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India Outlook 2011-12

Sectoral Outlook 2011-12

Highlights of the Sectoral Outlook

Survey 2011-12

In a dynamic economic environment, gauging theoptimism of the business community also providesan assessment of the overall growth prospects ofan economy. D&Bs Sectoral Outlook report is a

survey based analysis intended to provideinsights into the sentiments prevalent amongst thecorporate regarding their outlook of the businessenvironment in FY12. This section also highlights thekey issues and concerns that business leaders haveregarding future business prospects. The reportenunciates the growth drivers and strategic focusof various sectors as perceived by the companies.The report is intended to facilitate more informeddecisions by the businesses and also enableinvestors to assess the degree of business confi-dence and potential for Indias economic growth.

Companies in the manufacturing sector have arobust outlook on demand conditions in FY12; asmuch as 88% of the manufacturing companiessurveyed expect sales volumes to increase, overFY11. On the workforce front, majority of thecompanies, both in the manufacturing andservices sectors, expect to witness anincrease during FY12. Among the manufacturingsectors, companies in the capital goods andautomobile industries are the most optimistic,with nearly 70% of the companies expecting anincrease in their employee count. Among theservices sectors, companies in the insurancesector are most optimistic, with nearly 80% ofthem expecting an expansion in their employeestrength in FY12.

Rising input prices is likely to remain a cause forworry for companies; close to three-fourths (72%)of the companies in the manufacturing sector antici-pate input prices to continue their upward journeyduring FY12. On profit expectations, among manu-

facturing sectors, capital goods and auto componentcompanies are the most optimistic, while textilecompanies are the least optimistic.

Key Highlights:

For a majority of the surveyed compa-

nies (both manufacturing & services), risk

management would be the most importantstrategy for FY12. This could be partly because

of heightened uncertainty and significant

downside risk to overall growth.

For auto component companies, rising

input costs would be the major challenge and

consequently, cost control would be the key

area of focus.

Nearly three-fourths of the metal companies

expect their selling prices to firm up in FY12.

They expect increased automobile productionto be among the major demand drivers.

Technology upgradation would be the key

focus area for a significant majority of textile

companies.

A substantial proportion of respondents from

the banking sector expect their NPA level to

remain above 3%.

Almost all the insurance companies surveyed

(96%) expect to sell higher number of policies

in FY12; with demand being mainly driven by

increase in income levels, favourable demo-

graphics and government initiatives.

IT-ITeS companies foresee higher attrition and

rising salary levels as the key challenges facing

the industry.

Rising real estate prices to be the key concern

area for retail companies.


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Auto ComponentsKey Highlights:

Robust outlook on demand; 92% companies

expect sales volumes to be higher than FY11.

Profit expectations more healthy; 79%

companies expect to earn higher net profits;

last year, 72% of the companies expected rise

in net profits.

Companies going slow on enhancing employee

count and on capital expenditure compared to

last year; Optimism for this year stands at 54%

and 51% for these indicators respectively, much

lower than last year (72% - number of employ-

ees and 66% - capital expenditure).

Performance Indicators:

Auto component companies have a robust

outlook for FY12, with 92% of the companies

expecting sales volumes to increase, over FY11,

and a negligible 1% anticipating fall in volumes.

The resultant Optimism for Volume of Sales

stands at 91%.

On the profit front also, as much as 79% of the

companies expect to earn higher net profits; only

4% of the respondents anticipate profits to fall.

The resultant optimism forNet Profits stands at

75%. In comparison, last year companies were

less optimistic on the net profit front, with 72%

of the companies expecting to earn higher netprofits during FY11.

The spiraling input prices have become a great-

er concern for companies this year. As much as

81% of the respondents fear that input prices

would rise in FY12; while a small 4% hope prices

to decline. The resultant Optimism for Input

Prices stands at 77%. In comparison, last year

companies were less worried; only 61% of the

survey respondents had anticipated input pricesto increase.

Notwithstanding the rising market competition,

auto component companies are likely to hike

selling prices of their products, largely due to the

anticipated increase in input prices. A substantial

65% of the companies expect increase in sell-

ing prices in FY12, while another 5% anticipate

fall in selling prices. The resultant Optimism forSelling Prices stands at 60%.

Despite the long term healthy prospects of the

industry, this year auto component companies

are going slow on expanding their employee

strength. About 57% of the survey respondents

expect to see an expansion in their employee

strength in FY12, while 3% of the companies

anticipate reduction in employee count. The

resultant Optimism for Employees stands at

54%. The outlook was a lot more encouraging

last year, when 72% of the survey respondents

expected increase in their employee count.

Even on the capital expenditure front, compa-

nies are being cautious. About 64% of the survey

respondents expect increase in their capex and

a considerable 13% anticipate their capex to be

lower than FY11. The resultant Optimism for

Capital Spending stands at 51%. In compari-


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son, in FY11, 71% of the respondents expectedto witness increased capital expenditure.

Growth Drivers during FY12

Domestic demand for automobiles continues to be

the main factor driving the auto component indus-

trys growth. With a score of 0.75, this parameter

received the highest ranking. Export orders received

the second highest ranking of 0.62; a significant 36%

of the survey respondents revealed that exports will

be a major growth driver in FY12.

Issues & Challenges during FY12

Profit margins of the industry continue to remain

under pressure, mainly due to rising input costs.

Consequently, the industry anticipates rising costs

of inputs and power to be the key challenges in

FY12. Rising raw material costs received the highest

ranking of 0.76; 53% of the respondents feel that

raw material costs will be the major challenge facing

the industry.

Strategic Focus

Considering the key issues faced by the industry,

cost control and risk management have emerged as

the key strategic focus areas for auto component

companies during FY12. Around 71% of the respon-

dents revealed that cost control programmes will

be the major thrust area, while 41% considered risk

management to be the major strategic focus area

for FY12.


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AutomobileKey Highlights:

Demand expectations upbeat, with 88%

companies expecting increase in sales volume in

FY12, but lower compared to last year (96%).

Industry anticipates input prices to continue

upward spiral in FY12.

Rising per capita income and new model launches

to be the key factors to drive demand in FY12.Increasing fuel prices to be the biggest challenge

for companies.

Expanding sales/distribution network will be the

key strategic focus area for companies.

Performance Indicators:

Automobile companies expect demand

to be higher in FY12. About 88% of the

respondents anticipate sales volumes to increase

over FY11, while none expect to witness a fall in

volumes. The resultant Optimism forVolume of

Sales stands at 88%. In comparison, last year

companies had a more robust outlook, with the

Optimism for Volume of Sales standing at a

whopping 96%.

On the input front, 88% of the companies expect

prices to continue their upward journey in FY12,

while the remaining anticipate prices to remain

stable. However, given the stiffening competi-

tion, only about 54% of the respondents expect

selling prices to increase. In fact, a substantial

42% of the sample expects to see no change

in selling prices. With just 4% of the sample

expecting a decrease in selling prices, the

resultant Optimism for Selling Prices stands

at 50%.

Driven by higher sales volumes and to a certain

extent by increased selling prices, 73% of the

companies expect to earn higher net profits in

FY12; only 4% anticipate a decline in net profits.

The resultant Optimism forNet Profits stands

at 69%.

Given the healthy demand outlook, nearly three-

fourth (73%) of the companies are likely to

increase capital expenditure, while 8% of

the companies expect to reduce their capital

spending. The resultant Optimism for CapitalSpending stands at 65%.

On the employment front, unlike last year

when 81% of the respondents expected their

employee strength to increase, this year only

69% of the companies expect expansion in their

employee count. A considerable 27% of the

respondents see no change in their employee

strength this year, while a marginal 4% expect

to witness a decline. The resultant Optimism for

Employees stands at 65%.

Growth Drivers during FY12

Rising per capita income and launch of new vehicle

models are expected to be the chief factors that

would drive the industrys growth in FY12. With

a score of 0.76, these two factors have received

the highest ranking among the key growth drivers.

Availability and cost of credit would be the other

major demand drivers.


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Issues & Challenges during FY12Auto companies anticipate rising fuel prices to be

the single biggest challenge facing the industry in

FY12. Nearly 77% of the respondents confirmed

this and this factor received the highest ranking with

a score of 0.90. Rising market competition and hard-

ening interest rates are viewed as the other major

challenges for the sector.

Strategic FocusWith increasing marketing competition, which is

likely to be further fuelled by the likely roll out of

more new vehicle models, increasing penetration

has assumed greater significance. Consequently,

expanding sales/distribution network has emerged

as the main focus of auto companies for FY12. It re-

ceived the highest ranking with a score of 0.90. Due

to the dynamic business environment in which the

companies operate, coupled with rising input costs,

risk management and cost control would be theother important strategies to be adopted in FY12.


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We embarked upon FY11 with a lot of expecta-

tions regarding the robustness of the recovery in

the domestic economy. The sharp and broad-based

recovery of the Indian economy which ensued was

backed by the robust consumption as well as the

investment demand. The fiscal prudence undertak-

en and the thrust in infrastructure spending by the

government to propel the investment momentumhad also largely aided the growth process. Howev-

er, the strength and pace of the economic recovery

outlived our expectations, especially during the first

half of FY11.

GDP clocked a growth rate of 8.9% during H1

FY11 on the back of a strong industrial output

and near double digit growth in the services sec-

tor. The robustness of the industrial activity,

increase in production of capital goods, commence-ment of capacity expansion plans of corporates,

increased infrastructure spending by the Govern-

ment, growth in credit as well as financing from

non-banking sources underscored the strong in-

vestment demand which gained traction as the year

progressed. However, as per the data on GFCF,

investment activity witnessed a sharp moderation

during Q3FY11. Concurrently, government expen-

diture also witnessed a sharp decline during the

same period. It was however, widely anticipatedthat the government expenditure would moderate

on account of fiscal consolidation and gradual with-

drawal of stimulus packages.

Lack of Government spending as reflected by the

persistence of large government cash balances

with the RBI led to tight in the liquidity conditions,

the extent of the tightening being accentuated by

structural factors such as relatively sluggish growth

in bank deposits as compared to the credit growth

along with higher demand for currency. In view of

the sustained liquidity pressures the RBI undertook

several measures such as continuation of second

LAF, OMO purchase of government securities, ad-

ditional liquidity support to SCBs under the LAF up

to 2.0 per cent of their NDTL which provided some

stability to the overnight interest rates.

Even as the economy was witnessing a strong turn-

around during 2010, firming up of the domestic and

international prices had posed significant risks to

growth. The headline inflation remained in double

digits for as long as five months up to July 2010 - far

above the RBIs tolerance level. While the surge in

inflation was primarily driven by the food articles

inflation owing to the supply side constraints, the

inflation had also started becoming increasinglygeneralised given the recuperating demand condi-

tions and rising input prices. The deregulation of the

fuel prices in Jun 2010 also added to the inflationary

pressures in the economy. Uncertainty in the global

economic recovery prospects coupled with supply

side bottlenecks that imparted stickiness to inflation

posed a challenge for the RBI to anchor inflationary

pressures without derailing growth.

Nonetheless, given the unabated rise in inflation,the RBI resorted to aggressive monetary policy

tightening. The RBI raised the repo and the reverse

repo rates by as much as 8 times during Mar-10 to

Mar-11. The headline inflation however, had

softened to single digit levels during Aug - Nov

10. The fall in the inflation figures though seemed

positive was primarily owing to waning low base,

thus providing no respite to the common man as

retail prices still continued to remain elevated. In

Economic Journey FY11


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Dec-10 the WPI which was on a downward trendreversed its direction owing to soaring global oil

prices and rise in prices of primary food articles.

The sharp increase in oil prices as a result of the

turmoil in the Middle East and North Africa aggravated

inflationary pressures. The surge in the prices of

food articles reflected the structural bottlenecks

prevailing in certain sectors, especially the non-

cereal food items. Moreover, the rising non-food

manufacturing inflation also indicated the impact of

the demand side pressures, high input cost alongwith the ability of the producers to pass on the

higher input prices to consumers.

Consequent to this policy action, many banks have

raised their deposit and lending rates. Several banks

had revised their base rates upwards in the range of

25-100 basis points during Jul 10 - Jan 11. Given the

widening imbalance between the deposit growth

and the credit growth, banks also raised their

deposit rates to mobilise resources.

However, even as the macroeconomic numbers

continued to display a strong performance during

the course of the fiscal year FY11, they were marked

by a lot of volatility; the volatility was evident not only

in the numbers but also in the sentiments primarily

driven by the global clues and policy responses to

cater to inflation. The volatility was strongly evident

in the FII flows, the movement in the exchange rate,

the stock market sentiment as well as in the data for

industrial production.

The FII inflows remained volatile given the risk

aversion among investors owing to the debt crisis in

the some Euro region and concerns regarding the

pace of recovery in some developed countries. Indias

external demand condition also remained un-

der pressure during the initial months of FY11,

with both the merchandise and the services

exports moderating. However, the exports

gathered momentum during the second half of thefiscal year to cross the export target of US$ 200

bn by Feb-11. Given the deceleration in exports and

higher imports since the beginning of FY11 and the

moderation in net invisible surplus, the deficit in

the current account balance surged significantly

during H1 FY11. Nonetheless, the balance of

payments remained in surplus owing to the

considerable inflow of foreign funds during the

same period. Given the sovereign debt prob-

lems in some Euro countries, concerns over weakEuro-Zone economies on one hand and volatile FIIs

and weakening of Dollar on the other hand Indias

exchange rate remained volatile during FY11 putting

pressure on the exporters profit margins.

While we are at the threshold of the beginning of

a new fiscal year some concerns to growth have

emanated such as unabated rise in global oil pric-

es, widening of current account deficit, fall in FDI

inflows et al. However, effective implementa-

tion of the reform agenda as announced in the

budget, adhering to the fiscal deficit target, making

development more inclusive, bringing about further

improvement in the public delivery practices by

the Government would help in setting the path for

sustaining a high growth trajectory.


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India Outlook FY12

The fiscal year 2011 witnessed a faster and more

broad based recovery in the Indian economy. While

we at D&B expected the GDP to gather signifi-

cant momentum during FY11, the robust growth of

8.9% during H1 FY11 was a positive surprise. While

the long term growth prospects of the economy

seem bright given the strong fundamentals of the

economy, the short term outlook needs to beassessed in context of the emerging macroeco-

nomic dynamics that might support or limit Indias

economic growth. Therefore, before providing our

outlook for the Indian economy during FY12, we

begin by elucidating the current macroeconomic

developments that would play a crucial role in

determining the prospect of the Indian economy

over the span of next one year.

It is important to note here that after nearing thepre-crisis growth levels of near 9% during H1 FY11,

the GDP growth moderated to near 8.2% during

Q3 FY11. In fact, the robust growth of 8.9% in the

agriculture sector aided the GDP growth to remain

above 8%. A normal agriculture sector growth of

around 3.5-3.6% would have pulled down the GDP

growth to just above 7% during Q3 FY11, thereby

highlighting the moderation in the overall economic

activity. The growth pattern in the industrial sector

is expected to drive the overall economic activityin the near future. Another important development

in the recent past has been the moderating invest-

ment activity evident in relatively lower growth in

Gross Fixed Capital Formation (GFCF) during Q3

FY11 and slowdown in IIP for capital goods during

Dec 10 - Jan 11. Thus, the momentum of invest-

ment, which largely will be influenced by the infla-

tion and interest rates scenario, will be crucial for

determining the growth outlook for the next fiscal.

Domestic demand, however, will continue to hold

the key to broad based growth. The high current

account deficit (CAD) is another major emerging

concern, given that any unabated rise in CAD will

not only put pressure on the rupee but also might

put strain of Indias ratings thereby increasing the

cost of external borrowing for the Indian corporates.

With generalisation of inflationary pressures thanksto the recent spike in the oil prices and improving

demand conditions, we at D&B expect inflation to

affect the real GDP growth slightly especially, in the

first half of FY12.

At the backdrop of the current macroeconomic

environment we expect the GDP growth to improve

from the current levels but it is unlikely to touch the

high levels experienced during FY06-FY08.

Real GDP to grow by 8.8% during FY12

The moderation in GDP growth momentum is

expected to continue during the first two quar-

ters of FY12, largely on account of muted industrial

activity. However, this is expected to be higher

than second half of current fiscal. The GDP growth,

however, is expected to revert to its near 9.0%

growth trajectory during the second half of FY12.

A host of factors like high interest rate scenario,

high input prices and muted investment activ-

ity along with the heightened uncertainties in the

international economic scenario are likely to limit

the GDP growth in the first half of FY12. However,

with moderating inflation, anticipated improve-

ment in domestic demand conditions and expected

return of normalcy in the global landscape, domestic

economic activity is expected to gain traction in the

second half. Moreover, during the course of the year


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the economy is expected to get adjusted to rising in-terest rates, which though increasing will only touch

the pre-crisis levels. Assuming a normal monsoon,

D&B expects the GDP to record an average growth

of 8.8% during FY12.

Disaggregating GDP data on a sectoral basis, the

uptick in GDP growth during FY12 is expected to

be driven by a robust services sector growth. High

industrial growth witnessed in H1 FY11, is likely to

have provided much needed impetus to the servic-

es sector during H2 FY11 as the growth in services

sector tend to follow the industrial growth with

some time lag. D&B expects services sector to have

grown by around 10.5% during Q4 FY11 taking the

services sector growth for FY11 to 9.6%.

The services sector is expected to maintain thisgrowth momentum and clock a robust growth of

9.9% during FY12. Improving business and consum-

er optimism, rising income levels et al are likely to

provide support to services segment such as finan-

cial services, tourism, transport and communication

etc. Even the industrial activity, which moderated

significantly the last two quarters of FY11, is likely

to witness gradual improvement during FY12 and

support the overall GDP growth. Industrial sector is

expected to grow by around 8.7% during FY12. As-suming a normal monsoon the agriculture sector is

expected to grow by around 4.1% during FY12 after

an expected increase of 5.0% during FY11.

Private consumption demand

to provide impetus to growth

D&B expects the growth in private final

consumption expenditure to have improved to 8.2%

during FY11 from around 7.4% during FY10 with

domestic demand conditions recuperating at a rapid

pace. D&B expects the PFCE to maintain the cur-

rent growth momentum and grow by around 8.3%

during FY12. The private consumption demand will

continue to be driven by the following factors:

Improving consumer sentiment

Likely moderation in inflation would increase

purchasing power of the households and might

help stimulate demand

The anticipated increase in NREGA wages, which

are now linked to inflation rate, might help rural

demand to remain upbeat

Optimistic employment scenario and rising

income levels

Expected increase in disposable income given

the reduction in over all income tax slabs for

individuals announced in budget FY12


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Anticipated high interest rates might limit the growthin private demand for high end products, especially

during H1 FY12.

Industrial activity to gather

strength

With significant moderation during the last few

months of FY11, the IIP growth is expected to

have moderated to 7.7% during FY11 as compared

to a robust 10.5% growth clocked during FY10.

The moderation in industrial production during the

latter part FY11, though in part is a reflection of high

statistical base, does underscore a consolidation

phase for industrial activity. However, the industrial

activity is likely to gain momentum and is expected

to remain robust at 9.0% during FY12 on account

of:

Improvement in domestic demand

Gradual pick up in investment activity

Increased thrust of the government on infra-

structure projects

Upbeat demand for Indian exports

However, high crude oil prices and rising interest

rates coupled with the high base of previous year

might limit the pace of IIP growth especially duringthe H1 FY12.

While production in consumer durables and capi-

tal goods sector is expected to remain muted dur-

ing the Q1 FY12 on account of high interest rates

and rising input prices, the growth in these sec-

tors would pick thereafter as demand conditions

improve and input prices stabilise. Growth in ba-

sic and intermediate goods sector is likely to re-

main resilient during H1 FY12 and gain significant

momentum during H2 FY12 backed by expectation

of further improvement in consumption and invest-

ment demand. Consumer non-durables sector is,

however, expected to witness high growth since

the beginning of FY12 primarily due to low base of

the previous year. Moreover, moderating inflation,

expected increase in income levels especially in the

rural areas is likely to support growth of the con-

sumer non-durables segment.

Savings rate to see a marginal up-

tick

A confluence of factors such as an uptick in con-

sumer confidence, improving corporate profitability

and lower fiscal def icit is likely to have increased the

savings rate during FY11. Moreover, improvement

in value of physical as well as financial assets could

be in part responsible for the uptick in the savings


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rate. D&B expects savings rate to increase to 34.3%during FY11 as compared to 33.7% during FY10.

Continuing its upward march, the savings rate is

likely improve further to 35.0% during FY12.

Factors that would support the increase in savings

rate are:

Personal disposable income is expected to im-

prove given the changes in personal income tax

slabs and the expected higher salaries

Improvement in consumer sentiment

Buoyant job markets, which could lead to higher

per capita income

Lower fiscal deficit implying reduction in govern-

ment dis-savings

Elevated interest rates during FY12 might help

stimulate savings

Governments focus on financial inclusion cou-

pled with increasing rural income levels is likely

to improve savings rate in the rural areas

Improving corporate profitability

Investment rate expected to

improve though marginally in FY12

D&B expects investment rate to improve margin-

ally to 37.0% in FY11 and further to 37.5% in FY12

from 36.5% in FY10. Increase in investment rate isexpected to be supported by the following factors:

With improving consumption demand and

gradual uptick in economic activity the corpo-

rates are expected to expand their capacity

during FY12

Improving business optimism

Continued thrust on infrastructure development

Easy availability of fund from various sourcesboth internal and external, especially in the

second half

Elevated interest rates especially during the first half

might keep investment demand muted.

Bank credit growth to remain

resilient

After remaining muted during H1 FY11, the bank

credit growth gathered substantial momentum

during H2 FY11 and is expected to be around 23.3%

by end of FY11 as compared to 16.9% by end of FY10.

Improving domestic demand along with anticipated

higher future interest rates scenario might have

stimulated credit demand during latter part of FY11.

Moreover, the easing of tight liquidity conditions


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visible during early FY11 could also have facilitatedhigher credit disbursement by end of FY11. D&B

expects the momentum in the bank credit growth

to remain resilient for most part of FY12 and

witness gradual moderation by end FY12:

Demand for bank credit by industry to grow due

to improvement in production and investment

activity

Rising income levels is likely to support

consumption of high-end consumer product anddemand for home loans

Improving liquidity conditions and uptick in

deposits growth would support credit

disbursement by banks

Anticipated increase in interest rates during H1

FY12 is expected to have moderating impact on

growth of bank credit.

Interest rates to remain elevated

D&B expects both lending and deposit rates to re-

main elevated during FY12. As the inflation becomes

broad based, D&B expects that the RBI would tight-

en the monetary policy stance further, with 25 basis

points hike in repo and reverse repo rates during

the Q1 FY12. The lending rates are expected to

increase slightly as an after effect of further mon-etary tightening by the RBI to rein in inflationary

pressures. Even deposit rates will continue its

upward march as bank seek to mobilise depos-

its growth, which has remained muted and much

below the credit growth.

Interest rate and Money supply

Variables FY09 FY10 P FY11 E FY12 F

15-91 days

Treasury Bill(yield)

4.55 3.93 5.75 5.50

10 Year G-

Sec (yield)

7.04 7.83 8.00 7.90

M3 (growth

Rate %)

19.30 16.8 16.5 15.50

Source: RBI & D&B India; P: Provisional; E: D&B estimates; F: D&B Forecast

The pressures visible on the G-sec yield during most

part of FY11 are likely to recede and the 10-year

G-sec yield is expected to be around 8.0% by endof FY11 supported by the easing liquidity conditions

and lower than budgeted fiscal deficit. Expected

high inflation and anticipated increase in policy rates

by the RBI are likely to weigh on the sentiment in the

G-sec market during Q1 FY12. Reduction in fiscal

deficit, which is budgeted at 4.6% of GDP, is likely

to provide some respite to the g-sec yields during

FY12. Moreover, with anticipated moderation in

inflation especially during the second half, g-sec yield

might witness some moderation. D&B expects theG-sec yield to be around 7.9% by end of FY12.

Respite on the inflation front

D&B expects WPI inflation to moderate to

around 5.5% during FY12. Inflation, however, is

expected to remain elevated during H1 FY12.

International crude oil prices are expected to

remain high during this period thereby putting


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upward pressure on domestic inflation. Assum-ing a normal monsoon, food article inflation is ex-

pected to normalise. Moreover, the crude oil prices

are likely to stabilise at current levels or recede

during the latter part of FY12. This is likely to

support the moderation in inflation during the course

of the year, though manufactured products inflation is

likely to remain high given that the higher input prices

might be passed on to the consumer as the demand

conditions improve. Also the lagged impact of ex-

pected tightening of monetary policy would help torein in the inflationary pressures during this period.

Fiscal deficit to breach the target

D&B expects the fiscal deficit to be around 4.8%

during FY12 above the budgeted levels of 4.6%. We

believe that the revenue would fall short of the bud-

geted increase of 17.8%. Moreover, the recent roll

back of service tax levied on healthcare would fur-ther limit the revenue below the budgeted. Further,

the expenditure is expected to exceed the budgeted

levels given that the subsidy burden seems to have

been understated in current scenario of high crude

oil price and the expected implementation of the

food security bill.

Stress on external front to easeD&B expects exports to be around US$ 230.9 bn

in FY11, which is approximately US$ 52.2 bn high-

er than exports of US$ 178.7 bn in FY10, owing to

recovery in Indias key export markets and gradual

diversification to new markets by Indian exporters.

D&B expects exports to grow by around 19.8%

during FY12 as the global economic growth contin-

ues to stabilise.

Imports, on the other hand, are expected to bearound US$ 340 bn in FY11 an increase of around

18.5% compared to FY10. As consumption as well

as investment demand conditions in the Indian

economy improve imports are expected to improve

going forward. Imports are expected to grow by

around 21.1% during FY12, on account of sustained

improvement in economic activity as well as an-

ticipated high commodity prices. D&B expects the

trade def icit to increase to US$ 135.1 bn in FY12, as

growth in imports is expected to be greater thanexports. With gradual increase in services exports

and improvement in private transfers, pressures on

current account front are likely to ease. The cur-

rent account deficit would moderate to 2.5% of the

GDP during FY12.


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Rupee to gain substantiallyD&B forecasts the rupee value to be around

43.7/US$ by the end of FY12. The appreciation in

rupee in next fiscal would be on account of

expected increase in FII inflows as Indias eco-

nomic activity continues to improve. An expected

depreciation in dollar value is also likely to support

rupee value going forward. Also, India-US interest

rate differential is likely to increase slightly and

might help the rupee to appreciate.

Some concerns to growth:In the current dynamic economic scenario

the risk to growth are many and varied. Our

prognosis of the overall economic scenario during

the next year should, therefore, be assessed with

due consideration to certain developments

domestic as well as global. The global econom-

ic crisis of 2008 and the nature of economicrecovery thereafter provide much evidence

that Indian economy cannot be insulated from

development in the world economy.

One of the key concerns for growth is related

to inflation given the significant upside risks to

inflation are already visible. While the upside risks to

inflation outlook are expected to recede going

forward, any shocks to oil prices (in the event of

aggravation of ongoing geo-political tensions) couldstoke price pressures on crude oil. Moreover,

shocks in global oil prices could fan inflationary

pressure in the domestic economy and deteriorate

current account deficit, which again continues to

remain a major risk factor. Secondly, in the event

of poor monsoons, agricultural growth will be

impacted to a large extent. Apart from the

significant (and lagged) effect on industrial sector

performance, the monsoon effect could feed into

WPI figures through higher food and primaryarticles prices.

On the external front, any untoward develop-

ment regarding the European countries debt issues

could impede the global economic revival. These

concerns could lead to escalation of financial stress,

waning business and consumer confidence, and

volatility in the currency markets. Given Indias

growing integration with the global economy,

turbulence in global financial conditions could

adversely impact the economys growth momentum

through financial and trade channels.

While the government has reiterated its commit-

ment on fiscal consolidation by placing the fiscal

deficit target for FY12 at 4.6%, any spillovers on this

front could emerge as a major risk to growth. More-

over, with high crude oil prices, roll back of certain

taxes (service tax on healthcare) are likely to add to

the fiscal deficit going forward. Inability to limit the

fiscal deficit might put pressures on interest rates

thereby increasing the risk of crowding out of pri-

vate investment.


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Variables 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11(E) 2011-12 (F)

Real Sector

Nominal GDP (` Bn) 33896 39522 45814 52821 61332 72065 82155

Nominal GDP Growth (YOY%) 14.1 16.6 15.9 15.3 16.1 17.5 14

Real GDP (RS Bn) 32542 35660 38990 41625 44937 48757 53048

Real GDP Growth (YOY%) 9.5 9.6 9.3 6.8 8.0 8.5 8.8

Population (Mn) 1106 1122 1138 1154 1170 1186 1203

GDP Per Capita` (at constant price) 29423 31783 34261 36070 38408 41101 44105

Agriculture (` Bn) 5945 6192 6551 6541 6570 6898 7181

Agriculture Growth (YOY%) 5.1 4.2 5.8 -0.1 0.4 5 4.1Industry (` Bn) 9104 10212 11199 11689 12620 13642 14835

Industry Growth (YOY%) 9.7 12.2 9.7 4.4 8.0 8.1 8.7

Services (` Bn) 17493 19257 21240 23395 25748 28219 31023

Services Growth (YOY%) 11.0 10.1 10.3 10.1 10.1 9.6 9.9

Sectoral Share (%)

Agriculture 18.3 17.4 16.8 15.7 14.6 14.1 13.5

Industry 28.0 28.6 28.7 28.1 28.1 28.0 28.0

Services 53.8 54.0 54.5 56.2 57.3 57.9 58.5

Index of Industrial Production (YOY%) 7.9 11.9 8.7 3.2 10.5 7.7 9.0

Private Fixed Consumption

Expenditure (PFCE) Real (YOY%)8.4 8.5 9.1 7.6 7.4 8.2 8.3

Savings % to GDP 33.5 34.6 36.9 32.2 33.7 34.3 35.0Investment Rate % to GDP 34.7 35.7 38.1 34.5 36.5 37.0 37.5

Inflation Rate (Average; %)

WPI- All Commodities 4.4 6.5 4.8 8.0 3.6 9.1 5.5

WPI-Manufactured Products 2.3 5.6 4.9 6.1 1.8 5.6 5.6

CPI-IW 4.4 6.7 6.2 9.1 12.4 10.5 6.9

Monetary (End Period)

15-91 days Treasury Bill (Yield) 6.10 7.56 7.00 4.55 3.93 5.75 5.50

10 Year G-Sec (Yield) 7.53 7.94 7.64 7.04 7.83 8.00 7.90

M3 Growth (YOY%) 21.1 21.7 21.4 19.3 16.8 16.5 15.5

Bank Credit Growth (YOY%) 37.0 28.1 22.3 17.5 16.9 23.3 22.5

External Sector

Exchange Rate (USD/INR) (End Period) 44.61 43.60 39.99 50.95 45.14 44.65 43.70Exchange Rate (USD/INR)

(Average)44.27 45.28 40.24 45.92 47.42 45.58 43.75

Exports (US $ Bn) 103.1 126.4 162.9 185.3 178.7 230.9 276.7

Exports Growth (YOY%) 23.4 22.6 28.9 13.7 -3.6 29.2 19.8

Imports (US $ Bn) 149.2 185.7 251.4 303.7 286.8 340.2 411.8

Imports Growth (YOY%) 33.8 24.5 35.4 20.8 -5.6 18.5 21.1

Trade Balance (US $ Bn) -46.08 -59.32 -88.54 -118.40 -108.16 -109.3 -135.1

Current Account Balance % of GDP -1.19 -1.01 -1.27 -2.30 -2.78 -2.7 -2.5

Public Finance

Fiscal Deficit 4.0 3.3 2.6 6.1 6.4 5.1 4.8

D&B's Key Macroeconomic Forecast

Note: E - D&B Estimates; F - D&B Forecast


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