Title: EVOLUTION OF THE INDIAN ECONOMY
1EVOLUTION OF THE INDIAN ECONOMY
Tata Services Limited Department of Economics
Statistics October 29, 2007
2GDP GROWTH IN INDIA
3GDP GROWTH DECLINING VOLATILITY
Coefficient of Variation Standard Deviation /
Average Growth Rate
- Does it mean steady demand growth?
- A steady build up in investor confidence?
4POVERTY LEVELS ARE DECLINING
End period measure
- At a growth rate of 4.5 it will take 16 years to
double per capita income - At 7 it will take 10 years to double per capita
income - The cake has to grow in order to bring down
poverty levels - Equity is embedded in growth
5INCOME INEQUALITY
- Need for inclusive growth
- Need for access to education
- Need for employment generation, entrepreneurship
development, microfinance, etc.
6MACROECONOMIC FUNDAMENTALS A SNAPSHOP
of GDP
2005-06
7TREND GROWTH IN GDP
8TREND GROWTH IN GDP(CONCLD)
- Post-reforms GDP growth is higher than
pre-reforms - The growth process during the pre-reform period
led to serious macro-economic imbalance. - Huge Fiscal Deficit, growth propelled by large
borrowings - Huge interest rate burden
- Post-reforms the inflation rate has come down
- Post-reform GDP growth has become less volatile
9SECTORAL SHARE IN GDP
10SERVICE SECTOR GROWTH ()
11GDP GROWTH AND INVESTMENT
- Required Investment Rate GDP growth
Incremental capital output ratio (ICOR) - Required Foreign Capital Investment Rate
Savings Rate
Current Investment Rate 33.8 Current Savings
Rate 32.4
12SAVINGS RATE
(as of GDP at current market prices)
According to Economic Survey 2006-07, the private
corporate sector has financed a large part of its
investment in the on-going capex cycle from
retained earnings or savings
13INVESTMENT RATE
(as of GDP at current market prices)
14MACRO TRENDS
- What is remarkable is that India has grown
against all odds - Asian financial crisis
- International sanctions
- Border conflict
- Major earthquakes
- One of the worst droughts in 4 decades
- Terrorist assaults
15INDIA VIS-À-VIS OTHER EMERGING ECONOMIES
Source IMF World Outlook, April 2007
16GROWTH IN KEY SECTORS
17INVESTMENT IN INFRASTRUCTURE
- Partial use of Foreign Exchange Reserves
inherent problem?
18INDIAS EXTERNAL SECTOR
US Billion
19PROGRESSIVE DECLINE IN PEAK CUSTOMS DUTY IN INDIA
()
20GROWTH OF EXPORTS FROM INDIA
- Growth in exports in 2006-07
- Passenger Cars 13.4
- Two wheelers 20.6
- Three wheelers 87.2
21INDIAS KEY EXPORTS IMPORTS
Main Export Destinations US 14.94 China 6.56
UAE 9.51 UK 4.4 Main Import Sources US 6.6
Germany 6.7 China 9.1 Saudi Arabia 7
22COMPETITIVENESS, EXPORTS GROWTH RELATED ISSUES
- Indian export growth in post-reform period higher
than pre-reform period
Source Veeramani, C (2007) Sources of Indias
Export Growth EPW June 23, 2007
23COMPETITIVENESS, EXPORTS GROWTH RELATED ISSUES
- Competitiveness played a critical role in
post-reform period - This was not spurred by undervalued currency, in
fact REER went up between 2002 and 2005 - Intra industry trade has improved, linkage
between intra industry trade, supply chain
restructuring and FTA/RTA
24INDIAN ECONOMIC REFORMS PRODUVTIVITYA REVIEW
- Pre-reforms Era (Before 1992)
- Fragmented capacities based on licensing
- Input constraint, especially imported inputs
- Excess man-power in firms
- Over capitalization due to tax incentives e.g.
Investment Allowance - Restricted competition
- Adverse impact on productivity
- Post-reforms Era (After 1992)
- Market driven economies of scale
- Imported input constraints removed
- Restructured firms, supply chain rationalization
- Investment Allowance has been largely abolished
- Relatively higher competition (domestic/global)
- Productivity growth is key to survival
25POST-REFORM TOTAL FACTOR PRODUCTIVITY(TFP) GROWTH
- Lower tariff barriers have led to higher firm
level efficiency and TFP growth - A decrease in the tariff by 10 leads to a 0.5
increase in TFP (Trade Liberalisation and Firm
Productivity The Case of India Petia Topalova,
IMF Working Paper, February 2004)
26POST-REFORM TOTAL FACTOR PRODUCTIVITY(TFP) GROWTH
Source Reforms and Productivity Trends in Indian
Manufacturing Sector, DES Tata
27RISK FACTORS
- Domestic
- Oil commodities price increase
- Interest rate increase
- Appreciating Rupee
- US Economy
- Sub Prime crisis leading to a general crisis in
the financial sector - Decline in consumption demand
- Non-tariff barriers Developed Economies
- Competition from China
28UNFINISHED AGENDA
- Infrastructure Development/ New Investment
- Poverty Reduction, Primary Education, Health
- Agricultural Reform
- VAT implementation and improvement in tax GDP
ratio - Managing fiscal deficit at the Centre and the
States - Labour Reform soft-landing approach
29 30TRADE - CHILE
- Main Exports Copper, fresh fruit cellulose,
paper printing - Major markets US, Japan, China, Netherlands
South Korea - Main Imports intermediate goods, capital goods
consumer goods - Major markets US, Argentina, Brazil, China
Peru
31INDO CHILE TRADE 2006-07
- Indias exports to Chile USA grew by 146.63 to
375.24 mn and accounted for 0.3 of total Indian
exports - Exports to Latin America account for 3.38of
Indias total exports and grew by 42.81 to
4.3bn - Imports from Chile grew by 341.63 to 1.9 bn
accounting for 1.01 of Indias total imports - Imports from Latin America grew by 127.64 to
6.1bn accounting for 3.18 of India's total
imports
32GROWTH IN INDIAN IT SECTOR DOMESTIC EXPORTS
- Total revenue expected to exceed 47.8bn in
2006-07 nearly 10 fold increase over 1997-98.
The sector contributes an estimated 5.4 to GDP
from 1.2 in 1997-98. - Direct employment in the sector is estimated to
be above 1.6mn from 284,000 in 1999-00 (indirect
induced employment opportunities is estimated
at above 3 mn
33DOMESTIC IT SECTOR
- Service software exports are the key drivers of
the Indian IT sector. Exports account for approx.
66 and the domestic market accounts for approx
33 of the total sector - Domestic industry valued at estimated 15.9bn in
2006-07 (21 growth y-o-y on the back of 29
growth in 2005-06) - The domestic market was largely dominated by the
hardware segment. However in 2005-06 for the
first time the software and services spending
being higher than that of the hardware segment - Manufacturing, telecom and the Government are the
key vertical markets driving domestic IT
spending growth - MNCs had a large presence in this segment but now
Indian companies are also expanding their presence
34SOFTWARE SERVICES EXPORT GROWTH IN INDIA
Software services exports have grown at a CAGR of
34.3 between 2002-03 to 2006-07
35ADVANTAGE INDIA
- Large talent pool
- Favourable demographic profile with more than
half the population less than 25 years,
imparting of relevant training - Cost advantage
- on average 25-50 over the original cost base
- Emphasis on Quality Information Security
- Currently India-based centres (both Indian firms
as well as MNC-owned captives) have the largest
number of quality certifications by any single
country - Fast growth in vital Business infrastructure
- Swift development of telecommunication sector
into a competitive environment from public sector
monopoly helped the IT-BPO sector to deliver
better and competitive services - Conducive Business Policy Regulatory
Environment - Minimalist regulations along with fiscal and
procedural incentives given at both State and
Centre level.
36OFFSHORING RANKING
Source A.T. Kearney, 2005
37THANK YOU