 2010 284,183
Aug 2010 283,142
Sept 2010 292,870
Oct 2010 297,956
Nov 2010 292,389
Dec 2010 297,334
Jan 2011 299,224
Feb 2011 301,592
March 2011 305,486
April 2011 313,671
Source – Reserve Bank of India
The increasing size of our foreign exchange reserves has drawn attention of the policymakers. As
mentioned in our previous report, just some time back, Dr. Kaushik Basu, Chief Economic Advisor,
Ministry of Finance, had raised the question of India to consider having a Sovereign Wealth Fund. In
more recent times, a few independent analysts have opined that a part of these huge reserves be
deployed to import commodities which are or could be in short supply in the economy. This last
suggestion was made in context of managing the stubbornly high inflation by bridging the demand-
supply mismatch.
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24. Exchange Rate
Most recent trends in the movement of the INR vis-à-vis major vehicle currencies show that the Indian
Rupee has depreciated against all the major global currencies.
As the data given in the table below shows, the Rupee depreciated against the US$ by 1.2 percent
between April 2011 and May 2011. During the same time period, while the value of the Rupee went
down against the Pound Sterling by 1 percent, Rupee’s depreciation against the Japanese Yen was of a
much larger magnitude – 3.8 percent. Against the Euro too we saw the Rupee becoming a little weak
and depreciating by about 0.4 percent between April 2011 and May 2011.
Table 20 – Rupees per unit of foreign currency (Yearly/monthly average basis)
USD Pound Sterling Japanese Yen Euro
March, 2008 40.3561 80.8054 0.4009 62.6272
March, 2009 51.2287 72.9041 0.5251 66.9207
March, 2010 45.4965 68.4360 0.5018 61.7653
2010-11
April 2010 44.4995 68.2384 0.4763 59.6648
May 2010 45.7865 67.1747 0.4969 57.6553
June 2010 46.5443 68.6952 0.5122 56.9016
July 2010 46.8373 71.5150 0.5343 59.7636
Aug 2010 46.5679 72.9736 0.5465 59.9700
Sept 2010 46.0616 71.6578 0.5454 60.0592
Oct 2010 44.4583 70.3381 0.5428 61.7153
Nov 2010 45.0183 71.8498 0.5457 61.4981
Dec 2010 45.1568 70.4635 0.5425 59.6652
Jan 2011 45.3934 71.5394 0.5496 60.5178
Feb 2011 45.4538 73.2921 0.5503 62.0904
Mar 2011 44.9895 72.7033 0.5502 63.0314
April 2011 44.3681 72.7215 0.5334 64.2269
May 2011 44.9048 73.4310 0.5535 64.4829
MOM growth in
1.2 1.0 3.8 0.4
May 2011
Source – Reserve Bank of India
One of the factors that affect the competitiveness of India’s exports vis-à-vis exports from other
countries is the relative movement in the national exchange rates. In the following table, we provide the
movement in the national currencies of select countries vis-à-vis the US$.
The data shows that between April 2011 and May 2011, majority of the currencies analyzed have
depreciated against the US$. The only exception is the Indonesian Rupiah, which has appreciated against
the US$ over the same time period. The Malaysian Ringgit did not see any movement against the US$
during the period under study.
Further, amongst all currencies that have weakened against the US$ during this period, it is the South
African Rand that lost the most – a depreciation of almost 2.1 percent. This is followed by the Brazilian
Real (depreciated by 1.3 percent) and the Indian Rupee (depreciated by 1.1 percent). Both the Pakistani
Rupee and the Thai Baht have lost about 0.6 percent each against the US$ over the two month –
April/May 2011 – period.
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