2015
Economic Project Sayanta Tripathy
[ECONOMIC ANALYSIS] This project understands the economic condition of India and UAE and tries to compare the same between these two countries.
2
3
Table of Contents
1. Introduction................................................................................................................................4
2. Country Introduction ...................................................................................................................4
Country Profile ...............................................................................................................................5
3. Economic Variable .......................................................................................................................6
1. GDP:- ......................................................................................................................................6
2. GDP per Capita:- ......................................................................................................................8
3. Inflation (Consumer Price, %):- .................................................................................................9
4. Unemployment (% of total labour force):- ............................................................................... 10
5. Export of Goods/Services (% of GDP):- .................................................................................... 11
6. Import of Goods/Services (% of GDP):-.................................................................................... 12
4. Future Economy ........................................................................................................................ 14
5. Conclusion ................................................................................................................................ 14
6. Appendix .................................................................................................................................. 15
7. Reference ................................................................................................................................. 17
4
1. Introduction
The objective of this report to focus on the economic situations in UAE and India and compare
the same between these two countries. As a result we try to analyze and comparing UAE and India
using various economic variables such as GDP, GDP per Capita, Inflation, GDP Growth,
Unemployment, Export and Import . A thorough study on this is conducted over a 10 year period
(2002-2012). To Support the same a thorough research has been carried out with the help of data
available from World Data Bank, IMF, WDI database and other scholarly journals.
2. Country Introduction
UAE
United Arab Emirates is a federation of seven monarchies namely Abu Dhabi, Ajman,
Dubai, Fujairah, Ras Al-Khaimah, Sharjah, and Umm al-Qaiwain, formed in 1971 (CIA
World Fact book, 2013). UAE’s economy is considered one of the largest emerging
economies in the Middle East. UAE is also a member of Gulf Cooperation Council (GCC)
which is a political and economic union of Arab states bordering the Persian Gulf, Oman,
Qatar, Saudi Arabia, and UAE.
United Arab Emirates is known for a mixture of different cultures, traditions and beliefs. The
government responded to demands for reform during the “Arab Spring” by initiating a $1.6
billion program to improve the infrastructure in the poorer northern emirates and expanding
the number of people allowed to vote in the September 2011 elections for the Federal
National Council. Dubai is the center of finance, commerce, transportation, and tourism. Free
trade zones that permit 100 percent foreign ownership with zero taxation help to diversify the
economy, but UAE nationals rely heavily on public-sector employment and subsidized
services. Zero percent tax and high standards of living attracts foreigner to invest in United
Arab Emirates.
For more than 3 decades UAE’s economy had been driven by its Oil Revenue and is now
merely contributing 25% towards its GDP. It can be undoubtedly stated that UAE’s per
capita GDP can be counted the same as among the leading Western European nation.
5
INDIA
Years of nonviolent movement against the British rule lead by Mahatma Gandhi and
Jawaharlal Nehru gave rise to a new independent nation in 1946 – India. India since after
independence and till date faces the problems such as Overpopulation, environment
degradation, corruption, poverty. But the economic reforms carried out in 1991 keeps India
always ahead in terms of its economic growth and are driving India slowly towards a Global
and Regional power. This reform helped to see various changes like industrial deregulation,
privatization of enterprises, reduced control on foreign trade and investment and thus
accelerated countries growth. India’s economy largely depends on its agricultural field. Its
healthy investment rate and increased integration into global economy kept India’s long term
growth look positive.
As per IMF data (2014), it is considered that India’s economy is 10th largest economy as per
market exchange rates. Although India flourishes with rising economic power, it still faces
challenges of poverty. Its poverty line has decreased from 60% in 1981 to 25% in 2013 as per
World Bank’s International Poverty Line Data (2013). This economic growth has pushed
India’s GDP considerably higher and is expected to grow at an average of 8% making it
world’s fastest growing economy as per the report submitted by PriceWaterHouse Cooper
(2011).
Country Profile
UAE
Capital Abu Dhabi Gross Domestic Product $390 billion
Gross Domestic Product Per Capita $29,900 Population 5,628,805
Inflation Rate 1.3% Unemployment 2.4%
Currency Dirham Language Arabic
INDIA
Capital Delhi
Gross Domestic Product $1.67Trillion Gross Domestic Product Per Capita $4000
Population 1,236,344,631
Inflation Rate 9.6% Unemployment 8.8%
Currency Rupees Language Hindi
6
3. Economic Variable
1. GDP:-
The GDP of a country is a quite majorly used indicator of any countries economic
health and also acts as a catalyst to understand a country’s state of growth. It is calculated
annually after including all private, public consumption, government outlays and
investments. In a nutshell it is a monetary value of all the goods and services produced in
the country within a specified time period.
The Figure1 Below shows the GDP of two countries and how it fluctuates over the past
10 years from 2002-2012. The GDP for each country are in terms of Billion$.
As we can see below in the graph the GDP for UAE and India in overall shows a positive
outlook. Until 2008 when UAE experienced a slight dip in its GDP. During this year, the
global economy was hit by a recession. This becomes more evident when we look at the
GDP Growth% in Figure2 which shows result. The recession was experienced in UAE
until 2009 or to be precise till start of 2010. It was after that the GDP of the UAE took a
positive turn once again thereby boosting the economy of the country. During this period
UAE experienced a decline in their oil price and day to commodities like House rent. As
per the report from UAE Statistic from Government of UAE, the GDP growth rate fell
from 5.2% in 2007 to 3.2% in 2008 and it saw a negative value in 2009 which is evident
from the figure2. However it sounds quite motivating when reports say that despite of
hard struck recession, UAE government pursued its diversification strategy by
manufacturing and investing into non oil products and services and thereby being
dependent on Oil for its GDP. UAE’s Free Trade Zone and 100% foreign ownership
attracts lot of foreign investors and this gives a positive outlook towards the GDP growth
of this country.
The period of recession was very much a challenging year of India as well and it becomes
quite evident from the graph how the GDP experienced a dip in its value. However before
2008, India experienced an economic crisis in 1991 and under the leadership of Prime
Minister Narsimha Rao, India went through a major economical reform. The economical
reform was aimed to liberalization and move towards a more open trade regime by taking
measure such as Privatization of firms, deregulation and others. This resulted in a flexible
market determined system and withdrawal of restriction on imports and exports. As a
result of such reform, GDP growth which was averaged at around 5.7% per annum in
1990s accelerated well above the expectation and reached a level of 8%-10% growth in
period of 2000s. India in their 5 year period of 2002-2007 saw a major boom in their
GDP experiencing growth in all the sectors of the economy including agriculture.
However 2008-2009 as discussed for UAE, a global crisis halted this growth in GDP for
India. India which is a major agricultural country used to have 28% of its GDP
7
contributed by agricultural Sectors. However until the period of Economic Liberalization
in 1991 and when trading was made more friendly , agricultural sector’s share in GDP
dipped from 28% to 19.4% as of 2001 which today stands at 14.9%. This was balanced
by the service industries. Thanks to economic reform, the share of service industry
gradually increased from 50.5% in 1990s to 65% till date. However India’s past
Economic Policies still haunt and this seems to be a major reason why the growth in the
economy post 2011 saw a dip in 2012. The major reason for the decrease in GDP growth
post 2011 is decline in Government spending and low investment rates. However post
2012 India had announced additional reforms in their policies and had seek for major
foreign investment to increase their GDP once again.
Figure 1- GDP(Billion$) OF India & UAE
Figure 2-GDP Growth (%) of India & UAE
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
India
UAE
-8
-6
-4
-2
0
2
4
6
8
10
12
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
India
UAE
8
2. GDP per Capita:-
The simplest definition of GDP per Capita would be a measure of Total GDP of the
country divided by its total population. This has been a useful measure to compare the
performance of countries against each other. Increase in GDP per Capita indicates rise in
Economy as well as productivity with high stand of living.
While earlier Figures showed a promising boom in the economy of India, Figure3 gives
real insight on slow progress of India’s development. India’s Per capita Income saw a
very slow growth. It is one of the slowest among the BRICS nation. In order for India to
increase its pace of standard of living, it needs to regain its growth momentum and fight
against the domestic challenges. As Reserve Bank of India Director, Mohanty describes
in his speech that in order to fight against these challenges and increase the per capita, the
first step that needs to be taken is to increase its agricultural productivity and improve its
supply elasticity. Along with this India needs to control the inflation (Discussed later) and
improve the lower household financial saving. As Mohanty adds to this enormous
investment from government sector is needed as well.
As we proceed to look into UAE’s GDP per capita, the graph gives a clear picture of how
well established is UAE’s economic condition when compared to that of India’s. The
reason behind this is the UAE economy diversifying in sectors other than oil and
recovering faster from the global crisis in 2008-2009. Sectors like tourism and real estate
have grown tremendously in UAE
Figure 3-GDP per Capita ($)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
INDIA
UAE
9
3. Inflation (Consumer Price, %):-
In simple terms, Inflation denotes increase in price of goods and services as a result of
which, consumer’s purchasing power decreases. As a result value of currency falls down
and value of goods and services increases.
The below graph gives us a glimpse of how the economy of country got affected due to
the fluctuating inflation rates over the past ten years from 2002-2012.
While Reserve Bank of India (RBI) expected to decrease the increasing inflation by 2007,
as per the report it dint meet their expectation. RBI after experiencing a high inflation rate
in 2006, tried to bring the inflation to 5% which nearly became impossible and it hovered
around 5.9-6%. Since then the inflation rate in India saw a steep increase and efforts have
been penned down by Indian Government to keep it as low as possible. As per the
statistical report by RBI, the inflation rate reached record high of two years to 6.73%.
Due to poverty challenges and Population, India faces heavy demand of food articles
which cannot be met by constrained Supplies. Economists argue the heavy demand of
food is due to economic boom of the country and increased money supply. This is too
huge to be controlled by its stagnant agricultural productivity. As a measure to control
this alarming inflation rate, RBI took regular control over the money supplies and as well
reduces import duties on the food material. As the year progressed, the inflation in India
kept increasing till 2012 reaching around 10% increase in the price.
National Bank of Abu Dhabi (2006) estimated the inflation rate to increase by the coming
years and the graph does prove their estimation were true. The inflation rate in UAE
increased at an alarming rate due to their currency being pegged to US$ at 3.65 Dirham
to Dollar has been signed as to have a negative effect on its economy. This pegged value
causes increase in import inflation which accounts to about 40% of the inflation in UAE.
The World Bank had also in their report discussed the falling down of UAE’s economy
due to the weakening position of Dollar Value. To control the inflation rate, monetary
policy was practiced in 2009 which brought down the inflation rate to an extent.
10
Figure 4-Inflation (%,Consumer Price)
4. Unemployment (% of total labour force):-
Unemployment is often considered to be the widely used indication towards a
country’s economic condition. The term unemployment is used for a person who is
proactively searching for jobs but is unable to find one. It’s simply the number of people
unemployed divided by total labour force.
During the period of recession, it is highly likely for the unemployment rate to increase.
UAE heavily rely on the expats/foreign nationals for their economic growth. In order to
achieve the heights of success in terms of economy, UAE in the mid of 1970s came out
with a plan to import foreign labours as they faced a constraint in national employment
skills (Baldwin-Edwards, 2011). As such this resulted in huge remittance outflows and
proved costly to UAE till date as unemployment within the UAE nationals kept
increasing .80% of the private sector jobs were held by Expats. As such this resulted in
poor productivity growth. As the graph shows UAE have been struggling considerably
with higher unemployment rates due to their nationals struggling for jobs and especially
after 2007 during the recession period when the rates just boomed up. This also is
reflected in GDP growth where it dips down considerably.
While India has been gradually taking measures to reduce its unemployment rate,
however post 2004 there was a bit of upset as the graph took a turn that Reserve Bank of
India(RBI) dint expect it to be. This decline in employment was due to the decline in
employment in public sector establishment thereby showing a decline in GDP growth. As
per International research Journal, the sluggish economic growth of the country failed to
absorb the increasing population and huge labour force.
0
5
10
15
20
25
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
UAE
India
11
The major reason that challenged India Unemployment rate is the increasing population
and thereby increasing labour force which is further added by the education gap between
industry requirement and the curriculum.
Figure 5:- Unemployment (%)
5. Export of Goods/Services (% of GDP):-
Economist broadly agree to the fact that a countries Economic Growth is a complex
phenomenon and depends on variables such as Trade, Price Condition, Physical
Situation, Income Distribution and many more. Export led growth (ELG) is a common
concept adopted by economist and holds to be a key ingredient in determining the
economic growth of the country. Meier (1976) claimed that export acts as a key
propulsive sector thereby propelling the economy forward. Kindelberger (1962) defined
export to be a key sector; as such when export rises it provides incentive for expansion
and establishment of other peripheral activities.
Fig1 shows us that India’s GDP had a positive increase and its growth fluctuated as in
Fig2, but the positive outlook of India’s GDP can also be attributed to the gradual
increase in the export sector of the country. Post 1991 when Indian economy entered a
new era of Liberalization & gave rise to many policies that created a friendly
environment for India’s Export. The period of recession (2008) had a damping effect on
the global demand which affected the export of India and other major countries as well.
The impact of the crisis can be seen from the graph clearly post 2008 with a slight dip in
it. Among the exports, Merchandise export holds a major portion. However post 2000
with rise in Y2K; India became a major exporter of IT Skilled Professional and
establishing offshore business and this technological export became a back bone of GDP
growth of India. As of 2009 among the BRICS country, India’s export on Merchandise
0
1
2
3
4
5
6
7
8
9
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
UAE
India
12
declined as it faced toughed competition from Brazil, China and South Africa. As such in
order to cope up with the same, it became leading exporter of services.
UAE plays a significant role in oil trading & energy services. Being the 8 th largest nation
exporter of oil, UAE’s export has a very positive outlook. However during 2008-2009,
Oil production in UAE was affected severely by the hit of recession where oil prices
drastically declined and that was the primary reason for United Arab Emirate to get
exposed to financial crisis in 2008.
Figure 6:- Export (% of GDP)
6. Import of Goods/Services (% of GDP):-
Import of Goods/Services in lament language indicates the goods/services purchased
from abroad. A country may import materials for reasons being it might not be able to
produce, or meet the demand of the country or it might be available cheaper abroad. An
increase in import in relation to export denotes a negative balance in the trade and the
result should be vice versa to obtain a positive trade balance.
India spends huge amount of its import money on Crude Oil. Among the top import items
for India includes Oil ranking all time above followed by Gold, Silver, Electronic Goods,
Pearls. India’s top importer country stands to be China which is followed by UAE.As per
reports by India’s then Finance Minister- Chidambaram (2011), India stands to be the
biggest importer of gold and used to buy at a high rate which had a negative effect on its
economy. This also supports the dip in the GDP growth graph of India. This eventually
0
20
40
60
80
100
120
140
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
UAE
India
13
led the Finance Minister to pass a statement: - “I once again appeal to everyone to resist
the temptation to buy gold. This will show positive impact on every aspect of the Indian
economy."
On the other hand Import in UAE steeply kept on increasing thereby providing an alarm
sound to the UAE government. Due to UAE’s rapid economic growth, its investment
kept on increasing. As such the import of infrastructure goods showed no halt. As a side
effect the consumer spending increased thereby improving its Per Capita as seen earlier.
Interestingly UAE’s major import comes from India which is about 17% of its shipments.
Apart from that UAE imports a lot from China, Japan, US and Iran as well. The
increasing graph points out that UAE is highly import dependent country and imbalance
in Import/Export has been a problem for UAE to Support its GDP growth.
Figure 7:- Import(%)
0
20
40
60
80
100
120
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
UAE
India
14
4. Future Economy
India’s Economy in future as per reports by IMF during 2013 earliest looked to be a bit
shaken. As per 2013 report, India’s Inflation rate reached double digit with its government
and corporate debt almost uncontrollable with low business and investment confidence.
However post 2014; India just flipped their economic condition with inflation brought under
control and currency rate being stabilized. With the current ongoing efforts, India is expected
to experience a boom in their agriculture sector .As such this would result into lowering of
food prices helping India to control their Inflation rate. Forbes global research paper suggests
Corporate Earning in India to improve considerably with its Rupee rate being stabilized. The
current Prime Minister Narendra Modi ,then the Chief Minister of the state Gujarat , is
expected to implant his Gujarat Policies(which improved Gujarat GDP by 3 times) in India of
improving Infrastructure, reducing regulatory business hurdles and achieving higher growth.
His Gujarat Policies improved the. As the World Bank Says, India’s economy is expected to
grow by more than 6% post 2015-2016.
On the Other hand, UAE which is an oil dependent country is expected to face some sluggish
economic outlook due to fall in Oil Price.60% of the UAE’s revenue is expected to come
from Oil and decrease in its price would be a negative effect on its economy. As per IMF
report this resulted in its economic growth to increase by 3.5% by 2015 which is 1% less than
what IMF estimated. Also to support this it has been cited by Director of Middle East
Department in IMF that the export earnings of UAE is expected to reduce by 300BN$ . This
suggest that UAE is expected to run fiscal deficit of 3.7% of its GDP until 2017.However
due to its huge foreign assets , financing the deficits should not be an issue for UAE
government in future.
5. Conclusion
From the evaluation, analysis and comparison conducted above, both economies are on a path to recovery from the 2008-09 global crises which had an unfavorable impact on both the
economies. Since UAE is an oil trading country, the drop in oil prices has lead to downfall of the UAE economy leading to unemployment, debt and investment withdrawal. However
UAE expects a more positive growth on its economy in the medium term, because of the Expo 2020 win, which should make forecasts more favorable and positive for UAE post 2016-2017. Whereas India being an agricultural country, its boom in agriculture is key
element in its economic success.
15
6. Appendix
Country Indicator 2002 2003 2004 2005 2006 2007 2008 2009 2010
India GDP(Bllion$) 523.768 618.369 721.589 834.218 949.118 1,238.48 1,223.21
1,365.34
1,708.54
UAE GDP(Bllion$) 109.816 124.346 147.824 180.617 222.117 257.916 315.475
253.547 286.049
India GDPGrowth(%) 3.804 7.86 7.923 9.285 9.264 9.801 3.891 8.48 10.26
UAE GDPGrowth(%) 2.433 8.801 9.567 4.855 9.837 3.184 3.192 -5.243 1.635
India GDP/Capita(US$) 492.234 572.299 657.522 748.85 839.927 1,080.70 1,052.6
7
1,158.91 1,430.
19
UAE GDP/Capita(US$) 32,790.
71
35,017.
31
39,304.
51
43,988.
67
44,313.
59
41,472.29
39,074.
84
30,920.4
5
34,611.96
India Inflation(Consumer Price,%)
3.975 3.857 3.831 4.411 6.957 5.927 9.197 10.614 9.497
UAE Inflation(Consumer Price,%)
2.918 3.119 5.041 6.195 9.285 11.128 12.251 1.56 0.878
India Unemployement Rate(% of total labour force)
4.3 3.9
3.9
4.4
4.3
3.7
4.1
3.9
3.5
UAE Unemployement Rate(% of total labour force)
3.2
2.7
3.1
3.1
3.3
3.4
4
4.2
4.2
India Export of good/Services(% of GDP)
14
14.7
17.6
19.3
21.1
20.4
23.6
20
22
UAE Export of good/Services(% of GDP)
49.5
55.9
63.6
67.6
68.6
72
78.9
79.7
78.8
India Import of good/Services(% of GDP)
15
15.4
19.3
22
24.2
24.4
28.7
25.4
26.3
UAE Import of
good/Services(%
of GDP)
43.6
46.4
53.1
52
50.8
64.4
69.6
73.8
72.2
Country Indicator 2011 2012
India GDP(Bllion$) 1,880.1
0
1,858.7
5
UAE GDP(Bllion$) 347.454 372.314
India GDPGrowth(%) 6.638 4.736
UAE GDPGrowth(%) 4.885 4.678
16
India GDP/Capita(US$) 1,552.55
1,514.63
UAE GDP/Capita(US$) 40,817.40
42,463.92
India Inflation(Consumer Price,%)
9.497 9.473
UAE Inflation(Consumer Price,%)
0.878 0.875
India Unemployement Rate(% of total labour force)
3.5 3.6
UAE Unemployement Rate(% of total labour force)
4.1 4
India Export of good/Services(% of GDP)
23.9 24
UAE Export of good/Services(% of GDP)
90.6 97.9
India Import of good/Services(% of GDP)
30.2
30.7
UAE Import of
good/Services(%
of GDP)
72.5
75.4
17
7. Reference
1. Deepak Mohanty-RBI Executive Director, “Indian Economy-Progress”, Harvard Speech,
2011
2. James Gruver, Asia Confidential, India will soon outpace China
3. Jason Overdorf, CNBC, How a gold fetish is killing India’s economy , 2013
4. Narayan Chandra, Exports & Economic Growth, RBI Occasional Paper
5. Reddy, Mahboob,International research Journal of Social Science- Study on Inflation in India,
2013 (http://www.isca.in/IJSS/Archive/v2/i12/9.ISCA-IRJSS-2013-169.pdf)
6. Trading Economics, Import Data (http://www.tradingeconomics.com/united-arab-
emirates/imports)
7. UAE Government, National bureau of Statistic, Analytical Report on Economic.
8. United Nations National Accounts Main Aggregates:- Sectoral Composition
(http://unstats.un.org/unsd/snaama/selbasicFast.asp)
9. World Trade Organization:- http://stat.wto.org/CountryProfile
10. CIA Fact Book:- https://www.cia.gov/library/publications/the-world-factbook/geos/ae.html
11. IMF :- http://www.imf.org/external/index.htm
12. World Data Bank :- http://www.worldbank.org/
Top Related