INVESTMENT ACCELERATES ECONOMIC GROWTH

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					INVESTMENT
ACCELERATES
 ECONOMIC
  GROWTH

   GROUP 2

    PRESENTED BY :
      SHARUL GOEL
 PRIYANKA CHOPRA
          JISHNU.S
            INTRODUCTION
Economic Growth :
   Domestic Investment & FDI Inflow
Supported By :
  oMarket reforms
  oRising Foreign Exchange Reserves
  oFlourishing Capital Market
  GROWTH OF INDIAN ECONOMY
• Over the last 3 years        :      Over 9%
• In the last decade           :      Over 7%

Growth Reduced Poverty by 10 %.
Poverty alleviation is a Major Challenge.
60% of Indian Population (1.1 Billion) Live on
 Agriculture
     FACTORS GOVERNING ECONOMIC
               GROWTH

1)   Political Stability
2)   Macro Economic Policy
3)   Market Reforms
4)   Capital Market
              CAPITAL MARKET
• CAPITAL MARKET : Market for securities where
  companies & government can raise long term fund.
• Capital market includes :
                         1) Stock Market
                         2) Bond Market.
                     CAPITAL MARKET




    PRIMARY MARKET                    SECONDARY MARKET
                        LIBERALIZATION
•   1991 : Moved towards liberalization
•   With liberalization Stock markets gained importance.
•   Stock Market liberalization
•   International Asset pricing Model (IAPMS)
    Predict that stock market liberalization may reduce the country’s cost of
    equity capital by allowing for risk sharing between domestic & foreign
    agents.
• Liberalization Encourages
   1) Formation of Equity markets
   2) Deepening of Equity markets
   EXPANSION LEADS TO GROWTH
• Indian economy : 3 Sectors
1) PRIMARY PRODUCING SECTOR : -

                                                    RAW
     NATURAL                PRIMARY              MATERIALS
    RESOURCES              PRODUCTS              FOR OTHER
                                                 INDUSTRIES



Major Industries : - Agriculture, Agribusiness, Fishing ,
  Forestry, Mining & Quarrying Industry.
2) SECONDARY PRODUCING SECTOR

          OUTPUT OF
                                  FINISHED
           PRIMARY
                                USABLE GOODS
            SECTOR



Major Businesses : - Manufacturing & Construction.

Growth rate of Manufacturing Sector
8.95% in 2005 to 12% in 2006.
3) TERTIARY PRODUCING SECTOR / SERVICES
   SECTOR

 Intangible Goods
 Growth Rate of service sector was
  11.18%(2007) & contributed 53% to the GDP.
INVESTMENT IN CAPITAL MARKET
1) DOMESTIC INVESTMENT
Source of funds:
    a. Individual investors
    b. Domestic Institutional Investors
    c. Domestic mutual funds etc...
As new funds flow to Capital Market
    Technology Improves
    Efficiency Improves
    Turnover Increases

   OVERALL SIZE OF ECONOMY INCREASES
 INVESTMENT IN CAPITAL MARKET
2) FDI INFLOW
              Supplement Direct Investment
              Influence Economic growth
FDI results in : -
         Technological Improvement
         Access to global Managerial Skills & Practices.
         Optimum utilization of Human & natural
               resources.

      MAKES INDIAN INDUSTIRES INTERNATIONALLY
                  COMPETITIVE
          FDI POLICY IN INDIA
   Most liberal in emerging economies
   3rd favored destination for FDI behind China &
    USA.
   Permits 100% FDI from foreign/NRI investors
    without prior approval of Government/RBI.
   India’s share in Global FDI rose from 1.8% (1996)
    to 2.2% (1997).
   FDI in India
      1996-1997         :      US $ 6,008 Million
      1997-1998         :      US $ 5,025 Million
     Decline in Portfolio Investment
     ECONOMIC GROWTH & CAPITAL
              MARKET
          Economic growth        α     Capital in CM

                         E=KC

       E = Economic Growth
       C = Capital in Capital market
       K = Constant

K is a constant for an economy which depends on the country’s
1) Capital market policy.
2) Macroeconomic policy.
3) Strength of Infrastructure etc….
RELATIONSHIP BETWEEN ECONOMY & CAPITAL
                MARKET


            • SIZE OF ECONOMY IS SMALL
              DUE TO LOW INVESTMENT IN
              CAPITAL MARKET.
SITUATION   • C1 = Capital in capital Market
            • E1 = Size of Economy
    1
            • E1 α C1
RELATIONSHIP BETWEEN ECONOMY & CAPITAL
                MARKET


            • SIZE OF ECONOMY INCREASES
              AS THE INVESTMENT INCREASES
              IN CAPITAL MARKET
SITUATION   • C2 = Capital in capital Market
    2       • E2 = Size of Economy
            • E2 α C2
RELATIONSHIP BETWEEN ECONOMY &
         CAPITAL MARKET

   • When C2 > C1


   • E2 > E1 , When K is a Constant


   • The growth of economy depends on
     the Expansion of capital market
 PROBLEMS THAT MAY ARISE IN THE ABSENCE
  OF A WELL FUNCTIONING CAPITAL MARKET
1) Companies will not be able to diversify.
2) The risk of diversification will be limited to
   Investors & companies.
3) Will lag in adopting latest technology.
4) Will not be able to attract & retain Competent
   work force
5) FDI inflow will decrease
6) Investors & creditors wont get right information
   about share trading.
            CONCLUSION
 Industrial policy aiming at higher rate of
economic growth, should endeavor to design
policies in such a way that it attract Capital
Inflow in the Economy.
            ARTICLE REFERENCE

INVESTMENT ACCELERATES ECONOMIC GROWTH
- By:

 Neema Gupta, Lecturer, TMIMT.
 Ashish Gupta, Area Manager, ITC Limited.
THANK YOU

				
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