indian economy final

8/8/2019 Indian Economy Final

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2010Zia Mohiddin AskiriRahul SharmaVivek Barolia

Yogesh JindalPunit Sant

Section A

6th December 2010



AUTHORISATION

The report is submitted as a partial fulfillment of the requirement of internal

evaluation for MBA program conducted by IBS Kolkata.

Indian EconomyA Comparative Analysis Of The Performance Of Different Secto



ACKNOWLEDGEMENT

We would like to thank Prof. Ashim Ghosh,Director,IBS , Kolkata for giving us

permission to carry out our project.

With immense pleasure and deep sense of gratitude, we wish to express our

sincere thanks to our Macroeconomics class lecturer and project guide Mrs.

Prarthana Banerjee, Lecturer, Economics IBS, Kolkata for her constant

interest, encouragement and expert guidance throughout the course of this

project, which provided the necessary driving force that enabled us to

pursue our work with vigor and keen interest. Our sincere thanks to all our

teachers, who helped us directly or indirectly in completing this project

At last, we express our sincere gratitude to our peers for their moral support

and the love rendered during the course of our dissertation work.



SECTORS

The Indian economy depends on three broad sectors for sustenanceviz. Primary Sector, Secondary Sector and Tertiary Sector:

Primary Sector The economic activity depends mainly on exploitation of natural resources tomake goods.E.g.: Agriculture and agriculture related activities, fishing, forestry, etc.

Secondary Sector The economic activity involves manufacturing consumables from naturalproducts after a certain amount of value addition.E.g.: Transporting, manufacturing.

Tertiary Sector The economic activity involves providing intangible products like services.E.g.: Financial services, management consultancy, telephony and IT .

The three main sectors contributing to the country’s economy are discussed

below:

1) Agriculture

The Primary sector of the economy is the change of natural resources into

primary products. Most products from this sector provides raw materials for

other industries. The share of primary sector has decreased from the past

four decades. In 1970 the share of the sector was 50% which has reduced to

29% in 1995 and is now further reduced to 25%. Major businesses in this

sector are agriculture, agribusiness, fishing, forestry, all mining and

quarrying industries.

Agriculture

Agriculture in India is the major sector of its economy. Almost two-thirds of

the total work-force earns their livelihood though farming and other allied

sectors like forestry, logging and fishing which account 18% of the GDP.

These sectors provide employment to 60% of the country’s total population.

About 43% of the country’s total geographical area is used for agricultural

purposes. After independence additional areas were brought under



cultivation and new methods, practices and techniques of irrigation and

farming were introduced by the government. The “Green Revolution” and

“Operation Flood” in the country have made India self sufficient in producing

food grains and milk. Among other things, the government also tried to

decrease the dependence on monsoons. Better seeds, use of fertilizer,

education of farmers and provision of agricultural credit and subsidies are

reasons for increase in agricultural productivity.

Today, India is the major producer of milk, cashew nuts, coconuts, tea,

ginger, turmeric and black pepper in the whole world. It is the second largest

producer of wheat, sugar, groundnut and inland fish. It is the third largest

producer of tobacco and rice. India accounts for 10 per cent of the world fruit

production with first rank in the production of banana and sapota

(Sapodilla).

Agriculture in India is the responsibility of the states rather than the central

government. The central government formulates policy and provides

financial assistance to the states. States like Punjab, Haryana, Uttar Pradesh,

Andhra Pradesh, Tamil Nadu, Karnataka and West Bengal are major

producers of food grains in India. Himachal Pradesh and Jammu and Kashmir

are famous for fruit production. Tea is produced in the high altitudes of

Assam, Darjeeling in West Bengal, Tripura, Ooty in Tamil Nadu, Himachal

Pradesh and Kerala. Kerala is also the largest producer of natural rubber and

spices in India. Rajasthan is among the major producers of edible oils in India

and second largest producer of oil seeds. Production of non-conventional

items like moong (a type of lentil), soyabeans and peanuts are gradually

gaining importance.

Even though there has been a steady decline in its share in the

GDP, agriculturestill remains the largest economic sector and plays a crucial

role in the socio-economic development of the country.

AGRICULTURE IN INDIA-Agriculture in India is one of the most important

sectors of its economy. It is the means of livelihood of almost two thirds of the work force in the country and according to the economic data for the

financial year 2006-07, agriculture accounts for 18% of India's GDP. About 43

% of India's geographical area is used for agricultural activity. Though the

share of Indian agriculture in the GDP has steadily declined, it is still the

single largest contributor to the GDP and plays a vital role in the overall

socio-economic development of India.

One of the biggest success stories of independent India is the rapid strides



made in the field of agriculture. From a nation dependent on food imports to

feed its population, India today is not only self-sufficient in grain production

but also has substantial reserves. Dependence of India on agricultural

imports and the crises of food shortage encountered in 1960s convinced

planners that India's growing population, as well as concerns about nationalindependence, security, and political stability, required self-sufficiency in

food production. This perception led to a program of agricultural

improvement called the Green Revolution. It involved bringing additional

area under cultivation, extension of irrigation facilities, the use of improved

high-yielding variety of seeds, better techniques evolved through agricultural

research, water management, and plant protection through judicious use of

fertilisers, pesticides and cropping practices. All these measures had a

salutary effect and the production of wheat and rice witnessed quantum

leap.

To carry improved technologies to farmers and to replicate the success

achieved in the production of wheat and rice a National Pulse Development

Programme, covering 13 states, was launched in 1986. Similarly, a

Technology Mission on Oilseeds was launched in 1986 to increase production

of oilseeds in the country and attain self-sufficiency. Pulses were brought

under the Technology Mission in 1990. After the setting up of the Technology

Mission, there has been consistent improvement in the production of

oilseeds. A new seeds policy has been adopted to provide access to high-quality seeds and plant material for vegetables, fruit, flowers, oilseeds and

pulses, without in any way compromising quarantine conditions. To give fillip

to the agriculture and make it more profitable, Ministry of Food Processing

Industries was set up in July 1988. Government has also taken initiatives to

encourage private sector investment in the food processing

industry. However, there are still a host of issues that need to be addressed

regarding Indian agriculture. Indian agriculture is heavily dependent on

monsoons. The monsoons play a critical role in determining whether the

harvest will be rich, average, or poor. The structural weaknesses of the

agriculture sector are reflected in the low level of public investment,

exhaustion of the yield potential of new high yielding varieties of wheat and

rice, unbalanced fertilizer use, low seeds replacement rate, an inadequate

incentive system and post harvest value addition.

There is an urgent need for second green revolution in Indian agriculture and



taking it to a higher trajectory of 4 per cent annual growth. Following steps

need to be taken to achieve this objective:

• Doubling the rate of growth of irrigated area;

• Reclaiming degraded land and focusing on soil quality;

• Improving water management, rain water harvesting and watershed

development;

• Bridging the knowledge gap through effective extension services;

• Diversifying into high value outputs, fruits, vegetables, flowers, herbs

and spices, medicinal plants, bamboo, bio-diesel, but with adequate

measures to ensure food security;

Fishing

Fish breeding has increased almost five times since India got

independence and is a prime industry in coastal regions.

The economic zone of India runs up to Indian ocean (370 Km) covering an

area more than 2 million square kilometers. Approximately 4.5 million toncatches are expected from that area. India has about 14000 Km2

brackish water for aquaculture, out of which 600 Km2 were being farmed

in early 1990s; about 16,000 Km2 of freshwater lakes, ponds and

swamps; and nearly 64,000 kilometers of rivers and streams.

Mining

Mining is the term used for the extraction of useful material from the

treatment of ore, vein or coal seam. Materials obtained from extraction

may be base metals, precious metals, iron, uranium, coal, diamonds,

limestone, oil shale, rock salt and potash. Any material obtained

from agriculture or cultured in laboratory requires to be mined.



More than 52% of country's population depends on agriculture, a sector

contributing only 17.5% of the GDP. Food grain production in 2009/10 is

expected at 216.9mt, which is 17.6mt lower than the output in 2008/09. The

Kharif season is the largest contributor to this shortfall, with total productionof only 99.9mt, a decline in production of nearly 18mt. The rice output in the

kharif season amounted to 12mt less than that in 2008. However, this

shortfall is expected to be compensated to an extent by the rabi harvest.

Wheat production in the rabi season is expected to be almost flat with the

previous year’s levels and rice production, currently at 14.7mt, may

eventually turn out to be higher than 2008 production. Taking this into

consideration, the shortfall in rice production for the year as a whole may be

restricted to 11mt.

While looking at some of the agricultural products, one finds that India is thelargest producer of tea, jute and jute like fiber. India is not only the largest

producer but also the largest consumer of tea in the world. India accounts for

more than 15% of the global tea trade. Indian tea is exported in various

forms, such as tea bags and instant tea, to more than 80 countries of the

world. The total milk production in India is the highest in the world. India also

has the largest irrigated land area in the world. India is placed third in the

world in cereal production, with the second largest production capacity for

wheat and rice, and the largest production capacity for pulses.

1) Industry



Index of industrial production, which measures the overall industrial growth

rate, stood at 5.2% in 2009 and is expected at 7.5% in 2010.

The textile industry is the largest industry in terms of employment and is

expected to generate $85 billion by 2010 and create 12 million new jobs in

the sector, and also pave the way for modernization & consolidation in orderto create a globally competitive textile industry.

The automobile sector has demonstrated the inherent strengths of Indian

labor and capital. The pharma and IT industries are the sectors that have

performed exceedingly well in recent years for India. Among the sectors that

have experienced the greatest transformation in India, the pharmaceutical

sector is the most significant. India’s WTO involvement during the last

decade has encouraged the country’s pharma firms to adopt a strategy of

R&D based growth. Apart from manufacturing of drugs, the pharma industry

offers a huge market for outsourcing of clinical research. A vast pool of scientific and technical manpower in medical treatment & health care are

India's strength. India can leverage its strength once patent protection is

enforced to the result of the researches. By participating in the international

system of intellectual property protection, India can unlock vast

opportunities in both exports as well as become a global hub in the area of

R&D based clinical research outsourcing, particularly in the area of bio-

technology.

Apart from infrastructure, particularly adequate and reliable power supply at

reasonable costs and transportation facilities, there is need for stepped up

investment in manufacturing. Industry needs to grow rapidly not only to

boost the overall growth rate in the economy but also to generate gainful

employment for the existing unemployed, as well as the new entrants. In a

diverse range of industrial activities, several Indian firms have succeeded in

getting integrated into global production chains and realized rapid growth of

exports. This experience suggests that with appropriate scale, investment

and technology, rapid industrial growth is indeed possible.

• The reasons for the rise of Industry Growth Rate in India GDP

The reasons for the increase of Industry Growth Rate in India GDP are thathuge amounts of investments are being made in this sector and this hashelped the industries to grow. Further the reasons for the rise of the GrowthRate of the Industrial Sector in India are that the consumption of theindustrial goods has increased a great deal in the country, which in its turnhas boosted the industrial sector. Also the reasons for the increase of Industry Growth Rate in India GDP are that the industrial goods are beingexported in huge quantities from the country.



1) Services

The services sector has maintained a steady growth pattern since 1996-97,

except for the fall in 2000-01. Trade hotels, transport & communications

have witnessed growth, followed by financial services. The services sector

accounted for 62.6% of India’s total GDP in 2009.

While in most parts of the developed world, the services sector's share of employment rose faster than its share of output, India witnessed a relatively

slow growth of jobs in the service sector. This is primarily because of the rise

in labor productivity in sectors such as information technology, which is

dependent on skilled labor. Growth in tourism and tourism-related services,

such as hotels, holds a large potential for employment generation. IT

enabled services, such as Business Process Outsourcing, have grown rapidly

in the recent past and will continue to rise. India's large English speaking

skilled work force has made the nation a major exporter of software services

and skilled manpower.



Sector wise Performance

• Agriculture & Allied Sectors Total food grains production in 2008-09 was estimated at 233.88 milliontonnes as against 230.78 million tonnes in 2007-08 and 217.28 million tonesin 2006-07. In the agricultural season 2009-10, the impact of the delayedand sub-normal monsoon is reflected in the production and acreage data forkharif crops. Total production of kharif pulses is estimated at 4.42 milliontonnes in 2009-10, which is 8 per cent lower than the production during2008-09 and 32 per cent lower than the targeted production for 2009-10.Similarly, total kharif production of the nine oilseeds in 2009-10 is about 15per cent lower than the kharif production in 2008-09.

•

Industry and Infrastructure The manufacturing sector has grown at the rate of 8.9 per cent in 2009-10.Growth in the major industrial groups has been a mixed bag. There wasstrong growth in automobiles, rubber and plastic products, wool and silktextiles, wood products, chemicals and miscellaneous manufacturing;modest growth in nonmetallic mineral products; no growth in paper, leather,food and jute textiles; and a slump in beverages and tobacco products in2009-10.

GDP $1.367 trillion (nominal: 11th; 2010)

$3.862 trillion (PPP: 4th; 2010)

GDP growth 8.8% (2010, Q1)

GDP per capita $1124 (nominal: 142th; 2010)

$3176 (PPP: 127th; 2010)

GDP by sector (2009-2010) Services 57%

Industry 28%Agriculture 15%

http://www.imf.org



• Service Sector The service sector which has been India’s workhorse for well over a decadehas continued to grow rapidly. It comprises the sub-sectors trade, hotels,transport and communications; financing, insurance, real estate andbusiness services; and community, social and personal services. As against a

growth of 9.8 per cent in 2008-09 it grew at 8.7 per cent in 2009- 10.

Evolution of an Economy from Primary Sector Based to TertiarySector Based

As can be observed from the table we have evolved from a primarilyagrarian economy (1950s) to a service oriented economy (today), thecontribution of agriculture in Indian GDP has decreased substantially with aproportional increase in service sector.

Historic Growth of Sectors:

During early civilization all economic activities were in primary sector. Whenthe food production became surplus people’s need for other productsincreased. This led to the development of secondary sector. The growth of secondary sector spread its influence during industrial revolution innineteenth century.After growth of economic activity a support system was needed to facilitatethe industrial activity. Certain sectors like transport and finance played an



important role in supporting the industrial activity. Moreover, more shopswere needed to provide goods in people’s neighborhood. Ultimately, otherservices like tuition, administrative support developed.

Comparison with other developed countries:

• Seeing the figures, I can conclude that Indian economy is on par withothers in terms of industrialization and is aiming to reach the service

level catered by other economies.• A comparatively high level of agricultural activity indicates that we are

capable of exporting our excess produce to countries which aredependent on others.

Agricultural exports have shown an increase (External website that opens in a new window) from around `.60 billion in 1990 - 91 to `.398billion in 2005-06. The Government's special efforts to encourageexport of food grains in recent years through grant of World TradeOrganization (External website that opens in a new window) or WTOcompatible subsidies has lead to India becoming one of the leading

exporters of food grains in the international market.

http://india.gov.in/citizen/agriculture/import_export.php

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