Economic Survey 2018 - Vol. 2, Ch. 1: an Overview of India’S Economic Performance in 2017-18 (Download PDF)

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GDP growth in 2017 - 18 - With Gross Domestic Product (GDP) growth averaging 7.5 % between 2014 - 15 and 2016 - 17. India can be rated as among the best performing economies in the world on this parameter.

  • Growth is expected to decline to 6.5 % in 2017 - 18, bringing the 4-year average to 7.3%, India’s GDP growth is to be significantly higher than most economies of the world

  • Growth is around 4 % points higher than global growth average of last 3 years and nearly 3 % points more than the average growth achieved by emerging market & developing economies

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Created with Highcharts 6.0. 7Performance ParameterAverage growth of GDP during 2014-17 (percent) Average growth of GDP during 2014 - 17 (percent) Average growth of GDP during 2014 - 17 (percent) 3.43.4224.54.56.96.97.37.3Average growth of GDP during 2014 - 17 (%) PerformanceParameterPerformance Parameter123402.557.510Performance ParameterAverage growth of GDP during 2014 - 17 (%): 3.4

As per the first Advance Estimates (1st AE), released by Central Statistics Office (CSO),

  • Growth rate of Gross Value of Added (GVA) at constant basic prices is estimated at 6.1 % in 2017 - 18, as compared to 6.6 % in 2016 - 17.

  • The decrease in GVA is because of lower growth in ‘Agriculture & allied’, and ‘Industry’ sector, which are expected to grow at 2.1 % and 4.4 % respectively.

  • In 2017 - 18, service sector is expected to grow at 8.3%, as compared to 7.7 % in 2016 - 17.

  • Within the services sector, only the performance of ‘Public administration, defence & other services’ sector is expected to decline in 2017 - 18.

The graph given below gives a clear view of the performance of Quarterly growth in GDP and GVA (%).

Image of Quarterly growth in GDP and GVA (percent)

Image of Quarterly Growth in GDP and GVA (percent)

Image of Quarterly growth in GDP and GVA (percent)

  • With GDP and GVA growth of 6.0 % and 5.8 % respectively in the first half (H1) of the current financial year, the implicit growth for the second half (H2) of the year works out to be 7.0 % and 6.4 % respectively, indicates recovery of the economy.

  • In the recent years, wedge between the real and nominal GDP growth has narrowed significantly. Inflation in the earlier period (particularly in 2012 - 13 and 2013 - 14) was significantly higher than the latter.

  • Differences in the nominal growth between GVA and GDP have also increased in the last few years. This is indicative of an increase in the share of net indirect taxes in GDP.

GVA growth of major sectors

  • Performance of the major sectors can be seen in the graph given below.
Image of Half-yearly growth in GVA at (2011-12) basic prices

Image of Half-yearly Growth in GVA at (2011 - 12) Basic Prices

Image of Half-yearly growth in GVA at (2011 - 12) basic prices

  • GVA growth in H1 of 2017 - 18 was 5.8%, with the two quarters depicting different picture. The declining trend seen in the previous few quarters in GVA growth was arrested in Q1 of 2017 - 18, which registered the same rate of growth as in Q4 of 2016 - 17.

  • 👌 One of the salient features of GVA growth in 2016 - 17 has been that two sectors viz. ‘Agriculture & allied’, and ‘Public administration, defence & other services’, contributed to 1/3rd of total growth of the economy.

  • Contribution of ‘Financial services, real estate and professional services’ to GVA growth progressively declined since 2013 - 14. It declined from an average of 32.7 % of GVA growth during 2012 - 13 to 2015 - 16 to 18.8 % in 2016 - 17.

Image of Percentage Contribution to GVA growth

Image of Percentage Contribution to GVA Growth

Image of Percentage Contribution to GVA growth

Quarter wise GVA growth

  • One reason why industry growth might have decelerated could be the slowdown in credit growth.

  • Decline may be due to lower demand for credit or greater recognition of the problem NPAs making banks more cautious on lending.

Per-capita Income

  • The real per capita income (measured in terms of per capita net national income at constant (2011 - 12) ) prices is one of the important indicators to represent welfare of people.

  • It is expected to increase from Rs. 77, 803 in 2015 - 16 to Rs. 86, 660 in 2017 - 18, growing at an annual average rate of 5.5%.

  • In nominal terms it increased by an average of 9.0 % per annum from Rs. 94, 130 in 2015 - 16 to Rs. 111, 782 in 2017 - 18.

GDP and Its Components

  • Consumption expenditure has been the major driver, accounts for nearly 60 % of the total GDP growth between 2012 - 13 and 2015 - 16.

  • This contribution increased to over 95 % in 2016 - 17, which is attributed to higher growth of both Private Final Consumption Expenditure (PFCE) and Government Final Consumption Expenditure (GFCE).

  • Higher growth of PFCE and GFCE owed mainly to the payment of higher wages and salaries to the government staff that followed the implementation of the recommendations of the Seventh Pay Commission. The growth of both is expected to be lower in 2017 - 18 as compared to 2016 - 17.

  • Fixed investment is expected to grow at a faster rate in 2017 - 18 than in 2016 - 17 (thus pointing to some recovery in investment), it is still not high enough to prevent a further reduction in the share of fixed investment in GDP.

  • Exports are expected to grow at 4.5 % in 2017 - 18, while imports are expected to grow at a faster rate.

  • The share of net exports of goods and services (as reflected in National Accounts Statistics) in GDP is expected to decline from (-) 0.7 % in 2016 - 17 to (-) 1.8 % in 2017 - 18.

Final Consumption Expenditure

  • In the 6 years between 2011 - 12 and 2016 - 17, the share of PFCE averaged 57.5 % in total GDP and its growth averaged 6.8%.
  • 👌 Private Final Consumption Expenditure (PFCE) has been the single most important driver of GDP growth and particularly so in 2016 - 17, when it contributed nearly two-thirds to GDP growth.
  • As per the 1st AE of 2017 - 18, the contribution of PFCE and GFCE to GDP growth is estimated to be 54.3 % and 14.4 % respectively.
  • Further disaggregation of PFCE reveals that the share of non-durable goods (bulk of which is food products) declined somewhat between 2011 - 12 and 2015 - 16 (after 2013 - 14).
  • The reduction is on expected lines, as with an increase in income levels, share of food products and in particular foodgrains tends to decline. There was a faster reduction in this share in terms of constant prices, which is associated with lower value of deflator (implying higher price rise) for some of food products viz. fish & seafood, fruits, etc. as compared to other commodity groups during this period.

Savings and Investment

  • Indian economy has registered a robust growth in the 4 years between 2014 - 15 and 2017 - 18, story on savings and investment in the economy has not been so heartening.

  • The investment rate (Gross Capital Formation (GCF) as a share of GDP) in the economy declined by nearly 5.6 % points between 2011 - 12 and 2015 - 16.

Table contain shows the Savings, Investment Rate (Per cent)

Table contain shows the Savings, Investment Rate (Per cent)

Savings, Investment Rate (Per cent)

2011 - 12

2012 - 13

2013 - 14

2014 - 15

2015 - 16

Investment Rate

39.0

38.7

33.8

34.4

33.3

Savings Rate

34.6

33.9

32.1

33.1

32.3

Saving Investment gap

-4.3

-4.8

-1.7

-1.3

-1.0

  • The major reduction occurred in the year 2013 - 14, when investment rate declined by nearly 5 % points. This was on account of number of factors like

    • difficulties in acquiring land

    • delayed and cumbersome environmental clearances

    • problems on infrastructure front

  • Although most of the problems have been addressed resulting in improved power situation, lessening of infrastructure bottlenecks, etc. , but the investment rate has not picked up.

  • Savings rate (Gross saving as a share of GDP) also declined by 2.5 % between 2011 - 12 and 2013 - 14 and has remained range bound thereafter.

  • The faster decline in investment rate vis-a-vis the savings rate has led to lower level of current account deficit.

Savings

  • Savings in an economy originate from households, private corporate sector and public sector (including general government).
  • The savings of household sector as a ratio of GDP have declined from 23.6 % in 2011 - 12 to 19.2 % in 2015 - 16, while that of private corporate sector have increased.
  • The reduction in the public savings up to 2014 - 15 can be ascribed to lower level of savings of public sector undertakings.

Graph below shows as gross savings as per GDP (percent)

Chart of Gross Savings as a share of GDP (percent)

Chart of Gross Savings as a Share of GDP (percent)

Chart of Gross Savings as a share of GDP (percent)

  • Within the households’ savings, there has been a substitution away from physical to financial assets, with the share of former declining by over 10 % points.

  • Public savings that declined from 1.5 % of GDP in 2011 - 12 to 0.9 % in 2014 - 15, it increased again in 2015 - 16. Increase could be due to higher collection of union excise duties, particularly from petroleum products and reduced level of petroleum subsidy bill of the central government.

  • Financial savings by the households are held mainly in currency, bank deposits, life insurance funds, provident and pension funds and of late in the form of shares and debentures.

  • The changes in savings of household are

  • Decline in the proportion of deployment of financial savings in bank deposits and life insurance funds.

  • An increase in share of currency, provident and pension funds, claims on government (primarily in small savings) in 2015 - 16.

  • Savings held in shares and debentures more than doubled, and within this category, mutual funds segment increased by 126%.

  • The overall financial savings of the households registered an increase of over 20 % in 2016 - 17, there was a decline in the savings in the form of currency by over 250%.

  • This decline primarily owed to the withdrawal of high denomination currency notes in November 2016 and partial remonetisation by end March 2017.

  • 📝 Savings channeled into bank deposits, life insurance funds and shares and debentures increased by 82%, 66 % and 345 % respectively.

  • Within a span of 2 years, savings in the form of mutual funds registered more than 11-fold increase.

  • Graph gives a clear picture of the savings in the past few years.

Chart of Household Financial savings as a share of GDP

Chart of Household Financial Savings as a Share of GDP

Chart of Household Financial savings as a share of GDP

Investment

  • The slow growth in fixed investment in the recent years could partly be ascribed to twin balance sheet problem.

  • This trend of declining fixed investment rate needs to be reversed at the earliest to realize the potential growth of over 8 % in the years to come.

  • The share of valuables in GDP has generally been declining since 2011 - 12. However, it is expected to increase to 1.5 % of GDP in 2017 - 18.

  • The institution-wise break-up of the investment in the economy has undergone significant changes in the last few years.

  • The investment rate of public sector (including general government) has increased to 7.5 % of GDP in 2015 - 16. This is in line with the greater focus on capital expenditure by the central government as well as the state governments during the year.

  • Fixed investment accounts for around 90 % of total investment. Fixed investment is in various assets including dwellings, machinery & equipment and intellectual property products (IPP), along with small contribution coming from cultivated biological resources (CBR).

  • Dwellings account for around 57 - 58 % of fixed investment and this share has remained fairly stable between 2011 - 12 and 2015 - 16. Household’s investment in dwellings has declined considerably, which is possibly linked to reduction in the share of household’s savings in the form of physical assets.

  • The reduction in share of machinery segment of fixed investment is primarily accounted for by the household sector.

Public Finance

📹 GST was unveiled after comprehensive preparations.

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GST (Goods and Service Tax): Yojana August 2017 Summary (Important)

Dr. Manishika Jain presents the summary of Yojana August 2017. The highlights include - GST

  • The Government is navigating the change and challenges, including the possibility that a substantial portion of the last-month (March 2018) GST collections may spill over to the next financial year.
  • Based on Controller General of Accounts (CGA) data, on the revenue front, there are three distinct trends during the first eight months of the current year: direct tax collections are on track; non-tax revenues have under-performed; and non-debt capital receipts, mainly proceeds from disinvestment, are doing well. 👌
  • The growth in direct tax collections of the Centre kept pace with the previous year, with a growth of 13.7%. The budgeted growth for indirect taxes for the full year 2017 - 18 is 7.6%; the actual growth till November is 18.3%.
  • The eventual outcome in indirect taxes during this year will depend on the final settlement of GST accounts between Centre and States and the likelihood that only taxes for eleven months (excluding IGST on imports) will be realized.
  • States’ share in taxes grew by about 25 % during 2017 - 18 (Apr-Nov), much higher than the growth in centre’s net tax revenue at 12.6 % and of gross tax revenue at 16.5%.
  • The total expenditure of the Government increased by 14.9 % during 2017 - 18 (Apr-Nov), as compared to 12.6 % in the same period of the previous year.
  • 👌 The advancing of the budget cycle and processes by almost a month gave considerable leeway to the spending agencies to plan in advance and start implementation early in the financial year, leading to progression of Central expenditure at a robust pace
  • States targeted to consolidate in the current year, after the UDAY-led aberration in their fiscal balances for the previous two years. The position of 21 State Governments that account for about 86 % of the total GSDP shows that their revenue receipts have kept pace with the previous year in terms of growth.

Prices and Monetary Management

Prices & Inflation

  • Inflation in the country continued to moderate during 2017 - 18. Headline inflation as per Consumer Price Index – Combined (CPI-C) declined to 3.3 % in 2017 - 18 (Apr-Dec) from 4.8 % in the corresponding period of 2016 - 17.
  • CPI inflation, which was below 3.0 % in the first quarter of 2017 - 18 mainly due to lower food inflation, especially pulses and vegetables, rose marginally and stood at 3.0 % in the Q2 of 2017 - 18.
  • Food inflation in terms of the Consumer Food Price Index (CFPI) declined to 1.2 % during 2017 - 18 (Apr-Dec) from 5.1 % in 2016 - 17 (Apr-Dec).
  • CPI-based inflation declined in all fields. The sharpest decline was in the field of ‘food and beverages’.
  • WPI inflation remained subdued for several months, surged during February and March 2017 due to sudden spurt in global crude oils prices. With the moderation in the global crude prices, inflation also moderated in the next four months till July, reaching a low of 0.9 % in June 2017.
  • As oil prices bounced back and moved upwards in the successive months, coupled with rising food prices, inflation too rose and reached the level of 3.6 % in December 2017.
  • WPI based food inflation declined to 2.3 % in 2017 - 18 (Apr-Dec) from 6.3 % in the corresponding period of 2016 - 17. WPI fuel & power inflation increased to 9.7 % 2017 - 18 (Apr-Dec) from (-) 6.5 % in the corresponding period of the previous year.
  • The inflation of manufactured group, which has the weight of 64.2 % in the WPI basket, has remained range bound hovering around 2.6%.

Monetary Management and Financial Intermediation

  • In the third bi-monthly Monetary Policy Statement for 2017 - 18 (in August 2017), the Monetary Policy Committee decided to reduce the policy Repo Rate by 25 basis points to 6.0%. It kept the rates unchanged in both October and December 2017.
  • 👌 In tandem with the re-monetisation process, from November 17, 2017, as a favourable base effect set in, the Year on Year (YoY) growth of both ‘Currency in circulation’ and ‘Reserve money’ (M0) turned sharply positive and higher than their respective growth rates in the previous year.
  • The performance of the banking sector, and in particular the Public Sector Banks, continued to be subdued in the current financial year. The gross non-performing advances (GNPA) ratio of Scheduled Commercial Banks increased from 9.6 % to 10.2 % between March 2017 and September 2017.

External Sector

  • Commodity prices (fuel and nonfuel) are also expected to grow in contrast to decline in the last few years. India’s external sector has continued to be resilient and strong in 2017 - 18 so far and the balance of payments (BoP) situation continued to be comfortable.
  • Commodity prices (fuel and nonfuel) are also expected to grow in contrast to decline in the last few years. India’s external sector has continued to be resilient and strong in 2017 - 18 so far and the balance of payments (BoP) situation continued to be comfortable.

India’s Merchandise trade

  • The year 2016 - 17 was characterized by positive growth in merchandise exports after two years of negative growth. Similarly, merchandise imports also printed positive growth in 2016 - 17 after three years of negative growth.
  • Imports decreased mainly due to a reduction in value of imports of crude oil and petroleum products.
  • Crude oil and petroleum products & gold and silver imports account to 97 % of reduction in imports.
  • The reduction in oil imports could be mainly attributed to a sharp fall in the prices of crude oil in international market.
  • A larger reduction in value of imports vis-a-vis that of exports helped in significant improvement in the merchandise trade balance
  • The reduction in trade deficit in this period has been the major contributor to bringing about an improvement in the current account deficit that declined.
  • India’s export growth continued to be negative in the H1 of 2016 - 17. In the H2 of 2016 - 17, it started recovering and the year 2016 - 17 witnessed a growth of 5.2%. In 2017 - 18 (April – December) export growth picked up further to 12.1%.
  • India’s export volume growth which moved to positive territory since March 2016 showed an upward trend till April 2017, but started decelerating afterwards, though it is still in positive territory.
  • In 2017 - 18 (April-December) trade deficit shot up to US $114.9 billion.

Balance of Payments

  • India’s balance of payments situation which has been benign since 2013 - 14, continued to be so in the H1 of 2017 - 18, despite some rise in CAD in Q1.
  • The surge in imports owed to sharp rise in imports of gold and increase in oil prices in the international markets.
  • The improvement in invisibles balance along with the net capital flows dominated by foreign investment and banking capital was more than sufficient to finance the trade deficit leading to accretion in foreign exchange reserves in H1 of 2017 - 18.

Invisibles

  • In H1 of 2017 - 18, there has been an increase in net invisibles surplus with increase observed in net services and net private transfers. Net services receipts increased by 14.6 % primarily because of the rise in net earnings from travel and telecommunications, computer & information services.
  • Private transfer receipts, mainly representing remittances by Indians employed overseas, increased by 10.0%.
  • Outflows on account of net investment income which had been increasing in the last two years, continued to rise in H1 of 2017 - 18 amounting to US $15.3 billion.

Capital/Financial account of BoP in H1 of 2017 - 18

  • Moderation in FDI flows in Q2 of 2017 - 18 led to a cumulative decline in FDI flows by 6.3 % in H1 of 2017 - 18 over its level during the corresponding period of the previous year.
  • Foreign portfolio investment (FPI) increased by 78.0%, from US $8.2 billion in H1 of 2016 - 17 to US $14.5 billion in H1 2017 - 18 reflecting positive outlook about growth potential of Indian economy.

Foreign Exchange Reserves

  • India’s foreign exchange reserves reached US $409.4 billion on December 29, 2017, with a growth of 14.1 % on a YoY basis from end-December 2016 and growth of 10.7 % from end-March 2017.
  • The foreign exchange reserves in nominal terms (including the valuation effects) increased by US $30.3 billion during H1 of 2017 as compared to same period during last year.
  • The import cover of India’s foreign exchange reserves increased to 11.1 months at end-September 2017.

Exchange Rate

  • During 2017 - 18 (up to December 2017), the rupee generally traded with an appreciating bias against the US dollar (barring depreciation in September and October 2017).
  • The rupee strengthened by 2.5 % to a level of Rs. 64.24 per US dollar during December 2017.
  • The appreciating trend vis-a-vis US$ has continued in January so far. During 2017 - 18 (April-December), on an average, the rupee has also appreciated against other major currencies besides the US dollar.
  • The appreciation of the rupee (in real effective exchange rate (REER) terms) indicates that India’s exports may have become slightly less competitive.
  • In the last few years, the value of Rupee has been relatively stable vis-a-vis US$. Within the year, fluctuations have been much less.

External debt

  • India’s stock of external debt increased by 5.1 % to US $495.7 billion at end-September 2017 from march-2017.
  • The increase in long term debt was primarily due to the increase in foreign portfolio investment included under commercial borrowings included under commercial borrowings.
  • Short term debt grew by 5.4%, mainly due to an increase in trade related credits.
  • Share of Government (Sovereign) debt in total debt increased to 21.6 % mainly due to other Government external debt component reflecting the increasing level of foreign portfolio investments in Government securities.
  • Foreign exchange reserves cover to total external debt improved to 80.7 % at end-September 2017 as compared to 78.4 % at end-March 2017.

Trade Policy

  • Two important developments in the trade policy during the year are the mid-term review of Foreign Trade Policy (FTP) and the recent multilateral negotiations of WTO in December 2017.
  • There were some developments on the trade logistics front and anti-dumping measures.
  • 👌 MEIS (Merchandise Exports from India Scheme) incentives for two sub-sectors of textiles and SEIS (Service Exports from India Scheme) for notified services have been increased by 2%.
  • In December 2017, a special package for employment generation in leather and footwear sector was approved by the Government, which is likely to help exports from these sectors.
  • Improved logistics have huge implications on increasing exports.

Prospects of Growth for 2018 - 19

  • The growth during 2018 - 19 could be higher, depending on a number of factors.
  • The global growth is expected to accelerate to 3.7 % in 2018 from 3.6 % in 2017. This can be expected to provide further boost to India’s exports, which have already shown an acceleration in the current financial year.
  • Remittances have shown signs of revival in the first half of current year and can be expected to pick up, particularly if oil prices maintain their rising trend witnessed in the current year.
  • There are signs of revival of investment activity in the economy and the recent pick up in the growth of fixed investment can be expected to maintain momentum in the coming year.
  • The policy rates can be expected to remain fairly stable if the inflation rate does not deviate much from its current levels.
  • Favorable interest rate regime prevailing in the global markets could provide greater certainty to the investment climate.
  • Downside risk to higher growth emanate from higher crude oil prices, which (going by current indications) can be expected to increase by about 10 - 15%.
  • Protectionist tendencies in some of the countries could have an impact on exports growth, while the possibility of tightening of monetary conditions in the developed countries could lead to lower capital inflows.
  • The monetary tightening could also lead to the possibility of financial stress and therefore can be a downside risk.
  • On balance, there is a strong possibility of growth in 2018 - 19 to be higher than what it is expected to be in 2017 - 18.

Sectoral Developments

Agriculture and allied sectors

  • The process of development, inter-alia, generally results in decline in share of agriculture in GVA, which is being witnessed in India too.
  • The declining share does not undermine the significance of the sector for employment, livelihood and food security. The agriculture sector itself has been witnessing a gradual structural change in recent years. The share of livestock in GVA of agriculture has been rising since 2011 - 12, while that of the crop sector is declining
  • As per the fourth Advance Estimates for 2016 - 17 released by Department of Agriculture, Cooperation and Farmers’ Welfare, India achieved a record production of food grains estimated at 275.7 million tons during 2016 - 17.

👌 India ranks first, with 9.6 % of the global net cropland area according to United States Geological Survey, 2017. Hence, India has tremendous potential for crop diversification and to make farming a sustainable and profitable economic activity.

  • Towards achieving a more diversified cropping pattern, the government is implementing the Crops Diversification Program in original green revolution states viz. Punjab, Haryana and in Western UP, to diversify paddy area towards less water requiring crops.
  • Agricultural productivity is determined by the appropriate use of critical inputs like irrigation, seeds, fertilizers, credit, machines, and technology and extension services.
  • Out of total operational holdings, only 9.4 % used certified seeds, 27 % used seeds of notified variety and only 9.8 % used hybrid seeds.
  • The All India percentage of net irrigated area to total cropped area was 34.5 % in 2014 - 15, which makes a large part of agriculture in India dependent on rainfall.
  • Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) is being implemented in mission mode with the help of Command Area Development to complete 99 major and medium irrigation projects to increase the coverage of irrigated area and thereby agricultural productivity.
  • To raise awareness about crop insurance among agricultural households, the Pradhan Mantri Fasal Bima Yojana (PMFBY), which is a yield index based crop insurance scheme was launched in 2016. It has made substantial progress with more ground coverage compared to erstwhile schemes.

Industrial, Corporate and Infrastructure Performance

As per the Index of Industrial Production (IIP), the industrial output increased by 3.2 % during April-November 2017 - 18 vis-a-vis the corresponding period of previous year. This was a composite effect of

  • Growth in electricity generation at 5.2%

  • Growth in mining sectors at 3.0%

  • Growth in manufacturing 3.1%

The eight Core infrastructure supportive industries, viz. coal, crude oil, natural gas, petroleum refinery products, fertilizers, steel, cement and electricity that have a total weight of nearly 40 % in the IIP attained a cumulative growth of 3.9% during April-November 2017 - 18.

The production growth of coal, natural gas, refinery products, steel, cement and electricity were positive. The steel production increased substantially, while the production of crude oil and fertilizers fell marginally during the period.

Demand for funds by Indian firms, in the wake of the credit slowdown, has been somewhat met by alternative sources such as corporate bonds, external commercial borrowings and commercial paper.

India has leapt 30 ranks over its previous rank of 130 in the World Bank’s latest Doing Business Report 2018. This has been made possible due to a host of measures undertaken by the Government including implementation of GST, Insolvency and Bankruptcy Code, and announcement of bank recapitalization.

A number of reforms were undertaken to boost industrial growth including Make in India program, Start-up India and Intellectual Rights Policy.

Sectoral initiatives

  • Steel: In order to address dumping of cheap steel imports from China, South Korea and Ukraine, the Government raised customs duty and imposed anti-dumping duty. Minimum Import Price (MIP) was introduced on a number of items in February 2016, with a sunset clause of one year. These measures helped the domestic producers and exports started recovering. The Government also rolled out a New Steel Policy in May 2017.

  • Micro, Small and Medium Enterprises (MSME) Sector: MSMEs play a crucial role in providing large scale employment opportunities at comparatively lower capital cost than large industries and also in industrialization of rural & backward areas. Government has also initiated the Pradhan Mantri Mudra Yojana for development and refinancing activities relating to micro industrial units.

  • Textiles and Apparels: It was found that since the implementation of Rs. 6000 crore package in June 2016, the package had a positive impact on the exports of Ready Made Garments (RMG) of Man-made fibres. The impact of the package improved over time and did not show any signs of attenuation.

  • Leather sector: Leather sector is also highly labor intensive sector. For the purpose of promotion of employment in the leather & footwear sector, a scheme was announced in December 2017 with an outlay of Rs. 2600 crore over three financial years from 2017 - 18 to 2019 - 2020.

  • Gems and Jewelry: India is one of the largest exporters of gems and jewelry. Growth of exports from this sector have risen from 0.7 % in 2014 - 15 to 12.8 % in 2016 - 17. The sector faces certain constraints that would require training in jewelry designing, setting up hallmarking centres, etc. and creation of multiple jewelry parks.

Infrastructure Performance

The Government has been increasing its investment over time on building infrastructure to support India’s long-term growth. Some of them include

  • Roads: The primary agenda of the Government in this sector has been building new National Highways (NHs) and also converting State Highways (SHs) into NHs. The new umbrella program ’Bharatmala Pariyojana’ aims to achieve optimal resource allocation for a holistic highway development.

  • Railways: The Government has emphasized on railways infrastructure development. The pace of commissioning Broad Gauge (BG) lines and completion of electrification have been accelerated. With financial assistance from Government of India, 425 km of metro rail systems are operational and about 684 km are under construction in various cities across India.

  • Ports: Under the Sagarmala Program which aims to promote port-led development along Indian coast line, 289 projects worth Rs. 2.17 lakh crore are under various stages of implementation and development.

  • Telecom: The programs including ‘Bharat Net’ and ‘Digital India’ aim at converting India into a digital economy.

  • Civil Aviation: Government is taking initiatives like liberalization of air services, airport development and regional connectivity through UDAN scheme.

  • Power: The Ujjawal DISCOM Assurance Yojana (UDAY) has focused on enhancing the financial health of DISCOMs by reducing interest burden, cost of power and aggregated technical and commercial losses. A new scheme, Saubhagya (Pradhan Mantri Sahaj Bijli Har Ghar Yojana), was launched in September 2017 to ensure electrification of all remaining willing households in the country in rural and urban areas.

Services

  • The services sector is the key driver of India’s economic growth, and is expected to contribute almost 72.5 % of GVA growth in 2017 - 18.
  • Out of the 32 States and Union Territories (UTs) for which data are released for new base (2011 - 12 series) by CSO, the services sector is the dominant sector contributing to more than half of the gross state value added (GSVA) in 15 states and UTs.
  • Among these 32 states and UTs, Delhi and Chandigarh are at the top with over 80 % and Sikkim is at the bottom with 31.7%.
  • FDI equity inflows to the services sector declined by 0.9 % to US $26.4 billion, though overall FDI equity inflows grew by 8.7%. The FDI equity inflows to these sectors grew by 15.0%, as compared to 0.8 % growth in total FDI equity inflows, mainly due to higher FDI in two sectors i. e. telecommunications and computer software and hardware.
  • India remained the eighth largest exporter of commercial services in the world in 2016 (WTO, 2017) with a share of 3.4%, which is double the share of India’s merchandise exports in the world. India’s services export growth returned to positive territory with 5.7 % growth in 2016 - 17.
  • Services exports recorded a robust growth of 16.2 % during April-September 2017, with turnaround observed in some major sectors like travel and software services.
  • India’s service sector imports also exhibited a much higher growth of 17.4 % in April-September 2017. Net services receipts rose by 14.6 % during April-September of 2017 - 18 as compared to H1 of 2016 - 17.
  • In India, the tourism sector has been performing robustly with Foreign Tourist Arrivals (FTAs) growing to 8.8 million in 2016. Foreign Exchange Earnings (FEEs) from tourism grew at 8.8 % to US $22.9 billion in 2016.
  • Outbound tourism has also picked up in recent years, with the number of departures of Indian nationals from India growing
  • As per NASSCOM data, India’s Information Technology –Business Process Management (ITBPM) industry grew by 8.1 % in 2016 - 17.
  • E-commerce market is estimated at US $33 billion, with a 19.1 % growth in 2016 - 17.
  • The share of real estate sector which includes ownership of dwellings accounted for 7.7 % in India’s overall GVA in 2015 - 16.
  • The growth of this sector decelerated in the last three years from 7.5 % in 2013 - 14 to 4.4 % in 2015 - 16. This was mainly due to growth of the ownership of dwelling segment decelerating from 7.1 % in 2013 - 14 to 3.2 % in 2015 - 16.
  • India-based R&D services companies, which account for almost 22 % of the global market, grew by 12.7%. However, India’s gross expenditure on R&D has been low at just around 1 % of GDP
  • India significantly lags behind other BRICS countries and in terms of company spending on R&D, India ranks marginally below China.
  • Foreign exchange earnings of India from export of satellite launch services have increased noticeably in the recent years. Consequently, India’s share in global satellite launch services revenue have also increased.
  • The Government has taken many initiatives in the different services sector, which include digitization, e-visas, infrastructure status to Logistics, Start-up India, schemes for the housing sector, etc. , which could give a further fillip to the services sector.
  • The prospects look bright with good performance of sub sectors like Tourism, Aviation, and Telecom. The downward risk however lies in the external environment for software and business services.

Social Infrastructure Expenditure

Social Infrastructure

  • The all India expenditure on social services as a percentage of GDP had remained in the range of 6 % during 2012 - 13 to 2014 - 15
  • The expenditure on social services as a percentage of GSDP for 29 States during the three years (i. e. from 2014 - 15 to 2016 - 17 (BE) ) indicates an upward trend from 6 % to 6.9%.

Status on Education

  • As per the Right to Education (RTE) indicators that reflect the effectiveness of universalization of education, most of the States have registered an increase in the percentage of schools complying with the PTR (Pupil Teacher Ratio) norms.
  • 👌 The GPI (Gender Parity Index) reflects disparity of girls vis-a-vis boys in access to education. With consistent efforts by the government through programs like Beti Padhao, Beti Bachao, the GPI has improved substantially at the primary and secondary levels of enrolment.
  • In higher education, gender disparities still prevail in enrolment, for which various programs are being implemented by the Government to improve net intake rate of women in higher education.
  • Malnutrition still remains the most important risk factor (14.6%) that results in disease burden in the country, though dropping substantially since 1990.
  • Around 5 % of health loss is attributable to unsafe water, sanitation, and hand-washing practices, which the government is trying to address through the Swachh Bharat Mission (SBM).

Swachh Bharat Mission-Gramin

  • According to the World Bank estimates, the lack of sanitation facilities costs India over 6 % of GDP. Government launched the Swachh Bharat Mission to provide proper sanitation facilities to people in rural India.

Labour Reforms

  • The employment sector in India poses great challenge in terms of its structure which is dominated by informal workers, high levels of under employment, skill shortages and labour markets with rigid labour laws and institutions.
  • In this context, the Government is in the process of rationalization of the 38 Labour Acts by framing relevant provisions of existing laws into 4 labour codes viz. , Code on Wages, Code on Industrial Relations, Code on Social Security & Welfare, and Code on Safety & Working conditions.

Sustainable Development, Energy and Climate Change

Sustainable Development Goals

  • There are many similarities between the path India has chosen for development and the UN goals for Sustainable Development.
  • UN Sustainable Development Goals (SDGs) adopted by the international community in September 2015 cover social, economic and environmental dimensions. There are 17 SDGs which have 169 targets to be achieved by 2030.
  • India presented its first Voluntary National Review (VNR) on the implementation of SDGs on 19th July, 2017 at the High Level Political Forum on Sustainable Development (HLPF) at United Nations, New York.
  • 👌 The VNR report focused on 7 SDGs: SDGs 1 (No Poverty); 2 (Zero Hunger); 3 (Good Health and Well-Being); 5 (Gender Equality); 9 (Industry, Innovation and Infrastructure), 14 (Life below Water) and 17 (Partnerships for the Goals).

Urban India and Sustainable Development

  • The need of the hour is the provision of public services by the cities to its residents. Raising resources of the magnitude that is required for a sustainable urban transformation is going to be a daunting challenge.
  • The average cost recovery is less than 50 % in most of the Urban Local Bodies (ULBs). The way forward is to encourage the ULBs to raise resources through various innovative financial instruments such as municipal bonds, PPPs, credit risk guarantees, etc.

Access to Sustainable Energy

  • Over the years the country has made considerable progress in providing access to clean cooking options to households, a large number of people still lack access to clean cooking fuels. Access to modern energy sources is of paramount importance, as it can reduce the amount of time spent on collection of firewood thereby leading to a positive impact on girls’ education and employment.
  • Complementing the “Ujjawala Yojna scheme, government has come out with other initiatives namely “Ujjawala Plus” which will address the cooking needs of deprived people who are not covered under the Socio-Economic Caste Census.
  • As per Saubhagya portal of Rural Electrification Corporation, out of 18.1 crore rural household in the country, 14.2 crore (78%) rural households have been electrified (as on January 16, 2018).
  • Out of the total installed capacity of electricity in India, around 18 % was from renewable energy source.
  • 👌 International Solar Alliance (ISA) is the first International inter-governmental treaty-based organization headquartered in India. Currently, 46 countries have signed and out of these, 19 countries have ratified the ISA Framework Agreement.
  • ISA is a trillion-dollar opportunity in solar energy. Economy and industry in turn can get benefitted by the business opportunities available across 121 ISA member countries.

India and Climate Change

  • Government of India is implementing the National Action Plan on Climate Change (NAPCC), which includes eight national missions covering solar energy efficiency, agriculture, water, sustainable habitat, forestry, Himalayan eco system and knowledge, apart from various other initiatives. 👌
  • Key takeaways for India from COP 23 have been that the agenda of pre-2020 climate change commitments and implementation has found a significant place in COP 23 outcome in the form of a decision with steps for future action on pre-2020 action and ambition.

Current Multilateral Negotiations on Climate Change

  • India has been able to preserve differentiation in informal notes/texts on various elements of Paris Agreement work program including nationally determined contributions, adaptation communication, transparency framework, compliance, technology framework, finance and capacity building prepared for further work on rules, modalities and guidelines for Paris Agreement.

- Published/Last Modified on: March 27, 2018

Economy

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