Economic slowdown a concern, need to push growth, jobs: PM’s advisors


Mains Paper 3: Indian Economy and issues relating to planning, mobilization of resources, growth and development, employment.


From UPSC perspective, the following things are important:

Prelims level: Fiscal Deficit and Fiscal Consolidation

Mains level: Steps to revive economy




  1. The article talks about the newly constituted Economic Advisory Council to the Prime Minister. It also talks about the future roles of this council.


What is the PM-EAC?

  1. The Prime Minister’s Economic Advisory Council was first set up in the year 2004 by the then PM Dr. Manmohan Singh. However, in 2014 it was disbanded by the government.
  2. The re-constitution of the PM-EAC came in the backdrop of growing concerns over the pace of growth in the economy and the slow pace of job creation.
  3. This council consists of Bibek Debroy (Chairperson) and members as Surjit Bhalla, Rathin Roy, Ratan Watal and Ashima Goyal.


What are its tasks?

  1. The council recognised the need to accelerate economic growth and employment over the next six months.
  2. The Council recognised the need for instituting an Economy Track Monitor, using lead indicators and triggers for action, based on informed assessment and analysis.
  3. It will provide specific recommendations for tackling the economic slowdown.
  4. The EAC identified ten themes on which reports will be prepared:
  5. economic growth;
  6. employment and job creation;
  • informal sector and integration;
  1. fiscal framework; monetary policy;
  2. public expenditure;
  3. institutions of economic governance;
  • agriculture & animal husbandry; and
  • patterns of consumption & production and social sector.
  1. The Council will work in consultation with various stakeholders, including sectoral ministries, states, experts, institutions, regulators and the private sector.


The council has consensus on two things:

  1. There is economic slowdown in the country, we need to look into the causes.
  2. The government should not breach the targets of fiscal consolidation and fiscal deficit (3.2 per cent of GDP for current financial year).



  1. Fiscal Deficit: A Fiscal Deficit occurs when government’s total expenditures exceed its total revenues (excluding borrowings).
  2. Fiscal Consolidation: The steps taken by government to reduce its fiscal deficit and debt are known as Fiscal Consolidation. This includes raising taxes, dis-investment in PSUs, rationalisation of subsidies etc

IMF lowers forecasts for India

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Mains Paper 3: Economy | Growth

From the UPSC perspective following things are important:

Prelims Level: Not much

Mains Level: Many organisations forecasts growth rates of countries, around the world. Not all of them are important. As, this forecast came from the IMF, it should be noted.


Forecasts by the IMF

  1. Maurice Obstfeld, IMF Economic Counsellor and Director of Research, said the upward revisions in both cases “were 0.1 percentage point above our previous forecasts”
  2. The IMF has revised upwards, India’s growth performance for 2016 in its latest calculations, which is now 7.1% as opposed to 6.8% in April(owing to strong government spending and “data revisions in India)
  3. According to the IMF report, in India, growth momentum slowed, reflecting the lingering impact of the authorities’ currency exchange initiative as well as uncertainty related to the mid-year introduction of the country-wide GST

Fiscal deficit hits 96.1% but Modi govt confident of meeting target

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Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Basics of Fiscal Deficit

Mains level: It is important to know the pattern of increase and decrease of Fiscal deficit throughout the year. The given article explains the pattern, properly.


Fiscal Deficit Data

  1. India’s fiscal deficit touched 96.1% of the Budget estimate for FY18 at the end of August
  2. Possible reason behind this increase: The fiscal deficit has been higher than in the previous years because of the quick start to spending facilitated by the early presentation of Budget on February 1
  3. According the data released by the Controller General of Accounts (CGA) , April-August fiscal deficit is substantially higher than 76.4% for the year-earlier period

Government’s view on this

  1. According to government, it will meet the fiscal deficit target for the year
  2. The target is3.2% of GDP, or Rs 5.47 lakh crore
  3. In absolute terms, the fiscal deficit for April-August was Rs 5.25 lakh crore

Will government be able to achieve the targets?

  1. The government is considering ways of reviving growth, which slumped to its lowest in three years in the June quarter
  2. The government has already allocated large sums to a few of its key schemes to ensure there was no delay due to funds
  3. The revenue deficit was 133.9% of budget estimate against 91.7% last fiscal
  4. With this big spending(allocations) done, the fiscal situation should start to improve as revenues pick up pace in the second half of the financial year


Fiscal Deficit

  1. A fiscal deficit occurs when a government’s total expenditures exceed the revenue that it generates, excluding money from borrowings
  2. It is an indication of the total borrowings needed by the government
  3. Deficit differs from debt, which is an accumulation of yearly deficits
  4. Generally fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure
  5. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development

[op- ed snap] Case for a fiscal push

Note4Students :

Mains Paper 3: Economy | Growth

Prelims: Pro Cyclical fiscal policy and Counter cyclical fiscal policy.

Mains level: The article could be linked to the Growth tag in GS paper 3. Growth process has slowed down in recent month.Government is weighing the pros and cons of using fiscal stimulus as a policy to counter the slowdown in growth process.This article is related to that.


Even as there is talk that the government is planning a fiscal push to support growth, strong dissenting voices are suggesting that all hell will break loose. Comparisons are being made with the 2008 stimulus and dire warnings are being issued

Why Counter Fiscal policy push to the economy cannot be misconstrued as similar to the fiscal policy of 2008?

  1. In 2008 India provided fiscal stimulus of 1.8% of GDP which was far less than provided by its Asian counterparts and several other countries — Korea, US, China, South Africa.
  2. The runaway inflation that followed was not entirely because of fiscal stimulus. Other factors to contributed like debt waiver, pay commissions recommendations, increase in MSP.
  3. There are common elements like Pay Commission recommendations and loan waivers in the current economic scenario and that of 2008.
  4. But, the Pay Commission’s recommendations as a percentage of the incremental PFCE (private final capital expenditure) are down to 9 per cent in FY17 from 22 per cent in FY09. Thus, a less boom in consumption.
  5. Unlike earlier years no arrears have to be paid.
  6. The loan waivers are unlikely to fuel inflation, as inflation has structurally corrected from double digits to low single digits in the last three years, and rural demand is now at multi-year lows.
  7. Procurement price increases in the last three years have been moderate and do not threaten inflation.
  8. Fiscal expansion got a bad name because in India it has been largely pro-cyclical. But, counter-cyclical policy is more effective. This means that deficits should decline when the economy is expanding and increase during economic downturns.


Way Forward

  1. Policy should now focus on structural bottlenecks and not on putting money in the hands of consumers.
  2. Recapitalise public sector banks through widely-discussed recapitalization bonds
  3. The government need not raise immediate tax revenues and the government should avoid crowding out private borrowings .
  4. The fiscal package could also include sector-specific measures, such as on sectors like exports, telecom, construction and power.
  5. Last years textile package of support for wage costs and interest subvention could be expanded. Some successful state-level initiatives, as in the garment sector in Odisha, can be expanded nationally.
  6. Affordable housingoffers multiplier effect. It helps the construction sector and has the maximum employment elasticity.
  7. Resolution of stressed assets must be focused, the National Company Law Tribunal infrastructure needs further ramping up.
  8. Structural and deep reforms like GST, RERA, monetary policy framework and move to less-cash and digital economy, will all pay back over the longer term.  But, create uncertainity in shorter term so it needs deft policy and perception management.
  9. India needs to correct imbalances in regional growth, and the urban-rural divide, and addressing the woes of the farm sector.


There is much work to do, but for this year, we need a definite fiscal push.


Procyclical Fiscal Policy

  • This fiscal policy goes in line with the current mood of the business cycle; amplifying them.
  • Boom: total government spending as a percentage of GDP goes up and tax rates go down, increasing government deficit..
  • Recession: total government spending as a percentage of GDP goes down and tax rates go up, decreasing government deficit.
  • Such a policy is dangerous and undesirable as it brings instability in the economy.
  • The Economic Survey 2017 also acknowledge some procyclicality during boom periods in India.

Countercyclical Fiscal Policy

  • It refers to strategy by the government to counter boom or recession through fiscal measures.
  • It works against the ongoing boom or recession trend; thus, trying to stabilize the economy.
  • Boom– Increasing taxes and reducing public expenditure. This will help to slow down the demand and thus keeping inflation under control.
  • Recession- Reducing taxes and increasing expenditure will help to create demand and producing upswing in the economy.






[op-ed snap] Time for course correction

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Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Particulars of the GVA, GDP and CSO.

Mains level: Declining growth rate is a hot topic these days. The Op-Ed presents a comprehensive view of the issue.



  1. The article talks about the recently published Growth Data and Estimates, and the possible reasons behind it

Low Growth rate data released by the Central Statistics Office (CSO)

  1. The CSO has released the estimates of the GDP for the first quarter (April-June) of 2017-18
  2. The numbers showed that in Q1 of 2017-18, GDP grew by 5.7%
  3. Gross value added (GVA) at basic prices grew by 5.6%
  4. Whichever measure one take, the growth rate has fallen below 6%
  5. In the corresponding quarter of the previous year, GDP grew at 7.9% and GVA at 7.6%
  6. The most disappointing aspect of the first quarter numbers is the steep fall in the growth rate of manufacturing to 1.2%

Possible reasons behind this low growth

  1. Certainly, demonetisation must have had a negative impact
  2. Also, the destocking of goods which might have happened prior to the introduction of the GST must have also had a negative impact
  3. But, it might be inappropriate to attribute the entire decline of 2 % points to the two factors

Is low Growth rate reason behind this low growth?

  1. One of the arguments attributed to the low growth rate is the poor performance of the external sector
  2. The high growth phase between 2005-06 and 2007-08 saw exports growing at an average annual rate exceeding 20%
  3. Both in 2014-15 and 2015-16, the export growth rate was negative
  4. India’s declining growth rate has also coincided with poor export performance
  5. However, the export growth rate has become positive since the second half of 2016-17
  6. Due to this reason, the sharp decline in growth rate noted in the last few quarters cannot be attributed to poor export performance

Fundamental Problem behind the Low Growth rate

  1. The fundamental problem has been the sharp fall in the investment rate
  2. Gross fixed capital formation rate stood at 34.3% in 2011-12
  3. This started falling steadily and touched 29.3% in 2015-16
  4. It fell further to 27.1% in 2016-17
  5. According to the latest numbers, in the first quarter of 2017-18, it stood at 27.5%
  6. It is the decline in private investment, both corporate and households, that has been responsible for the steady fall
  7. The fall in corporate investment is steep compared to what was achieved in 2007-08
  8. And Household investment has continued to decline even in recent years
  9. Household here includes not only pure households but also unincorporated enterprises

One important actor behind the Low Investment Rate

  1. One reason is the falling investment rate is that the last few years have shown a steady and substantial increase in FDI
  2. FDI inflows in 2016-17 were at an all-time peak of $60 billion

What can be done to stimulate private investment?

  1. Most important thing is to create an appropriate investment climate
  2. Some of the noteworthy changes that have happened in the last few years are the passing of the bankruptcy code and GST legislation, and modifications in FDI rules
  3. We must continue with the reform agenda and there is still a lot to be done in the area of governance

NPA issue behind low investment

  1. Financing investment has taken a wrong turn because of the poor health of banks
  2.  The sharp reduction in the flow of new credit has also put prospective investors in a difficult situation
  3. To bring banks back to good health, recapitalisation has become urgent

The way forward

  1. To sum up, the growth rate in 2017-18 is unlikely to exceed 6.5%
  2. Once the glitches and fears of the GST are over, the growth rate may pick up
  3. Our goal must be to achieve and sustain a growth rate of 8% and above over an extended period

[op-ed snap] Narendra Modi govt’s growth challenge

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Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Particulars of the GDP and GVA

Mains level: It is important know the reason behind the current slowdown in the Economy.



  1. The article talks about the reasons behind the slowing down of the Indian Economy

Slow Pace of Economic Health Indicators

  1. The pace of economic growth has slowed considerably, with no clear sign of a sharp pullback in the near term
  2. GDP increased at a modest pace of 5.7% in the first quarter of the current fiscal
  3. GVA growth, the preferred indicator of economic activity, came in at 5.6%, compared with 7.6% in the same quarter last year
  4. It now seems difficult for the economy to get close to the RBI’s GVA growth forecast of 7.3% for the current year

Reason behind this Slowdown

  1. Impact of demonetisation
  2. And destocking of inventory before the implementation of the goods and services tax (GST)
  3. However, it is also likely that the softening of economic activity, which started before demonetisation, is still continuing
  4. Therefore, it will not be possible, to gauge precisely which factor is affecting growth to what extent

The Main reason of worry

  1. The main worry for policymakers is that the economy is slowing at a time when global markets are reasonably stable
  2. And commodity prices are within India’s comfort zone

Is it right to give a fiscal stimulus to revive growth?

  1. It is likely that a sufficiently large fiscal push will help growth in the short run, but there are at least three big problems with this idea
    (1) There is no guarantee that it will take the economy to a higher growth trajectory in a sustainable manner
    (2) The government doesn’t have the fiscal space(means resources) to give a meaningful stimulus at this stage
    (3) Breaching the fiscal deficit target(by giving fiscal help to economy) yet another time will affect policy credibility and could pose a threat to hard-won macroeconomic stability
  2. Therefore, Fiscal stimulus is best avoided

The need for recapitalization of public sector banks

  1. It is highly unlikely that a predominantly bank-financed economy will grow as desired when about three-quarters of the banking system is in deep stress
  2. While the bankruptcy process will help deal with non-performing assets, the government needs to move fast on bank recapitalization

The Way Forward

  1. The government has taken several steps in the right direction, such as the implementation of GST, which will help the economy in the medium to long run
  2. But there has been virtually no movement on reforms in areas like land and the labour market
  3. The government should go all out and use its political capital to push reforms in these sectors, which will improve the ease of doing business
  4. All this may not lift growth in the next quarter, but will help strengthen the foundation for a sustainable economic recovery


April trade deficit widens to $13.2 bn, highest since Nov. ’14



The changing trends in India’s import and export sector need to be analysed. From UPSC’s perspective, the following things are important:

Prelims Level: What is trade deficit, BoP and other related terms.

Mains level: Well Even though 1 month data is not much relevant for mains but you need to track this news as if this trend continuous in long run this could effect India’s external sector stability which then becomes an important topic for mains.


  • The country’s goods trade deficit in April, the first month of FY’18, widened to $13.2 billion — the highest since the $16.2 billion clocked in November 2014, data released on Monday by the Commerce Ministry showed

Why this happened?

  • This was due to goods imports in April recording a historic 49.07% year-on-year growth to $37.9 billion — following a surge in gold, oil, coal, chemicals, pearls and precious stones, machinery, transport equipment and electronics imports
  • and outpacing exports despite shipments rising for the eighth consecutive month

Stats: (The figures need not be remembered, but note the share of various commodities in import and exports)

  •  In India, gold imports continued to surge when it jumped 211.35% in April to $3.8 billion Oil imports in April rose 30.12% to $7.3 billionIn this connection, it is mentioned that the global Brent prices ($/ bbl) have increased by 25.4% in April 2017 vis-à-vis April 2016 as per World Bank commodity price data(The pink sheet)
  • On the exports side, petroleum products shipments rose 49% to $2.94 billion while readymade garments exports increased 31.7% to $1.7 billion
  • Exports of engineering goods went up 28.2% to $6.1 billion, while chemicals increased 24% to $1.29 billion and gems and jewellery exports rose 15% to $3.97 billion


  • Increase in imports of oil and pearls and precious/semiprecious stones augur well for exports of petroleum products and gems and jewellery respectively as such imports are inputs for the exports.


Trade deficit(Explained)

  • A trade deficit is when a country imports more than it exports.
  • It is also called a negative balance of trade. It is one way of measuring international trade.
  • To calculate the trade deficit, subtract the total value of exports from the total value of imports. What Causes a Trade Deficit? A trade deficit occurs when a country does not produce all it needs. Most nations must borrow from foreign states to pay for the imports. Therefore, a country with a trade deficit will also have a current account deficit.
  • A trade deficit also results when domestic companies manufacture in foreign countries. When raw materials are shipped overseas to factories, they count as exports. When the finished goods are shipped back home, they count as imports. That’s true even though they’re made by domestic companies.
  • The imports are subtracted from the country’s gross domestic product. That’s despite the fact the earnings benefit the company’s stock price and the taxes increase the country’s revenue stream. Effects of a Trade Deficit (Hint: It’s not always bad) Initially, a trade deficit is not a bad thing. It raises a country’s standard of living. Its residents have access to a wider variety of goods and services for a more competitive price.
  • It reduces the threat of inflation, since it creates lower prices. A trade deficit indicates that the country’s residents are feeling confident and wealthy enough to buy more than the country produces.
  • Over time, a trade deficit creates jobs outsourcing. As a country imports certain goods rather than buying domestically, the local companies start to go out of business.
  • The domestic industry will lose the expertise needed to remain competitive. As a result, the home country creates fewer jobs in that industry. Instead, the foreign companies hire new workers to keep up with the demand for their exports.


India to launch new IIP series with 2011-12 base year on May 9

  • India will unveil a new series of Index of Industrial Production with a base year 2011—12 on May 9 with an aim to map economic activities more accurately.
  • A high-level panel had firmed up the methodology for the IIP with new base year of 2011—12. Currently, the IIP is calculated on base year of 2004—05.
  • The change in baseline for the IIP is expected to bring in more accuracy in mapping the level of economic activity and calculating other numbers like national accounts.3
  • Work is also in progress to change the base year for the wholesale price index (WPI) to 2011—12 year.
  • The Central Statistics Office (CSO) has already changed the base year for the country’s national accounts,
    including the gross domestic product (GDP) and the gross value addition (GVA).
  • The retail inflation based on the consumer price index (CPI) is also calculated on the base year of 2011—12.
  • For long, economists and think tanks have been pitching for release of new time series of the IIP and the WPI so that GDP numbers can be based on more accurate and realistic data.
  • The base year is revised periodically to capture the changes in the structure and composition of the industry
    over time due to technological changes, economic reforms and consumption pattern of the people.

India’s external debt rises to $486 billion

  1. India’s external debt at the end of March 2016 stood at $485.6 billion
  2. It is an increase of 2.2% from over its level at end-March 2015
  3. Factors: It is largely driven by the increase in long-term external debt, particularly NRI deposits
  4. Of total external debt, the Govt’s share stood at 18.9% or $93.4 billion at end-March 2016 compared to 18.8% ($89.7 billion) at March 2015
  5. Manageable: India’s external debt has remained within manageable limits in 2015-16
  6. Indicators: Increase in foreign exchange reserves to debt ratio to 74.2%, the external debt-GDP ratio of 23.7% and fall in short term debt to 17.2%

WPI rises to 20-month high

  1. News: Wholesale Price Index (WPI) inflation accelerated in June from the previous month, touching a 20-month high as prices of fruits, vegetables and cereals continued to rise
  2. WPI inflation for June accelerated to 1.6% from 0.8% in May
  3. The rise in the WPI was driven largely by inflation in the food articles segment
  4. Office of the Economic Adviser, Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce, calculates the WPI index
  5. Base year: 2004-05

Retail inflation quickens; IIP up

  1. News: A sharp jump in the prices of vegetables drove up food costs and fanned consumer price inflation to its fastest pace in 22 month
  2. Consumer Price Inflation (CPI) was 5.77% year-on-year in June 2016
  3. The Index of Industrial Production (IIP) recorded a 1.2% year-on-year growth in May 2016, due to high growth in consumer durables (washing machines, televisions, refrigerators) output
  4. The Central Statistics Office (CSO), under the Ministry of Statistics and Programme Implementation (MOSPI) releases both CPI and IIP data
  5. CPI: Base year – 2012; Released on a monthly basis for urban, rural, and combined
  6. IIP: Base year – 2004-05; Released on a monthly basis with a time lag of 6 weeks

Manufacturing activity picks up in June

  1. Manufacturing activity saw a pick up in June after two months of sluggish growth, according to a private survey
  2. The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to 51.7 in June from 50.7 in May
  3. Indian manufacturers raised production at a faster rate during June, supported by a stronger increase in new business inflows
  4. The PMI data suggest that external demand remains lacklustre even as domestic demand continues to support growth, led by consumption

Core sector growth at 2.8%

  1. News: 8 core sectors of the economy posted a 2.8% growth in May, due to a decline in output of refinery and steel products
  2. Core sectors: Crude oil, natural gas, refinery products, electricity, coal, cement, fertiliser, steel
  3. These 8 sectors, comprise almost 38% of the weight of items included in the Index of Industrial Production (IIP)

Core inflation higher than desired: Rajan

  1. Context: RBI Governor Raghuram Rajan on inflation condition in India
  2. Inflation: India’s core inflation remains a bit higher than policymakers would like
  3. Consumer prices rose last month at a more-than-expected 5.39% annual rate, up from 4.83% in March
  4. It was the first increase in the retail inflation rate since January
  5. Economic growth: However, the economy’s recovery should accelerate with a good monsoon
  6. Growth also seems to be ticking higher & India’s economy is among the world’s fastest growing, at 7 percent-plus
  7. However, the 8 percent level needed to alleviate poverty remains elusive

Resistance to reforms vanishing: Jaitley

  1. Context: Jaitley was speaking at US think tank on India’s growth prospects
  2. Opinion: India is undergoing the most critical and significant reforms after 1991, in terms of unleashing its productive forces
  3. The 7.5% growth looks impressive but considering India’s requirements it is “not good” enough
  4. Approach: The govt had adopted 3-pronged approach – being decisive, consistent and transparent
  5. Measures: Tackled corruption, eased procedures and empowered the states to take decisions
  6. The govt kept significant part of the revenue gained and diverted it to social sector and infrastructure

ADB lowers India’s growth forecast to 7.4 % for 2016-17

  1. News: Asian Development Bank has lowered India’s growth forecast to 7.4 per cent from an earlier estimate of 7.6 per cent for the financial year
    ending March 31, 2017
  2. Context: Because failure of the govt to push through the GST reform bill and the Land and Labour Reforms
  3. Relevance: Potential growth can be raised if it can successfully implement reforms including unifying tax regime, improving labour market regulations, and opening further to FDI and trade
  4. Report: Asian Development Outlook 2016
  5. Challenges ahead: India’s Challenges to finance the infrastructure, needs delivery of sustainable growth, with funding requirements estimated at around $200 billion a yr through 2017-18

Rising working population favours growth

  1. Context: DBS Group Research report ‘Global growth: what is potential and where is it going?’
  2. Global growth: Today, it is running at or a little above potential, & potential is headed down thus growth will be slower
  3. Why? Productivity and population growth have slowed a lot & will continue to fall rapidly in the years ahead
  4. India: Productivity and population growth in working age group puts India in a better place than Asian

Competitive federalism in the state bond market

  1. Context: Data from this week’s auction of state government bonds (a.k.a. state development loans)
  2. Finding: Markets are starting to differentiate between states based on their individual credit quality
  3. Usually: It is a routine affair which gets far less attention than central government bond auctions
  4. Change: but this time it caught the eye of market watchers
  5. Why? The yields being demanded by the markets for state bonds jumped considerably
  6. There was a wide difference between the yields demanded on bonds of different states

Consensus in pre-budget all party meet

  1. Context: An all party meet was held to discuss issues for Budget session so that the session goes productive
  2. The consensus: on the need to allow Parliament to function smoothly
  3. The change: It signals a rethink by political parties, who let their differences and the resulting disruptions to cause a washout of the previous 2 sessions
  4. Opposition stand: will not allow the passage of any contentious bills in the first half of the session, except those on which there is a consensus

Budget to bet on spurring growth

  1. Context: Union Budget for 2016-17 will primarily focus on stimulating growth without deviating too much from the fiscal deficit target set by Finance Minister in previous Budget
  2. Fiscal deficit target: 3.9 per cent of GDP for 2015-16, paring it further to 3.5 per cent for 2016-17 and 3 per cent for 2017-18
  3. Economic scene: Economic recovery is tentative and private sector investments remain elusive
  4. What’s clamour? Government to relax its deficit targets, to pump prime the economy via enhanced public investments
  5. Use of Twitter: For budget, the govt. invited suggestions from citizens through Twitter for the first time
  6. Some of the new suggestions are administrative in nature and can be examined at any point in the year

Industrial growth in FY14 was higher in poorer states

  1. Industrial growth in the traditionally weaker states of Bihar, Odisha and Chhattisgarh in 2013-14 dwarfed that of their more developed counterparts
  2. Data released as part of the Annual Survey of Industries showed Bihar, Odisha and Chattisgarh had grown the most industrially in FY14
  3. This is in a year when the economy had to cope with the euro crisis and its effects on Indian industry
  4. Bihar at 97.5 per cent had the highest growth but measured from the country’s steepest decline the previous year

Core sector output recovers, grows 0.9 per cent in Dec.

Fertiliser, coal, cement output and electricity production contribute.

  1. The output of 8 core industries — that comprise almost 38 per cent of the weight of items included in the Index of Industrial Production (IIP) — could record only a 0.9 per cent growth in Dec.
  2. Due to 4.1 per cent contraction in output of crude oil, 6.1 per cent contraction in natural gas and 4.4 per cent shrinkage in steel.
  3. Data on the core infrastructure industries has clearly been disappointing as growth remained sub one per cent in December after a negative blip in November.
  4. During April-December 2015 period this fiscal, the output of these eight sectors slowed to a 1.9 per cent growth from 5.7 per cent growth in the same period last fiscal.

Govt lowers GDP growth rate to 7.2%

  1. Govt has marginally revised the economic growth for 2014-15 to 7.2% from earlier estimate of 7.3%.
  2. It has taken into account the latest data on agriculture and industrial production.
  3. GDP growth rate for 2013-14 has also revised downwards to 6.6% from earlier estimate of 6.9%.
  4. There is a downward revision in terms of Gross Value Added for 2014-15 on account of subdued performance of secondary sector.
  5. GVA as a concept was introduced by the CSO last year to measure value addition in the economy.

Govt. to back state-run banks’ capital needs: Sinha

The government reiterated its commitment to support public sector banks’ capital needs at a time when bad loans are eroding their capital and putting pressure on profits.

  1. Government is going to support public sector banks and fully support all the Basel-III requirements.
  2. The banks are going to be fully supported as far as their capital adequacy in concerned.
  3. The RBI is forcing banks to clean up their balance sheet by asking the lenders to make adequate provisions for bad loans, which were unidentified hitherto.
  4. The banking regulator has prepared a list of borrower accounts, which has to be classified as non-performing.
  5. The government said it would provide Rs.25,000 crore in this fiscal year and an additional Rs.25,000 crore next fiscal year.

PMO seeks industry inputs to spur growth

The performance of 8 core sectors in November is worrying, with their output shrinking.

  1. The PMO has sought industry recommendations on reviving and sustaining the growth momentum in the core sectors of manufacturing and infrastructure.
  2. Industry had urged finance minister Jaitley to spur domestic demand in the Budget in order to revive private sector investments.
  3. To sustain the reforms process in specific sectors and assess policy issues beyond the short-term imperatives which can be addressed in the Budget.
  4. Though industrial output has grown at 3.9 per cent from April to November 2015, it remains volatile.
  5. After surging 9.8 per cent in October last year, the index of industrial production fell by 3.2 per cent in November — its worst performance since October 2011.

Act local

The best way to deal with global market panic is to get domestic policies right.

  1. The BSE Sensex has plunged below the level when Modi secured a stunning victory in elections .
  2. Rupee has fallen below Rs 68 to the dollar for the first time since August 2013 (time of taper tantrum)
  3. This volatility owes more to global factors, especially a deepening Chinese slowdown, collapse in commodity prices and US Fed normalisation of its monetary policy.
  4. US Federal Reserve embarking on a “normalisation” of its monetary policy.
  5. In real effective term, rupee has actually strengthens against a basket of 6 currencies after adjusting for inflation differential.
  6. Weakening against the dollar is, thus, a sign of the latter’s strengthening in an uncertain global environment where the greenback has become every investor’s safe-haven asset.
  7. Our focus should be on improving the domestic investment environment and preserving macroeconomic stability.

Dealing with the slowdown

IMF forecast provides India a comparative edge in wooing the global investor community.

  1. IMF has cut the global growth forecast to 3.4 % In 2016, 0.2 % below its forecast of October.
  2. Growth forecast for China unchanged at 6.3 per cent and for India at 7.5 per cent.
  3. Slowdown in China with it posting the slowest growth yet in 25 years and weak commodity prices are indicative of pronounced global weakness.
  4. The year saw turbulence in the Chinese economy, with heavy capital outflows and stock market volatility which might exacerbate in the coming year.
  5. Containing the spillover effects of volatility (exchange rate plus point no. 4) in Beijing would be a big challenge for planners in India.
  6. But it is essential for the government to coherently address the growing anxiety among domestic consumers and stem, if not fully reverse, the demand slump.

Index of Industrial production

  1. IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products.
  2. During a given period with respect to that in a chosen base period.
  3. Compiled and published monthly by the Central Statistical Organisation (CSO) 6 weeks after the reference month ends.
  4. Core sector weightage is 38%
  5. Calculated by using Laspeyres’ formula.
  6. Recent revision of IIP released by CSO with 2004-05 as the base year comprises 682 items divided into 3 groups with weightage –
  • Mining – 15%
  • Manufacturing – 75%
  • Electricity – 10%

Rise and fall

2 data sets point to tenuous nature of India’s economic recovery.

  1. First, industrial production(IIP) contracted in November to the lowest level in over 4 years with manufacturing sector esp capital goods output — a barometer of investment — to share much of the blame .
  2. CPI rose to 5.6 per cent for December, though it remains within the RBI’s January target level of 6 per cent. The main reason here was the higher food price inflation.
  3. Data paints a contradictory picture. Anaemic industrial performance with rising inflation rather than falling inflation, which is not the case.
  4. CPI continues to be relatively high and “sticky”, despite the sharp fall in commodity prices globally, especially crude.
  5. Challenges – if the government tries to jump-start the economy through higher expenditure, it will worsen its fiscal deficit, resulting in increased inflation and put pressure on the RBI to raise interest rates.
  6. If the RBI, on the other hand, tries to reduce interest rates in order to incentivise economic activity, it may further weaken its grip over the CPI inflation targets it has set itself.
  7. Quality of its expenditure is key.
  8. Government must ring-fence capital expenditure and restart private capex cycle .
  9. Reaching out to rural India, where demand has collapsed.

Tax on seed funding to be scrapped

According to estimates by the team of officials working on the Start Up India programme, start-ups in the country received around 9 billion dollars of funding in 2015.

  1. The government has decided to scrap a tax on seed funding provided to start-ups by Indian angel investors in the upcoming Union Budget.
  2. To help domestic financiers bankroll new entrepreneurial ventures under its Start Up India campaign.
  3. The tax provision in question treats infusion of funds by domestic angel investors as income in the hands of the start-up, making India.
  4. The only country in the world to penalise local angel investors in such a manner.
  5. This tax applies only to domestic investors and thus acts as a disincentive to local funding for start-ups that the government wants to incentivise instead.

Indian companies plan record overseas fund-raising drive

  1. Indian companies plan to raise close to $12.33 billion in the next 3 months.
  2. This is mainly to refinance their old loans and fund expansion.
  3. It is happening at a time when very few companies are planning large capacity expansion because of stalled infrastructure projects and low capacity utilisation.
  4. Though the government has stepped up public spending, private investment is essential to a robust investment recovery.
  5. The union budget in February, the GST, and the awaited repeal of retrospective taxation could stimulate private investment.

Let’s know about Centre for Monitoring Indian Economy?

Established in 1976, it straddles the entire information food-chain – from primary data collection through analytics and forecasting.

  1. CMIE, or the Centre for Monitoring Indian Economy, is a leading business information company.
  2. It provides services to the entire spectrum of business information consumers that includes governments, financial markets, business enterprises, professionals and the media.
  3. It runs a unique monitoring of new investment projects on hand and it has created the largest integrated database of the Indian economy.
  4. CMIE is a privately owned and professionally managed company head-quartered at Mumbai.

Corporate optimism on the wane as new investments decline sharply

Industry’s optimism about the investment climate has waned due to a sharp recent decline in the value of new project announcements, data from the Centre for Monitoring Indian Economy (CMIE) shows.

  1. New projects worth Rs. 1 lakh crore were announced in the December 2015 quarter, down from Rs. 4 lakh crore in December 2014.
  2. New project announcements were at Rs.8.2 lakh crore in calendar year 2015 as compared to Rs.9.4 lakh crore in 2014.
  3. At the same time, the data shows that the value of stalled projects fell to Rs.1,723.2 crore in the December 2015 quarter, down from Rs.86,177.3 crore in 2014.
  4. The stock of stressed assets come in 5 different buckets — specific permissions, sectoral issues, market-related postponements, promoter funding issues.

Dragon’s fire may singe Indian industry

Commerce Ministry, Chief Economic Advisor, NITI Aayog Vice-Chairman to meet soon to assess impact.

  1. The decline in the value of China’s currency against the dollar is a worrying development as it may lead to a sharp increase in cheap imports hurting several Indian industries.
  2. The depreciation of the yuan may expand the country’s trade deficit.
  3. India’s trade deficit with China had ballooned from $1.1 billion in 2003-04 to $48.5 billion in 2014-15 or over 4 times India’s exports to China ($11.9 billion) in FY’15.
  4. The government is considering proposals to protect domestic steel manufacturers from cheap steel imports mainly from China.
  5. To offset the impact of trade deficit, India had sought more investments from China especially in mega industrial parks (in States such as Gujarat and Maharashtra).

Govt. lowers growth outlook, stresses supply-side reforms

Without reforms, GDP growth next year is unlikely to be significantly greater

  1. India lowered its GDP growth projection for the current year to between 7-7.5 per cent against the earlier forecast of 8.1-8.5 per cent.
  2. The cut in forecast follows GDP growth in the first half of the year slowing to 7.2 per cent from 7.5 per cent in the last year.
  3. Economic growth was dragged down by the 17.4 per cent decline in exports and adverse impact of deficient monsoons on farm sector output.
  4. The slowdown will pose a challenge to meeting the fiscal deficit target of 3.9 per cent of GDP and will also place a stress on tax revenue collections.

Maharashtra is biggest state economy, says Brickwork Ratings

Nationwide analysis finds state accounts for over 27 per cent of gross state domestic product and registered 11.69 per cent growth.

  1. Maharashtra is the biggest economy at Rs 16.87 lakh crore in terms of gross state domestic product (GSDP), followed by Tamil Nadu and Uttar Pradesh.
  2. Maharashtra earns approximately 70 per cent of its total receipts through tax revenues, the highest among the bigger states, followed by Gujarat and Tamil Nadu.
  3. Maharashtra’s infant mortality rate (IMR) of 25 is below the national average for all states, which stands at 50.
  4. The three fastest-growing states were Bihar at 17.06 per cent, MP (16.86 per cent) and Goa (16.43 per cent).

India showing early signs of recovery: Moody’s

Some of the basic parameters of recovery were looking better, as growth in the production of capital goods has picked up, according to data.

  1. An increase in public sector expenditure and an upturn in capital replacement cycle are driving investment in India.
  2. It will take a while for private investment to show a sustainable revival.
  3. India’s economy was forecast to grow forecast at 7 per cent for 2015 and 7.5 per cent for 2016, which take into account a slower investment recovery.
  4. Report forecasting the GDP growth of 2.8 per cent in the G20 economies in 2016, with recovery expectations in U.S. offset by slower growth in China and emerging markets.

Manufacturing sector growth drops to 25-month low

  1. India’s manufacturing sector grew at its slowest pace in 25 months in November on sluggish pace of new business orders.
  2. This also marks the 4th consecutive month of decline in the rate of Indian manufacturing output growth.
  3. Among sub-sectors, consumer goods was the best performing category.
  4. The slowdown in growth combined with weak inflationary pressures support further repo rate cuts.

The problem of debt concentration

India is now coming to terms with the costs of crony capitalism

Let’s find some roots in the past, for dangerous growth in corporate debt ?

  • First, the bursting of the Indian credit bubble, when bank loans grew around 10 percentage points faster than nominal GDP, has left behind inevitable cracks in the financial system.
  • Second, the concerted push for higher private investment in infrastructure encouraged companies to take on excess debt.
  • While, inexplicable policy of allowing companies in the non-tradable sector to take on foreign debt is beyond rational economic explanation.
  • Third, the regulatory mess during last few years, projects got stalled after money was put on the ground and projects got into trouble because of policy confusions that were beyond control.
  • Fourth, most heavily indebted companies shows that there is a strong link between the current financial fragility and crony capitalism excesses of the past decade.

What now, Is their any way to move out? Two reasons, why more urgent action is needed.

  • First, financial fragility in the Indian private sector is one clear worry among global investors.
  • Second, the Indian economic recovery cannot be sustained unless private-sector investment picks up, and that is difficult unless corporate financials improve.
  • India is now coming to terms with the costs of crony capitalism. The bill should not be presented to taxpayers.

What is the way out for leveraged companies in India, Can you find some solutions?

Gap widening between rural and urban India

Despite two successive years of drought, overall food inflation in India has remained tepid.

  1. Inflation has been slowing both in rural and urban areas, a widening difference between the two as rural inflation is decelerating at a much slower pace.
  2. The resultant gap between rural and urban inflation has more than doubled over the last one year, by HSBC Global Research show.
  3. The ‘excess inflation’ in rural India, is arising from food, fuel, transportation as well as from core inflation.
  4. The difference between rural and urban inflation is most stark for fuel and transportation, followed by core and to a lesser extent food.
  5. Rural India’s fuel mix is more geared toward domestically produced firewood, chips and biogas inputs, which are not a part of the global deflation cycle.

Higher investment in rural infrastructure and meaningful agricultural reforms are needed to make growth weather proof and put it on a higher, more sustainable path.

Signals point to better economic activity: CEA

The signals are pointing to an improvement in economic activity. But on the pace, we do get mixed signals,Chief Economic Adviser Arvind Subramanian said.

  1. Indirect tax revenue numbers are doing very well, direct tax revenue numbers are not doing so well.
  2. Stalled projects have also come down, but at the same time exports are in negative territory.
  3. The economy is still well below potential and that’s the sense, even though it’s recovering and full of potential, therefore it needs monetary policy support.
  4. China was experiencing a temporary wobble and it would regain its footing, but at 5-7 per cent growth levels.
  5. If China grows rapidly, it is good for the world and for India. If China slows down, it will throw up challenges.

ADB sees slower growth for Asia

Growth in developing Asia will likely be slower than previously thought as a slowdown in China’s economy hurts demand.

  1. Developing Asia is now expected to grow 5.8 percent and 6.0 percent this year and in 2016, down from the ADB’s July forecast of 6.1 percent and 6.2 percent.
  2. The region, which groups 45 countries in Asia-Pacific, grew 6.2 percent in 2014.
  3. Fears of a China-led global slowdown, which had sent global stock markets tumbling, prompted the U.S. Federal Reserve last week to hold off on raising interest rates for the first time in almost a decade.
  4. Capital outflows could accelerate ahead of the Fed rate hike and urged policymakers to strengthen financial systems in the region to mitigate shocks.
  5. India’s growth is seen weaker at 7.4 percent and 7.8 percent for this year.

India relatively insulated against deflation. Why?

“India remains a very bright spot in the global economy because we have growth and we have robust underlying demand trends.”

  1. India is relatively insulated from deflationary tendencies due to strong demand trends, but there is still a need to be watchful.Powerful deflationary forces that are at work in the global economy.
  2. “The one real challenge that looms ahead for India’s economy appears not to be price inflation but possibly price deflation,” Dr. Subramanian said.
  3. “Some of the public investment that we are ramping up now, strong demand trends and hopefully a reasonable monsoon will enable us to achieve the 8 per cent GDP growth,”.
  4. With the government working hard to increase the ease of doing business, and the strong demand in the economy, Foreign Institutional Investors are likely to start returning to the country.
  5. Skills India is one programme where hands-on skills to workers will be provided so they can join industry, including the auto components industry.
  6. In addition, the government is planning an investment of Rs 8.5 lakh crore in the Indian Railways, investments in roads have doubled and the National Infrastructure Investment Fund will further help in providing investment in the infrastructure sector.

What else do you think works for our economy?

Global growth likely to be weaker than expected: IMF chief

Ms. Lagarde said Asia is still expected to lead global growth, but the pace is slowing with a risk of possibly sagging further due to recent financial market volatility.

  • The head of the International Monetary Fund says global economic growth is likely to be weaker than earlier expected and will remain at moderate levels.
  • Asia is still expected to lead global growth, but the pace is slowing with a risk of possibly sagging further because of recent financial market volatility.

Global economic situation will have a significant impact on developing countries, including Indonesia.

[Discuss] GDP growth estimates: Grappling with new complexities

Let us first understand the new methodology on GDP numbers, changed to reflect the new base year of 2011-12 against the earlier one of 2004-05.

  1. The revised methodology, changed the way GDP numbers have been calculated. The new method was used to calculate the figures for 2014-15.
  2. The new numbers changed GDP growth to 5.1 per cent from the earlier 4.5 per cent for 2012-13 and For 2014-15, the growth came at 7.3 per cent.
  3. Now, GDP is taken at market prices. This includes indirect taxes and excludes subsidies, quite different from what had been calculated so far. Which was GDP at factor cost, which included subsidies and excluded indirect taxes.
  4. The Central Statistics Office uses price deflators to convert nominal GDP into real GDP, which is a mix of WPI, CPI and other price indices.


Let’s dig out more on –

  1. Why this new methodology comes into picture this year?
  2. What is difference between Nominal GDP and Real GDP?

:( We are working on most probable questions. Do check back this section.

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