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State of the Economy Seminar May 2016

NCAER’S Quarterly Review of the Economy May 2016

NCAER predicts GDP will grow at 7.7 percent in 2016-17

NCAER Team presented the Quarterly Review of the Economy at a seminar held at its Conference Room. The review covers the performance of the Economy in the 2015-16 and forecast for the year head.

NCAER’s annual model for GDP Market prices at 2011–12 prices estimates GDP growth rate of 7.6% for 2015 – 2016 and forecasts it at 7.7% for 2016–17. Growth in exports and imports, year-on-year, is projected at (-) 1.6% and (-) 0.6% respectively for 2016-17.  Inflation (WPI) is projected at 0.9% for 2016-17. Current Account Balance as a percentage of GDP is projected at (-) 1.0% and Fiscal Deficit (centre) as a percentage of GDP at 3.5% for 2016-17.  

The agriculture sector has witnessed feeble growth on account of drought for two successive years. The average rate of growth in the agricultural and allied sectors’ GDP for 2014-15 and 2015-16 has been a low 0.5%. Two consecutive years of sub-par monsoon have had a significant impact on the output of both food as well as non-food crops.  IMD has predicted monsoon for 2016-17 at 106% of the Long Period Average (LPA) with a model error of ± 5%, which may have a positive impact on agriculture and thereby the economy.

In the industrial sector, the manufacturing sector after showing robust growth in the second quarter, has slowed down consistently in the third and fourth quarter. The Index of Industrial Production (IIP) recorded a 2.4% year-on-year (y-o-y) increase in the period in 2015-16 versus 2.8% in 2014-15. In the fourth quarter IIP Manufacturing was in recession (-1.1%) and the overall IIP barely grew by 0.2% on a y-o-y basis.  In the fourth quarter, Capital goods grew by -15.4% and consumer non-durables by -3.9% on a y-o-y basis. The IIP Electricity sector continues to show buoyant growth since December 2015 and in March 2016, grew by 11.3% on a y-o-y basis. The IIP Mining also slowed down in March but for the overall year, it showed higher growth of 2.2% in 2015-16 versus 1.4%in 2014-15.

Leading indicators from the services sector in 2015-16:Q4 give mixed signals. Tourist arrivals grew at 10% on a y-o-y basis. Cargo traffic at major ports grew at 7.6% on a y-o-y basis in the fourth quarter of the last fiscal. Revenue earning goods traffic by railways contracted in the fourth quarter as well. Bank credit to the commercial sector showed a continuous increase in y-o-y growth rates from 8.8% 2015-16:Q1 to 11.2% in the fourth quarter. Domestic passenger air traffic shows robust growth in 2015-16(21.2%) versus 2014-15(13.8%).  Both services receipts (-12.6%) and payments (-9.9%), published by the RBI, showed a continuous decline for the fourth consecutive month in February 2016.

In the external sector, merchandise imports declined by 15.3 per cent to US$ 379.6 billion on account of a 40.2% fall in the value of oil imports. Non-oil imports too fell by 4.1%, as a result of which the thereby trade deficit narrowed down to US$ 118.5 billion, a decrease of 14% over the previous year, of 2014-15. Growth in exports has been consistently negative ever since December 2014.

The BSE Sensex fell by 2% in 2015-16 over 2014-15 and rupee-dollar exchange rate depreciated by 7% in 2015-16.  The Reserve Bank of India launched a plethora of measures to boost liquidity, in addition to cutting the policy rate by 25 basis points, to a five year low of 6.5 per cent. The liquidity measures are aimed at inducing more effective monetary policy transmission and further reduction of bank lending rates.

Retail inflation, measured by the consumer Price Index (CPI) fell to a six month low of 4.83% in March, 2016. Retail food inflation fell from 5.30% to 5.21%.The combination of lower oil prices and a good monsoon is expected to rein in inflation.

On the fiscal front, the Budget of 2016–17 aims to achieve the deficit target of 3.5 per cent of GDP, in line with the predictions of the NCAER model.

About the Quarterly Review of the Economy

The Quarterly Review has been designed to meet the needs of policy makers, corporates and others interested in tracking the latest developments in the Indian economy. It provides an analysis of current policies and tracks developments in both the domestic as well as the global economies. The growth forecasts of NCAER are objective and are widely quoted and referred to in both the Indian as well as the international media. An integral part of the Quarterly Review is the State of Economy Seminars, organised quarterly at NCAER, which bring together policy makers, industry leaders and researchers at one forum.

India launch of the World Development Report 2016 on Digital Dividends

NCAER and The World Bank co-hosted the India launch of the World Development Report 2016 on Digital Dividends, followed by a roundtable discussion on how to best speed up India’s digital transformation and reap the digital dividends of faster growth, greater opportunity and jobs, and better service delivery for India.

Dr Shekhar Shah, Director-General, NCAER & Mr Onno Ruhl, India Country Director, The World Bank delivered the welcome address. This was followed by a presentation by Dr Deepak Mishra & Dr Uwe Deichmann, Co-directors, WDR 2016, which provided an overview of the Report’s main findings and and how they might apply to India.  Mr R Chandrashekhar, President, NASSCOM also shared his thoughts on the  findings of the report.

Another highlight of the launch event was a presentation on the Krishna district in Andhra Pradesh that has been implementing digital technologies, including Aadhaar, for improving service delivery. Speaking on the occasion, Mr Ahmed Babu, Collector & District Magistrate, Krishna District &  Mr Ragavan Venkatesan, Business Head, IDFC explained how through an electronic point of sale or e-POS model, Andhra Pradesh has imparted a great amount of incremental efficiency to the district’s public distribution system (PDS).

World Development Report 2016

The World Development Report (WDR) is the World Bank’s flagship publication, published annually since 1979. It focuses each year on a contemporary topic of policy interest to the international development community.  The WDR 2016 expands our understanding of the impact of digital technologies on the lives of poor people in developing countries.

The WDR 2016 documents many profound and transformational effects of digital technologies that are boosting growth, expanding opportunities, and improving services. It also finds that the broader benefits have fallen short and are unevenly distributed. For digital technologies to benefit everyone, everywhere requires closing the remaining digital divide. But greater digital adoption will not be enough. The WDR 2016 argues that to get the most out of the digital revolution, countries also need to work on “analog complements”— strengthening regulations that enable firms to connect and compete, adapting workers’ skills to the demands of the new digital economy, and ensuring that institutions are more accountable.

Roundtable on “How can India best reap its digital dividends?”

India wrote one of the early success stories of the digital revolution when it became a global powerhouse for software development and information services. Its Aadhaar biometric digital ID system has become a model for many countries, helping governments to become more efficient and more inclusive in expanding services to those who have been left behind. But at the same time, India has the largest number of people unconnected to the Internet.  And it has fallen behind other emerging market economies in producing internationally competitive ICT goods and global-scale internet companies.

To accelerate India’s digital transformation, the government has announced a range of new initiatives: Digital India; Make in India; Start-up India; and innovative applications of Aadhaar, such as the Jan Dhan-Aadhar-Mobile trinity and Digital Lockers. Indian industry has responded enthusiastically to these initiatives.  How best can these and other initiatives make up for lost time and how can they best generate greater and more widely shared digital dividends—faster growth, more jobs, and better service delivery?  Beyond catching up, how can these digital dividends allow India to leap frog in a variety of ways to deliver on the promise of opportunity and prosperity for all its citizens, particularly those who still remain poor in its urban and rural areas.

The Roundtable featured some of the country’s most influential thinkers on India’s digital future along with members of the WDR Team. The event was Web Streamed Live.

Looking East: India and the East Asian Policy Experience

Building on Asia’s Strengths during Turbulent Times

A discussion around the IMF’s Spring 2016 Asia and Pacific Regional Economic Outlook

A conversation around the IMF’s Spring 2016 Asia and Pacific Regional Economic Outlook (REO), Building on Asia’s Strengths during Turbulent Times, led by Dr Thomas Richardson, Senior IMF Resident Representative in India, Nepal, and Bhutan was held at NCAER, following the official release of the report today.

Asia continues to be the most dynamic part of the global economy. But it also continues to face severe challenges of a still weak global recovery, slowing world trade, and the impact of China’s growth transition. Growth in the Asia–Pacific economies is expected to decelerate slightly to about 5 percent during 2016–17.  The region’s countries need structural reforms to rebalance demand and supply, reduce vulnerabilities, and augment economic efficiency to raise productivity and maintain their leadership position. Further, the pace of economic expansion must be protected from real and financial volatilities.

In his presentation, Dr Richardson discussed that a new wave of potentially high-impact reforms would help, ranging from the reform of State-owned enterprises in China, to labour and product market reforms in Japan, to infrastructure reforms in India.

Following Dr Richardson’s presentation, Dr Kanhaiya Singh, Senior Fellow, NCAER put forward his thoughts on the report from India’s perspective. The Q & A that followed the presentations led the discussions to a lot many questions pertaining to the growth of Indian economy.

The Spring 2016 Asia and Pacific Regional Economic Outlook discusses the downside risks that could potentially dim Asia’s growth prospects, and high leverage that could further exacerbate shocks, particularly in the event of an interest rate spike. While the region is better positioned to meet the challenges ahead, there is pressing need to strengthen Asia’s resilience to global risks and enhance productive capacity. The REO Update also supports accommodative monetary policy, especially where fiscal space is limited. Looking ahead, growth prospects amongst the largest Asian countries are likely to diverge, owing to a variety of factors ranging from lower commodity prices in Indonesia and Malaysia, political uncertainty also in Malaysia, weaker growth in China, a demand-driven recovery in India and a wage-driven recovery in consumption in Japan.

Thomas Richardson is the IMF’s Senior Resident Representative in India, Nepal and Bhutan. He was earlier the Senior Resident Representative and IMF mission chief in Uganda. During the course of more than 20 years at the Fund, he has served as the IMF mission chief for countries including Cyprus, Belarus and Moldova, and has worked extensively on China and Russia, including as the IMF Resident Representative in Moscow from 1995 to 1998.

Kanhaiya Singh is Senior Fellow at NCAER. His work covers a range of areas in applied economics, including macro and monetary economics, input-output analysis, CGE models, international economics, sector studies, the environment, agriculture trade, and food security.  Prior to joining NCAER in 2004, he was a Deputy Director at the Tariff Commission of India in the Ministry of Industry and Commerce and worked earlier in the private sector as a mechanical and operations engineer. Singh was trained as an engineer with a BTech in mining machinery from the Indian School of Mines Dhanbad, followed by an MBA from the Poddar Institute of Management, and a PhD in economics from the Australian National University in Canberra. He is currently working on measuring the economy wide impacts of large infrastructure such as airports.

NCAER’s Looking East Dialogues are policy conversations designed to provide an opportunity for live, focussed dialogue among public policy practitioners and analysts in India and East Asia. These tightly organized video conversations at NCAER are driven by mutual interest and intellectual curiosity, with policymakers and analysts selected for their intimate knowledge and involvement in their country’s public policy experience and their own interest in learning about how Indian and East Asian policymakers are meeting similar challenges.

The complete report is available at the IMF website

Comparing Cross-country Trends in Household Finance

Prof Tarun Ramadorai (University of Oxford and NCAER) presented on Cross-country Trends in Household Finance at this NCAER Seminar. Dr Pallavi Choudhuri from NCAER shared her views as the discussant for the seminar.

Household finance studies the ways in which households use financial instruments to attain their objectives. The field has grown rapidly in recent years, with considerable emphasis on anomalies—household financial behavior that deviates from the prescriptions of standard finance theory in ways that are hard to rationalize—and on the characteristics of households and of the financial systems in which they operate that either exacerbate or mitigate such mistakes. Cross-country studies of household finance have added substantially to individual country studies enabling a systematic comparison of household finance practices around the world. Ramadorai reviewed the literature on international comparative household finance and discussed what the aggregate household balance sheets for 13 countries reveal. Based on work done jointly with Cristian Badarinza and John Campbell, Ramadorai highlighted common features and contrasts across countries and discuss key issues surrounding retirement savings, investments in risky assets, unsecured debt, and mortgages. He also focused on research from India in this rapidly growing area of work.

About Professor Tarun Ramadorai

He is Professor of Financial Economics at the Saïd Business School, University of Oxford, and a Non-resident Senior Fellow at NCAER. He is also an Executive Committee member of the Oxford-Man Institute of Quantitative Finance, Senior Academic Fellow of the Asian Bureau of Finance and Economics Research, Research Fellow at the Centre for Economic Policy Research, and Honorary Advisor to the National Institute of Public Finance and Policy. He has served as an Economic Advisor to the European Securities and Markets Authority, and was a Visiting Scholar at the Economic Advisory Council to the Prime Minister of India during 2011 and 2012. His research focuses on asset pricing, international finance, household finance, and the Indian economy. Ramadorai has a PhD in Business Economics from Harvard and an MPhil in Economics from Cambridge.

Growth, Urbanization, and Poverty Reduction in India

Gaurav Datt of Monash University presented his work on “Growth, Urbanization, and Poverty Reduction in India”, co-authored with Martin Ravallion at Georgetown University and Rinku Murgai at the World Bank.  This new work delivers the most robust evidence to date that economic growth in India has not only come with a lower incidence of absolute poverty but also with an acceleration in the pace of poverty reduction in the post-1991 period.  Faster poverty declines have come with both higher growth and a more pro-poor pattern of growth. Ms Mousumi Das, Associate Fellow, NCAER, was the discussant.

Past thinking about the impact of economic growth on poverty in developing countries has emphasized the role of urbanization. There was much hope in India that higher growth rates after the 1991 economic reforms would bring faster poverty reduction.  But there were also signs of rising inequality in the post-reform period, raising doubts about how much the poor were sharing in the gains from growth.  Building on earlier work by Datt and Ravallion (1996), the authors now compile a new series on poverty and related data spanning 60 years, substantially extending the reach of their analysis.  With the benefit of nearly 20 years of post-1991 data, Datt and colleagues find a downward trend in poverty measures since 1970 that accelerated after 1991.  Despite rising inequality within the rural and (especially) urban sectors, growth within the sectors delivered sufficient gains to poor people to mitigate higher inequality. Population urbanization played a role, but not in the standard way assumed by the Kuznets process in which distributions are preserved within both the rural and urban sectors. Instead, the authors find that urbanization came with distributional changes within sectors.  Another difference is that the sectoral pattern of growth in India’s Net Domestic Product mattered less to progress against poverty post-1991 than was the case in the pre-1991 period. Stronger inter-sectoral linkages suggested by the post-1991 data meant that urban consumption growth brought gains to the rural as well as the urban poor. The composition of growth between the primary, secondary, and tertiary sectors ceased to matter as all three sectors contributed to poverty reduction.

About Gaurav Datt 
He is Associate Professor and Deputy Director of the Centre for Development Economics and Sustainability at Monash University in Melbourne. He has worked previously in research positions at the World Bank and IFPRI in Washington D.C, most recently with the Bank based out of Sydney and Kathmandu.  Datt’s primary focus on poverty, income distribution and social policy has led to extensive journal publications and several World Bank country poverty assessments.  His work has covered countries including India, China, Egypt, Laos, Mozambique, Nepal, Papua New Guinea, the Philippines, Sri Lanka and Timor-Leste. Datt has a PhD in Economics from ANU in Canberra, and an MA from the Delhi School of Economics.

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