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Indian Economy: An overview
Arti Nanavati
Prof. 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
Some General Facts
•
India is the world’s 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 China’s 45% .
•
World Bank classifies India as a low income economy
2
• 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)
3
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.
4
Composition of India’s GDP
(at Factor Cost by Economic Activity –
at 1999-2000 prices, in%)
1999-0 2000-01 2007-08
(RE)
1)Agriculture etc
2)Industry
2.1 Manufacturing
2.2 Construction
3) Services
3.1 Trade, hotel, Restaurants
3.2 Transport, storage $ communica.
3.2 Finance, insurance, etc
3.3 Community, social and per.
service
24.99
25.31
14.78
05.71
49.69
14.22
07.46
13.07
14.92
23.89
25.80
15.30
05.81
50.30
14.34
07.96
13.04
14.98
17.75
26.63
15.36
07.26
55.62
27.55*
14.68
13.39
* Inclusive of 3.2. Source : EPW 14TH June , 2008
Source: EPW June 14, 2008
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India-China Comparative Scenario
6
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) India’s 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’.
7
• 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.
8
• 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.
9
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 India’s 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.
10
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.
11
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.
• India’s IT industry an important contributor to BOP,
accounts for only about 1% of total GDP and 1/50th of
the total services
12
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.
•
India’s 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)
13
•
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.
•
India’s major exports are textile goods, gems and jewellery, engineering
goods, chemicals and leather manufacturers.
•
India’s 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)
Year
Export Import
1990-91
6.08
8.12
9.00
8.72
8.58
7.93
9.09
10.70
10.1
11.3
11.6
12.7
1993-94
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
7.86
8.52
10.38
10.20
10.17
10.12
12.25
12.13
11.89
13.18
14.25
17.25
Exim
15.62
15.63
18.50
18.62
17.63
19.90
21.35
22.51
21.66
24.49
25.65
29.97
Source: Calculated from Govt.
of India, Economic Survey
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Situating India in World Merchandise Exports and Imports
Year
1948
2006
World
(b$)
58
11783
Canada
Exports (% share)
India China N.America
Asia
5.5
3.3
2.2
1.0
28.1
14.2
14.0
27.8
18.5
21.0
13.9
25.0
0.9
8.2
Imports(% share)
1948
2006
62
12113
4.4
3.0
2.3
1.4
0.6
6.5
Source: WTO, World Trade Statistics, 2007
16
India-China Trade & FDI Partners
17
18
Source: Source: Reserve Bank of India
19
Source: CEIC Source: CEIC
20
21
22
Percentage Share(2006) and growth rate (1996-2006) : Trade in
Commercial Services of India and few selected countries and regions
Countries
%Share
Growth rate (%)
World
EX
100
IM
100
EX
7.2
IM
7.4
North America
Canada
18.85
2.35
15.19
2.71
5.3
6.7
7.3
6.8
Asia
China
India
25.36
3.72
3.01
25.05
3.79
2.41
8.0
14.7
21.5
6.5
14.8
26.9
23
Is development inclusive?
24
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(<10 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.
26
Sex Ratio in Population with Rural-Urban break up
Year
1901
Sex Ratio
Rural
Urban
Total
979
910
972
1911
1921
1931
1941
975
970
966
965
872
846
838
831
964
955
950
945
1951
1961
1971
965
963
949
860
845
858
946
941
930
1981
1991
2001
951
938
946
879
894
901
934
927
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
27
Trends in Gender Disparity in Literacy Rate
Male
Female
Male/Female
Literacy rate
disparity
40.4
39.5
56.3
63.8
75.8
15.3
18.4
29.7
39.4
54.1
0.45
0.38
0.35
0.28
0.21
Year
1961
1971
1981
1991
2001
Slightly more
than half of total
women are
literate.
Male-Female
LR
disparity is on
decline.
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Labor Force Participation Rate by Age:
2000-2004
Age
Male
Female
15-29
Rural
75.10
30.9
Urban
67.30
17.9
98.7
98.4
46.6
26.6
30-44
Rural
Urban
Rural female
L/F participation
rate higher to
their
urban
counterpart
mainly due to
Agriculture.
Source : NSSO, 61ST Round
29
Industrial Distribution of Workforce by Gender: 2004-2005
Rural
Male
Rural
Female
Urban
Male
Urban
Female
All
66.5
0.6
83.2
0.3
6.1
0.9
18.1
0.2
56.4
0.6
Construction
7.9
0.2
6.8
8.4
0.0
1.5
23.5
0.8
9.2
28.2
0.2
3.8
12.2
0.3
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
Industry division
Agriculture and allied activities
Mining & Quarrying
Manufacturing
Electricity,gas and water supply
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
1995
2000
2001
2002
2003
2004
% of women in
Public sector
13.4
14.8
14.9
15.4
15.6
15.9
% of women in
Private sector
20.2
23.9
24.2
24.3
24.5
24.8
% of women
in Total
15.4
17.6
17.8
18.1
18.4
18.7
Source : Quarterly Employment Review, Directorate General of Employment &
Training, Ministry of Labor
31
Unemployment rate by Age and Sector for India
15-29
30-44
45-59
60 & above
Total
Male F’male
Femal
e
Male
Femal
e
Male
Femal
e
Male
Femal
e
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
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
RURAL
Male
URBAN
Source : National Sample Survey Organization: 55th and 61st rounds
32
33
• women wage lower than men by 33-40 points.
Women-men wage differential is 0.75:1.
• 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.
34
The Working Poor by Gender and Activity Status:
1999-2005 (in%)
Pop. Seg.
Male
Female
Total
1999-2000
2004-05
S.E
RWS
CL
Total
S.E RWS CL
43
8
49
66,441
47
20.1
11
37.7
24
18.7
8
45
9.7 35.3
Total
66,943
21.6
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
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
( India’s position among 177 countries)
Particulars
HDI
Rank
128
Value
0.62
Life expectancy at birth( yrs)
125
63.9
Adult literacy rate (%)
114
61.0
Combined(pri—ter)enrolment
ratio
122
63.8
GDI as % of HDI
138
97.0
Adult F.literacy rate
134
65.2
Combined(pri-ter) enrolment
Ratio( F. as % of male)
159
87.7
Source: Human Development Report-2007
36
India-China Human Development Scenario-2003
Particulars
i) LF participation rate (%)
ii) Female LFP rate
iii)Average Life Expectancy (years)
iv)Infant mortality (per 1000 live births)
v)Adult Literacy (%ages 15 and above)
vi)Tertiary enrolment rate(%)
vii)Mobile phones per’000 people
viii)PC per’000 people
viii) Internet uses per’000 people
ix) Gini Coefficient
India
China
71
45
63
63
68
11
25
07
17
33
87
79
71
30
95
13
215
28
63
44.7
Source: World Development Indicators- 2004, 2005
37
38
GLOBAL COMPETITIVENESS RANKING 2007-8: India and China
(Rank out of 131 countries)
Pillars
GCI
1
2
3
4
5
6
7
8
9
10
11
12
Components
India
Global Competitiveness Index
48
Basic requirements
74
Institutions
46
Infrastructure
67
Macroeconomic stability
108
Health and primary education
101
Efficiency Enhancer
31
Higher education and training
55
Goods market efficiency
36
Labour market efficiency
96
Financial market sophistication
37
Technological readiness
62
Market Size
3
Innovation and Sophistication factors 26
Business sophistication
26
Innovation
28
China
34
44
77
52
07
61
45
78
58
55
118
73
2
50
57
38
Source: Global Competitiveness Report 2007
39
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.
40
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.
41
•
Two divergent development Paths:
i)
India
Increasingly building ground up
ii)
Service sector led growth
iii)
Private sector led growth
(early nineties)
iv)
Consumption driven
iv)
Knowledge based sector-labour
Cheap- assembly line workers
vi)
World’s back office
Factory of the world
China
Top down approach
Manufacturing sector and foreign
trade
State led
modernization (late
1970’s)
Investment driven.
42
• Yet-India can learn from China in:
Social and Physical Infrastructure
Improving manufacturing sector’s productivity
India- A country with Potentials for ‘sustaining’ development!!
43
THANK YOU
[email protected]
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