This document summarizes the state of the Indian economy in 2012. It notes that global growth estimates have been revised downward. While the US and European economies have not fully recovered from recession, India's growth is projected to slow as well, impacted by weakness abroad. Exports from India are declining, particularly to Europe, ASEAN and Northeast Asia. Capital inflows to India have also been volatile, with FDI steadier than portfolio flows. The rupee has begun depreciating against the dollar after gaining strength earlier in 2012.

1. The Indian Economy
November 21, 2012
© Confederation of Indian Industry

2. • India: State of the Economy
• India: Trends in employment
• India: Policy reforms
© Confederation of Indian Industry

3. Global Real GDP Growth Rates
Growth estimates have been revised down significantly
2010 2011 2012 2013
Projection Projection
World 5.1 3.8 3.3 3.6
Advanced Economies 3.0 1.6 1.3 1.5
USA 2.4 1.8 2.2 2.1
Euro Area 2.0 1.4 -0.4 0.2
Japan 4.5 -0.8 2.2 1.2
Emerging and Developing Economies 7.4 6.2 5.3 5.6
China 10.4 9.2 7.8 8.2
India 10.1 6.8 4.9 6.0
Brazil 7.5 2.7 1.5 4.0
Source: IMF, World Economic Outlook, October 2012
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4. Fresh challenges in the US and Europe
• Although the US recession officially ended in June 2009,
the American economy has not fully recovered even after
three and a half years have passed.
• Indeed, it seems to be facing fresh weakness since the
impact of the stimulus is fading out and fear of the “fiscal
cliff” is causing uncertainty.
• Euro zone economies contracted in the third-quarter
2012 despite modest gains in Germany and France, as
rising unemployment and fiscal austerity across much of
Europe pushed the continent into its second recession
since 2009.
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5. 2012q3
2.0%
2012q2
2012q1
2011q4
2011q3
2011q2
© Confederation of Indian Industry
2011q1
Quarterly GDP growth
2010q4
India
2010q3
2010q2
India will be impacted
2010q1
US
2009q4
2009q3
2009q2
2009q1
2008q4
2008q3
2008q2
2008q1
15.0
10.0
5.0
0.0
-10.0
-5.0

6. Exports are sliding
Exports Growth (%)
40.5%
30.8% 29.0%
23.4% 22.6% 21.3%
13.6%
-3.5%
-6.8%
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
H1
• Exports now constitute almost 25% of GDP and will be a drag on overall growth
• The biggest declines in exports have been to Europe (-12%), ASEAN (-21%) and
NE Asia (-15%) during the first half of 2012-13; surprisingly, exports to the US
have increased by 14%.
© Confederation of Indian Industry
Source: CSO

7. Capital Inflows have been Volatile
FDI and Portfolio Inflows (US $ Billion)
• While FDI inflows have been
steady, portfolio inflows have
41.7
34.7 33.1 32.4 30.3 33.0
been more volatile, impacted by
22.7
27.4 27.8 the uncertainty of the global
17.2 16.1 economic environment and
6.9 6.4 tough austerity measures in
many economies.
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Apr-Sep
2012
-14.0
Inward FDI Portfolio Exchange Rate: INR/USD
54.00
52.00
• Rupee had been gaining some 50.00
48.00
strength against the dollar but has
46.00
begun to depreciate once again. 44.00
Rupee which was trading at Rs. 42.00
57/US$ and above in June 2012 is 40.00
Mar-11
Mar-12
Nov-10
Jan-11
Sep-11
Nov-11
Jan-12
Sep-12
Jul-11
Jul-12
May-11
May-12
trading in a range of 54-55/ US$ in
November 2012.
© Confederation of Indian Industry

8. Domestic challenges, 1
Twin deficits
• The target for the fiscal deficit for
7.0 2012-13 has been revised up to 5.3%
6.0 of GDP, in view of increased spending
5.0 5.3% on subsidies and lower tax collections
4.0 • However, even this revised target is
3.0 unlikely to be met in view of the
3.7%
2.0 shortfall in telecom auction receipts
1.0 and in disinvestment receipts
0.0 • A shortfall of Rs 50,000 crore would
2012-13 BE
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
take the fiscal deficit to 5.6% of GDP
• The current account deficit is expected
to moderate to 3.7% of GDP on
account of lower imports.
Fiscal deficit (% GDP) • However, even this will be difficult to
finance
Current account deficit (% GDP)
© Confederation of Indian Industry

9. Domestic challenges, 2
Persistently high inflation
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Overall Core Food
• Although lower than last year, inflation remains high at 7.5%
• Core inflation (non-food manufacturing) has declined but food inflation has
again increased
• Inflation due to fuels and minerals remain in double digits and are a key
reason for higher inflationary expectation
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10. • India: State of the Economy
• India: Trends in employment
• India: Policy Reforms
© Confederation of Indian Industry

11. Share of sectors in GDP and employment
2004-05 2009-10
57.2 56.6
53.1 52.9
27.9 28.1
24.7 24.4
22.7
19.0 18.7
14.7
Agriculture Industry Services Agriculture Industry Services
GDP Employment
Source: NSSO, 66th Round survey & CII computations
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12. Workforce profile (2009-10)
Total Population - 1180 Million
40.0%
Total Labour Force - 469 Million
98.0%
7.0% Total Work Force - 459 Million 93%
Organized Sector Un-Organized Sector
32 Million 427 Million
55.7% 44.3%
Public Sector Private Sector
17.9 Million 14.2 Million
© Confederation of Indian Industry

13. Non-agricultural workers (2009-10)
in millions
80 76
70
60
60
50 47
40
30
20
10
0
Casual Regular Self-Employed
Source: NSSO, 66th Round survey & CII computations
© Confederation of Indian Industry

14. Employment creation in the last decade
Increase in employment (in million)
• Employment created in the first half of
the decade was much higher than in 1999-00 2004-05 1999-00
the second half to to to
• In the second half, only non- 2004-05 2009-10 2009-10
manufacturing industrial sectors – Agriculture 21.3 -15.7 5.5
mining, utilities and construction –
created jobs; in all other sectors, there
Manufac- 11.7 -7.2 4.5
was a decline turing
• However, this was also accompanied
by a decline in the labour force, so Non-manu- 9.1 26.1 35.5
facturing
unemployment did not increase.
industry
• This decline in the labour force was
Services 18.6 -0.5 18.1
largely concentrated in the below 25
age group and among women and is
therefore being interpreted as a Total 60.7 2.7 63.4
positive sign
Source: Planning Commission
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15. • India: State of the economy
• India: Trends in employment
• India: Policy Reforms
© Confederation of Indian Industry

16. Recent Policy Reforms
List of policy decisions taken recently
Reform Date Impact
announced
Fuel price hike 13/09/ 2012 Reduction in fuel subsidy
FDI in multi-brand retail 14/09/ 2012 Greater competition and efficiency in
FDI in single-brand retail 14/09/ 2012 the retail sector; more investments
FDI in broadcasting 14/09/ 2012 74% permitted in teleports, mobile TV
services and sky broadcasting services
FDI in civil aviation 14/09/ 2012 49% permitted in scheduled and non-
scheduled air transport services
FDI in power trading 14/09/ 2012 49% permitted
exchanges
PSU disinvestment 14/09/ 2012 More revenue for exchequer
Reduction in withholding 21/09/ 2012 Cheaper foreign loans
tax on foreign borrowing
Financial restructuring of 24/09/ 2012 State governments to take over 50% of
State Discoms liabilities
Infrastructure debt fund 04/10/ 2012 Model Tripartite Agreement approved
(IDF) that will facilitate creation of IDFs
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17. Some promising ideas
Electronic Cash Transfer
– The Prime Minister announced the architecture of moving to Electronic Cash
Transfers so that benefits can be transferred directly to the bank account of the
targeted segment. This would significantly reduce wastages and eliminate
corruption but is dependent on the rollout of Aadhar for identification of
beneficiaries. With this process being directed by the PM, we can hope for rapid
progress.
National Investment Board
– The Finance Minister has proposed the setting up of a National Investment Board
(NIB) that will have the final authority in taking decisions with regard to the
implementation of projects above Rs 1,000 crore. Such an authority is the need of
the hour and would go a long way in expediting project implementation, which is
currently inordinately delayed on account of inter-ministerial differences.
© Confederation of Indian Industry

18. Key Bills pending in Parliament
Insurance Bill Introduced in Dec-2008 Allows FDI upto 49%
Pension Bill Introduced in Mar-2011 Seeks to give statutory status to the PFRDA
Companies Bill Re-introduced in Dec- Ensures more transparent corporate governance
2011
Forward Contracts Introduced in Dec-2010 Gives statutory powers to FMC, allows trading in
Regulation Act (FCRA) derivatives and options
Land Acquisition Bill Introduced in Sep-2011 For commercial land acquisition, and rehabilitation
National Food Security Introduced in Dec-2011 Provides for food and nutritional security by
Bill providing specific entitlements to certain groups
Public Procurement Bill Introduced in May-2012 Seeks to regulate and ensure transparency in the
procurement process
Mines and Minerals Introduced in Dec-2011 Consolidates and amends the law relating to the
(Development and scientific development and regulation of mines
Regulation) Bill and minerals
Goods and Services Tax Introduced in Mar-2011 Landmark Change – requires constitutional
(GST) Bill amendment with 2/3rd majority
Direct Taxes Code (DTC) Introduced in Aug-2010 The Bill replaces the Income Tax Act 1961 and the
Wealth Tax Act, 1957
Banking Laws Introduced in Mar-2011 Seeks to strengthen the regulatory powers of the
(Amendment) Bill RBI
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19. www.cii.in
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