INDIA: A Road to Inclusive Growth

2012

INDIA: A Road to Inclusive Growth

CASE ANALYSIS TABLES GRAPHS

MACRO ECONOMICS ENVIRONMENT AND POLICY

SUBMITTED TO: PR. SAMIK SHOME (MEP)

SUBMITTED BY: GROUP-3 (OPERATIONS)

-ARFAH
-ABHIMAT SINGH -SAI NAGARAJAN -SHAILENDRA -TIMSI JHALANI

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INDIA: A Road to Inclusive Growth

OVERVIEW:
National Election Campaign, the ruling Indian National Congress won consecutively for the second time in 2009 after 2004. This time they won with a promise to represent the aam aadmi or the common man. It emphasized its social welfare agenda by adopting NREGA, guarantee Food Security for all, provide Health insurance for poor and offer Scholarships for students. Apart from this they forego electoral alliances with the regional parties. With such a victory, two main goals were laid out for the Indian Economy: Achieving double digit GDP growth Inclusive Development

To face such a challenge, Governments role was to formulate and implement policies with greater latitude by enabling environment for individual enterprise and creativity and delivering services to the disadvantaged sectors of the society.

ECONOMIC GROWTH AND FISCAL STIMULUS:

YEARS Real GDP Growth 1985 5.1 1990 6.2 1991 0.9 1992 5.3 1995 6.7 2000 5.7 2001 5.2 2002 3.8 2003 8.4 2004 8.3 2005 9.24 2006 9.75 2007 9.1 2008 6.08 2009 5.8 2010 6.8
GDP ANALYSIS: A sluggish growth rate of 3.5% per annum was seen in Indian Economy between 1950 to 1980. This however improved to 5.3% p.a. till 1991 but it was accompanied by high fiscal deficit and inflation. INDIA INTEGRATED INTO THE WORLD ECONOMY, 1991 India gradually integrated into the world economy when Industrial licensing was eliminated and significant sectors of the economy were opened up for private participation. Import licensing was abolished, import duties were sharply reduced and restrictions on FDI were lifted. The growth rate accelerated to 6% in 90s and 7% in years after 2000. RECESSION AND GROWTH: In 2008, GDP growth slowed down to 6% as a result of global financial crisis. The slowdown initially looked like a long lasting one but government quickly implemented significant programs that recovered the growth to an estimated 7.2%.

Aam Aadmi Common people GDP Growth Rate It measures how fast the economy is growing and technically, it is the percentage increase or decrease of GDP compared to the previous quarter. Inclusive Development - It is a process that leads towards the goal of an Inclusive Global community through inclusion of everyone in society at all levels by collaboration and development in eradication of poverty, achieve Universal primary education, promote gender equality, ensure environmental sustainability.

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INDIA: A Road to Inclusive Growth

REAL GDP GROWTH

12 10 8 6 4 2 0 1985 1990 1991 1992 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 REAL GDP GROWTH

FISCAL STIMULUS:
After the global economic crisis there was high emphasis on improvement of GDP therefore government quickly implemented a large fiscal stimulus package amounting to 3.3% of GDP in 2008-09. This package included significant reductions in indirect taxes, expansion of public expenditure programs such as the NREGA, pay rises to government employees, debt relief to farmers, low reserve requirements for banks etc... Hence, the growth rate increased to an expected 7.2%. The fiscal stimulus increased the government fiscal deficit from 4% of GDP to 8.5% of GDP. Why is Indias fiscal deficit so high? -The Lack of Enough Non-Tax Revenue and Advance Taxes Are Not Enough -Lower Corporate Profits -Bailouts and Oil Subsidies -Borrowing Impact: Credit and Inflation Therefore, steps were taken to control the huge deficits and formulate an exit strategy from excessive government spending. A cap on public debt, limiting federal and state government debt to 68% of GDP. The government also announced its intention to implement the consolidated tax structure under a common system that includes all direct taxes. This was done in order to reduce tax evasion, improve the tax-GDP ratio, and reduce compliance costs.

Fiscal stimulus - Government measures, normally involving increased public spending and lower taxation, aimed at giving a positive jolt to economic activity. Fiscal Deficit - When a government's total expenditures exceed the revenue that it generates.

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INDIA: A Road to Inclusive Growth

0 -5 -10 -15

Current Budget Balance Fiscal Balance

INDIAN GOVERNMENT BUDGETS

REGIONAL INSTABILITY:
Indias investment environment was largely affected by domestic instability, political conditions and also its external relations with its neighbours. Indias troubled relationship with Pakistan since independence, various wars, Kashmir insurgency, formation of Bangladesh, cross border issues, rising trend of terrorist attacks were a concern to India. Instability in other neighbouring countries like Sri Lanka and Nepal also resulted in a complicated situation. All these regional disturbances provoked a no-confidence vote that largely affects the government.

INCLUSIVE DEVELOPMENT:
The above mentioned regional instabilities, rise in internal conflicts and non-inclusive growth all bear a severe consequence on the GDP growth rate and development. Large disparities in human development across regions and people of India were need of the hour to be addressed. Several other problems like proportion of people living under poverty, high infant mortality rates and female infanticides, disadvantaged women, and literacy were a major concern. Development or rather lack of it, often has a critical bearing as do exploitation and iniquitous socio-political circumstances. Inadequate employment opportunities, lack of access to resources, under developed agriculture, artificially depressed wages, geographical isolation, lack of effective land reforms impinge significantly on the growth. Congress party designed various legislations like Right to Information Act, 2005 and Right of Children to Free and Compulsory Education Act, 2009 to increase citizens claims to government services. NREGA scheme, Food Security Bill, reservation of one third seats in parliament for woman, The Rashtriya Swasthya Bima Yojana(RSBY), educational benefits and improvement in infrastructure helps in sustaining an annual growth rate of 9% now and in near future.
Right to Information Act It enables citizens to request information on public projects from government. NREGA It guarantees 100 days of work to unemployed rural families. RSBY It is a health insurance program to cover some poor families.

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INDIA: A Road to Inclusive Growth

60 50 40 30 20 10 0 Agriculture Industry Services

1992

1985

1990

1991

1995

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

INDUSTRY OF ORIGIN as % of GDP

CAN INDIA ACHIEVE DOUBLE DIGIT GROWTH?? -CONCLUSION

In recent years, India has enjoyed one of the highest growth rates worldwide, weathering the global financial crisis better than many other countries. Prudent macroeconomic policies are critical to prolonging the current expansion, given the risks associated with high inflation and volatile capital flows. A steadfast commitment to fiscal consolidation is needed to continue to reduce the large deficit that emerged in the aftermath of the slowdown and avoid crowding out private investment. Stepping up structural reforms will also be necessary if double-digit growth rates are to be achievable over the coming decade or so. While infrastructure is improving in key sectors, partly thanks to greater private investment, bottlenecks endure and efforts to intensify competition and ensure continued strong investment are required. Labour market reforms are also required to promote job creation. Rapid economic development has boosted living standards and reduced poverty but poverty still remains. There is a need to strengthen social welfare systems and access to health and education to ensure widespread benefits from continued high growth.

2010

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