INDIAN INSTITUTE OF PLANNING AND MANAGEMENT NEW DELHI

CHANGE IN INDIAN BUSINESS ENVIRONMENT POST 1991

UNDER THE GUIDANCE OF: PROF. SREY AGGARWAL

SUBMITTED BY: SAURABH KHARBANDA BATCH: PGP/FW/2009-11

CHANGE IN INDIAN BUSINESS ENVIRONMENT POST 1991

India with its consistent progression and adequate profoundly skilled manpower delivers outstanding prospects for investments. India is the most populous democracy and tenth most significant economy in the world. India is the 4th most extensive economy all over the world when it comes to purchasing power parity. India features a federal system of Government with distinct demarcation of powers between the Central Government and the State Governments. India allows a liberal, captivating, and trader friendly investment environment. India is straining on encouraging foreign investment. India posses most liberal and transparent policies on foreign direct investment (FDI) among major economies around the globe. 100% FDI is acceptable under the self-regulating approach in all sectors/activities apart from few areas, which demands prior authorization of the Government. Under self-regulating, investors are required to only notify the Reserve Bank of India within 30 days of receipt of inward remittances. India has liberalized and articulated foreign exchange controls. Rupee is readily convertible on current accounts. For FDI- Profits earned, dividends and proceeds out of the sale of investments are fully repatriable. India incorporates a giant socio-economic class and 55% of its population is below the age of 25.High economic growth and escalating per capita income has resulted into higher growth in the national market, which is the prime growth engine for Indian marketplace. Government of India highly emphasizes on the development of infrastructure in highways, ports, railways, airports, power, telecom, etc. Government is constantly looking for domestic and foreign private investment, for infrastructure sector development. Investment Opportunities in India India provides great avenues for investments in various sectors. Automobile Biotechnology

Cement Chemicals Civil Aviation Defence Education Food processing Gems & Jewelry Healthcare Heavy Industry IT & ITeS Media & Entertainment Mining Oil & Gas Pharmaceuticals Ports Power Retailing Roads & Highways SEZs Steel Telecommunications Textiles Tourism and Hospitality The economic liberalisation in India refers to ongoing economic reforms in India that started on 24 July 1991. After Independence in 1947, India adhered to socialist policies. Attempts were made to liberalise economy in 1966 and 1985. The first attempt was reversed in 1967. Thereafter, a stronger version of socialism was 3

adopted. Second major attempt was in 1985 by prime minister Rajeev Gandhi. The process came to a halt in 1987, though 1966 style reversal did not take place. In 1991, after India faced a balance of payments crisis, it had to pledge 20 tons of gold to Union Bank of Switzerland and 47 ton to Bank of England as part of a bailout deal with the International Monetary Fund (IMF). In addition, the IMF required India to undertake a series of structural economic reforms. As a result of this requirement, the government of P. V. Narasimha Rao and his finance minister Manmohan Singh (currently the Prime Minister of India) started breakthrough reforms, although they did not implement many of the reforms the IMF wanted. The new neo-liberal policies included opening for international trade and investment, deregulation, initiation of privatization, tax reforms, and inflationcontrolling measures. The overall direction of liberalisation has since remained the same, irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies. Thus, unlike the reforms of 1966 and 1985 that were carried out by the majority Congress governments, the reforms of 1991 carried out by a minority government proved sustainable. There exists a lively debate in India as to what made the economic reforms sustainable. The fruits of liberalisation reached their peak in 2007, when India recorded its highest GDP growth rate of 9%. With this, India became the second fastest growing major economy in the world, next only to China. The growth rate has slowed significantly in the first half of 2012. An Organisation for Economic Co-operation and Development (OECD) report states that the average growth rate 7.5% will double the average income in a decade, and more reforms would speed up the pace. Indian government coalitions have been advised to continue liberalisation. India grows at slower pace than China, which has been liberalising its economy since 1978. The McKinsey Quarterly states that removing main obstacles "would free India's economy to grow as fast as China's, at 10 percent a year". There has been significant debate, however, around liberalisation as an inclusive economic growth strategy. Since 1992, income inequality has deepened in India

with consumption among the poorest staying stable while the wealthiest generate consumption growth. For 2010, India was ranked 124th among 179 countries in Index of Economic Freedom World Rankings, which is an improvement from the preceding year. Some major changes in the Indian business environment, especially after 1991, made the domestic markets for many consumer and industrial products more competitive. For the first time, several business firms that were well entrenched in their markets felt the heat of competition. It was now essential for them to get closer to the customers to protect their markets. Many of them, such as Onida, HMV, BPL and Titan who were selling their products only through agents and middlemen, switched to a parallel channel of direct marketing by opening several exclusive retail shops. The aim was to keep in direct touch with the customers and provide certain services that were not being provided by the middlemen. Another objective of opening exclusive showrooms was to build an up-market image of the company by demonstrating the full range of products. The ambience and dcor of the exclusive showrooms also helped these firms in adding value to their brands. LML Vespa, Liberty shoes, Bausch& Lomb eye care products and several others ventured into direct retailing probably due to this reason alone. Service firms such as ITC Hotels and ANZ Grindlays Bank found direct marketing very effective in retailing customers and weathering competition.