INDIA

Presented BY:

clancypapalloNeary

Trade patterns

As a British Colony, India’s economy thrived, with a 22.6% share of the world’s total income After India earned its independence, their primary goal was to evolve into a self-sufficient nation

Consequently, India utilized protectionist measures – import substitution, industry restrictions etc.

The 1980s marked a shift in economic policies – trade liberalization and deregulation

1991 – High inflation, account deficits, foreign exchange crisis IMF loans India $5 billion…further trade liberalization occurs

direction & composition of trade

As foreign competition was permitted through reform, India began to specialize Initiative for training and developing labor

human capital became more skilled, manufacturing capabilities increased

Transition from low level industries (mining & agriculture) to higher quality manufactured goods

Presently, India is a service-oriented nation

Technological services

Destination of India’s exports

Foreign Direct investment

Direct investment by Institution Investors, Non resident Indians & Overseas Corporations

relaxation of foreign investment requirements, implementing the “automatic rule”

India has surpassed the US as the 2nd most appealing nation for fdi.

Integrating with the global economies has modernized India

$2.573 Billion USD in 2005…and 18% increase from 2004.

Foreign Debt analysis

Short-term debt (overnight – 12 mo. Duration)

• overnight money market instruments • swaps, repos• derivative instruments• 3-12 month treasury notes

Long-term Debt ( 1-7 year duration )

• multilateral loan packages• bilateral debt financing• IMF program loans• trade credit• Commercial borrowing• Non-Resident Indian deposits• Rupee debt

debt service ratio ( 10.2% fy 2006 )

• total debt / GDP ratio ( 15.8% ) • short-term debt / reserves ( 6.4% ) • reserves / total debt ( 121% surplus to debt )

Foreign exchange system

the reserve bank of India• formulation of monetary policy• regulation of financial & banking systems• currency exchange control standards

Indian Rupee• trade-weighted basket of currencies (1975-1992)• provisional floating exchange (1993-present)• free floating exchange rate (2009???)

liquidity risk• rate of gdp growth• rate of inflation• risk-adjusted capital flows (investment)

export promotion

foreign exchange regulation act (1992)

• Automatic approval of foreign capital • De-regulation of investment policy• Permitted 51% foreign majority ownership

profit repatriation

• de-couple dividends from matching exports• non-resident repatriation of profits & capital• promote high priority development sectors

special economic zones

• 15 year corporate income tax holiday• 17 duty-free zones ( 120 prospective sites )• favored nation tariff / trade treatment

protectionism

post-colonialism• closed economy• 200% average tariffs• Extensive import restrictions

trade reform (1990’s)• Non-agricultural tariffs < 15% • Import quantity restrictions lifted• FDI deregulation

Areas of contention• Agricultural tariffs 30-40%• anti-dumping measures• Doha negotiations & beyond

trade liberalization

1991 – Rao initiates change

• lowered tariffs and taxes

• modified tax regulations to promote foreign investment

• developed key trade partners – US, China, EU

• protected against losing economic autonomy

Reasons for success• supply superior labor/demand technology

• abundant resources

• balance of trade between imports/exports and various trade partners

• export goods with demand longevity

privatization initiative

Privatizing Debate government controlled sectors auctioned to private investors

Benefits Promote efficiency Better utilization of resources Profitability helps country

Problems Only the wealthy stand to profit Potential unrest – 50 million protesters Repercussions from trade partners?