51598640 Crisil Economic Outlook

8/6/2019 51598640 Crisil Economic Outlook

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January 2011

CRISIL EcoViewEXECUTIVE SUMMARY............................................................ 1

OUTLOOK .................................................................................... 2

INDIAN ECONOMY OUTLOOK 2011-12 .............................. 5

INDUSTRIAL PRODUCTION ................................................. 10

THE EXTERNAL SECTOR ........................................................ 12

INFLATION .................................................................................. 13

MONEY AND BANKING ......................................................... 15

MARKETS ..................................................................................... 17

GLOBAL ECONOMIC OUTLOOK ......................................... 20

QUARTERLY UPDATE: BOP ..................................................... 3


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Economic ResearchA monthly review and analysis of key macro-economic parameters along with outlooks on drivers of the economy,

presented by CRISIL's team of renowned economists. Periodic outlooks and views on key regulatory and policy

announcements, besides regular in-depth analysis of key themes also form part of this document, titled 'CRISIL

EcoView'.

Industry ResearchAn annual service on 47 industries, our Industry Research Service offers a detailed analysis of the market, factors

impacting performance, players and outlooks on the performance and profitability of sectors.

Industry Risk ScoreCovering 135 industries, CRISIL Industry Risk Scores capture the influence of industry variables and the extent of

their impact on cash flows and debt repayment ability of companies in an industry over a short-to-medium term

horizon. These scores are accessed by a large numbers of banks and corporates to assess industry risks while

evaluating the performance of companies.


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Contact Details:

Email: [email protected]

Mumbai: +91 (22) 3342 8000

Delhi: +91 (11) 4250 5100

Dharmakirti Joshi Chief Economist, CRISIL

Sunil K. Sinha Senior Economist, CRISILVidya Mahambare Senior Economist, CRISIL

Poonam Munjal Economist, CRISIL

Parul Bhardwaj Economist, CRISIL

Dipti Saletore Economist, CRISIL

Vishal Belsare Economist, CRISIL

Overview

January 2011

Dharmakirti Joshi

Chief Economist, CRISIL

Rising risks

A few months back, we had raised our growth expectation for the Indian economy to 8.6 per

cent from 8.2 per cent for 2010-11 in view of the economy's strong performance in the first half

of the year. We believe growth will moderate to 8.3 per cent in the next financial year (2011-12).

The rising cost of credit will slow down industrial growth to 8.2 per cent. But despite a normal

monsoon, agriculture growth is likely to decline to 2.7 per cent due to a higher base of 2010-11.

The service sector, with a likely growth of 9.6 per cent, will remain the key driver of economic

growth in 2011-12.

The rising interest rates will slow down demand. We expect investment growth to moderate to

8.1 per cent in 2011-12 from 13.1 per cent in 2010-11. Private financial consumptionexpenditure growth too is expected to decelerate due to costly loans.

A strong growth rebound in 2010-11 notwithstanding, risks to the economy have heightened

and will challenge the growth prospects for 2011-12. The first and foremost risk is that of

inflation, which surprised policy makers and market participants throughout 2010. Food

inflation, which has been the most stubborn component of inflation, will require fast tracking

of agricultural productivity enhancing measures. This will need to be complemented with

steps to improve efficiency in storage, cut retail margins and thwart player strategies to keep

agricultural prices high. The risk to food prices in 2011 has also heightened due to agricultural

shock in some major food producers like Australia. Persistently high food inflation can

transmit into other sectors via the wage price spiral. Inflation also faces risks from a spike in

global oil and commodity prices due to the easy monetary policy stance being followed inadvanced economies.

The monetary policy is not very effective in dealing with the inflationary pressure arising from

supply shocks, but will have to remain tight to ensure that supply shocks do not morph into

generalised inflation. So further rate hikes from the RBI appear to be in the offing.

The rising current account deficit does not pose a problem right now, as India continues to

attract capital inflows due to favourable interest rate differentials and better growth prospects

vis--vis advanced economies. But it does expose India to sharp currency fluctuations in case

of a capital flight. The recently released RBI's Financial Stability Report points towards the

worsening of external sector ratios, particularly the rising dominance of portfolio and debt

flows in comparison to more stable investment flows. The rising external risks will, therefore,need careful monitoring.


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Executive Summary

January 2011

1

Current account deficit to GDP crosses 4

per cent in second quarter of 2010-11

Industrial growth surges in October 2010

Trade deficit narrows further in November

2010

WPI inflation moderates in November

2010

While the current account deficit widened to US$

15.8 billion in the second quarter of 2010-11 (4.1 percent of GDP) due to higher trade deficit, the capital

account posted a surplus of US$ 20.5 billion, backedby buoyant net portfolio investment. As a result, the

overall balance of payments, excluding the valuationeffect, remained in surplus in the second quarter of

2010-11, with US$3.3 billion net accretion to foreignexchange reserves. The current account deficit as a

percentage of GDP is expected to be 3.3 per cent in2010-11 owing to higher trade deficit and lower

invisible surplus.

Industrial output growth rose from 4.4 per cent inSeptember to 10.8 per cent in October 2010 on low

base and acceleration in month-on-month (m-o-m)momentum. While capital goods output rose sharply

by 22.0 per cent, led by around 40 per cent growth intransport equipment & parts, consumer durables too

posted a strong growth of 31.0 per cent in October2010. The double-digit growth in industrial

production is unlikely to continue for the remainingmonths of the fiscal due to the high base. Overall, we

expect average industrial growth to be around 9.0per cent in 2010-11.

India's merchandise exports (in US$ terms) grew at26.5 per cent in November 2010 as compared with

21.3 per cent in the preceding month. Importsgrowth (in US$ terms) accelerated to 11.2 per cent in

November 2010 compared with 6.8 per cent in

October. Lower growth in imports as compared toexports led to the narrowing of the trade deficit to

US$ 8.9 billion in November 2010.

Headline inflation based on WPI moderated to a 11-

month low of 7.5 per cent in November 2010 ascompared to 8.6 per cent in the previous month,

mainly due to the base effect. Primary articlesinflation slipped to a 1-year low of 13 per cent as

primary food inflation slipped into single-digits.

However, the recent weekly inflation data for mid-December shows that food inflation has once again

accelerated to 14.4 per cent. Core (non-foodmanufacturing) inflation also accelerated for the

second consecutive month to 5.4 per cent in Nov 2010.On balance, we expect annual average inflation to

settle in the range of 8.0-8.5 per cent for 2010-11.

Non-food credit growth, for the fortnight ending

December 17, 2010, rose by 180 bps m-o-m to 23.7 percent. During the same fortnight, deposit growth

remained at 14.7 per cent the same as in the previous

month, and lower than the 17.9 per cent recorded inthe same fortnight previous year. Deposit growth hasremained sluggish despite higher rates offered by

banks over the past few months. During December,the advance tax outflows and faster pick-up in bank

credit as compared to deposit growth exertedadditional strain on liquidity for banks, even as the

RBI continued with its liquidity enhancing measures

Against a marked depreciation in November, the

rupee appreciated in December 2010 by close to 3 percent against the US$ on a m-o-m basis. During 2010,

the Rupee appreciated by around 4 per cent againstthe US$. Going forward, the rising interest rate

differentials between India and West are expected todrive strong FII inflows into India, thus pushing the

Rupee upwards. However, a widening currentaccount deficit is expected to exert downward

pressure. On balance, the Rupee is expected to settlein the range of 43.5-44.0 per US$ by March-end 2011.

The yield on the benchmark 10-year G-sec droppedby 20 bps to 7.9 per cent by the end of December 2010

end as compared to the previous month's closing.Slowing inflation and the RBI's decision to repurchase

bonds during the month helped to reduce the yield onthe benchmark 10-year bond. Given the possibility of

another rate hike by the RBI in view of the rising foodinflation, we expect the 10-year benchmark yield to

firm up in comparison to the temporary easing in the

last week of December 2010. On balance, the yield onthe 10-year G-sec is expected to end 2010-11 at around

8.1-8.3 per cent.

Credit growth continues to pick up

Rupee appreciates in December 2010

10-year G-sec yield drops in December 2010


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2

Outlook2010-11

CRISIL EcoView

Growth Agriculture 5.0 2.7

Industry 8.6 8.2

Services 9.4 9.6

Total 8.6 8.3

Inflation WPI-Average 8.0-8.5 5.8

Interest rate 10-year G-Sec 8.1-8.3 7.9-8.2

(Year-end)

Exchange rate Re / US $ 43.5-44.0 4.5-43.0

(Year-end)

Fiscal deficit As a % of GDP 5.0 5.5

2010-11 Rationale

CRISIL expects GDP to grow by 8.6% in FY11 driven by normal

monsoon, strong consumption and investment demand, and

buoyancy in services sector. We expect GDP growth to slow down to

8.3% in FY12. Industrial growth will slow owing to rising interest

rates. Agriculture growth, despite a normal monsoon, would decline

due to a higher base. Services will remain the main driver of growth.

Although rising food and commodity prices will peg inflation at 8.0-

8.5% in FY11, stability in global commodity prices could help in

containing supply-side pressures going forward. Food inflation

would remain a worry even with normal monsoon. RBI, via monetary

tightening, would keep demand-side pressures in check. We

therefore expect inflation to average 5.8 per cent in FY12..

Concerns over rising inflation and tight liquidity are likely to stabilise

the yield on 10-year G-sec at 8.1-8.3% by end-March 2011. We expect

the 10-year yield to remain at 7.9-8.2% by end-March 2012 with the

likelihood of reduced inflation, improved liquidity given rising

capital inflows, and the monetary policy stance turning from tight toneutral towards end-FY12.

Increased capital inflows owing to interest rate differential helped the

Indian Rupee to continue appreciating in FY11. We expect the Rupee

to appreciate further in FY12 given a likely robust GDP growth and an

increasing interest rate differential with RBI's tight monetary policy.

India's fiscal deficit is likely to be a lower-than-budgeted 5.0% of GDP

in FY11 owing to a likely increase in tax revenue collection, windfall

gains from wireless communication spectrum sales, and decreased

subsidy bill. Revenue growth is unlikely to be as buoyant in FY12 due

to a high base, absence of 'one-off' revenue gains such as those from

the wireless spectrum auction, an increase in states' share in central

revenue as recommended by 13th finance commission, and a slow-

down in nominal GDP growth. CRISIL therefore expects fiscal deficit

to increase to 5.5 per cent of GDP inFY12.

2011-12


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January 2011

3

Quarterly update: BoP

India's overall balance of payments remained

positive during the second quarter of 2010-11, but itscurrent account deficit widened to US$15.8 billiondue to the growing trade deficit, while the netinvisibles surplus remained unchanged at US$19.6

billion. At US$15.8 billion, current account deficit inthe second quarter of 2010-11 is nearly 72 per centhigher over the same period last year. Currentaccount deficit , therefore, swelled by 109 per cent y-o-y to US$27.8 billion during the first half of 2010-11.On the other hand, capital account witnessed netinflows of US$20.5 billion (excluding errors andomissions). Thus, the overall balance of payments

(BoP) shrank to US $3.3 billion in the July-September2010 quarter from US $9.4 billion in the same quarterof last year.

Buoyed by the global recovery, merchandise exportsgrew by 25 per cent y-o-y and were valued at US$54.3

billion in the second quarter of 2010-11. Imports, onthe other hand, grew at slightly lower rate of 22.8 percent. In absolute terms, however, incrementalimports wereh i g h e r t h a ni n c r e m e n t a l

exports, thuswidening thetrade deficit by19.6 per cent y-o-y to US$ 35.4

billion for the quarter ending September 2010.Cumulative trade deficit rose to US$66.9 billion in thefirst half of 2010-11 from US$55.9 billion in the same

period last year, with total exports at US$110.5 billion

and imports at US$177.5 billion.

During the second quarter of 2010-11 services exportsincreased by 39.6 per cent y-o-y, led by travel,transportation, software and business services.Services exports had declined by 26.3 per cent duringthe corresponding period of last year. Imports ofservices too grew by an impressive 40.7 per cent y-o-y.Transfers, a major component within the invisibles,decelerated marginally by nearly 6 per cent y-o-y inthe second quarter of 2010-11 in line with a fall inremittances from Indians working abroad. Net

investment income also fell by a staggering 299 percent y-o-y for the comparable period. Consequently,net invisibles receipts declined by 3.9 per cent toUS$19.6 billion during the second quarter of 2010-11.

During the second quarter of 2010-11, capital inflows(excluding errors & omissions) were at US$20.5

billion as compared to US$19.3 billion during thesame period last year. Mirroring the sound macroeconomic fundamentals,stable policy environment,interest rate differentials

and attractive returns in theIndia equity market, the netpo r t fo l io investmentsnearly doubled to US$19.2

billion in the quarter ending September 2010 fromUS$9.7 billion during the same quarter last year. Netforeign direct investment (FDI), however, fell by US$5

billion to US$2.5 billion in the second-quarter of 2010-

CCurrent account deficitwidens further on rising

trade deficit during

second quarter of 2010-11

Figure I: Current Account Balance (US$ bn)

Source: RBI Source: RBI

Table I: Current Account deficit widens further

FY10 FY11

(US$ bn) 3QPR 4QPR 1QPR 2QPCurrent Account balance -12.2 -13.0 -12.1 -15.8

Net Merchandise -31.1 -31.5 -31.6 -35.4

Net Invisibles 18.9 18.5 19.4 19.6

Net Software Services 12.9 14.0 12.1 12.2

Net Transfers 13.0 12.6 13.1 13.0

Current Account balance -3.4 -3.4 -3.2 -4.1

Net Merchandise -8.8 -8.2 -8.3 -9.2

Net Invisibles 5.3 4.8 5.1 5.1

Net Software Services 3.6 3.6 3.2 3.2

Transfers 3.7 3.3 3.4 3.4

H1-27.9

-66.9

39.1

24.3

26.1

% of GDP

-3.6

-8.7

5.1

3.2

3.4

-27.9

-38.4

-12.2 -13.0 -12.1

-15.8

-40.0

0.0

FY09 FY10 3Q10 4Q10 1Q11 2Q11

Note: P- Preliminary; PR-Partially revised

NNet FII inflowsboost capital

account surplus


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7.2

53.6

14.7

20.5

16.216.1

0.0

60.0

FY09 FY10 3Q10 4Q10 1Q11 2Q11

Outlook

Current account deficit as a percentage of GDP isexpected to be 3.3 per cent in 2010-11 owing to the risingtrade deficit and lower invisible surplus. However,higher CAD has helped in slowing down the pace ofrupee appreciation vis--vis the dollar despite thesudden rise in capital inflows during this fiscal. Ahigher surplus in capital account than the deficit incurrent account is expected to result in positive BoPduring the fiscal.

11, mainly on account of lower FDI inflows into

construction, real estate, business and financialservices. Country-wise, there was a significantdecline in FDI from Mauritius and Singapore. FDIinflows have slowed down because of the recent dipin the risk-appetite of global investors. Short-termcredit and external commercial borrowings rosesharply in the reporting period.

External commercial borrowings (ECBs) increased toUS$3.7 billion during the quarter ended September2010 from US$1.2 billion during the same period lastyear due to higher disbursements of commercial

loans to India. Banking capital, which is generally avolatile and unpredictable component, recorded netinflows of US$3.2 billion during the quarter (asagainst US$4.4 billion last year) because of the

buildup in foreign assets of commercial banks. Short-term credit too jumped sharply by nearly 112 per centy-o-y to US$2.6 billion during the quarter.

With capital account surplus exceeding the currentaccount deficit, the overall balance of paymentremained in surplus during the second quarter of2010-11, with US$3.3 billion net accretion to foreign

exchange reserves (excluding the valuation effect). Innominal terms (including valuation effects), foreignexchange reserves increased by US$17.2 billionduring the quarter, reflecting the depreciation of theUS dollar against major international currencies.

4

CRISIL EcoView

Figure II: Capital Account Balance (US$ bn)

Source: RBI Source: RBI

Table II: Current Account deficit widens further

FY10 FY11

(US$ bn) 3QPR 4QPR 1QPR 2QPCapital Account balance 14.7 16.1 16.2 20.5

Net Foreign Direct

Investment (FDI) 3.9 3.2 2.8 2.5 5.3Net Portfolio Investment 5.7 8.8 4.6 19.2Net ECB 1.7 0.1 2.3 3.7Net Short Term Credit 3.3 5.0 4.2 2.6

Capital Account balance 4.2 4.2 4.3 5.3Net Foreign DirectInvestment (FDI) 1.1 0.8 0.7 0.6 0.7Net Portfolio Investment 1.6 2.3 1.2 5.0Net ECB 0.5 0.0 0.6 1.0Net Short Term Credit 0.9 1.3 1.1 0.7

H136.7

23.86.06.7

4.8

3.10.80.9

% of GDP

Note: P-Preliminary; PR-Partially revised


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3.6

5.8

8.0-8.5

2.0

6.0

10.0

FY10 FY11 F FY12 F

January 2011

5

India not only emerged relatively unscathed from

the global crisis, but is also set to return to its trendgrowth path during 2010-11. As per the CSO

estimate, the GDP grew at 8.9 per cent during the first

half of 2010-11. Driven by the inherent strength of its

d o m e s t i c d e m a n d , w h i c h w a s s u i t a b l y

complemented by Reserve Bank of India's monetary

management and the Central government's fiscal

stimulus, India's GDP is expected to grow at 8.6 per

cent in 2010-11. This will again place the country

amongst the fastest growing economies in the world.

As 8.5-9.0 per cent average annual GDP growth has

now become a new benchmark for India to assess its

growth performance, the theme of this month'sEcoview presents CRISIL's forecasts of GDP growth

and other macroeconomic variables for 2011-12 and

also outlines some potential risks to economy.

The GDP is expected to grow at 8.3 per cent in 2011-

12, as the rising cost of credit would slow industrial

growth to 8.2 per cent and agriculture growth,

despite a normal monsoon, would decline due to a

higher base. The servicesector, with a likely

growth of 9.6 per cent,

will remain the key

driver of economic

growth in 2011-12. A further pick-up in financing,

insurance, real estate and business services, given a

resurgent economy, will drive the growth in services.

GDP growth

Even trade, finance and communication are expected

to do well, although growth in this segment during2011-12 will be slightly lower than that in 2010-11.

On the demand side, domestic and export demand

are likely to provide sustained support to future

business prospects, and in turn, to investments

demand. However, investment activity would slow

down somewhat, as gross fixed capital formation is

expected to grow at 8.1 per cent in 2011-12 as

compared to 13.1 per cent in 2010-11. With

input/wage costs rising, corporate profits will come

under pressure unless these costs are passed on or

productivity improves. Also, the cost of capital hasgone up due to the monetary tightening by the RBI

over the past one year. Thus, in 2011-12, companies

would find it difficult to maintain a bottomline as

healthy as that in 2010-11. On the other hand, with

personal disposable income rising, we expect private

consumption expenditure to grow at 8.1 per cent in

2011-12, marginally lower than the estimated 8.4 per

cent in 2010-11.

Driven by rising

d i s p o s a b l e

i n c o m e , s o f t

i n t e r e s t r a t e

r e g i m e a n d

i n c r e a s e d

government spending on various social schemes,

Industrial growth

TThe current momentumin industrial growth

to continue

Source:CSO and CRISIL

Figure 1.1: Industrial growth (y-o-y %) Figure 1.2 : WPI Inflation (y-o-y %)

Source: Ministry of Industry and CRISIL

I. Indian Economy Outlook: 2011-12

GGDP to grow at 8.3per cent in FY12.

9.3

8.6

8.2

7.0

8.0

9.0

10.0

FY10 FY11 F FY12 F


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6

industrial activity remained largely buoyant during

2010-11 and is expected to clock a growth of 8.6 percent. However, IIP growth across the months became

volatile due to uneven growth in the capital goods

sector. Nevertheless, capital goods sector grew by 24

per cent during April-October 2010, indicating

continued robustness of investment demand. The

consumer durables sector has also been performing

consistently. The sector has been growing by over 20

per cent since July 2009, with the exception of

September 2010, when its growth declined to 10.9 per

cent. During April-October 2010, this sector posted a

growth of 24.4 per cent. We expect the current

momentum in industrial growth to continue and be

at 8.2 per cent in 2011-12.

As greater macroeconomic stability and improving

consumer sentiment will continue to drive

consumption and investment growth in 2011-12,

demand-side pressures on inflation is likely to

continue. However, we

expect the RBI's monetary

policy to rein in demand-

side pressures on inflation.

On the supply side, food

inflation has been a major cause of worry in 2010-11,

and is unlikely to come down any time soon despite

good monsoon in 2010. Besides the decline in per

capita food grain production, there has been a change

in the dietary habits of the people due to rising

Inflation

income. And agricultural production has yet to

adequately respond to these structural changes in thedemand pattern. It is, therefore, unsurprising that we

have been witnessing double digit food inflation for

nearly 2 years now. Another supply side issue with

regard to inflation is escalating global commodity

prices.

However, if monsoons remain normal in 2011 and oil

prices stabilise at US$ 85-90 per barrel, average WPI-

based inflation is expected to settle at around 5.8 per

cent in 2011-12. But any supply shock from

commodity prices due to the quantitative easing by

central banks in advanced countries can aggravate the

inflation build up. Therefore, the risk of inflation

going beyond our projected figure of 5.8 per cent

remains.

Although the RBI had indicated in its second quarter

review that the likelihood of further rate hike in the

immediate future is

relatively low, much

would depend on how

the growth and inflation

pans out in the near

t e r m . W h i l e G D P

growth appears to be on track, inflation continues to

be a cause of concern. Thus, the interest rate outlook

for 2010-11 would depend largely on three things

rate of inflation, quantum of government borrowing

and private credit demand.

Interest rate

Source: RBI and CRISIL

IInflation remainsa cause of worry

CRISIL EcoView

Figure 1.3: 10-year g-sec yields, year end (%)

7.8

8.1-8.3

7.9-8.2

6.0

7.0

8.0

9.0

FY10 FY11 F FY12 F

45.1

43.5-44.0

42.5-43.0

42.0

44.5

47.0

FY10 FY11 F FY12 F

Figure 1.4: Indian Rs-US$ exchange rate, year-end


GG-sec interest rates

to soften in FY12


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FY10 FY11 F FY12 F

3.0

5.5

8.0

6.7

5.5

5.0

January 2011

7

In addition to inflation worries, the bond yield is also

being driven by the tight liquidity conditions in themarket. Indian banks borrowed an average of Rs 923

billion a day from the Reserve Bank of India during

the last quarter of 2010, the most since 2000, as they

struggled to meet the rising demand for loans. To

ease the liquidity situation, the RBI cut the Statutory

Liquidity Ratio and conducted Open Market

Operations. However, liquidity is likely to remain

tight up to March 2011, and ease considerably

thereafter. Between April-September 2011, liquidity

should remain easy.

Going ahead, we envisage relatively less upwardpressure on the yield owing to the projected fiscal

deficit of the government remaining at 5.5 per cent

level for 2011-12, the enhanced cap on FII

participation in the G-sec market, and inflation

projections remaining lower in 2011-12 than in 2010-

11 despite uncertainties. Overall, we expect the yields

on the benchmark 10- year G-sec to end 2011-12 at

around 7.9-8.2 per cent, with interest rates in between

going beyond this level. Most of the upward move in

the G-sec rate is likely to come in the first quarter of

2011-12, when the government frontloads itsborrowing.

With the US and other developed economies

gradually recovering from the recession, and risk

appetite returning amongst global investors, we

expect heavy dollar inflows into economies like

Exchange rate

India, wherein the growth outlook is strong. With the

exception of a brief period of May- August 2010,when Rupee depreciated against

US$, due to the European debt

crisis, the pressure this fiscal has

been on rupee to appreciate.

However, increased demand for

dollars from oil importers, rising

prices of other imports, and demand from corporates

to pay back the previous external commercial

borrowings had exerted an opposite pressure on the

Rupee.

Going forward also, we expect the following factorsto exert upward pressure on the Rupee

a) Capital flows are expected to remain robust due

to the slow economic recovery in other parts of

the world. Net FII inflows amounted to US$

19.3 billion in the first half of the current fiscal as

compared to US$ 14.4 billion during same

period last year;

b) The rising interest-rate differential in the wake

of the RBI's monetary tightening will encourage

debt flows, and

c) Weak US$ due to ultra-low US interest rates and

weakness in the economy.

However, a rising current account deficit is expected

to put downward pressure on the Rupee. In fact, a

wider current account deficit during 2010-11 has

slowed rupee appreciation vis--vis the US dollar, as

Source: Budget Documents and CRISIL

Figure 1.5: Fiscal Deficit as a percentage of GDP Figure 1.6: Current Account Balance (as per cent to GDP)


RRupee on aappreciating

trend

-2.6

-3.5

-3.3

-4.0

-2.0

FY10 FY11 F FY12 F


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8

CRISIL EcoView

Table 1.1: Annual growth (year-on-year)

Source: CSO, CRISIL

the country used most of the capital inflows to fund

the deficit. On balance, we expect the Rupee to tradein the range of Rs 42.5-43.0 per US$ by March-end

2012. However, the margin of error for the exchange

rate forecast remains high in view of the fickle nature

of FII inflows.

Fiscal deficit

On the fiscal front, improved economic performance

in 2010-11 coupled with better-than-expected

revenues garnered via auction of the 3G and

broadband spectrum is likely to result in a situationwherein the revised estimate of fiscal deficit is going

to be much lower than the

budgeted estimate. The

a u c t i o n s g e n e r a t e d

revenues of Rs 1,070

billion (around 1 per cent

of GDP) as compared to

the budgeted amount of Rs 350 billion. Thus, we

expect the fiscal deficit to GDP ratio to settle at around

5 per cent in 2010-11.

Going forward, however, the government's balance-

sheet is expected to deteriorate. In 2011-12, the

revenue growth is unlikely to be as buoyant as it was

in 2010-11, firstly due to the base effect and secondly

due to a marginal slowdown in the GDP growth. Also,

the one-off gains, such as revenue from the 3-G and

broadband spectrum auction, will be absent. To

reduce fiscal deficit further, the government can step

up disinvestment, much would become known on

this front when the 2011-12 budget would bepresented. Thus, CRISIL expects the fiscal deficit in

2011-12 to be around 5.5 per cent of GDP.

Despite uneven global recovery, merchandise exports

during the first 8 months of 2010-11 stood at US$ 140.3

billion as compared to US $ 110.7 billion during the

corresponding period last year. Given the export

performance so far, India would not only meet but

may even exceedits exports target

of US$ 200 billion

for 2010-11. For

composition of

m e r c h a n d i s e

exports, data is

available only for

the first quarter of 2010-11. It shows that, at 85 per

cent, petroleum and crude products were the fastest

growing exports items, followed by ores and minerals

at 56 per cent.

For the financial year so far (April-November 2010),

imports stand at US $ 222.0 billion as against US $

179.1 billion during the same period last year. The

cumulative trade deficit, therefore, for the fiscal year

2010-11 so far works out to be US$ 81.7 billion. This is

20 per cent higher than the deficit of US$ 68.4 billion

during the same period last year.

Trade and current account deficit

GGrowing export demandand rising inflow of

invisibles to trim down

the current account deficit

Note: F- CRISIL forecast

2009-10 2010-11F

GDP factor cost 7.4 8.6Supply-side

Agriculture 0.2 5.0

Industry 9.3 8.6

Services 8.5 9.4

Hotels,trade, transport and communication 9.3 11.2

Finance 9.7 8.7

Community and social 5.6 6.9

Demand-side

Private consumption 4.3 8.4

Government consumption 10.5 9.7

Fixed investment 7.2 13.1

2011-12F

8.3

2.7

8.2

9.6

10.8

9.2

7.8

8.1

9.1

8.1

FFiscal deficit to riseto 5.5 per cent of

GDP in FY12


13/36

January 2011

9

But the capital account has been witnessing

sustained inflows; it received US$36.7 billion duringApril September 2010. However, the composition of

the inflows is posing a cause for concern, since it is

mainly driven by portfolio inflows. Cumulative FDI

inflows dropped by 40 per cent y-o-y to stand at US$

12.4 billion during AprilOctober 2010.

With the capital account surplus exceeding the

current account deficit, the overall balance of

payment has remained positive so far in 2010-11, and

we expect it to remain so for the remaining period of

this fiscal as well. However, a higher trade deficit and

lower invisibles surplus is expected to push current

account deficit to 3.3 per cent of the GDP in 2010-11.

But we expect the situation to improve during 2011-

12 on account of rising inflow of invisibles - as

advanced economies recover - and growing export

demand. Thus, the current account deficit is expected

to be around 2.6 per cent of the GDP in 2011-12.

Summary

The CRISIL macroeconomic forecasts presented here

are based firmly on our view of the fundamentals. We

recognize that the outlook on India's macroeconomic

variables can alter depending on any significant and

unanticipated changes in both the global and

domestic economy. On the domestic front, any

unanticipated sharp rise in inflation could result in

speedier tightening of the monetary policy. This, in

turn, would raise market interest rates, and hence,

slow down domestic economic growth, although the

probability of such a situation remains low. Similarly,

any bad news from the European debt crisis could

impact the economy via changes in capital inflows

and exchange rate.


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10

CRISIL EcoView

II. Industrial Production

sector, capital goods sector growth continues to behighly volatile. As compared to a consistently good

performance in the first five months of 2010, itsgrowth has become highly volatile and its 3-month

moving average showsa downward trend.

Although the index ofcapital goods dropped

by 1.5 per cent on m-o-m basis in October

2010, a very low base led to a y-o-y growth of 22.0 percent in October 2010. As compared to this, capital

goods' output recorded a contraction of 4.1 per cent in

previous month.

Meanwhile, the consumer durable goods segment

continues to be a key driver of industrial growth; itgrew by 31 per cent in October 2010. The sector has

been growing by over 20 per cent since July 2009, withthe exception of September 2010, when its growth

declined to 10.9 per cent. Thus, investment demand(as captured by the volatile trend in the capital goods

segment) looks uneven, but private consumptiondemand (as captured by the growth in consumer

durable goods sector) appears to be robust andsustained.

Growth in the basic goods segment more thandoubled to 7.7 per cent in October 2010 from 3.4 per

cent in September and 4 per cent a year ago. But

Source: CSO

Figure 2.1: Manufacturing Sector Growth (%)

FY10 FY11

10.9

2.7

11.3

10.8

Apr

5.0

10.0

15.0

20.0

0.0

Oct OctFY09 FY10

Source: CSO

Table 2.1: Sectoral Growth (y-o-y %)

April-Oct

Weight Oct-09 Oct-10 2009-10General 1000.0 10.1 10.8 6.8

Manufacturing 793.6 10.8 11.3 6.8

Mining 104.7 9.1 6.5 8.1

Electricity 101.7 4.0 8.8 6.2

Basic 355.7 4.0 7.7 5.8

Capital 92.6 10.9 22.0 6.0

Intermediates 265.1 15.4 9.5 10.1

Consumer Goods 286.6 11.4 9.6 5.5

-Durables 53.7 18.3 31.0 18.6

-Non durables 233.0 8.6 0.1 1.0

2010-1110.3

11.0

8.3

4.6

Use Based Industry (%)

5.8

24.0

10.4

8.2

24.4

1.7

Industrial output growth surged to 10.8 per cent in

October 2010, backed by a low base and a strongmonth-on-month momentum. The spurt in October

c a m e a f t e rindustrial growth

hit a 16-monthlow of 4.4 per cent

in the previous

month. The indexof industrial production (IIP), based on seasonally

adjusted series, grew by 3.6 per cent in October, ascompared with a decline of 1.1 per cent in September

and a 6.6 per cent fall in August. The above growthtrend indicates that industrial growth has become

quite volatile.

Manufacturing output grew by 11.3 per cent in

October 2010, as compared to a growth of 4.6 per centin September and 10.8 per cent a year ago. During

April-October 2010, the manufacturing segmentgrew by 11 per cent as compared to 6.8 per cent in the

same period last year. Mining and electricity, theother two major industrial segments, grew by 6.5 per

cent and 8.8 per cent, respectively, in October 2010, as

compared with a 4.9 per cent and 1.7 per cent growthin September. On a year-on-year basis, however,

growth in the mining segment was lower thanOctober 2009 levels of 9.1 per cent.

Among the use-based categories of manufacturing

IIndustrial output growthsurged to 10.8 per cent in

October 2010

CCapital goods growsby 22.0 per cent in

October 2010


15/36

January 2011

11

growth in the intermediates slipped to 9.5 per cent in

October from 10.9 per cent in September and 15.4 percent a year ago. The consumer non-durable segment

continues to stay weak, posting a growth of just 0.1

per cent in October 2010.

In October 2010, 15 of the 17 industries within the

manufacturing sector posted positive growth.During April-October 2010, the top five industries

were transport equipment and parts (29.2 per centgrowth), metal products and parts (25.5 per cent),

other manufacturing industries (24.3 per cent),machinery and equipment (18.4 per cent) and rubber,

plastic, petroleum & coal products (13.6 per cent).Industries that recorded negative growth during

Apri l -October 2010were beverages, tobacco

& related products (-1.2per cent) and wood &

wood products (-11.6

per cent).

Among the forward looking indicators, cement

production rose in October 2010 on a month-on-

month basis, after having declined during the past 6months. Production increased by 0.2 per cent m-o-min October 2010, with annual growth surging to

17.8 per cent. This is also reflected in the Ministry ofIndustry and Commerce's data on infrastructure

industrial production, which shows a growth of 16.8per cent in cement output in October 2010. Non-food

credit growth, an indicator of manufacturing activity

Table 2.2: Performers in Manufacturing Sector (%)

Source: CSO Note - Please refer to Annex (Table 8.4) for full description of abbrev used in the text

Table 2.3: Laggards in Manufacturing Sector (%)

Outlook

For October 2010, a low base together with a pick-up inmonth-on-month momentum led to a surge in industrial

output. However, this trend is unlikely to continue asthe high base will keep industrial growth at moderatelevels in the remaining months of 2010-11. On balance,average industrial growth in 2010-11 is expected to beabout 9 per cent.

in the economy, has been growing consistently by

around 20 per cent for the most part of current fiscalyear. For the fortnight ended December 17, 2010, non-

food credit grew by 23.7 per cent as compared to 11.8

per cent in the sameperiod last year. On

the trade front, bothexports and imports

posted a strongannual growth in November 2010 as compared to the

previous month. Exports grew by a healthy 26.5 percent and imports increased by 11.2 per cent in

November 2010 as compared with the previous

month's growth of 21.3 per cent and 6.8 per cent,respectively. The performance of these indicatorspoints towards growing consumption and

investment demand, which augurs well for themanufacturing sector, and hence, for the overall

economy.

April-Oct

Weight Oct-09 Oct-10 2009-10Transport Eqp 39.8 16.9 39.5 8.5

Metal Products 28.1 -4.0 19.5 -2.4

Oth. Manufacturing 25.6 6.9 24.6 8.9

Mach. & Eqp 95.7 15.9 15.9 12.1

Rubber 57.3 14.3 1.3 12.7

Food products 90.8 2.6 9.1 -9.9

Jute 5.9 -15.5 -0.5 -17.1

Cotton textiles 55.2 12.3 13.0 2.8

Peather 11.4 8.2 26.0 1.8

2010-1129.2

25.5

24.3

18.4

13.6

12.6

10.7

10.3

9.3

1515 of 17 industrieswitnessed positive

growth in October

2010

MMost lead indicatorsreport healthy growth

April-Oct

Weight Oct-09 Oct-10 2009-10Paper 26.5 0.6 11.3 1.3

NMMP 44.0 6.0 14.0 7.6

Metal and Alloy 74.5 -1.1 8.8 4.1

Textile products 25.4 16.9 10.3 10.5

Chemical 140.0 18.9 1.1 9.2

Wool 22.6 18.0 2.7 13.2

Beverages 23.8 0.2 3.1 -2.0

Wood 27.0 19.5 -25.7 9.1

2010-117.9

7.7

6.4

4.6

3.2

0.4

-1.2

-11.6


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12

CRISIL EcoView

India's exports grew at an annual rate of 26.5 per cent

(in US$ terms) in November 2010, after decelerating

to 21.3 per cent in the previous month. The export

growth was mainly driven by a low base. In absolute

terms, exports

were valued at

US$ 18.9 billion

in November as

compared to

US$ 18.0 billion in October 2010. During the same

period, imports also grew at a rapid 11.2 per cent asagainst 6.8 per cent. On a monthly basis, imports

were up by 0.4 per cent. A higher month-on-month

growth in exports vis--vis imports narrowed the

trade deficit to US$ 8.9 billion in November from US$

9.7 billion in October. The trade deficit in November

2009 had been much higher at US$ 10.1 billion.

Among the broad categories of imports, oil imports

recorded a shortfall of US$ 0.7 billion in November as

compared to the previous month. However, oil

imports increased by 2.3 per cent y-o-y (US$ 0.2

billion) to US$ 7.7 billion during November. As

compared to this, non-oil imports grew at an annual

rate of 15.0 per cent in November after it had slowed

to 9.9 per cent in the previous month. At US$ 20.1

billion, non-oil imports accounted for over 72 per

cent of total imports in November.

For the current financial year so far (April to

III. External Sector

Exports 14.9 18.9 110.7

Imports 25.0 27.8 179.1

Oil Imports 7.6 7.7 53.4

Non-oil Imports 17.4 20.1 125.6

Trade Balance -10.1 -8.9 -68.4

Exports 33.8 26.5 -4.6

Imports 6.4 11.2 -10.5

Oil Imports 26.8 2.3 -24.1

Non-oil Imports -0.5 15.0 -3.1

Trade deficit -18.3 -11.6 -18.6

Merchandise(US$ billion)

140.3

222.0

64.9

157.1

-81.7

y-o-y %

26.7

24.0

21.4

25.0

19.5

Source: Ministry of Commerce

April-Nov

Table 3.1: Trade Performance

Source: Ministry of Commerce

Figure 3.1: Exports Performance (US$ bn)

Nov-09 Nov-10 2009-10 2010-11

Outlook

Going forward, exports are likely to not only meet butexceed the government's annual target of US$ 200billion. However, a rising import bill due to strongimport demand and rising crude oil prices is expected towiden the trade deficit.

November 2010), exports stood at US$ 140.3 billion as

compared to US$ 110.7 billion for the same period last

year. This has raised hopes of exports not only

meeting but even exceeding the target of US$ 200

billion for 2010-11. From April to November 2010, the

cumulative imports were at US$ 222.0 billion as

compared to US$ 179.1 billion for the same period last

year. Hence, the cumulative trade deficit for the fiscal

year so far works out at US$ 81.7 billion. This is 20 per

cent higher than the trade deficit of US$ 68.4 billion

for the same period last year.

In rupee terms as well, exports grew at a faster pace of

22.3 per cent in November 2010 as compared to 15.3

per cent in October 2010. This is the fastest annual

growth in 5 months. In absolute terms, exports were

valued at Rs 850.6 billion. Imports recorded a growth

of 7.5 per cent in November 2010as compared with 1.5

per cent during the previous month. As a result, the

trade deficit in rupee terms reduced to Rs 400.7 billion

in November 2010 from Rs 432.1 billion in the

previous month and Rs 468.7 billion a year ago.

EExports grew at an annualrate of 26.5 per cent

162.9168.7

176.6

140.3

0.0

200.0

FY08 FY09 FY10 Apr May June July Aug Sep Oct Nov

FY11


17/36

January 2011

13

IV. Inflation

that food inflation has once again accelerated todouble-digits, indicating that the pressure exerted by

the food inflation has not subsided yet. This coupled

with rising domestic demand and higher globalcommodity prices has complicated the monetary

management process for Reserve Bank of India (RBI)as inflation continues to remain above the central

bank's comfort level.

Primary articles inflation slipped to 13 per cent inNovember 2010 from 16.7 per cent in the previous

month, as primary food inflation dropped to single-digits after a gap of 17 months. Primary food inflation

dropped to 9.4 per cent inNovember 2010 from 14.1 per

cent in the previous month,

mainly on account of the baseeffect (primary food inflation

w a s 1 6 . 7 p e r c e n t i nNovember 2009). Within the food basket, prices

dropped across the board on year-on-year basis.Inflation in food grains, led by pulses, turned negative

(-0.75 per cent) in November 2010. However, despitesome moderation, inflation in milk, eggs, meat and

fish remained at high double-digits levels (Table 4.2).

Inflation in fruits and vegetables declined for thesecond consecutive month to 6.7 per cent inNovember 2010 from 9.5 per cent in the previous

month.

But, as per the weekly data available for the week

ending December 11, 2010, inflation in onion rose to33.5 per cent from 29.9 per cent in the previous week.

Figure 4.1: Headline Inflation (y-o-y %)

Source: Ministry of Industry Source: Ministry of Industry

Table 4.1: Inflation in Major Product Groups

April-Nov

Weight Nov-09 Nov-10 2009-10

General 100.00 4.5 7.5 1.0

Primary 20.12 14.3 13.0 8.8

Fuel 14.91 -1.1 10.3 -7.0

Manufacturing 64.97 2.3 4.6 0.4

Primary - 71.3 42.7 191.2

Fuel - -3.9 20.9 -114.0

Manufacturing - 31.9 36.8 22.8

2010-11 y-o-y %

9.4

18.0

12.5

5.4

Contribution to inflation

45.0

20.0

35.0

PPrimary articlesinflation slips

to 1-year low

8.0

3.6

4.5 7.5

FY09 Nov May NovFY10

FY10

-2.0

2.0

6.0

10.0

14.0

18.0

13.5

8.3

WPI CPI

FY11

Headline inflation based on WPI moderated to 7.5

per cent in November 2010 from 8.6 per cent and 8.9per cent (revised) in October 2010 and September

2010, respectively. The deceleration in headlineinflation on year -on-year basis happened due to both

base effect and softening of prices across all majorcategories. However, on

a mo nth-o n-mo nthseasonally-adjusted

b a s i s , i n f l a t i o n

accelerated by 0.7 percent in November 2010

as compared to 0.3 per

cent in the previous month. In line with inflationbased on WPI, the same based on Consumer PriceIndex Industrial Workers (CPI-IW) also saw a sharp

decline in November 2010 when it slowed to 8.3 percent from 9.7 per cent in previous month. The decline

was led by moderation in prices of food items whichcarry a significant weight in CPI basket of goods.

In an important development, food inflation

(primary and manufacturing) slid into single digits

after remaining in double-digit territory for 17consecutive months. It stood at 6.1 per cent in

November 2010 as compared to 10.0 per cent in theprevious month as supply of kharif food grains and

winter vegetables hit the market. Among food items,inflation in cereals and pulses witnessed a sharper

inflation as compared to protein-related food itemssuch as egg, fish, meat and milk etc, reflecting the

structural nature of food inflation. However, weeklydata for the week-ending December 11, 2010, shows

HHeadline inflationeases to 11-month

low on base

effect


18/36

14

CRISIL EcoView

Onion prices have risen abruptly due to untimelyrain in Maharastra, Gujarat and other Southern

states, which has destroyed the crop. The subsequentweeks would reflect the full impact of the failed crops

on prices.

Persistent high inflation in non-food primary articlesremains an area of concern. It stood at 23.2 per cent in

November 2010, the third consecutive month inwhich it has stood above 20 per cent. The rise was

fuelled by prices of logs & timber and flowers, all ofwhich increased by 35 per cent each. Meanwhile,

inflation in minerals moderated for the second

consecutive month to 21.5 per cent in November 2010from 25.4 per cent in the previous month.

Fuel price inflation moderated to 10.3 per cent in

November 2010 from 11.0 per cent in the previousmonth. Inflation in coal mining decelerated sharply

to 0.2 per cent in November 2010 from 3.8 per cent amonth ago. Both coking and non-coking coal

contributed to this decline. In the mineral group,inflation in petrol accelerated to 18.2 per cent in

November 2010 from 16.6 per cent in the precedingmonth. Inflation in kerosene remained unchanged

from last month, while inflation in aviation turbinefuel (ATF) and naptha decelerated. Rising global

crude prices pose a significant risk to fuel inflation,

going forward.

Manufacturing inflation softened marginally to 4.6per cent in November 2010 from 4.7 per cent in the

previous month. This is the third consecutive month

Source: Ministry of Industry

Table 4.2: Inflation in Primary Articles (y-o-y %)

April-Nov


Cereals 3.4 14.3 1.2 12.1

Pulses 0.7 29.1 -8.4 18.2

Fruits & Vegetables 3.8 5.1 6.7 7.7

Eggs,Meat & Fish 2.4 27.6 20.0 14.8

Fibres 0.9 2.5 36.2 -3.8

Oilseeds 1.78 -0.4 7.4 0.1

Metallic Minerals 0.5 -16.9 57.6 -11.1

Other Minerals 0.1 2.9 2.6 1.4

2010-11

6.4

10.5

11.5

31.8

24.2

4.0

49.9

1.1

Table 4.3: Inflation in Manufactured Products (y-o-y %)

April-Nov


Chemicals 12.0 -0.9 4.9 -1.7

Food Products 10.0 17.9 0.6 11.3

Textiles 7.3 2.9 10.3 1.6

Machine Tools 8.9 -0.3 2.8 0.4

Metal & Alloys 10.7 -7.4 7.1 -11.6

Transport Eqp. 5.2 3.3 2.7 3.8

NMMP 2.6 7.2 2.6 8.3

Rubber & Plastic 3.0 0.2 6.0 -0.3

2010-11

4.9

5.1

10.4

2.5

7.6

3.0

2.6

5.1

Outlook

Headline inflation for November 2010 has moderated in

line with expectations. High base along with good kharifharvests is expected to further ease inflation, goingforward. However, the structural nature of food inflationcoupled with rising global commodity prices continue to

pose an upward risk to inflation. On balance, we expectannual average inflation to settle in the range of 8.0-8.5

per cent for 2010-11, and drop to around 6 per cent by theend of March 2011.

of sub-5 per cent manufacturing inflation, indicating

that the RBI's monetary tightening measures havesucceeded in reining in demand-side pressures on

inflation. Inflation in manufactured food itemsdropped sharply to 0.6 per

cent in November 2010from 3.0 per cent in the

previous month. However,c o r e ( n o n - f o o d

manufacturing) inflationaccelerated for the second

consecutive month to 5.4 per cent in November 2010,

driven by inflation in chemical and chemical products

and basic metal alloys and metal products. However,inflation in transport equipments and partsdecelerated marginally during the month. Inflation in

rubber and plastic products and textiles remainedhigh and sticky (Table 4.3). Going forward, rising

input costs pose a risk to the manufacturing sectorinflation.

MManufacturinginflation softens

marginally

Source: Ministry of Industry


19/36

January 2011

15

To ensure efficient liquidity management without

signaling any course reversal, the Reserve Bank ofIndia (RBI), in its second mid-quarter review of the

monetary policy, on December 16, 2010, retained repo

and reverse repo rate at 6.25 per cent and 5.25 per

cent, respectively, and the cash reserve ratio at 6 per

cent. However, it reduced the statutory liquidity ratio

(SLR) of scheduled commercial banks (SCBs) by 100

basis points (bps) to 24 per cent. It also announced the

conduct of open market operations (OMOs) auctions

for the purchase of government securities for an

aggregate amount of Rs 48,000 crore between

December 2010 and January 2011. Both these

measures were directed towards infusing primaryliquidity into the system.

With investment demand remaining strong, demand

for funds from the banking system has received a

fillip; bank credit growth surged to 23.7 per cent

during the fortnight ending December 17, 2010.

During the same

period, non-food

credit growth

also rose by 180

bps m-o-m to 23.7per cent. Food

credit growth for this fortnight in December 2010

rose to 38.8 per cent against a decline of 13.6 per cent

in the corresponding fortnight of the previous year.

Meanwhile, among other factors, high inflation has

continued to dissuade investors from parking their

funds with banks, and this is reflected in the low

deposit growth rate. For the fortnight endingDecember 17, 2010, deposit growth stayed at 14.7 per

c e n t s a m e a s i n t h e p r e v i o u s

month and lower than the

17.9 per cent recorded in the

same fortnight last year.

D e p o s i t g r o w t h h a s

remained sluggish despite

higher rates offered by banks

over the past few months. During the fortnight

ending December 17, 2010, credit deposit ratio rose by

240 bps m-o-m to 75.8 per cent. For the fortnight

ending December 17, 2010, incremental credit depositratio rose by 128.7 per cent, depicting a faster pick-up

in new credit disbursed vis--vis fresh deposits

collected.

With liquidity remaining tight, money supply grew

by 15 per cent as on fortnight ending December 17,

2010, compared to 18 per cent during the same

fortnight a year ago. Among the sources of money

supply, bank credit to commercial sector rose to 22.4

per cent during the fortnight, from 21.0 per cent in the

previous month. Net foreign exchange assets posted amarginal increase during this period. Meanwhile,

growth in net bank credit to government was lower at

18.7 per cent during the fortnight ended December 17,

2010, as compared to 22.9 per cent in the same period

of the previous month. Growth in SCBs' investments

in government securities fell further to 6.9 per cent in

the fortnight ending December 17, 2010, compared to

Source: RBI, CRISIL Estimate Source: RBI

Table 5.1: Scheduled Commercial Banking Indicators (y-o-y%)

2009 2009-10 2010-11

Financial Year so farth

Outstanding as on 17 Dec

Figure 5.1: Money Supply Growth (%)

FY11

0.0

10.0

20.0

30.0

FY09 FY10 Jun Sep Feb Jul Nov

y-o-y SA m-o-m annualised

18.9

16.8

FY10

V. Money and Banking

NNon-food creditgrowth surges

to 23.7 per cent

2010

RRBI announces steps onprimary liquidity easing

measures

Aggregate Deposits 17.9 14.7 9.1

Bank Credit 11.3 23.7 6.0

Food Credit -13.6 38.8 -2.5

Non-Food credit 11.8 23.7 6.2

Investments 24.6 6.9 15.7

Credit-Deposit Ratio 70.3 75.8 47.6

6.8

12.2

28.9

11.9

4.2

128.7

20.7

16.5

11.5

16.0


20/36

CRISIL EcoView

16

Source: CCIL & RBI

0.0

4.0

8.0

Figure 5.2: Liquidity Situation In India

Net LAF transactions Rs bn (LHS) Call rates Repo rate Reverse repo rate

8.7 per cent in the previous month. Total investments

by SCBs in government securities stayed at around 30per cent.

During December 2010, apart from advance tax

outflows, faster pick-up in bank credit as compared

to deposit growth also exerted strain on liquidity

with banks. During the month, average net

transactions under the Liquidity Adjustment Facility

(LAF) window rose to Rs

1,184 billion from Rs

1 , 0 0 4 b i l l i o n i n

November 2010. The

large borrowing by

b a n k s f r o m t h e

overnight LAF window

in the past few weeks

clearly signals the fast growing demand for funds

from an active economy. In addition, continued

buildup in government cash balances with the RBI

and increase in currency with public are exerting

pressures on the liquidity in the system. During

December 2010, call rates peaked to 6.97 per cent

(lower than the previous month's peak at 7.35 per

cent). Apart from the announcement on conductingadditional open market operations, the reduction of

government borrowing to Rs 6,000 crores from Rs

11,000 crores per week is a welcome step towards

alleviating liquidity pressures.

FY10 FY11

CCall rates touch alower peak of 6.97

per cent on a month-

on-month basis

-1500.0

-300.0

300.0

900.0

1500.0

2100.0

-900.0

-2100.0Jul-09 Sep-09 Dec-09 May - 10 Jul-10 Oct-10 Dec-10

Outlook

The RBI will continue its active liquidity managementstance, though facilitating growth and anchoringinflation expectations will be a tough balancing act forthe Central Bank. Going forward, the liquiditysituation will remain under pressure, as credit growthis likely to surpass deposit growth. However, thesituation might ease somewhat, as large governmentspending is likely to kick in.


21/36

January 2011

17

-2.0

0.0

2.0

38.0

43.0

52.0

VI. Markets

Source: RBI

Table 6.1: Currency Movement (Averages)

Note: * As of 24th Dec 2010

USD GBP Euro Yen

Indian Rupee vis--vis

FY09 45.9 78.5 65.1

FY10 47.4 75.9 67.1

1H FY10 48.5 77.7 67.8

2H FY10 46.3 74.0 66.3

3QFY11 44.9 70.9 60.9

November-10 45.0 71.8 61.5

December-10 45.2 70.5 59.7

Forward premia*

1-month 6.8

6-months 6.5

46.0

51.1

50.9

51.3

54.4

54.6

54.2

Source: SEBI, RBI

Figure 6.1: Net FII Inflows and Exchange Rate

Currency

December 2010 witnessed a reversal in Indian rupee

movement. After having depreciated sharply in

November due to debt woes in Euro economies,

uncertainties around monetary tightening in China

and tensions in Korea, the Indian rupee started

strengthening in December. By December-end 2010,

rupee appreciated by close to 3 per cent on monthly

basis against the US$ despite massive FII selling

during the month. On a net basis, FII inflows in debt

and equity markets stood at US$ 0.7 billion in Dec

2010 as compared to US$ 4.8 billion in November

2010. December is usually characterised by relativelyhigher FII outflows as investors square off positions

to book profits (or loss) on their balance sheets before

the end of the year.

During the month, the rupee traded in the range of

45.70-44.81 against the US$. On a monthly average

basis, the INR per USD

r e m a i n e d f a i r l y

unchanged at about 45.2. In

t h e f o r w a r d p r e m i a

market, the premiums

moved down (especially on the 6 month forward

contract) as exporters continued to buy forward

dollars.

Apart from the US dollar, the rupee gained by about

3.2 per cent against the Pound Sterling, and by 0.9 per

cent against the Euro (on a monthly average basis).

RRupee regains itslost trajectory

Apr-08 Jun-09Nov-08 Jan-10 Jul-10 Dec-10

FY09 FY10 FY11

Net Fill inflow US$ bn (LHS) Rs per USD

The rupee is expected to continue on its upward

trajectory for the remaining months of the current fiscal.

Meanwhile, rising interest rate differentials between

India and the West are expected to drive strong foreign

flows into Indian the markets, pushing the rupee

upwards. But a widening current account deficit is

expected to weigh on the pace of rupee appreciation. On

balance, we expect the rupee to trade in the range of 43.5-

44.0 per US$ by March-end 2011.

Outlook

During 2010, on a cumulative basis, net buying by FIIs

stood at US$ 39.5 billion as against US$ 17.9 billion in2009. Against this, the India rupee appreciated by 4

per cent (against the US$)

in December 2010-end

over December 2009-end

levels. During the year,

p o r t f o l i o i n f l o w s

remained strong (at US$ 29.4 billion in 2010 against

US$ 12.7 billion in 2009). In addition, robust overseas

borrowing by corporates kept the rupee at elevated

levels.

NNet FII at US$ 39.5billion in 2010


22/36

18

CRISIL EcoView

Debt

The yield on the 10-year benchmark bond stood at 7.9per cent at the end of 2010, while the 10-yearcorporateAAA yieldclosed theyear at 8.95per cent.D u r i n gDecember2010, thes p r e a d

between borrowing costs for companies with toprating on a 10-year bond and 10-year governmentyields increased on a month-on-month basis.

Indian corporations raised relatively less debt in the

domestic market during the quarter ending

December as borrowing costs rose. Net FII

investments in Indian debt in December declined as

compared to the preceding month.

In recent weeks, slowing inflation and the Central

Bank's announcement to repurchase bonds helpedreduce the yield on benchmark 10-year bond. On

December 16, 2010, the 10-year government bond

yield dropped to a six-week low, as the central bank

said it would repurchase Rs 480 billion of debt over

four weeks to ease liquidity. The Central Bank also

slashed the Statutory Liquidity Ratio (SLR), the

percentage of deposits which lenders are

Outlook

Given the continued pressure on liquidity and an upsiderisk to inflation expectations, we maintain our outlookon the 10-year benchmark G-Sec at 8.1-8.3 per cent by

March-end 2011.

Source: CCIL

Figure 6.2: 10-year G-sec yields, year-end and month-end (%)

FY10

Source: FIMMDA

Figure 6.3: Risk Premia, year end & month end (%)

Spread between AAA corporate & 10-yr G-sec

0.0

2.0

4.0

FY09 FY10

FY10

1.1

2.1 2.1

1.1

May Feb Dec6.5

7.5

8.5

FY09 FY10

7.8

7.0

7.9

May Feb Dec

6.7

mandatorily required to invest in government bonds,

to 24 percent from 25 percent. The liquidity situationmay stabilize in January as government spending

picks up and also with redemption of government

securities.

However, the food price index rose in the year to

December 25, its highest in recent months, while the

fuel prices climbed 11.63 percent. Food prices makes

up about 24 percent of the benchmark index. Another

policy rate hike by the central bank is also likely given

the persistence of an 'upside risk' to inflation.

Therefore, we expect the 10-year benchmark yield to

firm up as compared to the temporary easing seen inweeks of December 2010, which was mainly on

speculation on bond buybacks by the central bank

easing the liquidity deficit.

CContinued liquidity pressureand upside risk to inflation

expectations; 10-year

G-Sec to firm up by

March-end 2011

FY11 FY11


23/36

January 2011

19

Note : Returns are for the period of December 2010Source: NSE, BSE

Figure 6.4: Indian Equity Market Performance

-6.6

-3.2

-1.4

Yearly returns Monthly returns

19.8

14.1

16.6

17.1

Equity

The benchmark Nifty index rose by 17 per cent in

2010, placing it amongst the leading performers in

g l o b a l e q u i t y

markets. The CNX

M i d c a p i n d e x

yielded 19 per

cent return in

2 0 1 0 , w h i l e

CNX500 gave a

return of 14 percent, indicating a broad-based

appreciation across the universe of Indian equities.

A rise in the combined advance tax payment by the

top-100 corporate taxpayers, in third quarter of

December 2010 relative to same period last year,

indicating sustained growth in corporate earnings,

lent support to the market. Advance tax is paid by

Indian firms every quarter based on their earnings

projections. However, the number cannot be used as

a clear indicator for a company's earning estimates.

Nifty Volatility Index (VIX) dropped to 16 towards

the end of December 2010, compared with a high of24 in the previous month. Net FII investment in

Indian equities dropped to Rs 2,049 crores in

December 2010 from Rs 18,293 crores in the previous

month.

Strong global manufacturing data lifted equities

worldwide. Globally, stocks in developed markets

PPositive year end forIndian equity; amongst

the leading performers

in global equity markets

took approximately a year and half longer than

emerging markets to regain pre-Lehman bankruptcylevels, with much of the resurgence happening after

the Federal Reserve's steps to stimulate recovery. The

recovery in global equity continued over the year but

at a much slower pace compared to 2009.The MSCI

all-country world investable market index,

combining 24 developed and 22 emerging markets

across capitalization segments rose 11 percent in 2010

in contrast to 31 percent in 2009. Within developed

markets, the Europe underperformed the broader US

indices. Europe's relatively poor performance was

explained mainly by the sovereign debt crisis that

affected countries such as Greece, Spain and Ireland.

Going forward, inflationary pressures are

heightening the likelihood of monetary policy

tightening, a situation made more likely by the jump

in industrial production numbers, which will weigh

negatively on market sentiment.

S&P CNX 500

CNX Mid Cap

S&P CNX Nifty

Sensex

Note : Returns are for the period of December 2010Source: Yahoo Finances

Figure 6.5: Global Equity Market Performance

Yearly returns Monthly returns

MSCI EME

S&P 500

MSCI WORLD

NIKKIE-225

17.1

11.8

11.4

0.8

4.4

5.4

-1.0

15.1

8.5


24/36

20

CRISIL EcoView

cent in the previous quarter. Non-durables grew by

2.5 per cent in the third quarter as against 1.9 per cent

in the second quarter. A slower growth in imports

(16.8 per cent in the third quarter as compared to 33.5

per cent in the previous quarter) also helped in

improving the overall GDP growth , as imports are a

subtraction in the calculation of GDP.

According to the second estimates of Eurostat, the

statistical office of European Union, GDP is expected

to grow by an annualised 1.2 per cent in the thirdquarter of 2010. This is slower than the earlier

estimate of 1.6 per cent and much slower than the

estimated growth of 4.0 per cent in the second quarter.

The economies with the largest revisions in the

second estimates which led to an overall downward

revision in the area's GDP were Greece and Finland.

Greece is now expected to contract by an annualised

5.2 per cent in the third quarter compared with the

earlier estimate of 4.4 per cent and Finland is expected

to grow by an annualised 2.0 per cent in the third

quarter against 5.2 per cent, estimated earlier. Theoverall slowdown in the third quarter GDP vis--vis

strong growth in second quarter resulted from the

deceleration in the growth of household expenditure

and exports, further substantiated by the contraction

in fixed investment. These were partly offset by a

higher government expenditure and decline in

imports.

VII. Global Economic Outlook

Source: Statistical Bureau, Respective Countries Note: * y-o-y %

Table 7.1: GDP Growth (q-o-q, annualised %)

2008 2009 Q4-09 Q1-10 Q2-10

United States 0.4 -2.4 5.0 3.7 1.7

United Kingdom 0.7 -5.0 2.0 1.2 4.4

Euro Area 0.8 -4.1 0.8 1.2 4.0

Japan -1.2 -5.2 5.7 6.8 3.0

China* 9.1 8.7 10.7 11.9 10.3

Q3-10

2.6

2.8

1.2

4.5

9.6

Source: Statistical Bureau, Respective Countries

Table 7.2: Trade Balance (Billion, National Currency)

Jul-10 Aug-10 Sep-10 Oct-10

United States -42.6 -46.5 -44.6 -38.7

United Kingdom -4.6 -4.4 -3.8 -3.9

Euro Area 6.6 -5.0 2.6 5.2

Japan 799.2 84.0 788.5 818.5

China (US$ billion) 28.7 20.0 16.9 27.1

Nov-10

-

-

-

161.1

22.9

The latest releases across countries on the third-

quarter GDP growth data paint a mixed picture.

While US and Japan are estimated to have grown

faster during the quarter, beating previous

estimates, UK's and Euro area's GDP growth

numbers have been revised downwards.

International trade is performing much better as

compared with last year but the month-on-month

momentum remains uneven. While rising food and

energy prices are posing an inflationary threat to

some emerging economies, weak consumer demandis keeping inflation at moderate levels in developed

economies. Clearly, global recovery, as a whole, still

looks fragile and uneven.

The US's third-quarter GDP number has been revised

further upwards to 2.6 per cent from the previous

estimate of 2.5

per cent and from

t h e a d v a n c e

estimate of 2.0 per

c e n t . A scompared to the

1.7 per cent annualised GDP growth in the second

quarter, a higher growth in the third quarter came

due to the acceleration in personal consumption

expenditure of both consumer durable and non-

durable goods. Consumption of durable goods grew

by 7.6 per cent in the third quarter as against 6.8 per

UUS third-quarter growthrevised upwards to

2.6 per cent


25/36

January 2011

21

Japan's GDP growth for the third quarter was also

revised upwards to 4.5 per cent from 3.9 per centreported earlier. Private consumption grew by 4.8 per

cent as compared to the previously estimated 4.7 per

cent. The same had increased by 1.2 per cent (revised)

in the previous quarter. Growth in government

spending was revised upwards to 0.9 per cent from

0.5 per cent. Meanwhile, growth in private residential

investment was revised downwards to 5.0 per cent

from the earlier estimate of 5.4 per cent. Private

residential investment is showing growth after

witnessing a contraction of 3.1 per cent in the

previous quarter.

On the other hand, the UK's Office for National

Statistics revised third quarter GDP growth numbers

downwards to 2.8 per cent, as compared to the earlier

estimate of 3.2 per cent. All the output components

declined in the third quarter as compared to the

previous quarter. Agricultural output shrank by 0.3

per cent in the third quarter as compared to a healthy

2.9 per cent growth in the previous quarter.

Industrial output growth too decelerated to 0.5 per

cent from 1.1 per cent. This decline was led by slower

manufacturing and mining growth. Constructionoutput grew by 3.9 per cent, but this too was slower

than the 7.0 per cent growth witnessed in the

previous quarter. Services output grew by 0.5 per

cent, slightly below the 0.6 per cent growth recorded

in the second quarter.

The US's trade deficit in goods and services narrowed

sharply to a 9-month low of $38.7 billion in October

2010 from $44.6 billion (revised) in September 2010.The trade deficit in goods decreased to $51.4 billion in

October 2010 from $57.1 billion in September 2010,

owing to a 4.2 per cent increase in exports and a 0.7

per cent decline in imports during September and

October. Surplus in services increased to $12.7 billion

in October 2010 from $12.5 billion in September 2010.

On an annual basis, the US's exports were up by 14.9

per cent and imports by 15.9 per cent in October 2010.

The UK's trade deficit in goods and services rose

slightly to 3.9 billion in October 2010 from 3.8

billion in the previous month, while the surplus inservices remained unchanged at 4.6 billion. The

performance of UK's goods trade with EU and non-

EU countries showed a marked difference. With

respect to EU countries, its trade deficit declined to

3.5 billion in October 2010 from 3.8 billion in

September 2010, as EU exports grew at 12.5 per cent,

while imports grew at 7.3 per cent. UK's trade deficit

with non-EU countries, on the other hand, widened to

5.0 billion in October 2010 from 4.5 billion in

September 2010. Exports to non-EU countries too fell

by 4.6 per cent and imports were down by 0.2 per cent.

Trade balance in the Euro Area posted a surplus of

5.2 billion in October 2010 as compared to 2.6 billion

(revised) in the previous month. Both exports and

imports declined in October 2010 over the previous

month's level. But imports saw a larger decline of 1.3

per cent than exports which fell by 0.1 per cent. On an


Table 7.3 Consumer Price Inflation (y-o-y %)


Table 7.4: Policy Interest Rate (End of Month %)

Jul-10 Aug-10 Sep-10 Oct-10

United States 1.2 1.1 1.1 1.2

United Kingdom 3.1 3.1 3.1 3.2

Euro Area 1.7 1.6 1.8 1.9

Japan -0.9 -0.9 -0.6 0.2

China 3.3 3.5 3.6 4.4

Nov-10

1.1

3.3

1.9

0.1

5.1

Aug-10 Sep-10 Oct-10 Nov-10

United States 0.0-0.25 0.0-0.25 0.0-0.25 0.0-0.25

United Kingdom 0.5 0.5 0.5 0.5

Euro Area 1.00 1.00 1.00 1.00

Japan 0.1 0.1 0-0.1 0-0.1

China 5.3 5.3 5.6 5.6

Dec-10

0.0-0.25

0.5

1.00

0-0.1

5.8


26/36

22

CRISIL EcoView

annual basis, however, EU exports grew by 20 per

cent, while imports by 21 per cent in October 2010.

China's trade performance registered an impressive

m-o-m growth in November 2010. However, as the

growth in imports (by 19.8 per cent) exceeded the

growth in exports

(12.8 per cent), the

c o u n t r y ' s t r a d e

surplus shrunk to

$ 2 2 . 9 b i l l i o n i n

November 2010 from

$27.1 billion in October 2010. On an annual basis,

exports grew by 34.9 per cent and imports by 37.9

per cent.

Japanese exports, on the other hand, contracted for

the second consecutive month in November 2010 on a

m-o-m basis. However, imports picked up for the

first time after declining for three months in a row.

Between October and November 2010, Japanese

exports fell by 5.0 per cent and imports rose by 7.6 per

cent. Consequently, the trade balance fell sharply to

161.1 billion in November 2010 from 818.5 billion

(revised) in the previous month. On an annual basis,exports grew by 9.1 per cent and imports by 14.2 per

cent.

Inflation in the US slightly moderated to 1.1 per cent

in November 2010 as compared to 1.2 per cent in the

previous month. Food prices rose by 1.5 per cent

while energy prices increased by 3.9 per cent in a

year. Core inflation, excluding food and energy, stood

at 0.8 per cent in November 2010. Core inflationstepped up for the first time since December 2009,

when it had stood at 1.8 per cent. Since then and till

October 2010, it had either been declining or had

stayed unchanged.

Inflation in the UK rose further to 3.3 per cent in

November 2010 from 3.2 per cent in the previous

month. This rise was driven by food and non-

alcoholic beverages, the prices of which rose by 1.6

per cent during October and November 2010. This is

their largest increase on record between two months.

Inflation in clothing and footwear and 'furniture,

household equipment and maintenance' also

increased by 2.0 per cent and 1.6 per cent, respectively

during October and November.

Headline inflation in the Euro Area stood unchanged

at previous month's 1.9 per cent in November 2010.

Among the main items, inflation in the food group

accelerated to 1.8 per

cent in November 2010

from 1.7 per cent in

October 2010, driven bythe 1.4 per cent rise in

food prices. For the same period, inflation in the

energy group slowed to 7.9 per cent from 8.5 per cent.

Core inflation (excluding food and energy) stood

unchanged at 1.1 per cent.

Among EU countries, Greece continues to record the

Figure 7.2: Commodity Price Movements

Source: Energy Information Administration

Figure 7.1: Europe Brent (US$ per barrel)

m-o-m y-o-y

Wheat

Soya Oil

Steel

Aluminium

8.3

11.0

-2.8

-0.3

42.4

29.0

21.4

6.6

Source: Metal Bulletin, FAO

91.3

74.5

60.0

80.0

100.0

Dec-09 Apr-10 Aug-10 Dec-10

CChinese trade surplusshrinks in November

2010

EEuro area inflationremains unchanged


27/36

January 2011

23

highest increase in prices. However, inflation in the

country decelerated for the second consecutivemonth to 4.8 per cent in November 2010 from 5.2 per

cent in October. Inflation in Germany, the largest

economy in Euro Area, rose to 1.6 per cent from 1.3

per cent in the previous month. Ireland's inflation

still remains in negative territory at -0.8 per cent as of

November 2010.

Inflation in China surged to a 28-month high of 5.1

per cent in November 2010. This surge was driven by

a 11.7 per cent inflation in food items and 1.9 per cent

in non-food items. Within food items, prices of fresh

vegetables soared by 21.3 per cent and that of freshfruits rose by 28.1 per cent. Among non-food items,

t h e i n d e x f o r

residential areas

s a w a n a n n u a l

variation of 5.8 per

cent, and healthcare

grew by 4.0 per

cent. These increases, however, were offset by a

decline of 0.7 per cent each in the clothing and

transportation indices. China has been grappling

with high inflation over the past few months despiteits monetary tightening measures, possibly because

of both bad weather and hefty stimulus packages.

Inflation in Japan slowed to 0.1 per cent in November

2010, after recording positive inflation (0.2 per cent)

for the first time in 20 months in October 2010. Food

inflation stood at 1.5 per cent and core inflation

(excluding food and energy) at -0.9 per cent in

November 2010, as compared with 1.6 per cent and -

0.8 per cent, respectively, in October 2010. Inflation of

utility items (fuel, light and water charges) declined

to 3.0 per cent in November 2010 from 3.5 per cent inOctober 2010.

A sustained increase in food prices has pushed the

inflation well beyond the comfort zone of 3 per cent in

China. With inflation reaching 5.1 per cent in

November 2010, the People's Bank of China has

resorted to aggressive monetary tightening measures

to tame inflation. The bank raised the required

reserve ratio (RRR) six times in 2010 to a record level

of 18.5 per cent. In addition, the conventional policy

rates, benchmark 1-year lending and deposit rates

have also been raised twice this year. After a 25 bps

hike in October 2010, these rates were hiked by yetanother 25 bps each on

December 24, 2010.

With this hike, the

benchmark 1-year

lending and deposit

rates now stand at 5.81

per cent and 2.75 per

cent, respectively. Meanwhile, concerns of a property

bubble led the Chinese central bank to raise the

mortgage rates by 25 bps to 4.3 per cent for loans

longer than 5 years, and to 3.75 per cent for loans of up

to 5 years and shorter.

Concerns of a weak economic recovery, amid a high

unemployment rate, modest income growth and a

tight credit situation, have prompted the US Federal

Reserve to keep its interest rates unchanged for an

extended period. The European Central bank (ECB)

also left its policy rate unchanged at 1.0 per cent but

extended its long-term refinancing operation or

emergency liquidity measures till March 2011. The

UK's and Japan's central banks too continued with

their neutral policy stance.

Crude oil prices crossed $90 per barrel in the

beginning of December 2010 but dropped thereafter

for a brief period. Prices again shot up to reach a

monthly high of $93.6 per barrel on December 23,

2010. The monthly average for December 2010 stands

at $91.3 per barrel, 7.1 per cent higher than $85.3 per

barrel in the previous month and 22.6 per cent higher

than $74.5 per barrel in December 2009. This price rise

was driven both by cold weather and an expected

increase in gasoline demand ahead of Christmas

holidays. Among metals, aluminium prices dropped

by 0.3 per cent on a monthly basis and grew by 6.6 per

cent on an annual basis in December 2010. Steel prices

rose in both monthly and annual terms by 2.8 per cent

and 21.4 per cent, respectively. Among agricultural

commodities, wheat prices increased by 8.3 per cent

m-o-m and by 42.4 per cent y-o-y in December. Soya

oil prices too rose by 11.0 per cent m-o-m and 29.0 per

cent y-o-y as per the latest available data as of October

2010.

Commodity Price Movement

CChina's inflation rosefurther to 5.1 per cent in

November 2010

CChina raises requiredreserve ratio by

another 25 bps


28/36

24

CRISIL EcoView

VIII. Annexure

Table 8.1: Annual Data Summary

1Real GDP growth at factor cost, 2004-05 base (y-o-y%)

3Index of Industrial Production (y-o-y%)

2External Variables (US$ bn)

Source: RBI, CSO, DGCIS

Figures for FY11 are :1 2 3 4Apr-Sept, Apr-Nov, Apr-Oct, Apr-Sep

2WPI Inflation, 2004-05 base (y-o-y%)

Total Agriculture Industry Services

WPI CPI-IW

3.4

0.2

3.74.7

1.6

10.1

12.7

9.5

3.9

9.3

9.510.2 10.5

9.8

8.5

8.9

FY07 FY08 FY09 FY10 FY11 FY07 FY08 FY09 FY10 FY11 FY07 FY08 FY09 FY10 FY11 FY07 FY08 FY09 FY10 FY11

9.79.2

6.77.4


Primary goods Fuel Manufacturing18.0 12.5

0.0

11.6

-2.1

6.65.4

5.64.9

6.1

1.8

Inflation

9.711.2

4.8

8.0

3.6

6.56.2

9.1

12.3

5.7

9.68.3

11.012.7


General Electricity Manufacturing Mining

11.5

8.5

6.7

10.5 7.3

6.3

2.84.6

12.5

9.0

7.45.3 5.1

2.6

11.0 8.3

10.3

6.0

11.0

9.9

ImportsExports 4Current account deficitMerchandise Trade Deficit


140.3

173.5

126.4

185.3163.1

222.0

185.7

251.7

303.7

278.6

27.9

9.8

15.7

28.7

38.4

81.7

105.2

59.4

118.4

88.5


29/36


30/36

26

CRISIL EcoView

Table 8.3: Quarterly Growth rates

Real GDP - at 2004-05 prices (y-o-y%)

Real GDP - at 2004-05 prices (y-o-y%) GDP Deflator (%)

WPI Inflation - 2004-05 base (y-o-y%) CPI Inflation (y-o-y%) Commodity prices

Used-based classification of IIP (y-o-y%)

Source: CSO

Index of Industrial Production (y-o-y%)

Agri,forestry&

fishing

Mining

&Quarry

ing

Manu

fac

turing

Elec

tricity,gas

&wa

ter

Cons

truc

tion

Tra

de

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