AN OVERVIEW OF ECONOMY

AN OVERVIEW OF ECONOMY 1. INDIAN ECONOMY : The Millennium Devleopment Goals (MDGs) summarize the developments goal agreed on at international conferences and world summits during the 1990s. At the beginning of the millennium (September 2000) world leaders evolved the key goals and targets in the millennium Declaration Based on the declaration, various departments of the United Nations worked with the World Bank, the International Monetary Fund and the Organization for Economic Cooperation and Development (OED) on a concise set of goals, numerical targets and quantifiable indicators to assess progress. The set is known as the MDG, which includes 8 goals, 18 targets and 48 indicators. The UN General Assembly has approved these as a part of the Secretary- General s Millennium Roadmap. Apart from UN Agencies, ADB has also adopted the MDG and is now reorienting its processes to be able to design and implement projects that will help countries in achieving these goals. The thrusts of the MDG to be achieved by 2015 include (i) extreme poverty and hunger to be halved,(ii) universal primary education to be achieved,(iii) gender equality to be achieved,(iv) under-five mortality to be reduced by two-thirds (v) maternal mortality to be reduced by three-quarters, (vi) the spread of HIV/AIDS, malaria and tuberculosis to be reversed, (vii) environmental sustainability to be ensured etc. The Tenth Five Year Plan (2002-07) has been prepared against a backdrop of high expectations arising from some aspects of the recent performance. GDP growth in the post reforms period has improved from an average of about 5.7 per cent in the 1980s to an average of about 6.1 per cent in the Eighth and Ninth Plan periods, making India one of the ten fastest growing countries in the world. The Tenth Five Year Plan aims at achieving an average growth rate of the Gross Domestic Product (GDP) of 8 per cent per annum over the period 2002 to 2007. It also seeks to create the conditions for a further acceleration in the growth rate over the Eleventh Plan period (2007-12) in order to achieve a doubling of per capita income of the country over the next ten years. The strategy for the Tenth Plan include redefining the role of Government, a Statewise breakdown of growth and social development targets, extending reforms into the agricultural sector, emphasis on employment-generating sectors and poverty alleviation. Simultaneously, the Tenth Plan has specific focus on key indicators of human development. Accordingly, the Plan seeks to establish, in addition to the target rate of real growth of 8 per cent, specific and monitorable targets measuring human well being, in terms of : (1) Reduction of poverty ratio by 5 per centage points by 2007, (2) Providing gainful and high-quality employment atleast in addition to the labour force over the Tenth Plan period, (3) All children to complete 5 years of schooling by 2007, (4) Reduction in gender gaps in literacy and wage rates by at least 50 per cent by 2007, (5) Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2 per cent, (6) Increase in Literacy rates to 75 per cent within the plan period, (7) Reduction of Infant Mortality Rate (IMR) to 45 per 1000 live births by 2007, ( 8) Reduction of Maternal Mortality Rate (MMR) to 2 per 1000 live births by 2007, (9) Increase in forest and tree cover to 25 per cent by 2007, (10) All villages to have sustained access to potable drinking water within the Plan period and (11) Cleaning of major polluted rivers by 2007. The first year (2002-03) of the Tenth Five Year Plan (2002-07), registered an average annual growth rate of 7.6 per cent. The decadal average annual growth rate of the Indian Economy, after fluctuating around 3.5 per cent for the decade of the 1950s, 1960s, and 1970s, took a quantum leap to 5.65 per cent in the decade of the 1980s. Similarly, after hitting a low of 1.3 per cent in 1991-92 in the aftermath of the balance of payment crisis, the annual rate of growth rapidly accelerated to around 7.5 per cent during 1994-95 to 1996-97. Socio-Economic Review, Gujarat State, 2004-05 i

During the second year (2003-04) of the Tenth Five Year Paln (2002-07), a strong performance has been recorded in the Indian Economy. The main driver of growth was the resurgence of agricultural production from the drought of the preceding year. The other factors were buoyant external demand and continued industrial recovery. The performance of agriculture in 2003-04 was typical of a normal monsoon year following a drought year. The notable feature this time was the simultaneous and well distributed firming up of activity in industry and services. Exports contributed significantly to higher growth in a wide range of manufacturing industries - machinery and transport equipment, automobiles, iron and steel, chemicals and chemical products - attesting to the rising international competitiveness of Indian Industry. Capacity utilisation improved in several manufacturing industries as well as in electricity generation and mining and quarrying. A robust expansion of activity in trade, hotels, transport and communication paved the way for strong growth of the services sector, well above the average for the period 1993-2003. Moreover, the resilience of the Information Technology enabled services and business process out sourcing activities. India has recorded one of the highest growth rates in the world in 2003-04, second only to China among the emerging market economies. India has become the fourth largest economy in the world after US, China and Japan. The US, China, Japan and India account for 21.1 percent, 12.6 perent, 7.0 percent and 5.7 percent of the world GDP respectively. According to the World Development Report 2004, India has become the fourth largest economy in terms of Purchasing Power Perity (PPP) after the US, China and Japan. The growth rate of Indian Economy was recorded at 8.2 percent in 2003-04, the highest in last 15 years. An agriculture played a key role in the resurgence of growth. Activity also firmed up in a wide range of manufacturing and services sectors. Trade, hotels, restaurants, transport, storage and communication surpassed trend growth. There was a significant decline in the poverty ratio from 36.0 percent in 1993-94 to 26.1 percent in 1999-00. As per the results of the 57th round (July, 2001to June, 2002) of National Sample Survey, the proportion of chronically hungry households (not getting enough to eat in any month of the year) declined to 0.5 percent in rural areas and 0.1 percent in urban areas. As for seasonal hunger, 16 per thousand households in rural areas and 3 per thousand households in urban areas reported getting enough food only in some months of the year. Population 1.1 India accounts for 2.4 percent of world surface area but it supports 16.7 percent of the world population. According to the final results for the Census of India 2001, the population of India crossed one billion and was enumerated at 103 billion. Thus, India has become the second country in the world after China to cross one billion mark. The decadal growth of population at 21.53 percent between 1991-2001, was the sharpest decline in the rate of growth of population witnessed since independence with the average exponential growth rate declining from 2.14 percent per annum during the previous decade to 1.93 percent annum during 1991-2001. The National Population Policy (NPP) 2000 outlines the long term objective of achieving a stable population by 2045, at a level consistent with the requirements of sustainable economic growth and social development. 1.2 The percentage decadal growth of population in rural and urban areas in the decade 1991-2001 was 18.08 percent and 31.48 percent respectively. Urban population constitutes 27.82 percent of the total population of the country, which is higher by 2.11 percent points as compared to the percentage in 1991. The density of population has increased steadily from 117 persons in 1951 to 325 persons per sq.km. in 2001. However, the sex ratio of country as a whole has improved from 927 females per 1000 males in 1991 to 933 females per 1000 males in 2001. The sex ratio of a country as a whole in the age group 0-6 years was noticed to 927 females per one thousand males. The literacy rate for the country as a whole in 2001, worked out to 64.84 percent for the population aged seven years and above. The corresponding figures for males and females were 75.26 percent and 53.67 percent respectively. ii Socio-Economic Review, Gujarat State, 2004-05

1.3 Classification of population by economic activity according to final results of 2001 Census reveals that out of total population of 103 crore in country, 31.30 crore were main worker and 8.92 crore were marginal workers whereas 62.64 crore were non-workers. Thus, main workers constitute about 30.43 percent and marginal workers constitute about 8.67 percent of the total population. Among males 45.12 percentwere main workers and 6.56 percent were marginal workers while among females 14.68 percent were main workers and 10.95 percent were marginal workers. Out of the total workers (main + marginal) 31.7percent were cultivators, 26.5 percent were agricultural labourers, 4.2 percent were engaged in household industries and 37.6 percent were engaged in other economic activities. Thus about 58.2 percent of working population was engaged in agriculture (i.e. cultivators and agriculture labourers) in 2001. Assessment of 2003-04 Gross Domestic Product 1.4 Gross Domestic Product (GDP) at factor cost at constant (1993-94) prices in 2003-04(Q) is estimated at Rs.1430548 crore as against Rs. 1318362 crore in 2002-03, registering a growth of 8.5 percent during the year as against the growth rate of 4.0 percent during the previous year. At current prices, GDP in 2003-04(Q) is estimated at Rs. 2519785 crore as against Rs 2254888 crore in 2002-03 showing an increase of 11.7 percent during the year. 1.5 At constant (1993-94) prices, the national income (i.e. net national product at factor cost) in 2003-04 is estimated at Rs. 1266005 crore as against Rs. 1161902 crore in 2002-03, showing a rise of 9.0 percent during the year. At current prices, the national income in 2003-04 is estimated at Rs.2252070 crore as against of Rs. 2008770 crore in 2002-03, showing a rise of 12.1 percent during the year. 1.6 The growth rate of 8.5 percent in GDP has been achieved during the year 2003-04 because of high growth in agriculture (10.3 percent), trade, hotels and restaurants (8.8 percent), financing, insurance, real estate and business services (7.1 percent). 1.7 The per capita income (per capita net national product at factor cost) in real terms, i.e. at 1993-94 prices is estimated at Rs. 11799 as against Rs. 11013 in 2002-03, registering an increase of 7.1 percent during the year. The per capita income at current prices is estimated at Rs. 20989 as against Rs. 19040 in 2002-03 depicting a growth of 10.2 percent. Private Final Consumption Expenditure 1.8 Private Final Consumption Expenditure (PFCE) in the domestic markets at current prices works out to Rs. 1765849 crore in 2003-04 as against Rs. 1585132 crore in 2002-03. At constant prices (1993-94), the PFCE works out to Rs. 964865 crore in 2003-04 as against Rs. 891419 crore in 2002-03. The per capita PFCE in 2003-04 works out to Rs. 16457 at current prices and Rs. 8992 at constant prices as against Rs. 15025 and Rs. 8449 respectively in 2002-03. 1.9 The Gross Domestic Savings (GDS) at current prices was observed 28.1 percent of GDP in 2003-04(Q) at market prices as compared to 26.1 percent of GDP in 2002-03. The rate of Gross Domestic Capital Formation (GDCF) at current price was recorded to 26.3 percent in 2003-04 (Q) from 24.8 percent in 2002-03. Agriculture 1.10 The index of agriculture production grew to 179.6 in 2003-04 from 150.5 in 2002-03 indicating the rise of 19.3 percent in 2003-04 over the previous year. The total production of foodgrains was recorded to 212.1 million tonnes in 2003-04 whereas the production of oilseeds and sugarcane was recorded to 25.1 million tonnes and 236.2 million tonnes respectively. The production of cotton was recorded to 13.8 million bales of 170 kgs. each in 2003-04. Socio-Economic Review, Gujarat State, 2004-05 iii

1.11 The scheme of Kisan Credit Cards (KCC) was introduced in 1998-99 to improve credit delivery to farmers. The KCC shceme has been progressing well and the number of cards increased from 6.1 lakh at the end of March, 1999 to 413.8 lakh at the end of March, 2004. Industry 1.12 The average Index of Industrial Production (IIP) was recorded 189.0 during the year 2003-04, showing an increase of 7.02 percent as compared to 176.6 during the year 2002-03 (5.7 percent). The improvement in industrial performance was enabled by a rebound in rural demand, rising exports across a spectrum of industries, increased consumer durables demands. 1.13 In the year, 2003-04 the total number of 4130 proposals of Industrial Entrepreneurs Memorandum having proposed investment Rs. 154954 crore have been filled with the Government, showing an increase of 29.96 percent in number of proposals and 91.71 percent in proposed investments as compared to previous year 2002-03. 1.14 Small Scale Industries continue to occupy a significant position in employment generation, output and exports. At the end of the year 2003-04, the total number of SSI units and employment were recorded 11.40 millions and 27.14 million respectively. During the year 2003-04, the value of output was noticed to Rs. 351427 crore. 1.15 The total amount approved and inflows of FDI in India in terms of industry have peaked at US $ 4.74 billion in 2000-01, and declined thereafter to US $ 3.73 billion in 2002-03 and further decreased to US $ 3.57 billion in in 2003-04. 1.16 The five top states attracting major shares of FDI approvals were Maharashtra (17.48 percent), Delhi (12.06 percent), Tamil Nadu (8.58 percent), Karnataka (8.26 percent) and Gujarat (6.44 percent) during the period January, 1991 to March, 2004. 1.17 The small scale industry (SSI) sector continues to remain an important sector of the economy with noteworthy contribution to GDP, industrial production, employment generation and exports. As per the final results of the Third All India Census of SSIs registered and unregistered units, for the year 2001-02, there were 105.21 lakh SSI units in the country, out of which 13.75 lakh were registered working units and 91.46 lakh unregistered units having the production of Rs. 282270 crore and employment potential of 249.09 lakh persons. Industrial Relations 1.18 There was a sharp decline in the number of strikes and lockouts during 2003 as compared to previous year. Strikes declined from 295 in 2002 to 244 in 2003 and lockouts came down from 284 in 2002 to 245 in 2003. The total mandays lost on accounts of strikes and lockouts have declined from 26.58 million in 2002 to 22.00 million in 2003, showing a decrease of 4.58 million in 2003. Price Situation 1.19 Inflation in country generally remained stable during 2003-04. Annual WPI inflation measured by annual average was at 5.4 percent in 2003-04 as compared with 3.4 percent a year ago whereas the annual average Consumer Price Index (CPI-IW) inflation was recorded at 3.5 percent as compared to 4.1 percent in 2002-03. Finance 1.20 Government finances witnessed some improvement in 2003-04, reflecting, the robust iv Socio-Economic Review, Gujarat State, 2004-05

macroeconomic performance and the commitment towards sustainable fiscal consolidation. All the key deficit indicators viz. gross fiscal deficit (GFD), revenue deficit (RD) and primary deficit (PD) percent of GDP of the centre in revised estimates turned out to lower at 9.4 percent, 6.2 percent and 2.9 percent respectively as compared to previous year 2002-03. 1.21 The combined tax GDP ratio increased to 15.0 percent in 2003-04 from 14.5 percent in 2002-03, showing an increase of 0.5 percent points over the previous year. 1.22 The outstanding Government Guarantees extended by the Central and the State Govt. were recorded to 3.7 percent and 7.5 percent of GDP respectively at the end of March, 2003 as compared to 4.2 percent and 7.2 percent of GDP recorded at the end of March, 2002. 1.23 The combined outstanding liabilities (Debt) of the centre and the State Governments at the end of year 2003-04 was recorded to 76.7 percent of GDP higher than 75.7 percent at the end of year 2002-03. Capital Markets 1.24 On account of large investment by FIIs against the background improving fundamentals, strong corporate results and initiates on the disinvestment front, the stock market turned buoyant in 2003-04 and the BSE sensex ended the year touched to the mark 5591 with net significant gains of over 83 percent over the previous year 2002-03. Foreign Exchange Reserves 1.25 A strong balance of payment position in recent year has led to a steady accumulation of India s foreign exchange reservers. At the end of the year 2003-04, India s total foreign exchange reservers (including gold, SDRs and reserve position in IMF) amounted to US $ 113.0 billion. The annual accretion of the year was Us $ 36.9 billion. Foreign Trade 1.26 During the year 2003-04, the exports and imports were recorded to Rs. 291582 crore and Rs. 353976 crore respectively. At the end of the year 2003-04, the balance of trade had increased to Rs. (-) 62394 from Rs. (-) 42069 crore recorded at the end of year 2002-03, showing an increase of 16.27 percent. Prospects For 2004-05 1.27 Early developments in 2004-05 present several continuing strengths in the economy. The monsoon set in almost ten days before time. The spatial distribution of rainfall improved significantly. 1.28 Institutional projections of Gross Domestic Product (GDP) growth for the year 2004-05, are in the range of 6.0 percent to 7.0 percent. According to Central Statistical Organisation, the estimates of Growth Rate of Gross Domestic Product for the period April, 2004 to June, 2004 and July, 2004 to September, 2004 is estimated at 7.4 percent and 6.6 percent respectively. According to RBI to growth is estimated between 6 to 6.5 per cent for the year 2004-05. 1.29 The total foodgrains production for the year 2004-05 is estimated at 206.39 million tonnes lower than that of 212.1 million tonnes in 2003-04. The Oilseeds production is estimated at 248.42 lakh tonnes in 2004-05 as against 251.43 lakh tonnes in 2003-04. 1.30 The gorwth of index of industrial production for the period April to November, 2004 in 2004-05 was recorded 8.4 percent. The core sector growth rate for Electricity, Coals, Steel, Crude Oil, Refinery and Cement for the period April to November, 2004 was recorded to 6.8 percent, 7.2 percent, 4.4 percent, 3.3 percent, 6.3 percent and 6.7 percent respectively as compared to 3.2 percent, 3.1 percent, 11.9 percent, Socio-Economic Review, Gujarat State, 2004-05 v

(-)0.9 percent, 6.9 percent and 5.6 percent recorded in the same period of the previous year. 1.31 Despite an appreciating rupee, the country s export managed to record growth in terms of dollar at rate of 24 percent (US $ 46.3 billion) during the period April to November, 2004, however, imports grew at 34.4 percent (US $ 64.2 billion) for the same period as compared to the previous year. As a result the country s trade deficit reached to US $ 17.9 billion at the end of November, 2004. 1.32 The country s foreign exchange reserves has increased to US $ 131.02 billion at the end of 24th December, 2004 and the country has become the sixth largest reserve holder in the world. 1.33 The inflation calculated on the basis of Whole Price Index, point to point year on year was noticed at 6.5 percent for the week ending December, 18th. 1.34 The revenue deficit for the period April to November, 2004 was recorded Rs. 73948 crore, 97 percent of budget estimates for the year 2004-05, whereas the fiscal deficit was recorded Rs. 70717 crore, 51 percent of the budget estimates for the full year 2004-05. 1.35 The benchmark sensex rebounded to its highest ever close by ending above the 6600 mark on 31st December, 2004 on expectations of strong earning growth and roubust foreign fund flows into the country. *** vi Socio-Economic Review, Gujarat State, 2004-05