With the new government taking over this year, India seems to be back on course to getting back to the growth rates seen earlier in the best years. The international sentiment is very bullish on India and that confidence is reflected with India receiving in excess of US$ 15 billion in FII till the mid of November 2014.
The Sensex has crossed record levels of 28,000 offering the best YTD Returns of 33.2%, after touching lows of 17,000 in September 2013 and is expected to rise even further by the end of the current fiscal. By any standard, this is indeed a smart recovery. In fact, India has been the star amongst BRICS nations in the recovery period, post the global slowdown.
With the new government demonstrating serious intent in reforming the economy by initiating steps towards reforms in land acquisition laws, labour laws, introducing GST, increasing FDI in Insurance, Railways, Construction, Infrastructure and Defence. Sensitive issues like deregulation of diesel have been initiated, while the coal and mining sector is being given an impetus through fresh auctions. Policies pertaining to clearances from the Environment and Forests are being revised to ensure faster clearances of projects.
The fall in global commodity prices, especially crude oil has helped India improve its Balance of Payments situation. The domestic financial investors have also shown marked improvement in sentiment with mutual funds that were net sellers in the last couple of years having turned net buyers this year. Mutual funds alone have pumped in 25,000 crore in equities this year.
The Indian economy showed itself to be more robust than most of the other BRICS nations through the difficult years from 2010-2013. From 2000-2014, the economy saw its lowest GDP growth rate of 4.15% (2000-2001), 3.88% (2002-2003), 4.47% (2012-2013) and 4.74% (2013-2014). The best years saw growth rates touch 9.48% (2005-2006) and 9.57% (2006-2007). The economy has begun to recover and is expected to post growth rate above 5% for the current period of 2014-2015) and the economy is expected to continue to increase the pace of growth through 2017.
However, the industrial growth rates have shown a different trend. The highest growth rate of 12.17% was witnessed in 2006-2007, followed by 9.81% in 2004-2005 and 9.72% in 2005-2006. During the recession years, the industrial growth rate plummeted to 0.96% in 2012-2013 and 0.35% in 2013-2014. The industrial growth rate has been slow to post a recovery but current signs confirm that 2014-2015 will be better than the previous two years.
The agriculture and allied sectors have been erratic in growth rates and the period in question has not shown consistent growth or decline, in fact there have been sharp growth and decline in respective years.
The year 2000-2001 saw a negative growth rate of -0.01%, while 2001-2002 showed robust recovery at 6.01%, however 2002-2003 again saw a sharp decline at -6.60%. The very next year 2003-2004 saw the best year posting 9.05% growth rate. Similarly, 2012-2013 saw growth rate dip to 1.42%, while 2013-2014 saw a recovery at 4.71%.
Agriculture and allied sectors have seen increasing interest from corporates who now see a growth opportunity in the sector, with the government adopting a more open policy to private sector investment in modernizing the sector. With modernization and increased credit flow to the sector, growth rates are likely to continue to improve in the next few years.
One sector which has been consistently growing at a rapid pace is the services sector. India has rapidly grown in the services sector that has seen substantial investment in financial services, insurance, IT & business process outsourcing and backend support. India is also witnessing rising investment in health services, clinical and pharmaceutical research, education and skill development. The share of the services sector in the overall economy continues to remain high. The best years witnessed 10.91% (2005-2006), 10.06% (2006-2007) and 10.27% (2007-2008) growth rates.
On the fiscal side, the Gross Domestic Savings touched its highest level in 2007-2008 at 36.82% of GDP and the same has been steadily declining till 2012-2013 when it touched 30.09%. 2013-2014 showed a marginal improvement at 30.50%.
The combined fiscal deficit (centre and state) had its best year in 2007-2008 when it reached -0.40% but has been rising ever since.
However, with the RBI adopting measures to curb the deficit, 2013-2014, the deficit stood at -6.7%. The inflation WPI (average) touched its highest point in 2009-2010 at 9.6 but has since been kept in check with the same being brought down to 5.9 in 2013-2014. The CPI (average) touched it's highest at 12.3 in 2009-2010 with the same coming down to 9.5 in 2013-2014.
The Rupee has been steadily weakening against the dollar and after hovering in the mid Rs 40/$ for over a decade the Rupee has been holding steady around the Rs 60/$. While the weakening of the rupee was mostly welcomed by the exporters, especially the IT sector, the same hit the industry hard that was directly or indirectly impacted by it. With the global slowdown, the economy was strained with almost all infrastructure related activities coming to a standstill in the years 2010-2014.
On international trade, the exports have been rising steadily year on year and stood at US$ 318.6 billion, while the imports had reached its highest level at US$ 502.2 billion in 2012-2013. The same had come down to US$ 466.2 billion. The forex assets, excluding gold, have been rising and stood at US$ 303.6 billion in 2013-2014. What has been worrying is that the external debt too has been steadily rising and was at its peak at US$ 426 billion with the short term debt standing at US$ 92.7 billion.
The RBI has been facing a challenge in trying to keep the Current Account Deficit (CAD) down to manageable levels. The CAD as a percentage of GDP has been at its highest at 8.6 in 2007-2008 but with tight control on imports, the same has come down to 2.6 in 2013-2014. Governor Rajan took over as Governor at RBI in 2013 under the UPA II has had to take measures to bring the economy back to a growth path. His initial steps have been to control inflation and bring down the trade deficit. The curbs on gold import helped to bring down the CAD but by later 2014-2015, the Governor is under pressure to bring down interest rates to boost investment.
According to the Census Data 2011, the population stood at 1210.2 million. The population has risen by 17.64% over the previous Census taken in 2001, when the population stood at 1028.7 million. In absolute terms, the population has risen by 181.96 million. Interestingly, the female population has registered a higher growth rate at 18.3% over the male growth rate which was at 17.1%. The children population count stood at 164.5 million which represents a rise of 660,000 over the previous Census in 2001. The male child (0-6 years) has increased between 2001 and 2011, while the female child in the same age group has decreased marginally.
The density of population per square km in India is 382 persons. Delhi recorded the highest people density amongst all cities at 97.5% with Chandigarh recording the second highest. Arunachal Pradesh had the lowest density per square km.
In a path breaking initiative, The Prime Minister has taken steps to introduce a power sharing grid amongst the SAARC countries that will ensure that the surplus power generated in one country is distributed to another country based on need. The region already imports 30% of its requirement and having a grid will help all countries in the region. India already has power buying agreements with Bhutan and Bangladesh.
India is set to grow at a rapid pace from here and the power sector alone requires an investment upwards of US$250 billion over the next five years, with US$ 100 billion needed by the renewable sector alone. India is expected to have a demand of 2 trillion units by 2019.
Solar, wind and Hydro are major areas that are expected to witness major investments in a bid to shore up clean energy generation. The government is targeting 100,000 mw of clean power generation by 2022.
Gas based power projects have suffered in the last few years. In a relief to major gas based power plants the government plans to provide major relief to help revive 16,000 mw of power. Relief measures include lowering of interest rates and longer loan tenures.
Wind energy, a part of the clean energy plan of the government, has received a boost with the government planning to invite bids worth Rs 20,000 crore in the coming fiscal that will see private players add another 3,000 mw of clean energy generated from wind.
Investment in power transmission has lagged behind with several south based states suffering from power transmission congestion. The government plans to auction eight major power transmission projects with a cumulative investment of Rs 53,000 crore. One project will connect Chhattisgarh with Tamil Nadu through a 2,500 km long high capacity power evacuation link, costing Rs 26,820 crore.