Macroeconomics of India Fiscal Monetary Outlook 2007 Spjcm 1204316735504503 4

8/3/2019 Macroeconomics of India Fiscal Monetary Outlook 2007 Spjcm 1204316735504503 4

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Indian EconomyDeepti RamanujamMohit AgarwalNavneet DubeyRahul GhelliRajesh JoshiSagar Mewada

Tejas DeshmukhCompiled by students of SP Jain Singapore / Dubai for Educational Purpose

Sept - 2007


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Agenda

Introduction

Growth Indicators

Significant Industries

Monetary Policy & Fiscal Policy

Foreign Exchange Policy & BoP

India v/s China

Future projections


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Introduction

2nd fastest growing major economy

Diverse economy agriculture, handicrafts,textile, manufacturing, and a multitude of

services

Population-1.17bn & Labor Force-509.3 mn

Exports ~ $125 bn

Imports ~ $188 bn M&A


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Key Economic Indicators

2001 2002 2003 2004 2005 2006

Totalpopulation(millions) 1038 1051 1068 1085 1101 1118

GDP 5.8 3.8 8.5 7.5 8.4 9.4

Per capitaGDP 21976 23299 25773 28684 32224 36771

Unemployment rate ... ... ... ... 3.1 ...

Interestrates (12months) 7.10 5.75 5.00 5.50 6.00 8.25


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Composition of GDP

2001 2002 2003 2004 2005 2006

GDP 5.8 3.8 8.5 7.5 8.4 9.4

Agri.

6.3 -7.2 10.0 0.0 6.0 2.7

Industry 2.7 7.1 7.4 9.8 9.6 10.9

Services 7.2 7.4 8.5 9.6 9.8 11.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.035.0

40.0

2001 2002 2003 2004 2005 2006

Services

Industry

Agriculture

GDP


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Price Indices

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2001 2002 2003 2004 2005

GDP DEFLATOR

FPI

CPI

2001 2002 2003 2004 2005

CPI 3.8 4.3 3.8 3.8 4.2

FPI 2.2 2.5 3.5 2.8 3.3

GDP Deflator 3.1 3.9 3.8 4.4 4.4


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Monetary & Fiscal Policy

Overview of the Monetary & Fiscal Policy(2002-07)

Maintaining Price stability and ensuringadequate flow of credit to the economy

Inflation around 4.4 - 6.0%

M3 at about 21.3% when projected was

17.3% Consistent objectives of price & financial

stability


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Policies (contd)

Liquidity through LAF & MSS

Cash reserve Ratio 6.5% TO 7.0%

Flexible reverse Repo Rate Lifted a cap of Rs. 30bn on daily Repo

transactions

Rupee has risen considerable to 10%

against dollar


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Policies (contd)

Huge government deficits : 8-9% of GDP(central & state fiscal deficits)

After 1991- economic policy shifted towards

long-term domestic debt

Constrained public infrastructure crowded outprivate sector

Undermines reforms- concerns on fundingdebt

Tax Revenue to GDP ratio 10% GDP


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Foreign Exchange Policy

Prevention of destabilization speculation

The foreign reserves have risen from $ 5 Bnin 1991 to around $ 200 Bn in 2007

The increase in foreign reserves is due toFDI, Net FII investments and NRI deposits.

FX reserves protects the market againstexchange rate volatility.

Increase in FX reserves can causeinflationary pressures.


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Balance of Payments

Fiscal 2004-05 marked a turn around

Appreciating rupee, imports rising and

exports slowing Widening CAD due to trade deficit

Increase in FDI/FII liabilities


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Items 2004-05 2003-04 2002-03 2001-02 2000-01

Trade Balance -38,130 -15,454 -10,690 -11574 -12460

InvisiblesNet

31,699 26,015 17,035 17,035 9,794

Current AccountBalance

-6,431 10,561 6,345 6,345 2,666

Capital Account 32,175 20,542 10,840 10,840 8,840

Overall Balance 26159 31,421 16,985 16,985 5,868

Foreign ExchangeReserveIncrease (+)/Decrease (-)

-26,159 -31,421 -16,985 -16,985 -5,842


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G-Effect

Present day world

Appraisal of public policies

Financial Integration


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S# India China

1 Trade amounts to 31% of GDP Trade amounts to 52% of GDP

2 Takes about 88 days to startbusiness and 176 to close

Less by around 50%

3 Proportion of population overthe age 15 with no schoolingwas 44% in 2001

18%

4 Cargo transit times to US is 8-12

weeks

Cargo transit times to US is 2-3

weeks

5 Contribution to world growth0.4%

Contribution to world growth1.2%

6 Proportion of population in theproductive cohort is 60%

66%

7 Overseas Indians account foronly 9% of countrys FDI

Above 50%

8 6 times of India

9 Average investment rate 22% 36%


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Striking future projections

What Goldman Sachs says - India likely to show the fastest growth

over the next 30 to 50 years Growth could be higher than 5% over

the next 30 years and close to 5% aslate as 2050

Indias GDP will exceed Italys in 2016,Frances in 2019, Germanys in 2023

and Japans in 2032 India to become the worlds 3rd largest

economy by 2032


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References

BRIC Report

CRISIL report

www.rbi.org.in www.forbes.com

www.frsb.org
http://www.rbi.org.in/http://www.forbes.com/http://www.frsb.org/http://www.frsb.org/http://www.forbes.com/http://www.rbi.org.in/


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Thank You

Compiled by students of SP Jain Singapore / Dubai for Educational Purpose

Macroeconomics of India Fiscal Monetary Outlook 2007 Spjcm 1204316735504503 4

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