Suman Bery & Kanhaiya Singh
National Council of Applied Economic Research
India’s Recent Growth Experience
2
Outline
Comparative Indicators
Growth and Structural Change
Sources of Growth
3
Comparative Indicators
4
Ten Largest Economies
Source: World Development Indicators 2003 CD-RoM.
GDP PPP (International $ billion)2001 1980
Rank RankUnited States 1 9792 1 2957China 2 5111 9 421Japan 3 3193 2 1085India 4 2930 5 529Germany 5 2087 3 803Italy 6 1430 4 544United Kingdom 7 1420 7 498France 8 1420 6 518Brazil 9 1269 8 467Canada 11 843 11 274
5
Growth in the 1990s*
*Above $100 bn at 2001 PPP. Averages of the annual growth rates during the period.Source: World Development Indicators 2003 CD-RoM.
Growth Rate Rank by growth Ranking by Size
Country Name 1991-01 1991-95 1996-01 1991-95 1996-01 2001
Ireland 7.2 4.7 9.2 13 1 50
China 9.9 12 8.1 1 2 2
Vietnam 7.5 8.2 6.9 5 3 40
India 5.5 5.3 5.6 12 4 4
Bangladesh 4.8 4.4 5.2 17 5 32
Egypt, Arab Rep. 4.2 3.4 4.9 21 6 29
Korea, Rep. 6 7.5 4.7 7 7 14
Mexico 3.2 1.6 4.5 37 8 12
Poland 3.5 2.3 4.5 28 9 23
6
Trade Policies
0
20
40
60
80
100
120
1990
1999
1992
2000
1989
2000
1990
2000
1988
1997
1989
1999
1989
2000
1989
2000
India China Brazil Sri Lanka Malaysia S. Korea Japan USA
Perc
enta
ge
All product simple mean Standard deviationMFG simple mean Share of lines with international peak
Source: WDI200
7
India and China: Economic Openness (1970-2000)*
0
10
20
30
40
50
60
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
India China
*Export and import of goods and services as percentage of GDP.
8
External Vulnerability (2001)
Vulnerability Indicators India China Brazil Indonesia Korea Malaysia
External Debt/GNP (%) 21 15 47 97 26 54
Short-term/Total ExternalDebt (%) 3 26 13 16 32 12
Debt Service/Exports ofGoods and Services (%) 12 8 75 24 14 6
Source: Global Development Finance 2003. The World Bank.
9
Economic Structure
Source: WDI 2003 CD-RoM.
Industry share in GDP Services share in GDP
0
10
20
30
40
50
60
India China Brazil
Perc
ent
1961 or earliest 2001 or latest
0
10
20
30
40
50
60
India China Brazil
Perc
ent
1961 or earliest 2001 or latest
0
1
2
3
4
5
India China Brazil
Perc
ent
1970 2001 or latest
Total exports as percentage of world exportsExports of manufactures as percentage of total exports
0
20
40
60
80
100
India China Brazil
Perc
ent
1961 or earliest 2001 or latest
10
India:Growth and Structural Change
1951-2003
11
Growth Through Half a Century
-8
-6
-4
-2
0
2
4
6
8
10
12
1951
-52
1953
-54
1955
-56
1957
-58
1959
-60
1961
-62
1963
-64
1965
-66
1967
-68
1969
-70
1971
-72
1973
-74
1975
-76
1977
-78
1979
-80
1981
-82
1983
-84
1985
-86
1987
-88
1989
-90
1991
-92
1993
-94
1995
-96
1997
-98
1999
-00
2001
-02Q
)20
03-0
4(F)
Perc
enta
ge G
row
th
Dro ught, Nehru & Shatri died, War, High F is ca l defic it,US a id s us pended
Dro ught, Oil Cris is , Current A/C defic it
Gulf War, Oil P rices , F is ca l Defic it, Current A/C defic it
Severe Draught
Eas t As ian Cris is (97), Eco no mic Refo rms , Eco no mic Sanc tio ns (98), Kargil war, 9/11/01 a ttack & Glo ba l S lo w Do wn, Swelling Fis ca l defic it
War, Oil P rices , Dro ught, Current A/C defic it, Mo netary tightening
Capita l intens ive Firs t 5-year plan,Stringent fis ca l & F-Exchange co ntro l
Drought
1951-60 1961-70 1971-80 1981-90 1991-00 1996-0269 94 138 39 34 23
Coefficient of variation
12
Growth of Real Sectoral GDP (1993-94 prices)
-4
-2
0
2
4
6
8
10
12
14
19 51-6 0
19 6 1-70
19 71-8 0
19 81-9 0
19 9 1-0 1
19 9 1-9 2
19 9 2 -9 3
19 9 3 -9 4
19 9 4 -9 5
199 5-9 6
19 9 6-9 7
19 9 7-98
19 9 8 -9 9
19 9 9-0 0
2 00 0 -0 1
2 0 0 1-0 2
2 0 0 2 -0 3
Agriculture and Allied Industry Services
Note: Agriculture and Allied includes: Agriculture, Forestry and Fishing. Industry Includes: mining & quarrying, Manufacturing, electricity, gas & water supply and Construction. Services Include: trade, hotels & restaurant, transport, storage & comm., financing, insurance, real estate & business services and community, social & personal services.
13
Share of Major Sectors in Real GDP (FC) (1993-94 prices)
Note: Agriculture and Allied includes: Agriculture, Forestry and Fishing. Industry Includes: mining & quarrying, Manufacturing, electricity, gas & water supply and Construction. Services Include: trade, hotels & restaurant, transport, storage & comm., financing, insurance, real estate & business services and community, social & personal services.
Agricultureand Allied
Industry(includes Construction)
Services
1951 – 1960 55.9 16 28.2
1961 – 1970 47.7 21 31.3
1971 – 1980 42.8 22.8 34.4
1981 – 1990 36.4 25 38.6
1991 – 1995 30.4 26.9 42.7
1996 – 2000 26.1 27.3 46.6
2001 – 2002 23.9 26.7 49.5
2002 – 2003 22.2 27.1 50.7
14
Sectoral Share
010
20304050
607080
90100
1951-60
1961-70
1971-80
1981-90
1991-01
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
Agriculture and Allied Industry Services
Note: Agriculture and Allied includes: Agriculture, Forestry and Fishing. Industry Includes: mining & quarrying, Manufacturing, electricity, gas & water supply and Construction. Services Include: trade, hotels & restaurant, transport, storage & comm., financing, insurance, real estate & business services and community, social & personal services.
15
Growth and Inflation
0
2
4
6
8
10
12
1971-80 1981-90 1991-95 1996-01 2001-02 2002-03
GDP growth WPI inflation
16
Saving and Investment Rates (Percentage of GDP)
Institutions 1991-92 1995-96 2000-01 2001-02Domestic Saving Rates 22.03 25.15 23.37 23.95 - Public Sector 1.97 2.03 -2.28 -2.51 - Private Corporate Sector 3.11 4.93 4.09 4.01 - Household Sector 16.96 18.19 21.56 22.45Domestic InvestmentRates
22.55 26.9 23.99 23.74
- Public Sector 8.82 7.66 6.37 6.32 - Private Corporate Sector 5.66 9.58 4.93 4.84 - Household Sector 8.06 9.66 12.68 12.58Foreign Saving Rate 0.52 1.75 0.62 -0.21
17
Index of Gross Fixed Capital Formation (at 1993-94 Prices) 1993-94=100
0
50
100
150
200
250
300
Agricultureetc.
Mining &quarrying
Manufacturing Elect. Gas &w ater supply
Construction Trade, hotel &restaurants
Transportstorage and
commu.
Fin.,insurance,
real estate &businessservices
Community,social &personalservices
GFCF-Total
1993-94 1996-97 1999-00 2001-02
AG Industry Services
18
Contribution of Public Sector
26.069.029.81996-00
26.170.736.51991-95
26.071.246.51986-90
23.569.446.81981-85
13.165.81971-80
Share in real Net domestic
product at factor cost
Share in Organized Sector Employment
Share in Gross Domestic Capital
formation
19
Regional Variation in Per Capita Income (US$):1996-97
20
1-4
4-5
5-6
6-7
Annual Average Growth Rate of Real NSDP in 1990s
21
Economic Growth: Across States
Share of Sectoral GSDP during the period 1980-81 and States' growth during 1990s
0
10
20
30
40
50
60
N o t e: # are t he und ivid ed st at es
0
1
2
3
4
5
6
7
8
Agriculture Secondary 90's growth
Agriculture average = 37, Secondary average = 22, Average growth (1990s) = 5.2
22
Sectoral Growth: Agriculture
Agriculture still dependent on rain.
Growth in yields slowed from 3.2 percent in the 1980s to about 1.7 percent during the 1990s.
Shift in consumption from cereals to higher value items requires new research and innovation.
Investment levels have been falling.Government expenditure suboptimal.
23
Rainfall and Agriculture Growth
-30
-25
-20
-15
-10
-5
0
5
10
15
20
1970
-71
1972
-73
1974
-75
1976
-77
1978
-79
1980
-81
1982
-83
1984
-85
1986
-87
1988
-89
1990
-91
1992
-93
1994
-95
1996
-97
1998
-99
2000
-01
2002
-03
Per
cent
Variation of Actual Rain Fall from 50 year average (percent)Agriculture growth
24
Agriculture: Real Gross Fixed Capital Formation (Growth Rates: Percent Per Annum)
-10
-5
0
5
10
15
20
25
1971-72 to1980-81
1981-82 to1990-91
1991-92 to1995-96
1996-97 to2000-01
2000-01 2001-02
Public Private Total
25
Sectoral Growth: Industry
Capital formation in mining and electricity retarded by fiscal, policy constraints.
Capital formation in manufacturing has also slowed.
Savior: construction
26
Index of Industrial Production - Growth Rates (Percent Annual)
Key category Use based classification Consumer goodsYEAR General Manufact
uringMining Electricity Basic
GoodsCapitalGoods
Intermediate
ConsumerGoods
ConsumerDurable
ConsumerNon-
durableWt 100.00 79.36 10.47 10.17 35.57 9.26 26.51 28.66 5.36 23.3
1981-91 7.85 7.61 8.34 9.02 7.88 11.46 5.92 6.67 13.87 5.47
1991-95 6.22 6.14 4.83 7.52 7.78 0.34 7.93 6.33 9.29 5.76
1996-00 5.70 6.17 1.80 5.66 4.19 7.71 7.14 5.51 9.35 4.33
2001-02 2.62 2.85 0.43 3.10 2.42 -3.38 1.56 6.00 11.46 4.11
2002-03 5.78 6.02 5.81 3.19 4.82 10.43 3.81 7.19 -6.42 12.25
2003-04
(Apr-Aug)
5.65 6.16 4.37 2.37 4.26 7.74 3.31 8.86 4.81 10.19
27
Growth of Major Components of Services Sector (1993-94 Prices)
0
2
4
6
8
10
12
14
1981-1990 1991-1995 1996-2000 2000-01 2001-02 2002-03
Trade, Hotels and Restaurants
Transport, Storage & Communication
Financing, Insurance, Real Estate & Business Services
Community, Social & Personal Services
28
External Sector: Current Account
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
1950
s
1960
s
1970
s
1980
s
1990
s
1981
–82
1982
–83
1983
-84
1984
–85
1985
–86
1986
–87
1987
–88
1988
–89
1989
–90
1990
–91
1991
-92
1992
–93
1993
–94
1994
–95
1995
–96
1996
–97
1997
–98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
Com
posi
tion
Shar
e of
Cur
rent
Acc
ount
-4
-3
-2
-1
0
1
2
3
4
Cur
rent
Acc
ount
& In
visi
ble
(Per
cent
of G
DPM
P)
Merchandise trade balance Non-Factor Services Net Investment Income, net
Private Transfers, net Official Transfers, net Net invisibles (% of GDP)
Current Account (% of GDP)
29
Economic Growth: Export and Its Determinants
REER5 IIPG5 Merchandiseexport
1993-95 -2.8 2.3 19.7
1995-00 -0.3 3 7.3
2001-02 1.2 3.5 -1.6
2002-03 -4.6 1.1 19.2
30
External Sector: Capital Account
-40%
-20%
0%
20%
40%
60%
80%
100%
1950
s
1960
s
1970
s
1980
s
1990
s
1981
–82
1982
–83
1983
-84
1984
–85
1985
–86
1986
–87
1987
–88
1988
–89
1989
–90
1990
–91
1991
-92
1992
–93
1993
–94
1994
–95
1995
–96
1996
–97
1997
–98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
Com
posi
tion
(Sha
re)
0
1
1
2
2
3
3
4
4
Cap
ital a
ccou
nt a
s per
cent
age
of G
DPM
P
Foreign Investment External Assistance, net Commercial Borrowings, netRupee Debt Service NRI Deposits, net Other CapitalCapital Account
31
External sector: Overall balance
-3
-2
-1
0
1
2
3
4
1950
-51
1952
-53
1954
-55
1956
-57
1958
-59
1960
-61
1962
-63
1964
-65
1966
-67
1968
-69
1970
–71
1972
–73
1974
-75
1976
–77
1978
–79
1980
–81
1982
–83
1984
–85
1986
–87
1988
–89
1990
–91
1992
–93
1994
–95
1996
–97
1998
-99
2000
-01
2002
-03
Perc
enta
ge o
f GD
P
32
External Debt (as at end-March)
0
50
100
150
200
250
300
350To
tal D
ebt t
o G
DP
Shor
t ter
m D
ebt t
o To
tal D
ebt
Conc
essio
nal D
ebt t
o To
tal D
ebt
Shor
t-ter
m D
ebt (
Orig
inal
mat
urity
) To
Fore
ign
Exch
ange
Rese
rves
Deb
t Ser
vice
Rat
io
Deb
t to
Curr
ent R
ecei
pts
Liab
ility
Ser
vice
Rat
io
1991 2002 2003
33
Consolidated Deficits of Central and State Governments
FiscalDeficit
PrimaryDeficit
RevenueDeficit
Subsidyby Center
1981 to 1990 8.05 5 1.65 1.21991 to 1995 7.8 2.9 3.7 1.31996 to 2000 7.8 2.5 4.7 1.62000-01 9.4 3.7 6.5 1.12001-02 9.9 3.7 6.9 1.42002-03 (RE) 10.1 3.6 6.7 1.82003-04 (BE) 9.2 2.8 5.9
34
Consolidated Deficits of Central and State Governments
0
2
4
6
8
10
12
1981 to 1990 1991 to 1995 1996 to 2000 2000-01 2001-02 2002-03 (RE) 2003-04 (BE)
Fiscal Deficit Primary Deficit Revenue Deficit Subsidy by Center
35
Developmental and Non-developmental Expenditure of Both Centre and State Governments
As Percentage of GDP
0
5
10
15
20
25
1980
-81
1981
-82
1982
-83
1983
-84
1984
-85
1985
-86
1986
-87
1987
-88
1988
-89
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
RE
Dev-Total Non-Deve-Total
36
Components of government debt
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1980
-81
1981
-82
1982
-83
1983
-84
1984
-85
1985
-86
1986
-87
1987
-88
1988
-89
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
Dis
tribu
tion
of C
entra
lGov
tlia
bilit
ies
0
10
20
30
40
50
60
70
80
90
Tota
l Lia
bilit
ies a
s Per
cent
age
of G
DPM
P
Internal Debt (Centre) Small savings (Centre)Other account (Centre) reserve fund and Deposits (Centre)External debt Total Centre as Percentage of GDPMPTotal as Percentage of GDPMP
37
Sources of Reserve Money Growth
-100
-50
0
50
100
150
1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03
Reserve MoneyNFEA of Banking SectorNet foreign exchange assets of RBINet Domestic Assets
38
Interest Rates
Movements in deopsit and lending rates (per cent) with bank rates
-4
-2
0
2
4
6
8
10
12
14
16
18
Bank rateNominal
PLR Deposit rate Bank rateReal-WPIG
based
PLR Deposit rate Bank rateReal-WPI-
MFG based
PLR Deposit rate
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03
39
Sources of Growth
40
Aggregate Sources of Growth:Factor Decomposition
Simple Decomposition of growth in shares of fixed capital stock,labour and Solow’s Residuals
Capital stock is taken from CSO NFCS at 1993-94 prices
Total labour force from WDI CD-RoM 2003
Income share of capital assumed to be 60 percent based on historical data of factor income. No adjustment made for rent ofagriculture.
41
Aggregate Sources of Growth:TFP Growth
Most contribution comes from capital
Most variations come from variations in TFP growth (same conclusion as Guha & Bari 2003)
TFP growth for second half increased to 1.95 per cent as compared to 1.19 in first half
This explains growth despite low investment and adverse external shocks.
TFP growth Explained and simulated. Simulated TFP growth for 2003-04: 3.7 leading to 6.6 percent growth in GDP at same level of investment and employment growth as 2001-02.
42
Factor Decomposition of Growth in Real GDP
-0.10
-0.08
-0.06
-0.04
-0.02
0.00
0.02
0.04
0.06
0.08
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Net fixed capital stock
Labour force
Total factor productivity
43
Decomposition of Growth 1960-2001 (Period Averages)
Period Real GDP growth Growth due to fixed capital stock
Growth due to total labour force
Growth in total factor productivity
1961-70 3.63 2.34 0.77 0.52 1971-80 3.03 2.14 0.90 0.00 1981-90 5.47 2.51 0.74 2.21 1991-95 5.22 3.13 0.90 1.19 1996-01 5.74 2.85 0.88 1.95
44
Economic Variables Explaining TFP Growth
Deviations of Rain from Normal (NCAER Database)
WPI Inflation (Economic Survey, Base 1993-94=1)
Change in Literacy Rate (WB CD-RoM, 2003)
Terms of Trade (Economic Survey,Base 1993-94=1)
Change in Current Account Balance (RBI Statistics)
45
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