International Business M.

COM (C)

Assignment No. 2

Case study of India s transformation.

Submitted To: Sir Muzaffer Asad Presented By: Faiza Hussain L1F10MCOM0112

Q1: What kind of economic system did India operates under during 1947 to 1990? What kind of Economic system is it moving toward today? What are the impediments to completing this transformation? Ans. During 1947-1990 India operates under mixed economy system but because the system constrained the growth of the private sector and further more private companies can expand only with government permission we must say during that time frame economic system was pure communism. India is moving toward free market economy system which means that India is shifting the trend toward privatization. For completing this transformation such laws must be made which will help private business to operate efficiently. Because labor laws in India makes it impossible for private firms with more than 100 employees to fire workers. And the tariff that is levied on import of raw material must also be reduced. Q2: How might widespread public ownership of businesses and extensive government regulations have impacted? (1) The efficiency of state and private business and (2) the rate of new business formation in India during 1947 to 1990 time frame? How do you think these factors affected the rate of economic growth in India during this time frame? Ans. Widespread public ownership of businesses and extensive government regulation was the result of the economic system that was prevailing in India that system was incapable of delivering that kind of economic progress that many southeastern Asian nations had started to enjoy. The efficiency of the state has impacted a lot due to that system because in 1994, Indian economy was still smaller than the Belgium despite having a population of 950$ and its GDP per capita was a paltry $310. According to World Bank some 40% of desparelately poor lived in

India and only 2.3% of the population had a household income in excess of $2484.Private business have also affected because it stunted the development of healthy private sector. Q3: How would privatization deregulation and the removal of barriers to foreign direct investment affect the efficiency of business, new business formation and the rate of economic growth in India during the post time period? Ans. Privatization deregulation and the removal of barriers to foreign direct investment affect on the efficiency of business was impressive because the economy expanded at an annual rate of about 6.3% from 1994 to 2004 and then accelerated to 9% per annum during 2005 to 2008.Foreign investment in India jumped from $150 million in 1991 to $36.7 billion in 2008. Due to these economic reforms the Indian private firms became 30 to 40 percent more productive than their state owned enterprises. Q4: India has now strength in key technology industries such as software and pharmaceuticals. Why do you think India is developing strength in these areas? Ans. India is developing strength in technology industries such as software and pharmaceuticals because both two sectors are considered to be the need of the present age and also the future. With having strength in software and pharmaceuticals Indian companies can emerge as credible players on the global marketplace primarily by selling low cost, generic version of drugs that they have come off patent in the developing world. And information technology sector of India contributes about 5.4 percent of the GDP but still it must be improved for economic development.

Q5: Given what is now occurring in the Indian economy do you think the country represent an attractive target for inward investment by foreign multinationals consumer products? Why? Ans. the country represents an attractive target for inward investment by foreign multinationals consumer products