INDIAN ECONOMY SECTION B - GROUP 5 PGP18 087 Aishwarya Padmanab 2009 - 2012 PGP18 108 PGP18 129 PGP18 150 Jenny H Mansuria Prateek Vaid Siddharth Sriram
INDIAN ECONOMY 2009 - 2012 Contents Macroeconomic Snapshot Monetary Policy Fiscal Policy Industry Future Outlook
MACROECONOMIC SNAPSHOTIndian Economy : 2009 - 2012 Macroeconomic Snapshot Gross Domestic Production Annual Sector Growth Rate Per cent • Consistent GDP growth even in the light of 14 impending global economic slowdown. 12 10 • Economy recovered well post 2008 recession 8 to post 8% GDP growth in 2009 – 2010. 6 4 • GDP estimated to grow at 7.6 per cent in 2011-12. 2 0 Quarterly GDP Growth Rate 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Per cent 10 GDP Growth Rate Agriculture Manufacturing Services GDP 10 Source: PMEAC 8 8.6 8 8 7.6 6 6 6.8 Economy expanded at its slowest pace in more tha 4 4 two years in the July-September quarter in 2011, hurt by high local borrowing costs 2 2 and a deepening euro-zone crisis. 0 0 D 2008-2009 2009-2010 2010-2011 2011-2012 2010 3QTR 4QTR 2011 2QTR 3QTR 4QTR 2012 2QTR 3QTR 4QTR 2QTR 1QTR 1QTR GDP Growth Source: www.indiabudget.nic.in RBI mid-year credit policy review for projection
MACROECONOMIC SNAPSHOTIndian Economy : 2009 - 2012 Macroeconomic Snapshot GDP Component Share Annual Sector Growth Rate Per cent 14 • Private consumption component has decreased 12 over the years to 62% 10 • The GDP though has still remained strong due to 8 increased investments through FDI’s and FII’s. 6 4 • FDI inflow rose by 50 per cent to 2 •$ 20.76 billion during January-August 2011 0 Quarterly GDP Growth Rate 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Per cent 10 Agriculture Manufacturing Services GDP Source : IMF paper Source: PMEAC 8 6 4 2 0 D 2010 3QTR 4QTR 2011 2QTR 3QTR 4QTR 2012 2QTR 3QTR 4QTR 2QTR 1QTR 1QTR GDP Growth 3
MACROECONOMIC SNAPSHOTIndian Economy : 2009 - 2012 Macroeconomic Snapshot Private Consumption Private Consumption Per cent growth rate • Private consumption is expected to cross 10 approximately US$ 2,020 bn by 2016-17. 8 Disposable Income 6 • Disposable income is showing consistent 4 increase. 2 0 Disposable Income 20103QTR 4QTR 20112QTR 3QTR 4QTR 20122QTR 3QTR 4QTR Rs. billion 2QTR 1QTR 1QTR 80,000 70,000 Source: Central Statistical Office (CSO), Economist Intelligence Unit 60,000 50,000 40,000 30,000 20,000 10,000 - 2005-062006-07 2007-08 2008-092009-102010-11 Disposable Income Source: CSO
MACROECONOMIC SNAPSHOTIndian Economy : 2009 - 2012 Macroeconomic Snapshot Inclusive growth and large rural consumption • 69 per cent of the Indian population is rural. Companies are catering to rural demand - tapping the ―bottom of the pyramid‖ - for inclusive growth. •The rural consumer market, which grew 25 per cent in 2008, is expected to reach US$ 425 billion in 2010-11 with 720-790 million customers. This will be double the 2004-05 market size of US$ 220 billion. •Rural Indian households spent more on consumer goods like durables, beverages and services as compared to their expenses on these five years back. • The Monthly Per Capita Expenditure (MPCE) in rural India was US$ 20.69 in 2009-10, an increase of 64.6 per cent from 2004-05. •Services such as healthcare, education, entertainment, banking and finance are expected to enable growth. Source: Household consumer expenditure survey for 2009-10, released by the National Sample Survey Office (NSSO), 66th round of the National Sample Survey
MACROECONOMIC SNAPSHOTIndian Economy : 2009 - 2012 Macroeconomic Snapshot Government Expenditure Government Expenditure Per cent of GDP • While government expenditure is driving growth, it is expected to maintain its current level as a 14.0 12.0 percentage of GDP. 10.0 8.0 Government Expenditure 6.0 Rs billion 4.0 6 2.0 - 4 Government Expenditure 2 Source: CSO, Economist Intelligence Unit 0 2009 4QTR 2010 2QTR 3QTR 4QTR 2011 2QTR 2QTR2 1QTR 1QTR Source: CSO
MACROECONOMIC SNAPSHOTIndian Economy : 2009 - 2012 Macroeconomic Snapshot Inflation• Inflation rates in 2009 were initially low and 14.0 gradually increased to 14.86% in March 2010. 12.0 10.0• Increase because of recovery due to robust growth in 8.0manufacturing sector & improved investment activity. Government Expenditure 6.0 Rs billion 4.0 6 2.0• Growth in 2010 was predominantly driven by - domestic factors. 4 Government Expenditure 2 • Current Inflation rate stands at 9.73% in Source: CSO, Economist Intelligence Unit October 2011 in comparison to 9.08 % in October 2010. 0 •The main reason of the high inflation rate is the prices 2009 4QTR 2010 2QTR 3QTR 4QTR 2011 2QTR 2QTR2 1QTR 1QTR of food articles, and mainly fuel and power, becoming costlier. Source: CSO • RBI expects inflation to moderate to 7 % by March-end on the back of better farm output.
MACROECONOMIC SNAPSHOTIndian Economy : 2009 - 2012 Macroeconomic Snapshot Trade Trade Per cent growth • Both exports and imports have been registering 35.0 Export Import Trade Deficit consistent growth. 30.0 151039 25.0 • Trade deficit narrowed by a factor of 0.6% of the 20.0 108347 GDP between 2010 and 2009. 15.0 10.0 • In 2011, however increasing import costs have widened 5.0 the trade deficit. - Export Import Trade Deficit Apr - July 2011 Source: CSO, Economist Intelligence Unit Trade -42691 23.4 23.2 US$ billion 111 13.9 14.5 91 •71 India’s domestic oil production is 715,000 51 barrels per day, whereas its consumption is 2.6 31 million barrels per day. 11 2009 - 2010 2010-2011 -9 2009 4QTR •That means 2010 2QTR 3QTR 4QTR 2011 2QTR about 27.5% of the oil consumed is 2QTR2 1QTR 1QTR -9.5 -8.7 produced domestically. Exports Imports Source: CSO
MACROECONOMIC SNAPSHOTIndian Economy : 2009 - 2012 Macroeconomic Snapshot Unemployment • Unemployment in India has increased 14.0 and is expected to increase further to 30% by 2020. • The decline in job creation in agriculture is Government Expenditure one of the biggest reasons behind it. 12.0 10.0 8.0 6.0 9.4% in 2009 Rs billion 4.0 6 2.0 • Several Five year plans introduced employment - generating schemes but due to lack of proper implementation Source: Government Unemployment Survey 2009 - 201 didn’t achieved the required targets. 4 Government Expenditure • NREGA program is a Govt initiative to provide rural employment Source: CSO, Economist Intelligence Unit for 2 minimum no. of hours even during natural calamities a like drought, floods etc. 0 • Underemployment, Disguised unemployment, regional imbalances 2009 4QTR 2010 2QTR 3QTR 4QTR 2011 2QTR 2QTR2 1QTR 1QTR in the unemployment scenario in India are other important factors. Source: CSO
MONETARY POLICYIndian Economy 2009-2012 Monetary Policy •Interest rates were low in 2009 but were increased towards the end of the year by the RBI curb possible inflation due to robust growth and investment activity • In its bid to tame inflation this year, RBI has hiked key interest rates 12 times since March 2010 by 350 basis points. • CRR increased from 5% at the start of 2009 to 6% last year. Maintained at the same rate this year. • PLR rates stand at a high 18% slowing down business activity.
FISCAL POLICYIndian Economy 2009-2012 Fiscal Policy • To minimize impact of global slowdown in 2009, the Government took a conscious decision to continue with the fiscal expansionary measures in the Budget 2009-10. • Aim was to enhance public expenditure so as to boost demand and spur the process of development and economic revival. • The positive impact of these measures could be seen with Indian economy recording 7 per cent growth in real GDP in the first half of 2009-10 when most of the developed economies of the world were trying their best to stay afloat. • Government measures to counter the effects of the global meltdown on the Indian economy have resulted in shortfall in revenues and substantial increase in Government expenditures, leading to deviation from the fiscal consolidation path mandated under the FRBM Act.
FISCAL POLICYIndian Economy 2009-2012 Fiscal Policy Reducing tax revenues continue to remain increasing challenges. Gross tax to GDP ratio 2007-08: 12% 2008-09: 10.9% 2009-10: 10.3% • The fiscal expansion resulted in higher fiscal deficit of 6 per cent of GDP in 2008-09 and 6.7 per cent in 2009-10. Moreover, the revenue deficit as percentage of GDP has worsened to 4.5 per cent and 5.3 per cent in 2008-09 and RE 2009-10 respectively. Fiscal deficit could widen to 5.8 per cent in 2011-12 on account of lower tax mop-up, slippage in its PSU divestment programme, rupee devaluation and the spiralling under-recoveries of oil companies
INDUSTRYIndian Economy 2009-2012 Industry • The mining sector contracted 2.9 percent year-on-year. • Growth in manufacturing output eased sharply to 2.7 percent from 7.2 percent in the previous three months. • Overall, after a burst of economic activity in 2010, Indias industrial output grew at its slowest pace in two years in September 2011, providing further evidence of deceleration in the economy due to interest hikes by RBI and a global Slowdown.
FUTURE OUTLOOKIndian Economy 2009-2012 Future Outlook • Fall in global commodity prices largely offset by the rupee depreciation. • Inflation has proved to be stubborn and may subside only slowly in the rest of 2011-12. • Fiscal policy space may be constrained if inflation stays elevated. • Growth may moderate slowly and not fall to the levels during the post-Lehman crisis • Buoyant export growth up to August 2011 may not hold out due to sluggish growth in advanced economies and deepening of global uncertainties. • Persistent high inflation is impacting growth, investment is slowing Source: RBI Second Quarterly Review 2011 - 2012
FUTURE OUTLOOKIndian Economy 2009-2012 Future Outlook • The government is expected to maintain its focus on stimulus measures. Disinvesting stakes (up to a maximum of 49 per cent) in state-owned firms and moving forward with modest reforms in order to increase competition is likely to be continued. •The government is expected to encourage private and foreign participation in areas such as education, healthcare and infrastructure to further its aim of inclusive economic growth. • Widening trade and fiscal deficit continue to be huge challenges. Inflation is expected to be reduced by March 2012 to 7%. •However, further reforms in FDI could open up previously closed sectors, raising limits on foreign ownership in others, reducing prices and improving employment opportunities. •Rapid real GDP growth, overall liberalisation of the economy and a growing need for investment— particularly in infrastructure and industry- are expected to lead to a more investor-friendly climate. Source: RBI, CMIE, Economic Intelligence Unit