INDIAN ECONOMY: FEATURES AND

DEVELOPMENTS

GROUP MEMBERS
ROLL NO.19-SAIMA ARSHAD
ROLL NO.48-NEKETA ADHIKARI

INTRODUCTION

The Economy Of India is the ninth largest in the world by

nominal GDP and the fourth largest by Purchasing Power
Parity. The independence-era, Indian economy was inspired
by the economy of Soviet Union with socialist practices, large
public sectors, high import duties and lesser private
participation characterizing it, leading to massive
inefficiencies and widespread corruption. However, in 1991,
India adopted free market principles and liberalized its
economy to international trade. Following these strong
economic reforms, the country's economic growth progressed
at a rapid pace with very high rates of growth and large
increases in the incomes of people.

Beneficial Effects of the Reform

Process
Fourth Largest Growing Economy in terms of PPP
with a GDP of US $3.36 trillion
In Exchange terms , Tenth Largest in the world
with a GDP of US$ 691.87 billion (2004)
Second Fastest Growing Major Economy of the
World with a growth rate of 8.1% for the 1stQ of
2005-06

Features
1.
2.
3.
4.
5.
6.

The Indian economy is a developing economy. Its a mixed

economy in the sense that both private sector and public sector
coexist and participate in the production process.
It is characterized by high population density and population
growth.
About one-third of the population live below poverty line. 'Vicious
cycle of poverty' operates in many sectors of the economy.
There is high level of unemployment and underemployment In
addition, there is 'disguised unemployment' in the agricultural
sector.
The level of technology used in production process is low in many
sectors. Modern technology has not been adopted in all sectors of
the economy.
There is a shortage of physical and economic infrastructure.

India's SWOT analysis

STRENGTHS
High savings/investment , forex reserves, quality talent and IT,
broad based and growing entrepreneurial class, market size,
macro economic and financial stability, language, democracy
and political system stability
WEAKNESSES
Physical infrastructure, human development indicators,
agriculture, shortage of skilled manpower
OPPORTUNITIES
Demographic dividend, knowledge based growth , increased
integration with world economy, urbanization
THREATS
Global Uncertainty, fiscal deficit, climate change energy and
food security, regional and social inequalities

The India Story

TODAY

YESTERDAY

Socialist policies minimal private sector role

Bureaucratic
Protected market
Small consumer markets
Underdeveloped infrastructure

One of the fastest growing economies ; 9%+ growth

rate for 5 years prior to current crisis

Resilient Economy 5-6% growth at the peak of the

global crisis

Opening up sectors for investment

Promising consumer markets
Significant investment in infrastructure development

An Enabling Environment

Largest democracy; Stable government.

Dominant private sector; Increasing withdrawal of
government from business

Robust banking sector; Capital markets

World class IT & telecom infrastructure
A connected economy; Economic efficiency & quality of
governance

Reason for the highest growth rates

in the mid-2000s
The growth was led primarily due to a :
huge increase in the size of the middle class
consumer population(AVERAGE working age
being 25)
a large workforce comprising skilled and nonskilled workers(NAREGA scheme)
improvement in education standards(mid-day
meal for rural) and considerable foreign
investments(FDIs and FIIs).

Major issues of Development

Low per-capita income

Income inequalities
High incidence if poverty
Predominance of agriculture and instability of output
Rapid population growth
High dependency ratio
Low level of human development
Unemployment
Imbalance between population size, resources and
capital
Inadequacy of entrepreneurs

Changing scenario of Indian economy

Growth of national income

Rise in per-capita income
Structural transformation
Expansion of social capital
Slowly changing occupational distribution of
population
Growth of basic capital goods industries

POLITICAL INFLUENCE TO GDP

GROWTH

Red Marker 1991 to 1994

Congress
Green Marker 1995 to 1997
United Front
Blue Marker 1998 to 2003 BJP
Red Marker 2004 to 2008
Congress

GDP GROWTH IN INDIA FROM 1991-2008

Source:http://www.google.co.in/imgres?imgurl=http://www.d
alalstreet.biz/old_images/stocktips/gdp-growth-india

Indias Real GDP Growth

Period 19501980

19801990

19902000

20002007

Annual
3.7%
Real
GDP
Growth
Annual
1.5%
Real
GDP per
Capita
Growth

5.9%

6.2%

6.8%

3.8%

4.4%

5.8%

INDIA and Global Economy - Prospects

20

15

Per cent

10

0
2002

-5

2003

2004

2005

World

Forecast for 2010 and 2011

2006

Advanced Economies

2007

2008

2009

2010

Emerging & Developing Economies

2011

Indian Economy - Growth Trajectory

12.0

10.0

Per cent

8.0

6.0

4.0

2.0

0.0

Average GDP growth at 8.9 per cent during 2003-08

Real GDP grew at 8.8 per cent in 2010-11 (Q1) (6.0 per cent in 2009-10 (Q1))
RBI places real GDP growth forecast at 8.5 per cent for 2010-11

INDIAN ECONOMY: BROAD FEATURES

Employment
Poverty
Investments
Infrastructure
Agriculture
Financial sector

Average Annual Growth Rate of

Industrial Sector
Five Years Plans Target

Actual

Sixth Plan
(1980-85)

8.7% p.a.

3.5% p.a.

SeventhPlan(198 8.7% p.a.

5-90)

8.5% p.a.

Eighth Plan
(1992-97)

8.1%p.a.

7.6%p.a.

Ninth Plan
(1997-2002)

4.5%p.a.

Tenth Plan
(2002-07)

8.90

Eleventh
Plan(2007-11)

10-11

8.74

Concerns for INDIAN ECONOMY

INFLATION
UNEMPLOYMENT
CORRUPTION
MONEY LAUNDERING
BLACK MONEY
SLACKEN RULES AND POLICIES resulting into
plethora of scams
POVERTY

2008-09
2009-10
2010-11

March

February

January

December

November

October

September

August

2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

2003-04

2002-03

2001-02

2000-01

1999-00

1998-99

1997-98

1996-97

14.0

1995-96

1994-95

1993-94

1992-93

1991-92

1990-91

Per cent
16.0

July

June

May

April

Per cent

Inflation has increased significantly after being moderate during

first half of 2009-10
WPI Inflation (Annual Average)

12.0

10.0

8.0

6.0

4.0

2.0

0.0

WPI Inflation (y-o-y)

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0

-2.0

Monetary and Inflation conditions

Inflation - WPI and CPI
30.0

20.0
15.0
10.0

5.0
0.0

CPI-Industrial Workers
WPI- All Commodities
WPI-Food (Composite)

CPI-Agricultural Labourers
WPI-Essential Commodity Group

Jul/10

Apr/10

Jan/10

Oct/09

Jul/09

Apr/09

Jan/09

Oct/08

Jul/08

-5.0
Apr/08

y-o-y per cent

25.0

UNEMPLOYMENT

Structural Unemployment
Under employment
Disguised Unemployment
Open Unemployment
Educated Unemployment
Frictional Unemployment
Seasonal Unemployment

INDIAN ECONOMY :CHART PROGRESS

(Including development and growth)

SOUNDNESS OF INDIAN ECONOMY

Fiscal Situation: Key Indicators

Year

(1)
2008-09
2009-10 RE
2010-11 BE

Primary deficit
(2)

Revenue deficit
(3)
Centre

2.6
3.1
1.9

Gross Fiscal Deficit

(4)
4.5
5.3
4.0

6.0
6.6
5.5

-0.2
0.8
0.4

2.4
3.4
2.9

4.3
6.0
4.4

8.5
10.0
8.3

States
2008-09#
2009-10 RE#
2010-11 BE#

0.6
1.6
1.0
Combined

2008-09
2009-10 RE
2010-11 BE

3.4
4.8
3.0

RE: Revised Estimates; BE: Budgeted Estimates.

# : data pertain to 27 State Governments.

Current Trends - Real GDP Growth (Per Cent)

Item
1
1. Agriculture and Allied
Activities

1950-80

(Average)
2

2.1

2006-07

2007-08

2008-09

2009-10@

2010-11 Q1

5.2

3.7

4.7

1.6

0.2

2.8

(18.1)
8.1
(20.0)
1.3
9.6

(17.2)
13.6
(20.7)
8.7
14.9

(16.4)
9.3
(20.7)
3.9
10.3

(15.7)
3.1
(20.0)
1.6
3.2

(14.6)
10.4
(20.5)
10.6
10.8

(14.0)
11.4
(20.8)
8.9
12.4

9.6
4.5

6.6
11.3
(61.9)

10.0
10.2
(62.2)

8.5
10.4
(62.9)

3.9
9.3
(64.4)

6.5
8.3
(64.9)

6.6
9.4
(65.2)

5.1

12.1

11.7

10.7

7.6

9.3

12.2

3.5

12.8

14.5

13.2

10.1

9.7

8.0

4.3
4.9
3.5

7.6
12.4
9.5
(100)

2.6
10.6
9.7
(100)

6.7
10.0
9.2
(100)

13.9
5.9
6.7
(100)

5.6
6.5
7.4
(100)

6.7
7.5
8.8
(100)

2. Industry

5.4

2.1 Mining and Quarrying

2.2 Manufacturing
2.3 Electricity, Gas and
Water Supply
3. Services

4.6
5.3

3.1 Trade, Hotels, Transport

Storage and
Communication
3.2 Financing, Insurance,
Real Estate and Business
Services
3.3 Community, Social
and Personal Services
3.4 Construction
4. Real GDP at Factor Cost

2005-06

Figure in parenthesis are percentage share to GDP; @: Revised estimates

Source: Central Statistical Office

Demand Side Drivers of Growth

(Percentage to GDP)

Private
Consumption
Government
Consumption
Gross Fixed
Investment
Net Exports
Source: CSO

2008-09

2009-10

2009-10 Q1

Share Contribution

Share Contribution

2010-11 Q1

Share Contribution

Share Contribution

59.5

78.2

57.6

33.4

59.9

33.5

56.5

22.6

11.5

33.6

11.8

15.7

11.5

30.8

11.9

16.3

32.9

25.8

32.8

30.8

31.2

(-)4.4

30.5

23.7

(-) 6.2

(-) 36.2

(-) 5.1

7.8

(-) 4.8

36.4

(-) 5.2

(-) 9.8

Growth in Index of Industrial Production (Y-o-Y)

20.0
17.7

18.0

16.3
16.0

14.7 14.6

15.2
13.8

14.0
12.0

12.0

10.6

11.3

10.2
9.3

10.0
8.3

Per cent

8.0

7.2
6.4

6.2

6.0

5.4

6.0

5.8

4.4
4.0
2.0

2.5

2.1

1.7

1.0
0.1

1.1

0.2 0.3

0.0
-0.2
-2.0

During April-July 2010, the IIP growth increased to 11.4 per cent as
compared with 4.7 per cent last year.

Growing Openness

Indias Trade Openness (% of GDP)

1990s
2000s

2009-10
Source: RBI

Exports
8.0
12.2

Imports
10.8
17.5

13.9

22.8

Current Capital
Account Account
26.8
15.1
45.4
33.8

55.2

48.3

Increased Tradability of Services

Services Exports to Services GDP
16.0
Percentage to Services GDP

14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0

-2

Current Account Balance as a pecentage of GDP

2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

2003-04

2002-03

2001-02

2000-01

1999-00

1998-99

1997-98

1996-97

1995-96

1994-95

1993-94

1992-93

1991-92

1990-91

Per cent

Current Account Balance & Capital Inflows

10

-4

Net Capital Flows as a percentage of GDP

Capital Flows
US $ billion
2008-09

2009-10

Apr-Mar

Apr-Mar

35.2

31.7

2. FIIs

-15.0

29.0

3. ECBs

7.9

2.5

4. NRI Deposits

4.3

2.9

5. Other Banking Capital

-7.5

-0.8

6. Short-term Trade Credits

-1.9

7.7

7.2

53.4

Item

1. Inward FDI

Total

FII flows amounted to US$3.5 billion during April-June 2010-11 as against US

$ 8.3 billion during April-June 2009-10

FDI Flows to India

(US $ million)

Equity

Re-invested
Earnings

Other
Capital*
Total

April-July

2006-07

2007-08

2008-09

2009-10

2009-10

2010-11

16,394

26,757

27,807

22,908

10,381

7,557

5,828

7,679

6,428

8,079

517

292

757

695

22,739

34,728

34,992

31,682

10,381

7,557

* Inter company debt transactions of FDI entities

Source: RBI

April-July

Banking Sector Scenario

Indian banks continue to remain well
capitalized as per Basel II requirements
NPAs at manageable level despite the
downturn
Significant liquidity buffers - CRR and SLR
prescriptions
Focus on CD ratio and SLR requirement help
in limiting leverage

Structural Reforms
Discussion paper on licensing New Private
Sector Banks issued in August 2010
Discussion paper on presence of foreign banks
to be issued shortly
Working Group looking into Holding Company
structure

Financial Stability and Development Council

GOI setting up Financial Stability and
Development Council (FSDC) for:
Achieving inter-regulatory coordination and
overseeing systemic risks and
laying down a macro-prudential overlay to
financial sector regulation

Focus on Financial Inclusion

Adoption of mobile- based and smart card
based technologies , UIDs
IMPLEMENTATION OF BASEL III NORMS
Focus on e-governance projects
Importance of CSR in corporate world
Education and awareness in investing

Basel III
BCBS release Basel III norms on September 12, 2010
implementation in a phased manner
Capital adequacy of Indian banks will not be
impacted significantly they already have high CRAR
and Core CRAR
Leverage ratio will be around 6, much comfortable
than the Basel requirement of 3
Indian banks largely follow retail model and
therefore liquidity is not an issue for them

Macroeconomic situation
RBIs latest assessment on September 16, 2010
Global Scenario
Recovery slowing; global environment continues to be a cause for caution
Domestic Scenario
Recovery consolidating; economy rapidly converging to its trend rate of
growth. Agri. growth prospects boosted; sustained growth in service sector.
Inflation dominant concern; implications for real interest rates
Fiscal deficit conforming to budget estimates
External front -export growth constrained by continuing sluggishness in
global economy; demand for imports increased due to strong domestic
recovery
Overall assessment - growth remains steady. Inflation appears to have
stopped accelerating though the rate may remain high for some months.
Monetary Measures announced
Repo rate under LAF increased by 25 basis points from 5.75 % 6 %. Reverse
repo rate increased by 50 basis points from 4.5 % to 5.0 %

Thanks.