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Cea State Of The Economy August 2008
- 1. Arvind Virmani (views are personal)
- 4. Figure 1: Three Phases of Growth ( Phase III Result of radical reform) 02 August 2008 General: AV
- 7. Fig 2:Growth Acceleration-Gdp 02 August 2008 General: AV
- 8. Fig 3: Per Capita Income 02 August 2008 General: AV
- 9. Fig 4: Per Capita Consumption 02 August 2008 General: AV
- 11. Fig 6: Investment Led 02 August 2008 General: AV
- 12. Fig 5: Investment Led Growth 02 August 2008 General: AV
- 13. CONTRIBUTION TO DEMAND 02 August 2008 General: AV
- 15. Investment: Total, Fixed & Private (ratio to GDP) 02 August 2008 General: AV
- 17. FDI : Inward and outward 02 August 2008 General: AV
- 18. Sources of Growth 02 August 2008 General: AV
- 20. Drivers of Growth 02 August 2008 General: AV
- 25. Global Cost Push? 02 August 2008 General: AV
- 26. Global Supply: Edible Oil(Palm) 02 August 2008 General: AV
- 27. Global Supply Shock: Iron Ore 02 August 2008 General: AV
- 28. Global Supply Shock: Oil Price 02 August 2008 General: AV
- 29. Rate of Growth: Iron Ore & Oil 02 August 2008 General: AV
- 30. Contribution to change in WPI 02 August 2008 General: AV
- 32. Inflation in India (WPI) and USA(PPI) 02 August 2008 General: AV
- 33. Inflation: India-WPI Manf, UK-PPI Manf, USA PPI Ind 02 August 2008 General: AV
- 34. Inflation Convergence: US & India 19th Junel 2008 Mumbai Isec: AV
- 35. CPI(unme) & Gdp Pvt Cons deflator 19th Junel 2008 Mumbai Isec: AV
- 37. Monetary Accommodation? 02 August 2008 General: AV
- 38. Real Interest Rate Convergence: US-India 19th Junel 2008 Mumbai Isec: AV
- 43. Excess Capital Flows- over CAD (% of GDP) 02 August 2008 General: AV
- 44. Current Act and Goods & Services Deficit 02 August 2008 General: AV
Editor's Notes
- India’s Economic Growth: From Socialist Rate of Growth to Bharatiya Rate of Growth, Working Paper No. 122, ICRIER, February 2004. Propelling India from Socialist Stagnation to Global Power: Growth Process, Vol. I (Policy Reform, Vol. II), Academic Foundation, New Delhi, 2006. Policy Regimes, Growth and Poverty in India: Lessons of Government Failure and Entrepreneurial Success!, Working Paper No. 170, ICRIER, October 2005. “ The Dynamics of Competition: Phasing of Domestic and External Liberalisation in India,” Working Paper No. 4/2006-PC, Planning Commission, April 2006.
- India’s Economic Growth: From Socialist Rate of Growth to Bharatiya Rate of Growth, Working Paper No. 122, ICRIER, February 2004. Propelling India from Socialist Stagnation to Global Power: Growth Process, Vol. I (Policy Reform, Vol. II), Academic Foundation, New Delhi, 2006. Policy Regimes, Growth and Poverty in India: Lessons of Government Failure and Entrepreneurial Success!, Working Paper No. 170, ICRIER, October 2005. “ The Dynamics of Competition: Phasing of Domestic and External Liberalisation in India,” Working Paper No. 4/2006-PC, Planning Commission, April 2006.
- J curve effect. (1) Heavily protected-import liberalisation: drastic change in relative prices. (2) Fall in measured productivity-capital immobility & obsolesence (3) Acceleration after lag: I embodied technology, S curve of diffusion, unfamiliar tech HR adjusting, learning. Adjusted R square = 0.57.
- Related to next three figures
- 2000-2002 pessimism, 2003-2004 Cyclical recovery, 2005-2006 cyclical up swing projected to 10% growth , 2007 back to trend. 2008-9 below trend because of global developments, particularly oil/commodities but also financial crisis (indirect effect of).
- Per Capita Gdp growth: To 7.3% in 2003-4 to 2007-8 from 3.7% (1980-1 to 1991-2) ; Average income will double in ten years instead of in a generation.
- Avg. Private Consumption Gr rt: Almost doubled during the past five years from previous 12 years (and doubled from what it was 10 years prior to that)
- Similar picture for Gross Fixed Investment
- Growth rate of : Total output (blue-accelerated), Total Investment (red-accelerated sharply), Private Final consumption Expenditure (purple-accelerated) and Govt final consumption expenditure (green-declerated).
- Contribution of Govt final consumption down to 5.4% from average of 11.8% in past 10 years (12% & 11.6%).
- GCF: 5 yr avg. 33.5% of GDP from 23.9% in previous 5 yrs (+9.5%). 2007-8 up to 38.4% of GDP i.e Chinese levels. GFCF: 5 yr avg. 30.3% of GDP from 23% in previous 5 yrs (+7.3%). 2007-08 up to 34.6% of GDP (9% gr at 3.8 Icor). I fixed private: Up 6.8% (4 yrs avg) out of total 7.3% (5 yrs avg).
- Year 2005 2006 2007 Fdi Net $4.7 8.4 9.4 bi Inward $7.7 19.4 22.1 bi Outward $2.9 11.0 12.7 bi
- Net domestic product per person, Capital intensity-Capital stock per person, Total factor productivity
- June 2008: All Commodity index (+62%), Food price Index(44.4%). India Primary Food =6.4 (latest 5.8%).
- Inflation: Rise of 66% in January 2008, peak of 102% in March 2008. 46.5% in June 2008.
- Rise of 66% in January 2008.
- Rise of 70% in January 2008 (up from 46.6% in December 2007). Crude oil(3) avg of Brent, Dubai, WTI.
- Oil 92.9% Iron ore 66%
- Contribution of Minerals (iron ore, dark blue) and Fuel ( brown ) has gone up during 2008.
- Other contributors include cotton & yarn, food products (grains, F&V, spices, grain mill prds), fertilisers & chemicals.
- WPI has to be compared to PPI. The USA is the largest and perhaps the most competitive global market in the World for goods. Inflation has accelerated more than in India.
- CPI: Regrettably we do not have an aggregate CPI that we need for monitoring inflation. That is why we gave the private consumption deflator in the survey. I expect that to be about 50% higher this year i.e. 6-6.5%.
- Private Consumption Price Deflator
- Private Consumption Price Deflator: CPI urban non-manual employees: Reg. co-efficient (a) 0.80 or (b) 1.18 & -0.39 (lagged)
- Solutions proposed at that time (some in Working paper #2) to deal with large capital inflows and their negative impact: Remove restrictions on capital outflow (some actions were taken). Slow debt inflow through an interest tax, higher reserve requirement or auction of right to borrow (instead ECB QRs tightened) Remove import controls. Reduce “peak” import duties (non-agricultural) to 7.5% (from 10%). Counter proposals prevailed. Allow greater symmetry in exchange rate fluctuation through greater upward flexibility. Sterilize a greater proportion of reserve accumulation through MSS.
- Interbank Call money rates were below the Repo rate during this period (=> No need to raise the Repo rate at that time). Solutions proposed at that time (some in Working paper #2): Remove restrictions on capital outflow (some actions taken). Slow debt inflow through an interest tax, higher reserve requirement or auction of right to borrow (instead ECB QRs tightened) Remove import controls. Reduce “peak” import duties (non-agricultural) to 7.5% from 10% (counter advise prevailed). Allow greater symmetry in exchange rate fluctuation through greater upward flexibility . Sterilize a greater proportion of reserve accumulation through MSS.
- During 2008-9, growth will be below the trend rate of 8.8 to 8.9. Likely to revert back towards trend in 2009-10
- 11 th Plan CAD average is 1.9% of GDP. Worst case (high oil prices) 2.5%.
- Capital Flows exclude “other capital”. FII/equity and ECB/debt: High variability. FDI Uptrend with variation in growth rate. Current year: (Global risk/liquidity preference vs. liquidity) Net negative (2008 to date). Medium Term: Surplus capital flows/reserve accum
- Exports (G&S) to Oil/natural resource exporters will increase, perhaps with a lag. At worst CAD U shaped. Probability of avg. CAD exceeding 2.5% of GDP during 11 th Plan is low.
- Sustaining Employment and Equitable Growth: Policies For Structural Transformation Of The Indian Economy,” Working Paper No. 3/2006-PC, Planning Commission, March 2006. http://planningcommission.nic.in/reports/wrkpapers/rpwpf.htm .
- Sustaining Employment and Equitable Growth: Policies For Structural Transformation Of The Indian Economy,” Working Paper No. 3/2006-PC, Planning Commission, March 2006. http://planningcommission.nic.in/reports/wrkpapers/rpwpf.htm .
- India’s Economic Growth: From Socialist Rate of Growth to Bharatiya Rate of Growth, Working Paper No. 122, ICRIER, February 2004. Propelling India from Socialist Stagnation to Global Power: Growth Process, Vol. I (Policy Reform, Vol. II), Academic Foundation, New Delhi, 2006. Policy Regimes, Growth and Poverty in India: Lessons of Government Failure and Entrepreneurial Success!, Working Paper No. 170, ICRIER, October 2005. “ The Dynamics of Competition: Phasing of Domestic and External Liberalisation in India,” Working Paper No. 4/2006-PC, Planning Commission, April 2006.