India. In pictures.

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India. In pictures.
A graphical representation of the Indian economy
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India Key facts figures
INDIA, SHINING?
Factors that play a very vital role in achieving
our objective of a sustainable long-term growth
in GDP. We still have a long way to go!
Source UNDP, Economist
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Real GDP growth 5-year average
What this graph means?
Our view
Gross Domestic Product (GDP), in crude terms, is
the output of an economy. Like a company has
sales, an economy has GDP. This graph indicates
the 5 year average real GDP growth (GDP net of
inflation) over the last fifty years.
The graph indicates that real GDP growth, as
calculated on a 5-year moving average basis, has
been on a constant rise. This clearly indicates
that while there have been cycles, the run-rate
of our economys growth has shown an improving
trend.
Source RBI
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Real GDP growth Per capita GDP
What this graph means?
Our view
Apart from the growth in GDP, how this growth is
shared is also important. If the population
growth is higher, then GDP has to grow faster.
This will increase income at the hands of the
populace. While per capita GDP is a good factor,
it does not clearly reflect the disparities in
income levels
While India boasts of as one of the fastest
growing economies in the world, the slow growth
in per capita GDP tells the other side of the
story. Though we are among the top five economies
in the world in terms of size, in terms of
per-capita GDP, we are lagging way behind.
Source CMIE
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Real GDP contributors ()
What this graph means?
Our view
GDP basically comprises of output by agriculture,
industrial and services sectors. If one were to
break this up further, while agriculture includes
allied activities, the industrial sector includes
capital goods, mining, electricity and services
includes housing, banking, transportation,
utilities and tourism.
As can be seen from the graph above, the
contribution of the services sector has
significantly outpaced the other two. While every
economy goes through this transition, the Indian
economy has missed the industrial transition. We
are now a services led economy. But is services
the answer?
Source RBI
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GDP its constituents ( growth)
What this graph means?
Our view
Growth of an economy is a influenced by the
performance of its constituents. Though it is
important to understand what contributes to the
GDP, it is also important to understand what
proportion of the population is dependent on each
of these constituents.
One of the basic reasons of the underperformance
of the Indian economy has been the volatile
growth of the agricultural sector. Even when the
contribution from this sector is around 25 of
GDP, the fact that almost 70 of the population
depends on it has affected our economic
performance.
Source CMIE
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Growth in agricultural production GDP
What this graph means?
Our view
The graph is indicative of a high level of
co-relation between Indias GDP growth and growth
of agricultural production.
We have already mentioned in the previous slide
about the large dependence of Indias GDP growth
on the performance of the agricultural sector.
This graph just proves our point. Can we continue
to ignore this sector?
Source CMIE
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Investments by the manufacturing sector
What this graph means?
Our view
Economy functions in cycles i.e. trough,
recovery, peak and deceleration. Generally, close
to the peak, investments in physical assets tend
to be on the higher side and vice versa.
Investments by the manufacturing sector is thus,
a crucial factor to watch out for.
The excess investments by the manufacturing
sector in the mid-1990s seem to be drying out.
Sales growth has continued to outpace investment
in physical assets. Of course, consolidation has
played a role. But how long can the sector grow
sales without additional investments? Investment
recovery in sight!
Source CMIE
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Where the Rupee comes from
What this graph means?
Our view
The pie chart represents various sources of
revenue for the Indian government. Tax revenue
contributes the largest chunk (42) followed by
borrowings (24) and other capital receipts
(17.7). Disinvestment receipts is 17.0 of other
capital receipts.
While tax revenue accounts for a larger portion
of governments total revenues, a sedate growth
in this stream is a cause of concern. Also, the
fact that borrowings make a large chunk is
indicative of the governments rising
indebtedness.
Source RBI
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Where the Rupee goes
What this graph means?
Our view
Any government, like a company, has to spend
towards various aspects to improve
competitiveness. This graph indicates the areas
of expenditure of the Indian government. The
central governments expenditure can be broadly
segregated into revenue and capital expenditure.
The pie indicates that the government spends a
big chunk of its total expenditure towards
interest payments (unproductive). However, the
plan expenditure, which includes spending towards
infrastructure development, has a lower share.
One of the major reasons for Indias slow rate
of growth.
Source RBI
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Constituents of tax receipts ( of GDP)
What this graph means?
Our view
The graph indicates the Central governments
major sources of revenues direct and indirect
taxes as a percent of GDP. Expenditure as
percent of GDP indicates that receipts are not
enough for the government to meet its
expenditures.
As we had mentioned in the previous slide, growth
in tax revenues has been inadequate and this has
been a concerning factor. Better tax
administration and widening the tax net are some
measures that could bridge the gap.
Source CMIE
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Constituents of non-plan expenditure ()
What this graph means?
Our view
The graph shows various constituents of the
governments non-plan expenditure as a percent of
the total non-plan expenditure. The biggest
expense of 28.1 goes towards interest payments.
Among the remaining two, while defense
expenditure has been falling, that towards
subsidies is on a rise.
The high levels of interest payments, as shown in
the chart above, are a result of the Indian
governments rising indebtedness (see the next
slide). While subsidies, per se, are not bad, in
most of the cases, it has failed to serve the
purpose.
Source CMIE
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Increasing debt burden of the government
What this graph means?
Our view
The above graph indicates the Central
governments rising internal debt and the same as
a percent of GDP. The graph is actually meant to
indicate the rising burden on the Indian
government towards making capital and interest
repayments that is likely to hamper its
development expenditure.
As the previous slide indicated, the biggest
burden on the Indian government is due to high
interest expenses. The cause can be found out in
the graph above. Though the government has
benefited from the low interest regime, in
absolute terms, debt burden has continued to
increase.
Source CMIE
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Major Deficit Indicators of Central Govt. ()
What this graph means?
Our view
Deficit simply means the excess of expenditure
over receipts or the amount that the government
borrows in a fiscal . This is a result especially
of the governments profligacy on various
non-plan expenses like interest payments and
subsidies.
While deficits are unavoidable for a developing
economy, as the govt. has to spend towards
various initiatives from a long-term perspective,
the case of India is different. The govt.s
largest expenses are towards non-development
aspects (as shown in Slide 10), which is
concerning.
Source RBI
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Interest rate Change in money supply
What this graph means?
Our view
In a market-based economy, the price of money
(interest rate) is determined by the demand and
supply of the same. The graph shows the effect of
increased money supply in the economy on the
interest rates.
Despite the Indian governments high deficit and
consequently, rising borrowings, the liquidity or
the supply of money in the Indian economy has
been robust. One major reason for this is the
consistent inflow of foreign capital. High
liquidity is one factor that has supported the
softer interest rate regime.
Source CMIE
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Interest rate GDP growth
What this graph means?
Our view
This graph shows the co-relation between interest
rates and the GDP growth. Interest rate here
means the bank rate or the rate at which the RBI
lends money to commercial banks. Over the past
few years, we have had a soft interest rate
regime, mainly due to high liquidity (see Slide
15).
As shown in the graph, the softer interest rate
regime over the past few years has had a lag
effect on the growth of the Indian economy. Lower
interest rates, apart from helping companies to
restructure their existing high-cost debt to
low-cost ones, has also boosted retail demand for
money.
Source CMIE
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Interest rate Inflation
What this graph means?
Our view
This graph shows the relationship between
interest rates and inflation. It all happens in a
cycle. Across the world, the central bankers are
concerned about inflation. If inflation goes
beyond unacceptable levels, the central bank
raises interest rates to slowdown growth.
Despite rising fiscal deficit and strengthening
of oil prices, inflation has remained under check
in the last five years. This was due to low
capacity utilisation and lack of significant
credit demand from corporates. Adequate liquidity
has prevented any upward pressure on interest
rates.
Source CMIE, World Economic Outlook, 2003
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Annual Consumer Price Inflation ()
What this graph means?
Our view
Inflation has been a global phenomenon. And when
it rises beyond a point, it becomes a menace.
The above graph indicates that, when compared to
some of the developed and developing economies
over the past few years, inflation in India has
been relatively higher.
One key factor that impacts inflation globally is
oil prices. Though inflation is country specific,
in the last few years, crude prices have remained
firm. The RBI, in its annual monetary policy, has
projected inflation in India at 5 for FY05
(target for FY04 was 4.0 to 4.5).
Source World Economic Outlook, 2003
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Rs/US rate Forex reserves
What this graph means?
Our view
The graph indicates rising foreign exchange
inflows into the Indian economy and the
consequent effect on the exchange rate. Rupee has
strengthened vis-à-vis the US dollar. The reason
for this is that a large supply of the dollar has
led to a fall in dollar value thus having a
strengthening effect on the rupee.
A large amount of these forex inflows have come
in the form of remittances from NRIs. Increased
inflow of FII money has also played its part.
However, as Mr. Ajit Dayal says, India is a
developing country and we need to borrow to
invest in assets. In the long-term, rupee is
likely to weaken.
Source CMIE
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India So, whats the call?
India So, whats the call?
Reasons to buy
Reasons not to buy
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Key terms
Fiscal Deficit is the excess of expenditure over
governments receipts in an accounting year.
More simply, it equals the amount of borrowings
made by the government in a year.   FD Total
Expenditure Revenue Receipts Disinvestment
Receipts Recovery of loans   Higher Fiscal
Deficit leads to Increased Govt. Borrowing leads
to Increased Spending leads to Greater Money
Supply leads to Inflation leads to Demand for
money exceeding supply leads to Higher Interest
Rates
Revenue Deficit is the excess of revenue
expenditure over revenue receipts.
Primary Deficit is measured by Fiscal Deficit
less interest payments.
Subsidies, as defined by the Economist, are
payments, usually made by the government, to keep
prices below what they would be in a free
market, or to keep alive businesses that would
otherwise go bust, or to make activities happen
that otherwise would not take place. Subsidies
can be a form of protectionism, by making
domestic goods and services artificially
competitive against imports.
Inflation means rising prices. Inflation erodes
the purchasing power of a unit of currency. More
simply, since prices rise, Re 1 spent tomorrow
will buy you lesser amount than what it can buy
you today.
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