Presented by :

Shravan Kumar Y 2010222Siddharth Garg 2010228Sugandha Kumari 2010232Tushar Manghrani 2010243Swapnil Mishra 2010271

Growth Shifts To Fast Lane

Current Scenario

• Lights continue to shine in the country as the government has released an even brighter picture of the economy than expected by us.

• Despite the falling trend and volatility in the IIP, expecting growth will be around 8.5% this year and rise to 9% next year.

• Positive second quarter numbers • The signals are strong. They are from many sources.

And they are across a large set of sectors and sub-sectors.

Other Side

• There are also negatives for the economy ahead.

• One of the main indicators to keep an eye on is inflation

• Pricing pressures continue to persist from multiple sources.

Agriculture Sector

In food segment, from oilseeds to milk, supply is outstripped by the demand. 

Massive rise in output and growth this year On the one hand, this will dampen inflationary tendencies and, on

the other, boost rural demand.

Bumper harvest resulted in

higher MSP (minimum support

prices)

higher minimum wages

Purchasing power has been given a boost

helping to meet consumption aspirations

Industry Sector• The six core industries that were on the back foot for the past six months finally

showed a growth upsurge in October, with cement and steel production leading the pack.

Apr'09

May

'09Ju

n'09

July'

09

Aug'09

Sept'0

9Oct'

09

Nov'09

Dec'09Jan

'10

Feb'10

Mar'

10

Apr'10

May

'10Ju

n'10

July'

10

Aug'10

Sept'1

0Oct'

100123456789

10

Six Core Industries y-o-y growth in %

Column1

Other Sectors• Above graph points to strong demand from the construction

sector, and despite the shocks to the system from higher loan rates, scams being unearthed in realty. This is one sector where, again, demand is far ahead of supply and real estate and infrastructure projects can push growth up in the quarter ahead.

• Manufacturing activity in other sectors is also picking up despite higher cost of credit

• Good festival season and expectations of surge in rural and small-town demand.

Other Sectors

• HSBC-Markit PMI index that reflects the uptick in November in manufacturing activity, with the fastest expansion in new orders coming in not only from domestic but also international demand.

• Robust activity still expected in all segments: railways, air freight and passengers, cargo by shipping, telecom after the Central Statistical Organisation (CSO) growth release for the second quarter show a fall over the first quarter.

Concerns

• The only fly in the ointment remains that of inflationary pressures - the same uncontrolled animal: inflation. It should not be taken lightly; at the current levels, it is still somewhat under control, but it can get out of hand very easily.

• Government taking on additional spending, over and above the Budget, this is set to be an even more serious concern in the year ahead.

Scenario 1(In Closed Economy)

• Increased spending

• Due to this Y(income) will go down and thus I (investment) will also go down

Tax R

Scenario 1(In Closed Economy)

IS1

IS2

LM1

LM2

r1

rg

Y

r

Scenario2(In Open Economy)

IS1

IS2

dT

Y1Y2

rLM1

LM2

r1

r2

Y

Scenario2(In Open Economy)

Now,P = Pe + 1/α (Y – Y) + VP – P-1 = Pe – P-1 + 1/α (Y – Y) + Vπ = πe + 1/α (Y – Y) + Vdecrease in Y causes (Y – Y) to increaseresulting in increase in π ( State of inflation)

This might result in price going up and hurting economy badly.

Based on the article “Growth shifts to fast lane”, - Economic Times on Nov 4,2010

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