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Economic Development & National Security The Case of India Foreign Investment & Economic Development Dr. S A Dave Chairman Centre for Monitoring Indian Economy Pvt Ltd. Inward Looking Strategy during 1950-80

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economic development national security the case of india foreign investment economic development

Economic Development & National SecurityThe Case of IndiaForeign Investment & Economic Development

Dr. S A Dave

Chairman

Centre for Monitoring Indian Economy Pvt Ltd.

inward looking strategy during 1950 80
Inward Looking Strategy during 1950-80
  • For first 30 years Indian growth strategy was inward looking and depended on import substitution with a maze of controls.
  • State assumed a dominant role as promoter.
  • All allocation agencies were state-owned and were regulated by the state.

Dr. S A Dave

beginning of liberalization the eighties
Beginning of Liberalization – The Eighties
  • First need was to privatize the private sector by reducing regulations.
  • Fragmentation of capacities had to give way to minimum economic capacities.
  • Licenses had to broad-based so that some diversification was possible.

Dr. S A Dave

consensus for reforms rapid strides
Consensus for Reforms & Rapid Strides
  • 1990s saw correction of interest rates and exchange rates.
  • Personal and corporate taxes were reduced and rationalized.
  • Licensing was removed except for a few industries.
  • Banks subjected to Basle norms and restrictions on branch-network removed.

Dr. S A Dave

consensus for reforms rapid strides5
Consensus for Reforms & Rapid Strides
  • Capital markets reforms
      • Independent Regulator: Securities & Exchange Board of India
      • Fully automated exchange:National Stock Exchange
      • Compulsory dematerialization of shares:National Securities Depositories Ltd
  • Insurance sector opened up to private sector and independent regulator established:Insurance Regulatory Authority of India
  • Telecom Regulatory Authority of India

Dr. S A Dave

rapid rise in personal housing loans
Rapid Rise in Personal & Housing Loans

Total Outstanding Credit

(Rs. Crore)

Personal Loans Outstanding

(Rs. Crore)

Other personal loans

Outstanding Credit

(Rs. Crore)

Housing loans

Personal loans

Professionals

Consumer durables loans

Transport operators

Dr. S A Dave

current account balance in control
Current account balance in control

Current Account Balance

(Rs. Crore)

Foreign Exchange Reserves

(Rs. Crore)

Dr. S A Dave

multinationals lead on profit margins
Multinationals Lead on Profit Margins

Profit after Tax as per cent of Capital Employed

Multinationals

Private Sector

Public Sector

Dr. S A Dave

fdi investment climate
FDI & Investment Climate
  • Rapid economic growth is not only a function of savings and flow of funds, but overall investment climate. Locations have to be investment friendly and investment conducive. Funds move to such locations.
  • There has to be good macro political and economic stability and favorable policy toward foreign trade and investment.
  • Efficacy of regulatory framework.
  • Quality and quantity of infrastructure.

Dr. S A Dave

household savings rise post 1997
Household Savings Rise post-1997

Gross Domestic Savings as per cent of Gross Domestic Product

Households

Private Corporate

Public Sector

Dr. S A Dave

rise of physical assets in household savings
Rise of Physical Assets in Household Savings

Share in Household Savings

Physical Assets

Financial Assets

Dr. S A Dave

portfolio investments takeoff in 2004
Portfolio Investments Takeoff in 2004

Foreign Investments (USD Million)

Foreign Portfolio Investment

Foreign Direct Investment

Dr. S A Dave

areas of immediate concern
Areas of Immediate Concern
  • Real estate boom and flows of liquidity into this sector.
  • Hardening of interest rates consequent to what happens in USA.
  • Volatility in net foreign portfolio investments.

Dr. S A Dave

india s potential is high
India’s Potential is High
  • In a study of comparison of investment climate indicators among China, Thailand and India, India lags behind many indicators. But that shows its potential.
  • Compared to China, India scores high on corporate governance and rate of return on assets. India also enjoys the advantage of skilled workers.
  • China had an early edge, but growth momentum is picking up in India thanks to wide-scale growth in income and its impact on physical savings.

Dr. S A Dave

silent labor reforms
Silent Labor Reforms
  • Several restrictions on managerial income, commissions were removed. Employee stock options were introduced.
  • Voluntary retirement schemes offered to rationalize labor.
  • These had a cumulative effect on household income and savings.
  • Along with liberal bank credit, this resulted in increase in demand for real estate, transport vehicles and consumer durables.

Dr. S A Dave

higher probability for better performance
Higher Probability for Better Performance
  • Industrial performance has been good
  • Real estate and automobile sectors doing well, thanks to credit to swelling middle class. Household savings expected to go up.
  • FII inflows, though unpredictable, have been responsive to positive prognosis of the economy.

Dr. S A Dave

long run is very promising
Long-run is Very Promising
  • Direction of reforms is very clear though speed cannot be predicted.
  • There is great emphasis on transparency and corporate governance.
  • Public sector dis-investment and pension sector participation would make capital markets more vibrant.

Dr. S A Dave

slide22

Economic Development & National SecurityThe Case of IndiaForeign Investment & Economic DevelopmentThank you

Dr. S A Dave

Chairman

Centre for Monitoring Indian Economy Pvt Ltd.