INTRODUCTION TO INDIA

Indian economy has come to the forefront of developing nations in past one decade, though the initiation took place with our independence. The economy went through various makeovers viz, industrialization, green revolution, computerization, scientific research and telecommunication to mention a few.

Throwing light on each and every parameter of Indian Economy, theoretically and contextually, will provide us with the requisite knowledge of all round growth.

GOI BONDS AND ITS YIELD


Updates: GOI Bonds are likely to find support on RBI's announcement of open market operation purchases. The range for the 10-yr yield is seen between 8.20-8.60%. 


Theoretical:  Government of India bonds issued by Government of India denominated in Rupee. Government bonds are usually referred to as risk-free bonds, because the government can raise taxes to redeem the bond at maturity. However, other risks still exist, such as currency risk for foreign investors (for example non-Indian investors of Indian Treasury securities would receive lower returns because the value of Indian Rupee is depreciating right now). Secondly, there is inflation risk, in that the principal repaid at maturity will have less purchasing power than anticipated if the inflation outturn is higher than expected. The yield required by investors to loan funds to governments reflects inflation expectations and the likelihood that the debt will be repaid.   
GOI bonds are generally auctioned and the resultant accruals are used to finance current expenditure.


RBI INTEREST RATES


Updates: Current CRR: 6%, SLR: 24%, REPO: 8.50%, Reverse REPO: 7.50%. Deposit Rate: 8.50-9.25%, Base Rate: 10-10.75%, Savings Rate can be ascertained by the respective banks themselves.


Theoretical: A major objective of monetary policy is containing inflationary expectations and to attain this objective, monetary policy action needs to be undertaken well before the economy reaches the upper turning point of the cycle. If the measures are delayed, small incremental changes are ineffective and moreover could be destabilizing, particularly if monetary tightening is undertaken during the downturn of the cycle. The RBI has de-emphasized reserve requirements and thrust on interest rate controls as key instruments of monetary policy. 
While interest rate policy has to take into account various factors, both domestic and international, the RBI would need to progressively give somewhat more weightage to international real interest rates. Indian real interest rates would need to be better aligned with international real interest rates. 


INDIAN INFLATION


Updates: The Wholesale Price Index week based Food Inflation fell by 2.9% on week ended 31^st December 2011.


Theoretical: Inflation is a sustained increase in the overall level of prices. Since price stability is a key objective of monetary policy, RBI is obviously concerned with inflation.  Prices of specific goods or services may go up or down relative to the prices of others reflecting changes in productivity or demand and supply conditions. But when the overall price level rises, it erodes the purchasing power of income, raises the cost of living and lowers the real value of savings. Savers, investors and financial intermediaries track closely the link between inflation and interest rate. The level of inflation is also critical in terms of maintaining competitiveness of domestic industry in a liberalized trading and market determined exchange rate regime. More importantly, it is the poor who are most vulnerable to inflation as they do not have any effective hedge against inflation. 
Why should we switch over to CPI from WPI? First, food has a larger weight in CPI compared to WPI. The CPIs are, therefore, more sensitive to changes in prices of food items. Second, the fuel group has a much higher weight in the WPI . As a result, movement in international crude prices has a greater bearing on WPI than on the CPIs. Third, services are not covered under WPI while they are covered under CPI. Consequently, service price inflation has a greater influence on CPI. 


INDIAN CURRENCY


Updates: Indian Currency has depreciated by more than 20%. It was heading towards more but due to RBI intervention it got stalled, now it will remain range bound between 51.10 – 53.50.


Theoretical: The Economy of India is the ninth largest in the world by nominal GDP and the fourth largest by purchasing power parity (PPP). India has a per capita GDP (PPP) of $3,586 (IMF, 129th) as per 2010 figures, making it a low-middle income country. 
Thus, we have a long way to go before our own Indian Rupee can hold its stature high.


INDIAN GDP


Updates: Current GDP of India has come down to 6.9% from 7.7%.


Theoretical: The Sectors contributing to the India GDP are classified into three segments, such as primary or agriculture sector, secondary sector or manufacturing sector, and tertiary or service sector. With the introduction of the digital era, Indian economy has huge scopes in the future to become one of the leading economies in the world. India has become one of the most favored destinations for outsourcing activities. At present, it is one of the biggest exporters of highly skilled labour force to different countries. The new sectors such as pharmaceuticals, nanotechnology, biotechnology, telecommunication, aviation, manufacturing, shipbuilding, and tourism would experience very high rate of growth.

Indian GDP is calculated by the expenditure method, where, GDP = consumption + investment + (government spending) + (exports-imports) and the formula is GDP = C + I + G + (X-M),
Where, C stands for consumption which includes personal expenditures pertaining to food, households, medical expenses, rent, etc
I stands for business investment as capital which includes construction of a new mine, purchase of machinery and equipment for a factory, purchase of software, expenditure on new houses, buying goods and services but investments on financial products is not included as it falls under savings
G stands for the total government expenditures on final goods and services which includes investment expenditure by the government, purchase of weapons for the military, and salaries of public servants
X stands for gross exports which includes all goods and services produced for overseas consumption
M stands for gross import which includes any goods or services imported for consumption and it should be deducted to prevent from calculating foreign supply as domestic supply.


FISCAL DEFICIT


Updates:  Planning Commission deputy chairman Montek Singh Ahluwalia forecasts fiscal deficit in the current financial year will exceed 4.6 per cent of the gross domestic product (GDP) target, though the final figures would depend on the actual expenditure.  


Theoretical: Fiscal Deficit is calculated by way of:  Government's Total Income (Revenue) - Government's Total Expenditure
Fiscal Deficit is usually not expressed as absolute amount, but in terms of percentage of GDP i.e., (Government's Total Revenue - Government's Total Expenditure)/GDP*100.   
Therefore, lesser the Fiscal Deficit percentage, better the country's growth.


TRADE  AND CURRENT ACCOUNT DEFICIT/ BOP


Updates:  India's Trade Account Deficit in September 2011 was reported at 9767 million us.
In the second quarter of 2011, Current Account Deficit of 14.1 billion USD was reported by CSO.


Theoretical: The current account is one of the two primary components of the Balance of Payments, the other being the Capital Account. The current account is the sum of the Balance of Trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aids).
A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation. 
A Nation is said to have a trade deficit if it is importing more than it exports. Positive net sale abroad contributes to a current account surplus while negative net sale abroad contributes to a current account deficit. Because exports generate positive net sales and the trade balance is typically the largest component of the current account, a current account surplus is usually associated with positive net exports. 
The net factor income or income account, a sub-account of the current account, is usually presented under the headings income payments as outflows, and income receipts as inflows. Income refers not only to the money received from investments made abroad by way of dividends and interests, but also to the money sent by individuals working abroad, known as remittances, to their families back home. If the income account is negative, the country is paying more than it is getting.
Balance of Payment is the sum total of Current Account and Capital Account of a country. Capital account includes Indian capital outflow y way of IMF Loan Repayments, Investments done abroad by GOI as well as Indian Institutions and Individuals. While foreign capital inflow can be in the form of FIIs, FDIs, IMF Funds, ECB and NRI Deposits.  


IIP INDEX AND CAPEX


Updates:  Index of Industrial Production (IIP) with base 2004-05 for the month of November 2011 has come out much better at 5.9% compared to -5.1% for October 2011. 
India's manufacturing sector expansion slowed in November as factory output grew at its slowest pace in nearly three years.


Theoretical: IIP data (Index of Industrial Production) is a measurement which represents the status of production in the industrial sector for a given period of time compared to a reference period of time. IIP number is one of the best statistical data, which helps us to measure the level of industrial activity in Indian economy. It is a very important indicator to the Government for planning purposes.
The weightage of Indian IIP data is broadly divided into three segments – manufacturing (79.36%), mining & quarrying (10.47%) and electricity (10.17%).


PMI DATA


Updates: HSBC purchasing managers’ index (PMI) for manufacturing in India grew to 54.7 in December from November’s 52.3, on the back of faster expansion in new business.


Theoretical: An indicator of the economic health of the manufacturing and services sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The Purchasing Managers' Index (PMI) is an indicator produced by Markit Group and HSBC India.


CONSUMER CONFIDENCE INDEX


Updates: However, the long term trend remains negative and the current bounce to 75 in December 2011 should not be viewed prematurely as a change in trend. It is important to note that we might have to observe a continuation of this bounce over several months before a change in trend can be declared. In particular, sentiment pertaining to consumer spending remains very weak.


Theoretical: Consumer confidence is a key driver of economic growth. It is widely considered an economic indicator of household consumption expenditure. Consumers tend to increase consumption when they feel confident about the current and future economic situation of the country and their own financial situation. In economies such as India where personal consumption represents 66%, consumer confidence has a particularly significant impact on the economy and can provide critical insight into its growth prospects.
The CNBC TV-18 Boston Analytics Consumer Confidence Index  is derived from a monthly survey of approximately 10,000 respondents across 15 cities in India—Delhi, Mumbai, Kolkata, Chennai, Hyderabad, Bangalore, Ahmedabad, Chandigarh, Nagpur, Kochi, Jaipur, Lucknow, Bhubaneswar, Patna, and Vishakhapatnam via face-to-face interviews. The sample aims at capturing the major contributors to the personal consumption component of the GDP. The data is treated with a complex system of weights designed scientifically to weed out biases resulting from random sampling.


HOUSING AND INFRASTRUCTURE


Updates:  Mumbai’s residential property market is predicted to witness a glut in 2012-13 owing to steady new launches at a time when sales are extremely slow, according to Indian real estate consultancy. Its been reported Indian property prices could fall 10-15%.The reasons for this is Indian property developers who bought land at high prices are now having to bring prices down considerably and of recent residential sales about 65% of flats in Delhi and 35% in Mumbai have gone to speculators.
urban infrastructure can create a construction business opportunity (considering 60% construction intensity) of Rs7.8 tn ($173 bn) over the next decade or $14 bn annually for next five years followed by another five years of demand for $21 bn annually of construction services.


Theoretical: Although, India is a growing economy with decent GDP, the Housing sector of India is set to take a back seat for a while because of dearer home loans, excessive construction of housing apartments and stagnation in income of common man.
The deficiencies and delays in urban infrastructure is due to lack of investments, funding and governance issues. However, even if we consider a 75% implementation ratio to the suggested investment plans, we expect Rs.1 tn ($23 bn) to be invested annually in the next five years (2010-15) followed by Rs1.6 tn ($35 bn) to be invested annually over the next five years (2015-20).
These numbers are achievable and these are much closer to the investments suggested in the XIth plan: Rs6.2 tn ($133 bn) over 2007-12 i.e., Rs1.25 tn ($27 bn) annually, provided GOI takes it seriously.  


UNEMPLOYMENT


Updates:  Unemployment rate in India is more than 10%.


Theoretical: Even as we celebrate a booming economy, with its surplus jobs and employment opportunities, a section of our population is just waiting for a chance to earn their first salary - however small it may be. Ironically, we also have the highest number of child laborers - close to 17 million. Unemployment can be reduced in India by funding Vocational education and Training programmes especially aimed at rural development in India. Empower people with jobs and pull them not just out of unemployment but poverty too.


AGRICULTURAL AND RURAL DEVELOPMENT


Updates: Agriculture employs 52% of the country’s workforce while only contributing to 17.1% of the GDP.

Theoretical: India is a country of villages and about 50% of the villages have very poor socio-economic conditions. Since the dawn of independence, concerted efforts have been made to ameliorate the living standard of rural masses. So, rural development is an integrated concept of growth and poverty elimination and has been of paramount concern in all the five year plans.
Rural Development (RD) programmes comprise of following:
Provision of basic infrastructure facilities in the rural areas e.g. schools, health facilities, roads, drinking water, electrification etc.
Improving agricultural productivity in the rural areas.
Provision of social services like health and education for socio-economic development.
Implementing schemes for the promotion of rural industry increasing agriculture productivity, providing rural employment etc.
Assistance to individual families and Self Help Groups (SHG) living below poverty line by providing productive resources through credit and subsidy.
If India is to evolve into a middle income country with a broad-based middle class, then rural reform, greater agricultural productivity, and sufficient employment growth are the Stepping Stones to Success.