The analysis of corporate performance for the second quarter of FY18 signals mixed trends, with the top-line growing at a respectable rate even as the bottom-line of firms is getting crimped due to the rising operating costs and GST related uncertainty.

2. 2ECONOMY MATTERS

3. 1
FOREWORD
OCTOBER 2017
I
n a string of good news for the economy, the international rating agency Moody’s recently upgraded
India’s rating which comes as a major boost to market sentiment on India and recognition of the
transformational reforms being conducted by the government. It reaffirms our belief that measures
such as GST, doing business and bankruptcy reforms, public spending on infrastructure, reduced use
of cash and banking reforms have all contributed to the rating upgrade. CII would like to commend
the government on the upgrade, which has happened for the first time in 13 years. CII also thanks the
agency for taking a positive view on India and its assessment that these reforms will be supportive of
higher growth with lower debt in the medium term. The upgraded rating of Baa2 will enable lower cost
of borrowing in international markets for Indian businesses and attract more foreign fund flows into
India. Additionally, the CII Business Confidence Index climbed up during the Q3FY18 reflecting the per-
ception that the economy is on a sustainable recovery path, with reforms beginning to have an impact
on the ground.
The corporate sector has shown mixed performance in the second quarter of this fiscal and there is rea-
son to believe that, going forward, both top-line and bottom-line growth would recover significantly.
On an aggregate basis, quarterly performance shows that while the top-line is gaining traction, profit-
ability indicators still remain weak. There are many factors which, when taken together, could bring
cheer to industry. The Indian economy is on the rebound after having shaken off the short-term dis-
ruptions caused by demonetization and GST implementation. This would eventually have a salutary
impact on corporate performance. It is however important that policy reforms are continued, which
would turn the gradual recovery into a stronger economic performance and in turn improve the top and
bottom-line of corporates.
Global crude oil prices have slowly started to inch up on account of drawdown of inventories, better
compliance of the voluntary cuts by the OPEC, slower pick up in US shale oil and continued geopolitical
risk in West Asia. Being an oil importer, India runs the risks of reversing the gains which accrued due to
subdued oil prices in the form of lower inflation and contained fiscal & current account deficits. Higher
oil prices will also affect corporate India’s profit margins and could delay the much awaited earnings
revival. To be sure, the present situation is not disquieting for India at the moment, but policymakers
would do well to remain watchful.
Chandrajit Banerjee
Director General, CII

5. 3 NOVEMBER 2017

6. EXECUTIVE SUMMARY
ECONOMY MATTERS 4
FOCUS OF THE MONTH
The analysis of corporate performance for the second
quarter of FY18 signals mixed trends, with the top-line
growing at a respectable rate even as the bottom-line
of firms is getting crimped due to the rising operating
costs and GST related uncertainty. The latter has made
a dent into the margins as well. A closer analysis of the
data at hand reveals that the manufacturing sector has
fared marginally better than the services sector in terms
of the growth of key performance indicators. Going
forward, there are many factors which, when taken to-
gether, could bring cheer to industry. For one, the Indi-
an economy is on the rebound after having shaken out
the short-term disruptions caused by demonetization
and GST implementation. In this month’s Focus of the
month, we have analysed the corporate performance
for 2QFY18 including the sectoral performance.
DOMESTIC TRENDS
Real GDP growth for the second quarter of the current
fiscal (2QFY18) increased to 6.3 per cent from 5.7 per
cent posted in the previous quarter, but was still lower
than 7.5 per cent a year back. This increase marks a turn-
around after a thirteen quarter low recorded in the past
quarter. The recent spate of macro-economic data indi-
cates that a recovery is under way following the growth
slowdown in the first quarter of FY2018. It seems that
the low reading in the first quarter was an aberration
caused by GST induced disruptions. However, the worst
seems to be over for the economy and going forward
growth figures would improve further in the second half
of this fiscal. Reflecting the improvement in perception
regarding the overall economic conditions and amidst
indications of a normalisation in business situation post
the recent disruptions, the CII Business Confidence in-
dex (BCI) climbed up to the level of 59.7 during Oct-Dec
2017 as against 58.3 in the previous quarter. Inflationary
pressures meanwhile have once again started to inch
up due to rising food inflation. However, the scenario
is likely to change, going forward, as food prices would
most likely be contained, due to the good harvest this
year on account of favorable monsoons. Moreover, the
GST Council’s decision to cut the tax rate on 177 items
is expected to partially ease the inflationary pressure
on consumers as and when companies start passing on
the benefits by cutting prices. In view of the rising infla-
tionary pressures, RBI maintained a status-quo on the
interest rates in its policy review held in the first week
of December 2017.
POLICY FOCUS
This section covers the major policy changes announced
by government/RBI in the month of November-De-
cember 2017. Amongst the prominent policy news an-
nounced during the month was that the Union Cabinet
chaired by the Prime Minister Narendra Modi has given
its approval for the creation of the posts of Chairman
and Technical Members of the National Anti-profiteer-
ing Authority (NAA) under GST. Further, the Cabinet
Committee on Economic Affairs has given its approval
for the removal of prohibition on export of all types
of pulses to ensure that farmers have greater choice
and in getting better remuneration for their produce.
Moreover, the government has also doubled the incen-
tive for exporters of garments and made-ups under the
Merchandise Export from India Scheme (MEIS) to sup-
port declining textile exports. In an important develop-
ment, the logistics sector has been granted Infrastruc-
ture status by the government. In a move that would
allow asset reconstruction companies (ARCs) taking
management control of sick companies, the Reserve
Bank of India has removed the 26 per cent cap on share-
holding after conversion of the debt of the borrowing
firm under reconstruction into equity.
GLOBAL NEWS
Global crude oil prices, as measured by West Texas In-
termediate (WTI) and Brent, have slowly started to
increase and are up 7.4 per cent and 11.4 per cent re-
spectively since the start of the CY2017 till 20th Novem-
ber, 2017. This upward rally in oil prices has been fueled
by improving demand and expectations that produc-
ers will extend output cuts. To be sure, WTI and Brent
prices have increased over 32 per cent and 38 per cent
respectively over their lows which were seen in June
2017. Moving on to the US, in line with market expec-
tations, the Federal Reserve hiked the Fed Funds rate
(FFR) target range to 1.25-1.50 per cent in its meeting
held on 13th
December, 2018. The Fed continues to see 3
hikes each in 2018 and 2019. The decision of the Fed was
based on the strengthening of the labor market and the
rise in economic activity at a solid rate. Importantly, on
a 12-month basis, both overall inflation and inflation for
items other than food and energy have declined and are
running below 2 per cent. Moreover, the market-based
measures of inflation compensation have remained low
and the survey-based measures of longer-term inflation
expectations are little changed, on balance.

7. 5
FOCUS OF THE MONTH
Corporate Performance Across Sectors
NOVEMBER 2017
During 2QFY18, net sales growth stood at 7.3 per cent,
a significant improvement over 1.4 per cent growth
achieved in the second quarter of the previous fiscal
and 6.8 per cent during the previous quarter. Profit
after Tax (PAT), however, contracted by 34.2 per cent,
attributable to both manufacturing and services firms,
as compared to an 8.8 per cent growth seen in 2QFY17,
resulting in a lower net margin. To be sure, PAT had
also declined in 1QFY18, attributable to rising operating
costs. The latter saw a steep rise in 2QFY18 as compared
to the growth seen in 2QFY17. However, there was a
moderation seen as compared to the previous quarter.
The year-on-year rise was led by an increase in raw ma-
terial costs and interest expenses.
The dent in profitability on an aggregate level for
2QFY18 could also be due to the uncertainty faced by
firms in light of GST implementation on 1st
July, 2017.
Hence, we expect this downtrend to be temporary as
profitability indicators will bounce back once the teeth-
ing troubles arising out of GST are ironed out in the
quarters to come.
T
he analysis of corporate performance for the
second quarter of FY18 (2QFY18) signals mixed
trends, with the top-line growing at a respecta-
ble rate while the bottom-line of firms is getting crimped
due to the rising operating costs and GST related uncer-
tainty. The latter has made a dent into the margins as
well. A closer analysis of the data at hand reveals that
the manufacturing sector has fared marginally better
than the services sector in terms of growth of key per-
formance indicators. The analysis in this article is based
on a balanced set of 1,589 firms1
– 909 manufacturing
companies and 680 services companies, operating in
the domestic economy.
On an aggregate basis, quarterly perfor-
mance shows that while the top-line is gain-
ing traction, profitability indicators remain
weak
1
Excludes Oil & Gas companies

8. 6
FOCUS OF THE MONTH
ECONOMY MATTERS
FY17 ended on a positive note for corpo-
rates; thus making the weak performance in
1Q-2QFY18 a little baffling
The decline in profitability indicators (PAT and PBDIT) in
the first two quarters of the current fiscal is a little sur-
prising, considering the fact that the year FY17 ended
Manufacturing Sector Firms Analysis
During the second quarter of FY18, manufacturing firms
saw net sales rise by 10.9 per cent, an improvement of
3.1 per cent over the growth experienced in 2Q17 and
8.4 per cent in the previous quarter. Profit before de-
preciation, interest and tax (PBDIT) saw a lower year-
on-year growth, while PAT too saw a massive contrac-
tion to the tune of 10.5 per cent in 2QFY18, as compared
on a positive note for corporates, with the profitability
seeing a massive jump of 17.8 per cent, after a con-
traction of 19.2 per cent seen in FY16. While net sales
have been moderating each year, contained expendi-
tures have kept the bottom-line afloat. Margins have re-
mained largely in-line, with gross margin being 35.9 per
cent for FY17 and net margin being 7.4 per cent.
to double-digit growth of 27.9 per cent in 2Q17. To be
sure, PBDIT moved into a positive territory in 2QFY18
from a contraction seen in the previous quarter. Ex-
penditure continued to increase in the reporting quar-
ter on a y-o-y basis on account of an increase in raw
material costs and interest expenses even as growth in
salaries remained nearly flat. The rising operating costs
could be one of the reasons behind the contraction in
PAT during the reporting quarter.

9. 7
FOCUS OF THE MONTH
NOVEMBER 2017
FY17 on a whole brought some cheer to the
manufacturing sector even as the quarterly
performance in FY18 has been not so impres-
sive
The improvement in net sales growth in the first two
quarters of the current fiscal follows from the impres-
sive rise in net sales recorded in FY17 as compared to
the anemic reading in FY16. Net sales across manufac-
turing firms saw a growth of 5.4 per cent in FY17, bet-
ter than the 0.7 per cent growth witnessed in FY16. The
Services Sector Firms Analysis
For firms in the services sector, the Jul-Sep quarter in
FY18 saw a rise in top-line growth to 4.0 per cent in
2QFY18 from a contraction of 0.2 per cent in 2QFY17.
However, the net sales growth was lower when com-
pared to 1QFY18. Moreover, profitability (PAT growth)
took a massive dip with a de-growth of -49.0 per cent
double-digit growth of PAT growth in FY17 as compared
to near zero growth in the previous fiscal is an encour-
aging sign for the manufacturing sector; however the
first two quarters of FY18 have been tough as growth
has contracted. One possible reason for the downtrend
in PAT growth in FY18 so far could be the rise in expens-
es on account of a rise in cost of raw materials even as
interest expenses have declined. Additionally, GST im-
plementation also seems to have eroded the bottom-
line indicators somewhat.
in 2QFY18 as compared to a contraction of 0.5 per cent
in the comparable quarter in the previous year and -8.1
per cent in the quarter before. Consequently, the net
margin in 2QFY18 was half of the value in 2QFY17. The
slide in profitability could partly be attributed to rising
expenditure coupled with GST implementation related
slowdown.

10. 8
FOCUS OF THE MONTH
ECONOMY MATTERS
After a ‘V’ shaped recovery in FY17, profit-
ability indicators saw a dip in 1Q-2QFY18 on
GST related uncertainty
Both PAT and PBDIT growth had made a ‘V’ shaped re-
covery in FY17 vis-à-vis FY16. However the first two quar-
ters of FY18 saw a dip in profitability indicators owing to
reasons highlighted above. This downtrend is however
expected to be a temporary blip. With the ironing out
Sector-Wise Analysis
In this section, we have presented a disaggregated anal-
ysis of the key sectors by analysing their performance in
the last five quarters.
1). Auto & Auto Parts 2
Auto & Auto Parts saw a sharp improvement in its top-
of GST implementation related issues and expectations
of a rebound in economic growth , the profitability of
service sector firms is anticipated to improve, going
forward. The downside remains in the form of the firm-
ing up of global commodity prices especially crude oil.
In contrast to the weak bottom-line indicators, the top-
line made a smart recovery in the first two quarters of
the current fiscal as compared to the subdued perfor-
mance in FY16 and FY17.
line growth in 2QFY18 as compared to the same quar-
ter last year and the previous quarter as well. However,
rising expenditure at the firm level led to lower bot-
tom-line growth in 2QFY18 as compared to 2QFY17 and
1QFY18. Subdued economic growth and GST led uncer-
tainty could have also contributed to lower profitability
during the reporting quarter.
2
Includes Commercial vehicles, Diversified automobile, Other automobile ancillaries, Other transport equipment and ancillaries, Passenger vehi-
cles, Two & three wheelers

11. 9
FOCUS OF THE MONTH
NOVEMBER 2017
2). Banks & Financial Services 3
The performance indicators and margins of banks & fi-
nancial services firms have been moderating in the last
five fiscal years which is a cause of worry as the sector
is the largest contributor to net sales (28 per cent) and
PAT (35 per cent) on average on an aggregate basis
3). Capital Goods 4
Capital Goods contributes 4 per cent to net sales and 3
per cent to PAT on average on an aggregate basis (in the
last five fiscal years) annually. These numbers are still
very low when put in perspective with India’s need to
annually. 2QFY18 saw a massive dip in its profitability
growth as compared to the same quarter last year, even
as the top-line somewhat improved. The decline in prof-
itability in the first two quarters of FY18 could be attrib-
uted to higher provisioning for NPAs even as the banks
are struggling with the rise in stressed assets .
become a stronger economy. The sector saw subdued
net sales and PAT growth in 2QFY18, which remains a
matter of concern for the policy makers as revival in the
capital goods sector is pivotal for kick-starting invest-
ment cycle in the economy.
3
Includes Auto finance services, Banking services, Housing finance services, Infrastructure finance services, Other asset financing services, Other
fee based financial services, Other financial services, Other fund based financial services, Securities broking
4
Agriculture machinery, Boilers & turbines, Communication equipment, Diversified machinery, Engines, General purpose machinery, Generators,
transformers & switchgears, Industrial machinery, Machine tools, Mining & construction equipment, Miscellaneous electrical machinery, Miscel-
laneous manufactured articles, Other industrial machinery, Storage batteries

12. 10
FOCUS OF THE MONTH
ECONOMY MATTERS
4). Construction & Real Estate 5
The construction & real estate sector contributes 9 per
cent to net sales and 5 per cent to PAT on an average
on an aggregate basis annually. Though the sector saw
its top-line growth recover in 2QFY18 as compared to
same quarter of last year, the levels were dismal when
compared to 1QFY18. Both PAT and PBDIT evidenced
5). Consumer Durables 6
Consumer durables, on an average, contributes around
1 per cent each to both net sales and PAT on an aggre-
gate basis annually. Net sales growth quickened to 6.7
per cent in 2QFY18 as compared to the 2.6 per cent in
the same quarter last fiscal. However the growth was
6). Education & Professional Services 7
Education & Professional Services, on an average, an-
nually contribute less than 1 per cent to both net sales
and PAT on an aggregate basis (in the last five years).
a sharp contraction in 2QFY18 as compared to 2QFY17
and the previous quarter even as the total expenditure
moderated. The sharp dip in profitability in the report-
ing quarter is certainly a concern given the salutary
impact which the sector has on creating demand for
industries such as steel & cement and considering the
desirable focus on better infrastructure and job crea-
tion in the country.
lower when compared with 8.1 per cent growth post-
ed in 1QFY18. On the other hand, both PAT and PBDIT
growth grew by double-digits in 2QFY18 as compared
with the dismal growth clocked in 1QFY18 and 2QFY17
as the restocking of goods post the implementation of
GST and the onset of the festive season proved to be
beneficial for firms in the consumer durables sector .
The sector has seen headwinds since 3QFY17 , with both
top-line and bottom-line growth slowing down sharply.
It is pertinent to mention here that this downtrend is in
continuation of the subdued performance seen in FY16
and FY17.
5
IIncludes Abrasives, Cement, Ceramic products, Commercial complexes, Glass & glassware, Granite, Housing construction, Industrial construc-
tion, Infrastructural construction, Other construction & allied activities, Other construction materials, Wires & cables
6
Includes air conditioners & refrigerators, Computers, peripherals & storage devices, Dry cells, Other consumer goods, Other domestic appli-
ances, Other electronics
7
Includes Business services & consultancy, Education, Other miscellaneous services

13. 11
FOCUS OF THE MONTH
NOVEMBER 2017
7). Fertilizers & Chemicals 8
The Fertilizers & Chemicals sector annually contributes
5 per cent to net sales and 3 per cent to PAT on an aver-
age on an aggregate basis (in the last five years). The
8). Fast Moving Consumer Goods (FMCG )9
FMCG annually contributes 7 per cent to net sales and
7 per cent to PAT, on an average, on an aggregate ba-
sis . The sector has seen improved top-line growth in
2QFY18 as compared with 1QFY18. However the growth
has been somewhat weak when compared with the
performance in 2QFY17. In contrast, both the profitabil-
sector has seen improved growth in both top-line and
bottom-lines in 2QFY18 as compared to both 2QFY17
and 1QFY18. Contained expenditure has been one of the
contributing factors for the improved performance of
the sector this fiscal so far.
ity indicators (PBDIT and PAT) have seen weak growth
since the start of the current fiscal, with both the indi-
cators posting double-digit contraction in 2QFY18. The
weak performance of profitability indicators is a cause
of worry and could be attributed to the weak domestic
demand and the transitory issues related with the im-
plementation of GST.
8
Includes Caustic soda, Dyes & pigments, Fertilizers, Inorganic Chemicals, Lubricants, Organic chemicals, Other chemical products, Paints &
varnishes, Pesticides, Refractories, Soda ash
9
Includes Bakery products, Beer & alcohol, Cocoa products & confectionery, Coffee, Cosmetics, toiletries, soaps & detergents, Dairy products,
Floriculture, Marine foods, Milling products, Other agricultural products, Poultry & meat products, Processed foods, Sugar, Tea, Tobacco prod-
ucts, Vegetable oil & products

14. 12
FOCUS OF THE MONTH
ECONOMY MATTERS
9). Health Care & Pharma 10
The Health Care & Pharma sector contributes 3 per cent
to net sales and 6 per cent to PAT, on an average, on an
aggregate basis annually. The net sales growth of the
sector quickened to 4.5 per cent in 2QFY18 as compared
to the subdued 1.5 per cent growth in the same quar-
ter of the previous fiscal and a contraction seen in the
10). Hotels & Tourism 11
The Hotels & Tourism industry contributes less than 1
per cent to both net sales and PAT, on an average, on an
aggregate basis annually. The sector has seen weak top-
11). IT, Telecom & Software 12
The IT, Telecom & Software sector contributes a sizea-
ble 10 per cent to net sales and 20 per cent to PAT on an
average on an aggregate basis annually. It is thus a ma-
jor source of concern that the performance indicators
previous quarter. Both PAT and PBDIT growth jumped
to double-digits in 2QFY18 as compared to a contrac-
tion seen in the previous quarter partly due to lower
costs and better operating performance. Health Care
& Pharma is widely regarded as a ‘Sunrise’ sector due
to the high growth potential and the recession resistant
nature of this sector.
line and bottom-line growth in 2QFY18 as compared to
both 2QFY17 and 1QFY18. The global recovery has yet to
gain traction and this could be partly responsible for the
subdued growth in the sector’s performance indicators.
and margins have continued to face headwinds since
the last couple of quarters . The restrictive visa policies
of the US administration coupled with high operating
costs (especially interest expenses) has contributed to
the weak performance of the sector.
10
Includes Drugs & pharmaceuticals, Health services
11
Includes Hotel & restaurants, Other recreational & allied services, Tourism
12
Includes Computer software, ITES, Telecommunication services

15. 13
FOCUS OF THE MONTH
NOVEMBER 2017
12). Metals & Minerals13
The metals & minerals sector contributes a significant 11
per cent to net sales and 8 per cent to PAT, on an aver-
age, on an aggregate basis annually. All performance in-
dicators and margins have shown a robust performance
13). Retail, Trade & Logistics 15
The Retail, Trade & Logistics segment contributes 5 per
cent to net sales and 2 per cent to PAT , on an average,
on an aggregate basis annually. The sector has seen
improved top-line and bottom-line growth in 2QFY18
as compared to 2QFY17, though top-line growth is sub-
in 2QFY18. Though there was a mild dip in the profitabil-
ity indicators in 1QFY18, the net sales growth has contin-
ued to remain healthy. This strong performance is con-
tinuing since FY17 when all the performance indicators
had staged a ‘V’ shaped recovery from the levels seen
in FY16.
dued when compared with the levels seen in 1QFY18.
The sector has seen weak PAT growth in the last five
quarters, a trend which has been reflected in the FY16
and FY17 levels as well. Barring the high operating costs
in 1QFY18, the costs have remained contained for the
remaining quarters.
13
Includes Aluminum & aluminum products, Castings & forgings, Copper & copper products, Diversified metal & metal products, Ferro alloys,
Gems & jewellery, Other ferrous metal products, Other non-ferrous metals & metal products, Pig iron, Sponge iron, Steel, Steel pipes & tubes 11
Includes Hotel & restaurants, Other recreational & allied services, Tourism
14
Not meaningful – 2Q17 saw a contraction in PAT in the Metals & Minerals sector and is too large as per the data to be meaningful
15
Includes Air transport services, Railway transport services, Retail trading, Road transport infrastructure services, Road transport services, Ship-
ping transport infrastructure services, Shipping transport services, Storage & distribution, Trading, Transport & Logistics

16. 14
FOCUS OF THE MONTH
ECONOMY MATTERS
14). Textile, Paper, Leather, Rubber, Plastic &
Wood 16
The Textile, Paper, Leather, Rubber, Plastic & Wood
segment of industries contribute 7 per cent to net sales
and 2 per cent to PAT, on an average, on an aggregate
basis annually (in the last five years). All the perfor-
mance indicators of the sector, with the exception of
net sales have declined in the first two quarters of FY18
as compared to the last few quarters of FY17. The sec-
tor broadly comprises the labour intensive industries
which have seen a difficult time in the last few years.
However going forward, we can expect some improve-
ment in their performance thanks to the slew of policy
reforms introduced by the government to turn around
major segments of the sector.
16
Includes Books & cards, Cloth, Cotton & blended yarn, Diversified cotton textile, Footwear, Man-made filaments & fibres, Other leather &
related products, Other textiles, Paper & newsprint, Paper products, Plastic films & flexible packaging, Plastic furniture, floorings & miscellane-
ous items, Plastic packaging goods, Plastic tubes, pipes, fittings & sheets, Polymers, Readymade garments, Rubber products, Synthetic rubber,
Textile processing, Tyres & tubes, Wood & wood products

17. 15
FOCUS OF THE MONTH
NOVEMBER 2017
The Road Ahead
The corporate sector has shown mixed performance
in the second quarter of this fiscal and there is reason
to believe that, going forward, both top-line and bot-
tom-line growth would improve significantly. There are
many factors which, when taken together, could bring
cheer to industry. For one, the Indian economy is on the
rebound after having shaken out the short-term disrup-
tions caused by demonetization and GST implementa-
tion.
With the headwinds abating, demand is expected to
make a comeback. This in turn would impact the market
positively. At the same time, India has jumped 30 plac-
es to 100 on the Ease of Doing Business ranking pub-
lished by the World Bank. Further, credit ratings agency
Moody’s has upgraded India’s rating to Baa2 from Baa3
in recognition of the reforms agenda pursued by the
government. This is a major sentiment booster for busi-
ness and would have a salutary impact on corporate
performance. However, the challenges are many. A low
credit offtake by industry indicates that a broad-based
turnaround in investments is still elusive. Low domestic
demand and high commodity prices continue to be ma-
jor concerns.
Against this backdrop, it is important that policy re-
forms are continued, which would turn the gradual re-
covery into a spectacular economic performance and in
turn improve the top and bottom-line of corporates .

19. 17
DOMESTIC TRENDS
Economy: Overview
NOVEMBER 2017
The real GDP growth for the second quarter of the current fiscal (2QFY18) increased to 6.3 per cent from 5.7 per cent
posted in the previous quarter, but was still lower than 7.5 per cent a year back. While the growth in Gross Fixed
Capital Formation (GFCF) at 4.7 per cent compared to just 1.6 per cent in previous quarter was a positive, a slowdown
in growth in government expenditure and the tepid performance of exports for the second quarter consecutively
were the negatives. From the supply-side, agriculture sector growth moderated due to erratic monsoon, while in-
dustrial growth accelerated sharply during the 2QFY18. Services sector growth moderated marginally. However, the
worst seems to be over for the economy and going forward growth figures would improve further in the second
half of this fiscal.
Inflationary pressures accelerated in October 2017 mainly on account of the firming up of food inflation. This sce-
nario is however likely to change, going forward, as food prices would most likely be contained, due to the good har-
vest this year on account of favorable monsoons. However, upside risks still remain in the form of implementation
of farm loan waiver and introduction of 7th
Pay Commission hand-outs. In the recently announced monetary policy
review (early December 2017), the RBI maintained status-quo on policy rates for the second time in a row. However,
we are hopeful that RBI will resume the rate easing cycle in its next monetary policy announcement to give a fillip
to demand. Yield on the benchmark 10-year G-sec is slowly starting to inch up. Non-food credit growth is slowly but
steadily recovering from the after-effects of demonetisation.
On the external front, rupee strengthened in November 2017 from its previous month’s level on healthy foreign
fund inflows. The recent rating upgrade by Moody’s is likely to bolster the foreign capital flows further which in
turn will lend some strength to the rupee against the greenback. Merchandise exports meanwhile, contracted in
October 2017 after two consecutive months of double-digit growth partly due to the high base of last year and
due to the uncertainty related to GST implementation. Going forward, the streamlining of GST related issues and
some change in GST rules by the government are expected to help exporters. Merchandise imports growth also
decelerated to its 10-month low during the month. A contraction in export growth during the month pushed the
merchandise trade deficit to a near 3-year high in October 2017.

20. 18
DOMESTIC TRENDS
ECONOMY MATTERS
I
ndian industry celebrates the quantum jump in In-
dia’s Doing Business rankings and felicitates the Gov-
ernment led by Prime Minister Narendra Modi for
this huge improvement. It is indeed an impressive and
major achievement, showing that India can deliver on
reforms.
Three years ago, the Prime Minister announced the
ambitious aspiration of taking India’s rank in the World
Bank’s Doing Business report to 50. In the latest report,
India shot up by 30 places to 100th rank, bringing this
target within the realm of reality. For Indian industry,
which has long been waiting for change in the operat-
ing environment, this turbocharged climb is a huge re-
lief, generating optimism that the investment climate
will further improve in days to come.
The latest ranking goes to show how far a committed,
mission mode approach driven by a determined leader
and actioned by multiple ministries and departments
can take the country. The World Bank looks at process-
es in ten areas, and each of them requires strategies
down the administrative chain to the last interface with
industry. The impressive surge in India’s position, the
most by any country in this year’s report, reflects ag-
gressive and transformational policies that translated
into real action on the ground. That the different arms
of the Government as well as state governments can
come together pulling as one for such a campaign is in
itself a cause of celebration.
The World Bank report is the first touch point for over-
seas investors contemplating business in another coun-
try. As such, its rankings are closely examined and can
determine the investment attractiveness of a country.
Although its methodology has been changing over the
years, leading to shifts in ranking, India’s leap from 142
position in the report for 2015 to 100 this year, will en-
tice investors to examine the opportunities in the coun-
try more closely. Already, foreign direct investment in-
flows are at a peak level of $60 billion in 2016-17, and this
can be further expected to climb upwards.
The World Bank assessment includes a score showing
the gap or distance to the perfect performance of 100.
India’s score has been going up over the years, scaling
from 50.34 in 2014 to 56.05 in 2017 and 60.76 in the re-
Huge Ranking Jump to Boost Biz in India

21. 19
DOMESTIC TRENDS
NOVEMBER 2017
port for 2018 which shows the highest score at 86.55
for New Zealand. India has displayed upward move-
ment for nine of the ten indicators, and went up in the
rankings for 6 indicators with reforms noted in 8 of ten
parameters. The highest improvement was in ‘paying
taxes’ where the rank increased by as much as 53 spots,
while ‘resolving insolvency’ went up by 15 ranks and
‘getting credit’ by 15. In ‘protecting minority investors’
India has emerged as somewhat of a global model with
a rank at 4.
In many of the areas, the Government has prioritized
reducing direct interface with enterprises by placing
approvals and clearances on digital platforms. The elec-
tronic Simplified Proforma for Incorporating Companies
Electronically (SPICe) makes it easier to start a busi-
ness and also combines various identification details.
For exports and imports, the Single Window Interface
for Facilitating Trade (SWIFT) was rolled out to elimi-
nate need for physical submission of documents. Judi-
cial processes for commercial disputes too have gone
digital, with e-filing, e-payments, and e-summons along
with electronically signed orders.
The Government has actually gone much beyond the
World Bank’s requirements which essentially looks
at processes in just two cities, Mumbai and Delhi. The
most critical aspect of the Government’s campaign for
investment facilitation is its effort to take the states on
board and work with them to address the business cli-
mate for tangible improvement at the grassroots.
The Department of Industrial Policy and Promotion
(DIPP), the nodal agency for the Ease of Doing Busi-
ness (EODB) reforms, finalized a 98-point action plan in
consultation with the state governments in December
2014, and assessed their performance with a report in
September 2015. The performance of states remained
quite low in this report. However, in 2016, with 340 ac-
tions identified by DIPP, remarkable progress was seen
with as many as 12 states achieving over 90 per cent of
the reforms. The current year’s action plan includes 376
reforms cutting across areas such as regulations, labour
returns and self-certifications, resolution of commercial
disputes, and digitization and online land systems.
All these have translated into better results for busi-
nesses. With more and more processes going online,
there is a visible difference in the way enterprises inter-
act with Government departments. Transparency and
efficiency are being introduced into the system, and
lower human interface reduces chances for corruption.
Prospects for the future are promising. The landmark
tax reform of Goods and Services Tax (GST) was not in-
cluded in this year’s reform list as it did not meet the
World Bank’s cut-off date. Some other key reforms re-
lating to Insolvency and Bankruptcy Code, bank recapi-
talization, and public procurement for small enterprises
also have not found place in the report. Further, several
reform areas such as disinvestment or identification
of stressed assets are not counted amongst the ten
parameters. With the Government remaining firm and
and consistent in the pace of reforms and state govern-
ments competing to attract investments, we can only
expect India’s position to continue to go up.
Industry has been deeply involved in the entire EODB
process which has been consultative and proactive.
CII continuously submitted inputs on choke points for
industry and worked with state governments in the re-
forms process. We found DIPP, Government agencies
and state governments to be responsive and forthcom-
ing, keen to identify the issues and resolve them at the
earliest. This consultative partnership is an exemplary
model for the future.
There is, of course, a long way to go before all of India
evolves a facilitative investment climate. Among the
ten parameters, India’s rank declined in four over last
year. The country remains among the low performers
in ‘dealing with construction permits’ and ‘enforcing
contracts’. States too exhibit wide variation in action-
ing reforms. However, the big jump in rankings shows
that achieving impressive results within a year is quite
possible.
With a whole-of-Government approach, it is clear that
ease of doing business is a high priority on the policy
agenda. The latest rankings reward all the hard work of
the last three years, and assure us that breaking into the
top 50 rank is a dream to be achieved soon. Kudos to
the Government!
(This article first appeared in The Asian Age on November 3rd
, 2017)

22. 20
DOMESTIC TRENDS
ECONOMY MATTERS
Demonetization of high-value notes was announced a
year ago with the objectives of striking at the heart of
the underground economy, addressing corruption, en-
couraging shift to the formal sector and boosting digital
financial transactions.
It was a bold and effective move. As per estimates,
the informal economy was expanding despite steps to
bring more economic activity into the organized sector.
Led by cash transactions, this growth in the informal
sector was limiting the rise in tax revenues and tax to
GDP ratio, impacting the resources available for foster-
ing economic growth. Demonetization effectively ar-
rested this trend.
In 2015-16, almost 80 per cent of all consumer payments
in the country were made by cash. Moreover, cash
transactions also encouraged illegal activities and kept
the black economy going. The share of currency to GDP
in India stood at 12 per cent, much higher than in most
emerging economies, and close to 90 per cent of this
comprised Rs 500 and Rs 1000 notes.
The withdrawal of high-value notes from the economy
was a definitive measure to discourage use of cash for
large transactions and delegitimizing the stock of black
money. The foundation for demonetization was actually
strategically laid with the roll-out of the Jan Dhan Yoja-
na, which succeeded in opening 255 million accounts for
people who had no access to the formal banking sector.
By seeding these accounts with the RuPay debit cards,
the habit of using digital transactions had already been
introduced. It was then a matter of changing the mind-
set with respect to use of cash and shifting habits to
greater use to digital transactions. This would also facili-
tate greater inclusion into the accounting system rather
than continuing with an opaque system where it was
difficult to obtain data and keep track of developments
in the economy.
The action against black money too had been stepped
up before demonetization was introduced. A disclosure
scheme for foreign assets was announced in 2015, and
the same year the Black Money Act was introduced. The
Income Declaration Scheme was in effect till October
2016 for voluntary disclosure of undeclared income and
the tax treaty with Mauritius was revised.
Given the groundwork already in place for meeting
some of the objectives of demonetization, the initiative
for declaring high-value notes as no longer legal tender
was announced on 8th
November, 2016 by the Prime
Minister.
Following this, new notes of Rs 500 and Rs 2000 de-
nomination were introduced swiftly into the system.
Over the year, the use of digital transactions increased
significantly. The government issued the BHIM (Bharat
Interface for Money) app to encourage use of mobile
phones and bank accounts for replacing cash transac-
tions. Digital transactions increased by almost a third
between August 2016 and August 2017, and use of mo-
bile wallets zoomed by 219 per cent in that period. Most
important, the shift to digital transactions is now well
underway, with the traditional custom of using cash re-
placed by a new mindset of using technology.
Demonetization also had favorable impact on tax rev-
enues of the government. Operation Clean Money was
launched in January 2017 to verify the large cash depos-
its. As an outcome, the number of income tax returns
filed rose significantly by 25 per cent in August 2017 as
compared to just about 10 per cent growth in the previ-
ous year. Similarly, advance tax collections went up by
42 per cent in this period. As more transactions are re-
corded, there would be more income earners entering
the tax base and consequently a rise in tax compliance.
An exercise like demonetization is expected to lead to
a short period of slowdown, which ensued. However,
in the last quarter, there are indications that industry
sectors are picking up. For example, tractor sales grew
by a robust 50 per cent in September 2017 and FMCG
has also turned around. Exports too have been robust
in recent months, driving growth upward. Also, stable
macroeconomic indicators such as inflation and current
account deficit impart confidence that the growth rate
will display an uptick from the second half of the year
onwards.
While growth is one consideration, it is also important
that an economy as large as that of India’s expands in a
balanced and sustainable manner. An economy where
Demonetization – A Year on

23. 21
DOMESTIC TRENDS
NOVEMBER 2017
trends cannot be adequately captured or guided could
end up growing in unpredictable directions and develop
features that can bring much pain to citizens at a later
date. For example, in the US, financial sector exuber-
ance led to the global economic crisis, and China’s very
high debt to GDP ratio is a cause of worry for some ana-
lysts. India’s informal sector could have also had unfore-
seen negative implications as the economy expanded.
By bringing in demonetization, the Government has
rightly addressed some of the likely imbalances that a
large informal economy could be prone to some years
down the line.
A year after demonetization, we believe that the econ-
omy is now on a sound footing and slated to gain an
upward trajectory, which will become stronger in the
coming years. Greater formalization of the economy
will certainly be a positive contributing factor in this de-
velopment.
Moody’s Investors Service has raised the government
of India’s local and foreign currency issuer ratings to
Baa2 from Baa3 and changed the outlook on the rat-
ing to stable. This is the first sovereign rating upgrade
for India since 2004. The rating agency cited continued
progress in economic and institutional reforms as the
factor underlying the upgrade. This takes into account
the several structural shifts that have happened in the
economy. The reforms cited by Moody’s include
· Goods and Services Tax (which will promote pro-
ductivity by removing barriers to interstate trade)
· Demonetisation
· Unique Identity (Aadhaar) biometric system, and
· Targeted delivery of benefits through the Direct
Benefit Transfer (DBT) system
All the above are intended to achieve an overall formali-
sation of the economy.
Additionally, the ratings agency also mentioned that the
adoption of a flexible inflation targeting regime and the
formation of a Monetary Policy Committee (MPC) have
enhanced the transparency and efficiency of monetary
policy in India. Notably, inflation has declined markedly
and foreign exchange reserves have increased to an all-
time highs, creating significant policy buffers to absorb
potential shocks.
Moody’s acknowledged that continued progress on
economic and institutional reforms would enhance In-
dia’s large and stable financing base for government
debt, “and will likely contribute to a gradual decline in
the general government debt burden over the medium-
term. In the meantime, while India’s high debt burden
remains a constraint on the country’s credit profile,
Moody’s believes that the reforms put in place have
reduced the risk of a sharp increase in debt, even in po-
tential downside scenarios.” This acknowledgement of
the debt trajectory of India being sustainable is a key
reason for the rating upgrade, since it has been a severe
constraint on the credit rating till date.
As per Moody’s: What could move the rat-
ings up
The rating could face upward pressure if there were to
be a material strengthening in fiscal metrics, combined
with a strong and durable recovery of the investment
cycle, probably supported by significant economic and
institutional reforms. In particular, greater expectation
of a sizeable and sustained reduction in the general gov-
ernment debt burden, through increased government
revenues combined with a reduction in expenditures,
would put positive pressure on the rating. The imple-
mentation of key pending reforms, including land and
labor reforms, could put additional upward pressure on
the rating.
What could move the rating down
A material deterioration in fiscal metrics and the out-
look for general government fiscal consolidation would
put negative pressure on the rating as per the Moody’s
statement. The rating could also face downward pres-
sure if the health of the banking system deteriorated
significantly or external vulnerability increased sharply.
It’s pertinent to mention here that the other important
rating agency, S&P maintained a status-quo on India’s
sovereign credit rating at BBB even as it has alluded to
an upgrade in the future if reforms by Narendra Modi
government markedly improved the fiscal conditions.
Moody Upgrades India’s Credit Rating

24. 22
DOMESTIC TRENDS
ECONOMY MATTERS
The real GDP growth for the second quarter of the cur-
rent fiscal (2QFY18) increased to 6.3 per cent from 5.7
per cent posted in the previous quarter, but was still
lower than 7.5 per cent a year back. This increase marks
a turnaround after a thirteen quarter low recorded in
past quarter. While the growth in Gross Fixed Capital
Formation (GFCF) at 4.7 per cent compared to just 1.6
per cent in the previous quarter was a positive, a slow-
down in growth in government expenditure and the
tepid performance of exports for the second consecu-
tive quarter were the negatives.
At the same time, Gross Value Added (GVA) at basic
prices increased to 6.1 per cent in 2QFY18 from the pre-
vious quarter, marking a revival after weakest back-to-
back quarterly growth since March 2014. The difference
in GDP and GVA growth is net indirect taxes.
From the supply side, agriculture sector
growth slows down in 2QFY18
From the supply-side, the agriculture sector slowed
down to 1.7 per cent in Q2FY18 after posting a weak 2.3
per cent in previous quarter. Erratic monsoon in sev-
eral parts and flooding in some states this kharif sea-
son seems likely to have impacted the sector’s perfor-
mance.
Industrial growth seems to have revived af-
ter GST implementation
Industrial growth jumped to 6.9 per cent in the second
quarter of FY18 from 1.5 per cent posted in the quarter
before on account of a sharp increase in manufactur-
ing and electricity, gas, water supply and utility services.
Manufacturing grew by an impressive 7.0 per cent in
2QFY18 as compared to the tepid 1.2 per cent growth
posted in 1QFY18. Electricity, gas, water supply and utili-
ty services also registered a healthy 7.6 per cent growth
compared to 5.1 per cent achieved in same quarter pre-
vious year.
Services sector slows marginally
The services sector slowed marginally in 2QFY18 as it
grew by 6.6 per cent as compared to 7.8 per cent in pre-
vious quarter and 7.4 per cent same quarter last year.
While trade, hotels, transport, communication, & ser-
vices related to broadcasting increased by a robust 9.9
per cent, all other sectors pegged it back, as construc-
tion continued to struggle at 2.6 per cent, finance & real
estate at 5.7 per cent, and public administration at 6.0
per cent.
GDP Growth Recovers in 2QFY18

25. 23
DOMESTIC TRENDS
NOVEMBER 2017
From the demand-side, consumption slips
marginally, investment rebounds
At market prices, growth in private consumption ex-
penditure moderated in 2QFY18 at 6.5 per cent from 6.7
per cent in the previous quarter. However, future pros-
pects remain balanced for this sector going into second
half of this fiscal due to the likelihood of a favourable
base effect in Q3FY18 along with the 7th
Pay Commission
payouts.
Gross fixed capital formation is the major positive at
4.7 per cent as the sector has been plagued with dis-
Going Forward
The recent spate of macro-economic data indicates
that a recovery is under way following the growth slow-
down in the first quarter of FY18. It seems that the low
reading in the first quarter was an aberration caused by
GST induced disruptions. However, the worst seems to
mal growth performance for four consecutive quarters.
Government expenditure grew a mere 4.1 per cent ow-
ing mainly to higher base and substantial increase in ex-
penditure in the same quarter during the previous year.
On the EXIM side, exports growth continued to grow
tepidly at 1.2 per cent in 2QFY18 after registering the
same growth in the previous quarter, reflecting the
headwinds the external sector is facing from rising pro-
tectionism globally. Growth in imports at 7.5 per cent
for Q2FY18 reflects positively on consumer demand.
be over for the economy and going forward growth fig-
ures would improve further in the second half of this fis-
cal. Most importantly, initial signs of a pick-up in the in-
vestment cycle are visible which will drive the recovery
unlike last year when growth was led by consumption,
driven by the 7th
Pay Commission awards. Any recovery
in exports and investment will be welcome
Industrial output growth almost halved to 2.2 per cent
in October 2017 compared to 4.1 per cent growth in Sep-
tember 2017. The slowdown was broad-based. The loss
of man-days due to the festive season in October 2017
would have impacted production. With this data print,
the cumulative growth for the first seven months of the
fiscal (April-October) FY18 stood at 2.5 per cent as com-
pared to 5.5 per cent in the same period last year. How-
ever, going forward, we could see an uptick in growth
owing to a slew of policy measures implemented by the
government, like the recent pruning of the number of
items in the highest GST bracket along with the smooth-
ening of teething GST related issues.
Industrial Growth Slows Down on Seasonal Factors

26. 24
DOMESTIC TRENDS
ECONOMY MATTERS
Manufacturing growth moderates
The manufacturing sector, which has the highest weight
at 77.6 per cent in overall IIP, saw its growth moderat-
ing to 2.5 per cent in October 2017 as compared to 3.8
per cent growth in the previous month. Within manu-
facturing, many segments saw high growth during the
month, like for example, ‘Manufacture of pharmaceuti-
cals, medicinal chemical and botanical products’ grew
the most by 23.0 per cent followed by ‘Manufacture of
motor vehicles, trailers and semi-trailers’ which was up
by 12.8 per cent. The growth of the electricity sector
moderated marginally to 3.2 per cent in October 2017 as
compared to 3.4 per cent growth recorded in the previ-
ous month. Mining sector also saw a sharp moderation
in growth from 7.8 per cent in September 2017 to 0.2
per cent in October 2017.
Capital goods sector growth continues to
grow at a respectable pace
According to use-based classification, capital goods
grew at 6.8 per cent in the reporting month as com-
pared to the 8.2 per cent increase seen in September
2017. However, it is still difficult to comment conclu-
sively about the revival in investment activity as much
of the jump in the capital goods sector was due to the
low base of last year. The intermediate goods sector
which had entered the positive territory after a gap of 3
months in September 2017 saw its growth moderating
to 0.2 per cent in October 2017. In a welcome develop-
ment, the production of infrastructure & construction
goods saw a sharp uptick to reach a 10-month high of
5.2 per cent in October 2017 from 0.4 per cent in the pre-
vious month.
Consumer durables growth contracts re-
flecting adverse impact of high GST
The output for consumer durables printed a low of -6.9
per cent in October 2017, probably reflecting the ad-
verse impact of a high GST rate on most of these goods
on demand. Going forward, the trimming of high GST
rate goods is expected to have a positive impact on the
sector’s growth. Meanwhile, consumer non-durables
continued to post a robust performance, growing by 7.7
per cent in October 2017, which is indicative of resilient
rural demand due to near-normal monsoons this year.

27. 25
DOMESTIC TRENDS
NOVEMBER 2017
The eight core infrastructure industries grew at 4.7 per
cent in October 2017 matching the growth in Septem-
ber, which has been revised down from 5.2 per cent.
This is the highest core sector growth since March 2017.
Six of the eight industries included in the core sector
recorded a sequential deterioration in growth, but that
was offset by a pick-up in output of steel and fertilisers.
Steel production rose by 8.4 per cent and was followed
closely by refinery products that reported 7.5 per cent
growth. On a cumulative basis, April-October growth
stood at 3.5 per cent, down from 5.6 per cent in the cor-
responding period last year.
Outlook
Industrial output lost some momentum in October 2017, owing partly to the loss of working days due to the fes-
tive season. However, we believe that this could be a one-off blip and industrial output would once again increase
during H2:FY18 onwards facilitated by reform initiatives to ease compliance norms for MSMEs and faster refund
process for export oriented companies. More importantly, the recovery in IIP growth is likely to be predominantly
led by private consumption with some support from public capex and exports. Additionally, a favorable base will
also perk up industrial output in the next few months.

28. 26
DOMESTIC TRENDS
ECONOMY MATTERS
Consumer price index (CPI) based inflation accelerated
to a 15-month high of 4.9 per cent in November 2017 as
compared to 3.6 per cent in the previous month. The
pick-up was driven by food inflation, which rose sharp-
ly in November by 1.4 per cent on a month-on-month
basis. Food inflation moved higher as vegetable prices
increased because of unseasonal rains. Going forward,
the sequential momentum in food prices could remain
subdued until January 2018 with kharif output coming
on board. At the same time, CPI fuel & light inflation ac-
celerated to 7.9 per cent in November 2017 as compared
to 6.4 per cent in the month before due to a rise in in-
flation in categories such as Liquefied Petroleum Gas
(LPG), kerosene and other imported fuels. With global
crude oil prices inching up, there exist upside risks for
fuel inflation going forward. As a counter-balance,
the recent reduction in excise duty and VAT on petrol
and diesel by the central and a few state governments
could result in some moderation in fuel prices as well.
CPI housing continued to rise for the third consecutive
month as it touched a high of 7.4 per cent in the report-
ing month, indicating the pass-through from the 7th
Pay
Commission related HRA payouts
Primary articles inflation increases to
16-month high
Inflation in primary articles quickened to a 16-month
high of 5.3 per cent in November 2017 as compared to
3.3 per cent in the previous month. Primary food infla-
To be sure, the Reserve Bank of India (RBI) has revised
its CPI forecast for H2FY18 to 4.3-4.7 per cent from 4.2-
4.6 per cent. We broadly expect CPI inflation to come
within RBI’s projected range for the second-half despite
the looming upside risks to inflation in the form of high
oil prices and higher household spending.
Higher food prices push up WPI based infla-
tion in November 2017
Mirroring the rise in CPI inflation, the wholesale price
index (WPI) based inflation also inched up to a 7-month
high of 3.9 per cent in November 2017 as compared to
a 3.6 per cent rise in the previous month. Rising food
prices has been the key driver behind the increase in in-
flation during the month. Food inflation quickened to
4.1 per cent in November 2017 from 3.2 per cent in the
previous month on account of high vegetable prices.
On a cumulative basis, average inflation in the first eight
of the current fiscal (April-November) stood at 2.8 per
cent as compared to 0.5 per cent recorded in the same
period last year.
tion inched up on high vegetable prices while inflation
in the minerals category also accelerated to double-dig-
it levels of 16.7 per cent. To be sure, retail prices of on-
ion and tomatoes have nearly doubled since September
2017 with consumers paying above Rs 50 per kg for each
even in November 2017.
Inflation Picks Up Pace

29. 27
DOMESTIC TRENDS
NOVEMBER 2017
Fuel inflation moderates marginally in No-
vember 2017
Fuel inflation moderated to 8.8 per cent in November
In its fifth bi-monthly monetary policy meeting held on
6th
December, 2017, the Monetary Policy Committee
(MPC) of the Reserve Bank of India (RBI) chose to keep
the key policy rates unchanged. After this decision, the
repo rate, reverse repo rate and the Marginal Standing
Facility (MSF) rate stay unchanged at 6.00 per cent,
5.75 per cent, and 6.25 per cent respectively. The deci-
2017 as compared to 10.5 per cent recorded in the previ-
ous month. On the other hand, inflation in the manu-
factured group remained unchanged at 2.6 per cent in
November 2017 as compared to the previous month
sion of the MPC was consistent with a neutral stance
of monetary policy in consonance with the objective of
achieving the medium-term target for consumer price
index (CPI) inflation of 4 per cent within a band of +/-2
per cent, while supporting growth. The MPC voted 5-1
to keep rates unchanged, with one member voting for
at least 25 bps rate cut.
Outlook
Both CPI and WPI inflation accelerated in November 2017, driven mainly by high food prices. This scenario is how-
ever likely to change, going forward, as food prices would most likely be contained, due to the good harvest this
year on account of favorable monsoons. Moreover, the GST Council’s decision to cut the tax rate on 177 items from
28 per cent to 18 per cent, leaving only 50 items under the highest tax slab, is expected to partially ease the infla-
tionary pressure on consumers as and when companies start passing on the benefits by cutting prices. As a result,
we expect CPI inflation to come within the RBI’s prescribed target range for the second-half of the fiscal.
RBI Stays Pat on the Interest Rates

30. 28
DOMESTIC TRENDS
ECONOMY MATTERS
On growth front, RBI retains growth fore-
cast for FY18 at 6.7 per cent
On the growth front, RBI has retained the projection of
real GVA growth for 2017-18 of the October resolution
at 6.7 per cent, with risks evenly balanced. The Central
Bank highlighted that the recent increase in oil prices
may have a negative impact on margins of firms and
GVA growth going forward. Moreover, the shortfalls
in kharif production and rabi sowing pose downside
risks to the outlook for agriculture. On the positive side,
there has been some pick up in credit growth in recent
months. Recapitalisation of public sector banks may
help improve credit flows further.
Upside risks to inflation persist
On the inflation front, the projection was pushed slight-
ly higher at 4.3-4.7 per cent in Q3 and Q4, attributable
to an additional 35 bps to the impact of the hike in HRA
allowance by the State governments. The Central Bank
expects the staggered impact of various state govern-
ment HRA hikes to push housing inflation further in
2018. Additionally, an increase in international crude
prices and any spill over from geopolitical tension also
has the potential to push inflation higher. However, fac-
tors such as seasonal moderation in vegetable prices,
downward bias in pulse prices and lowering of GST
rates for several goods & services are expected to limit
the rise in headline inflation.
CII’s Reaction
CII notes the RBI’s decision to maintain a status-quo in
policy rates for the second time in a row.
CII is hopeful that going forward the RBI would shift its
policy stance from neutral to accommodative and effect
a cut in interest rates to revive domestic demand which
would provide a fillip to broad-based investment activ-
ity which has yet to take off in a big way. A reduction in
interest rates would give the necessary signal that fis-
cal and monetary policies are working in consonance to
give a boost to growth.

31. 29
DOMESTIC TRENDS
NOVEMBER 2017
Displaying volatility, merchandise export growth
moved into double-digits as it grew by an impressive
30.6 per cent in November 2017 as compared to a con-
traction posted last month. The acceleration in growth
could be attributed partly to the low base of last year
and streamlining of the GST related issues. The cumula-
tive value of exports in April-November FY18 stood at
US$196.5 billion as against US$175.4 billion in the same
period last year, thus registering a growth rate of 12.0
per cent during the period.
The finer picture reveals some bright sparks
During November 2017, the major commodity groups of
export showing positive growth over the correspond-
ing month of last year included—engineering goods
(43.8 per cent), petroleum products (47.7 per cent),
gems & jewellery (32.7 per cent), organic & inorganic
chemicals (54.3 per cent), and drugs & pharmaceuticals
(13.4 per cent). It is pertinent to note here that non-pe-
Oil import bill records a sharp jump on high
crude oil prices
The oil import bill rose sharply by 39.1 per cent in No-
vember 2017 as compared to 27.9 per cent in October
2017 as the global Brent prices ($/bbl) increased by 34.7
per cent in November 2017 vis-à-vis November 2016, as
per World Bank commodity price data. Non-oil import
growth also quickened to 15.6 per cent in the report-
ing month as compared to 2.2 per cent in the previous
month. Significantly, gold imports fell by 25.9 per cent in
troleum and non-gems & jewellery exports in Novem-
ber 2017 grew by 27.4 per cent over the same month of
previous year.
Import growth accelerates on healthy oil im-
ports
Merchandiseimportgrowthacceleratedto19.6percent
in November 2017 as compared to 7.6 per cent growth
posted in October 2017. Major commodity groups of im-
port showing high growth in November 2017 over the
corresponding month of last year included—petrole-
um, crude & products (39.1 per cent), electronic goods
(24.9 per cent), pearls, precious & semi-precious stones
(85.8 per cent), machinery, electrical & non-electrical
(23.2 per cent) and coal, coke & briquettes, etc. (51.8
per cent). On a cumulative basis, imports were valued
at US$296.5 billion during the first eight months of the
current fiscal as compared to US$243.3 billion in the
same period last year, thus recording a growth of 21.8
per cent so far.
November 2017 to US$3.26 billion, compared to US$4.41
billion a year ago.
Trade deficit narrows marginally in Novem-
ber 2017
As exports grew at a healthy pace in November 2017,
merchandise deficit narrowed marginally to US$13.8 bil-
lion from previous month’s level of US$14.0 billion. On
a cumulative basis, trade deficit during the period April-
November FY18 stood at US$99.9 billion as compared
to US$67.8 billion posted in the same period last fiscal.
Export Growth Bounces Back

32. 30
DOMESTIC TRENDS
ECONOMY MATTERS
Reflecting an improvement in perception regarding
overall economic conditions and amidst indications of
a normalisation in business situation post the recent
disruptions, companies are optimistic that economic
growth would gain traction during the third quarter of
FY18. This is indicated in the CII Business Confidence in-
dex (BCI) which has climbed up to the level of 59.7 dur-
ing Oct-Dec 2017 as against 58.3 in the previous quarter.
A recovery recorded in the index, from a slowdown
in the preceding quarter, reinforces the perception of
business that demand pick up is on the horizon, post
the implementation of GST, due to an improvement in
the overall environment for doing business.
These findings are a part of CII’s 101st edition of quarter-
ly Business Outlook Survey, which was based on around
200 responses from large, medium, small and micro
firms, covering all regions of the country. The significant
improvement in the index this quarter has been led by
a sharp improvement in the Expectation Index, as com-
pared to the Current Situation Index, as firms appeared
particularly upbeat about the activity in their sectors.
Most of the respondents (79 per cent) expect GST pay-
ments to become hassle-free by Q1 2018-19. This is a tes-
timony to the faith reposed by business on the reforms-
oriented approach of the government
Outlook
Merchandise exports quickened in November 2017 on streamlining of GST related uncertainties and this improve-
ment is expected to continue next month as well. Imports on the other hand, will be driven by a recovery in con-
sumption demand, which will be pulled up by the implementation of 7th
pay commission handouts. Going forward,
the seasonal decline in gold imports and completion of export orders prior to the quarter-end are likely to soften
the merchandise trade deficit in December 2017, relative to the levels seen in the previous two months.
CII Business Confidence Index on a Rebound

33. 31
DOMESTIC TRENDS
NOVEMBER 2017
Major proportion of the respondents (40
per cent) foresee GDP growth in the 6.5-7.0
per cent range in 2017-18.
About 50 percent of respondents expect GDP growth
to exceed 6.5 per cent in 2017-18. Of these, a large share
of 40 per cent anticipate GDP growth to range between
6.5-7.0 per cent in 2017-18. This is closely in line with the
growth forecast by the central bank and various other
international organizations like WB, IMF and ADB.
Majority of the respondents (51 per cent) ex-
pect retail inflation to range between 4.0-5.0
per cent in 2017-18
On inflation metric, more than half of respondents (51
per cent) anticipate the price rise to be within the range
of 4.0-5.0 per cent in 2017-18, while close to 24 percent
of respondents expect it to be in the 3.0-4.0 per cent
range. Around 23 per cent feel that inflation will stabi-
lize within the 5.0-6.0 per cent range in the current fis-
cal.
Most of the respondents (88 per cent) antici-
pate that the government will overshoot the
fiscal deficit target in 2017-18
Nearly nine out of ten respondents (88 per cent) feel
that the government will not meet its fiscal deficit tar-
get of 3.2 per cent of GDP in 2017-18 and will overshoot
the same. The responses are highly in-line with the fact
that the fiscal deficit has already crossed 96 per cent of
the budget target for this financial year in only 7 months.
Much of the recovery in business conditions
expected to be domestically driven
Also, business conditions are expected to improve as
over 63 per cent of the firms anticipate an increase in
sales in Oct-Dec 2017 (3QFY18), as compared to only
44 per cent who experienced the same in the previous
quarter. On similar lines, 61 per cent of the respondents
anticipate an increase in new orders in the Oct-Dec 2017
as compared to 41.0 per cent who witnessed the same
in the preceding quarter. Much of the recovery in busi-
ness conditions is expected to be domestically driven
as a large proportion of firms (62.2 per cent) expect to
maintain status-quo on their export orders in Oct-Dec
2017. Further, in view of no change in raw material and
wage expenditure anticipated to be incurred by firms,
there are expectations of elevated profits after tax dur-
ing Oct-Dec 2017.
Majority of firms expect no change in their
domestic or investment plans in 3QFY18
Around half of the firms expect to maintain status-quo
on their plans about investing in the domestic economy
in the Oct-Dec 2017 quarter. On the international front
as well, a significant proportion of firms (59.0 per cent)
expect to keep their investment plans unchanged in
Oct-Dec quarter. Almost 50 per cent of firms expect
capacity utilization to rise to 75-100 per cent range in
the third quarter compared to the second quarter when
only 29 per cent of firms experienced capacity utiliza-
tion in this range.
Firms, when asked to rank their concerns, rated low
domestic demand followed by high commodity prices
which have emerged to be the major threats.

35. 33
POLICY FOCUS
POLICY FOCUS
NOVEMBER 2017
1) Cabinet approves the establishment of
the National Anti-profiteering Authority
under GST
The Union Cabinet chaired by the Prime Minister Naren-
dra Modi has given its approval for the creation of the
posts of Chairman and Technical Members of the Na-
tional Anti-profiteering Authority (NAA) under GST. This
paves the way for the immediate establishment of this
apex body, which is mandated to ensure that the ben-
efits of the reduction in GST rates on goods or services
are passed on to the ultimate consumers by way of a
reduction in prices. The “anti-profiteering” measures
enshrined in the GST law provide an institutional mecha-
nism to ensure that the full benefits of input tax credit
and reduced GST rates on supply of goods or services
flow to the consumers. This institutional framework
comprises the NAA, a Standing Committee, Screening
Committees in every State and the Directorate General
of Safeguards in the Central Board of Excise & Customs
(CBEC). The affected consumers who feel that the ben-
efit of a commensurate reduction in prices is not being
passed on when they purchase any goods or services,
may apply for relief to the Screening Committee in the
particular State. However, in case the incident of profi-
teering relates to an item of mass impact with ‘All India’
ramifications, the application may be directly made to
the Standing Committee. After forming a prima facie
view that there is an element of profiteering, the Stand-
ing Committee shall refer the matter for detailed inves-
tigation to the Director General of Safeguards, CBEC,
which shall report its findings to the NAA.
2). Cabinet allows export of all varieties of
pulses
The Cabinet Committee on Economic Affairs chaired by
the Prime Minister Shri Narendra Modi has given its ap-
proval for the removal of prohibition on the export of
all types of pulses to ensure that farmers have greater
choice in marketing their produce and in getting better
remuneration for their produce. The opening of export
of all types of pulses will help the farmer to dispose
off their products at remunerative prices and also en-
courage them to expand the area of sowing. Export of
pulses would provide an alternative market for the sur-
plus production of pulses. Allowing export of pulses will
also help the country and its exporters to regain their
The important policy announcements made by the Government/RBI in the month of November-December 2017 are cov-
ered in this month’s Policy Focus. Our endeavour through this section is to keep our readers abreast of the latest hap-
penings on the policy front so that they can take an informed decision accordingly.

36. ECONOMY MATTERS 34
POLICY FOCUS
markets. It is expected that pulses production will be
sustained in the country and our import dependence on
pulses will come down substantially. This is also likely to
provide higher levels of protein to the population and
work towards nutritional security. The integration with
global supply chain is also likely to help our farmers in
adopting good agricultural practices and ensure better
productivity.
3). Government doubles incentives rates for
garments
The government has doubled the incentive for export-
ers of garments and made-ups under the Merchandise
Export from India Scheme (MEIS) to support declining
textile exports. Under the programme, exporters are
given duty exemption scrips that are pegged at a certain
percentage of total value of their exports. These scrips
can be used to pay duties on inputs including customs.
Incentive rates for the two sectors have been enhanced
to 4 per cent of value of exports from 2 per cent with ef-
fect from November 1st
to June 30th
, 2018. This measure
will incentivise the exports of labour intensive sectors
of readymade garments and made ups and contribute
to employment. The measure comes amid a sharp fall in
the export of labour-intensive sectors such as textiles,
leather, gems and jewellery, handicrafts, readymade
garments and carpets among others.
4). RBI allows strong ARCs to hold more than
26 per cent in sick units
In a move that would allow asset reconstruction com-
panies (ARCs) taking management control of sick com-
panies, the Reserve Bank of India has removed the 26
per cent cap on shareholding after conversion of the
debt of the borrowing firm under reconstruction into
equity. The Central Bank has said that the ARCS that
maintain Rs 100 crore net owned fund consistently and
follow good corporate governance practices would be
exempted from the 26 per cent shareholding limit pre-
scribed in 2014. The ARC shall frame policy on debt to
equity conversion with the approval of its board and
may delegate powers to a committee comprising ma-
jority of independent directors for taking decisions on
proposals of debt to equity conversion,” the central
bank said in its notification.
5). Insolvency and Bankruptcy Board of In-
dia (IBBI) strengthens its Due Diligence
Framework under the Insolvency and
Bankruptcy Code, 2016
Insolvency and Bankruptcy Board of India (IBBI) has
amended its Corporate Insolvency Resolution Process
Regulations to ensure that as part of due diligence,
prior to the approval of a Resolution Plan, the anteced-
ents, credit worthiness and credibility of a Resolution
Applicant, including promoters, are taken into account
by the Committee of Creditors.
With a view to ensure that the Corporate Insolvency
Resolution Process results in a credible and viable
Resolution Plan, the Insolvency and Bankruptcy Board
of India (IBBI) has carried-out amendments to the IBBI
(Insolvency Resolution Process for Corporate Persons)
Resolution Process, 2016 (CIRP Regulations).
The Revised Regulations make it incumbent upon the
Resolution Professional to ensure that the Resolution
Plan presented to the Committee of Creditors contains
relevant details to assess the credibility of the Resolu-
tion Applicants. The details to be provided would in-
clude details with respect to the Resolution Applicant
in terms of convictions, disqualifications, criminal pro-
ceedings, categorization as willful defaulter as per RBI
guidelines, debarment imposed by SEBI, if any, and
transaction, if any, with the Corporate Debtor in the last
two years.
6). Logistics sector granted infrastructure
status
The logistics sector has been granted Infrastructure
status. The need for integrated logistics sector develop-
ment has been felt for quite some time in view of the
fact that the logistics cost in India is very high compared
to developed countries. High logistics cost reduces the
competitiveness of Indian goods both in domestic as
well as the export market. Development of logistics
would give a boost to both domestic and external de-
mand thereby encouraging manufacturing and ‘job cre-
ation’. This will in turn be instrumental in improving the
country’s GDP.

37. 35
POLICY FOCUS
NOVEMBER 2017
The inclusion of the “Logistics Sector” in the Harmo-
nized Master List of Infrastructure Sub-sectors was con-
sidered in the 14th
Institutional Mechanism (IM) Meet-
ing held on 10th November, 2017. It was recommended
by the Institutional Mechanism and subsequently ap-
proved by the Union Finance Minister, Shri Arun Jait-
ley. “Logistics Infrastructure” is included by insertion
of a new item in the renamed category of ‘Transport
and Logistics’, with a footnote stating that “Logistics
Infrastructure” means and includes Multi-modal Logis-
tics Park comprising Inland Container Depot (ICD) with
minimum investment of Rs 50 crore and minimum area
of 10 acre, cold chain facility with minimum investment
of Rs 15 crore and minimum area of 20,000 sq. ft, and/or
warehousing facility with investment of minimum Rs. 25
crore and minimum area of 1 lakh sq ft.
7). RBI allows overseas branches/subsidiar-
ies of Indian banks to refinance ECBs
Currently the Indian corporates are permitted to refi-
nance their existing External Commercial Borrowings
(ECBs) at a lower all-in-cost. The overseas branches/
subsidiaries of Indian banks are, however, not permit-
ted to extend such refinance. In order to provide a level
playing field, the RBI has decided, in consultation with
the Government, to permit the overseas branches/sub-
sidiaries of Indian banks to refinance ECBs of AAA rated
corporates as well as Navratna and Maharatna PSUs, by
raising fresh ECBs. In this regard, the revised guidelines
will be issued shortly.
8). RBI rationalises Merchant Discount Rate
In recent times, debit card transactions at ‘Point of
Sales’ have shown significant growth. With a view to
giving a further fillip to acceptance of debit card pay-
ments for purchase of goods and services across a wid-
er network of merchants, the RBI has decided to ration-
alise the framework for Merchant Discount Rate (MDR)
applicable on debit card transactions based on the
category of merchants. A differentiated MDR for asset-
light acceptance infrastructure and a cap on absolute
amount of MDR per transaction will also be prescribed.
The revised MDR aims at achieving the twin objectives
of increased usage of debit cards and ensuring sustain-
ability of the business for the entities involved.
9). Government relaxes norms for private
jet overseas flights
Private jets will not need prior regulatory approvals eve-
ry time they fly abroad, according to new rules issued
by the Directorate General of Civil Aviation (DGCA). So
far, business jet owners had to apply for a flight plan
with DGCA which generated a so-called YA number be-
fore flying abroad. That practice has been ended. The
flight plan, however, will still need to be cleared by the
air traffic control under the Airports Authority of India
(AAI). The rules become applicable from 15th December
2017, DGCA said in the same statement.

38. 36
GLOBAL TRENDS
Crude Oil Prices Hit 2-year High
ECONOMY MATTERS
G
lobal crude oil prices, as measured by West Tex-
as Intermediate (WTI) and Brent, have slowly
started to increase and are up 7.4 per cent and
11.4 per cent respectively since the start of the CY2017
till 20th November, 2017. This upward rally in oil prices
has been fueled by improving demand and expecta-
tions that producers will extend output cuts. To be sure,
WTI and Brent prices have increased over 32 per cent
and 38 per cent respectively over their lows which were
seen in June 2017. At present, WTI is trading in the range
of US$55.5-57.5 per barrel, while Brent is trading even
higher in the range of US$61-64 per barrel. A down-
side to current prices remains the rising U.S. shale oil
production which is nearing record levels at 9.5 million
barrels per day (bpd) while exports have crossed the 2
million bpd mark, which could be the trigger for a sharp
correction ahead as geo-political risks subside.

39. 37
GLOBAL TRENDS
NOVEMBER 2017
Following are the reasons behind the oil price increase
in the recent months:
1). Production cuts by OPEC members: Since the Organ-
ization of the Petroleum Exporting Countries (OPEC)
members produce nearly 40 per cent of the global oil
supply, the group can be a force when united. In No-
vember last year, the cartel had agreed to limit produc-
tion for six months starting in 2017 by 1.8 million barrel
per day till March 2018. Saudi Arabia, the cartel’s leader
had alone agreed to cut production by roughly 486,000
barrels per day, or about 5 per cent of its output. Addi-
tionally, Russia and other oil-producing nations had also
agreed to lower their output, a rare sign of international
cooperation which essentially means an additional re-
duction of more than 550,000 barrels per day.
In the past, compliance to supply cuts has been fragile
with some members’ preferring not to adhere to the
production cut agreement. However this time around,
the compliance levels of OPEC members (excluding Ni-
geria and Libya) has been very strict which has been
largely responsible for moving oil prices upwards. In
October 2017, both the OPEC and non-OPEC members
reached their monthly targets of production cuts.
Moreover, members have focused on curbing exports
in addition to initiating a cut in production levels which
is seen as a more important metric in driving investor
sentiments. As a result, the inventories are slowly de-
clining toward their five-year average, one of OPEC’s
key measures of success. The deal has so far led to a
pullback of around 1.2 million barrels per day of pro-
duction generated by OPEC members and around an
additional half of that figure again by non-OPEC partici-
pants. Moreover, recently there have been reports of
Saudi Arabia and Russia considering extending the oil
production cut deal once it expires in March 2018. This
is expected to impose a further upward pressure on oil
prices.
2). Geo-political uncertainty: Geo-political uncertainty
has once again escalated in the Middle-East, owing to
trouble in the Saudi royal family, thus raising concerns
about stability and policymaking in the world’s largest
crude exporter. Furthermore, there have been geo-po-
litical risks majorly due to the Iraqi-Kurds conflict which
have led to supply disruptions amounting to almost
500,000 barrel per day and have supported prices fur-
ther.
3). Rising demand: According to the forecast made
by the International Energy Agency (IEA), global oil
demand is likely to climb to the highest level this year
since 2015, amid stronger-than-expected consumption
in the Euro area and the U.S. The IEA, which advises
most major economies on energy policy, has increased
its estimate for demand growth in 2017 by 100,000 bar-
rels a day to 1.6 million barrels a day. For 2018, the IEA
is predicting a growth of 1.4 million barrels per day. The
re-balancing of oversupplied world markets is continu-
ing, it said, with OPEC supplies falling for the first time
in five months and inventories of refined fuels in devel-
oped nations subsiding towards average levels. The fall-
ing supply coupled with rising demand is likely to exert
further an upward pressure on oil prices, going forward.
Going Forward
The global oil market seems to have broadly returned to
balance this year, as the market turned from a surplus
to a deficit mainly due to a strong draw in stocks in the
second quarter. To be sure, the U.S. Energy Informa-
tion Administration (EIA) had, in October 2017, raised its
price forecasts on West Texas Intermediate and Brent
crude oil for this year and the next, and lifted its U.S.
production outlook for 2018. In its monthly energy out-
look report, the government agency had estimated WTI
prices at US$49.69 a barrel for this year, up 1.7 per cent
from its September 2017 forecast. For 2018, it forecast
is at US$50.57-up 2 per cent from the previous outlook.
The EIA has also upped its 2017 forecast on Brent crude
by 2.7 per cent to US$52.43 and its 2018 outlook by 4.8
per cent to US$54.07.

40. 38
GLOBAL TRENDS
ECONOMY MATTERS
US Fed Hikes Interest Rate
In line with market expectations, the US Fed hiked the
Fed Funds rate (FFR) target range to 1.25-1.50 per cent
in its meeting held on 13th
December, 2018. The median
Fed Funds Rate was unchanged for 2018 and 2019; how-
ever, the dot plot showed downward revision of rate
projection by one member. The decision of the Fed was
based on the strengthening of the labor market and the
rise in economic activity at a solid rate. Importantly, on
a 12-month basis, both overall inflation and prices for
items other than food and energy have declined and are
running below 2 per cent. Moreover, the market-based
measures of inflation compensation have remained low
and the survey-based measures of longer-term inflation
expectations are little changed, on balance.
Inflation is under control too
On a 12-month basis, the overall CPI inflation measure
has moderated this year and is running below the Fed
committee’s 2 per cent objective. Market-based meas-
ures of inflation compensation remain low while the
Growth concerns have abated for now
On the demand-side, household spending has been
expanding at a moderate rate and growth in business
fixed investment has picked up in recent quarters. The
Fed highlighted that despite the hurricane related dis-
ruptions, job gains have been solid and the unemploy-
ment rate has declined further. Further, the Fed also
maintained that labour markets will remain strong as
economic activity will expand at a moderate pace. In
the Summary of Economic Projections (SEP) that ac-
companied the statement, the Fed raised its GDP fore-
cast from 2.4 per cent to 2.5 per cent in 2017 while for
2018 the projection was elevated to 2.5 per cent from
2.1 per cent.
survey-based measures of longer-term inflation expec-
tations are little changed, on balance. As per the Fed,
inflation on a 12 month basis is expected to remain
somewhat below 2 per cent in the near term and stabi-
lize around the Committee’s 2 per cent objective over
the medium term.

41. 39
GLOBAL TRENDS
NOVEMBER 2017
Going forward
The Fed continues to see 3 rate hikes in 2018 but the
evolving inflation trajectory will be an important consid-
eration which would influence future decisions on poli-
cy rates. The Federal Open Market Committee (FOMC)
is expected to carefully monitor actual and expected
inflation developments relative to its inflation goal. It
expects that economic conditions will evolve in a man-
ner that will warrant further gradual increases in the
federal funds rate. However, the actual path of the fed-
eral funds rate will depend on the economic outlook as
informed by incoming data.

42. 40
SPECIAL ARTICLE
Indian Agriculture & the Looming Water Crisis
ECONOMY MATTERS
A
grarian distress is perhaps the most chronic
of issues that India’s establishment has been
grappling with for many decades but with lim-
ited success. Farmers’ income in India has remained low
in relation to their counterparts in the non-farm sector.
The problem areas are obvious:
· 60 per cent of cultivable area still remains rain fed
· Inefficient use of available water resources
· High costs of production
· Low productivity, inefficient and exploitative mar-
keting arrangement and consequent low price re-
alization
· Issues in the trickle down process in terms of rev-
enues
The Prime Minister, in 2016, had expressed his dream
of doubling farmers’ incomes by 2022 during a Kisaan
Rally in Bareily (Uttar Pradesh). While the pre-existent
agriculture development efforts were directed largely
towards amplifying outputs and improving food secu-
rity, we are now witnessing a fresh change in approach
(and priority). Farmer’s income security has replaced
food security as our major goal. Doubling farmer’s in-
come in real terms by 2022 would be a daunting task but
certainly worth attempting.
Fact check
India has 18 per cent of the world’s population, 2.4 per
cent of land resources, and 4 per cent of the usable
fresh water resources, thus making us susceptible to a
massive water scarcity crisis in coming years. Due to in-
crease in population, the per capita availability of fresh
water has already declined from 5177 M3 in 1951 to 1588
M3 in 2010. As per estimates, this may further reduce to
1341 M3 in 2025 and 1140 M3 by 2050. Being an agricul-
ture-intensive nation (50 per cent of our workforce is
engaged in agriculture), these numbers indicate a seri-

43. 41
SPECIAL ARTICLE
NOVEMBER 2017
ous crisis in the making.
Underlying challenges in Indian agriculture
and how they can be addressed
1. Make drip irrigation and water recharging
mandatory in overexploited watersheds
There are an enormous number of overexploited wa-
tersheds across states where digging new wells make
existing ones go dry. Wells with perennial water source
go seasonal. Huge investment made by farmers in de-
veloping this infrastructure, thus becomes infructuous.
The only way to ensure continuous availability of irriga-
tion in such areas is to go for ground water recharge en-
hancing structures and make the usage of drip irrigation
mandatory for optimizing water use.
2. All water intensive crops must be covered
under drip irrigation.
Today water intensive crops like sugarcane and banana
account for a major chunk of available irrigation water
in states where they cover substantial area. In states
like Maharashtra 60 per cent of available water is used
for sugarcane cultivation and as a crop it does not ac-
count for more than 5 per cent of net sown area in the
state. The state’s climate is conducive to sugarcane and
the productivity & sugar recovery rates are high. But
the state can ill afford to deprive the other crops of the
rightful share of available water just for sugarcane. A
more judicious distribution would be possible covering
enhanced area and more crops only if we put the entire
sugarcane crop under drip irrigation.
3. Manage water resources more strategically
The experience of building dams, canals and land de-
velopment projects has been less than positive. Such
projects are often inordinately delayed, either due to
funds constraint, delay in land acquisition or delay in
land development work in command area. While water
storage isn’t an issue, making it available to the fields
and farms is. It’s time to think of carrying water from
dam to field by pipes all the way. As a result when the
area under command will double, the yields and quality
will improve as well.
4. Work towards integrated watershed devel-
opment by encouraging community partici-
pation
For rain fed areas which constitute 60 per cent of the
cultivable area in our country, integrated watershed
development in the only way for stabilizing produc-
tion. Watershed development involves area treatment
and drainage line treatment. Both require willing co-
operation of the entire community. So any attempt to
go for water conservation measures without people’s
participation will not succeed. The Government of
India, through a number of ministries in the past, has
gone for several different programs each with separate
guidelines. States also have their own programs. The
multiplicity of programs with different implementation
guidelines puts tremendous stress on ground level im-
plementing agencies (apart from the requirement of
massive paperwork reporting, etc.). It would be highly
desirable to pool all resources at the level of a single
ministry and issue one implementation guideline with
a mandatory requirement of people’s participation.
Wherever the community participation has been total
(in the past), the program has been a great success.
Despite being located in drought-prone areas with low
and irregular rainfall, there have been some examples
of villages that have by and large solved the problem of
water for agriculture and drinking water by increasing
ground water seepage, reducing surface run off, avoid-
ing water intensive crops as well as adopting micro ir-
rigation technology and other cultivation practices that
help in minimizing water use. Since the government is
normally funding such efforts, the village community
should be encouraged to constitute a village water-
shed committee. This committee should prepare a wa-
ter budget for the village detailing possible harnessing
through different water harvesting structures and ap-
propriate allocation of water for different purposes.
5. Bring more land under cultivation (and irri-
gation)
Large stretches of land in different states are arid and
infertile. To boost agricultural production, it is essential
that investments are made to make such lands produc-
tive. Reports reveal that 62,000 million litres of sewage

44. 42
SPECIAL ARTICLE
ECONOMY MATTERS
is generated every day and almost 70 per cent of urban
India’s sewage goes untreated. What is even worse is
that most of it is released into natural streams or rivers
thus contaminating 3/4th
of our water bodies. With ad-
vancements in technology, it is possible to purify sew-
age water and make it suitable for use in agriculture at
a reasonable cost. I believe there is no reason why we
cannot use this treated water to make arid land produc-
tive if the private sector joins hands with public invest-
ments to establish an effective sewage collection and
treatment model. The logical step would be to provide
these arid (otherwise unusable) lands which normally
belong to the government on a nominal long-term lease
to encourage contract farming using treated waste wa-
ter for farming. The farms on the lands can also serve
as technology dissemination centers for intensive high-
tech cultivation of commercial crops – a model that
farmers can adopt for their own fields.
That said the aforementioned solutions are multidimen-
sional in nature and shouldn’t be looked at as benefi-
cial for a specific populace. Rapidly growing cities, the
explosion of industrialization, wastage of natural re-
sources, crop production in rain-fed areas, unsustain-
able agronomical practices, and the looming water scar-
city are the major problems which need to be resolved
through practical solutions. Improving the productivity
of agriculture, ensuring higher incomes for the farm-
ers, enhancing the efficiency of resource management,
reducing costs of production, diversification towards
high-value crops and improvement in terms of trade for
farmers are at the top of the list of priorities in Indian
agriculture. Besides, working towards addressing the
problem of water scarcity in agriculture is most crucial.
Young Ones is a 2014 action science fiction film, where
in a post-drought apocalypse United States, people kill
for water!!! While this is thankfully science fiction, un-
less we take serious and immediate action, the impend-
ing water crises can be catastrophic for our country in
the coming decades.
Remember, every drop counts!

45. 43
ECONOMY MONITOR
NOVEMBER 2017

46. 44
ECONOMY MONITOR
ECONOMY MATTERS