India Economic Outlook

March 2018
 India Economic Outlook

State of the Economy:

India Outlook
Introduction
The year 2017 was marked by a number of key structural initiatives to build strength across macro-economic parameters for
sustainable growth in the future. The growth in the first half of the year suffered despite global tailwinds. However, the weakness
seen at the beginning of 2017, seems to have bottomed out as 2018 set in. Currently, the economy seems to be on the path to
recovery, with indicators of industrial production, stock market index, auto sales and exports having shown some uptick (shown
below). We believe that India’s economic outlook remains promising for FY17-18 and is expected to strengthen further in FY18-19.
However, the signs of green shoots should not be taken for granted as downside risks remain.

Production prints on an upswing (3mma, y-o-y, %)

Industrial Production
Manufacturing
Capital Goods Production (RHS)

8 14

7 12

6 10

5
8

4
6
3
4
2
2
1
0
0
-2
-1

-4
Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

-2

-6
-3

-4 -8

-5 -10

Source: CEIC, Deloitte

01
India Economic Outlook

Movement of Nifty (2015 - 2018) Rural sector shows some uptick (3mma, y-o-y, %)
Motor Vehicle Sales
Passenger Vehicles
12,000 35 Two Wheelers

11,000 30
10,000 25
9,000 20
8,000 15
7,000 10
6,000 5

5,000 0

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18
12-Mar-15

12-Jun-15

12-Sep-15

12-Jun-16
12-Dec-15

12-Sep-16
12-Mar-16

12-Dec-16

12-Mar-17

12-Jun-17

12-Sep-17

12-Dec-17

12-Mar-18

Source: CEIC, Deloitte Source: CEIC, Deloitte

Trade activity seeing some rise (3mma, y-o-y, %)

Trade Balance (USD bn)

Imports (%)
Exports (%)

50 -16

-14
35

-12

20
-10

-8
5

-6

-10
-4

-25 -2
Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Source: CEIC, Deloitte

02
 India Economic Outlook

The biggest challenges for 2018 are as to how the economy can maintain its recovery in the face of increasing
inflationary pressures, coupled with a higher fiscal deficit as well as an increasing debt burden. The key to this
conundrum lies in the revival of consumer demand and private investment.

Private Consumption and Capital Formation (y-o-y, %) Crude Prices (USD/Barrel, Average)

12 Private Consumption
18 80 ~ 75
Capital Formation
16 70
10
14 60 55.5
8 12 47.3 48.5
50
10
6 40
8
30
4 6
4 20
2
2 10
0 0 0
2015-16 2016-17 2017-18 2018-19
Mar-17
Jun-17
Sep-17
Dec-17
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16

Source: CEIC, Deloitte Source: CEIC, Deloitte

The objective of this paper is to present an analysis of the current Indian economic scenario along with the expectations from
the period ahead.

Decoupled, but still one of the fastest growing economies:

Over the last few quarters, what has become increasingly evident is the divergence between Indian and global growth. This
decoupling largely happened as India’s growth was hit on account of mega policy announcements.

India - World Decoupling (GDP, %)

World GDP
India GDP
12

10

0
1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

2019

-2

Source: IMF, Deloitte

03
India Economic Outlook
One of the other reasons for this can
possibly be attributed to shifting real
interest rate trends. During 2016, India’s
real interest rates followed a downward
global trend. However after this the
rates started shifting upwards which
affected investment activity, led to
currency appreciation and resulted in
subdued export activity.
In contrast to the economic situation in
India, global economic conditions have
gained momentum and have possibly
created a ripple effect across regions.
International Monetary Fund (IMF) has
estimated global growth to have grown
faster at 3.7% in 2017 against what was
earlier projected, with revival largely
apparent across Europe and Asia1. With
broad based recovery on the cards,
GDP Trends (Top FDI Destinations, CY, y-o-y)
20
15
10
-5
2005
2006
2007
2008
2009
2010
-10
Source: World Bank
1. https://www.imf.org/en/Publications/WEO/Issues/2018/01/11/world-economic-outlook-update-january-2018
2. https://www.imf.org/en/Publications/WEO/Issues/2018/01/11/world-economic-outlook-update-january-2018
3. h ttp://www.livemint.com/Politics/EykbGSLQXmXFGiPN3SzOsK/IMF-cuts-Indias-2017-growth-forecast-but-sees-medium-term.html
4. http://www.worldbank.org/en/publication/global-economic-prospects
04
global growth forecast has been moved
up by 0.2 percentage points to 3.9% for
2018 and 20192.
Growth outlook for the US has been
estimated to be positive due to
improvement in domestic demand as
well as the anticipated boost to the
economy by way of U.S. tax policy
changes. Across other developed
economies, the Euro area saw further
expansion on the back of falling
unemployment rates, investment
optimism, and lower interest rates which
have stimulated consumption further,
while the effects of strong external
demand were visible in Japan where
manufacturing activity moved to the
upside.
China
India
2011
2012
2013
2014
2015
2016
Looking ahead, for 2018, it is widely
expected that this decoupling will not
continue. As per IMF and World Bank,
world economy is expected to grow at
3.7% and 3.1%3 in 2018 while the Indian
economy is expected to grow at 7.4% and
7.3%, respectively4 for 2018. We expect
India to grow by 6.7% in FY2017-18 and
further by 7.2% in FY2018-19 on account
of uptick in investment activity and
broader market adjustments to previous
market disruptions. Currently, India is
the world’s seventh-largest economy at
USD 2.2 trillion, sitting between France
and Italy. A report by World Economic
Forum has projected that by 2050, the
Indian economy is expected to be the
world’s second-largest, behind only
China.
Germany Hong Kong SAR
United Kingdom United States
2017
2018
2019
2020
2021
2022
 India Economic Outlook

GDP Trends (Key EMs, CY, y-o-y)

20
Brazil China India
Indonesia Russia Thailand
15

10

-5
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
-10

Source: World Bank

05
India Economic Outlook

Top 10 largest economies (GDP, USD trillion, 2015)

0 5 10 15 20

US 18

China 11

Japan 4.4

Germany 3.4

UK 2.9

France 2.4

India 2.2

Italy 1.8

Brazil 1.8

Canada 1.6

Source: World Economic Forum, Deloitte

Recent GDP Trends

The recent data on GDP growth in Q3 of FY 2017-18 has again revived expectations that the deceleration in the economic activity
because of GST and demonetization may have bottomed out. Some of this good news is also mirrored in the data on corporate
earnings as well. Even with the slowdown in 2017, recent data suggests that the GDP has grown by an average of 6.4% 5 in
the first three quarters of FY17-18.

GDP Growth Rates (y-o-y, %)

GDP: Constant Private Consumption
Capital Formation Govt Consumption

25 10

20 7.2 8
6.7

15 6

10 4

5 2

0 0
Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-17

FY17-18[E]

FY18-19[E]

Source: CEIC, Deloitte

5. CEIC Data and Deloitte Analysis

06
 India Economic Outlook

GVA Quarterly growth rates (y-o-y, %)

GVA: Constant Agriculture, Forestry and Fishing

Industry Services
14
12
10 8.8 8.3
7.8 8.5
7.4 7.2 6.9 6.7
8 6.0 6.2 6.9
6.1
5.6
6
4
2
0
-2
Jun-15

Sep-15

Dec-15

Sep-17

Dec-17
Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

FY17-18[E]

FY18-19[E]
-4

Source: CEIC, Deloitte

As can be seen from the above, the services

sector continued to show a stable rate of
growth. The agriculture sector suffered from
a price crash following over-production during
the kharif season, while erratic monsoon during
the latter part of the year led to some crop
destruction resulted in falling farm incomes.
Looking ahead, the agriculture segment is
expected to grow higher than the estimated 2.1%
in the current fiscal possibly following positive
prospects on rabi harvest.

Moreover, some improvements on the industry

sector emanatd from a steady rise in utilities
and a revival in manufacturing activity.
Industry growth recorded a further upswing
from 5.9% in 2QFY18 to 6.8% in 3QFY18. On a
positive side, manufacturing growth showed a
reversal rising by 8.1% in 3QFY18 as compared
to -1.8% in 1QFY18, while utilities remained
steady at 6.1% growth in 3QFY18.

IIP and PMI

The recent data on overall industrial production
(IIP) showed signs of recovery reflecting a
possible strengthening of domestic demand
and a further build-up in global trade activity.
Manufacturing sector rose 9.3% on a 3mma (3
month moving average) basis in Jan’18 compared
to 7% rise as of Dec’17. The turnaround in
production levels is possibly a reflection of
turning consumption demand as also suggested
by an upswing in vehicle sales, cement and diesel

07
India Economic Outlook

production. Significant gains in capital goods production is an Demand side analysis

encouraging sign while positive prints on consumer durables is
likely to boost economic growth.
The overall purchasing manager’s index (PMI) number’s also
showed an expansion in business conditions driven largely
by manufacturing PMI even as services PMI showed relative
weakness. The upturn in manufacturing PMI likely came
on the back of increasing output and new orders while the
services side contracted for the first time since November on
account of rising price pressures. Given the overall optimism
in consumption behaviour and trade activity, PMI numbers are
expected to gain strength in the period ahead.
A detailed look at the expenditure side suggests that the
demand behaviour has seen some improvement. However
there remains some discrepancy in private consumption and
consumer durables data. While private consumption grew
at an average of 6.3% in the first three quarters of 2017-18 6 ,
consumer durables have contracted through most part of
the year. Importantly, it has largely been the increases in
private consumption and government spending that has
stimulated growth. However, the recently released Q3 data
which showed an unexpected jump in investment has revived
hopes that private investment sentiment may also turn
positive.

GDP Quarterly growth rates (y-o-y, %)

Private Consumption Expenditure
Government Consumption Expenditure
35 Gross Fixed Capital Formation

30
25
20
15
10
5
0
-5
Jun-15

Jun-17

Sep-17

Dec-17
Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

-10

Source: CEIC, Deloitte

6. CEIC Data and Deloitte Analysis

08
 India Economic Outlook

Recent Policy Measures to Boost Growth

a. Goods and Services Tax

• L
 aunched in July 2017 with the aim to consolidate all other indirect tax
laws (save a few) and to also bring a harmonized tax structure and uniform
compliance practices both by regulators and businesses.
• F
 ood items have been placed in zero or the minimum slab while luxury
items get taxed more. The government ruled out having a single rate for all
commodities under the Goods and Services Tax (GST)
• M
 any items which were earlier in the 28% bracket were brought into the 18%
bracket and this process of rationalization would continue.
• T
 he committee shall recommend changes to be made in the process of filing of returns in GST, including the
threshold, if any, for quarterly filing.

b. Insolvency and Bankruptcy Code

• L
 aunched in December 2016, it is a one-stop solution for resolving insolvencies which at present is a long process
and does not offer an economically viable arrangement.
• The code will be able to protect the interests of small investors and make the process of doing business simpler.
• S
 tatistics show that the recovery is only 20% in India and in global ranking, the country is ranked in the 136th
position with respect to the time taken for resolving disputes.
• A
 s per RBI, the total outstanding amount for top 50 stressed borrowers, funded by scheduled commercial banks,
stood at INR 3.7 trillion as on 30 Sep’17.

c. Jan Dhan Yojana and Aadhaar

• A
 s on Dec 6, 2017, a total of 307 million accounts have been opened under PMJDY, including 180 million accounts
opened in rural/semi-urban areas.
• D
 uring the period between 8.11.2016 to 30.12.2016. INR 421.8 billion had been deposited in 3,74,14,844 PMJDY
accounts.
• A
 World Bank paper has noted a 10% gender gap in opening accounts under the country’s flagship financial
inclusion programme — Jan Dhan Yojana — with 73% men applying for accounts against 63% women.

d. Ayushman Bharat
• T
 he government announced two major initiatives in health sector during the Union Budget 2018-19. The program
is aimed at addressing health holistically, in primary, secondary and tertiary care systems, covering both
prevention and health promotion.
• H
 ealth and Wellness Centre: The National Health Policy envisions Health and Wellness Centres as the
foundation of India’s health system. Under this initiative, about 1.5 lakh centres will be created to bring health
care system closer to the poor. For this purpose, the Budget has allocated INR 12 billion and the centers will
provide health care, including for non-communicable diseases and maternal and child health services.
• N
 ational Health Protection Scheme: This scheme is aimed at providing health cover up to INR 0.5 million
per family per year for secondary and tertiary care hospitalization and will cover over 100 million poor and
vulnerable families (approximately 500 million beneficiaries).

09
India Economic Outlook

Fiscal Consolidation: The story behind the math7

India’s fiscal deficit has steadily declined over the years. However, the path to reach the target of 3% has been extended. If we
analyse the revenue trends, then, it can be seen that the gross tax to GDP ratio is likely to have risen by 0.2% to 11.6% in FY17-18
and tax revenues are expected to grow by 16.6% in FY19 as compared to 15.3% in FY18.

Fiscal Deficit and Revenue Deficit (% of GDP) Tax and Non - Tax Revenue (y-o-y, %)

5.0 35 100
Fiscal Deficit (% of GDP) Tax Revenue
4.5 Revenue Deficit (% of GDP) 30 Non-Tax 80
Revenue
4.0 25 60

3.5 20 40
15 20
3.0
10 0
2.5
5 -20
2.0
0 -40
1.5
-5 -60
2013-14

2014-15

2001
2015-16

2016-17
(Actuals)

2017-18
[RE]

2018-19
[BE]

2019-20
[P]

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: CEIC, Deloitte Source: CEIC, Deloitte

Between Apr-Dec 2017, close to 80% of
the total receipts of the government
were generated from tax revenues. The
total tax income of INR 9 trillion in the
first 9 months of FY17-18 represented
a growth of close to 25%8. Here, direct
tax revenue grew by 19.4% in the first 9
months compared to a rise of 13.8% in
FY16-17, while indirect tax revenues grew
only by 18.6%, against a sharper 24.8%
rise in FY16-17. The upswing in direct
tax revenue, if sustained, could signal a
rising tax base of the economy.
However, about 13% of the total receipts
of the government were generated from
non-tax revenues in the first 9 months
of the current fiscal: Non-tax revenues
recorded a decline of 12% between
Apr-Dec 2017-18 over the last year as
compared to a growth of 9% in FY16-17
with total collections of only INR 1.1
trillion. The government has budgeted
for INR 4.4 trillion in FY18 factoring in
an average monthly inflow of INR 400
billion.
Despite the healthy rise in tax revenues,
the sharp deceleration in non-tax
revenue pulled the overall strength
down. The non-tax revenues essentially
constitute spectrum auction proceeds,
dividends and profits of state-owned
enterprises and the Reserve Bank of
India. Part of the shortfall in revenues
was met via disinvestments and
looking at the success of disinvestment
proceeds of the previous fiscal, the
government hopes to breach the target
set for FY17-18 by collecting INR 1
trillion and further expects to raise INR
800 billion in FY18-19 9, including gains
from privatization of Air India Ltd. For
FY19, the government expects GST
inflows to improve substantially and
have factored in INR 620 billion on a
monthly basis.
Fiscal Math for FY 2018-19
For the coming fiscal year, the government
is assuming a further enhancement
in gross tax to GDP ratio to ~12.1% for
FY18-19, essentially on the back on a
meaningful rise in indirect tax collections.
That said, the Budget math also accounts
for a higher direct tax buoyancy as
the government expects improved tax
compliance in the coming year.
On the expenditure side, the government
has budgeted a 10% growth for FY19 as
compared to a growth of 12.3%10 in FY18.
Prima facie, this number looks credible
though the fine print does suggest
that there could be some overruns.
Given that we are in a pre-election year,
slippages in rural and urban development
expenditure would not be a complete
surprise while limiting oil subsidies at 2%
growth might also be challenging.
Based on these estimates, the
government has estimated that the fiscal
deficit in FY 2017-18 will be 3.5% of GDP.
Furthermore, the glide path for fiscal
deficits has also been changed as now
the government intends to hit 3.3%11 of
GDP next year and reach the target of
3% by FY21.

7. http://www.indiabudget.gov.in/ub2018-19/frbm/frbm2.pdf
8. CEIC Data and Deloitte Analysis
9. http://www.business-standard.com/article/economy-policy/niti-aayog-preparing-new-list-of-sick-psus-for-disinvestment-amitabh-
kant-118022200081_1.html
10. http://www.indiabudget.gov.in/ub2018-19/rec/annex1.pdf
11. http://www.indiabudget.gov.in/ub2018-19/frbm/frbm2.pdf

10
 India Economic Outlook

Bond Market Risks Government Securities Yield (10-year)

Fiscal slippage will most likely bring in 8.5
financial market volatility, especially
in terms of cost of borrowings which
have already hardened over the last few 8.0
months.

7.5
Post the Budget, the benchmark 10-year
yield hit a 22-month high to close at
7.6% and is currently trending at 7.68% 7.0
as of the last close on 15 March, 201812,
having gained close to 6% since the
Budget. Since the RBI announcement 6.5
to inject INR 1 trillion into the system
saw bond yield dipping nearly 15 basis
6.0
points on 12 March after hitting a high

Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
of 7.78%. However, we believe that
the domestic bond market have risks
to the upside and may get affected
Source: CEIC, Deloitte
due to expectations of rising oil, re-
capitalisation, and likely shortfall in GST
collections. part of 2017 as crude oil prices have reading for Feb’2018 saw larger than
started moving up and favourable base expected easing that came on the back
The rise in bond yields are also signalling effects have waned. During this period, of a slowdown in the more volatile food
that interest rates have already hit their some increase in food prices along with price inflation. Also, only marginal uptick
trough and are likely to be on an upward one-time modifications on account of in core inflation was recorded possibly
trajectory in the upcoming fiscal year. pay revisions in the public sector and on the back of lower base effect and a
This rise is in consonance with global housing rent allowance being revised likely pass-through of input costs. The
rates as most important global central upwards have also led to rising inflation. main challenges this year are likely to
banks have signalled an end to the ultra- come due to rising crude oil prices on
loose monetary policy. The US Fed is on However, it seems that inflation account of global oil output cuts. Further
course to increase its benchmark rates pressures are weakening. The latest
further while the European Central Bank
has also hinted at a winding up of its Components of Consumer Price Index (y-o-y, %)
stimulus program faster than expected. 8
CPI: Overall
These global factors combined with CPI: Food & Beverages
7
possibility of higher inflation and growth Core CPI
is likely to result in the 10-year yield 6
5.1
moving further north over the course of
5
the year.
3.9
4
Inflation: largely under control
though risks have emerged 3
One of the major positives over the 2
past few years has been the declining
inflation levels. Consumer price inflation 1
has in fact, fallen to multi year lows
0
during the last fiscal. This has been
possible on account of falling or stable -1
global commodity prices and better
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16

Feb-17

Apr-17

Dec-17
Jan-17

Mar-17

May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17

Jan-18
Feb-18
FY17-18[E]
FY18-19[E]

-2
management of supply shortages in the
agrarian economy. That said, inflation
pressures did reverse during the latter Source: CEIC, Deloitte

12. CEIC, Bloomberg and Deloitte

11
India Economic Outlook

to this, the Budget has announced 50% higher

MSP than cost even though there exists some
ambiguity on how costs will be calculated. A
higher MSP generally tends to provide a floor for
prices thereby pushing inflation on food prices. It
will be important to analyse what the impact has
been of a hike in MSP over the last year. As such,
we are likely to witness a year of higher inflation
and macroeconomic management due to these
challenges.

CPI inflation for FY18-19 is likely to come in at an

average of around 3.9%13 for the full fiscal year,
slightly below the RBI’s long-term target of 4%.
We expect inflation to remain high in the range
of 5-6% during the first six months of the current
calendar year after which we are likely to see a
decline as relatively higher base is expected to
cushion against higher inflationary readings.

Monetary Policy and Outlook

The RBI had steadily cut the repo rate from
7.25% in Aug’15 to 6% in Aug’17. Since then the
RBI has held the policy rate steady with more
emphasis on reviving domestic growth. In the
current economic scenario, with world economy
having built further momentum and with the
anticipation of a further escalation in global
commodity prices, the space for monetary
manoeuvring has become limited. Since its a fall in revenue collections, all of 5.6% in the 1HFY19 and then ease
Aug’17 policy meet, the RBI has maintained its which are likely to have implications to 4.5-4.6% in the 2HFY1914, and
stance citing concerns on inflation front as well for inflation. with the yearly estimate set at
as spill-over risks from global policy changes. 4.5% it can be expected that any
Importantly, household expectations on inflation In its last bi-monthly monetary policy monetary action by the RBI will
has seen a rise and separately concerns on fiscal for the fiscal year 2018 in Feb’18, the be data dependent. In our view
slippage have increased, especially on account of Monetary Policy Committee (MPC) there remains some upside risks to
implementation of farm loan waivers, partial roll in Feb 2018 said inflation has been inflation which may become visible
back of excise duty for petroleum products, and stipulated to remain around 5.1- in the second half of FY18-19 on
account of oil price hike, and possible
Repo Rate and Base Rate (%) rise in input costs. The important
10.5 question for FY 2018-19 is whether
10.0 and when the RBI will announce an
9.5 increase in the repo rate.
9.0
8.5
Twin Balance Sheet Problem
8.0
and NPAs
7.5
The credit growth has remained
7.0
6.5 subdued due to the twin balance
6.0 sheet problem that India has
5.5 been facing. The issue here is
that balance sheets of Indian
Jun-14
Aug-14
Oct-14
Dec-14

Apr-15
Jun-15
Aug-15

Dec-16
Feb-17
Apr-17
Feb-15

Oct-15

Feb-16
Apr-16
Jun-16
Dec-15

Aug-16
Oct-16

Jun-17

Oct-17
Aug-17

Dec-17
Feb-18

companies and banks both have

been under stress. While Indian
Source: CEIC, Deloitte companies remain over-leveraged,
13. CEIC Data and Deloitte Analysis
14. https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=43078

12
 India Economic Outlook

the banks are reeling under high non- to 10.8% in March 2018 and further to it requires complementary reform
performing assets. The banking sector 11.1% by September 201817. measures to alleviate unviable banks and
is expected to see a further rise in its allow greater private sector participation.
stressed assets base for FY17-18 to The new Insolvency and Bankruptcy code Looking ahead, the falling share of
about INR 9.5 trillion from about INR (IBC) and the bank recapitalisation plan private investments necessitates pro-
8 trillion in FY16-1715. As per the stress are the two-pronged policy responses active measures to stimulate investment
tests (Financial Stability Report, RBI that have been formulated to tackle this sentiment and we believe that the
2017)16 , in the baseline scenario, Gross issue. The twin balance sheet problem expected push toward infrastructure
NPAs (non- performing assets) of the has been long-standing and while the development along with recapitalisation
banking sector may rise from 10.2% new Insolvency and Bankruptcy code of public sector banks will likely have a
of gross advances in September 2017 (IBC) will possibly help, we believe positive impact on investment demand.

Non-Performing Assets (INR Billion, FY)

Total Non-Performing Loans
NPA: Public Sector

10000 9500
9000
7902.7
8000
7000
6116.1
6000
5000
4000
3229.2
3000 2630.2
1932
2000 1420
847 979
1000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018
[E]
Source: CEIC, Deloitte FY2018 value is estimated

Trade and Investment

Exports and Imports (3mma y-o-y, %)

50
Imports (%)
Exports (%)
35

20

-10

-25
Feb-16

Mar-16

Apr-16

Jul-16

Aug-16

Sep-17

Oct-17

Nov-17

Dec-17
Jan-16

May-16

Jun-16

Sep-16

Oct-16

Nov-16

Dec-16

Feb-17

Mar-17

Apr-17
Jan-17

May-17

Jun-17

Jul-17

Aug-17

Jan-18

Source: CEIC, Deloitte

15. http://www.assocham.org/newsdetail.php?id=6696
16. https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/0FSR201730210986ADDA44E2A946A3F6C4408581.PDF
17. CEIC Data and Deloitte Analysis

13
India Economic Outlook

Looking at the real data, the external sector has remained rather muted
despite the global economy performing well. Indian exports grew only by
11.2% between Apr-Jan 2017-1818. If we look at the details of the exports,
highest growth has been seen in sectors such as gems and jewellery,
mineral fuels, machinery, pharmaceuticals, organic chemicals, electrical
machinery textiles among others.

Export by Principal Commodities, FY2016-17

Engineering Goods

Petroleum Products

Gems & Jewellery

24%
28%
Ready Made Garments of All Textiles

Drugs & Pharmaceuticals

11%
4% Organic & Inorganic Chemicals
5%
Cotton Yarn & Handloom Products
6% 16%
6% Others

Exports: USD 275 bn

Source: CEIC, Deloitte

Further, economies including US, United Arab Emirates, ASEAN, Hong

Kong, and China continued to be our largest export destination, followed
by UK, Germany and Sri Lanka.

Export by Country, FY2016-17

United States of America

United Arab Emirates

15% ASEAN
Hongkong
China
40% 11% Saudi Arabia
United Kingdom
Germany
11%
Sri Lanka
Bangladesh
5% Netherlands
2% 3% 4%
Others
3%
1% 3% 2%

Exports: USD 275 bn

Source: CEIC, Deloitte

18. CEIC Data and Deloitte Analysis

19. CEIC Data and Deloitte Analysis

14
 India Economic Outlook

In contrast, total imports showed considerable strength over the better

part of the year, growing at a double digit pace – maintaining an average
of 23% from Apr-Dec 2017 as compared to an increase of merely 1.9%
in FY16-1719. While, the uptick in imports in part suggests resilience of
domestic demand as they largely started seeing an upswing around the
time of demonetization.

Importantly, non-oil, non-gold (NONG) imports, proxy for domestic

demand, have seen a healthy growth over last year. Between Apr-Dec
2017, NONG imports grew an average of 20% as compared to a 1%
rise over the previous full fiscal year. Of the major categories, imports
witnessed double digit growth across ores and minerals, electronics,
machinery, base metals, chemical and products, paper and products, and
plastic and rubber.

Import by Principal Commodities, FY16-17

Petroleum, Crude & Products

Electronic Goods
25% Gold
31%
Machinery, Electrical & Non-Electrical

Miscellaneous

4% Pearl, Precious, Semi Precious Stones

4% Organic and Inorganic Chemicals

4% 8% Coal, Coke & Briquettes

5% Iron & Steel

8%
5%
6% Others

Exports: USD 380 bn

Source: CEIC, Deloitte

Non-oil non gold imports (y-o-y, %)

45

35

25

15

-5

-15

-25
Jan-15

May-15

Sep-15
Mar-15

Jan-16

May-16

Jan-17

May-17

Sep-17
Jul-15

Nov-15

Mar-16

Jul-16
Sep-16
Nov-16

Mar-17

Jul-17

Nov-17
Jan-18

Source: CEIC, Deloitte

19. CEIC Data and Deloitte Analysis

15
India Economic Outlook

Growth in oil imports has marked an upswing in the Trade Deficit (USD bn)
last six months to Dec’17. In contrast, gold imports -2
have remained muted.

-4
Overall trade deficit has risen close to $117 billion
between Apr-Dec 2017 as compared to $78 billion
in the same period last year20. Despite a continuous -6
rise in trade deficit, it is expected to remain under
control over the coming period as exports mark a
-8
rise on the back of upswing in external demand and
diminishing impact of disruptions.
-10
At the same time, the Current Account Deficit
(CAD) is largely expected to remain under control -12
and print in around 2% for the current year. India
remains cushioned by impressive investment
-14
inflows which puts India in more than a comfortable
state to finance the deficit. That said, India
maintains a surplus in trade of services that has -16
in part helped in containing CAD. Stable long
Feb-16
Mar-16
Apr-16

Dec-16

Feb-17
Mar-17
Apr-17

Jul-17
Aug-17
Jan-16

May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16

Jan-17

May-17
Jun-17

Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
term flows coupled with high market inflows have
meant a further rise in forex reserves which have
increased to $400 billion in the 1HFY2017-18 as
Source: CEIC, Deloitte
compared to $370 billion FY2016-1721.

CAD and FOREX (%, Actuals)

FOREX Reserves (USD bn)
Current Account Deficit (% of GDP, RHS)

400 0

350 -1

300 -2

250 -3

200 -4

150 -5

100 -6

50 -7

0 -8
Jun-12

Dec-12

Jun-13

Dec-13

Dec-14
Sep-11

Dec-11

Mar-12

Sep-12

Mar-13

Sep-13

Mar-14

Jun-14

Sep-14

Mar-15

Jun-15

Dec-15

Jun-17

Sep-17
Sep-15

Mar-16

Jun-16

Dec-16
Sep-16

Mar-17

Source: CEIC, Deloitte

20. CEIC Data and Deloitte Analysis

21. CEIC Data and Deloitte Analysis

16
 India Economic Outlook

Foreign Direct Investment: Inflow (Quarterly, USD bn)

16

14

12

10

0
Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017 -18

Source: CEIC, Deloitte

What’s in store for the rupee?

The Indian rupee (INR) has shown tremendous strength over the better part of 2017, especially looking at the past trend when
it had seen a fall for almost six years. At the year-end, the domestic currency broke above the 64 handle coming in at 64.64 to
the US dollar as of 19 Feb 201722. The remarkable rise in INR could have been prompted by strong foreign flows, proactive policy
initiatives, and relative weakness in US dollar.

Exchange Rate Movement (INR/USD)

69

68

67

66

65

64

63
Dec-15

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18

Mar-18
Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

*March value is as of 13 Mar'18

Source: CEIC, Deloitte

22. CEIC Data and Deloitte Analysis

17
India Economic Outlook

However a rising INR is not always Real Effective Exchange Rate (Export based weight)
welcome for all sectors. As long as
the real value of INR is higher than 125
the real value of currencies of other
competing nations, Indian exports will
be outpriced in the global markets. 120
In 2017, apart from appreciating
against the dollar, the rupee has also
appreciated against the currencies
of Indonesia, Brazil, and Turkey, 115
while depreciating against nations
such as Thailand, and Malaysia. It is
important to acknowledge that rising 110
real exchange rate (REER) remains
Aug-15

Oct-15

Dec-15

Feb-16

Apr-16

Jun-16

Aug-16

Dec-16
Oct-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Dec-17

Feb-18
above 100, which suggests that the
Indian currency remains overvalued
at current levels. We believe that while Value above 100 represents overvaluation
the rupee will see some stability in Source: CEIC, Deloitte
the near term, it is likely to depreciate
orderly over the year.

Conclusion
While the last year saw a number of changes to the system, the impact of these have largely waned as new equilibria has started
to set in. The Indian economy has once again regained the tag of the “fastest growing economy”. How sustainable this momentum
will be and by when our economy can cross the 8% Rubicon, will depend on how effectively the various policies, especially with
respect to structural and infrastructure related reforms are implemented.

18
 India Economic Outlook

Disclaimer
a. Sources where not mentioned have been taken from CEIC and Deloitte.
b. The data taken into consideration for the analysis ends in February 2018.

Acknowledgements
Anis Chakravarty
Lead Economist and Partner

Richa Gupta
Senior Economist and Senior Director

Umang Aggarwal
Economist

19
India Economic Outlook

20
India Economic Outlook

21
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