1 ECONOMIC ENVIRONMENT 1.1 Recent Economic Developments -
India's economic growth has been accelerating in recent years although it is still below the 10% rate achieved in 2010-11. Under the newly-revised series of national accounts released in January 2015, real GDP growth was 6.9% in fiscal year 2013-141 and estimated to be around 7.4% in 2014-15; these revised figures show a more positive trend and outlook than data based on the previous series (Table 1.1).2 India's per capita GDP was around US$1,500 in 2013-14. Inflation (in terms of CPI) stood at 5.9% in July September 2014; food prices, although somewhat declining recently, have grown, thus continuing to affect overall consumer prices. In the past few years, inflation became slightly milder due partly to declining oil prices. Nonetheless supply-side constraints remain, resulting in a still high rate of inflation. India does not publish official unemployment figures; the authorities state that the largest employment sector in India is agriculture.3 The current account deficit has recently been decreasing, to about 1.7% of GDP in 2013-14, mainly due to decreasing merchandise trade deficit. Trade (exports and imports) in goods and non-factor services as a percentage of GDP was around 53% during the review period.
Table 1.1 Selected macroeconomic indicators, 2010-15
|
2010-11
|
2011-12
|
2012-13
|
2013-14a
|
2014-15a
|
Real GDP at market prices (Rs billion, 2004-05 prices)
|
52,823.9
|
56,330.5
|
58,998.5
|
61,958.4
|
..
|
Real GDP at market prices (US$ billion, 2004-05 prices)
|
1,159.0
|
1,175.5
|
1,084.3
|
1,024.1
|
..
|
Current GDP at market price (Rs billion)
|
77,841.2
|
90,097.2
|
101,132.8
|
113,550.7
|
..
|
Current GDP at market price (US$ billion)
|
1,707.9
|
1,880.2
|
1,858.7
|
1,876.9
|
..
|
GDP per capita at current market price (US$)
|
1,440.1
|
1,564.2
|
1,527.3
|
1,522.2
|
..
|
National accounts (Percentage change unless otherwise indicated)
|
Real GDP growth
|
10.3
|
6.6
|
4.7
|
5.0
|
5.5
|
Consumption
|
8.2
|
8.9
|
5.2
|
4.7
|
..
|
Private consumption
|
8.7
|
9.3
|
5.0
|
4.8
|
..
|
Government consumption
|
5.8
|
6.9
|
6.2
|
3.8
|
..
|
Gross fixed capital formation
|
11.0
|
12.3
|
0.8
|
-0.1
|
..
|
Exports of goods and non factor services (XGS)
|
19.6
|
15.6
|
5.0
|
8.4
|
..
|
Imports of goods and non factor services (MGS)
|
15.6
|
21.1
|
6.6
|
-2.5
|
..
|
Share of XGS in GDP (%)
|
22.0
|
23.9
|
24.0
|
24.8
|
|
Share of MGS in GDP (%)
|
26.3
|
30.2
|
30.7
|
28.4
|
..
|
Prices, interest rates and money
|
Inflation (%age change)
|
|
|
|
|
|
CPI industrial workers
|
10.4
|
8.3
|
10.3
|
9.8
|
5.0
|
WPI
|
9.6
|
8.9
|
7.4
|
6.0
|
..
|
Deposit rateb
|
8.25-9.0
|
9.3
|
8.75-9
|
8.75-9.25
|
8.5-8.75
|
Base ratec
|
8.25-9.0
|
10.0-10.75
|
9.7-10.25
|
10.0-10.25
|
10.0-10.25
|
Broad money (M3)
|
16.1
|
13.2
|
13.6
|
13.6
|
..
|
Exchange rate
|
Rs/US$ (financial year annual average)
|
45.6
|
47.9
|
54.4
|
60.5
|
61.0i
|
Real effective exchange rated (Percentage change)
|
12.5
|
-2.8
|
-3.5
|
-3.9
|
6.2i
|
Nominal effective exchange rated (Percentage change)
|
5.3
|
-7.9
|
-10.6
|
-10.5
|
1.0i
|
Central Government balance (% GDP)
|
Current balance
|
-3.2
|
-4.4
|
-3.6
|
-3.3
|
-3.0
|
Current revenue (revenue receipts)
|
10.1
|
8.3
|
8.7
|
8.9
|
9.2
|
Tax revenue (net)
|
7.3
|
7.0
|
7.3
|
7.2
|
7.6
|
Current expenditure
|
13.4
|
12.7
|
12.3
|
12.1
|
12.2
|
Capital receipts
|
5.3
|
6.1
|
5.3
|
4.8
|
4.7
|
Capital expenditure
|
2.0
|
1.8
|
1.6
|
1.7
|
1.8
|
Gross fiscal balancee
|
-4.8
|
-5.7
|
-4.8
|
-4.5
|
-4.1
|
Primary balancef
|
-1.8
|
-2.7
|
-1.8
|
-1.2
|
-0.8
|
Central Government total debt
|
50.6
|
50.2
|
55.2
|
..
|
..
|
Domestic debt
|
48.6
|
48.2
|
53.4
|
..
|
..
|
Saving and investment (% of GDP)
|
Gross domestic savings
|
34.2
|
30.8
|
30.8
|
31.5
|
31.8
|
Gross domestic investment
|
36.8
|
35.0
|
35.6
|
34.8
|
34.9
|
External sector (% of GDP)
|
Current account balance
|
-2.8
|
-4.2
|
-4.8
|
-1.7
|
-1.3j
|
Net merchandise trade
|
-7.5
|
-10.3
|
-10.7
|
-7.9
|
..
|
Services balance
|
2.6
|
3.5
|
3.5
|
3.9
|
..
|
Financial account
|
..
|
..
|
..
|
..
|
..
|
Direct investment
|
0.7
|
1.2
|
1.1
|
1.1
|
..
|
Terms of trade, goods (1999/00=100)
|
91.8
|
63.1
|
61.9
|
60.2
|
..
|
Merchandise exportsg (Percentage change)
|
40.4
|
20.9
|
-1.0
|
3.9
|
..
|
Merchandise importsg (Percentage change)
|
27.6
|
30.3
|
0.5
|
-7.2
|
..
|
Service exportsg (Percentage change)
|
29.8
|
14.2
|
2.4
|
4.0
|
..
|
Service importsg (Percentage change)
|
34.2
|
-2.9
|
3.2
|
-2.8
|
..
|
Foreign exchange reservesh (US$ billion, end period)
|
274.3
|
260.1
|
259.7
|
276.4
|
..
|
In months of imports
|
9.5
|
7.1
|
7.0
|
7.8
|
..
|
Total external debt (US$ billion, as at end March)
|
317.9
|
360.8
|
409.5
|
442.3
|
..
|
Debt service ratio
|
4.4
|
6.0
|
5.9
|
5.9
|
5.9
|
.. Not available.
a Provisional.
b Refers to the deposit rates of five major banks with maturity rates of one to three years.
c Relates to five major banks.
d Six currency trade based weight (including the euro, Japanese yen, U.S. dollar, UK pound, Chinese renminbi, HK dollar).
e Revenue receipts plus capital receipts (not including borrowing and other liabilities) minus total expenditure.
f Fiscal balance minus interest payments.
g Growth rates are based in US$.
h Excluding gold, SDRs (Special Drawing Rights), and Reserve Tranche Position in IMF.
i As at 6 March 2015.
j RBI estimate as given in Sixth Bi-Monthly Monetary Policy Statement 2014-15, 3 February 2015.
Source: Reserve Bank of India online information; Ministry of Finance (2015), Economic Survey 2014-15; IMF (2015), India – Staff Report for the 2015 Article IV Consultation; and information provided by the authorities.
-
In recent years, growth has been led mainly by services, which is the largest contributor to GDP, in particular in financing, insurance, real estate, and business services (Table 1.2); under the revised series of national accounts issued in January 2015, manufacturing's contribution to growth is higher than that using the previous series. The authorities have noted that, despite the decline in its relative share, agriculture continues to be the mainstay of the majority of the population, occupying some 56% of the total workforce (including non organized labour).4
-
The authorities aim to achieve a sustained growth of 7-8% or above within the coming 3 4 years.5 However, to achieve sustained growth at the potential rate, structural reforms would be needed; for example, bottlenecks will need to be eliminated and investment expanded in infrastructure, education (including vocational training), and health care. The business environment will also need to be simplified by streamlining the regulatory environment, including reforms in taxes and further trade liberalization. In this context, it has been reported that India's structural bottlenecks may include: (i) delays in project approvals reflecting difficulties in taking quick decisions6; (ii) ill-targeted subsidies, whose cost has been increasing steadily in recent years and benefitting the rich and the middle-class7; (iii) low manufacturing base and low value addition in manufacturing8; (iv) presence of a large informal sector and inadequate labour absorption in the formal sector due, inter alia, to absence of required skills; (v) low agricultural productivity; (vi) difficulty in land acquisition9; (vii) a need for a better transportation network (e.g. road, rail, and coastal shipping) and infrastructure (e.g. ports and airports) within India; (viii) unreliable power supply; and (ix) strict labour regulations and skill mismatches.10
-
While social conditions improved (e.g. the infant mortality rate declined to 42 per 1,000 in 2012 (compared with 66 per 1,000 in 2001)11 and the literacy rate reached 73% in 2011 (compared with 48% in 2001)12), poverty alleviation remains a challenge. In 2011-12, 21.9% of the entire population lived below the poverty line.13 Although these levels are considerably below those of around a decade ago (e.g. 27.5% in 2004-05), there is still a large number of the poor, especially in the rural areas (25.7% in 2011 12). The authorities are of the view that India's trade and related policies and measures are influenced by development and poverty-alleviation challenges.
Table 1.2 Basic economic and social indicators, 2010-15
|
2010-11
|
2011-12
|
2012-13
|
2013-14
|
2014-15a
|
|
Annual % change
|
GDP by economic activity at constant prices
|
Agriculture, forestry, and fishing
|
8.6
|
5.0
|
1.4
|
4.7
|
..
|
Mining and quarrying
|
6.5
|
0.1
|
-2.2
|
-1.4
|
..
|
Manufacturing
|
8.9
|
7.4
|
1.1
|
-0.7
|
..
|
Electricity, gas, and water
|
5.3
|
8.4
|
2.3
|
5.9
|
..
|
Construction
|
5.7
|
10.8
|
1.1
|
1.6
|
..
|
Services
|
9.7
|
6.6
|
7.0
|
6.8
|
..
|
Trade, hotels, and restaurants
|
12.0
|
1.2
|
4.5
|
1.0
|
..
|
Transport, storage, communication
|
12.6
|
9.4
|
6.0
|
6.1
|
..
|
Financing, insurance, real estate, and business services
|
10.0
|
11.3
|
10.9
|
12.9
|
..
|
Community, social, and personal services
|
4.2
|
4.9
|
5.3
|
5.6
|
..
|
|
(%)
|
Share of sectors in current GDP at factor cost
|
Agriculture, forestry, and fishing
|
18.2
|
17.9
|
17.5
|
18.2
|
..
|
Mining and quarrying
|
2.8
|
2.7
|
2.4
|
2.1
|
..
|
Manufacturing
|
14.8
|
14.7
|
14.1
|
12.9
|
..
|
Electricity, gas, and water
|
1.6
|
1.6
|
1.7
|
1.9
|
..
|
Construction
|
7.9
|
8.2
|
8.1
|
7.8
|
..
|
Services
|
54.6
|
54.9
|
56.3
|
57.0
|
..
|
Trade, hotels, and restaurants
|
17.3
|
17.4
|
17.2
|
16.5
|
|
Transport, storage, communication
|
7.3
|
7.3
|
7.5
|
7.5
|
..
|
Financing, insurance, real estate, and business services
|
16.1
|
16.5
|
17.2
|
18.5
|
..
|
Community, social, and personal services
|
14.0
|
13.8
|
14.3
|
14.5
|
..
|
Share of sector in total employmentb
|
Agriculture, forestry, and fishery
|
4.9
|
4.8
|
..
|
..
|
..
|
Mining and quarrying
|
4.3
|
4.1
|
..
|
..
|
..
|
Manufacturing
|
22.4
|
22.5
|
..
|
..
|
..
|
Electricity, gas, and water
|
3.1
|
3.0
|
..
|
..
|
..
|
Construction
|
3.3
|
3.2
|
..
|
..
|
..
|
Services
|
62.1
|
62.3
|
..
|
..
|
..
|
Wholesale and retail trade
|
2.5
|
2.6
|
..
|
..
|
..
|
Transport, storage, and communication
|
9.0
|
9.2
|
..
|
..
|
..
|
Financing, insurance, real estate, etc.
|
10.7
|
11.2
|
..
|
..
|
..
|
Public administration and defence, and other services
|
39.9
|
39.2
|
..
|
..
|
..
|
.. Not available.
a Provisional.
b Organized sector employment only.
Source: Ministry of Statistics and Programme Implementation online information. Viewed at: http://mospi.nic.in/Mospi_New/site/inner.aspx?status=3&menu_id=82. Reserve Bank of India online information, and Ministry of Finance (2014), Economic Survey 2013-14.
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