India Economic Update, December 2010

World Bank

India Economic Update, December 2010

Autores

World Bank

Editor

Washington, DC

Descripción

The Indian economy recovered from the slowdown at the time of the global financial crisis with strong Gross Domestic Product (GDP) growth, in particular over the first half of FY2010-11. The agricultural sector bounced back strongly after the 2010 monsoon brought normal levels of rainfall, and the industrial sector registered double-digit growth for three consecutive quarters. Inflation came down to 7.5 percent in November but then accelerated again to 8.4 percent in December because of a renewed food supply shock. The current account deficit in FY2009-10 was the largest ever (in US$ terms) and the monthly deficit widened further during the first half of FY2010-11, but the trend then reversed with import growth slowing and export growth accelerating in September-December 2010. With the significant inflation differential between India and its trading partners, the rupees real effective exchange rate (REER) strengthened. On the fiscal side, massive windfall revenue from wireless spectrum auctions and buoyant tax revenue are likely to be offset by two supplementary spending bills. Monetary policy tightening continued with increases in policy rates. This update also discusses several medium-term issues: the link between the real exchange rate and growth, a long-term look at education, demographics and growth, the challenges facing the introduction of the Goods and Services Tax (GST), and the mid-term evaluation of the eleventh development plan. On the real exchange rate, economists have pointed out that the most successful emerging market economies have maintained an undervalued exchange rate to promote exports. In India, the real exchange rate has been broadly stable since the early 1990s, and the International Monetary Fund (IMF) judges it fairly valued with respect to different measures of equilibrium. However, the growing trade deficit and a large fiscal deficit do not quite fit this picture. Discussing policies, we argue that it would be best to focus on policies that increase productivity and competitiveness.

Palabras clave

ACCOUNTING, AGGREGATE DEMAND, AGRICULTURE, AUCTIONS, BALANCE OF PAYMENTS, BALANCE OF PAYMENTS CRISIS, BANK CREDIT, BANK LOANS, BANKING SECTORS, BASE YEAR, BASIS POINTS, BENCHMARK, BIDS, BOND ISSUANCE, BORROWING COSTS, BROAD MONEY, CAPITAL ACCOUNT, CAPITAL ACCOUNT RESTRICTIONS, CAPITAL ACCOUNT TRANSACTIONS, CAPITAL FLOWS, CAPITAL GAINS, CAPITAL INFLOW, CAPITAL INFLOWS, CAPITAL SHARE, CDS, CENTRAL BANK, CENTRAL BANK BILLS, COMMERCIAL BANK, COMMERCIAL BANKS, COMMODITY PRICE, COMMODITY PRICES, COMPETITIVENESS, COMPLIANCE GAPS, CONSUMER DURABLES, CONSUMER GOODS, CONSUMER PRICE INDEX, CORPORATE SAVINGS, CREDIT DEFAULT, CREDIT DEFAULT SWAPS, CREDIT GROWTH, CREDIT RATINGS, CURRENT ACCOUNT DEFICIT, DEBT, DEBT ISSUES, DEFICITS, DEVALUATION, DEVELOPING COUNTRIES, DIRECT INVESTMENT, DISBURSEMENT, DISINFLATION, DOLLAR PRICES, DOMESTIC CREDIT, DOMESTIC MARKET, ECONOMIC DEVELOPMENT, ECONOMIC DEVELOPMENTS, ECONOMIC EXPANSION, ECONOMIC GROWTH, ECONOMIC POLICIES, ECONOMIC RESEARCH, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKET COUNTRIES, EMERGING MARKET ECONOMIES, EMERGING MARKETS, ENABLING ENVIRONMENT, ENFORCEMENT MECHANISM, EQUITY FINANCING, EQUITY FLOWS, EQUITY INVESTMENT, EQUITY INVESTMENTS, EQUITY MARKETS, EXCESS LIQUIDITY, EXCHANGE CONTROLS, EXCHANGE RATE, EXPENDITURE, EXPORT GROWTH, EXPORTERS, EXPORTS, EXTERNALITIES, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL SECTOR, FINANCIAL SYSTEM, FISCAL AUTONOMY, FISCAL DEFICIT, FISCAL DEFICITS, FISCAL POLICIES, FIXED INVESTMENT, FORECASTS, FOREIGN CAPITAL, FOREIGN CURRENCY, FOREIGN EXCHANGE, FOREIGN EXCHANGE MARKET, FOREIGN EXCHANGE MARKETS, FOREIGN EXCHANGE RESERVES, FOREIGN INVESTMENT, FOREIGN INVESTORS, GDP, GDP PER CAPITA, GLOBAL TRADE, GOVERNMENT ACCOUNTS, GOVERNMENT BANK, GOVERNMENT BOND, GOVERNMENT BOND YIELDS, GOVERNMENT BONDS, GOVERNMENT DEFICIT, GOVERNMENT FINANCES, GOVERNMENT INTERVENTION, GOVERNMENT REVENUE, GROSS MARGIN, GROSS NATIONAL SAVINGS, GROWTH PROJECTIONS, GROWTH RATE, HOLDING, HOUSEHOLD SAVINGS, HUMAN CAPITAL, INCOME, INCOME GROUPS, INCOME LEVEL, INCOME TAX, INDEX NUMBERS, INFLATION, INFLATION INDICES, INFLATION RATE, INFLATION RATES, INFLATIONARY EXPECTATIONS, INFRASTRUCTURE INVESTMENT, INFRASTRUCTURE INVESTMENTS, INSURANCE, INSURANCE PREMIUM, INTEREST RATES, INTERNATIONAL CAPITAL, INTERNATIONAL MARKET, INVENTORIES, INVESTMENT PORTFOLIO, INVESTMENT RATE, INVESTOR CONFIDENCE, INVESTOR PERCEPTIONS, LEVEL OF INFLATION, LEVEL PLAYING FIELD, LEVIES, LEVY, LIQUIDITY, LIVING STANDARDS, LOAN, LOCAL CURRENCY, LONG-TERM CAPITAL, M1, M3, MARKET FAILURES, MARKET INTEREST RATE, MARKET PRICES, MONETARY POLICY, MONEY SUPPLY, NATIONAL SAVINGS, OIL PRICE, OIL PRICES, OPEN MARKET, OPEN MARKET OPERATIONS, OVERHEAD COSTS, OVERVALUATION, PER CAPITA INCOME, PER CAPITA INCOMES, POLITICAL ECONOMY, POLITICAL ECONOMY OF REFORM, PORTFOLIO, PORTFOLIO FLOWS, PORTFOLIO INVESTMENT, PORTFOLIO INVESTMENTS, PRIME LENDING RATE, PRIVATE CREDITORS, PRIVATE INVESTMENT, PRODUCTION FUNCTION, PRODUCTIVITY, PRODUCTIVITY INCREASES, PROFIT MARGIN, PROFIT MARGINS, PUBLIC INVESTMENT, PUBLIC INVESTMENTS, PUBLIC SAVINGS, PUBLIC STOCKS, PURCHASING POWER, REAL EXCHANGE RATE, REAL EXCHANGE RATES, REAL GDP, REAL INCOME, REAL INTEREST, REAL INTEREST RATE, REAL INTEREST RATES, REGULATORY FRAMEWORK, REMITTANCES, REPO, REPO RATE, RESERVE, RESERVE REQUIREMENTS, RESERVES, RETURN, RETURNS, SAVINGS RATE, SECONDARY MARKET, SECURITIES, SETTLEMENT, SHORT-TERM CAPITAL, SOVEREIGN BOND, STATISTICAL ANALYSES, STOCKS, SURPLUS LABOR, SYSTEMS ANALYSIS, TAX, TAX COLLECTION, TAX EXEMPTIONS, TAX RATES, TAX REVENUES, TAX SYSTEM, TAXATION, TOTAL COSTS, TOTAL DEBT, TRADE BALANCE, TRADE DEFICIT, TRADE REGIME, TRADING, TRANSPARENCY, TREASURIES, TROUGH, TURNOVER, UNDERVALUATION, UNEMPLOYMENT, WAGES, WHOLESALE PRICE INDEX, WHOLESALE PRICES