Retail

Presentation onIndian Food RetailTrends & TasksbyAnand KumarJU07019 NSB School of BusinessNew Delhi : Presentation onIndian Food RetailTrends
& TasksbyAnand KumarJU07019 NSB School of BusinessNew Delhi We will talk about : 2 We will talk about Retailing in India Indian economic snapshot Retailing Food retailing Trends Evolving consumer preferences Consumption shift Drivers Tasks Hurdles Tasks for suppliers Reliance Industries Snapshot Happening times ! : 3 Happening times ! Indian GDP growth at 9.4 % for 2006-07 is the highest in 18 years Analysts across the globe find Indian growth sustainable Economic outlook for India is positive Indian working population is confident Source: Indian Express India is growing ! : 4 India is growing ! India will be the third largest economy by 2040 India will be the 5th largest consumer market by 2025 Source: Economist Most attractive retail market ! : 5 Most attractive retail market ! Indias retail market has grown by 10% on average for past 5 years steadily rising to top position in GRDI Source: AT Kearney Global Retail Development Index (GRDI) Organized retail is still in its infancy ! : 6 Organized retail is still in its infancy ! With just 2 % organized retail .India is a big opportunity Source: JM Morgan Stanley Organized Retailing is big opportunity ! : 7 With robust economy, sustained GDP growth and booming stock exchange, there are several emerging sectors in India waiting to be tapped . . . Organized
Retail is at the forefront of these opportunities Organized Retailing is big opportunity ! Growth in Organized Retail : 8 Growth in Organized Retail India is in 2nd phase of retail growth Increasing Range, Portfolio and Format options Food retailing leads the growth in Indian organized retail Source: Ernst & Young Food is the largest segment in Retail ! : 9 Food is the largest segment in Retail ! At 77 % Food & Grocery is the largest segment in Retail sales Source: Ernst & Young Source: KPMG Food Retail Sales in India : 10 Food Retail Sales in India Total food sales to cross US$ 250 billion by 2008 Modern formats in Food Retailing is low ! : 11 Modern formats in Food Retailing is low ! Lowest among major retail markets... But growing due to evolving consumer preferences Evolving consumer preferences ! : 12 Indian consumers are evolving From traditional to modernized traditional From globalize to Indianise From functional to lifestyle Evolving consumer preferences ! Evolving consumer preferences ! : 13 Indian consumers are evolving From value for money to value for time and convenience From cautious to experimentation From over-thecounter to touch-and-feel Evolving consumer preferences ! Consumption shift ! :
14 Consumption shift ! Beverages Rise in coffee drinkers More fruit drinks and bottled water Wines and Liquor sales on rise Processed food consumption Increasing ready to eat food Growing premium foods Increasing private label From packaged as stale to packaged is hygienic and high quality Increased tendency towards disposability Shift from price consideration to design and quality Consumption shift ! : 15 Consumption shift ! Lifestyle Frequent eating out Growing health and dietary supplements Growing organic produce Greater focus on looking and feeling good Source: AT Kearney Drivers of this shift ! : 16 Drivers of this shift ! Demographic advantage : Young population Drivers of this shift ! : 17 Drivers of this shift ! Increasing discretionary income Drivers of this shift ! : 18 Drivers of this shift ! Increasing retail space Credit availability is also fuelling this shift Still there are hurdles ! : 19 Still there are hurdles ! Local and Global players concerns Unorganized sector Nascent Supply Chain Low Technology Penetration Infrastructure Bureaucracy work with these profitably by focusing on following tasks Tasks for suppliers ! : 20 Tasks for suppliers ! Most important task Understand consumers 29 States + 6 Union Territories Even within each state, tremendous diversity in customs, traditions, attitudes 22 official languages and 1600 minor languages and dialects 70% Rural population India lives in its 600,000 + villages ( < 20,000
population) However, accounts for more than half of sales of many FMCG and Consumer Durable products 35% still illiterate, not accessible by mainstream media India is a not a homogenous market Tasks for suppliers ! : 21 Tasks for suppliers ! Innovate & invest Products Not just customize but Indianize McDonalds and Pizza Hut Processing Nestle Marketing Market research Advertising Coca Cola and Pepsi Encourage experiments Kelloggs Distribution Packaging Sachets & Smaller pack sizes Channels / Network Frito Lays and Anheuser-Busch Tasks for suppliers ! : 22 Tasks for suppliers ! New agriculture supply chain is emerging India removing non-value adding intermediaries Partnership with value adding intermediaries of the supply chain Technology transfer Streamline processes Maintain Quality Slide 23: 23 Tasks for suppliers ! Participate in Agri Infrastructure: Logistics Tasks for suppliers ! : 24 Tasks for suppliers ! Participate in agri related activities Tasks for suppliers ! : 25 Tasks for suppliers ! Focus on emerging markets (Tier 3 and 2 cities) Tasks for suppliers ! : 26 Tasks for suppliers ! Tap the rural retail market Rural India consists of 720 Million consumers across 627,000 villages 17% of these villages account for 50% of the rural population and 60% of the rural wealth Extensive reach is required as to cover 50% market 100,000 villages must be catered Immense opportunity amounting to US$ 125 billion Rural Retail is growing @ 7% p.a.
Rural consumption is also shifting from basic food grains to fruits, vegetables, dairy and poultry products, as well as beverages Demand for better quality food leading to huge demand for basic foods Tasks for suppliers ! : 27 Tasks for suppliers ! All these can be done only if you Establish franchisee Forge joint ventures Licensing agreement Strategic partnerships Explore other avenues Act & Join ! Slide 28: 28 Revenues US$ 19.9 billion Cash Profit US$ 2.9 billion Net Profit US$ 2 billion Total Assets of US$ 20.8 billion India and Reliance Revenues equivalent to 2.8% of Indias GDP 8.2% of Indias total exports Contributing 8% Indias indirect taxes 4.7% of the total market capitalization 11.5% weightage in Bombay Stock Exchange Sensex 9.3% weightage in National Stock Exchange Sensex US$ 20 billion enterprise created in 30 years Reliance: Contribution to Indian Economy Slide 29: 29 Global Rank Net Sales 342 Net Profit 194 Net Worth 226 Assets 351 Amongst the fastest 25 growing companies in Fortune 500 Indias only private sector company to list in fortune global 500 list 11 19 06 75 Reliance: Global Ranks Reliance: Recent Major Initiatives : 30 Reliance: Recent Major Initiatives Exploration & Production Refinery Jamnagar Special Economic Zones Reliance Retail Reliance: Retail Vision : 31 To be the most admired and successful organized retail company in India that materially enhances the quality of life of every Indian By Providing unprecedented affordability, quality and choice Being the partner of choice in creating prosperity for Indian farmers and other vendor partners Unleashing the
power of the Indian workforce through the generation of new & attractive employment opportunities Reliance: Retail Vision
1. PROJECT REPORT ON Growth Analysis & future analysis in retail sector n india SUBMITTED TO : SUBMITTED BY: PROF. RavikeshDeepak kumar Radha Krishna jha Mayank partap singh Arpana (SEC B) PGDM09-11 BATCH (Galgotias Business School) APPROVED BY AICTE, MNSTRY OF HRD, GOVT. OF INDA 1, KNOWLEDGE PARK, phase II, GREATer NOida The BMI India Retail Report for the third-quarter of 2010, forecasts that the total retail sales will grow from US$ 353 billion in 2010 to US$ 543.2 billion by 2014. With the expanding middle and upper class consumer base, there will also be opportunities in India's tier II and III cities. The greater availability of personal credit and a growing vehicle population to improve mobility also contribute to a trend towards annual retail sales growth of 11.4 per cent. Mass grocery retail (MGR) sales in India are forecast to undergo enormous growth over the forecast period. BMI further predicts that sales through MGR outlets will increase by 154 per cent to reach US$ 15.29 billion by 2014. This is a consequence of India's dramatic, rapid shift from small independent retailers to large, modern outlets. BMI forecasts consumer electronic sales at US$ 29.86 billion in 2010, with over the counter (OTC) pharmaceutical sales at US$ 3.28 billion. The latter is predicted to be the fastest growing retail sub-sector and BMI forecasts that sales will reach US$ 6.18 billion by 2014, an increase of 88.5 per cent. China and India are predicted to account for almost 91 per cent of regional retail sales in 2010 and by 2014 their share of the regional market is expected to be more than 92 per cent. Growth in regional retail sales for 2010-2014 is estimated by BMI at 72.2 per cent, an annual average of 14 per cent. India should experience the most rapid rate of growth in the region, followed by China. For India, its forecast market share of 13.9 per cent in 2010 is expected to increase to 14.3 per cent by 2014. Moreover, for the 4th time in five years, India has been ranked as the most attractive nation for retail investment among 30 emerging markets by the US-based global management consulting firm, A T Kearney in its 8th annual Global Retail Development Index (GRDI) 2009. India remains among the leaders in the 2010 GRDI and presents major retail opportunities. India's retail market is expected
to be worth about US$ 410 billion, with 5 per cent of sales through organised retail, meaning that the opportunity in India remains immense. Retail should continue to grow rapidlyup to US$ 535 billion in 2013, with 10 per cent coming from organised retail, reflecting a fast-growing middle class, demanding higher quality shopping environments and stronger brands, the report added. Bharti Retail strengthened its position in northern India by opening 59 stores, Bharti Wal-Mart is expected to open 10 to 15 wholesale locations in the next three years, and Marks & Spencer is considering plans to open additional outlets in the next few years. Established retailers are tapping into the growing retail market by introducing innovative store formats. Spencer's Retail, More (owned by Aditya Birla Group) and Shoppers Stop (owned by K Raheja Group) already plan to expand. According to a McKinsey & Company report titled 'The Great Indian Bazaar: Organised Retail Comes of Age in India', organised retail in India is expected to increase from 5 per cent of the total market in 2008 to 14 - 18 per cent of the total retail market and reach US$ 450 billion by 2015. Furthermore, according to a report titled 'India Organised Retail Market 2010', published by Knight Frank India in May 2010 during 2010-12, around 55 million square feet (sq ft) of retail space will be ready in Mumbai, national capital region (NCR), Bengaluru, Kolkata, Chennai, Hyderabad and Pune. Besides, between 2010 and 2012, the organised retail real estate stock will grow from the existing 41 million sq ft to 95 million sq ft. India continues to be among the most attractive countries for global retailers. Foreign direct investment (FDI) inflows between April 2000 and April 2010, in single-brand retail trading, stood at US$ 194.69 million, according to the Department of Industrial Policy and Promotion (DIPP). Leading watchmaker Titan Industries Limited plans to invest about US$ 21.83 million for opening 50 premium watch outlets Helios in next five years to attain a sales target of US$ 87.31 million. "We are looking to open Helios outlets in Mumbai, Delhi, Hyderabad, Kolkata, Chennai, Pune, Ahmedabad etc in next 12 months," said Ajoy Chawla, Vice President (Retail), Titan. British high street retailer, Marks and Spencer (M&S) plans to significantly increase its retail presence in India, targetting 50 stores in the next three years. M&S currently operates 17 stores in India through a joint venture (JV) with Reliance Retail. Chinese retail major, Yishion has entered the Indian market and plans to have at least 125 points of sales, including exclusive stores
and multi-brand outlets, across India by 2012. It will open its first exclusive store in New Delhi by September 2010. Spain's Inditex, Europe's largest clothing retailer opened the first store of its flagship Zara brand in India in June 2010. It further plans to open a total of five Zara outlets in India. Bharti Retail, owner of Easy Day storesupermarkets and hypermartsplans to invest about US$ 2.5 billion over the next five years to add about 10 million sq ft of retail space in the country by then, according to a company spokesperson. Raymond Weil plans to invest US$ 883,665 in India during 2010, according to Olivier Bernheim, President and CEO, Raymond Weil. Policy Initiatives FDI up to 51 per cent under the Government route is allowed in retail trade of Single Brand products, according to the Consolidated FDI Policy document. Road Ahead According to industry experts, the next phase of growth is expected to come from rural markets. According to a market research report published in June 2008 by RNCOS titled, 'Booming Retail Sector in India', organised retail market in India is expected to reach US$ 50 billion by 2011. The key findings of the report are: Number of shopping malls is expected to increase at a CAGR of more than 18.9 per cent from 2007 to 2015 Rural market is projected to dominate the retail industry landscape in India by 2012 with total market share of above 50 per cent Driven by the expanding retail market, the third party logistics market is forecasted to reach US$ 20 billion by 2011 Apparel, along with food and grocery, will lead organised retailing in India Evolution of Indian retail Industry:Indian Retail Industry is standing at its point of inflexion, waiting for the boom to take place. The inception of the retail industry dates back to times where retail stores were found in the village fairs , Melas or in the weekly markets. These stores were highly unorganized. The maturity of the retail sector took place with the establishment of retail stores in the locality for convenience. With the HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry.html" t "undefined" government interventionthe retail industry in India took a new shape. Outlets for Public Distribution System, Cooperative stores and Khadi stores were set up. These retail Stores demanded low investments for its establishment. The retail industry in India gathered a new dimension with the setting up of the different International Brand Outlets, Hyper or Super markets, shopping malls and departmental stores.Key Players in the Indian Retail Sector:The untapped scope of
retailing has attracted superstores like Wal-Mart into India, leaving behind the kiranas that served us for years. Such companies are basically IT based. The other important participants in the Indian Retail sector are Bata, Big Bazaar, Pantaloons, Archies, Cafe Coffee Day, landmark, Khadims, Crossword, to name a few. Retailing in India: a HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry.html" t "undefined" forecast:Future of organized retail in India looks bright. According to recent researches it is projected to grow at a rate of about 37% in 2007 and at a rate of 42% in 2008. It will capture a share of 10% of the total retailing by the end of 2010. According to the Union Minister of HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry.html" t "undefined" Commerce & Industry, Shri Kamal Nath, the organized retail sector is expected to grow to a value of Rs. 2,00,000 crore (US$45 billion) and may generate 10 to15 million jobs in next 5 years. This can happen in two forms- 2.5 million of these people may be associated directly with HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry.html" t "undefined" retailing and the rest 10 million people may be gainfully employed in related sectors that will be pulled up through the strong forward and backward linkage effects. However to compete in this sector one needs to have up-to-date market information for planing and decision making. The second most important requirement is to manage HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry.html" t "undefined" costs widely in order to earn at least normal profits in face of stiff competition.Top Companies in the Indian Retail Industry The Indian retail sector has been a euphoria over the last five years. India topped the A.T. Kearney's Global Retail Development Index for two consecutive years and this has infatuated Indian as well as foreign retail players to go gaga on the merchandising track. According to geographical expansion, Delhi/NCR and Mumbai are the felicitated regions as the top companies have rated the spending potential of consumers in the vicinity of the national capital and the financial capital as excellent. Other metros such as Kolkata, Chennai, Hyderabad and Bangalore have caught the sight of investors but their fortunes are yet to be illuminated. Companies like The Future Group, Reliance, BhartiWalmart, DLF etc. have shown the way for other to enter. The country is expecting a surge in the growth sprint and let's hope for the best.Top Companies: An analysis Big Bazaar- Big Bazaar is a
chain of department stores owned by the Pantaloon Group (Future Group)and headed by Kishore Biyani and headquartered at Mumbai. It offers all types of household items such as home furnishing, utensils, fashion products etc. It has a grocery department and vegetable section known as the Food Bazaar and its online shopping site is known as FutureBazaar.com. The real estate fund management company promoted by the Future Group expects to develop more than 50 projects across India covering a combined area of more than 16 million sq. ft. On April 1 2007, Big Bazaar had to shut its outlets in Mumbai as the 120 retrenched employees called a strike with the support of Bhartiya Kamgar Sena (the trade Union wing of Shiv Sena). Later the management agreed to reinstate the sacked workers. Bharti Retail-, a wholly owned subsidiary of Bharti Enterprises. has announced two joint ventures (JV)with the international retailing behemoth, Wal-Mart. The first JV ensures cash and carry business, in which 100 percent FDI is permitted and it can sell only to retailers and distributors. The second JV concerns the franchise arrangement. Sunil Mittal, Chairman of the Bharti Group assured that the ventures will use low prices every day and best practices for the satisfaction of the customer. Processed foods and vegetables will be delivered by Bharti Field Fresh, Bharti's JV with Rothschild. Bharti Retail aims to foray every city with a population exceeding 1 million. It has plans to come up with an investment of more than $2 billion in convenience stores, supermarkets and hypermarkets spread over an aggregate 10 million sq. ft. The expansion drive looks ambitious but analysts are worried that Bharti may face stiff competition from Pantaloon and Reliance as they too have sanguine plans to flood the markets with thousands of retail outlets in the coming five years. Bharti Telecom also has plans to offer all its fixed and mobile telecom products and services from a single window to the SMB (Small and Medium Business) enterprises under the Bharti Infotel division..Reliance Retail- Reliance claimed last year to start a retail chain that will be unique in size and spread, will lead to the welfare of one and all ranging from Indian farmers, manufacturers and ultimately consumers. It is known as Reliance Retail Ltd.(RRL) and is a 100 percent subsidiary of Reliance industries Ltd.(RIL). Soon after the Bharti-Wal Mart tie up, there was the news that RIL (Reliance Industries Ltd.) Chairman Mukesh Ambani met Commerce Minister Kamal Nath to discuss the apprehension of cheap imports from China. Reliance Retail has plans to open 4,000 outlets across 1,500 towns for an investment of $5.6
billion. Reliance is not away from agro-business. According to Buddhadeb Bhattacharjee, Chief Minister of West Bengal, Reliance will hold demonstration farming, produce good quality seeds and give inputs to farmers. Its most significant participation has been in the food procurement business in Madhya Pradesh and Punjab. This has in fact compelled the government to import wheat this year. Reliance Retail has also been reported to have entered into an agreement with footwear manufacturer Bata India Ltd. so that they will involve in selling each other's products.DLF Shopping Malls- DLF Retail Developers Ltd. is one of the troikas of the DLF Group. Besides being India's largest real estate developer, DLF is also of the leaders in innovating shopping malls in India. It caught public eye when it launched the 2,50,000 sq ft. shopping mall in Gurgaon. It has brought a dramatic change in the lifestyles and entertainment with its City Centres and DT Cinemas. DLF has plans to invest Rs. 20003000 crore in all the emerging areas from metros to A class cities in the next two years. Till last year the company was involved in building 18 malls out of which 10 were in the NCR region. Future plans of DLF involve opening up of 100 malls(speciality malls, big box retailing and integrated malls) across 60 cities in next 8-10 years. They are slowly transforming into 'lease' and 'revenue share' models.Local players like ITC, the A.V. Birla Group and Tatas have given the hints to enter organised retail. Frances Carrefour SA and Britains Tesco too were recently in news for their future plans to explore the Indian retail market. In this section we may deal with the growth of the organized as well as the unorganized retail sector of India. Due to the untapped potential that exists in the Indian retailing market, it is a very fast growing sector. One reason that can be attributed to this rapid entry of the foreign retail giants ,is that the Western Countries have reached a point of saturation in their retail sector. Another reason as already mentioned earlier is the change in the tastes and preferences or the psychographic of the consumers that is bent in their favour.Although the retail sector in India contributes to about 10% in the GDP, it is the most underdeveloped sector in terms of investments that are made in this sector. The unorganized retail sector has recorded a growth of 5% per annum while the organized sector is growing at 25-30 % per annum. One should not be impressed by the figures of the organised retail markets since developed market in US, Taiwan, Malaysia is still a dream to the Indian retail market. They have registered a growth of 50% per annum.The retail stores have mushroomed in the Tier II
and Tier III cities. The participants in the HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-sector-growth.html" t "undefined" retail market hold the presence of market in the cities as a signal to their growth. It has been seen that the retail companies have invested in the IT sector for their growth and development. The IT sector has contributed greatly to the growth of the retail sector in India. The retail firms have made lumpy HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-sector-growth.html" t "undefined" investments in Enterprise Resource Planning System as a strategy for their growth and development. SAP has also assumed a significant role in the growth and development of the organised retail industry.The sudden growth of the organised retail sector can be attributed to the ushering of the domestic retail giants like Reliance, Pantaloons, ITC, RPG, Rahejas and the Bharti Group. The foreign companies continue to wait in the sidelines. These prominent retail chains have adversely affected the farmers in some states. Another viewpoint is that the farmers have rather benefited since they were eager on the market intervention of the buig retailers for the purpose of HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-sector-growth.html" t "undefined" marketing and processing of their output. Since the big retailers reap the benefits of buying directly from the farmers , the consumers can purchase the products at minimal price rates. In places like Uttarakhand, the big retail chains are welcomed for the same purpose by the farmers. They have helped in putting The report produced by HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-sector-growth.html" t "undefined" HSBC shows that the FMCG retail sector is expected to grow by 60 % by 2010. leaving aside the packaging sectors, the other sectors that have registered rapid growth are hair care, household care, confectionery, chocolates etc.Growth of Consumer DurablesThe consumer growth HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-sector-growth.html" t "undefined" industry is estimated to grow by 40% in the coming season. The television, refrigerator and washing machines sector has also witnessed a rapid growth. The market for Indian colour television is expected to reach the value of 10.5 million units by the next fiscal year. The refrigerator market is estimated to reach 4.5 million.Hence in a nut shell the HYPERLINK "http://www.economywatch.com/business-and-economy/indian-
retail-sector-growth.html" t "undefined" retail industry in India has witnessed unprecedented growth in the past years. The organised sector is expected to make Quantum jumps in the coming years in terms of its contribution to GDP.Size of Indian Retail Industry and Present Scenario The size of retail industry in an HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-size.html" t "undefined" economy depends on many factors and the level of consumer spending is the most important among these factors. The retail sector in India has grown by leaps and bounds in the last five years. The reason behind this growth has been the synergy of many propellants. However the growth is not always genuine as there are exaggerations as well. But these exaggerations also have benefits since they given a feel of growing competition all around. Secondly the present situation is just a depiction of nascent stage. The future of the trajectory may not be as steep as it is now or may be even slope downward. 'What will be the future size of the retail industry' is the mind boggling question. Another moot point that will gain importance in due time concerns the future of the unorganized HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-size.html" t "undefined" retail market which constitute a significant proportion of the whole industry. The retail stores have proved to be a vantage point for the customers. This implies that the small farmers who used to sell their product in the sabji-mandis and on roadsides are going to lose a significant HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-size.html" t "undefined" market share as they can't employ the two profit maximizers-economies of scale and economies of scope. Retailing in India: the present scenario The present value of the Indian retail market is estimated by the India Retail Report to be around Rs. 12,00,000 crore($270 billion) and the annual growth rate is 5.7 percent. Retail market for food and grocery with a worth of Rs. 7,43,900 crore is the largest of the different types of HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-size.html" t "undefined" retail industries present in India. Furthermore around 15 million retail outlets help India win the crown of having the highest retail outlet density in the world. The contribution of retail sector to GDP has been manifested below: Country Retail Sector's share in HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-size.html" t "undefined" GDP (in
%) India 10 USA 10 China 8 Brazil 6 Source:CII-AT Kearney Retail Study As can be clearly seen, retailing in India is superior than those of its contenders. Retail sector is a sunrise HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-size.html" t "undefined" industry in India and the prospect for growth is simply huge. There are many factors that have stimulated the rise of the shopping centers and multiplex-malls in a jiffy. Some of them can be listed as follows: Rise in the purchasing power of Indians- the rise in the per capita HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-size.html" t "undefined" income in the last few years has been magnificent. This has led to the generation of insatiable wants of the upper and middle class. The demand of new as well as second hand durables has risen throughout the country thus providing the incentive for taking up retailing.2. Favorable to farmers- retailing has helped in removing the middlemen and has thus enhanced the remuneration to farmers. This is a new revolution in the agricultural sector in India and will go a long way in amending the condition of agriculture, a major concern among policy makers.3. Use of credit- a typical Indian is most conversant with using HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-size.html" t "undefined" credit cards than carrying money. This has led to a shift of the consumer base towards supermarkets and make the payments in the form of credit.4. Comfortable Atmosphere- a visit to a retail store appears to be more soothing for the generation-Y. People and kids prefer to shop in an air conditioned a tech savvy manner.The retail industry is the second largest HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-size.html" t "undefined" employer in India. It currently employs about 7 percent of the total labor force in India. Finance Minister P. Chidambaram's recent statement salaries ought not be legislated is a welcome move as most of the organized retail is in private hands. However only about 4.6% of the total retail HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-size.html" t "undefined" trade is in organized sector. It generates about Rs.55,000 crore ($12.4 billion). The major and minor players desperately need to work hard in this direction so that next time the figures look more decent. The HYPERLINK "http://www.economywatch.com/business-and-
economy/indian-retail-industry-size.html" t "undefined" government must also make an attempt to ameliorate the situation as political instability and infrastructure namely power and roads are the major roadblocks in the path of smooth functioning of the market. Retail sectors in neighboring countries: China- the total sales from retail market in China reached US$755 billion in 2005. However organized retailing in China accounts for only 20% of it. Also the fragmentation of China's retail market is so high that top 100 retailers make up for only 10.5% of the total market. The registered sales of department stores grew by 25.7% and that of convenience stores grew by 36.5% in 2005. The Chinese retail market is expected to reach new highs as the population of strong middle class is expected to double by 2020 and mergers and acquisitions among retailers are3 going in great guns. The WTO restrictions are also expected to have a favorable impact on its retail sector. Japan- total annual sales for the Japanese retail industry for 2003 amounted to JPY 133,273 billion. Japan had 1.2 million retail establishments in June 2004 and there were 42,738 specialty superstores. Between 2002 and 2004 annual sales per store increased by 3.8%. The growth was mainly driven by the grocery superstores but the number of superstores specializing in clothes gradually came down. The organized retail sector in Japan couldn't perform at its full efficiency because of collapse of the 'bubble economy' in the early 90s. Structure of the Retail Industry In India The retail industry continued in India in the form of Kiranas till 1980. Soon, following the modernisation of the retail sector in India, many companies started pouring in the HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-structure.html" t "undefined" retail industry in India like Bombay Dyeing, Grasim etc. As has been mentioned earlier the retail sector in India can be widely split into the organised and the unorganized sector. The unorganized sector is predominant. We may discuss in detail the different divisions of the retail sector in India. Unorganized Retail Sector The unorganized retail sector basically includes the local kiranas, hand cart, the HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-structure.html" t "undefined" vendors on the pavement etc. This sector constitutes about 98% of the total retail trade. But Foreign Direct Investment in the retail sector is expected to shrink the employment in the unorganized sector and expand that in the organized one. Organised Retail Sector In the organised sector trading is undertaken by the licensed retailers who have registered themselves to HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-structure.html" t "undefined" sales as well as income tax. The organised retail sector have in their ambit, corporate backed hypermarkets and retail chains. The private large business enterprises are also included under the organised retail category. The organised HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-structure.html" t "undefined" retail sector can be further subdivided into: Instore Retailers This type of retail format is also known as the brick and mortar format. These retail stores are in the form of fixed point sale outlets. They are specially designed to lure the customers. There are different types of stores through which the instore retailers operate. Branded Stores appear in the form of exquisite HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-structure.html" t "undefined" showrooms. Here the total range of a particular brand is available and the quality of the product is certified by the government. There are also multi brand specialty stores that sell a series of brands so that the consumer can choose from the wide array of brands. Department stores have a large number of brands and products catering to all basic needs to luxurious items as well. HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-structure.html" t "undefined" Supermarkets are basically self service retail stores.Discount Stores offer commodities at reduced prices.In Hyper Marts customers have wide variety of products to choose from and they are also available at discounted rates. Convenient stores are located in prominent places within the reach of majority of the customers and do not operate in stringent work hours. Shopping HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-structure.html" t "undefined" Malls are a storehouse of a large variety of retail shops situated close to each other. Retail Formats in India The retail formats in India can be categorised into the traditional and the modern forms. The traditional format includes Kiranas, street markets, kiosks and multiple brand stores. The modern format, on the other hand includes supermarkets, hypermarkets, department HYPERLINK "http://www.economywatch.com/business-and-economy/indian-
retail-industry-structure.html" t "undefined" stores and specialty chains. In discussing about the structure of the retail sector in India we cannot forgo forecourt retailing and trade parks. Government policy and regulation to the retail industry in India. India's government seems to be on a gradual but definite path toward allowing foreign retailers into the country.... suggests the A.T. Kearney's Retail Development Index 2006. It is a common knowledge that the Union government has to face a number of hurdles both from it's opponents as well as it's allies before it could announce the final verdict. There have been demands from all corners regarding framing of rules to safeguard interests of the so-called small traders. Simultaneously economists have the consensus that industrialization is imperative for the growth of the economy and foreign investment has to play an inevitable role in it. With Lok Sabha elections to come in 2009, the Union government too seems a bit confused regarding decision in who's favor can provide it a political edge. So in this study let us compare the views for and against liberalization as is held by Indian Bureaucrats. Entry of large players: stiff opposition from Left Parties The recent outburst of fury among the Kerala's LDF(Left Democratic Front) Government has been noticeable. They have exacted for a three-pronged approach to prevent the retail giants from serving the Keralians. At the first stage, not only MNCs but also the local retail giants like Reliance will be shown the red signal. In fact a magnified CPI protest has compelled a Reliance Fresh outlet in Kochi to take police protection. The draft of a bill has been finalized to amend the Kerala Essential Commodities Act so that the state government can intervene in the retail market. As a second step, local councils (70% of which is controlled by the Left) will deny licenses, that are mandatory to start a retail chain in the state. Kochi and Tiruvananthapuram corporations will be in fact commanded to reconsider the licenses of outlets that are already operating in the regions. This strategy grants more power to the state. However a ban on shopping in these outlets is still not clear. The third and the most revolutionary judgment is actually an outcome of the whole game. Government-controlled supermarkets and hypermarkets will be established in some of the key cities in the state. This rigid legal wall not only in Kerala but across the country has been born out of a traditional mindset. Kerala claims to have a literacy rate of 90.92% and a sex ratio of 1058 females per 1000 males. The data speaks for the government's prudent
commitment in the case of Kerala. So it is high time that the government opens up avenues for its people to let them grow and become self dependent. But the government is still holding good, the conventional 'infant industry' outlook. The main worry is the negative impact on the already gloomy condition of employment. Let's make an attempt to understand the vicious circle of unorganized retailing and present employment scenario. Unorganized retailing has a share of about 96% in the Indian retail sector. But why should people work in such miserable situations if the manufacturing and services sector are booming is the overwhelming question. There has been a trend to migrate to cities in search of alluring bright city lights. But the consequences has been been even worse- earning lower than expected wages(Harris Todaro model of migration). The illiterate and unskilled people ultimately set up a grocery shop to earn a living. This gives birth to another unorganized retail shop in India and thus enlarges its share. So the unorganized retail market in India has born out of fate rather than selection. The Actual Scene Those opposing the expansion of organized retail in India must understand that the share of primary sector shrinks and that of the secondary and then the tertiary sector expands as an economy grows. This is the basic structural adjustment in case of any transforming economy. India is at a take off stage. A retardation in the agricultural sector is not permissible but inhibiting the growth of services on grounds of protection to agriculture is more irrational. A proof of this has been seen in a small town of North Bengal. The opening of a Big Bazaar (brand name for stores under Pantaloon) departmental store has seen a human deluge of about 7,000 people in the 35,000 sqft shopping mall by 3pm. This clearly indicates that people (even in remote places) have become fed up of monotonous marketing practices and demand nowadays is purely governed by choice. The Ruling UPA government's outlook The UPA government is rather clear in its aim of taking India to new highs. The commerce minister has repeatedly asserted that FDI will kill two birds with the same stone. It will generate substantial direct as well as indirect employment and at the same time will not tamper with the present scope of the unorganized retail market. The indirect employment includes jobs in transport, packaging and other logistic services. It will enhance competition in the country thus giving a virtual chance to face global challenges while operating at home. Mr. Nath is clearly focused on the utilization of FDI in acquiring benefits.
It is true that such investments will bring in huge imports but this may also help in the Indian products reaching the foreign consumers. Foreign majors such as Wal-Mart, Tesco and Carrefour are ready to enter India. The UPA government has already permitted 51 percent FDI in Single-brand products without consulting its allies and it is expected that slowly but steadily the government will achieve its goal. Different Segments in the Indian Retail Industry The HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-segments.html" t "undefined" retailing sector of India can be split into two segments. They are the informal and the formal retailing sector. The informal retailing sector is comprised of small retailers. For this sector, it is very difficult to implement the HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-segments.html" t "undefined" tax laws. There is widespread tax evasion. It is also cumbersome to regulate the labour laws in this sector. As far as the formal retailing sector is concerned, it is comprised of large retailers. Stringent tax and labour HYPERLINK "http://www.economywatch.com/businessand-economy/indian-retail-industry-segments.html" t "undefined" laws are implemented in this sector. If the retail industry is divided on the basis of retail formats then it can be split into the modern format retailers and the traditional format retailers. The modern format retailers comprise of the supermarkets, Hypermarkets, Departmental Stores, Specialty Chains and company owned and operated retail stores. The traditional format retailers comprise of Kiranas, Kiosks, Street Markets and the multiple brand outlets. The retail industry can also be subdivided into the organized and the unorganized sector. The organized retail sector occupies about 3% of the aggregate retail HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-segments.html" t "undefined" industry in India. Size and contribution of the retail industry in India In terms of value, the Indian Retail industry is worth $300 billion. Its contribution to the Gross Domestic Product is about 10% , the highest compared to all other Indian HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-segments.html" t "undefined" Industries. The retail sector has also contributed to 8% of the employment of the country. The organised retail sector is expected to triple its size by 2010. The food and grocery HYPERLINK
"http://www.economywatch.com/business-and-economy/indianretail-industry-segments.html" t "undefined" retail sector is expected to multiply five times in the same time frame. The major reason behind the low participation in the Indian retail sector is the need for lumpy investments that cannot match up their break even points. The government policies are being revised from time to time to attract HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-segments.html" t "undefined" investments in this sector. The Indian Retail IndustrySky is the limit In terms of the retail development index India ranks fifth. In Asia it occupies the second position , next to China. Among all the HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-segments.html" t "undefined" global markets, the Indian retail market is the most expanding. This is owing to absence in restriction at the entry level. So the large foreign companies can reap the benefits of economies scale by entering the green retail fields of India. There are many reasons why the HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-segments.html" t "undefined" retail industry in India can reach the zenith. Firstly the organised retail sector in India has a very low contribution to the entire retail sector in the country. Hence there is ample scope for the new players to achieve success in the backdrop of soaring disposable HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-segments.html" t "undefined" income of the upcoming generation. Secondly, not only have the incomes increased but there has been a sea change in the preferences of the consumers . These factors have acted as a stimulus for the ushering of foreign players retailing in apparels, accessories, electronic appliances etc. Large shopping malls have already mushroomed in the metropolitan cities. There still lies untapped potential in the Indian HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-segments.html" t "undefined" Retail Market. FDI In Indian Retail Industry The Government of India was initially very apprehensive of the introduction of the Foreign Direct Investment in the Retail Sector in India. The unorganized retail sector as has been mentioned earlier occupies 98% of the retail sector and the rest 2% is contributed by the organised sector. Hence one reason why the government was fearing the surge of the Foreign Direct HYPERLINK "http://www.economywatch.com/business-and-economy/indian-
retail-industry-fdi.html" t "undefined" Investments in India was the displacement of labour. The unorganized retail sector contributes about 14% to the GDP and absorbs about 7% of our labour force. Hence the issue of displacement of labour consequent to FDI is of primal importance. There are different viewpoints on the impact of FDI in the HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-fdi.html" t "undefined" retail sector in India. According to one viewpoint , the US evidence is empirical proof to the fact that FDI in the retail sector does not lead to any collapse in the existing employment opportunities. There are divergent views as well. According to the UK Competition Commission, there was mass scale job loss with the entry of the hypermarkets brought about by FDI in the UK retail market. According to another school of thought, there is undoubtedly labour displacement associated with FDI, but employment generation will occur in different dimensions. Varied skills would be specialised. Taking into consideration the pros and cons of introducing FDI in India, ICRIER has recommended 49% of FDI . The opening up of FDI in India is also expected to be gradual so that the domestic HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-fdi.html" t "undefined" industries can tailor themselves according to the changes. At the formative stage , the idea was to start with 26% of FDI in this sector. But soon the idea changed as China's FDI moved up from 49% to 100% in the retail sector. While the government is continuing its plans to liberalise FDI in the retail sector in India, foreign companies like WalMart are waiting on the threshold. They basically wish to enter into partnership with various multinational chains. FDI would bring about modern infrastructure that would help to boost the productivity of the organised retail sector in India. Malls have mushroomed in various locations. They are the centres of entertainment for the new generation. FDI is not allowed in the retail sector and this is the reason why many prominent global players like Dominos, Levis, Lee, HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-fdi.html" t "undefined" Nike, Adidas, TGIF, Benetton, Swarovski, Sony, Sharp, Kodak etc are entering the retail market via licensee or franchisee. The opening up of the economy to FDI in the retail sector is also expected to generate employment. FDI can be a blessing instead of curse only if it produces backward linkages relating to production and
manufacturing. It may also, in the process help to push up domestic production as well as exports. In the present scenario, 51% HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-fdi.html" t "undefined" Foreign Direct Investment is permitted in India only through single brand retailing. The international retailers are entering the matket through licensees just as Wal-Mart has entered through the franchisee, Bharti Enterprises. Recent News on FDI in India Metro AG an Shorite are already in operation. Foreign retailers are in search of investing in wholesale. Wal-Mart as we have mentioned has already joined the HYPERLINK "http://www.economywatch.com/businessand-economy/indian-retail-industry-fdi.html" t "undefined" retail market of India. Geant is also expected to start its retailing operations soon in Indiahence we may conclude that FDI in retailing in India would require the creation of additional jobs to compensate the resulting job loss. It would result in the reduction in the Kirana shops and Retail Stores. The consumers can benefit from such exposures, it would enhance quality, improve on the HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-fdi.html" t "undefined" supply chain, increase exports, so on and so forth. There are certain other issues that have discouraged FDI in India and they are discussed as under. Bottlenecks to FDI in Retail Industry According to the Land and HYPERLINK "http://www.economywatch.com/business-andeconomy/indian-retail-industry-fdi.html" t "undefined" Property laws only the Indians have the right to land and property in India and this law has in a a way inhibited the entry of the foreign players in India. Again the labour laws are so designed that the store workers can be protected , quite contrary to the requirements of the modern formats. The tax structure of India is also unfavourable for the foreign players. The corporate HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-fdi.html" t "undefined" tax rate for the domestic companies is 36.59% whereas it is 41.82% for the foreign companies. The changing sales tax as well as the Value Added Tax is also not favourable in the case of HYPERLINK "http://www.economywatch.com/business-and-economy/indianretail-industry-fdi.html" t "undefined" international companies . SWOT ANALYSIS OF INDIAN RETAIL INDUSTRY Retailing consists of all business activities involving the sale of goods and services to ultimate consumers. Retailing involves a
retailers traditionally a store or a service establishment, dealing with consumers who are acquiring goods and services for their own use rather than for resale. Wal-Mart, The Limited, Best Buy and other familiar organizations are retailers. Retailing is based more on whether the business deals directly with public. Retail banking, service stations local coffee shops are also retailers with the emergence of online retailing, retailers are no longer concerned about location of stores. E-retailing has emerged. Consumers are always hungry for modern ways of shopping. Indian retail sector is growing fast and its employment potential is growing fast. The retail scene is changing really fast. Retailers are rethinking their approaches towards the suppliers so that they can get the best pricing strategies for them. Retail sector in India is also catalyst for the growth of staling tactics of below the line marketing used by major retail players like Spencer, big bazaar, reliance fresh etc. For tapping customers by creating points of sales displays. So we can say that India is a rising star and going to be one of the fastest growing regions of the future Retailing consists of all business activities involving the sale of goods and services to ultimate consumers. Retailing involves a retailers traditionally a store or a service establishment, dealing with consumers who are acquiring goods and services for their own use rather than for resale. Wal-Mart, The Limited, Best Buy and other familiar organizations are retailers. Retailing is based more on whether the business deals directly with public. Retail banking, service stations local coffee shops are also retailers with the emergence of online retailing, retailers are no longer concerned about location of stores. E-retailing has emerged. India has moved into 21st century and is showing marked changes to push the organized retail development even further. India is rated as the fifth most striking emerging retail market. India is on the threshold of a revolution in its retail industry. Indian retail industry, which stands second in terms of employment generation after agriculture. Indian retail industry has been broadly divided into organized and unorganized sectors accounted for Rs.350 million of the total revenues. Source: www.piramyd.com CURRENT SCENARIO OF INDIAN RETAIL INDUSTRY Marketers need to understand the existing scene in India before they invest in organized retailing local kiryanas
are incorporating changes with time, but people still prefer to buy their goods from them. Organized retailing is concentrated only in the cities. Organized retailing has been attacking the average middle class consumers in large cities. Retail Trade, which is currently the largest contributor to our GDP, requires the current marketing environment needs to be improved. It is observed that the share of organized retailing in India is around 2%, compared to 80% in USA, 40% in Thailand and 20% in China approx. At Kearneys global retail development index shows India on the top of emerging retail market. Retailing through non-traditional channels is becoming more popular. Retailing through supermarkets, hypermarkets, department stores are increasing. Top business houses like Reliance, Tata, and Rahejas are investing in this sector. The retail sectors also employ over 10% of national workforce. A report by KPMG predicts that organized retail is expected to grow stronger than organized retail is expected to grow stronger than GDP growth in the next 5 years and this is expected to be a result of changing lifestyles, consumption patterns and demographics. The face of grocery retailing in India is seeing the change because of the huge investments by the corporate. To name the few are RPG Spencer, Future group, Food Bazaar, Reliance, Subhiksha etc. Retail sector is the fastest growing sector in the Indian economy. Traditional markets are making way for few formats such as department stores, hypermarkets, books, supermarkets and specially stores. International players like Tesco and Carryfour are expected to enter India very soon. The business sectors of banking and retail have always had close links. Finance should also be made easily available to facilitate expansion and restructuring plans undertaken by retailers. MODERN RETAIL- SWOT ANALYSIS SWOT analysis is a tool for analyzing modern retailing. In this analysis, a study can be made regarding the strength, weaknesses, opportunities and threats of retail industry. STRENGTH OF MODERN RETAIL The benefits of larger organized retail segments are several. The consumers get a better product at cheaper price. So consumers get value for their money. Employment opportunities both direct and indirect have been increased. Farmers get better prices for their products though improvement of value added food chain. A large young working population with median age of
24 years, nuclear families in urban areas, along with increasing working women population and emerging opportunities in the service sector are going to be the key growth drivers of the organised retail sector in India. It has also contributed to large scale investments in the real estate sector with major national and global players investing in devolving the infrastructure and construction of the retailing business. The trends that are driving the growth of the retail sector in India are low share of organised retailing and falling real estate prices. Increase in disposable income and customer aspirations are important factors. Increase in expenditure for luxury items is also vital. The governments of states like Delhi and National Capital Region (NCR) are very upbeat about permitting the use of land for commercial development thus increase the availability of land for retail space. The growth of sachet revolution emerges for reaching to the bottom of the pyramid. The annual growth of departmental stores is estimated at 24%. The size of Indian organised retail industry reached at Rs.1,30,000 crore in 2006. Ranked second in Global Retail Development Index of 30 developing countries drawn up by AT Kearney. WEAKNESS OF MODERN RETAIL The rapid development of retail sector is the sharp improvement in the availability of retail space. But the current rally in property prices, retail real estate rentals have increased remarkably, which may render a few retailing business houses unavailable. Retail companies have to pay high rentals which are blockage in the turn of profits. Small size outlets are also one of the weaknesses in the Indian retailing. 96% of the outlets are lesser than 500 sq.ft. The retail chains are also smaller than those in the developed countries for instance, the superstore food chain, food world is having only 52 outlets where as Carrefour promotes has 8800 stores in 26 countries. The volume of sales in Indian retailing is also very low. India has largest population in the world and a fast growing economy. OPPORTUNITIES OF MODERN RETAIL Global retail giants take India as key market .It is rated fifth most attractive retail market. The organised retail sector is expected to grow stronger than GDP growth in the next five years driven by changing lifestyles, increase in income and favourable demographic outline. Food and apparel retailing are key drivers of growth. Rural retailing is still unexploited Indian
market. It can become one of the largest industries in terms of numbers of employees and establishments. Indian retail industry has come forth as one of the most dynamic and fast paced industry with several players entering the market. THREATS OF MODERN RETAIL One of the greatest barriers to the growth of modern retail formats are the supply chain management issues. No major changes are needed in the supply chain for FMCG products; these are well developed and efficient. For perishables, the system is too complex. Government regulations, lack of adequate infrastructure and inadequate investment are the possible bottlenecks for retail companies. The supply chain for staples is less complicated than the net groceries. But staples have a unique problem of non- standardization. Organized retailing in India is yet to get an industry status.100% Foreign Direct Investment (FDI) is not permitted in retailing in India. Ownership of retail chain is allowed only to the extent of 49% but without FDI, the sector is deprived of access to foreign technologies and faster growth. Lack of uniform tax system for organized retailing is also one of the obstacles. Inadequate infrastructure is likely to be an obstacle in the growth of organized retails. The unorganized sector has dominance over the organized sector in India because of low investment needs. Labour rules and regulation are also not followed in the organized retails. The sector is unable to employ retail staff on contract basis. Problem of car parking in urban areas is serious concern. Difficult to target all segments of society. Emergence of hyper and super markets trying to provide customer with value, variety and volume. Heavy initial investment is required to break even with other companies and compete with them. Retail today has changed from selling a product or a service to selling a hope, an aspiration and above all an experience that a consumer would like to repeat. Retail chains are yet to settled down with proper merchandise mix for the mall outlets. Retailing today is not about selling at the shop, but also about researching and surveying the market, offering choice, competitive prices and retailing consumers as well. Contribution of Retail Industry The effects of retail on Indian economy are: Employment Generation Retailing provides employment to making 8% workforce in India, because it is highly labour
intensive. It has also patented to generate an additional eight million jobs, direct and indirect. Development of small scale units. Retailing also helps small scale units to easy access market. They provide a platform for small scale units goods. Retailing in India support 4 lakh plus medium handcraft manufacturers. Future prospect in retail business FDI helps to meet the global economies, societies and domestic players to a closely integrative traditional village i.e. one is for all and all for one. By the end of 2010, 100 million sq.ft of small space is expected to be available. Division of labour, specialization, developing competition and innovation lead to economic growth. Liberalization of trade and cross border merges and joint ventures have also driving forces. A significant size in the organized retail and is expected to grow from 3% to50% in the coming year. Technology, management, expertise, market intelligence are also some of the opportunities to domestic business. Conclusion Consumers are always hungry for modern ways of shopping. Indian retail sector is growing fast and its employment potential is growing fast. The retail scene is changing really fast. Retailers are rethinking their approaches towards the suppliers so that they can get the best pricing strategies for them. There is no surprise why from an Abani to Mittal, Godrej to Birla, everybody is ready with them plans to kick start retail revolution in India. Apart from above, retail sector in India is also catalyst for the growth of staling tactics of below the line marketing used by major retail players Like Spencer, big bazaar, reliance fresh etc. For tapping customers by creating points of sales displays. So we can say that India is a rising star and going to be one of the fastest growing regions of the future. BIBLIOGRAPHY 1. Avneet and Singh, Ramanjeet Research in management & technology Deep & deep publications, Delhi 2. Matching mastermind, ICFAI, Sept. 2006 The route to revolutionary trends in the Indian retail sector. 3. Matching mastermind, ICFAI, March 2007 Opening retail trade for FDI on India- A progressive measure 4. Tikmund ,William G. and D`amico Michael Marketing West publishing company New York 5. www. retailindia.typepad.com 6. http://icm.icfai.org/casestudies/catalogue/marketing . 7. www.indianmba.net.in 8. Varshney, R.L. and Gupta, S.L. Marketing Management An Indian Perspetive 9. Shevan, M.
A. Marketing Management 10. Grover, S.K. Marketing A Strategic Orientation 
A dissertation report on indian retail industry trends Document Transcript
Projectsformba.blogspot.com A Dissertation Report On INDIAN RETAIL INDUSTRY TRENDS Submitted For the Partial Fulfillment of Two Year Full Time Post Graduate Diploma in Management 2010 JAIPURIA INSTITUTE OF MANAGEMENT NOIDAProjectsformba.blogspot.com Projectsformba.blogspot.com DECLARATIONI declare that dissertation entitled Indian retail industry trends is my own workconducted under the supervision of ..I further declare that to the best of my knowledge the dissertation does not contain anypart of my work, which has been submitted for the award of any diploma either in thisinstitute or any other institute without proper citationSignature of supervisor Signature of candidateProjectsformba.blogspot.com Projectsformba.blogspot.com ACKNOWLEDGEMENTSI am deeply indebted to all who have inspired, guided and helped me in the successfulcompletion of the project. I owe debt of gratitude to them, who were so generous withtheir valuable time and expertise.I wish to express my deep sense of gratitude to my Internal Guide, .., for hisable guidance and useful suggestions, which helped me in completing the project work,in time.Needless to mention that .., who had been a source of inspiration and forhis timely guidance in the conduct of my project work. I would also like to thank. for his efforts in completing my project.Finally, yet importantly, I would like to express my heartfelt thanks to my belovedparents for their blessings, my friends/classmates for their help and wishes for thesuccessful completion of this project.Projectsformba.blogspot.com Projectsformba.blogspot.com EXECUTIVE SUMMARYIndia is undergoing a retail revolution from the unorganized to the organized sector.There are now more modern retail formats such as hypermarkets, supermarkets andmalls. Several international companies such as Wal-Mart, Carrefour, and Tesco areplanning their entry and establishment into the Indian market while several domesticcompanies are setting up their retail setups, exclusive showrooms and large format storessuch as Reliance, Tata and the whole concept of shopping has altered in terms of formatand
consumer buying behavior, ushering in a revolution in shopping in India.These trends indicate that retailing, as an industry, has come into its own. According to astudy by the Confederation of Indian Industry organized retail sales in India were a mereRs. 135 billion in 2000 but today with over 15 million outlets, that provide employmentto over 74 million people (7% of the population), the size of the retail industry stands atUSD 350 billion and it is expected to grow at a compounded 30% over the next 5 years.Retailing is an important infrastructure perquisite for modernizing India and can facilitaterapid economic growth. Modernization of all retail services would enable efficientdelivery of goods and value-added services to the consumer, making a highercontribution to the Gross Domestic Product.This project focuses on taking an in-depth analysis of retail scenario & consumer trendsas they are emerging and identify the various retailing models that would work, in theIndian retail market. The analysis is done by looking at Global retail trends vis--vis theones in India, the current state of the Indian retail industry, industry characteristics andEconomic drivers of change, to understand the consumer buying behavior and what itforetells about the nature of the Industry. To predict the kind of retail models that wouldwork in India, besides analyzing the existing ones, the attempt has been to predictpotentially promising formats.Projectsformba.blogspot.com Projectsformba.blogspot.com TABLE OF CONTENTSProjectsformba.blogspot.com S.NO. PARTICULARS P. NO. Projectsformba.blogspot.com Certificate from the mentor I Acknowledgement III Executive summary IV List of Tables VII List of Figures VIII 1. INTRODUCTION 1-13 Retailing 2 1.1.1 Origin of retail sector 3 1.1.2 How retail developed 4 1.1.3 Family business to formal structure 6 1.2 Top ten retailers 7 1.3 Traditional retail scene in India 8 1.4 Scenario of retail in India 9 1.4.1 Rural retail 11 1.4.2 Luxury retail 12 1.4.3 E-tailing 12 1.4.4 Retail franchising 13 1.4.5 Innovative retail concept 13 1.4.6 Government initiative 13 2. 14-49 RETAIL INDUSTRY STRUCTURE 2.1 The emerging section 17 2.2 Share of organized retailing 19 2.3 Sourcing hub for giant foreign retailing 20 2.4 Opportunities 21 2.5 Prevailing organized retail format 22 2.6 key challenges 24 2.7 Present Indian scenario 25 2.8 Major industry players 26 2.9 Retailing formats in India 42 REVIEW OF LITERATURE 50-58 3. 3.1 Report highlight 54 3.2 Organized retail: India vs. china 56 3.3 Growth in organized retailing 57 3.4 Unorganized Retail- The big brat 60 3.5 The Urban youth 62 OBJECTIVE AND RESEARCH 63-64 4. METHODOLOGY 4.1 Objectives and Sub-objectives of the study 63 4.2 Scope of the project 63 Projectsformba.blogspot.com 4.3 Research methodology 64 4.3.1 Exploratory Research 64 4.3.2 Research Design 64 64 Projectsformba.blogspot.com List of TablesTable 2.0: Indian Retail structure 15Table 2.1: Sector wise organized retailing in India
16Table 2.8: Formats of Major Retail Industry Players 49Table 3.4: Total Grocery Market in India 61Table 5.1.1: Monthly budget of consumer and the frequency of shopping 66Table 5.1.2: Price range available and the product range available in the store 67Table 5.1.3: Price range available and the paying extra for the well known 68 brandTable 5.1.4: Product range available in the store and the reference of the 69 friends from where he buysTable 5.1.5: Parking facility available in the store and the location of the 70 outletTable 5.1.6: Delivery facilities available for the consumer and the location of 71 the OutletTable 5.1.7: Helpful sales staff and the remember me on next visit 72Table 5.1.8: Age of the respondent & frequency of shopping 73Table 5.1.9: Age of the respondent & paying extra for well known brands 74Table 5.2.1: Average monthly shopping budget of consumer 75Table 5.2.2: Awareness of different retail sector 76Table 5.2.3: Retail chain customer like to visit often 77Table 5.2.4: Customer preference from shopping from Retail chain 78Table 5.2.5: Frequency of shopping 79Table 5.2.6: Paying extra for well known brand 80Table 5.2.7: Buys from where my friend buys 81Projectsformba.blogspot.com Projectsformba.blogspot.comFigure 1.1.3: Family business to formal structure 7Figure 1.4: Percentage Share of retail segments in total retail sector 11Figure 1.4: Rural-Urban Share in Retail Market 12Figure 2.2: Share of Organized Retail 19Figure 2.5: Different Formats at Different Stages 23Figure 2.8.1: Pantaloons 27Figure 2.8.2: Shoppers stop 29Figure 2.8.3: Westside 31Figure 2.8.4: Piramyd 33Figure 2.8.5: Reliance fresh 35Figure 2.8.6: Bharti Walmart 36Figure 2.8.7: More 37Figure 2.8.8: Vishal retail 39Figure 2.8.9: Metro cash & carry 40Figure 2.8.10: Viveks 41Figure 2.9: Retail formats available in India 47Figure 3.5: Largest young Population 62 List of figures Projectsformba.blogspot.com Projectsformba.blogspot.com CHAPTER 1 INTRODUCTIONIn 2004 a study conducted by McKinsey titled Indias Retailing Comes of Age hadpredicted a definite retail revolution in India. This is turning out to be very true. India isthe last among the large Asian economies to liberalize its retail sector. The licensing rajis long over. A number of Indian and international retailers are entering this nascent,though dynamic market. Market liberalization and increasingly assertive consumers aresowing the seeds of a retail transformation that will bring bigger Indian and multinationalplayers on to the scene. The market is huge at US $350 billion overall. The entry ofmultinational companies (MNC) has certainly transformed this sector. The supply chain,and consumer interest and awareness in branded products have been built from scratch.Presently, global players are entering India, indirectly, via the licensee/franchisee route,and more recently through joint ventures with Indian companies as partners. But as theChinese experience clearly indicates allowing FDI (with restriction) would add buoyancyto the retail sector All the major
Indian cities have major commercial projects underconstruction for retail purposes. In fact, the retail sector has provided the primary boost,to the commercial property market all over India. Presently, there are over 55 largeshopping malls under development all over India. The retail sector is also gettingacceptance in the job market with more and more business schools focusing on the sectorand large retailers setting up retail academies. This sector is estimated to create 50,000jobs per year in the next five years. The Indian consumers are divided into two categories, viz., high-income urbanconsumers and low-income urban and rural consumers. The high-income urbanconsumers are willing to pay a higher price for having the choice of quality products andthe complete shopping experience in the large retail stores. But, the low-income urbanand rural consumers will go for the price sensitive products which are easily available inProjectsformba.blogspot.com Projectsformba.blogspot.comthe smaller stores located nearby. The markets in both categories are very large andhence, there is little direct competition between the two retail sectors.As the awareness and disposable incomes increase in India, the two categories will mergeslowly, before the competition actually begins. But till then along with modern retailformats the traditional network especially the kirana stores would coexist. In fact unlikeany other mature retail market what will develop in India would be its own homegrownunconventional marketing mix. Since the consumer market is diverse & traditional retailhas deep socio-cultural roots it would be imprudent to emulate blindly the retail growthpath of any other country.India remains one of the last frontiers of modern retailing. The complexities of the vastand varied market will be a challenge. But the retailer who can shape the nascent retailmarket as well as adapt to Indias unique characteristics will reap larger rewards over thelong term. Industry experts say there is no magic formula that can make an averageretailers business boom.The key to generating growth lies in the willingness to invest money for some years andexperiment with different retail formats. Pantaloons Managing Director Kishore Biyaniis a case in point. From departmental store Pantaloon and the hypermarket discount storeBig Bazaar, he has diversified into other concepts, including a seamless mall calledCentral and the food and grocery home delivery vehicle called Food Bazaar on Call. Andhe says more retail concepts are welcome. So, it appears that like in any other business,he who takes the risk and innovates is most likely to succeed in retail as well!1.1RetailingThe word "Retail" originates from a French-Italian word. Retailer someone who cuts offor sheds a small piece from something. Retailing is the set of activities that marketsproducts or services to final consumers for their own personal or household use. It doesthis by organizing their availability on a relatively large scale
and supplying them tocustomers on a relatively small scale. Retailer is a Person or Agent or Agency orProjectsformba.blogspot.com Projectsformba.blogspot.comCompany or Organization who is instrumental in reaching the Goods or Merchandise orServices to the End User or Ultimate Consumer.Retailing is the final step in the distribution of merchandise - the last link in the SupplyChain connection the bulk producers of commodities to the final consumers. Retailingcovers diverse products such as apparels, consumer goods, financial services and leisure.A retailer, typically, is someone who does not affect any significant change in the productexecs breaking the bulk. He/ She is also the final stock point who makes products orservices available to the consumer whenever require. Hence, the value proposition aretailer offers to a consumer is easy availabilities of the desired product in the desiredsizes at the desired times.In the developed countries, the retail industry has developed into a full-fledged industrywhere more than three-fourths of the total retail trade is done by the organized sector.Huge retail chains like Wall-Mart, Carr four Group, Sears, K-Mart, McDonalds, etc havenow replaced the individual small stores. Large retail formats, with high quality ambianceand courteous, and well-trained sales states are regular features of these retailer.1.1.1 Origin of Retail Sector:Early Trade:When man started to cultivate and harvest the land, he would occasionally find himselfwith a surplus of goods. Once the needs of his family and local community were met, hewould attempt to trade his goods for different goods produced elsewhere. Thus marketswere formed. These early efforts to swap goods developed into more formal gatherings.When a producer who had a surplus could not find another producer with suitableproducts to swap, he may have allowed others to owe him goods. Thus early credit termswould have been developed. This would have led to symbolic representations of suchdebts in the form of valuable items (such as gemstones or beads), and eventually money.Projectsformba.blogspot.com Projectsformba.blogspot.com1.1.2 HOW RETAIL DEVELOPED:Peddlers and Producers:The Retail Trade is rooted in two groups, the peddlers and producers. Peddlers tended tobe opportunistic in their choice of stock and customer. They would purchase any goodsthat they thought they could sell for a profit. Producers were interested in selling goodsthat they had produced.General Store:This division continues to this day with some shops specializing in specific areas,reflecting their origins as outlets for producers (such as Pacific Concord of Hong Kong),and others providing a broad mix, known as General Store (such as Caseys in theMidwest of the U.S.A.).Although specialist shops are still with us, over time, the general store has increasinglytaken on specialist products. Customers have found this to be more convenient thanhaving to visit many shops - thus the term "Convenience Store"
has also been applied tothese shops. As the popularity of general stores has grown, so has their size. Thiscombined with the advent of Self-Service has lead to the Supermarket, or Superstore.Early Markets:Over time, producers would have seen value in deliberately over-producing in order toprofit from selling these goods. Merchants would also have begun to appear. They wouldtravel from village to village, purchasing these goods and selling them for a profit. Overtime, both producers and merchants would regularly take their goods to one selling placein the centre of the community. Thus, regular markets appeared. The First Shop:Eventually, markets would become permanent fixtures i.e. shops. These shops along withthe logistics required to get the goods to them were, the start of the Retail Trade.Projectsformba.blogspot.com Projectsformba.blogspot.comThe Birth of Distance Retailing:Defined as sales of goods between two distant parties where the deliverer has no directinterest in the transaction, the earliest instances of distance retailing probably coincidedwith the first regular delivery or postal services. Such services would have started inearnest once man had learned how to ride a camel, horse etc.When individuals or groups left their community and settled elsewhere, some missedfoodstuffs and other goods that were only available in their birthplace. They arranged forsome of these goods to be sent to them. Others in their newly adopted communityenjoyed these goods and demand grew. Similarly, new settlers discovered goods in theirnew surroundings that they dispatched back to their birthplace, and once again, demandgrew. This soon turned into a regular trade. Although such trading routes expandedmainly through the growth of traveling salesmen and then wholesalers, there were stillinstances where individuals purchased goods at long distance for their own use. A secondreason that distant selling increased was through war. As armies marched throughterritories, they laid down communication lines stretching from their home base to thefront. As well as garnering goods from whichever locality they found themselves in, theywould have also taken advantage of the lines of communication to order goods fromhome.Origins of RetailIt is likely that, as markets became more permanent fixtures they evolved into shops.Although advantageous in many respects, this removed the mobility that a peddler ortraveling merchant may still have enjoyed. For some shopkeepers, it made sense to obtainextra stock and open up another shop, most probably operated by another family member.This would recover business from peddlers and create new business and the greatervolume would allow the shopkeeper to strike a better deal with suppliers. Thus the retailchain would have started. Its thought that this process would have started in china over2200 years ago with a chain of shops owned by a trader called Lo Kass.Projectsformba.blogspot.com
Projectsformba.blogspot.comThe First Self-Service Store:This all changed in 1915 when Albert Gerrard opened the Groceteria in Los Angeles, thefirst documented self-service store. This was soon followed a year later by the PigglyWiggly self-service store, founded by Clarence Saunders in Tennessee in the U.S.Growth:This new type of shopping was more efficient and many customers preferred it. Althoughpersonal service stores remain to this day, this new concept started a rapid growth of self-service stores in the United States. Other countries were slow to take up the idea, butthere has been a steady rise in the global amount of self-service stores ever since.EfficiencyThese entrepreneurs noticed that their staff had to spend a great deal of time takinggrocery orders from customers. The groceries were stacked on shelves allowingcustomers to walk around and browse, collecting their shopping in a basket that wassupplied. The shopkeeper would only need to tot up the final bill at the end of the processand transfer the goods from the basket to the customer and receive payment.1.1.3 Family Business to Formal Structure:Although retail chains would have been mostly run by families, as some chains grew,they would have needed to employ people from outside of their family. This was alimiting factor as there would have been a limit to the amount of trusted non familymembers available to help run the chain. Another, even more definite limiting factor wasthe distance the furthest shop would have been from the original shop. The greater thedistance, the more time and effort would have been needed to effectively manage outpostshops and to service them with goods. There was, therefore, a natural barrier toexpansion. That was the case until transport and communications became faster and morereliable. When this happened towards the end of the 19th century, chains became muchProjectsformba.blogspot.com Projectsformba.blogspot.combigger and more widespread. Many of these businesses became more structured andformalized, leading to the retail chain that we see today.Fig: 1.1.3 Source-Indian retail report-2004 (www.imagesretail.com)1.2 Top Ten Retailers WorldwideRank Retailer No of stores owned Sales in FY-00 US$ Millions1 Wall-Mart Stores Inc. (USA) 4178 $180,7872 Carrefour Group (France) 8130 $61,0473 The Kroger Co. (USA) 3445 $49,0004 The Home Depot, Inc. (USA) 1134 $45,7385 Royal Ahold (Netherlands) 7150 $45,7296 Metro AG (Germany) 2169 $44,1897 Kmart Corporation (USA) 2105 $37,0288 Sears, Roebuck and Co. (USA) 2231 $36,8239 Albertsons, Inc. (USA) 2512 $36,726Projectsformba.blogspot.com Projectsformba.blogspot.com10 Target Corporation (USA) 1307 $36,362Source: (www.india-reports.com/retail-reports.aspx)Broadly the organized retail sector can be divided into two segments, InStore Retailers,Who operate fixed point-of-sale locations, located and designed to attract a high volumeof walk-in customers, and the
Economic Reforms in India since 1991 Document Transcript
1. Economic Reforms in India since 1991: Has Gradualism Worked? by Montek S. Ahluwalia*India was a latecomer to economic reforms, embarking on the process in earnest only in1991, in the wake of an exceptionally severe balance of payments crisis. The need for apolicy shift had become evident much earlier, as many countries in east Asia achieved highgrowth and poverty reduction through policies which emphasized greater export orientationand encouragement of the private sector. India took some steps in this direction in the1980s, but it was not until 1991 that the government signaled a systemic shift to a moreopen economy with greater reliance upon market forces, a larger role for the private sectorincluding foreign investment, and a restructuring of the role of government.Indias economic performance in the post-reforms period has many positive features. Theaverage growth rate in the ten year period from 1992-93 to 2001-02 was around 6.0 percent,as shown in Table 1, which puts India among the fastest growing developing countries in the1990s. This growth record is only slightly better than the annual average of 5.7 percent in the1980s, but it can be argued that the 1980s growth was unsustainable, fuelled by a buildup ofexternal debt which culminated in the crisis of 1991. In sharp contrast, growth in the 1990swas accompanied by remarkable external stability despite the east Asian crisis. Poverty alsodeclined significantly in the post-reform period, and at a faster rate than in the 1980saccording to some studies (as Ravallion and Datt discuss in this issue).However, the ten-year average growth performance hides the fact that while the economygrew at an impressive 6.7 percent in the first five years after the reforms, it slowed down to5.4 percent in the next five years. India remained among the fastest growing developingcountries in the second sub-period because other developing countries also slowed downafter the east Asian crisis, but the annual growth of 5.4 percent was much below the target of7.5 percent which the government had set for the period. Inevitably, this has led to somequestioning about the effectiveness of the
reforms.Opinions on the causes of the growth deceleration vary. World economic growth was slowerin the second half of the 1990s and that would have had some dampening effect, but Indiasdependence on the world economy is not large enough for this to account for the slowdown.Critics of liberalization have blamed the slowdown on the effect of trade policy reforms ondomestic industry (for example, Nambiar et al, 1999; Chaudhuri, 2002).1 However, theopposite view is that the slowdown is due not to the effects of reforms, but rather to thefailure to implement the reforms effectively. This in turn is often attributed to Indiasgradualist approach to reform, which has meant a frustratingly slow pace of implementation.However, even a gradualist pace should be able to achieve significant policy changes overten years. This paper examines Indias experience with gradualist reforms from thisperspective.We review policy changes in five major areas covered by the reform program: fiscal deficitreduction, industrial and trade policy, agricultural policy, infrastructure development andsocial sector development. Based on this review, we consider the cumulative outcome of tenyears of gradualism to assess whether the reforms have created an environment which cansupport 8 percent GDP growth, which is now the government target.Savings, Investment and Fiscal DisciplineFiscal profligacy was seen to have caused the balance of payments crisis in 1991 and areduction in the fiscal deficit was therefore an urgent priority at the start of the reforms. Thecombined fiscal deficit of the central and state governments was successfully reduced from* Montek S. Ahluwalia is at present Deputy Chairman, Planning Commission, Government of India. Prior to this, he was working as Director, Independent Evaluation Office International Monetary Fund, Washington, D.C. Prior to July 2001 he served in the Government of India as Member Planning Commission and before that as Finance Secretary in the Ministry of Finance. The article has been published in Journal of Economic Perspectives, Summer 2002. 2. 9.4 percent of GDP in 1990-91 to 7 percent in both 1991-92 and 1992-93 and the balance ofpayments crisis was over by 1993. However, the reforms also had a medium term fiscalobjective of improving public savings so that essential public investment could be financedwith a smaller fiscal deficit to avoid crowding out private investment. This part of the reformstrategy was unfortunately never implemented.As shown in Table 2, public savings deteriorated steadily from +1.7 percent of GDP in 1996-97 to 1.7 percent in 2000-01. This was reflected in a comparable deterioration in the fiscaldeficit taking it to 9.6 percent of GDP in 2000-01. Not only is this among the highest in thedeveloping world, it is particularly worrisome because Indias public debt to GDP ratio is alsovery high at around 80%. Since the total financial savings of households amount to only 11percent of GDP, the fiscal deficit
effectively preempts about 90 percent of householdfinancial savings for the government. What is worse, the rising fiscal deficit in the second halfof the 1990s was not financing higher levels of public investment, which was more or lessconstant in this period.These trends cast serious doubts on Indias ability to achieve higher rates of growth infuture. The growth rate of 6 percent per year in the postreforms period was achieved withan average investment rate of around 23 percent of GDP. Accelerating to 8 percent growthwill require a commensurate increase in investment. Growth rates of this magnitude in eastAsia were associated with investment rates ranging from 36-38 percent. While it can beargued that there was overinvestment in East Asia, especially in recent years, it is unlikelythat India can accelerate to 8 percent growth unless it can raise the rate of investment toaround 29-30 percent of GDP. Part of the increase can be financed by increasing foreigndirect investment, but even if foreign direct investment increases from the present level of0.5 percent of GDP to 2.0 percent -- an optimistic but not impossible target -- domesticsavings would still have to increase by at least 5 percentage points of GDP.Can domestic savings be increased by this amount? As shown in Table 2, private savingshave been buoyant in the post-reform period, but public savings have declined steadily. Thistrend needs to be reversed.2 Both the central government and the state governments wouldhave to take a number of hard decisions to bring about improvements in their respectivespheres.The central governments effort must be directed primarily towards improving revenues,because performance in this area has deteriorated significantly in the post reform period.Total tax revenues of the center were 9.7 percent of GDP in 1990-91. They declined to only8.8 percent in 2000-01, whereas they should have increased by at least two percentagepoints. Tax reforms involving lowering of tax rates, broadening the tax base and reducingloopholes were expected to raise the tax ratio and they did succeed in the case of personaland corporate income taxation but indirect taxes have fallen as a percentage of GDP. Thiswas expected in the case of customs duties, which were deliberately reduced as part oftrade reforms, but this decline should have been offset by improving collections fromdomestic indirect taxes on goods and by extending indirect taxation to services. This part ofthe revenue strategy has not worked as expected. The Advisory Group on Tax Policy for theTenth Plan recently made a number of proposals for modernizing tax administration,including especially computerization, reducing the degree of exemption for small scale unitsand integration of services taxation with taxation of goods (Planning Commission, 2001a).These recommendations need to be implemented urgently.3There is also room to reduce central government subsidies, which are known to be highlydistortionary and poorly targeted (e.g. subsidies on food and fertilizers), and to
introducerational user charges for services such as passenger traffic on the railways, the postalsystem and university education. Overstaffing was recently estimated at 30 percent anddownsizing would help reduce expenditure.State governments also need to take corrective steps. Sales tax systems need to bemodernized in most states. Agricultural income tax is constitutionally assigned to the states,but no state has attempted to tax agricultural income. Land revenue is a traditional tax basedon landholding, but it has been generally neglected and abolished in many states. Urbanproperty taxation could yield much larger resources for municipal governments if suitably 2 3. modernized, but this tax base has also been generally neglected. State governments sufferfrom very large losses in state electricity boards (about 1 percent of GDP) and substantiallosses in urban water supply, state road transport corporations and in managing irrigationsystems. Overstaffing is greater in the states than in the center.The fiscal failures of both the central and the state governments have squeezed the capacityof both the center and the states to undertake essential public investment. High levels ofgovernment borrowing have also crowded out private investment. Unless this problem isaddressed, the potential benefits from reforms in other areas will be eroded and it may bedifficult even to maintain the average growth rate of 6 percent experienced in the first tenyears after the reforms, let alone accelerate to 8 percent.Reforms in Industrial and Trade PolicyReforms in industrial and trade policy were a central focus of much of Indias reform effort inthe early stages. Industrial policy prior to the reforms was characterized by multiple controlsover private investment which limited the areas in which private investors were allowed tooperate, and often also determined the scale of operations, the location of new investment,and even the technology to be used. The industrial structure that evolved under this regimewas highly inefficient and needed to be supported by a highly protective trade policy, oftenproviding tailor-made protection to each sector of industry. The costs imposed by thesepolicies had been extensively studied (for example, Bhagwati and Desai, 1965; Bhagwatiand Srinivasan, 1971; Ahluwalia, 1985) and by 1991 a broad consensus had emerged onthe need for greater liberalization and openness. A great deal has been achieved at the endof ten years of gradualist reforms.Industrial PolicyIndustrial policy has seen the greatest change, with most central government industrialcontrols being dismantled. The list of industries reserved solely for the public sector -- whichused to cover 18 industries, including iron and steel, heavy plant and machinery,telecommunications and telecom equipment, minerals, oil, mining, air transport services andelectricity generation and distribution -- has been drastically reduced to three: defenseaircrafts and warships, atomic energy generation, and railway transport.
Industrial licensingby the central government has been almost abolished except for a few hazardous andenvironmentally sensitive industries. The requirement that investments by large industrialhouses needed a separate clearance under the Monopolies and Restrictive Trade PracticesAct to discourage the concentration of economic power was abolished and the act itself is tobe replaced by a new competition law which will attempt to regulate anticompetitive behaviorin other ways.The main area where action has been inadequate relates to the long standing policy ofreserving production of certain items for the small-scale sector. About 800 items werecovered by this policy since the late 1970s, which meant that investment in plant andmachinery in any individual unit producing these items could not exceed $ 250,000. Many ofthe reserved items such as garments, shoes, and toys had high export potential and thefailure to permit development of production units with more modern equipment and a largerscale of production severely restricted Indias export competitiveness. The Report of theCommittee on Small Scale Enterprises (1997) and the Report of the Prime MinistersEconomic Advisory Council (2001) had both pointed to the remarkable success of China inpenetrating world markets in these areas and stimulating rapid growth of employment inmanufacturing. Both reports recommended that the policy of reservation should be abolishedand other measures adopted to help small-scale industry. While such a radical change inpolicy was unacceptable, some policy changes have been made very recently: fourteenitems were removed from the reserved list in 2001 and another 50 in 2002. The itemsinclude garments, shoes, toys and auto components, all of which are potentially important forexports. In addition, the investment ceiling for certain items was increased to $1 million.However, these changes are very recent and it will take some years before they arereflected in economic performance.Industrial liberalization by the central government needs to be accompanied by supportingaction by state governments. Private investors require many permissions from state 3 4. governments to start operations, like connections to electricity and water supply andenvironmental clearances. They must also interact with the state bureaucracy in the courseof day-to-day operations because of laws governing pollution, sanitation, workers welfareand safety, and such. Complaints of delays, corruption and harassment arising from theseinteractions are common. Some states have taken initiatives to ease these interactions, butmuch more needs to be done.A recently completed joint study by the World Bank and the Confederation of Indian Industry(Stern, 2001) found that the investment climate varies widely across states and thesedifferences are reflected in a disproportional share of investment, especially foreigninvestment, being concentrated in
what are seen as the more investor-friendly states(Maharashtra, Gujarat, Karnataka, Andhra Pradesh and Tamil Nadu) to the disadvantage ofother states (like Uttar Pradesh, Bihar and West Bengal). Investors perceived a 30 percentcost advantage in some states over others, on account of the availability of infrastructureand the quality of governance. These differences across states have led to an increase inthe variation in state growth rates, with some of the less favored states actually deceleratingcompared to the 1980s (Ahluwalia, 2002). Because liberalization has created a morecompetitive environment, the pay off from pursuing good policies has increased, therebyincreasing the importance of state level action. Infrastructure deficiencies will take time andresources to remove but deficiencies in governance could be handled more quickly withsufficient political will.Trade PolicyTrade policy reform has also made progress, though the pace has been slower than inindustrial liberalization. Before the reforms, trade policy was characterized by high tariffs andpervasive import restrictions. Imports of manufactured consumer goods were completelybanned. For capital goods, raw materials and intermediates, certain lists of goods werefreely importable, but for most items where domestic substitutes were being produced,imports were only possible with import licenses. The criteria for issue of licenses werenontransparent, delays were endemic and corruption unavoidable. The economic reformssought to phase out import licensing and also to reduce import duties.Import licensing was abolished relatively early for capital goods and intermediates whichbecame freely importable in 1993, simultaneously with the switch to a flexible exchange rateregime. Import licensing had been traditionally defended on the grounds that it wasnecessary to manage the balance of payments, but the shift to a flexible exchange rateenabled the government to argue that any balance of payments impact would be effectivelydealt with through exchange rate flexibility. Removing quantitative restrictions on imports ofcapital goods and intermediates was relatively easy, because the number of domesticproducers was small and Indian industry welcomed the move as making it more competitive.It was much more difficult in the case of final consumer goods because the number ofdomestic producers affected was very large (partly because much of the consumer goodsindustry had been reserved for small scale production). Quantitative restrictions on importsof manufactured consumer goods and agricultural products were finally removed on April 1,2001, almost exactly ten years after the reforms began, and that in part because of a rulingby a World Trade Organization dispute panel on a complaint brought by the United States.Progress in reducing tariff protection, the second element in the trade strategy, has beeneven slower and not always steady. As shown in Table 3, the weighted average import dutyrate declined
from the very high level of 72.5 percent in 1991-92 to 24.6 percent in 1996-97.However, the average tariff rate then increased by more than 10 percentage points in thenext four years.4 In February 2002, the government signaled a return to reducing tariffprotection. The peak duty rate was reduced to 30 percent, a number of duty rates at thehigher end of the existing structure were lowered, while many low end duties were raised to5 percent. The net result is that the weighted average duty rate is 29 percent in 2002-03.Although Indias tariff levels are significantly lower than in 1991, they remain among thehighest in the developing world because most other developing countries have also reducedtariffs in this period. The weighted average import duty in China and southeast Asia iscurrently about half the Indian level. The government has announced that average tariffs will 4 5. be reduced to around 15 percent by 2004, but even if this is implemented, tariffs in India willbe much higher than in China which has committed to reduce weighted average duties toabout 9 percent by 2005 as a condition for admission to the World Trade Organization.Foreign Direct InvestmentLiberalizing foreign direct investment was another important part of Indias reforms, drivenby the belief that this would increase the total volume of investment in the economy, improveproduction technology, and increase access to world markets. The policy now allows 100percent foreign ownership in a large number of industries and majority ownership in allexcept banks, insurance companies, telecommunications and airlines. Procedures forobtaining permission were greatly simplified by listing industries that are eligible forautomatic approval up to specified levels of foreign equity (100 percent, 74 percent and 51percent). Potential foreign investors investing within these limits only need to register withthe Reserve Bank of India. For investments in other industries, or for a higher share of equitythan is automatically permitted in listed industries, applications are considered by a ForeignInvestment Promotion Board that has established a track record of speedy decisions. In1993, foreign institutional investors were allowed to purchase shares of listed Indiancompanies in the stock market, opening a window for portfolio investment in existingcompanies.These reforms have created a very different competitive environment for Indias industrythan existed in 1991, which has led to significant changes. Indian companies have upgradedtheir technology and expanded to more efficient scales of production. They have alsorestructured through mergers and acquisitions and refocused their activities to concentrateon areas of competence. New dynamic firms have displaced older and less dynamic ones: ofthe top 100 companies ranked by market capitalization in 1991, about half are no longer inthis group. Foreign investment inflows increased from virtually nothing in 1991 to about 0.5percent of GDP. Although this figure remains much below the
levels of foreign directinvestment in many emerging market countries (not to mention 4 percent of GDP in China),the change from the pre-reform situation is impressive. The presence of foreignowned firmsand their products in the domestic market is evident and has added greatly to the pressureto improve quality.These policy changes were expected to generate faster industrial growth and greaterpenetration of world markets in industrial products, but performance in this respect has beendisappointing. As shown in Table 1, industrial growth increased sharply in the first five yearsafter the reforms, but then slowed to an annual rate of 4.5 percent in the next five years.Export performance has improved, but modestly. The share of exports of goods in GDPincreased from 5.7 percent in 1990-91 to 9.7 percent, but this reflects in part an exchangerate depreciation. Indias share in world exports, which had declined steadily since 1960,increased slightly from around 0.5 percent in 1990-91 to 0.6 percent in 1999-2000, but muchof the increase in world market share is due to agricultural exports. Indias manufacturedexports had a 0.5 percent share in world markets for those items in 1990 and this rose toonly 0.55 percent by 1999. Unlike the case in China and southeast Asia, foreign directinvestment in India did not play an important role in export penetration and was insteadoriented mainly towards the domestic market.One reason why export performance has been modest is the slow progress in loweringimport duties that make India a high cost producer and therefore less attractive as a base forexport production. Exporters have long been able to import inputs needed for exports at zeroduty, but the complex procedure for obtaining the necessary duty-free import licensestypically involves high transactions cost and delays. High levels of protection compared withother countries also explains why foreign direct investment in India has been much moreoriented to the protected domestic market, rather than using India as a base for exports.However, high tariffs are only part of the explanation for poor export performance. Thereservation of many potentially exportable items for production in the small scale sector(which has only recently been relaxed) was also a relevant factor. The poor quality of Indiasinfrastructure compared with infrastructure in east and southeast Asia, which is discussedlater in this paper, is yet another. 5 6. Inflexibility of the labor market is a major factor reducing Indias competitiveness in exportsand also reducing industrial productivity generally (Planning Commission, 2001). Any firmwishing to close down a plant, or to retrench labor in any unit employing more than 100workers, can only do so with the permission of the state government, and this permission israrely granted. These provisions discourage employment and are especially onerous forlaborintensive sectors. The increased competition in the goods market has made labormore willing to take reasonable positions, because
lack of flexibility only leads to firms losingmarket share. However, the legal provisions clearly remain much more onerous than in othercountries. This is important area of reform that has yet to be addressed. The lack of anysystem of unemployment insurance makes it difficult to push for major changes in laborflexibility unless a suitable contributory system that is financially viable can be put in place.The government has recently announced its intention to amend the law and raise the level ofemployment above which firms have to seek permission for retrenchment from 100 workersat present to 1000 while simultaneously increasing the scale of retrenchment compensation.However, the amendment has yet to be enacted.These gaps in the reforms provide a possible explanation for the slowdown in industrialgrowth in the second half of the 1990s. It can be argued that the initial relaxation of controlsled to an investment boom, but this could have been sustained only if industrial investmenthad been oriented to tapping export markets, as was the case in east Asia. As it happened,Indias industrial and trade reforms were not strong enough, nor adequately supported byinfrastructure and labor market reforms to generate such a thrust. The one area which hasshown robust growth through the 1990s with a strong export orientation is softwaredevelopment and various new types of services enabled by information technology likemedical transcription, backup accounting, and customer related services. Export earnings inthis area have grown from $100 million in 1990-91 to over $6 billion in 2000-01 and areexpected to continue to grow at 20 to 30 percent per year. Indias success in this area is oneof the most visible achievements of trade policy reforms which allow access to imports andtechnology at exceptionally low rates of duty, and also of the fact that exports in this areadepend primarily on telecommunications infrastructure, which has improved considerably inthe post-reforms period.Reforms in AgricultureA common criticism of Indias economic reforms is that they have been excessively focusedon industrial and trade policy, neglecting agriculture which provides the livelihood of 60percent of the population. Critics point to the deceleration in agricultural growth in the secondhalf of the 1990s (shown in Table 2) as proof of this neglect.5 However, the notion that tradepolicy changes have not helped agriculture is clearly a misconception. The reduction ofprotection to industry, and the accompanying depreciation in the exchange rate, has tiltedrelative prices in favor of agriculture and helped agricultural exports. The index of agriculturalprices relative to manufactured products has increased by almost 30 percent in the past tenyears (Ministry of Finance, 2002, Chapter 5). The share of Indias agricultural exports inworld exports of the same commodities increased from 1.1 percent in 1990 to 1.9 percent in1999, whereas it had declined in the ten years before the reforms.But while agriculture has benefited from trade policy changes, it has suffered
in otherrespects, most notably from the decline in public investment in areas critical for agriculturalgrowth, such as irrigation and drainage, soil conservation and water management systems,and rural roads. As pointed out by Gulati and Bathla (2001), this decline began much beforethe reforms, and was actually sharper in the 1980s than in the 1990s. They also point outthat while public investment declined, this was more than offset by a rise in privateinvestment in agriculture which accelerated after the reforms. However, there is no doubtthat investment in agriculturerelated infrastructure is critical for achieving higher productivityand this investment is only likely to come from the public sector. Indeed, the rising trend inprivate investment could easily be dampened if public investment in these critical areas isnot increased.The main reason why public investment in rural infrastructure has declined is thedeterioration in the fiscal position of the state governments and the tendency for politicallypopular but inefficient and even iniquitous subsidies to crowd out more productive 6 7. investment. For example, the direct benefit of subsidizing fertilizer and underpricing waterand power goes mainly to fertilizer producers and high income farmers while having negativeeffects on the environment and production, and even on income of small farmers.6 A phasedincrease in fertilizer prices and imposition of economically rational user charges for irrigationand electricity could raise resources to finance investment in rural infrastructure, benefitingboth growth and equity. Competitive populism makes it politically difficult to restructuresubsidies in this way, but there is also no alternative solution in sight.Some of the policies which were crucial in promoting food grain production in earlier years,when this was the prime objective, are now hindering agricultural diversification. Governmentprice support levels for food grains such as wheat are supposed to be set on the basis of therecommendations of the Commission on Agricultural Costs and Prices, a technical bodywhich is expected to calibrate price support to reasonable levels. In recent years, supportprices have been fixed at much higher levels, encouraging overproduction. Indeed, publicfood grain stocks reached 58 million tons on January 1, 2002, against a norm of around 17million tons! The support price system clearly needs to be better aligned to market demand iffarmers are to be encouraged to shift from food grain production towards other products.Agricultural diversification also calls for radical changes in some outdated laws. TheEssential Commodities Act, which empowers state governments to impose restrictions onmovement of agricultural products across state and sometimes even district boundaries andto limit the maximum stocks wholesalers and retailers can carry for certain commodities, wasdesigned to prevent exploitive traders from diverting local supplies to other areas of scarcityor from hoarding supplies to raise prices. Its consequence is
that farmers and consumersare denied the benefit of an integrated national market. It also prevents the development ofmodern trading companies, which have a key role to play in the next stage of agriculturaldiversification. The government has recognized the need for change and recently removedcertain products -- including wheat, rice, coarse grains, edible oil, oilseeds and sugar -- fromthe purview of the act. However, this step may not suffice, since state governments may beable to take similar action. What is needed is a repeal of the existing act and centrallegislation that would make it illegal for government authorities at any level to restrictmovement or stocking of agricultural products (Planning Commission, 2001).The report of the Task Force on Employment has made comprehensive proposals forreview of several other outdated agricultural law (Planning Commission, 2001b). Forexample, laws designed to protect land tenants, undoubtedly an important objective, end updiscouraging marginal farmers from leasing out nonviable holdings to larger farmers for fearof being unable to reclaim the land from the tenant. The Agricultural Produce Marketing Actsin various states compel traders to buy agricultural produce only in regulated markets,making it difficult for commercial traders to enter into contractual relationships with farmers.Development of a modern food processing sector, which is essential to the next stage ofagricultural development, is also hampered by outdated and often contradictory laws andregulations. These and other outdated laws need to be changed if the logic of liberalization isto be extended to agriculture.Infrastructure DevelopmentRapid growth in a globalized environment requires a well-functioning infrastructure includingespecially electric power, road and rail connectivity, telecommunications, air transport, andefficient ports. India lags behind east and southeast Asia in these areas. These serviceswere traditionally provided by public sector monopolies but since the investment needed toexpand capacity and improve quality could not be mobilized by the public sector, thesesectors were opened to private investment, including foreign investment. However, thedifficulty in creating an environment which would make it possible for private investors toenter on terms that would appear reasonable to consumers, while providing an adequaterisk- return profile to investors, was greatly underestimated. Many false starts anddisappointments have resulted.The greatest disappointment has been in the electric power sector, which was the first areaopened for private investment. Private investors were expected to produce electricity forsale to the State Electricity Boards, which would control of transmission and distribution. 7 8. However, the State Electricity Boards were financially very weak, partly because electricitytariffs for many categories of consumers were too low and also because very large amountsof power were lost in transmission and distribution. This loss, which should be
between 10 to15 percent on technical grounds (depending on the extent of the rural network), varies from35 to 50 percent. The difference reflects theft of electricity, usually with the connivance of thedistribution staff. Private investors, fearing nonpayment by the State Electricity Boardsinsisted on arrangements which guaranteed purchase of electricity by state governmentsbacked by additional guarantees from the central government. These arrangementsattracted criticism because of controversies about the reasonableness of the tariffsdemanded by private sector power producers. Although a large number of proposals forprivate sector projects amounting to about 80 percent of existing generation capacity wereinitiated, very few reached financial closure and some of those which were implemented raninto trouble subsequently.7Because of these difficulties, the expansion of generation capacity by the utilities in the1990s has been only about half of what was targeted and the quality of power remained poorwith large voltage fluctuations and frequent interruptions.The flaws in the policy have now been recognized and a more comprehensive reform isbeing attempted by several state governments. Independent statutory regulators have beenestablished to set tariffs in a manner that would be perceived to be fair to both consumersand producers. Several states are trying to privatize distribution in the hope that this willovercome the corruption which leads to the enormous distribution losses. However, thesereforms are not easy to implement. Rationalization of power tariffs is likely to be resisted byconsumers long used to subsidized power, even though the quality of the power provided inthe prereform situation was very poor. The establishment of regulatory authorities that arecompetent and credible takes time. Private investors may not be able to enforce collection ofamounts due or to disconnect supply for non-payment without adequate backing by thepolice. For all these reasons, private investors perceive high risks in the early stages andtherefore demand terms that imply very high rates of return. Finally, labor unions areopposed to privatization of distribution.These problems are formidable and many state governments now realize that a great deal ofpreliminary work is needed before privatization can be successfully implemented.8 Some ofthe initial steps, like tariff rationalization and enforcing penalties for non-payment of dues andfor theft of power, are perhaps best implemented within the existing public sector frameworkso that these features, which are essential for viability of the power sector, are not attributedsolely to privatization. If the efforts now being made in half a dozen states succeed, it couldlead to a visible improvement within a few years.The results in telecommunications have been much better and this is an important factorunderlying Indias success in information technology. There was a false start initiallybecause private investors offered
excessively high license fees in bidding for licenses whichthey could not sustain, which led to a protracted and controversial renegotiation of terms.Since then, the policy appears to be working satisfactorily. Several private sector serviceproviders of both fixed line and cellular services, many in partnership with foreign investors,are now operating and competing with the pre-existing public sector supplier. Teledensity,which had doubled from 0.3 lines per 100 population in 1981 to 0.6 in 1991, increasedsevenfold in the next ten years to reach 4.4 in 2002. Waiting periods for telephoneconnections have shrunk dramatically. Telephone rates were heavily distorted earlier withvery high long distance charges cross-subsidizing local calls and covering inefficiencies inoperation. They have now been rebalanced by the regulatory authority, leading to areduction of 30 percent in long distance charges. Interestingly, the erstwhile public sectormonopoly supplier has aggressively reduced prices in a bid to retain market share.Civil aviation and ports are two other areas where reforms appear to be succeeding, thoughmuch remains to be done. Two private sector domestic airlines, which began operationsafter the reforms, now have more than half the market for domestic air travel. However,proposals to attract private investment to upgrade the major airports at Mumbai and Delhihave yet to make visible progress. In the case of ports, 17 private sector projects involvingport handling capacity of 60 million tons, about 20 percent of the total capacity at present, 8 9. are being implemented. Some of the new private sector port facilities have set highstandards of productivity.Indias road network is extensive, but most of it is low quality and this is a major constraintfor interior locations. The major arterial routes have low capacity (commonly just two lanes inmost stretches) and also suffer from poor maintenance. However, some promising initiativeshave been taken recently. In 1998, a tax was imposed on gasoline (later extended to diesel), the proceeds of which are earmarked for the development of the national highways, stateroads and rural roads. This will help finance a major program of upgrading the nationalhighways connecting Delhi, Mumbai, Chennai and Calcutta to four lanes or more, to becompleted by the end of 2003. It is also planned to levy modest tolls on these highways toensure a stream of revenue which could be used for maintenance. A few toll roads andbridges in areas of high traffic density have been awarded to the private sector fordevelopment.The railways are a potentially important means of freight transportation but this area isuntouched by reforms as yet. The sector suffers from severe financial constraints, partly dueto a politically determined fare structure in which freight rates have been set excessively highto subsidize passenger fares, and partly because government ownership has led to wastefuloperating practices. Excess staff is currently estimated at around 25 percent. Resources aretypically spread thinly to respond
to political demands for new passenger trains at the cost ofinvestments that would strengthen the capacity of the railways as a freight carrier. TheExpert Group on Indian Railways (2002) recently submitted a comprehensive program ofreform converting the railways from a departmentally run government enterprise to acorporation, with a regulatory authority fixing the fares in a rational manner. No decisionshave been announced as yet on these recommendations.Financial Sector ReformIndias reform program included wide-ranging reforms in the banking system and the capitalmarkets relatively early in the process with reforms in insurance introduced at a later stage.Banking sector reforms included: (a) measures for liberalization, like dismantling thecomplex system of interest rate controls, eliminating prior approval of the Reserve Bank ofIndia for large loans, and reducing the statutory requirements to invest in governmentsecurities; (b) measures designed to increase financial soundness, like introducing capitaladequacy requirements and other prudential norms for banks and strengthening bankingsupervision; (c) measures for increasing competition like more liberal licensing of privatebanks and freer expansion by foreign banks. These steps have produced some positiveoutcomes. There has been a sharp reduction in the share of non-performing assets in theportfolio and more than 90 percent of the banks now meet the new capital adequacystandards. However, these figures may overstate the improvement because domesticstandards for classifying assets as non-performing are less stringent than internationalstandards.Indias banking reforms differ from those in other developing countries in one importantrespect and that is the policy towards public sector banks which dominate the bankingsystem. The government has announced its intention to reduce its equity share to 33-1/3percent, but this is to be done while retaining government control. Improvements in theefficiency of the banking system will therefore depend on the ability to increase the efficiencyof public sector banks.Skeptics doubt whether government control can be made consistent with efficientcommercial banking because bank managers are bound to respond to political directions iftheir career advancement depends upon the government. Even if the government does notinterfere directly in credit decisions, government ownership means managers of public sectorbanks are held to standards of accountability akin to civil servants, which tend to emphasizecompliance with rules and procedures and therefore discourage innovative decision making.Regulatory control is also difficult to exercise. The unstated presumption that public sectorbanks cannot be shut down means that public sector banks that perform poorly are regularlyrecapitalized rather than weeded out. This obviously weakens market discipline, since moreefficient banks are not able to expand market share. 9
10. If privatization is not politically feasible, it is at least necessary to consider intermediate stepswhich could increase efficiency within a public sector framework (see for example Ahluwalia2002). These include shifting effective control from the government to the boards of thebanks including especially the power to appoint the Chairman and Executive Directors whichis at present with the government; removing civil servants and representatives of theReserve Bank of India from these board; implementing a prompt corrective action frameworkwhich would automatically trigger regulatory action limiting a banks expansion capability ifcertain trigger points of financial soundness are breeched; and finally acceptance of closureof insolvent public sector banks (with appropriate protection for small depositors). Unlesssome initiatives along these lines are taken, it is highly unlikely that public sector banks canrise to the levels of efficiency needed to support rapid growth.Another major factor limiting the efficiency of banks is the legal framework, which makes itvery difficult for creditors to enforce their claims. The government has recently introducedlegislation to establish a bankruptcy law which will be much closer to accepted internationalstandard. This would be an important improvement but it needs to be accompanied byreforms in court procedures to cut the delays which are a major weakness of the legalsystem at present.Reforms in the stock market were accelerated by a stock market scam in 1992 that revealedserious weaknesses in the regulatory mechanism. Reforms implemented includeestablishment of a statutory regulator; promulgation of rules and regulations governingvarious types of participants in the capital market and also activities like insider trading andtakeover bids; introduction of electronic trading to improve transparency in establishingprices; and dematerialization of shares to eliminate the need for physical movement andstorage of paper securities. Effective regulation of stock markets requires the developmentof institutional expertise, which necessarily requires time, but a good start has been madeand Indias stock market is much better regulated today than in the past. This is to someextent reflected in the fact that foreign institutional investors have invested a cumulative $21billion in Indian stocks since 1993, when this avenue for investment was opened.An important recent reform is the withdrawal of the special privileges enjoyed by the UnitTrust of India, a public sector mutual fund which was the dominant mutual fund investmentvehicle when the reforms began. Although the Unit Trust did not enjoy a governmentguarantee, it was widely perceived as having one because its top management wasappointed by the government. The Trust had to be bailed out once in 1998, when its netasset value fell below the declared redemption price of the units, and again in 2001 when theproblem recurred. It has now been decided that in future investors in the Unit Trust of Indiawill bear the full risk of any loss in
capital value. This removes a major distortion in thecapital market, in which one of the investment schemes was seen as having a preferredposition.The insurance sector (including pension schemes), was a public sector monopoly at the startof the reforms. The need to open the sector to private insurance companies wasrecommended by an expert committee (the Malhotra Committee) in 1994, but there wasstrong political resistance. It was only in 2000 that the law was finally amended to allowprivate sector insurance companies, with foreign equity allowed up to 26 percent, to enterthe field. An independent Insurance Development and Regulatory Authority has now beenestablished and ten new life insurance companies and six general insurance companies,many with well-known international insurance companies as partners, have startedoperations. The development of an active insurance and pensions industry offering attractiveproducts tailored to different types of requirements could stimulate long term savings andadd depth to the capital markets. However, these benefits will only become evident overtime.PrivatizationThe public sector accounts for about 35 percent of industrial value added in India, butalthough privatization has been a prominent component of economic reforms in manycountries, India has been ambivalent on the subject until very recently. Initially, thegovernment adopted a limited approach of selling a minority stake in public sector 10 11. enterprises while retaining management control with the government, a policy described asdisinvestment to distinguish it from privatization. The principal motivation was to mobilizerevenue for the budget, though there was some expectation that private shareholders wouldincrease the commercial orientation of public sector enterprises. This policy had very limitedsuccess. Disinvestment receipts were consistently below budget expectations and theaverage realization in the first five years was less than 0.25 percent of GDP compared withan average of 1.7 percent in seventeen countries reported in a recent study (see Davis et.al.2000). There was clearly limited appetite for purchasing shares in public sector companies inwhich government remained in control of management.In 1998, the government announced its willingness to reduce its shareholding to 26 percentand to transfer management control to private stakeholders purchasing a substantial stake inall central public sector enterprises except in strategic areas.9 The first such privatizationoccurred in 1999, when 74 percent of the equity of Modern Foods India Ltd. (a public sectorbread-making company with 2000 employees), was sold with full management control toHindustan Lever, an Indian subsidiary of the Anglo-Dutch multinational Unilever. This wasfollowed by several similar sales with transfer of management: BALCO, an aluminiumcompany; Hindustan Zinc; Computer Maintenance Corporation; Lagan Jute MachineryManufacturing Company; several hotels; VSNL, which was
until recently the monopolyservice supplier for international telecommunications; IPCL, a major petrochemicals unit andMaruti Udyog, Indias largest automobile producer which was a joint venture with SuzukiCorporation which has now acquired full managerial controls.The privatization of Modern Foods and BALCO generated some controversy, not so muchon the principle of privatization, but on the transparency of the bidding process and thefairness of the price realized. Subsequent sales have been much less problematic andalthough the policy continues to be criticized by the unions, it appears to have beenaccepted by the public, especially for public sector enterprises that are making losses or notdoing well. However, there is little public support for selling public sector enterprises that aremaking large profits such as those in the petroleum and domestic telecommunicationssectors, although these are precisely the companies where privatization can generate largerevenues. These companies are unlikely to be privatized in the near future, but even so,there are several companies in the pipeline for privatization which are likely to be sold andthis will reduce resistance to privatizing profit-making companies.10An important recent innovation, which may increase public acceptance of privatization, is thedecision to earmark the proceeds of privatization to finance additional expenditure on socialsector development and for retirement of public debt. Privatization is clearly not a permanentsource of revenue, but it can help fill critical gaps in the next five to ten years while longerterm solutions to the fiscal problem are attempted. Many states have also started privatizingstate level public sector enterprises. These are mostly loss making enterprises and areunlikely to yield significant receipts but privatization will eliminate the recurring burden offinancing losses.Social Sector Development in Health and EducationIndias social indicators at the start of the reforms in 1991 lagged behind the levels achievedin southeast Asia 20 years earlier, when those countries started to grow rapidly (Dreze andSen, 1995). For example, Indias adult literacy rate in 1991 was 52 percent, compared with57 percent in Indonesia and 79 percent in Thailand in 1971. The gap in social developmentneeded to be closed, not only to improve the welfare of the poor and increase their incomeearning capacity, but also to create the preconditions for rapid economic growth. While thelogic of economic reforms required a withdrawal of the state from areas in which the privatesector could do the job just as well, if not better, it also required an expansion of publicsector support for social sector development.Much of the debate in this area has focused on what has happened to expenditure on socialsector development in the post-reform period. Dev and Moolji (2002) find that centralgovernment expenditure on towards social services and rural development increased from7.6 percent of total expenditure in 1990-91 to 10.2 percent in 2000-01, as shown in
Table 4.As a percentage of GDP, these expenditures show a dip in the first two years of the reforms, 11 12. when fiscal stabilization compulsions were dominant, but there is a modest increasethereafter. However, expenditure trends in the states, which account for 80 percent of totalexpenditures in this area, show a definite decline as a percentage of GDP in the postreforms period. Taking central and state expenditures together, social sector expenditurehas remained more or less constant as a percentage of GDP.Closing the social sector gaps between India and other countries in southeast Asia willrequire additional expenditure, which in turn depends upon improvements in the fiscalposition of both the central and state governments. However, it is also important to improvethe efficiency of resource use in this area. Saxena (2001) has documented the manyproblems with existing delivery systems of most social sector services, especially in ruralareas. Some of these problems are directly caused by lack of resources, as when the bulk ofthe budget is absorbed in paying salaries , leaving little available for medicines in clinics oressential teaching aids in schools. There are also governance problems such asnonattendance by teachers in rural schools and poor quality of teaching.Part of the solution lies in greater participation by the beneficiaries in supervising educationand health systems, which in turn requires decentralization to local levels and effectivepeoples participation at these levels. Nongovernment organizations can play a critical rolein this process. Different state governments are experimenting with alternative modalities buta great deal more needs to be done in this area.While the challenges in this area are enormous, it is worth noting that social sector indicatorshave continued to improve during the reforms. The literacy rate increased from 52 percent in1991 to 65 percent in 2001, a faster increase in the 1990s than in the previous decade, andthe increase has been particularly high in the some of the low literacy states such as Bihar,Madhya Pradesh, Uttar Pradesh and Rajasthan.ConclusionsThe impact of ten years of gradualist economic reforms in India on the policy environmentpresents a mixed picture. The industrial and trade policy reforms have gone far, though theyneed to be supplemented by labor market reforms which are a critical missing link. The logicof liberalization also needs to be extended to agriculture, where numerous restrictionsremain in place. Reforms aimed at encouraging private investment in infrastructure haveworked in some areas but not in others. The complexity of the problems in this area wasunderestimated, especially in the power sector. This has now been recognized and policiesare being reshaped accordingly. Progress has been made in several areas of financialsector reforms, though some of the critical issues relating to government ownership of thebanks remain to be addressed. However, the outcome in the fiscal area shows a worsesituation at
the end of ten years than at the start.Critics often blame the delays in implementation and failure to act in certain areas to thechoice of gradualism as a strategy. However, gradualism implies a clear definition of the goaland a deliberate choice of extending the time taken to reach it, in order to ease the pain oftransition. This is not what happened in all areas. The goals were often indicated only as abroad direction, with the precise end point and the pace of transition left unstated tominimize oppositionand possibly also to allow room to retreat if necessary. This reducedpolitically divisive controversy, and enabled a consensus of sorts to evolve, but it also meantthat the consensus at each point represented a compromise, with many interested groupsjoining only because they believed that reforms would not go too far. The result was aprocess of change that was not so much gradualist as fitful and opportunistic. Progress wasmade as and when politically feasible, but since the end point was not always clearlyindicated, many participants were unclear about how much change would have to beaccepted, and this may have led to less adjustment than was otherwise feasible.The alternative would have been to have a more thorough debate with the objective ofbringing about a clearer realization on the part of all concerned of the full extent of changeneeded, thereby permitting more purposeful implementation. However, it is difficult to saywhether this approach would indeed have yielded better results, or whether it would havecreated gridlock in Indias highly pluralist democracy. Instead, India witnessed a haltingprocess of change in which political parties which opposed particular reforms when in 12 13. opposition actually pushed them forward when in office. The process can be aptly describedas creating a strong consensus for weak reforms!Have the reforms laid the basis for India to grow at 8 percent per year? The main reason forbeing optimistic is that the cumulative change brought about is substantial. The slow pace ofimplementation has meant that many of the reform initiatives have been put in place recentlyand their beneficial effects are yet to be felt. The policy environment today is thereforepotentially much more supportive, especially if the critical missing links are put in place.However, the failure on the fiscal front could undo much of what has been achieved. Boththe central and state governments are under severe fiscal stress which seriously underminestheir capacity to invest in certain types of infrastructure and in social development where thepublic sector is the only credible source of investment. If these trends are not reversed, itmay be difficult even to maintain 6 percent annual growth in the future, let alone accelerateto 8 percent. However, if credible corrective steps are taken on the fiscal front, then thecumulative policy changes that have already taken place in many areas, combined withcontinued progress on the unfinished agenda, should make it possible for India to accelerateto well beyond 6 percent growth over the next few
years.Acknowledgements The views expressed in this article are those of the author and do not necessarilyreflect the views of either the International Monetary Fund or the Government of India.Thanks are due to Suman Bery, Ashok Gulati, Deena Khatkhate, Arvind Panagariya,Parthasarathi Shome, TN Srinivasan, Nicholas Stern and Timothy Taylor. 13 14. ReferencesAhluwalia, Isher J., Productivity and Growth in Indian Manufacturing, Oxford UniversityPress, New Delhi 1991.Ahluwalia, Isher J., Industrial Growth in India: Stagnation since the mid-sixties, OxfordUniversity Press, New Delhi, 1995.Ahluwalia, Montek S., Indias Economic Reforms: An Appraisal, in Jeffrey Sachs andNirupam Bajpas (eds.), India in the Era of Economic Reform, Oxford University Press,New Delhi, 2000.____________, State Level Performance Under Economic Reforms in India, in, by Anne Krueger (ed.), Chicago University Press (forthcoming).____________, Indias Vulnerability to External Crises: An Assessment, in Macro-economics and Monetary Policy: Issues for a Reforming Economy, Montek S. Ahluwalia,Y.V. Reddy and S.S. Tarapore (editors), Oxford University Press (forthcoming).Bhagwati, J., and Srinivasan, T.N., Outward-Orientation on Development: Are theRevisionists Right, in Trade, Development and Political Economy, by Deepak Lal andRichard Snape eds. Palgrave, 2001.Chaudhuri, Sudip, Economic Reforms and Industrial Structure in India, Economic andPolitical Weekly, January 12, 2002.Davis, Jeffrey, Rolando Ossowski, Thomas Richardson, and Steven Barnett, Fiscal andMacroeconomic Impact of Privatization, IMF Occasional Paper 194, (2000).Dev, Mahendra S., and Jos Mooli, Social Sector Expenditures in the 1990s: Analysis ofCentral and State Budgets, Economic and Political Weekly, March 2, 2002.Dreze, Jean, and Amartya Sen, Economic Development and Social Opportunities, OxfordUniversity Press, New Delhi (1995).Expert Group on Indian Railways, The Indian Railways Report 2001 Policy Imperatives forReinvention and Growth, NCAER/IDFC (2001).Gulati, Ashok, and Seema Bathla, Capital Formation in Indian Agriculture: Revisiting theDebate, Economic and Political Weekly, May 19-25, 36:20, pp.1697-1708.Ministry of Finance Economic Survey 2001-02, New Delhi 2002.Nambiar, R.G., B.L. Mumgekar, and G.A. Tadas, Is Import Liberalization Hurting DomesticIndustry and Employment? Economic and Political Weekly, February 13, 1999.Parikh , Kirit S, Social Infrastructure : an important Physical Infrastucture. Chapter 7 ofIndia Development Report, Oxford University Press 2002.Planning Commission, Report of the Advisory Group on Tax Policy and Tax Administrationfor the Tenth Plan, 2001a.____________, Report of the Task Force on Employment Opportunities, 2001b.Prime Ministers Economic Advisory Council Economic Reforms: A Medium-TermPerspective.Rodrik, Dani, Making Openness Work: The New Global Economy and the
DevelopingCountries, Washington, D.C. The Overseas Development ____ 1999.Saxena, N.C., Improving Effectiveness of Government Programmes: An Agenda of Reformfor the 10th Plan, paper presented at a conference on Fiscal Policies to Accelerate Growth,organized by the World Bank, New Delhi, May 8, 2001, available at www.fiscalconf.org.Stern, Nicholas, Building a Climate for Investment, Growth and Poverty Reduction in India,in A Strategy for Development, published by World Bank (2001). 14 15. Table 1 Indias Growth Performance (Percent per year) Total GDP Sectoral Growth of GDP . Growth Agriculture Industry Services 197072 to 1980-81 (average) 3.2 2.0 4.0 7.2 1981-82 to 1990-91 5.7 3.8 7.0 6.7 (average) 1991-92 1.3 -1.1 -1.0 4.8 1992-93 5.1 5.4 4.3 5.4 1993-94 5.9 3.9 5.6 7.7 1994-95 7.3 5.3 10.3 7.1 1995-96 7.3 -0.3 12.3 10.5 1996-97 7.8 8.8 7.7 7.2 1997-98 4.8 -1.5 3.8 9.8 1998-99 6.5 5.9 3.8 8.3 1999-2000 6.1 1.4 5.2 9.5 2000-01 4.0 0.1 6.6 4.8 2001-02* 5.4 5.7 3.3 6.5 1992-93 to 1996-97 6.7 4.6 8.0 7.6 (average) 1997-98 to 2001-02 5.4 2.3 4.5 7.8 (average)Source: Economic Survey 2001-02, Ministry of Finance, Government of India, 2002. Growthrates for 2001-02 are projections of the Ministry of Finance based on partial information. 15 16. Table 2 Major Macro-Economic Indicators (percentages of GDP) Combined Gross Savings Gross Capital Formation Fiscal Deficit Private Public Private Public of Central and Sector Sector Sector Sector State Govts. 1990-91 9.4 22.0 1.1 14.7 9.3 1991-92 7.0 20.1 2.0 13.1 8.8 1992-93 7.0 20.2 1.6 15.2 8.6 1993-94 8.3 21.9 0.6 13.0 8.2 1994-95 7.1 23.2 1.7 14.7 8.7 1995-96 6.5 23.1 2.0 18.9 7.7 1996-97 6.4 21.5 1.7 14.7 7.0 1997-98 7.3 21.8 1.3 16.0 6.6 1998-99 8.9 22.6 -1.0 14.8 6.6 1999-00 9.4 24.0 -0.9 16.1 7.1 2000-01 9.6 25.1 -1.7 15.8 7.1 Note: Public sector capital formation minus public sector savings does not equal the fiscal deficit because the definition of public sector for estimate of savings and capital formation includes non-departmental enterprises. Estimates of public sector savings and capital formation distinguishing general government from non- departmental enterprises are not readily available for recent years. Table 3 Weighted Average Import Duty Rates in India All Commodities Peak Customs Duty 1/ No. of Basic Duty Rates 2/1991-92 72.5 150 221992-93 60.6 110 201993-94 46.8 85 161994-95 38.2 65 161995-96 25.9 50 121996-97 24.6 52* 9199798 25.4 45* 81998-99 29.2 45* 71999-00 31.4 40 72000-01 35.7 38.5 52001-02 35.1 35 42002-03 29.0 30 4Source: Report of the Task Force on Employment, Planning Commission 2000.Estimates for 2002-03 have been provided by Archana Mathur of the PlanningCommission. 1/ Includes the impact of surcharges in the years indicated by *. In 2000-01, duties formany agricultural products were raised above the general peak in anticipation of theremoval of QRs. This explains why the average for all commodities exceeds the peakrate in 2001-02. 2/ Refers to ad
valorem duty rates. Some items attract a specific duty and these are notincluded as separate duty rates. 16 17. Table 4 Public Expenditure on Social Sector and Rural Development (Percentage of GDP) Central Government State Government 1990-91 1.42 5.98 1991-92 1.25 5.85 1992-93 1.29 6.72 1993-94 1.49 5.57 1994-95 1.49 6.27 1995-96 1.54 5.33 199697 1.56 5.13 1997-98 1.60 5.18 1998-99 1.67 5.41 1999-00 1.59 6.06 2000-01 1.58 5.46 Source: Dev and Moolji (2002).1 This approach reflects to some extent the revisionist view of the role of trade policy reforms being expressedinternationally as for example by Rodrik (1999). For a critique of the revisionist view, see Bhagwati andSrinivasan (2001).2 An increase in public savings will have some negative effect on private savings as for example, when highertax revenues lead to a reduction in disposable income in the private sector which in turn reduces private savingsbut the net effect will still be positive.3 Many countries have increased revenues substantially by switching to an integrated value-added tax coveringboth goods and services. This is not possible in India because of the constitutional division of taxation powersbetween the center (which can tax production) and the states (which can tax sales). The inability to switch to anintegrated value-added tax is a major hindrance to tax reform.4 The sharp increase in average duty rates in 2000 01 reflects the imposition of tariff on many agriculturalcommodities in anticipation of the removal of quantitative restrictions. Since these items were protected byquantitative restrictions in the mid-1990s, the combined protection provided by tariffs and quantitativerestrictions was probably higher in the mid-1990s.5 Indias reforms are often unfavorably compared with the very different sequencing adopted in China, whichbegan with reforms in agriculture in 1978, extending them to industry only in 1984. The comparison is notentirely fair since Chinese agriculture faced an extremely distorted incentive structure, with virtually no role formarkets, which provided an obvious area for high priority action with potentially large benefits. Since Indianagriculture operated to a much greater extent under market conditions, the situation was very different.6 Underpricing of water and fertilizer leads to excess usage and waterlogged soil. Free electricity enables largerfarmers to pump water from deep wells at relatively low cost. This encourages a much more water usingcropping pattern than would be optimal and also leads to overexploitation of ground water and lowering thewater table, which in turn hurts poorer farmers relying upon shallow wells.7 The best known of these was the Dabhol project of the Enron cooperation which became mired in controversybecause of the high cost of power from the project especially as a consequence of a pricing arrangement whichmeant that most of the tariff was U.S. dollar
denominated and that the risk of rupee depreciation against thedollar was borne by the buyer. 17 18. 8 These problems surfaced in a recent effort to privatize the distribution system in Delhi. The terms offered werepublicly criticised as being too generous because tariff setting was based on a relatively modest pace ofreduction in transmission and distribution losses. Nevertheless, all bids received were below the reserve priceset by the government. This was a consequence of several factors: information on the quality of assets and thefinancial position of the system was very poor; private investors were expected to take on the responsibility ofexcess staff with inadequate information on the costs of retrenchment; enforcement of payment anddisconnection for non-payment can create law and order problems in parts of the city; and there was lack ofregulatory certainty about the way tariffs would be set in future. These deficiencies inevitably led to very lowbids.9 The definition of strategic for this purpose covers enterprises related to defense, atomic energy, and therailways. This would exclude only a handful of the 232 public sector enterprises of the central government.10 The Ministry of Disinvestment in its website (http://www.divest.nic.in) has made a valiant effort at explainingthe case for privatizing even profit making companies on the grounds that government ownership makes itimpossible to achieve commercial efficiency. 18 Connect on LinkedIn Follow us on Twitter Find us on Facebook Find us on Google+ Learn About Us About Careers Our Blog Press Contact us Help & Support Using SlideShare SlideShare 101 Terms of Use Privacy Policy Copyright & DMCA Community Guidelines SlideShare on mobile Pro & more
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Indian Economy reforms Presentation Transcript

1. ECONOMIC REFORMS IN INDIA BY Shubham Goel 2. Period 1947- 1990 The historical discontinuity after independence The Plan strategy A nation building exercise The experiment with socialism 3. WHY ECONOMIC REFORMS A rate of growth of average 3.2 per cent High population growth denies a significant dent on poverty A huge public sector with minimum returns A protective private sector 4. WHO DID IT? These reforms (1990s) were brought in by a team led by Dr.Manmohan Singh, who was Finance Minister at the time, and is currently the Prime Minister. 5. Philosophy of Reforms To free the economy from the circumspection of socialist equity in the form of pervasive state control on production, low productivity, a distorted and dis-functional price system and a complacent over-protective private sector. To establish the supremacy of individual and the role of economic freedom 6. Perspective: year 1990-91 International reserve came down to $ 1.3 billion, less than 1 month import bill, and India was on the verge of default in foreign obligations [ short term debt] Stagnant exports Indias ratings down High deficits in domestic budget Public sector banks having large NPA PSU incurring huge losses 7. International Scene USSRs disintegration the currency trouble weakened Overall confusion on the efficacy of command economy Some east European countries came out of socialist economic structure Loss of credibility of the command economy as disturbing revelation came out on lower productivity and disinformation about planning
8. Role of IMF The Washington consensus about the transition economies Dismantle command economy structure Reduce the size of government Privatization of state undertakings Reduce and remove budget deficit Make currency stable and current account convertible 9. Mechanism Dismantling of the license and permit raj so that the rent-seeking system is abolished Minimize the role of the state in production except in some core and strategic areas Reform of the legal system to end monopoly of any group/ sector Financial sector reforms 10. Financial Sector Reforms Reforms--- change in the budgetary process makes the government accountable--- discipline in revenueexpenditure process Low inflation- low interest regime Changes in the banking sector making the system of bank credit more transparent_ efficient appraisal system and accountability for decision taking 11. Results of F.S. reforms Role of capital is appreciated and effort are on to make capital cheaper at par world standard More transparent estimate of the need for investment in the infrastructure sector--- how to mobilize the resources One estimate puts the requirement as $50 billion equivalent---- role of foreign direct investment as perceived by the government. Whether FDI is good for the country is no longer the issue 12. India Growth rates in 1990s 13. Growth Rates (% p.a) 1980s v/s 1990s 1980s (1983-1994) 1990s (1993-2000) Higher Growth in 1980s 1990s GDP Per Capita 2.9 4.9 Real Income Per Capita 3.1 4.2 Private Consumption p.c. 1.7 3.6 Private Consumption p.c. 1.2 1.3 Real Wages per worker All India 2.6 4.4 Rural 2.7 4.1 Agricultural Households 2.8 3.1 Agricultural Workers 2.4 3.1 Urban 2.2 4.9 Cost of Cultivation Survey 3.3 4.4 14. India__ international liquidity 15. The biggest drop in inflation % decrease in inflation 16. The fastest rise in incomes. % rise in per capita income 17. Real GDP growth rates of selected countries during 1990--- 2000 [ per cent] China 10.3 Ireland 7.3 India 6.0 USA 3.5 Japan 1.3 Russia -4.8 Ukraine -9.3 18. NEW GENERATION ECONOMIC REFORMS TELECOM Telecom sector opened up to the private sector and for foreign investors with 74% equity cap As many as 61 million new phones have been added since 1998-99 which is more than thrice the number of lines added in the preceding five decades INSURANCE Insurance sector was opened up in August 2000. Insurance Regulatory and Development Authority (IRDA) regulates the insurance business. 19. India in 2050 India will be the 3rd largest economy. ..with the highest growth rate of BRICs 20. Reform: Progress & Prospects Progress so far Prospects Infrastructure 4/10 Progress to be slow External Economy 7/10 Will
continue to shine Privatization 4/10 Selective disinvestment Labour Reforms 3/10 Unlikely under UPA Bureaucracy 3/10 No significant changes 21. Current position of Reforms The reforms process has been slowed down__ Reasons Inability to carry out reforms in some crucial sectors like legal infrastructure and education Resistance by interested groups Lack of political will Role of powerful bureaucracy as they feel threatened with diminutive public sector A section of corporate sector beneficiary of old system 22. Reforms slowed down? Low literacy message of reforms not reaching Lack of genuine administrative reforms at the grass-root levels Transparency in public policy lacking that creates credibility gap a breeding ground of violence 23. Need of the hour Reforms of the infrastructure sector Education_ universities Legal system A proper perspective of market mechanism Redefine the role of Government 24. Conclusion We are in the middle of the process of reforms. Only expectations about the better future 25. End of discussion THANK YOU

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