Economic Environment in India-has It Changed for Good
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ECONOMIC ENVIRONMENT IN
INDIA - HAS IT CHANGED FORGOOD
Presented by:
Hardeep SinghGarima
Himanshu Seth
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Compared to 60 years ago, the face of India has undoubtedly
changed. The change is most striking in cities, with cars and
buildings, flyovers and malls, planes and metros.
If we travel down a few dozen miles into the countryside, there too
the change is visible, if not as uniformly.
And if we travel further into remote forests and far flung villages,
we will be travelling back in timethe past lingers there, in huts
and on the faces of landless laborers and forest dwellers.
INDIA
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INDIA
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ECONOMIC
ENVIRONMENT
http://c/Users/temp/Documents/Desktop/sarab/videos/cred.flv -
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ECONOMIC ENVIRONMENT
Economic environment refers to
the aggregate of the nature of economic system
of the country
the structural anatomy of the economy
to economic policies of the government
the nature of factor endowment
business cycle the socio-economic infrastructure etc.
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Factors of Economic Environment
The Nature of Economic System
Economic Structure Economic Policies
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Current Situation in the Indian
Economy
Slow recovery from the recession.
Inflation affecting the growth.
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India is the second fastest growing economy in
the world. Indias GDP has touched US$1.25
trillion. The crossing of Indian GDP over a trillion
dollar mark put India in the elite group ofcountries with trillion dollar economies.
The tremendous growth rate has coincided with
better macroeconomic stability. India has made
remarkable progress in information technology,
high end services and knowledge process services.
India GDP Growth Rate
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Gross Domestic Product (GDP)
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India Gross Domestic Product (GDP) expanded 7.90% over the last
4 quarters. Indias GDP is worth 1217 billion dollars or 1.96% of
the world economy, according to the World Bank. India's diverse
economy encompasses traditional village farming, modern
agriculture, handicrafts, a wide range of modern industries, and a
multitude of services. Services are the major source of economic
growth, accounting for more than half of India's output with less
than one third of its labor force.
India GDP per Capita
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India GDP per Capita
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ECONOMIC GROWTH
The rate of expansion that can move an
underdeveloped country from a near
subsistence mode of living to substantially
higher level in a comparatively short period of
time i.e., in decades rather than centuries.
For nations already advanced economically, it
will mean a continuation of existing rates of
growth.
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ECONOMIC GROWTH
Historically economic growth is accompanied by:
Greater industrialization.
Greater commercialization.
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ECONOMIC GROWTH
Theoretically economic growth is conceptualized asany one of the following:
A rise in gross domestic product (GDP)
A rise in gross national product (GNP)
A rise in per capita gross domestic product
A rise in per capita gross national product
A rise in per capita net domestic product A rise in per capita net national product
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ECONOMIC DEVELOPMENT
The Traditional Approach stresses two aspects:
Sustained annual increase in GDP at the rate of 7percent or more.
Structural transformation of an agrarian economy
into an industrialized economy.
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ECONOMIC DEVELOPMENT
The new economic view of development has
been defined to include improvements in
material welfare, specially for persons withthe lowest incomes, the eradication of mass
poverty with its co-relates of illiteracy, disease
and early death and finally alleviation ofunemployment and income inequality.
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Nature and Structure of Indian
Economy
Level of Development of Economy Sectoral Composition of Output
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Level of Development of
Economy
India as an Underdeveloped Economy
India as a Developing Economy
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India as an Underdeveloped
Economy Low per capita income
Inequitable distribution of income
High Poverty
Low Level of Human Development
Predominance of Agriculture High Unemployment
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Per Capita Income
Per capita income means how much each individualreceives, in monetary terms, of the yearly income
generated in the country. This is what each citizen is to
receive if the yearly national income is divided equally
among everyone. Per capita income is usually reported
in units of currency per year
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Low per Capita Income
India ranks 169 with GDP per capita of $2900
(2008 est, CIA World Factbook)
Per capita income for 2007-08 : Rs 24,295
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High Poverty
Year Population below povertyline (%)
2000 35
2001 35
2002 25
2003 25
2004 25
2005 25
2006 25
2007 252008 25
2009 25
Population living on less than $1 per day, as on Dec09 :375 million
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UNEMPLOYMENT RATE
Labour Force - the number of people employed
plus the number unemployed but seeking work.
The non-labour force includes those who are
not looking for work, those who areinstitutionalised and those serving in the military.
India's diverse economy encompasses traditional
village farming, modern agriculture, handicrafts,a wide range of modern industries, and a
multitude of services.
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Indias Unemployment Rate
Year UnemploymentRate (%)
2002 8.8
2003 8.8
2004 9.5
2005 9.2
2006 8.9
2007 7.8
2008 7.2
2009 7.1
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India as a Developing Economy
Rise in Net National Income
Rise in per capita income
High growth rate of population Existence of Unemployment and Under-
employment
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Rise in Net National Income
3.54.2
2.8 3.2
4.75.5 5.6
6.5
5.5
7.8
9.1
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
1951
-56
1956
-61
1961
-66
1969
-74
1974
-79
1980
-85
1985
-90
1992
-97
1997
-200
2
2002
-200
7
2007
-08
Year
P
ercentagegrowthove
rthepreviousyear
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Rise in per Capita Income
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High Growth Rate of Population
YearPopulation growth
rate (%)
2000 1.58
2001 1.55
2002 1.51
2003 1.47
2004 1.44
2005 1.4
2006 1.38
2007 1.606
2008 1.578
Population as on Dec09 : 1.150 billion, yearly increase17million
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OVERVIEW OF SECTORS
of
INDIAN ECONOMY
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AGRICULTURE
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AGRICULTURE
Agricultural production has largely been
stagnating for the past decade. Costs of inputs like fertilizers and power have
gone up more than the produce.
More vulnerable to international price volatility.
Per capita foodgrain availability has shrunk towhat it was three decades ago.
More than 67 % of cultivated area is held inholdings less than 4 hectares in size, compared to
just 35 % in 1953. Primary reason for this- decline in public
investment in agriculture.
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AGRICULTURE
72% of farmers have 1 hectare or less.
Agriculture continues to be the mainstay of incomesfor about 52 % of Indias population.
Contribution to GDP has drastically dropped from
over 53% in 1950 to 21 % in 2008.
For the country to achieve 9-10 % growth, agriculture
has to grow at least by 4 %.
While it grew by 2.5 % in the first quarter of 2009-10
and by less than 1.5% in the second. Adverse impact of the deficient monsoon.
It is likely to be negative in the 3rd quarter of this
fiscal. source: ministry of Finance website
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AGRICULTURE
Progress of special programmes for raising agricultural production-National food security mission.
The rashtriya krishi vikas yojana.
In 2009, Department of Agriculture and Cooperation, as custodianof the end-users i.e. the farming community, has sponsored aproject entitled: Development and Application of Extended RangeForecasting System for Climate Risk Management in Agriculture(ERFS).
In the first phase (two-three years), it is envisaged to develop aseasonal forecast system for met subdivisions/ agro-climatic zones.In the second phase, monthly forecast is targeted at these levels.
source: Economic Survey,2008-09
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AGRICULTURE
Need for- Renewed focus on increasing the productivity.
Step up the growth of allied activities and
non-farm activities
Rural infrastructure for movement of
agricultural produce.
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EXTERNAL SECTOR
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FOREIGN TRADEUS $ MILLION
EXPORTS (including re-exports)NOVEMBER APRIL-NOVEMBER
2008-2009 11163 134201
2009-2010 13199 104247
%Growth 2009-2010/2008-2009
18.2 -22.3
IMPORTS
2008-2009 23488 234353
2009-2010 22888 170430
%Growth 2009-2010/2008-2009
-2.6 -27.3
TRADE BALANCE2008-2009 -12325 -100152
2009-2010 -9690 -66183
*Figures for 2008-09 are the latest revised whereas figures for 2009-10 areprovisional.
SOURCE: MINISTRY OF FINANCE WEBSITE
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EXPORTS:
After exports turned positive in Nov. 2009 after 13 months of continuous fall,
they grew by 9.4 % in Dec. 2009 on the back of strong growth in-
PharmaEngineering,
Auto components sector, and
Chemicals
IMPORTS:
Imports during November, 2009 were valued at Rs.106584 crore representing adecrease of 7.4 per cent over the level of imports valued at US Rs. 115091
crore in November, 2008.
TRADE DEFICIT:
Trade deficit, however, was lower reflecting larger fall in imports, especially oil
imports, on account of lower oil prices as compared to last year.
The trade deficit for April- November, 2009 was estimated at US $ 66183 million
which was lower than the deficit of US $ 100152 million during April-November,
2008.
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BALANCE OF PAYMENTS:
Balance of trade: refers only to merchandise exports and
imports.
BoP: All economic transactions with the outside world. A
classified record of all receipts on account of goods
exported, services rendered and capital received by
residents , and payments made by them on account of
goods imported and services received from, and capitaltransferred to non-residents or foreigners.
A satisfactory BoP situation:
High earnings from services- mainly software services.
Role of foreign investment.
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FDI:
FDI is the outcome of the mutual interest of multi-national firms and the host
countries. The essence of FDI is the transmission to the host country of a package of
capital, managerial skills and technical knowledge.
Importance of FDI-
Upgradation of technology
Development of basic infrastructure
Improvement in Balance of Payments situation
Better access to foreign markets.
Inflow of FDI in the country jumped by 60% in November 2009 year-on-year. Country
received $1.7 billion foreign investment and $19.4 billion in April-Nov, a tad lower
than $ 19.8 billion in the comparable 8 months of the previous fiscal.
From 2006-07 to 2009-10, sectors attracting highest FDI equity inflows are-
Services 22 %,computer software and hardware 9%,
Telecommunication 8 %,
construction activities 7 %.
(Source: Department of Industrial Policy and Promotion, Ministry of Commerce and
Industry)
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During 2005-06 to 2008-09, FDI flows assumed greater
significance.
High inflows indicate India as an attractive investment
destination as a consequence of its liberalised investment
climate, stable and sound economic and political base,
opportunities for economic growth, while capitalinvestment abroad reflects the growing global
competitiveness of the Indian corporate sector.
Indian companies are also constantly looking for
synergistic acquisitions abroad.
The two-way flow of FDI, therefore, means that while the
world is taking note of Indias market potential.
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FII:
Investment of Rs. 80,500 crore in 2009 is the highest ever
inflow in the country in rupee terms in a single year. Itcomes after a year after they pulled out over Rs. 50,000
crore.
FII inflow so far this year has broken the previous high ofRs. 71,486 crore parked by foreign investors in domestic
equities in 2007.
Future Prospects:FDI into India is looking set to be more than $25 billion, and
FII inbound flows should be more than $25 billion,
estimates commerce minister Anand Sharma.
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Foreign exchange reserves (also called Forex reserves) in a strict sense are
onlythe foreign currency deposits and bonds held by CENTRAL BANKS and
monetary authorities. However, the term in popular usage commonly
includes foreign exchange and gold, SDRs. This broader figure is more
readily available, but it is more accurately termed official internationalreserves or international reserves.
These are assets of the CENTRAL BANKS held in different reserve
currencies, mostly the US dollars, and to a lesser extent the euro, the UK
pound, and the Japanese yen.
Foreign exchange reserves are an important component of the balance of
payments and an essential element in the analysis of an economy's
external position. The level of India's foreign exchange reserves comprising
foreign currency assets (FCA), gold, SDRs in the IMF.
FOREIGN EXCHANGE RESERVES
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FOREIGN EXCHANGE RESERVES:
Foreign exchange reserves, on BoP basis have shownan accretion of US $
9.4 billion in Q2 of 2009-10 as against a decline in reserves of US $ 4.7 billion
in Q2 of 2008-09.
India's foreign exchange reserves grew $741 million to $284.262 billion as on
week ended January 8,2010 as foreign currency assets of the country rose.
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Source: economic survey2008-09
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Exchange Rates JAN 15, 2010 JAN 15,2009
%
CHANGE
Rupees per USDollar
45.6650 49.0850 7.5
Rupees per Euro 65.8488 64.7800 -1.6
Source: Min. of Finance website
http://www.rbi.org.in/scripts/BS_NSDPDisplay.aspx -
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Foreign Trade Policy/ Ex-Im Policy:
The Government of India, Ministry of Commerce and Industry announces Export
Import Policy after every five years. EXIM policy, in general, aims at developing
export potential, improving export performance, encouraging foreign trade andcreating favorable balance of payments position. The current Exim Policy covers the
period 2009-2014. The Export Import Policy (EXIM Policy) is updated every year on
the 31st of March and the modifications, improvements and new schemes
becomes effective from 1st April of every year.
A policy objective of achieving an annual export growth of 15% with an annualexport target of US$ 200 billion by March 2011. In the remaining three years of this
Foreign Trade Policy i.e. upto 2014, the country should be able to come back on the
high export growth path of around 25% per annum.
By 2014, there is an expectation to double Indias exports of goods and services.
The long term policy objective for the Government is to double Indias share in
global trade by 2020.Indias Look East Policy: Trade in Goods Agreement with ASEAN which came in
force from January 01, 2010 will give enhanced market access to several items of
Indian exports in this vibrant economic grouping.
The Government seeks to promote Brand India through six or more Made
in India shows to be organized across the world every year.
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After the enactment of the SEZ Act (2005), nearly 3 lakh people have gained
employment in the Special Economic Zones.
In the last 5 years, exports from SEZ have grown by 620%, and have attracted foreign
direct investment of US$ 2.43 billion.
source: Ministry of Commerce website
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INFRASTRUCTURE
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INFRASTRUCTURE
It consists of-
Power or electricityAtomic energy
The transport system- the railways, road transport, water transport, air transport
Tele communications
6 Core industries-
Six core industries-Crude oil,
Refinery products,
Coal,
Electricity,
Cement,
Finished steel-
contributed 26.7% to the overall Index of Industrial Production (IIP). The growth of
core sector reflects the heath of industrial production.
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INFRASTRUCTURE
Infrastructure sector expanded 5.3 % in November 2009 on back of robust
growth in steel and cement indicating revival in industrial growth.
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INFRASTRUCTURE
TRANSPORT:
The transport sector in India is expected to grow at 10 % per annum.
Ministry of surface transport had taken up the task of completing 20 kms of national
highways everyday. But 50 % of the projects have been delayed last year due to
reasons including land acquisition, pending environmental clearances or in some
cases due to cancellation of the contract itself.
TELECOMMUNICATIONS:
There have been 150 million new subscribers in the last year.
2010 is expected to be a year of telecom Mergers and Acquisitions with new entrants
like Loop, Datacom, Swan/ Etisalat, Unitech/Telenor and STel.
INFRASTRUCTURE
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INFRASTRUCTUREAviation:
In Oct. 2009 overall passenger movements in airports saw a 27.6% growth
over the same month last year.
Domestic air travel has made a comeback in 2009, with traffic registering
an increase of 7.9% over the previous year. Low fare is the way to survive
at this time. This was realized by the private players.
Air India does not follow the LCC model.
Cargo traffic at Indian ports:
Cargo handled by major ports in the country, a key indicator for economic
activity is staging a smart recovery.In Dec 2009, cargo handeled was up for the fifth consecutive month at
49.1 million tonnes compared to 45.3 million tonnes in the same month
last year, a growth of 8.3 %.
On a sequential basis, the cargo volumes increased by 1.9 % compared to
previous month.
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MANUFACTURING
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MANUFACTURING:
The sector grew at around 10-12 % in 2009 as growth accelerated from a singledigit level in 2008.
In 2009 manufacturing industry was marked by relatively low attrition rates and
reduced hiring.
Consumer durables industry comprises-
Refrigerators,Washing machines
Air conditioners
Colour TVs
Resurgence in demand for consumer durables-because of -low input costs, better inventory management,
Stimulus package
Pay revision of central government employees
Stable prices.
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MANUFACTURING
Automobile sector:
Car sales in the domestic market zoomed 40% in December, led by revival in
economic growth and easier retail financing and also due to low base of last year.
Also because of salary hikes for government employees and recovery in stock
markets.
Overall auto sales also recorded handsome gains as all the segments cars, two-wheelers, three-wheelers and commercial vehicles grew.
One of the things that drove growth in 2009 was new launches. The number of new
launches in the year were far more than what in any previous year.
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SOCIAL SECTOR
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SOCIAL SECTOR
Some of the major social sector initiatives for achieving inclusive growth and
faster social sector development and to remove economic and social disparities in
the Eleventh Five Year Plan, include the-
Bharat Nirman programme,
Mid-day Meal Scheme,
National Rural Health Mission,
JawaharlalNehru National Urban Renewal Mission and
The National Rural Employment Guarantee Scheme (NREGS).
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POLICIES
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INDUSTRIAL POLICY:
Policies related to-
Abolition of industrial licensing-
Now, it is compulsory for only 5 industries- alcohol, cigarettes, hazardous
Chemicals, electronics aerospace and defence equipment and industrialexplosives. In respect of delicensed industry, no approval is required from the
government.
Public Sectors role-
Only 3 industries reserved for public sector- atomic energy, minerals specified in
the schedule to the atomic energy and rail transport.
Divestment-FDI:
policy does not permit FDI in the following cases:
i. Gambling and betting
ii. Lottery Business
iii. Atomic Energy
iv. Retail Tradingv. Agricultural or plantation activities of Agriculture (excluding Floriculture,
Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and
Cultivation of Vegetables, Mushrooms etc., under controlled conditions and
services related to agro and allied sectors) and Plantations (other than Tea
Plantations).
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MONETARY POLICY:
Monetary policy refers to a regulatory policy whereby the
Central Bank maintains its control over the supply of moneyfor the realization of economic goals. In a growing economy
there has to be a continuous expansion of money supply and
bank credit. Banks responsibility in the circumstances is
mainly to moderate the expansion of credit and money
supply in such a way as to ensure the requirements of
industry and trade.
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-The Reserve Bank of India has increased CRR- the bank deposits kept with the RBI- to
75 basis points to 5.75 %.
- Move to suck out excess liquidity worth Rs. 36,000 crore from system.
-Bank rate retained at 6.0 percent.
- Repo rate retained at 4.75 per cent.- Reverse repo rate retained at 3.25 percent.
- Indias economic growth projection hiked to 7.5 percent from earlier 6 percent.
-Annual inflation rate projection hiked to 8.5 percent from 6.5 percent.
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Impact:
The tipping point has not yet reached for tightening of monetary policy and if
one proceeds in that direction hastily, economic growth may take a hit. This in
turn will affect employment generation that is critical at this juncture.Hike in CRR may adversely affect the availability of funds with the banks for
extending credit to the industry from the banking system.
SMEs are still borrowing at around 13 per cent.
Fiscal Policy:
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Fiscal policy is concerned with the determination of state income and expenditure
policy. An effective fiscal policy consists of policy decisions relating to the entire
financial structure of the govt. including tax revenue, public expenditures, loans,
transfers etc.
Government takes fiscal measures to reduce the fiscal deficit. Last year after the
global slowdown hit India, the Govt. had introduced stimulus measures like excise
duty cuts by 6 %, enhanced expenditure in social and infrastructure sectors,
besides agricultural loan-waiver to the tune of Rs. 65,000 crore and
implementation of the sixth pay commission recommendations. They led to the
economy bouncing back.
Impact:
FISCAL deficit for the current year could overshoot even the 16-year high 6.8%
budgeted for the current year as fertiliser subsidy is likely to be higher and
postponing of 3G Auction this fiscal.
The government had expected to raise about Rs 35,000 crore from the
sale of 3G-spectrum and it is faced with an additional spend of Rs 20,000 crore on
the fertiliser subsidy against Rs 49,980 crore estimated for 2009-10 .
this can lead to increase in the government borrowing in the current fiscal.
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SALARY HIKES
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INFLATION
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What is Inflation?
Inflation rate of a country is the rate at which
prices of goods and services increase in its
economy.
It is an indication of the rise in the general level
of prices over time.
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Inflation Cont.
Mathematically, inflation or inflation rate iscalculated as the percentage rate of change of acertain price index.
The price indices widely used for this areConsumer Price Index (adopted by countriessuch as USA, UK, Japan and China) andWholesale Price Index (adopted by countries
such as India).Thus inflation rate, generally, is derived from CPIor WPI.
INFLATION DURING THE LAST YEAR
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INFLATION DURING THE LAST YEAR
For the week ending Inflation (in %)31st December 2009 7.31
30th November 2009 4.78
31st October 2009 1.46
30th September 2009 0.5
31st August 2009 -0.17
31st July 2009 -0.67
30th June 2009 -1.01
31st
May 2009 1.3830th April 2009 1.31
31st March 2009 1.2
28th February 2009 3.5
31st January 2009 4.95
INFLATION
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INFLATION
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NEGATIVE INFLATION
Indias annual rate of inflation turned negative forthe week ended June 6 for the first time since thenew wholesale price index or WPI series startedin 1995.
Negative inflation implies that the average
wholesale price level is lower during a givenweek, than it was in the corresponding week ayear ago.
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REASONS
A major reason for the negative inflation, based onthe WPI, is the hike in fuel prices during thecorresponding period last year.
The fuel and power index reported a 12.8 per centdip with respect to previous year. On the otherhand, the primary articles group inflation reportedajump of 0.1 per cent.
Similarly, the food articles index which representscereals, pulses, vegetables, milk etc also reported ajump from 8.6 per cent to 8.7 per cent.
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IMPLICATION
Deflation is not good for a country's
growth as it translates into lower consumer
activity due to falling prices. This directlyleads to a larger inventory of goods and
hence lowers manufacturing activity.
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INFLATION SITUATION
Inflation emerged as a major concern during thethird quarter, dominated by significant supplyfactors.
On year on year basis, WPI headline inflation inDecember 2009 was at 7.3 per cent, whereas WPIinflation excluding food articles was 2.1 per cent,which suggests the concentrated nature of the
inflation so far.
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Cont
Weekly WPI data on primary articles indicate thatprimary food articles prices have increased by 17.4 percent (y-o-y) for the week ending on January 16, 2010.
The concentrated pressure on headline inflationarising from high food prices entails the risk of gettingtransmitted over time to other non-food items throughexpectations driven wage price revisions, and therebymagnifying into a generalized inflation.
While anchoring inflation , expectations becomes
important in such a situation, addressing supplyconstraints would be critical for enhancing theeffectiveness of any anti-inflationary policy measures.
Growth and Inflation Outlook
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Growth and Inflation Outlook
RBI is facing the challenge to maintain a consistentgrowth rate for the economy while ensuring that
the inflation is kept under control
According to the Reserve Banks Professional
Forecasters Survey conducted in December 2009,
the outlook for 2009-10 growth has been revised
upwards from 6.0 per cent to 6.9 per cent.
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Cont..
Several factors are expected to support upsideacceleration of economic growth in the near future:
a. Signs of revival in private demand, both consumption
and investmentb. Possibility of strong industrial recovery
c. Outlook for a better Rabi crop
d. Export growth remaining positive
e. Favorable capital market conditionsThe general improvement in business sentiments asper the Reserve Banks business expectations survey aswell as similar surveys of other agencies.
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The downside risks to growth in the near-term could beseen in terms of:
a. The adverse impact of the deficient monsoon on kharifcrop in the GDP of next quarter
b. Weakness in services activities that are dependent onexternal demand
c. Notwithstanding the signs of improvements in recentmonths
d. Possible pressures on interest rates that may emerge fromrevival in demand for credit from the private sector aswell as inflation expectations
FOOD INFLATION
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FOOD INFLATION
Food price inflation had shot up to 17.40% from16.81% for the week ended January 16, over theprevious week, but the price hike was mainly dueto spiralling pulses, vegetable, poultry and spice
rates.
Food items (i.e. primary and manufactured) witha combined weight of 27 per cent in the WPI
basket have exhibited 21.9 per cent increase inprices.
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BANKING Historical role of Banks as intermediaries between
the savers and the investors
In the last few decades, the importance and nature
of financial intermediation has undergone a dramatic
transformation the world over. Role that banking has played:
Banking system has provided credit to fund
investments
It has facilitated the raising of funds through a rangeof market based instruments shares, bonds,
mortgages, Assets backed securities, futures,
derivatives, etc.
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Cont..
Besides transferring resources from savers toinvestors, these instruments enable allocation
of risks and re-allocation of capital to more
efficient use.
These developments in international
financial markets have been mirrored in thefinancial market in India.
Bank-group wise shares in deposits
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Bank group wise shares in deposits
and credit
Nationalized banks, as a group, accounted for 50.5 per cent of theaggregate deposits, while State Bank of India and its Associatesaccounted for 23.8 per cent.
The share of other scheduled commercial banks, foreign banks andregional rural banks in aggregate deposits was
17.1 per cent,
5.6per cent and 3.0 per cent, respectively.
As regards gross bank credit, nationalized banks held the highestshare at 50.5 per cent in the total bank credit followed by StateBank of India and its associates at 23.7 per cent and other
scheduled commercial banks at 17.8 per cent.
Foreign banks and regional rural banks had relatively lower share inthe total bank credit at 5.5 per cent and 2.5 per cent, respectively.
.
C di D i R i
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Credit-Deposit Ratio
At the AllIndia level, the credit-deposit (C-D) ratio of all scheduledcommercial banks as on last Friday of September 2009 stood at 70.3 percent.
Among the States/Union Territories, the highest C-D ratio was observed inChandigarh (121.7 per cent) followed by Tamil Nadu (110.9 per cent).
At the bank group level, the C-D ratio was above the All-India ratio in
respect of other scheduled commercial banks (73.0 per cent). The C-Dratio in case of nationalized banks (70.3 per cent) was at the same level asall SCB C-D ratio.
The C-D ratio of State Bank of India and its associates (70.0 per cent),foreign banks (68.8 per cent) and regional rural banks (58.9 per cent) werelower than the all SCB C-D ratio.
C-D ratio ofAll Scheduled Commercial Banks in metropolitan centers wasthe highest (82.6 per cent) followed distantly by rural centers (57.9 percent) and urban centers (56.1 per cent).
The semi-urban centers recorded the lowest C-D ratio at 49.8 per cent.
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Cont..
EMERGING ISSUES
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EMERGING ISSUES
1. HealthcarePublic expenditure on health as a %age of GDP is a mere 0.9%,among the lowest in the world.
According to a Planning Commission paper of May 2009, healthcareexpenses were responsible for over half of all the cases of declineinto poverty.
It was estimated that in 2009-10, an additional 39 million people
were pushed into poverty due to out-of-pocket payments.
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Cont..
2. Poverty
Because of the gross poverty that inflicts much of rural
population, domestic demand is constrained.
This leaves the industry with limited options-
1. Cater to a small proportion of society, the upper middle
and higher classes2. Try out the cut-throat export market.
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Cont..
3. Unemployment
Fallout of this situation-
Employment creation not taking off, especially in ruralareas.
Absorption in services not as much possible as needed.
Larger sections of population continue to saturate
agriculture at low wages or to take petty trade. As aresult most of the employment is in unorganizedsector.
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4. INFRASTRUCTURE
Development of infrastructure would not only ameliorate the supply sidebottlenecks to growth, but also provide the requisite demand sidestimulus to growth. The rapid construction of highways facilitates humanand material movement across the country.
In the current Indian context, the programme for infrastructure building isundertaken broadly through two routes:
First, through planned execution of large infrastructure projects under theCentral and State Government agencies and through private initiatives
including Public private partnerships (PPPs)Second, through public works programmes, which have the twinobjectives of creating infrastructure and generating employment for thepoor.
COMPARISON
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COMPARISON
The Indian economy has registered an impressive growth in recenttimes with GDP recording an average of7.2 per cent growth rate inthe current decade from an average growth of5.7 per cent in thenineties.
A comparison with the earlier period since the beginning of the lastcentury brings out the extent of economic transformation far more
clearly. During the first 50 years of the nineteenth century theaverage GDP growth rate has been just 0.7 per cent which pickedup to 3.5 per cent (popularly called as Hindu rate of growth) inthe next three decades after independence, before progressing tohigher growth path in the recent decades.
Concomitantly, the per capita income grew from a mere 0.2 percent in 1900-1950 and 1.1 per cent in 1951-1980 to 3.2 per cent inthe eighties and 3.6 per cent in the nineties and further to 5.4 percent in the current decade
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Cont
E i T f ti
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Economic Transformation
Transformation of the economy is quite apparent from thenoticeable changes that have occurred in the sectoralcomposition of output.
The share of services in the national income has steadilyincreased with corresponding fall in the contributions of
agriculture and industry over the years. Services sector now accounts for nearly two third of total
output as against less than half in the early eighties and thenineties.
Share of industry declined marginally to 19 per cent from
20 per cent whereas share of agriculture registered steepdecline from 38 per cent to just 17 per cent
Cont
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Cont..
This positive performance seems to be an outcome ofreforms encompassing a range of measures that led totransformation spreading over all the sectors ofeconomy.
Transformation brought in higher degree ofsophistication and efficiency in operations of almost allthe sub segments of real as well as financial sectors.
Moreover, domestic economy has become far moreintegrated with rest of the world which is visible not
only in terms of growing trade volumes; financial flowsfrom and to the outside world have also been steadilygrowing.
Cont
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Structural transformation of almost all the segmentsof the economy during past two decades has broughtdiscernible improvement in terms of efficiency,competitiveness and productivity.
This reflects in economy moving over to higher growthtrajectory with far greater integration with the rest ofthe world in terms of diversification of goods and
services as well as destinations to which exports arebeing made.
Cont
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Transformation of the economy, which is discernible in theform of improved competitiveness, efficiency andproductivity across all the sectors, has led the economy to ahigher growth trajectory.
Consequent shift in relative contribution of various sectors
to national income, however, brought to fore the concernsfor sustainability of the transformation process and theneed for an inclusive growth.
The use of technology to make available affordable
financial and banking services to the under privilegedsections of our society for achieving inclusive growth is alsoour noble but critical objective.
Cont
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Finally, Economic Transformation is anongoing process that needs to be pursuedwith perseverance and consensus whilekeeping in view their aptness to the domesticeconomy.
Let us hope that this process continues andgains pace in the coming years.
Conclusion
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Conclusion
India is seen as a vast pool of talent with great diversity andwith a demographic advantage. However, the industrial sectorfaces acute shortage of skills. The swiftness with which thisskill deficit is bridged will be critical in determining whetherIndia can move up the value chain in manufacturing.
The size of the Indian market and the unmet demand forindustrial products provide reasonable hope that demandwould not be a constraining factor by itself. There is anincreasing realization that the industry should make consciousefforts to reach out to the bottom of the pyramid.
To be able to do so, the industry will need to deliver productsthat give value for money in a cost effective way.
Cont
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There is indeed a paradox-The countrys overall economic health measured in terms
of standard economic parameters-
GDP, National Income, food grain production etc.
appears to be rosy compared to 60 years ago.
Yet going into the details such as
life and livelihood in the hinterland does not reveals so
healthy a picture.
Cont..
Cont
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Cont..
After 62 years of independence, many of the issues thatconcern policy-makers and people are still the same:
Agriculture is still crucial.
Trade links with the world is still of concern.
Living standards and poverty is still a big issue.
India did march ahead with its global status despite aneconomic downturn but there is a need to dwell on
inclusive growth which will define the dynamics ofbusiness going forward.
India can view the next decade with OPTIMISM.
References
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References
www.rbi.org.inwww.advfn.com
www.indianfoline.com
www.finance.yahoo.com
Economic survey 2008-09
www.hindu.com
www.populationcommission.nic.in
indianeconomy.orgwww.worldbank.org
References
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References
www.economywatch.comBook on Indian Economy
www.economicshelp.org
www.mint.com
www.ficci.com
www.financialexpress.com
www.indiabudget.nic.in
www.thehindubusinessline.comwww.ibef.org