current economic scenario and budget - .new projects 7383 3443 -53.3 ... bring down interest rates

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  • CURRENT ECONOMIC SCENARIO AND BUDGET

    Siddhartha Roy

    6th March, 2013

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  • REAL GDP GROWTH: BELOW POTENTIAL

    Source: Economic Survey (2012-13); AE = CSO Advance Estimate; P = Mean of Ministry of Finance Projection 6.1% to 6.7%

    Indian economy has attained a high growth trajectory in the past buttressed by higher

    domestic savings and investment together with the growth in the global economy.

    Currently, the growth pace has slowed down due to uncertainty in the global market and high

    cost of finance and slowdown in investment domestically.

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  • GDP GROWTH: INCREASED VOLATILITY

    Period Average GDP

    Growth (%)

    Standard

    Deviation

    Coefficient of

    Variation*

    1951-52 to 1979-80 3.5 3.6 1.03

    1980-81 to 1991-92 5.2 2.4 0.44

    1992-93 to 2002-03 5.8 1.3 0.22

    2003-04 to 2007-08 8.9 0.9 0.10

    Q1 2008-09 to

    Q2 2012-13 7.3 1.3 0.18

    * Coefficient of Variation = Standard Deviation / Average Growth Rate

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  • SECTORAL GDP GROWTH (y/y %)

    Industry Agriculture Services

    Trade, Hotel, Transport and

    Communication (46.4%)*

    Finance, Insurance, Real

    Estate & Business Services (31.6%)

    Community, Social & Personal Services (22.0%)

    2007-08 10.3 5.5 10.3 10.9 12.0 6.9

    2008-09 4.7 0.4 10.0 7.5 12.0 12.5

    2009-10 9.5 1.5 10.5 10.4 9.7 11.7

    2010-11 9.5 7.5 9.8 12.3 10.1 4.3

    2011-12 3.8 3.1 8.2 7.0 11.7 6.0

    2012-13 (AE) 3.3 1.6 6.6 5.2 8.6 6.8

    *Figures in bracket are % share within service sector

    Service sector can not be immune to developments in industry and agriculture sectors. To sustain the high growth performance of the service sector growth sustenance in other

    sectors is necessary.

    Source: CSO

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  • SAVINGS RATE

    (% of GDP at current market prices)

    Domestic savings in 2011-12 came down. This was owing to :

    - Lower Household sector savings due to decline in financial savings

    - Lower Retained Earnings in private sector

    - Lower Public sector savings

    Source: CSO

    No. Sector 2007-08 2008-09 2009-10 2010-11 2011-12

    .. Gross domestic savings 36.8 32.0 33.7 34.0 30.8

    (A) Household sector 22.4 23.6 25.2 23.5 22.3

    (A.I) Financial savings 11.6 10.1 12.0 10.4 8.0

    (A.II) Saving in physical assets 10.8 13.5 13.2 13.1 14.3

    (B) Private corporate sector 9.4 7.4 8.4 7.9 7.2

    (C) Public sector 5.0 1.0 0.2 2.6 1.3

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  • INVESTMENT RATE

    Unless FDI picks up, investment is likely to be lower.

    Investment cycle was affected by higher interest costs, land acquisition

    problems, environmental and regulatory hurdles.

    No. Sector 2007-08 2008-09 2009-10 2010-11 2011-12

    .. Gross capital formation 38.1 34.3 36.5 36.8 35.0

    (A) Household sector 10.8 13.5 13.2 13.1 14.3

    (B) Private corporate sector 17.3 11.3 12.1 13.4 10.6

    (C) Public sector 8.9 9.4 9.2 8.4 7.9

    .. Gross capital formation 38.1 34.3 36.5 36.8 35.0

    Source: CSO

    (% of GDP at current market prices)

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  • INVESTMENT & CONSUMPTION GROWTH: DECLINING

    Source: CSO

    Growth in Private Final Consumption Expenditure and Gross Fixed Capital Formation at Constant Prices (%, y/y)

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  • GOVERNMENT & PRIVATE SECTOR BORROWINGS: EVIDENCE OF CROWDING OUT

    0

    7

    14

    21

    28

    35

    42

    10

    15

    20

    25

    30

    35

    20

    01-0

    2

    20

    02-0

    3

    20

    03-0

    4

    20

    04-0

    5

    20

    05-0

    6

    20

    06-0

    7

    20

    07-0

    8

    20

    08-0

    9

    20

    09-1

    0

    20

    10-1

    1

    20

    11-1

    2

    20

    12-1

    3*

    Bank's Credit to Commercial Sector (%, y/y) Bank's Credit to Government (%, y/y)

    *up to Feb13 Source: RBI

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  • CORPORATE PROFITS / PROJECT INVESTMENTS

    Q1 2011-12 Q2 2011-12 Q3 2011-12 Q4 2011-12 Q1 2012-13 Q2 2012-13 Q3 2012-13

    Sales (Y-o-Y % change)

    27.0 19.9 24.2 17.9 11.7 13.0 7.6

    PAT (Y-o-Y % change)

    8.9 -26.0 -2.4 26.4 -44.1 72.2 23.6

    Source: CMIE

    Rs. Billion Apr-Dec 2011-12 Apr-Dec 2012-13 % change (y/y)

    New Projects 7383 3443 -53.3

    Projects Shelved 3717 2786 -25.0

    Source: CMIE

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  • SLOWDOWN IN CORPORATE INVESTMENTS

    0

    3000

    6000

    9000

    Jun

    -07

    Jan

    -08

    Au

    g-0

    8

    Mar

    -09

    Oct

    -09

    May

    -10

    De

    c-1

    0

    Jul-

    11

    Feb

    -12

    Sep

    -12

    New Investment Announcement (Rs. Bn)

    0

    700

    1400

    2100

    Jun

    -07

    Dec

    -07

    Jun

    -08

    Dec

    -08

    Jun

    -09

    Dec

    -09

    Jun

    -10

    Dec

    -10

    Jun

    -11

    Dec

    -11

    Jun

    -12

    Dec

    -12

    Investments Shelved (Rs. Bn)

    Source: CMIE

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  • QUARTERLY USE-BASED INDUSTRY-WISE IIP GROWTH (y/y %)

    General Capital Goods Intermediate Goods Consumer Durables

    2011-12 Q1 7.0 17.0 1.8 2.7

    2011-12 Q2 3.2 -5.8 -0.8 7.9

    2011-12 Q3 1.2 -16.2 -2.9 4.9

    2011-12 Q4 0.6 -6.9 -0.5 -4.1

    2012-13 Q1 -0.3 -20.1 0.8 8.0

    2012-13 Q2 0.4 -8.1 1.5 0.1

    2012-13 Q3 2.1 -1.0 2.4 3.2

    Source: CSO

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  • INDUSTRIAL SECTOR: DECLINING GROWTH TREND

    GROWTH OF IIP 12 MONTHS MOVING AVERAGE (2004-05=100, %, Y-O-Y)

    Source: CSO, DES Calculations

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  • INVESTMENT IN AGRICULTURE

    80-81

    to 84-

    85

    85-86

    to 89-

    90

    90-91

    to 94-

    95

    95-96

    to 99-

    00

    00-01

    to 04-

    05

    05-06

    to 09-

    10

    Growth in

    investment in

    agriculture (%)

    39.8 9.8 15.4 12.1 8.3 19.5

    GCF in agriculture

    (% of overall GDP) 7.0 3.2 2.9 2.7 2.5 2.6

    GCF in agriculture

    (% of agriculture

    GDP)

    23.0 11.9 11.2 11.3 12.6 15.4

    Investment in agriculture in early 80s was high due to the predominance of agriculture

    sector in economic growth. However, over a period of time, it has come down.

    Similarly, share of investment in agriculture as % of GDP has come down.

    Of the 2.6%, 2.3% came from the private sector and the rest from the public sector. This

    proportion has remained constant since 2005-06.

    Source: CSO

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  • BALANCE OF PAYMENTS ACCOUNT

    2007-08 2008-09 2009-10 2010-11 2011-12 2011-12

    H1 2012-13

    H1

    Merchandise Exports 166.2 189 182.2 256.2 309.8 158.2 146.5

    Merchandise Imports 257.6 307.7 300.6 383.4 499.5 247.7 237.2

    Merchandise Trade Balance

    -91.5 -118.7 -118.4 -127.3 -189.8 -89.5 -90.7

    % of GDP (-7.4%) (-9.7%) (-8.5%) (-7.5-%) (-10.2%) (-9.9%) (-10.9%)

    Net Invisibles 75.7 89.9 80.0 79.3 111.6 53.1 51.7

    % of GDP 6.1% 7.4% 5.8% 5.0% 5.9% 5.9% 6.2%

    of which Software

    36.9 43.7 48.2 56.8 60.9 28.2 30.8

    Private Remittances 41.7 44.6 53.5 53.4 63.5 30.3 32.4

    Investment Income -4.4 -4 -5.5 -13.9 -16.5 -9.3 -9.3

    Current Account Balance

    -15.7 -28.7 -38.4 -48.1 -78.2 -36.4 -38.9

    % of GDP (-1.3%) (-2.3%) (-2.8%) (-2.6%) (-4.2%) (-4.0%) (-4.6%)*

    Source: Economic Survey, CSO *CAD as % of GDP was at a record high of -5.4% in Q2 2012-13

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  • ELASTICITY OF TAX REVENUES TO GDP

    Elasticity

    Direct Tax 1.32

    Income Tax 1.57

    Corporate Tax 1.02

    Indirect Tax 0.94

    Total Tax 1.10

    Sources: Ministry of Finance, DES Estimates; Elasticity indicates % change in tax revenue for 1% change in GDP

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  • BUDGET 2013-14 OVERVIEW The budget FY 14 estimates fiscal deficit at 4.8% of GDP (or Rs. 5.42 lakh

    crore) as compared to 5.2% in FY 13. Fiscal consolidation will help RBI to bring down interest rates which in its turn can affect investment and growth positively.

    The budget assumes 13.4% nominal GDP (at market prices) growth in FY 2013-14. Assuming 7% inflation, the real growth works to around 6.4% which is in the range of 6.1-6.7% estimated by the Economic Survey 2012-13.

    Total expenditure (Rs. 16.6 lakh crore) is expected to grow 16.1% against the total revenue (Rs. 10.6 lakh crore) growth of 21.2%

    The budget has focused on plan expenditure (29.4% growth, accounting for 1/3rd of total expenditure) while keeping non-plan expenditure under control (10.8%)

    The Government continues to maintain that between 2012-17, Rs. 55 lakh crore or US $ 1 trillion would be spent on infrastructure of which private sectors share is estimated at 47%.

    16

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  • Capital expend

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