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Introduction
y History of the Indian Economy y The Liberalization Process: The 80s and the 90s y Beneficial Effects of the Reform Process y We are the Fourth Largest Growing Economy in terms of PPP with a GDP of US $3.36 trillion y In Exchange terms, we are the Tenth Largest in the world with a GDP of US $ 691.87 billion (2004) y Second Fastest Growing Major Economy of the World with a growth rate of 8.1% for the 1stQ of 200506
Introduction
y The increasing importance of the Indian Economy
has led to a need to Forecast the Performance of the of the Indian Economy y Monitoring of the Indian Economic Cycle has become an increasingly attractive option for this y 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.
different time-series do have different cyclical periods y Time-series can be classified into Coincident, Leading and Lagging Indicators y Coincident: Measures of Output, Income, Employment and Sales y Leading: Placement of New Orders, Intention to Build and Changes in Profitability y Lagging: Installment Credit Outstanding and Interest Rates
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 time interval, which might differ from the lead at revival.
y y
It would show no erratic movements, that is, it would sweep smoothly up from each cyclical trough to cyclical peak and then sweep smoothly down to the next trough, so that every change in its direction would herald the coming or recession in the general economy or business. The cyclical movements would be pronounced enough to be 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 such things allows that its future behavior in regard to economic cycles will be like its past behavior
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
appears to indicate the beginning of a new phase of cyclical upswing in the economy from 2003-04 y The initial momentum to this new phase of expansion, in 2003-04, was provided by agriculture y Industry and services have acted as the twin engines propelling overall growth of the economy
India s expenditure is 1/60th of that of Korea, 1/250th of that of the USA, and 1/340th of that of Japan. y More significantly, atomic energy, space and defense research account for 71% of all central spending on science and technology, which means that relatively little is left for investment in agriculture, energy, telecommunications and other crucial sectors within the sphere of
sector has been averaging around 3% of sales turnover (STO), which is much lower as compared to the 14-19% expended by internationally reputed software firms. y These low figures reflect on our R&D performance. India s share of global scientific output in 1998 was only 1.58 per cent of the world s total. y Out of 500,000 new patent applications filed globally each year, China accounts for 96,000 and Korea accounts for 72,000, while India accounts for only 8,000.
y 58% of country's population depends on agriculture y 27% of India s GDP comes from its agricultural production. y 13-18% of India s total annual exports are agricultural
products.
y Good monsoon always means a good harvest y Bad monsoon results in a big loss in the country GDP levels.
FDI in India
y 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. y India is considered a stable country for investing in by corporate overseas. y India has displaced US as the second-most favored destination for (FDI) in the world after China according to an AT Kearney's FDI y FDI is a tool for jump-starting economic growth through its bolstering of domestic capital, productivity and
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 ideas 4. Improving infrastructure, skills and the general business climate. US INVESTMENT IN INDIA y U.S. is one of the largest foreign direct investors in India. y The stock of actual FDI Inflow increased from U.S. $11.3 million in 1991 to US $4132.8 million as on August 2004 recording an increase at a compound rate of 57.5 percent per annum. y The FDI inflows from the US constitute about 11 percent of
mobile & basic telephone services) (10.56%) y Electrical Equipment (including Computer Software & Electronics) (9.50%) y Food Processing Industries (Food products & marine products) (9.43%) y Service Sector (Fin. & Non-Fin. Services) (8.28%).
y India's English-speaking population is highly valued by American, Canadian and British investors. y India received investments from GE Capital, American Express, Citibank, Conseco, British Airways, Dell Computers and Reuters. y This FDI resulted in the development of call centres, back office support and facilities to handle knowledge-intensive activities. y From software giant Microsoft to telecom biggies Nokia and Samsung to auto majors Honda and Toyota, global players now eye India as the most attractive destination for investment. y Although far behind China, India figures among the ten most attractive destinations for foreign investment, according to a new survey.
SENSEX
y Definition y Significance y Calculation Methodology y Selection y Free Float Market Capitalization (from September 1, 2003 ) y Calculation, closure y Maintenance
Definition
y Sensitivity Index y Base Year 1978
79, Base = 100 y Basket of 30 constituent stocks representing a sample of large, liquid and representative companies from diverse sectors.
Significance
y Barometer of Business climate. y Facilitates capital formation. y Domestic Market/ Institutions. y FIIs. y FDIs. y Likely to lead to boom in other asset classes as the
Journey Of SENSEX
CONCLUSION
y Leading Indicators relative to the objective. y Choice. y Standardization. y Construction of Ideal Leading Indicators