Indian Economy 2009 - 2012

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INDIAN ECONOMY 2009 - 2012

SECTION B - GROUP 5PGP18 087Aishwarya PadmanabhanPGP18 108Jenny H MansuriaPGP18 129Prateek VaidPGP18 150Siddharth Sriram

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INDIAN ECONOMY 2009 - 2012

Contents

Macroeconomic Snapshot Monetary Policy Fiscal Policy

Industry Future Outlook

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MACROECONOMIC SNAPSHOT

Indian Economy : 2009 - 2012

Macroeconomic Snapshot

Gross Domestic Production

Annual Sector Growth Rate

Per cent

Consistent GDP growth even in the light of

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impending global economic slowdown.

12

10

Economy recovered well post 2008 recession to post 8% GDP growth in 2009 2010.

8

6

4

2

0

Quarterly GDP Growth Rate

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

Per cent

10

Agriculture

Manufacturing

Services

GDP

8

Source: PMEAC

6

4

2

0D2010

3QTR 4QTR 2011

2QTR 3QTR 4QTR 2012

2QTR 3QTR 4QTR

2QTR

1QTR

1QTR

GDP Growth

Source: www.indiabudget.nic.in

Economy expanded at its slowest pace in more than two years in the July-September quarter in 2011, hurt by high local borrowing costs and a deepening euro-zone crisis. GDP estimated to grow at 7.6 per cent in 2011-12.

RBI mid-year credit policy review for projection

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GDP Component ShareAnnual Sector Growth Rate

Per cent

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12

10

Private consumption component has decreased over the years to 62%

The GDP though has still remained strong due to increased investments through FDIs and FIIs.

FDI inflow rose by 50 per cent to $ 20.76 billion during January-August 20118

6

4

2

0

Quarterly GDP Growth Rate

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

Per cent

10

Agriculture

Manufacturing

Services

GDP

8

Source: PMEAC

6

4

2

0D2010

3QTR 4QTR 2011

2QTR 3QTR 4QTR 2012

2QTR 3QTR 4QTR

2QTR

1QTR

1QTR

GDP Growth

3

Source : IMF paper

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Private Consumption

Private consumption is expected to crossapproximately US$ 2,020 bn by 2016-17.

Disposable Income

Disposable income is showing consistentincrease.

Disposable Income

Rs. billion

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

-

2005-062006-07 2007-08 2008-092009-102010-11

Disposable Income

Source: CSO

Private ConsumptionPer cent growth rate

10

8

6

4

2

0

20103QTR 4QTR 20112QTR 3QTR 4QTR 20122QTR 3QTR 4QTR2QTR1QTR1QTR

Source: Central Statistical Office (CSO), Economist Intelligence Unit

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MACROECONOMIC SNAPSHOTIndian Economy : 2009 - 2012

Macroeconomic SnapshotInclusive growth and large rural consumption

69 per cent of the Indian population is rural. Companies are catering to rural demand - tapping thebottom of the pyramid - for inclusive growth.

The rural consumer market, which grew 25 per cent in 2008, is expected to reach US$ 425 billion in2010-11 with 720-790 million customers. This will be double the 2004-05 market size of US$ 220billion.

Rural Indian households spent more on consumer goods like durables, beverages and services ascompared to their expenses on these five years back.

The Monthly Per Capita Expenditure (MPCE) in rural India was US$ 20.69 in 2009-10, an increase of

64.6 per cent from 2004-05.

Services such as healthcare, education, entertainment, banking and finance are expected to enablegrowth.

Source: Household consumer expenditure survey for 2009-10, released by the National SampleSurvey Office (NSSO), 66th round of the National Sample Survey

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Investment

Total foreign investment is expected to reachUS$ 74 bn in 2011-12.

Gross fixed investment is expected to cross US$616 bn in 2011-12.

Gross Fixed InvestmentPer cent Growth Q/Q

20

15

10

5

0

-5

-10

-15

-20

-25

20103QTR4QTR 20112QTR 3QTR 4QTR 20122QTR3QTR4QTR2QTR1QTR1QTR

Source: CSO, Economist Intelligence Unit

Foreign InvestmentUS$ billion

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

-

2000-01 2002-03 2004-05 2006-07 2008-092010-11

FDI FII

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Government Expenditure

While government expenditure is driving growth,it is expected to maintain its current level as a

percentage of GDP.

Government ExpenditureRs billion

6

4

2

0

20094QTR20102QTR3QTR4QTR20112QTR

2QTR21QTR1QTR

Source: CSO

Government ExpenditurePer cent of GDP

14.0

12.0

10.0

8.0

6.0

4.0

2.0

-



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InflationGovernment ExpenditureRs billion

6

4

2

0


2QTR21QTR1QTR

Source: CSO

14.0

12.0

10.0

8.0

6.0

4.0

2.0

-



Inflation rates in 2009 were initially low and gradually increased to 14.86% in March 2010.

Increase because of recovery due to robust growth in manufacturing sector & improved investment activity.

Growth in 2010 was predominantly driven by domestic factors. Current Inflation rate stands at 9.73% in October 2011 in comparison to 9.08 % in October 2010.

The main reason of the high inflation rate is the prices of food articles, and mainly fuel and power, becoming costlier.

RBI expects inflation to moderate to 7 % by March-end on the back of better farm output.

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Trade

Trade

Both exports and imports have been registeringconsistent growth.

Trade deficit narrowed by a factor of 0.6% of the GDP between 2010 and 2009.

In 2011, however increasing import costs have widened the trade deficit.Per cent growth

35.0

30.0

25.0

20.0

15.0

10.0

5.0

-


Trade

US$ billion

111

91

71

51

31

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-920094QTR20102QTR3QTR4QTR20112QTR

2QTR21QTR1QTR

ExportsImportsSource: CSO

Indias domestic oil production is 715,000 barrels per day, whereas its consumption is 2.6 million barrels per day.

That means about 27.5% of the oil consumed is produced domestically.

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UnemploymentGovernment ExpenditureRs billion

6

4

2

0


2QTR21QTR1QTR

Source: CSO

14.0

12.0

10.0

8.0

6.0

4.0

2.0

-



Source: Government Unemployment Survey 2009 - 20109.4%in 2009

Unemployment inIndiahas increased and is expected toincreasefurther to 30%by 2020. The decline in job creation in agriculture is one of the biggest reasons behind it.

Several Five year plans introduced employment generating schemes but due to lack of proper implementation didnt achieved the required targets.

NREGA program is a Govt initiative to provide ruralemployment for a minimum no. of hours even during natural calamities like drought, floods etc.

Underemployment,Disguisedunemployment, regional imbalances in the unemploymentscenarioinIndiaare otherimportantfactors.

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MONETARY POLICYIndian Economy 2009-2012Monetary Policy

Interest rates were low in 2009 but were increased towards the end of the year by the RBIcurb possible inflation due to robust growth andinvestment activity

In its bid to tame inflation this year, RBI has hiked key interest rates 12 times since March 2010 by 350 basis points.

CRR increased from 5% at the start of 2009 to 6% last year. Maintained at the same rate this year.

PLR rates stand at a high 18% slowing down business activity.

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FISCAL POLICYIndian Economy 2009-2012Fiscal Policy

To minimize impact of global slowdown in 2009, the Government took aconscious decision to continue with the fiscal expansionary measures in the Budget 2009-10.

Aim was to enhance public expenditure so as to boost demand and spur the process of development and economic revival.

The positive impact of these measures could be seen with Indian economy recording 7 per cent growth in real GDP in the first half of 2009-10 when most of the developed economies of the world were trying their best to stay afloat.

Government measures to counter the effects of the global meltdown on the Indian economy have resulted in shortfall in revenues and substantial increase in Government expenditures, leading to deviation from the fiscal consolidation path mandated under the FRBM Act.

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FISCAL POLICYIndian Economy 2009-2012Fiscal Policy

Reducing tax revenues continue to remain increasing challenges.

Gross tax to GDP ratio2007-08: 12%2008-09: 10.9%2009-10: 10.3%

The fiscal expansion resulted in higher fiscal deficit of 6 per cent of GDP in 2008-09 and 6.7 per cent in 2009-10. Moreover, the revenue deficit as percentage of GDP has worsenedto 4.5 per cent and 5.3 per cent in 2008-09 and RE 2009-10 respectively.

Fiscal deficit could widen to 5.8 per cent in 2011-12 on account of lower tax mop-up, slippage in its PSU divestment programme, rupee devaluation and the spiralling under-recoveries of oil companies

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INDUSTRYIndian Economy 2009-2012Industry

The mining sector contracted 2.9 percent year-on-year. Growth in manufacturing output eased sharply to 2.7 percent from 7.2 percent in the previous three months.

Overall, after a burst of economic activity in 2010, India's industrial output grew at its slowest pace in two years in September 2011, providing further evidence of deceleration in the economy due to interest hikes by RBI and a global Slowdown.

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FUTURE OUTLOOKIndian Economy 2009-2012

Future Outlook

Fall in global commodity prices largely offset by the rupee depreciation.

Inflation has proved to bestubbornand may subside only slowly in the rest of 2011-12.

Fiscal policy spacemay be constrained if inflation stays elevated.

Growth may moderate slowlyand not fall to the levels during the post-Lehman crisis

Buoyantexport growthup to August 2011 may not hold out due to sluggish growth in advanced economies and deepening of global uncertainties.

Persistent high inflation is impacting growth,investment is slowing

Source: RBI Second Quarterly Review 2011 - 2012

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FUTURE OUTLOOKIndian Economy 2009-2012Future Outlook The government is expected to maintain its focus on stimulus measures. Disinvesting stakes (up to amaximum of 49 per cent) in state-owned firms and moving forward with modest reforms in order toincrease competition is likely to be continued.

The government is expected to encourage private and foreign participation in areas such as education,healthcare and infrastructure to further its aim of inclusive economic growth.

Widening trade and fiscal deficit continue to be huge challenges. Inflation is expected to be reduced by March 2012 to 7%.

However, further reforms in FDI could open up previously closed sectors, raising limits on foreignownership in others, reducing prices and improving employment opportunities.

Rapid real GDP growth, overall liberalisation of the economy and a growing need for investmentparticularly in infrastructure and industry- are expected to lead to a more investor-friendly climate.

Source: RBI, CMIE, Economic Intelligence Unit

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Indian Economy 2009 - 2012

Thank You

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Indian Economy 2009 - 2012

Business

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