Economic Environment and Insurance-Part-2 by Tarun Das

8/14/2019 Economic Environment and Insurance-Part-2 by Tarun Das

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Economic Situation by Dr. Tarun Das 1

Economic Environmentand Insurance, Part-2Dr. Tarun Das, Eco.Adviser.

MOF


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Contents of this presentation

Strengths, challenges andProspects

1. Fiscal sustainability

2. Demographic transition3. Strengths4. Constraints5. Economic Outlook

6. Role of Managers


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4 Fiscal and

Financial Situation


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4.1Medium Term FiscalIndicators

(As % of GDP)Items 2004-05RE

2005-

06 BE

2006-

07 Tar

2007-08

Tar

1.Revenue Deficit 2.7 2.7 2.0 1.1

2.Fiscal Deficit 4.5 4.3 3.8 3.1

3.Gross tax rev. 9.8 10.6 11.1 12.6

4.Year-end debt

stock

68.8 68.6 68.2 67.3


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4.2 Trend of Public DebtStatus in June 1991

Public debt aspercentage of GDP

(a) Central govt 61%

- Internal 50%

- External 12%

(b) States 19%

- Internal 19%

(c )General govt 68%- Internal 56%

- External 12%

Status in March 2005

Public debt aspercentage of GDP

(a) Central govt 67%

- Internal 61%

- External 6%

(b) States 29%

- Internal 29%

(c )General govt 96%- Internal 90%

- External 6%


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4.3 Progress of FiscalReforms

Status in June 1991

Fiscal Deficit wasfinanced by:

(a) RBI Ad Hoc TBs at4.6% interest

(b) Banks through SLRholdings at 38.5%

and CRR 25%

(c ) Market borrowings(d) Public funds

(e) External debt


(a) Ad hocs replaced byWMAs at market rate

(b) SLR reduced to 25%

(c )Govt. securities are sold

at market ratesand CRR 4.5%

(d) Reduction of interestrates for public funds

(e) Less dependence onExternal debt


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Status in June 1991

High duty & tax rates

Maximum rates

Excise duty 110%

Import duty 400%Income tax 54%

Corporate taxes:

Domestic COs. 49%

and 54%

Foreign COs. 65%


Duties & taxes reducedMaximum ratesExcise duty 16% Cenvat + 16%

SED

Import duty 15%Income tax 30%+(10% sur

Corporate taxes:

Domestic COs. 30% + 10%

surchargeForeign COs. 40%+2.5%surcharge


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Status in June 1991

No service tax No MinAlternativeTax

No transactions tax

No tariff value Dividend tax on both

individuals & Cos.

Existence of gift tax

Limited cases of tax-holidays

No fringe benefit tax


Service tax @10% MAT introduced

Trans. tax @0.02%

Tariff value introduced

Dividend tax on onlycompanies

Gift tax abolished

Tax holidays widened tomany infrastructure

FBT proposed


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Status in June 1991

No MRP linkedexcise duties

No estimated

income scheme for

retail traders No presumptive tax

No state level VAT


Concept of MRP introducedfor consumer goods

Estimated income scheme

introduced for retail traders.

Presumptive income taxscheme introduced

State level VAT to be

introduced wef April 05


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4.7 Central Government Deficit (% of GDP)

Year Revenue Fiscal Prim

1990-91 3.3 6.6 2.8

1991-92 2.5 4.7 0.7

1995-96 2.5 4.2 0.0

2000-01 4.1 5.7 0.9

2001-02 4.4 6.2 1.5

2002-03 4.4 5.9 1.1

2003-04 3.5 4.5 0.0

2004-05RE 2.7 4.5 0.4

2005-06BE 2.7 4.3 0.5


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4.8 State Governments Deficit (% of GDP)

Year Revenue Fiscal Primary

1990-91 0.9 3.3 1.8

1991-92 0.9 2.9 1.2

1995-96 0.7 2.6 0.8

2000-01 2.5 4.3 1.8

2001-02 2.6 4.2 1.5

2002-03 2.5 4.7 1.7

2003-04RE 2.6 5.1 2.12004-05BE 1.4 3.6 0.7


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4.9 General Govt Deficit (% of GDP)

Year Revenue Fiscal Primary

1990-91 4.2 9.4 5.0

1991-92 3.4 7.1 4.5

1995-96 3.2 6.5 1.3

2000-01 6.6 9.5 3.7

2001-02 5.9 9.9 3.7

2002-03 6.7 10.1 3.6

2003-04RE 6.1 9.6 2.12004-05BE 4.1 8.1 1.1


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4.1 Number of 60+ People in India

Year Million Ratio

1951 20 5.4%

2000 77 7.6%

2025 168 12.7%

2050 326 20.6%


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4.2 Ratio of Population Aged60+

Figure I:

Proportion of population aged 60 and over

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1950 1975 2000 2025 2050 Years

Percentag

PACIFIC

ASIA

WORLD


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4.4 Decline of Infant Mortalityand Total Fertility Rates (%)

in developing countries

Item 1950-1975 1975-

2000

2000-

2025

Infant mortality rate -58 -41 -42

Total fertility rate -27 -29 -27


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4.5 Total Fertility Rate

Region 1950-

1955

1975-

1980

2000-

2005

2025-

2030

2045-

2050

Asia 5.9 4.4 2.5 2.1 2.1

% drop -- -28.8 -40.5 -16.0 0.0

Pacific 3.9 2.8 2.4 2.2 2.1

% drop -- -28.2 -14.3 -8.3 -4.5


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4.6 Share 60+ population

in total population 2000 2050World 10.0 21.1

Asia-Pacific 8.8 22.6China 10.1 29.9

India 7.6 20.6

Indonesia 7.6 22.3Japan 23.2 42.3


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4.7 Share of 65+ populationin world 65+ population

Region/ Country 2000 2050

China 20.9 22.8

Indonesia 2.4 3.5

India 12.0 16.0

Russian Federation 4.3 2.0

Japan 5.2 2.7

Rest of Asia Pacific 11.7 16.0

Rest of world 43.5 37.1


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4.8 Share of 80+ populationin world 80+ population

Region/ Country 2000 2050

China 16.6 26.2

Indonesia 1.6 2.7

India 8.8 12.7

Russian Federation 4.2 2.0

Japan 6.9 4.4

Rest of Asia Pacific 12.4 11.6

Rest of world 49.5 40.4


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4.9 Rising share of female inaged

F i g u r e V I

S h a r e o f m a l e a n d f e m a l e p o p u l a t

p o p u l a t i o n i n E S C A P c o u n t r i e

M a l

F e m

0

2

4

6

8

1 0

1 2

1 9 5 0 1 9 7 5 2 0 0 0 2 0 2 5 2 0 5 0

Y e a

Percen

tage

oftotalpopulation

S h a r e o f m a l e a n d f e m a l e p o p u l a t

p o p u l a t io n i n E S C A P c o u n t r i e

M a l

F e m

0 . 0

0 . 5

1 . 0

1 . 5

2 . 0

2 . 5

3 . 0

3 . 5

1 9 5 0 1 9 7 5 2 0 0 0 2 0 2 5 2 0 5 0Y e a

Percen

tage

oftotalpopulation


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4.10 Old age dependencyratio

Figure VII.

Old age dependency ratio in Asia-Pacific and selected countries

0

10

20

30

40

50

60

70

80

1950 1975 2000 2025 20

Oldagedependencyra

Singapore

Repub

Kor

Russian

Federation

ArmeniaChina

Pacific


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4.11 Ratio of WorkingPopulation

Figure VIII: Dynamics of working age population in selected economies

Population aged 15-59 for selected Asia-Pacific economies 1950-2050

China

Asia

Pacific

Japan

Republic of Korea

India

40

45

50

55

60

65

70

1950 1975 2000 2025 2050

Years

Percentage


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4.12 Implications of

population ageing Decline of share of working age population

in Asia from 62% in 2025 to 58% in 2050

Higher consumption

Lower savings, investment and growth

Lower contributions to pension funds, butincrease of number of pensioners

Higher expenditures on pensions, old agehealth care, institutional and social care

Rising demand for medical services for oldage and high medical cost


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4.13 Impact on CapitalMarkets and Insurance

Shift from Pay As You Go pension system to definedcontributory pension schemes

Emergence of pre-funded private and public pensionsystems and insurance schemes

Strengthening of health insurance schemes

Professional and innovative management of pension,provident and insurance funds

On the other hand, lower savings may have adverseeffects on capital and share markets


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4.14 Policy Options Multi-pillar pension schemes- mandated

publicly managed defined benefits scheme,privately managed and funded definedcontribution scheme and retirement provisionson a voluntary basis.

Increase retirement age

Limit early retirement windows Autonomy in the management of pension,

provident and insurance funds

Make pensions portable and improve labour

market flexibility Contributory medical insurance schemes

S h Ch ll


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Strengths, Challenges

and Prospects


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5.2 Constraints to GrowthDecline in agriculture growth

Growing infrastructure constraints

High energy intensity

Low real deposit ratesSlowdown of economic reforms

Weak regulatory institutions

Outdated laws on business

Inflexible Land and Labour markets

High fiscal deficit

5 3 E i O tl k f 2005


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5.3 Economic Outlook for 2005-06

Monsoon rainfall 98% of normalrainfall.

We are expecting overall GDP

growth at 7% in 2005-06 aided byagricultural growth of 3%, industry8% and services 8.5%.

Inflation within 5% to 5.5%. Money supply growth 14.5%.


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5.5 To strengthen Systems for

Management information system

Asset-Liability Management

Good corporate governance

International best practices

Performance Audit

Assessment, monitoring andmanagement of risk

Policy Audit

5 6 C l di R k


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5.6 Concluding RemarksAs first generation reforms take root and

second generation reforms unfold, India is

emerging as a favourite destination forinvestment and a land of immenseopportunity for all.

Carried to their logical ends, reforms wouldmake India as one of the most dynamiceconomies of Asia by 2010.

India is an economic miraclewaiting tohappen.

All of us have to play a distinct role in thatexciting process of development.


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Economic Situation by Dr Tarun Das 34

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Economic Environment and Insurance-Part-2 by Tarun Das

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