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CEA State of The Economy August 2008
CEA State of The Economy August 2008
7%
5%
3%
1%
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
-1%
-3%
GdpmpGr GdpGrTrend GdpTndHpf
-5%
8%
7%
6%
5%
4%
3%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
8%
PcGdp
G
r PcGma5y
o 7%
w
t
h 6%
r
a 5%
t
e
4%
(
%
)
3%
2%
1999-00
1992-3
1993-4
1994-5
1995-6
1996-7
1997-8
1998-9
2000-1
2001-2
2002-3
2003-4
2004-5
2005-6
2006-7
2007-8
02 August 2008 General: AV 8
Fig 4: Per Capita Consumption
35%
30%
25%
20%
15%
18.0%
18%
16%
14%
12%
8%
7.0%
6.1% 6.2%
6% 5.3% 5.6%
5.0% 4.7% 4.5%
4%
2%
0%
91-2to97-8 98-9 to 02-3 03-4to07-8
50% 47.8%
40%
34.0%
30% 26.9%
20%
11.6% 12.0%13.6%
10% 5.4%
0%
92-3to97-8 97-8 to 02-3 02-3to07-8
-10% -7.6%
PFCEdm GDCF GFCE Net exports -14.7%
-20%
35%
Investment- Ratios (% of GDP)
30%
25%
20%
15%
2005-6@
2006-7*
2001-2
2002-3
2003-4
2004-5
2007-8
02 August 2008 General: AV 15
Supply Side: Savings
Savings rate also rose by 9.8% (2003-4 to 2007-8)
Avg. 33.3% of GDP from 23.6% in previous 5 yrs
Private and Public
Increment (4 yrs) 5.1% & 3.4% respectively
Contributed(60:40)
Saving Rate: 36.1% of GDP in 2007-8
Maintenance of Investment and Saving Rate at 2007-8
levels enough to give average growth 0f around 9%
Possible with deceleration in gr of profits, saving &
investment to 9%.
02 August 2008 General: AV 16
FDI : Inward and outward
35
30
F FDI Inbound FDI Outbound
D
I
25
(
U
S
20
$
b 15
i
l
l
i 10
o
n
)
02 August 2008
1980
1981
1982
1983
1984
1985
1986
1987
NDP/Lhp
General: AV
1988
1989
1990
1991
1992
1993
Kstock/Lhp
1994
1995
1996
1997
1998
TFPGhp
1999
2000
2001
2002
2003
Sources of Growth
2004
2005
2006
2007
18
Sector Drivers
Manufacturing
GDP/Value Added
Investment: GCF, GFCF
Communication
Competition and efficiency
Trade, Agriculture, Construction
Labor intensive
other services
7% trade
14%
communication
11%
real
estate,ownership of
dwellings & business construction agriculture(crop)
services 10% 10%
8%
Construction
1.5 1.3 1.0 1.0 1.4 1.2 -0.4
Telecommunication
2.2 0.5 0.6 0.6 0.4 0.5 -1.7
All Food
60%
50%
40%
30%
20%
10%
0%
-10%
350
450
550
650
750
850
950
02 August 2008
2005M4
2005M5
2005M6
2005M7
2005M8
2005M9
2005M10
2005M11
2005M12
2006M1
2006M2
General: AV
2006M3
2006M4
2006M5
2006M6
2006M7
2006M8
Palm oil
2006M9
2006M10
2006M11
2006M12
2007M1
2007M2
World Price of Palm Oil ($/MT)
2007M3
2007M4
2007M5
2007M6
2007M7
2007M8
2007M9
2007M10
2007M11
2007M12
2008M1
2008M2
2008M3
2008M4
2008M5
2008M6
Global Supply: Edible Oil(Palm)
26
60
70
80
90
100
110
120
130
140
150
02 August 2008
2005M4
2005M5
2005M6
2005M7
2005M8
2005M9
2005M10
2005M11
2005M12
2006M1
2006M2
General: AV
2006M3
2006M4
2006M5
2006M6
2006M7
PironOre
2006M8
2006M9
2006M10
2006M11
2006M12
2007M1
2007M2
2007M3
World Price of Iron Ore(cents/MT)
2007M4
2007M5
2007M6
2007M7
2007M8
2007M9
2007M10
2007M11
2007M12
2008M1
2008M2
2008M3
2008M4
2008M5
2008M6
Global Supply Shock: Iron Ore
27
100
120
140
160
180
200
220
240
260
02 August 2008
2005M6
2005M7
2005M8
2005M9
2005M10
2005M11
2005M12
2006M1
2006M2
2006M3
2006M4
General: AV
2006M5
2006M6
2006M7
2006M8
2006M9
2006M10
2006M11
2006M12
2007M1
2007M2
Poil
2007M3
2007M4
2007M5
Global Oil Price Index (IMF)
2007M6
2007M7
2007M8
2007M9
2007M10
2007M11
2007M12
2008M1
2008M2
2008M3
2008M4
2008M5
2008M6
Global Supply Shock: Oil Price
28
Rate of Growth: Iron Ore & Oil
100%
PironOre Poil
80%
60%
40%
20%
0%
-20%
02 August 2008
03.04
03.06
03.08
03.10
03.12
04.02
04.04
Pman
04.06
04.08
04.10
General: AV
04.12
Pfl
05.02
05.04
05.06
05.08
Pprf
05.10
05.12
06.02
06.04
06.06
06.08
Pprnf
06.10
06.12
07.02
07.04
07.06
Pmnrl
07.08
07.10
07.12
08.02
08.04
08.06
Contribution to change in WPI
30
Acceleration in Inflation during 2008 H1 over 2007 H1:
Contribution of different commodities
WPI Inflation during H1 2007 (i.e. from December
2006 end to June 2007 end) was 2.7%.
Inflation during H1 2008 (i.e. from December 2007
end to June 2008 end) was 9.9%(est).
Of the 7.2% increase in inflation this year, 2/3rd was
due to 3 sets of commodities:
Edible oils (including) oils seeds and oil cakes)
Iron and Steel (including iron ore)
Mineral Oils and refinery products
-2%
0%
2%
4%
6%
8%
2007.01
2007.02
2007.03
2007.04
2007.05
General: AV
2007.06
2007.07
IndiaWpi
2007.08
2007.09
2007.10
UsaPpi
2007.11
2007.12
2008.01
2008.02
2008.03
2008.04
2008.05
2008.06
Inflation in India (WPI) and USA(PPI)
32
Inflation: India-WPI Manf, UK-PPI
Manf, USA PPI Ind
16%
UsPpiInd UkPpiMnf IndWpiMf
14%
12%
10%
8%
6%
4%
2%
0%
2007.01
2007.02
2007.03
2007.04
2007.05
2007.06
2007.07
2007.08
2007.09
2007.10
2007.11
2007.12
2008.01
2008.02
2008.03
2008.04
2008.05
2008.06
-2%
% 3
)
-1 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
-3
1%
3%
5%
7%
9%
Mumbai Isec: AV
01q1
01q2
01q3
01q4
02q1
02q2
02q3
02q4
03q1
03q2
CPI unml
03q3
03q4
04q1
04q2
04q3
04q4
05q1
05q2
Pfce def
05q3
05q4
06q1
06q2
06q3
06q4
07q1
07q2
07q3
07q4
08q1
CPI(unme) & Gdp Pvt Cons deflator
35
Monetary Policy and Inflation
Cost Push and Monetary accommodation!
Monetary Policy includes exchange rate policy
Important only for its effect on objectives
Monetary Policy Objectives
Production/Growth & Inflation – emphasis varies
Socio-Political Tolerance level of Inflation
Primary Focus Today- Inflation & Expectations
Capital flows main driver of RM gr. (prt. Q4 2007-8)
M3 gr. exceeded peaks of 92.10 (98.10) in 07.10
M3ma gr. exceeded peaks of 95.04 and 98.04 in 07.01
h
o
o
w
M
M
) (
11%
13%
15%
17%
19%
n 21%
23%
02 August 2008
94.05
94.10
95.03
95.08
96.01
96.06
96.11
97.04
97.09
98.02
98.07
General: AV
98.12
99.05
99.10
2000.03
2000.08
2001.01
2001.06
2001.11
M3
2002.04
2002.09
2003.02
2003.07
2003.12
2004.05
M3rlc
2004.10
2005.03
2005.08
2006.01
2006.06
2006.11
2007.04
2007.09
2008.02
2008.07
0%
2%
4%
6%
8%
Monetary Accommodation?
10%
12%
14%
16%
18%
20%
t
r
r
e
e
h
n
o
o
g
a
w
M
) (
37
Real Interest Rate Convergence: US-India
8
I 6
n
t
e
r
4
e
s
t
r 2
a
t
e
(
% 0
)
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
-2
-4
F 4%
l
o
w
3%
s
(
%
2%
G
D
P
)
1%
0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
-1%
P
a
y 3%
m
e
n
t 2%
s
B
a 1%
l
a
n
c 0%
e 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
(
%
G
-1%
D
P
)
-2%
Goods &Services Def Curnt Act Def