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6 Unit 4 Economic Policy
6 Unit 4 Economic Policy
Paradeep Agrawal
Professor of Economics, Institute of Economic Growth
Discussion Points
3
Direction of Economic Reforms
since 1991
Continued… 4
Economic Reforms Implemented
The Reforms thus designed were implemented through
several Sector Reforms viz.,
5
Reforms on the way
• Reforms Under way
1. Special Economic Zones may help industry and IT
sectors (but are facing problems in land
acquisition)
2. Government emphasizing Infrastructure
Development which will increase economic activity
and growth.
Next 10 years likely to see major infrastructure
development in India
• Reforms on the wish list (opposed by some within
UPA)
1. Privatization of more public sector enterprises
2. Labour market reform to make hiring and firing
easier
6
WHY HAVE THE REFORMS BEEN
SO SUCCESSFUL IN INDIA
• India was already a reasonably mature industrial economy with
a strong tradition of entrepreneurship and all market institutions
largely in place along with a genuine democracy, free press and
impartial judiciary (unlike say in former USSR).
• Reforms have unleashed the creative energy of the Indian
Entrepreneurs.
• IT and Telecommunications sectors have seen revolutionary
growth due to the emergence of several very successful
domestic entrepreneurs.
• Banking sector has improved considerably; international money
transfers even more so.
• Doing business outside of one own city or even country has
become easier due to improvements in telecom, banking, IT .
7
Table 1: Growth Rates – Global Scenario
COUNTRY 2004 2005 2006 2007(P) 2008(P)
ADVANCED ECONOMIES
EUROPE 2.0 1.4 2.6 2.3 2.3
JAPAN 2.7 1.9 2.2 2.3 1.9
KOREA 4.7 4.2 5.0 4.4 4.4
UK 3.3 1.9 2.7 2.9 2.7
USA 3.9 3.2 3.3 2.2 2.8
OECD 3.2 2.5 3.0 2.5 2.7
EMERGING ECONOMIES
ARGENTINA 9.0 9.2 8.5 7.5 5.5
BRAZIL 5.7 2.9 3.7 4.4 4.2
CHINA 10.1 10.4 10.7 10.0 9.5
INDIA 7.5 9.0 9.2 8.4 7.8
INDONESIA 5.0 5.7 5.5 6.0 6.3
MALAYSIA 7.2 5.2 5.9 5.5 5.8
8
India’s GDP Growth
1. Real GDP Growth of over 6% for last 25 years and about 9% over the last four
years.
9
10
Growth rates of Industry, Service and GDP
12
11
10
9
Growth rate
8
7
6
5
4
3
2
1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006-
98 99 00 01 02 03 04 05 06 07
25
23
21
19
17
15
1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Gross Domestic savings Gross Capital Formation
13
India: Trade and foreign investment
1. Global Scenario on Growth of Exports
14
GROWTH IN EXPORTS- GLOBAL SCENARIO (percent)
Region/country 2005 2006
WORLD 14.0 15.7
INDUSTRIAL COUNTRIES 8.5 12.6
US 10.8 14.5
GERMANY 7.3 15.1
JAPAN 5.2 9.2
DEVELOPING COUNTRIES 21.8 19.7
NON – OIL DEVELOPING COUNTRIES 19.2 19.7
CHINA 28.4 27.2
INDIA 29.6 21.1
KOREA 12.0 14.5
MALAYSIA 12.0 14.0
SINGAPORE 15.6 18.4
THAILAND 14.5 18.7
15
16
EXPORTS OF PRINCIPAL COMMODITIES (US $ Billion)
18
IMPORTS OF PRINCIPAL COMMODITIES
COMMODITY GROUP 2005- 05-06 06-07
06
APRIL-NOVEMBER
PETROLEUM $ RELATED PRODUCTS 44 27.8 39.4
EDIBLE OILS 2.0 1.5 1.5
IRON AND STEEL 4.6 32. 4.1
CAPITAL GOODS 37.7 19.6 27.1
PEARLS,PRECIOUS&SEMI PRECIOUS 9.1 6.7 5.0
CHEMICALS 7.0 4.7 5.2
GOLD & SILVER 11.3 8.0 9.6
TOTAL IMPORTS 149.2 93.5 119.4
NON-OIL IMPORTS 105.2 65.7 80.0
NON-OIL IMPORTS(EXCUDING 93.9 57.8 70.4
GOLD&SILVER)
MAINLY INDUSTRIAL IMPORTS 87.5 53.3 64.5
19
20
India's Balance of Payments (US $ Million)
ITEM 2005-06 2005-06 2006-07
APRIL- MAR APRIL-DECEMBER
PARTIALLY REVISED PRELIMINARY
210,000
200,000
190,000
US $ million
180,000
170,000
160,000
150,000
140,000
130,000
120,000
0 0 0 0 0 0 0 0 0 0 1 1 1 1
-r 1 r-1 y-1 n-1 l-1 g-1 p-1 t-1 v-1 c-1 n-1 b-1 r-1 r-1
a p u c a p
M A Ma Ju J Au Se O No De Ja Fe M A 22
International Investment Position of India (US BILLION)
PERIOD MAR 05 MAR 06 JUNE 06 SEPT’ 06
PREVIOUSLY REVISED
PRELIM.
A. ASSETS---$ Billion 168.2 183.5 191.8 199.9
% of GDP (23.5) (22.9)
• This has created a squeeze on credit growth and raised lending rates by
about 2% to 3%.
• However, interest rates are likely to have peaked and may begin to come
down.
40
30
20
10
0
Mar- Apr- M Jun- Jul- Aug- S Oct- Nov- D Jan- Feb- Mar-
06 06 ay- 06 06 06 ep- 06 06 ec- 07 07 07
06 06 06
2006-07 2005-06
28
29
30
31
32
Business Confidence in India’s Economy
1. Survey of Business confidence in Indian Economy
show a very marginal decline (about 2%) but remains
strong.
33
NET RESPONSE ON ‘A QUARTER AHEAD‘EXPECTATIONS
PARAMETER RESPONSE OCT- JAN- APR-
DEC’06 MAR’07 JUN’07
1. OVERALL BUSINESS BETTER 51.8 53.7 51.7
SITUATION
2. FINANCIAL BETTER 41.9 44.5 43.8
SITUATION
3. WORK.CAPITAL INCREASE 35.4 36.2 35.3
REQUIREMNT
4.AVAILIBILITY OF IMPROVE 33.04 36.2 35.2
FINANCE
5.PRODUCTION INCREASE 49.7 50.7 47.8
ADB 8. 0 - - - MAR 07
CII 8. 5 3. 0 9. 3 9. 9 APR 07
CRISIL 7. 9- 8. 4 - - - MAR 07
IMF 8. 4 - - - APR 07
ICRA 8. 5 - - - FEB 07
JP MORGAN 8. 0 - - - MAR 07
36
NCAER 8. 3 2. 6 8.7 9. 9 APR 07
The Promising Sectors
1. India’s firms are on a investing spree due to high
demand and capital goods purchases are likely to be
high though the interest rate hikes may dampen it
37
IT and Software export
20000
15000
in US $ million
10000
5000
0
1998 1999 2000 2001 2002 2003 2004 2005
100
80
60
40
20
0
1997 1998 1999 2000 2001 2002 2003 2004
39
Per Capita Electricity consumption (KWh)
500
450
400
350
300
1997 1998 1999 2000 2001 2002 2003 2004 2005
41
Conclusion
• Indian Economic fundamentals remain robust. Firms are
investing at record rates and the growth of company
profits remains robust.
42