Changing Profile of Indian Economy- B.V.Raghunandan, SVS College, Bantwal

Cauvery College, Virajpet

August 13, 2011

Preliberalisation Indian Business

• Disbelief of private sector

• Bureaucratised public sector

• Politicised co-operative sector• Unviable agriculture sector

• Lack of availability of finance

• Finance sector was in Jurassic park period

• No FII investment• High taxation regime

A Blotch in Economic History

• Stagnation in the economy

• Supply-side Inflation

• No foreign exchange reserve• Political crisis

• RBI had to pledge its gold reserves with Bank of England for foreign exchange accommodation

• Second Big Wave of Liberalisation

Liberalised Business

• In the beginning, a madness of Americanisation

• Amartya Sen’s Social Network• C.K.Prahlad’s Bottom of the Pyramid

Approach to Business

• Mohammad Yunus of Bangla Desh Grameena Bank getting Nobel Prize

• Exposure of the US double standard in WTO negotiations

Impact of Liberalisation

• Finance sector reforms• Telecom Revolution• Tax Reforms

• Opening up Insurance Sector

• Disinvestment• Infrastructure

• E’Governance• Right to Information

Act

• CCI• Energy sector reforms• Corporate Governance

• Inclusive Development• Banking Sector

Reforms• Changes in Company

Law

Finance Sector Reforms

• Stock Exchange Reforms

• Statutory Powers to SEBI

• Mutual Funds• Venture Capital & Private Equity

• FII Inflow

• Commodities Exchanges

• FEMA

Telecom Revolution

• Started in 1985 with the establishment of C-DOT

• Opening up to private sector• Mobile telephony & Chinese Equipments

• Revenue to the government shooting up with spectrum sale

• Expansion of broadband services

• Entertainment, education and communication

Tax Reforms

• Kelkar Committee Report

• Reduction of tax rates progressively

• Increase in exemption limits• Capital gains tax and taxability of dividend

• Gender based exemption limit

• Direct tax code

• Simplification of procedure• Summary assessment

Opening up Insurance Sector

• IRDA given statutory powers in 1999

• Private insurance companies with foreign collaborators

• Insurance companies taking stakes in Indian banks

• Bancassurance

• Subscribing to perpetual bonds issued by banks

Disinvestment

• More a revenue making exercise

• PSUs used their size and monopoly

• Listing made the PSUs to function like private sector

• Converted Indian stock market to be a symbol of socialism

• More autonomy to the PSUs

Infrastructure Development

• Private participation is encouraged

• Private airports are allowed

• Private ports are allowed• Toll Road concept has been revived

• Private-public partnership

• Led to the growth and development of housing and real estate development

• More real estate developers tap the market for funding

E’Governance-RTI

• IT initiative by the governments in their working

• IT companies and ITES companies take the initiative

• Corruption is coming down• Litigation level is also coming down• Speed and efficiency in government work

Competition Commission of India

• Replacement for MRTP

• Controversies have bogged down

• Too much reliance on government funding• Sluggish in its working

• A very inefficient new-age regulatory body

• Probably designed to be inefficient to allow M & A activity both internally and externally

Energy Sector Reforms

• Private participation in exploration, marketing and distribution-NELP

• Indian companies are allowed to buy mines abroad

• Many construction companies went into generation of electricity

• Electricity trading exchange is also established

Corporate Governance

• Following Cadbury Committee recommendations in UK, the concept hass gained currency

• In India, limited to protecting the interest of the investors

• Confined to listed companies through a clause in Listing Agreement

Inclusive Development

• Rural finance and banking is emphasised

• Corporates are looking at rural markets as a business strategy

• Development through self-help groups is gaining momentum

• Better funding for local bodies

• Rural development officer

• Micro-finance

Changes in Company Law

• A new companies bill is awaiting Parliament approval

• Producer Companies• Limited Liability Companies

Producer Companies

• Combining the advantages of co-operative and corporate forms of organisation

• Registered under Companies Act• Minimum number is 10

• Democratic voting principle

• Meant for co-operatives having footprints in many states like IFFCO

Limited Liability Partnership

Limited Liability Partnership is a body corporate & is a separate legal entity.

Special type of partnership wherein liabilities of partners are limited.

From March 31, 2009, the Limited Liability Partnership Act, 2008 came into force to basically visualise & give opportunities mainly to service sector including I.T, Accountancy & Law

The disadvantages of company & partnership form of organisation led to LLPs

Banking Sector Reforms

• IT Initiative by RBI

• Restructuring IIB and converting it into Indian Institute of Banking and Finance

• Establishment of IDRBT in 1996

• Financial sector reforms put pressure on Indian banks

• Core Banking Solutions

• Reverse merger of ICICI in 2003

Problems of Banking Industry

• Taking forward the IT initiative

• HR problems

• Cleaning up the operations• Credit Rating

• Balance Sheet Planning

• Influence of insurance companies

• Management of liquidity

Future of Banking

• More exposure to financial services

• Distribution of mutual fund products

• Distribution of insurance products• Distribution channel for government

development programmes

• More participation in micro-finance

• Database for the information agencies with the compliance of KYC norms

THANK YOU