ECONOMIC ENVIRONMENT by DR. PARAMITA DASGUPTA Administrative Staff College of India, Hyderabad

c PRE LIBERALISATION THERE WAS LESS COMPETITION AND A SLOWER MOVING BUSINESS ENVIRONMENT c RULING MOTTO : IF IT IS NOT BROKEN DON’T FIX IT c CHALLENGES BEING FACED TODAY ARE DIFFERENT c GLOBALISED ECONOMY IS CREATING BOTH MORE HAZARDS AND MORE OPPORTUNITIES FOR EVERYONE c FIRMS ARE BEING FORCED TO MAKE DRAMATIC IMPROVEMENTS NOT ONLY TO COMPETE AND PROSPER BUT ALSO TO MERELY SURVIVE

3 GLOBALISATION : INDIAN CORPORATE PERCEPTION  GREATER COMPETITION  NEED TO EVALUATE GLOBAL DEVELOPMENTS AND INCORPORATE INTO STRATEGIC PLANNING PROCESS CONTD..

4  NEED TO ASSESS AREAS OF COMPETITIVE STRENGTH, BUILD ON THOSE STRENGTHS AND BECOME COST - PRICE AND TECHNOLOGICALLY COMPETITIVE CONTD..

5  CLEAR PERCEPTION OF SHORT TIME SPAN. AWARENESS OF NEED TO PUT THEMSELVES IN ORDER OR THEY WILL NOT BE ABLE TO SURVIVE  EXPECTATIONS FROM THE GOVERNMENT SUPPORT IN POLICY TO HELP INDUSTRY TO BECOME COMPETITIVE

INDIAN ECONOMY:AN OVERVIEW »TURBULENT INTERNATIONAL ECONOMIC ENVIRONMENT »EXPORTS SHOW AN UPWARD TREND IN 1999/00 AND 2000/01. »DECLINE IN TOTAL NET CAPITAL INFLOWS IN FIRST NINE MONTHS OF 2000/01. »CONSEQUENT DECLINE IN FOREX RESERVES IN 2000/01. »DECELERATION OF GDP FROM 6.6% IN 98 / 99 TO 6 % IN 2000/2001. »RISE IN THE INFLATION RATE IN 2000/01.

OVERVIEW….. FLUCTUATIONS IN INDUSTRIAL GROWTH OVER LAST TWO YEARS. MARGINAL INCREASE IN GROSS DOMESTIC SAVINGS AS PER CENT OF GDP IN 99/00. MARGINAL INCREASE IN GROSS DOMESTIC CAPITAL FORMATION AS PER CENT OF GDP IN 99/00

/ INADEQUATE FISCAL ADJUSTMENT. /INADEQUATE PUBLIC INVESTMENT IN INFRASTRUCTURE AND SOCIAL SECTORS PARTLY DUE TO DECLINE IN PUBLIC SECTOR SAVINGS. /LOW PRIVATE INVESTMENT DUE TO HIGH REAL INTEREST RATES AND INADEQUATE INFRASTRUCTURE. OVERVIEW…..

9 DOMESTIC ECONOMIC ENVIRONMENT LIBERALIZATION POLICY u FISCAL POLICY u TRADE & EXCHANGE RATE POLICY u INDUSTRIAL POLICY u FINANCIAL SECTOR POLICY

ä CYCLICAL PATTERNS IN INDUSTRIAL GROWTH ä INCREASE IN GROWTH RATE IN 99/00 FOLLOWED BY SLOW DOWN IN 2000/01. ä ACCELERATION IN GROWTH RATE OF CONSUMER GOODS. ä CAPITAL GOODS AND INTERMEDIATE GOODS INDICATE A DOWNWARD TREND. INDUSTRIAL GROWTH: BROAD PATTERNS

ä DECLINE IN GROWTH RATE OF SIX CORE INDUSTRIES TAKEN AS A WHOLE. ä DECLINE IN GROWTH RATES OF STEEL, CEMENT AND ELECTRICITY. INDUSTRIAL GROWTH: BROAD PATTERNS

INDUSTRIAL SECTOR : CURRENT ISSUES l SLOW DOWN IN DEMAND FOR CAPITAL GOODS AND INTERMEDIATE GOODS. l INFRASTRUCTURE CONSTRAINTS IN POWER, ROADS AND TRANSPORT. l HIGH INTEREST RATE ENVIRONMENT. REQUIRED TO REVIVE INVESTMENT IN INFRASTRUCTURE,RATIONALISE COSTS AND INTRODUCE TECHNOLOGICAL CHANGES

INFRASTRUCTURE INFRASTRUCTURE PERFORMANCE HAS BEEN CAUSE OF CONCERN. DIVERGENT GROWTH TRENDS ACROSS SECTORS. ELECTRICITY,CEMENT SHOWING DECELERATION. COAL, PETROLEUM INDICATING UPWARD TREND.

14 INFRASTRUCTURE  DEMAND OUTSTRIPPING SUPPLY IN INFRASTRUCTURE.  NEED TO IMPROVE EFFICIENCY & CAPACITY UTILIZATION OF THE EXISTING INFRASTRUCTURAL ASSETS  NEED TO CREATE NEW CAPACITIES PARTICULARLY IN POWER, TELECOM, ROADS AND PORTS.  PRIVATE INVOLVEMENT IN INFRASTRUCTURE REQUIRED.

 PRIVATE PARTICIPATION NEEDED FOR RESOURCE GENERATION AS WELL AS IMPROVEMENT IN QUALITY OF SERVICES.  NEED FOR SECTORAL REFORMS, RATIONALISATION OF PRICES.  REGULATORY REFORMS REQUIRED FOR ENSURING FAIR COMPETITION AMONG PLAYERS.  AVAILABILITY OF FINANCE. INFRASTRUCTURE

INDIA’S EXPORTS, IMPORTS, TRADE BALANCE (Percentage) YEAR % Change EXPORTIMPORT

MAJOR IMPORTS (COMPOSITION %) 99/00 00/01 Food and Allied Products Fuel Capital Goods

PRINCIPAL EXPORTS (COMPOSITION %) 99/00 00/01 Agriculture and allied Products Ores and Minerals Manufactured goods (of which) Gems & Jewellery Leather and L. Manuf Readymade garments Cotton yarn, fabrics, made ups, etc.

DIRECTION OF TRADE- EXPORT percentage share) COUNTRY / REGION 99/00 OECD 57.6 EU 25.1 USA 22.7 OPEC10.6 EASTERN EUROPE 3.0 OTHER LDCs 25.1 OTHERS 3.6

INDIA’S INTERNATIONAL TRADE :CURRENT ISSUES * Competitiveness of Indian products in the wake of removal of Quantitative Restrictions on imports in the EXIM Policy. *Building export competitiveness