pape

In the present case official forecast of India’s GDP is likely to grow at 7.6% in 12-13 and according to IMF it is likely to be 4.9%.
IMF and India's official GDP estimates are not comparable as the two follow different methodologies - IMF computes GDP at market prices while India adopts the factor cost method.

The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation has released the advance estimates of national income at constant (2004-05) and current prices, for the financial year 2012-13.These advance estimates are based on anticipated level of agricultural and industrial production, analysis of budget estimates of government expenditure and performance of key sectors like, railways, transport other than railways, communication, banking and insurance, available so far. The advance estimates at current prices are derived by estimating the implicit price deflators (IPDs) at sectorial level from the relevant price indices.

IMF computes GDP at market prices

IMF projects GDP growth of India based on the macro indicators of overall world economy.
Indian GDP is estimated based on the govt expenditure and investment , estimates of consumption and as per production. India government makes five year plan for the same & GDP is based on that only. The difference in the computations could be on two fronts — indirect taxes and subsidies. This means, if indirect tax collections are huge and subsidies subdued, GDP growth at market prices would be higher than its counterpart at factor cost.

Application Exercise (Marks 20)(Common to Session 9 & 12)
(Assignment to be submitted)(180 min) • Your Company’s Business Plan may have to be re looked periodically, more so when the downturn continues. At the same time various parameters of your Business Plan are embedded in the overall national economic as well as global economic environment depending on your company’s global exposure. Illustratively, according to official forecast of India’s GDP is likely to grow at 7.6 % in 2012-13 but according to IMF it is likely to be 4.9 %.
• What in your opinion leads to a difference in the forecast , also given the situation, what forecast you are going to choose and why? Substantiate your answer using statistical methods to determine accuracy of the forecasts. What are the major economic parameters that you should carefully monitor so as to eventually work out /revise your company’s business plan for the next quarter/half year/year? Provide forecast numbers for those parameters.

Ans :

In the present case official forecast of India’s GDP is likely to grow at 7.6% in 12-13 and according to IMF it is likely to be 4.9%.
IMF and India's official GDP estimates are not comparable as the two follow different methodologies - IMF computes GDP at market prices while India adopts the factor cost method.

The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation has released the advance estimates of national income at constant (2004-05) and current prices, for the financial year 2012-13.These advance estimates are based on anticipated level of agricultural and industrial production, analysis of budget estimates of government expenditure and performance of key sectors like, railways, transport other than railways, communication, banking and insurance, available so far. The advance estimates at current prices are derived by estimating the implicit price deflators (IPDs) at sectorial level from the relevant price indices.

IMF computes GDP at market prices

IMF projects GDP growth of India based on the macro indicators of overall world economy.
Indian GDP is estimated based on the govt expenditure and investment , estimates of consumption and as per production. India government makes five year plan for the same & GDP is based on that only. The difference in the computations could be on two fronts — indirect taxes and subsidies. This means, if indirect tax collections are huge and subsidies subdued, GDP growth at market prices would be higher than its counterpart at factor cost.

It is better to take India projection of GDP because of following factors:
1. IMF takes into account the global outlook & then predict the GDP based on the various activities in the world economy while Indian forecast are closer to realities & estimates are measured at country level which tends to be more accurate than global data.

2. The Indian GDP is calculated by the expenditure method. The method of Calculating India GDP is the expenditure method, which is, GDP = consumption + investment + (government spending) + (exports-imports) and the formula is GDP = C + I + G + (X-M) & the same data would be very difficult for an foreign agency to determine accurately rather than Indian Govt itself.

3. Availability of large, youngest & cheap & skilled manpower in India along with china is maximum as compared to other countries & IMF doesn’t take much consideration of it. Rich demographic dividend are added advantage which are not well gauged by IMF.
In the current economic scenario it would be best to adopt 7-8% as the country’s growth rate from the company’s point of view, since the current scenario of Indian economy has been characterized by optimistic growth and strong macro-economic fundamentals, particularly with tangible progress towards fiscal consolidation and a strong balance of payments position.
The industrial sector has witnessed a moderate slowdown in the initial phase but has gained momentum thereafter. The capital goods have grown at an accelerated pace, over a high base attained in the previous years, which augurs well for the required industrial capacity addition.
There was a sharp deceleration in inflation in the year 2007-08, as compared to a year ago. But thereafter the inflation rate have increased which as per economist is good, since a small increase in inflation rate act as a fuel to economic growth.
The monetary sector also continues to be growing at a sustainable rate during 2007-08 to serve the twin objectives of managing the transition to a higher growth path and containing inflationary pressures. Similarly, net foreign exchange assets (NFA) of the RBI, on year-on-year basis had expanded in previous years.
In the secondary market segment, the market activity expanded further during 2007-08 with BSE and NSE indices scaling new peaks of 21,000 and 6,300, respectively. The main reasons being the larger inflows from Foreign Institutional Investors (FIIs) and wider participation of domestic investors, particularly the institutional investors. On a point-to-point basis, Sensex and Nifty Indices rose by 47.1 and 54.8 per cent, respectively. While the climb of BSE Sensex during 2007-08 so far was the fastest ever, the journey of BSE Sensex from 18,000 to 19,000 mark was achieved in just four trading sessions during 2007.
Progress in fiscal consolidation has been satisfactory in the post-Fiscal Reforms and Budget Management Act (FRBMA) period. The fiscal deficit of the Centre, as a proportion of GDP, came down from 5.9 per cent in 2002-03 to 3.4 per cent in 2006-07 and is estimated to further decline in the future. Similarly, the revenue deficit declined from 4.4 per cent in 2002-03 to 1.9 per cent in 2006-07 and is estimated to further decline
India's external economic environment continued to be supportive with the invisible account remaining strong and stable capital flows. As a proportion of total capital flows and on a net basis, foreign investment has shown a mixed trend in the current year. In 2006-07, the proportion stood at 33.5 per cent, while it rose to 43.4 per cent in the first half of 2007-08. Foreign direct investment (FDI) grew appreciably on both gross and net basis. FDI inflows were broad-based and spread across a range of economic activities like financial services, manufacturing, banking services, information technology services and construction. While, net portfolio investment inflow was US$ 18.3 billion in April-September 2007, more than double the inflow during 2006-07.
As an oil company it is very important to incorporate the above economic indicators at the time of forming our Business plans, since each parameters impact our company directly or indirectly.
As GDP determines the growth rate of the economy, which in turns determines the demand of the country and accordingly determines the demand for petroleum products.
Similarly Foreign exchange reserve determines the country’s ability to pay to the exporters for the country’s crude import which account for approx. 40% of the country’s total import.
Major Economic Indicators to follow are as below:-
INDICATORS 2009-10 2010-11 2011-12

GDP (at current prices, US$ bn)
834.0
949.1
1238.4
GDP Growth (at constant prices, %) 9.5 9.6 9.3
Inflation rate (WPI, annual avg. %) 4.4 5.4 4.7
Gross Fiscal Deficit (% of GDP) 4.1 3.5 2.7
Exchange Rate (Rs/US$, avg.) 44.3 45.2 40.2
Exchange Rate (Rs/Euro, avg.) 53.9 58.1 57.0
Exports (US$ bn) 103.1 126.4 163.1
% change 23.4 22.6 29.1
Oil Exports 11.6 18.6 28.4
% change 66.5 60.1 52.5
Non-oil Exports 91.5 107.8 134.7
% change 19.5 17.9 25.0
Imports (US$ bn) 149.2 185.7 251.7
% change 33.8 24.5 35.5
Oil Imports 44.0 57.1 79.8
% change 47.3 29.8 39.8
Non-oil Imports 105.2 128.7 171.9
% change 28.8 22.3 33.6
Trade Balance (US $ bn) -46.1 -59.3 -88.5
Current Account Balance (US$ bn) -9.9 -9.6 -15.7
CAB as percentage of GDP (%) -1.2 -1.1 -1.3
Forex Reserves (US$ bn) 151.6 199.2 309.7
External Debt (US$ bn) 139.1 172.4 224.4
External Debt to GDP Ratio (%) 17.3 18.2 18.1
Short Term Debt / Total Debt (%) 14.1 16.3 20.4
Total Debt Service Ratio (%) 10.1 4.7 4.8
Foreign Investment Inflows (US$ bn) 21.5 29.8 62.1
FDI (US$ bn) 9.0 22.8 34.8
GDRs/ADRs (US$ bn) 2.6 3.8 6.6
FIIs (net) (US$ bn) 9.9 3.2 20.3

Source: Economic Survey, Various issues; Union Budget, RBI Monthly Bulletin, Annual Report & Weekly Statistical
Supplement; Ministry of Finance; e estimates; P IMF Projections; ~ New series; * RBI estimate; f- IIF Forecasts ; ^ % change is over corresponding period of the previous year;

In view of the above economic indicators we have made a dream plan (it’s a 5 year plan till 2015-16 for the company covering all aspects , for the corporation BPCL has also drawn a plan of 5 year named as “Dream Plan” to keep pace with the booming economy. Major highlights of “Dream Plan” is as under:

 To enhance refining capacity to 50 million tonnes by 2015. Currently, BPCL has a refining capacity of around 31 million tones (considering NRL’s refining capacity of 3 MMT)
 To draw up Pricing strategy. The Centre has dismantled price control for petrol. Now similar decontrol is also expected in respect of diesel. Kerosene and cooking gas will continue to be part of the subsidized fuels kitty. However it is expected to have upward revisions in the price of this fuels in near future.
 Strengthening Exploration and Production (E&P) activities: BPCL is strengthening its exploration activity through its wholly owned subsidiary- BPRL. BPRL has announced 5 oil and gas discoveries in Mozambique, Brazil and Indonesia last year. The company also proposes to drill around 20 new wells (10 in Mozambique, 8 in Brazil and 2 in Indonesia) in the year 2012-13.
 The company is also exploring the possibility of achieving value addition by venturing into petrochemicals space. BPCL is looking at using the raw material produced at the Kochi refinery to manufacture value added products having excellent demand but limited availability within the country.
 BPCL is also exploring the opportunities to strengthen distribution infrastructure in Gas business which is essential for enhancing the market share. A number of options are being explored including participation in consortiums for bidding for pipelines and setting up LNG terminals.
 BPCL has also drawn plans for enhancing port and distribution infrastructure; increasing new retail outlets in rural India.
 BPCL refineries at Mumbai and Kochi are currently providing auto fuels like MS and HSD complying with the stringent product quality specifications. The refineries are also working towards equipping themselves to meet the changing requirements which will ensure that BPCL will be able to comply with the enhanced specifications.
 As of now, LPG business continues to operate in the controlled environment. However, BPCL is always on the lookout of leveraging available technology platform in order to obtain efficiency in the supply chain.
 BPCL has entered in the international bunkering business and facilities have already been started at Mumbai and Kochi ports. BPCL is confident to develop and grow the business in near future.