Economic Environment in India-has It Changed for Good

8/2/2019 Economic Environment in India-has It Changed for Good

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ECONOMIC ENVIRONMENT IN

INDIA - HAS IT CHANGED FORGOOD

Presented by:

Hardeep SinghGarima

Himanshu Seth


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Compared to 60 years ago, the face of India has undoubtedly

changed. The change is most striking in cities, with cars and

buildings, flyovers and malls, planes and metros.

If we travel down a few dozen miles into the countryside, there too

the change is visible, if not as uniformly.

And if we travel further into remote forests and far flung villages,

we will be travelling back in timethe past lingers there, in huts

and on the faces of landless laborers and forest dwellers.

INDIA


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INDIA


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ECONOMIC

ENVIRONMENT
http://c/Users/temp/Documents/Desktop/sarab/videos/cred.flv


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ECONOMIC ENVIRONMENT

Economic environment refers to

the aggregate of the nature of economic system

of the country

the structural anatomy of the economy

to economic policies of the government

the nature of factor endowment

business cycle the socio-economic infrastructure etc.


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Factors of Economic Environment

The Nature of Economic System

Economic Structure Economic Policies


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Current Situation in the Indian

Economy

Slow recovery from the recession.

Inflation affecting the growth.


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India is the second fastest growing economy in

the world. Indias GDP has touched US$1.25

trillion. The crossing of Indian GDP over a trillion

dollar mark put India in the elite group ofcountries with trillion dollar economies.

The tremendous growth rate has coincided with

better macroeconomic stability. India has made

remarkable progress in information technology,

high end services and knowledge process services.

India GDP Growth Rate


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Gross Domestic Product (GDP)


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India Gross Domestic Product (GDP) expanded 7.90% over the last

4 quarters. Indias GDP is worth 1217 billion dollars or 1.96% of

the world economy, according to the World Bank. India's diverse

economy encompasses traditional village farming, modern

agriculture, handicrafts, a wide range of modern industries, and a

multitude of services. Services are the major source of economic

growth, accounting for more than half of India's output with less

than one third of its labor force.

India GDP per Capita


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India GDP per Capita


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ECONOMIC GROWTH

The rate of expansion that can move an

underdeveloped country from a near

subsistence mode of living to substantially

higher level in a comparatively short period of

time i.e., in decades rather than centuries.

For nations already advanced economically, it

will mean a continuation of existing rates of

growth.


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ECONOMIC GROWTH

Historically economic growth is accompanied by:

Greater industrialization.

Greater commercialization.


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ECONOMIC GROWTH

Theoretically economic growth is conceptualized asany one of the following:

A rise in gross domestic product (GDP)

A rise in gross national product (GNP)

A rise in per capita gross domestic product

A rise in per capita gross national product

A rise in per capita net domestic product A rise in per capita net national product


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ECONOMIC DEVELOPMENT

The Traditional Approach stresses two aspects:

Sustained annual increase in GDP at the rate of 7percent or more.

Structural transformation of an agrarian economy

into an industrialized economy.


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ECONOMIC DEVELOPMENT

The new economic view of development has

been defined to include improvements in

material welfare, specially for persons withthe lowest incomes, the eradication of mass

poverty with its co-relates of illiteracy, disease

and early death and finally alleviation ofunemployment and income inequality.


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Nature and Structure of Indian

Economy

Level of Development of Economy Sectoral Composition of Output


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Level of Development of

Economy

India as an Underdeveloped Economy

India as a Developing Economy


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India as an Underdeveloped

Economy Low per capita income

Inequitable distribution of income

High Poverty

Low Level of Human Development

Predominance of Agriculture High Unemployment


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Per Capita Income

Per capita income means how much each individualreceives, in monetary terms, of the yearly income

generated in the country. This is what each citizen is to

receive if the yearly national income is divided equally

among everyone. Per capita income is usually reported

in units of currency per year


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Low per Capita Income

India ranks 169 with GDP per capita of $2900

(2008 est, CIA World Factbook)

Per capita income for 2007-08 : Rs 24,295


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High Poverty

Year Population below povertyline (%)

2000 35

2001 35

2002 25

2003 25

2004 25

2005 25

2006 25

2007 252008 25

2009 25

Population living on less than $1 per day, as on Dec09 :375 million


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UNEMPLOYMENT RATE

Labour Force - the number of people employed

plus the number unemployed but seeking work.

The non-labour force includes those who are

not looking for work, those who areinstitutionalised and those serving in the military.

India's diverse economy encompasses traditional

village farming, modern agriculture, handicrafts,a wide range of modern industries, and a

multitude of services.


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Indias Unemployment Rate

Year UnemploymentRate (%)

2002 8.8

2003 8.8

2004 9.5

2005 9.2

2006 8.9

2007 7.8

2008 7.2

2009 7.1


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India as a Developing Economy

Rise in Net National Income

Rise in per capita income

High growth rate of population Existence of Unemployment and Under-

employment


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Rise in Net National Income

3.54.2

2.8 3.2

4.75.5 5.6

6.5

5.5

7.8

9.1

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

1951

-56

1956

-61

1961

-66

1969

-74

1974

-79

1980

-85

1985

-90

1992

-97

1997

-200

2

2002

-200

7

2007

-08

Year

P

ercentagegrowthove

rthepreviousyear


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Rise in per Capita Income


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High Growth Rate of Population

YearPopulation growth

rate (%)

2000 1.58

2001 1.55

2002 1.51

2003 1.47

2004 1.44

2005 1.4

2006 1.38

2007 1.606

2008 1.578

Population as on Dec09 : 1.150 billion, yearly increase17million


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OVERVIEW OF SECTORS

of

INDIAN ECONOMY


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AGRICULTURE


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AGRICULTURE

Agricultural production has largely been

stagnating for the past decade. Costs of inputs like fertilizers and power have

gone up more than the produce.

More vulnerable to international price volatility.

Per capita foodgrain availability has shrunk towhat it was three decades ago.

More than 67 % of cultivated area is held inholdings less than 4 hectares in size, compared to

just 35 % in 1953. Primary reason for this- decline in public

investment in agriculture.


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AGRICULTURE

72% of farmers have 1 hectare or less.

Agriculture continues to be the mainstay of incomesfor about 52 % of Indias population.

Contribution to GDP has drastically dropped from

over 53% in 1950 to 21 % in 2008.

For the country to achieve 9-10 % growth, agriculture

has to grow at least by 4 %.

While it grew by 2.5 % in the first quarter of 2009-10

and by less than 1.5% in the second. Adverse impact of the deficient monsoon.

It is likely to be negative in the 3rd quarter of this

fiscal. source: ministry of Finance website


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AGRICULTURE

Progress of special programmes for raising agricultural production-National food security mission.

The rashtriya krishi vikas yojana.

In 2009, Department of Agriculture and Cooperation, as custodianof the end-users i.e. the farming community, has sponsored aproject entitled: Development and Application of Extended RangeForecasting System for Climate Risk Management in Agriculture(ERFS).

In the first phase (two-three years), it is envisaged to develop aseasonal forecast system for met subdivisions/ agro-climatic zones.In the second phase, monthly forecast is targeted at these levels.

source: Economic Survey,2008-09


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AGRICULTURE

Need for- Renewed focus on increasing the productivity.

Step up the growth of allied activities and

non-farm activities

Rural infrastructure for movement of

agricultural produce.


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EXTERNAL SECTOR


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FOREIGN TRADEUS $ MILLION

EXPORTS (including re-exports)NOVEMBER APRIL-NOVEMBER

2008-2009 11163 134201

2009-2010 13199 104247

%Growth 2009-2010/2008-2009

18.2 -22.3

IMPORTS

2008-2009 23488 234353

2009-2010 22888 170430

%Growth 2009-2010/2008-2009

-2.6 -27.3

TRADE BALANCE2008-2009 -12325 -100152

2009-2010 -9690 -66183

*Figures for 2008-09 are the latest revised whereas figures for 2009-10 areprovisional.

SOURCE: MINISTRY OF FINANCE WEBSITE


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EXPORTS:

After exports turned positive in Nov. 2009 after 13 months of continuous fall,

they grew by 9.4 % in Dec. 2009 on the back of strong growth in-

PharmaEngineering,

Auto components sector, and

Chemicals

IMPORTS:

Imports during November, 2009 were valued at Rs.106584 crore representing adecrease of 7.4 per cent over the level of imports valued at US Rs. 115091

crore in November, 2008.

TRADE DEFICIT:

Trade deficit, however, was lower reflecting larger fall in imports, especially oil

imports, on account of lower oil prices as compared to last year.

The trade deficit for April- November, 2009 was estimated at US $ 66183 million

which was lower than the deficit of US $ 100152 million during April-November,

2008.


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BALANCE OF PAYMENTS:

Balance of trade: refers only to merchandise exports and

imports.

BoP: All economic transactions with the outside world. A

classified record of all receipts on account of goods

exported, services rendered and capital received by

residents , and payments made by them on account of

goods imported and services received from, and capitaltransferred to non-residents or foreigners.

A satisfactory BoP situation:

High earnings from services- mainly software services.

Role of foreign investment.


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FDI:

FDI is the outcome of the mutual interest of multi-national firms and the host

countries. The essence of FDI is the transmission to the host country of a package of

capital, managerial skills and technical knowledge.

Importance of FDI-

Upgradation of technology

Development of basic infrastructure

Improvement in Balance of Payments situation

Better access to foreign markets.

Inflow of FDI in the country jumped by 60% in November 2009 year-on-year. Country

received $1.7 billion foreign investment and $19.4 billion in April-Nov, a tad lower

than $ 19.8 billion in the comparable 8 months of the previous fiscal.

From 2006-07 to 2009-10, sectors attracting highest FDI equity inflows are-

Services 22 %,computer software and hardware 9%,

Telecommunication 8 %,

construction activities 7 %.

(Source: Department of Industrial Policy and Promotion, Ministry of Commerce and

Industry)


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During 2005-06 to 2008-09, FDI flows assumed greater

significance.

High inflows indicate India as an attractive investment

destination as a consequence of its liberalised investment

climate, stable and sound economic and political base,

opportunities for economic growth, while capitalinvestment abroad reflects the growing global

competitiveness of the Indian corporate sector.

Indian companies are also constantly looking for

synergistic acquisitions abroad.

The two-way flow of FDI, therefore, means that while the

world is taking note of Indias market potential.


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FII:

Investment of Rs. 80,500 crore in 2009 is the highest ever

inflow in the country in rupee terms in a single year. Itcomes after a year after they pulled out over Rs. 50,000

crore.

FII inflow so far this year has broken the previous high ofRs. 71,486 crore parked by foreign investors in domestic

equities in 2007.

Future Prospects:FDI into India is looking set to be more than $25 billion, and

FII inbound flows should be more than $25 billion,

estimates commerce minister Anand Sharma.


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Foreign exchange reserves (also called Forex reserves) in a strict sense are

onlythe foreign currency deposits and bonds held by CENTRAL BANKS and

monetary authorities. However, the term in popular usage commonly

includes foreign exchange and gold, SDRs. This broader figure is more

readily available, but it is more accurately termed official internationalreserves or international reserves.

These are assets of the CENTRAL BANKS held in different reserve

currencies, mostly the US dollars, and to a lesser extent the euro, the UK

pound, and the Japanese yen.

Foreign exchange reserves are an important component of the balance of

payments and an essential element in the analysis of an economy's

external position. The level of India's foreign exchange reserves comprising

foreign currency assets (FCA), gold, SDRs in the IMF.

FOREIGN EXCHANGE RESERVES


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FOREIGN EXCHANGE RESERVES:

Foreign exchange reserves, on BoP basis have shownan accretion of US $

9.4 billion in Q2 of 2009-10 as against a decline in reserves of US $ 4.7 billion

in Q2 of 2008-09.

India's foreign exchange reserves grew $741 million to $284.262 billion as on

week ended January 8,2010 as foreign currency assets of the country rose.


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Source: economic survey2008-09


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Exchange Rates JAN 15, 2010 JAN 15,2009

%

CHANGE

Rupees per USDollar

45.6650 49.0850 7.5

Rupees per Euro 65.8488 64.7800 -1.6

Source: Min. of Finance website
http://www.rbi.org.in/scripts/BS_NSDPDisplay.aspx


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Foreign Trade Policy/ Ex-Im Policy:

The Government of India, Ministry of Commerce and Industry announces Export

Import Policy after every five years. EXIM policy, in general, aims at developing

export potential, improving export performance, encouraging foreign trade andcreating favorable balance of payments position. The current Exim Policy covers the

period 2009-2014. The Export Import Policy (EXIM Policy) is updated every year on

the 31st of March and the modifications, improvements and new schemes

becomes effective from 1st April of every year.

A policy objective of achieving an annual export growth of 15% with an annualexport target of US$ 200 billion by March 2011. In the remaining three years of this

Foreign Trade Policy i.e. upto 2014, the country should be able to come back on the

high export growth path of around 25% per annum.

By 2014, there is an expectation to double Indias exports of goods and services.

The long term policy objective for the Government is to double Indias share in

global trade by 2020.Indias Look East Policy: Trade in Goods Agreement with ASEAN which came in

force from January 01, 2010 will give enhanced market access to several items of

Indian exports in this vibrant economic grouping.

The Government seeks to promote Brand India through six or more Made

in India shows to be organized across the world every year.


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After the enactment of the SEZ Act (2005), nearly 3 lakh people have gained

employment in the Special Economic Zones.

In the last 5 years, exports from SEZ have grown by 620%, and have attracted foreign

direct investment of US$ 2.43 billion.

source: Ministry of Commerce website


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INFRASTRUCTURE


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INFRASTRUCTURE

It consists of-

Power or electricityAtomic energy

The transport system- the railways, road transport, water transport, air transport

Tele communications

6 Core industries-

Six core industries-Crude oil,

Refinery products,

Coal,

Electricity,

Cement,

Finished steel-

contributed 26.7% to the overall Index of Industrial Production (IIP). The growth of

core sector reflects the heath of industrial production.


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INFRASTRUCTURE

Infrastructure sector expanded 5.3 % in November 2009 on back of robust

growth in steel and cement indicating revival in industrial growth.


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INFRASTRUCTURE

TRANSPORT:

The transport sector in India is expected to grow at 10 % per annum.

Ministry of surface transport had taken up the task of completing 20 kms of national

highways everyday. But 50 % of the projects have been delayed last year due to

reasons including land acquisition, pending environmental clearances or in some

cases due to cancellation of the contract itself.

TELECOMMUNICATIONS:

There have been 150 million new subscribers in the last year.

2010 is expected to be a year of telecom Mergers and Acquisitions with new entrants

like Loop, Datacom, Swan/ Etisalat, Unitech/Telenor and STel.

INFRASTRUCTURE


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INFRASTRUCTUREAviation:

In Oct. 2009 overall passenger movements in airports saw a 27.6% growth

over the same month last year.

Domestic air travel has made a comeback in 2009, with traffic registering

an increase of 7.9% over the previous year. Low fare is the way to survive

at this time. This was realized by the private players.

Air India does not follow the LCC model.

Cargo traffic at Indian ports:

Cargo handled by major ports in the country, a key indicator for economic

activity is staging a smart recovery.In Dec 2009, cargo handeled was up for the fifth consecutive month at

49.1 million tonnes compared to 45.3 million tonnes in the same month

last year, a growth of 8.3 %.

On a sequential basis, the cargo volumes increased by 1.9 % compared to

previous month.


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MANUFACTURING


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MANUFACTURING:

The sector grew at around 10-12 % in 2009 as growth accelerated from a singledigit level in 2008.

In 2009 manufacturing industry was marked by relatively low attrition rates and

reduced hiring.

Consumer durables industry comprises-

Refrigerators,Washing machines

Air conditioners

Colour TVs

Resurgence in demand for consumer durables-because of -low input costs, better inventory management,

Stimulus package

Pay revision of central government employees

Stable prices.


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MANUFACTURING

Automobile sector:

Car sales in the domestic market zoomed 40% in December, led by revival in

economic growth and easier retail financing and also due to low base of last year.

Also because of salary hikes for government employees and recovery in stock

markets.

Overall auto sales also recorded handsome gains as all the segments cars, two-wheelers, three-wheelers and commercial vehicles grew.

One of the things that drove growth in 2009 was new launches. The number of new

launches in the year were far more than what in any previous year.


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SOCIAL SECTOR


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SOCIAL SECTOR

Some of the major social sector initiatives for achieving inclusive growth and

faster social sector development and to remove economic and social disparities in

the Eleventh Five Year Plan, include the-

Bharat Nirman programme,

Mid-day Meal Scheme,

National Rural Health Mission,

JawaharlalNehru National Urban Renewal Mission and

The National Rural Employment Guarantee Scheme (NREGS).


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POLICIES


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INDUSTRIAL POLICY:

Policies related to-

Abolition of industrial licensing-

Now, it is compulsory for only 5 industries- alcohol, cigarettes, hazardous

Chemicals, electronics aerospace and defence equipment and industrialexplosives. In respect of delicensed industry, no approval is required from the

government.

Public Sectors role-

Only 3 industries reserved for public sector- atomic energy, minerals specified in

the schedule to the atomic energy and rail transport.

Divestment-FDI:

policy does not permit FDI in the following cases:

i. Gambling and betting

ii. Lottery Business

iii. Atomic Energy

iv. Retail Tradingv. Agricultural or plantation activities of Agriculture (excluding Floriculture,

Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and

Cultivation of Vegetables, Mushrooms etc., under controlled conditions and

services related to agro and allied sectors) and Plantations (other than Tea

Plantations).


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MONETARY POLICY:

Monetary policy refers to a regulatory policy whereby the

Central Bank maintains its control over the supply of moneyfor the realization of economic goals. In a growing economy

there has to be a continuous expansion of money supply and

bank credit. Banks responsibility in the circumstances is

mainly to moderate the expansion of credit and money

supply in such a way as to ensure the requirements of

industry and trade.


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-The Reserve Bank of India has increased CRR- the bank deposits kept with the RBI- to

75 basis points to 5.75 %.

- Move to suck out excess liquidity worth Rs. 36,000 crore from system.

-Bank rate retained at 6.0 percent.

- Repo rate retained at 4.75 per cent.- Reverse repo rate retained at 3.25 percent.

- Indias economic growth projection hiked to 7.5 percent from earlier 6 percent.

-Annual inflation rate projection hiked to 8.5 percent from 6.5 percent.


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Impact:

The tipping point has not yet reached for tightening of monetary policy and if

one proceeds in that direction hastily, economic growth may take a hit. This in

turn will affect employment generation that is critical at this juncture.Hike in CRR may adversely affect the availability of funds with the banks for

extending credit to the industry from the banking system.

SMEs are still borrowing at around 13 per cent.

Fiscal Policy:


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Fiscal policy is concerned with the determination of state income and expenditure

policy. An effective fiscal policy consists of policy decisions relating to the entire

financial structure of the govt. including tax revenue, public expenditures, loans,

transfers etc.

Government takes fiscal measures to reduce the fiscal deficit. Last year after the

global slowdown hit India, the Govt. had introduced stimulus measures like excise

duty cuts by 6 %, enhanced expenditure in social and infrastructure sectors,

besides agricultural loan-waiver to the tune of Rs. 65,000 crore and

implementation of the sixth pay commission recommendations. They led to the

economy bouncing back.

Impact:

FISCAL deficit for the current year could overshoot even the 16-year high 6.8%

budgeted for the current year as fertiliser subsidy is likely to be higher and

postponing of 3G Auction this fiscal.

The government had expected to raise about Rs 35,000 crore from the

sale of 3G-spectrum and it is faced with an additional spend of Rs 20,000 crore on

the fertiliser subsidy against Rs 49,980 crore estimated for 2009-10 .

this can lead to increase in the government borrowing in the current fiscal.


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SALARY HIKES


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INFLATION


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What is Inflation?

Inflation rate of a country is the rate at which

prices of goods and services increase in its

economy.

It is an indication of the rise in the general level

of prices over time.


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Inflation Cont.

Mathematically, inflation or inflation rate iscalculated as the percentage rate of change of acertain price index.

The price indices widely used for this areConsumer Price Index (adopted by countriessuch as USA, UK, Japan and China) andWholesale Price Index (adopted by countries

such as India).Thus inflation rate, generally, is derived from CPIor WPI.

INFLATION DURING THE LAST YEAR


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INFLATION DURING THE LAST YEAR

For the week ending Inflation (in %)31st December 2009 7.31

30th November 2009 4.78

31st October 2009 1.46

30th September 2009 0.5

31st August 2009 -0.17

31st July 2009 -0.67

30th June 2009 -1.01

31st

May 2009 1.3830th April 2009 1.31

31st March 2009 1.2

28th February 2009 3.5

31st January 2009 4.95

INFLATION


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INFLATION


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NEGATIVE INFLATION

Indias annual rate of inflation turned negative forthe week ended June 6 for the first time since thenew wholesale price index or WPI series startedin 1995.

Negative inflation implies that the average

wholesale price level is lower during a givenweek, than it was in the corresponding week ayear ago.


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REASONS

A major reason for the negative inflation, based onthe WPI, is the hike in fuel prices during thecorresponding period last year.

The fuel and power index reported a 12.8 per centdip with respect to previous year. On the otherhand, the primary articles group inflation reportedajump of 0.1 per cent.

Similarly, the food articles index which representscereals, pulses, vegetables, milk etc also reported ajump from 8.6 per cent to 8.7 per cent.


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IMPLICATION

Deflation is not good for a country's

growth as it translates into lower consumer

activity due to falling prices. This directlyleads to a larger inventory of goods and

hence lowers manufacturing activity.


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INFLATION SITUATION

Inflation emerged as a major concern during thethird quarter, dominated by significant supplyfactors.

On year on year basis, WPI headline inflation inDecember 2009 was at 7.3 per cent, whereas WPIinflation excluding food articles was 2.1 per cent,which suggests the concentrated nature of the

inflation so far.


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Cont

Weekly WPI data on primary articles indicate thatprimary food articles prices have increased by 17.4 percent (y-o-y) for the week ending on January 16, 2010.

The concentrated pressure on headline inflationarising from high food prices entails the risk of gettingtransmitted over time to other non-food items throughexpectations driven wage price revisions, and therebymagnifying into a generalized inflation.

While anchoring inflation , expectations becomes

important in such a situation, addressing supplyconstraints would be critical for enhancing theeffectiveness of any anti-inflationary policy measures.

Growth and Inflation Outlook


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Growth and Inflation Outlook

RBI is facing the challenge to maintain a consistentgrowth rate for the economy while ensuring that

the inflation is kept under control

According to the Reserve Banks Professional

Forecasters Survey conducted in December 2009,

the outlook for 2009-10 growth has been revised

upwards from 6.0 per cent to 6.9 per cent.


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Cont..

Several factors are expected to support upsideacceleration of economic growth in the near future:

a. Signs of revival in private demand, both consumption

and investmentb. Possibility of strong industrial recovery

c. Outlook for a better Rabi crop

d. Export growth remaining positive

e. Favorable capital market conditionsThe general improvement in business sentiments asper the Reserve Banks business expectations survey aswell as similar surveys of other agencies.


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Cont..

The downside risks to growth in the near-term could beseen in terms of:

a. The adverse impact of the deficient monsoon on kharifcrop in the GDP of next quarter

b. Weakness in services activities that are dependent onexternal demand

c. Notwithstanding the signs of improvements in recentmonths

d. Possible pressures on interest rates that may emerge fromrevival in demand for credit from the private sector aswell as inflation expectations

FOOD INFLATION


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FOOD INFLATION

Food price inflation had shot up to 17.40% from16.81% for the week ended January 16, over theprevious week, but the price hike was mainly dueto spiralling pulses, vegetable, poultry and spice

rates.

Food items (i.e. primary and manufactured) witha combined weight of 27 per cent in the WPI

basket have exhibited 21.9 per cent increase inprices.


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BANKING Historical role of Banks as intermediaries between

the savers and the investors

In the last few decades, the importance and nature

of financial intermediation has undergone a dramatic

transformation the world over. Role that banking has played:

Banking system has provided credit to fund

investments

It has facilitated the raising of funds through a rangeof market based instruments shares, bonds,

mortgages, Assets backed securities, futures,

derivatives, etc.

C


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Cont..

Besides transferring resources from savers toinvestors, these instruments enable allocation

of risks and re-allocation of capital to more

efficient use.

These developments in international

financial markets have been mirrored in thefinancial market in India.

Bank-group wise shares in deposits


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Bank group wise shares in deposits

and credit

Nationalized banks, as a group, accounted for 50.5 per cent of theaggregate deposits, while State Bank of India and its Associatesaccounted for 23.8 per cent.

The share of other scheduled commercial banks, foreign banks andregional rural banks in aggregate deposits was

17.1 per cent,

5.6per cent and 3.0 per cent, respectively.

As regards gross bank credit, nationalized banks held the highestshare at 50.5 per cent in the total bank credit followed by StateBank of India and its associates at 23.7 per cent and other

scheduled commercial banks at 17.8 per cent.

Foreign banks and regional rural banks had relatively lower share inthe total bank credit at 5.5 per cent and 2.5 per cent, respectively.

.

C di D i R i


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Credit-Deposit Ratio

At the AllIndia level, the credit-deposit (C-D) ratio of all scheduledcommercial banks as on last Friday of September 2009 stood at 70.3 percent.

Among the States/Union Territories, the highest C-D ratio was observed inChandigarh (121.7 per cent) followed by Tamil Nadu (110.9 per cent).

At the bank group level, the C-D ratio was above the All-India ratio in

respect of other scheduled commercial banks (73.0 per cent). The C-Dratio in case of nationalized banks (70.3 per cent) was at the same level asall SCB C-D ratio.

The C-D ratio of State Bank of India and its associates (70.0 per cent),foreign banks (68.8 per cent) and regional rural banks (58.9 per cent) werelower than the all SCB C-D ratio.

C-D ratio ofAll Scheduled Commercial Banks in metropolitan centers wasthe highest (82.6 per cent) followed distantly by rural centers (57.9 percent) and urban centers (56.1 per cent).

The semi-urban centers recorded the lowest C-D ratio at 49.8 per cent.

C


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Cont..

EMERGING ISSUES


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EMERGING ISSUES

1. HealthcarePublic expenditure on health as a %age of GDP is a mere 0.9%,among the lowest in the world.

According to a Planning Commission paper of May 2009, healthcareexpenses were responsible for over half of all the cases of declineinto poverty.

It was estimated that in 2009-10, an additional 39 million people

were pushed into poverty due to out-of-pocket payments.

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2. Poverty

Because of the gross poverty that inflicts much of rural

population, domestic demand is constrained.

This leaves the industry with limited options-

1. Cater to a small proportion of society, the upper middle

and higher classes2. Try out the cut-throat export market.

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3. Unemployment

Fallout of this situation-

Employment creation not taking off, especially in ruralareas.

Absorption in services not as much possible as needed.

Larger sections of population continue to saturate

agriculture at low wages or to take petty trade. As aresult most of the employment is in unorganizedsector.

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4. INFRASTRUCTURE

Development of infrastructure would not only ameliorate the supply sidebottlenecks to growth, but also provide the requisite demand sidestimulus to growth. The rapid construction of highways facilitates humanand material movement across the country.

In the current Indian context, the programme for infrastructure building isundertaken broadly through two routes:

First, through planned execution of large infrastructure projects under theCentral and State Government agencies and through private initiatives

including Public private partnerships (PPPs)Second, through public works programmes, which have the twinobjectives of creating infrastructure and generating employment for thepoor.

COMPARISON


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COMPARISON

The Indian economy has registered an impressive growth in recenttimes with GDP recording an average of7.2 per cent growth rate inthe current decade from an average growth of5.7 per cent in thenineties.

A comparison with the earlier period since the beginning of the lastcentury brings out the extent of economic transformation far more

clearly. During the first 50 years of the nineteenth century theaverage GDP growth rate has been just 0.7 per cent which pickedup to 3.5 per cent (popularly called as Hindu rate of growth) inthe next three decades after independence, before progressing tohigher growth path in the recent decades.

Concomitantly, the per capita income grew from a mere 0.2 percent in 1900-1950 and 1.1 per cent in 1951-1980 to 3.2 per cent inthe eighties and 3.6 per cent in the nineties and further to 5.4 percent in the current decade

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E i T f ti


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Economic Transformation

Transformation of the economy is quite apparent from thenoticeable changes that have occurred in the sectoralcomposition of output.

The share of services in the national income has steadilyincreased with corresponding fall in the contributions of

agriculture and industry over the years. Services sector now accounts for nearly two third of total

output as against less than half in the early eighties and thenineties.

Share of industry declined marginally to 19 per cent from

20 per cent whereas share of agriculture registered steepdecline from 38 per cent to just 17 per cent

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This positive performance seems to be an outcome ofreforms encompassing a range of measures that led totransformation spreading over all the sectors ofeconomy.

Transformation brought in higher degree ofsophistication and efficiency in operations of almost allthe sub segments of real as well as financial sectors.

Moreover, domestic economy has become far moreintegrated with rest of the world which is visible not

only in terms of growing trade volumes; financial flowsfrom and to the outside world have also been steadilygrowing.

Cont


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Structural transformation of almost all the segmentsof the economy during past two decades has broughtdiscernible improvement in terms of efficiency,competitiveness and productivity.

This reflects in economy moving over to higher growthtrajectory with far greater integration with the rest ofthe world in terms of diversification of goods and

services as well as destinations to which exports arebeing made.

Cont


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Transformation of the economy, which is discernible in theform of improved competitiveness, efficiency andproductivity across all the sectors, has led the economy to ahigher growth trajectory.

Consequent shift in relative contribution of various sectors

to national income, however, brought to fore the concernsfor sustainability of the transformation process and theneed for an inclusive growth.

The use of technology to make available affordable

financial and banking services to the under privilegedsections of our society for achieving inclusive growth is alsoour noble but critical objective.

Cont


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Finally, Economic Transformation is anongoing process that needs to be pursuedwith perseverance and consensus whilekeeping in view their aptness to the domesticeconomy.

Let us hope that this process continues andgains pace in the coming years.

Conclusion


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Conclusion

India is seen as a vast pool of talent with great diversity andwith a demographic advantage. However, the industrial sectorfaces acute shortage of skills. The swiftness with which thisskill deficit is bridged will be critical in determining whetherIndia can move up the value chain in manufacturing.

The size of the Indian market and the unmet demand forindustrial products provide reasonable hope that demandwould not be a constraining factor by itself. There is anincreasing realization that the industry should make consciousefforts to reach out to the bottom of the pyramid.

To be able to do so, the industry will need to deliver productsthat give value for money in a cost effective way.

Cont


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There is indeed a paradox-The countrys overall economic health measured in terms

of standard economic parameters-

GDP, National Income, food grain production etc.

appears to be rosy compared to 60 years ago.

Yet going into the details such as

life and livelihood in the hinterland does not reveals so

healthy a picture.

Cont..

Cont


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After 62 years of independence, many of the issues thatconcern policy-makers and people are still the same:

Agriculture is still crucial.

Trade links with the world is still of concern.

Living standards and poverty is still a big issue.

India did march ahead with its global status despite aneconomic downturn but there is a need to dwell on

inclusive growth which will define the dynamics ofbusiness going forward.

India can view the next decade with OPTIMISM.

References


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References

www.rbi.org.inwww.advfn.com

www.indianfoline.com

www.finance.yahoo.com

Economic survey 2008-09

www.hindu.com

www.populationcommission.nic.in

indianeconomy.orgwww.worldbank.org

References


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References

www.economywatch.comBook on Indian Economy

www.economicshelp.org

www.mint.com

www.ficci.com

www.financialexpress.com

www.indiabudget.nic.in

www.thehindubusinessline.comwww.ibef.org