Economic Environment and Policy

Session-2: Macroeconomic Environment in India

Prof. Tarun Das, Ph.D.
Formerly, Economic Adviser, Ministry of Finance

Prof. Tarun Das, IILM EEP Session-2 1

 Contents of this presentation
Macroeconomic Environment
in India

1. Macroeconomic factors
influencing business
2. An Anatomy of Indian Economy
3. SWOT Analysis of Indian Economy

Prof. Tarun Das, IILM EEP Session-2 2

 1. Macroeconomic factors
influencing business

Prof. Tarun Das, IILM EEP Session-2 3

 1.1 Macroeconomic Analysis

• SWOT analysis
• PEST analysis
• Five forces analysis

Prof. Tarun Das, IILM EEP Session-2 4

 1.2 SWOT analysis

• Strengths (internal)
• Weaknesses (internal)
• Opportunities (external)
• Threats (external)

Prof. Tarun Das, IILM EEP Session-2 5

 1.3 PEST Analysis

• Political factors
• Economic factors
• Socio-cultural factors
• Technological factors

Prof. Tarun Das, IILM EEP Session-2 6

 1.4 Political/Legal Factors
• Political ideology of the government
• Legislation and Acts
• Anti Monopolies legislation
• Environmental protection laws
• Taxation policy
• Employment laws
• National Public policy
• Global Public Policies

Prof. Tarun Das, IILM EEP Session-2 7

 1.5 Economic Factors

• Economic growth
• Inflation
• Employment
• Disposable income
• Business cycles
• Availability and cost of energy
• Availability and prices of raw materials

Prof. Tarun Das, IILM EEP Session-2 8

 1.6 Socio-Cultural Factors
• Demographic factors
• Role of women
• Extent of Poverty
• Extent of Inequality
• Regional Disparities
• Caste and creed
• Race and religion
• Food habits

Prof. Tarun Das, IILM EEP Session-2 9

 1.7 Technological Factors

• New discoveries and innovations

• Speed of technology transfer
• Rates of obsolescence
• Internet connections
• Information and Communications
Technology (ICT)

Prof. Tarun Das, IILM EEP Session-2 10

 1.8 Five forces analysis
Potential
entrants
Threat of
entrants

Suppliers COMPETITIVE Buyers

RIVALRY
Bargaining Bargaining
power power

Threat of
substitutes

Substitutes Source: Adapted from M. E.

Porter, Competitive Strategy,

Prof. Tarun Das, IILM EEP Session-2 11

 2. An Anatomy of
Indian Economy

Prof. Tarun Das, IILM EEP Session-2 12

 2.1 Indian Economy General-2005
Area (million sq.Kms) 3.3 [7th of 205]
Population (million) 1095 [2nd of 205]
Nominal GDP (US$ billion) 806 [10th of 195]
GDP PPP adjusted (US$ billion) 4156 [4th of 224]
GDP PPP per capita (US$) 3678 [48th of 223]
GDP nominal per capita (US$) 736 [149th of 195]
Economic freedom index 1.5 [123rd of 156]
Poverty ratio (%) 20%
Poor People-Ratio in the world 41% [1st of 80]
Technological achievement index 0.2 [59th of 68]
Average years of schooling 5.1 [65th of 100]
Literacy rate 61 [144th of 174]
English speaking (million) 100 [2nd of 52]
English as first language (000) 179 [13th of 62]
Prof. Tarun Das, IILM EEP Session-2 13
 2.2 Indian Economy-People 2005
Age 0-14 years 31.2% [97th of 226]
Age 15-64 years 63.9% [126th of 226]
Age 65 years & over 4.9% [127th of 225]
Urbanization 28% [172nd of 199]
Persons per room 2.7 [2nd of 60]
Hindus (million) 800 [1st of 165]
Muslim (million) 138 [3rd of 165]
Roman Catholic (mln) 17 [15th of 170]
Religion Hindu 80.5% [2nd of 17]
Religion Muslim 13.4% [61st of 100]
Roman Catholic 1.6% [124th of 170]
Prof. Tarun Das, IILM EEP Session-2 14
 2.3 Indian Economy-Agriculture 2005

Arable cropland (million hectares) 169.7 [3rd of 148]

Banana production (million tons) 11 [1st of 48]
Cereal production (million tons) 121 [46th of 149]
Cotton production (000 bales) 12.5 [3rd of 109]
Corn production (million tons) 13 [8th of 17]
Rice production (million tons) 89 [3rd of 16]
Wheat production (million tons) 67 [4th of 17]
Meat production (million tons) 4.6 [7th of 149]
Root production (million tonnes) 29.9 [4th of 149]
Agricultural tractors (million) 2.5 [2 of 190]

Prof. Tarun Das, IILM EEP Session-2 15

 2.4 Indian Economy-Energy 2005
CO2 Emissions (000 tons) 1,008 [5th of 178]
Water Available (000 cubic meters) 1.56 [3rd of 141]
Coal production (million tons) 359 [5th of 31]
Oil Production (Million tonnes) 38.01 [24th of 48]
Oil consumption (million tons) 119.3 [6th of 63]
Oil Exports (000 bbl/day) 350 [28th of 77]
Oil Imports (Million bbl/day) 2.1 [8th of 71]
Nat. gas reserve (bln cubic feet) 542.4 [3rd of 72]
Nuclear power generation (terawatt-hours)17.8 [8th of 29]
Nuclear reactors operable 14 [9th of 29]
Electricity generation (billion kwh) 668 [5th of 133]
Electric power consumption (bln kwh) 494 [7th of 132]
Electric power T&D loss 26.3% [2nd of 132]
Prof. Tarun Das, IILM EEP Session-2 16
 2.5 Business Environment 2005

Corruption index 2.9 [9th of 160]

No. of procedures to register property 6 [8th of 167]
No.of start-up procedures to register a business 11 [6th of 171]
Time required to build a warehouse 270 days [8th of 168]
Time required to enforce a contract 1,420 days [4th of 171]
Time required to register property 62 days [6th of 167]
Time required to start a business 35 days [4th of 171]
Time to prepare and pay taxes 264 hours [80th of 169]
Time to resolve insolvency 10 years [2nd of 151]
Trademarks, nonresidents 5,393 [18th of 99]
Trademarks, residents 60,985 [8th of 98]

Prof. Tarun Das, IILM EEP Session-2 17

 2.6 Indian Industry 2005
Car production (lakhs) 7.1 [16th of 49]
Manufactures imports (% of merch. Imports) 52.4 % [100th of 155]
Manufacturing value added (2000 US$ bln) 91 [6th of 155
Manufacturing value added (current US$ bln) 115 [7th of 167]

Motor vehicle production (lakhs) 8.9 [14th of 35]

Heavy truck production (000) 110 [6th of 36]

Ores & metals exports (% of goods exports) 6.9% [25th of 154]
Ores & metals imports (% of goods imports) 5.0% [10th of 155]
Patent applications, nonresidents (Number) 10,671 [10th of 96]
Patent applications, residents (Number) 6,795 [10th of 97]

Textiles and clothing (% of manufacturing) 24.4% [7th of 101]

Prof. Tarun Das, IILM EEP Session-2 18

 2.7 Transportation and Internet 2005
Aircraft departures (000) 214.3 [19th of 155]
Airports with paved runways 74 [7th of 117]
Highways (million Kms.) 3.3 [1st of 181]
Motor vehicles (per 100 people) 12 [104th of 134]
Waterways (000 kms.) 14.5 [9th of 106]
Broadband subscribers (million) 1.3 [22nd of 117]
Internet bandwidth (000 Mbps) 20 [8th of 167]
Internet Hosts (million) 1.5 [22nd of 227]
Internet Service Providers 43 [7th of 229]
Internet charge (US$/month) 6.78 [70th of 180]
Secure Internet servers (million) 825 [9th of 183]
Internet users (million) 60 [3rd of 195]

Prof. Tarun Das, IILM EEP Session-2 19

 2.8 Indian Labour and Immigration 2005
INDIAN LABOR
Economic activity (Men aged 65 plus) 52.67% [54th of 162]
Female economic activity growth 4% [3rd of 156]
Unemployment rate 7.8 % [101st of 182]
Workers' remittances paid (US$ Bln) 1.0 [31st of 149]
Workers’ remittances received (US$ Bln) 23.7 [1st of 156]
IMMIGRATION
Immigrants as percentage of total population 0.517 [65th of 195]
Number of immigrants (million) 5.7 [8th of 195]
Immigration to the USA 2004 (million) 1.25 [4th of 10]
International migration stock (% of population) 0.52% [77th of 205]
International migration stock (million) 5.7 [8th of 205]
Refugees (000) 186 [1st of 110]

Prof. Tarun Das, IILM EEP Session-2 20

 2.9 Indian Labour and Immigration 2005
INDIAN LABOR
Economic activity (Men aged 65 plus) 52.67% [54th of 162]
Female economic activity growth 4% [3rd of 156]
Unemployment rate 7.8 % [101st of 182]
Workers' remittances paid (US$ Bln) 1.0 [31st of 149]
Workers’ remittances received (US$ Bln) 23.7 [1st of 156]
IMMIGRATION
Immigrants as percentage of total population 0.517 [65th of 195]
Number of immigrants (million) 5.7 [8th of 195]
Immigration to the USA 2004 (million) 1.25 [4th of 10]
International migration stock (% of population) 0.52% [77th of 205]
International migration stock (million) 5.7 [8th of 205]
Refugees (000) 186 [1st of 110]

Prof. Tarun Das, IILM EEP Session-2 21

 2.10 Indian Fiscal Situation and Media
Fiscal Situation:
Tax revenue (% of GDP) 10.2 [81st of 98]
Taxes on exports (% of tax revenue) 0.06 [21st of 36]
Goods & services Tax (% of total) 31.4 [54th of 98]
Goods & services Tax (% value added) 5.3 [74th of 89]
Taxes on income (% of total taxes) 43.9 [22nd of 98]
Taxes on intnl trade (% of revenue) 13.8 [22nd of 86]
Total tax rate (% of profits) 81.1 [14th of 171]
INDIAN MEDIA
Average cost of local call (US$) 0.02 [136th of 151]
Cinema attendance (billion) 2.9 [1st of 78]
Films produced (number) 946 [1st of 50
Newspapers (number) 5.221 [1st of 67
Televisions (million) 63 [4th of 215
Radios (million) 116 [4th of 221]

Prof. Tarun Das, IILM EEP Session-2 22

 3. A SWOT Analysis of
the Indian Economy

Prof. Tarun Das, IILM EEP Session-2 23

 3.1 Strengths of Indian Economy
 Fourth largest economy in terms of PPP-adjusted
GDP after USA, China and Japan
 Sustained high growth in the recent past
 High percentage of cultivable land
 Youngest labor force, relatively skilled, and
peaceful industrial relations
 Largest pool of technical manpower
 Largest English speaking population
 Huge domestic market with second largest
population, democratic system, independent
judiciary, free press, vibrant NGOs
 Rich natural resources, well established financial
system, dynamic private sector and wide spread
infrastructure

Prof. Tarun Das, IILM EEP Session-2 24

 3.2 Weakness
 Poor performance of agriculture
 High dependence of agriculture on monsoons
 Growing infrastructure constraints
 High energy intensity
 High inflation
 High interest rates
 Weak regulatory institutions
 Outdated laws on business
 Inflexible Land and Labour markets
 High fiscal deficit and public debt

Prof. Tarun Das, IILM EEP Session-2 25

 3.3 Opportunities
• Rising and diversified export markets
• Manageable current account deficit
• Rapid growth of IT and BPO sector bringing valuable foreign
exchange. Largest exporter of computer and software services
($31.3 billion in 2006).
• major exporter of services (11th largest with a share
of 2.5% world market) and exports of software
services $ 40.3 billion during 2007-08)
• Large stock of wealth of non-residents Indians
• Liberal trade and foreign investment policies
• Substantial inflow of direct foreign investment in recent years
• Indian firms are going abroad and taking over foreign
companies. Overseas direct investment from India
increased from $ 13.5 billion in 2006-07 to US $ 17.9
billion in 2007-08.
• Low debt services (amortization plus interest payments) ratio to
gross current A/C earnings.

Prof. Tarun Das, IILM EEP Session-2 26

 3.4 Threats
• Global financial turmoil and recession in USA
and developed countries
• Still dependence on imports of pulses and
edible oil
• Hardening of international prices of crude oil
and edible oil
• Growing import bill
• Fleeing of foreign institutional investment
(FIIs) in 2008
• Significant depreciation of Indian rupee in
2008

Prof. Tarun Das, IILM EEP Session-2 27

 Thank you –
Have a Good Day

Prof. Tarun Das, IILM EEP Session-2 28