AIEFS NEWSLETTER

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

Volume 7 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

Elected Members

Kalyan Chakraborty
Emporia State University
Shailendra Gajanan
University of PittsburghBradford
Jyoti Khanna
Colgate University
Sushanta Mallick
Queen Mary Univ. London
Artatrana Ratha
St. Cloud University
Bansi Sawhney
University of Baltimore

November 15, 2014

A Brief Review of the Indian Economy

Charan Singh and Sharada Shimpi 1
The year 2014-15 has been a landmark national election year in India. The formation of
a stable government has gradually created an upbeat sentiment and the growth in the
country has picked up some pace. Business confidence and the consumer confidence are
beginning to improve, and the capital inflows have risen. Reform plans, such as the fuel
subsidies lately, are favorable steps for the country. The previous year, 2013-14 was a
bumpy ride for the Indian economy. While the economy was growing at a slow pace, it
also had challenges on aspects such as the current account deficit (CAD), exchange rate
and rising prices. Although inflation has been relatively better in the recent past, it
continues to be an area of concern in 2014-15. Industrial production expanded in Q1 of
2014-15 but, went down later in the following two months. Further, on the external
front, it is imperative to keep a watch over probable hangovers of the quantitative easing
process, an end of the easy-money era, on India.
Growth
Gross Domestic Product (GDP) rebounded and increased by 5.7 per cent during AprilJune 2014 (Q1) compared to 4.7 percent during April-June 2013 (Table 1). This is the
highest growth recorded in last nine quarters. The industries sector, which was in the
negative zone in most quarters of 2013-14, rose to a positive growth of 4 per cent in Q1
of 2014-15. While agricultural activity slowed down in Q1 of 2014-15, the services
sector expanded and recorded a growth of 6.6 per cent in Q1 of 2014-15. While the first
quarter of the year recorded a better growth, Reserve Bank of India (RBI) has also
remarked that sustaining the momentum of activity over the second and third quarters of
2014-15 would be difficult in view of risks to agriculture due to monsoon and the slowmoving expectation from the service sector.

Ex-officio Member
1
Kusum Ketkar

RBI Chair Professor of Economics, and Research Associate, respectively, at IIM Bangalore.

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AIEFS NEWSLETTER

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

Table 1: Real GDP Growth (in percent)

Sector
I. Agriculture, forestry & fishing
II. Industry
(i) Mining & quarrying
(ii) Manufacturing
(iii) Electricity, gas & water supply
III. Services
(i) Construction
(ii) Trade, hotels, transport &
communication
(iii) Financing, insurance, real estate and
business services
(iv) Community, social & personal services
IV. GDP at factor cost
Source: Reserve Bank of India.

Q1
4.0
-0.9
-3.9
-1.2
3.8
6.5
1.1

Q2
5.0
1.8
0.0
1.3
7.8
6.1
4.4

Q3
3.7
-0.9
-1.2
-1.5
5.0
6.4
0.6

Q4
6.3
-0.5
-0.5
-1.4
7.2
5.8
0.7

201415
Q1
3.8
4.0
2.1
3.5
10.2
6.6
4.8

1.6

3.6

2.9

3.9

2.8

12.9 12.9 12.1 14.1 12.4

10.4

2013-14

2013-14

Share Growth
13.9
4.7
18.7
-0.1
1.9
-1.4
14.9
-0.7
1.9
5.9
67.4
6.2
7.4
1.6
26.4
20.6
12.9
100.0

3.0

5.6 10.6
4.7 4.7

3.6
5.2

5.7
4.6

3.3
4.6

9.1
5.7

The RBI projects the real GDP growth rate to pick up to 5.5 per cent in 2014-15, and for 2015-16 it is
projected to increase to 6.3 per cent. As per the World Economic Outlook (IMF), India has recovered
from its relative slump. Also, the World Bank expects growth in India to increase to 5.6 per cent in FY
2015.
Industrial activity
Investment demand in the country is weak presently. There was a pick-up in industrial activity in the Q1,
wherein growth as measured by the Index of Industrial Production (IIP) was at 3.9 per cent, over the
corresponding period last year. However, IIP growth declined to 0.5 per cent in July 2014 and then
dropped to 0.4 per cent in August 2014. Consumer goods had an overall negative growth of 6.9 per cent,
wherein consumer durables contracted by 15 per cent in August 2014. As displayed in Table 2, negative
growth in manufacturing sector has also impacted the industrial growth. The durables goods sector
continues to record significant negative growth illustratively, -12.9 percent during April-August 2014
and -11.2 percent during April to August 2013.
Table 2: Index of Industrial Production (Growth over the corresponding period of previous year)
Period
Mining
Manufacturing
Electricity
General
2013-14 2014-15
2013-14
2014-15 2013-14 2014-15 2013-14 2014-15
-4.6
3.2
-1.1
3.1
3.5
11.3
-1.0
3.9
AprJun
-3.0
2.1
3.0
-1.0
5.2
11.7
2.6
0.5
July
-0.9
2.6
-0.2
-1.4
7.2
12.9
0.4
0.4
Aug
-3.6
2.5
-0.1
1.8
4.5
11.7
0.0
2.8
AprAug
Source: Ministry of Statistics and Programme Implementation, Government of India
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AIEFS is a non-profit academic organization founded in 1975 at Bloomsburg State University, Pennsylvania

Inflation
Inflation is following a declining trend in recent months. Earlier, the country was under inflationary stress
due to soaring prices, especially food prices as food constitutes around 48 per cent of the CPI and has
been a main contributor of upside pressures on retail inflation. The headline CPI inflation rose during
June-November 2013, mainly due to food prices. RBIs efforts of a tight monetary policy and
improvement in supply chain management with the new government are beginning to show results: CPI
(combined) has declined to 6.5 per cent in September 2014, as against 9.8 per cent in September 2013
(Table 3). Also, retail food inflation at 7.7 per cent in September 2014 is considerably lower than that of
9.4 per cent in the previous month. The drop is mainly due to fall in prices of vegetables and fruits.

Indices

Table 3: CPI Inflation Rates

Sept 2014 (Provisional)
Aug-14
Urba Combd
Rural Urban Combd.* Rural
n
.

Rura
l

Sep-13
Urba Combd
n
.

CPI
6.7
6.3
6.5
8.3
7.0
7.7
9.7
9.9
9.8
(General)
7.8
7.5
7.7
9.8
8.4
9.4
11.8
11.5
11.8
CFPI
* Combd.: Combined; Source: Ministry of Statistics and Programme Implementation, Government of
India
As per the RBI, average CPI headline inflation in Q4 of 2014-15 will be around 8 per cent, with a 70 per
cent confidence interval of 6.8 per cent to 9.2 per cent (Figure 1).
Figure 1: CPI Inflation Projections

Source: RBI
The annual rate of inflation, based on monthly Wholesale Price Index (WPI), slowed down for the fourth
successive month in September 2014. WPI declined to 2.4 per cent in September 2014 as against 7.1 per
cent in the corresponding month of 2013-14. The primary articles inflation dropped to 2.2 per cent in
September 2014, as against 14 per cent in the corresponding month last year. Food articles and fuel and
power group were mainly responsible for this declining trend (Table 4).
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AIEFS is a non-profit academic organization founded in 1975 at Bloomsburg State University, Pennsylvania

Table 4: WPI Inflation Rates, September 2014

WPI (Year on year)
Major
Group/
SubGroup
2013-14
2014-15
All Commodities
7.1
2.4
Primary Articles
14.0
2.2
Food Articles
18.7
3.5
Fuel & Power
11.7
1.3
Manufactured Products
2.4
2.8
Source: Ministry of Commerce & Industry, Government of India
Banking
A matter of significant concern for the banking industry in India is the high level of Non-Performing
Assets (NPAs) in the banks. The gross NPAs shot from 2.4 per cent of gross advances in March 2011 to
4.4 per cent in December 2013, though later this figure slightly moderated to 4.1 per cent in March 2014,
according to the RBI. NPAs ratio in agriculture loans have been increasing. In recent years, deterioration
of the loan asset quality has been more due to the non-priority sector. And from the priority sector, the
medium and small industry enterprises category is where the NPAs ratio has increased. As at end-March
2014, over 58 per cent of gross NPAs of the system were because of the industrial sector). During 201314, the gross as well as net NPA ratios of public sector banks were more than the industry averages.
Furthermore, they also accounted for almost 92 per cent of the restructured standard advances. Industry
sources observe that the rising levels of NPAs are because of the slowdown of economic growth and not
because of lax RBIs regulations or supervision or poor governance of banks. Due to increase in NPAs
credit growth is slow though deposits in the banking sector continue to grow at normally: thus, banks
continued to invest in government securities at a higher pace in recent months.
Fiscal
The fiscal deficit in 2013-14 was 4.6 percent of GDP, and is budgeted to improve to 4.1 percent in 201415. The Government of India has announced strict expenditure controls on October 29 2014 as the latest
data showed that during April-September, 2014, the fiscal deficit and revenue deficit, as a proportion of
the budget estimates were already high at 82.6 per cent and 91.2 per cent, respectively (Table 5). This
excessive hike is due to higher expenditure on defense pensions where one rank one pay is being
implemented. On the revenue front, Government has already announced lower amount of borrowings
during the year. If the decline in oil prices during the recent times persists, that would contribute to
bringing down the deficit.
Table 5: Central Government Finances Deficit Indicators
2014-15 - In Rs Crore
AE as % of ABE
Annual Budget
Actual Expenditure (AE) during
2013-14
2014-15
Estimate (ABE)
April September 2014
378348
345053
84.8
91.2
Revenue Deficit
531177
438826
76.0
82.6
Fiscal Deficit
104166
253156
146.7
243.0
Primary Deficit
Source: Ministry of Finance, Government of India.
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AIEFS NEWSLETTER

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

External
The CAD which was high at 4.9 per cent of GDP in Q1 of 2013-14, has been brought to a sustainable
level of 1.7 per cent in Q1 of 2014-15. Depreciation of the rupee aided in boosting Indias exports. Also,
gold imports were brought down by implementation of restrictions, thereby improving the trade balance
during 2013-14. Recently, with reference to re-imposing of restrictions on gold imports, the Finance
Minister stated the same would be looked into post the festive season of Diwali. During 2013-14, the gold
prices dropped by around 20 per cent (RBI). An interesting aspect to track would be how the gold policy
is going to be handled in the coming days. According to latest monthly data on trade, exports and imports
increased by 2.7 percent and 26.0 percent, respectively, in USD, during September 2014 over September
2013 but moderating oil prices are expected to moderate growth rate in imports.
On the foreign exchange reserves front, there has been a buildup in India, with forex having risen to
around USD 314 Billion, as on October 17, 2014. Accumulation of the foreign exchange reserves would
aid in making the country resistant against external shocks and vulnerability. The reserves cover of
imports had diminished from 9.5 months (March 2011) to 7 months in March 2013. However, this
increased to 7.8 months at the end of March 2014.
The exchange rate of Rupee against the US Dollar moved in the range of Rs. 58.4 and Rs. 61.8 during the
beginning of April 2014 and October 2014. While the exchange rate of the Rupee was moderately weak
in July and early August, the Rupee also appreciated in between, later, due to reasons involving FII
inflows, optimistic sentiment as a result of relatively lower CAD, decline in crude oil prices etc.
Prospects
The projected growth trajectory of India' GDP (constant prices) to 6.7 per cent in 2019 by the IMF is not a
very happy sign for a young aspiring country. IMF has also projected subdued growth in gross national
savings from 30.4 per cent of GDP in 2015 to 30.6 per cent in 2019 and on the investment, from 32.6 per
cent to 33.1 per cent over the period. The amount of government debt is estimated to decline from 59.5
per cent of GDP in 2015 to 56.2 per cent of GDP in 2019 while revenues are projected to marginally
increase from 19.5 per cent to 19.8 per cent and expenditure to decline from 26.2 per cent to 25.9 per cent
over the period.

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Figure 2: Growth Projections

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

12
10
8
6
4
2
0

Source: IMF

Two aspects of the economy would need to be carefully watched in the next few months. First, in view of
global integration of the Indian economy, tapering and interest rate movements in the US could impact
domestic policy making. Second, during the past few months, controlling inflation has been the prime
focus of the RBI. Accordingly, a glide path for disinflation was adopted in January 2014. The country is
aiming at modernizing its monetary policy framework and it is to be seen whether it implies adopting
inflation targeting or continuing with its self-minted and successfully tried multiple indicator approach. In
any case, with the new government and its massive mandate, India is witnessing an emergence of new
growth strategies in policy making which seems to augur well for the economy as green shoots are
beginning to show across different sectors with revival of business confidence.

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

AIEFS Program at ASSA 2015 Boston*

2015 Annual Meeting of the Allied Social Science Association (ASSA)
January 03, 2015
AIEFS Reception: 6.00 - 8.00PM, Boston Marriott Copley, Massachusettes
Reception Speaker: Pankaj Tandon, Boston University;
Topic: Food Security and Public Distribution System in India
Invitation: Members, colleagues, friends and others
January 03, 2015
AIEFS Sessions
Jan 03, 2015 12:30 pm, Boston Marriott Copley, Tufts
Association of Indian Economics & Financial Studies

Trade, Finance and Economic Growth (F4, F1)

Presiding: CHANDANA CHAKRABORTY (Montclair State University)
Paper 1: Technology, Learning, and Long Run Economic Growth in Leading and Lagging Regions
AUTHOR 1: AMITRAJEET A. BATABYAL (Rochester Institute of Technology)
AUTHOR 2: PETER NIJKAMP (VU University Amsterdam)
Paper 2: Home Country Effect of FDI Outflows from the BRIC Countries: Study of Domestic Investment
AUTHOR: NANDITA DASGUPTA (University of Maryland Baltimore County)
Paper 3: Global Food Prices and Business Cycle Dynamics in an Open-Economy Macroeconomic Model for India

AUTHOR 1: OLIVER HOLTEMOELLER (Martin Luther University Halle-Wittenberg and Halle Institute for Economic Research
(IWH))
AUTHOR 2: SUSHANTA MALLICK (Queen Mary University of London)
Paper 4: New Trade versus Trade Recovery in Indian Exports
AUTHOR: USHA NAIR-REICHERT (Georgia Institute of Technology)
Paper 5: A Separate Debt Management Office

AUTHOR: CHARAN SINGH (Indian Institute of Management Bangalore-India)

Paper 6: What Determines the Share of Labor in National Income? A Cross-Country Analysis

AUTHOR 1: MARTA GUERRIERO (University of Manchester)

AUTHOR 2: KUNAL SEN (University of Manchester and IZA)

Discussants:
BANANI NANDI (AT&T Laboratories)
SWETA SAXENA (International Monetary Fund)
ANIRUDDHA MITRA (Bard College)
VALERIE CERRA (International Monetary Fund)
RAJA KALI (University of Arkansas)
KESHAB BHATTARAI (University of Hull)

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

AIEFS NEWSLETTER

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

January 04, 2014

AIEFS Executive Committee Meeting: 4:30-5:45pm, Boston Marriott CopleyColumbus II
Invitation: Executive Committee Members Only
January 04, 2014
AIEFS Sessions
Jan 04, 2015 10:15 am, Boston Marriott Copley, Tufts
Association of Indian Economics & Financial Studies

Gender, Socioeconomics and Development (O2, O1)

Presiding: AMITRAJEET A. BATABYAL (Rochester Institute of Technology)
Paper 1: Women and Corruption: What Positions Must They Hold to Make a Difference?
AUTHOR 1: CHANDAN K. JHA (Louisiana State University)
AUTHOR 2: SUDIPTA SARANGI (Louisiana State University)
Paper 2: Corruption and Human Capital: A Cross-National Analysis

AUTHOR 1: SHRABANI SAHA (Lincoln Business School-United Kingdom)

AUTHOR 2: ARUSHA COORAY (University of Nottingham-Malasia)
Paper 3: Stagnation or Transition? Poverty Traps and the Dynamics of Household Income
AUTHOR 1: RAJ ARUNACHALAM (University of Michigan)
AUTHOR 2: AJAY SHENOY (University of Michigan)
Paper 4: Evaluating the Impact of the Indian National Rural Employment Guarantee Scheme on the Girl Child

AUTHOR 1: NAYANA BOSE (Vanderbilt University)

AUTHOR 2: SHREYASEE DAS (University of Wisconsin-Whitewater)
Paper 5: Will Indias Human Capital Deliver Its Demographic Dividend?

AUTHOR 1: EMERALD ANDERSON (University of California-Santa Barbara)

AUTHOR 2: RAJEEV SOOREEA (Dominican University of California)
AUTHOR 3: GIGI GOKCEK (Dominican University of California)
AUTHOR 4: DANIEL TAPIA-JIMENEZ (University of California-Davis)
Paper 6: Divergence of Fortune: The Unequal Effects of Economic Liberalization in India
AUTHOR 1: RAJA KALI (University of Arkansas)
AUTHOR 2: JAYATI SARKAR (Indira Gandhi Institute for Development Research)
Discussants:
NAYANA BOSE (Vanderbilt University)
SUBARNA SAMANTA (College of New Jersey)
RAJ ARUNACHALAM (University of Michigan)
NANDITA DASGUPTA (University of Maryland Baltimore County)
SHAILENDRA GAJANAN (University of Pittsburgh-Bradford)
ANUSUA DUTTA (Philadelphia University)

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

AIEFS NEWSLETTER

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

Membership Application Form

ASSOCIATION OF INDIAN ECONOMIC AND FINANCIAL STUDIES
(AIEFS)
Department of Economics, Rochester Institute of Technology
90 Lomb Memorial Drive, Rochester, NY 14623-5604
aabgsh@rit.edu

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If you plan to participate in any AIEFS programs, as paper presenter/discussant, please
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one due in 2015)
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Kindly make the check payable to the Association of Indian Economic and Financial Studies
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AIEFS NEWSLETTER

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

About AIEFS
AIEFS 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 t he 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 in Mumbai.
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.
chakrabortyc@mail.montclair.edu

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