MODULE 5: INDIAN ECONOMY <ul><ul><li>5.1  MAIN FEATURES OF INDIAN ECONOMY AND MAJOR ISSUES OF DEVELOPMENT </li></ul></ul><...
5.2  CHANGING SCENARIO OF INDIAN ECONOMY <ul><ul><li>Growth of National Income. </li></ul></ul><ul><ul><li>Rise in per Cap...
5.3 INDIAN ECONOMY IN THE GLOBAL PERSPECTIVE   <ul><ul><li>G D P Growth Rate: % per annum </li></ul></ul><ul><li>Per Capit...
<ul><li>Origin of G D P: % Share – 2002  </li></ul><ul><li>% Share in Employment: </li></ul><ul><li>H D I (2003): </li></u...
<ul><ul><li>5.4  Economic Reforms and Structural  </li></ul></ul><ul><ul><li>Adjustments in India since 1991. </li></ul></...
<ul><ul><ul><li>5.4.2  Four Decades of Economic Policy Regime In India: 1950 – 1990: </li></ul></ul></ul><ul><ul><li>Plann...
<ul><ul><ul><li>5.4.3  Economic Reforms During 1980’s:  </li></ul></ul></ul><ul><ul><ul><li>The First Wave: </li></ul></ul...
<ul><ul><ul><li>5.4.4.  Economic Reforms Since 1991: The Second Wave: </li></ul></ul></ul><ul><li>U – turn   from planning...
<ul><ul><ul><li>5.4.5.  Contours of New Economic Policy Since July, 1991: </li></ul></ul></ul><ul><ul><ul><ul><li>Stabiliz...
<ul><ul><ul><li>5.4.6.  Performance of Indian Economy Since 1991: </li></ul></ul></ul><ul><ul><li>Major Performance Variab...
<ul><ul><li>GDP Growth Rate: </li></ul></ul>Average Annual Growth Rate (%) <ul><li>Employment Growth </li></ul><ul><ul><li...
<ul><li>Economic Reforms and Reduction of Poverty: Slowing Down </li></ul><ul><ul><li>Poverty reduction over 1983 to 1990/...
<ul><li>Neglect of Agriculture Sector </li></ul>The emphasis of reform process, more on service and manufacturing sectors ...
<ul><ul><li>Growth of Exports and Imports: % per annum </li></ul></ul><ul><ul><li>Exports and Imports as % of GDP </li></u...
<ul><ul><li>Foreign Investment Flows: </li></ul></ul>F D I: To increase productive capacity of the economy. Foreign Portfo...
<ul><ul><li>   The impact of favourable and unfavourable Investment climate </li></ul></ul><ul><li>   Better off states ...
<ul><ul><ul><li>5.4.7.  Impact of Globalization on Indian Economy. </li></ul></ul></ul><ul><li>Meaning of Globalization: <...
<ul><li>Impact of Globalization – Economic reforms on Indian Economy : </li></ul><ul><li>Recall: The Impact on  </li></ul>...
<ul><ul><li>Economic Reforms: Mixed Results. </li></ul></ul><ul><li>LPG regime: Profit motive dominant, equity goal less e...
<ul><li>Agenda for Fair and Inclusive Growth: </li></ul><ul><ul><ul><li>A higher rate of growth </li></ul></ul></ul><ul><u...
<ul><li>Approach in Eleventh plan: </li></ul><ul><ul><ul><li>Towards faster and more inclusive  growth </li></ul></ul></ul...
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I N D I A N E C O N O M Y

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I N D I A N E C O N O M Y

  1. 1. MODULE 5: INDIAN ECONOMY <ul><ul><li>5.1 MAIN FEATURES OF INDIAN ECONOMY AND MAJOR ISSUES OF DEVELOPMENT </li></ul></ul><ul><ul><li>Low per Capita Income </li></ul></ul><ul><ul><li>Income inequalities. </li></ul></ul><ul><ul><li>High incidence of poverty. </li></ul></ul><ul><ul><li>Predominance of agriculture and instability of output. </li></ul></ul><ul><ul><li>Rapid population growth. </li></ul></ul><ul><ul><li>High dependency Ratio. </li></ul></ul><ul><ul><li>Low level of human development. </li></ul></ul><ul><ul><li>Unemployment. </li></ul></ul><ul><ul><li>Imbalance between population size, resources and capital. </li></ul></ul><ul><ul><li>Inadequacy of entrepreneurs. </li></ul></ul><ul><ul><li>Low level of productive efficiency. </li></ul></ul>
  2. 2. 5.2 CHANGING SCENARIO OF INDIAN ECONOMY <ul><ul><li>Growth of National Income. </li></ul></ul><ul><ul><li>Rise in per Capita income. </li></ul></ul><ul><ul><li>Structural transformation. </li></ul></ul><ul><ul><li>Slowly changing occupational distribution of population. </li></ul></ul><ul><ul><li>Growth of basic capital goods industries. </li></ul></ul><ul><ul><li>Expansion of social capital. </li></ul></ul>
  3. 3. 5.3 INDIAN ECONOMY IN THE GLOBAL PERSPECTIVE <ul><ul><li>G D P Growth Rate: % per annum </li></ul></ul><ul><li>Per Capita G N I: 2004 </li></ul>5.9 5.7 India 9.6 10.3 China 2.6 3.4 High Income 4.7 4.4 Low Income 1990 – 2003 1980 - 1990 Country 620 India 1,290 China 510 Low Income 32,040 High Income Income in $ Country
  4. 4. <ul><li>Origin of G D P: % Share – 2002 </li></ul><ul><li>% Share in Employment: </li></ul><ul><li>H D I (2003): </li></ul>42 48 10 Malaysia 53 24 23 Pakistan 51 27 22 India 41 46 13 China 74 24 2 U.S.A 73 26 1 U.K Services Ind. Ag. Sector Country 22 17 61 India 31 22 47 China 34 18 48 Pakistan 50 32 18 Malaysia Services Ind. Ag. Sector Country 127 India 80 China 11 Japan 10 U.S.A H D I RANK Country
  5. 5. <ul><ul><li>5.4 Economic Reforms and Structural </li></ul></ul><ul><ul><li>Adjustments in India since 1991. </li></ul></ul><ul><ul><ul><li>5.4.1 Paradigm Shifts In Macroeconomic Policy: </li></ul></ul></ul><ul><li>Adam Smith: Laissez faire -> Market Economy </li></ul><ul><li>Alfred Marshall: Glorification of capitalism and market economy </li></ul><ul><li>Karl Marx: Destruction of capitalistic system and market economy </li></ul><ul><li>J. M. Keynes: Market economy with government interference </li></ul><ul><li>1950’s and 1960’s: Planning and public sector fundamentalism </li></ul><ul><li>1970’s: Decade of the development of the poor </li></ul><ul><li>1980’s onwards: Revival of market economy paradigm  Back to Adam Smith? </li></ul>
  6. 6. <ul><ul><ul><li>5.4.2 Four Decades of Economic Policy Regime In India: 1950 – 1990: </li></ul></ul></ul><ul><ul><li>Planning – Public Sector – Regulation Fundamentalism </li></ul></ul><ul><ul><li>Planning: A panacea </li></ul></ul><ul><ul><li>Public sector dominance </li></ul></ul><ul><ul><li>Protection of agriculture, industry and trade </li></ul></ul><ul><ul><li>Self – reliance and import substitution </li></ul></ul><ul><ul><li>Inward looking development strategy. </li></ul></ul><ul><li>Performance Record During Old Policy Regime: </li></ul><ul><ul><li>Respectable GDP growth </li></ul></ul><ul><ul><li>Good performance in agriculture: Green Revolution </li></ul></ul><ul><ul><li>India: On the industrial map of the world </li></ul></ul><ul><ul><li>Development of science and technology and a large pool of scientific </li></ul></ul><ul><ul><li>and technological manpower </li></ul></ul><ul><ul><li>But three dark spots of development. </li></ul></ul>
  7. 7. <ul><ul><ul><li>5.4.3 Economic Reforms During 1980’s: </li></ul></ul></ul><ul><ul><ul><li>The First Wave: </li></ul></ul></ul><ul><li>Improvement in productivity </li></ul><ul><ul><li>Absorption of modern technology </li></ul></ul><ul><ul><li>Fuller utilization of production capacity </li></ul></ul><ul><ul><li>Larger scope to private sector </li></ul></ul><ul><ul><li>Foreign equity capital </li></ul></ul><ul><li>Remove controls and restrictions gradually. </li></ul>
  8. 8. <ul><ul><ul><li>5.4.4. Economic Reforms Since 1991: The Second Wave: </li></ul></ul></ul><ul><li>U – turn from planning – Public Sector Fundamentalism to Market-Private </li></ul><ul><li>Sector Fundamentalism. </li></ul><ul><li>Huge budget deficit </li></ul><ul><li>Balance of payments crisis: Foreign exchange reserves (About $15 billion) </li></ul><ul><li>to meet two weeks imports </li></ul><ul><li>Low global credit rating </li></ul><ul><li>Over 13 ½ rate of inflation </li></ul><ul><li>Western ideologies and propaganda </li></ul><ul><li>Collapse of planned economies in the Soviet Block </li></ul><ul><li>Problem of demand management in developed economies </li></ul><ul><li>Prescriptions of IMF & World Bank </li></ul><ul><li>Ideology of Indian elite </li></ul><ul><li>Disenchantment with 40 years of inward looking development strategies </li></ul><ul><li>Hence change of track in July, 1991. </li></ul>
  9. 9. <ul><ul><ul><li>5.4.5. Contours of New Economic Policy Since July, 1991: </li></ul></ul></ul><ul><ul><ul><ul><li>Stabilization and Demand Management: </li></ul></ul></ul></ul><ul><li>Reduce budget deficit </li></ul><ul><li>Control inflation </li></ul><ul><li>Reduce deficit in balance of payments. </li></ul><ul><ul><ul><ul><li>Structural Adjustment Programme (SAP) and Supply Management: </li></ul></ul></ul></ul><ul><li>Liberate economic agents </li></ul><ul><li>Delicense, dereserve and de-protect industry, agriculture and trade </li></ul><ul><li>Dismantle import license </li></ul><ul><li>Reduce tariff rates and remove quantitative restructions </li></ul><ul><li>Privatize and allow FDI </li></ul><ul><li>Disinvest in public sector industries </li></ul><ul><li>Reduce taxes </li></ul><ul><li>Allow market forces to govern Exchange Rates. </li></ul>
  10. 10. <ul><ul><ul><li>5.4.6. Performance of Indian Economy Since 1991: </li></ul></ul></ul><ul><ul><li>Major Performance Variables: </li></ul></ul><ul><li>GDP growth rate: Sectoral Growth Performance </li></ul><ul><li>Employment generation </li></ul><ul><li>Reduction of population living below poverty line </li></ul><ul><li>Promotion of equity leading to a better deal for the poor and less well-off </li></ul><ul><li>sections of our society </li></ul><ul><li>Reduction in regional disparities between the rich and the poor </li></ul><ul><li>states of India. </li></ul><ul><li>Control of inflation </li></ul><ul><li>Foreign trade </li></ul><ul><li>Control of Budget Deficit </li></ul>
  11. 11. <ul><ul><li>GDP Growth Rate: </li></ul></ul>Average Annual Growth Rate (%) <ul><li>Employment Growth </li></ul><ul><ul><li>Recall Employment growth more in service sector: </li></ul></ul><ul><ul><li> Employment Elasticity of Output: </li></ul></ul><ul><li>1980’s and early 1990’s: 0.52% </li></ul><ul><li>Late 1990’s: 0.16 </li></ul><ul><li>Job – creation per unit of output has decreased </li></ul><ul><ul><li>Downsizing of public sector </li></ul></ul><ul><ul><li>Increased capital intensity per unit of output </li></ul></ul><ul><ul><li>Growth pattern moving in favour of capital intensive sectors. </li></ul></ul><ul><ul><li> “ No point in reducing the price of child’s shoes, but costs the father his job” </li></ul></ul>1980 /81 – 1990 / 91: 5.6% 1990 / 91 – 2000 / 01: 5.6 % 2000 / 2001 – 2004 / 2005: 6.3 1.0 1.1 0.6 1990 / 91 / 1997 – 98 2.39 2.4 1.3 1983 / 1990 / 91 Total OS UOS % Per Annum
  12. 12. <ul><li>Economic Reforms and Reduction of Poverty: Slowing Down </li></ul><ul><ul><li>Poverty reduction over 1983 to 1990/91: 3.1% per annum </li></ul></ul><ul><ul><li>Poverty reduction in 1990’s: 1% per annum </li></ul></ul><ul><ul><li>In rural sector the rate of reduction in poverty: Almost </li></ul></ul><ul><ul><li>zero and in urban sector higher rate of reduction in poverty </li></ul></ul><ul><ul><li> Rural–Urban divide. </li></ul></ul><ul><ul><li>Paradox of higher GDP growth rate and lower rate of </li></ul></ul><ul><ul><li>poverty reduction due to unequal income distribution </li></ul></ul><ul><ul><li>accelerated during LPG regime. </li></ul></ul>
  13. 13. <ul><li>Neglect of Agriculture Sector </li></ul>The emphasis of reform process, more on service and manufacturing sectors and lesson agricultural sector. <ul><ul><li>Average Annual Growth rate of industrial production </li></ul></ul>1990 – 91 over / 1980 – 81: 3.8 % 2003 – 04 over / 1990 – 91: 1.54 % 6.6 % 1993 – 93 / 2003 - 04 7.8 % 1981 / 82 / 1990 – 91 Index of growth
  14. 14. <ul><ul><li>Growth of Exports and Imports: % per annum </li></ul></ul><ul><ul><li>Exports and Imports as % of GDP </li></ul></ul><ul><ul><li>Exports: % of World Exports </li></ul></ul>28.3 22.5 2001 / 02 – 2004 / 05 6.3 6.8 1996 / 97 – 2000 / 01 9.3 11.8 1991 / 92 – 1995 / 96 10 14.3 1986 / 87 – 1990 / 91 1.00 2.3 1981 / 82 – 1985 / 86 Imports Exports Period 17.1 11.8 2004 – 05 12.6 9.9 2000 – 01 8.8 5.8 1990 Imports (%) Exports (% ) Period 11.6 1.01 0.53 Merchandise and Service Exports 17.5 2.18 0.61 Export of Services 9.1 0.73 0.51 Merchandise Annual Growth Rate (%) 2003 1990 Exports
  15. 15. <ul><ul><li>Foreign Investment Flows: </li></ul></ul>F D I: To increase productive capacity of the economy. Foreign Portfolio Investment (F P I): More of speculative nature . ($ in billions) <ul><ul><li>FDI to which sector: Major ones:- Electrical equipment, </li></ul></ul><ul><ul><li>transportation, telecommunication, energy and service sector. </li></ul></ul><ul><ul><li>Gap between approval and inflow: 26.8 % of approval to 10 </li></ul></ul><ul><ul><li>major sectors 1991 – 2004. </li></ul></ul>51, 619 (100 %) 26, 450 (51.2 %) 25, 169 (48.8 %) 2001 – 01 to 2004 - 05 10, 086 (100 %) 7, 645 (75.8 %) 2, 441 (24.2 %) 1990 – 91 to 1994 - 95 Total FPI FDI Period
  16. 16. <ul><ul><li> The impact of favourable and unfavourable Investment climate </li></ul></ul><ul><li> Better off states attract more domestic and foreign investment </li></ul><ul><ul><ul><li>HDI (2003): Recall </li></ul></ul></ul><ul><ul><ul><li>Foreign Exchange resources: </li></ul></ul></ul><ul><li>$ 5.83 billion in 1990 – 91 </li></ul><ul><li>About 200 billion now </li></ul><ul><li>Rate of Inflation: </li></ul><ul><li>About 13 % in 1990 – 91 </li></ul><ul><li>Over 5 % now </li></ul><ul><li>Economic Reforms and Increased Development I erased disparities : </li></ul>- 0.9 - 0.7 Bihar 0.8 0.3 M.P 2.6 4.1 Orissa 4.9 6.6 Karnataka 5.1 6.8 West Bengal 4.3 6.3 Gujarat Growth of Per Capita NSDP (%) NSDP Growth (%) State
  17. 17. <ul><ul><ul><li>5.4.7. Impact of Globalization on Indian Economy. </li></ul></ul></ul><ul><li>Meaning of Globalization: </li></ul><ul><li>Reduce trade barriers </li></ul><ul><li>Free flow of Capital </li></ul><ul><li>Free flow of technology </li></ul><ul><li>Free movement of Labour </li></ul><ul><li>Developed countries limit the definition of Globalization only to the first three. </li></ul><ul><li>Developing countries want the inclusion of fourth one also. </li></ul><ul><li>Why Globalization? </li></ul><ul><li>Direct foreign investment needed for developing countries </li></ul><ul><li>Use technology developed by other countries </li></ul><ul><li>Access to Exports, and get quality of consumer goods </li></ul><ul><li>Enlarge the share of foreign trade as a percentage of world trade </li></ul>
  18. 18. <ul><li>Impact of Globalization – Economic reforms on Indian Economy : </li></ul><ul><li>Recall: The Impact on </li></ul><ul><li>GDP </li></ul><ul><li>Employment </li></ul><ul><li>Poverty and HDI </li></ul><ul><li>Regional development disparities </li></ul><ul><li>Foreign trade </li></ul><ul><li>FDI and FPI </li></ul><ul><li>Inflation </li></ul><ul><li>Foreign exchange reserves </li></ul><ul><li>Recall </li></ul><ul><li>And: </li></ul><ul><li>Weakening of role of State in favour of Markets </li></ul><ul><li>“ Markets have a place, but the task is to place the Markets in their place. </li></ul><ul><li>Markets should not be allowed to destroy the social fabric. Markets need </li></ul><ul><li>to be regulated in order to prevent them from causing social disruption” </li></ul><ul><li>Need Fair Globalization: </li></ul><ul><li>Globalization: To benefit all countries to raise the welfare of all the people </li></ul><ul><li>throughout world. </li></ul>
  19. 19. <ul><ul><li>Economic Reforms: Mixed Results. </li></ul></ul><ul><li>LPG regime: Profit motive dominant, equity goal less emphasised. </li></ul><ul><li>To illustrate: </li></ul><ul><ul><li> Millions of Indians are connected to the internet, but millions more are not yet connected to </li></ul></ul><ul><ul><li>fresh water: India accounts for 30% of the World’s software engineers but also 25% of the </li></ul></ul><ul><ul><li>World’s malnourished. </li></ul></ul><ul><ul><li>India has one of the World’s largest reservoirs of technical personnel but also the World’s </li></ul></ul><ul><ul><li>largest pool of illiterates and poor people. </li></ul></ul><ul><ul><li> Paradox: Proud of 311 Indian billionaires? But about 300 million people below poverty line </li></ul></ul><ul><li>A Country of super rich and super poor. </li></ul><ul><ul><li> Hence the Challenge: </li></ul></ul><ul><ul><ul><li>Tap the benefits of LPG regime, but address the problems of equity such as unemployment, poverty and inequalities. </li></ul></ul></ul><ul><ul><ul><li>Any development paradigm which ignores the many poor for the few rich is not sustainable. </li></ul></ul></ul><ul><ul><ul><li>Remember: Micro level success stories would obscure the macro picture – the picture of dark spots of Indian development. </li></ul></ul></ul>
  20. 20. <ul><li>Agenda for Fair and Inclusive Growth: </li></ul><ul><ul><ul><li>A higher rate of growth </li></ul></ul></ul><ul><ul><ul><li>But don’t want job – less growth </li></ul></ul></ul><ul><ul><ul><li>Enlarge employment generation across sectors </li></ul></ul></ul><ul><ul><ul><li>Raise the productivity of informal sector (UOS): Agriculture etc </li></ul></ul></ul><ul><ul><ul><li>Promote skill development </li></ul></ul></ul><ul><ul><ul><li>Balance regional development </li></ul></ul></ul><ul><ul><ul><li>Huge domestic market: Shift income in favour of the poor to </li></ul></ul></ul><ul><ul><ul><li>realise the potential. </li></ul></ul></ul><ul><ul><ul><li>Reduce the number of people below poverty line </li></ul></ul></ul>
  21. 21. <ul><li>Approach in Eleventh plan: </li></ul><ul><ul><ul><li>Towards faster and more inclusive growth </li></ul></ul></ul><ul><ul><ul><li>Shift in emphasis from mere increase in GDP growth </li></ul></ul></ul><ul><ul><ul><li>rates to improvement in standards of living of the poor. </li></ul></ul></ul><ul><ul><ul><li>Realise the lag in achievement of MDG </li></ul></ul></ul>
  22. 22. THANK YOU
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