Indian Economy
Deepti Ramanujam
Sept - 2007 Mohit Agarwal
Navneet Dubey
Rahul Ghelli
Rajesh Joshi
Sagar Mewada
Tejas Deshmukh
Compiled by students of SP Jain – Singapore / Dubai for Educational Purpose

Agenda
• Introduction
• Growth Indicators
• Significant Industries
• Monetary Policy & Fiscal Policy
• Foreign Exchange Policy & BoP
• India v/s China
• Future projections

Introduction
• 2nd fastest growing major economy
• Diverse economy – agriculture, handicrafts,
textile, manufacturing, and a multitude of
services
• Population-1.17bn & Labor Force-509.3 mn
• Exports ~ $125 bn
• Imports ~ $188 bn
• M&A

Key Economic Indicators
2001 2002 2003 2004 2005 2006
Total
population
(millions) 1038 1051 1068 1085 1101 1118
GDP 5.8 3.8 8.5 7.5 8.4 9.4
Per capita
GDP 21976 23299 25773 28684 32224 36771
Unemployme
nt rate ... ... ... ... 3.1 ...
Interest
rates (12
months) 7.10 5.75 5.00 5.50 6.00 8.25

Composition of GDP
40.0
35.0
30.0
25.0 Services
20.0
Industry
15.0
Agriculture
10.0
GDP
5.0
0.0
-5.0 2001 2002 2003 2004 2005 2006
-10.0
2001 2002 2003 2004 2005 2006
GDP 5.8 3.8 8.5 7.5 8.4 9.4
Agri.
6.3 -7.2 10.0 0.0 6.0 2.7
Industry 2.7 7.1 7.4 9.8 9.6 10.9
Services 7.2 7.4 8.5 9.6 9.8 11.0

Price Indices
14.0
12.0
10.0
8.0 GDP DEFLATOR
FPI
6.0
CPI
4.0
2.0
0.0
2001 2002 2003 2004 2005
2001 2002 2003 2004 2005
CPI 3.8 4.3 3.8 3.8 4.2
FPI 2.2 2.5 3.5 2.8 3.3
GDP Deflator 3.1 3.9 3.8 4.4 4.4

Monetary & Fiscal Policy
Overview of the Monetary & Fiscal Policy
(2002-07)
• Maintaining Price stability and ensuring
adequate flow of credit to the economy
• Inflation around 4.4 - 6.0%
• M3 at about 21.3% when projected was
17.3%
• Consistent objectives of price & financial
stability

Policies (contd…)
• Liquidity through LAF & MSS
• Cash reserve Ratio – 6.5% TO 7.0%
• Flexible reverse Repo Rate
• Lifted a cap of Rs. 30bn on daily Repo
transactions
• Rupee has risen considerable to 10%
against dollar

Policies (contd…)
• Huge government deficits : 8-9% of GDP
(central & state fiscal deficits)
• After 1991- economic policy shifted towards
long-term domestic debt
• Constrained public infrastructure crowded out
private sector
• Undermines reforms- concerns on funding
debt
• Tax Revenue to GDP ratio – 10% GDP

Foreign Exchange Policy
• Prevention of destabilization speculation
• The foreign reserves have risen from $ 5 Bn
in 1991 to around $ 200 Bn in 2007
• The increase in foreign reserves is due to
FDI, Net FII investments and NRI deposits.
• FX reserves protects the market against
exchange rate volatility.
• Increase in FX reserves can cause
inflationary pressures.

Balance of Payments
• Fiscal 2004-05 marked a turn around
• Appreciating rupee, imports rising and
exports slowing
• Widening CAD due to trade deficit
• Increase in FDI/FII liabilities

Items 2004-05 2003-04 2002-03 2001-02 2000-01
Trade Balance -38,130 -15,454 -10,690 -11574 -12460
Invisibles
31,699 26,015 17,035 17,035 9,794
Net
Current Account
-6,431 10,561 6,345 6,345 2,666
Balance
Capital Account 32,175 20,542 10,840 10,840 8,840
Overall Balance 26159 31,421 16,985 16,985 5,868
Foreign Exchange
Reserve -26,159 -31,421 -16,985 -16,985 -5,842
Increase (+)
/Decrease (-)

G-Effect
• Present day world
• Appraisal of public policies
• Financial Integration

S# India China
1 Trade amounts to 31% of GDP Trade amounts to 52% of GDP
2 Takes about 88 days to start Less by around 50%
business and 176 to close
3 Proportion of population over 18%
the age 15 with no schooling
was 44% in 2001
4 Cargo transit times to US is 8-12 Cargo transit times to US is 2-3
weeks weeks
5 Contribution to world growth – Contribution to world growth –
0.4% 1.2%
6 Proportion of population in the 66%
productive cohort is 60%
7 Overseas Indians account for Above 50%
only 9% of country’s FDI
8 6 times of India
9 Average investment rate 22% 36%

Striking future projections
What Goldman Sachs says -
 India likely to show the fastest growth
over the next 30 to 50 years
 Growth could be higher than 5% over
the next 30 years and close to 5% as
late as 2050
 India’s GDP will exceed Italy’s in 2016,
France’s in 2019, Germany’s in 2023
and Japan’s in 2032
 India to become the world’s 3rd largest
economy by 2032

References
• BRIC Report
• CRISIL report
• www.rbi.org.in
• www.forbes.com
• www.frsb.org

Thank You
Compiled by students of SP Jain – Singapore / Dubai for Educational Purpose