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2.

Market Trends and Outlook


2.1 Key economic indicators-India
India is Asias third largest economy with a population of around 1.2bn. During the last decade,
the country went through a period of rapid economic growth. It had an average GDP growth rate
of more than 7% in the first decade of this millennium. However, in fiscal year 2012 and 2013,
the country saw a successive decline in GDP growth rate over all quarters due to high inflation
rates combined with high interest rates. The economy showed some hope in the fourth quarter
of FY13, registering a GDP growth of 4.8% but dipped again in the first quarter to a low of 4.4%.
Chart 8: Quarterly GDP growth rate-India (y/y change in %)
8.0

7.5

7.5
7.0

6.5

6.5

6.0

6.0
5.1

5.5

5.4

5.2
4.8

4.7

5.0

4.8
4.4

4.7

4.5
4.0
Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14
Source: MOSPI

In June 2013, Fitch revised Indias credit outlook from negative to stable with a BBB- long term
rating. Current account deficit grew to around 5% of GDP in March 2013 which fuelled the
depreciation of the Indian currency causing the INR to reach an all-time low of 68.85 against
USD in August. This negatively affected the foreign exchange earnings in dollar terms in the
tourism sector.
Chart 9: Average monthly USD to INR exchange rate
66.00
64.00

62.70

63.80
61.51

62.00

62.59

61.84

59.75

60.00

58.13

58.00
56.00
54.00

54.96
54.82 54.65
54.24 53.84 54.40 54.36

52.00

Source: x-rates.com

Tourism

India

Indian economy has been suffering from high inflation rate since the beginning of FY10. The
most worrying factor was the consistent rise in food prices which was eating into disposable
income of Indian middle class. This hurt the household savings rate as well as sectors like
domestic tourism which are highly dependent on the rising middle class of India. Both the
inflation indicators namely Wholesale Price Index (WPI) and Consumer Price Index (CPI) were
above the comfort zones of RBI in FY14.
Chart 10: Inflation during FY14-India (in %)
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0

11.2

10.6 10.8 10.9 10.4

9.9

9.3

7.4

7.3

7.3

6.8

9.9

9.6

6.0
4.8

4.6

Monthly Wholesale Price Index-Inflation

5.2

9.5

5.8

9.5

9.8

6.1

6.5

10.1

9.9

7.0 7.5
6.2

Monthly Consumer Price Index-Inflation

Source: RBI

In order to curb inflation, RBI increased the policy rate (repo rate) 13 times between March 2010
and October 2011. RBI raised hopes of the industry by cutting repo rate by 50 basis points
between January 2013 and May 2013, but had to gradually raise it again due to sticky inflation.
The higher interest rate led to a lower credit off take which transpired into an industrial
slowdown affecting almost all sectors of the Indian economy.
Chart 11: Repo rate (Benchmark interest rate in %)
9.00

8.50
8.25
8.00

8.50
8.00

7.50
7.25

7.50
7.00

8.00

8.00
7.75
7.50
7.25

7.75
7.50

6.75
6.50

6.50
6.00

6.25

Source: RBI

Tourism

India

Due to uncertain global economic conditions and high inflation, the services sector contracted
during the course of FY13. This slowdown was reflected in the key industry indicators. Tourism
is a part of trade, hotels, transport and communication group. The groups contribution was 28%
to overall GDP in FY13.
Chart 12: GDP by sectors at factor prices (FY13)
13%

Agriculture, forestry and fishing

13%

Mining and quarrying

2%

Manufacturing
19%

Electricity, gas and water supply

15%

Construction
2%

Trade, hotels, transport and communication


8%

Financing, insurance, real estate and


business services

28%

Source: MOSPI

The trade, hotels, transport and communication group registered a growth of 4.1% in 9MFY14
against 6.4% recorded in 9MFY13. This sectoral growth was even lower than the overall GDP
growth of 4.6% recorded in 9MFY13.
Chart 13: Percentage change over previous year- GDP by Sector (Base 2004-05)
11.0
10.0

9.5

9.0
8.0
7.0
7.0

6.9

6.8
6.4

7.5
6.1

6.0

6.5
6.0

5.1

5.0
5.1

5.4

4.8

4.7

4.0

4.3

4.4

5.2
4.7

4.0

6.2

4.8
3.9

3.0
Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14
Trade, Hotels, Transport and Communication Sector

Overall GDP at factor Cost

Source: MOSPI, Govt. of India

Tourism

India

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