economic history : india inc. (‘70s – early ‘80s) family run business dominated - 95% majority...
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ECONOMIC HISTORY : INDIA INC.(70s early 80s) Family run business dominated - 95%Majority of Industry owned by Public SectorLicense and Red Tape bureaucracyWeak or nil project financing opportunitiesAbsence of Domestic marketBrain-drain
MACRO ECONOMIC CRISIS 1991Current Account Deficit: 3.2%Debt Service Payment % of Current Receipts: 35%Foreign Exchange Reserves: Down to 21/2 months Imports ($1 billion)Short term debt: 147% of ForEx reservesInflation: 17%GDP Growth:0.4%Economic Situation 1991: Possibility of Default on short term loans and down grading of Indias credit rating. In short : The Country faced a Fiscal and Economic Crisis
IS LIBERALISATION THE ANSWER?Yes?No?Maybe?If?
LIBERALISATION DEFINEDTrade liberalisation The process of systematically reducing and eventually eliminating all tariff and non-tariff barriers between countries as trading partners.
YES, LIBERALISATION IS THE ANSWERA Phased Approach to Liberalisation
YES, LIBERALISATION IS THE ANSWERTechnology is developing exponentially Legacy, monopoly systems are not scalable to meet demandsNeed for modern, scalable, future-proof infrastructure/servicesLiberalised market has the potential to move fast enough to meet demand
NO, LIBERALISATION IS NOT THE ANSWERIf not handled right, liberalisation can lead to bigger, badder problems
MAYBE LIBERALISATION IS THE ANSWERWhen the process is undertaken as a result of consultation between government, consumers, and the private sectorWhen national resources are protected, instead of permitted to become a hole through which vital capital leaks to other nationsWhen emphasis is placed on the development of in-country capacity e.g. Technology transfer components on International tenders
LIBERALISATION IS THE ANSWER IFContinuous review of goals/objectives with adjustments according to changes in the marketplaceNeighbouring countries harmonise policy on a regional/continental basisWeight and incidence of regulation is adjusted according to the stage of liberalisation
LPG PARADIGMPRE - 1991POST - 1991 LICENSING
L P G PARADIGM POST - 1991 RECENT POLICY CHANGES FROM 1991 ONWARDS INCLUDE:Progressive Liberalization and Privatization reforms Reduced reserved list of businesses for PSUIndustrialization of economyHuge growth of Domestic Industrial baseGovt. incentives to SSI (small scale industry)Export orientation with incentivesEconomic reforms opened up to foreign tradeLess restrictive rules for a low cost financeMore resources deployed for technology learning
STRUCTURAL CHANGES DRIVING GROWTHProgressively more sectors opened to private investment.Encouraged Foreign Direct Investment with equity stakeReduction in Red Tape and RegulationsIndustry license requirements( barriers to entry) reduced to encourage competition.Trade Policy liberalized.Capital Market Reforms
INDUSTRIAL POLICYDURING PRE-REFORMS LPG ERA LICENSING PREDOMINATEDDURING POST-REFORMS LPG ERA LICENSES REQUIRED ONLY FOR A FEW SELECT INDUSTRIES (CORE INDUSTRIES AND DEFENCE ENTERPRISES) GREATER AUTONOMY FOR PEs GREATER PRIVATE SECTOR OWNERSHIP
PRIVATISATION AND REGULATORY REFORMSFIRST GENERATION REFORMS UNDER IMPLEMENTATIONSECOND GENERATION REFORMS BEING FORMULATED AND IMPLEMENTED REFORMS POLICIES NEED TO INHERE COMPETITION PRINCIPLESNEED FOR FLEXIBILITY TO PROVIDE FOR NEEDS, ASPIRATIONS AND GOALS OF THE COUNTRY
TRADE POLICY REFORMSTHIS INCLUDES (ESSENTIALLY WTO RELATED)TARIFFSQUOTASEXPORT RESTRAINTS SUBSIDIESANTI-DUMPING ACTIONDOMESTIC CONTENT REGULATIONS TRADE POLICY NEEDS TO CONFORM TO COMPETITION PRINCIPLES
CONSTRUCTION SECTOR REFORMSFebruary 2005 Central Government Allows 100% Foreign Direct Investment in construction sector:HotelsResortHospitalsRecreationEducational InstitutionsHospitalsRegional InfrastructureApproval process streamlined with minimum hassles.
FINANCIAL SERVICES REFORMSBanking Reforms:Privatization of banking with growth in consumer creditGrowth of International banking institutions in IndiaCapital Market Reforms:Capital Markets maturingGrowth in private sector mutual fund industryGrowth in Foreign Institutional investors driven by liquid and deep stock market with promise of high returns (FII investment $45 billion 2005)Non-banking financial intermediary Reforms:Insurance sector privatized with major global insurance companies entering IndiaInsurance Premiums for 2005 approximately $70 billion Growth in Venture Capital and Private Equity Funds
GOVERNMENTAL POLICIES ON FDI(INDIA)After independence (1947) strategy of import substitution and local capability improvement FDI welcomed Late 60s and 70s restrictions on FDI During 80s FDI policy liberalized import of capital goods and technology eased, tariffs reduced, export oriented units exempted from foreign equity cap Post 1991 LPG era major track changes, liberal trade policy, capital market reforms, foreign exchange control relaxed and considerable increase in foreign equity cap, more industries opened for FDI and national treatment to foreign companies
GROWTH IN INDIAS SERVICE SECTOR- POST ECONOMIC REFORM ERA (1991)
FOREIGN DIRECT INVESTMENT TRENDSForeign Direct Investment:1990: $162 Million1992:$315 Million1999: $2.2 Billion2004: $4.5 Billion FDI steadily increased as investment regime progressively liberalized with less restrictions.Fewer restricted industriesEasing of investment processRemoval of Investment Caps and Repatriation
Investment Flows India: Private Equity
THEN AND TODAY: INDIA INC.Till 1995 India borrowed from IMFToday India loans to many countries & USIndia foreign currency reserve US$150 bn Small is not beautiful, think medium / large scale.India Inc. M&A in Eastern Europe, Latin America, South East Asia, African countries, Russia, China & US Example of growthIndia inc ordered 200 Aircraft (18 months) v/s 50 in 90sStock market index crossed 12,800 v/s 2900 in 91IT, Gems, Textile, Automobile industries grew at 35%
INDIAN INC. SCENARIO2005-2006SSIs - with 18 month order on handUS$ 15 bn worth equipments ordered by corporateNew recruitments (all segments) -9,000 new middle level managers35,000 Fresh MBAs375,000 Fresh engineers775,000 Fresh graduatesReverse brain drain335,000 people from various countries expressed their desire to work in India ( source- monster.com)