economic analysis2

8/6/2019 Economic Analysis2

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Presentation AgendaPart-A

- World Population & world GNI

- India vis-à-vis Global Realities- Role of WTO in reducing global inequities- Globalisation as a way out to bridge the gap between the Rich and the

Poor - Globalisation: Concept & Components- India vis-à-vis Globalisation Index

Part-B- India as an Emerging Global Market- Broad contours of Indian Economy- Reform packages- Twenty-Point Policy Initiatives- Global Business Leaders¶ opinions about India

Part-C- Performance of the Indian Economy in Post-LPG EraPart-D

- Limitations of the Economic Development Approach: Paradigm shift interms of Human Development

- Human Developemnt: Concept and Components- HDI and its Trends- Concluding observations



Distribution of World Population and World GNI amongvarious groups of Countries in 2003

(Exchange Rate Basis)

GNI (Billion US $) TotalPopulation

(million)

GNI Per Capita (US

$)

1. Low IncomeEconomies

1,038 (3.0) 2,310 (36.8) 450

2. MiddleIncomeEconomics

5,732 (16.6) 2990 (47.7) 1,920

3. HighIncome

Economics

27,732 (80.4) 971 (15.5) 28,550

World 34,502 (100.0) 6271 (100.0) 5,500

China 1,417 (4.1) 1,288 (20.5) 1,100

India 568 (1.6) 1,064 (17.0) 530

Sour ce: Compiled from World Bank, World Development Re por t (2005)



World 34,502 (100.0) 6271 (100.0) 5,500

China 1,417 (4.1) 1,288 (20.5) 1,100

India 568 (1.6) 1,064 (17.0) 530

GNI (Billion US $) Total Population GNI Per Capita

(million) (US $)

INDIA vis-à-vis GLOBAL REALITIES



INFERENCES BASED ON THE ABOVE TABLES

-Gross inequality of incomes between the Rich and the Poor countries

-Widening gap in the per capita income of Rich and Poor countriesduring 1985-95

-During the past few years, the income growth rate of the poor countries has shown rising trends, which if sustained over a longer period ; the gap between the Rich and the Poor will decrease

-All high income countries are not necessarily developed countries, suchas, oil-exporting Gulf Countries

-Their per capita incomes are high, but they do not fulfill other parametersof a developed economy



ESTABLISHMENT OF WTO TO FACILITATE FREE FLOW OFTRADE IN GOODS AND SERVICES

The establishment is based on the belief that the World would bericher and happier if we could ensure the movement of theFollowing without any restrictions and hindrances:

- Goods and Services

- Investment Flows

- Technology Flows

- Systems and processes Flows

- People Flows

Any aberration or anomaly in the above movements is sought to be correctedThrough the good offices of the WTO.



GLOBALIZATION CONCEIVED AS A WAY OUT TO BRIDGE THEGAP BETWEEN THE RICH AND THE POOR COUNTRIES

THE CONCEPT AND THE SCOPE OF GLOBALIZATION

There are different connotations and ramifications of themuch talked about term ³G lobalizat ion´. But from thepoint of view of Ec onomy , Busi ness, Hu man Development,

and M anag ement , the term Globalization connotes thefollowing four basic aspects:

� More choices

�Lower prices

� Blurred national identity for productsand services

�

Career choices and progression



-Fifteen Years of consistent efforts on the part of India in terms of Globalizing its Economy, It has

not been in a position to find a place amongthe top 20 Globalized countries of the world.-The four important components of globalizationare

-ECONOMIC INTEGRATION

-PERSONAL CONTACT

-TECHNOLOGY

-POLITICAL ENGAGEMENT



ECONOMIC INTEGRATION: TRADE, FOREIGN DIRECT INVESTMENTAND PORTFOLIO CAPITAL FLOWS, AND INCOME PAYMENTS AND RECEIPTS(INCLUDING COMPENSATION OF NON RESIDENT EMPLOYESS AND INCOMEEARNED AND PAID ON ASSETS HELD ABROAD)

PERSONAL CONTACT: INTERNATIONAL TRAVEL AND TOURISM,

INTERNATIONAL TELEPHONE TRAFFIC, AND CROSS-BORDER TRANSFERS

TECHNOLOGY: NUMBER OF INTERNET USERS, INTERNET HOSTS,

AND SECURE SERVERS

POLITICAL ENGAGEMENT: NUMBER OF MEMBERSHIPS IN

INTERNATIONAL ORGANIZATIONS, U.N. COUNCIL MISSIONS IN WHICH EACHCOUNTRY PARTICIPATES, AND FOREIGN EMBASSIES THT EACH COUNTRYHOSTS



THE ABOVE PHENOMENON HAS BEEN SHOWN IN THE FOLLOWING GRAPH



Globalization index r ankings



There is a common myth that Globalization benefitsdeveloped countries at the cost of under-developedcountries. For instance, Japan figures at the 2ndlargest economy of the world next to U.S.A., but interms of Globalization Index Rankings (G.I.R.), Japan is at No.38.

Similarly, Germany, which is considered as the 3rdlargest economy of the world, figures at No.14 in termsof G.I.R..The more startling contrast is provided by China, which

in the year 2005 emerged as the 4th

largest economy of the world relegating U.K. to a lower position, figures at53rd ranking of the Globalization Index. This is sobecause the G.I.R. are based on parameters, which arenot exactly the same, which constitute the size of the

economy.



Who Benef its fr om

Globalization?

� Allegedly at the cost of poorer nations.

� Higher among the G-7, but some (e.g.Japan) are low on globalization

� Some emerging economies (Czech

Republic) are quite high� Developing countries exceeded the

global average in trade growth



Globalization and the Envir onment

� Common complaint that globalizationhurts the environment

� Argued that firms relocate to escape

tough pollution rules at home� Many firms adhere to strict codes of

environmental protection, and engage

in cleanup of locations� Environment is just one factor in

location decision



Globalization: The Social

Balance� Carries promises and threats at the

national, regional, organizational, and

individual level.� Makes less regulated, emerging

economies vulnerable to volatilities.

�Exposes national economies to theuncertainties of the global economy.

� Could offer advantages toparticipating economies.



Globalization: The Social

Balance ±contd..� Globalization & Infrastructure ±

± Institutional frameworks and market

efficiency that support fair andtransparent transactions of productsor services

± Streamlines flows of commodities,capital, labour, knowledge, andinformation.



Globalization: The Social Balance- Contd..Globalization and happiness



Globalization and Inter national

Business� Globalization does not mean

the advance of a

homogeneous civilizationand uniform businesssystem.

� Growing interaction makespeople more aware of thedifferences among them.



Concept of Inter national

Business� The business activities that involve the

tr ansfer of resour ces, goods, ser vices

knowledge, skills or inf or mation acr oss

national boundar ies.

� May involve

± Individuals

± Companies

± Gover nment bodies

± Inter national institutions



Concept of IB ±Contd..

� International transactions

± Economic tr ansactions that cr oss

bor der s

� International trade ± Occur s when companies impor t or

expor t acr oss bor der s

� International investment

± Occur s when companies invest their

resour ces acr oss national boundar ies

� International firm

± Those engaged in inter nationalbusiness



Concept of IB ±Contd..

� Multinational Enterprise(MNE)

±A firm that has directlyinvested abroad

±Has at least oneworking affiliate in aforeign country



Inter national ver sus Domestic

Business� International business is the

outgrowth of domestic business.

� Most major corporations started their operations in the domestic market.

� International entrepreneurs

± Individuals or companies thatinvest and operate in another country without a home base



Inter national ver sus Domestic

Business� Signif icantly different due to differences in:

± Environmental Dynamics

� Currency, inflation, interest rates,

accounting practices, cultures,social customs, laws, politicalstability

± Operational Nature

� Communication, coordination,motivation, differences inorganizational principles and

management philosophies



Why Do Fir ms Expand

Inter nationally?� Fir ms expand inter nationally

f or var ious motives:

- Market motives- Strategic motives

- Economic motives

� Motives var y fr om one

business activity to another .



Why Do Fir ms Expand

Inter nationally?� Market Motives:

±Offensive motive ± seize market

opportunities in foreign countriesthrough trade or investment.

±Defensive motive ± to protect and

hold a firm¶s market power or position in the face of threatsfrom domestic rivalry or changesin government policy.



INDIA AS AN EMERGING GLOBAL MARKET

The process of Liberalization, Privatization, and Globalization

(L.P.G.) initiated since 1991 have made India a BrandDestination as the 5th largest economy of the world next toU.S.A., Japan, Germany, and China. The macro-economicvariables, which have put India in such an enviable global

position have been:



� Economic Growth ± Sustained economic performance

�

Average since 1991 6.2%� 2004-05 6.9%� 2005-06 7.5-8.0 % (estimated)� Forecast till 2050 ±Goldman Sachs 5 % p.a.

± Services account for over 50% of GDP ± Manufacturing sector grew at 9% in 2004-05

� Trade (2004-05) ± Exports growth 24% in 2004-05 reaching US$80 billion ± Imports growth 35% reaching US$106 billion

� Investment ± Foreign Investment - US$16 billion in 2003-04

� Mature Capital Markets ± NSE third largest, BSE fifth largest in terms of number of

trades� Well developed banking system

Br oad Contour s of Indian Economy



Economic Reforms-contours

� Industrial Policy Reforms

± Industrial delicensing and deregulation

± Licensing limited to only 6 sectors: on security, publichealth & safety considerations

± Liberal policy on technology collaboration� Trade Policy Reforms

± Most items on Open General License, QuantitativeRestrictions lifted

± Progressive reduction in customs duty ± Imports grew at 34% in 2004-05 to reach US$105 billion

� Foreign Trade Policy

± To double India¶s share in global merchandise trade in 5years



Economic Ref or ms� Rationalisation of direct and

indirect tax str ucture ± Peak Custom duty: 15%

± Cor por ate Tax: 30%

± Tar iff to be aligned with ASEAN levels

� Policies on outwar dinvestments also liber alised

� Rupee made f ully conver tible

on tr ade account

� Fiscal Responsibility & Budget

Management Act ± Revenue def icit to be br ought to zer o

by 2008

5 th amongthe top

reformers in2003: World Bank



In addition to the above reform packages, the countryHas taken the following Twenty-Point policy initiativesto put The Indian Economy on the Global Map

1.Enhancing Competitiveness of theeconomy

2.Liberalization of Foreign Director Investment (FDI) Policy

3.Foreign Technology Collaborations

4.Easing of Foreign Exchange Controls5.Lowering of Tax Rates both for individuals

and corporates



Contd..

6. Strengthening of infrastructural support

7. Revolutionary milestones in IT andIT enabled services

8.Virtual revolution in telecommunications

9. The gigantic quadrangular development of national highways connecting North toSouth and East to West

10. Strengthening of special economic zones



11. Massive growth in Automobile and Autocomponent Industry

12.Impressive performance of Textiles andGarments and their vast potential for future

13. Impressive strides in Biotechnology andPharma Industry

14. Integrated Circuit Technology (ICT) benefits

15.Bilateral and Multilateral Trade Agreementswith leading economies of the world includingU.S.A., E.U., ASEAN, NAFTA, GULFCOOPERATION COUNCIL GCC etc.



Global Business Leader s -On

India³India is adeveloped countryas far asintellectual capitalis concerned´

³India can be a major

part of Dell¶soperations and weare looking tocapitalize on India¶shuman capital´

³We are expanding our presence in India to takadvantage of the ampleR&D talent available´

³India is handling

the mostsophisticatedprojects in theworld.I amimpressed with thequality of work´

JACK WELCH, GE JOHN CHAMBERS, CISCO

MICHAEL DELL, DELL BILL GATES, MICROSOFT



The echo of the above global leaders¶ sentiments has foundExpressive Support In the behavior of Foreign InstitutionalInvestments in Asia favouring India

Foreign Institutional Investments (FIIs) Destination :

Select Asian Countr ies

($ million)

2000 2001 2002 2003 2004

Malaysia -2,472 -649 -1,712 1,097 8,902

Thailand -712 -881 -1,606 -73 1,308

China -3,991 -19,406 -10,342 11,427 196

Indonesia -1,911 -244 1,222 2,251 2,793India 2,346 2,853 1,023 8,216 8,833

Sour ce : Asian Development Bank ( ADB) Repor t, 2005Sour ce: Business & Economy, New Delhi, (30.12.2005 ± 12.01.2006)



Category 1993-94

(Rs. in

Crores)

2003-2004

(Rs.in crores)

Growth

Rate in %

Agriculture and allied activities 2,29,829 2,93,033 2.46

Manufacturing 1,03,739 1,88,817 6.17

Of which Organised

Unorganised [Non-Corporate]

65,774

37,965

1,18,282

72,535

6.04

6.39

Construction 38,749 70,962 6.24

Trade, Hotels and Restaurant

On which Trade

Hotels and Restaurant

98,627

91,324

5,303

2,18,985

2,04,438

14,547

8.53

8.39

10.62

Non-Railway transport 22,888 50,090 8.15

Real Estate, ownership of Dwellings and

Business Services

40,431 72,001 5.94

Other Services 48,275 1,02,156 7.78

Total NP [including other Activities] 6,97,992 12,74,074 6.2

NDP AND GROWTH RATE IN DIFFERENT ACTIVITIES 1993-94 TO 2003-04

At 1993 ± 94 prices Rs. Crore and %

Note: The NDP figures are at 1993-94 prices and the growth rate is the geometric average growth rate atconstant 1993-1994 prices during the period. It is computed from the NAS 2005.

Source: National Accounts Statistics [NAS] 2005, Central Statistical Organisation

[CSO], GOI, New Delhi.Source: Business Line, New Delhi, 12/01/2006



Category Sector

Share

1993-94

Sector

Share

2003-04

Growth Rate

[1993-94 to

2003-04]

Agriculture and

forestry, f ishing

2,29,829

[32.9]

2,93,033

[23.0]

2.46

Mining,Manufacturing

Electricity

1,27,490[18.3]

2,32,040[18.2]

6.17

Services 3,40,673

[48.8]

7,49,001

[58.9]

8.2

At 1993 ± 94 prices Rs. Crore and %

SHARE OF NATIONAL INCOME AND GROWTH RATES

Note : We have included constr uction as par t of ser vices. The NDP f igures are at 1993-94 pr ices and the gr owth r ate is the

geometr ic aver age gr owth r ate at constant 1993-94 pr ices dur ing the per iod. It is computed fr om the NAS 2005.

Sour ce: computed fr om data in National Accounts Statistics [NAS-2005, Centr al Statistical Or ganization [CSO], G.O.I New Delhi

Sour ce: Business Line, New Delhi, 12/01/2006

LIMITATIONS OF ECONOMIC GROWTH APPROACH:



LIMITATIONS OF ECONOMIC GROWTH APPROACH:PARADIGM SHIFT

IN TERMS OF HUMAN DEVELOPMENT

Policy makers assumed that effects of higher

economic growth would trickle down to poor.Mahbub ul Haq challenged this conventionalwisdom and asserted that there was no automaticlink between economic growth & human

development.Economic growth is necessary but not a sufficientcondition for human progress. Governments needto actively focus on HD goals & direct & use their resources efficiently so that economic growth leadsto empowerment of people & poverty alleviation.

Peoples¶ needs & their aspirations must be at thecentre of all develo ment efforts asserted Ha .



The Birth of Human DevelopmentConcept (1990 ± UNDP)

� Basic assumptions under this concept

± The true wealth of a country is its people.

± There are not developed and underdevelopedcountries, but developed and underdevelopedpeople.

± The best strategy to increase national income isnot to accumulate capital, but to develop people.

� Exactly Defined as ³Process of enlarging peopleschoice´



Therefore

� Growth Advocates:

� Expanding incomeis an end in itself

� Growth doestrickle down

HD Advocates:

� income is a means;enhancing people¶scapabilities the end

� Simultaneousexpansion of choices in other dimensions ± social,

cultural, political -and economic

� not accept trickle

down as automatic



Is Income Enough for Well-being?

� Economic growth is needed, butpublic policy is needed to translategrowth into HD. How?

» 1. Emphasis on investment in health,education, skills of people

» 2. More equitable distribution of assetsand income

» 3. Well structured public expenditures

» 4. Empowerment of people to participate

Otherwise the growth is voiceless, rootless,Otherwise the growth is voiceless, rootless,ruthless, futureless, discriminating, etc.ruthless, futureless, discriminating, etc.



Index What it measures

HDI Average achievements in a

country in three basic dimensionsof HD

GDI

GEM

Adjusts the average achievement

of the HDI to reflect the

inequalities between men andwomen

Focuses on womens

o ortunities rather than their

HOW TO MEASURE HUMAN DEVELOPMENT?



Human Development Index (HDI)

�Introduced in 1990, the HDI measures acountry's achievements in three aspects of

Human Development:

± Longevity: measured by life expectancy at

birth;

± Knowledge: measured by a combination of theadult literacy rate (2/3) and the combined grossprimary, secondary, and tertiary enrolment

ratio (1/3);

± Standard of living: measured by GDP per capita (Purchasing Power Parity of US$).



Construction of the HDI1 Fixed minimum and maximum values are established for each

of these indicators:

1.) life expectancy at birth: 25 and 85 years;

2.) adult literacy rate (age 15 and above): 0% and 100%;

3.) combined gross enrollment ratio: 0% and 100%;

4.) GDP per capita (PPP$): $100 and $40,000 (PPPUS$).

2 For each component, individual indices are computedaccording to the general formula:

Index=(actual value ± minimum value) / (maximum value ±

minimum value)

3 The Education Index is compiled as

2/3(adult literacy index) + 1/3(gross enrolment index)



Construction of the HDI ( Contd)

4. The GDP index is calculated using adjusted per capita(PPP$). In the HDI income serves as a surrogate for allthe dimensions of human development not reflected in along and healthy life and in knowledge.

Income is adjusted because achieving a respectable levelof human development does not require unlimitedincome. Accordingly, the logarithm of the income is used.

5. The HDI is a simple average of the life expectancy index,educational attainment index and adjusted GDP per capita PPP US$ index, and is derived by dividing the sumof these three indices by 3.



Uses of HDI: Focus on humanoutcomes, not economic data

Comparisons within and between countries of the samelevel of development, as well as neighbors

If properly disaggregated, to monitor inequalities,recommend targeting, evaluate progress over time

To determine priorities for policy intervention

For lobbying policy makers who make budgetary allocations(needs to be understood and used by civil society)

To question national policy choices - how two countries withthe same level of income per person can end up with suchdifferent HD outcomes.



HDI trends in 2004 (2002)

The top and the bottom of the Index remainunchanged from last year: Norway is on top andSierra Leone is on the bottom

Top 5 countries: Norway (0.956), Sweden (0.946),

Australia (0.946), Canada (0.943), Netherlands(0.942)

Bottom 5 Countries : Burundi (0.339), Mali(0.326), Burkina Faso (0.302), Niger (0.292),

Sierra Leone (0.273)India : 1975 ±0.411, 1980 ± 0.437, 1990 ± 0.514,

1995 ± 0.548, 2000 ± 0.579 and 2002- 0.595(Rank 127)



HDI trends in 2005 (2003)

The top and the bottom of the Index (177 ):

Norway is on top and Niger is on thebottom

Top 5 countries: Norway, Iceland, Australia,Luxemburg, Canada

Bottom 5 Countries : Chad, Mali, BurkinaFaso, Sierra Leone, Niger

India : 0.602 (Rank 127)



HDI trends

� The CIS is the only region to witness an overall decline in

its HDI. Nearly all the countries saw a sizeabledeterioration in their income indicator, with the notableexception of Poland.

�

Roughly half of the countries in Latin America and theCaribbean recorded either a decline or stagnation inincome during the 1990s.

� East Asia and the Pacific region continues to forge ahead,

with virtually every country making progress comparedwith 1990. Laos, China, Thailand and Malaysia all movedahead in the HDI rankings. In South Asia, too, there wereHDI improvements across the board.



Science & Engineering (S&E) Job Growth

Projected to Exceed Overall Job Growth RateProjected Increase in Employment, Percent Change from

2000 to 2010

15

47

0

1020

30

40

50

60

70

80

90

100

All Occupations All S&E Occupations

SOURCE: National Science Foundation, Science and Engineering Indicators ± 2004.



Number of S&E Doctoral Degrees Awarded

Growing Faster Worldwide Than in US

Compounded Annual Growth Rate of S&E Doctoral Degrees

Awarded, 1991-2001

0 0.05 0.1 0.15 0.2 0.25

United States

Germany

India

France

United Kingdom

Japan

South Korea

Taiwan

China

SOURCE: National Science Foundation, Science and Engineering Indicators ± 2004.

TO CONCLUDE



What should we do ?Reduction in economic and social inequalities of macro andmicroeconomic variables

- Promotion of Equality of opportunities for all people across thenations, regions, people societies, cultures and genders

- Focus on contributing to the overall GDP of the Indian Economy

- Emphasis on crystallizing and outperforming internationalbenchmarks in all sectors of the economy

- Aim at achieving excellence in all spheres of operations

TO CONCLUDE



-- Earnest endeavours on Invention, Innovation,Earnest endeavours on Invention, Innovation,R& D, and patents of state of the art technology,R& D, and patents of state of the art technology,products, systems and processesproducts, systems and processes

-- Nurture high ambition and aspiration levels inNurture high ambition and aspiration levels inIndividual, organizational and internationalIndividual, organizational and internationaldomainsdomains

-- Focus on Technology related areas and itsFocus on Technology related areas and itsoverall contributions to Quality of life so as tooverall contributions to Quality of life so as tomaximize India¶s Ranking on HDI Frontier maximize India¶s Ranking on HDI Frontier

-- Adherence to Sterling Benchmarks of behaviorsAdherence to Sterling Benchmarks of behaviorsbased on universal ethics and valuesbased on universal ethics and values

-- Commitment to preserve the environmentalCommitment to preserve the environmentalsustainability in the long runsustainability in the long run



Thank You«!

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