Task 3: ARISE, AWAKE, STOP-NOT TILL THE GOAL IS REACHED

MACROECONOMIC ANALYSIS
Major economic reforms of the Indian economic history:
1. Nationalisation of banks: 1969
Then Prime Minister Indira Gandhi took a major step in the history of independent India
by nationalising 14 banks. Because of nationalisation of banks, today, we are witnessing
a surge in private players entering the banking sector and setting up Non-Banking
Financial Institutions (NBFCs) and Banking Financial Institutions (BFIs).
2. Abolishing Privy Purse in India: 1971
Privy Purse was a form of payment made to the royal families of all erstwhile princely
states as it was made a part of their agreement in order to integrate with India in 1947,
and later to merge their states in 1949, whereby they lost all ruling rights. Privy Purse
was discontinued under Prime Minister Indira Gandhi’s regime, after the 26th
Amendment in 1971, by means of which all their privileges and allowances from the
Centre were rendered invalid. If Privy Purse continued, our tax money would have gone
to the royal families for no reason.
3. End of Licence Raj: 1991
Putting an end to “Licence Raj” was one of the chief goals of the 1991 economic
liberalisation process. The Licence Raj was a system of licences, regulations and
accompanying red tape that were needed in order to set up and run businesses
in India between 1947 and 1990. The Licence Raj was a result of India's decision to
control the economy and give out licences to only a select few. During that period,
nearly 80 government agencies had to be satisfied before private companies could
produce something and, if a licence is granted, the government would regulate the
production. However, reforms since 1991 significantly reduced these regulations and
the business houses could work without having to worry about unnecessary “red
tapism.”
4. Economic liberalisation in 1991
The economic liberalisation process that began in 1991, had the goal of making the
economy more market-oriented and expanding the role of private and foreign
investment. Ever since the liberalisation process, the Indian markets opened to both
private and public sector companies. India started carrying out businesses with foreign
establishments as well.
5. Black money bill: 2015
On May 11, 2015, the Lok Sabha passed a bill to deal with black money stashed abroad,
even as the government announced that a separate Benami Bill to deal with domestic
black money was being prepared. The bill provides for rigorous imprisonment of up to
10 years for offenders.
6. FDI in several sectors: 2015-till date
From the beginning of 2015, the government announced fresh liberalisation of FDI
rules throwing open food retail, airlines, private security firms, and defence companies
to higher overseas investment. Other sectors in which FDI norms have been relaxed
include e-commerce in food products, broadcasting carriage services, private security
agencies and animal husbandry.
 7. GST Constitutional Amendment Bill: August 3, 2016
The Rajya Sabha on August 3, 2016, passed the Goods and Services Tax (GST)
Constitutional Amendment Bill. The main objective of the GST is to eliminate
excessive taxation. GST is a uniform indirect tax levied on goods and services across a
country. Many developed nations tax the manufacture, sale and consumption of goods
using a single, comprehensive tax mechanism.
8. Demonetisation of ₹500, ₹1000: November 8, 2016
Prime Minister Narendra Modi's demonetization announcement on November 8 took
the entire country by surprise. The move was initiated to curb black money, bring in
cash into the banking system to the greatest possible extent, put an end to fake currency
and plug all funding that could be used for terrorism. After November 8, public cannot
deal with high denomination currency notes and sales invoices cannot be issued by
accepting high denomination notes. If anyone deposits undisclosed money in banks,
then this may invite the Income Tax Department to act against him/her. With the I-T
department keeping an eye on suspicious transactions, the person involved could be
slapped with 30 per cent tax and a huge penalty. Any person making transactions above
₹10 lakh in a year into any savings bank account might get issued a notice from the I-
T Department.

Latest economic reforms of India:

1. Insolvency and Bankruptcy Code of 2016
It started out well but now it has lost steam. Now. It remains suspended to protect big
private borrowers facing a crisis due to the lockdown-induced economic crisis.
2. Labour reforms
The objective is to simplify and modernise labour regulation. The major challenge in
labour reforms is to facilitate employment growth while protecting workers rights.
3. Farm reforms
One of the biggest changes is that farmers will be allowed to sell their produce at a
market price directly t private players – agricultural businesses, supermarket chains and
online grocers. These reforms will loosen rules around sale, pricing and storage of farm
produce – rules that have protected India’s farmers from the free market for decades.
4. GST of 2017
The main objective of GST was to eliminate the cascading effect of multiple indirect
taxes, thereby making the tax system more efficient and increase tax collection to help
the people and economy. But as a result, the economy received another big jolt, leading
to loss of jobs and business.
5. Corporate tax cut of 2019
Finance minister Nirmala Sitharaman introduced the Taxation Laws Bill, seeks to
replace the ordinance, to slash corporate tax rate to 22% without incentives and 15%
for new manufacturing entities.
6. AatmaNirbhar Bharat 2020
This new reform came via a nightly live-telecast sans economic logic, ignoring
historical evidence and data. It threatens to take India back to the "Hindu" rate of growth
of pre-1991 liberalisation.
Macroeconomic factors that affect economy of India:
• Inflation
• The unemployment rates
• Exchange rate
• Gold%
• Foreign Exchange Reserve or Forex Reserves
• Gross Domestic Product (GDP)

GROSS DOMESTIC PRODUCT (GDP)

GDP is the monetary value of all finished goods and services made within a country during a
specific period. It provides an economic snapshot of a country, used to estimate the size of an
economy and growth rate.
GDP can be calculated by adding up all the money spent by consumers, businesses, and
government in a given period. It may also be calculated by adding up all of the money received
by all the participants in the economy.
GDP formulas:
Expenditure approach = C + I + G + (X-M)
(C = consumer spending,
I = investment, G = government
spending, X = exports, M = imports)
Income approach = total national income + sales taxes
+ depreciation + net foreign factor
income

Value added approach = gross value of output – value of

intermediate consumption

Factors that influence GDP:

• Natural resources
• Physical capital or infrastructure
• Population or labour
• Human capital
• Technology
• Law
Sector-wise GDP in India:
SECTOR WEIGHTAGE
Public administration, defence and other 15.74%
services
Financial, real estate & professional services 20.95%
Trade, hotels, transport, communication and 18.08%
services related to broadcasting
Construction 7.55%
Agricultural, forestry & fishing 17.76%
Mining & quarrying 2.14%
Manufacturing 15.13%
Electricity, gas, water supply & other utility 2.65%
services

Advantages & disadvantages of GDP:

ADVANTAGES DISADVANTAGES
Broad indicator of development. Doesn’t account for environmental impacts
of the economic policies.
Easy to measure growth in percentage. Doesn’t include the informal sector activity
or the activity on the black market.
Easy to compare to itself and other countries. Overseas income not taken into account.
Calculated from a formula which all High inflation maybe behind a high GDP
countries use, therefore it is reliable rate.
indicator.
Can be broken up into GDP per capita which Production process could be immoral, high
accounts for the population of the country GDP could be down to trading drugs or guns.
when it is calculated.

GDP RATE ANALYSIS FOR THE PAST THREE YEARS

FY 18 FY 19 FY 20
Quarter Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Growth 5.99 6.77 7.69 8.13 7.95 7.00 6.58 5.88 5.01 4.55 4.70
rate %
 Chart Title
9
8.13 7.95
8 7.69
6.77 7
7 6.58
5.99 5.88
6
5.01
5 4.55 4.7

4
3
2
1
0
FY 18 FY 19 FY 20

Growth rate %

Forecasting the growth rate percent for FY21 Q1:

Growth rate %
9
8
7
6
5
4
3
y = -0.2658x + 7.9813
2
1
0
FY 18 FY 19 FY 20

Growth rate % Linear (Growth rate %)

Forecast values:
Growth rate % for FY20 Q4: 4.7 – 4.9
Growth rate % for FY21 Q1: 4.5 – 4.7
COMPARATIVE ANALYSIS
Quarter to quarter
• FY18 Q1 & Q2: There is a surge in the GDP rate, which suggest that economy has
emerged strongly from the downtown that followed the abrupt demonetization 2016
and the road bumps caused by the introduction of the Goods and Services Tax in July
2107.
• FY18 Q2 & Q3: The rise is due to the good performance of automobile, manufacturing
and real estate sectors.
• FY18 Q3 & Q4: There is a surge in GDP, because agriculture and mining have been
performing well but manufacturing sector slips.
• FY18 Q4 & FY19 Q1: There is a marginal growth, because there was growth in
manufacturing sectors and real estate sector.
• FY19 Q1 & Q2: There is a huge decline from Q1 to Q2, because of decline in the
manufacturing sectors.
• FY19 Q2 & Q3: The decline in growth is due to the poor performance in agriculture
and manufacturing sectors.
• FY19 Q3 & Q4: The GDP growth is declining again due to the poor performance in
manufacturing and construction sectors.
• FY19 Q4 & FY20 Q1: India’s GDP growth deaccelerated because of the dismal state
of the industrial sector of the economy.
• FY20 Q1 & Q2: It shows slowdown in GDP growth because of consumption
expenditure and degrowth in exports.
• FY20 Q2 & Q3: India’s GDP shows marginal growth from Q2 to Q3, because of small
rebound in rural demand, private consumption and government spending.
Yearly to yearly:
• FY18 Q1 & FY19 Q1: There is a surge in GDP growth rate as the manufacturing, real
estate, and automobile sectors have been performing at it’s best.
• FY18 Q2 & FY19 Q2: There is a marginal growth because of the growing sectors like
agriculture and manufacturing sectors.
• FY18 Q3 & FY19 Q3: Here there is only 1% decline, which maybe due to the revised
GST and growth in the major sectors.
• FY18 Q4 & FY19 Q4: There is a 3% decline due to the decline in manufacturing and
real estate sectors.
• FY19 Q1 & FY20 Q1: There is almost 3% decline due to the downward growth of
industrial and manufacturing sectors.
• FY19 Q2 & FY20 Q2: The decline is due to the consumption expenditure and decline
in agricultural sectors.
• FY19 Q3 & FY20 Q3: There is nearly 2% decline, because of the poor performance in
private consumption and manufacturing sectors.
INVESTMENT DECISION
GDP can affect how the financial markets behave, both positively and negatively. In most
cases, strong GDP growth translates into higher corporate earnings, which bodes well for the
stock market. Conversely, falling GDP means economic growth is weakening, which is
negative for earnings and therefore stock prices. According to the classic definition, a
recession occurs when there are two consecutive quarters of negative GDP growth.

For bond investors, the direction of GDP often has the opposite effect. Strong GDP growth
usually means a greater demand for borrowing by businesses and consumers, and is often a
sign of impending inflation. This usually translates into higher interest rates, which depresses
bond prices. Conversely, declining GDP generally means lower inflationary pressures as well
as lessening demand for borrowing, which then generally means lower interest rates and
higher bond prices.

CONCLUSION
Recent years have witnessed a shift of economic power and attention to the strengthening
economies of the BRIC countries: Brazil, Russia, India, and China. The growth rate of gross
domestic product in the BRIC countries is overwhelmingly larger than in traditionally strong
economies, such as the United States and Germany.
While the United States can claim the title of the largest economy in the world by almost any
measure, China nabs the second-largest share of global GDP, with India racing Japan for third-
largest position. Despite the world-wide recession in 2008 and 2009, India still managed to
record impressive GDP growth rates, especially when most of the world recorded negative
growth in at least one of those years.
Part of the reason for India’s success is the economic liberalization that started in 1991and
encouraged trade subsequently ending some public monopolies. GDP growth has slowed in
recent years, due in part to skyrocketing inflation. India’s workforce is expanding in the
industry and services sectors, growing partially because of international outsourcing —
a profitable venture for the Indian economy. The agriculture sector in India is still a global
power, producing more wheat or tea than anyone in the world except for China. However, with
the mechanization of a lot of processes and the rapidly growing population,
India’s unemployment rate remains relatively high.

Submitted by,
Meghna B Raj
Junior research data analyst
Finance department
Amrita School of Business