India’s Recent Growth Experience - International …€™s Recent Growth Experience 2 Outline...

45
Suman Bery & Kanhaiya Singh National Council of Applied Economic Research India’s Recent Growth Experience

Transcript of India’s Recent Growth Experience - International …€™s Recent Growth Experience 2 Outline...

Page 1: India’s Recent Growth Experience - International …€™s Recent Growth Experience 2 Outline Comparative Indicators Growth and Structural Change Sources of Growth 3 Comparative

Suman Bery & Kanhaiya Singh

National Council of Applied Economic Research

India’s Recent Growth Experience

Page 2: India’s Recent Growth Experience - International …€™s Recent Growth Experience 2 Outline Comparative Indicators Growth and Structural Change Sources of Growth 3 Comparative

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Outline

Comparative Indicators

Growth and Structural Change

Sources of Growth

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Comparative Indicators

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Ten Largest Economies

Source: World Development Indicators 2003 CD-RoM.

GDP PPP (International $ billion)2001 1980

Rank RankUnited States 1 9792 1 2957China 2 5111 9 421Japan 3 3193 2 1085India 4 2930 5 529Germany 5 2087 3 803Italy 6 1430 4 544United Kingdom 7 1420 7 498France 8 1420 6 518Brazil 9 1269 8 467Canada 11 843 11 274

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Growth in the 1990s*

*Above $100 bn at 2001 PPP. Averages of the annual growth rates during the period.Source: World Development Indicators 2003 CD-RoM.

Growth Rate Rank by growth Ranking by Size

Country Name 1991-01 1991-95 1996-01 1991-95 1996-01 2001

Ireland 7.2 4.7 9.2 13 1 50

China 9.9 12 8.1 1 2 2

Vietnam 7.5 8.2 6.9 5 3 40

India 5.5 5.3 5.6 12 4 4

Bangladesh 4.8 4.4 5.2 17 5 32

Egypt, Arab Rep. 4.2 3.4 4.9 21 6 29

Korea, Rep. 6 7.5 4.7 7 7 14

Mexico 3.2 1.6 4.5 37 8 12

Poland 3.5 2.3 4.5 28 9 23

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Trade Policies

0

20

40

60

80

100

120

1990

1999

1992

2000

1989

2000

1990

2000

1988

1997

1989

1999

1989

2000

1989

2000

India China Brazil Sri Lanka Malaysia S. Korea Japan USA

Perc

enta

ge

All product simple mean Standard deviationMFG simple mean Share of lines with international peak

Source: WDI200

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India and China: Economic Openness (1970-2000)*

0

10

20

30

40

50

60

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

India China

*Export and import of goods and services as percentage of GDP.

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External Vulnerability (2001)

Vulnerability Indicators India China Brazil Indonesia Korea Malaysia

External Debt/GNP (%) 21 15 47 97 26 54

Short-term/Total ExternalDebt (%) 3 26 13 16 32 12

Debt Service/Exports ofGoods and Services (%) 12 8 75 24 14 6

Source: Global Development Finance 2003. The World Bank.

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Economic Structure

Source: WDI 2003 CD-RoM.

Industry share in GDP Services share in GDP

0

10

20

30

40

50

60

India China Brazil

Perc

ent

1961 or earliest 2001 or latest

0

10

20

30

40

50

60

India China Brazil

Perc

ent

1961 or earliest 2001 or latest

0

1

2

3

4

5

India China Brazil

Perc

ent

1970 2001 or latest

Total exports as percentage of world exportsExports of manufactures as percentage of total exports

0

20

40

60

80

100

India China Brazil

Perc

ent

1961 or earliest 2001 or latest

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India:Growth and Structural Change

1951-2003

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Growth Through Half a Century

-8

-6

-4

-2

0

2

4

6

8

10

12

1951

-52

1953

-54

1955

-56

1957

-58

1959

-60

1961

-62

1963

-64

1965

-66

1967

-68

1969

-70

1971

-72

1973

-74

1975

-76

1977

-78

1979

-80

1981

-82

1983

-84

1985

-86

1987

-88

1989

-90

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02Q

)20

03-0

4(F)

Perc

enta

ge G

row

th

Dro ught, Nehru & Shatri died, War, High F is ca l defic it,US a id s us pended

Dro ught, Oil Cris is , Current A/C defic it

Gulf War, Oil P rices , F is ca l Defic it, Current A/C defic it

Severe Draught

Eas t As ian Cris is (97), Eco no mic Refo rms , Eco no mic Sanc tio ns (98), Kargil war, 9/11/01 a ttack & Glo ba l S lo w Do wn, Swelling Fis ca l defic it

War, Oil P rices , Dro ught, Current A/C defic it, Mo netary tightening

Capita l intens ive Firs t 5-year plan,Stringent fis ca l & F-Exchange co ntro l

Drought

1951-60 1961-70 1971-80 1981-90 1991-00 1996-0269 94 138 39 34 23

Coefficient of variation

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Growth of Real Sectoral GDP (1993-94 prices)

-4

-2

0

2

4

6

8

10

12

14

19 51-6 0

19 6 1-70

19 71-8 0

19 81-9 0

19 9 1-0 1

19 9 1-9 2

19 9 2 -9 3

19 9 3 -9 4

19 9 4 -9 5

199 5-9 6

19 9 6-9 7

19 9 7-98

19 9 8 -9 9

19 9 9-0 0

2 00 0 -0 1

2 0 0 1-0 2

2 0 0 2 -0 3

Agriculture and Allied Industry Services

Note: Agriculture and Allied includes: Agriculture, Forestry and Fishing. Industry Includes: mining & quarrying, Manufacturing, electricity, gas & water supply and Construction. Services Include: trade, hotels & restaurant, transport, storage & comm., financing, insurance, real estate & business services and community, social & personal services.

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Share of Major Sectors in Real GDP (FC) (1993-94 prices)

Note: Agriculture and Allied includes: Agriculture, Forestry and Fishing. Industry Includes: mining & quarrying, Manufacturing, electricity, gas & water supply and Construction. Services Include: trade, hotels & restaurant, transport, storage & comm., financing, insurance, real estate & business services and community, social & personal services.

Agricultureand Allied

Industry(includes Construction)

Services

1951 – 1960 55.9 16 28.2

1961 – 1970 47.7 21 31.3

1971 – 1980 42.8 22.8 34.4

1981 – 1990 36.4 25 38.6

1991 – 1995 30.4 26.9 42.7

1996 – 2000 26.1 27.3 46.6

2001 – 2002 23.9 26.7 49.5

2002 – 2003 22.2 27.1 50.7

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Sectoral Share

010

20304050

607080

90100

1951-60

1961-70

1971-80

1981-90

1991-01

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

Agriculture and Allied Industry Services

Note: Agriculture and Allied includes: Agriculture, Forestry and Fishing. Industry Includes: mining & quarrying, Manufacturing, electricity, gas & water supply and Construction. Services Include: trade, hotels & restaurant, transport, storage & comm., financing, insurance, real estate & business services and community, social & personal services.

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Growth and Inflation

0

2

4

6

8

10

12

1971-80 1981-90 1991-95 1996-01 2001-02 2002-03

GDP growth WPI inflation

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Saving and Investment Rates (Percentage of GDP)

Institutions 1991-92 1995-96 2000-01 2001-02Domestic Saving Rates 22.03 25.15 23.37 23.95 - Public Sector 1.97 2.03 -2.28 -2.51 - Private Corporate Sector 3.11 4.93 4.09 4.01 - Household Sector 16.96 18.19 21.56 22.45Domestic InvestmentRates

22.55 26.9 23.99 23.74

- Public Sector 8.82 7.66 6.37 6.32 - Private Corporate Sector 5.66 9.58 4.93 4.84 - Household Sector 8.06 9.66 12.68 12.58Foreign Saving Rate 0.52 1.75 0.62 -0.21

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Index of Gross Fixed Capital Formation (at 1993-94 Prices) 1993-94=100

0

50

100

150

200

250

300

Agricultureetc.

Mining &quarrying

Manufacturing Elect. Gas &w ater supply

Construction Trade, hotel &restaurants

Transportstorage and

commu.

Fin.,insurance,

real estate &businessservices

Community,social &personalservices

GFCF-Total

1993-94 1996-97 1999-00 2001-02

AG Industry Services

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Contribution of Public Sector

26.069.029.81996-00

26.170.736.51991-95

26.071.246.51986-90

23.569.446.81981-85

13.165.81971-80

Share in real Net domestic

product at factor cost

Share in Organized Sector Employment

Share in Gross Domestic Capital

formation

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Regional Variation in Per Capita Income (US$):1996-97

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1-4

4-5

5-6

6-7

Annual Average Growth Rate of Real NSDP in 1990s

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Economic Growth: Across States

Share of Sectoral GSDP during the period 1980-81 and States' growth during 1990s

0

10

20

30

40

50

60

N o t e: # are t he und ivid ed st at es

0

1

2

3

4

5

6

7

8

Agriculture Secondary 90's growth

Agriculture average = 37, Secondary average = 22, Average growth (1990s) = 5.2

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Sectoral Growth: Agriculture

Agriculture still dependent on rain.

Growth in yields slowed from 3.2 percent in the 1980s to about 1.7 percent during the 1990s.

Shift in consumption from cereals to higher value items requires new research and innovation.

Investment levels have been falling.Government expenditure suboptimal.

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Rainfall and Agriculture Growth

-30

-25

-20

-15

-10

-5

0

5

10

15

20

1970

-71

1972

-73

1974

-75

1976

-77

1978

-79

1980

-81

1982

-83

1984

-85

1986

-87

1988

-89

1990

-91

1992

-93

1994

-95

1996

-97

1998

-99

2000

-01

2002

-03

Per

cent

Variation of Actual Rain Fall from 50 year average (percent)Agriculture growth

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Agriculture: Real Gross Fixed Capital Formation (Growth Rates: Percent Per Annum)

-10

-5

0

5

10

15

20

25

1971-72 to1980-81

1981-82 to1990-91

1991-92 to1995-96

1996-97 to2000-01

2000-01 2001-02

Public Private Total

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Sectoral Growth: Industry

Capital formation in mining and electricity retarded by fiscal, policy constraints.

Capital formation in manufacturing has also slowed.

Savior: construction

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Index of Industrial Production - Growth Rates (Percent Annual)

Key category Use based classification Consumer goodsYEAR General Manufact

uringMining Electricity Basic

GoodsCapitalGoods

Intermediate

ConsumerGoods

ConsumerDurable

ConsumerNon-

durableWt 100.00 79.36 10.47 10.17 35.57 9.26 26.51 28.66 5.36 23.3

1981-91 7.85 7.61 8.34 9.02 7.88 11.46 5.92 6.67 13.87 5.47

1991-95 6.22 6.14 4.83 7.52 7.78 0.34 7.93 6.33 9.29 5.76

1996-00 5.70 6.17 1.80 5.66 4.19 7.71 7.14 5.51 9.35 4.33

2001-02 2.62 2.85 0.43 3.10 2.42 -3.38 1.56 6.00 11.46 4.11

2002-03 5.78 6.02 5.81 3.19 4.82 10.43 3.81 7.19 -6.42 12.25

2003-04

(Apr-Aug)

5.65 6.16 4.37 2.37 4.26 7.74 3.31 8.86 4.81 10.19

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Growth of Major Components of Services Sector (1993-94 Prices)

0

2

4

6

8

10

12

14

1981-1990 1991-1995 1996-2000 2000-01 2001-02 2002-03

Trade, Hotels and Restaurants

Transport, Storage & Communication

Financing, Insurance, Real Estate & Business Services

Community, Social & Personal Services

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External Sector: Current Account

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

1950

s

1960

s

1970

s

1980

s

1990

s

1981

–82

1982

–83

1983

-84

1984

–85

1985

–86

1986

–87

1987

–88

1988

–89

1989

–90

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

Com

posi

tion

Shar

e of

Cur

rent

Acc

ount

-4

-3

-2

-1

0

1

2

3

4

Cur

rent

Acc

ount

& In

visi

ble

(Per

cent

of G

DPM

P)

Merchandise trade balance Non-Factor Services Net Investment Income, net

Private Transfers, net Official Transfers, net Net invisibles (% of GDP)

Current Account (% of GDP)

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Economic Growth: Export and Its Determinants

REER5 IIPG5 Merchandiseexport

1993-95 -2.8 2.3 19.7

1995-00 -0.3 3 7.3

2001-02 1.2 3.5 -1.6

2002-03 -4.6 1.1 19.2

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External Sector: Capital Account

-40%

-20%

0%

20%

40%

60%

80%

100%

1950

s

1960

s

1970

s

1980

s

1990

s

1981

–82

1982

–83

1983

-84

1984

–85

1985

–86

1986

–87

1987

–88

1988

–89

1989

–90

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

Com

posi

tion

(Sha

re)

0

1

1

2

2

3

3

4

4

Cap

ital a

ccou

nt a

s per

cent

age

of G

DPM

P

Foreign Investment External Assistance, net Commercial Borrowings, netRupee Debt Service NRI Deposits, net Other CapitalCapital Account

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External sector: Overall balance

-3

-2

-1

0

1

2

3

4

1950

-51

1952

-53

1954

-55

1956

-57

1958

-59

1960

-61

1962

-63

1964

-65

1966

-67

1968

-69

1970

–71

1972

–73

1974

-75

1976

–77

1978

–79

1980

–81

1982

–83

1984

–85

1986

–87

1988

–89

1990

–91

1992

–93

1994

–95

1996

–97

1998

-99

2000

-01

2002

-03

Perc

enta

ge o

f GD

P

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External Debt (as at end-March)

0

50

100

150

200

250

300

350To

tal D

ebt t

o G

DP

Shor

t ter

m D

ebt t

o To

tal D

ebt

Conc

essio

nal D

ebt t

o To

tal D

ebt

Shor

t-ter

m D

ebt (

Orig

inal

mat

urity

) To

Fore

ign

Exch

ange

Rese

rves

Deb

t Ser

vice

Rat

io

Deb

t to

Curr

ent R

ecei

pts

Liab

ility

Ser

vice

Rat

io

1991 2002 2003

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Consolidated Deficits of Central and State Governments

FiscalDeficit

PrimaryDeficit

RevenueDeficit

Subsidyby Center

1981 to 1990 8.05 5 1.65 1.21991 to 1995 7.8 2.9 3.7 1.31996 to 2000 7.8 2.5 4.7 1.62000-01 9.4 3.7 6.5 1.12001-02 9.9 3.7 6.9 1.42002-03 (RE) 10.1 3.6 6.7 1.82003-04 (BE) 9.2 2.8 5.9

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Consolidated Deficits of Central and State Governments

0

2

4

6

8

10

12

1981 to 1990 1991 to 1995 1996 to 2000 2000-01 2001-02 2002-03 (RE) 2003-04 (BE)

Fiscal Deficit Primary Deficit Revenue Deficit Subsidy by Center

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Developmental and Non-developmental Expenditure of Both Centre and State Governments

As Percentage of GDP

0

5

10

15

20

25

1980

-81

1981

-82

1982

-83

1983

-84

1984

-85

1985

-86

1986

-87

1987

-88

1988

-89

1989

-90

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

RE

Dev-Total Non-Deve-Total

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Components of government debt

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1980

-81

1981

-82

1982

-83

1983

-84

1984

-85

1985

-86

1986

-87

1987

-88

1988

-89

1989

-90

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

Dis

tribu

tion

of C

entra

lGov

tlia

bilit

ies

0

10

20

30

40

50

60

70

80

90

Tota

l Lia

bilit

ies a

s Per

cent

age

of G

DPM

P

Internal Debt (Centre) Small savings (Centre)Other account (Centre) reserve fund and Deposits (Centre)External debt Total Centre as Percentage of GDPMPTotal as Percentage of GDPMP

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Sources of Reserve Money Growth

-100

-50

0

50

100

150

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

Reserve MoneyNFEA of Banking SectorNet foreign exchange assets of RBINet Domestic Assets

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Interest Rates

Movements in deopsit and lending rates (per cent) with bank rates

-4

-2

0

2

4

6

8

10

12

14

16

18

Bank rateNominal

PLR Deposit rate Bank rateReal-WPIG

based

PLR Deposit rate Bank rateReal-WPI-

MFG based

PLR Deposit rate

1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

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Sources of Growth

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Aggregate Sources of Growth:Factor Decomposition

Simple Decomposition of growth in shares of fixed capital stock,labour and Solow’s Residuals

Capital stock is taken from CSO NFCS at 1993-94 prices

Total labour force from WDI CD-RoM 2003

Income share of capital assumed to be 60 percent based on historical data of factor income. No adjustment made for rent ofagriculture.

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Aggregate Sources of Growth:TFP Growth

Most contribution comes from capital

Most variations come from variations in TFP growth (same conclusion as Guha & Bari 2003)

TFP growth for second half increased to 1.95 per cent as compared to 1.19 in first half

This explains growth despite low investment and adverse external shocks.

TFP growth Explained and simulated. Simulated TFP growth for 2003-04: 3.7 leading to 6.6 percent growth in GDP at same level of investment and employment growth as 2001-02.

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Factor Decomposition of Growth in Real GDP

-0.10

-0.08

-0.06

-0.04

-0.02

0.00

0.02

0.04

0.06

0.08

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

Net fixed capital stock

Labour force

Total factor productivity

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Decomposition of Growth 1960-2001 (Period Averages)

Period Real GDP growth Growth due to fixed capital stock

Growth due to total labour force

Growth in total factor productivity

1961-70 3.63 2.34 0.77 0.52 1971-80 3.03 2.14 0.90 0.00 1981-90 5.47 2.51 0.74 2.21 1991-95 5.22 3.13 0.90 1.19 1996-01 5.74 2.85 0.88 1.95

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Economic Variables Explaining TFP Growth

Deviations of Rain from Normal (NCAER Database)

WPI Inflation (Economic Survey, Base 1993-94=1)

Change in Literacy Rate (WB CD-RoM, 2003)

Terms of Trade (Economic Survey,Base 1993-94=1)

Change in Current Account Balance (RBI Statistics)

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