INDIAN ECONOMY: FEATURES AND DEVELOPMENTS

GROUP MEMBERS
ROLL NO.19-SAIMA ARSHAD ROLL NO.48-NEKETA ADHIKARI

INTRODUCTION
The Economy Of India is the ninth largest in the world by nominal GDP and the fourth largest by Purchasing Power Parity. The independence-era, Indian economy was inspired by the economy of Soviet Union with socialist practices, large public sectors, high import duties and lesser private participation characterizing it, leading to massive inefficiencies and widespread corruption. However, in 1991, India adopted free market principles and liberalized its economy to international trade. Following these strong economic reforms, the country's economic growth progressed at a rapid pace with very high rates of growth and large increases in the incomes of people.

Beneficial Effects of the Reform Process

Fourth Largest Growing Economy in terms of PPP with a GDP of US $3.36 trillion In Exchange terms , Tenth Largest in the world with a GDP of US$ 691.87 billion (2004) Second Fastest Growing Major Economy of the World with a growth rate of 8.1% for the 1stQ of 2005-06

Features
1. 2. 3. 4. 5. 6. The Indian economy is a developing economy. Its a mixed economy in the sense that both private sector and public sector coexist and participate in the production process. It is characterized by high population density and population growth. About one-third of the population live below poverty line. 'Vicious cycle of poverty' operates in many sectors of the economy. There is high level of unemployment and underemployment In addition, there is 'disguised unemployment' in the agricultural sector. The level of technology used in production process is low in many sectors. Modern technology has not been adopted in all sectors of the economy. There is a shortage of physical and economic infrastructure.

India's SWOT analysis

STRENGTHS High savings/investment , forex reserves, quality talent and IT, broad based and growing entrepreneurial class, market size, macro economic and financial stability, language, democracy and political system stability WEAKNESSES Physical infrastructure, human development indicators, agriculture, shortage of skilled manpower OPPORTUNITIES Demographic dividend, knowledge based growth , increased integration with world economy, urbanization THREATS Global Uncertainty, fiscal deficit, climate change energy and food security, regional and social inequalities

The India Story

TODAY

One of the fastest growing economies ; 9%+ growth rate for 5 years prior to current crisis Resilient Economy 5-6% growth at the peak of the global crisis Opening up sectors for investment Promising consumer markets Significant investment in infrastructure development

YESTERDAY

Socialist policies minimal private sector role Bureaucratic Protected market Small consumer markets Underdeveloped infrastructure

An Enabling Environment

Largest democracy; Stable government. Dominant private sector; Increasing withdrawal of

government from business

Robust banking sector; Capital markets World class IT & telecom infrastructure A connected economy; Economic efficiency & quality of
governance

Reason for the highest growth rates in the mid-2000s

The growth was led primarily due to a : huge increase in the size of the middle class consumer population(AVERAGE working age being 25) a large workforce comprising skilled and nonskilled workers(NAREGA scheme) improvement in education standards(mid-day meal for rural) and considerable foreign investments(FDIs and FIIs).

Major issues of Development

Low per-capita income Income inequalities High incidence if poverty Predominance of agriculture and instability of output Rapid population growth High dependency ratio Low level of human development Unemployment Imbalance between population size, resources and capital Inadequacy of entrepreneurs

Changing scenario of Indian economy

Growth of national income Rise in per-capita income Structural transformation Expansion of social capital Slowly changing occupational distribution of population Growth of basic capital goods industries

POLITICAL INFLUENCE TO GDP GROWTH

Red Marker 1991 to 1994 Congress Green Marker 1995 to 1997 United Front Blue Marker 1998 to 2003 BJP Red Marker 2004 to 2008 Congress

GDP GROWTH IN INDIA FROM 1991-2008 Source:http://www.google.co.in/imgres?imgurl=http://www.d alalstreet.biz/old_images/stocktips/gdp-growth-india

Indias Real GDP Growth

Period 19501980
Annual 3.7% Real GDP Growth Annual 1.5% Real GDP per Capita Growth

19801990 5.9%

19902000 6.2%

20002007 6.8%

3.8%

4.4%

5.8%

INDIA and Global Economy - Prospects

20

15

10

Per cent

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-5

World

Advanced Economies

Emerging & Developing Economies

Forecast for 2010 and 2011

Indian Economy - Growth Trajectory

12.0

10.0

8.0

Per cent

6.0

4.0

2.0

0.0

Average GDP growth at 8.9 per cent during 2003-08 Real GDP grew at 8.8 per cent in 2010-11 (Q1) (6.0 per cent in 2009-10 (Q1)) RBI places real GDP growth forecast at 8.5 per cent for 2010-11

INDIAN ECONOMY: BROAD FEATURES

Employment Poverty Investments Infrastructure Agriculture Financial sector

Average Annual Growth Rate of Industrial Sector

Five Years Plans Target Sixth Plan (1980-85) 8.7% p.a. Actual 3.5% p.a. 8.5% p.a. 8.1%p.a. 4.5%p.a. 8.90 10-11 8.74

SeventhPlan(198 8.7% p.a. 5-90) Eighth Plan (1992-97) Ninth Plan (1997-2002) Tenth Plan (2002-07) Eleventh Plan(2007-11) 7.6%p.a.

Concerns for INDIAN ECONOMY

INFLATION UNEMPLOYMENT CORRUPTION MONEY LAUNDERING BLACK MONEY SLACKEN RULES AND POLICIES resulting into plethora of scams POVERTY

Per cent Per cent 10.0 12.0 14.0 16.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0

14.0

-2.0 0.0 1990-91 1991-92 May 1992-93 1993-94 1994-95 July 1995-96 1996-97 August 1997-98 1998-99 1999-00 2000-01 2.0 6.0 8.0

4.0

April

June

WPI Inflation (y-o-y)

WPI Inflation (Annual Average)

Inflation has increased significantly after being moderate during first half of 2009-10

2008-09

September

October

2001-02
2002-03 2003-04 2004-05

2009-10

November

December

2010-11

January

2005-06

2006-07
February 2007-08 2008-09 March 2009-10

Monetary and Inflation conditions Inflation - WPI and CPI

30.0 25.0 y-o-y per cent 20.0 15.0 10.0

5.0
0.0 -5.0 Apr/08 Apr/09

Jan/10

Jan/09

Apr/10

Jul/08

Jul/09

Oct/08

CPI-Industrial Workers WPI- All Commodities WPI-Food (Composite)

CPI-Agricultural Labourers WPI-Essential Commodity Group

Oct/09

Jul/10

UNEMPLOYMENT
Structural Unemployment Under employment Disguised Unemployment Open Unemployment Educated Unemployment Frictional Unemployment Seasonal Unemployment

INDIAN ECONOMY :CHART PROGRESS (Including development and growth)

SOUNDNESS OF INDIAN ECONOMY

Fiscal Situation: Key Indicators

Year Primary deficit (2) 2.6 3.1 1.9 States 2008-09# 2009-10 RE# 2010-11 BE# 2008-09 2009-10 RE 2010-11 BE 0.6 1.6 1.0 Combined 3.4 4.8 3.0 4.3 6.0 4.4 8.5 10.0 8.3 -0.2 0.8 0.4 2.4 3.4 2.9 Revenue deficit (3) Centre 4.5 5.3 4.0 Gross Fiscal Deficit (4) 6.0 6.6 5.5

(1)
2008-09 2009-10 RE 2010-11 BE

RE: Revised Estimates; BE: Budgeted Estimates. # : data pertain to 27 State Governments.

Current Trends - Real GDP Growth (Per Cent)

Item 1 1. Agriculture and Allied Activities 2. Industry 2.1 Mining and Quarrying 2.2 Manufacturing 2.3 Electricity, Gas and Water Supply 3. Services 3.1 Trade, Hotels, Transport Storage and Communication 3.2 Financing, Insurance, Real Estate and Business Services 3.3 Community, Social and Personal Services 3.4 Construction 4. Real GDP at Factor Cost
1950-80 2005-06 2006-07 2007-08 2008-09 2009-10@ 2010-11 Q1

(Average) 2

2.1

5.2 (18.1) 8.1 (20.0) 1.3 9.6 6.6 11.3 (61.9) 12.1 12.8 7.6 12.4 9.5 (100)

3.7 (17.2) 13.6 (20.7) 8.7 14.9 10.0 10.2 (62.2) 11.7 14.5 2.6 10.6 9.7 (100)

4.7 (16.4) 9.3 (20.7) 3.9 10.3 8.5 10.4 (62.9) 10.7 13.2 6.7 10.0 9.2 (100)

1.6 (15.7) 3.1 (20.0) 1.6 3.2 3.9 9.3 (64.4) 7.6 10.1 13.9 5.9 6.7 (100)

0.2 (14.6) 10.4 (20.5) 10.6 10.8 6.5 8.3 (64.9) 9.3 9.7 5.6 6.5 7.4 (100)

2.8 (14.0) 11.4 (20.8) 8.9 12.4 6.6 9.4 (65.2) 12.2 8.0 6.7 7.5 8.8 (100)

5.4
4.6 5.3 9.6 4.5

5.1 3.5 4.3 4.9 3.5

Figure in parenthesis are percentage share to GDP; @: Revised estimates Source: Central Statistical Office

Demand Side Drivers of Growth

(Percentage to GDP)

2008-09

2009-10

2009-10 Q1

2010-11 Q1

Share Contribution Private Consumption Government Consumption Gross Fixed Investment Net Exports Source: CSO

Share Contribution

Share Contribution

Share Contribution

59.5 11.5 32.9 (-) 6.2

78.2 33.6 25.8 (-) 36.2

57.6 11.8 32.8 (-) 5.1

33.4 15.7 30.8 7.8

59.9 11.5 31.2 (-) 4.8

33.5 30.8 (-)4.4 36.4

56.5 11.9 30.5 (-) 5.2

22.6 16.3 23.7 (-) 9.8

Growth in Index of Industrial Production (Y-o-Y)

20.0 18.0 16.0 14.0 12.0 17.7 16.3 14.7 14.6 15.2 13.8 11.3

12.0
10.0 8.3 8.0 7.2 6.2 6.0 4.4 4.0 2.0 1.7 0.1 2.5 1.0 1.1 2.1 5.4 6.4 6.0

10.6 9.3

10.2

Per cent

5.8

0.2 0.3

0.0
-0.2 -2.0

During April-July 2010, the IIP growth increased to 11.4 per cent as compared with 4.7 per cent last year.

Growing Openness

Indias Trade Openness (% of GDP) Exports 8.0 12.2 Imports 10.8 17.5 Current Capital Account Account 26.8 15.1 45.4 33.8

1990s 2000s

2009-10
Source: RBI

13.9

22.8

55.2

48.3

Increased Tradability of Services

Services Exports to Services GDP
16.0 14.0 Percentage to Services GDP 12.0 10.0 8.0 6.0 4.0 2.0 0.0

Per cent
10 0 2 4 6 8 -4

1990-91 1991-92 1992-93

1993-94
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

-2

Current Account Balance as a pecentage of GDP

2006-07
2007-08 2008-09 2009-10

Current Account Balance & Capital Inflows

Net Capital Flows as a percentage of GDP

Capital Flows
US $ billion
2008-09 2009-10

Item

Apr-Mar

Apr-Mar

1. Inward FDI 2. FIIs 3. ECBs 4. NRI Deposits 5. Other Banking Capital 6. Short-term Trade Credits Total

35.2 -15.0 7.9 4.3 -7.5 -1.9 7.2

31.7 29.0 2.5 2.9 -0.8 7.7 53.4

FII flows amounted to US$3.5 billion during April-June 2010-11 as against US $ 8.3 billion during April-June 2009-10

FDI Flows to India

(US $ million)

April-July
2006-07 Equity 16,394 2007-08 26,757 2008-09 27,807 2009-10 22,908 2009-10 10,381

April-July
2010-11 7,557

Re-invested Earnings

5,828

7,679

6,428

8,079

Other Capital*
Total

517 22,739

292 34,728

757 34,992

695 31,682 10,381 7,557

* Inter company debt transactions of FDI entities

Source: RBI

Banking Sector Scenario

Indian banks continue to remain well capitalized as per Basel II requirements NPAs at manageable level despite the downturn Significant liquidity buffers - CRR and SLR prescriptions Focus on CD ratio and SLR requirement help in limiting leverage

Structural Reforms
Discussion paper on licensing New Private Sector Banks issued in August 2010 Discussion paper on presence of foreign banks to be issued shortly Working Group looking into Holding Company structure

Financial Stability and Development Council

GOI setting up Financial Stability and Development Council (FSDC) for: Achieving inter-regulatory coordination and overseeing systemic risks and laying down a macro-prudential overlay to financial sector regulation

Focus on Financial Inclusion Adoption of mobile- based and smart card based technologies , UIDs IMPLEMENTATION OF BASEL III NORMS Focus on e-governance projects Importance of CSR in corporate world Education and awareness in investing

Basel III
BCBS release Basel III norms on September 12, 2010 implementation in a phased manner Capital adequacy of Indian banks will not be impacted significantly they already have high CRAR and Core CRAR Leverage ratio will be around 6, much comfortable than the Basel requirement of 3 Indian banks largely follow retail model and therefore liquidity is not an issue for them

Macroeconomic situation RBIs latest assessment on September 16, 2010

Global Scenario Recovery slowing; global environment continues to be a cause for caution Domestic Scenario Recovery consolidating; economy rapidly converging to its trend rate of growth. Agri. growth prospects boosted; sustained growth in service sector. Inflation dominant concern; implications for real interest rates Fiscal deficit conforming to budget estimates External front -export growth constrained by continuing sluggishness in global economy; demand for imports increased due to strong domestic recovery Overall assessment - growth remains steady. Inflation appears to have stopped accelerating though the rate may remain high for some months. Monetary Measures announced Repo rate under LAF increased by 25 basis points from 5.75 % 6 %. Reverse repo rate increased by 50 basis points from 4.5 % to 5.0 %

Thanks.