THE CHANGING ECONOMIC ENVIRONMENT OF INDIA

Presentation by: Sarabjeet Kaur Sanchit Sanjeev Sandeep Koul (Group 7)

Why India?Quote Unquote

Constraints in India can be a source of dramatic global innovation, such as Tata Nano and a host of other low-cost products.
Dr.C.K.Prahlad, Management Guru Ravi Venkatesan, Chairman, Microsoft India

India is now truly a land of opportunity.

I think it is still an incredible event that the Indian economy is expected to grow at 6.57 per cent.

John Redwood Economic Competitiveness Policy Group, UK

By 2032, India will be among the three largest economies in the world.

We see India as the most attractive market in the region.

BRIC Report, Goldman Sachs

The Indian market has two core advantagesan increasing presence of multinationals and an upswing in IT exports. The growth potential in India will remain strong in the long run compared to many of our other businesses in the world.
Andrew Moss, CEO, Aviva Global

Robert Morrice, Chairman (Asia-Pacific), Barclays Plc

We have proven to the world that global cars can be manufactured in India.
HS Lheem, MD, Hyundai Motor India

Travyn Rhall ACNielsen

Environment

External Factors

Internal Factors

Internal Environment
Value Chain Management Structure Human Resources Company Image and Brand

External Environment
Micro Environment Suppliers Customers Competitors Public Financers Macro Environment Global Environment

ECONOMIC ENVIRONMENT

Factors of Economic Environment

1. 2. 3. 4. Nature and structure of economy Economic Conditions Economic Policies Global Linkages

I. Nature and Structure of Indian Economy

Level of development of Economy Sectoral Composition of output

Level of development of Economy

India as an Underdeveloped Economy India as a Developing Economy India as a Mixed Economy

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

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

High Poverty
Year Population below poverty line (%) 2000 35 2001 35 2002 25 2003 25 2004 25 2005 25 2006 25 2007 25 2008 25

Population living on less than $1 per day, as on Jan09 :300 million

What is HDI? Who coined this term?

Measures life expectancy, living standard and knowlwdge and was developed in 1990 by Pakistani economist Mahbub ul Haq, Sir Richard Jolly, with help from Gustav Ranis of Yale University and Lord Meghnad Desai of the London School of Economics.

Low Level of Human Development

The HDI for India is 0.609, which gives the country a rank of 132nd out of 179 countries with data (2008, Country Factsheets) Iceland being on top with HDI value 0.968

High Unemployment Rate

Year Unemployment rate (%) 2002 8.8 2003 8.8 2004 9.5 2005 9.2 2006 8.9 2007 7.8 2008 7.2
Unemployment Rate, as on Jan09: 7.2%

High Level of Unemployment

1978 (a) 1983 (b) 1994 (a) 8th Plan (1992-97) (f) 951.2 (1.89) 9th Plan (1997-02) (f) 1028.9 (1.58) 10th Plan (2002-07) (f) 1112.9 (1.58)

Population (c) Labour Force

637.6

718.2 (2.19) 286.6 (2.09) 281.2 (2.23) 5.4 1.89

895.0 (2.12) 368.5 (2.42) 361.5 (2.42) 7.0 1.89

255.8

374.2

423.4

478.8

Employment Unemployme nt Rate (%)

249.1

367.2

416.4

474.7

6.7 2.63

7.0 1.87

7.0 1.66

4.1 0.86

(figures in million)

India as a Developing Economy

Rise in Net National Income Rise in per capita income High growth rate of population Existence of Unemployment and Underemployment Structural changes in India GDP

Percentage growth over the previous year

10.00 0.00 3.5 4.2 2.8 3.2 4.7 5.5 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00

19 51 -5 6 19 56 -6 1 19 61 -6 6 19 69 -7 4 19 74 -7 9 19 80 -8 5 19 85 -9 0 19 92 -9 7 19 97 -2 20 02 -2 00 2 00 7 20 07 -0 8

Rise in Net National Income

Year

5.6 6.5 5.5 7.8 9.1

Rise in per capita Income

High growth rate of Population

Year Population 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 Jan09 : 1.140 billion, yearly increase 17million

Sectoral composition of Output

Secondary Primary Tertiary

Total Output

Primary Sector
Comprises of agriculture, forestry, fishery Contribution to GDP 56.4% in 1950-51 45.8% in 1970-71 31% in 1990-91 26% in 2000-01 18.5% in 2006-07

Growth from Apr08-Jan09 : 2.9%

 Comprises of manufacturing, construction, electricity, gas, water supply Contribution to GDP 15% in 1950-51 22.3% in 1970-71 24.7% in 2006-07

Secondary Sector

Growth from Apr08-Jan09 : 5.0%

Tertiary Sector
Comprises of trade, transport, storage, communication, banking, insurance, real estate Contribution to GDP 28.5% in 1950-51 31.8% in 1970-71 54.8% in 2006-07

Growth from Apr08-Jan09 : 9.9%

Overall Sectoral Contribution to GDP

1,200 1,000

US$ Billion

800 600 400 191 200 0 103 105 237 125 105 204 135 245 154 439 398

564

314

190 200708

199900 200203 200506 200607 Agriculture Industry Services

Recession and Indian Economy

Recession:
significant decline in economic activity lasting more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

What Causes Recession ?

An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years.
A recession normally takes place when consumers loose confidence in the growth of the economy and spend less.

This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment.

What Actually Happened

Loans given out to anyone and everyone Investment bankers look to the U.S. housing market Mortgage backed security = pool of thousands of different mortgages 2003-2006 Housing prices started increasing However, housing prices then started to decrease and more houses came on market Result was credit crisis

Impact on India
A slowdown in the US economy is bad news for India because:
Indian companies have major outsourcing deals from the US India's exports to the US have also grown substantially over the years. Indian companies with big tickets deals in the US are seeing their profit margins shrinking.
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Impact Contd
(GDP) grew by 5.3%, compared with 7.6% in the previous three months and 8.9% in the same period a year earlier (as on 27 Feb09) Sensex crashed by 50%, from 21,206.77 on jan 08 to around 9000 in Jan09 Indian currency depreciated against the US dollar over the past four months by more than 15% Currency reserves have come down from a record $300bn to around $250bn

Impact Contd
Industrial production fell 0.4 percent. Crude oil jumped from under $40 per barrel a year ago to nearly $150 per barrel in August Exports for Oct08 declined by 15% More than 5 lakh lay offs Forex reserves declined by $6.498 billion
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Future Prospects
Elections ahead After the signing of the US-India civil nuclear deal, India will now be partnering several countries for nuclear fuel technology projects, and this will further boost the economy.

India and Russia signed 10 agreements in December 2008, including a pact on civil nuclear cooperation.
Thorium Power, a US firm, and Punj Lloyd will be forming a nuclear fuel technology joint venture (JV). The JV will offer thorium fuel technology for light water reactors (LWR) in India.

QUIZ

This term in macroeconomics is a measure of net outflow of all payments from an economy. A sharp deterioration in this was one of the major triggers for the economic liberalization in India that was announced in the 1991 budget. What term is this?

 Balance of payments

 What common distinction is held by Morarji Desai, Chaudhary Charan Singh, VP Singh and Manmohan Singh?

 Finance ministers who went on to become prime ministers

 This word comes from the French word for leather pouch or bag. The present connotation of this word is from the notion that the treasury minister would usually keep his fiscal plans in such a bag. Which term?

 Budget

 Open market operation is a part of a. Income Policy b. Fiscal Policy c. Credit Policy d. Labour Policy

c. Credit Policy

 The Finance Commission is appointed for every year a. 3 b. 4 c. 5 d. 6

 Five Years

 VAT is imposed a. Directly on consumer b. On final stage of production c. On first stage of production d. On all stages between production and final sale

On all stages between production and final sale

Which was the best performing major currency in the world in 2008, rising by 21% against the dollar? a. Swiss franc b. Icelandic krona c. Japanese yen

 The Yen The yen was the worlds strongest major currency against the dollar in 2008. The Swiss Franc has risen by 4% and is benefiting from its traditional safe haven status. The Icelandic Krona fell by 84% against the dollar in the wake of that countrys financial crisis

MORAL
Every morning in Africa, a gazelle awakens. He has only one thought on his mind - To be able to run faster than the fastest lion. If he cannot, then he will be eaten. Every morning in Africa, a lion awakens. He has only one thought on his mind - To be able to run faster than the slowest gazelle. If he cannot, he will die of hunger. Whether you choose to be a gazelle or a lion is of no consequence. It is enough to know that with the rising of the sun, you must run.

Sources
Economic Times Indian Economy, Misra and Puri www.ibef.com www.bbcnewss.com www.ciaworldfactbook.com www.worldfactsheets.com www.wikipedia.com www.cso.org Businesstoday

THANK YOU