Indian Economy

Current State Of

Indian

Economy September 2008

F e d e r a t i o n o f I n d i a n C h a m b e r s o f C o m m e r c e a n d I n d us tr y New Delhi

----- Recent Trends in Indian Economy ----Industrial Growth : The recent data on industrial production for July 2008 shows an improvement in the industrial growth over the previous months. The industrial growth was found to gradually pick up in July 2008-09 compared to the growth posted in the previous months of this year. However the growth during the four - month period (April- July) of the current fiscal remains much lower than the growth numbers recorded in the corresponding months of the last fiscal. During the April- July period of 2008-09 growth in the manufacturing and electricity sector accelerated compared to the growth registered in the previous months of this year. However the growth performance remains weak when compared to the growth of last fiscal. The increase in production was witnessed only in the mining sector surpassing the growth posted in the previous year. Further following the use-based classification we see growth in intermediate and basic goods in July 2008 was subdued as against the growth in the same month of the previous year. Output in the capital goods sector however increased by 22% in July this year compared to 12.3% increase in the same month of previous year. The growth in the consumer goods came mainly from the consumer durables segment that increased by 11.2% compared to the negative growth posted in the corresponding month of last year. In July 2008-09 growth in seven among the seventeen industry sectors namely food products, beverages and tobacco, paper, metal products, machinery, transport equipments and other manufactured items exceeded the growths posted in the previous year. While basic metals, nonmetallic minerals and basic chemicals slowed in July 2008-09 compared to the corresponding month of the previous year, production of 6 industry sectors namely rubber, leather, wood, jute, wool and cotton was found to drop. Core infrastructure industries : Growth in the core infrastructure industries slowed during the four-month period of the present fiscal as compared to the growth in the previous fiscal. During the April-July period of 2008-09 the overall infrastructure industries grew at a low 3.7% compared to 6.6% recorded in the previous year. Output in coal sector accelerated during the period April- July 2008-09 compared to the same period of last year. On all the other sectors the production growth slowed down compared to growth logged in last year. There was a strong slippage in the production of crude petroleum during these four months. 2

Inflation Trends : The average WPI based inflation calculated for the month of August 2008 continues to reign above 12.5%. Inflation rose from an average of 12.2% in July to 12.5% in August this year. In the week ending 13th September 2008 the WPI based inflation stood at 12.14%. During this time last year the annual rate of inflation stood at 3.51%.

The sharp difference in the rate of inflation between now and last year has been mainly on account of a sharp rise in the price index of fuel and some manufactured items. Measures to curb the rising food articles and other manufactured commodity prices have been put in place, however these only showed a marginal impact on the rising price index. The fall in fuel prices from its peak USD 147 / barrel to below USD 100/barrel is yet to be captured in the recent price index. Monetary Indicators: Money supply swelled by 5.2% (percentage rise is August end 2008 numbers over March end 2008) in August 2008 as against 5.1% in the same month of previous year. Borrowings by the government went up by 7.4% compared to 5.7% in the previous year. Despite rising interest rates bank credit to the commercial sector rose by 4.2% as against 1.7% recorded previously. The borrowings are high due to the huge demands in the oil sector. Foreign exchange assets build-up was significant in August 2008 compared to the growth seen in the previous month of this fiscal, but was found to be lower when compared to 5.9% rise seen in the previous year. There has been high accumulation in aggregate deposits during August 2008. Growth in investments in the government and other approved securities shows a sharp deceleration compared to the growth seen in the previous year. Interest rates including the PLR (13-14%) and the deposit rates cycles have peaked and any further tightening of money supply can hamper industrial growth.

Stock Market Trends: Number of events of political nature and events in the financial markets impacted the stock markets adversely. After the major drop in the 30 stock index sensex in July to 13K the market somewhat recovered in August, rising to 15 K points before dropping to 14.5 K in Sept 2008. The recent numbers show that the market slid further by another 500 points going below 13 K points due to the uncertainties in the global and domestic markets.

3

Foreign Trade: Despite odds (raw material prices, high borrowing rates, losses due to forward contracts) the country did export goods worth USD 60 billion, posting 24.6% growth during the first four months of 2008-09 as compared to 18.22% in the previous year. The reason ascribed to high exports growth was increased demand in some of the international markets.

The weakening of Rupee has helped the exporters to recover their (those who have not hedged their funds) losses made in the past. However, those who opted for a forward cover during the days when Rupee was maintaining Rs 38-40, failed to insulate themselves from the quick and sharp weakening of Rupee. The import bill swells due to obvious reasons and widens the trade deficit even further.

Capital Inflows: In the fourth month of 2008-09 foreign investments continue to pour into the Indian market. The country received foreign investments of 6 billion in excess of the investments made during the fourmonth period of the previous year. Due to weak investor sentiments portfolio investments turned to a negative USD 4.6 billion, reducing total foreign investments to USD 7.6 billion in July 2008 as against USD 20.7 billion in same period of previous year.

Foreign Exchange Reserves: Forex reserves touched USD 315 billion in April 2008 before descending to USD 306 billion in July and USD 300 billion in August 2008. The downward revision in the reserves could be on account of FII outflow, large trade deficits and also due to the revaluation between the currencies.

Trends in the Exchange Rates: Weakening of the domestic currency against the USD benefits the exporters. However, in the present context, weakening of the Rupee / USD favored a section of exporters that chose not to hedge funds at the time of strong Rupee – Dollar movement. In September 2008 Rupee was ruling at Rs 47/ USD weakening by about 20% since January 2008. The present (September) exchange rate of Rupee / Euro was also found to weaken by about 17-18% over the exchange rate in January 2008.

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Contents

Title

Page

1

Industrial Growth

7

2

Core Infrastructure Industries

8

3

Trends in Inflation

9

4

Monetary Indicators

10

5

Stock Market Trends

14

6

Fiscal Management

15

7

Foreign Trade

17

8

Capital Inflows

18

9

Foreign Exchange Reserves

19

10

Trends in Exchange Rates

20

5

LIST OF TABLES ` Table-1.1

Growth of industry

7

Table-2.1 Table-2.2

Growth in six core infrastructure industries-1 Growth in six core infrastructure industries-2

8 8

Table-3.1 Table-3.2

Monthly trends in Wholesale Price Index: 1-.9 Monthly trends in consumer prices

9 9

Table-4.1

Monetary indicators

10-13

Table-5.1

Month trends in major stock market indices

14

Table-6.1 Table-6.2

Trends in tax collections of central government Trends in central government finances

15 16

Table-7.1

Monthly trends in growth of merchandize trade

17

Table-8.1

Monthly trends in foreign investments

18

Table-9.1

Monthly trends in foreign exchange reserves

19

Graph-10.1

Monthly trends in exchange rate of Rupee

20

6

1. Industrial Growth 1.1: Growth Of Industry: Recent Trends (in percentage)

Industry Mining Manufacturing Electricity Use Based Classification Basic Intermediate Capital Consumer Goods Consumer non Durables Consumer Durables

Weights

July 2007-08

July 2008-09

100 10.2 79.4 10.5

8.3 3.2 8.8 7.5

7.1 5.0 7.5 9.5

35.6 26.5 9.3 28.7 23.3 5.4

8.7 7.7 12.3 7.1 10.5 -2.7

5.9 1.6 21.9 7.3 6.1 11.2

-4.4 8.8 6.3 5.6

5.7 28.6 -4.8 -9.2

16.1 4.0

-0.5 0.0

66.7

-9.1

-5.8 8.8

3.6 -4.9

15.8 8.4 10.6 17.7

4.0 -1.9 3.1 9.2

16 industry sectors Food Products 9.1 Beverages, Tobacco and Related Products 2.4 Cotton Textiles 5.5 Wool, Silk and man-made fibre textiles 2.3 Jute and other vegetable fibre Textiles (except cotton) 0.6 Textile Products (including Wearing Apparel) 2.5 Wood and Wood Products; Furniture and 2.7 Fixtures Paper & Paper Products and Printing, Publishing & Allied Industries 2.6 Leather and Leather & Fur Products 1.1 Basic Chemicals & Chemical Products (except products of Petroleum & Coal) 14.0 Rubber, Plastic, Petroleum and Coal Products 5.7 Non-Metallic Mineral Products 4.4 Basic Metal and Alloy Industries 7.5 Metal Products and Parts, except Machinery and Equipment 2.8 Machinery and Equipment other than Transport equipment 9.6 Transport Equipment and Parts 4.0 2.5 Other Manufacturing Industries

-6.2

8.9 -2.8 3.5 Source: Central Statistical Organization

5.2 16.0 18.7 13.9

2. Core infrastructure industries

7

Table-2.1: Growth in six-core infrastructure industries (% change)

April May June July August September October November December January February March April- July

All infrastructure industries 2007200808 09 5.9 3.6 7.8 3.5 5.3 3.4 7.2 4.3 9.0 6.0 4.5 5.3 4.0 4.2 8.7 9.6 6.6 3.7

Finished steel

Cement

200708 2.7 8.4 5.6 10.8 8.5 10.3 4.8 5.8 5.1 5.5 8.2 21.8 6.8

200708 5.8 9.9 6.0 9.4 16.2 5.0 7.0 4.5 3.9 5.2 12.4 9.3 7.7

200809 4.0 5.2 4.4 1.9

3.8

Crude petroleum 2008 -09 6.9 3.8 6.5 8.8

2007200808 09 1.4 0.9 -1.6 3.2 -0.7 -4.7 0.9 -3.0 6.4 -0.7 -0.1 0.3 -1.5 -0.2 2.3 -0.3 6.5 -0.7 -0.9 Source: Ministry of Industry

Table-2.2: Growth in six-core infrastructure industries (% change)

April May June July August September October November December January February March April-July

Petroleum refinery

Coal

2007-08 15.1 14.9 9.8 4.6 8.2 6.9 2.8 5.2 2.0 5.3 5.8 0.0 11.0

2007-08 0.6 0.5 0.9 1.1 8.7 6.2 9.2 7.7 8.4 4.8 11.7 9.3 0.8

2008-09 4.3 0.1 5.6 11.8

5.4

Power 2008-09 10.3 8.3 6.2 5.5

2007-08 2008-09 8.7 1.4 9.3 2.0 6.8 2.6 7.5 4.5 8.8 4.3 4.2 5.8 3.8 3.3 9.6 3.6 7.6 8.1 2.6 Source: Ministry of Industry

3. Inflation Trends

8

Table-3.1. Monthly trends in Wholesale price index- monthly average (% change) 2007-08 All Commodities I Primary Article (A) Food Articles (B) Non-Food Articles II Fuel Power Light & Lubricants III Manufactured Products (A) Food Products (B) Beverages, Tobacco & Tobacco Products (C) Textiles (D) Wood & Wood Products (E) Paper & Paper Products (F) Leather & Leather Products (G) Rubber & Plastic Products (H) Chemicals & Chemical Products (I) Non-Metallic Mineral Products (J) Basic Metals Alloys & Metals Products (K) Machinery & Machine Tools (L) Transport Equipment & Parts

2008-09

July

August

July

August

4.71 10.72 9.75 14.13 -1.56 4.93 3.42 12.62 1.35 7.15 2.52 7.18 6.43 3.95 8.56 6.38 8.85 2.02

4.14 9.18 8.52 12.42 -1.96 4.64 3.00 11.05 0.74 7.15 2.04 7.21 6.44 4.94 9.31 5.11 8.49 1.18

12.22 10.56 5.79 16.88 17.10 11.01 13.96 8.58 6.25 9.77 3.31 0.66 6.52 10.02 4.40 22.67 5.96 5.83

12.49 11.41 6.92 16.95 17.23 11.11 13.90 7.76 8.16 9.77 3.01 0.63 6.56 9.74 4.20 23.01 5.60 5.65

Source: RBI Table-3.2: Monthly trends in consumer prices (% change) CPI-IW April May June July August September October November December January February March

2007-08

2008-09

6.7 6.6 5.7 6.5 7.3 6.4 5.5 5.5 5.5 5.5 5.5 7.9

7.8 7.8

CPI-UNME

CPI-AL

2007-08

2007-08

2008-09

CPI-RL 2008-09

2007-08

2008-09

7.7 9.4 8.9 9.1 8.6 6.8 8.2 9.1 7.9 8.8 6.1 7.4 7.5 6.9 8.6 8.0 6.4 8.8 8.5 5.7 7.9 7.6 5.5 7.0 6.7 5.1 6.2 5.9 5.1 5.9 5.6 5.1 5.6 5.9 6.0 6.4 6.1 7.9 7.6 Source: Ministry of Labor, Center for Monitoring Indian Economy

4. Monetary Indicators:

9

Table-4.1: Monetary sector indicators – up to August ( August 2008-09 over March 2007-08)

April May June July August September October November December January February March

April May June July August September October November December January February March

April May June July August September October November December January February March

Variation in M3 (Rs crore) Variation in M3 (%) 2007-08 2008-09 2007-08 2008-09 549 18342 0.5 13565 75113 0.4 1.9 73824 84387 2.2 2.1 141021 140700 4.3 3.5 168534 208571 5.1 5.2 264149 8.0 297906 9.0 365815 11.1 392516 11.9 546563 16.5 555364 16.8 682794 20.6 Variation in net bank credit to Variation in net bank credit government (Rs crore) to government (%) 2007-08 2008-09 2007-08 2008-09 30617 -7763 3.7 -0.9 24085 14613 2.9 1.6 28117 32597 3.4 3.6 80964 69352 9.7 7.6 47656 66866 5.7 7.4 34501 4.1 14584 1.7 25060 3.0 2688 0.3 24888 3.0 17399 2.1 9350 1.1 Variation in bank credit to Variation in bank credit to commercial sector (Rs crore) commercial sector (%) 2007-08 -40585 -46798 -30547 -12151 37019 108519 108937 160039 207488 292883 341060 432664

2008-09 -18293 18626 42252 57878 106693

2007-08 -1.9 -2.2 -1.4 -0.6 1.7 5.1 5.1 7.5 9.8 13.8 16.1 20.3

2008-09 -0.7 0.7 1.6 2.3 4.2

10

April May June July August September October November December January February March

April May June July August September October November December January February March

Variation in net foreign exchange Variation in net foreign assets of banks (Rs crore) exchange assets of banks (%) 2007-08 2008-09 2007-08 2008-09 -28024 18732 -3.0 1.5 -35519 113765 -3.9 9.0 -17945 103932 2.0 8.0 12534 75552 1.4 5.8 54117 54821 5.9 4.2 101485 11.1 153944 16.9 194112 21.3 194985 21.4 267735 29.3 318273 34.9 354704 38.8 Variation in non-monetary liabilities Variation in non-monetary of banks (Rs crore) liabilities of banks (%) 2007-08 2008-09 2007-08 2008-09 -38474 -25665 -6.7 -3.5 -71601 71891 -12.9 9.7 -94033 94555 -16.5 12.2 -59345 62244 -10.4 8.0 -29287 19970 -5.1 2.6 -19238 3.4 -20033 -3.5 13804 2.4 13208 2.3 39506 6.9 121932 21.3 114893 20.1

Variation of aggregate deposits of Variation in aggregate SCB (Rs crore) deposits of SCB (%)

April May June July August September October November December January February

2007-08 5857 31436 54791 162203 164956 255988 269646 315998 344338 481231 472550

2008-09 51 56760 52837 115943 194522

2007-08 0.2 1.2 2.1 6.2 6.3 9.8 10.3 12.1 13.2 18.4 18.1

2008-09 1.8 1.7 3.6 6.1

11

March

April May June July August September October November December January February March

April May June July August September October November December January February March

April May June July August September October November December January February March

580208 22.2 Variation in investments of SCB (Rs Variation in investments of crore) SCB (%) 2007-08 2008-09 2007-08 2008-09 15950 41554 2.0 4.3 26938 34147 3.4 3.5 49683 36233 6.3 3.7 80461 20135 10.2 2.1 112277 46723 14.2 4.8 117515 14.9 158860 20.1 174105 22.0 133106 16.8 160158 20.3 196420 24.8 181222 22.9 Variation in total credit of SCB (Rs Variation in total credit of crore) SCB (%) 2007-08 2007-08 43352 -19427 -2.2 -0.8 -40435 10455 -2.1 0.4 -36348 30534 -1.9 1.3 -16675 44520 -0.9 1.9 31120 96420 1.6 4.1 96486 5.0 96966 5.0 162149 8.4 219180 11.4 278399 14.4 322300 16.7 417304 21.6 Variation in food credit of SCB (Rs crore) 2007-08 3366 -3079 -2564 -5462 -8031 -9512 -10654 -8823 -5509 -5329 -2209 -2121

2008-09 -3375 3980 5748 -508 -56

12

April May June July August September October November December January February March

Variation in non-food credit of SCB (Rs crore) 2007-08 2008-09 -46718 -16052 -37356 6474 -33784 24786 -11213 45029 39151 96476 105998 107620 154803 224689 283728 324509 419426 Source: Reserve Bank of India

13

5. Stock Market Trends Table-5.1: Monthly trends in stock market indices (beginning of month figures) Date 1.1.05 1.2.05 1.3.05 1.4.05 1.5.05 1.6.05 1.7.05 1.8.05 1.9.05 1.10.05 1.11.05 1.12.05 2.01.06 1.02.06 1.03.06 3.04.06 1.05.06 1.06.06 3.07.06 1.08.06 1.09.06 3.10.06 1.11.06 1.12.06 2.01.07 1.02.07 1.03.07 2.04.07 3.05.07 1.06.07 2.07.07 1.08.07 3.09.07 1.10.07 1.11.07 1.12.07 1.01.08 1.02.08 3.03.08 1.04.08 2.05.08 2.06.08 1.07.08 1.08.08 1.09.08

BSE Sensex 6679 6552 6651 6605 6195 6730 7210 7669 7876 8492 7944 8944 9390 9859 10566 11564 12128 10071 10695 10751 11778 12366 13033 13844 13942 14267 13159 12455 14078 14570 14664 14935 15422 17328 19724 19363 20300 18242 16677 15626 17600 16063 12961 14656 14498

% Change S&P CNX NIFTY 7.2 2115 -1.9 2058 1.5 2084 -0.7 2068 -6.2 1917 8.6 2088 7.1 2211 6.4 2318 2.7 2406 7.8 2574 -6.5 2387 12.5 2699 5.0 2835 5.0 2971 7.7 3123 9.4 3473 4.9 3605 -17.0 2962 6.1 3150 0.5 3147 9.5 3435 5.0 3569 5.4 3767 6.2 3997 0.7 4007 2.3 4137 -7.7 3811 -5.3 3633 13.0 4150 3.5 4297 0.6 4313 1.8 4345 3.2 4474 12.3 5068 15.7 5866 -1.8 5762 4.8 6144 -10.1 5317 -8.5 4953 -6.3 4739 12.6 5228 -8.7 4739 -19.3 3896 13.1 4413 -1.1 4447 Source: Reserve Bank of India

% Change 7.8 -2.7 1.3 -0.8 -7.3 8.9 5.9 4.8 3.8 6.9 -7.3 4.8 5.0 4.8 5.1 11.2 3.8 -17.8 6.3 -0.1 9.1 3.9 5.5 6.1 0.3 3.2 -7.8 -4.7 14.2 3.5 0.4 0.7 2.9 13.2 13.8 -1.8 6.6 -13.5 -6.8 -4.3 10.3 -9.3 -17.8 13.3 0.8

14

6. Fiscal Management Table-6.1: Trends in cumulative tax collections of central government (%)

April May June July August September October November December January February March

April May June July August September October November December January February March

Gross tax revenue 2007-08 5.4 52.2 35.0 36.1 28.1 28.4 25.7 26.2 24.1 24.5 25.8 25.2 27.0 26.1 26.7 24.8 Customs 2007-08 30.1 25.0 23.1 24.1 19.8 19.9 19.6 19.2 18.6 15.8 18.2 16.6 16.9 18.0 19.1 19.1

Corporation tax Income tax 2007-08 2007-08 -36.2 55.0 -4.1 127.7 231.8 58.1 22.1 76.0 48.2 43.4 25.6 50.0 49.3 41.6 32.4 42.0 46.1 34.4 38.6 35.3 43.0 34.5 41.7 37.8 37.1 42.7 36.6 42.2 37.1 42.4 31.3 40.7 Excise duties Other taxes 2007-08 2007-08 29.6 -28.3 29.6 62.3 13.5 1.3 37.1 40.7 11.3 -0.9 43.5 26.0 6.3 4.0 32.1 24.7 4.9 33.9 3.4 40.2 3.8 37.4 4.3 37.0 5.1 44.3 4.8 39.9 6.0 41.0 4.8 38.9 Source: Controller General of Accounts *

Table-6.2 Trends in central government finances: June Actual to budget estimates ( in Rs crores) Revenue receipts Tax revenue Non tax revenue Non debt capital

2007-08 95291 79911 15380 3364

2008-09 117869 101263 16606 871

Growth (%) YoY 2007-08 23.2 25.6 12.3 43.7

2008-09 23.7 26.7 8.0 -74.1

15

receipts Recovery of loans Total receipts Non plan expenditure On revenue account On capital account Plan expenditure On revenue account On capital account Total expenditure Fiscal deficit Revenue deficit Primary deficit

997 98655 168244 128094 40150 59819 49597 10222 228063 129408 82400 80472

854 118740 158688 153414 5274 76032 64668 11364 234720 115980 100213 63979

-57.4 23.8 40.1 11.3 693.2 30.1 22.5 86.8 37.3 49.8 5.4 74.1

-14.3 20.4 -5.7 19.8 -86.9 27.1 30.4 11.2 2.9 -10.4 21.6 -20.5

Source: Controller General of Accounts

16

7. Foreign Trade Table-7.1: Monthly trends in growth of merchandize trade (% change) up to July

April May June July August September October November December January February March April-July

Exports 2007- 200808 09 23.0 31.5 18.0 12.9 14.0 23.5 18.5 31.2 18.9 19.2 35.6 26.8 16.0 20.4 35.2 26.5 18.2 24.6

Oil imports 2007200808 09 11.4 46.2 2.9 50.8 9.8 53.4 8.7 69.3 19.5 7.9 14.5 16.7 23.7 60.8 39.5 76.6 5.3 54.9

Non-oil imports 2007- 200808 09 54.2 32.3 41.5 17.4 52.2 13.9 25.8 38.7 39.5 0.1 28.8 35.3 15.3 65.0 26.3 18.7 43.7 25.2

Total imports 2007200808 09 40.6 36.6 26.3 27.1 36.6 25.9 20.4 48.1 32.6 2.3 24.2 29.2 18.0 63.5 30.5 35.2 30.6 34.2

Source: Ministry of Commerce

17

8. Capital Inflows Table-8.1: Monthly trends in foreign investments ($ million)

April May June July August September October November December January February March April-July

Foreign direct investments 2007-08 2008-09 1551 3749 2120 3932 1238 2392 705 2247 831 713 2027 1864 1558 1767 5670 4438 6609 12320

Portfolio investments

Total foreign investments

2007-08 2008-09 2007-08 1974 -880 3525 1852 -288 3972 3571 -3010 4809 6713 -492 7418 -2747 -1916 7081 7794 9564 117591 -107 1757 5294 6852 6739 8506 -8904 -3234 -1600 2838 14110 -4670 20719 Source: Reserve Bank of India

2008-09 2869 3644 -618 1775

7650

18

9. Foreign Exchange Reserves Table-9.1: Monthly trends in foreign exchange reserves ($ billion)

April May June July August September October November December January February March

200506 141.8 138.9 138.4 140.5 143.8 143.0 143.7 142.1 137.2 139.5 143.1 151.6

% Change 0.3 -2.9 -0.5 2.1 3.3 -0.6 0.5 -1.1 -3.4 1.7 2.5 5.9

200607 160.6 164.5 162.9 164.0 166.4 165.3 167.1 175.5 177.2 180.0 194.6 199.1

% 2007% Change 08 Change 5.9 204.1 2.5 2.4 208.3 2.0 -0.9 213.4 2.4 0.6 229.3 7.4 1.4 228.8 -0.2 -0.6 247.7 8.2 1.1 262.4 5.9 5.0 273.5 4.2 1.0 275.9 0.8 1.6 288.3 4.4 8.1 301.2 4.4 2.3 309.7 2.8 Source: Reserve Bank of India

200809 314.5 312.5 312.0 306.1

% Change 1.5 -0.6 -0.1 -1.8

19

10. Trends in the Exchange Rates

80 60 40 2007-08

2006-

2008-09

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

48 46 44 42 40 38 36 34

USD

20

Re/Euro

Re/USD

Graph 10.1: Exchange rate of Rupee (per unit of other currencies).

0

Euro

20