Session 19

Perspectives on the Indian Economy:

Emergence of India as an Economic Power

Partha Ray

Professor of Economics, IIM Calcutta

April 2, 2021
1
 Schedule of Sessions: Post Mid term (March 5 – April 7)

No Broad Heading Date No Broad Heading Date

11 Asia: Emergence of China BPA Mar 5 12 China and Global Trade War PR Mar 10

13 Russia and the Second BPA Mar 12 14 Russia and the CIS Economies PR Mar 17
Cold War

15 Politics of the Middle East and North BPA Mar 19 16 Middle East and Oil Prices PR Mar 24
Africa (MENA)

17 India and its Neighbours BPA Mar 26 19 Emergence of India as an Economic PR April 2
Power

18 Globalization and New Nationalism: BPA March 31

Towards a New Normal?

20 Summing -up BPA & PR April 7

End-term Exam ( Apr 8 – 10)

Miles's Law , "Where you stand depends on where you sit".

Where does India stand?

3
 2.0
3.0
4.0
5.0
6.0
7.0
8.0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992

Source: World Economic Outlook

1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
GDP at (PPP) – India’s Share of world total (%)

2011
2012
2013
2014
2015
2016
2017
4

2018
2019
2020
 10.0
15.0
20.0
25.0

0.0
5.0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996

China
1997
1998
1999

India
2000
2001
2002
2003
2004
United States

2005
2006
2007
2008
2009
2010
Share in Global GDP (at PPP) (%)

2011
2012
2013
2014
2015
2016
2017
5

2018
2019
2020
Per Capita GDP at PPP(USD)
70,000

60,000

50,000

40,000

30,000

20,000

10,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Brazil China India Japan Russia United Kingdom United States 6

 India’s Demographic Diviodend

India is Young • Since 2018, India’s working-age population (people

between 15 and 64 years of age) has grown larger than the
Old Age dependency ratio (As% of working-age population) dependent population — children aged 14 or below as well
as people above 65 years of age.
• This bulge in the working-age population is going to last till
1960 1970 1980 1990 2000 2010 2019 2055, or 37 years from its beginning.

United States 15.1 16.2 17.6 19.2 18.7 19.4 24.1

Germany 17.1 21.6 23.8 21.6 24.3 31.2 33.1

Japan 8.8 10.0 13.2 17.0 24.9 35.1 46.2

Brazil 5.9 6.3 6.6 7.0 8.1 10.0 12.8

China 6.5 6.7 7.9 8.6 10.0 11.0 15.3

India 5.4 5.9 6.3 6.5 7.2 7.9 9.3

7
 World Bank Doing Business Indicators: Rankings

Topics 2017 2018 2019 2020

Overall 130 100 77 63

Starting a Business 155 156 137 136
Dealing with Construction 185 181 52 27
Permits
Getting Electricity 26 29 24 22
Registering Property 138 154 166 154
Getting Credit 44 29 22 25
Protecting Minority Investors 13 4 7 13
Paying Taxes 172 119 80 115
Trading across Borders 143 146 80 68
Enforcing Contracts 172 164 163 163
Resolving Insolvency 136 103 108 52
8
 The Global Competitiveness Report, 2019 of the World Economic Forum (Davos)

Among the BRICS, China (28th) is by far the best performer, ahead of the Russian Federation(43th), 32 places ahead of South Africa (60th)
and some 40 places ahead of both India (68th) and Brazil (71st). 9
 Transparency International’s Corruption Transparency International’s Corruption
Perception Index of Select Countries: Ranking in Perception Index of Select Countries: Global Scores
2018
Country Rank Country Rank
Country 2018 2017 2016 2015 2014 2013 2012
Denmark 1 Israel 34
New Zealand 2 Poland 36
Finland 3 Spain 41 New Zealand 87 89 90 91 91 91 90
Singapore 3 Italy 53
Sweden 3 Oman 53
Denmark 88 88 90 91 92 91 90
Switzerland 3 Mauritius 56
Norway 7 Saudi Arabia 58
Netherlands 8 Greece 67 Finland 85 85 89 90 89 89 90
Canada 9 South Africa 73
Luxembourg 9 India 78 Norway 84 85 85 88 86 86 85
Germany 11 China 87
United Kingdom 11 Indonesia 89
Switzerland 85 85 86 86 86 85 86
Australia 13 Sri Lanka 89
Austria 14 Philippines 99
Hong Kong 14 Thailand 99 Singapore 85 84 84 85 84 86 87
Iceland 14 Brazil 105
Belgium 17 Pakistan 117 China 39 41 40 37 36 40 39
Ireland 18 Vietnam 117
Japan 18 Russia 138
India 41 40 40 38 38 36 36
France 21 Bangladesh 149
United States of America 22 Syria 178
United Arab Emirates 23 Somalia 180 Brazil 35 37 40 38 43 4210 43
 Table I: Rankings of Eight Asian Economics as per Different Indices

World Bank’s Logistic Harvard University’s Transparency International’s Economist Magazine’s

Performance Index (LPI): Economic Complexity Corruption Perceptions Country Rating of
Ranking (2018) Index (ECI): Index (CPI): Financial Strength (FSR):
Ranking (2019) Ranking (2018) Ranking (2020)

1 China 27 19 87 10

2 India 42 45 78 18

3 Indonesia 51 63 89 16

4 Thailand 34 25 99 7

5 Malaysia 35 28 99 25

6 Philippines 64 33 61 6

7 Bangladesh 100 104 149 9

8 Vietnam 45 57 117 12
11
 HDI: How is it Calculated?
• Life expectancy at birth The HDI is calculated as the geometric mean (equally-
• Mean years of schooling weighted) of life expectancy, education, and GNI per capita,
as follows: The education dimension is the arithmetic mean
• Expected years of schooling of the two education indices (mean years of schooling and
• Gross national income (GNI) per capita expected years of schooling).

• Grading-Very high (49 countries)-High (53

countries)-Medium (42 countries,
including India)-Low (43 countries)

12
 HDI Ranks in Select Countries in 2019
HDI rank Country HDI rank Country
Very high human development High human development
1 Norway 72 Sri Lanka
2 Ireland 74 Mexico
2 Switzerland 79 Thailand
4 Iceland 84 Brazil
6 Germany 85 China
7 Sweden 107 Indonesia
8 Australia 107 Philippines
8 Netherlands 114 South Africa
10 Denmark 117 Viet Nam
11 Finland Medium human development
11 Singapore 129 Bhutan
13 United Kingdom 131 India
14 Belgium 133 Bangladesh
14 New Zealand 142 Nepal
16 Canada 143 Kenya
17 United States 144 Cambodia
18 Austria 154 Pakistan
19 Israel Low human development
19 Japan 161 Nigeria
23 Korea (Republic of) 163 Tanzania (United Republic of)
25 Spain 169 Afghanistan
26 France 170 Sudan
29 Italy 172 Gambia
40 Saudi Arabia 188 Central African Republic
46 Argentina 189 Niger 13
52 Russian Federation
14
Poverty headcount ratio at $1.90 a day
(2011 PPP) (% of population)
India World

1983 56.4 41.4

1987 50.6 35.8

1993 47.6 34.3

2004 39.9 22.9

2009 32.8 17.6

15
 0
0.05
0.1
0.15
0.2
0.25
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993

Top 1% Share
1994
1995
1996
1997
1998
1999
Bottom 50% Share

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Income Inequality in India: Share in Pre-tax National Income

2014
2015
2016
2017
2018
2019
16
Economic Growth

17
 Growth and Crisis in the Indian Economy: GDP Growth
Year Growth Year Growth • 1957-58 - BoP
crisis
1991-92 1.4 2009-10 8.6
• 1965-66 -
8.9 Drought + Indo-
1992-93 5.4 2010-11
(8.5)* Pakistan war
1993-94 5.7 2011-12
6.7 • Early 1970s -
(5.2)* First Oil Shock
1994-95 6.4 2012-13
4.5 • 1979-80 -
[5.5]* Second Oil
4.7 Shock (IMF
1995-96 7.3 2013-14 Loan)
[6.4]*
1996-97 8.0 2014-15 7.4* • 1991-92 - BoP /
1997-98 4.3 2015-16 8.0*
Fiscal crisis?
(IMF Loan)
1998-99 6.7 2016-17 8.3*
1999-00 6.4 2017-18 7.0*
2000-01 4.1 2018-19 6.1*
*: Data with the
New series 2011-
2001-02 5.4 2019-20 4.2* 12 base at Market
2002-03 3.9 2020-21 -7.8* price
2003-04 8.0
2004-05 7.1
2005-06 9.5
Drought Years: 1951,
2006-07 9.6 1965, 1966, 1971, 1972,
2007-08 9.3 1974,181979, 1982, 1987,
2008-09 6.7 2002, 2009
Source: CSO, Government of India.
Economic Structure

19
Structure of GDP: Two Ways to Classify
• GDP (Y) [ at market price] = C + I + G + X-M
• GDP (Y) [GVA at basic price] = GDPAgri + GDPInd + GDP Services

Consumption (C)
Agriculture

Investment (I)

Industry
Govt Expenditure (G)

Foreign Demand = Services

Exports (X) – Imports (M)
20
 Composition of Demand in India (Y = C+I+G+X-M)
Private Total
Govt Consumption Consumption Investment Valuables Exports Imports Exports - Imports
Consumption

1950-51 84.6 5.5 90.1 9.7 0 6.9 6.7 0.2 100.0

1960-61 82.3 6.4 88.7 13.6 0 4.3 6.5 -2.2 100.0

1970-71 76.3 8.9 85.2 14.9 0 3.7 3.8 -0.1 100.0

1980-81 75.2 9.7 84.9 18.1 0 6.1 9.1 -3.0 100.0

1990-91 65.8 11.6 77.4 24 0 7.1 8.5 -1.4 100.0

2000-01 64.0 12.7 76.7 23.5 0.7 13.3 14.2 -0.9 100.0

2010-11 54.7 11.0 65.7 37.6 1.1 22.4 26.9 -4.5 100.0

2019-20 57.2 11.3 68.5 31.6 1.3 19.3 21.4 -2.0 100.0

Numbers may not add up to 100 due discrepancies

Valuables include: (a) Precious stones and metals such as diamonds, non-monetary gold, platinum, silver, etc., held by any unit including enterprises provided that they are not intended to be used as
intermediate inputs into processes of production; (b) Paintings, sculptures, etc., recognized as works of art and antiques; and (c) Other valuables, such as jewellery fashioned out of precious stones and metals
and collections.
Source: National Accounts Statistics, Central Statistics Office, various issues.

Indian Economy is hugely driven 21

 Composition of Demand in China (%)
Item 2010 2011 2012 2013 2014 2015

1a. Household final consumption (C) 35.7 36.5 37.2 37.4 38.1 39.1

1b. Government final Consumption (G) 13.1 13.4 13.7 13.8 13.6 14.1

1c. Consumption 48.8 49.9 50.9 51.2 51.7 53.2

2. Gross capital formation (I) 47.0 47.0 46.5 46.6 46.2 44.9
3. Exports (X) 26.5 26.8 25.7 24.8 24.4 22.4
4.Imports (M) 22.9 24.4 23 22.3 21.8 18.8
5. Exports - Imports 3.6 2.4 2.7 2.5 2.6 3.6
6. Statistical discrepancy 0.6 0.7 -0.1 -0.3 -0.5 -1.6

7. Expenditure on GDP 100 100 100 100 100 100

22
 Structure of the Indian Economy
1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2010-11 2019-20

1. Agriculture & allied activities 55.3 50.8 44.3 37.9 31.4 23.9 18.3 14.8

2. Industry 10.6 13.2 15.5 17.4 19.8 20.0 24.1 21.8

a) Mining & Quarrying 1.4 1.7 1.7 2.0 2.7 2.3 4.1 2.4

b) Manufacturing 8.9 10.9 12.6 13.8 14.9 15.3 17.7 17.1

c) Electricity, Gas & Water Supply 0.3 0.6 1.1 1.6 2.2 2.4 2.2 2.3

3. Services (Including Construction) 34.1 36.0 40.2 44.6 48.8 56.1 57.6 63.1

a) Construction 4.4 5.6 6.6 6.6 6.1 5.8 8.9 7.8

b) Trade, Hotel, Transport and Communications 11.3 13.1 14.7 17.4 18.3 22.3 17.2 19.4

c) Finance, Insurance, Real Estate & Business Services 7.7 7.0 6.8 7.5 10.6 13.0 19.0 13.8

d) Community, Social & Personal Services 10.6 10.4 12.0 13.1 13.8 15.0 12.4 16.0

4. GDP at Factor Cost / GVA at basic price 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: National Accounts Statistics, Central Statics Office, various issues.

Services is a major driver of Indian Economy
23
 Jobs and Growth: Sectoral Share in Employment vis-à-vis GDP (%)

Sectors 1999-2000 2004-05 2009-10

Employ-
Employment GDP Employ-ment GDP GDP
ment

Agriculture 59.9 23.2 56.6 19.0 53.2 14.6

Manufacturing 11.1 15.2 12.2 15.3 11.0 16.2

Mining 0.5 3.0 0.6 2.9 0.6 2.3

Electricity, Gas & Water Supply 0.3 2.3 0.3 2.1 0.3 2.0

Construction 4.4 6.5 5.7 7.7 9.6 7.8

Services 23.7 49.8 24.7 53.0 25.3 57.1

Total 100.0 99.9 100.0 100.0 100.0 100.0

24
 9.4
1981-82

4.9
1982-83

7.6
1983-84

6.4
1984-85

4.5
1985-86

5.8
1986-87

8.2
1987-88

7.5
1988-89

7.4
1989-90
WPI Inflation

1990-91
10.3

1991-92
13.7

1992-93
10.0

8.3

1993-94
1994-95
12.6

8.0

1995-96
4.6

1996-97
4.4

1997-98
5.9

1998-99
3.3

1999-00
7.1

2000-01
3.6

2001-02
3.4

2002-03
5.5

2003-04
6.5

2004-05
4.5

2005-06
6.6

2006-07
4.7

2007-08
8.1

2008-09
3.8

2009-10
9.6

2010-11
8.9

2011-12
6.9

2012-13
5.2

2013-14
1.3

2014-15
-3.7

2015-16
1.7

2016-17
2.9

2017-18
25
4.3

2018-19
1.7

2019-20
 Inflation has come down: Good Policy and Good Luck
Headline CPI Inflation (%) Sub-components of Supply Shocks
CPI Inflation (%)

Mean Standard Median Maximum Minimum Food and Fuel and Ex-Food and Agricultural International
Deviation Beverages Light (6.8) Fuel (Core) GVA Growth Crude Oil Prices
(45.9) (47.3) (%) (USD/Barrel)

2012-13 10.0 0.5 10.1 10.9 9.3 11.2 9.7 9.0 1.5 103.2
2013-14 9.4 1.3 9.5 11.5 7.3 11.9 7.7 7.2 5.6 103.7
2014-15 5.8 1.5 5.5 7.9 3.3 6.5 4.2 5.4 -0.2 83.3
2015-16 4.9 0.7 5.0 5.7 3.7 5.1 5.3 4.6 0.6 46.1
2012-16 (Apr-12 7.3 2.4 7.1 11.5 3.3 8.7 6.7 6.5 1.9 84.0
to Sep-16)

2016-17 4.5 1.0 4.3 6.1 3.2 4.4 3.3 4.8 6.8 47.9
2017-18 3.6 1.2 3.4 5.2 1.5 2.2 6.2 4.6 6.6 55.7
2018-19 3.4 1.1 3.5 4.9 2.0 0.7 5.7 5.8 2.6 67.3
2019-20 4.8 1.8 4.3 7.6 3.0 6.0 1.3 4.0 4.3 58.6
2016-20 (Oct-16 3.9 1.4 3.6 7.6 1.5 3.3 4.1 4.8 5.1 57.4
to Mar-20)
Note: Figures in brackets are weights in the CPI basket. GVA: Gross Value Added.
Source: Report on Currency and Finance, 2020-21, RBI; pp. 25 -26. 26
 0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
Trends in Fiscal Deficit (=Government Borrowing) (% of GDP)

2016-17
2017-18
2018-19
27

2019-20
2020-21
 -12.0
3.0
8.0

-7.0
-2.0
13.0
1970-71

1971-72

1972-73

1973-74

1974-75

1975-76

1976-77

1977-78

1978-79

1979-80

1980-81

1981-82

1982-83

1983-84

1984-85

1985-86

Trade Balance
1986-87

1987-88

1988-89

1989-90

1990-91

Invisibles Balance
1991-92

1992-93

1993-94

1994-95

1995-96
Trends in India’s BoP (% of GDP)

1996-97

1997-98

1998-99

1999-00
Current Account Balance /GDP

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06
Foreign Investment

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16
28

2016-17

2017-18

2018-19

2019-20
Pandemic & the Indian Economy

30
Context - Macro Policy Context
• Macro Indicators
• Growth in downswing with associated adverse impact Saving and Capital Formation (% of GDP)
on employment
• Migrant Labourers suffered due to the sudden and 42.0

unplanned lockdown
• Inflation – Inflation targeting Central Bank and Partial
40.0
success notwithstanding some upswings due to
structural factors
• Downturn in Savings and Investment 38.0

• Financial Indicators
• (Irrational) Exuberance in the Stock Market 36.0
• Shaky domestic banking sector saddled with growing
NPAs
• External Sector 34.0

• Large and growing trade deficit

• Persistent CAD 32.0
• Comfortable Capital Account
• High inflow and some volatility in Foreign Portfolio flows
• Substantial Forex Reserves 30.0

2019-20
2008-09
2004-05

2005-06

2006-07

2007-08

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19
• Policy Complexity
• IBC (Insolvency and Bankruptcy Board of India)
• Increasing NPA of the Banking Sector
Gross savings Gross Capital Formation
• Huge improvement in Doing Business Indicators
• Stagnant Human Development Indictors
31
2021 GDP slowdown will be the 4th year of slowing GDP Growth Rate

GDP Growth Rate

(Real GDP, constant prices)
9 8.5
8.3
7.9 8.1 8.0
7.9
8 7.7
7.4
7.0
7
6.4
6.1
6 5.5
5.2

5
4.2
4
3.1
3

Source: Reserve Bank of India

Uneven Sectoral Growth Rates
Pandemic and Economic Stimulus

34
Economic Stimulus
No Type of Support Amount (in crore) % of Nominal GDP (of 2019-20)
I Monetary Stimulus: Reserve Bank of India Measures 9,57,000 4.68
II Fiscal Stimulus 5,80,450 2.84
2. Pradhan Mantri Garib Kalyan Package 1,70,000 0.83
3. Health Sector Package 15,000 0.07
4. Revenue loss due to tax concessions 7,800 0.04
5. Income transfer/support 3,87,650 1.90
a) Fund of Funds for MSME 50,000 0.24
b) EPF Support for Business & Workers 2,800 0.01
c) Reduction in EPF rates 6,750 0.03
d) Reduction in TDS/TCS rates 50,000 0.24
e) Free Food grain for Migrant Workers 3,500 0.02
f) Interest Subvention- MUDRA Loans 1,500 0.01
g) Credit facility for street vendors 5,000 0.02
h) Food Micro Enterprises 10,000 0.05
i) Housing CLSS MIG 70,000 0.34
j) Pradhan Mantri Matsya Sampada Yojana 20,000 0.10
k) Agriculture and Animal Husbandry related 1,20,000 0.59
l) Viability Gap funding 8,100 0.04
m) Additional MGNREGS allocation 40,000 0.20
III Others 7,15,000 3.50
6. Non-guarantee liquidity schemes 2,30,000 1.13
a) Emergency WC through NABARD 30,000 0.15
b) Additional credit through KCC 2,00,000 0.98
7. Fully / Partially Guaranteed Liquidity Schemes 4,85,000 2.37
a) Working Capital facility for MSME 3,00,000 1.47
b) Subordinate debt for MSME 20,000 0.10
c) Special Liquidity Scheme for NBFCs/HFCs/MFIs 30,000 0.15
d) Partial credit guarantee for NBFCs 45,000 0.22
e) Liquidity Injection for DISCOMs 90,000 0.44
IV Total 22,52,450 11.02
35
 Monetary Policy – Feb 5, 2021
Policy Repo Rate 4.0% Base Rate 7.40% - 8.80%
CRR 3% MCLR (Overnight)
Reverse Repo Rate 3.35% 6.65% - 7.10%
[Marginal Cost of Funds based Lending Rate]
Marginal Standing Facility Savings Deposit Rate 2.70% - 3.00%
4.25% SLR 18%
Rate Term Deposit Rate > 1 Year 4.90% - 5.50%

Repo Rate
6.50%
6.25%
6.00% 6.00%
5.75%
5.50%
5.40%
5.15%
5.00%

4.50%
4.40%
4.00% 4.00%

3.50%

• Monetary policy was already in an accommodative mode before the outbreak of COVID-19, with a cumulative repo rate cut of 135 basis points between
February 2019 and the onset of the pandemic.
• Consistent with this policy stance, liquidity conditions were also kept in ample surplus all through since June 2019.
• The liquidity measures announced by the RBI since February 2020 aggregate to about ₹9.57 lakh crore (equivalent to about 4.7 per cent of 2019-20
nominal GDP).
• “All members of the MPC … unanimously voted for keeping the policy repo rate unchanged at 4 per cent. Furthermore, all members of the MPC voted
to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive
growth on a durable basis and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going
36
forward”.
 Unpleasant Budgetary Arithmetic: 2019-20, 2020-21(BE & RE) & 2021-22 (BE)
2020-21 2021-22 (BE)
Budget Estimate (BE) Revised Estimate (RE) Difference % increase in
2019-20 (A) [in Feb 2020] [in Feb 2021] between 2021-22 (BE)
Rs. Crore % to Total
RE & BE (Rs. over 2020-
Rs. Crore % of Total Rs. Crore % of Total Crore) 21(RE)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
1 Revenue Receipts 16,84,059 20,20,926 66.4 15,55,153 45.1 -4,65,773 17,88,424 51.3 15.0
2. Tax Revenue (Net to Centre) 13,56,902 16,35,909 53.8 13,44,501 39.0 -2,91,408 15,45,396 44.4 14.9
3. Non Tax Revenue 3,27,157 3,85,017 12.7 2,10,652 6.1 -1,74,365 2,43,028 7.0 15.4
4 Capital Receipts 10,02,271 10,21,304 33.6 18,95,152 54.9 8,73,848 16,94,812 48.7 -10.6
5 Recovery of Loans 18,316 14,967 0.5 14,497 0.4 -470 13,000 0.4 -10.3
6 Other Receipts 50,304 2,10,000 6.9 32,000 0.9 -1,78,000 1,75,000 5.0 446.9
7 Borrowings and Other Liabilities 9,33,651 7,96,337 26.2 18,48,655 53.6 10,52,318 15,06,812 43.3 -18.5
8 Total Receipts (1+4) 26,86,330 30,42,230 100.0 34,50,305 100.0 4,08,075 34,83,236 100.0 1.0
9 Total Expenditure (10+13) 26,86,330 30,42,230 100.0 34,50,305 100.0 4,08,075 34,83,236 100.0 1.0
10 On Revenue Account 23,50,604 26,30,145 86.5 30,11,142 87.3 3,80,997 29,29,000 84.1 -2.7
11. Interest Payments 6,12,070 7,08,203 23.3 6,92,900 20.1 -15,303 8,09,701 23.2 16.9
12 Grants in Aid for creation of capital assets 1,85,641 2,06,500 6.8 2,30,376 6.7 23,876 2,19,112 6.3 -4.9
13 On Capital Account 3,35,726 4,12,085 13.5 4,39,163 12.7 27,078 5,54,236 15.9 26.2
14 Revenue Deficit (10-1) 6,66,545 6,09,219 14,55,989 8,46,770 11,40,576
% of GDP 3.3 2.7 7.5 5.0 5.1
15 Fiscal Deficit [9-(1+5+6)] 9,33,651 7,96,337 18,48,655 10,52,318 15,06,812
% of GDP 4.6 3.5 9.5 6.0 6.8
Higher Fiscal Deficit: Possible implications

Higher Fiscal Deficit:

Good, Bad or Ugly?

But, in an economy experiencing

Financial Markets do not like it: a downturn with low direct tax
Corporates do not like it: Fear of Credit Rating Agencies do not like
collection / compliance /
Implications for Bond Market Crowding out it - and downgrade the economy
coverage, increase in deficit is
expected / normal

Complications:
1. FRBM Act / Rules
2. Fiscal Fundamentalism from International Institutions
3. Fear of Rating Downgrade
4. Implications for exchange rate
5. Implications for the Equity Market Players – Mutual Funds / FPI 38
Fiscal and Monetary
Policy Coherence
• Implications of Higher Market Borrowing:
• Can there be Crowding Out?
• RBI Cannot directly buy securities from the
government
• RBI had to intervene with massive Open Market
Operations to buy securities from the secondary
market so that there is space created for new
securities to be sold by the government
Infrastructure
• Creation of a development finance institution called the National Bank for Financing
Infrastructure and Development, with a capital base of ₹ 20,000 crore and a lending
target of ₹ 5 lakh crore
• we all know the reasons for the failure of erstwhile DFIs in India and the limited
capability of commercial banks to extend term loans, a proposal was mooted by RBI
in April 2017 to establish Wholesale and Long-Term Finance (WLTF) Banks.
• What would be sources of financing for this DFI,
• How far is this DFI close to the idea of WLTF Banks?
• The budget gave a boost to the capital goods sector
• The government also provided an additional ₹ 2 lakh crore to states for capital
expenditure over and above.
• Special infrastructure projects for states of Assam, West Bengal, Kerala and Tamil Nadu.
• A whooping 1.03 lakh crore has been set aside for Tamil Nadu,
• Kerala has been earmarked ₹ 65,000 crore
• Assam has received ₹ 34,000 crore.
• Electoral Gains?
Banking Sector
• Gross non-performing assets (a euphemism for bad Gross NPA (% of Gross Advances)
loans) ratio (i.e., as a percentage of total advances) 13.5
of scheduled commercial banks might increase
• from 7.5 per cent in September 2020 to 13.5 per cent 11.2

by September 2021 under the baseline scenario. 8.8

9.6 9.3

• In the eventuality of a deterioration in the 7.6

8.5

macroeconomic environment, this ratio may escalate to 7.2

14.8 per cent. 5.2

4.6
3.8
3.3 3.1 3.2
2.5 2.3 2.3 2.4 2.5

• Bad Bank / Stressed asset resolution : An asset 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

reconstruction company and Asset Management

Company will be set up to take over
• the existing stressed debt and then manage and dispose
of the assets to Alternate Investment Funds and other
potential investors for eventual value realization
• Recapitalization of PSBs: Rs. 200bn recapitalization
budgeted in 2021-22 same as 2020-21.
• In 2020-21 out of the INR200bn recapitalization,
INR55bn has been infused via non-interest bearing
special securities.

41
Budget and the External
Sector
• India has inverted duty structure where custom duties on raw
materials and primary goods are higher than final goods
• In the last 4-5 years, the Union Budget routinely increased import
duties and tries to correct this distortion
• This budget is no exception. Import duties have been raised on a
large number of items.
• This is largely in line with the Atmanirbhar India initiative of
promoting domestic industries
 liked it

20000.00
25000.00
30000.00
35000.00
40000.00
45000.00
55000.00

50000.00
Why the “Market”

2020-01-01

2020-02-01

2020-03-01

2020-04-01

2020-05-01

2020-06-01

2020-07-01

2020-08-01

2020-09-01
BSE 30 (SENSEX)

2020-10-01

2020-11-01
• No new taxes

2020-12-01

2021-01-01

2021-02-01
• Increased transparency

2021-03-01
• Government spends more

5.8
5.85
5.9
5.95
6.05
6.1
6.15
6.2
6.25
6.3

Jan 01, 2021

Jan 06, 2021
Jan 11, 2021
Jan 14, 2021
Jan 19, 2021
Jan 22, 2021
• Talk about disinvestment and privatization

Jan 28, 2021

Feb 02, 2021
Feb 05, 2021
Feb 10, 2021
Feb 15, 2021
Feb 18, 2021
Feb 24, 2021
Mar 01, 2021
India 10-Year Bond Yield

Mar 04, 2021

Mar 09, 2021
Mar 15, 2021
Mar 18, 2021
Mar 23, 2021
Mar 26, 2021
Banking Sector: Stress Assets
 India’s Balance of Payments: 2019-20 (USD Billion)
Credit (Inflow) Debit (Outflow) Net
A.1) Merchandise (Exports) 320.4 (Imports) 477.9 -157.5
A.2) Invisibles 321.7 188.9 132.8
A.2.a) Services 213.2 128.3 84.9
A.2.a.1) Travel 30.0 22.0 8.0
A.2.a.2)Transportation 21.0 24.3 -3.3
A.2.a.3) Insurance 2.4 1.7 0.7
A.2.a.4) G.n.i.e. 0.7 1.1 -0.4
A.2.a.5) Miscellaneous 159.1 79.1 80.0
A.2.a.5.a) Miscellaneous- of which Software Services 93.1 8.5 84.6
A.2.b) Transfers 83.4 8.1 75.2
A.2.b.1) Official Transfers 0.2 1.2 -1.0
A.2.b.2) Private Transfers 83.2 7.0 76.2
A.2.c) Income 25.2 52.4 -27.3
A.2.c.1) Investment Income 19.5 49.8 -30.2
A.2.c.2) Compensation of Employees 5.6 2.7 2.9
A) Current Account (A1+A2) 642.1 666.8 -24.7
B.1) Foreign Investment 368.5 324.1 44.4
B.1.a) Foreign Direct Investment 77.8 34.8 43.0
B.1.b.1) Foreign Portfolio Investment 290.7 289.3 1.4
B.1.b.1.a) Foreign Portfolio Investment in India 284.1 283.6 0.6
B.1.b.1.a.1) Portfolio Investment in India of which FIIs 284.1 283.6 0.6
B.1.b.1.a.2) Portfolio Investment in India of which GDRs/ADRs 0.0 0.0 0.0
B.1.b.2) Foreign Portfolio Investment Abroad 6.6 5.8 0.9
B.2) Loans 94.2 68.6 25.7
B.3) Banking Capital 84.7 90.0 -5.3
B.4) Rupee Debt Service 0.0 0.1 -0.1
B.5) Other Capital 62.5 44.1 18.5
B) Capital Account 610.0 526.9 83.2
C) Errors and Omissions 1.9 0.9 1.0
D) Overall Balance (A+B+C) 1,254.0 1,194.5 45 59.5
E) Foreign Exchange Reserves (Increase - / Decrease +) 0.0 59.5 -59.5
Balance of Payments: April – December 2020
Key Features of India’s BoP in Q3:2020-21
April-December April-December  India’s current account balance recorded
 a deficit of US$ 1.7 billion (0.2 per cent of GDP) in
2020 (P) 2019 Q3:2020-21
 after a surplus of US$ 15.1 billion (2.4 per cent of GDP)
Credit Debit Net Credit Debit Net in Q2:2020-21 and US$ 19.0 billion (3.7 per cent of
GDP) in Q1:2020-21;
 a deficit of US$ 2.6 billion (0.4 per cent of GDP) was
A. Current Account 430.6 398.2 32.4 485.0 510.2 -25.1 
recorded a year ago [i.e. Q3:2019-20].
There was a rise in the merchandise trade deficit to US$ 34.5
billion from US$ 14.8 billion in the preceding quarter
 Net services receipts increased, primarily on the back of higher
net export earnings from computer services.
1. Goods 205.2 265.4 -60.2 243.9 366.4 -122.5  Private transfer receipts, mainly representing remittances by
Indians employed overseas, declined marginally on a y-o-y
basis but improved sequentially by 1.5 per cent to US$ 20.7
billion in Q3:2020-21.
of which: POL 17.6 53.8 -36.3 32.1 96.7 -64.6  Net outgo on the primary income account, primarily
reflecting payments of investment income, increased to US$
10.1 billion from US$ 7.4 billion a year ago.
2. Services 150.2 85.2 65.0 160.1 97.2 62.9  In the financial account, net foreign direct investment (FDI)
recorded robust inflow of US$ 17.0 billion as compared with
US$ 9.7 billion in Q3:2019-20.
3. Primary Income 15.8 42.9 -27.1 18.2 40.7 -22.5  Net foreign portfolio investment (FPI) was US$ 21.2 billion
as compared with US$ 7.8 billion in Q3:2019-20, primarily
reflecting net purchases by foreign portfolio investors in the
4. Secondary Income 59.4 4.7 54.7 62.8 5.9 56.9 equity market.
B. Capital Account and  External commercial borrowings to India recorded net outflow of
460.8 493.9 -33.1 433.7 408.7 25.0 US$ 1.7 billion in Q3:2020-21 as against an inflow of US$ 3.2
Financial Account billion a year ago.
 Net accretions to non-resident deposits increased to US$ 3.0
o/w Change in Reserves 0.0 83.9 -83.9 0.0 40.7 -40.7 billion from US$ 0.8 billion in Q3:2019-20.
(Increase (-)/Decrease (+))  There was an accretion of US$ 32.5 billion to the foreign
exchange reserves (on a BoP basis) as compared with that
C. Errors & Omissions (-) of US$ 21.6 billion in Q3:2019-20
0.7 0.0 0.7 0.1 0.0 0.1
(A+B)
46
India’s Ratings

Moody’s Fitch
Date Rating Outlook Date Rating Outlook
Dec-11 Baa3 Stable Dec-11 BBB- Stable
Apr-15 Baa3 Positive Dec-15 BBB- Stable
Nov-16 Baa3 Positive Jul-16 BBB- Stable
Nov-17 Baa2 Stable May-17 BBB- Stable
Nov-19 Baa2 Negative Dec-19 BBB- Stable
Jun-20 Baa3 Negative Jun-20 BBB- Negative

Note: Standard and Poor’s has been maintaining India’s outlook as stable since September 2014.
48
49
To sum up….
• India has come a long way and emerged as the fifth largest economy
• Pluses
• Given the size, demography and inherent dynamism India is going ahead
• Inflation is under control
• Government finance has been careful
• BoP situation is under control with decent forex reserves ($580.3 billion as of March 5, 2021)
• Minuses
• However, given the vast population, there are issues related to distributive justice – India’s per capita
income at USD 2000 is quite low. Number of India’s poor people is also large.
• Even independent of Covid, of late growth has been decelerating and savings / investment rates have been
coming down
• Banking sector’s NPA has been another cause of concern
• Need a three pronged approach
• Prudent monetary and fiscal policy to handle the deceleration in growth / business cycles
• Dynamic Structural Policies to impart the growth impetus – kick-start the investment cycles
• Specific policies relating to transfer of income, health and education for distributive justice.
• All these to be implemented within a framework of democracy.
50
Thank You

51