Indian Economy Overview Historical Perspective

Since independence India has been a 'mixed economy'. India's large public sectors were responsible for rendering the country a 'mixed economy' feature. Indian economic planning is associated with capitalist framework with no element of compulsion. Indian economy overview was highly inspired by Soviet Union's practices postindependence. It had been recording growth rate not greater than five jumped till 1980s. This stagnant growth was termed by many economists as 'Hindu Growth Rate'. In 1992, the country ushered into liberalization regime. Thereafter, the economy started scaling upward. This new trend in growth was called 'New Hindu Growth Rate'.

Nature of Indian Economy

India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labour force.

Current Analysis

The economy of India boasts of being the fourth largest economy in the world after the United States, China and Japan. The country recorded the highest growth rates and touched to as high as 9% GDP in the mid-2000s. It was then considered by many financial institutions as one of the fastestgrowing economies in the world. But the overview of Indian economy was hit by global slowdown in 2008. Its speed of growth received a jerk and the country's GDP slowed down to a large extent thereafter. India's economic growth in the financial year 2012-13 is estimated at 5 percent, its lowest in a decade. But it is expected to increase between 6.1 percent to 6.7 percent in 2013-14. The inflation for over five years has crippled the economy. In 2005, the country witnessed inflation as low as 4 %. Thereafter, the graph has been constantly rising. At many times, inflation has reached to double digit. Several monetary measures are being taken by the government and the Central Bank to control the menace, but in vain. However, Infation expected to fall between 6.2 percent and 6.6 percent by March.

India is the 20th largest merchandise trading nation. The country's exports were worth $25587 million by October in 2012-13, Gems and jewellery constitute the single largest export item. However, it is feared that global economic crisis and appreciation of Rupee may hit domestic export adversely in future. FDI inflows into India declined from $31.5 billion in 2011 to $27.3 billion in 2012 In 2012, FIIs bought equities worth USD 24.4 billion in 2012. The trade deficit for April - January, 2012-13 was estimated at US $ 167168.12 million, which was higher than the deficit of US $ 154890.14 million during April -January, 2011-12. The Fiscal and Monetary policies of the country shaped the Indian Economy over the years. The brief overviews of the both policies are given below.

Fiscal Policy: Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nations economy. Fiscal policy is that part of government policy which is concerned with razing revenue through taxation and other means and deciding on the level and pattern of expenditure. Fiscal Policy and Macroeconomic Goals Economic Growth: By creating conditions for increase in savings & investment. Employment: By encouraging the use of labour-absorbing technology Stabilization: fight with depressionary trends and booming (overheating) indications in the economy Economic Equality: By reducing the income and wealth gaps between the rich and poor. Price stability: employed to contain inflationary and deflationary tendencies in the economy. Instruments of Fiscal Policies: 1. Taxation 2. Public Expenditure 3. Public Debt

Taxation: 1. Direct taxes- Corporate tax, Div. Distribution Tax, Personal Income Tax, Fringe Benefit taxes, Banking Cash Transaction Tax 2. Indirect taxes- Central Sales Tax, Customs, Service Tax, Excise duty. Public Expenditure: Government spending on the purchase of goods & services. Payment of wages and salaries of government servants Public investment Transfer payments India Income tax slabs 2013-2014 for General tax payers Income tax slab (in Rs.) 0 to 2,00,000 2,00,001 to 5,00,000 5,00,001 to 10,00,000 Above 10,00,000 Tax No tax 10% 20% 30%

Direct Tax
400000 350000 300000 250000 200000 150000 100000 50000 0 Direct Tax

Indirect Tax
350000 300000 250000 200000 150000 100000 50000 0 Indirect Tax

Public Debt: Internal borrowings 1. Borrowings from the public by means of treasury bills and govt. bonds 2. Borrowings from the central bank (monetized deficit financing) External borrowings 1. Foreign investments 2. International organizations like World Bank & IMF 3. Market borrowings Budgetary Surplus & Deficit: Early 1980s: Net of depreciation consistently negative. Late 1980s: Large deficit averaging about 8% of GDP Post liberalization: Fiscal deficit decreased. 2001: Fiscal deficit increased to 10% of GDP. 2003: FRBM was adopted.( The FRBM Act, 2003 (notified in July 2004) envisaged an annual 0.3 percentage point reduction in the fiscal deficit and a 0.5 percentage point reduction in the revenue deficit)

 FRBM improved the transparency in budgetary policy. As a result fiscal deficit decreased to 3.7% of GDP. In 2007-2008 fiscal deficit was 2.7 % Shot up to 5.7 % in 20012-2013.

Crowding Out: It is where increased public sector spending replaces, or drives down, private sector spending. Crowding out refers to when government must finance its spending with taxes and/or with deficit spending, leaving businesses with less money and effectively "crowding them out." One explanation of why crowding out occurs is government financing of projects with deficit spending through the use of borrowed money. Because the government borrows such large amounts of capital, its activities can increase interest rates. Higher interest rates discourage individuals and businesses from borrowing money, which reduces their spending and investment activities.