Indian Economy

Indian Economy

Presented by

Mallela HemchandMansoor Ahmed SiddiquiMeghana ReddyNabanisha Mahanta Naina Gupta

Consumption led rather than export led, growth with democracy, growth in services rather than manufacturing, entrepreneurial

rather than Government led

The Explosive Story of Indian Economy

Contents IntroductionHistoryFeatures SectorsPositive Aspects of Indian EconomyDevelopmental IssuesApproach to Economic DevelopmentEffect of Recession on IndiaConclusion

Introduction

GDP Growth Forex FII Flow FDI Per Capita

Inflation

1990 4.9 percent < USD 1 billion USD 1 million (1993)

USD 97 million USD 390 9 percent

2008* 8.7 percent USD 309 billion as on Mar 28, 2008

USD 16.1 billion in 2007-08

USD 12.7 billion in 2007-08 till December

USD 740 7.4 percent as on March 29, 2008

History of Independent Indian Economy

Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s.

Economy transformed from primarily agriculture, forestry, fishing, and textile manufacturing in 1947 to major heavy industry, transportation, and telecommunications industries by late 1970s

According to economic historian ‘Angus Maddison’ in his book The World Economy: A Millennial Perspective, India had the world's largest economy from the 1st century to 11th century, with a 32.9% share of world GDP in the 1st century to 28.9% in 1000 CE

The Arthasastra is one of the most important ancient texts on economics, politics and administration

India: Economic Growth from 1985 to 2005(annual growth rate, in %)

-6

-1

4

9

14

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

*

GDP Agriculture Industry Services

Features of Indian Economy• Low Per Capita Income• Low Standard of Living• High Poverty• Inequal Income Distribution• Dominance of Agriculture• Existence of Rich Resources• Inadequate Capital Formation• Unemployment and Underemployment• Technological Backwardness• Infrastructural Inadequacies• Dualistic Economy

Sectors

• Agriculture• Industries• Finance• Services• Natural Resources

Agriculture Agriculture is the mainstay of the Indian economy It is the means of livelihood of almost two thirds of the

work force in the country Agriculture accounts for approx 18% of India's GDP Largest producer in the world of milk, cashew

nuts, coconuts, tea, ginger, turmeric and black pepper World's largest cattle population Second largest producer of

wheat, rice, sugar, groundnut and inland fish Third largest producer of tobacco India accounts for 10% of the world fruit production with

first rank in the production of banana and sapota

Industrieso Industry accounts for 27.6% of the GDP and employ 17%

of the total workforceo one-third of the industrial labour force is engaged in

simple household manufacturingo India is 16th in the world in terms of nominal factory

outputo Textile manufacturing is the second largest source for

employment after agriculture and accounts for 26% of manufacturing output

o Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear

o Dharavi slum in Mumbai has gained fame for leather products

Finance Prime Minister Indira Gandhi nationalised 14 banks in

1969, followed by six others in 1980 Since then, the number of bank branches has increased

from 10,120 in 1969 to 1,15,910 in 2008 Currently, India has 88 scheduled commercial banks (SCBs)

— 28 public sector banks, 29 private banks and 31 foreign bank

They have a combined network of over 53,000 branches and 17,000 ATMs

The public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively

The BSE Sensex is generally regarded as the most popular and precise barometer of the Indian stock markets

Services India is fifteenth in services output The contribution of IT to GDP increased to 4.8 %

in 2005-06 and is projected to increase to 7% of GDP in 2008

Organized retail such supermarkets accounts for just 4% of the market as of 2008

Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals woo medical tourism.

Natural Resources India's total cultivable area is 1,269,219 km² (56.78% of

total land area), which is decreasing due to constant pressure from an ever growing population and increased urbanisation

India has a total water surface area of 314,400 km² and receives an average annual rainfall of 1,100 mm. Irrigation accounts for 92% of the water utilisation, and comprised 380 km² in 1974, and is expected to rise to 1,050 km² by 2025

In 2008, India had the world's third largest fishing industry India's oil reserves, found in Bombay High off the coast

of Maharashtra, Gujarat, Rajasthan and in eastern Assam meet 25% of the country's demand

105 105 135 145 176103 125

204 231270

561

191237

398453

0

200

400

600

800

1,000

1,200

1999-00 2002-03 2005-06 2006-07 2007-08

US

D B

illio

n

Agriculture Industry Services

Growth in sectors at Current Prices (2007-08):

Industry: 10.7%Services: 8.9%

Agriculture: 2.6%

15

BRIC Report, Goldman

Sachs

“I have never seen India so dynamic, vibrant and full of

business opportunities”.

- Dan Scheinman, Cisco System Inc. as told to

Business Week, August 2005

“We came to India for the costs, stayed for the

quality and are now investing for innovation”.

John RedwoodEconomic

Competitiveness Policy Group, UK

“India is now truly a land of opportunity”.

Jack WelchGeneral Electric

“India is a developed country

as far as intellectual capital is

concerned”.

Peter Loescher President and

Chief Executive Siemens

By 2032, India will be among the three

largest economies in the world.

Why India? – Quote Unquote

Travyn Rhall,

ACNielsen

“The Indian market has two core advantages - an

increasing presence of multinationals and an upswing

in the IT exports”.

Craig BarrettIntel

Corporation

“India has evolved into one of the world's leading technology

centers“.

Mr Paul de Voijs Managing Director

Volvo Car India

“India is a very exciting market and the luxury

car segment is growing exponentially here”.

Some Corporate Achievements in IndiaThe Tata Nano, the world’s cheapest production car

Kingfisher Airways, voted the best airline of south-east Asia

The HCL laptop, the cheapest production laptop

The Infosys IT training campus – the largest in the world

Some Encouraging Statistics..• India is the second fastest growing major economy with a 9.2% increase in GDP

per year• India is already the third largest economy in the world at PPP• India has seen a huge amount of foreign direct investment in the country,

totaling 67.72 billion dollars and is said to be one of the “preferred options” for FDI

• India’s poverty level is decreasing by 10% annually• Indian companies have gone on a buying rampage, with Tata Steel acquiring

Corus, Mittal buying Arcelor and Tata looking set to buy Jaguar and Land Rover from Ford.

• Every year India’s middle class is increased by 40,000,000 new members which shows that the wealth is truly entering society

• The Bombay Stock Exchange’s value has been consistently rising, currently worth 1.61 trillion dollars, the largest in South East Asia.

• Unemployment has dropped by 2% annually, and illiteracy and mortality rates have also been falling, indicating that India is not only growing but developing too.

Bet You Didn’t Know India is one of only three countries that makes

supercomputers (the US and Japan are the other two). India is one of six countries that launches satellites. The Bombay stock exchange lists more than 6,000

companies. Only the NYSE has more. Eight Indian companies are listed on the NYSE; three on the

NASDAQ. By volume of pills produced, the Indian pharmaceutical

industry is the world's second largest after China. India has the second largest community of software

developers, after the U.S. India has the second largest network of paved highways,

after the U.S. India is the world's largest producer of milk, and among the

top five producers of sugar, cotton, tea, coffee, spices, rubber, silk, and fish.

100 of the Fortune 500 companies have R&D facilities in India.

• Two million people of Indian origin live in the U.S.• Indian-born Americans are among the most affluent and best

educated of the recent immigrant groups in the U.S.• Thirty percent of the R&D researchers in American

pharmaceutical companies are Indian Americans.• Nearly 49% of the high-tech startups in silicon Valley and

Washington, D.C. are owned by Indians or Indian-Americans.• There are over 700 companies in Silicon Valley owned by

Indian-Americans.• India sends more students to U.S. colleges than any country in

the world. In 2004-2005, over 80,000 Indian students entered the U.S. China sent only 65,000 students during the same time.

• In a case decided by the U.S. Supreme Court, an Indian-American woman scientist, Dr. Ananda Chakrabaty, won the argument that persons may be granted patents for useful manufacture of living organisms. She defeated the U.S. Patent Office, that argued that living things may not be patented, thus establishing the legal foundation for the biotech industry, (Diamond vs. Chakrabaty, 1980). Dr. Chakrabaty invented a microbe that eats oil spills.

20

India: Pacing Ahead to Emerge as a Major Economy in the World

Projected GDP Growth Rates for Select Upcoming Economies

0

2

4

6

8

2005-10 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50

GD

P G

row

th R

ate

(%)

Brazil China India Russia

0

20

40

60

80

100

India Russia Vietnam Ukraine China Chile Latvia

GR

DI S

core

2007 Global Retail Development Index (GRDI) 2007 Global Services Location Index

3.3

2.6

3.2

2.8

2.9

3.2

1.5

1.8

1.2

1.3

2.3

2.3

1.1

1.5

1.6

2

1.4

1.4

Indonesia

Brazil

Thailand

Malaysia

China

India

Financial structure People and skill availablityBusiness environment

AT Kearney has placed India as the most preferable destination for Services sector (2007)…

Services sector attracted interest of major global players and large investments are pumped in it

India is expected to outperform its rivals in the BRIC, in terms of GDP growth rate, from 2015 onwards…

Source: AT Kearney, BRIC Report

… India is the top destination in the AT Kearney Global Retail Development Index (2007)

Is India Really Shining?

Agriculture is still the biggest employer in India, with 54% of the Population engaged in Farming.

43 % of all Indian land is used in agriculture, but it only contributes 18% of the nation’s GDP

Many farmers are subsistence farmers. According to the WHO, 61% of all farmers cultivate less than 0.4 hectares – only enough to feed their own family, with little left over to sell.

Agricultural Prices fluctuate wildly and often farmers are forced into debt, produced by extortionist interest rates which are unregulated by the government. They enter “cycles of debt” so the money they earn is never their own. Pressed by either famine and no crops, or a bumper crop and collapsing prices, farmers are often driven to suicide.

Since 1997 when the statistics were first recorded 25,000 farmers have taken their lives in India.

In the Vidarbha District of Maharashtra 1920 farmers killed themselves between January and August of 2007.

This woman is looking for her brother who left a suicide note at her house, they cannot find his body.

In one district of Maharashtra alone, a farmer kills himself every eight hours.

Healthcare: Our Fundamental Right

Our life expectancy is 68 years, making our life expectancy the 139nth out of 172 countries.

A growing threat: 5.7 million Indians have AIDS or HIV out of which 40 % are women

We only one hospital bed for every 74 patients who need one.

We have only one doctor for every 1,230 people.

Despite these statistics, the Indian Government still spends more on defence than it does on health.

Education

• Our literacy rate is 61% making us the 145th in the World, just above war-torn Sudan and just below genocidal Rwanda.

• Literacy is defined as “The ability to sign one’s name” so complete literacy is likely to be even less.

Guns are more important than books: 2.9% of GDP is spend on defence compared to 2.6% on education. Is it guns or education that will really make India shine?

Poverty and Inequality• 345 Million Indians live under the poverty line. This

means that one in three Indians live on less than twenty rupees per day.

• 7.2% of all Indians are unemployed – India comes in at 94th in terms of employment.

• Using the GINI coefficient – which is the only reliable method of calculating inequality India scores 0.368 were 0 is perfect equality and 1 is perfect inequality, putting India in the bottom 50 of all ranked nations in the world.

Other Problems Facing the Indian Economy

a) Poor Infrastructureb) Balance of Payments deteriorationc) High Levels of Debtd) Large Budget Deficite) Rigid Labour Laws

Approaches to Economic Development

The Gradual Approach – It is based on the belief that the growth of industry is going to begin by expansion of other sectors rather deliberate expansion of the Industrial Sector by the Government.

The Big Push Approach – It is based on the game ‘race’; where certain minimum Investment, Purchasing Power or Market Size (push) is necessary.

So the question still remains, is India really shining? Or is it mere propaganda?

There statistics that we’ve mentioned paint two pictures, some showing how far India has come and other’s showing how far we have to go, how do we reconcile these two Indias? Which one is the real India?

The answer probably lies in the middle, India is definitely growing, and assuming a larger role on the world stage, more people are becoming richer, the number of poor are decreasing and society as a whole is slowly improving. The fact still remains, however, that a vast proportion of the population live in the worst kind of poverty seen in the world and are denied access to basic standards of living that is theirs by right.

There is hope for the future, as India grows and develops, more and more people are able to afford a better lifestyle and more get access to essential services but in our boundless optimism for India’s future we should not forget the vast sections of society for whom the phrase “India Shining” is utterly meaningless.

Challenges for Indian Economy due to Global Recession

1) Spreading the benefits of growth more equitably.

2) Completing investment projects which are essential for long term development of economy.

3) Dealing with global financial uncertainty,which will make capital inflows and exports more difficult.