NAME- URUSHITA TANWAR
CLASS-XI-E
ROLL NO.-29
SESSION-2023-24
GROWTH TRENDS AND
GLOBAL COST INFLATION
INTRODUCTION
Trends vs. Cycles: Tendencies
Short Term Cyclical fluctuations (Project) => Trend
Classify every uptrend as cyclical (‘overheating’)
Long Term Trends
Medium Term Performance: 2003-04 to 2007-08
Short Term: Inflation – Global cost push
Role of Policy reform:
Sustaining growth
Raising productivity/ offsetting cost increases
Economic Growth Perspective
Phase I: 1950-1 to 1979-80
Two sub-phases (50to 65; 66 to 79)
Phase II: 1980-81 to 1993-4
Start: Policy regime change
End (a) Crises year(1990-91). (b) Reform initiation 1991-2 (c)
Adjustment/recovery (1992-3 to 1993-4)
Phase III: 1994-5 to ?
1994-95: Statistical significant growth break
Rising trend growth
Figure 1: Three Phases of Growth(Phase III
Result of radical reform)
Recent Developments: Past five years ( 2003-4
to 2007-8)
Growth Acceleration
GDP
Average Income / Per capita GDPmp (PcGdp)
Avg. Private Consumption (PvtCons)
Aggregate Growth drivers
Supply side
Demand Side
Sector drivers of growth
Growth acceleration: ( 2003-4 to 2007-8)
In the next three figures:-
Cyclical movement around Rising trend
HP filtered trend
GDPmp: Avg. growth of 8.9%
Per Capita gdp growth has doubled
To 7.3% (from 3.7% in 1980-1991)
Average income will double in ten years
Avg. Private Consumption Gr rt: Almost doubled
Fig 2:Growth Acceleration-Gdp
Fig 3: Per Capita Income
Fig 4: Per Capita Consumption
Aggregate Demand Growth Dynamics:
Investment Led growth
Growth of Demand
Investment growth rate doubled
Pvt consumption & imports accelerated
Govt. Consumption-slowed
Role of private Consumption important but declined below that of
Investment for first time
External : Short period of positive contribution (low oil prices) over
Govt Consumption: Lower contribution
Fig 6: Investment Led
Fig 5: Investment Led Growth
CONTRIBUTION TO DEMAND
Supply Side: Investment & Savings
Investment growth led by
Fixed investment i.e. not inventory build up
Private Investment i.e. Profitable
Increase in productive capacity of the economy
Savings rate also rose: Private & Public sectors
Saving rises with income/investment
Lag during sharp acceleration
Investment: Total, Fixed & Private (ratio to
GDP)
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%.
FDI : Inward and outward
Sources of Growth
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Sector Drivers
Manufacturing
GDP/Value Added
Investment: GCF, GFCF
Communication
Competition and efficiency
Trade, Agriculture, Construction
Labor intensive
Drivers of Growth
Sector Drivers of Growth
Acceleration in Value Added: Increase in growth rate
Highest for Manufacturing and construction
Followed by storage & agriculture.
Investment Growth: Manufacturing 30.5% per year
Capital stock (end 2007-8 over end 2002-3).
Construction(1.92 times)
Manufacturing (1.75 times),
rade, Hotels & Restaurants (1.62 times).
Summary: Medium term gr trend
Growth has accelerated in last five years
While Consumption growth remained robust, the acceleration was
Investment led
External sector was a drag on demand because of oil (and other) price
increases
Private investment particularly corporate is leading investment and
growth
Domestic Saving rate has increased inline with I
Telecom, Construction, Manufacturing were the leading sectors
11th Plan target of 9% average growth will be met
INFLATION: Global effects
Kemal Dervis Exim lecture(18/3/08): Global Cost push
Global Commodity Price Shock
All commodity index
Food price Index
Edible oil (Palm): Net Importer
Effect on India: Primary food & edible oils
Iron Ore: Net exporter
Mineral Oil: Net Importer
Impact on Indian Inflation
Comparison: India(Wpi), USA(Pppi), UK(Ppi Manf)
Global Cost Push?
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Global Supply: Edible Oil(Palm)
Global Supply Shock: Iron Ore
Global Supply Shock: Oil Price
Rate of Growth: Iron Ore & Oil
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THANK YOU……
