Report By: Hina Sharma
In this report I will discuss the current state of Economy of the Republic of India, the current economic challenges and recommended policy reforms. Key Findings: GDP Growth Of India Is Following A Downward Trend Since Q3 Of 2010-11 The Inflation Rate Is Persistent Investment Confidence Of Businesses Is Falling High Fiscal And Budget Deficit Are A Growing Concern High Corruption Is Affecting The Growth Of GDP 74% Education Rate Is Much Below Worldwide Average Consistent Increase In Trade Deficit The Recently Exposed Corruption Scandals Amount To 5715.91 INR Billions
Future Prospects: Enormous Scope Of Infrastructure Development India Is A Highly Favoured Investment Destination Large Working Age Population
Current State of the Economy
Indian GDP grew 5.5% in Q1 of 2012-13 looked positive compared 5.3% in Q4 of 2011-12. However, the average of 5.4% in first 2 quarters of 2012-13 is an all-time low since 2008 and the projected 7.6% (+/- 0.25 per cent) during the 2012-13 annual budget. This growth rate is even lower than the Global crisis affected growth of 6.7% of 2008-09. RBI has revised the GDP forecast for 2012-13 to 5.7% from 6.5% previously. The economic activities which recorded significant growth in Q1 (at constant prices) are Construction at 10.9%, Financing, Insurance, Real Estate and Business Services at 10.9%, and Community, Social and Personal services at 7.9%. The economic activities which recorded lower growth rates (estimated at constant prices) in 201213 compared to Q1 of 2011-12 are: Agriculture, Forestry & Fishing at 2.9%, Mining & Quarrying at 0.1%, Manufacturing at 0.2%, Electricity, Gas and Water Supply at 6.3%, and Trade, Hotels, Transport and Communication at 4%. Consumer Spending: The consumer confidence improved in the first quarter of 2012-13 to 82.1% compared to 62.8 % and 81.2% during 2011-12. Although the consumer spending increased to 8153.19 INR Billion during Q1 of 2012-13 from 7841.13 INR Billion in Q1 of 201112, the rate of consumer spending changed to 56% of GDP from 55.8% in 2011-12. The lower growth rate does not appear to have impacted the consumer confidence much. The increasing disposable incomes can be the reason for stable consumer confidence Government Spending: The government spending has increased to 1517.47 INR Billions in Q1 of 2012-13 compared to 1391.79 INR Billions in Q1 of 2011-12 fiscal year i.e. 11.7% of GDP as against 11% in 2011-12. A large amount of government expenditure is spent on the interests’ payments on fiscal deficit. Due to improved balance of payments, the budget deficit has improved to -4.6% in 2012 from -5.1 in 2011. The government expenditure is much more than the generated revenues. The major portion of government spending is focused on improving the Balance of Payments. Investment Confidence: The investment confidence of the business owners has lowered to 126.6 from 134.9 in April 2012. It is lower compared to the times of higher growth and is in line with the GDP growth trend. Gross Fixed Capital Formation (GFCF) has reduced to 29.9% of GDP in Q1 of 2012-13 from 31.2% of GDP in Q1 of 2011-12. Trade Flows: The balance of trade account shows a further deficit reaching -18080.4 INR Millions in Q2 of 2012-13. Exports increased to 24.4% of GDP in 2012-13 from 23% in 2011-12 and Imports increased to 30.8% of GDP in 2012-13 from 29.5% in 2011-12. Inflation: Although the inflation in 2012-13 lowered to an average of 7.5% from an average of 8.95% during 2011-12, the current inflation rate of 7.8% is higher than the projected 6.4 during annual budget. The inflation of wholesale price index (WPI) is 7.55% (August 2012) and consumer price index (CPI) is 9.73% (September 2012). The persistence rates of inflation are due to the shortage of supplies.
Unemployment: The unemployment rate for 2010-11, according to the state Labour Bureau, was 9.8%...