ECONOMIC ENVIRONMENT

by

DR. PARAMITA DASGUPTA

Administrative Staff College of India,Hyderabad - 500 082

PRE LIBERALISATION THERE WAS LESS COMPETITION AND A SLOWER MOVING BUSINESS ENVIRONMENT RULING MOTTO : IF IT IS NOT BROKEN DON’T FIX ITCHALLENGES BEING FACED TODAY ARE DIFFERENTGLOBALISED ECONOMY IS CREATING BOTH MORE HAZARDS AND MORE OPPORTUNITIES FOR EVERYONEFIRMS ARE BEING FORCED TO MAKE DRAMATIC IMPROVEMENTS NOT ONLY TO COMPETE AND PROSPER BUT ALSO TO MERELY SURVIVE

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GLOBALISATION : INDIAN CORPORATE PERCEPTION

GREATER COMPETITION

NEED TO EVALUATE GLOBAL DEVELOPMENTS AND INCORPORATE INTO STRATEGIC PLANNING PROCESS CONTD..

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NEED TO ASSESS AREAS OF COMPETITIVE STRENGTH, BUILD ON THOSE STRENGTHS AND BECOME COST - PRICE AND TECHNOLOGICALLY COMPETITIVE

CONTD..

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CLEAR PERCEPTION OF SHORT TIME SPAN. AWARENESS OF NEED TO PUT THEMSELVES IN ORDER OR THEY WILL NOT BE ABLE TO SURVIVE

EXPECTATIONS FROM THE GOVERNMENT SUPPORT IN POLICY TO HELP INDUSTRY TO BECOME COMPETITIVE

INDIAN ECONOMY:AN OVERVIEW

»TURBULENT INTERNATIONAL ECONOMIC ENVIRONMENT»EXPORTS SHOW AN UPWARD TREND IN 1999/00 AND 2000/01.»DECLINE IN TOTAL NET CAPITAL INFLOWS IN FIRST NINE MONTHS OF 2000/01.»CONSEQUENT DECLINE IN FOREX RESERVES IN 2000/01.»DECELERATION OF GDP FROM 6.6% IN 98 / 99 TO 6 % IN 2000/2001.»RISE IN THE INFLATION RATE IN 2000/01.

OVERVIEW…..•FLUCTUATIONS IN INDUSTRIAL GROWTH OVER LAST TWO YEARS.

•MARGINAL INCREASE IN GROSS DOMESTIC SAVINGS AS PER CENT OF GDP IN 99/00.

•MARGINAL INCREASE IN GROSS DOMESTIC CAPITAL FORMATION AS PER CENT OF GDP IN 99/00

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/ INADEQUATE FISCAL ADJUSTMENT. /INADEQUATE PUBLIC INVESTMENT IN INFRASTRUCTURE AND SOCIAL SECTORS PARTLY DUE TO DECLINE IN PUBLIC SECTOR SAVINGS.

/LOW PRIVATE INVESTMENT DUE TO HIGH REAL INTEREST RATES AND INADEQUATE INFRASTRUCTURE.

OVERVIEW…..

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DOMESTIC ECONOMIC DOMESTIC ECONOMIC ENVIRONMENTENVIRONMENT

LIBERALIZATION POLICY

FISCAL POLICY TRADE & EXCHANGE RATE POLICY INDUSTRIAL POLICY FINANCIAL SECTOR POLICY

CYCLICAL PATTERNS IN INDUSTRIAL GROWTHINCREASE IN GROWTH RATE IN 99/00 FOLLOWED BY SLOW DOWN IN 2000/01.ACCELERATION IN GROWTH RATE OF CONSUMER GOODS.CAPITAL GOODS AND INTERMEDIATE GOODS INDICATE A DOWNWARD TREND.

INDUSTRIAL GROWTH: BROAD PATTERNS

DECLINE IN GROWTH RATE OF SIX CORE INDUSTRIES TAKEN AS A WHOLE.DECLINE IN GROWTH RATES OF STEEL, CEMENT AND ELECTRICITY.

INDUSTRIAL GROWTH: BROAD PATTERNS

INDUSTRIAL SECTOR : INDUSTRIAL SECTOR : CURRENT ISSUESCURRENT ISSUES

SLOW DOWN IN DEMAND FOR CAPITAL GOODS AND INTERMEDIATE GOODS.

INFRASTRUCTURE CONSTRAINTS IN POWER, ROADS AND TRANSPORT.

HIGH INTEREST RATE ENVIRONMENT.

REQUIRED TO REVIVE INVESTMENT IN INFRASTRUCTURE,RATIONALISE COSTS AND INTRODUCE TECHNOLOGICAL CHANGES

INFRASTRUCTURE• INFRASTRUCTURE PERFORMANCE HAS BEEN CAUSE OF CONCERN.•DIVERGENT GROWTH TRENDS ACROSS SECTORS.•ELECTRICITY ,CEMENT SHOWING DECELERATION.•COAL, PETROLEUM INDICATING UPWARD TREND.

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INFRASTRUCTURE DEMAND OUTSTRIPPING SUPPLY

IN INFRASTRUCTURE. NEED TO IMPROVE EFFICIENCY

& CAPACITY UTILIZATION OF THE EXISTING INFRASTRUCTURAL ASSETS

NEED TO CREATE NEW CAPACITIES PARTICULARLY IN POWER, TELECOM, ROADS AND PORTS.

PRIVATE INVOLVEMENT IN INFRASTRUCTURE REQUIRED.

PRIVATE PARTICIPATION NEEDED FOR RESOURCE GENERATION AS WELL AS IMPROVEMENT IN QUALITY OF SERVICES.NEED FOR SECTORAL REFORMS, RATIONALISATION OF PRICES.REGULATORY REFORMS REQUIRED FOR ENSURING FAIR COMPETITION AMONG PLAYERS.AVAILABILITY OF FINANCE .

INFRASTRUCTURE

INDIA’S EXPORTS, IMPORTS, TRADE BALANCE (Percentage)YEAR % Change

EXPORT IMPORT

1990-91 5.6 13.51991-92 - 1.5 -19.41992-93 3.8 12.71993-94 20.0 6.51994-95 18.4 22.91995-96 20.7 28.01996-97 5.3 6.71997-98 4.6 6.01998-99 -5.24 2.031999-00 13.2 11.42000-01 20.6 14.4

MAJOR IMPORTS (COMPOSITION %)

99/00 00/01

Food and Allied 7.1 3.8Products

Fuel 23.1 35.0

Capital Goods 11.7 8.9

PRINCIPAL EXPORTS (COMPOSITION %)

99/00 00/01

Agriculture and allied 15.1 12.2 Products

Ores and Minerals 1.7 2.6

Manufactured goods 81.2 80.8 (of which)Gems & Jewellery 20.2 18.0

Leather and L. Manuf. 2.7 3.0

Readymade garments 12.7 13.0

Cotton yarn, fabrics, 8.7 8.0 made ups, etc.

DIRECTION OF TRADE-EXPORT

percentage share)COUNTRY / REGION 99/00

OECD 57.6EU 25.1USA 22.7OPEC 10.6EASTERN EUROPE 3.0OTHER LDCs 25.1OTHERS 3.6

INDIA’S INTERNATIONAL TRADE :CURRENT ISSUES

* Competitiveness of Indian products in the wake of removal of Quantitative Restrictions on imports in the EXIM Policy.

*Building export competitiveness