Economic Indicators

Module-2

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 How an Economy Works / Market Structure of
Economy

• An Economy consists of :
• Household Sector– Consumers & Suppliers of factors
of production & Entrepreneurship
• Business Sector - All Producing units which draws
factors of production and converts
into finished goods for consumption
• Financial Sector - Banks & Financial institutions
acting as intermediaries between
Household & business
• Government - Producer of
Legislative,Administrative & Judicial
services which are consumed by other 3 sectors

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 How an Economy Works / Market Structure of
Economy
• Transaction between the four sectors and between
the other economies

• HH- B : HH receives Factor rewards and spends on

purchase of goods

• HH- F-B : Capital formation, cost of capital paid by

Business

• B-G : Subsidy, Taxes

• HH- G : Services, Taxes

• B_- World , H-World , G-World – Export, Import,

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 What is an Economic Indicator

• A Variable which reflects

the overall state of an • Sources
economy.
• The Key indicators are : • Central Statistical organisation

– GDP • Office of Registrar General

– Sectoral Shares
– Agricultural output • Reserve Bank
– Electricity Generation
– Rate of Inflation
• Planning Commission
– Money supply
– Foreign Trade
– Foreign Exchange Reserves
• Labour Bureau
– Exchange Rate
– Economic Infrastructure • National Sample Survey
– Social Trends
Organisation

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 Economic Indicators
GDP
Gross Domestic Product:
– GDP is the total price of Goods and Services made in an
Economy
– It is an indicator of overall health of Economy
– Usually reported in Percent

Importance:
Economists : Whether economy is heading North or South
Business : Business Plan, Hiring decisions, Sales forecast
Government : Review economic policies
Household : Investment decisions

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 Economic Indicators
GDP
Types of GDP:
1. Based on Current Prices – Nominal GDP
2. Based on Constent Price – Real GDP

Nominal GDP – Value of goods and services at current

price
Real GDP – Physical Quantity of goods and service
produced
Eg.
A hat manufacturer announces that it made Rs.100000
selling hats this year 11% more than the previous year.
How they made more money?
10.By selling more hats or
11.By selling at increased price
If the more money is due to increased price then in real
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terms the true volume of hats sold this year was no
 Economic Indicators
GDP
Interpretation of Real Vs Nominal GDPs:

Real GDP – Higher if the quantity of goods and

services are produced more
- Higher Real GDP improves Standard of living
Nominal GDP – Higher due to inflation
- Higher Nominal GDP erodes Standard of living
Calculating GDP:
• Product wise: Calculating the total production
• Income wise: Calculating the total incomes received by
factors of production - labour &
capital
• Expenditure wise: Calculating the total expenditure of
all the entities
All the GDP calculations should be theoretically equal.
Practically it will not be so
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In India we used product method, but recently we switched 7
 Economic Indicators
GDP
• Calculating • Private
Consumption
GDP: • Household expenditure
• It constitutes 70% of GDP
• Y =  C + I + G + (X-M) • Less spending – Recession
• Y - Income (or GDP) • Durable Goods- Less income
postpone purchase – Volatile
C- Consumption (or demand – 15% of GDP
Private Final
• Non durables – Part of daily
Consumption living
Expenditure). - Stable
I- Investment (or Gross spending
Final Consumption Exp)
- - 30 % of GDP
X- Exports
• Services – Stable spending-
M- Imports 60 % of
G- Government
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Consumption
 Economic Indicators
GDP
• Calculating • Private
Investment
GDP: • Business - Voltile
• It constitutes 15% of GDP
• Y =  C + I + G + (X-M) • Less spending – Recession
• Y - Income (or GDP) • Fixed assets - Less income
postpone purchase – Volatile
C- Consumption (or demand
Private Final
• Change in private Inventory
Consumption – add inventory- Fluctuates
Expenditure).
I- Investment (or Gross
Final Consumption Exp)
X- Exports
M- Imports
G- Government
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Consumption
 Economic Indicators
GDP

• Net Export • Government

• Export – Import Spending
• Military, Infrastructure

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 Economic Indicators
GDP
• What do the two kinds of GDP approaches tell me?

• The Product approach tells me how much each sector is

growing and contributing to GDP. For instance, whenever
we read agriculture growing by this much, services by this
much etc this approach is used.

• The expenditure approach tells me whether GDP growth is

happening via consumption or investment.

• Consumption contributes most to the GDP. PFCE is 62% of

GDP in 2004-05 and has decreased to 58% in 2006-07.

• Investment has been rising and has increased from 26% in

04-05 to 28% in 06-07.
• India needs to move more to investment driven growth and
we see that happening. However, magnitude of shift is
pretty small.
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 Economic Indicators
GDP
• GDP deflator
• It is the price index
number which can be
applied to nominal
GDP to remove the
effect of inflation
• Example
• GDP of a country rises
from Rs. 300 billion in
2006 to Rs.390 bn in 2007.
Assume that the general
price level rises by 20% .
Find the real GDP
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Surana College PG_Centre
• If the year 2006 is taken as
base year then the price
index is 100 in 2006 and
120 in 2007.
• The GDP deflator is
120/100 = 1.2. The real or
inflation adjusted GDP
value for 2007 is
390/1.2=Rs.325bn.
• Thus the nominal GDP
rises by 30% (( 390-
300)/300)*100, but in real
terms it rises by 8.3 %
(( 325-300)/300)*100
• Real GDP = nominal GDP /
Deflator
• GDP Deflator= Nominal / 12
Real
 Economic Indicators
GDP
• Exercise:
• Indian economy is valued
at $1 Trillion. If the people
are to get the feeling of
economic prosperity
India’s GDP should grow
at 3.5%. Then
1. How much of goods &
services should be
produced in India?
2. Below this GDP
growth what will
happen ?
3. If the economy grows
at 7% what will
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Surana College PG_Centre
• How fast can an economy
grow without causing
inflation ?
If GDP growth rate = Rise of
Productivity + the growth in
the labour force
then economy growth will not
cause inflation.
Exercise:
The productivity of indian
economy is 4% and labour
force growth is 2.5%. At
what rate economy should
grow without breaking into
inflation ?
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 Economic Indicators
GDP - Growth
• India:
1947- 1980 – Phase-I –
‘Hindu rate of Growth ‘
-3.0 - 3.5%- Mixed
economy - USSR
1980-1990 - Phase-II- Pro-
business policy –
removing certain
impediments to the
functioning of private
sector- 5-6%
1990 – Liberalisation
policy – 9%
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Employment
Unorganised sector – 60% of GDP
Unorganised sector – 93% of empl
( 309mn)
Organised Sector – 7% of emp
(28mn)
Labour force growth – 2-2.5%
annum
8.1 mn youths coming out of
school system and growing
around 5% / yr.
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 Economic Indicators
GNP & GDP
• Gross National
Product
• GNP records goods
and services produced
by Indian companies
regardless of the place
of production and
excludes production
by foreign companies
in India.
• Goods & Services
produced only by
Indian Company in
India or in Foreign
Country
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• Gross Domestic
Product
• GDP records goods
and services produced
only in Indian territory
regardless of whether
it is an Indian
company or Foreign
company.
• Goods & services
produced
Only in India
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 Economic Indicators
GNI & GDP
• Which of the following are
Indian Companies:
• Reliance Industries
• Hindustan Unilever Lever
• CoCa-Cola
• Big Bazzar
• Spencers
• Pepsi
• Maruti
• Nirma
• Suzlon
• L&T

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 Economic Indicators
GNI & GDP
Company Origin Goods – Indian Goods –
Factory Foreign
Factory
Reliance Indian GDP & GNI GNI

Coca-Cola Others GDP No

Nirma Indian GDP & GNI GNI

HUL Others GDP No

Suzlon Indian GDP & GNP GNP

ONGC Indian GDP & GNP GNP

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 Economic Indicators
Economic Growth & Development
• World Bank classifies
countries based on
percapitaGNI as :
• Low -Income Low Lower- Upper- High
• Lower Middle Income Middle Middle
• Upper – Middle Income
• High – Income >$875 >$3465 >$1072
<=$875 < = <= 6
In 2005
$3465 10726
• India- GNI = $790mn
• Percapita GNI- $720
• Percapita GNI-
$3460(PPP)
• World – GNI = $44983
• World Percapita GNI-
$9420
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 Economic Indicators
Economic Growth & Development
• World Bank classifies
countries based on Low Lower- Upper- High
percapitaGNI as : Middle Middle
• Low -Income
• Lower Middle Income <=$875 >$875 >$3465 >$1072
• Upper – Middle Income <= <= 6
• High – Income 2312 $3465
2989 10726
5300 972
In 2005 Population
• India- GNI = $790mn 6.9 % GDP 4.9 5.2 1.7
• Percapita GNI- $720 Growth
• Percapita GNI- 1021 GNI 5756 6777 27806
$3460(PPP)
• World – GNI = $44983
• World Percapita GNI-
$9420
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 Economic Indicators
Economic Growth & Development
The difference between Economc Growth & Development
Economic
Economic Growth Development

• Increase in Human capital ( Skill,

• Increase in Potential output Innovation, productivity)
• +
• Increase in Asset
• Increase in Social Capital ( Health,
• Measured in GDP House,education,sanitation,wome
n,nutrition,)
• +
• Rising share of Industry &
services
• Measured in Per-capita Income /
Percapita GNI

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 Economic Indicators
Economic Growth & Development

• Developing Country
• Less Developed Country
• Least Developed countries-
Butan ,
Nepal,Bangladesh,Zambia,Z • Developed countries
imbabwe,Yemen.
• Newly Industrialised / Newly
industrialising countries –
asian Tigers
( Honkong,S.Koria,Singapore
,Taiwan, • Implications :
• Transission economies –
East Europ
• Increase in Potential output
• Increase in Asset
• Measured in GDP
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 Economic Indicators
Economic Growth & Development

• Poverty
• Subsists on less than $1 /
day
• Developed countries
• 1990 -28 % now-21%
• If GDP growth is maintained
– to 10%

• Implications :

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 Economic Indicators
GNI & GDP - 2003
India China Singapore USA

GDP 8.6 % 9.3% 1.1% 3.1%

GDP/Capita 8.6% -1% 2.2%

7.1%
GNI 570$BN $1416 Bn $90.2bn $11,012 bn

GNI/Capita $1100 $21230 $37870

$540Bn
Population 1288 Mn 4mn 291 Mn
1064 mn

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 Economic Indicators
Sectoral Shares
• The sectoral shares of GDP
indicate the type and
nature of economy.
• Economy is divided into
Agrarian, Manufacturing
& Service economy
based on the type & nature
of share of Sectors.
• Agrarian Economy –
Percentage of agriculture
production will be more
than other sectors.
• Features of Agrarian
Economy
– Agri contributes >60 %
– Employ Large % of
population
– Low income economy
– Slow developing economy
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 Economic Indicators
Sectoral Shares

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 Economic Indicators
Sectoral Shares- Agriculture
Effect on Economy:
 Receives inputs from
fertilizer, Pesticides,
Machineries,
Infrastructure,
warehousing, Hybrid
seeds, Irrigation, Land
 Outputs - Raw material
for Food processing , Agro-
industries, Feed for live
stock & poultry
 Productivity
 Employment
 Export / Import
 Foreign Exchange Earnings
/ Expenditure
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 Soil erosion
 Economic Indicators
Sectoral Shares- Agricultural Indicators –
FAO of World Bank

1. Agricultural Productivity: Country Productivi

ty
Measured by the ratio of value
Value
added per unit of output to added
the number of agricultural USA 47,556 per
worker
workers Lebanon 43,100
Canada 36,702
Value added = value of Output in Japan 25,339
constant price China 365
- India 402
value of input in Singapore 32,915
constant price

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 Economic Indicators
Sectoral Shares- Agricultural Indicators –
FAO of World Bank
2. Crop Production Index:
Shows agricultural production for
5. Cereal yield Index
each period relative to the base
year 1999-2001. This does not Shows production of wheat, rice,
include fodder crops. maize, barley, oats, millet ,
sorghum. Measured in
3. Food Production Index:
production per hectare of
Shows production of food crops harvested land.
that are edible and contain
nutrients. Coffee, Tea are
excluded as they do not have
nutrient values.
4. Livestock Production Index:
Shows production of meat, milk,
dairy products such as cheese,
eggs,honey,raw silk,wool hides
& skins
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.
 Economic Indicators
Sectoral Shares- Agricultural Inputs –FAO of
World Bank

Country Arable Irrigated Land – Fert- AGri-

Land Land- % Cereals- Consumption Machiner
Hect / Of thousnad 100gm / hect y
head cropland s of hect Tractors
USA 0.74 12.6 55604 1093 /273
100sq.k
Lebanon 0.05 32.6 56 2838 471
m
Canada 1.47 1.7 17071 550 160
Japan 0.04 54.7 1998 3066 4562
China 0.11 35.9 80626 2576 65
India 0.97 33.7 97285 1032 94
Singapor 0.00 - - 25920 650
e
Base 2002
year
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 Economic Indicators
Sectoral Shares- Agricultural Output &Productivity
–FAO of World Bank

Country Crop Food Livestock Cereal Productiv

Producti Producti Producti Yield ity
on Index on Index on Index Value
USA 101.2 102.4 102.5 6,138 added
47,556
per
Lebanon 95.7 100.8 116.3 2,486 43,100
worker
Canada 86.8 92.4 103.2 2,683 36,702
Japan 95.8 97.6 100 5949 25,339
China 108 110 112 4481 365
India 97 100.1 107.2 2,313 402
Singapor 100 66.2 71.3 ---- 32,915
e
Base 1999- = 100
year 2001

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 Economic Indicators
Sectoral Shares- Agricultural Plan Outlay

Plan Total Agri %

I Plan- 51- Outlay
2378 Outlay
354 14.9
56
II Plan- 56- 4500 501 11.3
61
III Plan-61- 8577 1089 12.7
66
IV Plan-69- 15779 2320 14.7
74
V Plan-74- 39426 4865 12.3
79
VI Plan-80- 97500 5675 5.8
85
VII Plan- 180000 10525 5.9
85-90
VIII Plan- 434100 22467 5.2
92-97
IX Plan 97- 859200 42462 4.9
02
X Plan 02- 398890 20668 5.2
07
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 Economic Indicators
Sectoral Shares- Food subsidy
Year Amount % of Gov,
Exp
1990-91 2450 2.3
91-92 2850 2.56
92-93 2785 2.27
93-94 5537 3.9
94-95 4509 2.8
95-96 4960 2.7
96-97 5166 2.5
97-98 7500 3.2
98-98 8700 3.1
99-00 9200 3.03
00-01 12125 3.61
01-02 17612 4.8

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02-03 21200 5.17
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 Economic Indicators
Sectoral Shares- Manufacturing

• Manufacturing Indianmanufacturingsector;s
Economy – growthshare
• Structure of
Manufacturing
Economy Food, Be
Others Textile
– Food, Beverages &
v & Toba
33% 12%
Tobaco 13%
– Textiles & Clothing Machiner
Chemival y
– Machinery
s 20%
– Transport Equipments
22%
– Chemicals
– Other Manufacturing
• -
Wood,Paper,,Basi
c metal,mineral
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 Economic Indicators
Sectoral Shares- Manufacturing Output & Value added –
FAO of World Bank

Country Manufact Food & Textile & Machiner Chemical

Value Beverage Clothing y s
Added s % of % of % of
USA $Mn
1,520,600 %
12 of Growth
5 Growth
31 Growth
12
Growth
Lebanon 1560 39 12 15 6
Canada 117240 13 3 36 10
Japan 1040351 11 3 39 10
China 375455 14 11 30 12
India 66024 19 17 9 402
Singapor 24407 2 1 62 14
e
Base 2002
year

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 Economic Indicators
Electricity Generation
• Cost of Electricity –
Influence Profit Margin
• Power interruption -
causes excess capacity
• India- 537 Bn MW
Production
• 43% of population has
access to electricity

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