Economics Project

ANALYZING GROWTH, UNEMPLOYMENT AND INFLATION IN INDIAN ECONOMY OBJECTIVE: To analyze Growth, Unemployment and Inflation in Indian Economy during previous decades (for the period 1950-1999). Compare the scenario with the present 2000-2009. METHODOLOGY: Collecting the data from of Growth, Unemployment and Inflation from NSO, RBI, NSSO or any other public domain and calculating the difference in these three parameters in few decades using mean, median and standard deviation. GROWTH: Annual growth rate of GDP volume (GDP index in 2000 prices) shows some evidence of Growth amidst much fluctuation (Figure 5) so that the adjusted R square is very low although it is a trend- stationary process. Annual growth rate in the volume of industrial production (industrial production index in 2000 prices) is also a stationary process without any significant evidence of growth during 1960-2004. In the next stage, we seek an answer to the question: is there any link between share market and growth of output and fixed capital formation. More specifically we examine whether there exists a long-term relationship between share price movement and growth through capital accumulation over more than half a century period for which data are available. For this we shall use Autoregressive Distributive Lag (ARDL) approach to co integration developed by Pesaran and Shin (1999). This technique can be used to test for the existence of a long run relationship between two variables irrespective of whether they are stationary or stochastic (having unit root). This approach is especially suitable here as the real and nominal share price series exhibit unit root processes while growth and capital accumulation series are stationary. The ARDL equation fitted here is the following n m (1) Yt = a + b.t + S ci Yt-i + S dj Xt-j i = 1 j = 0 Where Yt is the dependent variable – annual percentage growth rate of real GDP (GRGDP)/ Industrial output (GRINDP) or the share of gross fixed capital formation (Total or only private) in GDP –– log values (LGKFGDP or LPVTIGDP) in period t, Xt is the log of nominal or real share price index in period t (LSHARE or LRSHARE), t is the time trend which captures the effect of other explanatory variables and m, n are unknown lags (with the maximum value = 12) to be determined by Schwarz Bayesian criterion (SBC) as suggested by Pesaran and Shin (1999).The long run coefficients estimated through the ARDL approach are reported in Table 2. These show no long-term relationship between (log values of) gross-fixed capital formation – total as well as private as percentage of GDP (LGKFGDP and LPVTIGDP) and (log values of) nominal or real share price (LSHARE or LRSHARE). There is also no relationship between the growth rate (of real GDP and industrial output) and share prices (both nominal and real – log-values). There is also no relationship if we consider the growth rates in share price (by taking the log-difference of share prices).This finding supports our earlier conclusion (Sarkar, 2006). Our earlier analysis of a sample of 31 less developed countries shows that the cross-country variations in stock market capitalization as a percentage of GDP- an important indicator of stock market development- do not explain the cross-country variations in the growth rates of gross fixed capital formation. Time series analysis of individual country cases shows that in the majority of cases (including India) there exist no meaningful relationship between stock market capitalization as a percentage of GDP and growth of gross fixed capital formation. Thus both of our studies discount the importance of stock market development in promoting industrial growth through capital accumulation in less developed countries such as India. REAL ‘GDP’ ESTIMATE REVISED: We have revised our real GDP growth forecast upward for the second consecutive month. The revision this time is from 6 per cent to 6.2 per cent. In October 2009 we had revised our estimate from 5.8 per cent to 6 per cent. The economic performance during the first half of 2009-10 turned out to be much better than our expectations. The quick and decisive response by the RBI to tackle the adverse impact of the Global Liquidity Crisis has yielded results. The only discordant note in this growth story was struck by the poor southwest monsoon this year. Had there been no drought, the economic growth would have moved closer to the pre-crisis level. Liquidity conditions are expected to be better in the second half of 2009-10 than in the first half. This will prevent any hardening of interest rates on deposits as well as advances. We have scaled up our forecast for industrial production growth in 2009-10 to 7.2 per cent from 5.8 per cent. Both investment demand and consumption have been brisk in the first half of the year. Projects worth Rs 4.6 lakh crore will be completed in 2009-10. This will augment production in various sectors and simultaneously push up the demand as more jobs will be created. Corporate India reported a robust 28 per cent rise in Profit After Tax (PAT) in the first half of 2009-10, in spite of a 5.9 per cent fall in sales. We expect the PAT growth to decelerate to 13.4 per cent in the second half of 2009-10. Sales, however, will grow by 15.6 per cent during this period and sales growth for the year 2009-10 will average at four per cent, while the PAT growth will be an impressive 20.7 per cent. Kharif production is slated to fall by 19 per cent in 2009-10. A rainfall deficit of 23 per cent in the 2009 monsoon season and drought in many states led to a 5.3 per cent fall in acreage and will also hit yield. The delayed withdrawal of the southwest monsoon will benefit rabi crops. But this will not be enough to make up for the loss in kharif production. In 2009-10, crop production is projected to fall by 7.4 per cent and farm incomes are projected to decline by 3.7 per cent. We have revised our real GDP growth forecast for 2009-10 to 6 per cent from 5.8 per cent. This is because the industrial sector is projected to grow by 6.5 per cent and the services sector by 8.5 per cent. The Index of Industrial Production rose by 8.2 per cent in June 2009 and 6.8 per cent in the month that followed. Clearly, the country is recovering rapidly from the impact of the Global Liquidity Crisis. Fresh investments announcements have picked up to Rs 3.3 lakh crore in the September 2009 quarter. A huge amount of investments are going under implementation and a historically high project commissioning of Rs 4.5 lakh crore is scheduled in 2009-10, as per CMIE's CapEx service. This has wiped off the fears of an abrupt halt in the investment cycle. Though sales of Corporate India fell by 5.7 per cent in the June 2009 quarter, profits grew by a robust 19.9 per cent. We expect corporate sales to continue to fall in the September 2009 quarter, reflecting the fall in commodity prices. Sales growth will pick up in the second half of 2009-10 and range between 11 and 18 per cent. The average growth for the year, however, will still be a meager 4.1 per cent. Rainfall deficit was 23 per cent during the 2009 southwest monsoon season, the highest in the past 37 years. Kharif acreage declined by 5.3 per cent by end-September because of the poor rains. Decline in acreage and yield will lead to a 16 per cent fall in kharif food grains production in 2009-10. However, the delayed withdrawal of the southwest monsoon is expected to benefit rabi crops. We expect rabi food grains production to increase by 1.3 per cent and total food crop production to fall by 6.4 per cent in 2009-10. A detailed working with the data of individual sectors indicates that the industrial sector would slow down more than we had anticipated last month. Our forecast for industrial production growth stands revised to 6.3 per cent compared to 8.3 per cent predicted earlier. Our forecast for electricity has dropped from 6.3 per cent to 4.3 per cent. That for mining is down from eight to 7.5 per cent and manufacturing has been revised from 8.5 to 6.4 per cent. Our forecast for agriculture remains unchanged at 3.2 per cent. Crop production is projected to grow by 2.5 per cent, livestock by 5.5 per cent, forestry by 1.5 per cent and fishing by 3.8 per cent in 2008-09. The sudden and sharp fall in indicators of transport services - railways and airways warrant a small correction in these estimates. We have therefore reduced our forecast for trade, hotel and transport services from 10.6 per cent to 10 per cent. This leads to a small revision in our estimate for services sector, which is now projected to grow by 10.1 per cent. Real GDP is thus projected to grow by 8.2 per cent in 2008-09. The third quarter would see the major impact of the slowdown. We expect a recovery in the last quarter of the year. India, the largest democracy with an estimated population of about 1.04 billion, is on a road to rapid growth in economy. During the period 1981-2000, it has witnessed an impressive GDP growth rate of around 6%/yr. Policy initiatives of the Government of India during the past decade have resulted in a faster growth of GDP and forecasts by several agencies point towards continued growth of Indian economy. Dominic Wilson and Roopa Purushothaman of Goldman Sachs in their paper write, “India has the potential to show the fastest growth over the next 30 to 50 years. Growth could be higher than over the next 30 years and close to 5% as late as 2050 if development proceeds successfully.” To ensure that the development proceeds successfully, Government of India has been very proactive and several steps have been taken in the recent past. These include policy initiatives as well as planning and launching of projects aimed at improving energy, transport and communication infrastructure in the country. The Electricity Act – 2003, notified in June 2003, is one such important initiative. All these are the steps towards achieving an average annual growth of 8% in GDP during the ongoing 10th five year plan (April 2002 to March 2007). As elsewhere in the world, the energy and electricity growth in India is closely linked to growth in economy. One may notice this by comparing per capita electricity consumption and GDP in PPP US $ (purchasing power parity US $) of various countries in the neighborhood as well as in other regions of the world. Key World Energy Statistics published by the International Energy Agency gives detailed information about electricity consumption in various countries and GDP in 1995 PPP US $. India’s electricity consumption based on data from utilities is given as 408 kWh per year per capita for the year 2001, while GDP per capita in PPP US $ is given as 2138. Corresponding figures for Indonesia are 423 and 2684, for Thailand 1563 and 5833, for Malaysia 2824 and 7645, and for Singapore 7677 and 20426. For OECD countries these numbers are 7879 and 21785. Here one may note a correlation between per capita GDP and per capita electricity consumption. At the time of independence in the year 1947, total installed electricity generation capacity was 1,363 MWe. It rose to 30,214 MWe in the year 1980-81, to 66,086 MWe in the year 1990-91 and to 138,730 MWe on 31st March 2003, the corresponding growth rates being 9.54%/yr, 8.14%/yr and 6.26%/yr. The average growth rate over the entire period, thus, has been an impressive 8.6%/yr. In spite of this impressive growth, per capita electricity as well as primary energy consumption are still very low. In addition, the share of non-commercial energy resources continues to be much higher than what it is in developed countries. Domestic production of commercial energy has registered an average growth of about 5.9%/yr during the period 1981-2000. Various constraints, particularly poor hydrocarbon resource base, have forced an increased reliance on energy imports, which have grown at the rate of about 7.1%/yr . The electricity sector also has experienced severe shortages during the above period despite an impressive growth. During the year 2000-01, there was an average electricity shortage of 7.8% and a peak power demand shortage of 13%. It has now increased to 10% and 15% respectively. The growth rate of electricity has been substantially higher than other forms of energy, the reason being convenience of use and cleanliness at the user end. Electricity generation in India during the fiscal year 2002-03 was about 532 billion kWh from electric utilities and about 104 billion kWh from captive power plants. On per capita basis it turns out to be about 610 kWh per year. As already mentioned, India’s GDP has been growing quite fast and it is forecast that it will continue to be so in the coming decades. GDP growth has to be accompanied by growth of primary energy consumption as well as electricity consumption. A number of organs of the Government of India (GOI) are engaged in energy production and we felt it desirable to look at all the fuel resources, the plans of all the organs of GOI and examine the energy scenario as it might emerge in the decades to come. Long-term forecast is always full of uncertainties; still it is necessary to build scenarios for the future so as to identify available alternatives. In case of energy technologies, electrical energy in particular, lead times for developing new technologies are very long and, therefore, scenario building is desirable to identify problem areas and initiate R&D on relevant topics. The present study has been carried out with this objective. In this study, after making brief remarks on the population projection, we review projections about India’s energy demand growth rates based on other studies and present our projection about electricity growth rate and a strategy to meet the projected demand. EMPLOYMENT AND UNEMPLOYMENT: The labour force at any given time consists of those who are “working” (engaged in economic activity) and those who are seeking or available for work. The usual principal status approach counts a person among the “employed” during a year if he or she has spent more time within the labour force than out of it and has spent more time in the “working” state than in seeking or being available for work. The worker-population ratio (WPR), i.e., proportion of persons employed, was, according to the usual principal status approach, 54% for the male population as a whole in both rural and urban India. Among females, the corresponding WPR was 24% in rural areas, another 8% having pursued some economic activity in a subsidiary capacity during the year. Among urban females the WPR according to usual principal status was 12%, with another 3% pursuing some economic activity in a subsidy ciarapacity. In rural areas, about 71 per cent of male workers and 85 per cent of female workers, as identified by the usual status approach (considering both principal and subsidiary activity together), were found engaged in agricultural activities. In the urban areas about 60 per cent of male workers and about 50 per cent of female workers, as identified by the usual status approach, were found engaged in tertiary sector activities. The usual status approach counts a person among the “unemployed” during a year if he or she has spent more time within the labour force than out of it and more time in seeking or being available for work than in the “working” state. The unemployment rate is understood as the ratio of number of persons unemployed to the number of persons in the labour force (i.e., the total of employed and unemployed). In urban India the unemployment rate according to the usual status approach (considering both principal and subsidiary status together) was 4 per cent among both males and females. In the rural areas, the unemployment rate was lower - 2 per cent for males and 1 per cent for females The result of the 61st round of survey by NSSO – National Sample Survey Organization conducted in 2004-05 provides the latest information on the employment and unemployment scenario in India. National Sample Survey Organization (NSSO) surveys and generates data and information once in five years. LABOUR MARKET SCENARIO IN INDIA: The Indian labor market can be categorized into three sectors: 1.) Rural workers, who constitute about 60% of the workforce2.) Organized of the formal sector, that constitutes about 8% of the workforce3.) Urban unorganized or informal structure which represents the 32% of the workforce ,[object Object],.

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