1. Indian Economic Outlook
by Consulting Club, SCMHRD

2. Global Competitiveness Index
Basic requirements
sub index
Pillar 1: Institutions
Pillar 2: Infrastructure
Pillar 3: Macroeconomic
environment
Pillar 4: Health and primary
education
Pillar 5: Higher education
and training
Pillar 6: Goods market
efficiency
Pillar 7: Labour market
efficiency
Pillar 8: Financial market
development
Pillar 9: Technological
readiness
Pillar 10 : Market size
Efficiency
enhancers sub
index
Pillar 11: Business
sophistication
Pillar 12: Innovation
Innovation and
sophistication
factors sub index
Key for
factor-driven
economies
Key for
Efficiency-driven
economies
Key for
innovation-driven
economies
Source : Global Competitiveness Report 2012-13
Dividing the world’s economies

3. Rank out of 144 Score (1-7)
GCI 2012–2013 59 4.3
GCI 2011–2012 (out of 142) 56 4.3
GCI 2010–2011 (out of 139) 51 4.3
Basic requirements (60.0%) 85 4.3
Institutions 70 3.9
Infrastructure 84 3.6
Macroeconomic environment 99 4.3
Health and primary education 101 5.3
Efficiency enhancers (35.0%) 39 4.5
Higher education and training 86 4
Goods market efficiency 75 4.2
Labor market efficiency 82 4.2
Financial market development 21 4.9
Technological readiness 96 3.4
Market size 3 6.2
Innovation and sophistication factors (5.0%) 43 3.9
Business sophistication 40 4.3
Innovation 41 3.6
Source : Global Competitiveness Report 2012-13
Measuring India’s Factor Driven economy
The Problematic factors for doing business in India

4. Economic Indicators
Govt. Bond yield (10 yr) 8.63%
Currency 65.25
Stock market (index pts.) 19270.06
GDP (USD bn) 1841.7
Growth rate (annual) 4.4.%
GDP Per capita (USD) 1106.8
Inflation rate (WPI) 5.59%
Foreign exchange reserves (INR bn) 15551.4
Interbank rate 12.25%
Current account to GDP -4.8%
• The economy of India is the 10th -largest in the world by nominal
GDP and the 3rd -largest by purchasing power parity (PPP)
• The country is one of the G-20 major economies and a member of
BRICS
• On a per-capita-income basis, India ranked 141st by nominal GDP
and 130th by GDP (PPP) in 2012, according to the IMF
• India is the 19th-largest exporter and the 10th-largest importer in
the world
• India's GDP grew by 9.3% in 2010–11; thus, the growth rate has
nearly halved in just three years to be at 4.4% in the current
quarter
• On August 28, 2013 rupee hit an all time low of 68.80 against US
dollar
• Services are the highest contributor to GDP (65%), followed by
Industry (27%), and Agriculture(8%)
• Main industries are: textiles, chemicals, food processing, steel,
transportation equipment, cement, mining, petroleum, machinery,
software, pharmaceuticals
Indian Economy at a glance
Source : Tradingeconomics.com
Indian is the 10th largest economy in the world by GDP

5. Indian Economy at a Glance --- Gross Domestic Product
4
5
6
7
8
9
10
FY2009 FY2010 FY2011 FY2012 FY2013
GDP GROWTH RATE
GDP GROWTH RATE
GDP growth rate of 7.2%
 Since the global financial crisis of 2008-09, the Indian
economy grew to a healthy 8.6% till 2010-11.
 Since then, growth started declining. The trend continued in
2012-13 with a disappointing growth rate of 5.4% in the first
half, resulting in lowering of expectations.
 The second quarter’s growth at 5.3% is one of the lowest
quarterly growth rates seen in the last decade and the
annual growth of 5% will be the lowest since 2002-03.
Agriculture
13%
Industries
26%Service 61%
PERCENTAGE OF GDP
Contribution of Different Sector to GPD
Source : MOSPI.nic.in
Indian Economy is Driven by Domestic Consumption
Exports
23%
Domestic
77%
PERCENTAGE OF GDP
FY 2014
(expected)

6. Indian Economy at a Glance –Sector wise
Growth Rate of Different Sector
 Indian Economy consists of 3 major Sectors – Agriculture ,
Industry and Service
 Historically the growth in the service sector has been the
highest.
 Economy’s dependence on slowly growing agriculture sector
has been reduced to 13%
 Due to economic slowdown the Growth of industrial sector
has been reduced to 0.2%, which is expected to recover
soon.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Growth Rate
Agriculture Industry Service Overall
6

7. A micro view at the major sectors – Agriculture
After an impressive growth of 7.9% in 2010-11, agricultural growth rate declined to 3.6% in 2011-12 and further dipped to 1.8% in 2012-
13. The agriculture sector in India is largely monsoon dependent. This downfall is primarily attributable to the delayed and deficient
rainfall.
Technological gains in agriculture and farmers’ response to better infrastructure is expected to positively affect performance of this sector
in the coming years. A dedicated Sub-Mission on Agricultural Mechanization has been proposed for the 12th Plan which includes custom-
hiring facilities for agricultural machinery as one of its major components.
The agricultural sector, despite accounting for less
than 15% of GDP, plays an important role in the
economy considering its more than 50% share of
employment.
The ‘agriculture, forestry and fishing’ sector is
likely to show a growth of 1.8 per cent in its GDP
during 2012-13, as against the previous year’s
growth rate of 3.6 %.
-2
0
2
4
6
8
10
Total economy Agriculture, forestry &
fishing
Agriculture Inc. Livestock Fishing
2007-08 2008-09 2009-10 2010-11 2011-12
Source : IBEF

8. A micro view at the major sectors - Industry
The mining sector has been plagued by a policy logjam. Early resolution of these issues can provide some respite not only to the
mining industry but also others such as power generation, which will in turn speed up industrial recovery.
Higher lending rates, in addition to the unaddressed policy constraints will further lower investment demand, delaying a recovery in the
manufacturing sector. However, even if these issues are resolved immediately, no significant push to growth would be felt in 2013-14 due
to its lagged impact. Middle East helped in moderating domestic inflation during the year.
The Index of industrial production (IIP) fell
by 2.2 per cent in June as compared to a
year ago. During the first quarter of 2013-
14 (April-June 2013), industrial output fell
by 1.1 % year-on-year. Both mining and
manufacturing contracted by 4.5 % and 1.2
% respectively.
As per latest data released for GDP growth,
industrial GDP (which includes
construction) expanded 0.2 % in the first
quarter of 2013-14 as compared to 2.7 per
cent in the fourth quarter of 2012-13.
Construction output expanded 2.8 % in this
period.
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
2009 2010 2011 2012 2013 2014*
IIP and its components growth
Index of Industrial Production
(IIP):Overall
Index of Industrial Production :
Electricity
Index of Industrial Production :
Manufacturing
Index of Industrial Production :
Mining
Source: Crisil reseach

9. A micro view at the major sectors – Service
-4
-2
0
2
4
6
8
10
12
2007 2008 2009 2010 2011
Overall GDP of India Overall GDP of world
Services GDP of India Services GDP of World
The CAGR of the services sector GDP at 10% for the period 2004-5 to 2011-12 has been higher than the 8.5% CAGR of overall GDP during
the same period. However in 2011-12 and 2012-13, there has also been a deceleration in growth rate of services sector at 8.2% and 6.6%
respectively.
Among the major broad categories of services, ‘financing, insurance, real estate, and business services’, which continued to grow robustly
both in 2010-11 and 2011-12 decelerated to 8.6% in 2012-13. While in 2011-12 growth in ‘trade, hotels, and restaurants’ and ‘transport,
storage, and communication’ slowed down to 6.2% and 8.4% respectively, in 2012-13 ‘trade, hotels, and restaurants’ and ‘transport,
storage, and communication’ combined grew by an estimated 5.2 %.
India’s services growth has been consistently above its overall
growth in the last decade except for 2003. The share of services in
India’s GDP at factor cost increased from 33.3% in 1950-1 to 56.5
% in 2012-13 as per Advance Estimates .
• Including construction, the share would increase to 64.8% in
2012-13.
• With an 18% share, trade, hotels, and restaurants as a group is
the largest contributor to GDP among the various services sub-
sectors, followed by financing, insurance, real estate, and
business services with a 16.6% share.
• Community, social, and personal services with a share of 14%is
in third place.
• Construction, a borderline services inclusion, is at 4th place with
an 8.2% share.
Source : IBEF

10. A micro view at other growing sectors
Banking and IT Telecom
HealthInfrastructure
 India’s Rs 77 trillion (US$ 1.30 trillion)-banking industry is well at par with
global standards and norms.
 The country has 87 scheduled commercial banks with deposits worth Rs.71.6
trillion (US$ 1.21 trillion) as on 31 May, 2013.
 Indian banking and securities companies will spend around US$ 422 billion
on IT products and services in 2013. That will imply a 13 per cent rise from
Rs. 37,300 crore (US$ 6.31 billion) spent in 2012. I
 T services is the largest overall spending category at Rs 13,200 crore (US$
2.23 billion) in 2013. This ensures that IT service providers lay a strong focus
on the financial services sector, according to a study by research and analyst
firm Gartner.
Going with the estimates that Asia’s third largest economy will become the
world’s third largest by 2050; a need for more robust and vast infrastructure is
inevitable.
Spanning from roadways to airways, ports to airports and power production
facilities, Indian infrastructure segment is the thrust for the development of the
nation and hence liberal Government policies coupled with deliberate
strategies to promote infrastructure spells great opportunities for engineering
and construction (E&C) companies in India.
The growth in infrastructure is expected to come on the back of a healthy
growth in the freight traffic of commodities like coal, cement, iron ore for steel
plants and fertilizers.
The Indian healthcare industry, which comprises hospitals, medical
infrastructure, medical devices, clinical trials, outsourcing, telemedicine,
health insurance and medical equipment, was valued at US$ 79 billion in
2012, and is expected to reach US $160 billion by 2017.
 The Indian healthcare sector is expected to grow at 15% y-o-y, because of
factors like rapid growth in infrastructure development, creation of
demand for higher levels of healthcare, rising awareness of users, and
launch of innovative insurance, reimbursement, and financing policies.
 The healthcare equipment sector attracted 8.8 % of the total investments
in terms of deal value with an aggregate of US$ 249.01 million (20 deals).
 The medical tourism industry in India is pegged at US$ 1 billion per annum,
growing at around 18 per cent and is expected to touch US$ 2 billion by
2015.
Source:http://www.ibef.org
India's mobile services market will touch Rs 1,200 billion in 2013, registering a
growth of 8 per cent from Rs 1,100 billion in 2012.
 Mobile connections are expected to grow to 770 million in 2013, an 11 %
increase from 712 million connections in 2012.
 Internet traffic in India is expected to reach from 393 petabytes per month
in 2012 to 2.5 exabytes per month in 2017, Cisco study.
 India is expected to have 130.6 mn mobile internet users by Mar’2014.
 The mobile value-added services (MVAS) market is expected to reach US$
9.5 billion in 2015, from US$ 4.9 billion in 2012.
 The telecommunications industry attracted foreign direct investments (FDI)
worth US$ 12,856 million between April 2000 to March 2013, an increase
of 7 per cent to the total FDI inflows .

11. Increasing foreign debt with decreasing Reserve coverage
170000
225000 225000
262500
308333
340000
0
50000
100000
150000
200000
250000
300000
350000
400000
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
External Debt
 The external borrowings of India have increased over
the years and the debt has become more short term
and therefore riskier.
 Total financing needs (defined as the current-account
deficit plus debt that needs rolling over) are $250 billion
over the next year. India’s reserves are $279 billion,
giving a coverage ratio of 1.1 times.
 That has fallen sharply from over three times in 2007-08
and leaves India looking weaker than many of its peers.
Source: http://www.economist.com

12. Decreasing trend of Budget Deficit and Debt to GDP ratio
7.8
6.9
5.1
5.8
4.8
4
5
6
7
8
2009 2010 2011 2012 2013
Budget Deficit
Decreasing Trend of Budget Deficit
 The Overall Debt to GDP of the country has been on a
declining trend.
 Annual Budget Deficit of the country has been decreased by
300 basis points from 7.8 to 4.8
 The Overall Investment in the country has shown a zig-
zag trend because of the global recession.
74.72 74.97
69.427
68.053 67.57
60
65
70
75
80
2009 2010 2011 2012 2013
Debt to GDP Ratio
Decreasing Trend of Debt to GDP
Total Investment as % of GDP

13. 0
1
2
3
4
5
6
7
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-20142014-20152015-20162016-2017
Fiscaldeficitasa%ofGDP
Trends in Fiscal Deficit
After the initial budget target of 5.1% of GDP for the fiscal deficit, the Government revised its fiscal consolidation roadmap in
October 2012. As per the revised roadmap, the fiscal deficit of the central government will be reduced in a calibrated way from the
new target of 5.3% of GDP in 2012-13 to 3.0% of GDP by 2016-17. Similar to the previous year. when the budgeted fiscal deficit of
4.8% actually fared at 5.7% of GDP, the fiscal deficit target for 2012-13 looks unlikely to be achieved. With lower tax collections,
inability to meet divestment targets and burgeoning expenditure outgo, the Indian economy is facing considerable fiscal strain.
The Government of India is looking at taking necessary steps to widen the tax base, cut excess expenditure and have a fixed
divestment plan in place. A number of these measures have been implemented, which are already showing results.
Source : Economic survey 2012-13

14. Current Account Deficit over the years
Increasing Current Account Deficit
 The Current Account Deficit and Balance of Trade
shows similar trend.
 The Current Account Deficit of the country has been
increasing.
 India has trade surplus only with US among the Top 5
country ( Total Trade
 India has highest trade deficit with China
1
1.5
2
2.5
3
3.5
4
4.5
5
FY08 FY09 FY10 FY11 FY12 FY13
CAD as % of GDP
Current Account Deficit and Balance of Trade
Country Export Import Total Trade Trade Balance
UAE 41.354 51.70 93.05 -10.34
USA 55.53 32.86 88.39 22.67
CHINA 13.58 67.60 81.19 -54.01
SAUDI ARABI 16.66 47.82 64.48 -31.15
SWITZERLAND 3.11 57.01 60.13 -53.90
Total of Top 5
countries
130.2 257.00 387.26 -126.74
India's Total 403.78 684.28 1,087.92 -280.5014

15. India’s Trade with World
India’s Exports India’s Imports
Exports Cover of India
 The Overall trade of India has been on increasing trend.
 The Export Cover are less than 1, since India is net importer.
 Export Cover of country changed the trend during the global
slowdown.
 The Export Cover of the country is more or less same level as in
2009, as the total trade increased so does the deficit.
 Rising gold and oil imports have led to a trade deficit of INR
733.33 billion.
15

16. Forex Reserve
200
250
300
350
400
Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13
Forex Reserve
Forex Reserve Linear (Forex Reserve)
 Reserve bank of the country has kept the Forex reserves around 280 – 290 billion dollars in the past five years.
 India’s Import Cover was 7.2 Months in March 2013.
 Forex reserves has depleted by 7% in last Six months, due to fall of Rupee in the International Market.
 RBI also sold its dollar reserve in order to stop the rupee’s free fall
 As the Imports of the country are increasing, and the reserves are on same level the import cover of the country has been reduced
16

17. Other Key Parameters to measure Indian economy
Purchase Manger Index for Manufacturing and Service
 A PMI data less than 50 is a sign of initial recession
 The Service PMI has come down to 47.6 from 55.8, Feb data shows
the highest PMI for the year 57.5
 The Manufacturing Index has come down to 48.5 from 52.8, Jan data
shows the highest PMI for the year 54.7
 Industrial Production has been at desired level during early 2010 till
Nov 2011.
 During Last 1 year, IIP data has shown the slowdown in the economy.
 The Personal saving increases during the slowdown 17
IIP Data for INDIA
Personal Saving Vs Stock Market
47
48
49
50
51
52
53
54
55
56
57
58
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Manufacturing Service

18. Getting to the root of India’s slowdown
Another consequence of the slowdown has been lower-than-targeted tax and
non-tax revenues. With the subsidies bill, fiscal deficit has increased. The
situation demanded reduced government spending to contain inflation.
 Also required were steps to facilitate corporate and infrastructure
investment to ease supply.
 Several measures announced in recent months are aimed at restoring the
fiscal health of the government and shrinking the CAD as also improving
the growth rate.
 With the global economy also likely to recover in 2013, these measures
should help in improving the Indian economy's outlook for 2013-14.
18
Inflation Rate
• The headline inflation rate, measured by the wholesale price index
(WPI), accelerated to 5.79 per cent annually in July from 4.86 per cent
in June, taking it above the Reserve Bank of India's comfort zone of 4
to 5 per cent for the first time since March
• Depreciating rupee is a major contributor to the growing inflation,
due to the increasing price of imported oil
• Inflation in India is majorly food inflation, major contributors being
cereals, vegetables and fuel and power items
• Despite an acute slowdown in domestic demand, the manufacturing
prices have remained elevated due to rising input costs on account of
massive depreciation of rupee
The strong
post-
financial-
crisis
stimulus led
to stronger
growth in
2009-10 and
2010-11.
The boost to
consumptio
n, coupled
with supply
side
constraints,
led to higher
inflation.
Monetary
policy was
tightened,
even as
external
headwinds
to growth
increased.
Falling
savings
without a
commensur
ate fall in
aggregate
investment
have led to
widening
current
account
deficit.
WPI
inflation has
been
coming
down. But
food
inflation,
after a brief
slowdown,
continues to
be higher
than overall
inflation
Given the
higher
weightage
to food in
consumer
price indices
(CPI), CPI
inflation has
remained
close to
double
digits.

19. The vicious circle – Inflation Rate and its Impact
Inflation Rate
 During Global slowdown, RBI kept the Interest Rates at very low
level, to immune the country from slowdown.
 The very low interest rates resulted in high inflation rate in the
country.
 To tame down the inflation rate, RBI increased the interest rate
above 9%.
 As the interest rate increased the economy slowed down.
 And Inflation affected the growth rate, with time lag of more than
12 months
Inflation Rate and Interest Rate
Interest Rate and Growth Rate
19

20. Tough Times
Tumbling Rupee
On August 28, 2013 rupee hit an all time low of 68.80 against US dollar to be
around 65 currently , 13% below its level 3 months ago.
In May America’s Federal Reserve hinted that it would soon start to reduce its vast
purchases of Treasury bonds. As global investors adjusted to a world without ultra-
cheap money, there has been a great sucking of funds from emerging markets.
In the past three months, the stock market is down by a quarter in dollar terms
• Reduction in purchases of Treasury bonds by US federal reserve has led to
sucking of money from emerging economies
• Bond yields have increased from Brazil to Thailand
• Government bond yields in India have been rising
• On August 20th the RBI said it would intervene to try to calm bond yields of
the rupee apart from the high trade deficit.
Tumbling stock market
Rising bond yields
20

21.  Reserve Bank of India and other institutional bodies are relaxing the
norms to increase the inflow of the money!
 Due to poor performance and inefficient working of current
government, there are lot of reforms pending.
 New Government may bring new reforms for stability of inflow of FII
 Bernanke Effect: Just after QE 3 Tapering announcement, FIIs start
pulling the funds from Indian Market, which leads to 15.1% rupee
depreciation till Sep 1 2013.
 The Sharp Rupee depreciation reduced the gain of the foreign
investor, forced him to withdraw the funds,
Foreign Institution Investment - Indian Stock Market
Foreign Institution Investment - Regulation
 For an Individual FIIs/Sub-accounts a maximum of 10% of the total paid-up
capital or 10% of the paid-up value of each series of convertible debentures
issued by an Indian company
 For total holdings of all FIIs/Sub-accounts a maximum of 24% of the paid up
capital or paid up value of each series of convertible` debentures
 Both FIIs and NRIs are not allowed to invest in any company which is
engaged or proposes to engage in the following activities:
 i) Business of chit fund, or
 ii) Agricultural or plantation activities, or
 iii) Real estate business or construction of farm houses, or
 iv) Trading in Transferable Development Rights (TDRs).-10,000.00
-5,000.00
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00
35,000.00
FII Net Investment
FII Net Investment
Bernanke Impact
QE Tapering By US
Feds
FIIs – Start Pulling
Funds from India
Rupee
Depreciation

22. Foreign Institution Investment - Indian Stock Market
 Net Annualized Return is calculated to neglect the impact of rupee
depreciation!
 Net Annualized Return over 10 Year period is 14.03% which much higher
than single digits growth other Markets
 In last 5 years, the performance of Indian Market has been below, which
can be attributed to the pending reforms, global slow down, increasing
interest rates, poor governance
 Since the Rupee is currently Trading around mid 60s, It is right time
invest in the economy, as Rupee seems to be over priced ( Crisil Report).
 Historically Indian Equity has performed well in long run , hence
Investment should be done with long term perspective
 After the General Election Next year, Things can change for Indian
Economy. If the Narendra Modi Comes in Power.
 It would be right approach to wait till the next year, in mean time the
Rupee Volatility will also reduced.
Period Sensex
Return
Rupee Depreciation Net Return
2 Years 8.43% 10.97% -2.54%
5 Years 8.42% 5.17% 3.25%
10 Years 15.78% 1.75% 14.03%
Data till June 1,2013 is considered because of the sharp decline of the Rupee in last 3
months. All the Returns are annualized.
Annualized Return on Sensex
Exchange Rate Fluctuation
0.00%
5.00%
10.00%
15.00%
20.00%
Over 2 Years Over 5 Years Over 10 Years
Indian Stock Market DOW Jones HANG SENG INDEX
Stock Market Returns
Recommendation

23. Foreign Direct Investment
23
Comparison Business Confidence in India and Brazil
Comparison Business Confidence in India and ChinaComparison Annual Growth Rate in India and China
Comparison Annual Growth Rate in India and Brazil

24.  The Growth Rate of India has been better than the Brazil.
 During last five Growth rate of Brazil has not been more
than India for even single quarter
 The Growth of Chinese economy is more robust than
Indian Economy.
 The China has grown faster than India except in 2009.
 Currently the Business Confidence in Brazil is slightly
better than India, During last five years, Business
confidence in India has been better than Brazil for most of
period.
 The Business Confidence in India has been better than
China, due better policies in the country.
24
Consumer Spending in India and Brazil
Consumer Spending in India and China
India Vs BRICS

25. Source: Tradingeconomics.com
Capital control measures: Aug 14
On August 14 the Government introduced Capital Control Measures
in response to incipient signs of capital flight. It was supposed to
reduce the amount Indian residents and firms can take out of the
country.
capital measure included:
1. Reducing the limit for Overseas Direct Investment (ODI) under
automatic route for all fresh ODI transactions, from 400% of the
net worth of an Indian Party to 100% of its net worth.
2. Reducing the limit for remittances made by Resident Individuals,
under the Liberalised Remittance Scheme (LRS Scheme), from
USD 200,000 to USD 75,000 per financial year.
3. While current restrictions on the use of LRS for prohibited
transactions, such as, margin trading and lottery would
continue, use of LRS for acquisition of immovable property
outside India directly or indirectly will, henceforth, not be
allowed
Foreign investors took fright, fearful that India might freeze their
funds too, much as Malaysia did during its crisis in 1998. This led to
further weakening of the rupee and deterioration of the Indian
economy.
Celebrated economist Raghuram Rajan was appointed as the 23rd
governor of Reserve Bank of India on 5th September, succeeding D.
Subbarao, creating a wave of optimism.
Top seven measures were announced by RBI to boost confidence
1. New bank licenses
2. Currency measures
3. SLR reduction
4. Oversease borrowing limit for banks
5. Issuance of Inflation Indexed Savings Certificates
linked to the CPI New Index
6. Priority sector lending
7. NPLs
Next day, the S&P BSE Sensex reclaimed its crucial
psychological level of 19000
The 50-share Nifty index also managed to hit its
crucial psychological level of 5600!
A ray of hope for the Indian economy: Raghuram Rajan

26. Source: Tradingeconomics.com
But the uncertainty continues..
Big Question?
• Till how long can Rajan keep the bears at bay, all because of the
negative news flow on growth data?
• Till the RBI policy meeting on September 20,the bullish
sentiment looks certain, but then what?
Upcoming centre elections
• Current government to follow populist measures to attract
votes for the centre elections due in 2014
• Measures like the Food Security Bill will raise government
spending on food subsidies to about 1.2 percent of GDP per
year from an estimated 0.8 percent currently, exacerbating
the government's weak finances
• Low tax collection and high subsidies will further increase the
fiscal deficit
Uncertainty on the economic outlook in India looms till next year
elections, when the new government comes and pushes for long
– term reforms which boost growth, control inflation and attract
foreign investment in the country
The road may be rocky in the near term, particularly for the largest deficit countries
– India and Indonesia – but we don't think this is the Asian crisis all over again," said
S&P report titled 'South And South-east Asian Economies Grapple With Growth And
External Financing Risks'.
In normal times the countries with high Current Account Deficit (CAD) and high
savings do not find it difficult to borrow in the international market, and when
markets become risk averse, economies with Current Account Deficits face external
financing pressure.
India's CAD rose to an all time high of USD 88.2 billion or 4.8 per cent of the GDP in
2012-13. For the current fiscal, the government plans to bring it down to USD 70
billion or 3.7 per cent of the GDP. High CAD is also impacting the value of rupee
which slipped to an all time low of 68.75 to a dollar in the intra-day trade.
Though 2014 Elections will impact the economy in a major way since the policies
and steps taken will affect directly and indirectly affect the Fiscal deficit, Inflation,
foreign investment s and CAD.
The smaller, more open, more trade-dependent economies in Asia, such as
Singapore and Hong Kong, have higher growth betas, or risks to growth. In contrast,
the larger, more domestically driven economies such as China, India, Indonesia, and
the Philippines have lower growth betas.
The slowdown is attributed to the ongoing market turbulence largely to
uncertainties around the timing of tapering (lowering bond purchases) by the US
Federal Reserve and recent cuts in Asian GDP growth forecasts. However the rupee
fall is a mere consequence of the above which will come back once the economy is
stabilised by growth in exports and lesser dependence on imports
The road ahead