INDUSTRY ANALYSIS - BSE 500

Pre & Post Liberalization

BY,
JESSICA YVONNE VARMA 1321250, MBA K

SUBMITTED TO, PROF. LATHA RAMESH

DATE OF SUBMISSION: 12-01-2014

INTRODUCTION:Indian economy had experienced major policy changes during the period of 1990s called the liberalization era. The different economic reforms taken where aimed at making the Indian economy more competitive, and efficient. This period of transition has had a great impact on the overall development of some of the major industries. PRE- LIBERALISATION PERIOD (1980-1990):During the pre-liberalization period India was following a mixed economy with a substantial role for public sector and a state regulated private sector. The economic policy emphasised on heavy industries, subsidizing manual, low skilled- cottage industries. With the Licence Raj movement, there was tough control over the private sector. Several Acts formed during this period were the Industries Development and Regulation Act (IDRA) of 1951, Monopolistic and Restrictive Trade Practices (MRTP) Act of 1970, Foreign Exchange Regulation Act (FERA) of 1973 etc. These Acts controlled not only the entry into an industry, but also the concentration of economic power, and the regulations of foreign investment in India. There was not much competition among industries and no strict planning for industrial development. From the data collected of BSE 500 companies, we could find that the major industries that incorporated during the 1980-90 period were public sector companies like National Aluminium Co. Ltd., Power Grid Corpn. Of India Ltd., GAIL (India) Ltd., etc. INDUSTRIES INCORPORATED DURING THIS PERIOD:-

INDUSTRIES (1980-90)
Computer Drugs & software, 10 pharmaceuticals, 9 Commercial complexes, 6 Steel, 6 Housing , 5 Other financial services, 3 Other asset financing services, 3 Media- Gems & jewellery, Metal products, 3 broadcasting, 3 Diversified, 3 3 Industrial construction, 5 Infrastructure , 5 Plastic , 5 Trading, 5

Others, 43

Source: Prowess

MAJOR INDUSTRIES: Power: (Total investment: 11524.4 million Rs) Electricity generation and supply was under the control of Central Government. The only two BSE 500 companies, incorporated during this period were Power Grid Corpn. Of India Ltd. And S J V N Ltd., both are owned by Central Government. Telecommunication: (Total investment: 27149 million Rs) Basic telephone services where provided by Mahanagar Telephone Nigam Ltd. Owned by Central Government. Communication services were handled by Tata Group. Computer Software (Total investment: 1,22,848.5 million Rs) There were 10 software service companies incorporated during this period, which were majorly owned by private or foreign sectors. Some of them are Infosys Ltd., K P I T Technologies Ltd., Oracle Financial Services Software Ltd., etc. Drugs and Pharmaceuticals (Total investment: 59,355 million Rs) There were 9 companies incorporated during this period, among which Dr. Reddys Laboratory has the highest total investment, Rs.23,792 million. Construction Industry (Total investment: 58,776.4 million Rs) Includes Housing and Infrastructure construction. Major companies are I V R C L Ltd., N C C Ltd., Sadbhav Engineering Ltd., etc. Mainly private ownership. Gems and Jewellery Industry (Total investment: 16292.5 million Rs.) Major companies incorporated were Tata group (private) and Gitanjali (public). Main products include, diamond, jewellery and precious metals. POST- LIBERALIZATION PERIOD (1990-2000) Liberalization refers to the economic reforms that started during June 1991 after the balance of payment crisis. It is a broad term which means reducing the regulations or control on certain economic activities. It began by opening up our economy for trade and investments

with other countries. The main aim of liberalization reforms was to dismantle the excessive constraints put forward by the economic policy like the Licence Raj. INDUSTRIES INCORPORATED DURING THIS PERIOD:-

INDUSTRIES (1990-2000) [CATEGORY

NAME] 6 [CATEGORY NAME] 35

[CATEGORY NAME] 6 Cement 3 [CATEGORY NAME] 8

[CATEGORY NAME] 4 [CATEGORY NAME] [CATEGORY 3 NAME] 3

Source: Prowess

[CATEGORY NAME] 14 [CATEGORY [CATEGORY [CATEGORY NAME] 3 NAME] [CATEGORY NAME] NAME] 5 3 7

From the above pie chart, we can see that the maximum number of companies incorporated during 1990-2000 period was in computer software, with 14 companies, then Commercial complexes, Drugs & pharmaceuticals etc. There were 5 central government owned companies incorporated, with a total investment of Rs. 202742.9 million, namely Oil & Natural Gas Corpn. Ltd., I F C I Ltd., Indraprastha Gas Ltd., etc. MAJOR INDUSTRIES:Computer Software (Total investment: 1,63,759.5 million Rs) According to the BSE 500 data, among the 14 companies newly incorporated during 19902000 period, more were private companies like Mindtree Ltd., Onmobile Global Ltd., Persistent Systems Ltd., Infotech Enterprises Ltd., etc. Banking Services (Total investment: 51,86062.8 million Rs) With the deregulatory measures introduced in the banking sector, licenses were given to many private sector banks like Axis Bank, ICICI Bank, IndusInd Bank, etc. The Banking services accounts for about 70% of the total investments from all the industries incorporated during 1990-2000 period.

Electricity Generation (Total investment: 2,86,438.6 million Rs) Majorly owned by Public Sector companies like Adani Group, Reliance Group, Jindal Group, etc. But, it has also opened up to certain private companies like Jaypee Group, Kalyani Group, etc. Telecommunications (Total investment: 3,81067.6 million Rs) Two major public sector companies entered the market, namely Bharti Airtel and Idea Cellular Ltd. Business Consultancy (Total investment: 64,085.5 million Rs) One of the new industries that started after the liberalization period. From the BSE 500 data, 6 companies have newly incorporated during this period. Majorly owned by public sector companies like Network 18, GVK group etc. One of the popular new private companies that began this period was Just Dial Ltd. SUNRISE PERIOD (2000-13) INDUSTRIES INCORPORATED DURING THIS PERIOD:-

INDUSTRIES (2000-13)

Other, 18

Drugs & Commercial pharmaceuticals, complexes, 3 3 Electricity generation, 3 Gems & jewellery, 3 Mediabroadcasting, 3

Other financial services, 2

Other fund based financial services, 3 Other misc Other asset services, 3 financing services, Infrastructural Housing finance Telecommunicatio construction, 2 services, 2 2 n services, 3

Source: Prowess

Comparatively very less number of incorporations during this period.

MAJOR INDUSTRIES:Electricity Generation (Total Investment: 19056 million Rs) Major ownership is under Public Sector Company Torrent group, but new private and foreign companies has started investing like, B F Utilities Ltd and Bajaj Finserv Ltd. Drugs and Pharmaceuticals (Total investment: 1641 million Rs) Two new private companies incorporated namely, Alembic Pharmaceuticals Ltd. And Dr. Datsons Labs Ltd. ANALYSIS:-

Source: CSO; Economic Survey 2003-04. Based on Acharya (2004).

After the liberalization, one of the major industries that were mainly effected was the IT industry. Especially in the southern part of India, the contribution in software export almost doubled from 1990 to 2000.

By reducing the entry barriers of foreign investment and licensing for private companies, large number of companies started booming up during this period. With the deregulation in the Banking industry, many private sector banks started entering the market, like Axis Bank, ICICI Bank, IndusInd Bank, etc. The impact of liberalization was seen during the period of 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 to China.

Liberalization in trade policies and deregulation of licensing control on foreign trade has helped India in negotiating free trade agreements with Chile, Sri Lanka, ASEAN, MERCOSUR, Singapore, etc.

CONCLUSION:According to the Planning Commission, Indias GDP is likely to grow from $1.84 trillion in 2012-13 to $5.8 trillion in 2020. But this calls for strong growth and development of Indias major sectors like Banking, Services, etc. and in turn, requires several policy initiatives: Establishment of infrastructure. Allowing FDI in major sectors like Aviation, Defence, Power etc. Issuance of fresh licenses to the private sector along with foreign participation. Financial inclusion through innovative financial retail products. Liberalization of new technological innovations. REFERENCES:Singh, D. A. (2013, October 21). A Bright Future for Direct Foreign Investment In India. The Metropolitan. Das, A. (2006). Financial deregulation and efficiency: An empirical analysis of. Review of Financial Economics, 193-221. Sarkar, R. (2013). Vision 2020 for India. Planning Commission .