ECONOMIC ENVIRONMENT IN INDIA - HAS IT CHANGED FOR GOOD

Presented by: Hardeep Singh Garima Himanshu Seth

INDIA
Compared to 60 years ago, the face of India has undoubtedly changed. The change is most striking in cities, with cars and buildings, flyovers and malls, planes and metros. If we travel down a few dozen miles into the countryside, there too the change is visible, if not as uniformly. And if we travel further into remote forests and far flung villages, we will be travelling back in timethe past lingers there, in huts and on the faces of landless laborers and forest dwellers.

INDIA

ECONOMIC ENVIRONMENT

ECONOMIC ENVIRONMENT
Economic environment refers to
the aggregate of the nature of economic system of the country the structural anatomy of the economy to economic policies of the government the nature of factor endowment business cycle the socio-economic infrastructure etc.

Factors of Economic Environment

The Nature of Economic System Economic Structure Economic Policies

Current Situation in the Indian Economy

Slow recovery from the recession.

Inflation affecting the growth.

India GDP Growth Rate

India is the second fastest growing economy in the world. Indias GDP has touched US$1.25 trillion. The crossing of Indian GDP over a trillion dollar mark put India in the elite group of countries with trillion dollar economies. The tremendous growth rate has coincided with better macroeconomic stability. India has made remarkable progress in information technology, high end services and knowledge process services.

Gross Domestic Product (GDP)

India GDP per Capita

India Gross Domestic Product (GDP) expanded 7.90% over the last 4 quarters. Indias GDP is worth 1217 billion dollars or 1.96% of the world economy, according to the World Bank. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force.

India GDP per Capita

ECONOMIC GROWTH
The rate of expansion that can move an underdeveloped country from a near subsistence mode of living to substantially higher level in a comparatively short period of time i.e., in decades rather than centuries. For nations already advanced economically, it will mean a continuation of existing rates of growth.

ECONOMIC GROWTH
Historically economic growth is accompanied by: Greater industrialization. Greater commercialization.

ECONOMIC GROWTH
Theoretically economic growth is conceptualized as any one of the following: A rise in gross domestic product (GDP) A rise in gross national product (GNP) A rise in per capita gross domestic product A rise in per capita gross national product A rise in per capita net domestic product A rise in per capita net national product

ECONOMIC DEVELOPMENT
The Traditional Approach stresses two aspects: Sustained annual increase in GDP at the rate of 7 percent or more. Structural transformation of an agrarian economy into an industrialized economy.

ECONOMIC DEVELOPMENT
The new economic view of development has been defined to include improvements in material welfare, specially for persons with the lowest incomes, the eradication of mass poverty with its co-relates of illiteracy, disease and early death and finally alleviation of unemployment and income inequality.

Nature and Structure of Indian Economy

Level of Development of Economy Sectoral Composition of Output

Level of Development of Economy

India as an Underdeveloped Economy India as a Developing Economy

India as an Underdeveloped Economy

Low per capita income Inequitable distribution of income High Poverty Low Level of Human Development Predominance of Agriculture High Unemployment

Per Capita Income

Per capita income means how much each individual receives, in monetary terms, of the yearly income generated in the country. This is what each citizen is to receive if the yearly national income is divided equally among everyone. Per capita income is usually reported in units of currency per year

Low per Capita Income

India ranks 169 with GDP per capita of $2900 (2008 est, CIA World Factbook) Per capita income for 2007-08 : Rs 24,295

High Poverty
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Population below poverty line (%) 35 35 25 25 25 25 25 25 25 25

Population living on less than $1 per day, as on Dec09 :375 million

UNEMPLOYMENT RATE
Labour Force - the number of people employed plus the number unemployed but seeking work. The non-labour force includes those who are not looking for work, those who are institutionalised and those serving in the military. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services.

Indias Unemployment Rate

Year 2002 2003 2004 2005 2006 2007 2008 2009 Unemployment Rate (%) 8.8 8.8 9.5 9.2 8.9 7.8 7.2 7.1

India as a Developing Economy

Rise in Net National Income Rise in per capita income High growth rate of population Existence of Unemployment and Underemployment

Percentage growth over the previous year

10.00

0.00 3.5 4.2 2.8 3.2 4.7 5.5

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

19 51 -5 6 19 56 -6 1 19 61 -6 6 19 69 -7 4 19 74 -7 9 19 80 -8 5 19 85 -9 0 19 92 -9 7 19 97 -2 20 02 -2 00 2 00 7 20 07 -0 8

Rise in Net National Income

Year

5.6 6.5 5.5 7.8 9.1

Rise in per Capita Income

High Growth Rate of Population

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Population growth rate (%) 1.58 1.55 1.51 1.47 1.44 1.4 1.38 1.606 1.578

Population as on Dec09 : 1.150 billion, yearly increase 17million

OVERVIEW OF SECTORS of INDIAN ECONOMY

AGRICULTURE

AGRICULTURE

Agricultural production has largely been stagnating for the past decade. Costs of inputs like fertilizers and power have gone up more than the produce. More vulnerable to international price volatility. Per capita foodgrain availability has shrunk to what it was three decades ago. More than 67 % of cultivated area is held in holdings less than 4 hectares in size, compared to just 35 % in 1953. Primary reason for this- decline in public investment in agriculture.

AGRICULTURE 72% of farmers have 1 hectare or less. Agriculture continues to be the mainstay of incomes for about 52 % of Indias population. Contribution to GDP has drastically dropped from over 53% in 1950 to 21 % in 2008. For the country to achieve 9-10 % growth, agriculture has to grow at least by 4 %. While it grew by 2.5 % in the first quarter of 2009-10 and by less than 1.5% in the second. Adverse impact of the deficient monsoon. It is likely to be negative in the 3rd quarter of this fiscal. source: ministry of Finance website

AGRICULTURE
Progress of special programmes for raising agricultural productionNational food security mission. The rashtriya krishi vikas yojana. In 2009, Department of Agriculture and Cooperation, as custodian of the end-users i.e. the farming community, has sponsored a project entitled: Development and Application of Extended Range Forecasting System for Climate Risk Management in Agriculture (ERFS). In the first phase (two-three years), it is envisaged to develop a seasonal forecast system for met subdivisions/ agro-climatic zones. In the second phase, monthly forecast is targeted at these levels.
source: Economic Survey,2008-09

AGRICULTURE

Need for Renewed focus on increasing the productivity. Step up the growth of allied activities and non-farm activities Rural infrastructure for movement of agricultural produce.

EXTERNAL SECTOR

FOREIGN TRADE
US $ MILLION

EXPORTS (including re-exports) 2008-2009 2009-2010 %Growth 2009-2010/ 2008-2009 IMPORTS 2008-2009 2009-2010 %Growth 2009-2010/ 2008-2009 TRADE BALANCE 2008-2009 2009-2010 NOVEMBER 11163 13199 18.2 APRIL-NOVEMBER 134201 104247 -22.3

23488 22888 -2.6

234353 170430 -27.3

-12325 -9690

-100152 -66183

*Figures for 2008-09 are the latest revised whereas figures for 2009-10 are provisional. SOURCE: MINISTRY OF FINANCE WEBSITE

EXPORTS: After exports turned positive in Nov. 2009 after 13 months of continuous fall, they grew by 9.4 % in Dec. 2009 on the back of strong growth inPharma Engineering, Auto components sector, and Chemicals IMPORTS: Imports during November, 2009 were valued at Rs.106584 crore representing a decrease of 7.4 per cent over the level of imports valued at US Rs. 115091 crore in November, 2008. TRADE DEFICIT: Trade deficit, however, was lower reflecting larger fall in imports, especially oil imports, on account of lower oil prices as compared to last year. The trade deficit for April- November, 2009 was estimated at US $ 66183 million which was lower than the deficit of US $ 100152 million during April-November, 2008.

BALANCE OF PAYMENTS:

Balance of trade: refers only to merchandise exports and imports. BoP: All economic transactions with the outside world. A classified record of all receipts on account of goods exported, services rendered and capital received by residents , and payments made by them on account of goods imported and services received from, and capital transferred to non-residents or foreigners.

A satisfactory BoP situation:

High earnings from services- mainly software services. Role of foreign investment.

FDI: FDI is the outcome of the mutual interest of multi-national firms and the host countries. The essence of FDI is the transmission to the host country of a package of capital, managerial skills and technical knowledge. Importance of FDIUpgradation of technology Development of basic infrastructure Improvement in Balance of Payments situation Better access to foreign markets. Inflow of FDI in the country jumped by 60% in November 2009 year-on-year. Country received $1.7 billion foreign investment and $19.4 billion in April-Nov, a tad lower than $ 19.8 billion in the comparable 8 months of the previous fiscal. From 2006-07 to 2009-10, sectors attracting highest FDI equity inflows areServices 22 %, computer software and hardware 9%, Telecommunication 8 %, construction activities 7 %. (Source: Department of Industrial Policy and Promotion, Ministry of Commerce and Industry)

During 2005-06 to 2008-09, FDI flows assumed greater significance. High inflows indicate India as an attractive investment destination as a consequence of its liberalised investment climate, stable and sound economic and political base, opportunities for economic growth, while capital investment abroad reflects the growing global competitiveness of the Indian corporate sector. Indian companies are also constantly looking for synergistic acquisitions abroad. The two-way flow of FDI, therefore, means that while the world is taking note of Indias market potential.

FII:

Investment of Rs. 80,500 crore in 2009 is the highest ever inflow in the country in rupee terms in a single year. It comes after a year after they pulled out over Rs. 50,000 crore. FII inflow so far this year has broken the previous high of Rs. 71,486 crore parked by foreign investors in domestic equities in 2007.

Future Prospects: FDI into India is looking set to be more than $25 billion, and FII inbound flows should be more than $25 billion, estimates commerce minister Anand Sharma.

Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits and bonds held by CENTRAL BANKS and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs. This broader figure is more readily available, but it is more accurately termed official international reserves or international reserves. These are assets of the CENTRAL BANKS held in different reserve currencies, mostly the US dollars, and to a lesser extent the euro, the UK pound, and the Japanese yen. Foreign exchange reserves are an important component of the balance of payments and an essential element in the analysis of an economy's external position. The level of India's foreign exchange reserves comprising foreign currency assets (FCA), gold, SDRs in the IMF.

FOREIGN EXCHANGE RESERVES: Foreign exchange reserves, on BoP basis have shown an accretion of US $ 9.4 billion in Q2 of 2009-10 as against a decline in reserves of US $ 4.7 billion in Q2 of 2008-09.

India's foreign exchange reserves grew $741 million to $284.262 billion as on week ended January 8,2010 as foreign currency assets of the country rose.

Source: economic survey 2008-09

Exchange Rates
Rupees per US Dollar Rupees per Euro

JAN 15, 2010 45.6650 65.8488

JAN 15, 2009 49.0850 64.7800

% CHANGE
7.5 -1.6

Source: Min. of Finance website

Foreign Trade Policy/ Ex-Im Policy: The Government of India, Ministry of Commerce and Industry announces Export Import Policy after every five years. EXIM policy, in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position. The current Exim Policy covers the period 2009-2014. The Export Import Policy (EXIM Policy) is updated every year on the 31st of March and the modifications, improvements and new schemes becomes effective from 1st April of every year. A policy objective of achieving an annual export growth of 15% with an annual export target of US$ 200 billion by March 2011. In the remaining three years of this Foreign Trade Policy i.e. upto 2014, the country should be able to come back on the high export growth path of around 25% per annum. By 2014, there is an expectation to double Indias exports of goods and services. The long term policy objective for the Government is to double Indias share in global trade by 2020. Indias Look East Policy: Trade in Goods Agreement with ASEAN which came in force from January 01, 2010 will give enhanced market access to several items of Indian exports in this vibrant economic grouping. The Government seeks to promote Brand India through six or more Made in India shows to be organized across the world every year.

After the enactment of the SEZ Act (2005), nearly 3 lakh people have gained employment in the Special Economic Zones. In the last 5 years, exports from SEZ have grown by 620%, and have attracted foreign direct investment of US$ 2.43 billion.

source: Ministry of Commerce website

INFRASTRUCTURE

INFRASTRUCTURE
It consists ofPower or electricity Atomic energy The transport system- the railways, road transport, water transport, air transport Tele communications 6 Core industriesSix core industriesCrude oil, Refinery products, Coal, Electricity, Cement, Finished steelcontributed 26.7% to the overall Index of Industrial Production (IIP). The growth of core sector reflects the heath of industrial production.

INFRASTRUCTURE
Infrastructure sector expanded 5.3 % in November 2009 on back of robust growth in steel and cement indicating revival in industrial growth.

INFRASTRUCTURE
TRANSPORT: The transport sector in India is expected to grow at 10 % per annum. Ministry of surface transport had taken up the task of completing 20 kms of national highways everyday. But 50 % of the projects have been delayed last year due to reasons including land acquisition, pending environmental clearances or in some cases due to cancellation of the contract itself.

TELECOMMUNICATIONS: There have been 150 million new subscribers in the last year. 2010 is expected to be a year of telecom Mergers and Acquisitions with new entrants like Loop, Datacom, Swan/ Etisalat, Unitech/Telenor and STel.

INFRASTRUCTURE
Aviation: In Oct. 2009 overall passenger movements in airports saw a 27.6% growth over the same month last year. Domestic air travel has made a comeback in 2009, with traffic registering an increase of 7.9% over the previous year. Low fare is the way to survive at this time. This was realized by the private players. Air India does not follow the LCC model.

Cargo traffic at Indian ports: Cargo handled by major ports in the country, a key indicator for economic activity is staging a smart recovery. In Dec 2009, cargo handeled was up for the fifth consecutive month at 49.1 million tonnes compared to 45.3 million tonnes in the same month last year, a growth of 8.3 %. On a sequential basis, the cargo volumes increased by 1.9 % compared to previous month.

MANUFACTURING

MANUFACTURING:
The sector grew at around 10-12 % in 2009 as growth accelerated from a single digit level in 2008. In 2009 manufacturing industry was marked by relatively low attrition rates and reduced hiring. Consumer durables industry comprisesRefrigerators, Washing machines Air conditioners Colour TVs

Resurgence in demand for consumer durables-because of low input costs, better inventory management, Stimulus package Pay revision of central government employees Stable prices.

MANUFACTURING
Automobile sector:
Car sales in the domestic market zoomed 40% in December, led by revival in economic growth and easier retail financing and also due to low base of last year. Also because of salary hikes for government employees and recovery in stock markets. Overall auto sales also recorded handsome gains as all the segments cars, twowheelers, three-wheelers and commercial vehicles grew. One of the things that drove growth in 2009 was new launches. The number of new launches in the year were far more than what in any previous year.

SOCIAL SECTOR

SOCIAL SECTOR
Some of the major social sector initiatives for achieving inclusive growth and faster social sector development and to remove economic and social disparities in the Eleventh Five Year Plan, include the-

Bharat Nirman programme, Mid-day Meal Scheme, National Rural Health Mission, Jawaharlal Nehru National Urban Renewal Mission and The National Rural Employment Guarantee Scheme (NREGS).

POLICIES

INDUSTRIAL POLICY: Policies related toAbolition of industrial licensingNow, it is compulsory for only 5 industries- alcohol, cigarettes, hazardous Chemicals, electronics aerospace and defence equipment and industrial explosives. In respect of delicensed industry, no approval is required from the government. Public Sectors roleOnly 3 industries reserved for public sector- atomic energy, minerals specified in the schedule to the atomic energy and rail transport. DivestmentFDI: policy does not permit FDI in the following cases: i. Gambling and betting ii. Lottery Business iii. Atomic Energy iv. Retail Trading v. Agricultural or plantation activities of Agriculture (excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and Cultivation of Vegetables, Mushrooms etc., under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea Plantations).

MONETARY POLICY:

Monetary policy refers to a regulatory policy whereby the Central Bank maintains its control over the supply of money for the realization of economic goals. In a growing economy there has to be a continuous expansion of money supply and bank credit. Banks responsibility in the circumstances is mainly to moderate the expansion of credit and money supply in such a way as to ensure the requirements of industry and trade.

-The Reserve Bank of India has increased CRR- the bank deposits kept with the RBI- to 75 basis points to 5.75 %. - Move to suck out excess liquidity worth Rs. 36,000 crore from system. -Bank rate retained at 6.0 percent. - Repo rate retained at 4.75 per cent. - Reverse repo rate retained at 3.25 percent. - Indias economic growth projection hiked to 7.5 percent from earlier 6 percent. -Annual inflation rate projection hiked to 8.5 percent from 6.5 percent.

Impact: The tipping point has not yet reached for tightening of monetary policy and if one proceeds in that direction hastily, economic growth may take a hit. This in turn will affect employment generation that is critical at this juncture. Hike in CRR may adversely affect the availability of funds with the banks for extending credit to the industry from the banking system. SMEs are still borrowing at around 13 per cent.

Fiscal Policy: Fiscal policy is concerned with the determination of state income and expenditure policy. An effective fiscal policy consists of policy decisions relating to the entire financial structure of the govt. including tax revenue, public expenditures, loans, transfers etc.

Government takes fiscal measures to reduce the fiscal deficit. Last year after the global slowdown hit India, the Govt. had introduced stimulus measures like excise duty cuts by 6 %, enhanced expenditure in social and infrastructure sectors, besides agricultural loan-waiver to the tune of Rs. 65,000 crore and implementation of the sixth pay commission recommendations. They led to the economy bouncing back.
Impact: FISCAL deficit for the current year could overshoot even the 16-year high 6.8% budgeted for the current year as fertiliser subsidy is likely to be higher and postponing of 3G Auction this fiscal. The government had expected to raise about Rs 35,000 crore from the sale of 3G-spectrum and it is faced with an additional spend of Rs 20,000 crore on the fertiliser subsidy against Rs 49,980 crore estimated for 2009-10 . this can lead to increase in the government borrowing in the current fiscal.

SALARY HIKES

INFLATION

What is Inflation?
Inflation rate of a country is the rate at which prices of goods and services increase in its economy.
It is an indication of the rise in the general level of prices over time.

Inflation Cont.
Mathematically, inflation or inflation rate is calculated as the percentage rate of change of a certain price index. The price indices widely used for this are Consumer Price Index (adopted by countries such as USA, UK, Japan and China) and Wholesale Price Index (adopted by countries such as India). Thus inflation rate, generally, is derived from CPI or WPI.

INFLATION DURING THE LAST YEAR

For the week ending
31st December 2009 30th November 2009 31st October 2009 30th September 2009 31st August 2009 31st July 2009 30th June 2009 31st May 2009 30th April 2009 31st March 2009 28th February 2009 31st January 2009

Inflation (in %)
7.31 4.78 1.46 0.5 -0.17 -0.67 -1.01 1.38 1.31 1.2 3.5 4.95

INFLATION

NEGATIVE INFLATION
Indias annual rate of inflation turned negative for the week ended June 6 for the first time since the new wholesale price index or WPI series started in 1995.

Negative inflation implies that the average wholesale price level is lower during a given week, than it was in the corresponding week a year ago.

REASONS
A major reason for the negative inflation, based on the WPI, is the hike in fuel prices during the corresponding period last year. The fuel and power index reported a 12.8 per cent dip with respect to previous year. On the other hand, the primary articles group inflation reported a jump of 0.1 per cent. Similarly, the food articles index which represents cereals, pulses, vegetables, milk etc also reported a jump from 8.6 per cent to 8.7 per cent.

IMPLICATION
Deflation is not good for a country's growth as it translates into lower consumer activity due to falling prices. This directly leads to a larger inventory of goods and hence lowers manufacturing activity.

INFLATION SITUATION
Inflation emerged as a major concern during the third quarter, dominated by significant supply factors. On year on year basis, WPI headline inflation in December 2009 was at 7.3 per cent, whereas WPI inflation excluding food articles was 2.1 per cent, which suggests the concentrated nature of the inflation so far.

Cont
Weekly WPI data on primary articles indicate that primary food articles prices have increased by 17.4 per cent (y-o-y) for the week ending on January 16, 2010. The concentrated pressure on headline inflation arising from high food prices entails the risk of getting transmitted over time to other non-food items through expectations driven wage price revisions, and thereby magnifying into a generalized inflation. While anchoring inflation , expectations becomes important in such a situation, addressing supply constraints would be critical for enhancing the effectiveness of any anti-inflationary policy measures.

Growth and Inflation Outlook

RBI is facing the challenge to maintain a consistent growth rate for the economy while ensuring that the inflation is kept under control

According to the Reserve Banks Professional Forecasters Survey conducted in December 2009, the outlook for 2009-10 growth has been revised upwards from 6.0 per cent to 6.9 per cent.

Cont..
Several factors are expected to support upside acceleration of economic growth in the near future: a. Signs of revival in private demand, both consumption and investment b. Possibility of strong industrial recovery c. Outlook for a better Rabi crop d. Export growth remaining positive e. Favorable capital market conditions The general improvement in business sentiments as per the Reserve Banks business expectations survey as well as similar surveys of other agencies.

Cont..
The downside risks to growth in the near-term could be seen in terms of: a. The adverse impact of the deficient monsoon on kharif crop in the GDP of next quarter b. Weakness in services activities that are dependent on external demand c. Notwithstanding the signs of improvements in recent months d. Possible pressures on interest rates that may emerge from revival in demand for credit from the private sector as well as inflation expectations

FOOD INFLATION
Food price inflation had shot up to 17.40% from 16.81% for the week ended January 16, over the previous week, but the price hike was mainly due to spiralling pulses, vegetable, poultry and spice rates. Food items (i.e. primary and manufactured) with a combined weight of 27 per cent in the WPI basket have exhibited 21.9 per cent increase in prices.

BANKING
Historical role of Banks as intermediaries between the savers and the investors In the last few decades, the importance and nature of financial intermediation has undergone a dramatic transformation the world over. Role that banking has played: Banking system has provided credit to fund investments It has facilitated the raising of funds through a range of market based instruments shares, bonds, mortgages, Assets backed securities, futures, derivatives, etc.

Cont..
Besides transferring resources from savers to investors, these instruments enable allocation of risks and re-allocation of capital to more efficient use. These developments in international financial markets have been mirrored in the financial market in India.

Bank-group wise shares in deposits and credit

Nationalized banks, as a group, accounted for 50.5 per cent of the aggregate deposits, while State Bank of India and its Associates accounted for 23.8 per cent. The share of other scheduled commercial banks, foreign banks and regional rural banks in aggregate deposits was 17.1 per cent, 5.6 per cent and 3.0 per cent, respectively.
As regards gross bank credit, nationalized banks held the highest share at 50.5 per cent in the total bank credit followed by State Bank of India and its associates at 23.7 per cent and other scheduled commercial banks at 17.8 per cent. Foreign banks and regional rural banks had relatively lower share in the total bank credit at 5.5 per cent and 2.5 per cent, respectively. .

Credit-Deposit Ratio
At the AllIndia level, the credit-deposit (C-D) ratio of all scheduled commercial banks as on last Friday of September 2009 stood at 70.3 per cent. Among the States/Union Territories, the highest C-D ratio was observed in Chandigarh (121.7 per cent) followed by Tamil Nadu (110.9 per cent). At the bank group level, the C-D ratio was above the All-India ratio in respect of other scheduled commercial banks (73.0 per cent). The C-D ratio in case of nationalized banks (70.3 per cent) was at the same level as all SCB C-D ratio. The C-D ratio of State Bank of India and its associates (70.0 per cent), foreign banks (68.8 per cent) and regional rural banks (58.9 per cent) were lower than the all SCB C-D ratio. C-D ratio of All Scheduled Commercial Banks in metropolitan centers was the highest (82.6 per cent) followed distantly by rural centers (57.9 per cent) and urban centers (56.1 per cent). The semi-urban centers recorded the lowest C-D ratio at 49.8 per cent.

Cont..

EMERGING ISSUES
1. Healthcare
Public expenditure on health as a %age of GDP is a mere 0.9%, among the lowest in the world. According to a Planning Commission paper of May 2009, healthcare expenses were responsible for over half of all the cases of decline into poverty. It was estimated that in 2009-10, an additional 39 million people were pushed into poverty due to out-of-pocket payments.

Cont..
2. Poverty
Because of the gross poverty that inflicts much of rural population, domestic demand is constrained. This leaves the industry with limited options1. Cater to a small proportion of society, the upper middle and higher classes 2. Try out the cut-throat export market.

Cont..
3. Unemployment

Fallout of this situation Employment creation not taking off, especially in rural areas. Absorption in services not as much possible as needed. Larger sections of population continue to saturate agriculture at low wages or to take petty trade. As a result most of the employment is in unorganized sector.

Cont..
4.

INFRASTRUCTURE

Development of infrastructure would not only ameliorate the supply side bottlenecks to growth, but also provide the requisite demand side stimulus to growth. The rapid construction of highways facilitates human and material movement across the country. In the current Indian context, the programme for infrastructure building is undertaken broadly through two routes: First, through planned execution of large infrastructure projects under the Central and State Government agencies and through private initiatives including Public private partnerships (PPPs) Second, through public works programmes, which have the twin objectives of creating infrastructure and generating employment for the poor.

COMPARISON
The Indian economy has registered an impressive growth in recent times with GDP recording an average of 7.2 per cent growth rate in the current decade from an average growth of 5.7 per cent in the nineties. A comparison with the earlier period since the beginning of the last century brings out the extent of economic transformation far more clearly. During the first 50 years of the nineteenth century the average GDP growth rate has been just 0.7 per cent which picked up to 3.5 per cent (popularly called as Hindu rate of growth) in the next three decades after independence, before progressing to higher growth path in the recent decades. Concomitantly, the per capita income grew from a mere 0.2 per cent in 1900-1950 and 1.1 per cent in 1951-1980 to 3.2 per cent in the eighties and 3.6 per cent in the nineties and further to 5.4 per cent in the current decade

Cont

Economic Transformation
Transformation of the economy is quite apparent from the noticeable changes that have occurred in the sectoral composition of output. The share of services in the national income has steadily increased with corresponding fall in the contributions of agriculture and industry over the years. Services sector now accounts for nearly two third of total output as against less than half in the early eighties and the nineties. Share of industry declined marginally to 19 per cent from 20 per cent whereas share of agriculture registered steep decline from 38 per cent to just 17 per cent

Cont..
This positive performance seems to be an outcome of reforms encompassing a range of measures that led to transformation spreading over all the sectors of economy. Transformation brought in higher degree of sophistication and efficiency in operations of almost all the sub segments of real as well as financial sectors. Moreover, domestic economy has become far more integrated with rest of the world which is visible not only in terms of growing trade volumes; financial flows from and to the outside world have also been steadily growing.

Cont..
Structural transformation of almost all the segments of the economy during past two decades has brought discernible improvement in terms of efficiency, competitiveness and productivity.

This reflects in economy moving over to higher growth trajectory with far greater integration with the rest of the world in terms of diversification of goods and services as well as destinations to which exports are being made.

Cont..
Transformation of the economy, which is discernible in the form of improved competitiveness, efficiency and productivity across all the sectors, has led the economy to a higher growth trajectory. Consequent shift in relative contribution of various sectors to national income, however, brought to fore the concerns for sustainability of the transformation process and the need for an inclusive growth. The use of technology to make available affordable financial and banking services to the under privileged sections of our society for achieving inclusive growth is also our noble but critical objective.

Cont..
Finally, Economic Transformation is an ongoing process that needs to be pursued with perseverance and consensus while keeping in view their aptness to the domestic economy.

Let us hope that this process continues and gains pace in the coming years.

Conclusion
India is seen as a vast pool of talent with great diversity and with a demographic advantage. However, the industrial sector faces acute shortage of skills. The swiftness with which this skill deficit is bridged will be critical in determining whether India can move up the value chain in manufacturing.

The size of the Indian market and the unmet demand for industrial products provide reasonable hope that demand would not be a constraining factor by itself. There is an increasing realization that the industry should make conscious efforts to reach out to the bottom of the pyramid.
To be able to do so, the industry will need to deliver products that give value for money in a cost effective way.

Cont..
There is indeed a paradoxThe countrys overall economic health measured in terms of standard economic parametersGDP, National Income, food grain production etc. appears to be rosy compared to 60 years ago. Yet going into the details such as life and livelihood in the hinterland does not reveals so healthy a picture.

Cont..
After 62 years of independence, many of the issues that concern policy-makers and people are still the same: Agriculture is still crucial. Trade links with the world is still of concern. Living standards and poverty is still a big issue. India did march ahead with its global status despite an economic downturn but there is a need to dwell on inclusive growth which will define the dynamics of business going forward. India can view the next decade with OPTIMISM.

References
www.rbi.org.in www.advfn.com www.indianfoline.com www.finance.yahoo.com Economic survey 2008-09 www.hindu.com www.populationcommission.nic.in indianeconomy.org www.worldbank.org

References
www.economywatch.com Book on Indian Economy www.economicshelp.org www.mint.com www.ficci.com www.financialexpress.com www.indiabudget.nic.in www.thehindubusinessline.com www.ibef.org