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Unlocking India’s potential
Utilities, industry and infrastructure
November 2015
An Economist Intelligence Unit report commissioned by
www.eiu.com
Unlocking India’s potential: Utilities, industry and infrastructure
Contents
Executive summary
2
Chapter 1: Enhancing industrial performance
3
Chapter 2: Powering India
9
Chapter 3: The urban infrastructure challenge
14
Chapter 4: Policy and economic outlook
18
Chapter 5: Data and charts
23
Chapters 4 and 5 are taken from The Economist Intelligence Unit’s India Country Report dated 29 September 2015. Chapters 1-3 are
analytical reports on manufacturing, energy and infrastructure written by The Economist Intelligence Unit and commissioned by
ABB India. All views expressed in this report are those of The Economist Intelligence Unit and not necessarily of ABB India.
© The Economist Intelligence Unit Limited 2015
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Unlocking India’s potential: Utilities, industry and infrastructure
Executive summary
Following the passage of liberalisation reforms in 1991, India’s economy has quadrupled in size,
expanding by over 7% a year on average. The country is now the world’s third-largest economy in
purchasing power parity (PPP) terms, having surpassed Japan several years ago. (India is ninth using
market exchange rates). The Economist Intelligence Unit (EIU) expects growth to continue at over 7%
a year between 2015 and 2018, and to exceed 8.5% in 2019.
India has the potential for greater growth, and a key driver of this would be expanding its
industrial base. To this end, the government introduced the “Make in India” campaign, a policy to
attract investment and build the country into a manufacturing hub. Almost every country that has
transitioned from low-income to middle- or upper-income status has followed the same route: an
agricultural revolution, followed by a move into labour-intensive manufacturing fuelled by ruralurban migration, followed by a move into higher value-added services and more capital-intensive
manufacturing as the economy develops. China is the great exemplar of this. India may not, however,
be able to tread the same path, both because new technologies may make basic manufacturing less
labour-intensive, and because it faces competition from other populous Asian (and, in decades to
come, African) countries with large pools of surplus rural labour. India will need to engage actively
with trends such as high-quality manufacturing, smart manufacturing practices, automation and the
Internet of Things in order for the “Make in India” strategy to be a success.
Any increase in manufacturing will also create a surge in energy demand, as will a growing, powerhungry middle class that spends more on consumer durables. This will create a greater strain on
energy supplies in a country with already frequent power cuts. The government has invested in more
renewable energy, and there are green shoots of success in solar and wind energy. The challenge,
however, comes in scaling these solutions, especially in remote areas. Local and global environmental
imperatives mean that the pursuit of coal is, at best, a medium-term solution. Given India’s
constraints, a combination of new power sources and better transmission and distribution will be
needed.
And as Indians grow richer and move into cities, the strain on infrastructure will exacerbate.
The government has announced urban development plans to grow smart cities, focusing on energy
efficiency and sustainability. Such infrastructure developments have the potential not just to
improve quality of life, but also to improve India’s standing as a preferred manufacturing location.
Nonetheless, the scale of the problem is vast, which makes infrastructure development immensely
challenging.
In this report, The EIU presents an overview of India’s economic and industrial outlook, highlighting
both opportunities and challenges with a focus on its manufacturing sector, its energy mix and its
infrastructure needs.
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© The Economist Intelligence Unit Limited 2015
Unlocking India’s potential: Utilities, industry and infrastructure
Chapter 1: Enhancing industrial performance
In brief
n The ‘Make in India’ campaign aims to build a vibrant manufacturing sector in India. If successful, this
would provide growth and jobs for its youth, although policy divergence between states means the impact
will be uneven across the country.
n High quality manufacturing, smart manufacturing practices, automation and new technologies, such as
Internet of Things, are important as India builds a successful manufacturing base; that India is a relative
late starter in industrialisation means that these can be incorporated as the capital stock grows, rather
than requiring retro-fitting.
n Government attention to the regulatory and enabling environment will be required to achieve high levels of
manufacturing productivity growth.
The government’s “Make in India” campaign aims to tackle a key challenge facing India — its continued
weakness in manufacturing output. The country’s manufacturing sector has barely grown as a
proportion of the overall economy: its share of GDP has risen from 16.9% of GDP in 1996 to an expected
17.0% in 2015. However, the shift in labour-intensive manufacturing away from China (driven by rising
average wages in Chinese coastal regions) presents India with an opportunity to transition its economy
to a higher income level.
Focusing on states will yield rewards
Under the “Make in India” campaign, the government envisages increasing manufacturing output
to 25% of GDP and creating 100m jobs by 2022. Such an economic transformation would be highly
beneficial for employment, both because manufacturing jobs tend to be higher paid than average,
and because exports can be used to rapidly scale up the number of jobs created — a development that
is particularly crucial in light of India’s abundant and young workforce. In addition, manufacturing is
often better able to provide workers with low to moderate skills with a path towards the middle class.
This is particularly relevant in India, where the dominant services sector typically provides workers
with employment in low-productivity, low-wage activities.
However, the manufacturing sector does require basic levels of literacy and numeracy, and the absence
of adequately skilled labour could prove a major constraint to such plans. While the country hosts some
of the world’s leading academic institutions, 26% of its people are illiterate (according to the most recent
census in 2011). If the recent pace of improvement in literacy is maintained, it will take India more than
two decades to achieve full literacy. Employment, even in light manufacturing, often requires basic
literacy and numeracy skills, and many illiterate people will therefore be forced to continue working in the
informal sector. Furthermore, literacy and workforce participation rates are much lower among females
than males. As a consequence, companies may struggle to benefit from the scale effects experienced in
China, where an abundant workforce offers the flexibility to significantly increase production, almost on
demand. China also benefitted from a higher average level of education when its manufacturing sector
emerged into the global scene with World Trade Organisation membership in 2001.
© The Economist Intelligence Unit Limited 2015
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Unlocking India’s potential: Utilities, industry and infrastructure
India and China: Manufacturing sector, labour force and literacy rate
Manufacturing as a %
of GDP
Population (m)
India
19.6
Maharashtra
26.5
Gujarat
32.3
Tamil Nadu
Uttar Pradesh
Karnataka
Rajasthan
China (2001)
Country/state
Male literacy rate (%),
2011
Female literacy rate
(%), 2011
1,210.9
82.1
65.5
112.3
89.8
75.5
60.4
87.2
70.7
26.4
72.1
86.8
73.9
16.1
199.8
79.2
59.3
20.6
61.1
82.0
68.1
22.1
68.5
80.5
52.7
31.0
1,271.9
95.1
86.5
Source: The Economist Intelligence Unit. India Census 2011. World Bank.
A closer look at state-level data reveals that companies hoping to attract workers would benefit
from targeting particular states. The three key states with the highest level of manufacturing activity—
Maharashtra, Gujarat and Tamil Nadu—also have above-average levels of literacy and offer a combined
population of approximately 245m people. Nonetheless, literacy levels even in these states are well
below those in China at the time its manufacturing sector took-off. Consequently, companies need
not necessarily wait for government plans to upgrade the skills of the country’s entire workforce
(for example, through vocational training) to reap the benefits of the “Make in India” campaign.
Instead, manufacturers can structure their strategies on a state-by-state basis. This diversification of
opportunities is further exemplified in the policy arena.
Policy divergence will be a key theme
While implementation of the “Make in India” campaign will improve the business environment and
increase opportunities for manufacturers, it is likely that it will prove too ambitious, both in terms
of scale and timing. Political gridlock will make timely implementation of key land and labour policy
reforms difficult, and land reform, in particular, will remain highly controversial. The government
has, for now, dropped its plan to ease the process for obtaining land using national legislation. The
EIU does not expect the upper house of India to pass comprehensive land and labour reform until
upcoming state elections change its composition. The EIU therefore expects significant national
reforms to be passed after 2018, when the government, which already holds a comfortable majority in
the lower house, is expected to gain control of the upper house. Many seats in the upper chamber will
be reallocated in that year.
In the short term, India’s business environment is set to improve thanks to the “competitive
federalism” initiative, which calls on individual states to pass reform. As each of India’s 29 states has
its own policies on taxation, the environment, labour and land acquisition, we expect policy divergence
to be a key trend over the coming years. Not all states will pursue reforms with the same zest and
vigour, but state-level competition over investment will spur significant improvements in the business
environment. While integrated, nation-wide improvements to the business environment would be
more effective—allowing India to attract manufacturers with the lure of economies of scale from its
potentially huge domestic market—state-by-state improvements are the next best solution.
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One positive sign is that the government, in cooperation with the World Bank, released a report on
the implementation of reforms across India’s states in September 2015. Overall, the states of Gujarat,
Andhra Pradesh and Jharkhand made the strongest progress in implementing reforms. In the future,
The EIU expects inequality between states to widen, but the focus on states remains a positive and
welcome step as it will reward reformers.
Automation solutions offer the potential to enhance manufacturing productivity
According to data from World Bank, on average, productivity in India’s manufacturing sector is lower
than in other emerging markets such as China, Brazil, Turkey or Indonesia. Indeed, according to
the 2012 Competitive Industrial Performance Index of the United Nations Industrial Development
Organization, India was ranked 44th out of more than 140 countries, behind competitors such as
Thailand and Indonesia. This underperformance is due mostly to the large number of small firms in
India, which do not benefit from economies of scale, resulting in below-average productivity levels.
India is also only ranked 56th out of 82 countries in the Business Environment Ranking (2015-19) of
The EIU, placing it on a par with Indonesia (57th) but behind China (53rd) and Malaysia (19th). Reforms
of stringent labour legislation (which often makes it economically unviable for companies to expand)
will be crucial in enhancing total factor productivity. For instance, employment protection legislation
dictates that companies with more than 100 workers require government approval to dismiss workers.
This incentivises firms to remain small, as they rightly fear that they will not be able to shed workers in
the event of a future downturn. Minimising wage complexity will also be a key issue as there are more
than 1,000 different minimum wages in India. Again, this means that India cannot fully exploit the
advantages associated with offering economies of scale.
Over the past decades, productivity gains in India’s leading manufacturing and industrial subsectors
(such as oil refining) were driven largely by increased capital intensity. In contrast, growth in total
Value added per hour worked, 2009
(US$ PPP)
35
Manufacturing
Services
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
India
China
Brazil
Mexico
Russia
Turkey
Indonesia
Source: World Input Output Database. Worldbank WDI database.
Value
per employee,
©
The added
Economist
Intelligence2009
Unit Limited 2015
(US$ PPP)
5
Manufacturing
Services
20
20
15
15
Unlocking India’s potential: Utilities, industry and infrastructure
10
10
5
5
0
0
India
China
Brazil
Mexico
Russia
Turkey
Indonesia
Source: World Input Output Database. Worldbank WDI database.
Value added per employee, 2009
(US$ PPP)
60
Manufacturing
Services
60
50
50
40
40
30
30
20
20
10
10
0
0
India
China
Brazil
Mexico
Russia
Turkey
Indonesia
Source: World Input Output Database. Worldbank WDI database.
factor productivity has been sluggish, with only a few exceptions, such as telecommunications or
chemicals (according to India’s Annual Survey of Industries). By increasingly using automation
solutions, however, manufacturers can permanently enhance productivity and ensure consistency in
quality standards. This is crucial to maintaining profit margins as many manufacturing subsectors have
become increasingly commoditised. Idle time can be another challenging issue in factories, but by
adopting integrated automation processes, companies can reduce bottlenecks and improve efficiency
within the overall value chain. Automation does pose a challenge for job creation in India, however,
given that the labour intensity of manufacturing may be lower in the 2020s than it was in the 1990s,
when China’s manufacturing boom began.
Automation is already being used by leading manufacturers in India. An automotive company,
Volkswagen, has 114 robots and machines interconnected in its plant in Pune, India. An electronics
manufacturer, Panasonic, is also investing US$200m in a large manufacturing facility in Haryana,
where processes will be highly automated.
Smart manufacturing and the Internet of Things
To succeed as a global manufacturing hub, India also has to be a leader in innovation. The “Make in
India” policy thus has a strong focus on smart manufacturing, encouraging automation and state-ofthe-art machinery to enhance productivity, from product development through to manufacturing and
delivery.
The Internet of Things (IoT)—an environment in which objects communicate with each other
through the Internet and without human-human or human-computer interaction—can be critical in
such automation. Modi’s plan for high-quality manufacturing (his slogan is “zero defect, zero effect”)
will require more IoT technologies, which are already increasingly in use in traditional economic
sectors such as agriculture, transportation and healthcare. The government’s draft IoT policy aims to
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make the adoption of such technologies more attractive by reducing duties by up to 100% for imports
of raw materials required in the production of IoT products.
Energy efficiency improvements will reduce costs
India imports over 75% of its oil requirements and faces persistent shortfalls in power supply, both of
which make energy efficiency important in manufacturing. Subject to the vagaries of global energy
prices, this can negatively affect profitability at the firm level.
As India upgrades its manufacturing base, efficient energy systems will therefore play a critical role
in keeping the sector globally competitive. According to the International Energy Agency (IEA), the
creation of one unit of value added in the manufacturing sector, for example, requires 4 to 22 times as
much final energy input than the services sector. The “Make in India” campaign will need to utilise the
substantial energy savings potential in India if it is to be cost-competitive. Manufacturing activities
already account for one third of the world’s total final energy demand and, with continued growth,
industrial demand for energy is expected to rise rapidly, highlighting the importance of energy
efficiency.
India will benefit from being a late starter in this
area as this provides an opportunity to adopt the
latest energy-efficient technologies to support its
ambitions in improving industrial performance.
Such investments often pay for themselves quickly.
In Pepsi’s bottling plant in India, for example,
introducing energy-efficient technologies led to
savings of 10-20% in the plant’s entire electricity
bill. Within two years, the costs of investment
were recovered through these savings. Access to
finance, especially for small and medium-sized
firms, will be critical to unlocking the upfront
capital expenditure required to adopt these
technologies.
Incentives for green technology and practices
• 5% interest in reimbursement & 10% capital subsidy for the production of
equipment/machines/devices for controlling pollution, reducing energy
consumption and conserving water.
• A grant of 25% to SMEs for expenditure incurred on audit subject to a maximum of
INR 100,000.
• A 10% one-time capital subsidy for units practising zero water discharge.
• A rebate on water cess for setting up wastewater recycling facilities.
• Incentives for renewable energy under the existing schemes.
• An incentive of INR 200,000 for all buildings that obtain a green rating under the
IGBC/LEED or GRIHA systems.
Source: www.makeinindia.com
Energy-efficient machinery has a higher fixed cost and lower operating cost, making it difficult for
credit-constrained small and medium enterprises (SMEs) to finance. In Singapore, the government
ensured generous support for SMEs when it announced plans to enhance industrial productivity.
Singapore’s SME Energy Efficiency initiative, which was launched in July 2013, targets four
industries that were identified as having the largest potential for energy savings. The three-step
government support includes energy audits, energy monitoring systems and energy efficiency project
implementation. The “Make in India” campaign also aims to encourage growth in SME firms, seen as
important in generating employment, and government support will play an important role in helping
these cash-strapped firms to finance and implement projects designed to increase energy efficiency.
© The Economist Intelligence Unit Limited 2015
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Unlocking India’s potential: Utilities, industry and infrastructure
India set to perform well
Indian citizens will benefit from a more productive and efficient manufacturing sector through better
employment opportunities and a reduced environmental burden. A low-productivity manufacturing
sector has, for too long, kept Indian companies’ exposure to world markets far below potential. This is
set to change. Solutions and opportunities are as abundant as challenges, but continued government
support will be required to further improve the business environment, both at the national and the
state level. Improvements will not be uniform across India, and certain states and subsectors will
outpace others. This is not necessarily a negative development as economic growth, particularly
in fast-developing nations, is often spread unevenly. It does, however, mean that the regulatory
environment is critical. Manufacturers that opt for a careful and strategic approach, taking into
account sectoral and geographical differences, could reap significant rewards.
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Unlocking India’s potential: Utilities, industry and infrastructure
Chapter 2: Powering India
In brief
n Economic growth will require more energy in a country that is already power-strapped.
n The government has invested in more renewable energy, especially wind and solar energy, but there is still
a large scope for further expansion of renewables.
n Grid expansion using microgrids can decentralise electricity supply, minimise risk and enhance overall
resilience of the electricity system.
Frequent power cuts have plagued India for years and will remain a key challenge, both for the
government (which needs to fund and incentivise new investment) and for companies (which need
to adapt to an unreliable power supply). An estimated 400m citizens lack connection to the national
grid, and 50m manufacturing workers toil in factories without reliable electricity. In Maharashtra, for
example, the System Average Interruption Duration Index (average outage for each customer served)
was, on average, 76.7min per month in 2011, 85.3min in 2012 and 82.4m in 2013. The government has
set out the ambitious target of providing 24-hour residential power to all of India’s citizens by 2022.
While this will be difficult to achieve, particularly in northern regions where geography makes building
of infrastructure a challenge, providing electricity to more households will positively contribute to
overall growth.
The EIU forecasts that electricity consumption in India will increase by an annual average of 5.8%
between 2015 and 2020. Demand will be driven by robust economic growth, which will continue to
raise incomes and will lead to greater demand for consumer durables. India’s vast potential for energy
efficiency and its deficiencies in supply mean that electricity demand will grow at a slower rate than
GDP. Further gains in efficiency would be possible if the generous subsidy regime, which already places
significant strains on power infrastructure, is wound back.
Theft, losses and grid solutions
Generally, existing sources of power are mired in legal, structural and pricing issues, which vary widely
across the country. Government figures show that the electricity deficit at peak times is much lower in
certain states than in others. For instance, the deficit stands at just 0.8% of peak demand in Gujarat
but is 5.2% in Maharashtra. Across India, the average deficit at peak times is 4.7%. Transmission and
distribution losses mean that rolling blackouts and power grid failures will persist, even in the more
successful states. Power transmission and commercial losses were estimated to be 31% in 2010/11,
according to the International Energy Agency. This figure is much higher than in comparable emerging
economies such as Indonesia, where only around 10% of the power that is generated never reaches the
consumer.
Companies operating in the electricity sector would, however, benefit from implementation of the
Phase 2 of the government’s financial restructuring plan (FRP) government plans, which could be
issued in late 2015. Distribution companies (discoms) face high debt burdens as they have regularly
© The Economist Intelligence Unit Limited 2015
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Unlocking India’s potential: Utilities, industry and infrastructure
incurred losses by providing power at subsided rates to keep electricity affordable. Under the FRP,
some state governments — including Tamil Nadu, Bihar and Uttar Pradesh — will take over the debt
of power distribution companies and convert the debt into state government-backed bonds. This,
in turn, will free up capital at distribution companies, allowing them to expand and invest in new
capacity. However, the state and national government must accept that, overall, higher retail prices
for electricity are necessary to sustainably drive further investment.
A key criticism of energy policy in India is that capacity expansion has not been accompanied by
grid expansion and the upgrading of existing power plants, resulting in imbalances that prevent
optimal operation of the network. By using micro-grids and renewable energy sources, the government
could decentralise electricity supply, minimising risks while also enhancing the overall resilience
of the electricity system. For instance, in the absence of connections to national or regional grids,
solar power plants could rely on mobile towers from micro-grids in rural areas. This aligns with the
government’s goal of bringing a reliable and constant electricity supply to India’s thousands of
villages. These villages are often located in highly remote areas, which makes connections to larger
grids cost-prohibitive and logistically very challenging.
Importantly, an emphasis on micro-grids would also help India to develop domestic capabilities
in the micro-grids sector, allowing it to expand its presence in a high-value, high-technology
manufacturing sector. With approximately 200 companies already engaged in this field, there is strong
growth potential. However, these companies often lack a robust revenue model and struggle to attract
the necessary capital to expand operations at a faster rate. One solution would be to place micro-grids
close to mobile towers, which use a lot of energy, thereby establishing a revenue stream for energy
companies while also enhancing communications in rural areas.
Of course, some challenges remain. For example, locals sometimes view such grids with suspicion
and prefer subsidised conventional power, which makes renewable energy a potential political
issue. The expensive components of micro-grids also tend to get stolen. Despite these challenges,
however, micro-grids (in combination with renewable energy sources) have the potential to address
India’s energy needs in a sustainable manner, particularly if awareness campaigns are conducted to
communicate the benefits of these grids.
In 2013, the Power Grid Corporation of India integrated five regional grids into a single national
grid, with more than 70,000 miles of transmission lines across the country. While these lines
reportedly reach within a few miles of most of the population, transmission between regions
remains unstable. Regulatory intervention could exploit communications technology to analyse
user information and allow smart grids to respond to changes in local consumption patterns. Energy
management through smart meters will be fruitful and important, particularly in combination with the
smart cities and digital India initiatives.
Coal to remain the main source of energy…
India will continue to rely on coal-powered thermal plants as its main source of energy in the long
term, and in 2030, coal will account for over 50% of total energy supply. Although the country has the
fifth-largest reserves of coal in the world, domestic production falls short of demand and coal imports
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are required to bridge the gap. Going forward, increasing domestic coal production and developing
other energy sources will be critical and inevitable. The government has plans to halve coal imports
by 2020 and eliminate them by 2030, although this may be ambitious if there is not a marked increase
in the rate of domestic supply growth. Mindful of this challenge, the government has granted over
40 mining licenses and expects a new coal mine to open every month until 2020, which could double
domestic production by 2020, with 1.5bn tonnes of coal added every year between 2020 and 2030.
While this might provide energy in the immediate term, it could leave India with an expensive stock of
stranded assets if global climate change regulation forces an early move away from coal.
… but renewables will expand rapidly
In order to sustainably develop the power sector, India plans to diversify its energy mix. Although it
is starting from a relatively low base, the share of renewables within the energy sector is expected to
rise significantly from 7.3% in 2014/15 to 18.9% in 2021/22, based on Ministry of New and Renewable
Energy (MNRE) figures. India has also pledged that 40% of its electricity generation will be sourced
from non-fossil-fuel energy resources by 2030. Developing more power from renewables will bring
India closer to achieving another target: reducing the emission intensity of its GDP by around 35%
by 2030. This is particularly important given that international regulations regarding greenhouse
gas emissions are likely to become tougher throughout the 2020s, when India’s power needs will be
growing rapidly.
The MNRE announced a renewable energy target of 175GW in the 13th Plan Period (2017-2022).
The energy department’s goals include generating 100GW of solar power and an energy infrastructure
investment of US$100bn, along with an additional investment of US$50bn to upgrade the strained
grids. The Indian government also plans to increase wind generation to 15GW by 2017 in its 12th Plan
Period (2012-17), and to 60GW by 2022. If investment sentiment remains positive, India could come
close to reaching this target. According to the minister for power, Piyush Goyal, renewables currently
contribute 35GW, and investors have committed to fund the generation of another 276GW by mid2022. This may be optimistic, but it suggests that there is a willingness to invest in India’s renewable
energy sector if the conditions are right.
More investment in renewables necessary
Renewable energy investment is much lower in India than in China, even though both countries
have abundant renewable energy resources. According to a United Nations Environment Programme
(UNEP) report, China attracted US$81bn (excluding research and development) in renewable energy
investment in 2014, while India attracted US$7bn. In the renewables sector, opportunities for India lie
primarily in solar and wind power. Indeed, India’s solar power sector has already attracted significant
foreign interest and investment. Japan’s Softbank, for example, announced an investment of US$20bn
in solar projects in India, and the German state committed to an investment of US$1.5bn in solar
projects in India.
The falling cost of solar power globally is also good news for the country. In sunny parts of India that
are remote from the grid, solar power is increasingly able to compete with the diesel generators that
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Unlocking India’s potential: Utilities, industry and infrastructure
currently provide much of the local power. Solar power could experience strong growth in these areas
given that it is expected to reach grid parity by 2018 — four years earlier than the MNRE previously
thought. There have also been city-level innovations. Bangalore, for example, has mandated that solar
water heaters must be installed before electricity connections are provided. Such schemes are small,
however, and need to be scaled to realise their full potential.
There are a number of challenges facing the solar power sector. First, India has to import most
of its solar power equipment because international producers are more cost-competitive than local
producers. This could create significant challenges for the government when large tenders for solar
parks are awarded, prompting local producers to complain about unfair competition from abroad.
Second, local distribution networks will have to be upgraded to balance power loads and ensure supply
even on cloudy days and at night. While this could present a major challenge, utilities can address
this problem by focusing on grid connections, grid control and energy storage options. Dynamic
pricing also offers a way to balance power loads. Third, new bidders for India’s solar power projects
have sometimes bid below cost, raising concerns about the financial sustainability of these projects.
Many rely on the promise of government subsidies to bridge the cost gap, but in a country where the
government has struggled with containing its fiscal deficit, this expectation is impractical.
At present, big solar power plants are concentrated in key states like Gujarat, Rajasthan and
Karnataka. Such concentration means that aggressive state-level policy and initiatives will be required
for a broader expansion of solar power. Gujarat, for example, has implemented an aggressive solar
policy and has succeeded in attracting large-scale investments. It also has a solar park, which is home
to all required infrastructure and has the capacity to handle multiple projects. Even as India’s solar
villages and solar airports make headlines (Dharnai in Bihar became India’s first completely solar
village in July 2014, and the Cochin International Airport became the world’s first solar airport in
August 2015), challenges to the success of the National Solar Mission, under which most of India’s
solar programmes have been undertaken, remain significant.
India also has opportunities in the wind power sector and already has the world’s fifth-largest wind
power capacity. Further expansion will not be straightforward, however, as many of the windiest sites
in India have already been taken by early adopters, and wind speeds in India tend to be lower than in
western Europe or the United States. To address these challenges, India is innovating low-wind-speed
turbine technologies and passing land use regulations that allow the dual use of agricultural land for
wind power generation. Such initiatives are expected to lead to the continued growth of wind power.
According to credit rating agency CRISIL’s forecasts, doubling capacity in the wind and solar
power sectors requires an investment of Rs3trn (US$46.2bn ) over the next five years. This poses a
financing challenge, particularly as banks prefer to lend mostly to government-run conventional power
companies. As such, state and federal governments will have to play a significant role in expanding the
reach of renewables, either through direct funding or schemes to leverage private sector investment.
India could be set to witness the most rapid expansion in solar power capacity ever seen; in 2013, it
was only tapping 1% of its potential capacity.
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Known challenges need to be tackled
The key issues facing the energy sector have been well known for years, and both the government
and the private sector are taking positive steps to address them. Nonetheless, given the myriad
constraints, a combination of new power sources and improved transmission mechanisms will be
necessary to address the country’s severe and chronic power problems. It is also imperative to address
the indebtedness of discoms, and to develop a uniform, transparent and sustainable pricing policy
that can support a nascent and buoyant renewable energy sector. If India can overcome these issues,
renewables may provide an opportunity to gradually reduce coal’s share in India’s energy mix over the
coming 30 years, and to build a sustainable and efficient energy future.
© The Economist Intelligence Unit Limited 2015
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Unlocking India’s potential: Utilities, industry and infrastructure
Chapter 3: The urban infrastructure challenge
In brief
n Continued growth and urbanisation will put more strain on India’s infrastructure.
n Government plans to develop smart cities with a focus on energy efficiency and sustainability will improve
city dwellers’ quality of life and support overall economic growth, but effective implementation will be
challenging; nonetheless, it is possible the initiative could have an impact beyond its relatively modest
funds.
n Some progress has been made to develop green buildings and transportation, but the regulatory,
investment and financing environment remains an impediment.
India’s infrastructure needs are well chronicled and the scale of investment required is daunting.
According to the World Bank, India will need US$1.7trn by 2020 to build its infrastructure, including
new roads, ports, airports, railways and information technology structures. This is critical to
supporting the country’s growth and pace of urbanisation, the scale of which will remain dizzying.
Hundreds of millions of people will leave the countryside to seek higher wages and a better life in
the cities. India’s urban population has already grown by more than 150m since 1990, and the OECD
predicts that it will grow by another 500m by 2050. Urbanisation will place increased pressure on
limited resources including land, water and clean air, all of which are already scarce in most urban
areas. Without appropriate planning, this situation is likely to deteriorate further.
A smart mission
The government has an urban development plan called the Smart Cities Mission, which aims to improve
the quality of life in cities. The administration is promising 100 smart cities by 2022, and the federal
government has allocated US$7.5bn for the project. However, considering the scale of the investment
needs, funds provided by the smart cities initiative are insufficient.
Smart cities represent the government’s urban vision of world-class infrastructure, regular
water supply and uninterrupted electricity, all connected by grids and integrated with information
technology to ensure a more efficient use of resources and to optimise services. State-of-the-art
infrastructure and modern buildings are part of the 100 smart city ambition, and hospitals, schools
and traffic will all be managed by a central command centre.
Fibre optics and next-generation infrastructure will be the hallmarks of these cities. Apart from
new networked cities, plans include the rejuvenation of 500 additional cities, which will be upgraded
and modernised. By 2030, the government expects that 70% of the country’s economic output will
be generated in such places. The vast infrastructure needs of India’s burgeoning cities mean that the
presently allocated funds for the Smart Cities Mission will prove too small to make a significant impact
across all of the 100 cities. However, by acting as a catalyst that showcases best practices, rewards
productive investments and instils a new urban vision in the predominately rural nation, the Smart
Cities Mission could have a large impact beyond its relatively modest funds.
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Smart villages also play a key role
With two thirds of the population in the world’s biggest democracy still living in rural areas, there is
both a political and an economic imperative to look beyond India’s largest cities. In September 2015,
Mr Modi’s cabinet approved the Shyama Prasad Mukherji Rurban Mission (SPMRM), which seeks to
establish 300 rural clusters by 2019-20. In these clusters, the federal government will participate in
developing skills and local entrepreneurship and providing infrastructure to encourage development.
Although there are other central government rural development schemes, the administration claims
that its central role in this initiative sets it apart from similar programmes.
A notable state-level initiative is the one launched by the chief minister of Andhra Pradesh (AP),
Chandrababu Naidu. Announced in January 2015, the “Smart Village — Smart Ward Towards Smart AP”
initiative envisions participation by non-resident Indians, bureaucrats, businessmen and anyone else
who will work with the government to increase the living standards of rural residents in the state.
The plan aims to tap into the urge to give back to society, and according to reports, 8,000
partnerships have already been established. With a push for financial inclusion from the central bank
and the government of India, rapid growth in rural areas is more feasible now than ever before. In
2014, less than one sixth of India’s villages had a local bank branch, underlining the potential for
new technology-based solutions. For instance, ICICI Bank (a large private-sector bank) launched
an initiative in Akodara, turning it into a “digital village”. Thanks to this effort, all local residents
have been able to open savings accounts and can conduct financial transactions with physical
documentation. Bank accounts can also be accessed through mobile phones via SMS, offering another
cost-effective way of providing financial services to India’s underbanked rural population.
Green buildings offer huge opportunities
Energy efficiency in construction, and particularly the development of green buildings, will offer one
of the largest opportunities for cooperation between India and international partners. Approximately
35% of electricity consumption is attributable to buildings, and the potential for savings is significant.
Throughout their life cycle, green buildings use resources such as energy, water and materials to limit
their impact on the environment. Given the large inflow of people into cities, building suitable homes
that comply with international best practices in environmental sustainability will be a mammoth task.
India can leverage existing technologies to ensure that new buildings are constructed with energy
efficiency in mind, reducing the burden on the environment, as well as heating and other energyrelated costs for its people. In many cases, this can be done without developing new technology
because best practices from elsewhere can be adopted.
Green buildings have come a long way in India, and the Indian Green Building Council (IGBC) — a
non-profit group consisting of corporate members — wants to support the development of the sector
and help turn India into a world leader in sustainable construction by 2025. The IGBC wants to support
the expansion of India’s green building footprint, already among the largest in the world, to 9m sqm by
2022. Supporting this goal, the government and the IGBC will work together to ensure that the smart
cities initiative encourages more green buildings through certifications and green building ratings.
© The Economist Intelligence Unit Limited 2015
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Unlocking India’s potential: Utilities, industry and infrastructure
Green buildings are often more expensive to construct for developers, however, and home buyers
are often not convinced by purported energy savings. Awareness about the value of green buildings
remains a challenge, particularly in tier two cities and below, but this can be overcome through
dedicated marketing campaigns that explain the benefits. Trusting developers to comply with green
building standards is another issue that limits demand.
A certification or rating process can solve such issues, and progress to date has been encouraging.
The New Delhi-based Energy and Resource Institute developed the Green Rating for Integrated
Habitat Assessment (GRIHA), which rates buildings across 34 criteria and has been adopted by the
government. In the area of green buildings, smart regulation (if enforced consistently) can have a big
impact.
Getting around—sustainably
To ensure that India’s growing cities will be environmentally sustainable, the government and private
sector partners will have to combine personal transport options with sustainable public transport.
Car sales in India are growing fast and the country is set to surpass Russia this year, with 2m new cars
expected to be purchased by Indian consumers. India is expected to surpass Germany as the fourthlargest car market by 2019. Considering its population size, however, India’s car market remains
relatively small, standing approximately at the level of China’s in 2000. This puts India in a favourable
position as dedicated government policies can still shape the direction of the car market, which is yet
to enter its large expansion phase. Chinese consumers are expected to purchase as many as 20m new
cars this year, underlining the enormous growth potential in India, particularly if the “Make In India”
initiative is successful and incomes rise quickly.
Government support for electric cars has been much lower in India than in China. China has taken
positive steps in the field of electric cars by aggressively promoting the sector with generous funding
for search and purchase incentives. Many local governments run their own schemes, supporting
local producers. Under new plans issued in late 2015, China also plans to build a nationwide network
of charging stations, constructing a station for every 2,000 electric cars. Such plans allow China to
address concerns about transport sustainability and environmental pollution, while ensuring that
it plays a leading role in a space that will be critical in the future development of a large automotive
sector.
In contrast, Indian government support for electric cars has been relatively subdued. At the
national level, it will be challenging for the Indian government to provide the necessary infrastructure,
such as charging stations. (Indeed, given the large size of the Indian subcontinent, it may be costprohibitive for decades to come.) However, the Chinese example shows that focusing on densely
populated cities can work. Bridging the gap between relatively expensive electric cars and traditional
cars will also be important.
On a positive note, there have already been encouraging and innovative schemes in the realm of
public transportation that provide a glimpse into the future. For example, the Swedish automotive
company Scania and Swedfund (the development financier of the Swedish state) launched a pilot in the
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Unlocking India’s potential: Utilities, industry and infrastructure
city of Nagpur, the third-largest city in the Indian state of Maharashtra. Under this scheme, a biogas
plant will be built in the city and this will be used to operate the city’s ethanol-run buses.
The rail sector is also ripe for reform. Using railways for freight transport would free up India’s
clogged roads and reduce pollution. Even though road transport is often inefficient in India — owing
largely to poor road quality, slow turnaround times and long wait times at state border checkpoints —
it is still generally preferred over the railways. This is because high freight rates are used to subsidise
low passenger fares, encouraging the use of cheaper roads. The average freight rate is five times higher
than the average passenger fare.
Rising freight costs have also proven burdensome in sectors such as steel, where high freight costs
eat into slim profit margins. Exports of agricultural products such as rice also suffer. More investment
into railway expansion will be necessary, and not just for passengers. Transport policy needs to
become more integrated, and cross-subsidies need to be removed so that the relative environmental,
congestion and other costs of road and rail are properly reflected in prices.
Getting investment right will be crucial
For India, the importance of getting infrastructure development right cannot be overstated.
Urbanisation, connectivity, financing and inequality make this particularly challenging. Nonetheless,
the scale of the opportunity is vast, and India remains at a point on the industrialisation path where
the right action (by both the public and private sectors) can easily influence this for the better. The EIU
expects that the average annual growth in investment in India will be 7.7% a year over the next decade,
which means that the annual investment spend in 2025 will be more than double (in real terms) the
annual investment spend in 2015. Spent well, this has the potential to make a huge difference, not just
to the size of India’s economy but also to the living standards of India’s 1.3bn people.
© The Economist Intelligence Unit Limited 2015
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Unlocking India’s potential: Utilities, industry and infrastructure
Chapter 4: Policy and economic outlook
In brief
n India is undergoing rapid political and economic change. The National Democratic Alliance (NDA), led by
the Bharatiya Janata Party (BJP), currently holds a majority of seats in the lower of house of parliament
and The EIU expects it will remain in power in 2015-19.
n We expect real GDP growth of an average of 7.4% annually in fiscal years 2015/16 to 2019/20 (April-March).
Economic expansion is forecast to accelerate once the BJP gains control of the upper house in 2018.
n We also forecast that consumer price inflation will average 5.6% in 2015 and 5.7% a year in 2016-19, which
will give the Reserve Bank of India (the central bank) space to loosen monetary policy in a phased manner.
Policy trends
Mr Modi stormed to power by making promises to boost economic growth, increase employment and
improve infrastructure. To date, however, “big-bang” reforms have been limited. The BJP’s lack of
a majority in the Rajya Sabha, upper house in Parliament, means that significant parts of Mr Modi’s
economic reform package will be delayed or watered down in scale and content until the party gains a
majority in the upper house, which we expect it to achieve in 2018.
The budget for fiscal year 2015/16 (April­March) — the BJP government’s first full spending plan —
was not visionary, but it did loosely stitch together some important reform measures. These included
simplifying the tax structure and expanding the social security net.
The government is also encouraging states to compete with each other to improve their business
environments in order to attract investment and propel economic growth. This has enhanced an
existing trend under which state governments have been forced to improve their performance by
increasingly demanding electorates. Significant steps to ease bureaucratic logjams have been adopted
in states such as Maharashtra, Rajasthan, Andhra Pradesh and Gujarat.
The administration will have difficulty overcoming the many structural constraints on economic
growth in the near term. These include a persistently wide fiscal deficit, archaic labour laws and major
gaps in infrastructure. These problems require structural change, which will occur only gradually.
Despite the much-vaunted launch of Mr Modi’s “Make in India” campaign, to turn the country into a
global manufacturing hub, inadequate infrastructure (including erratic power supply) and uncertain
prospects for reform in the politically difficult areas of land and labour laws mean that this campaign
will disappoint.
Despite its right-of-centre slant, the government remains vulnerable to the demands of labour
unions. In September ten trade unions, representing 150m workers, held one of the country’s largest
strikes in history, affecting sectors such as banking, construction, transport and coal mining. In
January the government had to renege on its plans to privatise the coal industry following a strike by
3.5m employees of a state-owned mining company, Coal India. However, the administration passed
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Unlocking India’s potential: Utilities, industry and infrastructure
legislation in March to permit commercial mining and successfully reauctioned some cancelled coal
mining licences. These measures could boost coal supply and help to relieve India’s chronic power
shortages, but the effects will probably be modest, as large swathes of coal reserves are in protected
areas, which could lead to a delay in state clearances.
Fiscal policy
The budget for 2015/16 prioritised economic growth over fiscal consolidation, marking a missed
opportunity to consolidate messy fiscal accounts amid a favourable environment of low oil prices. A
sharp increase in public spending to drive economic growth and move ahead on stalled infrastructure
projects resulted in an expansion of the budget deficit to 70% of the annual target in April-July 2015.
The implementation of the “One Rank, One Pension” scheme, which ensures uniform pension
payments to former soldiers based on their length of service and rank, regardless of when they retired,
will further add to the fiscal burden — it is expected initially to cost US$1.2bn to 1.5bn. Consequently,
we expect the fiscal deficit to breach the government’s target, set at the equivalent of 3.9% of GDP, and
come in at 4%.
Fiscal deficits are set to remain large over the forecast period. Despite an increase in tax revenue, an
increasingly prosperous population will demand higher spending on social services and infrastructure.
Those on lower incomes, in particular, will call for more government support. India has historically
suffered from a low tax-to-GDP ratio, which the government will be keen to boost. As the economy
expands at a healthy pace over the forecast period, the government will be able to tax a growing and
increasingly wealthy share of the population, as well as businesses that have previously been able to
operate outside the tax system.
The government’s inconsistent stance on retrospective taxation will have an adverse effect on
business sentiment over the forecast period. In a positive step, in September the government stated
that it would not impose the so-called minimum alternate tax on foreign portfolio investors. In
March foreign investors were spooked after the Income Tax Department issued tax notices, worth
up to US$10bn, demanding payments with retrospective effect. However, the final decision is
unlikely to allay investor concerns, as the retrospective tax claim has fundamentally undermined the
administration’s credibility. Consequently, concerns over retrospective taxation will remain and will
dampen portfolio investment inflows.
Monetary policy
The Reserve Bank of India (RBI, the central bank) cut its main policy interest rate, the repurchase
rate, by 50 basis points to 6.75% in September. We do not expect another rate cut in 2015. Further
reductions could take place, albeit only gradually at a pace of 25 basis points, as the RBI wants to avoid
the risk of reigniting inflation and currency depreciation.
Throughout the forecast period, the risk that poor crops will fuel inflationary pressures, as well
as the weak transmission of policy rate cuts (if banks maintain high lending rates despite interestrate reductions by the RBI), will weigh on monetary policy decisions. Future rate cuts will also be
contingent on the effectiveness of the government’s fiscal consolidation efforts.
© The Economist Intelligence Unit Limited 2015
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Unlocking India’s potential: Utilities, industry and infrastructure
International assumptions
2014
2015
2016
2017
2018
2019
US GDP
2.4
2.5
2.4
2.4
2.6
1.4
OECD GDP
1.8
2.1
2.3
2.3
2.4
1.9
World GDP
2.3
2.4
2.6
2.3
2.4
2.1
World trade
3.0
2.5
3.5
5.0
5.6
5.6
US CPI
1.6
0.3
1.7
2.3
2.5
2.0
OECD CPI
1.6
1.5
1.9
2.2
2.2
2.0
Economic growth (%)
Inflation indicators (% unless otherwise indicated)
Manufactures (measured in US$)
-0.3
0.4
1.5
1.9
1.2
1.4
Oil (Brent; US$/b)
98.9
53.1
60.0
72.7
81.2
85.0
Non-oil commodities (measured in US$)
-5.3
-15.9
2.6
5.1
5.4
2.6
0.1
0.3
1.2
2.6
3.4
4.1
Financial variables
US$ 3-month commercial paper rate (av; %)
¥ 3-month money market rate (av; %)
0.1
0.2
0.2
0.1
1.7
1.8
105.9
122.1
124.4
124.0
122.0
120.0
Exchange rate: Rs:US$ (av)
61.0
64.7
68.0
69.6
69.2
67.9
Exchange rate: US$:€ (av)
1.33
1.13
1.06
1.12
1.17
1.20
Exchange rate: ¥:US$ (av)
Source: The Economist Intelligence Unit.
Tensions between the government and central bank over monetary policy could continue to feature
throughout the forecast period. The term of the hawkish RBI governor, Raghuram Rajan, will be up
for renewal by September 2016. An extension of his term is likely and would bode well for monetary
and exchange rate stability, as Mr Rajan has lowered inflationary expectations and contributed to
stabilising the currency.
We expect the RBI to maintain its independence in setting monetary policy, as proposed legislation
to establish a monetary policy committee will probably give the deciding vote to the central bank
governor. This would bode well for monetary independence under a strong RBI governor such as Mr
Rajan. However, his eventual successor may not be similarly successful in fending off political pressure
for looser monetary policy.
Economic growth
Economic expansion will average a healthy 7% a year in 2015/16-2017/18. However, the absence of
comprehensive structural reforms, declining investor sentiment and barriers to investment, such
as the cumbersome land-acquisition process and the myriad clearances required, mean that GDP
expansion will be limited to below 8% in 2015-18. High-profile retrospective tax disputes will also
constrain recovery in investor confidence. In the medium term the BJP’s incremental legislative
changes and state-level efforts to improve the business environment will keep economic growth above
6%. We expect the rate of real GDP growth to accelerate to 8.5% in 2019/20, as the BJP is likely to gain
control of the upper house in 2018, fuelling renewed confidence in reforms and investment by moving
forward with its reform agenda.
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Unlocking India’s potential: Utilities, industry and infrastructure
Economic growth
(%; fiscal years beginning Apr 1st)
2014a
2015b
2016b
2017b
2018b
2019b
GDP
7.3
7.2
7.1
6.8
7.6
8.5
Private consumption
6.3
8.5
6.8
7.4
7.4
8.0
Government consumption
6.5
12.9
7.2
10.8
7.5
7.3
Gross fixed investment
4.7
7.8
6.9
4.7
8.4
10.6
Exports of goods & services
-0.5
-4.6
5.0
8.1
10.1
9.6
Imports of goods & services
-2.1
-3.8
5.3
7.6
9.5
9.4
Domestic demand
5.8
9.5
6.7
6.9
7.5
8.6
Agriculture
0.2
1.3
3.8
3.6
3.1
3.6
Industry
6.1
5.4
6.5
6.8
5.8
8.5
Services
10.2
7.2
7.9
8.2
7.9
8.6
a
Actual. b Economist Intelligence Unit forecasts.
Source: The Economist Intelligence Unit.
The purchasing power of consumers, which is already supported by rising wages, will be bolstered
by lower rates of inflation in 2015 19 compared with the previous five years, resulting in stronger
household consumption in real terms. A slowdown in the real-estate sector means that construction
companies will delay investment, weighing on economic growth. A weak property sector will also
influence consumption through a reduction in employment, adding to labour market challenges in
states such as Bihar, which serve as a source of construction workers.
Inflation
We expect consumer price inflation to average 5.7% a year in 2015-19. This will represent a continued
moderation in inflation as disciplined monetary policy and improvements in tackling supply-side
bottlenecks help to tame inflation, which averaged 9.4% a year between 2010 and 2014. Nevertheless,
owing to structural factors, the inflation target, which is set at 4% with a band of 2 percentage points
in either direction, for 2016-17 and onwards may be breached. Food and beverage products account
for 45.9% of the consumer price index, but India’s agricultural supply chain is unlikely to see major
improvements in areas such as storage, wastage or transport. There are significant upside risks to our
inflation forecast, stemming from crop damage and the possibility of weak monsoon rains.
Exchange rates
Following prolonged weakness in key Asian currencies, we have revised down our exchange-rate
forecast and now expect the rupee to average Rs64.7:US$1 in 2015, down from Rs61:US$1 in 2014.
Despite India’s healthy economic fundamentals, the depreciation of currencies in emerging markets
will put downward pressure on the rupee, which will weaken to Rs69.6:US$1 on average in 2017.
However, there remains a significant risk that the rupee will depreciate by more than we expect. The
weakness of many other key emerging­market currencies — all vying for an increasing share of sluggish
global demand — could ultimately force India to accept a currency devaluation in order to maintain its
export competitiveness in the next few months.
© The Economist Intelligence Unit Limited 2015
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Unlocking India’s potential: Utilities, industry and infrastructure
External sector
India’s current account deficit will remain broadly steady as a proportion of GDP in 2015, at the
equivalent of 1.4%. As a consequence of slowing growth in major trading partners’ economies, both
imports and exports are expected to weaken in 2015 and could come under further downward pressure
in 2016. As the cost of oil imports rises gradually each year over the forecast period, the currentaccount deficit will reach 1.6% of GDP in 2016. Solid economic expansion will also suck in more imports
of capital goods. The strong growth in exports of services will ensure that the services account remains
firmly in the black in 2015-19. Combined with a strengthening export sector as reforms improve the
business environment in the tradable sector, India’s current-account deficit is expected to narrow from
2017-19.
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Chapter 5: Data and charts
Annual data and forecast
2010a
2011a
2012a
2013a
2014a
2015b
2016b
GDPc
1,709.2
1,841.8
1,835.4
1,874.8
2,051.6
2,189.9
2,386.8
Nominal GDP (Rs bn)
Nominal GDP (US$ bn)
77,873
88,264
99,861
113,429
125,445
144,907
162,630
Real GDP growth (%)
10.3
4.1
5.1
6.9
7.3
7.2
7.1
8.6
5.5
5.6
6.2
6.3
8.5
6.8
6.1
22.9
0.9
8.3
6.5
12.9
7.2
11.0
12.9
-0.5
3.1
4.7
7.8
6.9
Expenditure on GDP (% real change)c
Private consumption
Government consumption
Gross fixed investment
Exports of goods & services
19.2
11.6
6.5
7.3
-0.5
-4.6
5.0
Imports of goods & services
15.6
15.8
5.9
-8.3
-2.1
-3.8
5.3
8.6
5.0
1.2
3.7
0.2
1.3
3.8
Origin of GDP (% real change)
c
Agriculture
Industry
7.6
7.8
2.4
4.5
6.1
5.4
6.5
Services
9.7
6.6
8.0
9.1
10.2
7.2
7.9
1,184.1
1,202.1
1,220.0
1,237.9
1,255.8
1,274.1
1,289.6
4,539
4,860
5,125
5,480
5,835
6,164
6,631
Central government revenue
10.6
8.9
9.2
9.3
9.1
10.5
11.3
Central government expenditure
15.4
14.7
14.1
13.7
13.1
14.6
15.1
Central government balance
-4.8
-5.8
-4.9
-4.4
-4.0
-4.0
-3.7
Net public debt
52.1
52.9
52.3
51.7
51.7
49.0
48.1
Population and income
Population (m)
GDP per head (US$ at PPP)
Fiscal indicators (% of GDP)
c
Prices and financial indicators
Exchange rate Rs:US$ (av)
45.73
46.67
53.44
58.60
61.03
64.73
67.95
Consumer prices (av; % change)
10.4
9.6
9.7
10.7
6.7
5.6
5.9
Producer prices (av; % change)
9.6
9.5
7.5
6.3
3.8
-2.4
0.9
Stock of money M1 (% change)
19.6
6.7
6.8
9.8
10.0
14.1
6.4
Stock of money M2 (% change)
18.7
16.0
11.2
14.8
10.7
13.7
11.5
Lending interest rate (av; %)
10.2
10.2
10.6
10.3
10.3
9.9
9.2
a
Actual. b Economist Intelligence Unit forecasts. c Fiscal years (beginning April 1st of year indicated). d Economist Intelligence Unit estimates. e Includes statistical discrepancy.
Source: IMF, International Financial Statistics.
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Unlocking India’s potential: Utilities, industry and infrastructure
Annual data and forecast
2010a
2011a
2012a
2013a
2014a
2015b
2016b
Current account (US$ m)
Trade balance
-129,176
-167,449
-201,666
-162,577
-143,122
-144,678
-152,242
Goods: exports fob
230,966
307,836
301,853
319,719
329,633
287,633
311,178
Goods: imports fob
-360,142
-475,285
-503,519
-482,296
-472,755
-432,311
-463,420
38,157
60,778
65,604
70,320
75,883
71,884
78,038
Services balance
Primary income balance
-15,601
-16,043
-20,842
-21,785
-25,813
-21,321
-21,942
Secondary income balance
52,109
60,211
65,434
64,814
65,602
63,633
57,619
Current-account balancee
-54,511
-62,503
-91,470
-49,228
-27,450
-30,482
-38,527
291,651
336,845
395,071
427,562
440,946
424,738
431,939
Debt service paid
24,413
29,332
30,775
41,125
40,998
41,647
44,095
Principal repayments
19,018
22,227
21,202
31,228
30,272
30,698
30,741
5,395
7,105
9,574
9,897
10,727
10,948
13,354
297,747
297,905
297,807
296,218
322,833
370,705
368,958
External debt (US$ m)
Debt stock
Interest
International reserves (US$ m)
Total international reserves
a
Actual. b Economist Intelligence Unit forecasts. c Fiscal years (beginning April 1st of year indicated). d Economist Intelligence Unit estimates. e Includes statistical discrepancy.
Source: IMF, International Financial Statistics.
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Unlocking India’s potential: Utilities, industry and infrastructure
Quarterly data
2013
3 Qtr
4 Qtr
2014
1 Qtr
2 Qtr
3 Qtr
4 Qtr
2015
1 Qtr
2 Qtr
2,776
2,504
4,092
1,157
3,075
2,808
4,389
1,443
Central government finance (Rs m)
Revenue
Expenditure
Balance
4,268
3,547
3,957
4,136
4,485
3,743
4,084
4,310
-1,493
-1,043
135
-2,979
-1,410
-936
305
-2,867
24,634
24,889
25,339
25,946
26,613
26,582
27,286
n/a
Output
GDP at constant 2004/05 prices (Rs bn)a
Real GDP (% change, year on year)
7.0
6.8
7.0
6.5
8.0
6.8
7.7
n/a
168.1
170.9
183.3
173.3
170.3
174.4
189.4
179.0
1.9
-0.8
-0.4
4.5
1.3
2.0
3.3
3.3
111.3
114.4
114.8
116.8
118.7
119.0
120.9
122.7
10.7
11.2
8.3
7.9
6.7
4.0
5.3
5.1
General index
176.9
180.6
180.9
182.2
183.5
181.2
177.8
178.1
Fuel
205.1
210.2
213.1
212.1
214.0
201.8
186.1
190.0
Manufactured goods
150.7
152.3
153.6
155.0
156.0
155.3
154.1
154.1
Exchange rate Rs:US$ (av)
62.2
62.1
61.8
59.8
60.6
61.9
62.2
63.5
Exchange rate Rs:US$ (end-period)
62.8
61.9
60.1
60.1
61.6
63.3
62.6
63.8
Industrial production index (2004/05=100)
Industrial production (% change, year on year)
Prices
Consumer prices (2010=100)
Consumer prices (% change, year on year)
Wholesale prices (2004/05=100)
Financial indicators
Deposit rate (av; %)
9.0
9.1
9.1
9.1
9.1
9.0
8.8
8.6
Lending rate (av; %)
10.3
10.3
10.3
10.3
10.3
10.3
10.3
n/a
3-month money market rate (av; %)
M1 (end-period; Rs bn)b
M1 (% change, year on year)
10.3
9.3
9.6
9.1
8.9
8.7
8.6
8.2
19,105
19,897
20,598
21,477
21,142
21,885
22,917
23,528
9.4
9.8
8.5
8.9
10.7
10.0
11.3
9.5
88,331
92,230
95,174
97,740
99,316
102,097
105,456
108,520
13.0
14.8
13.4
11.8
12.4
10.7
10.8
11.0
19,380
21,171
22,386
25,414
26,631
27,499
27,957
27,781
3.3
9.0
18.8
31.0
37.4
29.9
24.9
9.3
Manufacturing
178.4
180.3
194.0
181.7
179.2
182.2
201.2
188.5
Mining
115.0
126.1
138.0
123.3
115.5
128.8
138.4
123.9
Electricity
165.5
163.5
166.9
181.2
181.2
178.9
173.0
185.4
Exports fob
80,309
78,075
82,586
80,511
81,332
78,660
69,831
66,201
Imports cif
-109,611
-108,428
-111,306
-113,096
-120,867
-117,433
-95,920
-98,844
-29,302
-30,353
-28,720
-32,585
-39,536
-38,774
-26,089
-32,643
M2 (end-period; Rs bn)b
M2 (% change, year on year)
BSE Sensex (end-period; 1978/79=100)
BSE Sensex (% change, year on year)
Sectoral trends
Production index (2004/05=100)
Foreign trade (US$ m)
Trade balance
a
At market prices. Reserve Bank of India.
b
Sources: IMF, International Financial Statistics; Centre for Monitoring Indian Economy, Monthly Review of the Indian Economy; Financial Times; Reserve Bank of India.
© The Economist Intelligence Unit Limited 2015
25
Unlocking India’s potential: Utilities, industry and infrastructure
Quarterly data
2013
3 Qtr
4 Qtr
2014
1 Qtr
2 Qtr
3 Qtr
4 Qtr
2015
1 Qtr
2 Qtr
-33,305
-33,152
-30,668
-34,562
-38,605
-39,287
-31,725
-34,197
Services balance
18,372
18,120
19,605
16,986
18,993
20,299
19,405
17,423
Primary income balance
-6,323
-5,446
-6,430
-6,695
-6,860
-5,828
-5,598
-5,572
Net transfer payments
16,103
16,254
16,283
16,436
16,322
16,561
16,632
16,170
Current-account balance
-5,153
-4,223
-1,210
-7,836
-10,150
-8,256
-1,286
-6,177
257,753
276,493
285,032
298,024
296,204
303,455
323,825
338,107
Foreign payments (US$ m)
b
Merchandise trade balance fob-fob
Reserves excl gold (end-period)
a
At market prices. b Reserve Bank of India.
Sources: IMF, International Financial Statistics; Centre for Monitoring Indian Economy, Monthly Review of the Indian Economy; Financial Times; Reserve Bank of India.
26
© The Economist Intelligence Unit Limited 2015
Unlocking India’s potential: Utilities, industry and infrastructure
Monthly data
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2013
54.3
53.8
54.4
54.4
55.0
58.4
59.8
63.2
63.8
61.6
62.6
61.9
2014
62.1
62.3
61.0
60.4
59.3
59.7
60.1
60.9
60.9
61.3
61.7
62.8
2015
62.2
62.0
62.4
62.8
63.8
63.9
63.6
n/a
n/a
n/a
n/a
n/a
2013
53.3
53.8
54.4
54.2
56.5
59.7
61.1
66.6
62.8
61.4
62.4
61.9
2014
62.5
62.1
60.1
60.3
59.0
60.1
60.2
60.5
61.6
61.4
62.0
63.3
2015
61.8
61.8
62.6
63.6
63.8
63.8
64.0
n/a
n/a
n/a
n/a
n/a
8.9
9.2
8.8
9.9
9.0
9.6
8.4
9.4
11.3
9.4
9.8
Exchange rate Rs:US$ (av)
Exchange rate Rs:US$ (end-period)
Money supply M1 (% change, year on year)
2013
7.9
2014
11.3
9.6
8.5
11.5
12.2
8.9
10.5
10.9
10.7
11.4
10.5
10.0
2015
8.9
10.7
11.3
10.0
10.0
9.5
11.1
10.7
n/a
n/a
n/a
n/a
Money supply M3 (% change, year on year)
2013
13.0
12.7
13.6
12.9
13.6
12.7
12.4
12.1
13.0
13.7
14.9
14.8
2014
14.5
14.6
13.4
13.9
13.2
11.8
12.4
12.8
12.4
12.4
10.7
10.7
2015
10.7
11.1
10.8
10.7
11.2
11.0
11.5
11.3
n/a
n/a
n/a
n/a
2013
8.81
9.08
9.62
8.72
8.40
8.47
9.14
11.03
10.87
9.63
9.16
9.05
2014
9.21
9.63
9.93
9.30
9.11
8.90
8.79
8.92
8.91
8.85
8.68
8.62
2015
8.59
8.64
8.61
8.29
8.31
8.06
7.95
7.79
n/a
n/a
n/a
n/a
2013
10.5
10.5
10.3
10.3
10.3
10.3
10.3
10.3
10.3
10.3
10.3
10.3
2014
10.3
10.3
10.3
10.3
10.3
10.3
10.3
10.3
10.3
10.3
10.3
10.3
2015
10.3
10.3
10.3
10.3
10.0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Money market rate (end-period; %)
Lending rate (av; %)
Industrial production (% change, year on year)
2013
2.5
0.6
3.5
1.5
-2.5
-1.8
2.6
0.4
2.7
-1.2
-1.3
0.1
2014
1.1
-2.0
-0.5
3.7
5.6
4.3
0.9
0.5
2.6
-2.7
5.2
3.6
2015
2.8
4.8
2.5
3.0
2.5
4.4
4.2
n/a
n/a
n/a
n/a
n/a
BSE Sensex stockmarket index (end-period; 1978/79=100)
2013
19,895
18,862
18,836
19,504
19,760
19,396
19,346
18,620
19,380
21,165
20,792
21,171
2014
20,514
21,120
22,386
22,418
24,217
25,414
25,895
26,638
26,631
27,866
28,694
27,499
2015
29,183
29,220
27,957
27,011
27,828
27,781
28,115
26,283
n/a
n/a
n/a
n/a
10.6
10.5
10.8
11.3
12.1
10.4
Consumer prices (% change, year on year; av)
2013
11.0
11.3
10.5
9.6
9.3
10.5
2014
8.7
8.0
8.2
8.5
8.3
6.7
7.3
7.1
5.6
4.6
3.2
4.3
2015
5.2
5.4
5.3
4.8
5.0
5.5
3.5
3.7
n/a
n/a
n/a
n/a
Sources: IMF, International Financial Statistics; Haver Analytics.
© The Economist Intelligence Unit Limited 2015
27
Unlocking India’s potential: Utilities, industry and infrastructure
Monthly data
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Wholesale prices (% change, year on year; av)
2013
7.4
7.3
5.7
4.9
4.7
5.2
5.9
6.7
6.9
7.2
7.4
6.5
2014
5.2
5.1
6.1
5.7
6.2
5.6
5.4
3.6
2.2
1.6
-0.2
-0.4
2015
-0.8
-2.0
-2.3
-2.4
-2.2
-2.1
-4.2
-5.0
n/a
n/a
n/a
n/a
Total exports fob (US$ m)
2013
25,775
26,669
30,541
24,525
24,923
23,998
25,835
26,338
28,136
27,480
24,202
26,393
2014
26,892
25,353
30,341
26,033
27,998
26,480
25,793
26,803
28,735
26,057
26,476
26,127
2015
24,370
21,577
23,884
21,922
21,989
22,289
23,137
21,266
n/a
n/a
n/a
n/a
40,948
41,577
43,987
35,304
38,326
37,026
34,258
38,075
33,773
36,580
Total imports cif (US$ m)
2013
44,755
40,792
2014
36,346
33,666
41,294
35,794
39,059
38,243
40,068
37,473
43,326
39,475
42,702
35,256
2015
32,109
28,108
35,704
32,939
32,789
33,117
35,950
33,744
n/a
n/a
n/a
n/a
-14,123
-10,406
-17,053
-19,064
-11,306
-12,491
-10,688
-6,122
-10,595
-9,571
-10,187
Trade balance fob-cif (US$ m)
2013
-18,979
2014
-9,455
-8,312
-10,953
-9,761
-11,061
-11,763
-14,275
-10,669
-14,591
-13,418
-16,227
-9,129
2015
-7,738
-6,531
-11,819
-11,017
-10,799
-10,827
-12,812
-12,478
n/a
n/a
n/a
n/a
266,795
268,500
272,059
267,186
263,133
259,070
256,040
257,753
262,599
272,378
276,493
Foreign-exchange reserves excl gold (US$ m)
2013
270,765
2014
273,388
275,731
285,032
292,402
293,862
298,024
301,132
299,916
296,204
298,473
298,852
303,455
2015
310,607
319,300
323,825
333,726
334,318
338,107
n/a
n/a
n/a
n/a
n/a
n/a
Sources: IMF, International Financial Statistics; Haver Analytics.
28
© The Economist Intelligence Unit Limited 2015
Unlocking India’s potential: Utilities, industry and infrastructure
Annual trends charts
Real GDP growth
Consumer price inflation
(% change)
(av; %)
India
12.0
Asia (excl Japan)
World
10.0
10.0
8.0
8.0
6.0
6.0
4.0
4.0
2.0
2.0
0.0
2010
11
12
13
14
15
16
0.0
2010
Asia (excl Japan)
11
12
13
Source: The Economist Intelligence Unit.
Source: The Economist Intelligence Unit.
Public debt
Current-account balance
(% of GDP)
(% of GDP)
India
80.0
Asia (excl Japan)
World
India
3.0
World
14
15
16
14
15
16
Asia (excl Japan)
2.0
70.0
1.0
60.0
0.0
50.0
-1.0
40.0
-2.0
30.0
-3.0
20.0
-4.0
10.0
-5.0
0.0
India
12.0
2010
11
12
13
14
15
16
Source: The Economist Intelligence Unit.
-6.0
2010
11
12
13
Source: The Economist Intelligence Unit.
Main destinations of exports, 2014
Main origins of imports, 2014
(share of total)
(share of total)
Others
68.4%
US
13.1%
Others
69.5%
Saudi Arabia
7.1%
UAE
10.2%
UAE
6.0%
Hong Kong
4.2%
US
4.6%
China
4.1%
Source: The Economist Intelligence Unit.
© The Economist Intelligence Unit Limited 2015
China
12.8%
Source: The Economist Intelligence Unit.
29
Unlocking India’s potential: Utilities, industry and infrastructure
Quarterly trends charts
Real GDP growth
Consumer price inflation
(% change, year on year)
(av; %)
14.0
12.0
10.0
8.0
8.0
6.0
6.0
4.0
4.0
2.0
2.0
0.0
Q1
2006
Q1
07
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q1
14
Q1
15
0.0
Q1
2006
Q1
07
Q1
08
Q1
09
Q1
10
Q1
11
Source: The Economist Intelligence Unit.
Source: The Economist Intelligence Unit.
Imports and domestic demand
Exports of goods and services
(% change, year on year)
(% change, year on year)
Imports of goods & services
Q1
12
Q1
13
Q1
14
Q1
15
Q1
12
Q1
13
Q1
14
Q1
15
Q1
12
Q1
13
Q1
14
Q1
15
35.0
Domestic demand
30.0
50.0
25.0
40.0
20.0
30.0
15.0
20.0
10.0
10.0
5.0
0.0
0.0
-5.0
-10.0
-10.0
-20.0
-15.0
Q1
2006
Q1
07
Q1
08
Q1
09
Q1
10
Q1
11
Q1
12
Q1
13
Q1
14
Q1
15
Q1
2006
Q1
07
Q1
08
Q1
09
Q1
10
Q1
11
Source: The Economist Intelligence Unit.
Source: The Economist Intelligence Unit.
Interest rates
Exchange rate
(av; %)
(Rs:US$; av; inverted scale)
Lending interest rate
16.0
Money market interest rate
35.0
40.0
14.0
45.0
12.0
50.0
10.0
55.0
8.0
60.0
6.0
65.0
Q1
2006
Q1
07
Q1
08
Q1
09
Q1
10
Q1
11
Source: The Economist Intelligence Unit.
30
Quarter on quarter
12.0
10.0
4.0
Year on year
14.0
Q1
12
Q1
13
Q1
14
Q1
15
70.0
Q1
2006
Q1
07
Q1
08
Q1
09
Q1
10
Q1
11
Source: The Economist Intelligence Unit.
© The Economist Intelligence Unit Limited 2015
Unlocking India’s potential: Utilities, industry and infrastructure
Monthly trends charts
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
Price inflation
Government finances
(% change, year on year)
(Rs bn)
Consumer prices
Producer prices
Expenditure
Revenue
Balance
2,500
2,000
1,500
1,000
500
0
-500
-1,000
-6.0
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul
2012
13
14
15
50,000
3,000
-1,500
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
2012
13
14
15
Source: The Economist Intelligence Unit.
Source: The Economist Intelligence Unit.
Foreign trade
Foreign-exchange reserves
(US$ m; goods only)
(US$ bn)
Exports
Imports
Balance
340
330
40,000
320
30,000
310
20,000
300
10,000
290
0
280
-10,000
270
-20,000
260
-30,000
250
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul
2012
13
14
15
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
2012
13
14
15
Source: The Economist Intelligence Unit.
Source: The Economist Intelligence Unit.
Exchange rate
Gold: London prices
(Rs:US$; av; inverted scale)
(US$/troy oz; av)
45.0
1,800
1,700
50.0
1,600
55.0
1,500
1,400
60.0
1,300
65.0
1,200
70.0
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul
2012
13
14
14
Source: The Economist Intelligence Unit.
© The Economist Intelligence Unit Limited 2015
1,100
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan
2012
13
14
15
Source: The Economist Intelligence Unit.
31
Unlocking India’s potential: Utilities, industry and infrastructure
Comparative economic indicators, 2014
Gross domestic product
Gross domestic product per head
(US$ bn; market exchange rates)
(US$ '000; market exchange rates)
10,335
4,606
China
Japan
India
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Hong Kong
Philippines
Pakistan
New Zealand
Vietnam
Bangladesh
Sri Lanka
Myanmar
Cambodia
Papua New Guinea
Laos
0
500
1,000
1,500
2,000
2,500
20.0
30.0
40.0
50.0
60.0
70.0
Sources: Economist Intelligence Unit estimates; national sources.
Sources: Economist Intelligence Unit estimates; national sources.
Gross domestic product
Consumer prices
(% change, year on year)
Sri Lanka
China
Laos
India
Papua New Guinea
Cambodia
Myanmar
Philippines
Bangladesh
Malaysia
Vietnam
Indonesia
Pakistan
Taiwan
South Korea
New Zealand
Singapore
Australia
Hong Kong
Thailand
Japan
-1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
Sources: Economist Intelligence Unit estimates; national sources.
32
Australia
Singapore
New Zealand
Hong Kong
Japan
South Korea
Taiwan
Malaysia
China
Thailand
Indonesia
Sri Lanka
Philippines
Papua New Guinea
Vietnam
Laos
India 1.6
Pakistan
Cambodia
Bangladesh
Myanmar
0.0 10.0
(% change, year on year)
Pakistan
Bangladesh
India
Indonesia
Myanmar
Papua New Guinea
Hong Kong
Philippines
Laos
Vietnam
Cambodia
Sri Lanka
Malaysia
Japan
Australia
China
Thailand
South Korea
New Zealand
Taiwan
Singapore
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Sources: Economist Intelligence Unit estimates; national sources.
© The Economist Intelligence Unit Limited 2015
While every effort has been taken to verify the accuracy
of this information, The Economist Intelligence Unit
Ltd. cannot accept any responsibility or liability
for reliance by any person on this report or any of
the information, opinions or conclusions set out
in this report.
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