TERM PAPER

ON
Compare the growth statistics of India during
the tenth five year plan. What are the projections
for 11th plan and how long can Indian economy
sustain a growth rate of above 8%?
For
Managerial Economics

SUBMITTED TO SUBMITTED
BY
MISS PALWINDER KOUR MANOJ KUMAR
SHARMA
ROLL NO.: A04
CLASS: MBA (1)
SECTION:
T1902 (B)
REG. NO.:
10904598
 TABLE OF CONTENTS
1. Introduction

1.1. Indian economy overview

1.2. Factors affecting economic growth

2. Objective of study

3. Research Methodology

5. Planning in India

5.1. 10th five year plan

5.2. 11th five year plan

6. How long can India sustain a growth rate above 8%?

6.1. Problem Areas

7. Conclusion

8. Limitations of the Study

9. Bibliography
 1. Introduction

A Positive change in the level of production of goods and services by a

country over a certain period of time. Normal growth is defined as
economic growth including inflation, while real growth is normal growth
minus inflation. Economic growth is usually brought about by
technological innovation and positive external forces.

1.1. Indian Economy Overview

India has been one of the best performers in the world economy in recent
years, but rapidly rising inflation and the complexities of running the
world’s biggest democracy are proving challenging.

India’s economy has been one of the stars of global economics in recent
years, growing 9.2% in 2007 and 9.6% in 2006. Growth had been
supported by markets reforms, huge inflows of FDI, rising foreign
exchange reserves, both an IT and real estate boom, and a flourishing
capital market.

Like most of the world, however, India is facing testing economic times in
2008. The Reserve Bank of India had set an inflation target of 4%, but by
the middle of the year it was running at 11%, the highest level seen for a
decade. The rising costs of oil, food and the resources needed for India’s
construction boom are all playing a part.

India has to compete ever harder in the energy market place in particular
and has not been as adept at securing new fossil fuel sources as the
Chinese. The Indian Government is looking at alternatives, and has
signed a wide-ranging nuclear treaty with the US, in part to gain access
to nuclear power plant technology that can reduce its oil thirst. This has
proved contentious though, leading to leftist members of the ruling
coalition pulling out of the government.
As part of the fight against inflation a tighter monetary policy is
expected, but this will help slow the growth of the Indian economy still
further, as domestic demand will be dampened. External demand is also
slowing, further adding to the downside risks.

The Indian stock market has fallen more than 40% in six months from its
January 2008 high. $6b of foreign funds has flowed out of the country in
that period, reacting both to slowing economic growth and perceptions
that the market was over-valued.

It is not all doom and gloom, however. A growing number of investors

feel that the market may now be undervalued and are seeing this as a
buying opportunity. If their optimism about the long term health of the
Indian economy is correct, then this will be a needed correction rather
than a downtrend.

1.2. Factors affecting economic growth

According to Keynesian

1. Savings and Investment

There are some economic facts of life that underpin all macroeconomic
explanations of growth. Perhaps the most important is that in order for
capital goods to be accumulated to produce greater quantities of
consumer goods in the future, consumer goods have to be given up in
the present. For example, if workers are building a textile factory they
cannot simultaneously be making textiles these will only appear in the
future as a result of the sacrifices of the present.

Increases in the amount of capital goods are called investment. For

growth to occur the level of investment has to be greater than the
amount of depreciation, i.e. the amount by which machines wear out or
become obsolete during the year. The higher the level of investment
above depreciation the greater the potential output of the economy in
the future.

2. Government-Financed Investments
It may be the case that governments are not well enough informed to
make investment decisions which reflects market circumstances.
However, some kinds of investment are subject to market failure and
government provision may therefore be necessary.

For example, the provision of infrastructure is difficult to achieve in a free

market it has too much of a public good aspect to be provided effectively
by private companies. There are also obvious positive externalities
associated with an efficient, well maintained, and reliable infrastructure.

3. Macroeconomic Stability
General macroeconomic conditions are very important in terms of the
general climate under which investment decisions are made. So,
economic growth will depend to some extent upon the stability of the
economy e.g. Fiscal balance and reasonably predictable levels of
inflation.

Macroeconomic stability reduces the risks of investment and might

therefore be seen as a necessary condition for growth. Fiscal balance
ensures that there is less risk of inflation, because there will be less risk
of governments printing money. This may also stabilize the exchange
rate and allow interest rates to be set at a reasonably low level so further
encouraging investment.

4. Trade Liberalization, Capital Mobility and Exchange

Rate Policy
The abolition of trade restrictions (tariffs and quotas) is often seen as a
necessary condition for growth. The idea is to widen markets and thus
allow economies of scale in exporting industries. It is often argued that
exchange rates need to be adjusted downwards at the same time, to
ensure that potential exporters can compete on world markets.

To encourage direct foreign investment restrictions on international

capital flows may need to be reduced. These policies have often been
introduced to satisfy the conditions of IMF loans this is discussed in more
detail under structural adjustment policies. However, such policies are
extremely controversial. Free trade did not seem to be a necessary
condition for European growth. Certainly, exposure to foreign competition
may increase the productivity of companies that survive but the side-
effects for what are likely to be some of the poorest people in developing
countries are likely to be severe.
2. Objectives of study

1. To study about the growth rate of Indian

economy

2. To study the five year plans in India.

3. To study 10th and 11th five year plans and

making comparison between 9th and 10th
five year plans.

4.To study the economic growth rate

fluctuations in India.
3. RESEARCH METHODOLOGY

Secondary data has been used and is collected from different websites,
the links are been given in the bibliography section, and also from
various books and magazines which are mentioned in bibliography
section.
5. Planning in India
The need for planned, coordinated economic development under
Government guidance was recognized all along the freedom moment. In
December 1938, Subhash Chander Bose as the Congress President laid
great stress on national Planning Committee with Jawahar Lal Nehru as
its Chairman.

The Planning Commission was set up in March 1950. Under Jawahar Lal
Nehru, India adopted a flexible plan strategy in order to bring about the
functional and structural transformation of the economy. This strategy of
planning was adopted keeping in mind the objectives such as reduction
in absolute poverty, unemployment and inequalities and providing basic
necessities and accelerating a balanced growth.

The economy of India is based in part on Planning Commission,

with:

• The Prime Minister as the ex-officio Chairman –Dr. Manmohan Singh

is currently the Chairman,

• The Planning Commission has nominated Deputy Chairman who

has rank of a Cabinet minister—Montek Singh Ahluwalia is currently
the Deputy Chairman,

The commission has also nominated the members from various

departments as
 • Minister of Planning,

• Minister of Finance,
• Minister of Defiance and

• Three other full-time members.

Objectives of Planning in India

The fundamental objective of the economic planning of our country is to

accelerate the pace of economic growth and to provide social justice to
the general masses. Thus “growth with social justice” is the main
objective of economic planning in India. The major objectives of
economic planning in India can be summarized as follows:

1. Attainment of higher rate of economic growth,

2. Reduction of economic inequalities,
3. Achieving full employment,
4. Attaining economic self-reliance,
5. Modernization of various sectors, and
6. Redressing imbalances in the economy.

5.1. Tenth Five-Year Plan (2002-2007)

Introduction

The Tenth Five-Year Plan (2002-2007) has been prepared against a

backdrop of high expectation arising from some aspects of the
recent performance. GDP growth in the past reforms period
improved making India one of the 10 fastest growing developing
countries. With large numbers of our population continuing to live in
abject poverty and alarming gaps in our social attainments even
after five decades of planning, policies and institutions needed to be
modified based on past experience, keeping in mind the changes
that had taken place in the Indian economy and in the rest of the
 world. Therefore, it was necessary to draw up a reform plan instead
of merely having a resource plan.

Objectives

Growth targets have focused on growth in per capita income on per

capita GDP. With population expected to grow at about 1.6 per cent
per annum, this target requires the rate of growth of GDP to be
around 8 per cent over the Tenth Plan period 2002-2007. The
proposed 8 per cent growth target, therefore, involves an increase
of at least 1.5 per cartage points over the recent medium-term
performance, which is very substantial.
The plan includes not only an adequate level of consumption of
goods and other types of consumer goods but also an access to
basic social services, especially education, health, availability of
drinking water, and sanitation. It also includes the expansion of
economic and social opportunities for all individuals and groups,
reduction in disparities, and greater participation on decision
making.

Targets

➢ Reduction of poverty ratio by 5 percentage points by 2007,

➢ Gainful employment to the addition to the labor force,

➢ Universal access to primary education by 2007,

➢ Reduction in gender gaps in literacy and wage rates at least

50 per cent by 2007,

➢ Reduction in the decadal rate of population growth between

2001 and 2011 to 16.2 per cent,

➢ Increase in literacy to 75 % by 2007,

 ➢ Increase in forest and tree cover to 25 per cent by 2007,

➢ All villages to have sustained access to potable drinking

water within 2002-07,

➢ Cleaning of all major polluted rivers by 2007,

➢ Economic Growth further accelerated during this period and

crosses over 8 per cent by 2006.

➢ Reduction in infant mortality rate (IMR) to 45 per 1,000 live

births by 2007 and

➢ Reduction in maternal mortality rate (MMR) to 2 per 1,000

live births by 2007.

The agricultural development must be viewed as a core element of the

plan since growth in this sector is likely to lead to the widest spread of
benefits, especially to the rural poor, including agricultural labor.

The growth strategy of Tenth Plan must ensure rapid growth of sectors
which are likely to create high quality employment opportunities. Those
sectors include Construction, Real Estate and Housing, Transport, Small-
Scale Industry (SSI), Modern Retailing, Entertainment, ITES etc.

Comparison of the Growth over Tenth Plan with Ninth

Plan

Heads Ninth
Plan Tenth Plan

(1997-98 to
2001-2002) (2002-03 to 2006-07)
 GDP growth(%) of which 5.5
7.2

Agriculture 2.0
1.7

Industry 4.6
8.3

Services 8.1
9.0

Gross Domestic Savings 23.1

28.2

(% of GDP, at market prices)

Gross Domestic Investments 23.8

27.5

(% of GDP, at market prices)

Current Account Balance -0.7

0.7

(% of GDP, at market prices)

Combined Fiscal Deficit of Centre and States 8.8

8.4

(% of GDP, at market prices)

Foreign Exchange Reserves (US $ billions) 54.2

165.3

Rate of Inflation (based on WPI) 4.9

4.8

5.2. Eleventh Five Year Plan (2007-2012)

 The Tenth Plan has been ended up in March 2007. Eleventh five
year plan starts from 2007 to 2012 with some more new objectives. The
eleventh plan has the following objectives:

1. Income & Poverty

 Accelerate GDP growth from 8% to 10% and maintain at 10%

in the 12th Plan in order to double per capita income by 2016-
2017;
 Increase agriculture GDP growth rate to 4% per year to
ensure a broader spread of benefits;
 Create 70 million new work opportunities;
 Reduce educated unemployment to below 5%;
 Raise real wage rate of unskilled workers by 20 per cent;
 Reduce the headcount ratio of consumption poverty by 10
percentage points.

1. Education

 Reduce dropout rates of children from elementary school

from 52.2% in 2003-04 to 20% by 2011-12;
 Increase literacy rate for persons of age 7 years or above to
85%;
 Lower gender gap in literacy to 10 percentage points;
 Develop minimum standard of educational attainment in
elementary school, and by regular testing monitor
effectiveness of education to ensure quality;
 Increase the percentage of each cohort going to higher
education from the present 10% to 15% by the end of the plan.

1. Infrastructure
  Ensure electricity connection to all villages and BPL
households by 2009 and round the clock power;
 Connect every village by telephone by November 2007 and
provide broadband connectivity to all villages by 2012;
 Ensure all weather road connection to all habitation with
population 1000 and above (500 in hilly and tribal areas) by
2009, and ensure coverage of all significant habitation by
2015;
 Provide homestead sites to all by 2012 and set up the pace
of house construction for rural poor to cover all the poor by
2016-17.

1. Health

 Reduce Infant Mortality Rate (IMR) to 28 and maternal

mortality ratio to 1 per 1000 live births;
 Reduce malnutrition among children of age group 0-3 to
half its present level;
 Provide clean drinking water for all by 2009 and ensure that
there are no slip- backs;
 Reduce Total Fertility Rate (TFR) to 2.1;
 Reduce anemia among women and girls by 50% by the end
of the plan.

1. Women and Children

 Raise the sex ratio for age group 0-6 to 935 by 2011-
12 and 950 by 2016-17;
 Ensure that all children enjoy a safe childhood,
without any compulsion to work;
 Ensure that at least 33 per cent of the direct and
indirect beneficiaries of all government schemes are
women and girl children.
1. Environment

 Attain World Health Organization (WHO) standards

of air quality in all major cities by 2011-12;
 Treat all urban waste water by 2011-12 to clean
river waters;
 Increase energy efficiency by 20% points by 2016-
17;
 Increase forest and tree cover by 5 percentage
points.
6. How long can India sustain a growth rate above
8%?

Recently, an optimistic Planning Commission stepped up India’s growth

target from 8 per cent to 9 per cent for the latter years of the Eleventh
Plan launched in 2007. The steps taken by Planning Commission laid the
following factors in the favors of developing Indian Economy.

 The average growth rate of GDP is 6 per cent plus for the
entire post-liberalization period. In the last four years, the average
has been around 8 per cent. There is better that this steady
acceleration in the growth rate is not accidental, but is the result of
the economic reforms of the last two decades and hence the growth
momentum can further pick up.

 The global perception about India is changing. Foreign

Investors have started believing in the growth potential of a
resurgent India. As a result, the Sensex is booming. Foreign Direct
Investment (FDI) flows have also been picking up.

 India has already proved its prowess in such areas as

Informational Technology enabled Services (ITeS), Pharmaceuticals,
Auto components and financial services in a highly competitive
global market place. It has potential in Bio-tech, Healthcare and
Medical tourism, Higher education, Films and entertainment, Media,
Advertising and so-on.

 India’s engineering skills are available at low cost. It also has a

large English-speaking population. These can make India
competitive across a range of Industries. Apart from services, the
 manufacturing growth rate, too, has been picking up. India has the
potential to become a small car manufacturing hub in Asia. With
rapidly growing domestic demand several foreign companies in the
consumer electronics space have started production in India (Rather
than Importing) in a big way.

 Indian corporate have now started acquiring foreign

companies and brands which showing that India has more Home-
grown, world class entrepreneurs than other most developed
countries like China and Japan.

 It has also been estimated that in the next 40 years, India will
grow faster than China. This projection relies mainly on the so-called
“demographic dividend”. In other words it can also be said that the
ratio of working age population to total population will be higher in
India relative to China. The higher proportion of working people
would also imply a lower dependency ratio, a higher output and per
capita income and a bigger market for Indian entrepreneurs.

 India will be self-sufficient in upcoming years/decades in food

production. This will only be possible due to growth—Food, Foreign
Exchange, Savings and Technology. India will no longer face these
traditional constraints on growth.

Its Foreign exchange Reserves (forex) are more than $ 165.3 billion
(or about Rs. 77691 Cores). Indian companies have also
access to state-of-art technology as a result of free import of
Machines, Technology and Foreign Direct Investment (FDIs) from
abroad. India’s savings rate has gone up at 29 per cent now than
earlier at 20 per cent in the Mid of 80s, which are being used more
efficiently to extracting 8 per cent growth from about 30 per cent
savings whereas China is having 10 per cent growth with 50 per
cent saving rate.
6.1. Problem Areas

• Poor state of Infrastructure ----- bad Roads, Power shortage,

Congested Ports and Airports;

• Inadequate Irrigation and Storage facilities, erratic power

supply in rural areas and lack of connectivity to markets to
achieve Agriculture growth rate at 4%, neither central Govt.
nor state Govt. have proper resources;

• The recent spurt in growth has been mainly consumption-

driven, supported by cheap consumer credit and housing
loans. Consumption and Real Estate driven growth may slow as
interest rates harden. So, to sustaining a high Industrial growth
would require tapping the huge rural market-- “Bottom of the
Pyramid”.

• Booming stock market also poses another danger because

of stock market speculation. Because savings are being
Invested into stock market speculation, rather than into
productive Investment. For growth, more new investments are
needed.
 • Rise in the prices of oil in the medium term. More than 70%
of India’s requirements of Petro- Products are imported, due to
which raising the Inflation rates by pushing up the energy cost
and inducing a fall in demand through high prices.

• Shortage of technically skilled labor whose salaries are

skyrocketing. This is eroding the price competitiveness. Here,
the quality and reach of the education system basically holds
the key to stepping up the rate of growth along with making it
more ‘inclusive’.

7. CONCLUSION
India being a big nation with a huge potential of growth and having
growth rate closer to 9%. The strengths of the India economy are well
capitalized to maintain a good growth rate but at the same time Indian
economy is facing many problems and is not getting proper solutions for
their problems and after going through this study I have come to a
conclusion i.e. Despite the huge potentials, India cannot be too optimistic
about achieving the growth target of above 8 per cent on a sustained
basis.
8. Limitations of the Study
The report has been prepared on the basis of secondary data. The report
and my findings are subjected to the following limitations:

• The information collected from the different sources may not be up

to the mark.
• There may be more strengths and weaknesses of Indian economy
which were not exposed in this study.
• There may be more problems faced by Indian economy for its
constant growth which are not shown in this study.
9. Bibliography
a) Books
Saleem Shaikh , Business Environment

Pandey G.N, Environmental Management

b) Websites

http://en.wikipedia.org/wiki/Economic_growth

http://www.investorwords.com/5540/economic_growth.html

http://www.economywatch.com/indianeconomy/indian-economy-
overview.html

http://planningcommission.gov.in/

http://planningcommission.gov.in/plans/planrel/fiveyr/welcome.ht
ml