Transcript FDI Strategy Paper

Economic Analysis: India
Dr. Rana Singh
Associate Professor
www.ranasingh.org
7/16/2015
1
India – Land of Opportunities
Fourth largest
Economy
(PPP) - A safe
place
to do business
Largest
reservoir of
skilled/semiskilled
manpower
Long-term
sustainable
Competitive
advantage
- High growth rate
economy
Largest
democracy –
political
stability &
consensus on
reforms
Liberal &
transparent
investment
policies
Second Largest
Emerging Market
2
Global Business Leaders -On India
“India is a
developed country
as far as
intellectual capital
is concerned”
JACK WELCH, GE
“India can be a major
part of Dell’s
operations and we
are looking to
capitalize on India’s
human capital”
7/16/2015
MICHAEL DELL, DELL
“We are expanding our
presence in India to take
advantage of the ample
R&D talent available”
JOHN CHAMBERS, CISCO
“India is handling
the most
sophisticated
projects in the
world.I am
impressed with the
quality of work”
BILL GATES, MICROSOFT
3
Indian Economy – An Overview

Economic Growth

Sustained economic performance




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
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Exports growth 24% in 2004-05 reaching US$80 billion
Imports growth 35% reaching US$106 billion
Foreign Investment - US$16 billion in 2003-04
Mature Capital Markets


Services account for over 50% of GDP
Manufacturing sector grew at 9% in 2004-05
Investment


6.2%
6.9%
7.5-8.0 % (estimated)
5 % p.a.
Trade (2004-05)


Average since 1991
2004-05
2005-06
Forecast till 2050 –Goldman Sachs
NSE third largest, BSE fifth largest in terms of number of
trades
Well developed banking system
7/16/2015
4
Economic Reforms

Rationalisation of direct and
indirect tax structure






Peak Custom duty:
15%
Corporate Tax:
30%
Tariff to be aligned with ASEAN levels
Policies on outward investments
also liberalised
Rupee made fully convertible on
trade account
Fiscal Responsibility & Budget
Management Act
Revenue deficit to be brought to zero by
2008

7/16/2015
5th among
the top
reformers in
2003: World
Bank
5
Economic Reforms-contours

Industrial Policy Reforms




Trade Policy Reforms




Industrial delicensing and deregulation
Licensing limited to only 6 sectors: on security,
public health & safety considerations
Liberal policy on technology collaboration
Most items on Open General License,
Quantitative Restrictions lifted
Progressive reduction in customs duty
Imports grew at 34% in 2004-05 to reach
US$105 billion
Foreign Trade Policy

7/16/2015
To double India’s share in global merchandise
trade in 5 years
6
Not Just Knowledge Based Sectors

Second most attractive destination for manufacturing



Automobile sector: Major MNC’s sourcing high quality
components and hardware from India





AT Kearney FDI Confidence Index 2004
Indian industry is equally competitive in a wide range of
manufacturing activities
Volvo, GM, GE, Chrysler, Ford,Toyota, Unilever, Clariant,
Cummins, Delphi
Bharat Forge: world’s largest single location forging facility,
supplier to Toyota, Honda, Volvo, Cummins, Daimler Chrylser
Hero Honda: world’s largest manufacturer of motorbikes
Moser-baer: world’s third largest producer of optical media and
lowest cost manufacturer of CD-Recorders
Tata Steel: World’s lowest cost producer of hot-rolled steel
7/16/2015
7
Skilled Knowledge Workforce

India’s competitive edge - its
highly skilled manpower

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
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
7/16/2015
Over 380 universities (11,200 colleges)
Over 1500 research institutions
Over 2,00,000 engineering graduates
Over 3,00,000 post graduates from nonengineering colleges
Over 21,00,000 other graduates
Around 9,000 Ph. Ds
Knowledge workers in software
and service industry increased
from 56,000 in 1990-91 to
6,50,000 in 2003;

to reach 2 millions by 2008
8
Competitiveness Indicators
Rank out of 102 countries

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
Availability of scientist and engineers
Quality of management schools
State of cluster development
Technological sophistication
Sophistication of financial markets
Foreign ownership restrictions
7/16/2015
3
8
17
25
37
41
(Source: WEF’s Global Competitiveness Report, 2003-04)
9
Competitiveness Indicators-contd..
Rank out of 102 countries




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
6
Government’s prioritization of ICT
12
Quality of scientific research institutions
20
Government intervention in corporate investment 34
Quality of educational system
36
Ease of access to loans
38
Prevalence of foreign technology licensing
7/16/2015
(Source: WEF’s Global Competitiveness Report, 2003-04)
10
Global Competitiveness Rankings
1
2
3
4
5
6
7
8
9
10
Finland
United States
Sweden
Taiwan
Denmark
Norway
Singapore
Switzerland
Japan
Iceland
11 United Kingdom
12 Netherlands
13 Germany
14 Australia
15 Canada
19
Israel
30
Ireland
46
China
55 India
SOURCE: World Economic Forum,
7/16/2015
Global Competitiveness Report 2004-2005
11
Liberalisation of FDI Policy
More sectors opened
Equity caps raised
Conditions relaxed
FEMA enacted
Up to 100% Under
Automatic Route in
all sectors except
a small negative list
up to 74/51/50%
in 111 Sectors Under
Automatic Route
100% in some sectors
Up to 51%
under Automatic
Route for
35 Priority Sectors
Allowed selectively
up to 40%
Pre 1991
7/16/2015
1991
1997
2000
Post 2000
12
Investing in India – Entry Routes
Investing in India
Automatic Route
General rule
No prior permission
required
Inform RBI
within 30 days of
inflow/issue of share
7/16/2015
Prior Permission
(FIPB)
By exception
Prior Government
Approval needed.
Decision generally
Within 4-6 weeks
13
Automatic Route

FDI in activities under the Automatic Route
DOES NOT require any prior approval;

Investor is ONLY required to inform the RBI
after the investment has been made:
With in 30 days of inward remittances,
and
 Within 30 days of issue of shares to
non-residents.

7/16/2015
14
Policy on FDI

FDI up to 100% under ‘Automatic Route’ in all
activities except






Sectors attracting compulsory licensing
Equity limits under sectoral policies
Transfer of shares to non-residents under certain
circumstances
Investor having existing venture in same field under
certain circumstances
National Treatment to investment;
Bilateral Investment Protection Agreement with
57 countries.
7/16/2015
15
Manufacturing Sector: 100% FDI
under ‘Automatic Route’
FDI up to 100% allowed under ‘automatic route’ in almost all
activities
Some of these activities are: (illustrative list)










7/16/2015

Cars and motor vehicles
Food processing
Electronic Hardware
Refrigerator and fire fighting
equipments
Iron and steel
Private Oil Refineries
Industrial Machinery
Fertilizers
Pollution control equipments
Tyres and tubes
Packaging products










Construction Machinery
Domestic air conditioners
Electric motors, industrial
electric furnaces
Mining and Quarrying
Machinery
Steam engines and turbines
Non-metallic mineral products
Oil mill machinery
Chemical machinery
Drugs & pharmaceuticals and
pesticides except those
requiring industrial licensing
16
Medical equipments
Infrastructure Sectors: 100% FDI
Under ‘Automatic Route’










7/16/2015
Electricity generation (except atomic
energy)
Electricity transmission
Electricity distribution
Mass Rapid Transport System
Roads and Highways
Toll Roads
Vehicular bridges
Ports and Harbors
Hotel and tourism
Townships, housing, built up
infrastructure and construction
development
17
Recent FDI Policy Initiatives





FDI up to 100% allowed under the automatic
route in development of townships, housing, built
up infrastructure and construction development
projects.
FDI in domestic airlines increased.
FDI in Telecom services increased.
Fresh guidelines for investment with previous
joint ventures issued.
Transfer of shares from residents shareholders
put on automatic route.
7/16/2015
18
Foreign Technology Collaboration Policy

Foreign technology agreements allowed
under Automatic route:



Lump sum fees not exceeding US$ 2
Million;
Royalty @ 5% on domestic sales and
8% on exports, net of taxes;
Royalty up to 2% on exports and 1%
also permitted for use of Trade Marks
and Brand name, without any technology
transfer;
Wholly owned subsidiaries can also
pay royalty to their parent company;
 Payment of royalty without any
restriction on the duration allowed.
7/16/2015

19
Exchange Controls & Taxation





All investments can be on repatriation
basis;
Original investment, profits and
dividend can be freely repatriated;
Foreign investor can acquire immovable
property incidental to or required for
their activity;
Companies incorporated in India treated
as Indian companies for taxation;
Double Taxation Avoidance Agreement
with 65 countries
7/16/2015
20
India’s Outward Investment Policy



Liberalisation initiated in 1992. Policy progressively
liberalized
Indian Corporates allowed to invest overseas up to 100%
of net worth.
Increasing overseas investment by Indian Corporates

Over US$3 billion in 2002-03 & 2003-04

Over 55% of investment in manufacturing

Over 100 major acquisitions by Indian corporates in the last 2
years

Indians among the top 10 investors in UK
7/16/2015
21
India: FDI Outlook

Third most attractive investment
destination – AT Kearney Business
Confidence Index, 2004


Among the top 3 investment ‘hot
spots’ for the next 4 years


Up from 6th most attractive destination in
2003
UNCTAD & Corporate Location – April 2004
Most
Preferred
Off
shoring
destination - AT Kearney’s 2004
Offshore Location Attractiveness
Index
7/16/2015
22
Public Private Partnership



Infrastructure projects might not be financially viable on
their own;
Public Private Partnership to bring in private sector
resources and techno-managerial capabilities;
‘Viability Gap Funding’ for




Roads, railways, seaports, airports;
Power
Water supply, sewerage, solid waste disposal in urban
areas;
International convention centres.
Funding in the form of capital grant, Operation &
Management support, interest subsidy, etc.
7/16/2015
 Support linked with predefined milestones.

23
Telecommunications

60

50

40
No. in million
Among the fastest growing telecom
markets
19.5
Cellular phones increasing by over 2
million every month

30

17.7
To reach 200 million in 3-4 years
Broad Band Policy envisages:

20
470,000 km of optical fibre cable laid

20 million broadband subscribers and
40 million internet subscribers by 2010.
28.2
10
0

5
1.5
1.6
2.4
3.1
10.5
5.5
2000 2001 2002 2003 2004
7/16/2015

Tele-density of 9, expected to be 20
in next three years;
Investment Opportunities


Setting up manufacturing base.
Telecom & Value added service
24
Power

Policy & Incentive



Share of Installed Capacity
Nuclear
2%
Hydro+
Wind
28%
Institutional Reforms



FDI up to 100% is permitted on the automatic
route in all segments except atomic power
Ten-year tax holiday for generation and
distribution or transmission and distribution of
power
The Electricity Act 2003 enacted; allows
trading in power and further deregulation;
Independent Regulator in most states
Thermal
70%
Investment Opportunities
Additional capacity required 1,00,000 MW till
2012
 Investment US$120 billion needed;
 Financial closure for over 4000 MW capacity
7/16/2015
achieved in last one year

25
Roads

Policy:



FDI up to 100% is permitted for construction
and maintenance of roads, highways, vehicular
bridges, toll roads, vehicular tunnels.
Ten year tax holiday for road and highway
projects;
Investment Opportunities


India has a road network of 3.3 million
kilometers
Highways: 25,000 km of highways under
development

Investment US$24 billion envisaged
Many more opportunities in the States;
 Different schemes available (BOT Toll based,
7/16/2015
Annuity, SPV)

26
Special Economic Zones

Policy





7/16/2015
Duty free zones, deemed
foreign territories
FDI up to 100% permitted in
almost all manufacturing
activities
Transfer of goods from DTA
to SEZ treated as exports,
Units to be net foreign
exchange earner within 5
years. No export
commitments
No limits on DTA sales

Incentives




For developer: Income tax
exemption or a block of 10
years in 15 years
For units: 100% Income Tax
exemption for first 5 years,
50% for next 2 years
Exemption from indirect
taxes; excise, sales,
services tax, etc.
Freedom to raise ECB with
out any maturity restrictions
New Law on
SEZ on the anvil
27
ICT Advantages

IT Exports
In US $ Billion
IT Industry US$ 16.5 billion *

14
12
12

10
10
8
8
6.2

6
High quality standards

4
2

0
2000-01
2001-02
2002-03
2003-04


7/16/2015
Exports US$12 billion, growing at
32%*
2008 exports target : US$60 billion, to
be 35% of India’s total exports
62 SEI/CMM level 5 companies, i.e.
two third of world’s total, are Indian
250 Fortune 500 companies clients of
Indian firms
R&D base of over 100 FORTUNE 500
companies
Investment Opportunities
• Collaborative ICT research
28
• Joint Software development in a
variety of applications
* NASSCOM
Auto Component Industry

Fast Growing Industry




High degree of export orientation


60% of exports to US and Europe
Top global vehicle manufacturers/ tier 1
suppliers sourcing components from India:


Approx. US$ 8.7 billion industry in 2004-05
Annual growth rate 30%
US$17billion by 2012 (AT Kearney study)
General Motors, Daimler Chrysler, Volvo,
Cummins, Ford, Fiat, Renault, Toyota Motors
Opportunities to leverage on low cost, highskilled manpower to reduce cost of
7/16/2015
29
Textiles

Indian textiles sector:



Turnover US$37 billion;
Exports US$13 billion;
Investments of US$11 billion in the last five
years;

India is 2nd largest producer of cloth and
3rd largest producer of cotton yarn;

Textiles sector has the potential to
reach US$85 billion by 2010


7/16/2015

Exports can reach US$50 billion
Garments to account for 50% of exports;
Investment required US$30 billion
30
Biotechnology
India’s inherent strengths






Rich Biodiversity
Large reservoirs of valuable diagnostic and
clinical data
Vibrant and inventive pharmaceutical industry;
World class network of educational and
research institutions
Known strengths in mathematics, logic and
computational skills
Super Computing and Software strengths
enable extensive use of bio-informatics in
new drug discovery
Opportunities :
Biotech based new drugs / pharmaceuticals
7/16/2015
 Bio-technology parks get all facilities of
100% EOU

32
Fiscal Reforms



Rationalisation of tax structure – both direct
and indirect
Progressive reduction in peak rates of
duties;
Direct and indirect taxes further reduced this
year





Peak Custom duty reduced to 15%
Corporate Tax reduced to 30%
Tariff to be aligned with ASEAN levels
Value Added Tax introduced from 1st April
2005
Rupee made fully convertible on trade
account
7/16/2015
India among the
top reformers in
2003: World
Bank’s Doing
Business in 2005
33
‘Made in India’

Third most attractive destination for manufacturing


Indian industry equally competitive in a wide range of
manufacturing skill-intensive products:


Apparels, electrical and electronics components;
speciality chemicals; pharmaceuticals; etc.
Automotive components: Major MNC’s & their OEMs
sourcing high-quality components from India


ATKearney’s FDI Confidence Index 2004
Volvo, GM, GE, Chrysler, Ford, Toyota, Unilever,
Cliariant, Cummins, Delphi
Indian companies now having manufacturing presence
in multiple countries

7/16/2015
Over 55% of approved outward investment by India
companies in manufacturing activities
34
Human Resources

India’s competitive edge - its highly-skilled manpower







Knowledge workers in software industry increased from
56,000 in 1990-91 to 650,000 in 2003;


Over 380 universities (11200 colleges)
1500 research institutions
Over 200,000 engineering graduates
Over 300,000 post graduates from non-engineering
colleges
2,100,000 other graduates
Around 9,000 PhDs
to reach 2 million by 2008
Due to its young demographic profile, India would
continue to be surplus in working population for a longtime
7/16/2015
35
Civil Aviation

Investment Policy


In the airports, FDI up to 100% permitted
In domestic airlines, FDI up to 49% permitted
subject to no direct or indirect equity participation
by foreign airlines


100% investment by NRIs
Investment Opportunities



7/16/2015
Modernisation of International airports at Delhi,
Mumbai, Chennai and Kolkata
Modernisation of non -metro airports
Private sector participation is allowed in support
services and aircraft manufacture
36
Civil Aviation
Project on Offer
Development of Metro and non Metro Air ports
1. Modernisation of Chennai Airport
US $ 444 million
2. Modernisation of Kolkatta Airport
US $ 177 million
3. Modernisation of Delhi Airport
US $ 666 million
4. Modernisation of Mumbai Airport
US $ 555 million
5. Development of 25 non Metro Airports
US $ 888 million
6. Development of Greenfield Airport at Goa
US $ 340million
7. Development of Greenfield Airport at Pune
US $ 340 million
7/16/2015
37
Civil Aviation
Airports – Traffic Projections
Passenger
• By 2010: 90-100 million (59 million domestic passengers & 35
million intl. Passengers)
Cargo
• By 2010: 3360 thousand tonnes Airports – Traffic Projections
7/16/2015
38
Ports

Policy & Incentives



Public-private partnership




FDI up to 100% permitted for construction and
maintenance of ports and harbours.
Ten year tax holiday
12 major ports, 185 minor ports
12 private/ captive projects with investment of
US$ 600 million completed
24 projects with investment of US$1.6 billion
under implementation/award
Investment requirement of US$22 billion to
develop maritime sector


7/16/2015
Ports & Shipping
Inland waterways
39
Tourism
Investment Policy
•
FDI up to 100% is allowed under the automatic route in townships, housing,
built-up infrastructure and construction development projects including
housing, commercial, premises, hotels, resorts, hospitals, educational
institutions, recreational facilities etc.
Projects on Offer
•
International Trade cum Convention Centre , Jaipur



•
Development of Tijara Fort, Alwar



•
Private sector would require to restore the Fort and develop interior & surroundings
of the fort, would be provided for long term lease
Estimated cost Us $ 5.5 million
Time frame for implementation 18 months
Championship Golf Course, Udaipur, Jodhpur or Jaipur



•
Offered to private sector for designing, finance, construct, operate and maintain the
facility
Estimated cost Us $ 22 million
Time frame for implementation 18 months
Land would be acquired and offered on long term lease
Estimated cost Us $ 5.5 million excluding land cost
Time frame for implementation 18 months
International Convention Centre , Bangalore
Karnataka Govt would acquire the land for investors
 Facilities to be provided in convention Centre : Exhibition space of 50000 sq Mt, food
court, Conference Hall & suites, Convention Centre, shopping malls, health club, golf
7/16/2015 course, % & 7 star hotels, handicraft village, multiplexes etc.
 Estimated cost Us $ 111 million

40
Urban Infrastructure
FDI Policy
 FDI upto 100% is allowed in townships, housing, built-up
infrastructure and construction development projects
Opportunities
 Us$ 26 billion proposed to be invested in next 5 years in
urban infrastructure in 60 cities as a part of National
Urban Renewal Mission

7/16/2015
The Mission covers physical infrastructure such as water,
lighting, sanitation, energy & housing.
 CII
41
Petroleum Refining
Status

Total 18 refineries with production of 116 million tonnes (April- Feb.
2004-05) in terms of crude through put.

by the year 2006-07 demand is expected to increase to 155 million tonnes
per annum.
FDI Policy

FDI is permitted up to 100% under automatic route in private sector
Indian companies
Investment opportunities

Additional refining capacity of about 110 million tonnes per annum
excluding EOUs is planned for implementation by the end of tenth
plan( 2002-07)


Investment requirement of over US $ 22 billion.
Opportunity for the transfer of technologies for upgrading the bottom
of the barrel and to meet the predominant demand for middle
distillates and also to improve the quality of petroleum products to
make them environment-friendly and globally competitive.
7/16/2015
42
Banking Sector
Status
 No of Scheduled Banks: 362( As on March 2003) *


Indian Private Sector Banks: 30 (market share: 10%)
Foreign Banks: 36 (market share: 12%)
FDI Policy
 FDI up to 74% from all sources under automatic route is
permitted in Private Sector Banks subject to conformity of
guidelines issued by RBI
 Foreign Bank can also establish as branch or Wholly owned
subsidiary
7/16/2015
* Source: Indian bank Association
http://www.indianbanksassociation.org/home/
43
Textiles

Indian textiles sector:



Turnover US$37 billion;
Exports US$13 billion;
Investments of US$11 billion in the last five years;

India is 2nd largest producer of cloth and 3rd largest
producer of cotton yarn;

Textiles sector has the potential to reach US$85
billion by 2010



Exports can reach US$50 billion
Garments to account for 50% of exports;
Investment required US$30 billion
7/16/2015
44
Pharmaceuticals



Indian Pharmaceutical : A US $ 4 billion industry (retail sales)
Exports: US $ 3.18 billion (2003-2004)
The country ranks 4th worldwide accounting for 8% of world’s production by
volume and 1.5% by value.
Opportunities
 Due to rising costs of R&D overseas, greater tendency towards outsourcing
and networking.
 Increasing competence in molecular biology, immunology and biotechnology
 Potential for clinical research and initiating clinical trials
 An efficient and cost effective source for procuring generic drugs especially
the drugs going off patent in the next few years.
7/16/2015
45
Power
Projects on offer
 Bairabi dam Hydro Electric project (80mw) –Mizoram



Athirapilly Hydro Electric project (160 MW) Kerala



Ministry of environment and forests has granted environment
clearance to the project.
CEA has issued techno economic clearance of the project
Ministry of environment and forests has granted environment
clearance to the project.
Techno economic clearance of the project has been accorded
Matnar Hydro Electric Project (60 MW) Chhattisgarh


7/16/2015
Environment and forest clearances are yet to be obtained.
Techno economic clearance of the project has be accorded
46
Power
Projects on offer
Private
Sector Hydro Electric
Projects
•Dhamwari Sunda (70 MW) Himachal Pradesh
by M/s Dhamwari Power Company Ltd
economic clearance of the project has been
accorded
•Alliain Duhangan (192 MW), Himachal
Pradesh , by M/s A.D. Hydro Power Ltd
•Karcham Wangtoo (100 MW) Himachal
Pradesh by Karcham Hydro Corporation Ltd.
•Srinagar (330 MW), Uttaranchal by M/s
Alaknanda hydro Power Co. Ltd.
7/16/2015
47
Impact of the Reversing
Reforms of 91
7/16/2015
48
1980s




Efforts towards deregulation and liberalization
had started in the 80s
Reforms got jump started by the crises in the
middle of 1991
There were fears that India would default on its
international dues
Or else would default for want of critical imports
7/16/2015
49
From crises to reforms



Balance of Payment crises led to the
initialization of the 91 reforms
The 91 reforms completely reversed those being
pursued until the 80s
Import substitution- Industrialization and self
reliance were overthrown by reforms that
preached deregulation and liberalization
7/16/2015
50
1991 reforms




Licences for domestic manufacturing were
abolished
Private sector were allowed to enter reserved
public sector areas
Import tariffs were reduced drastically
Rupee was devalued
7/16/2015
51
The 90s saw..





Simplification and rationalization of the excise tax
structure, though with some loopholes
Freedom for interest rates
Public sector banks gave way to the entry of private
banks
SEBI catching ground as regulatory body for the stock
market
Transparency and e-trading in stock markets
7/16/2015
52
Phasing out of reforms





While many drastic changes were brought about,
controls were not dropped completely
Conditions apply to many reforms that are being eased
out slowly
Subsidies are being restrained but not very successfully
Privatization of the PSEs did not keep up its initial pace
APM is being dismantled slowly
7/16/2015
53
Reforms in hind sight
7/16/2015
54
Impact of the reforms

Impact on the following are considered to assess the
reversing reforms







7/16/2015
Poverty
Education & health
Employment & wages
Economic growth
Industry
Agriculture
Foreign trade & BOP
55
Poverty – faster decline over 1990s
Percentage Population below Poverty
Line
50
40
1983-84
1987-88
1993-94
1999-00
30
20
10
0
All India
Rural
Urban
Source: Dubey Amaresh and Phil Crook (2001)
7/16/2015
56
Education - continued progress in literacy
80
70
60
1951
1961
1971
1981
1991
2001
50
40
30
20
10
0
7/16/2015
Males
Source: Census of India
Females
Persons
57
Health – inadequate progress

160
1951
1971
1981
140
120
1991
2000
100
80
While health has improved,
progress has been inadequate
as compared to the earlier
decade
Expenditure on health and
education has reduced since
the reforms
60
40
20
0
Infant Mortality Rate
7/16/2015Source:
Economic Survey of India,
various years
58
Employment - grew faster

Employment in organized
manufacturing industries
grew faster in the 90s
than in the 80s
Manufacturing employment
68
66
64
62
60
58
56
1981
7/16/2015
1989
1991
1999
Source: Ministry of Labour (DGE&T)
59
Wages

Real wage rates have improved for agricultural labour
Rural Males
Rural Females
1983 - 1993-94
1993-94 – 199900
1983 - 1993-94
1993-94 – 199900
Manual work
(agriculture)
2.74
2.77
3.09
2.93
Casual labour
(agriculture)
2.75
2.79
3.09
2.94
Casual labour
(non-agriculture)
2.39
3.70
4.08
4.07
7/16/2015
Source: Sundaram, EPW- August 2001
60
Economic Growth

7
6.11
6

5.04
5
1951-79
4
3.5

1980-91
3
1992-00
2
Accelerated growth of the 80s
was not sustainable
This was reflected by the 91
crises
The 91 reforms have placed
the economy at a higher
growth path of over 6 percent
during 1992-2000
1
0
GDP growth rate
Source:
7/16/2015
India Development Report, 2002
61
Industry – growth and structure




Growth in manufacturing over 1991-2001 higher than
five decades preceding it
Growth in registered manufacturing was more
employment generating
Labour intensive industries such as textiles were the key
employment generators
Chemicals and related products manufacturing had the
highest share in value added
7/16/2015
62
Agricultural exports have increased
3,500
3,000
2,500
2,000
Agricultural
Exports
(Rs.
Million)
1,500
1,000
500
0
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01
(P)
7/16/2015
Source: Ministry of Agriculture
63
Agriculture - value added has been increasing…
2,903
1999-00
2,761
2,884
1998-99
GDP from agriculture (Rs. Billion)
2,694
2,541 2,519
7/16/2015
Source: CSO
1997-98
1996-97
1995-96
1994-95
1993-94
2,420
64
…But agri-growth rate has declined
Average annual growth rates of index of agricultural production
Year
All crops
Food Non-food
Grains
grains
Oilseeds
Cotton
Sugarca
ne
1981-91
3.5
2.9
4.8
7.0
2.8
2.6
1992-99
2.6
2.7
2.5
1.9
3.2
2.4
7/16/2015
Source: India Development Report, 2002
65
Foreign trade


Growth of exports in the
70s was largely obtained
through various export
incentives
Accelerated growth in
terms of exports +
invisibles is apparent in the
90s
50000
1970-71
1990-91
1980-81
2000-01
44318
45000
40000
35000
30000
25000
18234
20000
15000
13510
10000
5000
1841
0
Total exports
7/16/2015
66
Balance Of Payment




Strength of the financial sector is reflected that India was
able to withstand the East Asia financial crises very well
In November 2001 forex reserves stood at US $ 47
billion
In January 2003 forex reserves stood at US $ 72 billion
Also, less than half this amount is in the form of portfolio
investment
7/16/2015
67
Persisting issues


Policy makers and government have realized
that the benefit of reform carried out are
stagnating
This shows up in



7/16/2015
Decelerating growth of agricultural
Stagnation of export in the past two to three years
Fiscal imbalance, even with some reduction in
subsidies and APM
68
Global Perspective
1.
Global market overview
2.
Global rankings
3.
Market overview
7/16/2015
69
1. Global market overview - July 2004
During the month July 2004 IBM-PLI recorded 961 investment project
announcements worldwide, expected to create around 80,000 jobs.
July 2003
July 2004
1,038
961
Number of projects
of expected
job
Share of Estimation
investment projects
by region
88,344 Share of investment
80,000
projects by region
creation
North America
37%
Americas
Latin America & Carribean
25%
2%
6%
Europe (W)
34%
EMEA
31%
15%
Europe (E)
3%
Middle East
1%
3%
Africa
29%
0%
2%
13%
Asia (Developed)
43%
Oceania
29%
11%
Asia (Developing)
AsiaPacific
35%
19%
6%
34%
14%
2%
3%
Outward FDI projects
7/16/2015
Inward FDI projects
70
2. Global rankings - July 2004
Top 10
countries:
inward
investments
United States
2. China
3. India
4. Japan
5. United
Kingdom
6. Brazil
7. Australia
8. Russian
7/16/2015
Federation
Top 10 regions:
inward
investments
1.
1.
2.
3.
4.
5.
6.
7.
Shanghai,
China
Guangdong,
China
Karnataka,
India
Tamilnadu,
India
California, USA
Jiangsu, China
Adhra Pradesh,
Top 10 countries:
outward investments
United States
2. Japan
3. United Kingdom
4. India
5. Germany
6. France
7. Canada
8. Australia
9. Hong Kong
10. Italy
1.
71
3. Market overview – Manufacturing
Americas
Countries
56
2. Brazil
17
3. Mexico
Top Sectors
4.
1.
Chemicals
Columbia
2.
5. Motor
vehicles
Argentina
10
7/16/2015
4. Rubber &
(Europe Middle
Project
s
1. United
States
3. Food &
Beverages
EMEA
2
15
2 13
12
East and Africa)
Countries
Project
s
Asia-Pacific
Countries
Project
s
1. China
70
2. Japan
22
1. Russian
Fed.
12
2. Romania
12
3. India
20
3. UKSectors
Top
12
4.
Thailand
Top
Sectors
5.
1. Malaysia
Chemicals
8
4.
1. Poland
Motor vehicles9 1
5. Hungary
8 7
2. Food &
Beverages
1
7
3. Chemicals
1
0
7
4. Machinery
1
5 39
2. Motor
vehicles
20
3. Food &
Beverages
18
4. Electrical
Machinery
11
72
3. Market overview – Services centers
Top countries for shared
services and contact
centers
Countries
Projects
1. India
19
2. United States
11
Top
Project
Announcements
3. Philippines
4
Companies
4. China
1. Effective Teleservices
Inc
2. Direct General Corp
7/16/2015
Destination
3
country
Job
announcement
India
1,750
United States
(Louisiana)
1,500
73
3. Market overview – R&D
Top countries for R&D (incl.
software development)
Countries
Projects
1. India
28
2. China
13
3. United States
10
4. Japan
7
Top
Project Announcements
5. Taiwan
Companies
Destination
country
5
Job
announcement
1. Wipro Technologies
India
5,000
2. Tata Group
India
Up to 3,000
3. Microsoft
7/16/2015
United States
3,000*
74
*The new hires for the 12 months that end June 30,
2005, will fill both newly created positions and jobs vacated by others.
(WA)
INDIA IN THE GLOBAL ECONOMY

India’s global ranking in terms of GDP- on PPP basis-has shot up from the 8th
position in 1991 to the 4th position in 2001

India’s annual average GDP growth of 5.6% in the nineties was next only to
China and Korea

RBI report projects growth rate to be significantly higher than 6% in 2003-04

Tenth 5 year plan targets annual growth of 8% between 2002-07

India, today has over US$ 85 billion in foreign exchange reserves which offers
import cover for 15 months – one of the highest among developing economies
7/16/2015
75
WHERE TO INVEST
SECTORS TO LOOK OUT FOR











7/16/2015
CHEMICALS & PHARMACEUTICALS
OIL & GAS
INFRASTRUCTURE
BIOTECHNOLOGY
ENGINEERING INDUSTRY
MINING
TEXTILES & APPAREL
GEMS & JEWELLERY
TELECOMMUNICATIONS
AGRO & FOOD PROCESSING
INFORMATION TECHNOLOGY
76
Sustained Competitiveness
Facilitating Conditions
 Continuous support for basic research
 Effective patent protection
 Effective, efficient and predictable regulatory
environment
 Transparent business environment
 Market based on competition and free choice
Incentive to Innovation
 Cluster of Innovation
 Agribusiness
 Incentive to R&D
 Aeronautics
 Innovation Law
 Oil in deep waters
 Biotechnology / Genomics
and Health Science
 Industrial Policy
 Free trade
7/16/2015
Vocation
78
Innovation is the pillar of competitiveness
Prosperity
“There are no low
technology profile
sectors, only low
Competitiveness
(Productivity)
technology profile
industries”
M. Porter
Innovative
technological
capacity
7/16/2015
82
INDIA - HUMAN DEVELOPMENT PERSPECTIVE
7/16/2015
83
The Birth of Human Development Concept (1990 – UNDP)

Basic assumptions under this concept




The true wealth of a country is its people.
There are not developed and underdeveloped countries, but
developed and underdeveloped people.
The best strategy to increase national income is not to
accumulate capital, but to develop people.
Exactly Defined as “Process of enlarging peoples
choice”
7/16/2015
84
Therefore
Growth Advocates:
 Expanding income is an
end in itself
 Growth does trickle
down
7/16/2015
HD Advocates:
 income is a means;
enhancing people’s
capabilities the end
 Simultaneous expansion
of choices in other
dimensions – social,
cultural, political - and
economic
 not accept trickle down as
automatic
85
Is Income Enough for Well-being?

Economic growth is needed, but public policy is needed to
translate growth into HD. How?
1)
2)
3)
4)
Emphasis on investment in health,
education, skills of people
More equitable distribution of assets
and income
Well structured public expenditures
Empowerment of people to participate
Otherwise the growth is voiceless,
rootless, ruthless, futureless,
discriminating, etc.
7/16/2015
86
HOW TO MEASURE HUMAN DEVELOPMENT?
Index
What it measures
HDI
Average achievements in a country in three basic
dimensions of HD
GDI
Adjusts the average achievement of the HDI to
reflect the inequalities between men and women
Focuses on women’s opportunities rather than their
capabilities
GEM
7/16/2015
87
Human Development Index (HDI)
Introduced in 1990, the HDI measures a country's
achievements in three aspects of Human
Development:



7/16/2015
Longevity: measured by life expectancy at birth;
Knowledge: measured by a combination of the adult
literacy rate (2/3) and the combined gross primary,
secondary, and tertiary enrolment ratio (1/3);
Standard of living: measured by GDP per capita
(Purchasing Power Parity of US$).
88
Construction of the HDI
1
Fixed minimum and maximum values are
established for each of these indicators:
1)
2)
3)
4)
2
3
life expectancy at birth: 25 and 85 years;
adult literacy rate (age 15 and above): 0% and 100%;
combined gross enrollment ratio: 0% and 100%;
GDP per capita (PPP$): $100 and $40,000 (PPPUS$).
For each component, individual indices are computed according to the
general formula:
Index=(actual value – minimum value) / (maximum value –
minimum value)
The Education Index is compiled as
2/3(adult literacy index) + 1/3(gross enrolment index)
7/16/2015
89
Construction of the HDI ( Contd)
4.The GDP index is calculated using adjusted per capita (PPP$). In
the HDI income serves as a surrogate for all the dimension of
human development not reflected in a long and healthy life and
in knowledge. Income is adjusted because achieving a
respectable level of human development does not require
unlimited income. Accordingly, the logarithm of the income is
used.
5.The HDI is a simple average of the life expectancy index,
educational attainment index and adjusted GDP per capita PPP
US$ index, and is derived by dividing the sum of these three
indices by 3.
7/16/2015
90
Uses of HDI: Focus on human outcomes, not economic data





Comparisons within and between countries of the same level of
development, as well as neighbors
If properly disaggregated, to monitor inequalities, recommend
targeting, evaluate progress over time
To determine priorities for policy intervention
For lobbying policy makers who make budgetary allocations
(needs to be understood and used by civil society)
To question national policy choices - how two countries with the
same level of income per person can end up with such different
HD outcomes.
7/16/2015
91
Similar HDI, different income, 1997
Real GDP per
capita (PPP $)
15,930
Country HDI
value
0.894
Singapor
e
Georgia
28,460
0.888
1,960
0.729
Turkey
6,350
0.728
Morocco
3,310
0.582
Lesotho
1,860
0.582
Spain
7/16/2015
92
HDI trends in 2004 (2002)
The top and the bottom of the Index remain unchanged from
last year: Norway is on top and Sierra Leone is on the
bottom
Top 5 countries: Norway (0.956), Sweden (0.946), Australia
(0.946), Canada (0.943), Netherlands (0.942)
Bottom 5 Countries : Burundi (0.339), Mali (0.326), Burkina
Faso (0.302), Niger (0.292), Sierra Leone (0.273)
India : 1975 –0.411, 1980 – 0.437, 1990 – 0.514, 1995 –
0.548, 2000 – 0.579 and 2002- 0.595 (Rank 127)
7/16/2015
93
HDI trends in 2005 (2003)
The top and the bottom of the Index (177 ):
Norway is on top and Niger is on the bottom
Top 5 countries: Norway, Iceland, Australia, Luxemburg,
Canada
Bottom 5 Countries : Chad,
Leone, Niger
Mali, Burkina Faso, Sierra
India : .602 (Rank 127)
7/16/2015
94
HDI trends



The CIS is the only region to witness an overall decline in its
HDI. Nearly all the countries saw a sizeable deterioration in
their income indicator, with the notable exception of Poland.
Roughly half of the countries in Latin America and the
Caribbean recorded either a decline or stagnation in income
during the 1990s.
East Asia and the Pacific region continues to forge ahead,
with virtually every country making progress compared with
1990. Lao, China, Thailand and Malaysia all moved ahead in
the HDI rankings. In South Asia, too, there were HDI
improvements across the board.
7/16/2015
95
S&E Job Growth Projected to Exceed Overall
Job Growth Rate
Projected Increase in Employment, Percent Change from 2000 to 2010
100
90
80
70
60
47
50
40
30
20
15
10
0
All Occupations
7/16/2015
SOURCE: National Science Foundation, Science and Engineering Indicators – 2004.
All S&E Occupations
96
Number of S&E Doctoral Degrees Awarded
Growing Faster Worldwide Than in US
Compounded Annual Growth Rate of S&E Doctoral Degrees Awarded, 19912001
China
Taiwan
South Korea
Japan
United Kingdom
France
India
Germany
United States
0
0.05
0.1
7/16/2015
SOURCE: National Science Foundation, Science and Engineering Indicators – 2004.
0.15
0.2
0.25
97
TO CONCLUDE
What should we do ?
-
-
Reduction in economic and social inequalities of macro and microeconomic
variables
Promotion of Equality of opportunities for all people across the nations,
regions, people societies, cultures and genders
Focus on contributing to the overall GDP of the Indian Economy
Emphasis on crystallizing and outperforming international benchmarks in all
sectors of the economy
Aim at achieving excellence in all spheres of operations
Earnest endeavours on Invention, Innovation, R& D, and patents of state of the
art technology, products, systems and processes
Nurture high ambition and aspiration levels in Individual, organizational and
international domains
Focus on Technology related areas and its overall contributions to Quality of
life so as to maximize India’s Ranking on HDI Frontier
Adherence to Sterling Benchmarks of behaviors based on universal ethics and
values
Commitment to preserve the environmental sustainability in the long run
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98
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99