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Transcript of GK-3 by SV
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GK Lecture # 03
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Economic reforms
in India
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HW/ Revision
• Book Building Issues and Fixed Price Issues• Green Shoe Option / Red Herring Prospectus
• GDR / ADR
• Venture Capital
• Angel Investor• Hostile Takeover
• Underwriter
• GDP, GNP, NNP, Liquidity, Inflation, causes,
control, Monetary/Fiscal policy, CRR, SLR,Credit policy
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Agenda for the day
An introduction 62 years of history
Basic terminologies Types of economic systems The PLUSES and the MINUSES Finally, THE REFORMS
Final summary
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It’s a new India breathing.For decades, India was a nation lost in
an ideological quagmire.
While our ASEAN neighbours rose fromashes and rebuilt themselves in 30
years flat, we fell behind. Wrongideological choices, a parasitic politicalsystem and imprisonment of the Indian
entrepreneurial instinct createda sad situation.
An introduction
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The Indian elephant has stirred onlyrecently, and 15 years of economic
reforms have unleashed a wave ofLPG forces. While huge challengeson basic human issues remain, hopeabout India as a global power burns
brighter than ever.
An introduction
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1947 – Economic Independence,
Socialism - the Economic Model
1950s – Five Year planning –
centralized model of growth,
Russia as the ideal, IDRA, License
Raj/ Permit Raj1960s – PSUs as Role Models,
Push to Agriculture
Indian Economy
.
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1970s - Banks Nationalization,Poor GDP growth rates, Loss
making PSUs, Mounting govt. debt
1980s - Poor exports, MRTP,
FERA, Poor quality of products, No
choice for Consumers, No FDI / FII,License – Quota - Permit-raj
destroyed our internal vibrancy
Indian Economy
.
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Slowly, thingsstarted
changing.
For the better.
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Rajiv Gandhi
brought the first
set of Reforms.
P.V. Narasimha Rao
opened the floodgates.
Focus: PSUs and Infrastructure to be privatized.
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Focus: Disinvestment, FDI, FIIinflow, Political consensus onreforms
P. Chidambaram Pranab Mukherjee
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Focus: Stock market reforms,Foreign investment liberalized
Yashwant Sinha
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Focus: Indian software exports ZOOM
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India
emerging as a global‘ITES’ and Servicessuperpower
Also a dominant player
in International TradeNegotiations as one
of the BRIC economies
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LPGLiberalization – Privatization –
Globalization
GDP – GNP – NNP
Inflation The 3 sectors of an economy
Tariff walls, WTO/GATT, IPR
Basic terminologies
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GDP breakdown
I n d u
( 2 7 . 5 S e r v( 5 1 . 3
A
g
r i c u
l t u
r e
( 2
1
. 2
%
)
50.7%26.6%
2 2 . 7
%
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Types of economic systems
DISPARITIES - Within the globaleconomy, great disparities existbetween economic systems due
to differences in technology
Types of world economies:
Capitalistic Command Mixed
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Capitalistic economies Also known as a Market Economy
Means of production are privately owned
Minimal government intervention – Laissez
faire
Competitive markets exist
Freedom of enterprise
Profitable products, based on marketsupply and demand
Most efficient producers survive (trans.,labor, quality)
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Command economies Opposite from pure capitalism Also known as Communism or Marxism Totalitarian: all production and property
are owned and controlled by centralgovernment Central government makes all decisions
regarding prices, quotas, plant locationand size, and the use of resources
Market factors are often ignored Former Soviet Union, People’s Republic
of China
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Mixed economies Between Capitalism and Command Retains features or mechanisms of
both economies
Examples: – United States: capitalistic, but
government provides many
services that otherwise would notbe available – China: command, but allowed
private ownership but ‘No Voice’
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Socialistic pattern
based on USSR model
Nehruvian Strategy
Shift in economic
output
Evolution of Indian economy
after independence
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Two incompatible roles ofState
Rule of Law could not beenforced on capitalists
Social aspirations
Main drawbacks in India
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Green revolution
Regional disparity
Large scaleindustrialization
Nationalization of banksHindu rate of growth
The PLUS side and key features
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Towards self-sufficiency
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First generation reforms
Why, Aims, Objectives
The 4 Ds – Delicensing,
Decontrol, Disinvestment,Debureaucratisation
Gains, FailuresNeed for Second Gen reforms
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INDIAN reforms - the philosophy
Plug into the
Global Economy
Large scale economic reforms to
bring capital for growth needs
FDI recognised as a
Growth Driver
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Major first gen economic reforms
Industrial Delicensing Liberal FDI regime (FERA eased, 40% 51%) Freedom to invest & expand (MRTP eased) Telecom, Power, Oil & Gas, Roads, Consumer
electronics, Insurance, Banking sectors opened
up Simplification of investment procedures (FIPB) Tax rationalisation done; Tariffs reduced SSI sector dereserved Currency convertibility (LERMS, devaluation,
full conv.) PSU divestment started WTO compatibility SEBI made effective
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Second gen economic reforms PSU disinvestment to be acceleratedFiscal deficit needs to be checked (10% gross)Poverty reduction, Even growth across the countryReducing real interest rates to boost investment in
key sectors like Housing, Education, Irrigation etc.Labour market reforms – Hire and FireThrust to agri investments & a Second GreenRevolutionBanking sector reforms – consolidation, NPA
reduction (Securitisation Act) IPR protectionStock market regulations; Corporate GovernanceSocial Security initiatives
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Third generation reforms
On-going… Major labour reforms needed
Sunset provisions in law-making needed
Complete overhauling of major policyframeworks needed – Esp inInfrastructure development etc.
Tariff walls need to be brought down
More focus on non-software exports also
needed
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The new face of India
World’s largest democracy
Second largest emerging market
Liberal Foreign Investment Regime Skilled and competitive labour force
Large domestic market
Independent judiciary
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Indian advantages in knowledge service
High-end IT enabled services are the next growth frontier!
People-High Quality HR- Cost- Language Adv.
Government Support-FDI – Liberalization - IT bill
Location
Advantages - Time Zonedifference- Country Risk
Infrastructure- Developing at a rapid pace
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Final summary 1947 Economic Independence 1947-60 Series of economic legislations
1960-70 Nationalisation of banks
1970-80 Restricting internal & external
competition 1980-90 First steps towards Reforms
1991-96 First Generation EconomicReforms
1997-03 Second Generation EconomicReforms
2004 onwards - Third Generationstructural reforms
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Best
wishes!