1

IEP CIA-1 Case Study Analysis

COs mapped: CO1 and CO2
1. CO1 Assess the present economic policies and reforms in Evaluate (5)
India.
2. CO2 Investigate parameters for measuring growth and Analyse (4)
development of Indian economy.

Points to be noted

⮚ Students need to read and analyse the case in a group but the report submission has to be
Individual.
⮚ After discussion, you need to write a summary of the case, identify the problem (if any) in
the case, and answer the questions.
⮚ There will be viva voce for the case study analysis (in a group).
⮚ The following rubrics will be followed for evaluation
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IEPR CIA-1 Faculty of Management, CMS Business School Case Study Analysis
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Case-1: Monetary Policy

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary
Policy Committee (MPC) at its meeting today (February 10, 2022) decided to:

 keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent.

The reverse repo rate under the LAF remains unchanged at 3.35 per cent and the marginal standing
facility (MSF) rate and the Bank Rate at 4.25 per cent.

 The MPC also decided to continue with the accommodative stance as long as necessary to revive and
sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy,
while ensuring that inflation remains within the target going forward.

These decisions are in consonance with the objective of achieving the medium-term target for
consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting
growth.

The main considerations underlying the decision are set out in the statement below.

Assessment

Global Economy

2. Since the MPC’s meeting in December 2021, the rapid spread of the highly transmissible Omicron
variant and the associated restrictions have dampened global economic activity. The global composite
purchasing managers’ index (PMI) slipped to an 18-month low of 51.4 in January 2022, with weakness
in both services and manufacturing. World merchandise trade continues to grow. There are, however,
headwinds emanating from persistent container and labour shortages, and elevated freight rates. In
its January 2022 update of the World Economic Outlook, the International Monetary Fund (IMF)
revised global output and trade growth projections for 2022 downward to 4.4 per cent and 6.0 per
cent from its earlier forecasts of 4.9 per cent and 6.7 per cent, respectively.

3. After reversing the transient correction that had occurred towards End-November, commodity
prices resumed hardening and accentuated inflationary pressures. With several central banks focused
on policy normalisation, including ending asset purchases and earlier than expected hikes in policy
rates, financial markets have turned volatile. Sovereign bond yields firmed up across maturities and
equity markets entered correction territory. Currency markets in emerging market economies (EMEs)
have exhibited two-way movements in recent weeks, driven by strong capital outflows from equities
with elevated uncertainty on the pace and quantum of US rate hikes. The latter also led to an
increasing and volatile movement in US bond yields.

Domestic Economy

4. The first advance estimates (FAE) of national income released by the National Statistical Office
(NSO) on January 7, 2022 placed India’s real gross domestic product (GDP) growth at 9.2 per cent for
2021-22, surpassing its pre-pandemic (2019-20) level. All major components of GDP exceeded their
2019-20 levels, barring private consumption. In its January 31 release, the NSO revised real GDP
growth for 2020-21 to (-) 6.6 per cent from the provisional estimates of (-) 7.3 per cent.

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5. Available high frequency indicators suggest some weakening of demand in January 2022 reflecting
the drag on contact-intensive services from the fast spread of the Omicron variant in the country.
Rural demand indicators – two-wheeler and tractor sales – contracted in December-January. Area
sown under Rabi up to February 4, 2022 was higher by 1.5 per cent over the previous year. Amongst
the urban demand indicators, consumer durables and passenger vehicle sales contracted in
November-December on account of supply constraints while domestic air traffic weakened in January
under the impact of Omicron. Investment activity displayed a mixed picture – while import of capital
goods increased in December, production of capital goods declined on a year-on-year (y-o-y) basis in
November. Merchandise exports remained buoyant for the eleventh successive month in January
2022; non-oil non-gold imports also continued to expand on the back of domestic demand.

6. The manufacturing PMI stayed in expansion zone in January at 54.0, though it moderated from 55.5
in the preceding month. Among services sector indicators, railway freight traffic, e-way bills, and toll
collections posted y-o-y growth in December-January; petroleum consumption registered muted
growth and port traffic declined. While finished steel consumption contracted y-o-y in January,
cement production grew in double digits in December. PMI services continued to exhibit expansion at
51.5 in January 2022, though the pace weakened from 55.5 in December.

7. Headline CPI inflation edged up to 5.6 per cent y-o-y in December from 4.9 per cent in November
due to large adverse base effects. The food group registered a significant decline in prices in
December, primarily on account of vegetables, meat and fish, edible oils and fruits, but sharp adverse
base effects from vegetables prices resulted in a rise in y-o-y inflation. Fuel inflation eased in
December but remained in double digits. Core inflation or CPI inflation excluding food and fuel stayed
elevated, though there was some moderation from 6.2 per cent in November to 6.0 per cent in
December, driven by transportation and communication, health, housing and recreation and
amusement.

8. Overall system liquidity continued to be in large surplus, although average absorption (through both
the fixed and variable rate reverse repos) under the LAF declined from ₹8.6 lakh crore during October-
November 2021 to ₹7.6 lakh crore in January 2022. Reserve money (adjusted for the first-round
impact of the change in the cash reserve ratio) expanded by 8.4 per cent (y-o-y) on February 4, 2022.
Money supply (M3) and bank credit by commercial banks rose (y-o-y) by 8.4 per cent and 8.2 per cent,
respectively, as on January 28, 2022. India’s foreign exchange reserves increased by US$ 55 billion in
2021-22 (up to February 4, 2022) to US$ 632 billion.

Questions:
1. Analyse the role of MPC in Monetary Policy Review. (4 marks)
2. Explain the terms (3 marks)
i) LAF
ii) MSF
iii) CPI
3. According to you, MPC’s accommodative stance on Monetary Policy in the present
situation justifiable? (4 marks)

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Case- 2 Union Budget 2021

The Union Budget 2021 was not a budget like earlier times, this was the first budget presented in the
Lok Sabha by our honourable finance minister Smt. Nirmala Sitharaman after the Covid-19 pandemic,
which has a huge impact on almost every sector of our economy, whether it's MSMEs, hospitality,
aviation, or service sector. The theme of the budget 2021-22 is Atma Nirbhar Bharat that is a vision to
become self-sustainable.

In the speech of budget for this financial year, our honorable finance minister laid down six pillars on
which the budget stands i.e., Health and wellbeing, physical and financial capital and infrastructure,
inclusive development for aspirational India, reinvigorating human capital, innovation and R&D, and
minimum government and maximum governance.

Now looking at the key points on India fiscal position we observe that our finance minister pegged
fiscal deficit at 6.8% of GDP from 9.5% of GDP in FY 21 due to the COVID-19 pandemic to ensure a
spurt in the economic growth. Budget estimates for expenditure in 2021-2022 are Rs. 34.83 lakh
crores. This includes Rs. 5.54 lakh crores as capital expenditure, an increase of 34.5% over the previous
Budget estimate figure. We all have seen this unexpected year of 2020, so we need contingency funds
at the time of emergency to stabilize our economy. Therefore, the Contingency fund has also increased
from 500 crores to 30000 crores. The government has discontinued the NSSF loan to FCI for food
subsidy and defined food subsidy separately in the budget of about Rs.2.02lakh core, which has
enhanced the transparency in the budget. The government has allowed states for additional
borrowing of up to 4% of GSDP with 0.5% under special conditions.

If we critically analyse the changes in the Fiscal Responsibility and Budget Management (FRBM) Act,
we observe that the government has allocated Rs. 34.83 lakh crore for expenditure, which is 15.6% of
GDP and in the recent past, no union budget has exceeded the limit of 13.5%. Since the Capital
expenditure got a big boost i.e., from Rs. 4.12 lakh crore to Rs. 5.5 lakh crore so we are able to curtail
the risk of inflation in the future by not increasing the revenue expenditure.
Source- http://www.businessworld.in/08th Feb 2021

Questions:

1. Explain why the new budget of 2021 was focussed on self-reliance; with reference
to the global economic upheaval. (3 marks)
2. Analyse the six pillars of development and discuss why they are important.
(3 marks)
4. Justify if the fiscal deficits mentioned by the government is reasonable or not?
(2 marks)
4. Elucidate why the FRBM act was necessary for smooth transaction of fiscal
responsibility. (2 marks)

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Case-3 AN ASSESSMENT OF SOCIOECONOMIC IMPACT OF COVID‐19 PANDEMIC IN INDIA

COVID‐19, caused by a new strain of coronavirus, risen out of Wuhan city of China in December 2019
has been called a pandemic by the World Health Organization. It has created an unstable environment
for individuals, loss of business activities, and loss of employment.
Agriculture and allied activities are not a homogenous group of activities, in fact, an umbrella of
different activities having their different dynamics each. Horticulture is likely to face the brunt more
because of the nature of perishability whereas food grains are non‐perishable and apart from
problems in harvesting and labor shortage, this is not impacted much. Fishing and aquaculture are
expected to have a high negative impact, food grains and livestock low, and horticulture medium,
relatively. Agriculture seems to be a bright spot in India amid the COVID‐19 crisis and CRISIL expects
agriculture to grow at a rate of 2.5% in FY2021. (CRISIL, 2020).
The manufacturing sector is important in the way that it has strong linkages with other sectors,
both forward and backward linkages so any impact in this sector will affect other sectors as well.
Overall, the manufacturing sector is going to be affected badly by demand–supply disruptions and
global value supply chain.The 50% contributor to the manufacturing sector, the automotive sector
was suffering before COVID‐19 too due to low consumer demand, inadequate credit facilities. As
indicated by recent reports MSMEs contribute 30% in India's GDP and 50% in the employment of
industrial workers. But this sector has issues like the non‐availability of adequate, timely, and
affordable institutional credit.
The financial sector who has got the most important role to play in the crisis times has also
been having huge problems in India like Twin Balance Sheet (TBS), high levels of non‐performing assets
(NPAs) and an inadequately capitalized banking system. There is no such impact on the banking sector,
but because banks are at the forefront of public attention the indirect impact of several other sectors
that are hit by the pandemic is likely to be on the banks and other financial institutions. The stock
market has also seen the worst in March, 2020 due to the lockdown and collapse of various business
activities.
Other important dimensions of service sector like aviation, transport, travel, and tourism are worst hit
not only in India, but globally. The loss to this sector too will be based on the severity and longevity of
the crisis. A report by KPMG indicates that around 38 million job losses are expected in India's travel,
tourism and hospitality industry. 12
The drop in employment is found to be biased and not gender‐neutral in India which has one
of the most unequal gender division of domestic work globally. The drop in absolute number is more
for men compared with women because of the already existing large gender‐gap in employment.
Due to the paucity of testing services, shortage of doctors, health equipment, beds even in the
developed area of India, COVID‐19 is a major threat for India. As per the National Health Profile of
India, 2019, India's expenditure on healthcare as % of GDP was merely 1.28% which is lower than
poorer countries of the world (Rakshit & Basishtha, 2020). The rural health care system which is a
three‐tier system is comprised of‐
 Sub‐centres with 23% shortfall in healthcare facilities,
 Primary Health Centres with 27% and
 Community Health Centres with 28% shortfall, as of July 1, 2019.
The healthcare system in the rural area is not adequate to handle this pandemic and the transmission
especially in the northern states where population density is high because of doctors' shortage,

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healthcare facilities like very less availability of no. of beds per thousand people, equipment, and so
forth.
According to the World Bank (2016) report, every fifth Indian is poor with around 80%
population residing in rural areas. At least 49 million individuals all over the world are expected to dive
into “extreme poverty” as a direct result of the destruction caused by the pandemic and according to
World Bank, India is estimated to have its 12 million citizens pushed in extreme poverty (Bloomberg,
2020). According to the Centre for Monitoring Indian Economy (CMIE), in India more than 122 million
people lost their jobs in April 2020, out of them largely were the small traders and wage‐laborers.
With serious negative implications and destruction to the economy and people, COVID‐19 has
got some positive implications too. One such is a gift to the river Ganga. In just 34–35 days of lockdown
due to COVID‐19 in India, the pollution in the river has decreased significantly which the two major
plans, Ganga Action Plan, 1986, and Namami Gange, 2014, with hundreds of crores investment could
not do, said Prof. B. D. Tripathi, Chairman, Mahamana Malaviya Research Centre for Ganga. There is
a positive impact on air quality, water quality, wildlife and vegetation due to less traffic, less pollution
due to lockdown and less business activities etc.
(Source: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7646007/ October, 2020)

Questions
1) Discuss the sectorial impact of COVID19 in India.
2) “The healthcare system in the rural area is not adequate to handle this pandemic”. Analyse.
3) Why do you think the gender-wage gap has increased during pandemic? Elucidate?
4) Does COVID has any positive implications? Justify.

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Case-4 Impact of Inflation on Indian Economy

Though inflation has always been a major public concern and always been subject to heated political
debate, it is an astonishing truth that since 1950 India has experienced one of the lowest inflation
rates in the world in comparison to other developing countries and most of these years it had
consistently maintained a steady control over the inflation rate by limiting it to only a single digit
figure. The biggest turmoil of inflation came in the year 2008 to 2009 when India experienced both
the highest ever rate of inflation in the country and the lowest rate also within span of just few months.
Though with proper and efficient fiscal management India has been able to mostly avoid the disastrous
global effects of inflation, various sectors of Indian economy suffered from the onslaught of inflation
in various periods. Presently Oil and aviation fuel, automobile, banking, steel and cement are some of
the key industries that are mostly suffering from the present inflation syndromes. Among other
industries IT, FMCG or consumer durable industries are facing pressurized by the effects of inflation
and either increasing the price of their deliverables or initiating severe cost cutting measures. High
inflation has an adverse impact on growth through a variety of channels. First, high inflation leads to
uncertainty which impacts investment and growth. As it is, investment decisions are subject to a lot
of uncertainties. High and volatile inflation adds further to these uncertainties. Second, high inflation
makes banks deposits less attractive and encourages investment in physical assets and speculative
activities, which leads to diversion of savings away from formal. The Indian economy finally gave a
numerical evidence of the slowdown. During the January-March quarter, the gross domestic product
(GDP) is estimated to have grown at a meager rate of 5.3%. This is the lowest growth rate in the last
nine years. The Indian economy could grow only by 6.1% in October-December 2011. The growth rate
in the previous quarter was much lower compared with the 8.3% growth achieved in the same period
of the previous year and 6.9% achieved in the July-September quarter. Incidentally, this has been the
slowest growth rate achieved by the Indian economy since the January-March 2009 quarter. Some of
the main reasons for the slowing economic growth are high inflation, a declining rupee, messy
government finances and policy paralysis among others. It is high times the government gets out of
its denial-mode and stops putting the blame on the eurozone crisis and other external factors.
CAUSES OF INFLATON
Inflation refers to a rise in prices that causes the purchasing power of a nation to fall. Inflation is a
normal economic development as long as the annual percentage remains low; once the percentage
rises over a pre-determined level, it is considered an inflation crisis. There are many causes for
inflation, depending on a number of factors.
Excess printing of money
Inflation can happen when governments print an excess of money to deal with a crisis. As a result,
prices end up rising at an extremely high speed to keep up with the currency surplus. This is called the
demand-pull, in which prices are forced upwards because of a high demand.

Rise in production costs

Another common cause of inflation is a rise in production costs, which leads to an increase in the price
of the final product. For example, if raw materials increase in price, this leads to the cost of production
increasing, this in turn leads to the company increasing prices to maintain steady profits. Rising labor
costs can also lead to inflation. As workers demand wage increases, companies usually chose to pass
on those costs to their customers.
International lending and national debts
Inflation can also be caused by international lending and national debts. As nations borrow money,
they have to deal with interests, which in the end cause prices to rise as a way of keeping up with their

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debts. A deep drop of the exchange rate can also result in inflation, as governments will have to deal
with differences in import/export level.
Rise in tax and duties
Finally, inflation can be caused by federal taxes put on consumer products such as cigarettes or fuel.
As the taxes rise, suppliers often pass on the burden to the consumer; the catch, however, is that once
prices have increased, they rarely go back, even if the taxes are later reduced. Wars are often cause
for inflation, as governments must both recoup the money spent and repay the funds borrowed from
the central bank. War often affects everything from international trading to labor costs to product
demand, so in the end it always produces a rise in prices.
CONTROLING MEASURES
There are broadly two ways of controlling inflation in an economy:
1. Monetary measures and
2. Fiscal measures
The most important and commonly used method to control inflation is monetary policy of the Central
Bank. Most central banks use high interest rates as the traditional way to fight or prevent inflation.
Monetary measures used to control inflation include:
(i) Bank rate policy
(ii) Cash reserve ratio and
(iii) Open market operations.

Bank Rate Policy: This policy is used as the main instrument of monetary control during the
period of inflation. When the central bank raises the bank rate, it is said to have adopted a
dear money policy. The increase in bank rate increases the cost of borrowing which reduces
commercial banks borrowing from the central bank. Consequently, the flow of money from
the commercial banks to the public gets reduced. Therefore, inflation is controlled to the
extent it is caused by the bank credit.
Cash Reserve Ratio (CRR): To control inflation, the central bank raises the CRR which reduces
the lending capacity of the commercial banks. Consequently, flow of money from commercial
banks to public decreases. In the process, it halts the rise in prices to the extent it is caused
by banks credits to the public.
Open Market Operations: Open market operations refer to sale and purchase of government
securities and bonds by the central bank. To control inflation, central bank sells the
government securities to the public through the banks. This result in transfer of a part of bank
deposits to central bank account and reduces credit creation capacity of the commercial
banks.

Fiscal Measures:
Fiscal measures to control inflation include taxation, government expenditure and public
borrowings. The government can also take some protectionist measures such as banning the
export of essential items like pulses, cereals and oils to support the domestic consumption
encourage imports by lowering duties on import items etc.

1. According to the case study what are the causes of inflation.

2. Discuss the measures used to control inflation.

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Case 5 The ‘missing middle’ in India’s economic recovery

Limping small businesses, which make up more than a quarter of India’s GDP and over 40% of
manufacturing output, are key to a broad-based recovery. The pandemic caused revenues of smaller
firms to plunge sharper than larger firms, the main reason for job losses

The Indian economy has beaten two straight quarters of recession, expanding 0.4% in the three
months to December 2020, a promising turnaround, but there’s a twist: the V-shaped recovery could
be “optical” and there’s a “missing middle”

This is what it means: while there’s been a fast pick-up in growth, resulting, visibly, in a V-shaped
recovery, most analysts agree it is never going to be close to the pre-Covid trend line. This trend line
is sort of a trajectory that gross domestic product (GDP), the most widely used measure of income,
should have taken, had there been no pandemic.
To be sure, recovery has been skewed. Growth has skipped small low-end manufacturing firms in the
“middle”, the largest source of jobs while soaring oil prices and a fresh wave of Covid cases in some
states are dangers to watch out for, economists said.
“There is an optical rebound in growth because growth is below the trend line. Growth (for next fiscal
) is high but in real terms, the size of the economy next fiscal will be a mere 2% bigger than what it
was in fiscal 2020,” said Dharmakirti Joshi, the chief economist of CRISIL Ltd, a rating firm. Despite the
growth, Joshi said the economy will suffer a permanent output loss of 11%.
On Tuesday, 20th April,2021,CRISIL Ltd said it expects GDP growth to rebound to 11% in fiscal 2022,
after an 8% contraction this fiscal.
The turnaround has to be more broad-based to bring back at least 14 million jobs estimated by the
Centre for Monitoring of the Indian Economy to have been lost. The pandemic hit the services sector
harder than manufacturing. Within services, the sharpest decline was in trade, hotels, transport, and
communication services, which account for roughly 16% of employment.
The biggest drag continues to be low demand. People, especially poorer households, aren’t spending
much on a variety of goods and services, such as consumer durables, food items, clothing, health,
transport, and education.
Private final consumption expenditure, a measure of how much households spend, narrowed its
slippage in the December 2020 quarter but continued to shrink 2.4% after having tanked by 26.3%
and 11.3% in the preceding two quarters, according to official data

Source: Hindustan times

Questions

1. How can small businesses come to pre-covid-19 level? Suggest measures?

2. Suggest measures to the government of India to increase the consumption level of FMCG
goods, during covid-19 period?

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Case 6 INDIAN ECONOMY IN THE FIGHT AGAINST COVID-19

The COVID-19 pandemic has had a significant influence on global trade and commerce, as well as
economic indicators such as GDP, private consumption, job creation and new investments. India, too,
has suffered because of unforeseen economic disruptions caused by temporary limitations on public
activities and regional lockdowns. According to statistics provided by the National Statistical Office
under the Ministry of Statistics and Programme Implementation (MOSPI), India’s GDP increased by 4%
in FY20; however, it contracted by 7.3% in FY21. With a potential of a revival in consumption and
investment in the third quarter of 2021, India's GDP growth rate for FY22 is projected to be 11%
(Economic Survey 2020-21).
The Government of India proposed several fiscal and monetary relief to encourage growth and build
a self-reliant India amid severe economic repercussions of COVID-19 and subsequent lockdown
restrictions. On June 28, 2021, Mrs. Nirmala Sitharaman, Union Finance & Corporate Affairs Minister,
announced a series of measures to lend relief to various sectors hit by the pandemic's second wave.
The Rs. 6.28 lakh crore (US$ 84.9 billion) relief and stimulus package focuses on enhancing healthcare
facilities (especially for children), extending inexpensive credit loans to small firms in the agriculture,
exports and tourism sectors, and temporarily waiving off visa fees to attract foreign tourists. This
package is the fourth edition of relief measures extended to individuals and businesses in tandem with
efforts to boost the economy amid COVID-19. The relief package comprises a total of 17 measures
including additional subsidy for DAP (Diammonium Phosphate) and P&K (Phosphatic and Potassic)
fertilizers, and extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) until November
2021
Tourism
According to a study conducted by the ‘National Council of Applied Economic Research’ on the impact
of COVID-19 on tourism reported that the pandemic caused ‘significant’ job losses in the sector after
lockdowns were imposed. The report stated that 14.5 million jobs were lost (due to the imposed
lockdown) in the first quarter, 5.2 million jobs in the second quarter and 1.8 million jobs in the third
quarter of FY21. In 2020, foreign exchange earnings contracted by 76.3% over 2019 due to decline in
foreign tourist arrivals (FTAs) in India. In 2020, FTAs decreased by 75.5% YoY to 2.68 million and arrivals
through e-Tourist Visa (Jan-Nov) dipped by 67.2% YoY to 0.84 million. Between January 2021 and April
2021, the number of FTAs was 376,083, down from 2.35 million between January 2020 and April 2020,
registering negative growth of -84.0% YoY. India's travel and tourism sector, which accounts for 2.5%
of the country's GDP, has repeatedly appealed to the government for assistance as the industry has
already spiralled downwards owing to the COVID-19 pandemic. Representative bodies from the
tourism sector, along with tour guides & operators and hotel owners, have submitted numerous peons
to the government, reiterating the devastating financial impact caused by COVID-19 on the travel and
hospitality sector in Fy21.
MAJOR GOVERNMENT SCHEMES BENEFITTED
Atmanirbhar Bharat Abhiyaan
On May 12, 2020, Mr. Narendra Modi announced the special economic and comprehensive package
of Rs. 20 lakh crore (US$ 283.73 billion)—equivalent to 10% of India’s GDP—to fight the COVID-19
pandemic in India. While launching the package, the PM gave a clarion call for Atmanirbhar Bharat or
Self-reliant India Movement. Five core pillars were outlined under the Atmanirbhar Bharat Abhiyaan—
Economy, Infrastructure, System, Vibrant Demography and Demand. The scheme's goal is to enable
the poor, Labourers and migrants who have been severely affected by the COVID-19 pandemic and
become more self-reliant in the face of tough competition in the global supply chain. The government
also announced several reforms and enablers across seven major sectors in line with the scheme.

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Answer the following Questions

1. Discuss the relief measures to encourage growth by Government of India.
2. The pandemic caused ‘significant’ job losses in the tourism sector after lockdowns were
imposed -Explain
3. Write a note on Atmanirbhar Bharat Abhiyaan

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Case-7 Predicting Financial Debt Crises: A Case Study of India

Financial debt crises in emerging markets have caused widespread turmoil in the world economy over
the past several decades. In recent years, countries have become more globalized and international
investments have increased dramatically. Average businesses have begun to outsource jobs and
import goods from emerging markets to keep up with competition. Global trade has become a vital
part of succeeding in the modern business world. As globalization becomes more prevalent in the
world economy, a greater number of countries are at risk to the adverse effects of a financial debt
crisis. During the 1990’s, East Asian countries experienced extraordinary levels of growth. Almost half
of the investments in emerging markets were directed towards countries in this region. Many of the
East Asian countries used inefficient policies for structuring their debt. Eventually the financial systems
of these countries collapsed and they faced financial debt crises. Given the unexpected nature of the
East Asian crises, it is important to be vigilant of high growth emerging markets.
Predicting a financial debt crisis is one of the steps necessary to prevent a crisis from occurring.

Types of Crises
Economists have developed three generations of models to explain the fundamental causes of
financial debt crises. A country is defined as being in a debt crisis if it is classified as being in default
by Standard & Poor’s, or it if it has access to non-concessional IMF financing in excess of 100 percent
of quota.
The first generation financial crisis model was developed by Paul Krugman (1979). Early financial crises
occurred in countries that pegged their exchange rate. In order to defend a pegged rate, countries
with developed markets utilize open market operations, currency forwards, and foreign assets. Less
developed countries, without these resources, are forced to use poor economic policies where the
central bank lends money to the government to finance its fiscal deficit. This policy leads to a gradual
loss of foreign reserves. Once foreign reserves reach a critical level, the currency is likely to experience
a speculative attack that will deplete the rest of the currency stock. Eventually, the government is no
longer able to defend the fixed rate and the peg is abandoned. Speculators threaten the balance of
payments by disinvesting in domestic capital. Additionally, the devaluation of currency multiplies the
value of foreign debt.

The second generation crisis model, created by Obstfeld (1994), is when the government is conflicted
between maintaining a fixed exchange rate regime and using expansionary monetary policy to assist
the economy. When the government of a fixed exchange rate economy prioritizes expansionary
monetary policy, changing interest rates force the government to abandon the pegged exchange rate.
The second generation crisis is based on “self-fulfilling” expectations where private agents believe that
the currency is overvalued. Accordingly, interest rates increase to the point where the government
finds it too costly to defend the exchange rate. If the country pushes interest rates too high, growth
rates suffer and unemployment rises. Consequently, governments choose to abandon the fixed rate
in favor of economic expansion.

The third generation financial crisis model was developed by Dorn busch (2001) in response to the
1997-98 Asian financial crises. These crises are best explained by mismatches in the private and
banking sectors. Many of the East Asian countries had high levels of short-term debt that was exposed
during liquidity runs. When companies and banks could no longer refinance their debt, they were
forced to restructure or default. Other countries had currency mismatches on their debt that led to
capital erosion when domestic 6 currency depreciated. Both instances of debt collapse were followed

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by high levels of default and output losses. The accumulation of private failures often forced countries
into devaluating their currencies

Answer the following questions

1. Explain financial debt crises
2. Discuss Dorn bush third generation financial crisis model.

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Case 7: ATMANIRBHAR BHARAT

As a consequence of the unexpected, a novel COVID pandemic, major cities globally were under
lockdown that had led to an almost total stoppage of economic activities for a few months, which in
turn lead to economic recession in all countries. The unusual outcome of the crisis is that it has hit the
services sector harder than manufacturing. All the contact-dependent services that are labour
intensive are facing hard times, which includes hospitality, tourism, recreation activities, and related
businesses. The crisis has disturbed the cyclical flow of funds in various economies. Thus, the liquidity
crunch in the economies had a profound impact on global economies. Different Governments have
announced stimulus packages, and their respective central banks reacted through monetary measures
for solving problems of social security, illiquidity in businesses.

India, as a developing economy, also decided on and announced various monetary measures by RBI,
the central bank of India, and a fiscal stimulus package by the Government of India. The stimulus
package is called an Atmanirbhar Bharat package that amounts to 20 billion rupees. The intention of
the government is not only to reactivate businesses through this stimulus package but also to entice
enterprises from abroad through aggressive reforms. Moreover, Several State governments have
announced a slew of reforms in law, including labour Laws, aimed at boosting business by improving
considerably 'the Ease of Doing Business.'

In a sense, India was preparing for Atmanirbhar right from the day, India opted-out of the Regional
Comprehensive Economic Partnership (RECP) in November 2019. The audacious decision to break ties
from the world's largest FTA was taken to save the Indian economy. The association with RCEP would
have meant welcoming China's silk to Newzealand's Milk into the Indian market

In the Atmanirbhar approach, the focus is on making India self-reliant and self-sufficient in all aspects,
thereby reducing our dependence on imports from other nations by increasing our capacity to
produce locally, most of the items. However, to achieve this result, one must focus on improving the
'Ease of Doing Business in India'; that is essential to realize this vision of Atmanirbhar.

When Indian PM announced the Atmanirbhar initiative, he used four Ls (letters) — Land, Labour,
Liquidity, and Local. He also said that "Be Vocal for Local." People have misinterpreted that to mean
that only Indian products should be used. However, when asked, many ministers, including FM
Nirmala Sitharaman, had clarified that they don't mean only Indian products. But what they conveyed
was that India should produce quality products that can be exported. Whether Indian domestic firms
or foreign firms provide it, it merely does not matter as long as it is produced within India.

Some have misinterpreted this initiative that India wants to be self-reliant to mean that India will not
import any goods and services from abroad. Indeed, India needs to reduce its imports and raise its
exports by enhancing quality products made in India. GOI had also launched an initiative named "Make
in India" in 2014, intending to convert India as the Global manufacturing hub. Even at that time, the
GOI had hinted at the same objective through Ease of doing business and land-labour reforms in India.

Questions

1. Explain the Govtments’ initiative “Atmanirbhar Bharat.” (3 marks)

2. Examine the reforms under the heading “Make in India.” (3 marks)
3. According to you, what GOI should do under “Atmanirbhar Bharat” to fight the pandemic?
(4 marks)

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Case 8 India - Economic Growth and Development

India is one of the most populous countries in the world with a population in excess of 1.2 billion

Indian Economic Growth

India has sustained rapid growth of GDP for most of the last two decades leading to rising per capita
incomes and a reduction in absolute poverty. Per capita incomes (measured in US $) have doubled in
12 years. But India has one third of all the people in the world living below the official global poverty
line. It has more poor people than the whole of sub-Saharan Africa.Per capita income is $1,270, placing
India just inside the Middle Income Country category.India's per capita income is 1/20th that of the
UK. Life expectancy at birth is 65 years and 44% of children under 5 are malnourished. The literacy
rate for the population aged 15 years and above is only 63% compared to a 71% figure for lower middle
income countries.

Development path:India has followed a different path of development from many other countries.
India went more quickly from agriculture to services that tend to be less tightly regulated than heavy
industry. That said there are some emerging manufacturing giants in the Indian economy.

Supply-side factors supporting Indian growth and development

1. A fast-growing population of working age. There are 700 million Indians under the age of 35
and the demographics look good for Indian growth in the next twenty years at least. India is
India is experiencing demographic transition that has increased the share of the working-age
population from 58 percent to 64 percent over the last two decades.
2. India has a strong legal system and many English-language speakers – this has been a key to
attracting inward investment from companies such as those specialising in IT out-sourcing.
3. Wage costs are low in India and India has made strides in recent years in closing some of the
productivity gap between her and other countries at later stages of development.
4. India's economy has successfully developed highly advanced and attractive clusters of
businesses in the technology space – witness the rapid emergence of Bangalore as a hub for
global software businesses. External economies of scale have deepened their competitive
advantages in many related industries.

Growth and Development Limiters for India

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Despite optimism for India's prospects for economic growth and development, there are a number of
obstacles which may yet see growth and development falter.

● Poor infrastructure - notably in transport and power networks

● Low productivity and weak human capital. A high % of workers are low-skilled and work in
small businesses
● High inflation and a persistent trade deficit
● Low national savings as a share of GDP, low share of capital investment
● Relatively closed economy - India is a net importer of primary products

Indian Development – An Infrastructure Gap

India is a good case study to use when discussing the problems that persist when a country cannot
rely on adequate critical infrastructure such as roads, railways, power and basic sanitation. India
wants to build $1 trillion worth of infrastructure in the next five years but the government expects the
private sector to fund half of it – this is unlikely! Poor infrastructure hurts the Indian economy in
numerous ways:

1. Causes higher energy costs and irregular energy supplies for nearly every business and
especially India emerging manufacturing sectors – there were huge power black outs in 2012
2. It is more expensive to transport products across the country and it creates delays at ports
hamper export businesses and delays at airports which increases the cost of international
freight.
3. It makes India less attractive to inward FDI
4. It adds to the cost of living and limits the extent to which millions of India's lowest income
families can escape extreme poverty
5. A creaking infrastructure damages the reputation and potential of India's tourism industry

Despite these growth constraints, India's expansion far exceeds that of the vast majority of developed
nations – to put this into some context, India is delivering 30 years of US economic advance every ten
years!

Relative importance of services in India

● Korea is that the Indian economy is heavily reliant on service industries especially in her export
sector
● The country has a comparative One of the key differences for India contrasted with countries
such as China, Japan and South advantage in many service industries such as business
software.
● One consequence of this structural difference in the economy is that India has not yet seen
the rapid urbanization experienced in other nations; more than 60 per cent Indians still live in
rural areas.

Productivity growth in Indian agriculture has been fairly low and this has limited the potential to
release people from the land to move into towns and cities and find w In a report on India in the
Financial Times in 2012, it was claimed that
“India's failure to adopt enough of the large-scale, labour-intensive manufacturing that has propelled
the successful development of China and other east Asian countries is now regarded as one of the
greatest weaknesses of the Indian economy."

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India's growth has been impressive in recent years but this is a country whose development is
hampered by endemic structural problems. India requires significant investment in infrastructure,
manufacturing and agriculture for the rapid growth rates of the last fifteen to twenty years to be
sustained.

India's Budget Deficit

Cleaning the Ganges

In a report on India in the Financial Times in 2012, it was claimed that

“India's failure to adopt enough of the large-scale, labour-intensive manufacturing that has propelled
the successful development of China and other east Asian countries is now regarded as one of the
greatest weaknesses of the Indian economy."

India's growth has been impressive in recent years but this is a country whose development is
hampered by endemic structural problems. India requires significant investment in infrastructure,
manufacturing and agriculture for the rapid growth rates of the last fifteen to twenty years to be
sustained.

QUESTIONS:
1.Discuss the Indian economic growth indicators presented in the case? (3 marks)
2. In your opinion, “Was Indian economy doing well pre pandemic”? Why or why not? Discuss?
(4 marks)
3. What steps would we have taken to boost our economy before COVID? (3 marks)

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Case 9 COVID-19 & Indian Economy

The COVID-19 cases have been increasing steadily and significantly in India from January 30, 2020 (first
case). In order to bring down the spread of COVID-19, the government of India announced a three
weeklong nationwide lockdown from March 25, 2020 and it continued till June 3, 2020. As a result of
this, most of the economic activities except the supply of essentials have stopped. All non-essential
services and businesses, including retails, educational institutions, and public utilities like
transportation across the country remained closed.
Reduced economic activities has affected the incomes of the people because of loss of
jobs/employment. This in turn has brought down the aggregate demand and consumption in the
country. The fall in the global price of crude oil, restrictions on the aviation industry affecting tourism,
have an adverse effect on the economy. However, as per a statement released by Chief Economist of
Goldman Sachs, in its report titled, An Unprecedented Sudden Stop for India, India’s real GDP growth
could fall to 1.6 percent in 2021 compared to its earlier projection of 3.3 percent. With the uncertain
demand and no investments seen in near future, the Indian stock market has crashed. As per a UN
report, India is one of the top worst affected economies across the world due to COVID-19. Asian
Development Bank estimated the loss up to US$ 29.9 billion. The worst crash of Indian stock market
by 2352.6 points on one single day on 12.03.2020 is another cause of concern for the economy. The
trend however reveals that the economic curve is not smooth with absolute uncertainty.
COVID 19 had left the people and the economy amidst fear and pessimism.
Agriculture: With the introduction of lockdown to curb the spread of COVID-19 public started storing
the food items (food grains, etc.) in a panic fearing future shortages. Hence, initially the sales increased
with the increased demand. Eventually, the sales decreased with the closure of hotels, PGs, hostels,
restaurants, etc. The actual problem, the Indian farmers are facing, is with respect to supply chain and
labour supply. Agricultural labour problem has been solved to certain extent with the returning of
migrant workers to villages.
Industry: The Index of Industrial Production showed a contraction by 20%. Manufacturing sector,
especially the auto sector (50% decline) is the worst affected sector in the country. Investors are
scared to borrow from banks with the fear of increased cost of borrowing though the RBI measures to
bring down interest rates. On the other hand, Banks and financial institutions are apprehensive about
the repayment of loans as they have experienced increased NPA and bankruptcies in the past.
MSME sector in India is the worst affected by COVID-19. It is the global chain disruption that impacted
adversely the MSMEs as many of the MSMEs, especially pharmaceuticals and chemical sectors, in India
are dependent on imports for their raw materials. Most of our small and medium firms (70%) depend
on raw materials from China. Another major problem faced is of labour supply disruption. According
to a study conducted by All India Manufacturing Organization (AIMO) India has more than 75 million
MSMEs of which 45% MSMEs have already been closed due to COVID-19 and the recurrent nationwide
lockdown.
As per the Goldman’s sectoral analysis, India’s GDP has the greatest hit from the sectors of
transportation, education, restaurants, and recreation. It is assumed that there would be a larger
damage to recreation and culture, transport services and restaurant and hotels sectors. Education
services would be the worst affected sector too, up to 80 percent. Consumption cutbacks in these
categories imply a monthly hit to the level of annual GDP of around 1.2 percent, for each month, till
the lockdown is in place. This again has a cyclical effect on employment, income levels (Personal and
Disposable), aggregate demand, production, and output.
Can India make it up?

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Amidst the optimistic situation in the economy, the question, ‘Can India Make It Up?’ persists. While
it is not possible to predict the future, especially under this uncertain time, one can be truly optimistic.
India possesses the power of coming out of a crisis much stronger than before.
The same is repeated again after a year. Some parts of the country are facing lockdown once again.
Questions:
1. Give your views on ‘How can India make it up?’ (3 Marks)
2. What could be the reason/s for recurrence COVID19? (3 Marks)
3. Suggest policy measures for protecting Indian economy from a recurring downfall.
(4 Marks)

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Case 10 Globalization

Globalisation is a controversial issue that is still considered a complicated process. It has impacted
every aspect of modern life that brings not only opportunities but also risk to a nation (IMF, 1997).
This ultimately raises an argument that globalisation creates a multiplier effect, whether its
phenomenon brings a positive or negative impact. Economists argues that there is a positive effect of
globalisation on growth through effective allocation of domestic resources, technology deployment,
productivity improvement, and capital inflow. While, on the other hand, other economists argue that
globalisation has a harmful effect on economic growth, poverty, inequality, environment and cultural
dominance (UNDP, 1999; HDR, 1999). Globalisation has effects on different aspects of lives such as
economic, social, environmental and political for many years. Economic globalisation includes flows
of goods and services across borders, international capital flows, reduction in tariffs and trade barriers,
immigration and the spread of technology, and knowledge beyond boundaries. It is a source of many
debates and conflicts as any source of great power sources.

More recently, researchers have claimed that the effects of rapid globalisation depends upon the
economic structure of countries during the globalisation process. The impact of globalisation on the
country’s economic growth can also be altered by a series of complementary policies on the
improvement of human development. The impact of globalisation on human development is highly
debated topics of growth and development literature. The positive relationship between globalisation
and human development has been anticipated that enhances productive efficiency and generates
extraordinary prosperity in the countries. Although wages for unskilled workers fall, especially in
developed nations, globalisation helps workers manage these potential threats by acquiring additional
skills, which benefits the whole of society (Grennes, 2003). Additionally, globalisation has spread
industrialisation to developing countries and has thus reduced global income inequality (Firebaugh
and Goesling, 2004). Economic globalisation, in terms of trade liberalisation was found to be effective
in increasing productivity and institution-building in societies, which leads to faster economic growth
(Urata and Yokota, 1994; Rodrik et al., 2004).

People are the real wealth of any nation, and every development strategy must be focused on
enhancing their capabilities, achievements and freedoms (UNDP, 2010). It is generally considered that
human development is a significant aspect of the prosperity and sustained growth of the nation. So
this is an appropriate time to investigate the impact of globalisation policies on human development
empirically. In most Asian developing nations, globalization is taken as several structural adjustment
programs designed for enhancing efficiency, competitiveness, and human development. But there is
a possible threat to the developing countries with rapid population growth and have no sufficient
buying capacity for imported food (Haq, 2002). On the other hand, South Asian economies have a low
level of reserves and facing the problem of external debt and leaving no room to ensure food security
(Valdes and McCalla, 1999). In this regard, it is much worthwhile to investigate the impact of
globalization on the human development of the Asian region because many of the developing and
developed countries opened up their borders to follow the agenda of globalization. Reduction in the
cost of production, economies of scale, transportation and communication costs, by lowering the
barriers to the flows of goods, services, capital, knowledge and people across the border (Stiglitz,
2006)

Questions
1. “Globalization has impacted every aspect of modern life that brings not only opportunities but
also risk to a nation.”- Elaborate. (4 marks)
2. Explain the concept of Human Development and its measure. (3 marks)

3. According to you, what Indian Government should do to improve human development in

India? (3 marks)

IEPR CIA-1 Faculty of Management, CMS Business School Case Study Analysis