Kuala Lumpur Forum of Thought

The Rise of

Lessons to the Arab World

Presented by: Ravi Kumar Plan of the Presentation

● The Rise of India ● What Lessons to the Arab World ○ A Journey from Socialism to

Free Market Economy ○ Arab World Actual Statut

○ Pre-liberalisation Policy ○ Arab World Potential ● Take Away Lessons ○ Crisis Lead to Reform

○ Post Liberalisation

○ Steps Taken to Improve the Economy Indian Economy

A Journey from Socialism to Free Market Economy Why Relevant Today? The Indian elephant has learned how to dance – India's GDP has incre- ased by about 7.5x since 1980, 3 times faster than global expansion Indexed GDP growth

What Happen? How India Reached this Level

A Journey from Socialism to Free Market Economy India Economy Before 1991

❖ Colonial experience: Indian leaders as ● Nationalisation: Under the Industrial exploitative in nature Development Regulation Act of 1951, steel, mining, machine tools, water, ❖ Exposure to Fabian socialism. telecommunications, insurance, and ❖ Policy tended towards protectionism electrical plants, among other industries, ❖ Import substitution industrialization were effectively nationalised. ❖ State monitoring, state intervention at the ● Elaborate licences, regulations and the micro level in all businesses especially in accompanying red tape, commonly labour and financial markets, referred to as Licence Raj, were required ❖ Large public sector, to set up business in India between 1947- ❖ Business regulation 90. ❖ Central planning. Five-Year Plans of India resembled central planning in the . Crisis leading to Reform? What lead to the Crisis?

❖ Irresponsible, self-perpetuating ❖ Controls on business creation also lead to bureaucracy and corruption flourished poor infrastructure development. under this system. ❖ By 1980, this had created widespread ❖ Only four or five licences would be given economic stagnation. for steel, electrical power and ❖ The annual growth rate of the Indian communications, allowing licence owners economy had stagnated around 3.5% from to build huge and powerful empires the 1950s to 1980s, while per-capita without competition. income growth averaged 1.3%. ❖ A huge public sector emerged, allowing ❖ During the same period, Pakistan grew by state-owned enterprises to record huge 5%, Indonesia by 9%, Thailand by 9%, losses without being shut down. South Korea by 10% and Taiwan by 12%. ❖ Internal debt liability increased to 53% of GDP The Crisis: Hard Currency Problem and Trade Balance

India could ● By 1991, India still barely finance ● India started having had a fixed three weeks’ balance of payments exchange rate worth of problems in 1985, and by imports. system, where the the end of 1990, the state of India was in a serious rupee was pegged economic crisis. The to the value of a government was close to basket of default, its central bank had currencies of major refused new credit, Some Thing must be trading partners. done to change the situation Road Map Towards Development

Components of New Economic Outcome of New Economic policy policy

● Exchange rate.

● Trade and ● Liberalization industrial policy. ● Privatization ● Policies concerning ● Globalization the public sector. financial sector.

● Capital market. Road Map Towards Development

● Goal: Integration with world ● Correcting the disequilibrium economy with dismantling of in foreign exchange market tariff wall. through demand reduction. ● Protection of foreign direct ● Reform in trade policy – investment. ● Reduction in fiscal deficit – ● Upgrading the technology of production. ● Dismantling of barrier to free ● Financial stability. flow of capital. ● Outward looking policies. ● Depreciation of exchange ● Deregulation of domestic market. rate Manohan Singh Reformation

● 22nd Finance minister: 1991-1996 ● Prime Minister 2004 – 2014 ● In a brilliant political move, he instituted Dr. (an economist rather than a politician) as Finance Minister, and began India's Economic Reform (New India) by ● Devaluing the Rupee ● Industrial de-licensing followed shortly afterward. ● Industrialists could finally breathe free of the License Raj. - Manohan Singh Reformation

● The MRTP Act (that protected businesses ● Slowly, taxes were lowered (income and from monopolies) was reformed and India corporate taxes) and Foreign Technology could finally be on the path to producing Agreements started getting signed – competitive and productive industries ● In cities where the population was less ● Gradual reduction of import duties than a million, they didn't even need followed, allowing foreign investments to Government permits for industries – slowly start flowing in. ● The threats of massive layoffs were ● More clearance was given to capital goods avoided by legislating judiciously and - exercising regulations carefully Central Bank Role

the fiscal Financial deficit under Market control

Control Capital Protagonist Government Market of Reforms Expenses

Free Central Bank Importation Role

Encourage Export Impact of Reforms

● Flow of FDI: Means Stability and Confidence in India Market and regulation ● increased from US$132 million in 1991–92 to $5.3 billion in 1995–96. ● Accumulative FDI 0.5Trillion USD since 1991. ● Increases in life expectancy, literacy rates, and food security ● The fruits of liberalization reached their peak in 2006, when India recorded its highest GDP growth rate of 9.6%. With this, India became the second fastest growing major economy in the world, next only to China It is not all the rosy picture.

❖ Indian government should continue liberalization removing major obstacles would free India's economy to grow as fast as China's, at 10% a year.

❖ However, many debate the extent to which the reforms have been beneficial to the .Income inequality has doubled in India since 1992, with consumption among the poorest remaining static while the wealthiest generate the consumption growth.

❖ India's GDP growth rate in 2012–13 was the lowest for a decade, at just 5.1%,at which time more criticism of India's economic reforms surfaced, focused on employment, nutritional values in terms of food intake in calories, leading to charges that there was a worsening current account deficit compared to the period prior to reform. Challenges Ahead

❖ Low per capita income: 6 times lower than China. ❖ Huge dependence of population on agriculture: 47% Population vs 17% GDP contribution. ❖ Heavy population pressure. ❖ Slow improvement in Rate of Capital Formation. ❖ Inequality in wealth distribution 1% population has 58% of wealth. ❖ Poor Quality of Human Capital ❖ Low level of technology ❖ Under-utilisation of natural resources ❖ Lack of infrastructure Lessons to The Arab World Arab World Potential

● High Liquidity Region ● Vast Region: Area: ● DGP: $ 10.695 trillion 13,333,296 km2 ● High Purchase Power (bigger Than US and China)

● Very close to Europe (600 Millions High Consumption Continent) Arab World Potential

● Arab countries, which constitute only 5.2% of the world's population enjoyed 55.2% of the world's oil reserves and 27.5% of the world's natural gas reserves. ● Phosphate (Morocco alone has more than half of the world's reserves). India Steps Towards Prosperity

Reduce Government Intervention in Economy

Education and Human Capital

Pro-Business Regulations

Improve Financial Market

Open Doors to FDI

Open Doors to Foreign Expertise