The document discusses various leading economic indicators of the Indian economy. It describes indicators such as GDP, inflation, interest rates, credit levels, foreign exchange reserves, FDI trends, rainfall levels, stock market performance, and more. It provides data on indicators like GDP composition and growth rates. The document emphasizes that monitoring leading indicators can help forecast the performance of the Indian economic cycle. It also discusses characteristics of ideal leading indicators and illustrates an example.

1. HS 700: Applied Economics
Course Project Presentation
Leading Indicators
of the Indian Economy
Group 12:
Lt Col D G Naik
Grenville Savio Noronha
Gnanasundaram C
Kaushik K

3. 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 World with a
growth rate of 8.1% for the 1st
Q of 2005-06

4. 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.

5. 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

6. 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.

7. 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
 It would be so related to the general economic activity
as to establish as much confidence as the nature of such
things allows that its future behavior in regard to
economic cycles will be like its past behavior

8. Illustration of a Leading Indicator

9. 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

10. 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

11. GDP: Indian Scenario

12. GDP: Indian Scenario

13. 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

14. Grenville Savio Noronha

15. 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.

16. 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

17. 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 are educated.

18. 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.

19. 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.

20. 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 and Korea accounts for
72,000, while India accounts for only 8,000.

21. 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.

22. Human Development Index

23. Human Development Index

24. Gnanasundaram C

25.  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.
 Good monsoon always means a good harvest
MONSOON AND ITS IMPACT ON AGRICULTURE

26. 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 facilitated an impressive growth rate of 9.6% in 2003-04

27. 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, 1871-2003: ss
 (4 months mean) Rainfall for each station and year: Rs
 Define: Js = (Rs - μs)/ss; for each rainfall station and year
 Yearly Rainfall Index = S (As* Js)/SAs

30. 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 after China according to an AT Kearney's
FDI
 FDI is a tool for jump-starting economic growth through its
bolstering of domestic capital, productivity and employment.

31. 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.
 The FDI inflows from the US constitute about 11 percent of the total
actual FDI inflows into India.

32. 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%)
 Service Sector (Fin. & Non-Fin. Services) (8.28%).

33.  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 investment.
 Although far behind China, India figures among the ten most attractive
destinations for foreign investment, according to a new survey.

35. Lt Col D G Naik

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

37. 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.

38. 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.

39. Choice of constituents,
Calculation Methodology
and Maintenance
for SENSEX

40. Journey Of SENSEX

42. 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.

43. References
1. Pami Dua and Anirvan Banerji, “A leading index for the Indian economy,”
Working paper no. 90, Centre for Development Economics, March, 2001.
2. J –D Lindlbauer, “Business Cycle Indicators From Qualitative Data,” In
Searh of Economic Indicators Essays on Business Surveys (Lecture Notes in
Economics and Mathematical Systems, Werner H. Stringel, Ed. Berlin:
Springer-Verlag, 1977.
3. Raj Kapila and Uma Kapila, Understanding India’s Economy Reforms: The
Past, The Present and The Future, New Delhi: Academic Foundation, 1996.
4. Uma Kapila, Indian Economy since Independence, New Delhi: Academic
Foundation, 1998
5. [Online], Available: http://en.wikipedia.org/wiki/Economy_of_India
6. [Online], Available: http://en.wikipedia.org/wiki/Gross_Domestic_Product
7. [Online], Available: http://ibef.org/home.aspx
8. [Online], Available: http://www.investopedia.com
9. [Online], Available: http://www.rbi.org.in
10. [Online], Available: http://www.ibef.org
11. [Online], Available: http://rbi.org.in/