EMERGENCE OF NEW INDIA

Opportunities & Challenges

Suneel GuptaAssociate ProfessorGHS-IMR, Kanpur

““Study the past if you would Study the past if you would divine the future”divine the future”

- - ConfuciusConfucius

First wave

First wave Second Wave Third Wave

Value added

Up to 1750 Agriculture Revolution Land-Cattle

1750-1950

Industrial Relation

Physical Facilities

Industrial relation

Knowledge & Information

First wave-Resource richSecond wave-Skill richThird Wave – Knowledge rich

““A study of Marx and Lenin produced a A study of Marx and Lenin produced a powerful effect on my mind……The practical powerful effect on my mind……The practical

achievements of the Soviet Revolution advanced achievements of the Soviet Revolution advanced human society by a great leap and had lit a human society by a great leap and had lit a bright flame which could not be smothered bright flame which could not be smothered

and………It had laid the foundations for that and………It had laid the foundations for that new civilization towards which the world could new civilization towards which the world could

advance.”advance.”

- The Discovery of India, Nehru- The Discovery of India, Nehru

Economic PoliciesEconomic Policies

100% 50%50

100%Communism Socialism

Mixed Economy

MercantIlismCAPITALISM

State ControlCentral planningLicenses,Permits & quotasPublic SectorSocial bankingState TradingFree EducationFree Health Care

No industrial policy & controlNo planningNo licensesOnly private sectorCommercial bankingPrivate tradingPaid educationPaid healthcare

Economic MythEconomic Myth1947 - 19911947 - 1991

Economic self – relianceEconomic self – reliance Protection to domestic industryProtection to domestic industry Public sector is for public goodPublic sector is for public good Controls are required for orderly economic Controls are required for orderly economic

growthgrowth Distribution is more important than creationsDistribution is more important than creations Markets do not allocate resources efficientlyMarkets do not allocate resources efficiently Capitalism and imperialism are sameCapitalism and imperialism are same

The Vicious Cycle of Under DevelopmentThe Vicious Cycle of Under Development

Low Savings & Investments

Low Productivity

Low averageIncome

Low pace of capital accumulation

Successful development requires tasking requires taking steps to Break the chain at many points

The Socialist SinsThe Socialist Sins

The myth of self sufficiencyThe myth of self sufficiency Pin to an aero planePin to an aero plane No focus on No focus on

comparative advantagecomparative advantage The myth of public sectorThe myth of public sector

Commanding heightsCommanding heights Rs. 1,13,000 crores Rs. 1,13,000 crores

investmentinvestment The myth of free lunchThe myth of free lunch

Massive subsidiesMassive subsidies Lack of accountabilityLack of accountability

The myth of protectionThe myth of protection Inefficient IndustriesInefficient Industries High pricesHigh prices

The myth of central The myth of central planningplanning Misallocation of Misallocation of

scarce resourcesscarce resources Low capital Low capital

productivityproductivity

`̀Before 1947Before 1947 1947-911947-91 After-1991After-1991

No Industrial No Industrial LicensingLicensing

Industrial LicensingIndustrial Licensing

DGTD(1950)DGTD(1950)

AbolitionAbolition

Of industrial licencingOf industrial licencing

No MRTPCANo MRTPCA MRTPCA(1969)MRTPCA(1969) Dilution of MRTPCADilution of MRTPCA

(Presently competition (Presently competition Act.)Act.)

No FERANo FERA FERA (1974)FERA (1974) Dilution of FERADilution of FERA

Now FEMANow FEMA

No Public sector, No Public sector, subsidiessubsidies

Expansion of PSU, Expansion of PSU, SubsidiesSubsidies

Disinvestment of PSUDisinvestment of PSU

Banking & Insurance Banking & Insurance in Pvt sectorin Pvt sector

Nationalization of Nationalization of Bank(1969)Bank(1969)

Pvt Bank & Insurance Pvt Bank & Insurance CompaniesCompanies

Before 1947Before 1947 1947-911947-91 After 1991After 1991

No meddling in No meddling in education no UGCeducation no UGC

UGCUGC

Subsidies for higher Subsidies for higher educationeducation

Ignorance of primary Ignorance of primary and secondary and secondary educationeducation

Education reformsEducation reforms

Simple corporate lawSimple corporate law Extremely complex Extremely complex company lawcompany law

Company Law Company Law reforms(emphasis on reforms(emphasis on corporate governance)corporate governance)

Free marketFree market Planned EconomyPlanned Economy Free marketFree market

Pre 1991Pre 1991 Post-1991Post-1991

Socialist frame workSocialist frame work Market oriented Frame Market oriented Frame workwork

Protecting the local Protecting the local economyeconomy

Competition for local Competition for local EconomyEconomy

Neglecting the consumerNeglecting the consumer Focus on the Consumer Focus on the Consumer

Licence permitLicence permit

-Quota -Raj-Quota -Raj

Economic LiberalizationEconomic Liberalization

Current Economic Scenario

ECONOMIC REFORMS Allocative Power – Shift from state to market

Earlier

Planning commission

Not always based on economic criteriaAdministrative pricesBuilt in SubsidiesUnsound criteriaSerious distortion

Price

Credit rating

Functional market

Now

Better allocative efficiencyFree pricingNo free lunchSelf correcting mechanismPower of market of market disciplineTransport system

Economic ReformsPhase –1(1991-96)

Maro economic stabilization

Dismantling regulation

Fiscal reforms

Direct taxes

Indirect taxes

Capital market reforms

Banking reform

Forex reform

One way globalization

Economic ReformsPhase –II(1991-Continuing)

Infrastructure

TransportEnergyCommunication

Insurance sector

Labor laws

Bankruptcy Law

PSU Privatization

State-level Economic reforms

Subsidies Education

Economic ReformsPhase –III( 2005 onwards)

Education sector

Downsizing the govt.

Privatization of govt. department

Two way globalization

Reduction of public debt

Reduction of external debt

4735

7 135 1 1 5 2 4 10 60

1020

3040

50

Sa

Privatization

Disinvestment

Sale of equity in no of companies

0

200

400

600

800

1000

1200

1400

1600

1985-86

1986-87

1987-88

1988-89

1989-90

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

Series1

Value added by industry

Rs. Bill

Net Value added

Strategic Implication for next few years

Compete forces will come into full play Both global and domesticCommercial, Utilities and not for profit

Export oriented firm will grow while import-intensive/import –substitution unit will have to struggle a lot

Economic of scale will go up significantly, SSI sector And medium scale unit have a tough time ahead

Strategic Implication for next few years

The relative importance of govt. in economic management will sharply decline

Privatization of PSU and infrastructure

Financial sector reforms

Tax and company law reform

MNCs will be on the rise. Weak Indian firms will have to be reorganized trough merger, alliance and closers

ECONOMIC HISTORY 0F INDIAECONOMIC HISTORY 0F INDIA

THE DECADE OF PLANNING: 1947-56THE DECADE OF PLANNING: 1947-56 THE DECADE OF CONSOLIDATION: 1957-6THE DECADE OF CONSOLIDATION: 1957-6 THE DECADE OF STAGNATION:1967-76THE DECADE OF STAGNATION:1967-76 THE DECADE OD DEREGULATION:1977-1986THE DECADE OD DEREGULATION:1977-1986 THE YEARS OF LIBERALISATION-I:1987-92THE YEARS OF LIBERALISATION-I:1987-92 THE YEARS OS LIBERALISATION- II: 1993-97THE YEARS OS LIBERALISATION- II: 1993-97 THE YEARS OF GLOBALISATION:1998-02THE YEARS OF GLOBALISATION:1998-02

SWOT analysis of Indian SWOT analysis of Indian Business EnvironmentBusiness Environment

StrengthStrength

Huge pool of labour forceHuge pool of labour force High percentage of cultivable landHigh percentage of cultivable land Huge English speaking population, availability of skilled Huge English speaking population, availability of skilled

manpowermanpower Stable economy,does not get affected by external changesStable economy,does not get affected by external changes Extensive higher education systemExtensive higher education system Abundant natural resourcesAbundant natural resources Rapid growth in IT sectorRapid growth in IT sector

WeaknessWeakness

High percentage of population in AgricultureHigh percentage of population in Agriculture One fourth of population below povertyOne fourth of population below poverty High Unemployment and equityHigh Unemployment and equity Low productivity and high populationLow productivity and high population Low level of mechanization and literacy Low level of mechanization and literacy Inequality and rural urban divideInequality and rural urban divide Poor InfrastructurePoor Infrastructure

OpportunitiesOpportunities Scope of entry of private firms in various sectors of Scope of entry of private firms in various sectors of

businessbusiness Inflow of FDI likely to increase in every sectorInflow of FDI likely to increase in every sector Huge forex earning in IT &ITES sectorHuge forex earning in IT &ITES sector Investment in R&D, biotecthnologyInvestment in R&D, biotecthnology Huge population of Indian Diaspora abroadHuge population of Indian Diaspora abroad Huge domestic marketHuge domestic market Huge natural gas reserveHuge natural gas reserve Vast forest area and diverse wildlifeVast forest area and diverse wildlife Huge agricultural resources,fishing plantation crop & Huge agricultural resources,fishing plantation crop &

livestocklivestock

ThreatsThreats

High fiscal deficitHigh fiscal deficit Government interventionGovernment intervention Volatility in crude oil prices across the worldVolatility in crude oil prices across the world Growing import billGrowing import bill High growth rate of populationHigh growth rate of population Agriculture extremely dependent on mansoonAgriculture extremely dependent on mansoon

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