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Indian Economy: An
Interim Update
Chief Economic Adviser
May 26th, 2015
20.0
Good News: Improving Inflation and
Inflation Prospects
Rural wage growth
15.0
CPI
Per cent
10.0
5.0
0.0
-5.0
WPI
Improving Quality and Quantity of Fiscal
Consolidation at General Government Level
Fiscal Indicators of General Government (% of GDP)
2014-15 RE
2015-16 BE
Fiscal Deficit
6.9
6.5
Revenue Deficit
2.9
2.4
Capital Expenditure
4.6
5.1
RE= Revised Estimates;
BE= Budget Estimates;
Based on analysing 17 State Governments’ Budgets.
2015-16 *
2014-15:Q2
2013-14:Q4
2013-14:Q2
2012-13:Q4
2012-13:Q2
2011-12:Q4
2011-12:Q2
2010-11:Q4
2010-11:Q2
2009-10:Q4
2009-10:Q2
2008-09:Q4
2008-09:Q2
2007-08:Q4
2007-08:Q2
2006-07:Q4
2006-07:Q2
2005-06:Q4
2005-06:Q2
2004-05:Q4
2004-05:Q2
4.0
Current Account Balance as a per cent of
GDP
2.0
0.0
-2.0
-4.0
-6.0
-8.0
Assessing Growth in Short Run
Y = C+ Ipvt+ Ipub + FD’+ (X-M)
Where,
Y= Output
C= Consumption
Ipvt= Private Investment
Ipub= Public Investment
FD’= Fiscal Deficit net of Ipub
X-M= Net Exports
Merchandise Trade: Yet to Recover
20.0
15.0
10.0
Non-oil exports
5.0
0.0
-5.0
-10.0
-15.0
Non-oil & non-gold
imports
Feb/15
Mar/15
Jan/15
Dec/14
Nov/14
Oct/14
Sep/14
Aug/14
Jul/14
Jun/14
May/14
Apr/14
Feb/14
Mar/14
Jan/14
Dec/13
Nov/13
Oct/13
Sep/13
Aug/13
Jul/13
Jun/13
Services Exports: Still Weak
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Projects Under Implementation : Stalling Rate
Declines in 2014-15
12%
Aggregate
11%
10%
9%
8%
Private
7%
6%
5%
4%
Public
3%
Jun/13
Sep/13
Dec/13
Mar/14
Jun/14
Sep/14
Dec/14
Mar/15
Real Bank Credit Growth Started picking up
in Q4:2014-15
17.0
15.0
Nominal
13.0
11.0
Real
9.0
7.0
5.0
Corporate Financing picked up in
FY2014-15
Real growth in financial loans to
corporates
13.0
30.0
12.0
25.0
11.0
10.0
20.0
9.0
15.0
8.0
10.0
7.0
5.0
6.0
5.0
Including ECB
Including ECB and Trade credit
Including ECB and corporate bonds
Assessing Growth in Short Run
• Y = C+ Ipvt+ Ipub + FD’+ (X-M)
• X-M weak because of slowing world growth and
appreciating real effective exchange rate
• Ipvt weak—Balance sheet stresses in corporates
and banks
• Fiscal (FD’): small consolidation
• Therefore economy reliant on C and Ipub
Trend in IIP better than indicated by the Series
12.0
Core WPI
10.0
Manufacturing
value added
8.0
6.0
4.0
Quaterly IIP
Growth rate
2.0
0.0
Q4:14
Q3:14
Q2:14
Q1:14
Q4:13
Q3:13
Q2:13
Q1:13
Q4:12
Q3:12
Q2:12
Q1:12
Q4:11
Q3:11
Q2:11
Q1:11
-2.0
Uptick in Indirect Tax Collection in April 2015:
Most Recent Indicator of Economic Activity
Tax Head
Growth
(after netting out additional revenue
measures; April 2014 number in
brackets)
Customs
13.5% (-11.7%)
Central Excise
8.8% (-3.9%)
Service Tax
7.0% (14.3%)
Excise plus service tax
7.8% (6.1%)
Total
9.8%
Assuming buoyancy of between 0.9 and 0.8, nominal GDP growth is between
10.9 % and 12.3%. Real GDP growth, assuming GDP deflator of 3 percent, is
between 7.7% and 9%
Conclusion-1
• Substantial Structural Reforms
Governance
Decisive reduction in
corruption reflected in;
i.
ii.
Institutional
Macroeconomic policy
i. Unleashing cooperative
i. Commitment to
i.
and competitive
fiscal discipline
federalism by adopting
Clean and transparent
FFC recommendation and ii. Increasing public
investment to
auction of coal and
creating Niti Aayog
revive growth
ii.
spectrum
ii. Close to securing political
iii. Facilitating
Liberalization of gold
agreement to launch
declining inflation
import regime,
game-changing GST
via agricultural
reducing the rents
iii. Pursuing the JAM agenda
policies
intrinsic to
in cooking gas
quantitative
restrictions
iv. Pursuing financial
iii.
inclusion by creating Jan
Dhan accounts
v.
Initiating comprehensive
social security via
pension, life insurance
and accident schemes
Sectoral
Liberalizing FDI
in insurance,
defence, and
railways
Deregulating
diesel, petroleum,
and cooking gas
sectors and
adhering to the
commitment to
deregulation
Easing the cost of
doing business
Conclusion-2
• Post war history suggest structural reforms
take time to influence growth
• Policy support is crucial over short run,
especially consumption, public investment,
and private investment