Indian Economy A JanuarySnapshot2017
India retains fastest growing tag 04 Deeper look into the economy 05 Macro check 06 The Indian Rupee 07 External sector 08 Fiscal deficit 10 Major government initiatives in India 11 Structural push 12 In a growing economy, why demonetize? 14 Transition to a cashless economy 16 Changes in consumer behaviour 17 Overall improvement 18 Contents Indian Economy | A Snapshot3
The services sector makes up the largest share of the economy followed by industry is looking to modernize agriculture while giving a structural boost to industry. As such, increased focus on advancing industry and agriculture help India achieve it’s growth potential.
and agriculture. India
GDP growth
The past few years have witnessed India emerge as the fastest growing large economy in the world. Structural drivers based on robust domestic funadmentals continue to drive the economy higher in the face of an uncertain global environment. Going forward, the Indian economy is likely to remain the fastest growing large economy in the world as major macroeconomic parameters
remain6.6%healthy. FY17FY16FY15FY14FY13FY12 (e*) 5.6% 6.6%7.2%7.6%7.1% Deeper look into economythe Robust growth rates in the services sector
can
economy GVA Quarterly Growth Rate
Sectoral share the
Agriculture and allied activities 16% 53Services% 31Industry% Q1 5.9 6.7 6.15.3 8.17.46.76.27.27.56.97.47.37.1 01 -1 -2 -3 -4234567891011121314 Q2 2016-20172015-20162014-20152013-2014Q2Q1Q4Q3Q2Q1Q4Q3 Services Industry Agriculture GVA Q2Q1Q4Q3 Source: RBI and Mospi *e denotes estimate Source: RBI Source: RBI Indian Economy | A Snapshot 4 5 Indian Economy | A Snapshot
India retains fastest growing tag
of
Macro check Inflation and interest rates move down Over the past few years, inflation has seen a meaningful decline as supply constraints in the economy have been managed better. Reforms in alleviating some of the structural impediments, especially in the agricultural supply chain, have gone a long way in creating a favourable environment. Inflation is likely to remain within the comfort zone of the Reserve Bank of India. Benchmark bond yield has fallen over the past year as the RBI has cut rates. Interest rates are likely to come down across tenors with ample liquidity and rate cuts by the RBI FY17FY14FY13FY15 (e*) FY16 9.5%10.2% 5.9% AverageCPI Repo Rate 4.7%4.9% Inflation subdued Interest rates moving down Apr’13 May’13 Jun’13 Jul’13 Aug’13 Sep’13 Oct’13 Nov’13 Dec’13 Jan’14 Feb’14 Mar’14 Apr’14 May’14 Jun’14 Jul’14 Aug’14 Sep’14 Oct’14 Nov’14 Dec’14 Jan’15 Feb’15 Mar’15 Apr’15 May’15 Jun’15 Jul’15 Aug’15 Sep’15 Oct’15 Nov’15 Dec’15 Jan’16 Feb’16 Mar’16 Apr’16 May’16 Jun’16 Jul’16 Aug’16 Sep’16 Oct’16 Nov’16 Dec’16 Jan’17 8.006.005.507.006.507.508.50%in
INR
strength in a year that
The has shown was marred by a has seen led expect
number of macro risks. The domestic currency
The
to appreciation in real terms. Given the global economic situation, we can
the INR to depreciate in an orderly way over the next year. Source: RBI and Deloitte *e denotesSource:estimateRBI Source: RBI 807774716865110100908070 1/1/2015 2/1/2015 3/1/2015 4/1/2015 5/1/2015 6/1/2015 7/1/2015 8/1/2015 9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016 5/1/2016 6/1/2016 7/1/2016 8/1/2016 9/1/2016 10/1/2016 11/1/2016 12/1/2016 1/1/2017 INRvsEURINRvsGBP Performance of INR versus GBP and EUR GBP EUR depreciationDenotes of INR 1211111010990505050 51Jan bFe15 51Mar Apr15 51May 51Jun lJu15 Aug15 Sep15 Oct15 51Nov 51Dec 61Jan bFe16 61Mar 6Apr1 61May 61Jun lJu16 6Aug1 6Sep1 Oct16 61Nov Real effec ti ve exc hange rates R EER 36 cou ntr y Ov er v alu ation U n d er valuation Indian Economy | A Snapshot7Indian Economy | A Snapshot 6
Indian Rupee Good performance
appreciation against the Euro, GBP and against most emerging market currencies, which has
External sector Exports outperforming imports Indian bilateral trade was valued at around $643.3 billion in FY16. Exports stood at around $262.3 billion and imports stood at around $381 billion in FY16. Engineering and ancillary product exports currently make up for upwards of 20% of exports showing the increased value added component in Indian export basket. Concentration on emerging markets along with development of higher value added exports likely to benefit India in the medium to long run. Growth in Indian trade Top Indian Exports in FY16 (as % of total) reactors,Nuclear 5.1machineryboilers,Vehicles5.5Mineralproducts11.9 Precious metals and 15.1stones 53.2Others 4.4chemicalsOgranic 4.9productsPharmaceutical 0 -55 -10 -15 -20 in % YoY 2014-152013-142015-162016-17(Apr-Nov) Export (%) Import (%) Source: Ministry of Commerce Source: Ministry of Commerce 8 9 Indian Economy | A SnapshotIndian Economy | A Snapshot
Major InitiativesGovernmentinIndiaFiscal Deficit Sticking to plan The government has been following a path of fiscal consolidation and achieving targets as set under the Fiscal Responsibility and Budget Management Act. The fiscal deficit target has been set at 3.5% for FY17, after achieving 3.9% in FY16. The government overachieved in reduction of revenue deficit at 2.5% for FY16 as compared to a target of 2.8%. The quality of fiscal spend has also gone up substantially as subsidies have come down. Subsidies are likely to move down from 1.9% of GDP in FY16 to 1.7% in FY17. Trends in fiscal and revenue deficit (% of GDP) 2011-12 2012-13 2013-14 2014-15 2015-16 (T)2016-17 (T)2017-18 (T)2018-19 4.06.05.03.02.01.00.0 Fiscal Deficit Revenue Deficit Expenditure on subsidies (in INR Crores) Year FY12 FY13 FY14 FY15 FY16 (R) FY17 (P) Food Subsidy 72822 85000 92000 117671 139419 134835 Fuel Subsidy 68484 96880 85378 60269 30000 26947 Fertilizer Subsidy 70013 65613 67339 71076 72438 70000 Total Subsidies 217941 257079 254632 258258 257801 250433 Governance Bill to facilitate removal of dated laws, established Niti Aayog Digital India Increasing transparency through online clearances and widespread use of information technology in administration Make in India Encourage domestic manufacturing/ investment in smart cities Skill India Launched national skilling mission to harness India’s demographic dividend Smart Cities Technological expansion in 100 cities using information and communication technology to improve quality of life Alleviating supply constraints Mines & minerals bill passed, coal auction completed Inclusion Jan Dhan Yojana for financial inclusion/ use of unique identification (UID) for every citizen Ease of doing business Ranked States in ease of doing business, reducing documentation needs for imports and exports Source: India budget Source: Economic survey Indian Economy | A Snapshot11Indian Economy | A Snapshot 10
Structural push Make in India with Skill India Digital India Skill India 25 14.94 50 crore 73 crore 95 crore 100 crore 15.7816.1716.1716.2815.76 Number of Enrollments in Aadhaar (UID) • Operationalizing e-BIZ portal where a business user can fill the eForms online/offline, upload the attachments, make payments online and submit the forms for processing of the department • FDI norms eased in a number of sectors such as defence, banking, construction etc • Corporate tax slated to move down to 25% over the next two years • India and Switzerland have signed an agreement to establish formal cooperation in skill development • Government approved ‘National Apprenticeship Promotion Scheme’ (NAPS) with targeted to provide apprenticeship training to 50 lakh youth by 2020 • Uber & Maruti join hands for driver training in the country; promote entrepreneurship
2024-252013-142012-132011-122010-112009-102008-09 P * Years 2013-14 2014-15 2015-16 ReportedTrainings Placements ReportedTrainings Placements ReportedTrainings Placements Total 930192 238868 1233346 675255 1355473 635156 operationalCSCs to make ruralavailablee-servicesinareas Of optical fiber cable laid under bharat net for high connectivityspeed Of optical fiber cable laid under bharat net for high connectivityspeedPhoneusers DigitalIndia People enrolled under Digital AbhiyanSahakarta(DISHA) People have registered under programmeAadhaar 1.66 kms1,12,871lakh 19.3 crore105.2lakh81 lakh 100.5 crore 2013 2014 2015 2016 Source: Planning Commission *P denotes projection Source: Press Information Bureau Make in ManufacturingIndia(%share of GDP) Indian Economy | A Snapshot13Indian Economy | A Snapshot 12
Taking forward the idea of a digital nation, the basic infrastructure for a digital nation, 1,12,871 kms of optical fibre cable have been laid, in an on-going effort to provide high speed connectivity across the country. Citizen engagement platforms such as MyGov have also been started wherein 19.3 lakh registered users provide inputs for improving governance and participate in other activities. Further, to enable penetration of digital services in the hinterlands, 1.66 lakh Common Services Centres providing Government and private e-Services to the citizens have been set up.
In a economy,growing demonetize?why Benefits • Fillip to the organized sector • Lower cost of funding for banks • Push to digital transactions • Structurally lower inflation • Improved perception in the international markets • Fiscal gain • Improvement in tax buoyancy Costs • Disruption in daily life as households are unable to get liquidity • Activity levels in the informal economy take a hit • Short term impact on growth • Increased demand for gold as a store of wealth • Most holdings of black money are in big denominations • Counterfeit currency is estimated at above INR 400 cr and as such erodes the value of currency • A substantial portion of terror financing entering India is done via black or otherwise fake currency • 98% of all transactions are done in cash 1A World Bank estimate puts the size of the black economy at 23.2% of India’s total economy in 2007. Safe to say the current quantum was likely higher 2India has one of the highest ratios of cash to GDP in the world at 12.4%, much ahead of countries like China and Brazil 3 Dubious distinction of being high in corruption rankings – Number 70 on corruption index Bringing down Black money Counterfeitcurrency Terror financing entering India 1514 Indian Economy | A SnapshotIndian Economy | A Snapshot
Changes consumerinbehaviourEncouragingconsumerstotransactviadigitalmethodsislikelytobringabouthigheraccountabilityinthemonetarysystem
Faster adoption of banking and technology
Convenience is higher ofelectronicwithmodespayment Transparency is higher
Higher tax compliance Expect more people to start paying taxes, as the government increases scrutiny, and hoard lesser amount of cash. The implementation of Goods and Services Tax (GST) is also likely to help in more indirect tax payments as economic agents through the value chain demand invoices
Given the inconvenience that a very large part of the populace is experiencing, there could be a faster adoption of cashless methods of payment and banking in general. Overall savings are also likely to get a boost from this move
GAINS Security is
marketportionseliminateofgray Calibration of income consumptionand Indian Economy | A Snapshot 16 Indian Economy | A Snapshot17
Ready access Can access complete amount of funds and also lowers transaction risk Security Increased safety could drive consumption higher Convenience Lowers cost for seller and buyer thereby releasing some surplus to be used elsewhere Transparency Reduces cost and helps eliminate portions of gray economy Calibration Income tends to be periodic while expenditure is Transitioncontinuous to a economycashless
Ready access to financial resources higher and also drives consumptionhigher as helps
Overall improvement
Rising competitiveness India was one of the only two countries in Asia that showed an improvement in the World Economic Forum’s competitiveness index in 2016. The country’s ranking rose 16 positions moving up to rank 39th out of 138 countries. The improved performance was on account of progress across all sub-components of the competitiveness index, notably in market efficiency, business sophistication and innovation. Increasing ease of doing business India has moved up from 142 to 130 in the World Bank’s ease of doing business rankings. Further upmove is likely given the nature of reforms being implemented in the form of GST and Bankruptcy resolution code.
18 Indian Economy | A Snapshot
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