Indian Economy

A Snapshot
January 2017
 Indian Economy | A Snapshot

Contents
India retains fastest growing tag 04

Deeper look into the economy 05

Macro check 06

The Indian Rupee 07

External sector 08

Fiscal deficit 10

Major government initiatives in India 11

Structural push 12

In a growing economy, why demonetize? 14

Transition to a cashless economy 16

Changes in consumer behaviour 17

Overall improvement 18

3
Indian Economy | A Snapshot Indian Economy | A Snapshot

India retains fastest Deeper look

GVA Quarterly Growth Rate

10
14
13
12
11

-4
-3
-2
-1
9
8
7
6
5
4
3
2
1
0
growing tag into the
5.9
Q1

economy
6.7 Q2

2013-2014
6.1 Q3
GDP growth
Robust growth rates in the services sector
The past few years have witnessed India emerge as the
fastest growing large economy in the world. Structural The services sector makes up the largest share of 5.3 Q4

drivers based on robust domestic funadmentals
continue to drive the economy higher in the face of
an uncertain global environment. Going forward, the
Indian economy is likely to remain the fastest growing
large economy in the world as major macroeconomic
the economy followed by industry and agriculture.
India is looking to modernize agriculture while giving a 7.4 Q1
structural boost to industry. As such, increased focus
on advancing industry and agriculture can help India
8.1 Q2
achieve it’s growth potential.

2014-2015
parameters remain healthy.
6.7 Q3

Sectoral share of the economy 6.2 Q4

7.2 Q1

31%
FY12 6.6%
Industry
7.5 Q2
FY13 5.6%

2015-2016
6.9 Q3
FY14 6.6%
53% 7.4 Q4
Services
FY15 7.2%
7.3 Q1

2016-2017
FY16 7.6%
7.1 Q2

FY17 (e*) 7.1% 16% Services Industry Agriculture GVA

Source: RBI and Mospi Agriculture and
*
e denotes estimate Source: RBI allied activities Source: RBI
4 5
 Indian Economy | A Snapshot Indian Economy | A Snapshot

Macro check The Indian Rupee

Inflation and interest rates move down
Over the past few years, inflation has seen a meaningful decline
as supply constraints in the economy have been managed better.
Reforms in alleviating some of the structural impediments, especially
in the agricultural supply chain, have gone a long way in creating a
favourable environment. Inflation is likely to remain within the comfort
zone of the Reserve Bank of India.
Inflation subdued
Good performance
The INR has shown strength in a year that was marred by
a number of macro risks. The domestic currency has seen
appreciation against the Euro, GBP and against most emerging
market currencies, which has led to appreciation in real terms.
Given the global economic situation, we can expect the INR to
depreciate in an orderly way over the next year.

FY13 10.2%
Performance of INR versus GBP and EUR

FY14 9.5% 110

Denotes
80
depreciation of INR
77
Average

100

GBP vs INR

EUR vs INR
FY15 5.9% 74
CPI

90
71
80 68
FY16 4.9% 70 65

10/1/2015

11/1/2015
12/1/2015

10/1/2016

11/1/2016
12/1/2016
1/1/2015

2/1/2015
3/1/2015

4/1/2015
5/1/2015

6/1/2015
7/1/2015

8/1/2015

9/1/2015

1/1/2016

2/1/2016
3/1/2016

4/1/2016
5/1/2016

6/1/2016
7/1/2016

8/1/2016

9/1/2016

1/1/2017
FY17 (e*) 4.7%
Source: RBI and Deloitte
*e denotes estimate GBP EUR

Benchmark bond yield has fallen over the past year as the
RBI has cut rates. Interest rates are likely to come down
Real effective exchange rates
across tenors with ample liquidity and rate cuts by the RBI
120
Interest rates moving down
115
8.50
Repo Rate 110
8.00
105 Overvaluation

7.50 100
95 Undervaluation
7.00
in %

90
6.50

Aug-15

Aug-16
Nov-15

Nov-16
Mar-15

Mar-16
Apr-15

Apr-16
Jan-15

Jan-16
Feb-15

Feb-16
Sep-15

Sep-16
May-15

Jun-15

May-16

Jun-16
Dec-15
Jul-15

Jul-16
Oct-15

Oct-16
6.00

5.50
REER-36 country
Apr’13
May’13
Jun’13
Jul’13
Aug’13
Sep’13
Oct’13
Nov’13
Dec’13
Jan’14
Feb’14
Mar’14
Apr’14
May’14
Jun’14
Jul’14
Aug’14
Sep’14
Oct’14
Nov’14
Dec’14
Jan’15
Feb’15
Mar’15
Apr’15
May’15
Jun’15
Jul’15
Aug’15
Sep’15
Oct’15
Nov’15
Dec’15
Jan’16
Feb’16
Mar’16
Apr’16
May’16
Jun’16
Jul’16
Aug’16
Sep’16
Oct’16
Nov’16
Dec’16
Jan’17

Source: RBI
Source: RBI
6 7
Indian Economy | A Snapshot Indian Economy | A Snapshot

External sector Top Indian Exports in FY16 (as % of total)

Exports outperforming imports

Indian bilateral trade was valued at around $643.3 billion in
FY16. Exports stood at around $262.3 billion and imports
stood at around $381 billion in FY16. Engineering and ancillary
product exports currently make up for upwards of 20% of
15.1
Precious metals
exports showing the increased value added component in and stones

Indian export basket. Concentration on emerging markets 11.9

along with development of higher value added exports likely to Mineral
products
benefit India in the medium to long run.

Growth in Indian trade

in % YoY

-20
-10

-15
-5
5

5.5
2013-14
Vehicles

2014-15
53.2
Others
5.1
Nuclear
reactors, boilers,
machinery
2015-16

4.9
2016-17
(Apr-Nov)
4.4 Pharmaceutical
products
Ogranic
chemicals
Export (%) Import (%)

Source: Ministry of Commerce Source: Ministry of Commerce

8 9
Indian Economy | A Snapshot Indian Economy | A Snapshot

Fiscal Deficit Major Government

Sticking to plan
The government has been following a path of fiscal
consolidation and achieving targets as set under the
Initiatives in India
Fiscal Responsibility and Budget Management Act.
Governance
The fiscal deficit target has been set at 3.5% for FY17, after
Bill to facilitate removal of dated laws, established Niti Aayog
achieving 3.9% in FY16. The government overachieved in
reduction of revenue deficit at 2.5% for FY16 as compared to
a target of 2.8%. The quality of fiscal spend has also gone up Inclusion
substantially as subsidies have come down. Subsidies are likely Jan Dhan Yojana for financial inclusion/ use of unique
to move down from 1.9% of GDP in FY16 to 1.7% in FY17. identification (UID) for every citizen

Digital India
Trends in fiscal and revenue deficit (% of GDP) Increasing transparency through online clearances and
widespread use of information technology in administration
6.0

5.0

4.0
Ease of doing business
Ranked States in ease of doing business, reducing
3.0
documentation needs for imports and exports
2.0

1.0

0.0 Make in India

Encourage domestic manufacturing/ investment in smart
2011-12

2012-13

2013-14

2014-15

2015-16

2016-17 (T)

2017-18 (T)

2018-19 (T)

cities

Fiscal Deficit Revenue Deficit

Skill India
Source: India budget
Launched national skilling mission to harness India’s
demographic dividend

Expenditure on subsidies (in INR Crores) Smart Cities

Year FY12 FY13 FY14 FY15 FY16 (R) FY17 (P) Technological expansion in 100 cities using information and
Food Subsidy 72822 85000 92000 117671 139419 134835 communication technology to improve quality of life
Fuel Subsidy 68484 96880 85378 60269 30000 26947

Fertilizer Subsidy 70013 65613 67339 71076 72438 70000 Alleviating supply constraints
Total Subsidies 217941 257079 254632 258258 257801 250433 Mines & minerals bill passed, coal auction completed
Source: Economic survey

10 11
Indian Economy | A Snapshot Indian Economy | A Snapshot

Structural push Digital India

Taking forward the idea of

100.5 crore
People have registered
under Aadhaar
programme
Make in India with Skill India Make in India a digital nation, the basic
Manufacturing (% share of GDP) infrastructure for a digital 1,12,871 19.3 lakh
• Operationalizing e-BIZ portal
where a business user can fill the
nation, 1,12,871 kms of optical kms Of optical fiber cable
15.78 2008-09
fibre cable have been laid, in an Of optical fiber laid under bharat
eForms online/offline, upload the on-going effort to provide high
cable laid under net for high speed
bharat net for connectivity
attachments, make payments 16.17 2009-10
speed connectivity across the high speed
online and submit the forms for country. Citizen engagement
connectivity
processing of the department 16.17 2010-11
platforms such as MyGov have
• FDI norms eased in a number of also been started wherein
16.28 81 lakh
sectors such as defence, banking, 2011-12
19.3 lakh registered users People enrolled under
construction etc provide inputs for improving Digital Sahakarta
Abhiyan (DISHA)
15.76 2012-13
governance and participate
• Corporate tax slated to move down
to 25% over the next two years in other activities. Further, to
14.94 2013-14 enable penetration of digital 1.66 lakh
• India and Switzerland have signed
services in the hinterlands, 1.66 CSCs
105.2
an agreement to establish formal 25 2024-25 P* lakh Common Services Centres operational to
make e-services crore
cooperation in skill development Phone users
Source: Planning Commission
providing Government and available in
rural areas
• Government approved ‘National *P denotes projection
private e-Services to the citizens
Apprenticeship Promotion Scheme’ have been set up. Digital
India
(NAPS) with targeted to provide
apprenticeship training to 50 lakh
youth by 2020
• Uber & Maruti join hands for driver
Number of Enrollments in Aadhaar (UID)
training in the country; promote
entrepreneurship
50 crore 73 crore 95 crore 100 crore

Skill India
Years 2013-14 2014-15 2015-16

Trainings Placements Trainings Placements Trainings Placements

Reported Reported Reported

Total 930192 238868 1233346 675255 1355473 635156

2013 2014 2015 2016

Source: Press Information Bureau

12 13
Indian Economy | A Snapshot Indian Economy | A Snapshot

In a growing Bringing down

economy, why
demonetize? Black money Counterfeit Terror financing
currency entering India

1
A World Bank estimate puts the size
of the black economy at 23.2% of
India’s total economy in 2007. Safe to
say the current quantum was likely higher
• Most holdings of black money are in big denominations
• Counterfeit currency is estimated at above INR 400 cr and as such erodes
the value of currency

2
• A substantial portion of terror financing entering India is done via black or
India has one of the highest ratios of
otherwise fake currency
cash to GDP in the world at 12.4%,
much ahead of countries like China • 98% of all transactions are done in cash
and Brazil

3
Dubious distinction of being high in Costs
corruption rankings – Number 70 on • Disruption in daily life as
Benefits
corruption index households are unable to
• Fillip to the organized sector
• Lower cost of funding for get liquidity
banks • Activity levels in the
• Push to digital transactions informal economy take a hit
• Structurally lower inflation • Short term impact on
• Improved perception in the growth
international markets • Increased demand for gold
• Fiscal gain as a store of wealth
• Improvement in tax
buoyancy

14 15
Indian Economy | A Snapshot
Transition to
a cashless
economy
Ready access
Can access complete
amount of funds and also
lowers transaction risk
Security
Increased safety could
drive consumption higher
Convenience
Lowers cost for seller and
buyer thereby releasing
some surplus to be used
elsewhere
Transparency
Reduces cost and helps
eliminate portions of gray
economy
Calibration
Income tends to be
periodic while expenditure
is continuous
16
Indian Economy | A Snapshot
Changes in
Ready access
consumer behaviour
to financial Encouraging consumers to transact via digital methods is likely
resources to bring about higher accountability in the monetary system
Security
is higher and also
drives higher
consumption
Higher tax compliance
Expect more people to start paying taxes, as the
government increases scrutiny, and hoard lesser
amount of cash. The implementation of Goods
and Services Tax (GST) is also likely to help in
Convenience more indirect tax payments as economic agents
is higher with through the value chain demand invoices
electronic modes
of payment
GAINS
Faster adoption of banking and technology
Given the inconvenience that a very large part of
Transparency the populace is experiencing, there could be a
is higher as faster adoption of cashless methods of payment
helps eliminate and banking in general. Overall savings are also
portions of gray likely to get a boost from this move
market
Calibration
of income and
consumption
17
Indian Economy | A Snapshot

Overall improvement

Rising competitiveness
India was one of the only two countries in Asia
that showed an improvement in the World
Economic Forum’s competitiveness index in 2016. The
country’s ranking rose 16 positions moving up to rank
39th out of 138 countries. The improved performance
was on account of progress across all sub-components
of the competitiveness index, notably in market
efficiency, business sophistication and innovation.

Increasing ease of doing business

India has moved up from 142 to 130 in the
World Bank’s ease of doing business rankings.
Further upmove is likely given the nature of reforms
being implemented in the form of GST and Bankruptcy
resolution code.

18
Contacts Acknowledgment
Anis Chakravarty Richa Gupta
Partner, Lead Economist
DTTILLP
+91 (022) 6185 4265
anchakravarty@deloitte.com

Rishi Shah
Manager, Economist
DTTILLP
+91 (124) 679 2552
shahrishi@deloitte.com

Shiffali Razdan
Executive
DTTILLP
+91 (124) 679 2052
srazdan@deloitte.com

For further information please

email at ineconomics@deloitte.com

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private

company limited by guarantee (“DTTL”), its network of member firms, and their
related entities. DTTL and each of its member firms are legally separate and
independent entities. DTTL (also referred to as “Deloitte Global”) does not provide
services to clients. Please see www.deloitte.com/about for a more detailed
description of DTTL and its member firms.

The information contained in this material is meant for internal purposes and
use only among personnel of Deloitte Touche Tohmatsu Limited, its member
firms, and their related entities (collectively, the “Deloitte Network”). The recipient
is strictly prohibited from further circulation of this material. Any breach of this
requirement may invite disciplinary action (which may include dismissal) and/
or prosecution. None of the Deloitte Network shall be responsible for any loss
whatsoever sustained by any person who relies on this material.

©2017 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche

Tohmatsu Limited