Macro Analysis of India (Part 1 Strategy) 2010 EMBA India International Residency Paper Robert Paul Ellentuck EMBA 2011 5/21/2010 This document is Part I of the macro analysis our group chose for the 2010 India International Residency Paper. The paper addresses India s explicit national vision, national goals, relative priorities among the national goals, and the government s main policies to achieve these goals.
India s Vision The nation of India engages in a multitude of activities that constitute a national vision. However, to classify their vision as explicit would be overstating the circumstance as being an all encompassing national vision. The initial argument in seeking to answer this question comes from the fact that the National Planning Commission for India is currently embarked on its Eleventh Five Year Plan, 2007-2012, which continues a legacy of internally focused economic development. These Five Year Plans have guided the nation s development efforts across a broad spectrum of areas since the first Plan was established in 1951. Since that initial Plan, there have been ten consecutive Five Year Plans, all designed to develop the nation of India. Initially, the Five Year Plans were focused internally to develop a new self-governing independence in India. Through the years, the internal country focus of the plans has been complemented with an external focus to ensure India s growth as a productive democratic member of the global diplomatic and business community. In conjunction with the Five Year Plans, there are Annual Plans that set performance targets and establish the baseline for monitoring progress through sequential yearly periods. The Mid-Term Performance Review of Annual Plans is a concise review of how well the country is achieving their respective targets. The review also creates an opportunity to provide new direction based on changing priorities or constrained resources. From the various plans and reviews created by the National Planning Commission, India has set a very deliberate course toward global economic participation, diplomatic independence and national capital expansion. Its three principal areas of challenge and hence opportunity are to balance shifting priorities between 1) investing in infrastructure, 2) increasing their productive output and 3) keeping their economy stable as they progress. Within each of these areas, it s important to carefully prioritize India s infrastructure investing between increasing national energy reserves, increasing energy generating capacity, and expanding distribution of basic utilities and transportation. India also needs to prioritize increasing the productivity of agriculture versus manufacturing and service sectors. To maintain a stable economy, they need to ensure a Balance of Payments with a Current Account between exports and imports. They also need to carefully monitor currency valuation, prices, wages and employment and be able to adjust as necessary to gain a cumulative competitive edge moving into the future. In trying to map the elements of the Five Year Plans to India s values, aspirations, their degree of societal participation and solidarity it is a likely notion that at a basic level the people as a whole would find mutual benefit from the priorities contained in the Five Year Plans. Based on the relative size of the population and the similar motivation to excel in the urban areas it is more likely to find commonality among the urban dwellers. The further one strays into the disparate rural regions, the less likely it would be to find mutual desires, especially when comparing urban and rural peoples. One key reason for this is the simple fact of literacy differences between the urban and rural areas, which inpart is a determinant of income distribution being very different between the two segments of the population. In an effort to uncover an explicit national vision for India, it is apparent that the internal and external affairs are often subsumed at a regional level. Much of this diversion is due to continual conflicts between ruling parties, religious groups, and various fringe operatives who react in many cases with extreme violence to national initiatives. This circumstance has a tendency to set objectives on a national scale back with insufficient support to have an enduring effect. However it is evident that the principal value of India is to remain true to its diverse cultural heritage. And despite ostensible diversity the predominant aspiration to prosper in all regions of the country is mutual. This is where the degree of society participation and solidarity becomes tantamount to progressing on a national scale. Indian society has grown over the past several decades with a 2
palatable sense of tolerance for cultural differences and a vision of inclusion by sharing the burden of developing the nation. India has made a profound impact on its domestic status since gaining independence. Over the last decade, they have made a significant impact on the global economy. It is apparent that they have a vision in moving forward as a productive democratic nation. However, they are also on the leading edge of forming a more comprehensive vision. A vision that is not only nationally explicit, but is truly all encompassing by also being internationally elicit for the commonwealth of all nations participating as neighbors in the global community. India s Goals Based on the details outlined in a variety of sources including India s Five Year Plans, we determined that India s national goals include global economic participation, diplomatic independence, and national capital expansion. They are interested in achieving a higher per-capita income level, equalizing income across the nation, and improving social, political, and religious stability. i They hope to reduce their fiscal deficit and control their public debt. ii With an increased income level, India anticipates investing in their infrastructure to improve their transportation network, housing and businesses. iii If the Indian economy is to maintain its rapid rate of expansion and improve its competitiveness, significant infrastructure development remains necessary. iv India wants to create jobs for their growing population, increase the education level of their people, and help them achieve a higher standard of living. v Their social policies include a reduction in the poverty ratio, increased availability of potable water in all villages, and a cleanup of major polluted rivers. vi They want to increase expenditures on health and education and hope to increase the national average literacy rate to 75%. vii Despite rapid industrialization, agriculture continues to provide employment for most of the working population and efforts have been made to improve conditions in this sector. viii Additional non-agricultural employment opportunities for their people will hopefully help India develop a more diverse market-oriented economy. ix India is also privatizing businesses and expanding their industrial and service sectors. x As explained by Secretary of Disinvestment Pradip Baijal, Our privatization policy is clear. Other than defense, railway, and atomic energy, all sectors are being privatized. xi Many of India s elite also believe that privatization would reduce corruption and improve economic growth. xii Relative Priorities The relative priorities among the national goals include security from external threats, including Pakistan and China, political stability, increasing the country s economic growth and providing economic opportunities for the population. xiii Security from external threats is a persistent problem in India. They continue to accuse Pakistan of funding the Muslim militants in Kashmir. xiv In 2008, terrorists originating in Pakistan attacked multiple locations in Mumbai and killed over 170 civilians. xv Political stability also perseveres as a key priority in India s goals. There is continued fracturing of the Indian electorate into regional and caste groups, with more than eight national and two dozen regional parties. This results in coalition governments, which tend to be more commonplace in India than in some other nations. xvi Improving the country s economy and providing education, jobs, and an enhanced way of life for the nation s people continues to prevail in India in correlation with the vision they are developing for their nation. 3
Government Policies The main policies to achieve India s goals are their monetary policies, trade and investment policies, and sector related policies. India s monetary policy is to become more efficient with their fiscal responsibility, downsize their government, widen their tax base, remove many of the tax exemptions and incentives, and cut subsidies. xvii Their monetary policy focuses around raising private sector investment by increasing the inflow of Foreign Direct Investment (FDI) and speeding up privatization of the public sector. xviii Ongoing attempts to address India s unwieldy fiscal deficit (traditionally exacerbated by the country s modest tax base and cumbersome local government apparatus) have been largely frustrated by the repeated stalling of the divestment program, internal security concerns, volatile foreign relations and the costs associated with natural disasters. xix The 2008-2009 government budget called for a 19% increase over 2007-2008. xx Since the beginning of fiscal year 2008-2009, the fiscal deficit had widened 13.1% over the corresponding period in the previous year. xxi The fuel subsidy, cheap fertilizer, forgiven farm loans, and fatter pay packets for bureaucrats, could increase the budget deficit to 10% of the GDP this fiscal year, if state government is included. xxii The trade and investment policies include the removal of barriers to trade and barriers to foreign investment, privatization, deregulation, and the creation of secure property rights. xxiii Despite changes in government, the economic reform initiated in 1991, that included trade and investment liberalization, industrial deregulation, disinvestment by the government in public enterprises and their gradual privatization, and financial and tax reforms has continued despite several changes in government. By 2006 a variety of sectors including power, coal, construction, telecommunications, postal services, tourism, car manufacturing, transport (with the exception of the railways) and insurance had been opened up to private (domestic and foreign) investment. Restrictions on foreign participation in a number of sectors (including the pharmaceuticals industry) were eased or removed in 2001-2002 to encourage greater foreign investment. In 2001-2002 India recorded a current-account surplus for the first time in 23 years. The economic policies of the new, Congress-led United Progressive Alliance (UPA) Government elected in May 2004, while stressing continued governmental commitment to economic reform also emphasized increased spending on education and health, public investment in infrastructure and employment creation. In August of that year, the government announced a trade policy intended to encourage exports and double India's share of global trade over the next five years. The sectoral policy of India includes promoting the expansion of the agricultural sector (with a long-term aim of achieving India's self-sufficiency in food terms). xxiv Agriculture is the largest sector in terms of employment, with sixty percent of the workforce, but producing only 1/5 th of Gross Domestic Product (GDP). Agriculture is critical to the economic growth and stability of India. The service industry has also been a primary driver of economic growth. The government policy is diversification in order to obtain sustained success. The service economy draws on India s concentration of low-cost, technically sophisticated, English speaking workers. American companies in particular are attracted to India for back office functions and call centers for these reasons. xxv A senior government official emphasized that manufacturing may be the next, and most enduring, engine of growth. In 2008, manufacturing constituted 22% to 25% of GDP. The government s goal was to grow this number to 33% of GDP. xxvi In conclusion, India is striving every day to accomplish their goals and objectives as outlined in a variety of sources including their Five Year Plans. They ve made tremendous progress over the years. With the development and implementation of structured polices, it appears India is headed for success with regards to stable global economic integration, national capital expansion, and improved diplomatic independence. 4
i Vietor, Richard, & Thompson, Emily. (2008). India on the move. Harvard Business School, 9-703-050, 2. ii Economic Affairs (India), in Europa World online. London, Routledge. George Washington University. Retrieved 07 May 2010 from http://www.europaworld.com.proxygw.wrlc.org/entry/in.is.90 iii Bardalai, Anjalika, & Walsh, Gerard. (2008). Country profile India. Economist Intelligence Unit, Retrieved from http://www.eiu.com.proxygw.wrlc.org/report_dl.asp?issue_id=1423479527&mode=pdf iv Economic Affairs (India), in Europa World online. London, Routledge. George Washington University. v Vietor, Richard, & Thompson, Emily. (2008). India on the move. Harvard Business School, 9-703-050, 2. vi Ibid. vii Ibid. viii Economic Affairs (India), in Europa World online. London, Routledge. George Washington University. ix Vietor, Richard, & Thompson, Emily. (2008). India on the move. Harvard Business School, 9-703-050, 9. x Ibid., 1-2. xi Lok Sabha, Presentation on Disinvestment to Committee on Petitions, Ministry of Disinvestment, October 2002. xii Interview with Aroon Purie, editor-in-chief, The India Today Group. xiii Vietor, Richard, & Thompson, Emily. (2008). India on the move. Harvard Business School, 9-703-050, 2. xiv Ibid., 4. xv Recent History (India), in Europa World online. London, Routledge. George Washington University. Retrieved 06 May 2010 from http://www.europaworld.com.proxygw.wrlc.org/entry/in.is.4 xvi Vietor, Richard, & Thompson, Emily. (2008). India on the move. Harvard Business School, 9-703-050, 5. xvii Ibid., 2. xviii Ibid. xix Economic Affairs (India), in Europa World online. London, Routledge. George Washington University. xx Country Report: India, Economist Intelligence Unit, July 2008. xxi Monthly Economic Report, India Ministry of Finance, September 2008. xxii Asia: Turning Sour; India s economy, The Economist, 2 August 2008. xxiii Vietor, Richard, & Thompson, Emily. (2008). India on the move. Harvard Business School, 9-703-050, 9. xxiv Economic Affairs (India), in Europa World online. London, Routledge. George Washington University. xxv Vietor, Richard, & Thompson, Emily. (2008). India on the move. Harvard Business School, 9-703-050, 13. xxvi Ibid. 5