macro economic perspective for the business - revised, dec '10

8/3/2019 Macro Economic Perspective for the Business - Revised, Dec '10

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UNDERSTANDING INDIAS

MACROAGGREGATES

( DEVELOPING AN INSIGHT)

Prof. Jiban K. Mukhopadhyay

(Fmr. Chief Economic Adviser Tata Group)

E-mail ID - [email protected]

Cell: +91 9821920928

Dec, 2010


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ANALYTICAL FRAMEWORKS

Firms/ Industry Segment/ IndustryCompetitiveness

- Michael Porters Five Forces

National Economy Competitiveness Determinants of National Competitive

Advantage Porters Diamond

Global Competitiveness

- Yips Globalization Drivers /WEF/IMD

Importance of applying these frameworks inanalyzing competitiveness at various levels

(To be covered in International Business sessions)


3/20

Business Competitiveness Micro embedded in Macro environment

Firm

Industry - Segment

Industry

National Economy

Global Economy

JKM


4/20

Macro Economic Framework- India

Sectoral Composition/ Growth

- Primary

- Secondary

- Tertiary

Savings & Investment

Industrial Production Consumer & Wholesale

Price Indices

Money Supply Interest Rate

Exports & Imports BoP/ Current Account/ Forex

Exchange Rate

Govt. Finance/ Fiscal Balance

( Ref. Ch-2, 11 Plan Docu. Vol- 1)

The Economy

Industry

Firm


5/20

Sectoral Share of Indias GDP

( % at 1999 2000 prices)

1950 -51 2008-09

Primary 55.9 19.0

Secondary 14.9 24.0

Tertiary 29.9 57.0

Primary: Agriculture, forestry & fishing, mining & quarrying.

Secondary: Manufacturing, electricity, gas & water supply, construction.

(Sometimes Construction is accounted under Tertiary)

Tertiary: Trade, hotels, transport & communication, financing, ins., real est.

& bus. Services, community , social & personal services.

( Ministry of Statistics and Program Implementation , CSO/NAD, GOI)


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INDIA: SECTORAL GROWTH RATE/ SHARE TO GDP

Growth Rate (%) Share in real GDP (%)

Average

2000-01 to

2008-09

2007 -08 2008-09 2004-05 2007-08 2008-09

Agricultureand Allied

Activities

2.8 4.9 1.6 20.2 17.8 17.0

Industry 6.5 7.4 2.6 19.6 19.2 18.5

Services 9.0 10.8 9.4 60.2 63.0 64.5

GDP

at Factor Cost7.2 9.0 6.7 100 100 100

(RBI - Construction included under industry)

*Services growth almost at double digit for over a decade

Contd..


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India Taken off to flying highA low growth economy transitioning fast into a high growth economy ?

Annual Average Rate of Growth

Real GDP (%) Per Capita (%)

1860 1945 (1970 -71 prices)

- 0.5

1950 - 51 to1980 -81 (99 00 prices)

3.5 1.1

1980 81 to 90 - 91 5.5 3.1

1990 91to 00 01 5.7 3.5

1994 95 to 96 - 97 7.2 5.2

00-01 to 08 - 09 7.2 5.4

2009-10 7.2 5.42010-11 8.0 6.2

2007 2011 (t)(11th 5 yr plan)*

*Desirableforecast

9.0 + 7.3+


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Indias Macro Aggregates

Limitations :GDP & related, Inflation, IIP etc.

- Lacks

au

then

ticity, t

imel

iness

& reliab

ility

- Progressive improvement based on recommendations of National

Statistical Commission, 2001

One of the best in developing world

No Forecasts are done CSO/ NAD

Five year plans Desirable Forecast

National Sample Survey Organization

- Useful survey data (E.g. Consumption expenditure survey)

- Annual Survey of Industry / Economic Census etc.

Ref. CSO/ NAD & NSSO, Min. of Stats & Program Implementation


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Indias Macro Aggregates

National Income Accounts

- GDP/ GNP/ NDP/ NNPOverall/ Per Capita

At Factor Cost/ Mrkt Price

At Current/ Constant Price

- Economic activity wise: 8 Major Activates

Estimate are made by Central Statistical Organization /

National Accounting Division

- Based on UN SNA 1993

Various Estimates Importance/ Limitations

- Quarterly

- Advanced Revised

- Quick Revised

- Provisional

A clear understanding is needed contd


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FORECASTING KEY INDICATORS Global: IMF Econ Outlook, April/ Oct of the Year/Update

- All countries, all key parameters, comparable time seriesdata, free of cost from IMF website. Recommended.

- Large numbers ofinternational organizations

India: - As above +

The Consensus Economic Forecast

- 12 key indicators, quarterly, short/ mid / long termforecast by a 12 forecasters, with policy evaluations Priced butrecommended.

Huge number of Data Bases

RBI, EAC, NCEAR, etc.

Where from to choose? How to choose? What to choose?

Quite confusing ?

Thats why a clear understanding is needed


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IMF / WEO : Estimates / Projection (April 10)

07 08 ' 09 / E ' 10 /P 11 / P

World 5.2 3.0 - 0.6 4.6 4.3

USA 2.1 0.4 - 2.4 3.3 2.9

EU 2.8 0.6 -4.1 1.0 1.3

China 13.0 9.6 9.1 10.5 9.6

India 9.4 6.4 5.7 9.4 8.4

The numbers have been revised from projection made at one point of time toanother point of timefurther changes are expected as we go along.

Indias official expectation (%): 09-10 : 7.2 , 10-11 : 8.5

Ref- IMF Economic Outlook, April 2010(Update July-07)


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SIGNIFICANCE OF SUSTAINABLE 9% GDP GROWTH

Sustainable / Inclusive 9% real growth Highly Desirable

As - Per capita GDP doubles in > 10 years @ 7.2%

Extremely difficult for India why ?

- Low/ oscillating growth of Agriculture

- For 9% GDP growth: Agri growth should be 4-4.5%,

difficult to achieve (Trend: >3%)

- % share of Agri in GDP: 17%, but < 50% of Indians

depend on Agri, one way or the other.

- Weak Infrastructure (e.g. Power, Roads, Ports, Edu,

Health, etc)

- Physical Infra growth should be about 2% higher than

the GDP growthContd


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SIGNIFICANCE OF SUSTAINABLE 9% GDP

GROWTH

Inclusive Growth Desirable / Long Term Dream

- Richest 20% in India contributes 45% of Income/ Cons:

Poorest 20%: 8%...

- 42% of Indian can not spend $1.25 ppp, China 16%

Exports / FDI as % of GDP increasing: 25% / 1.4% in 08-

- 09,12% / 0.5% in 04-05 depends on global growth

prospect

Domestic Market Narrow, highly concentric, withoutdepth and width

A Sustainable 7.5% is feasible:Per Capita GNI (08):India $ 1070, China $2940

Incremental improvements happening


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INFLATION MEASURES: USA

Headline Inflation: Total inflation in the economy,

measured by Personal Consumption Expenditure Price Index(PCI) based on Chained Dollars in USA since 2000.

Core Inflation: excludes food + energy prices (which could

be subject to sudden volatility), based on PCI & Chained

Dollars since 2000. CPI was used prior to 2000

Chained Dollars Index:

- Not fixed weight as it was in CPI

- Chaining of consumption spending so as to avoid biases.

- Second Number (of PCI) in a pair of successive years

becomes the first in the next pair.Thus, it is chain of

weights & measures.


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INFLATION MEASURES: INDIA

WPI (1993-94 =100):

- 435 items,

- Data sourced from < 2000 companies

- Very old base, with fixed weighting diagram

(Primary: 22%, Fuel, power & lubricants: 14.2%, Mfg.

products: 63.8%).

- Serious limitations.

New WPI (2004-05) likely to be introduced from April10.

- 1224 items

- Data to be sourced from < 6000 companies

- Once introduced, will take time to get comparative /

past data.

Not a right measure of inflation.


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CONSUMER PRICE INDEX(CPI)

Four Indices- CPI (Industrial Workers ), Base 2001 = 100

in select cities, cost of living indices

- CPI (Urban nonmanual employees),1986-87= 100

- CPI ( Agricultural Labourers),1986-87= 100- CPI ( Rural Labourers),1986-87= 100

- Very old base, consumption basket significantly

changed since 2001

- Weak data collection system State level CPI not done adequately.

-We do not have a proper measure of Inflation


17/20

INDIA: INDEX OF INDUSTRIAL PRODUCTION

(IIP)

Base: 1993-94 =1000

- Sectoral classification (weightage/ no. of items):

- Mining & quarrying: (104.7 / 64)

- Electricity: (101.7 / 111)

- Mfg : (793.6 / 478 )

Used Based Classification (weightage)

- Basic Goods (355.7)

- Capital Goods (92.6)

- Intermediate Goods (265.1)

- Consumer Goods (286.6)

(contd)


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INDIA: INDEX OF INDUSTRIAL

PRODUCTION (IIP)

18 Source Agencies, Monthly data

Organized by Dept. of Industrial Policies & Promotion

(52% data) from PSU.

- Deficiencies of private sector data

State level of IIP underevolved.

-Despite limitations, IIP data are widely used


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MACRO ECONOMIC PERSPECTIVE

FOR THE BUSINESS

Understanding Macro Aggregates are essential for

business plan

Constant monitoring is required

Analyticsneeded for perceiving the operating

environment objectively

Measuring competitive business efficiency/ productivity


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REFERENCES

- IMF, World Economic Outlook Report April /

October of the year/ Occasional updates (online)

(http://www.imf.org/external/pubs/ft/weo/2010/01/index.htm)

- Crisil / CMIE (online through SPJIMR library)- Ministry of Stats & Program Implementation, GOI

(http://mospi.gov.in/mospi_press_releases.htm)

- The Economic Survey 2009-10, GOI

(http://indiabudget.nic.in/es2009-10/esmain.htm)

- The Economist, London

- The Economic Times

macro economic perspective for the business - revised, dec '10

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