Indian Economy: An overview

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Indian Economy An overview

• Arti NanavatiProf. of Economics Director,
  Centre for Canadian Studies Maharaja Sayajirao
  University of Baroda
• Vadodara - 390002 Gujarat - INDIA
• Dept.of Economics, Simon Fraser University
  Burnaby-BC, Canada.
• July 9, 2008

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Some General Facts

• India is the worlds second most populous country
  of over 1 billion people.
• Urban population 28 of total. (China 39)
• More than half of its population is 25 years of
  age. Demographic dividend.
• Measured in USD exchange rate terms, 12th largest
  in the world, with a GDP of 1 trillion (2008)
• PCI 4542 at PPP and 1089 in nominal terms
  (2007)
• National savings (24 of GDP) almost half that
  of Chinas 45 .
• World Bank classifies India as a low income
  economy

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• Labour force participation rate 71 in 2003.
  (China 87)
• Rural workers constitute about 60 of the
  workforce.
• Urban informal sector the growing sector
  represents the residual.
• Unemployment rate is 7.3.
• Organized sector employs 7 of workforce (two
  thirds of which are in public sector), and
  produces 40 of GDP. Rest in informal sector
  --with predominance of women.
• Despite a decline, poverty is a serious problem.
  27 of Indians are poor.(2004-5).
• 70 of Indians(800million), lived on less than 20
  rupees( slightly less than C50 cents) per day
  with most working in informal sector with no
  social security. (2007 Report on National
  Commission for Enterprises in the unorganized
  sector)

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Why India?

• GDP growth rate 9 ( 2007-2008)
• Services are a growing sector and play an
  important role in Indian economy. India is an
  imp. back office destination for global
  outsourcing of customer services and technical
  support.
• Major exporter of highly skilled workers in
  financial, software, software eng.
• Potentials are in , manufacturing,
  pharmaceuticals, biotechnology, nanotechnology,
  telecommunication, shipbuilding, aviation,
  tourism and retailing.

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Composition of Indias GDP (at Factor Cost by
Economic Activity at 1999-2000 prices, in)

• 
  1999-0 2000-01 2007-08
• 
  (RE)
• 1)Agriculture etc
  24.99 23.89 17.75
• 2)Industry
  25.31 25.80 26.63
• 2.1 Manufacturing
  14.78 15.30 15.36
• 2.2 Construction
  05.71 05.81 07.26
• 3) Services
  49.69 50.30 55.62
• 3.1 Trade, hotel, Restaurants
  14.22 14.34 27.55
• 3.2 Transport, storage communica. 07.46
  07.96
• 3.2 Finance, insurance, etc
  13.07 13.04 14.68
• 3.3 Community, social and per.
  14.92 14.98 13.39
• service
• Inclusive of 3.2. Source EPW 14TH June ,
  2008
• Source EPW June 14, 2008

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India-China Comparative Scenario
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India- Structural Transformation-?

• Economic policy Approach
• i) Since independence (1947) till almost
  late eighties followed a socialist inspired
  approach- strict govt. control over -private
  sector participation, foreign trade and FDI
  (Approach-import substituting rather than export
  promoting) .
• ii) Indias low average growth rate ( 3) from
  1947-80 was referred as Hindu rate of growth,
  because of the unfavorable comparison with the
  other Asia countries, especially the East Asian
  Tigers.

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• A period of import tariff, export taxes,
  quantitative restrictions , approvals needed for
  60 of new FDI in the industrial sector.
• FDI averaged only 200M between 1985-1991.
• In 2004, net FDI inflow was about 7-8 USD bn. (
  China, 52 USD bn)
• A large percentage of the capital flows consisted
  of foreign aid, commercial borrowing and deposits
  of non resident Indians.
• Largely and intentionally isolated from world
  markets.

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• Late eighties the govt. led by Rajiv Gandhi
  eased restrictions on capacity expansion for
  incumbents, removed price control and reduced
  corporate taxes.
• Phase of high growth with high fiscal deficit and
  worsening current account
• Collapse of soviet union a major trading
  partner, first Gulf war causing spike in oil
  prices led to major balance of payment crisis
  with the prospects of defaulting on its loan.
• Prime Minister Narasimha Rao with Finance
  Minister Manmohan Singh initiated the economic
  liberalization of 1991.
• Reforms did away with license Raj in investment,
  industrial and import licensing-ended many public
  monopolies, introduced automatic approvals of FDI
  in many sectors.

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Agriculture

• India ranks second world wide in farm output.
• In 2007, accounted for 16.6 in GDP employing 60
  of the total workforce.
• After having growth rate of 2 for many years-
  now the growth rate is about 4.5.
• Two thirds of Indias workforce still earn their
  livelihood directly or indirectly through
  agriculture.
• High level of disguised unemployment.
• Despite improvements, average yield in India
  ranges from 30-50 of the highest average yield
  in the world.

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Industry

• India ranks 14th in the world in factory output.
• Industry accounts for 27.6 of the GDP and
  employs 17 of the work force.
• Manufacturing growth rate 8.4.
• One third of industrial labour force is engaged
  in simple household manufacturing only.
• Economic reforms led to more private sector
  participation, an expansion in the production of
  consumer goods and both domestic and foreign
  competition.

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Services

• India is fifteenth in services output.
• The growth rate which was 4.5 in 1951-80
  increased to 7.5 in 1991-2000. Recent growth
  rate 10.7.
• Its share in GDP was 15 in 1950 which is now
  about 55.6.
• Fastest growing services are business services,
  information technology enabled services, business
  process outsourcing contributing about one third
  of total output of services in 2000.
• Indias IT industry an important contributor to
  BOP, accounts for only about 1 of total GDP and
  1/50th of the total services

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Foreign Trade FDI

• Almost stagnant export for the first 15 years
  after independence. Dominated by products like
  tea, jute and cotton manufacturers having
  generally inelastic demand.
• Imports mainly were machinery, equipment and raw
  material.
• Since liberalization ex-im have become much broad
  based.
• Indias exports are consistently rising, covering
  about 80 of its imports.
• Merchandise trade of India about 28 of GDP. in
  2004 (China 70.)
• Exports of goods as of GDP of India 12. (China
  36). (2004)

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• Though net importer, since 1996-7, overall BOP
  has been positive largely on account of increased
  FDI and deposits from NRIs.
• Its major trading partners are the U.S.A., UK,
  China, Germany, Japan and UAE.
• Indias major exports are textile goods, gems and
  jewellery, engineering goods, chemicals and
  leather manufacturers.
• Indias major imports are crude oil, petroleum
  products, machinery, gems, fertilizer and
  chemicals.
• The top five countries in FDI inflows (2000-2007)
  are Mauritius (44),United States(9.4), UK( 8),
  Netherlands(6)and Singapore(5).

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Trade Openness India ( of GDP)
Source Calculated from Govt. of India, Economic
Survey
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Situating India in World Merchandise Exports and
Imports

• Year
  Exports ( share)
• World Canada India
  China N.America Asia
• (b)
• 1948 58 5.5 2.2
  0.9 28.1 14.0
• 2006 11783 3.3 1.0
  8.2 14.2 27.8
• 
  
  Imports( share)
• 1948 62 4.4 2.3
  0.6 18.5 13.9
• 2006 12113 3.0 1.4
  6.5 21.0 25.0
• Source WTO, World Trade Statistics, 2007

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India-China Trade FDI Partners
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Source Source Reserve Bank of India
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Source CEIC Source CEIC
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Percentage Share(2006) and growth rate
(1996-2006) Trade in Commercial Services of
India and few selected countries and regions

• Countries Share
  Growth rate ()
• EX
  IM EX IM
• World 100
  100 7.2 7.4
• North America 18.85 15.19
  5.3 7.3
• Canada 2.35
  2.71 6.7 6.8
• Asia 25.36
  25.05 8.0 6.5
• China 3.72
  3.79 14.7 14.8
• India 3.01
  2.41 21.5 26.9
  

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• Is development inclusive?

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Labour Market

• Growing employment is accompanied by poor quality
  of labor with proportion of regular wage earner
  employees only about 15.
• Economic growth could be made more inclusive by
  achieving faster growth in regular employment, as
  opposed to casual and self-employment. Although
  regular employment has risen, its growth has been
  almost exclusively in the smaller, least
  productive enterprises.
• About 87 of manufacturing employment taking
  place in micro enterprises(lt10 persons) producing
  just a third of manufacturing output.

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• Employment in firms with more than ten employees
  accounts for only around 3.75 per cent of total
  employment (one quarter of regular employment)
  and has been falling. Indeed, India has a much
  smaller proportion of employment in enterprises
  with ten or more employees than any OECD country.
  
• In non-agriculture sector growth in employment is
  in informal sector.

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Sex Ratio in Population with Rural-Urban break up
Year Sex Ratio Sex Ratio Sex Ratio
Year Rural Urban Total
1901 979 910 972
1911 975 872 964
1921 970 846 955
1931 966 838 950
1941 965 831 945
1951 965 860 946
1961 963 845 941
1971 949 858 930
1981 951 879 934
1991 938 894 927
2001 946 901 933
Source Office of the Registrar General,
India Sex Ratio 1901-91 (Total, Rural and Urban)
from Brief Analysis of PCA paper-2 of 1992 1961
Population from PCA 1961 1971 Population from
Social and Cultural Tables 1981 figures from
Series Part-II A(I), General Population Tables
Census of India 1981. Figures of 1991 (including
interpolated data for JK-1991 based on 2001
census) and 2001 from PCA census of India -2001
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Trends in Gender Disparity in Literacy Rate
Year Male Female Male/Female Literacy rate disparity Slightly more than half of total women are literate. Male-Female LR disparity is on decline.
1961 40.4 15.3 0.45 Slightly more than half of total women are literate. Male-Female LR disparity is on decline.
1971 39.5 18.4 0.38 Slightly more than half of total women are literate. Male-Female LR disparity is on decline.
1981 56.3 29.7 0.35 Slightly more than half of total women are literate. Male-Female LR disparity is on decline.
1991 63.8 39.4 0.28 Slightly more than half of total women are literate. Male-Female LR disparity is on decline.
2001 75.8 54.1 0.21 Slightly more than half of total women are literate. Male-Female LR disparity is on decline.
Source Census of India various years
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Labor Force Participation Rate by Age
2000-2004
Age Male Female Rural female L/F participation rate higher to their urban counterpart mainly due to Agriculture.
15-29 Rural female L/F participation rate higher to their urban counterpart mainly due to Agriculture.
Rural 75.10 30.9 Rural female L/F participation rate higher to their urban counterpart mainly due to Agriculture.
Urban 67.30 17.9 Rural female L/F participation rate higher to their urban counterpart mainly due to Agriculture.
30-44 Rural female L/F participation rate higher to their urban counterpart mainly due to Agriculture.
Rural 98.7 46.6 Rural female L/F participation rate higher to their urban counterpart mainly due to Agriculture.
Urban 98.4 26.6 Rural female L/F participation rate higher to their urban counterpart mainly due to Agriculture.

Source NSSO, 61ST Round
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Industrial Distribution of Workforce by Gender
2004-2005
Industry division Rural Male Rural Female Urban Male Urban Female All
Agriculture and allied activities 66.5 83.2 6.1 18.1 56.4
Mining Quarrying 0.6 0.3 0.9 0.2 0.6
Manufacturing 7.9 8.4 23.5 28.2 12.2
Electricity,gas and water supply 0.2 0.0 0.8 0.2 0.3
Construction 6.8 1.5 9.2 3.8 5.7
Trade , hotels and restaurants 8.3 2.5 28.0 12.2 9.9
Transport, Storage communication 3.8 0.2 10.7 1.4 4.1
Finance, insurance, real estate and business services 0.7 0.1 5.9 3.2 1.7
Social, community and personal services 5.2 3.8 14.9 32.7 9.1
Source National Sample Survey Organization
61st Round (July 2004 June 2005)
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Share of women employment out of total employment
in organized sector in India
(Figures in thousand)
Year of women in Public sector of women in Private sector of women in Total
1995 13.4 20.2 15.4
2000 14.8 23.9 17.6
2001 14.9 24.2 17.8
2002 15.4 24.3 18.1
2003 15.6 24.5 18.4
2004 15.9 24.8 18.7
Source Quarterly Employment Review, Directorate
General of Employment Training, Ministry of
Labor
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Unemployment rate by Age and Sector for India
RURAL 15-29 15-29 30-44 30-44 45-59 45-59 60 above 60 above Total Total
RURAL Female Male Female Male Female Male Female Male Fmale Male
July 1999 June 2000 3.7 5.1 0.4 0.6 0.2 0.1 0.0 0.2 1.5 2.1
July 2004 June 2005 7.0 5.2 1.8 0.6 0.5 0.3 0.5 0.2 3.1 2.1
URBAN
July 1999 June 2000 16.6 11.5 2.8 1.4 0.5 0.4 0.0 0.0 7.1 4.8
July 2004 June 2005 19.9 10.0 5.1 1.2 0.8 1.0 0.0 0.3 9.1 4.4
Source National Sample Survey Organization
55th and 61st rounds
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• women wage lower than men by 33-40 points.
  Women-men wage differential is 0.751.
• The gender based wage differential though has
  narrowed down with increase in education level.
  It is still high.
• Urban wage differential persists but narrower
  than in rural area.

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The Working Poor by Gender and Activity Status
1999-2005 (in)
Pop. Seg. 1999-2000 1999-2000 1999-2000 1999-2000 2004-05 2004-05 2004-05 2004-05
S.E RWS CL Total S.E RWS CL Total
Male 43 8 49 66,441 47 8 45 66,943
20.1 11 37.7 24 18.7 9.7 35.3 21.6
Female 43 3.5 53 36,721 51 5 44 37,544
23.5 13.6 42.2 29.7 21.1 14.2 37 25.3
Total 43 6.5 50 103162 48 7 45 104487
21.2 11.4 39.3 25.7 19.6 10.5 35.9 22.8
Figures in italics are proportion of workers in
that population segment and activity
status. Source EPW, 28 July 2007
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HUMAN DEVELOPMENT INDICATORS( Indias position
among 177 countries)

• Particulars
  Rank Value
• HDI
  128 0.62
• Life expectancy at birth( yrs) 125
  63.9
• Adult literacy rate () 114
  61.0
• Combined(priter)enrolment 122
  63.8
• ratio
• GDI as of HDI 138
  97.0
• Adult F.literacy rate
  134 65.2
• Combined(pri-ter) enrolment 159
  87.7
• Ratio( F. as of male)
• Source Human Development Report-2007

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India-China Human Development Scenario-2003

• Particulars
  India
  China
• i) LF participation rate ()
  71 87
• ii) Female LFP rate
  45 79
• iii)Average Life Expectancy (years) 63
  71
• iv)Infant mortality (per 1000 live births) 63
  30
• v)Adult Literacy (ages 15 and above) 68
  95
• vi)Tertiary enrolment rate()
  11 13
• vii)Mobile phones per000 people 25
  215
• viii)PC per000 people
  07 28
• viii) Internet uses per000 people 17
  63
• ix) Gini Coefficient
  33 44.7
• Source World Development Indicators- 2004,
  2005

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GLOBAL COMPETITIVENESS RANKING 2007-8 India and
China(Rank out of 131 countries)

• Pillars Components
  India
  China
• GCI Global Competitiveness Index
  48 34
• Basic requirements
  74 44
• 1 Institutions
  46
  77
• 2 Infrastructure
  67
  52
• 3 Macroeconomic stability
  108 07
  
• 4 Health and primary education
  101 61
• Efficiency Enhancer
  31 45
• 5 Higher education and training
  55 78
• 6 Goods market efficiency
  36
  58
• Labour market efficiency
  96 55
• Financial market sophistication
  37 118
• Technological readiness
  62 73
• Market Size
  3
  2
• Innovation and Sophistication
  factors 26 50
• Business sophistication
  26 57
• Innovation
  28
  38
• Source Global Competitiveness Report 2007
  

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Major Areas of Reforms Needed

• Labour market Stringent labour laws should be
  relaxed
• Business environment Lowering the barriers to
  entrepreneurship
• Ending
  reservation of products fro SSI
• Need
  for Bankruptcy law
• 
  Dispersion of tariff rates
• Easing
  of Service sector FDI restrictions
• More
  privatization of public sector enterprises.
• Financial sector More liberalization
• 
  Privatization of public sector banks
• Infrastructure Electricity
  reforms to be speeded up
• 
  transport More private sector involvement
• Public Finances Better targeting of
  subsidies, GST
• Education Higher public
  expenditure on primary and
• 
  education, Addressing financing of higher edu.

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In Conclusion

• India and China non comparable
• India-- Democracy (messy)
• Highly diverse social
  structure
• Reforms reactionary in
  nature- a late starter
• Less integrated to
  Global market (including East Asia)
• Dissimilar trade
  pattern
• Lagging behind in FDI
  and infrastructure
• Weak link between
  economic development and social
• welfare at regional
  level compared to China.
• 
  

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• Two divergent development Paths
• India
  China
• Increasingly building ground up Top down
  approach
• Service sector led growth Manufacturing
  sector and foreign
• 
  trade
• iii) Private sector led growth
  State led
• (early nineties)
  modernization (late
• 
  1970s)
• Consumption driven
  Investment driven.
• Knowledge based sector-labour Cheap- assembly
  line workers
• vi) Worlds back office
  Factory of the world
• 
  

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• Yet--
• India can learn from China in
• Social and Physical
  Infrastructure
• Improving manufacturing sectors
  productivity
• India- A country with Potentials for sustaining
  development!!

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THANK YOU
artinanavati_at_gmail.com