MacroEconomics Of India - Fiscal & Monetary Outlook 2007 - SPJCM
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Transcript of MacroEconomics Of India - Fiscal & Monetary Outlook 2007 - SPJCM
Indian EconomyDeepti Ramanujam
Mohit Agarwal
Navneet Dubey
Rahul Ghelli
Rajesh Joshi
Sagar Mewada
Tejas Deshmukh
Compiled by students of SP Jain – Singapore / Dubai for Educational Purpose
Sept - 2007
Agenda
• Introduction
• Growth Indicators
• Significant Industries
• Monetary Policy & Fiscal Policy
• Foreign Exchange Policy & BoP
• India v/s China
• Future projections
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
Key Economic Indicators
2001 2002 2003 2004 2005 2006
Total population (millions) 1038 1051 1068 1085 1101 1118
GDP 5.8 3.8 8.5 7.5 8.4 9.4
Per capita GDP 21976 23299 25773 28684 32224 36771
Unemployment rate ... ... ... ... 3.1 ...
Interest rates (12 months) 7.10 5.75 5.00 5.50 6.00 8.25
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
30.0
35.0
40.0
2001 2002 2003 2004 2005 2006
Services
Industry
Agriculture
GDP
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
Monetary & Fiscal Policy
Overview of the Monetary & Fiscal Policy (2002-07)
• Maintaining Price stability and ensuring adequate 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
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
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 out private sector
• Undermines reforms- concerns on funding debt
• Tax Revenue to GDP ratio – 10% GDP
Foreign Exchange Policy
• Prevention of destabilization speculation
• The foreign reserves have risen from $ 5 Bn in 1991 to around $ 200 Bn in 2007
• The increase in foreign reserves is due to FDI, Net FII investments and NRI deposits.
• FX reserves protects the market against exchange rate volatility.
• Increase in FX reserves can cause inflationary pressures.
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
Items 2004-05 2003-04 2002-03 2001-02 2000-01
Trade Balance -38,130 -15,454 -10,690 -11574 -12460
Invisibles Net
31,699 26,015 17,035 17,035 9,794
Current Account Balance
-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 Exchange ReserveIncrease (+) /Decrease (-)
-26,159 -31,421 -16,985 -16,985 -5,842
G-Effect
• Present day world
• Appraisal of public policies
• Financial Integration
S# India China
1 Trade amounts to 31% of GDP Trade amounts to 52% of GDP
2 Takes about 88 days to start business and 176 to close
Less by around 50%
3 Proportion of population over the age 15 with no schooling was 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 growth –0.4%
Contribution to world growth –1.2%
6 Proportion of population in the productive cohort is 60%
66%
7 Overseas Indians account for only 9% of country’s FDI
Above 50%
8 6 times of India
9 Average investment rate 22% 36%
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
India’s GDP will exceed Italy’s in 2016,France’s in 2019, Germany’s in 2023and Japan’s in 2032
India to become the world’s 3rd largesteconomy by 2032
References
• BRIC Report
• CRISIL report
• www.rbi.org.in
• www.forbes.com
• www.frsb.org
Thank You
Compiled by students of SP Jain – Singapore / Dubai for Educational Purpose