INDIAN

ECONOMY
MACRO-ECONOMIC
TURNAROUND
GROUP - 07
So, What
is
this
all about?
SUMMARY:

 The Case details about the economic reforms that India went through over the
past 25 years and how it has claimed to become one of the fastest growing
economies in the world .

 What elements constituted this turnaround ?

 How strong was the turnaround story ?

 How internal and external factors affected the positive growth and attain
sustainability?
SUMMARY:
 India has remained closed economy till 1990/91. Balance payment
(BOP) crisis – 1991 had reduced India’s foreign exchange reserves to
less than US$1 billion in July 1991 and brought India to its knees. To
stabilize this crisis, Government has taken 3 pillars : Liberalization,
Privatization and Globalization. The Government of India took major
policy to address the BOP problem: Fiscal correction, Trade policy
reforms, Industrial policy reforms and public sector reforms. Also they
had taken $2.3 billion from IMF and including loan of $500 million from
world bank. This reduced rupee valuation to 18 %. By making the right
reforms, the government managed to reach annual growth rate of India
7.6 % in 2016. The Indian economy emerged as the fastest economy in
the world, outpacing China’s 6.9% Annual growth rate. In April 2016,
India’s finance minister addressed that India can achieve 8.5% annual
growth in 2016/17. The country’s macroeconomic indicator in the past
25 year pointed to macroeconomic turn-around.
STRENGTHS:

 Rate of inflation is around 4 to 5 per cent, which is in declining path.

 CAD of the balance of payments is less than 1 % of GDP along with the dollar-
rupee exchange rates convincingly stable.

 Forex reserves have registered a growth of $360 billion by December 2016.

 Increasing GDP Rate

 Increasing FDI investments.

WEAKNESS:
 Goods and Service Tax (GST) implementation.

 Societalideology, mind-set and opinions about redistribution of

wealth and income.
 Banksare unable to lend because they have accumulated huge Non-
Performing Assets (NPAs)
 Ratioof the working - age population of non-working age population
in India will reach its maximum value of around 1.7 by 2020.
 Privateinvestment is low and exports are not in good shape, growing
at a very low rate, which are significant sources of growth but has
slackened considerably of late in India.
OPPORTUNITIES:

 The reform in the bankruptcy laws for exits of various corporations to

release locked up resources.
 Digitalization of payments for the efficient functioning of government
schemes.
 Government should be on competitive and cooperative federalism
which presents a great potential to attract skills, investment and
technology.
 Higher growth prospects in developed countries like the US and
Germany can generate a new avenue for exports from developing
countries including India.
THREATS:

 The competitive populism in the federal democracy can damage

fiscal discipline and governance standards.
 Challenges arising out of pay revisions and UDAY bonds are
significant concerns for states to maintain their fiscal discipline
targets.
 International oil prices are on the rise and so also the commodity
prices.
 As a consequence of developments in the US economy, global interest
rates and inflation rates in advanced countries are on the way to
strengthen.
Were the macro-economic indicators strong
enough to be sustainable?
 Although All the traditional indicators

show us a rosy picture we are a long

way from a sustainable economy

 Power difference( Appr. 3% of rich

contain 75% wealth )

 The population of India focused on

agriculture.

 Environmental hazards

 Unorganized sectors
How should one interpret the increase in GDP growth
rates, the reduction in the CAD, and the reduction in
the fiscal deficit?
 Production of goods and services at better value
 India has become a manufacturing and revenue centre for foreign investors and
companies
 CAD is basically the difference in the values of exports and imports from India. Exports
have increased. Self sufficiency has also brought about reduction in imports
 Fiscal deficit is the difference between government revenues (chiefly taxes) and
government expenditures
 Privatisation has allowed the government to reduce its expenditures and hand things
over to the private sector
 The increased GDP has brought greater personal and corporate fortunes which has also
allowed the government to collect greater magnitude of taxes
Should investors be confident about India’s
growth story in 2016?
 Investors love growth. As Indian markets take-off again, investors should not be
dazzled by the economic prospects alone. Rather it must look for other links that
affect the earning of these emerging markets(CSR).
 Due to the belief that GDP growth in emerging countries like INDIA
automatically lead to fast growth in the profits of the firms.
 Over the last 10 years, real GDP growth has been noticeably faster in the
developing countries than the developed countries with annual growth of 4.2%
which is nearly four times the 1.1% recorded in the developed countries