20 years of economic reforms
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Economic Liberalization in India
Past Achievements and Future Challenges
6 August 2011
Confederation of Indian Industry
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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 greatercompetitiveness
These measures have also helped India in emerging as a resurgent, vibrant anddynamic 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
Indias participation is required in all global negotiations ranging from global trade toclimate related deals
Economic Reforms
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Post-1991, CII worked on multiple fronts to facilitate liberalization:
Engaged with administration to calibrate policies to sequence reforms and minimizeindustry adjustment pains
Sensitized officials and Members of Parliament for reforms through sustainedinteraction
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 CIIs endeavours since 1991. Some of CIIs pioneeringinitiatives 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 Indianindustry
Initiating Quality Movement in India; Sundaram Fasteners first company to getISO9000 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
CIIs Role
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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
6000.0
1
991
1
992
1
993
1
994
1
995
1
996
1
997
1
998
1
999
2
000
2
001
2
002
2
003
2
004
2
005
2
006
2
007
2
008
2
009
2
010
2
011
(Rs.
000'Crore)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Y-O-YGrowth(%
GDP GDP Growth Rate
Source: Economic survey 2010-11 and CSO
GDP has surged from 5.7% during1991-00 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
15,000
20,000
25,00030,000
35,000
40,000
45,000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
(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-YGrowth(%
Per Capita Income Growth in Per Capita Income
GDP
Per Capita Income
Per Capita Income has more thandoubled from Rs. 15,826 in 1991
to Rs. 41,129 in 2011; has beenincreasing at an average annualrate of about 7% since 2004
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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 thereducing 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
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Savings and Investment (as % of GDP)
Savings as a proportion of GDP moved up by more than ten percentage pointsfrom 22.8% in 1991 to 33.7% in 2010
Investment to GDP ratio also jumped from 26.0% to 30.8%, however expectedto 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
%
3
3.7
%
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'Crore)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Y-O-YGrowth(%)
Savings Investment Savings as % of GDP Investment as % of GDP
Source: Economic survey 2010-11 and CSO
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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.
385.
2
105.
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.
580.
01
18.
9 157.1 19
0.
7
257.
63
08.
5
300.
6
380.
9
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
(US$Billion)
Merchandise Exports Merchandise Imports
Merchandise exports soared to crossUS$250 bn in 2011 from US$ 18.5 bn in1991, about 14 fold increase
Service exports went up to US$132 bn in2011 from mere US$ 4.6 bn in 1991,registering a CAGR of 18.3%
Backed by robust exports of IT andITes services; close to $60 billion in2010-11
Merchandise and Service imports grownat a CAGR of about 14.0% and 17.1%respectively
Faster rise in imports over exportshave undoubtly widened trade deficityet it has helped in keeping global
demand alive in the wake of theglobal economic crisis
Trade as a proportion of GDP hasincreased magnificently from 9.0% in1991 to 87.9% in 2011
Source: RBI
4.6
5.0
4.7
5.3
6.1
7.3
7.5 9
.4 13.2
15.7
16.3
17.1
20.8 2
6.9
43.2
57.7
7
3.8
90.3
106.0
95.8
132.0
3.6
3.8
3.6
4.7
5.5 7
.5
6.7
8.1
11.0
11.6
14.6
13.8
17.1
16.7 2
7.8 3
4.5 4
4.3 5
1.5
52.0 6
0.0
84
.3
-10.0
10.0
30.0
50.0
70.0
90.0
110.0
130.0
150.0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
(US$
Billio
n)
Service Exports Service Imports
Merchandise Trade
Service Trade
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FDI Inflows
FDI inflows have grown multiple fold from just US$ 97 mn in 1991 to US$ 30.4bn with an average annual compound growth rate of 33.3%
FDI inflows as a proportion of total foreign investment inflows has fallen from157.8% in 2008-09 to 49.1% in 2011 due to faster rise in portfolio investment
Indian companies have made an outward investment totaling US$80 billion inthe first decade of the century mostly in developed economies
94.2
%
97.0
%
56.4
%
14.1
%25.6
% 43.8
%
46.0
% 66.1
%
102.5
%
41.6
% 59.3
% 75.2
%83.7
%
27.5
%39.4
%
41.8
%
76.5
%
56.1
%
157.8
%
53.8
%
49.1
%
0
5000
10000
15000
20000
25000
30000
35000
40000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
US$Million
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
FDIas%o
fTotalForeig
nInflows
FDI Inflow s As % of Total foreign Investment Inflow s
Source: RBI
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SENSEX
Steps taken over the last two decades have resulted into maturing of nascent
financial market. Further, robust economic growth and fast pace ofglobalization has led to buoyant investors sentiment
SENSEX has increased from a level of 1908.9 in 1991 to 18518.2 in 2011 ata CAGR of 12.0%
Tre nds in Capital Marke t - 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
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Move Towards Inclusive Growth
While the first phase of reforms had unleashed economic growth, it was feltthat the benefits of growth must be more equitably distributed
Starting 2005, the UPA government has shifted the focus to inclusive growththrough greater allocation to socially beneficial schemes and programmes
Total Plan Allocation increased markedly from Rs. 9.6 thousand crore in1991 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
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Corporate Social Responsibility
Set up Social Development and Community Affairs Council in 1995
Developed Action Agenda for Affirmative Action and worked to generateawareness 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 ExcellenceGreen Business Center
Engages in climate change mitigation efforts
CIIs Initiative on Socio Responsibilities
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Social indicators
Overall literacy rate has gone up from justover half to almost three-quarters during1991 and 2011
Literacy level among female folk which
constitutes about half of the populationhas nearly doubled
Among young people, the rates are higheras 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% in1991 to 27.5% in 2005
Decline was more pronounced in urban areasas compared to rural areas
Urban poverty fell by double digits. Ruralpoverty came down by seven percentagepoints
Literacy Rates
Poverty Estimates
Source: Planning Commission
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Sector Deficit Eleventh Plan (2007-12) Targets
Roads/
Highways
65,590 km of NH comprise only 2% ofnetwork; 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/roadconnectivity
New capacity: 485 m MT in major ports; 345m MT in minor ports
Airports
Inadequate runways, aircraft handlingcapacity, parking space and terminalbuildings
Modernize 4 metro and 35 non-metroairports; 10 greenfield airports
Railways
Old technology; saturated routes; slowspeeds (freight: 22 kmph; passenger: 50
kmph)
8,132 km new rail; 7,148 km gaugeconversion; modernize 22 stations;
dedicated freight corridors
Power
13.8% peaking deficit; 9.6% energyshortage; 40% transmission anddistribution losses; absence ofcompetition
Add 78,577 MW; access to all ruralhouseholds
Source: Planning Commission
Major Plans for Infrastructure Development
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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 doubledduring 1991 and 2011
Even after 20 years, thermal power remained themost dominant form
There is a need to change the present compositionin favour of hydro, nuclear and other bio-producepower 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 havebeen successful in implementing highwaysprogramme
NHAI to award 7,994 km of highway projectsin the FY 2012
Going to generate demand for cement,steel, and bitumen of worth Rs 42,000 crore
Though the sectoral performance hasimproved, yet to be enhanced considerablyto ensure optimal utilization of resourcesand to avoid overrunning of cost
Installed Capacity: Power
Road Length
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Steel and Telecom
Steel production has surged nearly five foldin last 20 years
India fourth largest steel producer in the
world and is expected to become thesecond largest producer by 2013
Steel production capacity to touch 120Million Tonnes by 2013 and over 150Million 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'Tonnes)
Telecom Subsc riber 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
(Millions)
Source: Department of Telecommunications, Ministry of Communications and Information Technology
Private sector participation has lead to sharpreduction in tariffs and rapid increase inpenetration of basic/mobile telephones
Registering a CAGR of 29.0% during 1991and 2011
Teledensity improved from 0.6 (per 100person) in 1991 to 66.2 twenty years later
Finished Steel Production
Telecom
C
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High inflation level above comfortable zone9.4% in June 2011
Industrial slow downIIP 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 keyindustries 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% toUS$ 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 subsidyand rising interest rates are casting doubts
Challenges
A d f f h f
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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 willcontinue to build the partnership of Government and industry to make India adeveloped nation in the next two decades
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Thank You
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