EcoProject_Final

2015

Economic Project Sayanta Tripathy

[ECONOMIC ANALYSIS] This project understands the economic condition of India and UAE and tries to compare the same between these two countries.

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Table of Contents

1. Introduction................................................................................................................................4

2. Country Introduction ...................................................................................................................4

Country Profile ...............................................................................................................................5

3. Economic Variable .......................................................................................................................6

1. GDP:- ......................................................................................................................................6

2. GDP per Capita:- ......................................................................................................................8

3. Inflation (Consumer Price, %):- .................................................................................................9

4. Unemployment (% of total labour force):- ............................................................................... 10

5. Export of Goods/Services (% of GDP):- .................................................................................... 11

6. Import of Goods/Services (% of GDP):-.................................................................................... 12

4. Future Economy ........................................................................................................................ 14

5. Conclusion ................................................................................................................................ 14

6. Appendix .................................................................................................................................. 15

7. Reference ................................................................................................................................. 17

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1. Introduction

The objective of this report to focus on the economic situations in UAE and India and compare

the same between these two countries. As a result we try to analyze and comparing UAE and India

using various economic variables such as GDP, GDP per Capita, Inflation, GDP Growth,

Unemployment, Export and Import . A thorough study on this is conducted over a 10 year period

(2002-2012). To Support the same a thorough research has been carried out with the help of data

available from World Data Bank, IMF, WDI database and other scholarly journals.

2. Country Introduction

UAE

United Arab Emirates is a federation of seven monarchies namely Abu Dhabi, Ajman,

Dubai, Fujairah, Ras Al-Khaimah, Sharjah, and Umm al-Qaiwain, formed in 1971 (CIA

World Fact book, 2013). UAE’s economy is considered one of the largest emerging

economies in the Middle East. UAE is also a member of Gulf Cooperation Council (GCC)

which is a political and economic union of Arab states bordering the Persian Gulf, Oman,

Qatar, Saudi Arabia, and UAE.

United Arab Emirates is known for a mixture of different cultures, traditions and beliefs. The

government responded to demands for reform during the “Arab Spring” by initiating a $1.6

billion program to improve the infrastructure in the poorer northern emirates and expanding

the number of people allowed to vote in the September 2011 elections for the Federal

National Council. Dubai is the center of finance, commerce, transportation, and tourism. Free

trade zones that permit 100 percent foreign ownership with zero taxation help to diversify the

economy, but UAE nationals rely heavily on public-sector employment and subsidized

services. Zero percent tax and high standards of living attracts foreigner to invest in United

Arab Emirates.

For more than 3 decades UAE’s economy had been driven by its Oil Revenue and is now

merely contributing 25% towards its GDP. It can be undoubtedly stated that UAE’s per

capita GDP can be counted the same as among the leading Western European nation.

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INDIA

Years of nonviolent movement against the British rule lead by Mahatma Gandhi and

Jawaharlal Nehru gave rise to a new independent nation in 1946 – India. India since after

independence and till date faces the problems such as Overpopulation, environment

degradation, corruption, poverty. But the economic reforms carried out in 1991 keeps India

always ahead in terms of its economic growth and are driving India slowly towards a Global

and Regional power. This reform helped to see various changes like industrial deregulation,

privatization of enterprises, reduced control on foreign trade and investment and thus

accelerated countries growth. India’s economy largely depends on its agricultural field. Its

healthy investment rate and increased integration into global economy kept India’s long term

growth look positive.

As per IMF data (2014), it is considered that India’s economy is 10th largest economy as per

market exchange rates. Although India flourishes with rising economic power, it still faces

challenges of poverty. Its poverty line has decreased from 60% in 1981 to 25% in 2013 as per

World Bank’s International Poverty Line Data (2013). This economic growth has pushed

India’s GDP considerably higher and is expected to grow at an average of 8% making it

world’s fastest growing economy as per the report submitted by PriceWaterHouse Cooper

(2011).

Country Profile

UAE

Capital Abu Dhabi Gross Domestic Product $390 billion

Gross Domestic Product Per Capita $29,900 Population 5,628,805

Inflation Rate 1.3% Unemployment 2.4%

Currency Dirham Language Arabic

INDIA

Capital Delhi

Gross Domestic Product $1.67Trillion Gross Domestic Product Per Capita $4000

Population 1,236,344,631

Inflation Rate 9.6% Unemployment 8.8%

Currency Rupees Language Hindi

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3. Economic Variable

1. GDP:-

The GDP of a country is a quite majorly used indicator of any countries economic

health and also acts as a catalyst to understand a country’s state of growth. It is calculated

annually after including all private, public consumption, government outlays and

investments. In a nutshell it is a monetary value of all the goods and services produced in

the country within a specified time period.

The Figure1 Below shows the GDP of two countries and how it fluctuates over the past

10 years from 2002-2012. The GDP for each country are in terms of Billion$.

As we can see below in the graph the GDP for UAE and India in overall shows a positive

outlook. Until 2008 when UAE experienced a slight dip in its GDP. During this year, the

global economy was hit by a recession. This becomes more evident when we look at the

GDP Growth% in Figure2 which shows result. The recession was experienced in UAE

until 2009 or to be precise till start of 2010. It was after that the GDP of the UAE took a

positive turn once again thereby boosting the economy of the country. During this period

UAE experienced a decline in their oil price and day to commodities like House rent. As

per the report from UAE Statistic from Government of UAE, the GDP growth rate fell

from 5.2% in 2007 to 3.2% in 2008 and it saw a negative value in 2009 which is evident

from the figure2. However it sounds quite motivating when reports say that despite of

hard struck recession, UAE government pursued its diversification strategy by

manufacturing and investing into non oil products and services and thereby being

dependent on Oil for its GDP. UAE’s Free Trade Zone and 100% foreign ownership

attracts lot of foreign investors and this gives a positive outlook towards the GDP growth

of this country.

The period of recession was very much a challenging year of India as well and it becomes

quite evident from the graph how the GDP experienced a dip in its value. However before

2008, India experienced an economic crisis in 1991 and under the leadership of Prime

Minister Narsimha Rao, India went through a major economical reform. The economical

reform was aimed to liberalization and move towards a more open trade regime by taking

measure such as Privatization of firms, deregulation and others. This resulted in a flexible

market determined system and withdrawal of restriction on imports and exports. As a

result of such reform, GDP growth which was averaged at around 5.7% per annum in

1990s accelerated well above the expectation and reached a level of 8%-10% growth in

period of 2000s. India in their 5 year period of 2002-2007 saw a major boom in their

GDP experiencing growth in all the sectors of the economy including agriculture.

However 2008-2009 as discussed for UAE, a global crisis halted this growth in GDP for

India. India which is a major agricultural country used to have 28% of its GDP

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contributed by agricultural Sectors. However until the period of Economic Liberalization

in 1991 and when trading was made more friendly , agricultural sector’s share in GDP

dipped from 28% to 19.4% as of 2001 which today stands at 14.9%. This was balanced

by the service industries. Thanks to economic reform, the share of service industry

gradually increased from 50.5% in 1990s to 65% till date. However India’s past

Economic Policies still haunt and this seems to be a major reason why the growth in the

economy post 2011 saw a dip in 2012. The major reason for the decrease in GDP growth

post 2011 is decline in Government spending and low investment rates. However post

2012 India had announced additional reforms in their policies and had seek for major

foreign investment to increase their GDP once again.

Figure 1- GDP(Billion$) OF India & UAE

Figure 2-GDP Growth (%) of India & UAE

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200

400

600

800

1000

1200

1400

1600

1800

2000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

India

UAE

-8

-6

-4

-2

0

2

4

6

8

10

12

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

India

UAE

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2. GDP per Capita:-

The simplest definition of GDP per Capita would be a measure of Total GDP of the

country divided by its total population. This has been a useful measure to compare the

performance of countries against each other. Increase in GDP per Capita indicates rise in

Economy as well as productivity with high stand of living.

While earlier Figures showed a promising boom in the economy of India, Figure3 gives

real insight on slow progress of India’s development. India’s Per capita Income saw a

very slow growth. It is one of the slowest among the BRICS nation. In order for India to

increase its pace of standard of living, it needs to regain its growth momentum and fight

against the domestic challenges. As Reserve Bank of India Director, Mohanty describes

in his speech that in order to fight against these challenges and increase the per capita, the

first step that needs to be taken is to increase its agricultural productivity and improve its

supply elasticity. Along with this India needs to control the inflation (Discussed later) and

improve the lower household financial saving. As Mohanty adds to this enormous

investment from government sector is needed as well.

As we proceed to look into UAE’s GDP per capita, the graph gives a clear picture of how

well established is UAE’s economic condition when compared to that of India’s. The

reason behind this is the UAE economy diversifying in sectors other than oil and

recovering faster from the global crisis in 2008-2009. Sectors like tourism and real estate

have grown tremendously in UAE

Figure 3-GDP per Capita ($)

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

INDIA

UAE

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3. Inflation (Consumer Price, %):-

In simple terms, Inflation denotes increase in price of goods and services as a result of

which, consumer’s purchasing power decreases. As a result value of currency falls down

and value of goods and services increases.

The below graph gives us a glimpse of how the economy of country got affected due to

the fluctuating inflation rates over the past ten years from 2002-2012.

While Reserve Bank of India (RBI) expected to decrease the increasing inflation by 2007,

as per the report it dint meet their expectation. RBI after experiencing a high inflation rate

in 2006, tried to bring the inflation to 5% which nearly became impossible and it hovered

around 5.9-6%. Since then the inflation rate in India saw a steep increase and efforts have

been penned down by Indian Government to keep it as low as possible. As per the

statistical report by RBI, the inflation rate reached record high of two years to 6.73%.

Due to poverty challenges and Population, India faces heavy demand of food articles

which cannot be met by constrained Supplies. Economists argue the heavy demand of

food is due to economic boom of the country and increased money supply. This is too

huge to be controlled by its stagnant agricultural productivity. As a measure to control

this alarming inflation rate, RBI took regular control over the money supplies and as well

reduces import duties on the food material. As the year progressed, the inflation in India

kept increasing till 2012 reaching around 10% increase in the price.

National Bank of Abu Dhabi (2006) estimated the inflation rate to increase by the coming

years and the graph does prove their estimation were true. The inflation rate in UAE

increased at an alarming rate due to their currency being pegged to US$ at 3.65 Dirham

to Dollar has been signed as to have a negative effect on its economy. This pegged value

causes increase in import inflation which accounts to about 40% of the inflation in UAE.

The World Bank had also in their report discussed the falling down of UAE’s economy

due to the weakening position of Dollar Value. To control the inflation rate, monetary

policy was practiced in 2009 which brought down the inflation rate to an extent.

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Figure 4-Inflation (%,Consumer Price)

4. Unemployment (% of total labour force):-

Unemployment is often considered to be the widely used indication towards a

country’s economic condition. The term unemployment is used for a person who is

proactively searching for jobs but is unable to find one. It’s simply the number of people

unemployed divided by total labour force.

During the period of recession, it is highly likely for the unemployment rate to increase.

UAE heavily rely on the expats/foreign nationals for their economic growth. In order to

achieve the heights of success in terms of economy, UAE in the mid of 1970s came out

with a plan to import foreign labours as they faced a constraint in national employment

skills (Baldwin-Edwards, 2011). As such this resulted in huge remittance outflows and

proved costly to UAE till date as unemployment within the UAE nationals kept

increasing .80% of the private sector jobs were held by Expats. As such this resulted in

poor productivity growth. As the graph shows UAE have been struggling considerably

with higher unemployment rates due to their nationals struggling for jobs and especially

after 2007 during the recession period when the rates just boomed up. This also is

reflected in GDP growth where it dips down considerably.

While India has been gradually taking measures to reduce its unemployment rate,

however post 2004 there was a bit of upset as the graph took a turn that Reserve Bank of

India(RBI) dint expect it to be. This decline in employment was due to the decline in

employment in public sector establishment thereby showing a decline in GDP growth. As

per International research Journal, the sluggish economic growth of the country failed to

absorb the increasing population and huge labour force.

0

5

10

15

20

25

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

UAE

India

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The major reason that challenged India Unemployment rate is the increasing population

and thereby increasing labour force which is further added by the education gap between

industry requirement and the curriculum.

Figure 5:- Unemployment (%)

5. Export of Goods/Services (% of GDP):-

Economist broadly agree to the fact that a countries Economic Growth is a complex

phenomenon and depends on variables such as Trade, Price Condition, Physical

Situation, Income Distribution and many more. Export led growth (ELG) is a common

concept adopted by economist and holds to be a key ingredient in determining the

economic growth of the country. Meier (1976) claimed that export acts as a key

propulsive sector thereby propelling the economy forward. Kindelberger (1962) defined

export to be a key sector; as such when export rises it provides incentive for expansion

and establishment of other peripheral activities.

Fig1 shows us that India’s GDP had a positive increase and its growth fluctuated as in

Fig2, but the positive outlook of India’s GDP can also be attributed to the gradual

increase in the export sector of the country. Post 1991 when Indian economy entered a

new era of Liberalization & gave rise to many policies that created a friendly

environment for India’s Export. The period of recession (2008) had a damping effect on

the global demand which affected the export of India and other major countries as well.

The impact of the crisis can be seen from the graph clearly post 2008 with a slight dip in

it. Among the exports, Merchandise export holds a major portion. However post 2000

with rise in Y2K; India became a major exporter of IT Skilled Professional and

establishing offshore business and this technological export became a back bone of GDP

growth of India. As of 2009 among the BRICS country, India’s export on Merchandise

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1

2

3

4

5

6

7

8

9

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

UAE

India

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declined as it faced toughed competition from Brazil, China and South Africa. As such in

order to cope up with the same, it became leading exporter of services.

UAE plays a significant role in oil trading & energy services. Being the 8 th largest nation

exporter of oil, UAE’s export has a very positive outlook. However during 2008-2009,

Oil production in UAE was affected severely by the hit of recession where oil prices

drastically declined and that was the primary reason for United Arab Emirate to get

exposed to financial crisis in 2008.

Figure 6:- Export (% of GDP)

6. Import of Goods/Services (% of GDP):-

Import of Goods/Services in lament language indicates the goods/services purchased

from abroad. A country may import materials for reasons being it might not be able to

produce, or meet the demand of the country or it might be available cheaper abroad. An

increase in import in relation to export denotes a negative balance in the trade and the

result should be vice versa to obtain a positive trade balance.

India spends huge amount of its import money on Crude Oil. Among the top import items

for India includes Oil ranking all time above followed by Gold, Silver, Electronic Goods,

Pearls. India’s top importer country stands to be China which is followed by UAE.As per

reports by India’s then Finance Minister- Chidambaram (2011), India stands to be the

biggest importer of gold and used to buy at a high rate which had a negative effect on its

economy. This also supports the dip in the GDP growth graph of India. This eventually

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20

40

60

80

100

120

140

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

UAE

India

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led the Finance Minister to pass a statement: - “I once again appeal to everyone to resist

the temptation to buy gold. This will show positive impact on every aspect of the Indian

economy."

On the other hand Import in UAE steeply kept on increasing thereby providing an alarm

sound to the UAE government. Due to UAE’s rapid economic growth, its investment

kept on increasing. As such the import of infrastructure goods showed no halt. As a side

effect the consumer spending increased thereby improving its Per Capita as seen earlier.

Interestingly UAE’s major import comes from India which is about 17% of its shipments.

Apart from that UAE imports a lot from China, Japan, US and Iran as well. The

increasing graph points out that UAE is highly import dependent country and imbalance

in Import/Export has been a problem for UAE to Support its GDP growth.

Figure 7:- Import(%)

0

20

40

60

80

100

120

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

UAE

India

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4. Future Economy

India’s Economy in future as per reports by IMF during 2013 earliest looked to be a bit

shaken. As per 2013 report, India’s Inflation rate reached double digit with its government

and corporate debt almost uncontrollable with low business and investment confidence.

However post 2014; India just flipped their economic condition with inflation brought under

control and currency rate being stabilized. With the current ongoing efforts, India is expected

to experience a boom in their agriculture sector .As such this would result into lowering of

food prices helping India to control their Inflation rate. Forbes global research paper suggests

Corporate Earning in India to improve considerably with its Rupee rate being stabilized. The

current Prime Minister Narendra Modi ,then the Chief Minister of the state Gujarat , is

expected to implant his Gujarat Policies(which improved Gujarat GDP by 3 times) in India of

improving Infrastructure, reducing regulatory business hurdles and achieving higher growth.

His Gujarat Policies improved the. As the World Bank Says, India’s economy is expected to

grow by more than 6% post 2015-2016.

On the Other hand, UAE which is an oil dependent country is expected to face some sluggish

economic outlook due to fall in Oil Price.60% of the UAE’s revenue is expected to come

from Oil and decrease in its price would be a negative effect on its economy. As per IMF

report this resulted in its economic growth to increase by 3.5% by 2015 which is 1% less than

what IMF estimated. Also to support this it has been cited by Director of Middle East

Department in IMF that the export earnings of UAE is expected to reduce by 300BN$ . This

suggest that UAE is expected to run fiscal deficit of 3.7% of its GDP until 2017.However

due to its huge foreign assets , financing the deficits should not be an issue for UAE

government in future.

5. Conclusion

From the evaluation, analysis and comparison conducted above, both economies are on a path to recovery from the 2008-09 global crises which had an unfavorable impact on both the

economies. Since UAE is an oil trading country, the drop in oil prices has lead to downfall of the UAE economy leading to unemployment, debt and investment withdrawal. However

UAE expects a more positive growth on its economy in the medium term, because of the Expo 2020 win, which should make forecasts more favorable and positive for UAE post 2016-2017. Whereas India being an agricultural country, its boom in agriculture is key

element in its economic success.

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6. Appendix

Country Indicator 2002 2003 2004 2005 2006 2007 2008 2009 2010

India GDP(Bllion$) 523.768 618.369 721.589 834.218 949.118 1,238.48 1,223.21

1,365.34

1,708.54

UAE GDP(Bllion$) 109.816 124.346 147.824 180.617 222.117 257.916 315.475

253.547 286.049

India GDPGrowth(%) 3.804 7.86 7.923 9.285 9.264 9.801 3.891 8.48 10.26

UAE GDPGrowth(%) 2.433 8.801 9.567 4.855 9.837 3.184 3.192 -5.243 1.635

India GDP/Capita(US$) 492.234 572.299 657.522 748.85 839.927 1,080.70 1,052.6

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1,158.91 1,430.

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UAE GDP/Capita(US$) 32,790.

71

35,017.

31

39,304.

51

43,988.

67

44,313.

59

41,472.29

39,074.

84

30,920.4

5

34,611.96

India Inflation(Consumer Price,%)

3.975 3.857 3.831 4.411 6.957 5.927 9.197 10.614 9.497

UAE Inflation(Consumer Price,%)

2.918 3.119 5.041 6.195 9.285 11.128 12.251 1.56 0.878

India Unemployement Rate(% of total labour force)

4.3 3.9

3.9

4.4

4.3

3.7

4.1

3.9

3.5

UAE Unemployement Rate(% of total labour force)

3.2

2.7

3.1

3.1

3.3

3.4

4

4.2

4.2

India Export of good/Services(% of GDP)

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14.7

17.6

19.3

21.1

20.4

23.6

20

22

UAE Export of good/Services(% of GDP)

49.5

55.9

63.6

67.6

68.6

72

78.9

79.7

78.8

India Import of good/Services(% of GDP)

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15.4

19.3

22

24.2

24.4

28.7

25.4

26.3

UAE Import of

good/Services(%

of GDP)

43.6

46.4

53.1

52

50.8

64.4

69.6

73.8

72.2

Country Indicator 2011 2012

India GDP(Bllion$) 1,880.1

0

1,858.7

5

UAE GDP(Bllion$) 347.454 372.314

India GDPGrowth(%) 6.638 4.736

UAE GDPGrowth(%) 4.885 4.678

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India GDP/Capita(US$) 1,552.55

1,514.63

UAE GDP/Capita(US$) 40,817.40

42,463.92

India Inflation(Consumer Price,%)

9.497 9.473

UAE Inflation(Consumer Price,%)

0.878 0.875

India Unemployement Rate(% of total labour force)

3.5 3.6

UAE Unemployement Rate(% of total labour force)

4.1 4

India Export of good/Services(% of GDP)

23.9 24

UAE Export of good/Services(% of GDP)

90.6 97.9

India Import of good/Services(% of GDP)

30.2

30.7

UAE Import of

good/Services(%

of GDP)

72.5

75.4

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7. Reference

1. Deepak Mohanty-RBI Executive Director, “Indian Economy-Progress”, Harvard Speech,

2011

2. James Gruver, Asia Confidential, India will soon outpace China

3. Jason Overdorf, CNBC, How a gold fetish is killing India’s economy , 2013

4. Narayan Chandra, Exports & Economic Growth, RBI Occasional Paper

5. Reddy, Mahboob,International research Journal of Social Science- Study on Inflation in India,

2013 (http://www.isca.in/IJSS/Archive/v2/i12/9.ISCA-IRJSS-2013-169.pdf)

6. Trading Economics, Import Data (http://www.tradingeconomics.com/united-arab-

emirates/imports)

7. UAE Government, National bureau of Statistic, Analytical Report on Economic.

8. United Nations National Accounts Main Aggregates:- Sectoral Composition

(http://unstats.un.org/unsd/snaama/selbasicFast.asp)

9. World Trade Organization:- http://stat.wto.org/CountryProfile

10. CIA Fact Book:- https://www.cia.gov/library/publications/the-world-factbook/geos/ae.html

11. IMF :- http://www.imf.org/external/index.htm

12. World Data Bank :- http://www.worldbank.org/