Topics to be Covered

1. An Overview of Indian 4th June.

Economy
2. National Income
Estimates, Concepts and
Importance, Introduction 7th June
to Business Cycle
3. Monetary and Fiscal
11th June
Policy, Public Debt,
Inflation, Concepts,
Theories, Measurements,
Stagflation etc.
10/29/24 1
 An Overview
of

Indian Economy

June 04,2007
K. K. TRIPATHY
 Scheme of
Presentation
– Section I: Indian Economy -A
Snapshot view

– Section II: Economic Survey

• Growth,
• Productivity.
– Section III: Economic Survey
• Public Finance and Fiscal Policy,
• Monetary Development,
• Infrastructure and
10/29/24 • Social Sector. 3
 Section I

A snapshot view
of the Indian
Economy
10/29/24 4
 India in the world
economy
• High global growth in PPP terms for the fourth
year in a row continue to exceed initial expectations.
• IMF’s World Economic Outlook growth forecast for
2006 of 4.9 per cent made in April 2006 revised up to
5.4 per cent in April 2007.
• Global growth increasingly driven by China and
India with a combined contribution in excess of 40
per cent.
• Given her large population, India needs to sustain
high growth for quite a while to catch up with the
developed world in terms of per capita income.
• Many estimates of India’s growing share in future
world economic scenarios.
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 India’s growth
story
• Annual growth
• 6.7 per cent 1996-2007
• over 8.5 per cent in the last 4 years.
• 9 per cent in 2005-06
• an estimated 9.2 per cent in 2006-07.
• In GDP, agriculture’s share has declined (from
31.0 per cent in 1993-94 to 18.5 per cent in 2006-
07) while that of services has increased (from
42.8 per cent to 55.1 per cent).
• Share of industry has virtually remained constant
in the last 14 years at 26.3-26.4 per cent.
• Average annual growth of manufacturing at 8.9
per cent between 2003-04 and 2006-07, and
strengthened
10/29/24 buoyancy of 11.3 per cent in 2006-
6
 Emerging signs
• Industrial growth, equally driven by
investment and consumption goods, has been
broad-based and generally balanced.
• Industrial strengths - local resources, skilled
labour, technology & innovation.
• Signs of improved overall industrial
competitiveness with over one-half of
manufacturing output exported.
• Concern:
– Inflationary pressures
– Moderate current account deficit.
– Annual export growth buoyant since 2002-03; a
slowdown in the last quarter.
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 Section II

Economic Survey
: Growth,
Productivity etc.
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 Economic Survey
• Indicates performance of the
economy
• last financial year vis-à-vis past
few years
• Annual affairs
• Presented before the House and
precedes Union Budget
• Published by Economic Division,
M/o Finance
10/29/24 9
Analysis of Growth
• Real GDP
• Public Finance
• Monetary and Banking Developments
• Securities Markets
• Prices and Food Management
• External sector
• Industry
• Agriculture
• Infrastructure
• Social Sectors
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 GDP
• GDP vrs. GNP at factor cost
– Sum of money value of the income
– Produced by various factors of production
– Within a year in a country.
– GNP at factor prices-net incomes from abroad
• Estimated by CSO, Govt. of India
• Clarifies the growth of :
– Agriculture and allied sector
– Industry
– Services
• Gives inputs regarding policy framework
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 Sectoral Real Growth of GDP at FC
Percentage change over previous year
Items 2002-03 2003-04 2004-05 2005-06 (Q) 2006-07 (A)

Agriculture & Allied -7.2 10.0 0.0 6.0 2.7

Industry 7.1 7.4 9.8 9.6 10.0
Mining & Quarrying 8.8 3.1 7.5 3.6 4.5
Manufacturing 6.8 6.6 8.7 9.1 11.3
Electricity, gas and water 4.7 4.8 7.5 5.3 7.7
supply
Construction 7.9 12.0 14.1 14.2 9.4

Services 7.4 8.5 9.6 9.8 11.2

Trade, Hotels, Transport and 9.2 12.1 10.9 10.4 13.0
Communication
Financial services 8.0 5.6 8.7 10.9 11.1
Community, social and 3.9 5.4 7.9 7.7 7.8
personal services

Total GDP at FC 3.8 8.5 7.5 9.0 9.2

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 General Comments on
Growth
•India’s growth
momentum –
•productivity,
•forces of competition,
•scale,
•overarching policy framework,
•emphasis on market-based economic
systems,
•Reforms and liberalizations
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 Growth Sustainability –
• What to do?
an Issue
– Easing regulation on markets.
– Greater level of privatisation.
– Enforcement of competition laws.
– Freer entry and exit of firms.
– Reengineering business processes through a
regulatory impact analysis (RIA) and
enforcement by a specific agency.
– A modern bankruptcy law.
– Till privatisation, public companies to be
controlled by a Government investment
agency.
–10/29/24
Small industry reservations to go. 14
 Section III

Economic Survey :

Public Finance & Fiscal

Policy,
Monetary Development,
Infrastructure and
Social Sector.
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 Public Finance
• Indicates fiscal health of the country
• Examines various deficits
– Revenue, Primary & Fiscal
• Examines fiscal consolidation measures:
– Fiscal Responsibility and Budget Management (FRBM) Act, 2004
– Revenue Deficit elimination by March 2009
– Reduction of Fiscal Deficit
– Restrict and limit borrowings
– Quarterly review of trends of receipts and expenditures
• Highlights expenditure on :
– Government debt
– Subsidy
– Interest payments
– Transfer of resources as per Finance Commission
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Recommendations
Monetary & Banking
Developments
• Measurement of money supply:
• M1, M2, M3, M4
• Broad money (M3)

– Currency with the public,

– Demand and time d\deposits with the banks

10/29/24 17
Monetary & Banking
Developments
• Reserve money and liquidity management
• Monetary and credit policy
• Banking policy and interest rates
• Sectoral deployment of bank credit
• Growth and performance of NBFCs and All-India
Financial Institutions
• Priority sector lending
– Agricultural credit
– SSI credit
– RIDF
– KCC
• Micro-finance
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Securities Markets
• Growth of primary market and
secondary market
• Assets under mgt. of MFs
• Growth of FII investments and
Sectoral composition
• Debt and futures market
• Policy developments

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 Prices
• Measurement of inflation
– Wholesale Price Index (WPI),
– Consumer price Index (CPI),
– Agricultural Price Index (API)
– Producer Price Index (PPI).
• WPI
– Used for measuring inflation in India.
– weighted price of commodity groups
– Specific weights are assigned to three broad
groups.
– The primary commodities, fuel, manufactured
products
– Weight of 22.03, 14.23 and 63.75 respectively.
10/29/24 20
 Food Management
• Measurement of stock vrs. demand
of food grains
• Management through:
– Procurement
– Buffer stock operation
– Minimum support prices (for 24 major
crops)
– Central issue price
– Food subsidy
10/29/24 21
 External Sector
• Balance of payments:
1. Trade balance (Exports - Imports in goods)
2. Trade in services (Exports - Imports in
services)
3. Current account balance (1 + 2)
4. Capital accounts consist of:
– external assistance (net)
– Commercial Borrowings (net)
– IMF loans (net)
– Non-residents deposits (net)
– Rupee debt services (net)
– Foreign investment (net)
– Other flows (net)
• Exchange rate movements
• Forex (> $ 150b)
• External debt ($ 123 b )
10/29/24 22
 Components of
Forex
•Foreign currency assets
•Gold
•SDRs
•Reserve Trench in IMF

10/29/24 23
 Industry
• Measure of industry growth by IIP
– Base year is 1993-94
– Estimated by CSO
– Captures mining & quarrying, manufacturing
and electricity
• Highlights performance of some major
industries
• FDI policy (automatic route and FIPB
approval)
• Industrial sickness, disinvestment (BIFR)
• SSI policy (reservation etc.)
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 Agriculture
• Production and growth
• Crop prospects in the last financial year
• Agricultural policy
• Utilization of various inputs:
– Credit
– Fertilizer
– Irrigation
– Seeds
– Insurance
– Improved machines
• Agri-trade and composition
• Agri-marketing
• Future trading in agro-commodities
10/29/24 25
 Infrastructure
• Review of various infrastructure
and policies:

– Energy,
– Steel,
– Cement
– Transport and communication

10/29/24 26
 Infrastructure -
Status
• Infrastructure constrains Indian growth.
• Apart from being in short supply, also highly
unproductive.
• With public sector constrained by FRBMA, private
solutions need further reforms.
• Broad role of regulation varies across sectors
• Reforms in civil aviation and telecom are rapidly
transforming the sectors.
• Power sector performance could do with accelerated
reforms in distribution and inappropriate price setting.
• PPP in roads are doing well.
• In coal and ports ,the regulatory framework is not
conducive to competition.

10/29/24 27
 Social Sectors
• Performance of various poverty eradication and
social welfare programmes
• Employment and labour
• Women and child labour
• Education, Health, Sanitation, population and
family welfare etc.
• Empowerment of:
– Women
– Children
– Socially disadvantaged
– Minorities
– SCs and STs
• Backward classes
10/29/24 28
 Contd…
• Poverty eradication programmes
– Food for Work Programme
– SGRY
– SGSY and SJSRY
– Rural Housing (IAY)
– Rural Employment Generation
Programme
– PMRY
– PMGSY
– DPAP, DDP, IWD
– Antodoya Anna Yojana
10/29/24 29
 Thank You

10/29/24 30