Economic Liberalization in India
Past Achievements and Future Challenges
6 August 2011
© Confederation of Indian Industry
Economic Reforms
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The early burst of reforms in the early to mid nineties made sweeping changes such as
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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 greater
competitiveness
•
These measures have also helped India in emerging as a resurgent, vibrant and
dynamic nation, leading global growth
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India is the second fastest growing economy in the world after China
India was able to withstand the repercussion of the global economic crisis
India’s participation is required in all global negotiations ranging from global trade to
climate related deals
CII’s Role
•
Post-1991, CII worked on multiple fronts to facilitate liberalization:
• Engaged with administration to calibrate policies to sequence reforms and minimize
industry adjustment pains
• Sensitized officials and Members of Parliament for reforms through sustained
interaction
• 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 CII’s endeavours since 1991. Some of CII’s pioneering
initiatives that helped industry to align with global imperatives include:
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Arranging outward missions through networking with international governments,
industry associations, institutes and academia for opening new avenues for Indian
industry
Initiating Quality Movement in India; Sundaram Fasteners first company to get
ISO9000 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
Robust GDP Growth
GDP
10.0%
8.0%
6.0%
4.0%
1.4%
2000.0
1000.0
•
GDP has surged from 5.7% during
1991-00 to 7.7% during 2001-11
Y-O-Y Growth (%)
8.5%
9.3%
6.8%
8.0%
9.5%
9.6%
4.4%
5.8%
3.8%
6.7%
6.4%
4.3%
5.7%
6.4%
7.3%
3000.0
5.4%
4000.0
5.3%
(Rs. 000' Crore)
5000.0
8.5%
7.5%
12.0%
8.0%
6000.0
2.0%
GDP
2011
2008
2009
2010
2006
2007
2004
2005
2001
2002
2003
1999
2000
1997
1998
1994
1995
1996
1992
1993
0.0%
1991
0.0
GDP Growth Rate
Per Capita Income
Source: Economic survey 2010-11 and CSO
Growth in Per Capita Income
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
Y-O-Y Growth (%)
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%
-0.5%
Per Capita Income has more than
doubled from Rs. 15,826 in 1991
to Rs. 41,129 in 2011; has been
increasing at an average annual
rate of about 7% since 2004
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
•
(Rs.)
Per Capita Income
Structural Change in GDP Composition
Com position of GDP (1991 v/s 2011)
Agriculture, 16.6%
2011
34.0%
42.7%
1991
Services, 57.7%
Industry, 25.7%
23.2%
•
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 the
reducing employment elasticity of agricultural sector
Source: Economic survey 2010-11 and CSO
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
500
5.0%
Savings
Investment
Savings as % of GDP
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0.0%
1991
-
Investment as % of GDP
•
Savings as a proportion of GDP moved up by more than ten percentage points
from 22.8% in 1991 to 33.7% in 2010
•
Investment to GDP ratio also jumped from 26.0% to 30.8%, however expected
to declined to 29.5% in 2011 due to rising interest rate
Source: Economic survey 2010-11 and CSO
Y-O-Y Growth (%)
30.8% 33.7%
34.5%
45.0%
32.2%
38.1%
36.9%
34.6%
34.7%
33.5%
32.8%
32.4%
25.2%
26.3%
22.8%
23.5%
24.3%
23.7%
25.9%
24.8%
23.3%
22.3%
25.3%
23.8%
24.0%
22.7%
26.2%
24.4%
25.5%
24.4%
22.5%
21.9%
22.1%
23.1%
21.2%
1,000
21.5%
1,500
26.0%
2,000
22.8%
(Rs. 000' Crore)
2,500
29.8% 27.6%
3,000
35.7%
Savings and Investment (as % of GDP)
Merchandise and Service Trade
Merchandise Exports
Merchandise exports soared to cross
US$250 bn in 2011 from US$ 18.5 bn in
1991, about 14 fold increase
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Service exports went up to US$132 bn in
2011 from mere US$ 4.6 bn in 1991,
registering a CAGR of 18.3%
182.2
189.0
166.2
2011
2010
2009
•
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1991
0.0
1996
50.0
1995
100.0
1994
150.0
1993
200.0
1992
250.0
27.9
18.5
21.1
18.3
24.3
18.9
26.7
22.7
35.9
26.9
43.7
32.3
48.9
34.1
51.2
35.7
47.5
34.3
55.4
37.5
57.9
45.5
56.3
44.7
64.5
53.8
80.0
66.3
118.9
85.2
157.1
105.2
190.7
128.9
(US$ Billion)
300.0
•
250.5
257.6
350.0
300.6
308.5
380.9
Merchandise Trade
400.0
Merchandise Imports
•
132.0
Service Trade
150.0
90.3
Source: RBI
52.0
51.5
44.3
34.5
27.8
60.0
84.3
73.8
Service Exports
Service Imports
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
6.1
4.7
1995
4.7
5.3
1994
3.6
3.8
1993
5.0
1992
3.6
1991
-10.0
4.6
30.0
5.5
50.0
7.3
7.5
7.5
6.7
9.4
8.1
13.2
11.0
15.7
11.6
16.3
14.6
17.1
13.8
20.8
17.1
26.9
16.7
43.2
70.0
10.0
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57.7
90.0
1996
(US$ Billion)
110.0
Merchandise and Service imports grown
at a CAGR of about 14.0% and 17.1%
respectively
95.8
106.0
130.0
Backed by robust exports of IT and
ITes services; close to $60 billion in
2010-11
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Faster rise in imports over exports
have undoubtly widened trade deficit
yet it has helped in keeping global
demand alive in the wake of the
global economic crisis
Trade as a proportion of GDP has
increased magnificently from 9.0% in
1991 to 87.9% in 2011
157.8%
FDI Inflows
102.5%
5000
53.8%
49.1%
100.0%
56.1%
41.8%
76.5%
83.7%
75.2%
59.3%
41.6%
66.1%
46.0%
120.0%
39.4%
10000
160.0%
140.0%
27.5%
14.1%
15000
43.8%
56.4%
20000
25.6%
25000
97.0%
US$ Million
30000
94.2%
35000
180.0%
60.0%
40.0%
20.0%
FDI Inflow s
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0.0%
1991
0
Source: RBI
80.0%
FDI as % of Total Foreign Inflows
40000
As % of Total foreign Investment Inflow s
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FDI inflows have grown multiple fold from just US$ 97 mn in 1991 to US$ 30.4
bn with an average annual compound growth rate of 33.3%
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FDI inflows as a proportion of total foreign investment inflows has fallen from
157.8% 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 in
the first decade of the century mostly in developed economies
SENSEX
Trends in Capital Market - SENSEX ans BSE 100
21,000.0
18,000.0
15,000.0
12,000.0
9,000.0
6,000.0
3,000.0
SENSEX
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2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
0.0
BSE 100
Steps taken over the last two decades have resulted into maturing of nascent
financial market. Further, robust economic growth and fast pace of
globalization has led to buoyant investors’ sentiment
• SENSEX has increased from a level of 1908.9 in 1991 to 18518.2 in 2011 at
a CAGR of 12.0%
Source: BSE, bseindia.com
Move Towards Inclusive Growth
• While the first phase of reforms had unleashed economic growth, it was felt
that the benefits of growth must be more equitably distributed
• Starting 2005, the UPA government has shifted the focus to inclusive growth
through greater allocation to socially beneficial schemes and programmes
• Total Plan Allocation increased markedly from Rs. 9.6 thousand crore in
1991 to Rs. 335.5 thousand crore in 2011-12, nearly 35 fold increase
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
Source: Budget and Government Sources
CII’s Initiative on Socio Responsibilities
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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 generate
awareness 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
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Environment Management
• Set up Environment Management Division after Rio Summit in 1992
• Initiated Green Building movement in India through its Centre of Excellence
Green Business Center
• Engages in climate change mitigation efforts
Social indicators
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Literacy Rates
100.0%
74.0%
80.0%
Overall literacy rate has gone up from just
over half to almost three-quarters during
1991 and 2011
82.1%
•
65.5%
64.1%
52.2%
60.0%
39.3%
40.0%
•
20.0%
Among young people, the rates are higher
as the Right to Education law kicks in
0.0%
Overall
Males
1991
Literacy level among female folk which
constitutes about half of the population
has nearly doubled
Females
2011
Source: Economic Survey
Poverty Estimates
40.0%
•
35.6%
37.0%
35.0%
35.0%
Overall, poverty has declined by eight
percentage points from as high as 35.6% in
1991 to 27.5% in 2005
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Decline was more pronounced in urban areas
as compared to rural areas
Urban poverty fell by double digits. Rural
poverty came down by seven percentage
points
28.3%
27.5%
30.0%
25.7%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Total
Rural
1991
Source: Planning Commission
Urban
2005
Major Plans for Infrastructure Development
Sector
Deficit
Eleventh Plan (2007-12) Targets
Roads/
Highways
65,590 km of NH comprise only 2% of
network; carry 40% of traffic; 12% 4laned; 50% 2-laned; and 38% singlelaned
6-lane 6,500 km in GQ; 4-lane 6,736 km NSEW; 4-lane 20,000 km; 2-lane 20,000 km;
1,000 km Expressway
Ports
Inadequate berths and rail/road
connectivity
New capacity: 485 m MT in major ports; 345
m MT in minor ports
Airports
Inadequate runways, aircraft handling
capacity, parking space and terminal
buildings
Modernize 4 metro and 35 non-metro
airports; 10 greenfield airports
Railways
Old technology; saturated routes; slow
speeds (freight: 22 kmph; passenger: 50
kmph)
8,132 km new rail; 7,148 km gauge
conversion; modernize 22 stations;
dedicated freight corridors
Power
13.8% peaking deficit; 9.6% energy
shortage; 40% transmission and
distribution losses; absence of
competition
Add 78,577 MW; access to all rural
households
Source: Planning Commission
Power and Road
Installed Capacity in Power Sector: All India
Installed Capacity: Power
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180,000.0
Total installed capacity has more than doubled
during 1991 and 2011
153,774.8
160,000.0
•
140,000.0
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MW
120,000.0
100,000.0
80,000.0
Even after 20 years, thermal power remained the
most dominant form
There is a need to change the present composition
in favour of hydro, nuclear and other bio-produce
power to conserve coal for industrial purposes
66,086.3
60,000.0
40,000.0
20,000.0
1991
2011
Source: CMIE, Industry Analysis Service
Road Length
Road Length
Public-private-multilateral
partnerships
have
been successful in implementing highways
programme
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NHAI to award 7,994 km of highway projects
in the FY 2012
Going to generate demand for cement,
steel, and bitumen of worth Rs 42,000 crore
Though the sectoral performance has
improved, yet to be enhanced considerably
to ensure optimal utilization of resources
and to avoid overrunning of cost
4,236.4
4,500.0
4,000.0
3,500.0
3,000.0
( 000' Km)
•
2,500.0
2,327.4
2,000.0
1,500.0
1,000.0
500.0
1991
Source: Ministry of Road, Transport and Highways
2008
Steel and Telecom
Finished
Steel Production
Finished
Steel
Production
Steel production has surged nearly five fold
in last 20 years
•
India fourth largest steel producer in the
world and is expected to become the
second largest producer by 2013
66,013.0
70,000.0
60,000.0
(000' Tonnes)
•
50,000.0
40,000.0
•
30,000.0
20,000.0
13,566.0
Steel production capacity to touch 120
Million Tonnes by 2013 and over 150
Million Tonnes by 2020
10,000.0
1991
2011
Source: CMIE, Industry Analysis Service
Telecom Subscriber
Base
Telecom
900.0
Private sector participation has lead to sharp
reduction in tariffs and rapid increase in
penetration of basic/mobile telephones
•
•
Registering a CAGR of 29.0% during 1991
and 2011
Teledensity improved from 0.6 (per 100
person) in 1991 to 66.2 twenty years later
826.9
800.0
700.0
(Millions)
•
600.0
500.0
400.0
300.0
200.0
100.0
5.1
0.0
1991
2011
Source: Department of Telecommunications, Ministry of Communications and Information Technology
Challenges
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High inflation level above comfortable zone – 9.4% in June 2011
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Industrial slow down – IIP 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 key
industries – 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% to
US$ 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 subsidy
and rising interest rates are casting doubts
Agenda for further reforms
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Investment Climate:
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Financial Sector Reforms:
•
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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:
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Liberalize financing guidelines
Facilitate increased access to international debt markets
Encourage development of the corporate debt market
Agriculture Sector Reforms:
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FDI in sectors such as retail, insurance, defence, etc needs to be expanded drastically
Rapid clearance of large projects
For greater investment in infrastructure policy framework needs to be made more friendly
Social Sector:
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Much better delivery of government services to the poor with the support of state governments
CII has been a strong partner to government during the reforms period and will
continue to build the partnership of Government and industry to make India a
developed nation in the next two decades
Thank You