Economics-A report on the Outlook of Indian Economy

Economics- Indian Economy

. Indian economy- over view India is the 10th largest economy in the world in terms of nominal GDP, & 3rd largest by Purchasing Power Parity(PPP) It is one of the fastest developing economic superpower with potential to become the worlds 3rd largest economy by 2020. It is also the 16th largest exporter, 6th largest services & 8th largest importer in the world. The country is one of the G-20 major economies, a member of BRICS and a developing economy that is among the top 20 global traders according to the WTO. IMF projects India's GDP to grow at 5.6% over 2014-15. . India's economic growth slowed to 4.7% for the 201314 fiscal year, in contrast to higher economic growth rates in 2000s. Its manufacturing industry has held a constant share of its economic contribution, while the fastest-growing part of the economy has been its services sector - which includes construction, telecom, software and information technologies, infrastructure, tourism, education, health care, travel, trade, banking and other components of its economy Agriculture sector is the largest employer in India's economy but contributes a declining share of its GDP (13.7% in 2012-13).

Effect of import & export on Indian economy It affects our holding of foreign currency; thereby it is indirectly effect the value of Indian rupee currency. More exports creates more holding of foreign currency, which automatically helps in appreciating our Indian currency. On the other hand, more imports create depreciation of value of Indian currency.

Sectors in Indian economy

AGRICULTURAL SECTOR- India ranks second in farm output. Economic contribution of agriculture is declining day by day to Indias GDP due to its broad based economic growth. Still it plays a significant role in the overall socio-economic fabric of India.Problems faced by agricultural sector- Poor conditions of roads which causes untimely transport of goods, increases gap between demand and supply. Lacks storage facility which causes spoilage of 30% of farmers produce Unorganized retail due to which farmers get only 10-30% of the price Poor irrigation system which cause crop failures & results in heavy losses to the farmers.Steps take for its betterment FDI in retail which will help in creating good infrastructure, giving good price to the farmers and helping in having better storage facility.

INDUSTRIAL SECTORIndustry accounts for 28.8% of GDP & employs 22% of the total work force. It is 11th in the world in terms of nominal factory output. Major industries are: textile 2nd largest source of employment after agriculture, retail- contributes around 14-15% in GDP.

SERVICE SECTORIndia is 13th in services output, provides employment to 27%. Major contributors are: Information technology- contributing 25% of countrys total export in 2009-2010. 7 Indian firms among top 15 IT outsourcing company; business process outsourcing- contributes around 1% in the GDP, employing 2.1 million people.

Analysis of the historic data Here's, economy breaks down:agriculture:18.1%industry:26.3%services:55.6% (2011 est.)

Let's look at the data:The top chart shows overall GDP growth, which has been increasing at a strong clip. However, notice that from 2008-2010, the entire economy was hit hard by the recession. However, we see a return to incredibly strong growth in 2011.

The bottom chart shows the rate of GDP change, YOY.We see a clear slowing over the last 4 quarters, largely because high inflation is sapping demand and forcing the central bank to run high interest rates.

Overall industrial production has been declining on a YOY basis over the last two years. Also note the dip into negative territory recently -- not a good sign.

Information on the unemployment rate is inconclusive.

India is a net importer, largely because it has little domestic energy resources.

India has a stubbornly high inflation rate for the last two years. We see the spike to 16% YOY in early 2010. While it has come down, it has taken over two years of effort to do so. The primary method of combating it has been a gradual increase in interest rates over the same period of time, which is obviously a big reason for the recent slowdown in overall economy growth.

Overall industrial production has been declining on a YOY basis over the last two years. Also note the dip into negative territory recently -- not a good sign. Trust in financial savings has eroded

Over the last five years, the Indian economy has suffered from negative real interest rates this means that the rate of inflation was higher than the interest rate offered by banks. Thus people had no incentive to keep their hard earned savings in bank deposits (or any other financial asset). To preserve their wealth, they moved their money into assets like Gold and property. The only long term solution is to bring inflation under control as soon as possible and improve regulation in financial markets. A healthy combination of positive real interest rates and better regulation will bring back the trust of retail investors. We certainly hope the new government will not disappoint investors in this regard.Present data

In India, the annual growth rate in GDP at factor cost measures the change in the value of the goods and services produced in India, without counting governments involvement. Simply, the GDP value excludes indirect taxes (VAT) paid to the government and includes the original value of products without accounting for government subsidies

WPI based inflation touched a 5 month high of 6.01% in may, driven by a spike in food, fuel & manufactured products prices.

SWOT ANALYSISSTRENGTH Agriculture High percentage of cultivable land 56.78% Huge English speaking population Availability of skilled manpower Diversified nature of the economy System Extensive Higher Education Third largest reservoir of engineers High growth rate of economy Rapid growth of IT and BPO sector brining valuable foreign exchange Abundance of natural resources WEAKNESS Very High percentage of workforce involved in agriculture which involves only 17.2% of GDP Rural poverty leads horrible wave of suicides by indebted farmers In rural India, about 34 percent of the population lives on less than $1.25 a day Coal Mines Corruption Illegal allotment and Kick Backs Inequality in prevailing socio economic conditions Poor infrastructural facilities Huge population leading to scarcity of resources Low literacy rate Unequal distribution of wealth Rural urban divide, leading to inequality of high standards

OPPORTUNITY Scope for entry of private firms in various sectors for business Inflow of Foreign Direct Investment Huge foreign exchange earnings Area of biotechnology Area of Infrastructure Huge Domestic Market Huge natural gas deposits found in India, Huge agricultural resources, fishing, plantation crops, livestock Investment in R & D, engineering design Huge population of India in foreign countries Vast forest area and diverse wildlife

THREATS Global economy recession/slowdown High fiscal deficit Volatility in crude oil prices across the world Growing Import bill -$461.4 billion Population explosion, rate of growth of population still high Inflation: 6.87 per cent in July of 2012 Agriculture excessively dependent on monsoons

MAKE IN INDIAThe aim is to take the share of manufacturing in the countrys GDP from a stagnant 16% currently to 25% by 2022, as stated in the National Manufacturing Policy, and to create 100 million jobs by 2022. India had fallen to a lowly 134th rank out of 189 countries this year (three down from 2013) in the World Banks Ease of Doing Business rankings. Currently, it takes 12 procedures and 27 days to start business, 35 procedures and 168 days to get construction permits and 1420 days to enforce contracts in India.This initiative has its origin in the Prime Minister's Independence Day speech where he gave a clarion call to 'Make in India' and 'Zero Defect; Zero Effect' policy.To convert India into a global manufacturing hub, to help create jobs and boost economic growth. To urge both local and foreign companies to invest in India.The logo is a striding lion made of cogs, symbolizing strength, manufacturing and national pride.It is designed by a creative agency known as Wieden and Kennedy. The backend is an agency called Invest India, which is a joint venture between industry chamber FICCI (Federation of Indian Chambers of Commerce and Industry: 51% equity), the central governments DIPP (Department of Industrial Promotion and Policy: 35% Equity), and state governments, each of whom hold 0.5% equity.

5 things Make in India will do1 Guide Foreign Investors Invest India will act as the first reference point for guiding foreign investors on all aspects of regulatory and policy issues and to assist them in obtaining regulatory clearances.2 Assistance to Foreign Investors Investor facilitation cell will provide assistance to the foreign investors from the time of their arrival in the country to the time of their departure, with focus on green and advanced manufacturing and helping these companies to become an important part of the global value chain.3 Prompt Response Prospective investors can post questions on the Make In India portal and they will be answered by a panel of experts within 72 hours.4 Provide Relevant Information Visitors registered on the website or raising queries will be followed up with relevant information and newsletter.5 Proactive Approach A pro-active approach will be deployed to track visitors for their geographical location, interest and real-time user behavior.

Future prospectsIndias potential for economic growth is between 7 8% in the immediate future and 8% - 9% in the medium term. It should be possible to achieve a growth of 7% within one year from now and it could be taken above 8% in the next three years. In the long term we could aim for a growth of 9% p.a going forward for at least ten years. Indian Economy is in the take off stage again. After achieving a growth of more than 8% for a few years, the growth decelerated on account of developments in the global economy and the domestic issues. After a reasonable growth, the kind of deceleration of growth was not expected. Due to increased social activism and the issues relating to coalition management at the central government level, led to impasse in decision making and many of the sectors which were attractive for doing business became unattractive during the last three years. After several years, a government with a majority has come to power at the centre and the government will not be required to waste its time on management of coalition and coalition issues and it would be able to concentrate on issues relating to Social , Economy , Technology development and other pressing issues. The issues relating to Global Economic Melt down are also being addressed and the global economic environment is improving but not at a pace which is desired by the global leaders. India with other fast growing countries in the world can contribute to the overall increase in global economic growth in the coming years. The experience of the Prime Minister in achieving a good growth in Gujarat in Industrial and Agricultural development is likely to go a big way in replicating this model in several other parts of India. The policies announced by the government are forward looking and they had set an objective to increase the rank on doing business and the World Bank President was of the opinion that in the immediate future, India could move up fifty ranks from the present level, if appropriate response is developed by the government to kick start the econom ic growth again. The sentiments of investors including the foreign investors are also very favourable today in kick starting the investment process in the Indian Economy. Indian Economy is inherently very strong and the Economic growth is well supported by all the segments of the economy including the development in rural areas. After the increased penetration of mobile phones in rural areas, the services business in rural areas has started gaining momentum. India has the largest number of entrepreneurs in the world and there are lot of small entrepreneurs and traders in the unorganised sectors which help to sustain the economic momentum. To attain the full potential of Economic growth , proactive policies have to be formulated and implemented in various areas of the Economy.2. Agriculture. India is one of the largest producers of agricultural produce in the world and it is ranked Number one and two in many products. Agriculture is also contributing to exports in a big way. The productivity in agriculture in many of the commodities are less than half of the best in the world and there is a lot of scope for improving the agricultural productivity. The government is targeting a growth of 4% in Agriculture per annum and if we consider the present productivity levels, we could look at a stretch target of 8% growth in Agriculture and 6% under normal circumstances. Even achieving a growth of 4% p.a. was found to be difficult and there were shortfalls in achieving the target in many years. Few of the states in India, had shown that it was possible to achieve a growth of 8% in agriculture . This growth could be achieved by creating cooperative structures for agricultural produce in all the states, ensuring remunerative price for farmers without any government subsidy and consolidation of land holdings for adoption of automation ( under cooperative structure ) and adopting the best practices . This could be achieved through creating new organisation structures for agricultural management, contract farming, remunerative price to farmers, knowledge sharing and extensive training. By adopting these strategies, we can also ensure that the year on year sharp decline in Agricultures share in the overall GDP could be arrested. Industrial Policy. The government has already prepared plans for increasing the contribution of manufacturing from 15% of GDP to 25% of GDP. The government has allowed 100% FDI in Many sectors of the economy and there is an increased liberalisation in limits being effected in various sectors of the economy, year on year by the government. Recently the FDI caps in Defence and Insurance were increased and many more such announcements are expected to be made in the near future. One of the reasons for high growth in any sector or industry world over is ensuring the development of a viable Eco system for an industry and availability of inputs ( Land, Labour, Capital and Machinery ) at affordable and low cost rates. The governments initiative in developing specific industry focussed industrial clusters will ensure the development of a suitable eco system. But for a secular growth for the industry, there is a need to ensure other factors of production are also available at competitive rates. The government is already trying to address the issues of Land and Labour. The government had announced a few policies relating to labour, which should provide flexibility to corporates, optimum utilisation of labour. The government is in process of formulating policies to acquire land at competitive rates for industrial and Infrastructure development. There is already an enabling environment for adoption of best technologies from across the world in various sectors of the economy. The IT hardware sector is being given a boost to grow in line with the growth in IT services sector, There is a need to reduce the cost of capital for the investors and also make sure long term funds are available for high capital intensive projects. The mechanism created in the Cabinet secretariat to speed up large projects through Project Monitoring group has started yielding results. Many of the pending projects were cleared by this group and companies have started taking initiatives to speed up the implementation of the cleared projects. Similar mechanism is being contemplated to be set up in various state levels to speech up projects which have capex of less than Rs.1000 cr. There is an enabling environment now to revive the plans for capital projects and capital expenditure. The new push should goad companies to plan for new large projects for expansion of capacity.3. Fiscal Policy. India is reporting fiscal deficit every year and this trend is likely to continue for several years to come. India has got one of the lowest Tax / GDP ratios in the world. Considering the increasing contribution of services to the Indian Economic growth , more and more services are being brought under the service tax net. In this budget, it is projected that the revenue from service tax will exceed the collections from Customs duties and Excise duties. The subsidies given by government is one of the major issues of concern and it was showing a rising trend. The revenue earned by government falls short of the collections on Revenue account and the deficit has to be met by raising resources on capital account. The fiscal deficit was showing a rising trend and drastic measures had to be taken to reduce the fiscal deficit. Now that the deficit is coming under control , the expectations are that this could be improved further. In the immediate future, the objective is to maintain the present credit rating of India. The new government is planning to undertake measures to improve this rating. Improvement of country rating will help Indian companies to raise foreign funds at attractive rates. Since our rating is low today, Indian companies have to pay premium on the funds borrowed from abroad. To shore up the revenues and exercise control on expense, the government has to ensure improved compliance of the tax policies, targeting the subsidies and substantially reducing them; generate resources from under performing / non performing assets of the government including shares in PSUs and land holding of the government. There is a need to manage the fiscal deficit by exploring all the available options and one major criterion could be considered , i.e., how the options being considered would affect the performance of the Industry and Economy. Before deciding on options, including the change in tax policies and incentives, the socio economic benefits of the new planned policies should be reviewed. In the light of new developments across the world, now countries are adopting Macro prudential policies, whereby the policies implemented by government are in synch with the policies implemented by central banks and there is a focus on systemic risk. There is an increased focus on Inflation, Unemployment, Economic and Industrial growth. In this light, the Fiscal policies being formulated should take care of the interest of all the stake holders in the economy. Monetary policy. The recent crisis in the world has increased the role of Central banks in ensuring the stability of an economy and the financial services systems. Central banks around the world had played a major role in bringing in the required stability to financial systems and taken the role of close monitoring of economic variables to develop appropriate response. The banks have adopted easy monetary policies, ensured liquidity in the system and brought in appropriate responses from time to time. The central banks focus on key monetary variables and one of their main focus is inflation targeting. Indian Central bank has played a pioneering role in weathering the global economic storm and brought in policies which ensured the stability of the financial system in India. Going forward, the monetary policies should ensure easy availability of credit for good projects at affordable rates. The monetary policy has to take care of economic growth, employment levels and inflation. There is a need to increase the availability of credit to good projects and reduce the interest rates. India has a large deficit today and this is likely to increase considering the fact that the reliance on imported energy is likely to increase going forward. One of the recent initiatives taken by the government is to encourage exports from India to various other countries in the world. 4. Trade policy: Indian embassies based abroad are helping Indian companies to identify the opportunities for exports. Over the years, India also has become globally competitive in many sectors. India today has emerged as the Global Hub for IT/ITES, Auto and Auto components, Pharma and Bio tech, R& D services and in several others areas. There is a good eco system available in the above sectors to achieve globally competitive standards by Indian companies. Going forward, the government has to draw up a list of countries with whom India runs a trade deficit and prepare action plans for reducing the deficit with the countries, where the deficit is very high. The emerging industries, the emerging entrepreneurs and SMEs should be encouraged to look at the export opportunities and we have to identify few more areas for development including Health, Education , Defence production and others. Achieving higher growth in Manufacturing and Agriculture would help the country to increase the global competitiveness in many more products. By increasing the global competitiveness, it should be possible to reduce the trade deficit, which is one of the main concerns for Economic stability. Trade policy of India today enables the foreign companies to invest though FDI in many sectors of the economy. But the FDI received every year by India is still miniscule compared to the FDI received by other countries in the World. There is an increased interest by investors around the world to invest in Indian manufacturing and the government is in the process of making investments in India easier and there will be new announcements regarding Trade facilitation. The requirement of large funds for infrastructure including the plan to develop 100 smart cities is already attracting the interest of investors around the world. The recent budget allowing infrastructure and investment trusts and allowing banks to issue infrastructure bonds will attract more foreign investments. Implementation of Policies: In many sectors of the Indian economy, there are policies which encourage the growth and development. There are issues regarding how they are being implemented. The investors find issues, during project implementation stage. The government has identified , this as one of the major areas of focus and attention is being given to simplifying the procedures in project approval and implementation stage. Future of the Indian Economy is really good. There is a confidence prevailing among both domestic and international investors on the Indian Economy today and these sentiments have to be converted into investments going forward. Considering the interest from investors from all over the world, Indian Economy is poised to realise its growth potential and the Stake holders from various parts of the economy have to play a constructive role in realising the full potential.

CONCLUSION India can become superpower when youngsters will enter into politics without any corruption. First of all we must develop a positive attitude to life. India should depend on to restore our fortunes by 2020. Also each Indian should have a vision a dream an ambition an aim in life. India should follow the path of truth not lie or corruption. Every Indian should be the superpower. We have man power, talent pools, strong cultural background, an exemplary history, gurus, and corporate leaders, natural resources, to become a super power. Our weak factors are: Corruption, lack of education, blind belief political eagle, less confidence and these should be finished from root. If these things will be kept in mind thus India will achieve its dream very soon even before 2020.

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