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India on the Move.

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This budget is of an India

that is on the move. an Indiathat now rapidly advances toprosperity. It is about anIndia that banishes poverty

and builds on its greatresource base, the strengthof its human capital, and theimmense reservoir of itsknowledge.

- Opening statement, 2003-2004 budget

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Introduction

By 2003, India had been growing at almost 6%annually since 1992, after it suffered afinancial collapse, abandoned import

substitution, and moved gradually to adoptthe Washington Consensus.

Now, financial controls and competitionbarriers are less burdensome, inflation islower, and the current account is balanced.

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However, the finance minister faces difficulties

with massive fiscal deficits and continuingdisturbances with Pakistan that seem to deter

foreign direct investment (FDI).

The question facing him is whether India can

reduce these deficits (in the face of a 2004

election) or whether to let them slide, hoping

that India's entrepreneurs and high-tech

southern states will carry the day.

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Challenge for Singh

What measure would

the new budget

have to take to

ensure the 10th plan

become a reality,

rather that mere

words on

paper?????

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Country Background..

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Demography

Population- 1.5 billion as on 2002.

Literacy- 65%(Kerala being the highest andBihar the lowest)

Indian population -Agriculture

Poverty- 50% of poverty in Uttar Pradesh,Bihar, Madhya Pradesh.

650 dialects and 18 languages.

Languages- Hindi by 30% and English by only2%

Religious groups- Hindu being the largest andSikh being the smallest.

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Indian History

Invaded by empires ranging from Alexander the great to Mughals.

Came under the British Raj in the nineteenth century

India gets independence in the year 1947

Nehru is elected first prime minister of India.

India was partitioned into two secular, democratic states India and East

and West Pakistan.

In January 1948 Mahatma Gandhi assinated by Hindu extremist.

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Trouble with Pakistan

India fought threewars with Pakistan forKashmir:

1. 1948

2. 1965

3. 1971

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DomesticIssues

Assassination of

two of Indias

Prime Minsters:

Indira Gandhi

Rajiv Gandhi

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Politics

Congress party ruled for 33 of 44years following independence.

PV.Narsima Rao led congress from1991-1996.

After Congresss defeat in 1996Sonia Gandhi enters as newleader.

BJP forms NDA (NationalDomestic Alliance ).

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ECONOMIC HISTORY

IMPORT SUBSTITUTION

IPR-1948

First Five Year Plan- 1951( Investment, agriculture)

Second Five Year Plan- 1956 ( Rebuild rural,

weaker sections)

Foreign Exchange Crisis

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PERMIT RAJ

Special Permission earlier ( Problems for private

cos.)

Self-sufficiency

Former finance minister Mr.Manmohan Singhs

theory.

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PLANNED DEVELOPMENT

Second IPR- 1956( 12 sectors)

Industrial licensing program ( Monitor sectors)

Looked after private investment decisions.

Sick units ( NPAs) Green Revolution- 1967

Increased Exports by 131 million tons

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EXPORT POLICY

6.5- 3.6%

Efforts alleviate Indias BOP

Rupee devalued by 57%

Cash Assistance Scheme

Registered Export Policy

Joint Ventures( Help technically, currency &

expertise) 1973 IBM, COCA-COLA

1971- War against US( Treaty with Soviet Union)

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Corruption

India is filled with

Corruption.

Corruption from payingtraffic cops to theft of

electricity.

Transparency

International ranked India

72nd on its corruption

Perception index.

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Declining quality of our leadership-real part.

Candidates with criminal background should

not be allowed to stand for election.

The parliament bill was rejected in July of

2002.

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Path to Globalisation

Major Hinderances.

Loss of major tradingpartner- Soviet Union 1991.

QUOTAS as high as 27.5% forbackward castes resultinginto protests.

Severe balance of paymentcrisis.

High oil prices, stagnantexport industry.

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Hindrance totrade

Inadequate power, communication, and

transportation .

Indias highway system.

Indias bureaucracy.

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Under Rao andManmohan Singh,gradual liberalisation.

Primary focus onreducing thegovernment beauracracy

stabilizing countrysmacro economicbalance.

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Almost all import and capacity licensing

restrictions were removed

Subsidies were restricted and tariff simplified

and lowered.

Disinvestment commission

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40% cap of foreignownership removed

Investment approvedby RBI upto 51%

Allowance for privatebanks and foreign bankbranches

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Tax base broadened andexpenditure reduced.

Indias monetary policy wastightened to reduceinflation.

Rupee devalued at 22%.

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Success and failure of Consensus

Reform :1995-2003

A report by

P.Chidambaram .Finance

minister

1996-1998

Reform economy grew 6%

in environment of low

inflation n interest rate.

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ForeignDirectInvestment

60s -slow down in ForeignDirect Investment(FDI) in Indiaas compared to China.

As India started allowing FDIs ,

many companies startedentering into India

The 1998 GlobalCompetitiveness Report of The

World Economic Forum rankedIndia at the very bottom of the53 countries studies.

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GROWTH OFI.T

INDIAS 10TH PLAN

Primary and secondary education system.

Promotion of engineering college. 16 central universities made up of more than

1200 colleges.

The state maintained a complete monopoly onhigher education; private universities were

prohibited.

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The 2001 U.N development report.

Volume of educated workers in India over 7

million enrolled students in 2000, Indiaproduced more college graduates than any

other country of the world.

Technology boom provided valuable source of

cheap, educated labour for world market.

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Amercian companies began outsourcing

information technology.

More than 40% of the worlds fortune 500

companies outsources a portion of their

services operation to India in 2002.

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General electric had morethan 1100 Indianemployees involed in backoffice and call centeroperation in 2002.

GE capital India investedmore than US$80 and

opened the f.Welchtecnology center in indiain 2000.

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PRIVATISATION

Comment by Ministry of disinvestment.

Indias 10th Five Year Plan specifically focused on

promoting privatisation in order to gain US$20 billionin revenues.

Despite reform efforts to reduce the public sector,

government-controlled entities still accounted for 43%of capital stock in India and 15% of non-agricultural

employment 2001.

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Other than defence, railway and atomic energy, all

sectors are being privatised.

The first major effort was the Common Economic

Program. Launched in 1996, it called for in increase

in foreign investment and privatisation of non-coreand terminally sick public enterprises.

Disinvestment was taking up the pace. Government

planned to reduce its stakes to 33% in banks and in

telecom industries to 25% and 34%vto oil companies.

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Privatisation had a huge impact

on EMPLOYMENT.

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Fiscal Deficit

In 2002-2003, it was 5.9% ofthe countrys GDP.

This burdensome deficit

crowded out privateinvestments by raising theinterest rates as high as 12%in 2002.

Government announcedplans to reduce the deficit to5.6% in 2003-2004.

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Challengingobstacles like:

Military expenditure rose to 10% of the totalexpenditure in 2002

Natural disasters like drought and earthquake inGujarat.

Agriculture and energy subsidies were 11% of the

governments expenditure.

Fertilizer subsidies.

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Why governmentcouldnotincrease its

Revenues? Excluded all of the IT

industry & small-scale

manufacturers from taxes.

Less than 2% of the Indianpopulation paid Direct tax.

Mumbais revenue from

property tax was only

0.002% . Government could not

recover the costs spent on

infrastructure.

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Social and Political conflict

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Political conflict

In May 1999, a quasi-war erupted between India &Pakistan over the state of Kashmir.

Prime ministers of both the states met in July 2001, tosolve this issue, but failed.

In December 2001, terrorist belonging to Kashmirmilitant group attacked on the parliament of India.

In May 2002, militants killed 34 soldiers and civilians ona Kashmir army base.

United States put pressure on both the countries to

avert war.

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Social conflict

The Ayodhya temple dispute in 1992.

The Demolitionof Babri Masjid .

2002 religious violence in Gujarat.

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Riots broke resulting in the deaths of 2000 people.

Ten years later, in March 2002, Muslim militants

firebombed the train killing 58 Hindu activists.

Hindus killed 2000 Muslims and left 10000 people

homeless in Gujarat.

Supreme court banned all religious activities on thesite.

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Firststep to 8% growth?

Planning commission guidelines.

Kelkars report.

Would the India of the future continue to bereceptive to change? Could it afford not to be?

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Highlightsof 10th Five-Year Plan

(2002-2007)

Economic Annual 8% GDP growth.

50 million jobs in five years.

Per capita Income (US$453 in 2002) woulddouble in 2012.

Annual FDI flows of US$7.5 billion.

Disinvestment target of Rs 780 billion.

Agriculture would remain a significant engine ofgrowth.

Efficient contract farming.

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SOCIAL

Reduction in poverty ratio to 21% from 26%

by 2007 and 11% by 2011.

Increase of literacy rate to 75% . Potable drinking water in all villages.

Cleaning of all major polluted rivers.

Reduce population growth fron 21.3% in1991-2001 to 16.2% in 2001-2011.

Reduction in Infant mortality to 45 per 1000

by 2007 and 28 by 2012.

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POLITICAL

Reduction in subsidies & administrationoverheads.

Eliminating interstate barriers to trade &

commerce. Liberalizing agri-trading, agri-industry, and

exports.

Encouraging contract farming Labor reforms

Policy reforms for small scale like reservation.

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10th five year plan- a failure

The Tenth Five Year Plan has missed virtually

all targets! Why has planning been a failure in

India?

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Reasons for failure

1. The yawning gap between reality and policy.

2. Failure to address the crisis confronting Indian

agriculture.

3. The State increasingly abdicated some its coreresponsibilities towards the poor.

4. When it comes to education and health care, the

performance of successive Five Year Plans has been

worse than pathetic. The Tenth Plan was no

different.

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5. Physical infrastructure had no

phenomenal growth; a failureindeed.

6. Tenth Plan was systematically

hijacked by politicians

pandering to populist and often

whacky sentiments andschemes.

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7. Indian bureaucracy - a rustingand rotting body that

consistently pulls India down.

8. Corruption destroying the very

intentions of planning and

policy making.

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Conclusion.