Economic Environment and Capital Market-Part-2 by Tarun Das

8/14/2019 Economic Environment and Capital Market-Part-2 by Tarun Das

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Capital Market Dr. Tarun Das 1

3 External Sector

Is Under Control


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3.1 Improvement in Current AccountBalance on External Sector(as % of GDP)

-3 .1

-0.3

-1.7

-0.4

-1.0

-1 .7

-1.2-1.4

-1 .0 -1 .0

-0.5

0 .7

1 .2

1 .8

-0.9

-4

-3

-2

-1

0

1

2

3

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

Apr-D

ec04


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3.2 Acceleration in Export Growth Rate

9 .0

-1.5

3 .8

2 018.4

20.8

5 .3 4 .6

-5.1

10.8

2 1

-1.6

20.3 21.1

24.4

17.2

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1990

-91

1991

-92

1992

-93

1993

-94

1994-95

1995

-96

1996-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004-05

2005

Apr

.


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3.3 Steady Increase inExport/GDP ratios (per cent)

5 .8

6 .97 .3

8 . 3 8 . 39 .1 8 .9 8 .7

8 .3 8 .4

9 .99 .4

1 0 . 61 0 . 8

1 2

0

2

4

6

8

10

12

14

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

in

US$

billion


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3.4 Steady Increase inImport/GDP Ratios (per cent)

8 .87 .9

9 .6

1 1 . 1

1 2 . 3 1 2 . 7 1 2 . 5 1 2 . 51 1 . 5

1 2 . 4 1 2 . 71 1 . 8

1 2 . 81 3 . 3

1 5 . 5

02468101 21 41618

1990-911991

-921992

-931993

-941994

-951995

-961996

-971997

-981998

-991999

-002000

-012001

-022002

-032003

-042004

-05

in

US$

billion


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3.5 Steady Improvement inInvisibles/GDP Ratios (per cent)

-0.1

0 .7 0 .6

1 .1

1 .8 1 .6

2 .7

2 .42 .2

3

2 .2

3 .13 .3

4 .3 4 .5

- 1

01

2

34

5

1990-911991-9

21992-9

31993-9

41994-9

51995-9

61996-9

71997-9

81998-9

91999-0

02000-0

12001-0

22002-0

32003-0

42004-0

5

in

US$

billion


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3.6 Substantial increase inForeign Investment Inflows (US$ billion)

0 .1 0 .10 .6

4 .25 .1 4 .9

6 .05 .4

2 .3

5 .1

5 .96 .7

4 .6

1 1

1 2 .5

0

2

4

6

8

10

12

14

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

in

US$

billion


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3.7 Significant reduction in ExternalDebt Service Ratio (at end March)

(% of gross current receipts)3 5 . 3

3 0 . 2

2 7 . 52 5 . 4 2 5 . 9 2 6 . 2

2 3 . 0

1 9 . 5 1 8 . 81 7 . 1

1 6 . 21 3 . 4

1 5 . 8

1 7 . 8

1 2 . 3

0

5

10

15

20

25

30

35

40

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005


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3.8 Significant reduction in ExternalDebt/GDP ratios (at the end March)

2 8 . 7

3 8 . 73 7 . 5

3 3 . 8

3 0 . 8

2 7 . 02 4 . 62 4 . 32 3 . 6

2 2 . 12 2 . 62 1 . 1

2 0 . 21 8 . 61 6 . 7

0

5

10

15

20

25

30

35

40

45

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005


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3.9 Reduction in Concessional to TotalExternal Debt Ratio (end March)

4 5 . 9 4 4 . 8 4 4 . 5 4 4 . 4 4 5 . 3 4 54 2 . 3

3 9 . 5 3 8 . 5 3 8 . 9

3 5 . 5 3 6 . 03 6 . 8 3 6 . 4

0510152 02 53 03 54 04 55 0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 20012002 2003 2004


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1 0 . 2

8 .3

7 .0

3 .94 .3

5 .4

7 .2

5 .4

4 .44 .0

3 .6

2 .8

4 .45 .1

0

2

4

6

8

10

12

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

3.10 Reduction in Short Term Debt toTotal External Debt Ratio (end March)


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3 .03 .2

2 .7

1 .3 1 .31 .4

1 .8

1 .3

1 .00 .9

0 .8

0 .6

0 .9

0 .7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

3.11 Reduction in Short Term Debtto GDP Ratio (end March)


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3 8 2

1 2 6

9 8

2 4 2 1 3 0 3 0 1 9 1 5 1 1 9 5 6 6 5

05 010 015 02 0 02 5 03 0 03 5 04 0 04 5 0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

2002 2003 2004 2005

3.12 Reduction in Short Term Debt toTotal Foreign Exch. Ratio (end March)


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5 .89 .2 9 .8

1 9 . 32 5 . 2 2 6 . 4

2 9 . 4 3 2 . 53 8 . 0

4 2 . 35 5

7 6

1 1 3

1 4 2

2 1 . 7

-2 0

0

20

40

60

80

100

120

140

160

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005M

ay

in

US$

billion

3.13 Substantial Build-up ofForeign Exchange Reserves

(end March)


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2 .5

5 .3 4 .9

8 .6 8 .4

6 .5 6 .98 .2 8 .2 8 .6

1 1 . 3

1 3 . 8

1 8

2 0

6

0

5

10

15

2 0

2 5

1990-911991

-921992

-931993

-941994

-961995

-961996

-971997

-981998

-991999

-002000

-012001

-022002

-032003

-042004

-05

in

US$

bi

llion

3.14 Steady Improvement in ImportCover of FER (Number of months)

(end March)


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3.15 FDI Outstanding (%)

Sectors Aug 1991 Aug 2003

1. Plantation & agriculture 9.5 1.42. Mining 0.3 0.13. Power 0.1 16.54. Manufacturing 84.9 50.45. Services 5.2 32.4

a)Financial & real estate na6.4b)Telecommunications na 19.8c) Transport na 1.9d)Hotels and retail trade na 2.7e)Others na 1.6

Total 100 100


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3.16 Average Growth rates inIndia (per cent)

Decade Services ServicesExports Imports

1950s 4.5 1.9

1960s 0.0 1.1

1970s 22.7 17.6

1980s 4.4 8.8

1990s 17.7 17.0

2000-2004 15.2 12.6

ompos t on o serv ce


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. ompos t on o serv ceexports

of India (per cent)

Period Travel Trans Insurance Govt Misc1950s 8.6 32.9 7.7 23.4 27.31960s 10.5 34.6 5.2 29.7 19.91970s 25.5 37.3 4.7 10.8 21.81980s 5.9 17.1 2.4 3.1 41.1 1990s 33.0

20.3 2.3 1.8 42.6

2000-04 15.4 10.7 1.3 2.0 70.6

Note: Misc includes financial, software and other modernservices.

ompos t on o serv ce


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. ompos t on o serv ceimports

of India (per cent)

Period Travel Trans Insurance Govt Misc1950s 18.3 22.6 6.7 22.6 29.81960s 9.5 29.5 2.4 16.9 39.01970s 7.5 36.9 1.1 9.4 40.81980s 11.8 31.5 0.5 4.2 49.6

1990s 14.6 30.6 0.3 2.7 49.82000- 13.5 13.6 1.3 1.1 70.52004

___________________________________________

Note: Misc includes financial, software and othermodern services.


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4 Fiscal and

Financial Situation

4 1M di T Fi l


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4.1Medium Term FiscalIndicators

(As % of GDP)Items 2004-05

RE

2005-

06 BE

2006-

07 Tar

2007-08

Tar

1.Revenue Deficit 2.7 2.7 2.0 1.1

2.Fiscal Deficit 4.5 4.3 3.8 3.1

3.Gross tax rev. 9.8 10.6 11.1 12.6

4.Year-end debt

stock

68.8 68.6 68.2 67.3


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4.2 Trend of Public DebtStatus in June 1991

Public debt aspercentage of GDP

(a) Central govt 61%

- Internal 50%

- External 12%

(b) States 19%

- Internal 19%

(c )General govt 68%- Internal 56%

- External 12%

Status in March 2005

Public debt aspercentage of GDP

(a) Central govt 67%

- Internal 61%

- External 6%

(b) States 29%

- Internal 29%

(c )General govt 96%- Internal 90%

- External 6%

f i l


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4.3 Progress of FiscalReforms

Status in June 1991

Fiscal Deficit wasfinanced by:

(a) RBI Ad Hoc TBs at4.6% interest

(b) Banks through SLRholdings at 38.5%

and CRR 25%

(c ) Market borrowings(d) Public funds

(e) External debt


(a) Ad hocs replaced byWMAs at market rate

(b) SLR reduced to 25%

(c )Govt. securities are soldat market rates

and CRR 4.5%

(d) Reduction of interestrates for public funds

(e) Less dependence onExternal debt

f i l


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Status in June 1991

High duty & tax ratesMaximum rates

Excise duty 110%

Import duty 400%Income tax 54%

Corporate taxes:

Domestic COs. 49%

and 54%

Foreign COs. 65%


Duties & taxes reducedMaximum ratesExcise duty 16% Cenvat + 16%

SED

Import duty 15%

Income tax 30%+(10% sur

Corporate taxes:

Domestic COs. 30% + 10%surcharge

Foreign COs. 40%+2.5%surcharge

4 5 P f Fi l


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Status in June 1991

No service tax No MinAlternativeTax

No transactions tax

No tariff value Dividend tax on both

individuals & Cos.

Existence of gift tax

Limited cases of tax-holidays

No fringe benefit tax


Service tax @10% MAT introduced

Trans. tax @0.02%

Tariff value introduced

Dividend tax on onlycompanies

Gift tax abolished

Tax holidays widened tomany infrastructure

FBT proposed

4 6 P f Fi l


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Status in June 1991

No MRP linkedexcise duties

No estimated

income scheme for

retail traders No presumptive tax

No state level VAT


Concept of MRP introducedfor consumer goods

Estimated income scheme

introduced for retail traders.

Presumptive income taxscheme introduced

State level VAT to be

introduced wef April 05


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4.7 Central Government Deficit (% of GDP)

Year Revenue Fiscal Prim

1990-91 3.3 6.6 2.8

1991-92 2.5 4.7 0.7

1995-96 2.5 4.2 0.0

2000-01 4.1 5.7 0.9

2001-02 4.4 6.2 1.5

2002-03 4.4 5.9 1.1

2003-04 3.5 4.5 0.0

2004-05RE 2.7 4.5 0.4

2005-06BE 2.7 4.3 0.5


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4.8 State Governments Deficit (% of GDP)

Year Revenue Fiscal Primary

1990-91 0.9 3.3 1.8

1991-92 0.9 2.9 1.2

1995-96 0.7 2.6 0.8

2000-01 2.5 4.3 1.8

2001-02 2.6 4.2 1.5

2002-03 2.5 4.7 1.7

2003-04RE 2.6 5.1 2.12004-05BE 1.4 3.6 0.7


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4.9 General Govt Deficit (% of GDP)

Year Revenue Fiscal Primary

1990-91 4.2 9.4 5.0

1991-92 3.4 7.1 4.5

1995-96 3.2 6.5 1.3

2000-01 6.6 9.5 3.7

2001-02 5.9 9.9 3.7

2002-03 6.7 10.1 3.6

2003-04RE 6.1 9.6 2.12004-05BE 4.1 8.1 1.1

III St th Ch ll


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III Strengths, Challenges

and Prospects

5 1 Strengths of Indian


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5.1 Strengths of IndianEconomy

Fourth largest economy in terms of PPP-

adjusted GDP after USA, China and Japa Largest pool of technical manpower

Largest English speaking population

Huge domestic market with secondlargest population, democracy, freepress, independent judiciary

Rich natural resources, well establishedfinancial system, wide spreadinfrastructure, dynamic private sector


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5.2 Constraints to GrowthDecline in agriculture growthGrowing infrastructure constraintsLow real deposit ratesLack of investment demandSlowdown of economic reformsWeak regulatory institutions

Outdated laws on businessInflexible Land and Labour marketsHigh fiscal deficit


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5.3 Present Constraints

High energy intensity

High international prices of oil

Still high interest rates

High inflationNegative real deposit rates

Crowding out private investment


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5.4 There is need forcorporate bodies to

strengthen systems forManagement information system (MIS)Asset-Liability Management

Good governance

International best practices

Performance Audit

Assessment, monitoring andmanagement of risk

Policy Audit

5 5 C l di R k


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5.5 Concluding RemarksAs first generation reforms take root and

second generation reforms unfold, India is

emerging as a favourite destination forinvestment and a land of immenseopportunity for all.

Carried to their logical ends, reforms wouldmake India as one of the most dynamiceconomies of Asia by 2010.

India is an economic miraclewaiting tohappen.

All of us have to play a distinct role in thatexciting process of development.


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Capital Market Dr Tarun Das 36

Thank you

Documents

Economic Environment and Capital Market-Part-2 by Tarun Das