ECONOMY

1. Leading Indicators
of the Indian Economy

2. Introduction
 History of the Indian Economy
 The Liberalization Process: The 80s and the 90s
 Beneficial Effects of the Reform Process
 We are the Third 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 World
with a growth rate of 8.1% for the 1stQ of 2005-06

3. 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 seen to be more appropriate.

4. 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
 Lagging: Installment Credit Outstanding and Interest
Rates

5. 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.

6. 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

7. Illustration of a Leading Indicator

8. 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

9. 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

10. GDP: Indian Scenario

11. GDP: Indian Scenario

12. 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

13. Grenville Savio Noronha

14. 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.

15. Human Development Index
The three basic dimensions of HDI :
1) Life expectancy at birth
2) Knowledge (as measured from adult literacy
rate)
3) Standard of living

16. Human Development Index
EMPLOYMENT:
 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.
 Approximately three-fourth of the unemployed
are in rural areas and three-fifth among them

17. Human Development Index
EDUCATION :
 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 some
parts of Madhya Pradesh.

18. 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 and technology.

19. 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 filed
globally each year, China accounts for 96,000

20. Human Development Index
HEALTH :
 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.

21. Human Development Index

22. Human Development Index

23. Gnanasundaram C

24.  58% of country's population depends on
agriculture
 27% of India ’s GDP comes from its
agricultural production.
 13-18% of India ’s total annual exports are
agricultural products.
MONSOON AND ITS IMPACT ON AGRICULTURE

25. 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.

26. MONSOON AND ITS IMPACT ON AGRICULTURE
Construction of Rainfall Index
 For each year, only rainfall for four months,
June through
September, are considered.
 Area of each state =As
 (Mean) Rainfall for each rainfall station,
1871-2003: μs
 Standard deviation for each rainfall station,

29. 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 world

30. FDI in India
FDI has an impact on
1. Country's trade balance
2. Increasing labour standards and skills
3. Transfer of new technology and innovative ideas
4. 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 of 57.5 percent per
annum.

31. 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 products &
marine products) (9.43%)

32.  India's 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 for

34. Lt Col D G Naik

35. SENSEX
 Definition
 Significance
 Calculation Methodology
 Selection
 Free Float Market Capitalization (from September
1, 2003 )
 Calculation, closure
 Maintenance

36. 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.

37. 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.

38. Calculation Methodology
and Maintenance
for SENSEX

39. Journey Of SENSEX

41. 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.