NCAER-IIC. Mid-Year Review of the Economy November 14, 2015 New Delhi

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1 NCAER-IIC Mid-Year Review of the Economy November 14, 2015 New Delhi

2 Outline of the Presentation Macro-economic performance to date Dis-aggregated view / sectoral performance Near Term Challenges Forecast & Outlook

3 NCAER-IIC MYR Then (2014) & Now (2015) Flashback : In Nov 2014, we d described H1, , as: Period when India got its mojo back! We said the good thing about H was: It gave us a rare (undeserved?) window of opportunity Fast-Forward : So how do we describe H ? A period when India almost lost its way! Good thing about H : We ve got a (undeserved?) second chance

4 Will it be promise belied Second-time lucky? From being a member of the Fragile Five in 13 To being the only BRIC standing in Mid 2014 To losing our footing by March 2015 To once again looking good; if only relatively! India has come full circle in 1 year

5 But it s not the 1 st time! Indian economy has flattered to deceive in the past as well From being described the World s Biggest Under-achiever (Economist 1999) To being the eye of the Brics in 2003 To being part of Fragile Five by 2010 To now breaking loose from that grouping How will the world see us Nov 2016?

6 The billion dollar question!! Crouching tiger? A Nearly-power? Lumbering elephant? Tortoise finally picking up pace?

7 Good news is it s no longer if & when, but how!

8 In a nutshell. It is the best of times, it is the worst of times. Charles Dickens : Tale of Two Cities

9 Growth Forecasts: Old & New base base base base * base base Agri/forestry/fishing Manufacturing Trade/hotels/restaura nts Fin/real estate/buss. services GDP

10 Growth Forecasts Ministry of Finance RBI ADB IMF World Bank Real GDP market prices growth (%) >7.5 (Oct) 7.4* (Sept) 7.4 (Sept) 7.3 (Oct) 7.5 (Oct) Notes: *GVA at basic prices ( ) Sources: Asian Development Bank, Reserve Bank of India, World Bank, Finance Ministry, GOI, and International Monetary Fund

11 Projections for the World (%) Country/ Region US ( ) 2.8 ( ) China ( ) 6.3 ( ) Euro Area ( ) 1.6 ( ) Japan ( ) 1.0 ( ) India ( ) 7.5 ( ) Emerging Market and Developing Economies Advanced Economies ( ) 4.5 ( ) ( ) 2.2 ( ) World ( ) 3.6 ( ) Note: The arrows indicate changes in direction from July 2015 forecasts. Source: IMF World Economic Outlook (WEO) Update, Oct 2015

12 Is the improvement real or illusory? Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 GVA GDP

13 On the price front, we re in safe waters! Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep Prices CPI Prices CPI food Prices WPI

14 But investment is still in the doldrums Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1FY16 Gross Fixed Capital Formation( % of GDP) Current prices Gross Fixed Capital Formation( % of GDP) Constant prices

15 6-Apr Apr Apr Apr-15 4-May May May May-15 1-Jun-15 8-Jun Jun Jun Jun-15 6-Jul Jul Jul Jul-15 3-Aug Aug Aug Aug Aug-15 7-Sep Sep Sep Sep-15 Govt gains more than corporates 8 10 Yr G Secs Yield

16 Stock Markets: No longer irrationally exuberant! BSE SENSEX

17 FIIs play true to form, easy come, easy go! * Equity Debt Total

18 Like monsoon, IPO position is sub-par but is improving (till 16/10) No. of IPOs Amount

19 Real interest rates among the highest!(oct 15) Policy rate CPI Real rate Brazil Russia India S. Africa Indonesia Turkey Mexico Source: cbrates.com, Economist

20 Is the whole more or less than the sum of its parts? The dis-aggregated view

21 Agriculture: News is grim and yet not so grim or without hope!

23 Industry Have hopes been raised, only to disappoint? Plus ça change, plus c'est la même chose

24 Mixed signals from the core Coal Crude oil Natural gas Refinery products Fertiliser Steel Cement Electricity Overall Source: Office of EA, DIPP H1 FY15 H1 FY16

25 Tentative recovery in sight Q1FY15 Q2FY15 Q3FY15 Q4FY15 FY15 Q1FY16

26 Services : Mixed signals : What is clear is services can no longer be the sole engine of growth!

27 Real Growth rate of Services Sector GVA basic prices (%, Y-o-Y) AE PE GVA-BP Services incl Construction Services excl Construction Community, social & Financing, insurance, real Trade, hotels, transport,commun ication etc

28 Money and Capital Markets.

29 Bank credit continues to lag Bank Deposits Non-Food Credit

30 External Sector: Prima facie re-assuring but anxieties remain

31 How real is the comfort? US $ bn Q Q Q Trade balance Net Service Net Income Current account figs in brackets % of GDP Source: RBI (-4.9) (-1.7) (-1.2)

32 Re less volatile than other EME currencies 68.0 USD/INR

33 Public Finance: So far so good but OROP & 7 th Pay Commission will rock the boat!

34 % of BE; Source: CGA As good as it gets H H Revenue receipts Tax revenue (net) Non-tax revenue Total receipts Non-plan exp Plan exp Total exp Fiscal deficit Revenue deficit Primary deficit

35 Prices: Welcome relief; but have we got blind-sided in the process? Has growth suffered?

36 Death of inflation? Or, too early to declare victory? Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep Prices CPI Prices CPI food Prices WPI

37 Near-term Challenges : Internal Revive investment Improve productivity ; arrest rise in ICOR Reverse decline in manufacturing sector Improve governance Improve infrastructure: physical & social Structural reform - focus on land and labour markets Legal reform

38 Near term Challenges : External End of Federal Reserve s QE and reversal of US interest rate cycle Threat of recession in Europe Slowdown in China s growth rate Stagnation in world trade Exclusion from trade pacts like TPP In the face of all this.

39 Question is: Can we make it?

40 Yes, we can! Why? UP AP Gujarat M a h a G O I Cos states & centre are working as equal partners

41 To conclude.. It is the age of wisdom, it is the age of foolishness, it is the epoch of belief, it is the epoch of incredulity, it is the season of Light, it is the season of Darkness, it is the spring of hope, it is the winter of despair, we have everything before us, we have nothing before us.. Charles Dickens: Tale of Two Cities

42 Forecast

43 Quarterly Model Assumptions Prices ARIMA Model deflation (-3.6% yoy) Rainfall As per IMD reports, deficit rainfall, -6.2 %yoy BSE 5% y-o-y increase in 2015 BCC 10.1% y-o-y increase in Total Expenditure of the Central Government 10% y-o-y increase in

44 Quarterly Forecast for Gross Value Added at Basic Prices (constant prices) for , %y-o-y July-15 October :Q * :Q :Q :Q Note: * Actual value Source: NCAER

45 Assumptions of the Annual Model Rainfall : -6.7% increase in BSE 5% in World GDP Growth - 3.1% in 2015 International Crude Oil Prices -46.4% in Non-fuel Commodity Prices % in FDI Net Inflows 10% in Net Invisibles 5% in FII 10% in WPI Energy -12.8% in LIBOR 0.3% Exchange Rate Rs 65.25/$ in Central Government Finances Disinvestment Rs 69,500 crore in

46 NCAER Forecast for GDP Market Prices ( Prices), Growth Rate Estimates for Item April 2015 July 2015 October 2015 GDP Market Prices ( prices )% yoy) Exports ($ value) (%yoy) Imports ($ value) (%yoy) Inflation (WPI) (% yoy) Current account balance as percentage of GDP Fiscal Deficit (Centre) as percentage of GDP

47 MYR Team Overview Forecast: Agriculture: Industry: Services: Money and Credit: Prices: External Sector: Public Finance: Mythili Bhusnurmath Bornali Bhandari Anil K. Sharma Poonam Munjal Devender Pratap Pallavi Choudhuri Sheshadri Banerjee Rajesh Chadha & Ishita Gambhir Mythili Bhusnurmath Research/ Data Support: Ajaya Sahu, Praveen Sachdeva Organisational Support: Sudesh Bala

48 Thank You

49 Recent Trends in Selected Economic Indicators % Change YOY I. Growth Environment: IIP Q4 Q1 Jul Aug Sep Manufacturing Mining and Quarrying Electricity General

50 Recent Trends in Selected Economic Indicators % Change YOY Q4 Q1 Jul Aug Sep II. Price environment WPI( ) Primary articles Fuel, power etc Manufacturing Rice or paddy Wheat Edible oils All commodities CPI Industrial workers (2001=100) Agricultural labour ( =100) Combined (2012=100)

51 Recent Trends in Selected Economic Indicators % Change YOY III. Monetary/ Capital market variables Q4 Q1 Jul Aug Sep Sensex M RM Bank credit to commercial sector LIBOR (3 months, %)*

52 Recent Trends in Selected Economic Indicators % Change YOY IV. External account Q4 Q1 Jul Aug Sep Exports (US$ merchandise) Imports (US$ merchandise) Exchange rate Rs/US$ (+ depreciation/- appreciation Brent $/barrel* Forex Currency Assets (US$)

53 Puzzles 1. Does agriculture matter? 2. Industrial growth or not? 3. Investment 4. Inflation and Inflation Expectations

54 Does agriculture matter?

55 Does agriculture matter? Distribution across Principal Industries of Households %age share Households Consumption Agriculture and allied Industry Services Non economic activities All Source: NSSO

56 Source: MoSPI Industrial Growth or Not?

57 Source: MoSPI Industrial Growth or Not? contd.

58 Source: MoSPI Investment: Capital Goods

59 Investment: NCAER BES Source: NCAER Business Expectations Survey

60 Inflation and Inflation Expectations are divergent Source: RBI, Labour Bureau and Office of Economic Advisor

61 Mixed Outlook Source: RBI, MoSPI and Office of Economic Advisor

NCAER - IIC. Mid-Year Economic Review/Outlook. November 1, 2014

NCAER - IIC. Mid-Year Economic Review/Outlook. November 1, 2014 NCAER - IIC Mid-Year Economic Review/Outlook November 1, 2014 Outline of the Presentation Macro-economic performance to date Dis-aggregated view / sectoral performance Near Term Challenges Forecast & Outlook