Download - Mckinsey 2001 case study
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McKinsey agenda for
India’s economic growth
PRESENTED BY :- ABHISHEK YADAV RAVINDRA KUMAR JAYA CHADDHA
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ABOUT • McKinsey was founded in 1926 by James McKinsey.
• 108 offices
• McKinsey & Company is a global management consulting firm
that serves leading businesses, governments, non governmental
organizations, and not-for-profits.
• Earlier McKinsey worked on the economic performance of
Sweden,Australia,france,Germany,Netherlands,brazil,korea,UK,R
ussia,Poland and japan.
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About Case study
• On Sep 6,2001 a team from the consulting firm McKinsey
designed a road map to increase India’s growth from 5% to
10%.
• McKinsey did some study then gave :
Barrier for growth.
13 step to avoid the barriers.
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Mckinsey study
India and china had roughly same GDP per capita.
McKinsey studied Indian economy to see what is holding back
growth and what policy changes might accelerate it.
Better and new economic policies could improve India’s
situation.
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They examined 13 sectors:
• 2 Agriculture
• 5 manufacturing
• 6 service
Identified the barriers to productivity and output growth in each
of these sectors.
Cont..
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Investment vs. productivity
• In Normal productivity- measure of work done in a unit of time.
• If we take Indian power sector-
• By privatizing to plug thefts, subsidies and waste, which will first
yield more power and next attract fresh investments.
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• According to Stanford professor Paul Romer
• Economists have considered land, labor and capital as being in
lock-step with growth numbers.
• Robert Solow who proposed that technical advances will get
economies to start jogging.
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Outcome
• Awareness, laws, enforcement, education and business climate
of a country are conducive to competition and productivity,
things automatically perk up: investment follows, infrastructure
is created , global competitiveness is enhanced and steady
growth is achieved.
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McKinsey promise
• To increase the growth of India.
• Growth of more than 4% is denied to India by just three barriers:
distortions in product-markets [2.3%]
distortions in land-markets [1.3%]
state ownership of business [0.7%]
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Three Barriers
• Regulations governing products and markets
• Land market distortions
• Government owned businesses
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Product Market
Product market barriers and the rules and policies governing different sectors of the economy
delay GDP growth by 2.3 % a year.
5 features especially damaging to competition and productivity:
Inequitable regulation:
• Many regulations restrict competition because they are inequitable and ill-conceived.
• Example:- Telecommunications
Uneven enforcement:
• The rules are not applied equally to all players.
• Example:- Small-scale mills frequently steal electricity and underreport their sales to avoid
tax.
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Reservation of products for the small scale enterprises:
• Example:- clothing and textiles
Restrictions on Foreign Direct Investment (FDI):
• FDI is prohibited in certain sectors of Indian economy.
• Example:- Retail
Licensing :
• In several sectors of the Indian economy, operators need a license from
the government to compete
• Example:- Dairy industry
Cont.…
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Land Market
Land market distortion includes:
Unclear Ownership:
• Indian courts might take a century to resolve the dispute of ownership.
• Being unclear about who owns what makes it very difficult to buy land for retail and housing
developments.
Counterproductive taxation:
• Low property tax, ineffective tax collection
• With more efficient collection of tax, government could invest in infrastructure.
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Government Ownership
• McKinsey proves that the Indian worker is not naturally unproductive
Labor productivity in state unit vs. private sectors are as follows:
• 3:27 in dairy;
• 10:20 in power generation;
• 0.5:3 in power transmission;
• 10:55 in banking.
McKinsey says, "electricity boards lose 30 to 40 percent of their power, mostly to
theft. By comparison, best-practice private power distributors lose only around 10
percent, mostly for technical reasons".
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13 steps suggested by Mckinsey
• Eliminate reservation of product for small scale industries.
• Equalize sales taxes and excise duties for all categories of players.
• Establish an effective regulatory framework and strong regulatory bodies.
• Remove all licensing restrictions .
• Reduce import duties on all goods to the levels of Southeast Asian countries (10 percent)
over five years.
• Remove the ban on foreign direct investment in the retail sector.
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• Resolve unclear real-estate titles by setting up fast-track courts to settle
disputes, computerizing land records, freeing all property from constraints
on sale, and removing limits on property ownership
• Raise property taxes and user charges for municipal services and cut
stamp duties.
• Reform tenancy laws to allow rents to move to market levels
• Privatize the electricity sector and all companies owned by the central and
state governments.
Cont.
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• Reform labor laws by repealing section 5-B of the Industrial Disputes Act.
• Transfer the management of the existing transport infrastructure to the
private sector.
• Strengthen extension services to help farmers improve their yield.
Cont.
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