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 opportunity

Investments 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
 What the
Future Beholds???

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
 GDP growth at constant prices

9 8.2 8
8
7 6.1
6
5
nt

4
e
inprce

3
2
1
0
Average for 1993-2003 2003-04 10th Plan Projection (2002-07)
Indian Foreign Exchange Reserves: a steady rise after
liberalization

Foreign exchange reserves (US$ billion)

150
118.3
100 75.4
54.1
50
17.0
2.2
0
1990-91 1995-96 2001-02 2002-03 2003-04
 Foreign Investments after liberalization

Total Foreign Investment (US$ million)

US$ million
18000 15,872
16000
14000
12000
10000 8,152
8000 6,789
5,138 5,385 5,639
6000
4000
2000 103
0
1990-91 1994-95 1997-98 2000-01 2001-02 2002-03 2003-04
 Import duty Reductions after liberalization

Reduction in Peak Customs Duties on Manufactured items

160
140
150
120
100
110
inper cent

80
60
40
50 42
20 38.5 30 25 20
0
1991 Mar-92 Mar-95 Mar-97 Mar-00 Mar-02 Mar-03 w.e.f March
2004
 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

30.3 31.6 32
35
26.9 28.9
30 23.1 25.5
25 18.1
20
inper cent

15
10
5
0
19 9 1-9 2 19 9 4 -9 5 19 9 7 -9 8 19 9 9 - 2 0 0 0 -0 1 2 0 0 1-0 2 2 0 0 2 -0 3 2 0 0 3 -0 4
2000
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
AFTER 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.
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 British American

Electric Airways Express
Citibank McKinsey Accenture
Microsoft Intel Hewlett Packard
Dell Oracle IBM
Sun CISCO Texas
Microsystems 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 Liberalization
Roads

 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.)