INDIA TRADE BEFORE & AFTER LIBERLISATION

PRESENTED BY GROUP 7

INDIA TRADE BEFORE LIBERLISATION

• 1980s, suggests that the root cause of the crisis was the large and growing fiscal imbalance. • Large fiscal deficits emerged as a result of mounting government expenditures, particularly during the second half of the 80s. • These fiscal deficits led to high levels of borrowing by the government from the Reserve Bank of India (RBI),IMF,World Bank.

• Over the 1980s, government expenditure in India grew at a phenomenal rate, faster than what government earns as a revenues. • The subsidies grew at a rate faster than government expenditures.

• Expenditure on subsidies rose from Rs.19.1 billion in 1980-81 to Rs. 107.2 billion in 1990-91. • Although, a large part of the problem concerning external imbalances in India could be attributed to extraneous developments, such as two oil-shocks during the last decade.

• • • • •

The Indian economy was indeed in deep trouble. Lack of foreign reserves . Gold reserve was empty. Before 1991, India was a closed economy. The government was close to default and its foreign exchange reserves had reduced to the point that India could barely finance three weeks’ worth of imports. The Government of India headed by Chandra Shekhar decided to usher in several reforms that are collectively termed as liberalisation in the Indian media with Man Mohan Singh whom he appointed as a special economical advisor.

License Raj was the regulations that were required to set up business in India between 1947-1990. where all aspects of the economy are controlled by the state and licenses were given to a select few. The License Raj is considered to have been dismantled in 1990. Ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors India still ranks in the bottom quartile of developing nations in terms of the ease of doing business compared to China.

Key players in the battle field of economy reforms
• Dr. Man Mohan Singh, a professional economist and an economic administrator, was appointed Finance Minister. Man Mohan Singh is undoubtedly the architect of the most far reaching reforms in India since independence in 1947. Government economists such as Dr. Arvind Virmani took upon themselves the task of clarifying the goals, objectives and methods of the reform package along with:C. Rangarajan, Montek Singh Ahluwalia, Shankar Acharya and Y. Venugopal Reddy.

• • • • •

The reforms brought changes in three broad areas, collectively known as liberalization, privatization and globalization. Liberalization did away with regulatory hurdles and minimized licensing requirements. Privatization reduced the role of the state and public sector in business. Globalization made it easier for the MNCs to operate in India. This policy was later continued by Prime minister P. V. Narasimha Rao, and he was fully supported by his finance minister Manmohan Singh and other officials such as C. Rangarajan, Montek Singh Ahluwalia, Shankar Acharya and Y. Venugopal Reddy.

• • •

INDIA TRADE AFTER LIBERLISATION

Changing Environment After 1991
• Opening up of the Indian Economy
– Before 1991 closed economy and import of certain goods was restricted. – After 1991 competition increased tremendously after the liberalisation. – Competitors from all over the world enter the Indian market

Competition from Low Wage Countries
– Low range products are floating into the market – Low price, low quality

DESTINATION INDIA after liberalization
 India is one of the fastest growing economies in the world.
 AT Kearney’s FDI Confidence Index Report – India has been upgraded to 6th most attractive destination worldwide in 2003 (from 15th in 2002)  In Services’ sector, India was ranked as the 4th most attractive destination (up from 14th place in 2002)

CH ALLE NG ES ahead
1. Governance  Need for elimination of large number of Rules & Regulations in the books  Sharply reducing the number of implementing agencies  Moving towards single window clearance (traders to submit regulatory

documents at a single location and/or single entity. Such documents are typically customs declarations, applications for import/export permits, and other supporting documents such as certificates of origin and trading invoices).

2.

Infrastructure: A Challenge and an opportunity Investments required upto 2012 – US$ 334 billion  Power Generation - US$ 143 billion  Power Transmission & Distribution – US$ 116 billion  Roads – US$ 40 billion  Ports – US$ 20 billion  Railways – US$ 15 billion

W ha t the Futu r e Behold s?? ?

BRIC Study of Goldman Sachs (2003) predicts that: INDIA WILL EXCEED  France’s GDP in 2020  Germany’s in 2025  Japan’s in 2035 TO BECOME THE 3RD LARGEST ECONOMY IN THE WORLD BY 2050

GDP growth at constant prices
9 8 7 6 5 4 3 2 1 0

8.2 6.1

8

in per cent

Average for 1993-2003

2003-04

10th Plan Projection (2002-07)

Indian Foreign Exchange Reserves: a steady rise after liberalization

Foreign exchange reserves (US$ billion) 150 100

118.3 54.1 75.4

50

2.2
0 1990-91

17.0
1995-96 2001-02 2002-03 2003-04

Foreign Investments after liberalization

18000 16000 14000 12000 10000 8000 6000 4000 2000 0

Total Foreign Investment (US$ million) US$ million

15,872

5,138 103
1990-91 1994-95

5,385

6,789

8,152 5,639

1997-98

2000-01

2001-02

2002-03

2003-04

Import duty Reductions after liberalization
Reduction in Peak Customs Duties on Manufactured items
160 140 120 100 80 60 40 20 0
1991 Mar-92 Mar-95 Mar-97 Mar-00 Mar-02 Mar-03 w.e.f March 2004

150 110 50

in per cent

42

38.5

30

25

20

Rising share of India’s external trade after liberalization
Total Exports in 2003-04 - US$ 61.8 Bn; Imports – US$ 75.2 Bn.  Assume target for exports for 2009 - US$150 Bn

Share of external trade in GDP
35 30 25 20 15 10 5 0

18.1

23.1

25.5

26.9

30.3

28.9

31.6

32

in per cent

1991-92 1994-95 1997-98

19992000

2000-01 2001-02 2002-03 2003-04

IN DIA A FTE R TRADE LIB ERALI SATIO N IN VARIO US

PHARMACEUTICALS INDUSTRY AFTER LIBERALISATION
 India is world's 4th largest pharmaceuticals producer with 8% share of global production.  3 New Molecules discovered by Indian companies - 12 more in the final stages.  Over 100 Indian formulations have received United States FDA approval

BIOTECH AFTER LIBERALISATION
 More than 900 companies involved in traditional biotech products  Biopharma products – 35 new MNC companies set up in past 5 years.  R&D and commercialization of products on agricultural biotechnology is the latest trend.  Opportunities for fresh investment in Indian biotech sector in next 5-7 years - US$ 1.5 – 2 billion

AGRI & FOOD PROCESSING AFTER LIBERALISATION

India is looking for investment in infrastructure, packaging and marketing.  India - One of the largest food producers of the world  The Indian scientific and research talent had boomed up after liberalization because of various MNC are investing big money in R&D.

AUTO & AUTO COMPONENTS AFTER LIBERALISATION  2nd largest small car market in the world.  Largest motorcycle manufacturer in the world.  2nd largest scooter and tractor manufacturer in the world.  Many international auto majors are manufacturing in India – Daimler Chrysler, General Motors, Toyota, Ford, Honda, Hyundai, Volkswagen, Suzuki etc  Most of them are also outsourcing their components from India as a hub.

Production of Automobiles (4 Wheelers) after Liberalization
4 Wheelers (in Nos)
1400000 1200000 1000000 800000 600000 400000 200000 0 1992-93 1994-95 1996-97 1387276 1998-99 2000-01 2001-02 2002-03 2003-04

1,263,764 671,928

Vehicle Exports after Liberalization
Vehicle Exports
4 Wheelers (in Nos)
600000 500000
In Nos.

2 and 3 Wheelers (in Nos)
332087

400000 300000 200000 100000 0

121140 146543 38230
1992-93 1994-95 1996-97 1998-99 2000-01
Year

STEEL Industry after Liberalization

Production and Export of Finished Steel Production (in million tonnes)
40 30 20 10 0

14.33 368
1991-92

17.82

23.82

Exports (in '000 tonnes) 36.19 6000 33.67 29.7 5200 5000 4506 4000
3000 2000 1000 0

1994-95

1998-99

2000-01

2002-03

2003-04 (Provisional)

RESE ARCH & D EVEL OPME NT f acili ties afte r l ib eraliza tio n
More than 100 global companies outsource R&D facilities from India  GE John F Welch Technology Centre – Company’s largest research outfit outside the US  GE Medical Systems – India as sole sourcing base for its portable ultrasound scanner  Monsanto – First non-US research facility  Eli Lilly – largest research facility in Asia and 3rd largest in the world  Texas Instruments – Digital Signal Processor developed in India – controls 50% of the world market  AVL, Austria – India as base to do R&D for the company.

IT & IT ENABLED SERVICES after Liberalization
 Compounded annual growth rate (CAGR) exceeding 50 % over the last five years  IT enabled services key driver of growth. Engine for outsourcing  This segment poised to grow very rapidly, world-wide - India has potential to tap 38 % of the world market.  Revenues from ITeS (remote services) showed an annual growth rate of 68.2 %.

Se veral Wor ld l eader s h ave investe d Busin ess P rocesses & In dustr y i n In dia a ft er l ib eraliza tio n General British American Electric Airways Express Citibank McKinsey Accenture Microsoft Dell Sun Microsystems Pfizer Cummins Intel Oracle CISCO Dupont Honeywell Hewlett Packard IBM Texas Instruments General Motors Monsanto

ENT ER TAINME NT in dustr y aft er Liberaliza tion
 Industry growing at 15% - Total industry valued at US$ 4.267 billion in 2003  Expected to reach US$ 9.4 billion by 2008  Largest producer of films and enterntainment content in the world - More than 1000 films produced in 2003-04  Co-production treaties being signed with UK, Canada, China and Italy,USA (Time Warner,Universal,Goldmyn Mayor).  Animation and gaming – one of the fastest growing sectors  Animation and special effects for SPIDERMAN and GLADIATOR done in India

HE ALTH CARE in dustr y aft er Liberaliza tion
 Size of the Healthcare industry - over US$22 billion  Sector employs over 60 lakh people  One of the fastest growing sectors in India - expected to grow at 12-13% per annum.  Over 80% of healthcare spending is captured by private sector & MNC.  Investment Potential : 750,000 extra beds over the next 10 years at a cost of approximately US$30 billion.

REAL ES TATE a fte r L iberaliza tion
 Real estate development market size - US$ 12 billion – growing at 30% annually  Of this US$10 billion is Residential, Rest Office, Shopping Malls, Hotels and Hospitals.  India ranks 5th amongst 30 emerging retail markets  Return on investment in Indian metros : Shopping Malls :10-12%; Office segment : 9-11% Residential Segment : 4-8% FDI in Real Estate  100% FDI permitted in Integrated Townships

OIL & GAS after liberalization
 World’s 6th largest consumer of Energy  World’s 8th largest consumer of Oil  Demand for Petroleum Products expected to be 179 MT by 2006-07.  Investments of US$ 150 Billion required to meet ongoing demand. More than US$ 6 Billion already committed for exploration and development work over next few years  Liberalized Govt policies on exploration, production, refining, distribution, marketing and pipelines for private sector participation.  100% FDI allowed for exploration and laying pipelines.

POWER after Liberalization
 By 2012 • Peak Demand (Expected) – 1,57,000 MW • Proposed Capacity Addition – 1,00,000 MW  Estimated Investment for National Grid Development – US$ 20 Billion  Up-to 100% FDI allowed in projects relating to electricity generation, transmission and distribution (other than atomic reactor power plants).

PORTS & ROADS after Liberalization
Roads  Investments of US$12 Billion proposed for National Highway Development Project.  100% FDI under allowed in projects for construction and maintenance of roads, highways, vehicular bridges, toll roads . Sea-Ports  7517 Km of Coastline dotted by 12 major and 185 minor ports. 100% FDI permitted in Construction, maintenance and support services for ports. 100% Tax Holiday for 10 years for enterprises in developing, maintaining and operating ports, inland waterways, etc. International Container Transshipment Terminal planned in Kochi Port.

AIRPORTS after liberalization
 Projection 2010: International Passenger Traffic – 26 Million; Domestic Passenger Traffic – 40 Million; Cargo Movement – 1.8 Million tones.  FDI up-to 74% (up-to 100% with Special Permission) allowed in ventures for airports.  FDI up-to 49% and NRI Investment up-to 100% permitted in Domestic Airport Services.

Thank You

BOP
• The balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Balance of payments is one of the major indicators of a country's status in international trade, with net capital outflow.

FISCAL DEFICIT
• • A budget deficit occurs when an entity (often a government) spends more money than it takes in. The opposite is a budget surplus. An accumulated deficit over several years (or centuries) is referred to as the government debt. Often, a certain part of spending is dedicated to paying of debt with certain maturity, which can be refinanced by issuing new government bonds. That is, a fiscal deficit leads to an increase in an entity's debt to others. A deficit is a flow. And a debt is a stock. Debt is essentially an accumulated flow of deficits. Since debt is the total amount one owes, a deficit can also be defined as the amount by which a debt grows or a savings decreases. For instance, prior to the Second Gulf War, many Americans confused debt and deficit, believing that the United States government still had a massive deficit; in fact, the government had a sizable surplus. The deficit was gone, but the debt was still being paid down. Because the United States government counts money it collects through its Social Security program as income, many people had also become accustomed to the notion that the deficit was far larger than it actually was, yet, even removing Social Security funds, there was a surplus. (Although the Social Security program currently collects income, the money is considered "owed" to the people who pay into the program.)