Indian economy 2016

TABLE OF CONTENTS
INDIAN ECONOMIC OUTLOOK...................................................................................
INDIA’S POTENTIAL GROWTH RATE....................................................................
THE GLOBAL CONTEXT...............................................................................................
THE CURRENT SCENARIO .......................................................................................
GLOBAL FINANCIAL CRISES – PAST, PRESENT & FUTURE ............................
THE INDIAN CONTEXT.................................................................................................
FUTURE PROJECTIONS & PREDICTIONS..................................................................
AGRICULTURAL SECTOR OUTLOOK........................................................................
INFLATION ......................................................................................................................
INCOME & CONSUMPTION..........................................................................................
INDIA’S NATIONAL INCOME..................................................................................
CONSUMPTION TRENDS ..........................................................................................
EMPLOYMENT................................................................................................................
PUBLIC DEBT..................................................................................................................
FISCAL DEFICIT .............................................................................................................
EXTERNAL SECTOR ......................................................................................................
INDIAS CURRENT ACCOUNT DEFICIT..................................................................
TRADE & EXPORT POLICY AND EXTERNAL SECTOR......................................
PUBLIC SECTOR ENTERPRISES ..................................................................................
MAJOR TRADE UNIONS................................................................................................
RECENT DEVELOPMENTS IN POLICIES ...................................................................
COMMITTEES FORMED IN FY16.................................................................................
WTO SERVICES NEGOTIATIONS AND BILATERAL NEGOTIATIONS
INCLUDING SERVICES TRADE...............................................................................
TOURISM SECTOR .....................................................................................................
FINANCIAL SERVICES ..............................................................................................
CLIMATE CHANGE AND SUSTAINABLE DEVELOPMENT....................................
SOCIAL INFRASTRUCTURE & HUMAN DEVELOPMENT......................................
EASE OF DOING BUSINESS IN INDIA ........................................................................
KEY FEATURES OF BUDGET 2016-2017 ....................................................................
CHALLENGES TO INDIAN ECONOMY.......................................................................
KEY TAKEAWAYS FROM THE LATEST STATISTICAL SURVEY OF
INDIA ................................................................................................................................

INDIAN ECONOMIC OUTLOOK
A Brief Review of the Current Scenario
It's midterm for Modi government, and the economy has finally found four legs
to walk on, instead of limping along on just two 8% growth can be posted this
year itself. Economists, policy experts and government's economic managers
all say that the uptick is getting stronger. Public investment and urban
consumption demands had been the two growth drivers, but now good
monsoon led rural demand and stabilising exports are also in the mix.
IMF says India's growth will be 7.4% this year. But many independent experts
reckon 8% this year is possible. And things will get even better if private
investment picks up on the back of broader demand revival but that's still a
biggish if. India Inc's highvoltage capex is the fifth leg the economy is looking
for. Independent estimates show public investment in infrastructure could rise
up to 25%, and farm sector growth could be as high as 4%, from 1.2% last
year. There are plenty other data points. Tractor sales rose 15% in the first
quarter of 201617, albeit from a low base, twowheeler sales were up 14% and
light commercial vehicle sales, up 12%. After 18 months of contraction,
exports recovered to post a modest 1.3% growth in June.
"Certainly, the rural economy is showing signs of early revival, but these are
early days," says Abheek Barua, chief economist, HDFC Bank, who has a
good monsoon counted in his 7.67.8% estimate. Morgan Stanley has revised its
estimate for 201617 to 7.7% from 7.5% earlier. "There are three things
working this year that were not there last year — monsoons, increments to
public sector staff and impact of lower interest rates," says DK Joshi, chief
economist of CRISIL, adding that growth could cross 8% if August rains are as
good.
Monsoon Boost: Good rains have meant that crop area sown has already
jumped 6.3%, with a big spike in pulse sowing, which can deliver much better
incomes to farmers. National reservoirs are currently at 94% of ten year
average, and if the monsoon continues as forecast, should be brimming over
and support a good winter crop, and help next year. Impact will start showing
even before the Kharif crop is in. "Going ahead, assuming rainfall is evenly
distributed across time and regions, we expect GDP growth to rise to 7.9%,
agricultural growth to come in above trend at 4%," ratings agency Crisil said in
a report last week. Government says it has provided a congenial and conducive
policy to make a good monsoon count. "Budget and other measures greater
emphasis on rural roads, step up on irrigation spending to start projects, de-
bottlenecking of highways and higher MSP for pulses have provided that
support," says Economic Affairs Secretary Shaktikanta Das.
Exports not a drag: he other missing leg of growth, exports, turned around
with a small 1.27% growth in June, reversing an 18 month decline. The
outlook is not bright after Brexit threw a spanner in works, but the fact that
exports are stabilising or just growing marginally can give a bit of kick to
growth. Here's a little bit of economics to strengthen the case. GDP is the sum
of consumption, investments and net exports (exports minus imports). That
exports are not declining at a fast pace means that they are not pulling down

overall growth, even if not contributing heavily. "We expect the drag from
exports to lessen going forward," Morgan Stanley said in a report. Dollar
exports had declined nearly 16% in March. Das says the new textiles package
that seeks to make the sector competitive will help in the short term as well,
apart providing a long term boost to jobs.
Public Investment: Public investment has increased less sharply so far this
fiscal year compared to last. Total capital spending, minus loans disbursed, was
Rs 26,090 crore in the first quarter, much less than nearly Rs 41,000 crore in
the same period last year. Payouts thanks to the 7th Pay Commission and 14th
Finance Commission have reduced government capex abilities. But extra
budgetary funding through Nabard for irrigation and the National
Infrastructure Investment Fund (NIIF) for other infrastructure will still keep
public investment high. And rising foreign investments will add to capital
formation in infrastructure; in rupee terms, foreign direct equity investment
was up 39% in the last fiscal. Including extra-budgetary funding, Morgan
Stanley expects public infrastructure spending to rise 24% in FY17. Every
expert hopes government investment plus FDI will sooner rather than later get
private investment going.
Urban Demand: Already robust urban demand will get a boost from the 7th
Pay Commission. In September, central government employees with receive
on an average 15% higher salaries. They will also get arrears for the first seven
months. Consumer durables, autos and real estate are likely beneficiaries,
especially since banking liquidity conditions are also better. "There are two
catalysts an increase in public sector wages/pensions and a strong monsoon
that will provide timely tailwinds to domestic demand," DBS said in a report.
The Worries: There are, as always, a few: bank credit to millions of small and
medium enterprises and smaller corporates haven't picked up these are the
companies that comprise the biggest chunk of the private sector. Perversely,
inflation, given that companies need lower rates, is also in a worrying zone.
Global economy is very tentative: the US is doing ok, but China could receive
another jolt. Das says domestic investment will revive as the government is
addressing banking sector issues while other structural reforms such as FDI
and ECB liberalisation are improving sentiment. "GST will add to sentiment,"
he says. If he's right, and if the economy finds its fifth leg, good times may
finally arrive.
India’s Potential Growth Rate
Typically, economists measure a country’s potential GDP growth in two ways:
 First, by extrapolating from past growth; and,
 Second, by projecting the underlying drivers of growth: capital
(physical and human), labor, and productivity.
Both have limitations and both rely on a variety of assumptions. The first
methodology has many variants, including the use of Hodrick-Prescott filters.
But they are all essentially mechanical and are really some weighted average of
past growth rates. One disadvantage of this method is that variations in actual
growth can induce considerable volatility in estimates of potential growth. But
potential growth should be relatively stable unless there are some fundamental

shifts in the underlying policy and institutional environment. Estimating
potential GDP by projecting the underlying determinants of growth (as done in
Rodrik and Subramanian, “Why India Can Grow at 7 Per Cent a Year or
More”, Economic and Political Weekly (EPW) [2005]) requires assumptions to
be made on total factor productivity growth, which can be arbitrary unless they
too are based on past performance which leads to the problems noted above. A
different way of estimating potential GDP growth is to use a deep
determinants-cum-convergence framework. There is a well-established
literature (North, D, “Institutions”, Journal of Economic Perspectives, [1991],
Acemoglu, D and J.A. Robinson, “Why Nations Fail: The Origins of Power,
Prosperity and Poverty”, Crown Business [2012]) that suggests that institutions
are a key determinant of long run growth. This is summarized in Figure 1
below.
Fig. 1: Institutions Matter
The upward-sloping line in the figure reflects a strong relationship (on
average) between political institutions and economic development that has
been found in empirical research, validating the central argument of the
“institutions matter” hypothesis. However, China and India are outliers (they
are far away from the line of best fit). And the interesting thing is that each of
these countries is an exception, or even a challenge, to the relationship but in
opposite ways. India (which is way below the line) is not rich enough given its
uncontestably vibrant political institutions. China (which is well above the
line) is too rich given its weak democratic institutions. The assumption is that
India and China will mean-revert, that is they will become more typical, and
move towards the line of best fit, over the medium term.
Mean reversion can happen in different ways. For China, the assumption is that
this process of becoming a “normal” country will happen via a combination of
slower growth and faster democratization as shown in Figure 2. Indeed, the
growth slowdown in China should be seen as a process of normalization after a
period of abnormally high growth. For India, normalization should take the
form of an acceleration of growth shown in the figure below. India’s potential
growth rate can thus be estimated as a reversion to a state of things where its
economic development is consistent with its well-developed political

institutions. The question is what is the implied growth rate that is consistent
with this mean reversion.
Fig. 2: Normalization of growth – China and India
The basic convergence framework provides a framework for estimating, albeit
roughly, India’s potential growth rate during this process of normalization (see
Technical Appendix for the simple algebra of this computation).
According to convergence theory, India’s per capita GDP growth rate (in PPP
terms) between 2015 and 2030 should be some multiple of the difference in the
initial level of per capita GDP between the US and India in 2015. That
difference is about 2.2 log points. The multiple is called the convergence
coefficient—the rate at which India will catch up with the United States. A
reasonable parameter from the literature is that this should be about 2 percent
per year, at least for countries that are converging. The East Asians converged
at a much faster pace but others at a slower pace. The significance of the figure
shown above is that since India has under-achieved so far, it must converge at
a faster pace than usual, so that it can revert to the “normal” line. Hence, its
convergence coefficient should be substantially better than 2 percent. These
PPP-based growth rates need to be converted into market exchange rate growth
rates. The resulting estimates are shown in the table below for alternative
assumptions about this convergence coefficient.
Based on this analysis, India’s medium term growth potential is somewhere
between 8 and 10 percent. Of course, this is an estimate of potential, conveying
a sense of opportunity. Hard policy choices and a cooperative external
environment will be required to convert opportunity into reality.
Table 1: China and India’s Potential Growth Rate 2015-30 (per cent)

Fig. 3: India and World Growth since 1991 (per cent)
THE GLOBAL CONTEXT
The Current Scenario
Indian economy has continued to consolidate the gains achieved in restoring
macroeconomic stability. Inflation, the fiscal deficit, and the current account
deficit have all declined, rendering India a relative haven of macrostability in
these turbulent times. Economic growth appears to be recovering, albeit at
varying speeds across sectors.
Although the major international institutions are yet again predicting that
global growth will increase from its current subdued level, they assess that
risks remain tilted to the downside. This uncertain and fragile outlook will
complicate the task of economic management for India.
The risks merit serious attention not least because major financial crises seem
to be occurring more frequently. The Latin American debt crisis of 1982, the
Asian Financial crisis of the late 1990s, and the Eastern European crisis of
2008 suggested that crises might be occurring once a decade. But then the

rapid succession of crises, starting with Global Financial Crisis of 2008 and
proceeding to the prolonged European crisis, the mini-crises of 2013, and the
China provoked turbulence in 2015 all hinted that the intervals between events
are becoming shorter.
This hypothesis could be validated in the immediate future, since identifiable
vulnerabilities exist in at least three large emerging economies—China, Brazil,
Saudi Arabia—at a time when underlying growth and productivity
developments in the advanced economies are soft . More flexible exchange
rates, however, could moderate full-blown eruptions into less disruptive but
more prolonged volatility.
One tail risk scenario that India must plan for is a major currency re-
adjustment in Asia in the wake of a similar adjustment in China, as such an
event would spread deflation around the world. Another tail risk scenario could
unfold as a consequence of policy actions—say, capital controls taken to
respond to curb outflows from large emerging market countries, which would
further moderate the growth impulses emanating from them.
In either case, foreign demand is likely to be weak, forcing India—in the short
run— to find and activate domestic sources of demand to prevent the growth
momentum from weakening. At the very least, a tail risk event would require
Indian monetary and fiscal policy not to add to the deflationary impulses from
abroad. The consolation would be that weaker oil and commodity prices would
help keep inflation and the twin deficits in check.
Global Financial Crises – Past, Present & Future
Since the 1980s, external financial crises have followed one of three basic
forms:
 the Latin American,
 the Asian Financial Crisis (AFC), or
 the Global Financial Crisis (GFC) model.
So one could ask: in the unlikely event that a major event did take place in a
systematically important emerging market, which form would it follow? The
answer is probably none of the above. The implications would be unlike
anything seen in the last 80 years. (The attached table contains a summary).
In the Latin American debt crisis, governments went on a spending binge
financed by foreign borrowing (of recycled petrodollars) while pegging their
exchange rates. The spending led to a classic sequence: economic overheating,
large current account deficits that eventually proved difficult to finance, and
finally defaults on the foreign borrowing. The Indian external crisis of 1991
belonged to this category, although the country did not and has never
defaulted.
In the AFC of the late 1990s, the transmission mechanism was similar—
namely, overheating and unsustainable external positions under fixed exchange

rates—but the instigating impulse was private borrowing rather than
government borrowing. The troubles in Eastern Europe in 2008 belonged to
this category. The 2013 mini-crises in a number of emerging markets following
the Federal Reserve’s “taper tantrum” were also similar to the Asian crisis,
with the difference that affected countries had more flexible exchange rates
which obviated the large disruptive changes that occur when fixed regimes
collapse.
The GFC of 2008, with America as its epicentre, was unique in that it involved
a systemically important country and originated in doubts about its financial
system. The effects radiated out globally, with the irony that even though the
problems originated in the American financial system, there was a flight of
capital toward the United States, which triggered a sharp appreciation of the
dollar and significant currency depreciations in emerging markets. In this way,
the GFC, while inflicting an adverse financial shock on the rest of the world,
simultaneously set in motion an adjustment mechanism that helped emerging
markets recover from the crisis.
The Japanese crisis was similar to the GFC in terms of the transmission
mechanism (asset price bubbles encompassing equity markets and real estate).
But it was dissimilar in that it was corporate rather than household borrowing
that was the instigating impulse. Also, the crisis did not have a systemic
financial impact, since Japan was not a major international banking centre. Nor
did it have a major impact on global exports, even though Japan was (and is) a
major global trader, because, as in the GFC, the epicentre’s currency
appreciated as the crisis played itself out.
China’s current situation is similar to the AFC case in that fears about
excessive corporate debts—in the context of slowing growth and changing
economic management—are fostering large capital outflows. But the outcome
is less certain, since whereas Asian countries had limited foreign exchange
reserves China has more than $3 trillion in official assets, consequent upon
years of running large current account surpluses. This situation gives China
much more space and time to deal with incipient problems, and minimize their
consequences, for example, by allowing a gradual rather than disruptive
decline in the exchange rate.
Were a major event in China or another large emerging market to take place
nonetheless, it would be very different from the three categories described
above. It would likely involve a large currency depreciation in a systemically
important country which would spread outward as a
deflationary/competitiveness shock to the rest of the world, especially
countries competing with it. Consequently, the built-in adjustment mechanism
that took place in the GFC—where the crisis country’s currency appreciated
would be absent. In this sense, a potential tail event in a systemically important
emerging market would resemble more the events of the early 1930s when the
UK and then the US went off the gold standard, triggering a series of
devaluations by other countries, leading to a collapse of global economic
activity.
Table 2: Anatomical Taxonomy of External Financial Crises

THE INDIAN CONTEXT
The Indian economy has continued to consolidate the gains achieved in
restoring macroeconomic stability. A sense of this turnaround is illustrated by a
cross-country comparison. In last year’s Survey, we had constructed an overall
index of macroeconomic vulnerability, which adds a country’s fiscal deficit,
current account deficit, and inflation. This index showed that in 2012 India was
the most vulnerable of the major emerging market countries. Subsequently,
India has made the most dramatic strides in reducing its macro-vulnerability.
Since 2013, its index has improved by 5.3 percentage points compared with 0.7
percentage point for China, 0.4 percentage point for all countries in India’s
investment grade (BBB), and a deterioration of 1.9 percentage points in the
case of Brazil.
Fig. 4: Improvement in Macro-Economic Resilience, 2013-2016

If macro-economic stability is one key element of assessing a country’s
attractiveness to investors, its growth rate is another. Rational Investor Ratings
Index (RIRI) is an index which combines two elements, growth serving as a
gauge for rewards and the macro-economic vulnerability index proxying for
risks. Higher levels indicate better performance. As can be seen, India
performs well not only in terms of the change of the index but also in terms of
the level, which compares favourably to its peers in the BBB investment grade
and even its “betters” in the A grade1 . As an investment proposition, India
stands out internationally.
Fig. 5: Rational Investor Ratings Index, 2012-16
FUTURE PROJECTIONS & PREDICTIONS
Real GDP growth for 2015-16 was in the 7 to 73/4 range, reflecting various
and largely offsetting developments on the demand and supply sides of the
Indian economy. Before analyzing these factors, however, it is important to
step back and note one important point.
India’s long-run potential GDP growth is substantial, about 8-10 percent. But
its actual growth in the short run will also depend upon global growth and
demand. After all, India’s exports of manufactured goods and services now
constitute about 18 percent of GDP, up from about 11 percent a decade ago.
Reflecting India’s growing globalization, the correlation between India’s
growth rate and that of the world has risen sharply to reasonably high levels.
For the period 1991- 2002 this correlation was 0.2. Since then, the correlation
has doubled to 0.42. In other words, a 1 percentage point decrease in the world
growth rate is now associated with a 0.42 percentage point decrease in Indian
growth rates. Accordingly, if the world economy remains weak, India’s growth
will face considerable headwinds.
For example, if the world continues to grow at close to 3 percent over the next
few years rather than returning to the buoyant 4-4½ per cent recorded during
2003-2011, India’s medium-term growth trajectory could well remain closer to
7-7½ per cent, notwithstanding the government’s reform initiatives, rather than
rise to the 8-10 per cent that its long-run potential suggests.
In other words, in the current global environment, there needs to be a
recalibration of growth expectations and consequently of the standards of

assessment. 1.42 Turning to the outlook for 2016-17, we need to examine each
of the components of aggregate demand: exports, consumption, private
investment and government.
Fig. 6: Growth Rates
To measure the demand for India’s exports, we calculate a proxy-weighted
average GDP growth rate of India’s export partners. The weights are the shares
of partner countries in India’s exports of goods and services. We find that this
proxy for export demand growth declined from 3.0 percent in 2014 to 2.7 per
cent in 2015, which helps explain the deceleration in India’s non-oil exports,
although the severity of the slowdown—in fact, a decline in export volume—
went beyond adverse external developments.
Current projections by the IMF indicate that trading partner growth this
demand will improve marginally this year to about 2.8 percent. But the
considerable downside risks suggest that it would be prudent not to count on a
big contribution to GDP growth from improving export performance.
On the domestic side, two factors could boost consumption. If and to the extent
that the Seventh Pay Commission (7th PC) is implemented, increased
spending from higher wages and allowances of government workers will start
flowing through the economy. If, in addition, the monsoon returns to normal,
agricultural incomes will improve, with attendant gains for rural consumption,
which over the past two years of weak rains has remained depressed.
Against this, the disappearance of much of last year’s oil windfall would
work to reduce consumption growth. Current prospects suggest that oil prices
(Indian crude basket) might average US$ 35 per barrel next fiscal year
compared with US$ 45 per barrel in 2015-16. The resulting income gain would
amount roughly equivalent to 1 percentage point of GDP – an 18 per cent price
decline times a share of net oil imports in GDP of 6 percent. But this would be
half the size of last year’s gain, so consumption growth would slow on this
account next year.
According to analysis done by Credit Suisse, (non-financial) corporate sector
profitability has remained weak, falling by 1 percent in the year to December
2015.2 This decline reflected a sharp deterioration in the financial health of the
metals—primarily steel—companies, which have now joined the ranks of
companies under severe financial stress. As a result, the proportion of

corporate debt owed by stressed companies, defined as those whose earnings
are insufficient to cover their interest obligations, has increased to 41 percent
in December 2015, compared to 35 percent in December 2014.3 In response to
this stress, companies have once again been compelled to curb their capital
expenditures substantially.
Finally, the path for fiscal consolidation will determine the demand for
domestic output from government. The magnitude of the drag on demand and
output will be largely equal to the size of consolidation, assuming a multiplier
of about 1.
There are three significant downside risks. Turmoil in the global economy
could worsen the outlook for exports and tighter financial conditions
significantly. Second, if contrary to expectations oil prices rise more than
anticipated, this would increase the drag from consumption, both directly, and
owing to reduced prospects for monetary easing. Finally, the most serious risk
is a combination of the above two factors. This could arise if oil markets are
dominated by supply-related factors such as agreements to restrict output by
the major producers.
The one significant upside possibility is a good monsoon. This would increase
rural consumption and, to the extent that it dampens price pressures, open up
further space for monetary easing .
Putting these factors together, we expect real GDP growth to be in the 7 to 73/4
per cent range, with downside risks because of ongoing developments in the
world economy. The wider range in the forecast this time reflects the range of
possibilities for exogenous developments, from a rebound in agriculture to a
full-fledged international crisis; it also reflects uncertainty arising from the
divergence between growth in nominal and real aggregates of economic
activity
AGRICULTURAL SECTOR OUTLOOK
From time to time, agricultural production is affected by El Niño, an abnormal
warming of the Pacific waters near Ecuador and Peru, which disturbs weather
patterns around the world.
The 2015 El Niño has been the strongest since 1997, depressing production
over the past year. But if it is followed by a strong La Niña, there could be a
much better harvest in 2016-17. The 1997 episode lasted roughly from April
1997 to June 1998. During these 15 months, the Oceanic Nino Index (ONI) –
which compares east-central Pacific Ocean surface temperatures to their long-
term average and is used by the US National Oceanic and Atmospheric
Administration (NOAA) for identifying El Niño events – was consistently
positive and greater than 0.5 degrees Celsius.
The current El Niño started around February 2015; most climate models
predict a return to “neutral” conditions not before May 2016. That makes it just
as long as the 1997-98 event. Also, in terms of intensity, it is comparable to
that of 1997-98: The most recent Oceanic Nino Index (ONI) value of 2.3
degree Celsius for November 2015-January 2016 tied with the level for the
same period of 1997-98.

An extended and strong El Niño explains why India had a deficient south-
monsoon and dry weather lasting through the winter this time. The prolonged
moisture stress from it has, in turn, impacted both kharif as well as the rabi
crop. The figure below shows that average agricultural growth in El Niño years
since between 1981-82 and 2015-16 has been -2.1 per cent compared with a
period average of 3.
Fig. 7: Agricultural Growth, 1981-82 to 2015-16 (average, per cent)
There is a silver lining here, though. Since 1950, there have been 22 El Niño
events of varying durations and intensities, according to NOAA data. But out
of the 21 prior to this one, 9 have been followed by La Niña, involving an
abnormal cooling of sea surface waters along the tropical west coast of South
America with an ONI less than minus 0.5 degrees Celsius.
This phenomenon – there have been 14 such events since 1950 – has been
associated with normal-to-excess monsoons in India, which may be a by-
product of atmospheric convection activity shifting to the north of Australia.
Now, it is important that some of the strongest El Niño years (1997-98, 1972-
73, 2009-10, 1986-87 and 1987-88, ranked in the order of strength and of
which the last four produced droughts in India) were followed by La Niña
episodes, resulting in bumper harvests. The possibility of this being repeated in
2016 after the second strongest El Niño on record cannot be ruled out. The
figure above shows, for example, that average growth in La Niña years was 8.4
per cent, substantially higher than the period average.
But there is a big catch. El Niño, as of now, continues to be “strong” and is
only gradually weakening. It will enter neutral zone only with the onset of
summer. NOAA’s latest forecast assigns only a 22 per cent probability of La
Niña developing in June-July-August, going up to 50 per cent for September-
October-November. The Australian Bureau of Meteorology suggests the
“neutral” state as the “most likely for the second half of the year”. In other
words, one shouldn’t expect La Niña conditions to develop before the second
half of the southwest monsoon season (June-September). Even if it develops,
the translation into actual rainfall in India could take time. The effects of the
2015 El Niño, after all, were felt only from July, although the east-central
Pacific sea surface temperature anomalies began in February.

In sum, La Niña is unlikely to deliver its full bounty in the coming monsoon,
or at least not until late in the kharif season. That doesn’t, however, mean the
monsoon is going to be bad, especially when all models are pointing to a very
low probability of a repeat El Niño happening this year.
The monsoon could also be good due to other favourable factors such as a
“positive Indian Ocean Dipole”. The latter phenomenon – where the western
tropical Indian Ocean waters near Africa become warmer relative to those
around Indonesia – prevented at least two El Niño years (1997 and 2006) from
resulting in droughts in India.
The policy implication of such a cautious prognosis is that the government
should be ready with a contingency plan for a monsoon, especially after two
successive drought years. Declaring minimum support prices well before kharif
sowing operations, incentivizing farmers to produce crops most prone to
domestic supply pressures (such as pulses), and timely contracting of imports
of sensitive commodities would be essential components of this strategy
INFLATION
For most of the current fiscal year, inflation has remained quiescent, hovering
within the RBI’s target range of 4-6 percent. But looming on the horizon is the
increase in wages and benefits recommended for government workers by the
Seventh Pay Commission (7th PC). If the government accepts this
recommendation, would it destabilize prices and inflation expectations? Most
likely, it will not.
The historical evidence is clear on this point. Figure 9 illustrates the experience
of the Sixth Pay Commission (6th PC). It plots the monthly increase in salaries
during the period of the award, from September 2008 – September 2009,
against non-food inflation. (At that time, overall inflation was rising due to a
sharp increase in global food prices.) The figure shows that the 6th PC award
barely registered on inflation despite the lumpiness of the award, owing to the
grant of arrears. If the 6th PC award barely registered, the 7th
PC is unlikely to
either, given the relative magnitudes: even if fully implemented, the expected
wage bill (including railways) will go up by around 52 per cent under the 7th
PC vis-à-vis 70 per cent under the 6th PC.

Fig. 8: Non-food inflation and growth in wage bill
This outcome may seem surprising. Why would such a large wage increase
have so little impact on inflation? There are three reasons. Most important is a
broad theoretical point. In principle, inflation reflects the degree to which
aggregate demand exceeds aggregate supply. And pay awards determine only
one small part of aggregate demand. In fact, they do not even determine
government demand: that depends on the overall fiscal deficit, which is the
difference between how much the state is injecting into the economy through
overall spending and how much it is taking away through taxes. Since the
government remains committed to reducing the fiscal deficit, the pressure on
prices will diminish, notwithstanding the wage increase.
That said, theory does suggest that a sharp increase in public sector wages
could affect inflation if it spilled over into private sector wages and hence
private sector demand. But currently this channel is muted, since there is
considerable slack in the private sector labour market, as evident in the
softness of rural wages. And even if private sector wage increases nonetheless
do quicken somewhat, the existence of substantial capacity underutilization
suggests that firms might find it difficult to pass the cost increase onto
consumer prices.
Fig. 9: Capacity Utilization

Finally, there will be some mechanical impact of the increase in the house rent
allowance (HRA) on the housing component of the CPI. But this effect is
likely to be modest between 0.15 and 0.3 percentage points.4 And even then it
will merely have a one-off effect on the level of the CPI, rather than the rate of
inflation going forward, which is the real target of the RBI.
The outlook for inflation will consequently depend on other factors. On the
domestic side, another year of below-potential growth will mean that the
output gap (reflected for example in the declining capacity utilization) will
widen further. As a result, there will be additional downward pressure on
underlying inflation, which has already fallen below 5 percent, as measured by
services inflation excluding the oil-related sub-indices. Meanwhile, if the
monsoon returns to normal, food prices will ease, especially since the
government remains committed to disciplined increases in MSPs for cereals,
and rural wage growth remains muted.
Fig. 10: Headline CPI vis-a-vis Core CPI Inflation (per cent)
Further relief should come from abroad. Oil prices have plunged in the first
two months of 2016, as have some commodity prices, suggesting that input
prices are likely to be lower next fiscal year. Beyond this factor lie other
deflationary forces. As growth in China continues to slow, excess capacity
there could continue to increase, which will put further downward pressure on
the prices of tradable goods all around the world. Part of this might be offset by
upward pressure coming from a depreciation of the rupee, especially if the
Federal Reserve Bank continues to raise interest rates, prompting capital to
reflow to the U.S, although the prospects of aggressive Fed action are receding.
On balance the risk to imported pressures, as with domestic pressures, remains
firmly to the downside.
All this suggests that the RBI should be able to meet its target of 5 percent by
March 2017. Indeed, with the current stance, there is a possibility of
undershooting. While the current policy rate seems “neutral” in that it is only
modestly higher than consumer price inflation, liquidity conditions are
unusually tight, impeding the pass-through of recent declines in policy rates to
the actual bank rates faced by borrowers.

The Figure below depicts the situation. It shows a measure of the tightness of
monetary conditions: the gap between bank lending (base) rates and nominal
GVA growth. If the difference is negative, then nominal GVA growth—and
for the average firm, revenue growth—is increasing faster than interest is
accruing on its debts. In that sense, the monetary stance poses little problems
for the corporate sector. But if interest rates are higher than nominal GDP
growth, firms’ cash flows are being squeezed. If firms then respond by curbing
price increases in order to boost sale volumes sales and cash flow, this will put
downward pressure on inflation. The chart shows that this is indeed what has
broadly been happening this year
For all these reasons, we project that CPI inflation will ease to between 41/2 - 5
per cent in 2016-17. We therefore think that the effective stance of monetary
policy could be relaxed and in two ways. First, by easing liquidity conditions
to make them consistent with the current policy rate. Second, by further
lowering the policy rate consistent with meeting the inflation target while
supporting weakening economic activity and corporate balance sheets. Robust
measured growth of real GDP may not warrant an easing of monetary
conditions. But a risk framework combined with a focus on the more reliable
nominal aggregates is useful. If, in fact, real growth is weaker than suggested
by the headline number, easing is appropriate. On the other hand, if real GDP
growth is indeed robust, the implied disinflation is large, mitigating the
inflationary risks of easing.
INCOME & CONSUMPTION
INDIA’S NATIONAL INCOME
 India's per capital income rose by 7.4 per cent to Rs 93,293 in 2015-16,
compared to Rs 86,879 in the preceding fiscal, government data
showed today.
 "The per capita income at current prices during 2015-16 is estimated to
have attained a level of Rs 93,293 as compared to the First Revised
Estimate for the year 2014-15 of Rs 86,879 showing a rise of 7.4 per
cent," as per data on Provisional Estimates of Annual National Income
and Quarterly Estimates of Gross Domestic Product 2015-16.
 The data was released by the Ministry of Statistics and Programme
Implementation. Per capita income is a broad indicator of prosperity.

 In real terms, the per capita income (at 2011-12 prices) during 2015-16
is estimated to have attained a level of Rs 77,435, up 6.2 per cent from
Rs 72,889 for the year 2014-15.
 The Gross National Income (GNI) at 2011-12 prices is now estimated
at Rs 112.13 trillion as against Rs 112.14 trillion estimated earlier for
2015-16. In 2014-15, it was Rs 104.28 trillion.
 "In terms of growth rates, the gross national income is estimated to
have risen by 7.5 per cent during 2015-16, in comparison to the growth
rate of 7.3 per cent in 2014-15."
Fig. 11: GDP Growth rate
Source : McKinsey Growth Institute
Fig.12: Income Growth rate
Source : Mckinsey Growth Institute
Fig.13: Widening income distribution

Fig.14: Income Pyramid (India)
Fig.15: Income Pyramid (Rural/Urban)
CONSUMPTION TRENDS
If India continues on its current high growth path, incomes will almost triple
over the next two decades and the country will become the world's fifth–largest
consumer market by 2025.

As Indian incomes rise, the shape of the country's income pyramid will also
change dramatically. Over 291 million people will move from desperate
poverty to a more sustainable life, and India's middle class will swell by more
than ten times from its current size of 50 million to 583 million people. By
2025 over 23 million Indians— more than the population of Australia today—
will number among the country's wealthiest citizens
The geographic pattern of India’s income and consumption growth will shift
too. By 2025 the Indian consumer market will largely be an urban story, with
62 percent of consumption in urban areas versus 42 percent today. While much
of this new wealth and consumption will be created in urban areas, rural
households will benefit, with annual real rural income growth per household
accelerating from 2.8 percent over the past two decades to 3.6 percent over the
next two. Indian spending patterns will also evolve, with basic necessities such
as food and apparel declining in relative importance and categories such as
communications and health care growing rapidly. The upcoming changes in
the Indian consumer market will create major opportunities and challenges for
Indian and multinational companies alike. Businesses that can meet the needs
of India's aspiring middle class, keep price points low to reflect the realities of
Indian incomes, build brand loyalty in new consumers, and adapt to a fast
changing market environment willfind substantial rewards in India's rapidly
growing consumer market. Likewise, India's policymakers will be challenged
to keep India on the path of economic reform while addressing major
challenges in infrastructure and social investment. The rewards, however, will
be substantial progress in poverty reduction and a rising standard of living for
much of India's population.
Changing consumption patterns: India’s share of spending is moving from
basic necessities to discretionary spending.
Fig.16: Share of average household consumption
Relative growth of spend categories : Food will remain the largest
consumption category ,while ‘Communications’ will grow the fastest.

Fig.17: Compound Annual Growth Rate of Consumption
Size of Consumer Market: The Indian consumer market will quadruple over
the next 2 decades
Fig.18: Total household consumption
Source: Mckinsey Growth Institute
Sources of consumption growth : Growth in disposable income would be the
greatest contributor to growth in consumption.
Fig.19: Sources of growth in private consumption
Urban India will account for nearly 2/3rds of the growth in consumption.
Fig.20: Aggregate Annual Consumption
 The Surging FDI
(Foreign direct
investment) between
October 2015 and May
2016 was up 40% to
$23.7 billion from the
same period a year
earlier.
 Contract-manufacturing
giant Foxconn
announced plans to
spend $5 billion on
factories and research
and development in
Maharashtra.
 General Motors Co.
has announced that it
will invest another $1
billion in India.

Market Benchmarking: India will become the 5th
largest consumer market by
2025.
Fig.21: Top world consumer markets (excluding US) – in Billion $
201
6
202
5
 NASSCOM Report
2014- 15 states that
Software Startups are
going to create 80000
jobs by 2016
 As of June 2016, the
unemployment
percentage in India was
8.84%, with 9.82% in
Urban India and 8.36%
in Rural India

EMPLOYMENT
According to CMIE statistics, the 30-day moving average unemployment rate
as of July 2016 is 9.41%.
Table 3: Unemployment rate in India, urban and rural
Source: CMIE Website
Fig.22: Unemployment Percentage
Source: CMIE
However, there have been some really encouraging steps towards increase in
employment in India:
 Net investments by foreign institutional investors, or the money coming
through financial markets, totalled $40.92 billion in the fiscal year ended
March 31, roughly seven times as much as in the prior year.
 Official data show India’s industrial production raised an average 2.7%
year-over-years in the seven month period from October to May. It is a
significant step up from the measly 0.6% increase during the comparable
period a year earlier.
 The Prime Minister of India in his Independence Day speech mentioned
that organizations that generate employment opportunities locally will get
special support from the Government.
With all of this happening, more and more organisations would get attracted to
establish their manufacturing bases in India, which in turn will help in job
creation.
Fig.23: Graph of number of people Skilled/Trained vs Placed in Jobs
8.72
7.98
8.42
9.27
10.16
8.84
9.99
9.62
10.48
11.7
12.47
9.82
8.05
7.16
7.43
8.17
9.09
8.36
 The Surging FDI
(Foreign direct
investment) between
October 2015 and May
2016 was up 40% to
$23.7 billion from the
same period a year
earlier.
 Contract-manufacturing
giant Foxconn
announced plans to
spend $5 billion on
factories and research
and development in
Maharashtra.
 General Motors Co.
has announced that it
will invest another $1
billion in India.
 The increase in
percentage
employability in
females is greater than
that of males from 2014
to 2015
 The highest percentage
of employable
population in India is
between the age of 18
to 21 years

Source: Business Standard
Fig.24: Graph of employability
Source: India Today 2016 Report
Startup India
We have about 12 million graduates joining the workforce every year.
Launching of Startup India and Mudra Fund has given a much needed impetus
to young entrepreneurs. NASSCOM Report 2014- 15 states that Software
Startups are going to create 80000 jobs by 2016. India is The Fastest Growing
and 3rd Largest Start-Up Ecosystem Globally (Source: NASSCOM) and the
Startups if nurtured are going to change the Indian business and jobs
landscape.
Digital India
Digital India initiative to transform the nation into digital empowered society
and knowledge economy envisions intensified impetus for further momentum
and progress for e-Governance and would promote inclusive growth that
covers electronic services, products, devices, manufacturing and job
opportunities. Creation of this level of digital infrastructure would create jobs,
which will contribute in overall growth of the economy.
20484
181691
402506
1349619
2067859
14399
144238
216741
646394
451845
54%
44.56%
29.82%
26.45%
38.41%
45%
44%
10.14%
56%
52.58%
43.99%
27.11%
20.58%
35.24%
39.81%
40.90%
15.89%
40.62%
 As of June 2016, the
unemployment
percentage in India was
8.84%, with 9.82% in
Urban India and 8.36%
in Rural India
 NASSCOM Report
2014- 15 states that
Software Startups are
going to create 80000
jobs by 2016

Fig.25: Gender wise employability
Fig.26: Age wise employability
Table 4: Percentage increase in hiring numbers and gender wise distribution
 The increase in
percentage
employability in
females is greater than
that of males from 2014
to 2015
 The highest percentage
of employable
population in India is
between the age of 18
to 21 years

Fig.27: Preferred Sourcing Channels
Skilling India - National Skill Development Corporation (NSDC)
This project is yet another major tool of change towards betterment of Indian
youth & working group. Skilling India aims to provide skill training to about
120 lakh youth in the country and within a small span of time. The vision is to
undertake skill development at an enhanced scale with a view to make India
‘Human Resource Capital’ of the world. This is perhaps India’s first integrated
scheme for developing Skills and challenge of meeting skilled workforce needs
depends on these initiatives.
 Internal referrals, job
portals and campus
recruitment are the
three most preferred
sources or channels of
employment in that
order.
 Between now and 2025
over 250 million young
people are estimated to
enter the Indian
workforce, while only
5% of youth aged 20-24
have obtained
vocational skills
through a formal
training system.

The objective of the National Policy on Skill Development and
Entrepreneurship, 2015 is to meet the challenge of skilling at scale with speed
and standard (quality). The National Skill Development Corporation provides
skill development funding either as loans or equity, and supports financial
incentives to select private sector initiatives to improve financial viability
through tax breaks etc.
 Pradhan Mantri Kaushal Vikas Yojana (PMKVY) targets offering 24 lakh
Indian youth meaningful, industry-relevant, skill-based training and a
government certification on successful completion of training along with
assessment to help them secure a job for a better future. 5.32 lakh persons
have already been enrolled. Of this number, 4.38 lakh have successfully
completed training throughout India.
 Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY), a
placement-linked skill development scheme for rural youth who are poor,
as a skilling component of the NRLM (National Rural Livelihoods
Mission) has also been launched. During 2015-16, against a target of
skilling 1.78 lakhs candidates under the DDU-GKY, a total of 1.75 lakh
have been trained and 0.60 lakh placed till November 2015.
 The National Action Plan (NAP) will establish a network of skill training
providers led by training partners from government and non-government
sectors including vocational rehabilitation centres. The plan has a target of
skilling 5 lakh differently-abled persons in next three years
Ease of Doing Business
Fig.28: Ease of Doing Business in India Data 2016
 The sectorwith the
highest genderbalance
in employment numbers
is pharma and
healthcare, with a 59%
male and 41% female
workforce
 The sectorwith the
highest gender
imbalance in
employment numbers is
automotive and
engineering, with a
84.85% male and
15.15% female
workforce

To improve India`s current Ease of Doing Business Index ranking of 130
among 189 nations, reforms are being undertaken in areas such as starting a
business, dealing with construction permits, registration of property, power
supply, paying taxes, enforcing contracts, and resolving insolvency.
India was able to amend the Companies Act in less than six months and made
starting a business easier by eliminating the minimum capital requirement and
the need to obtain a certificate to commence business operations, saving
entrepreneurs an unnecessary procedure and five days’ wait time. The
Government is also trying to bring in amendments in the indirect tax regime by
bringing the Goods & Service Tax through a Constitution (122nd Amendment)
Bill 2014, the Right to Fair Compensation & Transparency in Land
Acquisition, Rehabilitation and Resettlement (Second Amendment) Bill 2015
with the ultimate goal of simplifying the ease of doing business in India. The
important measures that have been undertaken are expected to increase
investment, and thus, employment in India.
Make in India
The Make in India programme is aimed to facilitate investment, foster
innovation, enhance skill development, protect intellectual property and build
best-in-class manufacturing infrastructure. The ‘Make in India’ campaign aims
to bring in investments into earmarked sectors, followed by employment
opportunities, transfers of technical know-how and, of course, capital and
growth. Investment in the manufacturing sector will also act as an elevator for
the development of other sectors. With the establishment of new companies in
the infrastructure and energy sector, a plethora of job opportunities are
expected in the service sector as well.
Causes of unemployment
The primary sector although constitutes 50 % of working population, but its
contribution to GDP is mere 17%. Similarly manufacturing share in GDP is
24% while it constitutes 23% of population. While service sector although
constitute much 15 smaller working population but its contribution to GDP is
more than 50%. Economists regard this neglect to manufacturing and
agriculture as the main cause of mass poverty and unemployment present in
India.
Initiatives like Make in India, Skill India Mission, MUDRA scheme, labour
laws and regulatory framework aim to enhance the ease of doing business in
India. Only a proper execution of these schemes characterizing the spirit of
Startup India can bring in the equilibrium especially amongst the unemployed
and jobless youth population. Thus, the initiatives to revive MSME (Ministry
of Micro, Small and Medium Enterprises) have been a step in the right
direction to strengthen the industrial base of the nation for transforming it from
a net importer of goods, to a net exporter.
Contractual Workers
Total employment in the organised manufacturing sector increased from 7.5
million in 2000-01 to 13 million in 2011-12, over half of this increase was
accounted for by the increasing use of contract workers. The growing use of
contract workers, workers who are hired by an intermediary or contractor on
short term contracts and can be fired easily reflects the significant
 The primary sectorof
the economy is the
sectorof an economy
making direct use of
natural resources. This
includes agriculture,
forestry, fishing and
mining.
 The secondary sector
of an economy
produces manufactured
goods,and the tertiary
sectorproduces
services.

informalisation of the workforce and raises questions about the sustainability
of employment growth driven by such jobs.
The argument that it is inflexible labour regulations that have incentivised
firms to substitute regular workers with contract workers deserves closer
scrutiny for several reasons:
 Labour regulations have not become more rigid over the time period when
contract worker intensity has surged.
 Even states which made amendments to their labour laws to make them
more amenable to employers have witnessed a sharp increase in contract
worker usage.
 It is capital-intensive and not labour-intensive industries, where pro-labour
regulations hurt the most, which have seen a larger increase in contract
worker usage.
This suggests that there may be other factors at play.
Labour Reforms
The Payment of Bonus (Amendment) Act 2015: The Payment of Bonus
(Amendment) Act 2015 received the assent of the President on 31
December 2015. The eligibility for bonus payment as defined under section
2 (13) of the Payment of Bonus Act 1965 has been increased from Rs
10,000 to Rs 21,000 per month. Section 12 of the principal Act states that
the calculation of bonus with respect to certain employees where the salary
or wage of an employee exceeds Rs 7000 (or the minimum wage for the
scheduled employment as fixed by the appropriate government, whichever
is higher) shall be paid per month, the bonus payable to such employee
under section 10 or, as the case may be, under section 11, shall be
calculated as if his/her salary or wage were Rs 7000 per month (or the
minimum wage for the scheduled employment as fixed by the appropriate
government, whichever is higher).
National Career Services Portal: The Government is mandated to maintain
a free employment service for its citizens. This is now being transformed
with the launch of the National Career Service (NCS) Portal on 20 July
2015. The NCS is envisaged as a digital portal that provides a nationwide
online platform for job seekers and employers for job matching in a
dynamic, efficient and responsive manner. As of 31 December 2015,
approximately 3.58 crore job seekers, 9 lakh employers and 27,000 skill
providers are registered on the NCS portal. The Government has also
approved the establishment of 60 model career centers and these are likely
to become functional during 2016-17.
With a budget allocation of INR 100 Cr., NCS is expected act as a one-stop
platform for both employees and employers and the registration can be
done online. Govt. has already initiated talks to include 900,000 privately
registered companies into the portal. Applicants would be required to link
their Aadhaar Card with the account to filter out genuine applicants and
companies who are registering as employers need to submit their
registration papers for authentication.

Shram Suvidha Portal: The features of the Shram Suvidha Portal launched
by the Government are: unique Labour Identification Number (LIN) to
units/ establishments registered on it (the unique LIN has been issued to
9,70,242 units as on 14th February, 2016); transparent labour inspection
scheme; unified annual returns under nine central acts and unified
electronic challan-cum-return for filling of monthly contribution with
Employees Provident Fund Organization (EPFO) & Employee State
Insurance Corporation (ESIC).
Universal Account Number: As part of the Pandit Deen Dayal Upadhyay
Shramev Jayate Karyakram, portability feature has been launched through
the Universal Account Number (UAN) by EPFO. So far, a total of
6,13,25,767 workers have already been provided UANs.
In the Apprentices Act, 1961, provisions have been simplified to enable
even the MSME sector to take apprentices, extending apprentice training to
non-technical courses, allowing apprenticeship training in informal trades
etc.
The Labour Laws (Exemption from Furnishing Returns & Maintaining
Registers by Certain Establishments) Amendment Act, 2014 extends the
provisions of the Act to units holding up to 40 workers instead of 19
workers and the number of labour laws exempted has been increased from
the present 9 to 16.
Proposed Reforms in the Employees’ Provident Fund & Miscellaneous
Provisions Act, 1952 would extend social security benefits under EPFO to
the unorganized sector as well as to more number of units within the
organised sector.
Future Trends
India has the advantage of the “demographic dividend” (younger population
compared to the ageing population of developed countries), which can be
cultivated to build a skilled workforce in the near future. The country’s
population pyramid is expected to bulge across the 15–59 age groups over the
next decade. This demographic advantage is predicted to last only until 2040.
According to the India Labour and Employment Report 2014 prepared by the
Institute for Human Development (IHD), the low labour force participation in
India is largely because the female LFPR, which is amongst the lowest in the
world and the second lowest in South Asia after Pakistan.
Currently it is estimated that only 2.3% of the workforce in India has
undergone formal skill training as compared to 68% in the UK, 75% in
Germany, 52% in USA, 80% in Japan and 96% in South Korea. Large sections
of the educated workforce have little or no job skills, making them largely
unemployable. Therefore, India must focus on scaling up skill training efforts
to meet the demands of employers and drive economic growth.
National Skill Development Corporation has facilitated setting up of Sector
Skill Councils (SSC) across 37 sectors and having representation from Industry
Members, Industry Associations, Business Leaders, Training providers and
Government bodies. During the FY 2014-15 NSDC has been able to cover
 Total employment in
the organised
manufacturing sector
increased from 7.5
million in 2000-01 to
13 million in 2011-12,
over half of this
increase was accounted
for by the increasing
use of contract workers.

twenty eight states and five union territories through its skill development
efforts which include 206 training partners and 3611 training centres across the
country. In the same period NSDC skilled 3.4 million people which includes
training conducted by training partners and training done under schemes like
STAR and UDAAN implemented by NSDC across thirty one sectors.
PUBLIC DEBT
In India, public debt refers to a part of the total borrowings by the Union
Government which includes such items as market loans, special bearer bonds,
treasury bills and special loans and securities issued by the Reserve Bank. It
also includes the outstanding external debt.
Objective
In India, most government debt is held in long-term interest bearing securities
such as national savings certificates, rural development bonds, capital
development bonds, etc. In indus-trially advanced countries like the U.S.A., the
term government or public debt refers to the accumulated amount of what
government has borrowed to finance past deficits.
In such countries the government debt has a very simple relationship to the
government deficit the increase in debt over a period (say one year) is equal to
its current budgetary deficit. But, in India, the term is used in a different sense.
The State generally borrows from the people to meet three kinds of
expenditure:
(a) To meet budget deficit,
(b) To meet the expenses of war and other extraordinary situations and
(c) To finance development activity.
Public debt (also known as Government debt, national debt and sovereign debt)
is the debt owed by a central government. In a federal set up like India's,
"government debt" may also refer to the debt of a state or provincial, municipal
or local government. By contrast, the annual "government deficit" refers to the
difference between government receipts and spending in a single year, that is,
the increase of debt over a particular year. Debt is an accumulation of yearly
deficits.
The primary deficit is the difference between current government spending on
goods and services and total current revenue from all types of taxes net of
transfer payments. The total deficit (fiscal deficit) is the primary deficit plus
interest payments on the debt. The public deficit is a flow, measured per unit of
time (usually years), while the government debt is a stock, an accumulation. In
India, debt policy is driven by the principle of gradual reduction of public debt
to GDP ratio so as to further reduce debt servicing risk and create fiscal space
for other/developmental expenditure.
Public Debt
 It refers to the part of
the borrowing by the
union Government
 In India most of the
public debt is held in
long term interest
bearing securities.
 There are three kinds of
expenditures
 To meet budget deficit,
 To meet the expenses of
war and other
extraordinary situations
and
 To finance development
activity.
Fiscal Deficit
 When a Governments
total expenditure
exceeds the total
revenue
 The performance for
the current year has
been according to the
revised roadmap
 The state Financial
Deficit for current year
has been 3.9% of GDP

Fig. 29: Debt to GDP ratio
Source: Euromonitor
Fig. 30. Trading Deficiency
Source: Planning Commission Data
FISCAL DEFICIT
When a Governments total expenditure exceeds the total revenue that it has a
fiscal Deficit. A brief summary of Indian Fiscal policies for 2016 -17.
The performance on the select fiscal indicators during the current financial
year and the rolling targets are in line with the revised roadmap of fiscal
consolidation as amended in 2015, except for Effective Revenue Deficit.
Fig.31: Breakdown of GDP % for Fiscal Deficit
0
500
1000
1500
2000
2500
2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP Of India Government Debt to GDP Ratio
-500
0
500
1000
1500
2000
2500
2007 2008 2009 2010 2011 2012 2013 2014 2015
Trading deficiency
Trading Deficit 1238.7

Source: Planning Commission website
The fiscal deficit target in 2015-16 (despite being lower in nominal terms), will
be achieved, without any reduction in expenditure. This is in contrast to the
previous year where drastic reduction in expenditure enabled meeting the fiscal
targets. In fact, in the revised estimates (2015-16), the total as well as the plan
expenditure are in fact higher than the budgeted level. As a consequence of
higher share of tax devolution to the State Governments, the growth in net tax
revenues to the Centre in BE 2015-16 was almost flat with a marginal increase
of 1.8 per cent. However, the growth in Gross tax revenues over 2014- 15 is
comparatively better and as per target. The fiscal deficit targets will be
achieved despite implementation of the Fourteenth Finance Commission (FFC)
recommendations relating to higher devolution of tax share and its
recommended grants to the States and despite a huge shortfall in the projected
disinvestment receipts for 2015-16.
A revenue deficit occurs when the net income generated, revenues less
expenditures, falls short of the projected net income. This happens when the
actual amount of revenue received and/or the actual amount of expenditures do
not correspond with budgeted revenue and expenditure figures. This is the
opposite of a revenue surplus, which occurs when the actual amount of net
income exceeds the projected amount.
Table 5: Deficit patterns throughout the years
Tax Expenditure
The divergence between the statutory tax rate and effective tax rate (defined as
the ratio of total tax revenue collected to the aggregate tax base) is mainly on
account of tax exemptions. Tax expenditure is also termed as ‘revenue
forgone’, but it does not necessarily imply that this quantum of revenue has
2.54
5.99 6.46
4.79 5.75 4.82 5.41 4.62 4.13 3.9
1.51
2.39
2.91
2.07
1.88
2.3
2.35
2.16 2.8 2.5
0
2
4
6
8
10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Breakdown of GDP % for FiscalDeficit
Centre Deficit
(% of GDP)
States Deficit
(% of GDP)
Revenue Deficit
 Revenue less
expenditure falls below
projected net income.
 Revenue deficits for
2015-16 has been 2.5%
of GDP.

been waived by the government. It should be interpreted as targeted incentives
for the promotion of certain sectors that may not, in the absence of such
incentives, have come up. Arguably, high tax expenditure can make the tax
system unduly complex. Tax expenditures have been brought down
significantly as a result of simplification of the tax system and improvements
in tax administration in recent years.
Fig. 32: Taxes in Industry

EXTERNAL SECTOR
INDIAS CURRENT ACCOUNT DEFICIT
Introduction
Current Account Deficit is when a country’s import levels exceeds its output
levels. This essentially means that the country consumes more than it send out
to the rest of the world. Current Account is essentially the net income a country
(including interest and dividends, transfers of cash for example foreign aid)
generates. The current account is a calculation of a country’s foreign
transactions, and along with the capital account is a component of a country’s
balance of payment.
 The U.S. dollar is the major currency for international trade. Most
countries use it to pay for their imports and also peg the dollar for
exporting products and services.
 The balance of trade (net import or export) would determine if a
country is a net payer or a receiver of dollars. Trade, along with US
dollar inflows (portfolio/FII, FDI, inward remittances), determines the
overall availability of the international currency for a country to engage
itself in the global economy. This also has a bearing on determining the
exchange rate of a country’s own currency with that of the dollar.
 An account that keeps a tab on the dollar expenses and dollar inflows
for a period (normally an accounting year) is commonly known as the
‘current account’. A negative balance amounts to current account
deficit (CAD), indicating broadly that the country’s imports exceed
exports.
 India has been persistently running a CAD. The deficit has widened in
recent years as a percentage of GDP and has become a concern for
policymakers, economists and global investors.
Components of CAD
 India’s growth engine has been predominantly driven by oil (over
two-thirds of which is imported). This situation may not change
much over the next few decades.
 For a change the Indian government does not have to worry too much
about oil imports as the crude price is hovering at historical lows.
This means that India will be able to grow and not be effected
severely by higher oil prices. The Brent is currently trading at $43.53
a barrel, compared to $120 a barrel where it used to be.
 Gold is another major import for India and plays a significant role in
India’s current account as India together with China consumes more
than half of the worlds gold. Indians, irrespective of economic
position, are positively inclined towards gold purchase. It is largely
driven by custom, marriage, safety concerns, tradability, and as a
hedge against the rupee. Compared to the first quarter, the demand
for gold has been less. To be precise, the demand for gold was 16%
lower this quarter compared to the corresponding quarter last year.
 Over the years India has made progress in both information
technology and generic pharmaceutical exports, apart from its
traditional gems and jewellery, natural fibres and garment sectors.
 When imports exceed
exports it is called as
a Current Account
Deficit
 Lower oil prices are
immensely helping
India’s cause
 The demand for Gold
fell by 16% compared
to last year
 USD is the main
trading currency
therefore CAD is
effected by the
exchange rate

 Other imports like capital goods and machinery, transport equipment
and electronics are necessary for India’s infrastructure growth.
Indigenization has reduced dependence on imports, but in areas like
telecom and mining, imports have played a crucial role in lowering
input cost.

Source: http://ieconomics.com
 The current account deficit in India narrowed to USD 0.3 billion or 0.1
percent of GDP in the first quarter of 2016 from a USD 0.7 billion gap
or 0.1 percent of GDP a year earlier, mainly due to a lower trade gap
(USD 24.8 billion from USD 31.6 billion).
 Considering April to March of the 2015/2016 fiscal year, the current
account deficit decreased to 1.1 percent of GDP compared to 1.8
percent in the previous year.
 Current Account in India averaged -1764.11 USD Million from 1949
until 2016, reaching an all-time high of 7360 USD Million in the first
quarter of 2004 and a record low of -31857.20 USD Million in the
fourth quarter of 2012.
 Current Account in India is reported by the Reserve Bank of India.
 There are speculations that India might head for a Current Account
surplus.
 The contraction in CAD in the fourth quarter of the last fiscal was
primarily on account of lower trade deficit, which stood at USD 24.8
billion compared to USD 31.6 billion in the corresponding quarter a
year ago.
 For the full fiscal 2015-16, CAD stood at 22.1 billion, or 1.1 per cent of
GDP, as against USD 26.9 billion, or 1.8 per cent of GDP, in 2014-15,
on the back of contraction in the trade deficit.
 The country's trade deficit narrowed to USD 130.1 billion last fiscal
from USD 144.9 billion in 2014-15.
 The overall Balance of Payment (BoP) during the fiscal moderated to
USD 17.9 billion from USD 61.06 billion in 2014-15.
21.8
5.15
4.22
1.21
7.84
10.9
7.7
0.7
6.12
8.54
7.11
0.318
F i g.33: C ur r ent A cco unt Def i ci t ( U S D M i l l io n)
Current Account
Deficit (USD Million)
2 per. Mov. Avg.
(Current Account
Deficit (USD Million))
 India’s CAD is the
lowest it has been in a
while 318 million
USD
 Current account is
one of the two
component accounts
of the balance of
payments of a nation.
It records the trade of
goodsand services of
an economy with
othercountriesof the
world.
 Current Account in
India averaged -
1764.11 USD Million
from 1949 until 2016
 India has steadily
opened up its
economy, its tariffs
continue to be high
when compared with
othercountries
 India has been known
to be a protectionist
economy
 India is now worlds
second largest textile
exporter
 Per capita income has
almost trebled over
12 years

 During the fiscal, there was decline in net invisible receipts, reflecting
moderation in both net services earnings and private transfer receipts.
 Net FDI inflows during the last fiscal stood at USD 36 billion, up
sharply by 15.3 per cent over the level in 2014-15, the apex bank said.
 Portfolio investment, however, recorded a net outflow of USD 4.5
billion during the fiscal as against a net inflow of USD 40.9 billion in
2014-15.
 In 2015-16, there was an accretion of USD 17.9 billion to foreign
exchange reserves (on BoP basis) as compared with USD 61.4 billion
in 2014-15, RBI said.
TRADE & EXPORT POLICY AND EXTERNAL SECTOR
Introduction
 The integration of the domestic economy through the twin channels of
trade and capital flows has accelerated in the past two decades which in
turn led to the Indian economy growing from Rs 32 trillion (US$ 500
billion) in 2004 to about Rs 129.57 trillion (US$ 2 trillion) by 2016.
Simultaneously, the per capita income also nearly trebled during these
12 years. India’s trade and external sector had a significant impact on
the GDP growth as well as expansion in per capita income.
 Recently, India overtook Italy, Germany and Bangladesh to emerge as
the world's second largest textile exporter, as per the data released by
Apparel Export Promotion Council (AEPC). According to The Cotton
Textiles Export Promotion Council (Texprocil), India’s textile and
clothing exports stood at US$ 43.2 billion in 2016 as compared to US$
41.4 billion in 2015, growing by 4.35 per cent over the previous year.
 According to Ms Nirmala Sitharaman, Minister of State (Independent
Charge), Ministry of Commerce and Industry, the Government of India
is keen to grow exports and provide more jobs for the young, talented,
well-educated and even semi-skilled and unskilled workforce of India.
Capital Inflows
 According to data released by the Reserve Bank of India (RBI), India's
foreign exchange reserves were US$ 354.40 billion in the week up to
March 11, 2016, an increase of US$ 2.54 billion over the past week.
 During April 2000–December2015, India received total foreign
investment (including equity inflows, re-invested earnings and other
capital) worth US$ 408.68 billion. The country was one of the top
destinations for FDI inflows from Asian countries, with Mauritius
contributing 33.7 per cent, Singapore 15.53 per cent and the UK
contributing 8.17 per cent of the total foreign inflows.
Foreign Institutional Investors (FIIs)
 FIIs net investments in Indian equities and debt touched record high in
last financial year (2014-15), on the back of factors such as
 FOREX reserves were
USD 354 billion
 Towards the end of the
financial year in March
the FOREX went up
2.54 billion
 India one of the top
destinations for FDI
from Asian countries

expectations of recovering economy, falling interest rates and
improving earnings outlook.
 FIIs invested net US$ 43.5 billion in FY 2014-15 which was their
highest investment in any fiscal year so far. Of the total investment,
US$ 26.3 billion was invested in debt while the rest US$ 17.2 billion
was invested in equities.
External Sector
 India has expressed interest in signing a preferential trade agreement
with Iran once international sanctions on the Persian Gulf nation are
lifted which would make it India's first trade agreement with a country
in West Asia.
 The Government of India plans to build five new railway links with
Nepal, which will boost India's economic links with its neighbouring
country and promote growth, employment and prosperity in the region.
 The Union Cabinet has approved a proposal to provide US$ 150
million credit from Export Import Bank of India (EXIM Bank) for the
development of Chabahar Port in Iran.
 India and China plan to undertake a joint study on the impact of
regional trade agreements, to be conducted by India’s NITI Aayog and
China's Development Research Centre (DRC).
 India and South Africa are considering prospect of setting up a joint
venture (JV) for mining and owning coal blocks in South Africa.
 India and the United Arab Emirates (UAE) will set up a joint working
group to forge stronger linkages in the hydrocarbon, chemicals and
fertiliser sectors.
 India is looking to develop the Chabahar port project in Iran by signing
an international transit corridor agreement with Iran and Afghanistan.
This project will have economic benefits as well as strategic as Pakistan
is allowing China to build a port in Gwadar which can potentially block
Indian trade routes.
 India and Belarus set a trade target of US$ 1 billion by 2018 during the
Seventh Session of the India-Belarus Intergovernmental Commission
on Trade, Economic, Scientific, Technological and Cultural
Cooperation.
 Arab-India Economic Forum (AIEF), to be held in November 2015,
would help open up new opportunities for trade and commerce between
India and the Middle East.
 The US has restored its program for concessional duty treatment to
Indian products, called ‘Generalised System of Preferences’, till 2017.
 India and Japan are expected to sign a pact of cooperation in the field of
intellectual property. The pact will aim to enhance efforts to support
innovation in both the countries and will be renewed automatically
every four years.
 According to Mr Andrew Robb, Australia's Trade and Investment
Minister, Australia's top trade priority is to conclude the
 Modi is setting up trade
links with the rest of the
world so that India can
grow
 India is also trying very
hard to get a seat on the
NSG (Nuclear
Suppliers Group) so
that it can gain easier
access to fissile
material

Comprehensive Economic Cooperation Agreement (CECA) with India
by 2015 which has major focus on services and investment.
 At the fourth session of the bilateral Joint commission on Economic
cooperation held in Warsaw, India and Poland have set an ambitious
target to increase bilateral trade from US$ 2.3 billion in 2014 to US$ 5
billion by 2018. India was praised by several members of the World
Trade Organisation (WTO) for following liberal and open
macroeconomic policies while increasing its global presence at the
same time.
 During the visit of Mr Vladimir Putin, President of Russia, to India, the
two countries signed several agreements, in areas spanning civil nuclear
cooperation, defence and energy.
Foreign Trade Policy
 All export and import-related activities are governed by the Foreign
Trade Policy (FTP), which is aimed at enhancing the country's
exports and use trade expansion as an effective instrument of
economic growth and employment generation.
 The Department of Commerce has announced increased support for
export of various products and included some additional items
under the Merchandise Exports from India Scheme (MEIS) in order
to help exporters to overcome the challenges faced by them.
 The Central Board of Excise and Customs (CBEC) has developed
an 'integrated declaration' process leading to the creation of a single
window which will provide the importers and exporters a single
point interface for customs clearance of import and export goods.
 As part of the FTP strategy of market expansion, India has signed a
Comprehensive Economic Partnership Agreement with South
Korea which will provide enhanced market access to Indian
exports. These trade agreements are in line with India’s Look East
Policy. To upgrade export sector infrastructure, ‘Towns of Export
Excellence’ and units located therein will be granted additional
focused support and incentives.
 The Reserve Bank of India (RBI) has simplified the rules for credit
to exporters, through which they can now get long-term advance
from banks for up to 10 years to service their contracts. This
measure will help exporters get into long-term contracts while
aiding the overall export performance.
 The Government of India is expected to announce an interest
subsidy scheme for exporters in order to boost exports and explore
new markets.
Road Ahead
 India is presently known as one of the most important players in
the global economic landscape. Its trade policies, government
reforms and inherent economic strengths have attributed to its
 RBI has simplified the
rules for credit to
exporters
 India has signed CEAF
agreement with South
Korea giving India
greater access to their
markets
 Interest subsidy scheme
for exporters on the
cards
 India is expected to
cross USD 350 billion
worth of exports this
year
 Government signing
important deals with
China, Australia and
Japan

standing as one of the most sought after destinations for foreign
investments in the world. Also, technological and infrastructural
developments being carried out throughout the country augur
well for the trade and economic sector in the years to come.
 Boosted by the forthcoming FTP, India's exports are expected to
cross the US$ 350 billion mark in the year 2016 and reach US$
750 billion by 2018-2019 according to Federation of India
Export Organisation (FIEO). Also, with the Government of
India striking important deals with the governments of Japan,
Australia and China, the external sector is increasing its
contribution to the economic development of the country and
growth in the global markets. Moreover, by implementing the
FTP 2014-19, by 2020, India's share in world trade is expected
to double from the present level of three per cent.
Balance of Trade
Source: http://ieconomics.com/balance-of-trade-india
The trade deficit in India declined 25 percent year-on-year to USD 8.12 billion
in June of 2016. Exports rose 1.27 percent to USD 22.5 million, the first gain
in 19 months: non-petroleum sales which accounted for 88.6 percent of total
exports increased 3 percent. Among export partners, shipments rose for the
European Union (4.3 percent) but fell for the United States (-7.4 percent),
Japan (-2.2 percent) and China (-1.8 percent). Imports slumped 7.3 percent
over a year earlier to USD 30.7 billion, marking the 19th consecutive month of
declines: oil purchases fell 16.4 percent and non-oil went down 4.1 percent.
However, it is the lowest drop in imports in four months. On a monthly basis,
the country’s trade gap widened for the second month, reaching the highest so
far this year. Balance of Trade in India averaged -2126.93 USD Million from
1957 until 2016, reaching an all time high of 258.90 USD Million in March of
1977 and a record low of -20210.90 USD Million in October of 2012. Balance
of Trade in India is reported by the Ministry of Commerce and Industry, India.
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
JUL14
AUG14
SEP14
OCT14
NOV14
DEC14
JAN15
FEB15
MAR15
APR15
MAY15
JUN15
JUL15
AUG15
SEP15
OCT15
NOV15
DEC15
JAN16
FEB16
MAR16
APR16
MAY16
JUN16
F i g.34: B al ance o f T r ade ( U S D M i l l i ons)
 India’s trade deficit
fell 25% YoY to
USD 8.12 billion

Source: http://ieconomics.com/balance-of-trade-india
Table 6: Statistics
India Trade Last Previous Highest Lowest Unit
Balance of
Trade
-8120 -6270 258.9 -20210.9 USD
Million
Exports 22600 22200 30541 59 USD
Million
Imports 30700 28400 45281 117 USD
Million
Current
Account
-318 -6120 7360 -31857 USD
Million
Current
Account to
GDP
-1.25 -1.31 1.5 -4.7 percent
External
Debt
486000 481000 486000 96392 USD
Million
Terms of
Trade
59.7 60.2 100 59.7 Index
Points
Foreign
Direct
Investment
1547 2090 5670 -60 USD
Million
Remittances 8472 8400 12293 5999 USD
Million
Crude Oil
Production
758 757 813 526 Bb/d/1k
Source: http://ieconomics.com
0
5
10
15
20
25
30
35
40
45
50
Jul14
Aug14
Sep14
Oct14
Nov14
Dec14
Jan15
Feb15
Mar15
Apr15
May15
Jun15
Jul15
Aug15
Sep15
Oct15
Nov15
Dec15
Jan16
Feb16
Mar16
Apr16
May16
Jun16
Fig.35: Imports vs Exports (USD 1000 Million)
Imports Exports
 The graph shows a
closing gap
between imports
and exports
 Hence low CAD
 Can also showthat
the manufacturing
sectoris up and we
are relying less on
imports
 Can also be
because Oil prices
are low

PUBLIC SECTOR ENTERPRISES
INTRODUCTION
A state-owned enterprise in India is called a public sector undertaking (PSU) or
a public sector enterprise. These companies are owned by the
union government of India, or one of the many state or territorial governments,
or both. The company stock needs to be majority-owned by the government to
be a PSU. PSUs may be classified as Central Public Sector Enterprises
(CPSEs), public sector banks (PSBs) or State Level Public Enterprises
(SLPEs). CPSEs are administered by the Ministry of Heavy Industries and
Public Enterprises. The PSUs in India are divided into the following
categories:
As on 30 September 2015 there are 7 Maharatnas, 17 Navratnas and 73
Miniratnas. There are nearly 300 CPSEs in total. The list of Maharatnas:
 Bharat Heavy Electricals (BHEL)
 Coal India
 GAIL
 Indian Oil Corporation
 NTPC Limited
 Oil and Natural Gas Corporation (ONGC)
 Steel Authority of India (SAIL)
The financial investment stood at 9, 92,971 Cr as on 2014. The gross turnover
of Central PSUs is around 25 per cent of the India's GDP. These units employ
nearly 1.5 million people and contribute to around five per cent of the total
employment in the organized sector. But the expansion also brought several
Maharatna
•Eligibility: Three
years with an
average annual net
profit of over Rs.
2500 crore
•Investment: Rs.
1,000 crore - Rs.
5,000 crore
Navratna
•Eligibility: A
score of 60 (out of
100), based on six
parameters which
include net profit,
net worth, total
manpower cost,
total cost of
production, cost
of
services, PBDIT
(Profit Before
Depreciation,
Interest and
Taxes), capital
employed, etc.
•Investment: up to
Rs. 1,000 crore
Miniratna
Category I
•Eligibility: Have
made profits
continuously for
the last three years
or earned a net
profit of Rs. 30
crore or more in
one of the three
years
Rs. 500 crore
Miniratna
Category II
•Eligibility: Have
made profits
continuously for
the last three years
and should have a
positive net worth.
Rs. 300 crore
Introduction
 A state-owned
enterprise in India is
called a public sector
undertaking (PSU).
 PSUs may be classified
as Central Public Sector
Enterprises (CPSEs),
public sector banks
(PSBs) or State Level
Public Enterprises
(SLPEs).
 There are 7 Maharatnas,
17 Navratnas and 73
Miniratnas. There are
nearly 300 CPSEs in
total.
 The gross turnover of
Central PSUs is around
25 per cent of the
India's GDP.
 These units employ
nearly 1.5 million
people and contribute in
generating around five
per cent of the total
employment in the
organized sector.

challenges. After the liberalization in 1991, the government opened sectors
reserved for PSUs leading to increased competition from large MNCs.
Bharat Heavy Electricals (BHEL)
Overview: Bharat Heavy Electricals Limited (BHEL) owned by the
Government of India, is a power plant equipment manufacturer and operates as
an engineering and manufacturing company based in New Delhi, India.
Established in 1964, the company has been earning profits continuously since
1971-72 and paying dividends uninterruptedly since 1976-77.
BHEL is engaged in the design, engineering, manufacturing, construction,
testing, commissioning and servicing of a wide range of products, systems and
services for the core sectors of the economy, viz. power, transmission,
industry, transportation, renewable energy, oil & gas and defence. It has a
network of 17 manufacturing units, 2 repair units, 4 regional offices, 8 service
centres, 8 overseas offices, 15 regional centres, 7 joint ventures, and
infrastructure allowing it to execute more than 150 projects at sites across India
and abroad. The company has established the capability to deliver 20,000 MW
p.a. of power equipment to address the growing demand for power generation
equipment.
Source: BHEL, Wikipedia
Financial Analysis:
Despite a sharp contraction in the market and fierce competitive environment,
BHEL has retained its market leadership position during 2015-16 with 74%
market share in the Power Sector. An improved focus on project execution
enabled BHEL record its highest ever commissioning/synchronization of
15059 MW of power plants in domestic and international markets in 2015-16,
marking a 59% increase over 2014-15. With the all-time high commissioning
63.06
15.95
10.52
6.80
2.33
13.40
Central Government of India
and State governments
Foreign Institutional
Investors (FII)
Insurance companies
Banks, Financial Institutions
and Mutual Funds
Individual shareholders
 Founded: 1964
 Headquarters: New
Delhi
 Key People: Atul Sobti
(Chairman and MD)
 Revenue:Rs 31741.7 Cr
 Employees: 47,525 (As
on March 2014)

of 15000 MW in a single year FY2015-16, BHEL has exceeded 170 GW
installed base of power generating equipments.
Amidst the arduous external economic and business environment, BHEL
continued to face challenges in 2014-15 but, policy initiatives taken by the
Government such as allocation of coal blocks through e-auction, rationalization
of fuel prices, expeditious clearance of projects and boost to Defence &
Transportation sector etc. are likely to improve business environment and
provide momentum to existing and upcoming projects.
Source: BHEL, Financial Analysis, Money Control
Future Initiatives:
With the revival in business sentiments, stream of opportunities are expected in
the traditional as well as new areas of business, which shall enable BHEL to
regain the growth trajectory.
Accelerating Project execution is one of the key focus areas of BHEL. Along
with that focus on cost optimization through increased indigenisation of
supercritical technologies, higher value additions, increased vendor base and
design/layout optimization efforts aided the company in enhancing
competitiveness.
Recently BHEL has signed a memorandum of understanding (MoU) with
NHPC for undertaking of hydropower projects in overseas markets. According
to the MoU, NHPC will handle the civil engineering work of the projects,
while BHEL will look after the electro mechanical package.
State-run BHEL has commissioned another 250 MW unit based on eco-
friendly Circulating Fluidized Bed Combustion (CFBC) technology, using low
quality coal (lignite) as the primary fuel. The unit has been commissioned at
Bhavnagar Energy Company (BECL) 2x250 MW thermal power project,
located in Gujarat.
COAL INDIA
Overview: Coal India Limited (CIL) is an Indian state-controlled coal mining
company headquartered in Kolkata, West Bengal, India. It is the largest coal
43394.58
50067.64 49430.15
39667.46
31741.47
6011.2 7039.96 6614.73
3460.78 1419.29
0
10000
20000
30000
40000
50000
60000
Mar '11 Mar '12 Mar '13 Mar '14 Mar '15
Fig.37: Financial Performance of BHEL (Rs Crore)
Revenue
Profit

producer company in the world and contributes around 82% of the coal
production in India. It produced 494.24 Million tonnes of coal during FY
2014–15 and earned revenue of INR 954.35 billion from sale of coal in the
same financial year.
Coal India operates through 81 mining areas in eight states in India. It has 430
coal mines out of which 175 are open cast, 227 are underground and 28 are
mixed mines. Production from open cast mines during 2014-15 was 92.91% of
total production of 494.24 MT. Underground mines contributed to 7.09% of
production.
Source: Coal India, Wikipedia
Financial Analysis:
During 2014-15 the coal production was 494.24 Million Tonnes. Coal India
stepped into a higher growth trajectory where the increase in absolute terms,
FY ending 2015, was nearly 32 Million Tonnes, the highest ever incremental
increase in a single financial year since the inception of the company.
Source: Coal India, Financial Analysis, Money Control
The revenues in 2015 declined as demand from power producers, the
company’s biggest customers, has lagged output, leading to rising stockpiles at
plants and the company’s own mines. Also the country has exported the
equivalent of 0.2% of total production.
79.65%
9.04%
1.28% 2.86%
Fig.38: Shareholders of Coal India
Government of India
Investors (FII)
Domestic Institutions
Non-Institutions
5481.96
9517.57
11440.26
16404.1
14530.52
4696.1
8065.1
9794.32
15008.54
13383.39
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
Fig.39: Financial Performance of Coal India (Rs Crore)
Revenue
Profit
 Founded: 1975
 Headquarters: Kolkata
 Key People: Sutirtha
Bhattacharya
(Chairman and MD)
 Revenue:Rs 14530.5 Cr
 Employees: 333097 (As
on April 2015)

Future Initiatives:
Coal India is now set to focus on improvement in areas like coal washing,
universalization of e-procurement, geo fencing of mine areas and green
initiatives. India is set to export coal for the first time, shipping 2-3 million
tonnes of the fuel to neighbouring Bangladesh. Coal India Ltd raised output by
8.5% in 2015-16 to 536 million tonnes, which helped bring down imports by
34 million tonnes. The coal stock available with power generation companies
also rose to the equivalent of 27 days’ requirement, up from 18 days a year
ago.
Though coal is in surplus, India is heavily import-dependent on the other two
primary sources of energy—crude oil and natural gas. The government wants
to reduce this dependence by 10 percentage points to 67% by 2022, by
encouraging domestic production of oil and gas through a liberal policy regime
and shifting consumption to more renewable and nuclear energy.
GAIL India
Overview: GAIL (India) Limited is the largest state-owned natural gas
processing and distribution company in India, It is headquartered in New
Delhi. It has following business segments: Natural Gas, Liquid
Hydrocarbon, Liquefied petroleum gas Transmission, Petrochemical, City Gas
Distribution, Exploration and Production, GAILTEL and Electricity
Generation.
GAIL owns the country's largest pipeline network, the cross-country 2300 km
Hazira-Vijaipur-Jagdishpur pipeline with a capacity to handle 33.4 MMSCMD
gas. Today the company owns and operates more than 11000 km long cross
country natural Gas Pipeline in India having presence in 22 states in the
country. It also owns and operates more than 2000 km long LPG pipelines in
the country and operates the world's longest exclusive LPG Pipeline in the
country from Jamnagar in Gujarat to Loni in Uttar Pradesh.
Financial Analysis:
Source: GAIL, Financial Analysis, Money Control
32977.22
40829.83
48287.2
58406.45 57602.84
3561.13 3653.84 4022.2 4375.27 3039.17
0
10000
20000
30000
40000
50000
60000
70000
Fig.40: Financial Performance of GAIL (Rs Crore)
Revenue
Profit
 Founded: 1984
Delhi
 Key People: Shri B.C.
Tripathi (Chairman and
MD)
 Revenue:Rs57602.84Cr
on 2013)

Despite operating in a harsh environment led by a steep fall in underlying
crude oil prices by nearly 50% from S109/bbl. and with a year on year decline
in domestic gas availability by 10% plus, GAIL managed a ROCE of 11%
which is comparable to many of its global peers during the period. Rapid slide
in crude oil spot prices from October'14 onwards with a drag in demand
growth, inventory write-offs, and crude inventory surpluses along with OPEC's
resistance to cut-back production has all led to global economic scenario being
jittery and volatile. Improvements in consumption growth and cranking up of
the investment cycle can be expected to be gradual if volatility persists.
Future Initiatives:
Company has commenced execution of the 2050 kilometre Jagdishpur-Haldia
Pipeline project. During the first phase of its execution, the fertilizer units
under revival at Gorakhpur and Barauni in Eastern India would be connected.
Additionally, pipeline connectivity to other industrial units and upcoming city
gas projects at Varanasi, Allahabad, Patna etc., would be hooked up en route to
maximize usage of Natural Gas. Further, Gol has entrusted GAIL to model the
500 kilometre Ranchi-Talcher gas pipeline project under Public-Private
Partnership mode as a pilot case before spreading such Natural Gas based
infrastructure development projects in other parts of the country.
Indian Oil Corporation (IOCL)
Overview: Indian Oil Corporation (Indian Oil) is India’s Largest Commercial
Enterprise. Standing true to its corporate vision of being ‘The Energy of
India’, Indian Oil has been successfully meeting the energy demands of India
for more than five decades. Indian Oil's business interests overlap the entire
hydrocarbon value-chain – from refining, pipeline transportation and
marketing of petroleum products to exploration & production of crude oil and
from marketing of natural gas to petrochemicals.
Source: IOCL, Wikipedia
Financial Analysis:
58.57%
40.13%
1.50%
1.32%
0.13%
Fig.41: Shareholders of IOCL
Government of India
Private single body
Insurance Companies
Others
Investors (FII)
 Founded: 1959
Delhi
 Key People: Mr B.
Ashok (Chairman)
 Revenue: Rs 435122.2
Cr
on 2016)

Indian economy 2016

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