Indian Economy

Presented by Mallela Hemchand Mansoor Ahmed Siddiqui Meghana Reddy Nabanisha Mahanta Naina Gupta

The Explosive Story of Indian Economy

Consumption led rather than export led, growth with democracy, growth in services rather than manufacturing, entrepreneurial rather than Government led

Contents
Introduction History Features Sectors Positive Aspects of Indian Economy Developmental Issues Approach to Economic Development Effect of Recession on India Conclusion

Introduction

GDP Growth

Forex

FII Flow

FDI

Per Capita
USD 390

Inflation

1990

4.9 percent

< USD 1 billion

USD 1 million (1993)

USD 97 million

9 percent

2008*

8.7 percent

USD 309 billion as on Mar 28, 2008

USD 16.1 billion in 2007-08

USD 12.7 billion in 2007-08 till December

USD 740

7.4 percent as on March 29, 2008

History of Independent Indian Economy

Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s. Economy transformed from primarily agriculture, forestry, fishing, and textile manufacturing in 1947 to major heavy industry, transportation, and telecommunications industries by late 1970s According to economic historian Angus Maddison in his book The World Economy: A Millennial Perspective, India had the world's largest economy from the 1st century to 11th century, with a 32.9% share of world GDP in the 1st century to 28.9% in 1000 CE The Arthasastra is one of the most important ancient texts on economics, politics and administration

India: Economic Growth from 1985 to 2005

(annual growth rate, in %)

GDP 14

Agriculture

Industry

Services

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

-1

-6

2005*

Features of Indian Economy

Low Per Capita Income Low Standard of Living High Poverty Inequal Income Distribution Dominance of Agriculture Existence of Rich Resources Inadequate Capital Formation Unemployment and Underemployment Technological Backwardness Infrastructural Inadequacies Dualistic Economy

Sectors
Agriculture Industries Finance Services Natural Resources

Agriculture
Agriculture is the mainstay of the Indian economy It is the means of livelihood of almost two thirds of the work force in the country Agriculture accounts for approx 18% of India's GDP Largest producer in the world of milk, cashew nuts, coconuts, tea, ginger, turmeric and black pepper World's largest cattle population Second largest producer of wheat, rice, sugar, groundnut and inland fish Third largest producer of tobacco India accounts for 10% of the world fruit production with first rank in the production of banana and sapota

Industries
o Industry accounts for 27.6% of the GDP and employ 17% of the total workforce o one-third of the industrial labour force is engaged in simple household manufacturing o India is 16th in the world in terms of nominal factory output o Textile manufacturing is the second largest source for employment after agriculture and accounts for 26% of manufacturing output o Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear o Dharavi slum in Mumbai has gained fame for leather products

Finance
Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in 1980 Since then, the number of bank branches has increased from 10,120 in 1969 to 1,15,910 in 2008 Currently, India has 88 scheduled commercial banks (SCBs) 28 public sector banks, 29 private banks and 31 foreign bank They have a combined network of over 53,000 branches and 17,000 ATMs The public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively The BSE Sensex is generally regarded as the most popular and precise barometer of the Indian stock markets

Services
India is fifteenth in services output The contribution of IT to GDP increased to 4.8 % in 2005-06 and is projected to increase to 7% of GDP in 2008 Organized retail such supermarkets accounts for just 4% of the market as of 2008 Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals woo medical tourism.

Natural Resources
India's total cultivable area is 1,269,219 km (56.78% of total land area), which is decreasing due to constant pressure from an ever growing population and increased urbanisation India has a total water surface area of 314,400 km and receives an average annual rainfall of 1,100 mm. Irrigation accounts for 92% of the water utilisation, and comprised 380 km in 1974, and is expected to rise to 1,050 km by 2025 In 2008, India had the world's third largest fishing industry India's oil reserves, found in Bombay High off the coast of Maharashtra, Gujarat, Rajasthan and in eastern Assam meet 25% of the country's demand

Growth in sectors at Current Prices (2007-08): Industry: 10.7% Services: 8.9% Agriculture: 2.6%
1,200 1,000

USD Billion

800 561 600 400 191 200 0 103 105 237 125 105 204 135 2005-06 Industry 231 145 2006-07 Services 398 453

270 176 2007-08

1999-00 2002-03 Agriculture

Why India? Quote Unquote

India has evolved into one of the world's leading technology centers.
Craig Barrett Intel Corporation Peter Loescher President and Chief Executive Siemens

India is now truly a land of opportunity.

I have never seen India so dynamic, vibrant and full of business opportunities.

John Redwood Economic Competitiveness Policy Group, UK

By 2032, India will be among the three largest economies in the world.

We came to India for the costs, stayed for the quality and are now investing for innovation.

BRIC Report, Goldman Sachs

The Indian market has two core advantages - an increasing presence of multinationals and an upswing in the IT exports.

- Dan

Scheinman, Cisco System Inc. as told to Business Week, August 2005

India is a developed country as far as intellectual capital is concerned.

Jack Welch General Electric

India is a very exciting market and the luxury car segment is growing exponentially here.
Mr Paul de Voijs Managing Director Volvo Car India

Travyn Rhall, ACNielse n

15

Some Corporate Achievements in India

The Tata Nano, the worlds cheapest production car The HCL laptop, the cheapest production laptop

The Infosys IT training campus the largest in the world Kingfisher Airways, voted the best airline of south-east Asia

Some Encouraging Statistics..

India is the second fastest growing major economy with a 9.2% increase in GDP per year India is already the third largest economy in the world at PPP India has seen a huge amount of foreign direct investment in the country, totaling 67.72 billion dollars and is said to be one of the preferred options for FDI Indias poverty level is decreasing by 10% annually Indian companies have gone on a buying rampage, with Tata Steel acquiring Corus, Mittal buying Arcelor and Tata looking set to buy Jaguar and Land Rover from Ford. Every year Indias middle class is increased by 40,000,000 new members which shows that the wealth is truly entering society The Bombay Stock Exchanges value has been consistently rising, currently worth 1.61 trillion dollars, the largest in South East Asia. Unemployment has dropped by 2% annually, and illiteracy and mortality rates have also been falling, indicating that India is not only growing but developing too.

Bet You Didnt Know

India is one of only three countries that makes supercomputers (the US and Japan are the other two). India is one of six countries that launches satellites. The Bombay stock exchange lists more than 6,000 companies. Only the NYSE has more. Eight Indian companies are listed on the NYSE; three on the NASDAQ. By volume of pills produced, the Indian pharmaceutical industry is the world's second largest after China. India has the second largest community of software developers, after the U.S. India has the second largest network of paved highways, after the U.S. India is the world's largest producer of milk, and among the top five producers of sugar, cotton, tea, coffee, spices, rubber, silk, and fish. 100 of the Fortune 500 companies have R&D facilities in India.

 Two million people of Indian origin live in the U.S. Indian-born Americans are among the most affluent and best educated of the recent immigrant groups in the U.S. Thirty percent of the R&D researchers in American pharmaceutical companies are Indian Americans. Nearly 49% of the high-tech startups in silicon Valley and Washington, D.C. are owned by Indians or Indian-Americans. There are over 700 companies in Silicon Valley owned by IndianAmericans. India sends more students to U.S. colleges than any country in the world. In 2004-2005, over 80,000 Indian students entered the U.S. China sent only 65,000 students during the same time. In a case decided by the U.S. Supreme Court, an IndianAmerican woman scientist, Dr. Ananda Chakrabaty, won the argument that persons may be granted patents for useful manufacture of living organisms. She defeated the U.S. Patent Office, that argued that living things may not be patented, thus establishing the legal foundation for the biotech industry, (Diamond vs. Chakrabaty, 1980). Dr. Chakrabaty invented a microbe that eats oil spills.

India: Pacing Ahead to Emerge as a Major Economy in the World

2007 Global Retail Development Index (GRDI)

GRDI Score

India is the top destination in the AT Kearney Global Retail Development Index (2007)

2007 Global Services Location Index India 3.2 2.9 2.8 3.2 2.6 3.3 1.3 1.2 1.8 1.5 2.3 2.3 2 1.6 1.5 1.1 1.4 1.4

100 80 60 40 20 0 India Russia Vietnam Ukraine China Chile Latvia

China Malaysia Thailand Brazil Indonesia

Services sector attracted interest of major global players and large investments are pumped in it

Financial structure Business environment

People and skill availablity

GDP Growth Rate (%)

AT Kearney has placed India as the most preferable destination for Services sector (2007)

Projected GDP Growth Rates for Select Upcoming Economies

India is expected to outperform its rivals in the BRIC, in terms of GDP growth rate, from 2015 onwards

0 2005-10 2010-15 2015-20 Brazil 2020-25 2025-30 China 2030-35 India 2035-40 Russia 2040-45 2045-50

Source: AT Kearney, BRIC Report

20

Is India Really Shining?

Agriculture is still the biggest employer in India, with 54% of the Population engaged in Farming. 43 % of all Indian land is used in agriculture, but it only contributes 18% of the nations GDP Many farmers are subsistence farmers. According to the WHO, 61% of all farmers cultivate less than 0.4 hectares only enough to feed their own family, with little left over to sell.

Agricultural Prices fluctuate wildly and often farmers are forced into debt, produced by extortionist interest rates which are unregulated by the government. They enter cycles of debt so the money they earn is never their own. Pressed by either famine and no crops, or a bumper crop and collapsing prices, farmers are often driven to suicide. Since 1997 when the statistics were first recorded 25,000 farmers have taken their lives in India. In the Vidarbha District of Maharashtra 1920 farmers killed themselves between January and August of 2007.

This woman is looking for her brother who left a suicide note at her house, they cannot find his body. In one district of Maharashtra alone, a farmer kills himself every eight hours.

Healthcare: Our Fundamental Right

Our life expectancy is 68 years, making our life expectancy the 139nth out of 172 countries.
A growing threat: 5.7 million Indians have AIDS or HIV out of which 40 % are women We only one hospital bed for every 74 patients who need one. We have only one doctor for every 1,230 people. Despite these statistics, the Indian Government still spends more on defence than it does on health.

 Our literacy rate is 61% making us the 145th in the World, just above war-torn Sudan and just below genocidal Rwanda. Literacy is defined as The ability to sign ones name so complete literacy is likely to be even less.

Guns are more important than books: 2.9% of GDP is spend on defence compared to 2.6% on education. Is it guns or education that will really make India shine?

Education

Poverty and Inequality

345 Million Indians live under the poverty line. This means that one in three Indians live on less than twenty rupees per day. 7.2% of all Indians are unemployed India comes in at 94th in terms of employment. Using the GINI coefficient which is the only reliable method of calculating inequality India scores 0.368 were 0 is perfect equality and 1 is perfect inequality, putting India in the bottom 50 of all ranked nations in the world.

Other Problems Facing the Indian Economy

a) b) c) d) e) Poor Infrastructure Balance of Payments deterioration High Levels of Debt Large Budget Deficit Rigid Labour Laws

Approaches to Economic Development

The Gradual Approach It is based on the belief that the growth of industry is going to begin by expansion of other sectors rather deliberate expansion of the Industrial Sector by the Government. The Big Push Approach It is based on the game race; where certain minimum Investment, Purchasing Power or Market Size (push) is necessary.

So the question still remains, is India really shining? Or is it mere propaganda? There statistics that weve mentioned paint two pictures, some showing how far India has come and others showing how far we have to go, how do we reconcile these two Indias? Which one is the real India? The answer probably lies in the middle, India is definitely growing, and assuming a larger role on the world stage, more people are becoming richer, the number of poor are decreasing and society as a whole is slowly improving. The fact still remains, however, that a vast proportion of the population live in the worst kind of poverty seen in the world and are denied access to basic standards of living that is theirs by right.

There is hope for the future, as India grows and develops, more and more people are able to afford a better lifestyle and more get access to essential services but in our boundless optimism for Indias future we should not forget the vast sections of society for whom the phrase India Shining is utterly meaningless.

Challenges for Indian Economy due to Global Recession

1) Spreading the benefits of growth more equitably. 2) Completing investment projects which are essential for long term development of economy. 3) Dealing with global financial uncertainty,which will make capital inflows and exports more difficult.