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3. INFRASTRUCTE DEVELOPMENT
• Railways
• Roads
• Electricity
• Aviation
4. CONTRIBUTION OF VARIOUS SECTORS IN GDP
Indian economy has been witnessing a phenomenal growth since the last decade. The
country is still holding its ground in the midst of the current global financial crisis. In
fact, global investment firm, Moody’s, says that driven by renewed growth in India and
China, the world economy is beginning to recover from the one of the worst economic
downturns in decades.
The growth in real Gross Domestic Product (GDP) at factor cost stood at 6.7 per cent in
2008-09. While the sector-wise growth of GDP in agriculture, forestry and fishing was at
1.6 per cent in 2008-09, industry witnessed growth to 3.9 per cent of the GDP in 2008-09.
The Prime Minister, Dr Manmohan Singh, on August 15, 2009, in his address to the
nation on its 63rd Independence Day, said that the Government will take every possible
step to restore annual economic growth to 9 per cent.
Further, the World Bank has projected an 8 per cent growth for India in 2010, which will
make it the fastest-growing economy for the first time, overtaking China’s expected 7.7
per cent growth.
Significantly, among the major economies in the Asia-Pacific region, India's private
domestic consumption as share of GDP, at 57 per cent in 2008, was the highest,
according to an analysis by the McKinsey Global Institute.
Meanwhile, foreign institutional investors (FIIs) turned net buyers in the Indian market in
2009. FIIs inflows into the Indian equity markets have touched US$ 10 billion in the
April to September period of 2009-10.
Foreign direct investments (FDI) into India went up from US$ 25.1 billion in 2007 to
US$ 46.5 billion in 2008, achieving a 85.1 per cent growth in FDI flows, the highest
across countries, according to a recent study by the United Nations Conference on Trade
& Development (UNCTAD).
According to the Asian Development Bank's (ADB) 'Asia Capital Markets Monitor'
report, the Indian equity market has emerged as the third biggest after China and Hong
Kong in the emerging Asian region, with a market capitalisation of nearly US$ 600
billion.
Indian investors have emerged as the most optimistic group in Asia, according to the
Quarterly Investor Dashboard Sentiment survey by global financial services group, ING.
As per the survey, around 84 per cent of the Indian respondents expect the stock market
to rise in the third quarter of 2009.
With foreign assets growing by more than 100 per cent annually in recent years, Indian
multinational enterprises (MNEs) have become significant investors in global business
markets and India is rapidly staking a claim to being a true global business power,
according to a survey by the Indian School of Business and the Vale Columbia Center on
Sustainable International Investment.
Further, India and China will soon emerge as the preferred destinations for foreign
investors, revealed Economy.com, the research arm of global rating agency Moody's.
The country's foreign exchange reserves rose by US$ 1.28 billion to touch US$ 277.64
billion for the week ended September 4, 2009, according to figures released in the RBI’s
Weekly Statistical Supplement.
Net inflows through various non-resident Indians (NRIs) deposits surged from US$ 179
million in 2007-08 to US$ 3,999 million in 2008-09, according to the RBI. The most
recent World Bank update on migration and remittances reveals that the remittances of
US$ 52 billion by overseas Indians in 2008 makes it India's largest source of foreign
exchange. India, along with China and Mexico, retained its position as one of the top
recipients of migrant remittances among developing countries in 2008.
FDI inflows into India in April-May 2009-10 have surged by 13 per cent at US$ 4.2
billion as against the previous two months driven by recovery in the global financial
markets. Cumulative FDI in India from April 2000 to March 2009 stood at about US$ 90
billion.
FIIs inflows into the Indian equity markets have touched US$ 10 billion in the April to
September period of 2009-10.
Venture Capital firms invested US$ 117 million over 27 deals in India during the six
months ending June 2009, according to a study by Venture Intelligence in partnership
with the Global-India Venture Capital Association.
The private equity (PE) investment into the country reached US$ 1.03 billion during
April-June 2009—registering an increase of 17 per cent sequentially—according to data
compiled by SMC Capitals, an equity research and analysis firm.
The year-on-year (y-o-y) aggregate bank deposits stood at 21.2 per cent as on January 2,
2009. Bank credit touched 24 per cent (y-o-y) on January 2, 2009, as against 21.4 per
cent on January 4, 2008.
Since October 2008, the RBI has cut the cash reserve ratio (CRR) and the repo rate by
400 basis points each. Also, the reverse repo rate has been lowered by 200 basis points.
Till April 7, 2009, the CRR had further been lowered by 50 basis points, while the repo
and reverse repo rates have been lowered by 150 basis points each.
Exports from special economic zones (SEZs) rose 33 per cent during the year to end-
March 2009. Exports from such tax-free manufacturing hubs totalled US$ 18.16 billion
last year up from US$ 13.60 billion a year before.
India Inc's order book has more than doubled to an all-time high of US$ 15.32 billion in
the second quarter of the current financial year, compared to the first quarter. On a year-
on-year basis, the increase is 21 per cent.
Advance tax collections for the second quarter of the current financial year (2009-10)
have shown robust growth of 35 to 40 per cent across industries.
The domestic mutual fund industry registered a moderate growth of 5 per cent in its
assets under management (AUM) in August 2009 at US$ 15,702, due to good
performance by debt funds.
India exported a total of 230,000 cars, vans, sport utility vehicles (SUVs) and trucks
between January and July 2009, a growth of 18 per cent owing to its liberal investment
policies and high quality manufacturing that stems from its growing prowess in research
and development.
India's gems and jewellery exports regained momentum and aggregated to US$ 1.9
billion in July 2009 as compared to US$ 1.7 billion in June 2009.
The total Merger and acquisition (M&A) deals registered during the first seven months of
this year stand at 158 with a value of US$ 5.91 billion, while PE deals stand at 114,
totalling a value of US$ 4.89 billion, according to consulting firm, Grant Thornton.
Investments in the Indian stock market through participatory notes (PNs) crossed US$
20.65 billion-mark in May 2009.
Sustainable energy investment in India went up to US$ 3.7 billion in 2008, up 12 per cent
since 2007, according a report titled 'Global Trends in Sustainable Energy Investment
2009'.
The Indian growth story is spreading to the rural and semi-urban areas as well. The next
phase of growth is expected to come from rural markets with rural India accounting for
almost half of the domestic retail market, valued over US$ 300 billion. Rural India is set
to witness an economic boom, with per capita income having grown by 50 per cent over
the last 10 years, mainly on account of rising commodity prices and improved
productivity. Development of basic infrastructure, generation of employment guarantee
schemes, better information services and access to funding are also bringing prosperity to
rural households.
Per Capita Income
Per capita income of Indian individuals stood at US$ 773.54 in 2008-09, according to
Central Statistical Organisation data. The per capita income in India stood at US$ 687.03
in 2007-08 and has risen by over one-third from US$ 536.79 in 2005-06 to US$ 773.54 in
2008-09.
Advantage India
According to the World Fact Book, India is among the world's youngest nations with a
median age of 25 years as compared to 43 in Japan and 36 in USA. Of the BRIC—Brazil,
Russia, India and China—countries, India is projected to stay the youngest with its
working-age population estimated to rise to 70 per cent of the total demographic by 2030,
the largest in the world. India will see 70 million new entrants to its workforce over the
next 5 years.
India has the second largest area of arable land in the world, making it one of the world's
largest food producers—over 200 million tonnes of foodgrains are produced annually.
India is the world's largest producer of milk (100 million tonnes per annum), sugarcane
(315 million tonnes per annum) and tea (930 million kg per annum) and the second
largest producer of rice, fruit and vegetables.
With the largest number of listed companies - 10,000 across 23 stock exchanges, India
has the third largest investor base in the world.
India's healthy banking system with a network of 70,000 branches is among the largest in
the world.
According to a study by the McKinsey Global Institute (MGI), India's consumer market
will be the world's fifth largest (from twelfth) in the world by 2025 and India's middle
class will swell by over ten times from its current size of 50 million to 583 million people
by 2025.
India, which recorded production of 22.14 million tonne of steel during April-August
2009, is likely to emerge as the world's third largest steel producer in the current year.
India continues to be the most preferred destination—among 50 top countries—for
companies looking to offshore their information technology (IT) and back-office
functions, according to global management consultancy, AT Kearney.
The Indian stock markets have risen to be amongst the best performers globally across
the emerging and developed markets in 2009 year-to-date, according to an analytical
study by MSCI Barra indices.
India has reclaimed its position as the most attractive destination for global retailers
despite the downturn, according to the Global Retail Development Index (GRDI) brought
out by US-based global management consulting firm, A T Kearney.
Growth potential
According to the CII Ernst & Young report titled 'India 2012: Telecom growth continues,'
India's telecom services industry revenues are projected to reach US$ 54 billion in 2012,
up from US$ 31 billion in 2008. The Indian telecom industry registered the highest
number of subscriber additions at 15.84 million in March 2009, setting a global record.
A McKinsey report, 'The rise of Indian Consumer Market', estimates that the Indian
consumer market is likely to grow four times by 2025, which is currently valued at US$
511 billion.
India ranks among the top 12 producers of manufacturing value added (MVA)—
witnessing an increase of 12.3 per cent in its MVA output in 2005-07 as against 6.9 per
cent in 2000-05—according to the United Nations Industrial Development Organisation
(UNIDO).
In textiles, the country is ranked fourth, while in electrical machinery and apparatus it is
ranked fifth. It holds sixth position in the basic metals category; seventh in chemicals and
chemical products; 10th in leather, leather products, refined petroleum products and
nuclear fuel; twelfth in machinery and equipment and motor vehicles.
In a development slated to enhance India's macroeconomic health as well as energy
security, Reliance Industries (RIL) has commenced natural gas production from its D-6
block in the Krishna-Godavari (KG) basin.
India has a market value of US$ 270.98 billion in low-carbon and environmental goods &
services (LCEGS). With a 6 per cent share of the US$ 4.32 trillion global market, the
country is tied with Japan at the third position.
PE players are planning to raise funds for the infrastructure sector. Presently, around US$
1.42 billion is being raised by India-dedicated infrastructure funds, according to data
released by Preqin, a global firm that tracks PE and alternative assets.
Infrastructure, including roads, power, highways, airports, ports and railways, has
emerged as an asset class with long-term growth that can provide relatively stable returns,
said an Assocham-Ernst & Young survey on Private Equity in Indian Infrastructure:
Strengthening the Nexus.
NASSCOM has estimated that the IT-BPO industry will witness an export growth of 4-7
per cent and domestic market growth of 15-18 per cent in 2009-10. Further, it has
projected that around 40,000 students will be absorbed by IT companies this fiscal.
With the availability of the 3G spectrum, about 275 million Indian subscribers will use
3G-enabled services, and the number of 3G-enabled handsets will reach close to 395
million by 2013-end, estimates the latest report by Evalueserve.
http://www.ibef.org/economy/economyoverview.aspx
2. INDUSTRIAL POLICY OF INDIA
Main features
5. to transform India into a major partner and player in the global arena.
Policy focus is on –
2. Allowing the industry freedom and flexibility in responding to market forces and
3. Providing a policy regime that facilitates and fosters growth of Indian industry.
Policy measures
A significantly amended locational policy in tune with the liberlised licensing policy is in
place. No industrial approval is required from the Government for locations not falling
within 25 kms of the periphery of cities having a population of more than one million
except for those industries where industrial licensing is compulsory. Non-polluting
industries such as electronics, computer software and printing can be located within 25
kms of the periphery of cities with more than one million population. Permission to other
industries is granted in such locations only if they are located in an industrial area so
designated prior to 25.7.91. Zoning and land use regulations as well as environmental
legislations have to be followed.
Reservation of items of manufacture exclusively for the small scale sector forms an
important focus of the industrial policy as a measure of protecting this sector. Since 24th
December 1999, industrial undertakings with an investment upto rupees one crore are
within the small scale and ancillary sector. A differential investment limit has been
adopted since 9th October 2001 for 41 reserved items where the investment limit upto
rupees five crore is prescribed for qualifying as a small scale unit. The investment limit
for tiny units is Rs. 25 lakhs. 749 items are reserved for manufacture in the small scale
sector. All undertakings other than the small scale industrial undertakings engaged in the
manufacture of items reserved for manufacture in the small scale sector are required to
obtain an industrial licence and undertake an export obligation of 50% of the annual
production. This condition of licensing is, however, not applicable to those undertakings
operating under 100% Export Oriented Undertakings Scheme, the Export Processing
Zone (EPZ) or the Special Economic Zone Schemes (SEZs).
The general policy and facilities for Foreign Direct Investment as available to foreign
investors/company are fully applicable to NRIs as well. In addition, Government has
extended some concessions specially for NRIs and overseas corporate bodies having
more than 60% stake by the NRIs. These inter-alia includes (i) NRI/OCB investment in
the real estate and housing sectors upto 100% and (ii) NRI/OCB investment in domestic
airlines sector upto 100%.
NRI/OCBs are also allowed to invest upto 100% equity on non-repatriation basis in all
activities except for a small negative list. Apart from this, NRI/OCBs are also allowed to
invest on repatriation/non-repatriation under the portfolio investment scheme.
vi) Electronic Hardware Technology Park (EHTP)/Software Technology Park (STP)
scheme:
For building up strong electronics industry and with a view to enhancing export,
two schemes viz. Electronic Hardware Technology Park (EHTP) and Software
Technology Park (STP) are in operation. Under EHTP/STP scheme, the inputs are
allowed to be procured free of duties.
The Directors of STPs have powers to approved fresh STP/EHTP proposals and also
grand post-approval amendment in repsect of EHTP/STP projects as have been given to
the Development Commissioners of Export Processing Zones in the case of Export
Oriented Units. All other application for setting up projects under these schemes, are
considered by the Inter-Ministerial Standing Committee (IMSC) Chaired by Secretary
(Information Technology). The IMSC is serviced by the SIA.
The Department has also strengthened investment facilitation measures through Foreign
Investment Implementation Authority (FIIA).
http://www.dipp.nic.in/evol1.htm
3. CONTRIBUTION OF VARIOUS SECTORS IN GDP
The Indian economy is the 12th largest in USD exchange rate terms. India is the
second fastest growing economy in the world. India’s GDP has touched US$1.25
trillion. The crossing of Indian GDP over a trillion dollar mark in 2007 puts India in
the elite group of 12 countries with trillion dollar economy. The tremendous
growth rate has coincided with better macroeconomic stability. India has made
remarkable progress in information technology, high end services and knowledge
process services.
However cause for concern would be this rapid growth has not been an inclusive
in nature, in the sense it has not been accompanied by a just and equitable
distribution of wealth among all sections of the population. This economic growth
has been location specific and sector specific. For e.g. it has not percolated to
sectors were labor is intensive (agriculture) and in states were poverty is acute
(Bihar, Orissa, Madhya Pradesh and Uttar Pradesh).
Though India has the second highest growth rate in the world, its rank in terms of
human development index (which is broadly used has a measure of life
expectancy, adult literacy and standard of living) has gone down to 128 among
177 countries in 2007 compared to 126 in 2006.
1960-1980 : 3.5%
1980-1990 : 5.4%
1990-2000 : 4.4%
2000-2009 : 6.4%
The contributions of various sectors in the Indian GDP for 1990-1991 are as
follows:
Agriculture: - 32%
Industry: - 27%
Service Sector: - 41%
The contributions of various sectors in the Indian GDP for 2005-2006 are as
follows:
Agriculture: - 20%
Industry: - 26%
Service Sector: - 54%
The contributions of various sectors in the Indian GDP for 2007-2008 are as
follows:
Agriculture: - 17%
Industry: - 29%
Service Sector: - 54%
It is great news that today the service sector is contributing more than half of the
Indian GDP. It takes India one step closer to the developed economies of the
world. Earlier it was agriculture which mainly contributed to the Indian GDP.
The Indian government is still looking up to improve the GDP of the country and
so several steps have been taken to boost the economy. Policies of FDI, SEZs
and NRI investment have been framed to give a push to the economy and hence
the GDP.
http://www.tradechakra.com/indian-economy/gdp.html
4. COMPARATIVE STUDY OF INDIA AND CHINA
An attempt has been made in this paper to compare the competitiveness of India and
China for the last decade. China’s GDP was three times that of India in 2007. China’s
share of GDP to the world was 10.8% which was double of that of India. The average
annual growth of per capita GDP of China was just double of that of India in 2007. There
was current account surplus for China (9.4% of GDP) against current account deficit for
India (-1.1% of GDP). Adult literacy rate was 61% for India against 91% for China
during 1995-2005. India and China both had followed centralized planning but China
adopted an approach of communism to implement policies whereas India’s approach was
to implement policies in a democratic system. China carried forward the reform process
aggressively in 1980’s and 1990’s whereas India has initiated reform process in 1991 and
carried forward moderately. The structure of output in India has moved in favour of
service sector from 42.1% of GDP in 1991 to 52% GDP in 2007, whereas in China it has
moved in favour of industry from 42.1% of GDP to 48.6% during the same period. China
strictly followed the traditional development model, but India tried to jump from
agriculture to service sector resulting very low manufacturing growth for India compared
to China. The low manufacturing growth of India resulted low over all growth of the
country. The labour law in India and lack of infrastructure are the major deterrents of
industrial growth in India. Manufacturing value added growth for India was just 6%
during 1993-2003 whereas it was 12% for China during 1990-2005. Based on the global
competitive index, India’s ranking was 50, whereas that of China it was 30 among 134
countries in 2008-09. Labour productivity in China was 0.137 which was higher than
India (0.128) in 2002. Total factor productivity growth in China was 12% higher than in
India during the period 1998-2003. FDI inflow in India was meager US $ 16.9 billion
against China’s FDI inflow of US $ 69.5 billions in 2006. The competitiveness of India’s
exports did not improve in post liberalisation period but improved in the case of China.
Cost competitiveness for China was relatively less compared to its competitors. India’s
export profitability compared to its competitors improved very much during post
liberalisation period but it improved in China only during 1994-1997. Both Indian and
Chinese imports were more competitive compared to their competitors. China had better
revealed comparative advantage than India in many products.
http://www.iimk.ac.in/publications/WorkingPapers/CompIndiaChinaComparison.pdf
India vs China Economy:
Comparing the Economies of India and China is to embark on an old puzzle that has
fascinated smart people for centuries. Although it is urgent and important to discuss it
because China and India are the world's next major powers. It is also important because
the two countries have embraced very different models of development.
Looking at the Similarities between the Economies of India and China, both are
conscious of their role in the world economy. Both seek to play a bigger political role on
the world stage. China is already doing that as a permanent member of the U.N. Security
Council. Now observing the Differences between the Economies of India and China we
see that China is taking tangible but slow steps towards embracing private
entrepreneurship. India on the other hand is continuing to struggle with making things
easier for multinationals. Although the differences are arguably narrowing, but the first-
order effect of all this is still “a big difference”.
In general, FDI has been positive to both the Economies of India and China. It has
provided goods and services that did not otherwise exist. It has also introduced
competition into moribund sectors.
Both countries have clocked up strong economic growth since 1980, China at a
spectacular 9 per cent plus and India at nearly 6 per cent. Both countries have opened up
to international trade and capital in the past quarter of a century, decisively in China and
more hesitantly in India.
China's per capita GDP growth has averaged 8 per cent in the 25 years since 1980, more
than double the growth rate of Indian per capita GDP. Somewhere between 1975 and
1985 China's average income is believed to have surpassed India's. Since then it has kept
moving ahead. By 2003 China's per capita GNP was at least 70 per cent higher than that
of India's and her economy was more than twice as large as India's. Much of China's
growth was powered by labor-intensive manufactured exports, which took the share of
manufacturing in GDP to nearly 40 per cent, compared to a mere 16 per cent in India.
Other indicators like living standards were just as decisively in China's favor by the turn
of the millennium. China's poverty ratio was less than half India's 35 per cent. Female
adult literacy was nearly double India's pathetic 45 per cent. Life expectancy in China
was a solid 8 years higher than that in India.
5. Infrastructure
o Ensure electricity connection to all villages and BPL households by 2009
and round-the-clock power.
o Ensure all-weather road connection to all habitation with population 1000
and above (500 in hilly and tribal areas) by 2009, and ensure coverage of
all significant habitation by 2015
o Connect every village by telephone by November 2007 and provide
broadband connectivity to all villages by 2012
o Provide homestead sites to all by 2012 and step up the pace of house
construction for rural poor to cover all the poor by 2016-17
6. Environment
o Increase forest and tree cover by 5 percentage points.
o Attain WHO standards of air quality in all major cities by 2011-12.
o Treat all urban waste water by 2011-12 to clean river waters.
o Increase energy efficiency by 20 percentage points by 2016-17.
MONETARY AND FISCAL POLICY OF INDIA