INDIAN ECONOMY

The India economy, the third largest economy in the world in terms of purchasing power, is going to touch new heights in coming years. As predicted by Goldman Sachs, the Global Investment Bank, by 2035 India would be the third largest economy of the world just after US and China. It will grow to 60% of size of the US economy. This booming economy of today has to pass through many phases before it can achieve the current milestone of 9% GDP. The history of Indian economy can be broadly divided into three phases: PreColonial, Colonial and Post Colonial. Pre Colonial: The economic history of India since Indus Valley Civilization to 1700 AD can be categorized under this phase. During Indus Valley Civilization Indian economy was very well developed. It had very good trade relations with other parts of world, which is evident from the coins of various civilizations found at the site of Indus valley. Before the advent of the East India Company, each village in India was a self sufficient entity and was economically independent as all the economic needs were fulfilled within the village Colonial Indian Economy: The arrival of the East India Company in India caused a huge strain to the Indian economy and there was a two-way depletion of resources. The British would buy raw materials from India at cheaper rates and the finished goods were sold at higher than normal price in Indian markets. During this phase India's share of world income declined from 22.3% in 1700 AD to 3.8% in 1952. Post Colonial Indian Economy: After India got independence from colonial rule in 1947, the process of rebuilding the economy started. For this various policies and schemes were formulated. First five year plan for the development of Indian economy came into implementation in 1952. These Five Year Plans, started by Indian government, focused on the needs of the Indian economy. If on one hand agriculture received the immediate attention on the other hand the industrial sector was developed at a fast pace to provide employment opportunities to the growing population and to keep pace with the developments in the world. Since then the Indian economy has come a long way. The Gross Domestic Product (GDP) at factor cost, which was 2.3 % in 1951-52 reached 6.5 in the financial year 2011-2012 Trade liberalization, financial liberalization, tax reforms and opening up to foreign investments were some of the important steps, which helped Indian economy to gain momentum. The Economic Liberalization introduced by Man Mohan Singh in 1991, then Finance Minister in the government of P V Narsimha Rao, proved to be the stepping-stone for Indian economic reform movements.

To maintain its current status and to achieve the target GDP of 10% for financial year 2006-07, the Indian economy has to overcome many challenges.

Challenges before Indian economy:

Population explosion: The rising population is eating into the success of India. According to 2011 census of India, the population of India has crossed one billion and is growing at a rate of 2.11% approx. Such a vast population puts lots of stress on economic infrastructure of the nation. Thus India has to control its burgeoning population. Poverty: As per records of National Planning Commission, 36 crore people are living below the poverty line in India in 2012. Unemployment: The increasing population is pressing hard on economic resources as well as job opportunities. Indian government has started various schemes such as Jawahar Rozgar Y ojna, and Self Employment Scheme for Educated Unemployed Youth (SEEUY). But these are proving to be a drop in an ocean. Rural Urban Divide: It is said that India lies in villages, even today when there is lots of talk going about migration to cities, 70% of the Indian population still lives in villages. There is a very stark difference in pace of rural and urban growth. Unless there isn't a balanced development Indian economy cannot grow. These challenges can be overcome by the sustained and planned economic reforms. These include:

Maintaining fiscal discipline Orientation of public expenditure towards sectors in which India is faring badly such as health and education. Introduction of reforms in labour laws to generate more employment opportunities for the growing population of India. Reorganization of agricultural sector, introduction of new technology, reducing agriculture's dependence on monsoon by developing means of irrigation. Introduction of financial reforms including privatization of some public sector banks.

ECONOMIC DEVELOPMENT OF INDIA

The economic development of India was dominated by socialist-influenced policies, stateowned sectors, and red tape & extensive regulations, collectively known as "License Raj". It led the country and its economy isolated from the world economy. However the scenario started changing from the mid-1980s, when India began opening up its market slowly through economic liberalization. The policy played a huge impact on the economic development of India. The Indian economic development got a boost through its economic reform in 1991 and again through its renewal in the 2000s. Since then, the face of economic development of India has changed completely.

Economic Development the Decisive Factors The economic development of India largely depends upon a few factors, which prove to be decisive. According to the World Bank, for a better economic development, India needs to give due priorities in various issues like infrastructure, public sector reform, agricultural and rural development, reforms in lagging states, removal of labor regulations and HIV/AIDS. Agriculture Agriculture, along with other allied sectors like fishing, forestry, and logging play a major role in the economic development in India. In 2005, these sectors accounted for almost 18.6% of the GDP. India holds the second position worldwide in terms of farm output. It also generated works for 60% of the total workforce. Though, currently seeing a steady decline of its share in the GDP, it is still the largest economic sector of the country. In India, a steady growth has been observed in the yields per unit area of all the crops since 1950. And the reason behind this is the fact that, special emphasis was given on agriculture in the five-year plans. In 1965, the country saw green revolution. Improvements came in the various areas like irrigation, technology, provision of agricultural credit, application of modern agricultural practices and subsidies. India has done considerably well in agriculture and allied sectors. The country is the worlds largest producer of tea, coconut, cashew nuts, black pepper, turmeric, ginger and milk. India also has the largest cattle population in the world. It is worlds second largest producer of sugar, rice, wheat and inland fish. It is in the third position in the list of tobacco producers in the world. India also produces 10% of the overall fruit production in the world, holding the first position in banana and sapota production.

Industrial Output India occupies 14th position in the world in industrial output. The manufacturing sector along with gas, electricity, quarrying and mining account for 27.5% of the countrys GDP. It also employs 17% of total workers. The economic reforms of 1991 brought a number of foreign companies to the Indian market. As a result, it saw the privatization of several pubic sector industries. Expansion in the production of FMCG (Fast-moving Consumer Goods) started taking place. Indian companies started facing foreign competitions, including the cheap Chinese imports. However, they managed to handle it by cutting down costs, refurbishing management, banking on technology and low labor costs and concentrating on new products designing. Services In services output, India occupies 15th spot in the world. Around 23% of the total workforce in India works in service industry. This is also the sector which provides quick growth with a growth rate of 7.5% during 1991-2000 from 4.5% in 1951-80. With a substantial growth in IT sector, a number of foreign consumers showing interests in Indias service exports as India has got low cost, educated, highly skilled workers in abundance. Besides this, ITES-BPO sector has also become a big source of employment for a number of youths. Banking and Finance Since liberalization, India has seen substantial banking reforms. On one hand, one could see the mergers of banks, competitiveness and reducing government interference, on the other hand one can also see the presence of several private and foreign players in the banking and insurance sectors. Currently the banking sector in India has got maturity in terms of supply, reach-even and product range. The Indian banks are also said to have clean, transparent and strong balance sheets comparing to their Asian counterparts. Few snapshots of the India GDP statistics 1. The growth rate of Indian GDP fell from 7.35% in 2008-09 to 5.36% till the end of 3rd quarter of the 2009-10. 2. The cumulative FDI Equity inflows (from August 1991 August 2009) stood at `5,20,589 crore. 3. Budgetary support for National Highway Development Programme (NHDP) has gone by 23% on y-o-y basis for 2009-10. 4. Expenses for the Commonwealth Games 2010, went up from Rs.2,112 crore in Interim Budget to Rs.3,472 crore for 2009-10 fiscal. 5. Allocation to railways have gone up from Rs.10,800 crore in interim budget toRs.15,800 crore for FY 2009-10

6. Allocation under National Rural Health Mission (NRHM) has gone up by Rs.2,057 crore over Interim Budget estimate in 2009-10 of Rs.12,070 crore. 7. Rs.2,113 crore has been allocated for IITs and NITs, comprising of a provision of Rs.450 crore for new upcoming IITs and NITs. 8. Minimum Alternate Tax (MAT) to go up to 15% from 10%.

India GDP 2010-2011

For those who predicted otherwise India is one of the fastest growing countries today. Its population which was once the most talked about subject has actually turned the tables for India. With a host of economic advantages, a well educated and young population India is all set to rule and give the superpowers a run for their money. As far as the economic scenario is concerned India is surely on a roll. The last twenty years have really proved extremely beneficial for India. The country now stands only after Brazil as far as GDP ranking is concerned. India has replaced Russia and grabbed the second position in the global forefront mostly due to the strategic planning and huge amount of expenditures on education in India. India GDP 2011 is expected to cross the 8 percent mark and move to 9 percent GDP growth rate. India is the second largest populated country in the world sheltering over one billion people. Although India has not had a striking 10 percent year over year economic growth as its neighbor China it has still managed to grow at a nominal rate. India's GDP growth has been slow but careful. According to trade pundits India will take the third position as Far as GDP growth in concerned by 2020 replacing Germany, the UK, and Japan. Only United States and China will be ahead of it. The country which was termed underdeveloped till a few decades back has shown the world its great potential. Moving along slowly with accurately measured footsteps India is surely treading on. The policy-makers of the country realized at the right time their age old ideas and beliefs and started moving towards the direction of growth. Over the years numerous steps have been taken to rationalize taxes and reduce red-tapism in the country. The recent all round growth and development has made people across the globe realize the importance of the country as a well read and powerful economy. With its galloping GDP figures India forced other powerful economies to sit up and take notice of it. The country today, despite all odds is showing signs of health, wealth and vigor. The one striking feature about the remarkable economic growth rate is its internal resources. The country is blessed in terms of natural resources, skilled labor and a

well educated young population. Business in India does not thrive by handsome made by charitable institutions. India is attracting millions of foreign investors that think India to be a very sound and prospective market. Over the last few decades most of the global multinational firms have opened their regional offices in the various metros of the country. Places like Delhi, Mumbai, Chennai, Bangalore and Hyderabad have experienced superb growth in the last 20 years. The economic scenario in India has been pretty stable over the last 5 years. Despite the economic downturn two years back the Indian economy has managed to remain stable. The India GDP recorded for the period December 2010 stood at 8.20 percent. However according to the (CMIE) or Centre for Monitoring Indian Economy India will record a GDP of 9.2 per cent in the year 2011. India's GDP growth 2010 - 2011 has not been phenomenal but is certainly encouraging. India GDP growth 2010 - 2011 sector wise All the important sectors in India have shown positive signs of growth from the last five years. Let us have a close look at the sector wise growth rate in India from the period 2010 to 2011. Indian exports increased by 26.8 per cent (y-o-y) and touched US$ 18.9 billion in November 2010. This rapid growth in the exports from India urged the Indian Government to conclude that the total shipments in 2010-11 might go up to US$ 215 billion. For the period April 2010 to November 2010 exports in the country grew by 26.7 per cent to US$ 140.3 billion. On the other hand imports increased to US$ 222 billion. India also made a substantial profit from Foreign Exchange Earnings. The number of Foreign Tourist that visited the country from January- November 2010 was about 4.93 million as compared to 4.46 million foreign tourists during the same period in 2009, registering a growth rate of 10.4 per cent. The (FEE) or Foreign Exchange Earnings went up to a whopping US$ 12.88 billion during the period JanuaryNovember 2010 as compared to US$ 10.67 billion during January-November 2009. The growth rate registered by the Ministry of Tourism was 20.7 per cent. The logistics industry in India is also witnessing enormous activity. According to a study conducted by the shipping ministry in India, some of the important ports in the country handled about 44.4 million tones of freight in September 2010. There was a growth rate of 4.5 per cent as compared to the growth rate in September 2009 which stood at 5.9 per cent. According to Frost&Sullivan, the traffic in these ports is going to rise from 814.1 (MT) to 1,373.1 MT from the period 2010 to 2015 at a steady CAGR of 11 per cent The investment industry in India also showed positive signs of growth in 2010.

According to the reports released by the Association of Mutual Funds in India the total assets that the mutual fund industry managed accounted at US$ 160.44 billion in September 2010. According to the reports released by the Telecom Regulatory Authority of India (TRAI) the total number of telephone users in India reached 742.12 million in October 31, 2010. This took the total telephone using population in the country to 62.51 percent. The number of wireless subscribers also increased to 706.69 million. According to the NASSCOM's Strategic Review 2010, the IT-BPO sector in India remained the fastest developing industry churning out total revenue of USD 73.1 billion in 2010. The Information Technology and software services generated revenues of USD 63.7 billion. The vehicles industry in India also witnessed a substantial growth in 2010. The production of vehicles in India grew by 32.4 per cent in August 2010, as against the corresponding period in 2009. Ranging from the commercial vehicles to twowheelers to the Passenger vehicles segment all registered striking growth rates of 49 per cent, 31 per cent and 32 per cent. According to the reports of the Gem and Jewellery Export Promotion Council, the shipment of jewelry from India was worth US$ 23.57 billion during the AprilNovember 2010, recording an increase of 38.25 per cent as compared to that of US$ 17.05 billion as against the same period in 2009. Even the aviation industry registered a steady growth in 2010 as compared to the previous year. As per the Ministry of Civil Aviation, the total number of passengers carried by the domestic airlines during January-November, 2010 were 46.81 million as compared to 39.35 million in the previous year, registering a profit of 18.9 per cent. India has become a hot favorite as far as foreign investment is concerned. As per reports published by Ernst & Young (E&Y), a world renowned consultancy firm, India received more than US$ 7 billion from foreign sources to invest in private equity. Table showing the GDP growth rate from 2008 to 2010 Year 2008 2009 2010 March 8.50 5.80 8.60 June 7.80 6.00 8.90 September 7.50 8.60 8.90 December 6.10 6.50 8.20

Sector wise GDP growth rate in India for 2010- 2011 Sector Manufacturing Farming Construction Mining Service GDP Growth Rate 9.8 percent 4.4 percent 8.8 percent 8 percent 9.8 percent

The GDP of India with regards to purchasing power parity is approximately 4.463 trillion dollars, which places it in the 4th position in the world. With regards to official exchange rate its GDP is close to $1.843 trillion.

At the end of 2011 the real growth rate of India GDP was approximately 7.8 percent, which gives it the 15th rank from a global perspective. In 2010 this was almost 10.1% and in 2009 it was close to 6.8%. The per capita (PPP) GDP of India is approximately 3700 US dollars, which places it in the 163rd position from a global perspective. In 2010 this figure stood at almost $3500 and in the previous year this was at $3200. Sectoral Composition of India GDP As per the figures available for 2011 fiscal, almost 52 percent of Indias GDP comes from the agricultural sector and the services sector is the second biggest contributor with 34 percent. The industrial sector contributes almost 14 percent of Indias GDP.

Agriculture and Other Allied Activities Contribution to GDP

Year 2004 -05 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 2010 -11 2011 -12 1st statistics crores 135745 139404 144790 151336 154307 156740 161614 167548 Quarter 2nd in INR statistics crores 108879 113023 116947 122418 123389 126524 132668 136806 Quarter 3rd in INR statistics crores 172401 185750 193209 211649 204748 201853 224044 230359 Quarter 4th in INR statistics crores 148401 156309 164245 169677 171675 177390 190778 193955

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Mining and Quarrying Contribution to India GDP

Year 2004 -05 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 2010 -11 2011 1st statistics crores 20275 21110 22187 22391 22903 24616 26304 26251 Quarter 2nd in INR statistics crores 20067 19649 20901 21837 22125 23676 25398 24016 Quarter 3rd in INR statistics crores 21744 21745 23608 24620 25226 26582 28200 27403 Quarter 4th in INR statistics crores 22943 23636 25882 27149 26989 29351 29520 30798

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Manufacturing Contribution to India GDP

Year 2004 -05 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 2010 -11 2011 -12 1st statistics crores 104208 117187 131954 148701 159042 167571 182895 196170 Quarter 2nd in INR statistics crores 116104 120670 137611 152128 162174 176550 187309 192790 Quarter 3rd in INR statistics crores 115718 126161 143788 158009 162114 180421 194435 195509 Quarter 4th in INR statistics crores 122684 134992 157084 170214 172445 195187 209523 208999

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Electricity, Gas and Water Supply Contribution to GDP

Year 2004 -05 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 2010 1st statistics crores 15369 16775 18054 19839 20687 21902 22541 Quarter 2nd in INR statistics crores 15738 16448 18076 19679 20723 22175 22241 Quarter 3rd in INR statistics crores 15671 16737 18561 19823 20823 21656 22480 Quarter 4th in INR statistics crores 15898 17161 18667 20084 21110 22533 23684

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-11 2011 24333 -12

24424

24509

24839

Construction Contribution to GDP

Year 2004 -05 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 2010 -11 2011 -12 1st statistics crores 54628 60665 67520 75338 82403 86032 93264 96539 Quarter 2nd in INR statistics crores 55320 60888 67183 76521 81673 86377 91557 97317 Quarter 3rd in INR statistics crores 57934 66693 72817 80352 80911 88339 96000 102376 Quarter 4th in INR statistics crores 60973 69877 77278 83178 87571 94970 103378 108385

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Trade, Hotel, Transport and Communications Contribution to India GDP

Year 2004 -05 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 1st statistics crores 166536 189062 208411 234697 257700 279250 Quarter 2nd in INR statistics crores 173240 194038 217544 239445 261944 289020 Quarter 3rd in INR statistics crores 186971 208192 233919 258240 272156 301003 Quarter 4th in INR statistics crores 200973 225403 251680 279431 295776 327941

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2010 314546 -11 2011 357883 -12

319798 350263

330117 363101

365994 391527

Finance, Insurance, Contribution to GDP

Year 2004 -05 2005 -06 2006 -07 2007 -08 2008 -09 2009 -10 2010 -11 2011 -12 1st statistics crores 105870 117760 133638 150540 168259 187106 205861 225165

Real

Estate

and

Business

Services
Quarter 4th in INR statistics crores 114744 131482 149923 165897 189619 201074 221114 243294

Quarter 2nd in INR statistics crores 106130 119871 136440 153509 170953 189145 208815 229498

Quarter 3rd in INR statistics crores 110428 123364 141377 158429 177881 192558 214205 233758

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Community, Social and Personal Services Contribution to GDP 1st Quarter 2nd Quarter 3rd Quarter 4th Year statistics in INR statistics in INR statistics in INR statistics crores crores crores crores 2004 92414 100785 100215 117947 -05 2005 98447 107946 107861 125904 -06 2006 104767 111540 109432 126981 -07 2007 109294 119536 115429 139569 -08 2008 118993 131515 142649 152027 -09 2009 134423 156838 154070 164765

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-10 2010 140384 -11 2011 144849 -12

163941 173869

152857 162710

180493 193275

India Gross Domestic Product at Factor Cost 1st Quarter 2nd Quarter Year statistics in INR statistics in INR crores crores 2004 695045 690774 -05 2005 760412 752534 -06 2006 831321 826243 -07 2007 912135 905075 -08 2008 984293 974496 -09 2009 1057641 1070305 -10 2010 1147409 1151725 -11 2011 1238738 1228982 -12

3rd statistics crores 781082 856505 936709 1026552 1086507 1166482 1262338 1339724

Quarter 4th in INR statistics crores 804564 884765 971738 1055198 1117212 1213211 1324484 1395071

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India GDP 2012-13 HSBC, a leading global bank has stated that in 2012-13 fiscal Indias chronological and yearly growth will be a moderate one. It had previously stated that in the same period Indias GDP will grow by 7.5 percent but has now brought down the forecast to 6.2%. HSBC opines that in 2014 India will see a better growth rate of almost 7.4 percent previously it had forecast 8.2 percent for the period. Leif Eskesen, an economist with HSBC, has stated that the year has started off on a weak note and reforms in the supply sector have been rather slow. The global economy is also taking a lot more time than expected to recover and all this has led to revaluate their previous growth forecasts.

HSBC has also stated that there are plenty of difficulties in the Indian administration and domestic policies are in a paralyzed state. The bank feels that these factors will restrict the amount of investment being done in India and limit its economic progress in the immediate future. It feels that things can improve in the second part of the fiscal. HSBC opines that in the present circumstances the RBI might feel forced to take a step and reduce the rates. The changes are likely to be made on June 18, 2012 and there could be a deduction of almost 25 basis points. This will happen in spite of the consistent inflation. The bank also states that the rate at which demand is going up, there could be risk of further inflation. It has called for the economic structure to be reformed with greater efficiency and stressed that this needs to be done quickly. Indias GDP statistics for the first three months of 2012 were not at par with expectations. During April the rate of industrial production was pretty unimpressive as well when compared on a year-on-year basis and to March 2012. The fact that India has not been able to effect useful structural improvements has hampered its possible growth as well. In the final quarter the national economy grew at 6.1 percent and in the next quarter it came down to 5.3%, which is the lowest figure recorded after 2004. However, inflation rate is still pretty high in India. In May 2012, the WPI inflation increased to 7.55 percent as opposed to 7.23% in April. At present the CPI inflation rate is more than 10 percent. HSBC states that inflation rate can come down to certain extent owing to reduction in oil prices and moderate economic growth but the exchange rate is still weak and Indias overall economic capacity is somewhat restricted and all these factors can keep the inflation factor in play.