CRITICAL THINKING:-INDIAN ECONOMIC TRANSFORMATION

Case Analysis Week 2

Urvi Vadagama

Devry University

Keller Graduate School of Management

Course: INTL-500

Global Perspective for International

Date:- 16th November, 2018

Professor: Michael L. Faulkner

1. What kind of economic system did India operate under during 1947–1990? What kind of

system is it moving toward today? What are the impediments to completing this

transformation?

Indian economy is the world's twelfth largest according to market exchange rates.

From 1947 to 1990, India operated under a mixed economy that included several large state

owned enterprises, central planning , and subsidies. From 1947 to 1991, India Economy system

was based on Social democratic based policies. Today, the country is moving towards a market

economy. Already a number of economic reforms have been implemented allowing for more

privatization of key industries and attracting more foreign investment. India became the second

fastest growing major economy in the world by 2008. However, tariffs are still high and efforts

to lower them are meeting with opposition from companies that fear lower tariffs will bring in

too much competition. Antiquated labor and manufacturing laws are also making it difficult for

firms to operate competitively.(https://business.mapsofindia.com)

2. How might widespread public ownership of businesses and extensive government

regulations have affected (i) the efficiency of state and private businesses and (ii) the rate

of new business formation in India during the 1947–1990 time frame? How do you think

these factors affected the rate of economic growth in India during this time frame?

Regulations also called administrative laws or rules, are the primary vehicles by

which the federal government implement laws and agency objectives. The impact of widespread

public ownership of businesses and extensive government regulation on the efficiency of state
CRITICAL THINKING:-INDIAN ECONOMIC TRANSFORMATION

and private business and the rate of new business formation in India during 1947-1990 time

frame are given below:

 Rigid growth rate of private sectors

 Late in getting permission for establishing new business for new product for private

enterprises

 Heavy industries revered for the state owned enterprises by a larger share

 Development of a healthy private sectors stunted

 Difficulties in firing employees

The issues identified above lead us to major factors that affected growth

rate of Indian economy during the time period. First and most important factors is the

occurrence of unemployment. As mentioned above, it might take long time to get

permission to diversify into a new product and thus to a new sector of business with new

job vacancies. Late permission might result in longer unemployment and hence lessened

the economical growth rate. Although labor laws made it difficult to fire employees but

this law did not create any scope for new employment .

Unemployment made the path for second factory, poverty. As

unemployment people could not contribute to their families, financial condition of lower-

middle and lower class people became worst resulting in poverty.

3. How would privatization, deregulation, and the removal of the 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?

Since 1990, India has been much more open to foreign investment, and

extension privatization of numerous industries has introduced a new level of competition

to the market - competition that forces firms to become more efficient. Foreign

investment in the county is up from just $150 million in 1991 to $36.7 billion in 2007,

and the overall economy has grown at a much quicker rate. Growth rates from 1994-2004

were about 6.3 per year, but about 9 percent per year from 2005-2008.

4. India now has pockets of strengths in key high-technology industries such as software

and pharmaceuticals. Why do you think India is developing strength in these areas? How

might success in these industries help generate growth in the other sectors of the Indian

economy?

India gains technology and pharmaceuticals are impressive. As India is

developing strength in the key of high technology industries such as software and

pharmaceutical since they have such a large amount of resources and inexpensive labor.

The country has emerged as a vibrant global center for software development, and

India's pharmaceuticals companies have taken a strong global position by selling low cost

of patent in the developed world. In India, great potential exists for increasing

productivity by shifting labor from low productivity and subsistence activities to more

productive modern sectors, as well as to new knowledge-based activities. As the

industries continue to prosper, other sectors of the economy should also see the benefit of

spillover effects. Success in these industries will help generate growth in other areas of

the Indian economy by encouraging business owners to open up internationally. The

revenue from the taxes from the telecommunications and pharmaceutical industries are
CRITICAL THINKING:-INDIAN ECONOMIC TRANSFORMATION

helping to develop all other areas of the Indian economy. 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 India's economy.

5. Given what is now occurring in the Indian economy, do you think the country represents

an attractive target for inward investment by foreign multinational selling consumer

products? Why?

Foreign investment is up in India. In fact, foreign investment rose from

$150 million in 1990 to $15.5 billion in 2007. However whether India is an attractive

destination for foreign multinational selling consumer products remains to be seen.

Certainly, the large population will serve to attract some companies, but the fact that

some 40 percent of population is living in object poverty will scare other companies

away. Moreover, it is still not easy to run a company in India thanks to laws limiting

everything from who can be fired to who can manufacture certain products.
CRITICAL THINKING:-INDIAN ECONOMIC TRANSFORMATION

References:

 https://business.mapsofindia.com/india-economy/system.html

 https://www.ced.org/reports/regulation-and-the-economy

 http://www.tutor2u.net/economics/reference/india-economic-growth-and-

development

 http://www.ibef.org/industry/services.aspx

 htttps://www.moneya2z.com/search?

s_pt=aolsem&s_it=aolsem&s_chn=9&s_dto=p&s_gl=US&q=the%20economic

%20system%20of

%20india&gclid=CjwKCAiA8rnfBRB3EiwAhrhBGhajWgLExkhDAB_WmpaQj

uoieNawOIXaYo8FiRHegHU7rN9nPeMKexoCeOcQAvD_BwE

 yourbusiness.azcentral.com/factors-affecting-selling-goods-other-countries-

multinational-companies-28924.html