By: - Aarya Singh Anwesha Chatterjee Ravinder Kaur Gaurav Deshmukh Subin Suresh Abhishek Sinha

MAKING INDIA A GLOBAL HUB

Raghuram G. Rajan

• Nouriel Roubini speaking at global business summit in New Delhi said:

“Potential growth for India is much higher than seven percent they are in the right direction but the country

need to accelerate the pace.”

INDIA HUB FOR GLOBALIZATION

• Multicultural and multiethnic society

• Free press

• Opened elected office

• E.g.: TATA group- finding a large opportunity in Indonesia

• Hey Math!- formal collaboration with the university of Cambridge since 2000

ADVANTAGES

High tariffs and investment norms-Till the early 1990s, India was a closed economy

India’s trade to GDP ratio has increased from 15 to 35% of GDP between 1990 and 2005.

Average non-agricultural tariffs have fallen below 15%

Agricultural tariffs average between 30-40%

INDIA STILL NOT AS OPEN:

Ban foreign investment in retail trade

Retailing accounts for about 22% of GDP

Till 2011, Indian central govt. denied foreign direct investment in multi brand Indian retail.

Anti-dumping Remedy to the domestic industries against the injury caused by the unfair trade practices

of dumping.

Anti-dumping duties are believed to distort the market

CONT.…

INDIAN ENTREPRENEURS• Restricted foreign entry to Indian, resulted in un-exposure of Indian entrepreneurs from

global players.

• Indian Entrepreneurs were not so comfortable facing global players, as financial system of India was also underdeveloped.

-License Raj in action :- In order to avoid capitalistic monopolies, Nehru stated that companies should obtain licenses to expand their production capacity.

• largely successful in the 1950s and after, but eventually led to low rates of growth and investment.

-After IndependenceIndians were xenophobic, multinational companies seen as another colonial power in India, but it was not like that

52%

34%

14%

- Liberalization came since 1980s, ending the License RajBut it was found around the world that entrepreneurs of financially underdeveloped economies opposed liberalization.

• First, Corporate indifference to the efficient provision of factors of production, such as power or finance, which results in reinforcing resistance to liberalization.

• Example-Software companies such as Infosys, TCS, and Wipro Technologies could compete on the world stage and the profit were enormous.

• Second, creeping liberalization-initiated by crisis but then gaining a momentum of its own-forced competition on to other parts of the economy.

• Post-Liberalization-IT businesses succeeded because they were customer focused and professionally managed.

FACTORS ESSENTIAL IN OPPOSING LIBERALIZATION:

• India had unique sources of competitive advantage, in manufacturing, as a challenge for the Indian companies to improve their productivity.

• Example- Fear of Bajaj Auto in a competition to Chinese market.

• What keeps India relatively closed?

Country’s politicians, acquired by the bureaucrats.

Global outsourcing banned by the foreigners.

Exports in India averaged 4473.03 USD Million from 1957 until 2015, which is very low as compared to other countries.

CHALLENGES OF INDIA:

• There comes an important question, that the large corporations becoming more open-minded, could it be the people who are against competition?

The answer to this question is no, as there is a dealing of threat from the cross-country comparison especially from the developed countries.

The Politicians and Constituent assembly of India, don’t let people to compete with the world economy.

According to the World Values Survey, India and China are among the most favorable toward competition.

ROLE OF POLITICIANS AND CONSTITUENCIES:

• The average shows that GDP growth rate and Per-Capita income, richer people are typically more strongly for competition as compared to other sections.

• Indian farmers and agricultural workers, especially those who are not owners, are yet another powerful political constituency against competition.

• According to Churchill’s, older people are more favorable than the young in a competition.

• In the late 1970s, the government led by Morarji Desai eased restrictions on capacity expansion for incumbent companies, removed price controls, reduced corporate taxes and promoted the creation of small-scale industries in large number.

CONTD…

• Current Economic condition of China:• China's  socialist market economy is the world’s

second largest economy by nominal GDP, and the world’s largest economy by PPT according to IMF.

• Ranked 77th by Nominal GDP and 89th by GDP(PPP) in 2014.

• Global hub of manufacturing and trading nation.

• 1970’s condition:

• In 1970’s, DE collectivization of agriculture,14-percent decline in industrial production, dominating position by Gang of four were the major problems in China.

• Rising farm output swelled exports and curtailed food imports.

• Rising rural demand and increased access to urban markets and expertise

PRESENT CHINA• Reasons of enormous economic growth:

• The First Five-Year Economic Development Plan in 1962, by the Park Chung Hee government.

• A logical move because of the shift toward export expansion in the early 60’s.

• Promotion strategy of economic growth through labor-intensive manufactured exports.

• Inflow of foreign capital and rapid growth in exports.

• Problems faced by the economy:

• Problems in Industrial sector , low value added and labor intensive products.

• Prolonged recession following the second oil price shock of the decade and protectionism.

• Growth of money supply reduced from 30% to 15%.

• Double-digit Inflation

SOUTH KOREA 1970-ECONOMIC DEVELOPMENT MODEL

India’s young rich working people having voting right having no burden from past are sending their kind to Parliament.

Education and spread of skills make people tolerant of competition: human capital gives them a chance in a competitive world.

Attitude will change the likelihood as if population becomes better educated and skilled they will be more tolerant of competition.

REASONS FOR HOPE

Expanding and improving the quality of education - Economic growth can be analyzed within macro economic environment, the quality of public institutions and technology. Technological advance is the ultimate source of growth but its origins may be different across countries

Improving access to finance - financial access promotes growth for enterprises through the provision of credit to both new and existing businesses. It benefits the economy in general by accelerating economic growth, intensifying competition, as well as boosting demand for labor. The incomes of those in the lower end of the income ladder will typically rise hence reducing income inequality and poverty. In many countries financial access is still limited to only 20–50 percent of the population.

Promoting ownership and building infrastructure in rural areas- as per Mckinsey’s report by 2020, Rural Consumer Market will be worth of Rs 250,000 crores.

THREE KEY STEPS FOR OPENNESS AND LIBERALIZATION

Reduce country’s large fiscal deficit – reduction in gross fiscal deficit from 4.5% GDP in 1997-98 to 3.5% in 2000s.

If India is to be a global center in financial service:

It must ensure capital account convertibility :

Freedom to change local financial assets into foreign financial asset and vice versa at market rates of exchange. Capital account convertibility makes it easier for domestic companies to tap foreign markets. At the moment, India has current account convertibility. This means one can import and export goods or receive or make payments for services rendered. However, investments and borrowings are restricted.

But economists say that jumping into capital account convertibility game without considering the downside of the step could harm the economy. The East Asian economic crisis is cited as an example by those opposed to capital account convertibility.

KEY STEPS FOR REFORM

During the 1990s the average fiscal deficit as a percent of GDP was 5.67 percent. However, after 2003-04 central governments contained the fiscal deficit from 4.48 percent of GDP to its all time minimum of 2.54 percent in the year 2007-08.

• Until the deficit is contained the government has come to rely on a captive domestic financial market to finance it. Fiscal deficits would have to be funded either by borrowing from domestic banks or international capital markets.it was before the 1980s when emerging markets where able to finance their deficit by relying on captive domestic market and borrowing abroad.

• Risk of crisis would rise considerably if domestic investors were allowed to invest abroad before it was curbed. The rise of global OFDI flows came to a temporary halt in 2008 and 2009, when the financial crisis and the global economic downturn had a strongly negative impact on global FDI flows, in particular on OFDI flows from developed countries. Despite the global downturn, OFDI flows from emerging markets still rose in 2008, but will also decline in 2009.

HINDRANCE TO OPENING OF CAPITAL ACCOUNT

• The best way to face the competition is to experience it at an early stage.

• Government act as an insurer to fix rapid moving prices' Rescue nonviable companies with “technology-enhancement”. Merging of failing Bank with healthy one.

• The Indian Government try to preserve the bankrupt company rather than liquidating it.

GOVERNMENT INITIATIVE TO FACE DYNAMIC CHANGES.

• SOLUTION• Reducing entry & exit barriers for creating of new companies.• Reducing various bureaucratic restriction at the time of incorporation of the company• A better flexible labor laws.• Skill education scheme for the workers who loose their job due to economic changes.• Government should invest properly in education.• With modernization the government has ensure to bring better financial security

schemes. Unemployment Insurance. Pension schemes Health care

So as to protect them at the time of recession.

• To become a more successful working capital for the country. People should accept competition and utilize time to enhance their ability to compete. To attract foreign government the government should provide subsidies & tax breaks so

as to attract them to invest in our country.

• Infrastructure: - Manufacturing depends on a proper infrastructure. rapid growth in port up-gradation &expansion.

India needs an investment of 1 trillion in next 5years

According to Deloitte report India will be facing finance problem for infrastructure nearly 19,000 billion INR. It can only be overcome by introducing (INFRASTURE DEBT FUND)

• Labor reforms : - India very cost competitive per labor is concerned.Productivity of labor is too low, to compete with

world we need to increase our productivity. India Should reform its labor law to make investor friendly. Skill development should be given top priority.

REQUIREMENTS TO BECOME A GLOBAL HUB

• Tax reform :- India should quickly try to implement tax reform. India has corporate tax of 30% in comparison to China which is 25%.

As per World Bank report dismantling Inter- state check post & interstate tax collection will reduce freight time by 20-30%. Making India manufacturing competitive by 3-4%

• Bureaucracy : - for manufacturing to be successful, single window clearance should be the government policy.

India ranks 142 on the list of 184 countries in term of ease of doing business.

• Energy security : - India need to have energy security for sustainable manufacturing growth.

For GDP growth of 9% Energy growth should be 7%.

Electricity generation was 4.9% at 8% GDP growth.

As per business standards report small scale industries in Tamil Nadu will have to be shut down due to high electricity cost due to diesel generators.

De-control electricity price & Increase private sector participation.

Treat them as domestic ones are treated and to deal with all of the domestic investors concerns‘.

Experimenting on the policies with different approaches on a small scale to se what really works or to avoid while setting policies in stone before an initial rollout phase, when they can still be changed.

Foreign investors value transparency in decision-making since foreigners are less familiar with the corridors of power. Discretion relied upon the decision-making process should be seen as fair.

WHAT IT WILL TAKE FOR INDIA TO BE MORE WELCOMING TOWARDS FOREIGN BUSINESSES ???

By giving independence to Regulatory and supervisory bodies .

Having relationships with neighbouring countries can also be an extra step to quell regional tensions.

- Staffing them with attractively remunerated professionals rather than bureaucrat's of proven loyalty.

-This proactive attitude will to draw not just neighbours but also the larger world community.

CONTD…)

INDIA’S FUTURE IS IN INDIAN HANDS AND WILL BE WHAT INDIANS MAKE OF IT.

• As a global finance centre.

We have perfect time zone. Required IT, Communications , and financial skills.

Needs : Sound Regulatory environment Conditions needed for introducing Capital account convertibility.

• As a Centre for higher education.

It has the core human capital. a history of tolerance for ideas.

Needs : a welcoming environment for foreign educational institutions,

faculty and students. a greater tolerance for market-clearing fees and salaries.

CONTD…)

• Banking Sector :- The Indian Banking industry is currently worth Rs. 81 trillion . The Indian banking sector consists of 26 public sector banks, 20 private sector

banks and 43 foreign banks along with 61 regional rural banks (RRBs) and more than 90,000 credit cooperatives.

The Banking and Financial Services Industry is expected to recruit about 8.4 million people as per the growth rate each year.

• BCG report suggests that India’s gross domestic product (GDP) growth will make the Indian banking industry the third largest in the world by 2025. According to the report, the domestic banking industry is set for an exponential growth in coming years with its assets size poised to touch USD 28,500 billion by the turn of the 2025. With the deposits growing at a CAGR of 21.2 per cent (in terms of INR) in the period FY 06–13,

ROAD AHEAD

• Insurance Industry: - The insurance industry of India consists of 52 insurance companies of which 24 are in

life insurance business and 29 are non-life insurers. Two specialised insurers namely (Agriculture Insurance Company Ltd for Crop

Insurance) and (Export Credit Guarantee Corporation of India for Credit Insurance). Insurance Laws (Amendment) Act, 2015 provides for enhancement of the Foreign

Investment Cap in an Indian Insurance Company from 26% to an Explicitly Composite Limit of 49% with the safeguard of Indian Ownership and Control.

• Insurance penetration of India i.e. Premium collected by Indian insurers is 3.30% of GDP in FY 2014-15. Per capita premium underwritten i.e. insurance density in India during FY 2014-15 is US$ 55.0.

• Nearly 73% of the Indian population is Un-Insured which give a huge potential market for the various domestic and international firms.

• Education is undergoing constant changes under the effects of globalization. The effects of Globalization on education bring rapid developments in technology and communications.

• Introduction of technology (electronic literacy).

• Industrialization towards an information-based society.

Government Initiatives for transforming education structure with changing environment.!

•  Rajkiya Pratibha Vikas Vidyalaya (RPVV), run by the Delhi government About 8000 children study in these model schools.

• Rashtriya Madhyamik Shiksha Abhiyan (RSMA),  aimed at improving the standards of secondary education.

Targets under this program include strengthening of 44,000 existing secondary schools, up-gradation of 11,000 Upper Primary Schools to secondary level, 1.32 lakh classrooms would be constructed. 

EDUCATION AND GLOBALIZATION

SKILL INDIA INITIATIVE : -• National Skill Development Mission.

• National Policy for Skill Development and Entrepreneurship.

• Pradhan Mantri Kaushal Vikas Yojana (PMKVY). Government set a target of skilling 40.02 crore people by 2022. Skill Loan scheme, loans ranging from Rs 5,000-1.5 lakh will be made available to 34 lakh youth. Around 2,33,000 youth were awarded certificates from Industrial Training Institutes (ITIs) and

18,000 plus graduating students received job offer letters on the occasion of World Youth Skills Day. 

University & Higher education: - The Central Government proposes to establish 14 Innovation Universities aiming to develop a

Global Centre of Innovation. Setting Up Of 374 Degree Colleges In Educationally Backward Districts. Strengthening Science Based Higher Education And Research In Universities.

The main objective of the scheme is to promote excellence in research education such as Humanities, Social Sciences, Languages, Literature, Pure Sciences.

Under supervision of HRD minister Smiriti Irani India launched Global Initiative of academic network scheme at IIT Gandinagar.