340118 indian trade liberal is at ion

8/4/2019 340118 Indian Trade Liberal is at Ion

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INDIAS EMERGENCE AS A GLOBAL

TRADE ECONOMY 1991 onwards


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1980s, suggests that the root cause of the crisis was thelarge and growing fiscal imbalance.

Large fiscal deficits emerged as a result of mountinggovernment expenditures, particularly during the second

half of the 80s.

These fiscal deficits led to high levels of borrowing by thegovernment from the Reserve Bank of India(RBI),IMF,World Bank.


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Over the 1980s, government expenditure in India grew ata phenomenal rate, faster than what government earns asa revenues.

The subsidies grew at a rate faster than governmentexpenditures.

Expenditure on subsidies rose from Rs.19.1 billion in1980-81 to Rs. 107.2 billion in 1990-91.

Although, a large part of the problem concerning externalimbalances in India could be attributed to extraneous

developments, such as two oil-shocks during the lastdecade.


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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 exchangereserves had reduced to the point that India could barely financethree weeks worth of imports.

The Government of India headed by Chandra Shekhar decided tousher in several reforms that are collectively termed as liberalisation

in the Indian media with Man Mohan Singh whom he appointed as aspecial economical advisor.
http://www.biocrawler.com/encyclopedia/Image:India.Mumbai.01.jpg


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License Raj was the regulations that were required to set upbusiness in India between 1947-1990.

where all aspects of the economy are controlled by the stateand licenses were given to a select few.

The License Raj is considered to have been dismantled in1990.

Ended many public monopolies, allowing automatic approval offoreign 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.
http://en.wikipedia.org/wiki/Foreign_direct_investmenthttp://www.biocrawler.com/encyclopedia/Image:India.Mumbai.01.jpghttp://en.wikipedia.org/wiki/Foreign_direct_investment


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Key players in the

battle field of economyreforms

Dr. Man Mohan Singh, a professional economist and aneconomic administrator, was appointed Finance Minister. ManMohan Singh is undoubtedly the architect of the most farreaching reforms in India since independence in 1947.

Government economists such as Dr. Arvind Virmani took uponthemselves the task of clarifying the goals, objectives andmethods of the reform package along with:-

C. Rangarajan,

Montek Singh Ahluwalia,

Shankar Acharya and

Y. Venugopal Reddy.


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The reforms brought changes in three broad areas, collectively knownas liberalization, privatization and globalization.

Liberalization did away with regulatory hurdles and minimized licensingrequirements.

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 Singhand other officials such as C. Rangarajan, Montek Singh Ahluwalia,

Shankar Acharya and Y. Venugopal Reddy.


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INDIA TRADE

AFTER

LIBERLISATION


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COMPONENTS

OF

LIBERALIZATION

Industrial

Liberalization

Trade

Liberalization

Financial

Liberalization

Fiscal Sector

Reforms


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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.


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Trade policy allowing domestic providers (of goods and/orservices) 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

2. Trade Liberalization


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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 risk-

taking, increases macroeconomic volatility and leads to more

frequent crises.

FL leads to more rapid economic growth in middle-incomecountries (MIC), but does not have the same effect in low-income countries (LIC)

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

3. Financial Liberalization


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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 growingeconomies in the world. India is also advancing towards the

economical growth and improvement in literacy.

During 1999-2000, India's domestic savings and investmentwas 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.


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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 theliberalisation.

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


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Indian Foreign Exchange Reserves: a steady rise after

liberalization

Foreign exchange reserves (US$ billion)

2.2 17.0

54.1

75.4

118.3

0

50

100

150

1990-91 1995-96 2001-02 2002-03 2003-04


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DESTINATION

INDIAafter liberalization

India is one of the fastest growing economies in the world.

AT Kearneys FDI Confidence Index ReportIndia 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)


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CHALLENGESahead1. Governance

Need for elimination of large number of Rules & Regulationsin the books

Sharply reducing the number of implementing agencies

Moving towards single window clearance (traders to submit regulatorydocuments at a single location and/or single entity. Such documents are typically customsdeclarations, 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 2012US$ 334 billion Power Generation - US$ 143 billion

Power Transmission & DistributionUS$ 116 billion

RoadsUS$ 40 billion

PortsUS$ 20 billion

RailwaysUS$ 15 billion


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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 THEWORLD BY 2050

What theFuture Beholds???


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Import duty Reductions after liberalization

Reduction in Peak Customs Duties on Manufactured items

150

110

5038.5 30 25 20

42

0

2040

60

80

100

120

140

160

1991 Mar-92 Mar-95 Mar-97 Mar-00 Mar-02 Mar-03 w.e.f March

2004

inp

ercen

t


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Rising share of Indias external trade after liberalizationTotal Exports in 2003-04 - US$ 61.8 Bn; ImportsUS$ 75.2 Bn.

Assume target for exports for 2009 - US$150 Bn

Share of external trade in GDP

18.123.1 25.5

26.930.3 28.9

31.6 32

0

5

10

15

20

25

30

35

1991-92 1994-95 1997-98 1999-

2000

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

inp

ercent


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INDIA AFTER TRADELIBERALISATION INVARIOUS


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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


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BIOTECH AFTER LIBERALISATION

More than 900 companies involved in traditional

biotech products

Biopharma products35 new MNC companies set upin 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$ 1.52 billion


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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.


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AUTO & AUTO COMPONENTS

AFTER LIBERALISATION2nd 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 inIndiaDaimler 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)


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Production of Automobiles (4 Wheelers)

after Liberalization

671,928

1,263,764

0

200000

400000

600000

800000

1000000

1200000

1400000

1992-93 1994-95 1996-97 1387276 1998-99 2000-01 2001-02 2002-03 2003-04

4 Wheelers (in Nos)


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Vehicle Exports

146543

38230

332087

121140

0

100000

200000

300000

400000

500000

600000

1992-93 1994-95 1996-97 1998-99 2000-01

Year

In

Nos.

4 Wheelers (in Nos) 2 and 3 Wheelers (in Nos)

Vehicle Exports

after Liberalization


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STEEL Industry after Liberalization

Production and Export of Finished Steel

14.33

17.8223.82

29.7 33.6736.19

45065200

36801020

30

40

1991-92 1994-95 1998-99 2000-01 2002-03 2003-04

(Provisional)

0

1000

20003000

4000

5000

6000

Production (in million tonnes) Exports (in '000 tonnes)


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RESEARCH & DEVELOPMENT facilitiesafter liberalizationMore than 100 global companies outsource R&D facilities from India

GE John F Welch Technology CentreCompanys largest research outfit

outside the US

GE Medical SystemsIndia as sole sourcing base for its portable ultrasoundscanner

MonsantoFirst non-US research facility

Eli Lillylargest research facility in Asia and 3rd largest in the world

Texas InstrumentsDigital Signal Processor developed in Indiacontrols

50% of the world market

AVL, AustriaIndia as base to do R&D for the company.


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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 foroutsourcing

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 of68.2 %.


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Several World leaders have investedBusiness Processes & Industry inIndia after liberalizationGeneralElectric

BritishAirways

AmericanExpress

Citibank McKinsey AccentureMicrosoft Intel Hewlett Packard

Dell Oracle IBM

SunMicrosystems

CISCO TexasInstruments

Pfizer Dupont General Motors

Cummins Honeywell Monsanto


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ENTERTAINMENT industryafter Liberalization

Industry growing at 15% -Total industry valued at US$ 4.267billion in 2003

Expected to reach US$ 9.4 billion by 2008

Largest producer of films and enterntainment content in theworld - More than 1000 films produced in 2003-04

Co-production treaties being signed with UK, Canada, Chinaand Italy,USA (Time Warner,Universal,Goldmyn Mayor).

Animation and gaming one of the fastest growing sectors

Animation and special effects for SPIDERMAN and

GLADIATORdone in India


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HEALTHCARE industryafter 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 at12-13% per annum.

Over 80% of healthcare spending is captured by private sector &MNC.

Investment Potential : 750,000 extra beds over the next 10 yearsat a cost of approximately US$30 billion.


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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, Hotelsand 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


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OIL & GAS after liberalization

Worlds 6th largest consumer of Energy

Worlds8th 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.


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Thank You

340118 indian trade liberal is at ion

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