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Current State of Indian

Economy
June 2011

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Current State of Indian Economy June 20111


EXECUTIVE SUMMARY
GDP growth

GDP growth figures for Q4, 2010-11, highlight an unmistakable downward trend. While in Q1, 2010-11, GDP
grew by 9.3 percent, in Q4, 2010-11, GDP growth came down to 7.8 percent.
Sectors like manufacturing and mining & quarrying have seen considerable erosion of growth momentum over
the last one year.
While consumption demand is still holding, a sharp decline in growth of investments is seen. Growth in Gross
Fixed Capital Formation [GFCF] has dipped from 17.4 percent in Q1, 2010-11 to 0.4 percent in Q4, 2010-11.
Given the evolving situation, growth in 2011-12 is likely to be close to the 8 percent mark.
Quarterly Growth in GDP (2004-05 prices)
14
12
10
8
6
4
2

Mining and quarrying

Q4 2010-11

Q3 2010-11

Q2 2010-11

Q1 2010-11

Manufacturing

GDP at factor cost

Industrial Production

Weakness in industrial production trend continues. In April 2011, IIP registered a growth of 6.3 percent. In
April 2010, growth in IIP was to the tune of 13.1 percent.
Amongst the use based industrial groups, a similar streak of weakness is seen with growth in the capital goods
segment, intermediate goods segment and consumer goods segment slowing down from 35.5 percent, 11.9
percent and 13.8 percent respectively in April 2010 to 14.5 percent, 3.4 percent and 2.9 percent in April 2011.
IIP growth and Repo rate

IIP

Apr'11

Mar'11

Feb'11

Jan'11

Dec'10

Nov'10

Oct,10

Sep'10

Aug'10

Jul'10

Jun'10

May'10

Apr'10

14
13
12
11
10
9
8
7
6
5
4

Repo rate

This report has been prepared by the Economic Affairs and Research Division, FICCI
Page | 2

Core Sector

Data for April 2011 shows a perceptible decline in performance of the core sector with growth dipping from
8.5 percent in April 2010 to 4.6 percent in April 2011. Sectors like natural gas, fertilizers, cement and steel are
largely responsible for this poor performance. Growth in the coal sector however moved from (-) 2.9 percent
in April 2010 to 2.8 percent in April 2011.

Inflation

The inflation situation in the economy continues to be a cause for concern. Despite large scale tightening of
the monetary policy by the RBI and other steps taken by the government, inflation continues to remain close
to the double digit mark.
In May 2011, WPI based headline inflation stood at 9.1 percent. This is higher than 8.7 percent inflation
recorded in April 2011. Core inflation too has moved up from 8 percent in April 2011 to 8.6 percent in May
2011.
Near term outlook for inflation is not too encouraging and there are chances that we may see inflation jump
to the double digit territory on a few occasions.
High international oil prices, likely decontrol of diesel prices, high global food prices and hike in Minimum
Support Prices for the upcoming agriculture season are some of the factors that constitute the upside risks to
inflation.

Foreign Trade

The strong momentum in exports, seen particularly during the second half of 2010-11, has continued in the
year 2011-12 as well.
In April 2011 exports totaled US$ 23.8 billion and represented a growth of 34.4 percent over the same month
of the previous year when exports totaled US$ 17.7 billion.
While this strong start in 2011-12 is encouraging, there are indications that this high growth will not be
sustained in the months ahead.
Rising interest rates, rising raw materials costs and oil prices, withdrawal of incentive schemes like DEPB and
likely slowdown in Asian economies are some of the reason that have tempered the outlook for exports.
In April 2011, our imports totaled US$ 32.8 billion and registered a growth of 14.1 percent over the same
month of the previous year when imports amounted to US$ 28.8 billion.
With developments in the Middle East and North Africa region showing no signs of a let up and with OPEC
resisting any upward revision in daily oil production quota, oil prices are likely to remain firm in the near term.
This will continue to put pressure on Indias overall oil import bill.
As regards non-oil imports, while a slowdown in the domestic economy could lead to some moderation in the
non-oil import bill, any large respite here can be ruled as prices of commodities other than oil are also firming
up.

Foreign Investments

In 2010-11, foreign investment flows into India saw a dip of about 17 percent over the previous year. Further,
this dip is largely on account of a slowdown seen in case of FDI.
In 2009-10, FDI inflows into India totaled US$ 37.7 billion. In 2010-11, this figure came down to US$ 27 billion.
Data also shows that of out of the top 25 sectors, 15 sectors have seen a dip in FDI flows during April Feb
2010-11 compared to the same period in 2009-10. Sectors like services, construction, housing and real estate,
telecommunication and agricultural services are the ones where investment flows have slowed down
considerably.
In 2010-11, portfolio flows totaled US$ 31.5 billion and were only a tad below US$ 32.4 billion received in
2009-10.
The outlook for portfolio flows in the current year is not too encouraging. Global fund managers are
particularly concerned over the evolving macro-economic situation with inflation showing limited signs of
abatement and growth slowing down at a fast clip.
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The re-emergence and intensification of the sovereign debt crisis in Europe and the expected halt of
quantitative easing policy in the US by the end of June 2011 are also downside factors for portfolio flows for
emerging markets including India.

Forex Reserves

In April 2011, Indias foreign exchange reserves totaled US$ 313 billion.
The increasing size of our foreign exchange reserves has drawn attention of the policymakers. Just some time
back, Dr. Kaushik Basu, Chief Economic Advisor, Ministry of Finance, had raised the question of India to
consider having a Sovereign Wealth Fund. In more recent times, a few independent analysts have opined that
a part of these huge reserves be deployed to import commodities which are or could be in short supply in the
economy.

Money and Banking

The year on year growth in money supply in the period up to May 21, 2011 was 16.8 percent. Growth in the
corresponding period [up to May 22, 2010] in the previous year was 15.1 percent.
The year on year growth in non-food credit in the period up to May 21, 2011 has been almost 22.1 percent.
This is higher than the credit growth target of 19 percent set by the RBI for the current year. Growth in
deposits in the period up to May 21, 2011 has been of the order of 17.4 percent and is in line with RBI target
growth of 17 percent for the current year.
These numbers indicate that the trend seen in the previous year of deposit growth lagging credit growth
continues in the current financial year. The growth rate in deposits has picked up in recent months and to that
extent eased some pressure on the banks as they worked hard to maintain their margins.

Fiscal Situation

The provisional estimates for 2010-11 for various fiscal variables show a definite improvement over the
revised estimates (RE), with a more than anticipated rise in revenue collection and reduction in expenditure.
The striking feature of the new estimates is the reduction in fiscal deficit [4.7 percent] number compared to
the revised estimate [5.1 percent] given during presentation of the union budget.
Though the fiscal deficit numbers for 2010-11 are encouraging, maintaining fiscal discipline in 2011-12 is
looking increasingly difficult.

Corporate Sector Performance Q4, 2010-11

In the fourth quarter of fiscal 2010-11, corporate India turned out a good performance both in terms of sales
and profits. Such a performance is particularly noteworthy as it came at a time when overall expenses are
going up at a fast clip.
Net sales of All Industries in the fourth quarter of 2010-11 registered a growth of 23.5 percent. This is the
highest growth in net sales that we have seen in the last eight quarters.
Further, while firms from the manufacturing sector saw an increase of 22.26 percent in net sales in the last
quarter of 2010-11, companies from the services (other than financial) sector saw sales going up by 27.46
percent.
Within the manufacturing sector, growth in sales has been particularly strong in sectors such as textiles,
cement, steel and transport equipment. Performance of the food and beverages sector and the chemicals
sector lagged the average growth for the manufacturing sector as a whole.
Total expenses for All Industries went up by 23.52 percent in Q4, 2010-11. This growth is the highest seen in
last four quarters.
Further, while the manufacturing sector saw total expenses rise by 21.68 percent in Q4, 2010-11, services
(other than financial) saw an increase of 31.29 percent.
Within the manufacturing sector, the increase in total expenses in the quarter under review was particularly
high in sectors such as cement [48.12 percent] and steel [30.06 percent].
Page | 4

Growth in Net Sales (%)

Growth in Total Expenses (%)

30

40

20

30

10

20
10

All industries
Manufacturing
Services (other than financial)

Q4 10-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

-20

Q3 09-10

-10

Q2 09-10

0
Q1 09-10

Q4 10-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q3 09-10

-20

Q2 09-10

-10

Q1 09-10

All industries
Manufacturing
Services (other than financial)

Page | 5

Current State of Indian Economy June 2011


INDEX
MACRO ECONOMY

7
9
13
15
18
20
23
24
25
27

GDP Growth
Industrial Production
Core Sector
Inflation
Foreign Trade
Foreign Investments
Forex Reserves
Exchange Rate
Money and Banking
Fiscal Situation

CORPORATE SECTOR PERFORMANCE Q4, 2010-11

31

31
33
34
35
36
37
38

All industries
Textiles
Cement
Steel
Chemicals
Transportation
Food and Beverages

ROUND UP OF KEY DEVELOPMENTS

39

Draft National Manufacturing Policy


RBIs Financial Stability Report

39
39

CHARTS

40

Industrial Production
Inflation
Foreign Trade and Foreign Investments

40
42
43

DATA ON INTEREST RATES

44

Current State of Indian Economy June 2011


GDP Growth
The Central Statistical Organisation (CSO) has released the revised estimates for GDP for 2010-11.
Alongside, it also released the quarterly estimates for GDP for the fourth quarter of 2010-11.
According to the latest numbers made available by CSO, Indias GDP at factor cost at constant prices
registered an increase of 8.5 percent in the year 2010-11. This revised estimate of 8.5 percent growth
for GDP in 2010-11 is only a shade below the advance estimates that had pegged GDP growth for 201011 at 8.6 percent.
This slight dip in overall GDP growth can be attributed to weaker performance in sectors such as mining
and quarrying, manufacturing, trade, hotels, transport and communication and financing, insurance,
real estate and business services than anticipated earlier.
In case of the agriculture and allied activities sector, we find that the revised estimates have pegged
growth in 2010-11 at 6.6 percent, which is much higher compared to the advance estimates that had put
growth at 5.4 percent.
In this context it is important to note that the third advance estimates of crop production released by
the Ministry of Agriculture have shown a significant upward revision as compared to second advance
estimates in the production of wheat [84.27 million tonnes from 81.47 million tonnes], pulses [17.29
million tonnes from 16.51 million tonnes], oilseeds [302.51 lakh tonnes from 278.48 lakh tonnes] and
sugarcane [340.54 million tonnes from 336.70 million tonnes]. These revisions are responsible for lifting
the GDP growth rate for agriculture and allied activities sector.
Another sector where we see a substantial upward revision in growth rate between the advance and
revised estimates is the community, social and personal services sector. While in its advance estimate,
CSO had indicated a growth of 5.7 percent for this sector, in the revised estimates this figure has been
moved up to 7.0 percent. This revision comes on the back of a larger increase in total expenditure of the
central government than anticipated earlier.
The moderation in the expected pace of expansion of the mining and manufacturing sectors can be
related to certain adverse policy developments as well as hardening of the interest rates in the
economy. Further, as performance of the financing, insurance, real estate and business services sector
is closely related to performance of the manufacturing sector, this sector too has seen a slippage in
growth between advance and revised estimates.
Table 1 Growth in GDP at factor cost by economic activity (2004-05 prices)
2008-09
1
Agriculture, forestry and fishing
2
Mining and quarrying
3
Manufacturing
4
Electricity, gas and water supply
5
Construction
6
Trade, hotels, transport and communication
7
Financing, insurance, real estate and business services
8
Community, social and personal services
9
GDP at factor cost
QE: Quick Estimates AE: Advance Estimates RE: Revised Estimates

-0.1
1.3
4.2
4.9
5.4
7.6
12.5
12.7
6.8

2009-10
2010-11
2010-11
(QE)
(AE)
(RE)
0.4
5.4
6.6
6.9
6.2
5.8
8.8
8.8
8.3
6.4
5.1
5.7
7.0
8.0
8.1
9.7
11.0
10.3
9.2
10.6
9.9
11.8
5.7
7.0
8.0
8.6
8.5
Source CSO, MOSPI, Govt. of India
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Moving on to the quarterly estimates for GDP growth for the fourth quarter of 2010-11, we see that
although the economys performance is still decent at 7.8 percent, an unmistakable downward trend is
visible. Quarterly growth estimates show that GDP growth has come down from 9.3 percent in Q1,
2010-11 to 8.9 percent in Q2, 2010-11 to 8.3 percent in Q3, 2010-11 and further down to 7.8 percent in
Q4, 2010-11.
Amongst sectors, the ones that have seen a considerable erosion of growth momentum over the last
one year are mining and quarrying and manufacturing. While in case of the former, the growth figures
have come down from 7.1 percent in Q1, 2010-11 to 1.7 percent in Q4, 2010-11, in case of the latter,
growth has moderated from 12.7 percent in Q1, 2010-11 to 5.5 percent in Q4, 2010-11.
The performance of the agriculture and allied activities sector in the fourth quarter has been
particularly strong at 7.5 percent. The other sectors that have registered strong growth in Q4, 2010-11
are electricity, gas and water supply [7.8 percent], construction [8.2 percent], trade, hotels, transport
and communication [9.3 percent] and financing, insurance, real estate and business services [9.0
percent].
Table 2 Growth in GDP at factor cost by economic activity (2004-05 prices) Quarterly numbers

1
2
3
4
5
6
7
8
9

Agriculture, forestry and fishing


Mining and quarrying
Manufacturing
Electricity, gas and water supply
Construction
Trade, hotels, transport and communication
Financing, insurance, real estate and business services
Community, social and personal services
GDP at factor cost

Q1
2010-11
2.4
7.1
12.7
5.6
7.7
12.6
9.8
8.2
9.3

Q2
Q3
Q4
2010-11
2010-11
2010-11
5.4
9.9
7.5
8.2
6.9
1.7
10.0
6.0
5.5
2.8
6.4
7.8
6.7
9.7
8.2
10.9
8.6
9.3
10.0
10.8
9.0
7.9
5.1
7.0
8.9
8.3
7.8
Source CSO, MOSPI, Govt. of India

A look at quarterly GDP figures by expenditure class shows that growth in private final consumption
expenditure is maintained at a robust 8 percent even in the fourth quarter of the fiscal 2010-11.
However, what is worrisome is the trend in the growth numbers for gross fixed capital formation, which
shows that year on year growth has tapered from 17.4 percent in Q1, 2010-11 to just about 0.4 percent
in Q4, 2010-11. This is a clear indication of weakness in the investment activity level in the economy and
does not bode well for growth in the current year.
Table 3 Growth in GDP at market prices by expenditure (2004-05 prices) Quarterly numbers

1
2
3
4
5
6
7
8

Q1 2010Q2 2010Q3 2010Q4 201011


11
11
11
Private Final Consumption Expenditure
8.9
8.9
8.6
8.0
Government Final Consumption Expenditure
6.7
6.4
1.9
4.9
Gross Fixed Capital Formation
17.4
11.9
7.8
0.4
Change in Stocks
11.7
9.0
5.1
4.6
Valuables
28.0
21.2
18.5
32.3
Exports
10.0
10.7
24.8
25.0
Imports
15.5
11.6
0.4
10.3
GDP at Market Prices
9.4
9.1
9.2
7.7
Source FICCI computations based on data provided by CSO, MOSPI, Govt. of India

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With regard to GDP growth in the year 2011-12, it was noted even in our earlier report that the initial
guidance provided by Ministry of Finance of 9 percent growth is looking increasingly difficult to achieve.
With time even the government has come around this view and growth projection for the year 2011-12
has been lowered to 8 to 8.5 percent.
It is interesting to note that in FICCIs most recent Economic Outlook Survey, results of which were
released in May 2011, the median forecast for GDP growth in the current year comes to 8 percent.
The inputs and projections provided by various participating economists in this survey show that while
the agriculture and allied activities sector is projected to grow by 3.7 percent this year, industry and
services sector are poised to grow by 8 percent and 9.2 percent respectively.
The key risks to growth in India in the current year are the negative impact of continuous tightening of
monetary policy by RBI and a slowdown in global growth due to high international oil prices. Further,
although the Indian Meteorological Department has projected a normal monsoon this year, we will have
to wait for more updates to get a clearer picture on the spatial distribution of the monsoon.
Projected GDP growth [India] in 2011-12
Organisation
Morgan Stanley
IMF
FICCI
Nomura
DBS
CARE
Standard Chartered
Indicus
Dun and Bradstreet
ADB

Projection in %
7.7
7.8
8.0
8.0
8.0
8.0
8.1
8.7
8.8
8.8
Source FICCI Compilation

Projected growth [Sectors] in 2011-12


10

9.2

8
6

3.7

4
2
0
GDP

Agriculture
and allied
activities

Industry

Services

Source FICCI Economic Outlook Survey, May 2011

Industrial Production
The Central Statistical Organisation (CSO) has revised the base year for the industrial production data
series from 1993-94 to 2004-05. The new series also incorporates a much larger set of items2 that reflect
the contemporary production activity in the country and is expected to offer a better gauge of the
countrys industrial activity. The weighting diagram of the three major sectors under two digit level
indices and four different goods sectors under use based classification has also changed to capture the
changing structure of economy effectively. The new set of weights that would now be followed is given
in the following table.

Some of the items included in the new series are mobile phones, digital cameras, fruit juices, laptops, new chemical items and
processed food.

Page | 9

Table 4 Comparison of weights assigned in the Old and New series of IIP Indices
Sectors

Mining
Manufacturing
Electricity
General Index
Basic goods
Capital goods
Intermediate goods
Consumer goods
Durables
Non durables
General Index

Old series
New series
1993-94 Base Year
2004-05 Base Year
Two-digit level Indices
10.47
14.16
79.36
75.53
10.17
10.32
100.00
100.00
Use- based Index
35.57
45.68
9.26
8.83
26.51
15.69
28.66
29.81
5.37
8.46
23.30
21.35
100.00
100.00
Source CSO, MOSPI, Govt. of India

As the above table shows, in the new series, while the weight of the mining sector has gone up that of
the manufacturing sector has gone down. Amongst the use based segments, while basic goods have
seen their weight go up substantially, intermediate goods have seen a reduction in the weight assigned
for construction of the index.
Even before data as per the new series for industrial production was brought out by CSO, economic
analysts had predicted that data as per the new series would provide an upward bias to growth as it
would incorporate new fast growing sectors of the economy.
The new numbers have confirmed this and we see a substantial change in growth performance in 201011 when we compare the results of the new series with the results based on the old series. It is also
interesting to note that the adverse impact on industrial production in the period following the global
slowdown is also accentuated as per the new series and this is reflected in the numbers for 2009-10.
As the data given in the next table shows, overall industrial production [as per the new series] registered
a growth of 8.2 percent in 2010-11. And this is much better than the 5.3 percent growth clocked in
2009-10. Further, a good part of industrial growth in 2010-11 was driven by the manufacturing sector,
which recorded a growth of 8.9 percent compared to a growth of 4.8 percent in 2009-10. The other two
sectors, mining and manufacturing, however saw their performance going down in 2010-11 compared
to 2009-10.
Coming to the use-based classification, we see that all sectors, barring consumer durables, saw an
improvement in performance in 2010-11 over 2009-10. And among the sectors that saw an
improvement in performance, the capital goods sector stands out as its growth improved from 1
percent in 2009-10 to 15 percent in 2010-11.
As mentioned earlier, these numbers, based on the new industrial production series, reflect a much
different and improved performance compared to results based on the old series.

Page | 10

Table 5 Trends in Industrial Production YOY growth in percent


2009-10

General Index
Mining
Manufacturing
Electricity

2010-11

Old
Series
10.5
9.9
11.0
6.0

New
Series
5.3
7.9
4.8
6.1

7.2
20.9
13.6
6.2
24.6
0.4

4.7
1.0
6.0
7.7
17.0
1.4

Basic goods
Capital goods
Intermediate goods
Consumer goods
Durables
Non-durables

2010-Apr

Old
New
Series
Series
7.8
8.2
5.9
5.2
8.2
8.9
5.6
5.5
Use-based industrial groups
6.3
6.0
9.5
15.0
8.8
7.2
7.5
8.3
21.0
14.1
2.2
3.9

Old
Series
16.6
12.0
18.0
6.9
9.1
64.1
10.8
11.9
32.1
4.8

2011-Apr

New
Series
13.1
9.2
14.5
6.5

Old
Series
4.4
2.1
4.4
6.4

New
Series
6.3
2.2
6.9
6.4

6.7
5.6
7.3
35.5
2.5
14.5
11.9
2.4
3.4
13.8
5.9
2.9
23.3
9.2
3.8
6.8
4.5
2.1
Source CSO, MOSPI, Govt. of India

Coming now to the growth figures for the month of April 2011, we see that overall industrial production
[as per the new series] registered a growth of 6.3 percent. This performance is much weaker compared
to a growth of 13.1 percent registered in April 2010. Amongst other sectors a palpable slowdown is
noticeable in sectors such as mining and manufacturing with growth slowing from 9.2 percent and 14.5
percent respectively in April 2010 to 2.2 percent and 6.9 percent respectively in April 2011.
Amongst the use based industrial groups, a similar streak of weakness is seen with growth in the capital
goods segment, intermediate goods segment and consumer goods segment slowing down from 35.5
percent, 11.9 percent and 13.8 percent respectively in April 2010 to 14.5 percent, 3.4 percent and 2.9
percent in April 2011.
Table 6 Trends in Industrial Production YOY growth in percent [Old Series]
Month/
Year

Mining

Mfg

Electricity

General IIP
growth

Month/
Year

Mining

Dec'09
Jan'10
Feb'10
Mar'10
Apr'10

11.12
15.34
11.02
12.31
11.97

19.62
17.90
16.11
16.45
18.00

5.42
5.57
7.33
8.33
6.87

17.95
16.78
15.13
15.55
16.64

Dec'10
Jan'11
Feb'11
Mar'11
Apr'11

5.97
1.76
0.99
0.39
2.06

Mfg

Electricity

General IIP
growth

2.07
5.99
2.58
3.68
10.47
4.03
3.63
6.75
3.65
8.42
7.19
7.78
4.37
6.43
4.38
Source CSO, MOSPI, Govt. of India

Table 7 Trends in Industrial Production YOY growth in percent [New Series]


Month/
Year
Dec'09
Jan'10
Feb'10
Mar'10
Apr'10

Mining

Mfg

Electricity

7.52
11.61
8.17
11.07
9.20

10.24
14.48
15.30
16.31
14.45

5.45
5.55
7.35
8.33
6.53

General IIP
growth
9.50
13.33
13.73
14.94
13.08

Month/ Year

Mining

Mfg

Electricity

Dec'10
Jan'11
Feb'11
Mar'11
Apr'11

5.93
1.69
0.95
0.27
2.15

8.72
8.09
7.21
10.35
6.88

5.97
10.49
6.76
7.18
6.44

General IIP
growth
8.17
7.52
6.44
8.87
6.30

Source CSO, MOSPI, Govt. of India

The slow growth of the industrial sector seen in the month of April 2011 is part of a longer trend visible
since the close of 2010. As data given in the tables above show, industrial production numbers have
been weak for some time now and this trend is confirmed irrespective of the data series that one
Page | 11

chooses to evaluate. In fact, as per the old series, the slowdown in industrial growth is more
accentuated with growth in IIP being under 5 percent in four of the last five months.
If we look at the numbers for the industrial production as per the use based classification, we again see
a loss of momentum in industrial production in recent months. The only point of departure between
data based on the old and the new series is in the reported performance of the capital goods sector.
Using the old series, we see that capital goods production has registered negative growth in three of the
last five months with growth in April 2011 still being an anemic 2.53 percent. However, as per the new
series, capital goods production registered a growth of 15.4 percent and 14.5 percent in the months of
March and April 2011.These figures, which are not all that weak, will have to be monitored going ahead
to see if some trend is emerging here.
Table 8 Trends in Industrial Production Use Based / YOY growth in percent [Old Series]
Month/ Year

Basic

Dec'09
Jan'10
Feb'10
Mar'10
Apr'10

Capital

8.35
11.47
8.53
10.79
9.12

Intermediate

42.89
57.93
46.68
36.00
64.10

Consumer
Total
Durable
Non-durable
10.45
41.04
2.96
0.42
28.21
-7.02
6.27
29.09
-0.83
9.27
32.57
1.50
11.88
32.12
4.83
Source CSO, MOSPI, Govt. of India

23.50
22.23
15.85
13.54
10.82

Table 9 Trends in Industrial Production Use Based / YOY growth in percent [Old Series]
Month/ Year

Basic

Capital

Intermediate

Dec'10
Jan'11
Feb'11
Mar'11
Apr'11

6.10
7.57
6.03
4.39
5.63

-9.00
-18.06
-18.15
13.56
2.53

6.79
7.75
8.61
6.14
2.37

Consumer
Total
Durable
Non-durable
3.50
19.48
-1.89
12.22
23.88
7.89
11.04
23.46
6.00
8.16
12.74
6.15
5.92
9.19
4.47
Source CSO, MOSPI, Govt. of India

Table 10 Trends in Industrial Production Use Based / YOY growth in percent [New Series]
Month/ Year
Dec'09
Jan'10
Feb'10
Mar'10
Apr'10

Basic
5.81
8.74
5.61
7.35
6.66

Capital
4.84
14.28
39.41
48.60
35.48

Intermediate
12.44
14.19
10.34
10.97
11.89

Total
15.08
18.61
16.61
12.62
13.82

Consumer goods
Durable
Non-durable
46.45
0.20
57.40
0.01
28.89
8.73
12.96
12.36
23.28
6.75
Source CSO, MOSPI, Govt. of India

Table 11 Trends in Industrial Production Use Based / YOY growth in percent [New Series]
Month/ Year
Dec'10
Jan'11
Feb'11
Mar'11
Apr'11

Basic
7.80
7.68
5.58
6.26
7.31

Capital
20.16
5.35
-4.05
15.40
14.46

Intermediate
8.08
7.39
5.75
1.80
3.43

Total
3.57
8.23
12.13
11.67
2.87

Consumer
Durable
Non-durable
7.78
0.65
12.49
5.02
18.23
7.49
13.92
9.86
3.80
2.07
Source CSO, MOSPI, Govt. of India
Page | 12

It was mentioned even in our earlier report that the rising interest rates in the economy have started
having a bearing on industrial activity. Recent news reports indicating increase in inventories with
automobile dealers, decline in steel imports, slowdown in cement sales, fewer inquiries for purchase of
commercial vehicles and build up of unsold stocks with real estate players are all symptomatic of a
slowdown and highlight how consumption and investment demand are responding to the evolving
interest rate scenario. Such developments have created a negative perception and depressed the
confidence level of corporate India.
Table 12 Projects under implementation stalled and new projects announced

Qtr ending
Jun 2009
Sep 2009
Dec 2009
Mar 2010
Jun 2010
Sep 2010
Dec 2010
Mar 2011

Under Implementation Stalled


Nos
Rs Crore
257
281384
293
337359
308
311214
330
318251
338
305545
376
272760
390
291816
389
274366

New Projects
Nos
654
760
1047
1169
1178
993
982
989

Rs Crore
242061
382118
458435
572300
708103
356784
292872
252912
Source CMIE

In this context it may be mentioned that once the pace of investments, which is crucial for overall
growth of the economy, loses momentum, it is difficult to bring it back. Unfortunately, we may just be
standing at the tipping point of such a situation. The data on projects under implementation stalled and
new projects announced provided by the Centre for Monitoring the Indian Economy (CMIE) confirms
that the pace of investments has taken a beating. As the table given above shows while the total
number of projects under implementation stalled has been slowly inching up over the last one year, the
total number of new projects announced in a quarter has been falling during the same time.
When we view the trends in GDP growth and gross fixed capital formation presented in the earlier
section along with the trends in industrial production and new investment intentions of corporate India,
we reach the conclusion that the health of the economy is not in the best of states and that some urgent
action is required to arrest this slowdown in investments.
In fact, in FICCIs most recent Business Confidence Survey, members of corporate India had indicated the
following five point strategy for the authorities to revitalize industrial and economic growth in the
country

Lower interest rates, particularly the cost of credit to SMEs.


Fasten the pace of implementation of infrastructure projects.
Check the incessant rise in price of industrial inputs and raw materials.
Continue with incentives offered to exporters.
Maintain fiscal discipline.

Core Sector
The composition of the core sector has also undergone a change with two new segments being added to
the existing list of six industries. These two new segments are fertilizers and natural gas and with the
addition of these segments the combined weight of core sector in IIP has increased from 27 percent to
37.9 percent. As part of this revision, weights of the existing sectors have also seen some change and

Page | 13

base year has also been revised to 2004-05. The new expanded list of sectors that now make up the core
sector along with the weights attached is presented in the following table.
Table 13 Segments of the Core Sector
Segment
Overall Index
Coal
Crude Oil
Natural Gas
Refinery Products
Fertilizers
Steel
Cement
Electricity

Weight in the old series


Weight in the new series
26.68
37.90
3.22
4.38
4.17
5.21
1.71
2.00
5.94
1.25
5.13
6.68
1.99
2.41
10.17
10.32
Source Office of Economic Adviser, MOC&I, Govt of India

If we look at the numbers for the core sector as per the new series, we see that this sector registered a
growth of 5.7 percent during the year 2010-11. This growth was lower than the growth of 6.6 percent
that was posted in the year 2009-10. At the disaggregated level, the sectors that saw a weaker
performance in the year 2010-11 vis--vis 2009-10 are coal, natural gas, fertilizers, cement and
electricity. The remaining sectors namely crude oil, refinery products and steel saw an improvement in
performance in 2010-11 over 2009-10.
Table 14 Growth in the core sector New series

2009-10
(Apr-March)
Overall
Coal
Crude Oil
Natural Gas
Refinery Products
Fertilizers
Steel
Cement
Electricity

6.64
8.12
0.55
44.59
-0.45
12.69
6.05
10.53
6.17

2010-11
(Apr-March)

April 2010

April 2011

5.72
8.50
4.62
-0.30
-2.96
2.84
11.94
5.16
10.97
9.97
54.11
-9.32
2.98
5.34
6.62
-0.02
7.83
-1.33
8.89
12.91
4.80
4.52
8.76
-1.06
5.48
6.89
6.79
Source Office of Economic Adviser, MOC&I, Govt of India

As the data given in the table above shows, performance of the coal sector nose-dived in 2010-11 with
growth plummeting from 8.12 percent in 2009-10 to () 0.3 percent in 2010-11. The main reason why
production in the coal sector remained almost flat in 2010-11 is the tough stance and stringent
environmental norms with regard to coal mining adopted by the Ministry for Environment and Forests.
Additionally, law and order problems in select mining areas of the country also had a bearing on overall
coal production.
Just like coal, performance of the natural gas sector also deteriorated with growth slipping from a high
of 44.6 percent in 2009-10 to just about 10 percent in 2010-11. This dip in growth of natural gas
production can be ascribed to the fall in natural gas production in the KG D6 basin operated by Reliance.
The performance of the fertilizer sector has also been lackluster with growth slowing down dramatically
from 12.69 percent in 2009-10 to a negative 0.02 percent in 2010-11. This poor state of affairs in the
Page | 14

fertilizer sector can be attributed to reported shortages in availability and supply of both coal and
natural gas.
In case of the cement sector, the growth numbers show a drop from 10.53 percent in 2009-10 to 4.52
percent in 2010-11. As mentioned in our earlier report, this drop can be attributed to rising cost of raw
materials (particularly coal) and difficulties in getting environmental clearances. Slowdown in the
execution of government projects in recent months particularly in the five poll bound states has also had
an impact on cement sector. Additionally, there are reports that the construction sector is facing
shortages of labour and this has affected cement dispatches and production.
The slowdown in growth in the electricity sector from 6.17 percent in 2009-10 to 5.48 percent in 201011 can mainly be attributed to poor performance in the thermal power generation segment that
accounts for nearly 65 percent of the total generation capacity in the country. Thermal power
generation suffered a major setback during the last fiscal due to shortage of coal and delays in providing
fuel linkages to thermal plants. A considerable number of power projects were said to get delayed
because of uncertainty in the availability and supply of coal. The Ministry of Environment and Forest
(MoE&F) categorized 203 coal blocks as 'no go' mining zones and this has also contributed to supply
shortfalls. According to estimates given by Ministry of Coal, these 203 coal blocks could have generated
around 1.3 lakh MW of power annually, thus, helping attain the yearly target for the year.
Amongst the sectors that saw an improvement in performance in 2010-11 over the previous year, crude
oil stands out as growth in this sector jumped from 0.55 percent in 2009-10 to 11.94 percent in 2010-11.
This growth was driven by companies in the private sector and the joint sector and their share in
domestic oil production improved from 15.6 percent in 2009-10 to 25.7 percent in 2010-11. Reliance
Industries and Cairn India showed exemplary performance and contributed the maximum to this
increase in oil output during the year.
The latest numbers for the month of April 2011 show that there has been a perceptible decline in the
performance of the core sector with growth dipping from 8.5 percent in April 2010 to 4.62 percent in
April 2011. Sectors like natural gas, fertilizers, cement and steel are largely responsible for this poor
performance. A positive take away from April 2011 numbers is the performance of the coal sector,
which grew by 2.84 percent.

Inflation
The inflation situation in the economy continues to be a cause for concern. Despite large scale
tightening of the monetary policy by the RBI and other steps taken by the government, inflation
continues to remain close to the double digit mark.
Data shows that WPI based headline inflation stood at 10 percent in the year 2010-11. This is not only
much higher compared to the average inflation rate of 3.6 percent seen in 2009-10 but also way above
the 5 percent mark considered as the growth promoting inflation level or the normal inflation level by
the RBI.
Latest numbers on inflation are available for the month of May 2011 and these show that headline
inflation stood at 9.1 percent in May 2011. Although it is slightly lower than 10.5 percent inflation
registered in May 2010, it is still too high as per RBIs standards. Data on the month on month growth in
WPI based inflation also shows that the underlying inflationary pressures in the economy are
maintained. The month on month growth in inflation in May 2011 stood at 0.7 percent. In the previous
two months March and April the corresponding figures stood at 0.9 percent and 0.7 percent
respectively.
Page | 15

Looking at inflation data at the disaggregated level throws up an interesting trend. For most part of the
year 2010, it was the Primary Articles segment which contributed substantially to overall inflation.
Further, within the Primary Articles segment, it was Food Articles where inflation was at an
uncomfortably high level throughout 2010. However, beginning 2011, we see that the contribution of
the other two broad segments, namely Fuel & Power and Manufactured Goods, to overall inflation
has gone up swiftly while that of Primary Articles has come down. It is however important to note that
while inflation in case of Food Articles may be trending down, it is still high for any comfort.
Further, while inflationary pressures seen in case Fuel and Power can be attributed to the increase in
prices of items like petrol and coal, the buildup of inflationary pressure in manufactured goods is largely
the result of rising prices of raw materials and industrial inputs and which are being passed on by
manufacturers in the final prices of their products.
With inflationary pressures slowly spreading to all the three broad segments of WPI, the RBI has also
drawn attention towards inflation getting increasingly generalized.
In fact, if we look at the numbers for core inflation, which captures the non-volatile components of WPI,
then we see that over time the gap between headline inflation and core inflation has been coming
down. In fact in the month of May 2011, core inflation stood at 8.6 percent. This was not only higher
compared to core inflation in the month of April 2011 (8.0 percent) but also close to overall inflation
rate, which, as previously mentioned, stood at 9.1 percent in May 2011. Further, if we look at the
numbers for month on month growth of core inflation, then we see that while in April 2011, the MOM
growth stood at 0.1 percent, in May 2011, it went up to 0.5 percent.
Table 15 WPI based Inflation YOY growth in Percent

All Commodities
I Primary Articles
(A) Food Articles
a. Fruits and Veg
b. Milk
c. Eggs, meat, fish
d. Condiments and spices
(B) Non-food articles
a. Fibers
Raw cotton
Raw Jute
b. Oil seeds
(C) Minerals
a. Metallic minerals
II Fuel and power
(A) Coal
(B) Mineral oils
(C) Electricity
III Manufactured products
(A) Food products
(B) Beverages, tobacco
(C ) Textiles
(D) Wood and wood products
(E) Paper and paper products
(F) Leather and leather products
(G) Rubber and rubber products
(H) Chemicals and products
(I ) Non-metallic mineral products
(J) Basic metal, alloys
(K) Machinery and machine tools
(L) Transport, equpt and parts

Apr
10
10.9
21.4
20.5
14.3
27.9
38.6
35.4
18.1
17.1
16.2
17.8
6.5
34.6
36.4
13.6
7.9
18.4
3.4
6.4
9.1
7.8
11.3
7.4
5.1
-0.8
4.9
5.5
3.1
8.8
2.2
2.7

May
10
10.5
20.4
21.4
15.8
28.4
45.5
36.1
14.8
15.8
14.5
13.7
2.3
25.3
29.9
14.4
7.9
18.1
8.6
5.9
7.1
7.5
11.3
5.7
3.7
0.0
4.7
5.2
3.9
8.4
2.0
2.9

Jun
10
10.3
20.1
21.0
18.9
26.2
39.0
39.7
15.8
18.1
17.3
14.9
2.1
22.1
43.7
13.9
7.9
17.1
8.6
5.6
6.1
7.4
10.2
4.8
3.4
-1.2
5.2
5.2
2.1
8.2
2.2
2.9

Jul
10
10.0
19.1
18.5
13.2
26.1
31.4
43.5
15.3
16.2
13.2
23.8
2.2
31.6
63.3
13.3
7.9
15.9
8.6
5.8
7.3
7.3
10.1
4.9
4.6
0.0
5.0
4.4
3.1
7.9
2.3
3.8

Aug
10
8.9
16.0
15.0
3.3
26.9
27.0
39.9
15.8
15.7
13.1
22.9
2.5
23.8
59.8
12.5
7.9
16.0
5.0
5.2
4.6
6.8
10.4
4.7
5.1
0.1
4.6
4.3
2.1
7.5
2.4
2.9

Sep
10
9.0
18.2
16.3
12.2
24.1
29.5
32.5
20.8
36.3
35.3
43.8
4.7
26.8
55.1
11.1
7.9
13.6
5.0
5.0
3.6
6.3
9.8
2.8
5.3
-0.1
4.7
4.6
1.6
7.2
3.4
2.9

Oct
10
9.1
18.1
14.6
12.4
21.0
27.4
30.2
25.7
42.3
43.7
34.3
7.5
29.4
64.2
11.0
3.8
14.6
5.0
5.1
3.8
6.4
10.1
1.4
5.4
-1.4
6.2
4.9
2.5
7.7
3.1
3.0

Nov
10
8.2
14.7
10.1
7.9
18.0
18.9
23.8
25.5
44.7
46.6
40.0
3.1
29.5
69.9
10.3
0.2
14.5
5.0
5.0
1.1
6.0
11.7
2.2
5.7
-1.8
7.5
5.2
2.1
7.8
2.9
2.7

Dec
10
9.4
18.4
15.1
25.8
18.3
19.4
37.7
25.4
47.1
47.5
44.1
3.3
30.6
63.7
11.3
0.2
15.9
5.0
5.4
1.4
5.7
12.3
2.1
4.6
-1.4
7.8
5.0
3.0
9.2
3.5
2.7

Jan
11
9.5
18.4
16.7
40.0
13.8
15.7
37.7
26.6
56.2
59.6
38.7
3.5
16.1
24.6
11.4
0.1
16.7
3.6
5.3
-0.1
9.6
13.2
4.6
5.7
-2.5
9.2
5.5
2.5
8.5
3.3
2.9

Feb
11
9.5
15.9
11.0
16.1
12.5
12.7
30.8
34.4
89.2
101.4
38.5
7.9
17.7
23.6
12.4
3.9
17.1
3.6
6.3
0.0
8.6
15.6
3.8
7.1
-1.2
9.6
6.6
2.5
11.1
3.4
3.0

Mar
11
9.7
13.4
9.4
18.9
4.4
13.5
20.4
27.3
87.7
103.0
38.7
10.9
15.2
25.8
12.5
13.3
14.7
3.6
7.4
2.4
8.8
18.3
3.6
8.4
-1.5
10.6
7.4
3.7
11.7
3.2
3.6

Apr
11
8.7
12.0
8.7
17.6
4.7
10.7
16.6
27.3
86.1
101.2
39.0
10.0
7.4
13.0
13.3
15.9
15.4
3.6
6.2
5.7
7.4
14.1
2.0
6.0
-1.2
9.2
6.0
3.2
7.1
2.6
2.2

Source Office of Economic Adviser, MOC&I, Govt of India

Coming now to the segment wise analysis, we see that prices in the Manufactured Goods category
registered an increase of 6.3 percent in the year 2010-11. The corresponding figure in 2009-10 was 1.8
Page | 16

May
11
9.1
11.3
8.4
17.4
6.4
6.4
16.1
22.3
59.0
68.4
40.0
12.2
11.9
13.1
12.3
13.3
15.9
-1.3
7.3
7.3
7.9
15.9
4.7
7.0
-1.4
8.7
7.1
3.0
7.9
3.2
4.0

percent. Further, as per the latest data available, Manufactured Goods segment recorded an inflation
of 7.3 percent in May 2011. Looking at the sub-categories within this broad group, we see that sectors
like food products, beverages and tobacco, paper and paper products, rubber and plastic products,
chemical and chemical products, and basic metals and metal products are seeing significant inflation. As
already mentioned, the buildup in prices in many of these industries is largely due to increasing cost
pressures which manufacturers are now finding difficult to absorb.
In case of the Fuel and Power, overall inflation in 2010-11 stood at 12.2 percent. The corresponding
figure in 2009-10 was (-) 2.1 percent. Further, as per the latest data available, this segment recorded an
inflation of 12.3 percent in May 2011. Inflation in this segment is being driven by high and rising prices
of items like coal and mineral oils. One may recall that petrol prices in the country are now being
regularly aligned with international prices following decontrol of the price mechanism and this is having
a bearing on overall inflation in this broad category.
Finally, in case of the Primary Articles category overall inflation in 2010-11 stood at 17.7 percent. The
corresponding figure in 2009-10 was 12.7 percent. Further, in the month of May 2011, this segment
recorded an inflation of 11.3 percent. Although over time inflation in this segment has been showing
signs of moderation and which have come on the back of inflation going down in case of food articles,
the non-food articles segment has seen a trend of rising inflation. In fact, in May 2011, inflation in the
non-food articles segment stood at a high 22.3 percent. High and rising prices of fibers like raw cotton
and raw jute are responsible for high inflation seen in case of non-food articles.
With regard to outlook for inflation in the months ahead, it may be mentioned that at least in the first
half of the current year, overall inflation is likely to remain sticky at the present levels. In fact there are
good chances that we may see a jump back to the double digit territory on a few occasions. And the
factors that lie behind this prognosis are given below.
First, international crude oil prices continue to remain high. With developments in the Middle East and
North Africa region showing no signs of abatement and with OPEC countries in their most recent
meeting [June 8, 2011] failing to reach a consensus on increasing their daily oil production quota, there
are limited chances of oil prices coming down in the near future. A slowdown in global growth in 2011
that is widely anticipated could put a lid to international oil prices but any large scale downward revision
is being ruled out at this moment. As a result, we can expect inflationary pressures in the Fuel and
Power category to continue. Moreover, this pressure could further mount once the government
announces decontrol of diesel and LPG prices.
Second, in the context of inflation in the Fuel and Power segment, one must also take note of the rising
prices of coal. Recent media reports show that coal production target for 2011-12 has been cut down
primarily on account of rising concerns over environmental issues. Coal shortage of nearly 142 million
tonnes is expected in 2011-12 and our imports this year could be as much as 114 million tonnes. Besides
power generation, this situation of coal shortage does not augur well even for the price line in case of
coal.
Third, global food prices are likely to remain firm in the near term. According to recent reports brought
out by FAO, global food prices would continue to remain a concern in 2011. The FAO has warned that
while the harvest this year would be critical, restoring market balances will take some time. Hence, we
can expect upward pressures on food prices in the global markets to persist. As global food prices have a
bearing on food prices in India, we have another element that is not likely to work in favour of bringing
inflation down.
Page | 17

Fourth, the government has recently announced a hike in the Minimum Support Prices [MSP] for goods
like paddy, soybean and corn for the upcoming agricultural season. This increase in MSP will also have a
bearing on the trend in food prices in the near term. There are chances that food inflation may
accelerate once the new crop comes into the market in October 2011.
Given the above factors, we expect concerns on inflation to remain on the policy agenda through the
year 2011. Further, with policy rate hikes by RBI having failed to deliver on the stated objective of
reining in inflationary pressures and bringing down inflationary expectations, it is time that government
actively pursues supply side measures to curtail inflation.

Foreign Trade
Financial year 2010-11 was exceptionally good for Indian exporters. With overall exports amounting to
US$ 245.5 billion, the sector registered a growth of 37.7 percent in 2010-11 over the previous year. And
this was a record growth witnessed in exports since independence.
Further, when we look at the monthly data for exports for the year 2010-11 as given in the table below,
we see that growth in exports has been particularly strong since November 2010. While during the
period April to October 2010, exports grew at an average rate of 26.8 percent, overall growth was much
higher in the remaining part of the year. In fact, during November 2010 and March 2011, Indias exports
grew at a whopping 44.3 percent on average.
The onset of recovery in the global economy, which was led by the emerging economies, coupled with
continuation of export sops announced by the government as part of the fiscal packages offered during
the crisis period gave the sector the much needed impetus. The support provided by the government in
the form of measures such as interest subvention of 2 percent on pre and post shipment export credit
was instrumental in reviving the badly hit labor intensive export oriented industries.
Table 16 Exports and Imports in US$ billion / YOY growth in percent

2010-Apr
2010-May
2010-June
2010-July
2010-Aug
2010-Sep
2010-Oct
2010-Nov
2010-Dec
2011-Jan
2011-Feb
2011-Mar
2011-Apr

Exports

Imports

Trade
balance

17.7
15.7
19.3
16.0
16.4
18.1
17.7
20.2
25.6
21.4
23.6
29.1
23.8

28.8
26.6
25.9
26.5
27.1
25.1
28.6
25.3
28.2
31.4
31.7
34.7
32.8

-11.0
-10.9
-6.7
-10.5
-10.6
-7.0
-11.0
-5.2
-2.6
-10.0
-8.1
-5.6
-9.0

Petroleum
crude &
products
imports
9.5
8.6
7.8
8.2
6.9
7.5
8.1
7.4
8.4
9.6
8.2
9.4
10.2

Non-POL
items
imports

Export
growth

19.3
18.0
18.1
18.3
20.2
17.6
20.6
17.9
19.7
21.8
23.5
25.3
22.6

42.2
27.57
41.5
11.7
21.0
23.9
19.4
35.0
55.2
37.5
49.7
43.9
34.4

Import
growth

48.9
32.61
12.4
22.0
20.6
16.7
10.4
1.4
-0.3
24.4
21.1
17.3
14.1
Source CMIE

In addition, the strategy of the government to continue exploring new and diverse markets for Indias
exports proved to be truly rewarding. Destination wise data available for the period April-December
2010 shows a significant increase in exports to regions like Latin America, Africa and other Asian
countries. For a long time Indias exports had been concentrated in US and the European countries and
the crisis provided a good opportunity to explore these other markets. Indias exports to Africa grew by
Page | 18

44.9 percent, to Asia by 43 percent and to Middle East by 31 percent during April-December 2010 over
the corresponding period in 2009-10.
Given this exemplary performance in exports, Commerce Minister, Mr. Anand Sharma, recently
indicated that India should be able to achieve exports of US$ 500 billion by the year 2013-14. He also
pointed out that sectors like engineering goods, petroleum products, gems and jewellery, drugs and
pharmaceuticals have done particularly well during the year 2010-11. Engineering goods were Indias
top exports in the year 2010-11 amounting to US$ 60 billion and registering a growth of over 80 percent
vis--vis the previous year. Further, while readymade garments registered a growth of 42.9 percent in
the year 2010-11 over 2009-10, gems and jewellery and pharmaceuticals both witnessed a growth of
about 15 percent. Petroleum products recorded a growth of 50.5 percent in 2010-11.
The strong momentum in exports, seen particularly during the second half of 2010-11, has continued in
the year 2011-12 as well. Latest numbers available for the month of April 2011 show that exports in this
month amounted to US$ 23.8 billion and represented a growth of 34.4 percent over the same month of
the previous year when exports totaled US$ 17.7 billion.
While this strong start in the year 2011-12 is encouraging, there are indications that this high growth
may not be sustained in the months ahead. And there are both domestic and external reasons that
make such a forecast likely. In fact in FICCIs latest Survey on Exports, which was completed in the
month of May 2011, exporters indicated that going ahead their performance could weaken on account
of the following factors
Firstly, the interest subvention of 2 percent on pre and post shipment credit announced to support the
exporters during the slowdown owing to the crisis came to an end in March 2011. The exporters now
have to pay a higher rate of interest to the banks for obtaining export credit. Further, this is happening
at a time when the lending rates are already going up following the increase in the base rates of the
banks and this would impact the production cost structure of the exporters.
Secondly, the DEPB scheme is finally coming to an end. As this is coming in quick succession following
the withdrawal of interest subvention, the exporters are finding themselves under reasonable pressure
to maintain competitiveness in the global market. Although most recent reports show that the
government has agreed to an extension of the DEPB scheme by another three months i.e. till September
20113, a large section of the exporting community feel that Indias exports are still not robust enough
and that such incentives should not be completely done away with. Exporters are hoping that during the
intervening three month period, the government would evolve an alternate scheme that would support
exporters.
Thirdly, off late there has been a significant increase in exports from India to Asian countries. However,
with inflation emerging as concern in other Asian countries as well and the central banks responding by
raising interest rates, the demand in this region is likely to face some moderation. This will certainly
have some bearing on Indias exports to the Asian market.
Fourthly, rising raw material costs and oil prices is also having a bearing on the exporters. Almost three
quarters of the respondents in FICCIs latest Export Survey said that they are facing difficulty due to high
raw material prices. The textile sector is facing the heat due to surging cotton and yarn prices, the
chemical sector is being impacted due to increasing polymer prices, processed foods segment is facing
the brunt of high fruit and vegetable prices and engineering goods are being affected by high steel
3

The DEPB scheme was to come to a close by end June 2011. However, the government has decided to extend it by another
three months.
Page | 19

prices. It is also important to note that rising crude oil prices have increased the inland transportation
cost and even the international ocean freight rates have moved up recently.
While the aforementioned factors are likely to dampen the buoyancy seen in exports in recent times,
one must also take note of the state of the global economy as this has a bearing on the performance of
Indias exports. Latest estimates provided by the IMF show that global growth is expected to moderate
in the year 2011. According to the IMF, the global economy is expected to grow by 4.4 percent in the
year 2011. In 2010, the global economy grew by 5.0 percent. The IMF has also indicated that the world
trade volume is likely to grow by 7.4 percent in 2011 as against a growth of 12.4 percent seen in 2010.
The general slowdown in the global economy and global trade volumes projected for 2011 is also a
downside risk to Indias export performance in the current year.
Coming to imports next, we see that in the year 2010-11 our imports totaled US$ 350.4 billion. This
represents an increase of about 21.8 percent over the previous years imports of about US$ 287.6
billion. During the year 2010-11, imports of both petroleum crude and products (POL) and nonpetroleum crude and products (Non POL) went up. While POL imports amounted to US$ 101.7 billion in
2010-11 and posted a growth of 16.7 percent over the previous year, non-POL imports amounted to US$
248.7 billion and registered a growth of 24.0 percent over the previous year.
Latest data available shows that in the month of April 2011 our imports totaled US$ 32.8 billion and
registered a growth of 14.1 percent over the same month of the previous year when imports amounted
to US$ 28.8 billion.
In the context of this rise in imports, it is important to take note of the rising international prices of oil,
which have pushed our POL import bill upwards. Otherwise in terms of volume there hasnt been a
significant increase in POL imports. Price of oil in the international market has been moving up over the
last year with the spot price for Brent crude ruling around US$ 113 a barrel an increase of 45 percent
over the previous year in the last week of May 2011.
With developments in the Middle East and North Africa region showing no signs of a let up and with
OPEC in its last meeting deciding not to hike the overall quota for oil production, oil prices are likely to
remain firm in the near term. This will continue to put pressure on Indias overall oil import bill. As
regards non-oil imports, while a slowdown in the domestic economy could lead to some moderation in
the non-oil import bill, any large respite here can be ruled as prices of commodities other than oil are
also firming up. Another point to take note of is the likely increase in imports of LNG in 2011 due to
shortfall in RILs KG D6 block. This too would lead to an increase in Indias import bill as imported gas is
nearly 3 times as costly compared to gas supplied by Reliance.
With exports likely to come under pressure and imports showing little signs of easing in the coming
months, the trade balance in 2011-12 could widen.

Foreign Investments
Data on total foreign investment flows into the country shows that in 2010-11, foreign investment flows
into India saw a dip of about 17 percent over the previous year. Further, when we look at the two main
components of foreign investment, namely foreign direct investment and portfolio investment, we see
that the dip is largely on account of a slowdown seen in case of FDI. As the table below shows, FDI flows
into India in 2009-10 were to the tune of US$ 37.7 billion and in 2010-11 this figure came down to US$
27 billion. Portfolio flows, which were to the tune of US$ 32.4 billion in 2009-10, saw a marginal dip to
about US$ 31.5 billion in 2010-11.
Page | 20

Table 17 Foreign Investment Flows in US$ Million


Year

FDI

YoY
Growth

2000-01
4,029
2001-02
6,130
52.1
2002-03
5,035
-17.9
2003-04
4,322
-14.2
2004-05
6,051
40.0
2005-06
8,961
48.1
2006-07
22,826
154.7
2007-08
34,835
52.6
2008-09
37,838
8.6
2009-10(P)
37,763
-0.2
2010-11(P)
27,024
-28.4
* FII is included in Portfolio Investment

Portfolio
Investments

YoY
Growth

2,760
2,021
979
11,377
9,315
12,492
7,003
27,271
-13,855
32,376
31,471

-26.8
-51.6
1,062.1
-18.1
34.1
-43.9
289.4
-150.8
-333.7
-2.8

FII*
1,847
1,505
377
10,918
8,686
9,926
3,225
20,328
-15,017
29,048
29,422

YoY
Growth
-18.5
-75.0
2,796.0
-20.4
14.3
-67.5
530.3
-173.9
-293.4
1.3

Total Investment
(FDI+ Portfolio)

YoY
Growth

6,789
8,151
20.1
6,014
-26.2
15,699
161.0
15,366
-2.1
21,453
39.6
29,829
39.0
62,106
108.2
23,983
-61.4
70,139
192.5
58,495
-16.6
Source Reserve Bank of India

If we look at the figures for FDI over the last few years, we see that the quantum received in 2010-11
was the lowest in the last four years. Quarterly numbers further highlight that FDI flows in the fourth
quarter of 2010-11 were the lowest since the third quarter of 2007-08. This clear slowing down in the
flow of FDI funds towards India should be a matter of concern for the authorities.
Further, data on sector wise FDI flows into India for the period April to February 2010-11 shows that out
of a total of top 25 sectors, 15 sectors saw a dip in FDI flows in 2010-11 compared to flows in the
previous year. And out of these 15 sectors, it is sectors like services, construction activities, housing and
real estate, telecommunication and agricultural services that have taken the biggest hit in terms of
inflows compared to corresponding period of the previous year i.e. 2009-10.
Table 18 Sector Wise Foreign Direct Investment Flows in US$ Million

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21

Sector

2010-11
(Apr- Feb)
US$ million

2009-10
(Apr- Feb)
US$ million

% change
in 2010-11
vis--vis
2009-10

Services sector
Telecommunications
Automobile
Power
Housing and real estate
Construction
Metallurgical industries
Computer software / hardware
Cement and gypsum products
Petroleum and natural gas
Industrial machinery
Trading
Information and broadcasting
Chemicals other than fertilizers
Hotel and tourism
Sea transport
Consultancy services
Hospital and diagnostic centres
Drugs and pharmaceuticals
Non-conventional energy
Food processing

3,274.02
1,410.14
1,320.38
1,236.76
1,109.33
1,071.64
1,044.37
766.24
607.58
562.38
553.49
473.39
406.37
383.69
301.43
290.46
237.87
231.63
211.53
181.94
166.37

4,184.64
2,495.34
1,009.34
1,335.70
2,703.50
2,810.18
372.83
872.88
33.64
223.43
246.27
560.23
467.39
346.19
707.93
275.21
340.65
129.49
210.39
497.91
262.71

-21.76
-43.49
30.82
-7.41
-58.97
-61.87
180.12
-12.22
1,706.12
151.70
124.75
-15.50
-13.06
10.83
-57.42
5.54
-30.17
78.88
0.54
-63.46
-36.67

% to total
FDI
Inflows
(Apr- Feb
2010-11)
17.84
7.68
7.19
6.74
6.04
5.84
5.69
4.18
3.31
3.06
3.02
2.58
2.21
2.09
1.64
1.58
1.30
1.26
1.15
0.99
0.91

% to total
FDI
Inflows
(Apr- Feb
2009-10)
17.02
10.26
4.12
5.48
11.01
11.29
1.51
3.52
0.13
0.94
0.99
2.27
1.9
1.39
2.86
1.1
1.38
0.52
0.85
1.96
1.05

Page | 21

22
23
24
25

Electrical equipments
Textiles
Agricultural services
Miscellaneous industries

154.36
108.46
41.75
1,323.01

641.41
139.03
1,317.06
1,003.14

-75.93
-21.99
-96.83
31.89

0.84
2.61

0.59
0.56
0.23
5.43

7.24
4.03
Source SIA Newsletter, DIPP

As this slowdown in FDI is happening at a time when the country is preparing plans to achieve a target
growth of 9 to 9.5 percent over the 12th Plan Period, it becomes important to get to the core of this issue
and take corrective action. FDI flows are an important source of funds for us and have in the past
supplemented domestic resources for meeting investment requirements in a whole host of sectors.
FICCIs interaction with economists, policy experts and analysts shows that the emergence of other
competing economies, particularly in the Asian region, could be one of the factors that lie behind this
slowdown in FDI flows towards India. While this proposition requires further research, economists and
policy experts concur with the view that there are tangible factors linked to India which could also be
responsible for making foreign investors a little wary for committing more funds. And amongst these
domestic factors, two issues stand out.
First is the state of the macro-economy, which is far from comfortable. With inflation remaining
stubbornly high, growth slowing down due to aggressive monetary tightening by RBI and the
government throwing limited light on how the fiscal deficit target of 4.6 percent for the current year
would be achieved, investors may have been prompted to get into a wait and watch mode before the
domestic situation improves.
Second set comprises factors such as environment sensitive policies being pursued with respect to
certain sectors, slow movement on resolving the land acquisition problem and issues of governance and
corruption that have been grabbing headlines and showing the country in poor light. As all of these
issues have a bearing on the perception and confidence level of foreign investors, these may have
limited FDI inflows into the country.
In this context, it may be reiterated that completion of the much awaited FDI policy reforms in sectors
such as insurance, defence and multi-brand retail would also give a boost to overall FDI flows into the
country.
Coming to portfolio investments, as already mentioned, in 2010-11 portfolio flows totaled US$ 31.5
billion and were only a tad below US$ 32.4 billion received in the previous year. FIIs, which form a major
component of portfolio investments, were to the tune of US$ 29.4 billion in 2010-11 and saw little
change from the figure for the previous year which was US$ 29 billion. While portfolio flows stood
higher than FDI flows last year, the outlook for funds flows on portfolio account going ahead is also not
too encouraging.
Given continuous monetary policy tightening by the central bank, interest rates are on an upswing. This
coupled with rising prices of raw materials is likely to have an adverse impact on the profit margins of
firms across sectors in the year ahead. As this would constrain the capacity of firms to distribute
dividends, FIIs are likely to take a conservative view on India and Indian companies as they do their
return on investment calculations. Signs of this are already emerging as in a recent survey [June 2011]
conducted by the Bank of America Merrill Lynch amongst global fund managers, India was placed
amongst the least favourite equity market by Asia-Pacific investors.
Additionally, with the RBI contemplating tightening of rules relating to exit of foreign investors and
private equity funds who put their money in Indian firms, investors sentiments are expected to further
Page | 22

weaken. The re-emergence and intensification of the sovereign debt crisis in Europe and the expected
halt of quantitative easing policy in the US by the end of June 2011 are also downside factors for
portfolio flows for emerging markets including India.
It may be mentioned that the Finance Minister of India, Pranab Mukherjee, tried to allay fears of fund
managers and foreign institutions investors focused on India at recent conference. He urged FIIs to be
optimistic about Indian growth story and to take a long term view on its performance rather getting
disturbed with the short term developments and statistics.
As a measure of assurance, the Finance Minister told fund managers that the government would
continue to take investor friendly policies and has already started the next generation financial sector
reforms such as widening and deepening of the Indian securities markets, liberalizing the policy on
foreign capital flows, strengthening the regulatory and other institutional architecture and reducing
transaction cost in the securities markets.
These announcements however did little to reduce concerns amongst fund managers, who are looking
for better management of the macro-economy and forward movement on crucial economic reforms.

Forex Reserves
Indias foreign exchange reserves increased as we moved ahead in fiscal 2010-11. As data given
in the table below shows, while in April 2010, Indias foreign exchange reserves totaled US$
279.6 billion, in September 2010 this figure had increased to US$ 292.9 billion. Most recent
numbers show that the countrys foreign exchange reserves have shot up further crossing the
US$ 300 billion mark. With this level of reserves, India is amongst the ten largest holders of foreign
exchange reserves in the world.
Table 19 Foreign Exchange Reserves in US$ Million
April 2010
May 2010
June 2010
July 2010
Aug 2010
Sept 2010
Oct 2010
Nov 2010
Dec 2010
Jan 2011
Feb 2011
March 2011
April 2011

Forex Reserves
279,633
273,544
275,710
284,183
283,142
292,870
297,956
292,389
297,334
299,224
301,592
305,486
313,671
Source Reserve Bank of India

The increasing size of our foreign exchange reserves has drawn attention of the policymakers. As
mentioned in our previous report, just some time back, Dr. Kaushik Basu, Chief Economic Advisor,
Ministry of Finance, had raised the question of India to consider having a Sovereign Wealth Fund. In
more recent times, a few independent analysts have opined that a part of these huge reserves be
deployed to import commodities which are or could be in short supply in the economy. This last
suggestion was made in context of managing the stubbornly high inflation by bridging the demandsupply mismatch.
Page | 23

Exchange Rate
Most recent trends in the movement of the INR vis--vis major vehicle currencies show that the Indian
Rupee has depreciated against all the major global currencies.
As the data given in the table below shows, the Rupee depreciated against the US$ by 1.2 percent
between April 2011 and May 2011. During the same time period, while the value of the Rupee went
down against the Pound Sterling by 1 percent, Rupees depreciation against the Japanese Yen was of a
much larger magnitude 3.8 percent. Against the Euro too we saw the Rupee becoming a little weak
and depreciating by about 0.4 percent between April 2011 and May 2011.
Table 20 Rupees per unit of foreign currency (Yearly/monthly average basis)

March, 2008
March, 2009
March, 2010
2010-11
April 2010
May 2010
June 2010
July 2010
Aug 2010
Sept 2010
Oct 2010
Nov 2010
Dec 2010
Jan 2011
Feb 2011
Mar 2011
April 2011
May 2011
MOM growth in
May 2011

USD
40.3561
51.2287
45.4965

Pound Sterling
80.8054
72.9041
68.4360

Japanese Yen
0.4009
0.5251
0.5018

Euro
62.6272
66.9207
61.7653

44.4995
45.7865
46.5443
46.8373
46.5679
46.0616
44.4583
45.0183
45.1568
45.3934
45.4538
44.9895
44.3681
44.9048

68.2384
67.1747
68.6952
71.5150
72.9736
71.6578
70.3381
71.8498
70.4635
71.5394
73.2921
72.7033
72.7215
73.4310

0.4763
0.4969
0.5122
0.5343
0.5465
0.5454
0.5428
0.5457
0.5425
0.5496
0.5503
0.5502
0.5334
0.5535

59.6648
57.6553
56.9016
59.7636
59.9700
60.0592
61.7153
61.4981
59.6652
60.5178
62.0904
63.0314
64.2269
64.4829

1.2

1.0

3.8

0.4

Source Reserve Bank of India

One of the factors that affect the competitiveness of Indias exports vis--vis exports from other
countries is the relative movement in the national exchange rates. In the following table, we provide the
movement in the national currencies of select countries vis--vis the US$.
The data shows that between April 2011 and May 2011, majority of the currencies analyzed have
depreciated against the US$. The only exception is the Indonesian Rupiah, which has appreciated against
the US$ over the same time period. The Malaysian Ringgit did not see any movement against the US$
during the period under study.
Further, amongst all currencies that have weakened against the US$ during this period, it is the South
African Rand that lost the most a depreciation of almost 2.1 percent. This is followed by the Brazilian
Real (depreciated by 1.3 percent) and the Indian Rupee (depreciated by 1.1 percent). Both the Pakistani
Rupee and the Thai Baht have lost about 0.6 percent each against the US$ over the two month
April/May 2011 period.

Page | 24

Table 21 - Exchange rate vis--vis USD for selected countries (monthly average basis)

2010-11
April 2010
May 2010
June 2010
July 2010
Aug 2010
Sept 2010
Oct 2010
Nov 2010
Dec 2010
Jan 2011
Feb 2011
Mar 2011
April 2011
May 2011
M-o-M
growth in
May 2011

Brazilian Real

Indian
Rupee

Indonesian
Rupiah

Malaysian
Ringgit

Pakistani
Rupee

South African Rand

Thai Baht

1.76
1.80
1.81
1.77
1.76
1.72
1.68
1.71
1.70
1.67
1.67
1.66
1.59
1.61

44.50
45.77
46.56
46.87
46.57
46.04
44.42
44.88
45.17
45.38
45.46
44.99
44.39
44.90

9027.33
9183.39
9148.36
9053.80
8971.76
8975.11
8928.05
8931.61
9024.20
9036.00
8916.53
8760.48
8651.30
8556.15

3.21
3.26
3.26
3.21
3.15
3.11
3.10
3.11
3.13
3.06
3.04
3.03
3.01
3.01

83.99
84.38
85.37
85.60
85.68
85.86
86.01
85.60
85.78
85.76
85.38
85.40
84.68
85.22

7.35
7.65
7.63
7.54
7.30
7.13
6.91
6.96
6.84
6.92
7.17
6.92
6.73
6.87

32.28
32.37
32.48
32.34
31.78
30.82
29.97
29.85
30.11
30.58
30.71
30.37
30.04
30.24

1.3

1.1

-1.1

0.0

0.6

2.1

0.7

Source International Monetary Fund

Regarding the outlook for the Indian Rupee against the US$ in the months ahead, the majority view
amongst analysts and currency strategists is one of depreciation. This bearish view with regard to the
Indian Rupee is based on two factors. First is the likely deterioration in the current account due to
moderation in exports, continuous rise in imports and a possible slowdown in invisible receipts. Second
is the expected slowdown in funds flows into India. While FDI flows into the Indian market are already
on a slowdown mode, FII flows too are showing signs of anxiety over the evolving macro-economic
situation with inflation remaining high and growth slowing down.

Money and Banking


Data on money supply growth shows that broad money (M3) registered a growth of 15.9 percent in the
year 2010-11. This growth was only a tad lower when compared to a growth of 16.9 percent registered
in the year 2009-10. However, it is important to note that growth in money supply in 2010-11 was
considerably weak when compared to the growth of nominal GDP that stood at 19.1 percent.
Money supply growth in 2010-11 was driven by growth seen in bank credit to the commercial sector
[20.6 percent]. The other important component of money supply, net foreign exchange of assets of the
banking sector, registered a moderate growth of just about 7.4 percent in 2010-11.
Latest numbers available show that year on year growth in money supply in the period up to May 21,
2011 was 16.8 percent. Growth in the corresponding period [up to May 22, 2010] in the previous year
was 15.1 percent.
Amongst sources of money supply, while bank credit to the commercial sector registered a growth of
21.3 percent in the period up to May 21, 2011, net bank credit to the government went up by 17.9
percent. Net foreign exchange assets of the banking sector registered a growth of 7.6 percent during the
same time period.

Page | 25

Table 22 - Sources of Money Supply (percentage change over previous year)


2009-10

2010-11

9-Apr-11

23-Apr-11

7-May-11

21-May-11

16.9
30.7
15.8
-5.2

15.9
18.2
20.6
7.4

17.0
15.2
21.1
8.5

17.6
17.2
21.0
9.4

16.9
17.4
21.7
9.4

16.8
17.9
21.3
7.6

12.1

11.7

11.7

10.4

10.4

9.4

-1.1

26.9

17.9

18.9

26.6

23.3

M3
Net Bank Credit to Government
Bank Credit to Commercial Sector
Net Foreign Exchange Assets of Banking
Sector
Government's currency liabilities to the
public
Banking sectors net non-monetary
liabilities other than time deposits

Source CMIE

A look at the components of money supply reveals that the year on year growth in the period up to May
21, 2011 in both demand deposits with banks and other deposits with RBI has been negative. Currency
with the public and time deposits with banks the two main components of money supply however
have seen a reasonable growth of 16.5 percent and 19.7 percent respectively.
Table 23 - Components of Money Supply (percentage change over previous period)
2009-10

2010-11

09-Apr-11

23-Apr-11

07-May-11

21-May-11

Currency with the public


Demand deposits with banks

15.33
21.96

19.11
-0.59

18.5
4.25

18.61
0.73

17.62
-0.32

16.52
-1.46

Time deposits with banks


Other deposits with RBI

16.36
-31.08

18.15
-2.58

18.8
-55.25

19.99
-6.92

19.47
-18.62

19.69
-21.52
Source CMIE

Coming now to trends in bank credit and deposit growth, we see that the year on year growth in nonfood credit in the period up to May 21, 2011 has been almost 22.1 percent. This is higher than the credit
growth target of 19 percent set by the RBI for the current year. Growth in deposits in the period up to
May 21, 2011 has been of the order of 17.4 percent and is in line with RBI target growth of 17 percent
for the current year. These numbers indicate that the trend seen in the previous year of deposit
growth lagging credit growth continues in the current financial year. Of course the growth rate in
deposits has picked up in recent months and to that extent eased some pressure on the banks as they
worked hard to maintain their margins.
Given the present credit and deposit situation, banks have been complaining of a tight liquidity
situation. There has also been an evident increase in the borrowing of banks under the LAF repo facility
over the past few weeks. While the banks on average borrowed Rs. 20,742 crore everyday from RBI
during the month of April 2011, the average borrowing amount per day went up to almost Rs. 50,000
crore in the month of May 2011. With advance tax payments for corporates due for the first quarter of
fiscal 2011-12 and further tightening of monetary policy looking likely, banks have stepped up their
efforts to raise more funds. This is getting reflected in the higher borrowings seen under the LAF repo
facility and higher interest rates being offered for issuance of certificate of deposits [CDs].
Table 24 Growth in Bank Credit and Deposits of SCBs (in percent)
Bank Credit
Food Credit
Non food credit
Aggregate Deposits

2010-11
21.4
32.6
21.2
15.9

9-Apr-11
21.97
3.69
22.24
17.2

23-Apr-11
21.89
-9.07
22.36
17.9

7-May-11
22.5
12.16
22.67
17.1

21-May-11
22.28
34.72
22.08
17.4
Source CMIE
Page | 26

The tightness in the loanable funds market however is expected to ease in the months ahead. And this is
on account of both an expected slowdown in the credit growth rate and an improvement in the deposit
growth rate.
With RBI continuing with its tight monetary policy stance, interest rates in the economy have been going
up and have reached a stage where these have started hurting both investment and consumption
demand. Already many corporates have indicated that it is becoming difficult to fund investment plans
at current interest rates. Also, with demand for automobiles, commercial vehicles and realty
moderating, one can expect credit growth to taper off in the coming months.
As regards deposits, in the year 2010-11 we saw that deposit growth was weak in the first half of the
year and then it started going up as banks increased the card rates. Data available for the current year
shows that the uptick in deposit growth continues and with deposit rates expected to remain at current
levels and the outlook for the equity market being not too encouraging, banks should see greater
mobilization of deposits.

Fiscal Situation
The provisional data for fiscal indicators of the central government for the year 2010-11 was released by
the Controller General of Accounts during the first week of June 2011. These provisional estimates for
various fiscal variables show a definite improvement over the revised estimates (RE), with a more than
anticipated rise in revenue collection and reduction in expenditure during 2010-11. The striking feature
of the new estimate is the reduction in fiscal deficit number compared to the revised estimate given
during presentation of the union budget. This depicts the comfortable fiscal position the country
enjoyed in the previous fiscal.
A look at receipt trends of the central government shows that the total receipts increased by almost 37
percent in 2010-11 over 2009-10. While revenue receipts, the major chunk under the receipts head,
increased by 38.7 percent, non- debt capital receipts, the other component, showed only a marginal
increase of 7 percent during 2010-11 over the previous year. Again, within revenue receipts, though
non- tax revenue contributed less than tax revenue in absolute terms, the former showed a growth rate
of a whopping 90.5 percent. This was due to the huge amount of money government raised through
auction of 3G and BWA spectrum.
Table 25 - Trends in Receipt and Expenditure of Central Government: 2010-11 (Rs. Crore)
Fiscal Indicators
Revenue Receipts
Tax Revenues (Net)
Non Tax
Non-Debt Capital Receipts
Recovery of Loans
Other Receipts
Total Receipts
Non-Plan Expenditure
On Revenue Account
Interest Payments
On Capital Account
Plan Expenditure
On Revenue Account
On Capital Account
Total Expenditure

BE
RE
Provisional
Diff between
Actuals Growth in 102010-11
2010-11
2010-11
Provisional and RE
2009-10 11 over 09-10
682212
783833
794277
10444
572811
38.66
534094
563685
572790
9105
456536
25.46
148118
220148
221487
1339
116275
90.49
45129
31745
35599
3854
33194
7.25
5129
9001
12752
3751
8613
48.06
40000
22744
22847
103
24581
-7.05
727341
815578
829876
14298
606005
36.94
735657
821552
821569
17
721096
13.93
643599
726729
726767
38
657925
10.46
248664
240757
234739
-6018
213093
10.16
92058
94803
94802
-1
63171
50.07
373092
395024
377350
-17674
303391
24.38
315125
326928
312363
-14565
253884
23.03
57967
68096
64987
-3109
49507
31.27
1108749
1216576
1198919
-17657
1024487
17.03
Source Budget Documents and Controller General of Accounts, Government of India
Page | 27

Further, within tax revenue, it is the customs duty which showed a robust collection of 63.29 percent in
2010-11 over 2009-10 followed by excise duty (33.54), corporation tax (22.35) and service tax (22.06).
Table 26 Trends in Major Taxes of Central Government: 2010-11 (Rs. Crore)
Major Taxes

BE
RE
Provisional
Actuals
Growth in 2010-11 over
2010-11
2010-11
2010-11
2009-10
2009-10
534094
563685
572790
456536
25.46
132000
137778
138372
103621
33.54
115000
131800
136058
83324
63.29
301331
296377
299422
244725
22.35
128066
149066
139148
132315
5.16
68000
69400
71309
58422
22.06
Source Budget Documents and Controller General of Accounts, Government of India

Tax revenue (net)


Excise duties
Customs duty
Corporation tax
Taxes on income
Service tax

Coming next to the trend in expenditure of central government, it may be noted that the total
expenditure has grown by 17 percent in 2010-11 over 2009-10, much less than the 37 percent growth in
receipts. Within overall expenditure, while the plan expenditure grew at 24.4 percent, non-plan
expenditure showed an increase of 13.9 percent.
Excellent tax collection, buoyant non tax revenue and an effective cut down on expenditure growth
helped the government to bring down the fiscal deficit for the year 2010-11 to 4.7 percent a figure
much lower than the revised estimate of 5.1 percent announced by the finance minister in his 2011-12
budget speech. This is again much lower than the budget estimate (BE) of 5.5 percent announced during
the 2010-11 budget speech. The revenue deficit for the fiscal 2010-11 is 3.1 percent and the primary
deficit for the same year is 1.7 percent. These are lower than the revised estimate of 3.4 percent and 2
percent respectively.
Table 27 Deficit Indicators of Central Government: 2010-11 (Rs. Crore)
Deficit Indicators

BE
2010-11

RE

201011

Provisional
2010-11

Fiscal Deficit

381408

400998

369043

Difference
between
Provisional
and RE
-31955

RE as % of GDP

Provisional
as % of GDP

5.1

4.7

Revenue Deficit

276512

269844

244853

-24991

3.4

3.1

Primary Deficit

132744

160241

134304

-25937

2.0

1.7

Source Budget Documents and Controller General of Accounts, Government of India

Though the deficit for 2010-11 gives a sense of relief as far as central government finance go, this
moment of elation may just be short lived. Given the evolving economic situation, there is now a wide
acceptance amongst economists and public finance experts that during the current year it will be a
tough task for the government to rein in the fiscal deficit at the targeted budget estimate of 4.6 percent.
And if the figures for central government finances for the month of April 2011 are any indication, then
the process of fiscal deterioration may well have started already. To get a better sense of the evolving
fiscal situation we have compared the figures for April 2011 with the figures for April 2010.
As the data given in the following table shows, total expenditure of the central government in the
month of April 2011 stood at Rs. 87,130 crore. In April 2010, total government expenditure was to the
tune of Rs. 67,226 crore. Further, under the expenditure head, we see that it is the non-plan
expenditure that has ballooned from Rs. 48,206 crore in April 2010 to Rs. 70,123 crore in April 2011.
Page | 28

While the government has seen a surge in expenditure in April 2011, total receipts have shown a slip
with large scale moderation noticeable in (net) tax receipts.
Table 28 Receipt and Expenditure of Central Government: April 2011 and April 2010 (Rs. Crore)
Fiscal Indicators
Revenue Receipts
Tax Revenues (Net)
Non Tax
Non-Debt Capital Receipts
Total Receipts
Non-Plan Expenditure
On Revenue Account
Interest Payments
On Capital Account
Plan Expenditure
On Revenue Account
On Capital Account
Total Expenditure

Apr-11

Apr-10

6880
3774
3106
5589
12469

12979
10062
2917
254
13233

Difference between Apr


2011 and Apr 2010
-6099
-6288
189
5335
-764

70123
48206
21917
53087
47496
5591
15078
14134
944
17036
710
16326
17007
19020
-2013
14408
16121
-1713
2599
2899
-300
87130
67226
19904
Source - Controller General of Accounts, Government of India

The early trends seen in the revenue expenditure mix also find a reflection in the deficit position of the
central government for the month of April 2011. The fiscal deficit for the month of April 2011 has
overshot the figure for fiscal deficit of April 2010 by a huge margin. The same trend is seen in other
deficit indicators also. It may also be noted that the fiscal deficit in April 2011 constituted about 18
percent of the total estimated fiscal deficit for the year 2011-12. The situation was better during the
corresponding period of the previous fiscal. A similar difference is seen in case of revenue deficit and
primary deficit.
Table 29 - Trends in Deficit Indicators of Central Government: April 2011 Vs April 2010 (Rs. Crore)
Deficit Indicators

Apr-11

Fiscal Deficit
Revenue Deficit
Primary Deficit

74661
60615
59583

BE 2011-12

Apr-11 as %
Apr-10
BE 2010-11
Apr-10 as % of
of BE
BE
412817
18.09
53993
381408
14.16
160417
37.79
50638
276512
18.31
144831
41.14
39859
132744
30.03
Source- Controller General of Accounts, Government of India

If the fiscal trend seen in April 2011 continues a likely situation then as mentioned earlier, the
government will face difficulties in keeping the deficit figures under control. The fiscal target for the year
2011-12 was pegged at 4.6 percent anticipating higher revenues and moderation in expenditure by the
government.
However, possibilities of higher receipts in 2011-12 look increasingly ambitious. All the main
components under the receipts head - tax, non-tax and non-debt capital receipt - may show a
moderation in the current fiscal. With no major tax changes announced in the budget for 2011-12, the
government was banking on strong growth in the economy and industry, good corporate performance
and a rise in wages and salaries to translate into high growth in tax collections. Now that there are clear
indications of an economic and industrial slowdown and fiscal strains building up in the corporate
sector, even senior government functionaries have started doubting the feasibility of sticking to the
budgeted targets for revenues.
Page | 29

Union Finance Minister, Mr. Pranab Mukherjee, shared these concerns recently while addressing senior
officials of the Central Board of Excise and Customs (CBEC). He warned that the task of meeting the
revenue target is very challenging and will require sustained and strategic efforts throughout the
financial year. Further, CBEC Chairman, SD Majumdar, also hinted that they will have to see if a midcourse revision in revenue targets is required. Earlier, Finance Secretary, Sunil Mitra had indicated that
amidst slowdown in tax collections, the Finance Ministry may go slow on disbursal of pending income
tax refunds.
While this is the case with tax collections, governments other revenue raising sources like auction of the
remaining 3G spectrum and disinvestment of select PSUs may also not fetch anticipated revenues as
there may not be enough takers given the tough market conditions.
On the expenditure front, government has estimated a very small increase of 3.4 percent in its overall
expenditure for the year 2011-12. In all probability this estimate will be exceeded in the current year
mainly because of expenditures under the heads of MGNREGA, food, petroleum and fertilizer subsidy.
While increased wage rate will push up the MGNREGA expenditure, international price of oil and
fertilizer will push up petroleum and fertilizer subsidy. Also, the food subsidy bill will see a rise with the
introduction of Food Security Bill and the associated high cost that would have to be incurred for
collecting and storing much larger amounts of foodgrains.
Considering this mismatch in revenue expenditures, some analysts fear that the fiscal deficit this year
may eventually go up to anywhere between 6 to 7 percent.
The only way to rectify the expected dent in revenue collections is to improve efficiency in tax
collections. The tax departments of the government should leverage information technology tools and
evolve a process wherein refunds become automatic. Further, steps should be taken to widen the tax
base in the country. Today, just about 3 percent of the people in the country file tax returns. Efforts of
the government should be geared towards increasing this base of tax payers and curbing tax evasion.
This would automatically lead to a jump in tax revenues. Further, the government should go ahead with
reforms like decontrolling diesel and LPG prices to augment revenue.

Page | 30

Performance of the Corporate Sector Q4, 2010-11


Data made available by CMIE on corporate sector performance shows that in the fourth quarter of fiscal
2010-11, corporate India turned out a good performance both in terms of sales and profits. Such a
performance is particularly noteworthy as it came at a time when overall expenses are going up at a fast
clip.
As data given in the following table shows, net sales of All Industries in the fourth quarter of 2010-11
registered a growth of 23.5 percent. This is the highest growth in net sales that we have seen in the last
eight quarters. Further, while firms from the manufacturing sector saw an increase of 22.26 percent in
net sales in the last quarter of 2010-11, companies from the services (other than financial) sector saw
sales going up by 27.46 percent.
Further, within the manufacturing sector, growth in sales has been particularly strong in sectors such as
textiles, cement, steel and transport equipment. Performance of the food and beverages sector and the
chemicals sector lagged the average for the manufacturing sector as a whole with food and beverages
sector seeing net sales going up by about 8.5 percent in Q4, 2010-11.
Table 1 Performance of the Corporate Sector Growth in Net Sales, Total Expenses and Profits (%)
2009-10
Q1

Q2

Q3

All industries
Manufacturing
Food & beverages
Chemicals
Textiles
Non-metallic mineral products
Cement
Metals & metal products
Steel
Transport equipment
Services (other than financial)

0.03
-8.83
6.83
13.68
15.94
5.96
8.00
-35.39
-39.76
16.96
10.75

-6.83
-14.89
-7.28
-5.15
13.51
2.54
-12.06
-31.62
-36.87
-1.81
3.25

5.14
7.25
-3.23
3.27
13.84
8.68
-11.23
-5.77
-14.05
50.26
3.70

All industries
Manufacturing
Food & beverages
Chemicals
Textiles
Non-metallic mineral products
Cement
Metals & metal products
Steel
Transport equipment
Services (other than financial)

2.98
-6.81
-2.14
7.61
13.71
-6.97
-3.12
-30.85
-35.42
21.45
11.74

-4.52
-13.02
-13.09
-7.65
10.98
-3.53
-15.66
-25.79
-30.51
-3.90
3.05

3.89
3.75
-8.60
-0.34
10.37
1.93
-15.91
-2.49
-10.28
33.65
2.50

All industries
Manufacturing
Food & beverages
Chemicals
Textiles
Non-metallic mineral products
Cement
Metals & metal products
Steel
Transport equipment
Services (other than financial)

4.04
-26.52
-23.43
6.68
55.98
46.11
45.23
-60.51
-68.98
-18.04
13.76

-2.44
-23.29
-25.43
25.89
57.87
12.57
11.07
-67.90
-80.44
237.97
7.92

18.22
68.56
4.48
28.42
58.73
22.18
14.50
32.72
23.79
12.76

Q4
Q1
Net sales (%)
15.95
15.67
24.29
22.72
58.30
31.79
19.85
14.77
17.61
13.39
6.66
21.12
-4.88
-6.51
17.44
19.34
10.53
16.70
86.02
61.52
3.67
10.44
Total expenses (%)
11.78
13.19
20.95
19.16
49.67
42.32
5.16
15.02
18.58
18.51
0.40
39.08
-3.60
5.00
11.26
15.30
5.25
12.58
91.72
45.70
-1.60
12.15
PBDIT (%)
33.34
16.45
168.12
45.03
48.79
6.43
149.36
9.54
9.11
-18.36
8.64
-12.29
-8.78
-31.22
2407.02
114.6
170.58
145.81
201.70
6.95
3.26

2010-11
Q2

Q3

Q4

17.76
19.39
41.16
17.48
7.05
32.38
0.54
13.41
15.47
35.25
19.51

17.81
15.67
23.59
17.28
22.78
26.85
26.63
11.55
13.61
22.78
21.80

23.50
22.26
8.49
17.86
24.65
30.75
43.54
28.88
25.28
22.94
27.46

18.06
18.63
36.85
30.87
11.90
40.20
8.79
6.82
3.83
26.01
21.39

16.56
14.48
23.76
18.39
24.98
20.70
59.19
8.42
9.09
19.22
24.92

23.52
21.68
8.55
21.27
23.46
42.36
48.12
32.68
30.06
17.88
31.29

43.76
22.39
24.78
130.66
21.24
23.14
1.63
-10.08
19.02
283.30
40.54
14.56
-24.06
12.59
23.71
-23.02
6.97
31.71
-47.07
-39.46
35.30
129.44
10.64
32.93
260.85
5.37
32.59
130.60
59.49
15.31
17.40
17.00
38.63
Source Prowess Database, CMIE

Page | 31

Looking at the numbers for total expenses, we see that expenses for All Industries went up by 23.52
percent in Q4, 2010-11. This growth is again the highest seen in last four quarters. Further, while the
manufacturing sector saw total expenses rise by 21.68 percent in Q4, 2010-11, services (other than
financial) saw an increase of 31.29 percent.
Further, within the manufacturing sector, the increase in total expenses in the quarter under review was
particularly high in sectors such as cement [48.12 percent] and steel [30.06 percent].
It the context of rise in total expenses for industry, it may be mentioned that while firms from the
manufacturing sector are facing significant pressure on account of interest expenses, cost of power and
price of industrial inputs, firms from the services (other than financial) are stressed on account of sizable
increase in interest expenses as these registered an increase of 367 percent in the fourth quarter of
2010-11.
Table 2 Performance of the Corporate Sector Growth in Total Expenses (%)
Total expenses (%)

Mar-10
11.78
20.95
-1.60

All industries
Manufacturing
Services (other than financial)

Raw materials, stores,


spares & purchase of
finished goods (%)
Mar-10
Mar-11
12.30
24.61
19.16
27.57
-11.16
20.93

Mar-11
23.52
21.68
31.29

Salaries and wages (%)

Mar-10
6.52
-1.37
2.63

Mar-11
15.37
12.78
15.19

Power & fuel (%)

Interest expenses
(%)

Mar-10
Mar-11
Mar-10
Mar-11
14.46
23.92
-14.29
30.63
4.59
23.01
-12.49
20.79
-0.55
-23.85
-70.86
366.19
Source Prowess Database, CMIE

Despite the strong growth in total expenses, the overall profit levels of firms are holding. Using PBDIT as
one of the indicators of profits, we see that for All Industries PBDIT went up by 24.78 percent in the
fourth quarter of 2010-11. Further, while for the manufacturing sector, the increase in PBDIT in Q4,
2010-11 was to the tune of 23.14 percent, for the services (other than financial), growth in PBDIT was
much higher at 38.63 percent. It is also interesting to note that while overall expenses have gone up
significantly in the case of cement and steel sectors, these sectors have managed to see a good fourth
quarter in terms of profits.
Growth in Net Sales (%)

Growth in Total Expenses (%)

30

40

20

30

10

20
10

All industries
Manufacturing
Services (other than financial)

Q4 10-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q3 09-10

-20

Q2 09-10

0
-10

Q1 09-10

Q4 10-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q3 09-10

-20

Q2 09-10

-10

Q1 09-10

All industries
Manufacturing
Services (other than financial)

Page | 32

Performance of the Textiles sector Q4, 2010-11


Textiles: Growth in Net Sales and Total Income
30

Net sales grew by 24.7 percent in Q4, 2010-11. In


Q4, 2009-10, growth in net sales was of the order
of 17.6 percent.

25
20
15

Export income to net sales ratio touched 5 percent


in Q4, 2010-11. In Q4, 2009-10, this figure was
close to 2.7 percent.

10
5

Q4 10-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q3 09-10

Q2 09-10

Q1 09-10

Net Sales
Total income

Textiles: Growth in Total Expenses

Cost pressures in the sector are building up.

40

Total expenses went up by 23.5 percent in Q4,


2010-11. In Q4, 2009-10, the increase in total
expenses was of the order of 18.58 percent.

30
20
10
0
-10
-20

Total
Expenses

-30

Raw material
Stores spares
& purchase of
finished goods

Salaries &
wages

Q409-10

Power & Fuel

The increasing pressure on costs is led by


expenses on power and fuel and expenses on
other raw materials. Outlays on interest cost and
wages and salaries have also jumped in Q4, 201011.

Interest
Expenses

Q410-11

Textiles: PAT / Total Income

PAT grew by 48.4 percent in Q4, 2010-11.

14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0

11.6
9.1

Margins have improved in the last quarter of


2010-11.

Q4 2010-11

6.9

5.4

Q2 10-11

Q1 10-11

6.7

Q3 10-11

7.4

Q4 09-10

7.4

Q3 09-10

Q2 09-10

Q1 09-10

8.6

PAT /Total Income

Sector Updates
Textile park to come up in Punjab. A 1700 acre textile park
is coming up in the Malwa region with world class facilties.
DEPB extended by three months. DEPB scheme has been
extended by three months and will now be available till
September 2011. In the interim government will work out
an alternate duty neutralization scheme for exporters.

Government for greater FDI in specialty textiles.


Government is contemplating steps to enhance
FDI flows in segments like technical textiles.
Government allows additional cotton exports.
Government has allowed exports of an
additional one million bales of cotton in the
current season.
Page | 33

Performance of the Cement sector Q4, 2010-11


Net sales have seen a strong
performance in the second half of 201011

Cement: Growth in Net Sales and Total Income


50
40
30

Net sales registered a growth of 43.5


percent in Q4, 2010-11. In Q4, 2009-10,
net sales had dipped by 4.9 percent.

20
10

Net Sales

Q4 2010-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q3 09-10

Q2 09-10

-20

Q1 09-10

0
-10

Total income

Cement: Growth in Total Expenses


100

Overall expenses have shot up in Q4,


2010-11. The growth in total expenses in
Q4, 2010-11 was to the tune of 48.1
percent. In Q4, 2009-10, total expenses
had declined by 3.6 percent.

80
60
40
20
0
-20
-40
-60

Total Expenses Raw material


Stores spares
& purchase of
finished goods

Salaries &
wages

Q409-10

Power & Fuel

Evident increase in expenses across all


segments. Interest costs and raw
material expenses are hitting the
industry hard.

Interest
Expenses

Q410-11

Cement: PAT/Total Income


20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0

18.3
15.4

14.3

12.6

12.6

12.5
5.9

Q4 2010-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q3 09-10

Q2 09-10

Q1 09-10

3.1

PAT registered a growth of 26 percent in


Q4, 2010-11.
Profit margin has shown an
improvement in Q4, 2010-11. However,
at these levels, margins are still low
compared to what was seen in 2009-10.

PAT/Total Income

Sector Updates
Cement prices dip on weak demand, onset of monsoon. Top
dealers have reported a decline in prices across regions in
June 2011. Demand from infrastructure and realty sector
expected to moderate.

Cement majors brace up for margin pressure.


Steep increase in energy costs [coal] and higher
freight costs to keep margin under pressure.

Page | 34

Performance of the Steel sector Q4, 2010-11


Steel: Growth in Net Sales and Total Income

Net sales registered a growth of 25.3


percent in Q4, 2010-11. In Q4, 2009-10, net
sales had shown a growth of 10.5 percent.

40
30
20
10
Q4 2010-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q3 09-10

-30

Q2 09-10

-20

Q1 09-10

0
-10

-40
-50
Net Sales

Total income

Steel: Growth in Total Expenses (%)

Total expenses of companies from the steel


sector registered a growth of 30.1 percent in
Q4, 2010-11. In Q4, 2009-10, total expenses
had gone up by a mere 5.25 percent.

60
50
40
30

Amongst different heads under total


expenses, firms from the steel sector are
feeling maximum pressure on account of
rising prices of raw materials. In fact,
expenses on raw materials registered a
growth of more than 50 percent in Q4,
2010-11.

20
10
0
-10 Total ExpensesRaw material Salaries & Power & Fuel Interest
Stores spares wages
Expenses
& purchase of
finished goods

Q409-10

Q410-11

Steel: PAT /Total Income


15.0

12.3

10.8

10.0

8.7

8.3
5.9

5.2

5.0

Q4 2010-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

-4.6

Q3 09-10

-10.0

-2.8

Q2 09-10

-5.0

Q1 09-10

0.0

PAT for firms belonging to the steel sector


has gone up by 47.9 percent in Q4, 2010-11.
Profit margin in Q4, 2010-11, has seen an
improvement with a figure of 12.3 percent.
In Q4, 2009-10, profit margin was to the
tune of 10.8 percent.

PAT/Total Income

Sector Updates
Steel imports down 65 percent in April. Steel imports are
slowing down. The fall is most visible in sectors that are hit
by high interest costs auto and construction.
Steel firms may have to pay more for coking coal imports. In
the forthcoming renewal of quarterly contracts, prices for
imported coking coal could go up.

JPC to monitor prices of raw materials. Steel


ministry has asked the Joint Plant Committee to
analyses prices of raw materials for steel
manufacturing along with their impact on final
steel prices.
Page | 35

Performance of the Chemicals sector Q4, 2010-11


Chemical: Growth in Net Sales and Total Income

Net sales registered a growth of 17.8


percent in Q4, 2010-11.In Q4, 2009-10,
net sales had shown a growth of 19.9
percent.

Net Sales

Q4 2010-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q3 09-10

Q2 09-10

Ratio of exports to net sales has shown a


decline from 7.2 percent in Q4, 2009-10
to 4.3 percent in Q4, 2010-11.
Q1 09-10

80
70
60
50
40
30
20
10
0
-10

Total income

Chemical: Growth in Expenses (%)

Total expenses have shown a growth of


21.3 percent in the fourth quarter of
2010-11. In Q4, 2009-10, total expenses
had shown a growth of 5.1 percent.

40
30
20
10
0
-10
-20
-30

Total Expenses Raw material


Stores spares
& purchase of
finished goods

Salaries &
wages

Power & Fuel

Interest
Expenses

Expenses on interest costs and raw


materials have seen a sizable jump
during the quarter under review.

-40
-50
Q409-10

Q410-11

Chemicals: PAT /Total Income


35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0

PAT has increased by 20.9 percent in Q4,


2010-11.

31.3

PAT/ Total Income

Q3 10-11

Q2 10-11

11.7

Q4 2010-11

10.9

10.7

Q1 10-11

11.4

8.4

Q4 09-10

Q2 09-10

Q1 09-10

Q3 09-10

10.7

9.5

The margins continue to be under


pressure and stood at 11.7 percent in
Q4, 2010-11.

Sector Updates
Central panel clears mega petrochemical hub in Tamil
Nadu. A PCPIR region has been cleared by an interministerial group. It is expected to attract investments
worth Rs. 1 lakh crore.

Oil ministry supports gas price pool for fertilizers.


The recommendation made by Saumitra
Chaudhuri Committee to implement price
pooling of natural gas for fertilizer sector has
found petroleum ministrys support.
Page | 36

Performance of the Transport equipment sector Q4, 2010-11


Transport Equipment: Growth in Net Sales and
Total Income

Growth in net sales has been on a


downtrend over the last one year.

100

In Q4, 2010-11, net sales registered a


growth of 22.9 percent. In Q4, 2009-10, net
sales had zoomed registering a growth of
86 percent on a year on year basis.

80
60
40
20

Net Sales

Q4 2010-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q3 09-10

Q2 09-10

Q1 09-10

0
-20

Total income

Transport Equipment: Growth in Total Expenses

Growth in total expenses has moderated in


Q4, 2010-11, compared to the growth seen
in Q4, 2009-10.

700
600
500
400

While total expenses registered a growth


of 17.9 percent in the quarter ending
March 2011, total expenses had grown by
91.7 percent in the quarter ending March
2010.

300
200
100
0
-100

Total
Expenses

Raw material Salaries &


Stores spares
wages
& purchase of
finished goods
Q409-10

Power & Fuel

Interest
Expenses

Q410-11

PAT has registered a growth of 19.4


percent in Q4, 2010-11.

Transport Equipment: PAT /Total Income


8.0

7.2

7.2

7.1

6.9

6.0

7.1

Not much change is seen in the profit


margin levels over the last one year. These
have been close to the 7 percent mark
throughout 2010-11.

4.0

2.8

2.0

Q4 2010-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q2 09-10

Q1 09-10

-2.0

-1.1

Q3 09-10

0.6

0.0

PAT /Total Income

Sector Updates
Car sales grow slowest in 24 months. Passenger car sales
witnessed a growth of 7 percent in May 2011, which is the
slowest in 24 months. Rising interest rates and fuel costs
are beginning to take a toll on the automotive sector.

Truck sales slow as rising interest rates begin to


bite. Truck fleet operators and financiers are
reporting a decline in truck sales owing to rising
interest rates.

Page | 37

Performance of the Food and Beverages sector Q4, 2010-11


Food and Beverages: Growth in Net Sales and
Total Income

Total income

Q4 10-11

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q3 09-10

Q2 09-10

In Q4, 2009-10, net sales had grown by


58.4 percent. In Q4, 2010-11, growth in
net sales was down to just about 8.5
percent.
Q1 09-10

70
60
50
40
30
20
10
0
-10
-20

Growth in net sales has been on a decline


over the last few quarters.

Net sales

Growth in total expenses has also come


down over the last one year.

Food and Beverages: Growth in Total Expenses


140
120

In Q4, 2009-10, total expenses went up by


49.7 percent. In Q4, 2010-11, total
expenses showed a growth of 8.5 percent.

100
80
60
40
20

The only segment where growth in


expenses in Q4, 2010-11 was higher than
growth seen in the corresponding period
of the previous year is interest payments.

0
-20

Total expenses (%)

Raw materials, stores,


spares & purchase of
finished goods (%)

Salaries and wages (%)

Q4 09-10

Power & fuel (%)

Interest expenses (%)

Q4 10-11

Food and Beverages : PAT / Total income


10
9
8
7
6
5
4
3
2
1
0

The margins of firms in this sector have


been under pressure whole of last year.

8.6

7.9

5.7

5.3
3.9

Q4 10-11

3.3

Q3 10-11

Q2 10-11

Q1 10-11

Q4 09-10

Q3 09-10

3.6

Q2 09-10

Q1 09-10

4.2

In Q4, 2009-10, profit margin was about


5.7 percent. In Q4, 2010-11, this came
down to 5.3 percent.

PAT / Total income

Sector Updates
J&K to encourage investment in establishing food and
horticulture processing units. J&K government said it will
encourage local as well as outside investments to set up
food processing units in the state.

New safety law to cost India over 15,000 crore.


The implementation of the Food Safety and
Standards Rule, 2011 is likely to cost Rs. 15,000
to 17,000 crore to the exchequer.

Page | 38

Round up of key developments

Draft National Manufacturing Policy


A high level committee chaired by Prime Minister Dr. Manmohan Singh has approved in principle the
draft National Manufacturing Policy. The policy will be placed before the cabinet soon after environment
and labour concerns are resolved through inter-ministerial discussions.
The salient features of the policy are:
To increase the share of manufacturing in the GDP from the current 16 percent to 25 percent by
2025 and in the process create an additional 100 million jobs.
To create National Investment and Manufacturing Zones (NIMZs) with world class infrastructure
facilities. The proposed zones will enjoy special policy regime, tax concessions, less stringent labour
and environment laws, and flexible compliance norms.
To set up a Manufacturing Industry Promotion Board (MIPB) at the level of Union Minister of
Commerce and Industry to ensure coordination amongst Central Ministries and State Government
and to ensure effective implementation of the policy.
To set up a Technology Acquisition and Development Fund to promote acquisition and development
of appropriate (primarily green technologies) technologies.
To introduce policy measures to facilitate the expeditious redeployment of assets belonging to nonviable units, while giving full protection to the interests of employees. This will be done through
appropriate Insurance Instrument and/or Sinking Fund.

Financial Stability Report by RBI


The Reserve Bank of India presented its assessment of the health of Indias financial sector in its
Financial Stability Report, during second week of June. The highlights of the report are:
The global risk scenario has improved, though there are signs of a slowdown in growth during 2011
in most countries, including some developing economies in Asia.
Liquidity in the system remained in deficit mode given strong credit demand and high level of
currency in circulation.
Banks in India will face many challenges as they migrate to the advanced approaches under Basel II
and prepare for Basel III.
A series of stress testing in respect of credit, liquidity and interest rate risks showed that banks
remained reasonably resilient though their profitability could be affected significantly.
Banks need to remain vigilant to the headwinds from the prevailing inflation and interest rate
situation which may affect their asset quality as changes in interest rate were found to have the
most significant (negative) impact on slippage ratio of the banks.
Greater access of domestic corporates to ECBs has resulted in increased currency mismatches.
Many companies which have raised money through foreign currency convertible bonds could face
severe funding problems in the next two years due to lackluster equity markets. According to RBI, a
very large proportion of these FCCBs may not get converted into equity thus requiring their
refinancing at the much higher interest rates prevalent today.

Page | 39

New Series
Old Series
New Series

12.0

10.0
8.0

6.0

4.0

2.0

0.0

Oct'09

Dec'10

Oct,10

Aug'10

Jun'10

Apr'10

Feb'10

Dec'09

Apr'11

Growth in Electricity Sector

Apr'11

Old Series

Feb'11

-10.0

Feb'11

Dec'10

New Series

Oct,10

Aug'10

18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Jun'10

Growth in Mining Sector

Apr'10

Old Series

Feb'10

-5.0

Dec'09

0.0

Oct'09

5.0

Jun'09

5.0

Aug'09

10.0

Aug'09

10.0

Apr'09

Growth in IIP

Jun'09

Apr'11

Feb'11

Dec'10

Oct,10

Aug'10

Jun'10

Apr'10

Feb'10

Dec'09

Oct'09

Aug'09

Jun'09

20.0

Apr'09

Apr'11

Feb'11

Dec'10

Oct,10

New Series

Aug'10

Jun'10

Apr'10

Feb'10

Dec'09

Oct'09

Aug'09

Jun'09

Apr'09

-5.0

Apr'09

Charts

25.0

Growth in Manufacturing Sector

15.0
20.0

15.0

0.0

Old Series

Page | 40

Charts
Growth : Basic Goods Segment

Growth: Intermediate Goods Segment

14.0

25.0

12.0

20.0

10.0
15.0

8.0

10.0

6.0
4.0

5.0

2.0
Apr'11
Apr'11

Dec'10

Oct'10

Feb'11

Growth: Capital Goods Segment

Feb'11

New Series

Old Series

Aug'10

Jun'10

Apr'10

Feb'10

Dec'09

Oct'09

Aug'09

Jun'09

Apr'11

Feb'11

Dec'10

Oct'10

Aug'10

Jun'10

Apr'10

Feb'10

Dec'09

Oct'09

Aug'09

Jun'09

Apr'09

New Series

-5.0

Apr'09

0.0

0.0

Old Series

Growth: Consumer Goods Segment

70.0

20.0

60.0
15.0

50.0
40.0

10.0

30.0
20.0

5.0

10.0

-30.0

Dec'10

Oct'10

Aug'10

Jun'10

Apr'10

Feb'10

Dec'09

Oct'09

Aug'09

-5.0

Jun'09

Apr'11

Feb'11

Dec'10

Oct'10

Aug'10

Jun'10

Apr'10

Feb'10

Dec'09

Oct'09

Aug'09

Jun'09

-20.0

Apr'09

-10.0

Apr'09

0.0

0.0

-10.0
New Series

Old Series

New Series

Old Series

Page | 41

Charts
Growth : Headline & Core Inflation
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Headline

Dec-10

Nov-10

Oct-10

Sep-10

Aug-10

Jul-10

Jun-10

May-10

Apr-10

4.0

Core

Growth in Broad Segments of WPI


25.0
20.0
15.0
10.0
5.0

Primary Articles

Fuel & Power

Dec-10

Nov-10

Oct-10

Sep-10

Aug-10

Jul-10

Jun-10

May-10

Apr-10

0.0

Manufactured Products

Page | 42

-8,000

Direct Investment

Portfolio Investment

12,000

2,000
Aug-10

Jul-10

Jun-10

May-10

Apr-10

Mar-10

Feb-10

Jan-10

Dec-09

Nov-09

Oct-09

Sep-09

Aug-09

Jul-09

Jun-09

May-09

Mar-11

Feb-11

Jan-11

Dec-10

Nov-10

Apr-11

Mar-11

Feb-11

Jan-11

Dec-10

Nov-10

22,000

Oct-10

32,000
Oct-10

Foreign Investment Inflows (USS million)

Sep-10

Trade Balance

Sep-10

-20.0

Aug-10

Jul-10

Jun-10

May-10

Import

Apr-10

Mar-10

Feb-10

Export

Jan-10

Dec-09

Nov-09

Oct-09

Sep-09

Aug-09

Jul-09

Jun-09

May-09

Apr-09

-10.0

Apr-09

Charts
India's Trade (US$ billion)

40.0

30.0

20.0

10.0

0.0

-18,000

-28,000

Total

Page | 43

Data on Interest Rates


Bank

PLR (%)
Mar

Base Rate (%)

Apr

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

2011

2011

2010

2010

2010

2010

2010

2010

2011

2011

2011

2011

State Bank Of India

12.75

13.25

7.50

7.50

7.50

7.60

7.60

8.00

8.00

8.25

8.25

8.50

Punjab National Bank

12.50

12.50

8.00

8.00

8.00

8.50

8.50

9.00

9.00

9.50

9.50

9.50

Canara Bank

13.75

13.75

8.00

8.00

8.00

8.50

8.50

9.00

9.00

9.50

9.50

9.50

Bank Of Baroda

13.75

13.75

8.00

8.00

8.00

8.50

8.50

9.00

9.00

9.50

9.50

9.50

Bank Of India

13.50

13.50

8.00

8.00

8.00

8.50

8.50

9.00

9.00

9.00

9.50

9.50

Union Bank Of India

13.75

13.75

8.00

8.00

8.00

8.50

8.50

9.00

9.00

9.50

9.50

9.50

Indian Overseas Bank

13.75

13.00

8.25

8.25

8.25

8.50

8.50

8.50

8.50

9.50

9.50

9.50

Corporation Bank

13.60

13.60

7.75

7.75

7.75

7.75

8.25

8.25

8.90

9.40

9.40

9.40

Dena Bank

14.50

14.00

8.25

8.25

8.25

8.25

8.45

8.45

8.95

9.45

9.45

9.45

ICICI Bank

16.50

16.50

7.50

7.50

7.50

7.75

7.75

8.25

8.25

8.75

8.75

8.75

Axis Bank

16.50

16.50

7.50

7.50

7.50

7.75

7.75

8.00

8.25

8.75

8.75

9.00

HDFC Bank

17.25

17.25

7.25

7.25

7.50

7.50

7.50

7.75

7.75

8.20

8.70

8.70

Weighted Rate

14.00

14.07

7.82

7.85

7.85

8.14

8.16

8.58

8.63

9.05

9.12

9.17

Source CMIE

Page | 44

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