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Showing posts with label ECONOMY. Show all posts
Showing posts with label ECONOMY. Show all posts
Sunday, 13 May 2012
Indian Economy and Economic Issues
Economics
experts and various studies conducted across the globe envisage India
and China to rule the world in the 21st century. For over a
century the United States has been the largest economy in the world but
major developments have taken place in the world economy since then,
leading to the shift of focus from the US and the rich countries of
Europe to the two Asian giants - India
and China.
The
rich countries of Europe have seen the greatest decline in global GDP
share by 4.9 percentage points, followed by the US and Japan with a
decline of about 1 percentage point each. Within Asia, the rising
share of China and India has more than made up the declining global
share of Japan since 1990. During the seventies and the eighties, ASEAN
countries and during the eighties South Korea, along with China and
India, contributed to the rising share of Asia in world GDP.
India
is slated to become the third largest economy with a share of 14.3 per
cent of global economy by 2015 and graduate to become the "third
pole" and growth driver by 2035.
Tuesday, 3 April 2012
Ten Questions that will decide how 2012 will pan out for India
At the beginning
of the year, it is always fashionable to look ahead and conjecture what
will happen in the coming months. Also, given the kind of volatility one
has seen both in the economic numbers and the projections made by
analysts, one can never be sure of anything. But we can nonetheless
still try and assess what things will look like in 2012.
The first big question is whether the euro will collapse?
This talk has been on for quite some time and there have been strong
arguments to support the view that it will be nice to break up the union
to ensure that the wrongdoers are punished. However, given the close
inter-linkages between German and French banks, and the linkages of
their own financial systems to the over-indebted nations, they have to
stick together for their own stability. Therefore, the euro will
survive, but would tend to weaken against the US dollar, depending on
how the American economy progresses.
Question two is whether the world economy will recover?
The answer is yes, but it will be a slow one, since it has to be
driven by the US in the west and the emerging markets on the other side
of the ocean. The American economy is currently chugging along but would
be constrained on the fiscal side with a distinct conflict between the
Republicans and Democrats, who separately favour expenditure cuts and
tax increases.
The euro region, especially the PIIGS (Portugal, Ireland, Italy, Greece
and Spain), will have to resort to austerity to ensure that their
budgets are under control -— or else there could be repercussions in
terms of the financial assistance other nations are willing to provide.
Therefore, growth has to be from within rather than any kind of fiscal
stimulus.
Question three is whether the Indian economy will perform better in 2012?
There is a strong reason to believe that the Indian economy will do
better this year relative to 2011 as some of the daunting issues like
inflation seem to be moderating. The Reserve Bank and the government can
now focus on bringing the economy back on rails. Growth should pick up,
albeit gradually, and one can actually see us move towards the 7.5
percent mark in terms of GDP growth, provided the external environment
remains stable.
With the state elections out of the way, we may see Parliament
debating economic issues and passing some of the more pressing bills.
As usual, a lot will depend on how the monsoon directs farm prospects,
the policies pursued by the government in its budget and the RBI’s
policy stance.
Question four is, will the RBI reverse the interest rate hike policy pursued so far?
It appears that it most probably will once it is convinced that
inflation is under control and no longer poses a threat to the economy.
While the market would like the hard money policy reversed as soon as
possible, it will take some more time. The direction is certain unless
extraneous factors upset the apple cart, which looks unlikely at the
moment. Interest rates have peaked and from now on things can only look
better for industry, though not for savers. The unanswered question is
when will the RBI signal a reversal.
Question five is whether inflation will come down?
Surely, inflation will move downwards, as can be seen from recent
food inflation numbers. However, sticky issues still remain for the
government. This year, the Food Security Bill could be passed, which
means there will be more demand for foodgrain procurement. Can this be
inflationary? The present stocks with the Food Corporation of India can
actually meet this target (for one year) and hence need not be an
immediate concern.
Further, will the government raise prices of petro-products this
year? Probably it will do so once the elections are over, which will
have an impact on prices. Lastly, core inflation today is up more due to
rupee depreciation as global prices are benign and there are no signs
of excess demand in an environment of lower industrial growth.
Therefore, there can still be pressures on prices. The comfort is that
two successive high base years will lead to lower inflation numbers.
But, price levels will still be high and affect household spending.
Question six is whether the industrial climate will improve?
Interest rates are one part of the story,
but more importantly, there has to be movement on both demand and
supply. India has not really been hit by the global slowdown directly in
a significant manner, which means that the recovery will be a tad
easier. Therefore, consumer demand should pick up along the way while
investment activity should be buoyed by lower rates.
However, there is no certainty about the pace of recovery. Lower
interest rates should aid investment. A lot will also depend on whether
the government will return to the path of reforms this year. While there
will be opposition to some of the reforms like retail FDI, some other
action may be expected.
Question seven is what the fiscal deficit will look like for the next year?
The government has to take a call on whether it wants to move towards
the FRBM (Fiscal Responsibility and Budget Management Act) norms or
whether it would prefer to help the growth process. Actually, the
government should have a well defined policy on subsidies so that we
treat it as a given constant against which the budget is formulated. As
of now, the practice has been to blow hot and cold on food and petroleum
subsidies, which makes it appear as if the government is not sure
whether it is for or against such subsidies.
The budget should this time hopefully provide this clue. More importantly, it will focus once again on a fiscal stimulus, a la
Keynes, so that growth is restored. A big bang may be expected, which
will probably mean the maintenance of a high fiscal deficit in the
region of 5.5 percent, which is not really bad.
Question eight is how will the rupee behave?
One cannot see the rupee strengthening, given the future
scenario. Dull global growth will not help exports while imports will
keep pace with domestic growth. Foreign institutional investor (FII)
flows will probably be stagnant as financial flows remain restricted.
External commercial borrowings (ECBs) will depend on interest rate
differentials and exchange rate volatility while foreign direct
investment has to support the bridging of the external deficit.
At the same time, the dollar will remain strong versus the euro, thus
pressuring the rupee. The rupee will remain weak and at best could move
towards, say, Rs 48-49, though presently the range of Rs 52 with a band
of Rs 2 either way looks likely.
Question nine is whether liquidity will be adequate?
Greater demand from the government as well as the private sector will
put pressure on banks. Banks will also have to brace themselves for
meeting Basel III standards, which involve building Tier I capital. This
sector holds the clue to future growth of the country as banks have to
not only finance growth but also meet their capital norms. Liquidity
will, therefore, continue to be under pressure and government bond
yields will remain in the range of 8-8.5 percent for 10-year securities
even if the RBI lowers rates.
Finally, question 10, how will the stock market behave?
One never can really tell, given that any movement or non-movement on
any of the other nine questions can have a bearing on stock indices,
impacting their amplitude as well as direction. The main driving force
so far, FII investment, appears to be less likely this year, which means
investor sentiment will be the main trigger for most of the year. This,
in effect, means one cannot be sure. Our best guess is a guarded
shoulder shrug.
India’s Annual Budget Highlights for FY2012-13
India’s Finance
Minister Pranab Mukherjee has presented the annual budget today for the
next financial year 2012-13. The budget aims to create a path for strong
economic growth in the future though no big reforms was announced this
time. Excise duty on some products and Service tax have been hiked to
check the fiscal deficit in the coming financial years.
The fiscal deficit for current financial
year 2011-12 jumped to 5.9% of GDP compared to earlier projection of
4.6% of GDP. The next financial year fiscal deficit was projected at
5.1% of GDP. The key highlights of the budget are provided below.
Key Fiscal Highlights
- High crude oil prices hit growth, averaged USD 115/bbl in 2011-12
- Expect current account deficit to decrease next year
- Inflation & current account deficit to come down next year
- FY 12 was a year of recovery interrupted, said FM
- Need to improve supply side in economy
- Tight monetary policy hit consumption and growth
- Global crisis hit Indian growth
- Middle East crisis, debt worries in EU have intensified
- Performance this year was disappointing but as compared to peers India was better
- GDP expected to grow at 6.9% for current fiscal year
Fiscal Related Details
- Fiscal deficit rose due to subsidy
- Current account deficit to be at 3.6%
- To bring down subsidy to 1.7 % of GDP in the next 3 years
- Economy to grow at 7.6% in 2012/13
- Central subsidies to be under 2% of GDP
- Non plan expenditure at Rs 9.7 lakh crore
- Fiscal deficit at 5.9% in FY 12
- Gross tax receipts at 10.77 lakh crore
- Gross tax at 10.6% of GDP
- Fiscal deficit target set at 5.1% of GDP in Budget 2012-13
- FY 13 net market borrowing at Rs 4.8 lakh crores
- 10 year benchmark at 8.40%
- Government targets Rs 30,000 crore from asset sales (Through divestment)
Tax Related
- Income Tax at 20% for Rs 5 lakh to Rs 10 lakh
- Income Tax at 30% for income of over Rs 10 lakh
- Interest from savings bank account up to Rs 10,000 not to be taxed
- 10% tax rate for income between Rs 2-5 lakh
- STT reduced by 20% on delivery transactions
- Withholding tax reduced to 5% from 20%
- Exemption up to Rs 2 lakh for individuals
- Common tax code for service tax and excise
- Standard excise duty hiked to 12%
- Rs 18660 crores will result from service tax rise
- Service tax up from 10% to 12%
- All services to be taxed except those in negative list
- No change in peak customs duty
- Large cars duty raised to 24% from 22%
- Some infra construction services exempt from service tax
- LNG out of customs duty
- Full exemption on customs duty on coal
- Customs duty reduced from 7.5% to 2.5% for iron ore equipment
- Mobile phone parts exempted from basic customs duty
- Automated shuttle looms exempted from customs duty
- School education exempt from service tax
- 12% excise duty imposed on branded retail garments
- LCD and LED panels exempted from custom duty
- Customs duty on refined gold doubled
- Import of aircraft parts exempt from basic customs duty
- Basic customs duty on cigarettes reduced
- Customs duty on some gold and platinum products increased
- Cuts customs duty on rail equipment to 7.5% from 10%
- Thermal power companies exempted from customs duty for 2 years
- 5% customs duty exempted on equipment for fertilizer plants
- Excise duty raised to 12% from 10%
- Branded silver jewellery fully exempt from excise duty
- Increased customs duty on gold and platinum to 4% from 2%
- Duty on hand rolled beedis increased
- Diamonds emerald and ruby prices will increase
- Advalorem duty on some cigarettes
Allocation
- Rs 15890 crores to be provided for recapitalization of PSU banks
- Extend RRB capitalization for 2 years
- 12th plan infra investment at Rs 50 lakh crore
- Agri credit target for FY13 at Rs 5.75 lakh cr, up Rs 1 lakh cr from FY12
- Government hikes defense spending to Rs 1,93,007 crore
- Govt sees expenditure rising 29% in 2012/13
- Allocated Rs 25,555 cr for Right to Education in FY13; cuts interest rates on loans to women self help groups
- Rural development fund of 20000 crores
- NRHM allocation hiked to 20820 crores
- Rs 14000 crore for rural drinking and sanitation in FY 13
- FM accepts Nandan Nilekani panel’s recommendation on direct transfer of subsidy, to allocate Rs 14232 cr to UID project, up 13% in FY 13
- Govt doubles allocation for tax-free bonds to Rs 60,000 crore for financing infrastructure projects in 2012/13
- 10000 crores allocated to NABARD to fund RRBs
- Plan outlay for agriculture raised by 18% to Rs 20208 crore in FY 13
- Rs 300 crore for intensified irrigation program
- Plan outlay raised 18% to Rs 20,208 cr for agriculture
Other Initiatives
- Infrastructure sector to get Rs 50,00,000 lakh crore investment
- Direct, indirect tax reforms to miss deadline
- To allow external commercial borrowing to part finance rupee debt in power projects
- Proposes to remove sector-specific restriction on venture capital fund investments
- Tables a white paper on black money issue
- Coal India advised to sign FSA with power plants to provide uninterrupted coal supply to the power plants
- To introduce new law for micro finance institutions
- Government aims to trim subsidy burden
- Efforts on for consensus on 51% FDI in multi-brand retail
- FM announces new equity savings scheme
- To allow qualified foreign investors in Indian corporate debt markets
- New state owned irrigation company to be set up
- Propose National mission for food processing
- Interest subvention for short term crop loan continues
- Will allow external commercial borrowing for power, housing road construction companies
- To make 8,800 km of highways in FY13; outlay raised
- Change in IPO guidleines to promote small town participation
- To allow ECB funding to finance working capital needs of airlines for 1 year
- FDI in aviation is under active consideration
- Rs 10000 crore of tax fee bonds for power sector
- To become self-sufficient in urea production in next 5 years
- Share of manufacturing in GDP will be increased
- To allow ECB to fund part finance power rupee debt
- Oil and gas pipelines to be eligible for viable gap funding
- Double infra debt amount to Rs 60,000 crore
- To allow qualified FII into domestic corporate bonds
- Propose Central KYC depository
- Focus on removing infrastructure bottlenecks
- Changes in IPO norms to increase participation in small towns
- To introduce new Rajiv Gandhi equity scheme
- Government to include advance pricing in Finance Bill 2012
- Direct transfer of subsidy for kerosene initiated
- To implement DTC at the earliest
- GST to be operational by August 2012
- To roll out computerized scheme for fertilizer subsidy transfer
- To continue to hold 51% stake in state owned companies
Economy of India
- "Dollar" and "$" refer throughout to the US dollar
The Economy of India is the ninth largest in the world by nominal GDP and the third largest by purchasing power parity (PPP).[1] The country is one of the G-20 major economies and a member of BRICS. In 2011, the country's GDP PPP per capita was $3,703 IMF, 127th in the world, thus making a lower-middle income economy.[10]
During the 18th century India's Economy was the worlds major economy,more then the whole Europe [11]
combined but due to lack of poor administration,had a downfall after
entering of the British Government. After the independence-era Indian
economy (before and a little after 1947) was inspired by the Soviet model of economic development, with a large public sector, high import duties combined with interventionist policies,
leading to massive inefficiencies and widespread corruption. However,
later on India adopted free market principles and liberalized its
economy to international trade under the guidance of Manmohan Singh, who then was the Finance Minister of India under the leadership of P.V.Narasimha Rao the then Prime Minister.
Following these strong economic reforms, the country's economic growth
progressed at a rapid pace with very high rates of growth and large
increases in the incomes of people.[12]
India recorded the highest growth rates in the mid-2000s, and is one
of the fastest-growing economies in the world. The growth was led
primarily due to a huge increase in the size of the middle class
consumer, a large labor force and considerable foreign investments. India is the fourteenth largest exporter and eleventh largest importer in the world. Economic growth rates are projected at around 7.5% for the 2011-12 fiscal year.[13]
Overview
A combination of protectionist, import-substitution, and Fabian socialist-inspired
policies governed India for sometime after India's Independence from
the British. The economy was then characterised by extensive regulation,
protectionism, public ownership, pervasive corruption and slow growth.[14][15] Since 1991, continuing economic liberalisation has moved the country towards a market-based economy.[14][15]
By 2008, India had established itself as one of the world's fastest
growing economies. Growth significantly slowed to 6.79% in 2008–09, but
subsequently recovered to 7.4% in 2009–10, while the fiscal deficit rose from 5.9% to a high 6.5% during the same period.[16] India’s current account deficit
surged to 4.1% of GDP during Q2 FY11 against 3.2% the previous quarter.
The unemployment rate for 2010-11, according to the state Labour
Bureau, was 9.8% nationwide.[4] As of 2011, India's public debt stood at 62.43% of GDP which is highest among the emerging economies.[7]
India's large service industry accounts for 57.2% of the country's
GDP while the industrial and agricultural sectors contribute 28.6% and
14.6% respectively.[17] Agriculture is the predominant occupation in Rural India, accounting for about 52% of employment. The service sector makes up a further 34%, and industrial sector around 14%.[18] However, statistics from a 2009–10 government survey, which used a smaller sample size than earlier surveys, suggested that the share of agriculture in employment had dropped to 45.5%.[4]
Major industries include telecommunications, textiles, chemicals,
food processing, steel, transportation equipment, cement, mining,
petroleum, machinery, software and pharmaceuticals.[19] The labour force totals 500 million workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish.[19] In 2009–2010, India's top five trading partners are United Arab Emirates, China, United States, Saudi Arabia and Germany.
Previously a closed economy, India's trade and business sector has grown fast.[14]
India currently accounts for 1.5% of world trade as of 2007 according
to the World Trade Statistics of the WTO in 2006, which valued India's
total merchandise trade (counting exports and imports) at $294 billion
and India's services trade at $143 billion. Thus, India's global
economic engagement in 2006 covering both merchandise and services trade
was of the order of $437 billion, up by a record 72% from a level of
$253 billion in 2004. India's total trade in goods and services has
reached a share of 43% of GDP in 2005–06, up from 16% in 1990–91.[20] India's total merchandisee trade (counting exports and imports) stands at $ 606.7 billion[21] and is currently the 9th largest in the world.
| Economy of The Republic of India | |
|---|---|
 Mumbai, financial center of India |
|
| Rank | 9th (nominal) / 3rd (PPP) |
|---|---|
| Currency | 1 Indian Rupee (INR) ( ) = 100 Paise |
| Fiscal year | 1 April – 31 March |
| Trade organizations | WTO, SAFTA, G-20 and others |
| Statistics | |
| GDP | $1.843 trillion (nominal: 9th; 2011)[1] $4.469 trillion (PPP: 3rd; 2011)[1] |
| GDP growth | 8.5% (2009-10) |
| GDP per capita | $1,527 (nominal: 135th; 2011)[1] $3,703 (PPP: 127th; 2011)[1] |
| GDP by sector | agriculture: 18.1%, industry: 26.3%, services: 55.6% (2011 est.) |
| Inflation (CPI) | 6.95% (February 2012)[2] |
| Population below poverty line |
37% (2010) (Note: 42% live less than $1.25 a day 75.6% live less than $2 a day)[3] |
| Gini coefficient | 36.8 (List of countries) |
| Labour force | 487.6 million (2011 est.) |
| Labour force by occupation |
agriculture: 52%, industry: 14%, services: 34% (2009 est.) |
| Unemployment | 9.8% (2011 est.)[4] |
| Average gross salary | $1,330 yearly (2010) |
| Main industries | Telecommunications, Textiles, Chemicals, Food Processing, Steel, Transportation Equipment, Cement,Mining, Petroleum, Machinery, Software, Pharmaceuticals |
| Ease of Doing Business Rank | 132nd[5] (2011) |
| External | |
| Exports | $298.2 billion (2011 est.) |
| Export goods | petroleum products, precious stones, machinery, iron and steel, chemicals, vehicles, apparel |
| Main export partners | US 12.6%, UAE 12.2%, China 8.1%, Hong Kong 4.1% (2010) |
| Imports | $451 billion (2011 est.) |
| Import goods | crude oil, precious stones, machinery, fertilizer, iron and steel, chemicals |
| Main import partners | China 12.4%, UAE 6.5%, Saudi Arabia 5.8%, US 5.7%, Australia 4.5% (2010) |
| FDI stock | $19.42 billion (2010-11)[6] |
| Gross external debt | $267.1 billion (31 December 2011 est.) |
| Public finances | |
| Public debt | 62.43% of GDP (2011 est.)[7] |
| Budget deficit | 5.9% of GDP (2011-12) |
| Revenues | $218.7 billion (2011 est.) |
| Expenses | $311.2 billion (2011 est.) |
| Economic aid | $2.107 billion (2008)[8] |
| Credit rating | BBB- (Domestic) BBB- (Foreign) BBB+ (T&C Assessment) Outlook: Stable (Standard & Poor's)[9] |
| Foreign reserves | $292.7 billion (Jan 2012) |
| Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars |
|
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