Indian Economy

Sneha Bose Somesh Dwivedi Sonam Taneja

Economy

Definition of an economy An economy is the realized social system of production, exchange, distribution and consumption of goods and services of a country.

Characteristics of ancient Indian economy

Agriculture was the predominant occupation. Religion played an important role in shaping economic activities. Caste system prevented people from changing occupations.

Barrier to mobility on labour restricted economic prosperity to upper castes.

Organizational entities in ancient India

Nigama Organization of merchants Pani Organization of craftsmen Sreni Organization of artisans These entities share many similarities with modern corporations. The use of such entities was widespread in business, political and municipal activity.

Coinage

Punch marked silver ingots were circulated in 5th century BC. Metallic coins were minted in 6th century BC by Mahanjapadas of the gangetic plains. Barter system was still widely prevalent.

Each village, as an economic unit was self-sufficient.

Exports in ancient India

Muslin of Dacca Calicos of Bengal Steel and iron works Agricultural products pepper, cinnamon, opium and indigo. The aforementioned products were exported to Europe and Middle east in return for gold and silver.

GDP estimates of ancient India

India was the worlds largest economy in the time frame 1st century- 11th century. Indias share of the world GDP stood at a whopping 32.9% in this period. It dropped marginally to 28.9% at the end of this period.

Reference The World Economy : A Millenial Perspective by Angus Maddison (economic historian).

Time frames of ancient Indian economy

Mughal Empire India was the 2nd largest economy in the world. Indias GDP was estimated at about 40% of Chinas. Nawabs, Marathas & Nizams Indias GDP was estimated at about 80% of Chinas. British East India Company Rule British foreign policies stifled trade with the rest of the world.

Post independence scenario of Indian economy

Refugee crisis 2 to 4 million refugees fled past each other across the new borders of India and Pakistan. The settlement of these refugees became a financial strain.
Aftermath of partition- Jute and cotton were grown in eastern part of Bengal, the area that became East Pakistan (after 1971,Bangladesh). India had to employ land previously used for food production to cultivate cotton and jute for its mills. Five-year plans R.K. Shanmukham Chetty was appointed the finance minister and five-year plans were introduced with the consent of Jawaharlal Nehru.

Post-independence scenario (contd.)

Influence by colonial experience This was seen by Indian leaders as exploitative in nature. Formulation of economic policy J.L Nehru, along with Prasanta Chandra Mahalanbois oversaw economic policy. State intervention It involved public and private sectors in a less extreme soviet-style system. In the late 80s, under Rajiv Gandhi, economic policies were liberal.

Obstacles faced by the young Indian economy

Impairment of productivity Socialist controls on the economy (eg. License Raj)

Trade deficits
Currency devaluation in 1966 Decrease in foreign exchange reserves

Pre-liberalization scenario of Indian economy

Fixed exchange rate system As of 1991, rupee was pegged to the value of a basket of currencies of major trading partners. Imbalance of payments Refusal of new credit by central bank Reduction in foreign exchange reserves Inability to finance imports

Aftermath of liberalization
Under PM P.V. Narsimha Rao, Finance Minister Manmohan Singh initiated the economic liberalization of 1991.

Abundant job opportunities Reduction in corporate taxes Increased rate of growth, high fiscal deficits. Increase in the number of private banks Flooding of Indian markets with western goods Rise in disposable income More foreign direct investments

Primary economic achivements post 2000

Universal license in telecom field It allowed CDMA license holders to provide GSM services and vice versa. Golden quadrilateral road network The network connects the metros of Delhi, Chennai , Mumbai and Kolkata. The project is still under construction. Sarva Shiksha Abhiyaan

Steady rise in the GDP

Economic achievements (contd.)

I.T services and software exports This domain registerd a growth of 33% in FY 2003-04. Revenue generated I.T services and software exports generated a revenue of US $ 17.3 bn. Foreign Exchange reserves The figure rose to $308397 forex reserves as of July08.

Rise in urban employment

Introduction to present Indian economy

Mixed economy Currency is Indian rupee. Fiscal year April 1st -March 31st 12th largest economy in the world. Unemployment at 7.8%. GDP stands at US $ 1 trillion. Union budget in Parliament on last working day of February. Imports $ 187.9 bn. Exports - $ 125 bn. Poverty is rampant at 25% of the total population.

Present Indian economy ( contd.)

Robust growth numbers in all sectors. Consistent 8-9% growth rate. Highest growth rate attained in last 2 decades was in 2006 9.6%. Industrial expansion in different parts of India. Sustained investment and high saving rates.

GDP comparisons in recent years

China South Korea Taiwan Vietnam Malaysia Thailand India Indonesia Cambodia Pakistan
5.6 5.4 5.3 5.2 6.0 6.3 6.8 6.6 6.5

9.5

Business and Economy

Textile Industry

Textile Industry has a high importance as it has been rendering the most basic needs of people and improving quality of life.

Indian Retail Industry

Indian Retail Industry has been waiting for the boom since a long time. The inception of country's retail industry dates back to times when retail stores were found in the village fairs , Melas or in the weekly markets.

Software Industry Cement Industry

Technical young people and English-speaking scientific professionals has brought tremendous success in India's software industry. Presently the Cement Industry in India is based on modern and environment-friendly dry process technology.

Industries in the economy

Steel Industry

Worldwide strong demand for steel particularly in China has benefited the Indian steel Industry.

Automobile Industry

Easier availability of finance and discounts offered by the dealers and manufacturers have resulted a strong growth of the Indian automobile industry.

IT Industry Indian IT Industry has built valuable brand equity in the global
markets.

Salt Industry in India is well developed. India is presently the third largest producer of salt in the world.

Salt Industry

Industries in the economy ( contd.)

India is one of the fastest growing economy in the world. Adoption of new economic policies in the country has given immense opportunities to develop the country. The financial market reforms have led the foreign banks to operate in India.

Banking Industry

Fertilizer Industry

According to Given Statistics, total capacity of the industry as on 30.01.2003 has reached a level of 121.10 lakh MT of nitrogen (inclusive of an installed capacity of 208.42 lakh MT of urea after reassessment of capacity) and 53.60 lakh MT of phosphatic nutrient. Presently there are 57 large fertilizers plants in the country producing urea, DAP, Complex fertilizer, Ammonium Sulphate (AS) and Calcium Ammonium Nitrate (CAN).

Industries in the economy ( contd.)

Jute Industry
Around 0.14 million people are engaged in the tertiary sector and allied activities, supporting the jute economy. Presently it also
contributes to exports to the tune of nearly Rs.1000 crore.

Sugar Industry

in India is well developed with a consumer base of more than billions of people. It is also the second largest producer of sugar in the world.

Tourism Industry
The year 2004-05 saw tourism emerging as one of the major sectors for growth of Indian economy, the foreign exchange earnings increased from Rs. 16,429 crore to 21,828 crore up to December.

Globalization in India

Transformed countrys system Large number of global multinational brands

Increase in level of spending on private consumption

Fall of political dominance.

FDI

Cumulative amount of FDI inflows from Aug 91March 08 is Rs. 330705 crores FDI Equity inflows during current calendar year is Rs. 47421 crores % growth over last year is 66 Mauritius is the top investing country in FDI, contributing 44.86% Sectors attracting highest FDI: Services, Computer Software and hardware, Telecommunication etc.

Financial institutions in India

Central bank RBI Commercial banks Credit rating agencies Financial authorities

Insurance companies
Specialized financial institutions

Forex reserves and debts

Forex includes gold, SDRs, etc. India ranks 4th with $308397 forex reserves as of july08, surpassing South Korea.

External debts as of 2007 worsened compared to the previous years.

Outstanding loan on Indian govt. stands at $41.57 bn. Attributed primarily to RBI lending.

Stock Market

BSE is the oldest stock exchange in Asia, established in 1875. On formal status under SEBI in 1956. Biggest stock exchange in the world in terms of companies listed. On 31st December07, equity market capitalization was $US 1.79 trillion. Other indices- Nifty 50. nifty junior etc. PE ratio stands at 17%. Index dropped 33% this year.

Inflation

Continuous rise in aggregate price levels over a period of time. Inflation stands at a 13 year high at 11.8% for the week ended June 28th,08. Measures to contol inflation, RBI hiked repo rate by 50 basis points, CRR hiked to 8.75%. Sharp increase in the price of food and basic articles Impact of rise in crude oil prices soared to $147.27/ barrel.

What India needs for sustaining growth and poverty reduction

Make growth more inclusive by stimulating agricultural growth. Improve the output and labour share of manufacturing. Improve labour participation rates further from 61% to 82% as in China. Maintain price stability which is threatening to rise on all fronts. Fiscal consolidation.. Infrastructure bottlenecks particularly in power and roads needs to be addressed.

Drivers of Growth

Demographic dividend of a young population:

Working population nearly 60% of total. Household savings rose from around 15-16 % of GDP in late 1980s to 22-24 percent in recent years

A growing middle class fuelling domestic consumption:

Strong companies in a modernized capital market.

100 million with $10 th. to $ 40 th. 340 million with incomes above poverty levels but less than $10 th. Six fold increase in sales of motor vehicles and a 10 fold increase in telephones since 1991.

Market capitalization on the Bombay Stock Exchange rose fourteen-fold from $50 billion in 1990/91 to $680 billion in 2005/06. Share of interest outgo in gross profits dropped sharply from above 50 percent in the late 1990s to 15 percent in 2005/06

Factors driving economic growth

Demographic forces Continued expansion of services sector

GDP growth of over 8%

Resurgent industrial sector

Globalisation

Rural potential is still largely untapped

31

INDIA- A KNOWLEDGE ECONOMY

The World Bank Institute offers a formal definition of a

knowledge economy as one that creates, disseminates, and uses knowledge to enhance its growth and development.

India enjoys unique advantages in having a large pool of

English-speaking professionals with degrees in engineering, science or mathematics.

The Indian Diaspora in the United States and the United Kingdom have several among them who have achieved
thought leadership in knowledge intensive fields.

The entrepreneurial and energetic business community in India has the capacity to step up to this challenge and
is capable of working closely with a supportive government to remove barriers that stand in the way of achieving of this vision.

India is already a leader in knowledge services Ireland

Israel
Total labour costs
33

Singapore
Mexico Malaysia Czech

Canada

Hungary
Russia

Vietnam Philippines China India

Quality of supply

Source: neoIT 2005

Interesting facts and figures

Inflation predicted to rise to 17% by Septemberprediction by barclays capital. Another round of oil price hike to $170/barrel.

India has 16% of the world population, 2.45% of the worlds land area and 4% of the worlds water resources.
India spends 5.63% of its GDP on infrastructure, while China spends 9%.

INTERESTING FACTS AND FIGURES

Less than 1% of the GDP is invested in public health provisions, India is currently one of the most privatised health economies. Indias per capita expenditure on health is $ US 23, while the world average is $ US482 per person.

80% of our population earns less than Rs. 90 a day.

INDIA: A FUTURE SUPERPOWER?

For four years running, excluding 2005, the Indian economy has produced annual growth rate of 8.8% Growth rate in 2006-2007 was a record 9.6%, highest in last 18 years. Indian Economy is consistently posting robust growth numbers in all sectors leading to impressive growth in Indian GDP. The economy has been stable and reliable in recent times, experienced a positive upward growth trend.

India : A Future Superpower (contd.)

India could grow to almost 90 percent of the size of the US by 2050, predicts Pricewaterhouse Coopers. The BRIC report of Goldman Sachs forecasted that between 2000 and 2050 India's GDP will increase by 60 times and China's by 40 times. India could become a superpower based on its knowledge capital and strong fundamentals. Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035.

India is on a roll and we are happy rolling with it..

Thank You