Structure of the Indian

Economy and Changing

structure of Economy

.
Indian Economy --- Overview
In this chapter we propose a
broad profile of the Indian
economy as it will help us in
understanding the scope for
business activity in the
country.
.
 India is the second largest country
in the world, both in terms of
population and area.
 India has 16% of the world’s
population and roughly 12% of the
world’s land.
.
India is also the sixth largest
economy in terms of Gross
Domestic Product (GDP).
India is, without doubt, a key
player in the world economy.
.
 Agricultural activity in India
contributes only 23% to the GDP,
but employs approximately 65% of
the work force. This places a
burden on the Indian economy.
.
 ON the other hand, India has the
comparative advantage in
terms------------ of the considerable
command of the English language
and the technological abilities in
certain sections of the population.
.
 SOME of the problems faced by
the economy like---------
inadequate employment
opportunities, inequalities in the
socio economic status and
poverty can prove disastrous to
any globalizing economy.
.
SOME of the other concerns
regarding the Indian economy
are---------- poor infrastructure,
fiscal deficit and a large amount
of Non Performing Assets (NPA).
.
India has changed from public
sector domination in
industries to an
--------increasingly liberalized
system, with both domestic and
foreign players.
.
 It has also changed from a sellers market
with limited competition --------to a buyers
market with increased competition,
 from a country with Quantitative
Restrictions(QR) and tariffs to Quota-free
and open economy and from a restricted
financial market to a liberalized
financial market with prudential norms.
.
THESE changes are a
testimony to the dynamic
nature of the Indian
economy.
.
 SOME key strengths that India can
leverage upon in creating its own
indigenous industries can be its
-------------------vast pool of human
resources, natural resources and
entrepreneurial talent.
.
 It should be noted that the country
has a rich pool of skilled workers
with the world’s third largest
reservoir of engineers and a
handful of quality educational
institutions.
.
 The Indian economy achieved a growth
rate of above 7% in the recent past.
 This robust performance of the economy
was due to high growth rates in service
sector and a world economic environment
that provided conducive to the Indian
economy.
.
A strong Balance of Payment
(BOP) position in recent years
has resulted in a steady
accumulation of foreign
exchange reserves.
.
The term ‘Balance of
Payments’ refers
-----------------------to the yearly
financial statement of a country
for the transactions in the
external sector with the rest of
the world.
.
 THE BOP table has got two sides
(i.e.) credit and debit, hence it can
be conceptualized as ‘balance
sheet’ of the country with the rest
of the world.
.
 The economic survey of the year 2004-
05 had hinted that the BOP appears to
be resilient and strong even after the
increase in the imports.
 The sustained momentum of the
manufacturing sector has helped
greatly in the growth of exports.
.
 The exports of services
like----------------------------------------------
software, business and other commercial
services has also been playing a significant
role in adding to the Balance of Payments.
 The reserves position is also very
comfortable due to the increasing capital
inflows into the country.
.
 THE current account of BOP has been
in surplus since 2001-02.
 While the trade deficit increased, the
deficit was neutralized by a higher
surplus in the ‘invisibles’ contributed
mainly by -------------software service
exports and private transfers.
.
Growth momentum in exports
has been maintained;
India has registered a growth of
20% in exports in the last few
years.
.
 DESPITE a higher value of total
imports in the last few years mainly
due to the petroleum and oil imports,
 India did not suffer a negative trade
balance as it was highly compensated
by the service exports.
.
 THE main contributors to capital
account surplus were
-----------------------------------------------
----------------------the banking capital
inflows, foreign institutional
investments and other capital
inflows.
Characteristic Features of Indian
Economy
 Indian Economy is considered as a
‘developing economy’ based on its
characteristic features.
 But it is also called an ‘underdeveloped
economy’ mainly because of the country's
low per capita income, low literacy rate
and rapid population growth.
.

THE salient features of

Indian economy can be
specified as ----------------
.
 1.Predominance of agriculture.
 2.Rapid population growth.
 3.Low per capita income (GDP per capita).
 4.Unemployment.
 5.Capital – scarce economy.
 6.Technological Backwardness.
 7.Lack of Entrepreneurs.
Economic Reforms in India
 The 1991 crisis --------- In 1991,
Indian economy faced a severe
crisis.
 The symptoms of the crisis were
evident in the second half of
eighties itself in the form of macro-
economic imbalances.
.
Pressures generated by the
large and persistent fiscal
deficits and foreign exchange
crisis.
.
 Adverse global developments in
1990-91 .
 i.e., the slowdown in world trade
following recession in the industrial
world, the Gulf crisis of August
1990 aggravated the crisis.
.
The current account deficit
soared to a level of 3.2% of
GDP in 1990-91.
There was a massive
shortage of the foreign
exchange reserves.
Stabilization Measures
 Stabilization measures: To correct the
imbalances in the Indian economy.
 1.Cut in Govt expenditures to bring about
reduction in budget deficit.
 2.Liberalization of domestic markets, which
included elimination of price controls and
cutting down subsidies on agriculture
inputs and products.
Structural Adjustment Programme and
Measures (Changing structure of economy)

 The Govt of India implemented the

following ‘structural adjustment
measures’ as part of the economic
reforms.
 1.Liberalisation of trade and the
elimination of the entry barriers into
industry with a view to make the
industry more competitive.
Economic Reforms in India
 2.Liberalisation of banking system
and reducing the role of the state
or public sector banks.
Economic reforms in India
 3.Lessening the control of the monetary
authorities on policies such that the rates of
interest in money market would be determine
by the market forces (and not by the
Reserve Bank of India, in exercising the
powers vested on it as the central bank of the
country) and reduction in Statutory
Liquidity Ratio (SLR).
.
 4.Gradual privatization of
commercial, financial and industrial
enterprises.
 5.Reduction in the role of the state
in the social sectors as well, like
that in the education and health
sectors.
.
 6.Tax reforms for rationalization of
the tax structure.
 7.Poverty alleviation programmes
through the creation of social
development fund.
.
 Reduced list of industries for the
public sector, automatic approvals
of foreign technology agreements
and for 51% of foreign equity
participation---------------------
.
 ----------------------------Private
investment in infrastructure, liberal
location policy for industry,
deregulation in small scale
industrial units and liberal policy
measures for attracting FDI, and
NRI investment.
.
 THE main objective of the
liberalized policy measures
was------------------------------- to
enhance the productivity and
competitive efficiency in the
industrial sector.
.

 END
PRESENT CONDITION(Dt.28-01-09)

 Third Quarter review of monetary

policy 2008-09.
 GDP Growth rate for 2008-09 is 7%
from 7.5%--8.0% projected earlier.
.
 RBI Governor Dr.Duvvuri Sabba Rao
---------------------------- Cut deposit and lending
rates.

Downside risks to growth have amplified

because of slowdown in industrial activity
and Weakening of external demand as
reflected in the decline in exports.
Service sector activities are likely to further
declerate in the second half of 2008-09.
.
 Projected to decelerate inflation below 3% by
end-march 2009.
Analysis of the sectors:
 This section is devoted to the study of trends
in different sectors of Indian
economy---------------------------
 1.External sector.
 2.Industrial Sector.
 3.Agricultural sector.
 4.Infrastructure sector.
 5.Social sector.
 6.Service sector.
External Sector
 EXTERNAL SECTOR:
 The external sector plays a key role in
enabling the conditions to accelerate
the pace of the external liberalization
process.
.
 Despite the international
uncertainties, Indian external
sector is in a strong position and
driving the macro-economic
strength of the country.
.
 Global imbalances and their
disruptive impact on currency
markets,
 hardening of interest rates,
 volatility in crude oil prices etc. continue
to be some of the major uncertainties
and risks faced by the economy.
.
 BOP appears to be resilient and strong
even after the increase in the imports.
 The sustained momentum of the
manufacturing and IT sector has helped
greatly in the growth of the exports.
.
 The export of services like software, business
and other commercial services has also been
playing a significant role in adding to the
BOP.
 The reserves position is also very
comfortable due to the increasing capital
inflows into the country.
.
 The image of India from a land of farmers has
changed to that of a technology hub and the
country is seen as an international destination
for------------------------- R&D, engineering
design, telecommunications, super specialty
health care and a manufacturing hub for high
technology products.
.
 In the area of biotechnology, india
has tremendous potential to
become a global R&D player with
the changed patent laws.
 IT and ITES enabled services ---------high
skilled Indian work force.
.
 An increase in the FDI would bring
with it better technology,
 human capital formation, exports
and increased productivity.
.
 The country also witnessed the
appreciation in the value of the rupee
with respect to the US dollar in the
recent past.
.
 There was a rise in the case of
imports like capital goods
----------this growth in the imports
was also a broad based one with a
surge in ---------import of food,
capital goods, raw materials ,
intermediates and consumer
goods.
.
 Import of capital goods
accelerated from 6.3% in 2001-
02 to 35% in 2004-05 led by
import of transport equipment,
machinery and manufacture of
metals.
.
 Trade is important for the economy of
any country and the opportunities for
the improvement in trade is further
aided by the formation of trade groups
like SAFTA( South Asian Free Trade
Association) with the SAARC nations.
.
Even though trade prospects
are high in the coming years,
there are certain threats like
----------------------firmness of the
global oil prices, and the risk of
interest rate hikes in developed
countries.
.
 INDIA also needs micro-strategies
to put export growth on priority.
 Efforts towards the service sector
------------------------------- In which
the country has the potential to
emerge as a major player.
Industrial Sector
 Industrial Sector in india contributes a
meager 27% of the country's GDP. This
is mainly because of the fact that India's
competency lies in the services sector.