INDIA TRADE BEFORE &

AFTER LIBERLISATION

PRESENTED BY GROUP 7

INDIA TRADE BEFORE LIBERLISATION

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

• Large fiscal deficits emerged as a result of mounting government expenditures, particularly during the second half of the 80s.

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

• Over the 1980s, government expenditure in India grew at a phenomenal rate, faster than what government earns as a revenues.

• The subsidies grew at a rate faster than government expenditures.

• Expenditure on subsidies rose from Rs.19.1 billion in 1980-81 to Rs. 107.2 billion in 1990-91.

• Although, a large part of the problem concerning external imbalances in India could be attributed to extraneous developments, such as two oil-shocks during the last decade.

• 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 exchange reserves had reduced to the point that India could barely finance three weeks’ worth of imports.

• The Government of India headed by Chandra Shekhar decided to usher in several reforms that are collectively termed as liberalisation in the Indian media with Man Mohan Singh whom he appointed as a special economical advisor.

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

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

• The License Raj is considered to have been dismantled in 1990.

• Ended many public monopolies, allowing automatic approval of foreign 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.

Key players in the battle field of economy reforms

• Dr. Man Mohan Singh, a professional economist and an economic administrator, was appointed Finance Minister. Man Mohan Singh is undoubtedly the architect of the most far reaching reforms in India since independence in 1947.

• Government economists such as Dr. Arvind Virmani took upon themselves the task of clarifying the goals, objectives and methods of the reform package along with:-

• C. Rangarajan, • Montek Singh Ahluwalia, • Shankar Acharya and• Y. Venugopal Reddy.

• The reforms brought changes in three broad areas, collectively known as liberalization, privatization and globalization.

• Liberalization did away with regulatory hurdles and minimized licensing requirements.

• 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 Singh and other officials such as C. Rangarajan, Montek Singh Ahluwalia, Shankar Acharya and Y. Venugopal Reddy.

INDIA TRADE AFTER

LIBERLISATION

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 the

liberalisation. – 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

DESTINATION INDIA after liberalization

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

AT Kearney’s FDI Confidence Index Report – India 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)

CHALLENGES ahead

1. Governance Need for elimination of large number of Rules & Regulations

in the books Sharply reducing the number of implementing agencies Moving towards single window clearance (traders to submit regulatory

documents at a single location and/or single entity. Such documents are typically customs declarations, applications for import/export permits, and other supporting

documents such as certificates of origin and trading invoices).

2. Infrastructure: A Challenge and an opportunityInvestments required upto 2012 – US$ 334 billion

Power Generation - US$ 143 billion Power Transmission & Distribution – US$ 116 billion Roads – US$ 40 billion Ports – US$ 20 billion Railways – US$ 15 billion

BRIC Study of Goldman Sachs (2003) predicts that: INDIA WILL EXCEED

France’s GDP in 2020 Germany’s in 2025 Japan’s in 2035

TO BECOME THE 3RD LARGEST ECONOMY IN THE WORLD BY 2050

What the Future Beholds???

GDP growth at constant prices

6.1

8.2 8

01

23

45

67

89

Average for 1993-2003 2003-04 10th Plan Projection (2002-07)

in per

cent

Indian Foreign Exchange Reserves: a steady rise after liberalization

Foreign exchange reserves (US$ billion)

2.217.0

54.175.4

118.3

0

50

100

150

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

Foreign Investments after liberalization

103

5,138 5,3856,789

8,1525,639

15,872

02000400060008000

1000012000140001600018000

1990-91 1994-95 1997-98 2000-01 2001-02 2002-03 2003-04

Total Foreign Investment (US$ million)

US$ million

Import duty Reductions after liberalization

Reduction in Peak Customs Duties on Manufactured items

150

110

5038.5 30 25 2042

0

20

40

60

80

100

120

140

160

1991 Mar-92 Mar-95 Mar-97 Mar-00 Mar-02 Mar-03 w.e.f March2004

in p

er c

ent

Rising share of India’s external trade after liberalization

Total Exports in 2003-04 - US$ 61.8 Bn; Imports – US$ 75.2 Bn.

Assume target for exports for 2009 - US$150 Bn

Share of external trade in GDP

18.123.1 25.5 26.9

30.3 28.9 31.6 32

05

101520253035

1991-92 1994-95 1997-98 1999-2000

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

in p

er c

ent

INDIA AFTER TRADE LIBERALISATION IN

VARIOUS

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

BIOTECH AFTER LIBERALISATION

More than 900 companies involved in traditional biotech products

Biopharma products – 35 new MNC companies set up in 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$ 1.5 – 2 billion

AGRI & FOOD PROCESSING AGRI & FOOD PROCESSING

AFTER LIBERALISATIONAFTER 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.

AUTO & AUTO COMPONENTS

AFTER LIBERALISATION

2nd 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 in India – Daimler 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)

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)

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 N

os

.

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

Vehicle Exports after Liberalization

STEEL Industry after Liberalization

Production and Export of Finished Steel

14.33 17.8223.82

29.7 33.67 36.19

4506 5200

3680

10

20

30

40

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

0100020003000400050006000

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

RESEARCH & DEVELOPMENT facilities after liberalization

More than 100 global companies outsource R&D facilities from India

GE John F Welch Technology Centre – Company’s largest research outfit outside the US

GE Medical Systems – India as sole sourcing base for its portable ultrasound scanner

Monsanto – First non-US research facility

Eli Lilly – largest research facility in Asia and 3rd largest in the world

Texas Instruments – Digital Signal Processor developed in India – controls 50% of the world market

AVL, Austria – India as base to do R&D for the company.

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 for outsourcing

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 of 68.2 %.

Several World leaders have invested Business Processes & Industry in India after liberalization

General Electric

British Airways

American Express

Citibank McKinsey Accenture

Microsoft Intel Hewlett Packard

Dell Oracle IBM

Sun Microsystems

CISCO Texas Instruments

Pfizer Dupont General Motors

Cummins Honeywell Monsanto

ENTERTAINMENT industry after Liberalization

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

Expected to reach US$ 9.4 billion by 2008

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

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

Animation and gaming – one of the fastest growing sectors Animation and special effects for SPIDERMAN and GLADIATOR done in India

HEALTHCARE industry after 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 at 12-13% per annum.

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

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

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, Hotels and 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

OIL & GAS after liberalization World’s 6th largest consumer of Energy

World’s 8th 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.

POWER after Liberalization By 2012

• Peak Demand (Expected) – 1,57,000 MW

• Proposed Capacity Addition – 1,00,000 MW

Estimated Investment for National Grid Development – US$ 20 Billion

Up-to 100% FDI allowed in projects relating to electricity generation, transmission and distribution (other than atomic reactor power plants).

PORTS & ROADS after LiberalizationRoads

Investments of US$12 Billion proposed for National Highway Development Project.

100% FDI under allowed in projects for construction and maintenance of roads, highways, vehicular bridges, toll roads .

Sea-Ports

7517 Km of Coastline dotted by 12 major and 185 minor ports.

100% FDI permitted in Construction, maintenance and support services for ports. 100% Tax Holiday for 10 years for enterprises in developing, maintaining and operating ports, inland waterways, etc.

International Container Transshipment Terminal planned in Kochi Port.

AIRPORTS after liberalization

Projection 2010: International Passenger Traffic – 26 Million; Domestic Passenger Traffic – 40 Million; Cargo Movement – 1.8 Million tones.

FDI up-to 74% (up-to 100% with Special Permission) allowed in ventures for airports.

FDI up-to 49% and NRI Investment up-to 100% permitted in Domestic Airport Services.

Thank You

BOP• The balance of payments, (or BOP) measures the

payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Balance of payments is one of the major indicators of a country's status in international trade, with net capital outflow.

FISCAL DEFICIT• A budget deficit occurs when an entity (often a government) spends more money than it

takes in. The opposite is a budget surplus.

• An accumulated deficit over several years (or centuries) is referred to as the government debt. Often, a certain part of spending is dedicated to paying of debt with certain maturity, which can be refinanced by issuing new government bonds. That is, a fiscal deficit leads to an increase in an entity's debt to others. A deficit is a flow. And a debt is a stock. Debt is essentially an accumulated flow of deficits.

• Since debt is the total amount one owes, a deficit can also be defined as the amount by which a debt grows or a savings decreases. For instance, prior to the Second Gulf War, many Americans confused debt and deficit, believing that the United States government still had a massive deficit; in fact, the government had a sizable surplus. The deficit was gone, but the debt was still being paid down. Because the United States government counts money it collects through its Social Security program as income, many people had also become accustomed to the notion that the deficit was far larger than it actually was, yet, even removing Social Security funds, there was a surplus. (Although the Social Security program currently collects income, the money is considered "owed" to the people who pay into the program.)