8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
1/20
UNDERSTANDING INDIAS
MACROAGGREGATES
( DEVELOPING AN INSIGHT)
Prof. Jiban K. Mukhopadhyay
(Fmr. Chief Economic Adviser Tata Group)
E-mail ID - [email protected]
Cell: +91 9821920928
Dec, 2010
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
2/20
ANALYTICAL FRAMEWORKS
Firms/ Industry Segment/ IndustryCompetitiveness
- Michael Porters Five Forces
National Economy Competitiveness Determinants of National Competitive
Advantage Porters Diamond
Global Competitiveness
- Yips Globalization Drivers /WEF/IMD
Importance of applying these frameworks inanalyzing competitiveness at various levels
(To be covered in International Business sessions)
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
3/20
Business Competitiveness Micro embedded in Macro environment
Firm
Industry - Segment
Industry
National Economy
Global Economy
JKM
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
4/20
Macro Economic Framework- India
Sectoral Composition/ Growth
- Primary
- Secondary
- Tertiary
Savings & Investment
Industrial Production Consumer & Wholesale
Price Indices
Money Supply Interest Rate
Exports & Imports BoP/ Current Account/ Forex
Exchange Rate
Govt. Finance/ Fiscal Balance
( Ref. Ch-2, 11 Plan Docu. Vol- 1)
The Economy
Industry
Firm
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
5/20
Sectoral Share of Indias GDP
( % at 1999 2000 prices)
1950 -51 2008-09
Primary 55.9 19.0
Secondary 14.9 24.0
Tertiary 29.9 57.0
Primary: Agriculture, forestry & fishing, mining & quarrying.
Secondary: Manufacturing, electricity, gas & water supply, construction.
(Sometimes Construction is accounted under Tertiary)
Tertiary: Trade, hotels, transport & communication, financing, ins., real est.
& bus. Services, community , social & personal services.
( Ministry of Statistics and Program Implementation , CSO/NAD, GOI)
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
6/20
INDIA: SECTORAL GROWTH RATE/ SHARE TO GDP
Growth Rate (%) Share in real GDP (%)
Average
2000-01 to
2008-09
2007 -08 2008-09 2004-05 2007-08 2008-09
Agricultureand Allied
Activities
2.8 4.9 1.6 20.2 17.8 17.0
Industry 6.5 7.4 2.6 19.6 19.2 18.5
Services 9.0 10.8 9.4 60.2 63.0 64.5
GDP
at Factor Cost7.2 9.0 6.7 100 100 100
(RBI - Construction included under industry)
*Services growth almost at double digit for over a decade
Contd..
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
7/20
India Taken off to flying highA low growth economy transitioning fast into a high growth economy ?
Annual Average Rate of Growth
Real GDP (%) Per Capita (%)
1860 1945 (1970 -71 prices)
- 0.5
1950 - 51 to1980 -81 (99 00 prices)
3.5 1.1
1980 81 to 90 - 91 5.5 3.1
1990 91to 00 01 5.7 3.5
1994 95 to 96 - 97 7.2 5.2
00-01 to 08 - 09 7.2 5.4
2009-10 7.2 5.42010-11 8.0 6.2
2007 2011 (t)(11th 5 yr plan)*
*Desirableforecast
9.0 + 7.3+
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
8/20
Indias Macro Aggregates
Limitations :GDP & related, Inflation, IIP etc.
- Lacks
au
then
ticity, t
imel
iness
& reliab
ility
- Progressive improvement based on recommendations of National
Statistical Commission, 2001
One of the best in developing world
No Forecasts are done CSO/ NAD
Five year plans Desirable Forecast
National Sample Survey Organization
- Useful survey data (E.g. Consumption expenditure survey)
- Annual Survey of Industry / Economic Census etc.
Ref. CSO/ NAD & NSSO, Min. of Stats & Program Implementation
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
9/20
Indias Macro Aggregates
National Income Accounts
- GDP/ GNP/ NDP/ NNPOverall/ Per Capita
At Factor Cost/ Mrkt Price
At Current/ Constant Price
- Economic activity wise: 8 Major Activates
Estimate are made by Central Statistical Organization /
National Accounting Division
- Based on UN SNA 1993
Various Estimates Importance/ Limitations
- Quarterly
- Advanced Revised
- Quick Revised
- Provisional
A clear understanding is needed contd
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
10/20
FORECASTING KEY INDICATORS Global: IMF Econ Outlook, April/ Oct of the Year/Update
- All countries, all key parameters, comparable time seriesdata, free of cost from IMF website. Recommended.
- Large numbers ofinternational organizations
India: - As above +
The Consensus Economic Forecast
- 12 key indicators, quarterly, short/ mid / long termforecast by a 12 forecasters, with policy evaluations Priced butrecommended.
Huge number of Data Bases
RBI, EAC, NCEAR, etc.
Where from to choose? How to choose? What to choose?
Quite confusing ?
Thats why a clear understanding is needed
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
11/20
IMF / WEO : Estimates / Projection (April 10)
07 08 ' 09 / E ' 10 /P 11 / P
World 5.2 3.0 - 0.6 4.6 4.3
USA 2.1 0.4 - 2.4 3.3 2.9
EU 2.8 0.6 -4.1 1.0 1.3
China 13.0 9.6 9.1 10.5 9.6
India 9.4 6.4 5.7 9.4 8.4
The numbers have been revised from projection made at one point of time toanother point of timefurther changes are expected as we go along.
Indias official expectation (%): 09-10 : 7.2 , 10-11 : 8.5
Ref- IMF Economic Outlook, April 2010(Update July-07)
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
12/20
SIGNIFICANCE OF SUSTAINABLE 9% GDP GROWTH
Sustainable / Inclusive 9% real growth Highly Desirable
As - Per capita GDP doubles in > 10 years @ 7.2%
Extremely difficult for India why ?
- Low/ oscillating growth of Agriculture
- For 9% GDP growth: Agri growth should be 4-4.5%,
difficult to achieve (Trend: >3%)
- % share of Agri in GDP: 17%, but < 50% of Indians
depend on Agri, one way or the other.
- Weak Infrastructure (e.g. Power, Roads, Ports, Edu,
Health, etc)
- Physical Infra growth should be about 2% higher than
the GDP growthContd
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
13/20
SIGNIFICANCE OF SUSTAINABLE 9% GDP
GROWTH
Inclusive Growth Desirable / Long Term Dream
- Richest 20% in India contributes 45% of Income/ Cons:
Poorest 20%: 8%...
- 42% of Indian can not spend $1.25 ppp, China 16%
Exports / FDI as % of GDP increasing: 25% / 1.4% in 08-
- 09,12% / 0.5% in 04-05 depends on global growth
prospect
Domestic Market Narrow, highly concentric, withoutdepth and width
A Sustainable 7.5% is feasible:Per Capita GNI (08):India $ 1070, China $2940
Incremental improvements happening
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
14/20
INFLATION MEASURES: USA
Headline Inflation: Total inflation in the economy,
measured by Personal Consumption Expenditure Price Index(PCI) based on Chained Dollars in USA since 2000.
Core Inflation: excludes food + energy prices (which could
be subject to sudden volatility), based on PCI & Chained
Dollars since 2000. CPI was used prior to 2000
Chained Dollars Index:
- Not fixed weight as it was in CPI
- Chaining of consumption spending so as to avoid biases.
- Second Number (of PCI) in a pair of successive years
becomes the first in the next pair.Thus, it is chain of
weights & measures.
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
15/20
INFLATION MEASURES: INDIA
WPI (1993-94 =100):
- 435 items,
- Data sourced from < 2000 companies
- Very old base, with fixed weighting diagram
(Primary: 22%, Fuel, power & lubricants: 14.2%, Mfg.
products: 63.8%).
- Serious limitations.
New WPI (2004-05) likely to be introduced from April10.
- 1224 items
- Data to be sourced from < 6000 companies
- Once introduced, will take time to get comparative /
past data.
Not a right measure of inflation.
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
16/20
CONSUMER PRICE INDEX(CPI)
Four Indices- CPI (Industrial Workers ), Base 2001 = 100
in select cities, cost of living indices
- CPI (Urban nonmanual employees),1986-87= 100
- CPI ( Agricultural Labourers),1986-87= 100- CPI ( Rural Labourers),1986-87= 100
- Very old base, consumption basket significantly
changed since 2001
- Weak data collection system State level CPI not done adequately.
-We do not have a proper measure of Inflation
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
17/20
INDIA: INDEX OF INDUSTRIAL PRODUCTION
(IIP)
Base: 1993-94 =1000
- Sectoral classification (weightage/ no. of items):
- Mining & quarrying: (104.7 / 64)
- Electricity: (101.7 / 111)
- Mfg : (793.6 / 478 )
Used Based Classification (weightage)
- Basic Goods (355.7)
- Capital Goods (92.6)
- Intermediate Goods (265.1)
- Consumer Goods (286.6)
(contd)
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
18/20
INDIA: INDEX OF INDUSTRIAL
PRODUCTION (IIP)
18 Source Agencies, Monthly data
Organized by Dept. of Industrial Policies & Promotion
(52% data) from PSU.
- Deficiencies of private sector data
State level of IIP underevolved.
-Despite limitations, IIP data are widely used
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
19/20
MACRO ECONOMIC PERSPECTIVE
FOR THE BUSINESS
Understanding Macro Aggregates are essential for
business plan
Constant monitoring is required
Analyticsneeded for perceiving the operating
environment objectively
Measuring competitive business efficiency/ productivity
8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10
20/20
REFERENCES
- IMF, World Economic Outlook Report April /
October of the year/ Occasional updates (online)
(http://www.imf.org/external/pubs/ft/weo/2010/01/index.htm)
- Crisil / CMIE (online through SPJIMR library)- Ministry of Stats & Program Implementation, GOI
(http://mospi.gov.in/mospi_press_releases.htm)
- The Economic Survey 2009-10, GOI
(http://indiabudget.nic.in/es2009-10/esmain.htm)
- The Economist, London
- The Economic Times