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Report on Global Economic

Growth:-Present & Future

Submitted to
Dr.Venkatraja B.
By
Group-A4
Dheeraj Kumar (15018)
Eshwar K.R. (15019)
Gairika Dey (15020)
Gourav G (15021)
Hannah Priyadarshini (15022)
Table of Contents
1. Global Scenario ....................................................................................................................... 3
1.1 US: Will it continue to be a bright spot in a weak global economy? ............................... 3
1.2 EURO-AREA: Recovery is likely to get better ............................................................... 3
1.3 ASIA-PACIFIC: Growth is unlikely to improve ............................................................. 3
1.4 LATIN AMERICA: Losing the race? .............................................................................. 3
1.5 AFRICA: Positive, but uncertain ..................................................................................... 4
2 Factors Affecting Global Economy ......................................................................................... 4
2.1 Interest Rates .................................................................................................................... 4
2.2 Currency strength ............................................................................................................. 4
2.3 Government Intervention ................................................................................................. 4
2.4 Environmental Impact ...................................................................................................... 5
2.5 Overall Economic Health ................................................................................................. 5
3 India ......................................................................................................................................... 5
3.1 Overview on Indian economy .......................................................................................... 5
3.2 GDP growth...................................................................................................................... 6
3.3 Inflation ............................................................................................................................ 7
3.4 Export and import............................................................................................................. 9
4 Japan ...................................................................................................................................... 10
4.1 Inflation Rate .................................................................................................................. 12
4.2 Import and Export .......................................................................................................... 13
4.3 Effect of Japan on India ................................................................................................. 15
5 China...................................................................................................................................... 16
5.1 Overview of China’s economy....................................................................................... 16
5.2 GDP ................................................................................................................................ 17
5.3 Inflation rate & Consumer Price Index .......................................................................... 18
5.4 Poverty ........................................................................................................................... 19
5.5 Export & Import ............................................................................................................. 20
5.6 Impact of China’s Economy on Indian Economy .......................................................... 22
6 United States of America ....................................................................................................... 23
6.1 US GDP .......................................................................................................................... 23

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6.2 US Economy affecting Global Economy ....................................................................... 24
6.3 US Inflation .................................................................................................................... 26
6.4 Poverty rate in the United States from 1990 to 2014 ..................................................... 27
6.5 Import and Export .......................................................................................................... 28
6.6 Future of Economic Growth in USA.............................................................................. 29
6.7 Impact of US Economy on India .................................................................................... 30
7 United Kingdom .................................................................................................................... 32
7.1 Economic Forecast ......................................................................................................... 32
7.2 GDP Growth Rate .......................................................................................................... 33
7.3 Inflation Rate .................................................................................................................. 33
7.4 Exports and Imports ....................................................................................................... 34
7.5 United Kindom- Economic Forecast .............................................................................. 34
7.6 Future of United Kingdom With respect to Growth ...................................................... 40
7.7 Relation of UK and Indian Economy ............................................................................. 40
8 Future of Global economy-2020............................................................................................ 41
9 Reference ............................................................................................................................... 43

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1. Global Scenario
Global GDP growth is now projected at 2.5 percent, which is 0.3 percentage point lower than
November outlook. The largest downward adjustments are seen in emerging markets, of which
Brazil and Russia are the most pronounced, as their economic outlook has deteriorated more
rapidly than we expected.

1.1 US: Will it continue to be a bright spot in a weak global economy?

1. GDP growth for the United States is adjusted downward by 0.4 percentage points to 2.0
percent, as the GDP growth in the 4th quarter and jobs growth over the past months have
been somewhat disappointing.
2. Solid domestic demand will help overall GDP growth at 2.0 percent in 2016, which is
slightly lower than 2015 growth rate.
3. Raising profits will become increasingly difficult for companies as labour costs
accelerate, labour productivity growth is modest, and interest rates are rising.

1.2 EURO-AREA: Recovery is likely to get better

1. Despite increased political risks, the short-term economic environment in Europe has
actually improved faster than we expected in our last update.
2. As is the case in the US, domestic demand continues to drive the current moderate
recovery.
3. Investment and productivity are projected to improve in the coming decade, paving the
way for somewhat of an acceleration in growth.

1.3 ASIA-PACIFIC: Growth is unlikely to improve

1. Growth rates of China, India and Southeast Asia are unlikely to see significant
improvement in 2016 compared to last year.
2. Chinese growth in 2016 is expected to stay the same as that of 2015 at 3.7 percent
3. After adjusting for China’s overstated official growth rates, India has already overtaken
China as the growth champion of the region, but we do not expect an improvement in
India’s growth performance in 2016 relative to 2015.

1.4 LATIN AMERICA: Losing the race?

1. Rapid falls in oil and commodity prices negatively impacted Latin American economies,
and exacerbated the ongoing troubles in the biggest economy in the region, Brazil.
2. To help lift economic potential and drive productivity growth, more private sector and
foreign investment is needed as well as integration of the informal sector into large and
modern business practices.

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1.5 AFRICA: Positive, but uncertain

1. The prolonged decline in commodity prices, as well as weak growth in Nigeria and South
Africa, will cause overall growth for the region in 2016 to come in at 3.7 percent – which
is, though still an improvement from 2015, well below the average growth of the last few
years.
2. The region still has a lot of potential for economic expansion in the medium to long run,
mainly due to its demographic dividend, and there is ample room for catch-up, but
several political and institutional constraints offer significant uncertainty.

2 Factors Affecting Global Economy

2.1 Interest Rates

Interest rates can influence the growth of an industry in several ways. Large industries such as an
increase in interest rates can prevent customers from borrowing to finance the purchase of these
types of products and services. High interest rates also deter companies from investing in new
capital and expansion. On the other hand, falling interest rates can stimulate industries to grow,
which can lead to innovation and higher employment levels.

2.2 Currency strength


The value of the U.S. dollar compared to other foreign currencies such as the yuan, yen and the
pound is important even for companies that do not import or export goods. Consumers have a
choice to purchase goods or services originating in the United States or in other countries. If the
U.S. dollar strengthens, companies in the industry that purchase inputs from other countries are
able to be more competitive in pricing. In industries that are heavily reliant on foreign raw
materials and processing, such as the clothing industry, the entire sector can be lifted or
depressed with a strengthening or weakening of the dollar.

2.3 Government Intervention

Many industries are regulated by the government in one form or another. Government agencies
such as the Environmental Protection Agency, the Food & Drug Administration or the U.S.
Department of Agriculture maintain standards that all operators in an industry must follow for
the safety of consumers, employees, or natural resources. Some industries are more heavily
regulated than others and new laws and rules can shake up an entire industry and depress growth.
For example, new child toy safety laws implemented under the Consumer Product Safety

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Improvement Act in 2009 threatened to wipe out many small toy producers as the requirements
to test and certify the toys were cost-prohibitive to all but large toy manufacturers. Proposed
changes to the Act may help alleviate the burden on small manufacturers and resellers.

2.4 Environmental Impact

Economic growth in an industry can be impacted not only by the environmental effect the
products or services have but also by consumers' perceptions of that impact. For example, the
market for fur apparel declined drastically over the course of a few years in the 1990s when
consumers perceived that raising and killing small animals for their fur was both inhumane and a
poor use of land. Although the industry is once again picking up with international demand, the
number of fur farmers in the country has substantially declined. If the public views an industry's
products or services as being harmful or unsafe, most companies within the sector can
experience a marked decline in sales quickly.

2.5 Overall Economic Health

The economic state of the country and consumer confidence can also spur growth and
development or harm it. In recessionary times, consumers begin limiting their purchases to the
essentials, foregoing luxury or big-ticket items. Companies also scale back production, hiring
and the development of new products and services to ensure that their finances can weather the
storm. In periods of overall economic growth, these companies once again expand. The opposite
is true in industries that deal in basic consumer goods that everyone needs regardless of the
economy: food, diapers, and staple goods. Demand picks up for these necessities as consumers
stock up on them and substitute basic goods for luxury goods (example: people buy more
groceries to eat in rather than go to a restaurant). In inflationary times, the demand for staple
goods declines as consumers can afford more luxury substitutes.

3 India
3.1 Overview on Indian economy

India is one the best performers in the world economy in recent years, but the rapid raise in the
inflation and the complexities of running the world's biggest democracy are proving challenging.
Indian economy opened its doors to the global market since 1991, after the introduction of
liberalization. Before 1991, the Indian economy was characterized by extensive regulation,
protectionism and public owner ship, leading to pervasive corruption and slow growth.
The reforms that were initiated by Prime Minister P V Narsimha Rao with his Finance Minister
Manmohan Singh, did away the License Raj (investment, industrial and import licensing) and

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ended many public monopolies, allowing automatic approval of Foreign Direct Investment in
many sectors. Since then India has emerged as the fastest growing economies in the world.
In recent times Indian economy has emerged as a bright spot in the world economy, by becoming
one of the fastest growing large economies in the world. The 7.6 per cent growth in the GDP at
constant market prices in 2015-16, according to the advanced estimates of the Central Statistics
Office, compares favorably with growth in the previous three years; 7.2 per cent in 2014-15, 6.6
per cent in 2013-14 and 5.6 per cent in 2012-13. It is in fact a great deal of work to see that this
growth is estimated to be achieved despite subdued global demand that dampened India's exports
significantly and two consecutive below-normal monsoons that impacted farm output and
productivity. The macroeconomic stability has improved substantially with the continuance of
fiscal prudence, lower current account deficit, lower inflation, and robust foreign exchange
reserves.
The current year also experienced moderation in general price level, with significant decline in
the price of Indian basket of crude oil and commodity prices, coupled with astute food supply
management policy of the Government. Low levels of current account deficit coupled with
moderate rise in capital inflows resulted in accretion in foreign exchange reserves by US$ 10.6
billion in the first half of 2015-16. India's foreign exchange reserves were at US$ 351.5 billion as
on February 5, 2016. All this shows that the Indian economy has effectively weathered the global
challenges, and the near term growth prospects appear bright.
There will be continuation of the reform momentum built in 2014-15, aiming at aiding growth
and macroeconomic stability. The reforms that were initiated last year for debottlenecking the
economy, removing structural constraints, promoting industry and enterprise via Make-in-India
initiative and the attendant measures to improve the ease of doing business, improving
programme delivery through direct benefit transfer and other measures, encouraging saving and
financial linkages through deepening of banking services and liberalising foreign direct
investment policy in various sectors have been taken forward this year. Also there are certain
new initiatives like Public Sector Banks' Revamp Plan, UDAY (Ujwal DISCOM Assurance
Yojana) for ensuring financial turnaround of the ailing power distribution companies, Start-up
India for tapping budding entrepreneurial potential, add to the ongoing reform measures. The
implementation of these reforms has improved the business environment and enhanced investors'
confidence, which has been acknowledged by multi-lateral institutions and got reflected in faster
economic growth and greater investment inflows to the country.

3.2 GDP growth

Real GDP growth of India at constant prices in the year 2015-16 is estimated to expand by 7.6
percent as compared to the growth rate of 7.2 percent in 2014-15. The quarterly GDP growth
rates are as follows Q1- 7.6%, Q2-7.7%, Q3-7.3%. It is seen that agriculture, forestry and fishing
sector is likely to show a growth of 1.1 per cent in its GVA. Manufacturing growth is at 9.5%.
India has registered highest growth of 10.3% in Financial, real estate & professional services
sector and lowest 1.1% in Agriculture, forestry & fishing sector.

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At current prices, GDP growth rates for year 2015-16 is 8.6%. Growth for Q1, Q2, and Q3 are
8.7%, 6.4%, and 9.2%, respectively. At constant prices GVA (Gross Value Added), GNI (Gross
National Income), NNI (Net National Income) growth of India is estimated at 7.3%, 7.5% and
7.6%, respectively. At current prices these figures is 6.8%, 8.7% and 8.7%.
Data the base year considered 2011-12 for 2014-15. According to IMF World Economic Outlook
(April-2015), GDP growth rate of India in 2014 is 7.168% and India is 15th fastest nation of the
world in economic growth. Average growth rate from 1980 to 2014 stands at 6.23%, reaching a
highest of 10.26% in 2010 and a record low of 1.06% in the 1991.
In previous methodology, average growth rate from 1951 to 2014 stands at 4.96%, reaching a
highest of 10.16% in 1988-89 and a record low of -5.2% in the 1979-80. In 4 years, Growth was

negative.
.
Growth at 2011-2012 price Growth at current price
Year
GDP GVA GNI NNI GDP GVA GNI NNI
2015-16 7.6 7.3 7.5 7.6 8.6 6.8 8.7 8.7
2014-15 7.2 7.1 7.3 7.2 10.8 10.5 10.8 10.8
2013-14 6.6 6.3 6.6 6.2 13.3 12.7 13.2 13.2
2012-13 5.6 5.4 5.3 4.7 13.9 13.6 13.6 13.3

3.3 Inflation

Inflation in India is measured based on Indian consumer price index. The index is a measure of
the average price which consumers spend on a market-based "basket" of goods and
services. Inflation based upon the consumer price index (CPI) is the main inflation indicator in
most countries.
Consumer prices in India increased to 5.69 percent year-on-year in January of 2016, higher than
5.61 percent in December of 2015 and accelerating for the sixth straight month. It is the highest

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figure since August of 2014 and above market expectations of 5.4 percent. Food inflation
increased to 6.85 percent from 6.4 percent in December, also the highest in seventeen months.
Inflation Rate in India averaged 7.90 percent from 2012 until 2016, reaching an all-time high of
11.16 percent in November of 2013 and a record low of 3.69 percent in July of 2015. Inflation
Rate in India is reported by the Ministry of Statistics and Programme Implementation (MOSPI),

India.

In 2013, the consumer price index replaced the wholesale price index (WPI) as a main measure
of inflation. In India, the most important category in the consumer price index is Food and
beverages (45.86 percent of total weight). Housing accounts for 10 percent; Transport and
communication for 8.6 percent; Fuel and light for 6.84 percent; Clothing and footwear for 6.5
percent; Medical care for 5.9 percent and education for 4.5 percent. Consumer price changes in
India can be very volatile due to dependence on energy imports, the uncertain impact of
monsoon rains on its large farm sector, difficulties transporting food items to market because of
its poor roads and infrastructure and high fiscal deficit.
Year-on-year, cost of food and beverages rose 6.66 percent (6.31 percent in December),
provisional estimates showed. The food alone index increased to 6.85 percent compared to 6.4
percent in the previous month. The biggest rise came from pulses (up 43.32 percent from 45.92
percent in the previous month), followed by spices (10.56 percent from 10.83 percent in the
previous month) and meat and fish (8.23 percent from 6.57 percent in the previous month).
Prices of vegetables rose 6.39 percent (4.63 percent in the previous month) while fruits went
down 0.24 percent (0.64 percent in the previous month).

Cost of clothing and footwear went up 5.71 percent year-on-year (5.74 percent in December);
fuel and light rose 5.32 percent (5.45 percent in December); and housing prices increased 5.26

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percent (5.06 percent in December). The corresponding provisional inflation rates for rural and
urban areas are 6.48 percent and 4.81 percent. A year ago, the inflation rate was 5.19 percent.

3.4 Export and import

Recent data related to India’s external sector showed that the trade deficit totaled USD 7.6 billion
in January, is seen a shortfall of say USD 7.9 billion deficit observed in the same month last
year. For the 12 months up to January, the trade deficit recorded USD 125.5 billion, which was
broadly unchanged from the 125.8 billion gap tallied in the 12 months up to December.
Import
Imports to India dropped 11 percent year-on-year to USD 28,710 million in January of 2016,
following a 3.88 percent fall in the previous month. While oil purchases slumped 39 percent,
gold imports surged 85.2 percent. Imports in India averaged 6564.39 USD Million from 1957
until 2015, reaching an all-time high of 45281.90 USD Million in May of 2011 and a record low
of 117.40 USD Million in August of 1958. Imports in India is reported by the Ministry of
Commerce and Industry, India.

India is heavily dependent on crude oil imports, with petroleum crude accounting for about 34
percent of the total inward shipments. The country also imports: gold and silver (12 percent of
the total imports), machinery (10 percent), electronic goods (7 percent) and pearls, precious and
semi-precious stones (5 percent). India’s main import partners are China (10.7 percent of the
total shipments), United Arab Emirates (8 percent), Saudi Arabia (7 percent), Switzerland (7
percent) and the United States (5 percent).
Exports

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Exports from India fell 13.6 percent to USD 21,080 million in January of 2016. It is the 14th
straight month of decline, as non-petroleum exports declined by 10.55 percent to USD 19,116
million. Exports in India averaged 4473.03 USD Million from 1957 until 2015, reaching an all-
time high of 30541.44 USD Million in March of 2013 and a record low of 59.01 USD Million in
June of 1958. Exports in India is reported by the Ministry of Commerce and Industry, India
In recent years, India has become one of the biggest refined product exporters in Asia with
petroleum accounting for around 20 percent of total exports. The country also exports:
engineering goods (19 percent of the total shipments), chemical and pharmaceutical products (14
percent), gems and jewelry (14 percent), agricultural and allied products (10 percent) and textiles
and clothing (10 percent). India’s main export partners are: United Arab Emirates (12.1 percent

of the total exports), the United States (12 percent), Singapore (4.5 percent), China (4.5 percent),
Hong Kong (4 percent) and Netherlands (3.5 percent).

4 Japan
After the World War II which ended in 1945 japan took a new start towards economic
reconstruction as a democratic state. With the help of highly educated and abundant labor force
they concentrated on key industries, such as electric power and steel. Due to this Japan was able
to achieve industrialization during 1950s and 1960s. Japan's industrial structure was transformed
from one centered on traditional "smokestack" industries to one focused on high-tech, electronic
industries. As a result, Japanese products have gained a reputation around the world for their
high quality, reasonable prices, and energy efficiency. In mid 1980s it also became a major
player in the global financial market.
Japans growth was due to investment in particular field
 Investment in manufacturing capacity was largely left to the private sector.
 Rising domestic saving made increasing capital accumulation.
 The growth was investment-led not export-led.
 At the household level, investing in education of children improved social capability.
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 At the firm level, creating internalized labour markets that bound firms to workers and
workers to firms, thereby giving workers a strong incentive to flexibly adapt to new
technology, improved social capability.
 At the government level, industrial policy that reduced the cost to private firms of
securing foreign technology enhanced social capacity.
GDP growth of japan for past five years
Gross Domestic Product (GDP) measures the market value of economic activities within a
country, in our case, Japan. It includes some non-market services such as government services
and imputed rents for owner-occupied dwellings, but it generally does not include unpaid
activities such as volunteer and unpaid housework.
Japan’s GDP was 475.7 trillion yen in 2012. Using the average USD/JPY rate of 79.8 for 2012, it
translates into 5.96 trillion USD, placing Japan as the third largest economy after U.S. (15.68
trillion USD) and China (8.22 trillion USD). Germany was the 4th largest with a GDP of 3.4
trillion USD. In Japan, private consumption accounts for 60.9% of its GDP, followed by
government consumption (20.5%) and private non-residential investment (13.4%). Exports and
imports account for 14.7% and 16.6% respectively.
Japan’s GDP has been on a declining trend since 1997 when it was 523.5 trillion yen. The
decline is due to low real growth (0.6% per year on average between 1997-2012) and outright
deflation (-1.2% per year on average between 1997-2012)

Years GDP (TRILLION Yen)


2011/Q1 471.3
2011/Q2 465.0
2011/Q3 475.3
2011/Q4 475.8
2012/Q1 480.8
2012/Q2 476.1
2012/Q3 472.8
2012/Q4 472.6
2013/Q1 476.6
2013/Q2 478.3
2013/Q3 481.4
2013/Q4 481.1
2014/Q1 487.6
2014/Q2 487.5
2014/Q3 484.0
2014/Q4 488.3
2015/Q1 498.1

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2015/Q2 497.9
2015/Q3 501.0
2015/Q4 499.8

GDP
510

500

490

480

470

460

450

440

GDP

4.1 Inflation Rate

To keep inflation in check, the Bank of Japan sharply raised inter-bank lending rates in late 1989.
This sharp policy caused the bursting of the bubble and the Japanese stock market crashed.
Equity and asset prices fell, leaving overly leveraged Japanese banks and insurance companies
with books full of bad debt. The financial institutions were bailed out through capital infusions
from the government, loans and cheap credit from the central bank, and the ability to postpone
the recognition of losses, ultimately turning them into zombie banks. Yalman Onaran of
Bloomberg News writing in Salon stated that the zombie banks were one of the reasons for the
following long stagnation. Additionally Michael Schuman of Time magazine noted that these
banks kept injecting new funds into unprofitable "zombie firms" to keep them afloat, arguing
that they were too big to fail. However, most of these companies were too debt-ridden to do
much more than survive on bail-out funds. Schuman believed that Japan's economy did not begin
to recover until this practice had ended.

Eventually, many of these failing firms became unsustainable, and a wave of consolidation took
place, resulting in four national banks in Japan. Many Japanese firms were burdened with heavy
debts, and it became very difficult to obtain credit. Many borrowers turned to sarakin (loan
sharks) for loans. As of 2012, the official interest rate was 0.1% the interest rate has remained
below 1% since 1994

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Years Inflation Rate
2011 -0.20
2012 -0.10
2013 1.67
2014 2.38
2015 0.19

Inflation Rate
3

2.5

1.5

0.5

0
2011 2012 2013 2014 2015
-0.5

Inflation Rate

4.2 Import and Export

Japan is the 5th largest importer and exporter in the world. Like many of the other Asian
countries that have experienced rapid economic growth in the past few decades, exports have had
a historical significance to the Japanese economy. The belief in the need to promote exports is
part of Japan's self-image as a "processing nation." Japan imports raw materials and pays for
them by processing the raw materials, thus adding value to them before exporting the output. In
recent years, Japan has been the top export market for 15 trading nations worldwide.

Japan is the 5th largest importer and exporter in the world. Like many of the other Asian
countries that have experienced rapid economic growth in the past few decades, exports have had
a historical significance to the Japanese economy. The belief in the need to promote exports is
part of Japan's self-image as a "processing nation." Japan imports raw materials and pays for
them by processing the raw materials, thus adding value to them before exporting the output. In
recent years, Japan has been the top export market for 15 trading nations worldwide.

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Primary exports - commodities: motor vehicles (13.6 percent); semiconductors (6.2 percent);
iron and steel products (5.5 percent); auto parts (4.6 percent); plastic materials (3.5 percent);
power generating machinery (3.5 percent)

Primary exports partners: China (19.7 percent of all exports), US (15.5 percent), South Korea (8
percent), Hong Kong (5.2 percent), Thailand (4.6 percent)

Primary imports - commodities: petroleum (15.5 percent of all imports); liquid natural gas (5.7
percent); clothing (3.9 percent); semiconductors (3.5 percent); coal (3.5 percent); audio and
visual apparatus (2.7 percent)

Primary imports partners: China (21.5 percent of total imports), US (8.9 percent), Australia (6.6
percent), Saudi Arabia (5.9 percent), UAE (5 percent), South Korea (4.7 percent)

Japan is also part of many trade agreements some of them are ASEAN, Japan-India Economic
Partnership agreement, Japan-China Economic Partnership agreement, Japan-Malaysia
Economic Partnership agreement, Japan-Switzerland Economic Partnership agreement, Japan-
Peru Economic Partnership agreement and has many trade agreements with many more
countries.

Year Import (Trillion Yen) Export (Trillion Yen)


2011/Q1 73.4 72.5
2011/Q2 68.3 74.9
2011/Q3 74.3 77.3
2011/Q4 70.6 77.7
2012/Q1 71.8 79.0
2012/Q2 72.0 80.5
2012/Q3 68.8 78.4
2012/Q4 67.5 78.6
2013/Q1 74.0 85.36
2013/Q2 78.1 89.2
2013/Q3 78.7 92.5
2013/Q4 79.4 97.5
2014/Q1 83.6 104.2
2014/Q2 83.5 97.4
2014/Q3 86.3 100.4
2014/Q4 92.0 103.8
2015/Q1 91.3 97.1
2015/Q2 87.9 93.8
2015/Q3 90.4 94.5
2015/Q4 87.4 90.7

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Import Export
120

100

80

60

40

20

Import Export

4.3 Effect of Japan on India

As India and Japan have Japan-India Comprehensive Economic Partnership Agreement Japans
economy effects Indian economy in a slight manner. The bilateral trade between the two
countries is worth $10.3 billion. As many as 9000 products ranging from steel and apparel to
drugs and machinery are traded between the two countries without duty or at substantially
reduced tariffs. Japanese exports to India mainly comprise vehicles and electronic goods while
Indian exports to Japan include oil, steel and jewellery.

Japan gives 30 per cent of its foreign aid to India and is committing more than US$ 4 billion to
the Delhi-Mumbai Industrial Corridor (DMIC). Indian exports to Japan were US$ 2812.83
million while imports from Japan were to the tune of US $ 4560.84 million. A recent survey of
over 600 Japanese companies indicated that 75 per cent looked upon India favourably as an
investment destination (compared to 72 per cent for China).

India stands to gain significantly through this Agreement and 90 percent of tariff lines are
covered while Japan has covered 95 percent of items traded. The Agreement has ensured that the
sensitive sectors for India are fully protected including agriculture, fruits, spices, wheat, basmati
rice, edible oils, wines and spirits and also certain categories of industrial products such as auto
and auto parts.

The liberal economic policy of India has enticed Japanese interest of corporations and as a result
the private sector investment in India has seen a dramatic increase and is expected to rise further.
Japanese steel industry too expressed optimism over the CEPA. Japan plans to export raw steel
sheets to India, where it will be finished for sale to Japanese carmakers and other customers.

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Japanese steel industry too expressed optimism over the CEPA. Japan plans to export raw steel
sheets to India, where it will be finished for sale to Japanese carmakers and other customers.

Ajay Seth, CFO, Maruti Suzuki India maintained that India-Japan CEPA will help felicitate more
global sourcing of auto components and open horizons for new products. Import of auto
components will become cheaper. Other advantages to work with Japan include world-class
information and communication technology (ICT) facility, a highly reliable logistic
infrastructure and other investor-friendly facilities.

Investment opportunities galore for Japan: The sectors that attract Japanese investment include
transportation (28 percent); telecommunications (18%), fuel (13.5%), chemicals (12.17 percent)
and trading (6 percent). So far as infrastructure back-up is concerned, the transportation network
is rated as one world's bests.

5 China
5.1 Overview of China’s economy

The market reforms in China initiated in 1978. Since that time China has shifted from centrally
planned economy to a market based economy & hence experienced rapid economic & social
development. China has a population of 1.3 billion & it has recently emerged as the second
largest economy & is increasingly becoming very much influential in the global economy. In
spite of these factors, China still remains a developing country. Records show that about 99
million people still lived below the national poverty line of RMB 2300 per year at the end of
2012. Poverty remains one fundamental challenge to eradicate, with China having the second
largest number of poor people in the world after India.

Rapid economic growth in China has led to several challenges as well which includes rapid
urbanization, high inequality among different sections of the society, challenges related to
sustainability of environment & external imbalances. China is also burdened with demographic
pressures related to ageing of the population & internal migration of labor.

In order to make China’s growth sustainable, significant policies need to be implemented. Trends
show that transitioning from middle income to high-income status is much more difficult than
ascending from low to middle income level.

12th Five Year Plan (2011-2015) significantly addresses the above mentioned issues. It
specifically highlights the development of services to address social & environmental
imbalances, setting up targets to reduce pollution, to improve access to education & healthcare,

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to increase efficiency of energy, & to expand social protection. China’s annual growth rate of
7.3% signals the intention to focus on improvement of quality of life rather than increasing the
pace of growth.

In 2015 the growth rate of China has shown a considerable decrease at 6.9%. Fears over slowing
momentum in China is combined with concerns over plunging oil prices & commodity process.
In the down turn, economy of China has diverged along two tracks, with the industries that
powered it for so long getting hit harder while services & household consumption power ahead.
The trend is to have greater reliance on consumption rather than investment in industry which the
government has tried to encourage. But according to the economists, as growth sputters further
more companies will get hit followed by increase in layoffs. With this gloomier scenario, the
government is under continuous efforts to increase deficit growth in order to generate growth.

5.2 GDP

The present GDP growth rate of China as January 2016 is 6.8%. GDP of China slowed slightly
growing 6.9% over the same period last year. This is considered as the weakest increase in
growth since the major economic slowdown in 2009. Additional data suggest that weakness in
investment and exports was partly offset by robust consumption growth and falling imports.
Urban fixed-asset investment, which includes capital and construction investment, expanded an
accumulated 10.3% in nominal terms in the first nine months of the year, which was down from
the 11.4% increase recorded in the first half of 2015. However, growth in nominal retail sales
increased considerably. On the external side of the economy, despite contracting exports, a
sizable drop in imports propelled a rise in the trade surplus in According to the production
approach, economic activity in 2015 moderated as a result of slightly-weaker growth in the all-
important industry, which recorded the weakest result since 2009. In contrast, growth in services
and agriculture picked up in the third quarter of 2015, highlighting that growth in China is
gradually swinging from the manufacturing sector to the service sector.

Based on the present economic conditions, the forecasted growth rate of China can be
understood by the following graph

17
Speculations are such that the present capita GDP growth rate of China at 8% will not last long
and there will be periods of extremely rapid growth which will eventually slowdown. For better
understanding we can decompose China’s GDP per capita relative to that of US into four
ingredients: - relative labor participation rate, relative average human capital, relative
capital/output ratio & relative total factor productivity. Out of the four factors, its China’s
relative total factor productivity that drives the boost in economy of China. China has always
been successful in achieving better productivity growth as compared to other countries. One
potential explanation for this is simply China’s backwardness at the start of economic reforms in
1978, which increased China’s potential for catch-up growth. China’s economy still has large
opportunities for raising productivity growth through reducing the still-existing distortions and
inefficiencies in its production. There are researches being conducted which shows that China’s
total factor productivity gains comes from eliminating cross-province dispersion in returns to
labour and also from eliminating within-province difference in returns to capital between the
state and the non-state sectors. While these potential efficiency gains are substantial, many
obstacles exist that may prevent these gains from being realized. Despite many years of financial
sector reforms, China’s banking sector is still dominated by the state-controlled banks that lend
disproportionately to local government projects and to firms in the state sector. Protected by
barriers to entry of private and foreign firms, state controlled firms continue to enjoy substantial
monopoly rights and profits in industries ranging from energy, transportation, and
telecommunication to banking, education, healthcare etc. Further Institutional change & policy
reforms will be needed if China is to maintain its productivity growth by reducing these
distortions.

5.3 Inflation rate & Consumer Price Index

The present inflation rate in China as on January 2016 is 2.3%, which has slightly increased from
1.6% as was recorded in December 2015. The CPI is calculated by using a product basket that
contains a predefined range of products & services on which the average consumer spends
money throughout the year. These include groceries, clothes, rent, power, telecommunication as

18
well as federal fees & taxes. The inflation rate is then calculated using the changes in CPI.
Among the main industrialized & developed economies of the world, China has displayed the
lowest inflation of emerging countries till 2013. The main reasons for inflation in China can be
contributed to Chinese government’s strict currency control that had depreciated the foreign
exchange rate of Yuan. The cheaper Chinese currency was one of the contributing factors to a
strong manufacturing and export business activity. But it also has its downside by making any
imported food and energy resources more expensive. China's unprecedented rate of development
have contributed to a strong demand pull inflation. Rampant consumerism coupled with a large
growing population will continue to drive the increase in consumer demand. This consumer led
demand in turn causes a corresponding increase in business activities and ultimately production
cost.

Based on these factors the analysts have forecasted the future inflation rate of China which is
shown as follows:-

According to analysts, the future inflation rate of China is estimated to stand at 2.60% in 12
months’ time. But in the long term, the rate is projected to trend around 4.5% in 2020. This
increase in inflation can be attributed to the devaluation of Chinese currency.

5.4 Poverty

Poverty exists around the world. It is prevalent in developing economies as well as in the modern
world. In China, there are series of circumstances leading to the current conditions.

 Rural-urban migration:-

19
For the first time in its history, China became an urbanized country in 2012. That means the
urban population (52%) is larger then it’s rural one. People are moving into urban centres at a
record pace in search of high-paying jobs. While this creates a substantial amount of poverty in
the cities with people taking underpaying jobs and increasing their cost of living substantially,
the most severe poverty is in the rural areas. That’s where the ones left behind (women, children,
and elderly) now struggle daily to survive.

 Education Gap:-
Education is widely accepted as a key to eliminating poverty. The Chinese government
recognized this in the 1980s and began a nine-year compulsory education system to cover kids
from ages 6-15. The system has had some success for urban children, but has created a large
divide between urban and rural students. Many of the urban students attend state-of-the-art
facilities to learn from outstanding teachers. Whereas rural children are exposed to substandard
education, poor material & deteriorating buildings. The rural children stands virtually no chance
when competing academically to their urban counterparts.

 Access to Healthcare:-
Healthcare suffers from a similar challenge. While it is also considered a basic right under the
Chinese constitution (along with education and social security), there is a disparity between
urban and rural. While the central government provides some funding, most of the funding
comes at the local government level. All of the administration comes from the local government.
For families in the rural areas, their local government often is underfunded, medical clinics are
few and far between, and the level of care is lacking.

 Agricultural Lifestyle:-
Over two-thirds of China’s rural population make their living from farming, forestry or fishing.
The poorer the household, the larger portion of income is derived from agricultural activities.
Farming in rural parts of China faces several challenges which include remote locations without
proper roads, poor transport facilities, unsafe drinking water, natural dry climate, lack of skilled
farmers.

5.5 Export & Import

After People’s Republic of China was formed in 1949, China adhered to the principle of
independence & self-reliance & gradually carried out economic & trade exchanges with other
countries. However, hindered by the international political environment, China’s foreign trade
development was relatively slow. But in 1978, China entered the new period of reform. --
China's total trade volume in goods ranks high globally. In 1978 the total value of China's import
and export was only 20.6 billion U.S. dollars, ranking 32nd in world trade and accounting for
less than 1 percent of the world's total. In 2010 the total value of China's import and export

20
reached 2.974 trillion U.S. dollars. By the end of 2010 China had been the world's largest
exporter and second-largest importer for two consecutive years.

The structure of China’s trade in goods has changed considerably. China’s export commodity
structure shifted from primary products dominated to manufactured goods dominated in
1980s.Whereas in 1990s trade shifted from light industrial & textile products to mainly
mechanical & electronic products.

In the present century, China’s export of high tech products led by electronics & IT
commodities,has been increasingly expanded.

The development of China's foreign trade has accelerated the modernization of the national
economy, enhanced the country's comprehensive strength, and improved the standard of living of
more than 1.3 billion Chinese people. It has also helped integrate the Chinese economy into the
world economy, and make economic globalization conducive to the common prosperity of all
countries and regions.

China's reform and opening up and its active participation in economic globalization have made
the country one of the world's fastest-growing economies. Over the past more than 10 years,
China, along with other emerging economies, has become an increasingly important force
propelling world economic growth. According to the World Bank, from 2001 to 2010, China's
GDP increased by 4.6 trillion U.S. dollars, representing 14.7 percent of the increase in the world
aggregate, and the share of China's GDP in the world rose to 9.3 percent over the same period.
Data from the WTO shows that from 2000 to 2009, the average annual growth rates of China's
exports and imports were 17 percent and 15 percent.

The following graph shows the trend in export import for the last 1 year. It shows the trade has
gradually increased but in 2016 there has been a sharp decline in the trading activities in China.
The sharp decline in trade can be attributed to the weak global demand.

21
5.6 Impact of China’s Economy on Indian Economy

"It is a worrying development as it will make imports from China cheaper and our products more
expensive." Minister Nirmala Sitharaman. The breakdown of Chinese economy has both
positive and negative impacts in the Indian economy.

China is the largest consumer of copper in the world consuming about 40% ,due to the brake
down of Chinese economy copper is trading at the lowest price in the past 6 years and aluminium
with new least price below the production cost of many Chinese companies . For a commodity
consumer country like India, it is an advantage as the cost of constructing new infrastructure,
especially smart cities, will come down. The oil prices were already falling with the global
slowdown and the possibility of US-Iran deal, China again pushed the price down. India a
country with large demand for oil, low oil prices helps in controlling its deficit and keeps
inflation under check. The volatile Chinese market can contribute more to the FDI in India and
grab the attention of the world and get transformed into major manufacturing hub , India can
attain cheaper Chinese funds in case the Chinese market don’t stabilise. Yuan devaluation should
have some impact on our exports as exports from China will be cheaper.

Devaluation of YUAN will hit Indian companies, from exports to China but will also make
Chinese products more competitive than Indian items such as man-made fibres, garments, gems
and jewellery, steel and organic chemicals in the international market. The devaluation of the
yuan will make China even more competitive, in the large export markets of India like the US
and the EU. Indian exporters are to pay duties in the US and the EU for shipping out textile
products and garments when many of our competitors have zero-duty access to such markets,
and China will make the situation worse for us. Also, Chinese imports will become expensive,
further hurting our export of cotton and yarn, China being the biggest buyer of Indian yarn and
cotton.
The slowdown of Chinese economy will reduce its share of imports. China is the main export
market for around 40 countries, low growth rate in China will reduce exports of these countries.
Around fifty percent of India’s exports go to the developing countries. When these developing
countries suffer a low export, their income will fall and can lead to reduced imports from India.
Even though India is not depending much on exports, it is critical to support growth. Exports
constitute around 15% of India’s GDP. Fall in exports will decrease India’s economic growth.
Thus the connection between Chinese growth decline and its impact on Indian economy occurs
through third parties.

Chinese market slowdown may not create a direct negative impact on Indian economy. This is
because Indian exports to China are not sizable. But in an indirect way, a slow growth of China
reduces exports of developing world and their low growth may reduce India’s exports and
economic growth.
22
India’s trade deficit with China pitched up from $1.1 billion in 2003-04 to $48.4 billion in 2014-
15, greater than four times India’s exports to China ($11.9 billion) in the fiscal. 35% of India’s
overall trade deficit of $137.4 billion in the last year was to China. The devaluation of Yuan will
lead to higher imports from China ($60.4 billion last fiscal) and increase India’s trade deficit
further.

Indian government should be ready with policy reforms and plans to protect the domestic trade
as the devaluation of Yuan can cause a further dumping of Chinese products in India threatening
the domestic manufactures.

6 United States of America


6.1 US GDP

This graph shows the annual growth rate of the Real Gross Domestic Product of the United
States from 1990 to 2015. Gross domestic product (GDP) refers to the market value of all final
goods and services produced within a country in a given period. The Real GDP is adjusted for
price changes, as inflation or deflation and is chained to the U.S. dollar value of 2009. The Real
GDP increased by 2.4 percent in 2015. According to the BEA, the deceleration in real GDP in
2011 primarily reflected downturns in private inventory investment and in federal government
spending and a deceleration in exports that were partly offset by a deceleration in imports and an
acceleration in non-residential fixed investment. The annual GDP in current U.S. dollars can be

23
found here. A projection of the annual inflation rate of the country can be accessed here. Also,
see the US GDP for further information. Current GDP is $16.77 trillion.

Factors Affecting U.S GDP


1. Human Resources
2. Natural Resources
3. Capital formation
4. Technological development
5. Social and Political Factors

6.2 US Economy affecting Global Economy

US dollar is being used in most of the international transactions, so it stands to reason that any
changes that happens in the US economy will affect the global economy in a substantial way.
One of the most rapidly growing and changing sector of the US economy involves with the trade
of other nation. In the recent decade the amount of good and services imported and exported by
the US has increased. U.S being the world’s largest economy and highest importer and exporter
of goods and services have a major impact on the global economy. One of the greatest ways the
US affects the world’s economy, though, is its buying power. The gas prices going up and the
dollar not worth as much as it used to be. The United Nation has one of the largest and most

24
influential financial markets in the world, The New York Stock Exchange is the world’s largest
exchange by market capitalization.

United States contribution to world GDP

USA ranks 1st in largest economies by nominal GDP

https://en.wikipedia.org/wiki/World_economy

25
6.3 US Inflation

The chart, graph and table below displays annual US inflation rates for calendar years 2006-
2016. Rates of inflation are calculated using the current Consumer published monthly by the
Bureau of Labour Statistics (BLS).

Factors Affecting Inflation

1. Drop in oil prices, has led directly lower inflation as it feeds through lower gasoline and
other energy items.

Monthly unemployment rate in the United States from February 2015 to February 2016
According to the Bureau of labour Statistics—the principle fact-finding agency for the U.S.
Federal Government in labour economics and statistics—unemployment declined during 2010 to
2014. Unemployment fell from 8.10 percent in July 2012 to 6.20 percent in July 2014.
Unemployment also declined in the year 2014, down from a peak unemployment rate of 9.60
percent in 2010 to an annual unemployment rate of 6.20 percent in the year 2014.

Additional statistics from the BLS paint an interesting picture of unemployment in the United
States. In July 2015, the state was West Virginia with 7.5 percent unemployment rate. Nevada
was followed by Louisiana and Mississippi. Unemployment was lowest in Nebraska at 2.70
percent. Workers in the mining and related industry suffered the highest unemployment rate by
industry (at 8 percent) as of August 2015 (not seasonally adjusted), followed by workers in the
Leisure and hospitality industry (7.20 percent). Youth unemployment (individuals between 16
and 24 years of age) had a seasonally adjusted unemployment rate of 11.0 percent in August
2015. More men than women were unemployed in 2014. Unemployment for men was at 7.1
percent and unemployment for women was at 6.6 percent in March 2014.

26
Factors affecting unemployment
1. Government policies
2. Education
3. Economic factors

6.4 Poverty rate in the United States from 1990 to 2014


This graph shows the poverty rate in the United States among all people from 1990 to 2014. 11.3
percent of the population were living below the poverty line in 2000. In 2014, the poverty rate
was 14.8 percent in the U.S.

The United Nations Educational, Scientific and Cultural Organization (UNESCO) defines
poverty as follows: “Absolute poverty measures poverty in relation to the amount of money
necessary to meet basic needs such as food, clothing, and shelter. The concept of absolute
poverty is not concerned with broader quality of life issues or with the overall level of inequality
in society.”

The poverty rate in the United States varies widely across different ethnic groups. Black
Americans are the ethnic group with the most people living in poverty in 2012, with an amount
of 27.2 percent of the Black population with an income below the poverty line. In comparison to
that, only 9.7 percent of the White (non-Hispanic) population, were living below the poverty line
in 2012.

27
Children are one of the most poverty endangered population groups in the U.S. Between 1990
and 2012, child poverty peaked in 1993 with 22.7 percent of the children living in poverty in that
year in the United States. Since 2000, the child poverty rate in the United States has been
significantly increasing every year, from 16.2 percent in 2000 to 21.8 percent in 2012.
The Bureau of Labour Statistics shows that, in year 2009, 34.3 percent of older adults with a
poor health status were living near poverty.

The number of people living in poverty in the U.S. varies from state to state. Compared to
California, where about 16 percent of the population were living in poverty in 2012 (about 6
million citizens), the state of Wyoming is doing rather well with a poverty rate of roughly 10
percent (about 55.000 citizens)

Factors Affecting Poverty


1. Technology
2. Lack of affordable housing
3. Drug Use – 20% of poverty
4. Lack of Education
5. Medical Expenses

6.5 Import and Export

What does U.S export?


28
1. Material goods – commercial aircraft, semiconductors, medical equipment,
telecommunication etc.
2. Industrial supplies – chemicals, petroleum products etc.
3. Consumer goods – pharmaceuticals, cell phones, gem diamonds etc.
4. Automobiles
5. Food, Feed and Beverages
6. Services – financial services, government and military contracts, travel passenger service

What does U.S Import?


1. Consumer goods
2. Food and feeds
3. Automotive
4. Services
Factors Affecting International Trade
1. Impact of Inflation
2. Impact of National Income
3. Impact of Government policies
4. Subsidies on exports
5. Restriction on imports
6. Impact on exchange rates

6.6 Future of Economic Growth in USA

1. American Jobs Act – Few set of ideas supported by Democrats and Republicans that will
send people back to work and bring more earnings. This act is important because to get the
economy moving and creating jobs at a pace and also to help with reduction of deficit since a
growing economy is a vital part to reducing deficits and debts.
2. To invest in the things that will boost the economic growth for decades: education,
innovation, clean energy, and infrastructure. This requires a balanced approach to deficit
reduction by asking the citizens to pay their share and to draw saving in the budget. New
president’s proposal of $580 billion in cuts and reforms to a broad range of mandatory
programmes from cuts to agricultural subsidies that is no longer necessary to reform of the
Pension Benefit Guaranty Corporation and modest changes to federal civilian worker
retirement and health benefits for military retirees.
3. Affordable Care Act: the proposals made in this act will save $248 billion in Medicare and
$72 billion in Medicaid and various other health programmes over 10 years.

4. Few other reforms are

 Lower tax rates

29
 Cut wasteful Loopholes and tax breaks
 Reduce the Deficit by $1.5 trillion
 Comport with the “Buffett Rule” that people making more than $1 million a year
should not pay a smaller share of their income in taxes than middle-class families’
pay.

6.7 Impact of US Economy on India

Ever since Standard & Poor’s announced a downgrade in the US sovereign rating, predictions
have been flying thick and fast on whether India will benefit or suffer from the latest turn of
events. A look back at the start of the crisis clearly indicates that India, being largely
domestically driven, is in large part insulated from the global crisis even with a temporary hit to
growth.
Various aspects of the economy will react differently to the ongoing US crisis and continued
sluggishness in growth, which will be further exacerbated by the cutback in government
spending and now the S&P downgrade. This could mean lower investments in the economy.
In this post, the 10 most important trends arising from this global trend have been analysed.
Overall growth is expected to remain largely neutral to the current play of events over the
medium term (next one year), as the negatives play off the positives, barring further negative
developments. The positives are largely on the domestic economy front. Commodity price
pressures are likely to ease, thus impacting inflation beneficially, and interest rates and credit
growth as a result.. AFP
The case for foreign direct investment (FDI) remains strong, resulting in an appreciation bias for
the rupee. On the negative side, foreign institutional investor (FII) flows could remain choppy
and exports might take a hit. Indian companies might not be enthusiastic about overseas
acquisitions.
#1. GDP growth: The global recession, which started in 2008, saw India report slower than
trend growth rate of 6.8 percent, and it was quickly back up to 7.4 percent the following year.
This time around, the ensuing crisis is less of a shock since no one was betting on global growth.
And unlike a lack of history the first time around, the economy's resilience may make a stronger
case for investments. In fact, barring any more significantly untoward global economic

30
occurrences, the negatives and positives (explained below) should cancel each other out, making
the Indian economy largely neutral to the US downgrade.
#2. Inflation: Commodity prices, barring precious metals like gold and silver, have been under
severe pressure since the downgrade. The Reuters-Jefferies CRB commodities index is down to
its lowest since December 2010 on global growth fears. This could bode well for India's inflation
which has been dangerously close to a double-digit figure for almost one year now. Fuel alone
accounts for over 15 percent of the headline inflation index (Wholesale Price Index), and already
there is talk of cutting fuel prices as crude edges lower.
#3. Interest rates: The Reserve Bank of India (RBI) has tightened policy 14 times since
February 2010 owing to high inflation. However, with an expected decline in inflation over the
short to medium term, we can reasonably expect the RBI to slow down the interest rate hike
cycle, more so since there are already signs of a slowing in industrial growth.
#4. Credit growth: Since credit growth is at the heart of monetary policy transmission, a
slowdown in interest rate hikes augurs well for it. Some softening in credit growth to 19.9
percent as of mid-July in comparison with 21.3 percent for the corresponding period of the
previous year is visible. Added to this is the fact that the impact of the last few rate hikes will
play out over the next 3-6 months. A decline in inflation and, hence, an easing of the interest rate
hike cycle, could keep credit growth healthy.
#5. Exports: The US economy is one of the largest destinations for Indian goods' exports, with
an almost 11 percent share. It also has a substantial share in services exports. A continued
decline of the US economy does not bode well for India, partly because of the direct effect, but
also because export-led Asian economies will also be impacted by it, a number of which are
among India's top trading partners.
#6. Imports: Continued domestic strength has resulted in a healthy 36 percent growth in imports
for the first quarter of 2011-12 and the negative trade balance has increased to about $ 32 billion
in comparison with $ 27 billion during the same time last year. With an expected decline in
exports, a fall in crude price is a welcome development for India's import and trade balances,
since oil imports account for about a third of India's total imports.
#7. FDI Inflows: With the US no longer looking like a safe haven for investments, a surge in
global liquidity created by quantitative easing and continued expectations of resilient

31
performance by the Indian economy, FDI inflows could be impacted positively. An indication of
this is visible in the fact that FDI inflows surged by 133 percent in the first quarter of 2011-12 to
$ 13.4 billionn.
#8. Outbound FDI: The downgrade of the US economy will only consolidate the declining
trend in outbound investments from India. The ongoing softness in advanced economies is seen
as a key reason for India's outbound investments declining by 33 percent for the April-July
period. With no resolution to the global weakness and some expected softening in the domestic
economy, investments could stay away from any aggressive overseas investments.
#9. FII inflows: Risk aversion is always negative for the equity markets, and this time is no
exception. Despite the fact that India Inc has shown decent earnings recently, a downbeat global
mood is expected to lend volatility to equity markets in the short-term at least. While some of the
blow could be cushioned by a strong growth story for India - in July alone FIIs have invested
US$ 1.8 bn in India - FII flows could retain a risk to the downside over the coming months, even
with bouts of buying interest.
#10. USD/INR: It has been argued earlier as well that the US$/rupee exchange rate has
an appreciation bias. Over the medium term, continued strength in FDI inflows, slowing FDI
outflows and declining crude prices are likely to keep the bias intact. However, volatile FII flows
could keep the appreciation trajectory from being smooth.
In sum, it will be some time before the clouds clear and the real picture emerges, but for now the
risks for India look balanced with the positives.

7 United Kingdom
7.1 Economic Forecast

The United Kingdom is the sixth largest economy in the world and the second largest in Europe
after Germany. The Services sector is the most important and accounts for 79 percent to total
GDP. The biggest segments within Services are: government, education and health (19 percent
of total GDP); real estate (12 percent); professional, scientific and technical activities and
administrative and support services (12 percent); wholesale and retail trade (11 percent); and
financial and insurance (8 percent). Industry accounts for 21 percent of the GDP and the largest
segments within this sector are: manufacturing (10 percent of total GDP) and construction (6
percent). The Agriculture sector accounts for only 1 percent of GDP.

32
Driven by domestic demand economic growth is projected to be continued at a robust pace over
the coming two years. Even though the housing supply is edging up the house prices have
continued to rise. Unemployment rate has been stabilised at around 5.5% and recently wage
growth has picked up. The trade deficit has remained contained, but weak global trade and past
currency appreciation are holding back exports. Inflation is expected to increase towards the 2%
inflation target as pressures on capacity emerge.
There is a projection that the Bank of England will began to raise its policy rate early in 2016
and then gradually it will increase in 2017. The pace of fiscal consolidation has appropriately
been smoothed to around 1% of GDP per year and now involves smaller reductions in spending
on public services than earlier planned

Overview Actual Q1/16 Q2/16 Q3/16 Q4/16 2020


GDP Growth 0.50 0.5 0.6 0.5 0.4 0.5
Rate

Inflation Rate 0.30 0.4 0.6 0.8 1 2.5


CPI 99.55 129 130 100 100 101
Employment 74.10 74.42 74.63 74.81 74.97 75.84
Rate

Import 44510 44543 44553 44554 44554 44554


Export 41801 41760 41767 41767 41767 41767

7.2 GDP Growth Rate


United Kingdom GDP is growing at a rate of 0.5% annual. Manufacturing and construction
sectors falter as Brexit fears, market turmoil, falling oil prices are the main reasons for the slow
GDP growth rate. Bretain economy picked up pace at the end of 2015 but GDP growth for the
year as a whole was down markedly as both the manufacturing and construction sectors
struggled with an uncertain outlook.

7.3 Inflation Rate


The end of the first quarter of 2016 inflation rate is expected to be 0.4 percent in UK. Further the
inflation rate expected to stand somewhat near 1.00 by the end of 2016. In the long run by 2020
inflation rate in United Kingdom is expected to trend around 2.5. Some of the fast growing
countries providing a boost to UK exports overseas and this leads to an extra flow of the income
and spending in the UK. So what is happening to the economic cycle of pther countries definitely
affecting the UK.

33
7.4 Exports and Imports

Exports and Imports of the United Kingdom are predicted to remain almost on the same position
from first quarter of 2016 to 2020. Imports in the first quarter of 2016 is predicted around 44510
and for 2020 it will be around 44554. For export the prediction for the first quarter of 2016 is
41810 and for 2020 it is 41767.
Primary exports commodities of United Kingdom are fuels, chemicals, food, beverages and
tobacco.
Primary imports commodities are machinery and foodstuffs

7.5 United Kindom- Economic Forecast

Overview Actual Q1/16 Q2/16 Q3/16 Q4/16 2020


GDP Growth Rate 0.50 0.5 0.6 0.5 0.4 0.5 percent [
Unemployment Rate 5.10 4.9 4.7 4.5 4.4 6.3 percent [
Inflation Rate 0.30 0.4 0.6 0.8 1 2.5 percent [
Interest Rate 0.50 0.5 0.5 0.5 0.75 2.5 percent [
Balance of Trade -2709.00 -3150 -3092 -3064 -3060 -3062 GBP Mn. [
Government Debt to GDP 88.60 90.04 89.02 87.99 86.97 84.9 percent [
Markets Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Currency 1.42 1.45 1.42 1.4 1.39 1.75 [
Stock Market 6135.70 5770 5590 5410 5300 7360 points [
Government Bond 10Y 1.46 1.86 1.91 2 2.09 2.73 percent [
GDP Actual Q1/16 Q2/16 Q3/16 Q4/16 2020

GDP Growth Rate 0.50 0.5 0.6 0.5 0.4 0.5 percent [
GDP Annual Growth Rate 1.90 2.2 2.6 2.4 2.5 1.9 percent [
GDP 2988.89 3110 3110 3110 3117 3102 USD Bn [
GDP Constant Prices 450239.00 452183 454298 456494 458770 498837 GBP Mn. [
Gross National Product 464785.00 469028 472569 476089 479598 535766 GBP Mn. [
Gross Fixed Capital Formation 77043.00 77823 78213 78268 78531 83272 GBP Mn. [
GDP per capita 40967.70 40971 41183 41395 41608 44334 USD [

34
Overview Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
GDP per capita PPP 37613.54 37579 37595 37611 37628 34364 USD [
GDP From Agriculture 2953.00 2955 2955 2956 2956 2956 GBP Mn.. [
GDP From Construction 24333.00 24352 24334 24308 24310 24301 GBP Mn [
GDP From Manufacturing 38624.00 38614 38673 38694 38718 38710 GBP Mn. [
GDP From Mining 7815.00 7918 7978 7972 8009 8292 GBP Mn. [
GDP From Public 18788.00 18748 18688 18625 18591 18390 GBP Mn. [
Administration
GDP From Services 320602.00 322536 324371 326088 327755 351808 GBP Mn. [
GDP From Transport 17664.00 17663 17660 17642 17642 17628 GBP Million [
Labour Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Unemployment Rate 5.10 4.9 4.7 4.5 4.4 6.3 percent [
Employed Persons 30215.00 30195 30463 30548 30621 31108 Thousand [
Unemployed Persons 760.20 757 746 673 647 465 Thousand [
Part Time Employment 8433.00 8456 8282 8142 8462 8462 Thousand [
Full Time Employment 22984.00 23091 23164 23226 23279 23920 Thousand [
Claimant Count Change -14.80 -14.88 -15.93 -16.41 -16.55 -16.59 Thousand [
Employment Rate 74.10 74.42 74.63 74.81 74.97 75.84 percent [
Labor Force Participation Rate 78.20 78.31 78.36 78.39 78.41 78.44 percent [
Long Term Unemployment Rate 1.50 1.9 1.8 1.7 1.9 2 percent [
Youth Unemployment Rate 13.40 12.71 13.1 12.01 11.75 10.66 percent [
Labour Costs 101.50 101 101 102 102 106 IndexPoints [
Productivity 102.20 102 103 103 103 103 IndexPoints [
Job Vacancies 776.00 753 732 832 844 874 Thousand [
Wages 496.00 498 500 502 505 539 GBP/Week [
Wage Growth 2.00 2.45 2.44 2.52 2.6 3.09 percent [
Wages in Manufacturing 577.00 579 582 584 587 624 GBP/Week [
Minimum Wages 6.70 6.7 7.2 7.2 7.2 9 GBP/Hour [
Population 64.77 64.65 64.91 65.17 65.43 68.71 Million [

35
Overview Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Retirement Age Women 62.33 62.33 62.33 62.33 62.33 62.33 [
Retirement Age Men 65.00 65 65 65 65 65 [
Wages Low Skilled 1200.00 1200 1200 1200 1200 1200 GBP/ [
Month

Wages High Skilled 2080.00 2089 2098 2106 2114 2179 GBP/ [
Month

Average Weekly Hours 32.20 32.1 32.09 32.11 32.11 32.1 Hours [
Employment Change 0.60 0.27 0.48 0.29 0.37 0.35 Percent [
Prices Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Inflation Rate 0.30 0.4 0.6 0.8 1 2.5 Percent [
Inflation Rate Mom -0.80 0.2 -0.04 0.1 0.3 0.5 Percent [
Harmonised Consumer Prices 99.55 99.69 99.86 99.89 99.94 101 IndexPoints [
Consumer Price Index CPI 99.55 129 130 100 100 101 IndexPoints [
Core Consumer Prices 100.02 122 122 123 102 107 IndexPoints [
Core Inflation Rate 1.20 1.1 1.21 1.21 1.21 1.21 Percent [
GDP Deflator 103.89 104 104 104 104 104 IndexPoints [
Producer Prices Change -1.00 -0.8 -0.5 0.3 0.2 1.5 Percent [
Export Prices 87.90 87.97 87.91 87.89 87.9 87.9 IndexPoints [
Import Prices 88.50 88.03 87.61 87.25 86.95 85.42 IndexPoints [
Food Inflation -2.60 -1.5 -1 -0.5 -0.2 1.5 Percent [
Producer Prices 105.50 107 107 107 108 119 IndexPoints [
Money Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Interest Rate 0.50 0.5 0.5 0.5 0.75 2.5 Percent [
Interbank Rate 0.58 0.55 0.8 0.78 0.99 4.57 Percent [
Money Supply M0 75132.00 75069 76063 77076 78106 97207 GBP Mn [
Money Supply M1 1475833.00 1494700 1526780 1560059 1594567 2341680 GBP Mn [
Money Supply M2 1586756.00 1602393 1626048 1650217 1674904 2144495 GBP Mn [
Money Supply M3 2408314.00 2383352 2392882 2402531 2412296 2582280 GBP Mn [

36
Overview Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Banks Balance Sheet 3388307.00 3372284 3354818 3337656 3320784 3078008 GBP Mn [
Central Bank Balance Sheet 405132.00 404815 404815 404815 404815 404815 GBP Mn [
Foreign Exchange Reserves 134342.80 135733 138283 140531 142729 175340 USD Mn [
Loans to Private Sector 2153515.00 2158245 2162855 2165493 2165355 2177522 GBP Mn [
Deposit Interest Rate 0.00 3.97 3.97 3.96 3.96 4.13 Percent [
Trade Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Balance of Trade -2709.00 -3150 -3092 -3064 -3060 -3062 GBP Mn [
Exports 41801.00 41760 41767 41767 41767 41767 GBP Mn [
Imports 44510.00 44543 44553 44554 44554 44554 GBP Mn [
Current Account -17457.00 -18730 -18519 -18199 -17817 -14467 GBP Mn [
Current Account to GDP -5.00 -4.68 -4.95 -5.23 -5.51 -5.49 Percent [
External Debt -348783.00 -343276 -345329 -341958 -343605 -343522 GBP Mn [
Terms of Trade 99.30 98.94 98.93 98.94 98.94 98.94 Index Points [
Foreign Direct Investment 22369.00 13864 2954 14453 11418 11627 GBP Mn [
Capital Flows 26602.00 16797 14234 22665 22251 19359 GBP Mn [
Gold Reserves 310.29 310 310 310 310 310 Tonnes [
Crude Oil Production 978.00 691 683 701 700 699 BBL/D/1K [
Terrorism Index 5.61 5.61 5.61 5.61 5.61 5.61 [
Government Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Government Debt to GDP 88.60 90.04 89.02 87.99 86.97 84.9 Percent [
Government Budget -4.40 -3.7 -3.7 -4.55 -4.09 -1.23 percent [
of GDP

Government Budget Value -24919.00 11757 12567 7789 6716 2036 GBP Mn [
Government Spending 91353.00 91647 92054 92425 92777 97769 GBP Mn [
Government Spending to GDP 44.40 43.77 43.97 44.17 44.37 45.65 Percent [
Government Debt 11813.00 -13233 -8064 -7981 -6856 -5909 GBP Mn [
Asylum Applications 3295.00 3305 3283 3311 3318 3315 Persons [
Business Actual Q1/16 Q2/16 Q3/16 Q4/16 2020

37
Overview Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Business Confidence -4.00 -15 5.28 0.02 -1.85 -1.61 [
Manufacturing PMI 50.80 50.6 51 51.5 50.9 53.1 [
Services PMI 52.70 55.6 53.7 53.8 55.4 54.1 IndexPoints [
Industrial Production 0.20 -0.52 -0.85 -1.34 -0.61 -0.17 Percent [
Industrial Production Mom 0.30 -0.15 -0.05 -0.04 -0.04 -0.04 Percent [
Manufacturing Production -0.10 0.5 1.56 7.04 8.66 17.98 Percent [
Capacity Utilization 80.30 79.69 80.07 80.05 80.03 80.08 Percent [
New Orders 12593.00 12569 12497 12547 12516 12527 GBP Mn [
Factory Orders -15.00 -9.96 -11.17 -11.63 -11.8 -11.87 NetBalance [
Changes in Inventories 3577.00 3606 420 445 1384 286 GBP Mn [
Bankruptcies 3495.00 3396 3353 3283 3289 3245 Companies [
Corporate Profits 100023.00 102952 101833 104119 103770 114260 GBP Mn [
Zew Economic Sentiment Index -11.60 -15.24 -20.63 -21.67 -22.15 -22.22 [
Car Production 137552.00 137741 134514 131678 130757 131278 Units [
Car Registrations 83395.00 220768 199808 214634 213701 213317 Cars [
Small Business Sentiment -5.00 1.18 12.18 -1 -2.87 -2.79 [
Steel Production 656.00 808 782 788 787 787 Thosand [
Tonnes

Mining Production -1.10 3.65 1.88 9.08 9.05 9.04 Percent [


Competitiveness Index 5.43 5.45 5.45 5.45 5.45 5.42 Points [
Competitiveness Rank 10.00 10.49 10.49 10.49 10.49 13.76 [
Corruption Index 81.00 79.94 80.29 80.65 81.01 85.72 Points [
Corruption Rank 10.00 9.29 9.3 9.3 9.31 8.03 [
Ease of Doing Business 6.00 7.29 7.29 7.29 7.29 8.28 [
Electricity Production 30426.00 28530 26136 27735 28976 27947 Gigawatt- [
Hour

Consumer Actual Q1/16 Q2/16 Q3/16 Q4/16 2020


Consumer Confidence 0.00 3 2 4 0.67 0.67 [

38
Overview Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Retail Sales MoM 2.30 0.14 0.32 0.33 0.33 0.33 Percent [
Retail Sales YoY 5.20 3.72 3.79 3.66 3.51 2.75 Percent [
Consumer Spending 293833.00 295730 297422 298976 300376 311106 GBP Mn [
Disposable Personal Income 292626.00 296122 298178 300608 302936 342708 GBP Mn [
Personal Savings 4.40 4.42 4.46 4.43 4.45 4.44 Percent [
Bank Lending Rate 1.50 1.75 1.75 1.5 1.5 1.5 Percent [
Households Debt To Gdp 86.40 84.16 83.65 83.17 82.71 77.31 percent [
of GDP

Households Debt To Income 126.60 126 126 127 127 125 percent [

Consumer Credit 1564.00 1359 1371 1374 1374 1374 GBP Mn [


Gasoline Prices 1.42 1.41 1.44 1.46 1.45 1.72 USD/Liter [
Housing Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Housing Starts 31000.00 40991 37745 37153 33478 36611 [
Construction Output 0.50 0.7 1.58 1.16 0.96 0.7 Percent [
Housing Index 678.03 683 693 701 707 737 IndexPoints [
Mortgage Approvals 74.60 75.53 75.46 75.52 75.47 75.49 Thousand [
Home Ownership Rate 64.80 64.5 64.5 64.5 65 65.05 percent [
Construction Pmi 54.20 53.78 55.68 53.68 53.67 53.67 [
Taxes Actual Q1/16 Q2/16 Q3/16 Q4/16 2020
Corporate Tax Rate 20.00 20 20 20 20 20 percent [
Personal Income Tax Rate 45.00 45 45 45 45 45 percent [
Sales Tax Rate 20.00 20 20 20 20 20 percent [
Social Security Rate 25.80 25.8 25.8 25.8 25.8 25.8 percent [
Social Security Rate For 13.80 13.8 13.8 13.8 13.8 13.8 percent [
Companies
Social Security Rate For 12.00 12 12 12 12 12 Percent [
Employees

39
Overview Actual Q1/16 Q2/16 Q3/16 Q4/16 2020

7.6 Future of United Kingdom With respect to Growth

United Kingdom will be the fifth largest economy of the world by 2020. Younger workforce and
flexible labor market will help UK to go ahead of France as the fifth largest economy before the
end of the decade. PwC said rapid employment growth and the robust performance of the UK
economy over the past year meant Britain was on course to become the second largest economy
in the European Union by 2020, behind Germany.

7.7 Relation of UK and Indian Economy

Developed in collaboration with the Confederation of Indian Industry (CII) the Tracker, which
monitors fast-growth Indian businesses operating in the UK*, shows that these businesses
combined turnover has increased by £3billion in the last year, up from £19billion in 2014 to
£22billion in 2015

UK job creation is also being driven by the successes of Indian businesses in the market. Since
last year's India Tracker the number of Indian companies employing people in Britain has
increased by 14% (from 700 to 800). The total number of people in the UK employed by Indian
companies has increased by 10% (from 100,000 last year to nearly 110,000).

The true value of Indian companies doing business in the UK is highlighted by Grant Thornton's
analysis of tax contributions from Indian companies. The research shows that Indian-owned
companies pay combined UK corporate tax of almost half a billion pounds - but the total value of
tax contributions is considerably higher when additional taxes such as payroll and sales tax are
taken into account.

"The Indian economy appears to be gathering pace as the Modi Government tries to ‘walk the
talk’ on key reforms. Its pro-business stance will further encourage many Indian businesses to
pursue their global ambitions and Indian investment in the UK is likely to continue to grow as a
result.

“This year we expect outbound M&A deals from India to the UK to benefit from a combination
of stable government, significant reforms and falling commodity prices. All of this should
continue to drive deal activity across all sectors
“Indian companies are making tremendous progress in UK, as evidenced by the fact that India
invests more in the UK than the rest of the EU combined. We can see Indian companies picking

40
up pace in business activity, as they are now actively scouting for opportunities here. In fact, this
has led CII to launch a “RoadtripUK” initiative, renewing its resolve to take business delegations
into strongly emerging regions of England, as well to Scotland, Wales and Northern Ireland

8 Future of Global economy-2020


According to the article by AT Kearney Global Business Policy Council on Global Economic
Outlook 2015-2020-Beyond the new mediocre?
According to this article, the global economy has been transitioning from the Great recession to a
period of more stable growth. IMF director expressed in 2014 that global economy is in a new
mediocre phase where in the economics are muddling through with sub-par growth rates. The
annual global growth for 2015-2020 is expected to be 3 to 4 percent. This might seem like a
sustained growth rate than that the global has enjoyed till date but still it does not represent the
robust recovery from the lost output during the 2008-2013 period. This includes both bright spots
and stagnant markets wherein it considers US returning sustainable growth, Europe in the verge
of addressing the core sources for its ongoing financial and economic fragility and Japan’s
economic depending on the government’s undertaking of structural reforms.
It is important to understand that the global economic development is dependent on the
commodity markets in 2000s wherein the oil price dropped from $13 in 2008 to $86 in 2014 per
barrel and is expected to remain below $100 per barrel at least till 2020 (according to IMF). This
fall in global oil and other commodity prices would provide a boost to global growth as the
consumers will have more spending power and thus aggregate demand should increase.

Also, lower commodity input prices for a variety of manufacturing and agricultural producers
will also boost growth in those industries. While such trends would be positive for commodity
importers including Eurozone, Japan and other emerging markets. This trend can have negative
fiscal and growth implications for key commodity exporters including Russia, Venezuela, Iran
and several American economies and Sub-Saharan African economies.

41
The article also refers that US would recover from the turmoil as its vast size and importance in
the global economy will act as a significant source in the growth in the coming years. Along with
US, emerging markets are projected to outperform their peers and play a significant role in the
world economy through 2020. This would result in next wave of growth not only from US
recovery but also from seven emerging markets called the 2020 seven they are China, Malaysia,
Chile, Poland, Peru, Mexico and Philippines.

To determine which of the emerging markets are likely to drive investment opportunities and
growth between 2015-2010, the A.T. Kearney Global Business Policy Council (GBPC) analyzed
25 largest emerging markets which were measured based on the size of economy, economic
performance, economic resilience, economic imbalance, labor force, infrastructure, regulations
and governance, reform status and growth rate. This analysis was no just based on the GDP
comparison and related economic forecast which are volatile but based on the structural factors
that position markets to withstand the unforeseen economic shocks and foster longer-term
economic growth and stability. They also analyzed two policy factors i.e., how regulations and
governance affect economic activity and the status of needed structural economic reforms.

42
9 Reference
http://statisticstimes.com/economy/gdp-growth-of-india.php
http://indiabudget.nic.in/ub2016-17/frbm/frbm1.pdf
http://www.tradingeconomics.com/india/inflation-cpi
http://www.focus-economics.com/country-indicator/india/exports-percent
http://www.tradingeconomics.com/india/imports
http://www.tradingeconomics.com/india/export
http://www.atkearney.in/documents/10192/5498252/Global+Economic+Outlook+2015-2020--
Beyond+the+New+Mediocre.pdf/5c5c8945-00cc-4a4f-a04f-adef094e90b8
http://www.japanmacroadvisors.com/public/uploads/ckImages/images/img(99).png
http://www.china-embassy.org/eng/zt/bps/t943740.htm
http://projectpartner.org/poverty/5-causes-poverty-china/
http://www.statista.com/statistics/270338/inflation-rate-in-china/
http://www.tradingeconomics.com/china/gdp-growth-annual
http://www.thehindu.com/business/Economy/chinas-economic-slowdown-adversely-affected-
india-says-rbi-governor-raghuram-rajan/article7903518.ece
http://hubpages.com/education/China-Inflation
http://www.tradingeconomics.com/china/gdp-growth-annual.
http://www.statista.com

www.economist.com

http://www.usinflationcalculator.com

www.economicsdiscussion.ne

http://smallbusiness.chron.com/

http://www.pursuegod.org/

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