Japan
UnitedStates
China
Hong Kong
Mongolia
Russia
Thailand
Vietnam
Laos
Cambodia
Myanmar
Indonesia
Philippines
Singapore
Malaysia
India
Bangladesh
Pakistan
Sri Lanka
Mexico
Brazil
Peru
Colombia
Chile
Argentina
DubaiAbuDhabi
Turkey
South Africa
Nigeria
Egypt
Morocco
KenyaIndia
3 Chapter Economic Environment
-
-
Economic Environment
■ Steady Economic Growth
[Growth of the Indian Economy]
Indian economy has continued to expand each year, but it showed a rapid growth particularly over the past 10 years and the result which came out is that the real GDP was doubled. In 2011, surpassing Japan, India became the third largest in the world in purchasing power parity-based GDP. In 2014 the GDP purchasing power parity is 4 trillion $788 billion in Japan and 7 trillion $277 billion in India.
According to the research report ,“The World of 2050” of PwC, the India purchasing power parity-based GDP of 2050,reveals that India will surpass US and would become the second largest in the world. Now the world economy has greatly changed and the Indian economy is at the centre.
[Changes in real GDP (1980-2014 years)] (1 billion Indian rupees)
[Source: IMF world Economic Outlook, October 2014]
[Changes in the Industrial structure]
Whereas the contribution to the real GDP growth in each industry had greatly increased the proportion of the service industry, but since the year 2000 the average is about 65% in the industrial sector without no change from the 50’s which remains just under 30% in recent years. This means that two-thirds of today’s economic growth has been brought by the service industry.
In the background, the service sectors have developed. The introduction of services such as IT has increased in the course of production of manufacturing industry as a new service by technological innovation has emerged. It increased service demand from consumers at home and abroad, privatization, deregulation, direct investments and the progress in economic reform and trade liberalization.
Among them the development of the IT industry is remarkable. Samsung, Ericsson, Motorola, Dell, Nokia and many other IT-related companies in India has become a leading research and development centers in the world.
In a service-oriented economic growth of India, according to the industrial structure, the manufacturing shares of the south-east Asian countries like China, Thailand, Indonesia are more compared to India. From 1990 to 2013 the rate of increment shown by these countries are China from 41% to 44%, Indonesia from 39% to 46% whereas India has shown no change which is from 25% to 27%.
On the other hand the share of the entire service industry from 1990-2013 (the tertiary industry) in China is from 31% to 46% and although there is rise in India from 41% to 57%, it has become the largest.
Thus in recent years in the Indian economy, the manufacturing industrial growth rate has risen, although considered basically a service-oriented industrial structure.
■ The ties with World Economy in-depth
[Situation of foreign trade]
On the other hand however the fiscal balance of fiscal year 2014 has recorded a deficit of 9 trillion 298 billion rupees and this amount is increasing year by year. Elimination of chronic budget deficit has become a long-standing challenge in the country. Income level is still low which also means that to break away from the budget deficit which is partly weakness of tax collection infrastructure. However the services exports centered on such outsourcing and information communication, due to an increase in remittances from Indians in overseas, the current account deficit will not fall within a manageable range. Against the background of the expectations of the Indian economy, also accelerated the inflow of direct investment in addition to securities investment and the stability of capital account structure is increasing.
Cannot deny the likely short-term funds which is unwinding and exiting quantitative easing in many western countries, but current foreign currency reserves from overseas stock investment balance is more than four times the short-term external debt which is poor external liquidity and relatively optimistic.
[US and economic relations with China]
Versus US relationship
Once India and the United States were told to be “cats and dogs”, but is now referred to be as a best friend relationship. Each speculation for the reason of this change are mentioned. For India, the United States is a necessary presence in economic liberalization in the 1990s. On the other hand for the United States, there is a speculation that incorporate into India was transformed into a post cold war to the global strategy that was present in the huge market that cannot be ignored in the Indian economy.
US president Barrack Obama visited Mumbai in 2010 which is the heart of the Indian economy. He visited Mumbai for the “US-India relations which is United States 21st century’s (missing) partner relationships to decide” and to promote the positioning and strengthening of a strategic relationship with India. During this visit, among 200 people of the top economic associations of the world, each association from the United States and India negotiated $10 billion (about 8,100 billion) was enacted.
In addition in June 2011, the United States and India’s economic ministers held an annual economic consultation. India’s financial, retail, manufacturing sectors made sure to continue the efforts for the open market infrastructure sector. Here the discussions towards the modernization of India’s financial structure and funding for the development of the infrastructure has to deepen such as the entry of US retailer Wal Mart in India.
The United States suggesting possibilities to express support for India aims to become a permanent member of the UN Security Council which has build up a solid relationship between the two countries.
China relationship
China’s export has increased to about $48.4 billion which is about 31 times in 2013 from $1.6 billion of 2000. Imports grew from about $ 1.4 billion to $17 billion which is about 13 times. India exports share of the foreign total exports of China in 2013 is from 0.1% in 2000 to 2.2%, while imports from the same market share which is smaller has greatly increased from 0.1% to 0.9%.
Source: UN Comtrade Database
Source: UN Comtrade Database
As the trade relation between India and China has deepened it has also increased the friction between the two countries. In recent years the biggest factor in trade for both the countries has soared. India has rushed to the development of infrastructure such as power and communication and is due to increase the imports of manufacturing equipments from China over the supply capacity and cost competitiveness of manufacturing industry. This resulted to the medium trade deficit of recent India bulge to $35 billion. This became a source of concern for the Indian side. For this reason, both the countries announced the “Trade and Economic Development Five Year Plan” in 2014 which was co-operation towards the correction of the above trade imbalance.
-
Recent Indian Economy
■Economy after the collapse of Lehman Brothers
Indian Economy has been the healthiest economic growth in the world. Despite the decline after the collapse of Lehman Brothers, a result that struck the bold economic measures of fiscal year 2013 by 5.1% in fiscal year 2014 continued to be 6.9% of the economic growth. India is basically a real economic zone. Even as the salary income rises there is not much real estate investment as China. The 2050 has also appeared GDP prediction of the second largest in the world after China. Already the fourth largest in the world at purchasing power parity it has become a huge market, second to Japan.
Increase in middle income is supporting the growth of its economy. No unified definition for the middle classes and annual household disposable income is more than 5,000 US dollars and less than 35,000 US dollars in 2001. The income 0.6 Million people in 2001, 180 million people in 2005, 560 million people in 2010 is expected to exceed china by 2020.
Mobile phone subscribers are also increasing at a pace of 12 million in every month. A contract of 800 million and 86.3 million cases were made in 2013. In addition half of India’s population is below 25 years. After getting married and then having a children and then buying a house, refrigerator, TV etc. has created demand one after the other but there is not enough supply according to the demand.
India Government announced that during the period of 2014, October-December the real growth rate of Gross Domestic Product (GDP) has increased at a rate of 7.5% during 11/2014. It is a high level increase but slightly lower than the market expectations. It doesn’t mean that Indian economy is growing well.
Suzuki, Honda and Hyundai car raised the price of some models a few percent which is a policy that corresponds to the rise in price of raw materials prices. Until now the rise of the grocery has been noted but if the car price increases then there is a possibility that the brake will be also applied to the purchasing willingness of middle and high income people.
The budget deficit has also been questioned. The Government in order to suppress the rise of food and gasoline prices is spending a lot of subsidies. Although the amount which was decreased in fiscal year 2011 budget proposal is similar to that which have been incorporated. Also it is certainly a large demand for more spending in India.
However elements engineered in India, declined the bond prices and increasing the number of deficits to rise various mortgage rates and adverse the economic recovery. The fiscal deficit of 2015 which has reduced to 3.9% of GDP in India is reduced from 4.1% of 2014.
To curb inflation and to accelerate the monetary policy of India the interest rates are hiked. The Reserve Bank of India (RBI) has raised the repo rate (the main lending rates for banks) in March 2010 to 5.0 percent which is a policy interest rate and the reverse repo rate (the interest at the time of depositing the surplus funds of commercial banks to RBI) was raised to 3.5%. On July 27, the interest hike was carried out for the fourth time in four months. The rising of the rates is pretty fast in developing countries which are clearly reflected over the inflation of the RBI.
On the other hand the fiscal policy in India now suffers the large fiscal deficits. During the global recession of 2008-2009, India similar to other countries will ride out the crisis to increase the fiscal stimulus such as infrastructure investment. As a result the budget deficit has swelled up to 7.8% of the temporary GDP in February 2009 and led up to reveal a policy of S&P which was reviewing the local currency of the government bond ratings.
However most recently in addition to such auction of third generation mobile frequency band has been successful, even sale of the state owned company shares, owned by the government are progressing sequentially. Possible and received additional revenue based on deficit reduction efforts by the Economic growth and the Government causing a big mess will be considered.
Finally about the monetary policy and the future outlook of the economy. Firstly, is the economy which is believed to strengthen the future expansion pace to settle things.
In addition, the banking system was not hit by the recent financial crisis as well as impact from the economic trends in Europe and the United States because it is an economy of less domestic demands which is why a stable growth out of India is expected.
Gradually including the wholesale price inflation rate, the decline due to economic expansion inflation pressure continues to be the future and the last repo rate of RBI which is expected to correct inflation.
-
Poor Layer in India
■The poor and the Indian Economy
The view which has been expressed is that the Indian economy is really poor. As a result of the increase in income in recent years, creates a huge demand for daily necessities and basic service is poor.
The middle-class group living above the subsistence level is not rich who are to join the ranks of modern consumer society. The rise of the poor is not a new story but under the economic situation which turned out after the collapse of the Lehman Brothers have influenced it a lot which is clear from this scenario.
Due to less scars on the Indian economy, the government could overcome its failures.
■ Less affected by the poor crisis
IT industry is creating a direct employment of 1.8 million people in the past decade supporting the transportation and security which has created the employment of 6.5 million people in such a sector. This is a high school level work. The fact is that the economic expansion in the growth of India is driven by the bottom layer. But they are almost immune consumers and sluggish consumption occasionally occurs. If there are no stock holdings then there is nothing to fall into stock prices.
-
