Current Economic Scenario: Some Indicators

Size: px

Start display at page:

Download "Current Economic Scenario: Some Indicators"

Gloria Francis
5 years ago
Views:

1 LOK SABHA SECRETARIAT PARLIAMENT LIBRARY AND REFERENCE, RESEARCH, DOCUMENTATION AND INFORMATION SERVICE (LARRDIS) MEMBERS REFERENCE SERVICE REFERENCE NOTE. No. 26 /RN/Ref./August /2013 For the use of Members of Parliament Not for Publication Current Economic Scenario: Some Indicators The reference material is for personal use of the Members in the discharge of their Parliamentary duties, and is not for publication. This Service is not to be quoted as the source of the information as it is based on the sources indicated at the end/in the text. This Service does not accept any responsibility for the accuracy or veracity of the information or views contained in the note/collection.

2 Current Economic Scenario : Some Indicators Introduction The year , as a whole, witnessed a moderated GDP growth of 5.0 per cent the lowest since Agriculture, industry and service sector registered growth rate of 1.9 per cent, 1.2 per cent and 6.8 per cent, respectively 1. The overall Current Account Deficit (CAD) during at 4.8 per cent of GDP was far above the sustainable level. The widening CAD, financed through higher debt flows, resulted in a significant rise in India s external debt during India s external debt to GDP ratio increased to 21.2 per cent at end-march 2013 from 19.7 per cent at end-march With rising debt and deceleration in GDP growth, external sector vulnerability increased in compared with the previous year 3. Sl. Select Macroeconomic Indicators for Actuals No Real GDP growth rate at factor cost (%) 5.0 a. Agriculture & Allied Activities 1.9 b. Industry 1.2 c. Services Average WPI-Inflation (%) Exchange Rate (Rs./US$ end period) 54.4 (Rs./US Dollar as on ) year Central Govt. Securities Yield (% end period) Export (growth rate in %) Import (growth rate in %) Trade Balance (US$ billion) Current Account Deficit (% of GDP) Central Government Fiscal Deficit (% of GDP) 4.9 Source: RBI, Macro Economic and Monetory Developments, 1 st Quarter Review, p India. RBI, Macro Economic and Monetory Developments, First Quarter Review, , p. 3 2 Ibid, p ,19 3 Ibid, p. 20

3 2 The Central Government restricted its gross fiscal deficit to 4.9 per cent of GDP during , less than the budget estimate of 5.1 per cent, mainly through a cut back in plan expenditure 4. The delayed monsoon with a skewed spatial distribution contributed to high food inflation during most part of The average inflation was 7.4 per cent during Over the years, there has been a continuous decline in employment generation in the eight key sectors including textile, leather, metal, automobile, handloom, transport, IT/BPO, gem and jewellery, and handloom / powerloom. As per the Labour Bureau Survey, there was a significant decline in employment growth in these sectors (0.35 million) during compared with the previous year (0.83 million) 6. Asset quality indicators of the banking sectors which had suffered significantly in , worsened in Net Non Performing Asset (NPA) to net advances of public sector banks which were 1.5 per cent in rose to 1.8 per cent in Domestic policy uncertainties, governance concerns, the impact of earlier monetary tightening, slack external demand conditions and a weak monsoon, weighed down on the growth process during Against this backdrop, a recovery in is likely to be slow-paced. The Economy in First Quarter [(Q1) April-June] of As far as agriculture is concerned, the monsoon so far has been very good. It is 16 per cent more than the normal long term average. The sown area of measure crops is considerably higher for the forthcoming Kharif. The total net sown area is lakh hectares in the current kharif season as against lakh hectares in the 4 Ibid, p Ibid, pp Ibid, pp Ibid, pp Ibid, p. 3

4 3 corresponding period last year. It is expected that the performance of the agriculture sector during would be better than Industrial production remained muted at 0.1 per cent during April-May, 2013 which was 0.6 per cent in the corresponding period of last year 10. The cumulative growth in the mining, manufacturing and electricity sector during April-May, has been (-)4.5 per cent, 0.1 per cent and 5.3 per cent, respectively which was (-) 1.7 per cent, 0.4 per cent and 5.2 per cent, respectively in April-May of Eight core industries continued to be adversely affected by supply bottlenecks and infrastructures constraints, thereby growing at only 1.6 per cent in Q1 of which is much lower than 6.9 per cent in Q1 of While the output of coal, natural gas, crude oil contracted during the period, there was deceleration in the production of electricity, petroleum, refinery and cement too 12. Growth Rate (%) in Eight core industries Sector April-June, April-June, Coal 8.0 (-)1.1 Crude Oil (-)0.6 (-)1.4 Natural Gas (-)11.0 (-)17.6 Refinery Products Fertilizers (-) Steel Cement Electricity Overall Source: Ministry of Commerce and Industry, PIB release dated The Headline inflation, as measured by year-on-year changes in Wholesale Price Index (WPI), was 4.8 per cent in April 2013 which declined to 4.7 per cent (provisional) in May 2013 before edging up to 4.9 per cent in June 2013 on account of an increase in food and fuel prices. Average inflation during Q1 of at 4.8 per cent remained significantly lower than the average inflation of 7.5 per cent during Q1 of Food articles inflation, however, receded sharply from 12.3 per cent in 9 Opening Statement of Shri P. Chidambram, Finance Minister at the Press Conference on India. RBI, First Quarter review of Monetary Policy, , p India. Ministry of Statistics and Programme Implementation, Central Statistics Office, Press Release dated India. Ministry of Commerce and Industry, PIB release dated

5 4 January 2013 to 6.1 per cent in April 2013 reflecting improved supply conditions and arrival of rabi crops 13. Food inflation increase to 9.74 per cent during June 2013 due to rise in prices of rice, wheat, onion and vegetables. The revision in prices of diesel in and electricity led to a pick-up in inflation for these items during April-May In June, inflation rate of fuel and power group remained elevated at 7.12 per cent due to rise in prices of LPG and Diesel. Manufactured products showed a lower inflation rate of 2.75 per cent during June During Q1, , key deficits of the Government as percentages to budgets estimates were higher than in Q1 of The widening of the revenue deficit and higher capital expenditure resulted in a higher gross fiscal deficit during Q1 of Fiscal deficit and revenue deficit, as a proportion of budget estimates, was 48.4 and 55.4 per cent respectively in Q1 of which was 37.1 and 43.6 per cent in Q1 of The revenue deficit was higher due to both higher revenue expenditure and lower tax revenue. Total expenditure, as a percentage of budget estimates in Q1 of was 23.0 per cent, higher than 20.9 per cent during the same period of Item Union Government accounts as at a glance Financial Year (Budget Estimates) (Actuals) (Amount in Rs. billion) April June (Actuals) Percentage to Budget Estimates Revenue Receipts 10, , , Tax Revenue (Net) 8, , , Non-Tax Revenue 1, Capital Receipts 6, , , Recovery of Loans Other Receipts Borrowings and Other Liabilities 5, , , Total Receipts (1+2) 16, , , Non-Plan Expenditure 11, , , op.cit, First Quarter Review , pp India. Ministry of Finance, Public Debt Management, Quarterly Report, April-June, 2013, p. 2

6 5 4.1 On Revenue Account 9, , , Interest Payments 3, On Capital Account 1, Plan Expenditure 5, , On Revenue Account 4, On Capital Account 1, Total Expenditure (4+5) 16, , , Revenue Expenditure ( ) 14, , , Capital Expenditure ( ) 2, Revenue Deficit (7-1) 3, , , Fiscal Deficit {6-( )} 5, , , Gross Primary Deficit [ ] 1, , , Source: RBI, Monthly Bulletin, August 2013 The trade deficit continues to be a concern in Q1 of , which widened from US $ 42.2 billion in Q1 of to US $ 50.2 billion in Q1 of , mainly on account of a sharp increase in gold imports. Gold imports have almost doubled from US $ 9.2 billion in Q1 of to US $ 17.9 billion in Q1 of Reflecting global demand conditions, exports contracted in Q1 of by 1.4 per cent as against a decline of 4.0 per cent in Q1 of In contrast, imports grew by 6.0 per cent in Q1 of as against a decline of 5.7 per cent in Q1 of Trends in trade data suggest that the current account deficit (CAD) may remain high in Q1 of Wider trade deficit and rising gold import also put pressure on the Indian rupee. The rupee depreciated by around 9 per cent during Q1 of The rupee appreciated in April 2013, but the trend reversed from the start of May, with dollar gaining strength of better growth prospects. The dollar strengthening against major currencies, coupled with widening trade deficit drove the rupee to a new low of Rs against the dollar on July 8, (Rs./US Dollar as on was 62.35) 15 op.cit., First Quarter Review , pp Ibid, p. 19

7 6 During Q1 of , year-on-year growth of reserve money picked up and was at 7.0 per cent compared with 5.6 per cent in Q1 of Growth in currency in circulation decelerated, reflecting the impact of the economic slow down 17. As on 12 July 2013, Year-on-year variation in credit flow from all scheduled commercial banks was at 14.2 per cent compared with 17.7 per cent on 13 July During Q1 of , Foreign Institutional Investors (FIIs) made net sales of Rs.90 billion in the capital market as against net investment of Rs.19 billion during Q1 of In the equity market FIIs made the investment of Rs.153 billion in Q1 of as against net sales of Rs. 7 billion during Q1 of the previous year. Mutual Fund, on the other hand, made net investment of Rs.1,376 billion during Q1 of in the capital market compared with Rs.1,383 billion during Q1 of Mutual Funds made net sales of Rs. 52 billion in equity market compared with net sales of Rs. 6 billion during Q1 of the previous year 19. The total public debt of the Government increase to Rs. 43,20,644 crore at end June 2013 from Rs. 41,12,187 crore at end March This showed Quarter-onquarter increase of 5.1 per cent compared with an increase of 5.3 per cent in the previous quarter 20. Gross external assistance during Q1 of stands at Rs crore as compared to Rs crore during Q1 of Recent Initiatives According to statement made by Shri P. Chidambram, Union Finance Minister, on 12 August 2013, the current account deficit is one of the major challenges before the Indian economy and several measures are proposed to reduce the CAD during Ibid, p Ibid, p Ibid, p op.cit., Public Debt Management, Quarterly Report, April-June 2013, p India. Ministry of Finance, Monthly Economic Report, June 2013, p. 9

8 7 14, some of which include (i) compression in import of gold and silver (ii) compression in demand for oil, and (iii) compression in import of non-essential goods. It is expected that the CAD will be contained at US $ 70.0 billion during which will amount to 3.7 per cent of GDP as against 4.8 per cent in The Reserve Bank of India (RBI), in a move to save the battered rupee, on 14 August 2013 reversed the trend of relaxing capital controls by limiting the amount Indian companies could invest abroad and the money citizens could remit abroad. The steps are expected to affect the plans of several business houses, which had laid out big plans to invest abroad. As per RBI, the measures are aimed at moderating forex outflows. However, any genuine requirement beyond these limits will continue to be considered under the approval route. In a parallel move to boost inflows, RBI deregulated the interest rate offered by banks to non-resident Indians (NRIs). Till now, banks were not allowed to pay higher rates for non-resident (external) rupee (NRE) deposits than those for the resident ones. Banks are free to offer interest rates without any ceiling on NRE deposits with maturities of three years and above 23. Outlook Since the world economy is challenged, India s economy also faces challenges. The major challenges of our economy are decreasing economic growth which decreased to 5 percent in from 8.5 per cent in , rising consumer price inflation and a widening trade deficit which was 4.8 per cent of GDP for These problems have the combined affect of lowering investor confidence as well as value of our rupee. Growth is expected to pick only slowly as by year progress. While headline inflation has moderated, high consumer price inflation remains a concern. While recent measures to address exchange rate volatility have provided a temporary relief, structural reforms are needed to support growth revival and reduce Current Account Deficit. 22 PIB release, Ministry of Finance, dated Business Standard, dated

REFERENCE NOTE. No. 28/RN/Ref./November /2013

LOK SABHA SECRETARIAT PARLIAMENT LIBRARY AND REFERENCE, RESEARCH, DOCUMENTATION AND INFORMATION SERVICE (LARRDIS) MEMBERS REFERENCE SERVICE REFERENCE NOTE. No. 28/RN/Ref./November /2013 For the use of