Economic survey – 2012 13, upsc slide

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Economic survey – 2012 13, upsc slide

  1. 1. ECONOMIC SURVEY – 2012-13 Chapter wise discussion Data analysis Comparison with foreign nations Human development Target of the economy Sector wise discussion Balance of payments (BoPs),…
  2. 2. CHAPTER – I: STATE OF THE ECONOMY& PROSPECTS The strong post-financial crisis stimulus led tostronger growth in 2009-10 & 2010-11 However, the boost to consumption, coupled withsupply side constraints, led to higher inflation Monetary policy was tightened External headwinds to growth increased The consequent slowdown, especially in2012-13 – affected all sectors of the economy
  3. 3. KEY INDICATORSGDP Growth Rate (MP) 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13Current Market Prices 16.1 12.9 15.1 20.3 15.1 11.7Factor Cost (2004-05prices)9.3 6.7 8.6 9.3 6.2 5.0Savings Rate 36.8 32.0 33.7 34.0 30.8 naCapital Formation 38.1 34.3 36.5 36.8 35.0 naFood Grains (MT) 23o.8 234.5 218.1 244.5 259.3 250.1Index of industrial prdn 15.5 2.5 5.3 8.2 2.9 0.7Inflation (WPI) 4.7 8.1 3.8 9.6 8.9 7.6Agriculture, Forestry &Fishing5.8 0.1 0.8 7.9 3.6 1.8
  4. 4. RATIO OF INVESTMENT TO GDP2006-07 2007-08 2008-09 2009-10 2010-11 2011-12Gross Capital Formation(Investment)35.7 38.1 34.3 36.5 36.8 35.0Public Sector 8.3 8.9 9.4 9.2 8.4 7.9Private Sector 26.4 28.1 24.8 25.4 26.5 24.9Corporate Sector 14.5 17.3 11.3 12.1 13.4 10.6Household Sector 11.9 10.8 13.5 13.2 13.1 14.3Gross Domestic Savings 34.6 36.8 32.0 33.7 34.0 30.8Saving – Investment Gap -1.1 -1.3 -2.3 -2.8 -2.8 -4.2
  5. 5. FALL IN THE FRIVATE INVESTMENT The reduction in private investment could beattributed to a number of factors:1. Increase in policy rates (to combat inflation &inflationary expectations). b/w March 2010 &October 2011, the RBI raises the Repo rate by 375basis points, thus raising the cost of borrowings2. Lower dd for Indian exports from the rest of theworld3. Policy bottlenecks such as obtaining environmentalpermissions, carrying out land acquisitions
  6. 6. CURRENT ACCOUNT BALANCEITEMS 2011-12 (USDBILLION)2012-13Exports 158.2 146.5Imports 247.7 237.2Trade Deficit 89.5 90.7Net Invisibles 53.1 51.7CAD 36.4 39.0ITEMS AS PERCENT OF GDPTrade deficit 9.9 10.8Net Invisibles 5.9 6.2CAD 4.0 4.6
  7. 7. DOMESTIC SAVINGS The volume and composition of domestic savings inIndia have undergone significant changes over theyears The saving rate averaged 18.6% in the 1980s & 23% in1990s The saving rate exceeded 30% for the first time in2004-05 and has remained above that level ever since It peaked in 2007-08 – 36.8% & reached an eight yearlow of 30.8 in 2011-12
  8. 8. THREE SOURCES OF SAVINGS Households – on average – Three-Fourths of grossdomestic savings during the period 1980-81 to 2011-12.The share declined in recent years – 2004-05 to 2011-12it averaged 70.1% of total savings Private corporate sector – 15% (1980-81 to 2011-12) &share increased to 23.2% (2004-05 to 2011-12) Public sector – 10% (1980-81 to 2011-12) & shareprogressively decreasing 6.7% (2004-05 to 2011-12) Table – refer – ES – page- 15
  9. 9. SOCIAL SERVICESExpenditure on social services increased considerablyin the 12 plan, with the education sector accounting forthe largest share, followed by healthAs a proportion of GDP, expenditure on social servicesincreased from 5.9% in 2007-08 to 6.8% in 2010-11 andfurther to 7.1% in 2012-13It is lower than in many other emerging & developedcountries and the share of public sector still lowerBased on the methodology suggested by TendulkarCommittee - % of people living BPL in the countrydeclined from 37.2% in 2004-05 to 29.8% in 2009-10
  10. 10. GOVERNANCE ISSUES Like programs leakages and funds notreaching the targeted beneficiaries thatneed to be addressed Direct Benefit Transfer (DBT) with the helpof the Unique Identification (UID) numbercan help plug some of these leakages
  11. 11. CHAPTER-II: SEIZING THE DEMOGRAPHICDIVIDEND India is regarded as a country with “DemographicDividend” – its high population in the age group of 15-64 years (if we miss it – demographic nightmare) Productive jobs are vital for growth India’s challenge is to create the conditions for fastergrowth of productive jobs outside of agriculture,especially in organized manufacturing and in services,even while improving productivity in agriculture The DD- the fact that India’s dependency ratio – willcome down more sharply in the coming decades
  12. 12. SECTORAL CONTRIBUTION TO EMPLOMENTSECTORS 2000 2010% INMILLION% MILLIONAGRICULTURE 60 234 51 233INDUSTRY 16 63 22 102SERVICESS 24 94 27 121Labor ForceParticipation (%)60 409 56 473
  13. 13. MICRO, SMALL & MEDIUMENTERPRISES The criterion of investment in plant & machinery isused to categorize MSMEs Micro enterprises – investment ceiling of 25 lakh Small enterprises – investment ceiling of 5 crore Medium enterprises – investment ceiling of 10 crore It is estimated that – MSMEs employ 81 million peoplein 36 million units across the country Productivity is commensurately lower in India World Bank’s “Doing Business 2013” data – India ranks132 out of 185 countries in ease of doing business
  14. 14. CHAPTER-III: PUBLIC FINANCE The budget for 2012-13 introduced amendments to theFRBM Act as part of the Finance Bill These amendments contained two important features ofexpenditure reforms1. Introduction of the concept of effectiverevenue deficit, which excludes from theconventional RD, grants for the creation of capitalassets2. Introduction of the provision for ‘Medium TermExpenditure Framework Statement’ in the FRBMAct
  15. 15. FORMS OF DEFICITS IN PF RD = total revenue expenditure – TR receipts BD = total expenditure – total revenue FD = TE – (revenue receipts + non-debt creatingcapital receipts) FD = Budget deficit + borrowings (that part of the govt.expenditure which is financed out of borrowing) Primary Deficit = FD – interest payments Monetized Deficit means the extent to which the govt.borrows from the RBI and not from the market. RBI printsfresh currency which monetize the economy by bringingmore money into circulation – called deficit financing
  16. 16. CURRENT ACCOUNT DEFICIT (CAD) It is defined as deficit b/w receipts on account of trad& invisibles and payments on account of trade &invisibles in the BoPs account of the country TWIN DEFICITAn economy is deemed to have a Twin Deficit if it hasCAD and Fiscal Deficit
  17. 17. FISCAL INDICATORSYEAR RD FD PD RD AS %of FD2004-05 2.4 3.9 o.o 62.32008-09 4.5 6.0 2.6 75.22009-10 5.2 6.5 3.2 81.02010-11 3.2 4.8 1.8 67.52011-12 3.4 4.6 1.6 74.42012-13 3.5 5.1 1.9 68.2
  18. 18. FRBM ACT, 2003 In the Fiscal Responsibility & Budget Management Actmade obligatory for the govt. to reduce its RD & FD Reduction beginning from 2004-05Yearly reduction from 2004-052008 -09RD 0.5% of GDP 0FD 0.3% 3%By 2016-17 bring down (FRBM amendments) 2016-17FD 3%RD 1.5%ERD 0
  19. 19. RECEIPTS & EXPENDITURE OF THE CENTRAL GOVTAs % of GDP 2007-082010-11 2011-122012-13Revenue receipts 10.9 10.1 8.8 9.3Tax revenue 8.8 7.3 7.4 7.7Non-tax revenue 2.1 2.8 1.4 1.6Revenue expenditure 11.9 13.4 12.2 12.8Interest payments 3.4 3.0 3.0 3.2Capital receipts 3.4 5.2 5.2 5.5Capital expenditure 2.4 2.0 1.8 2.0
  20. 20. SOURCES OF TAX REVENUE: % OFGROSS TAX REVENUEKINDS OFTAXES1990-912007-082008-092009-102011-12 2012-13DIRECT 14 49.9 52.8 58.9 56.3 52.4PIT 17.3 17.5 19.6 17.6 17.6CorporationTax32.5 35.3 39.2 38.6 34.6INDIRECTTAX86 47.0 44.5 39.2 42.6 46.8Customs 17.6 16.5 13.3 16.3 17.3Excise 20.8 17.9 16.5 17.5 18.0Service Tax 8.6 10.1 9.4 8.8 11.5
  21. 21. TWO SPECIFIC MEASURES Aimed at expanding the direct tax base in the budget for2012-131) Introduction of the provisions of GAAR in the ITAct2) Extending the provisions of Alternate MinimumTax (AMT) Shome Committee – related to GAAR Direct Benefit Transfer (DBT) – introduced on Jan 2013 –designed to improve targeting, reduce corruption,eliminate waste, control expenditure & facilitate reforms
  22. 22. 14th FINANCE COMMISSION Constituted on 2nd Jan 2013 Awarding period – 2015-2020 Chairman – Dr. Y.V. Reddy – former RBI Governor Other Members1) Abhijit Sen,2) Sushma Nath3) Dr. M. Govind Rao4) Dr. Sudipto Mundle
  23. 23. CHAPTER-IV: PRICES AND MONETARYMANAGEMENT Inflation in protein foods, particularly eggs, meat &fish and fruits and vegetables has persisted because of Changes in dietary habits Supply constraints
  24. 24. RESIDEX The rising share of urban population from around 17% in1951 to 30% in 2011 and to an expected 50% by 2040 In 2005-06 – NHB (1988) – came into effect from – 2007 Trend of price movements in residential property on acomprehensive scale The RBI’s monetary policy stance - focus on the twinobjectives : Containing inflation (price stability) Facilitating growth
  25. 25. REVISION IN POLICY RATESEffective dateReporateReverseRRCRR SLR MSF24/4/2010 5.25 3.75 5.75 2509/5/2011 7.25 6.25 6 24 8.2517/4/2012 8 7 4.75 24 929/1/2013 7.75 6.75 4.25 23 8.7509/2/2013 7.75 6.75 4 23 8.75
  26. 26. KEY MONETARY POLICYINDICATORS BANK RATE OR DISCOUNT RATE POLICY Bank rate is the rate at which the central bank re-discounts theeligible bills or makes advances against approved securities. It isalternatively called as discount rate. In simple words bank rate isthe rate of interest charged by the central banks while providingfinancial accommodation to commercial banks. CASH RESERVE RATIO (CRR)Every commercial bank is required by law or custom to maintaina minimum percentage of deposits with the central bank. Theminimum amount of reserve with the central bank may be eithera percentage of its time and demand deposits separately or oftotal deposits. This is insisted up on to ensure the solvency andliquidity of the commercial bank
  27. 27. KEY RATES STATUTORY LIQUIDITY RATIO (SLR) SLR is one of the major quantitative credit controlinstruments. SLR is the mandate for banks that theymust keep with itself a stipulated proportion of theirtotal demand and time deposits in the form of liquidassets, namely; cash, gold and approved securities,mostly government securities.
  28. 28. SHORT TERM MEASURES REPO RATE Repo rate is the rate imposed by the central bank upon the commercial banks when they borrowed moneyfrom the central bank. In other words, repo rate is therate at which the central bank lends to banks. RESERVE REPO RATE Reverse repo rate is the rate offered by the central bankwhen the commercial banks parked their excessmoney with the central bank or it is the rate offered bythe central bank to banks for parking funds with it
  29. 29. MARGINAL STANDING FACILITY(MSF) Scheduled Commercial Banks have been allowed toborrow overnight at their discretion, up to 1%(currently 2%) of their respective net demand & timeliabilities (NDTL) at 100% base points above the reporate Commenced from 09/5/2011 Bank Rate = MSF (RBI announced on 13th Feb, 2012)
  30. 30. CHAPTER – V: FINANCIAL INTERMEDIATION Banks use their deposits for advancing credit or formaking investment in govt. & other securities The ratio of their investment in approved securities toaggregate deposits has remained range bound ataround 30%, significantly higher than the minimumSLR The higher allocation to govt. securities may be eitherbecause of a higher risk perception or non-availabilityof quality lending opportunities to the private sector orboth.
  31. 31. RIDF Instituted in the NABARD (12th July 1982) announced in theUnion Budget of 1995-96 PN – 109 BASEL – I, II & III CRAR BASEL III is the new international regulatory frameworkdesigned to correct the deficiencies in regulation that ledto the global financial crisis of 2008 It seeks higher Capital Adequacy Ratio to meet anyfinancial exigency Implementation of BASEL III norms scheduled tocommence from 1st Jan,2013 and has to be completed byJan, 2019
  32. 32. RRBs (2nd October, 1975) & CRAR With a view to bringing the CRAR of RRBs up to atleast 9%, Dr. K.C. Chakrabarty Committeerecommended recapitalization support to theextent of Rs.2,200 crore to 40 RRBs in 21 states
  33. 33. CHAPTER -VI: BALANCE OF PAYMENTS(BoPs) The twin objectives of safety and liquidity have beenthe guiding principles of foreign exchange reservesmanagement in India SDR & Reserve Tranche Position (RTP) - IMF SDR – 1969 by IMF to supplement the existing officialreserves of member countries – IMF’s unit of account,which represents a potential claim on four freelytraded currencies – USD, Pound, Euro & Yen
  34. 34. FOREIGN EXCHANGE RESERVES ININDIA (USD BILLION)YEAR FOREIGN EXCHANGERESERVES (End March)1990-91 5.81994-95’ 25.21999-00 38.02007-08 309.72008-09 252.02009-10 279.12010-11 304.82011-12 294.42012-13 (up to Sept. 2012) 294.8
  35. 35. FOREIGN EXCHANGE RESERVES OFSOME MAJOR COUNTRIESSL.NO COUNTRY FOREIGN EXCHANGE RESERVES (Dece,2012)1 China 3310.02 Japan 1304.13 Russia 538.64 Switzerland 531.75 Brazil 373.16 Republic of Korea 326.27 China P R Hong Kong 305.28 India 295.69 Germany 259.410 Francre 211.0
  36. 36. FOREIGN EXCHANGE RESERVES OF SOMEMAJOR COUNTRIES (DECE, 2010)SL.NO COUNTRY FOREIGN EXCHANGERESERVES (Dece, 2012)1 China 2454.32 Japan 1118.83 Russia 479.44 India 297.35 Republic of Korea 293.56 Brazil 285.5
  37. 37. FOREIGN EXCHANGE RESERVES OF SOMEMAJOR COUNTRIES (Dece,2011)SL.NO COUNTRY FOREIGN EXCHANGERESERVES (Dece, 2012)1 China 3181.12 Japan 1326.13 Russia 499.54 Brazil 352.05 Switzerland 340.66 India 296.7
  38. 38. EXTERNAL DEBT India’s external debt stock at end-March, 2012 stood atUS$ 345.4 billion (Rs. 1,765,333 crore)Table: Composition of External DebtSl.no component March 2011 Sept, 20121 Commercial borrowings 28.9 29.82 NRI deposits 16.9 18.33 Multilateral 15.8 13.94 Bilateral 8.4 7.65 Export credit 6.1 5.26 IMF 2.1 1.77 Rupee debt 0.5 0.4
  39. 39. TOTAL EXTERNAL DEBT TO GDPYEAR TOTAL ED TOGDP1990-91 28.71995-96 27.02000-01 22.52005-06 16.82009-10 18.22010-11 17.52011-12 19.7
  40. 40. THE CURRENCY COMPOSITION OF INDIA’STOTAL EXTERNAL DEBTSL.NO CURRENCIES % (end Sept.2012)1 US Dollar denominateddebt55.72 Indian Rupee 22.93 Japanese Yen 8.64 SDR 8.15 Euro 3.2
  41. 41. DEBT OVERHANG PROBLEM A sharp depreciation in local currencywould mean corresponding increase in debtservice liability, as more domestic currencywould be required to buy the same amountof foreign exchange for debt servicepayments Here the volume of debt would rise in localcurrency terms
  42. 42. CHAPTER – VII: INTERNATIONAL TRADE(%) PORJECTIONS2011 2012 2013 2014World trade volume (goods & services) 5.9 2.8 3.8 5.5IMPORTSAdvanced Economies 4.6 1.2 2.2 4.1Emerging Mkt & developing 8.4 6.1 6.5 7.8EXPORTSAdvanced Economies 5.6 2.1 2.8 4.5Emerging Mkt & developing 6.6 3.6 5.5 6.9Source: IMF, World Economic Outlook Update, January 2013
  43. 43. WTO: INDIA’S SHARE IN GLOBALEXPORTS & IMPORTS(%) 2000 2011EXPORT 0.7 (RANK-31) 1.7 (RANK – 19)IMPORT 0.8 (RANK-26) 2.5 (RANK-12)
  44. 44. INDIA’S SHARE OF SERVICES EXPORTS INTHE WORLD EXPORT OF SERVICESYEAR %1990 0.62000 1.02011 3.3
  45. 45. GOLD IMPORTS & POLICY MEASURES Gold is the 2nd major import item after POL Highest import from: (2011-12)1) Switzerland (52%)2) UAE (17.6%)3) South Africa (11.5%)A. To restrict the rising trend in gold imports –measures; in Budget 2012-13 – import duty onstandard gold & platinum was raised from 2% to4% & non standard gold–from 5 to 10%B. On 21 Jan, 2013, the import duty on gold &platinum was increased from 4% to 6%
  46. 46. REGION-WISE SHARE OF INDIA’SEXPORTSSL.NO.REGION 2000-01 2005-06 2011-12 2012-131 ASIA 37.4 46.9 50.0 50.42 AMERICA 24.7 20.7 16.4 19.53 EUROPE 25.9 24.2 19.0 18.74 AFRICA 5.3 6.8 8.1 9.65 CIS &BALTICS2.3 1.2 1.0 1.3
  47. 47. INDIA’S TRADE SHARE WITH MAJORCOUNTRIES (SHARE IN TOTAL TRADE)SL.NO. COUNTRIES 2010-11 2011-12 2012-13 EXPORT/IMPORTRATIO(2012-13)1 UAE 10.72 9.03 9.74 0.922 CHINA 9.50 9.52 8.95 0.233 USA 7.30 7.46 8.23 1.514 KSA 4.04 4.63 5.43 0.28
  48. 48. FDI EQUITY INVESTMENTSThe UNCTAD World InvestmentReport, 2012 in its analysis of the globaltrends and sustained growth of FDIinflows continues to report India as the3rd most attractive location for 2012-14
  49. 49. FDI EQUITY INVESTMENTSRANK COUNTRIES1 MAURITIUS2 SINGAPORE3 UK4 JAPAN5 US6 NETHERLANDS7 CYPRUS8 GERMANY9 FRANCE10 UAE
  50. 50. FDI Since 2006, India allowed FDI in singlebrand retail to the extent of 51%. In Jan, 2012– the Govt. removed restrictions on FDI inthe single brand retail allowing 100% FDI From Sep 2012 FDI in multi brand retail hasbeen allowed up to 51% under the govt.route and subject to specific conditions
  51. 51. THE TOP 5 STATES IN INDIAA’S EXPORTSIN 2011-121) MAHARASHTRA2) GUJARAT3) TN4) AP5) KARNATAKA While in 2011-12, these five states hadhigh robust growth (except Gujaratwith 5.5% growth) in 2012-13 all ofthem had negative growth.
  52. 52. WTO NEGOTIATIONS AND INDIA 8th Ministerial Meeting – December 2011 – Geneva 9th Ministerial Meeting – December 2013 – Geneva
  53. 53. GANDHIAN STATEMENT“You live as if you are going to dietomorrowand you learn as if you are goingto live forever”

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