ASSIGNMENT 1

CASE- INDIA ON THE MOVE

Name- Jay Jhaveri

Roll No- BD21071

Case Background
‘India on the move’ case talks about discusses India and its plans to meet the long term objectives set
in 10th five year plan by carving out a budget for the same. The major objectives of the plan included
the following;
1. Accelerating the Growth
2. Creation of Employment Opportunities.
3. Improving the per capita Income

The plan after carefully considering the degradation of soil and other environmental factors, it decided
to promotes ‘Services’ sector, while maintaining Agriculture at the top as a majority of population
depended on Agriculture. To implement the plan and in order to increase the disposable income of
government, it was decided to enforce taxes, reduce incentives and trying to get ahold of the recurring
expenses. A major move which boosted the economy and provided with ample amount of employment
opportunities was the Privatization of Government industries as it also ensured better output and a
higher efficiency while maintaining the smooth working of the industry.

With an aim of all round development and focus on decreasing poverty and facilitating employment, it
was of utmost necessary that government would invest in infrastructure and provide better roads,
sanitation facilities and improve healthcare services.
KEY ISSUES AND CHALLENGES
1. Internal Issues and Conflicts
India as a country had people residing from various parts of the world and people following
different religions and setting distinct cultures. Apart from that, primary reason being the
distribution of the undivided India into India and Pakistan facilitated by the British community
making the situation worse. The long going battle for the state of Kashmir, gave birth to various
issues like political instability, rifts among various religious groups, cicil unrest among the
citizens which led to using up more funds to settle these matters instead of focusing on other
developmental issues.

The factors which could potentially become the reason for success i.e. diversity became a major
issue. Political instability among the country and rifts between political parties further
accelerated the issues. With a complex government structure and multi leveled administration,
the policies made were contradicting and there were clashes between state and central
government over tax collection.

2. Fiscal Deficit

Due to rising deficits of up to 10% of GDP, simply servicing loans can account for up to half
of national spending. The same resources that are being diverted from worthwhile projects
could be used to improve the country's situation.

A large portion of this is due to the government's failure to aggregate adequate funds. Removing
tax breaks and subsidies can help to lessen the problem. Developing an energy supply system
and bolstering the country's agricultural base.

The government should stick to maximization of output. The government is also unable to
collect taxes from the general public. The proportion of the ratio of taxpayers to tax evaders is
a pitiful 1:50.

3. Permit Raj
In order to achieve self sufficiency, India decided to produce in the country but with that came
a lot of restrictions, licensing act and a lot of regulations which made the trade troublesome for
most of the manufacturers. The decisions made the system inefficient and complex and the
system was named as ‘Permit Raj’.
In the initial stages, special permission had to be obtained from a set of ministries following a
complicated set of procedures. For obtaining an import license it was essential for the importer
to prove that the product is impossible to produce in a reasonable time frame. In some cases,
the licenses took up to 4 years. This showed the inefficiency of the system.

Majority of the products were placed under very high tariff. For instance nearly 60% of the
products were in the range of 110-140% which made it almost impossible for the private sector
to enter in the market.

CASE AND INTERPRETATIONS

The number of economic reforms in Indian economy have been many and government has tried
to implement many five year plans to achieve various goals but government has not been able
to match the targeted growth in four of the nine 5 year plans.

India has been home to a large number of poor people. Nearly 36% of the poor in the world are
present in India and nearly 44% of the people lying below the 1 $ bracket. There have been
many challenges while bringing about changes in this particular section of the society.

To promote self-sufficiency and local industry, a range of taxes and regulations were imposed
on all goods entering the country from other countries. Imports of capital goods were subjected
to high tariffs.

While paying reserves from 1995 to 2002, which had started at 733 million dollars in 1995,

the value has decreased dramatically from 1995, down to -18.8 billion. This is due in large part
to imports into the country, which have drew exports out of the country on a regular basis.
Goods from India were not competitive enough in the worldwide market to generate
considerable demand. This may be the case. Associated with a variety of factors, including
insufficient production facilities, licensing requirements and non-adoption of new technologies
in production of goods.
Labor accounts for around 5% of American productivity in the power transmission and
distribution sector, and nearly 1% in the public sector, which dominates the market. When
capital was used by the private sector, it was estimated to be six times more effective.

Similar tendencies had been observed in the electricity generation and distribution industry.
Despite the fact that private labour was significantly more important than public labour, it was
only one-fifth as effective as its American counterpart.

With rising productivities, capital is one item that has fared better. Retail banking and dairy
processing are two of the industry's fastest-growing segments. The industries showed growth
that were higher in terms of other industries and gave more chnaces for people to develop their
businesses to.

India has a slew of domestic problems, particularly in the political realm. This ranges from
serious charges of corruption among ministers of competing parties to the two-party system.
As a result of their acts, prime ministers have been assassinated.

Indira Gandhi was instrumental in breaking up the Sikh militant forces that were attempting to
gain a foothold in India. Punjab, an Indian state, had become an independent nation. The
situation was rapidly deteriorating. Inside the Golden Temple in 1984, there were militant
groups stationed.

In the process of removing them, a major portion of the shrine was damaged. As a form of
retaliation and taking action against their faith, Prime Minister Indira Gandhi was assassinated
by two of her sikh Bodyguards. There have been instances of such nature where public showed
retaliation against government officials.

In 1984, when her son Rajiv Gandhi took office as her successor, he faced a similar dilemma.
He was the one who dispatched Indian peacekeepers to Sri Lanka to prevent civil violence
between Sinhalese and Tamil forces. He was impeached after losing the next election. He was
killed by a suicide bomber who sought to prevent him from participating in a campaign for
intervention and wanted that there would be no more Indian intervention in Sri Lanka

In 2002–2003, the country was facing a financial shortfall of 5.9% of its GDP due to severe
budgetary constraints. When combined with state budget deficits, the monetary red ink was
estimated to be greater than 10% of GDP. In 2002, India's military spending increased to 10%
of total expenditure. Furthermore, natural disasters ranging from droughts to the earthquakes in
Gujarat in 2001 necessitated additional government expenditures. Agribusiness and energy
appropriations accounted for 11% of the administration's spending and could be difficult to cut
without risking losing discretionary funding.
Because of the limited market, consumers were forced to deal with low-quality, high-priced
Indian items. As there was no competition, people became complacent and lacked the incentive
to innovate. The Ambassador car, for example, has been there for nearly 50 years without any
significant changes, leaving buyers with a suboptimal car market.

By 1991, India had made the decision to begin the process of globalisation. This was driven by
a combination of an inefficient domestic market and the disintegration of the Soviet Union. The
Congress government of PV Narasimha Rao, which was elected in 1991, was confronted with
a major crisis since its reserves were below USD 1 billion and would only last two weeks.
Furthermore, the current account deficit has climbed to nearly 3%.
With stores to last for at most fourteen days, India had to go to the International Monetary Fund
(IMF) for help. The IMF conceded the credits yet just relying on the prerequisite that India start
making major financial change

In exchange for this, India agreed to abide by the Washington Consensus's terms. At the period,
India's Prime Minister, PV Narsimha Rao, and Finance Minister, Manmohan Singh, aided
India's transition to a market economy and increased economic growth liberalisation. Most
tariffs on imports are based on the amount of capacity that could be produced with a certain
amount of input. The licence has been taken away. Foreign investment and ownership
restrictions had been imposed. Banks with financial backing from foreign countries were
allowed to set up their operations in the country to attract investment. It was also the time when
a securities board had been set up to monitor the smooth operations of the industry.

It was a relatively new industry that exploded in popularity after the year 2000. A large portion
of this can be attributed to the large number of Indian youngsters who have been given access
to university education. These people could also communicate and behave in English as
employees in huge multinational corporations' operations Conglomerates like General Electric
(GE) was able to establish software development and back office teams in the United States.
India, and had been heavily staffing them with personnel who used to cost only a few dollars.
When compared to their American counterparts, they make a fraction of the salary.

A large number of higher education institutions has also led to detrimental effects. From the
declining quality of education due to a massive number of institutions to varying purposes for
parents sending their children to school (mid-day meals). The surplus workers who were highly
skilled and unable to find suitable work in India then had to migrate to foreign shores, causing
a loss of intellectuals from the country
MACRO ECONOMIC TOOLS

Aggregate Demand and Supply

This tool will aid in understanding the causes for India's high number of college-educated
students and lack of primary education. It will also assist us in narrowing down the aspects to
examine while scaling up the country's production capacity and drawing a conclusion.
Imports, exports, and applicable strategies and data are all combined to maximise in-house
production in order to reduce imports from other countries

LEARNINGS
STRATEGIZING FOR LONG TERM
Although there may be short-term benefits, it is always wiser to look at the big picture. It is
actually preferable to suffer losses for the time being in order to gain greater long-term
advantages. One example of this is the setting up of educational institutions. Despite the fact
that the government had invested a significant sum of money in the establishment of schools
and colleges; it was an investment that paid off handsomely. Resulted in long-term benefits, as
students graduating each year were better equipped with the skills they needed necessary for
employment, resulting in an increase in per-capita income and a higher standard of living.

ENCOURAGING NEWER METHODS

Previously, the Indian government had a closed economy with little room for innovation. As a
result, market actors have become sluggish, failing to create healthy competition that would
evaluate the quality and prices of the items and services on sale, resulting in higher prices didn't
produce the best results. As soon as the country was opened up to outside markets and goods,
the local economy was obliged to adapt. To be able to compete, players must become proficient
and push their performance to a world-class level. To make it in the market As a result, new
production and servicing approaches have emerged. When it came to industries, it might also
be perceived as an increase in per capita production.