Ramesh Singh Eco Notes On e Survey

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Synoptic notes on
Economic Survey 2013-14;
Union Budget 2014-15 & Railway Budget 2014-15
prepared by McGraw-Hill writer Ramesh Singh

ECONOMIC SURVEY 2013-14
A Synopsis
INTRODUCTION
The Economic Survey 2013-14 was released by the Union Finance Minister on July 9, 2014. The
new Government looks fair in treating the last year of the past government. The issues and
challenges have been analysed with much precision and neutral approach, there is no doubt in it.
A synoptic and objective highlights of the Survey is being presented here for the objective and
subjective uses of the readers appearing in various examinations.
Economy at a Glance
The Survey presents a bird's eye view of the economy in the following way:
- Indian economy, in 2014-15, is poised to overcome the sub-5 per cent growth of gross
domestic product (GDP) witnessed over the last two years. The growth slowdown in the last two
years was broad based, affecting in particular the industry sector.
- Inflation too declined during this period, but continued to be above the comfort zone, owing
primarily to the elevated level of food inflation. Yet, the developments on the macro-stabilization
front, particularly the dramatic improvement in the external economic situation with the current
account def icit (CAD) declining to manageable levels after two years of worryingly high levels
was the redeeming feature of 2013-14.
- The fiscal deficit of the Centre as a proportion of GDP also declined for the second year in a
row as per the announced medium-term policy stance. Reflecting the above and the expectations
of a change for the better, financial markets have surged. Moderation in inflation would help
ease the monetary policy stance and revive the confidence of investors, and with the global
economy expected to recover moderately, particularly on account of performance in some
advanced economies, the economy can look forward to better growth prospects in 2014-15 and
beyond.
- After achieving unprecedented growth of over 9 per cent for three successive years between
2005-06 and 2007-08 and recovering swiftly from the global financial crisis of 2008-09, the
Indian economy has been going through challenging times that culminated in lower than 5 per
cent growth of GDP at factor cost at constant prices for two onsecutive years, i.e. 2012-13 and
2013-14.
- Sub-5 per cent GDP growth for two years in succession was last witnessed a quarter of a
century ago in 1986-87 and 1987-88. Persistent uncertainty in the global outlook, caused by crisis in
the Euro area and general slowdown in the global economy, compounded by domestic structural
constraints and inflationary pressures, resulted in a protracted slowdown.
- The slowdown is broadly in sync with trends in other emerging economies, but relatively
deeper. Indias growth declined from an average of 8.3 per cent per annum during 2004-05 to
2011-12 to an average of 4.6 per cent in 2012-13 and 2013-14. Average growth in the emerging
markets and developing economies including China declined from 6.8 per cent to 4.9 per cent in
this period (calendar-year basis). What is particularly worrisome is the slowdown in manufacturing
growth that averaged 0.2 per cent per annum in 2012-13 and 2013-14.
- In addition to the growth slowdown, inflation continued to pose significant challenges.

Mentor- McGraw-Hill writer Ramesh Singh | Next GS ECONOMY batches July- 10am & 2pm | ESSAY Sept- 10am & 2pm 2
Although average wholesale price index (WPI) inflation declined in 2013-14 to 6.0 per cent vis-
vis 8.9 per cent in 2011-12 and 7.4 per cent in 2012-13, it is still above comfort levels. Moreover,
WPI inflation in food articles that averaged 12.2 per cent annually in the five years ending 2013-
14, was signif icantly higher than non-food inf lation. Fortunately, the upward trend of inflation
that played a part in slowdown in growth, savings, investment, and consumption, appears to
have subsided.
- The external sector witnessed a remarkable turnaround after the first quarter of 2013-14, and
the year ended with a CAD of 1.7 per cent of GDP as against 4.7 per cent in 2012-13. After
plummeting to Rs 68.36 to a US dollar on 28 August 2013, triggered by the expected taper of
quantitative easing in the United States, the rupee gradually strengthened and the year ended with
the exchange rate averaging Rs 61 per US dollar in March 2014, owing to measures taken by the
government and the RBI.
- Foreign exchange reserves increased by nearly US$ 40 billion from US$ 275 billion in early
September 2013 to US$ 314.9 billion on 20 June 2014. These developments on external account
have generated some optimism that the Indian economy is better prepared to confront the
challenges of global policy reversals, including tapering of quantitative easing in the US.
Improvement is also observed on the fiscal front, with the fiscal deficit declining from 5.7 per
cent of GDP in 2011-12 to 4.9 per cent in 2012-13 and 4.5 per cent in 2013-14. Much of this
improvement has been achieved by reduction in expenditure rather than from increased revenue.
Nevertheless, the corrections in fiscal and current account deficits augur well for macroeconomic
stabilization.
- The improvements in the twin deficits would, no doubt, feed into a higher growth in 2014-
15, but the pace of recovery may be gradual. After reaching a low of 4.4 per cent during the last
two quarters (Q3 and Q4) of 2012-13, growth inched up to 4.7 per cent in Q1 of 2013-14 and
further to 5.2 per cent in Q2 of 2013-14, only to decline to 4.6 per cent in the next two quarters.
The fact that this happened despite a gradual recovery in the global economy indicates the
importance of addressing the domestic structural constraints that have engendered an undulating
and gradual recovery. Sustenance of early signs of growth pick-up depends on amelioration of
structural constraints.
- The impact of domestic structural factors on the current economic slowdown in India is
often explained in terms of the irreconcilability of rate of fixed investment of around 30 per cent
of GDP and sub-5 per cent growth, given Indias demand conditions and long-term incremental
capital-output ratio. Application of time series techniques that attempt to decompose the
slowdown into structural and cyclical components, have acknowledged the presence of both,
though the assignment of proportions differs. The accentuation of structural constraints has
been one of the factors contributing to sub-5 per cent growth without a commensurate large
decline in investment rate. Salient among these structural factors as indicated by some studies
1

are the following:
1. Difficulties in taking quick decisions on project proposals have affected the ease of doing
business. This has resulted in considerable project delays and insufficient complementary
investments.
2. Ill-targeted subsidies cramp the fiscal space for public investment and distort allocation of
resources.
3. Low manufacturing base, especially of capital goods, and low value addition in
manufacturing. Manufacturing growth and exports could be facilitated with simplif ied
procedures, easy credit, and reduced transaction cost.
4. Presence of a large informal sector and inadequate labour absorption in the formal sector.
Absence of required skills is considered an important reason.
5. Sustaining high economic growth is difficult without robust agricultural growth. Low
agricultural productivity is hampering this.
6. Structural factors engendering continued high food inflation need to be tackled. Issues related

to significant presence of intermediaries in the different tiers of marketing, shortage of storage
and processing infrastructure, inter-state movement of agricultural produce, etc. need to be
addressed.
________________________________
1. The important studies are i). Chinoy, Z. Sajjid and Jahangir Aziz, Why is Indias growth at a 10-year low?, 2013;
available at www.jpmorganmarkets.com; ii). Prachi Mishra, Has Indias Growth Story Withered?, Economic and
Political Weekly, vol. XLVIII (15), 2013; and iii). World Economic Outlook, International Monetary Fund, April
2014.

SECTORAL GROWTH TRENDS
Agriculture & allied sectors: Aided by a favourable monsoons, the agriculture and allied
sectors achieved a growth of 4.7 per cent in 2013-14, compared to its long-run average of
around 3 per cent (between 1999-2000 and 2012-13). However, in some other sectors, slowdown
has been more pronounced and protracted. Mining and quarrying activities have decelerated
since 2011-12. Two prominent components of mining, coal and crude petroleum, have stagnated
in the last three-four years. Subsequent to an average growth of 7.1 per cent in coal production
during the four-year period 2006-07 to 2009-10, its growth declined to an average of 1.6 per cent
during the next four years ending 2013-14. The slowdown in coal production partly owes to
regulatory issues. The compound annual growth rate (CAGR) of crude petroleum was 1.2 per
cent during 2004-05 to 2013-14. As coal and petroleum are universal intermediates, the slack in
their production impacted the economy adversely.
The last two years were particularly disappointing for the manufacturing sector, with growth
averaging 0.2 per cent per annum. The decline has been quite broad based, as per data from the
index of industrial production (IIP). Decline in the growth rate for basic goods continued for the
third year in succession in 2013-14. Output of capital goods declined for the third year in a row
starting 2011-12. Contraction of 12.2 per cent in the consumer durables segment was observed
in 2013-14. Only intermediate and non-durable consumer goods registered higher growth rate in
2013-14 vis--vis 2012-13. Following close to double-digit growth between 2004-05 and 2011-12,
the construction sector (that was the major source of employment in this period, as can be seen
from Box 1.2) lost momentum in the last two years. Taken together with the trends in capital
goods, the slowdown in construction activity reflects subdued business sentiments.
Employment Trends
Slowdown in employment growth has been a serious concern in recent years. As per National
Sample Survey Office data, the number of persons in the workforce (usual status) increased from
398 million in 1999-2000 to 458 million in 2004-05, an increase of nearly 60 million (nearly
equally divided between the agriculture and nonagriculture sectors) or 15 per cent in f ive years.
This increased further to 473 million in 2011-12, an increase of 15 million or 3.3 per cent over a
span of seven years.
There was a decline in the workforce in the agriculture and allied sector by over 36 million
between 2004-05 and 2011-12. On the other hand, the number of persons in the workforce in
the non-agriculture sector increased by 51 million with industry and services contributing nearly
31 million and 20 million respectively. The table below gives the share of different sectors or the
sectoral composition of the workforce (employed) by usual principal and subsidiary status
(UPSS).


Share of Major Sectors in Total Employment (per cent)
2

_____________________________________________________
Sector 1999-2000 2004-05 2011-12
_____________________________________________________
Agriculture & allied 59.9 58.5 48.9
Industry 16.4 18.2 24.3
Services 23.7 23.3 26.9
_____________________________________________________
Decline in the share of employment in agriculture has been observed in most countries in their
development process. Within industry, the bulk of the employment increase was accounted for
by construction with an increase of nearly 25 million between 2004-05 and 2011-12.
Employment increased by 6 million in the manufacturing sector.
The around 20 million increase in employment in the services sector between 2004-05 and
2011-12 was more or less uniformly accounted for by an increase in the trade, hotels, and
restaurants sector (4.7 million); transport, storage, and communications (5.4 million); financing,
real estate, and business services (5.3 million); and community, social, and personal services (5
million)
2
.
In recent years there has also been a decline in the labour force and workforce participation
rates of women. A large number of analysts have ascribed this to a rapid increase in female
participation in education, both in the rural and urban areas.
_________________________________________
2. C. Rangarajan, Seema, and E. M. Vibeesh, Developments in the Workforce between 2009-10 and 2011-12,
Economic and Political Weekly, vol. XLIX (23), 2014.
Manufacturing sector: The data on manufacturing growth during the last two years need to be
interpreted with care, given the possibility of revisions by the CSO. The initial estimates of value
added in manufacturing sector are based on the IIP, while the second and third revised estimates
are based on more detailed data from the Annual Survey of Industries (ASI). For example, as per
the National Accounts Statistics, the growth rate of manufacturing for 2011-12 was revised to
7.4 per cent in the second revised estimates (released in January 2014) from 2.7 per cent
estimated earlier as ASI data for 2011-12 became available only in the second half of 2013.
The slowdown in services, in particular the internal trade, transport, and storage sectors,
could be attributed to the loss of momentum in commodity-producing sectors. The moderate
revival in the global economy may have helped the growth in business services. Bank credit grew
by 14.3 per cent in 2013-14, indicating buoyant activity in f inancial services.
The disaggregated sectoral trends may be better understood in terms of movement in
sectoral shares in GDP. The share of the agriculture and allied sectors in GDP has been
consistently declining. During the eight years between 1999-2000 and 2007-08, the share of
agriculture and allied sectors in GDP declined by 6.4 percentage points, while that of industry
and services increased by 1.9 and 4.4 percentage points, respectively.
The mining and quarrying sector witnessed continuous decline in GDP share for several
years, indicating its inability to cater to requirements of high growth, in the absence of
comprehensive reforms.
In the case of manufacturing, most of the gain in share occurred during 2004-05 to 2007-08,
when the sector was growing at an annual average rate exceeding 10 per cent, along with robust
growth in corporate prof its, savings, and investment. Activity was buoyant in registered
manufacturing, while the share of unregistered manufacturing remained unchanged during the
four years ending 2007-08. During 2008-09 to 2012-13, the share of manufacturing remained
roughly constant despite an increase in share of the registered segment, as unregistered

manufacturing recorded an average annual growth of only 3.4 per cent.
The share of services has been consistently rising; more so since 2004-05. However, the pace
of expansion was not balanced. The biggest drivers of the service sector expansion since 2004-05
were communications and banking and insurance. Robust growth in these sectors primarily
drove the expansion of the services sector even after 2010-11. Real estate and business services
also gained share. The services that witnessed stagnation/decline in share after 2010-11 include
domestic trade, hotels, and storage. The inability of some of these employment-intensive sectors
to attain sustained momentum is one of the reasons for the less-than commensurate growth in
employment in services.
In the absence of sufficiently high growth in agriculture and industry, services would be seriously
constrained to sustain growth acceleration on auto-pilot mode since many of the services are
dependent on buoyancy in the commodity-producing sectors, especially industry. Revival of
growth in services depends on growth revival in commodity producing sectors. Industrial revival
is central to sustained revival in overall growth.
Input flows: One of the ways to study inter-sectoral linkages is by examining the inter-industry
input flow matrix. As per the latest available input-output tables (2007-08) released by the CSO
shows that out of the total input requirement of the agriculture and allied sector, 55.3 per cent
was contributed by the sector itself, while industry and services accounted for 21.4 per cent and
23.3 per cent respectively.
More than two-thirds of the total inputs required by industry came from industry itself, while
nearly one-fourth were from the services sector. Over half the inputs for the services sector
came from the industrial and agricultural sectors. It highlights the importance of the industrial
sector in sustaining economic activity in the services sector. The agricultural sector accounted
for 11.8 per cent of the total inputs employed in the economy, while the industrial and services
sectors accounted for 59.6 per cent and 28.6 per cent, respectively. Hence a sustained recovery in
the industrial sector is at the heart of a sustained growth recovery.
Aggregate Demand: Aggregate demand of the economy comprises final consumption and
investment along with net exports (exports minus imports) of merchandise and non-factor
services. In national accounting identity, the current account balance maps the difference
between domestic savings and domestic investment, which conveys the extent of this gap that
needs to be bridged by foreign savings.
Aggregate demand, measured in terms of GDP at constant (2004-05) market prices,
registered a growth of 5.0 per cent in the year 2013-14 (4.7 per cent in 2-112-13). The growth in
private final consumption, which averaged 7.8 per cent during 2003-04 to 2011-12, declined to
5.0 per cent in 2012-13 and further to 4.8 per cent in 2013-14. In real terms, fixed investment
hardly increased between 2011-12 and 2013-14.
In terms of share of GDP, the most striking change on the demand side during 2012-13 and
2013-14 was the precipitous decline in the gross fixed capital formation to GDP ratio by 2.1
percentage points. Thus, the increase in the growth rate of aggregate demand in 2013-14 mainly
owes to higher level of net exports (reflected by a reduction in the gap between exports and
imports.
Consumption: Final consumption expenditure is estimated separately for government and
private entities. The share of final consumption in GDP has been declining consistently since the
1950s, reflecting mainly the decline in share of private final consumption expenditure (PFCE).
This is not surprising, as higher income levels have led to higher savings by households and
reduced the share of consumption. This was also inevitable as higher investment required for
raising growth had to come from higher domestic savings given the export pessimism that
prevailed till the early 1980s. Despite high oscillations in annual growth, government
consumption expenditure as a proportion of GDP has exhibited remarkable consistency since

the 1980s.
The share of the food items, beverages, and tobacco group in total final consumption in real
terms declined by 9.5 percentage points of the GDP in the nine years from 2004-05 to 2012-13.
However, in nominal terms, this decline was only about half of the decline in real terms,
reflecting higher inflation for these products during this period.
Apart from the food, beverages and tobacco group, there was a decline in the share of gross
rent, fuel, and power, medical care and health services, and transport and communications, while
the largest increase was registered in, other miscellaneous services comprising banking charges,
legal services, business services, and life insurance. There has been a progressive inclination
towards the consumption of services and a move away from non-durable goods, especially food
items.
Investment: Investment comprises fixed capital formation, acquisition of valuables, and changes
in stock and inventories, adjusted for errors and omissions. The investment rate investment to
GDP ratio) averaged 24.5 per cent over the period 1990-91 to 2003-04. The year 2004-05
marked a break, with the rate of investment exceeding 30 per cent for the first time. Between
2004-05 and 2012-13, the rate of investment averaged 35.4 per cent, reaching the peak of 38.1
per cent in 2007-08. It averaged 35.3 per cent during the higher growth phase of 2004-05 to
2007-08 and 35.5 per cent between 2008-09 and 2012-13. The investment rate of 34.8 per cent in
2012-13 is lower than these two sub-period averages.
The rate of gross fixed investment, which accounts for the bulk of total investment,
increased significantly from 2004-05, peaked in 2007-08, and generally declined hereafter. As per
provisional estimates for 2013-14 released by the CSO, the ratio of fixed capital formation to
GDP in 2013-14 was 2.1 percentage points lower than in 2012-13. The ratio of valuables to
GDP generally increased, even in the period when fixed investment declined, thus keeping the
overall rate of investment at around 35 per cent. Increase in investment by the private
corporate sector explained the bulk of the increase in overall investment during the upswing
phase between 2004-05 and 2007-08. The same sector contributed the most to the current
decline in investment rate. The growth in investment by the private corporate sector was
particularly sharp during 2004-05 to 2007-08, when it averaged 48.1 per cent annually at current
prices. The rate of growth declined to 3.4 per cent during 2008-09 to 2012-13. Public-sector
investment, which grew at an annual rate of 23.9 per cent in the former period, also slowed
subsequently. Household investment growth, in contrast, increased from an annual average of
12.3 per cent during 2004-05 to 2007-08 to an average of 23.5 per cent in 2008-09 to 2012-2013.
Investment Slowdown: What caused the slowdown in investment in recent years has been a
matter of much debate. Some recent studies though they suggest differing views, we can find
converging points in them:
A RBI study
3
concludes the following things:
- It is not so much the nominal but real interest rate that explains investment decisions. It is,
however, argued by some that, in recent years, investment growth has weakened despite lower
real interest rates. The study highlights that a lower real interest rate can stimulate investment and
growth, provided it is not achieved via higher inflation. The study further suggests that nominal
interest rate is, however, more important than real interest rate for investment planning at the
firm level.
- The study also points to the role of leverage in explaining investment decisions In a highly
leveraged sector, such as infrastructure, the required rate of return on equity may remain high
but the actual return on equity will be a function of interest costs and cash flows outlook. If
interest costs rise and expected cash flow declines, arranging adequate equity capital flow could
be difficult, which in turn may lead to shelving of some of planned investment projects.
- The decline in cash flows of corporates could also be attributed to
(a) sluggish demand conditions,

(b) weak pricing power,
(c) high input cost, and
(d) delays in collection of receivables after delivery of orders.
- Part of the slowdown in investment growth post 2007-08 can be attributed to policy
uncertainty emanating from
i. difficulties in land acquisition,
ii. delayed environmental clearances,
iii. infrastructure bottlenecks,
iv. problems in coal linkages,
v. ban on mining in selected areas, etc.
According to another study
4
by Tokuoka, high and volatile inflation (partly caused by high fiscal
deficit) along with heightened global uncertainty may have resulted in slowdown in corporate
investment. Slowdown in investment could also be explained in terms of the subdued business
environment and bleak business confidence.
As per the study
5
by Anand and Tulin, while real interest rates explain aggregate investment
activity better than nominal interest rates, they account for only one quarter of the explained
investment downturn. They conclude that standard macro-financial variables do not fully explain
the recent investment slump and increased uncertainty along with deteriorating business
confidence have also played a key role. According to them, lowering nominal interest rates may
provide short-term relief from interest burden but, in the medium-term, lower rates with little
slack in the economy will lead to further inflation, affecting investment adversely. Therefore,
structural reforms and resolving supply-side bottlenecks are the key to incentivizing investment.
________________________________________________________
3. RBI (2013), Real Interest Rate Impact on Investment and Growth What the Empirical Evidence for
India Suggests? available at www.rbi.org.in.
4. Kiichi Tokouka (2012), Does the Business Environment Affect Corporate Investment in India?, IMF
Working Paper, WP/12/70.
5. Anand, Rahul and V. Tulin (2014), Disentangling Indias Investment Slowdown, IMF Working Paper,
WP/14/47.
In the high growth phase between 2004-05 and 2007-08, the machinery and equipment segment
of fixed investment of the private corporate sector as a ratio of GDP nearly doubled. Similarly,
the ratio of construction also registered a sharp increase. The decline in fixed investment rate in
the last three-four years can be mainly attributed to decline in the share of the machinery and
equipment segment of the private corporate sector.
The decline in the construction segment of fixed investment by the private corporate sector (as a
ratio of GDP) has been relatively moderate, as against that in the machinery and equipment
segment. This could be on account of the fact that the machinery and equipment segment of
investment responds relatively more quickly to business sentiments than the construction
segment. The long gestation period for construction implies that a project once started/shelved
would take longer to stop/revive with change in business sentiments. Investing in machinery and
equipment during slowdown may also lead to its underutilization, along with the usual wear and
tear. Construction activity is less prone to these problems.
Valuables: Valuables include assets that are primarily held as store of value. Net acquisition of
valuables covers precious articles, gems and stones, silver, gold, platinum, and gold and silver
ornaments. Change in aggregate possession of valuables may not have any direct bearing on the
productive capacity of the economy.
Acquisition of valuables has been subject to significant fluctuations in recent years. Their
share in GDP increased from 1.2 per cent in 2006-07 to 2.6 per cent in 2012-13 and then
declined to 1.5 per cent in 2013-14. The value of imports of gold and silver increased from US$

42.6 billion in 2010-11 to US$ 55.8 billion in 2012-13. In order to restore stability in the foreign
exchange market and reduce the CAD, several measures including hike in import duties on gold
and silver were announced by the government in August 2013. These measures resulted in
reduction in the combined value of import of gold and silver by about 40 per cent in US dollar
terms, which is largely reflected in the decline in share of valuables in the GDP.
Net exports: Net exports in national accounts are defined as the difference between export of
goods and non-factor services and import of goods and non-factor services. Although full-
fledged recovery in the global economy is still distant, the early signs of global economic
strengthening helped India achieve partial recovery in exports. On the other hand, measures
taken by the government and the RBI to contain the CAD, primarily by disincentivizing the
import of nonessential items, coupled with economic slowdown, helped in reducing imports.
The share of exports in GDP increased from 24.0 per cent in 2012-13 to 24.8 per cent in 2013-
14, while the share of imports declined from 30.7 per cent to 28.4 per cent, resulting in an
improvement in net exports by 3.1 percentage points of GDP.
PUBLIC FINANCE
Major trends in the public finance management have been as given below:
- In the aftermath of the adoption of the Fiscal Responsibility and Budget Management
(FRBM) Act, the fiscal deficit of the centre was brought down to 2.5 per cent of GDP in 2007-
08 that was below the threshold target of 3 per cent of GDP.
- Fiscal balances were deliberately expanded in the aftermath of the global financial crisis in
2008-09 to shore up aggregate demand and raise the growth rate. The gradual fiscal
consolidation process was resumed in 2010-11. The government unveiled a revised fiscal
consolidation roadmap in October 2012. It targeted a fiscal deficit of 4.8 per cent of GDP for
2013-14 and through a correction of 0.6 percentage point each year thereafter, a fiscal deficit of
3.0 per cent of GDP by 2016-17.
- The fiscal deficit of 4.5 per cent of GDP in 2013-14 as compared to the budgeted target of
4.8 per cent of GDP is indicative of continued focus on fiscal consolidation. With a shortfall in
tax revenues and disinvestment receipts along with higher-than budgeted subsidies and interest
and pension payments, fiscal consolidation was mainly achieved through reduction in
expenditure from the budgeted levels.
- The outcome in terms of fiscal deficit of the Centre broadly indicates that despite the
macroeconomic uncertainties and elevated global crude oil prices, fiscal targets were achieved.
Raising the tax-GDP ratio above the currently prevailing levels is critical for sustaining the
process of fiscal consolidation in the long run as compression of expenditure beyond a certain
minimum can be counter-productive.
- One of the major factors that has resulted in an increase in the Centres fiscal deficit after
2008-09 has been the build-up in subsidies. As per the provisional actual figures of the Controller
General of Accounts (CGA), major subsidies amounted to Rs 2,47,596 crore in 2013-14.
- There has been a sharp increase in total subsidies from 1.42 per cent of GDP in 2007-08 to
2.56 per cent of GDP in 2012-13, and 2.26 per cent of GDP in 2013-14 (RE).
- Food subsidy has been increasing due to the widening gap between the economic cost of
procurement by the Food Corporation of India and the central issue prices fixed for cereals
under the public distribution system (PDS).
- While there has been partial decontrol of fertilizer subsidy, prices of urea are still sticky.
- Petrol prices have been decontrolled and diesel prices are subjected to monthly increases of Rs
0.50 per litre. The cap set on the number of subsidized LPG cylinders per annum per family was
increased from 9 to 12 from April 2014.
- In addition, leakages contribute substantially to the overall increase in subsidy burden. In
the case of food subsidy, the Performance Evaluation Report of the Planning Commission on
Targeted PDS (2005) states that for every kilogram of grains delivered to the poor, the GoI

released 2.4 kg from the central pool. This has implications for the delivery cost of PDS
foodgrains through the existing delivery mechanism.
Higher fiscal deficits usually lead to rising public debt. Indias central government liabilities-GDP
ratio declined from 61.6 per cent in 2002-03 to 49.4 per cent in 2013-14 (RE). The reduction in
this ratio owes to higher nominal GDP growth rate vis--vis nominal interest rates. Of the total
public debt, internal debt constitutes 95.5 per cent, whereas external debt (at book value)
constitutes the remaining.
DOMESTIC SAVINGS
For estimation of gross domestic savings, the economy is classified into three broad institutional
sectors public, private corporate, and households. Major highlights of domestic savings are as
given below:
- The savings rate increased from 29.0 per cent in 2003-04, the highest achieved till then, to
36.8 per cent in 2007-08, which still remains the historic peak.
- From a high of 36.8 per cent, the gross savings rate fell by 6.7 percentage points of the GDP
in 2012-13.
- The bulk of the decline can be attributed to the private corporate and public sectors. While the
decline in the former owes mainly to lower growth in the industry sector and lower profit
margins, lower public savings to GDP ratio can be attributed to reduced savings of
nondepartmental public enterprises and greater dis-savings of public authorities.
- The savings of the household sector are the sum of financial savings and savings in physical
assets. The household savings rate had stabilized around an average of 23 per cent of the GDP
between 2000-01 and 2006-07 and started fluctuating thereafter. It witnessed strong
compositional shifts from financial to physical savings during the period 2007-08 to 2011-12.
- Net addition to the physical assets of households including investment in construction,
machinery and equipment and change in stocks constitutes the saving of households in physical
assets. With a significant reduction in the growth of construction activity in 2012-13, physical
savings rates by households also declined. The failure of the construction sector to pick up
strongly in 2013-14, coupled with sluggishness in machinery and equipment segment indicates
that the increase in physical savings of household in the year may have been muted.
- Retained profits of the private corporate sector adjusted for non-operating surplus/deficit
plus depreciation constitutes its gross savings, which increased sharply after 2002-03 to reach
over 9 per cent of the GDP by 2007-08. It was the significant and consistent improvement in
corporate profitability that took the private corporate sector savings rate to above 9 per cent in
2007-08 from less than 2 per cent during the 1980s.
A study by the RBI on the Performance of Non-Governmental, Non-financial Companies
showed that their profit margins deteriorated in 2012-13. This would possibly have affected the
savings of the private corporate sector. With negative growth in manufacturing in 2013-14, the
savings rate of the private corporate sector is unlikely to have revived.
PRICES AND MONETARY MANAGEMENT
Inflation: The average headline WPI inflation moderated to a fouryear low of around 6 per cent
in 2013-14 after averaging 8.6 per cent in the previous three years, with the contribution of the
nonfood segment moderating signif icantly on the back of the fall in global commodity prices.
However the pressure from domestic food items remained elevated. WPI inflation remained
below 5 per cent in the f irst quarter of 2013-14. However, higher inflation in vegetables and
cereals led to a spike, with headline inflation reaching 6.6 per cent and 7.1 per cent respectively in
the second and third quarters. With some moderation in cereals inflation and correction in
vegetable prices, headline inflation declined to 5.4 per cent in the last quarter of 2013-14.
Inflation in non-food manufactured products (core inf lation) remained benign throughout the
year and moderated to a four-year low of 2.9 per cent in 2013-14. This indicates that the

underlying pressures of broad-based inflation may have somewhat eased.
Inflation in terms of the new series of consumer price index (CPI) (combined) remained
fairly sticky at around 9-10 per cent owing to higher food inflation in the last couple of years.
However, the headline CPI inflation started moderating after December 2013 and declined to a
25-month low of 8.0 per cent in February 2014, following moderation in inflation for vegetables
and egg, meat, and fish. On the other hand, CPI inflation excluding food and fuel, remained
sticky due to higher inflation in services-led components such as medical, education, household
requisites, etc.
Major contributors to headline WPI inflation: The level of inflation and its movement across
major subgroups varied significantly over the eight quarters up to Q4 of 2013-14. In 2013-14
inflation was chiefly conf ined to food and fuel, which contributed nearly two-thirds of overall
inflation. High inflation in the last few years, particularly food inflation, has been the result of
structural and seasonal factors. While inflation in food articles remained persistent, its drivers
have been changing over time. For example, cereals and protein items were the main
contributors to food inflation in Q1 of 2013-14, while vegetables, especially onions, pushed up
food inflation in Q2 and Q3. Within the food group, the contribution of the commodity sub-
groups, fruits and vegetables and egg, meat and fish has been high. Inflation in these protein-
based items is on account of increase in share of consumption of these items arising from
growing income levels. Food inflation partly owes to:
i. Large wastage of food articles in the supply chain owing to inefficiencies in distribution
channels.
ii. The provisions of the State Agricultural Produce Marketing Committee (APMC) Acts have
prevented creation of competitive conditions in the distribution of commodities and creation
of a national market for agricultural commodities.
iii. Multiple layers of intermediation in the distribution of food articles have also pushed up
prices for consumers.
It is therefore necessary to focus on distribution channels and on reducing food wastage in the
supply chain. Significant investment in marketing infrastructure, including modern warehouses,
cold storages, referigated vans, scientific packaging, and handling would help strengthen
distribution channels. State governments will have to play a vital role in removing restrictive
provisions in the APMC Act and proactively promoting alternative trading options for farmers.
Fuel inflation remained in double digits in the last three quarters. A major reason for high
inflation in fuel and power items was the rationalization of tariff for electricity in many states, in
addition to the policy of allowing greater pass-through in diesel prices and depreciation of the
Indian rupee against the US dollar.
Outlook for Inflation: Forecasts by the IMF expect international commodity prices to remain
benign. This should help in moderation of WPI headline inflation. However, the major risk
arises from sub-normal monsoons during 2014-15 on account of the El Nino effect and higher
prices of oil due to the geo-political situation in the Middle East. The decisions of the
government regarding subsidy on inputs for agriculture including fertilizer and increase in the
minimum support prices (MSP) could also have an impact on food inflation.
Monetary Developments: Gradual monetary easing that had started alongside some
moderation in inflationary pressures at the beginning of 2013-14 was disrupted by the need to
stabilize the foreign exchange market. In May 2013, there were indications of tapering of
quantitative easing by the US Federal Reserve. The surge in capital outflows that followed,
resulted in sharp depreciation of the rupee. To restore stability in the foreign exchange market,
the RBI hiked interest rates and compressed domestic money market liquidity.
Measures taken in mid-July 2013 included a 200 basis points (bps) hike in the marginal
standing facility (MSF) rate to 10.25 per cent; cap on daily Liquidity Adjustment Fund (LAF)

borrowing to 0.5 per cent of net demand and time liabilities (NDTL) of respective banks; and a
hike in the minimum daily cash reserve ratio (CRR) requirement to 99 per cent from 70 per cent.
Weekly auctions of cash management bills were also conducted to drain out liquidity. hese
measures raised the call rate to the level of the MSF rate, making the latter the effective policy
rate.
Following the ebbing of volatility in the foreign exchange market, the RBI initiated
normalization of the exceptional measures in a calibrated manner since the mid-quarter review of
20 September 2013. The interest rate corridor was realigned to normal monetary policy
operations with the MSF rate being reduced in three steps to 8.75 per cent between 20
September 2013 and 29 October 2013 even as the repo rate was increased in two steps of 25 bps
each to 7.75 per cent to contain inflation and inflation expectations. Minimum daily CRR balance
maintained by banks was reduced to 95 per cent of the requirement from 99 per cent to provide
banks with the flexibility to better manage liquidity. As an additional liquidity-enhancing measure
and for developing the term money market, the RBI introduced weekly variable-rate term repos
of 7-day and 14-day tenors for an amount equivalent to 0.25 per cent of the NDTL of the
banking system.
The RBI in the Third Quarter Review of Monetary Policy on 28 January 2014 hiked the repo
rate by 25 bps to 8 per cent on account of upside risks to inflation. The move was intended to
set the economy securely on a disinflationary path. In the second bimonthly Monetary Policy Statement
2014-15, on 3 June 2014, the RBI kept the Policy Repo rate unchanged at 8 per cent and reduced
the statutory liquidity ratio by 50 bps from 23 per cent to 22.5 per cent. The RBI thus expects
banks to reduce their government securities holdings, allowing them to lend more to the private
sector.
Liquidity conditions remained tight during the f irst half of 2013-14, mainly reflecting policy
intent to stabilize the foreign exchange market. Money markets remained in orderly condition
during Q1 of 2013-14 with the call rate hovering within the corridor set by the reverse repo and
MSF rates and remaining close to the policy (repo) rate. However the exceptional measures taken
by the RBI during July and August 2013 to contain exchange rate volatility impacted the money
market, and consequently the money market rates exceeded the corridor.
TRADE, BALANCE OF PAYMENTS, AND EXTERNAL DEBT
International Trade: Indias share in world exports and imports increased from 0.7 per cent
and 0.8 per cent, respectively in 2000 to 1.7 per cent and 2.5 per cent respectively in 2013. There
has also been marked improvement in Indias total merchandise trade to GDP ratio from 21.8
per cent in 2000-01 to 44.1 per cent in 2013-14.
Indias merchandise exports reached US$ 312.6 billion (on customs basis) in 2013-14,
registering a growth of 4.1 per cent as compared to a contraction of 1.8 per cent during the
previous year. In April-May 2014, exports registered a growth of 8.9 per cent over the
corresponding period of 2013. Exports of petroleum products, engineering goods, chemicals and
related products accounted for more than half of total exports in 2013-14. The value of
imports declined by 8.3 per cent in 2013-14 as compared to 2012-13, owing to a 12.8 per cent
fall in non-oil imports. The value of imports of petroleum, oil, and lubricants (POL) increased by
0.7 per cent in 2013-14. Imports of gold declined from 1078 tonnes in 2011-12 to 1037 tonnes in
2012-13 and further to 664 tonnes in 2013-14, on account of several measures taken by the
government. In value terms, gold and silver imports fell by 40.1 per cent to US$ 33.4 billion in
2013-14.
The sharp decline in imports and a moderate growth in exports in 2013-14 resulted in a
decline in Indias trade def icit to US$ 137.5 billion from US$ 190.3 billion during 2012-13,
contributing to a lower CAD.
Services Trade: Services exports registered a growth of 4 per cent in 2013-14 as against 2.4 per
cent in 2012-13. Surplus in services trade (net services) has been a major source of financing

Indias growing merchandise trade def icit in recent years. During 2006-07 to 2012-13, this
surplus on an average financed around 38 per cent of merchandise trade deficit. While in 2012-
13, net services financed 33.2 per cent of the merchandise trade def icit, during 2013-14, with
moderate growth in services exports and fall in their imports, net services f inanced nearly half of
merchandise trade deficit.
Balance of Payments: Indias Balance of Payments (BoP) position improved significantly in
2013-14, particularly in the last three quarters. The stress on BoP observed during 2011-12 as a
fallout of the crisis in the Euro area and inelastic domestic demand for certain key imports
continued through 2012-13 and the f irst quarter of 2013-14.
The CAD rose sharply to a high of US$ 88.2 billion (4.7 per cent of GDP) in 2012-13,
surpassing the 2011-12 level of US$ 78.2 billion. After being at perilously unsustainable levels in
2011-12 and 2012-13, the improvement in BoP position in 2013-14 is a relief. However, the
outcome in 2013-14 was mixed: high levels of CAD in the first quarter followed by gradual
correction thereafter; broadly adequate f inancing through capital flows till May 2013; a sharp
correction in June-August 2013 followed by a surge in September-November 2013.
The correction in June-August 2013 was on account of market fears of an imminent tapering
of asset purchases by the US Fed. The subsequent surge in flows owed to the special swap
windows incentivized by the RBI for non-resident deposits and the overseas borrowing
programme of banks.
Widening of the CAD in 2012-13 could largely be attributed to rise in trade def icit arising
from weaker exports and relatively stable imports. The latter owed to Indias dependence on
crude petroleum imports and elevated level of gold imports since the onset of the global f
inancial crisis. While the financing of the high CAD was adequate and in line with the general
trend prior to the 2008 crisis, the inadequacy during 2011-12 and since May 2013 indicated that
beyond the threshold level of CAD, financing could be a problem. This is because the post-2008
crisis period is characterized by excessive risk aversion, that has implications for capital flows
and the exchange rate of the rupee. Demand slowdown and restrictions on non-essential imports
resulted in reduced trade def icit and lower CAD.
The government moved swiftly to correct the situation through restrictions in non-essential
imports like gold; custom duty hike in gold and silver to a peak of 10 per cent; and measures to
augment capital flows through quasi-sovereign bonds and liberalization of external commercial
borrowings. The RBI also put in place a special swap window for foreign currency non-resident
deposit (banks) and banks overseas borrowings, through which US$ 34 billion was mobilized.
These measures led to a turnaround in the BoP position in the latter three quarters and for the
full fiscal 2013-14. With higher exports and lower imports, there was a reduction in trade def icit
to 7.9 per cent of GDP in 2013-14 from 10.5 per cent in 2012-13.
Out of the total reduction of US$ 48.0 billion in trade deficit on BoP basis in 2013-14,
reduction in import of gold and silver contributed approximately 47 per cent, reduction of non-
POL and non-gold imports constituted 40 per cent, and higher exports constituted 25 per cent.
Higher POL and non-DGCI&S (Directorate General of Commercial Intelligence and Statistics)
imports contributed negatively to the reduction to the extent of 12 per cent in 2013-14 over
2012-13.
Net invisibles surplus remained stable at US$ 28-29 billion per quarter resulting in overall net
surplus of US$ 115.2 billion for 2013-14. Software services improved modestly from of US$ 63.5
billion in 2012-13 to US$ 67.0 billion in 2013-14. Non-factor services increased from US$ 64.9
billion in 2012-13 to US$ 73.0 billion. This was partly on account of business services turning
positive with net inflows of US$ 1.3 billion in 2013-14 as against an outflow of US$ 1.9 billion in
2012-13. Thus the CAD moderated to US$ 32.4 billion in 2013-14 as against US$ 88.2 billion in
2012-13. The CAD at 1.7 per cent of GDP in 2013-14, compares favourably with the levels in
the pre-2008 crisis years.
Capital flows (net) moderated sharply from US$ 92.0 billion in 2012-13 to US$ 47.9 billion in

2013-14. This decline essentially reflects slowdown in portfolio investment and net outflow in
short-term credit and other capital. However, there were large variations within quarters partly
due to domestic and partly to external factors. The move to augment capital inflows through
special swap windows resulted in copious inflows of about US$ 34 billion.
These inflows in tandem with the lower level of CAD led to reserve accretion in 2013-14.
Foreign exchange reserves were placed at US$ 304.2 billion at end march 2014 as against US$
292.0 billion at end March 2013. Thus foreign exchange reserves in nominal terms increased by
US$ 12.2 billion as against a reserve accretion of US$ 15.5 billion on BoP basis at end March
2014. The difference owed to valuation loss in the non-US dollar assets held due to cross-
currency movements and the decline in gold prices. On June 20, 2014, foreign exchange reserves
stood at US$ 314.9 billion.
In 2013-14, the rupee started to depreciate in May 2013. Depreciation was more pronounced in
June and August 2013in excess of 5 per cent on a month-on-month basis. The average
exchange rate declined to a level of Rs 63.75 per US dollar in September 2013. Thereafter, owing
to the measures taken to reduce CAD and boost capital flows, the rupee rebounded to reach an
average level of Rs 61.62 per US dollar in October 2013. Subsequently, the rupee was range
bound and stable in 2013-14. The exchange rate thus far in 2014-15 reflects similar pattern as in
the latter half of 2013-14, with the surge in foreign institutional investment (FII) f lows
impacting the foreign exchange and equity markets favourably; but the rupee appreciation has
been limited relative to the rise in equity indices.
External Debt: The one-off mobilization of deposits by the RBI had implications for Indias
external debt. Indias external debt stock at end March 2013 stood at US$ 404.9 billion as against
US$ 360.8 billion at end March 2012. This increased further to US$ 426.0 billion at end
December 2013. Indias external debt consists predominantly of long-term borrowings and has
remained within manageable limits owing to prudential restrictions on debt varieties of capital
inflows given large interest differentials.
PRIORITIES FOR REVIVING GROWTH
With the twin def icits reasonably under check, the macroeconomic outcomes of slow growth
and inflationary pressures require immediate attention. Short-term stabilization apart, the focus
of policy should be on wide-ranging structural reforms to ease supply-side constraints and
sector-specif ic incentives to boost demand. Some specific priorities, with the objective of
restoring growth, are outlined below:
1. Revival of investment is crucial for raising the growth rate. This requires acceleration in
project clearances and streamlining of implementation procedures, apart from sector-specific
investment policies.
2. Over the medium term, structural reforms that boost productivity are crucial for sustaining
higher growth.
3. Linked to efforts at investment revival are policies needed for rejuvenating growth in
manufacturing, which has significant backward and forward linkages. Simplification of tax policy
and administration, repeal of archaic laws that govern market access, expansion and entry/exit of
firms, revamp of the dispute resolution mechanism for commercial disputes, etc. would lend
greater predictability to policy. An environment of policy certainty, continuity, and transparency,
will help boost business sentiments further.
4. Strengthening macroeconomic stability, a non-negotiable instrument for stable and faster
growth, is predicated on f iscal discipline, manageable current account balance, and price
stability. Policy challenges include:
- keeping f iscal def icit in check without compromising on capital expenditure; Priorities for
growth revival include: investment revival, strengthening of macroeconomic stability, creation of
non-agricultural jobs, strengthening of infrastructure, and boost to agricultural development.

- maintaining the CAD in the range of 2-2.5 per cent of GDP. This may turn out to be
challenging if non-oil imports revive upon growth revival and oil prices harden. Therefore,
policies that help in sustained export growth remain relevant.
- stepping up efforts to further reduce inflation not only to counter the direct macroeconomic
consequences but to provide leeway to the RBI for monetary easing and to counter external
challenges more effectively.
5. To harness the demographic dividend, the non-agrarian sector must generate employment.
With the agrarian sector still employing the bulk of the workforce, policy attention needs to be
focused on the rural non-farm sector, manufacturing sector, and labour-intensive segments of
services.
6. Physical and social infrastructure, both urban and rural, that can accommodate and fuel
robust growth, is central to regaining and sustaining economic momentum.
7. Sustained and high overall economic growth is possible with the farming sector growing at
around 4 per cent per annum. This requires a boost to investment and productivity in the sector,
crop protection and insurance, and a fresh look at policies towards procurement, marketing,
transport, storage, and processing.
OUTLOOK FOR 2014-15
- The descent into the present phase of sub-5 per cent growth has been rather sharp. The
interplay of structural constraints alongside delays in project implementation, subdued domestic
sentiments, and an uncertain global milieu led to general growth slowdown while rendering
macroeconomic stabilization particularly challenging.
- Inflation also remained at elevated levels. These factors triggered risk-aversion and injected
considerable uncertainty in investment activity. The current macroeconomic situation precludes f
iscal stimulus to kick-start activity. Similarly, the task of monetary policy calibration for growth
revival has been made difficult by persistent inflation and further complicated by uncertainty in
international financial conditions and, until recently, by rupee depreciation.
- Targeted measures by the government and RBI have improved the external economic
situation signif icantly, even as India remains exposed to risk on/off sentiments of investors and
to policy shifts in advanced economies.
- Regaining growth momentum requires restoration of domestic macroeconomic balance and
enhancing eff iciency. To this end, the emphasis of policy would have to remain on f iscal
consolidation and removal of structural constraints. Though some measures have been initiated
to this end, reversion to a growth rate of around 7-8 per cent can only occur beyond the ongoing
and the next f iscal.
- Global economic activity is expected to strengthen in 2014-15 on the back of some recovery in
advanced economies. The Euro area is also expected to register a growth rate of above 1 per
cent as against contraction witnessed in 2012 and 2013 (IMF, WEO, April 2014). Despite some
measures undertaken to address structural constraints, reversion to a growth rate of around 78
per cent can only occur beyond the ongoing and the next f iscal. The European Central Banks
monetary policy measures, most signif icantly introduction of the negative deposit facility interest
rate are expected to boost economic activity in Europe. In addition, the performance of the real
sector in the US (that is likely affect the pace of taper) is a major factor that would impact the
global economic situation in 2014-15. The growth outlook for emerging Asian economies is
generally benign with some grappling with inflation, structural bottlenecks, and external
imbalances. The slowdown in emerging economies comes at an inopportune juncture.
- Downward movement along with heightened volatility, witnessed, for example, in fixed
investment post 2008-09 in India, often tends to magnify the impact and transmission channels
of shocks (e.g. below-normal monsoons and/or upshot in oil prices) and hampers build-up of
positive expectations. Under such circumstances, the Indian economy can recover only gradually
with the GDP at factor cost at constant prices expected to grow in the range of 5.4 5.9 per

cent in 2014-15. This assumes the revival of growth in the industrial sector witnessed in April
2014 to continue for the rest of the year, the generally benign outlook on oil prices
(notwithstanding the uncertainty on account of recent developments in the Middle East), and the absence of
pronounced destabilizing shocks (including below-normal monsoons). Growth in the above range
implies a pick-up, aided by an improved external economic situation characterized by a stable
current account and steady capital inflows, improved f iscal situation and, on the supply side,
robust electricity generation and some recovery in manufacturing and non-government services.
- Growth in 2014-15 is expected to remain more on the lower side of the range given above,
for the following reasons:
i). Steps undertaken to restart the investment cycle (including project clearances and
incentives given to industry) are perceived to be playing out only gradually;
ii). The benign growth outlook in some Asian economies, particularly China;
iii). Eleveted levels of inflation limiting the scope of the RBI to reduce policy rates; and
iv). Expectation of below-normal monsoons. Downside risk also emerges from prolonging of
the geo-political tensions.
On the upside, such factors as institutional reform to quicken implementation of large projects
and a stronger-than-expected recovery in major advanced economies would help the Indian
economy clock a higher rate of growth.
SECTORAL DEVELOPMENTS
In what follows, major sectoral issues and developments are outlined. These developments have
fed into the macroeconomic scenario that has been presented in the previous sections:
Agriculture and Food Management: Substantial strides in agricultural production have been
made in the last few years. There was an increase of around 40 lakh ha in overall area coverage
under foodgrains in 2013-14 as compared to 2012-13. A record foodgrains production of 264.4
million tonnes is estimated in 2013-14, as per the third Advance Estimates, indicating an increase
of more than 20 million tonnes over the average production during the previous five years. With
expectation of better performance in manufacturing, improved balance of payments situation
and modest global growth revival, the economy is expected to grow in the range of 5.4-5.9 per
cent in 2014-15. The year 2013-14 witnessed record foodgrains production.
Horticulture production is estimated at 265 million tonnes in 2012-13 and for the f irst time
has exceeded the production of foodgrains and oilseeds. 1.68 The robustness of the agriculture
and allied sector can be attributed to the steady increase in gross capital formation (GCF) in this
sector (both public and private) as a percentage of its GDP, from 14.9 per cent in 2006-07 to
21.2 per cent in 2012-13 (2004-05 prices). However, the share of public expenditure (comprising
public investments and input subsidies) in total GCF of the agriculture and allied sector declined
from 25 per cent in 2006-07 to 14.7 per cent in 2012-13. Private investment as a proportion of
agri-allied GDP increased from 12.6 per cent in 2007-08 to 18.1 per cent in 2012-13.
In the monsoons for 2014-15, there are concerns about the likely occurrence of the El Nio,
when surface temperatures in the Pacific Ocean continuously rise above average for several
months which adversely affects weather in many regions. This is likely to have an impact on
Indias agriculture and consequently on food prices.
With 60 per cent of the total foodgrains and oilseeds produced being grown in the kharif
season, and with just about 35 per cent of arable area being irrigated, Indian agriculture is still
largely dependent on rainfall. The south-west monsoon (from June to September) accounts for
nearly 75 per cent of total annual rainfall in India. The forecast released in June 2014 by the IMD
indicates that there is a 71 per cent probability of a sub-normal /deficient south-west monsoon
with a 70 per cent probability of occurrence of El Nio.
However, the extent of impact of El Nio depends on temporal and spatial distribution of
rainfall. A comparison of the rainfall distribution across 36 meteorological subdivisions and

districts upto 11 June in the last f ive years shows that rainfall distribution is the worst this year.
However, storage position of water reservoirs is better than the last year and the average of the
last ten years.
Expansion in area and increase in MSPs of select agricultural crops, inter alia, have resulted in
higher foodgrains production. Owing to higher procurement, there are huge stocks of foodgrains
in the central pool, which as on 1 June 2014, was 77.7 million tonnes. The per capita net
availability of foodgrains increased to 186.5 kg per year in 2013 from 162.1 kg per year in 2009
and the net availability of edible oils from 12.7 kg per year to 15.8 kg per year.
While the production estimates highlight the continued robustness of Indian agriculture,
some concerns remain. Productivity levels in Indian agriculture are still much lower than global
standards. Productivity levels of rice and wheat have not risen signif icantly after the 1980s.
While cotton yields have shown tremendous leap over the last decade, largely due to the
adoption of Bt cotton; some increase is also seen in coarse cereals and pulses. Without new
technology and quality inputs, desired productivity levels would be diff icult to achieve. Soil
degradation owing to declining eff iciency of fertilizer use and alarming reduction in the water
table, especially in Punjab and Haryana due to their cropping pattern, are other major concerns.
There is a need to review the nutrient based subsidy (NBS) policy, which does not have urea
under its purview.
The pricing of subsidized fertilizers has resulted in their higher usage. The recommendation of
the Task Force for Direct Transfer of Subsidy to shift to a system of direct transfer of fertilizer
subsidy to farmers in a phased manner needs to be considered. The Crop Diversif ication
Scheme has been introduced in the Punjab and Haryana region and is expected to promote
technological innovations and encourage farmers to choose crop alternatives. The predominance
of small and marginal farms in Indias agriculture, with limited capital availability, hampers
progress of farm mechanization.
Domestic and international marketing of agricultural commodities needs immediate attention.
A plethora of government interventions for building marketing set up has in fact created barriers
to trade. There is need to facilitate a National Common Market for agricultural commodities
with uniform taxes in the domestic market, and to foster a long-term stable trade policy for
agricultural products.
There is need to expand the adoption of the decentralized system of procurement for the PDS from
11 states and union territories (UT) at present to all states. This would help save transport costs,
reduce transit losses and other leakages, increase food availability, reduce food prices in the open
market and ultimately rein in food subsidy.
Industry and infrastructure: As per the latest GDP data, the industry sector registered a
growth of 1.0 per cent in 2012-13 that slowed further to 0.4 per cent in 2013-14. The key reason
for poor performance was contraction in mining and manufacturing. Manufacturing and mining-
sector GDP declined by 0.7 per cent and 1.4 per cent respectively in 2013-14. The underlying
cause for this has been the deceleration in investment particularly by the private corporate sector
during 2011-12 and 2012-13.
As per IIP data, mining output contracted for the third successive year in 2013-14, declining
by 0.6 per cent. Natural gas production plummeted mainly owing to declining production from
the KG-6 basin. Electricity generation increased by 6.1 per cent in 2013-14 as compared to 4.0
per cent in the previous year, mainly on account of significant capacity addition in recent years.
Slowdown in construction resulted in capacity underutilization in the steel and cement sectors.
Steel and cement consumption increased by 0.6 per cent and 3.0 per cent respectively in 2013-14.
The capital goods segment has been among the weakest performers in the manufacturing sector.
Its index declined by 6.0 per cent in 2012-13 and further by 3.6 per cent in 2013-14.
For eight core industriescoal, fertilizer, electricity, crude oil, natural gas, ref inery
products, steel, and cementthe average growth rate declined from 6.5 per cent during 2012-13
to 2.7 per cent during in 2013-14. The moderation in growth occurred mainly on account of

contraction in natural gas and crude oil, and subdued growth in coal, fertilizers, and ref inery
products.
Continuing slowdown has impacted the performance of the corporate sector. Growth of sales,
particularly of the listed private manufacturing companies, declined from 24.9 per cent in Q1
2011-12 to 4.5 per cent in Q3 2013-14. Capacity utilization (CU) remained largely flat in Q3 of
2013-14. Thus, the finished goods inventory to sales ratio also declined in Q3 of 2013-14 over
the previous quarter.
Of the total 239 central infrastructure projects costing Rs 1000 crore and above, 99 are delayed
with respect to the latest schedule and 11 have reported additional delays vis--vis the date of
completion reported in the previous month (Flash Report for February 2014, Ministry of
Statistics and Programme Implementation [MOSPI]). The additional delays are in the range of 1
to 26 months in projects relating to the petroleum, power, steel and coal sectors.
Among infrastructure services, growth in freight traffic by railways, cargo handled by major
ports, and the civil aviation sector (except import cargo) has been comparatively higher during
2013-14. In the road sector, construction of national highways by the National Highways
Authority of India (NHAI) posted negative growth of 33 per cent during 2013-14 vis-a-vis a
growth of 26.5 per cent during 2012-13.
Gross bank credit flow to industry increased by 14.9 per cent in 2013-14 as against 17.8 per cent
in 2012-13. Credit flow to mining remained nearly stagnant with 0.05 per cent growth during
2013-14. In keeping with the performance of the power sector during 2013-14, credit flow to the
sector increased by 24.9 per cent. Petroleum, chemicals and chemical products, basic metals,
transport, and all engineering sectors registered lower growth in gross bank credit flow during
2013-14 compared to the previous year. The rate of growth of bank credit to major
infrastructure sectors moderated from an average of 44.8 per cent in 2011-12 to 17.7 per cent in
2013-14. The telecom sector witnessed consecutive decline in the last three years.
Total foreign direct investment (FDI) inflows into major infrastructure sectors registered a
growth of 22.8 per cent in 2013-14 as compared to the contraction of 60.9 per cent during 2012-
13. In recent years, services, construction, telecommunications, computer software and
hardware, drugs and pharmaceuticals, automobile industry, power, metallurgical industries, and
hotels and tourism sectors have attracted maximum FDI inflows.
Services Sector: The services sector has emerged as the fastest growing sector of the economy
and the second fastest growing in the world, with a CAGR of 9 per cent, behind China with a
CAGR of 10.9 per cent during the period from 2001 to 2012. Services have also contributed
substantially to foreign investment flows, exports, and employment. The share of the services
sector in employment increased from 19.7 per cent in 1993-94 to 26.9 per cent in 2011-12. 1.85
Like industry, services also slowed during the last two years. The deceleration in growth was
particularly sharp in the combined category of trade, hotels & restaurants and transport, storage,
and communications. However, robust growth continued in f inancing, insurance, real estate,
and business services.
FINANCIAL INTERMEDIATION
Financial reforms are critical to the emergence of India as a strong market economy. A well-
functioning f inancial system will support growth, f inancial inclusion and stability. The passage
of the Pension Fund Regulatory and Development Authority (PFRDA) Act, the shift of
regulatory supervision of commodity futures trading to the Ministry of Finance, and the
presentation of the Financial Sector Legislative Reforms Commission (FSLRC) report, are some
of the major developments in 2013-14.
The Indian banking sector, which exhibited considerable resilience in the immediate
aftermath of the global f inancial crisis, has been impacted by the global and domestic economic
slowdown over the last two years. During 2012-13, the deteriorating asset quality of the banking
sector emerged as a major concern, with gross nonperforming assets (NPAs) of banks registering

a sharp increase. Overall NPAs of the banking sector increased from 2.36 per cent of total credit
advanced in March 2011 to 3.90 per cent of total credit advanced in March 2014 (provisional).
As a consequence of the slowdown and high levels of leverage, some industry and infrastructure
sectors, namely textiles, chemicals, iron and steel, food processing, construction, and
telecommunications, are experiencing a rise in NPAs. The RBI in the Financial Stability Report
(December 2013) identified f ive sectorsinfrastructure, iron and steel, textiles, aviation and
miningas stressed sectors. Public sector banks (PSBs) have high exposures to the industry
sector in general and to such stressed sectors in particular.
The New Pension System (NPS), now National Pension System, was introduced for the new
recruits joining government service on or after January 2004. It represents a major reform of
Indian pension arrangements, and lays the foundation for a sustainable solution to ageing in
India by shifting to an individual account, defined-contribution system. Till 7 May 2014, a total
of 67.41 lakh members have been enrolled under the NPS with a corpus of Rs 51,147 crore.
From 1st May 2009, the NPS was opened up for all citizens in India to join on a voluntary basis.
The Swavalamban Scheme for workers in the unorganized sector launched in 2010, initially for
three years for the benef iciaries who enrolled themselves in 2010-11, has now been extended to
five years for the benef iciaries enrolled in 2010-11, 2011-12, and 2012-13 and thus the benefits
of co-contribution under the Scheme would be available till 2016-17.
With a view to revamping financial-sector laws to bring them in tune with current
requirements, the government set up the FSLRC on 24 March 2011. The Commission in its
Report has given wide-ranging recommendations, both legislative and nonlegislative, on the
institutional, legal, and regulatory framework and operational changes in the Indian f inancial
sector.
The draft Indian Financial Code (IFC) that has been proposed by the FSLRC has provisions
that aim at replacing a large numers of existing f inancial laws. The FSLRC has designed a
modified financial regulatory architecture, which would increase accountability by achieving
clarity of purpose for each organization and avoid conflicts of interest. The modified
arrangements also facilitate achieving economies of scope and scale of related activities, for the
private sector and for the government.
In the 8th meeting of the Financial Stability and Development Council (FSDC), held on 24
October 2013, the Council decided that Regulators would voluntarily adopt
governanceenhancing recommendations that do not require legislative changes. This initiative
has translated into a handbook on voluntary adoption of non-legislative governance-enhancing
aspects of the draft Indian Financial Code, and a MIS statement which tracks compliance.
Implementing the IFC will also require establishing many new organisations. The FSDC
decided to initiate institutionbuilding for four new organizations: the Resolution Corporation
(RC) which will detect and deal with distressed financial firms; the Public Debt Management
Agency which will manage the domestic and overseas borrowing for the government; the
Financial Sector Appellate Tribunal which will hear appeals against financial agencies; and the
Financial Data Management Centre which will be a database within the FSDC. These are likely
to enable a holistic view of the Indian financial system.
Human Development
India with a large and young population has a great demographic advantage. The proportion of
working-age population is likely to increase from approximately 58 per cent in 2001 to more than
64 per cent by 2021. While this provides opportunities, it also poses challenges. Policymakers
have to design and execute development strategies that target this large young population. Unless
timely action is taken, the potential for reaping the demographic dividend is unlikely to last
indefinitely. Therefore timely action to make people healthy, educated, and adequately skilled is
of paramount importance.
According to the United Nations Human Development Report (HDR) 2013, India with a human

development index (HDI) of 0.554 in 2012 slipped down the global ranking to 136 from 134 as
per HDR 2012. India is in the medium human development category with countries including
China, Egypt, Indonesia, South Africa, and Vietnam having better overall HDI ranking within
the same category. The existing gap in health and education indicators in India as compared to
developed countries and many developing countries calls for much faster spread of basic health
and education. Life expectancy at birth in India was 65.8 years in 2012, compared to 75.1 years in
Sri Lanka and 73.7 years in China. The expenditure on social services by the government as a
percentage of GDP has increased from 6.8 per cent in 2008-09 to 7.2 per cent in 2013-14 (BE)
with expenditure on education increasing from 2.9 per cent to 3.3 per cent and on health from
1.3 per cent to 1.4 per cent.
The poverty ratio declined from 37.2 per cent in 2004-05 to 21.9 per cent in 2011-12. In
absolute terms, the number of poor declined from 407.1 million in 2004-05 to 269.3 million in
2011-12. During 2004-05 to 2011-12, employment growth (CAGR) was only 0.5 per cent,
compared to 2.8 per cent during 1999-2000 to 2004-05 as per usual status. However the
unemployment rate continued to hover around 2 per cent under usual status
(principal+subsidiary).
Sustainable Development and Climate Change
Sustainable development is an imperative for achieving intergenerational equity. The business-as-
usual approach to development has entailed unsustainable consumption patterns, which is
essentially attributable to the developed countries. Anthropogenic activities are the dominant
cause for climate change. GHG emissions grew on an average by 2.2 per cent per year between
2000 and 2010, as compared to 1.3 per cent per year between 1970 and 2000. Indias per capita
carbon emissions were 1.7 metric tons in 2010, well below the world average of 4.9 metric
tonnes.
Governments are currently working on two new agreements on climate change and
sustainable development, both of which will be new global frameworks for action to be f inalized
next year. Following the Rio +20 mandate, the global community is working to develop a set of
Sustainable Development Goals (SDGs), possibly to be integrated with Millennium
Development Goals (MDGs) when they end in 2015. Work is already under way and a number
of thematic focus areas for the SDGs have been identified.
How developed and developing countries will be treated in the new aggrements is the most
crucial aspect of the global pact. Any future agreement should fully take into account Indias
concerns and developmental requirements. There is need to ensure that the principles of equity
and common but differentiated responsibilities remain firmly embedded in the new deals.
Historical responsibility of developed countries and equity in access to global atmospheric
resources should def ine commitments under the international arrangements. The deals must
ensure that developing countries are given the required carbon space and development space.
The issue of the means of implementation is also important. Lack of adequate resources for
SDGs and non-capitalization of the Green Climate Fund may threaten the credibility of global
negotiations.
Sustainability has acquired prominent focus in Indias Twelfth Five Year Plan. India reduced
CO2 emissions per unit of GDP by 20 per cent between 1990 and 2011. Indias renewable
power capacity reached 23 GW in January 2012, equivalent to nearly 12 per cent of total power
capacity. Considerable progress has been made in implementing the National Action Plan on
Climate Change and also on the State Action Plans on Climate Change (SAPCCs.) The SAPCCs
of nine states have already been endorsed.
The cumulative costs of Indias low carbon strategies have recently been estimated by an
Expert Group at around US$ 834 billion at 2011 prices, between 2010 and 2030. This could
constrain Indias efforts, as the magnitude of resources required is very large. Global negotiations
provide an opportunity to ensure a fair division of the earths resources, cooperation between

rich and poor nations, curbing wasteful consumption, switching to cleaner technologies, and
improving eff iciency in resource use. At the heart of all of this lies a fair division of both global
rights and responsibilities.

UNION BUDGET 2014-15
Key Features
The full Union Budget for 2014-15 was presented by the Union Finance Minister on July 10,
2014 aiming to be in sync with major data set of the Interim Budget for the year presented by the
last Government. The Highlights of the Budget are given below.
The current economic situation and the challenges
Decisive vote for change represents the desire of the people to grow, free themselves
from the curse of poverty and use the opportunity provided by the society. Country in
no mood to suffer unemployment, inadequate basic amenities, lack of infrastructure and
apathetic governance.
Challenging situation due to Sub-five per cent growth and double digit inflation.
Continued slow-down in many emerging economies a threat to sustained global recovery.
Recovery seen with the growth rate of world economy projected at 3.6 per cent in 2014
vis--vis in 2013.
First budget of this NDA government to lay down a broad policy indicator of the
direction in which we wish to take this country.
Steps announced are only the beginning of the journey towards a sustained growth of 7-8
per cent or above within the next 3-4 years along with macro-economic stabilization.
Growing aspirations of people will be reflected in the development strategy of the
Government led by the Prime minister Shri Narendra Modi and its mandate of Sab ka
Saath Sab ka Vikas.
Need to revive growth in manufacturing and infrastructure sectors.
Tax to GDP ratio must be improved and Non-tax revenues increased.
Deficit and Inflation
Decline in fiscal deficit from 5.7% in 2011-12 to 4.5% in 2013-14 mainly achieved by
reduction in expenditure rather than by way of realization of higher revenue.
Improvement in current account deficit from 4.7 % in 2012-13 to year end level of 1.7%
mainly achieved through restriction on non-essential import and slow-down in overall
aggregate demand. Need to keep watch on CAD.
4.1 per cent fiscal deficit a daunting task in the backdrop of two years of low GDP
growth, static industrial growth, moderate increase in indirect taxes, subsidy burden and
not so encouraging tax buoyancy.
Key Features of Budget 2014-2015
The government is committed to achieve this target. Road map for fiscal consolidation
outlines fiscal deficit of 3.6 % for 2015-16 and 3 % for 2016-17.
Inflation has remain at elevated level with gradual moderation in WPI recently.

The problem of black money must be fully addressed.
Bold steps required to enhance economic activities and spur growth in the economy.
Administrative Initiatives
Sovereign right of the Government to undertake retrospective legislation to be exercised
with extreme caution and judiciousness keeping in mind the impact of each such measure
on the economy and the overall investment climate.
A stable and predictable taxation regime which will be investor friendly and spur growth.
Legislative and administrative changes to sort out pending tax demands of more than Rs
4 lakh crore under dispute and litigation.
Resident tax payers enabled to obtain on advance ruling in respect of their income-tax
liability above a defined threshold.
Measures for strengthening the Authority for Advance Rulings.
Income-tax Settlement Commission scope to be enlarged.
National Academy for Customs & Excise at Hindupur in Andhra Pradesh.
The subsidy regime to be made more targeted for full protection to the marginalized,
poor and SC/ST.
New Urea Policy would be formulated.
Introduction of GST to be given thrust.
High level committee to interact with trade and industry on regular basis to ascertain
areas requiring clarity in tax laws is required to be set up.
Convergance with International Financial Reporting Standard (IFRS) by Adoption of the
new Indian Accounting Standards (2nd AS) by Indian Companies.
Setting up of Expenditure Management Commission to look into expenditure reforms.
Employment exchanges to be transformed into career centres. A sum of Rs 100 crore
provided .
ECONOMIC INITIATIVES
Foreign Direct Investment
Government to promote FDI selectively in sectors.
The composite cap of foreign investment to be raised to 49 per cent with full Indian
management and control through the FIPB route.
The composite cap in the insurance sector to be increased up to 49 per cent from 26 per
cent with full Indian management and control through the FIPB route.
Requirement of the built up area and capital conditions for FDI to be reduced from
50,000 square metres to 20,000 square metres and from USD 10 million to USD 5
million respectively for development of smart cities.
The manufacturing units to be allowed to sell its products through retail including
Ecommerce platforms.
Bank Capitalization

Requirement to infuse Rs 2,40,000 crore as equity by 2018 in our banks to be in line with
Basel-III norms
Capital of banks to be raised by increasing the shareholding of the people in a phased
manner.
PSU Capital Expenditure
PSUs will invest through capital investment a total sum of Rs 2,47,941 crores in the
current financial year.
Smart Cities
A sum of Rs 7060 crore is provided in the current fiscal for the project of developing "one
hundred Smart Cities".
Real Estate
Incentives for Real Estate Investment Trusts (REITS). Complete pass through for the
purpose of taxation.
A modified REITS type structure for infrastructure projects as the Infrastructure Investment
Trusts (INVITS).
These two instruments to attract long term finance from foreign and domestic sources
including the NRIs .
Irrigation
Rs 1000 crore provided for Pradhan Mantri Krishi Sinchayee Yojna for assured irrigation.
Rural Development
Shyama Prasad Mukherji Rurban Mission for integrated project based infrastructure in
the rural areas.
Rs 500 crore for Deen Dayal Upadhyaya Gram Jyoti Yojana for feeder separation to
augment power supply to the rural areas.
Rs 14,389 crore provided for Pradhan Mantri Gram Sadak Yojna(PMGSY).
More productive, asset creating and with linkages to agriculture and allied activities wage
employment would to be provided under MGNREGA.
Under Ajeevika, the provision of bank loan for women SHGs at 4% to be extended to
another 100 districts.
Initial sum of Rs 100 crore for Start Up Village Entrepreneurship Programme for
encouraging rural youth to take up local entrepreneurship programs.
Allocation for National Housing Bank increased to Rs 8000 crore to support Rural
housing.
New programme Neeranchal to give impetus to watershed development in the country
with an initial outlay of Rs 2142 crores.
Backward Region Grant Fund (BRGF) to be restructured to address intra-district
inequalities.
Scheduled Caste/Scheduled Tribe

An amount of Rs 50,548 crore is proposed under the SC Plan and Rs 32,387 croreunder
TSP.
For the welfare of the tribals Van Bandhu Kalyan Yojna launched with an initial
allocation of Rs 100 crore.
Senior Citizen & Differently Abled Persons
Varishtha Pension Bima Yojana (VPBY) to be revived for a limited period from 15
August, 2014 to 14 August, 2015 for the benefit of citizens aged 60 years and above.
A committee will to examine and recommend how unclaimed amounts with PPF, Post
Office, saving schemes etc. can be used to protect and further financial interests of the
senior citizens?
Government notified a minimum pension of Rs 1000 per month to all subscriber
members of EP Scheme. Initial provision of Rs 250 crore.
Increase in mandatory wage ceiling of subscription to Rs 15000. A provision of Rs 250
crore in the current budget.
EPFO to launch the Uniform Account Number Service for contributing members.
Scheme for Assistance to Disabled Persons for purchase/fitting of Aids and Appliances
(ADIP) extended to include contemporary aids and assistive devices.
National level institutes for Universal Inclusive Design, Mental Health Rehabilitation and
a Centre for Disability Sports to be established.
Assistance to State Governments to establish fifteen new Braille Presses and modernize
ten existing Braille Presses.
Government to print currency notes with Braille like signs for visibly challenged persons.
Women & Child Development
Outlay of Rs 50 crores for pilot testing a scheme on Safety for Women on Public Road
Transport.
Sum of Rs 150 crores on a scheme to increase the safety of women in large cities.
Crisis Management Centres in all the districts of NCT of Delhi this year government and
private hospitals.
A sum of Rs 100 crore is provided for Beti Bachao, Beti Padhao Yojana, a focused scheme
to generate awareness and help in improving the efficiency of delivery of welfare services
meant for women.
School curriculum to have a separate chapter on gender mainstreaming.
Drinking Water & Sanitation
20,000 habitations affected with arsenic, fluoride, heavy/ toxic elements, pesticides/
fertilizers to be provided safe drinking water through community water purification
plants in next 3 years Swachh Bharat Abhiyan to cover every household with sanitation
facility by the year 2019.
Health and Family Welfare
Free Drug Service and Free Diagnosis Service to achieve "Health For All"

Two National Institutes of Ageing to be set up at AIIMS, New Delhi and Madras
Medical College, Chennai.
A national level research and referral Institute for higher dental studies to be set up.
AIIMS like institutions in Andhra Pradesh, West Bengal, Vidarbha in Maharashtra and
Poorvanchal in UP. A provision of Rs 500 crores made.
12 new government medical colleges to be set up.
States Drug Regulatory and Food Regulatory Systems to be strengthened by creating new
drug testing laboratories and strengthening the 31 existing State laboratories.
15 Model Rural Health Research Centres to be set up for research on local health issues
concerning rural population.
A national programme in Mission Mode to halt the deteriorating malnutrition situation in
India to be put in place within six months.
EDUCATION
School Education
Government would strive to provide toilets and drinking water in all the girls school in
first phase. An amount of Rs 28635 crore is being funded for Sarv Shiksha Abhiyan(SSA)
and Rs 4966 crore for Rashtriya madhyamic Shiksha Abhiyan (RMSA).
A School Assessment Programme is being initiated at a cost of Rs 30 crore.
Rs 500 crore provided for "Pandit Madan Mohan Malviya New Teachers Training Programme"
to infuse new training tools and motivate teachers.
Rs 100 crore provided for setting up virtual classrooms as Communication Linked Interface for
Cultivating Knowledge (CLICK) and online courses.
Higher Education
Jai Prakash Narayan National Centre for Excellence in Humanities to be set up in MP.
Rs 500 crore provided for setting up 5 more IITs in the Jammu, Chhattisgarh, Goa,
Andhra Pradesh and Kerala.
5 IIMs in the States of HP, Punjab, Bihar, Odisha and Rajasthan.
Simplification of norms to facilitate education loans for higher studies.
Information Technology
Pan India programme Digital India to with an outlay of Rs 500 crore to be launched.
Programme for promoting Good Governance to be launched. A sum of Rs 100 crore
provided.
Information and Broadcasting
Rs 100 crore allocated for 600 new and existing Community Radio Stations.
Film & Television Institute, Pune and Satyajit Ray Film & Television Institute, Kolkata
are proposed to be accorded status of Institutes of national importance and a National
Centre for Excellence in Animation, Gaming and Special Effects to be set up.

Rs 100 crore is provided for Kisan TV, to disseminate real time information to the
farmers on issues such as new farming techniques, water conservation, organic farming
etc.
Urban Development
Vision of the Government is that 500 urban habitations to be provided support for
renewal of infrastructure and services in next 10 years through PPPs
Present corpus of Pooled Municipal Debt Obligation Facility facility to be enlarged to Rs
50,000 Crore from Rs 5000 crore.
Rs 100 crore provided for Metro Projects in Lucknow and Ahemdabad.
Housing
Extended additional tax incentive on home loans shall be provided to encourage people,
especially the young, to own houses.
Mission on Low Cost Affordable Housing anchored in the National Housing Bank to be
set up.
A sum of Rs 4000 crores for NHB from the priority sector lending shortfall with a view
to increase the flow of cheaper credit for affordable housing to the urban
poor/EWS/LIG segment is provided.
Slum development to be included in the list of Corporate Social Responsibility (CSR)
activities to encourage the private sector to contribute more.
Minorities
A programme for the up gradation of skills and training in ancestral arts for development
for the minorities Up gradation of Traditional Skills in Arts, Resources and Goods to be
launched.
An additional amount of Rs 100 crores for Modernization of Madarsas
AGRICULTURE
Government to establish two more Agricultural Research Institute of excellence in Assam
and Jharkhand with an initial sum of Rs 100 crore.
An amount of Rs 100 crores set aside for Agri-tech Infrastructure Fund.
Rs 200 crore provided to open Agriculture Universities in Andhra Pradesh and Rajasthan
and Horticulture Universities in Telangana and Haryana.
A scheme to provide every farmer a soil health card in a Mission mode will be launched.
Rs 100 crore has been provided for this purpose and additional Rs 56 crores to set up 100
Mobile Soil Testing Laboratories across the country.
To meet the vagaries of climate change a National Adaptation Fund with an initial sum an
amount of Rs 100 crore will be set up.
A sustainable growth of 4% in Agriculture will be achieved.
Technology driven second green revolution with focus on higher productivity and
including Protein Revolution will be area of major focus.

To mitigate the risk of Price volatility in the agriculture produce, a sum of Rs 500 crore is
provided for establishing a Price Stabilization Fund.
Central Government to work closely with the State Governments to re-orient their
respective APMC Acts.
Sum of Rs 50 crores provided for the development of indigenous cattle breeds and an
equal amount for starting a blue revolution in inland fisheries.
Transformation plan to invigorate the warehousing sector and significantly improve post-
harvest lending to farmers.
Agriculture Credit
To provide institutional finance to landless farmers, it is proposed to provide finance to 5
lakh joint farming groups of Bhoomi Heen Kisan through NABARD .
A target of Rs 8 lakh crore has been set for agriculture credit during 2014-15.
Corpus of Rural Infrastructure Development Fund (RIDF) raised by an additional Rs
5000 crores from the target given in the Interim Budget to Rs 25000 crores.
Allocation of Rs 5,000 crore provided for the Warehouse Infrastructure Fund.
Long Term Rural Credit Fund to set up for the purpose of providing refinance support to
Cooperative Banks and Regional Rural Banks with an initial corpus of Rs 5,000 crore.
Amount of Rs 50,000 crore allocated for Short Term Cooperative Rural Credit.
Sum of Rs 200 crore for NABARDs Producers Development and Upliftment Corpus
(PRODUCE) for building 2,000 producers organizations over the next two years.
Food Security
Restructuring FCI, reducing transportation and distribution losses and efficacy of PDS to
be taken up on priority.
Government committed to provide wheat and rice at reasonable prices to the weaker
sections of the society.
Government when required will undertake open market sales to keep prices under
control.
INDUSTRY
Central Government Departments and Ministries to integrate their services with the e-
Biz -a single window IT platform- for services on priority by 31 December this year.
Rs 100 crore provided for setting up a National Industrial Corridor Authority.
Amritsar Kolkata Industrial master planning to be completed expeditiously.
Master planning of 3 new smart cities in the Chennai-Bengaluru Industrial Corridor
region, viz., Ponneri in Tamil Nadu, Krishnapatnam in Andhra Pradesh and Tumkur in
Karnataka to be completed.
Perspective plan for the Bengaluru Mumbai Economic corridor (BMEC) and Vizag-
Chennai corridor to be completed with the provision for 20 new industrial clusters.
Development of industrial corridors with emphasis on Smart Cities linked to transport
connectivity to spur growth in manufacturing and urbanization will be accelerated.

Proposed to establish an Export promotion Mission to bring all stakeholders under one
umbrella.
Apprenticeship Act to be suitably amended to make it more responsive to industry and
youth.
Micro Small and Medium Enterprises (MSME) Sector
Skill India to be launched to skill the youth with an emphasis on employability and
entrepreneur skills.
Committee to examine the financial architecture for MSME Sector, remove bottlenecks
and create new rules and structures to be set up and give concrete suggestions in three
months.
Fund of Funds with a corpus of Rs 10,000 crore for providing equity through venture
capital funds, quasi equity, soft loans and other risk capital specially to encourage new
startups by youth to be set up.
Corpus of Rs 200 crore to be set up to establish Technology Centre Network .
Definition of MSME to be reviewed to provide for a higher capital ceiling.
Programme to facilitate forward and backward linkages with multiple value chain of
manufacturing and service delivery to be put in place.
Entrepreneur friendly legal bankruptcy framework will be developed for SMEs to enable
easy exit.
A nationwide District Level Incubation and Accelerator Programme to be taken up for
incubation of new ideas and necessary support for accelerating entrepreneurship.
Textiles
Rs 50 crore is provided to set up a Trade Facilitation Centre and a Crafts Museum to
develop and promote handloom products and carry forward the rich tradition of
handlooms of Varanasi.
Sum of Rs 500 crore for developing a Textile mega-cluster at Varanasi and six more at
Bareilly, Lucknow, Surat, Kutch, Bhagalpur and Mysore.
Rs 20 crore to set up a Hastkala Academy for the preservation, revival, and
documentation of the handloom/handicraft sector in PPP mode in Delhi.
Rs 50 crore is provided to start a Pashmina Promotion Programme (P-3) and
development of other crafts of Jammu & Kashmir.
INFRASTRUCTURE
An institution to provide support to mainstreaming PPPPs called 4PIndia to be set up
with a corpus of Rs 500 crores.
Shipping
Rs 11635 crore will be allocated for the development of Outer Harbour Project in
Tuticorin for phase I.
SEZs will be developed in Kandla and JNPT.
Comprehensive policy to be announced to promote Indian ship building industry.

Inland Navigation
Project on Ganges called "Jal Marg Vikas" to be developed between Allahabad and
Haldia.
New Airports
Scheme for development of new airports in Tier I and Tier II Cities to be launched.
Roads sector
Sector needs huge amount of investment along with debottlenecking from maze of
clearances.
An investment of an amount of Rs 37,880 crores in NHAI and State Roads is proposed
which includes Rs 3000 crores for the North East.
Target of NH construction of 8500 km will be achieved in current financial year.
Work on select expressways in parallel to the development of the Industrial Corridors will
be initiated. For project preparation NHAI shall set aside a sum of ` 500 crore.
Energy
Rs 100 crore is allocated for a new scheme Ultra-Modern Super Critical Coal Based Thermal
Power Technology.
Comprehensive measures for enhancing domestic coal production are being put in place.
Adequate quantity of coal will be provided to power plants which are already
commissioned or would be commissioned by March 2015.
An exercise to rationalize coal linkages to optimize transport of coal and reduce cost of
power is underway.
New & Renewable Energy
Rs 500 crores provided for Ultra Mega Solar Power Projects in Rajasthan, Gujarat, Tamil
Nadu, Andhra Pradesh and Laddakh.
Rs 400 crores provided for a scheme for solar power driven agricultural pump sets and
water pumping stations.
Rs 100 crore provided for the development of 1 MW Solar Parks on the banks of canals.
A Green Energy Corridor Project is being implemented to facilitate evacuation of
renewable energy across the country.
Petroleum & Natural Gas
Production and exploitation of Coal Bed Methane reserves will be accelerated.
Possibility of using modern technology to revive old or closed wells to be explored.
Usage of PNG to be rapidly scaled up in a Mission mode.
Proposal to develop pipelines using appropriate PPP models.
Mining
Changes, if necessary, in the MMDR Act, 1957 to be introduced to encourage investment
in mining sector and promote sustainable mining practices.

FINANCIAL SECTOR
Capital Market
Ongoing process of consultations with all the stakeholders on the enactment of the
Indian Financial Code and reports of the Financial Sector Legislative Reforms
Commission (FSLRC) to be completed.
Government in close consultation with the RBI to put in place a modern monetary policy
framework.
Following measures will be taken to energize Capital markets.
Introduction of uniform KYC norms and inter-usability of the KYC records across the
entire financial sector.
Introduce one single operating demat account Uniform tax treatment for pension fund
and mutual fund linked retirement plan.
BANKING AND INSURANCE SECTOR
Banking
Time bound programme as Financial Inclusion Mission to be launched on 15 August this
year with focus on the weaker sections of the society.
Banks to be encouraged to extend long term loans to infrastructure sector with flexible
structuring.
Banks to be permitted to raise long term funds for lending to infrastructure sector with
minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending (PSL).
RBI to create a framework for licensing small banks and other differentiated banks.
Differentiated banks serving niche interests, local area banks, payment banks etc. are
contemplated to meet credit and remittance needs of small businesses, unorganized
sector, low income households, farmers and migrant work force.
Six new Debt Recovery Tribunals to be set up.
For venture capital in the MSME sector, a Rs 10,000 crore fund to act as a catalyst to
attract private Capital by way of providing equity , quasi equity, soft loans and other risk
capital for start-up companies with suitable tax incentives to participating private funds
to be established.
Insurance Sector
The pending insurance laws (amendment) Bill to be immediately brought for
consideration of the Parliament.
The regulatory gap under the Prize Chits and Money Circulation Scheme (Banking) Act,
1978 will be bridged.
Small Savings
Kissan Vikas Patra (KVP) to be reintroduced.
A special small savings instrument to cater to the requirements of educating and marriage
of the Girl Child to be introduced.

A National Savings Certificate with insurance cover to provide additional benefits for the
small saver.
In the PPF Scheme, annual ceiling will be enhanced to Rs 1.5 lakh p.a. from Rs 1 lakh at
present.
DEFENCE & INTERNAL SECURITY
A further sum of Rs 1000 crore to meet requirement for One Rank One Pension.
Capital outlay for Defence increased by Rs 5000 crore including a sum of Rs 1000 crore
for accelerating the development of the Railway system in the border areas.
Urgent steps would also be taken to streamline the procurement process to make it
speedy and more efficient.
Rs 100 crore is provided for construction of a war memorial in the Princes Park, which
will be supplemented by a War Museum. I am allocating a sum of ` 100 crore for this
purpose.
Rs 100 crore is provided to set up a Technology Development Fund for Defence.
Internal Security
Rs 3000 crore is provided in the current financial year for modernization of state police
forces.
Adequate allocation for Additional Central Assistance for Left Wing Extremist Affected
districts.
Rs 2250 crore provided to strengthen and modernize border infrastructure.
Rs 990 crore allocated for the socio economic development of the villages along the
borders.
A sum of Rs 150 crore ear-marked for the construction of Marine Police Station, Jetties
and for the purchase of boats etc.
Rs 50 crores provided for construction of National Police Memorial.
CULTURE & TOURISM
Rs 200 crore provided to build the Statue of unity(National project).
Facility of Electronic Travel Authorization (e-Visa) to be introduced in phased manner at
nine airports in India.
Countries to which the Electronic Travel authorisation facility would be extended would
be identified in a phased manner.
Rs 500 crore provided for developing 5 tourist circuits around specific themes.
Rs 100 crore provided for National Mission on Pilgrimage Rejuvenation and Spiritual
Augmentation Drive (PRASAD).
Rs 200 crore provided for National Heritage City Development and Augmentation
Yojana (HRIDAY).
Rs 100 crore provided for Archaeological sites preservation.

Sarnath-Gaya-Varanasi Buddhist circuit to be developed with world class tourist
amenities to attract tourists from all over the world.
Water Resources and cleaning of Ganga
Rs 100 crore provided for Detailed Project Reports for linking of rivers.
Rs 2037 crores provided for Integrated Ganga Conservation Mission NAMAMI
GANGE.
Rs 100 crore provided for Ghat development and beautification at Kedarnath, Haridwar,
Kanpur, Varanasi, Allahabad, Patna and Delhi.
NRI Fund for Ganga will be set up.
Science and Technology
Government to strengthen at least five institutions as Technical Research Centres.
Development of Biotech clusters in Faridabad and Bengaluru.
Nascent agri-biotech cluster in Mohali to be scaled up. In addition, two new clusters, in
Pune and Kolkata to be established.
Global partnerships will be developed under Indias leadership to transform the Delhi
component of the International Centre for Genetic Engineering and Biotechnology
(ICGEB) into a world-leader in life sciences and biotechnology.
Several major space missions planned for 2014-15.
Sports and Youth Affairs
Rs 200 crore provided for upgrading the indoor and outdoor sports stadiums in Jammu
and Kashmir Valley to international standards.
Rs 100 crore provided for sports university in Manipur.
India to start an annual event to promote Unique sports traditions in the Himalayan
region games.
Rs 100 crore provided for the training of sports women and men for forthcoming Asian
games.
A Young Leaders Programme with an initial allocation of Rs 100 crore to be set up.
North Eastern States
Rs 100 crore provided for development of organic farming in North Eastern States.
Rs 1000 crore provided for development of rail connectivity in the North Eastern
Region.
To provide a strong platform to rich cultural and linguistic identity of the North-East, a
new 24x7 channel called Arun Prabha will be launched.
Andhra Pradesh and Telangana
Government committed to addressing the issues relating to development of Andhra
Pradesh and Telangana in the AP Re-organization Act, 2014. Provision made by various
Ministries/Departments to fulfill the obligation of Union Government.
NCT of Delhi

Rs 200 crore for power reforms and Rs 500 crore for water reforms to make Delhi a truly
World Class City.
Rs 50 crore provided to solve the long term water supply issues to the capital region.
Construction of long pending Renuka Dam to be taken up on priority.
Andaman and Nicobar Island and Puducherry
Rs 150 crore provided to tide over communication related problems of the Island.
Rs 188 crore to Puducherry for meeting commitments for Disaster preparedness.
Displaced Kashmiri Migrants
Rs 500 crore provided to support displaced Kashmiri migrants for rebuilding their lives.
Himalayan Studies
Rs 100 crore provided to set up a National Centre for Himalayan Studies in Uttarakhand.
BUDGET ESTIMATES
Mandate to be fulfilled without compromising fiscal consolidation.
Non-plan Expenditure of Rs 12,19,892 crore with additional provision for fertilizer subsidy
and Capital expenditure for Armed forces.
Rs 5,75,000 crore Plan expenditure increase of 26.9 per cent over actuals of 2013-14.
Plan increase targeted towards Agriculture, capacity creation in Health and Education,
Rural Roads and National Highways Infrastructure, Railways network expansion, clean
energy initiatives, development of water resources and river conservation plans.
Total expenditure of Rs 17,94,892 crore estimated.
Gross Tax receipts of Rs 13,64,524 crore estimated.
Net to centre of Rs 9,77,258 crore estimated.
Fiscal deficit of 4.1% of GDP and Revenue deficit of 2.9% estimated.
New Statement to separately show plan allocation made for North Eastern Region.
Allocation of Rs 53,706 crore for North East Regions.
Allocation of Rs 50,548 crore under SCSP and Rs 32,387 under TSP.
Allocation for women at Rs 98,030 crore and for children at Rs 81,075 crore.
TAX PROPOSALS
Ambitious Revenue Collection Targets in Interim Budget. Proposed tax changes factored
in the Budget Estimates 2014-15.
Measures to revive the economy, promote investment in manufacturing, rationalize tax
provisions to reduce litigation, address the problem of inverted duty structure in certain
areas. Tax reliefs to individual tax payers.
DIRECT TAXES PROPOSALS
Personal Income-tax exemption limit raised by Rs 50,000/- that is, from Rs 2 lakh to Rs 2.5
lakh in the case of individual taxpayers, below the age of 60 years. Exemption limit raised
from Rs 2.5 lakh to Rs 3 lakh in the case of senior citizens.

No change in the rate of surcharge either for the corporates or the individuals, HUFs,
firms etc.
The education cess to continue at 3 percent.
Investment limit under Section 80C of the Income-tax Act raised from Rs 1 lakh to Rs 1.5
lakh.
Deduction limit on account of interest on loan in respect of self occupied house property
raised from Rs 1.5 lakh to Rs 2 lakh.
Conducive tax regime to Infrastructure Investment Trusts and Real Estate Investment
Trusts to be set up in accordance with regulations of the Securities and Exchange Board
of India.
Investment allowance at the rate of 15 percent to a manufacturing company that invests
more than Rs 25 crore in any year in new plant and machinery. The benefit to be
available for three years i.e. for investments upto March 31, 2017.
Investment linked deduction extended to two new sectors, namely, slurry pipelines for
the transportation of iron ore, and semi-conductor wafer fabrication manufacturing
units.
10 year tax holiday extended to the undertakings which begin generation, distribution and
transmission of power by March 31, 2017.
Income arising to foreign portfolio investors from transaction in securities to be treated
as capital gains.
Concessional rate of 15 percent on foreign dividends without any sunset date to be
continued.
The eligible date of borrowing in foreign currency extended from June 30, 2015 to June
30, 2017 for a concessional tax rate of 5 percent on interest payments. Tax incentive
extended to all types of bonds instead of only infrastructure bonds.
Introduction of a Roll Back provision in the Advanced Pricing Agreement (APA)
scheme so that an APA entered into for future transactions is also applicable to
international transactions undertaken in previous four years in specified circumstances.
Introduction of range concept for determination of arms length price in transfer pricing
regulations.
To allow use of multiple year data for comparability analysis under transfer pricing
regulations.
To remove tax arbitrage, rate of tax on long term capital gains increased from 10 percent
to 20 percent on transfer of units of Mutual Funds, other than equity oriented funds.
Income and dividend distribution tax to be levied on gross amount instead of amount
paid net of taxes.
In case of non deduction of tax on payments, 30% of such payments will be disallowed
instead of 100 percent.
Government to review the DTC in its present shape and take a view in the whole matter.
60 more Ayakar Seva Kendras to be opened during the current financial year to promote
excellence in service delivery.

Net Effect of the direct tax proposals to result in revenue loss of Rs 22,200 crore.
INDIRECT TAXES PROPOSALS
To boost domestic manufacture and to address the issue of inverted duties, basic customs
duty (BCD) reduced on certain items.
To encourage new investment and capacity addition in the chemicals and petrochemicals
sector, basic customs duty reduced on certain items.
Steps taken to boost domestic production of electronic items and reduce our dependence
on imports. These include imposition of basic customs duty on certain items falling
outside the purview of IT Agreement, exemption from SAD on inputs/components for
PC manufacturing, imposition of education cess on imported electronic products for
parity etc.
Colour picture tubes exempted from basic customs duty to make cathode ray TVs
cheaper and more affordable to weaker sections.
To encourage production of LCD and LED TVs below 19 inches in India, basic customs
duty on LCD and LED TV panels of below 19 inches reduced from 10 percent to Nil.
To give an impetus to the stainless steel industry, increase in basic customs duty on
imported flat-rolled products of stainless steel from 5 percent to 7.5 percent.
Concessional basic customs duty of 5 percent extended to machinery and equipment
required for setting up of a project for solar energy production.
Specified inputs for use in the manufacture of EVA sheets and back sheets and flat
copper wire for the manufacture of PV ribbons exempted from basic customs duty.
Reduction in basic customs duty from 10 percent to 5 percent on forged steel rings used
in the manufacture of bearings of wind operated electricity generators. Exemption from
SAD of 4 percent on parts and raw materials required for the manufacture of wind
operated generators.
Concessional basic customs duty of 5 percent on machinery and equipment required for
setting up of compressed biogas plants (Bio-CNG).
Anthracite coal, bituminous coal, coking coal, steam coal and other coal to attract 2.5 per
cent basic customs duty and 2 per cent CVD to eliminate all assessment disputes and
transaction costs associated with testing of various parameters of coal.
Basic customs duty on metallurgical coke increased from Nil to 2.5 percent in line with
the duty on coking coal.
Duty on ship breaking scrap and melting scrap of iron or steel rationalized by reducing
the basic customs duty on ships imported for breaking up from 5 percent to 2.5 percent.
To prevent mis-use and avoid assessment disputes, basic customs duty on semiprocessed,
half cut or broken diamonds, cut and polished diamonds and coloured gemstones
rationalized at 2.5 percent.
To encourage exports, pre-forms of precious and semi-precious stones exempted from
basic customs duty.

Duty free entitlement for import of trimmings, embellishments and other specified items
increased from 3 percent to 5 percent of the value of their export, for readymade
garments.
Export duty on bauxite increased from 10 percent to 20 percent.
For passenger facilitation, free baggage allowance increased from Rs 35,000 to Rs 45,000.
To incentivize expansion of processing capacity, reduction in excise duty on specified
food processing and packaging machinery from 10 percent to 6 percent.
Reduction in the excise duty from 12 percent to 6 percent on footwear of retail price
exceeding Rs 500 per pair but not exceeding Rs 1,000 per pair.
Withdraw concessional excise duty (2 percent without Cenvat benefit and 6 percent with
Cenvat benefit) on smart cards and a uniform excise duty at 12 percent.
To develop renewable energy, various items exempted from excise duty.
Exemption to PSF and PFY manufactured from plastic waste and scrap including PET
bottles from excise duty with effect from 29th June, 2010 to 7th May, 2012.
Prospective levy of a nominal duty of 2 percent without Cenvat benefit and 6 percent
with Cenvat benefit on such PSF and PFY.
Concessional excise duty of 2 percent without Cenvat benefit and 6 percent with Cenvat
benefit on sports gloves.
Specific rates of excise duty increased on cigrettes in the range of 11 per cent to 72 per
cent.
Excise duty increased from 12 percent to 16 percent on pan masala, from 50 percent to
55 percent on unmanufactured tobacco and from 60 percent to 70 percent on gutkha
and chewing tobacco.
Levy of an additional duty of excise at 5 percent on aerated waters containing added
sugar.
To finance Clean Environment initiatives, Clean Energy Cess increased from Rs 50 per
tonne to Rs 100 per tonne.
Service Tax
To broaden the tax base in Service Tax, sale of space or time for advertisements in
broadcast media, extended to cover such sales on other segments like online and mobile
advertising. Sale of space for advertisements in print media however would remain
excluded from service tax. Service provided by radio-taxis brought under service tax.
Services by air-conditioned contract carriages and technical testing of newly developed
drugs on human participants brought under service tax.
Provision of services rules to be amended and tax incidence to be reduced on transport
of goods through coastal vessels to promote Indian Shipping industry.
Services provided by Indian tour operators to foreign tourists in relation to a tour wholly
conducted outside India to be taken out of the tax net and Cenvat credit for services of
rent-a-cab and tour operators to be allowed to promote tourism.

Service tax exempted on loading, unloading, storage, warehousing and transportation of
cotton, whether ginned or baled.
Services provided by the Employees State Insurance Corporation for the period prior to
1st July 2012 exempted, from service tax.
Exemption available for specified micro insurance schemes expanded to cover all life
micro-insurance schemes where the sum assured does not exceed Rs 50, 000 per life
insured.
For safe disposal of medical and clinical wastes, services provided by common biomedical
waste treatment facilities exempted.
Tax proposals on the indirect taxes side are estimated to yield Rs 7525 crore.
24X7 customs clearance facility extended to 13 more airports in respect of all export
goods and to 14 more sea ports in respect of specified import and export goods to
facilitate cargo clearance.
Indian Customs Single Window Project to facilitate trade, to be implemented.
The scheme of Advance Ruling in indirect taxes to be expanded to cover resident private
limited companies. The scope of Settlement Commission to be enlarged to facilitate
quick dispute resolution.
Customs and Central Excise Acts to be amended to expedite the process of disposal of
appeals.

RAILWAY BUDGET 2014-15
A Synopsis

The full Railway Budget of 2014-15 was presented by the Union Railway Minister on July 8, 2014
aiming to be in sync with the Interim Budget presented for the year by the last Government. The
Highlights of the Budget are given below.

HIGHLIGHTS of the BUDGET
Thrust of the Budget
The Budget has highlighted the following thrust areas: 1. Safety 2. Project Delivery 3. Passenger
Amenities/Services with focus on food services & on cleanliness, sanitation, toilets 4. Financial
Discipline 5. Resource Mobilization 6. IT Initiatives 7. Transparency & System Improvements.
Major Challenges
Vast tracts of hinterland waiting for rail connectivity.
Railways expected to earn like a commercial enterprise but serve like a welfare
organization.
Railways carry Social Service Obligation of more than Rs 20,000 cr by carrying services
below cost. This is nearly 16.6% of GTR and is almost half of Railways Plan Outlay
under budgetary sources.
Surplus revenues declining; Hardly any adequate resources for its development works.

Tariff policy adopted lacked rational approach; passenger fares kept lower than costs; loss
per passenger kilometer increased from 10 Paise per Km in 2000-01 to 23 Paise in 2012-
13.
Decade of Golden Dilemma choosing between commercial and social viability.
Share of Railways in freight traffic coming down consistently.
Rs 5 lakh crore required for ongoing projects alone.
Focus so far in sanctioning more and more projects with inadequate prioritization rather
than completing them; Of the 674 projects worth Rs 1,57,883 cr sanctioned in the last 30
years, only 317 could be completed. Completing the balance requires Rs 1,82,000 cr.
Most of Gross Traffic Receipts is spent on fuel, salary and pension, track & coach
maintenance and on safety works . In the year 2013-14, Gross Traffic Receipts were Rs
1,39,558 crore and total Working Expenses were Rs 1,30,321 crore.
The surplus, after paying obligatory dividend and lease charges, was Rs 11,754 crore in
2007-08 and is estimated to be Rs 602 crore in the current financial year.
Course Correction and Initiatives
Works to be re-prioritized with more focus on doubling and tripling to decongest the
over-utilized network.
Recent fare and tariff hike to mop additional revenue of about Rs 8,000 cr.
Alternate resource mobilization need to be explored as enlisted:
- Leveraging Railway PSU Resources by bringing in their investible surplus funds in
infrastructure projects of Railways.
- Domestic investments and FDI in rail infrastructure.
- Pursuing Public Private Partnership.
Near Plan-holiday approach.
Prioritizing and setting timelines for completion of the ongoing projects.
Decision Support System for project implementation.
Strategic partnerships and transparency in procurements.
Aggressive indigenization of imported products.
Developing locomotives, coaches and wagon leasing Market.
Passenger Amenities/Services & Station
Management including Cleanliness & Catering
Provision of foot-over bridges, escalators, lifts, etc. at all major stations including through
PPP route.
Provision of sufficient water supply, platform shelters and toilets at Railway Stations.
Battery operated cars for differently-abled and senior citizens at platforms of all major
stations.
Involvement of individuals, NGOs, Trusts, Charitable Institutions, Corporates to provide
passenger amenities at stations.
Provision of workstations in select trains on payment basis.

Expanding scope of online booking of train, coaches, berth & chair car.
Introduction of parking cum platform combo tickets.
E-booking of railway retiring rooms.
Introduction of Ready-to-eat meals of reputed brands in a phased manner.
Introduction of Quality Assurance Mechanism through Third Party Audit by NABCB
certified agencies.
Launching feedback service through IVRS on the quality of food.
Setting up of Food Courts at major stations for providing regional cuisine while onboard
through emails, SMS and Smart Phones, etc. Pilot project between New Delhi-Amritsar
and New Delhi-Jammu Tawi sections.
Substantial increase of 40% in budget allocation for cleanliness.
Outsourcing of cleaning activities at 50 major stations to professional agencies.
Setting up of separate Housekeeping Wing for maintaining cleanliness and sanitation at
stations.
Setting up of Corpus Fund at Stations upkeep.
Extending use of CCTVs at stations to monitor cleanliness activities.
Printing of all India level complaint/helpline number on PRS tickets and introduction of
system of third party inspections.
Extension of onboard Housekeeping services to all important trains.
Increasing mechanized laundries for quality bedrolls in AC coaches.
Introduction of RO drinking water units at Stations and in trains on experimental basis.
Encouraging reputed and willing NGOs, charitable institutions and Corporate Houses
for adopting and maintaining stations.
Measures for improving Safety & Security
Provision of Rs 1,785 crore for Road-over-bridges and Road-underbridges; speedy
clearances, online design standardization and decentralised sanctioning powers.
Multi-pronged approach to eliminating Unmanned Level Crossings.
Advanced technology for rail-flaw detection - Vehicle Borne Ultrasonic Flaw Detection System
to detect rail and weld fractures and pilot trials on Ultrasonic Broken Rail Detection System
(UBRD) at two locations.
Safety standards to match international practices. Simulation Center to study causes of
accidents.
Pilot project on Automatic door closing in mainline and sub-urban coaches.
4000 women RPF constables to be recruited in addition to 7000 RPF constables.
RPF escorting teams in trains to be provided mobile phones helping passengers in
contacting them in distress. Coaches for ladies will be escorted. Care to be taken for
ladies travelling alone.

Building boundary walls around stations through PPP route to be explored.
Green Initiatives
Harnessing solar energy by utilizing roof top spaces of stations, railway buildings and land
including through PPP mode.
Use of bio-diesel up to 5% of total diesel fuel consumption.
Increasing bio-toilets in sufficient numbers in trains to mitigate the problem of direct
discharge of human waste on the tracks and platforms.
Rail Tourism
Eco-Tourism and Education Tourism in Northeastern States.
Special Packaged trains on identified pilgrim circuits like Devi Circuit, Jyotirling Circuit,
Jain Circuit, Christian Circuit, Muslim/Sufi Circuit, Sikh Circuit, Buddhist Circuit,
Famous Temple Circuit, etc.
Tourist Train from Gadag to Pandarpur via Bagalkot, Bijapur and Solapur covering the
pilgrim and tourist places of Karnataka and Maharashtra.
Tourist Train from Rameshwaram covering pilgrim and tourist places like Bengaluru,
Chennai, Ayodhya, Varanasi and Haridwar.
Special Train featuring life and work of Swami Vivekananda.
IT Initiatives including revamping reservation system
Revamping Railway Reservation System into Next Generation e-Ticketing System.
E-ticketing to support 7200 tickets per minutes to allow 1,20,000 simultaneous users.
Augmentation of Coin operated Automatic Ticket Vending Machines.
Provision of platform tickets and unreserved tickets over internet.
Shift towards large scale integrated computerization of major functions of Indian Railways to
take place:
- Paperless offices in Indian Railways in 5 years.
- Wi-fi Services in A1 and A category stations and in select trains.
- Real-time tracking of trains and rolling stock.
- Mobile based Wakeup Call System for passengers.
- Mobile based Destination Arrival Alert.
Station Navigation Information System:
- Extension of Dual Display Fare Repeaters at all the Ticket Counters through PPP.
- Digital reservation charts at Stations (Bangalore model).
- Extension of Computerized Parcel Management System.
- Extension of logistics support to various e-commerce Companies by providing
designated pick-up centres at identified Stations.
- Providing education to children of Railway staff at remote locations through
Railtel OFC (optical fibre cable) network.
GIS mapping and Digitisation of Railway land.
Staff Welfare
Per capita contribution to Staff Benefit Fund increased from Rs 500 to Rs 800.

Special scheme for meritorious wards of railway persons.
Hospital Management Information System to integrate all railway health units and
hospital.
Provision of air-conditioned loco cabins to be examined.
Training
Setting up of Railway University for both technical and non-technical subjects.
Tie up with technical institutions for introducing railway oriented subjects for graduation
and skill development.
Short duration courses for ground level officers.
Exposure to specialized areas like high-speed, heavy haul operations, etc., for all level of
staff and officials at institutes in India and abroad.
Speed of Trains
Bullet train proposed on identified Mumbai-Ahemdabad sector.
Setting up of Diamond Quadrilateral Network of High Speed Rail connecting major metros
and growth centers of the country; Rs 100 cr provided for initiating the project.
Increasing of speed of trains to 160-200 kmph in select 9 sectors.
All experimental stoppages to lapse after September 30, 2014.
Only operational feasibility and commercial justifications for new stoppages; alternate
train connectivity to meet genuine demands.
Resource Augmentation
PPP through BOT and Annuity route and identification of 8 to 10 capacity augmentation
projects on congested routes; Zonal Railways to be suitably empowered to finalize and
execute such projects.
Facilitating connectivity to new and upcoming ports through PPP.
Speedy work on critical coal connectivity lines to bring nearly 100 MT of incremental
traffic to Railways and facilitating faster transportation of coal to power houses.
Developing identified stations to international standards with modern facilities on lines of
newly developed airports through PPP mode.
Setting up of Logistic Parks to modernize logistics operations; Top priority to
mechanization of loading and unloading.
Suitable pricing mechanism to garner additional revenue from empty flow.
Pilot project for automatic rebate to customers offering traffic through computerized
FOIS system.
Launching scheme to facilitate procurement of parcel vans or parcel rakes by private
parties.
New design of parcel vans with better tare to pay load finalized.
Setting up of Private Freight Terminal on PPP model to develop network of freight
terminals.

Boost to rail movement of fruit and vegetables in partnership with Central Railside
Warehousing Corporation at 10 locations.
Provision of special milk tanker trains in association with National Dairy Board and Amul
to facilitate transportation of milk through rail.
Other Initiatives
Setting up of Project Management Groups consisting of professionals and State
Government Officials at Railway Board and Zonal level for coordinating and expediting
project management with respective State Governments.
Establishing Innovations Incubation Centre to harness the ideas generated from staff and
converting them into practical solutions.
Summer internships for under-graduates of engineering and management studies.
Structural Reforms separation of overlapping roles of policy formulation and
implementation.
Top priority to transparency in administration and execution of projects.
Adopting strategic procurement policies to make procurement process transparent and
most efficient.
Status of ongoing projects to be made available online.
E-procurement to be made compulsory for procurements worth Rs 25 lakhs and more.
Launching online registration of demands for wagons in next two months for facilitating
online payment of Wagon registration fee.
Initiating process for ERR (Electronic Railway Receipt) during the year.
Introduction of corrosion-free wagons with low tare weight for movement of salt.
Close monitoring of Dedicated Freight Corridor Project Implementation of Eastern and
Western DFCs target of nearly 1000 kms of civil construction contracts.
Metropolitan/Suburban Services
Passenger centric focus to urban transport infrastructure by coordinating with other
transport Ministries and Urban Bodies.
864 additional state-of-the-art EMUs for Mumbai in two years.
Study to explore possibility of enhancing existing IR network of Bengaluru for meeting
better connectivity needs of Bengaluru city with its suburban areas and hinterland.
Byyappanahalli in Bengaluru area to be developed as a coaching terminal.
Financial Performance 2013-14
Traffic growth declined and expenditure registered excess in 2013-14 as compared to
Revised Estimates.
Originating passengers achieved less by 46 million; and passenger earnings short by Rs
968 cr over Revised Estimates.
Gross Traffic Receipts at Rs 1,39,558 cr though short of RE by Rs 942 cr grew by 12.8%
over the previous year.

Ordinary Working Expenses and Pension outgo is higher than the Revised Estimates.
The year ended with a surplus of Rs 3,783 cr by registering a shortfall of Rs 4,160 cr over
the revised target.
Dividend liability of Rs 8,010 cr to government fully discharged.
Railways generated internal resources of Rs 11,710 cr in 2013-14 for plan finance.
Operating Ratio at 93.5% deteriorated by 2.7% over R.E.
Budget Estimates 2014-15
Freight loading of 1101 MT, 51 MT more than 2013-14.
Growth in passenger traffic - 2%.
Freight Earnings Rs 1,05,770 cr.
Passenger Earnings Rs 44,645 cr, after revenue foregone of Rs 610 cr on account of
rollback in monthly season ticket fares.
Total Receipts - Rs 1,64,374 cr; Total Expenditure Rs 1,49,176 cr.
Pension estimated at Rs 28,850 cr.
Dividend payment estimated at Rs 9,135 cr.
Operating Ratio to be 92.5%, an improvement of 1% over 2013-14.
Annual Plan 2014-15
Highest ever plan outlay of Rs 65,445 cr:
- Gross Budgetary Support - Rs 30,100 cr
- Railway Safety Fund - Rs 2,200 cr
- Internal Resources - Rs 15,350 cr.
- EBR - Market Borrowing - Rs 11,790 cr.
- EBR - PPP - Rs 6,005 cr.
Plan Outlay under budgetary sources placed at Rs 47,650 cr which is higher by Rs 9,383
cr over 2013-14 higher plan outlay goes to safety related works.
Full financial outlays to projects targeted for completion during the year.
Adequate allocations made for 30 priority works for timely completion.
Projects for Remote Areas, North-East, Andhra Pradesh and Telengana
Higher funds for onging 23 projects in Northeast including 11 National Projects; Rs
5,116 cr outlay earmarked for projects of Northeast i.e. 54% higher than previous year.
Udhampur-Katra Rail link dedicated to the Nation; tie up with Government of J&K for
bridging Udhampur-Banihal portion by bus to help passengers reach Srinagar with single
ticket from origin to destination.
Focus on completion of missing link of Banihal to Katra.
29 Projects, costing Rs 20,680 cr, currently running in Andhra Pradesh & Telengana.
Setting up of Committee of Railways and officials from Andhra Pradesh and Telengana
on coordination, requirement and issues.

New Surveys
18 new line surveys.
10 surveys for doubling, 3rd and 4th lines and gauge conversion.
Trains
5 new Jansadharan trains to be introduced.
5 Premium and 6 AC trains to be introduced.
27 new Express trains to be introduced.
8 new passenger services, 5 DEMU services and 2 MEMU services to be introduced and
run of 11 trains to be extended.

Good Luck!

Ramesh Singh
Director, CIVILS INDIA, N Delhi.
E-mail ID: dr.rmsh@civilsindia.com

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