INDIAS EMERGENCE AS A GLOBAL

TRADE ECONOMY 1991 onwards

 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

COMPONENTS OF LIBERALIZATION

Trade Liberalization Industrial Liberalization

Fiscal Sector Reforms Financial Liberalization

1. Industrial Liberalization
Industrial Sector was among the first sectors to be liberalized in India in a series of measures. Industrial licensing has been abolished except in a small number of sectors where it has been retained on strategic considerations. The industrial policy reforms have substantially reduced the industrial licensing requirements

removed restrictions on expansion facilitated easy access to foreign technology and, foreign direct investment.

2. Trade Liberalization
Trade policy allowing domestic providers (of goods and/or services) to compete more freely in world markets and foreign providers to compete more freely in domestic markets. Trade liberalization promotes growth. As the first generation of trade reforms, consisting mainly of easing of border restrictions to merchandize trade and liberalization of foreign exchange markets, have been or are being implemented by the majority of developing countries The provision of greater access to markets, for both goods and service providers plays an equally major role in stimulating the access to foreign markets

3. Financial Liberalization
Financial liberalization (FL) refers to the deregulation of domestic financial markets and the liberalization of the capital account. In one view, it strengthens financial development and contributes to higher long-run growth. In another view, it induces excessive risktaking, increases macroeconomic volatility and leads to more frequent crises. FL leads to more rapid economic growth in middle-income countries (MIC), but does not have the same effect in lowincome countries (LIC)

In LIC liberalization does not lead to higher growth because their financial systems are not sufficiently developed so as to permit significant increases in leverage and financial flows

4. Fiscal Sector Reforms

India's fiscal sector reforms help to raise the rate of savings and investment in India. This further helps to enhance the productivity of public expenditures India has established itself as one of the fastest growing economies in the world. India is also advancing towards the economical growth and improvement in literacy. During 1999-2000, India's domestic savings and investment was estimated to grow by 23% and Indian economy was expected to grow by 6.4% although the average growth rate declined to 6.0% in comparison to earlier year.

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

Indian Foreign Exchange Reserves: a steady rise after liberalization

Foreign exchange reserves (US$ billion) 150 100

118.3 75.4 54.1 17.0

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

50

2.2
0 1990-91

DESTINATION INDIA after liberalization

India is one of the fastest growing economies in the world.
AT Kearneys 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)

CHALLENGES 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

What the Future Beholds???

BRIC Study of Goldman Sachs (2003) predicts that: INDIA WILL EXCEED Frances GDP in 2020 Germanys in 2025 Japans in 2035 TO BECOME THE 3RD LARGEST ECONOMY IN THE WORLD BY 2050

Import duty Reductions after liberalization

Reduction in Peak Customs Duties on Manufactured items
160 140

in per cent

120 100 80 60 40 20 0

150 110

50
1991 Mar-92 Mar-95

42
Mar-97

38.5
Mar-00

30
Mar-02

25
Mar-03

20
w.e.f March 2004

Rising share of Indias 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

in per cent

18.1

23.1

25.5

26.9

30.3

28.9

31.6

32

1991-92 1994-95 1997-98

19992000

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

INDIA AFTER TRADE LIBERALISATION IN VARIOUS

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

1,263,764 671,928

1992-93

1994-95

1996-97

1387276

1998-99

2000-01

2001-02

2002-03

2003-04

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)

RESEARCH & DEVELOPMENT facilities after liberalization

More than 100 global companies outsource R&D facilities from India GE John F Welch Technology Centre Companys 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 %.

Several World leaders have invested Business Processes & Industry in India after liberalization General Electric Citibank British Airways McKinsey American Express Accenture

Microsoft Dell
Sun Microsystems Pfizer

Intel Oracle
CISCO Dupont

Hewlett Packard IBM

Texas Instruments General Motors

Cummins

Honeywell

Monsanto

ENTERTAINMENT industry after Liberalization

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

HEALTHCARE industry after Liberalization

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 ESTATE after Liberalization

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

Worlds 6th largest consumer of Energy

Worlds 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.

Thank You