Himalaya Publishing House

Economic Environment of Business
S.K. Misra & V.K. Puri
Chapter 20
Broad Profile of the Indian
Economy and the
Macroeconomic Scenario
• Low per capita income - In 2008 India’s per capita income was as
low as $ 1,070 as against $ 47,580 in USA.
• Inequitable distribution of income and poverty – Poverty ratio
was 27.5 per cent at the national level in 2004-05 if uniform recall
period (URP) is used and 21.8 per cent if mixed recall period
(MRP) is used.
• The ratio of expenditure of top 10 per cent to the poorest 10 per
cent in 2004-05 was as high as 8.6.
• Predominance of agriculture - Indian economy is essentially
agrarian. In the agricultural sector productivity is low and, as a
result, a large number of farmers have virtually little purchasing
power to buy industrial goods.
• Rapid population growth – The requirement of feeding
additional numbers restricts the use of resources in low return
agriculture rather than higher return manufacturing.
INDIA—AN UNDERDEVELOPED
ECONOMY
(Contd…)
Himalaya Publishing House
Economic Environment of Business
S.K. Misra & V.K. Puri
Chapter 20
Broad Profile of the Indian
Economy and the
Macroeconomic Scenario
• Unemployment
• Scarcity of Capital - Low capital formation proportions means low
rates of growth of national product, unless capital-output ratio
declines. High rates of saving and investment allow business to
grow at a fast rate, introduce latest technologies and become
internationally competitive.
• Technological Backwardness
• Lack of entrepreneurs
Himalaya Publishing House
Economic Environment of Business
S.K. Misra & V.K. Puri
Chapter 20
Broad Profile of the Indian
Economy and the
Macroeconomic Scenario
INDIA—A DEVELOPING
ECONOMY
• Quantitative : National Income Trends
• During the first three decades of economic planning, the net
national product increased at a modest rate of 3.4 per cent
per annum.
• Net national product increased at the high rate of 7.8 per cent
annum during the Tenth Plan period (2002-03 to 2006-07)
• Structural Changes
 Significant changes in sectoral distribution of domestic
product
 Growth of basic capital goods industries
 Development of infrastructure
 Progress in the banking and financial sector
Himalaya Publishing House
Economic Environment of Business
S.K. Misra & V.K. Puri
Chapter 20
Broad Profile of the Indian
Economy and the
Macroeconomic Scenario
INDIA—A MIXED ECONOMY
• Private ownership of the means of production
• Predominance of the market. Market holds a predominant
position in the Indian economy
• Growth of private sector monopolies. Since Independence,
monopoly houses have grown rapidly and with it the concentration
of economic power in the country has increased.
• Public sector. In India, a large public sector co-exists with the
private sector and this fact alone is enough to determine the
character of the economy as mixed
• Economic planning. Economic planning has been an integral part
of the Indian economy since 1951.
Himalaya Publishing House
Economic Environment of Business
S.K. Misra & V.K. Puri
Chapter 20
Broad Profile of the Indian
Economy and the
Macroeconomic Scenario
MACROECONOMIC SCENARIO
• Fluctuations in Economic Growth
• Erratic Industrial Growth
• Savings and Investment Growth in Recent Years
• Prices and Inflation
• Fiscal Imbalance
• Capital Market Developments
• External Sector – External Trade Position and Foreign Capital
Flows
Himalaya Publishing House
Economic Environment of Business
S.K. Misra & V.K. Puri
Chapter 20
Broad Profile of the Indian
Economy and the
Macroeconomic Scenario
ECONOMIC SLOWDOWN IN
2008-2009 AND SUBSEQUENT
RECOVERY
• Rate of growth declined from 9.0 per cent in 2007-08 to 6.7 per cent
in 2008-09
• Rate of growth picked up to 8.0 per cent in 2009-10. It is estimated
at 8.6 per cent in 2010-11.
• The impact of global recession on Indian economy has been via
three channels
• Trade Channel
• Financial Channel
• Confidence channel