1

August 2017
moves
Mammoth

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 Key messages

3 big moves this year

Demonetisation

GST

2016 CRISIL Ltd. All rights reserved.

Political consolidation

Macro numbers healthy, but challenges constrain the speed of growth

External position more sound

Policy choices dont given a steroidal push to growth

States begin to play a bigger role

2
 Crucial macros are looking good
Provide leeway for reforms

Growth-inflation mix changing Fiscal rectitude is helping

5.7%
4.9%
9.9% 4.5%
9.4% 8.0% 4.1%
7.5% 7.1% 7.4% 3.9%
6.4% 3.5%
3.2%
5.5%
5.9%
4.9%

2016 CRISIL Ltd. All rights reserved.

4.5% 4.0%

FY13 FY14 FY15 FY16 FY17 FY18F

FY12 FY13 FY14 FY15 FY16 FY17 FY18F
GDP growth CPI inflation Fiscal deficit as a % of GDP

FDI inflows strong Resilience in currency

Modi Government
70.0 came to power
44.9 43.8
36.3 65.0
33.0 30.8 60.0
27.0
55.0
50.0
45.0

Jul-14

Jul-15
Jun-12

Dec-12

Jun-13

Dec-13

Nov-14
Jan-15

Dec-15

Jun-16

Dec-16

Jun-17
Apr-12

Aug-12
Oct-12

Apr-13

Aug-13
Oct-13

Sep-15

Apr-16

Aug-16
Oct-16

Apr-17
Feb-13

Feb-14
May-14

Sep-14

Mar-15
May-15

Feb-16

Feb-17
FY12 FY13 FY14 FY15 FY16 FY17
High Currency Volatility Low Currency Volatility
Gross foreign direct investment ($ billion)
INR/US$ Mean for the relevant period

3
 Taking stock of reforms
Low Mid Fast

Low

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Health and education Macroeconomic environment Goods market efficiency

Technological readiness Infrastructure Institutions

Speedometer key
Starting point: WEF Global Competitiveness
Ranking 2016
Dark red: No action
Red: Identified problem/measures announced
Orange: Implementation started and initial
steps taken
Yellow: Work in progress
Light green: Significant progress made
Financial market development Dark green: Action completed

4
 States to play a bigger role
Which states are at the forefront on reforms?

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5
 Centre-state fiscal health dichotomy
Fiscal deficit (% of GDP)
7

5.8
6

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4

3 3.0

2.3
2

0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Centre States (with UDAY) States (without UDAY)

Source: RBI State Finances: A Study of Budgets (2017)

6
 But whats holding growth back?

Investments remain a drag on growth as capacity utilisation is still weak

90.00
34.3% 34.1%
32.6% 31.7% 85.00
31.1%
29.2% 80.00
75.00
70.00
65.00
60.00

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55.00
50.00

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16
Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16
Sep-11
Dec-11

Sep-12
Dec-12

Sep-13
Dec-13

Sep-14
Dec-14

Sep-15
Dec-15

Sep-16
Dec-16
FY12 FY13 FY14 FY15 FY16 FY17
Investment (GFCF) as a % of GDP Capacity Utilisation rate

Infra investment currently firing on only one cylinder

Plus, high NPAs, a deterrent to private infra govt spending
10.2% 244%
investment revival 9.5%
7.5%
50% 45% 30%
4.3% 21% 16% 7%
3.3% 3.8%
2.9%

Railways
Shipping

Power
Water Resources

Development
Road Transport

Rural Development
Urban
FY12 FY13 FY14 FY15 FY16 FY17E FY18F

Gross non-performing assets to advances

FY15-FY18 growth (%, y-o-y)

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 No support from exports
Global environment less favourable

24.8% 25.1%
23.9%
20.9%
20.0%

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7.8%
6.8%

2.3%
1.7%

FY13 FY14 FY15 FY16 FY17

-5.4%

India's export as a % of GDP India' Exports (Y-o-Y)

Source: MOSPI

8
 But CAD at comfortable levels
Led by low global oil, commodity prices and subdued domestic import demand

4.7%

2016 CRISIL Ltd. All rights reserved.

1.7%
1.3%
1.1% 1.0%
0.7%

FY13 FY14 FY15 FY16 FY17 FY18F

Current account deficit as a % of GDP

Source: MOSPI

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10
45.0
50.0
55.0
60.0
65.0
70.0

Source: RBI
Apr-12
May-12
Jun-12
Aug-12
Sep-12
Nov-12
Dec-12
Jan-13
Mar-13
May-13
Jun-13
Jul-13
Sep-13
Taper
tantrum

Oct-13

High Currency Volatility

Dec-13
Jan-14
Feb-14
Apr-14
Jun-14
Jul-14
Aug-14
External vulnerability much lesser today

Oct-14
Nov-14
Jan-15

INR/US$
Feb-15
Apr-15
May-15
Jul-15
Aug-15
Sep-15
Nov-15
Dec-15
lending resilience to the currency

Feb-16
Mar-16
May-16
Jun-16
Low Currency Volatility
Brexit

Aug-16
Referendum

Sep-16
Nov-16
Dec-16
Jan-17
Mar-17
Apr-17
US elections &
Demonetisation

FY18
of fiscal

Jun-17
in Budget
Continuation

consolidation

Jul-17

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 Inflation plummets on food
Food prices drag down CPI while weak pricing power keeps CCII low
14.0%

12.1%
12.0%
11.1%

10.0% 9.9%
9.4%

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8.0%
6.4%
5.9%
6.0%
4.9% 4.9% 4.5%
3.9% 4.2%
4.0%
2.9%
2.0%
2.0%

0.0%
FY13 FY14 FY15 FY16 -0.3% FY17
-2.0%
CPI Inflation CPI Food Inflation Crisil Core Inflation Indicator

Source: MOSPI, CEIC

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 Allowing for softer interest rates

Rates (%)

Jan-15 Aug-17
11.0

10.0 ~130 bps

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~190 bps ~80 bps

9.0
~110 bps
~200 bps
8.0

200 bps ~130 bps ~200 bps

7.0

6.0

5.0

4.0
Policy Repo 10 year Gsec Deposit rate*** Commercial MCLR** Housing loan Base rate*** Auto loan
rate* paper rate** rate**** rate****

12
 Outlook 2017-18

2013-14 2014-15 2015-16 2016-17 2017-18F

GDP growth (%) 6.4 7.5 7.9 7.1 7.4

Inflation (%) 9.5 6.0 4.9 4.5 4.0

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10-year yield (March-end) 8.8 7.7 7.5 6.8 6.7

CAD / GDP 1.7 1.3 1.1 0.7 1.0

Fiscal deficit / GDP 4.6 4.0 3.9 3.5 3.2

Exchange rate (Rs/$, March) 61.0 62.4 67.0 65.9 65.5

Investment / GDP 32.6 31.3 30.9 29.5 ~29

NPA / Advances 3.8 4.3 7.5 9.5 10.6

Source: Central Statistical Organisation, RBI and CRISIL. Note:

Needs Significantly
Improving
improvement improved

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14
Thank you

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