sectorial growth in india

Indian EconomyOpportunities Unlimited

Indian EconomyOpportunities Unlimited

“It is difficult to say what is impossible – for the dream of yesterday is the hope of today and the reality of tomorrow”

Agriculture and Service Sector

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19 years

ONE DIRECTION

8% GDP growth

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Defining Economic Growth

Economic growth is the increase in the amount of theGoods and services produced by an economy over time.

Growth rate of GDP:

[GDP(2007) - GDP(2008)]/ GDP(2007) × 100

http://en.wikipedia.org/wiki/Economics

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Economic Growth

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Sectorial Growth Model• Economy mainly divided into three sectors:

• Agriculture• Industry• Service

• Total growth can be split into productivity gains within the sectors plus relocation gains.

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Drivers of Growth

manufacturing16%

trade14%

communication11%

agriculture(crop)10%

construction10%

real estate,ownership of dwellings & business

services8%

banking & insurance8%

other services7%

transport by other means

6%

Rest10%

Contribution to Growth (2002-3 to 2007-8)

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Growth ExpectationsGDP Growth

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

2004-05 2005-06 2006-07 2007-08 2008-09* 2009-10*

GDP Agriculture and allied activities Industry Services

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What Is Agro Economics?

• Economics is often defined as the study of resource allocation under scarcity.

• Agronomics, or the application of economic methods to optimizing the decisions made by agricultural producers, grew to prominence around the turn of the 20th century.

• The field of agricultural economics can be traced out to works on land economics.

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Agriculture• Largest producer of

– Tea-India accounts of 14% of world trade in tea

– Jute – Jute fiber

• Highest in terms of total milk production in the world.

• Third largest producer of cereals in the world :– wheat, rice and pulses.

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Agricultural Sector: Important for economic growth and reducing

poverty• 70% of population, 75% of

poor are in rural areas.

• Agriculture: main source of livelihood for 60% of population.

• Contributes about 20% to GDP.

• Recorded growth rate of 3.4 per cent in 2008-09

0% 20% 40% 60% 80% 100%

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All India

APOrisRajUP

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Labor Employed in Agriculture, %

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The role of Agriculture in the Indian economy

• The national income (GDP).

• Employment.

• Industrial development.

• International trade.

• Economic planning, growth and development.

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Three Goals of Agricultural Development

• 1. Achieve 4% growth in agriculture and raise incomes. Increasing productivity (land, labor), diversification to high value agriculture and rural non-farm by maintaining food security.

• 2. Second goal is sharing growth (equity): focus on small and marginal farmers, lagging regions, women etc. On lagging regions, focus on Eastern India and other rainfed areas.

• 3. Third is to maintain sustainability of agriculture by focusing on environmental concerns.

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The post independence of Indian agriculture

Phase I: 1947-64 (Development of infrastructure for scientific agriculture)

1.Establishment of fertilizer and pesticide factories.

2. Establishment agricultural universities and agricultural Research Institutions.

(Example: The Central Rice Research Institute, Cuttack, and The Central Potato Research Institute, Shimla).

3. Imports of foods and Grains.

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Phase II: 1965-1985(maximising the benefits of irrigation and infrastructure)

1. Reorganization and strengthening of agricultural research, education and extension.

2. Provide farmers assured marketing opportunities.

3. Establishment of The National Bank for Agriculture and Rural Development (NABARD).

4. Introduction of Sixth Five Year Plan period (1980-85)

5. A phenomenon christened in 1968 as the Green Revolution.


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Phase III: 1985-2000 (concurrent attention to conservation,

cultivation, consumption, and commerce).

1. Introduction of organizational innovations like Technology Missions to rapid rise in production of pulses, oil seeds, vegetables, fruits, and milk.

2. Greater attention paid to Rain-fed areas and wastelands.

3. Decline in public investment in irrigation and infrastructure.


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Phase IV: 2001 Onwards( Period of technology extension and

production fatigues).

1. 40 per cent of the farmer’s want to quit farming for others alternative option.

2. The agricultural decline is taking place.

3. Unfair International trade increases the prices of food grains.

4. changes in rainfall, temperature, and the sea level due to global warming affects agriculture .


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• Agricultural growth is pegged at 2.7 per cent.

• Total food grains production in 2006-07 estimated at 209.2 metric tonnes (MT).

• Total water availability in reservoirs up 10 per cent to 120.2 billion cubic meters (BCM) at the end of monsoon 2006.

The Economic Survey of India (2006-07) says:

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• Fishing, aquaculture and allied activities made for 5.3 per cent of the agricultural gross domestic product (GDP).

• Production of wheat and other rabi crops increased with the rains in February 2007 -- sugarcane, cotton, and jute to set new records.

The Economic Survey of India (2006-07) says:

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More facts and figures

• According to the economic data for the financial year 2006-07, agriculture accounts for 18% of GDP. About 43 % of India's geographical area is used for agricultural activity. It accounts for 8.56 % of India’s exports.

• Though the share of Indian agriculture in the GDP has steadily declined, it is still the single largest contributor to the GDP and plays a vital role in the overall socio-economic development of India.

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Agriculture and the Five Year Plans

Objectives:

• Increase in production.

• Employment opportunities.

• Manage population pressure on land.

• Equitable redistribution of rural income.

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Pattern of Investment

Plans PeriodsTotal Outlay

(Cr)Agro and Allied (Cr)

% of the Total

I 51-56 2380 350 14.9

II 56-61 4500 500 11.3

III 61-66 8580 1090 12.7

IV 69-74 15800 2320 14.7

V 74-79 39430 4870 12.3

VI 80-85 97500 5700 5.8

VII 85-90 180000 10530 5.9

VIII 92-97 434100 22470 5.2

IX 97-02 859200 42460 4.9

X 02-07 1525640 79810 5.2

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Inclusive Growth: Agriculture

Concerns in Agriculture

• Deceleration in growth from 3.5% during 1981-97 to 2% during 1997-2005. Decline in yield growth.

• Land and water problems, vulnerability to world commodityprices, farmers’ suicides, 45% of farmers want to leave agri but no where to go.

• Disparities in growth across regions and crops: growth ratedeclined more in rainfed areas.

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Key Issues and Challenges

Slow down in agricultural GDP growth• From 3.5% in mid-80s to 90s to less than 2% in mid-90s to

2000s, • Poorest states (MP,Orissa, Rajathan), growth less than 1%

Lead to widening rural-urban income gaps.

Low agricultural productivity.• Crop yields are low relative to other countries, disparity in yields

across states.

Increasing natural resource degradation• Soil erosion, salinity, alkalinity, declining ground water levels.• Partly due to fertilizer, power and irrigation policies.

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Deficits in Agriculture Growth

Six deficits in agriculture:

(a) Land and water management deficit.

(b) Investment, credit and Infrastructure deficit.

(c) Research and extension (technology) deficit.

(d) Market deficit.

(e) Institutions deficit.

(f) Education/skill deficit.

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Present Status

• 55 years of planning.

• The much applauded Green Revolution.

• Sufficient food and surplus only since 2002.

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Present Status

• Monsoon dependent.

• Technology?

• Decline in agro-investment.

• Failure of land reforms.

• Tenancy exploitations.

• Rural population outburst.

• Unbalanced agro development.

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Key points of Agricultural sector in Interim Budget 2009-2010

• Country’s agriculture outlook is encouraging.

• Agriculture grew by 3.7 per cent per annum.

• Plan allocation for farm sector hiked 300 percent in past five years.

• Agriculture credit has been increased three-fold to Rs.2,50,000 cr.

• Farm debt worth Rs.65,300 crore waived.

• Corpus of Rural Infrastructure Development Fund hiked to Rs.14,000 crore from Rs.5,500 crore.

• Bharat Nirman, the time-bound plan for building rural infrastructure receives Rs 40,900 crore.

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Future Prospects

• The Second Green Revolution?

• Food Security?

• Sustainable Development?

“ We should have targeted 10 per cent agricultural growth which would have helped remove poverty in the long run rather than 3 per cent at present.”- Dr. P.Chidambarm.

#Service Sector in India

Service industry

The service sector is going through almost revolutionary change, which dramatically affects the way in which we live and work.

Service sector accounts more than half of India's Gross Domestic Product. The rise in service sector's share in GDP marks a structural change.

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India’s Service sector at a Glance

Rapidly increasing two-way trade in IT and ITES and other high-end services sub-sectors has been a critical factor in India’s economy.

‘Information Technology and IT Enabled Services can do for India what automotives did for Japan and oil for Saudi Arabia.’

-McKinsey & Company.

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Services as a share of GDP over time

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

India

30

35

40

45

50

55

60

65

70

75

80

Se r vice s as % o f GDP

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Service Sectors in India

• Trade• Hotels and Restaurants• Railways• Other Transport & Storage• Communication (Post, Telecom)• Banking• Insurance• Dwellings, Real Estate• Business Services• Public Administration, Defense.• Personal Services• Community Services• Other Services

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Economic Prospect of India’s Service Sector

1. Growth in high-end services like IT–ITES has the potential to generate significant spin-offs.

2. Financial services and transport infrastructure can be expected to expand capabilities and improve productivity.

3. The services sector has a major role to play in absorbing India’s rapidly growing labour force.

4. Improvements in the delivery of education and healthcare services, particularly in rural areas, are vital for sustainable growth.

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THE DRIVERS

• IT–ITES – the star performer.• Telecommunications – a dynamic enabler.• Finance – work in progress.• Banking.• Transport infrastructure – vital for growth.• Airports and air services.• other commercial services – a strong growth area.

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IT–ITES – the star performer

The rapid expansion of Information Technology–Information Technology Enabled Services (IT–ITES) has had a significant impact on the broader Indian economy, by generating substantial export earnings and tax revenue; creating significant numbers of high-quality jobs; and precipitatingproductivity-enhancing technology diffusion to other industries and the public sector.

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• A booming IT industry recognized all across the world

• Vast workforce which is -Educated, English speaking, -Cost-effective -tech-savvy personnel.

• Tech-support– India graduates 100,000 engineers each year– a strong force for technical support.

Business Process Outsourcing: Why India?

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Direction of IT & ITES Exports

% of Exports

68

22.6

7.42

USA (and the Americas)European Union

Asia and Pacific Gulf States

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IT and ITES Export Trends

0

10

20

30

40

50

60

70

80

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

RBI (BoP ) WTO/World Bank

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Telecommunications

• 20% Growth rate(crossed 10 millions).

• Fifth largest network in the world.

• People below poverty line uses cell phones.

• Maximum Public telephone Booths.

• Any operator the right to provide any access service using any technology

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Growth in Other Service sector

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Trends and Composition

Service Sector Output in 2006 (billions of Rupees)Total National Output (GDP) 26045E lectric ity ,Gas and W ater Supply 574Construc tion 1775Trade (W holesale and Retail)* 3698Hotels and Resturants* 350Transport (other than Railways) 1398Storage 17.7Communication 1030Bank ing and Insurance 1594

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Trends and Composition

Se cto r al Gr o w th in Se r vice s in In d ia

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2001 2002 2003 2004 2005 2006

Elec tr ic ity ,Gas and Water Supply Cons truc tion Trade (Wholesale and Retail)*

Hotels and Res turants * Transport (other than Railw ays ) Storage

Communication Banking and Insurance

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1. Stock Exchange: Stock market liberalization.

2. Multi National Insurance companies.

3. Multi National banks.

4. Foreign Universities

Reforms in Service sectors

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Services: Before and after Liberalization

• Before liberalization Services was the residual sector drawing refugees from agriculture

• Between 1996 and 2005- the triple impact of India’s external liberalization, domestic economic reforms and the rise of a global market for skilled services facilitated by information technology makes itself felt, share of services in India’s GDP grew from just over 40% to about 54%.

• Rapid growth of services in the economy, specially, in the external sector- facilitates less dependent on the India’s relatively poor infrastructure than manufacturing.

– China, which has a far higher proportion of its economy in

manufacturing, and has emerged as the global hub for labor intensive manufacturing, has much better infrastructure than India. China’s better infrastructure facilitated entrepreneurship in the manufacturing sector.

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Overview and Recent Developments

• India seen in last 10 odd years as the emerging professional services hub of the world– India’s competitive edge in professional services is

compared with China’s prowess as a low cost global manufacturing hub.

• the services sector scenario in India is complex– characterized by uneven development in different

types of services and across regions.

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Growth of Services

• An important feature of India’s growth - skewed towards services -described as jobless growth.

• Share of agriculture in the Indian economy declined rapidly.

• Share of employment in agriculture has remained the same- increasing share of services in the GDP has not been accompanied by services claiming a larger share of employment in the decade of the 1990’s.

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Growth in Services

• growth in output in services in India in recent times has mostly come from the rapid development of skill intensive services in the IT and professional services segments- oriented towards the external market– large proportion of services in India are a part of the

informal economy and the official employment figures might understate the actual size of the services workforce

– there is a lot of cross-over between services and agriculture sector laborers, i.e. many workers spend part of the year as agricultural workers and the rest of the year working in some service job such as informal retail and construction work

– There has been some debate on the repercussions of this skill biased development of service sector jobs

‘No big international company can be without an India strategy’

ByGROUP-8Debojit Roy – H66Sritanu Das Mahapatra – H57Abhisek Sahu – H3Krishnakant Pandey – H25Biswajit Ghosh – H12

© 2009 AIMS PGPM-H08