COUNTRY FOCUS

By: Utsav Khandelwal Rodrick Mbungu Nitin Sharma Kirti Pathak Mallory Ebengho Rhea Cheema

What kind of economic system did India operate under during 1947 to 1990? What kind of system is it moving toward today? What are the impediments to completing this transformation?

i. Indias economic system was a mixed economy characterized by a large number of state-owned enterprises, centralized planning, and subsidies. ii. The government started an economic reform program. Several areas once closed to the private sector were opened, including electricity generation, parts of the oil industry, steelmaking, air transport, some areas of the telecommunications industry, and investment by foreign enterprises. iii. Tariffs, income tax rates, and corporate tax rates could stall or prohibit this transformation.

HOW MIGHT WIDESPREAD PUBLIC OWNERSHIP OF BUSINESSES AND EXTENSIVE GOVERNMENT REGULATIONS HAVE IMPACTED (I) THE EFFICIENCY OF STATE AND PRIVATE BUSINESSES, AND (II) THE RATE OF NEW BUSINESS FORMATION IN INDIA DURING THE 1947-90 TIME FRAME? HOW DO YOU THINK THESE FACTORS AFFECTED THE RATE OF ECONOMIC GROWTH IN INDIA DURING THIS TIME FRAME?

i. (i) The government had businesses that were losing money. By giving the businesses to private owners it gave them the freedom to manage it themselves for a profit. New businesses were allowed and thereby helped to increase Indias economy. ii. It was a slow process and did not affect Indias economy until 1994 when it expanded 6.5 percent to 2006.

HOW WOULD PRIVATIZATION, DEREGULATION, AND THE REMOVAL OF BARRIERS TO FOREIGN DIRECT INVESTMENT AFFECT THE EFFICIENCY OF BUSINESS, NEW BUSINESS FORMATION, AND THE RATE OF ECONOMIC GROWTH IN INDIA DURING THE POST-1990 TIME PERIOD?

It allowed businesses to do what they do best, make a profit. Because the checks and balances were not as stringent, this allowed for businesses to thrive and make money for Indias economy.

INDIA NOW HAS POCKETS OF STRENGTHS IN KEY HIGHTECHNOLOGY INDUSTRIES SUCH AS SOFTWARE AND PHARMACEUTICALS. WHY DO YOU THINK INDIA IS DEVELOPING STRENGTH IN THESE AREAS? HOW MIGHT SUCCESS IN THESE INDUSTRIES HELP TO GENERATE GROWTH IN THE OTHER SECTORS OF THE INDIAN ECONOMY?

i. These industries are high rollers! The pharmaceuticals that are just off patent can be produced at a much lower cost and this brings a great deal of income in for Indias economy. ii. The revenue from taxes from the telecommunications and pharmaceutical industries are helping to develop all other areas of the Indian economy.

GIVEN WHAT IS NOW OCCURRING IN THE INDIAN ECONOMY, DO YOU THINK THE COUNTRY REPRESENTS AN ATTRACTIVE TARGET FOR INWARD INVESTMENT BY FOREIGN MULTINATIONALS SELLING CONSUMER PRODUCTS? WHY?

It does. If the tariffs go lower the Chinese will bring their low cost products to India. This will destroy the domestic worker and India would soon lean on imports.

WHAT IS INDIAS CURRENT STATUS?

In 1991, Indias reserve was 67 tons of gold ($2 billion). In 2009, Indias reserve was 200 tons more ($285 billion). These signs point to an upbeat outlook for the Indian economy in 2010 which, in the view of some observers, seems as bright as the gold the country has recently acquired. The year could see more gold purchases; India needs to diversify its basket of foreign assets, 90% of which is still in dollars. Inflation will dictate the next steps of the government and the RBI. It has already reached worrisome proportions. After being in negative territory for part of 2009, wholesale price inflation jumped to 4.78% in November from 1.34% in October. Food inflation, which is more important because it affects the general population and influences voting behavior during elections, was 19% in December.

THANK YOU