Aggregate demand, as reflected on the expenditure side of GDP, remained sluggish during Q4
of 2012-13. Apart from investment, private consumption decelerated, adding to the drag on
demand during 2012-13. Depressed private consumption, to a large part, has been the result
of high consumer price inflation. Corporate investment intentions also remained languid,
reflecting the overall negative business sentiment arising from slack cyclical conditions
and structural factors. Corporate sales decelerated during Q4 of 2012-13, while earnings
contracted. This, in turn, may have an adverse impact on new investment. In this situation, the
key to turning around the economy will be re-balancing government spending from current to
capital expenditures with a view to ‘crowding-in’ private investment.
Aggregate demand continued to remain
weak
II.1 The expenditure-side GDP indicates that
the aggregate demand of the Indian economy
during Q4 of 2012-13 remained slack (Table
II.1). Private final consumption expenditure,
which is the principal component of GDP at
market prices, continued to decelerate during the quarter on the back of weak agricultural
production and persistent high consumer price
inflation. Even so, it remains the largest
contributor to growth in aggregate demand
(Table II.2). The growth rate of government final
consumption expenditure also moderated during
Q4, reflecting fiscal consolidation efforts. Even
though the growth rate of fixed investment during Q4 of 2012-13 was slightly higher than
in the corresponding quarter of the previous
year, aggregate fixed investment in the full year
decelerated further.
Table II.1: Expenditure Side GDP (2004-05 prices) |
(Per cent) |
Item |
2011-12@ |
2012-13# |
2011-12 |
2012-13 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
Growth Rates |
GDP at market prices |
6.3 |
3.2 |
8.3 |
6.4 |
5.8 |
5.2 |
3.4 |
2.5 |
4.1 |
3.0 |
Total Consumption Expenditure |
8.1 |
3.9 |
6.9 |
7.0 |
9.0 |
9.3 |
4.7 |
4.0 |
3.8 |
3.3 |
(i) Private |
8.0 |
4.0 |
6.6 |
6.3 |
9.2 |
9.7 |
4.3 |
3.5 |
4.2 |
3.8 |
(ii) Government |
8.6 |
3.9 |
8.4 |
10.7 |
8.1 |
7.6 |
7.2 |
6.9 |
2.2 |
0.6 |
Gross Fixed Capital Formation |
4.4 |
1.7 |
13.9 |
3.8 |
-1.7 |
2.6 |
-2.2 |
1.1 |
4.5 |
3.4 |
Change in Stocks |
-30.6 |
73.4 |
-27.5 |
-30.4 |
-32.0 |
-32.4 |
69.8 |
71.7 |
75.8 |
76.0 |
Valuables |
6.6 |
-12.0 |
16.1 |
-13.3 |
8.4 |
16.0 |
-20.9 |
4.3 |
-6.9 |
-20.2 |
Net Exports |
-42.5 |
-17.3 |
-14.8 |
-17.7 |
-82.1 |
-83.3 |
-6.7 |
-21.4 |
-23.7 |
-16.4 |
Relative shares |
Total Consumption Expenditure |
70.5 |
71.0 |
71.2 |
71.8 |
73.7 |
65.7 |
72.1 |
72.8 |
73.5 |
65.9 |
(i) Private |
59.2 |
59.6 |
60.6 |
61.2 |
61.4 |
54.3 |
61.1 |
61.8 |
61.4 |
54.7 |
(ii) Government |
11.3 |
11.3 |
10.6 |
10.5 |
12.3 |
11.5 |
11.0 |
11.0 |
12.1 |
11.2 |
Gross Fixed Capital Formation |
33.7 |
33.2 |
35.7 |
35.1 |
31.8 |
32.5 |
33.8 |
34.6 |
32.0 |
32.6 |
Change in Stocks |
2.3 |
3.8 |
2.4 |
2.4 |
2.2 |
2.2 |
3.9 |
4.0 |
3.7 |
3.8 |
Valuables |
2.4 |
2.0 |
2.8 |
2.1 |
2.2 |
2.3 |
2.1 |
2.2 |
2.0 |
1.8 |
Net Exports |
-8.8 |
-10.0 |
-9.3 |
-9.3 |
-9.5 |
-7.4 |
-9.6 |
-11.0 |
-11.3 |
-8.4 |
Memo: |
|
|
|
|
|
|
|
|
|
|
GDP at market prices (` billion) |
56314 |
58137 |
13252 |
13207 |
14473 |
15382 |
13702 |
13536 |
15062 |
15836 |
@: First Revised Estimates. #: Provisional Estimates.
Source: Central Statistics Office. |
Table II.2: Contribution-Weighted Growth Rates of Expenditure-Side GDP (2004-05 Prices)* |
(Per cent) |
Item |
2011-12 |
2012-13 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
1. Private Final Consumption Expenditure |
4.1 |
3.9 |
5.4 |
5.0 |
2.6 |
2.2 |
2.6 |
2.1 |
2. Government Final Consumption Expenditure |
0.9 |
1.1 |
1.0 |
0.9 |
0.8 |
0.7 |
0.3 |
0.1 |
3. Gross Fixed Capital Formation |
4.7 |
1.4 |
-0.6 |
0.9 |
-0.8 |
0.4 |
1.4 |
1.1 |
4. Change in Stocks |
-1.0 |
-1.1 |
-1.1 |
-1.1 |
1.7 |
1.7 |
1.7 |
1.7 |
5. Valuables |
0.4 |
-0.3 |
0.2 |
0.3 |
-0.6 |
0.1 |
-0.2 |
-0.5 |
6. Net Exports |
-1.3 |
-1.5 |
-4.6 |
-3.6 |
-0.6 |
-2.0 |
-2.3 |
-1.2 |
(i) Exports |
4.3 |
4.3 |
2.4 |
3.1 |
3.0 |
1.2 |
-0.9 |
-0.2 |
(ii) Imports |
5.6 |
5.8 |
6.9 |
6.6 |
3.6 |
3.2 |
1.4 |
1.1 |
7. Sum (1 to 6) |
7.8 |
3.4 |
0.4 |
2.4 |
3.0 |
3.1 |
3.5 |
3.2 |
8. Discrepancies |
0.5 |
3.0 |
5.4 |
2.7 |
0.4 |
-0.6 |
0.6 |
-0.3 |
9. GDP at Market Prices |
8.3 |
6.4 |
5.8 |
5.2 |
3.4 |
2.5 |
4.1 |
3.0 |
*: Contribution-weighted growth rate of a component of expenditure-side GDP is obtained as follows: (Y-o-y change in the
component ÷ Y-o-y change in GDP at constant market prices) × Y-o-y growth rate of GDP at constant market prices.
Source: Central Statistics Office. |
Initiatives have started addressing
infrastructure bottlenecks, although
progress is slow
II.2 Infrastructure bottlenecks have been a
major factor in India’s low growth. Project
implementations are getting delayed due to
delays in land acquisition, forest/environment
clearances, insurgency problems in mining
belts, geological surprises, contractual issues,
etc. As on May 1, 2013, nearly half of 566
central sector projects (of `1.5 billion and
above) got delayed due to these problems, for
which cost overruns are estimated to be around
18.2 per cent.
II.3 To address these issues, the government
has taken several initiatives. For speedy
clearance of projects, in addition to the Cabinet
Committee on Infrastructure (CCI), a Project
Monitoring Group (PMG) has been set up by
the Prime Minister’s Office (PMO) with the
objective of resolving hurdles facing mega
projects (above `10 billion).
II.4 In the power sector, the government has
initiated several measures, such as renovation and modernisation of old power plants,
improvement of coal and gas supplies, and
greater emphasis on power generation from
renewable sources. The government has also set
up a committee (under the chairmanship of Dr.
Vijay Kelkar) to prepare a road map to enhance
domestic production of oil & gas.
II.5 With regard to road projects, the response
to the PPP mode of road building remained poor.
Several projects have not elicited bids. The
developers have been facing a severe shortage
of equity and, consequently, are unable to raise
the required debt. The government has decided
to adopt the Engineering, Procurement and
Construction (EPC) mode for national highways
which are not viable on a PPP basis. However,
the Cabinet Committee on Economic Affair’s
(CCEA) decisions in June 2013 to facilitate
harmonious substitution of concessionaire in
ongoing and completed National Highway
projects and insulating the National Highway
Authority of India (NHAI) from heavy financial
claims and unnecessary disputes are likely to
expedite the implementation of road projects.
II.6 With the cancellation of 2G licences in
February 2012, the telecommunications sector
has been struggling, with a noticeable decline in investor interest. However, investor interest
is expected to improve once the recent decision
by the Telecom Commission approving 100 per
cent FDI in the sector gets ratified.
Corporate investment intentions remain
subdued
II.7 Corporate investment intentions remain
subdued. Additionally, some of the institutionally
assisted projects which received sanction in
2010-11 and 2011-12 have been cancelled. The
aggregate project cost envisaged from new
projects for which assistance was sanctioned
by major banks/FIs, aggregated `2.0 trillion
in 2012-13 and remained almost at the same
level as that of the previous year (`1.9 trillion)
but significantly below that in 2010-11 (`3.8
trillion) (Table II.3). An industry-wise analysis
revealed that during Q4 of 2012-13, the share
of envisaged expenditure on new projects is the
highest in the metal & metal products sector
(56.0 per cent), followed by the power industry
(30.0 per cent) (Chart II.1).
Table II.3: Institutionally Assisted Projects
and their Envisaged Cost (Quarter-wise)* |
Financial Year |
No. of Projects |
Project Expenditure
(` billion) |
1 |
2 |
3 |
2010-11 |
Q1 |
178 |
1,139 |
|
Q2 |
196 |
1,043 |
|
Q3 |
157 |
752 |
|
Q4 |
166 |
818 |
2011-12 |
Q1 |
147 |
749 |
|
Q2 |
184 |
452 |
|
Q3 |
137 |
462 |
|
Q4 |
168 |
253 |
2012-13 |
Q1 |
110 |
413 |
|
Q2 |
132 |
666 |
|
Q3 |
89 |
256 |
|
Q4 |
94 |
629 |
Note: Based on data reported by 39 banks/FIs.
*: Data are provisional. Past data has been revised due to
subsequent reporting, including the cancellation of projects. |
Sales growth remained sluggish during Q4
of 2012-13
II.8 Sales growth for listed Non-Government
Non-Financial (NGNF) companies decelerated further in Q4 of 2012-13 to 4.1 per cent
(Table II.4). The decline in sales was more
distinct in the case of motor vehicles, electricity generation and supply, iron & steel and real
estate. In tandem with the slow growth in sales,
net profits went down in Q4 of 2012-13 due to
higher employee expenses and lower support
from other income. Sequentially (q-o-q),
however, net profit recorded an improvement
in Q4 (Table II.5). Further, profitability in terms
of EBITDA and EBIT margins improved
marginally in Q4 in comparison with the
previous quarter. The net profit margin,
however, recorded a marginal decline. Inventory
accumulation (as reflected in change in stock-in-
trade to sales ratio), which went up in Q2 of
2012-13, has reverted to earlier levels (Chart
II.2). Early results for Q1 of 2013-14 suggest
that sales growth has decelerated further.
Table II.4: Performance of Non-
Government Non-Financial Companies |
(Per cent) |
|
Q4 of
2011-
12 |
Q1 of
2012-
13 |
Q2 of
2012-
13 |
Q3 of
2012-
13 |
Q4 of
2012-
13 |
1 |
2 |
3 |
4 |
5 |
6 |
No. of Companies |
2,419 |
|
Growth Rates (y-o-y) |
Sales |
15.6 |
14.0 |
11.7 |
9.4 |
4.1 |
Value of Production |
14.1 |
13.4 |
12.4 |
8.1 |
4.0 |
Expenditure, of which |
16.7 |
16.4 |
12.6 |
8.2 |
4.7 |
Raw Materials |
16.7 |
13.6 |
14.6 |
9.3 |
2.6 |
Staff Cost |
14.3 |
17.7 |
15.3 |
13.1 |
13.5 |
Power & Fuel |
30.6 |
26.2 |
20.9 |
11.0 |
3.5 |
Operating Profits
(EBITDA) |
-0.7 |
-3.4 |
11.3 |
7.9 |
-0.2 |
Other Income* |
49.4 |
28.4 |
49.2 |
0.3 |
-1.4 |
Depreciation |
10.7 |
10.4 |
10.1 |
10.3 |
8.4 |
Gross profits (EBIT) |
4.0 |
-2.5 |
18.9 |
5.6 |
-2.7 |
Interest |
40.2 |
38.4 |
11.3 |
17.1 |
11.1 |
Tax Provision |
1.2 |
-3.4 |
11.0 |
5.1 |
-2.7 |
Net Profits
(without NOP) |
-6.7 |
-18.5 |
26.2 |
-0.7 |
-9.2 |
Net Profits |
-6.4 |
-9.7 |
23.1 |
24.3 |
-15.5 |
|
Select Ratios |
Change in stock to Sales # |
0.9 |
0.8 |
1.4 |
0.8 |
0.9 |
Interest Burden |
26.6 |
32.5 |
27.2 |
33.1 |
30.5 |
EBITDA to Sales |
13.3 |
12.9 |
13.2 |
12.6 |
12.7 |
EBIT to Sales |
12.6 |
11.6 |
12.8 |
11.3 |
11.8 |
Net Profit to Sales |
7.1 |
6.1 |
7.1 |
5.8 |
5.7 |
#: For companies reporting this item explicitly.
*: Other income excludes extraordinary income/expenditure if
reported explicitly. |
Table II.5: Performance of Non-
Government Non-Financial Companies
(Sequential Growth) |
(Q-o-Q, per cent) |
Indicator |
Number of Companies: 2,419 |
2011-12 |
2012-13 |
Q4 |
Q1 |
Q2 |
Q3 |
Q4 |
1 |
2 |
3 |
4 |
5 |
6 |
Sales |
9.5 |
-4.5 |
0.7 |
3.8 |
4.4 |
Value of Production |
8.4 |
-4.6 |
1.2 |
3.2 |
4.4 |
Expenditure, of which |
7.7 |
-4.2 |
0.9 |
3.9 |
4.4 |
Raw Materials |
10.0 |
-6.1 |
1.9 |
3.8 |
3.0 |
Staff Cost |
2.1 |
6.0 |
3.4 |
1.3 |
2.4 |
Power & fuel |
3.4 |
9.7 |
-3.2 |
0.1 |
-2.4 |
Operating Profits
(EBITDA) |
13.7 |
-7.3 |
3.4 |
-0.9 |
4.9 |
Other Income** |
30.3 |
-22.6 |
41.1 |
-27.9 |
23.2 |
Depreciation |
6.2 |
-1.7 |
1.8 |
3.7 |
3.1 |
Gross profits (EBIT) |
19.2 |
-12.1 |
11.0 |
-8.7 |
9.0 |
Interest* |
7.6 |
7.3 |
-7.1 |
10.9 |
0.7 |
Tax Provision |
15.3 |
-0.9 |
3.4 |
-11.0 |
6.5 |
Net Profits |
52.0 |
-17.8 |
17.0 |
-15.0 |
3.1 |
*: Some companies report interest on net basis.
**: Other income excludes extraordinary income/expenditure, if
reported explicitly. |
Corporate leverage has increased gradually
II.9 The leverage of the corporate sector at
the aggregate level, as measured by the total
borrowing to equity ratio, increased in
2011-12, reversing a gradual and declining trend in the previous two years (Table II.6). Based on
the available annual results of 621 nongovernment
non-financial public limited
companies, leverage is observed to have
increased further in 2012-13.
Table II.6: Total borrowing to Equity:
2009-10 to 2011-12 |
|
2009-
10 |
2010-
11 |
2011-
12 |
1 |
2 |
3 |
4 |
Manufacturing |
72.0 |
68.1 |
71.7 |
Of which |
|
|
|
Food products and beverages |
112.8 |
116.4 |
114.7 |
Textiles |
187.2 |
191.9 |
208.2 |
Coke and refined petroleum |
46.2 |
44.8 |
46.4 |
Chemicals and chemical products |
61.7 |
60.4 |
69.4 |
Cement and cement products |
73.4 |
45.0 |
52.5 |
Iron and steel |
112.6 |
106.7 |
115.3 |
Electrical equipment |
50.5 |
48.4 |
38.9 |
Machinery |
36.5 |
39.8 |
53.1 |
Motor vehicles and accessories |
66.5 |
53.3 |
52.4 |
Electricity, gas, steam and air conditioning supply |
61.6 |
70.6 |
114.6 |
Construction |
89.0 |
95.5 |
80.8 |
Services |
62.3 |
65.7 |
68.6 |
Of which |
|
|
|
Transportation and storage |
121.3 |
241.5 |
338.9 |
Telecommunications |
61.8 |
87.7 |
78.9 |
Computers and related activities |
20.8 |
18.6 |
19.8 |
Real estate |
70.1 |
76.1 |
62.0 |
All companies |
69.7 |
69.0 |
72.3 |
Size by sales |
|
|
|
Large |
66.6 |
65.2 |
71.5 |
Medium |
79.9 |
82.4 |
85.2 |
Note: Large companies – annual sales above `10 billion;
Medium companies – annual sales between `1 billion
and `10 billion. |
Fiscal consolidation resumed during 2012-
13 mainly through expenditure cutbacks
II.10 The central government restricted its
gross fiscal deficit (GFD) to 4.9 per cent of GDP
during 2012-13, less than the budget estimate
of 5.1 per cent (Table II.7). The containment in
GFD, despite lower tax and non-tax revenues,
was achieved mainly through a cutback in plan
expenditure. Non-plan expenditure, on the other
hand, was higher due to a sharp increase in
expenditure on the revenue account. Subsidies
on food, fertilisers and petroleum accounted for
2.5 per cent of GDP as against the 1.8 per cent
that had been budgeted for the year. Overall, the
revenue expenditure as a proportion of GDP
was lower than the budget estimate by 0.3
percentage points, although it could not offset
the shortfall in revenue receipts, which resulted
in a higher revenue deficit.
Table II.7: Key Fiscal Indicators |
(Per cent to GDP) |
Year |
Primary
Deficit |
Revenue
Deficit |
Gross
Fiscal
Deficit |
Outstanding
Liabilities @ |
1 |
2 |
3 |
4 |
5 |
|
Centre |
2011-12 |
2.7 |
4.4 |
5.7 |
51.9 |
2012-13 PA |
1.8 |
3.6 |
4.9 |
51.9# |
|
(1.9) |
(3.4) |
(5.1) |
|
2013-14 BE |
1.5 |
3.3 |
4.8 |
51.1 |
|
States* |
2011-12 |
0.4 |
-0.1 |
1.9 |
22.3 |
2012-13 RE |
0.8 |
-0.2 |
2.3 |
22.0 |
2013-14 BE |
0.6 |
-0.4 |
2.1 |
21.6 |
|
Combined* |
2011-12 |
3.3 |
4.3 |
7.7 |
65.5 |
2012-13 RE |
2.9 |
3.7 |
7.5 |
65.8 |
2013-14 BE |
2.2 |
2.9 |
6.9 |
66.1 |
@: Includes external debt at current exchange rates.
#: Pertains to revised estimates.
*: Data in respect of states pertains to 26 state governments, of
which one is Vote on Account.
PA: Provisional Accounts. BE: Budget Estimates.
RE: Revised Estimates.
Note: 1. Figures in parentheses are budget estimates.
2. Combined liabilities of 2013-14 are adjusted for states’
investment in Treasury Bills as on July 19, 2013.
Source: Budget documents of central and state governments. |
Tax collection remains weak during 2013-
14 so far
II.11 During April-May 2013, key deficits of
the Centre as percentages to budget estimates
were higher than in the corresponding period of
last year. The widening of the revenue deficit
and higher capital expenditure resulted in a
higher gross fiscal deficit during April-May
2013 than a year ago.
II.12 The revenue deficit as a percentage to
budget estimate during April-May 2013 was
higher due to both higher revenue expenditure
and lower tax revenues. Gross tax revenue in
absolute terms declined mainly due to a decline
in revenues from corporation tax and union
excise duties. The collection of income tax and
service tax as percentages to budget estimates
were also lower than a year ago.
II.13 Total expenditure, as a percentage of the
budget estimate in the first two months (April-
May) of 2013-14, was higher than a year ago,
mainly due to higher plan and capital expenditure,
which registered growth rates of 52.6 per cent
and 48.9 per cent, respectively, over April-May
2012. On the other hand, despite higher
payments of subsidies, non-plan expenditure in
the revenue account, was lower than in the
corresponding period of the previous year.
II.14 If the government’s revenues fall short
of the target due to slowdown in growth, a
cutback in expenditure will be required to
achieve the budgeted fiscal deficit. It is,
therefore, important to contain subsidies and
re-prioritise expenditure towards plan and
capital expenditures, thereby enhancing the
growth prospects of the economy.
State finances expected to remain on the
consolidation track
II.15 Despite an increase in the consolidated
GFD-GDP ratio in 2012-13 (RE), over the
previous year, the GFD-GDP ratio was within
the target set by the Thirteenth Finance
Commission. The revenue account at the consolidated level recorded a surplus in 2012-13
(RE), albeit lower than budgeted.
II.16 The consolidated position of the state
governments for 2013-141 is budgeted to show
an increase in the revenue surplus-GDP ratio
and a marginal improvement in the GFD-GDP
ratio. The surplus in revenue account would be
achieved by a reduction in the revenue
expenditure-GDP ratio, while the revenue
receipts-GDP ratio is budgeted to remain
unchanged from the previous year’s level. The
expenditure pattern of the states shows that
while the development expenditure-GDP ratio
is budgeted to decline, the non-development
expenditure-GDP ratio is budgeted to increase
marginally during 2013-14. However, the
capital outlay-GDP ratio is budgeted to be
higher in 2013-14 than in 2012-13 (RE).
Combined government finances budgeted
to improve in 2013-14
II.17 Data on combined finances show that the
revenue deficit and fiscal deficit as ratios to GDP
in 2012-13 (RE) were lower by 0.6 percentage
points and 0.2 percentage points, respectively,
over the previous year. The decline in the
combined GFD-GDP ratio was entirely on
account of the lower fiscal deficit of the Centre
(Table II.7). In 2013-14, the combined fiscal
position is budgeted to improve further on
account of fiscal plans of both the Centre and
the states (Table II.8).
Table II.8: Combined Finances of Central
and State Governments* |
Item |
Per cent to GDP |
2011-12 |
2012-13
RE |
2013-14
BE |
1 |
2 |
3 |
4 |
1. Total Expenditure |
26.4 |
27.9 |
27.9 |
2. Revenue Expenditure |
22.5 |
23.8 |
23.4 |
3. Capital Expenditure |
3.9 |
4.2 |
4.5 |
Of which: Capital Outlay |
3.4 |
3.7 |
4.2 |
4. Non-development Expenditure |
10.8 |
11.0 |
11.3 |
5. Development Expenditure |
15.3 |
16.6 |
16.1 |
6. Revenue Receipts |
18.3 |
20.0 |
20.4 |
i) Tax Revenue (net) |
16.0 |
16.9 |
17.5 |
ii) Non-tax Revenue |
2.2 |
3.1 |
3.0 |
*: Data in respect of states pertains to 26 state governments.
RE: Revised Estimates. BE: Budget Estimates.
Source: Budget documents of central and state governments. |
Need to keep the momentum of the fiscal
consolidation and increase government
investment in productive sectors
II.18 The government’s fiscal consolidation
process has contributed to improving the state
of public finances in India at a critical juncture.
The low collection of both tax and non-tax
revenue during 2012-13 complicated the task
of reducing fiscal imbalances. Thus, the
containment of GFD in 2012-13 was brought
about by expenditure compression on plan revenue account and also plan and non-plan
capital account. The cuts in union government’s
capital expenditure were undertaken at a time
when private investment had already decelerated.
This raised concerns about the quality of fiscal
consolidation. It is, therefore, important for the
Centre to take steps to contain its non-plan
revenue expenditure within the limit set in the
Union Budget 2013-14 through subsidy
reforms. Staying on the path of fiscal
consolidation in the current year, however,
remains challenging. Moderation in aggregate
demand poses risks to budgetary projections for
revenue. The recent exchange rate depreciation
has compounded the problems in restraining
subsidies. At the present juncture, it is important
that the government restrains its subsidy
commitments, strikes a judicious balance under
its various budgetary heads by increasing
investment in the productive sectors so as to
crowd-in private investments. Tax reforms also
need to be expedited to improve the tax/GDP
ratio.
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