Macroeconomic Overview of India: Recent Trends and Developments

Indian economy: An Overview • 12th in terms of GDP at market exchange rates ($1. 3 trillion) and 4th in terms of GDP at purchasing power parity exchange rates ($3. 8 trillion) in 2009 • 2. 3% of global GDP at market exchange rates and 5. 2% of global GDP at purchasing power parity exchange rates • Relatively a closed economy till 1991 and opened up after the external payments crisis of 1991 • Average growth rate about 4% before 1991and moved up to 6. 5% post reforms • Growth rate rose to nearly 9% in the pre-crisis 5-years, 2003-08 • Per capita GDP rose 3 times from $374 in 1990 to $1134 in 2009 Recovery from Global Crisis Growth fell to 6. 7% in 2008-09 from 9. 2% in 2007-08 •Smart recovery to 7. 4 % in 2009-10 and 8. 9% in H1 2010-11 (average growth rate, 2003-08 : 8. 9%) •India returning to 9%+ sustained growth trajectory? Potential Growth Rate of Indian Economy •Potential growth rate: the maximum sustainable rate at which an economy can grow without raising the rate of inflation •India’s potential growth rate rose from about 5. 5% in late1990s to above 8. 5% in mid-2000s •Growth potential has fallen after crisis to about 7. % and below •Current growth rate above potential and has triggered inflationary pressures Post-crisis Saving and Investment: India-China Contrast 6 0 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 China India 0 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 China India Source: WDI Database, World Bank 2010. •Both savings and investment rates declined in India following the crisis; in China both rose •In India consumption ratio rose following crisis, both for households and government; China the opposite

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