Introduction History of the Indian Economy The Liberalization Process: The 80s and the 90s Beneficial Effects of the Reform Process We are the Fourth Largest Growing Economy in terms of PPP with a GDP of US $3.36 trillion In Exchange terms, we are the Tenth Largest in the world with a GDP of US $ 691.87 billion (2004) Second Fastest Growing Major Economy of the
Introduction The increasing importance of the Indian Economy has led to a need to Forecast the Performance of the of the Indian Economy Monitoring of the Indian Economic Cycle has become an increasingly attractive option for this Dua et. al. initially propounded an index based on concurrent indicators but using an index based on leading indicators is
The Indicator Approach The Indicator Approach exploits the fact that different time-series do have different cyclical periods Time-series can be classified into Coincident, Leading and Lagging Indicators Coincident: Measures of Output, Income, Employment and Sales Leading: Placement of New Orders, Intention to Build and Changes in Profitability
The Ideal Indicator It would cover half a century or longer, thus showing its relation to the economic cycles over a variety of conditions It would lead the month, around which cyclical revival centers, by an invariable interval of say, three months or even better, six months. It would also lead the central month of every cyclical recession by an invariable time interval, which might differ from the lead at revival.
The Ideal Indicator It would show no erratic movements, that is, it would sweep smoothly up from each cyclical trough to cyclical peak and then sweep smoothly down to the next trough, so that every change in its direction would herald the coming or recession in the general economy or business. The cyclical movements would be pronounced enough to be readily recognized, and give some indication of the coming change
List of Leading Indicators Trends in Gross Domestic Product (GDP): Contribution of Agriculture, Industry and Services Purchasing Power Parity (PPP) Index Fiscal Deficit Trends in Inflation Rate Interest Rates Credit Off-take Balance of Payment Foreign Exchange Reserves Crude Oil Rates Foreign Direct Investment (FDI) Trends Rain fall Index Sensex Exchange Rate Savings/GDP Ratio Human Development Index Electric Power Generation
Gross Domestic Product GDP = consumption + investment + government spending + (exports − imports) Consumption, Investment: Final Expenditure on Goods and Services Export-Import: Balance of Trade Consumption: Private and Public Significance of GDP
GDP: Indian Scenario The GDP growth trend for the last three years appears to indicate the beginning of a new phase of cyclical upswing in the economy from 2003-04 The initial momentum to this new phase of expansion, in 2003-04, was provided by agriculture Industry and services have acted as the twin engines propelling overall growth of the economy
Human Development Index HDI is a measure of poverty, literacy, education, life expectancy, childbirth, and other factors. It is a standard means of measuring well being, especially child welfare. HDI stresses the importance of the quality of life.
Human Development IndexThe three basic dimensions of HDI :1) Life expectancy at birth2) Knowledge (as measured from adult literacy rate)3) Standard of living
Human Development IndexEMPLOYMENT: India’s labour force has reached 375 million approximately in 2002, and it will continue to expand over the next two decades. The actual rate of that expansion will depend on several factors including population growth, growth of the working age population, labour force participation rates, educational enrolment at higher levels and school drop-out rates.
Human Development IndexEDUCATION : Literacy rates in India have arisen dramatically from 18% in 1951 to 65% in 2001, but these rates are still far from the UMI reference level of 95%. Literacy among males is nearly 50% higher than females, and it is about 50% higher in urban areas as compared to the rural areas. Literacy rates range from as high as 96% in some districts of Kerala to below 30% in
Human Development Index In terms of total investment in R&D, India’s expenditure is 1/60th of that of Korea, 1/250th of that of the USA, and 1/340th of that of Japan. More significantly, atomic energy, space and defense research account for 71% of all central spending on science and technology, which means that relatively little is left for investment in agriculture, energy, telecommunications and other crucial sectors within the sphere of science
Human Development Index R&D expenditure even in India’s fast- growing IT sector has been averaging around 3% of sales turnover (STO), which is much lower as compared to the 14-19% expended by internationally reputed software firms. These low figures reflect on our R&D performance. India’s share of global scientific output in 1998 was only 1.58 per cent of the world’s total. Out of 500,000 new patent applications
Human Development IndexHEALTH : Like population growth and economic growth, the health of a nation is a product of many factors and forces that combine and interact with each other. Economic growth, per capita income, employment, levels of literacy and education—especially among females— age of marriage, birth rates, availability of information regarding health care and nutrition, access to safe drinking water, public and private health care infrastructure, access to preventive health care and medical care, health insurance, public hygiene, road safety, and environmental pollution are among the factors that contribute directly to the health of the nation.
MONSOON AND ITS IMPACT ON AGRICULTURE 58% of countrys population depends onagriculture 27% of India ’s GDP comes from itsagricultural production. 13-18% of India ’s total annual exports areagricultural products.
MONSOON AND ITS IMPACT ON AGRICULTURE IMD predicts the onset date and rainfall potential of the monsoon Output growth severely affected by rainfall, especially in earlier years when share of agriculture was 40 – 50 % data crucial for proper estimates of production function, tfpg etc.
MONSOON AND ITS IMPACT ON AGRICULTUREConstruction of Rainfall Index For each year, only rainfall for four months, June throughSeptember, are considered. Area of each state =As (Mean) Rainfall for each rainfall station, 1871-2003: μs Standard deviation for each rainfall
FDI in India FDI is investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset. India is considered a stable country for investing in by corporate overseas. India has displaced US as the second- most favored destination for (FDI) in the
FDI in IndiaFDI has an impact on2. Countrys trade balance3. Increasing labour standards and skills4. Transfer of new technology and innovative ideas5. Improving infrastructure, skills and the general business climate.US INVESTMENT IN INDIA U.S. is one of the largest foreign direct investors in India. The stock of actual FDI Inflow increased from U.S. $11.3 million in 1991 to US $4132.8 million as on August 2004 recording an increase at a compound rate
Top sectors attracting FDI from USA are Fuels (Power & Oil Ref.) (35.93%) Telecommunications (radio paging, cellular mobile & basic telephone services) (10.56%) Electrical Equipment (including Computer Software & Electronics) (9.50%) Food Processing Industries (Food
Indias English-speaking population is highly valued by American, Canadian and British investors. India received investments from GE Capital, American Express, Citibank, Conseco, British Airways, Dell Computers and Reuters. This FDI resulted in the development of call centres, back office support and facilities to handle knowledge- intensive activities. From software giant Microsoft to telecom biggies Nokia and Samsung to auto majors Honda and Toyota, global players now eye India as the most attractive destination
Definition Sensitivity Index Base Year 1978 – 79, Base = 100 Basket of 30 constituent stocks representing a sample of large, liquid and representative companies from diverse sectors.
Significance Barometer of Business climate. Facilitates capital formation. Domestic Market/ Institutions. FIIs. FDIs. Likely to lead to boom in other asset classes as the profits get ploughed.
Calculation Methodology and Maintenance for SENSEX
CONCLUSION Leading Indicators relative to the objective. Choice. Standardization. Construction of Ideal Leading Indicators – not easy. Forecast based on Leading Indicators – a useful planning tool.