Economic Growth

• Economic growth means an increase in real GDP. This increase in real GDP means there is an increase in the value of national output / national expenditure.
• Economic growth is an important macro-economic objective because it enables increased living standards and helps create new jobs.

Measurement of Economic Growth

Economic growth is measured by changes in the gross domestic product (GDP). It measures a country’s entire economic output for the past year. That takes into account all goods and services that are produced in this country for sale, whether they are sold domestically or sold overseas. It only measures final production, so that the parts manufactured to make a product are not counted. Exports are counted because they are produced in this country. Imports are subtracted from economic growth. Economic growth is measured quarterly measured using real GDP to compensate for the effects of inflation. Here’s more on the GDP growth rate and how you can calculate it.

Measurements of economic growth do not include unpaid services. They include the care of one’s children, unpaid volunteer work, or illegal black-market activities.

Determinants of Economic Growth

• Productivity.
• Intensity (hours worked)
• Demographic changes.
• Political institutions, property rights, and rule of law.
• Capital.
• New products and services.
• Growth phases and sector shares.

The Concept Of Economic Development

• Economic development is the process by which a nation improves the economic, political, and social well-being of its people.

Differences between Economic Growth and Economic Development

• Economic growth measures an increase in Real GDP (real output). GDP is a measure of the national income / national output and national expenditure. It basically measures the total volume of goods and services produced in an economy.

Economic Development looks at a wider range of statistics than just GDP per capita. Development is concerned with how people are actually affected. It looks at their actual living standards and the freedom they have to enjoy a good standard of living.

Elements/ Factors Contributing to Economic Development

• Human Resource
• Natural Resources
• Capital Formation
• Technological Development
• Social and Political Factors

Economic Planning for India

Economic planning refers to the initiation, control and regulation of economic activity by the state with a view to achieve predetermined objectives within a given time-interval.

The principal function of planning, especially in a federal system, is to evolve a shared vision of and commitment to the national objectives and development strategy not only in the government at all levels, but also among all other economic agents.
NITI Aayog acts as the quintessential platform of the Government of India to bring States to act together in national interest, and thereby fosters Cooperative Federalism.

At the core of NITI Aayog’s creation are two hubs – Team India Hub and the Knowledge and Innovation Hub. The Team India Hub leads the engagement of states with the Central government, while the Knowledge and Innovation Hub builds NITI’s think-tank capabilities. These hubs reflect the two key tasks of the Aayog.

NITI Aayog is also developing itself as a State of the Art Resource Centre, with the necessary resources, knowledge and skills, that will enable it to act with speed, promote research and innovation, provide strategic policy vision for the government, and deal with contingent issues.

The global macroeconomic landscape is currently chartering a rough and uncertain terrain characterized by weak growth of world output. The situation has been exacerbated by;
(i) declining prices of a number of commodities, with reduction in crude oil prices being the most visible of them,
(ii) turbulent fnancial markets (more so equity markets), and
(iii) volatile exchange rates.

These conditions refect extreme risk-aversion behaviour of global investors, thus putting many, and in particular, commodities exporting economies under considerable stress.

Even in these trying and uncertain circumstances, India’s growth story has largely remained positive on the strength of domestic absorption, and the country has registered a robust and steady pace of economic growth in 2015-16 as it did in 2014-15. Additionally, its other macroeconomic parameters like infation, fscal defcit and current account balance have exhibited distinct signs of improvement. Wholesale price infation has been in negative territory for more than a year and the all-important consumer prices infation has declined to nearly half of what it was a few years ago.

However, weak growth in advanced and emerging economies has taken its toll on India’s exports. As imports have also declined, principally on account of reduced prices of crude oil for which the country is heavily dependent on imports, trade and current account defcits continue to be moderate. Growth in agriculture has slackened due to two successive years of less-than-normal monsoon rains. Saving and investment rates are showing hardly any signs of revival. The rupee has depreciated vis-à-vis the US dollar, like most other currencies in the world, although less so in magnitude. At the same time, it has appreciated against a number of other major currencies. Given the fact that the government is committed to carrying the reform process forward, aided by the prevailing macroeconomic stability, it appears that conditions do exist for raising the economy’s growth momentum and achieving growth rates of 8 per cent or higher in the next couple of years.

In 1978, the World Bank, for the first time, constructed an analytical country classification system. The occasion was the launch of the World Development Report. Annexed to the report was a set of World Development Indicators (WDI), which provided the statistical underpinning for the analysis. The first economic classification in the 1978 WDI divided countries into three categories: (1) developing countries, (2) industrialized countries, and (3) capital-surplus oil-exporting countries. Developing countries were categorized as low- income (with GNI/n of US$250 or less) and middle-income (with GNI/n above US$250).

Major Characteristics of Developing Countries are:-

1.  Lower per-capita income
2.  Low levels of human capital
3. High levels of poverty and under-nutrition
4. Higher population growth rates
5. Predominance of agriculture and low levels of industrialization
6. Low level of urbanization but rapid rural-to-urban migration
7. Dominance of informal sector
8. Underdeveloped labor, financial, and other markets.

Major Characteristics of Emerging Countries are:-

1. the small size of the economy,
2. GNP/Capita much lower than in developed countries,
3. a reduced opening for accepting foreign investors,
4. a high volatility of the exchange rate which implies greater risk in trading.

Major Characteristics of Developed Countries are:-

1. Average income per capita of the population is generally high.
2. Education level of high average population.
3. Life expectancy of the population average height.
4.  Population growth rate per year is relatively small.
5. The death rate per year is relatively small population.
6. Life-style market economy.
7. His wide and varied field.
8. Economic activity in most industry sectors, as well as export commodities.
9. The majority of the population lives in cities.
10. Relatively high level of population health.

The Twelfth Finance Commission  was appointed under the chairmanship of C. Rangarajan on November 1, 2002 to make recommendations regarding the distribution between the Union and the States of net proceeds of shareable taxes, the principles which should govern the grants- in-aid of the revenues of States from the Consolidated Fund of India and the measures needed to augment the Consolidated Fund of a State to supplement the resources of local bodies in the State on the basis of the recommendations made by the Finance Commission of the State.

Recommendations of the Twelfth Finance Commission

Restructuring public finances

• Centre and States to improve the combined tax-GDP ratio to 17.6 per cent by 2009-10.
• Combined debt-GDP ratio, with external debt measured at historical exchange rates, to be brought down to 75 percent by 2009-10.
• Fiscal deficit to GDP targets for the Centre and States to be fixed at 3 per cent.
• Revenue deficit of the Centre and States to be brought down to zero by 2008-09.
• Interest payments relative to revenue receipts to be brought down to 28 per cent and 15 per cent in the case of the Centre and States, respectively.
• States to follow a recruitment policy in a manner so that the total salary bill, relative to revenue expenditure, net of interest payments, does not exceed 35 per cent.
• Each State to enact a fiscal responsibility legislation providing for elimination of revenue deficit by 2008-09 and reducing fiscal deficit to 3 per cent of State Domestic Product.
• The system of on-lending to be brought to an end over time. The long term goal should be to bring down debt-GDP ratio to 28 per cent each for the Centre and the States.

Sharing of Union tax revenues

•  The share of States in the net proceeds of shareable Central taxes fixed at 30.5 per cent, treating additional excise duties in lieu of sales tax as part of the general pool of Central taxes. Share of States to come down to 29.5 per , when States are allowed to levy sales tax on sugar, textiles and tobacco.
• In case of any legislation enacted in respect of service tax, after the notification of the eighty eighth amendment to the Constitution, revenue accruing to a State should not be less than the share that would accrue to it, had the entire service tax proceeds been part of the shareable pool.
• The indicative amount of overall transfers to States to be fixed at 38 per cent of the Centre’s gross revenue receipts.

Local bodies

• A grant of Rs.20,000 crore for the Panchayati Raj institutions and Rs.5,000 crore for urban local bodies to be given to States for the period 2005-10.
• Priority to be given to expenditure on operation and maintenance (O&M) costs of water supply and sanitation, while utilizing the grants for the Panchayats. At least 50 per cent of the grants recommended for urban local bodies to be earmarked for the scheme of solid waste management through public-private partnership.

Calamity relief

•  The scheme of Calamity Relief Fund (CRF) to continue in its present form with contributions from the Centre and States in the ratio of 75:25. The size of the Fund worked out at Rs.21,333 crore for the period 2005-10.
  The outgo from the Fund to be replenished by way of collection of National Calamity Contingent Duty and levy of special surcharges.
• The definition of natural calamity to include landslides, avalanches, cloud burst and pest attacks.
  Provision for disaster preparedness and mitigation to be part of State Plans and not calamity relief.

Grants-in-aid to States

•  The present system of Central assistance for State Plans, comprising grant and loan components, to be done away with, and the Centre should confine itself to extending plan grants and leaving it to States to decide their borrowings.
• Non-plan revenue deficit grant of Rs.56,856 crore recommended to 15 States for the period 2005-10. Grants amounting to Rs.10,172 crore recommended for the education sector to eight States. Grants amounting to Rs.5,887 crore recommended for the health sector for seven States. Grants to education and health sectors are additionalities over and above the normal expenditure to be incurred by States.
• A grant of Rs.15,000 crore recommended for roads and bridges, which is in addition to the normal expenditure of States.
• Grants recommended for maintenance of public buildings, forests, heritage conservation and specific needs of States are Rs. 500 crore, Rs.1,000 crore, Rs.625 crore, and Rs.7,100 crore, respectively.

Fiscal reform facility

•  With the recommended scheme of debt relief in place, fiscal reform facility not to continue over the period 2005-10.

Debt relief and corrective measures

•  Central loans to States contracted till March,2004 and outstanding on March 31, 2005 amounting to Rs.1,28,795 crore to be consolidated and rescheduled for a fresh term of 20 years, and an interest rate of 7.5 per cent to be charged on them. This is subject to enactment of fiscal responsibility legislation by a State.
• A debt write-off scheme linked to reduction of revenue deficit of States to be introduced. Under this scheme,
  repayments due from 2005-06 to 2009-10 on Central loans contracted up to March 31,2004 will be eligible for write- off.
• Central Government not to act as an intermediary for future lending to States, except in the case of weak States,
  which are unable to raise funds from the market.
• External assistance to be transferred to States on the same terms and conditions as attached to such assistance by external funding agencies.
• All the States to set up sinking funds for amortization of all loans.
• States to set up guarantee redemption funds through earmarked guarantee fees.

Others

•  The Centre should share ‘profit petroleum’ from New Exploration and Licensing Policy (NELP) areas in the ratio of 50:50 with States where mineral oil and natural gas are produced. No sharing of profits in respect of nomination fields and non-NELP blocks.
• Every State to set up a high level committee to monitor the utilization of grants recommended by the TFC.
  Centre to gradually move towards accrual basis of accounting.

Source:Ministry of Finance

Export Import Policy or  Exim Policy or Foreign Trade Policy is a set of guidelines and instructions related to the import and export of goods.

Various Objectives of Exim Policy are :-

• To facilitate sustained growth in exports from India and import in India.
• To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods scheme required for augmenting production and providing services.
• To enhance the technological strength and efficiency of Industry Agriculture industry and services, thereby improving their competitive strength while generating new employment opportunities, and to encourage the attainment of internationally accepted standards of quality.
• To provide clients with high-quality goods and services at globally competitive rates. Canalization is an important feature of Exim Policy under which certain goods can be imported only by designated agencies. For an example, an item like gold, in bulk, can be imported only by specified banks like SBI and some foreign banks or designated agencies.

The new five year Foreign Trade Policy, 2015-2020 provides a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in keeping with the “Make in India” vision of our Hon’blc Prime Minister. The focus of the government is to support both the manufacturing and services sectors, with a special emphasis on improving the ‘ease of doing business’.

Merchandise Exports from India Scheme (MEIS):-To offset infrastructural inefficiencies and the associated costs of exporting products produced in India giving special emphasis on those which are of India’s export interest and have the capability to generate employment and enhance India’s competitiveness in the world market.With the aim in making India’s products more competitive in the global markets, the scheme provides incentive in the form of duty credit scrip to the exporter to compensate for his loss on payment of duties.

Service Exports from India Scheme (SEIS) :-Service Provider of eligible services shall be entitled to Duty Credit Scrips at notified rates.

Export Promotion Capital Goods (EPCG) scheme allows import of capital goods including spares for pre production, production and post production at zero duty.

Other Specific steps taken for the developement of international trade are:-

• Trade Facilitation & Ease Of Doing Business
• DGFT as a facilitator of exports/imports
• Niryat Bandhu – Hand Holding Scheme for new export / import entrepreneurs
• Online Complaint Registration and Citizen’s Charter
• Monitoring System
• Issue of e-IEC (Electronic-Importer Exporter Code)
• e-BRC
• MoU with State Governments for sharing of e-BRC data
• Exporter Importer Profile
• Reduction in mandatory documents required for Export and Import
• Online Inter-ministerial consultation
• Facility of online filing of applications
• Facility to upload documents by Chartered Accountant / Company Secretary / Cost Accountant
• Electronic Data Interchange (EDI)
• Message Exchange with Community partners
  (a) Message Exchange with Customs
  (b) Message Exchange with eBiz
  (c) Message Exchange with Banks
  (d) Message Exchange with EPCs
• Encouraging development of Third Party API
• Forthcoming e-Governance Initiatives
• Free passage of Export consignment
•  No seizure of export related Stock
• 24 X 7 Customs clearance
• Single Window in Customs
• Self-Assessment of Customs Duty
• Authorised Economic Operator (AEO) Programme
• Prior filing facility for Shipping Bills
• Cutting down delay in filing of Export General Manifest (EGM) for duty drawback
• Facility of Common Bond / LUT against authorizations issued under different EP Schemes
• Exemption from Service Tax on Services received abroad
• Export of perishable agricultural Products
• Time Release Study (TRS)
• Towns of Export Excellence (TEE)