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ECONOMY MATTERS
Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation &Resettlement Bill, 2013
Volume 01 No. 08August - September 2013
Our major neighboring economies- Sri Lanka, Bangladesh, Pakistan and Nepal - too are
facing the heat as both global slowdown and country specific factors have stunted their
domestic economic growth. The Sri Lankan economy bounced back strongly after the end
of the civil war, but has not been immune to the global headwinds. Bangladesh has been
fast emerging as a manufacturing hub in view of its low labour cost. Pakistan, on the other
hand, finds itself embroiled in the worst ever fiscal deterioration due to inefficient
performance of various government sector enterprises and the mounting cost of
maintaining internal security in the country. Nepal is facing the classic macroeconomic
dilemma of low growth and high inflation. Going forward, the growth outlook in these
economies will be contingent upon the pace of recovery of the advanced economies and
their internal domestic resilience.
The domestic scenario looks equally challenging at present, with the first quarter GDP
numbers confirming that we are not out of the woods as yet. With monsoons being normal,
a good agricultural performance coupled with rise in rural wages would help bolster rural
demand. But, that by itself is not adequate, when the other indicators are all southward
bound. There are no visible signs of investment pick up as investor sentiments continue to
be very low. A weak rupee, tight liquidity, high cost of funds, procedural delays, etc are all
coming in the way of an investment revival. A coordinated effort from the Government and
the RBI is required to ensure that this vicious cycle is broken. Hastening disinvestment of
public sector units, ensuring coal supplies to the power sector, promoting competition in
the mining sector and ensuring speedy implementation of Delhi Mumbai Industrial
Corridor (DMIC), all of which require non-legislative action, would be seen as positive
developments.
The Right to Fair Compensation, Resettlement, Rehabilitation and Transparency in Land
Acquisition Bill 2013 will be a milestone since it is the first ever attempt to combine
Resettlement of Project Affected People and their Rehabilitation (R&R) along with land
acquisition. Besides, the new Bill provides a prominent role for Government in land
acquisition process for the Industry, which is a very welcome step. Industry however
continues to have apprehensions on some of the key provisions of the Bill. These pertain to
compensation package and R&R entitlements; Consent Clause; Acquisition of Irrigated
Multi-Crop Land; Retrospective Applicability of the Bill; Return of Un-utilised Land etc.
Besides, the process of land acquisition, as proposed in the new Bill is highly complex and
time taking, stretching up to a minimum of 56 Months. While the objective should be
improving quality of life of affected families post land acquisition, it is imperative to
streamline the land acquisition mechanism in the country in a manner that balances the
interests of affected families with industry affordability.
Chandrajit Banerjee
Director-General, CII
1 AUGUST-SEPTEMBER 2013
FOREWORD
Our major neighboring economies- Sri Lanka, Bangladesh, Pakistan and Nepal - too are
facing the heat as both global slowdown and country specific factors have stunted their
domestic economic growth. The Sri Lankan economy bounced back strongly after the end
of the civil war, but has not been immune to the global headwinds. Bangladesh has been
fast emerging as a manufacturing hub in view of its low labour cost. Pakistan, on the other
hand, finds itself embroiled in the worst ever fiscal deterioration due to inefficient
performance of various government sector enterprises and the mounting cost of
maintaining internal security in the country. Nepal is facing the classic macroeconomic
dilemma of low growth and high inflation. Going forward, the growth outlook in these
economies will be contingent upon the pace of recovery of the advanced economies and
their internal domestic resilience.
The domestic scenario looks equally challenging at present, with the first quarter GDP
numbers confirming that we are not out of the woods as yet. With monsoons being normal,
a good agricultural performance coupled with rise in rural wages would help bolster rural
demand. But, that by itself is not adequate, when the other indicators are all southward
bound. There are no visible signs of investment pick up as investor sentiments continue to
be very low. A weak rupee, tight liquidity, high cost of funds, procedural delays, etc are all
coming in the way of an investment revival. A coordinated effort from the Government and
the RBI is required to ensure that this vicious cycle is broken. Hastening disinvestment of
public sector units, ensuring coal supplies to the power sector, promoting competition in
the mining sector and ensuring speedy implementation of Delhi Mumbai Industrial
Corridor (DMIC), all of which require non-legislative action, would be seen as positive
developments.
The Right to Fair Compensation, Resettlement, Rehabilitation and Transparency in Land
Acquisition Bill 2013 will be a milestone since it is the first ever attempt to combine
Resettlement of Project Affected People and their Rehabilitation (R&R) along with land
acquisition. Besides, the new Bill provides a prominent role for Government in land
acquisition process for the Industry, which is a very welcome step. Industry however
continues to have apprehensions on some of the key provisions of the Bill. These pertain to
compensation package and R&R entitlements; Consent Clause; Acquisition of Irrigated
Multi-Crop Land; Retrospective Applicability of the Bill; Return of Un-utilised Land etc.
Besides, the process of land acquisition, as proposed in the new Bill is highly complex and
time taking, stretching up to a minimum of 56 Months. While the objective should be
improving quality of life of affected families post land acquisition, it is imperative to
streamline the land acquisition mechanism in the country in a manner that balances the
interests of affected families with industry affordability.
Chandrajit Banerjee
Director-General, CII
1 AUGUST-SEPTEMBER 2013
FOREWORD
CO
NT
EN
T
Cover Story
The passage of Land Acquisition
Bill by both Houses of Parliament
has brought little cheer to the
industry as there are concerns on
some of its provisions. Cost of land
acquisition is likely to increase by
3-3.5 times, making industrial
projects unviable and raising costs
in the overall economy. We discuss
the key provisions of the new Bill
and how it would bring out about a
change in the existing scenario in
this month’s Special Article.
3 AUGUST-SEPTEMBER 2013
DISCLAIMER
Copyright © 2013 by Confederation of Indian Industry (CII), All rights reserved.
No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by
any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the
copyright owner. CII has made every effort to ensure the accuracy of information presented in this document. However,
neither CII nor any of its office bearers or analysts or employees can be held responsible for any financial consequences arising
out of the use of information provided herein. However, in case of any discrepancy, error, etc., same may please be brought to
the notice of CII for appropriate corrections.
Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi-
110003 (INDIA),
Tel: +91-11-24629994-7, Fax: +91-11-24626149; Email: info@cii.in; Web: www.cii.in
2ECONOMY MATTERS
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India,
partnering industry, Government, and civil society, through advisory and consultative processes.
CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a proactive role in India's
development process. Founded over 118 years ago, India's premier business association has over 7100 members, from the
private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 enterprises from
around 257 national and regional sectoral industry bodies.
CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing
efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic
global linkages. It also provides a platform for consensus-building and networking on key issues.
Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship programmes.
Partnerships with civil society organizations carry forward corporate initiatives for integrated and inclusive development
across diverse domains including affirmative action, healthcare, education, livelihood, diversity management, skill
development, empowerment of women, and water, to name a few.
The CII Theme for 2013-14 is Accelerating Economic Growth through Innovation, Transformation, Inclusion and Governance.
Towards this, CII advocacy will accord top priority to stepping up the growth trajectory of the nation, while retaining a strong
focus on accountability, transparency and measurement in the corporate and social eco-system, building a knowledge
economy, and broad-basing development to help deliver the fruits of progress to all.
With 63 offices, including 10 Centres of Excellence, in India, and 7 overseas offices in Australia, China, Egypt, France, Singapore,
UK, and USA, as well as institutional partnerships with 224 counterpart organizations in 90 countries, CII serves as a reference
point for Indian industry and the international business community.
ABOUT CII ResearchThe CII Research team regularly tracks economic, political and business developments within India and abroad to comment on
the emerging economic scenario for the Indian corporate sector. It tracks policy developments, offers comprehensive analysis
of industries and comments on and analyzes the economic climate through its regular publications– Economy Matters,
Business Outlook Survey and, Fortnightly Economic Updates.
We have in-house expertise in providing the most comprehensive, in-depth, unbiased and incisive analysis and forecasts on the
Indian economy and various sectors. CII Research is also well versed and well equipped to offer customized research based
consultancy services on any theme. It has been catering to the needs of various stakeholders including industries, business
houses and government providing meaningful insights about the prevailing trends, outlook on likely future trends, factors
behind these trends, existing government policies and policy recommendations with an objective to help stakeholders in
better understanding of the issues at hand. The objective of CII Research is to assist stakeholders in taking more informed and
strategic decisions with due focus on the attainment of short term as well as long term goals. For more details and to advertise
in our products, write to us at ecoresearch@cii.in
Inside This Issue
Executive Summary .................................................................04
GDP Forecasts Scaled Down for 2013-14.......................07
T A X E S
Global Trends
08Deciphering Trends in the Major South Asian Economies
Domestic TrendsGDP, IIP, Inflation & External Sector
15
TaxationDraft Safe Harbour Rules - Do they Bridge or Widen the Taxpayer-Exchequer Divide?22
Sector in FocusCapital Goods
27
Special ArticleRight to Fair Compensation and Transparency in Land Acquisition, Rehabilitation &Resettlement Bill, 2013 34
Corporate PerformanceIndustry Under Pressure as Growth Dips Further24
Economy Monitor ................................................................... 43
Special FeatureGreen Manufacturing: The Next Big Opportunity40
CO
NT
EN
T
Cover Story
The passage of Land Acquisition
Bill by both Houses of Parliament
has brought little cheer to the
industry as there are concerns on
some of its provisions. Cost of land
acquisition is likely to increase by
3-3.5 times, making industrial
projects unviable and raising costs
in the overall economy. We discuss
the key provisions of the new Bill
and how it would bring out about a
change in the existing scenario in
this month’s Special Article.
3 AUGUST-SEPTEMBER 2013
DISCLAIMER
Copyright © 2013 by Confederation of Indian Industry (CII), All rights reserved.
No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by
any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the
copyright owner. CII has made every effort to ensure the accuracy of information presented in this document. However,
neither CII nor any of its office bearers or analysts or employees can be held responsible for any financial consequences arising
out of the use of information provided herein. However, in case of any discrepancy, error, etc., same may please be brought to
the notice of CII for appropriate corrections.
Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi-
110003 (INDIA),
Tel: +91-11-24629994-7, Fax: +91-11-24626149; Email: info@cii.in; Web: www.cii.in
2ECONOMY MATTERS
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India,
partnering industry, Government, and civil society, through advisory and consultative processes.
CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a proactive role in India's
development process. Founded over 118 years ago, India's premier business association has over 7100 members, from the
private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 enterprises from
around 257 national and regional sectoral industry bodies.
CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing
efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic
global linkages. It also provides a platform for consensus-building and networking on key issues.
Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship programmes.
Partnerships with civil society organizations carry forward corporate initiatives for integrated and inclusive development
across diverse domains including affirmative action, healthcare, education, livelihood, diversity management, skill
development, empowerment of women, and water, to name a few.
The CII Theme for 2013-14 is Accelerating Economic Growth through Innovation, Transformation, Inclusion and Governance.
Towards this, CII advocacy will accord top priority to stepping up the growth trajectory of the nation, while retaining a strong
focus on accountability, transparency and measurement in the corporate and social eco-system, building a knowledge
economy, and broad-basing development to help deliver the fruits of progress to all.
With 63 offices, including 10 Centres of Excellence, in India, and 7 overseas offices in Australia, China, Egypt, France, Singapore,
UK, and USA, as well as institutional partnerships with 224 counterpart organizations in 90 countries, CII serves as a reference
point for Indian industry and the international business community.
ABOUT CII ResearchThe CII Research team regularly tracks economic, political and business developments within India and abroad to comment on
the emerging economic scenario for the Indian corporate sector. It tracks policy developments, offers comprehensive analysis
of industries and comments on and analyzes the economic climate through its regular publications– Economy Matters,
Business Outlook Survey and, Fortnightly Economic Updates.
We have in-house expertise in providing the most comprehensive, in-depth, unbiased and incisive analysis and forecasts on the
Indian economy and various sectors. CII Research is also well versed and well equipped to offer customized research based
consultancy services on any theme. It has been catering to the needs of various stakeholders including industries, business
houses and government providing meaningful insights about the prevailing trends, outlook on likely future trends, factors
behind these trends, existing government policies and policy recommendations with an objective to help stakeholders in
better understanding of the issues at hand. The objective of CII Research is to assist stakeholders in taking more informed and
strategic decisions with due focus on the attainment of short term as well as long term goals. For more details and to advertise
in our products, write to us at ecoresearch@cii.in
Inside This Issue
Executive Summary .................................................................04
GDP Forecasts Scaled Down for 2013-14.......................07
T A X E S
Global Trends
08Deciphering Trends in the Major South Asian Economies
Domestic TrendsGDP, IIP, Inflation & External Sector
15
TaxationDraft Safe Harbour Rules - Do they Bridge or Widen the Taxpayer-Exchequer Divide?22
Sector in FocusCapital Goods
27
Special ArticleRight to Fair Compensation and Transparency in Land Acquisition, Rehabilitation &Resettlement Bill, 2013 34
Corporate PerformanceIndustry Under Pressure as Growth Dips Further24
Economy Monitor ................................................................... 43
Special FeatureGreen Manufacturing: The Next Big Opportunity40
Global Trends
Domestic Trends
Corporate Performance
The large South Asian economies (ex-India), viz, Sri Lanka,
Bangladesh, Pakistan and Nepal are facing varied sets of
problems precipitated as a result of the global slowdown
and country specific factors. The Sri Lankan economy has
bounced back strongly after the end of the civil war, but
has not been immune to global headwinds. Bangladesh
has been fast emerging as a manufacturing hub in view of
its low labour cost. Pakistan on the other hand is facing
mounting difficulties in the wake of sharp increase in
fiscal deficit coupled with internal security strife. The
smallest economy of the region, Nepal on the other hand
is facing the classic macroeconomic dilemma of low
growth and high inflation. Going forward, the growth
outlook in these economies will be contingent upon the
pace of recovery of the advanced economies and their
internal domestic resilience.
GDP growth moderated to its more than four-year low of
4.4 per cent in the first quarter GDP growth dropped to a
four-year low of 4.4 per cent of the current fiscal as
compared to 4.8 per cent in the quarter before. This is the
lowest quarterly growth rate since March 2009, when the
global financial crisis was at its peak. The downslide was
driven by a weak industrial performance, which slipped to
a its multi-year low. Inflation on the other hand has
continued to accelerate, rising to 6.1 per cent in August
2013 mainly due to high food prices. On the external front,
improvement in the global scenario has provided a fillip to
exports growth, which accelerated to 13 per cent in
August 2013, while imports contracted due to subdued
demand in the economy and impact of a weak Rupee.
The deepening economic slowdown, rising interest rates,
tight liquidity, declining investments and depreciating
rupee are slowly taking a toll on India Inc's financial
performance with majority of companies witnessing a
decline in net profits for the past few quarters. The
corporate results at the end of first quarter (April-June) of
the current fiscal painted a rather gloomy picture as the
financial performance of Indian companies deteriorated.
While revenues plummeted sharply, corporate sector
continued to pull expenses down against the backdrop of
a clouded economic outlook. However, the reduction in
expenditure costs was not large enough to provide to
cushion the bottom-line of the firms. Consequently, there
was de-growth witnessed in profit-after-tax (PAT) on an
aggregate basis in the first quarter of 2013-14. Margins,
both net and gross saw an deterioration in the quarter too,
reflecting the fall in profitability. Our analysis is based on
the financial performance of balanced panel of 2,701 firms
(extracted on August 29, 2013).
Capital goods sector is of strategic importance for the
Indian economy. Being large and diverse in nature and
playing a critical role in production process, the sector has
high multiplier effect on the overall growth of the
economy. The sector not only determines the pace of
economic expansion but also gets influenced by the same.
However, the negative growth recorded by the capital
goods sector over the last two years is a matter of
concern. Declining production in the sector was reflected
in the imports of capital goods too, which witnessed sharp
increase over the last decade or so, supported by a
relatively low rate of customs duty in the range of 0.0-7.5
per cent. Poor performance of the sector has much to do
with the low cost competitiveness of the sector, which has
magnified in the face of the economic slowdown. While
revival of manufacturing growth is critical for capital
goods sector, healthy growth performance of capital
goods sector too can help the revival process.
The passage of Land Acquisition bill by both Houses of
Parliament has brought little cheer to the industry as there
are concerns on some of the provisions of the Bill. Cost of
land acquisition is likely to increase by 3-3.5 times, making
industrial projects unviable and raising costs in the overall
Indian economy. The Bill would also lead to major delays in
the process of Land Acquisition as taking the consent of 80
per cent of affected families for Private Sector and 70 per
cent of affected families for Public Private Partnership
(PPP) Projects under 'Public Purpose' in the Bill would
make the process of obtaining consent a very long drawn
out process. Further, retrospective applicability of the Bill
would severely affect the on-going industry projects as re-
starting the entire land acquisition process would lead to
avoidable delays and consequent cost over-runs. CII
however does appreciate the holistic nature of the Bill and
role of government in acquiring land. However, at a time
when major projects are stalled and India's global
competitiveness is eroding, a more facilitative land
acquisition process would have helped long-term growth
and restore investor sentiments.
Sector in Focus: Capital Goods
Special Article
EXECUTIVE SUMMARY
4ECONOMY MATTERS
Global Trends
Domestic Trends
Corporate Performance
The large South Asian economies (ex-India), viz, Sri Lanka,
Bangladesh, Pakistan and Nepal are facing varied sets of
problems precipitated as a result of the global slowdown
and country specific factors. The Sri Lankan economy has
bounced back strongly after the end of the civil war, but
has not been immune to global headwinds. Bangladesh
has been fast emerging as a manufacturing hub in view of
its low labour cost. Pakistan on the other hand is facing
mounting difficulties in the wake of sharp increase in
fiscal deficit coupled with internal security strife. The
smallest economy of the region, Nepal on the other hand
is facing the classic macroeconomic dilemma of low
growth and high inflation. Going forward, the growth
outlook in these economies will be contingent upon the
pace of recovery of the advanced economies and their
internal domestic resilience.
GDP growth moderated to its more than four-year low of
4.4 per cent in the first quarter GDP growth dropped to a
four-year low of 4.4 per cent of the current fiscal as
compared to 4.8 per cent in the quarter before. This is the
lowest quarterly growth rate since March 2009, when the
global financial crisis was at its peak. The downslide was
driven by a weak industrial performance, which slipped to
a its multi-year low. Inflation on the other hand has
continued to accelerate, rising to 6.1 per cent in August
2013 mainly due to high food prices. On the external front,
improvement in the global scenario has provided a fillip to
exports growth, which accelerated to 13 per cent in
August 2013, while imports contracted due to subdued
demand in the economy and impact of a weak Rupee.
The deepening economic slowdown, rising interest rates,
tight liquidity, declining investments and depreciating
rupee are slowly taking a toll on India Inc's financial
performance with majority of companies witnessing a
decline in net profits for the past few quarters. The
corporate results at the end of first quarter (April-June) of
the current fiscal painted a rather gloomy picture as the
financial performance of Indian companies deteriorated.
While revenues plummeted sharply, corporate sector
continued to pull expenses down against the backdrop of
a clouded economic outlook. However, the reduction in
expenditure costs was not large enough to provide to
cushion the bottom-line of the firms. Consequently, there
was de-growth witnessed in profit-after-tax (PAT) on an
aggregate basis in the first quarter of 2013-14. Margins,
both net and gross saw an deterioration in the quarter too,
reflecting the fall in profitability. Our analysis is based on
the financial performance of balanced panel of 2,701 firms
(extracted on August 29, 2013).
Capital goods sector is of strategic importance for the
Indian economy. Being large and diverse in nature and
playing a critical role in production process, the sector has
high multiplier effect on the overall growth of the
economy. The sector not only determines the pace of
economic expansion but also gets influenced by the same.
However, the negative growth recorded by the capital
goods sector over the last two years is a matter of
concern. Declining production in the sector was reflected
in the imports of capital goods too, which witnessed sharp
increase over the last decade or so, supported by a
relatively low rate of customs duty in the range of 0.0-7.5
per cent. Poor performance of the sector has much to do
with the low cost competitiveness of the sector, which has
magnified in the face of the economic slowdown. While
revival of manufacturing growth is critical for capital
goods sector, healthy growth performance of capital
goods sector too can help the revival process.
The passage of Land Acquisition bill by both Houses of
Parliament has brought little cheer to the industry as there
are concerns on some of the provisions of the Bill. Cost of
land acquisition is likely to increase by 3-3.5 times, making
industrial projects unviable and raising costs in the overall
Indian economy. The Bill would also lead to major delays in
the process of Land Acquisition as taking the consent of 80
per cent of affected families for Private Sector and 70 per
cent of affected families for Public Private Partnership
(PPP) Projects under 'Public Purpose' in the Bill would
make the process of obtaining consent a very long drawn
out process. Further, retrospective applicability of the Bill
would severely affect the on-going industry projects as re-
starting the entire land acquisition process would lead to
avoidable delays and consequent cost over-runs. CII
however does appreciate the holistic nature of the Bill and
role of government in acquiring land. However, at a time
when major projects are stalled and India's global
competitiveness is eroding, a more facilitative land
acquisition process would have helped long-term growth
and restore investor sentiments.
Sector in Focus: Capital Goods
Special Article
EXECUTIVE SUMMARY
4ECONOMY MATTERS
ECONOMY MATTERS
n
n
n
Keeps readers abreast of global & domestic
economic developments
Monthly Journal of top management of 8000
companies
Read by CII Members, Thought Leaders,
Diplomats, Policy Makers, MPs and other
decision makers
The Facts
n
n
n
n
n
n
Domestic Trends
Corporate Performance
Sector in Focus
Special Article
Economy Monitor
Global Trends
The Coverage
CII invites full-page* Advertisements for
this flagship document at an attractive rate
of Rs 50,000 per issue and Rs 5 lakh for 12
issues.
For more details, Please Contact: Confederation of Indian Industry
The Mantosh Sondhi Centre, 23, Institutional Area, Lodi Road, New Delhi- 110003 (INDIA)Tel : +91-011-24629994-7, Fax: +91-011-24626149; Email: Ecoresearch@cii.in
Dr. Danish A. Hashim, Director- Economic Research
GDP FORECAST
GDP Forecasts Scaled Down for 2013-14
(y-o-y%) Old Forecasts New Forecasts
BNP Paribas 5.2 3.7
HSBC 5.5 4.0
Goldman Sachs 6.4 4.0
Standard Chartered 5.1 4.1
Nomura 5.0 4.2
JP Morgan 5.5 4.7
Macquarie 6.2 5.3
CRISIL 5.5 4.8
RBI 5.7 5.5
PM Economic Advisory Council 6.4 5.3
CII 6.0-6.4 5.3-5.8
7 AUGUST-SEPTEMBER 2013
ECONOMY MATTERS
n
n
n
Keeps readers abreast of global & domestic
economic developments
Monthly Journal of top management of 8000
companies
Read by CII Members, Thought Leaders,
Diplomats, Policy Makers, MPs and other
decision makers
The Facts
n
n
n
n
n
n
Domestic Trends
Corporate Performance
Sector in Focus
Special Article
Economy Monitor
Global Trends
The Coverage
CII invites full-page* Advertisements for
this flagship document at an attractive rate
of Rs 50,000 per issue and Rs 5 lakh for 12
issues.
For more details, Please Contact: Confederation of Indian Industry
The Mantosh Sondhi Centre, 23, Institutional Area, Lodi Road, New Delhi- 110003 (INDIA)Tel : +91-011-24629994-7, Fax: +91-011-24626149; Email: Ecoresearch@cii.in
Dr. Danish A. Hashim, Director- Economic Research
GDP FORECAST
GDP Forecasts Scaled Down for 2013-14
(y-o-y%) Old Forecasts New Forecasts
BNP Paribas 5.2 3.7
HSBC 5.5 4.0
Goldman Sachs 6.4 4.0
Standard Chartered 5.1 4.1
Nomura 5.0 4.2
JP Morgan 5.5 4.7
Macquarie 6.2 5.3
CRISIL 5.5 4.8
RBI 5.7 5.5
PM Economic Advisory Council 6.4 5.3
CII 6.0-6.4 5.3-5.8
7 AUGUST-SEPTEMBER 2013
Deciphering Trends in the Major South Asian Economies
below trend performance by the agriculture and
services sectors, which grew at 2 per cent and 4.3 per
cent, respectively. Services sector is the most dominant
sector of the Sri Lankan economy, having a share of
above 50 per cent in the total GDP, followed by industry
at around 30 per cent and agriculture constituting the
remaining. The sharp deceleration witnessed in
agriculture was due to the drop in production of rubber
due to lower global prices and unfavourable rainfall for
tapping activities. Amongst the services sector,
transport & communication and hotels & restaurant
sectors grew by 9.5 per cent and 18.6 per cent
respectively.
Sri Lanka
SGDP Growth
ri Lanka's GDP in the first quarter (January-March)
of the current year grew at 6.0 per cent as
compared to 8.0 per cent in the same quarter of the last
year. The subdued performance was underpinned by a
GLOBAL TRENDS
8ECONOMY MATTERS
(y-o-y%) 1Q: 2011 1Q: 2012 1Q: 2013
Agriculture -4.4 12.0 2.0
Industry 11.1 10.8 10.7
Services 9.5 5.8 4.3
Overall GDP 8.0 8.0 6.0
Source: Department of Census & Statistics, Government of Sri Lanka
Yearly GDP growth rate in Sri Lanka (January-December)
the same period last year. Looking ahead, inflation is
expected to remain in single-digit during the remainder
of 2013, and in mid-single digits in 2014. Considering the
subdued inflationary pressures prevalent in the
economy currently, the Monetary Board in its meeting, thheld on 15 August 2013, was of the view that the current
monetary policy stance is appropriate, and therefore,
decided to maintain the Repurchase rate and the
Reverse Repurchase rate of the Central Bank of Sri
Lanka unchanged at 7.00 per cent and 9.00 per cent,
respectively.
Inflation
The prudent demand management policies along with
favourable supply conditions have resulted in a
continued low inflation environment in Sri Lanka.
Inflation has remained at single digit levels for 4 and half
years with headline inflation (year-on-year), as
measured by the Colombo consumers' price index
(base: 2006/07=100) CCPI for first seven months of 2013
standing at 7.5 per cent as compared to 6.7 per cent in
3.86.3
12
10
8
6
4
2
0
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep
-12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
CPI Inflation in Sri Lanka (y-o-y %)
Source: Department of Census & Statistics, Government of Sri Lanka
On the exchange rate front, following the general trend
of depreciation against the US dollar of the other major
currencies in the region, the Sri Lankan Rupee too fell to
a near 10-month low in August 2013 due to dollar
demand by importers and capital outflows. The rupee
has fallen around 4 per cent since June 7, 2013 as foreign
investors pulled out of Sri Lankan bonds and other
emerging market assets due to a rise in U.S. treasury
yields.
Trade
In the external sector, merchandise exports in June 2013
showed some turnaround, recording a positive year-on-
year growth after the decline observed in the past 15
months. The cumulative performance in merchandise
trade depicts a salutary 7.1 per cent decline in the trade
deficit for the first six months of 2013. Earnings from
tourism and workers' remittances have continued to
improve, while the financial inflows have been
substantial in the first half of the year.
key factor behind this was slower growth in agriculture,
which according to these provisional numbers has
slowed from 3.1 per cent in 2011-12 to 2.2 per cent in 2012-
13. This was largely due to the base effect of two
consecutive years of record growth, lower output due
to the falling price of paddy/rice and also due to
weather-related disruptions. Yet, the industrial growth,
which is the sector most affected by access to timely
credit, is estimated at 9.0 per cent in 2012-13, higher than
the 8.9 per cent in 2011-12, driven in large part by faster
growth of construction and small scale industries. On
Bangladesh
GDP Growth
In 2012-13 (July-June), Bangladesh economy was faced
with the challenges of rising inflation and balance of
payments pressures stemming largely from a sudden
surge in oil imports. Accordingly, the GDP for the annual
year came in lower at 6.0 per cent as compared to 6.2
per cent in the previous fiscal. Growth was also lower
than the previous five-year average of 6.2 per cent. A
9 AUGUST-SEPTEMBER 2013
Deciphering Trends in the Major South Asian Economies
below trend performance by the agriculture and
services sectors, which grew at 2 per cent and 4.3 per
cent, respectively. Services sector is the most dominant
sector of the Sri Lankan economy, having a share of
above 50 per cent in the total GDP, followed by industry
at around 30 per cent and agriculture constituting the
remaining. The sharp deceleration witnessed in
agriculture was due to the drop in production of rubber
due to lower global prices and unfavourable rainfall for
tapping activities. Amongst the services sector,
transport & communication and hotels & restaurant
sectors grew by 9.5 per cent and 18.6 per cent
respectively.
Sri Lanka
SGDP Growth
ri Lanka's GDP in the first quarter (January-March)
of the current year grew at 6.0 per cent as
compared to 8.0 per cent in the same quarter of the last
year. The subdued performance was underpinned by a
GLOBAL TRENDS
8ECONOMY MATTERS
(y-o-y%) 1Q: 2011 1Q: 2012 1Q: 2013
Agriculture -4.4 12.0 2.0
Industry 11.1 10.8 10.7
Services 9.5 5.8 4.3
Overall GDP 8.0 8.0 6.0
Source: Department of Census & Statistics, Government of Sri Lanka
Yearly GDP growth rate in Sri Lanka (January-December)
the same period last year. Looking ahead, inflation is
expected to remain in single-digit during the remainder
of 2013, and in mid-single digits in 2014. Considering the
subdued inflationary pressures prevalent in the
economy currently, the Monetary Board in its meeting, thheld on 15 August 2013, was of the view that the current
monetary policy stance is appropriate, and therefore,
decided to maintain the Repurchase rate and the
Reverse Repurchase rate of the Central Bank of Sri
Lanka unchanged at 7.00 per cent and 9.00 per cent,
respectively.
Inflation
The prudent demand management policies along with
favourable supply conditions have resulted in a
continued low inflation environment in Sri Lanka.
Inflation has remained at single digit levels for 4 and half
years with headline inflation (year-on-year), as
measured by the Colombo consumers' price index
(base: 2006/07=100) CCPI for first seven months of 2013
standing at 7.5 per cent as compared to 6.7 per cent in
3.86.3
12
10
8
6
4
2
0
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep
-12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
CPI Inflation in Sri Lanka (y-o-y %)
Source: Department of Census & Statistics, Government of Sri Lanka
On the exchange rate front, following the general trend
of depreciation against the US dollar of the other major
currencies in the region, the Sri Lankan Rupee too fell to
a near 10-month low in August 2013 due to dollar
demand by importers and capital outflows. The rupee
has fallen around 4 per cent since June 7, 2013 as foreign
investors pulled out of Sri Lankan bonds and other
emerging market assets due to a rise in U.S. treasury
yields.
Trade
In the external sector, merchandise exports in June 2013
showed some turnaround, recording a positive year-on-
year growth after the decline observed in the past 15
months. The cumulative performance in merchandise
trade depicts a salutary 7.1 per cent decline in the trade
deficit for the first six months of 2013. Earnings from
tourism and workers' remittances have continued to
improve, while the financial inflows have been
substantial in the first half of the year.
key factor behind this was slower growth in agriculture,
which according to these provisional numbers has
slowed from 3.1 per cent in 2011-12 to 2.2 per cent in 2012-
13. This was largely due to the base effect of two
consecutive years of record growth, lower output due
to the falling price of paddy/rice and also due to
weather-related disruptions. Yet, the industrial growth,
which is the sector most affected by access to timely
credit, is estimated at 9.0 per cent in 2012-13, higher than
the 8.9 per cent in 2011-12, driven in large part by faster
growth of construction and small scale industries. On
Bangladesh
GDP Growth
In 2012-13 (July-June), Bangladesh economy was faced
with the challenges of rising inflation and balance of
payments pressures stemming largely from a sudden
surge in oil imports. Accordingly, the GDP for the annual
year came in lower at 6.0 per cent as compared to 6.2
per cent in the previous fiscal. Growth was also lower
than the previous five-year average of 6.2 per cent. A
9 AUGUST-SEPTEMBER 2013
fiscal, Bangladesh Bank (Central Bank of Bangladesh)
forecasts that the output growth is unlikely to deviate
significantly from the last ten year average of 6.2 per
cent.
the other hand, growth of services sector marginally
slowed down to 5.7 per cent in 2012-13 from 5.9 per cent
in 2011-12 as the retail and wholesale trade sectors were
particularly affected. Looking ahead to the current
(y-o-y%) 2010-11 2011-12 2012-13 (P)
Agriculture 5.1 3.1 2.2
Industry 8.2 8.9 9.0
Services 6.2 6.0 5.7
Overall GDP 6.7 6.2 6.0
Source: Bangladesh BankNote: P- Provisional
GDP Growth Rate in Bangladesh in Fiscal Year (July-June)
using the 1995-96 base. The risks to the inflation target
stem partly from likely wage increases, in both the
public and private sectors, which will further add to
existing aggregate demand pressures. Consequently,
the expected monetary stance of the Central Bank of
Bangladesh for the second-half of the current fiscal
(July-December 2013) states maintaining the repo rates
and reserve requirement ratios unchanged following
the 50 bps rate cut in January 2013, in addition to
bringing down average inflation to 7 per cent (using the
1995-96 base).
Inflation
Average inflation, using the 1995-96 base year, has been
declining steadily over the past fifteen months, from a
peak of 10.9 per cent in February 2012 to 7.7 per cent in
June 2013. This decline was driven by a steady fall in
point-to-point food and non-food inflation until October
2012 when food inflation bottomed out at 5.6 per cent.
Since then, food inflation has begun to rise and in June
2013 came in at 8.5 per cent. For the current fiscal, the
inflation target announced in the Budget is 7.0 per cent,
10.6
7.7
11
10
9
8
7
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
CPI Inflation in Bangladesh (y-o-y%)
Source: Bangladesh Bank
2012-13, partly reflecting the significant fall in food
import demand, lower petroleum imports as well as
slower demand for imports related to manufacturing
output. The capital account shows that foreign direct
investment is projected to have increased from US$1.2
billion in 2011-12 to US$1.3 billion in 2012-13. Remittances
remain an important source of foreign capital for the
Trade
In the external sector, the current account balance
(CAB) continued to be in surplus of US$2004 million in
2012-13, on the back of increasing inflows of remittances,
continued buoyant export expansion, and declining
imports. Import growth continued to remain sluggish in
10ECONOMY MATTERS
appreciated 2.6 per cent between January 1st-June 30th
2013 and real exchange rate data indicates a marginal
impact on export competitiveness. However, Central
Bank's interventions in the foreign exchange market
have limited this loss significantly by slowing the
appreciation of the Taka.
country. Remittances have been buoyed by larger
numbers of Bangladeshi workers moving abroad in 2011-
12 as well as real wage growth in the Middle East
following the 'Arab Spring' events.
The Central Bank has been also working to rein in the
excessive volatility in the exchange rate. The Taka
(US$ million) 2010-11 (Actual) 2011-12 (P) 2012-13 (Estimation)
Current Account Balance -1549 151 2004
Capital Account 642 469 535
Financial Account 514 785 2347
Overall Balance -656 494 4886
Source: Bangladesh BankNote: P- Provisional
Bangladesh's Balance of Payments
growth rate for the past five years has remained as low
as 3 per cent, which is alarming when compared to the
2.1 per cent growth in the population. Performance of all
the three sub-sectors, viz, agriculture, industry and
services remained subdued during the year. For the
current fiscal, government is targeting 4.4 per cent GDP
growth. Though the new government that came in May
2013 is expected to provide some clarity on the political
front, power shortages and security conditions
continue to be strong impediments to growth.
Pakistan
GDP Growth
Embroiled in an acute energy crisis since the last many
years, Pakistan economy continues to face challenges
on all fronts. The data for the GDP in Pakistan, which is
released on an annual basis, shows that for 2012-13 (July-
June), the GDP grew by merely 3.6 per cent as compared
to the annual plan target of 4.3 per cent. The average
2012-13 2011-12
Growth (y-o-y%) Shares (%) Contribution (%) Growth (y-o-y%)
Agriculture 3.3 21.4 0.7 3.5
Industry 3.5 20.9 0.7 2.7
Services 3.7 57.7 2.1 5.3
Overall GDP 3.6 100 3.6 4.4
Source: State Bank of Pakistan
GDP Growth in Pakistan (July-June)
impact of the depreciation of the Pakistani Rupee. In the
latest budget the government has announced an
increase of 1 percentage point in the General Sales Tax
(GST), from 16 per cent to 17 per cent, and changes in the
tax structure for some goods & services. In addition, the
government is considering a phase-wise upward
adjustment in electricity tariff. Therefore, there is a risk
Inflation
Inflation continues to remain high, with July 2013 CPI
inflation reading coming at a 10-month high of 8.3 per
cent as compared to 9.6 per cent in the same month of
last year mainly due to rise in food prices and adverse
11 AUGUST-SEPTEMBER 2013
fiscal, Bangladesh Bank (Central Bank of Bangladesh)
forecasts that the output growth is unlikely to deviate
significantly from the last ten year average of 6.2 per
cent.
the other hand, growth of services sector marginally
slowed down to 5.7 per cent in 2012-13 from 5.9 per cent
in 2011-12 as the retail and wholesale trade sectors were
particularly affected. Looking ahead to the current
(y-o-y%) 2010-11 2011-12 2012-13 (P)
Agriculture 5.1 3.1 2.2
Industry 8.2 8.9 9.0
Services 6.2 6.0 5.7
Overall GDP 6.7 6.2 6.0
Source: Bangladesh BankNote: P- Provisional
GDP Growth Rate in Bangladesh in Fiscal Year (July-June)
using the 1995-96 base. The risks to the inflation target
stem partly from likely wage increases, in both the
public and private sectors, which will further add to
existing aggregate demand pressures. Consequently,
the expected monetary stance of the Central Bank of
Bangladesh for the second-half of the current fiscal
(July-December 2013) states maintaining the repo rates
and reserve requirement ratios unchanged following
the 50 bps rate cut in January 2013, in addition to
bringing down average inflation to 7 per cent (using the
1995-96 base).
Inflation
Average inflation, using the 1995-96 base year, has been
declining steadily over the past fifteen months, from a
peak of 10.9 per cent in February 2012 to 7.7 per cent in
June 2013. This decline was driven by a steady fall in
point-to-point food and non-food inflation until October
2012 when food inflation bottomed out at 5.6 per cent.
Since then, food inflation has begun to rise and in June
2013 came in at 8.5 per cent. For the current fiscal, the
inflation target announced in the Budget is 7.0 per cent,
10.6
7.7
11
10
9
8
7
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
CPI Inflation in Bangladesh (y-o-y%)
Source: Bangladesh Bank
2012-13, partly reflecting the significant fall in food
import demand, lower petroleum imports as well as
slower demand for imports related to manufacturing
output. The capital account shows that foreign direct
investment is projected to have increased from US$1.2
billion in 2011-12 to US$1.3 billion in 2012-13. Remittances
remain an important source of foreign capital for the
Trade
In the external sector, the current account balance
(CAB) continued to be in surplus of US$2004 million in
2012-13, on the back of increasing inflows of remittances,
continued buoyant export expansion, and declining
imports. Import growth continued to remain sluggish in
10ECONOMY MATTERS
appreciated 2.6 per cent between January 1st-June 30th
2013 and real exchange rate data indicates a marginal
impact on export competitiveness. However, Central
Bank's interventions in the foreign exchange market
have limited this loss significantly by slowing the
appreciation of the Taka.
country. Remittances have been buoyed by larger
numbers of Bangladeshi workers moving abroad in 2011-
12 as well as real wage growth in the Middle East
following the 'Arab Spring' events.
The Central Bank has been also working to rein in the
excessive volatility in the exchange rate. The Taka
(US$ million) 2010-11 (Actual) 2011-12 (P) 2012-13 (Estimation)
Current Account Balance -1549 151 2004
Capital Account 642 469 535
Financial Account 514 785 2347
Overall Balance -656 494 4886
Source: Bangladesh BankNote: P- Provisional
Bangladesh's Balance of Payments
growth rate for the past five years has remained as low
as 3 per cent, which is alarming when compared to the
2.1 per cent growth in the population. Performance of all
the three sub-sectors, viz, agriculture, industry and
services remained subdued during the year. For the
current fiscal, government is targeting 4.4 per cent GDP
growth. Though the new government that came in May
2013 is expected to provide some clarity on the political
front, power shortages and security conditions
continue to be strong impediments to growth.
Pakistan
GDP Growth
Embroiled in an acute energy crisis since the last many
years, Pakistan economy continues to face challenges
on all fronts. The data for the GDP in Pakistan, which is
released on an annual basis, shows that for 2012-13 (July-
June), the GDP grew by merely 3.6 per cent as compared
to the annual plan target of 4.3 per cent. The average
2012-13 2011-12
Growth (y-o-y%) Shares (%) Contribution (%) Growth (y-o-y%)
Agriculture 3.3 21.4 0.7 3.5
Industry 3.5 20.9 0.7 2.7
Services 3.7 57.7 2.1 5.3
Overall GDP 3.6 100 3.6 4.4
Source: State Bank of Pakistan
GDP Growth in Pakistan (July-June)
impact of the depreciation of the Pakistani Rupee. In the
latest budget the government has announced an
increase of 1 percentage point in the General Sales Tax
(GST), from 16 per cent to 17 per cent, and changes in the
tax structure for some goods & services. In addition, the
government is considering a phase-wise upward
adjustment in electricity tariff. Therefore, there is a risk
Inflation
Inflation continues to remain high, with July 2013 CPI
inflation reading coming at a 10-month high of 8.3 per
cent as compared to 9.6 per cent in the same month of
last year mainly due to rise in food prices and adverse
11 AUGUST-SEPTEMBER 2013
economy, the State Bank of Pakistan (SBP) chose to cut
its policy rate by 50 bps, to 9 per cent in its policy review
held on June 24th, 2013, thus giving more weight to the
declining growth prospects.
that average inflation for the current fiscal could exceed
the announced target of 8 per cent for the year.
Notwithstanding, the rising inflationary pressures in the
Fiscal Deficit
Another significant challenge facing the economy is the
rising fiscal deficit. The centre fiscal deficit for 2012-13 is
estimated to be 8.8 per cent (of GDP), which is nearly
twice the initial target of 4.7 per cent. The source of
deviation is structural and well known - low tax
revenues due to absence of meaningful tax reforms and
continuation of untargeted subsidies without
comprehensively addressing the energy sector
problems. The high inefficiency of the public sector
enterprises (PSEs) is worth highlighting in this context.
For the current year, the federal government has
announced a provisional fiscal deficit estimate of 6.3 per
cent.
12.3
8.3
14
12
10
8
6
4
May
-12
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
Jul-1
3
CPI Inflation in Pakistan (y-o-y%)
Source: State Bank of Pakistan
12ECONOMY MATTERS
1980s 1990s 2000s FY11 FY12 FY13 E
7.0 6.8
4.7
6.6
8.5 8.8
Fiscal Deficit (as a % of GDP) in Pakistan
Source: State Bank of PakistanNote: E- Estimated
Trade
On the external front, the exports from Pakistan during
2012-13 stood at US$24.5 billion, marginally higher than
US$23.6 billion recorded in 2011-12. Energy shortages
and slow economic growth in developed world
economies were the major reasons behind the relatively
slow expansion in exports. Almost all the exports
earnings originated from textile manufactures, as the
country's exports are concentrated in a few items like
cotton & cotton manufactures, leather, rice and few
others. Imports in to the country were recorded at
US$44.9 billion during 2012-13. The trade deficit, hence,
during 2012-13 amounted to US$20.4 billion as against
the US$21.3 billion deficit recorded during the same
period of last year.
On the exchange rate front, the Pakistani Rupee
continues to be battered against the US$. The Rupee
dropped to a fresh all-time low of 103.47 per US dollar on
August 21, 2013, a depreciation of over 9 per cent on an
annual basis. The widening current account deficit,
slipped to 1.6 per cent in 2012-13 as compared to 3.0 per
cent in the previous year. The services sector in 2012-13,
however, expanded by 6.0 per cent, much higher than
4.5 per cent last year. Nepal's economy has been
embroiled in a major political crisis, with the elections
now being postponed to November 2013. The country
has been without a parliament for more than a year
now, after major political parties missed yet another
deadline to write a constitution and reach a consensus
on the structure of the government. The political
paralysis has deeply affected the economy. The strong
factor for Nepal's economy has been the remittances
sent by its residents staying outside; which constitutes
roughly 22 per cent of the country's gross domestic
product.
Nepal
GDP Growth
According to the preliminary estimates of the Central
Bureau of Statistics (CBS), the Real GDP is estimated to
have grown by 3.6 per cent in 2012-13 compared, lower
than 4.5 per cent in the previous year. The deceleration
in growth was underpinned by subdued performance by
the agriculture and industrial sector. Agriculture grew by
a tepid 1.3 per cent mainly due to unfavourable
monsoons which led to decrease in the produce of major
crops. Due to various structural bottlenecks, including
energy shortage, industrial labour relation and delay in
adopting a full-fledged budget, industrial growth
(y-o-y%) 2011-12 2012-13 (P)
Agriculture 4.9 1.2
Industry 3.0 1.6
Services 4.5 6.0
Overall GDP 4.5 3.6
Source: Nepal Rastra BankNote: P- Provisional
GDP Growth in Nepal (fiscal year starting mid-July)
In conclusion, from the analysis of the major South Asian
economies, it emerges that they too are facing
headwinds emanating from the tough global
macroeconomic scenario. Out of the four major
economies of South Asia, Pakistan appears to be in the
most precarious state, troubled by deteriorating law
and order, energy deficiencies, high inflation and fiscal
deficit, and dip in the external aid. The currencies of all
the four economies have witnessed sharp depreciation
in the last few months, in line with the evolving global
developments. Going forward, the growth outlook in
these economies will be contingent upon the pace of
recovery of the advanced economies and their internal
domestic resilience.
Inflation
Annual average inflation based on consumer price index
was estimated at 9.9 per cent in 2012-13, compared to 8.3
per cent in the previous year. Additional pressure on
inflation has emerged as a result of a number of factors
such as decline in food production due to unfavorable
weather, weak supply situation, energy crisis,
devaluation of Nepalese currency, increase in the price
of petroleum products and Indian inflation. The
monetary policy formulated by the Central Bank of
Nepal for the current fiscal, adopted an accommodative
policy stance to facilitate higher economic growth of 5.5
per cent during the year by making adequate provisions
of credit along with containing inflation at 8 per cent.
excessive government borrowing from State Bank,
absence of foreign inflows, increasing oil imports, lack of
foreign investment and repayments to the International
Monetary Fund are the prominent reasons behind the
constant depreciation of Pakistani Rupee.
13 AUGUST-SEPTEMBER 2013
economy, the State Bank of Pakistan (SBP) chose to cut
its policy rate by 50 bps, to 9 per cent in its policy review
held on June 24th, 2013, thus giving more weight to the
declining growth prospects.
that average inflation for the current fiscal could exceed
the announced target of 8 per cent for the year.
Notwithstanding, the rising inflationary pressures in the
Fiscal Deficit
Another significant challenge facing the economy is the
rising fiscal deficit. The centre fiscal deficit for 2012-13 is
estimated to be 8.8 per cent (of GDP), which is nearly
twice the initial target of 4.7 per cent. The source of
deviation is structural and well known - low tax
revenues due to absence of meaningful tax reforms and
continuation of untargeted subsidies without
comprehensively addressing the energy sector
problems. The high inefficiency of the public sector
enterprises (PSEs) is worth highlighting in this context.
For the current year, the federal government has
announced a provisional fiscal deficit estimate of 6.3 per
cent.
12.3
8.3
14
12
10
8
6
4
May
-12
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
Jul-1
3
CPI Inflation in Pakistan (y-o-y%)
Source: State Bank of Pakistan
12ECONOMY MATTERS
1980s 1990s 2000s FY11 FY12 FY13 E
7.0 6.8
4.7
6.6
8.5 8.8
Fiscal Deficit (as a % of GDP) in Pakistan
Source: State Bank of PakistanNote: E- Estimated
Trade
On the external front, the exports from Pakistan during
2012-13 stood at US$24.5 billion, marginally higher than
US$23.6 billion recorded in 2011-12. Energy shortages
and slow economic growth in developed world
economies were the major reasons behind the relatively
slow expansion in exports. Almost all the exports
earnings originated from textile manufactures, as the
country's exports are concentrated in a few items like
cotton & cotton manufactures, leather, rice and few
others. Imports in to the country were recorded at
US$44.9 billion during 2012-13. The trade deficit, hence,
during 2012-13 amounted to US$20.4 billion as against
the US$21.3 billion deficit recorded during the same
period of last year.
On the exchange rate front, the Pakistani Rupee
continues to be battered against the US$. The Rupee
dropped to a fresh all-time low of 103.47 per US dollar on
August 21, 2013, a depreciation of over 9 per cent on an
annual basis. The widening current account deficit,
slipped to 1.6 per cent in 2012-13 as compared to 3.0 per
cent in the previous year. The services sector in 2012-13,
however, expanded by 6.0 per cent, much higher than
4.5 per cent last year. Nepal's economy has been
embroiled in a major political crisis, with the elections
now being postponed to November 2013. The country
has been without a parliament for more than a year
now, after major political parties missed yet another
deadline to write a constitution and reach a consensus
on the structure of the government. The political
paralysis has deeply affected the economy. The strong
factor for Nepal's economy has been the remittances
sent by its residents staying outside; which constitutes
roughly 22 per cent of the country's gross domestic
product.
Nepal
GDP Growth
According to the preliminary estimates of the Central
Bureau of Statistics (CBS), the Real GDP is estimated to
have grown by 3.6 per cent in 2012-13 compared, lower
than 4.5 per cent in the previous year. The deceleration
in growth was underpinned by subdued performance by
the agriculture and industrial sector. Agriculture grew by
a tepid 1.3 per cent mainly due to unfavourable
monsoons which led to decrease in the produce of major
crops. Due to various structural bottlenecks, including
energy shortage, industrial labour relation and delay in
adopting a full-fledged budget, industrial growth
(y-o-y%) 2011-12 2012-13 (P)
Agriculture 4.9 1.2
Industry 3.0 1.6
Services 4.5 6.0
Overall GDP 4.5 3.6
Source: Nepal Rastra BankNote: P- Provisional
GDP Growth in Nepal (fiscal year starting mid-July)
In conclusion, from the analysis of the major South Asian
economies, it emerges that they too are facing
headwinds emanating from the tough global
macroeconomic scenario. Out of the four major
economies of South Asia, Pakistan appears to be in the
most precarious state, troubled by deteriorating law
and order, energy deficiencies, high inflation and fiscal
deficit, and dip in the external aid. The currencies of all
the four economies have witnessed sharp depreciation
in the last few months, in line with the evolving global
developments. Going forward, the growth outlook in
these economies will be contingent upon the pace of
recovery of the advanced economies and their internal
domestic resilience.
Inflation
Annual average inflation based on consumer price index
was estimated at 9.9 per cent in 2012-13, compared to 8.3
per cent in the previous year. Additional pressure on
inflation has emerged as a result of a number of factors
such as decline in food production due to unfavorable
weather, weak supply situation, energy crisis,
devaluation of Nepalese currency, increase in the price
of petroleum products and Indian inflation. The
monetary policy formulated by the Central Bank of
Nepal for the current fiscal, adopted an accommodative
policy stance to facilitate higher economic growth of 5.5
per cent during the year by making adequate provisions
of credit along with containing inflation at 8 per cent.
excessive government borrowing from State Bank,
absence of foreign inflows, increasing oil imports, lack of
foreign investment and repayments to the International
Monetary Fund are the prominent reasons behind the
constant depreciation of Pakistani Rupee.
13 AUGUST-SEPTEMBER 2013
14ECONOMY MATTERS
Other Major Global Developments during the Month
1. US GDP in the second quarter of 2013 was revised upwards to 2.5 per cent on an annualised basis as compared
to initially estimated 1.7 per cent. Expansion in the second quarter - faster than the annualized growth rate in
the first quarter of 1.1 per cent - was driven by gains in consumer spending, exports, private inventory
investment, non-residential fixed investment and residential fixed investment.
2. In US, non-farm payrolls (NFP) increased by 169K in August 2013, lower than market expectations of an
increase of 180K. Meanwhile, total job addition for July was revised lower from 162K to 104K, while that for
June was revised from 188K to 172K.
3. Real GDP in Euro Area posted a growth of 0.3 per cent on q-o-q basis in the second quarter of 2013, marking its
first expansion since third quarter of 2011. In y-o-y terms though, GDP contracted 0.5 per cent, slower than a
contraction of 1.0 per cent in the previous quarter.
4. Real GDP in UK posted a growth of 0.7 per cent on q-o-q basis - revised up from previously estimated 0.6 per
cent - in second quarter of 2013, as against a growth of 0.3 per cent in the previous quarter. In y-o-y terms also,
GDP increased 1.5 per cent last quarter, marking the highest growth since first quarter of 2011.
5. Headline inflation softened in UK for the second consecutive month to 2.7 per cent in August 2013, as against
2.8 per cent in the previous month. Core inflation, on the other hand, was unchanged at 2.0 per cent last
month.The deceleration in inflation was primarily due to lower contribution by 'transport' and 'clothing &
footwear' sectors, while a rise in 'furniture & household services' partially offset the deceleration.
6. The Bank of England (BoE) kept its policy rate unchanged at 0.5 per cent and the quantum of Asset Purchase thFacility (APF) was also retained at GBP 375 billion in its monetary policy meeting held on 5 September 2013.
7. Government's Purchasing Managers Index (PMI) in China increased to 51.0 in August 2013, up by 0.7
percentage point month-on-month, and positioned above the threshold for 11 consecutive months.
DOMESTIC TRENDS
GDP Slows Down to 4-Year Low
unexpected, as the monthly index of industrial
production (IIP) numbers had pre-empted this
weakness by posting a contraction to the tune of 1.1 per
cent in the first quarter.
The full year growth in the last fiscal was at a decade low
of 5 per cent. At the beginning of this fiscal it seemed as
though the economy had bottomed out and that there
would be some recovery during the course of this year.
However, the first quarter print has effectively dashed
any such hopes and it does not seem as though the
growth cycle has seen the trough yet as the next quarter
is likely to be on a weaker footing too.
GDP growth dropped to a four-year low of 4.4
per cent in the first quarter of the current fiscal as
compared to 4.8 per cent in the quarter before. This is
the lowest quarterly growth rate since March 2009,
when the global financial crisis was at its peak. The
downslide was driven by a weak industrial performance,
which slipped to multi-year lows. This was however not
5.4 5.24.7 4.8
4.4
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
Growth in GDP at Factor cost (y-o-y%)
Source: CSO
15 AUGUST-SEPTEMBER 2013
14ECONOMY MATTERS
Other Major Global Developments during the Month
1. US GDP in the second quarter of 2013 was revised upwards to 2.5 per cent on an annualised basis as compared
to initially estimated 1.7 per cent. Expansion in the second quarter - faster than the annualized growth rate in
the first quarter of 1.1 per cent - was driven by gains in consumer spending, exports, private inventory
investment, non-residential fixed investment and residential fixed investment.
2. In US, non-farm payrolls (NFP) increased by 169K in August 2013, lower than market expectations of an
increase of 180K. Meanwhile, total job addition for July was revised lower from 162K to 104K, while that for
June was revised from 188K to 172K.
3. Real GDP in Euro Area posted a growth of 0.3 per cent on q-o-q basis in the second quarter of 2013, marking its
first expansion since third quarter of 2011. In y-o-y terms though, GDP contracted 0.5 per cent, slower than a
contraction of 1.0 per cent in the previous quarter.
4. Real GDP in UK posted a growth of 0.7 per cent on q-o-q basis - revised up from previously estimated 0.6 per
cent - in second quarter of 2013, as against a growth of 0.3 per cent in the previous quarter. In y-o-y terms also,
GDP increased 1.5 per cent last quarter, marking the highest growth since first quarter of 2011.
5. Headline inflation softened in UK for the second consecutive month to 2.7 per cent in August 2013, as against
2.8 per cent in the previous month. Core inflation, on the other hand, was unchanged at 2.0 per cent last
month.The deceleration in inflation was primarily due to lower contribution by 'transport' and 'clothing &
footwear' sectors, while a rise in 'furniture & household services' partially offset the deceleration.
6. The Bank of England (BoE) kept its policy rate unchanged at 0.5 per cent and the quantum of Asset Purchase thFacility (APF) was also retained at GBP 375 billion in its monetary policy meeting held on 5 September 2013.
7. Government's Purchasing Managers Index (PMI) in China increased to 51.0 in August 2013, up by 0.7
percentage point month-on-month, and positioned above the threshold for 11 consecutive months.
DOMESTIC TRENDS
GDP Slows Down to 4-Year Low
unexpected, as the monthly index of industrial
production (IIP) numbers had pre-empted this
weakness by posting a contraction to the tune of 1.1 per
cent in the first quarter.
The full year growth in the last fiscal was at a decade low
of 5 per cent. At the beginning of this fiscal it seemed as
though the economy had bottomed out and that there
would be some recovery during the course of this year.
However, the first quarter print has effectively dashed
any such hopes and it does not seem as though the
growth cycle has seen the trough yet as the next quarter
is likely to be on a weaker footing too.
GDP growth dropped to a four-year low of 4.4
per cent in the first quarter of the current fiscal as
compared to 4.8 per cent in the quarter before. This is
the lowest quarterly growth rate since March 2009,
when the global financial crisis was at its peak. The
downslide was driven by a weak industrial performance,
which slipped to multi-year lows. This was however not
5.4 5.24.7 4.8
4.4
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
Growth in GDP at Factor cost (y-o-y%)
Source: CSO
15 AUGUST-SEPTEMBER 2013
providing the biggest boost to expenditure GDP was
government spending, which came in at 10.5 per cent.
But as mentioned earlier, this trend might not be
sustained in the future. Exports and imports were fairly
muted and clocked -1.2 per cent and 0.7 per cent
respectively. It seems as though the government's
export promotion measures will take some more time
to pan out.
From the demand-side, the situation remains weak and
GDP notched 2.4 per cent in the April-June 2013 quarter
as compared to 3.0 per cent in the previous quarter. The
primary source of concern was the sharp slowdown in
consumption growth, which came in at a dismal 1.6 per
cent, which is the lowest print on record for this GDP
series. In corroboration of the fact that the investment
cycle in the economy is faltering, gross fixed capital
formation contracted by 1.2 per cent. The component
16ECONOMY MATTERS
lows in March 2009. This is particularly worrying as it is a
proxy of consumption expenditure and contributes
more than 25 per cent to overall GDP. In contrast,
community, social & personal spending which is
regarded as a proxy for government spending grew at
its highest pace since the September 2009 quarter.
However, it might be difficult to sustain this high
government spending as slowing growth is having an
adverse impact on tax revenues and the depreciating
rupee is raising the subsidy burden of the government.
In the first quarter alone, the actual fiscal deficit was
almost half of the budgeted deficit for the entire fiscal
year. For the remaining quarters, it looks increasingly
likely that the government will have to cut back
expenditure sharply from budgeted levels to maintain
its fiscal deficit target (4.8 per cent of GDP).
The area under cotton, another important kharif crop,
has surged by 7.3 per cent to 108.5 lakh heactares (lh),
and this bodes well for the textile industry. In 2012-13,
domestic cotton output had declined four per cent to 34
million bales owing to a drought in the main cotton
producing states of Gujarat and Maharashtra. This had
also impacted cotton exports last year. Further, the
coverage of coarse cereals went up by 20.1 per cent to
163.1 lh. This has positive implications for the domestic
poultry industry.
Kharif crop output touched an all-time high of 131.3
million tonnes in 2011-12. But kharif production had
fallen in 2012-13 because of the drought in Karnataka,
Maharashtra, Gujarat and Rajasthan. Timely sowing this
year will ensure crops get adequate time to mature. The
higher kharif output this year is expected to cool food
inflation as well.
From the supply-side, agriculture growth came in at a
one-year high of 2.7 per cent in the first-quarter of the
current fiscal as compared to 1.4 per cent in the previous
quarter. The performance of the sector is expected to
improve further in the coming quarters aided by a good
monsoon this fiscal and expectation of record-high food
grain production this year. In fact agriculture sector's
performance is expected to be key contributor to overall
growth this year. In contrast, industrial sector growth
slumped to a low of 0.2 per cent, the lowest point
second only to contraction in March 2009. Amongst its
sub-sectors, manufacturing sector contracted by 1.2 per
cent, while mining & quarrying continued to remain in
the red territory in the reporting quarter.
Any meaningful revival cannot afford to by-pass the
crucial manufacturing sector, given its importance in
employment creation; hence bold steps by the
policymakers to revive the sector's fortunes are the
need of the hour. Growth in the labour intensive sector
of construction was a mere 2.8 per cent in the June
quarter. Second quarter is usually a seasonally weak
quarter for construction and the trend is likely to
continue. The sector is possibly reflecting the sharp cut
in government's plan expenditure towards the end of
last year and the near halting of private investment
projects.
Services sector grew at the same clip as last fiscal, at 6.6
per cent and has been almost flat for 3 consecutive
quarters now. However, the dynamics within the
services component has changed significantly for the
worse. The trade, hotels, transport and communication
sector came in at a low of 3.9 per cent next only to its
(y-o-y%) 2QFY13 Q3FY13 Q4FY13 Q1FY14
GDP at factor cost 4.4
Agriculture 2.7
Industry 0.2
Services 6.6
-2.8
-1.2
2.8
3.7
3.9
8.9
9.4
5.2 4.7 4.8
1.7 1.8 1.4
1.3 2.5 2.7
7.6 6.7 6.6
Mining & quarrying 1.7 -0.7 -3.1
Manufacturing 0.1 2.5 2.6
Construction 3.1 2.9 4.4
Electricity, gas & water supply 3.2 4.5 2.8
Trade, hotels, transport & communication 6.8 6.4 6.2
Financing, insurance, real estate & business services 8.3 7.8 9.1
Community, social & personal services 8.4 5.6 4.0
Source: CSO
GDP Break-Up from Supply-Side
Source: CSO
GDP Break-Up from Demand-Side
OutlookCII is disappointed with the dismal performance of the first quarter GDP data which showed further deceleration in
the economic growth. In particular, the near stagnation in the manufacturing sector is worrying at a time when
policy makers are keen to raise the share of this sector in the economy. In view of the downside risks to growth, we
have now revised our GDP growth forecast downward to a range of 5.3-5.8 per cent for the current fiscal. In order to
lift the economy out of the current quagmire, that all policy levers should be used to drive a revival in the economy.
Project clearances should be hastened, implementation of the manufacturing policy should begin by identifying
specific zones where industry can invest and interest rates should be reduced.
improvement in IIP growth was not entirely unexpected
as core sector (which constitutes close to 38 per cent of
the total index) had grown at 3.1 per cent during the
month. The positive sequential momentum was evident
from the 3.8 per cent growth in the seasonally-adjusted
month-on-month (SA m-o-m) series in July 2013.
However, on a cumulative basis, for the first four
months of the fiscal, IIP contracted by 0.2 per cent.
In an encouraging sign, index of industrial production
grew by 2.6 per cent in July 2013 after remaining in
negative territory for two consecutive months. The
turnaround was mainly driven by a positive trend in the
manufacturing growth rate. The print for June has also
been revised upward to -1.8 per cent from -2.2 per cent
earlier. However, it should be noted that the
Industrial Growth Picks Up in July 2013
Jul-12
Sep-1
2
Nov-
12
Jan-1
3
Mar-
13
May-
13
Jul-13
-0.1 2.6
10
5
0
-5
y-o-y% SA m-o-m%
IIP Growth Rebounds in July 2013
Source: CSO
(y-o-y%) 2QFY13 Q3FY13 Q4FY13 Q1FY14
GDP at market prices 2.4
1.6
10.5
-1.2
-1.2
0.7
2.5 4.1 3.0
Private Consumption 3.5 4.2 3.8
Govt. Consumption 6.9 2.2 0.6
Fixed Investment 1.1 4.5 3.4
Exports 5.0 -3.5 -0.6
Imports 9.5 4.2 3.3
17 AUGUST-SEPTEMBER 2013
providing the biggest boost to expenditure GDP was
government spending, which came in at 10.5 per cent.
But as mentioned earlier, this trend might not be
sustained in the future. Exports and imports were fairly
muted and clocked -1.2 per cent and 0.7 per cent
respectively. It seems as though the government's
export promotion measures will take some more time
to pan out.
From the demand-side, the situation remains weak and
GDP notched 2.4 per cent in the April-June 2013 quarter
as compared to 3.0 per cent in the previous quarter. The
primary source of concern was the sharp slowdown in
consumption growth, which came in at a dismal 1.6 per
cent, which is the lowest print on record for this GDP
series. In corroboration of the fact that the investment
cycle in the economy is faltering, gross fixed capital
formation contracted by 1.2 per cent. The component
16ECONOMY MATTERS
lows in March 2009. This is particularly worrying as it is a
proxy of consumption expenditure and contributes
more than 25 per cent to overall GDP. In contrast,
community, social & personal spending which is
regarded as a proxy for government spending grew at
its highest pace since the September 2009 quarter.
However, it might be difficult to sustain this high
government spending as slowing growth is having an
adverse impact on tax revenues and the depreciating
rupee is raising the subsidy burden of the government.
In the first quarter alone, the actual fiscal deficit was
almost half of the budgeted deficit for the entire fiscal
year. For the remaining quarters, it looks increasingly
likely that the government will have to cut back
expenditure sharply from budgeted levels to maintain
its fiscal deficit target (4.8 per cent of GDP).
The area under cotton, another important kharif crop,
has surged by 7.3 per cent to 108.5 lakh heactares (lh),
and this bodes well for the textile industry. In 2012-13,
domestic cotton output had declined four per cent to 34
million bales owing to a drought in the main cotton
producing states of Gujarat and Maharashtra. This had
also impacted cotton exports last year. Further, the
coverage of coarse cereals went up by 20.1 per cent to
163.1 lh. This has positive implications for the domestic
poultry industry.
Kharif crop output touched an all-time high of 131.3
million tonnes in 2011-12. But kharif production had
fallen in 2012-13 because of the drought in Karnataka,
Maharashtra, Gujarat and Rajasthan. Timely sowing this
year will ensure crops get adequate time to mature. The
higher kharif output this year is expected to cool food
inflation as well.
From the supply-side, agriculture growth came in at a
one-year high of 2.7 per cent in the first-quarter of the
current fiscal as compared to 1.4 per cent in the previous
quarter. The performance of the sector is expected to
improve further in the coming quarters aided by a good
monsoon this fiscal and expectation of record-high food
grain production this year. In fact agriculture sector's
performance is expected to be key contributor to overall
growth this year. In contrast, industrial sector growth
slumped to a low of 0.2 per cent, the lowest point
second only to contraction in March 2009. Amongst its
sub-sectors, manufacturing sector contracted by 1.2 per
cent, while mining & quarrying continued to remain in
the red territory in the reporting quarter.
Any meaningful revival cannot afford to by-pass the
crucial manufacturing sector, given its importance in
employment creation; hence bold steps by the
policymakers to revive the sector's fortunes are the
need of the hour. Growth in the labour intensive sector
of construction was a mere 2.8 per cent in the June
quarter. Second quarter is usually a seasonally weak
quarter for construction and the trend is likely to
continue. The sector is possibly reflecting the sharp cut
in government's plan expenditure towards the end of
last year and the near halting of private investment
projects.
Services sector grew at the same clip as last fiscal, at 6.6
per cent and has been almost flat for 3 consecutive
quarters now. However, the dynamics within the
services component has changed significantly for the
worse. The trade, hotels, transport and communication
sector came in at a low of 3.9 per cent next only to its
(y-o-y%) 2QFY13 Q3FY13 Q4FY13 Q1FY14
GDP at factor cost 4.4
Agriculture 2.7
Industry 0.2
Services 6.6
-2.8
-1.2
2.8
3.7
3.9
8.9
9.4
5.2 4.7 4.8
1.7 1.8 1.4
1.3 2.5 2.7
7.6 6.7 6.6
Mining & quarrying 1.7 -0.7 -3.1
Manufacturing 0.1 2.5 2.6
Construction 3.1 2.9 4.4
Electricity, gas & water supply 3.2 4.5 2.8
Trade, hotels, transport & communication 6.8 6.4 6.2
Financing, insurance, real estate & business services 8.3 7.8 9.1
Community, social & personal services 8.4 5.6 4.0
Source: CSO
GDP Break-Up from Supply-Side
Source: CSO
GDP Break-Up from Demand-Side
OutlookCII is disappointed with the dismal performance of the first quarter GDP data which showed further deceleration in
the economic growth. In particular, the near stagnation in the manufacturing sector is worrying at a time when
policy makers are keen to raise the share of this sector in the economy. In view of the downside risks to growth, we
have now revised our GDP growth forecast downward to a range of 5.3-5.8 per cent for the current fiscal. In order to
lift the economy out of the current quagmire, that all policy levers should be used to drive a revival in the economy.
Project clearances should be hastened, implementation of the manufacturing policy should begin by identifying
specific zones where industry can invest and interest rates should be reduced.
improvement in IIP growth was not entirely unexpected
as core sector (which constitutes close to 38 per cent of
the total index) had grown at 3.1 per cent during the
month. The positive sequential momentum was evident
from the 3.8 per cent growth in the seasonally-adjusted
month-on-month (SA m-o-m) series in July 2013.
However, on a cumulative basis, for the first four
months of the fiscal, IIP contracted by 0.2 per cent.
In an encouraging sign, index of industrial production
grew by 2.6 per cent in July 2013 after remaining in
negative territory for two consecutive months. The
turnaround was mainly driven by a positive trend in the
manufacturing growth rate. The print for June has also
been revised upward to -1.8 per cent from -2.2 per cent
earlier. However, it should be noted that the
Industrial Growth Picks Up in July 2013
Jul-12
Sep-1
2
Nov-
12
Jan-1
3
Mar-
13
May-
13
Jul-13
-0.1 2.6
10
5
0
-5
y-o-y% SA m-o-m%
IIP Growth Rebounds in July 2013
Source: CSO
(y-o-y%) 2QFY13 Q3FY13 Q4FY13 Q1FY14
GDP at market prices 2.4
1.6
10.5
-1.2
-1.2
0.7
2.5 4.1 3.0
Private Consumption 3.5 4.2 3.8
Govt. Consumption 6.9 2.2 0.6
Fixed Investment 1.1 4.5 3.4
Exports 5.0 -3.5 -0.6
Imports 9.5 4.2 3.3
17 AUGUST-SEPTEMBER 2013
18ECONOMY MATTERS
the previous month. The sector recorded positive
growth after remaining in the negative territory for
three consecutive months. Consumer goods continue to
remain in negative territory for the third consecutive
month, primarily on account of consumer durables.
Overall consumer goods sector showed de-growth to
the tune of 0.9 per cent in July 2013 as compared to -1.9
per cent in the previous month. The continued poor
performance by consumer durables in the last eight
months, wherein it remained in the negative territory, is
a matter of concern as it is widely regarded as a proxy for
consumption growth. Non-durables on the other hand
continued to show a robust performance, growing by
6.8 per cent in July 2013 as compared to 5.7 per cent in
the previous month.
On the sectoral front, manufacturing grew at a relatively
robust 3 per cent, as compared to two previous
consecutive months of negative growth. As per the
industry classification, of the 22 industries, 11 showed
positive growth, mainly led by electrical machinery,
wearing apparel, luggage & footwear and tanning of
leather products. In contrast, regulatory and
environmental issues continued to plague the mining
sector, as it contracted by 2.3 per cent in July 2013.
Electricity sector, meanwhile, showed a strong rebound
of 5.2 per cent after the surprise stagnant growth last
month.
On the use based front, the most significant surprise was
on the capital goods front, which grew by a considerable
15.6 per cent in July 2013 as compared to -5.8 per cent in
Apr-July
Weight July-12 May-13 Jun-13 July-13 FY13 FY14
General 1000.0 -0.1 -2.8 -1.8 -0.2 -0.2
Manufacturing 755.3 0.0 -3.6 -1.7 -0.6 -0.2
Mining 141.6 -3.5 -5.9 -4.3 -2.0 -4.0
Electricity 103.2 2.8 6.2 0.0 5.5 3.9
Use-Based
Basic 456.8 1.0 -0.9 -1.5 2.7 0.2
Capital 88.3 -5.8 -2.6 -5.8 -16.8 1.8
Intermediates 156.9 0.1 1.0 1.3 0.6 1.8
Consumer Goods 298.1 0.7 -7.1 -1.9 3.1 -2.0
-Durables 84.6 0.8 -18.4 -10.4 6.1 -12.0
-Non durables 213.5 0.6 3.0 5.7 0.6 6.8
2.6
3.0
-2.3
5.2
1.7
15.6
2.4
-0.9
-9.3
6.8
Source: CSO
Sectoral Growth (y-o-y, %)
OutlookCII is happy to note the return of industrial growth to the positive terrain in July 2013, which marks a break from the
past two months of negative growth. This is welcome, though it is too early to presume that a recovery is underway.
However, manufacturing sector has been performing below its potential for quite some time now, hence well-
thought-out short and medium term action plans are needed to accelerate the growth momentum of the sector.
WPI Inflation Accelerates on Higher Food Prices
High fruits & vegetable prices coupled with high inland-
fish prices drove the primary food inflation sharply up to
18.2 per cent as compared to 11.9 per cent in the last
month. Consequently, primary inflation increased to 11.7
per cent in the reporting month as compared to 9 per
cent in the month before despite sharp deceleration in
its non-food and mineral sub components. Fuel inflation
on the other hand remained stable at 11.3 per cent in
August 2013. Encouragingly, non-food manufacturing
inflation, which is widely regarded as the proxy for
demand-side pressures in the economy came down to
1.9 per cent from 2.4 per cent in the month before. Total
manufacturing inflation too stood at 1.9 per cent during
the month.
Headline WPI-based inflation climbed to 6-month high of
6.1 per cent in August 2013 as compared to 5.8 per cent in
the previous month mainly on account of spiralling food
prices. Total food inflation (primary + manufacturing)
accelerated sharply to 12.4 per cent in August 2013 as
compared to 9.5 per cent in the month before. The
average inflation for the first five months of the fiscal
stands at 5.3 per cent as compared to 7.6 per cent in the
same period last year. The sequential momentum of
seasonally-adjusted month-on-month series also
showed pick up. Combined CPI inflation for the month of
August 2013 stood at 9.52 per cent as compared to 9.64
per cent in the previous month.
General 100.0 8.0 5.2 5.8 7.6 5.3
Primary 20.1 11.2 8.8 9.0 10.3 8.1
- Food 14.3 9.3 10.3 11.9 10.4 11.0
-Non-Food 4.3 14.1 7.7 5.5 8.8 5.3
-Minerals 1.5 18.1 1.3 -2.4 12.3 -4.1
Fuel 14.9 8.7 7.5 11.3 10.5 9.2
-Petrol 1.1 9.5 -6.9 1.2 10.5 -0.9
-High Speed 4.7 0.5 23.4 26.3 5.0 23.8Diesel
Manufacturing 65.0 6.4 2.9 2.8 5.6 2.9
-Food 10.0 9.3 6.4 5.0 6.9 5.4
-Non-food 55.0 5.8 2.2 2.4 5.4 2.4
April-Aug
Weight Aug-12 Jun-13 July-13 Aug-13 FY13 FY14
6.1
11.7
18.2
1.1
-7.2
11.3
3.2
27.6
1.9
1.7
1.9
Source: Office of Economic Advisor
Sectoral Components of Inflation
Outlook While on the one hand, high food prices drove inflation higher during the month, non-food manufacturing (core)
inflation subsided further. This has complicated the task of the Central Bank further as there is clear evidence of
abatement of demand-side pressures, which makes the case for a rate cut to spur growth, but on the other hand,
supply-side issues have driven total inflation higher. We would urge the RBI to cut rates as it is well known that
monetary policy is not an effective tool for curbing inflation caused due to supply-side bottlenecks.
19 AUGUST-SEPTEMBER 2013
18ECONOMY MATTERS
the previous month. The sector recorded positive
growth after remaining in the negative territory for
three consecutive months. Consumer goods continue to
remain in negative territory for the third consecutive
month, primarily on account of consumer durables.
Overall consumer goods sector showed de-growth to
the tune of 0.9 per cent in July 2013 as compared to -1.9
per cent in the previous month. The continued poor
performance by consumer durables in the last eight
months, wherein it remained in the negative territory, is
a matter of concern as it is widely regarded as a proxy for
consumption growth. Non-durables on the other hand
continued to show a robust performance, growing by
6.8 per cent in July 2013 as compared to 5.7 per cent in
the previous month.
On the sectoral front, manufacturing grew at a relatively
robust 3 per cent, as compared to two previous
consecutive months of negative growth. As per the
industry classification, of the 22 industries, 11 showed
positive growth, mainly led by electrical machinery,
wearing apparel, luggage & footwear and tanning of
leather products. In contrast, regulatory and
environmental issues continued to plague the mining
sector, as it contracted by 2.3 per cent in July 2013.
Electricity sector, meanwhile, showed a strong rebound
of 5.2 per cent after the surprise stagnant growth last
month.
On the use based front, the most significant surprise was
on the capital goods front, which grew by a considerable
15.6 per cent in July 2013 as compared to -5.8 per cent in
Apr-July
Weight July-12 May-13 Jun-13 July-13 FY13 FY14
General 1000.0 -0.1 -2.8 -1.8 -0.2 -0.2
Manufacturing 755.3 0.0 -3.6 -1.7 -0.6 -0.2
Mining 141.6 -3.5 -5.9 -4.3 -2.0 -4.0
Electricity 103.2 2.8 6.2 0.0 5.5 3.9
Use-Based
Basic 456.8 1.0 -0.9 -1.5 2.7 0.2
Capital 88.3 -5.8 -2.6 -5.8 -16.8 1.8
Intermediates 156.9 0.1 1.0 1.3 0.6 1.8
Consumer Goods 298.1 0.7 -7.1 -1.9 3.1 -2.0
-Durables 84.6 0.8 -18.4 -10.4 6.1 -12.0
-Non durables 213.5 0.6 3.0 5.7 0.6 6.8
2.6
3.0
-2.3
5.2
1.7
15.6
2.4
-0.9
-9.3
6.8
Source: CSO
Sectoral Growth (y-o-y, %)
OutlookCII is happy to note the return of industrial growth to the positive terrain in July 2013, which marks a break from the
past two months of negative growth. This is welcome, though it is too early to presume that a recovery is underway.
However, manufacturing sector has been performing below its potential for quite some time now, hence well-
thought-out short and medium term action plans are needed to accelerate the growth momentum of the sector.
WPI Inflation Accelerates on Higher Food Prices
High fruits & vegetable prices coupled with high inland-
fish prices drove the primary food inflation sharply up to
18.2 per cent as compared to 11.9 per cent in the last
month. Consequently, primary inflation increased to 11.7
per cent in the reporting month as compared to 9 per
cent in the month before despite sharp deceleration in
its non-food and mineral sub components. Fuel inflation
on the other hand remained stable at 11.3 per cent in
August 2013. Encouragingly, non-food manufacturing
inflation, which is widely regarded as the proxy for
demand-side pressures in the economy came down to
1.9 per cent from 2.4 per cent in the month before. Total
manufacturing inflation too stood at 1.9 per cent during
the month.
Headline WPI-based inflation climbed to 6-month high of
6.1 per cent in August 2013 as compared to 5.8 per cent in
the previous month mainly on account of spiralling food
prices. Total food inflation (primary + manufacturing)
accelerated sharply to 12.4 per cent in August 2013 as
compared to 9.5 per cent in the month before. The
average inflation for the first five months of the fiscal
stands at 5.3 per cent as compared to 7.6 per cent in the
same period last year. The sequential momentum of
seasonally-adjusted month-on-month series also
showed pick up. Combined CPI inflation for the month of
August 2013 stood at 9.52 per cent as compared to 9.64
per cent in the previous month.
General 100.0 8.0 5.2 5.8 7.6 5.3
Primary 20.1 11.2 8.8 9.0 10.3 8.1
- Food 14.3 9.3 10.3 11.9 10.4 11.0
-Non-Food 4.3 14.1 7.7 5.5 8.8 5.3
-Minerals 1.5 18.1 1.3 -2.4 12.3 -4.1
Fuel 14.9 8.7 7.5 11.3 10.5 9.2
-Petrol 1.1 9.5 -6.9 1.2 10.5 -0.9
-High Speed 4.7 0.5 23.4 26.3 5.0 23.8Diesel
Manufacturing 65.0 6.4 2.9 2.8 5.6 2.9
-Food 10.0 9.3 6.4 5.0 6.9 5.4
-Non-food 55.0 5.8 2.2 2.4 5.4 2.4
April-Aug
Weight Aug-12 Jun-13 July-13 Aug-13 FY13 FY14
6.1
11.7
18.2
1.1
-7.2
11.3
3.2
27.6
1.9
1.7
1.9
Source: Office of Economic Advisor
Sectoral Components of Inflation
Outlook While on the one hand, high food prices drove inflation higher during the month, non-food manufacturing (core)
inflation subsided further. This has complicated the task of the Central Bank further as there is clear evidence of
abatement of demand-side pressures, which makes the case for a rate cut to spur growth, but on the other hand,
supply-side issues have driven total inflation higher. We would urge the RBI to cut rates as it is well known that
monetary policy is not an effective tool for curbing inflation caused due to supply-side bottlenecks.
19 AUGUST-SEPTEMBER 2013
20ECONOMY MATTERS
Trade Deficit Narrows on Sharp Spurt in Exports Growth
Meanwhile, the cumulative value of exports for the
period April-August FY2014 came in at US$124.4 billion,
higher than US$119.7 billion recorded during same
period last year. Imports contracted by 0.7 per cent in
August 2013, lower than a decline of 6.2 per cent in July
2013, mirroring the continued subdued domestic
demand in the economy, impact of imports getting
costlier in the wake of depreciating rupee against the US
dollar and the curtailed imports of non-productive items
like gold. Imports also contracted in month-over-month
terms, printing US$37.1 billion in August as against
USD$38.1 billion in July.
Exports stabilised further in August 2013, as global
demand improved. Imports declined reflecting the slow
domestic demand scenario, thus resulting in narrowing
of the monthly trade deficit. However, these may be
early days still to pass any judgement on the
sustainability of the exports momentum in the months
to come.
In August 2013, exports were valued at US$26.1 billion,
up a robust 13 per cent as compared with same period
last year. This is the highest monthly increase this fiscal
and augurs well for the future economic prospects.
11.8 13.0
28.8
-0.7
40
30
20
10
0
-10
-20
Jan/
12
Feb
/12
Mar
/12
Apr
/12
May
/12
Jun/
12
Jul/1
2
Aug
/12
Sep
/12
Oct
/12
Nov
/12
Dec
/12
Jan/
13
Feb
/13
Mar
/13
Apr
/13
May
/13
Jun/
13
Jul/1
3
Aug
/13
y-o-y%
Exports Imports
Source: Ministry of Commerce
External Sector Performance
Oil imports were higher by 17.9 per cent on a y-o-y basis.
Non-oil imports declined by 10.4 per cent-standing at
US$21.9 billion during the month.
As exports rose and imports fell during the month, the
trade deficit narrowed to US$10.9 billion from a deficit of
US$12.3 billion in July. On a cumulative basis, trade
deficit came in at US$73.4 billion in April-August FY14,
slightly lower than a deficit of US$74.7 billion during the
same period in FY13.
Within imports, oil and related products accounted for
US$15.1 billion worth of imports in August 2013 as
compared to US$12.7 billion in the previous month. The
higher oil import bill is attributable to the high
international oil prices during the month due the
ongoing geopolitical tensions in Syria. The Indian crude
oil basket price rose to US$110.1/bbl in late August as
compared to US$105/bbl in July and US$101.0/bbl in June.
OutlookGoing ahead, exports are likely to find some support amidst signs of economic recovery in both the US and the Euro
zone. Besides, a weaker Rupee is also likely to aid exports. However, on the negative side, elevated crude oil prices
pose risks to the oil import bill.
v
v
v
v
v
v
Services projected to grow at 6.6 per cent in 2013-14
as against 7.1 per cent in 2012-13.
WPI inflation by end March 2014 will be around 5.5
per cent as against the average of 7.4 per cent in 2012-
13 and 5.7 per cent at end March 2013.
Current Account Deficit projected at US$70 billion
(3.8 per cent of GDP) in 2013-14 against an estimated
US$88.2 billion (4.8 per cent of GDP) in 2012-13.
Net Capital flows projected at US$61.4 billion (3.4 per
cent of GDP) in the current year against an estimated
US$89.4 billion in the last fiscal, the second highest
level to date.
Investment and Savings rate projected at 34.7 per
cent and 31 per cent of GDP respectively in 2013-14.
Some of the measures suggested by the council to
improve economic conditions in the medium to long
term include improving manufacturing capabilities,
lowering current account deficit and encouraging
foreign investment amongst other measures.
In its revised economic forecast for the current fiscal, PM
Economic Advisory Council (PMEAC) lowered its GDP
forecast from 6.4 per cent to 5.3 per cent. Though
growth has been revised downwards, it is still higher
than the 5 per cent growth posted last year. As per the
council, the main reasons for the higher forecast in the
current year is the sharp increase in agriculture output
coupled with expected pick-up in growth of other
sectors also in the second half of the year owing to slew
of policy measures announced in the last couple of
months. Following are the key highlights from the
council's other forecasts:
Agriculture projected to grow at 4.8 per cent in 2013-
14 as against 1.9 per cent in 2012-13 owing to a good
monsoon which had a huge positive impact on
sowing activity.
Industry projected to grow at 2.7 per cent in 2013-14
as against 2.1 per cent in 2012-13. Manufacturing
sector projected to grow at 1.5 per cent in the current
fiscal as against 1 per cent in the last fiscal.
v
v
PMEAC Cuts GDP Forecast to 5.3 per cent
Dr. Raghuram Rajan Takes Over as the New RBI Governorview that it is mainly the supply constraints that have
unleashed the forces of inflation, especially in food. As
the governor has appropriately emphasized on a policy
that will promote inclusive growth and development, it
is even more critical to address the supply bottlenecks
through a well coordinated monetary and fiscal policy.
With a view to encourage investors to take positions
domestically and provide depth and profits to our
economy, CII welcomes the intention of the new RBI
governor to steadily liberalize the domestic market, and
ease the restrictions on investment and positions
taking. This will also help the country by way of boosting
confidence of foreign investors in the Indian economy.
CII is also happy that the new governor will be taking
several steps to help the households, who remain
vulnerable to the vagaries of the market. Among these
important measures, the decision of RBI to issue
Inflation Indexed Savings Certificates linked to the CPI
New Index to retail investors by end-November 2013, is
welcome and is in line with CII recommendations.
CII welcomes the new governor and is confident that he
will take the necessary pro-reform measures in the
months to come in order to re-invigorate growth in the
economy and keep the inflationary expectations low.
Dr. Raghuram Rajan assumed charge as rdthe 23 Governor of the Reserve Bank of
India on September 4, 2013. Prior to this,
he was the Chief Economic Advisor,
Ministry of Finance, Government of
India and the Er ic J . Gleacher
Distinguished Service Professor of Finance at the
University of Chicago's Booth School. Between 2003 and
2006, Dr. Rajan was the Chief Economist and Director of
Research at the International Monetary Fund. The new
governor takes over at a very critical stage for the
economy which saw Rupee touching historic lows in
addition to the perceived fiscal dominance over
monetary policy in recent times. Covering these critical
areas in his maiden speech, Dr. Rajan, expressed
confidence that monetary policy, in coordination with
fiscal policy, will not only be able to address the macro
economic issues facing the country currently but will
also provide platform for sustaining the high growth
with inclusiveness in medium to long term.
Dr. Rajan rightly recognized the need for taming
inflationary expectations by taking measures based on
the understanding of the dynamics of originating
sources like the value of currency, supply-side
constraints and demand pressures. CII has been of the
21 AUGUST-SEPTEMBER 2013
20ECONOMY MATTERS
Trade Deficit Narrows on Sharp Spurt in Exports Growth
Meanwhile, the cumulative value of exports for the
period April-August FY2014 came in at US$124.4 billion,
higher than US$119.7 billion recorded during same
period last year. Imports contracted by 0.7 per cent in
August 2013, lower than a decline of 6.2 per cent in July
2013, mirroring the continued subdued domestic
demand in the economy, impact of imports getting
costlier in the wake of depreciating rupee against the US
dollar and the curtailed imports of non-productive items
like gold. Imports also contracted in month-over-month
terms, printing US$37.1 billion in August as against
USD$38.1 billion in July.
Exports stabilised further in August 2013, as global
demand improved. Imports declined reflecting the slow
domestic demand scenario, thus resulting in narrowing
of the monthly trade deficit. However, these may be
early days still to pass any judgement on the
sustainability of the exports momentum in the months
to come.
In August 2013, exports were valued at US$26.1 billion,
up a robust 13 per cent as compared with same period
last year. This is the highest monthly increase this fiscal
and augurs well for the future economic prospects.
11.8 13.0
28.8
-0.7
40
30
20
10
0
-10
-20
Jan/
12
Feb
/12
Mar
/12
Apr
/12
May
/12
Jun/
12
Jul/1
2
Aug
/12
Sep
/12
Oct
/12
Nov
/12
Dec
/12
Jan/
13
Feb
/13
Mar
/13
Apr
/13
May
/13
Jun/
13
Jul/1
3
Aug
/13
y-o-y%
Exports Imports
Source: Ministry of Commerce
External Sector Performance
Oil imports were higher by 17.9 per cent on a y-o-y basis.
Non-oil imports declined by 10.4 per cent-standing at
US$21.9 billion during the month.
As exports rose and imports fell during the month, the
trade deficit narrowed to US$10.9 billion from a deficit of
US$12.3 billion in July. On a cumulative basis, trade
deficit came in at US$73.4 billion in April-August FY14,
slightly lower than a deficit of US$74.7 billion during the
same period in FY13.
Within imports, oil and related products accounted for
US$15.1 billion worth of imports in August 2013 as
compared to US$12.7 billion in the previous month. The
higher oil import bill is attributable to the high
international oil prices during the month due the
ongoing geopolitical tensions in Syria. The Indian crude
oil basket price rose to US$110.1/bbl in late August as
compared to US$105/bbl in July and US$101.0/bbl in June.
OutlookGoing ahead, exports are likely to find some support amidst signs of economic recovery in both the US and the Euro
zone. Besides, a weaker Rupee is also likely to aid exports. However, on the negative side, elevated crude oil prices
pose risks to the oil import bill.
v
v
v
v
v
v
Services projected to grow at 6.6 per cent in 2013-14
as against 7.1 per cent in 2012-13.
WPI inflation by end March 2014 will be around 5.5
per cent as against the average of 7.4 per cent in 2012-
13 and 5.7 per cent at end March 2013.
Current Account Deficit projected at US$70 billion
(3.8 per cent of GDP) in 2013-14 against an estimated
US$88.2 billion (4.8 per cent of GDP) in 2012-13.
Net Capital flows projected at US$61.4 billion (3.4 per
cent of GDP) in the current year against an estimated
US$89.4 billion in the last fiscal, the second highest
level to date.
Investment and Savings rate projected at 34.7 per
cent and 31 per cent of GDP respectively in 2013-14.
Some of the measures suggested by the council to
improve economic conditions in the medium to long
term include improving manufacturing capabilities,
lowering current account deficit and encouraging
foreign investment amongst other measures.
In its revised economic forecast for the current fiscal, PM
Economic Advisory Council (PMEAC) lowered its GDP
forecast from 6.4 per cent to 5.3 per cent. Though
growth has been revised downwards, it is still higher
than the 5 per cent growth posted last year. As per the
council, the main reasons for the higher forecast in the
current year is the sharp increase in agriculture output
coupled with expected pick-up in growth of other
sectors also in the second half of the year owing to slew
of policy measures announced in the last couple of
months. Following are the key highlights from the
council's other forecasts:
Agriculture projected to grow at 4.8 per cent in 2013-
14 as against 1.9 per cent in 2012-13 owing to a good
monsoon which had a huge positive impact on
sowing activity.
Industry projected to grow at 2.7 per cent in 2013-14
as against 2.1 per cent in 2012-13. Manufacturing
sector projected to grow at 1.5 per cent in the current
fiscal as against 1 per cent in the last fiscal.
v
v
PMEAC Cuts GDP Forecast to 5.3 per cent
Dr. Raghuram Rajan Takes Over as the New RBI Governorview that it is mainly the supply constraints that have
unleashed the forces of inflation, especially in food. As
the governor has appropriately emphasized on a policy
that will promote inclusive growth and development, it
is even more critical to address the supply bottlenecks
through a well coordinated monetary and fiscal policy.
With a view to encourage investors to take positions
domestically and provide depth and profits to our
economy, CII welcomes the intention of the new RBI
governor to steadily liberalize the domestic market, and
ease the restrictions on investment and positions
taking. This will also help the country by way of boosting
confidence of foreign investors in the Indian economy.
CII is also happy that the new governor will be taking
several steps to help the households, who remain
vulnerable to the vagaries of the market. Among these
important measures, the decision of RBI to issue
Inflation Indexed Savings Certificates linked to the CPI
New Index to retail investors by end-November 2013, is
welcome and is in line with CII recommendations.
CII welcomes the new governor and is confident that he
will take the necessary pro-reform measures in the
months to come in order to re-invigorate growth in the
economy and keep the inflationary expectations low.
Dr. Raghuram Rajan assumed charge as rdthe 23 Governor of the Reserve Bank of
India on September 4, 2013. Prior to this,
he was the Chief Economic Advisor,
Ministry of Finance, Government of
India and the Er ic J . Gleacher
Distinguished Service Professor of Finance at the
University of Chicago's Booth School. Between 2003 and
2006, Dr. Rajan was the Chief Economist and Director of
Research at the International Monetary Fund. The new
governor takes over at a very critical stage for the
economy which saw Rupee touching historic lows in
addition to the perceived fiscal dominance over
monetary policy in recent times. Covering these critical
areas in his maiden speech, Dr. Rajan, expressed
confidence that monetary policy, in coordination with
fiscal policy, will not only be able to address the macro
economic issues facing the country currently but will
also provide platform for sustaining the high growth
with inclusiveness in medium to long term.
Dr. Rajan rightly recognized the need for taming
inflationary expectations by taking measures based on
the understanding of the dynamics of originating
sources like the value of currency, supply-side
constraints and demand pressures. CII has been of the
21 AUGUST-SEPTEMBER 2013
The rules have prescribed different margins for services
viz., software development, ITeS, KPO, contract R&D,
etc. A noteworthy aspect is that service providers
bearing insignificant risk are only eligible to opt for the
rules. The factors mentioned for identification of
taxpayers with 'insignificant risk', inter-alia, includes
performance of economically significant functions,
provisions of funds/capital and ownership of intangibles
by foreign principal, etc. Hence, distinction in mark-up
percentage between various services, presumably on
the basis of high-end vs. low-end nature of activities,
could lead to enhancing disputes on characterisation of
taxpayers.
The mark-up percentages prescribed in the rules may
not meet the taxpayers' expectations (based on
industry average margin trends and prevalent
commercial rates) and opting for the prescribed
margins under the rules may overshadow the expected
benefits. Similarly, the safe harbour interest rate for
loans would range from 11 per cent to 13 per cent
(applying the SBI base rate as on 30 June 2013), which
clearly is on a higher side. Also, the margin provided for
auto components industry, which in particular has been
going through a challenging phase, appears high. Since
several rulings of the Income tax Appellate Tribunals
have accepted lower percentage of mark-up or interest
to be at arm's length, the rates specified in the rules may
not find favour with the taxpayers.
Whilst the step by the CBDT is a positive move, it is
expected that the revenue authorities during audits,
APA/MAP negotiations will not consider the safe harbor
margins. An issuance of a binding circular clarifying that
safe harbour rates should be strictly applied only to
taxpayers who opt for the rules and should not be
generically extended to other assessees (who do not
opt for the rules) would provide a sense of relief to
taxpayers. There is no doubt that the release of the long-
awaited Safe Harbour rules is a step in the right direction
and the certainty and administrative convenience
offered by the rules would be an additional incentive
that will increase the attractiveness of India as an
investment jurisdiction.
Manufacture and export of core and non-core auto
components - Cost plus mark-up of 12 per cent and 8.5
per cent respectively; same as the draft rules
Interest on loans sourced in Indian Rupees extended to
Wholly-Owned non-resident subsidiaries (WOS) - State
Bank of India (SBI) base rate plus 150 basis points for
loans up to INR 50 crores and, SBI base rate plus 300
basis points for loans exceeding INR 50 crores i.e. INR
0.5 billion.
Guarantee fee on explicit corporate guarantees on
behalf of WOS - 2 per cent per annum where the amount
guaranteed does not exceed INR 100 crores i.e. INR 1
billion and 1.75 per cent in case the amount guaranteed
exceeds INR 100 crores and the credit rating of the WOS
is of adequate to highest safety as carried out by an
agency registered with the Securities and Exchange
Board of India.
The issuance of detailed Safe Harbour rules is a welcome
measure. The removal of upper threshold limits for
eligibility of opting for safe harbour rules will give an
opportunity to taxpayers at large to opt for the rules. As
regards the period, application of the rules for five years
(instead of 2 years as in the draft rules) is another
positive development. It is expected that the rules
would help overcome immense potential TP litigation
and create an amicable tax environment.
However, the rules in final form also have certain issues
as were in the draft rules. The rules require the taxpayers
opting for Safe Harbour to comply with the detailed
requirements relating to TP documentation. Such
compulsion would defeat the key benefit of reduced
compliance burden. Once a certain mark-up for a
specified service is acceptable to the tax authorities,
maintaining detailed documentation thereafter may, at
best be of academic importance.
The final rules only cover R&D for software
development and generic pharmaceutical drugs, leaving
out other sectors such as R&D for active pharmaceutical
ingredients, chemicals, agriculture, etc. Further, the
rules only cover loans/guarantee provided by taxpayer
to/for WOS and cover only rupee-sourced loans, thus,
having restricted applicability.
22ECONOMY MATTERS
Draft Safe Harbour Rules – Do They Bridge or Widen the Taxpayer-Exchequer Divide?
The Safe Harbour rules (the rules) were released in draft
form by the Central Board of Direct Taxes (the CBDT) on
14 August 2013. After considering comments from
various stakeholders, the final rules have been issued on
18 September 2013. The rules cover the following
categories/sectors of transactions and prescribe the
below mentioned safe harbour margins/ prices:
Software development and IT-enabled services - Cost
plus mark-up of 20 per cent (provided the value of such
transactions does not exceed INR 500 crores i.e. INR 5
billion); cost plus mark-up of 22 per cent mark in other
cases, i.e. above INR 500 crores; the draft rules had
proposed a threshold limit of INR 100 crores, i e
taxpayers having transactions above INR 100 crores
were not eligible for the Safe Harbour
Knowledge Processes Outsourcing (KPO services) -
Cost plus mark-up of 25 per cent; in the draft rules the
same was proposed as 30 per cent with an upper limit
eligibility threshold of INR 100 crores.
Contract Research & Development (R&D) relating to
software development and generic pharmaceutical
drugs - Cost plus mark-up of 30 per cent and 29 per cent
respectively; same as the margins proposed in the draft
rules
Transfer Pricing (TP) has emerged as one of the key
focal points of high-pitched tax litigation in India.
While outsourcing/captive units have experienced
significant TP adjustments to their profit margins, Indian
parent companies have suffered adjustments on their
intra-group financing arrangements.
The Finance (No. 2) Act, 2009 had introduced Safe
Harbour Provisions in order to reduce the uncertainty
faced by the taxpayers in India. The provisions were also
intended to provide clarity and guidance on the quantity
of taxable profits that should be earned in India as per
the arm's length principle. Safe Harbour is a mechanism
under which the tax authorities accept the transfer
prices declared by taxpayers without undertaking
detailed audit, in certain circumstances. Safe harbour
provisions generally intend to confer benefits like
compliance relief, administrative simplicity and certainty
on the taxpayers and tax administrators. While this
helps the tax payers in reducing compliance cost, tax
authorities can focus their limited resources on bigger
and more complex transactions.
T A X E S
TAXATION
This article has been contributed by Tarun Arora, Senior Director, Shuchi Ray, Director, Deloitte Touche Tohmatsu India Pvt. Ltd. and Manmeet Vij,
Senior Manager, Deloitte Haskins & Sells. Views expressed in the article are those of the authors and not necessarily of CII.
23 AUGUST-SEPTEMBER 2013
The rules have prescribed different margins for services
viz., software development, ITeS, KPO, contract R&D,
etc. A noteworthy aspect is that service providers
bearing insignificant risk are only eligible to opt for the
rules. The factors mentioned for identification of
taxpayers with 'insignificant risk', inter-alia, includes
performance of economically significant functions,
provisions of funds/capital and ownership of intangibles
by foreign principal, etc. Hence, distinction in mark-up
percentage between various services, presumably on
the basis of high-end vs. low-end nature of activities,
could lead to enhancing disputes on characterisation of
taxpayers.
The mark-up percentages prescribed in the rules may
not meet the taxpayers' expectations (based on
industry average margin trends and prevalent
commercial rates) and opting for the prescribed
margins under the rules may overshadow the expected
benefits. Similarly, the safe harbour interest rate for
loans would range from 11 per cent to 13 per cent
(applying the SBI base rate as on 30 June 2013), which
clearly is on a higher side. Also, the margin provided for
auto components industry, which in particular has been
going through a challenging phase, appears high. Since
several rulings of the Income tax Appellate Tribunals
have accepted lower percentage of mark-up or interest
to be at arm's length, the rates specified in the rules may
not find favour with the taxpayers.
Whilst the step by the CBDT is a positive move, it is
expected that the revenue authorities during audits,
APA/MAP negotiations will not consider the safe harbor
margins. An issuance of a binding circular clarifying that
safe harbour rates should be strictly applied only to
taxpayers who opt for the rules and should not be
generically extended to other assessees (who do not
opt for the rules) would provide a sense of relief to
taxpayers. There is no doubt that the release of the long-
awaited Safe Harbour rules is a step in the right direction
and the certainty and administrative convenience
offered by the rules would be an additional incentive
that will increase the attractiveness of India as an
investment jurisdiction.
Manufacture and export of core and non-core auto
components - Cost plus mark-up of 12 per cent and 8.5
per cent respectively; same as the draft rules
Interest on loans sourced in Indian Rupees extended to
Wholly-Owned non-resident subsidiaries (WOS) - State
Bank of India (SBI) base rate plus 150 basis points for
loans up to INR 50 crores and, SBI base rate plus 300
basis points for loans exceeding INR 50 crores i.e. INR
0.5 billion.
Guarantee fee on explicit corporate guarantees on
behalf of WOS - 2 per cent per annum where the amount
guaranteed does not exceed INR 100 crores i.e. INR 1
billion and 1.75 per cent in case the amount guaranteed
exceeds INR 100 crores and the credit rating of the WOS
is of adequate to highest safety as carried out by an
agency registered with the Securities and Exchange
Board of India.
The issuance of detailed Safe Harbour rules is a welcome
measure. The removal of upper threshold limits for
eligibility of opting for safe harbour rules will give an
opportunity to taxpayers at large to opt for the rules. As
regards the period, application of the rules for five years
(instead of 2 years as in the draft rules) is another
positive development. It is expected that the rules
would help overcome immense potential TP litigation
and create an amicable tax environment.
However, the rules in final form also have certain issues
as were in the draft rules. The rules require the taxpayers
opting for Safe Harbour to comply with the detailed
requirements relating to TP documentation. Such
compulsion would defeat the key benefit of reduced
compliance burden. Once a certain mark-up for a
specified service is acceptable to the tax authorities,
maintaining detailed documentation thereafter may, at
best be of academic importance.
The final rules only cover R&D for software
development and generic pharmaceutical drugs, leaving
out other sectors such as R&D for active pharmaceutical
ingredients, chemicals, agriculture, etc. Further, the
rules only cover loans/guarantee provided by taxpayer
to/for WOS and cover only rupee-sourced loans, thus,
having restricted applicability.
22ECONOMY MATTERS
Draft Safe Harbour Rules – Do They Bridge or Widen the Taxpayer-Exchequer Divide?
The Safe Harbour rules (the rules) were released in draft
form by the Central Board of Direct Taxes (the CBDT) on
14 August 2013. After considering comments from
various stakeholders, the final rules have been issued on
18 September 2013. The rules cover the following
categories/sectors of transactions and prescribe the
below mentioned safe harbour margins/ prices:
Software development and IT-enabled services - Cost
plus mark-up of 20 per cent (provided the value of such
transactions does not exceed INR 500 crores i.e. INR 5
billion); cost plus mark-up of 22 per cent mark in other
cases, i.e. above INR 500 crores; the draft rules had
proposed a threshold limit of INR 100 crores, i e
taxpayers having transactions above INR 100 crores
were not eligible for the Safe Harbour
Knowledge Processes Outsourcing (KPO services) -
Cost plus mark-up of 25 per cent; in the draft rules the
same was proposed as 30 per cent with an upper limit
eligibility threshold of INR 100 crores.
Contract Research & Development (R&D) relating to
software development and generic pharmaceutical
drugs - Cost plus mark-up of 30 per cent and 29 per cent
respectively; same as the margins proposed in the draft
rules
Transfer Pricing (TP) has emerged as one of the key
focal points of high-pitched tax litigation in India.
While outsourcing/captive units have experienced
significant TP adjustments to their profit margins, Indian
parent companies have suffered adjustments on their
intra-group financing arrangements.
The Finance (No. 2) Act, 2009 had introduced Safe
Harbour Provisions in order to reduce the uncertainty
faced by the taxpayers in India. The provisions were also
intended to provide clarity and guidance on the quantity
of taxable profits that should be earned in India as per
the arm's length principle. Safe Harbour is a mechanism
under which the tax authorities accept the transfer
prices declared by taxpayers without undertaking
detailed audit, in certain circumstances. Safe harbour
provisions generally intend to confer benefits like
compliance relief, administrative simplicity and certainty
on the taxpayers and tax administrators. While this
helps the tax payers in reducing compliance cost, tax
authorities can focus their limited resources on bigger
and more complex transactions.
T A X E S
TAXATION
This article has been contributed by Tarun Arora, Senior Director, Shuchi Ray, Director, Deloitte Touche Tohmatsu India Pvt. Ltd. and Manmeet Vij,
Senior Manager, Deloitte Haskins & Sells. Views expressed in the article are those of the authors and not necessarily of CII.
23 AUGUST-SEPTEMBER 2013
24ECONOMY MATTERS
CORPORATE PERFORMANCE
Industry Under Pressure as Growth Dips Further
The analysis factors in the financial performance during
the first quarter of 2013-14 of a balanced panel of 1664
manufacturing companies (excluding oil and gas
companies) and 1037 service firms extracted from the thAce Equity database as on 29 August 2013.
Growth in net sales on an aggregate basis stood at a
measly 4.8 per cent at the end of first quarter of the
current year, as compared to a healthy 12.2 per cent in
the same quarter a year ago. The growth of net sales for
manufacturing firms moderated sharply to 0.2 per cent
during the quarter as compared to 12.7 per cent in the
same quarter a year ago. Firms in the services sector, on
the other hand, fared somewhat better, with their net
sales growing at a much higher pace of 12.6 per cent as
compared to 11.4 per cent during the comparable time-
period of last year. The low net sales of firms are
reflective of the lack of ample demand in the economy, a
scenario that has been persistent for quite some time
now.
The deepening economic slowdown, rising interest
rates, tight liquidity, declining investments and
depreciating rupee are slowly taking a toll on India Inc's
financial performance with majority of companies
witnessing a decline in net profits for the past few
quarters. The corporate results at the end of first quarter
(April-June) of the current fiscal painted a rather gloomy
picture as the financial performance of Indian
companies deteriorated. A scanty 4.4 per cent GDP
growth in the reporting quarter worsened the cause,
even as the RBI tightened its purse strings in a bid to
stem the downfall in Rupee. While the growth in
expenditure costs stood somewhat curbed, fading
growth of net sales and contraction in PAT added to the
prevalent gloom.
the corresponding period of last year. Interestingly,
growth in interest costs decelerated sharply to 10.0 per
cent in the reporting quarter as against 29.0 per cent in
the same quarter of 2012-13. In a reflection of slowing
production, growth in raw materials cost contracted by
5.7 per cent in the reporting quarter as compared to a
positive growth of 10.5 per cent seen in the same quarter
of last year.
Total expenditure, on an aggregate basis, decelerated to
3.5 per cent in the reporting quarter as against a growth
of 16.5 per cent in the corresponding period of 2012-13.
This came as a breather and fairly cushioned the severe
impact of lower net sales growth during the quarter.
Amongst the various components of total expenditure,
the growth in wages & salaries stood at 14.7 per cent in
the first quarter as compared to 15.1 per cent recorded in
Growth in Net Sales (y-o-y%)
Aggregate Manufacturing Services
FY13Q1 12.2 12.7 11.4
FY13Q2 9.9 8.8 11.8
FY13Q3 7.0 6.5 7.9
FY13Q4 4.5 2.1 9.1
FY14Q1 4.8 0.2 12.6
Source: Ace Equity database & CII calculations
Growth in Net Sales (y-o-y%)
Growth in Expenditure (y-o-y%)
10.5
-5.7
15.114.7
29.0
10.0
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
Services & Raw Materials Wages & Salaries Interest Payments
Source: Ace Equity database & CII calculations
corresponding quarter of last year.
On an aggregate basis, PAT declined by 5.9 per cent in
the April-June 2013 quarter as compared to a growth of
3.2 per cent in the same quarter of last fiscal. Growth in
operating profits (profits earned from a firm's core
business operations excluding investments and the
effects of depreciation, interest and taxes) on an
aggregate basis saw moderation to 5.1 per cent in the
April-June, 2013 quarter as compared to a growth 11.3
per cent in the first quarter of last year. PAT growth
decelerated at a much faster rate than growth in
operating profits due mainly to high interest rates
prevailing in the economy.
While moderation in growth of expenditure has to some
extent mitigated the impact of the current bout of
economic crisis characterized by falling growth in net
sales, the reduction was not large enough to provide
cushion to the bottom-line of the firms. Consequently,
there was de-growth witnessed in profit-after-tax (PAT)
on an aggregate basis in the first quarter of 2013-14. The
sharpest contraction in PAT growth was seen in
manufacturing sector firms, which saw its PAT declining
by 12.6 per cent in the first quarter of the current fiscal as
compared to a contraction of 14.5 per cent in the same
quarter of last year. For the services sector, PAT growth
moderated to 0.7 per cent in the reporting quarter as
against a growth of 29.3 per cent seen in the
25 AUGUST-SEPTEMBER 2013
24ECONOMY MATTERS
CORPORATE PERFORMANCE
Industry Under Pressure as Growth Dips Further
The analysis factors in the financial performance during
the first quarter of 2013-14 of a balanced panel of 1664
manufacturing companies (excluding oil and gas
companies) and 1037 service firms extracted from the thAce Equity database as on 29 August 2013.
Growth in net sales on an aggregate basis stood at a
measly 4.8 per cent at the end of first quarter of the
current year, as compared to a healthy 12.2 per cent in
the same quarter a year ago. The growth of net sales for
manufacturing firms moderated sharply to 0.2 per cent
during the quarter as compared to 12.7 per cent in the
same quarter a year ago. Firms in the services sector, on
the other hand, fared somewhat better, with their net
sales growing at a much higher pace of 12.6 per cent as
compared to 11.4 per cent during the comparable time-
period of last year. The low net sales of firms are
reflective of the lack of ample demand in the economy, a
scenario that has been persistent for quite some time
now.
The deepening economic slowdown, rising interest
rates, tight liquidity, declining investments and
depreciating rupee are slowly taking a toll on India Inc's
financial performance with majority of companies
witnessing a decline in net profits for the past few
quarters. The corporate results at the end of first quarter
(April-June) of the current fiscal painted a rather gloomy
picture as the financial performance of Indian
companies deteriorated. A scanty 4.4 per cent GDP
growth in the reporting quarter worsened the cause,
even as the RBI tightened its purse strings in a bid to
stem the downfall in Rupee. While the growth in
expenditure costs stood somewhat curbed, fading
growth of net sales and contraction in PAT added to the
prevalent gloom.
the corresponding period of last year. Interestingly,
growth in interest costs decelerated sharply to 10.0 per
cent in the reporting quarter as against 29.0 per cent in
the same quarter of 2012-13. In a reflection of slowing
production, growth in raw materials cost contracted by
5.7 per cent in the reporting quarter as compared to a
positive growth of 10.5 per cent seen in the same quarter
of last year.
Total expenditure, on an aggregate basis, decelerated to
3.5 per cent in the reporting quarter as against a growth
of 16.5 per cent in the corresponding period of 2012-13.
This came as a breather and fairly cushioned the severe
impact of lower net sales growth during the quarter.
Amongst the various components of total expenditure,
the growth in wages & salaries stood at 14.7 per cent in
the first quarter as compared to 15.1 per cent recorded in
Growth in Net Sales (y-o-y%)
Aggregate Manufacturing Services
FY13Q1 12.2 12.7 11.4
FY13Q2 9.9 8.8 11.8
FY13Q3 7.0 6.5 7.9
FY13Q4 4.5 2.1 9.1
FY14Q1 4.8 0.2 12.6
Source: Ace Equity database & CII calculations
Growth in Net Sales (y-o-y%)
Growth in Expenditure (y-o-y%)
10.5
-5.7
15.114.7
29.0
10.0
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
Services & Raw Materials Wages & Salaries Interest Payments
Source: Ace Equity database & CII calculations
corresponding quarter of last year.
On an aggregate basis, PAT declined by 5.9 per cent in
the April-June 2013 quarter as compared to a growth of
3.2 per cent in the same quarter of last fiscal. Growth in
operating profits (profits earned from a firm's core
business operations excluding investments and the
effects of depreciation, interest and taxes) on an
aggregate basis saw moderation to 5.1 per cent in the
April-June, 2013 quarter as compared to a growth 11.3
per cent in the first quarter of last year. PAT growth
decelerated at a much faster rate than growth in
operating profits due mainly to high interest rates
prevailing in the economy.
While moderation in growth of expenditure has to some
extent mitigated the impact of the current bout of
economic crisis characterized by falling growth in net
sales, the reduction was not large enough to provide
cushion to the bottom-line of the firms. Consequently,
there was de-growth witnessed in profit-after-tax (PAT)
on an aggregate basis in the first quarter of 2013-14. The
sharpest contraction in PAT growth was seen in
manufacturing sector firms, which saw its PAT declining
by 12.6 per cent in the first quarter of the current fiscal as
compared to a contraction of 14.5 per cent in the same
quarter of last year. For the services sector, PAT growth
moderated to 0.7 per cent in the reporting quarter as
against a growth of 29.3 per cent seen in the
25 AUGUST-SEPTEMBER 2013
26ECONOMY MATTERS
Growth in PAT (y-o-y%)
Manufacturing Services Aggregate Manufacturing Services Aggregate
FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1
Growth in PBDIT (y-o-y%)
Source: Ace Equity database & CII calculations
FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1
3.2
20.1
9.9
-5.9
40
20
0
-20-12.6
11.3 13.3
6.0
0.15.1
and thus also on aggregate basis in the reporting
quarter. The fall in margins mirrored the sharp decline in
profitability that the firms have had to confront in the
reporting quarter.
Our analysis shows that both net margin (ratio of PAT
and net sales) and gross margins (ratio of PBDIT and net
sales) fell across manufacturing as well as service firms,
Gross Margin Net Margin
Source: Ace Equity database & CII calculations
Manufacturing Services Aggregate
20.3 20.619.4 19.9
20.4
FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1
Manufacturing Services Aggregate
FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1
8.4 9.17.9 8.1 7.6
some moderation in expenditure costs. Net sales and
PAT growth, however, continue to remain a sore point,
indicating that there is still a long way to go before
revival in aggregate demand gains traction.
Overall, the analysis of the results obtained so far reveals
that there seems be no news to cheer for the India Inc
amidst this weak macroeconomic scenario, except for
Capital Goods
Production Trend in Capital Goods
Sector
Analyzing the yearly performance of the capital goods
segment, below table shows a sharp moderation in
growth of the sector since 2007-08 (July to June). Owing
to the global financial crisis, the growth in capital goods
sector plunged from 48 per cent in 2007-08 to 4 per cent
in 2008-09. With the quick turnaround of the economy,
growth prospects for the sector improved in the next
two years. However, the sector went in for a sharp
contraction in 2011-12 (-9 per cent) and 2012-13 (-2.2 per
cent). The negative growth recorded by the sector over
the last two years is a serious concern and its revival is
crucial for the economy to resume its high growth
trajectory.
It is interesting to note that all sub-sectors of the capital
goods segment have witnessed rapid deterioration in
growth performance over the last two years. Machinery
& equipment, which is an important indicator of the
health of the other sectors of economy, has recorded
contraction over two consecutive years. Given that it
plays a crucial role in up scaling the pace of the economy,
directly and indirectly, every effort should be made to
reverse the downtrend in this sector.
Introduction
apital goods sector is of strategic importance for
the Indian economy. Being large and diverse in
nature and playing a critical role in production process,
the sector has high multiplier effect on the overall
growth of the economy. The sector not only determines
the pace of economic expansion but also gets
influenced by the same. As the demand for the sector's
output is derived from the demand for other sectors of
the economy, its own performance provides an
important clue to the future. By analyzing the recent
trends in production and imports of lead components of
capital goods sector, one can, therefore, explain the
growth prospects of related sectors of the economy and
also comment on the need for policy intervention, if any.
While the performance of capital goods sector is
generally considered as a barometer of the growth
prospects of the economy going forward, it also helps to
assess the need for encouraging efficiency and
production of the sector to encourage demand from its
end users.
C
SECTOR IN FOCUS
27 AUGUST-SEPTEMBER 2013
30
15
0
-15
40
20
0
20
10
0
26ECONOMY MATTERS
Growth in PAT (y-o-y%)
Manufacturing Services Aggregate Manufacturing Services Aggregate
FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1
Growth in PBDIT (y-o-y%)
Source: Ace Equity database & CII calculations
FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1
3.2
20.1
9.9
-5.9
40
20
0
-20-12.6
11.3 13.3
6.0
0.15.1
and thus also on aggregate basis in the reporting
quarter. The fall in margins mirrored the sharp decline in
profitability that the firms have had to confront in the
reporting quarter.
Our analysis shows that both net margin (ratio of PAT
and net sales) and gross margins (ratio of PBDIT and net
sales) fell across manufacturing as well as service firms,
Gross Margin Net Margin
Source: Ace Equity database & CII calculations
Manufacturing Services Aggregate
20.3 20.619.4 19.9
20.4
FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1
Manufacturing Services Aggregate
FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1
8.4 9.17.9 8.1 7.6
some moderation in expenditure costs. Net sales and
PAT growth, however, continue to remain a sore point,
indicating that there is still a long way to go before
revival in aggregate demand gains traction.
Overall, the analysis of the results obtained so far reveals
that there seems be no news to cheer for the India Inc
amidst this weak macroeconomic scenario, except for
Capital Goods
Production Trend in Capital Goods
Sector
Analyzing the yearly performance of the capital goods
segment, below table shows a sharp moderation in
growth of the sector since 2007-08 (July to June). Owing
to the global financial crisis, the growth in capital goods
sector plunged from 48 per cent in 2007-08 to 4 per cent
in 2008-09. With the quick turnaround of the economy,
growth prospects for the sector improved in the next
two years. However, the sector went in for a sharp
contraction in 2011-12 (-9 per cent) and 2012-13 (-2.2 per
cent). The negative growth recorded by the sector over
the last two years is a serious concern and its revival is
crucial for the economy to resume its high growth
trajectory.
It is interesting to note that all sub-sectors of the capital
goods segment have witnessed rapid deterioration in
growth performance over the last two years. Machinery
& equipment, which is an important indicator of the
health of the other sectors of economy, has recorded
contraction over two consecutive years. Given that it
plays a crucial role in up scaling the pace of the economy,
directly and indirectly, every effort should be made to
reverse the downtrend in this sector.
Introduction
apital goods sector is of strategic importance for
the Indian economy. Being large and diverse in
nature and playing a critical role in production process,
the sector has high multiplier effect on the overall
growth of the economy. The sector not only determines
the pace of economic expansion but also gets
influenced by the same. As the demand for the sector's
output is derived from the demand for other sectors of
the economy, its own performance provides an
important clue to the future. By analyzing the recent
trends in production and imports of lead components of
capital goods sector, one can, therefore, explain the
growth prospects of related sectors of the economy and
also comment on the need for policy intervention, if any.
While the performance of capital goods sector is
generally considered as a barometer of the growth
prospects of the economy going forward, it also helps to
assess the need for encouraging efficiency and
production of the sector to encourage demand from its
end users.
C
SECTOR IN FOCUS
27 AUGUST-SEPTEMBER 2013
30
15
0
-15
40
20
0
20
10
0
28ECONOMY MATTERS
automobile sector in slow track. While efforts can be
made to revive the automobile production by direct
policy intervention, it would also be helpful to enhance
the cost competitiveness of "other transport
equipment" to attract additional demand from its end
users.
Similarly, sharp growth deterioration witnessed by
'other transport equipment' signifies the downtrend in
the automobile sector, another engine of growth for the
economy. Slowing income growth, rising fuel prices,
uncertainty relating to growth recovery and high credit
cost have been among the major factors keeping the
Year Machinery & Office, accounting & Electrical machinery Radio, TV and Other Capital
equipment n.e.c. computing machinery & apparatus n.e.c. communication transport Goods
equipment & equipment (Aggregate)
apparatus
2007-08 19.6 6.3 183.8 87.5 -0.7 48.1
2008-09 -8.4 -11.3 33.0 15.7 4.9 4.1
2009-10 25.0 5.2 -0.6 18.4 31.4 10.4
2010-11 20.3 9.3 11.2 7.4 22.0 15.0
2011-12 -1.9 -3.8 -30.3 10.5 9.0 -9.1
2012-13 -7.4 -17.2 20.3 -2.9 1.1 -2.2
Average 7.9 -1.9 36.2 22.8 11.3 11.1
Source: CSO
Average Annual Growth in IIP of Capital Goods Sector (July to June, y-o-y%)
m a n u f a c t u r i n g s e c t o r p l o t t e d a g a i n s t t h e
corresponding IIP for capital goods since June 2007.
Production growth in capital goods sector, which
constitutes less than 9 per cent share in overall weights
in IIP, has moved in tandem with the overall growth of
manufacturing index. Being the derived nature of
demand for capital goods, its growth trend, in general,
has preceded that of manufactured goods. In below
figure, it can be seen that production growth of capital
goods sector assumed a sharp downward spiral during
June 2007 to Nov 2009, and the growth in
manufacturing sector followed suit with a time lag. After
this, the capital goods sector exhibited a vigorous
recovery till June 2011, albeit with a large volatility,
coinciding with high growth performance of the
manufacturing sector. Capital goods sector since July
2011 has largely stayed in negative zones, bringing to halt
the expansion in manufacturing output.
Sharp moderation in growth of 'Radio, TV and
Communication equipment & apparatus' over the last
two years is again the result of economic slowdown led
by fall in demand. The fate of the sector largely depends
upon the measures that could help in revival of demand
for durables. The negative growth of 'office, accounting
& commuting machinery' sector over the last two years
is indicative of slowing business activities, and could
mirror declining job prospects as well.
Interrelationship between Capital
Goods and Manufacturing Sectors
The production performance of capital goods sector is
directly linked to the growth performance of the
manufacturing sector. Close relationship between the
two sectors of the economy is discernible from the
monthly Index of Industrial Production (IIP) for
especially true for the period of 2000s, when
manufacturing sector recorded robust performance,
supported by the elevated growth of capital imports.
This is where there is a scope for domestic capital goods
sector to fill the gap.
Showing large dependence on imports of capital goods,
the growth in manufacturing output has also moved
closely with the growth in imports of capital goods (see
below figure). Whenever there was high growth
registered by the manufacturing sector, it was backed
by large imports of capital goods and vice versa. This is
Monthly Growth in Capital Goods and Manufacturing IIP since June 2007
70
56
42
28
14
0
-14
-28
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun-
08
Sep
-08
Dec
-08
Mar
-09
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
Manufacturing Capital goodsSource: CSO
50
40
30
20
10
0
-10
-20
-30
-40
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
Manf. Output Imports of Capital Goods
Yearly Growth in Capital Goods Imports and Manufacturing Output since 1989-90 (%)
Source: CSO
billion in 2001 to US$79 billion in 2012. Even as the
domestic production of capital goods sector has
witnessed contraction in the last two years, imports of
capital goods managed to maintain growth momentum
and grew by an average of 12 per cent per year in the last
two years. Relatively low protection against imports and
growing pressure on the part of exporters to reduce
prices in the wake of global slowdown could be among
Trend in Imports of Capital Goods
In keeping with the pace of overall economic growth
and lack of development of domestic capital goods
sector, the imports of capital goods have witnessed
sharp increase over the last decade or so, supported by a
relatively low rate of customs duty in the range of 0.0-7.5
per cent. The imports jumped up by 10 times from US$7.9
29 AUGUST-SEPTEMBER 2013
28ECONOMY MATTERS
automobile sector in slow track. While efforts can be
made to revive the automobile production by direct
policy intervention, it would also be helpful to enhance
the cost competitiveness of "other transport
equipment" to attract additional demand from its end
users.
Similarly, sharp growth deterioration witnessed by
'other transport equipment' signifies the downtrend in
the automobile sector, another engine of growth for the
economy. Slowing income growth, rising fuel prices,
uncertainty relating to growth recovery and high credit
cost have been among the major factors keeping the
Year Machinery & Office, accounting & Electrical machinery Radio, TV and Other Capital
equipment n.e.c. computing machinery & apparatus n.e.c. communication transport Goods
equipment & equipment (Aggregate)
apparatus
2007-08 19.6 6.3 183.8 87.5 -0.7 48.1
2008-09 -8.4 -11.3 33.0 15.7 4.9 4.1
2009-10 25.0 5.2 -0.6 18.4 31.4 10.4
2010-11 20.3 9.3 11.2 7.4 22.0 15.0
2011-12 -1.9 -3.8 -30.3 10.5 9.0 -9.1
2012-13 -7.4 -17.2 20.3 -2.9 1.1 -2.2
Average 7.9 -1.9 36.2 22.8 11.3 11.1
Source: CSO
Average Annual Growth in IIP of Capital Goods Sector (July to June, y-o-y%)
m a n u f a c t u r i n g s e c t o r p l o t t e d a g a i n s t t h e
corresponding IIP for capital goods since June 2007.
Production growth in capital goods sector, which
constitutes less than 9 per cent share in overall weights
in IIP, has moved in tandem with the overall growth of
manufacturing index. Being the derived nature of
demand for capital goods, its growth trend, in general,
has preceded that of manufactured goods. In below
figure, it can be seen that production growth of capital
goods sector assumed a sharp downward spiral during
June 2007 to Nov 2009, and the growth in
manufacturing sector followed suit with a time lag. After
this, the capital goods sector exhibited a vigorous
recovery till June 2011, albeit with a large volatility,
coinciding with high growth performance of the
manufacturing sector. Capital goods sector since July
2011 has largely stayed in negative zones, bringing to halt
the expansion in manufacturing output.
Sharp moderation in growth of 'Radio, TV and
Communication equipment & apparatus' over the last
two years is again the result of economic slowdown led
by fall in demand. The fate of the sector largely depends
upon the measures that could help in revival of demand
for durables. The negative growth of 'office, accounting
& commuting machinery' sector over the last two years
is indicative of slowing business activities, and could
mirror declining job prospects as well.
Interrelationship between Capital
Goods and Manufacturing Sectors
The production performance of capital goods sector is
directly linked to the growth performance of the
manufacturing sector. Close relationship between the
two sectors of the economy is discernible from the
monthly Index of Industrial Production (IIP) for
especially true for the period of 2000s, when
manufacturing sector recorded robust performance,
supported by the elevated growth of capital imports.
This is where there is a scope for domestic capital goods
sector to fill the gap.
Showing large dependence on imports of capital goods,
the growth in manufacturing output has also moved
closely with the growth in imports of capital goods (see
below figure). Whenever there was high growth
registered by the manufacturing sector, it was backed
by large imports of capital goods and vice versa. This is
Monthly Growth in Capital Goods and Manufacturing IIP since June 2007
70
56
42
28
14
0
-14
-28
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun-
08
Sep
-08
Dec
-08
Mar
-09
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
Manufacturing Capital goodsSource: CSO
50
40
30
20
10
0
-10
-20
-30
-40
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
Manf. Output Imports of Capital Goods
Yearly Growth in Capital Goods Imports and Manufacturing Output since 1989-90 (%)
Source: CSO
billion in 2001 to US$79 billion in 2012. Even as the
domestic production of capital goods sector has
witnessed contraction in the last two years, imports of
capital goods managed to maintain growth momentum
and grew by an average of 12 per cent per year in the last
two years. Relatively low protection against imports and
growing pressure on the part of exporters to reduce
prices in the wake of global slowdown could be among
Trend in Imports of Capital Goods
In keeping with the pace of overall economic growth
and lack of development of domestic capital goods
sector, the imports of capital goods have witnessed
sharp increase over the last decade or so, supported by a
relatively low rate of customs duty in the range of 0.0-7.5
per cent. The imports jumped up by 10 times from US$7.9
29 AUGUST-SEPTEMBER 2013
30ECONOMY MATTERS
value of rupee against US dollar plunges to record new
lows on regular basis. Further, the import duty could be
raised to the WTO base rate to regulate unnecessary
imports like has been done for gold.
the major reasons that allowed imports to maintain its
momentum. In the wake of widening current account
deficit, when the government and RBI are making all out
efforts to curb avoidable imports, huge import of capital
goods is causing a drain on foreign reserves, even as the
these two items together constitute less than 22 per
cent of total imports, overall expansion in imports of
capital goods continue to remain healthy. Three largest
sub-sectors of capital goods imports - electrical
equipment, telecommunication equipments, and
industrial equipments - constituting half of the total
imports of capital goods in 2012 - saw imports growing in
double-digits, which could mean good prospects of
growth in end users of these sectors.
Interestingly, majority of the capital goods sub-sectors
have shown consistent and healthy growth in imports in
recent years; even over the last two years when
economic growth in the country moderated
substantially (see below table). The only sectors
exhibiting poor growth performance in imports since
2007 are Railway/Tramway equipment (-5.7 per cent),
and industry special machine (3.8 per cent). Given that
India's sources of capital goods imports are
concentrated in just a few countries. This is evident from
the fact that just the top ten sources contributed nearly
80 per cent of capital goods imports in 2012-13; of these,
the top 5 countries - China, Germany, Japan, US, and
Korea Rep. - accounted for 63 per cent of the total
imports of capital goods. China is by far the largest
exporter of capital goods to India.
India is heavily dependent upon the imports of capital
goods for meeting the domestic demand. This is evident
from the fact that imports constituted 29 per cent of
domestic demand for capital goods in 2010-11. Earth
moving equipment, machine tools, metallurgical
machinery and textiles machinery are sub-sectors that
are particularly weak in self reliance with 48 to 87 per
cent demand being met by imports.
7.9 10.314.7
19.8
28.2
40.8
47.9
64.658.1
63.8
76.7 79.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Trend in Imports of Capital Goods (US$, billion)
Source: UN Comtrade
Year Power Industry Metal Industrial Office/data Telecom Electrical Road Railway/ Total generating special working equipment proc ms etc equipment vehicles tramway Capitalequipment machine machinery machines equipment equipment Goods
2007 3.1 6.9 2.5 6.8 4.2 9.9 6.5 1.9 6.1 47.9
2008 4.0 8.3 3.5 9.2 4.5 7.3 7.6 3.2 17.2 64.6
2009 3.9 6.8 2.5 7.7 4.3 11.6 9.9 2.7 8.7 58.1
2010 4.9 7.1 2.8 9.5 5.3 13.6 9.4 4.0 7.2 63.8
2011 6.1 8.9 3.6 12.2 6.8 14.6 14.1 5.0 5.2 76.7
2012 6.0 8.5 4.0 12.2 7.6 13.5 13.7 5.0 8.6 79.0
Avg 14.8 3.8 7.8 12.1 13.4 11.5 17.2 20.6 -5.7 9.3AnnualGrowth(%)
Source: UN Comtrade
Trend in Imports of Major Components of Capital Goods Sector (US$, billion)
Electrical equipment
17.3%
Telecomms etc equipment
17.1%
Industrial equipment nes
15.4%
Railway/tramway equipmnt 10.8%
Industry special
machine10.8%
Office/dat proc machines
9.6%
Metalworking machinery 5.1%
Road vehicles6.3%
Power generating equipmt 7.5%
Sectoral Share of Capital Goods Imports (2012)
Source: UN Comtrade
China31%
Germany9%
Japan 8%United States8%
Korea, Rep. 7%
Singapore 4%
Italy 3%
Malaysia 3%
Thailand 3%
France 3%
Others21%
Composition of Imports of Capital Goods from Top-10 Countries (2012)
Source: UN Comtrade
31 AUGUST-SEPTEMBER 2013
30ECONOMY MATTERS
value of rupee against US dollar plunges to record new
lows on regular basis. Further, the import duty could be
raised to the WTO base rate to regulate unnecessary
imports like has been done for gold.
the major reasons that allowed imports to maintain its
momentum. In the wake of widening current account
deficit, when the government and RBI are making all out
efforts to curb avoidable imports, huge import of capital
goods is causing a drain on foreign reserves, even as the
these two items together constitute less than 22 per
cent of total imports, overall expansion in imports of
capital goods continue to remain healthy. Three largest
sub-sectors of capital goods imports - electrical
equipment, telecommunication equipments, and
industrial equipments - constituting half of the total
imports of capital goods in 2012 - saw imports growing in
double-digits, which could mean good prospects of
growth in end users of these sectors.
Interestingly, majority of the capital goods sub-sectors
have shown consistent and healthy growth in imports in
recent years; even over the last two years when
economic growth in the country moderated
substantially (see below table). The only sectors
exhibiting poor growth performance in imports since
2007 are Railway/Tramway equipment (-5.7 per cent),
and industry special machine (3.8 per cent). Given that
India's sources of capital goods imports are
concentrated in just a few countries. This is evident from
the fact that just the top ten sources contributed nearly
80 per cent of capital goods imports in 2012-13; of these,
the top 5 countries - China, Germany, Japan, US, and
Korea Rep. - accounted for 63 per cent of the total
imports of capital goods. China is by far the largest
exporter of capital goods to India.
India is heavily dependent upon the imports of capital
goods for meeting the domestic demand. This is evident
from the fact that imports constituted 29 per cent of
domestic demand for capital goods in 2010-11. Earth
moving equipment, machine tools, metallurgical
machinery and textiles machinery are sub-sectors that
are particularly weak in self reliance with 48 to 87 per
cent demand being met by imports.
7.9 10.314.7
19.8
28.2
40.8
47.9
64.658.1
63.8
76.7 79.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Trend in Imports of Capital Goods (US$, billion)
Source: UN Comtrade
Year Power Industry Metal Industrial Office/data Telecom Electrical Road Railway/ Total generating special working equipment proc ms etc equipment vehicles tramway Capitalequipment machine machinery machines equipment equipment Goods
2007 3.1 6.9 2.5 6.8 4.2 9.9 6.5 1.9 6.1 47.9
2008 4.0 8.3 3.5 9.2 4.5 7.3 7.6 3.2 17.2 64.6
2009 3.9 6.8 2.5 7.7 4.3 11.6 9.9 2.7 8.7 58.1
2010 4.9 7.1 2.8 9.5 5.3 13.6 9.4 4.0 7.2 63.8
2011 6.1 8.9 3.6 12.2 6.8 14.6 14.1 5.0 5.2 76.7
2012 6.0 8.5 4.0 12.2 7.6 13.5 13.7 5.0 8.6 79.0
Avg 14.8 3.8 7.8 12.1 13.4 11.5 17.2 20.6 -5.7 9.3AnnualGrowth(%)
Source: UN Comtrade
Trend in Imports of Major Components of Capital Goods Sector (US$, billion)
Electrical equipment
17.3%
Telecomms etc equipment
17.1%
Industrial equipment nes
15.4%
Railway/tramway equipmnt 10.8%
Industry special
machine10.8%
Office/dat proc machines
9.6%
Metalworking machinery 5.1%
Road vehicles6.3%
Power generating equipmt 7.5%
Sectoral Share of Capital Goods Imports (2012)
Source: UN Comtrade
China31%
Germany9%
Japan 8%United States8%
Korea, Rep. 7%
Singapore 4%
Italy 3%
Malaysia 3%
Thailand 3%
France 3%
Others21%
Composition of Imports of Capital Goods from Top-10 Countries (2012)
Source: UN Comtrade
31 AUGUST-SEPTEMBER 2013
32ECONOMY MATTERS
This raises a pertinent question: why should we not
make attempts to cut imports of capital goods by
encouraging its domestic production, which would not
only help in saving foreign exchange but also create
much needed value addition and employment within
the economy. This is especially critical in the context of
sharp eroding value of rupee against the US dollar which
is going to impact the imports of capital goods
adversely. In order to ensure the sector's progressive
development and to drive it to the next level of growth,
there are numbers of measures that need to be taken,
as mentioned in the following section.
Measures to Boost Domestic Capital
Goods Sector
o Leverage domestic demand - To leverage large
domestic demand that exists in India, there is a need
for developing significant collaboration between
users and producers of capital goods sector.
o Harmonize tax, duty structures, and FTAs - Indian
capital goods manufacturers are affected by current
duty structure that has created an unequal playing
field between domestically manufactured goods
and imported goods. Further, in certain cases, Free
Trade Agreements (FTAs) are also being exploited to
the disadvantage of domestic capital goods
manufacturers. Exports from countries such as China
are routed through these FTA countries to secure
greater advantage over local manufacturers. There
is, therefore, a need harmonize tax and duty
structure and ensure that FTAs don't inflict injuries to
the domestic capital goods sector.
o Addressing the issue of inverted duty structure - In
the current duty structure for intermediate and
finished goods, there are certain anomalies, which at
times, make the domestic capital goods costlier. At
the same time, import duty on finished goods turns
out to be lower in many instances, thereby creating
an advantage for imports over domestic production.
Such cases exist in various capital goods segments,
calling for urgent policy attention.
o Restricting imports of second hand machinery -
There is a need to curb the large imports of second
hand machinery in several sectors in India, including
machine tools and textile machinery. Policy needs to
be shaped to limit import of second hand equipment
to provide impetus to local manufacturing.
o Bridging the technology gap and increasing the
depth of capabilities of domestic capital goods
manufacturers - Indian capital goods sector needs to
plan and invest in developing the "next generation"
products in order to shorten the prevailing
technology gap between domestic manufacturers
and foreign players.
Imports Domestic
Split of Demand between Imports and Domestic Production (2010-11)
thSource: Report of the Working Group on Capital Goods & Engineering Sector for the 12 Five Year Plan, October 2011
9%
24%
26%
31%
35%
48%
51%
71%
87%
29%
91%
76%
74%
69%
65%
52%
49%
29%
13%
71%
Process plant equipment
Engineering Goods
Heavy Electrical Equipment
Dies, Moulds and Tools
Plastic Machinery
Textile Machinery
Earth Moving Equipment
Machine Tools
Metallurgical Machinery
Overall
Odemand met by imports
ver 50 per cent
Conclusion
The negative growth recorded by the capital goods sector over the last two years is a matter of concern. To blame
the economic slowdown alone for the same would be incorrect as the imports of capital goods in the country have
continued to remain buoyant. Poor performance, therefore, has much to do with the low cost competitiveness of
the sector, which has magnified in the face of the economic slowdown. While revival of manufacturing growth is
critical for capital goods sector, its healthy growth performance too can help the revival process. This is especially
true in the backdrop of the sharp erosion in value of rupee against the US dollar, which is going to impact the
imports of capital goods in the country adversely, besides adding to the problem of current account deficit.
To make the domestic capital goods sector competitive, it is critical that we provide the right mix of fiscal
incentives, infrastructure and skilled personnel and develop domestic capabilities across the value chain in the
sector. Measures such as rationalizing the local tax structure, reducing the cost of credit, time bound fiscal
incentives, putting check on avoidable imports of second hand machinery, addressing the issue of inverted duty
structure, and facilitating skill development facilities for a competent workforce would go a long way in helping
the sector.
33 AUGUST-SEPTEMBER 2013
Global Taxation Summit 2013
The topics to be deliberated at the Summit would broadly
include:
International & Domestic Tax Developments –Lessons and
Learning for India
Key Current and Emerging Transfer Pricing Audit Issues in India
Alternate Dispute Resolution – Challenges & Way Forward
BEPS – Emerging Trends in Developed and Emerging Markets
Indirect Tax Issues including CENVAT, Service Tax and State VAT
v
v
v
v
v
Ms. Jessy RajjiConfederation of Indian Industry; 23 Institutional Area; Lodhi Road
New Delhi 110 003.
Tel : 91-11-24690715 /24629994 – 7; Fax : 91-11-24615693
Email : jessy.rajji@cii.in
CII is organizing a day
long Global Taxation
thSummit 2013 on 20
November, 2013 at Hotel
Taj Palace, New Delhi.
Mr. Sumit Bose, Secretary - Revenue, Ministry of Finance, has
kindly agreed to be the Chief Guest at the Summit. The Summit
would also have the benefit of the views of senior government
officers, tax experts from India and abroad and industry.
You are invited to participate in the Summit. For registration
and sponsorship opportunities, please contact:
32ECONOMY MATTERS
This raises a pertinent question: why should we not
make attempts to cut imports of capital goods by
encouraging its domestic production, which would not
only help in saving foreign exchange but also create
much needed value addition and employment within
the economy. This is especially critical in the context of
sharp eroding value of rupee against the US dollar which
is going to impact the imports of capital goods
adversely. In order to ensure the sector's progressive
development and to drive it to the next level of growth,
there are numbers of measures that need to be taken,
as mentioned in the following section.
Measures to Boost Domestic Capital
Goods Sector
o Leverage domestic demand - To leverage large
domestic demand that exists in India, there is a need
for developing significant collaboration between
users and producers of capital goods sector.
o Harmonize tax, duty structures, and FTAs - Indian
capital goods manufacturers are affected by current
duty structure that has created an unequal playing
field between domestically manufactured goods
and imported goods. Further, in certain cases, Free
Trade Agreements (FTAs) are also being exploited to
the disadvantage of domestic capital goods
manufacturers. Exports from countries such as China
are routed through these FTA countries to secure
greater advantage over local manufacturers. There
is, therefore, a need harmonize tax and duty
structure and ensure that FTAs don't inflict injuries to
the domestic capital goods sector.
o Addressing the issue of inverted duty structure - In
the current duty structure for intermediate and
finished goods, there are certain anomalies, which at
times, make the domestic capital goods costlier. At
the same time, import duty on finished goods turns
out to be lower in many instances, thereby creating
an advantage for imports over domestic production.
Such cases exist in various capital goods segments,
calling for urgent policy attention.
o Restricting imports of second hand machinery -
There is a need to curb the large imports of second
hand machinery in several sectors in India, including
machine tools and textile machinery. Policy needs to
be shaped to limit import of second hand equipment
to provide impetus to local manufacturing.
o Bridging the technology gap and increasing the
depth of capabilities of domestic capital goods
manufacturers - Indian capital goods sector needs to
plan and invest in developing the "next generation"
products in order to shorten the prevailing
technology gap between domestic manufacturers
and foreign players.
Imports Domestic
Split of Demand between Imports and Domestic Production (2010-11)
thSource: Report of the Working Group on Capital Goods & Engineering Sector for the 12 Five Year Plan, October 2011
9%
24%
26%
31%
35%
48%
51%
71%
87%
29%
91%
76%
74%
69%
65%
52%
49%
29%
13%
71%
Process plant equipment
Engineering Goods
Heavy Electrical Equipment
Dies, Moulds and Tools
Plastic Machinery
Textile Machinery
Earth Moving Equipment
Machine Tools
Metallurgical Machinery
Overall
Odemand met by imports
ver 50 per cent
Conclusion
The negative growth recorded by the capital goods sector over the last two years is a matter of concern. To blame
the economic slowdown alone for the same would be incorrect as the imports of capital goods in the country have
continued to remain buoyant. Poor performance, therefore, has much to do with the low cost competitiveness of
the sector, which has magnified in the face of the economic slowdown. While revival of manufacturing growth is
critical for capital goods sector, its healthy growth performance too can help the revival process. This is especially
true in the backdrop of the sharp erosion in value of rupee against the US dollar, which is going to impact the
imports of capital goods in the country adversely, besides adding to the problem of current account deficit.
To make the domestic capital goods sector competitive, it is critical that we provide the right mix of fiscal
incentives, infrastructure and skilled personnel and develop domestic capabilities across the value chain in the
sector. Measures such as rationalizing the local tax structure, reducing the cost of credit, time bound fiscal
incentives, putting check on avoidable imports of second hand machinery, addressing the issue of inverted duty
structure, and facilitating skill development facilities for a competent workforce would go a long way in helping
the sector.
33 AUGUST-SEPTEMBER 2013
Global Taxation Summit 2013
The topics to be deliberated at the Summit would broadly
include:
International & Domestic Tax Developments –Lessons and
Learning for India
Key Current and Emerging Transfer Pricing Audit Issues in India
Alternate Dispute Resolution – Challenges & Way Forward
BEPS – Emerging Trends in Developed and Emerging Markets
Indirect Tax Issues including CENVAT, Service Tax and State VAT
v
v
v
v
v
Ms. Jessy RajjiConfederation of Indian Industry; 23 Institutional Area; Lodhi Road
New Delhi 110 003.
Tel : 91-11-24690715 /24629994 – 7; Fax : 91-11-24615693
Email : jessy.rajji@cii.in
CII is organizing a day
long Global Taxation
thSummit 2013 on 20
November, 2013 at Hotel
Taj Palace, New Delhi.
Mr. Sumit Bose, Secretary - Revenue, Ministry of Finance, has
kindly agreed to be the Chief Guest at the Summit. The Summit
would also have the benefit of the views of senior government
officers, tax experts from India and abroad and industry.
You are invited to participate in the Summit. For registration
and sponsorship opportunities, please contact:
34ECONOMY MATTERS
SPECIAL ARTICLE
Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2013
Over a period of time, land acquisition has emerged
as a critical constraint in India's industrialization,
given pressures on limited land-mass for multiple uses.
In order to remove the impediments to land acquisition,
it is essential that it must take place in a manner that fully
protects the interests of land-owners and also of those
whose livelihoods depend on the land being acquired.
Under our Constitution, land is a State subject but land
acquisition is a Concurrent subject. So far, the basic law
governing the land acquisition process has been the
Land Acquisition Act, 1894. Although it has been
amended from time to time, it is painfully evident that
the basic law has become archaic. Against this backdrop,
review of the outdated Land Acquisition Act of 1894 in
the country could not have come at a more appropriate
time. After passage from both the Houses of the
Parliament, the "Right to Fair Compensation and
Transparency in Land Acquisition, Rehabilitation and
Resettlement Bill, 2013" is currently awaiting the assent
of the President of India and will become a new law
within next three months. In this article we discuss the
key provisions of the new bill and how it would bring
about a change in the existing land acquisition scenario.
Some of the key provisions of the new legislation, which
has been passed by the Parliament on 6 September, 2013
are listed below:
The Bill provides for an expanded definition of public
purpose that includes infrastructure projects,
including: (i) all activities listed by the Government
as infrastructure projects in its notification dated
March 27, 2012, excluding private hospitals, private
educational institutions and private hotels; (ii)
projects related to agriculture, agro-processing,
cold storage facilities; (iii) industrial corridors or
mining activities, national investment and
manufacturing zones as designated in the National
M a n u f a c t u r i n g P o l i c y ; ( i v ) G o v e r n m e n t
administered or Government aided educational and
research institutions; (v) sports, health care,
transport or space program projects; and (vi) any
other infrastructural facilities notified by the Central
Government after tabling the notification in the
Parliament.
Key Provisions
vDefinition of Public Purpose
-Key Provisions of the New Legislation
Further, public purpose also includes acquisition of
land for use by: (a) Public-Private Partnership
Projects (PPPs), where ownership of land continues
to vest with the Government; and (b) private
companies, for the purposes mentioned above.
The new legislation requires the concerned
Government to conduct a Social Impact Analysis
(SIA) prior to every acquisition of land. The SIA has
to be conducted in consultation with the Panchayat
at the village level and at the Municipality or
municipal corporation at the urban level.
Further, the SIA has to be completed within six
months from the date of its commencement and will
take into account, amongst other factors, the social
impact of the project on the overall costs of the
project vis-a-vis the benefits of the project. The SIA
report will be made available in the local language at
the offices of the Panchayat, Municipality as the
case may be.
The SIA will be evaluated by an Expert Group, which
has to look at whether the project serves any public
purpose; or the social costs and adverse social
impacts outweigh the potential benefits. It is
required to submit its recommendation within two
months of its constitution.
The provisions of this Act relating to consent shall
apply when the appropriate Government acquires
land for the following purposes, namely:-
(a) For public private partnership projects, where
the ownership of the land continues to vest with
the Government, for public purpose and
(b) for private companies for public purpose,
provided that in the case of acquisition for- (i)
Private companies, the prior consent of at lest
eighty per cent of affected families; and
(ii) Public Private Partnership projects, the prior
consent of at least seventy per cent of affected
families shall be obtained through a process as
may be prescribed by the appropriate
Government.
The process of obtaining the consent shall be
carried out along with the Social Impact
Analysis (SIA) study.
vSocial Impact Analysis (SIA)
vConsent for Land Acquisition
vCompensation to Land Owners
vRehabilitation & Resettlement (R&R)
Entitlements
As per the new legislation, the market value of the
acquired land shall be based on the (i) market value
specified in the Indian Stamp Act for the registration
of sale deeds; or (ii) average of the top 50 per cent
of all the sale deeds in the similar type of land
situated in the vicinity; whichever is higher. Once the
market value is computed, it shall be multiplied by a
factor (1-2) for rural areas, based on the distance of
the said land from urban areas. Once the total
compensation is arrived at, the Collector shall
impose a 100 per cent Solatium on it for both rural as
well as urban areas. Further, the Collector shall
award an amount at the rate of 12 per cent per
annum on the market value from the period
commencing from date of publication of the SIA till
the date of the award of the Collector or the date of
taking possession of the land, whichever is earlier.
One of the key provisions of the new legislation is
that families owning the land or whose livelihood is
affected as a result of land acquisition shall be
entitled for a specified R&R package, which has
been elaborated in the Schedule II. Affected family
in such cases would include -
(i) A family whose land or other immovable
property has been acquired;
(ii) A family which does not own any land but a
member or members of such family may be
agricultural labourers, tenants including any
form of tenancy or holding of usufruct right,
share-croppers or artisans or who may be
working in the affected area for three years
prior to the acquisition of the land, whose
primary source of livelihood stand affected by
the acquisition of land;
(iii) The Scheduled Tribes and other traditional
forest dwellers that have lost any of their forest
rights recognised under the Scheduled Tribes
and Other Traditional Forest Dwellers
(Recognition of Forest Rights) Act, 2006 due to
acquisition of land;
(iv) Family whose primary source of livelihood for
three years prior to the acquisition of the land is
dependent on forests or water bodies and
35 AUGUST-SEPTEMBER 2013
34ECONOMY MATTERS
SPECIAL ARTICLE
Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2013
Over a period of time, land acquisition has emerged
as a critical constraint in India's industrialization,
given pressures on limited land-mass for multiple uses.
In order to remove the impediments to land acquisition,
it is essential that it must take place in a manner that fully
protects the interests of land-owners and also of those
whose livelihoods depend on the land being acquired.
Under our Constitution, land is a State subject but land
acquisition is a Concurrent subject. So far, the basic law
governing the land acquisition process has been the
Land Acquisition Act, 1894. Although it has been
amended from time to time, it is painfully evident that
the basic law has become archaic. Against this backdrop,
review of the outdated Land Acquisition Act of 1894 in
the country could not have come at a more appropriate
time. After passage from both the Houses of the
Parliament, the "Right to Fair Compensation and
Transparency in Land Acquisition, Rehabilitation and
Resettlement Bill, 2013" is currently awaiting the assent
of the President of India and will become a new law
within next three months. In this article we discuss the
key provisions of the new bill and how it would bring
about a change in the existing land acquisition scenario.
Some of the key provisions of the new legislation, which
has been passed by the Parliament on 6 September, 2013
are listed below:
The Bill provides for an expanded definition of public
purpose that includes infrastructure projects,
including: (i) all activities listed by the Government
as infrastructure projects in its notification dated
March 27, 2012, excluding private hospitals, private
educational institutions and private hotels; (ii)
projects related to agriculture, agro-processing,
cold storage facilities; (iii) industrial corridors or
mining activities, national investment and
manufacturing zones as designated in the National
M a n u f a c t u r i n g P o l i c y ; ( i v ) G o v e r n m e n t
administered or Government aided educational and
research institutions; (v) sports, health care,
transport or space program projects; and (vi) any
other infrastructural facilities notified by the Central
Government after tabling the notification in the
Parliament.
Key Provisions
vDefinition of Public Purpose
-Key Provisions of the New Legislation
Further, public purpose also includes acquisition of
land for use by: (a) Public-Private Partnership
Projects (PPPs), where ownership of land continues
to vest with the Government; and (b) private
companies, for the purposes mentioned above.
The new legislation requires the concerned
Government to conduct a Social Impact Analysis
(SIA) prior to every acquisition of land. The SIA has
to be conducted in consultation with the Panchayat
at the village level and at the Municipality or
municipal corporation at the urban level.
Further, the SIA has to be completed within six
months from the date of its commencement and will
take into account, amongst other factors, the social
impact of the project on the overall costs of the
project vis-a-vis the benefits of the project. The SIA
report will be made available in the local language at
the offices of the Panchayat, Municipality as the
case may be.
The SIA will be evaluated by an Expert Group, which
has to look at whether the project serves any public
purpose; or the social costs and adverse social
impacts outweigh the potential benefits. It is
required to submit its recommendation within two
months of its constitution.
The provisions of this Act relating to consent shall
apply when the appropriate Government acquires
land for the following purposes, namely:-
(a) For public private partnership projects, where
the ownership of the land continues to vest with
the Government, for public purpose and
(b) for private companies for public purpose,
provided that in the case of acquisition for- (i)
Private companies, the prior consent of at lest
eighty per cent of affected families; and
(ii) Public Private Partnership projects, the prior
consent of at least seventy per cent of affected
families shall be obtained through a process as
may be prescribed by the appropriate
Government.
The process of obtaining the consent shall be
carried out along with the Social Impact
Analysis (SIA) study.
vSocial Impact Analysis (SIA)
vConsent for Land Acquisition
vCompensation to Land Owners
vRehabilitation & Resettlement (R&R)
Entitlements
As per the new legislation, the market value of the
acquired land shall be based on the (i) market value
specified in the Indian Stamp Act for the registration
of sale deeds; or (ii) average of the top 50 per cent
of all the sale deeds in the similar type of land
situated in the vicinity; whichever is higher. Once the
market value is computed, it shall be multiplied by a
factor (1-2) for rural areas, based on the distance of
the said land from urban areas. Once the total
compensation is arrived at, the Collector shall
impose a 100 per cent Solatium on it for both rural as
well as urban areas. Further, the Collector shall
award an amount at the rate of 12 per cent per
annum on the market value from the period
commencing from date of publication of the SIA till
the date of the award of the Collector or the date of
taking possession of the land, whichever is earlier.
One of the key provisions of the new legislation is
that families owning the land or whose livelihood is
affected as a result of land acquisition shall be
entitled for a specified R&R package, which has
been elaborated in the Schedule II. Affected family
in such cases would include -
(i) A family whose land or other immovable
property has been acquired;
(ii) A family which does not own any land but a
member or members of such family may be
agricultural labourers, tenants including any
form of tenancy or holding of usufruct right,
share-croppers or artisans or who may be
working in the affected area for three years
prior to the acquisition of the land, whose
primary source of livelihood stand affected by
the acquisition of land;
(iii) The Scheduled Tribes and other traditional
forest dwellers that have lost any of their forest
rights recognised under the Scheduled Tribes
and Other Traditional Forest Dwellers
(Recognition of Forest Rights) Act, 2006 due to
acquisition of land;
(iv) Family whose primary source of livelihood for
three years prior to the acquisition of the land is
dependent on forests or water bodies and
35 AUGUST-SEPTEMBER 2013
36ECONOMY MATTERS
vAdditional Compensation to Original land
Owner
vProcess of Land Acquisition
vReturn of Unutilized Land
vAcquisition of Irrigated Multi Cropped
Land
vLeasing of Land
Bill stipulates that 40 per cent of appreciated land
value (profit) should be shared with original land
owners in cases where - Any land more than the
threshold stipulated by the State Government
which has been purchased through private
negotiations on or after 5 September 2011 and
acquired by the Government within three (3) years
of commencement of this Bill; and whenever the
ownership of any land acquired under this Act is
transferred to any person for consideration,
without any development having taken place on
such land in proportion to the value at which the
land was acquired within a period of 5 years from the
date of acquisition. For both the cases, benefit shall
accrue only on the first sale or transfer that occurs
after the conclusion of the acquisition proceedings.
The entire process of land acquisition, starting from
Social Impact Analysis (SIA) to possession of land by
the concerned Collector (after ensuring full
payment of compensation as well as rehabilitation
and resettlement entitlements are paid or tendered
to the entitled persons) would take a minimum time
of 56 months (see Table 1).
The New Bill stipulates that any acquired land, if not
used for 5 years should be returned to owner or to
the State Land Bank in case the land owner does not
return the original compensation, as the case may
be.
The new legislation stipulates certain limits on
acquisition of Multi-Cropped Land to be determined
by the appropriate Government considering the
relevant State specific factors and circumstances.
The new legislation permits the State Government
to exercise the option of taking the land on lease
instead of acquiring the land.
includes gatherers of forest produce, hunters,
fisher folk and boatmen and such livelihood is
affected due to acquisition of land;
(v) A member of the family who has been assigned
land by the State Government or the Central
Government under any of its schemes and such
land is under acquisition;
(vi) A family residing on any land in the urban areas
for preceding three years or more prior to the
acquisition of the land or whose primary source
of livelihood for three years prior to the
acquisition of the land is affected by the
acquisition of such land;
The Bill provides that R&R will be mandatory in case
of private purchase of land above a certain
threshold, which shall be determined by individual
State Governments after considering the relevant
state specific factors. Further, it is also stipulated
that it is mandatory to file an application with the
concerned Collector before acquisition of such land,
notifying him of - (a) intent to purchase; (b) purpose
for which such purchase is being made; and (c)
particulars of lands to be purchased.
No land use change shall be permitted in such cases
if rehabilitation and resettlement is not complied
with in full.
The proposed Bill has a provision of Retrospective in
cases where - (i) notification has been issued but no
award under Section 11 of the L.A. Act 1894 has been
made; (ii) an award under Section 11 on the L.A. Act
of 1894 has been made 5 years or more prior to the
commencement of this New Bill but the physical
possession of the land has not been taken or the
compensation has not been paid; and (iii) more than
50 per cent of land owners have not accepted the
compensation.
vResettlement & Rehabilitation (R&R) in
case of Private Purchase of Land
vRetrospective Applicability of the New
Bill
37 AUGUST-SEPTEMBER 2013
Q. Do you think the proposed Bill will raise the cost of
acquiring land? If yes, by how much?
Q. Apart from the cost, what is industry's view on the
process of land acquisition as stipulated in the new
Bill?
A. As per the proposed provisions in the new Bill, CII
estimates predict that cost of land acquisition in the
country is likely to increase by 3-3.5 times.
At a time when economy is trying to recover from the
slowdown and National Manufacturing Policy (NMP)
has set an ambitious target of creating 100 million
jobs by 2025, enhanced cost of land acquisition could
severely affect the viability of industrial projects
across the board and erode competitiveness of Indian
manufacturing sector.
We in CII had suggested that since the proposed
formula in the new Bill to calculate market value of
the land already has 'Multiplier' to take care of under-
valuation of land, 'Solatium' should be dropped and if
at all it has to be retained, it should be reduced from
the proposed 100 per cent to 30 per cent. Similarly,
R&R provisions should have been worked out
separately for each category of affected families,
depending upon their losses, with the ultimate
objective of improving their quality of lives, post land
acquisition.
A. The process of land acquisition, starting from the
Social Impact Analysis (SIA) up to the possession of
the Land by the Collector, as proposed in the new Bill
is highly complex and time taking, stretching up to a
minimum of 56 Months. This elaborate process needs
to be simplified by either eliminating few processes or
Q. Do you think the proposed Right to Fair
Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Bill, 2013 is a step in
the right direction?
A. We in CII have always believed that India has and can
have enough land for all its requirements -
Agricultural, Industrial & Domestic, provided they are
used judiciously and 'Supply' is managed efficiently. It
is in this background that review of the archaic Land
Acquisition Act of 1894 has come at a very
appropriate time.
Right to Fair Compensation and Transparency in Land
Acquisition, Rehabilitation and Resettlement Bill,
2013, which is currently awaiting President's formal
approval is a milestone since it is the first ever attempt
to combine Resettlement of project affected people
and their Rehabilitation (R&R) with land acquisition.
This becomes even more important in the wake of the
fact that last decade has witnessed several cases of
land acquisition, especially in Government projects
where compensation to the project affected people
has not been fair and resettlement and rehabilitation
measures for the affected people have not been
proper.
Besides, the fact that Government would continue to
acquire land for the Industry, as proposed in the new
legislation, is heartening as we have always
maintained that Government should have a
prominent role in land acquisition as agglomerating
land from numerous owners is not a task which
corporate sector can do effectively, especially in the
absence of proper land records and small & scattered
land-holdings in the country.
Mr B MuthuramanChairman, CII National Task Force on Land Acquisition
Past President, CII and Vice Chairman, Tata Steel Limited
CII View PointLARR Bill: A Step Forward, Yet Industry Has Concerns
36ECONOMY MATTERS
vAdditional Compensation to Original land
Owner
vProcess of Land Acquisition
vReturn of Unutilized Land
vAcquisition of Irrigated Multi Cropped
Land
vLeasing of Land
Bill stipulates that 40 per cent of appreciated land
value (profit) should be shared with original land
owners in cases where - Any land more than the
threshold stipulated by the State Government
which has been purchased through private
negotiations on or after 5 September 2011 and
acquired by the Government within three (3) years
of commencement of this Bill; and whenever the
ownership of any land acquired under this Act is
transferred to any person for consideration,
without any development having taken place on
such land in proportion to the value at which the
land was acquired within a period of 5 years from the
date of acquisition. For both the cases, benefit shall
accrue only on the first sale or transfer that occurs
after the conclusion of the acquisition proceedings.
The entire process of land acquisition, starting from
Social Impact Analysis (SIA) to possession of land by
the concerned Collector (after ensuring full
payment of compensation as well as rehabilitation
and resettlement entitlements are paid or tendered
to the entitled persons) would take a minimum time
of 56 months (see Table 1).
The New Bill stipulates that any acquired land, if not
used for 5 years should be returned to owner or to
the State Land Bank in case the land owner does not
return the original compensation, as the case may
be.
The new legislation stipulates certain limits on
acquisition of Multi-Cropped Land to be determined
by the appropriate Government considering the
relevant State specific factors and circumstances.
The new legislation permits the State Government
to exercise the option of taking the land on lease
instead of acquiring the land.
includes gatherers of forest produce, hunters,
fisher folk and boatmen and such livelihood is
affected due to acquisition of land;
(v) A member of the family who has been assigned
land by the State Government or the Central
Government under any of its schemes and such
land is under acquisition;
(vi) A family residing on any land in the urban areas
for preceding three years or more prior to the
acquisition of the land or whose primary source
of livelihood for three years prior to the
acquisition of the land is affected by the
acquisition of such land;
The Bill provides that R&R will be mandatory in case
of private purchase of land above a certain
threshold, which shall be determined by individual
State Governments after considering the relevant
state specific factors. Further, it is also stipulated
that it is mandatory to file an application with the
concerned Collector before acquisition of such land,
notifying him of - (a) intent to purchase; (b) purpose
for which such purchase is being made; and (c)
particulars of lands to be purchased.
No land use change shall be permitted in such cases
if rehabilitation and resettlement is not complied
with in full.
The proposed Bill has a provision of Retrospective in
cases where - (i) notification has been issued but no
award under Section 11 of the L.A. Act 1894 has been
made; (ii) an award under Section 11 on the L.A. Act
of 1894 has been made 5 years or more prior to the
commencement of this New Bill but the physical
possession of the land has not been taken or the
compensation has not been paid; and (iii) more than
50 per cent of land owners have not accepted the
compensation.
vResettlement & Rehabilitation (R&R) in
case of Private Purchase of Land
vRetrospective Applicability of the New
Bill
37 AUGUST-SEPTEMBER 2013
Q. Do you think the proposed Bill will raise the cost of
acquiring land? If yes, by how much?
Q. Apart from the cost, what is industry's view on the
process of land acquisition as stipulated in the new
Bill?
A. As per the proposed provisions in the new Bill, CII
estimates predict that cost of land acquisition in the
country is likely to increase by 3-3.5 times.
At a time when economy is trying to recover from the
slowdown and National Manufacturing Policy (NMP)
has set an ambitious target of creating 100 million
jobs by 2025, enhanced cost of land acquisition could
severely affect the viability of industrial projects
across the board and erode competitiveness of Indian
manufacturing sector.
We in CII had suggested that since the proposed
formula in the new Bill to calculate market value of
the land already has 'Multiplier' to take care of under-
valuation of land, 'Solatium' should be dropped and if
at all it has to be retained, it should be reduced from
the proposed 100 per cent to 30 per cent. Similarly,
R&R provisions should have been worked out
separately for each category of affected families,
depending upon their losses, with the ultimate
objective of improving their quality of lives, post land
acquisition.
A. The process of land acquisition, starting from the
Social Impact Analysis (SIA) up to the possession of
the Land by the Collector, as proposed in the new Bill
is highly complex and time taking, stretching up to a
minimum of 56 Months. This elaborate process needs
to be simplified by either eliminating few processes or
Q. Do you think the proposed Right to Fair
Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Bill, 2013 is a step in
the right direction?
A. We in CII have always believed that India has and can
have enough land for all its requirements -
Agricultural, Industrial & Domestic, provided they are
used judiciously and 'Supply' is managed efficiently. It
is in this background that review of the archaic Land
Acquisition Act of 1894 has come at a very
appropriate time.
Right to Fair Compensation and Transparency in Land
Acquisition, Rehabilitation and Resettlement Bill,
2013, which is currently awaiting President's formal
approval is a milestone since it is the first ever attempt
to combine Resettlement of project affected people
and their Rehabilitation (R&R) with land acquisition.
This becomes even more important in the wake of the
fact that last decade has witnessed several cases of
land acquisition, especially in Government projects
where compensation to the project affected people
has not been fair and resettlement and rehabilitation
measures for the affected people have not been
proper.
Besides, the fact that Government would continue to
acquire land for the Industry, as proposed in the new
legislation, is heartening as we have always
maintained that Government should have a
prominent role in land acquisition as agglomerating
land from numerous owners is not a task which
corporate sector can do effectively, especially in the
absence of proper land records and small & scattered
land-holdings in the country.
Mr B MuthuramanChairman, CII National Task Force on Land Acquisition
Past President, CII and Vice Chairman, Tata Steel Limited
CII View PointLARR Bill: A Step Forward, Yet Industry Has Concerns
38ECONOMY MATTERS
adversely affect Industries that, by nature, grow in
phases. Instead, we had suggested for a 'Land Use
Plan' framework and align return of land with it,
which can be monitored by the Chief Secretary of the
concerned State on a case-to-case basis.
A. Digitization of Land Records: Over decades, the land
records have been maintained & upgraded manually
on ad-hoc basis with hardly any focus on accuracy and
authenticity. Archaic and un-authentic land records
are the biggest pit-falls and road-blocks in land
acquisition & disbursement of compensation. To
streamline and bring transparency, CII strongly
recommends speedy digitization of land records by
state Government and the availability of these
records on-line. The digitization of land records,
across all States, over a specified time period, with
comprehensive scrutiny would help make land
records transparent, tamper-proof and facilitate
detailed planning of land use for industrial,
agriculture and residential development.
Zoning of Land: Simultaneously with digitization, CII
also recommends ex-ante zoning of land so as to have
a clear mapping, identification and segregation of the
land for various purposes, over a 100 - 150 year
horizon. Updating, digitization and zoning of land
records will be key for achieving success in the
process of systematic development of industrial land.
Set up State Land Bank Corporations: CII
recommends setting up of dedicated Institutions for
acquiring fallow, barren and unproductive as well as
other Lands, ex-ante, for Industrial purposes, as a
transparent and viable solution to the problem. The
job of these State Land Bank Corporations would be
to scientifically acquire large tracts of non-cultivable
and other lands, develop them as Land Banks for the
future and have a transparent mechanism to pass
them on to the private sector.
Q. Does CII have other suggestions for successfully
resolving the issue of Land Acquisition in the long
run?
making them simultaneous, with an objective to
facilitate an acquisition within a minimum time line of
2 years.
A. Industry has specific concerns and suggestions on
some of the key provisions of the proposed new Bill.
First, though Government would continue to acquire
land for Private Sector and PPP Projects, mandatory
consent requirement from affected families - 80 per
cent and 70 per cent for private sector & PPP
respectively appears to be very high and continues to
be a cause of concern. The process of obtaining
consent as provided in the new Bill in itself is long
drawn out, goes through various stages, taking up to
several years. We in CII had suggested that consent
provision should be limited to 60 per cent of the land
owners.
Second, providing for R&R entitlements to affected
families in cases of direct acquisition of land from the
owners above a certain threshold, to be determined
by the States, could also have been avoided. As sellers
would have already bargained for the premium on
land value in cases of direct purchase, we had
suggested laying down of suitable R&R entitlements
only for affected families who lose their livelihood as a
result of such land acquisition.
Third, retrospective applicability of the new
legislation under certain cases has also raised
Industry apprehensions. To avoid delays and
consequent cost escalation, CII had maintained right
from the beginning that where land acquisition
notification under section 11 of LA Act 1894 has
already been issued and the process of award
initiated, land acquisition process should be
continued and not started afresh.
Fourth, the provision as per the new Bill stipulating
return of the unutilized land after 5 years to owner or
to the State Land Bank (SLB), as the case may be could
Q. What are some of the other concerns regarding the
new Bill?
39 AUGUST-SEPTEMBER 2013
Process (Sequential) Detail Minimum Stipulated Time
Social Impact Analysis (SIA) Preparation of Social Impact Analysis(SIA) 6 Months
in consultation with the concerned
Panchayat, Municipality or Municipal
Corporation
Multi-disciplinary Expert Group Appraisal of SIA by an independent multi- 2 Months
disciplinary Expert Group constituted by
the appropriate Government
Preliminary Notification Publication of Preliminary Notification along 12 Months
with the details of land to be acquired and
determination of market value of land
Publication of Declaration Appropriate Government to publish the 12 Months
declaration after Requiring Body deposits
the amount & examining of any objections
Award Collector shall make the award 12 Months
Corrections to Awards Clerical or Arithmetical Corrections to 6 Months
Awards by Collector
Possession of Land Collector shall take possession of land 3 Months for the
(after ensuring full payment of compensation compensation and a period
as well as rehabilitation and resettlement of 6 Months for the
entitlements are paid or tendered to the monetary part of R&R
entitled persons) entitlements
Table 1: Minimum Stipulated Time Frame under Various Processes
38ECONOMY MATTERS
adversely affect Industries that, by nature, grow in
phases. Instead, we had suggested for a 'Land Use
Plan' framework and align return of land with it,
which can be monitored by the Chief Secretary of the
concerned State on a case-to-case basis.
A. Digitization of Land Records: Over decades, the land
records have been maintained & upgraded manually
on ad-hoc basis with hardly any focus on accuracy and
authenticity. Archaic and un-authentic land records
are the biggest pit-falls and road-blocks in land
acquisition & disbursement of compensation. To
streamline and bring transparency, CII strongly
recommends speedy digitization of land records by
state Government and the availability of these
records on-line. The digitization of land records,
across all States, over a specified time period, with
comprehensive scrutiny would help make land
records transparent, tamper-proof and facilitate
detailed planning of land use for industrial,
agriculture and residential development.
Zoning of Land: Simultaneously with digitization, CII
also recommends ex-ante zoning of land so as to have
a clear mapping, identification and segregation of the
land for various purposes, over a 100 - 150 year
horizon. Updating, digitization and zoning of land
records will be key for achieving success in the
process of systematic development of industrial land.
Set up State Land Bank Corporations: CII
recommends setting up of dedicated Institutions for
acquiring fallow, barren and unproductive as well as
other Lands, ex-ante, for Industrial purposes, as a
transparent and viable solution to the problem. The
job of these State Land Bank Corporations would be
to scientifically acquire large tracts of non-cultivable
and other lands, develop them as Land Banks for the
future and have a transparent mechanism to pass
them on to the private sector.
Q. Does CII have other suggestions for successfully
resolving the issue of Land Acquisition in the long
run?
making them simultaneous, with an objective to
facilitate an acquisition within a minimum time line of
2 years.
A. Industry has specific concerns and suggestions on
some of the key provisions of the proposed new Bill.
First, though Government would continue to acquire
land for Private Sector and PPP Projects, mandatory
consent requirement from affected families - 80 per
cent and 70 per cent for private sector & PPP
respectively appears to be very high and continues to
be a cause of concern. The process of obtaining
consent as provided in the new Bill in itself is long
drawn out, goes through various stages, taking up to
several years. We in CII had suggested that consent
provision should be limited to 60 per cent of the land
owners.
Second, providing for R&R entitlements to affected
families in cases of direct acquisition of land from the
owners above a certain threshold, to be determined
by the States, could also have been avoided. As sellers
would have already bargained for the premium on
land value in cases of direct purchase, we had
suggested laying down of suitable R&R entitlements
only for affected families who lose their livelihood as a
result of such land acquisition.
Third, retrospective applicability of the new
legislation under certain cases has also raised
Industry apprehensions. To avoid delays and
consequent cost escalation, CII had maintained right
from the beginning that where land acquisition
notification under section 11 of LA Act 1894 has
already been issued and the process of award
initiated, land acquisition process should be
continued and not started afresh.
Fourth, the provision as per the new Bill stipulating
return of the unutilized land after 5 years to owner or
to the State Land Bank (SLB), as the case may be could
Q. What are some of the other concerns regarding the
new Bill?
39 AUGUST-SEPTEMBER 2013
Process (Sequential) Detail Minimum Stipulated Time
Social Impact Analysis (SIA) Preparation of Social Impact Analysis(SIA) 6 Months
in consultation with the concerned
Panchayat, Municipality or Municipal
Corporation
Multi-disciplinary Expert Group Appraisal of SIA by an independent multi- 2 Months
disciplinary Expert Group constituted by
the appropriate Government
Preliminary Notification Publication of Preliminary Notification along 12 Months
with the details of land to be acquired and
determination of market value of land
Publication of Declaration Appropriate Government to publish the 12 Months
declaration after Requiring Body deposits
the amount & examining of any objections
Award Collector shall make the award 12 Months
Corrections to Awards Clerical or Arithmetical Corrections to 6 Months
Awards by Collector
Possession of Land Collector shall take possession of land 3 Months for the
(after ensuring full payment of compensation compensation and a period
as well as rehabilitation and resettlement of 6 Months for the
entitlements are paid or tendered to the monetary part of R&R
entitled persons) entitlements
Table 1: Minimum Stipulated Time Frame under Various Processes
40ECONOMY MATTERS
SPECIAL FEATURE
Green Manufacturing: The Next Big Opportunity
While India's manufacturing sector grew by 2.7 per
cent in 2011-12 and 1 per cent in 2012-13, the first
quarter of this year witnessed a negative figure of -1 per
cent. Since the manufacturing sector contributes to job
creation and exports, it is imperative that it is revived
expeditiously. A key aspect of this endeavor would be to
increase India's capabilities in new and emerging
sectors. Green manufacturing affords a new avenue of
growth apart from the traditional manufacturing
sectors.
The CII Boston Consulting Group report on
Manufacturing - The Next Growth Orbit had identified
green products as the next big area of opportunity for
Indian manufacturing, placing the global value of the
industry at US$190 billion which was expected to grow
by 15 per cent annually.
For the first time, sustainable growth forms a central
strategy in the 12th Plan. The National Action Plan on
Climate Change addresses the need to curtail carbon
emissions in line with the goal of reducing India's
footprint by 20-25 per cent by 2020. This is further
bolstered by the state level action plans where each
state would bring out its models for sustainable
development. Carbon mitigation strategies are being
devised for major emitting sectors such as power,
transport, industry, construction and forestry.
Several sectors offer key opportunities for green
manufacturing. One, in the power sector, super-critical
technologies are recommended for thermal power
plants using coal. Renewable energy has been
emphasized through definite targets in each of the
sectors. Energy efficiency of products, especially
agricultural pump sets, electrical appliances and
industrial equipment is being targeted. Transmission
and distribution systems too need to be aligned with
global best practices. Machinery and equipment for this
sector should be built indigenously, rather than depend
upon imports which are pressurizing our current
account deficit.
The transport sector is overly dependent on road traffic
which is heavily polluting. The share of railways and
water transport needs to be increased through targeted
policies. For example, the Dedicated Rail Freight
Corridors are expected to enhance efficiency and add to
productivity of transport. Similarly, urban transport
would be an area to be considered to reduce carbon
emissions, increase mass transport options, and
improve productivity.
41 AUGUST-SEPTEMBER 2013
National Investment and Manufacturing Zones could
also have a dedicated space for green manufacturing.
The other challenge is to ensure that a cohort of
adequately qualified human resources is created within
a short period of time if India is to take the lead in the
field of green manufacturing. Higher education facilities
should offer dedicated courses for green engineering,
while skill development at Industrial Training Centers
and other skill development centers could also include
requisite coursework.
The third challenge is to ensure that India carves a space
for itself in the global marketplace for green products.
This is one area of exports that should be targeted,
especially when it comes to renewable energy where
India has performed well. Project management
overseas with machinery and equipment sourced from
India could be a step in the right direction with dedicated
lines of credit.
Industry too must assume a key role in inculcating green
and sustainable practices into its DNA. Today, a
company that does not include sustainability into its
systems and processes faces the risk of losing its brand
value, while companies that go in for green
manufacturing are earning kudos from consumers,
translating into better returns.
Key sectors of industry would need to adopt best
environmental practices and green technologies. Iron
and steel, mining, chemicals, heavy machinery and other
sectors that have been identified as subject to high
pollution and emissions need to take special care
towards environmental and green practices. There is a
clear case for small and medium enterprises too to
reduce their carbon footprints and act in a more
environmentally responsible manner.
Industry would need to strengthen its engagement in
research and development for introducing better
models for environmental regulations. It is preferable to
establish partnerships with academic and research
institutions to work jointly on innovations and new
products for commercialization.
Secondly, strong industry action is required against
polluting industries. There should be a system that
would identify polluting factories and units that do not
meet environmental regulations. Third, industry must
comply with environmental rules and regulations so that
government can be light-handed in monitoring
compliances.
With Government and industry working together, green
manufacturing offers new avenues of growth for the
economy.
Two, consumer durables are an important segment
where green products must be expanded. Consumers
themselves are increasingly demanding energy efficient
and resource-light products with little wastage. To meet
this demand, Indian companies would have to develop
capacity as well as go into innovation for building
competitiveness.
Three, urbanization is a key area where green products
must be used. India's urbanization journey is
accelerating as more and more people shift to
productive employment in cities. New cities are being
planned under several initiatives, while growing existing
cities too need to build up urban amenities. The country
has the opportunity to be able to create these new
amenities in a green manner so that our cities are havens
of sustainable practices for comfortable and cost-
effective living conditions for every range of income
class.
In this context, it is increasingly important to expand the
green building movement. The Indian Green Building
Council promoted by CII offers rating and advisory
services and green buildings have caught the
imagination of developers and consumers. Today, 1.45
billion square feet of floor space is certified as green and
over 2100 buildings are designated green buildings.
Four, waste management and pollution are major
concerns which will only gather pace as the economy
expands further. To minimize waste and reduce
pollution, green products, recycling, reuse, etc would
need to be incorporated into our manufacturing
processes.
Five, it is not only new products that must be developed
in a green manner, but also existing products where
innovation should progressively move towards green
and efficient products.
All this requires a dedicated ecosystem that incentivizes
research and development, commercial applications,
and dissemination. A facilitative policy addressed
specifically at green manufacturing as part of the overall
manufacturing promotion policy is required.
It would be useful if Government could create industrial
parks for manufacture of such green products. Such an
infrastructure of parks at key manufacturing hubs of the
country would bring together research facilities,
manufacturing outlets, ratings systems, advisory and
consultancy services, government regulatory bodies
and related support services in a single place. The
industrial park would provide high-class infrastructure
for connectivity, IT and communication, skill
development and other necessities. The current
40ECONOMY MATTERS
SPECIAL FEATURE
Green Manufacturing: The Next Big Opportunity
While India's manufacturing sector grew by 2.7 per
cent in 2011-12 and 1 per cent in 2012-13, the first
quarter of this year witnessed a negative figure of -1 per
cent. Since the manufacturing sector contributes to job
creation and exports, it is imperative that it is revived
expeditiously. A key aspect of this endeavor would be to
increase India's capabilities in new and emerging
sectors. Green manufacturing affords a new avenue of
growth apart from the traditional manufacturing
sectors.
The CII Boston Consulting Group report on
Manufacturing - The Next Growth Orbit had identified
green products as the next big area of opportunity for
Indian manufacturing, placing the global value of the
industry at US$190 billion which was expected to grow
by 15 per cent annually.
For the first time, sustainable growth forms a central
strategy in the 12th Plan. The National Action Plan on
Climate Change addresses the need to curtail carbon
emissions in line with the goal of reducing India's
footprint by 20-25 per cent by 2020. This is further
bolstered by the state level action plans where each
state would bring out its models for sustainable
development. Carbon mitigation strategies are being
devised for major emitting sectors such as power,
transport, industry, construction and forestry.
Several sectors offer key opportunities for green
manufacturing. One, in the power sector, super-critical
technologies are recommended for thermal power
plants using coal. Renewable energy has been
emphasized through definite targets in each of the
sectors. Energy efficiency of products, especially
agricultural pump sets, electrical appliances and
industrial equipment is being targeted. Transmission
and distribution systems too need to be aligned with
global best practices. Machinery and equipment for this
sector should be built indigenously, rather than depend
upon imports which are pressurizing our current
account deficit.
The transport sector is overly dependent on road traffic
which is heavily polluting. The share of railways and
water transport needs to be increased through targeted
policies. For example, the Dedicated Rail Freight
Corridors are expected to enhance efficiency and add to
productivity of transport. Similarly, urban transport
would be an area to be considered to reduce carbon
emissions, increase mass transport options, and
improve productivity.
41 AUGUST-SEPTEMBER 2013
National Investment and Manufacturing Zones could
also have a dedicated space for green manufacturing.
The other challenge is to ensure that a cohort of
adequately qualified human resources is created within
a short period of time if India is to take the lead in the
field of green manufacturing. Higher education facilities
should offer dedicated courses for green engineering,
while skill development at Industrial Training Centers
and other skill development centers could also include
requisite coursework.
The third challenge is to ensure that India carves a space
for itself in the global marketplace for green products.
This is one area of exports that should be targeted,
especially when it comes to renewable energy where
India has performed well. Project management
overseas with machinery and equipment sourced from
India could be a step in the right direction with dedicated
lines of credit.
Industry too must assume a key role in inculcating green
and sustainable practices into its DNA. Today, a
company that does not include sustainability into its
systems and processes faces the risk of losing its brand
value, while companies that go in for green
manufacturing are earning kudos from consumers,
translating into better returns.
Key sectors of industry would need to adopt best
environmental practices and green technologies. Iron
and steel, mining, chemicals, heavy machinery and other
sectors that have been identified as subject to high
pollution and emissions need to take special care
towards environmental and green practices. There is a
clear case for small and medium enterprises too to
reduce their carbon footprints and act in a more
environmentally responsible manner.
Industry would need to strengthen its engagement in
research and development for introducing better
models for environmental regulations. It is preferable to
establish partnerships with academic and research
institutions to work jointly on innovations and new
products for commercialization.
Secondly, strong industry action is required against
polluting industries. There should be a system that
would identify polluting factories and units that do not
meet environmental regulations. Third, industry must
comply with environmental rules and regulations so that
government can be light-handed in monitoring
compliances.
With Government and industry working together, green
manufacturing offers new avenues of growth for the
economy.
Two, consumer durables are an important segment
where green products must be expanded. Consumers
themselves are increasingly demanding energy efficient
and resource-light products with little wastage. To meet
this demand, Indian companies would have to develop
capacity as well as go into innovation for building
competitiveness.
Three, urbanization is a key area where green products
must be used. India's urbanization journey is
accelerating as more and more people shift to
productive employment in cities. New cities are being
planned under several initiatives, while growing existing
cities too need to build up urban amenities. The country
has the opportunity to be able to create these new
amenities in a green manner so that our cities are havens
of sustainable practices for comfortable and cost-
effective living conditions for every range of income
class.
In this context, it is increasingly important to expand the
green building movement. The Indian Green Building
Council promoted by CII offers rating and advisory
services and green buildings have caught the
imagination of developers and consumers. Today, 1.45
billion square feet of floor space is certified as green and
over 2100 buildings are designated green buildings.
Four, waste management and pollution are major
concerns which will only gather pace as the economy
expands further. To minimize waste and reduce
pollution, green products, recycling, reuse, etc would
need to be incorporated into our manufacturing
processes.
Five, it is not only new products that must be developed
in a green manner, but also existing products where
innovation should progressively move towards green
and efficient products.
All this requires a dedicated ecosystem that incentivizes
research and development, commercial applications,
and dissemination. A facilitative policy addressed
specifically at green manufacturing as part of the overall
manufacturing promotion policy is required.
It would be useful if Government could create industrial
parks for manufacture of such green products. Such an
infrastructure of parks at key manufacturing hubs of the
country would bring together research facilities,
manufacturing outlets, ratings systems, advisory and
consultancy services, government regulatory bodies
and related support services in a single place. The
industrial park would provide high-class infrastructure
for connectivity, IT and communication, skill
development and other necessities. The current
GLOBAL GDP (y-o-y%)
GDP GROWTH (y-o-y%)
WPI INFLATION (y-o-y%)
INDEX OF INDUSTRIAL PRODUCTION (IIP) (y-o-y%)
US GDP Growth Japan GDP Growth
IndustryOverall GDP
Overall
Euro Area GDP Growth China GDP Growth
Agriculture Services
Primary Fuel Manufacturing
General Manufacturing Electricity Mining
2Q12 3Q12 4Q12 1Q13 2Q13
7.6 7.4 7.9 7.7 7.5
2Q12 3Q12 4Q12 1Q13 2Q13
2.8 3.1
2.01.3 1.6
-0.5-0.7
-1.0 -1.0
-0.5
2Q12 3Q12 4Q12 1Q13 2Q13
3.8
0.3 0.4 0.30.9
2Q12 3Q12 4Q12 1Q13 2Q13
5.4 5.24.7 4.8 4.4
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
2.9
1.7 1.81.4
2.7
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
1.8
1.3
2.52.7
0.2
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
7.7 7.6
6.76.6 6.6
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
4.8 4.65.2
5.86.1
Apr-13 May-13 Jun-13 Jul-13 Aug-13
5.15.7
8.8 9.0
11.7
Apr-13 May-13 Jun-13 Jul-13 Aug-13
8.37.3 7.5
11.3 11.3
Apr-13 May-13 Jun-13 Jul-13 Aug-13
3.7
3.32.9 2.8
1.9
Apr-13 May-13 Jun-13 Jul-13 Aug-13
3.5
1.5
-2.8
-1.8
2.6
Mar-13 Apr-13 May-13 Jun-13 Jul-13
4.3
1.8
-3.6
-1.7
3.0
Mar-13 Apr-13 May-13 Jun-13 Jul-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13
3.54.2
6.2
0.0
5.2
-2.1
-3.4
-5.9
-4.3
-2.3
Mar-13 Apr-13 May-13 Jun-13 Jul-13
ECONOMY MONITOR
43 AUGUST-SEPTEMBER 2013
v
v
GLOBAL GDP (y-o-y%)
GDP GROWTH (y-o-y%)
WPI INFLATION (y-o-y%)
INDEX OF INDUSTRIAL PRODUCTION (IIP) (y-o-y%)
US GDP Growth Japan GDP Growth
IndustryOverall GDP
Overall
Euro Area GDP Growth China GDP Growth
Agriculture Services
Primary Fuel Manufacturing
General Manufacturing Electricity Mining
2Q12 3Q12 4Q12 1Q13 2Q13
7.6 7.4 7.9 7.7 7.5
2Q12 3Q12 4Q12 1Q13 2Q13
2.8 3.1
2.01.3 1.6
-0.5-0.7
-1.0 -1.0
-0.5
2Q12 3Q12 4Q12 1Q13 2Q13
3.8
0.3 0.4 0.30.9
2Q12 3Q12 4Q12 1Q13 2Q13
5.4 5.24.7 4.8 4.4
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
2.9
1.7 1.81.4
2.7
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
1.8
1.3
2.52.7
0.2
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
7.7 7.6
6.76.6 6.6
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
4.8 4.65.2
5.86.1
Apr-13 May-13 Jun-13 Jul-13 Aug-13
5.15.7
8.8 9.0
11.7
Apr-13 May-13 Jun-13 Jul-13 Aug-13
8.37.3 7.5
11.3 11.3
Apr-13 May-13 Jun-13 Jul-13 Aug-13
3.7
3.32.9 2.8
1.9
Apr-13 May-13 Jun-13 Jul-13 Aug-13
3.5
1.5
-2.8
-1.8
2.6
Mar-13 Apr-13 May-13 Jun-13 Jul-13
4.3
1.8
-3.6
-1.7
3.0
Mar-13 Apr-13 May-13 Jun-13 Jul-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13
3.54.2
6.2
0.0
5.2
-2.1
-3.4
-5.9
-4.3
-2.3
Mar-13 Apr-13 May-13 Jun-13 Jul-13
ECONOMY MONITOR
43 AUGUST-SEPTEMBER 2013
v
v
EXTERNAL ACCOUNT
Exports (%) Imports (%) Trade Deficit (US$ Bn)
21.7
17.121.1
31.8
18.2
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)
Source: RBI, CSO, SEBI, Office of Economic Advisor, Bureau of Economic Analysis, Euro Stat, Bank of Japan, National Bureau of Statistics
MONETARY VARIABLES (%)
CAPITAL FLOWS (US$ billion)
OTHER IMPORTANT INDICATORS (y-o-y%)
Non-Food Credit Growth (y-o-y%) M3Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)
Net FII Flows Net FDI Flows Forex Reserves ECB flows
2.3
0.5
1.0
2.8
4QFY12 2QFY13 3QFY13
4.2
4QFY131QFY13
Core Sector Growth Cement Production Growth Steel Production Growth Commercial VehiclesProduction Growth
1.7
11.0
6.9
-1.1
-4.6
-0.4
11.6
-6.2
13.0
-0.68
17.820.1
12.2 12.3
10.9
1.3
2.8
2.0 2.1 2.2
Mar-13 Apr-13 May-13 Jun-13 Jul-13
Apr-13 May-13 Jun-13 Jul-13 Aug-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13
54.455.0
58.459.8
63.2
Apr-13 May-13 Jun-13 Jul-13 Aug-13
12.5 12.112.8 12.5 12.2
Apr-13 May-13 Jun-13 Jul-13 Aug-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13
4.00 4.00 4.00 4.00 4.00
2.0
5.2
-7.5
-3.0 -2.5
Apr-13 May-13 Jun-13 Jul-13 Aug-13
296.4
287.9284.6
277.2275.5
Apr-13 May-13 Jun-13 Jul-13 Aug-13
3.2
2.3 2.3
0.1
3.1
Mar-13 Apr-13 May-13 Jun-13 Jul-13
8.3
5.2
2.4 2.30.8
Mar-13 Apr-13 May-13 Jun-13 Jul-13
6.6
1.9
4.03.4
7.0
Mar-13 Apr-13 May-13 Jun-13 Jul-13
11.5
2.5
-15.4-17.9 -19.6
Apr-13 May-13 Jun-13 Jul-13 Aug-13
44ECONOMY MATTERS
14.7 15.5 14.617.3 18.4
Apr-13 May-13 Jun-13 Jul-13 Aug-13
7.25 7.25 7.25 7.25 7.50
May-13 Jun-13 Jul-13 Aug-13 Sep-13
EXTERNAL ACCOUNT
Exports (%) Imports (%) Trade Deficit (US$ Bn)
21.7
17.121.1
31.8
18.2
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)
Source: RBI, CSO, SEBI, Office of Economic Advisor, Bureau of Economic Analysis, Euro Stat, Bank of Japan, National Bureau of Statistics
MONETARY VARIABLES (%)
CAPITAL FLOWS (US$ billion)
OTHER IMPORTANT INDICATORS (y-o-y%)
Non-Food Credit Growth (y-o-y%) M3Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)
Net FII Flows Net FDI Flows Forex Reserves ECB flows
2.3
0.5
1.0
2.8
4QFY12 2QFY13 3QFY13
4.2
4QFY131QFY13
Core Sector Growth Cement Production Growth Steel Production Growth Commercial VehiclesProduction Growth
1.7
11.0
6.9
-1.1
-4.6
-0.4
11.6
-6.2
13.0
-0.68
17.820.1
12.2 12.3
10.9
1.3
2.8
2.0 2.1 2.2
Mar-13 Apr-13 May-13 Jun-13 Jul-13
Apr-13 May-13 Jun-13 Jul-13 Aug-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13
54.455.0
58.459.8
63.2
Apr-13 May-13 Jun-13 Jul-13 Aug-13
12.5 12.112.8 12.5 12.2
Apr-13 May-13 Jun-13 Jul-13 Aug-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13
4.00 4.00 4.00 4.00 4.00
2.0
5.2
-7.5
-3.0 -2.5
Apr-13 May-13 Jun-13 Jul-13 Aug-13
296.4
287.9284.6
277.2275.5
Apr-13 May-13 Jun-13 Jul-13 Aug-13
3.2
2.3 2.3
0.1
3.1
Mar-13 Apr-13 May-13 Jun-13 Jul-13
8.3
5.2
2.4 2.30.8
Mar-13 Apr-13 May-13 Jun-13 Jul-13
6.6
1.9
4.03.4
7.0
Mar-13 Apr-13 May-13 Jun-13 Jul-13
11.5
2.5
-15.4-17.9 -19.6
Apr-13 May-13 Jun-13 Jul-13 Aug-13
44ECONOMY MATTERS
14.7 15.5 14.617.3 18.4
Apr-13 May-13 Jun-13 Jul-13 Aug-13
7.25 7.25 7.25 7.25 7.50
May-13 Jun-13 Jul-13 Aug-13 Sep-13