Global economies are witnessing two-speed recovery with the US economy showing firm signs of recovery, while growth in Euro Area still languishing in sub-optimal territory. Among the Asian economies, growth in Japan and China too continues to remain tepid. We discuss this in detail in the section on Global Trends in this month’s issue of Economy Matters. In the section on Domestic Trends, we analyze that the economic condition in the present scenario is in greater disarray than it was during the breakout of the global financial crisis of 2008-09, when both government as well as the RBI were quick to respond to the challenges and brought the economy back to recovery path within no time. In Corporate Performance, we examine the sectoral performance in the last fiscal in order to find the sectors which were badly hit in the wake of the current bout of economic crisis. The Sectoral spotlight for this issue is on Agriculture, a traditionally important sector of the Indian economy because of its enormous contribution in being the provider of basic source of livelihood to the most of the population in India. However in the recent past various challenges such as low agricultural yield, declining share of public investment, and lack of technological advancements have plagued the sector. We discuss the sector’s challenges and suggest measures to bolster its output. In the Special Article, we discuss India's deteriorating external position in the last few years, manifesting itself in a steady deterioration in the current account which slipped from a surplus at the start of the last decade to a huge deficit of 4.8 per cent in 2012-13. Bulk of the deterioration in current account is attributable to the sharp rise in merchandise trade deficit over the last decade. Ultimately, for India to contain its current account deficit at a more sustainable level of 2.0-2.5 per cent of GDP, it is essential that we ensure competitiveness of our goods and services, so that our imports are contained and exports boosted.

1. ECONOMYMATTERSVolume 01 No. 06June 2013
Inside This Issue
Rising Risks for Current
Account Deficit
Cover Story
Foreword 1
Executive Summary 2
Comparison of Various Macro-
economic Forecasts: 2013-14 3
Global Trends 4
Domestic Trends 8
Corporate Performance 11
Sector in Focus: Agriculture 15
Special Article: Rising Risks for
Current Account Deficit 20
Economy Monitor 26

3. Global economies are witnessing two-speed recovery with the US economy
showingfirmsignsofrecovery,whilegrowthinEuroAreaisstilllanguishingin
sub-optimal territory. Among the Asian economies, growth in Japan and
China too continues to remain tepid. The optimism shown by the US Federal
Reserve, in wake of encouraging economic indicators coming out of the US
economy, has led to worries about the possible tapering of its asset purchase
programme by end of the current year. The repercussions of this
development have been felt globally, highlighted by sharp strengthening of
the US dollar. The Indian Rupee too has felt the heat and weakened by more
than10percentsincethestartofthisfiscal.
On the domestic front, the economic condition in the present scenario is in
greaterdisarraythanitwasduringthebreakoutoftheglobalfinancialcrisisof
2008-09, when both government as well as the RBI were quick to respond to
the challenges and brought the economy back to recovery path within no
time. The economic performance remains weak on all fronts, except for the
solace of moderating trend in WPI inflation. But this positive too runs the risk
of reversing soon in the wake of the sharp weakening of Rupee in recent
months.Clearly,thepolicymakershavetheirjobcutout,giventheintensityof
the slowdown currently. Some 'out of the box' measures are the need of the
hour.
India'sexternalpositionhasbeenworseningforsometime,manifestingitself
in a steady deterioration in the current account which slipped from a surplus
atthestartofthelastdecadetoahugedeficitof4.8percentin2012-13.Bulkof
the deterioration in current account is attributable to the sharp rise in
merchandise trade deficit over the last decade. Widening of current account
deficit has led to sharp weakening of Rupee against the US$ amongst other
things. The financing of CAD also remains a problem with the capital flows
running the risk of reversing abruptly. Ultimately, for India to contain its
currentaccountdeficitatamoresustainablelevelof2.0-2.5percentofGDP,it
is essential that we ensure competitivenessof our goods and services, so that
ourimportsarecontainedandexportsboosted.
FOREWORD
1 JUNE 2013
Chandrajit Banerjee
Director-General, CII

4. 2
EXECUTIVE SUMMARY
GlobalTrends
DomesticTrends
CorporatePerformance
Growth movements across the major global economies
remain far from positive. Even as the US Federal
Reserve showed optimism about the recovering US
economy, growth in Euro Area has been constantly
plummeting to negative levels. Among the Asian
economies, waning growth prevails in Japan and China
as well. Aggressive monetary policy reforms were seen
in US, aimed at stimulating economy and lowering
unemployment, and Japan, aimed at combating deep-
rooted deflation; policy decisions in Europe though, are
yet to jolt the continent out of recession. A mix of
ingenuous and effective fiscal and monetary policies is
bothindispensableanddesirableinthecurrenttimes.
The performance of almost all the economic indicators
in the current scenario remains weak with the only
exception of WPI inflation. But the recent sharp
depreciation in the Rupee has wiped out any such gains
aswell.Admittedly,theeconomyisnotpassingthrough
the best of times. It will be not an exaggeration to say
that the domestic scenario looks to be in greater
disarray than it was during the global financial crisis of
2008-09, when both the government as well RBI were
quick to respond to the challenges and brought the
economybacktorecoverypathwithinnotime.
The performance of Indian corporates across various
sectors remained mostly lackluster over the financial
year 2012-13. Though, rise in profitability, driven
considerably by declining input costs, especially cost of
interest, provided some cheer. Uninspiring demand in
the domestic economy and slackening of infrastructure
projects remained issues of concern. Our analysis
showsthatintermsofprofitabilitygrowth,sectorssuch
as Capital Goods, Auto & Auto Parts, Metals & Minerals,
Media & Entertainment and Consumer Durables
displayed worrying trends. Among the relatively
healthy sectors were Textile, Paper & Wood, Leather &
Rubber, FMCG and Health Care & Pharmaceuticals.
Moderate performance was displayed by Fertilizers &
Chemicals, Banks & Financial Institutions, Oil & Gas, IT &
Telecom, Construction & Construction Material and
Powersectors.
Agriculture has traditionally been an important sector
of the Indian economy because of its enormous
contribution in being the provider of basic source of
livelihood to the most of the population in India.
Globally India is amongst the leading producers of
various agricultural products and crops like milk, pulses
and jute etc. However in the recent past various
challengessuchaslowagriculturalyield,decliningshare
of public investment, and lack of technological
advancements have plagued the sector.
Overdependence on monsoon has been another major
concern. As a result of these inefficiencies, food
inflation has been one of the adverse by-products. With
53 per cent arable land available, there is huge room for
improvement. Immense opportunities in
mechanization,foodprocessingandfoodmanagement
as well as branding supplemented by policy support
from the government can help India cement its position
asaglobalagriculturalpowerhouse.
India's external position has been worsening for some
time, manifesting itself in a steady deterioration in the
current account which slipped from a surplus at the
start of the last decade to a huge deficit of 4.8 per cent
ofGDPin2012-13.Ouranalysisshowsthatthebulkofthe
deterioration in the current account deficit is
attributable to the sharp rise in merchandise trade
deficit in the last decade or so, when it jumped by over
14 times. Amongst the various sub-sectors of exports,
textilesectordidtheworstbothintermsofdeclineinits
share in total exports and its growth rate over the last
decade. Amongst the imports, gold & silver and coal
products saw a sharp jump in their imports growth.
Ultimately, for India to contain its current account
deficit at a more sustainable level of 2.0-2.5 per cent of
GDP, it is essential that we ensure competitiveness of
our goods and services, so that our imports are
containedandexportsboosted.
SectorinFocus:Agriculture
SpecialArticle
ECONOMY MATTERS

5. 3
Comparison of Various Macroeconomic Forecasts: 2013-14
3 JUNE 2013
CII 6.0-6.4 5.3 5.5-6.0 6.50 na
Citigroup 5.7 4.4 5.5 6.75 -4.1
Credit Suisse 6.5 5.8 5.9 6.75 -3.5
CRISIL 6.0 4.4 6.3 6.88 -4.5
DBS Bank 5.7 na 6.7 7.00 -4.0
Deustche Bank 6.0 2.7 5.7 6.50 -4.1
EIU 6.3 4.0 7.0 na -3.9
Goldman Sachs 6.4 na 6.0 7.00 -3.5
HSBC 6.0 5.0 6.1 7.25 -4.2
JP Morgan 5.8 na 6.3 7.00 -4.6
Morgan Stanley 5.9 na 6.2 7.00 -3.9
Nomura 5.2 na 5.5 6.75 -4.7
UBS 6.5 5.5 na 7.00 -4.4
Standard Chartered 6.0 na 6.3 7.00 -4.1
Real GDP Industrial Production WPI Inflation Interest Rate
(y-o-y%) (y-o-y%) (y-o-y%) (Repo Rate) % (as a % of GDP)
Current Acount
na: not available

6. 4ECONOMY MATTERS
GLOBAL TRENDS
Gauging the Economic Performance of Major Economies
The Real Gross Domestic Product in US softened to 1.8
per cent on a y-o-y basis in the first quarter of 2013 as
compared to 2.4 per cent in the corresponding quarter
of previous fiscal. Positive contributions to growth were
made by personal consumption expenditure, whose
growth improved to 2.1 per cent against a 1.8 per cent in
the first quarter of 2012. An upturn was seen in the
growthofresidentialfixedinvestmentto12.8percentin
the first quarter of 2013 against 9.3 per cent in the
comparing period last year. However, sharp drop in non-
residential fixed investment to 4.1 per cent, against 12.5
per cent last year, resulted in large decline in the growth
ofprivatedomesticinvestmentto4.3percentinthefirst
quarterof2013against14.1percentlastyear.
Growth
Growth movements across the major economies of the
world remain far from positive, as a downturn is visible
across continents. Even as the US Federal Reserve
showed optimism about the recovering US economy,
growth in Euro Area has been constantly plummeting to
negative levels. Among the Asian economies, waning
growth prevails in Japan and China as well. Aggressive
monetary policy reforms were seen in US, aimed at
stimulating economy and lowering unemployment, and
Japan, aimed at combating deep-rooted deflation;
policy decisions in Europe though, are yet to jolt the
continentoutofrecession.
and government final consumption expenditure fell
sharply to -1.2 per cent and -0.6 per cent respectively in
the reporting quarter, as compared to growth rates of
1.3 per cent and 1.0 per cent respectively last year. The
decline in gross fixed capital formation worsened to 5.5
In Euro Area, the GDP growth rate contracted further by
1.1 per cent on a y-o-y basis in the first quarter of the
currentyearascomparedto-0.1percentseeninthefirst
quarterof2012.AmongstthevarioussectorsofGDP,the
growth of household final consumption expenditure
US GDP Growth (y-o-y%)
2.4
2.1
2.6
1.7 1.8
1Q12 2Q12 3Q12 4Q12 1Q13
Source: Bureau of Economic Analysis

7. 5
Germany and Austria did moderately well during the
beginning of last year but crashed to flat growths
recently. Belgium, Netherlands and Spain faced
marginal negative growth rates during the past five
quarters; Slovenia, Italy and Portugal witnessed sharp
de-growthovertheperiod.
per cent in the reporting quarter, as against decline of
1.2 per cent in the same period last year. The growth
trendsamongindividualcountriesintheEuroAreawere
varied (see below table). The figures in Estonia and
Slovak Republic remained in the positive territory
during 2012 and in the first quarter of 2013; Ireland,
trusts. Dragging on growth, private non-residential
investment witnessed de-growth to the tune of 5.2 per
cent in the first quarter of the current year, against 6.9
per cent in the corresponding period last year. Growth
in private consumption and government consumption
too saw decline to 1.1 per cent and 1.6 per cent
respectively, as compared to 3.9 per cent and 2.3 per
centlastyear.
In the Asian continent, Japan saw its GDP growth
slipping to 0.2 per cent on a y-o-y basis, as compared
with growth to the tune of 3.2 per cent in the same
period last year. Growth of public investment
strengthened to 13.1 per cent as compared to 4.9 per
cent previously. Growth in private residential
investment improved significantly to 9.5 per cent
against a flat growth last year, with the Central Bank
injectingliquidityandpurchasingrealestateinvestment
Euro Area GDP Growth (y-o-y%)
-0.1
-0.5
-0.7
-1
-1.1
1Q12 2Q12 3Q12 4Q12 1Q13
Source: European Central Bank
Country 1Q12 2Q12 3Q12 4Q12 1Q13
Austria 1.1 0.9 0.9 0.5 0.0
Belgium 0.2 -0.4 -0.4 -0.5 -0.6
Estonia 4.0 2.8 3.1 3.0 1.3
Finland 1.6 0.1 -0.7 -1.6 -2.2
France 0.3 0.1 0.0 -0.3 -0.4
Germany 1.3 1.0 0.9 0.3 -0.3
Ireland 2.1 0.8 0.9 0.0 NA
Italy -1.7 -2.5 -2.6 -2.8 -2.4
Luxembourg -0.3 0.6 -0.5 1.6 NA
Netherlands -0.9 -0.5 -1.3 -1.2 -1.3
Portugal -2.3 -3.2 -3.6 -3.8 -4.0
SlovakRepublic 2.9 2.3 1.9 1.0 0.8
Slovenia -0.8 -2.3 -2.8 -2.8 -3.3
Spain -0.7 -1.4 -1.6 -1.9 -2.0
EuroArea -0.1 -0.5 -0.7 -1.0 -1.1
GDP growth (y-o-y %) for Major Euro Area countries
Source: European Central Bank
JUNE 2013
Note: NA- Not Available

8. 6ECONOMY MATTERS
decline in growth of capital goods formation, while
private consumption remained the main contributor to
growth.
Real GDP growth in China tapered off in the first quarter
of 2013 to 7.7 per cent from 8.1 per cent in the first
quarter of 2012. The decline in growth was triggered by
firmly anchored in line with their aim of maintaining
inflation rates below, but close to 2 per cent over the
medium-term.
Among the Asian economies, Japan has been facing
prolongednearzeroandnegativeinflation.However,in
wake of recent policy reforms, the CPI-based inflation
rate rose to 0.6 per cent during May 2013 as compared
to 0.1 per cent in April 2013. Inflation stood at -0.3 per
cent for first quarter of this fiscal as compared to 0.3 per
cent over the same period last year. The monetary
expansioncampaignbyBankofJapantargets2percent
inflationinlessthan2years.
In China, the CPI-based inflation for May 2013 softened
to 2.1 per cent, helped by moderation in vegetable
prices, from a rate of 2.4 per cent in April 2013, and a
much higher rate of 3.2 per cent in February 2013. The
inflationrateinthefirstquarterthisyearstoodat2.4per
cent. China has set its inflation target for this year at 3.5
percent.
Inflation
In US, inflation rates have been brought down steadily
for the past year. CPI-based inflation increased to 1.4 per
cent in May 2013 as compared to an all-time low of 1.1 per
cent in April 2013 mainly due to a rise in housing costs.
Inflation stood at 1.7 per cent in first quarter of the
current year as compared to 2.8 per cent in the same
period last year. The Federal Open Market Committee
anticipates that inflation over the medium-term will run
atorbelowits2percentdesiredrange.
InEuroArea,whileCPI-basedinflationhoveredbetween
2.0 per cent to 3.0 per cent during the last two years, it
has come down consistently in the recent few months.
The CPI-based inflation rate stood at 1.4 per cent in May
2013 as compared to 1.2 per cent in April 2013. Inflation
for first quarter of the current year stood at 1.9 per cent
as compared to 2.7 per cent in the same period last year.
Inflation expectations for the Euro Area continue to be
Japan GDP Growth (y-o-y%)
Source: Bank of Japan
3.2
3.9
0.3 0.4 0.2
1Q12 2Q12 3Q12 4Q12 1Q13
China GDP Growth (y-o-y%)
8.1
7.6
7.4
7.9
7.7
1Q12 2Q12 3Q12 4Q12 1Q13
Source: National Bureau of Statistics
Monthly Inflation for 2013 (y-o-y %)
Source: Various Central Banks Websites
4.0
3.0
2.0
1.0
0.0
-1.0
Jan Feb Mar Apr May
USA Euro Area Japan China
Jan Feb Mar Apr May Jan Feb Mar Apr May Jan Feb Mar Apr May

9. 7
Interestrates
The US Federal Funds Rate is currently at 0 to 0.25 per
cent per annum. The interest rate on the main
refinancing operations of the Euro Area was decreased
by 25 basis points to 0.50 per cent in May 2013, after a
gap of 10 months. This accommodative stance is aimed
at supporting prospects for a recovery in the current
atmosphereof weakeconomicsentiments.
The Bank of Japan intends to conduct money market
operations to increase the monetary base at an annual
pace of 60-70 trillion yen, which stood at 159.2 trillion
yen at the end of May 2013. The basic loan rate and
interest rate applied to complementary deposit facility
were unchanged at 0.3 per cent per annum and 0.1 per
cent per annum respectively since December 2008. The
People's Bank of China kept the base lending rate for
working capital at 6 per cent per annum, unchanged
since July 2012. In a shift from the prudent fiscal and
tight monetary policy in 2008, it is expected to follow a
pro-active fiscal policy and a moderately easy monetary
policytostimulatetheeconomy.
The connections between global events and trends in
Indian economy have been strong. Substantial impact
was seen on the rupee, which recorded the worst fall in
a decade among the Asian currencies, closing at an all-
time low of 60.6 against the US dollar on June 27. The
crash was attributed to massive capital outflows on
worries of withdrawal of the US stimulus, month-end
dollar demand from importers and reported cash
crunchinChina.
Despite an uncertain and gloomy atmosphere ruling
over the global economies, there might be some
sanguinity after all, following policy initiatives in US and
Japan. Structural reforms to correct regional
imbalances in the Euro Area are expected. A mix of
ingenuous and effective fiscal and monetary policies is
bothindispensibleanddesirableinthecurrenttimes.
Quantitative Easing- Part
Three(QE3)
Ripples were created across the world as US Federal
Reserve Chairman, Ben Bernanke confirmed what
markets had anticipated for past few weeks - a
calibrated winding down of billion dollar bond buys
worth US$85 billion per month, which have infused
US$12 trillion of additional liquidity into global financial
markets since the global financial crisis of 2008-09 and
helped in keeping long-term interest rates low to boost
borrowingandspending.Initsmonetarypolicymeeting
held during June 18-19, 2013, Bernanke said that
economic activity has been expanding at a moderate
pace, longer-terminflationexpectationshaveremained
stable, labor market conditions have shown
improvement, though the unemployment rate remains
elevated.
The Federal Open Market Committee felt that fiscal
policy is restraining economic growth. Confidence on
the private sector to propel the recovery, even with
lesser push from the Fed, reduced government
spending and higher taxes, drove the Fed's optimistic
stance. The withdrawal could begin later this year and
end by the middle of 2014, if the economy continues to
perform as expected. However, the Federal Reserve
maintained that its main Federal Fund Rate won't be
increased unless unemployment falls below 6.5 per
cent. To support a stronger economic recovery, the
Committee decided to continue purchasing additional
agency mortgage-backed securities at a pace of $40
billion per month and longer-term Treasury securities at
a pace of $45 billion per month. Taken together, these
actions should maintain downward pressure on longer-
term interest rates, support mortgage markets, and
help to make broader financial conditions more
accommodative.
JUNE 2013

10. 8ECONOMY MATTERS
DOMESTIC TRENDS
2012-13: An Encore of 2008-09 or Worse?
2012-13, while, the growth had dipped to 6.7 per cent in
2008-09 and recovered swiftly, thereafter, to 8.4 per
cent in 2009-10. Interestingly the moderation in growth
in the financial crisis year of 2008-09 was largely
underpinned by a sharp softening in agricultural and
industrial growth. The bellwether of the Indian
economy- the services sector continued to grow at a
healthydouble-digitrateof10.0percentthen.In2012-13
on the other hand, the moderation in growth was
broad-based with growth in all the three pivotal sectors
decelerating. From the demand-side too, in 2012-13, all
the domestic demand drivers slowed down with
investment growth falling to multi-year lows as
compared to still respectable performance in 2008-09.
In another indicator of slowing of growth, non-food
credit growth slumped to a decade low of 14 per cent in
2012-13, falling short of Reserve Bank of India's
projection of 16 per cent, as demand for loans from
companies remained weak. In 2008-09, however, it
stoodataround18percent.
Index of industrial production growth averaged 1.1 per
cent in 2012-13 as compared to 2.9 per cent in 2008-09.
The relatively healthy growth rate in 2008-09, however,
masks the strong negative trend in the data post
September 2008, when the actual crisis broke out with
the collapse of the Lehman Brothers. In the first seven
months of the fiscal (till October 2008), industrial
production growth averaged a healthy 7.5 per cent as
compared to -3.6 per cent in the five months thereafter.
In fact, industrial output remained in the negative
territory in the seven consecutive months starting from
December2008.
As discussed in the section on global trends, the major
economies of the world continue facing turbulent
times, with only US seeing some glimmer of hope as it
saw a fall in its unemployment rate coupled with steady
improvement in its growth rates since the last two
quarters. The global gloom is finding a reflection in the
domestic scenario as well, with all the major economic
indicators showing little signs of turn-around. Decadal
low GDP growth, historic high current account deficits,
Rupeeslippingbelow60perUS$andmildimprovement
in industrial production numbers are currently
characterisingtheIndianeconomy.
The only silver lining visible seems to be the steady
moderation witnessed in the WPI based inflation rates,
givingRBIthenecessaryleg-roomtocutinterestratesin
order to spur growth. But the recent sharp depreciation
in the Rupee has narrowed down the scope of this
option.Admittedly, theeconomyis notpassingthrough
the best of times. It will be not an exaggeration to say
that the domestic scenario looks to be in greater
disarray than it was during the global financial crisis of
2008-09, when both government as well as the RBI
were quick to respond to the challenges and brought
the economy back to recovery path within no time. In
this article, we would aim to provide a snapshot of
comparison of the present scenario with the period of
crisis in 2008-09 in terms of the major macroeconomic
indicators.
GDP growth moderated to a decadal low of 5 per cent in
( A ) . G D P a n d I n d u s t r i a l
ProductionGrowth
INDIA

11. 9
contracting by 5.7 per cent as compared to 14.2 per cent
growth during 2008-09. Capital goods sector is
regarded as the indicator of investment activities in the
economy; hence the dismal performance by the sector
in the last fiscal does not bode well for the investment
outlookand meaningfuleconomicrecovery.
During the last fiscal, we saw industrial production
growthremainingweakuniformlyformostmonths.The
overallgrowthloggedwasinfacttheweakest industrial
output growth in the new base series starting from
2004-05. More importantly, it was characterised by the
worst performance ever by capital goods segment-
brought down inflation sharply. In fact the extent of
demand destruction was so severe that economy faced
deflationforaperiodof2monthsin2009-10.
In contrast, in 2012-13, though economic growth
remained lower than the levels seen in 2008-09, but
inflation continuedtoremainaboveRBI'scomfortzone
of 5-5.5 per cent. It has slipped below 5 per cent only in
the first two months of the current fiscal, with the latest
reading at 4.7 per cent in May 2013. The main reason for
inflation remaining high last year, despite sharp dip in
growth, is the imbalances emerging in the demand-
supply scenario, especially of food articles. As we will
discuss in this month's 'Sector in Focus' too, agricultural
production has lagged demand, thus leading to
shortagesinfoodsupply.
(B).WPIInflation
WPI-based inflation averaged 7.4 per cent in 2012-13 as
compared to 8.1 per cent in 2008-09. Though inflation
averaged lower last year, food inflation, which remains
one of its most critical components as it has the most
profound impact on the common man, remained high.
Food inflation remained high at 9.3 per cent in 2012-13 as
comparedto8.9percentin2008-09.
Again, 2008-09 was a year of two halves, with double-
digitinflationlevelsseeninthefirsttwoquarterof2008-
09, followed by sharp softening. WPI-based inflation
dipped to a low of 1.6 per cent by March-2009 as
compared to a high of 11.2 per cent seen in August 2008.
Thesharpshrinkingofdemandpostthesecondquarter,
Source: CSO
6.7
5.0
1.9
0.1
4.4
2.1
10.0
7.1
y-o-y%
FY09 FY13 FY09 FY13 FY09 FY13 FY09 FY13
Total GDP Agri Industry Services
15
10
5
0
-5
-10
y-o-y%
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
Industrial Production GrowthGDP Growth
JUNE 2013
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
12
10
8
6
4
2
0
y-o-y%
WPI Inflation
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
13
12
11
10
9
8
7
6
y-o-y%
Total Food Inflation (Primary and Manufacturing)
Source: Office of Economic Advisor

12. 10ECONOMY MATTERS
sharp depreciation of the Rupee was mainly led by
reversal of net FII inflows in the wake of the financial
crisis and not so much by the worsening of the external
account parameters. Moreover, Rupee is apparently
more vulnerable in the current period as compared to
2008-09,becauseofthefollowingreasons:
Highandrisingtradeandcurrentaccountdeficits
Higher reliance on short-term foreign capital than
themorestableFDIflowstofinancetheCAD
Rising growth concerns leading to shrinking growth
differential with advanced economies like US and
waninginvestorconfidence
DecliningnetinvisiblesbalancetocoverCAD
Rapidly declining import cover in terms of months of
foreignexchangereserves
v
v
v
v
v
C).ExternalAccount
Current account deficit (CAD) remained high at 4.8 per
centofGDPin2012-13ascomparedto2.3percentofGDP
in 2008-09. Plunge in exports in the wake of global
demand destruction along with inelastic imports has led
tothesteepwideningofthemerchandisetradedeficitin
the last fiscal. Consequently, in 2012-13, the Rupee
weakened close to 5.3 per cent, ending the year at 54.4
perUS$comparedto51.7perUS$atthebeginningofthe
year. In fact, Rupee has continued to slide in the current
fiscal too, having lost close to 12 per cent since the start
ofthefiscaltilljustJune26th2013.
However, during the crisis period of 2008-09, the extent
of weakening of the Rupee was much sharper. Rupee
lostclosetoamassive28percentinvalueasittoucheda
low of 51.1 per US$ by end-March 2009 as compared to a
high of 40.0 per US$ at the start of the fiscal year. The
Conclusion
The present macroeconomic scenario is in a much worse condition than it was during the global financial crisis of
2008-09. The performance of almost all the economic indicators in the current scenario remains weak with the only
exception of WPI inflation. Clearly, policy makers need to act decisively in the current period to bring the economy
backongrowthtrackattheearliest,asthepresentsituationismuchweakerthantheoneprevailingin2008-09.
Source: RBI
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2008-09 2012-13
60
55
50
45
40
35
30
Rs per US$
Exchange Rate Movement Rising External Account Vulnerability
Trade deficit as a % of GDP 10.6 9.8
Current Account deficit as a % of GDP 4.8 2.3
Invisibles balance as a % of GDP 5.8 7.5
Domestic GDP growth % 5.0 6.7
Import Cover (no. of months) 7.0
Ratio of Short-term debt to total debt 24.8 19.3
Trade deficit 195.7 119.5
Invisibles balance 107.4 91.6
Current Account deficit 88.1 27.9
2012-13 2008-09
US$ billion

13. 11
Analysing Sectoral Performance in 2012-13
Textile, Paper & Wood, Leather & Rubber, FMCG and
Health Care & Pharmaceuticals. Moderate performance
was displayed by sectors such as Fertilizers & Chemicals,
Banks & Financial Institutions, Oil & Gas, IT & Telecom,
Construction&ConstructionMaterialandPower.
The analysis factors in the financial performance during
the past two fiscal years of a balanced panel of 3,040
1
Indian firms, spread across 16 major sectors . The
information was extracted from the Ace Equity
database.
The performance of Indian corporates across various
sectors remained mostly lackluster over the financial
year 2012-13, though rise in profitability provided some
cheer. A respite in the form of declining cost of services
and raw materials, as well as cost of interest rate could
not do much to salvage the India Inc from a large fall in
net sales during the year. Our analysis shows that
profitability growth in sectors such as Capital Goods,
Auto & Auto Parts, Metals & Minerals, Media &
Entertainment and Consumer Durables displayed
worrying trends. Among the healthy sectors were
CORPORATE PERFORMANCE
Source: CII calculations using Ace Equity database
Growth in Overall Economy (y-o-y%)
22.5
10.9 11.7
6.2
-5.2
4.0
Net Sales Operating Profit PAT
FY12 FY13
to the year before, exception being the Textile sector.
Net sales growth in Textile sector improved to 13.2 per
cent in the last fiscal as compared to 11.1 per cent in 2011-
12, attributable largely to increased exports during the
period.
Aggregate net sales growth during 2012-13 stood at a
measly 10.9 per cent as compared to a healthy 22.5 per
cent in 2011-12, an outcome of uninspiring demand in the
domestic economy. During the previous year, growth in
net sales witnessed a decline in all sectors as compared
1
Auto & Auto Parts, Banks & Financial Institutions, Capital Goods, Construction & Construction Material, Consumer Durables, Fertilizers &
Chemicals, FMCG, Health Care & Pharmaceuticals, IT & Telecom, Media & Entertainment, Metals & Minerals, Oil & Gas, Power, Textile, Paper
& Wood, Leather and Rubber
JUNE 2013

14. 12ECONOMY MATTERS
contracted by 2.3 per cent in 2012-13 as compared to a
growth of 10.6 per cent in the year before, reflecting the
poor investment scenario in the economy. This is in
tandem with the poor performance of the capital goods
sector in IIP. Sinking demand for goods & services and
slackening infrastructure projects remained issues of
concernforcapitalgoodssector.
Banks & Financial Institutions sector saw a growth in net
sales to the tune of 17.7 per cent, maximum among all
sectors, but lower than its 33.3 per cent growth
witnessedduring2011-12.ConsumerDurablesandPower
sector witnessed moderation in net sales growth to the
tune of 1.9 per cent and 0.3 per cent respectively in 2012-
13 as compared to growth rates of 5.5 per cent and 15.0
per cent in 2011-12. The Capital Goods sector's growth
and Media & Entertainment sectors saw a rise, all the
other sectors witnessed a reduction in growth of
operating profits in 2012-13 as compared to 2011-12.
Sectors like Fertilizers & Chemicals, Power, Capital
Goods, Consumer Durables and Metals & Minerals saw
contraction in their operating profits during the last
fiscal.
On an aggregate basis, operating profits (profits earned
from the core business operations excluding
investments and the effects of depreciation, interest
and taxes) growth fell to 6.2 per cent in 2012-13 as
compared to 11.7 per cent in 2011-12. Amongst the
sectors, while Textile, Paper & Wood, Leather & Rubber
Source: CII calculations using Ace Equity database
33.3
17.7
30.2
14.6
17.0
13.9 11.113.2 13.5
11.4
Banks and
Financial
Institutions
Oil and Gas FMCG Textile Paper and
wood
FY12 FY13
Net Sales Growth (y-o-y%)
For Top 5 Performing Sectors
15.5
3.5
15.2
3.3
5.5
1.9
15.0
0.3
10.6
-2.3
Auto and Auto
Parts
Metals and
Minerals
Consumer
Durables
Power Capital Goods
FY12 FY13
Net Sales Growth (y-o-y%)
For Bottom 5 Performing Sectors
Source: CII calculations using Ace Equity database
15.9
40.8
-13.6
30.3
18.216.7 21.2
15.3
23.5
9.8
Leather and
Rubber
Textile FMCG Banks and
Financial
Institutions
IT and
Telecom
FY12 FY13
Operating Profit Growth (y-o-y%)
For Top 5 Performing Sectors
17.3
-1.7 13.6 -1.9 -1.3
-5.2 -6.7 -5.5
3.5
-5.9
Fertilizers and
Chemicals
Power Capital Goods Consumer
Durables
Metals and
Minerals
FY12 FY13
Operating Profit Growth (y-o-y%)
For Bottom 5 Performing Sectors
and stood at 4.0 per cent in the last fiscal as against
contraction to the tune of 5.2 per cent during the year
before, driven considerably by declining input costs,
A positive sign, however, came in form of improved PAT
growth of the firms in 2012-13 as compared to 2011-12.
Overall PAT growth moved into the positive territory

15. 13
materials, saw its profitability margins improving on the
back of increased domestic and global investment in the
sector.Leather&Rubber,FMCG,Fertilizers&Chemicals,
Banks & Financial Institutions and Oil & Gas sectors too
saw marginal upturn in PAT growth, mainly due to
declining input costs. Even though PAT growth
improved in Capital Goods, Metals & Minerals and
Consumer Durables sectors in the previous year, it still
remained in the negative territory. The sectors were
hurt by the high interest rates, policy uncertainty and
globalslowdown,amongstotherfactors.
especially cost of interest. PAT growth rose sharply in
Textile, Paper & Wood and Health Care &
Pharmaceuticals sector, rising to 1088.5 per cent, 120.7
per cent and 15.9 per cent respectively in 2012-13 as
comparedtogrowthrateof-95.8percent,-93.7percent
and -66.5 per cent in the year before. Improvement in
net sales, increasing FDI and government boost led to
highprofitabilityinTextilessector.
The Health Care & Pharmaceuticals sector, despite
suffering a marginal rise in cost of services and raw
Similar respite was obtained from a softening in the
growth of interest cost to 19.4 per cent in 2012-13 as
compared to 45.2 per cent in 2011-12. This moderation
was seen across all the sectors, without any exception.
The sectors that benefited the most were Paper &
Wood, Leather & Rubber, IT & Telecom, and Capital
Goods, where growth in interest cost fell to as much as
0.7 per cent, 17.9 per cent, 16.3 per cent and 2.5 per cent
in 2012-13 from growth rates of 47.4 per cent, 66.5 per
cent, 108.5 per cent and 57.2 per cent in 2011-12. This
mirrors the reduction in interest rates by the RBI in the
recent months; in the fourthquarter of 2012-13 itself, RBI
cutthereporateby50bps.
On an aggregate basis, growth in cost of services and
raw materials moderated to 9.1 per cent in 2012-13 as
compared to 26.7 per cent in the previous year, much to
thereliefofthecompanies.Theshrinkageisattributable
to both cost efficient practices employed by the Indian
firms as well as slowdown in new projects. Significant
costefficiencieswerevisibleinsectorssuchasLeather&
Rubber, Oil & Gas and Power whereas moderate
margins were experienced in Paper & Wood, Banks &
Financial Institutions, Auto & Auto Parts and Metals &
Minerals sectors. The exceptions were sectors including
Health Care & Pharmaceuticals, Media & Entertainment
and Consumer Goods where the growth in cost of
servicesandrawmaterialsacceleratedlastyear.
Source: CII calculations using Ace Equity database
-95.8 -93.7
120.7
24.2 25.5 13.2 22.9
-66.5
15.9
Textile Paper and
Wood
Leather and
Rubber
FMCG Health Care
and Pharma
PAT Growth (y-o-y%)
For Top 5 Performing Sectors
-21.6
-6.8
1.2
-8.5 14.2
12.8 -20.132.9
-39.4-37.5
Fertilizers and
Chemicals
Power Capital Goods Consumer
Durables
Metals and
Minerals
PAT Growth (y-o-y%)
For Bottom 5 Performing Sectors
1088.5
FY12 FY13 FY12 FY13
JUNE 2013

16. 14ECONOMY MATTERS
projects, expansion in exports and accommodating
economic reforms would help to lift the economy,
increase sales and raise the profitability for the Indian
corporatesectorintheyearstocome.
While the current government policies should boost
sectors such as Textile and Health Care &
Pharmaceuticals, strong stimulus is vital for Capital
Goods, Auto & Auto Parts, and Metals & Minerals
sectors. Further, an array of fresh infrastructure
Source: CII calculations using Ace Equity database
Growth in Input Cost (y-o-y%)
26.7
9.1
45.2
19.4
30.7
11.5
Cost of Services and Raw
Materials
Cost of Interest Aggregate Cost
FY12 FY13

17. Overview
Agriculturehastraditionallybeenanimportantsectorof
theIndianeconomy,providingbasicsourceoflivelihood
to a bulk of the population in India. The latest round of
NSSOreflectscloseto49 percentofthetotalworkforce
being engaged in the agricultural sector. Agricultural
sector is expected to meet the demands of escalating
population, as well as contribute to the foreign
exchangeearningsthroughexports.
India has witnessed significant development in the
sector since independence, attributable to
technological revolutions and favorable policies. Food
grains production scaled over 5 times from 1951-52,
standing at 259.3 million tons in 2011-12. Globally, India
ranks one in production of milk, pulses, jute and jute-like
fibers; is placed second in production of rice, wheat,
SECTOR IN FOCUS
Agriculture
sugarcane, groundnut, vegetables, fruits and cotton;
and is amongst the leading producers of spices and
plantation crops as well as livestock, fisheries and
poultry.
Growth in the sector has been largely volatile. Though
theaverageannualgrowthrateimprovedto3.3percent
duringthe11thfiveyearplanfrom2.4percentduringthe
10th five year plan, it still remains below the targeted
growth of 4 per cent per annum. Further, the year-on-
year growth pattern reflects its over-dependence on
monsoons as well as external markets scenario. The
share of agriculture in GDP remains another worrying
issue. In recent times, challenges like low yield, waning
public investment and lack of technological
advancements have plagued the sector. Sluggish
agricultural growth is a concern, given its critical role in
meetinggrowingdemandforfood.
2008-09
2009-10
2010-11
2011-12
2012-13
14.5
15.8
14.6
14.1
13.7
Share of Agriculture in GDP
Source: Central Statistics Organization
15 JUNE 2013

18. 16ECONOMY MATTERS
relation between agricultural growth and overall GDP.
Corresponding to a rise in agricultural growth from 0.1
per cent in 2008-09 to 7.7 per cent in 2010-11, overall GDP
growthrosefrom6.7percentto9.3percentinthesame
period. The same trend has also been witnessed when
overallGDPfellfrom6.2percentin2011-12to5.0percent
in2012-13;agriculturegrowthfellinconjunctionfrom3.6
percentto1.9percentforcomparableperiod.
In the following section we discuss the various growth
trends in agriculture and highlight the critical areas
whichneedurgentredressal.
(I) Growth
Data from the last five years supports the two-way
TRENDS
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
% Growth in Agriculture %Growth in GDP
9.3
5.8
6.7
8.6
7.7
9.3
3.6
6.2
1.9
5.0
y-o-y%
0.1
1
Source:CSO
Overall GDP Growth VS Agriculture Growth
As far as the comparison with targeted growth is
concerned, actual growth rates have remained
considerablylower.Inthe11thFiveYearplan,agriculture
recorded a growth of 3.3 per cent against the target of 4
per cent. The 12th Five Year Plan too targets 4 per cent
growth in agriculture, even though the current situation
remainsgrim.
Amongst states, agricultural growth recorded wide
variations. During 2007-08 to 2011-12, Madhya Pradesh,
Chattisgarh, Rajasthan, Jharkhand and Karnataka were
the top five performing states in terms of agricultural
growth, with MP and Chattisgarh recording the
maximum growth of 7.6 per cent. Jammu & Kashmir,
Maharashtra, Punjab, Himachal Pradesh and Kerala
were the bottom five performing states, with Kerala
recordingacontractioningrowthby0.7percent.
Target Growth vs Actual Growth over 5 Year Plans (y-o-y%)
4.0
3.6
4.5
2.5
4.0
2.5
4.0
3.3
8th Five Year Plan 9th Five Year Plan 10th Five Year Plan 11th Five Year Plan
ActualPlanned
Source: Planning Commission

19. 17
growth in exports over 2008-09 to 2011-12. Further,
exports increased from US$29.8 billion in 2011-12 to
US$33.54 billion in 2012-13. Wheat exports from India are
expected to grow by 23 per cent in 2013-14, on back of
strong global prices and surplus domestic supply.
Exports of rice are also expected to rise due to robust
demandfromWestAsia,AfricaandSouth-EastAsia.
Despite the volumes, India's share in global exports is
below par when compared to countries like US, Brazil
and China. Despite being a leading producer, India is
placedtenthinglobalagriculturalandfoodexports.
The FAIDA-3 report, released by CII-Mckinsey, highlights
that in order for Indian exports to be globally cost
competitive, there is a need for improvement in quality
and safety standards, emphasis on branding domestic
goodsandastablelong-termtradepolicy.
(II)InvestmentTrends
(III)Exports
Low investment has been worrying, leading to declining
growth in agriculture sector. Gross capital formation in
the sector as percentage of agricultural GDP improved
only marginally from 14.9 per cent in 2006-07 to 19.8 per
cent in 2011-12, quite low when compared with overall
capitalformationintheeconomystandingat35percent
ofGDP.Anothermajorconcernisthecontinuousdecline
in public sector capital formation in agriculture which
moderated sharply from 25 per cent in 2006-07 to about
15 per cent in 2011-12. This was prompted by an increase
in share of subsidies, which form a bulk of the total
public sector expenditure allocated to agriculture, even
asonlyaround20percentgoesasinvestments.
Trends in exports have been positive, with a 120 per cent
techniques are adopted and advanced technology is
madeavailableatlowercosts.
The impact of poor monsoons on agricultural
productionis enormousas despite a significantincrease
in area under irrigation over the years, almost 55 per
cent of total cultivable land is still un-irrigated. There is a
noted correlation between agricultural output and
deviationfromLongPeriodAveragerainfall.
(IV)AgriculturalYield
Low agriculture yield has been major drawback, having
impact on growth and investment in the sector. Though
mostcropswitnessedimprovedgrowthratesduringthe
11th Plan as compared to the 10th Plan, yields were much
lower when likened with developed countries. For
healthier yields, it is pivotal that modern farming
JUNE 2013
India Occupies 10th position in global
exports with a share of 2.1%
India 2.1
Malaysia, 2.3
Argentina, 2.7
Thailand, 2.9
Indonesia, 2.9
Canada, 3.6
China, 3.9
Brazil, 5.2
United States, 10.1
extra-EU (27), 9.5
European Union, 37.7
India's Position in Global Exports (%)
Source: WTO, International Trade Statistics 2012

20. 18ECONOMY MATTERS
Source: Indian Meteorological Department & CSO
(V)FoodPrices
A major impact of low yield has been the growing rate of
food inflation. Food inflation has recently increased by 2
per cent and reached a level of 9.3 per cent in 2012-13
from last year indicating the continuous surge in prices.
Steep rise in MSP (Minimum Support Price) has also hurt
food prices. Despite their incentivizing motive, one of
thenegativeimpactshasbeenriseinfoodprices.
Rice Wheat Coarse Grain Barley Cotton Major OilseedsCorn
World Yield (metric tons per hectare)2012-13Domestic Yield (metric tons per hectare) 2012-13
3.6
4.4
3.2
3.0
1.6
3.6
2.4
4.9
2.1
2.6
0.50
0.80
1.0
2.0
Comparison of Yield (2012-13)
Source: US Department of Agriculture
15
10
5
0
-5
-10
-15
-20
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
Percentage growth in Agroculture % Monsoon deviation from LPA
Vulnerability to Deficient Monsoons

21. 19
(VI)Distribution
Loopholes in the distribution chain of agricultural
commodities remain an issue. Higher marketing
transaction costs and low price realization by the
farmers in regulated markets has resulted into
fragmented supply chains with large intermediations.
As per CII-MCKINSEY report, up to six intermediaries in
fruits and vegetable chain commonly occur in India as
compared to just the wholesaler and retailer in the US
foodsupplychain.
JUNE 2013
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
25
20
15
10
5
0
-5
-10
-15
-20
-25
% Deviation of monsoons from LPA WPI- Food Inflation (%) % Growth in food-grain production
Impact of Deficient Monsoon on Food Inflation and Production (y-o-y %)
Source: IMD, Ministry of Industry & Ministry of Agriculture
Recommendations
The proposals for the sector are not entirely contingent upon technology or investment. The problem is also
institutional.CIIrecommendsthefollowingmeasuresinordertoimprovethesector'soutputandproductivity.
1. Linking agriculture to markets can be achieved by implementation of the Model Act (amended APMC Act),
taking out fruits & vegetables and fisheries from the ambit of the law, providing freedom to farmers to sell
directly to food processing companies, aggregators etc. and ensuring that market fee is applicable on availing
marketfacilitiesandnotontransactionsoutsidethemarketyard.
2. Creation of a common market for agricultural produce can be brought about by transition to single license and
singlepointlevyofmarketfee.
3. Creation of a land market for commercial agriculture is possible through consolidation of sizeable farmlands by
leasing, to benefit from economies of scale, protection to farmer against any possible loss of his land to the
tenant and formulation of permissible leasing period and other provisions to incentivize the lessee to invest in
improvementofproductivity.
4. Thereisaneedtoencouragingprivatesectorinvestmentsinthesector.
CONCLUSION
The agriculture sector in India continues to be plagued by multiple challenges like low productivity and yield,
inadequate access to irrigation water, poor delivery mechanism and weak marketing chain, and inadequate
investment capital. A strong capital base, thus, becomes crucial for tackling issues like adoption of advanced
technology and development of infrastructure for facilitating all agricultural activities. Also important is significant
increases in public and private expenditure in research and development, extension services, irrigation and rural
infrastructure. At the same time, resource use-efficiency and prevention of over-exploitation of natural resources
alsoneedtobetakenuptopromotesustainablepractices.

22. 20ECONOMY MATTERS
surplus to the tune of US$14.1 billion (2.3 per cent of
GDP) at the start of the decade (2003-04) to a huge
deficit of US$88.2 billion (-4.8 per cent of GDP) by 2012-
13.ThedeteriorationinCADhasworsenedinthelasttwo
years, with the deficit rising above 4 per cent for the first
time ever. Bulk of the deterioration in CAD is due to the
astronomical rise in merchandise trade deficit from
US$13.7 billion in 2003-04 to US$195.7 billion in 2012-13, a
jumpofover14times intheperiodoflast10years.
Burgeoning Current Account
Deficit
The recent sharp rise in the current account deficit
(CAD), both in absolute terms and as a percentage of
GDP, due to the sharp widening of the merchandise
trade deficit has exacerbated the risks on the external
account. Current account balance has slipped from a
Rising Risks for Current Account Deficit
SPECIAL ARTICLE
Current Account Has Widened Sharply in the Last One Decade
Source: RBI
20
10
0
-10
-20
-30
-40
-50
-60
Current account balance (US$ bn) Current account balance (as a % of GDP) RHS
3
2
1
0
-1
-2
-3
-4
-5
-6
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
DissectingCurrentAccountDeficit
Thecurrentaccountbalancecomprisesofthebalanceof
trade of merchandise goods and net invisibles
transactions i.e. net exports of business, financial and
Widening of CAD has led to sharp weakening of Rupee
against the US$ amongst other things. The financing of
CAD also remains a problem with the capital flows
runningtheriskofreversingabruptly.

23. 21 JUNE 2013
software services, net transfer payments (includes
workers' remittances) and net income received from
abroad. Merchandise deficit (MD) and transfers have
been the dominant component influencing the overall
balance. Over the decade, however, while the
contribution of net inflow of transfers has remained
stable, that of MD has increased sharply. MD stood at
10.6 per cent of GDP in 2012-13 as compared to 4.7 per
centin2003-04,growingatCAGRof8.5percent.Arisein
invisibles, more specifically from software services, has
been partially offsetting MD. Net software exports have
grown at a CAGR of 17.8 per cent over the last decade. In
2012-13,invisiblessurplussurgedtoUS$107.5billioneven
as the MD inflated to US$195.7 billion, pushing the CAD
to 4.8 per cent of GDP from 4.2 per cent in the previous
fiscal year, which is way above the range of 2.5 - 3.0 per
centthatisconsideredtobe sustainableforIndia.
MD has increased on account of a host of global and
domestic factors, which led to moderate growth in
merchandise exports and higher growth in imports.
Exports growth suffered due to the adverse impact of
suppressed external demand. Imports growth
meanwhile continued to remain buoyant mainly due to
inelastic imports of two commodities - petroleum, oil &
lubricants (POL) and gold. Our analysis shows that
merchandise trade deficit without net gold imports
would have been 3.0 percentage points of GDP lower
thanthatrecordedduring2012-13.
(US$ billion) 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Merchandise -13.7 -33.7 -51.9 -61.8 -91.5 -119.5 -118.2 -130.6 -189.8 -195.7
-Exports 66.3 85.2 105.2 128.9 166.2 189.0 182.4 250.5 309.8 306.6
-Imports 80.0 118.9 157.1 190.7 257.6 308.5 300.6 381.1 499.5 502.2
Invisibles 27.8 31.2 42.0 52.2 75.7 91.6 80.0 84.6 111.6 107.5
-Services 10.1 15.4 23.2 29.5 38.9 53.9 36.0 48.8 64.1 64.9
-Transfers 22.2 20.8 24.7 30.1 41.9 44.8 52.0 53.1 63.5 64.0
-Income -4.5 -5.0 -5.9 -7.3 -5.1 -7.1 -8.0 -17.3 -16.0 -21.5
TotalCurrentAccount 14.1 -2.5 -9.9 -9.6 -15.7 -27.9 -38.2 -45.9 -78.2 -88.2
Broad components of current account balance (as per old format)
Source: RBI
India's Trade Deficit with and without Gold Imports
Source: RBI & CII estimates
0
-2
-4
-6
-8
-10
-12
% of GDP
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
MD with gold imports MD without gold imports

24. 22ECONOMY MATTERS
Exports & Imports: Sectoral
Performance
Another step-down analysis into the components of the
MD reveals that even though exports have grown at a
CAGR of about 16.5 per cent during the last decade,
imports have grown at more than 20 per cent. This
suggests that the underlying trend in MD is dominated
bytrendinimports.
Indiasawitsforeigntradeexpandremarkablyinthepast
decade. India's total trade with the world touched
US$809 billion in 2012-13, growing at a compounded
annual growth rate of 18.7 per cent since 2003-04.
Although, the pace of exports growth was punctuated
twice by sharp slowdown in the world economy during
2008-09andduringthelasttwofiscalyears,India'strade
prospects have continued to grow over time. India's
exports were worth US$64.0 billion in 2003-04, which
morethanquadrupledtoUS$300.5billionin2012-13.
In the merchandise trade, manufacturing goods still
constitute the lion share of total merchandise exports.
They constituted over 60 per cent of total exports in
2012-13, a fraction that has remained mostly unchanged
over the decade, although dipped marginally last year.
The value of manufactured goods exports has more
than quadrupled to US$186.8 billion over the decade.
Exports of primary products, with their share remaining
fairly constant at little below 15 per cent during 2003-04
to 2012-13, have also scaled over five times in dollar value
terms, growing at a CAGR of 18.0 per cent over the last
ten years. Importantly, petroleum and its products have
broughtinsubstantialrevenuesthatsoaredfromUS$2.6
billionin2003-04toUS$55.6billionin2012-13.Theirshare
too has increased four times in the decade to a little
below20percentin2012-13.Jumpinexportvaluesisalso
attributable to soaring agricultural, mineral and metal
commodityprices.
In a worrying sign, growth in exports of manufactured
productsmoderatedsharplyto18.2percentin2012-13as
comparedto37.2percentintheyearbefore.Amongthe
manufactured goods, exports of chemical & allied
products grew the fastest, with growth figures standing
at 28.8 per cent in 2012-13 and 26.0 per cent in 2011-12,
surpassing the growth in traditional sectors such as
textile and products (particularly readymade garments)
andgems&jewellery.
Exports of engineering goods have their outlook more
intensely entwined with the global economic prospects,
hence their growth slipped sharply last year.
Engineering goods exports moderated sharply to 15.4
percentin2012-13ascomparedtoahealthy51.9percent
in the year before. However over the last decade, the
sector grew at a CAGR of 22 per cent, which was a good
performance going by the industry standards. Amongst
the various categories of engineering goods, transport
equipmentwitnessedthemaximumgrowth,standingat
30.3 per cent in 2012-13, though much lower than 63.4
Imports of Gold on a Rise
ImportofGold (US$billion) GrowthRate(y-o-y%)
2001-02 4.1 -0.7
2002-03 4.2 1.2
2003-04 3.8 -7.8
2004-05 6.5 69.5
2005-06 10.5 61.7
2006-07 10.8 2.8
2007-08 14.5 33.5
2008-09 16.7 15.6
2009-10 20.7 23.9
2010-11 28.6 38.2
2011-12 40.5 41.6
2012-13 56.2 38.7
Source: RBI

25. 23 JUNE 2013
per cent last fiscal. Electronic Goods sector, on the other
hand, witnessed sharp decline. Growth in export of iron
& steel goods moderated sharply to 26.1 per cent as
compared to 41.2 per cent in 2011-12 in tandem with the
banonminingofironoreinmajorproducingstates.
Major labour-intensive products such as gems &
jewellery and textile products saw moderation in export
growth in 2012-13 as compared to 2011-12, despite the
doling of sops for the ailing sector in the Foreign Trade
Policy in recent quarters. The deceleration in growth has
been caused by shrinking demand in developed
countries. Further, an adverse trend was visible in the
share of textile & textile products which fell to nearly
halfover2003-04to2012-13period.
Petroleum & petroleum products saw a weakening in
the growth of exports to 34.0 per cent in 2012-13 as
compared to a healthy 47.1 per cent in 2011-12. Primary
products, on the other hand, saw desirable
improvement in the growth of exports to 38.8 per cent
against 24.4 per cent in 2011-12, on the backing of an
expansion in export of agriculture and allied products,
even as the export of ores and minerals contracted
sharplyoverthelasttwoyears.
Table 1: Sectoral Exports
Source: RBI & CII estimates
Percentage Shares of Growth Rates (y-o-y%) CAGR (%)
Total Exports
2003-04 2011-12 2012-13 2003-04 2011-12 2012-13 2003-04 to
2012-13
Manufactured 62.9 51.6 62.2 20.6 37.2 18.2 16.6
Goods
Engineering 14.1 19.0 22.3 29.8 51.9 15.4 22.2
Goods
Transport Equipment 2.1 5.2 7.0 30.7 63.4 30.3 31.7
Machinery & Instruments 3.1 3.9 4.8 15.8 24.1 21.3 21.7
Manufacture of Metals 2.9 2.8 3.2 15.2 53.1 13.7 17.9
Electronic Goods 2.0 2.7 3.0 6.9 50.3 8.4 21.7
Iron and Steel 2.9 1.7 2.1 106.7 41.2 26.1 13.3
Gems & Jewelry 14.1 13.2 15.6 23.6 39.6 15.9 17.9
Chemicals & 11.7 9.4 12.4 23.2 26.0 28.8 17.4
Allied Products
Basic Chemicals, 7.3 6.3 8.1 26.0 22.4 26.6 18.0
Pharmaceuticals &
Cosmetics
Plastic & Linoleum 1.9 1.5 2.1 23.7 39.4 36.0 17.9
Products
Rubber, Glass, Paints, 1.9 1.2 1.6 21.7 30.6 32.7 14.8
Enamels
Textile & Textile 18.2 7.9 9.3 13.8 22.0 15.6 9.2
Products
Readymade Garments 8.9 3.8 4.6 13.6 8.4 18.0 9.2
Cotton Yarn & Fabrics 5.2 1.9 2.3 9.1 57.0 17.6 7.3
Manmade Yarn & Fabrics 2.1 1.4 1.7 28.8 18.7 18.4 13.9
Petroleum 4.0 13.6 18.5 21.6 47.1 34.0 36.0
Products
Primary 13.6 10.7 15.2 21.5 24.4 38.8 18.0
Products
Agriculture & 10.5 7.9 12.5 13.7 36.5 54.6 18.8
Allied Products
Ores & Minerals 3.1 2.8 2.7 58.1 -0.3 -5.6 15.1

26. 24ECONOMY MATTERS
India's total imports have grown over six times over the
last ten years, standing at US$491.0 billion in 2012-13. The
shares of both non-bulk as well as bulk imports have
increased over the years. Non-bulk imports, with a share
of nearly 55 per cent, amounted US$274.7 billion in 2012-
13, after having increased seven fold since 2003-04. Bulk
imports, with a share of little over 40 per cent, rose by
nine times to US$214.8 billion over the decade. Bulk
imports broadly include petroleum products and
consumption goods. While, non-bulk imports include
mainlycapitalgoodsandexportsrelateditems.
Non-bulk imports, on whole, witnessed a declined
growth of 25.6 per cent in 2012-13 as compared to 34.1
per cent in 2011-12, even though the number stood at
mere 19.1 per cent in 2003-04. Among non-bulk imports,
an enormous growth of around 44 per cent was seen in
the import of gold & silver over last two years. This is a
huge increase from negative growth during 2003-04.
Notably,itssharetoohasmorethandoubledsince2003-
04. In particular, the share of gold alone in 2012-13 was
11.5 per cent of the total imports, an outcome of the
frenzied buying in response to steep drop in
international gold prices along with lack of attractive
financial instruments in the wake of high inflation. An
increase in gold import duty and several other measures
to incentivise financial savings were taken by the
government to curb gold imports in the last quarter of
2012-13.
Coal, coke & briquettes too registered a high growth of
77.5 per cent in their imports, a large increase from 9.5
per cent in 2011-12, in response to an increased demand
from power stations and steelmakers. Their share too,
hasdoubledoverthedecade.CapitalGoodssectorsawa
rise in its imports from 19.3 per cent in 2011-12 to 26.5 per
cent in 2012-13, much lower though from 36.6 per cent in
2003-04. Among capital goods, transport equipment
showedhighgrowthinimportsascomparedtoprevious
year, though the figure was still lower than that in 2003-
04. This growth was, however, partly contributed by a
sharpriseinprices.Importsinprojectgoodstooshowed
increase,bothintermsofvalueandshare.
Bulkimportsincreasedsharplythisyearwithagrowthof
42.1 per cent as compared to 20.6 per cent in 2011-12 and
19.9 per cent in 2003-04. Among bulk imports,
petroleum, crude & products, with a share of little over
30 per cent in total imports, showed large increase in
growth of imports to 46.2 per cent as compared to 21.6
percentin2011-12.Therisewascreditedtobothincrease
inshareandincreaseinprices.
Imports in fertilizers sector, not only saw its share
getting tripled since 2003-04, but also grew sharply by
60.8 per cent in 2012-13 as compared to 4.8 per cent in
2011-12, mostly because of a sharp increase in imports of
manufactured fertilisers. This was in tandem with
increased production and exports of agriculture and
allied products, and was responded by the government
with a decrease in custom duties on import of
equipment for setting up and expansion of fertilizer
projects. Consumption goods saw a growth in imports
by 31.2 per cent as compared to a contraction by 1.8 per
centlastyear,evenasitssharehasbeenfluctuatingover
theyears.
Growthinimportsofiron&steelandnon-ferrousmetals
sawadrop.Ahighexcisedutytodiscourageexportsand
givemoreaccesstoironoretoIndiansteelmakersdrove
thisdecline.

27. 25 JUNE 2013
Conclusion
India's external position has been deteriorating for
some time, manifesting itself in a steady deterioration in
the current account which slipped from a surplus at the
startofthelastdecadetoahugedeficitof4.8percentin
2012-13. Our analysis shows that the bulk of the
deterioration in CAD is attributable to the sharp rise in
merchandise trade deficit in the last decade or so, when
it jumped by over 14 times. Amongst the various sub-
sectors of exports, textile sector did the worst both in
terms of decline in its share in total exports and its
growth rate over the last decade. Some urgent remedial
measures for this sector are the need of the hour.
Amongst the imports, gold & silver and coal products
saw a sharp jump in their imports growth during the last
decade. Both these items have been the main culprits
from the imports side responsible for the widening of
the trade deficit in the last decade. Though recently
policy makers have taken some measures to curb
imports of these two commodities, but a lot more still
needs to be done. As regards to arresting gold imports,
apart from the administrative measures to curb the
same, we also need to address the lack of alternative
savings instruments that are perceived to be safe in the
long-termbytheinvestors.
Ultimately,forIndiatocontainitscurrentaccountdeficit
at a more sustainablelevel of 2.0-2.5 per cent of GDP,it is
essential that we ensure competitiveness of our goods
and services, so that our imports are contained and
exportsboosted.
Source: RBI & CII estimates
Table 2: Sectoral Imports
Percentage Shares of Growth Rates (y-o-y%) CAGR (%)
Total Exports
2003-04 2011-12 2012-13 2003-04 2011-12 2012-13 2003-04 to
2012-13
Non Bulk 47.4 44.7 55.9 19.1 34.1 25.6 22.2
Imports
Capital Goods 17.2 16.1 20.2 36.6 19.3 26.5 22.1
Electronic Goods 7.2 5.4 6.6 48.1 26.7 22.8 19.3
Machinery excluding 4.6 4.9 6.2 20.0 21.2 26.8 23.8
Electrical
Transport Equipment 2.4 2.3 2.9 65.1 -2.2 22.7 22.2
Project Goods 0.7 1.3 1.8 -4.6 31.2 43.0 32.1
Gold & Silver 5.5 8.7 12.5 -6.4 43.5 44.4 30.5
Gold 4.9 8.3 11.5 -7.8 41.6 38.7 30.8
Pearls, Precious & 7.7 7.1 6.2 31.2 114.0 -11.8 17.5
Semi precious Stones
Organic & Inorganic 3.9 3.1 3.9 8.1 27.9 24.5 20.1
Chemicals
Coal, Coke & 1.6 2.0 3.5 8.4 9.4 77.5 30.2
Briquettes
Artificial Resins & 1.0 1.4 1.5 16.0 37.7 9.6 25.4
Plastic Material
Bulk Imports 31.1 30.9 43.7 19.9 20.6 42.1 24.3
Petroleum, Crude 22.5 21.7 31.5 26.0 21.6 46.2 24.3
& Products
Iron and Steel 1.2 2.1 2.4 13.2 25.9 15.5 28.9
Fertilizers 0.8 1.5 2.3 -7.8 4.8 60.8 33.8
Manufactured 0.5 1.3 1.9 -21.4 3.6 51.0 38.6
Fertilizers
Metalliferous Ores, 1.3 2.0 2.7 -9.3 26.3 37.9 29.1
Metal Scrap
Consumption Good 3.1 1.8 2.4 18.0 -1.8 31.2 17.0
Edible Oils 2.3 1.3 2.0 33.8 17.4 47.2 18.2
Non Ferrous Metals 0.9 0.8 1.0 3.0 35.7 19.8 22.0

28. 26ECONOMY MATTERS
ECONOMY MONITOR
GLOBAL GDP (y-o-y%)
DOMESTIC GDP GROWTH (y-o-y%)
WPI INFLATION (y-o-y%)
INDEX OF INDUSTRIAL PRODUCTION (IIP) (y-o-y%)
US GDP Growth (y-o-y%) Japan GDP Growth (y-o-y%)
IndustryOverall GDP
Overall
1Q12 2Q12 3Q12 4Q12 1Q13
2.4 2.1
2.6
1.7 1.8
-0.1
-0.5
-0.7
-1.0
-1.1
1Q12 2Q12 3Q12 4Q12 1Q13
Euro Area GDP Growth (y-o-y%)
3.2
3.9
0.2 0.4 0.4
1Q12 2Q12 3Q12 4Q12 1Q13
8.1
7.6
7.4
7.9
7.7
1Q12 2Q12 4Q12
China GDP Growth (y-o-y%)
3Q12 1Q13
5.1
5.4
5.2
4.7 4.8
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
2.0
2.9
1.7 1.8
1.4
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Agriculture
2.1
1.8
1.3
2.5
2.7
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
7.3
7.7 7.6
6.7 6.6
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Services
7.3 7.3
5.7
4.9 4.7
Jan-13 Feb-13 Mar-13 Apr-13 May-13
11.4
10.5
7.4
5.8
6.7
Primary
Jan-13 Feb-13 Mar-13 Apr-13 May-13
9.3
10.6
7.8
8.8
7.3
Fuel
Jan-13 Feb-13 Mar-13 Apr-13 May-13
4.9 4.8
4.3
3.4 3.1
Manufacturing
Jan-13 Feb-13 Mar-13 Apr-13 May-13
General Manufacturing Electricity Mining
0.6
2.5
3.4
1.9
-1.6
Jan-13 Feb-13 Mar-13 Apr-13 May-13
2.7
2.1
4.2
2.3
-2.1
Jan-13 Feb-13 Mar-13 Apr-13 May-13
6.4
-3.2
3.5 4.2
6.2
Jan-13 Feb-13 Mar-13 Apr-13 May-13
-1.8
-7.7
-2.7
-3.3
-5.7
Jan-13 Feb-13 Mar-13 Apr-13 May-13

29. 27 JUNE 2013
14.9
10.3
17.8
20.1
12.2
Exports (%) Imports (%)
Jan-13 Feb-13 Mar-13 Apr-13 May-13
Trade Deficit (US$ Bn)
21.7
17.1
21.1
31.8
18.2
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Current Account Deficit (US$ Bn)
53.8
54.4
58.4
Feb-13 Mar-13 Apr-13 May-13 Jun-13
Avg Exchange Rate (Rs/US$)
54.4
55.0
EXTERNAL ACCOUNT
Source: RBI, CSO, SEBI, Office of Economic Advisor, Bureau of Economic Analysis, Euro Stat, Bank of Japan, National Bureau of Statistics
MONETARY VARIABLES (%)
CAPITAL FLOWS (US$ billion)
OTHER IMPORTANT INDICATORS (y-o-y%)
Jan-13 Feb-13 Mar-13 Apr-13 May-13
Non-Food Credit Growth (y-o-y%)
Jan-13 Feb-13 Mar-13 Apr-13 May-13
12.7 12.4 12.4 12.5
12.1
M3Growth (y-o-y%) Repo Rate (%)
Apr-13 Jun-13May-13
7.75
7.50
7.25 7.25
Cash Reserve Ratio (%)
4.00 4.00 4.00 4.00
Feb-13 Mar-13 Apr-13 May-13
Net FII Flows (US$ billion) Net FDI Flows (US$ billion) Forex Reserves (US$ billion)
290.6
292.6
296.4
287.9
285.5
Feb-13 Mar-13 Apr-13 May-13 Jun-13
ECB flows (US$ billion)
Feb-13 Mar-13 Apr-13 May-13 Jun-13
5.3
2.7 2.0
5.2
-7.5
2.3
0.5
1.0
2.8
4QFY12 2QFY13 3QFY13
4.00
Jun-13
4.2
4QFY131QFY13
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jan-13 Feb-13 Mar-13 Apr-13 May-13
Core Sector Growth (y-o-y%)
10.2
3.1
8.3 8.2
3.0
Cement Production Growth (y-o-y%) Steel Production Growth (y-o-y%)
-20.5
-23.6
-7.8
11.5
2.5
Commercial Vehicles
Production Growth (y-o-y%)
1.9
0.5
6.6
1.9
4.1
Jan-13 Feb-13 Mar-13 Apr-13 May-13
3.7
3.2
2.4 2.3
-2.4
15.8 16.1
14.0
14.7
15.5
Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13
3.1
2.6
1.3
2.8
1.95
Feb-13 Mar-13
4.2
6.9
1.7
-1.1
-4.6
2.6
-2.9
11.0
6.9
-0.4
Feb-13 Mar-13 Apr-13 May-13 Jun-13

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33. Notes

34. Notes

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