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Overview of Indian Economy

India's economy is on the fulcrum of an ever increasing growth curve. With positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapidly expanding FDI inflows, India has emerged as the second fastest growing major economy in the world.

The economy has been growing at an average growth rate of 8.8 per cent in the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6 per cent being the highest in the last 18 years. Significantly, the industrial and service sectors have been contributing a major part of this growth, suggesting the structural transformation underway in the Indian economy.
For example, industrial and services sectors have logged in a 10.63 and 11.18 per cent growth rate in 2006-07 respectively, against 8.02 per and 11.01 cent in 2005-06. Similarly, manufacturing grew by 8.98 per cent and 12 per cent in 2005-06 and 2006-07 and transport, storage and communication recorded a growth of 14.65 and per cent 16.64 per cent, respectively.
Another significant feature of the growth process has been the consistently increasing savings and investment rate. While the gross saving rate as a proportion of GDP has increased from 23.5 per cent in 2001-02 to 34.8 per cent in 2006-07, the investment rate-reflected as the gross capital formation as a proportion of GDP-has increased from 22.8 per cent in 2001-02 to 35.9 per cent in 2006-07.

During April-December 2007-08, gross fixed capital formation has accelerated to 32.6 per cent of GDP, from 30.5 per cent of GDP in the corresponding period in 2006-07.

The 2007-08 Fiscal Year

The growth process continues apace. On the back of 9.6 per cent growth April-December 2006-07, GDP grew by 8.9 per cent during April-December 2007-08.

  • According to the third advance estimates of crop production by the agriculture ministry, food grain output grew by 4.6 per cent in 2007-08 - nearly four times the average annual growth of 1.2 per cent between 1990 and 2007.
  • Overall industrial production grew by 8.7 per cent during April-February 2007-08. Significantly, manufacturing sector grew at the rate of 9.1 per cent.
  • Services grew by 10.4 per cent in April-December 2007, on the back of 11.4 per cent during the corresponding period in 2006-07.
  • Manufacturing grew by 9.1 per cent during April-February 2007-08, on the back of 12.2 per cent growth during same period in 2006-07.
  • Core infrastructure sector continued its growth rate recording 5.6 per cent growth in April-February 2007-08.
  • While exports grew by 23.02 per cent during 2007-08, imports increased by 27.01 per cent in the same period.
  • Money Supply (M3) has grown by a robust 207 per cent growth (year-on-year) as of end-March 2008, compared to 21.5 per cent last year.
  • Fiscal and revenue deficit decreased by 13.5 per cent and 33.3 per cent, respectively, during April-February 2007-08 over corresponding period last year.

With such a robust growth rates, the advance estimates of the Central Statistical Organisation (CSO) expects the economy to grow by 8.7 per cent in 2007-08. This is in tune with the high average real GDP growth of 8.7 per cent per annum during the five-year period, 2003-04 to 2007-08.

Per Capita Income
Along this significant acceleration in the growth rate of Indian economy, India's per capita income has increased at a rapid pace, exceeding an earlier forecast made by Goldman Sachs BRIC report which estimated India's per capita to touch US$ 800 by 2010 and US$ 1149 by 2015. Per capita income has increased from US$ 460 in 2000-01 to almost double to US$ 797 by the end of 2006-07. In 2007-08, India's per capita income is estimated to be over US$ 825.07, according to the advance estimates of the Central Statistical Organisation (CSO). Further, India's per capita income is expected to increase to US$ 2000 by 2016-17 and US$ 4000 by 2025. This growth rate will, consequently, propel India into the middle-income category.

Some Highlights

Reflecting the favourable prospect of growth rate of Indian economy, the orders received Indian companies have increased by a whopping 68.6 per cent to US$ 32.48 billion during January-October 2007 compared to US$ 19.26 billion in the same period last year.

  • India is among the five countries sharing 50 per cent of the world production (or GDP).
  • FDI inflows have jumped by almost three times to US$ 15.7 billion in 2006-07 as against US$ 5.5 billion in 2005-06.
  • The aggregate income of the top 500 companies rose by 28.4 per cent in 2006-07 to total US$ 469.51 billion.
  • India's National Stock Exchange (NSE) ranks first in the stock futures and second in index futures trade in the world.
  • Twenty Indian firms have made it to the list of Boston Consulting Group's 100 New Global Challenger Giants list.
  • According to a study by the McKinsey Global Institute (MGI), India's consumer market will be the world's fifth largest (from twelfth) in the world by 2025.
  • The number of companies incorporated has increased at an annual average of 55,000 companies in the last two years to 865,000, from 712,000 companies at the end of 2005.
  • Four Indians and seven Indian microfinance companies make it to the Forbes list of Top10 world's wealthiest CEOs World's Top 50 Microfinance Institutions, respectively.
  • India has the most number of private equity (PE) funds operating amongst the BRIC markets.

Mumbai has been ranked tenth among the world's biggest centres of commerce in terms of the financial flow volumes by a survey compiled by MasterCard Worldwide.

Another significant aspect has been the broad-based nature of the growth process. While new economy industries like Information Technology and biotechnology have been growing around 30 per cent, significantly old economy sectors like steel have also been major contributors in the Indian growth process. For example, India has moved up two places to become the fifth largest steel producer in the world.
And with its manufacturing and service sectors on a searing growth path, Lehman Brothers Asia estimates India to grow by as much as 10 per cent every year in the next decade.
Source: ibef