Dynamics of Population Ageing by Tarun Das

8/14/2019 Dynamics of Population Ageing by Tarun Das

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Dynamics of Population Ageing: How Can India Respond?

Dr. Tarun Das, Economic Adviser, Ministry of Finance, India. And

Consultant, UN-ESCAP, Bangkok, Thailand.

1. Introduction

Like other countries India is confronted with the problem of ageing of population.According to some estimate, number of Indians over 60 years will grow from 76 millionin 2000 to more than 218 million by 2030. Social Security System that prevails in Indiahas not been very effective to provide coverage to the existing population and to confrontthe challenges emerging due to ageing and fiscal constraints. Government is attemptingto revamp Indian Social Security System, and to put in place mechanism of SocialSecurity.

Social Security Reforms form an integral part of ongoing reforms in developed anddeveloping countries. The policy makers try to find out an appropriate mechanism toconfront to complex issues related to demographic burden owing to population ageing,growing inability of the government to finance unfounded pensions, pressure ongovernment budget due to increasing costs of retirement benefits. Pension Reforms have,therefore, become a hot pursuit for planners, policy makers, market analysts.

2. Present Social Security System in India

Present system of Social Security in India is based on three components, namely;

Compulsory contribution, Tax Preferred Voluntary Contribution, and Social Assistance(Table-1). Compulsory component includes Employees Provident Fund (EPF),Employees Pension Fund, and Central Service Pension Scheme to the GovernmentProvident Fund, Special Provident Fund. Tax Preferred Voluntary component includesPublic Provident Fund (PPF), Superannuation Plans and Personal Pensions. SpecialAssistance Component includes State level Social Assistance and National old age pension scheme. The Employees Provident Fund Organisation (EPFO) managesemployees Provident Fund Scheme 1992, Employees Deposit Link Insurance Scheme1996, Employees Pension Fund 1995, under EPF Schemes.

Out of total work force of 400 millions EPF cover 26 million members and the other

mandated Provident Funds covered 2 million, EPFO administered the EPF collectsmoney and maintains records, invest funds according to government guidelines.

By the end of March 2000, PF & Pension Funds amounted to 23% of gross householdfinancial assets and 2.8% of GDP next to the share of banking sector. By the end ofMarch 2000, EPFO covered 24.5 million members under 33 million establishments.Progressive contributions under Employees Provident Fund, Employees Pension Fund

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and Employees Deposit Linked Insurance Fund stood at Rs.752 billion, Rs.42 billion andRs.1.3 billion respectively.

Progressive investment by EPFO during 1999-2000, stood at Rs.792 billion for ProvidentFund, Rs.274 billion for Pension Fund, and Rs.2.8 billion for Deposit linked Insurance.

The rate of interest for EPF has been reduced progressively from 12% in 1999-2000 to9.5 percent in 2004-05. The total Pension Fund in India at the end March 1996 wasestimated at Rs.1283 billion around 11.7% of GDP). EPF 1952 is the largest among allschemes, which accounts for 46% of total funds. The rate of contribution under EPFvaries from 8.33% to 10%. The EPF is managed by the Central Provident FundCommissioner, which invests the funds through State Bank of India as per GovernmentGuidelines. According to the government norms, minimum 40% is invested in Centraland State Government bonds, 40% in Securities of Public Financial Institutions, PublicSector Enterprises, Banks etc. and 10% can be invested in the rated Private Sector Bonds.

Table-1: Government sponsored schemes for old age security in IndiaScheme Legal coverage Effective coverage Financing

A. Compulsory contributions

1. EmployeesProvident Scheme

Employees in firmswith more than 20employees

About 5.8 per centof labour force

Employer andemployeecontributions

2. EmployeesPension Fund

Employees in firmswith more than 20employees


Employer andgovernmentcontributions

3. Civil ServicePension Scheme

Civil servants inCentre and state

governments


State or Centregovernment

4. GovernmentProvident Fund

Civil servants inCentre and stategovernments


Employeecontribution

5. Special ProvidentFunds

Certain occupationsin Jammu &Kashmir


Employer andemployeecontributions

B. Tax preferred Voluntary Contributions

6. Public ProvidentFund

All individuals About 0.8 per centof labour force

Individualcontributions

7. Superannuation

plans

All employees About 0.2 per cent

of labour force

Employee

contributions8. Personal pensions All individuals About 0.2 per cent

of labour forcePurchase of annuitylike products

C. Social assistance

9. State level socialassistance

Varies by states Varies by states State budgets

10. National old agepension scheme

Persons over age 65years

About 15-20 percent of old people of

Central budget

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over 65 years

3. Pension reforms in India

The pensions system in India is large and fragmented, while the majority of the country'slabour force operate in the informal sector and lack coverage. Government is preparing toreform the system by simplifying regulation, widening accessibility and extendingpension provisions into the unorganized sector, estimated at around 93% of the labourforce. Government is examining the possibility of establishing a single regulatoryauthority to cover both the pensions and insurance sectors.

Current national pensions system consists of four main components:

1. Private-sector cover. The Employee Provident Fund Organisation (EPFO)

functions under the Ministry of Labour and is primarily responsible for theretirement income of private-sector employees. It consists of a mandatory savingsdefined contribution scheme, known as the Employee Provident Fund, and adefined benefit scheme -- the Employees Pension Scheme (EPS). The EPFO isapplicable only to those enterprises with at least 20 employees and covers justover 5% of the country's total labour force. Nevertheless, its total assets are large,amounting to around 7% of GDP.

2. State-owned schemes. Some public-sector financial organizations such as banks,insurance companies and state-owned enterprises, offer stand-alone retirementschemes. They typically operate with fixed terms and permit withdrawals after aminimum period.

3.Civil service provision. Civil servants at both central- and state-governmentlevels have their own retirement benefits scheme. This includes a non-

contributory, indexed defined benefit (DB) pension, with survivors' benefits, amandatory provident-fund savings scheme to which a defined contribution ismade, along with a gratuity. The government is liable for the entire scheme.

4. Post Office scheme. India's Post Office Savings Bank (IPOSB) is the onlypublic-sector organization that operates voluntary retirement schemes. The IPOSBis the single largest financial institution in the country, controlling depositsequivalent to 9% of GDP.

However, overall, the pensions system is beset with chronic problems, including:

Poor management of a large asset pool;

Exclusion of the vast majority of the labour force, who are dependent on

voluntary retirement schemes; Lack of pensions harmonization, which impedes employee mobility and labour

market flexibility; Low flexibility in fund management and restrictions on portfolio choice; and

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Excessive control in the hands of government and trade unions, which has led to

the politicization of the system.

In the case of the EPFO, more than 80% of withdrawals are premature (before retirementor death), largely because a large number of workers leave their jobs before retirement

age. It is almost impossible to transfer EPFO contributions when moving to another job.As a result, most of those who switch jobs withdraw the contributions they made undertheir former employer and start a new scheme with their next employer. There are alsoindications that the EPFO may be in financial trouble: a recent actuarial report revealedan unfunded gap in the EPS worth almost 175 billion rupees (3.8 billion dollars).

Committee recommendations. In 1999, the government established the OASIS (the OldAge Social and Income Security) committee in order to resolve these problems. It wasasked to recommend a pension system that would enable every worker to obtain apension with modest contribution through their working career. The committee's report,completed the following year, made several recommendations. These included:

Introducing a defined contribution scheme;

Creating an individual retirement account;

Allowing pension fund managers to administer funds, which civil servants and

trade union representatives currently control; Using professional instruments to earn higher returns than the current system's

reliance on government bonds; Cracking down on the non-withdrawal of savings in order to gain tax benefits;

Requiring that a certain minimum percentage of accumulated funds be spent on

buying annuity at the time of retirement.

The report also recommended that the provident fund and pensions structure be placedwithin a single regulatory framework. However, while these recommendations have beenwelcomed, they do little to expand pensions coverage to the majority of workers whocannot afford social security after retirement.

Dovetailed reforms. Government has recognised this problem and is trying how toimprove pensions coverage, especially for poorer workers in the informal sector. DefinedBenefit (DB) System has been criticized has been criticized on the ground that the systemimposes burden on exchequer, generates unemployment, leads to non-optimal resourceallocation, does not boost long term savings, and capital market development andimpedes the growth of economy. Whereas on the other hand, defined contribution (DC)

managed through the individual contributions provides freedom of choice to theindividuals and better return due to competitive funds management, enhances nationalsavings and reduces burden on exchequer.

Government has now switched over to defined contribution system organized aroundemployees contribution rate and flows of retirement pension determined solely by thehistory of individual contribution. The defined contribution system is fully funded systemfinanced solely by the individual unlike unfounded pay-as-you-go (PAYG) system under

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defined benefit system. The most important feature of the newly reformed pension systemis the key role of private funds managers who are considered to be more efficient andable to provide better return than the public funds.

4. Social Health Insurance in India

There is only one scheme in India the Employer State Insurance Scheme (ESIS) thatqualifies as SHI in its classical definition. The three main characteristics of this schemeare that it is mandatory, contributory and there is the Employer State InsuranceCorporation (ESIC) that acts as the autonomous body and manages the funds. The otherscheme is the Central Government Health Scheme (CGHS), which is also contributoryand employment based, but neither does it have a separate autonomous fund manager, noris it compulsory. Further, the contributions are almost flat and nominal. .

(a) Employee State Insurance Scheme (ESIS)

As a first major initiative for providing social security, the Parliament of Indiapromulgated the Employees State Insurance Act (E.S.I. Act) in the year 1948. The E.S.I.Scheme was initially launched in 1952 in two centers and expanded in a phased manneracross the country with the active involvement of state governments. The Act isapplicable to non-seasonal factories using power and employing ten or more persons, andnon-power using non-seasonal factories and establishments such as shops, hotels,restaurants, cinemas etc, employing twenty or more persons. Seasonal factories, mines,and plantations have not been covered under the Act. It also does not cover workers in theunorganized sector and self-employed workers. Out of total labour force of 412 million,about 8 million workers i.e. about 2 per cent have been covered under the ESI Act.Presently ESIS covers 28 per cent of the organized workforce compared with coverage of

38 per cent in mid 1950s.

The total revenue under ESIS in 2001-02 was Rs.173 billion, of which 72 per cent wasfrom the contribution of employees and employers. The total expenditure adds up toRs.110 billion out of which 64 per cent accounts for medical benefits. The scheme ismaking profits, and in 2001-02 a savings of Rs.62 billion (36 per cent of total revenue)was transferred to the ESI general reserve fund.

(b) Central Government Health Scheme (CGHS)

Central Government Health Scheme (CGHS) was introduced as a contributory plan in1954, to provide medical coverage to central government employees (both, working andretired) and their families, without involving the system of medical reimbursement. Asfor the organizational set up, CGHS is operated by the Director, CGHS, who is directlyappointed by the Ministry of Health. There are currently about 1 million cardholders with4.3 million individual beneficiaries. The employee contribution ranges from Rs.15 toRs.150 per month depending on the salary. Pensioners can avail of whole life cardbypaying ten years contribution at the time of retirement. ESIS and CGHS together coverabout 3 per cent of the population, including beneficiaries and their families. However,

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some other sectors of the government are also covered by non-contributory schemes,which are in the nature of social welfare schemes, and are essentially benefits given to thevarious categories of employees in the government sector.

(c) Schemes under specific ministries.

Certain ministries like Railways, Defense and Coal provide health coverage to theiremployees as a benefit, while some government-sponsored schemes provide healthcoverage to specific employment-based target population. These schemes servehandloom workers and handicrafts artisans sponsored by the Ministry of Textiles.

Railways Health Services

Railways employees and their families can avail of the Railways managed healthfacilities without paying any contribution. Retired employees can opt for continued healthbenefits by contributing the last months basic pay. The employee coverage includes 1.6

million current employees and 0.25 million retired employees. Currently, about 8 millionbeneficiaries avail of the health services through a network of 584 health units, 124hospitals, including 5 super-specialty hospitals and 9 apex referral hospitals.

Defense medical services

Similarly, Ministry of Defense, through an Inter-service organization called ArmedForces Medical Services (AFMS), provides comprehensive health coverage to the servingArmed forces personnel and their families of all three wings; Army, Navy and Air Force.The total beneficiaries add up to 6.6 million. There is no contribution from thebeneficiaries and the entire expenditure comes from the defense budget.

Ex-servicemen Contributory Health Scheme

A newly introduced scheme Ex-servicemen Contributory Health Scheme (ECHS) provides medical care to ex-servicemen, war widows and their dependents.

Schemes under the Ministry of Textiles

Ministry of Textiles offers schemes to provide social security to the handloom weaversand handicraft artisans, which involve health coverage.

Schemes of Public Sector Undertakings

There are 240 Central Public Sector Enterprises (CPSEs) established by the Governmentof India. As on 2002, the employment in these enterprises was about 2 million excludingcasual workers. These public enterprises provide a range of welfare activities to theiremployees, in keeping with the spirit of a socially responsible employer. The total profitsof the CPSEs for 2001-02 amounted to Rs.260 billion and total expenditure on social

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overheads, education, medical and cultural subsidies amounted to 22 billion accountingfor 8 per cent of total expenditure.

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Public-Private Partnership

In recent years various experiments of public private partnership have taken place toimprove health services. There are special schemes in the state of Jammu and Kashmir,Rag Pickers scheme in Pune, Students health scheme in West Bengal etc. A Community-

based Universal Health Insurance Scheme was launched by the four public sectorgeneral insurance companies in July 2003. Up to March 31, 2004, 4.17 lakh familiesinvolving 11.62 lakh persons have been covered under the scheme. Some States havetaken initiatives to formulate social insurance for people below poverty line (see Box).

Box-1: Ongoing initiatives by states for health insurance

For meeting hospitalisation cost of BPL families, Kerala has proposed a Health

Insurance Scheme with contribution from the individual, State and the PRIadministered through the Kutumbashree self-help group.

In Delhi, a government funded health insurance scheme Arogya Nidhi is being

taken up. For secondary care in government institutions, the state plans to

initiate a pilot project on health insurance for people below the poverty line. In Andhra Pradesh a health insurance scheme is being implemented, under

which a cover of Rs 20,000 towards hospitalization charges for a period of fiveyears is assured for the acceptor of sterilization and his/ her two children,subject to a maximum of Rs. 4,000 per year

Madhya Pradesh and Himachal Pradesh are in the process of launching

Community Health Insurance Schemes.

On a pilot basis in 50 districts in the country, on January 23, 2004, Government launcheda social security scheme for workers drawing pay/wages/income not more than Rs.6, 500per month in the unorganized sector. The scheme will be funded by contributions at a rate

of Rs. 50 per month by eligible workers in the age group of 18-35 years and of Rs.100 per month by those in the age group of 36-50 years. The employers, whereveridentifiable, in both cases will contribute at a rate of Rs.100 per month. The governmentwill contribute at the rate of 1.16 per cent of the monthly wages of the worker. Table-1summaries the extent of coverage of health insurance under different schemes.

Table-1: Health Insurance Coverage in India

Schemes Beneficiaries (in million)

1. The Employees State Insurance Scheme (ESIS) 25.3

2. Central Government Health Scheme (CGHS) 4.3

3. Railways Health Scheme 8.0

4. Defense Employees 6.6

5. Ex-Servicemen (in defense) 7.56. Mining and plantations (public sector) 4.0

7. Health insurance (public sector non-life companies) 10.0

8. Health insurance (private sector non-life companies0 0.8

9. Health insurance by Life insurance companies 0.2

10. State sponsored schemes 0.5

12. Employer run facilities (private sector) 6.0

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Total 73.2

5. Caring for the Elderly People

The aged people, in the wake of declining family support system and other socio-economic circumstances, are left helpless and require the support and protection from the

State. To fulfill the commitments of the National Policy on Older Persons, specialemphasis is being placed on expanding the on-going programs of old age homes, day carecenters, mobile Medicare units. Medicare centers are being implemented under thescheme of Integrated Program for Older Persons. Financial assistance has beenextended to 451 NGOs for running 222 Old Age Homes, 201-Day Care Centers and 27Mobile Medicare Units.

A special pension policy - Varishtha Pension Bima Yojana for persons aged 55 yearsand above was also launched on July 14, 2003 by the Life Insurance Corporation ofIndia. The policy guarantees an annual return of 9 percent in the form of monthlypayment. Minimum pension is Rs.250 per month and maximum Rs.2, 000 per month. For

monthly pension a single premium is payable in lump sum. The minimum premium isRs.33, 335 and the maximum is Rs.2, 66,665. There is also special deposit scheme forsenior citizens with an interest of 9 per cent. Senior citizens are given special rebates forincome tax and property tax. They are entitled for concessions for both rail and air fares.

6. Migration

Indias stock of human capital in terms of qualified people is one of the highest in theworld (Table-1). Every year India adds about 2.3 million English-speaking graduatescompared with 1.2 million graduates in the US. With limited opportunities in thedomestic market, Indian educated labour continues to look for outsourcing opportunities

and job offshore. In the past, India participated in the global labour arbitrage throughmigration. The acceleration in the outsourcing in services and manufacturing in recentyears has created alternative ways to participate in the global labour market. India hasachieved success in sectors with higher labour intensity but lower infrastructure/ capitalintensity, such as software and IT enabled services, pharmaceuticals, gems and jewelleryand garments. Presently India has a share of 1.3% in global trade of commercial services(excluding remittances from Indians working aboard) compared to its share of only 0.8%in global trade of goods.

Table -1 Global supply of science and engineering students graduating in 1999 (in 000)

Country Natural Science* Engineering Total

1. Global 918 868 1786

2. EU 182 135 3173. USA 144 61 205

4. China 60 195 255

5. India 147 350 176

6. Japan 33 103 136

7. Indonesia 11 21 31

8. South Korea 30 45 75

9. Taiwan 13 17 30

10. Thailand 10 11 21

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Table-2INDIA- Macro-economic Trends: 1999-2007 [Update: 10 November 2004]

I T E MS 1999 2000 2001 2002 2003 2004 2005 2006 2007

Actual Actual Actual Actual Estimate Projected Projected Projected Projected

POPULATION (Mn; as on Oct 1) 1001 1019 1037 1055 1072 1088 1104 1120 1137

GR Population % 1.83 1.80 1.77 1.70 1.60 1.50 1.50 1.50 1.50

NATIONAL ACCOUNTS (Rupees Bn;fy)GDP by industry (at const.1993/94 fc) 11484 11986 12678 13183 14245 15093 16127 17280 18579

Agriculture 2870 2867 3053 2894 3158 3095 3157 3251 3381

Industry 3063 3264 3375 3592 3825 4097 4397 4727 5105

Manufacturing 1919 2062 2137 2270 2432 2609 2805 3015 3256

Non-manufacturing 1144 1202 1238 1322 1393 1488 1592 1712 1848

Services 5550 5855 6251 6697 7262 7901 8573 9302 10092

GDP at constant 1993/94 factor cost 11484 11986 12678 13183 14245 15093 16127 17280 18579

Consumption of fixed capital 1291 1361 1425 1501 1593 1660 1774 1901 2044

NDP at factor cost 10193 10625 11253 11682 12652 13433 14353 15379 16535

Net factor income from abroad -112 -116 -80 -115 -115 -135 -140 -145 -150.0GNP at constant factor cost 11372 11870 12598 13068 14130 14958 15987 17135 18429

NNP at constant factor cost 10081 10509 11173 11567 12537 13298 14213 15234 16385

Indirect taxes less subsidies 1179 1176 1162 1293 1397 1480 1581 1694 1822GDP at constant 1993/94 market prices 12663 13162 13840 14476 15642 16573 17708 18974 20400

GNP at constant 1993/94 market prices 12551 13046 13760 14361 15527 16438 17568 18829 20250

GDP (const.fc) sectoral shares 100 100 100 100 100 100 100 100 100

Agriculture 25.0 23.9 24.1 22.0 22.2 20.5 19.6 18.8 18.2

Industry 26.7 27.2 26.6 27.2 26.9 27.1 27.3 27.4 27.5

Services 48.3 48.9 49.3 50.8 51.0 52.4 53.2 53.8 54.3

GNP growth rate at constant fc 6.2 4.4 6.1 3.7 8.1 5.9 6.9 7.2 7.6

GDP growth rate at constant mp 7.1 3.9 5.2 4.6 8.1 6.0 6.8 7.2 7.5

GDP growth rate at constant fc 6.1 4.4 5.8 4.0 8.1 6.0 6.8 7.2 7.5

GR agriculture 0.3 -0.1 6.5 -5.2 9.1 -2.0 2.0 3.0 4.0GR industry 4.8 6.5 3.4 6.4 6.5 7.1 7.3 7.5 8.0

GR manufacturing 4.0 7.4 3.6 6.2 7.1 7.3 7.5 7.5 8.0GR non-manufacturing 6.2 5.1 3.0 6.8 5.4 6.8 7.0 7.5 8.0GR services 10.1 5.5 6.8 7.1 8.4 8.8 8.5 8.5 8.5

GDP at current mp (Rupees Bn;fy) 19368 20895 22821 24696 28124 31825 35364 39408 44065

Net factor income from abroad -154 -173 -121 -192 -219 -248 -276 -307 -343

GNP at current mp (Rupees) 19214 20722 22701 24503 27905 31577 35088 39101 43722

NNP at current mp 17390 18743 20523 22153 25228 28548 31723 35351 39528

GDP at current mp (mn US$) 446968 457377 478518 510294 612037 691845 753706 823437 902691

GNP at current mp (mn US$) 443406 453593 475984 506318 607268 686454 747834 817022 895658

NNP at current mp (mn US$) 401323 410275 430325 457751 549017 620608 676100 738651 809744

Average Exchange Rate (Rupees/US$) 43.33 45.68 47.69 48.40 45.95 46.00 46.92 47.86 48.82

REER (1993-94=100, 5 country) 96.74 100.76 102.09 97.88 99.60 100.80 100.00 100.00 100.00 NEER (1993-94=100, 5 country) 74.22 73.77 73.18 68.78 67.36 66.14 65.48 64.82 64.18

Implicit GDP deflator (1993/94=100) 153 159 165 171 180 192 200 208 216

GR GDP deflator 3.8 3.8 3.9 3.5 5.4 6.8 4.0 4.0 4.0

Implicit GNP deflator (1993/94=100) 153 159 165 171 180 192 200 208 216

GR GNP deflator 3.4 3.8 3.9 3.4 5.3 6.9 4.0 4.0 4.0

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INDIA- Macro-economic Trends: 1999-2007 [Update: 10 November 2004]

I T E MS 1999 2000 2001 2002 2003 2004 2005 2006 2007

Actual Actual Actual Estimate Projected Projected Projected Projected Projected

CPI :Ind.Workers 1982=100 428 444 463 482 500 525 546 568 591

GR : Consumer Price Index 3.4 3.8 4.3 4.0 3.9 5.0 4.0 4.0 4.0

WPI :1993/94=100 145.3 155.7 161.3 166.9 175.9 187.9 195.4 203.2 211.3GR: Wholesale Price Index 3.3 7.2 3.6 3.5 5.4 6.8 4.0 4.0 4.0

Expend. on GDP;Current mp;Rs.Bn 19368 20895 22821 24696 28124 31825 35364 39408 44065

Total consumption 15188 16229 17753 19021 21234 24028 26700 29753 33269

Private consumption 12677 13586 14910 15933 17718 20050 22279 24827 27761

Government consumption 2511 2642 2843 3088 3515 3978 4420 4926 5508

Total investment 4907 5088 5279 5750 6630 7535 8869 10454 12254

Gross fixed cap. Formation 4219 4592 5004 5552 6430 7285 8569 10104 11904

Increase in stocks 364 135 86 86 200 250 300 350 350Exports of goods and services 2277 2902 3076 3759 4061 4855 5707 6581 7585

Less: imports of goods and services 2657 3061 3218 3853 3660 4434 5382 6395 7501

Statistical discrepancy -346 -263 -69 19 -141 -159 -530 -985 -1542

Investment financing: curr.mp;Rs.Bn

gross domestic capital formation 4907 5088 5279 5750 6630 7535 8869 10454 12254-- Private sector 3562 3773 3949 4346 4973 5651 6652 7841 9191

-- Public sector 1345 1315 1330 1404 1658 1884 2217 2614 3064

Gross domestic saving 4687 4960 5352 5977 7031 7956 9195 1 0640 12338

-- Household sector 4044 4582 5190 5593 6328 7001 7957 8867 10135

-- Private corporate sector 843 861 788 842 984 1114 1238 1576 1763

-- Public sector+A101 -200 -484 -627 -457 -281 -159 0 197 441

GR GDS 25.1 5.8 7.9 11.7 17.6 13.2 15.6 15.7 16.0

GR GDI 24.8 3.7 3.8 8.9 15.3 13.6 17.7 17.9 17.2

GR Total Consumption 12.7 6.9 9.4 7.1 11.6 13.2 11.1 11.4 11.8

GDI as % of GDP 25.3 24.4 23.1 23.3 23.6 23.7 25.1 26.5 27.8

-- Private sector 18.4 18.1 17.3 17.6 17.7 17.8 18.8 19.9 20.9

-- Public sector 6.9 6.3 5.8 5.7 5.9 5.9 6.3 6.6 7.0

GDS as % of GDP 24.2 23.7 23.5 24.2 25.0 25.0 26.0 27.0 28.0-- Household sector 20.9 21.9 22.7 22.6 22.5 22.0 22.5 22.5 23.0-- Private corporate sector 4.4 4.1 3.5 3.4 3.5 3.5 3.5 4.0 4.0-- Public sector -1.0 -2.3 -2.7 -1.9 -1.0 -0.5 0.0 0.5 1.0

Resource gap (GDS-GDI) -1.1 -0.6 0.3 0.9 1.4 1.3 0.9 0.5 0.2

GDI as % of GNP 25.5 24.6 23.3 23.5 23.8 23.9 25.3 26.7 28.0

GDS as % of GNP 24.4 23.9 23.6 24.4 25.2 25.2 26.2 27.2 28.2

Resource gap (GDS-GDI) -1.1 -0.6 0.3 0.9 1.4 1.3 0.9 0.5 0.2

Per Capita GDP (Rupees):

Current market prices 19349 20505 22007 23417 26247 29262 32036 35172 38747

Constant 1993/94 factor cost 11472 11762 12226 12500 13294 13878 14609 15422 16336

GR per capita GDP at constant fc 4.2 2.5 3.9 2.2 6.4 4.4 5.3 5.6 5.9

Per Capita NNP at constant 1993/94 fc 10071 10313 10774 10968 11700 12227 12875 13596 14407

GR per capita NNP at constant fc 4.3 2.4 4.5 1.8 6.7 4.5 5.3 5.6 6.0

Per Capita GNP (Rupees):

Current market prices 19195 20336 21891 23234 26043 29034 31786 34898 38445

Constant 1993/94 market prices 12538 12803 13269 13617 14491 15115 15915 16805 17806

GR per capita constant GNP 5.3 2.1 3.6 2.6 6.4 4.3 5.3 5.6 6.0

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I T E MS 1999 2000 2001 2002 2003 2004 2005 2006 2007


BALANCE OF PAYMENTS (US$ Mn; fy)

Merchandise exports, fob 37542 44894 44915 52512 62952 75542 89140 102511 117888Merchandise imports, cif 55383 59264 57618 65422 79658 96386 114700 133625 153669

Trade balance -17841 -14370 -12703 -12910 -16706 -20844 -25560 -31114 -35781

Other goods, services and income 505 -2354 976 1830 5981 8500 9000 9500 10000

Non factor services 4064 2478 4577 6765 10684 13000 14000 15000 16000

Investment income -3559 -4832 -3601 -4935 -4703 -4500 -5000 -5500 -6000

Unrequited income 12638 13134 12509 15217 19444 21500 23500 25500 27500

Private transfers 12256 12798 12125 14807 18885 21000 23000 25000 27000

Official transfers 382 336 384 410 559 500 500 500 500

Net invisibles 13143 10780 13485 17047 25425 30000 32500 35000 37500

GR invisibles 42.7 -18.0 25.1 26.4 49.1 18.0 8.3 7.7 7.1

Current account balance & off. Transfer -4698 -3590 782 4137 8719 9156 6940 3886 1719

Growth rates: Fiscal Year

Merchandise exports 9.5 19.6 0.0 16.9 19.9 20.0 18.0 15.0 15.0Merchandise imports 16.5 7.0 -2.8 13.5 21.8 21.0 19.0 16.5 15.0

Capital inflows (US$ million; fy) 10840 9420 10975 12843 22702 10650 14000 13500 15500

External assistance,net 901 410 1117 -2460 -2661 1800 1000 500 500

External commercial borrowings, net 313 3737 -1576 -2344 -1853 850 1000 -500 -1000

Direct foreign investment 2157 3272 4741 3611 3137 3500 4000 4500 5000

Portfolio investment 3024 2590 1951 944 11355 1000 2500 3000 4000

IMF, net -260 -26 0 0 0 0 0 0 0

NRI deposits, net 1540 2317 2754 2976 3628 -1000 500 1000 2000

Other capital, net 3165 -2880 1988 10116 9096 4500 5000 5000 5000

Change of reserves [increase (-) ] -6142 -5830 -11757 -16980 -31421 -19806 -20940 -17386 -17219

Foreign exchange reserves ($ mn, endfy)

38036 42281 54106 71086 102507 122313 143254 160640 177859

Foreign Reserves (in months of imports) 8.2 8.6 11.3 13.0 15.4 15.2 15.0 14.4 13.9

As % of GDP at current mp:

Merchandise exports 8.4 9.8 9.4 10.3 10.3 10.9 11.8 12.4 13.1

Merchandise imports 12.4 13.0 12.0 12.8 13.0 13.9 15.2 16.2 17.0

Current balance -1.1 -0.8 0.2 0.8 1.4 1.3 0.9 0.5 0.2

MONEY AND BANKING (Rs.Bn; end fy)

Narrow money supply (M1) 3418 3795 4228 4736 5767 6812 7950 9283 10848

Currency with the public 1891 2096 2408 2716 3155 3628 4136 4715 5375

Demand deposits 1497 1663 1792 1988 2560 3124 3748 4498 5398

Other deposits with RBI 30 36 29 32 51 60 65 70 75Time deposits with banks 7824 9338 10755 12444 14265 16119 18198 20546 23196

Broad money supply (M3) 11242 13132 14984 17180 20031 22931 26148 29829 34044

Foreign assets (net) 2056 2498 3110 3937 5266 6846 8899 11569 15040

Domestic credit 10279 11912 13492 15755 17634 20117 23350 27151 31625

Claims on govt. Sector 4414 5120 5896 6765 7455 7902 8693 9562 10518

Claims on private sector 5866 6792 7596 8990 10179 12215 14658 17589 21107

Govt's currency liabilities to the public 46 54 64 71 73 74 75 76 77

less, banking sector's non-monetary

liabl.1140 1331 1683 2583 2942 4106 6177 8967 12698

Broad money supply (M3) 11242 13132 14984 17180 20031 22931 26148 29829 34044

GR M1 10.6 11.0 11.4 12.0 21.8 18.1 16.7 16.8 16.9

GR M3 14.6 16.8 14.1 14.7 16.6 14.5 14.0 14.1 14.1

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I T E MS 1999 2000 2001 2002 2003 2004 2005 2006 2007

Actual Actual Actual Actual Actual Estimate Projected Projected Projected

Central govt.finance(Rs.Bln.fy)

Current revenue 1815 1926 2013 2317 2630 3093 3490 3943 4457

Taxes 1283 1367 1335 1594 1875 2339 2690 3093 3557 Non-taxes including external grants 532 559 678 723 755 754 800 850 900

Current expenditure, of which 2491 2778 3015 3396 3629 3855 4250 4575 4925Interest payments 902 993 1075 1178 1246 1295 1350 1400 1460

Current surplus(+)/deficit(-) -676 -852 -1002 -1079 -999 -762 -760 -632 -468

Capital receipts, of which 1157 1342 1625 1824 2112 1685 1765 1895 2020

Recovery of loans 101 120 164 342 646 271 300 350 400Disinvestment of govt.equity in PSUs 17 21 36 32 145 40 40 45 45Govt. borrowings & other liabilities 1039 1200 1425 1451 1321 1374 1425 1500 1575

Capital expenditure 490 478 608 745 1114 923 1005 1263 1552Capital a/c surplus(+)/deficit(-) 667 864 1017 1079 999 762 760 632 468

Budget deficit (-)/ Surplus (+) -9 12 15 0 0 0 0 0 0

Gross Fiscal Deficit(-)/Surplus(+) -1047 -1188 -1410 -1451 -1321 -1374 -1425 -1500 -1575

Primary deficit (-) -145 -195 -335 -273 -75 -79 -75 -100 -115Financing of gross fiscal deficit

(Rs.Bln):

Domestic borrowing 1018 1137 1383 1533 1285 1354 1400 1475 1550

Foreign borrowing and grants 12 75 56 -135 36 20 25 25 25Others (use of cash balances) 9 -12 -15 53 0 0 0 0 0

Note:Borrowing & other liabilities 1039 1200 1425 1451 1321 1374 1425 1500 1575

As percentage of GDP at current mp

Govt. exp. (current+capital) 15.4 15.6 15.9 16.8 16.9 15.0 14.9 14.8 14.7

Total revenue (current+capital) 15.3 15.6 15.9 16.8 16.9 15.0 14.9 14.8 14.7

Gross fiscal balance -5.4 -5.7 -6.2 -5.9 -4.7 -4.3 -4.0 -3.8 -3.6

Revenue balance -3.5 -4.1 -4.4 -4.4 -3.6 -2.4 -2.1 -1.6 -1.1

Primary balance -0.7 -0.9 -1.5 -1.1 -0.3 -0.2 -0.2 -0.3 -0.3

As percentage of GNP at current mp

Govt. exp. (current+capital) 15.5 15.7 16.0 16.9 17.0 15.1 15.0 14.9 14.8

Total revenue (current+capital) 15.5 15.8 16.0 16.9 17.0 15.1 15.0 14.9 14.8

Gross fiscal deficit -5.4 -5.7 -6.2 -5.9 -4.7 -4.4 -4.1 -3.8 -3.6

States finance combined (Rs.Bln)

Fiscal deficit (+) 915 895 960 1021 1404 1123

Primary deficit (+) 463 378 335 321 567 206

Budget deficit (+) 31 -23 -26 -44 123 5

Revenue deficit (+) 538 536 592 552 722 483

States finance combined (% of GDP)

Fiscal deficit (+) 4.7 4.3 4.2 4.1 5.0 3.5

Primary deficit (+) 2.4 1.8 1.5 1.3 2.0 0.6

Budget deficit (+) 0.2 -0.1 -0.1 -0.2 0.4 0.0

Revenue deficit (+) 2.8 2.6 2.6 2.2 2.6 1.5Centre & States combined (% of GDP)

Fiscal deficit (+) 9.5 9.5 9.9 9.5 9.4 7.9

Primary deficit (+) 3.9 3.6 3.7 3.1 2.9 1.7

Budget deficit (+) 0.2 -0.1 -0.1 -0.2 0.4 0.0

Revenue deficit (+) 6.3 6.6 7.0 6.6 6.2 4.0

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I T E MS 1999 2000 2001 2002 2003 2004 2005 2006 2007


Memo Items:

As per cent of GDP at current mp:

Expenditure on GDP;Current mp; Rs.Bn 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0Total consumption 78.4 77.7 77.8 77.0 75.5 75.5 75.5 75.5 75.5

Private consumption 65.5 65.0 65.3 64.5 63.0 63.0 63.0 63.0 63.0

Government consumption 13.0 12.6 12.5 12.5 12.5 12.5 12.5 12.5 12.5

Total investment 25.3 24.4 23.1 23.3 23.3 23.6 23.7 25.1 26.5

Gross fixed cap. Formation 21.8 22.0 21.9 22.5 22.9 22.9 24.2 25.6 27.0

Increase in stocks 1.9 0.6 0.4 0.3 0.7 0.8 0.8 0.9 0.8

Exports of goods and services 11.8 13.9 13.5 15.2 14.4 15.3 16.1 16.7 17.2

Less: imports of goods and services 13.7 14.6 14.1 15.6 13.0 13.9 15.2 16.2 17.0

Statistical discrepancy -1.8 -1.3 -0.3 0.1 -0.5 -0.5 -1.5 -2.5 -3.5

MONEY AND BANKING (As % of GDP at current mp):

Narrow money supply (M1) 17.6 18.2 18.5 19.2 20.5 21.4 22.5 23.6 24.6

Currency in circulation 9.8 10.0 10.6 11.0 11.2 11.4 11.7 12.0 12.2Demand deposits 7.7 8.0 7.9 8.0 9.1 9.8 10.6 11.4 12.2

Other deposits with RBI 0.2 0.2 0.1 0.1 0.2 0.2 0.2 0.2 0.2

Time deposits with banks 40.4 44.7 47.1 50.4 50.7 50.6 51.5 52.1 52.6

Broad money supply (M3) 58.0 62.8 65.7 69.6 71.2 72.1 73.9 75.7 77.3

Foreign assets (net) 10.6 12.0 13.6 15.9 18.7 21.5 25.2 29.4 34.1

Domestic credit 53.1 57.0 59.1 63.8 62.7 63.2 66.0 68.9 71.8

Claims on govt. Sector 22.8 24.5 25.8 27.4 26.5 24.8 24.6 24.3 23.9

Claims on private sector 30.3 32.5 33.3 36.4 36.2 38.4 41.4 44.6 47.9

Govt's currency liabilities to the public 0.2 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2

Less, banking sector's non-monetary

liabl.5.9 6.4 7.4 10.5 10.5 12.9 17.5 22.8 28.8

Broad money supply (M3) 58.0 62.8 65.7 69.6 71.2 72.1 73.9 75.7 77.3

CENTRAL GOVT. FINANCE (As % of GDP at current mp):

Current revenue 9.4 9.2 8.8 9.4 9.4 9.7 9.9 10.0 10.1

Taxes 6.6 6.5 5.9 6.5 6.7 7.3 7.6 7.8 8.1

Non-taxes including external grants 2.7 2.7 3.0 2.9 2.7 2.4 2.3 2.2 2.0

Current expenditure 12.9 13.3 13.2 13.8 12.9 12.1 12.0 11.6 11.2

Current surplus (+)/deficit (-) -3.5 -4.1 -4.4 -4.4 -3.6 -2.4 -2.1 -1.6 -1.1

Capital receipts 6.0 6.4 7.1 7.4 7.5 5.3 5.0 4.8 4.6

Recovery of loans 0.5 0.6 0.7 1.4 2.3 0.9 0.8 0.9 0.9

Disinvestments of govt.equity in PSUs 0.1 0.1 0.2 0.1 0.5 0.1 0.1 0.1 0.1

Govt. borrowings & other liabilities 5.4 5.7 6.2 5.9 4.7 4.3 4.0 3.8 3.6

Capital expenditure 2.5 2.3 2.7 3.0 4.0 2.9 2.8 3.2 3.5

Capital a/c surplus(+)/deficit(-) 3.4 4.1 4.5 4.4 3.6 2.4 2.1 1.6 1.1

Total expenditure 15.4 15.6 15.9 16.8 16.9 15.0 14.9 14.8 14.7

Budget deficit (- )/ Surplus (+) 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0

Gross Fiscal Deficit(-)/Surplus(+) -5.4 -5.7 -6.2 -5.9 -4.7 -4.3 -4.0 -3.8 -3.6

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I T E MS 1995 1998 1999 2000 2001 2002 2003 2004

Actual Actual Actual Actual Actual Actual RE BE

Finance of Centre & States (Rs.Bn)

Total expenditure 2931 4654 5428 5865 6534 7261 8853 8988Expenditure on social sector 781 1282 1471 1618 1767 2059 2450 2580

Education 346 588 623 657 687 748 860 915

Health 143 267 256 279 298 342 380 425

Others 292 427 593 681 782 970 1210 1240

As percentage of GDP:

Total expenditure 24.7 26.7 28.0 28.1 28.6 29.4 31.5 28.2

Expenditure on social sector 6.6 7.4 7.6 7.7 7.7 8.3 8.7 8.1

Education 2.9 3.4 3.2 3.1 3.0 3.0 3.1 2.9

Health 1.2 1.5 1.3 1.3 1.3 1.4 1.4 1.3

Others 2.5 2.5 3.1 3.3 3.4 3.9 4.3 3.9

As % of total expenditure:

Expenditure on social sector 26.6 27.6 27.1 27.6 27.1 28.4 27.7 28.7

Education 11.8 12.6 11.5 11.2 10.5 10.3 9.7 10.2Health 4.9 5.7 4.7 4.8 4.6 4.7 4.3 4.7

Others 9.9 9.2 10.9 11.6 12.0 13.4 13.7 13.8

As % of expend. On social sector

Education 44 46 42 41 39 36 35 35

Health 18 21 17 17 17 17 16 16

Others 37 33 40 42 44 47 49 48

Memo item:

GDP at current mp (Rupees billion) 11880 17410 19368 20895 22821 24696 28124 31825

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Domestic Debt of the centre and state combined at end March:

Item 2000 2001 2002 2003 2004 2005 2006 2007 2008

Domestic debt combined (Rs.billion) 13827 16007 18815 21857 24828 28420

Centre 9626 11026 12949 14996 16771 19311State 4201 4981 5867 6861 8057 9109

External debt combined (Rs.billion) 2044 2052 2130 2019 1834 1735

Centre 2044 2052 2130 2019 1834 1735

State 0 0 0 0 0 0

Total govt. debt combined (Rs.billion) 15871 18059 20946 23876 26662 30155

Centre 11670 13078 15079 17015 18605 21046

State 4201 4981 5867 6861 8057 9109

Domestic debt as % of GDP (combined) 71.4 76.6 82.4 88.5 88.3 89.3

Centre 49.7 52.8 56.7 60.7 59.6 60.7

State 21.7 23.8 25.7 27.8 28.6 28.6

External debt as % of GDP (combined) 10.6 9.8 9.3 8.2 6.5 5.5

Centre 10.6 9.8 9.3 8.2 6.5 5.5

State 0.0 0.0 0.0 0.0 0.0 0.0Total govt.debt as % of GDP (comb) 81.9 86.4 91.8 96.7 94.8 94.8

Centre 60.3 62.6 66.1 68.9 66.2 66.1

State 21.7 23.8 25.7 27.8 28.6 28.6

Interest payments combined (Rs.billion) 1105 1247 1424 1584 1800 1917

Centre 902 993 1075 1178 1246 1295

State 202 254 349 406 554 622

Revenue receipts combined (Rs.billion) 3437 3788 4002 4505 5292 6054

Centre 1815 1926 2014 2317 2630 3093

State 1623 1862 1987 2187 2662 2961

Interest payment as % GDP 5.7 6.0 6.2 6.4 6.4 6.0

Centre 4.7 4.8 4.7 4.8 4.4 4.1

State 1.0 1.2 1.5 1.6 2.0 2.0

Interest payment as % revenue 32.1 32.9 35.6 35.2 34.0 31.7Centre 49.7 51.6 53.3 50.8 47.4 41.9

State 12.5 13.6 17.6 18.6 20.8 21.0

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Dynamics of Population Ageing by Tarun Das

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