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INTRODUCTION
Trends vs. Cycles: Tendencies Short Term Cyclical fluctuations (Project) => Trend Classify every uptrend as cyclical (overheating) Long Term Trends
Medium Term Performance: 2003-04 to 2007-08 Short Term: Inflation Global cost push Role of Policy reform: Sustaining growth Raising productivity/ offsetting cost increases
2
-5% 9%
-3% 1% 3% 5% 7%
1951 1953
-1%
2009 2011
Recent Developments:
Past five years ( 2003-4 to 2007-8)
Growth Acceleration GDP Average Income / Per capita GDPmp (PcGdp) Avg. Private Consumption (PvtCons) Aggregate Growth drivers Supply side Demand Side Sector drivers of growth
Growth acceleration:
( 2003-4 to 2007-8)
In the next three figures: Cyclical movement around Rising trend HP filtered trend GDPmp: Avg. growth of 8.9% Per Capita gdp growth has doubled To 7.3% (from 3.7% in 1980-1991) Average income will double in ten years Avg. Private Consumption Gr rt: Almost doubled
9%
8%
7%
6%
5%
4%
3% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
r a t e
1992-3
1993-4
1994-5 1995-6
PcGma5y
1996-7
1997-8
1998-9 1999-00
2000-1
2001-2
2002-3 2003-4
2004-5
2005-6
2006-7 2007-8
(
G r o w t h 4% 5% 6% 7% 8% 9%
)
2%
PcGdp
3%
6% G r o 5% w t h 4%
r 3% a t e 2% ( % ) 1% 0% 1992-3 1993-4 1994-5 1995-6 1996-7 1997-8 1998-9 2000-1 2001-2 2002-3 2003-4 2004-5 2005-6 2006-7 1999-00 2007-8
below that of Investment for first time External : Short period of positive contribution (low oil prices) over Govt Consumption: Lower contribution
10
35%
30%
25%
20%
15%
11
Gdpmp
GDCF
PFCEdm
GFCE 18.0%
9.5%
9.2%
8.9% 7.0%
6.2% 5.3%
4.7%
5.6% 4.5%
12
CONTRIBUTION TO DEMAND
70% 60% 50% 40% 30% 20% 11.6% 10% 0% 92-3to97-8 -10% -20% PFCEdm -7.6% GDCF GFCE Net exports -14.7% 97-8 to 02-3 02-3to07-8 55.0% 57.7% 60.1% 47.8%
34.0% 26.9%
13
14
35%
30%
25%
20%
15%
2005-6@ 2006-7*
2001-2
2004-5
2007-8
2002-3
2003-4
15
investment to 9%.
16
FDI Inbound 25
FDI Outbound
U S 20 $ b 15 i l l i 10 o n
)
5
17
4.0%
0.0%
1980 1981
1.0%
2.0%
3.0%
5.0%
6.0%
7.0%
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Sources of Growth
NDP/Lhp Kstock/Lhp TFPGhp
18
Sector Drivers
Manufacturing GDP/Value Added Investment: GCF, GFCF Communication Competition and efficiency Trade, Agriculture, Construction Labor intensive
19
Drivers of Growth
Contribution to Growth (2002-3 to 2007-8)
transport by other means 6%
other services 7%
trade 14%
communication 11%
real estate,ownership of dwellings & business services 8%
construction 10%
agriculture(crop) 10%
20
21
Efficiency of Investment
.
1992-3 to 2003-4 2004-5 2005-6 2006-7 2003-4 to Change
ICOR
2002-3
(act)
(act)
(rev)
(est)
2007-8
Manufacturing
11.1
8.6
9.5
10.5
8.3
9.2
-1.9
Construction
1.5 1.3 1.0 1.0 1.4 1.2 -0.4
Telecommunication
2.2 0.5 0.6 0.6 0.4 0.5 -1.7
22
acceleration was Investment led External sector was a drag on demand because of oil (and other) price increases Private investment particularly corporate is leading investment and growth Domestic Saving rate has increased inline with I Telecom, Construction, Manufacturing were the leading sectors 11th Plan target of 9% average growth will be met
23
Global Commodity Price Shock All commodity index Food price Index
Edible oil (Palm): Net Importer Effect on India: Primary food & edible oils
60%
50%
40%
30%
20%
10%
0%
-10%
25
1,050
1,150
750
850
350
2005M4
450
550
650
950
2005M5
2005M6 2005M7
2005M8
2005M9 2005M10
2005M11
2005M12 2006M1
2006M2
2006M3 2006M4
2006M5
2006M6
2006M7
Palm oil
2006M8
2006M9
2006M10 2006M11
2006M12
2007M1
2007M2 2007M3
2007M4
2007M5 2007M6
2007M7
2007M8 2007M9
2007M10
2007M11 2007M12
2008M1
2008M2
2008M3 2008M4
2008M5
2008M6
26
90
120
130
100
110
140
150
60
2005M4
70
80
2005M5
2005M6 2005M7
2005M8
2005M9 2005M10
2005M11
2005M12 2006M1
2006M2
2006M3 2006M4
2006M5
2006M6
PironOre
2006M7 2006M8
2006M9
2006M10 2006M11
2006M12
2007M1
2007M2 2007M3
2007M4
2007M5 2007M6
2007M7
2007M8 2007M9
2007M10
2007M11 2007M12
2008M1
2008M2
2008M3 2008M4
2008M5
2008M6
27
180
200
100
120
140
160
220
240
260
2005M6
2005M7 2005M8 2005M9 2005M10 2005M11 2005M12 2006M1
28
80%
60%
40%
20%
0%
-20%
29
11
13
03.04 03.06 03.08 03.10 03.12 04.02 04.04 04.06 04.08 04.10 04.12 05.02 05.04 05.06 05.08 05.10 05.12 06.02 06.04 06.06 06.08 06.10 06.12 07.02 07.04 07.06 07.08 07.10 07.12 08.02 08.04 08.06
-1 1 3 5 7 9
30
Acceleration in Inflation during 2008 H1 over 2007 H1: Contribution of different commodities
WPI Inflation during H1 2007 (i.e. from December
2006 end to June 2007 end) was 2.7%. Inflation during H1 2008 (i.e. from December 2007 end to June 2008 end) was 9.9%(est). Of the 7.2% increase in inflation this year, 2/3rd was due to 3 sets of commodities:
Edible oils (including) oils seeds and oil cakes)
10%
12%
14%
16%
-2% 4%
0% IndiaWpi UsaPpi
2%
6%
8%
2007.01 2007.02
2007.03 2007.04
2007.05 2007.06
2007.07
2007.08 2007.09
2007.10 2007.11
2007.12 2008.01
2008.02 2008.03
2008.04 2008.05
2008.06
32
10%
16%
12%
14%
2007.05 2007.06
2007.07
2007.08 2007.09
2007.10 2007.11
2007.12 2008.01
2008.02 2008.03
2008.04 2008.05
2008.06
33
I n f l a t i o n
(
11
Diff:India-US Poly. (Diff:India-US)
1 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
-1
-3
34
11%
13%
1%
7%
9%
3%
5%
97q1 97q2 97q3 97q4 98q1 98q2 98q3 98q4 99q1 99q2 99q3 99q4 00q1 00q2 00q3 00q4 01q1 01q2 01q3 01q4 02q1 02q2 02q3 02q4 03q1 03q2 03q3 03q4 04q1 04q2 04q3 04q4 05q1 05q2 05q3 05q4 06q1 06q2 06q3 06q4 07q1 07q2 07q3 07q4 08q1
35
94.05 94.10 95.03 95.08 96.01 96.06 96.11 97.04 97.09 98.02 98.07 98.12 99.05 99.10 2000.03 2000.08 2001.01 2001.06 2001.11 2002.04 2002.09 2003.02 2003.07 2003.12 2004.05 2004.10 2005.03 2005.08 2006.01 2006.06 2006.11 2007.04 2007.09 2008.02 2008.07
M 3
G r o w t h
M o n 21% e y
Monetary Accommodation?
11% M3 M3rlc 0% 2% 4% 6% 8%
18%
15%
17%
19%
23%
37
I n t e r e s t
r a t e
1993
1995
1997
2000
2002
2004
2006
1992
1994
1996
1998
1999
2001
2003
2005
-2
-4
2007
(
%
38
cyclical downturn and inflation upturn. Motivation for revisiting/reviving pending reforms
Energy Sector: Oil shock
Investment Environment
40
Extensive margin (e.g. forest clearing) constrained by climate and environment concerns. Race between productivity and global demand. Relative prices could stabalise at higher levels
41
Balance of Payments
Capital Flows Trends and Volatility (FDI, FII, ECB) Current year: Below trend- FII (Global risk/liquidity preference vs. liquidity). Medium Term: Surplus capital flows/reserve accum. Current Account Invisibles: Non-factor services (software) & prviate remittances low volatility around rising trend Exports (G&S) to Oil/natural resource exporters will increase, perhaps with a lag. CAD : U-shape
42
6%
5%
4%
3%
% G D P
)
2%
1%
0% 1994 -1% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
43
P a y m e n t s B a l a n c e
(
3%
2%
1%
0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
% G D P
)
-1%
-2% Goods &Services Def Poly. (Goods &Services Def) -3% Curnt Act Def Poly. (Curnt Act Def)
44
entry (freer), controls (minimal) Urban Land policy (land use, supply, development, utilities)
45
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References
Precursor:
Indias Economic Growth: From Socialist Rate of Growth to Bharatiya Rate of
Growth, Working Paper No. 122, ICRIER, February 2004. Two Phases (4 sub-phases), Third phase statistically insignificant.
Entrepreneurial Success!, Working Paper No. 170, ICRIER, October 2005. The Dynamics of Competition: Phasing of Domestic and External Liberalisation in India, Working Paper No. 4/2006-PC, Planning Commission, April 2006. Propelling India from Socialist Stagnation to Global Power: Growth Process, Vol. I (Policy Reform, Vol. II), Academic Foundation, New Delhi, 2006. Maco-economic Management of Indian Economy: Capital Flows, Interest Rates and Inflation, Working paper No. 2/2007-DEA, Ministry of Finance, November 2007. Economic Survey, 2007-8, February 2008
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