unit-ii globalization & characteristics of indian economy · •tendulkar committee report...

LOGOBusiness Environment

UNIT-II

Globalization & Characteristics of Indian Economy

Course Coordinator: Dr. Saboohi NasimFMS&R, AMU

Unit –II (Syllabus)

❖Globalization & International

Environment of Business

❖Features of Indian Economy

❖Financial System in India

❖Contemporary Economic Reforms (Class

Presentation)

Features of Indian Economy-As an Underdeveloped Economy

-As Developing Economy-As Mixed Economy

-Recent Macroeconomic Trends

India-An Underdeveloped

Economy

Even after seven decades of independence, Indian economy

still exhibit the characteristics of an underdeveloped

economy

•Low Per Capita Income

•Inequitable Distribution of Income & Poverty

•Predominance of Agriculture

•Rapid Population Growth

•Unemployment

•Scarcity of Capital

•Technological backwardness

•Lack of Entrepreneurship

India- As an Underdeveloped Economy

Low Per Capita Income??•Though India's per capita income, has increased to Rs

11,254 per month in 2019-20 as compared to Rs 9402.91 p.m

in 2017-18, Rs 6,855.75 p m in 2016-17 and 6,452.58 p m in

2015-16 ….but the rate of growth in PCI reduced (Ministry of

Statistics and Programme Implementation, 2020 (MOSPI).

•Ranked quite low at the global level 124 rank out of

191 countries by IMF 2019 (from 126 rank in 2018; but

still lower than countries like Sri Lanka(99), Bhutan(112)..etc)

•India ranks low among the 152 developing

economies -85th place for GDP per capita; (China #35;

Sri Lanka#60) and Bhutan#73)

(IMF Report 2019)

India- As an Underdeveloped Economy…

GDP Per Capita of India…2020

25,000 or more

10,000 - 25,000

2,500 - 10,000

500 - 2,500

under 500

no data

GDP Per Capita Income: A comparison…

Low Per Capita Income: A comparison…

In 2019, China

($19,504)

INDIA ($8378)

•Inequitable Distribution of Income & Poverty• Widespread Poverty in India estimated to have a third of

the world's poor

•23.6% of the total Indian people fall below

the international poverty line of US$ 1.25 per day while

68.7% live on less than US$ 2 per day (World Bank, 2012)

•Despite significant economic progress, one quarter of the

nation's population earns less than the government-

specified poverty threshold of Rs.32/day (approx US$ 0.6)

•Out of 872 m poor, India has third highest no. of people

living in extreme poverty after Nigeria and Congo (World

bank, 2019)


Poverty Estimates•No uniform measure of poverty in India.

•Tendulkar Committee Report (2005): Poverty line fixed at

Rs 27 for rural India and Rs 33 for Urban India (21.9% in

2015 while 37.2% in 2004-05)

•The Arjun Sengupta Report (from National Commission for

Enterprises in the Unorganised Sector) (2006) :77% of Indians live on

less than Rs. 20 a day (about $0.50 per day).

• The N.C. Saxena Committee report (2009) poverty based on

calorific intake besides nominal income; 50% of Indians live

below the poverty line.


Poverty Estimates…•A study by the Oxford Poverty and Human Development

Initiative using a Multi-dimensional Poverty Index (MPI)

found that •650 million people (53.7% of population) living in poverty in India,

of which

•340 million people (28.6% of the population) were living in severe

poverty, and a further

•198 million people (16.4% of the population) were vulnerable to

poverty.

•421 million of the poor are concentrated in eight North

Indian and East Indian states: Bihar, Chattisgarh, Jharkhand, Madhya

Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal.

This number is higher than the 410 million poor living in

the 26 poorest African nations.


Poverty index: India rank 49 (2019)More than 36 crore Indians still cannot afford three square meals a

day

Poverty Estimates

•Rangarajan Committee Report

(2014):new poverty line to be Rs 32

in rural & Rs 47 in urban areas;

(29.5% BPL in 2015)

Global poverty line, previously pegged

at $1.25 a day, has been revised to

$1.90 a day (nearly Rs.130) (2016).


India’ ranking in global Hunger Index

• As per the 2018 Global Hunger Index (GHI), the

level of hunger and undernutrition worldwide fell

to 20.9, down from 29.2 in the year 2000.

In 2019 India’s GHI score

reduced to 30.3

Ranked 102 out of 117 countries


India’s Gini Index increased: 2006-2011

A Gini of 0 means perfect equality and 100 means absolute inequality

India’s Gini Index increased:2013-2016

• India is among the most highly unequal countries

in the world; Gini varies from 25 to 40 for OECD countries.

Gini for China is believed to be around 50

• Gini coefficient for India rose to 63 by 2016 from 48 in 2013

• In 2013, the top 1% of income tax filers earned 15% of all

income; By 2016, they earned 45% of all income.

• In 2018, roughly the top 5% earn as much as the remaining

95% combined.

(The proof behind India’s rising income inequality: India’s top 5% today earn as

much as the remaining 95% combined.)

(Praveen Chakravarty; Hindustan Times Aug, 2018)

India’s Gini Index increased:2013-2016

2018

Richest 1% Indians own 51.5% of wealth in India (Credit Suisse’s India Wealth Report-2018)

Richest 10% Indians own over 3/4th of wealth in India (Credit Suisse’s India Wealth Report-2018)…….

•Predominance of Agriculture

•Occupational distribution not satisfactory; reflects

economic backwardness of the economy

•Agriculture continues to be the biggest employer in India (1951-72%;

1991-66.9%; 2001- 57%; 2010- 52%.............USA-2%)

•Contribution of Agriculture sector in Indian economy is

much higher than world's average (6.4%)

•Proportion of agriculture and allied sector in GDP, though reduced

from 55% in 1951 to 15.7 % in 2010, increased to 17% in 2016; 15.87%

in 2019 (other developing nations <10%)

•Contribution of Industry (29.7%) and Services sector (54.4%) is still

lower than world's average (30% for Industry and 63% for Services sector)


Ministry of Statistics and Programme Implementation (2018-19)

http://mospi.nic.in/sites/default/files/press_release/Presss%20note%20for%20first%20advance%20estimates%202018-19.pdf

•Rapid Population Growth

•With 1.38 billion people, India is the second most

populous country in the world (2020)

•Represents 17.7% of the world's population; one out of six

people on this planet live in India

•With population growth rate at 0.99% (2020) India is

predicted to have more than 1.53 billion people by the end of

2030

•India still has Low literacy rate(72.14%; 86.3% global

literacy average) and Low life expectancy, compared to

world average (70.4 yrs compared to 73yrs in developieconomies)


•Unemployment

•Widespread unemployment –a striking feature of

inadequate development

•Average percentage unemployed in India increasing: 17.7

million in 2016 (UN-ILO-2017)

•Historically, from 1983 until 2011, India’s Unemployment

Rate averaged 7.6 Percent reaching an all time high of 9.4

% in Dec 2009 and a record low of 3.8 % in Dec 2011

•Not much improvement in post liberalization era;

increasing level of urban unemployment


Recent Unemployment Trends -India

Unemployment Rate –India (OECD 2017)

• India's unemployment rate hit a 45-year high in 2017-18

(Economic Times Jan 2019)

• Unemployment rate stood at 6.1%, the highest since 1972-

73; 7.8% in urban areas and 5.3% in rural areas. (National

Sample Survey Office (NSSO) survey 2017-18)

• The survey became a political issue after the acting chairman

and a senior member of NSSO resigned

• India lost as many as 11 million jobs last

year (CMIE -Jan 2019)

Unemployment Rate –India (NSSO-2019)

Current Unemployment Rate in India on the rise….. (CMIE-2019-20)

•Scarcity of Capital

•Low capital formation due to low savings

and investment rates historically;

•Avg. gross saving rate during 1997-2003 in

India was 23.5% (compared to 39.2% in

China)

•Gross Domestic Savings improved

recently (33.7% and 36.5% in 2010….33% in

2014-15) (China 46% in 2019-20)


India’s savings rate plunges to 15 year low (MOSPI-ET 19 Feb 2020)

India’s slowing economy

took a toll on much-

needed savings too, with

the savings rate touching

a 15-year low, and

household savings also

falling.

This has weakened

India’s macro-economic

position which is already

hobbled by low

investment and rising

external borrowing to

fund capital needs.

•Technological Backwardness•Considerable technological gap as

compared to developed countries;

Production technique backward

mostly in agriculture, SMEs etc.

•Lack of Entrepreneurs•Inadequate entrepreneurial skills;

very small proportion of population;

risk averse


India’s ranking improved in Global Innovation Index-2019….way behind developed nations

India jumps to 63rd position in World Bank's Ease of Doing Business 2020 report….way behind developed nations

India jumps to 63rd position in World Bank's Ease of Doing Business 2020 report….A steady Climb!

India- As Developing Economy

More than seven decades of Economic Planning, has

put Indian economy on the path of growth exhibiting the

characteristics of a developing economy

(Two facets of economic development)

❖Quantitative Development

•Increasing National Income

❖Structural Development

•Significant changes in sectoral distribution of

domestic product

•Growth of basic capital goods industries

•Development of infrastructure

•Progress in banking & financial sector

India- A Developing Economy


•Rate of economic growth remained low in the

first three decades of economic planning (GDP-

3.4%); PCI grew at 1.2%

•Post liberalization GDP grew on an avg 5-

6%;Faster growth after 2003 (6-9%) but reduced

due to global recession

• India-3rd -largest emerging economy and

the 5th -largest economy in the world (2020)

India- A Developing Economy…

India- World’s 5th Largest Economy…2019-20(IMF)

GDP Growth Rate in India

World GDP Growth Rate: IMF Projections

IMF blames India for global slowdown, lowers 2019 growth

forecast to 4.8% (BS, Jan 21, 2020)

Moody's revises India GDP forecast to 5.4 %, slowdown

lasting longer than expected (17 Feb, 2020)

•Significant changes in sectoral distribution of

domestic product; Structural changes achieved….

•Steady decline in share of agriculture & allied sector in

GDP (55% in 1951 to 17.9% in 2014 to 15.11% in 2017 15.87% in 2019)

•Share of industrial sector increased (15% in 1951 to 24.2% in

2014 to 31.12% in 2017 to 29.73% in 2019 )

•Share of services sector increased (29.6% in 1951 to 57.9% in

2014 to 53.77% in 2017 to 54.4% in 2019)

•Changes in occupational structure: decline in

employment in agriculture & allied sector (72.1% in 1951

to 66.9% in 1991……to about 50% in 2009, 44% in

2017….43.21 in 2019)


•Growth of basic capital goods industries

•Since second FYP large no. of such industries established

(engine of growth); account for more than 50% of industrial

production

•Manufacturing accounts for 77.6 percent of total output, mining

for 14.4 percent and electricity for 8 percent

•Industrial Production in India averaged 6.35% from 1994 until

2018, reaching an all time high of 19.90% in Nov 2006 and a

record low of -7.20% in Feb 2009.

•India's industrial production growth accelerated to 2.4 % year-

on-year in December 2018 from a 17-month low of 0.3 %;

currently 2% in Jan 2020


India Industrial Production Index Growth 2019-20

•Development of Infrastructure•Infrastructure represents “wheels of economic activity, if not engine”(World Dev. Report 1994);

• The infrastructure sector is one of the biggest focus area of the Government

of India. Under Union Budget 2020, US$ 63.2 billion allocated to the sector

• India registered impressive growth- ranked 35th amongst 160

countries in World Bank's Logistics Performance Index (LPI) 2016

(jumped 19 places) …44th rank (out of 167 countries) in 2018.

•India is expected to become the third largest construction market globally by

2022.

•Transport system has grown both in terms of capacity and

modernization; one of the largest network of roadways & railways

•Electricity generation increased from 2300MW (1951) to 1,87, 900 MW

(2010) to 334.4 GW in 2018; India is the world's third largest

producer and fourth largest consumer of electricity.


•Development of Infrastructure: Indian Infrastructure- Industry Analysis(IBEF 2019)


Growth of Telecommunication Sector

• Spectacular growth in the telecom sector (Telecom policy:

1994; 1999; 2012…..NTP to be introduced in addressing 5G and IoT)

• India is currently the world’s second-largest

telecommunications market with a subscriber base of 1.2

billion (Dec 2019) and has registered strong growth in the

past decade and half.

• India ranks as the world’s second largest market in terms of

total internet users (636.76 million internet subscribers in

2019)

• India surpassed USA to become the second largest market

in terms of number of app downloads.


•Strengthening of the Services Sector

•The services sector is the key driver of India’s economic growth. The sector has

contributed 57.12 per cent of India’s Gross Value Added in 2018-19.

•Net service exports stood at US$ 38.95 billion in 2018-19 (IBEF, 2019)


•Development in E-Commerce sector


• The Indian e-commerce market is expected to grow to US$

200 bn by 2026 from US$ 38.5 bn in 2017.

• Much growth of the industry has been triggered by increasing

internet and smartphone penetration.

• India’s internet economy is expected to double from US$

125 bnn as of April 2017 to US$ 250 bn by 2020, majorly

backed by ecommerce.

• India’s E-commerce revenue is expected to jump from US$

39 billion in 2017 to US$ 120 billion in 2020, growing at an

annual rate of 51 per cent, the highest in the world.

•Progress in Banking & Financial sector

•Significant progressive changes in the sector;

•Nationalization of banking sector; establishment of key

financial institutions (RBI, DFIs…)

• Comprehensive financial sector reforms; development

of money & capital markets; establishing regulatory

bodies (SEBI, IRDA…RERA)….Rising NPAs and scams a

huge concern??

• Indian stock exchanges making a mark globally(BSE & NSE ranked 10th and 11th as per 2019 rankings

by market cap)


•Worst trading session in the

Indian stock markets: the

benchmark BSE Sensex fell over

3,100 points to and NIFTY by 880

points

• Following the rout in the global

markets oil prices also fell with

the Brent crude trading around

$34 per barrel.

• The Indian rupee also felt the

pressure and touched a 17-

month low of 74.34 per dollar in

its initial trade.

Bears run amok: Sensex falls 3,100 points, Nifty down 880 (March 12, 2020)

India- A Mixed Economy

As a mixed economy India exhibits the following

characteristics

•Private ownership of the means of

production

•Predominance of the market

•Growth of private sector monopolies

•Co-existence of Public sector

•Economic Planning


•Private ownership of the means of

production•Share of public sector in total national output is

less than 25%

•Predominance of the market•Market play a dominant role in the economy;

prices determined by market forces

•Market mechanisms not completely free from

state control; elaborate regulatory system to

supervise and control industrial activity


•Growth of private sector monopolies

•Monopoly houses have grown rapidly and

consequently the concentration of economic power

•Co-existence of Public sector

•Large public sector coexists with the private

sector…..determine the character of the economy as

mixed.

•Economic Planning

•Has been an integral part of Indian economy since

1951; Adopted planning while retaining its capitalist

structure….revamped approach to planning in 2015 by

setting NITI Aayog

India- A Mixed Economy….

Recent Macroeconomic Trends in India:

Economic Survey 2019-20

• Official document about the state of economy

•Not just a report card, but a vision document too;

Recommendations not binding on the govt

•Prepared and presented by the Ministry of Finance

under the guidance of CEA??

•Precursor to the Budget (presented a day

before)

• Economic Survey presented 2020?

Recent Macroeconomic Trends : Economic Survey??

Economic Survey 2020: Key Highlights

Economic Survey 2020: GDP Growth

Economic Survey 2020: GFD

Economic Survey 2020: Inflation

• Inflation witnessing moderation since

2014

• Consumer Price Index (CPI)

inflation increased from 3.7% in

2018-19 to 4.1% in 2019-20.

• Wholesale Price Index (WPI)

inflation fell from 4.7% in 2018-19 to

1.5% during 2019-20

Economic Survey 2020: Forex Reserves

Economic Survey 2020: Industrial Growth

Economic Survey 2020: Service sector Growth

Economic Survey 2020: Explore for more?

Any Query???...............Ask Google!!

unit-ii globalization & characteristics of indian economy · •tendulkar committee report...

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