macroeconomics of india fiscal monetary outlook 2007 spjcm 1204316735504503 4
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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
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