TRADE BALANCE

ECONOMIC GROWTH
TRADE LIBERALISATION

PIYUSH

ANKIT

KARAN

POOJA

RANJAN

KANIKA

ILA

NATASHA

TRADE LIBERALISATION
Refers to a relaxation of government restrictions, usually in areas of economic policy. Term is used to refer to economic liberalization especially capital market liberalization and trade.

Economic growth is the increase of per capita gross domestic product(GDP) or other measure of aggregate income.

The topic of economic growth is primarily concerned with the long run.

Increase in GDP of a country greater than population growth is economic growth

The balance of trade is the difference between the monetary value of exports and imports o f output in an economy over a certain period.

The balance of trade is sometimes divided into a goods and a services balance.

A positive balance is known as a trade surplus if it consists of exporting more than is imported; a negative balance is referred to as a trade deficit, informally, a trade gap.

Performance showed signs of slowdown.

Deceleration in industrial growth rate and agriculture production was also nearly stagnant at just 1%.

7th 5-year plan was on at that time.

Inflation rates a were as high as 7.7%(WPI).

In the past 3 years stocks of food grain went down from 22.8 millions tones (1987) to 12.6 million tones in january 1990.

1980 s were characterized by decline in overall savings rate and sharp deterioration in public savings..

Deficits were to be financed by borrowings. As a result debt substantially increased and debt payment were a substantial part of the budget. Net interest burden went up from 3.6% in 1980-81 to 10.6% in 1989-90.

Country had to face double digit inflation.

Political situation, persistent fiscal imbalances were accentuated by gulf crisis which intensified strains on BOP.

GDP growth rate estimated at 5 %.

Gulf crisis led to a high increase in the prices of crude oil and petroleum products and adversely affected the BOP situation. The problem of the oil shock accentuated by the fact that there had been extreme pressure on BOP for the past 5 years. During 1990-91 imports rose by 21.9% while exports by just 17.5 % as a result the trade deficit came to be at 10644 crores (38% higher that 1989-90). Foreign currency assets declined by held by RBI declined by 1399 crore despite the BOP support from IMF. Current a/c deficits had to be financed from loans from multilateral and buateral sources, commercial borrowings and inflow from NRIs. Evacuation of 180000 Indian workers in Kuwait and Iraq estimated to cost 360 crores.

Brought under Shri PV Narsimha Rao as PM and shri Manmohan singh as FM

Main objective of the government was to transform the economic system from socialism to capitalism to achieve high economic growth and industrialization

Neo-liberal policies included opening for international trade and investment, deregulation, initiation of privatization, tax reforms, and inflationcontrolling measures.

Government was close to default, central bank had refused new credit and foreign exchange reserves had reduced to the point that India could barely finance three weeks worth of imports.

A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return for an IMF bailout, gold was transferred to London as collateral,(India had to sell 67 tonnes of gold to IMF) the Rupee devalued and economic reforms were forced upon India.

Controls started to be dismantled, tariffs, duties and taxes progressively lowered, state monopolies broken, the economy was opened to trade and investment, private sector enterprise and competition were encouraged and globalization was slowly embraced.

Economic reforms led to strong economic growth, rapid expansion, productive employment, decline in poverty, boom in exports, decline in inflation

Growth of GDP fc which had fallen to 0.8% on 1991-92 reached 5.1% in 1992-93.

Overall economic growth reached 6.3% in 1994-95 and projected 6.2% in 1995-96.

Despite crisis in 1991-92 average growth rate in first 4 years of 8th five year plan was 5.4%.

Reforms led to the clear beneficial impact on living standards and social indicators. Economy was expected to have average growth of 6.3 million from 1992-93 to 1993-94 with 7.2 million additional jobs in 1994-95(which was 4.8 million jobs per year in 1980 s) The gross domestic savings rate had set a new record at 24.4%. Private savings also set a new record at 22.7%.

BALANCE OF PAYMENT SITUATION

The total capital flows in 1994-95 were much in excess of the financing needs, reflecting a reserve build up of $4.76 billion, the foreign currency assets of RBI rose from $15.07 billion (march 1994) to $20.81 billion(march 1995). Export earnings used to take care of around 88% of import bills as against 52% in beginning 1980 s and 70% in end 1980 s. Debt creating flows which was 97% of total inflows during 7th 5-year plan came down to 17% in 1994-95. arked improvement in the inflows of invisible receipts. urrent a/c deficit decreased from .2% in 1990-91 to 0.8% in 1994-95. Third year in succession the export growth was robust Total forex reserve with and SDR s(apecial drwaing rights) amounted to $25.19 billion enough to pay for imports of 1994-95 for 10 months.

BALANCE OF PAYMENT SITUATION

CURRENT ACCOUNT DEFICIT

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Indian economy was resilient in the face of external shocks such as east asian crisis, oil price shock 2000-01.

Average annual growth rate during 9th 5-year plan (1997-2002) was 5.4% lower than plan terget of 6.5% and domestic Shocks like adverse security environment, natural disaster like gujarat earthquake, 2 consecutive years of poor agricultural growth.

Overall growth of 5.4 percent in 2001-02 supported by growth rate of 5.7 percent in agriculture and allied sectors, 3.3 percent in industry and 6.5 percent in services.

Financial and other services were doing well in 2001-02.

The average annual rate of inflation(WPI) increased significantly from 3.3% in 1999to 7.1% in - 1 due to a rise in administered prices of petroleum products. uring 1- , the inflation rate declined from 7 % at the beginning to 4.7% for the week ended January 19, and reached a which was the lowest in over two decades. low of 1.3% by the end of January,

The current account deficit as a percentage of P declined from .1% in 1999to about .5 % - 1 due to a dynamic export performance and sustained buoyancy in invisible receipts. in

he exchange rate of the r pee in terms of the major c rrencies of the world remained reasonably stable during the year, despite occasional fluctuations.

he exter

l debt- P r tio decreased from 8. at end- arch and f rther to

er cent at the end of arch to er cent at the end of September

.3 er cent

Overall, the current account deficit in 2000-01 narrowed to about 0.5 % of GDP from 1.1 % of GDP in 1999-00.The foreign currency assets at the end of March 2001 amounted to US $39.55 billion, showing an increase of US $4.50 billion during 2000-01.

Exports, grew by 19.6% in US dollar terms in 2000-01, accelerating sharply from the 9.5 % growth in the previous year. Total imports grew by 7.0% during 2000-01, much lower than the sharp increase of 16.5 % in 1999-2000.

The deficit on the trade account of BOP narrowed to US $14.37 billion or 3.1 % of GDP in 2000-01 from US $17.84 billion.Net inflow of invisibles earnings at US $11.79 billion covered about 82 % of the deficit on the trade account in 2000-01.

The rupee depreciated against the US dollar by 5.15% to Rs.45.68 per US dollar in 2000-01 on account of 9/11 attacks on the US.

During 1999-2000, the exchange rate market displayed reasonable stability, with the rupee depreciating by about 2.9 % from the annual average of Rs.42.07 per US dollar in 1998-99 to Rs.43.33 in 1999-2000.

Growth of 9.0% and 9.2 % in 2005-06 and 2006-07, respectively, by most accounts, surpassed expectations.

With an upsurge in investment, the outlook is distinctly upbeat.

Services contributed as much as 68.6 % of the overall average growth in GDP in the last five years between 200203 and 2006-07.

A notable feature of the current growth phase is the sharp rise in the rate of investment in the economy.

Growth of industrial sector, from a low of 2.7% in 200102, revived to 7.1 % and 7.4% in 2002-03 and 200304, respectively, and after accelerating to over 9.5% in the next two years, touched 10.0% in 2006-07.

Year-on-year, manufacturing, according to the monthly Index of Industrial Production (IIP) available until December 2006, has been growing at double digit rates every month since March 2006.

After an annual average of 3.0 % in the first five years of the new millennium starting 2001-02, growth of agriculture at only 2.7 % in 2006-07.

The invisibles (net), comprising of nonfactor services, investment income, and transfers, have traditionally compensated to a large extent the trade deficit, and this trend continued in 2005- 06 with a moderate current account deficit at 1.1 % of GDP.

The growing strength of India s BOP observed in the post-reform period since the crisis of 1991 continued in 200506.

This growing strength was in spite of a widening of the current account deficit from US$2.5 billion in 2004- 05 to US $ 9.2 billion, equivalent to 1.1 % of GDP, in 2005-06.

As a proportion of GDP, invisibles (receipts) at 11.5% of GDP in 2005-06 exhibited steady growth from a modest level of 2.4% of GDP in 1990- 91.

ECONOMIC SITUATION 200810

Growth in per capita income, declined from a high of 8.1% in 2007-08 to 3.7% in 2008-09 and then The growth rate of the GDP in recovered to 5.3% in 20092008-09 was 6.7 %, with 10. growth in the last two quarters hovering around 6%. The fiscal year 2009-10 began as a difficult one. There was a significant slowdown in the growth rate in the second half of 2008-09, following the financial crisis.

A major concern during the year 2009-10, especially in the second half, was the emergence of high double-digit food inflation. The Indian economy also saw a turnaround, registering 7 per cent growth during H1 of 2009-10, after touching a low of 5.8 per cent in the third and fourth quarters of 2008-09. The economic factors in India are improving continuously. The GDP (Purchasing Power Parity) is estimated at about 3.965 trillion U.S. dollars in the year 2009. With the accelerated GDP reports of India, Goldman Sachs has predicted that India will overtake the GDP of France and Germany by 2020

Reserves of foreign exchange and gold: $287.5 billion (31 October 2009) $254 billion (31 December 2008) exceed the forex reserves of USA, France, Russia and Germany. This has strengthened the Rupee and boosted investor confidence greatly.

Stock of direct foreign investment - at home: $161.3 billion (31 December 2009 est.) $123.4 billion (31 December 2008 est.)

Economics experts and various studies conducted across the globe envisage India and China to rule the world in the 21st century.