Indian Outlook

www.tnpscquestionpapers.
com
m
o
c
.
s
r
e
p
a
p
n
o
i
t
s
e
u
q
c
s
p
n
t
.
w
w
www.tnpscquestionpapers.com
m
o
c
.
s
r
e
p
Contents
a
p
n
o
i
t
Preface...................................................................1
s
e
u
q
The Economic Journey: 2010-11............................2
c
s
Indias Economic Outlook: 2011-12........................8
p
n
t
.
w
w
Sectoral Outlook 2011-12.................................... 15

D&Bs Key Macroeconomic Forecast..................36
Preface
The Indian economy is marching towards a high growth trajectory, albeit with certain impediments on the
horizon. While the year began on an optimistic note, concerns on sustainability of the high growth phase had
surfaced by the end of FY11. Despite improvement in the overall optimism about the economy, the financial
markets continued to witness high volatility primarily driven by the direction and magnitude of foreign
capital flows and movement in industrial production and inflation. At the end of FY10, when we had put
down our expectations for the coming year, we had foreseen gradual receding of inflationary pressures
during FY11. However, inflation remained elevated throughout the year, as some unanticipated factors like surge
in prices of some vegetables and fruits during Nov - Dec 2010, unexpected rapid rise in international crude oil
prices et al kept prices in the domestic economy high. Although the inflationary pressures are expected to see
some abatement during the course of the year, significant upside risks do persist and would continue to be a
major focus area for the Government as well as the businesses. With constantly building inflationary pressures
on one hand and downside risks to growth on other, the major challenge during FY12 would be of setting
the policy rate at the optimum level that will rein in demand side pressures on inflation and at the same time not
stifle growth.
c
.
m
o
s
r
e
p
a
p
n
o
i
t
On the external front although the outlook for global economy continues to improve, downside risks are
many and varied. Possibility of tensions in the euro area periphery spreading to the core of Europe, sustained
weakness of the US real estate market, elevated commodity prices, overheating in certain emerging markets
and geopolitical tensions are some of the major risks that have the potential to derail the global recovery.
s
e
u
q
It has become imperative for businesses to track the economic environment on an ongoing basis when changes
come in such a dynamic fashion; when perceptions on where macroeconomic risks lie are so numerous and
changing so often; when the immediate business environment becomes so closely linked with events that are
largely beyond our immediate control. This report has been prepared with the idea of providing a forecast
of key macroeconomic variables, which will determine the course of the business environment over the next
fiscal.
c
s
p
n
t
.
The report summarises the results of the Sectoral Outlook Survey 2011-12 that has been designed by
D&B to gauge the level of optimism in the different sectors of the economy. The survey results makes an
attempt to provide insights into the challenges faced by various sectors and the stratergic focus of India Inc.
For instance D&Bs Sectoral outlook survey 2011-12 reveals the increasing importance of risk management within
India Incs strategic planning - majority of the respondents from most of the sectors have rated risk management
to remain as their major strategic focus. In the fast changing economic environment, both domestically
and internationally, businesses are exposed to ever evolving risks scenario and therefore is likely to have
reinforced the importance of good risk management practices.
w
w
1
Economic Journey FY11

in bank deposits as compared to the credit growth
along with higher demand for currency. In view of
the sustained liquidity pressures the RBI undertook
several measures such as continuation of second
LAF, OMO purchase of government securities, additional liquidity support to SCBs under the LAF up
to 2.0 per cent of their NDTL which provided some
stability to the overnight interest rates.
We embarked upon FY11 with a lot of expectations regarding the robustness of the recovery in
the domestic economy. The sharp and broad-based
recovery of the Indian economy which ensued was
backed by the robust consumption as well as the
investment demand. The fiscal prudence undertaken and the thrust in infrastructure spending by the
government to propel the investment momentum
had also largely aided the growth process. However, the strength and pace of the economic recovery
outlived our expectations, especially during the first
half of FY11.
GDP clocked a growth rate of 8.9% during H1
FY11 on the back of a strong industrial output
and near double digit growth in the services sector. The robustness of the industrial activity,
increase in production of capital goods, commencement of capacity expansion plans of corporates,
increased infrastructure spending by the Government, growth in credit as well as financing from
non-banking sources underscored the strong investment demand which gained traction as the year
progressed. However, as per the data on GFCF,
investment activity witnessed a sharp moderation
during Q3FY11. Concurrently, government expenditure also witnessed a sharp decline during the
same period. It was however, widely anticipated
that the government expenditure would moderate
on account of fiscal consolidation and gradual withdrawal of stimulus packages.
c
.
s
r
e
p
a
p
c
s
p
n
t
.
w
w
Lack of Government spending as reflected by the

persistence of large government cash balances
with the RBI led to tight in the liquidity conditions,
the extent of the tightening being accentuated by
structural factors such as relatively sluggish growth
Even as the economy was witnessing a strong turnaround during 2010, firming up of the domestic and
international prices had posed significant risks to
growth. The headline inflation remained in double
digits for as long as five months up to July 2010 - far
above the RBIs tolerance level. While the surge in
inflation was primarily driven by the food articles
inflation owing to the supply side constraints, the
inflation had also started becoming increasingly
generalised given the recuperating demand conditions and rising input prices. The deregulation of the
fuel prices in Jun 2010 also added to the inflationary
pressures in the economy. Uncertainty in the global
economic recovery prospects coupled with supply
side bottlenecks that imparted stickiness to inflation
posed a challenge for the RBI to anchor inflationary
pressures without derailing growth.
n
o
i
t
s
e
u
q
Nonetheless, given the unabated rise in inflation,

the RBI resorted to aggressive monetary policy
tightening. The RBI raised the repo and the reverse
repo rates by as much as 8 times during Mar-10 to
Mar-11. The headline inflation however, had
softened to single digit levels during Aug - Nov
10. The fall in the inflation figures though seemed
positive was primarily owing to waning low base,
thus providing no respite to the common man as
retail prices still continued to remain elevated. In
2
m
o
gathered momentum during the second half of the

fiscal year to cross the export target of US$ 200
bn by Feb-11. Given the deceleration in exports and
higher imports since the beginning of FY11 and the
moderation in net invisible surplus, the deficit in
the current account balance surged significantly
during H1 FY11. Nonetheless, the balance of
payments remained in surplus owing to the
considerable inflow of foreign funds during the
same period. Given the sovereign debt problems in some Euro countries, concerns over weak
Euro-Zone economies on one hand and volatile FIIs
and weakening of Dollar on the other hand Indias
exchange rate remained volatile during FY11 putting
pressure on the exporters profit margins.
Dec-10 the WPI which was on a downward trend

reversed its direction owing to soaring global oil
prices and rise in prices of primary food articles.
The sharp increase in oil prices as a result of the
turmoil in the Middle East and North Africa aggravated
inflationary pressures. The surge in the prices of
food articles reflected the structural bottlenecks
prevailing in certain sectors, especially the noncereal food items. Moreover, the rising non-food
manufacturing inflation also indicated the impact of
the demand side pressures, high input cost along
with the ability of the producers to pass on the
higher input prices to consumers.
Consequent to this policy action, many banks have
raised their deposit and lending rates. Several banks
had revised their base rates upwards in the range of
25-100 basis points during Jul 10 - Jan 11. Given the
widening imbalance between the deposit growth
and the credit growth, banks also raised their
deposit rates to mobilise resources.
c
.
s
r
e
p
a
p
u
q
c
s
p
n
n
o
While we are at the threshold of the beginning of

a new fiscal year some concerns to growth have
emanated such as unabated rise in global oil prices, widening of current account deficit, fall in FDI
inflows et al. However, effective implementation of the reform agenda as announced in the
budget, adhering to the fiscal deficit target, making
development more inclusive, bringing about further
improvement in the public delivery practices by
the Government would help in setting the path for
sustaining a high growth trajectory.
i
t
s
e
However, even as the macroeconomic numbers

continued to display a strong performance during
the course of the fiscal year FY11, they were marked
by a lot of volatility; the volatility was evident not only
in the numbers but also in the sentiments primarily
driven by the global clues and policy responses to
cater to inflation. The volatility was strongly evident
in the FII flows, the movement in the exchange rate,
the stock market sentiment as well as in the data for
industrial production.
t
.
w
w
The FII inflows remained volatile given the risk

aversion among investors owing to the debt crisis in
the some Euro region and concerns regarding the
pace of recovery in some developed countries. Indias
external demand condition also remained under pressure during the initial months of FY11,
with both the merchandise and the services
exports moderating. However, the exports
3
m
o
Quick glance at the year that was
m
o
c
.
s
r
e
p
a
p
After hovering around 8.9% during FY11, GDP

consolidates towards the end of FY11.
Consumption and investment demand supports

growth during FY11. However, the investment demand falls sharply during Q3 FY11.
n
o
i
t
s
e
u
q
c
s
p
n
Industrial activity
consolidation.
t
.
remains
volatile
w
w
After a setback during FY10, agriculture sector

output rebounded strongly during FY11. While the
services sector remains resilient, industrial activity
consolidates.
4
reflecting
which accounts for more than 70% of the WPI

basket for primary food items.
Improvement in sentiment accompanied by the

buoyancy in the consumer demand was reflected in
the production of consumer goods especially, the
consumer durables segment; while consumer nondurables sector remained muted.
m
o
c
.
s
r
e
p
a
p
n
o
After remaining muted during most part of FY11,

manufacturing inflation raised its head again during
the terminal months of FY11.
WPI inflation surged to 10.23% during Mar-10 and

remained in double digits for as long as 5 months
before moderating to a single digit level in Aug-10,
owing to high prices of primary food articles and
rise in the fuel group & manufactured products inflation.
i
t
s
e
u
q
c
s
p
n
t
.
The fuel group inflation continued to rise unabated

during FY11 aggravated by the deregulation of fuel
prices in Jun 10 and the soaring global oil prices.
w
w
The sustained rise in the prices of food articles had

caused the headline inflation to remain at high levels
during FY11. The surge in food prices was mainly
driven by the increase in the prices of items like
fruits and vegetables, milk, meat, poultry and fish,
5
m
o
c
.
s
r
e
p
Outflows owing to the 3G spectrum auction, builtup of Centres cash balances with the RBI, sluggish
growth in bank deposits as compared to the credit
growth along with higher demand for currency led
to tight liquidity conditions during FY11. Consequently, a host of measures had been taken by the
RBI to ease the liquidity pressures in the economy.
a
p
In order to control the spiraling inflation and anchor

the inflationary expectations in the economy the RBI
resorted to aggressive monetary policy tightening.
n
o
i
t
s
e
u
q
c
s
p
n
Bank credit growth showed gradual improvement

since the beginning of FY11 and gained traction,
especially since Q3 FY11. Growth in bank deposits
however, witnessed significant moderation since
the beginning of FY11 and has remained muted for
most part of FY11, albeit some improvement during
the last quarter of the fiscal year.
t
.
w
w
Despite witnessing some deceleration during the

initial months of FY11, exports gathered momentum
since Nov-10; with the cumulative exports for Apr10 to Feb-11 crossing the US$ 200 bn export target
for FY11. After growing at a faster pace since the
beginning of FY11, imports started moderating since
Sept-10 leading to a contraction in the trade deficit.
6
m
o
c
.
s
r
e
p
a
p
While total current account deficit remained high

during FY10, it surged significantly during H1 FY11,
especially during Q2 FY11 owing to widening trade
deficit and moderating net invisibles. However, substantial inflow of funds under the capital account led
to a surplus in the overall BoP during H1 FY11
The FII inflows have remained volatile during FY11.

While the short terms foreign fund inflows have
remained quite robust during till Oct-10, it has
started receding since then with outflows occurring
during Jan-Feb 10.
n
o
i
t
s
e
u
q
c
s
p
n
The rupee remained volatile during FY11.
t
.
w
w
Despite improving global economic prospects and

robust recovery of the Indian economy, the FDI inflows have largely remained muted owing to a confluence of factors such as the recent spurt in corruption cases, procedural delays, environmental policy
issues, comparatively higher inflation and global issues such as debt crisis in the European region
7
India Outlook FY12

The fiscal year 2011 witnessed a faster and more
broad based recovery in the Indian economy. While
we at D&B expected the GDP to gather significant momentum during FY11, the robust growth of
8.9% during H1 FY11 was a positive surprise. While
the long term growth prospects of the economy
seem bright given the strong fundamentals of the
economy, the short term outlook needs to be
assessed in context of the emerging macroeconomic dynamics that might support or limit Indias
economic growth. Therefore, before providing our
outlook for the Indian economy during FY12, we
begin by elucidating the current macroeconomic
developments that would play a crucial role in
determining the prospect of the Indian economy
over the span of next one year.
Domestic demand, however, will continue to hold

the key to broad based growth. The high current
account deficit (CAD) is another major emerging
concern, given that any unabated rise in CAD will
not only put pressure on the rupee but also might
put strain of Indias ratings thereby increasing the
cost of external borrowing for the Indian corporates.
With generalisation of inflationary pressures thanks
to the recent spike in the oil prices and improving
demand conditions, we at D&B expect inflation to
affect the real GDP growth slightly especially, in the
first half of FY12.
c
.
s
r
e
p
a
p
u
q
c
s
p
n
t
.
w
w
n
o
i
t
s
e
It is important to note here that after nearing the

pre-crisis growth levels of near 9% during H1 FY11,
the GDP growth moderated to near 8.2% during
Q3 FY11. In fact, the robust growth of 8.9% in the
agriculture sector aided the GDP growth to remain
above 8%. A normal agriculture sector growth of
around 3.5-3.6% would have pulled down the GDP
growth to just above 7% during Q3 FY11, thereby
highlighting the moderation in the overall economic
activity. The growth pattern in the industrial sector
is expected to drive the overall economic activity
in the near future. Another important development
in the recent past has been the moderating investment activity evident in relatively lower growth in
Gross Fixed Capital Formation (GFCF) during Q3
FY11 and slowdown in IIP for capital goods during
Dec 10 - Jan 11. Thus, the momentum of investment, which largely will be influenced by the inflation and interest rates scenario, will be crucial for
determining the growth outlook for the next fiscal.
At the backdrop of the current macroeconomic

environment we expect the GDP growth to improve
from the current levels but it is unlikely to touch the
high levels experienced during FY06-FY08.
Real GDP to grow by 8.8% during FY12

The moderation in GDP growth momentum is
expected to continue during the first two quarters of FY12, largely on account of muted industrial
activity. However, this is expected to be higher
than second half of current fiscal. The GDP growth,
however, is expected to revert to its near 9.0%
growth trajectory during the second half of FY12.
A host of factors like high interest rate scenario,
high input prices and muted investment activity along with the heightened uncertainties in the
international economic scenario are likely to limit
the GDP growth in the first half of FY12. However,
with moderating inflation, anticipated improvement in domestic demand conditions and expected
return of normalcy in the global landscape, domestic
economic activity is expected to gain traction in the
second half. Moreover, during the course of the year
8
m
o
the economy is expected to get adjusted to rising interest rates, which though increasing will only touch
the pre-crisis levels. Assuming a normal monsoon,
D&B expects the GDP to record an average growth
of 8.8% during FY12.
The services sector is expected to maintain this

growth momentum and clock a robust growth of
9.9% during FY12. Improving business and consumer optimism, rising income levels et al are likely to
provide support to services segment such as financial services, tourism, transport and communication
etc. Even the industrial activity, which moderated
significantly the last two quarters of FY11, is likely
to witness gradual improvement during FY12 and
support the overall GDP growth. Industrial sector is
expected to grow by around 8.7% during FY12. Assuming a normal monsoon the agriculture sector is
expected to grow by around 4.1% during FY12 after
an expected increase of 5.0% during FY11.
c
.
s
r
e
p
a
p
n
o
Private consumption demand

to provide impetus to growth
Disaggregating GDP data on a sectoral basis, the

uptick in GDP growth during FY12 is expected to
be driven by a robust services sector growth. High
industrial growth witnessed in H1 FY11, is likely to
have provided much needed impetus to the services sector during H2 FY11 as the growth in services
sector tend to follow the industrial growth with
some time lag. D&B expects services sector to have
grown by around 10.5% during Q4 FY11 taking the
services sector growth for FY11 to 9.6%.
i
t
s
e
u
q
c
s
p
n
D&B expects the growth in private final

consumption expenditure to have improved to 8.2%
during FY11 from around 7.4% during FY10 with
domestic demand conditions recuperating at a rapid
pace. D&B expects the PFCE to maintain the current growth momentum and grow by around 8.3%
during FY12. The private consumption demand will
continue to be driven by the following factors:
Improving consumer sentiment
Likely moderation in inflation would increase
purchasing power of the households and might
help stimulate demand
t
.
w
w
The anticipated increase in NREGA wages, which

are now linked to inflation rate, might help rural
demand to remain upbeat
Optimistic employment scenario and rising

income levels
Expected increase in disposable income given
the reduction in over all income tax slabs for
individuals announced in budget FY12
9
m
o
Anticipated high interest rates might limit the growth

in private demand for high end products, especially
during H1 FY12.
might limit the pace of IIP growth especially during

the H1 FY12.
m
o
c
.
s
r
e
p
a
p
n
o
Industrial activity to gather

strength
With significant moderation during the last few
months of FY11, the IIP growth is expected to
have moderated to 7.7% during FY11 as compared
to a robust 10.5% growth clocked during FY10.
The moderation in industrial production during the
latter part FY11, though in part is a reflection of high
statistical base, does underscore a consolidation
phase for industrial activity. However, the industrial
activity is likely to gain momentum and is expected
to remain robust at 9.0% during FY12 on account
of:
i
t
s
e
u
q
c
s
p
n
t
.
w
w
Improvement in domestic demand
While production in consumer durables and capital goods sector is expected to remain muted during the Q1 FY12 on account of high interest rates
and rising input prices, the growth in these sectors would pick thereafter as demand conditions
improve and input prices stabilise. Growth in basic and intermediate goods sector is likely to remain resilient during H1 FY12 and gain significant
momentum during H2 FY12 backed by expectation
of further improvement in consumption and investment demand. Consumer non-durables sector is,
however, expected to witness high growth since
the beginning of FY12 primarily due to low base of
the previous year. Moreover, moderating inflation,
expected increase in income levels especially in the
rural areas is likely to support growth of the consumer non-durables segment.
Gradual pick up in investment activity

Increased thrust of the government on infrastructure projects
Upbeat demand for Indian exports
However, high crude oil prices and rising interest

rates coupled with the high base of previous year
Savings rate to see a marginal uptick

A confluence of factors such as an uptick in consumer confidence, improving corporate profitability
and lower fiscal deficit is likely to have increased the
savings rate during FY11. Moreover, improvement
in value of physical as well as financial assets could
be in part responsible for the uptick in the savings
10
from 36.5% in FY10. Increase in investment rate is

expected to be supported by the following factors:
rate. D&B expects savings rate to increase to 34.3%

during FY11 as compared to 33.7% during FY10.
Continuing its upward march, the savings rate is
likely improve further to 35.0% during FY12.
Factors that would support the increase in savings
rate are:
Personal disposable income is expected to improve given the changes in personal income tax
slabs and the expected higher salaries
With improving consumption demand and

gradual uptick in economic activity the corporates are expected to expand their capacity
during FY12
c
.
s
r
Improving business optimism
Continued thrust on infrastructure development
e
p
Easy availability of fund from various sources

both internal and external, especially in the
second half
Improvement in consumer sentiment
a
p
Buoyant job markets, which could lead to higher

per capita income
Lower fiscal deficit implying reduction in government dis-savings
n
o
Elevated interest rates especially during the first half

might keep investment demand muted.
i
t
Elevated interest rates during FY12 might help

stimulate savings
s
e
Governments focus on financial inclusion coupled with increasing rural income levels is likely
to improve savings rate in the rural areas
u
q
Improving corporate profitability
c
s
p
n
t
.
Bank credit growth to remain

resilient
w
w
Investment rate expected to

improve though marginally in FY12
D&B expects investment rate to improve marginally to 37.0% in FY11 and further to 37.5% in FY12
After remaining muted during H1 FY11, the bank

credit growth gathered substantial momentum
during H2 FY11 and is expected to be around 23.3%
by end of FY11 as compared to 16.9% by end of FY10.
Improving domestic demand along with anticipated
higher future interest rates scenario might have
stimulated credit demand during latter part of FY11.
Moreover, the easing of tight liquidity conditions
11
m
o
visible during early FY11 could also have facilitated

higher credit disbursement by end of FY11. D&B
expects the momentum in the bank credit growth
to remain resilient for most part of FY12 and
witness gradual moderation by end FY12:
Demand for bank credit by industry to grow due
to improvement in production and investment
activity
increase slightly as an after effect of further monetary tightening by the RBI to rein in inflationary
pressures. Even deposit rates will continue its
upward march as bank seek to mobilise deposits growth, which has remained muted and much
below the credit growth.
s
r
Interest rate and Money supply
Rising income levels is likely to support

consumption of high-end consumer product and
demand for home loans
Variables
FY09
FY10 P FY11 E FY12 F
15-91 days 4.55

Treasury Bill
(yield)
3.93
5.75
5.50
10 Year G- 7.04
Sec (yield)
7.83
8.00
7.90
M3 (growth 19.30
Rate %)
16.8
16.5
15.50
e
p
a
p
Improving liquidity conditions and uptick in

deposits growth would support credit
disbursement by banks
n
o
c
.
i
t
Source: RBI & D&B India; P: Provisional; E: D&B estimates; F: D&B Forecast
Anticipated increase in interest rates during H1

FY12 is expected to have moderating impact on
growth of bank credit.
The pressures visible on the G-sec yield during most

part of FY11 are likely to recede and the 10-year
G-sec yield is expected to be around 8.0% by end
of FY11 supported by the easing liquidity conditions
and lower than budgeted fiscal deficit. Expected
high inflation and anticipated increase in policy rates
by the RBI are likely to weigh on the sentiment in the
G-sec market during Q1 FY12. Reduction in fiscal
deficit, which is budgeted at 4.6% of GDP, is likely
to provide some respite to the g-sec yields during
FY12. Moreover, with anticipated moderation in
inflation especially during the second half, g-sec yield
might witness some moderation. D&B expects the
G-sec yield to be around 7.9% by end of FY12.
Interest rates to remain elevated
Respite on the inflation front
D&B expects both lending and deposit rates to remain elevated during FY12. As the inflation becomes
broad based, D&B expects that the RBI would tighten the monetary policy stance further, with 25 basis
points hike in repo and reverse repo rates during
the Q1 FY12. The lending rates are expected to
D&B expects WPI inflation to moderate to

around 5.5% during FY12. Inflation, however, is
expected to remain elevated during H1 FY12.
s
e
u
q
c
s
p
n
t
.
w
w
International crude oil prices are expected to

remain high during this period thereby putting
12
m
o
Stress on external front to ease
upward pressure on domestic inflation. Assuming a normal monsoon, food article inflation is expected to normalise. Moreover, the crude oil prices
are likely to stabilise at current levels or recede
during the latter part of FY12. This is likely to
support the moderation in inflation during the course
of the year, though manufactured products inflation is
likely to remain high given that the higher input prices
might be passed on to the consumer as the demand
conditions improve. Also the lagged impact of expected tightening of monetary policy would help to
rein in the inflationary pressures during this period.
D&B expects exports to be around US$ 230.9 bn

in FY11, which is approximately US$ 52.2 bn higher than exports of US$ 178.7 bn in FY10, owing to
recovery in Indias key export markets and gradual
diversification to new markets by Indian exporters.
D&B expects exports to grow by around 19.8%
during FY12 as the global economic growth continues to stabilise.
c
.
s
r
e
p
Imports, on the other hand, are expected to be

around US$ 340 bn in FY11 an increase of around
18.5% compared to FY10. As consumption as well
as investment demand conditions in the Indian
economy improve imports are expected to improve
going forward. Imports are expected to grow by
around 21.1% during FY12, on account of sustained
improvement in economic activity as well as anticipated high commodity prices. D&B expects the
trade deficit to increase to US$ 135.1 bn in FY12, as
growth in imports is expected to be greater than
exports. With gradual increase in services exports
and improvement in private transfers, pressures on
current account front are likely to ease. The current account deficit would moderate to 2.5% of the
GDP during FY12.
a
p
n
o
i
t
s
e
u
q
c
s
Fiscal deficit to breach the target
p
n
D&B expects the fiscal deficit to be around 4.8%

during FY12 above the budgeted levels of 4.6%. We
believe that the revenue would fall short of the budgeted increase of 17.8%. Moreover, the recent roll
back of service tax levied on healthcare would further limit the revenue below the budgeted. Further,
the expenditure is expected to exceed the budgeted
levels given that the subsidy burden seems to have
been understated in current scenario of high crude
oil price and the expected implementation of the
food security bill.
t
.
w
w
13
m
o
Rupee to gain substantially

D&B forecasts the rupee value to be around
43.7/US$ by the end of FY12. The appreciation in
rupee in next fiscal would be on account of
expected increase in FII inflows as Indias economic activity continues to improve. An expected
depreciation in dollar value is also likely to support
rupee value going forward. Also, India-US interest
rate differential is likely to increase slightly and
might help the rupee to appreciate.
aggravation of ongoing geo-political tensions) could

stoke price pressures on crude oil. Moreover,
shocks in global oil prices could fan inflationary
pressure in the domestic economy and deteriorate
current account deficit, which again continues to
remain a major risk factor. Secondly, in the event
of poor monsoons, agricultural growth will be
impacted to a large extent. Apart from the
significant (and lagged) effect on industrial sector
performance, the monsoon effect could feed into
WPI figures through higher food and primary
articles prices.
c
.
s
r
e
p
a
p
On the external front, any untoward development regarding the European countries debt issues
could impede the global economic revival. These
concerns could lead to escalation of financial stress,
waning business and consumer confidence, and
volatility in the currency markets. Given Indias
growing integration with the global economy,
turbulence in global financial conditions could
adversely impact the economys growth momentum
through financial and trade channels.
n
o
i
t
s
e
u
q
Some concerns to growth:
c
s
In the current dynamic economic scenario

the risk to growth are many and varied. Our
prognosis of the overall economic scenario during
the next year should, therefore, be assessed with
due consideration to certain developments
domestic as well as global. The global economic crisis of 2008 and the nature of economic
recovery thereafter provide much evidence
that Indian economy cannot be insulated from
development in the world economy.
p
n
t
.
w
w
While the government has reiterated its commitment on fiscal consolidation by placing the fiscal
deficit target for FY12 at 4.6%, any spillovers on this
front could emerge as a major risk to growth. Moreover, with high crude oil prices, roll back of certain
taxes (service tax on healthcare) are likely to add to
the fiscal deficit going forward. Inability to limit the
fiscal deficit might put pressures on interest rates
thereby increasing the risk of crowding out of private investment.
One of the key concerns for growth is related

to inflation given the significant upside risks to
inflation are already visible. While the upside risks to
inflation outlook are expected to recede going
forward, any shocks to oil prices (in the event of
14
m
o
Sectoral Outlook 2011-12

Highlights of the Sectoral Outlook
Survey 2011-12
In a dynamic economic environment, gauging the
optimism of the business community also provides
an assessment of the overall growth prospects of
an economy. D&Bs Sectoral Outlook report is a
survey based analysis intended to provide
insights into the sentiments prevalent amongst the
corporate regarding their outlook of the business
environment in FY12. This section also highlights the
key issues and concerns that business leaders have
regarding future business prospects. The report
enunciates the growth drivers and strategic focus
of various sectors as perceived by the companies.
The report is intended to facilitate more informed
decisions by the businesses and also enable
investors to assess the degree of business confidence and potential for Indias economic growth.
Rising input prices is likely to remain a cause for

worry for companies; close to three-fourths (72%)
of the companies in the manufacturing sector anticipate input prices to continue their upward journey
during FY12. On profit expectations, among manufacturing sectors, capital goods and auto component
companies are the most optimistic, while textile
companies are the least optimistic.
c
.
s
r
c
s
Companies in the manufacturing sector have a

robust outlook on demand conditions in FY12; as
much as 88% of the manufacturing companies
surveyed expect sales volumes to increase, over
FY11. On the workforce front, majority of the
companies, both in the manufacturing and
services sectors, expect to witness an
increase during FY12. Among the manufacturing
sectors, companies in the capital goods and
automobile industries are the most optimistic,
with nearly 70% of the companies expecting an
increase in their employee count. Among the
services sectors, companies in the insurance
sector are most optimistic, with nearly 80% of
them expecting an expansion in their employee
strength in FY12.
p
n
t
.
w
w
e
p
a
p
Key Highlights:
For a majority of the surveyed companies (both manufacturing & services), risk
management would be the most important
strategy for FY12. This could be partly because
of heightened uncertainty and significant
downside risk to overall growth.
n
o
i
t
s
e
u
q
For auto component companies, rising

input costs would be the major challenge and
consequently, cost control would be the key
area of focus.
Nearly three-fourths of the metal companies
expect their selling prices to firm up in FY12.
They expect increased automobile production
to be among the major demand drivers.
Technology upgradation would be the key
focus area for a significant majority of textile
companies.
A substantial proportion of respondents from
the banking sector expect their NPA level to
remain above 3%.
Almost all the insurance companies surveyed
(96%) expect to sell higher number of policies
in FY12; with demand being mainly driven by
increase in income levels, favourable demographics and government initiatives.
15
m
o
IT-ITeS companies foresee higher attrition and

rising salary levels as the key challenges facing
the industry.
Rising real estate prices to be the key concern
area for retail companies.
The spiraling input prices have become a greater concern for companies this year. As much as
81% of the respondents fear that input prices
would rise in FY12; while a small 4% hope prices
to decline. The resultant Optimism for Input
Prices stands at 77%. In comparison, last year
companies were less worried; only 61% of the
survey respondents had anticipated input prices
to increase.
Auto Components
c
.
s
r
Key Highlights:
e
p
Robust outlook on demand; 92% companies

expect sales volumes to be higher than FY11.
a
p
Profit expectations more healthy; 79%

companies expect to earn higher net profits;
last year, 72% of the companies expected rise
in net profits.
Companies going slow on enhancing employee
count and on capital expenditure compared to
last year; Optimism for this year stands at 54%
and 51% for these indicators respectively, much
lower than last year (72% - number of employees and 66% - capital expenditure).
c
s
Performance Indicators:
Auto component companies have a robust

outlook for FY12, with 92% of the companies
expecting sales volumes to increase, over FY11,
and a negligible 1% anticipating fall in volumes.
The resultant Optimism for Volume of Sales
stands at 91%.
p
n
t
.
w
w
On the profit front also, as much as 79% of the

companies expect to earn higher net profits; only
4% of the respondents anticipate profits to fall.
The resultant optimism for Net Profits stands at
75%. In comparison, last year companies were
less optimistic on the net profit front, with 72%
of the companies expecting to earn higher net
profits during FY11.
n
o
i
t
s
e
u
q
Notwithstanding the rising market competition,

auto component companies are likely to hike
selling prices of their products, largely due to the
anticipated increase in input prices. A substantial
65% of the companies expect increase in selling prices in FY12, while another 5% anticipate
fall in selling prices. The resultant Optimism for
Selling Prices stands at 60%.
Despite the long term healthy prospects of the
industry, this year auto component companies
are going slow on expanding their employee
strength. About 57% of the survey respondents
expect to see an expansion in their employee
strength in FY12, while 3% of the companies
anticipate reduction in employee count. The
resultant Optimism for Employees stands at
54%. The outlook was a lot more encouraging
last year, when 72% of the survey respondents
expected increase in their employee count.
16
m
o
Even on the capital expenditure front, companies are being cautious. About 64% of the survey
respondents expect increase in their capex and
a considerable 13% anticipate their capex to be
lower than FY11. The resultant Optimism for
Capital Spending stands at 51%. In comparison, in FY11, 71% of the respondents expected
to witness increased capital expenditure.
m
o
c
.
s
r
Growth Drivers during FY12

Domestic demand for automobiles continues to be
the main factor driving the auto component industrys growth. With a score of 0.75, this parameter
received the highest ranking. Export orders received
the second highest ranking of 0.62; a significant 36%
of the survey respondents revealed that exports will
be a major growth driver in FY12.
a
p
Strategic Focus
Considering the key issues faced by the industry,

cost control and risk management have emerged as
the key strategic focus areas for auto component
companies during FY12. Around 71% of the respondents revealed that cost control programmes will
be the major thrust area, while 41% considered risk
management to be the major strategic focus area
for FY12.
n
o
i
t
s
e
u
q
e
p
c
s
p
n
t
.
Issues & Challenges during FY12
w
w
Profit margins of the industry continue to remain

under pressure, mainly due to rising input costs.
Consequently, the industry anticipates rising costs
of inputs and power to be the key challenges in
FY12. Rising raw material costs received the highest
ranking of 0.76; 53% of the respondents feel that
raw material costs will be the major challenge facing
the industry.
17
Automobile
Key Highlights:
m
o
Demand expectations upbeat, with 88%

companies expecting increase in sales volume in
FY12, but lower compared to last year (96%).
c
.
Industry anticipates input prices to continue

upward spiral in FY12.
s
r
Rising per capita income and new model launches

to be the key factors to drive demand in FY12.
e
p
Increasing fuel prices to be the biggest challenge

for companies.
Driven by higher sales volumes and to a certain

extent by increased selling prices, 73% of the
companies expect to earn higher net profits in
FY12; only 4% anticipate a decline in net profits.
The resultant Optimism for Net Profits stands
at 69%.
a
p
Expanding sales/distribution network will be the

key strategic focus area for companies.
Automobile
companies
expect
demand
to be higher in FY12. About 88% of the
respondents anticipate sales volumes to increase
over FY11, while none expect to witness a fall in
volumes. The resultant Optimism for Volume of
Sales stands at 88%. In comparison, last year
companies had a more robust outlook, with the
Optimism for Volume of Sales standing at a
whopping 96%.
c
s
p
n
On the input front, 88% of the companies expect

prices to continue their upward journey in FY12,
while the remaining anticipate prices to remain
stable. However, given the stiffening competition, only about 54% of the respondents expect
selling prices to increase. In fact, a substantial
42% of the sample expects to see no change
in selling prices. With just 4% of the sample
expecting a decrease in selling prices, the
resultant Optimism for Selling Prices stands
at 50%.
t
.
w
w
Given the healthy demand outlook, nearly threefourth (73%) of the companies are likely to
increase capital expenditure, while 8% of
the companies expect to reduce their capital
spending. The resultant Optimism for Capital
Spending stands at 65%.
i
t
s
e
u
q
n
o
On the employment front, unlike last year

when 81% of the respondents expected their
employee strength to increase, this year only
69% of the companies expect expansion in their
employee count. A considerable 27% of the
respondents see no change in their employee
strength this year, while a marginal 4% expect
to witness a decline. The resultant Optimism for
Employees stands at 65%.

Rising per capita income and launch of new vehicle
models are expected to be the chief factors that
would drive the industrys growth in FY12. With
a score of 0.76, these two factors have received
the highest ranking among the key growth drivers.
Availability and cost of credit would be the other
major demand drivers.
18
risk management and cost control would be the

other important strategies to be adopted in FY12.
m
o
c
.
s
r
e
p

Auto companies anticipate rising fuel prices to be
the single biggest challenge facing the industry in
FY12. Nearly 77% of the respondents confirmed
this and this factor received the highest ranking with
a score of 0.90. Rising market competition and hardening interest rates are viewed as the other major
challenges for the sector.
a
p
i
t
s
e
u
q
c
s
p
n
t
.
Key Highlights:
Higher optimism regarding the volume of sales
parameter reflects anticipation of improving
investment activity.
High optimism regarding selling prices might have
supported higher profit expectations.
High input costs continue to remain a major
challenge for capital goods manufacturers.
Risk management expected to be the most
important strategic focus in FY12.
Strategic Focus
w
w
n
o
Capital Goods
With increasing marketing competition, which is

likely to be further fuelled by the likely roll out of
more new vehicle models, increasing penetration
has assumed greater significance. Consequently,
expanding sales/distribution network has emerged
as the main focus of auto companies for FY12. It received the highest ranking with a score of 0.90. Due
to the dynamic business environment in which the
companies operate, coupled with rising input costs,
With continued thrust on infrastructure developments and expected improvement in the private
corporate investment, the respondents from the
capital goods sector are bullish about demand
prospects in the forthcoming fiscal. As many as
92% of the respondents in the capital goods
sector expect sales volume to increase while
only 1% expect a decline in sales. The resultant
Optimism for Volume of Sales stands at 91%,
almost an 11 percentage point increase
compared to the last fiscal.
19
Profit expectations among the capital goods sector gathered strength with as many as 84% of
the respondents expecting an increase in their
net profits during FY12. While about 7% of the
respondents are anticipating a fall in net profits,
another 9% of the respondents are expecting no change in net profits during FY12. The
resultant Optimism for Net Profits stands at
77%, much higher compared to 63% during
FY11. Anticipation regarding increasing the
selling prices is likely to have imparted optimism
regarding improving profitability.
It has been observed that a huge majority (71%)
of respondents expect input prices to go up in
FY12. While about 15% of the respondents
expect no change in input prices, just 14%
expect a decline in input prices. The resultant
Optimism for Input Prices stands at 57% almost same as compared to FY11 level of 58%.
m
o
c
.
s
r
e
p
Approximately 70% of the respondents expect

capital spending to increase during FY12 while
just 18% expect a decline in capital spending.
The resultant Optimism for Capital Spending
stands at 52%.
a
p
u
q
c
s
Employment scenario is expected to remain

upbeat with majority (68%) of respondents
intending to increase the number of employees
in FY11 and only 4% expect to see a fall in their
number of employees. The resultant Optimism for
Employees stands at 64%.
i
t
s
e
Expectation regarding improvement in demand

conditions is reflected in the pricing power. A
large number of respondents (64%) expect
selling prices of their products to go up while
about 31% of the respondents anticipate no
change in the selling prices. The resultant
Optimism for Selling Prices stands at 59% much higher compared to 48% during FY11.
n
o
p
n
The uncertainty in the macroeconomic environment might have imparted some cautiousness
amongst the respondents regarding their order
book position. Optimism on the New Orders
parameter is relatively low compared to the last
fiscal. While around 84% of the respondents
expect an improvement in their order book
position, 7% of the respondents surveyed
expect to witness a decline in new orders
placed. Remaining 9% expect no change in their
order book position. The resultant Optimism for
New Orders stands at 77% - a decrease of 10
percentage points compared to FY11.
t
.
w
w
While expected improvement in investment scenario seemed to inspire confidence of the capital goods
sector, the cost pressures associated with rising
commodity prices was palpable amongst the survey
20
Infrastructure spending by the government and

the growing housing demand to be the major
growth driver during the forthcoming year.
respondents. High input costs continued to remain

a major challenge for the sector, with a ranking of
0.77. Duty free imports of capital goods and delay in
project execution were considered to be the other
major challenges by the survey respondents.
Strategic Focus
Most important strategic focus for the sector in

FY12 would be risk Management.
c
.
s
r
The cement manufacturers are optimistic about

future demand conditions with 82% of the respondents expecting sales volume to grow during
FY12. However, the optimism is lower as compared to last fiscal when 94% of the respondents
were anticipating improvement in demand conditions. Around 18% respondents expect to see
no change in volumes. Interestingly, none of the
respondents feel that there will be any decrease
in the volume of sales during FY12. The resultant
Optimism for Volume of Sales stands at 82%.
e
p
a
p
n
o
i
t
s
e
With significant volatility in the financial markets,

sudden spike in the international crude oil prices, et
al, risk management continues to be the top most
agenda of strategic planning of the companies from
the sector. About 54% of the respondents from
the capital goods sector were of the opinion that
risk management would be their most important
strategic focus in FY12 and another 39% rated it
to be an important strategic focus. With a score
of 0.74, this factor has gained the highest ranking
amongst the other factors.
u
q
c
s
p
n
t
.
w
wCement
Key Highlights:
While cement manufacturers expect demand
condition to be robust, their profit expectations
remains muted.
Majority of the respondents expect the Capital
spending to increase.
Despite of expected improvement in sales the

respondents are comparatively less optimistic
about net profit growth. Only 69% respondents
expect their net profit to go up in FY12 much
lower compared to 86% respondents last year.
The rising input cost which is a major challenge
faced by the players could be attributed to lower
growth expectations of net profit. The resultant
Optimism for Net Profits stands at 65%.
Majority of the respondents (73%) anticipate
input prices to witness an upward movement in
FY12 this is much higher than the previous year
(over 90%) when only 38% respondents said
that input prices will go up. The resultant Optimism for Input Prices stands at 61%.
The optimism for selling prices is however higher
with only 4% of the respondents anticipating a
decline in selling prices during FY12. While as
many as 77% of the respondents anticipate sell-
21
m
o
ing price of their products to increase. The resultant Optimism for Selling Prices stands at
73%.
With anticipated surge in infrastructure spending and increase in demand for real estate, the
cement sector seems highly optimistic regarding
their order book position. Around 76% of the
respondents from the cement sector expect an
increase in new orders received. However, this
expectation is considerably low as compared to
last year when around 94% respondents had
said that they expect the order book position
to increase. The resultant Optimism for New
Orders stands at 76%.
Governments increased focus on infrastructure sector will be the most important growth driver for the
cement sector in FY12. Around 65% respondents
feel that infrastructure spending by the Government
will be the major growth driver and another 25%
believed it to be a moderate growth driver. Infrastructure spending by the government has received
the highest ranking with a score of 0.83. Growing
housing demand was ranked as the second highest
growth driver with a score of 0.80.
Driven by the anticipated surge in infrastructure

spending, cement companies are likely to step up
capital expenditure, with close to 59% of the respondents expecting an increase in capital spending in FY12. However, around 29% respondents
expect that there will be no change in their capital expenditure in FY12. The resultant Optimism
for Capital Spending stands at 47%.
c
.
s
r
e
p
a
p
n
o
i
t
s
e
u
q
c
s
The cement sector does not anticipate any expansion in work force during FY12. Around 51%
of the respondents intend to keep the number of
employees unchanged. The resultant Optimism
for Employees stands at 45%.
p
n
Respondents from the cement sector consider high

input prices to be a major challenge in FY12 with
the highest score of 0.86. Around 72% respondents
believe elevated prices especially of coal to be a
major concern during FY12.
t
.
w
w
22
m
o
Strategic Focus
The recent financial crisis has forced firms to revisit

their focus areas. About 71% of the respondents
from the cement sector were of the opinion that risk
management would be their most important strategic focus in FY12. With a score of 0.80, this factor
has gained the highest ranking amongst the other
factors. Further, modernisation and geographical
diversification were other major focus areas for
FY12 with a score of 0.65 and 0.62 respectively.
With around 90% of the respondents expecting

the volume of sales to increase during FY12, the
demand conditions in the metal sector remain
bullish. While around 1% respondents expect it
to decrease, 9% respondents expect it to remain
unchanged in FY12. The resultant Optimism for
Volume of Sales stands at 89%.
c
.
s
r
The metal industry appears to be optimistic regarding profits with as many as 77% of the respondents expecting net profit to increase during
FY12. However, the optimism is lower as compared to last fiscal when 85% of the respondents were anticipating an increase in net profits.
While 16% respondents expect no change in net
profit levels, around 7% respondents expect the
net profits to decrease in FY12. The resultant
Optimism for Net Profits stands at 70%.
e
p
a
p
n
o
i
t
s
e
Metals1
u
q
c
s
Key Highlights:
As many as 90% respondents expect the volume

of sales to go up in FY12.
p
n
The metal sector is highly optimistic on the

New Orders parameter.
t
.
Government spending on infrastructure

expected to drive the metal sector growth.
w
w
High transportation and power cost anticipated

to be the major challenges for the metal sector.
Majority of the respondents consider risk management as their strategic focus area in FY12.
The metal sectors optimism for new order is

relatively down as compared to last year. Around
86% respondents expect the new orders to
increase in FY12 - lower than previous year
when around 91% respondents expected
new orders to go up. While 3% respondents
expect the new orders to decrease, around 11%
expect no change in the new orders. The resultant
Optimism for New Orders stands at 83%.
The recent spike in prices of inputs for the
metal sector is likely to have resulted in lesser
optimism regarding this parameter with as many
as 42% of the respondents expecting either
input prices to remain unchanged or decline.
However, a majority of respondents (58%)
do expect the input prices to go up in FY12.
Nonetheless, this is much lower than FY11 when
as many as 91% respondents expected the input prices to go up. The resultant Optimism for
Input Prices stands at 46%.
1 - Majority of the respondents belong to Aluminium and Steel sectors
23
m
o
As many as 72% of the respondents from the

metal sector anticipate an increase in selling
prices of their products while about 26%
respondents anticipate no change in the selling prices. The resultant Optimism for Selling
Prices stands at 71%.
with a score of 0.61.
m
o
c
.
With 48% of the respondents expecting an

increase in the number of employees and an equal
number of respondents expecting no change,
the resultant Optimism for the Employees
stands at 44%.
The optimism of the metal sector about capital spending is much lower as compared to the
previous year. Only about 64% respondents in
the metal sector feel that capital spending will go
up in FY12 as oppose to 72% in previous year.
While 22% respondents feel that there will be no
change in capital spending a considerable number of respondents (14%) expect it to decline
in FY12. The resultant Optimism for Capital
Spending in the metal sector stands at 50%.
s
r
e
p
a
p
c
s
p
n
n
o
i
t
s
e
u
q
Most of the metal plants in India are located away

from the mines due to which the ore has to be
shipped to these plants either by road or by rail.
This makes the metal sector highly susceptible to
transportation costs. In addition to this, poor state
of infrastructure in the country also affects the metal makers while carrying its finished goods for sale.
Further, the high cost of power and its inadequate
supply remains an issue in the country. As a result,
high transportation and power costs with a score of
0.88 are considered to be the major challenges for
FY12. This is closely followed by raw material price
which has a score of 0.85.
t
.
w
w

With the governments continued focus on
infrastructure sector, infrastructure spending by the
government with a higher score of 0.69 has been
considered by the respondents in the metal sector
as the major growth driver. Increase in automobiles
production is a second in terms of growth driver
Strategic Focus
The recent uncertainty in the economic environ-
24
ment has highlighted the need for risk mitigation.

As a result risk management remains the key strategic focus for the metal sector in FY12 with a score of
0.78. This is closely followed by modernisation with
a score of 0.57.
A significant number of respondents in the textile

sector are optimistic about the demand conditions in FY12. About 84% of the respondents
expect the sales volume to go up in FY12. While
around 12% expect no change in the volume
of sales, around 4% expect it to decline. The
resultant Optimism for Volume of Sales stands
at 80%.
c
.
s
r
e
p
Though the companies are optimistic about the

demand conditions, the level of optimism concerning net profits remains subdued as compared
to previous year. Only 66% respondents expect
their net profit to increase in FY12 as compared
to FY11 when as many as 82% respondents
expected the net profit to go up. While 27%
respondents said that net profits will remain
unchanged, around 7% respondents expect it
to decrease. The resultant Optimism for Net
Profits stands at 59%.
a
p
n
o
i
t
Textiles
s
e
Key Highlights:
Demand for the textile sector expected to

improve substantially.
u
q
Profit expectations considerably down with only

66% respondents expecting profits to increase
as compared to 82% last year.
c
s
p
n
Rising income levels is considered to be a major

growth driver for FY12.
t
.
High input costs a major challenge to be faced by

the players in the textile sector during FY12.
w
w
With the revival in global markets, technology

upgradation has become the most important
strategic focus for FY12 in order to combat
competition in the global market as compared to
the last years focus on penetrating the domestic
market.
The level of optimism regarding new orders

is not very high in the textile sector with only
68% respondents expecting an increase in this
parameter in FY12 as compared to 89% last
year. Around 25% expect new orders to remain
unchanged, while 7% expect it to decrease. The
resultant Optimism for New Orders stands at
61%.
About 61% of the respondents from the textile
sector anticipate selling prices of their products
to increase, while about 30% expect no change
in the selling price, around 10% expect it to
decline. The resultant Optimism for Selling
Prices stands at 51%.
25
m
o
m
o
c
.
s
r
e
p
The respondents in the textile sector are very

optimistic about the hiring scenario in the sector.
Around 53% of respondents expect the number
of employees to increase in FY12 as compared
to only 47% in the previous year. The resultant
Optimism for Employees stands at 47%.
The respondents in the textile sector are upbeat
about capital spending with around 62% expecting the capital spending to increase in FY12 as
compared to only 50% previous year. While 29%
expect the capital spending to remain unchanged,
around 9% expect it to go down in FY12. The resultant Optimism for Capital Spending stands
at 53%.
a
p
n
o
i
t
s
e
u
q
With rapidly mounting inflationary pressures,

high input costs continue to dominate the challenges faced by the textile sector. With a score of
0.81, around 65% respondents consider it to be a
major challenge in FY12. Further, high transportation cost comes a close second with a score of 0.67.
The export oriented nature of the industry makes
it vulnerable to global developments and therefore,
exchange rate volatility is considered to be the third
major challenge with a score of 0.66.
c
s
p
n

As many as 44% respondents from the textile sector
consider rising income levels to be a major growth
driver for FY12. With a score of 0.71, this factor has
gained the highest ranking amongst the other factors. The textile sector is highly export driven and
considering that the world markets are seeing improvement in their economic scenario, recovery in
global demand conditions is considered to be the
second most important growth driver with a score
of 0.69.
t
.
w
w
Strategic Focus
The Indian textile industry is highly depended
on exports. Post quota regime, under the Multi
Fibre
Agreement,
technology
upgradation
remains the top strategic focus of the textile sector in
order to maintain its competitiveness in the global
market. Against this backdrop, as many as 66% of the
26
respondents from the textile sector believe that

technology upgradation should be a key strategic focus in FY12. With a score of 0.81 this factor
has gained the highest ranking amongst the other
factors. Further, the recent slowdown has
reinforced the importance of good risk
management practices. Around 62% respondents
said that risk management is an important strategic focus for FY12. With a score of 0.77 this factor
has gained the second highest ranking amongst the
other factors.
A substantial proportion of players in the construction sector are optimistic of their prospects
in FY12. About 69% of the respondents expect
revenues to shore up. While a considerable 18%
expect revenue growth to remain flat over FY11,
13% of the sample companies fear that revenues
may witness a decline. The resultant Optimism
for Gross Revenues stands at 56%.
c
.
s
r
e
p
The construction industry is pessimistic on the

input price front, with nearly 72% of the sample
companies anticipating raw material prices to
continue upward journey in FY12. Only a small
percentage of respondents (13%) expect input
prices to be lower, while another 15% expect
prices to remain at the same levels as FY11.
The resultant Optimism for Input Prices stands
at 59%.
a
p
n
o
i
t
s
e
Construction
u
q
c
s
Key Highlights:
p
n
Construction sector expects revenues to shore

up in FY12 as it expects prices to be higher as
compared to FY11.
t
.
Domestic demand conditions and

urbanisation will be key demand drivers.
Construction companies are upbeat on prices for FY12, with 65% of them anticipating
prices to be higher as compared to FY11. While a
considerable 26% of the respondents expect
prices to remain at the same level as FY11,
another 9% expect them to decrease. The
resultant Optimism for Selling Prices stands
at 56%.
rapid
w
w
Rising prices of raw materials and increasing fuel/

transportation costs will be the most critical
challenges.
Risk management will be the key area of focus of
companies.
On the profit front, a significant 78% of the
respondents expect net profits to increase in
27
m
o
FY12, although about 18% expect profits to

remain unchanged. A small proportion of
respondents (4%) anticipate decline in net
profits. The resultant Optimism for Net Profits
stands at 74%.
Construction companies continue to grapple with

the challenge of increasing commodity prices. For
FY12 also, the industry expects rising raw material prices to be the most critical challenge. The industry also expects rising fuel/transportation costs
to be another major challenge facing the industry.
Rising market competition and financing of business operations have emerged as the other major
anticipated challenges for FY12.
Approximately 62% of the respondents

expect capital spending to increase during FY12
while just 10% expect a decline in their capital
expenditure. The resultant Optimism for
Capital Spending stands at 52%.
c
.
s
r
e
p
The survey revealed an encouraging outlook

on the workforce front. About 79% of the respondents expect to see an expansion in their
employee strength. While a small share of 6% of
the sample expect their staff strength to come
down in FY12, about 14% see no change on this
front. The resultant Optimism for Employees
stands at 73%.
u
q
The survey respondents expect demand conditions

in the domestic market and rapid urbanisation to
be the key factors which would drive growth in the
construction industry in FY12. With a score of 0.77
and 0.72 respectively, these two demand drivers
have received the highest rankings among the major
industry growth drivers for FY12.
c
s
p
n
t
.
w
w
a
p
n
o
i
t
s
e
Strategic Focus
For construction companies, risk management
would be the key strategic focus in FY12, with as
much as 77% of the respondents confirming this
trend. It had the highest ranking among various key
strategies, with a score of 0.87. Diversification of
revenue stream/business, geographical expansion
and technology upgradation will be amongst other
major focus areas for the sector.
28
m
o
Banking
Key Highlights:
The survey reveals that about 62% of the

respondents expect lending rate to increase,
while 32% of the respondents expect lending
rate to remain unchanged. The resultant Optimism for Lending Rate stands at 56%.
Credit off take anticipated to increase

substantially with 80% of the respondent anticipating the bank credit to increase during FY12 as
compared to 76% during FY11.
c
.
With around 78% of the respondents expecting

an increase in Low Cost Deposits, the resultant
Optimism for Low Cost Deposits has increased
as compared to the last year and stands at 74%.
However only 4% respondent expects the Low
Cost Deposit to decrease in FY12. Apart from
this, about 18% of the respondents expect no
change in the low cost deposits.
s
r
Majority of the respondents expect their NPAs

to remain above 3% in FY12.
e
p
Competitive environment tops amongst the list

of major challenges in FY12.
a
p
Managing the risk rated as key strategic focus

area for the banking sector.
s
e
c
s
p
n
t
.
The better economic growth prospects for FY12

as well as decline in the risk aversion on the part
of banks seem to have led almost 80% of the
respondents from the banking sector to expect
an increase in credit off take. The resultant Optimism for Credit Off take stands at 76%.
w
w
The positive aspect of the expected rise in credit

off take is that the number of SMEs financed is
expected to increase in FY12 as per 60% of the
respondents. The resultant Optimism for SMEs
Financed stands at 58%. About 38% of the respondents expect no change in the total number
of SME financing.
n
o
i
t
u
q
With the expected improvement in the financial

performance of the banking sector, about 66%
of the respondents expect a rise in the number
of branches. The resultant Optimism for the
Number of Branches stands at 66%.
The total number of employees is also expected
to increase as per 54% of the respondents. However, with 14% of the respondents anticipating
decline in number of employees and 32% of the
respondents expecting the number of employees
to remain unchanged, the resultant Optimism for
Employees stands low at 40%.
With around 92% of the respondents from

the banking sector expecting Net Profit to
increase, the resultant Optimism for Net
Profits stands at 92%. This is indicative of further
improvement in the balance sheets of the
banking sector in FY12.
29
m
o
Gross NPA Level
standard provisioning norms for NPAs as the major

challenge. In addition, maintaining minimum capital
adequacy ratio has scored 0.49 with only 20% of
the respondents from the banking sector considering it as a major challenge they could face in FY12.
c
.
Strategic Focus
a
p
u
q
c
s
p
n
t
.
n
o
i
t
s
e
s
r
e
p
The survey result reveals that as many as 36% of

the respondents expect their Gross NPAs to remain
above 3% in FY12. This is due to large number of
co-operative banks involved in the survey. On the
other hand only 14% of the respondent expects
their gross NPA to remain below 1%.
Source: D&B Research
With regards to the strategic focus, around 70%

of the respondents believed risk management and
development of new products to be the leading
strategic focus. These factors received a score of
0.84 and 0.83 respectively. On the other hand joint
ventures and mergers and acquisitions had scored
the least with only 0.48 and 0.29 respectively with
only 16% of the respondent rated mergers and
acquisitions as their major strategic focus for FY12.
w
w
A significant number of respondents from the banking sector considered increase in competition to be
a major challenge during FY12. Around 56% of the
respondents have rated the competitive environment as the major challenge taking the score for this
parameter to 0.79. RBI issuing new banking licenses
can be a reason for the increase in competition.
Further, despite the expected high level of NPAs,
only 22% of the respondents consider maintaining
30
m
o
Insurance
Key Highlights:
m
o
Majority of the companies expect to sell higher

number of policies (96%) and earn higher net
profits (84%) in FY12; however, optimism is
lower when compared to last year when all respondents expected to sell higher number of
policies and earn higher net profits.
c
.
s
r
e
p
Increase in income levels expected to be key

growth driver in FY12.
Risk management and network expansion would

be the key strategic focus areas in FY12.
Increase in income levels has emerged as the

strongest factor that will drive the industry in FY12,
followed by favourable demographics and government initiatives. Interestingly, urbanisation, which
had received the highest score in last years survey,
has received the lowest score this year.
a
p
Maintaining profit margins and rising competition

will be the major challenges the industry expects
to face in FY12.
n
o
i
t
s
e
Companies in the insurance sector are optimistic

about their prospects for FY12, as measured by
the following parameters: net profits, first year
premium, number of policies issued, number of
employees and number of agents.
u
q
c
s
About 84% of the respondents expect net profits

to increase, while a considerable 12% anticipate
a decline in net profits. The resultant Optimism
for Net Profits stands at 72%. Companies
were more optimistic last year, when all the
respondents indicated net profits to increase
over FY10.
p
n
t
.
w
w
Nearly 92% of the companies expect first year

premium to increase and 96% expect to sell
more policies than last year. In comparison, in
last years survey, all the respondents expected
increase in first year premium and number of
policies sold.

Maintaining profit margins and rising competition
are likely to be the major challenges the industry
anticipates in FY12. Surprisingly, shortage of skilled
manpower, which was rated as the second biggest
challenge in last years survey, has received lowest
score in the current survey.
31
Optimism about capital spending higher than the

previous year.
m
o
Higher labour attrition & rising salary levels

considered to be the major challenges.
c
.
Foraying into niche service lines to be the major

strategic focus in FY12.
e
p
Strategic Focus
Risk management would continue to be the key
area of focus for insurance companies, with 92%
of the respondents confirming this trend. Network
expansion and entering new geographies would be
the other strategic areas to be focused on by the
insurance companies in FY12.
c
s
p
n
t
.
IT-ITeS
w
w
Key Highlights:
Whopping 94% respondents in IT/ITeS sector
expect the volume of sales to go up in FY12.
The IT/ITeS sector is highly optimistic about the
demand conditions in FY12.
The expectation about the net profit is substantially down compared to the last year.
The IT/ITeS sector is highly optimistic about the

demand conditions with 94% respondents expecting the volume of sales to increase in FY12.
While only 1% respondents expect the sales volume to go down, around 5% expect it to remain
unchanged. The resultant Optimism for Volume
of Sales stands at 93%.
a
p
n
o
i
t
s
e
u
q
s
r
The optimism for new orders in the IT/ITeS sector is considerably down as compared to the last
year. Only around 90% respondents expect the
new orders to increase as compared to a whopping 99% the previous year. The resultant Optimism for New Orders stands at 89%.
The expectation about the net profit is substantially down compared to the last year. Only about
77% respondents expect the net profit to go
up as compared to 96% respondents last year.
While only around 1% expect it to decrease, as
much as 22% expect the net profits to remain
unchanged. The resultant Optimism for Net
Profits stands at 76%.
Around 63% respondents expect the selling
price to go up in FY12. While only 5% respondents expect it to decline, as many as 32% respondents feel that there will be no change in the
selling price. The resultant Optimism for Selling
Price stands at 58%.
The respondents in the IT/ITeS sector are quite
upbeat about the capital spending. Around 68%
32
Strategic Focus
expect the capital spending to go up in FY12,

this is higher than the last year when only 50%
expected it to increase. The resultant Optimism
for Capital Spending stands at 64%.
As the IT/ITeS industry matures, the companies are

planning to explore new opportunities and move
from standardised activities to more niche and vertical specific opportunities. Against this backdrop,
focusing on niche service line is the major strategic
focus for most of the players in the IT/ITeS sector in
FY12. With a score of 0.77 this factor has gained the
highest ranking amongst the other factors. Consolidating business with repeat client and win newer
clients came a close second with a score of 0.74.
c
.
m
o
s
r
e
p
a
p

IT/ITeS is a dynamic sector with plenty of new job
opportunities fuelling high attrition in the sector.
Similarly, companies have to pay premium for specialised skills and have to constantly align pay packages to the market conditions. As a result, higher labour attrition & rising salary levels are considered to
be the major challenges with a score of 0.78. Other
outsourcing destinations are trying to capture the
IT/ITeS outsourcing market with their strengths like
language skills, low labour cost, and proximity to
outsourcing countries. In the wake of these growing
low cost competitors, the increasing competition
from emerging markets with a score of 0.71 is the
second major issue anticipated by the sector.
n
o
i
t
s
e
u
q
c
s
p
n
t
.
w
w
Retail
Key Highlights:
Consumption demand expected to be much
higher than the previous year (81%) with as
many as 94% of the respondents anticipating an
increase in the volume of sales during FY12.
Growing number of young working-group
population remains a major growth driver for the
retail sector for FY12.
Real estate prices considered as a major

challenge in FY12 for the retail sector.
Customer service remains the key strategic focus
for the retail sector during FY12.
33
Majority of the survey respondents in the retail
sector are bullish regarding the demand conditions during FY12. A massive 94% of the respondents expect the volume of sales to increase during FY12 much higher than previous year when
only 81% expected the sales to increase. While
only 6% expect that there will be no change in
volume of sale, none of the respondents feel that
the sales will decline. The resultant Optimism for
Volume of Sales stands at 94%.
that the number of employees will decrease. The

resultant Optimism for the Employees stands at
63%.
c
.
s
r
e
p
a
p
The respondents from retail sector are extremely positive about net profits. As many as
84% respondents feel that net profits will go up
in FY12. While only 2% expect it to decrease,
around 14% expect it to remain unchanged. The
resultant Optimism for the Net Profits stands
at 82%.
Growth Driver during FY12
u
q
n
o
Growing number of young working-group population seems to be the major growth driver for FY12
for the retail sector with a score of 0.90. Changing
lifestyle (0.82) and rising income level (0.81) have
also been considered by the players as other major
growth drivers for the sector
i
t
s
e
The sector seems extremely optimistic regarding

improvement in demand conditions as indicated
by the average footfalls/day indicator. Around
65% of the respondents expect the average
footfall per day to go up in FY12. Interestingly,
none of the respondents expect the footfall to
decrease in FY12. The resultant Optimism for
the Average Footfalls/day stands at 65%.
c
s
p
n
The survey indicates that a huge majority (78%)

of respondents from retail sector expect input
prices to go up in FY12. While about 22% of the
respondents expect no change in input prices
none of the respondents expect it to decline.
The resultant Optimism for Input Prices stands
at 78%.
FY12 is likely to bring cheer for job seekers in the

retail sector as a large majority of the respondents
(69%) foresee an increase in headcount. While
25% respondents feel there will be no change in
number of employees, only 6% respondents feel
For majority of the respondents (63%) in retail

sector, real estate prices with a score of 0.82 tops
amongst the list of major challenges for FY12. Availability of manpower and rising cost of power comes
a close second with a score of 0.78 each.
t
.
w
w
34
m
o
m
o
c
.
s
r
e
p
Strategic Focus
Customer service would be the most important
strategic focus in FY12 for whopping 96% respondents in retail sector. With a score of 0.98, customer
service has received the highest ranking among the
other alternatives followed by cost management
(0.87) and technology upgradation (0.75).
a
p
n
o
i
t
s
e
u
q
c
s
p
n
t
.
w
w
35
D&B's Key Macroeconomic Forecast

Variables
2005-06
Nominal GDP (` Bn)

Nominal GDP Growth (YOY%)
Real GDP (RS Bn)
Real GDP Growth (YOY%)
Population (Mn)
GDP Per Capita ` (at constant price)
Agriculture (` Bn)
Agriculture Growth (YOY%)
Industry (` Bn)
Industry Growth (YOY%)
Services (` Bn)
Services Growth (YOY%)
Sectoral Share (%)
Agriculture
Industry
Services
Index of Industrial Production (YOY%)
Private Fixed Consumption
Expenditure (PFCE) Real (YOY%)
Savings % to GDP
Investment Rate % to GDP
WPI- All Commodities
WPI-Manufactured Products
CPI-IW
t
.
w
w
Exchange Rate (USD/INR) (End Period)

Exchange Rate (USD/INR)
(Average)
Exports (US $ Bn)
Exports Growth (YOY%)
Imports (US $ Bn)
Imports Growth (YOY%)
Trade Balance (US $ Bn)
Current Account Balance % of GDP
Fiscal Deficit
2009-10
52821
15.3
41625
6.8
1154
36070
6541
-0.1
11689
4.4
23395
10.1
61332
16.1
44937
8.0
1170
38408
6570
0.4
12620
8.0
25748
10.1
72065
17.5
48757
8.5
1186
41101
6898
5
13642
8.1
28219
9.6
15.7
28.1
56.2
3.2
14.6
28.1
57.3
10.5
14.1
28.0
57.9
7.7
13.5
28.0
58.5
9.0
7.6
7.4
8.2
8.3
33.5
34.6
36.9
32.2
34.7
35.7
38.1
34.5
Inflation Rate (Average; %)
4.4
6.5
4.8
8.0
2.3
5.6
4.9
6.1
4.4
6.7
6.2
9.1
Monetary (End Period)
6.10
7.56
7.00
4.55
7.53
7.94
7.64
7.04
21.1
21.7
21.4
19.3
37.0
28.1
22.3
17.5
External Sector
44.61
43.60
39.99
50.95
33.7
36.5
34.3
37.0
35.0
37.5
3.6
1.8
12.4
9.1
5.6
10.5
5.5
5.6
6.9
3.93
7.83
16.8
16.9
5.75
8.00
16.5
23.3
5.50
7.90
15.5
22.5
45.14
44.65
43.70
44.27
18.3
28.0
53.8
7.9
17.4
28.6
54.0
11.9
8.5
16.8
28.7
54.5
8.7
9.1
u
q
103.1
23.4
149.2
33.8
-46.08
-1.19
4.0
s
r
45.92
47.42
45.58
43.75
126.4
162.9
22.6
28.9
185.7
251.4
24.5
35.4
-59.32
-88.54
-1.01
-1.27
Public Finance
3.3
2.6
185.3
13.7
303.7
20.8
-118.40
-2.30
178.7
-3.6
286.8
-5.6
-108.16
-2.78
230.9
29.2
340.2
18.5
-109.3
-2.7
276.7
19.8
411.8
21.1
-135.1
-2.5
6.1
6.4
5.1
4.8
Note: E - D&B Estimates; F - D&B Forecast
36
c
.
82155
14
53048
8.8
1203
44105
7181
4.1
14835
8.7
31023
9.9
40.24
45.28
m
o
2010-11(E) 2011-12 (F)
e
p
a
p
n
o
i
t
s
e
8.4
c
s
p
n
15-91 days Treasury Bill (Yield)

10 Year G-Sec (Yield)
M3 Growth (YOY%)
Bank Credit Growth (YOY%)
2008-09
33896
14.1
32542
9.5
1106
29423
5945
5.1
9104
9.7
17493
11.0
2006-07
2007-08
Real Sector
39522
45814
16.6
15.9
35660
38990
9.6
9.3
1122
1138
31783
34261
6192
6551
4.2
5.8
10212
11199
12.2
9.7
19257
21240
10.1
10.3
m
o
c
.
s
r
e
p
a
p
n
o
i
t
s
e
u
q
c
s
p
n
t
.
w
w
Dun & Bradstreet Information Services India Pvt. Ltd.
ICC Chambers II, 2 Floor, Near Saki Vihar Telephone Exchange, Saki Vihar Road, Powai, Mumbai - 400 072.
Tel: +91 22 6680 1300 Fax: +91 22 2847 6282 Email: d&bindiaoutlook@mail.dnb.co.in
DISCLAIMER:
This Report is strictly for private circulation to the addressees only and not for re-circulation. Any form of circulation, replication, reproduction, dissemination, copying, disclosure, modification, distribution and/or publication of this Report or contents hereof, including by caching,
framing or similar means, is strictly prohibited without the prior written consent of Dun & Bradstreet Information Services India Pvt. Ltd.
(D&B). The contents of this Report are solely meant to inform. The information contained in this Report should be independently verified
before placing reliance or taking any decision on the basis of the information.D&B expressly disclaim all responsibility and accept no liability
for the consequences of any person acting, or refraining from acting, on such information. Copyright 2010, D&B, All rights reserved.

Indian Outlook

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Indian Outlook

Uploaded by

Copyright:

Available Formats

www.tnpscquestionpapers.

The Economic Journey: 2010-11............................2

Indias Economic Outlook: 2011-12........................8

Sectoral Outlook 2011-12.................................... 15

Economic Journey FY11

Lack of Government spending as reflected by the

Nonetheless, given the unabated rise in inflation,

gathered momentum during the second half of the

Dec-10 the WPI which was on a downward trend

While we are at the threshold of the beginning of

However, even as the macroeconomic numbers

The FII inflows remained volatile given the risk

Quick glance at the year that was

After hovering around 8.9% during FY11, GDP

Consumption and investment demand supports

After a setback during FY10, agriculture sector

which accounts for more than 70% of the WPI

Improvement in sentiment accompanied by the

After remaining muted during most part of FY11,

WPI inflation surged to 10.23% during Mar-10 and

The fuel group inflation continued to rise unabated

The sustained rise in the prices of food articles had

In order to control the spiraling inflation and anchor

Bank credit growth showed gradual improvement

Despite witnessing some deceleration during the

While total current account deficit remained high

The FII inflows have remained volatile during FY11.

The rupee remained volatile during FY11.

Despite improving global economic prospects and

India Outlook FY12

Domestic demand, however, will continue to hold

It is important to note here that after nearing the

At the backdrop of the current macroeconomic

Real GDP to grow by 8.8% during FY12

The services sector is expected to maintain this

Private consumption demand

Disaggregating GDP data on a sectoral basis, the

D&B expects the growth in private final

The anticipated increase in NREGA wages, which

Optimistic employment scenario and rising

Anticipated high interest rates might limit the growth

might limit the pace of IIP growth especially during

Industrial activity to gather

Improvement in domestic demand

Gradual pick up in investment activity

However, high crude oil prices and rising interest

Savings rate to see a marginal uptick

from 36.5% in FY10. Increase in investment rate is

rate. D&B expects savings rate to increase to 34.3%

With improving consumption demand and

Improving business optimism

Continued thrust on infrastructure development

Easy availability of fund from various sources

Improvement in consumer sentiment

Buoyant job markets, which could lead to higher

Elevated interest rates especially during the first half

Elevated interest rates during FY12 might help

Improving corporate profitability

Bank credit growth to remain

Investment rate expected to

After remaining muted during H1 FY11, the bank

visible during early FY11 could also have facilitated

Interest rate and Money supply

Rising income levels is likely to support