economic liberalization in india past achievements and future challenges 6 august 2011 ©...
TRANSCRIPT
Economic Liberalization in India Past Achievements and Future Challenges
6 August 2011
© Confederation of Indian Industry
• 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
Economic Reforms
• 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
CII’s Role
Robust GDP Growth
5.3
%
1.4
%
5.4
%
5.7
% 6.4
% 7.3
%
8.0
%
4.3
%
6.7
%
6.4
%
4.4
%
5.8
%
3.8
%
8.5
%
7.5
%
9.5
%
9.6
%
9.3
%
6.8
% 8.0
%
8.5
%
0.0
1000.0
2000.0
3000.0
4000.0
5000.0
6000.01
99
1
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
(Rs. 0
00
' Cro
re)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Y-O
-Y G
row
th (
%)
GDP GDP Growth Rate
Source: Economic survey 2010-11 and CSO
• GDP has surged from 5.7% during 1991-00 to 7.7% during 2001-11
-0.5
%
3.4
%
3.8
%
3.8
% 5.1
% 5.9
%
2.4
%
4.7
%
4.5
%
2.5
% 4.1
%
2.1
%
6.8
%
7.1
%
7.8
%
8.0
%
7.8
%
5.3
% 6.5
%
7.1
%
-5,000
10,000
15,00020,00025,00030,000
35,00040,00045,000
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
(Rs.
)
-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%
Y-O
-Y G
row
th (
%)
Per Capita Income Growth in Per Capita Income
GDP
Per Capita Income
• Per Capita Income has more than doubled from Rs. 15,826 in 1991 to Rs. 41,129 in 2011; has been increasing at an average annual rate of about 7% since 2004
Structural Change in GDP Composition
• 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
Composition of GDP (1991 v/s 2011)
34.0%
23.2%
42.7%
Agriculture, 16.6%
Industry, 25.7%
Services, 57.7%
1991
2011
Source: Economic survey 2010-11 and CSO
Savings and 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
22.8
%
21.5
%
21.2
%
21.9
%
24.4
%
24.4
%
22.7
%
23.8
%
22.3
%
24.8
%
23.7
%
23.5
% 26.3
% 29.8
%
32.4
%
33.5
%
34.6
%
36.9
%
32.2
%26.0
%
22.1
%
23.1
%
22.5
% 25.5
%
26.2
%
24.0
%
25.3
%
23.3
%
25.9
%
24.3
%
22.8
%
25.2
%
27.6
% 32.8
%
34.7
%
35.7
%
38.1
%
34.5
%
33.7
%30
.8%
-
500
1,000
1,500
2,000
2,500
3,000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
(Rs.
000
' Cro
re)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Y-O
-Y G
row
th (%
)
Savings Investment Savings as % of GDP Investment as % of GDP
Source: Economic survey 2010-11 and CSO
Merchandise and Service Trade
18.5
18.3
18.9
22.7
26.9
32.3
34.1
35.7
34.3
37.5
45.5
44.7
53.8 66
.3 85.2 10
5.2
128.
9 166.
2
189.
0
182.
2
250.
5
27.9
21.1
24.3
26.7
35.9
43.7
48.9
51.2
47.5
55.4
57.9
56.3
64.5 80
.0
118.
9 157.
1 190.
7
257.
6
308.
5
300.
6
380.
9
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.019
91
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
(US
$ B
illi
on
)
Merchandise Exports Merchandise Imports
• Merchandise exports soared to cross US$250 bn in 2011 from US$ 18.5 bn in 1991, about 14 fold increase
• Service exports went up to US$132 bn in 2011 from mere US$ 4.6 bn in 1991, registering a CAGR of 18.3%
• Backed by robust exports of IT and ITes services; close to $60 billion in 2010-11
• Merchandise and Service imports grown at a CAGR of about 14.0% and 17.1% respectively
• Faster rise in imports over exports have undoubtly widened trade deficit yet it has helped in keeping global demand alive in the wake of the global economic crisis
• Trade as a proportion of GDP has increased magnificently from 9.0% in 1991 to 87.9% in 2011
Source: RBI
4.6 5.0
4.7 5.3 6.1 7.3
7.5 9.4 13.2
15.7
16.3
17.1
20.8 26.9
43.2
57.7
73.8
90.3
106.0
95.8
132.0
3.6
3.8
3.6 4.7 5.5 7.5
6.7 8.1 11.0
11.6
14.6
13.8
17.1
16.7 2
7.8 34.5 4
4.3 51.5
52.0 60.0
84.3
-10.0
10.0
30.0
50.0
70.0
90.0
110.0
130.0
150.0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
(US
$ B
illio
n)
Service Exports Service Imports
Merchandise Trade
Service Trade
FDI Inflows
• 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$80 billion in the first decade of the century mostly in developed economies
94.2
%
97.0
%
56.4
%
14.1
% 25.6
% 43.8
%
46.0
% 66.1
%
102.
5%
41.6
% 59.3
% 75.2
%
83.7
%
27.5
% 39.4
%
41.8
%
76.5
%
56.1
%
157.
8%
53.8
%
49.1
%
0
5000
10000
15000
20000
25000
30000
35000
40000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
US$
Mill
ion
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
FDI a
s %
of T
otal
For
eign
Inflo
ws
FDI Inflow s As % of Total foreign Investment Inflow s
Source: RBI
SENSEX
• 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%
Trends in Capital Market - SENSEX ans BSE 100
0.0
3,000.0
6,000.0
9,000.0
12,000.0
15,000.0
18,000.0
21,000.0
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
SENSEX BSE 100
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
Source: Budget and Government Sources
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
• 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
CII’s Initiative on Socio Responsibilities
Social indicators
• Overall literacy rate has gone up from just over half to almost three-quarters during 1991 and 2011
• Literacy level among female folk which constitutes about half of the population has nearly doubled
• Among young people, the rates are higher as the Right to Education law kicks in
Source: Economic Survey
52.2%
74.0%64.1%
82.1%
39.3%
65.5%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Overall Males Females
1991 2011
35.6%
27.5%
35.0%
28.3%
37.0%
25.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Total Rural Urban
1991 2005
• Overall, poverty has declined by eight percentage points from as high as 35.6% in 1991 to 27.5% in 2005
• Decline was more pronounced in urban areas as compared to rural areas
• Urban poverty fell by double digits. Rural poverty came down by seven percentage points
Literacy Rates
Poverty Estimates
Source: Planning Commission
Sector Deficit Eleventh Plan (2007-12) Targets
Roads/
Highways
65,590 km of NH comprise only 2% of network; carry 40% of traffic; 12% 4-laned; 50% 2-laned; and 38% single-laned
6-lane 6,500 km in GQ; 4-lane 6,736 km NS-EW; 4-lane 20,000 km; 2-lane 20,000 km; 1,000 km Expressway
PortsInadequate berths and rail/road connectivity
New capacity: 485 m MT in major ports; 345 m MT in minor ports
Airports
Inadequate runways, aircraft handling capacity, parking space and terminal buildings
Modernize 4 metro and 35 non-metro airports; 10 greenfield airports
Railways
Old technology; saturated routes; slow speeds (freight: 22 kmph; passenger: 50 kmph)
8,132 km new rail; 7,148 km gauge conversion; modernize 22 stations; dedicated freight corridors
Power
13.8% peaking deficit; 9.6% energy shortage; 40% transmission and distribution losses; absence of competition
Add 78,577 MW; access to all rural households
Source: Planning Commission
Major Plans for Infrastructure Development
Power and Road
Source: CMIE, Industry Analysis Service
Installed Capacity in Power Sector: All India
66,086.3
153,774.8
-
20,000.0
40,000.0
60,000.0
80,000.0
100,000.0
120,000.0
140,000.0
160,000.0
180,000.0
1991 2011
MW
• Total installed capacity has more than doubled during 1991 and 2011
• Even after 20 years, thermal power remained the most dominant form
• There is a need to change the present composition in favour of hydro, nuclear and other bio-produce power to conserve coal for industrial purposes
Road Length
2,327.4
4,236.4
-
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
1991 2008
( 000
' Km
)
Source: Ministry of Road, Transport and Highways
• Public-private-multilateral partnerships have been successful in implementing highways programme
• NHAI to award 7,994 km of highway projects in the FY 2012
• Going to generate demand for cement, steel, and bitumen of worth Rs 42,000 crore
• Though the sectoral performance has improved, yet to be enhanced considerably to ensure optimal utilization of resources and to avoid overrunning of cost
Installed Capacity: Power
Road Length
Steel and Telecom
• Steel production has surged nearly five fold in last 20 years
• India fourth largest steel producer in the world and is expected to become the second largest producer by 2013
• Steel production capacity to touch 120 Million Tonnes by 2013 and over 150 Million Tonnes by 2020
Source: CMIE, Industry Analysis Service
Finished Steel Production
13,566.0
66,013.0
-
10,000.0
20,000.0
30,000.0
40,000.0
50,000.0
60,000.0
70,000.0
1991 2011
(000
' Ton
nes)
Telecom Subscriber Base
5.1
826.9
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
1991 2011
(Milli
ons)
Source: Department of Telecommunications, Ministry of Communications and Information Technology
• Private sector participation has lead to sharp reduction in tariffs and rapid increase in penetration of basic/mobile telephones
• Registering a CAGR of 29.0% during 1991 and 2011
• Teledensity improved from 0.6 (per 100 person) in 1991 to 66.2 twenty years later
Finished Steel Production
Telecom
• 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
Challenges
• 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
Agenda for further reforms
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