Economic Liberalization in India

Past Achievements and Future Challenges

6 August 2011

© Confederation of Indian Industry

 Economic Reforms

• The early burst of reforms in the early to mid nineties made sweeping changes such as

• Reduction in tariff barriers

• Removal of barriers to entry in industry
• Removal of controls in the financial sector
• Encouragement to foreign investment and technology
• Rationalization of tax structure

• These have ensured macroeconomic stability and driven the economy towards greater
competitiveness

• These measures have also helped India in emerging as a resurgent, vibrant and
dynamic nation, leading global growth

• India is the second fastest growing economy in the world after China
• India was able to withstand the repercussion of the global economic crisis
• India’s participation is required in all global negotiations ranging from global trade to
climate related deals
 CII’s Role

• Post-1991, CII worked on multiple fronts to facilitate liberalization:

• Engaged with administration to calibrate policies to sequence reforms and minimize
industry adjustment pains
• Sensitized officials and Members of Parliament for reforms through sustained
interaction
• Worked with industry to build consensus recommendations
• Organized seminars to disseminate awareness among industry
• Interacted persuasively with different stakeholders across society to create buy-in

• Globalisation was a key plank of CII’s endeavours since 1991. Some of CII’s pioneering
initiatives that helped industry to align with global imperatives include:

• Arranging outward missions through networking with international governments,

industry associations, institutes and academia for opening new avenues for Indian
industry
• Initiating Quality Movement in India; Sundaram Fasteners first company to get
ISO9000 certification (1991)
• Organising exhibitions/shows to showcase Indian products
• Initiating debate on key economy/ industry issues
• Laying thrust on Corporate Governance: Developing Code of Corporate Governance
 Robust GDP Growth
GDP
6000.0 12.0%
• GDP has surged from 5.7% during

9.6%
9.5%

9.3%
1991-00 to 7.7% during 2001-11

8.5%

8.5%
5000.0 10.0%

8.0%

8.0%
7.5%

Y -O-Y Grow th (% )
7.3%
(R s. 000' C rore)

6.8%
6.7%
6.4%
6.4%
4000.0 8.0%

5.8%
5.7%
5.4%
5.3%

4.4%
4.3%
3000.0 6.0%

3.8%
2000.0 4.0%
1.4%

1000.0 2.0%

0.0 0.0%
1991
1992

1995

1999
2000

2002

2005

2007

2010
1993
1994

1996
1997
1998

2001

2003
2004

2006

2008
2009

2011
GDP GDP Growth Rate

Per Capita Income

7.8%
8.0%
7.8%
7.1%

7.1%
45,000 9.0%

6.8%

6.5%
• Per Capita Income has more than 8.0%

5.9%
40,000

Y-O-Y Growth (%)

5.3%
5.1%
35,000 7.0%
doubled from Rs. 15,826 in 1991

4.7%
4.5%

4.1%
6.0%

3.8%
3.8%
30,000
to Rs. 41,129 in 2011; has been
3.4%
5.0%
(R s.)

25,000

2.5%
2.4%

2.1%
increasing at an average annual 20,000
4.0%
3.0%
rate of about 7% since 2004 15,000 2.0%
-0.5%

10,000 1.0%
5,000 0.0%
- -1.0%

2005
2006
2007
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004

2008
2009
2010
2011
Per Capita Income Growth in Per Capita Income

Source: Economic survey 2010-11 and CSO

 Structural Change in GDP Composition
Com position of GDP (1991 v/s 2011)

Agriculture, 16.6%

2011 34.0%
42.7% 1991

Services, 57.7%

Industry, 25.7%

23.2%

• GDP has undergone a marked structural change over a span of two decades
• Agriculture contribution has shrunk to 16.6% in 2011 from 34.0% in 1991
• Share of tertiary sector has increased commendably, in fact is becoming
engine of growth
• Flat growth in Secondary sector is however, a cause of worry given the
reducing employment elasticity of agricultural sector

Source: Economic survey 2010-11 and CSO

 Savings and Investment (as % of GDP)

3,000 45.0%

38.1%
35.7%
34.7%

34.5%
40.0%

32.8%
2,500

30.8% 33.7%
35.0%

29.8% 27.6%

36.9%
26.2%
26.0%

25.9%
25.5%

25.3%

25.2%
24.3%
24.0%

34.6%
2,000 30.0%

23.3%
23.1%

22.8%

33.5%
22.5%

Y-O-Y Growth (%)

22.1%

32.4%

32.2%
(Rs. 000' Crore)

25.0%
1,500

26.3%
24.8%
24.4%

24.4%
20.0%

23.8%

23.7%

23.5%
22.8%

22.7%

22.3%
21.9%
21.5%

21.2%
1,000 15.0%

10.0%
500
5.0%

- 0.0%
1991

1993

1994

1995

1997

1998

1999

2000

2001

2002

2003

2004

2006

2007

2008

2010
1992

1996

2005

2009
Savings Investment Savings as % of GDP Investment as % of GDP

• Savings as a proportion of GDP moved up by more than ten percentage points

from 22.8% in 1991 to 33.7% in 2010

• Investment to GDP ratio also jumped from 26.0% to 30.8%, however expected
to declined to 29.5% in 2011 due to rising interest rate

Source: Economic survey 2010-11 and CSO

 Merchandise and Service Trade
Merchandise Trade

380.9
400.0

308.5
350.0 Merchandise exports soared to cross

300.6
US$250 bn in 2011 from US$ 18.5 bn in

257.6
300.0

1991, about 14 fold increase

250.5
250.0

190.7
(US$ Billion)

157.1
200.0

189.0

182.2
166.2
118.9
150.0 • Service exports went up to US$132 bn in

128.9
80.0

105.2
2011 from mere US$ 4.6 bn in 1991,

64.5
100.0

57.9

56.3
55.4
51.2

85.2
48.9

47.5
43.7
35.9

66.3
26.7
27.9

registering a CAGR of 18.3%

24.3
21.1

53.8
50.0

44.7
45.5
37.5
35.7

34.3
34.1
32.3
26.9
22.7
18.9
18.5

18.3

0.0 • Backed by robust exports of IT and

1991

1992

1993

1994

1995

1996

1997

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2010

2011
1998

2009
ITes services; close to $60 billion in
Merchandise Exports Merchandise Imports
2010-11

• Merchandise and Service imports grown

Service Trade at a CAGR of about 14.0% and 17.1%

132.0
150.0
respectively
130.0 • Faster rise in imports over exports

106.0
have undoubtly widened trade deficit

95.8
110.0
90.3 yet it has helped in keeping global
90.0
73.8
(US$ Billion)

demand alive in the wake of the global

84.3
57.7

70.0 economic crisis

60.0
43.2

• Trade as a proportion of GDP has

52.0
51.5

50.0
44.3
26.9

increased magnificently from 9.0% in

34.5
20.8
17.1
16.3
15.7

27.8

30.0
13.2

1991 to 87.9% in 2011

9.4

16.7
17.1
7.3

7.5
6.1

14.6
5.3

13.8
5.0

4.7
4.6

11.6
11.0

10.0
8.1
7.5

6.7
5.5
4.7
3.6
3.6

3.8
1993

1994

1995

1996

1998

1999

2001

2003

2004

2006

2008

2011

-10.0
1991

1992

1997

2000

2002

2005

2007

2009

2010

Service Exports Service Imports

Source: RBI
 FDI Inflows

157.8%
40000 180.0%

35000 160.0%

140.0%

FDI as % of Total Foreign Inflows

30000

102.5%
97.0%
94.2%
120.0%
25000

83.7%

76.5%
US$ Million

75.2%
100.0%

66.1%
20000

59.3%
56.4%

56.1%

53.8%
80.0%

49.1%
46.0%
43.8%

41.6%

41.8%
15000

39.4%
60.0%

27.5%
25.6%
10000

14.1%
40.0%
5000 20.0%

0 0.0%
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011
FDI Inflow s As % of Total foreign Investment Inflow s

• FDI inflows have grown multiple fold from just US$ 97 mn in 1991 to US$ 30.4
bn with an average annual compound growth rate of 33.3%

• FDI inflows as a proportion of total foreign investment inflows has fallen from
157.8% in 2008-09 to 49.1% in 2011 due to faster rise in portfolio investment

• Indian companies have made an outward investment totaling US$80 billion in

the first decade of the century mostly in developed economies

Source: RBI
 SENSEX

Trends in Capital Market - SENSEX ans BSE 100

21,000.0

18,000.0

15,000.0

12,000.0

9,000.0

6,000.0

3,000.0

0.0 1995
1991

1993

1997

1999

2001

2003

2005

2007

2009

2011
SENSEX BSE 100

• Steps taken over the last two decades have resulted into maturing of nascent
financial market. Further, robust economic growth and fast pace of
globalization has led to buoyant investors’ sentiment

• SENSEX has increased from a level of 1908.9 in 1991 to 18518.2 in 2011 at

a CAGR of 12.0%

Source: BSE, bseindia.com

 Move Towards Inclusive Growth

• While the first phase of reforms had unleashed economic growth, it was felt
that the benefits of growth must be more equitably distributed

• Starting 2005, the UPA government has shifted the focus to inclusive
growth through greater allocation to socially beneficial schemes and
programmes

• Total Plan Allocation increased markedly from Rs. 9.6 thousand crore in
1991 to Rs. 335.5 thousand crore in 2011-12, nearly 35 fold increase

Some flagship schemes

• Bharat Nirman - Total Budget allocation for 2011-12: Rs. 58,000 crore
• NREGA - Total Budget allocation for 2011-12: Rs. 40,000 crore
• JNNURM - Total Budget allocation for 2011-12: Rs. 49 crore

Source: Budget and Government Sources

 CII’s Initiative on Socio Responsibilities

• Corporate Social Responsibility

• Set up Social Development and Community Affairs Council in 1995
• Developed Action Agenda for Affirmative Action and worked to generate
awareness and intensify industry efforts
• Facilitates industry interventions in society through NGO partnerships
• Undertakes public health and community welfare activities in factories
• Spearheaded the India Business Trust for HIV/AIDS

• Environment Management
• Set up Environment Management Division after Rio Summit in 1992
• Initiated Green Building movement in India through its Centre of Excellence
Green Business Center
• Engages in climate change mitigation efforts
 Social indicators
Literacy Rates • Overall literacy rate has gone up from just
over half to almost three-quarters during
100.0% 1991 and 2011
82.1%
80.0% 74.0% • Literacy level among female folk which
64.1% 65.5%
52.2%
constitutes about half of the population
60.0%
39.3% has nearly doubled
40.0%
20.0% • Among young people, the rates are higher
0.0% as the Right to Education law kicks in
Overall Males Females

1991 2011
Source: Economic Survey

Poverty Estimates

40.0% 35.6% 37.0%

35.0%
35.0%
• Overall, poverty has declined by eight 30.0% 27.5% 28.3%
25.7%
percentage points from as high as 35.6% in 25.0%

1991 to 27.5% in 2005 20.0%

15.0%
• Decline was more pronounced in urban areas 10.0%
as compared to rural areas 5.0%
• Urban poverty fell by double digits. Rural 0.0%
Total Rural Urban
poverty came down by seven percentage
points
1991 2005
Source: Planning Commission
 Major Plans for Infrastructure Development

Sector Deficit Eleventh Plan (2007-12) Targets

65,590 km of NH comprise only 2% of

network; carry 40% of traffic; 12% 4- 6-lane 6,500 km in GQ; 4-lane 6,736 km
Roads/ laned; 50% 2-laned; and 38% single- NS-EW; 4-lane 20,000 km; 2-lane 20,000
Highways laned km; 1,000 km Expressway

Inadequate berths and rail/road New capacity: 485 m MT in major ports; 345
Ports connectivity m MT in minor ports

Inadequate runways, aircraft handling

capacity, parking space and terminal Modernize 4 metro and 35 non-metro
Airports buildings airports; 10 greenfield airports

Old technology; saturated routes; slow 8,132 km new rail; 7,148 km gauge
speeds (freight: 22 kmph; passenger: 50 conversion; modernize 22 stations;
Railways kmph) dedicated freight corridors

13.8% peaking deficit; 9.6% energy

shortage; 40% transmission and
distribution losses; absence of Add 78,577 MW; access to all rural
Power competition households

Source: Planning Commission

 Power and Road
Installed Capacity in Power Sector: All India
Installed Capacity: Power • Total installed capacity has more than doubled
180,000.0 during 1991 and 2011
153,774.8
160,000.0 • Even after 20 years, thermal power remained the
140,000.0 most dominant form
120,000.0 • There is a need to change the present composition
100,000.0
in favour of hydro, nuclear and other bio-produce
power to conserve coal for industrial purposes
MW

80,000.0 66,086.3
60,000.0

40,000.0

20,000.0

-
1991 2011
Source: CMIE, Industry Analysis Service

Road Length
Road Length
• Public-private-multilateral partnerships have
4,500.0 4,236.4
been successful in implementing highways
4,000.0
programme
3,500.0
• NHAI to award 7,994 km of highway projects 3,000.0
in the FY 2012 2,500.0 2,327.4
( 000' Km)

• Going to generate demand for cement, steel, 2,000.0

and bitumen of worth Rs 42,000 crore 1,500.0
• Though the sectoral performance has 1,000.0
improved, yet to be enhanced considerably 500.0
to ensure optimal utilization of resources and -
to avoid overrunning of cost 1991 2008

Source: Ministry of Road, Transport and Highways

 Steel and Telecom
Finished
Finished Steel Production
Steel Production • Steel production has surged nearly five fold
in last 20 years
70,000.0 66,013.0

60,000.0 • India fourth largest steel producer in the

50,000.0 world and is expected to become the
second largest producer by 2013
40,000.0
(000' Tonnes)

• Steel production capacity to touch 120

30,000.0 Million Tonnes by 2013 and over 150
20,000.0 13,566.0 Million Tonnes by 2020
10,000.0
-
1991 2011
Source: CMIE, Industry Analysis Service

Telecom
Telecom Subscriber Base

900.0 826.9
• Private sector participation has lead to sharp 800.0
reduction in tariffs and rapid increase in 700.0
penetration of basic/mobile telephones 600.0
• Registering a CAGR of 29.0% during 1991 500.0
(Millions)

and 2011 400.0

• Teledensity improved from 0.6 (per 100 300.0

person) in 1991 to 66.2 twenty years later 200.0
100.0 5.1
0.0
1991 2011
Source: Department of Telecommunications, Ministry of Communications and Information
Technology
 Challenges

• High inflation level above comfortable zone – 9.4% in June 2011

• Industrial slow down – IIP has grown by 5.6% in May 2011 as compared to 8.5% in May 2010

• Falling investment - 30.8% in 2010 to 29.5% in 2011

• High interest rates have impacted credit to MSMEs in manufacturing sector as well as key
industries – Non food credit growth to MSMEs declined from 21.1% in April, 2010 to 20.6% in April,
2011

• Inadequate infrastructure continues to be a major structural bottleneck

• Shrink in FDI inflows due to structural bottlenecks – In 2010-11, FDI inflows shrunk by 28% to
US$ 27 billion from a level of US$ 38 billion in 2009-10

• Weak enforcement and monitoring

• Likely overshooting of fiscal deficit – Though fiscal deficit is budgeted at 4.6% for FY 2012,
however, developments in recent months like deceleration in growth, high crude oil prices, high subsidy
and rising interest rates are casting doubts
 Agenda for further reforms
• Investment Climate:
• FDI in sectors such as retail, insurance, defence, etc needs to be expanded drastically
• Rapid clearance of large projects

• Financial Sector Reforms:

• Liberalize financing guidelines
• Facilitate increased access to international debt markets
• Encourage development of the corporate debt market

• Agriculture Sector Reforms:

• Allow FDI in food retailing to integrate distorted supply chain
• Encouragement to PPP model in strengthening agriculture research and extension programmes
• Exempting horticulture produce from APMC Act
• Move towards unified national market and allow free movement of produce

• Infrastructure:
• For greater investment in infrastructure policy framework needs to be made more friendly

• Social Sector:
• Much better delivery of government services to the poor with the support of state governments

CII has been a strong partner to government during the reforms period and will
continue to build the partnership of Government and industry to make India a
developed nation in the next two decades
Thank You