be-new economic policies - srinivas reddy
TRANSCRIPT
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What is
ECONOMIC POLICY
Economic policy refers to the actions
that Governments take in the
Economic field.
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The Indian Economy: An OverviewThe Indian Economy: An Overview
India is theIndia is the 44thth largestlargesteconomy in the world as measured byeconomy in the world as measured by
purchasing powerpurchasing power
Between 1980 and 2003, Indias economy grew at an averageBetween 1980 and 2003, Indias economy grew at an averagerate ofrate of5.7%5.7%
During the same period, Indias real income per head grew byDuring the same period, Indias real income per head grew by
125%125%
Dr. Manmohan Singh, Finance Minister in 1991 and architect ofDr. Manmohan Singh, Finance Minister in 1991 and architect of
IndiasIndias economic reformseconomic reforms, is the current Prime Minister, is the current Prime Minister
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India has a India has a consumerconsumer basebase of 1.2 billion people, andof 1.2 billion people, and
The youngest population of the world The youngest population of the world hencehence sustainable,sustainable, longlong
termterm growth is assuredgrowth is assured
Modern (organised) retail converging with the Modern (organised) retail converging with the consumptionconsumptionboomboom will open upwill open up manymany opportunitiesopportunitiesfor small and midfor small and mid--sizesize
consumer companiesconsumer companies
With upper income and rich classes growing rapidly and deprivedWith upper income and rich classes growing rapidly and deprived
classes actually falling, Indiasclasses actually falling, Indias incomeincome demographicsdemographics will actuallywill actuallybebe unrecognizableunrecognizable by the end of the decadeby the end of the decade
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Home ownership is on the rise with Home ownership is on the rise with 55 MillionMillion homes added everyhomes added every
year, approximatelyyear, approximately1.51.5 MillionMillion new homes added in urban areasnew homes added in urban areas
Mobile telephone subscriber base has grown from 0.3 Million in Mobile telephone subscriber base has grown from 0.3 Million in
1996 to over 55 Million currently; expected to grow to1996 to over 55 Million currently; expected to grow to 200 Million200 Million byby
20082008
13 Million credit card holders currently & growing at 13 Million credit card holders currently & growing at40%40%p.a.p.a.
Passenger car sales of USD 5 Billion in 2004, Passenger car sales of USD 5 Billion in 2004, more thanmore than twicetwice thethe
level of sales five years earlierlevel of sales five years earlier
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2013
7
36
70
1950s 1960s 1970s 1980s 1990s
The fastest rise in incomes.The fastest rise in incomes.
% rise in per capita income
The Indian Economy: An OverviewThe Indian Economy: An Overview
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The Indian Economy: An OverviewThe Indian Economy: An Overview
The biggest drop in inflationThe biggest drop in inflation
9.5
9.1
7.4
4
1970s 1980s 1990s 2000-4
% decrease in inflation
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The Indian Economy: An OverviewThe Indian Economy: An Overview
Have prompted a spending boomHave prompted a spending boom
5.9
9.5
6.5
11.4
2000-01 2001-02 2002-03 2003-04
% growth in consumption expenditure
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The Indian Economy: An OverviewThe Indian Economy: An Overview
as well as the highest level of savingsas well as the highest level of savings
13.8
19.321.9
26.6
1980-81 1990-91 2000-01 2003-04
Household savings as % of GDP
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The Indian Economy: An OverviewThe Indian Economy: An Overview
The economy is riding highThe economy is riding high
4.4
8.5
6.9 7*
2002-03 2003-04 2004-05 2005-06
% annual growth in GDP
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India in 2050India in 2050
India will be the 3rd largest economy.
-
5,000
10,000
15,000
20,000
25,000
30,00035,000
40,000
45,000
50,000
Chin
aUS In
dia
Japan
Brazil
Russia UK
G
ermany
France
Italy
US2
003$billio
ns
..with the highest growth rate of BRICs
0
1
2
3
4
5
6
7
8
2005-10 2015-20 2025-30 2035-40 2045-505-YearPeriodAveragePerc
entPer
Annum
Brazil
China
India
Russia
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TYPES OF ECONOMIC POLICY
1. MONETARY POLICY
2. FISCAL POLICY
3. INDUSTRIAL POLICY
4. TRADE POLICY
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MONETARY POLICY
IT IS FORMULATED AND EXECUTED BYRESERVE BANK OF INDIA.
IT REFERS TO THAT POLICY BY WHICH
CENTERAL BANK OF COUNTRYCONTROLS:1. SUPPLY OF MONEY2. COST OF MONEY OR RATE OF
INTEREST WITH A VIEW TO
ACHIEVE PARTICULAROBJECTIVES.
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DEFINITION
ACCORDING TO D.C ROWAN THEMONETARY POLICY IS DEFINED AS
DISCRETIONARY ACT UNDERTAKEN BYTHE AUTHORITIES DESIGNED TOINFLUENCE :
THE SUPPLY OF MONEY
COST OF MONEY OR RATE OF INTERESTTHE AVAILABILITY OF MONEY
FOR ACHIEVING SPECIFIC OBJECTIVES.
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OBJECTIVES
MAIN OBJECTIVE OF THIS POLICY
IS : TO ACHIEVE PRICE STABILITY,
FINANCIAL STABILITY
ADEQUATE STABILITY OF CREDITFOR GROWTH.
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FISCAL POLICY
IT IS RELATED TO INCOME AND EXPENDITURE OFGOVERNMENT.
IT REFERS TO BUDGETARY POLICY OF GOVERNMENT.
IT IS OF GREAT IMPORTANCE FOR BOTH DEVELOPEDAS WELL AS DEVELOPING COUNTRIES.
IT IS AN INSTRUMENT FOR PROMOTING ECONOMICGROWTH,EMPLOYMENT,
SOCIAL WELFARE ETC.
IT HAVE A GREAT BEARING ON ECONOMICEQUALITY AND ECONOMIC GROWTH OF THECOUNTRY.
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DEFINITION
ACCORDING TO ARTHUSSMITHIES,FISCAL POLICY IS A POLICY
UNDER WHICH THE GOVERNMENTUSES ITS EXPENDITURE AND REVENUEPROGRAMMES TO PRODUCE DESIRABLEEFFECT AND AVOID UNDESIRABLE
EFFECTS ON THE NATIONALINCOME,PRODUCTION ANDEMPLOYMENT.
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INDUSTRRIAL POLICY
IT MEANS THOSE PRINCIPLES ANDACTIVITIES WHICH ARE PERSUED ANDPERFORMED TO HELP INDUSTIALISE A
COUNTRY. IT INCLUDES RULES, REGULATION,
PRINCIPLES AND PROCEDURES TOREGULATE THE INDUSTRIALUNDERTAKING OF A COUNTRY IN THEDESIRED DIRECTION TO ACHIEVEBROADER OBJECTIVES LIKE:
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INDUSTRIAL DEVELOPMENT
ECONOMIC DEVELOPMENT
BALANCED REGIONAL
DEVELOPMENT
INCREASE IN EMPLOYMENT ETC
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DEFINITION
INDUSTRIAL POLICY IS ANINSTRUMENT WITH THE HELP OFWHICH THE STATE PARTICIPATES IN
THE GROWTH PROCESS.
IT INCLUDES POLICY REGARDING LABOURAND CAPITAL ,COTTAGE AND SMALL SCALE
INDUSTRIES, FOREIGN CAPITAL ANDPROTECTION ETC.IT IS FULLY CONTROLLED AND REGULATEDBY THE GOVERNMENT.
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TRADE POLICY
BASIC OBJECTIVE OF TRADE POLICY ISTO PROMOTE EXPORTS,REGULATEIMPORTS,IMPROVE TERMS OF
TRADE,ENHANCE EXPORTCOMPETITIVENESS AND CREATECONDITIONS OF EXPORT -LED GROWTH.
THIS POLICY IS OF UTMOST
IMPORTANCE TO EXPORTERS AS ITHAS A MAJOR IMPACT ONTRANACTION COSTS AND EFFICIENCYOF TRADE TRANSACTIONS
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Why NEP 1991??????
To overcome Reservation of
Industries To overcome Entry & Growth
Restrictions
To overcome Restriction on ForeignCapital & Tech.
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OBJECTIVES OF NEP
To pull thecountry out ofeconomic crisis Accelerating the
rate of growth
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Reasons for NEP
Fiscal deficit was 5.4% of GDP in 1981-82 which gone up to
8.4% in the year 1990-91
In 1991 amount of interest liabilities rose further to 36.4% of
total government expenditure
Country was moving towards debt trap
Fall in foreign exchange reverse
Rise in prices
Poor performance of public sectors under takings
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First gulf war caused spikes in oil prices which caused a major
balance-of-payment crisis for India
India asked for $1.8bn bailout loan from IMF, in return demanded
reforms
This NEP was inaugurated by former PM P.V.Narasimha rao under
the guidance of his FM Manmohan Singh
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NEP
Liberalization
Privatization
Globalization
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Several types of controls on Indianeconomy ( licensing, price control,
financial control)
This led to
corruption,
undue
delays &
inefficiency
NEP made a bid to reducerestrictions on economy
(based on market economy)
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It is the general process of involving the private sector in the ownership or operations
of a state owned enterprise
PRIVATIZATION
Outright sale of government enterprises Withdrawal of the government
ownership & management from mixedenterprises
The ownership of PSUs is being gradually sold off to privateentrepreneurs
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Gains
100% commitment &efficiency
Compitition,upgradation &
modernization
Diversification ofproduction
Promotesconsumerssovereignty
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LossesSelf interest
supersede
social interest
Weaker
section suffers
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Policy-
strategiespromoting
globalization
Increase inequity limitof foreign
investment
Partialconvertibility
Long termtrade policy
Reduction intariffs
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Economic activities has picked up & the growthrate of GDP has shown an
impressive increase
Stimulated industrial production
Significant increase in government revenues & subsequent decrease in fiscal
deficit
Greater flow of goods & services checked inflation rate
Flow of pvt foreign investments increased
India has been recognized as emerging super power
Monopoly markets has been converted into competitivemarket
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Agriculture is totally neglected
Concentration of growth processes in urban area
Consumerism has been increased
Cultural erosion
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Initiatives Taken in New Economic Policy
New Economic Policy (1991)
Industrial SectorReforms
Public Sector Policy
Industrial Licensing Policy
MRTP Act
External TradeReforms
Foreign Investment
Foreign Technology
Agreements
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Industrial Policy Changes
Pre-1991 Policy Current PolicyIndustrial Licensing was the new rule Licensing is an exception
Public sector monopoly/dominance in
strategic, basic and heavy industries
All but two industries are open to the private
sector
MRTP Act restriction on entry and growth of
large companies
No such restrictions
Foreign investment allowed only in select
industries that too subject to normally, a
ceiling of 40% of total equity and prior
permissions
Foreign investment allowed in a large number
of industries, including up to 100% or equity in
many of them. Automatic route available
subject to specified conditions.
Restrictive policy towards foreign technology Very liberal policy towards foreign technology
Reservation of large number of products for
small scale sector
Reservation list is being pruned.
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FDI in India
FDI is investment made by a foreign individual or company inproductive capacity of another country. It is the movement ofcapital across national frontiers in a manner that grants theinvestor control over the acquired asset.
India is considered a stable country for investing in by corporateoverseas.
India has displaced US as the second-most favored destinationfor (FDI) in the world after China according to an AT Kearney's
FDI
FDI is a tool for jump-starting economic growth through itsbolstering of domestic capital, productivity and employment.
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FDI in India
FDI has an impact on1. Country's trade balance
2. Increasing labor standards and skills
3. Transfer of new technology and innovative ideas
4. Improving infrastructure, skills and the general business climate.
US INVESTMENT IN INDIA
U.S. is one of the largest foreign direct investors in India.
The stock of actual FDI Inflow increased from U.S. $11.3 million in
1991 to US $4132.8 million as on August 2004 recording an increaseat a compound rate of 57.5 percent per annum.
The FDI inflows from the US constitute about 11 percent of the totalactual FDI inflows into India.
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FDI in India
FDI has an impact on
1. Country's trade balance
2. Increasing labor standards and skills
3. Transfer of new technology and innovative ideas
4. Improving infrastructure, skills and the general business climate.
US INVESTMENT IN INDIA
U.S. is one of the largest foreign direct investors in India.
The stock of actual FDI Inflow increased from U.S. $11.3 million in1991 to US $4132.8 million as on August 2004 recording an increaseat a compound rate of 57.5 percent per annum.
The FDI inflows from the US constitute about 11 percent of the totalactual FDI inflows into India.
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China vs. India FDI Attractiveness
India
China
6%
22%
29%
34%
35%36%
39%
40%
41%
41%
42%
45%46%
50%
57%
66%
70%
73%
73%78%
94%
78%
71%
66%
65%64%
61%
60%
59%
59%
58%
55%54%
50%
43%
34%
30%
27%
27%22%
Market Size
Market Growth Potential
Access to Export Markets
Government Incentives
Production/LaborCosts
Infrastructure
Financial/Economic Stability
EconomicReform
Political/Social Stability
Quality of Life
TaxRegime
Competitor Presence
ConsumerSophistication
Availability of M&A Targets
Regulatory Environment
Cultural Barriers
Transparency
ManagementTalent
Rule of Law
Highly Educated Workforce
Source: FDI Confidence Index. A.T. Kearney. October 2004.Volume 7
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BOOMING INDIAN ECONOMY
When I visited China in late 1980s
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When I visited China in 2005
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When I visited India in late 1980s
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When I visited India in the present day
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WHAT DO THE PREVIOUS FOUR IMAGES TELL US?
India in 1980
Ahead of China esp. in free
enterprise and per capita
earnings
China in 1980
Still strugglingwith Communist
Egalitarian past and lack of
enterprise
India in 2005
Full of vigour but political
system still trapped in
clanship management of the
Nation instead of takingcharge of enterprise
China in 2005
Government took charge of
enterprise in late 1980s,
transforming China into a
modern industrial nationwhich increased per capita
income by a factor of 5
How will Indias Industrial Growth
look in 2010?
How did China imbibe
Entrepreneurship into their
Management?
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GDP Growth 2000 to 2050
Source: Goldmann Sachs: The Path to 2050
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
[2003 bn US Dollars]
Germany
Brazil
JapanRussia
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CONCLUSION
India will reach 8% Growth Rate in next 5 years
Economy will grow to between 10 12% between 2010 2015
QUOTE: We can be a developed Nation by 2020 if we make this ourMission Statement Dr A P J Abdul Kalam, Indian President
Will India fulfil the Presidents Statement?
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