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PROJECT NAME
INDIAN ECONOMY
NAME:VIRENDER
CLASS: 10TH A
ROLL NO.: 36

Economic Performance (1985-2005)

A Specific Pattern of Development

Is the Growth Model Sustainable? Current
Policy Issues

Long-Term Prospects- Potential Growth

One of the most dynamic economy in the
world

International trade: behind China in trade of
goods, but a major exporter of services

Still very poor: a slow convergence of
income with industrialised economies
Contribution to World GDP and to Global Growth
1995 to 2004 (in %)
Contribution to world GDP growth 1995-2004
35
Share in world GDP in 2004
31
30
India:
3% of World GDP growth (7th)
2% of World GDP (12th)
27
25
20
16
15
11
9
10
7
5
5
4
5
4 4
3
3
2
In
di
a
er
m
an
y
G
U
K
Fr
an
ce
Ja
pa
n
C
hi
na
Et
at
sU
ni
s
0
India and China: Share in World Trade of Goods
and Services (in % of world trade)
7,0
China's exports of goods
China's exports of services
India exports of services
India's exports of goods
6,0
5,0
6,1%
-India lags behind
China in goods
exports
- Strong
performance in
services exports
4,0
3,0
2,6%
2,0
1,3%
1,0
0,9%
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
19
80
0,0
Level of Income Compared to Rich Countries
Rich countries=100
Other developing economies
India
China
30
25
20
15
-India and China: among
the rare developing
countries w hich are
catching up.
10
-Indian per capita income
still far behind China
17%
10%
5
20
01
98
95
92
89
86
83
80
0
A Specific Pattern of Development
• A services-led economy
• A narrow manufacturing sector
• A slow opening-up to international trade
and investment
India: Economic Growth from 1985 to 2005
(annual growth rate, in %)
GDP
Agriculture
Industry
Services
14
9
-6
2005*
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
-1
1985
4
India: A Services-Led Economy:
Structure of GDP (in %)
100%
90%
80%
43
Services
51
70%
60%
50%
16
Manufacturing
industry
17
40%
10
30%
Mines,
Construction,
Utilities
10
20%
31
Agriculture
22
10%
0%
1993
2002
India: Economic Growth from 1985 to 2005
(annual growth rate, in %)
GDP
Agriculture
Industry
Services
14
-Still vunerable to
agricutural fluctuations
-Recent rise in trend
9
-6
2005*
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
-1
1985
4
Services: skill-intensive activities are the most dynamic
Annual growth rates in the 1990s (%)
20
Business services
14
Communication
13
Banking
9
Hotels & restaurants
8
Community services
8
7
7
7
7
total
Trade
Other services
other transport
Insurance
6
Public adlinisatration
5
5
Peseonnal services
Real estate
4
Railways
0
2
4
6
8
10
12
14
16
18
20
Structure of Industrial Production, in 1993 and 2003
(in % of total)
21
Chemicals
18
Machinery & Transport equipment
17
Mining, Power
12
Food
Chemical and
Machinery
drive industrial
growth
10
Textile & Clothing
2003
1993
10
Metal and metal products
6
Construction material
4
Wood and paper
3
Others
0
5
10
15
20
25
Openess to FDI:
India Compared to Selected Asian Economies, 2004
FDI Inflows in % of Gross
Capital Formation
16
15
14
13
FDI stocks as % of GDP
12
10
9
8
8
8
6
6
6
6
4
3
So
ut
hKo
re
a
Ba
ng
la
de
sh
In
di
a
4
3
4
2
Pa
ki
st
an
an
Ta
iw
C
hi
na
0
India and China: Openess to Foreign Trade
Exports in % of GDP, 1980-2003
35
29%
30
25
India much less open:
-Time lag?
-Narrow manufacturing
sector
-Geographic
environment
China
India
20
15
11%
10
5
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
0
India: a world leader in exports of IT services
(Share in world exports, in percent)
25
2000
2001
2002
2003
20
20
16
15
11
9
10
8
5
5
0
Ireland
India
UK
Germany
USA
Israël
India: Direction of Foreign Trade
Share of Major zones (%)
Indian Imports
Indian Exports
100%
17
18
21
NAFTA
12
10
22
80%
29
29
23
EU-15
34
33
60%
23
19
40%
20%
7
35
19
24
29
36
Asia
16
Others 38
21
48
37
0%
1990
1995
2003
1990
1995
2003
-Geography of trade is
relatively balanced
-India is not part of a
regional integration
process
-Trade with Europe is
slowing down
Precision
instruments
8%
Radio, TV,
telecom.eq.
10%
Other HT
8%
HT goods account for
4% of Indian exports,
Concentated in
chemicals
(pharmaceutical )
ffice machinery
6%
Chemicals
68%
Is the Growth Model Sustainable ?
Can India skip the stage of industrialisation ?
The limits of specialisation in skill-intensive
activities:
 Cannot be the engine of the economy
 Have a small direct impact on employment
 Tends to increases divergence between States
 May have adverse effects on other sectors
Current policy issues:
 Employment: jobless growth since the 1990s
 Infrastructure is a major bottleneck
 Poverty and inequality
 Public deficit and debt : limited funds to finance
social expenses and infrastructure
Employment by sectors, 1990-2005,
in %
100%
90%
21
Services
28
Industry &
bat.
19
80%
70%
13
60%
50%
Agriculture
40%
67
30%
52
20%
10%
0%
1990
2005
Share of
services in
employment
(28%) smaller
than in GDP
(51%)
Urban Employment in the Organised Sector has Stagnated
since 1990s
100
90
80
70
66
69
60
Unorganised
sector %
50
40
30
20
Organised sector
%
34
31
1994
2000
10
0
Distribution of income in 2001
Household
Number of
Income US$
households in
per year, in
2001
2001
%
Expected
Distribution
in 2010
%
Deprived
71.9
<2 000
51
Aspirers
21.9
2000-4000
34
Middle Class
5.7
4 000-21 000
13
Rich
0.4
>21 000
2
All
100.0
100
Is the Growth Model Sustainable ?
Strengths:
 Growth of skill-intensive activities (both domestic
and international):
-IT services
- Pharmacy & biothechnology
 Human capital: tertiary education
Long-term Prospects: Growth Potential
 Demographic trends: a window of opportunity
-Strong increase of the working age population
-Dependency ratio falling
 Actual growth will depend on the level of
investment and savings
India and China: Projections of Population,
2000-2050 (thousands)
1 800 000
1 600 000
India's population
overtakes China's
around 2035
1 400 000
1 200 000
China
India
1 000 000
²&
800 000
600 000
400 000
200 000
05
0
2
04
5
2
04
0
2
03
5
2
03
0
2
02
5
2
02
0
2
01
5
2
01
0
2
00
5
2
2
00
0
0
India and China: Working Age Population,
2000-2050 (15-64) (in millions)
change in size India (left scale)
China
size at beginning of period, India
China
90
1 200
70
1 000
50
800
30
600
10
-10
-30
-50
2000-05 2005-10 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50
400
200
0
India and China
Projections of Dependency Ratio, 2000-2050
Population <14 and >65/population >15 and <64
0.70
0.65
China
0.60
0.55
0.50
India
0.45
0.40
0.35
20
00
20
05
20
10
20
15
20
20
20
25
20
30
20
35
20
40
20
45
20
50
0.30
In India, dependency
ratio falls sharply from
now to 2030
« Evolution of the Indian Economy, 23 February 2006 »

Scenarios:
◦ Recent studies have raised potential growth to 7-8%,
based on higher investment and strong institutions.
◦ Potential may not be realised: a return to a lower
growth path
Evolution of Investment rate, 1981-2004
Gross Capital Formation/GDP, %
30
29
28
26
27
25
25
25
24
22
20
18
21
21
19 19 20
21
24
23
22 22
21
25
24 24
21
22 21
22
20
16
14
12
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
10
Income Gap will Remain Large
(GDP Per Capita in current dollars)
90000
US
Japan
China
India
80000
70000
60000
50000
40000
30000
20000
10000
0
2000
2010
2020
2030
2040
2050
A Catching-up Scenario for India and China
2000-2050 (GDP in bn USD)
50000
China
45000
40000
US
35000
India could overtake
30000
Japan around 2035
25000
India
20000
15000
10000
Japan
5000
0
2000
Source: Goldman Sachs
2010
2020
2030
2040
2050