Economy Matters, February 2014

Only 1
Vacancy
ECONOMYMATTERSVolume 19 No. 02February 2014
Inside This Issue
Cover Story
UK Economy Growing at Fastest Rate
Since 2007
Review of GDP, IIP, Inflation, Trade &
BoP data
Investment Tracker
Article on Youth Unemployment by
Planning Commission Officials
Article on Employment Challenges in
India & Beyond by Dr. Sher S. Verick, ILO
Special Feature: Pushing Infrastructure
Projects, Mr. Nirav Shah, HDFC Bank
TheEmployment
Conundrum

Global headwinds are slowly receding, paving the way for a much better 2014 than was
earlierexpected.TheUSeconomyhashitaweakspotatthebeginningof2014probably
duetoweatherrelateddisturbancesbutthiscouldprovetobetemporaryandwecould
expect it to lead the front as far as revival in global growth is concerned, going forward.
UKeconomyisalsoshowingsignsofpostingastrongpull-back.Chinaontheotherhand
is facing the prospects of a slower growth this year. The latest government
manufacturing PMI data showed that industrial activity slipped to eight month low of
50.2 in February 2014. Going forward, the pace of recovery in China will be crucial in
liftingtheglobaleconomicprospectsoutofthedoldrums.
On the domestic front, GDP growth for the third quarter of the current fiscal came at a
subdued 4.7 per cent, eroding some of the cautious optimism that was starting to
become visible over the last two months. With elections being announced, no new
legislation or significant policy decisions can be expected due to code of conduct.
However, this is an opportune time to take care of procedural simplifications, which
would improve the ease of doing business in India and make the environment
investment friendly in order to provide a fillip to growth. Industrial output meanwhile
continued to remain in the negative territory for the third consecutive month in
December 2013. We are especially concerned about the performance of the
manufacturing sector, which continues to be in red. Negative growth of capital goods
and consumer durables sector reinforces the view that escalating interest costs have
been adversely impacting investment. Hence, we urge the Central Bank to start cutting
interestratesattheearliest.
In order to take advantage of India's demographic dividend, job opportunities have to
be created on a large scale. Further, as the share of agriculture in GDP shrinks, so should
its share in employment. Labour being rendered surplus from agriculture needs to be
absorbed in either industry or services. However, the experience so far has not been
encouraging in that employment has not increased to the extent it should have, given
the high growth rates experienced in the last decade. Hence, one of the key challenges
th
forthe 12 Five Year Planwill be to createemploymentin the non-agriculturalsectorsso
that the share of employment in agriculture declines in line with its share in
GDP.
Chandrajit Banerjee
Director-General, CII
1
FOREWORD
FEBRUARY 2014

Only 1
Vacancy
The Employment
Conundrum
CONTENT
Focus of the Month
In order to take advantage of
India's demographic dividend, job
opportunities have to be created
on a large scale. Further, as the
shareofagricultureinGDPshrinks,
so should its share in employment.
Labour being rendered surplus
from agriculture needs to be
absorbed in either industry or
services. However, the experience
so far has not been encouraging in
that employment has not
increased to the extent it should
have. In the 'Focus of the Month',
we provide an analysis of the
employment problem facing India
currently.
Inside This Issue
1 FEBRUARY 2014
Executive Summary .................................................03
Global Trends
04
UK Economy Growing at Fastest
Rate since 2007
Domestic Trends
Vote-on-Account, GDP, IIP, Inflation,
Trade, BoP07
Investment Tracker
19
Economy Monitor ................................................... 47
Focus of the Month
29
Sector in Focus
Travel & Tourism
23
Special Feature
45
New Investment Proposals Move Up
Youth Unemployment in India
Employment Challenges in India and Beyond
Challenge of Employment in India
Declining Participation of Women in the
Workforce: An Overview
Sunita Sanghi & A. Srija, Planning Commission
Sher S. Verick, International Labour Organisation
Alakh N. Sharma, Institute of Human Development
Sharmila Kantha, CII
Pushing Infrastructure Projects
Nirav Shah, HDFC Bank
The Employment Conundrum

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Corporate Performance
Sector in Focus
Focus of the Month
Special Feature
Economy Monitor
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GlobalTrends
DomesticTrends
InvestmentTracker
UK real GDP growth was kept unchanged at 0.7 per
cent on q-o-q basis in the fourth quarter of 2013 (Q4
2013 henceforth), marking the fourth consecutive
quarterly positive growth. Accordingly, UK real GDP
grew by 1.8 per cent in 2013, its strongest rate since
2007, supported by a sharp drawdown in savings.
Meanwhile, China is facing headwinds, with the latest
government manufacturing PMI (seasonally-adjusted)
slipping to eight month low of 50.2 in February 2014
from 50.5 in January 2014. A preliminary reading of the
HSBCmanufacturingPMI,acompetingindextoofellto
48.3 in January 2014, well into contractionary territory,
raisingredflagsfortheeconomy.
GDP growth in the third quarter of the current fiscal
came at 4.7 per cent as compared to 4.4 per cent in the
previous quarter. Revival of agriculture and services
was nullified by a de-growing industry with near static
construction sector as an added worry. Adding to the
worries was the performance by the industrial sector,
whose output contracted for the third consecutive
month in December 2013, despite a supportive base
effect. Industrial output declined to 0.6 per cent in
December 2013, albeit the magnitude of decline
reduced from the -1.3 per cent print seen in the
previous month. WPI based inflation, meanwhile,
moderated to 8-month low of 5.05 per cent in January
2014ascomparedto6.2percentinthepreviousmonth
on the back of fall in food prices and subdued
manufacturing inflation. However, the rise in core
inflation to 3 per cent, close to the RBI's comfort
threshold,isacauseforconcern.
Some positive news comes from the figures on new
investment proposals for the third quarter
(Q3FY2014), which recorded the highest level in
previous five quarters. From a level of Rs 93 thousand
crore in second quarter (Q2FY14), the new investment
proposals jumped to Rs. 146 thousand crore in Q3.
Combined with positive signals emerging from other
indicators such as improving export prospects,
declining current account deficit, reduction in
exchange rate volatility and downward trend in
inflation, jump in value of new investment proposals in
Q3 lends support to the beginning of improvement in
business sentiments. There is, however, a case for
cautious optimism, as recovery still remains fragile and
lopsided.
The travel and tourism sector holds strategic
importance in the Indian economy providing several
socio economic benefits. Provision of employment,
income and foreign exchange, development or
expansion of other industries such as agriculture,
construction, handicrafts etc. are some of the
important economic benefits provided by the tourism
sector. In addition, investments in infrastructural
facilities such as transportation, accommodation and
other tourism related services lead to an overall
development of infrastructure in the economy. India
has been witnessing steady growth in its travel and
tourism sector over the past few years. Total tourist
visits have increased at a rate of 16.3 per cent per
annum from 577 million tourists in 2008 to 1057 million
tourists in 2012. However, there are issues facing the
sector such as lack of skilled & trained manpower, lack
of focus on safety & security of tourists, provision of
adequate healthcare facilities for tourist and lack of
adequateinfrastructureinthecountry.
Accelerating growth and expanding employment
opportunities are the goals of economic policy.
However, the growth process in the past decade has
brought about significant changes in the structure of
the Indian economy. Defying somewhat the
conventional paradigm of development, the share of
services in output has touched close to 60 per cent, a
sharp rise from the 42 per cent in early 1990s. However,
theemploymentshifthaslaggedbehindshiftinoutput.
The share of services in employment is close to only 25
per cent. In contrast, share of agriculture in
employment has remained high at around 50 per cent,
while its share in GDP has moderated sharply. Hence,
th
one of the key challenges for the 12 Five Year Plan will
be to create employment in the non-agricultural
sectors so that the share of employment in agriculture
declinesinlinewithitsshareinGDP.
SectorinFocus:Travel&Tourism
Focus of the Month: The
Employment Conundrum
EXECUTIVE SUMMARY
3 FEBRUARY 2014

4ECONOMY MATTERS
GLOBAL TRENDS
UK Economy Growing at Fastest Rate since 2007
a rise in exports and business investments, was good
news for UK policymakers seeking a move away from an
economyreliantondebt-fuelledhouseholdspending.
As per the sectoral details available, consumer spending
grew by 0.4 per cent in the final three months of the
year, which was slower than the 0.9 per cent growth in
the third quarter. However, with annual growth in
consumerspendingof2.4percent,itwasstillthefastest
rate of growth since 2007. On the external front, UK's
trade position improved in the fourth quarter with the
trade deficit narrowing to £6.6 billion from £8.2 billion in
the third quarter after exports rose 0.4 per cent but
imports fell 0.9 per cent. Over 2013 as a whole, export
growthof0.8percentoutpaceda0.4percentgrowthin
UK real GDP growth was kept unchanged at 0.7 per
cent on q-o-q basis in the fourth quarter of 2013
(Q4 2013 henceforth), marking the fourth consecutive
quarterly positive growth. Accordingly, UK real GDP
grewby1.8percentin2013,itsstrongestratesince2007,
according to the Office for National Statistics (ONS).
Details showed a lesser dependence on consumer
spending than previous quarters, which, combined with
Source : Office for National Statistics (ONS)
2012 2013 Q32013 Q42013
PrivateConsumptionExpenditure 1.5 2.3 1.1 0.11
GeneralConsumptionExpenditure 1.6 0.9 0.6 0.31
GrossCapitalFormation(GCF) -0.5 1.4 7.9 1.09
-Exports 1.1 0.8 -2.8 0.42
-Imports 3.1 0.4 0.7 -0.9
GDP 0.3 1.8 0.8 0.7
Major Contributors to Real GDP Growth

5
was agriculture, forestry and fishing, where output fell
by 0.1 per cent, revised down from a previously
estimated0.5percentincrease.
The Bank of England (BoE), in its latest Inflation Report,
revisedUKGDPgrowthforecastfrom2.9 percentto3.4
per cent in 2014. In 2013, majority of private
consumption expenditure (PCE) growth was supported
by a sharp drawdown in savings. In case incomes don't
grow, households will find it difficult to maintain PCE
growth, which will have an adverse impact on GDP
growth. Moreover, recent gains in employment have
been due to subdued growth in productivity and lower
wage growth, which does not bode well from a longer-
termperspective.
On the output side of the economy, industrial
production growth was revised down to 0.5 per cent in
the fourth quarter from an earlier estimate of 0.7 per
cent, dragged down by falling North Sea oil and gas
output. Manufacturing sector output growth too was
revised downwards to 0.7 per cent from 0.9 per cent as
originally estimated. Mining and quarrying output too
shrank by 1.9 per cent. However, there was better news
from the construction sector, with fourth-quarter
outputreviseduptoshowgrowthof0.2percent,rather
thanthe0.3percentfallinlastmonth'sestimate.
The UK's service sector - which makes up more than
three-quartersofeconomicoutput-roseby0.8percent
in the fourth quarter, matching its performance in the
previous quarter. The only "top level" industry to suffer
China PMI Falls to 50.2 in Latest Sign of Persisting Slowdown
February 2014 from 50.5 in January 2014, where any
number of more than 50 indicates expansion. A
preliminary reading of the HSBC manufacturing PMI, a
competing index, fell to 48.3 in January 2014, well into
contractionaryterritory.
A closely watched gauge of China's manufacturing
activity dropped to an eight-month low in February
2014, the latest sign of a slowdown in the country's
factory sector. The government's official purchasing
manager's index (seasonally-adjusted) fell to 50.2 in
GLOBAL TRENDS
attemptstocompensateforit.
But the weaker number also points to doubts about the
strength of China's economy at a time when other
emerging markets are suffering from capital flight and
China's economic data are muddled in the first few
weeks of the year due to the Lunar New Year holiday,
when factories shut down and consumers withdraw
extra cash from the banking system. The holiday moves
around from year to year, confounding statisticians'
FEBRUARY 2014
China's Manufacturing PMI (Seasonally-Adjusted)
50.4
50.1
50.9
50.6
50.8
50.1
50.3
51.0
51.1
51.4 51.4
51.0
50.5
50.2
Jan/13
Feb/13
Mar/13
Apr/13
May/13
Jun/13
Jul/13
Aug/13
Sep/13
Oct/13
Nov/13
Dec/13
Jan/14
Feb/14
Source: National Bureau of Statistics

the holiday effect and persistent doubts about the
qualityofChina'stradedata.
The PMI for large companies fell to 50.7 from 51.4 the
previous month. The gauges for small and medium-
sized enterprises showed a contraction, in line with the
preliminary reading of a separate manufacturing gauge
released on 20th February, 2014 by HSBC Holdings Plc
and Markit Economics. HSBC's Flash PMI, which is
weighted more toward smaller companies, fell to 48.3
fromJanuary'sfinalreadingof49.5.
concerns about China's domestic financial system are
building. The central bank has been gradually moving to
tightencreditconditions,amidfearsofamountingdebt
loadthatcoulddestabilizetheeconomy.
The PMI subindex for new export orders fell to 48.2
from 49.3, casting doubt on the strength of global
demand for Chinese goods. China's exports in January
rose 10.6 per cent from the same month of 2013, a
strong performance that was nevertheless muddied by
6ECONOMY MATTERS
Other Global Developments During the Month
v
v
v
v
v
v
The entire growth in real GDP in Q4 2013 was driven by higher exports, which grew at the fastest pace in three
years. Imports, on the other hand, grew more slowly, due to which net exports (exports less imports)
contributed 1.1 percentage points to real GDP growth in Q4 2013. Almost half of this positive contribution from
netexportswasoffsetbyadeclineinPCEandsharpdrawdownininventories.
The Consumer Price Index (CPI) in the UK grew 1.9 per cent on y-o-y basis in the first month of 2014, lower than
that in December 2013. After easing dramatically in the last quarter of 2013, inflation is unlikely to diverge
sharply from the official target this year. The largest negative contribution came from 'recreation & culture',
wherein inflation halved to 0.4 per cent last month, marking its lowest level since June 2012. On the other hand,
the contribution of 'miscellaneous items'-especially personal care products and a range of insurance products-
toinflationincreasedinJanuary2014.
As per flash estimates, headline inflation in Euro Zone was stable at 0.8 per cent on y-o-y basis in February 2014,
marking the same level for third consecutive month. While inflation in volatile items such as-food & energy-
easedfurtherlastmonth,inflationinnon-volatileitemssuchasservicesandnon-energyindustrialgoodspicked
up. Consequently, core inflation moved up from 0.8 per cent in January to 1.0 per cent in February 2014, the
highestlevelinsixmonths.
US real GDP for the fourth quarter of 2013 was revised downwards to 2.4 per cent from the 3.2 per cent advance
estimatereleasedinJanuary2014.
Fed Chairperson Yellen, in her testimony to the US Senate, reiterated that the Fed is likely to continue tapering
asset purchases at a "measured" pace. She added that if there's a significant weakening of economic
conditions,theFedwouldbe"opentoreconsidering"thepaceoftaper.
China's inflation rate remained subdued in January 2014, despite rising food prices during the New Year
celebrations. Consumer prices held steady at 2.5 per cent on y-o-y basis from a year earlier. The National Bureau
of Statistics said there was a 3.7 per cent rise in food prices during the month, which included both the Western
and Chinese New Years. China's inflation has slowed markedly since 2011, when the annual consumer price
indexspikedto5.4percent.
German real GDP grew 0.4 per cent on q-o-q basis in Q4 2013, higher than the market consensus of 0.3 per cent.
GLOBAL TRENDS

7
Source : Union Budget 2014-15
FiscalConsolidation Achievetargetof3percentofGDPbyFY17andalwaysremainbelowthat.
CurrentAccountDeficit Noroomforaversiontoforeigninvestment.
PriceStability&Growth RBImuststrikebalancebetweenpricestability&growth.
FinancialSectorReforms Recommendations of the Financial Sector Legislative Reforms Commission that require no change in
legislationmustbeimplementedimmediately.
Infrastructure UsePPPmodelwidelyandcreatenewfinancingstructures.
Manufacturing Focus on manufacturing and especially on manufacturing for export. In order to achieve this waive off or
rebatealltaxesthatgointoanexportedproduct.
Subsidies Choosesubsidiesthatareabsolutelynecessaryandgivethemonlytotheabsolutelydeserving.
Urbanisation Usenewmodelofgovernanceforrebuildingcities.
SkillDevelopment Skill development must rank alongside secondary education, university education, total sanitation and
universalhealthcareintheprioritiesoftheGovernment.
Centre&StateRelations States should bear proportionate costs of implementing flagship programmes so that Centre can allocate
moreresourcestocentralsubjects.
10 Commandments of the Finance Minister
FEBRUARY 2014
Vote-on-Account Analysis
is down and inflation is above the comfort zone. Under
these circumstances, the Finance Minister attempted a
fine balance to provide a fillip to economy and
manufacturing, revive the 'feel good factor', while
keeping the fiscal deficit under check. What is also
commendable is the 10-point vision (see below table)
laid out by the Finance Minister, which besides dwelling
on the reduction in the twin deficits, provides emphasis
to a balanced monetary policy, implementation of
infrastructureprojectsanddevelopmentofcities.
The Vote-on-Account, which was presented by the
th
Finance Minister in the Parliament on 17 February
2014, came at a time when the economy continues to be
in the midst of a slowdown, the manufacturing sector is
showingasubduedperformance,investmentsentiment
DOMESTIC TRENDS

8ECONOMY MATTERS
compared to the budgeted estimate of 4.8 per cent. We
are however worried by the nature of this deficit
compression. The fine-print of the budget reveals that
bulk of the reduction in fiscal deficit has been achieved
by cutting of plan expenditure, which is inimical for the
pickupingrowth.Moreover,aspertherecentlyreleased
data by CGA, fiscal deficit has touched 101.6 percent of
the full year target during April-January FY14 compared
with 89.4 percent at the same point a year ago. This has
made the probability of the FM compressing the plan
expenditure in order to meet his budget commitment of
keeping the deficit at 4.6 per cent of GDP more
probable.
Presenting the last budget of the current incumbent
UPA government, Finance Minister, while refrained
from announcing any major changes in direct tax rates,
tinkered with the indirect tax rates in order to prop up
thegrowthofcertainailingsectors. CIIishappywiththe
announcement of cutting of the excise duty on various
segments of automobile, capital and consumer non-
durables sectors. This is expected to help these sectors
getbackonthegrowthtrackinmonthstocome.
The fiscal deficit of the central government for 2013-14
has been re-estimated at 4.6 per cent of GDP as
1.3
3.0
4.2 3.7
5.2 4.9 5.2 5.32.5
5.4
6.5
4.8
5.7
4.9
4.6
5.1
7
6
5
4
3
2
1
0
FY08 FY09 FY10 FY11 FY12 FY13 FY14
(RE)
FY15
(BE)
Gross Fiscal Deficit (Rs Trillion) Fiscal Deficit/GDP (%)
Fiscal Deficit
Source: Union Budget 2014-15
Note: BE- Budget Estimates, RE – Revised Estimates
rollover in fertilizer and petroleum subsidies to the tune
of about Rs 650 billion. Under subsides, the biggest
breach came on the fuel subsidy front, as it grew by 31.5
per cent in 2013-14 as compared to a decline budgeted to
the tune of 33 per cent. For 2014-15, non-plan
expenditure is budgeted to grow by 8.3 per cent; bulk of
increasewillcomefromfoodsubsidy,whichisbudgeted
to record the maximum jump to the tune of 25 per cent,
in order to account for the implementation of the
National Food Security Act throughout the country. In
contrast, fuel subsidy is budgeted to decline by 25.8 per
centovertherevisedestimatesof2013-14.
According to the revised estimates for 2013-14, total
expenditure recorded a decline to the tune of 4.5 per
cent as per the revised estimates of 2013-14 compared
with the budgeted estimates. Bulk of the decline in total
expenditure was due to contraction in plan expenditure
to the tune of 14.4 per cent. Continuous reduction in
plan expenditure (by Rs 2.1 trillion vis-à-vis budgeted
levels over the past 3 years) can dent the country's
growth potential. In contrast, non-plan expenditure
grewby0.4percentaspertherevisedestimatesof2013-
14 over the budgeted estimates. Out of the non-plan
expenditure, total subsidies rose to 2.3 per cent of GDP
compared to budgeted 2 per cent. This was despite the
DOMESTIC TRENDS

9
expenditure compression needs to be kept in mind.
Capital expenditure needs to be kept robust in order to
revive the sagging investor sentiments while aiming for
a compression on the revenue front. Encouragingly, in
2014-15, capital expenditure is budgeted to grow at 11.7
percentascomparedto10.8percentgrowthinrevenue
expenditure. However, the share of revenue
expenditure in total expenditure is still dominant as
comparedtothatofcapitalexpenditure.
Plan expenditure is budgeted to rise by 16.8 per cent in
2014-15, led by increase in both plan revenue and capital
components. Plan revenue expenditure is expected to
grow by 18.9 per cent whereas plan capital expenditure
would register a growth of 9.0 per cent in 2014-15.
Though, the fiscal deficit as a per cent of GDP is
budgeted to moderate in 2014-15 underpinned by a
moderation in non-plan expenditure, the nature of
Source : Union Budget 2014-15
2013-14(RE)over2013-14(BE) 2014-15(BE)over2013-14(RE)
FoodSubsidy 2.2 25.0
FertiliserSubsidy 3.0 0.0
PetroleumSubsidy 31.5 -25.8
OtherSubsidy -7.9 -55.2
TotalSubsides 10.6 0.1
Subsides Outgo (%)
NON-PLANEXPENDITURE 0.4 8.3
RevenueAccount 3.5 7.8
CapitalAccount -25.5 14.8
PLANEXPENDITURE -14.4 16.8
OnRevenueAccount -16.1 18.9
OnCapitalAccount -7.5 9.0
TotalCapitalExpenditure -16.7 11.7
TotalRevenueExpenditure -2.6 10.8
TotalExpenditure -4.5 10.9
Expenditure of Government (%)
on the other hand was almost half that of the budgeted
levels. Under gross tax revenue, corporation tax growth
contracted by 6.2 per cent, while excise duty growth
also contracted, albeit by a smaller clip as per revised
estimates of 2013-14 over the budgeted estimates.
Customs duty growth declined by 6.5 per cent over the
same period. Sluggish macroeconomic growth, global
headwinds and lower corporate profitability all resulted
inmutedtaxcollectionsin2013-14.
As far as the revenue side is concerned, economic
downturn has dented government's revenue flow quite
severely. Revenue receipts declined by 2.6 per cent in
2013-14 as compared to the budget estimates
underpinned by 6.2 per cent contraction in tax revenue.
It's pertinent to note however that non-tax revenue
increased by 12.2 per cent due to the money garnered
from the recent spectrum sales. Disinvestment revenue
DOMESTIC TRENDS
FEBRUARY 2014

manufacturing and came out with strong steps in the
interim budget. For industry, the two issues of concern
were revival in growth, particularly manufacturing, and
fiscalconsolidation.Theinterimbudgetdeliversonboth
fronts. It also sets a solid foundation for the next
government'sfinances.
In an election year, where the regular budget is to be
presented by a new Government, Vote-on-Account was
not expected to come out with any major policy
announcements. That said, however, industry is pleased
that the Finance Minister took note of the urgent need
to counter slowdown in growth, investments and
10ECONOMY MATTERS
per cent for the full year, the fourth quarter growth
should come above 5 per cent. And if it happens, it will
be the first above 5 per cent quarterly growth rate in
seven consecutive quarters. As per the advance
estimates, agriculture growth is expected to come at
4.6 per cent, while industrial sector growth will be
lacklustre at 0.7 per cent in 2013-14. Services sector
growth will remain almost unchanged from last year at
6.9percent.
GDP growth in the third quarter of the current fiscal
came at 4.7 per cent as compared to 4.4 per cent in the
previousquarter.Revivalofagricultureandserviceswas
nullified by a de-growing industry with near static
construction sector as an added worry. With this, the
GDP growth in the first three quarters (April-December
2013) stands at 4.5 per cent. Interestingly, in order to
match the recently released advance estimates of 4.9
FY 13 FY14 (AE)
DOMESTIC TRENDS
RevenueReceipts -2.6 13.4
-TaxRevenue -6.2 19.0
CorporateTax -6.2 14.6
IncomeTax -2.4 26.8
CustomsDuty -6.5 15.0
UnionExciseDuties 1.7 11.7
ServiceTax -8.4 30.7
-Non-TaxRevenue 12.1 -6.5
Growth in Government Receipts (%)
GDP Growth Remains Weak in 3QFY14
4.5
4.9
1.4
4.6
1.0
0.7
7.0 6.9
FY 13 FY14 (AE) FY 13 FY14 (AE) FY 13 FY14 (AE)
Total GDP Agriculture Industry Services
y-o-y%
GDP Expected at 4.9 per cent in 2013-14
Source : CSO

in April-December 2013. Private consumption
expenditure growth moderated to 2.5 per cent in the
third quarter from 3.0 per cent in the previous quarter.
Mirroring the rise in government expenditure,
government consumption growth accelerated to 4.0
percentfromlowof1.5percent.
Demand side measure of GDP growth at 4.6 per cent
matched that of supply side measure. Oddly this was
supported largely by government spending.
Investment continued to be weak and gross fixed
capital formation contracted by an average of 1 per cent
11
(-1.6 per cent), manufacturing (-1.9 per cent) and
electricity (5 per cent) are broadly in line with the IIP
estimates seen so far. Services sector growth increased
to 7.6 per cent in the third quarter as compared to 6.0
percentinthepreviousquarterdrivenbyrobustgrowth
in its 'financing, insurance, real estate & business
services' sub sectors. Community, social & personal
services sector growth also galloped to 7.0 per cent due
toriseingovernmentconsumptionexpenditure.
In the third quarter, agricultural growth came lower-
than-expected at 3.6 per cent, despite a low base of last
year and the fact that third quarter is usually a strong
farm growth quarter as most of the Kharif crop comes
on stream then. This implies the fourth quarter would
havetoregisterverystronggrowthfortheannualtarget
to be met, which looks unlikely at the moment. Within
industry,thetrajectoryofconstructionisworryingat0.6
per cent. Other components of industry, namely, mining
DOMESTIC TRENDS
FEBRUARY 2014
Source : CSO
(y-o-y%) Q3FY13 Q1FY14 Q2FY14 Q3FY14
GDP at factor cost 4.4 4.4 4.4 4.7
Agriculture 0.8 2.7 4.6 3.6
Industry 1.7 0.2 2.3 -0.7
Services 6.9 6.7 6.0 7.6
Mining & quarrying -2.0 -2.8 -0.4 -1.6
Manufacturing 2.5 -1.2 1.0 -1.9
Construction 1.0 2.8 4.3 0.6
Electricity, gas & water supply 2.6 3.7 7.7 5.0
Trade, hotels, transport & communication 5.9 3.9 4.0 4.3
Financing, insurance, real estate & 10.2 8.9 10.0 12.5
business services
Community, social & personal services 4.0 9.4 4.2 7.0
Supply-Side of Real GDP
Source : CSO
(y-o-y%) Q3FY13 Q1FY14 Q2FY14 Q3FY14
GDP at market prices 5.3 2.4 5.6 4.6
Private Consumption 5.1 1.9 3.0 2.5
Govt. Consumption 4.5 9.6 1.5 4.0
Fixed Investment 4.4 -3.7 1.8 -1.1
Exports -1.7 -1.2 14.8 11.4
Imports 3.6 2.6 2.1 -3.8
Demand-Side of Real GDP

manufacturing, capital and consumer goods. However,
on a positive note, the sequential momentum as
indicated by the movement in the seasonally-adjusted
month-on-month series moved into the positive
territory in during the month. On a cumulative basis, for
the first nine months of the fiscal, industrial output has
now contracted by 0.1 per cent as compared with a
growthof0.7percentduringthesameperiodlastyear.
Industrial sector output contracted for the third
consecutive month in December 2013, despite a
supportivebaseeffect. Industrialoutputdeclinedto0.6
per cent in December 2013, albeit the magnitude of
decline reduced from the -1.3 per cent print seen in the
previous month. The decline in IIP during the month was
underpinned by contraction in its sub-sectors such as
12ECONOMY MATTERS
equipment & apparatus' showed the highest negative
growth of (-) 35.7 per cent, followed by (-) 26.1 per cent
in 'Furniture; manufacturing' and (-) 22.1 per cent in
'Office, accounting & computing machinery'. Mining
sector output which has declined by 1.8 per cent in the
year till date so far, remained in the positive territory for
the second consecutive month, growing by 0.4 per cent
in December 2013 as compared to contraction of 3.1 per
cent in the previous month. Barring a few intermittent
months, electricity sector growth has remained on a
strong footing this fiscal, growing at an average 5.6 per
centinApril-December2013.
On the sectoral front, manufacturing sector, which
constitutes over 75 per cent of the index, declined by 1.6
per cent in December 2013 as against a contraction of
0.8 per cent a year ago. This is the sixth negative data
printofmanufacturingoutputsofarinthisfiscalandhas
elevated the upside risks to growth. In terms of
industries, eight (8) out of the twenty two (22) industry
groups (as per 2-digit NIC-2004) in the manufacturing
sector showed negative growth during the month of
December 2013 as compared to the corresponding
month of the previous year of manufacturing sector.
The industry group 'Radio, TV and communication
Industrial Production Continues to Remain in a Weak Zone
Outlook
WeakthirdquarterGDPnumberswillerodesomeofthecautiousoptimismthatwasstartingtobecomevisibleover
the last two months. With the country heading for general elections, passages of key economic legislations would
have to wait till the formation of new government at the Centre. However, this is an opportune time to take care of
procedural simplifications, which would improve the ease of doing business in India and make the environment
investmentfriendlyinordertoprovideafilliptogrowth.
DOMESTIC TRENDS
y-o-y% SA m-o-m%
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
10
5
0
-5
2.0
-0.6
IIP Contracts for Third Consecutive Month
Source: CSO

13
WPI Inflation Slips to 8-month Low in January 2014
months, moderated sharply to 16.6 per cent in January
2014 after it hit record high of 97.7 per cent in
November-2013. The momentum indicator indicated by
the seasonally-adjusted month-on-month series slipped
into the negative territory during the reporting month.
To be sure, consumer prices based inflation (CPI) too
eased sharply to 2-year low of 8.8 per cent in January
2014 as compared to 9.9 per cent in the previous month.
WPI based inflation moderated to 8-month low of 5.05
per cent in January 2014 as compared to 6.2 per cent in
thepreviousmonthonthebackoffallinfoodpricesand
subdued manufacturing inflation. However, the rise in
core inflation to 3 per cent, close to the RBI's comfort
threshold, is a cause for concern. Amongst the food
prices, vegetable prices which have been the main
driver behind pushing overall WPI higher in the last few
hasnowremainedinredsincethestartingofthecurrent
fiscal. Such a poor performance by the sector is a
matter of concern as it is widely regarded as a proxy for
consumption growth. Non-durables on the other hand
remained in the positive territory, albeit showing a
downward trend in December 2013 as compared to
November 2013. Going ahead, we expect recovery in
this component as good agricultural GDP this year will
support rural demand, which will prop up non-durables
evenifurbandemandremainsweak.
On the use based front, the consistently volatile capital
goods segment output declined by 3.0 per cent during
the month. Consumer goods remain a drag on overall IP
growth primarily led by the continuing weakness in the
durables goods sector. During the reporting month,
consumer goods output declined for the third
consecutive month to 5.3 per cent in December 2013 as
compared to -8.8 per cent in the previous month. It's
pertinent to note here that output of consumer
durables, one of the sub-sectors of consumer goods,
DOMESTIC TRENDS
FEBRUARY 2014
Apr-Dec
Weight Dec-12 Oct-13 Nov-13 Dec-13 FY13 FY14
General 1000.0 -0.6 -1.6 -1.3 -0.6 0.7 -0.1
Manufacturing 755.3 -0.8 -1.8 -2.7 -1.6 0.7 -0.6
Mining 141.6 -3.1 -3.2 1.7 0.4 -1.8 -1.8
Electricity 103.2 5.2 1.3 6.3 7.5 4.5 5.6
Use-Based
Basic 456.8 2.2 -1.4 2.7 2.4 2.7 1.3
Capital 88.3 -1.1 2.4 -0.1 -3.0 -10.1 -0.5
Intermediates 156.9 -0.2 2.2 3.4 4.5 1.6 3.0
ConsumerGoods 298.1 -3.6 -4.9 -8.8 -5.3 2.7 -3.0
-Durables 84.6 -8.1 -12.1 -21.5 -16.2 3.7 -12.9
-Nondurables 213.5 -0.5 2.2 2.1 1.6 1.8 5.7
Sectoral Growth
Source: CSO
Negative growth of 0.6 per cent for the third consecutive month, over the negative base of December 2012,
continues to disappoint. CII is especially concerned about the performance of the manufacturing sector, which
continues to be in red. Negative growth of capital goods and consumer durables sectors reinforces the view that
escalating interest costs are adversely impacting investment. CII anticipates a pick-up in industrial production,
goingforward,asdownsiderisksaregraduallyrecedingonaccountofanticipatedglobalrecovery.
Outlook

was significant, with its inflation slipping to 21.9 per cent
after having scaled a peak of 61 per cent in November-
2013.
Food inflation, with 50 per cent weight contribution to
CPI slipped to 9.9 per cent for the first time since April-
2012. While there was an across the board decline in
inflationinfooditems,thecontributionfromvegetables
14ECONOMY MATTERS
speed diesel inflation rose to 14.0 per cent during the
month as compared to 17.0 per cent in the previous
month. Going forward, we expect fuel inflation to
moderate due to stabilisation witnessed in global crude
pricesandtherecentstrengtheningoftheRupee.
Manufacturing inflation remained subdued and broadly
unchanged at 2.8 per cent in January 2014, led by across
the board correction in prices. Non-food manufacturing
or core inflation which is widely regarded as the proxy
for demand-side pressures in the economy, however,
increased to 3.0 per cent during the month as compared
to 2.8 per cent in December 2013. In the coming months,
we expect core WPI to remain at sub 3 per cent, RBI's
comfort level for this inflation measure. Mirroring the
sharp deceleration in primary food inflation,
manufactured food products inflation also slowed
down to 1.5 per cent in January 2014 from 1.8 per cent in
thepreviousmonth.
Primary inflation slipped to 6.8 per cent in January 2014
from 10.8 per cent in the previous month and average of
13.7 per cent seen in the last 4-months. This was mainly
attributable to the sharp slowing down of food inflation
to single-digits at 8.8 per cent as compared to high of
almost 20 per cent in November 2013. Amongst primary
food inflation, vegetable prices moderated to 16.6 per
centafterithitrecordhighof97.7percentinNovember-
2013. Encouragingly, the decline in food inflation was
broad-based,withpricesofcerealsandeggs,meat&fish
too witnessing downward pressure during the month.
Non-food inflation too moderated to 4.4 per cent as
against 6.0 per cent in the previous month. Inflation in
minerals declined to 0.2 per cent from 2.1 per cent in the
previousmonth.
Fuel inflation slowed down to 10.0 per cent in January
2014 as compared to 11.0 per cent in the previous month.
Though on month-on-month basis, it did show a 0.7 per
cent increase, driven by rise in prices LPG coupled with
hike in prices for kerosene and high speed diesel. High-
DOMESTIC TRENDS
7.5
5.05
10.4
8.8
12
10
8
6
4
2
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
WPI y-o-y% CPI (Combined) y-o-y%
Both WPI & CPI Inflation Moderate
Source : Office of Economic Advisor

15
per cent. This target looks difficult to be met in the
currentcircumstances.
Imports during February 2014 were valued at US$33.8
billion, posting a decline to the tune of 17.1 per cent over
the same month last year, as weak domestic demand
and restrictions on gold imports lowered non-oil
imports by nearly 24.5 per cent on year-on-year basis.
India imports almost all of the gold it consumes. The
yellow metal is the country's second-biggest import
after oil and was an important reason for driving the
country's current account gap to a record high last year,
pushing the rupee sharply lower. Oil imports contracted
by 3.1 per cent during the month. Going forward,
consumption goods import may pick up as household
consumption improves. A revival in household demand
would be supported by higher farm incomes due to a
goodmonsoon.
Exports contracted for the first time in eight months in
February 2014 although a sharp decline in imports led by
a fall in gold imports helped narrow trade deficit and
ease the pressure on the external sector. Exports fell 3.7
per cent in February 2014 as compared to growth of 3.8
per cent in the previous month, dragged down by sector
such as petroleum, engineering and pharmaceuticals.
Exports had been growing at a double-digit rate until
October but lost momentum in the last four months,
signalling that the worst might not be all over as yet for
the Indian economy. Cumulative value of exports for the
first eleven months of the current fiscal (Apr-Feb) were
valued at US$282.7 billion as against US$269.8 billion a
year ago, thus registering a year-on-year growth of 4.8
per cent. Finance Minister in his Budget Speech for 2014-
15highlightedthatmerchandiseexportsareexpectedto
end the current fiscal with estimated merchandise
exports of US$326 billion, indicating a growth rate of 6.3
DOMESTIC TRENDS
FEBRUARY 2014
General 100.0 7.3 7.5 6.2 5.05 7.5 6.0
Primary 20.1 11.4 15.3 10.8 6.8 10.0 10.5
-Food 14.3 12.3 19.7 13.1 8.8 9.9 13.5
-Non-Food 4.3 13.0 7.4 6.0 4.4 10.6 5.7
-Minerals 1.5 4.0 2.3 2.1 -0.2 9.9 0.3
Fuel 14.9 9.3 11.1 11.0 10.0 10.6 10.2
-Petrol 1.1 3.4 4.4 5.4 7.2 7.0 2.7
-HighSpeedDiesel 4.7 18.5 15.7 17.0 14.0 9.7 20.5
Manufacturing 65.0 4.9 2.9 2.6 2.8 5.6 2.8
-Food 10.0 8.7 2.4 1.8 1.5 8.1 3.6
-Non-food 55.0 4.2 3.0 2.8 3.0 5.1 2.7
April-Jan
Weight Jan-13 Nov-13 Dec-13 Jan-14 FY13 FY14
Sectoral Components of Inflation
Source: Office of Economic Advisor
January month's inflation data print both at retail and wholesale level has been reassuring and conforms to RBI's
expectation of a notable correction on account of decline in vegetable prices. Moreover, the lagged effects of
effective monetary tightening since September 2013 would also exert an opposite force on inflation in the coming
months.Consequently,weexpecttheRBItocutratesinitsforthcomingmonetarypolicyreview,inordertoprovide
afilliptofallinggrowth.
Outlook
Trade Deficit Narrows as Imports Contraction Intensifies

16ECONOMY MATTERS
year stands at US$128 billion; significantly lower than
US$180billioninthecorrespondingperiodinFY2013.
The trade deficit narrowed to US$8.1 billion in February
2014 as against US$9.9 billion in the previous month. The
trade deficit during the first eleven months of the fiscal
DOMESTIC TRENDS
External Sector Performance (y-o-y %)
Source: Ministry of Commerce
Outlook
The economic conditions in the U.S. and the Euro Zone are not very favorable for exports and we hope the Indian
government will help the exporters by providing help by way of including more products and countries for Focus
ProductSchemeandFocusmarketScheme,wherewehaveacomparativeadvantage.Alsoweneedtorelookatthe
dutydrawbackrates.Thesemeasures,ifannouncedattheearliestwillgivethenecessarypushtotheindustrywhich
canthenbenefittheindustryandhelpthemreachtheexporttarget.
led to significant amount of capital inflows during the
quarter. Consequently, on a BoP basis, there was a net
accretion of US$19.1 billion to India's foreign exchange
reserves in Q3 of 2013-14 as compared to a drawdown of
US$10.4billionintheprecedingquarter.ThoughtheCAD
has improved significantly in the last one year, the
quality of adjustment is debatable. Bulk of the
compressionhas been achieveddue to reductionin gold
imports rather than from the much desirable pick up in
exportsandinvisibles.
The latest data released for the third quarter of 2013-14
shows that current account deficit (CAD) narrowed
sharply to US$4.2 billion (0.9 per cent of GDP) in third
quarter (Q3) of 2013-14 from US$31.9 billion (6.5 per cent
of GDP) in same quarter of 2012-13 which is also lower
than US$5.2 billion (1.2 per cent of GDP) in second
quarter (Q2) of 2013-14. The lower CAD was primarily on
account of a decline in the trade deficit as merchandise
exports picked up and imports moderated, particularly
gold imports. On the capital account, the reversal of
portfolio flows and the policy induced FCNR (B) flows
Decline in Trade Deficit Narrows Current Account
Deficit in 3QFY14
20
10
0
-10
-20
-3.7
-17.1
Jun/12
Aug/12
Oct/12
Dec/12
Feb/13
Apr/13
Jun/13
Aug/13
Oct/13
Dec/13
Feb/14
Exports Imports

17 FEBRUARY 2014
35
30
25
20
15
10
5
0
8
7
6
5
4
3
2
1
0
31.9
18.1
21.8
5.2 4.2
6.7
3.6
4.9
1.2 0.9
3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
CAD (US$ BN) CAD (as a % of GDP)- RHS
Current Account Deficit Narrows Sharply
Source: RBI
billionascomparedtoUS$17.8billioninQ3of2012-13and
US$3.9 billion in Q2 of 2013-14. As a result, the
merchandise trade deficit (BoP basis) contracted by
around 43 per cent to US$33.2 billion in Q3 of 2013-14
from US$58.4 billion a year ago. Within the invisible
category, net services receipts improved during Q3 of
2013-14, essentially reflecting a decline in payments on
account of services imports. Net services at US$18.1
billion recorded a growth of 8.9 per cent in Q3 of 2013-14
(y-o-y).
On a BoP basis, merchandise exports increased by 7.5
per cent to US$79.8 billion in Q3 of 2013-14 (3.9 per cent
in Q3 of 2012-13) on the back of significant growth
especially in the exports of engineering goods,
readymade garments, iron ore, marine products and
chemicals. On the other hand, merchandise imports at
US$112.9 billion, recorded a decline of 14.8 per cent in Q3
of 2013-14 as against an increase of 10.4 per cent in Q3 of
2012-13. Decline in imports in Q3 was primarily led by a
steepdeclineingoldimports,whichamountedtoUS$3.1
Current Account Deficit Narrows in 3QFY14
(US$ billion) Q3FY13 Q2FY14 Q3FY14
Trade Balance -58.4 -33.3 -33.1
- Exports 74.2 81.2 79.8
- Imports 132.6 114.5 112.9
Invisibles 26.7 28.1 29.1
- Services 16.7 18.4 18.1
- Transfers 15.8 16.1 16.4
- Income -5.8 -6.3 -5.4
Current Account -31.8 -5.2 -4.2
CAB as a % of GDP -6.7 -1.2 -0.9
Source: RBI
ofequity.Onnetbasis,capitalinflowsduringthequarter
stood at US$23.8 billion, which were mainly buffered by
US$21.4 billion of inflows under foreign currency non-
resident (FCNR) deposits. Correspondingly, balance of
paymentswitnessedahugeUS$19.1billionsurplusinQ3-
thehighestsinceMarch2008.
In the capital account, on net basis, both foreign direct
investment and portfolio investment recorded inflows
of US$6.1 billion and US$2.4 billion, respectively in Q3 of
2013-14. Within portfolio investment, the debt segment
showednetoutflowinQ3which,however,wasoffsetby
higher net inflows of US$6.2 billion under the category
DOMESTIC TRENDS

18ECONOMY MATTERS
DOMESTIC TRENDS
The government's expenditure is divided under two broad heads-plan and non-plan. Non-plan expenditure
constitutes bulk of the government's expenditure. According to estimates, it is expected to be 68.5 per cent of the
government's total expenditure in the next financial year. In the current financial year, the proportion is estimated
to be at over 70 per cent of the total expenditure. The plan expenditure of the government is normally associated
with productive expenditure, which helps increase the productive capacity of the economy. It includes outlays for
different sectors such as rural development and education. Non-plan expenditure, on the other hand, includes
expenses on heads such as interest payment on government debt, subsidies, defence, pensions and other
establishment costs of the government. A large part of this is obligatory in nature. For example, the government
may cut allocation towards rural development or education if it falls short of funds, but it cannot cut interest
payments on borrowed funds. Lower plan expenditure adversely impacts the growth prospects of the economy.
So, it is important that government rationalizes expenditure on heads such as subsidies in the non-plan segment.
This will help it contain the deficit and allow it to spend on activities that create assets and contribute to
developmentinthelongrun.
*Adapted from Mint dated February 21, 2014
Outlook
The narrowingof currentaccountdeficit to 0.9 per cent of GDP duringOctober-December2013 quarter from 1.2 per
cent in the last quarter is essentially on account of the decline in trade deficit and pick up in capital flows. However,
this fall in CAD, looks transitory. The bulk of compression in trade deficit was driven by reduction in gold imports.
Once these restrictions are lifted coupled with expected jump in non-oil and non-gold imports due to pick up in
economic growth, we can see some rise in CAD in 2014-15. The bigger challenge then will be to attract inflows
sufficienttofinancethebulgingCAD.
Capital Account Records a Huge Jump in Inflows
Source: RBI
(US$ billion) Q3FY13 Q2FY14 Q3FY14
- Direct Investment 2.1 8.1 6.1
- Portfolio Investment 9.8 -6.6 2.4
Loans 10.8 -0.5 3.0
Banking Capital 5.2 1.2 15.8
Other Capital 3.5 -7.0 -3.0
Capital Account 31.5 -4.8 23.8
Overall BoP 0.7 -10.4 19.1
Know Your Facts: Plan & Non-Plan Expenditure *

New Investment Proposals Move Up
315.9
353.8
304.9
222.3
192.7
239.0 229.0
92.2
54.5
99.8 93.7 93.0
145.5
Dec-
10
Mar-
11
Jun-
11
Sep-
11
Dec-
11
Mar-
12
Jun-
12
Sep-
12
Dec-
12
Mar-
13
Jun-
13
Sep-
13
Dec-
13
Source: Calculated from Capex, CMIE
INVESTMENT TRACKER
19 FEBRUARY 2014
crore in second quarter (Q2FY14), the new investment
proposals jumped to Rs. 146 thousand crore in Q3
(Figure 1). Combined with positive signals emerging
from other indicators such as improving export
prospects, declining current account deficit, reduction
in exchange rate volatility and downward trend in
inflation, jump in value of new investment proposals in
Q3 lends support to the beginning of improvement in
business sentiments. There is, however, a case for
cautious optimism, as recovery remains fragile and
lopsided.
At a time when various indicators are being
keenly securitized to trace some signs of
economic recovery, positive news comes from
the figures on new investment proposals for the third
quarter (Q3FY2014), recording the highest level in
previous five quarters. From a level of Rs 93 thousand
Figure 1: New Investment Proposals (Rs '000 crore)

investment proposals rising from 40 per cent in Q2 to 44
per cent in Q3FY2014, much higher than the average of
24percentsinceQ3FY2011.
In contrast to manufacturing and electricity sectors,
non-financial services (like hotel & tourism, trading,
transport services, communication services,
information technology etc) and construction & real
estate are the two sectors that have continued to hold
back the interest in overall new proposals. Services
sector saw its share in new investment proposals
shrinking from 18 per cent in Q2 to mere 6 per cent in
Q3FY14, much below the average of 25 per cent since
Q3FY2011. Even greater concern is that its share has
persistently declined since Q2FY2012. Similarly,
construction & real estate sector experienced
contraction in its share to 5 per cent in Q3FY2014,
droppingfrom6percentinQ2,muchbelowtheaverage
of 10 per cent since Q3FY2011. The poor performance of
non-financial services and construction sectors can
largely be linked to slowdown in overall economic
growthandrisinginterestrates.
An analysis of sectoral (non-financial) performance of
new investment proposals reveal that despite the sharp
slowdown in manufacturing production in the current
fiscal so far, the sector has managed to pull in an
impressive performance in Q3FY2014 (Figure 2). This is
evident from the fact that the share of new investment
proposals in Q3FY14 stood at 41 per cent, up from 31 per
cent in Q2 and much higher than the average of 35 per
cent since Q3FY11. Further, the new investment
proposals in manufacturing have shown a mild uptrend
over the last several quarters, albeit with wide
fluctuations (Figure 3). In view of the fact that growth in
manufacturing production remains muted for the last
many years even as the sector is desired to grow in the
range of 10-12 per cent per annum, there is need for
strengthening of uptrend by way of introducing various
policy measures such as softer monetary policy, fast
tracking clearances of held up projects and encouraging
new investments by Central government, state
government,localbodiesandRBI.Electricityistheother
sector witnessing jump in new investment proposals in
previous quarter, resulting in its share in total new
INVESTMENT TRACKER
31
40
18
6
41
48
6 5
35
24 25
10
Manufacturing Electricity Services (other than
financial)
Construction &
real estate
Sep-13 Dec-13 Avg since Dec 10
Figure 2: Change in New Investment Proposals between Q2FY14 and Q3FY14
Source: Calculated from Capex, CMIE.
70
60
50
40
30
20
10
0
X
X X X X
X
X
X X
X
X X X
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Electricity Services (other than financial)
Manufacturing Construction & real estate
Figure 3: Trend in Sectoral Shares of New Investment Proposal (%)
20ECONOMY MATTERS

Consequently, the share of private sector in total new
investment proposals, which usually runs higher than
the share of government, has worryingly not only fallen
short of government share in recent quarters but has
also been widening in the gap (Figure 5). Given the
necessity of large investments needed to take the
economy out of the current rock bottom slowdown,
new investment by private sector will be equally critical
foreconomicrevival.
Analyzing the performance of new investment
proposals in terms of ownership, it is interesting to note
that the increase in new investment proposals has been
led by the government; private sector continues to
witness downward momentum (Figure 4). The
government's new investment proposals, which wore a
declining trend until Q3FY2013, have been picking up
momentum in recent quarters, helping to mitigate the
loss on account of fall in private investments.
longer term, we prepared the ranking using the data
from Q3FY2011 (Figure 7). In this list Gujarat, Andhra
Pradesh, Karnataka, and Maharashtra, accounting for
nearly 40 per cent of countries new investment
proposals since Q3FY2011, emerged as the 4 largest
investing states. In the current financial year, however,
these four states have been pushed down in the ranking
by many smaller states and the Maharashtra doesn't
evenappearinthetop10.
State-wise analysis of the new investment proposals
reveal that the major investing states continue to
perform poorly. In previous three quarters of current
fiscal so far, the list of top 10 states, accounting for over
80 per cent of the total new investment proposals, has
the major investing states either lying low in ranking or
missing from the list (Figure 6). In order arrive at the list
ofmajorstateswithlargestnewinvestmentproposalsin
INVESTMENT TRACKER
Figure 4: Trend in Government and Private Sectors New Investment Proposals (Rs '000 crore)
300
250
200
150
100
50
0
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Government Private sector
Figure 5: Trend in Shares of Government and Private Sector in New Investment Proposals (%)
100
80
60
40
20
0
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Government Private sector
21 FEBRUARY 2014

Figure 6: Average Share of States in Investment Proposal During Q1, Q2 and Q3 FY2014 (%)
Kerala
14%
Jammu &
Kashmir 13%
West Bengal
11%
Rajasthan
10%Gujarat
8%
Orissa
8%
Jharkhand
5%
Karnataka
5%
Tamil Nadu
4%
Andhra Pradesh
4%
Others18%
Figure 7: Average Share of States in New Investment Proposal from Q3FY2010
Karnataka
9%
Others
32%
Gujarat
10%
Rajasthan
4%
Madhya Pradesh
5%
West Bengal
4%
Andhra Pradesh
10%
Maharashtra
9%
Orissa
7%
Tamil Nadu
6%
Kerala
4%
financial services along with real estate sectors are not
showing any sign of reversal in downward trend. In
order to help strengthen the early signs of economy
recovery and make it sustainable, the pick in
government's new investment proposals must be
increasingly complimented with private sector
investments, which, in turn, would require rigorous and
continuing policy interventions by the government as
wellasRBI.
Conclusion
Pickupinnewinvestmentproposals,ledbygovernment
owned projects, during third quarter of current fiscal is a
welcome sign, especially as it owes its origin in
manufacturing and electricity sectors. Maintaining the
momentum, however, is crucial at a time when overall
economic growth continues to remain tepid and non-
INVESTMENT TRACKER
22ECONOMY MATTERS

Travel & Tourism
GlobalTourismSector
The travel and tourism industry has emerged as one of
the largest and fastest growing economic sectors
globally.AccordingtotheUnitedNationsWorldTourism
Organization's (UNWTO) report "Tourism Highlights
2013", tourism's total contribution to worldwide GDP is
approximately 9 per cent. Tourism exports in 2012
amounted to US$1.3 trillion, accounting for 6 per cent of
theworld'sexports.Newtouristdestinations,especially
those in the emerging markets, have started gaining
prominence with traditional markets reaching maturity.
Asia Pacific recorded the highest growth in the number
of international tourist arrivals in 2012 at 7 per cent,
followed by Africa at 6 per cent. International tourist
arrivals are set to increase at a growth rate of 3.3 per
cent per annum and amount to approximately 1.4 billion
by2020and1.8billionby2030,implyinganincreaseof43
millioninternationaltouristarrivalseachyear.
The present section reviews the travel & tourism
sector based largely on the Report "Travel &
Tourism: Potential, Opportunities and Enabling
Framework for Sustainable Growth" prepared by the
Confederation of Indian Industry (CII) and KPMG. The
report discusses the potential of the travel & tourism
sector in general, performance of tourism sector in
various states of India, benefits of seamless, main issues
in the tourism sector and key recommendations for the
sector.
SECTOR IN FOCUS
23 FEBRUARY 2014

24ECONOMY MATTERS
Competitiveness Index. India has been witnessing
steady growth in its travel and tourism sector over the
past few years. Total tourist visits have increased at a
rate of 16.3 per cent per annum from 577 million tourists
1 2
in2008 to1057milliontouristsin2012 .
WiththeinternationaltouristarrivalsinIndia(peggedat
7.5 million in 2013) expected to witness an annual
growth rate of 6.2 per cent over the next decade, visitor
exports(expendituregeneratedbyforeigntourists)are
expectedtoamounttoRs2,958billionby2023,growing
3
at 9.6 per cent per annum . This growth can mainly be
attributed to the rising income levels and changing
lifestyles, diverse tourism offerings and policy &
infrastructural support by the government such as
simplification of visa procedures and tax holidays for
hotels.
IndianTourismSector
The travel and tourism sector holds strategic
importance in the Indian economy, providing several
socio-economic benefits. Provision of employment,
earnings of foreign exchange, and expansion of other
industries such as agriculture, construction, handicrafts
etc. are some of the important economic benefits
providedbythetourismsector.Inaddition,investments
in infrastructural facilities such as transportation,
accommodationandothertourismrelatedserviceslead
to an overall development of infrastructure in the
economy. According to the World Economic Forum's
Travel and Tourism Competitiveness Report 2013, India
th th
ranked 11 in the Asia pacific region and 65 globally out
of 140 economies ranked on travel and tourism
SECTOR IN FOCUS
Europe Asia Pacific Americas Africa Middle East
486 516
534
205 218 234
150 156 163
50 49 5258 55 52
2010 2011 2012
International Tourists Arrival (in millions)
Source: UNWTO Tourism Highlights, 2013
563
669
748
865
1036
14
14
18
19
21
2008 2009 2010 2011 2012
Domestic Foreign
Tourist Visits in India (in millions)
Source: India Tourism Statistics 2008, 2009, 2010, 2011, Ministry of Tourism
1. India Tourism Statistics 2008, Ministry of Tourism
2. http://tourism.gov.in/writereaddata/CMSPagePicture/file/marketresearch/New/2012%20Data.pdf
3. WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices

25
CAGRof12percentfromtheestimatedRs2,222billionin
4
the year 2013 to Rs 6,818 billion by 2023 . The travel and
tourism sector supported 25 million jobs in 2012, directly
related to the tourism sector. Constituting 4.9 per cent
of the total employment in the country in 2012, this is
5
expectedtoamountto31millionjobsby2023 .
Impact of Tourism Sector on
GDP & Employment
The travel and tourism sector directly contributed Rs
1,920 billion to India's GDP in 2012, reflecting a CAGR of
14 per cent since 2007. This is forecasted to rise at a
SECTOR IN FOCUS
FEBRUARY 2014
1160 1228
1437
1674
1920
2222
2008 2009 2010 2011 2012 2013E
Travel and Tourism Direct Contribution to GDP, Rs Billion
Source: WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices
investments lead to social development of an economy
as infrastructure created for tourism purposes in areas
of transportation, accommodation etc. can also be
utilisedbythecommunityingeneral.
Capital investment in the travel and tourism sector in
2012 was estimated at Rs 1,761.4 billion amounting to
approximately 6.2 per cent of total investment in the
Indian economy. It is expected to increase by 14.2 per
cent in 2013, and witness further annual growth rate of
6
10.5percentby2023amountingtoRs5,459billion .
Capital Investment in Tourism
Sector
Capital investments in the tourism sector include
spendingbyallsectorsdirectlyinvolvedinthetraveland
tourism industry. Spending by other industries on
specific tourism assets such as new visitor
accommodation and passenger transport equipment,
as well as restaurants and leisure facilities for specific
tourism use also form part of capital investments. Such
1556
1128
1319
1545
1761
2012
2008 2009 2010 2011 2012 2013E
Capital Investment in Travel & Tourism Sector, Rs billion
Source: WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices
5. A multiplier measures total change throughout the economy from one unit change for a given sector

26ECONOMY MATTERS
The growth of the Indian travel and tourism industry is
being impacted by several industry drivers. Some of
thesedriversareasfollows:
Growth of Tourism in India - Key
Drivers & Trends
KeyIssuesandSuggestions
Further,someofthekey issuesfacingthesectorinclude
lack of skilled & trained manpower, lack of focus on
safety & security of tourists, provision of adequate
healthcare facilities for tourist and lack of adequate
infrastructureinthecountry.
In order to address these key issues faced by the sector,
some of the key recommendations for boosting the
sector'sgrowtharesummarisedbelow:
1). Projection of India's image as a safe and secure
tourist destination: Tourist Police Task Force has been
established by various state governments for ensuring
safety and security for tourists. Special sensitisation
campaigns may be implemented for women tourists
and to publicise these campaigns on global platforms.
Health concerns for tourists visiting India also needs to
bemitigated.
2). Attract private investment: Private sector players
may be encouraged to participate in development of
tourism infrastructure by provision of fiscal as well as
non fiscal incentives. PPP projects and formation of
Special Purpose Vehicles for mega tourism projects may
berequired.
3). Infrastructural development: Investments in
tourism infrastructure may include development of
both tourism as well as civic infrastructure. This may
also involve provision of way side amenities, tourist
information bureaus and websites for providing
requisite tourist information. Efforts towards
enhancement of overall transport infrastructure in the
form of good quality roads, rail network, airports,
helipads, availability of tourist vehicles etc. may also be
strengthened in order to improve the overall
infrastructure.
SECTOR IN FOCUS
Growth of Tourism in India - Key Drivers & Trends
Source: Report on 'Travel & Tourism: Potential, Opportunities and Enabling Framework for Sustainable aGrowth', published by CII & KPMG
Domestic
Tourism
Inbound
Tourism
Outbound
Tourism
lHealthy economic growth and rising income levels
lChanging consumer lifestyles
lAvailability of low cost airlines
lDiverse product offerings
lEasy finance availability
l
lAttractive tour packages
lHealthy economic growth
lEasy finance availability
lInternational events and increased business travel
Rising disposable incomes with Indian consumers
l
lRich natural/cultural resources and geograohical diversity
lGovernment inititiatives & policy support
lMultiple marketing and promotion activities
lHealthy economic growth levels
lHost nation for major international events
New product offerings

27
reach out to the young tech savvy global
population.
lFocused websites, exhaustive in content, user
friendly and attractive in visual appeal may be
developed in multiple languages of target
countries.
lParticipation in international events may be
increased and a greater number of domestic
tourism events and road shows may be
organized in order to offset seasonality of
tourist inflow. Events may be based on
innovative themes of music, dance, sports,
food, fruits, handicrafts, Indian culture and
traditions,Indianvillages,festivalsetc.
lCustomised tour packages may be developed
keeping in mind the profile of visitors, budget
and travel requirements. Comparative pricing of
tourism products may also need to be
considered after analysis of other tourism
packagesandproductsavailable.
8). Differentiated tourism offerings for repeat
travellers: Customized packages with different tourism
products and discounts may be provided to repeat
travelers in order to provide a different and enriching
experienceoneachvisit.
9). Partnership oriented marketing: Travel trade
partnerships may be extended beyond tour operators,
guides etc. to partners from other industries such as
international hotel chains, airlines or credit card
companies.
10). Human resource development: Provision of
additional training institutes, enhancing capacity of
existing ones along with introduction of short term
courses providing specific skills directed at hospitality
and travel trade sector employees may be required for
catering to the increased manpower and skill
requirements.
11). Inclusive growth: There is a need to spread
education and awareness on the importance of tourism
sector and increase stakeholder participation involving
the government, private sector and the community at
large. Marketing campaigns like 'Atithidevo Bhava' may
beimplementedatregularintervals.
4). Development of tourism destinations: An extensive
market research and evaluation exercise may be
undertaken in order to identify desired tourist
destination attributes and major markets and
segments. Identified tourist destinations may then be
developed through flagship projects involving state
governments and private sector players. These may be
developed either as 'products' such as religious,
wellness, adventure, nature, rural or agriculture
tourisms or as 'experiences' such as the Rama trail
planned in Gujarat or the Spice Route Tourism planned
inKerala.
5). Development of tourist circuits across states: Key
tourism circuits across the country may be identified
basis discussions with key stakeholders such as state
governments, local travel trade partners etc. Key
attributes, tourism potential, current and future
connectivity and synergy within destinations may be
studied.
6). Seamless travel within circuits: Steps may be taken
in order to enhance travel experience for visitors across
states.Paymentofroadtax,tolletc.whileenteringeach
statemaybereplacedbyanintegratedtaxationregime.
This may further be augmented by development of an
integrated public transport system at a national level on
linesoftheEurailnetworkinEurope.
7). Joint marketing programs: With tourist circuits
spanning across various states, collaborative marketing
effortsmayberequiredforpromotionofthesame:
Focused branding and promotional campaigns
maybedesigned.
Marketing material like brochures, print
creative, audio video presentations, short films,
radio jingles, creation of web-sites, online
creatives, advertisements over media channels
likeprint,radioorinternetetc.maybeutilised.
Involvement of local travel trade partners may
be encouraged. Trips to involved destinations,
informative sessions, financial support and
incentivesmaybeprovided.
Direct and intensive reach marketing programs
may be executed through social networking
sites such as twitter, facebook etc. in order to
l
l
l
l
SECTOR IN FOCUS
FEBRUARY 2014

28ECONOMY MATTERS
SECTOR IN FOCUS
states and shortfall of adequately trained and skilled
manpower. While several plans and programmes have
already been devised for tackling these challenges,
successful implementation would be critical to
accelerate growth. Concerted efforts by all
stakeholders such as the central and state
governments, private sector and the community at
large are pertinent for sustainable development and
maintenance of the travel and tourism sector in the
country.
Conclusion
The travel and tourism industry has emerged as one of
the largest and fastest growing economic sectors
globally. Its contribution to the global Gross Domestic
Product (GDP) and employment has increased
significantly. However, the sector is facing challenges
such as lack of good quality tourism infrastructure,
global concerns regarding health and safety of tourists,
disparate passenger/road tax structures across various

The Employment Conundrum
Accelerating growth and expanding employment
opportunities are the goals of economic policy.
However, the growth process in the past decade has
broughtaboutsignificantchangesinthestructureofthe
Indian economy and thereby on employment creation.
Defying somewhat the conventional paradigm of
transition, the share of services in output has touched
close to 60 per cent, a sharp rise from the 42 per cent in
early 1990s. However, the employment shift in the
sectorhaslaggedbehindtheshiftinoutput.Theshareof
services in employment is close to only 25 per cent. In
contrast, share of agriculture in employment has
remained high at around 50 per cent, while its share in
GDP has moderated sharply from 29.5 per cent in 1991 to
around 14 per cent in FY13. Hence, one of the key
challenges for the 12th Five Year Plan and beyond is to
create employment in the non-agricultural sectors so
that the share of employment in agriculture declines in
line with its share in GDP. This article seeks to evaluate
the most recent data on employment-unemployment
survey(EUS)releasedbythe68throundofNSSOinJune
lastyear.
EUS surveys are usually conducted every five years, but
the EUS 2011-12 was carried out two years after the EUS
2009-10 (66th round) as the latter had shown some
contentiousresultsintermsoflowemploymentgrowth.
It has been speculated but never officially admitted that
this unusual decision to have a second survey, in 2011-12,
within two years of the previous one was because 2009-
10 was a drought year and that this may have affected
the results of the survey, which painted a less than
positive picture of the economy. Hence, in this article,
we would do a comparison of survey results of 2004-05
and2011-12.
Total employment in 2011-12 in the country, according to
the latest 68th round of survey by the National Sample
Survey Office (NSSO), stood at 473 million, up from 359
Trends in Employment &
Unemployment
FOCUS OF THE MONTH
29 FEBRUARY 2014

30ECONOMY MATTERS
FOCUS OF THE MONTH
next three years, (between 2009-10 and 2011-12), when
theeconomysufferedslowdowningrowthmomentum,
14 million additional jobs were provided.
Unemployment rate (which indicates the proportion of
people in the labour force seeking work but unable to
million in 1991. Despite the high growth witnessed by
economy during the period of 2004-05 to 2009-10, only
one million additional employment was created,
signifying that growth may not necessarily lead to
employment generation. Corroborating this, during the
359
458 459 473
1999-00 2004-05 2009-10 2011-12
Total Employment (in millions)
th
Source: 68 Round of NSS & CII Research
29.4 per cent in 2004-05 to 23.3 per cent in 2009-10 and
then even lower to 22.5 per cent in 2011-12. If fewer
women are joining the labour force, even fewer are
being employed. The worker participation rate (WPR or
workforce to population) fell from 28.7 per cent in 2004-
05to22.8percentin2009-10andthenevenlowerto21.9
percentin2011-12.
But the good news in terms of increase in employment
levels and fall in unemployment rate has been to some
extent marred by decline in the quality of employment.
The NSSO data reiterates the worrying trend about the
diminishing presence of women in the workforce.
Women's labour force participation rate (LFPR or the
proportion of labour force to total population) fell from
Employment Trends, Usual Status (All Ages)
th
Source: 68 Round of NSS
(in millions) 2004-05 2011-12
Male 309.3 343.8
Female 148.6 129.1
Total 458.0 472.9
2004-05 to 2011-12. This is indeed a good sign and
indicates that employment opportunities are rising in
the organised sector. Self-employment declined by 13
million over this period - a likely result of a decline in
agricultureemployment.
However,asregardstoanotherstrandindicatingquality
of employment, causalisation of labour, there is some
news to cheer. Contrary to perceptions, more salaried
employment was created (19 million) compared with
casual employment (9.4 million) over the period from

FOCUS OF THE MONTH
31 FEBRUARY 2014
SectoralSharesinEmployment
Comparing the results to the previous two surveys, it is
apparent that employment in agriculture still remains
high at 231 million in 2011-12, though it has declined from
2004-05. Infact, share of agriculture in employment for
the first time fell below 50 per cent in 2011-12 from 56 per
cent in 2004-05. Agricultural employment fell as labour
forcemigratedfromagriculturetoindustryandservices.
Asforindustry,ithaswitnessedriseinemploymentfrom
83 million in 2004-05 to 115 million in 2011-12. Its share in
employment has also risen from 18.7 per cent to 24.3 per
cent in the comparable period. Services sector on the
other hand has not seen a significant rise in it share in
employment, though its share in GDP has increased
sharply. One of the possible implications of this trend
seen in services sector could be that the sector's
productivityisontherise.
268
83
106
231
115
127
Agriculture Industry Services
2004-05 2011-12
Share in Employment (%)All-India Employment (in millions)
th
Agriculture 56.6 48.9
Industry 18.7 24.3
Services 24.7 26.8
2004-05 2011-12
Type of Employment
th
(in millions) Self-Employed Salaried Casual Total Employed
2004-05 260 65 132 458
2011-12 247 85 141 473
Change in Employment -14 19 9 15
Amongst the sub-sectors of industry, construction
sector created the largest incremental employment
between 2004-05 and 2011-12. While, manufacturing also
saw a jump, albeit, moderate in employment during the
comparable period. In 2011-12, the services sector
employed more than manufacturing and construction
combined. Among the services sector, trade, hotels and
restaurants were the largest employment generator,
accounting for almost half of total service sector
employment in 2011-12. Between 2004-05 and 2011-12,
education, health and recreation services added even
more employment than the fast growing financial, real
estate,businessandITservicessector.

FOCUS OF THE MONTH
32ECONOMY MATTERS
Unemployment rates too have been declining over the
lastdecade inallcategories,butruralwomenhavebeen
leaving the labour force and continue to do so. In this
month's Special focus, experts examine these
employment nuances apart from analysing other finer
aspectsofemploymentsituationinIndia.
There are changes taking place in the labour force in
India. More and more people are finding employment in
non-farm activities, both in the industry and service
sectors. Moreover, an increasing number of workers
have been able to find regular/salaried employment.
In Services (in millions)Sectoral Employment in Industry (in millions)
Source: 68th Round of NSS & CII Research
54
26
4
60
50
5
Manufacturing Construction Mining & Utilities
2004-05 2011-12
Trade,Hotel&
Resturant
Education,Health&
RecreationServices
Transport,Storage&
Communications
Financial,RealEstate
&BusinessServices
Public
Administration
ITServices
46.6
26.9
17.6
6.4 8.1
0.7
51.8
33.5
20.8
11 7.9
2.1
2004-05 2011-12

33
FOCUS OF THE MONTH
FEBRUARY 2014
the Indian population would be in the working age
group and India would enjoy the demographic dividend.
Table1providesdetailsofyouthpopulationinIndia.
India enjoys a demographic dividend where more than
50 per cent of its population is in the working age group
of 15 to 59 and 28 per cent in age group 15-29. It is
expectedthatbytheyear2020,morethan65percentof
Youth Unemployment in India
India is declining, the youth unemployment remains
high. As per the World Bank Report, in India youth
unemployment as a percentage of youth population is
10percentformalesand11percentforfemales.Thelack
of decent employment opportunities forces youth to
take up self-employment and low paid contractual jobs
withdeplorableworkingconditions.Thisisevidentfrom
the fact that more than 93 per cent of the workforce is
employedintheinformalsector.Theyouthemployment
has been recognised as a priority agenda of the
government and policies are being framed for
enhancingtheiremployability.
The labour market indicators viz. labour force
2
participation rates (LFPR) , worker population ratio
3 4
(WPR) and unemployment rate (UR) provides an
important insight into the labour market conditions for
youthinIndia.
Age Specific Labour Force
Participation Rate
The trend of LFPR in developed economies shows that
LFPR for youth declines with development as more and
more youth enrol themselves in education. Table 2
below presents labour force participation rates for
youthandallagegroupbetween1993-94and2011-12.
The demographic dividend offers an economic
opportunity to India to be utilized for fast tracking its
growth, particularly in the manufacturing sector. This
th
becomesallthemoreimportantwhen12 Planenvisions
creation of 50 million non-farm employment
opportunities. However, creating jobs for the youth is a
biggest challenge faced both by developed and
developingeconomiesaroundtheworld.
This article focuses on issues of youth employment and
unemployment in India wherein the youth is defined to
include the population in the age group 15 to 29. The
available data shows that poverty and low levels of
education are the biggest barriers for the decent
employment opportunities for the youth. Being
employable in the labour market remains a distant
dream. According to the recent data, youth is one of the
hardest hit segments of the world's population with
high unemployment rates across the globe. Youth
unemployment in US is more than 17 per cent where
youth constitute age group 15 to 24. The situation is
worse in Europe where youth unemployment in Greece
isapproaching60percentfollowedbySpain55percent,
Italy 35 per cent and France 25 per cent. In the Indian
context, as per Census 2011, youth accounts for 28 per
cent of population. Although, the dependency ratio in
Table 1: India's Youth Employment
Source: Census of India 2011
2011 Census 0-14 Years 0-19 Years 15-29 Years
Numbers in million 372.4 492.9 333.3
Share 31% 41 % 28%
1a 1b
Labour&Employment,Minorities&VoluntaryActionCell and Labour&Employment
2
Labour force participation rate LFPR is defined as the number of persons/person-days in the labour force (which includes both the employed
andunemployed)per1000persons/person-days
3
WorkerPopulationRatio(WPR) isdefinedasthenumberofpersons/person-daysemployedper1000persons/person-days.
4
UnemploymentRate(URisdefinedasthenumberofpersons/person-daysunemployedper1000persons/person-daysinthelabourforce)
1a
Ms. Sunita Sanghi, Adviser &
1b
Ms. A. Srija, Director
Planning Commission, Government of India

groups of 15-19 years and the 20-24 years after 2004-05,
there is an upward movement in 25-29 age group from
2009-10. The data suggests steeper decline for rural
females in all age groups. The younger male age groups,
both in the rural and urban areas, have also experienced
a decline. This decline is suggestive of increasing
participation of the youth in the education to enhance
their skills before entering the labour market. It is
expected that when these youngsters eventually join
the labour force, they will be far better skilled than
earlier.
Itemergesthatasizeableproportionofmalepopulation
is in the labour market both in the rural and urban areas.
In almost last two decades, the LFPR on UPSS basis has
declined for all youth age groups vis- a- vis 1993-94, but
the decline is very steep for the rural females after 2004-
05.Thewithdrawalofruralfemalesisinkeepingwiththe
national trend and could be attributed to absence of job
opportunities in the rural areas or affected by the social
customsandconditions.
In case of urban females, the LFPR shows an oscillating
trend viz while there is a decline in the younger age
FOCUS OF THE MONTH
34ECONOMY MATTERS
RuralMale
(years) 1993-94 1999-00 2004-05 2009-10 2011-12
15-19 598 532 529 390 333
20-24 902 889 891 813 788
25-29 980 975 982 975 963
Allages 561 540 555 556 553
RuralFemale
(years) 1993-94 1999-00 2004-05 2009-10 2011-12
15-19 371 314 331.00 195 164
20-24 469 425 435.00 314 297
25-29 530 498 530.00 404 369
all 330 302 333.00 265 253
UrbanMale
(years) 1993-94 1999-00 2004-05 2009-10 2011-12
15-19 404 366 381 263 256
20-24 772 755 769 682 664
25-29 958 951 957 947 951
all 542 542 570 559 563
UrbanFemale
(years) 1993-94 1999-00 2004-05 2009-10 2011-12
15-19 142 121 144 85 89
20-24 230 191 250 197 197
25-29 248 214 261 222 253
all 164 147 178 146 155
Source: Various Rounds of NSSO Employment and Unemployment Surveys
Table 2: Age specific Labour Force Participation Rates on UPSS Basis
5
UPSSorusualstatus(ps+ss),workersarethosewhoperformsomeworkactivityeitherintheprincipalstatusorinthesubsidiarystatus.Thus,
a person who is not a worker in the usual principal status is considered as worker according to the usual status (ps+ss), if the person pursues
somesubsidiaryeconomicactivityfor30daysormoreduring365daysprecedingthedateofsurvey.

FOCUS OF THE MONTH
35 FEBRUARY 2014
19 age group, the ASWPR has increased for all other age
groups. The decline in WPR among rural females (14.2
percentage points) was steeper than the decline seen
for rural males (12.5 percentage points) and urban
males (3.5 percentage points) in the15-29 age group
duringtheperiodfrom1999-2000to2011-12.
Age Specific Worker Population Ratio
(ASWFPR)
The ASWFPR also shows similar declining trend across
age groups for both rural male and female as well as for
urban males. In case of urban females, except for the 15-
and withdrawalof femalesfromthelabourmarket.
UnemploymentTrendamongYouth
As per NSSO 2011-12, unemployment rate was 2.4
percent for males and 3.7 percent for females as per
usual status among all age groups, while the
unemployment rate among the youth (15-29 years)
varied between 6.1 percent to 15.6 percent across the
differentcategoriesasmaybeseeninTable-4.
This is quite surprising because during the last twenty
years, when the economic reforms were in progress and
the economy was reaping an average growth rate of
around 6-7 percent per annum, the WPR of the youth
was declining. This could be either due to increasing
participation in the education or disappearance of the
traditional non-farm jobs. The opening up of the
economyledtomigrationofruralmalestodistanttowns
andcitiesinsearchofjobsasconstructionworkers,sales
men, delivery boys, security guards, rickshaw pullers etc
group 1999-2000 2004-2005 2009-2010 2011-2012 1999-2000 2004-2005 2009-2010 2011-2012
Table 3: Age-Specific WPR(ASWPR) among 15-29 and all Population
Rural
Male Female
15-19 503 497 358 303 304 319 186 156
20-24 844 849 768 742 409 410 295 278
25-29 950 966 957 942 491 513 391 357
15-29 741 742 648 616 400 410 288 258
all (0 +) 531 546 547 543 299 327 261 248
Urban
Male Female
15-19 314 335 231 223 105 128 76 78
20-24 658 684 617 594 155 201 160 160
25-29 883 909 906 906 194 229 196 231
15-29 593 623 564 558 149 184 144 157
all(0+) 518 549 543 546 139 166 138 147
Source: Various Rounds of NSSO Employment and Unemployment Surveys

high among the entry age group 15-19 across all
categories and tend to decline as age advances but
remains higher than the national average. High
unemployment rate in the initial years (15-19) could be
due to the mismatch between job expectations and
availabilityofjobs.
In terms of sectoral participation, the Labour Bureau
data suggests that proportion of youth engaged in
agriculture was 50 per cent, followed by secondary 20
6
per cent and tertiary 29 per cent in 2012-13 . This calls for
need to focus on rural industrialization. The industry
should rethink its strategy of moving to the rural areas
and setting up units aligned to the natural resources of
the region. This could be storage and packaging units,
food processing industries, weaving and craft units,
export oriented garment units etc. Creation of job
opportunities in rural areas would also increase the
The unemployment rates among different age groups
increased significantly with urban female experiencing
the highest unemployment. The above table shows that
during the last decade, while unemployment rate
among the rural male (15-29) increased only marginally
by 1 per cent, among rural females it doubled to reach a
levelof7.8percent.Incontrast,intheurbanareas,while
the unemployment rate of urban males declined by 2.6
percentthatofurbanfemalesreducedby1percent.But
it emerges from the above that the unemployment rate
for the urban females is the highest among all the
categories. High unemployment rate among females
may possibly be due to the family support to remain
unemployed for a longer period of time as compared to
that of males, who are considered to be the main
breadwinners.
In different youth age groups, unemployment rate is
AgeGroup 1999-2000 2004-05 2009-10 2011-12
Table 4: Unemployment Rate among Youth according to usual status
RuralMale
15-19 6.5 7.9 10.0 11.4
20-24 6.2 6.2 6.4 6.9
25-29 3.2 2.3 2.2 2.8
15-29 5.1 5.2 5.5 6.1
Source: NSS Report No.554: Employment and Unemployment Situation in India, 2011-12
RuralFemale
15-19 3.1 6.7 7.4 8.0
20-24 4.9 9.3 8.6 9.9
25-29 2.4 5.2 4.5 5.8
15-29 3.7 7.0 6.5 7.8
UrbanMale
15-19 15.4 14.0 13.2 14.4
20-24 13.9 12.5 10.1 11.6
25-29 7.5 5.8 4.4 5.3
15-29 11.5 10.0 7.9 8.9
UrbanFemale
15-19 15.5 15.6 14.3 15.3
20-24 22.6 25.8 21.7 21.9
25-29 11.5 15.8 14.6 10.8
15-29 16.6 19.9 17.2 15.6
6
Report on Employment-Unemployment Survey, Labour Bureau 2012-13
FOCUS OF THE MONTH
36ECONOMY MATTERS

FOCUS OF THE MONTH
37 FEBRUARY 2014
youthshowsthatunemploymentrateishighamongthe
educated. This strengthens the earlier observation that
with education attainment, the job aspirations increase
and non-availability of jobs matching these aspirations
leadstohigheducatedunemployment.
female labour force participation rate which at present
is below 20 per cent due to non-availability of suitable
jobopportunitiesinruralareasoutsideofagriculture.
A look at the unemployment rate among the educated
Table 5: Unemployment Rate at usual status (adjusted) as per Education level for 2011-12
GeneralEducationLevel UnemploymentRate(15-29years)
Rural Urban
Male Female Male Female
Notliterate 2.3 0.8 2.5 1.6
Literate&uptoPrimary 3.2 0.6 4.8 4.3
Middleschool 4.2 4.6 5.1 5.8
Secondary 4.6 8.6 5.5 15.1
HigherSecondary 6.5 13.8 12.0 14.6
Diploma/certificate 15.9 30.0 12.5 17.3
Graduate&above 19.1 29.6 16.3 23.4
All 5.0 4.8 8.1 13.1
GeneralEducationLevel UnemploymentRate(15-29years)
Rural Urban
Male Female Male Female
Notliterate 0.5 0.2 0.9 0.7
Literate&uptoPrimary 1.2 0.3 1.9 1.6
Middleschool 1.9 2.5 2.2 3.5
Secondary 2.0 6.0 2.3 6.4
HigherSecondary 3.3 8.8 4.6 9.1
Diploma/certificate 8.5 19.7 5.2 10.2
Graduate&above 7.5 18.9 5.3 12.8
All 1.9 10.1 3.1 5.5
Source: NSS Report No.554: Employment and Unemployment Situation in India, 2011-12
especially from Higher Secondary and above.
Employableskillsinvolvecommunicationskills,problem
solving skills apart from the technical skills required for
the job. Expansion of higher education institutions has
taken place at a rapid pace in the last decade but issues
of the curriculum content, course work done, lack of
industry exposure through internship, inexperienced
faculty are causes of concern, requiring immediate
attention.
India faces a paradoxical situation where, on the one
hand, youth is looking for job and on the other hand
industry is suffering from availability of skilled workers.
This skill mismatch makes youth unemployable. This is a
ChallengesofYouthEmployment
Table-5 shows a comparative scenario of educated
unemployment both among the youth and in the
general population. Among the two demographic
groups, the trend of unemployment is the same,
indicating higher unemployment among the educated
that progressively increases with the level of education.
Further, educated unemployment among females is
higher than the males among both the demographic
groups.
When looking at the educated unemployed, it may be
seen that apart from unemployment level being high
among the formal educated, it is also high among the
vocational qualified labour force i.e. the diploma or
certificate holders. This raises the question of the
employable skills of the courses that are rendered

38ECONOMY MATTERS
FOCUS OF THE MONTH
The National Skill Development Agency has been
mandated to monitor the progress of skilling in the
country, operationalise the National Skill Qualification
Framework, which facilitates both horizontal and
vertical mobility and makes skill aspirational among the
prospective trainees. To incentivise the students and
help the disadvantaged, the government has started
Standard Training & Assessment Reward (STAR)
Scheme, wherein the passed trainee is provided an
incentive of Rs 10,000. Besides this, students are
provided scholarship and other facilities, particularly in
the remote areas. Further, through sector skill councils
an attempt is made to link training with the industry
requirement.
The Government is also working to expand access to
education and vocational training for workers in the
country side, including rural broadband networks to
connectremote areas with educationalopportunitiesas
also using Common Service Centres at the Panchayat
level for training. The role of advocacy to promote
awareness among the youth about various plan
schemes/vocationalinstitutionsneedstobeinitiated.In
addition, there is an urgent need to speed up the setting
up of the Sector Skills Councils and putting in place the
National Occupational Standards to make National Skill
Qualification System operational. This would facilitate
modification of curriculum in tune with the industry's
requirement.
At present, there is no organised and scientific system in
place to provide labour market information in terms of
supply-demand position in the labour market to guide
the labour and training policies, training providers,
prospective labour force and the employers. There is an
urgent need to put in place the same. To make
manufacturing an engine of growth and to generate
employment opportunities, the government has
announced new policies as part of the 12th Five year
Plan, aiming to create 100 million work opportunities by
2022, mainly in labour intensive manufacturing sectors
such as textiles, gems & jewellery, and leather industry.
For those who are engaged in self-employment, hand
holding in terms of credit availability as also market and
technical assistance is provided in the industrial policy
th
and the 12 Plan focusses on strengthening this further.
To conclude, there should be an integrated policy focus
in the coming years on promoting growth that supports
livelihood.
resultofsupplydrivenandnotdemanddriveneducation
system due to lack of interface among different
stakeholders viz. policy makers, industry, training
providers and educational institutions. The training
institutes need to educate as per industry's
requirements so that demographic dividend can be
tapped fruitfully. It is expected that in a decade, 40 per
cent of the 15-29 age group will enter the labour force,
which needs to be provided with decent employment
opportunities.
Further, the manufacturing employment in India has not
increased to the extent desired. In rural areas, majority
of the labour force is engaged in the agriculture sector,
indicating almost negligible presence of employment
opportunities outside of agriculture. Any movement of
labour force to non-farm sector, as is envisaged in the
12th Plan, implies either no job or low-productivity-low-
paidjobsduetomismatchofskills.Thereisalsoaneedto
increase formal employment, which presently
constitutes about 8 percent of the labour force to
circumvent more youth joining low paid sector and
remaining working poor. This poses the question: Is
Indiareadyforthischallenge?
The challenge of improving the employability of youth
andtheiraccessingdecentjobsrequiresimprovementin
quality of education, job training, up gradation of skills,
and interface between industry, policy makers and
training institutions. However, this also requires
creation of adequate decent jobs in the non-farm sector
th
mainlymanufacturingasisenvisagedinthe12 Plan.
In the Indian context, to make the youth employable,
the government of India is laying emphasis on skill
development and has set a target of skilling 500 million
by 2022 and 50 million in the 12th plan. To achieve this
target, National Policy on Skill Development focuses on
improving quality, quantity, access and outreach of
training. Different innovative measures have been
followed to reach the difficult areas. Some of the good
examples are in terms of virtual classrooms, mobile
vans, simulation based etc. There are 23 Central
Ministries, which are engaged in skill development. In
ordertorecognizethepriorlearning,workersaretested
and given certificates of trained manpower. There are
general programmes, group-specific and region-
specific,forenhancingtheemployabilityoftheyouth.
WayForward
(Views expressed are personal)

FOCUS OF THE MONTH
39 FEBRUARY 2014
National Sample Survey's Employment and
Unemployment Survey 66th Round (2009-10) revealed
that total employment grew by just 1.1 million from
2004-05 to 2009-10 (UPSS definition), despite an
averageannualGDPgrowthrateof8.5percentoverthis
five-year period.This implies that high rates of growth in
India were largely achieved through improvements in
labour productivity (which is to be expected to some
extent).
Subsequently, numerous commentators have referred
to this outcome as one of "jobless growth". However,
this conclusion is misleading as it does not recognize the
considerable transitions that took place in the Indian
labourmarket(andoutofthelabourforce).Asarguedin
this article, the fundamental employment challenges in
the country are, in fact, more qualitative in nature. Open
unemployment in India is not the paramount dimension
policy-makers should be concerned about, except in the
context of youth in urban areas. In this regard, the
unemployment rate has been relatively stable in India
overthelastdecade.
Firstly, in terms of structural transformation, there has
been an acceleration of workers leaving agriculture.
From 2004-05 to 2011-12, the number of workers in the
primary sector fell by around 34 million with the share of
workers in the sector dropping to 48.9 per cent in 2011-
12. But where did the new jobs come from? Most of the
growth in employment was generated in the
construction sector (24.6 million), followed by the
service sector (20 million). In contrast, the
manufacturing sector has not been a major driver of job
creation in India over the longer term. However, after
manufacturing employment declined from 2004-05 to
The global financial crisis (GFC) resulted in a shock that
reverberated around the world through its impact on
tradeandcapitalflows,which,inturn,ledtowidespread
job losses, especially in advanced economies. As
highlighted in ILO's Global Employment Trends 2014
Report, global unemployment rose by 31.8 million from
2007 to 2013, representing an increase in the
unemployment rate from 5.5 to 6.0 per cent. Youth,
temporary workers and those with less education were
most vulnerable to unemployment during the crisis, and
millions have since become long-term unemployed or
havegivenupandexitedthelabourforce.
In the aftermathof the meltdown of LehmanBrothersin
September 2008 and the dramatic situation facing many
countries across the globe, it was widely expected that
the GFC would deeply affect developing countries, just
as crises had done on regular occasions during the
previous decades. However, as it turned out, most low-
income and many middle-incomes were not hit hard by
the global financial crisis; or if countries did experience a
sharp contraction, recovery in 2010 proved to be swift in
mostcases(SouthAfricaisoneexception).
The Indian economy proved to be quite resilient to the
GFC due to the dominance of domestic demand in GDP
(andhence,lessexposuretothecollapseinworldtrade)
and the positive impact of the government's stimulus
packages. Following on from a "low" of 6.7 per cent in
2008-09, the GDP growth rate quickly returned to pre-
crisislevels,reachingapeakof9.3percentin2010-11.
It was against this backdrop of positive macroeconomic
news that the employment trends from the latter half of
the 2000s came as such a surprise and puzzle for policy-
makers and academics alike. In particular, data from the
Dr. Sher S. Verick
Senior Employment Specialist
International Labour Organization
Employment Challenges in India and Beyond

40ECONOMY MATTERS
FOCUS OF THE MONTH
cent in 2009-10. Over this period, the number of women
workers in India dropped by 21.3 million, of which 19.5
million were in rural areas. Based on ILO's research,
explanations for this surprising trend include: increasing
educational enrolment; shift to domestic duties (as
measured in the NSS); increased household income and
a change in preferences for work; and the lack of
employment opportunities.The latest NSS round (2011-
12) shows that the participation rate of women has
finally increased in urban areas, while it has continued to
decline in rural regions. Overall, India, like most
countries in South Asia apart from Nepal, has some of
the lowest labour force participation rates of women in
the world, and a major challenge is to ensure that
women are able to access productive employment
opportunitiesinbothurbanandruralareas.
In summary, though it is crucial that employment
growth keeps up with the increase in the labour force,
especially as more youth exit education, the main
employment challenge in India and most emerging
economies is to improve the quality of jobs. Seeking to
fulfil this goal requires supportive macroeconomic
conditions and sustainable rates of productive
investment, no easy task in the current environment.
Moreover, further improvements are needed in the
quality of formal education and skills development (the
latter without the former is very difficult), especially for
those residing in rural areas. In addition, other
constraints facing women require a range of
interventions such as the provision of childcare and safe
and affordable transport. The reversal of economic
fortunes for India and many other emerging economies
makes this objective that much harder; nonetheless, it is
crucial that governments increase the prioritization of
employmentanddecentworkasaleadingpolicygoal.
2009-10, it rose substantially by almost 9 million from
2009-10to2011-12.Consequently,theshareofworkersin
manufacturing reached 12.6 per cent in 2011-12. Of
course, this rapid growth occurred before the sharp
economic slowdown that started in late 2011, which
would have had negative implications for employment
inthesector.
Related to the uncertain nature of structural
transformation is the persistence of informality in the
Indian labour market. However, beyond the simple
picture of a stagnant mass of informally employed
workers, it is important to disaggregate the overall
trends. On the one hand, the share of unorganized
sector workers has declined, most recently from 84.7
per cent in 2009-10 to 82.7 per cent in 2011-12 (based on
NSS data). On the other hand, the share of informal
workers in the organized sector (i.e. workers without
access to social security) has increased significantly
through the greater utilization of contract and other
forms of casual labour. As a consequence of these
countervailing trends, the overall share of informal
workers in total employment (unorganized sector
workers plus informal workers in the organized sector)
hasremainedrelativelystable(ataround92percent).
This situation is not unique to India; new jobs created in
both advanced economies and developing countries
are,in many cases, informal in nature due to their
temporary employment status and lack of employment
benefitsandsocialsecurity.Globally,thisrepresentsone
of the key barriers to improving access to decent work
forbothmenandwomen.
On gender dimensions, one of the most intense debates
in recent years has centred on the decline in the labour
force participation rate (LFPR) of women in India
th
suggestedbythefiguresfromtheNSS66 Round(2009-
10): a decline from 29.4 per cent in 2004-05 to 23.3 per

Economy Matters, February 2014

Economy Matters, February 2014

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