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IndiaIndia

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IntroductionIntroductiony India, an emerging economy, has witnessed unprecedented levels of

economic expansion, along with countries like China, Russia,Mexico and Brazil. India, being a cost effective and labor intensiveeconomy, has benefited immensely from outsourcing of work fromdeveloped countries, and a strong manufacturing and exportoriented industrial framework. With the economic pace picking up,

global commodity prices have staged a comeback from their lowsand global trade has also seen healthy growth over the last twoyears.

y The global economy seems to be recovering after the recenteconomic shock. The Indian economy, however, was hit in the latterpart of the global recession and the real economic growthwitnessed a sharp fall, followed by lower exports, lower capitaloutflow and corporate restructuring. It is expected that the globaleconomies will continue to sustain in the short-term, as the effectof stimulus programs is yet to bear fruit and tax cuts are workingtheir way through the system in 2010. Due to the strong positionof liquidity in the market, large corporations now have access tocapital in the corporate credit markets

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CountryInterest

RateGrowth Rate

InflationRate

JoblessRate

CurrentAccount

ExchangeRate

India 5.25% 8.90% 9.70% 8.00% -14 45.355

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OverviewOverviewMainly as a result of the economic reforms initiated in 1991, Indias long-

term trend rate of growth increased from 3.6% during the 1950s1970s, to

5.2% in the 1980s, 6.1% in the 1990s, and to more than 9% during fiscal year

(FY)2005FY2007. Like other emerging economies, India was affected by the

turmoil and uncertainty gripping global financial markets and the worldeconomy since the second half of 2008. Growth rates declined to 6.7% in

FY2008, as compared to 9.2% in FY2007 and 9.7% in FY2006. The Government

of India took several prompt monetary and fiscal measures to enhance

demand, boost credit flows, and lower interest rates to counter the slowdown.

Some early indicators suggest that the governments stimulus package has

been effective in reviving growth.

.

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OverviewOverview

y India's diverse economy encompasses traditional village farming, modern

agriculture, handicrafts, a wide range of modern industries, and a multitude of

services. Slightly more than half of the work force is in agriculture, but services

are the major source of economic growth, accounting for more than half of

India's output, with less than one-third of its labor force. India has capitalized on

its large numbers of well-educated people, skilled in the English language, tobecome a major exporter of software services and software workers.

y The index of industrial production (IIP) registered a growth rate of 9.6% during

AprilJanuary FY2009 as compared to 3.3% in the same period in 2008; and

exports reversed a 13-month decline, growing by an impressive 12.7% in

November 2009January 2010. The IIP has grown at an average of more than

12% since August 2009. This growth is stronger than expected, and cuts across

categories, such as transport equipment, metal products, textiles, and mining.

From a use-based perspective, too, consumer spending continues to gain

strength both in durables and non-durables.

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Growth rate of SectorsGrowth rate of SectorsThe growth is driven by robust performance of the manufacturing sector onthe back of government and consumer spending. According to government

data, the manufacturing sector witnessed a growth of 16.3 per cent in

January-March 2010, from a year earlier. Economic activities which showed

significant growth rates in 2009-10 over the corresponding period last year

weregrowth ratemining and quarrying

manufacturing

electricity, gas and watersupply

construction

trade, hotels,transportand communications

financing, insurance,realestate and businessservices

community, social andpersonal services

sectors growthrate

mining and quarrying 10.60%

manufacturing 10.80%

electricity, gas and

water supply 6.50%

construction 6.50%

trade, hotels,transport

and communications 9.30%

financing,

insurance,real estate

and business services 9.70%

community, social and

personal services 5.60%

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Economic indicatorEconomic indicator

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Project success ratesProject success rates

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GDP - real growth rate (%)

Year GDP - real growth rate (%)

2000 5.5

2001 6

2002 4.3

2003 4.3

2004 8.3

2005 6.2

2006 8.4

2007 9.2

2008 9

2009 7.4

http://www.indexmundi.com/g/g.aspx?c=in&v=66

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GDP (purchasing power parity)(Billion $)

YearGDP (purchasing power

parity) (Billion $)

2000 1805

2001 2200

2002 2660

2003 2660

2004 3033

2005 3319

2006 3666

2007 4156

2008 2966

2009 2816

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GDPGDP -- per capita (PPP) (US$)per capita (PPP) (US$)

YearGDP - per capita

(PPP) (US$)

2000 1800

2001 2200

2002 2540

2003 2540

2004 2900

2005 31002006 3400

2007 3800

2008 2600

2009 2500

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Literacy (%)Literacy (%)

Year Literacy (%)

2000 52

2001 52

2002 522003 59.5

2004 59.5

2005 59.5

2006 59.52007 61

2008 61

2009 61

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Population growth rate (%Population growth rate (%

YearPopulation growth

rate (%)

2000 1.58

2001 1.55

2002 1.51

2003 1.47

2004 1.44

2005 1.4

2006 1.38

2007 1.606

2008 1.578

2009 1.548

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Stages of developmentStages of development

y http://rbidocs.rbi.org.in/rdocs/Publications

/PDFs/0HANDB210910_F.pdf

y Book1(1).xls

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Policies

yy Investment policyInvestment policy

yy Fiscal policyFiscal policy

yy Monetary policyMonetary policy

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OutlookOutlook

y Despite the lagged impact of monetary

tightening and the pullout of fiscal stimulus, real

GDP growth will accelerate to 7.5% this year

and 7.9% in 2011, driven largely by greaterinvestment and industrial activity.

y The election victory of the Congress Party

bodes well for continued economic

reforms, with which will help growth return tothe 8-9% rates seen before the crisis, while

double-digit rates remain a few years away.

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Recent performanceRecent performance

y Real GDP growth rose to 8.8% y/y in Q2-10, above the alreadystrong 8.6% growth rate in Q1.On a seasonally adjusted basishowever, real GDP slowed to 8.9% at an annualized rate from13.5% in Q1. Almost half the y/y growth in Q2 came from personalconsumption, which strengthened for the first time in 3 quartersdespite tighter monetary policy, as more favourable weather has

boosted farmers income, and public and private investment, heavilysupported by infrastructure spending. Stronger imports constrainedthe overall growth figure, but at the same time reflect healthydomestic demand.

y Growth slowed across nearly all industries, including inmanufacturing and in the trade, hotel, transport andcommunications sector, but was supported by a large rebound in

the volatile business, personal and social services. As furtherevidence of the slowdown, industrial activity in August grew at itsslowest pace since May 2009, rising 5.6% y/y.

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