monthly economic bulletin - india in...

RECENT TRENDS IN INDIAN ECONOMYDomestic Economy and Markets

India’s Foreign Trade

Agriculture

Inflation

Industrial Production

Foreign Direct InvestmentsMore in this section

OVERSEAS INVESTMENTSIMF for more public and private investment in India

French companies to continue investing around $1 bn in IndiaMore in this section

TRADE NEWSNew Foreign Trade Policy to focus on ways to boost exports

India becomes net steel exporter after 6 yearsMore in this section

ITP Divison Ministry of

External Affairs Government of India

April, 2014

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NEWS FEATUREIndian economy more stable; deficits will come down: ChidambaramRBI grants in-principle nod to IDFC, Bandhan for bank licencesMore in this section

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p. 30/33

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SECTORAL NEWSCoal India to get new arm to shore up PPP projects

12 govt ports see 2 per cent rise in traffic growthMore in this section

NEWS ROUND-UPRaghuram Rajan pitches for differentiated bank licences, on-tap approvals

‘ISRO examining business model for industries in satellite, rocket production’More in this section

MONTHLYECONOMIC BULLETIN

MONTHLYECONOMIC BULLETIN >> RECENT TRENDS IN INDIAN ECONOMY

Domestic Economy and Markets

While the global environment remains challenging, policy action in India has rebuilt buffers to cushion it against possiblespillovers. These buffers effectively bulwarked the Indian economy against the two recent occasions of spillovers toEMDEs (emerging market and developing economy) — the first, when the US Fed started the withdrawal of its largescale asset purchase programme and the second, which followed escalation of the Ukraine crisis. On both these occa-sions, Indian markets were less volatile than most of its emerging market peers. With the narrowing of the twin deficits –both current account and fiscal – as well as the replenishment of foreign exchange reserves, adjustment of the rupee ex-change rate, and more importantly, setting in motion disinflationary impulses, the risks of near-term macro instabilityhave diminished. However, this in itself constitutes only a necessary, but not a sufficient, condition for ensuring economicrecovery. Much more efforts in terms of removing structural impediments, building business confidence and creating fis-cal space to support investments will be needed to secure growth.

Annual average CPI (consumer price index) inflation has touched double digits or stayed just below for the last sixyears. This has had a debilitating effect on macro-financial stability through several channels and has resulted in a rise ininflation expectations and contributed to financial disintermediation, lower financial and overall savings, a wider currentaccount gap and a weaker currency. A weaker currency was an inevitable outcome given the large inflation differentialwith not just the AEs, but also EMDEs. High inflation also had adverse consequences for growth. With the benefit of hind-sight, it appears that the monetary policy tightening cycle started somewhat late in March 2010 and was blunted by aseries of supply-side disruptions that raised inflation expectations and resulted in its persistence. Also, the withdrawal ofthe fiscal stimulus following the global financial crisis was delayed considerably longer than necessary and may havecontributed to structural increases in wage inflation through inadequately targeted subsidies and safety net pro-grammes.

Since H2 (second half) of 2012-13, demand management through monetary and fiscal policies has been brought inbetter sync with each other with deficit targets being largely met. Monetary policy had effectively raised operational pol-icy rates by 525 basis points (bps) during March 2010 to October 2011. Thereafter, pausing till April 2012, the ReserveBank cut policy rates by 75 bps during April 2012 and May 2013 for supporting growth. Delayed fiscal adjustment mate-rialised only in H2 of 2012-13, by which time the current account deficit (CAD) had widened considerably.

The easing course of monetary policy was disrupted by ‘tapering’ fears in May 2013 that caused capital outflows andexchange rate pressures amid unsustainable CAD, as also renewed inflationary pressures on the back of the rupee de-preciation and a vegetable price shock. The Reserve Bank resorted to exceptional policy measures for further tighteningthe monetary policy. As a first line of defence, short-term interest rates were raised by increasing the marginal standingfacility (MSF) rate by 200 bps and curtailing liquidity available under the liquidity adjustment facility (LAF) since July2013. As orderly conditions were restored in the currency market by September 2013, the Reserve Bank quickly movedto normalise the exceptional liquidity and monetary measures by lowering the MSF rate by 150 bps in three steps. How-ever, with a view to containing inflation that was once again rising, the policy repo rate was hiked by 75 bps in threesteps.

Recent tightening, especially the last round of hike in January 2014, was aimed at containing the second round effectsof the food price pressures felt during June-November 2013. Since then, inflation expectations have somewhat moder-ated and the temporary relative price shock from higher vegetable prices has substantially corrected along with a sea-sonal fall in these prices, without further escalation in ex-food and fuel CPI inflation. While headline CPI inflation recededover the last three months from 11.2 per cent in November 2013 to 8.1 per cent in February 2014, the persistence of ex-food and fuel CPI inflation at around 8 per cent for the last 20 months poses difficult challenges to monetary policy.

Against this background there are three important considerations for the monetary policy ahead. First, the disinfla-tionary process is already underway with the headline inflation trending down in line with the glide path envisaged by theUrjit Patel Committee, though inflation stays well above comfort levels.

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April, 2014

Second, growth concerns remain significant with GDP growth staying sub-5 per cent for seven successive quartersand index of industrial production (IIP) growth stagnating for two successive years. Third, though a negative output gaphas prevailed for long, there is clear evidence that potential growth has fallen considerably with high inflation and lowgrowth. This means that monetary policy needs to be conscious of the impact of supply-side constraints on long-rungrowth, recognising that the negative output gap may be minimal at this stage.

Output and DemandGrowth in the Indian economy had been shifting down from 9.6 per cent in Q4 of 2010- 11. It troughed around 4.4 percent for three quarters from Q3 of 2012-13 to Q1 of 2013-14. Since then there are signs of growth bottoming out withmarginal improvement recorded during Q2 and Q3 of 2013-14 to 4.8 and 4.7 per cent respectively. However, this im-provement has been feeble and clear signs of recovery are yet to emerge, even as the economy seems to be gearing for amodest recovery during 2014-15.

The downward spiral in growth caused in large part by structuralfactors that impeded investment activity had a profound effect onIndia’s potential growth. On the basis of a simple Hodrick-Prescott(HP) filter on quarterly output levels, India’s potential growth ap-pears to have dropped from 8-8.5 per cent during the periodQ2:2005-06 to Q3:2008-09 to around 6 per cent during the periodQ2:2012-13 to Q3:2013-14. The wide range of estimates using alter-native techniques, on balance, suggests that currently the potentialgrowth may be even somewhat lower than 6.0 per cent. Decline infinancial savings, sluggish growth in fixed capital formation oversuccessive quarters, persistently high inflation and low businessconfidence contributed to the decline in potential growth, particu-larly in the absence of adequate structural policy measures to lowerinflation on a durable basis through improved supply responses andto facilitate implementation of large investment projects. Estimates of potential output are subject to considerable un-certainties given that they are sensitive to choice of methodologies, the time period used for estimation and end-periodgrowth rates and have to be interpreted with judgment. On current reckoning, the economy seems to be running a nega-tive output gap of about one percentage point, though the error bands around this estimate are wide .

Agriculture sector witnessed record productionThe satisfactory monsoon and the absence of extreme climatic events until lately augur well for agricultural productionand rural demand. Adequate replenishment of soil moisture and reservoirs significantly boosted crop production during2013-14. As per the second advance estimates, the production of rice, wheat, pulses, oilseeds and cotton during 2013-14have been estimated to be the highest ever. However, preliminary reports suggest that the unseasonal rains accompa-nied by hailstorm, and frost during early March 2014 in various parts of the country has adversely affected rabi crops likewheat, mustard seeds, onions and jowar. The possible effects of El Nino on the monsoon also add an additional elementof uncertainty for future harvests. In this backdrop, the ability to meet increased food demand in the context of the im-plementation of the National Food Security Act, in the face of tightening farm labour markets and rising input costs re-mains a challenge.

Industrial growth stagnatingThe Index of Industrial Production (IIP) showed no increase during April-January 2013-14, compared with 1.0 per centgrowth in the corresponding period of the previous year. This stagnation in growth over two years reflects subdued in-

MONTHLYECONOMIC BULLETIN >> RECENT TRENDS IN INDIAN ECONOMY3

April, 2014

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April, 2014


vestment and consumption demand. This has resulted in contraction in production of capital goods and consumerdurables in the current year. Output of basic metals, fabricated metal products, machinery and equipment, motor vehi-cles, food products, gems and jewellery and communication equipment recorded a decline. Growth of core industries,which provide key inputs to the industrial sector, remained sluggish at 2.4 per cent during April-January 2013-14 com-pared to a growth of 6.9 per in the corresponding period a year ago. This sluggishness, in part, reflects contraction in nat-ural gas and crude oil production and slow growth in all other infrastructure industries, except electricity.

Capacity utilisation remained range boundCapacity utilisation (CU), as measured by the 24th round of the Order Books, Inventories and Capacity Utilisation Survey(OBICUS) of the Reserve Bank, remained largely flat in Q3 of 2013-14 (http://www.rbi.org.in/OBICUS24). This is also re-flected in the detrended IIP. Although the current level of CU is lower than that in the corresponding period of the previ-ous year, new orders witnessed substantial growth on both q-o-q as well as y-o-y basis. Finished goods inventory tosales ratio also declined in Q3 of 2013-14 over the previous quarter.

Lead indicators of services sector indicate an uptickThe developments in lead indicators of the services sector activity signal improvement in most segments except cementproduction and in commercial vehicle sales. Weak consumer confidence has impacted the sale of passenger cars, com-mercial vehicles and three wheelers. The reduction in excise duty on passenger vehicles and two wheelers in the interimbudget for 2014-15, is expected to provide some boost to this sector.

Employment scenario showing signs of gradual recuperationAs per the labour bureau survey, employment generation in eight key sectors that was moderating since January 2012showed some improvement in July-September 2013 vis-a-vis the previous quarter. Some of the private data sources ofemployment in the organised sector have also registered uptick in hiring since Q2 of 2013-14. The IT-BPO sector con-tributed to this improvement along with other sectors such as textiles, telecom, pharmaceuticals as well astravel/tourism.

Aggregate demand continued to moderate in Q3 of 2013-14, even as net exports remained buoyantIn contrast to the pick-up in GDP growth at factor cost, the GDP growth at market prices during Q3 of 2013-14 moder-ated, reflecting lower mobilisation of net indirect taxes. Component-wise, both private and government final consump-tion expenditure continued to decelerate while fixed investment contracted in Q3. The weighted contribution of netexports to overall growth continued to remain the highest amongst all the components of GDP’s expenditure side.

Efforts to address infrastructure bottlenecks have yielded modest revival so farBy the end of January 2014, the Cabinet Committee on Investment (CCI) and the Project Monitoring Group (PMG) had to-gether undertaken resolution of impediments for 296 projects with an estimated project cost of Rs.6.6 trillion. As at end-March 2014 around 284 projects worth Rs.15.6 trillion are under the consideration of PMG for which issues are yet to beresolved. Official data indicates that there has been a slight decline in the total number of delayed central sector infra-projects. However, 15-20 per cent of these projects, mostly in roads, power and petroleum, have reported additional de-lays, for which the dates of completion have been extended further. Also, there has been an increase in the number ofprojects without date of commissioning, mostly in roads reflecting the growing uncertainty about their completion. Thissuggests that it may take some more time before these clearances result in investment cycle turnaround.

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April, 2014


Corporate investment intentions improved in Q3Corporate investment intentions improved in Q3 of 2013-14 com-pared to that in the previous quarter as 179 new large projects withan envisaged cost of Rs.791 billion received financial assistance dur-ing the quarter, compared with 116 projects with an envisaged costof Rs.321 billion in Q2. This improvement was observed mainly inpower and cement industries.

Aggregate sales growth (y-o-y) of large companies decelerated in Q3Aggregate sales growth of a sample of 2,378 common companiesdecelerated to 5.1 per cent (y-o-y) in Q3 of 2013-14 after an upturnto 7.6 per cent in Q2 from 3.3 per cent in the preceding quarter. Thedeceleration was observed across the manufacturing and servicessector, including the IT sector. However, due to lower growth in expenditure relative to sales, operating Profits turnedaround with a positive growth of 6.5 per cent in Q3 against contraction observed in the previous quarter. Profit marginshave also improved.

While fiscal targets were met in 2013-14 (RE), the quality of fiscal adjustment needs improvementAll key deficits, with the exception of effective revenue deficit, have turned out to be lower in 2013-14 revised estimates(RE) than the budget estimates (BE) in absolute terms. In terms of GDP, while the revenue deficit of 3.3 per cent re-mained unchanged from the BE, gross fiscal deficit (GFD) and primary deficit (PD) were lower by 0.2 percentage pointseach, at 4.6 per cent and 1.3 per cent respectively. During 2014-15, the gross fiscal deficit-GDP ratio is budgeted to de-cline by 0.5 percentage points to 4.1 per cent, which will be in line with the stipulated minimum reduction under theamended FRBM rules.

In 2013-14 (RE), gross tax revenues recorded a shortfall of around 6.2 per cent over the budgeted level, mainly on ac-count of lower collections under indirect taxes which were affected by the industrial slowdown, deceleration in servicesector growth and lower imports. Non-tax revenues, on the other hand, exceeded budgetary targets primarily on accountof higher dividend receipts, some of them being ad hoc in nature, from various public sector enterprises and public sectorbanks. Non-debt capital receipts during 2013- 14 (RE) fell short of budgetary targets, reflecting lower than expected re-ceipts from disinvestment.

The shortfall in achieving the budgeted receipts under tax revenue and disinvestment proceeds was more than offsetby a sharp cutback in plan expenditure, particularly on the revenue account. Non-plan expenditure stayed marginallyhigher than the BE, with the overshooting curtailed by a cut in non-plan spending under the fiscal austerity drive that off-set a large part of the sharp increase in expenditure on major subsidies. However, while fiscal consolidation was evidentin 2013- 14 (RE), improvement in its quality is needed.

A more prudent fiscal regime based on accrual accounting may go a long way in improving fiscal transparency. Also,considering that one-off increases in non-tax revenues such as spectrum auctions are unlikely to sustain and the subsidyoften tends to overshoot budgetary provisions, further curtailment of subsidies through appropriate price adjustmentsand better targeting of major subsidies is necessary to improve the quality of fiscal consolidation. There is also a need tocost out growing entitlements, since the full cost of a programme is rarely seen in the initial years.

OutlookVarious surveys conducted around January 2014 had indicated that business confidence improved significantly for Q4 of

April, 2014

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2013-14. The Reserve Bank’s 65th round of Industrial Outlook Sur-vey (http://www.rbi.org.in/IOS65) conducted during February-March2014 reaffirmed that in terms of assessment, the Business Expec-tations Index improved in Q4 of 2013-14 as compared to the previ-ous quarter. However, based on expectations, it moderatedmarginally for Q1 of 2014-15 .

Consumer confidence Index shows sign of improvement

The ReserveBank’s 16thround of theConsumerconfidenceSurvey (http://www.rbi.org.in/CCS16) conducted in February–March2014 showed an improvement in consumer confidence as indicatedby the Current Situation Index (CSI) and Future Expectations Index(FEI).

Professional forecasters anticipate modest recovery in 2014-15, inflation expected to go downThe Reserve Bank’s 27th round of the Survey of Professional Fore-casters outside the Reserve Bank (http://www.rbi.org.in/SPF27)

showed that a modest recovery in 2014-15 is expected with growth at around 5.5 per cent. The expected CPI inflation for2014-15 has been revised downwards to 8.0 per cent from 8.5 per cent in the previous round of the survey. Their forecastfor CAD in 2014-15 is also now significantly lower at 2.4 per cent of GDP.

Perceptible decline in households’ inflation expectationsThe latest round (i.e. January-March 2014) of Inflation ExpectationsSurvey of Households (IESH Round 35)(http://www.rbi.org.in/IESH35) indicates that the perception ofthree-month ahead and one-year ahead median inflation expecta-tions of households moved down as compared with the previousquarter. The qualitative responses indicate that the proportion ofrespondents expecting price rise by ‘more than current rate’ hasalso decreased for both three-month ahead and one-year ahead pe-riod as compared with the previous quarter.

Modest recovery likely to shape in 2014-15The outlook for the Indian economy has improved over the past two months with cautiously positive business senti-ments, improved consumer confidence, expectations of a modest recovery in growth and decline in inflation expecta-tions. The challenge for maintaining disinflationary momentum over the medium term, however, remains. GDP growth at4.7 per cent in Q3 of 2013-14, was slightly higher than that in the corresponding quarter of the previous year, but it hasnot been enough to suggest that the advanced estimates of 4.9 per cent during 2013-14 could be realised. The economywill now have to record a 5.5 per cent growth in Q4 to realise that growth, which on current assessment looks difficult.

A moderate recovery is likely to set in 2014-15 broadly in line with the Reserve Bank’s indicated projections in January2014. However, data revisions for previous quarters and the consequent changes in base effects impart uncertainty tothe growth trajectory ahead. The pace of recovery, nevertheless, is likely to be modest. The recovery is likely to be sup-ported by investment activity picking up due to part resolution of stalled projects and improved business and consumerconfidence. Manufacturing PMI, for the month of February 2014, touched a year’s high on the back of higher output andnew orders. The rural demand base is likely to shore up demand following record agricultural output. In addition, externaldemand is expected to improve further during 2014-15 stemming from encouraging prospects for global growth,notwithstanding some recent loss in export growth momentum.


April, 2014

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April, 2014


Downside risks to growth have increased marginally since January 2014 taking into account the continued weak per-formance of industry and increase in risks to agriculture from the El Nino phenomenon, though the actual outcome on themonsoon depends on several other weather parameters. Tighter global financial and monetary conditions, in addition tocontinued fiscal adjustment in some countries can also drag recovery. More importantly, if electoral outcomes fail to pro-vide a stable government, the downside risks to growth could accentuate. To a large part, the recovery remains contin-gent on improvements in the investment climate.

Disinflation proceeding on anticipated trajectoryWeak demand conditions kept global commodity price indices, for most of the primary commodities, well contained dur-ing 2013. In the baseline scenario, commodity prices are unlikely to increase significantly during 2014. The demand pres-sures are expected to remain muted against the backdrop of an expected gradual recovery in the advanced and emergingmarket economies and improved supplies. In the current scenario, global food and metal prices are likely to moderate.Brent crude oil spot prices averaged around US$ 108/ barrel (bbl) during Q4 of 2013-14. As per the US Energy Informa-tion Administration (EIA), the Brent crude oil price is projected to average at US$ 105/bbl and US$ 101/bbl in 2014 and2015 respectively, thus imparting a mild softening bias.

Going forward, while the global commodity price scenario provides some comfort, the pace of deceleration in inflationmay decline from what has been witnessed in recent months. This is because of the seasonal correction in vegetableprices likely having played itself out and supply-side responses remaining weak. In addition, significant month-to-monthchanges in base effect have a propensity to distort the underlying inflationary trajectory ahead. After some rise in the nearmonths, headline inflation is expected to trend down aided by favourable base effects. It may bottom out in Q3 of 2014-15before large adverse base effects and expected improved activity take inflation back to around the current levels.

Risks to inflation are more on the upside. They largely emanate from any adverse outcome on the monsoon, resurfac-ing of geopolitical risks that could lift commodity prices, sharper-than-anticipated tapering that could lead to exchangerate pass-through pressures and return of pricing power as the output gap narrows.

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April, 2014


India’s Foreign Trade, April 2014

Exports (including re-exports)Exports during April, 2014 were valued at US $ 25634.08 million (Rs.154718.60 crore) which was 5.26 per cent higher inDollar terms (16.83 per cent higher in Rupee terms) than the level of US $ 24353.77 million (Rs. 132425.33 crore) duringApril, 2013.

ImportsImports during April, 2014 were valued at US $ 35720.03 million (Rs.215593.93 crore) representing a negative growth of15 per cent in Dollar terms and negative growth of 5.66 per cent in Rupee terms over the level of imports valued at US $42025.87 million (Rs. 228518.59 crore) in April, 2013.

Crude Oil and Non-Oil Imports Oil imports during April, 2014 were valued at $ 12977.8 million which was 0.6 per cent lower than oil imports valued at$ 13053.5 million in the corresponding period last year.

Non-oil imports during April, 2014 were estimated at US $ 22742.2 million which was 21.5 per cent lower than non-oilimports of US $ 28972.4 million in April, 2013.

Trade BalanceThe trade deficit for April, 2014 was estimated at US $ 10085.95 million which was lower than the deficit of US $17672.10 million during April, 2013.

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EXPORTS & IMPORTS : (US $ Million)(PROVISIONAL) APRILEXPORTS(including re-exports)2013-14 24353.772014-15 25634.08%Growth2014-15/ 2012-2013 5.26

IMPORTS2013-14 42025.872014-15 35720.03%Growth 2014-15/ 2013-14 -15.00

TRADE BALANCE2013-14 -17672.102014-15 -10085.95

EXPORTS & IMPORTS : (Rs. Crore)(PROVISIONAL) APRILEXPORTS(including re-exports)2013-14 132425.332014-15 154718.60%Growth 2014-15/ 2013-14 16.83

IMPORTS2013-14 228518.592014-15 215593.93%Growth 2014-15/ 2013-14 -5.66

TRADE BALANCE2013-14 -96093.262014-15 -60875.33

April, 2014


Agriculture

Foodgrains Production in 2013-14 Likely to Cross 264 MTIndia is likely to produce 264.38 million tonnes of foodgrains during 2013-14 (includes kharif 2013 and rabi 2013-14crops) compared to 257.13 million tonnes last year. This is more than 7 million tonnes higher than the production lastyear. In the earlier estimates (2nd Advance Estimates) released in February, the total foodgrain production was peggedat 263.2 million tonne.

Rice production is expected at record106.29 million tonne and wheat production is expected to reach 95.85 milliontonnes, again a record.

Record production has also been achieved in the case of tur (3.38 million tonne), gram (9.93 million tonnes), maize(24.19 million tonnes), all pulses put together (19.57 million tonne), cotton (36.50 million bales) and jute (10.82 millionbales).

The production estimates for major crops for 2013-14 as compared to final estimates for the previous 5 years are as

follows:

(million tonnes)Crop 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 3rd Advance

EstimatesRice 99.18 89.09 95.98 105.31 105.24 106.29Wheat 80.68 80.80 86.87 94.88 93.51 95.85Jowar 7.25 6.70 7.00 6.01 5.28 5.25Bajra 8.89 6.51 10.37 10.28 8.74 9.19Maize 19.73 16.72 21.73 21.76 22.26 24.19Coarse Cereals 40.04 33.55 43.40 42.04 40.04 42.68Tur 2.27 2.46 2.86 2.65 3.02 3.38Gram 7.06 7.48 8.22 7.70 8.83 9.93Urad 1.17 1.24 1.76 1.77 1.90 1.50Moong 1.03 0.69 1.80 1.63 1.19 1.40Total Pulses 14.57 14.66 18.24 17.09 18.34 19.57Total Foodgrains 234.47 218.11 244.49 259.32 257.13 264.38Groundnut 7.17 5.43 8.26 6.96 4.69 9.47Rapeseed & Mustard 7.20 6.61 8.18 6.60 8.03 7.83Soyabean 9.91 9.96 12.74 12.21 14.66 11.95Total Nine Oilseeds 27.72 24.88 32.48 29.80 30.94 32.41Cotton # 22.28 24.02 33.00 35.20 34.22 36.50Jute, Mesta # # 10.37 11.82 10.62 11.40 10.93 11.40Sugarcane 285.03 292.30 342.38 361.04 341.20 348.38# million bales of 170 kgs each## million bales of 180 kgs each

April, 2014


Inflation

The official Wholesale Price Index for ‘All Commodities’ (Base: 2004-05 = 100) for the month of April, 2014 rose by 0.2percent to 180.2 (provisional) from 179.8 (provisional) for the previous month.

InflationThe annual rate of inflation, based on monthly WPI, stood at 5.20% (provisional) for the month of April, 2014 (overApril,2013) as compared to 5.70% (provisional) for the previous month and 4.77% during the corresponding month of theprevious year. Build up inflation rate in the financial year so far was 0.22% compared to a build up rate of 0.71% in thecorresponding period of the previous year.

The movement of the index for the various commodity groups is summarized below:-

Primary Articles (Weight 20.12%)The index for this major group rose by 1.0 percent to 242.5 (provisional) from 240.2 (provisional) for the previous month.The groups and items which showed variations during the month are as follows:-

The index for ‘Food Articles’ group rose by 1.5 percent to 238.8 (provisional) from 235.3 (provisional) for the previousmonth due to higher price of tea (12%), fruits & vegetables and poultry chicken (7% each), masur and moong (3% each),pork (2%) and ragi, jowar, rice, mutton, bajra and condiments & spices (1% each). However, the price of egg (10%), fish-inland (5%), barley (4%), wheat (2%) and fish-marine and maize (1% each) declined

The index for ‘Non-Food Articles’ group declined by 0.4 percent to 216.3 (provisional) from 217.2 (provisional) for theprevious month due to lower price of fodder (6%), raw rubber (4%), raw silk (3%), castor seed, raw cotton and flowers (2% each) and rape & mustard seed, guar seed, cotton seed and sunflower (1% each). However, the price of copra (co-conut) (14%), niger seed and raw jute (3% each), soyabean (2%) and groundnut seed and logs & timber (1% each) movedup.

The index for ‘Minerals’ group marginally declined to 350.8 (provisional) from 350.9 (provisional) for the previousmonth due to lower price of copper ore (11%), magnesite (4%) and chromite (1%). However, the price of zinc concentrate(19%), barytes (6%), sillimanite (3%), iron ore (2%) and manganese ore, steatite and crude petroleum (1% each) movedup.

Fuel and Power (Weight 14.91%)The index for this major group declined by 1.0 percent to 211.0 (provisional) from 213.1 (provisional) for the previousmonth due to lower prices of aviation turbine fuel and furnace oil (4% each), LPG and petrol (2% each) and kerosene andbitumen (1% each).

Manufactured Products (Weight 64.97%)The index for this major group rose by 0.2 percent to 153.8 (provisional) from 153.5 (provisional) for the previous month.The groups and items for which the index showed variations during the month are as follows:-

The index for ‘Food Products’ group rose by 0.8 percent to 170.1 (provisional) from 168.7 (provisional) for the previousmonth due to higher price of gingelly oil (5%), gola (cattle feed) (4%), sugar and bakery products (3% each), vanaspati,gur and wheat flour (atta) (2% each) and oil cakes, khandsari, palm oil, sugar confectionary and ghee (1% each). How-ever, the price of processed prawn (8%), tea dust (unblended) (5%), groundnut oil, mustard & rapeseed oil and tea leaf(unblended) (3% each), rice bran oil (2%) and mixed spices, copra oil, soyabean oil and cotton seed oil (1% each) declined.

The index for ‘Beverages, Tobacco & Tobacco Products’ group rose by 0.4 percent to 195.8 (provisional) from 195.1(provisional) for the previous month due to higher price of zarda (13%), cigarette (2%) and bidi (1%). However, the price

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of dried tobacco (8%) and soft drinks & carbonated water (3%) declined.The index for ‘Textiles’ group rose by 0.9 percent to 142.6 (provisional) from 141.3 (provisional) for the previous month

due to higher price of jute yarn (13%), cotton yarn (4%), gunny and hessian cloth (3%) and tyre cord fabric, jute sackingbag and man made fibre (1% each). However, the price of woollen textiles (1%) declined.

The index for ‘Wood & Wood Products’ group rose by 0.4 percent to 183.8 (provisional) from 183.1 (provisional) for theprevious month due to higher price of plywood & fibre board (1%).

The index for ‘Paper & Paper Products’ group rose by 0.1 percent to 146.5 (provisional) from 146.3 (provisional) for theprevious month due to higher price of newspaper (2%) and laminated paper and paper for printing / poster (1% each).

The index for ‘Leather & Leather Products’ group declined by 0.5 percent to 145.2 (provisional) from 146.0 (provi-sional) for the previous month due to lower price of leather garments & jackets (3%) and leathers (1%).

The index for ‘Rubber & Plastic Products’ group rose by 0.1 percent to 149.4 (provisional) from 149.2 (provisional) forthe previous month due to higher price of hdpe woven fabric (9%), rubber transmission belt (8%), plastic films & sheets(4%) and plastic/pvc pipe and plastic/ldpe/polythene bags (1% each). However, the prices of football (4%), plastic pvcchappals (2%) and plastic bottles, polythene/pvc foam and hdpe bag (1% each) declined.

The index for ‘Chemicals & Chemical Products’ group rose by 0.8 percent to 152.3 (provisional) from 151.1 (provi-sional) for the previous month due to higher price of polymers and dye & dye intermediates (7% each), synthetic resin(5%), castor oil (4%), ammonium sulphate (3%), organic manure, basic organic chemicals and pesticides (2% each) andbasic inorganic chemicals, paints, pigment & pigment intermediates and vitamins (1% each). However, the price of non-cyclic compound (8%), adhesive & gum (1%) declined.

The index for ‘Non-Metallic Mineral Products’ group rose by 0.4 percent to 168.2 (provisional) from 167.6 (provisional)for the previous month due to higher price of polished granite (8%) and railway sleeper and bricks & tiles (1% each).However, the price of marbles (9%) declined.

The index for ‘Basic Metals, Alloys & Metal Products’ group declined by 1.3 percent to 165.4 (provisional) from 167.6(provisional) for the previous month due to lower price of billets (6%), plates (5%), silver (4 %), steel castings, angles andjoist & beams (3% each), crc, rebars, rounds, gold & gold ornaments and hrc (2% each) and copper/copper ingots,nuts/bolts/screw/ washers, pressure cooker, ferro chrome, gp/gc sheets and metal containers (1% each). However, theprice of melting scrap (2%) and steel rods, steel: pipes & tubes, steel structures and pencil ingots (1% each) moved up.

The index for ‘Machinery & Machine Tools’ group rose by 0.2 percent to 133.0 (provisional) from 132.7 (provisional) forthe previous month due to higher price of fibre optic cable (18%), loader (16%), industrial valves (5%), machine tools (2%)and communication equipments and air conditioner & refrigerators (1% each). However, the price of washing / laundrymachines (3%), t.v.sets (2%) and electric generators and magnets (1% each) declined.

The index for ‘Transport, Equipment & Parts’ group declined by 0.1 percent to 135.7 (provisional) from 135.8 (provi-sional) for the previous month due to lower price of geared motor (7%), steering gears (3%) and suspension and lamp (1%each). However, the price of tractors (1%) moved up.

Final index for the month of February 2014 (Base Year : 2004-05=100)For the month of February, 2014, the final Wholesale Price Index for ‘All Commodities’ (Base: 2004-05=100) stood at179.5 as compared to 178.9 (provisional) and annual rate of inflation based on final index stood at 5.03 percent as com-pared to 4.68 percent respectively as reported on 14.03.2014.

April, 2014


April, 2014


15

April, 2014



April, 2014

Industrial Production

The Quick Estimates of Index of Industrial Production (IIP) with base 2004-05 for the month of March 2014 have been re-leased by the Central Statistics Office of the Ministry of Statistics and Programme Implementation. IIP is compiled usingdata received from 16 source agencies viz. Department of Industrial Policy & Promotion (DIPP); Indian Bureau of Mines;Central Electricity Authority; Joint Plant Committee; Ministry of Petroleum & Natural Gas; Office of Textile Commis-sioner; Department of Chemicals & Petrochemicals; Directorate of Sugar; Department of Fertilizers; Directorate of Vanas-pati, Vegetable Oils & Fats; Tea Board; Office of Jute Commissioner; Office of Coal Controller; Railway Board; Office ofSalt Commissioner and Coffee Board.

The General Index for the month of March 2014 stands at 193.2, which is 0.5% lower as compared to the level in themonth of March 2013. The cumulative growth for the period April-March 2013-14 over the corresponding period of theprevious year stands at (-) 0.1%.

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of March 2014stand at 145.8, 204.8 and 173.0 respectively, with the corresponding growth rates of (-) 0.4%, (-) 1.2% and 5.4% as com-pared to March 2013 (Statement I). The cumulative growth in the three sectors during April-March 2013-14 over the cor-responding period of 2012-13 has been (-) 0.8%, (-) 0.8% and 6.1% respectively.

In terms of industries, twelve (12) out of the twenty two (22) industry groups ( as per 2-digit NIC-2004) in the manufac-turing sector h ave shown negative growth during the month of March 2014 as compared to the corresponding month ofthe previous year (St atement II). The industry group ‘Radio, TV and communication equipment & apparatus’ has shownthe highest negative growth of (-) 33.1%, followed by (-) 26.1% in ‘Office, accounting and computing machinery’ and (-)21.5% in ‘Medical, precision & optical instruments, watches and clocks’. On the other hand, the industry group ‘Wearingapparel; dressing and dyeing of fur’ has shown the highest positive growth of 26.0%, followed by 9.2% in ‘Basic metals’and 6.2% in ‘Food products and beverages’.

As per Use-based classification, the growth rates in March 2014 over March 2013 are 4.0% in Basic goods, (-) 12.5% inCapital goods and 0.6% in Intermediate goods (Statement III). The Consumer durables and Consumer non-durables haverecorded growth of (-) 11.8% and 7.2% respectively, with the overall growth in Consumer goods being (-) 0.9%.

Some of the important items showing high negative growth are: ‘Aluminium Conductor’ [(-) 61.4%], ‘Sacking’ [(-)42.4%], ‘Woollen Carpets [(-) 40.0%], ‘Boilers’ [(-) 37.8%], ‘Telephone Instruments (incl. Mobile Phones & Accessories)’ [(-) 36.9%], ‘Ship Building and Repairs’ [(-) 31.0%], ‘Computers’ [(-) 30.2%], ‘Earth Moving Machinery’ [(-) 27.6%], ‘Commer-cial Vehicles’ [(-) 24.0%] and ‘Generator/ Alternator’ [(-) 21.1%].

Some of the other important items showing high positive growth during the current month over the same month inprevious year include ‘Leather Garments’ (146.4%), ‘Heat Exchangers’ (87.1%), ‘Sugar Machinery’ (79.2%), ‘Stainless/alloy Steel’ (55.6%), ‘Lubricating Oil’ (45.5%), ‘Vitamins’ (29.8%), ‘Scooter and Mopeds’ (28.7%) and ‘Plates’ (27.6%).

Along with the Quick Estimates of IIP for the month of March 2014, the indices for February 2014 have undergone thefirst revision and those for December 2013 have undergone the final revision in the light of the updated data receivedfrom the source agencies. It may be noted that these revised indices (first revision) in respect of February 2014 shall un-dergo final (second) revision along with the release of IIP for the month of May 2014.

Statements giving Quick Estimates of the Index of Industrial Production at Sectoral, 2-digit level of National IndustrialClassification (NIC-2004) and by Use-based classification for the month of March 2014, along with the growth rates overthe corresponding month of previous year, including the cumulative indices and growth rates, are enclosed.


April, 2014

17

April, 2014


April, 2014


Index of Eight Core Industries (Base: 2004-05=100), March, 2014The Eight Core Industries have a combined weight of 37.90 % in the Index of Industrial Production (IIP). The combinedIndex of Eight Core Industries stands at 175.4 in March, 2014, which was 2.5 % higher compared to the index of March,2013. Its cumulative growth during April-March, 2013-14 was 2.6 %.

CoalCoal production (weight: 4.38 %) increased by 0.7 % in March, 2014 over March, 2013. Its cumulative index during April toMarch, 2013-14 increased by 0.8 % over corresponding period of previous year.

Crude OilCrude Oil production (weight: 5.22 %) declined by 1.6 % in March, 2014 over March, 2013. The cumulative index of CrudeOil during April to March, 2013-14 declined by 0.2 % over the corresponding period of previous year.

Natural GasThe Natural Gas production (weight: 1.71 %) declined by 9.3 % in March, 2014 over March, 2013. Its cumulative index dur-ing April to March, 2013-14 declined by 13.0 % over the corresponding period of previous year.

Petroleum Refinery Products (0.93% of Crude Throughput)[1]Petroleum refinery production (weight: 5.94%) registered a growth of 2.8 % in March, 2014 over March, 2013 and its cu-mulative index during April to March, 2013-14 increased by 1.7 % over the corresponding period of previous year.

FertilizersFertilizer production (weight: 1.25%) declined by 6.1 % in March, 2014 over March, 2013. However, it registered a cumula-tive growth of 1.5 % during April to March, 2013-14 over the corresponding period of previous year.

Steel (Alloy + Non-Alloy)Steel production (weight: 6.68%) recorded a growth of 5.4 % in March, 2014 over March, 2013. The cumulative growthduring April to March, 2013-14 was 4.3 % over the corresponding period of previous year.

CementCement production (weight: 2.41%) remains same in March, 2014 as of March, 2013 while its cumulative growth duringApril to March, 2013-14 was 3.0 % over the corresponding period of previous year.

ElectricityElectricity generation (weight: 10.32%) increased by 5.4 % in March, 2014 over the period of March, 2013 and it registereda cumulative growth of 5.6 % during April to March, 2013-14 over the corresponding period of previous year.

Note: Data are provisional. Revision has been made based on revised data obtained for corresponding month of previousyear in respect of Coal, Crude Oil, Natural Gas, Refinery Products, Steel and Cement.

20

April, 2014


April, 2014


Foreign Direct Investment

FDI goes up 8 percent in FY’14 at $24.3 BillionForeign direct investment into India grew by 8 per cent year-on-year to $24.3 billion in 2013-14, according to the Departmentof Industrial Policy and Promotion (DIPP) data.

In 2012-13, FDI aggregated at $22.4 billion.In March, the foreign investment inflows more than doubled to $3.53 billion from $1.52 billion in the same month last year.The highest FDI came in services ($2.22 billion), followed by automobiles ($1.51 billion), telecommunications ($1.3 billion),

pharmaceuticals ($1.27 billion) and construction development ($1.22 billion) in 2013-14.Singapore led the FDI inflows into India with $5.98 billion, followed by Mauritius ($4.85 billion), the UK ($3.21 billion) and

the Netherlands ($2.27 billion).The country needs foreign investment to help regain its growth momentum. India’s economic growth slowed to a decade’s

low of 4.5 per cent in 2012-13.The country is estimated to require about $1 trillion between 2012-13 and 2016-17, the 12th Five-Year Plan period, to fund

infrastructure projects.

April, 2014


April, 2014


(Sources: Press Information Bureau, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion, Reserve Bank of India)

Indian economy more stable; deficits willcome down: Chidambaram

RBI grants in-principle nod to IDFC, Bandhan for bank licences

Finance Minister P. Chidambaram on March 31 saidthe Indian economy is more stable than it was 20months back and the government is hopeful ofmeeting major macro-economic targets, includingfiscal and current account deficits.

“The economy today is far more stable and farstronger than it was 20 months ago,” Chidambaramsaid at a media conference in New Delhi.

“Nobody is talking about downgrades today,” hestressed.

He said the country’s current account deficit isestimated to come down to $35 billion in the 2013-14 financial year from a record high of $88 billion inthe previous year.

On fiscal deficit, he said it would be around 4.6percent of the country’s gross domestic product (GDP), as outlined by him in the union budget for 2013-14.

Chidambaram said the government has also succeeded in controlling inflation and creating more jobs. The finance minister claimed that unemployment rate has come down during Prime Minister Manmohan Singh-led

United Progressive Allaince government. On the surge in the stock markets, Chidambaram said it is because of the UPA government’s policy and should not be

seen as a rally for the Bharatiya Janata Party (BJP) possible victory in the general election. Source: Indo-Asian News service

IDFC and Bandhan Financial Services Pvt Ltd on April 2 won banking licences, with the RBI approving permits for onlytwo of the 25 applicants.

A day after the Election Commission permitted it to go ahead with the issue of new banking licences, the ReserveBank of India gave in-principle approval to infrastructure finance company IDFC and Kolkata-based microfinance firmBandhan to comply with the requirements of a fledged bank in 18 months.

With regard to the application of the Department of Posts, the RBI accepted the recommendation of the high-levelscreening committee to take further action in consultation with the government.

The RBI originally received 27 applications in July 2013, after which Tata Sons and Videocon Group withdrew, leaving25 contenders in the fray.

Besides India Post, the other applicants included state-run IFCI and private sector Anil Ambani group and Aditya Birlagroup, Bajaj Finance, Muthoot Finance, Religare Enterprises and Shriram Capital."It will pave way for more entities tocome forward and spread financial inclusion. It augurs well for the economy and banking sector," Financial Services Sec-retary G S Sandhu said.

April, 2014

MONTHLYECONOMIC BULLETIN 27 >> NEWS FEATURE

28

April, 2014

MONTHLYECONOMIC BULLETIN >> NEWS FEATURE

At present, there are 27 public sector banks and 22 private sector banks in the country.The RBI has issued bank licences after a gap of a decade.It last awarded licences to Kotak Mahindra Bank and Yes Bank in 2003-04. While permitting the two applicants, the RBI said it "believes that some of those entities who did not qualify in this

round for a full-fledged banking licence could well apply in future rounds or could apply for differentiated licences underthe proposed framework."

The central bank said it intends to use the learning from this licensing exercise to "revise the guidelines appropriately"and move to give licences more regularly, that is, virtually "on tap." It will also frame categories of differentiated bank li-cences and allowing a wider pool of entrants into banking.

The RBI said IDFC and Bandhan were recommended as suitable for grant of "in-principle" approval by the High-LevelAdvisory Committee (HLAC) headed by former Governor Bimal Jalan.

The HLAC had recommended that in the case of the Department of Posts, which had applied for a licence, "it would bedesirable for the RBI to consider the application separately in consultation with the government."

The in-principle approval granted will be valid for 18 months, during which the applicants have to comply with the re-quirements under the guidelines and fulfil other conditions as may be stipulated by the RBI.

Once the RBI is satisfied the applicants have complied with the requisite conditions, they would be considered forgrant of a licence to start banking business under relevant sections of the Banking Regulation Act.

The central bank, however, clarified that "until a regular licence is issued, the applicants would be barred from doingbanking business."

In the budget speech of 2010-11, then Finance Minister Pranab Mukherjee said there was a need to extend bankingservices and that the RBI was considering giving some additional banking licences to private sector players.

Subsequently, the RBI issued guidelines for licensing of new banks in February last year.Explaining the process, the central bank said that in the first stage, the applications were scrutinised by the RBI to en-

sure eligibility of the applicants.Thereafter, the applications were referred to the HLAC, which submitted its recommendations to the RBI on February

25.The RBI said it assessed the quantitative and qualitative aspects of the applicants as per the criteria laid down in the

guidelines.This included analysis of the financial statements of the key entities in the group, 10-year track record of running their

businesses, proposed business model for the bank as well as the applicants' demonstrated capabilities for running abank, among others.

Based on all this, the RBI took a view on the "fit and proper" status of the applicants."The decision to grant 'in-principle' approval has been taken after consulting the Election Commission, given that the

Code of Conduct for the coming elections is in force," the central bank's statement said.It added that the RBI's approach in this round of bank licences could as well be categorised as conservative."At a time when there is public concern about governance, and when it comes to licences for entities that are inti-

mately trusted by the Indian public, this may well be the most appropriate stance," RBI said.Source: Press Trust of India

29

April, 2014

MONTHLYECONOMIC BULLETIN >> NEWS FEATURE

The International Monetary Fund (IMF) has pro-jected India’s growth to recover from 4.4 percent in2013 to 5.4 percent in 2014 and strengthen to 6.4percent next year, essentially unchanged from itsforecast in January.

These projections are based on the assumptionthat government efforts to revive investmentgrowth succeed and export growth strengthensafter the recent rupee depreciation, the multilateralfinance institution said in the April 2014 World Eco-nomic Outlook (WEO).

India’s growth recovery is supported by slightlystronger global growth, improving export competi-tiveness, and implementation of recently approvedinvestment projects, it said.

A pick-up in exports in recent months and meas-ures to curb gold imports have contributed to lowering the current account deficit, IMF said.

Policy measures to bolster capital flows have further helped reduce external vulnerabilities.“Overall growth is expected to firm up on policies supporting investment and a confidence boost from recent policy

actions, but will remain below trend,” IMF said.“Consumer price inflation is expected to remain an important challenge, but should continue to move onto a down-

ward trajectory,” the WEO said.In a number of economies, including Brazil, India, and Indonesia, inflation pressure continues and could be reinforced

by currency depreciation since mid-2013, IMF said.In India, further tightening of the monetary stance might be needed for a durable reduction in inflation and inflation ex-

pectations.The forecast for China is that growth will remain broadly unchanged at about 7.5 percent in 2014-15, only a modest

decline from 2012-13.Elsewhere in emerging and developing Asia, growth is expected to remain at 5.3 percent in 2014 because of tighter

domestic and external financial conditions before rising to 5.7 percent in 2015, helped by stronger external demand andweaker currencies.

For Asia as a whole, growth is expected to accelerate modestly, from 5.2 percent in 2013 to about 5.5 percent in both2014 and 2015, the WEO said.

The improved outlook in advanced economies, alongside more competitive exchange rates in some cases, will helpboost exports.

Inflation is expected to increase slightly, albeit remaining generally low across the region, as output gaps close.The main exceptions are India and Indonesia, whose high inflation rates should continue to moderate further, IMF said.

Source: Indo-Asian News Service

India set to grow at 5.4 percent in 2014: IMF

30

April, 2014

IMF for more public and private investment in IndiaInternational Monetary Fund chief Christine Lagarde has called for more public and private investment to close infra-structure gaps in countries like India.

“Public investment has taken a hit over the years in many countries; higher, well-prioritised investment would increasepotential output and jobs,” IMF chief told a Washington audience yesterday.

Investment to upgrade existing infrastructure networks is also needed in a number of the advanced economies, for in-stance, in Germany and the US,” she said in her address to the School of Advanced International Studies.

As the world is still recovering from the Great Recession and geopolitical tensions are rising, how can we strengthenthe international cooperation that is key to addressing these challenges, She questioned.

She said the global economy has certainly stabilised since the onset of the financial crisis, but the recovery was tooweak for comfort.

“Moreover, unless countries come togetherto take the right kind of policy measures, wecould be facing years of slow and sub-pargrowth,well below the solid, sustainablegrowth that is needed to create enough jobsand improve living standards into the future,”she added.

Highlighting that the major G20 countries,at their meeting in Australia in February,recognised that the right policy actions bycountries and the right cooperation acrosscountries could raise world GDP by over 2 percent over the next 5 years, Lagarde said thiswould place the global economy on a substan-tially different and better trajectory.

Noting that the economic activity in the ad-vanced economies is improving, albeit at vary-ing speeds, the Managing Director said, “the emerging market and developing economies have been shouldering theburden of recovery?accounting for 75 percent of the increase in global growth since 2009.”

The recovery is finally becoming a bit more balanced, in an overall economic landscape that has changed significantly,she added.

In the advanced economies, growth is strongest in the United States, supported by robust private demand and an eas-ing of the short-term fiscal brake.

Lagarde said activity in emerging market economies, which has been slowing, picked up slightly in the latter part of2013 by stronger demand from advanced economies.

“Although tighter external financial conditions will be a drag on domestic demand, emerging Asia in particular willcontinue to be a bright spot, posting the world’s highest growth rate of more than 6 per cent this year,” she said.

Source: Press Trust of India

MONTHLYECONOMIC BULLETIN >> OVERSEAS INVESTMENTS

31

April, 2014

Expressing confidence in the Indian economy, French companies that areengaged in India will continue to annually invest nearly $1 billion here asthey see long-term future in the country’s growth potential, a top diplo-mat has said.

“I expect the investment trend of nearly a billion dollars to continue asthe French companies are here for the long-term and are setting up theirbase here and expanding production,” French Ambassador Fran oisRichier told IANS in an interview.

According to the ambassador, the co-operation between the twocountries is of utmost importance and exchange of know-how betweenthe two sides is growing.

“Till now French companies have invested nearly $19 billion here;they have also provided know-how and technology and generated jobs. The companies are here for long term and not justto make profits and leave.”

On the long-pending Indo-EU Free Trade Agreement which is in the works for the last seven years with no sight of clo-sure, the ambassador was optimistic the deal will be expedited once a new government is formed in New Delhi.

“I don’t know if it is going to be a new government or the old government but the deal needs to be expedited as it is infavour of all. It’s already been three years and I expect that the negotiators will soon reach common ground,” Reicher added.

Negotiations on the FTA, officially dubbed the Broad-based Trade and Investment Agreement (BTIA) between India and the28-nation EU, were launched in June 2007 but have been facing hurdles with both sides having differences on crucial issues.

Negotiations entered an intense phase following the EU-India Summit in February 2012.Important issues include market access for goods, the overall ambition of the services package and achieving a mean-

ingful chapter on government procurement.The EU wants India to open up its banking and insurance sectors and significantly cut duty on automobiles, wines and

spirits and dairy products and enforce a strong intellectual property rights (IPR) regime.India, on the other hand, wants liberalised visa norms for its professionals and market access in the services and phar-

maceuticals sector.However, the Indian automobiles industry has raised an alarm over the sector being included in the FTA, claiming it will

kill investments and technology flow into the country, resulting in under-achievement of the government’s automotivemission plans.

The EU is India’s largest trading partner. The value of EU-India trade has grown from 28.6 billion euros ($38billion/Rs.2.3 trillion) in 2003 to 79.9 billion euros in 2011.

According to French embassy data, the volume of bilateral trade between France and India slowed down in 2011 to 5.8percent at 7.46 billion euros.

Major French companies like Alstom have been present in India for the last 100 years, while others like hotel chainAccor, public transport solutions major Keolis, automobile manufacturer Renault, insurance firm AXA, aircraft manufac-turer Airbus and utility company PR Fonroche have a presence in India.

The envoy further elaborated that Europe’s fiscal health is improving thanks to efforts being made by EU countries forresolving the debt crisis, including the use of two major instruments like the European Stability Mechanism (ESM) and theFiscal Compact.


French companies to continue investingaround $1 bn in India


32

April, 2014

Foreign direct investment into India grew for the second consecutive month in February this year to $2.01 billion, up 12.29per cent.

In February 2013, FDI was at $1.79 billion according to data from the Department of Industrial Policy and Promotion.However, for the April-February period of last fiscal, FDI inflows dipped 0.6 per cent to $20.76 billion, from $20.89 bil-

lion during the first 11 months of 2012-13.The highest FDI came in services ($2.18 billion), fol-

lowed by automobiles ($1.28 billion), pharmaceuticals($1.27 billion) and construction development ($1.05 bil-lion) in the 11 months of 2013-14.

Mauritius led the inflows into India with $4.48 billion,followed by Singapore ($3.91 billion), the UK ($3.21 billion)and the Netherlands ($2.20 billion).

In January 2014, FDI had increased 1.5 per cent at$2.18 billion.

The country needs foreign investment to help regain itsgrowth momentum. India’s economic growth slowed to adecade’s low of 4.5 per cent in 2012-13.

India is estimated to require about $1 trillion between2012-13 and 2016-17, the 12th Five-Year Plan period, to fund infrastructure projects.


Net investments by foreign institutional investors into India so far this year has reached $ 10-billion level, while their cu-mulative total inflows into the country is nearing $ 200-billion mark.

According to the latest data compiled by capital markets regulator Sebi, the net investments by FIIs into Indian equitymarkets since the beginning of 2014 have crossed $ 5 billion over Rs 30,000 crore), while the same for debt markets alsostands near $ 5 billion (about Rs 29,000 crore)-- taking the total to close to Rs 60,000 crore.

This includes net investments of about Rs 1,500 crore so far in April. This is despite a net outflow of about Rs 7,000crore from debt markets, as equity markets have seen a net inflow of over Rs 8,500 crore this month till April 25, the lat-est trading session.

FIIs, the main driver of the equity market, have helped pushed up the benchmark BSE Sensex by over 7 per cent so far in2014 and is now being seen as moving closer to 23,000 mark.

They invested Rs 20,077 crore in Indian stocks in March, compared with Rs 1,404 crore in February and Rs 714 crore inJanuary.

There were over 1,700 registered FIIs in the country, along with close to 6,400 sub-accounts.The strong inflows in the recent months have taken the cumulative net investments of FIIs into India to close to $ 197

billion, while their investments in rupee terms is a bit away from Rs 10 lakh crore level.This is based on the data since November 1992 when the FIIs began investing into Indian markets and includes about $

167 billion investments into equities and further about $ 30 billion in debt markets.Source: The Financial Express

FDI inflows in February up 12% at $2 bn

FII inflows hit $10-bn for 2014; cumulativenears $200-bn mark


33

April, 2014

Inflow of foreign funds into equities coupled with record NRI funds and dollar purchases by RBI have boosted the forexkitty to over $300 billion-mark, highest since December 2011, in the just-concluded financial year.

For the week to March 28, the reserves rose by whopping $5.038 billion to $303.673 billion, the second highest in the2013-14 fiscal. Foreign currency assets also jumped by $5.011 billion to $276.406 billion.

A state-run bank’s treasury head attributed the rise in the forex kitty to the massive jump in FII funds flows into the eq-uities market, which has risen to life-time highs in March.

Singapore brokerage DBS in a report said: “Absorption of inflows that followed RBI’s concessional swap arrangementfor banks and non-resident deposits coupled with strong FII interests in equities and debt have added to the reserves.”

From October, RBI became net purchaser of dollars on monthly basis. It net bought $10.08 billion in November, as perRBI data.

Strong interest from FIIs into equity market also led to the addition of forex reserves. Towards the year end, FIIs interestincreased leading equity markets to lifetime highs.

During the April-March period, FIIs have pumped in net amount of Rs 79,709 crore in the equity market. This was thefifth consecutive fiscal year inflows by overseas investors after pulling out a net amount of Rs 47,706 crore from the sharemarket in 2008-09.

The government selling a part of its stake in Axis Bank for over a $1 billion also helped boost the inflows as FIIs lappedup the stock.

In the week ended December 23, 2011, the reserves had stood at $300.86 billion. It remained over $300 billion for majorpart of 2011 and the highest ever was in the week ended September 2, 2011 when it stood at $320.78 billion.

Forex reserves began the year with a rise of near $2 billion at $293.843 billion in the week ended April 5. The rupee, which also began the year on a healthy note, started to lose after former US Fed chairman Ben Bernanke

hinted in May at tapering of its monthly purchases of assets, or withdrawal of its third round of easy money policy. This prompted investors across the globe to offload their holdings in emerging markets economies and India also saw

flight of capital. Between May 23 and August 28, the rupee declined 22 per cent. On August 28, the currency touched an intra-day low of

68.85, a 34 per cent plunge from beginning of the fiscal. In the period when the rupee was in a depreciating mode, the Reserve Bank had adopted many methods including sell-

ing of dollars in order to save the currency. The RBI also raised marginal standing facility rates, restricted daily liquidity support, among others tools to squeeze liq-

uidity from the system and stem the rupee fall. Between May and September 2013, the RBI remained net seller of the greenback on monthly basis. In July 2013, it sold

$5.9 billion on net basis, according to the RBI data. The forex reserves started depleting as a result of selling of the US currency by the central bank. The reserves dipped

to $274.807 in the week ended September 6, the lowest in the fiscal. The rupee reversed trend and started recovering after Governor Raghuram Rajan assumed charge at RBI on September 4. Rajan announced a host of measures such as enhancing the limit to re-book cancelled forward exchange contracts,

opening up of a special concessional window to swap fresh foreign currency non-resident (bank), or FCNR-B deposits andforeign currency borrowings which brought in $34.3 billion during the 3 months, out of which net accretion to the forex re-serves was $25 billion.

Source: The Times of India

FIIs, NRI funds help forex kitty moveabove $300 billion


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April, 2014

MONTHLYECONOMIC BULLETIN >> TRADE NEWS

New Foreign Trade Policy to focus onways to boost exports

India becomes net steel exporter after 6 years

The new Foreign Trade Policy will focus on ways to boost India’s exports and reduce dependence on imports, a govern-ment official said on April 28.

“India — being part of WTO — cannot only think in terms its export promotion without equally supporting import sub-stitution.

“Therefore, the focus of the new policy would be to vigorously promote both exports and imports with significantlysubstantial focus on exports,” industry body PHDCCI said, quoting Additional Director General of Foreign Trade (DGFT)Sumeet Jerath.

Mr. Jerath said the policy (FTP 2014—19), to be announced by the new government post general elections next month,will lay greater thrust on engaging with the rest of the world particularly in sectors such as pharma and engineering.

He said old procedures and regulations governing exporters will be trimmed and pruned to suit the export require-ments of the modern times so that the realistic targets are made achievable.

India’s overall exports fell short of the $325 billion target in 2013—14. They touched $312.3 billion.Mr. Jerath said: “It would be the attempt of the policy makers to take India ‘s share in global trade to over 5 per cent

from current level of 2 per cent in the next five year period.”He also informed the industry chamber’s members that the DGFT’s second committee report on reducing transaction

cost is ready.He said, “...(it) suggests a way forward as to how the new government should tackle the issues relating to higher trans-

action cost to enable exporters achieve the desired level of exports to both developed and developing economies.”On the pharma sector, he assured the industry that new government will make sure that the domestic industry gets a

fair deal in other countries.Source: Press Trust of India

India became net steel exporter in 2013-14 after a gap of six yearsand is likely to maintain the momentum in 2014-15 as producersare looking to dock more overseas shipment to tide over subdueddomestic consumption.

Total steel exports by India during the last fiscal stood at 5.59million tonnes (MT), as against imports of 5.44 MT, Joint PlantCommittee (JPC), a unit of the steel ministry, said in a report.

India, now the world’s fourth largest steel maker, had been anet steel importer since 2007-08 and the trend continued till2012-13 with 7.9 MT of imports and 5.2 MT of exports. Before 2007-08, India’s exports were more than its imports.

About 4.1 per cent higher exports and 31.3 per cent decline in imports helped India become net exporter of steel. While higher exports were driven by volatility of rupee and mismatched demand-supply situation in the country; im-

ports were lower mainly due to slowdown in the domestic economy, JPC said. India’s steel consumption grew by just 0.6 per cent in 2013-14, its lowest in four years, to 73.93 MT, impacted by a

slower expansion of the domestic economy and lower imports.

35

India’s exports grew by 3.98 per cent to $312.35 billion inFY 2013-14 while imports dipped by 8.11 per cent duringthe period.

Imports declined to USD 450.94 billion, narrowing thetrade deficit to USD 138.59 billion in the last fiscal.

In FY 2012-13, trade deficit stood at USD 190.33 billion.However, in March exports contracted by 3.15 per cent toUSD 29.57 billion and imports fell by 2.11 per cent to USD40 billion as compared to the same period last year.

Trade deficit during the month was at USD 10.5 billionas against USD 10.4 billion in March 2013.

In FY 2012-13, the country’s merchandise exports hadaggregated at USD 300.4 billion.

The overall shipments in 2013-14 fell short of the target of USD 325 billion fixed by the government for the period. Source: The Times of India

“The low growth rate in domestic steel consumption indicated that base level demand conditions continued to beweak during 2013-14,” JPC said.

Construction sector accounts for around 60 per cent of the country’s total steel demand while the automobile indus-try consumes 15 per cent.

Both sectors were hit by a slowdown in the economy which according to Central Statistics Office estimates grew by4.9 per cent in 2013-14, against the growth rate of 4.5 per cent in 2012-13.

Sensing poor demand in store, almost all domestic steel producers, both public and private, tried to export vigorouslyand showed good growth in overseas shipments last fiscal.

Steel Authority of India ( SAIL) had clocked a 30 per cent growth in exports in 2013-14 and aims to more than doublethe shipments to 1 MT in 2014-15.

Rashtriya Ispat Nigam Ltd (RINL), which exported 1 lakh tonne steel last fiscal, aims to treble that in the current fiscal. Private sectors firms are also likely to follow the suit.


Exports up 3.98% to $312.35bn in 2013-14


April, 2014


GAIL outlines $7.8-bn fleet-hire strategyto import LNG fromGAIL (India) has drawn up a plan to invest an estimated$7.57 billion for hiring a fleet of sophisticated LNG ships toferry gas from the US to India for 20 years from 2017. ThePSU will soon float tenders to award contracts by Novem-ber. The cost excludes fuel, canal and port call charges,which, again to be borne by GAIL, will be $30 million.

The public sector firm has tied up 5.8 million tonnes perannum (mtpa) of LNG imports from the US starting 2017.

“It’s been decided to charter ‘new build’ ships to trans-port gas from the US. Step-in right (to GAIL) in the owner-ship of LNG ships would only be possible for new buildships. Since fuel and other charges are to the charterer’saccount, GAIL is looking at chartering fuel-efficient ships,” said an official.

GAIL is considering taking up equity stakes of up to 10% in the ships with a seat at the owners’ table to facilitate thecompany to have an insight into on-board happenings (the cost of this equity is included in the GAIL’s estimated totalbudget for the LNG contracts). There is also a plan to partner Shipping Corporation of India in the venture with the optionof the state-run entity taking up stakes (up to 26%) in the ships.

The ministry of petroleum and natural gas, the sources added, had suggested to GAIL to consider awarding one-thirdof the contracts to Indian ship makers. However, this is unlikely to materialise as Indian shipyards don’t have any trackrecord of building large ships. Guarantee for performance of LNG ships for a 20-year period is part of the contracts andinducting Indian ship makers at this stage might not be viable, sources said.

Currently, about 379 LNG ships are operating globally and another 105 ships are being built/ordered. The specialisedcarriers are built mostly in South Korea and Japan by companies such as Samsung Heavy Industries, Daewoo Shipbuild-ing and Marine Engineering, Hyundai Heavy Industries, Mitsubishi Heavy Industry, STX and Hanjin Shipyard. In recentyears, China has also started making LNG ships.

Domestic players such as L&T and Pipavav had expressed interests in taking orders to build LNG vessels. GAIL ap-pointed Lloyd’s Register to carry out assessments if Indian shipyards have the requisite capability of building LNG carrier.The consultant, however, said both L&T and Pipavav would need to create new infrastructure to build these vessels.

Moreover, the Indian firms would require six to seven years to deliver the first LNG ship, which does not meet GAIL’srequirement. Generally, it takes 30 months for Japanese and Korean companies to deliver an LNG ship.

Building an LNG ship in an Indian shipyard would involve technical risks in terms of design and integration of the shipsystem. Moreover, Indian-built ships may be rejected by US terminals, according to consulting firm Integration.

In December 2011, GAIL signed a deal with Cheniere Energy Partners to buy 3.5 mtpa of LNG from the Sabine PassTerminal in Louisiana on FoB basis. Deliveries would start between March and August 2018. In April 2013, GAIL bookedanother 2.3 mtpa capacity to export LNG from the Dominion Cover Point terminal in Maryland, delivery of which is ex-pected from September 2017.

Source: The Financial Express

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April, 2014

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April, 2014


India’s exports to West Africa for the period April 2013 to February 2014 totalled around $6 billion, recording a 22.55percent growth over the past year, a foreign trade performance analysis by the department of commerce under India’sministry of commerce and industry has revealed.

Nigeria topped the list with Rs.14,526.49 crore as against Rs.13,416.91 crore over the previous period and registered agrowth of 8.27 percent. Ghana followed with Rs.4,651.73 crore as against Rs.3,591.09 and registered a 29.54 percentgrowth.

Benin registered Rs.4,384.08 crore as against Rs.2,276.32 crore and recorded a growth of 92.60 percent over the pe-riod. Exports to Togo were worth Rs.2,524.91 crore, a growth of 67.25 per cent of the previous year’s figure ofRs.1,509.68. Senegal recorded a 0.64 percent growth over the previous year’s figure of Rs.1,964.35 crore to Rs2,396.30crore for the period from April 2013 to February 2014.

Exports to Cote d’Ivoire did not fare well as it registered a minus 13.14 percent fall from Rs.1,964.35 crore toRs.1,706.30 crore.

Cameroon showed a slight increase from Rs.1,235.49 crore to Rs.1,470.65 crore. Liberia performed better registeringa growth of 149.59 percent which saw exports rising from Rs.580.92 crore to Rs.1,449.91 crore.

Guinea also saw a slight increase of 14.19 percent recording Rs.1,124.07 crore from a previous figure of Rs.984.40crore. Similarly, Mali also registered an improvement over the previous year recording a 70.92 per cent growth fromRs.350.38 crore to Rs.598.86 crore.

Burkina Faso recorded a growth of 38.82 percent moving from Rs.406.18 crore to Rs.563.86, whilst Sierra Leonerecorded a negative 40.26 growth by registering Rs.512.87 crore as against a previous figure of Rs.858.44 crore.

Niger registered a 73.97 percent growth increasing its Indian imports from Rs.287.42 crore to Rs.458.85 crore whilstGambia recorded an increase from Rs.266.27 crore to Rs.458.85 crore. Guinea Bissau recorded a 210 percent growthwith a figure of Rs109.85 crore from Rs.35.44 crore in the corresponding time last year.

The total Indian exports, including re-exports, up to March 2014 were valued $9.57 billion (Rs.180,469.82 crore) whichwas 3.15 percent lower in dollar terms (8.61 percent higher in rupee terms) than the level of $30.54 billion(Rs.166,159.46 crore) during March 2013. Cumulative value of exports for the period April 2013 to March 2014 was$312,355.45 million (Rs.1,892,892.23 crore) as against $300,400.69 million (Rs.1,634,318.84 crore) registering a growthof 3.98 percent in dollar terms and growth of 15.82 percent in rupee terms over the same period last year.

Overall imports for the same period were valued at $40.08 billion (Rs.244,579.27 crore) representing a negativegrowth of 2.11 percent in dollar terms and growth of 9.79 percent in rupee terms over the level of imports valued at$40.94 billion (Rs.222,774.70 crore) in March, 2013.

Cumulative value of imports for the period April 2013 to March 2014 was $450.9 billion (Rs.2,719,206.15 crore) asagainst $449.07 billion (Rs.2,669,161.96 crore) registering a negative growth of 8.11 percent in dollar terms and growthof 1.87 percent in rupee terms over the same period last year.


Indian exports to West Africa record high growth

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April, 2014

MONTHLYECONOMIC BULLETIN >> SECTORAL NEWS

Coal India to get new arm to shore up PPP projectsPublic sector Coal India will have a subsidiary dedicatedexclusively for the development and awarding of public-private partnership (PPP) projects in coal mining. Themove is aimed at accelerating coal mine production inthe country with the active participation from the privatesector, including multinational corporations.

Commercial coal mining by private players is not al-lowed and since the system for allocation of captive coalmines to private players on a discretionary basis led toscams, an auction mechanism is being put in place forthis.

The government has envisaged a mine developer andoperator (MDO) model for PPP ventures. Under the MDOmodel, CIL will offer its already-explored blocks for min-ing to private players selected through competitive bid-ding and the selected firms would undertake mining and transfer the fuel to CIL for a fee. However, this has not evokedmuch enthusiasm from private players because they lacked any say in the marketing of the fuel and were merely re-quired to perform the role of a contractor.

In the proposed subsidiary model, the proposed dedicated CIL arm would undertake mining projects in joint venturespecial purpose vehicles (SPVs) with private sector players as equity partners. So practically, CIL and the private part-ners would mine and sell coal and share profits in proportion to their equity holdings in the SPV. A similar mechanism isalready there with state mineral corporations.

The proposed CIL subsidiary would be allocated mines that either have all required clearances or are in advancedstages of getting such clearances, sources said. Some of existing mines of CIL, which are yet to be explored, may also betransferred to the new entity, they added. A time-bound programme may also be established for award of PPP projectsthrough auction.

“The high-level committee on financing infrastructure, chaired by Deepak Parekh, has favoured a dedicated subsidiaryfor PPP projects in coal mining in its second interim report prepared recently. Alternatively, it has also favoured the set-ting up of a new public sector undertaking (PSU) for this activity. We are examining the matter and the process would betaken forward after the new government is formed,” said a coal ministry official.

“Such activity is feasible as long as the state-owned entity is the majority partner in the SPV,” said a private sectorcoal mine developer who has formed a JV with Chhattisgarh Mining Development Corporation.

With India holding fifth biggest coal reserves in the world (December 2013 estimate puts proven reserves at 60.6 bil-lion tonne), it is felt large involvement of private players and introduction of latest technologies in mining could changesituation rapidly.


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April, 2014


12 govt ports see 2 per cent rise in traffic growthThings are looking up in the maritime sector, with the 12 government-owned major ports registering a 1.78 per cent growthin traffic for the period between April 2013 and March 2014. As the growth has come after two years of falling cargo vol-umes, ports are hoping for some recovery this year.

Globally though, the trade is expected to grow marginally keeping the freight rates for the shipping lines under pressurefor yet another year. “Economy had hit a rough patch but now there are signs of improvement. Manufacturing, trade etc areexpected to go up, which should drive the traffic. The economy should benefit if we get a stable government after the gen-eral elections,” said Hemant Bhattbhatt, chief executive officer, Hmsa Consultancy Services LLP.

The increase in traffic volumes is also an encouraging sign for ports and private operators to invest in building capacities.The shipping ministry had recently awarded 4.8 million TEUs (twenty foot equivalent units) fourth container terminal proj-ect at the Jawaharlal Nehru Port Trust (JNPT). The project is expected to double JNPT’s total capacity. The country’s totalcontainer capacity currently is over 11 million TEUs.

Companies too are pinning their hopes on the next government to expedite port infrastructure in the country and encour-age funding of various projects. “There are strong expectations that clearances will come faster and the investment senti-ment will make it easier for companies to get financing,” Bhattbhatt added. “The capacity addition in ports was sufferingbecause of economic slowdown, which was affecting cargo volumes. But now, if there is demand, supply will have to matchup,” said senior shipping ministry official.

Source: Business Standard

Driven by new fields, OVL crude outputsurges 26%OVL produced 5.491 million tonne of crude from assets in over 16 countries in 2013-14 against 4.341 million tonne in theprevious year, a company official said.

While its fields in South Sudan and Syria were shut for geopolitical reasons, the acquisition of a 3% interest in an Azerbai-jan oil field and an additional 12% stake in a Brazilian field led to the rise in production.

The official said OVL’s South Sudan properties, which produced 45,000 barrels per day, has been shut since Decemberwhile its 70,000-80,000 bpd Syrian oil fields have not produced any oil for two years due to the geopolitical situation, in-cluding EU sanctions against that country.

OVL’s natural gas production, however, declined 2% to 2.869 billion cubic metres from 2.919 bcm in 2012-13.Gas output from the A1-A3 offshore blocks in Myanmar started in July and the fields currently produce 8.5 million stan-

dard cubic meters of gas a day, he said, adding that peak output of 14.5 mmscmd is likely by the year end. OVL has a 17%share in the fields.

The company is targeting 20 million tonne of oil and oil equivalent gas production by 2018 and 60 million tonne by 2030.It produced 7.26 million tonne of oil and oil equivalent gas in 2012-13, which increased 15% in 2013-14 to 8.36 million

tonne of oil and oil equivalent gas, he said.During 2013-14, OVL raised its stake in the producing BC-10 block in Brazil to 27% from 15% at a cost of $529 million.It acquired a 16% stake in the giant Rovuma Area-1 gas block in Mozambique for $4.125 billion.“After the acquisition, the estimated reserves of Area-1 have increased from 35-65 trillion cubic feet estimated at the

time of acquisition to 45-70 tcf now,” he said.

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April, 2014


The reserves at the lower end of the band in Area-1 are 15 times more than the re-stated reserves in Reliance Industries’eastern offshore KG-D6 block.

In February, OVL and Oil India jointly acquired two Bangladesh shallow-water exploration blocks — SS09 and SS04.In October 2013, it was awarded two onshore exploratory blocks.


Railways records 15% revenue riseThe Indian Railways has closed 2013-14 with a 15 percent increase in revenue, rising to Rs 1,40,485 crore,compared to Rs 1,21,831 crore last year.

Though higher tariff and fuel surcharge helped itregister an increase in passenger earnings at Rs37,478 crore, compared to Rs 31,896 crore in 2012-13,its passenger volumes dropped marginally. The pas-senger earnings were, however, a tad lower than theinterim budget estimates of Rs 37,500 crore.

The total approximate numbers of passengersbooked during the year were 8,535 million, comparedto 8,602 million last year. The worrying part for theRailways is the fall in long-distance travel which re-flected in the non-suburban traffic, where the num-bers of passengers booked were 3,985 millioncompared to 4,128 million the previous year. In short-distance suburban travel, passenger bookings rose to 4,549 millionfrom 4,473 million previous year.

Anticipating a below target performance on the passenger side, the Railways had revised its earning target down-wards at Rs 1,40,499 crore in the February interim budget. The original target set at the beginning of 2013-14 was Rs1,43,742 crore.

In the goods segment, the total earning scrore during 2013-14 surpassed the revised estimate to touch Rs 94,925crore, compared to Rs 82,852 crore during the same period last year. In February, the interim budget had revised thefreight earning target to Rs 94,000 crore from Rs 93,554 crore. The Railways carried 1,053 million tonnes of revenueearning freight traffic during 2013-14. The freight carried shows an increase of 43.68 million tonnes over the freight traf-fic of 1,009 million tonnes carried in 2012-13.

In March 2014, revenue from freight was 100.49 million tonnes. There is an increase of 2.15 million tonnes over thefreight traffic of 98.34 million tonnes carried by the railways in the year-ago period.

The approximate revenue earnings from other coaching, which is primarily non-traffic receipts, amounted to Rs 3,818crore during fiscal 2013-14, compared to Rs 3,137 crore during in 2012-13.


41

April, 2014

Tea production up 7 per cent in April-Februaryto over 1.15 million kg

Car sales revive in March on excise duty cut

India’s tea production in the April-February period of lastfiscal rose by 7 per cent to 1,152.91 million kg on account ofhigher output in Assam and West Bengal.

Production in the same period of 2012-13 was 1,073.93million kg, according to the Tea Board data.

Output in Assam, the largest tea-producing state, was upby 5.19 per cent to 608.89 million kg in the April-Februaryperiod of 2013-14, from 578.06 million kg in the comparableperiod.

Similarly, in another major tea producing state, WestBengal, production rose by 11 per cent to 293.73 million kgfrom 265.36 million kg, during the period under review.

The combined production of tea in the south Indian statesof Tamil Nadu, Kerala and Karnataka increased by 13 per cent to 226.93 million kg in the April-December period of 2013-14 fiscal from 199.86 million kg in the previous year period.

Assam, West Bengal and South India are the major regions that account for about 90 per cent of total tea output in thecountry.

Meanwhile, as per the Indian Tea Association latest estimates, tea production in the country has increased by 6.5 percent to 1,200 million kg till December in the the 2013-14 financial year, against 1,126.33 million kg in the same period of2012-13 fiscal.

India is the world’s second-largest producer and biggest consumer of tea.Source: Press Trust of India

Cars sales showed signs of picking up in March after the ex-cise duty cut announced in the Budget, with Hyundai,Honda, Nissan and Ford India posting improved sales.

Hyundai Motor India Ltd’s (HMIL) domestic sales rose by3.38 per cent to 35,003 units from 33,858 units in March,2013. Honda Cars India also reported 83.4 per cent increasein its domestic sales at 18,426 units. Ford India’s domesticsales were up 20.58 per cent to 6,356 units.



42

April, 2014

Online retail at all-time high with one million retailersThere has been a robust growth in the online retail businessin the country, with the number of online retailers esti-mated at nearly one million. The online retail sector ac-counted for $12.6 billion (Rs 62,967 crore) showing a CAGRof 34% since 2009.

Internet and Mobile Association of India (IAMAI)presidentDr Subho Ray says: “Nearly one million large and small re-tailers make use of online marketplaces to reach out totheir customers in India today. These online retailers repre-sent a very wide range of categories including electronics,books, apparel, accessories, footwear and jewellery.”

“The presence of such a large number of online sellerstestifies to the efficiencies, lower capital costs and deepoutreach that online marketplace provides to the retailers,” he added.

The association estimated that online retail accounted for $12.6 billion (Rs 62,967 crore) showing a CAGR of 34%since 2009, and is expected to escalate further as policy and FDI issues are addressed, and delivery logistics come ofage.

Industry experts have pointed out that growth in the online retail space in India is following a global trajectory and isproving to be sustainable and profitable marketing and distribution model. The association has identified key segmentdrivers such as apparel and jewellery companies which are marketing and selling their products increasingly through theonline channel.

IAMAI reports that increasingly OEMs have begun launching their products exclusively through online marketplacesand investing in their own brand marketing. This has led to market expansion, pricing competition which is leading to bet-ter products at cheaper prices for consumers.

Regional growth patterns are also encouraging, according to IAMAI. Trends indicate that apparel and fashion acces-sories make the majority of sales in the east and south, while jewellery, leather and consumer item sales are prominentin the north and west.



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April, 2014

MONTHLYECONOMIC BULLETIN >> NEWS ROUND-UP

Reserve Bank of India governor Raghuram Rajan has suggestednew banking licence aspirants to consider applying for a differenti-ated licence instead of a full licence, indicating that the regulatormay be willing to dole out such permits when it approves the nextset of licences.

A differentiated licence will allow a bank to offer productsonly in select verticals, such as project financing, or focus onlyon a certain banking service, like in the case of payment banks.“We have opened up the possibility that applicants can applyagain once we put the licences ‘on-tap’ as well as we createdifferentiated licences,” Rajan said on the sidelines of the an-nual convocation at National Institute of Bank Management inPune.

This was his first public comment after the RBI issued new bank licences on April 2 to two financial institutions —micro lender Bandhan Financial Services and Infrastructure Development Finance Company ( IDFC). They will have toset up shop with all compliances in the next 18 months.

Earlier, while announcing RBI’s first bi-monthly credit policy, Rajan had hinted that the occasion of issuing bank li-cences should not come every 10 years.

“I would say we hope to open the window soon...first for differentiated licences like payment banks and then open the‘on-tap’ licences for universal banks,” Rajan had said. On-tap licensing means that the RBI window for granting bankinglicences will be open through the year.

A committee headed by former RBI governor Bimal Jalan had examined 25 applications for new banking licences, in-cluding those of L&T Finance, an arm of engineering-to-IT conglomerate Larsen & Toubro, Bajaj Finance, Anil Ambani-controlled Reliance Capital and Aditya Birla Financial Services. RBI had invited applications from entities interested inopening banks in February.

“We went through the list of applicants and this was the set of applicants that the Jalan Committee and the RBI feltcomfortable with,” Rajan said.

Rajan exhorted banks in cleaning up their balance sheets in the wake of rising bad loans. He criticised lenders for theirintention to defer recognition of bad loans. “Don’t keep postponing the recognition of the problem by saying ‘give mesome forbearance, treat this as a performing asset’ and so on,” he said. “This (asking for relaxation against bad loanrecognition) is a wrong way to go about. The best thing to do is to make sure that the asset itself becomes viable.”

Gross NPAs, of 40 listed banks shot up by 35.2%, or Rs 63,386 crore, for the nine months to December 2013 to crossthe Rs 2.4 lakh crore mark. This jump of 35.2% was much higher than the 27% rise witnessed in the first six months of2013-14, according to a study by NPAsource.com, a portal for stressed loans.

“If we clean up our balance sheet, the markets will be willing to provide finance to the institutions that have strengthin balance sheet and, thereby, create space for finance,” he said. The governor also underscored the need for ‘know yourcustomer’ (KYC) norms. “If it becomes a bureaucratic end in itself and prevents us from expanding access even while notdoing so much to keep the crooks away from the system, we have to re-examine,” he said, adding that the current KYCnorms are not bad.

Source: The Economic Times

Raghuram Rajan pitches for differentiatedbank licences, on-tap approvals

The Indian space agency is working at preparing a businessmodel to partner with industries - public and private - so thatthey have a higher level of participation in the space sector,said its chief.

“We are working at a possible model for investment, shar-ing of technology and responsibility with the industries. Theresponse from the industries - public and private - is positive.It will take three or four years to arrive at a proper model,”said Indian Space Research Organisation (ISRO) chairmanK.Radhakrishnan in Sriharikota.

To a question whether the model will be public-private-participation (PPP) model, he said: “I don’t want to say onemodel. We will have a model that will work in India.”

He said the industries’ participation is sought to increase the production of satellites and rockets so that ISRO canfocus on other core areas.

“We had discussions with industry bodies,” Radhakrishnan said to queries about the names of the companies that haveshowed interest.

During the 12th Plan period, ISRO is planning to have 60 missions including satellites and rockets.Speaking about the country’s satellite navigation system after the successful launch of IRNSS-1B satellite (Indian Re-

gional Navigation Satellite System-1B), he said the satellite is in good health.The next task is the raising of the satellite’s orbit.According to Radhakrishnan, satellite navigation systems of the US and some other countries are global.He said two more such satellites will be launched by the end of 2014 so that the system can send signals.According to Radhakrishnan, three more navigational satellites will be launched early 2015 and the full system will be

in place by mid-2015.Queried about the outlay of the navigational system, Radhakrishnan said each satellite will cost around Rs.150 crore

and there will be a total of nine (seven in the space and two as stand-by on ground). The total cost for the satellites willbe around Rs.1,350 crore.

The Polar Satellite Launch Vehicle (PSLV) XL version used to put the satellites in orbit costs around Rs.130 crore andthus the seven rockets would involve an outlay of around Rs.910 crore.

In addition there will be investments made in setting up a chain of ground stations which will be around Rs.1,000crore, he said.

According to Radhakrishnan, ISRO will be launching the French satellite SPOT-7 and four other foreign satellites in aPSLV rocket and also test its heavier rocket - the Geosynchronous Satellite Launch Vehicle (GSLV) Mark III version thisJune.

He said the rocket’s cryogenic engine will be passive one. It is getting ready and by May 15, he said.Vikram Sarabhai Space Centre (VSSC) director S.Ramakrishnan said that the space crew capsule that will be sent up

in the GSLV-Mark III rocket will be mainly to test its re-entry into the atmosphere and its recovery.“The capsule is not habitable. The GSLV-Mark III rocket will be for testing its aerodynamic stability,” he said.


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April, 2014


‘ISRO examining business model for industries in satellite, rocket production’

45

April, 2014


In the past few weeks, institutional advisory firms have beenvocal against salary increase to company heads, especiallyfirms undergoing financial stress or under corporate debt re-structuring (CDR). Giving specific examples, the advisoryfirms advised against the remuneration increase for chiefs ofEducomp and Suzlon Energy and said salary increase shouldbe backed by improvement in financials.

The problem, however, will be resolved to a great extentwith the new Companies Act making it mandatory for firmsto make additional disclosures and limit salary increasewhen a company is staring at a weak balance sheet.

The Companies Act, 2013, which came into effect recently,says the board of directors of every listed company and suchother class or classes of companies shall constitute the nomination and remuneration committee. This committee has toensure the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors ofthe quality required to run the company successfully.

Further, the Act says the committee should ensure the relationship of remuneration to performance is clear and meet-ing appropriate performance benchmarks. Also, remuneration to directors, key managerial personnel, and senior man-agement should involve a balance between fixed and incentive pay, reflecting short- and long-term performanceobjectives appropriate to the working of the company and its goals.

“The remuneration payable to any one managing director; or whole-time director or manager, shall not exceed five percent of the net profit of the company. If there is more than one such director, the remuneration shall not exceed 10 percent of the net profit to all such directors and manager taken together,” the Act says.

In March, Tulsi Tanti, chairman of Suzlon Energy, was re-appointed by the company’s shareholders as managing direc-tor for three years. The decision was taken via postal ballot from the company’s shareholders who also voted an in-crease in his salary to Rs 3 crore from Rs 2 crore a year. However, proxy advisory firm Institutional Investor AdvisoryServices (IiAS) advised against the appointment due to weak performance of the company.

“Despite the tough times, the company has managed to retain its prized customers and he remains sanguine aboutbringing a positive turnaround for Suzlon in the future,” Suzlon said in a press release announcing the re-appointment ofTanti. However, in mid-2012, Tanti had taken a voluntary pay cut of Rs 1.46 crore in compensation. In fact, his annualtake-home reduced to Rs 53.7 lakh, while he was entitled to Rs 2 crore.

However, IiAS was against the pay hike to Tanti as it believed any increase in remuneration should be linked to im-provement in performance. “Under Tulsi Tanti’s leadership, the company’s performance has continued to falter and thecompany is now under a corporate debt restructuring programme. IiAS believes that promoters’ interests will also beserved by bringing in new management,” the advisory firm said in a press release.

Shriram Subramanian, founder and managing director, InGovern Research Services, explained there were many in-stances where the company has gone into CDR in recent times, yet the chairman or managing director’s salary is raised.He pointed out that in companies such as Hindustan Construction Company (HCC), Jindal Stainless and Hotel Leela Ven-tures, the chairman and managing director’s salary was increased in FY13 compared to FY12.

For instance, in HCC, the annual salary was raised to Rs 10.66 crore in FY13 from Rs 5.88 crore in FY12. Similarly, inJindal Stainless, the chief’s annual salary stood at Rs 10.08 crore in FY13 compared to Rs 8.99 crore in FY12. In HotelLeelaventures’ case, too, the salary was raised to Rs 2.42 crore compared to Rs 2.01 crore in FY12. While HCC and Jindal

New Companies Act eases concerns over high pay

46

April, 2014


India received foreign exchange remittances worth $70 billion in 2013 from its migratory workforce to retain the top spotin the world amid a broad slowdown caused by regulatory hindrances on both movement of people and capital. China($60 billion), the Philippines ($25 billion), Mexico ($22 billion), Nigeria ($21 billion), Egypt ($17 billion), Pakistan ($15 bil-lion), Bangladesh ($14 billion), Vietnam ($11 billion) and Ukraine ($10 billion), rounded up the Top 10 remittance recipientnations, according to a World Bank report released on April 11.

The report, an annual World Bank exercise that underscores the point that remittances are an important source of for-eign exchange often surpassing earnings from major exports, said India’s $70 billion in remittance receipts in 2013 was“more than the $65 billion earned from the country’s flagship software services exports”.

Such trajectory was even greater in countries such as Nepal, where remittances are nearly double the country’s rev-enues from exports of goods and services, while in Sri Lanka and the Philippines, they are over 50% and 38%, respec-tively. In Uganda, remittances are double the country’s income from its main export of coffee.

In terms of remittances as a share of GDP, the top recipients were Tajikistan (52%), Kyrgyz Republic (31%), Nepal andMoldova (both 25%), Samoa and Lesotho (both 23%), Armenia and Haiti (both 21%), Liberia (20%) and Kosovo (17%). Au-thors of the report said recipient countries could do much more to enhance remittances while obliquely criticizing theroadblocks in terms of high costs and increased restrictions on movement of people, including a surge in deportations.

“In addition to the large annual flows of remittances, migrants living in high income countries are estimated to holdsavings in excess of $500 billion annually. These savings represent a huge pool of funds that developing countries can domuch more to tap into,” said Dilip Ratha, manager of the migration and remittances team at the bank’s DevelopmentProspects Group, and an authority on remittances.

The report also noted that Nigeria is readying a diaspora bond issue to mobilize diaspora savings and boost financingfor development.


Stainless declined to comment, Leelaventures did not respond to emails sent by Business Standard.Subramanian said the public shareholders were also affected as CDR often involves conversion of debt into equity and

funds infusion from promoters, which result in significant wipe-out of public stake. “However, it seems the least affectedparty is the promoter, who, although being mandated to provide additional funding, is seen to take cash out throughhigher salaries, while also retaining control and ownership of the company. The lenders as well as the public sharehold-ers should hold the promoters and the board more responsible in such cases,” he said.

The international practice in such cases is for the shareholders to take a stronger stance. In the case of Citi, its formerchief executive, Vikram Pandit, was being paid $1 for the previous two years before his proposal of raising his salary to$15 million. The shareholders voted against the proposal. However, the company went forward with the proposal on thegrounds that say on executive compensation was a non-binding vote. A few months after getting the raise, Pandit left thecompany.

While the Companies Act has stipulated certain limits on salary during financial stress, it also says the limits can beexceeded if the company makes a request to the Centre after obtaining approval through a special resolution from theshareholders. Hence, Subramanian said the onus is on shareholders to vote against such proposals and not let the com-pany further drain its funds on increased remunerations.

Amit Tandon, founder and managing director of Institutional Investor Advisory Services India, said, “Pay should belinked to performance. Executives should refrain from taking pay hikes when there is a fall in performance/profitability ofthe company. The remuneration should also be in line with industry peers and must not be higher than the remunerationpaid during years in which the company made adequate profits.”


India tops global remittances at $70 billion

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April, 2014


India will push for early conclusion of an economic accord with Indonesia to achieve the bilateral trade target of $25 bil-lion by 2015, with cumulative Indian investments of $20 billion into this country, the Indian envoy here has said.

“Indian and Indonesian companies need to build partnership, especially in sectors like infrastructure, services andmanufacturing,” Indian Ambassador Gurjit Singh told a meeting of business chamber members of the two sides inJakarta.

“Such a partnership can be in the form of joint partnership in each other’s countries, ASEAN or third countries,” theenvoy said, adding the focus areas can be pharmaceuticals, agriculture, SME sector, capacity building and human re-source development.

He said as a strategic partner, India offered opportunities to young Indonesians for capacity building by way of 125scholarships per year. He also hoped the comprehensive economic cooperation agreement will be signed soon.

“India has also provided assistance to set up vocational training centres here and at Banda Aceh. We are now planningto open another vocational training centre in Papua,” he disclosed.

The interaction was organised by the embassy of India between the members of the India Business Forum and KADINIndonesia (Indonesian Chamber of Commerce). KADIN chair Suryo Bambang Sulisto was among those who addressedthe event.

Sulisto acknowledged India’s fast development and said it has lot to offer Indonesia in areas like IT, education, healthand pharmaceuticals. He also called for ties among universities, and scientific, research and technology institutions ofthe two sides.

The India Business forum, an initiative of the Embassy of India in Jakarta, was set up in 2012 to bring together Indianand Indonesian entrepreneurs and professionals so as to facilitate economic engagement, new investment and technol-ogy infusion.


Indian envoy for early economic accordwith Indonesia

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March, 2014


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