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Friday 15 August 2014

NATURE OF INDIAN ECONOMY



India is a mixed economy where the means of production are owned by private and public sectors together.
  • The economy of India is the tenth-largest in the world by nominal GDP* and the third-largest by purchasing power parity (PPP). The country is one of the G-20 major economies, a member of BRICS and a developing economy that is among the top 20 global traders according to the WTO. India was the 19th-largest merchandise and the 6th largest services exporter in the world in 2013.
  • The Indian economy has been going through challenging times that culminated in lower than 5% growth of GDP for two successive years 2012-13 and 2013-14. Economic growth has slowed due to domestic structural and external factors. Two successive years of 5 percent growth is witnessed for the first time in 25 years.
  • The rate of investment which averaged more than 35 percent during 2004-13 slowed down to less than 34 percent in 2013-14.
  • The gross saving rate was just 30.1 in 2012-13. This fell by 6.7 percentage points of the GDP in 2012-13 from the historic high of 36.8% achieved in 2007-08.
ROLE OF DIFFERENT SECTORS

AGRICULTURE SECTOR
  • Agriculture and allied is a very important or primary sector of the Indian economy. It plays a major role in the overall development of the country as it contribute 13.9 percent of GDP in 2013-14 and engages around 54.6 percent of the total employment of the country (census 2011).
  • Aided by favorable monsoons, the agriculture and allied sectors achieved a growth of 4.7% in 2013-14 compared to its long-run average of around 3%.
INDUSTRY SECTOR

In any economy, industries have an important role to play. In fact, it has been noticed that countries which are industrially well developed (like China, USA) have higher per capita income than those countries where industries are not well developed (like India, Pakistan).
  • As per the latest GDP data, the industry sector registered a growth of 1.0 percent in 2012-13 that slowed further to 0.4 percent in 2013-14. The key reason for poor performance was contraction in mining activities and deceleration in manufacturing output. The last two years were particularly disappointing for the manufacturing sector, with growth averaging 0.2 percent per annum.
SERVICES SECTOR 

The service sector or tertiary sector of an economy involves provision of services to other business enterprises as well as to final consumers.
  • The services sector with an around 57 per cent contribution to the gross domestic product (GDP) in 2013-14, has made rapid strides in the last few years and emerged as the largest and fastest-growing sector of the economy.
  • Indian economy is second fastest growing economy in the world, with a compound annual growth rate (CAGR) of 9.0 percent, behind China with a CAGR of 10.9 percent during the period from 2001 to 2012. Like industry, services also slowed during the last two years. In the absence of sufficiently high growth in agriculture and industry, services also failed to pick up since many of the services are dependent on cheerfulness in the commodity producing sectors.
INFLATION

Inflation refers to a persistent upward movement in the general price level. It results in a decline of the purchasing power.
  • In addition to the growth slowdown, inflation continued to pose significant challenges. Although average wholesale price index (WPI)* inflation declined in 2013-14 to 6%, 8.9% in 2011-12 and 7.7% in 2012-13, it is still above comfort level.
  • Inflation in terms of Consumer Price Index (CPI)* remained fairly sticky at around 9-10% owing to high food inflation in the last couple of years.
  • The maximum inflation at 13.9% was recorded for the year 1966-67.
FISCAL DEFICITS

The difference between total revenue and total expenditure of the government is termed as fiscal deficit.
  • India’s fiscal deficit during 2013-14 fiscal year that ended in March was 5.08 Trillion Rupees or equivalent to 4.5% of GDP in 2013-14 as compared to the budgeted target of 4.8% of GDP is indicative of continued focus on fiscal consolidation. With a shortfall in tax revenues and disinvestment receipts along with higher than budgeted subsidies and interest and pension payments, fiscal consolidation was mainly achieved through reduction in expenditure from the budgeted level.
CONTRIBUTION TO EXPORT & IMPORT
  • India’s share in world exports and imports increased from 0.7% and 0.8% respectively in 2000 to 1.7% and 2.5% respectively in 2013. There has been marked improvement in India’s total merchandise trade to GDP ration from 21.8% in 2000-01 to 44.1% in 2013-14.
  • Merchandise exports registered a growth rate of 4.1% in 2013-14 as compared to a contraction of 1.8% during the previous year.
  • The value of imports declined by 8.3% in 2013-14 as compared to 2012-13, owing to a 12.8% fall in non-oil imports. The value of imports of petroleum, oil, and lubricants (POL) increased by 0.7% in 2013-14.
BALANCE OF PAYMENT
  • The Balance of Payment (BOP) is one of the oldest and most important statistical statements for any country. It is a systematic record of all economic transactions between the residents of one country and the residents of the rest of the world in a year.
  • Overall balance of payments is the sum of balance of current account and balance of capital account. It includes all international monetary transactions of the reporting country vis-a-vis the rest of the world. Balance of payment must always balance in the book-keeping sense.
  • India’s Balance of Payment (BOP) position improved significantly in 2013-14. After being at perilously unsustainable levels in 2011-12 and 2012-13, the improvement in BoP position in 2013-14 is a relief.
CURRENT ACCOUNT DEFICIT (CAD)
  • Current Account Deficit (CAD) however, widened. Widening of the CAD in 2012-13 could largely be attributed to rise in trade deficit arising from weaker exports and relatively stable imports. The latter owed to India’s dependence on crude petroleum imports an elevated level of gold imports since the onset of the global financial crisis.
  • CAD reduced to 1.7% in 2013-14 from 4.7% in 2012-13. This was due to improvement in net exports brought about by restrictions on non-essential imports and demand slowdown. Improved CAD also brought about improvement in Balance of Payment.
DEMOGRAPHIC TRENDS IN INDIA

India with large and young population has a great demographic advantage. The proportion of working-age population in likely to increase from approximately 58 percent in 2001 to more than 64 percent by 2021. While this provides opportunities, it also poses challenges. Policymakers have to design and execute development strategies that target this large young population. Demographic advantage is unlikely to last indefinitely. Therefore timely action to make people healthy, educated, and adequately skilled is of paramount importance.

POVERTY

It is generally agreed that only those people who fail to reach a certain minimum level of consumption standard should be regarded as poor.
  • The poverty ration declined from 37.2 percent in 2004-05 to 21.9 percent in 2011-12. In absolute terms, the number of poor declined from 407.1 million in 2004-05 to 269.3 million in 2011-12.
  • Every third poor person in the world is an Indian as on June 2011.
UNEMPLOYMENT

Generally, a person who is not gainfully employed in any productive activity is called unemployed.
  • During 2004-05 to 2011-12, employment growth (CAGR) was only 0.5 percent, compared to 2.8 percent during 1999-2000 to 2004-05 as per usual status. However the unemployment rate continued to around 2 percent under usual status 
NATIONAL INCOME OF INDIA

National income is the money value of all the final goods and services produced by a country during a period of one year. National income consists of a collection of different types of goods and services. Here below given table shows that how government generates and expends their revenue:- 

Definition of ‘Gross Domestic Product – GDP’

The monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

GDP = C + G + I + NX

where:

C” is equal to all private consumption, or consumer spending, in a nation’s economy
G” is the sum of government spending
I” is the sum of all the country’s businesses spending on capital
NX” is the nation’s total net exports, calculated as total exports minus total imports. 
         (NX = Exports – Imports)

Definition: Wholesale Price Index (WPI) represents the price of goods at a wholesale stage i.e. goods that are sold in bulk and traded between organizations instead of consumers. WPI is used as a measure of inflation in some economies.

Definition: consumer price index (CPI),a comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure in an economy is called consumer price index.

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