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Leading Indicators

of the Indian Economy


Group 12:
Lt Col D G Naik
Grenville Savio Noronha
Gnanasundaram C
Kaushik K

HS 700: Applied Economics


Course Project Presentation

Introduction

History of the Indian Economy


The Liberalization Process: The 80s and the 90s
Beneficial Effects of the Reform Process

We are the Fourth Largest Growing Economy in


terms of PPP with a GDP of US $3.36 trillion
In Exchange terms, we are the Tenth Largest in the
world with a GDP of US $ 691.87 billion (2004)
Second Fastest Growing Major Economy of the World
with a growth rate of 8.1% for the 1stQ of 2005-06

Introduction

The increasing importance of the Indian


Economy has led to a need to Forecast the
Performance of the of the Indian Economy
Monitoring of the Indian Economic Cycle has
become an increasingly attractive option for
this
Dua et. al. initially propounded an index
based on concurrent indicators but using an
index based on leading indicators is seen to
be more appropriate.

The Indicator Approach

The Indicator Approach exploits the fact


that different time-series do have different
cyclical periods
Time-series can be classified into
Coincident, Leading and Lagging Indicators
Coincident: Measures of Output, Income,
Employment and Sales
Leading: Placement of New Orders,
Intention to Build and Changes in
Profitability
Lagging: Installment Credit Outstanding and
Interest Rates

The Ideal Indicator

It would cover half a century or longer,


thus showing its relation to the economic
cycles over a variety of conditions
It would lead the month, around which
cyclical revival centers, by an invariable
interval of say, three months or even
better, six months. It would also lead the
central month of every cyclical recession
by an invariable time interval, which might
differ from the lead at revival.

The Ideal Indicator

It would show no erratic movements, that is, it


would sweep smoothly up from each cyclical
trough to cyclical peak and then sweep
smoothly down to the next trough, so that every
change in its direction would herald the coming
or recession in the general economy or
business.
The cyclical movements would be pronounced
enough to be readily recognized, and give some
indication of the coming change
It would be so related to the general economic
activity as to establish as much confidence as
the nature of such things allows that its future
behavior in regard to economic cycles will be
like its past behavior

Illustration of a Leading
Indicator

List of Leading Indicators

Trends in Gross Domestic Product (GDP): Contribution of Agriculture,


Industry and Services
Purchasing Power Parity (PPP) Index
Fiscal Deficit
Trends in Inflation Rate
Interest Rates
Credit Off-take
Balance of Payment
Foreign Exchange Reserves
Crude Oil Rates
Foreign Direct Investment (FDI) Trends
Rain fall Index
Sensex
Exchange Rate
Savings/GDP Ratio
Human Development Index
Electric Power Generation

Gross Domestic Product

GDP = consumption + investment +


government
spending + (exports imports)
Consumption, Investment: Final
Expenditure on Goods and Services
Export-Import: Balance of Trade
Consumption: Private and Public
Significance of GDP

GDP: Indian Scenario

GDP: Indian Scenario

GDP: Indian Scenario

The GDP growth trend for the last three


years appears to indicate the beginning of a
new phase of cyclical upswing in the
economy from 2003-04
The initial momentum to this new phase of
expansion, in 2003-04, was provided by
agriculture
Industry and services have acted as the twin
engines propelling overall growth of the
economy

Grenville Savio Noronha

Human Development Index

HDI is a measure of poverty, literacy,


education, life expectancy, childbirth,
and other factors.

It is a standard means of measuring well


being, especially child welfare.

HDI stresses the importance of the


quality of life.

Human Development Index


The three basic dimensions of HDI :
1) Life expectancy at birth
2) Knowledge (as measured from adult
literacy rate)
3) Standard of living

Human Development Index


EMPLOYMENT:
Indias labour force has reached 375
million approximately in 2002, and it will
continue to expand over the next two
decades.
The actual rate of that expansion will
depend on several factors including
population growth, growth of the working
age population, labour force participation
rates, educational enrolment at higher
levels and school drop-out rates.

Human Development Index


EDUCATION :
Literacy rates in India have arisen
dramatically from 18% in 1951 to 65% in
2001, but these rates are still far from
the UMI reference level of 95%.
Literacy among males is nearly 50%
higher than females, and it is about 50%
higher in urban areas as compared to
the rural areas.
Literacy rates range from as high as
96% in some districts of Kerala to below

Human Development Index

In terms of total investment in R&D,


Indias expenditure is 1/60th of that
of Korea, 1/250th of that of the
USA, and 1/340th of that of Japan.
More significantly, atomic energy,
space and defense research
account for 71% of all central
spending on science and
technology, which means that
relatively little is left for investment

Human Development Index

R&D expenditure even in Indias fastgrowing IT sector has been averaging


around 3% of sales turnover (STO),
which is much lower as compared to the
14-19% expended by internationally
reputed software firms.
These low figures reflect on our R&D
performance. Indias share of global
scientific output in 1998 was only 1.58
per cent of the worlds total.
Out of 500,000 new patent applications

Human Development Index


HEALTH :
Like population growth and economic growth,
the health of a nation is a product of many
factors and forces that combine and interact
with each other.
Economic growth, per capita income,
employment, levels of literacy and education
especially among femalesage of marriage,
birth rates, availability of information regarding
health care and nutrition, access to safe
drinking water, public and private health care
infrastructure, access to preventive health care
and medical care, health insurance, public

Human Development Index

Human Development Index

Gnanasundaram C

MONSOON AND ITS IMPACT ON AGRICULTURE

58% of country's population depends on agriculture

27% of India s GDP comes from its agricultural production.

13-18% of India s total annual exports are agricultural


products.

Good monsoon always means a good harvest

Bad monsoon results in a big loss in the country GDP


levels.

MONSOON AND ITS IMPACT ON AGRICULTURE

IMD predicts the onset date and rainfall potential of the


monsoon

Output growth severely affected by rainfall, especially in


earlier years when share of agriculture was 40 50 %

data crucial for proper estimates of production function, tfpg


etc.

Monsoon facilitated an impressive growth rate of 9.6% in


2003-04

Fell steeply to 1.1% in the current fiscal year

MONSOON AND ITS IMPACT ON AGRICULTURE


Construction of Rainfall Index
For each year, only rainfall for four months, June
through
September, are considered.
Area of each state =As
(Mean) Rainfall for each rainfall station, 1871-2003: s
Standard deviation for each rainfall station, 18712003: ss
(4 months mean) Rainfall for each station and year: Rs
Define: Js = (Rs - s)/ss; for each rainfall station and
year

FDI in India

FDI is investment made by a foreign individual


or company in productive capacity of another
country. It is the movement of capital across
national frontiers in a manner that grants the
investor control over the acquired asset.
India is considered a stable country for
investing in by corporate overseas.
India has displaced US as the second-most
favored destination for (FDI) in the world after
China according to an AT Kearney's FDI
FDI is a tool for jump-starting economic growth

FDI in India
FDI has an impact on
1.
Country's trade balance
2.
Increasing labour standards and skills
3.
Transfer of new technology and innovative ideas
4.
Improving infrastructure, skills and the general
business climate.
US INVESTMENT IN INDIA

U.S. is one of the largest foreign direct investors in


India.

The stock of actual FDI Inflow increased from U.S.


$11.3 million in 1991 to US $4132.8 million as on
August 2004 recording an increase at a compound

Top sectors attracting FDI from USA


are

Fuels (Power & Oil Ref.) (35.93%)


Telecommunications (radio paging,
cellular mobile & basic telephone
services) (10.56%)
Electrical Equipment (including
Computer Software & Electronics)
(9.50%)
Food Processing Industries (Food
products & marine products) (9.43%)

India's English-speaking population is highly valued by


American, Canadian and British investors.

India received investments from GE Capital, American


Express, Citibank, Conseco, British Airways, Dell
Computers and Reuters.

This FDI resulted in the development of call centres, back


office support and facilities to handle knowledge-intensive
activities.

From software giant Microsoft to telecom biggies Nokia


and Samsung to auto majors Honda and Toyota, global
players now eye India as the most attractive destination
for investment.

Although far behind China, India figures among the ten


most attractive destinations for foreign investment,
according to a new survey.

Lt Col D G Naik

SENSEX

Definition
Significance
Calculation Methodology

Selection
Free Float Market Capitalization (from
September 1, 2003 )
Calculation, closure

Maintenance

Definition

Sensitivity Index
Base Year 1978 79, Base = 100
Basket of 30 constituent stocks
representing a sample of large, liquid
and representative companies from
diverse sectors.

Significance

Barometer of Business climate.


Facilitates capital formation.

Domestic Market/ Institutions.


FIIs.
FDIs.

Likely to lead to boom in other asset


classes as the profits get ploughed.

Choice of constituents,
Calculation Methodology
and Maintenance
for SENSEX

Journey Of SENSEX

CONCLUSION

Leading Indicators relative to the


objective.

Choice.
Standardization.

Construction of Ideal Leading Indicators


not easy.
Forecast based on Leading Indicators a
useful planning tool.

References
1.

2.

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4.

5.

6.
7.
8.
9.
10.
11.
12.

Pami Dua and Anirvan Banerji, A leading index for the Indian
economy, Working paper no. 90, Centre for Development Economics,
March, 2001.
J D Lindlbauer, Business Cycle Indicators From Qualitative Data, In
Searh of Economic Indicators Essays on Business Surveys (Lecture
Notes in Economics and Mathematical Systems, Werner H. Stringel,
Ed. Berlin: Springer-Verlag, 1977.
Raj Kapila and Uma Kapila, Understanding Indias Economy Reforms:
The Past, The Present and The Future, New Delhi: Academic
Foundation, 1996.
Uma Kapila, Indian Economy since Independence, New Delhi:
Academic Foundation, 1998
[Online], Available:
http://en.wikipedia.org/wiki/Economy_of_India
[Online], Available:
http://en.wikipedia.org/wiki/Gross_Domestic_Product
[Online], Available: http://ibef.org/home.aspx
[Online], Available: http://www.investopedia.com
[Online], Available: http://www.rbi.org.in
[Online], Available: http://www.ibef.org
[Online], Available: http://rbi.org.in/
[Online], Available: http://www.economywatch.com/

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