11 Indian Economic Reforms: A More Difficult Phase FOURTH ANNUAL CONFERNCE LAHORE SCHOOL OF ECONOMICS 25 APRIL 2008 Rajiv Kumar
PLAN OF THE PAPER INDIAN ECONOMIC PERFORMANCE: A BRIEF RECAP CAN THE GROWTH BE SUSTAINED? NECESSARY REFORMS FOR INCLUSIVE GROWTH REVISITING THE ROLE OF THE STATE
GDP Growth in Current Decade Decadal Growth Rates
4 Global Integration (Current Account & Capital Account as a % GDP)
55 Global Context Narrowing of the real interest rate differential reversed since January 2007 Real Interest Rate Differential with Developed Countries ( )
66 Global Context Inverse relationship with world oil price World Oil price and India’s GDP growth ( ) Real $ / barrel Futures Price Average Mar Apr May Jun Jul Aug Source:
77 Globalisation:The Difference China Vs India High growth driven by domestic investment, consumption and net exports in China, while the contribution by net exports negative in India Table 2.1: Contribution to GDP Growth by Consumption, Investment and Net Exports: China Vs India ChinaIndia Final consumption expenditure Gross capital formation Net exports Total100.0 Source: Computed from WDI and CSO data.
Sectoral Composition of GDP
99 Increasing Role of Services in Indian Growth In 2000s, services contributing nearly two thirds of GDP growth
10 IIPManufacturing (Apr-Feb) Growth of IIP Overall industry and manufacturing growth slowdown in 2007 first time since 2001
11 Industrial Growth: Controlled Vs Overall Industry 11 IIPManuCore Elect ricityCoal Crude Petroleum Petroleum RefinerySugar Nitrogenous fertilizer (N) Phosphatic fertilizer (P2O5) (Apr – Feb) Growth of industries subject to government price control lower than those where prices are market determined
12 Employment Overwhelming proportion of workforce in the fast shrinking agriculture Limited labour absorption by the booming service sector Continued strong growth in manufacturing required for employment growth Table 7.1: Share in GDP and Employment of Selected Sectors, to Share in GDP (%)Share in Employment (%) Agriculture, forestry and fishing Industry Of which: Manufacturing Services Of which: Trade Of which: Retailn.a Wholesalen.a Total100.0 n.a: Not available. Source: Computed based on data from CSO, NSSO and EAC Report (2007).
13 Growth of Employment ( to ) Annual Employment Growth by Sector (%) Agriculture, forestry and fishing Industry Manufacturing Services Total Strong growth in employment during in all sectors “Jobless growth” of 1990s replaced by high-employment generating growth in this decade (61 million new jobs during )
14 Balance of Payments Widening trade deficits compensated by rising invisibles surplus Huge capital inflows continuing, and to cross 9% of GDP this year! 5.1: India's Balance of Payments: Selected Indicators (US$ Mn) (P) Exports Imports Trade balance % of GDP Invisible receipts Invisible payments Invisibles, net % of GDP Current account % of GDP Capital account (net) % of GDP Change in Reserves (-increase, +decline)
15 WPI Inflation (Week to Week)
16 WPI Inflation ( Monthly Average)
17 Global Commodity Prices (Base Year = 2005) Index % Change Commodities2007 Q2March 2008 Mar 07 to Mar 08 Wheat Maize Rice Barley Soybean oil Palm oil Sunflower oil Groundnuts Iron Ore Energy Spot crude Natural Gas Coal
18 Fiscal Scene Centre and state finances have improved steadily since
19 Tax-GDP Ratio: Centre and States Combined Direct taxes (mostly corporate and individual income taxes) rising from 2% of GDP in to about 7% of GDP
Total Expenditure on Subsidies, Infra & Agriculture ( % to GDP)
21 Interest rate (Base Year = 2005)
Real Effective Exchange Rate (REER) (Base Year = ) 22 Export-weighted (36-Country) Trade-weighted (36-Country) ( Apr-Nov) (Apr-Nov) Since , largest annual appreciation of the rupee (over 12%) happened in
23 Potential Growth of the Indian Economy OECD (2007) has computed the growth rate of potential output for India at 8.5% for 2006 IMF Working Paper (Sept. 2007) estimated it between 7.4 to 8.1% for and 8 per cent for the medium term Economy growing over 9% last two years Estimates for are around 8%
24 Raising Potential Output Growth Reforms Infrastructure Education Business climate Public expenditure efficiency
GLOBALIZATION: THE DIFFERENCE CHINA: The Communist Party- playing the perfect coordinating role and overseeing the delivery of public goods and services. INDIA: WILL ACHIEVE DESPITE THE GOVERNMENT!! IS THIS SUSTAINABLE
THE ADDED COMPLICATIONS INCLUSION REGIONAL DIVERGENCES PLURALISTIC HETEROGENOUS SOCIETY ENVIRONMENT
ROLE OF THE STATE DOES NOT IMPLY REVERSAL TO THE LICENCE- CONTROL RAJ DOES NOT ALSO IMPLY A PAUSE ON NEEDED STRUCTURAL REFORMS
ROLE OF THE STATE DELIVERY OF PUBLIC GOODS AND SERVICES –EDUCATION –HEALTH –LAW AND ORDER AND SECURITY –URBAN PLANNING –INFRASTRUCTURE –R&D –SCIENCE AND TECHNOLOGY
ROLE OF THE STATE EXTERNAL RELATIONS AND ACCESS TO FOREIGN MARKETS ACCESS TO INTERNATIONAL AND REGIONAL PUBLIC GOODS AND SERVICES –CLIMATE CHANGE -INTERNATIONAL MIGRATION –EXTREMISM –TRAFFICKING
THE WAY FORWARD FOCUS ON GOVERNANCE REFORMS ENFORCING ACCOUNTABILITY REAL OUTCOME BASED BDUGETING EMPOWERING THE BENEFICIARIES MOBILISING THE CIVIL SOCIETY MUCH GREATER USE OF THE RIGHT TO INFORMATION
THE WAY FORWARD NECESSARY EDUCATION SECTOR REFORMS IMPROVING PRIMARY & SECONDARY PUBLIC EDUCATION SYSTEMS REHABILITATE PRIMARY HEALTH SERVICES INCREASING PUBLIC EXPENDITURE ON PHYSCIAL INFRASTRUCTURE ENSURE EQUALITY OF OPPORTUNITY
32 Thank You.