3. Overview of Indian economy
• Capitalistic economy (Market Economy): is a economic
system characterized by private ownership of the means of
production, especially in the industrial sector. Ex.: Hong Kong,
United Arab Emirates,Singapore, New Zealand,Australia,
Canada, Switzerland, United Kingdom.
State economy/Socialistic economy (Centralized
economy): where greater government intervention to re allocate
resources. Ex.:Norway, Sweden, Denmark, Iceland, and Finland
• Mixed economy: Design & structure of an economic system
depends upon its socio political structure. Iceland (57%),
Sweden(52%), France (52.8%), United Kingdom (47.3%),
United States (38.9%), Russia (34.1%), India – (27%), China –
(20%), Hong Kong (18.6%)
5. Types of economy
Dependent upon the shares of the particular sector
in the total production of an economy & ratio of
dependent population for their livelihood:
Agrarian economy
Industrial economy
Service economy
GDP contribution
Agriculture: 13.7%-17.01%
Industry: 21.5% -30.02%
Services: 52.97% - 64.8%
12. India as developing economy
An abundant and diversified natural resource base,
sound economic, industrial and market fundamentals &
highly skilled and talented manpower.(work force
distribution)
Ease of doing business. India has retained its position as the
third largest startup base in the world with over 4,750
technology startups, with about 1,400 new start-ups being
founded in 2016, according to a report by NASSCOM.
13. India's labour force is expected to touch
160-170 million by 2020, based on rate of
population growth, increased labour force
participation, and higher education
enrolment, among other factors,
according to a study by ASSOCHAM
Population 300-350 million of Indian
Population is middle class.
HR development index 131 in 2019 out of
189 countries. (life expectancy index,
education index, income index)
Largest producer of Iron ore, Bauxite,
manganese, mica, diamond, natural gas,
oil and chromite.
Ease of doing business- 2017-100 and
2018-77
14. Work force – 45% in agriculture, 32% in service, 23%
in manufacturing.
Poverty 2018 – 73 million, (5.5 %)
GDP – 6%
3rd largest outflow of wealthy individual last yr.
nearly 5000 millionairs/ high net worth individuals
(HNWI) left the country. (2% of the total HNWI)
India is among the highest ranking countries in
producing – Rice, cotton, dairy, fruits, vegetables,
meat, and sea foods.
In 2019, Top ten countries in nominal terms would
be : United States, China, Japan, Germany, India,
France, United Kingdom, Italy, Brazil and Canada.
15. Basic concept
Production should be the sole responsibility of the
government / state or should it be left altogether to
the private sector
16. Open Economy Close economy
Exports goods and
services.
Buy and sells shares
They are open to the
external countries.
neither borrows from
the foreign countries
nor lends to the foreign
countries.
No contact with external
world & Neither exports
goods & services.
Never Purchases shares
and debentures and
bonds of foreign nation &
never sells their sales.
Neither receives gifts.
Normal residents can not
migrate.
Open Vs Close economy
17. Economic factor Non Economic factor
Capital formation
(equipment, tools, transportation
assets, and electricity)
Marketable surplus of
agriculture
Conditions in foreign
trade
Economic system
Human Resource
Natural Resource
Technological
development
Political & social factor
Factors leading to economic development
19. National Income
A National income estimate measures
the volume of commodities and
services turning out during a given
period counted with out duplication.
It determines the level of
employment, per capita income,
aggregate demand, and supply of
goods and services and the level of
production.
For a business man change in national
income means change in business
environment.
20. According to Simon Kuznets : National income is
net output of goods & services flowing during the
year from country’s productive system into the
hands of actual consumers or into net additions to
countries stock of capital goods.
“ The sum of money value of all final goods and
services produced in a country over a period of one
year.”
Money value: value estimated at the current price of
the goods and services.
All final goods and services are taken into account.
21. National income can be defined as the sum of factors
of all income. Factors of production : land labour,
capital and entrepreneurship are used to produce
goods and services. Use of factors of production
generates factor incomes in the form of rent, wages,
interest and profit.
22. Per capita income
Per capita income or average income measures
the average income earned per person in a given
area (city, region, country, etc.) in a specified year. It
is calculated by dividing the area's total income by
its total population.
National Income 2020
Per capita income (2020) = -----------------------------
- Population in 2020
23. According to world bank
≤ $755 - lower income country
$ 756 - $2995 – lower middle income country
$2996 - $ 9265 – upper middle income country
≥$9265 – high income country
India’ s Per capita income -$1709 in the year 2016
and $2,199 in 2019
24. National income
the income of an economy
Gross Domestic product: is the measure of the total
market value of all final goods and services produced
in the domestic economy.
Gross national product: is the measure of the total
market of all final goods and services produced in the
domestic economy during a period of one year plus
income earned by the citizens minus income earned
by the foreigners in the country.
GNP = GDP + Income from abroad
25. Methods of measuring National Income
Product method or net product
method:
In this method, the value of all
goods and services produced in
different industries during the
year is added up. It is also called
as Value added method to GDP
or GDP at factor cost by
Industry origin.
26. Cont…
Income method:
The people of a country who produce GDP during a year
receive income from their work. Thus GDP by income
method is the sum of all factors income:
like wage, salary, profits, Rent, interest, earnings from
professions etc.
Expenditure method:
it is the sum of the expenditure incurred by the society
in a particular year like personal consumption
expenditure, government exp. , net foreign investment.
28. Gross Domestic Product
GDP: gross domestic product
the market value of all final goods and services produced in a
country by domestically located resources in a given time
period.
This definition has four parts:
Market value
Final goods and services
sales of intermediate goods not counted
Produced within a country by domestically located resources
In a given time period
Inventory changes between periods for partially completed
products
29. Gross Domestic Product
GDP and the Circular Flow of Expenditure and
Income
GDP measures the value of production
equals total expenditure on final goods
equals total income from production.
The circular flow diagram illustrates the equality of income,
expenditure, and the value of production.
35. India's economy expanded 5.4 percent year-on-year in the last quarter of
2021, following an upwardly revised 8.5 percent advance in the previous
period and below market expectations of 6 percent. It was a fifth straight
quarter of expansion, driven by the festive season boost to consumer
demand, policy support, and rapid fall in coronavirus cases. By sectors,
service activity growth was supported by increases in trade, hotels,
transport & communication (6.1%); financial, real estate & professional
services (4.6%); and public administration, defense & other services
(16.8%). In addition, output rose for manufacturing (0.2%); mining &
quarrying (8.8%); utilities (3.7%); construction (2.8%) and agriculture
(2.6%). Considering the full 2021/22 fiscal year, the economy expanded 8.2
percent, compared with a 9.2 percent growth projected in the first advance
estimates.
The GDP value of India represents 2.32 percent of the world economy.
36. Components of GDP
1. Personal consumption (C )
Durables
Non durables
Services
2. Private investment (I)
Non residential
Structures
Produces durables
Residential
37. Cont…
3. Exports & imports (X- M)
Goods & services
4. Government expenditure(G)
Federal expenditure
Defense
Service
State & local
38. Gross national product
GNP is the GDP of a country added with its income
from abroad.
Income from abroad:
Trade balance
Interest of external loan
Private remittance
GNP = GDP + Income from abroad
40. Business cycle
A business cycle are economy wide fluctuations in total
national output, income and employment, usually
lasting for a period of 2 – 1o years, marked by wide
spread expansion or contraction in most sectors of the
economy.
“A trade cycle is composed of periods of good trade
characterized by rising prices and low unemployment
percentage altering with periods of bad trade
characterized by falling price and high unemployment
percentages.”
41. The term business cycle refers to the recurrent ups and
downs in the level of economic activity, which extend
over several years.
Individual business cycles may vary greatly in duration
and intensity.
All display a set of phases.
Business cycle
43. Feature
Recurring fluctuations
Period of business cycle is longer than a year
Presence of the alternating forces of expansion &
contraction
Phenomenon of the crisis
44. Phases of Business Cycle
Expansion (Growing)
Peak (Top)
Recession (Shrinking)
Trough (Bottom)
45. Expansion
Expansion phase is characterized by increase in
Output and employment,
Investment and bank credit
Aggregate demand, sales & profit,
whole sale and retail prices,
per capita income,
rise in standard of living.
stock prices increase
46. Peak
When the economic cycle peaks: generally characterized by :
The economy stops growing (reached the top)
GDP reaches maximum
Businesses can’t produce any more or hire more people
Cycle begins to contract.
Recession begins when the
Downward slide in the growth
rate
47. Contraction
During a period of contraction:
Recession begins impacting on output, employment and prices
Businesses cut back production and layoff people
Unemployment increases
Number of jobs decline
People are pessimistic (negative)
and stop spending money
Banks stop lending money
48. Recession/Depression
A prolonged contraction is called a
recession (contraction for over 6 months – 18 months)
A recession of more than one year is called a
depression
49. Trough
When the economic cycle reaches a trough:
the economy slows down and eventually stops.
Economy “bottoms-out” (reaches lowest point)
High unemployment and low spending
Stock prices drop
But, when we hit bottom,
no where to go but up!
Which creates recovery phase
51. INFLATION
51
“Inflation is nothing more
than a sharp upward rise
in price level.”
“Too much money chasing,
too few goods.” - quantity
theory of money
“Inflation is a state in
which the value of money
is falling i.e. price are
rising.”
Quantity theory of money
53. DEFINITION
According to
C.CROWTHER, “Inflation
is State in which the Value
of Money is Falling and the
Prices are rising.”
In Economics, the Word
inflation Refers to General
rise in Prices Measured
against a Standard Level of
Purchasing Power.
54. Cont…
A one time rise in price due to
some external factor like
natural calamity or new tax or
new wage and salaries may
not be termed as:- Inflation
201
6
2017 2018 2019 2020 2021
4.5% 3.6% 3.43
%
4.76% 6.62 5.5
58. Annual inflation rate in India accelerated for a 5th straight
month to 6.07% in February of 2022, the highest since June
of 2021, and above market forecasts of 5.93%. Food inflation
increased to 5.85%, the highest reading since November of
2020, with cost of oils and fats (16.44%), meat and fish
(7.45%), and vegetables (6.13%) recording the biggest rises.
Other upward pressure came from prices of fuel and light
(8.37%), miscellaneous (6.52%), clothing and footwear
(8.86%), housing (3.57%) and pan and tobacco (2.39%). The
inflation stayed at the top of the Reserve Bank of India's
target of 2%-6% for the second consecutive month.
61. Cont…
Moderate inflation:
Tolerable inflation
Prices rise slowly
Less than 10 % rise annually
Up to 3 % - creeping and
Exceeds up to 10 % walking
inflation
Prof. Smauelson has clubbed
creeping and walking inflation
into moderate inflation
62. Cont…
Running and galloping
inflation:
Prices accelerate rapidly
Rise more than 10 % per annum
And More than 100% per
decade.
Double digit (10 – 20 %) per
annum is running inflation
If it exceedes this number -
galloping inflation
Galloping inflation is a serious
problem
63. Cont…
Hyper inflation:
Prices rise every movement
No upper limit
Prices rise over 1000 %
Eg: Austria, hungary,
germany, poland russia(world
war I)
64.
65. Measurement of inflation
A price index is a numerical measure desired to help
compare how the prices of some class of goods &/or
services, taken as a whole, differ between time
periods or geographical location.
Current year’s price
Price index= -------------------------- X 100
Base year’s price
The base year was revise from 2004-05 to 2011-12 on
12 May 2017 .
66. Kinds of price indices
Producer price index(PPI) = A family of indexes that measures
the average change over time in selling price by domestic
producers of goods as well as services.(pressure of cost of
raw material – passed to consumers as inflation)
Prospect of seller
Wholesale price index(WPI) = when the inflation is calculated
on the basis of whole sale prices of a wide variety of goods it
is called WPI. It is widely used by Government, banks,
industry and business circles. Important monetary and fiscal
policy changes are linked to WPI movements.
67. Consumer price index(CPI) = The CPI measures price
change from the perspective of the retail buyer. It is the real
index for the common people. It reflects the actual inflation
that is borne by the individual. A measure of price changes
in consumer goods as well as services like food, automobile,
garments etc…
