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Leading Indicators of Indian Economics Essay

Monnet Sings Alleluia, Deputy Chairman, Planning Commission of India India is growing fast and everyone seems to want a piece of the action. Director of Market Services, London Stock Exchange Martin Graham, India has the potential to deliver the fastest growth over the next 50 years with an average rate of more than 5 per cent a year for the entire period. Dominic Wilson, Senior Global Economist and Vice President, Goldman Cash India is a rising economic influence of power in the international system. It’s a great multivalent democracy. Condolences Rice, US Secretary of State 2 INTRODUCTION

An Overview of the Indian Economy: Indian economic policy after independence, influenced by the colonial experience, which was seen by Indian leaders as exploitative in nature, and by their exposure to Fabian socialism, became protectionist in nature. The early policy makers formulated a policy of import substitution, industrialization, state intervention in labor and financial markets, a large public sector, overt regulation of business, and central planning. This led to a low overall average growth rates Upton 1980. The economic reforms that surged economic growth in India after 1980 can be attributed to two takes of reforms.

The pro-business reform of 1980 initiated by Nadir Gandhi

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and Leading Indicators of Indian Economics By cleanses removed price controls and reduced corporate taxes. The economic liberalizing of 1991, initiated by then Indian prime minister P. V. Maharanis Raw and his finance minister Mammon Sings in response to a macroeconomic crisis did away with the License Raja (investment, industrial and import licensing) and ended public sector monopoly in many sectors, thereby allowing automatic approval of Foreign Direct Investment (FED) in many sectors .

The reform process has had some very beneficial effects on the Indian economy, including higher growth rates, lower inflation, and significant increases in foreign investment. The economy of India is now the fourth- largest in the world as measured by purchasing power parity (PAP), with a GAP of US $3. 36 trillion. When measured in USED exchange-rate terms, it is the tenth largest in the world, with a GAP of US $691. 87 billion (2004). India was the second fastest growing major economy in the world, with a GAP growth rate of 8. 1% at the end of the first quarter of 2005-2006.

The country’s economy is diverse and encompasses agriculture, handicrafts, industries and a multitude of services. Services are the major source of economic growth in India today, though thirds of the Indian workforce earn their livelihood directly or indirectly through agriculture. In recent times, India has also capitalized on its large number of highly educated people who are fluent in the English language to become an important location for global companies outsourcing customer service and technical support call centers. It is also a major exporter of skilled workers in software services, financial services, and software engineering.

With the increasing importance of the economy of India, which is now well above the one billion mark in population, monitoring Indian economic cycles is now of more interest. Dud and Banners established the dates of Indian business cycles and growth rate cycles, with the help of a coincident index created for the purpose. However, the more interesting question is that of whether there exists a set of leading index, a composite of several leading indicators: designed to peak and trough earlier than the coincident indicators, to collectively predict future economic activity.

Such an index of leading indicators will be an important and useful forecasting and planning tool for policymakers, financial analysts, financial investors and businesses. The Indicator Approach: The indicator approach starts from the observation that the time series which describe the individual economic processes do not all turn at once in periods of cyclical change. From the large number of available time series, those are selected whose cyclical movement is in a specific systematic relationship to the general business or economic cycle.

The indicator approach consists essentially of classifying economic indicators into leading, coincident and lagging categories and then combining the relevant components into corresponding composite indexes. This approach works because in a market-oriented economy, in cycle after cycle, economic indicators reach turning points in a known sequence. Basically, leading indicators coincident indicators measure current economic performance and are used to represent the level of current economic activity.

Examples of such indicators include measures of output, income, employment, and sales. These help to date peaks and troughs of business cycles. The leading indicators, on the other hand, combine series that tend to lead at business cycle turns and provides a summary measure of what can be expected in the near future. Leading indicators generally represent commitments made with respect to future activity or are factors that influence such commitments. Examples are placement of new orders, intentions to build, and changes in profitability.

The lagging indicators reach their turning points after the peaks and troughs of the coincident indicators, helps to clarify and confirm the underlying pattern of economic activity identified with the help of coincident and eating indexes. For instance, the levels of stocks, installment credit outstanding, and interest rates depict previous changes in the economy. However, it has to be added that the classification is subjective and a set of indicators may be seen differently under different contexts. The Ideal Indicator: The object is to use economic cycle indicators to make an early diagnosis of cyclical movements.

The main question is to ascertain the cyclical turning points and to distinguish between turning points which are to be rated as being cyclical and encyclical fluctuations in the time series. The following formulations may be considered as the prerequisites for the ideal business or economic cycle indicator: 1 . It would cover half-a-century or longer, thus showing its relation to the business cycles under a variety of conditions. 2. 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 4 central month of every cyclical recession by an invariable time interval, which might differ from the lead at revival. 3. It would show no erratic movements, that is, it would weep 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. 4. The cyclical movements would be pronounced enough to be readily recognized, and give some indication of the coming change. 5.

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: Figures 1 and 2 illustrate the concept of leading indicators. The time series chosen as a leading indicator in Fig. 1 is the business climate for predicting the industrial production. In Fig. 2, business climate is taken as the indicator for the Gross National Product (GNP) of the erstwhile Federal Republic of Germany.

Republic of Germany and (b) European Union 5 Figure 2: Illustration of leading indicator for the economy of the erstwhile Federal Republic of Germany List of Leading Indicators for Indian Economy: The following is an exhaustive list of likely candidates for series which can be insider as leading indicators of the Indian economy: Trends in Gross Domestic Product (GAP): Contribution of Agriculture, Industry and Services Purchasing Power Parity (PAP) Index Fiscal Deficit Trends in Inflation Rate Interest Rates Credit Off- take Balance of Payment Foreign Exchange Reserves Crude Oil Rates Foreign Direct Investment (FED) and Foreign Institutional Investment (F”) Trends Rain fall Index Senses Exchange Rate Savings/GAP Ratio Human Development Index Electric Power Generation The scope of this report has been restricted to a few indicators which can qualify as leading indicators of the Indian economy. Table 1 lists the trends in a select list of key indicators of Indian economy for the three year opened 2002-05. 6 Table 1: Key indicators of the Indian economy 7 GROSS DOMESTIC PRODUCT Sushi K Basics of GAP: Gross domestic product, or GAP, is one of several measures of the size of its economy. Until the sass the term GNP or gross national product was used. The two terms GAP and GNP are almost identical. The most common approach to measuring and understanding GAP is the expenditure method: GAP = consumption + investment government spending + (exports – imports) “Gross” means depreciation of capital stock included.

Without depreciation, with net investment instead of gross investment, it is the Net domestic product. Consumption and investment in this equation are the expenditure on final goods and services. The exports minus imports part of the equation (often called net exports) then adjusts this by subtracting the part of this expenditure not produced domestically (the imports), and adding back in domestic production not consumed at home (the exports). Economists have preferred o split the general consumption term into two parts; private consumption, and public sector spending. Two advantages of dividing total consumption this way in welfare economics.

The private investment and trade portions of the economy are ultimately directed (in mainstream economic models) to increases in long-term private consumption If separated from endogenous private consumption, Government consumption can be treated as exogenous, so that different government spending levels can be considered within a meaningful macroeconomic framework. Therefore, GAP can be expressed as: GAP = private consumption + government + investment + net exports or simply, GAP = C + G + I + NIX The Present State of GAP: The robust performance of the Indian economy continued during the second quarter Lully-September) of 2005-06. According to the Central Statistical Organization (CSS), the economy recorded a real GAP growth of 8. Per cent in the second quarter of 2005-06 maintaining the momentum of growth in the first quarter, and notably higher than that of 6. 7 per cent a year ago. Real GAP originating from the ‘agricultural and allied activities’ benefited from the positive impact of the near normal South- West monsoon. Overall, the economy thus recorded a real GAP growth of 8. 1 per cent in the first half of 2005-06, one percentage point higher than a year ago. 8 Figure 3: GAP trend for 50 years from 1950 to 2000 at 1993-94 prices Figure 4: GAP Growth at current market price for the last five years The GAP 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. After a somewhat subdued impetus from the farm sector in 2004-05, there is a moderate cover in agricultural growth in 2005-06. This is partly because of a change in the rainfall pattern from erratic to a near-normal distribution. In contrast to the sharp fluctuations in 9 agriculture, industry and services have continued to expand steadily. Industry and services have acted as the twin engines propelling overall growth of the economy. Over a somewhat longer horizon, in the six years between 2000-01 and 2005-06 (AWE), on average, services with a share of 52. 0 per cent of GAP, contributed 65. Per cent of GAP growth, and increased its share in GAP from 49. Per cent to 54. 1 per cent. During the same reference period, on average, with a share of 25. 8 per cent of GAP, industry, by contributing 28. 0 per cent of GAP growth, increased its share in GAP from 25. 9 per cent to 26. 2 per cent. The Significance of GAP: The growth in GAP indicates the overall improvement of the economy. The rate of growth of GAP visit-¤-visit population growth and inflation rate is indicative of the formation as higher FL and FED is attracted, when the GAP growth is superior to the other constituents of the sub-continent. This, in turn, is likely to propel further Roth and add impetus to the buoyancy of the economy. 0 HUMAN DEVELOPMENT INDEX Greenville Savior North Introduction: The UN Human Development Index (HID) is a comparative measure of poverty, literacy, education, life expectancy, childbirth, and other factors for countries worldwide. It is a standard means of measuring well-being, especially child welfare. The index was developed in 1990 by the Pakistani economist Maybug LU Has, and has been used since 1993 by the United Nations Development Programmer in its annual report. The HID measures the average achievements in a country in three basic mentions of human development: A long and healthy life, as measured by life expectancy at birth.

Knowledge, as measured by the adult literacy rate (with two-thirds weight) and the combined primary, secondary, and tertiary gross enrolment ratio (with nonwhite weight). A decent standard of living, as measured by gross domestic product (GAP) per capita at purchasing power parity (PAP) in US Dollar. The first two indicators are social indicators. Life expectancy, a much desired objective of human beings, reflects the progress made in such fields as health, infant and child mortality and nutrition. Significance: The index is useful and meaningful, especially for the less-developed countries. While it gives importance to income, it does not do so unduly.

The decline in its weighted after a certain point, automatically raises the importance of social indicators. Equally important, the inclusion of social indicators, the HID stresses the importance of the quality of life. The index helps bring into the limelight the wide disparities that exist in the levels of human development between them and the developed countries. In the following passages, there will be several comparisons dad to China. We felt that since China is our biggest competitor today, it would be apt to make to include it in the future discussions to show how India stands. In the last Century, Indian’s population has increased from 250 to 1000 million, an increase of about 400%!

In India, in the last 100 years the actual number of poor people, has steadily increased. In China, all young children go through 9 years of schooling, this ensures 100% literacy. In India it is hardly 50%. China’s per capita is IIS$845 vs. US Population Policy, China has added 300 million LESS people, in the last 30 years. China has been able to reduce the people below poverty line to 3%, I. E. Only 40 million people. India has 11 40% or 400 million below the poverty line. We fail to understood the fact why some thinkers and leaders, in India, mention that our population is our strength. How can they make such statements, with so much poverty, illiteracy & a low standard of living?

It’s a nightmare for the POOR in India! The average age in China, for women to get married, the first time, was 23. 57 years, in 1998. India has 17% of the world’s population, 2. 2% of the land area, 1. 4% of the world’s GAP and only 0. 6% of the world trade. This means that 98. 6% of the World’s GAP [Buying Power] & 99. 4% of the World’s Trade is not with India! India must plan larger exports, for increasing the standard of living of its people. Employment: Population, food security, education and remunerative employment opportunities are closely interconnected. Rising levels of education and rising living standards are powerful levers for reducing birth and mortality rates.

As population growth slows to replacement levels over the next two decades, Indian’s greatest challenge will be to expand the opportunities for the growing labor force, to enrich their knowledge and kills through education, raise their living standards through gainful employment and make provisions for ensuring a good life for the aged. India has met the challenge of producing sufficient food to feed everyone, but it has yet to meet the challenge of generating sufficient employment opportunities to ensure that all its people have the purchasing power to obtain the food they require. Gainful employment is one of the most essential conditions for food security and economic security. Conversely, food security is an essential requirement for raising the productivity of Indian’s workforce to international levels . Indian’s labor 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, labor force participation rates, educational enrolment at higher levels and school drop-out rates. Projections based on these parameters indicate that Indian’s labor force will expand by 7 to 8. 5 million per year during the first decade of this century, and will increase by a total of about 160-170 million by 2020, I. E. , 2. 0 percent per annum. Total employment in India has been estimated to be about 35 million persons in 2002. This figure takes into account the significant level of underemployment and seasonal variations in the availability of work.

It also reflects wide variations in the rate of unemployment among different age groups and regions of the country. Approximately three-fourth of the unemployed are in rural areas and three-fifth among them are educated. The recent trends towards shedding excess labor to improve competitiveness and increasing capital intensity have further aggravated the situation. A clear consensus is now emerging that major changes in economic policy ND strategy will be needed to meet the country’s employment needs. Employment in the organized sector: Education: Literacy, the basis of all education, is as essential to survival and development in modern society as food is to survival and development of the human body.

Literacy rates in India have arisen dramatically from 18 per cent in 1951 to 65 per cent in 2001, but these rates are still far from the MUM reference level of 95 per cent. Literacy must be considered the minimum right and requirement of every Indian citizen. Vast differences also remain among different sections of the population. Literacy among males is nearly 50 per cent higher than females, and it is about 50 per cent higher in urban areas as compared to the rural areas. Literacy rates range from as high as 96 per cent in some districts of Kraal to below 30 per cent in some parts of Madhya Pradesh. Rates are also significantly lower among scheduled castes and tribes than among other communities.

Literacy is an indispensable minimum condition for development, but it is not sufficient. In this increasingly complex and technologically sophisticated world, ten years of school education must also be considered as an essential prerequisite for citizens to adapt and succeed economically, avail of the social opportunities and develop their individual potentials. Education is the primary and most effective means so far evolved for transmitting practically useful knowledge from one generation to another. In terms of total investment in R&D, Indian’s expenditure is 1/60th of that of Korea, 10th of that of the USA, and 1/30th of that of Japan.

More significantly, atomic energy, space and defense research account for 71 per cent of all central spending on science and technology, which means that relatively little is left for investment in agriculture, energy, telecommunications and other crucial sectors within the sphere of science and technology. R expenditure even in Indian’s fast-growing IT sector has been averaging around 3 per cent of sales turnover (STOP), which is much lower as compared to the 14-19 per cent expended by internationally reputed software firms. These low figures reflect on our R&D performance. Indian’s share of global scientific output in 1998 was only 1. 58 per cent of the world’s total.

Out of 500,000 new patent applications filed globally each year, China accounts for 96,000 and Korea accounts or 72,000, while India accounts for only 8,000. Of greater concern has been the country’s inability to capitalize on our huge pool of manpower and extensive network of scientific research organizations for transferring proven technologies from the lab to the land and to the factory. Despite possessing the world’s largest cadre of agricultural scientists, we have not been able to extend the momentum of Green Revolution to other 13 regions and crops and to update the scientific practices of our farmers to levels production costs far above world averages. A similar gap exists in the application of science and technology for food processing and many other industries.

High technology exports account for only 6 per cent of total manufacturing exports for India, compared to over 20 per cent for the MUM reference level. Table showing boys and girls in school through the years: Health for All: The health of a nation is difficult to define in terms of a single set of measures. At best, we can assess the health of the population by taking into account indicators like infant mortality and maternal mortality rates, life expectancy and nutrition, along with the incidence of communicable and non-communicable diseases. According to these measures, the health of the Indian population has improved dramatically over the past fifty years. Life expectancy has risen from 33 years to 64 years.

The infant mortality rate (MIR) has fallen from 148 to 71 per 1000. The crude birth rate (CB) has declined from 41 to 25 and the crude death rate (CDR) has fallen from 25 to under 9. The couple protection rate (CPRM) and total fertility rate (TFH) have also improved substantially. Despite these achievements, wide disparities persist between different income groups, between rural and urban communities, and between different states ND even districts within states. The infant mortality rate among the poorest quintet of the population is 2. 5 times higher than that among the richest. Maternal mortality remains very high. More than one lake women die each year due to pregnancy- related complications.

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