GDP growth

Moving on to the quarterly estimates Ior GDP growth Ior the Iourth quarter oI 2010-11, we see that
although the economy`s perIormance is still decent at 7.8 percent, an unmistakable downward trend is
visible. Quarterly growth estimates show that GDP growth has come down Irom 9.3 percent in Q1, 2010-
11 to 8.9 percent in Q2, 2010-11 to 8.3 percent in Q3, 2010-11 and Iurther down to 7.8 percent in Q4,
2010-11.
Amongst sectors, the ones that have seen a considerable erosion oI growth momentum over the last one
year are mining and quarrying` and manuIacturing`. While in case oI the Iormer, the growth Iigures
have come down Irom 7.1 percent in Q1, 2010-11 to 1.7 percent in Q4, 2010-11, in case oI the latter,
growth has moderated Irom 12.7 percent in Q1, 2010-11 to 5.5 percent in Q4, 2010-11.
The perIormance oI the agriculture and allied activities` sector in the Iourth quarter has been particularly
strong at 7.5 percent. The other sectors that have registered strong growth in Q4, 2010-11 are electricity,
gas and water supply` |7.8 percent|, construction |8.2 percent|, trade, hotels, transport and
communication` |9.3 percent| and Iinancing, insurance, real estate and business services` |9.0 percent|.
Industrial Production
Weakness in industrial production trend continues. In April 2011, IIP (Index oI Industrial Production)
registered a growth oI 6.3 percent. In April 2010, growth in IIP was to the tune oI 13.1 percent.
InIlation
The inIlation situation in the economy continues to be a cause Ior concern. Despite large scale
tightening oI the monetary policy by the RBI and other steps taken by the government, inIlation continues
to remain close to the double digit mark.
In May 2011, WPI based headline inIlation stood at 9.1 percent. This is higher than 8.7 percent
inIlation recorded in April 2011. The inIlation rate in India was last reported at 8.43 percent in July oI
2011. From 1969 until 2010, the average inIlation rate in India was 7.99 percent reaching an historical
high oI 34.68 percent in September oI 1974 and a record low oI -11.31 percent in May oI 1976. InIlation
rate reIers to a general rise in prices measured against a standard level oI purchasing power.

High international oil prices, likely decontrol oI diesel prices, high global Iood prices and hike in
Minimum Support Prices Ior the upcoming agriculture season are some oI the Iactors that constitute the
upside risks to inIlation.
First, international crude oil prices continue to remain high. A slowdown in global growth in 2011 that is
widely anticipated could put a lid to international oil prices but any large scale downward revision is
being ruled out at this moment. As a result, we can expect inIlationary pressures in the Fuel and Power`
category to continue. Moreover, this pressure could Iurther mount once the government announces
decontrol oI diesel and LPG prices.
Second, in the context oI inIlation in the Fuel and Power` segment, one must also take note oI the rising
prices oI coal. Recent media reports show that coal production target Ior 2011-12 has been cut down
primarily on account oI rising concerns over environmental issues. Coal shortage oI nearly 142 million
tonnes is expected in 2011-12 and our imports this year could be as much as 114 million tonnes. Besides
power generation, this situation oI coal shortage does not augur well even Ior the price line in case oI
coal.
Third, global Iood prices are likely to remain Iirm in the near term. According to recent reports brought
out by FAO, global Iood prices would continue to remain a concern in 2011. The FAO has warned that
while the harvest this year would be critical, restoring market balances will take some time. Hence, we
can expect upward pressures on Iood prices in the global markets to persist. As global Iood prices have a
bearing on Iood prices in India, we have another element that is not likely to work in Iavour oI bringing
inIlation down.
Fourth, the government has recently announced a hike in the Minimum Support Prices |MSP| Ior goods
like paddy, soybean and corn Ior the upcoming agricultural season. This increase in MSP will also have a
bearing on the trend in Iood prices in the near term. There are chances that Iood inIlation may accelerate
once the new crop comes into the market in October 2011.
Given the above Iactors, we expect concerns on inIlation to remain on the policy agenda through the year
2011. Further, with policy rate hikes by RBI having Iailed to deliver on the stated objective oI reining in
inIlationary pressures and bringing down inIlationary expectations, it is time that government actively
pursues supply side measures to curtail inIlation.
Foreign Trade
5479 The strong momentum in exports, seen particularly during the second halI oI 2010-11, has
continued in the year 2011-12 as well.
Financial year 2010-11 was exceptionally good Ior Indian exporters. With overall exports amounting to
US$ 245.5 billion, the sector registered a growth oI 37.7 percent in 2010-11 over the previous year.
reason that have tempered the outlook Ior exports.
Rising interest rates(The exporters now have to pay a higher rate oI interest to the banks Ior obtaining
export credit), rising raw materials costs and oil prices likely slowdown in Asian economies are some oI
the reason that have tempered the outlook Ior exports.
Secondly, One oI the Iactors that aIIect the competitiveness oI India`s exports vis-a-vis exports Irom other
countries is the relative movement in the national exchange rates.
Thirdly, oII late there has been a signiIicant increase in exports Irom India to Asian countries. However,
with inIlation emerging as concern in other Asian countries as well and the central banks responding by
raising interest rates, the demand in this region is likely to Iace some moderation. This will certainly have
some bearing on India`s exports to the Asian market.
Fourthly, rising raw material costs and oil prices is also having a bearing on the exporters. Almost three
quarters oI the respondents in FICCI`s latest Export Survey said that they are Iacing diIIiculty due to high
raw material prices. The textile sector is Iacing the heat due to surging cotton and yarn prices, the
chemical sector is being impacted due to increasing polymer prices, processed Ioods segment is Iacing the
brunt oI high Iruit and vegetable prices and engineering goods are being aIIected by high steel prices. It is
also important to note that rising crude oil prices have increased the inland transportation cost and even
the international ocean Ireight rates have moved up recently.
Imports:Coming to 254798 next, we see that in the year 2010-11 our imports totaled US$ 350.4 billion.
This represents an increase oI about 21.8 percent over the previous year`s imports oI about US$ 287.6
billion. During the year 2010-11, imports oI both petroleum crude and products (POL) and nonpetroleum
crude and products (Non POL) went up. While POL imports amounted to US$ 101.7 billion in 2010-11
and posted a growth oI 16.7 percent over the previous year, non-POL imports amounted to US$248.7
billion and registered a growth oI 24.0 percent over the previous year.
Foreign Investments
In 2010-11, Ioreign investment Ilows into India saw a dip oI about 17 percent over the previous year.
Further, this dip is largely on account oI a slowdown seen in case oI FDI.
In 2009-10, FDI inIlows into India totaled US$ 37.7 billion. In 2010-11, this Iigure came down to US$
27 billion.
Data also shows that oI out oI the top 25 sectors, 15 sectors have seen a dip in FDI Ilows during April
Feb 2010-11 compared to the same period in 2009-10. Sectors like services, construction, housing and
real estate, telecommunication and agricultural services are the ones where investment Ilows have slowed
down considerably.
In 2010-11, portIolio Ilows totaled US$ 31.5 billion and were only a tad below US$ 32.4 billion
received in 2009-10
Given continuous monetary policy tightening by the central bank, interest rates are on an upswing. This
coupled with rising prices oI raw materials is likely to have an adverse impact on the proIit margins oI
Iirms across sectors in the year ahead. As this would constrain the capacity oI Iirms to distribute
dividends, FIIs are likely to take a conservative view on India and Indian companies as they do their
return on investment calculations. Signs oI this are already emerging as in a recent survey |June 2011|
conducted by the Bank oI America Merrill Lynch amongst global Iund managers, India was placed
amongst the least Iavourite equity market by Asia-PaciIic investors.
Additionally, with the RBI contemplating tightening oI rules relating to exit oI Ioreign investors and
private equity Iunds who put their money in Indian Iirms, investors` sentiments are expected to Iurther
weaken. The re-emergence and intensiIication oI the sovereign debt crisis in Europe and the expected halt
oI quantitative easing policy in the US by the end oI June 2011 are also downside Iactors Ior portIolio
Ilows Ior emerging markets including India.
Forex Reserves
India`s Ioreign exchange reserves increased as we moved ahead in Iiscal 2010-11. As data given in the
table below shows, while in April 2010, India`s Ioreign exchange reserves totaled US$279.6 billion, in
September 2010 this Iigure had increased to US$ 292.9 billion. Most recent numbers show that the
country`s Ioreign exchange reserves have shot up Iurther crossing the US$ 300 billion mark. With this
level oI reserves, India is amongst the ten largest holders oI Ioreign exchange reserves in the world. In
April 2011, India`s Ioreign exchange reserves totaled US$ 313 billion
Exchange Rate
Amongst all currencies that have weakened against the US$ during this period, it is the South AIrican
Rand that lost the most a depreciation oI almost 2.1 percent. This is Iollowed by the Brazilian Real
(depreciated by 1.3 percent) and the Indian Rupee (depreciated by 1.1 percent). Both the Pakistani Rupee
and the Thai Baht have lost about 0.6 percent each against the US$ over the two month April/May 2011
period.
Fiscal Situation
The provisional estimates Ior 2010-11 Ior various Iiscal variables show a deIinite improvement over
the revised estimates (RE), with a more than anticipated rise in revenue collection and reduction in
expenditure.
The striking Ieature oI the new estimates is the reduction in Iiscal deIicit |4.7 percent| number compared
to the revised estimate |5.1 percent| given during presentation oI the union budget
While this is the case with tax collections, government`s other revenue raising sources like auction oI the
remaining 3G spectrum and disinvestment oI select PSUs may also not Ietch anticipated revenues as there
may not be enough takers given the tough market conditions. On the expenditure Iront, government has
estimated a very small increase oI 3.4 percent in its overall expenditure Ior the year 2011-12. In all
probability this estimate will be exceeded in the current year mainly because oI expenditures under the
heads oI MGNREGA, Iood, petroleum and Iertilizer subsidy.
While increased wage rate will push up the MGNREGA expenditure, international price oI oil and
Iertilizer will push up petroleum and Iertilizer subsidy. Also, the Iood subsidy bill will see a rise with the
introduction oI Food Security Bill and the associated high cost that would have to be incurred Ior
collecting and storing much larger amounts oI Iood grains. Considering this mismatch in revenue
expenditures, some analysts Iear that the Iiscal deIicit this year may eventually go up to anywhere
between 6 to 7 percent.
The only way to rectiIy the expected dent in revenue collections is to improve eIIiciency in tax
collections. The tax departments oI the government should leverage inIormation technology tools and
evolve a process wherein reIunds become automatic. Further, steps should be taken to widen the tax base
in the country. Today, just about 3 percent oI the people in the country Iile tax returns. EIIorts oI the
government should be geared towards increasing this base oI tax payers and curbing tax evasion. This
would automatically lead to a jump in tax revenues. Further, the government should go ahead with
reIorms like decontrolling diesel and LPG prices to augment revenue


Corporate Sector PerIormance Q4, 2010-11
In the Iourth quarter oI Iiscal 2010-11, corporate India turned out a good perIormance both in terms oI
sales and proIits. Such a perIormance is particularly noteworthy as it came at a time when overall
expenses are going up at a Iast clip.
Net sales oI All Industries` in the Iourth quarter oI 2010-11 registered a growth oI 23.5 percent. This is
the highest growth in net sales that we have seen in the last eight quarters.
Further, while Iirms Irom the manuIacturing sector saw an increase oI 22.26 percent in net sales in the
last quarter oI 2010-11, companies Irom the services (other than Iinancial) sector saw sales going up by
27.46 percent.
Within the manuIacturing sector, growth in sales has been particularly strong in sectors such as textiles,
cement, steel and transport equipment. PerIormance oI the Iood and beverages sector and the chemicals
sector lagged the average growth Ior the manuIacturing sector as a whole.
Total expenses Ior All Industries` went up by 23.52 percent in Q4, 2010-11. This growth is the highest
seen in last Iour quarters.
Further, while the manuIacturing sector saw total expenses rise by 21.68 percent in Q4, 2010-11,
services (other than Iinancial) saw an increase oI 31.29 percent.
Within the manuIacturing sector, the increase in total expenses in the quarter under review was
particularly high in sectors such as cement |48.12 percent| and steel |30.06 percent|
DraIt National ManuIacturing Policy
A high level committee chaired by Prime Minister Dr. Manmohan Singh has approved in principle the
draIt National ManuIacturing Policy.
The salient Ieatures oI the policy are:
O To increase the share oI manuIacturing in the GDP Irom the current 16 percent to 25 percent by
2025 and in the process create an additional 100 million jobs.
O To create National Investment and ManuIacturing Zones (NIMZs) with world class inIrastructure
Iacilities. The proposed zones will enjoy special policy regime, tax concessions, less stringent
labour and environment laws, and Ilexible compliance norms.
O To set up a ManuIacturing Industry Promotion Board (MIPB) at the level oI Union Minister oI
Commerce and Industry to ensure coordination amongst Central Ministries and State Government
and to ensure eIIective implementation oI the policy.
O To set up a Technology Acquisition and Development Fund to promote acquisition and
development oI appropriate (primarily green technologies) technologies.
O To introduce policy measures to Iacilitate the expeditious redeployment oI assets belonging to
nonviable units, while giving Iull protection to the interests oI employees. This will be done
through appropriate Insurance Instrument and/or Sinking Fund