Analyzing The Macro-Economic Environment PDF

ANALYSING THE MACRO- ECONOMIC ENVIRONMENT Thrust areas of a macroeconomic analysis Evaluation of Standard of Living  Per-capita GDP Evaluation of Resources  Is the country independent in terms of food?  Is the country independent in terms of energy?  Is the resource curse? Th...

ANALYSING THE MACRO- ECONOMIC ENVIRONMENT Thrust areas of a macroeconomic analysis Evaluation of Standard of Living  Per-capita GDP Evaluation of Resources  Is the country independent in terms of food?  Is the country independent in terms of energy?  Is the resource curse? Thrust areas of a macroeconomic analysis Stability Evaluation Economic Risk Evaluation: macroeconomic indicators  Inflation  Volatility in exchange rate  Volatility in money and capital market  Gross fiscal deficit as percentage of GDP  Government debt as percentage of GDP  Foreign exchange reserves as a proportion to Import  Short-term debt as a percentage of GDP  Non-performing assets as a proportion to overall banking assets Thrust areas of a macroeconomic analysis Stability Evaluation Political Risk Evaluation  Redistribution among Interest Groups Who will pay how much to the government (taxes)? Who will get how much from the government (subsidies)?  Democracy Indices Electoral process and pluralism Civil liberties Functioning of government Political participation Political culture  Corruption Perception Index (CPI) by Transparency International  Systematic Exclusion and Social Conflict: Indices on Inequality, Fragmentation and Polarization India’s recent growth experience What is growth?  Growth = (Yt – Yt-1)/Yt-1 where Y is the National Income National Income is measured in terms of  Gross Domestic Product (GDP)  Gross National Product (GNP)  Net National Product (NNP) Growth theory Stimulator for growth  Withdrawal of License raj  Banking sector reform  Partial Privatization  Infrastructure  Ease of doing business  Private investment  Export orientation  India’s ranking in Ease of Doing Business Index (World Bank (2020) Indicator 2014 2015 2016 2017 2018 2019 Starting a business 158 155 155 156 137 136 Dealing with 184 183 185 181 52 27 construction permits Getting electricity 137 70 26 29 24 22 Registering property 121 138 138 154 166 154 Getting credit for 36 42 44 29 22 25 business Protecting minority 7 8 13 4 7 13 investors Paying taxes 156 157 172 119 121 115 Trading across border 126 133 143 146 80 68 Enforcing contracts 186 178 172 164 163 163 Revolving insolvency 137 136 136 103 108 52 Overall ranking 142 130 130 100 77 63 Most problematic factors for doing business (World Economic Forum, Executive Opinion Survey)  Tax regulations  Corruption  Tax rates  Poor public health  Inflation  Crime and theft  Insufficient capacity to innovate  Poor work ethic in national labor force  Government instability  Foreign currency regulation  Restrictive labor regulations  Inadequate supply of infrastructure  Policy instability  Inefficient Government bureaucracy  Access to financing  Inadequate educated work force Is India facing “Policy Paralysis”?  A series of cancellation of telecom and mining licenses and bureaucratic hurdles in getting clearance from multiple departments had brought down the investors’ sentiment at the rock bottom level.  It was reported that by January, 2014 nearly 40 percent of 419 stalled large investment projects were pending due to environmental clearance itself (Business Standard, January 31, 2014)  The recent World Bank report on Ease of Doing Business 2017: Equal opportunity for all has ranked India at 130 globally where New Zealand tops the ranking. Initiatives  Honourable Prime Minister of India on September 25, 2014 launched an ambitious ‘Make in India’ campaign.  The campaign aims to turn India in a manufacturing hub which would also create demand from the services sector. The expected result is to bring the nation back in high growth trajectory.  Goal has been set of lifting India among top 50 in World Bank Doing Business ranking from India’s 2015 ranking.  Measures have been taken for interaction through a single online portal and any query from investors regarding labour related issues, available skilled manpower as well as infrastructure support is expected to be replied by a dedicated eight-member team within 48 hours. Business Environment Analysis  Microeconomic policy  Market competition  Regulation  Public interest theory  Public choice theory  Theory of regulatory capture  Tollbooth view  Macroeconomic policy  Controlling inflation  Maintaining a stable and competitive exchange rate  Exercising fiscal prudence  Stable financial markets Discussion