Indian Economy

Sept - 2007
Deepti Ramanujam Mohit Agarwal Navneet Dubey Rahul Ghelli Rajesh Joshi Sagar Mewada Tejas Deshmukh

Compiled by students of SP Jain Singapore / Dubai for Educational Purpose

Agenda
Introduction Growth Indicators Significant Industries Monetary Policy & Fiscal Policy Foreign Exchange Policy & BoP India v/s China Future projections

Introduction
2nd fastest growing major economy Diverse economy agriculture, handicrafts, textile, manufacturing, and a multitude of services Population-1.17bn & Labor Force-509.3 mn Exports ~ $125 bn Imports ~ $188 bn M&A

Key Economic Indicators

2001 Total population (millions) 2002 2003 2004 2005 2006

1038

1051

1068

1085

1101

1118

GDP
Per capita GDP Unemployme nt rate Interest rates (12 months)

5.8

3.8

8.5

7.5

8.4 32224 3.1

9.4 36771 ...

21976 23299 ... ...

25773 28684 ... ...

7.10

5.75

5.00

5.50

6.00

8.25

Composition of GDP
40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 2001 2002 2003 2004 2005 2006 Services Industry Agriculture GDP

2001 GDP Agri. 6.3 Industry Services 2.7 7.2 5.8

2002 3.8 -7.2 7.1 7.4

2003 8.5 10.0 7.4 8.5

2004 7.5 0.0 9.8 9.6

2005 8.4 6.0 9.6 9.8

2006 9.4 2.7 10.9 11.0

Price Indices
14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2001 2002 2003 2004 2005 GDP DEFLATOR FPI CPI

2001 CPI 3.8

2002 2003 2004 2005 4.3 3.8 3.8 4.2

FPI
GDP Deflator

2.2
3.1

2.5
3.9

3.5
3.8

2.8
4.4

3.3
4.4

Monetary & Fiscal Policy

Overview of the Monetary & Fiscal Policy (2002-07) Maintaining Price stability and ensuring adequate flow of credit to the economy Inflation around 4.4 - 6.0% M3 at about 21.3% when projected was 17.3% Consistent objectives of price & financial stability

Policies (contd)
Liquidity through LAF & MSS Cash reserve Ratio 6.5% TO 7.0% Flexible reverse Repo Rate Lifted a cap of Rs. 30bn on daily Repo transactions Rupee has risen considerable to 10% against dollar

Policies (contd)
Huge government deficits : 8-9% of GDP (central & state fiscal deficits) After 1991- economic policy shifted towards long-term domestic debt Constrained public infrastructure crowded out private sector Undermines reforms- concerns on funding debt Tax Revenue to GDP ratio 10% GDP

Foreign Exchange Policy

Prevention of destabilization speculation The foreign reserves have risen from $ 5 Bn in 1991 to around $ 200 Bn in 2007 The increase in foreign reserves is due to FDI, Net FII investments and NRI deposits. FX reserves protects the market against exchange rate volatility. Increase in FX reserves can cause inflationary pressures.

Balance of Payments
Fiscal 2004-05 marked a turn around Appreciating rupee, imports rising and exports slowing Widening CAD due to trade deficit Increase in FDI/FII liabilities

Items

2004-05

2003-04

2002-03

2001-02

2000-01

Trade Balance

-38,130 31,699 -6,431

-15,454 26,015 10,561

-10,690 17,035 6,345

-11574 17,035 6,345

-12460 9,794 2,666

Invisibles Net Current Account Balance Capital Account

Overall Balance Foreign Exchange Reserve Increase (+) /Decrease (-)

32,175
26159 -26,159

20,542
31,421 -31,421

10,840
16,985 -16,985

10,840
16,985 -16,985

8,840
5,868 -5,842

G-Effect
Present day world
Appraisal of public policies

Financial Integration

S#

India

China

1
2 3

Trade amounts to 31% of GDP

Takes about 88 days to start business and 176 to close Proportion of population over the age 15 with no schooling was 44% in 2001

Trade amounts to 52% of GDP

Less by around 50% 18%

4 5 6 7 8 9

Cargo transit times to US is 8-12 Cargo transit times to US is 2-3 weeks weeks Contribution to world growth 0.4% Proportion of population in the productive cohort is 60% Overseas Indians account for only 9% of countrys FDI Contribution to world growth 1.2% 66% Above 50% 6 times of India Average investment rate 22% 36%

Striking future projections

What Goldman Sachs says India likely to show the fastest growth over the next 30 to 50 years Growth could be higher than 5% over the next 30 years and close to 5% as late as 2050 Indias GDP will exceed Italys in 2016, Frances in 2019, Germanys in 2023 and Japans in 2032 India to become the worlds 3rd largest economy by 2032

References
BRIC Report CRISIL report www.rbi.org.in www.forbes.com www.frsb.org

Thank You

Compiled by students of SP Jain Singapore / Dubai for Educational Purpose