1. Understanding Fluctuation: A Demand and Supply Side Perspectives Nilanjan Banik, PhD Associate Professor Center for Advanced Financial Studies Institute for Financial Management and Research

2. Full Employment Level of Output Versus Actual Output Peak Recession Full Employment Level of Output Actual Level of Output GDP Time

3. Growth Versus Development Growth is a uni-variate concept and measured as growth rate of per capita real GDP. Development is a multivariate concept; essentially taking into account per capita GDP; mortality rate and literacy rate.

4. GDP per capita, going by PPP (US $) Countries200020012002200320042005 India2422 2565 2655 2883 3163 3486 Switzerland30161 31835 32821 31747 33039 34355 Thailand6279 6515 6909 7483 8090 8551 United States33970 34802 35986 37501 39677 41854 Singapore23744 22937 24843 25788 28860 29921 Norway34208 35712 36147 36510 38453 40199 Source: WDI Online Database

5. Development Indicators Indicators1991-921996-972006-2007 GDP growth rate1.1 ' 8.2 ' 9.3 ! Life Expectancy (In years) : Male Female 57.7 58.7 60.1 61.1 66.1 67.1 Infant Mortality Rate (per thousand birth)786861 Poverty Ratio (%)39.137.326.1 * Source: Economic Survey 2006-2007; National Institute of Rural Development. ' At 1993-1994 prices; ! In 1999-2000 base year prices; * Figures for the year 1999-2000.

6. Components1950- 51 1960- 61 1970- 71 1980-811990- 91 1995-962004- 05 2006-07 Agriculture and allied activities 56.9046.7446.0738.8631.2728.2421.1318.5 (2.6%) ! Industry14.2819.4620.6524.5027.6428.1227.1526.4 (10.4%) Services29.8034.3033.6636.6441.1043.6451.7255 (11%) Sectoral Shares of GDP Source: Reserve Bank of India and CSO ! Percentage growth during that particular fiscal

7. Capital Formation and Employment Share Investment (as a % of GDP)1983-841987-881993-941999-002004-05 Agriculture and Allied Activities12.2911.248.428.486.63 Manufacturing50.8250.3150.0951.4454.06 Services36.8938.4541.4940.0839.31 Employment Ratios (as a % of total employment) Agriculture and Allied Activities63.1860.1460.3956.7058.60 Manufacturing15.6217.5715.8317.5718.50 Services21.2022.2923.7825.7322.90 Source: Reserve Bank of India (2006); CSO (2006); NSSO (2006).

8. Growth and Volatility 1971-72 to 1980-811981-82 to 1990-911991-92 to 2004-05 GDP Growth (Mean)3.165.645.83 Coff. of Variation137.7531.8439.05 Agriculture and Allied Service Growth (Mean)1.833.552.58 Coff. of Variation475.21150.74188.74 Industry Growth (Mean)4.057.115.81 Coff. of Variation88.9128.2251.85 Services Growth (Mean)4.426.727.78 Coff. of Variation34.0317.1623.04 Source: National Account Statistics

9. Factor productivity During 1993-99, output per worker in the services sector grew at a rate of 7 percent Output per worker in the manufacturing sector grew at a rate 4.5 percent Output per worker in the agricultural sector grew at a rate of 2.4 percent Source: Bosworth, Collins and Virmani (2006).

10. Profits and Sensex Source: Joshua Felman, International Monetary Fund

11. Some Facts “Among wage and salary earners the top 20 per cent of the population in urban India earns 56 per cent of the income while the bottom 20 per cent earns barely 3.4 per cent of the income” – pp.42 “Indeed the top 20 per cent earns more than all other put together” – pp.43 Source: India Today, September 18-24, 2007; NSSO – 2004-2005.

12. Data and Methodology Decompose agricultural, manufacturing and services, components of GDP into trend component and cyclical component. It is a bi-variate model; with rainfall and individual GDP components - agriculture, manufacturing or services, all at the State level. Trend component generally represents supply side whereas cyclical component generally represents demand side components. Blanchard - Quah decomposition techniques is used for identifying demand and supply side shocks.

13. Results Supply side disturbances contribute most to fluctuation in agricultural output and least to fluctuation in services sector output. Demand side disturbances mostly affect manufacturing output. Services output again are least affected. Fluctuations are measured at a lag length of four quarters.