Macroeconomic Overview of India: Recent Trends and Developments

Indian economy: An Overview
• 12th in terms of GDP at market exchange rates ($1.3 trillion) and 4th in terms of GDP at purchasing power parity exchange rates ($3.8 trillion) in
2009
• 2.3% of global GDP at market exchange rates and 5.2% of global GDP at purchasing power parity exchange rates
• Relatively a closed economy till 1991 and opened up after the external payments crisis of 1991
• Average growth rate about 4% before 1991and moved up to 6.5% post reforms • Growth rate rose to nearly 9% in the pre-crisis 5-years, 2003-08
• Per capita GDP rose 3 times from $374 in 1990 to $1134 in 2009
Recovery from Global Crisis
•Growth fell to 6.7% in 2008-09 from 9.2% in 2007-08
•Smart recovery to 7.4 % in 2009-10 and 8.9% in H1 2010-11 (average growth rate, 2003-08 : 8.9%)
•India returning to 9%+ sustained growth trajectory?
Potential Growth Rate of Indian
Economy
•Potential growth rate: the maximum sustainable rate at which an economy can grow without raising the rate of inflation
•India’s potential growth rate rose from about 5.5% in late1990s to above 8.5% in mid-2000s
•Growth potential has fallen after crisis to about 7.5% and below
•Current growth rate above potential and has triggered inflationary pressures
Post-crisis Saving and Investment:
India-China Contrast
6
0
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
China India
0
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
China India
Source: WDI Database, World Bank 2010.
•Both savings and investment rates declined in India following the crisis; in China both rose
•In India consumption ratio rose following crisis, both for households and government; China the