hanmer msl: india’s economic growth story

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‘21 Years of Economic Reforms: The Journey So Far and the Road Ahead is the latest executive report from Hanmer MSL. It draws on research and is a meta-survey which shares insights and commentary on India’s growth story over the last two decades. It also looks ahead and shares thoughts on the upcoming union budget which will be delivered by Finance Minster, Pranab Mukherjee in March. The report takes us through a brief history of India, key reforms that has shaped its development, the challenges that remain and what we can expect in terms of growth, investment and private and public consumption. asia.mslgroup.com

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  • 1.21 years of economic reforms:The journey so far and the road aheadA report by Hanmer MSL, part of MSLGROUP

2. Hanmer MSL is one of Indias largeststaff across offices in Mumbai, Delhi, Bangalore,multidiscipline communications firms and aChennai, Kolkata, Ahmedabad, Hyderabad andleader in the area of speciality communications Pune, as well as the reach of the MSLGROUP andservices including financial communications,Publicis Groupe international network, Hanmersocial media, crisis and issues management, MSL works with more than 150 leading Indiancorporate reputation, strategic public relations, brands and multinationals to deliver world-classevents and activation and creative services.communications.Through its powerful network of more than 400For over 20 years, MSLGROUP Asia hasand a strong affiliate network of independentcounseled global, regional and local clients, agencies across the region adds another 23helping them to establish, protect and expand Asian cities to our reach. The team includestheir businesses in Asia. The largest PR andleading agencies in India and Greater China,social media network in both Greater China andincluding Genedigi Group, ICL MSL, 20:20 MSLIndia, MSLGROUP Asia is headquartered inand Hanmer MSL. In recent years, MSLGROUPChina and includes 28 owned offices and moreAsia has been recognized with more than 50than 1,370 colleagues across Shanghai, Beijing, awards, including PR Agency of the Year forGuangzhou, Chengdu, Hong Kong, Taipei, Tokyo, Hanmer MSL India, 20:20 MSL India, MSL China,Seoul, Singapore, Kuala Lumpur, Mumbai, MSL Singapore and ICL MSL Taiwan from bothDelhi, Ahmedabad, Pune, Bangalore, Chennai, international and local industry groups. LearnHyderabad and Kolkata. A satellite network of more about us at: asia.mslgroup.com+ Twitter +people reaches an additional 125 Indian citiesFacebookMSLGROUP is Publicis Groupes PR, specialitythe equation, MSLGROUPs reach increasescommunications and engagement group,to 4,000 employees in 83 countries. Today theadvisors in all aspects of communicationlargest PR network in Greater China and India,strategy: from consumer PR to employeethe group offers strategic planning and counsel,communications, from public affairs toinsight-guided thinking and big, compelling ideasreputation management and from crisis followed by thorough execution. Learn morecommunications to event management. Withabout us at: www.mslgroup.com + http://blog.more than 3,000 people, its offices span 22 mslgroup.com + Twitter: @msl_group +youtube.countries. Adding affiliates and partners intocom/mslgroupofficial 3. Table of contents04 EXECUTIVE SUMMARY06 REFORMS: A BRIEF HISTORYa. Launchpadb. Falling short10 KEY ACHIEVEMENTSa. Growthb. Innovationc. Investmentd. The battle against povertye. Literacy15 WHATS LEFTa. Social sectorb. Hungerc. Corruptiond. Infrastructuree. Administrative reformsf. Fiscal management19 WHAT LIES AHEADa. Growthb. Investmentc. Private and public consumptiond. Will the RBI relent?25 TOP PRIORITIES26 INDIAS ECONOMIC JOURNEY27 INDUSTRY MILESTONES28 INDIA AT A GLANCE 4. Executive summaryOn July 24, 1991, with the country dangerouslyclose to defaulting on its debt and with foreignexchange reserves enough to pay only forthree weeks of imports, then finance ministerManmohan Singh presented a landmarkbudget.India gave up socialism, adopted liberalisationand started shaking off the fetters that hadheld it back for far too long.Days earlier, the country had airlifted 47 tonsof gold to the Bank of England as collateralfor debt, and turned in desperation to theInternational Monetary Fund (IMF) for aid.Singh went on to devalue the rupee, startedunravelling the licence raj and began openingthe country to foreign capital. Suddenly,multinationals such as Coca-Cola, which hadbeen driven out of India years earlier, werebeing wooed to return.Singh concluded his speech in Parliament byquoting Victor Hugo: No power on Earth canstop an idea whose time has come.A moment of humiliation was turned into oneof hope. It was historic.Since then, India has averaged growth of 7%,second only to China. India has also witnessedthe rise of the middle-class, the worldslargest, which has contributed to and partakenof the growth in equal measure.However, economic reforms are not an endin themselves. Growth is not a wholesomeindicator. Equally important are quality oflife, literacy, the battle against poverty, andequitable growth. The last has spawned themost heated debates. While supporters ofthe economic policy say that the effect on theoverall population will inevitably be slow, itscritics assert that reforms have only made therich richer and the poor poorer.In Indias cities, the changes are obvious the once-ubiquitous Premier Padminihas disappeared while Marutis, Hyundais,Hondas, Mitsubishis, Mercedes and Skodasjostle for space on cramped roads. Malls andmultiplexes have become the new places to4be seen at. 5. However, the paradox is apparent as you None of this easy, and much of it has serioustravel to the rural heartland. India has faredpolitical connotations. Several crucialIn economics it is amiserably in agriculture, which is growing at a provincial elections are being held this year; far, far wiser thing mere 2% on average even as grain stocks are the temptation to use the budget as a tool to to be right than toravaged by rodents, hundreds of thousands attract votes will be immense. be consistent. die of starvation and farmers in VidarbhaThe country has also seen a mass campaign-John Kenneth region and Andhra Pradesh province commitagainst corruption and the government hasGalbraith,suicide due to crippling debt.come off looking badly. There could be aeconomist Of what use are reforms if children dont havetendency to neutralise the sentiment withschools to go to, child labour is rampant, andpopulist decisions that would eventually hurthealthcare and sanitation are all but absent, the economy.ask the critics. Reforms cannot succeed unlessFinally, India is one of the few shining lightsthey are coupled with social renewal. Anamid the turmoil in the global economy. Itseconomy that works cannot be built on weakgrowth is based on internal demand and theA study ofsocial foundations.vibrant services sector. However, India is noteconomics usuallyThe good news is that India is now a resilientinsulated against the gloom. The challenge reveals that theeconomy that is relatively insulated from the before Mukherjee is to use the situation to best time to buyglobal crisis. All it needs is another majorthe countrys advantage by pushing throughanything is lastpush. key reform such as FDI in retail, which could year.open the floodgates of foreign investment andThis is what India is looking forward to as -Marty Allen,further bolster the economy.Finance Minister Pranab Mukherjee rises tocomedianpresent the union budget in early March. AWill he? Time will tell.lot has been achieved in the past 21 years.Lots more needs to be done a concretepolicy on FDI in core sectors, a faster pace ofpublic sector disinvestment, administrativereforms that are key to maintaining growthand building a strong economy, eliminationof wastage in social sector programmes andsustainable spending.5 6. Reforms: A brief history When India gained independence from British rule in 1947, there was hope but no deliverance. A country that should have reached out to the world, giving a wide canvas to its huge potential and skill instead adopted an inward looking economic model, sceptical of free markets and international trade. Socialism, with an emphasis on self-sufficiency and the public sector, became the mantra. As the government decided that the answer to poverty was tax-and-spend, peak income- tax rates hit 97.75% in the 1970s, and growth averaged a mere 3.5% the so-called Hindu Rate of Growth while other Asian economies managed double that. To top it all, the poverty ratio was not even dented in the 30 years that followed. Unable to fathom why Nehruvian socialism wasnt working, the government sought to put growth on the fast track in the 1980s by borrowing big. It succeeded for a while, with growth accelerating to 5.5%, but it was unsustainable, eventually resulting in the foreign exchange crisis of 1991. Ultimately, it fell upon a political lightweight, PV Narasimha Rao, to turn around the economy. Rao was the quintessential political backroom player, crafty and well versed in the way politics and the bureaucracy worked, yet never a public icon. After Rajiv Gandhi was assassinated in 1991 before the general election and the Congress formed a minority government, he was the partys surprise choice for prime ministership. While Rao continued to spout the partys economic mantra in public, it was clear to him after the collapse of the Soviet Union that socialism was past its sell-by date. He already had a shining example in China of what reforms could do Deng Xiaoping had sparked off an economic revolution, freeing markets and opening up the country to investment.6 7. India, Rao knew, had no choice. Reform, even While India has never been able to matchif slow and pragmatic, was the only answer.China in its manufacturing and export might,Economics is a largely due to restrictive labour laws, it hasA political storm followed the opposition subject that does come to be seen as a services hub.alleged that Rao had sold out to the IMF butnot greatly respect two years of financial stability and 7.5% growth Indian laws make it very tough to shed ones wishes.changed all that. Soon, most political parties workers, making entrepreneurs wary of setting-Nikita Khrushchev, were singing the reforms tune. The process up labour-intensive factories for exports. One Soviet leaderhad taken deep root and it continued, even ifindicator of how this hurt industry was that,haltingly at times.as a garment manufacturing hub, India was overtaken by Bangladesh!LaunchpadHowever, India has several positives to show for every nega