Economy Matters May 2017

1
FOREWORD
MAY 2017
J
ob creation and skill development have time and again been identified as the major challenges fac-
ing the Indian economy. Fortunately, India is blessed with a young population which constitutes
its demographic dividend. However, for India to reap its demographic dividend, it is imperative
that there is greater emphasis laid on improving the quality of employment, a greater focus on non-
farm jobs in rural areas and creation of a job-ready workforce with the relevant skills. Moreover, a rise
in working-age population is necessary but not a sufficient condition for India to sustain its economic
growth. If India does not create enough jobs and its workers are not adequately prepared for those
jobs, its demographic dividend may turn into a liability. India will need to alter its policy framework and
give incentives for creating sufficient jobs and alleviating workforce skill-mismatch.
CII welcomes the release of the new estimates of GDP which incorporate the IIP and WPI data on the
new base of 2011-12. There is no change in the estimate for 2016-17, which remains at 7.1 per cent. How-
ever, the growth rate in successive quarters of the year has been moderating. As per industry reports,
many sectors are witnessing a recovery in the first quarter of the current year. With the IIP now having a
more realistic coverage, we expect the data to be reflective of the market realities which would be use-
ful for tracking economic activity. The switch to a new base is a culmination of a sustained effort to align
the data with the new GDP series and CII commends the extensive work done by the CSO in this regard.
On the global front, India is pegged to be the fastest growing economy in the world in 2017-18 and will
be a key driver for global growth, according to the latest report by the International Monetary Fund
(IMF). Retaining its growth forecast of 7.2 per cent for India for 2017-18, the IMF, in its World Economic
Outlook, also estimated that India would grow at 7.7 per cent in 2018-19 and said that 8 per cent growth
in the medium-term is within reach. The multilateral agency has also listed further reforms that India
must undertake, including reducing labour & product market rigidities, expanding the manufacturing
base and productively employing the abundant pool of labour. Further, it said steps should be taken
to reduce NPAs and rationalise subsidies. Industry looks forward to the new indirect tax regime of the
Good and Services Tax (GST) to be implemented from July 1st
, 2017.
Chandrajit Banerjee
Director General, CII

EXECUTIVE SUMMARY
ECONOMY MATTERS 4
Focus of the Month: Employment and
Skill Development
One of the key factors driving India’s impressive growth
rate is the demographic dividend, based on a workforce
that will continue to grow into the middle of the century
and power our saving and investment rates. Moreover,
the evolving demographics unambiguously point out that
India will remain a young nation and the largest contribu-
tor to the global workforce over the next few decades
- an exceptional strength compared to the rapidly ageing
population in the Western countries, and that in China,
owing to its one-child policy. The rise in its working-age
population, however, is necessary but not sufficient for
India to sustain its economic growth. If India does not
create enough jobs and its workers are not adequately
prepared for those jobs, its demographic dividend may
turn into a liability. While employment is one side of the
challenge, employability is the obverse. The skill develop-
ment endeavor has to be accelerated and greatly scaled
up in a joint effort of Government, industry and civil so-
ciety. In view of the increasing importance of both em-
ployment and skill development of labour force in India,
in this month’s Focus of the Month, we cover this crucial
issue in detail.
Domestic Trends
Real GDP data for the fourth quarter of FY17 came in at
much lower-than-expected 6.1 per cent, taking the full
year growth estimate to 7.1 per cent as compared to 8.0
per cent in FY16. Agriculture and government spending
were major contributors to growth whereas components
such as trade and hotels, construction and financial and
other services were major sources of drag. Further, as
per the new series with the base year 2011-12, industrial
output growth increased by 2.7 per cent in March 2017,
better than previous month’s reading of 1.9 per cent but
significantly lower than March 2016 reading of 5.5 per
cent. Industrial output averaged 5.0 per cent in FY17 as
compared to 3.4 per cent in FY16. Even though there is
a significant difference in terms of coverage and meth-
odological changes between the old and new series, the
latter indicates better growth prospects as compared to
the former. Meanwhile, on the inflation front, consumer
price index (CPI) based inflation moderated to 2.99 per
cent in April 2017- its lowest reading in the current series
with base year 2011-12, from 3.89 per cent in the previ-
ous month, mainly driven by a dip in food inflation to 1.2
per cent from prior reading of 2.5 per cent. Mirroring the
moderation in CPI inflation, the wholesale price index
(WPI) based inflation, which has been now re-based to
2011-12 from 2004-05, also slowed down to 3.9 per cent
in April 2017 from 5.3 per cent in the previous month. The
moderation came on the back of a broad-based decelera-
tion seen across all its major sub-sectors.
Policy Focus
This section covers the major policy changes announced
by government/RBI in the month of May 2017. Amongst
the prominent policy news announced during the month
was the Goods and Services Tax (GST) Council broadly ap-
proving the GST rates for services at nil, 5 per cent, 12 per
cent, 18 per cent and 28 per cent. The development on
the GST front gives a strong signal for the 1st
July, 2017 im-
plementation, which now looks imminent. Additionally,
during the month the Cabinet Committee on Economic
Affairs (CCEA), approved the signing of a new Fuel Sup-
ply Agreement (FSA) with the Letter of Assurance (LoA)
holders. Shakti (Scheme to Harness and Allocate Koyla
Coal) is a step in the right direction as it will ease out the
stress arising on account of non-availability of linkages
to power sector projects and also reduce dependence
on imported coal. The Union Cabinet also gave its ap-
proval for the Multilateral Convention to implement the
tax treaty related measures to prevent base erosion and
profit shifting (BEPS) during the month. Additionally, the
Cabinet also gave its approval to the phasing out of For-
eign Investment Promotion Board (FIPB). The proposal
entails abolishing the FIPB and allowing administrative
Ministries/Departments to process applications for FDI
requiring government approval.
Global Trends
As per the latest issue of IMF’s bi-annual World Economic
Outlook (WEO) released in April 2017, world growth is
projected to rise from 3.1 per cent in 2016 to 3.5 per cent
in 2017 and 3.6 per cent in 2018. This increase is likely to
be driven by buoyant financial markets and a long-await-
ed cyclical recovery in manufacturing and trade. On the
inflation front, the report mentions that headline infla-
tion has been picking up in the advanced economies due
to higher commodity prices, but core inflation dynamics
remain subdued and heterogeneous (consistent with
diversity in output gaps). IMF expects India’s growth to
show an uptick to 7.2 per cent and 7.7 per cent in 2017-18
and 2018-19 respectively from expected 6.8 per cent in
2016-17, on the back of lower lending rates and sustained
reform initiatives of the government.

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FOCUS OF THE MONTH
Employment and Skill Development
MAY 2017
point out that India will remain a young nation and the
largest contributor to the global workforce over the
next few decades - an exceptional strength compared
to the rapidly ageing population in the Western coun-
tries, and that in China, owing to its one-child policy. The
rise in its working-age population, however, is neces-
sary but not sufficient for India to sustain its economic
growth. If India does not create enough jobs and its
workers are not adequately prepared for those jobs, its
demographic dividend may turn into a liability.
While employment is one side of the challenge, employ-
ability is the obverse. The skill development endeavor
has to be accelerated and greatly scaled up in a joint ef-
fort of Government, industry and civil society. In view of
the increasing importance of both employment and skill
development of labour force in India, in this month’s Fo-
cus of the Month, we cover this crucial issue in detail.
I
ndia today stands at an opportune moment in its
economic history. The country has emerged as the
fastest growing large economy in the world, and is
set to achieve higher rates of growth in coming years.
One of the key drivers of our growth process is the
demographic dividend, based on a workforce that will
continue to grow into the middle of the century and
power our savings and investments rates. India’s young
workers are a formidable economic cohort; however,
we need to leverage their potential through a set of
well-thought strategies to derive the maximum devel-
opmental outcomes.
Moreover, the evolving demographics unambiguously

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FOCUS OF THE MONTH
ECONOMY MATTERS
Labour and Employment Status in India: An Update
Introduction
Estimating employment levels in India has been a dif-
ficult endeavour with the NSS conducting household
surveys with a gap of five or more years. The Ministry
of Labour has now stepped into this vacuum to provide
annual employment-unemployment surveys available
since 2011-12 till 2015-16 with break-up of employment
numbers by occupation available only for the 2013-14
and 2015-16 survey periods. This is further supplement-
ed by the quarterly enterprise based survey covering
mainly the formal sector.
Estimating the employment-unemployment figures
for any developing country is a challenge and India is
no exception. A well-known problem with data on em-
ployment-unemployment in India is that many individu-
als who didn’t engage in gainful employment even for
a day or who get work only for a small fraction of the
entire duration of employment still classify themselves
as employed. These are cases of disguised unemploy-
ment which camouflages the actual conditions of the
workforce.
For this study, we look at the national-level aggregates
as well as data for 6 selected states viz, Maharashtra,
Gujarat, Karnataka, Tamil Nadu, West Bengal and Hary-
ana. These states have been selected keeping in mind
the industrial progress at state level as well as regional
representation.1
The objective of this study is to quan-
tify and highlight the labour force related numbers, so
that the challenges with regard to employment genera-
tion are understood better. This should help in calibrat-
ing future policies to achieve growth accompanied by
employment generation.
Some key findings on the basis of our study are:
• While share of agriculture in employment has de-
clined steadily over the past decade, it continues to
be significantly high at over 45 per cent.
• Poor performance of agriculture forces people out
of the labour force along with increasing the num-
ber of unemployed and ‘casual labour’, a possible
sign of extreme dependence on the sector leading
to labour distress.
• During the four-year period, 2011-12 to 2015-16, total
working age population increased by 84.1 million
but actual labour force increased by only 20.1 mil-
lion. Only about a fourth (24 per cent) of working
age population joined the labour force while over
three-fourth (76 per cent) remained outside.
• Close to three-fourth of the population entering
the working age category did not seek employment
and preferred to remain outside the labour force.
To the extent, the population went to “upskill”
themselves by getting more training and educa-
tion, it can be good for the economy. On the other
hand, the phenomenon of “discouraged dropouts”
where the individual is not seeking work because of
non-availability of adequate jobs can be a bad signal
for the economy.
• Of the 20.1 million increase in the labour force, 14.6
million were part of the workforce i.e. employed,
while 5.5 million were unemployed. In other words,
the number of jobs created during this period was
14.6 million or 3.65 million per year.
1
The data in the surveys is reported per thousand persons but we have converted these to actual number of persons using an estimate for the
population

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FOCUS OF THE MONTH
MAY 2017
• Further, labour force and workforce are concentrat-
ed in the 6 sample states: although they accounted
for just 35.6 per cent of total working age popula-
tion, their share of the labour force and workforce
was 42.5 per cent and 62.6 per centrespectively.
• Looking at employment disaggregates, the number
of people employed as salary/wage earners and
contract employees has increased between 2013-14
and 2015-16 while the number of self-employed has
declined.
• Absolute change in contract employment is much
higher compared to absolute change in wage/sal-
ary employment (3.2 million viz-a-viz 2.5 million).
This reflects that employers preferred the ‘contract
route’ to hire additional workers instead of the tra-
ditional wage/salary route, ostensibly because of
the greater flexibility the former offers.
• Sectors such as ‘Wholesale/retail trade’, ‘transport
and storage’, ‘construction’, ‘education and health’,
‘services’ and ‘hospitality’ have registered growth,
while ‘Agriculture’, ‘Mining & manufacturing’ and
‘Public administration & defence’ have witnessed a
A (II). Break-up of working-age population:
To estimate the addition to the labour force 3
, we use
the ‘Labour Force Participation Rate (LFPR) estimates
from the ‘Employment-Unemployment Survey’. LFPR
has varied between 50-53 per cent in this period.
It was 52.9 per cent in 2011-12, 50.9 per cent in 2012-13,
52.5 per cent in 2013-14 and 50.3 per cent in 2015-16. To
understand the interplay between agriculture and jobs,
contraction in employment during this period.
The rest of the study is divided as follows: In Section A
welookatoverallworkingagepopulationtrends.InSec-
tion B we deep dive into trends by (I) employment ac-
tivity (II) occupation type and (III) occupation by broad
sectors.2
We then finish with ’Conclusion’ in the final
section where we bring in additional information from
varied sources to understand the interplay between
employment, labour force and economic growth better.
A. Working age population:
A (I). Overall trend:
The working age population refers to the number of
individuals aged 15 years of more and is referred to as
the “population” from now on. Over the 4 year period
(2011-12 to 2015-16), the population increased by 84.1
million at an estimated rate of 2.38 per cent CAGR.
(Figure 1).
The population for 6 sample states increased by 30 mil-
lion (35.6 per cent of total) at 2.29 per cent CAGR. The
data at national level as well as for these states have
been presented below (Table 1).
we look at the LFPR for the intervening years and com-
pare it with agricultural performance (Figure 2). There
seems a direct correlation between the two. In 2011-12,
agriculture grew at 5.0 per cent and LFPR for the year
was 52.9 per cent. As agriculture growth slowed to 1.5
per cent in 2012-13, LFPR declined to just 50.9 per cent.
When agriculture sector jumped to 5.6 per cent growth
in 2013-14, LFPR rose to 52.5 per cent. Finally, for 2014-
16, the respective numbers are 0.2 per cent and 50.3
2
For categorization in Section B, data at disaggregated level is available only for 2013-14 and 2015-16.
3
Defined as the number of people actively seeking employment.

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FOCUS OF THE MONTH
ECONOMY MATTERS
per cent. This leads us to the assertion that size of the
labour force is highly dependent on agricultural sector.
An adverse performance of the sector forces a section
The labour force increased by 20.1 million at 1.10 per
cent CAGR while the population outside labour force
increased by 64.0 million at 3.76 per cent CAGR. Only
The labour force is concentrated in the 6 sample states :
42.5 per cent of the increase in labour force is attributed
to the six sample states. The sample states together ac-
The labour force has increased at a much higher rate
in Haryana and West Bengal, registered moderate in-
crease in southern states of Karnataka and Tamil Nadu
out of the labour force: those who could not find alter-
native jobs even as ‘casual labour’.
about a fourth (24 per cent) of working age population
joined the labour force while over three-fourth (76 per
cent) remained outside (Figure 3).
count for an increase of 8.5 million people in the labour
force out of total increase of 20.1 million.
and below average increases in western states of Ma-
harashtra and Gujarat. Population outside labour force
increased by 64 million at 16 million per year.

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FOCUS OF THE MONTH
MAY 2017
A (III). The labour force break-up: Employed vs
Unemployed
The labour force comprises of employed and unem-
ployed workers. While the former is engaged in gainful
production, the latter seeks employment but are un-
able to get any.
The data for the six sample states gives a more detailed
picture of the employment scenario in India (Table 3).
The pace of job creation has been highest in Haryana
followed by West Bengal while Karnataka has wit-
nessed modest increase in job creation. Maharashtra,
Gujarat and Tamil Nadu have experienced a lower rate
of job creation though they together added more than
2.1 million jobs over the reference period.
While unemployment increased by 5.5 million, the abso-
lute number of unemployed declined for these 6 states
together by 0.6 million. Indicating that number of un-
employed individuals in Rest-of-India (RoI) increased by
The labour bureau’s “Worker Participation Rate”4
(WPR) is being used to estimate employment numbers.
The number of employed persons increased by 14.6 mil-
lion in the 4 year period. This means around 3.65 million
jobs were created per year in the economy between
2011-12 and 2015-16. Unemployment increased by 5.5
million in the 4 year period increasing at 1.38 million per
year (Figure 4).
62.6 per cent or 9.1 million of the total 14.6 million addi-
tional jobs created come from these six sample states.
a total of 6.1 million.
B. Employment by engagement type:
B (I). Employment by Activity:
Understanding the employment by activity can help
understand the broad changes in labour movement.
Here activity refers to the kind of engagement and is
classified into four broad categories: (a) Self Employed
(b) Waged/Salaried (c) Contract (formal) and (d) Casual
workers.
4
the ratio of number of employed persons to total working age population

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FOCUS OF THE MONTH
ECONOMY MATTERS
Typically, a movement away from self-employed and
casual labour towards wages and contract categories is
considered to indicate increasing formality of employ-
ment contracts. An increase in ‘contract employment’
could also indicate employer response to higher level of
regulations under regular wage/ salary contracts.
The decline in share of self-employed by 3 per cent in
the workforce was accompanied by an increase in for-
mal employment (wage/salary + contract) by 1.2 per
centand an increase in share of casual labour by 1.8 per
cent. Significantly, absolute change in contract employ-
ment is higher compared to absolute change in wage/
salary employment (3.2 million viz-a-viz 2.5 million). This
reflects that employers preferred the ‘contract route’
to hire additional workers instead of the traditional
wage/salary route, ostensibly because of the greater
flexibility the former offers.
B (III) Employment by Industry:
Finally, we look at the distribution of workforce at the
broad industry level. Segregation of workforce at indus-
try level provides insight into job creation in different in-
dustries. The employment-unemployment survey gives
information for 20 broad industry categories based on
NIC-2008 classification, we further consolidate them to
Comparing the data on employment by activity be-
tween 2013-14 and 2015-16, there is an absolute decline
in ‘self-employed’ by 11.6 million, while employment in
wage/salary, contract and casual labour categories in-
creased by 2.5 million, 3.2 million and 9.1 million respec-
tively (Figure 5).
B (II). Employment by Occupation:
Employment by occupation type is yet another way to
understand the engagement of the workforce. A grow-
ing economy is likely to see movement of workforce
away from low productivity traditional occupations to
higher productivity skilled occupations.
It is seen that employment in sales and service has de-
clined roughly by the same amount as it has increased in
senior official professions. Broad trends reflect a move-
ment towards skilled employment. To formulate any de-
finitive hypothesis, a longer history is needed.
finally have ten broad categories.
The volume and growth of agricultural employment has
declined by 2.3 million and -0.6 per cent respectively be-
tween 2013-14 and 2015-16 (Table 4). The second major
downward shift is in the manufacturing sector where
the decline is 1.1 million or -1.1 per cent. This points to the
stress the sector has been facing recently. ‘Wholesale/

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FOCUS OF THE MONTH
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retail trade’ services have witnessed an increase in em-
ployment and growth by 4.7 million at 5.3 per cent re-
spectively. The second major positive sector in terms of
employment creation was ‘Transport and storage’ ser-
vices where employment increased by 0.5 million reg-
istering 1.2 per cent growth. Other sectors have shown
Conclusion
Employment and labour force movements are closely
linked with the performance of the economy. Low LFPR
remains a prime concern area for the economy. The low
level of participation in labour force by working age
population points to the twin challenge of discouraged
unemployment on one hand and demand for skilled
jobs on the other. E.g. in ‘2012-13’, when GDP growth
was just 5.5 per cent and agriculture grew at 1.5 per
cent only (Figure 2), there was an absolute decline in
the labour force (Figure 3), increase in unemployment
(Figure 4b) and ‘casual labour’ (Figure 5). A possible
sign of extreme dependence on the sector leading to
labour distress.
very little change over the intervening period. Looking
at data, manufacturing is the second biggest sector fac-
ing absolute contraction in employment in this period.
Not surprisingly, the sector has been struggling with its
share out of total GDP stagnating around 17.5 per cent
mark since 2011-12.
It is apparent from Figure 7a that although the share of
agriculture in employment remains high at over 45 per
cent, it has declined steadily over the past decade.5
In
Figure 7b below, we give information on the changes
in job creation, and overall GDP growth over two differ-
ent time periods: 2005-12 and 2012-16. In the first period,
GDP growth was healthy at 8.5 per cent with jobs in-
creasing at 2.1 million per year. As jobs were being cre-
ated in non-agricultural sector at a healthy rate of 7.0
million per year, agricultural jobs declined steadily. In
the second period, average GDP growth moderated to
6.8 per cent but job creation increased to 3.7 million/
year. This was possible mainly due to a slowdown in the
pace of job losses in the agricultural sector.
5
As data is available at irregular frequencies, we have used average annual growth for the agriculture sector as well as for jobs created. For
facilitating comparison, we use information on jobs creation between 2005 till 2012 from ‘Jobless Growth and its Implications: A Discussion Paper
(CII, June-2014)’.

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FOCUS OF THE MONTH
ECONOMY MATTERS
Table 5 shows the available data for agricultural perfor-
mance in these time periods. Agricultural jobs declined
at the rapid rate of 4.9 million per year in the first pe-
riod. This was also the time when MNREGA was intro-
duced and implemented which could have led to such
a dramatic reduction in agricultural jobs with people
identifying themselves with MNREGA works as op-
posed to being employed in agriculture sector. In the
second period, data for sectoral jobs is available only
for the sub-period 2014-16 period. During this period,
job increase had slowed down to 0.9 million per year.
Agricultural jobs6
declined at 1.1 million per year while
non-agricultural jobs grew at 2.1 million/year.
6
Any verification is beyond the scope of this article and this is only a proposition.

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FOCUS OF THE MONTH
MAY 2017
Future of Jobs in India: Enterprises and Livelihoods
Over the last twenty-five years, India has been one of
the world’s ten fastest growing economies and every
projection says we will be one of the world’s ten fast-
est growing economies in the next twenty-five years
as well. The pride we take in our economic success,
though, is combined with concern over how inclusive
our growth is. Jobs are at the heart of any discussion
on inclusiveness. Indeed, the right jobs not only include
people in the growth process, but trigger a virtuous cir-
cle of growth itself.
Given the imperative to create millions of new jobs in
India in order to generate livelihood opportunities and
raise incomes in an equitable and sustainable manner,
in this article, we provide a brief summary of a recent re-
port published by Confederation of Indian Industry (CII)
in partnership with Boston Consulting Group (BCG). The
report on ‘Future of Jobs in India: Enterprises and Live-
lihoods’ examines the drivers of India’s job creation in
detail and outlines potential scenarios that can plausibly
guide our actions, both in terms of policy and business
strategy. The report brings new insights and ideas to
the endeavor, while emphasizing the need to place job
creation at the center of policymaking.
(A). The Jobs Challenge
Economies generate jobs: jobs cannot be sprinkled
into an economy. Hiring of more people with tax-payer
money can create some jobs, but this is not a sustain-
able strategy. Therefore, policy-makers must consider
what conditions are required within the economy for it
to generate more jobs and to grow. Indeed, for India,
with its huge need for more jobs for its large and youth-
ful population, it is imperative that the employment
elasticity 7
of the economy is improved. India’s economy
seems to have generated only two-thirds as many jobs
per unit of economic growth than the global average.
The macroeconomic implication of this is that for the
Indian economy to generate the jobs required, the
growth rate of the economy will have to be much high-
er than it would need to be if it was generating jobs at
the global average rate. For example, instead of 8 per
cent growth per annum, it must grow at 12 per cent per
annum, which will require even higher rates of invest-
ment at a time when attracting enough investments is
already a challenge. Therefore, it is imperative that In-
dia’s policy-makers look into the drivers within the In-
dian economy that must be adjusted to improve its jobs
creation potential.
Improvement in the job creation potential of an econo-
my requires improvement of ‘productivity’ of the econ-
omy as well. Productivity is a ratio of an output and an
input: an output that is desired, and the (scarce) input
from which more output must be extracted. If all en-
terprises in an economy improve their productivity by
this measure, reducing the human inputs they use, the
problem of jobs for human beings in the economy be-
comes acute.
Forecasting what will be the numbers of jobs, even in a
5-10 year horizon, and in which sectors they will arise, is
not possible with any accuracy. There are too many im-
ponderables: the impact of technology and automation
on jobs, the pace of economic growth, changes in glob-
al trade patterns, etc. Therefore, it is more useful for
policy-makers to understand how the ecosystem can
be changed to generate more jobs. In fact, the number
of jobs that will arise will depend on the ways in which
the jobs ecosystem will be shaped. Policy effectiveness
is itself a critical variable, albeit a non-quantifiable one,
in producing jobs and should be considered when esti-
mating the numbers of jobs that will arise in the future.
(B). The Jobs Landscape
The gap between the number of jobs created and
jobs required in India has widened despite strong GDP
growth during the decade of the 2000s. Every year,
10-12 million young people join the labor force. Addition-
ally, 2-3 million educated and unemployed workers look
for jobs in the industry and services sectors, and 5 mil-
7
The employment elasticity of output in India has declined from 0.44 to 0.01 over the last decade of the 2000s, implying fewer jobs created for
every percentage point increase in GDP. Thus, the GDP growth achieved over these years can be characterised as ‘jobless growth’.

14
FOCUS OF THE MONTH
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lion people leave agriculture to join the non-agriculture
sectors. Thus, there exists a total demand of 17- 20 mil-
lion jobs per annum.
Worryingly, the number of jobs generated has been
much less. Over the five years till 2011-12, approximately
8 million non-agricultural jobs were added per annum,
with construction and services sectors being major con-
tributors. The cumulative impact of lack of sufficient
jobs created earlier along with the future job needs to-
gether define the size of India’s jobs problem.
Historical data suggest that both labor intensive sectors
such as textiles and furniture as well as capital-intensive
sectors such as automobiles and pharmaceuticals have
generated additional jobs. For example, the ‘motor
vehicles and trailers’ sector, which comes in at among
the ten most capital intensive sectors, experienced an
employment CAGR that was faster than nine of the ten
most employment-intensive sectors. Hence, it’s impera-
tive to identify high-potential employment sectors and
size their jobs capacities. India, like any other develop-
ing economy, has seen varying growth in jobs across
the manufacturing and services sectors. The size of the
opportunity in a sector is composed of two critical el-
ements – the sector’s ‘job-growth potential’ and the
nature of enterprises or types of jobs within it that are
needed to achieve this potential.
‘Job-growth potential’ of a sector is a function of two
variables – the growth of the sector and intensity of
labor deployment (employees per unit of gross value
added or GVA). Thus, India’s job landscape can be plot-
ted along two axes – job-growth potential (Y-axis) and
understanding of the sector (X-axis) as shown below.
The size of the circle represents the value of estimated
additional jobs generation potential (by 2025) for a sec-
tor and the concentric circles represent the minimum
and maximum value of these job potential estimates.

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FOCUS OF THE MONTH
MAY 2017
The set of sectors shown in the chart above is not com-
prehensive. However, as can be observed from the
chart, various job growth estimates for each sector are
highly divergent. For example, the 2025 forecasts / esti-
mates range from 3.4 million jobs to 19 million jobs for
the automotive sector (a sector whose industrial struc-
ture is fairly well understood) and from 6 million jobs to
8 million jobs for the tourism sector (whose structures
are more variable in different settings).
(C). High-Impact Strategies to Accelerate
Jobs Growth
(i). Employment should be considered at the heart of
all policy formulation. Just as policies and projects
have environmental impact assessment and gender
budgets, Employment Impact Assessment must be-
come a core measure of the impact of policies and
programs in a city, state, or at the Centre.
(ii). Employment creation should be part of state-level
and city-level performance dashboards/balanced
score-cards.
(iii). Social security must be an inseparable compo-
nent of labour regulatory policies. It is only when a
strong social security net is available for the infor-
mal sector that we will be able to consider flexibility
in current labour laws that are acting as barriers to
formal sector employment creation.
(iv). Since labour regulation is a state subject, states
must consult with stakeholders, and include social
security while changing labour laws. The strategy
of regulation by state governments might create
a plethora of diverse labour regulations, confusing
for both investors and workers.
(v). Technology is seen as a disruptor in the jobs mar-
ket but it can be a huge enabler for linking workers
with new livelihood opportunities. However, there
is a big gap in youth capacities to leverage technol-
ogy linked employment opportunities. A dedicated
fund should be established to propel training pro-
grams for building technology capabilities of Rs
10,000 crores as a start.
(vi). Top ten job-creating sectors should be identified,
as per their employment elasticity, and sectoral re-
forms and policies for each should be developed.
An excellent example is the National Textile and
Garments Policy which actions key enablers based
on stakeholder consultation.
To conclude from the discussion above, it is important
that our imperative as a country should be to create mil-
lions of good quality jobs. What is a good quality job?
One which has a trajectory of productivity growth for
the firm and stability and learning opportunities for the
employee. How do we create an ecosystem of millions
of good quality jobs begetting millions more of good
quality jobs? A single policy set or approach would be
inadequate to deal with the jobs compulsion, and there-
fore a holistic thought process is required to converge
multiple policy sets for the target of creating jobs on
a massive scale. The systems approach, formulated
through widespread consultations with a diverse group
of experts, is best suited to address our jobs challenge.

16
FOCUS OF THE MONTH
ECONOMY MATTERS
Industry is the Most Critical Thread for Skilling India
I
n the present day context, the biggest impetus that
can strengthen India’s skill ecosystem is extensive
industry participation. Given our promising demo-
graphic dividend, it is critical that industry reaps its ben-
efits to the fullest by nurturing manpower, trained to
fulfil their specific needs.
There are some critical threads that necessitate indus-
try participation in order to bridge the gap between the
huge demand for skilled manpower and their availabil-
ity.
The first thread is to forecast the Industry’s manpower
requirement by aggregating dynamic demand so as to
align the training to meet its requirement. In addition,
there is a need to ensure industry acceptance of skilled
and certified workforce with provision of differential
wage system.
This must be followed by setting-up of marque state-of-
the art training institutes to attract youth and promote
vocation as a preferred choice. Due emphasis must also
be laid on building capacity by training of new trainers
and assessors and up-scaling the existing ones with due
industry participation.
Another critical thread is scaling-up of apprenticeship.
CII made countrywide consultations to understand In-
dustry challenges associated with apprenticeship. The
aim was to push for a business-friendly apprenticeship
regime, while ensuring inclusion of service sectors be-
yond manufacturing. The reforms were propelled by
the newly established Ministry of Skills & Entrepreneur-
ship Development, under the leadership of Union Min-
ister, Shri Rajiv Pratap Rudy. This finally paved way for
amendments and the revised Apprenticeship Act was
passed by both houses in December 2014.
The National Policy of Skill Development and Entrepre-
neurship 2015, launched by the Hon’ble Prime Minister
in July, 2015, also focuses on apprenticeship as one of
the key programs for creating skilled manpower in In-
dia.
Advantages of Industry partici-
pation in the Apprenticeship
Program
• To provide youth hands-on experience, thereby
improving their employability.
• Apprenticeship Training Programme provides
highly trained professionals who ensure high lev-
el of quality production.
• Improved Industrial productivity.
• Employers can have a training program relevant
to their requirement.
• No contribution to EPF, ESI etc. for apprentice.
• Reduction in recruitment cost due to availability
of pool of trained apprentices.
• Government contributes 50% of apprentices’ sti-
pend.
• Industry can engage Third Party Agency (TPA) for
execution

17
FOCUS OF THE MONTH
MAY 2017
However, despite sustained efforts, a large number of
training facilities available in the Industry still stand unu-
tilized, thereby, depriving unemployed youth to availing
the benefits of Apprenticeship Training.
One of the key reasons behind its lack of penetration is
awareness. The understanding of the very concept of
apprentice is extremely low. And those aware usually
feel paralysed on the implementation side, once again
due to lack of information and access.
Another peril is the unwillingness of the Industry to go
an extra mile and bear the cost of formal trainers to uti-
lize their training facilities to benefit the apprentices.
This, however, has been addressed by the “National Ap-
prenticeship Promotion Scheme” launched in January
2017. The main objective of the scheme is to promote
apprenticeship training and to increase the engage-
ment of apprentices from present 2.3 lakh to 50 lakh
cumulatively by 2020.
A major contributor to the success of the Apprentice-
ship Act are the State Governments. While Centre is
pushing for aggressive reforms, there is a need for the
States to push the agenda with a similar sense of ur-
gency.
Skilling India is extremely important to ensure Industri-
al productivity and global competitiveness. Its success
calls for collective action, sustained efforts and a great-
er push to the Industry for adoption. Once again CII is
working with the Ministry to further the country’s Skills
Sector portfolio and maximise Industry participation.

18
FOCUS OF THE MONTH
ECONOMY MATTERS
Skilling to Generate Aspirational Jobs for India’s Youth
T
he initiative, Skilling India, is comparable to Hob-
bit’s ring, there is a clamor for it among its stake-
holders!
Demand from this national initiative has been increas-
ing with every passing quarter as the need for quali-
tative jobs emerges pan-India. So in our fervor to be-
come the fastest growing economy (among developed
economies), long-term growth can only be sustained if
we provide access to a large pool of skilled workforce.
A study conducted by the National Skill Development
Cooperation (NSDC) over a period of five years throws
light on India’s net requirement of 109.73 million skilled
manpower by 2022 across twenty four key sectors. In
short, we can conclude, India’s issues are not relating
to job creation, but with the creation of an ample pool
of skilled workers who can keep pace with the changing
demands of the industry.
With India only having a net enrolment of 5.5 million
students per year for vocational courses, it is abundant-
ly clear that Skilling has the arduous task for converting
India’s demographic dividend into its biggest opportu-
nity. The lesser emphasis given to vocational training
results in a large number of people being engaged in
low paying jobs, combination of factors such as these
pose a danger to India’s national GDP. So it is imperative
for stakeholders across both the private and public sec-
tor to jointly scale up of the existing skilling programs.
National bodies need to ensure standardization of
courses to give high practical content rather than out-
dated curriculum which is common in many occasions.
Benchmarking can be done with other countries and
good models replicated with pride (e.g.: Dual education
system in Germany). Concerted efforts such as these
should help convert our young talent into assets.
Investing in skilling not for today but for to-
morrow
As one of the economies with the largest youth popula-
tion, it is necessary for us to generate jobs that match
the aspirations of this new brigade. However, to do
that, stakeholders would need to invest in the upgrade
of trainers who can impart the right values and lessons.
The industry at large, perceives skilling as a costly exer-
cise yielding less return, but this thought process needs
to change. We need to look at this issue holistically and
see the overall benefit our society can move ahead
with. Social organizations, such as Bosch, can only grow
when the society in which it operates progresses, and
for that it is necessary we don’t think short-term but
look at the long-term sustainability aspect of it.
A nation in pursuit of inclusive growth
A nation without bias, borders and prejudices, is such a
society conceivable? True progress takes place when an
equitable society is nurtured. Inclusive growth will re-
quire stakeholders to think beyond their respective sec-
tors in order to create a sizeable impact which is visible
across all sections of the society. Only our determina-
tion to resolve these inherent development issues can
put us on the path of collective growth.

19
FOCUS OF THE MONTH
MAY 2017
Coming from the private sector, I believe that by work-
ing cohesively these issues can be addressed. For one,
corporates need to actively participate in industry and
government-led skill development programs such as
the ones driven by the Confederation of Indian Indus-
try (CII). Instead of starting from the scratch, we could
work towards developing and evolving the existing
skilling infrastructure to meet the dynamic demands
of a Volatility, Uncertainty, Complexity and Ambiguity
(VUCA) world.
Since the framing of the Skilling India program, initia-
tives concerning re-skilling or up-skilling have picked
pace. The private sector’s responsibility towards qual-
ity skill development must move beyond fund alloca-
tion. As experts across various domains, we need to
pave the way for what will be seen as re-visioning of
India’s resource mapping.
Unlocking India’s latent potential through
BRIDGE
As for Bosch India, we are home to the nationally re-
nowned Bosch Vocational Center (BVC), which has been
imparting lessons over 55 years. Having gained exper-
tise in the manufacturing sector over so many decades,
the Group decided to extend its domain knowledge to
support needs beyond its own business requirement.
To act on this requirement, the Group founded Bosch’s
Response to India’s Development and Growth through
Employability Enhancement (BRIDGE) program in 2013.
BRIDGE focuses on school dropout youths to ensure
their job readiness for India’s growing services sec-
tor. The program provides on-the-job training and 100
percent placement assistance. So far, over 7,500 youth
have been trained and placed across India in more than
125 BRIDGE centers operating in either Government
I.T.I.s or Private Higher Secondary Schools / Pre-Univer-
sity Colleges.
The intent of this program is to reshape the lives of this
section of society, which often overlooked, through ed-
ucation. BRIDGE aims to unlock latent talent to provide
India with a pool of high-skilled manpower.

21
DOMESTIC TRENDS
Rebasing of IIP and WPI Series from 2004-05 to
2011-12
MAY 2017
New IIP Series (Base Year: 2011-12)
- The revised series uses the National Industrial Clas-
sification (NIC) 2008 for the purpose of classifica-
tion of industrial production instead of NIC-2004
used in the old series.
- The selection of items in the new series has been
done at the 3-digit level of NIC for better represen-
tation as compared to selection at 2-digit level done
in 2004-05 series.
- The number of source agencies reporting data for
compilation of IIP in the new series is 14 as com-
pared to 15 in the old base of 2004-05. This is on ac-
count of the fact that data on ‘Iodised Salt’ in the
new series will be provided by the Department of
Industrial Policy and Promotion (DIPP) as O/o Salt
Commissioner is not in a position to supply salt pro-
duction data after abolition of Salt Cess Act, 1953 in
the Finance Bill 2016.
- In the mining sector, the coverage has undergone
a change on account of the MCDR Amendment
Rules, 2016 resulting in 27 non-metallic minerals be-
ing designated as minor minerals and which are no
longer monitored by the Indian Bureau of Mines.
- Due to the increasing significance of electricity gen-
eration from renewable resources, it has been de-
cided to include the same in the electricity genera-
tion figures for compilation of IIP in the new series.
- At the broad level, the new series has a total of 407
items, with manufacturing sector now having 405
item groups as opposed to 397 in the old series.
The weight of electricity sector has been decreased
while that of the manufacturing sector has been
increased in the new series. The sectoral composi-
tion of IIP in the new series is as follows:
Anew series of the Index of Industrial Production (IIP) and Wholesale Price Inflation (WPI) with a base year 2011-
12 has been launched by the government with the aim of mapping economic activities more accurately. Previ-
ously, the IIP and WPI was calculated on base year of 2004-05. The rebasing of the base year is expected to have
implications for both real GDP growth and inflation. Following are the key highlights of the new IIP and WPI series:

22
DOMESTIC TRENDS
ECONOMY MATTERS
ture of the economy in 2011-12.
- The number of items has been increased from 676
in the old series to 697 in the new series. In all, 199
new items have been added in the new base year-
and 146 old items have been dropped.
- The new series is more representative with increase
in the number of quotations from 5482 to 8331,
which represents an increase of 2849 quotations
(52 per cent).
- In the new series of WPI, prices used for compilation
do not include indirect taxes in order to remove the
impact of fiscal policy. This is in consonance with
international practices and will make the new WPI
conceptually closer to ‘Producer Price Index’.
- In general, for all sectors, annual growth rates of IIP
are higher in the new series as compared to the old.
New WPI Series (Base Year: 2011-12)
- The base year of wholesale price index (WPI) has
been revised from 2004-05 to 2011-12 by the Office
of Economic Advisor (OEA), Department of Indus-
trial Policy and Promotion, Ministry of Commerce
and Industry. The purpose is to ensure greater
alignment of the new index with other macroeco-
nomic indicators like the Gross Domestic Product
(GDP) and Index of Industrial Production (IIP).
- The updated item basket and weighting structure
of WPI under the new base conforms to the struc-
- Under the use-based classification of goods, data
for capital goods in the new series will now be
captured in terms of ‘work in progress‘ to bet-
ter represent the growth of capital goods and to
avoid reporting of production figures in bulk after
the completion of production which was leading
to increased volatility. Hence, the new series is ex-
pected to reflect growth of capital goods in a more
stable manner.
- Based on the recommendations of the Working
Group, the use-based classification (UBC) has been
re-framed by replacing “Basic Goods” with “Pri-
mary Goods” and a new category by the name of
“Infrastructure/ Construction goods” with weight
of 12.34 has been introduced. The below table gives
the weighting pattern of the use-based classifica-
tion.

23
DOMESTIC TRENDS
MAY 2017
indices were compiled using the Arithmetic Mean
(AM).
- The weights of major commodity groups have also
changed (see below table). Notably the weight of
primary articles has increased by 2.6 percentage
points while that of fuel and power has fallen by
1.76 percentage points.
at 1.7 per cent under the 2011-12 base year as com-
pared to 3.7 per cent under the 2004-05 base WPI
series.
cent posted in the fiscal before. Farm growth picked
up in line with good kharif harvest thanks to bountiful
monsoon received this year. The prognosis of a normal
monsoon this year by the Indian Meteorological Depart-
ment (IMD) also raises hope of a healthy agriculture
growth in the current fiscal.
Some sub-sectors of industry and services
show signs of moderation
Industrial growth moderated sharply to 3.1 per cent in
the final quarter of FY17 from 6.2 per cent posted in the
quarter before, thus taking FY17 growth to 5.6 per cent
from 8.8 per cent posted in FY16. Within industry, the
sub-sectors of manufacturing and construction drove
down its overall growth rate. To be sure, construction
sector has been the worst hit by the note ban – it regis-
tered a degrowth of 3.7 per cent in the 4QFY17, taking
the full year FY17 growth to a paltry 1.7 per cent as com-
pared to 5.0 per cent posted in FY16.
The services sector posted 7.2 per cent growth rate in
4QFY17 as compared to 6.9 per cent growth posted in
3QFY17. With this, the full year FY17 services growth
- A new “WPI Food Index” has been compiled in the
new series in order to capture the rate of inflation
in food items.
- The item level aggregates for new WPI have been
compiled using Geometric Mean (GM) following
the international best practice. This method is be-
ing currently used for compilation of consumer
price index (CPI). In the 2004-05 series, item level
- As a result of these revisions, inflation as measured
by the new base WPI Index, is lower for all the years
during FY13 to FY17. For FY17, WPI inflation stands
The real GDP growth for the fourth quarter of the cur-
rent fiscal (4QFY17) slowed down to 6.1 per cent from
7.0 per cent posted in the previous quarter, taking the
full year FY17 growth estimate to 7.1 per cent as com-
pared to 8.0 per cent growth in the fiscal year before. At
the same time, Gross Value Added (GVA) at basic prices
stood at 5.6 per cent in 4QFY17 as compared to 6.7 per
cent in the 3QFY17. The continued slowdown in growth
beyond the third quarter as well indicates that there is
still considerable slack in the economy. Moreover, the
GDP print of the third quarter which was released right
after demonetisation showed only muted impact from
the note ban exercise. The complete spillover from it
seems to have played out in the fourth quarter GDP
data.
Agriculture sector posts healthy growth in
FY17
From the supply-side, agriculture sector was one of the
key drivers of growth, posting 5.2 per cent growth in
the fourth quarter of FY17, thus taking the full year FY17
growth estimate to 4.9 per cent from an anemic 0.7 per
GDP Growth Slows Down in FY17

24
DOMESTIC TRENDS
ECONOMY MATTERS
stood at a weaker 7.7 per cent as compared to 9.7 per
cent posted in FY16. The subdued performance of ser-
vices could be attributed to the moderation in growth
of its sub-sectors namely, trade, hotels, transport &
communication and financing, real estate & profession-
From demand-side, government spending is
holding the baton for the GDP
At market prices, growth in private consumption ex-
penditure stood at 7.3 per cent in 4QFY17 from 11.1 per
cent posted in the previous quarter. Growth in this
crucial component has continued to remain relatively
healthy throughout whole of FY17, taking the full year
growth to 8.7 per cent from 6.1 per cent posted in
FY16. Government spending expenditure was the star
performer from the demand-side, posting impressive
double-digits growth in FY17. Clearly, government fiscal
spending pulled up the GDP in FY17, but how far its sup-
al services which were severely affected by the demon-
etisation exercise of the government. Growth in public
administration, defence & other services seems to have
bucked the trend of moderation in growth as robust
government spending supported its data print.
port will continue to cushion growth will remain to be
seen as the central government is becoming stretched
on its fiscal deficit targets. The gross fixed capital for-
mation continues to remain weak and printed -2.1 per
cent in Q4FY17 against a downwardly revised 1.7 per
cent in Q3FY17. The sharp contraction in the investment
component is however in line with the on ground ex-
perience indicating private capex and capacity utiliza-
tion. In contrast, the recovery in exports and imports
growth, which commenced from the 3QFY17 continued
in the fourth quarter as well, thus pushing up full year
FY17 growth to positive territory from a contraction
posted in FY16

25
DOMESTIC TRENDS
MAY 2017
Outlook
The real GDP growth in FY17 stood at 7.1 per cent, which is in line with the advance estimates. This is slower than
the growth rate posted in FY16, reflecting subdued private investment demand. However, economic activity is
picking up on the ground, capacity utilization is improving and we expect investment to pick up in 2018 on the
back of a slew of institutional reforms like GST for indirect taxation, the Insolvency and Bankruptcy Board of India
for corporate exits amongst others.
As per the new series with the base year 2011-12, indus-
trial output growth increased by 2.7 per cent in March
2017, better than previous month’s reading of 1.9 per
cent but significantly lower than March 2016 reading of
5.5 per cent. Industrial output averaged 5.0 per cent in
Both mining and electricity sectors record
healthy growth in March 2017
Manufacturing sector growth remained more-or-less
stable in March 2017, as per the new series. However,
for full year FY17, the sector’s growth stood at 4.9 per
cent as compared to 3.0 per cent in FY16. In contrast,
mining grew at a robust rate of 9.7 per cent in the re-
porting month as compared to 4.6 per cent in the pre-
vious month on account of an increase in commodity
prices. The electricity sector has also posted a healthy
growth rate in the last month of FY17.
Capital goods output once again declines
As per the use-based classification, capital goods con-
FY17 as compared to 3.4 per cent in FY16.Even though
there is a significant difference in terms of coverage
and methodological changes between the old and new
series, the latter indicates better growth prospects as
compared to the former.
tinued to witness contraction for the fourth consecu-
tive month as it recorded a de-growth of 1.0 per cent
in March 2017 as compared to a decline of 3.1 per cent
seen in the previous month. For the full year, FY17, capi-
tal goods grew by 1.9 per cent as compared to 2.1 per
cent in FY16. In the new series, a new category called
as “infrastructure/construction goods” has been intro-
duced which aims to address the linkage of production
with infrastructure and construction sector. Growth in
infrastructure sector moved to the positive territory in
March 2017 and for FY17 as a whole, the sector recorded
3.8 per cent growth as compared to 2.8 per cent in the
fiscal before.
New Series of IIP Reflects Higher Growth Rates

26
DOMESTIC TRENDS
ECONOMY MATTERS
Consumer non-durables post its steepest
contraction in 10 months
Consumer durables continued to languish in the nega-
tive territory for the fourth consecutive month in March
2017. However, cumulatively; the sector has recorded a
Core sector output rebased to 2011-12, in line
with IIP base revision
The base year of the index of eight core industries has
been revised from the year 2004-05 to 2011-12 from April
2017, in line with the new base year of IIP. The revised
eight core industries have a combined weight of 40.27
higher growth of 6.2 per cent in FY17 as compared to 4.2
per cent in FY16. Growth of consumer non-durables also
moderated to 7.6 per cent in March 2017 as compared
to 12.4 per cent in the month before. However, for FY17
as a whole, it recorded robust growth of 9.0 per cent as
compared to an anemic 2.7 growth in the fiscal before.
per cent in the IIP. As per the rebased data, core sec-
tor output moderated to 2.5 per cent in April 2017 as
compared to 5.3 per cent in the previous month. The
slowdown in growth during the month was led by con-
traction in output of sectors such as coal, crude oil and
cement.

27
DOMESTIC TRENDS
MAY 2017
Outlook
CII welcomes the release of the IIP data on the new base of 2011-12, that clearly demonstrates a rebound in indus-
trial output to an impressive 5 per cent during FY17, as against 3.4 per cent in the previous year. These signs of an
upturn in IIP are encouraging, as it is indicative of stronger manufacturing activity based on consumption demand
than was getting reflected in the data captured in the earlier base of 2004-05. What is significant is that from now
on the IIP data would have a more realistic coverage and be reflective of the market realities which would be useful
for tracking economic activity. The switch to a new base is a culmination of a sustained effort to align the data with
the new GDP series and CII commends the extensive work done by the CSO in this regard.
Consumer price index (CPI) based inflation moderated
to 2.99 per cent in April 2017- its lowest reading in the
current series with base year 2011-12, from 3.89 per cent
in the previous month, mainly driven by a dip in food in-
flation to 1.2 per cent from prior reading of 2.5 per cent.
Fruits, cereals, meat and fish, sugar, spices etc. wit-
Mirroring the moderation in CPI inflation, the wholesale
price index (WPI) based inflation, which has been now
re-based to 2011-12 from 2004-05, also slowed down to
3.9 per cent in April 2017 from 5.3 per cent in the pre-
vious month. The moderation came on the back of a
broad-based deceleration seen across all its major sub-
sectors.
Inflation in WPI food category in the new
nessed further softness in prices during the first month
of the financial year. Meanwhile, vegetables and pulses
prices continued to de-grow for the eighth and fifth
month respectively. CPI fuel & light inflation jumped to
6.1 per cent in April 2017 from 5.5 per cent in the previ-
ous month.
base year cools down
The data print for WPI inflation in the food category for
base (2011-12) indicates that food prices decelerated to
2.9 per cent in April 2017 from 5.5 per cent in the pre-
vious month. Additionally, it is pertinent to note that
with the adoption of the new base year for WPI, the di-
vergence between CPI and WPI inflation has narrowed
from the start of calendar year 2017.
Inflation Trajectory Moderates in April 2017

28
DOMESTIC TRENDS
ECONOMY MATTERS
as prices of the administered component of the fuel
group cooled down. Inflation in both petrol and diesel
moderated to 25.6 per cent (from 43.4 per cent in the
previous month) and 38.9 per cent (from 54.6 per cent
in the previous month) respectively in the first month
of the current financial year on lower global crude oil
prices.
Manufacturing inflation decelerates on low-
er food prices
Inflation in the manufactured group decelerated mar-
ginally to2.7 per cent in April 2017 from 3.0 per cent in
the previous month as per the data with the rebased
base year. Manufacturing food inflation slid down fur-
ther to 6.1 per cent from 8.8 per cent in the month be-
fore.
Primary articles inflation slows down sharp-
ly on lower food and non-food prices
Amongst the WPI sub-categories, inflation in primary
articles (re-based to new base year 2011-12) moderated
sharply to 1.8 per cent in April 2017 from 4.0 per cent
in March 2017 as both its food and non-food compo-
nents decelerated. However, its mineral sub-category,
witnessed a sharp acceleration to 8.1 per cent from a
contraction in the previous month.
Fuel inflation moderates on lower adminis-
tered component of fuel
As per the new base year, inflation in the fuel group of
WPI also slowed down to 18.5 per cent in April 2017 as
compared to 23.7 per cent posted in the previous month

29
DOMESTIC TRENDS
MAY 2017
The secular rise in India’s exports over the last seven
months, culminating in double-digit growth in February
and an even higher growth in March, underscores the
fact that India’s export recovery is gathering momen-
tum and hopefully the revival of India’s external sec-
tor is here to stay. It is expected that our stellar export
performance in the last few months of 2016-17 would
be replicated in this fiscal as well which would lift our
economy to a new orbit of growth in the current year.
The trade data for FY17 shows that our merchandise ex-
ports have perked up to achieve a resounding 27.6 per
cent growth in March 2017 to touch US$29.3 billion as
against 17.5 per cent growth in the previous month. Ex-
port growth has turned positive since September 2016
and the rise has peaked in March 2017. The good news
is that the surge in exports growth has happened af-
ter nearly two years of declines. Cumulatively, exports
have gone up by 4.7 per cent to US$274.65 billion during
April-March FY2017 as against a decline of 15.9 per cent
in the same period in FY2016.
What is noteworthy is that the rebound in exports dur-
ing March 2017 has been broad-based and extends to
almost all major exportable commodities. For instance,
export of gems & jewellery rose by above 12 per cent;
drugs & pharmaceuticals by 5.5 per cent; organic and in-
organic chemicals by 15.44 per cent electronic goods by
5.0 per cent and so on. Most impressive have been the
gains in the export of engineering goods which have
surged by over 46 per cent, petroleum products by 69.1
per cent; iron ore by 427.4 per cent.
Similarly, there has been a rise in exports of labour in-
tensive textiles and garments sectors such as ready-
made garments by 20.3 per cent; man made yarn/made
ups by 13.6 per cent; cotton yarn/fabrics/made-ups etc.
by 5.3 per cent which would give a boost to employ-
ment. Many agricultural commodities such as oil meal,
spices, rice, cashew, tea etc. have achieved a quantum
jump in exports in March 2017. The commodity-wise ex-
ports and imports performance in the last decade has
been analysed in detail in the next article.
It is not only merchandise exports which have shown
a turnaround in growth. Even the services sector has
lately reported a jump in its overseas transactions. For
example, according to data released by the Reserve
Bank of India, India’s services exports increased by 10
per cent to US$14.18 billion in March 2017 as compared
to a decline of over 8 per cent in the same month last
year. India’s services exports rose by a moderate 3.4
per cent to US$160.68 billion in April-March 2016-2017 as
against a 2.4 per cent decline in services exports in the
year ago period.
Under the circumstances, the prospects of our exports
turning in a strong growth performance in 2017 seem
bright. It is apparent that despite uncertain external de-
mand conditions, India’s exports have shown a better
performance in 2016 as compared to other countries
(Table 1). According to World Trade Organisation (WTO)
statistics, India’s merchandise exports dropped by 1.3
per cent in 2016 while global trade declined by 3.3 per
cent. This has raised hopes that it would be possible for
India to improve its ranking from the present 20th posi-
tion among 30 leading exporters in terms of merchan-
dise exports. Already, as per latest data, exports for
April 2017, the first month of the current financial year,
have gone up by a stellar 19.4 per cent, which is good
augury for the year ahead.
On services too, the WTO Statistics indicates that our
performance in 2016 is much better than our competi-
tors. India’s export of commercial services has gone up
by 3.5 per cent at a time when world export of services
increased by a meagre 0.1 per cent. In fact, India ranks a
respectable 8th
among 30 leading exporters of commer-
cial services, ahead of major ASEAN and BRIC countries
excepting China. This is shown in Table 1.
Would the India Export Recovery Continue in 2017?
Outlook
The release of new WPI data on the 2011-12 base, makes it more comparable with the CPI which also has 2011-12 as
the base year. Notably, both CPI and WPI have declined in April 2017, indicating a benign inflation scenario. With
the outlook of international crude prices having eased recently, further moderation in inflation indices cannot be
ruled out. However, upside risks still persist in the form of 7th
Pay Commission payouts and lower lending rates. On
balance, we expect CPI inflation to remain with RBI’s prescribed range for FY18.

30
DOMESTIC TRENDS
ECONOMY MATTERS
India’s exports are also set to show a rebound in growth
on account of the projected recovery in world trade
in 2017. According to the forecast of the World Trade
Organisation (WTO), the volume of global trade is esti-
mated to go up from 1.3 per cent in 2016 to 2.4 per cent
in 2017 with a range expected to vary from 1.8 per cent
to 3.6 per cent. A rise in global trade is expected to lift
all boats with positive implications for India during the
current year.
In such a scenario, it is possible to raise its share in
global exports. The aim should be to raise our share in
world trade from 1.7 per cent at present to at least 2 per
cent in the current year. In this context, it is suggested
Exports see a comfortable growth in FY17;
trade deficit at its lowest in the decade
The dollar value of exports increased in FY17, mirror-
ing a pick-up in the global economic activity as con-
firmed by the IMF (World Economic Outlook, Jan-17)
and the World Bank (Global Economic Prospects, Jan-
17). Exports grew by 4.9 per cent in FY17, as compared
to a contraction of 15.5 per cent in FY16, and stood at
US$275 billion. Imports witnessed a near flat growth in
FY17 and stood at US$383 billion. Export of ores & min-
that the forthcoming mid-term review of the Foreign
Trade Policy should encourage further diversification of
the product and services basket towards greater value
added and high-tech areas, which have a meagre share
in our global trade basket.
Similarly, the launch of the new and restructured cen-
tral scheme namely, Trade Infrastructure for Export
Scheme (TIES), with a focus on modernizing export in-
frastructure in states, announced in the Union Budget,
is awaited for addressing the issue of high transactions
cost of our exports. Besides, the reforms agenda, aimed
at providing a level playing field to our exporters in the
overseas market, also needs urgent consideration.
erals saw the highest growth in dollar terms in FY17; and
the textiles sector topped the chart for imports. The
top exporting sector over the last decade – engineering
goods – witnessed double-digit growth in export in dol-
lar terms on the back of strong external demand. The
top importing sector over the last decade – petroleum
– saw a decline in the dollar value of imports driven by
falling oil prices. Trade deficit has continued to soften
for around half a decade now led by curtailed dollar
value of petroleum imports, and dropped to as low as
US$108 billion in FY17- the lowest in the last decade.
EXIM Analysis: Commodities-wise

32
DOMESTIC TRENDS
ECONOMY MATTERS
Lack of diversification of Indian export bas-
ket remains a fundamental issue; however,
FY2017 was “lucky”
The data for the last three years indicates that the com-
position of exports, at the sectoral level, have not seen
Up till FY16, this limited diversification of India’s ex-
port basket had led to a stagnant trend in exports, as
a dismal performance in the top 10 sectors affected the
dollar value of our aggregate exports. However, FY17
was a “lucky” year, as it displayed a much better perfor-
mance. Engineering goods made a solid recovery as the
value of exports in dollar terms grew by 10.2 per cent in
FY17, as compared to a contraction of 16.2 per cent in
FY16. Gems & jewellery followed suit, growing by 10.4
a noticeable change. The top three exporting sectors –
engineering goods, gems & jewellery and textiles – con-
tributed to over half the dollar value of aggregate ex-
ports, while next three – chemicals, petroleum and agri
& allied – added the next quarter to the tally. This lack
of diversification of the exports basket remains a funda-
mental issue plaguing the Indian export performance.
per cent in FY17, as compared to contraction of 4.5 per
cent in the previous year. As a matter of fact, all the top
10 exporting sectors (with the exception of textiles),
posted better results in FY17 than the previous fiscal.
It is interesting to note that chemicals are the only
sector with positive performance in last three fiscals,
reflecting its insulation to global economic fluctua-
tions. It would do India good to increase the contribu-
tion of this sector in the export basket, going forward.
Sector-wise Exports Summary

33
DOMESTIC TRENDS
MAY 2017
Products with a meagre share in our export
basket emerge as winners
Sectors with smaller contribution in our overall exports
basket have displayed a much better performance in
dollar terms, than sectors with larger contribution. For
instance, the ores & minerals sector, with a 2 per cent
share in our aggregate exports, grew by 36.0 per cent
in FY17 while export of marine products, which consti-
tutes around 2.5 per cent of our total exports, grew by
23.6 per cent in FY17. Handcrafts (excl. carpets) have
been displaying double-digit export growth for the last
two years now. Apart from these three items, the dol-
lar value of exports of sectors such as gems & jewellery
and engineering goods which have a large share in total
exports basket also grew in double-digits in FY17.

34
DOMESTIC TRENDS
ECONOMY MATTERS
Oil prices continues to contain imports
The import basket of the top 10 commodities has not
seen major inclusions or exclusions in the last three
years. The top three importing sectors – petroleum,
gems & jewellery and electronic goods – contributed
to a little less than half the total dollar value of aggre-
gate imports, while the next three sectors – machinery,
chemicals and base metals – added the next quarter to
the tally. Since imports are need-based, these propor-
tions are likely to remain the same and the variation in
our imports would depend on the changes in commod-
ity prices in the world market.
The below graphs show that while the petroleum sec-
tor has seen a large decline in the proportion of total
imports over the period FY15-FY17, the change has been
not so dramatic for other sectors. This shows that the
decline in the dollar value of our aggregate imports is
happening in tandem with the decline in dollar value of
imports of petroleum. In other words, petroleum has
been a near sole contributor to the decline in imports
and trade deficit in fiscal years FY16 and FY17.
Sector-wise Imports Summary

35
DOMESTIC TRENDS
MAY 2017
The below table shows that gems & jewellery saw a
contraction of only 3.9 per cent in the dollar value of
their imports in FY17, as compared to a contraction of
9.9 per cent in FY16, possibly due to increased demand
as the public scrambled to hold their savings in non-cash
assets in the wake of demonetization. Electronic goods,
machinery and chemicals also saw reduced domestic
demand which impacted imports.
As is seen from the graphs below, the textiles sector
saw its dollar value of imports grow by 16.1 per cent in
FY17. However since the sector constituted only 1 per
cent of the total import basket, its robust growth did
not have a significant effect in providing a fillip to over-
all import growth. Apart from that, sectors such as ag-
riculture & allied, electronic goods, petroleum, ores &
minerals and plastic & rubber witnessed lower growth
of their dollar value of imports in the last fiscal as com-
pared to overall imports growth in in the same year.

36
DOMESTIC TRENDS
ECONOMY MATTERS
Up till FY16, our exports suffered due to global slow-
down, while imports were curtailed by falling oil prices.
Hence, the trade deficit continued to soften. In FY17,
domestic economy picked up towards the end, and so
did the oil prices impacted by the OPEC judgment. Go-
ing forth, it is highly important that India boosts its ex-
ports – increase the proportion of high-growth sectors
like ores & minerals and marine products in the overall
exports basket; and increase growth in sectors like tex-
tiles and chemicals, which occupy a major proportion of
the basket, while of course, sustaining the growth rate
in the ‘giants’ – engineering goods and gems & jewel-
lery sectors.

38
POLICY FOCUS
ECONOMY MATTERS
1. GST Rate Structure Decided
In its meeting held on 18th
May, 2017 the GST council has-
finalised the tax rates for 1,211 goods and all services.
The new tax rates will be 5, 12, 18 and 28 per cent and
would apply to both goods and services. The Council
has also broadly approved the rates of GST Compensa-
tion Cess to be levied on certain goods. Following are
the key highlights of the GST rates decided for some of
the major goods & services:
1(A). Rates for Goods
(a). Food products
- Items of daily consumption such as milk, fruits and
vegetables, jaggery, food grains and cereals have
been exempted from tax while others such as
sugar, tea, coffee, edible oil, sweets and newsprint
have been placed in the lowest slab of 5 per cent.
- Biscuits will be taxed at a flat rate of 18 per cent.
(b). Fast Moving Capital Goods (FMCG) sector
- FMCG products such as hair oil, toothpaste and
soap would be taxed at 18 per cent as compared to
the existing tax rate of approximately 28 per cent.
(c). Pharmaceutical products
- Lifesaving drugs/medicine would be taxed at 5 per
cent under GST as compared to the existing rate of
approximately 10 per cent.
(d). Automobile sector
- A uniform GST rate of 28 per cent is proposed to be
levied on motor vehicles (except refrigerated mo-
tor vehicles) and its parts.
- Further, a GST compensation cess of 1 per cent, 3
per cent and 15 per cent would be levied on small
petrol cars, small diesel cars and other motor vehi-
cles respectively.
- Motorcycles of all types will attract 28 per cent duty
(compensation cess of 3 per cent to apply on mo-
torcycle above 350cc).
The important policy announcements made by the Government in the month of May-June 2017 are covered in this
month’s Policy Focus. Our endeavour through this section is to keep our readers abreast of the latest happenings on the
policy front so that they can take an informed decision accordingly.

39
POLICY FOCUS
MAY 2017
(e). Other
- Coal, the key raw material used in the production of
power, has been placed under the 5 per cent slab.
- Capital goods and industrial intermediate items will
be under the 18 per cent slab.
- Electronic appliances such as air conditioners, re-
frigerators etc. would be taxed at 28 per cent.
- In the textiles category, silk and jute fibre have
been exempted, while cotton and natural fibre and
all kinds of yarns will be levied a 5 per cent GST.
Man-made fibre and yarn will, however, attract a 18
per cent tax rate.
- Footwear costing up to Rs 500 will be levied a 5 per
cent GST and for those above this would be taxed
at 18 per cent.
- Moreover, Council has proposed to tax gold and
gold jewellery at 3 per cent. Also, input tax credit
can be claimed for gold jewellery manufacture.
- Council has provided outright exemption to im-
ports under various export promotion schemes,
including special economic zones, from Integrated
GST. However, no exemption has been provided for
a number of telecom and IT products that do not
face countervailing duty now.
1(B). Rates for Services
- Travelling in metro, local trains, Non-AC train would
be tax exempt.
- Religious travel will be exempt from tax.
- Education and healthcare services would continue
to enjoy tax exemption under the GST regime.
- Restaurant services to be taxed at
• 5 per cent where turnover is less than Rs 50
Lakhs in a year;
• 12 per cent for non-air conditioned (AC) restau-
rants; and
• 18 per cent in case of restaurants having the fa-
cility of AC or/and serve liquor – the erstwhile
rule of AC and liquor license (as was introduced
vide the negative list regime) reinstated.
- Air travel by economy class to attract 5 per cent tax;
and business class air travel to attract a tax of 12 per
cent.
- Services by cab aggregators to attract levy of 5 per
cent.
- Transportation service to fall under the 5 per cent
slab.
- Works contract service to attract tax rate of 12 per
cent.
- Telecom and financial services to attract levy of 18
per cent.
- Gambling and cinema services to fall under the 28
per cent slab, as entertainment tax is subsumed un-
der GST.
2. FRBM panel recommends 3% fiscal
deficit target for FY18-FY20
A Fiscal Responsibility and Budget Management
(FRBM) Review Committee was constituted on 17th
May
2016 under the chairmanship of former Revenue Secre-
tary NK Singh. The Committee submitted its four-vol-
ume Report entitled “Responsible Growth: A Debt and
Fiscal Framework for 21st
Century India” on 23rd
Janu-
ary 2017. The Report recommended the enactment of
a new Debt Management and Fiscal Responsibility Bill
(DMFRB) supplemented by Debt Management and Fis-
cal Responsibility Rules to replace the Central Govern-
ment’s FRBM Act, 2003, and FRBM Rules, 2004, includ-
ing their subsequent amendments. The report of the
Committee was recently made public. The Committee
members included Reserve Bank of India Governor Urjit
Patel, Chief Economic Adviser Arvind Subramanian, Su-
mit Bose and Rathin Roy, Director, National Institute of
Public Finance and Policy (NIPFP). Following are the key
recommendations of the Committee:
(i) The Committee has favoured a debt-to-GDP ratio

ECONOMY MATTERS 40
POLICY FOCUS
of 38.74 per cent for the central government and
20 per cent for the state governments. Further, fis-
cal deficit is proposed to be brought down to of 2.5
per cent of GDP (gross domestic product) for the
centre by financial year 2022-23.
(ii) Within this framework, the Committee has recom-
mended that fiscal deficit be adopted as the key
operational target, consistent with achieving the
medium-term debt ceiling at 3 per cent of GDP for
three years, between 2017-18 and 2019-20.
(iii) Revenue deficit-to-GDP ratio has been envisaged
to decline steadily by 0.25 percentage points each
year from 2.3 per cent in 2016-17 to 0.8 per cent in
2022-23.
However,the Committee has specified a deviation in fis-
cal deficit target of not more than 0.5 percentage points
to deal with unforeseen events such as war, calamities
of national proportion, collapse of agricultural activity
and a sharp decline in real output growthof at least 3
percentage points.
3. Government clears new coal link-
age policy for power sector
The Cabinet Committee on Economic Affairs (CCEA),
chaired by the Prime Minister Shri Narendra Modi, has
approved the signing of a new Fuel Supply Agreement
(FSA) with the Letter of Assurance (LoA) holders.
Shakti (Scheme to Harness and Allocate Koyla Coal) is
a step in the right direction as it will ease out the stress
arising on account of non-availability of linkages to
power sector projects and also reduce dependence on
imported coal.
With an adequate coal availability situation in the coun-
try, the present policy proposes fading out the old link-
age allocation policy and beginning of a new linkage
allocation policy based on transparent and objective cri-
teria for the optimal utilisation of the natural resources.
It is expected to revive 30,000 MW of power plants in
the country, which are awaiting fuel supply.
As per the new policy, thermal power plants having LoA
will be eligible to sign FSA after ensuring that the plants
are commissioned, respective milestones met, all speci-
fied conditions of the LoA fulfilled within specified time-
frame and where nothing adverse is detected against
the LoA holders and the thermal power plants (TPPs)
are commissioned before March 31, 2022. TPPs, part
of 78,000 MW, which could not be commissioned by
March 31, 2015, will now be eligible for coal withdrawal
if the plants are commissioned before March 31, 2022.
Coal linkages will be granted on auction basis for Inde-
pendent Power producers (IPPs) with PPA based on
domestic coal. The IPPs participating in auction will bid
for discount on the existing tariff. The discount on tariff
would be adjusted from the gross amount of bill at the
time of billing.
Actual coal supplies to all TPPs will be to the extent of
long term PPAs or medium-term PPAs to be concluded
in future (the PPAs in discussion and to be finalized in
the future) and coal linkages will be granted to central
and state Gencos on recommendations of Power Min-
istry.
Power requirement of the group of States can be ag-
gregated and procurement of power on tariff based
bidding shall be made by a designated agency. Coal link-
ages shall be earmarked for such agency. Further, link-
ages, for full normative quantity, shall be granted for
setting up Ultra Mega Power Projects (UMPP).
4. Cabinet approves signing of BEPS
Convention
The Union Cabinet chaired by the Prime Minister
Shri Narendra Modi has given its approval for the Multi-
lateral Convention to implement the tax treaty related
measures to prevent base erosion and profit shifting
(BEPS). The Convention is an outcome of the OECD /
G20 BEPS project to tackle base erosion and profit shift-
ing through tax planning strategies that exploit gaps
and mismatches in tax rules to artificially shift profits to
low or no-tax locations where there is little or no eco-
nomic activity, resulting in little or no overall corporate
tax being paid.
The final BEPS project identified 15 actions to address
BEPS in a comprehensive manner. Implementation of

41
POLICY FOCUS
MAY 2017
the final BEPS package requires changes to more than
3000 bilateral tax treaties which will be burdensome
and time consuming. In view of the same, the Conven-
tion was conceived as a multilateral instrument which
would swiftly modify all covered bilateral tax treaties
(Covered Tax Agreements, CTA) to implement BEPS
measures. For this purpose, the formation of an ad-hoc
group for the development of such multilateral instru-
ment was endorsed by the G20 Finance Ministers and
the Central Bank Governors in February 2015.
5. Real Estate Act comes into force
from May 1st
, 2017
The Real Estate (Regulation & Development) Act
(RERA) came into force from 1st
May, 2017, with a prom-
ise of protecting the right of consumers and ushering
in transparency in the sector. One of the most promi-
nent feature of RERA is that it makes it mandatory for
a state to establish a State Real Estate Regulator Au-
thority. This regulator will govern both residential and
commercial real estate transactions. However, only 13
States and Union Territories (UTs) have so far notified
the rules. The key provisions of RERA are as follows:
- The appropriate governments are required to make
rules by way of notification for carrying out the
provisions of RERA within six months of the com-
mencement of the act.
- The appropriate governments need to establish a
Real Estate Regulatory Authority (Real Estate Au-
thority) to perform various functions assigned to it
under RERA within one year from the date of RERA
coming into force. The appropriate governments
also need to appoint a chairperson and members of
the Real Estate Authority.
- The promoters or developers of any proposed
real estate projects are required to register their
projects in any planning area with the Real Estate
Authority. The promoters also need to register
their ongoing projects with the Real Estate Author-
ity within three months of the commencement of
RERA.
- The Real Estate Authority is required to make regu-
lations in relation to its functioning and to carry out
the purposes of RERA within three months of its es-
tablishment.
- The Real Estate agents engaged in the facilitation
of sale or purchase of any plot, apartment or build-
ing in a real estate project are required to get them-
selves registered with the Real Estate Authority.
- The promoters or developers of the real estate pro-
jects registered with the Real Estate Authority are
required to create their web page on the website
of the Real Estate Authority, providing information
related to the real estate project for public viewing.
- The Real Estate Authority is required to appoint an
adjudicating officer in consultation with the appro-
priate governments. The adjudicating officer will
be empowered to adjudicate disputes that are re-
ferred to it under RERA.
- The appropriate governments will also be required
to establish the Real Estate Appellate Tribunal (Ap-
pellate Tribunal) within one year from the date of
RERA coming into force. Any person aggrieved by
the order of the Real Estate Authority or the adju-
dicating officer may appeal to the Appellate Tribu-
nal. The appropriate governments also need to ap-
point a chairperson, who will be a sitting or a retired
judge of the High Court, and members of the Appel-
late Tribunal.
6. Union Cabinet approves the decision to
abolish Foreign Investment Promotion
Board (FIPB)
The Union Cabinet chaired by the Prime Minister Shri
Narendra Modi has given its approval to the phasing
out of Foreign Investment Promotion Board (FIPB). The
proposal entails abolishing the FIPB and allowing ad-
ministrative Ministries/Departments to process applica-
tions for FDI requiring government approval.
Henceforth, the work relating to processing of applica-
tions for FDI and approval of the government thereon
under the extant FDI Policy and FEMA, shall now be
handled by the concerned Ministries/Departments in
consultation with the Department of Industrial Policy

ECONOMY MATTERS 42
POLICY FOCUS
7. Government permits DIPP to grant
industrial licences to defence man-
ufacturers
The government has permitted the Department of In-
dustrial Policy and Promotion (DIPP) to process the
applications for grant of licence for manufacture of de-
fence items. Earlier, the home ministry was carrying out
this exercise. Power to grant manufacturing licence in
respect of the category of arms and ammunition and
defence items has been delegated to Secretary, DIPP.
8. RBI keeps interest rates unchanged
in its second bi-monthly monetary
policy
Reserve Bank of India (RBI) maintained status-quo on
interest rates in its meeting held on 7th
June, 2017. Repo
rate currently stands at 6.25 per cent, while reverse
repo rate is at 6.0 per cent and marginal standing facil-
ity (MSF) is at 6.50 per cent. The RBI’s policy announce-
ment was accompanied by a cut in SLR rate by 50 bps
to 20 per cent and changes in capital requirements for
housing loans.
The decision of the monetary policy committee (MPC)
is consistent with a neutral stance of monetary policy
in consonance with the objective of achieving the medi-
um-term target for consumer price index (CPI) inflation
of 4 per cent within a band of +/- 2 per cent, while sup-
porting growth. On the growth front, RBI has revised its
projection of real gross value added (GVA) for 2017-18
down by 10 basis points from April 2017 projection to
7.3 per cent, with risks evenly balanced. On the inflation
front, RBI revised the inflation forecast which is signifi-
cantly lower as compared to its previous estimate. The
first-half average has been reduced to 2.0-3.5 per cent
and second-half is expected to remain within 3.5-4.5
per cent. The risks around the inflation trajectory were
deemed to be evenly balanced but several upside risks
were highlighted.
& Promotion (DIPP), Ministry of Commerce, which will
also issue the Standard Operating Procedure (SOP) for
processing of applications and decision of the govern-
ment under the extant FDI policy.
In addition, foreign investors will find India more attrac-
tive destination and this will result in more inflow of FDI.
The move will provide ease of doing business and will
help in promoting the principle of Maximum Govern-
ance and Minimum Government.
CII’s Reaction
CII strongly welcomes the landmark decision to abol-
ish the Foreign Investment Promotion Board taken by
the Cabinet. The bold step of dismantling of FIPB with
only 11 sectors now needing approvals, along with de-
cisions such as a single window to clear FDI proposals,
reflect the Government’s commitment to reforms and
reassures investors that Ease of Doing Business re-
mains a high priority. The momentous initiative, which
is a follow-up of the measure announced in the Union
Budget, would streamline the process of FDI approvals
and thereby boost FDI flows into the country, adding
to growth and employment.
Already, the government has among the most liberal
FDI regimes in the world which has greatly improved
the investment climate. As a result, for the last three
years, FDI has been on the ascendant and is setting
new records. Today’s reform would take FDI inflows
to greater heights and reinforce the attractiveness of
India as a viable business destination.
Similarly, the forging of Strategic Partnership for De-
fence under the Make in India Initiative, cleared by
the Cabinet today, would give a fillip to indigenisation
of our defence industry and pave the way for greater
transfer of technology from foreign firms to domestic
partners in India. Today’s decisions affirm that India is
open for business from the world, and would contrib-
ute greatly to investments and development of the
country.

43
GLOBAL TRENDS
IMF Raises 2017 Outlook for Global
Economic Growth
MAY 2017
• As per the latest issue of IMF’s bi-annual World Eco-
nomic Outlook (WEO) released in April 2017, world
growth is projected to rise from 3.1 per cent in 2016
to 3.5 per cent in 2017 and 3.6 per cent in 2018. This
increase is likely to be driven by buoyant financial
markets and a long-awaited cyclical recovery in
manufacturing and trade.
• However, as per the IMF, there are also downside
risks to global growth which stem from the follow-
ing potential factors:
- An inward shift in policies including a move to-
wards protectionism by advanced economies,
would lead to reduced trade and cross-border
investment flows thereby resulting in lower
global growth.
- A faster-than-expected pace of interest rate
hikes in the US, could trigger a more rapid
tightening in global financial conditions and a
sharp dollar appreciation, with adverse reper-
cussions on vulnerable economies.
- Financial tightening in emerging market econ-
omies, becomes more likely on account of
mounting vulnerabilities in China’s financial
system associated with fast credit growth and
continued balance sheet weaknesses in other
emerging market economies.
• On the inflation front, the report mentions that-
headline inflation has been picking up in the ad-
vanced economies due to higher commodity prices,
but core inflation dynamics remain subdued and
heterogeneous (consistent with diversity in output
gaps).
• Although changes to the global growth forecast
for 2017 and 2018 since the October 2016 WEO are
small, there have been meaningful changes to fore-
casts for country groups and individual countries.
In line with stronger-than-expected momentum in
the second half of 2016, the forecast envisages a
stronger rebound in advanced economies. Growth
in advanced economies has been marginally revised
upward to 2 per cent for both 2017 and 2018 in the
recent forecasts as compared to 1.9 per cent pro-
jected for 2017 in the January 2017 forecasts.
• GrowthisexpectedtopickupfortheEmergingMar-
ket and Developing Economies (EMDEs). Growth in

44
GLOBAL TRENDS
ECONOMY MATTERS
EMDEs is projected to rise to 4.5 per cent and 4.8
per cent in 2017 and 2018 respectively largely due to
a stabilization/recovery in many commodity export-
ers. This compares to growth rate of 4.1 per cent
posted in 2016.
US is projected to grow at a faster pace of 2.3 per
cent and 2.5 per cent in 2017 and 2018 respectively
(which remains unchanged from January 2017 pro-
jection) from 1.6 per cent in 2016. The higher growth
forecastof 2017 and 2018 reflect the assumed fiscal
policy easing promised by the Trump administra-
tion and an uptick in confidence, especially after the
November 2016 elections, which, if it persists, will
reinforce the growth momentum.
• Growth in the Euro area is projected at 1.7 per cent
in 2017 (which is marginally higher than 1.6 per cent
projected in the January forecasts) and 1.6 per cent
in 2018 cushioned by a cyclical recovery in global
manufacturing and trade that started in the second
half of 2016.
• In the UK, GDP growth is projected at 2 per cent in
2017 and 1.5 per cent in 2018, higher than the Janu-
ary 2017 WEO update forecast of 1.5 per cent for
both 2017 and 2018, reflecting stronger-than-ex-
pected performance of the UK economy since the
June 2016 Brexit vote.
• IMF upgraded its growth forecast for the Japan
- world’s third-largest economy - to 1.2 percent in
2017 and 0.6 per cent in 2018, from a January pro-
jection of 0.8 per cent and 0.5 per cent respectively
on the back of strong net exports. The Japanese
economy grew by 1.0 per cent in 2016.
• As per the forecasts, growth in China is projected at
6.6 per cent in 2017 (which is marginally higher than
6.5 per cent projected in January), which is expect-
ed to slow down to 6.2 per cent in 2018, due to the
“complex process of rebalancing” by reorienting
demand from exports and investment in consump-
tion.
• The IMF increased India’s growth estimate for 2016-
17 to 6.8 per cent, from 6.6 per cent estimated in
the January 2017 edition of WEO, while maintain-
ing that economic activity had slowed primarily
because of the temporary negative consumption
shock induced by cash shortages and payment dis-
ruptions from the demonetisation drive of the gov-
ernment. Growth is further expected to show an
uptick to 7.2 per cent and 7.7 per cent in 2017-18 and
2018-19 respectively, on the back of lower lending
rates and sustained reform initiatives of the govern-
ment.
• The report further said India’s medium-term growth
prospects were favourable, with growth expected
to rise to about 8 per cent over the medium-term
due to implementation of key reforms, loosening of
supply-side bottlenecks and appropriate fiscal and
monetary policies.

45
GLOBAL TRENDS
MAY 2017
The world’s five largest emerging economies have been
put in a cohort which goes by the name of BRICS (Brazil,
Russia, India, China and South Africa). Increased globali-
sation has meant that BRICS has become an important
source of global growth and political influence over the
years. The economic development models of BRICS
countries are significantly different from that of devel-
oped countries and regions like the United States, Eu-
rope and Japan. The economic growth in the five BRICS
countries was established on the basis of low-cost la-
bour, abundant mineral resources, and few technologi-
cal innovations.
The BRICS economies have grown rapidly with their
share of global GDP rising from 11 per cent in 1990 to
almost 30 per cent in 2014. BRICS account for over 40
per cent of the world population, hold over US$4 trillion
in reserves and account for over 17 per cent of global
trade. It therefore comes as no surprise then that these
economies became the new engines of global demand.
Further, the BRICS grouping have achieved much since
(B). Consumer Price Inflation (CPI)
As Chart 2 depicts, South Africa and India will see the
highest CPI inflation amongst the BRICS cohort by 2022.
the first political dialogue in September 2006 and the
first BRIC Summit which took place in June 2009. In the
seven years since the first Summit, the BRICS countries
have established the New Development Bank (NDB),
and the Contingent Reserve Arrangement (CRA),
amongst other initiatives.
Given the rising importance of this cohort over the
years, following are the short-term and medium-term
economic prospects of the BRICS economies as eluci-
dated in the latest IMF’s WEO.
(A). Real GDP Growth
As can be seen from the Chart 1, India has overtaken
China as the fastest growing economy of the BRICS
group, with its real GDP growth expected to rise above
8 per cent by 2022 (as per the IMF’s projections). China,
meanwhile, will see its growth dipping below 6 per cent
by 2022. Russia and Brazil posted de-growth in 2016, but
both the economies will witness their growth improv-
ing in the years ahead. South Africa, too will show an
uptick in its real GDP growth by 2022.
CPI inflation in China has continued to remain subdued
over the years and is expected to reach 3 per cent by
2022. Russia and Brazil, meanwhile, are likely to witness
almost a similar inflation trajectory.
BRICS Economies Comparative Economic Prospects
up to 2022

46
GLOBAL TRENDS
ECONOMY MATTERS
(C). Current Account Balance
As Chart 3 shows, China and Russia are the only two
economies of the BRICS grouping which are running
a current account surplus, with the latter’s surplus ex-
pected to rise to 4.3 per cent of GDP by 2022. Being a
net oil exporter, Russia is expected to benefit from the
secular rise in crude oil prices over the next five years.
In contrast, China’s current account surplus will remain
relatively benign. Out of the cohort, South Africa fol-
lowed by India and Brazil will see high current account
deficits over the medium-term.

ECONOMY MONITOR
48ECONOMY MATTERS

Economy Matters May 2017

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