leading indicators in the indian economy

7/31/2019 Leading Indicators in the Indian Economy

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HS 700: Applied EconomicsCourse Project Presentation

Leading Indicatorsof the Indian Economy

Group 12:Lt Col D G Naik

Grenville Savio NoronhaGnanasundaram C

Kaushik K


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Introduction History of the Indian Economy

The Liberalization Process: The 80s and the 90s

Beneficial Effects of the Reform Process We are the Fourth Largest Growing Economy in terms of PPP

with a GDP of US $3.36 trillion

In Exchange terms, we are the Tenth Largest in the world with

a GDP of US $ 691.87 billion (2004)

Second Fastest Growing Major Economy of the World with a

growth rate of 8.1% for the 1stQ of 2005-06


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Introduction The increasing importance of the Indian Economy has led

to a need to Forecast the Performance of the of the

Indian Economy Monitoring of the Indian Economic Cycle has become an

increasingly attractive option for this

Dua et. al. initially propounded an index based on

concurrent indicators but using an index based on

leading indicators is seen to be more appropriate.


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The Indicator Approach The Indicator Approach exploits the fact that different

time-series do have different cyclical periods

Time-series can be classified into Coincident, Leading andLagging Indicators

Coincident: Measures of Output, Income, Employmentand Sales

Leading: Placement of New Orders, Intention to Buildand Changes in Profitability

Lagging: Installment Credit Outstanding and InterestRates


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The Ideal Indicator It would cover half a century or longer, thus showing its

relation to the economic cycles over a variety of

conditions It would lead the month, around which cyclical revival

centers, by an invariable interval of say, three months or

even better, six months. It would also lead the central

month of every cyclical recession by an invariable timeinterval, which might differ from the lead at revival.


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The Ideal Indicator It would show no erratic movements, that is, it would

sweep smoothly up from each cyclical trough to cyclicalpeak and then sweep smoothly down to the next trough,

so that every change in its direction would herald thecoming or recession in the general economy or business.

The cyclical movements would be pronounced enough tobe readily recognized, and give some indication of the

coming change It would be so related to the general economic activity

as to establish as much confidence as the nature of suchthings allows that its future behavior in regard to

economic cycles will be like its past behavior


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Illustration of a Leading Indicator


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List of Leading Indicators

Trends in Gross Domestic Product (GDP): Contribution of Agriculture, Industry and Services

Purchasing Power Parity (PPP) Index

Fiscal Deficit

Trends in Inflation Rate

Interest Rates Credit Off-take

Balance of Payment

Foreign Exchange Reserves

Crude Oil Rates

Foreign Direct Investment (FDI) Trends

Rain fall Index

Sensex Exchange Rate

Savings/GDP Ratio

Human Development Index

Electric Power Generation


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Gross Domestic Product

GDP = consumption + investment + government

spending + (exports imports)

Consumption, Investment: Final Expenditure on Goodsand Services

Export-Import: Balance of Trade

Consumption: Private and Public Significance of GDP


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GDP: Indian Scenario


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The GDP growth trend for the last three years appears to

indicate the beginning of a new phase of cyclical upswing

in the economy from 2003-04 The initial momentum to this new phase of expansion, in

2003-04, was provided by agriculture

Industry and services have acted as the twin engines

propelling overall growth of the economy


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Grenville Savio Noronha


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HDI is a measure of poverty, literacy, education, life

expectancy, childbirth, and other factors.

It is a standard means of measuring well being, especiallychild welfare.

HDI stresses the importance of the quality of life.


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The three basic dimensions of HDI :

1) Life expectancy at birth

2) Knowledge (as measured from adult literacy rate)

3) Standard of living


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Indias labour force has reached 375 million approximately

in 2002, and it will continue to expand over the next twodecades.

The actual rate of that expansion will depend on severalfactors including population growth, growth of the

working age population, labour force participation rates,educational enrolment at higher levels and school drop-outrates.

Approximately three-fourth of the unemployed are in rural

areas and three-fifth among them are educated.


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EDUCATION :

Literacy rates in India have arisen dramatically from 18%in 1951 to 65% in 2001, but these rates are still far fromthe UMI reference level of 95%.

Literacy among males is nearly 50% higher than females,and it is about 50% higher in urban areas as compared to

the rural areas. Literacy rates range from as high as 96% in some districts

of Kerala to below 30% in some parts of Madhya Pradesh.


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In terms of total investment in R&D, Indiasexpenditure is 1/60th of that of Korea, 1/250th of

that of the USA, and 1/340th of that of Japan. More significantly, atomic energy, space and

defense research account for 71% of all centralspending on science and technology, which means

that relatively little is left for investment inagriculture, energy, telecommunications and othercrucial sectors within the sphere of science and

technology.


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R&D expenditure even in Indias fast-growing IT sectorhas been averaging around 3% of sales turnover (STO),which is much lower as compared to the 14-19% expendedby internationally reputed software firms.

These low figures reflect on our R&D performance.Indias share of global scientific output in 1998 was only

1.58 per cent of the worlds total. Out of 500,000 new patent applications filed globally

each year, China accounts for 96,000 and Korea accountsfor 72,000, while India accounts for only 8,000.


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Like population growth and economic growth, the health of a nationis a product of many factors and forces that combine and interactwith each other.

Economic growth, per capita income, employment, levels of literacyand educationespecially among femalesage of marriage, birthrates, availability of information regarding health care and

nutrition, access to safe drinking water, public and private healthcare infrastructure, access to preventive health care and medical care,health insurance, public hygiene, road

healthof the nation.


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Gnanasundaram C


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58% of country's population depends on agriculture

27% of India s GDP comes from its agriculturalproduction.

13-18% of India s total annual exports are agriculturalproducts.

Good monsoon always means a good harvest

MONSOON AND ITS IMPACT ON AGRICULTURE


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IMD predicts the onset date and rainfall potential of the monsoon

Output growth severely affected by rainfall, especially in earlieryears when share of agriculture was 4050 %

data crucial for proper estimates of production function, tfpg etc.

Monsoon facilitated an impressive growth rate of 9.6% in 2003-04


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Construction of Rainfall Index

For each year, only rainfall for four months, June through

September, are considered.

Area of each state =As

(Mean) Rainfall for each rainfall station, 1871-2003: s

Standard deviation for each rainfall station, 1871-2003: ss (4 months mean) Rainfall for each station and year: Rs

Define: Js = (Rs -s)/ss; for each rainfall station and year


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FDI in India

FDI is investment made by a foreign individual or company in

productive capacity of another country. It is the movement of

capital across national frontiers in a manner that grants the

investor control over the acquired asset.

India is considered a stable country for investing in by corporate

overseas.

India has displaced US as the second-most favored destinationfor (FDI) in the world after China according to an AT Kearney's

FDI

FDI is a tool for jump-starting economic growth through its

bolsterin o domestic ca ital, roductivit and em lo ment.


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FDI in India

FDI has an impact on

1. Country's trade balance

2. Increasing labour standards and skills

3. Transfer of new technology and innovative ideas4. Improving infrastructure, skills and the general business climate.

US INVESTMENT IN INDIA

U.S. is one of the largest foreign direct investors in India.

The stock of actual FDI Inflow increased from U.S. $11.3 million in1991 to US $4132.8 million as on August 2004 recording an increase at a

compound rate of 57.5 percent per annum.

The FDI inflows from the US constitute about 11 percent of the total

actual FDI inflows into India.


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Top sectors attracting FDI from USA are

Fuels (Power & Oil Ref.) (35.93%)

Telecommunications (radio paging, cellular mobile &

basic telephone services) (10.56%) Electrical Equipment (including Computer Software &

Electronics) (9.50%)

Food Processing Industries (Food products & marineproducts) (9.43%)

Service Sector (Fin. & Non-Fin. Services) (8.28%).


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India's English-speaking population is highly valued by American, Canadianand British investors.

India received investments from GE Capital, American Express, Citibank,Conseco, British Airways, Dell Computers and Reuters.

This FDI resulted in the development of call centres, back office support andfacilities to handle knowledge-intensive activities.

From software giant Microsoft to telecom biggies Nokia and Samsung toauto majors Honda and Toyota, global players now eye India as the mostattractive destination for investment.

Although far behind China, India figures among the ten most attractivedestinations for foreign investment, according to a new survey.


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Lt Col D G Naik


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SENSEX

Definition

Significance

Calculation Methodology Selection

Free Float Market Capitalization (from September 1, 2003 )

Calculation, closure

Maintenance


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Definition

itivity Ind

Base Year 197879, Base = 100

Basket of 30 constituent stocks representing a sample oflarge, liquid and representative companies from diverse

sectors.


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Significance

Barometer of Business climate.

Facilitates capital formation.

Domestic Market/ Institutions. FIIs.

FDIs.

Likely to lead to boom in other asset classes as the profits

get ploughed.


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Choice of constituents,

Calculation Methodology

and Maintenance

for SENSEX


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Journey Of SENSEX


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CONCLUSION

Leading Indicators relative to the objective.

Choice.

Standardization. Construction of Ideal Leading Indicatorsnot easy.

Forecast based on Leading Indicatorsa useful planning

tool.


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leading indicators in the indian economy

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