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I)
Abstract
Chapter 1 - Introduction
Chapter 2 - Macro-Economic environment
1.
2.
3.
4.
5.
6.
9. Unemployment
10. Government Budget
11. Debt to GDP ratio
Chapter 4 - Country Analysis of South Korea
1. Overview
Key Findings
2. Gross Domestic Product
3. Consumer Price Index
4. Whole sale price Index
5. Inflation
6. Policy Rates
7. Balance Of Payments
(i) Exports
(ii) Imports
8. Exchange Rate
9. Unemployment
10. Government Budget
11. Debt to GDP ratio
ABSTRACT
This study aims to identify and analysis the macro-economic factors of two Asian superpowers
India and South Korea. This report focus on motivating factors of both the Asian economies .
South Korean firms have penetrated those sectors in India where other countries were investing
relatively less. The prime motivation for investing in India is the large size of market and low
wages in the host country. The study aims at analyzing key factors that affect the economy of a
developing country , some of these factors are GDP , Inflation , Interest Rates , Government
Budget etc. The overall analysis and comparison of both the economies helped us understand
factors that go into affecting an economy as whole(macro approach). The study gave us a
broader perspective of the history,current economic conditions and forecasts of two of the
biggest growing economies in the Asian continent India and South Korea.
CHAPTER-1
Introduction
Country Analysis is about analyzing a countrys overall environment which includes both
economic as well as the political environment. In country analysis we analyse about various
economic indicators of India and South Korea. Macro Economic Indicators are important factors
for a understanding a countrys growth and progress.This analysis gave us an insight about the
countrys economic condition and its progress which would help the investors and companies to
understand the Economys current condition and make strategic decisions for future perspective.
CHAPTER 2
Macro- Economic Environment
The conditions that exist in the economy as a whole, rather than in a particular sector or region.
In general, the macro environment includes trends in gross domestic product (GDP), inflation,
employment, spending, and monetary and fiscal policy. The macro environment is closely linked
to the general business cycle, as opposed to the performance of an individual business sector
a) Expenditure Method
GDP (Y) is the sum of consumption (C), investment (I), government spending
(G) and net exports (X M).
Y = C + I + G + (X M)
b) Income Method
GDP = compensation of employees + gross operating surplus + gross mixed income+
taxes less subsidies on production and imports
GDP = COE + GOS + GMI + TP & M SP & M
2.2 Consumer Price Index
Definition
A consumer price index measures changes in the price level of a market basket of consumer
goods and services purchased by households.
Methods to calculate
Current item price = Base year price X Current CPI / Base year CPI
2.4 Inflation
Definition
Inflation is a sustained increase in the general price level of goods and services in
an economy over a period of time. When the general price level rises, each unit of currency buys
fewer goods and services. Consequently, inflation reflects a reduction in the purchasing
power per unit of money a loss of real value in the medium of exchange and unit of account
within the economy.A chief measure of price inflation is the inflation rate, the annualized
percentage change in a general price index over time.
Method to Calculate
The inflation rate is widely calculated by calculating the movement or change in a price index,
usually the consumer price index. The inflation rate is the percentage rate of change of a price
index over time.
Definition
Monetary policy is the process by which monetary authority of a country, generally a central
bank controls the supply of money in the economy by its control over interest rates in order to
maintain price stability and achieve high economic growth. In India, the central monetary
authority is the Reserve Bank of India (RBI). It is so designed as to maintain the price stability in
the economy.
2.6 Balance Of Payments
Definition
A statement that summarizes an economys transactions with the rest of the world for a specified
time period. The balance of payments, also known as balance of international payments,
encompasses all transactions between a countrys residents and its nonresidents involving goods,
services and income ,financial claims on and liabilities to the rest of the world and transfers such
as gifts. The balance of payments classifies these transactions in two accounts the current
account and the capital account. The current account includes transactions in goods, services,
investment income and current transfers, while the capital account mainly includes transactions
in financial instruments.
(i)
Exports
A function of international trade whereby goods produced in one country are shipped to
another country for future sale or trade. The sale of such goods adds to the producing nation's
gross output. If used for trade, exports are exchanged for other products or services. Exports
are one of the oldest forms of economic transfer, and occur on a large scale between nations
that have fewer restrictions on trade, such as tariffs or subsidies.
(ii)
Imports
A good or service brought into one country from another. Along with exports, imports form
the backbone of international trade. The higher the value of imports entering a country,
compared to the value of exports, the more negative that country's balance of trade becomes.
2.7 Exchange Rate
Definition
The price of a nations currency in terms of another currency. An exchange rate thus has two
components, the domestic currency and a foreign currency, and can be quoted either directly or
indirectly. In a direct quotation, the price of a unit of foreign currency is expressed in terms of
the domestic currency. In an indirect quotation, the price of a unit of domestic currency is
expressed in terms of the foreign currency. An exchange rate that does not have the domestic
currency as one of the two currency components is known as a cross currency, or cross rate
2.8 Unemployment
Definition
Unemployment occurs when a person who is actively searching for employment is unable to find
work. Unemployment is often used as a measure of the health of the economy. The most
frequently cited measure of unemployment is the unemployment rate. This is the number of
unemployed persons divided by the number of people in the labor force.
2.9 Government Budget
Definition
A
government
budget
is
government
document
presenting
the
government's
proposed revenues and spending for a financial year that is often passed by the legislature,
approved by the chief executive or president and presented by the Finance Minister to the nation.
The budget is also known as the Annual Financial Statement of the country. This document
estimates the anticipated government revenues and government expenditures for the ensuing
(current) financial year.
CHAPTER - 3
Country Analysis Of India
3.1 ) Overview
India is the 10th largest in the world by nominal GDP and the 3rd largest by purchasing power
parity (PPP). IMF projects India's GDP to grow at 5.6% over 2014-15. Agriculture sector is the
largest employer in India's economy but contributes a declining share of its GDP. Its
manufacturing industry has held a constant share of its economic contribution, while the fastestgrowing part of the economy has been its services sector - which includes construction, telecom,
software and information technologies, infrastructure, tourism, education, health care, travel,
trade, banking and other components of its economy . India was the 19th-largest merchandise
and the 6th largest services exporter in the world in 2013 ,it imported a total of $616.7 billion
worth of merchandise and services in 2013, as the 12th-largest merchandise and 7th largest
services importer. India's economic growth slowed to 4.7% for the 201314 fiscal year, in
contrast to higher economic growth rates in 2000s. India is also one of the G-20 major
economies, a member of BRICS and a developing economy that is among the top 20 global
traders according to the WTO.
Key Findings
3.2) Gross Domestic Product
The overall GDP of India was worth 1876.80 billion US dollars in the year 2013. The
GDP value of India constitutes to about 3.03 percent of the world economy , which is a
significant amount .
GDP in India has gone through its highs and lows , at its peak it reached an all time high
of 1876.80 USD Billion in the year 2013 and a record low of 63.50 USD Billion in the
year 1970 , the track record of the Indian GDP from the early 1970s to the post 2000s
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Forecast
GDP in India has been forcasted to decrease to 1874.62 USD Billion in December of
Indian GDP
In the upcoming decades , GDP in India is projected to trend around 1946.80, 1940.81
and 1940.65 USD Billion in the years of 2020, 2030 and 2050 respectively.
The figures show that in a matter of months the prices of consumer goods has gone up by
a huge margin. The CPI in India has an average of 125.20 Index Points from 2011 until
2014.
Consumer Price Index in India increased to 145.20 Index Points in October of 2014 from
Inflation in India(%)
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Forecast
Inflation in India(%)
The forecast on CPI in India is that there will be an increase to 146.35 Index Point from
consumer goods would become more expensive than the current prices.
The long term predictions say that the Consumer Price Index in India is projected to
trend around 133.48, 144.57 and 154.39 Index Points in the years of 2020, 2030 and 2050
respectively.
The WPI in India has an average of 7.66 Percent from the years 1969 to 2014
Producer Prices are also known as wholesale prices there has been a huge increase of
1.77 percent in October of 2014 over the same month in the previous year in our country.
The increase in producer prices leads to increase in the prices of producer goods(not
consumer goods)
Historically , the WPI reached an all time high of 34.68 Percent in September of 1974
and a record low of -11.31 Percent in May of 1976.
India
150.00
100.00
India
50.00
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Forecast
WPI in India is expected to move up to 3.69 percent in December of 2014 from 1.77
percent in October of 2014 , this would make the producer goods prices move up.
For a brief period in the next year the prices of producer goods are likely to drop .In
3.5 ) Inflation
High inflation rate results in an increase in all goods prices(Consumer and producer
Forecast
In 2015, Inflation Rate is expected to decrease to 3.62 percent , this would mean a
positive sign for consumers as they would be able to buy goods and services at cheaper
rates
The future looks very bright for India as the rates are projected drop significantly for the
next few decades . Inflation Rate in India is projected to trend around 0.17, 0.36 and 0.61
Percent in the years of 2020, 2030 and 2050 respectively.
Forecast
December 2 might be the day when Raghuram Rajan might cut down the interest rate to
boost the Indian economy after the decrease in oil prices(OPEC).
Althrough there are some predictions that Interest Rate in India is expected to remain
unchanged at 8.00 percent in November of 2014 from 8.00 percent in October of 2014. In
Forecast
USD Million in December of 2014 from -13350.00 USD Million in October of 2014.
In the long-term, Balance of Trade in India is projected to trend around -12966.90,
-12962.60 and -12962.59 USD Million in the years of 2020, 2030 and 2050 respectively.
The US Dollar increased to 62.05 Indian Rupee in November from 61.48 in October of
2014.
The Indian Rupee has an average of 33.26 from 1973 2014
It reached an all time high of 68.61 in September of 2013 and a record low of 7.19 in
March of 1973.
Forecast
The main focus of the Indian government is to revive the economy , the economic growth
November of 2014.
In 2015, Indian Rupee is expected to decrease to 61.67 .
The future forecasts say that in the long-term, Indian Rupee is projected to trend around
56.97, 48.75 and 54.75 in the years of 2020, 2030 and 2050 respectively
3.9 Unemployment
Unemployment Rate in India decreased from 6.3 percent in 2011 to 5.2 percent in 2012.
The average Rate of unemployment in India is 7.8 Percent from 1985 until 2012,
recorded minimum of 5.2 Percent in 2012 and maximum value of 9.4 Percent in 2009,
this is the year in which many people lost job and recession took place.
2.5
2
1.5
1
0.5
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Forecast
There are positive signs coming up as the Modi government is keen on providing
A deficit means that the expenses have exceeded the revenue and a surplus means the
GDP in 2009
India recorded a Government Budget deficit equal to 4.50 percent of the country's Gross
Domestic Product in the fiscal year 2013/2014.
Forecast
200000000000
150000000000
100000000000
50000000000
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Forecast
There are predictions that in 2015, Government Debt to GDP is expected to increase to
69.21 percent .
Government Debt to GDP in India is projected to trend around 70.84, 71.20 and 71.22
Percent in the years of 2020, 2030 and 2050 respectively.
CHAPTER 4
Country Analysis Of South Korea
4.1 Overview
South Korea is one of the world's wealthiest nations especially among the asian nations and is a
member of the G-20 major economies. It is a developed country, with a developed
market and high-income economy. South Korea is the only developed country so far to have
been included in the group of Next Eleven countries. South Korea had one of the world's fastest
growing economies from the early 1960s to the late 1990s, and South Korea is still one of the
fastest growing developed countries in the 2000s. South Korea has a market economy that
ranks 15th in the world by nominal GDP and 12th by purchasing power parity (PPP).
Korea up to well into the 1960s represented a truly backward economy based onsubsistence
agriculture. Its per capita income in 1961 was $82 (in 1960 prices), which was then below those
of Haiti, Ethiopia, Peru, Honduras, and Yemen and about 40% below Indias. In the immediate
post-Korean War period the country was an economic basket case. It relied on foreign aid for
sheer survival. Undisciplined capitalism during this period did very little for development. In
summary, Koreas past strategy for growth maximization led to serious structural distortions and
The GDP value of South Korea represents 2.10 percent of the world economy , which is a
Billion in 1961
The Gross Domestic Product (GDP) in South Korea was worth 1304.55 billion US
dollars in 2013.
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Forecast
In 2015, GDP is expected to increase to 1371.99 USD Billion which would help South
Consumer Price Index CPI in South Korea decreased to 109.10 Index Points in October
of 2014 from 109.40 Index Points in September of 2014 , which means that buying
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Forecast
In 2015, Consumer Price Index CPI is expected to increase to 110.22 Index Points which
Producer Prices in South Korea decreased to 104.56 Index Points in October of 2014
from 105.19 Index Points in September of 2014, which means that the prices of producer
S.korea
150.00
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50.00
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Forecast
The future predictions say that Producer Prices in South Korea are expected to increase to
3.5 Inflation
The inflation rate in South Korea was recorded at 1.20 percent in October of 2014, their
2.5
2
1.5
1
0.5
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Forecast
Increase in Inflation rate would mean that the prices of all goods and services go up
In 2015, Inflation Rate is expected to increase to 1.46 percent.
In the long run, Inflation Rate in South Korea is projected to trend around 1.42, 1.43 and
1.45 percent in the years of 2020, 2030 and 2050 respectively.
The benchmark interest rate in South Korea was last recorded at 2 percent , the interest
rate are comparatively very low which has helped the economy progress faster than other
asian nations
Interest Rate in South Korea averaged 3.65 Percent from 1999 until 2014, reaching a
maximum of 5.25 Percent in October of 2000 and a minimum of 2 Percent in February of
2009.
lending rate
Forecast
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lending rate
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In 2015, Interest Rate is expected to increase to 2.10 percent which would mean that
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-100,000
Forecast
By the year 2015, Balance of Trade is expected to decrease to 5305.88 USD Million
In the long run , Balance of Trade in South Korea is projected to trend around 5049.84,
5050.88 and 5050.89 USD Million in the years of 2020, 2030 and 2050 respectively.
The US Dollar increased to 1102.50 South Korean Won in November from 1073.67 in
October of 2014 , the fact that the US dollar has increased means that the value of the
Forecast
The positive side is that South Korean Won is expected to decrease to 1091.57 in
3.9 Unemployment
The countrys unemployment rate which measures the percentage of total population that
is unemployed and actively seeking for employment decreased from 4.9 percent in the
2010 approximately.
Unemployment rate was maximum in the year 1999 it reached 7.1 percent and recorded
minimum rate of 2.9 percent in the year 2013.
Forecast
The data reported that South Korea recorded a Government deficit budget equal to 1.50
Forecast
By the year 2015, Government Budget is expected to increase to -0.40 percent of GDP.
Government Budget in South Korea is projected to trend around -0.17, -0.14 and -0.14
Percent of GDP in the years of 2020, 2030 and 2050 respectively.
percent in the year 2013 and recorded a minimum percent of 7.99 in the year 1996.
The Debt to GDP ratio averaged 20.66 percent from the year 1995 to 2013.
Forecast
The predictions say that by 2015, Government Debt to GDP is expected to decrease to
32.60 percent.
Government Debt to GDP in South Korea is projected to lay around 31.68, 31.58 and
31.58 Percent in the years of 2020, 2030 and 2050 respectively.
CHAPTER 5
Comparison & Analysis
Balance Of Trade
Balance of trade has been in favor of Korea but India is catching up. Even though the growth in
the bilateral trade betwen Korea and India is fast, the trade intensity for the India has ben below
optimum while the oposite is true about Korea. Whereas Korean exports manufactured items
such as electronic gods, machinery, transport equipments, iron and steel. Plastic and organic
chemicals and they constitute almost two-third of Korean exports, Indian export items are largely
dominated by raw materials and primary gods such as cotton yarn fabrics and made-ups,
petroleum products, oil meals, ores and minerals, iron ore and primary and semifinished iron &
steel
Mutual Investments - Samsung, Hyundai and LG, POSCO from Korea and Tata,
Comparative analysis
Inflation:
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8
6
Inflation in India(%)
Inflation in South Korea(%)
4
2
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The graph shows that average inflation of india was more in 1998 than south korea. It undergoes
many fluctuations during these years. Now in 2014 the average inflation rate is 6.93 ans of South
Korea is 1.44
Exchange Rate:
800
India
600
South Korea
400
200
0
1980 2000 2020
Years
There is no comparison in an exchange rate of South Korea and India, it is around 30 times the
india exchange rate.
interest
south korea
india
year
1990
1980
1970
1 2 3 4 5 6 7 8 9 101112131415
The interest rate in the both economy are quite stable and nearly equal. Higher Interest rate
reduces the purchasing power of consumers. Its shows that both the countries have nearly same
interest rate.The interest rate of south korea reached maximum in the year 2010-2012.
GDP:
6.00
5.00
4.00
3.00
South Korea
2.00
INDIA( IN TRILLION
USD)
1.00
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The gdp of south korea was very high in 1999 as compare to India and after that the gdp growth
declines and has steady growth in corresponding years from 2000.But growth of South korea is
comparitivly higher than India.
GDP Deflator:
120.00
100.00
80.00
60.00
40.00
GDP DEFLATOR
SOUTH KOREA
20.00
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0.00
GDP Deflator in India is steadily increasing in South Korea at higher rate when compared to that
of India.GDP Deflator reached all time high approximately 104 in the year 2014.
Imports:
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
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Korea Imports of
goods and services
(% of GDP)
India Imports of goods
and services (% of
GDP)
Imports goods and services of India and South Korea are comparable. For india the importing
percentage increases from 13% to 30% and for South Korea it is 48% to 80%.
Imports growth:
50.0
40.0
30.0
20.0
10.0
0.0
Korea Imports of
goods and services
(annual % growth)
India Imports of goods
and services (annual
% growth)
-10.0
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-20.0
In India each year import rate is growing steadily and it reached maximum at 2005 with and it is
negative in 2009. Its shows that it has been decreased and india is importing less goods.
Exports:
90.00
80.00
70.00
60.00
50.00
40.00
30.00
korea
20.00
India
10.00
20
13
20
10
20
07
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04
20
01
In
di
ca
to
rN
am
0.00
Exports of goods and services of India and South Korea are comparable. For india the export
percentage increases from 10% to 25% and for South Korea it is 40% to 80%. South Korea
Export rate is drastically increasing.
WPI:
S.korea
India
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140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
South korea
8.00
interest rate
India
6.00
4.00
2.00
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0.00
CPI:
CPI
200.00
South Korea
150.00
India
100.00
50.00
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0.00
To understand about rising prices we will analyse how much is the consumer
price index in given period when compared to previous period.CPI helps us to
understand household purchase for consumption. Consumer Price Index CPI
in India increased to 145.20 Index Points in October. Consumer Price Index
CPI in India averaged 125.20 Index Points from 2011 until 2014, reaching an
all time high of 145.20.South Korea CPI increased to 250 Index points in the
year 2014.
Export value index:
EPI
800.00
South Korea
600.00
India
400.00
200.00
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Export value of india was nearly equal to South Korea in 1999 to 2001.The
export value index for india is increased steadily with respect to korea .
Import value index:
200
IVI 150
South Korea
100
50
0
1998 2000 2002 2004 2006 2008 2010 2012 2014
Axis Title
CHAPTER 6
Conclusion
India is an economy which is growing at an rate of 5.3 % , it is likely to grow even further due to
the economic reforms , fall in the inflation rate and a predicted interest rate cut (February-Pre
Budget) by the Reserve Bank Of India.India is a great playing field for the foreign investors as
the equity market is expected to grow in the next financial year . With slowdown of the Japanese
and European economy and slow moving Chinese economy , the most attractive economy at the
moment is India . As there is a huge scope for improvement in infrastructure, technology and
manufacturing.
South Korea on the other hand , has grown astronomically over the years considering the fact
that its size,population and history is not as old as India.South Korean economy as a has
progressed faster than the Indian economy when compared historically . The future predictions
say that the economy is likely to continue the uptrend as the country is still unexplored by the
foreign players and the fact that is a low population compared to the Indian population gives it a
greater advantage as there are more job opportunities in the nation.
Chapter 7
Bibliography
http://www.investopedia.com/
data.worldbank.org
http://www.exportimportstatistics.com/
http://www.tradingeconomics.com/india/indicators
http://www.tradingeconomics.com/south-korea/indicators
http://www.eia.gov/countries/cab.cfm?fips=KS
http://www.eia.gov/countries/country-data.cfm?fips=ks
http://www.eulerhermes.com/mediacenter/Lists/mediacenter-documents/Country-Report-SouthKorea.pdf
Working papers
http://fsi.stanford.edu/sites/default/files/South_Korea_Global_Economy_in_Transition.pdf
http://www.nber.org/papers/w12901.pdf
http://finmin.nic.in/workingpaper/EGES_impact_indiatrade_policyissue.pdf
http://www.nber.org/papers/w16757.pdf