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Tourism India 7

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 rateof 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 inflationrates combined with high interest rates. The economy showed some hope in the fourth quarterof 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 %)

Source: MOSPI

In June 2013, Fitch revised Indias credit outlook from negative to stable with a BBB- long termrating. 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 againstUSD in August. This negatively affected the foreign exchange earnings in dollar terms in thetourism sector.

Chart 9: Average monthly USD to INR exchange rate

Source: x-rates.com

7.5

6.5

6.0

5.15.4

5.2

4.7 4.84.4

4.8 4.7

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

54.82 54.65 54.24 53.84 54.40 54.36 54.96

58.13

59.75

62.7063.80

61.5162.59

61.84

52.00

54.0056.00

58.00

60.00

62.00

64.00

66.00

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Tourism India 8

Indian economy has been suffering from high inflation rate since the beginning of FY10. Themost worrying factor was the consistent rise in food prices which was eating into disposableincome of Indian middle class. This hurt the household savings rate as well as sectors likedomestic tourism which are highly dependent on the rising middle class of India. Both theinflation indicators namely Wholesale Price Index (WPI) and Consumer Price Index (CPI) wereabove the comfort zones of RBI in FY14.

Chart 10: Inflation during FY14-India (in %)

Source: RBI

In order to curb inflation, RBI increased the policy rate (repo rate) 13 times between March 2010and October 2011. RBI raised hopes of the industry by cutting repo rate by 50 basis pointsbetween 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 %)

Source: RBI

7.4 7.3 7.36.8

6.0

4.8 4.65.2

5.86.1

6.57.0 7.5

6.2

9.9

10.6 10.8 10.9 10.4

9.39.9 9.6 9.5 9.5 9.8

10.1

11.2

9.9

2.0

3.04.05.06.07.08.09.0

10.011.012.0

Monthly Wholesale Price Index-Inflation Monthly Consumer Price Index-Inflation

6.25

6.506.75

7.257.50

8.008.25

8.50

8.007.75

7.507.25

7.507.75

8.00

6.00

6.50

7.00

7.50

8.00

8.50

9.00

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Tourism India 9

Due to uncertain global economic conditions and high inflation, the services sector contractedduring the course of FY13. This slowdown was reflected in the key industry indicators. Tourismis 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)

Source: MOSPI

The trade, hotels, transport and communication group registered a growth of 4.1% in 9MFY14against 6.4% recorded in 9MFY13. This sectoral growth was even lower than the overall GDPgrowth of 4.6% recorded in 9MFY13.

Chart 13: Percentage change over previous year- GDP by Sector (Base 2004-05)

Source: MOSPI, Govt. of India

13%

2%

15%

2%

8%

28%

19%

13%Agriculture, forestry and fishing

Mining and quarrying

Manufacturing

Electricity, gas and water supply

Construction

Trade, hotels, transport and communication

Financing, insurance, real estate andbusiness services

9.5

7.0 6.9

5.1

6.1

6.86.4

6.2

3.94.0 4.3

7.5

6.5

6.0

5.15.4

5.2

4.7 4.8

4.4

4.8 4.7

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

Trade, Hotels, Transport and Communication Sector Overall GDP at factor Cost

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