AIEFS NEWSLETTER

AIEFS is a non-profit academic organization founded in 1975 at Bloomsburg State University, Pennsylvania

Volume 8 Issue 2
Association Objectives
Promote interest in
the study of Indian
Economics & Finance
Encourage inquiry
into, and analysis of
the problems facing
the Indian economy
Facilitate communication and discussion
among Scholars

Executive
Committee
2013-2015
President

Amitrajeet Batabyal
Rochester Inst. of
Technology

Executive Director

Chandana Chakraborty
Montclair State University
Assistant Executive
Director
Meenakshi Rishi
Seattle University

Treasurer

Artatrana Ratha
St. Cloud University

November 15, 2015

Indian Economy: A Brief Review

Charan Singh and Sharada Shimpi 1
The Indian economy is recording improvements in growth since April 2015. Earlier,
during 2014-15, inadequate monsoon affected the agriculture sector but industry and
services contributed to some acceleration in activity. Factors which have supported the
Indian economy during the year include the alleviating inflation and the ongoing fiscal
consolidation. Though India is faring relatively better than some other emerging
economies, continued efforts are essential, to protect the economy from risks. The
following sections present a review of aspects of the Indian economy in the recent period,
pertaining to growth, price level, banking scenario, fiscal situation, and external factors.
Finally, select projections made by the RBI and the IMF are discussed.
1.

Economic Growth

The output as measured by Gross Value Added (GVA) at basic prices had slowed down in
the latter half of 2014-15. However, in the first quarter of 2015-16, this output picked up
and the percentage change over the first quarter of the previous year was 7.1 per cent
(Table 1). The slowdown in agriculture due to inadequate rainfall also affected rural
demand. Manufacturing mainly contributed to higher growth in the industry sector.
Factors such as enhancement in electricity generation and coal production, positivity in
the business sentiment, contributed to improvement in the manufacturing sector during
2014-15. In 2014-15, the percentage change over the previous year was in doubt digits,
for the categories of trade, hotels, transport, communication and services related to
broadcasting and financial, real estate & professional services, with a change of 10.7
per cent and 11.5 per cent, respectively.

Elected Members

Kalyan Chakraborty
Emporia State University
Shailendra Gajanan
University of PittsburghBradford
Sushanta Mallick
Queen Mary Univ. London

Sudipta Sarangi
Virginia Tech

Bansi Sawhney
University of Baltimore

Ex-officio Member
based
Kusum Ketkar

1
RBI Chair Professor of Economics, and Research Associate, respectively, at IIM Bangalore. The source of analysis is
on latest documents from the Reserve Bank of India, Government of India and the International Monetary Fund.

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Table 1: Growth in Gross Value Added

2013-14

2014-15

Growth

(Per cent)
2015-16

2014-15
Q1

Q2

Q3

Q4

Q1

I. Agriculture, forestry & fishing

3.7

0.2

2.6

2.1

-1.1

-1.4

1.9

II. Industry

5.3

6.6

8.1

7.2

3.8

7.2

6.4

(i) Mining & quarrying

5.4

2.4

4.3

1.4

1.5

2.3

4.0

(ii) Manufacturing

5.3

7.1

8.4

7.9

3.6

8.4

7.2

(iii) Electricity, gas, water

supply & other utilities

4.8

7.9

10.1

8.7

8.7

4.2

3.2

8.1

9.4

8.4

10.2

11.1

8.0

8.6

2.5

4.8

6.5

8.7

3.1

1.4

6.9

11.1

10.7

12.1

8.9

7.4

14.1

12.8

7.9

11.5

9.3

13.5

13.3

10.2

8.9

7.9

7.2

2.8

7.1

19.7

0.1

2.7

6.6

7.2

7.4

8.4

6.8

6.1

7.1

III. Services
(i) Construction
(ii) Trade, hotels, transport,
communication and
services related to
broadcasting
(iii) Financial, real estate &
professional services
(iv) Public administration,
defence and other services
IV. GVA at basic prices
Source: Reserve Bank of India.

During the first half of 2015-16, while deficient rainfall has affected agricultural activity, industrial
production has picked up and the services sector has continued speeding up. The GVA in agriculture and
related activities, which had contracted in the last two quarters in 2014-15, witnessed an improvement in
2015-16. During the first quarter of 2015-16, while there was contraction in the natural gas production,
increase in the coal production contributed to rise in mining and quarrying.
However, according to latest information from the RBI, released in September 29, 2015 due to
deceleration in coal production, the mining and quarrying activity indicates weakening momentum during
the second quarter of 2015-16. The industrial activity in the second quarter, especially in industries such
as apparel, furniture and motor vehicles experienced acceleration.
The services sector GVA was 8.6 per cent in the first quarter of 2015-16. Later, due to tepid investment
demand and the stressed assets scenario, the financial, real estate and professional services decelerated
during the second quarter of 2015-16. Also, low global demand impacted the growth in professional
services. Activities in the construction sector also slowed down during the second quarter.
2.

Prices

India has been able to tame inflation in the recent months, given the tight monitoring policy. Inflation was
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high till July 2014, due to an unseasonal food price spike. Later, owing to the drop in international
commodity prices and with the help of different supply management strategies, inflation persistence was
brought under control and from August 2014 onwards, easing of the headline inflation began. Earlier, for
six successive years, CPI inflation had been near double digits. The CPI inflation reduced to 4.9 per cent
by April 2015. Afterwards, though it rose in June 2015, inflation toned down to 3.7 per cent in July 2015.
All the three major groups of CPI inflation: Food, fuel and commodities excluding food and fuel, played a
role in reduction of the headline inflation.
The crude oil prices were declining since August 2014. In the second quarter of 2015-16, the global
commodity prices, particularly the crude oil prices dropped, after hardening unexpectedly in the first
quarter.
In the first quarter of 2015-16, headline inflation moderated to 5.1 per cent (Table 2). In August 2015,
headline inflation reduced to 3.7 per cent, and then was 4.4 per cent in September 2015.
Table 2: Measures of Inflation in India.
WPI
Q1 : 2014-15
Q2 : 2014-15
Q3 : 2014-15
Q4 : 2014-15
Q1 : 2015-16
Jul-15
Aug-15

CPI
5.8
3.9
0.3
-1.8
-2.3
-4.1
-5.0

CPI- IW
7.8
6.7
4.1
5.3
5.1
3.7
3.7

6.9
6.8
5.0
6.6
5.9
4.4
--

(y-o-y, per cent)

CPI- AL
CPI- RL
8.1
8.3
7.3
7.6
5.4
5.7
5.8
6.0
4.5
4.7
2.9
3.2
3.0
3.2

IW: Industrial Workers, AL Agricultural Labourers, RL: Rural Labourers.

Source: Reserve Bank of India.

During the year, inflation has eased in all the sub-groups of the food category, except for pulses. In the
case of pulses, due to deficit in production last year, prices had increased by double digits during the
initial half of 2015-16. Softening of the international crude oil prices and accordingly a pass-through to
prices in India has brought about disinflation in the category of transport and communication. Also,
disinflation relating to the house rent had begun from early 2014-15 and continued in 2015-16.
Inflation as measured by the wholesale price index, not generally used in India by the present regime,
declined considerably during 2014-15 and slipped into deflation since January 2015.
3.

Financial Markets

In India, stressed assets have been increasing. The stressed advances of Scheduled Commercial Banks
(SCBs) increased from 10.7 per cent to 11.1 per cent of the total advances, during September 2014 to
March 2015. Highest levels of stressed assets were recorded for the Public Sector Banks at 13.5 per cent
of total advances as of March 2015.

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Since 2010, Non-Performing Assets (NPAs) of SCBs in agriculture sector have been increasing steadily.
As of December 2014, while the industry sector continued to have the highest stressed advances ratio at
17.9 per cent, this ratio was the lowest for the retail sector at 2 per cent and, the services sector recorded
7.5 per cent.
Although almost 25 per cent of the total advances of SCBs were in five sub-sectors viz., mining, textiles,
iron & steel, infrastructure, and aviation; altogether these sectors had a share of over 51 per cent in the
total stressed advances. Other sub-sectors which indicated a high and rising level of GNPA include food
processing, engineering, vehicles, glass and glassware, paper, construction.
4.

Fiscal

In 2014-15, the central government contained the fiscal deficit to 4.1 per cent of GDP. The central
government has continuously adhered to the planned path of fiscal consolidation, for the third year in a
row. For 2015-16, a target of 3.9 per cent of GDP has been fixed, as a part of the roadmap for fiscal
consolidation with a further target of 3.5 per cent in 2016-17. The Union Budget for 2015-16 rescheduled
attaining of a fiscal deficit of 3 per cent of the GDP by one year, and accordingly this milestone was
shifted to 2017-18. Further, the fiscal situation during the year so far indicates some strain for the
government, as the fiscal deficit in the first half of 2015-16 stands at Rs. 3.78 lakh crore, that is, already
over 68 per cent of the budget estimate for the entire year.
In 2014-15, the general governments (including States) fiscal position weakened. The combined fiscal
deficit was 6.6 per cent of GDP in 2013-14 which rose to 6.9 per cent in 2014-15.
While subsidy reforms may cut down the subsidy payments, plans such as one rank one pension and the
Seventh Pay Commission would need to be considered and appropriately provisioned for, in order to
manage the fiscal deficit targets.
5.

External Environment

The Current Account Deficit (CAD) further narrowed in 2014-15 from its level in the previous year and
was well within sustainable limits. The CAD decreased to1.3 per cent of GDP in 2014-15, from 1.7 per
cent in the previous year. Reduction in the CAD has helped in containing external vulnerabilities and the
indicators of external vulnerability have recorded considerable improvement in 2014-15. Further, CAD
narrowed to 1.2 per cent of GDP in the first quarter of 2015-16.
Indias tryst with gold continues unabated. Gold imports were subdued during 2014-15. The second half
of 2014-15, witnessed a surge in gold demand, mainly on account of festive demand, and easing of some
of the restrictions imposed from the previous year onward. Consequently, gold imports rose by 38 per
cent in volume terms and by 20 per cent in terms of value. In March and April 2015, gold imports had a
sharp rise, and then were subdued. Further in July 2015, due to the prices of gold dropping to the lowest
levels in four years, the gold imports again spiked.
During the first four months of 2015-16, the trade deficit was US$ 45 billion, which was lower than that
during the same period of the previous year. Imports have continued to be subdued in 2015-16. The
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export performance during the year was pulled down due to the major sectors including petroleum
products, electronic goods, oil meals, iron ore and gems & jewellery. The first four months of 2015-16
witnessed shrinking of the merchandise exports, making the economy vulnerable to external shocks. As a
result of subdued domestic activity, non-oil non-gold imports also moderated.
During 2014-15, the Indian rupee underwent marginal depreciation against the US Dollar. Since June
2015, the rupee exchange rate has undergone phases of volatility. Heightened uncertainties in the global
financial markets and the external developments have contributed towards activating these movements in
the Indian rupee. Further, the Rupee has been gradually depreciating.
In 2014-15, the build-up of the foreign exchange reserves was one of the factors that played a role in
improvement of the external vulnerability indicators. While the total reserves were USD 341 billion on
March 27, 2015 as against USD 304 billion on March 28, 2014, this total was higher at USD 350 billion
on September 25, 2015. Import cover ratio was higher in March 2015 at 8.9 months, as against 7.8
months at end-March 2014.
6.

Projections

On prices, the Reserve Bank of India expects the CPI inflation to reach 5.8 per cent in January 2016
(Figure 1). While the benign crude prices may provide support, it would be important to be watchful of
effects of the depreciations in the rupee. Readiness of the government for supply-side management would
also be essential to fend off food price pressures.
Figure 1: Quarterly Projection of CPI Inflation (y-o-y) for 2015-16

Source: Reserve Bank of India.

On growth, the RBI has projected the output growth for 2015-16 at 7.4 per cent (Figure 2).

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Figure 2: Quarterly Projection of Growth in GVA at basic prices (y-o-y) for 2015-16

Source: Reserve Bank of India

The domestic demand in India, according to the International Monetary Fund (IMF), is projected to
remain strong in 2015-16. Figure 3 presents the IMFs GDP projections for India.
Figure 3: GDP Projection
(Percent change)

Source: International Monetary Fund.

On the domestic front, continued efforts to abide by the fiscal consolidation path, as also the nature of
expenditure will continue to hold importance. FDI inflows to India are quite high, manufacturing being
one of the sectors attracting these inflows. If pursued suitably, the Governments Make in India
initiative might contribute to the manufacturing sector. Some of the concerns are the stalled projects and
the related stuck-up investments, as also the levels of stressed assets in the banking sector. Though some
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efforts are underway, efficient managing and untangling of these issues could iron out pending problems,
contribute to infrastructural development and economic growth.
Fall in the international commodity prices have helped in savings in the import bill. On the other hand,
weak demand from international markets has impacted exports. In general global risks are extant,
financial as well as political, which may have economic implications. It is imperative for the authorities to
be watchful in safeguarding the economy from external developments, and possible impact of events in
other countries.

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AIEFS Program at ASSA 2016 San Francisco*

2016 Annual Meeting of the Allied Social Science Association (ASSA)
January 03, 2016
AIEFS Reception: 6.00 - 8.00PM, Parc 55, Mission I
Reception Speaker: Nirvikar Singh, University of California-Santa Cruz
Topic: Indias Growth: Possible Futures
Invitation: Members, colleagues, friends and others
January 04, 2016
AIEFS Session
Jan 04, 2016 12:30 pm, Parc 55, Mason
Association of Indian Economic & Financial Studies

Trade, Finance and Macro Policy (E2, E2)

Presiding: AMITRAJEET A. BATABYAL (Rochester Institute of Technology)
Paper 1: Creative Capital Accumulation and the Advancement of Indias Creative Economy
AUTHOR 1: AMITRAJEET A. BATABYAL (Rochester Institute of Technology)
AUTHOR 2: HAMID BELADI (University of Texas-San Antonio)
Paper 2: Housing Price Indices in India
AUTHOR: CHARAN SINGH (Indian Institute of Management-Bangalore)
Paper 3: Does Keynesian Theory Explain Indian Government Bond Yields?
AUTHOR1: TANWEER AKRAM (Voya Investment Management)
AUTHOR2: ANUPAM DAS (Mount Royal University)
Paper 4: Corporate Debt Restructuring, Bank Competition and Stability: Evidence from India
AUTHOR1: MOSTAK AHAMED (Queen Mary University of London)
AUTHOR2: SUSHANTA MALLICK (Queen Mary University of London)
Paper 5: Asean Plus Six and Successful FTAs: Can India Propel Intra-Industry Trade Flows?
AUTHOR1: RAM UPENDRA DAS ( Research and Information System for Developing Countries (RIS))
AUTHOR2: MEENAKSHI RISHI (Seattle University)
AUTHOR3: JAY DEV DUBEY ( Research and Information System for Developing Countries (RIS))
Paper 6: Effectiveness of Australian and New Zealand Aid for Trade: Implications for India and Other
Developing Countries
AUTHOR: RUKMANI GOUNDER (Massey University)
Discussants:
K. V. RAMASWAMY (Indira Gandhi Institute of Development Research (IGIDR))
RAJEEV SOOREEA (Dominican University of California)
KUSUM MUNDRA (Rutgers University)
TANWEER AKRAM (Voya Investment Management)
CHANDANA CHAKRABORTY (Montclair State University)
KESHAB BHATTARAI (University of HULL)

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January 4, 2016
AIEFS Executive Committee Meeting: 4:30 PM; Parc 55, Lombard
Invitation: Executive Committee Members only
January 4, 2016
AIEFS Session
Jan 04, 2016 2:30 pm, Parc 55, Mason
Association of Indian Economic & Financial Studies

Economic Development: Macro and Micro Level Challenges (O2, O2)

Presiding: CHANDANA CHAKRABORTY (Montclair State University)
Paper 1: Boom and Bust Growth: Do Institutions Matter?
AUTHOR1: SABYASACHI KAR (Institute of Economic Growth)
AUTHOR2: LANT PRITCHETT (Harvard University)
AUTHOR3: SELIM RAIHAN (Dhaka University)
AUTHOR4: KUNAL SEN (IDPM and University of Manchester)
Paper 2: Employment Guarantee, Financial Inclusion and Payment Delay
AUTHOR1: PARANTAP BASU (DUBS and Durham University)
AUTHOR2: KUNAL SEN (IDPM and University of Manchester)
Paper 3: Farmers Suicides in India, 1995-2012: Measurement and Interpretation
AUTHOR: SRIJIT MISHRA (Indira Gandhi Institute of Development Research (IGIDR))
Paper 4: From Well-Heeled to Tip-Toed, Shoe-Shine to Shoe-Lace: Monopolistic Competition and Product
Differentiation in Mens Footwear
AUTHOR1: VISHAL KUMAR (Indian Institute of Management-Ahmedabad )
AUTHOR2: SATISH Y. DEODHAR (Indian Institute of Management-Ahmedabad)
Paper 5: Size Dependent Fiscal Incentives and Horizontal Subcontracting in Manufacturing Firms: Evidence
from Panel of Factories in India
AUTHOR: K. V. RAMASWAMY (Indira Gandhi Institute of Development Research (IGIDR))
Paper 6: Economic Growth and Reduced Carbon Emissions: The Impact of Carbon Pricing
AUTHOR1: NIRANJAN CHIPALKATTI (Seattle University)
AUTHOR2: MEENAKSHI RISHI (Seattle University)
Discussants:
SUBARNA SAMANTA (College of New Jersey)
RAJA KALI (University of Arkansas)
BANANI NANDI (AT&T Shannon Laboratories)
SHAILENDRA GAJANAN (University of Pittsburgh-Bradford)
RUKMANI GOUNDER (Massey University)
AMITRAJEET A. BATABYAL (Rochester Institute of Technology)

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Membership Application Form

ASSOCIATION OF INDIAN ECONOMIC AND FINANCIAL STUDIES
(AIEFS)
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one due in 2015)
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About AIEFS
AIEFS regularly sponsors sessions at the annual ASSA, Western Economic Association and
Eastern Economic Association meetings. It also holds biennial meetings either in the US or in
India. First biennial meeting in India was held in collaboration with the Research and
Information System for Developing countries (RIS) in June 2009 in Delhi. The 2013 biennial
meeting was held in collaboration with the Indira Gandhi Institute of Developments Research
(IGIDR) in Mumbai. The 2015 biennial meeting has been scheduled to be held in the University of
Hyderabad, Hyderabad, India during August 3-4, 2015.
AIEFS brings out Newsletter twice a year fall and in spring. From time to time, AIEFS also
publishes edited books or proceeding of papers presented at ASSA and biennial meetings. In
recent years, papers have been published in special issues of peer reviewed journals like South Asia
Economic Journal, International Journal of Economic Policy in emerging Economies and
International Journal of Business and Emerging Markets.

For further information of AIEFS or to become a member, please visit the website:
www.aiefs.org. Or contact executive director:
Chandana Chakraborty, Ph.D.

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AIEFS Contact: Chandana Chakraborty, Department of Econ. & Finance, Montclair State University, NJ 07043 Phone: (973)-655-4125