India at a glance (economy)

hasnain baber (c)04/07/2023 1

India at a Glance• A Sub-continent endowed with huge natural resources

and bio-diversity is protected by the mighty Himalayas on the north , the Arabian sea on the West, the Indian Ocean on the South and the Bay of Bengal on the East .• 7th largest country in geographical area.• 2nd largest country in population (1.2 billion).• Largest democracy in the world.• An epitome of unity in diversity- a multi-ethnic, multi-

religious, multi-cultural and multi-linguistic plural society.• 2nd fastest growing economy in the world.• Ranks 10th in GDP in nominal terms and 4rth in PPP

terms.

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INDIA BY THE NUMBERS 2012• Population: 1.22 billion• Yearly increase: 18 million• Major group: 50% - 0 – 25 years• More than 1.53 billion people by the

end of 2030.• Average life expectancy: 68.6 years• Average fertility rate: 2.7 children per

woman• Male literacy rate at 75.96% and

female at 54.28%• LR 74.04% in 2011 from 65.38% in

2001• About 72.2% of the population lives in

some 638,000 villages and the rest 27.8% in about 5,480 towns and urban agglomerations

• Homes without electricity: 25 per cent


INDIA BY THE NUMBERS 2012• In 2011, World Bank stated, 32.7% of the

below the international poverty line of US$ 1.25 per day (PPP) while 68.7% live on less than US$ 2 per day.

• Internet users: 105 million today and 150 million in Dec, 2012

• Mobile phone subscribers: 960.90 million,

• Telephone landlines: 38.76 million• GDP: 1847.98 billion US dollars in 2011• Unemployment rate: 3.8 per cent in

2010/11 fiscal year.• Inflation: 6.87 per cent in July of 2012• India has overtaken China in exports

growth rate recording an increase of 16.1% in 2011

• Officially recognized languages: 18


EU crisis: Impact on India- bad• Eliminated the benefits of

a weak rupee, which is down 20% in a year, to Indian exporters• No more Cheap money

from Europe• If it (the Eurozone

collapses) happens, the implications will be very strong on Indian Economy.“• Foreign investment is

withering badly too.


Impact of Crisis on Indian Economy - bad

• Country is feeling some pain of financial crisis• Tourism, textiles and the crucial information technology

sectors are all suffering as demand from western countries dries up.• Investment on Infrastructure is the remedy – Dr. M. Singh


Impact of Crisis on Indian Economy - Good• The country's banks seem stable

compared to their counterparts in richer countries.

• Bollywood is thriving as the stuff of dreams continues to sell even in hard times.

• That people in India love to save money

• Most Indians typically spend their entire lives saving for a house even if it takes them 20 years to do that. Seldom do they take loans [just] to finance their lifestyle.

• That domestic demand doesn't slump


Impact of Crisis on Indian Economy - Good• "“A lot of what India produces is

for domestic consumption given the large home-based market. So it kind of hedges the slow down.”- Murtaza Haider, Ryerson University

• Indians use their savings in troubled times as a kind of informal social safety net.

• It fuels consumer demand and can ease some of the worst effects of the downturn.

• Enemy is overspending. Typical Indian attitude is the scapegoat.


Impact of Crisis on Indian Economy - Ugly

• India reported a current account deficit equivalent to 21.7 Billion USD in the first quarter of 2012.

• India Current Account averaged -1.1700 Billion USD reaching an all time high of 7.3600 Billion USD in March of 2004 and a record low of -21.7000 Billion USD in March of 2012.


Indian Economy – Ugly side• Rural poverty leads horrible wave

of suicides by indebted farmers• Nos. 250,000. • Two farmers a day killing

themselves, for the past 15 years.• India lives in the modern world

with 14th-century infrastructure.• India has name-sake roads,

dungeon airports, and stinking seaports, even sanitation projects are subject to cutbacks.


Indian Polity – Ugly side• 2G - illegally undercharging

mobile telephony companies for frequency allocation licenses.• Commonwealth: large scale

misappropriation of money• Coal Mines Corruption (KN) –

Illegal allotment and Kick Backs• Adarsh – Violation of

Allotment of Flats (MH)• S-band spectrum by Antrix to

Devas – no bidding

SCAM LOSS Action

2G US$33.56 billion

Underway

CW Rs.70,000 crores

Taken

Mines Outsmarts all scams

Underway

Adarsh Value not known

Underway

S-band Rs.200000 crores

Underway


Some Findings – For your introspection

• India’s Real GDP is to register an average growth of around 9.2% during FY11-FY20, on the back of • robust private consumption demand,• increased infrastructure spending, substantial growth in investment activity and • strong growth in services sector.


India GDP to Claim over US in this Decade


Some Findings – For your introspection

• India and China have over US in terms of college graduates in science and math is overwhelming. Michael's graph estimated the trend that from 1973 to 2001 the US share was diminishing as India and China were growing rapidly.

• Not every one of those graduates according to the McKinsey Global Institute is up to par with the standards that we have in the U.S. (10% in China and 25% in India) but that is clearly changing.

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Areas of Concern

• High rate of Inflation( 10-12%)• Extreme Poverty (37% , more than 300 million below poverty level)• High Unemployment• Illiteracy and Education ( lack of quality education)• Lack of Health Care to the masses and Sanitation.• High Public Debt.• Corruption, Black money, stashing in foreign banks.• Crime and Violence in politics and society- lack of social justice.


Elements of Economic Environment

It has mainly five main components:-1. Economic Conditions2. Economic System3. Economic Policies4. International Economic Environment5. Economic Legislations


Economic Conditions• Economic Policies of a business unit are largely affected

by the economic conditions of an economy. Any improvement in the economic conditions such as standard of living, purchasing power of public, demand and supply, distribution of income etc. largely affects the size of the market.• Business cycle is another economic condition that is very

important for a business unit. Business Cycle has 5 different stages:-

(i)Prosperity, (ii)Boom, (iii)Decline, (iv)Depression,(v)Recovery.


Following are mainly included in Economic Conditions of a country:-

I. Stages of Business CycleII. National Income, Per Capita Income and Distribution of IncomeIII. Rate of Capital FormationIV. Demand and Supply TrendsV. Inflation Rate in the EconomyVI. Industrial Growth Rate, Exports Growth RateVII. Interest Rate prevailing in the EconomyVIII. Trends in Industrial SicknessIX. Efficiency of Public and Private SectorsX. Growth of Primary and Secondary Capital MarketsXI. Size of Market


MEASURING PRODUCTIVITY• Gross National Income (GNI):

The market value of final goods and services newly produced by domestic factors of production at home or abroad.e.g.: Ford U.S. $ + Ford Mex with U.S. $ = U.S. GNI

• Gross Domestic Product (GDP):Measures the value of production that occurs within a country’s borders without regard to whether the production is done by domestic or foreign factors of production.


KEY ECONOMIC INDICATORS

• Per Capita Income: Income level per person.

• Per Capita GNI: Used by the world bank for lending policies

• Quality of Life: Life expectancy, educational standards (Literacy), etc.

• Purchasing Power: What a sum of money actually can buy.

• Percentage of GDP Generated from Agriculture: Higher in developing countries.


WORLD BANK CLASSIFICATION• First World:

High income industrial countries.• Second World:

Countries that formerly had centrally planned economies. These countries are undergoing rapid change and are found in both the upper-middle and the lower-middle income categories.• Third World:

Also known as Developing Countries or LDC’s are the lower-middle and low income economies.


• Economic Growth.• Privatization.• Inflation: Affects interest rates, the cost of living, &

consumer & investor confidence.• Hyperinflation: Is a rate of inflation that is extremely

high for a sustained period of time.• Balance of payments: Summarizes all international

transactions between domestic residents & foreign residents.• External Debt.

KEY ECONOMIC FACTORS


Economic Systems

An Economic System of a nation or a country may be defined as a framework of rules, goals and incentives that controls economic relations among people in a society. It also helps in providing framework for answering the basic economic questions. Different countries of a world have different economic systems and the prevailing economic system in a country affect the business units to a large extent.


Economic conditions of a nation can be of any one of the following type:-

1. Capitalism:- The economic system in which business units or factors of production are privately owned and governed is called Capitalism. The profit earning is the sole aim of the business units. Government of that country does not interfere in the economic activities of the country. It is also known as free market economy. All the decisions relating to the economic activities are privately taken. Examples of Capitalistic Economy:- England, Japan, America etc.


2. Socialism:- Under socialism economic system, all the economic activities of the country are controlled and regulated by the Government in the interest of the public. The first country to adopt this concept was Soviet Russia. The two main forms of Socialism are: -(a) Democratic Socialism:- All the economic activities are controlled and regulated by the government but the people have the freedom of choice of occupation and consumption.(b) Totalitarian Socialism:- This form is also known as Communism. Under this, people are obliged to work under the directions of Government.

3. Mixed Economy:- The economic system in which both public and private sectors co-exist is known as Mixed Economy. Some factors of production are privately owned and some are owned by Government. There exists freedom of choice of occupation and consumption. Both private and public sectors play key roles in the development of the country.


Economic Policies• Government frames economic policies. Economic Policies affects the

different business units in different ways. It may or may not have favorable effect on a business unit. The Government may grant subsidies to one business or decrease the rates of excise or custom duty or the government may increase the rates of custom duty and excise duty, tax rates for another business. All the business enterprises frame their policies keeping in view the prevailing economic policies. Important economic policies of a country are as follows:-

1. Monetary Policy:- The policy formulated by the central bank of a country to control the supply and the cost of money (rate of interest), in order to attain some specified objectives is known as Monetary Policy.

2. Fiscal Policy:- It may be termed as budgetary policy. It is related with the income and expenditure of a country. Fiscal Policy works as an instrument in economic and social growth of a country. It is framed by the government of a country and it deals with taxation, government expenditure, borrowings, deficit financing and management of public debts in an economy.


3. Foreign Trade Policy:- It also affects the different business units differently. E.g. if restrictive import policy has been adopted by the government then it will prevent the domestic business units from foreign competition and if the liberal import policy has been adopted by the government then it will affect the domestic products in other way.

4. Foreign Investment Policy:- The policy related to the investment by the foreigners in a country is known as Foreign Investment Policy. If the government has adopted liberal investment policy then it will lead to more inflow of foreign capital in the country which ultimately results in more industrialization and growth in the country.

5. Industrial Policy:- Industrial policy of a country promotes and regulates the industrialization in the country. It is framed by government. The government from time to time issues principals and guidelines under the industrial policy of the country.


Global/International Economic Environment

The role of international economic environment is increasing day by day. If any business enterprise is involved in foreign trade, then it is influenced by not only its own country economic environment but also the economic environment of the country from/to which it is importing or exporting goods. There are various rules and guidelines for these trades which are issued by many organizations like World Bank, WTO, United Nations etc.


Economic Legislations

Besides the above policies, Governments of different countries frame various legislations whichregulates and control the business.


Objectives of Economic Environment

Proper Functioning of an Economy

Knowledge of New Opportunities & Resources

Study of Environmental Factors

Removal of Obstacles & Challenges

Changeable Use of Environment

Optimum Use of Environment Minimizing ill effects


Classifications of the Economic Environment• Microeconomic environment: It includes the economic environment

of a particular industry, firm or household and is primarily concerned with price determination of individual factors. The main consideration from a microeconomic perspective is the efficient allocation of resources. This is necessary to maximize total output.


• Macroeconomic environment: It includes all the economic factors in totality. The main consideration here is the determination of the levels of income and employment in the economy.

Over the course of the twentieth century, the focus has shifted from cities and countries to the global economy being the chief economic unit.


Factors Affecting the Economic Environment

The economic environment of a nation as well as the world is impacted by:

• Inflation and deflation: Inflationary and deflationary pressures alter the purchasing power of money. This has a direct impact on consumer spending, business investment, employment rates, government programs and tax policies.


• Interest rates: Interest rates determine the cost of borrowing and the flow of money towards businesses.

• Exchange rates: This impacts the price of imports, the

profits made by exporters and investors and employment levels (also through the impact on the tourism industry).

• Monetary and fiscal policy: This helps in attaining full employment, price stability and economic growth.


The economic environment is also influenced by various political, social and technological factors. These include a change in government and the development of new technology and business tools.


Economic Systems: MARKET ECONOMY.

• The market mechanism involves interaction of price, quantity, supply and demand for resources and products.

• Factors that make market economy work:• Consumer sovereignty The right of the consumer to decide

what to buy.• Freedom of the enterprise to operate in the market.

• The interplay of supply and demand should ensure proper allocation of resources.

• A perfect market economy doesn’t exist.


Characteristics of Market Economies:

• More means of production are privately owned.• Markets are very competitive.• Strong currencies.• Institutional support.• Well-functioning infrastructure.• Investment opportunities for individuals.



Models of Market Economies:

1. Social Welfare: Heavy government spending and high taxation to pay for social services.

2. Consumer-directed: Minimal governmental participation and promotion of growth through mobility of production factors.

3. Administratively Guided: Cooperation among government, management and workers to achieve growth and full employment.



• The government coordinates the activities of the economic sectors.

• Goals are set for every enterprise in the country.

• The government is assumed to be a better judge of how resources are allocated.

• Few countries use strict central planning today.

Economic Systems: COMMAND ECONOMY


• Higher degree of government intervention regarded in two ways:

• Government ownership of the means of production.• Government influence in economic decision making.

• Greater degree of reliance on market forces.

Economic Systems: MIXED ECONOMY.


INFLATION

• Condition in which prices are going up.• Consumer Price Index (CPI) measures a fixed basket of goods and

compares their prices over time.• High Inflation High Interest Rates• Banks need to attract money.• Governments have to slow down economic growth.


BALANCE OF PAYMENTS

• Is a summary statement of all transactions that take place between a country and the rest of the world during a given period of time (usually a year).• Transactions are recorded as debits and credits.


DEBIT TRANSACTIONS

• A debit transaction is a flow for which the home country must pay and requires the supply of the home currency.• Imports of goods and services• Transfers to foreign residents (remittances)• Acquisition of long-term assets or reduction of a long-term liability (i.e.,

stocks, bonds, real capital)• Acquisition of a short-term asset or reduction of a short-term liability (i.e.,

bank deposits, cash or short-term bonds such as treasury bills).


CREDIT TRANSACTIONS

• A credit transaction is a flow for which the home country is paid and increases the demand for the home currency by foreign residents.• Exports of goods and services• Transfers from foreign residents• Sale of a long-term asset or increase of a long-term liability.• Sale of a short-term asset or increase of a short-term liability.



ACCOUNTS IN THE BALANCE OF PAYMENTS• Current account: trade in good and services and income from assets

abroad.• Merchandise trade balance: the net balance of exports minus imports of

merchandise.• Services: travel, passenger fares, royalties and fees.• Income receipts: payments on assets.


ACCOUNTS IN THE BALANCE OF PAYMENTS• Capital account: transactions in real or financial assets between

countries, such as the sale of real state to a foreign investor.

• Deficit: imports exceed exports.• Surplus: exports exceed imports.


THE FOREIGN EXCHANGE MARKET• Exchange rate: relative price, that can be expressed in either

direction.• If the euro rises against the US dollar, the US dollar falls against the euro.

• Indirect Quotation: How much foreign currency exchanges for one unit of the domestic currency.• 1 home currency unit = x foreign currency units.

• Direct Quotation: A country's home currency as the price currency.• 1 foreign currency unit = x home currency units.


02/09/2011

• Direct Quotation• 1 USD to COP = 1 779

• Indirect Quotation• 1 COP to USD = 0.000562

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