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.


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Hanmer MSL: India’s Economic Growth Story

  1. 1. 21 years of economic reforms:The journey so far and the road aheadA report by Hanmer MSL, part of MSLGROUP
  2. 2. Hanmer MSL is one of India’s largest staff across offices in Mumbai, Delhi, Bangalore,multidiscipline communications firms and a Chennai, 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 has and 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 and leading agencies in India and Greater China,social media network in both Greater China and including Genedigi Group, ICL MSL, 20:20 MSLIndia, MSLGROUP Asia is headquartered in and Hanmer MSL. In recent years, MSLGROUPChina and includes 28 owned offices and more Asia 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 cities FacebookMSLGROUP is Publicis Groupe’s PR, speciality the equation, MSLGROUP’s reach increasescommunications and engagement group, to 4,000 employees in 83 countries. Today theadvisors in all aspects of communication largest PR network in Greater China and India,strategy: from consumer PR to employee the group offers strategic planning and counsel,communications, from public affairs to insight-guided thinking and big, compelling ideasreputation management and from crisis – followed by thorough execution. Learn morecommunications to event management. With about 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 into com/mslgroupofficial
  3. 3. Table of contents04 » EXECUTIVE SUMMARY06 » REFORMS: A BRIEF HISTORY a. Launchpad b. Falling short10 » KEY ACHIEVEMENTS a. Growth b. Innovation c. Investment d. The battle against poverty e. Literacy15 » WHAT’S LEFT a. Social sector b. Hunger c. Corruption d. Infrastructure e. Administrative reforms f. Fiscal management19 » WHAT LIES AHEAD a. Growth b. Investment c. Private and public consumption d. Will the RBI relent?25 » TOP PRIORITIES26 » INDIA’S ECONOMIC JOURNEY27 » INDUSTRY MILESTONES28 » INDIA AT A GLANCE
  4. 4. Executive summary On July 24, 1991, with the country dangerously close to defaulting on its debt and with foreign exchange reserves enough to pay only for three weeks of imports, then finance minister Manmohan Singh presented a landmark budget. India gave up socialism, adopted liberalisation and started shaking off the fetters that had held it back for far too long. Days earlier, the country had airlifted 47 tons of gold to the Bank of England as collateral for debt, and turned in desperation to the International Monetary Fund (IMF) for aid. Singh went on to devalue the rupee, started unravelling the ‘licence raj’ and began opening the country to foreign capital. Suddenly, multinationals such as Coca-Cola, which had been driven out of India years earlier, were being wooed to return. Singh concluded his speech in Parliament by quoting Victor Hugo: “No power on Earth can stop an idea whose time has come.” A moment of humiliation was turned into one of hope. It was historic. Since then, India has averaged growth of 7%, second only to China. India has also witnessed the rise of the middle-class, the world’s largest, which has contributed to and partaken of the growth in equal measure. However, economic reforms are not an end in themselves. Growth is not a wholesome indicator. Equally important are quality of life, literacy, the battle against poverty, and equitable growth. The last has spawned the most heated debates. While supporters of the economic policy say that the effect on the overall population will inevitably be slow, its critics assert that reforms have only made the rich richer and the poor poorer. In India’s cities, the changes are obvious – the once-ubiquitous Premier Padmini has disappeared while Marutis, Hyundais, Hondas, Mitsubishis, Mercedes and Skodas jostle for space on cramped roads. Malls and multiplexes have become the new places to4 be seen at.
  5. 5. However, the paradox is apparent as you None of this easy, and much of it has serious travel to the rural heartland. India has fared political connotations. Several crucialIn economics it is a miserably 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 to ravaged by rodents, hundreds of thousands attract votes will be immense. be consistent. die of starvation and farmers in Vidarbha The country has also seen a mass campaign -John Kenneth region and Andhra Pradesh province commit against corruption and the government has Galbraith, suicide due to crippling debt. come off looking badly. There could be a economist Of what use are reforms if children don’t have tendency to neutralise the sentiment with schools to go to, child labour is rampant, and populist decisions that would eventually hurt healthcare and sanitation are all but absent, the economy. ask the critics. Reforms cannot succeed unless Finally, India is one of the few shining lights they are coupled with social renewal. An amid the turmoil in the global economy. Its economy that works cannot be built on weak growth is based on internal demand and the A study of social foundations. vibrant services sector. However, India is noteconomics usually The good news is that India is now a resilient insulated against the gloom. The challenge reveals that the economy that is relatively insulated from the before Mukherjee is to use the situation to best time to buy global crisis. All it needs is another major the country’s advantage by pushing through anything is last push. key reform such as FDI in retail, which could year. open the floodgates of foreign investment and This is what India is looking forward to as -Marty Allen, further bolster the economy. Finance Minister Pranab Mukherjee rises to comedian present the union budget in early March. A Will he? Time will tell. lot has been achieved in the past 21 years. Lots more needs to be done – a concrete policy on FDI in core sectors, a faster pace of public sector disinvestment, administrative reforms that are key to maintaining growth and building a strong economy, elimination of wastage in social sector programmes and sustainable spending. 5
  6. 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 wasn’t 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 party’s surprise choice for prime ministership. While Rao continued to spout the party’s 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. 7. India, Rao knew, had no choice. Reform, even While India has never been able to match if slow and pragmatic, was the only answer. China in its manufacturing and export might, Economics is a largely due to restrictive labour laws, it has A 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 one’s 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 leader had taken deep root and it continued, even if indicator of how this hurt industry was that, haltingly at times. as a garment manufacturing hub, India was overtaken by Bangladesh! Launchpad However, India has several positives to show for every negative. For instance, in 1991, While labour law reform remained neglected Manmohan Singh’s budget lowered the because of its political implications, India maximum import duty to a still whopping emerged as a force in intellect-intensive 150% from an unimaginable 300%. Today,In economics, the industries such as computer software. the standard import duty is 10%, roughly themajority is always By the time the Asian financial crisis hit in average for South-East Asia. At that time, wrong. 1997, India was financially strong enough to more than 800 items were reserved for -John Kenneth keep growing – though it slowed – without production by small-scale industries, and Galbraith, great damage or having to seek aid. This was more for the public sector. These reservations economist around the time the software industry came have been brought down substantially. into its own, bagging major Y2K bug-clearing Controls on industries, imports and foreign contracts. exchange are much more relaxed. Private The crisis’ second wave in 2001 saw India in investment in previously restricted sectors, an even stronger position with corporations such as telecom and infrastructure, has shown outsourcing their software and business great results. services to Indian firms. The sceptics were proven wrong. In the 2000s, India averaged 8.5% growth. With the abolition of controls, industry flourished and many companies went on to make a mark globally. Indian companies were taken over by multinationals (Coca-Cola’s acquisition of Parle brands, for instance) while Indian firms took over iconic foreign ones (the Tatas’ acquisition of Jaguar is an example). Falling short The failures on the social front aren’t due to lack of resources. In fact, social sector spending has risen consistently over the last two decades. The problem lies in the delivery of service, most notably in the provision of affordable food to the poor. Corruption and wastage led to the failure of the Public Distribution System, through which subsidised 7 Photo by Terinea IT Support on Flickr
  8. 8. grain and kitchen fuel were supplied to the Delhi. Social activist Anna Hazare’s call for a deserving. countrywide agitation to demand an effective anti-corruption law was answered by citizens Did you ever There are other worrying signs. India’s across the socio-economic spectrum. Thethink that making proportion of underweight children — a government’s image — and the polity’s as a a speech on measure of malnutrition — was the third-worst whole — suffered.economics is a lot in the world at 46.7%. There is an internal like pissing down militant communist insurgency — dubbed India’s journey has been long and arduous.your leg? It seems Naxalism — that is spread over several As it takes on the challenges listed above, a hot to you, but provinces and has deprived a large part of longer and tougher struggle lies ahead. it never does to central India from the economic benefits anyone else. enjoyed by the rest of the country.-Lyndon B Johnson, In recent times, there has been an outcryformer US president against corruption, which has affected the entire administrative chain. Ministers have been jailed for crimes ranging from undervaluing telecom spectrum to taking bribes in return for construction contracts for the Commonwealth Games held in First rule of Economics 101: our desires areinsatiable. Second rule: we canstomach only threeBig Macs at a time. -Doug Horton, clergyman 8
  9. 9. Excerpts from Manmohan Singh’s 1991 budget speech The new government, which assumed office barely a month ago, inherited an economy in deep crisis. The balance of payments situation is precarious. We have been at the edge of a precipice since December 1990 and more so since April 1991. The foreign exchange crisis constitutes a serious threat to the sustainability of growth processes and orderly implementation of our development programmes. Internal public debt of the central government has accumulated to about 55% of GDP. The burden of servicing this debt has become onerous. Interest payments alone are about 4% of GDP and constitute almost 20% of the government’s total expenditure. Without decisive action now, the situation will move beyond the possibility of corrective action. There is no time to lose. Neither the government nor the economy can live beyond its means year after year. The room for manoeuvre, to live on borrowed money or time, does not exist any more. The time has come to expose Indian industry to competition from abroad in a phased manner. After four decades of planning for industrialisation, we have now reached a stage of development where we should welcome, rather than fear, foreign investment. Few would disagree that I am one of the most harassed finance ministers in recent times. Victor Hugo once said: “No power on earth can stop an idea whose time has come.” I suggest to this august house that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome. INDIA’s GDP GROWTH 10 8.5% 8 6% 6 5.5% 4 3.5% 29 0 1950-80 1980-92 1992-2003 2003-10 Source: Economic Survey 2010-11
  10. 10. Key achievements While India has made rapid strides on various From 2005 onwards, however, growth counts, its growth has often been outpaced by averaged 9.5%. The recession of 2007-09 the Asian tiger economies. On the other hand, again slowed growth to 6.8%, but it bounced its emphasis on slower but stronger, risk- back to 8% and 8.5% respectively over the free growth has held it in good stead during next two years. troubled times. Here are some of the long strides taken during GDP GROWTH IN POOR STATES the last two decades. Mean % Mean % States growth growth Growth (2000–04) (2004–09) Bihar 4.5 12.4 The quick growth – often touching 8.5% over Chhattisgarh 6.1 9.7 the last decade – found a paradox in the slow Jharkhand 1.9 8.5 pace of reforms. The impact was felt after Madhya Pradesh 1.9 6.6 years. Orissa 4.8 10.2 It was only in 1994-95 that GDP growth hit Uttar Pradesh 3.3 6.7 7.5% (1994-95 to 1996-97). Growth averaged All India 5.6 8.5 only 5.5% between 1997 and 2002 due to Source: Central Statistical Organisation data global economic troubles (1997-99), two10 droughts (2000 and 2002) and a recession in 2001.
  11. 11. The savings rate shot up from 21.5% of the GDP in 1991–92 to 34% in 2010–11. As a result, investment levels eventually rose to 37% of History shows the GDP from 22.1%, enabling sustainable that where ethics growth of more than 8%. In layman’s terms, and economics the higher the domestic savings rate the less come in conflict, dependent India is on foreign inflows. This, victory is always in turn, makes it easier to tide over financial with economics. turbulence and strengthens the economy. Vested interests have never been SAVINGS RATE known to have Savings rate 1980–81 1990–91 2000–01 2010–11 willingly divested As % of GDP 18.5 22.8 23.7 34themselves unless Photo by Balaji.B on Flickr Source: Economic Survey (2010–11)there was sufficient force to compel The savings rate apart, India’s per capita them. The initial production run cost the equivalent income is up from $300 in 1991 to $1,700 of $2,000 and has found a rival in a car being today. This has led to a tax collections spike, -BR Ambedkar, launched by Bajaj Auto for the equivalent of which in turn has financed the rise in socialauthor of the Indian $3,000. The Nano, incidentally, claims to run and infrastructure spending. constitution 25 kilometres per litre of petrol – far more These impressive growth and savings figures than any other car in India. were not achieved by setting up sweat shops Most cellphone calls cost less than a rupee, – factories using cheap, often exploited while hospitals such as Narayan Hrudalaya labour to churn out goods for exports – that provide major surgeries at a fifth of the cost in are preferred by several Asian countries, the West. most notably China. Most of India’s exports are based on the intellect, such as software Over time, jugaad has come to imply The first lesson services. innovation. of economics is It should be noted that though India is scarcity: There is known for software services, they account for Investment never enough of only 2% of the GDP. Other services – legal,anything to satisfy When India began welcoming foreign direct engineering, R&D – exceeded $10 billion in all those who investment (FDI), many feared that Indian 2010–11. want it. The first companies would not be able to compete andlesson of politics As much as exports of these services matter, would be gobbled up by multinationals. is to disregard India remains driven mainly by domestic That didn’t happen. Not only did Indianthe first lesson of demand. companies hold their own, many used the economics. opportunity to go global themselves – -Thomas Sowell, Innovation outbound FDI as a proportion of GDP is 0.9%, writer higher than China’s 0.6%. Jugaad has become a buzzword in India. Loosely translated as ‘making do’, it signifies Tata Steel, for instance, acquired European Indians’ success in producing goods cheaper steel major Corus and Tata Motors bought than most other countries can with only a Jaguar Land Rover. The Birla group acquired fraction of the resources available elsewhere. Canadian firm Novellis to become the sixth largest aluminum company in the world, while The Nano, the world’s cheapest car, produced Bharti Airtel took over Zain and is present in 14 11 by the Tatas is an example of this ingenuity. African countries.
  12. 12. Remittances have helped balance the volatility of foreign capital in tough times. This has allowed the government to decline aid I learned that from smaller donors, asking them to approach economics was non-profits directly. not an exact science and that The country has opted instead for debt the most erudite from the World Bank. It is an indicator of themen would analyse country’s confidence that its soft loans have the economic fallen from almost 100% in the 1970s to less ills of the world than 30% today. and derive a India, in fact, has become a substantial donor. totally different Photo by Niyantha on Flickr Among its recent grants was $1 billion to conclusion. Bangladesh. Credits worth $5 billion to African India’s FDI norms have been the subject -Edith Clara countries were also announced recently. of much debate. The significant barriers, Summerskill, UK especially in retail, ensured that inflows were $26 billion politician never as high as they could have been – FDI FDI in 2009-10; it slipped to $19.4 billion the peaked at $26 billion in 2009-10 before next year slipping to $19.4 billion the next year. 0.9% That said, most leading multinationals do business in India. Accenture and IBM have Outbound FDI as a proportion of GDP; in more employees here than in the US. Intel China, it is 0.6% and Microsoft use India as R&D hubs, while A large part of Suzuki, Hyundai, Bosch, Pfizer and others use The battle against povertycrime is economics it as a manufacturing base. Many believe that the reforms have – if people are One reason why FDI has been steady is that bypassed poor sections – such as the Dalitsworking and have a India’s stock markets – plagued by price (untouchables as per the now-abolished castehome and family to manipulations, fraud and delayed settlements system; they still face discrimination across support, then in the past – have been cleaned up. India) – and regions. This, the critics say, is I believe you can reduce the In 1992, following a large securities fraud, crime rate. India created a fully electronic exchange – the National Stock Exchange – even before -Vincent Frank, London or New York did. This ended most musician rigging. Shares were held only in electronic form and settlements were down to T+3 levels (payment after three days of the transaction). Today, India’s stock markets are among the most efficient in the world. Before reforms, India got foreign aid by the bucketful but had little to show for it. While at $5.9 billion (2009-10) it still seems like a lot, it pales in comparison to the foreign investment of $51.2 billion and remittances from overseas 12 Photo by Tobias Leeger on Flickr Indians at $53.9 billion in the same period.
  13. 13. why the desperately poor have radicalised and The growth and, perhaps, rising literacy levels taken up Naxalism. Almost one-fourth of India sparked a demographic transformation. is affected by this campaign against the state. Over the last decade, for the first time sinceAll of the problems independence, the number of children aged The fact is that the proportion of people we’re facing with 0-6 years declined by 3.08%. The sharpest claiming to be hungry in some or all months debt are man- decline was in poor states. fell from 17.3% in 1983 to 2.5% in 2004-05. made. We created Six backward states, accounting for half of Again for the first time since independence, them. It’s called India’s population — Uttar Pradesh, Bihar, the number of workers is rising and that offantasy economics. Madhya Pradesh, Orissa, Chhattisgarh and dependents is falling.Fantasy economics Jharkhand — grew fast, many faster than the only works in a China reaped a demographic dividend earlier national average, though admittedly from a fantasy world. It thanks to Mao’s one-child policy, but that smaller base. doesn’t work in could backfire once the country starts ageing. reality. Between 2004 and 2009, growth surged The condition of Dalits was thought to be in poor northern and central states — Bihar-Michele Bachmann, the worst, especially in Uttar Pradesh – with (12.4%), Chhattisgarh (9.7%), Jharkhand US politician a population of 200 million, India’s biggest (8.5%), Madhya Pradesh (6.6%), Orissa state. However, Dalits have emerged as a (10.2%) and Uttar Pradesh (6.7%). major political force. Today, the state has a India’s growth could have been possible only Dalit chief minister, Mayawati. if the bulk of the population improved its A recent survey in two districts of Uttar productivity. While national growth raised tax Pradesh showed great leaps in Dalits’ living revenues, which was shared with the states, standards – TV ownership was up from zero it was a case of trickle-up, not trickle-down to 45%, cellphone ownership up from zero Economics has growth. to 36%, two-wheeler ownership up from zero never been a to 12.3%, and children eating leftovers down science - and it is POVERTY RATES from 95.9% to 16.2%.even less now than a few years ago. Poverty ratio 1993–94 2004–05 2009–10 The findings on Dalits’ social status were even % of population 45.3 37.2 32 more striking. Cases of Dalits being seated -Paul Samuelson, separately at weddings were down from 77.3% economist Source: Economic Survey (2010–11) to 8.9%, cases of non-Dalits accepting food at a Dalit home were up from 8.9% to 77.3%, HUNGER RATE bonded labour incidence was down from 32% Homes 1983 1993–94 1999– 2004– to 1%, the Dalit proportion running their own reporting 2000 05 hunger businesses was up from 6% to 37% and the % of 17.3 5.2 3.6 2.5 proportion of those working as agricultural population labourers was down from 46.1% to 20.5%. Source: Food and Nutrition in India: Facts and Today, many Dalit businessmen have become Interpretations, by Angus Deaton and Jean Dreze in millionaires and there is also a Dalit Chamber Economic and Political Weekly, February 14, 2009 of Commerce and Industry. While the upliftment of Dalits is far from complete, they have gained substantially from reforms. 13
  14. 14. Every nation on the Earth that embraces market economics andthe free enterprise system is pulling millions of its people out of poverty. The freeenterprise systemcreates prosperity, not denies it. -Marco Rubio, US politician Geography has made usneighbours. History has made us Photo by United Nations Photo on Flickrfriends. Economics has made us partners, and Literacynecessity has made Literacy rates are closely linked to the poverty (16.82%), Uttar Pradesh (11.45%), Orissa us allies. Those ratio. It is no surprise then that as India’s (10.37%) and Jharkhand (16.07%). whom God has so poverty ratio dropped, the literacy rate shot up. joined together, Women did even better on the literacy scale. Since 1991, India’s literacy rate rose by a record Female literacy improved dramatically let no man put 21.83% to 74.04%. In the earlier two decades, by 11.8% across India, and higher in Bihar asunder. it rose only 17.8%. (20.2%), Uttar Pradesh (17.1%), Orissa (13.9%) -John F Kennedy, and Jharkhand (15.3%) Again, the poorer states fared better. Informer US president the last decade, the improvement in all- India literacy (9.7%) was exceeded by Bihar LITERACY TRAIL Literacyrate 1950–51 1960–61 1970–71 1980–81 1990–91 2000–01 2010–11 % of 18.3 28.3 34.4 43.6 52.2 64.8 74 population 14 Source: Census 2011
  15. 15. What’s left A remarkable story has been scripted over the There is little accountability, and last two decades. Yet, a longer journey awaits. administrative reforms are the need of the There is a large, unfinished reforms agenda, hour. I had four or five not least of which is fixing a basic issue – ease years in school The lack of education has led to severe of doing business. training as a shortage of skilled labour, and the soprano. I fell The Heritage Foundation’s 2011 Index of shambolic school system ensures that into pop singing Economic Freedom ranked India 124th among those who pass through it are functionally because of 183 countries on this parameter. The World illiterate. economics. I got Bank’s Doing Business report, meanwhile, India needs to take great strides in out of high school placed India 134th among 183 nations. education and vocational training.and had to go work, Globally, there seems to be consensus that and they weren’t India has lots to do before it can be called 7.27 hiring opera business-friendly. Spending on social sector, as percentage of singers. GDP, in 2009-10. In 2005-06, it was 5.49% From getting building permits to enforcement -Jo Stafford, of contracts, the Indian story is one of singer unending red tape, restrictions and delays. • Hunger India has the dubious distinction of leading the India’s nutritional indicators are world in terms of legal backlog – nearly 31.5 staggering. Anaemia affects over 80% million pending cases. Rigid labour laws are of the population in some states. Child a barrier for those wishing to set up labour- malnutrition, measured by low weight intensive industries that could provide millions for age, affects 46.7% of all children (on of jobs, not to mention curbs on investment in this count, we fare worse than any African infrastructure, retail and education. country). An economist is Here are a few sectors that require urgent There has been virtually no improvement a man who states attention. in child malnutrition between 1998-99 the obvious in and 2005-06. Indian children suffer from terms of the stunting and low weight. Calorie intakeincomprehensible. • Social sector is falling despite rising income, probably A boom in social spending has been -Alfred A Knopf, because poor people want to switch to accompanied by innovations such as the publisher superior, tasty food rather than get more National Rural Employment Guarantee calories out of basic food. Scheme, the Sarva Shikhsa Abhiyan (a national education mission), the Right to Hence, nutrition is a bigger problem than Education and the Food Security Act that hunger, which makes awareness of the extends subsidised food facilities to the importance of vitamin, iron and iodine poor. There is also a rural health mission intake critical. and the Jawaharlal Nehru National Urban 80 Renewal Mission. Estimated percentage of Indian children Social spending rose from 5.49% of suffering from anaemia GDP in 2005-06 to 7.27% in 2009-10. 46.7 However, these schemes are beset by Estimated percentage of children who corruption and waste. Free government suffer from malnutrition, measured by low schools and health centres are barely weight for age. India fares worse than any functional, while unions ensure that there African country on this count. There has is no accountability from teachers, health been virtually no improvement in child workers and other service providers. malnutrition between 1998-99 and 15 Absenteeism is rampant and bribes are the 2005-06 norm.
  16. 16. • Corruption – licenses, foreign exchange norms, etc – This is the hottest topic of discussion have been deregulated, which reduces the in India today, and has implications for avenues of corruption.There can be no businesses. There are, however, areas where corruption real individual is still rampant – real estate and After enduring two generations of freedom in government-financed infrastructure, for criminals and corruption in politics and the presence instance. There is too much room here for the bureaucracy, public anger has boiled of economic political discretion and favouritism. This over. A mass campaign for effective insecurity. affects the business climate and investor anti-corruption laws led by social activist-Chester Bowles, Anna Hazare found resonance across the sentiment. former US country. It was especially popular among As far as criminality in politics goes, 150 diplomat the youth and shook the government into of the Lok Sabha’s 545 seats were won by action. those with criminal records; in the 2004 While the law that the government tabled election, 128 such politicians won. in parliament – which was eventually not The glacial pace of the judicial process voted on – became the subject of heated allows criminals to dominate polls through debate, there is little doubt that the bribery and intimidation. Obviously, this has campaign marked the rise of an assertive led to greater corruption in government middle class and media. Will it affect election results in the end? The jury’s out An effective Lokpal – an anti-corruptionIf all economists on that. ombudsman – that has the powers to were laid end to investigate ministers, the bureaucracy and end, they would Most people believe that corruption even the Prime Minister’s Office would go not reach a is getting worse and that politicians a long way in reducing corruption. Another conclusion. are catalysing the rot in the system. option is to fast-track cases against The Corruption Perception Index of politicians.-George Bernard Transparency International ranks India Shaw, writer 87th out of 178 countries, behind China 87 (78th). India has actually improved its score India’s rank, among 178 countries, on slightly, from 2.7 out of 10 in 2002 to 3.3 in Transparency International’s Corruption 2010. This may be because several areas Perception Index 16 Photo by India Kangaroo on Flickr
  17. 17. 150 of the economic miracle reach everybody, Number of Lok Sabha members with it cannot afford to ignore governanceIsn’t it interesting criminal records. The Lok Sabha, the lower reforms. that the same house of parliament, has 545 members Reform of the judicial system will improvepeople who laugh in all. In the 2004 election, 128 politicians detection and lower corruption; it willat science fiction with criminal records were elected to it also improve contract enforcement and listen to weather protection of property rights. forecasts and economists? • Infrastructure If national resources such as mines Lack of infrastructure could prove to be and telecom spectrum are auctioned-Kelvin Throop III, a major hurdle to the country’s progress. transparently, it too will improve thefictional character It could impede the delivery of health economic environment and benefit the created by RAJ services and education, and prevent social consumer more. Philips schemes from reaching the needy. Here, too, corruption is endemic because • Fiscal management roads, power, ports, railways and telecom The country’s fiscal situation is a concern, are all linked to natural resources, land as is the management of the fiscal deficit and government contracts – all of which and foreign borrowings. “The union provide ample opportunity for kickbacks. budget is expected to bring an admission No agricultural land can be converted into that the fiscal deficit target of 4.6% will An economist is non-agricultural land for industry without be missed,” wrote James Lamont in thean expert who will state permission, which too provides Financial Times on January 26. “Fiscal know tomorrow opportunities for corruption. restraint will become more difficult the why the things India requires transparency in policies nearer the Congress party gets to the 2014 he predicted and procedures, and an end to political parliamentary elections, which are often yesterday didn’t discretion in these areas. won by doling out freebies and welfare happen today. programmes to the poor. Already a vote--Laurence J Peter, winning food security bill is in the works,” academic • Administrative reforms he added. The impact of this bill on the While economic reform is deep-rooted deficit is anybody’s guess. and well on its way, governance reforms are languishing. If India is to maintain its “External stresses are likely to remain a growth rate and ensure that the benefits theme for the rest of FY12 and in H1-FY13. We expect little relief for the trade deficit as exports slow and the reduction in the import bill is limited by oil imports and investors’ huge appetite for gold. Hence, despite stable flows in the form of services exports and remittances, funding the current account deficit – forecast at 3.1% of GDP in FY12 and 2.8% in FY13 – may prove challenging,” predicted Standard Chartered’s Global Focus – 2012 report. 17 Photo by celblau on Flickr
  18. 18. Indian banks, meanwhile, are under pressure “Subsidies need to be reduced, particularly amid the high policy rates and low growth. given that the expected slippage in the FY12 fiscal deficit to 5.6% of GDP from the targeted In all recorded However, most banks are in good enough 4.6% is driven primarily by the subsidy history there has shape to absorb the pressure; they are also burden,” said the Standard Chartered report. not been one better capitalised than they were in 2008- This report too said that this year’s provincialeconomist who has 09. Also, the government intends to boost elections would make it tough to curb populisthad to worry about their capital base by March 2012; further expenditure. where the next announcements on this are expected in the meal would budget. At the same time, it pointed out, slower growth come from. might curb revenues. This would probably Finally, the focus on increasing the purchasing keep the FY13 fiscal deficit at a high 5.5% of -Peter Drucker, power of vulnerable groups without a GDP.management guru corresponding emphasis on supply-side policies has resulted in inflation. Hence, Barclays Capital’s The Emerging Markets expenditure reforms are critical. Quarterly report also predicted that the government would miss its fiscal deficit target. STANDARD CHARTERED FORECASTS FOR INDIA 2011 2012 2013 2014 GDP (real % y/y) 7.0 7.4 8.0 8.0 Economics is the WPI (% y/y) 8.7 6.5 6.0 6.0painful elaboration of the obvious. Repo rate (%)* 8.5 7.0 7.0 7.0 USD- INR* 51.5 48.5 46.5 44.0 -Friedrich von Hayek, economist Current account -3.1 -2.8 -2.6 -2.5 balance (% GDP) Fiscal balance -5.6 -5.5 -5.0 -5.0 (% GDP) Note: All forecasts except USD-INR refer to the April-March fiscal year starting in the year in the column heading; *end-period. Source: Standard Chartered Research 18
  19. 19. What lies ahead According to a recent Business Monitor International (BMI) report, real GDP growth is expected to slow to a three-year low of 6.8% in FY2011-12 on the back of the rising cost of capital (the central bank has been raising interest rates regularly to curb inflation that hit 12% at one stage), receding export growth and slowing credit expansion. “We expect activity to recover somewhat in FY2012-13 (with our full-year growth forecast currently at 7.3%) as the central bank starts to cut its policy rates, which have essentially choked the Indian economy over the past year,” said the report titled Economic Analysis – An Economic Resurgence or the Calm Before the Storm? Growth While it’s widely expected that India will escape the pain that many Euro zone economies as well as the US are experiencing, the BMI report states that purchasing managers’ indices (PMI) suggest a rebound in overall economic activity. Manufacturing PMI rose from its September 2011 low of 50.4 to 57.5 in January 2012 – an eight- month high. The PMI for services rose to 58.0 from a low of 49.1 in October 2011. This could lead to a reassessment of BMI’s growth projection for India. However, if growth does not exceed the 6.8% predicted, it would mean a sustained slowdown through H2 FY2011-12. If that happens, growth could fall to 6.4% year-on-year (y-o-y) in H2 from 7.3% in H1. Also, a Financial Times report on January 26 said that many industrialists have been discouraged by growth slipping from forecasts of 9%. Double-digit growth, said Richard Iley, economist at French bank BNP Paribas, to the newspaper, is firmly in the “rear view mirror”. Despite the encouraging PMI data, macroeconomic trends suggest a weakening economy. Q3 of FY2011-12 started badly, with Industrial production falling for the first time on a y-o-y basis since June 2009. Exports fell too. November trade data showed growth falling to 3.9% y-o-y. Finally, commercial credit growth, which has been falling since the beginning of 2011, dropped to 13.4% y-o-y in December 2011 – a level last seen in December 2009. “Until the Reserve Bank of India (RBI) loosens its official stance on monetary policy, which we do not see happening until Q212…, consumption and investment activity are likely to remain weak. Furthermore, we do not see the country exporting its way out of this downturn, nor is the government in a position to enact stimulative fiscal measures,” the BMI report said.19
  20. 20. The deteriorating global situation will also high inflation is a warning signal that policy impact Indian exports this year. World GDP inaction needs to be addressed and reforms growth could slow to 2.8% (it was 3.1% in 2011), need to be accelerated. The economic outlook the US economy will continue to stagnate and for the rest of FY12 and FY 13 will hinge onEconomic statistics the Euro zone seems to be on the brink of a the government’s ability to restore investors’ are like a bikini, recession. BMI expects net exports to contract, confidence in India’s long-term story” what they reveal with their growth clocking -6% and -3.6% in is important, what FY2011-12 and FY2012-13 respectively. they conceal is Investment vital. High inflation, delays in government approvals An Ernst & Young report released at the World and rising interest rates have also affected -Sir Frank Economic Forum in Davos in January said FDI business sentiment. Expectations that Prime Holmes, professor in India is set to swell as investors look beyond Minister Manmohan Singh, said the Financial issues transparency, poor infrastructure and Times, “would use his second term for bold policy paralysis in search of growth. reforms have quickly drained away. Instead, the Congress party-led coalition has suffered “The fundamentals that make India attractive repeated setbacks at the hands of the to investors remain intact,” Farokh T Balsara, opposition, its allies and civil society activists”. head of markets at Ernst & Young India, wrote. “However, our respondents continue “We in India have had our share of problems. to cite inadequate infrastructure and a lack The Indian economy has slowed down of governance and transparency as major Doing and Inflation edged up. Concern about obstacles to investment.” econometrics corruption moved to the centrestage,” Singh is like trying to acknowledged. FDI in India rose 13% to $50.81 billion in the learn the laws first 11 months of 2011 from a year earlier, This was reflected in the Bombay Stock of electricity by while the total number of projects rose 25% Exchange index, the Sensex, turning stagnant playing the radio. to 864, the report said, quoting additional data and the rupee falling 16% over 2011. from the Financial Times’ FDI Intelligence -Guy Orcutt, It’s clear, said Standard Chartered’s Global service. economist Focus – 2012 report, that “the current combination of relatively slow growth and 20 Photo by SknaB noIA on Flickr
  21. 21. Most of the companies surveyed for the report consumerist mode, India is one of the world’s were confident of the long-term prospects for most attractive retail markets. However, investment in India. Of the 382 international pushing through FDI in retail is an uphill The First Law of firms surveyed, 70% planned to increase or battle, as the government discovered recently. Economists: For maintain operations in India, while 19% said In November 2011, New Delhi said it every economist, they didn’t plan to enter the country or were was throwing open the market to global there exists an preparing to withdraw. supermarket chains such as Wal-mart andequal and opposite The areas of concern, Barclays Capital’s The Carrefour and Tesco only to be forced by its economist. The Emerging Markets Quarterly report said, allies to withdraw the move. Second Law of were weaknesses in private sector capital Economists: The proposal to permit foreign groups to own expenditure (a result of monetary tightening) They’re both up to 51% of supermarkets sparked protests and slower government investments due to its wrong. and paralysed parliament. Critics predicted it poor fiscal health. would it would kill family-run shops that make -David Wildasin, Automakers led investments in India last year, up more than 90% of India’s retail sector. professor boosting spending by 46%, the Ernst & Young Tesco branded the U-turn a “missed report said. Technology and life sciences opportunity”. Harsh Mariwala, the head companies came next, while spending by of consumer products firm Marico, called foreign firms on infrastructure and retail it a “highly regressive move”, reported projects declined. Ford had said earlier the Financial Times. Rajiv Kumar, of the that it would spend $142 million on Indian Federation of Indian Chambers of Commerce operations, while Renault-Nissan also said it and Industry, said opponents of FDI in retail would step up investments. had whipped up xenophobic sentiments aboutAn economist is While foreign investment in several industries the return of colonialism. someone who, has been facilitated, it remains a touchy issue when he finds Almost as a consolation for reform’s for retail. something that proponents and to reassure global investors,works in practice, With a market of 1.2 billion people and worth the government allowed 100% foreign tries to make it about $450 billion, and a middle class in ownership of single-brand stores. work in theory. -Joan Violet Robinson, economist 21 Photo by Greenbelf Alliance on Flickr
  22. 22. Expect brands such as Ikea, Adidas and Marks on household budgets over the last 18 and Spencer, which were allowed to own up months. As a result, the outlook is grim on to 51% of a store, to flock to India without private consumption, which accounts forHaving an in-house domestic partners. The decision “is likely to roughly 65% of the GDP.economist became result in more foreign companies entering Interest rates (the repo rate, the benchmark for many business the market or expanding their presence”, said at which the central bank buys government people something Fitch, the credit agency. securities from banks to control money supply, like having a “This is a welcome move with a clear potential was at 8.5% at the time of writing) are prettyresident astrologer to lift the general mood in the economy,” high too with a wary RBI refusing to lower for the royal chimed in Rajan Bharti Mittal, vice-chairman them until it is certain inflation has been court: I don’t quite and managing director of Bharti Enterprises, tamed. understand what one of the country’s largest retailers, tothis fellow is saying The stock markets aren’t doing great either, Financial Times. but there must be staying range-bound between 16,000 and something to it. However, the fear of policy reversal still lurks. 17,500 points. Even the rupee has weakened That’s why Ikea, the Swedish furniture giant, is more than 19% since its July 2011 peak. -Linden, writer not expected to come to India soon, though it BMI expects private consumption to grow by is keen to. 6.0% and 6.2% in FY2011-12 and FY2012-13 It doesn’t help that policy flip-flops aren’t respectively – a considerable slowdown from the only challenge; land acquisition and a the 8.8% growth in FY2010-11. market that is anything but homogenous are “While household consumption – currently problems too. That’s why the World Bank at its weakest level on record – is likely to ranks India 132nd out of 183 countries for ease find a floor thanks to government spending of doing business. in rural areas and a healthy labour market, Economics is the The evolution of the retail sector, it now weak consumption will weigh on investment only field in which seems, will be long drawn out. in a feedback loop,” said Standard Chartered’stwo people can get Global Focus – 2012 report. a Nobel Prize for saying exactly the 13% On the public consumption front, the opposite thing. Rise in FDI in India in the first 11 months of government has been hamstrung by the 2011 from a year earlier; total FDI for the global financial crisis. One indicator of this is -Heard at the period was $50.81 billion, according to an the fall in public spending growth – in 2008, London School Ernst & Young report government spending averaged 26.7% y-o-y of Economics growth. Spending over the 2011’s four quarters 25% expanded only at 3.2%. Rise in number of projects; total number of Combine negative revenue growth and a projects in the period was 864, said the report growing expenditure bill due to the various social schemes announced and what you 70% get is little room for the government to push Proportion of firms, of the 382 surveyed, that through fiscal stimulation. planned to increase or maintain operations in BMI projected public consumption to grow India; 19% said they didn’t plan to enter the by 3% and 5% in FY2011-12 and FY 2012-13 country or were preparing to withdraw respectively. Private and public consumption 65 Though food inflation has come down to 22 Percentage of GDP accounted for by private manageable levels, there was great pressure consumption
  23. 23. 6.2% might only be in the mid-teens for the current Expected rise in private consumption in fiscal year, in marked contrast with the average FY2012-13, according to BMI, a considerable of more than 20% rate of recent years.”Inflation is the one fall from the 8.8% growth in FY2010-11 However, food inflation is falling fast. As form of taxation that can be Pranab Mukherjee pointed out the “substantial imposed without 3.2% improvement”, Kaushik Basu, the finance Growth in government spending over the four ministry’s chief economic advisor, told the legislation. quarters of 2011. In 2008, it averaged 26.7% Financial Times: “We have seen the worst of-Milton Friedman, year-on-year growth the [rate] rises.” economist The Barclays Capital report estimated that Will the RBI relent? repo rate – the RBI drops the rate to expand money supply and raises it to squeeze supply As FY2012-13 approaches, the easing of key – cuts could be introduced from mid-2012. interest rates could be crucial, providing a much-needed boost. Through FY2012-13, BMI The rate increases, though, found support expects cuts of 75 basis points on the back of in some quarters. C Rangarajan, Manmohan falling inflation. The cuts could be higher if Singh’s chief economic adviser, said that India, Having a little inflation recedes faster than expected. which has a high poverty rate, must keep inflation is like inflation below 5% to achieve sustainable India’s policymakers have battled over the growth. His views found an echo in the RBI. being a little past 18 months to bring down inflation, the The Financial Times reported that RBI officialspregnant—inflation highest among BRIC (Brazil, Russia, India, felt that the economy cannot grow more thanfeeds on itself and China) nations. 8% without inflicting high inflation on the poor.quickly passes the ‘little’ mark. While inflation fell to acceptable levels at the Besides, not everyone is impressed with the beginning of 2012, it has come at the cost of “excessive pessimism”. Arvind Panagariya, -Dian Cohen, growth. economist at Columbia University, told the economist “Rather than economic growth, we expect newspaper that India can quickly recover the 2 downside surprises to come through on percentage points of economic growth it lost inflation,” Robert Prior-Wandesforde, during the global financial crisis. economist at Credit Suisse in Singapore, told Former World Bank chief economist Joseph the Financial Times. Stiglitz pointed to the achievement of 7% This because policymakers have resorted to growth amid the downturn. monetary tightening to rein in prices, raising The risk remains, though, of global commodity benchmark lending rates 13 times over prices surging as they did in 2010, flaming the past two years despite other emerging inflation again and delaying rate cuts. markets despite critics pointing out that other emerging markets cut them to protect growth. The RBI has one other worry – a weakening They accused the RBI of acting timidly, while rupee. Currency depreciation in a country that industrialists blamed higher borrowing runs a current account deficit and imports costs for choking off growth and deterring most of its oil may fuel inflation again. investment. The weakening is a result of the rupee’s As Barclays Capital’s The Emerging Markets overvaluation and deteriorating risk sentiment. Quarterly report pointed out: “…higher interest The Barclays Capital report said the rupee rates and prolonged tightness in liquidity are would remain weak in the near term, clawing visibly hurting several rate-sensitive sectors back to 49/$ in six months and to 48/$ in a such as manufacturing, construction, real year. estate, banking and finance. Credit growth has Keeping prices in check while maintaining 23 already slowed considerably and, we estimate, growth will be a key challenge for Mukherjee.
  24. 24. GROWTH AND INFLATION (% CHANGE) 2007 2008 2009 2010 2011 2012 2013 2014 2015When goods don’t Real GDP growth 9.3 5.7 5.2 8.3 6.5 6.1 6.8 6.5 6.6 cross borders, soldiers will. ASEAN 6.7 4.3 1.1 7.9 5.2 5.2 5.7 5.7 5.8 China 14.2 9.6 9.2 10.4 9.2 8.1 8.4 7.9 7.9 -Fredric Bastiat, India 9.6 5.1 9.1 8.8 7.1 6.3 8.3 8.2 8.4 economist Inflation 4.9 7.1 2.8 5.1 5.9 4.9 4.6 4.4 4.2 ASEAN 5.6 9.9 2.6 4.4 6.0 4.9 4.7 4.6 4.7 China 4.8 5.9 -0.7 3.2 5.6 3.5 4.9 4.3 3.9 India 6.4 8.3 10.8 12.0 8.9 7.8 7.9 7.7 7.5 Source: Economist Intelligence Unit The primaryreason for a tariff EYE ON INDIA is that it enables the exploitation 2012 2013 2014 2015 2016 2017 of the domestic Nominal GDP 1,4 104,241.3 f 118,401.2 f 133,486.1 f 150,232.6 f 168,945.7 f 189,900.4f consumer (in Rs bn) by a process Nominal GDP 2,4 2,287.6 f 2,620.2 f 3,108.8 f 3,669.8 f 4,223.6 f 4,747.5 findistinguishable (in $ bn) from sheer Real GDP growth 2,4 7.3 f 7.8 f 7.7 f 7.5 f 7.5 f 7.4 f robbery. (% change, y-o-y) -Albert Jay Noc, GDP per capita 4 1,818 f 2,055 f 2,407 f 2,805 f 3,189 f 3,542 f (in $) author Population5 (in mn) 1,258.4 f 1,275.1 f 1,291.8 f 1,308.2 f 1,324.4 f 1,340.4 f Ind’l prod’n index 0.0 f 7.5 f 7.9 f 7.6 f 7.5 f 7.5 f (% y-o-y, average) 3,4 f: BMI forecasts. 1 GDP at market prices,fiscal years ending March 31 (1990=1990/91). 2 2011=FY2011/12,factor cost, f=BMI forecast. 3 New series used from 2005/06 onwards. Sources: 4 Central Statistics Organsation/BMI; 5 World Bank/UN/BMI 24
  25. 25. Top priorities As the country looks ahead to the budget, here • Bring back reforms are the issues that are likely to be on Pranab Political constraints have pushed Mukherjee’s mind. reforms to the backburner. This hasIn the long run we contributed to the slowdown and loss • Fiscal consolidation are all dead. of investor sentiment. The introduction Growth has slowed along with a slippage in -John Maynard and subsequent withdrawal of a policy investment. Interest rates have been raised Keynes, allowing FDI in retail is an example. The to arrest inflation, which has squeezed economist government needs to send a clear signal funds available to fuel growth. To top it all, that it is serious about reforms. the fiscal deficit target of 4.6% is likely to be missed. The budget would do well to lay • Agriculture a roadmap for fiscal consolidation, allowing Growing at a mere 2%, agriculture is a the RBI to lower rates and stimulate worry. If food security is to be achieved, demand. The threat of Inflation could be India will have to do better on this front. neutralised by easing supply constraints. The farm-to-consumer chain is far too long; it’s time to link farmers to markets. It is difficult • Helping markets This will make agriculture more lucrative to get a man With growth slowing and rates rising, and lower food prices. India spends the to understand Indian markets have been stagnant for far equivalent of $20 billion on food and something too long. The abolition of the Securities fertiliser subsidies, but that hasn’t eased when his salary Transaction Tax to make transactions supply or made farmers richer. It’s thedepends on his not cheaper and resisting the temptation to delivery mechanism that has failed; better understanding it. raise taxes in order to boost revenues subsidy management is the need of the would aid the return of market buoyancy. -Upton Sinclair, hour. Two other policy changes are critical: author and public sector disinvestment needs to get politician on the fast track again and pension and provident funds should be allowed to invest more in stocks. • Job creation India’s unemployment rate fluctuates between 9% and 10%. However, as the workforce gets increasingly younger, even 7% growth may not be enough. What’s urgently needed is investment in and, perhaps, cheaper credit for labour- intensive industries. Skill development is important, but there are few incentives for industry to upgrade employees’ talents. Most importantly, inclusive growth would ensure that all industry sectors and sections of society would flourish, creating more employment. 25
  26. 26. India’s economic journey 500 BC : Silver punch-marked coins minted; it’s a period of intensive trade and urban development 1 AD : India has 32.9% share of global income, the largest in the world Far better an 1000 : India has 28.9% share of world income, the largest in the world approximate 1500 : India has 24.5% share of world income, second largest in the world after China,answer to the right which has 25% sharequestion, which is 1600 : India’s income of £17.5 million (under Akbar’s Mughal empire, population of often vague, than roughly 150 million) was greater than the entire treasury of Great Britain in 1800 an exact answer (£16 million) to the wrong 1700 : India has 24.4% share of world income, largest in the world, under Aurangzeb’s question, which empire can always be 1793 : Cornwallis’ Permanent Settlement Instituted in Bengal made precise. 1820 : China is world’s largest economy followed by the UK and India. Industrial -John Tukey, revolution in the UK, British begin treating India as an unequal partner statistician 1850 : India’s GDP estimated at 40% of China’s. British cotton exports reach 30% of Indian market 1868 : First estimation of India’s national income by Dadabhai Naoroji 1870 : India has 12.2% share of world income 1913 : India has 7.6% share of world income 1947 : India gains Independence 1950 : Government sets up Planning Commission, Jawaharlal Nehru is chairman. Objective is to streamline resource allocation, put economy on development pathIn general, the art 1951 : First Five-Year Plan launched. Major portion of resources directed to agriculture, of government rural infrastructure. Food production rises by 18% consists in taking 1952 : India has 3.8% share of world income as much money 1973 : Economy at $494.8 billion, has 3.1% share of world income as possible from one party of the 1980–1991 : Economy virtually closedcitizens to give to 1991 : Balance of payments crisis. External debt rises to $70 billion, exacerbated by Gulf the other. War. Rising oil prices deplete country’s foreign exchange reserves. India is on the verge of default; has enough to pay for only three weeks worth of imports. In May, -Voltaire, government sells and pledges gold to raise $605 million. Rupee devalued on July philosopher 1 and 3. Economic reforms begin 1992 : Government switches from fixed exchange rate system to dual exchange system. Boost for the economy, but inflation rate is high and poor industrial growth cause concern. Securities and Exchange Board of India established to oversee financial markets 1993 : Unified exchange rate system introduced 1993-2010 : Reforms continue. Public sector disinvestment introduced, as are various administrative reforms. Stock market booms, crossing 20,000 points at one stage before falling due to an economic slowdown 2009 : Global slowdown impacts economy, jobs; India, however, maintains a growth rate of over 6% 2010 : India’s economy is at $4.06 trillion, accounting for roughly 6% share of world income, the fourth largest in the world 2011 : Fuel prices deregulated. Inflation hits record highs, crossing 12%. Numerous rate hikes follow 26 2012 : Inflation brought under control, but fears of slowing growth persist