Economic Environment And Emerging Trends In India By Tarun Das

Economic Environment and Emerging Trends Prof. Tarun Das, Ph.D.

Economic Situation by Dr. Tarun Das

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Contents of this presentation Emerging Economic Scenario 1. Sustained Economic Growth 2. External Sector under control 3. Money Supply and Fiscal Situation 4. Strengths, challenges and prospects

Economic Situation by Dr. Tarun Das

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1 Sustained Economic Growth

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1.1 Resilience of Indian economy to internal and external shocks • At present Indian economy is passing through a critical juncture. • India achieved an impressive average annual growth rate of over 9.3% during three years 2005-2007. • But, the growth rate is estimated to decelerate to 7.5% in 2008 piggy riding on high inflation, depreciating rupee, liquidity crunch, poor credit availability, falling stock prices, low business confidence, rising trade and current account deficits and fleeing Foreign Institutional Investments (FIIs). Economic Situation by Dr. Tarun Das

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1.2 Resilience of Indian economy to internal and external shocks • The situation has been exacerbated by global financial crisis and recession in the USA and major industrialized countries despite significant reduction of international crude oil prices. • The only silver lining is that the fiscal situation is under control and India with a growth rate of 7.5% and sound macro economic policies is still one of the fastest growing and dynamic economies in the world. Economic Situation by Dr. Tarun Das

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12.0

10.3

10.0 8.0

7.1

6.5

6.8

6.0

6.4 6.3

6.7 4.0

6.1

5.8

2.0

5.5

Ko re a, R ep

C hi le

In di a

M al ay si a

U ga nd a M ya nm ar La o P D R

Ire la nd

hi na M oz am bi qu e

0.0 C

Average growth rate in 1990s (% )

1.3 India emerged as one of the ten fastest growing economies in 1990-2005

Country

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1.4 India moved on a higher growth path (Real GDP growth rate in per cent)

12 10

9.4 9.6

8

8.5

7.8 7.3 7.3

6

6.5

5.1

4

5.8

6.1

4.8 4.0

4.4

2

7.5

6.9

5.9

5.6

9.0

1.3

Economic Situation by Dr. Tarun Das

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08

-0

9

7 -0

20

06

5 -0 04

20

20

02

-0

3

1 -0

20

00

9

19

98

-9

7 -9

19

96

5

19

94

-9

3 -9 92

19

19

90

-9

1

0

7

1.5 Sectoral growth rates in India (%) Sectors 1980-90 1992-2000 2007-08 Agriculture 3.1 3.3 4.5 Industry 7.2 6.5 8.6 Mining 7.7 4.0 4.8 Manufacturing 7.4 5.9 8.8 Utilities 8.9 5.7 6.3 Construction 4.6 8.2 9.8 Services 6.5 8.3 10.8 Trade,hotels 6.2 8.5 12.0 Trans & Telecom 5.8 7.4 12.0 Financial services 9.4 8.8 11.8 Social ,personal 6.0 7.4 7.3 All Sectors 5.5 6.4 9.0

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1.6 Sectoral shares in India (% in GDP) Sectors 1993-94 2003-04 2007-08 Agriculture 32.9 24.0 17.8 Industry 23.9 23.8 26.6 Mining 2.1 2.3 2.0 Manufacturing 14.9 13.8 15.4 Utilities 1.3 1.1 2.1 Construction 5.6 6.6 7.3 Services 43.2 52.2 55.6 Trade,hotels 13.8 16.3 18.5 Trans & Telecom 5.4 7.4 9.0 Financial services 11.5 13.6 14.7 Social 12.5 14.9 13.4 All Sectors 100.0 100.0 100.0

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1.7 Business Cycles in Industry (Production growth rate in per cent) 14.0 13.0

12.0

11.5

10.0 8.5

8.4 8.2

%

8.0

9.1

6.0

6.1

6.7

4.0

2.7

8

20

07

-0

6

20

05

-0

4 -0 03

20

20

01

-0

2

0 -0 99

19

19

97

-9

8

6 -9 95

19

19

93

-9

4

2 -9

4.9

0.6

0.0 91

5.7

5.0

2.3

2.0

19

7

6.7 4.1

8.5

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1.8 Industrial Growth Rates by Broad Sectors (percent) Sectors 2002-03 2003-04 2007-08 Ap-Aug (Weight) 2008 Mining (10.5) 5.8 Manuf (79.4) 6.0 Elect (10.2) 3.2 OVERALL (100) 5.7

5.2 7.4 5.1 7.0

5.1 9.0 6.3 8.5

Economic Situation by Dr. Tarun Das

4.1 5.2 2.3 4.9 11

1.9 Industrial Growth Rates By Use-based Classification (%) Sectors 2002-03 2003-04 2007-08 Ap-Aug [Weight] 2008 Basic (35.6) 4.9 5.4 7.0 3.8 Capital (9.3) 10.5 13.6 18.0 9.2 Intermed. (26.5) 3.9 6.4 8.9 0.7 Consumer(28.7) 7.1 7.1 6.1 7.8 -Durables (5.4) -6.3 11.8 1.0 5.6 -Non-dur (23.3) Economic 12.0 Situation 5.8 8.5 8.6 by Dr. Tarun Das

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1.10 GR of Infrastructure sectors

Sectors 2002-03 2003-04 2007-08 Ap-Aug- 08 Rail Traffic 5.3 Ports cargo 9.0 Cell phones 21.5 Air-Exp cargo 13.3 Air-Imp cargo 18.6 Air-Int.Pass 4.8 Air-Dom.Pass 9.6 Highways Up, ..

7.5 8.0 10.0 11.3 115.1 10.4 1.0 12.6 13.4 24.4 6.5 14.0 13.1 23.6 -16.6 161

Economic Situation by Dr. Tarun Das

9.4 8.3 31.0 8.1 6.6 7.9 -2.0 100.5 13

1.11 Employment growth rate in India (%) Sectors 1983-1993 Agriculture 2.2 Mining 3.7 Manufacturing 2.3 Utilities 5.3 Construction 4.2 Trade 3.8 Trans & Telecom 3.4 Financial 4.6 Social 3.6 All Sector 2.7

1993-2000 0.0 -1.9 2.6 -3.6 5.2 5.7 5.5 5.4 -2.1 1.1

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1.12 Sectoral Employment as % of Total Sectors 1983 93-94 99-00 2004-05 Agriculture 63.2 60.4 56.7 52.1 Industry 15.6 15.9 17.5 19.2 Mining 0.7 0.8 0.7 0.6 Manufac. 11.6 11.1 12.1 12.9 Utilities 0.3 0.5 0.3 0.4 Construction 3.0 3.5 4.4 5.6 Services 21.2 23.7 25.8 28.7 Trade,hotels 7.6 8.3 11.2 12.6 Trans/Telecom 2.9 3.2 4.1 4.6 Fin. services 0.9 1.1 1.4 2.0 Social /per 9.8 11.1 9.2 9.2 All Sectors 100 100 100 100

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1.13 Improvement in Human Development • Poverty ratio declined: from 39% in 1987-88 to 36% in 1993-94, 26% in 1999-2000, further to 22% in 200405.

• Infant Mortality rate declined: from 94 in 1988 to 70 in 2001, 57 in 2006. • Literacy rate improved: from 52% in 1991 to 65% in 2001 • Real wages for farm labour had an increasing trend in 1990s. Economic Situation by Dr. Tarun Das 16

2 External Sector Is Under Control

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3

2.1 Deterioration in Current Account Balance on External Sector (as % of GDP) 2 .3

2

1 .3 0 .7

1 0 -0 .4

-0 .5 -1 .0 -1 .0-1 .0 -1 .2 -1 .4 -1 .7

-0 .4

19 90 -91 19 92 -93 19 94 -95 19 96 -9 7 19 98 -9 9 20 00 -0 1 20 02 -0 3 20 04 -05 20 06 -07 20 08 -09

-1

-0 .3

-2 -3

-1 .7

-1 .2-1 .1 -1 .5

-2 .1

-3 .1

-4

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2.2 Acceleration in Export Growth Rate 30.0

24 .4

25.0

20

20.0 15.0 10.0

23

10 .8 3.8

5 .3 4 .6

-1.5

-1 .6 -5.1

199 0-9 1 199 1-9 2 199 2-9 3 199 3-9 4 199 4-9 5 199 5 -9 6 199 6-9 7 199 7-9 8 199 8-9 9 199 9-0 0 200 0 -0 1 200 1-0 2 200 2-0 3 200 3-0 4 200 4-0 200 5 5A p-A ug

-10.0

20.8

9 .0

5.0 0.0 -5.0

1 8.4

20 .3 21.1

21

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2.3 Steady Increase in Export/GDP ratios (per cent)

14

12

12

in US $ billion

10

9 .1 8 .9 8 .7 8 .3 8 .3 8 .3 8 .4

1 0 .61 0 .8 9 .4

6 .9 7 .3

8 6

9 .9

5 .8

4 2

19 90 19 -91 91 19 -92 92 19 -93 93 19 -94 94 19 -95 95 19 -96 96 19 -97 97 19 -98 98 19 -99 99 20 -00 00 20 -01 01 20 -02 02 20 -03 03 20 -04 04 -05

0

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1 5 .5

1 1 .1

1 1 .5

1 2 .4 1 2 .7

1 1 .8

1 2 .8 1 3 .3

9 .6 7 .9

90 19 - 9 1 91 1 9 -9 2 92 19 - 93 93 19 -94 94 19 - 95 95 19 - 9 6 96 19 - 9 7 97 19 - 9 8 98 19 - 99 99 20 - 0 0 00 20 -0 1 0 20 1-02 02 20 -03 03 20 -0 4 04 -0 5

8 .8

1 2 .3 1 2 .7 1 2 .5 1 2 .5

19

in US $ billion

18 16 14 12 10 8 6 4 2 0

2.4 Steady Increase in Import/GDP Ratios (per cent)

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5

2.5 Steady Improvement in Invisibles/GDP Ratios (per cent) 4 .3

4

in US $ billion

3

2 .7

2

1 .8

3 2 .4

2 .2

3 .3

2 .2

1 .6

1 .1

1 0

3 .1

4 .5

0 .7 0 .6 -0 .1

19

90 19 - 9 1 91 19 - 9 2 92 19 - 9 3 93 19 - 9 4 94 19 -95 95 19 -96 96 19 -97 97 19 - 9 8 98 19 -99 99 20 -00 00 20 - 0 1 01 20 -02 02 20 -03 03 20 -04 04 -0 5

-1

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2.6 Substantial increase in Foreign Investment Inflows (US$ billion) 14

1 2 .5

12

11

in US $ billion

10 8 6 4 .2

4

5 .4

5 .1

5 .9

6 .7 4 .6

2 .3

2 0 .1 0 .1

0 .6

19 90 19 -91 91 19 -92 92 19 -93 93 19 -94 94 19 -95 95 19 -96 96 19 -97 97 19 -98 98 19 -99 99 20 -00 00 20 -01 01 20 -02 02 20 -03 03 20 -04 04 -05

0

5 .1 4 .9

6 .0

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2.7 Significant reduction in External Debt Service Ratio (at end March) 40 35 30 25 20 15

(% of gross current receipts) 3 5 .3 3 0 .2 2 7 .5

2 5 .4 2 5 .9 2 6 .2

2 3 .0 1 9 .5 1 8 .8

1 7 .1 1 6 .2 1 3 .4

1 5 .8

1 7 .8 1 2 .3

10 5

19

91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05

0

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2.8 Significant reduction in External Debt/GDP ratios (at the end March) 3 8 .73 7 .5 2 8 .7

3 3 .8 3 0 .8 2 7 .0 2 4 .62 4 .32 3 .6

2 2 .12 2 .6 2 1 .1 2 0 .2

1 8 .6 1 6 .7

19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05

45 40 35 30 25 20 15 10 5 0

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2.9 Reduction in Concessional to Total External Debt Ratio (end March) 3 9 .5 3 8 .5 3 8 .9

3 5 .5 3 6 .0 3 6 .8 3 6 .4

19

92

19

19

4 2 .3

93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04

4 5 .9 4 4 .8 4 4 .5 4 4 .4 4 5 .3 4 5

91

50 45 40 35 30 25 20 15 10 5 0

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12

2.10 Reduction in Short Term Debt to Total External Debt Ratio (end March) 1 0 .2

10 8 .3

8

7 .2

7 .0

6 4

5 .4 3 .9

4 .3

5 .4 4 .4

4 .0

4 .4

5 .1

3 .6 2 .8

2

19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04

0

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3.5 3.0

2.11 Reduction in Short Term Debt to GDP Ratio (end March) 3 .0

3 .2 2.7

2.5 2.0 1.5 1.0

1 .8 1.3

1 .3

1 .4

1 .3 1 .0

0 .9

0 .8

0 .9 0 .6

0 .7

0.5

19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04

0.0

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2.12 Reduction in Short Term Debt to Total Foreign Exch. Ratio (end March)

450 400

382

350 300 250 200 15 0

126

10 0 50

24

30

30

19

15

11

9

5

6

6

5

93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05

21

19

92

19

91

0 19

98

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2.13 Substantial Build-up of Foreign Exchange Reserves (end March) 160

146

140 113

120 76

80 55

60 40 20

5 .8 9 .2 9 .8

1 9 .3

2 5 .22 1 .7

3 2 .5 2 6 .4 2 9 .4

3 8 .0 4 2 .3

0 -20

19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 2004 05 Au g

in US $ billion

100

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18 16 1 3 .8 1 1 .3 8 .6 8 .4 5 .3 4 .9

6

6 .5 6 .9

8 .2 8 .2 8 .6

2 .5

90 19 - 9 1 91 19 -9 2 92 19 -93 93 19 -94 94 19 - 96 95 19 - 9 6 96 19 - 97 97 19 - 98 98 19 -99 99 20 -0 0 00 20 -0 1 01 20 -0 2 02 20 -0 3 03 20 -0 4 04 -0 5

20 18 16 14 12 10 8 6 4 2 0

(end March)

19

in US $ billion

2.14 Steady Improvement in Import Cover of FER (Number of months)

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2.15 FDI Outstanding (%) Sectors Aug 1991 Aug 2003 1. Plantation & agriculture 9.5 1.4 2. Mining 0.3 0.1 3. Power 0.1 16.5 4. Manufacturing 84.9 50.4 5. Services 5.2 32.4 a)Financial & real estate na 6.4 b)Telecommunications na 19.8 c) Transport na 1.9 d)Hotels and retail trade na 2.7 e)Others na 1.6 Total 100 100

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2.16 Average Growth rates in India (per cent) Decade

Services Services Exports Imports 1950s 4.5 1.9 1960s 0.0 1.1 1970s 22.7 17.6 1980s 4.4 8.8 1990s 17.7 17.0 2000-2004 15.2 12.6

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2.17 Composition of service exports of India (per cent) Period Travel Trans Insurance Govt Misc 1950s 8.6 32.9 7.7 23.4 27.3 1960s 10.5 34.6 5.2 29.7 19.9 1970s 25.5 37.3 4.7 10.8 21.8 1980s 5.9 17.1 2.4 3.1 41.1 1990s 20.3 2.3 1.8 42.6 2000-04 15.4 10.7 1.3 2.0 70.6

33.0

Note: Misc includes financial, software and other modern services.

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2.18 Composition of service imports of India (per cent) Period 1950s 1960s 1970s 1980s 1990s 20002004

Travel 18.3 9.5 7.5 11.8 14.6 13.5

Trans 22.6 29.5 36.9 31.5 30.6 13.6

Insurance Govt Misc 6.7 22.6 29.8 2.4 16.9 39.0 1.1 9.4 40.8 0.5 4.2 49.6 0.3 2.7 49.8 1.3 1.1 70.5

___________________________________________

Note: Misc includes financial, software and other modern services.

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3 Money Supply and Fiscal Situation

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25 20 15

CPI WPI

10 5 0 15

13

11

9

7

5

3

M3

1

Growth Rate (%)

3.1 Trends of Inflation (%) and GR of Broad Money (M3)

Ye a rs s inc e 1 9 9 0 -9 1

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• • •

3.2 Fiscal Responsibility and Budget Management (FRBM) Act 2003

FRBM Act 2003 and FRBM Rules 2004 came into force w.e.f. 5 July 2004. The Act mandates the Central govt to eliminate revenue deficit by March 2009 and to reduce fiscal deficit to 3% of GDP by March 2008. Under section 7 of the Act, the central govt is required to lay before both houses of Parliament Medium Term Fiscal Policy Statement, Fiscal Policy Strategy Statement and Macro Economic Framework Statement along with the Annual Financial Statement and Demand for Grants.

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3.3 FRBM Rules 2004 • Reduction of revenue deficit by 0.5% of GDP or more every year. • Reduction of gross fiscal deficit by 0.3% of GDP or more every year. • No assumption of additional debt exceeding 9% of GDP for 2004-05 and progressive reduction of this limit by at least one percentage point of GDP in each subsequent year. • No guarantee in excess of 0.5% of GDP in any financial year.

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3.4 Medium Term Fiscal Indicators (As % of GDP) Items 1.Revenue Deficit 2.Fiscal Deficit 3.Gross tax rev. 4.Year-end debt stock

2004-05 2005- 2006- 2007-08 RE 06 BE 07 Tar Tar 2.7 2.7 2.0 1.1 4.5 4.3 3.8 3.1 9.8 68.8

10.6 68.6

Economic Situation by Dr. Tarun Das

11.1 68.2

12.6 67.3

40

3.5 Central Government Deficit (% of GDP) Year Revenue Fiscal Primary 1990-91 3.3 6.6 2.8 1991-92 2.5 4.7 0.7 1995-96 2.5 4.2 0.0 2000-01 4.1 5.7 0.9 2001-02 4.4 6.2 1.5 2002-03 4.4 5.9 1.1 2003-04 3.5 4.5 0.0 2004-05RE 2.7 4.5 0.4 2005-06BE 2.7 4.3 0.5 Economic Situation by Dr. Tarun Das

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3.6 State Governments Deficit (% of GDP) Year Revenue 1990-91 0.9 1991-92 0.9 1995-96 0.7 2000-01 2.5 2001-02 2.6 2002-03 2.5 2003-04RE 2.6 2004-05BE 1.4

Fiscal 3.3 2.9 2.6 4.3 4.2 4.7 5.1 3.6

Economic Situation by Dr. Tarun Das

Primary 1.8 1.2 0.8 1.8 1.5 1.7 2.1 0.7 42

3.7 General Govt Deficit (% of GDP) Year Revenue 1990-91 4.2 1991-92 3.4 1995-96 3.2 2000-01 6.6 2001-02 5.9 2002-03 6.7 2003-04RE 6.1 2004-05BE 4.1

Fiscal 9.4 7.1 6.5 9.5 9.9 10.1 9.6 8.1

Economic Situation by Dr. Tarun Das

Primary 5.0 4.5 1.3 3.7 3.7 3.6 2.1 1.1 43

4 Strengths, Challenges and Prospects

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4.1 Strengths of Indian Economy  Fourth largest economy in terms of PPP  



adjusted GDP after USA, China and Japan Largest pool of technical manpower Largest English speaking population Huge domestic market with second largest population, democracy, independent judiciary, free press, vibrant NGOs Rich natural resources, well established financial system, dynamic private sector and wide spread infrastructure

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4.2 Constraints to Growth Decline in agriculture growth Growing infrastructure constraints High energy intensity High interest rates Slowdown of economic reforms Weak regulatory institutions Outdated laws on business Inflexible Land and Labour markets High fiscal deficit Economic Situation by Dr. Tarun Das

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4.3 Economic Outlook for 2005-06

• Monsoon rainfall 98% of normal rainfall. • We are expecting overall GDP growth at 7% in 2005-06 aided by -- Agricultural growth of 1.5% -- Industry 8% and -- Services 9%. • Inflation within 5% to 5.5%. • Money supply growth 14.5%. Economic Situation by Dr. Tarun Das

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4.4 Medium Term Forecast (Growth rates in per cent) 2005-06 2006-07 2007-08 2008-09 Agriculture

1.5

2.5

3.0

3.0

Industry

8.0

8.0

8.0

8.0

Manuf.

9.0

9.0

8.5

8.5

Services

9.0

9.0

9.0

9.0

GDP

7.2

7.5

7.7

8.0

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Thank you – Have a Good Day

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