Contemporary History of Indian Economy

- B.V.Raghunandan, SVS College, Bantwal

Workshop for Commerce Lecturers,Madhusudan Kushe College,

MangaloreNovember 4, 2010

Preliberalisation Indian Business

• Disbelief of private sector• Bureaucratised public sector• Politicised co-operative sector• Unviable agriculture sector• Lack of availability of finance• Finance sector was in Jurassic park period• No FII investment• High taxation regime

A Blotch in Economic History

• Stagnation in the economy• Supply-side Inflation• No foreign exchange reserve• Political crisis• RBI had to pledge its gold reserves with

Bank of England for foreign exchange accommodation

• Second Big Wave of Liberalisation

Liberalised Business

• In the beginning, a madness of Americanisation

• Amartya Sen’s Social Network• C.K.Prahlad’s Bottom of the Pyramid

Approach to Business• Mohammad Yunus of Bangla Desh

Grameena Bank getting Nobel Prize• Exposure of the US double standard in

WTO negotiations

Impact of Liberalisation• Finance sector reforms• Telecom Revolution• Tax Reforms• Opening up Insurance

Sector• Disinvestment• Infrastructure• E’Governance• Right to Information

Act

• CCI• Energy sector reforms• Corporate Governance• Inclusive Development• Banking Sector

Reforms• Changes in Company

Law

Finance Sector Reforms

• Stock Exchange Reforms• Statutory Powers to SEBI• Mutual Funds• Venture Capital & Private Equity• FII Inflow• Commodities Exchanges• FEMA

Telecom Revolution

• Started in 1985 with the establishment of C-DOT

• Opening up to private sector• Mobile telephony & Chinese Equipments• Revenue to the government shooting up

with spectrum sale• Expansion of broadband services• Entertainment, education and

communication

Tax Reforms

• Kelkar Committee Report• Reduction of tax rates progressively• Increase in exemption limits• Capital gains tax and taxability of dividend• Gender based exemption limit• Direct tax code• Simplification of procedure• Summary assessment

Opening up Insurance Sector

• IRDA given statutory powers in 1999• Private insurance companies with foreign

collaborators• Insurance companies taking stakes in

Indian banks• Bancassurance• Subscribing to perpetual bonds issued by

banks

Disinvestment

• More a revenue making exercise• PSUs used their size and monopoly• Listing made the PSUs to function like

private sector• Converted Indian stock market to be a

symbol of socialism• More autonomy to the PSUs

Infrastructure Development

• Private participation is encouraged• Private airports are allowed• Private ports are allowed• Toll Road concept has been revived• Private-public partnership• Led to the growth and development of

housing and real estate development• More real estate developers tap the

market for funding

E’Governance-RTI

• IT initiative by the governments in their working

• IT companies and ITES companies take the initiative

• Corruption is coming down• Litigation level is also coming down• Speed and efficiency in government work

Competition Commission of India

• Replacement for MRTP• Controversies have bogged down• Too much reliance on government funding• Sluggish in its working• A very inefficient new-age regulatory body• Probably designed to be inefficient to allow

M & A activity both internally and externally

Energy Sector Reforms

• Private participation in exploration, marketing and distribution-NELP

• Indian companies are allowed to buy mines abroad

• Many construction companies went into generation of electricity

• Electricity trading exchange is also established

Corporate Governance

• Following Cadbury Committee recommendations in UK, the concept hass gained currency

• In India, limited to protecting the interest of the investors

• Confined to listed companies through a clause in Listing Agreement

Inclusive Development

• Rural finance and banking is emphasised• Corporates are looking at rural markets as

a business strategy• Development through self-help groups is

gaining momentum• Better funding for local bodies• Rural development officer• Micro-finance

Changes in Company Law

• A new companies bill is awaiting Parliament approval

• Producer Companies• Limited Liability Companies

Producer Companies

• Combining the advantages of co-operative and corporate forms of organisation

• Registered under Companies Act• Minimum number is 10• Democratic voting principle• Meant for co-operatives having footprints

in many states like IFFCO

Limited Liability PartnershipLimited Liability Partnership is a body corporate

& is a separate legal entity.Special type of partnership wherein liabilities of

partners are limited.From March 31, 2009, the Limited Liability

Partnership Act, 2008 came into force to basically visualise & give opportunities mainly to service sector including I.T, Accountancy & Law

The disadvantages of company & partnership form of organisation led to LLPs

Features of LLP

Limited Liability & Perpetual SuccessionHealthy Blending of Partnership & CompanyBody corporate having legal entity separate from

its partnersMinimum number of partners is two & there is no

limit on maximum number of partnersWritten partnership deed & Registration is

compulsory with Registrar of Companies [RoC]Any individual or body corporate can be a partner

in an LLP

LLP Features continued….. A partner in an LLP can bind the LLP but not the co-

partners. There is no Principal – Agency Relationship Every LLP should have at least 2 designated partners,

who are individuals & at least one of them should be Resident in India.

Interest of minority partners is protected.Accounts are to be maintained but small LLPs are

exempt from Audit Provisions.Change in partners is required to be reported within 30

days of such change

LLP Features …….3 LLPs are taxed as General Partnership is taxed LLPs are not taxed with Dividend Distribution Tax

[DDT] & Minimum Alternate Tax [MAT] But for other purposes like registration,

Reconstruction, amalgamation, liquidation etc are similar to those under Companies Act, 1956

Already existing partnership firms, private cos’ & unlisted public companies can convert themselves into LLPs.

Banking Sector Reforms

• IT Initiative by RBI• Restructuring IIB and converting it into

Indian Institute of Banking and Finance• Establishment of IDRBT in 1996• Financial sector reforms put pressure on

Indian banks• Core Banking Solutions• Reverse merger of ICICI in 2003

Problems of Banking Industry

• Taking forward the IT initiative• HR problems• Cleaning up the operations• Credit Rating• Balance Sheet Planning• Influence of insurance companies• Management of liquidity

Future of Banking

• More exposure to financial services• Distribution of mutual fund products• Distribution of insurance products• Distribution channel for government

development programmes• More participation in micro-finance• Database for the information agencies with

the compliance of KYC norms

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