Transcript India – The place to do business

India : Parameters for Growth
By Dr. Ajay Dua
Secretary to Govt. of India
Ministry of Commerce & Industry, New Delhi
E-mail: [email protected]
Healthy macroeconomic
fundamentals
Growth
 Average annual growth rate*

In the 50s, 60s and 70s – 3.5%

In the 80s – 5.7%

During 1990-2005 – 6.0%

During the last three years – 8%
 India is now targeting a growth of 9%
plus over the next 5 years
*Source – Reserve Bank of India
Healthy macroeconomic
fundamentals
Fiscal deficit
India's Gross Fiscal Deficit to GDP ratio (%)
7
6
5
4
3
2
1
0
4.8
199798
5.1
199899
5.3
5.6
6.2
5.9
4.5
199900
200001
200102
200203
200304
4.1
4.1
2004- 200505
06
(RE) (Prov)
3.8
200607
(BE)
Source – Reserve Bank of India
Healthy macroeconomic fundamentals
External debt
External debt to GDP ratio (%)
35
30
28.7
25
21.1
20.4
20
17.8
17.3
2003-04
2004-05
15.8
15
10
5
0
1990-91
2001-02
2002-03
2005-06
Source – Reserve Bank of India
Healthy macroeconomic fundamentals
Forex reserves
(All figures are in US$ billion)
180
165.4
160
146
140
120
100
80
54.1
60
40
20
17
2.2
0
1990-91
1995-96
2001-02
2005-06
18-Aug-06
Source – Reserve Bank of India
Healthy macroeconomic fundamentals
Inflation
10
(All figures are in %)
8.7
7.2
8
5.4
6
4.4
4
2
0
1992-98
2000-01
2003-04
2005-06
Wholesale price index
Source – Reserve Bank of India
Composition of GDP
(All figures are in %)
1990-91 1995-96 2000-01 2005-06
Agriculture
32
28
24
20
Industry
27
28
26
26
Services
41
44
49
54
Source – Reserve Bank of India
External trade
(All figures are in US$ billion)
300
240
250
200
150
100
50
18 24
42
69
32 37
140
100
96
45 51
0
1990-91
1995-96
Exports
Imports
2000-01
2005-06
Total trade
Source – DGCI&S
Foreign investments
(All figures are in US$ billion)
25
19.7
20
12.5
15
10
5
2.1
2.7
4.8
5.9
3.3
7.2
2.6
0
1995-96
2000-01
Foreign direct investment
2005-06
Portf olio investments
Total f oreign investment
FDI in 2006-07 is expected to touch US$ 12 billion
Source – Reserve Bank of India
Calibrated globalization
 Reduction in import tariffs
 Liberalization of FDI regime
 Fully convertible current account
 Moving
towards
fuller
account convertibility
capital
 Complying with WTO norms to plug
into the global economy
Calibrated globalization
 Reduction in collection rates
Customs duty collection rate (Import revenue / Value of imports)
50
47
Percent
40
29
30
22
21
20
16
15
14
12
200102
200203
200304
200405
10
0
199091
199596
199900
200001
Source – Economic Survey 2005-06
Calibrated globalization
Pre 1991
1991
1997
2000
Post 2000
FDI allowed
selectively
up to 40%
Up to 51% under
‘automatic route’ for
35 priority sectors
Liberalization of
FDI policy
in India
Up to 74/51/50% in 111
sectors under
‘automatic route’
100% in some sectors Up to 100% under
‘automatic route’
in all sectors
except a –ve list
More sectors opened;
equity caps raised;
conditions relaxed
Buoyant corporate performance
38.9
40
35
30
26.6
25.2
25
16.6
20
5
15.4
14.4
15
10
16.8
11.2
8.6
10.8
9.9
0.8
2.4
0
-1.1
-5
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Growth of corporate sales (%)
Growth of gross corporate profits (%)
Source – CMIE
Striking future projections
What Goldman Sachs says -
 India likely to show the fastest growth over
the next 30 to 50 years
 Growth could be higher than 5% over the
next 30 years and close to 5% as late as 2050
 India’s GDP will exceed Italy’s in 2016,
France’s in 2019, Germany’s in 2023 and
Japan’s in 2032
 India to become the world’s 3rd largest
economy by 2032
Unmatched demography
 Over 1 billion population – 52% below the
age of 25
 Median age of India’s population would
remain 25 even as late as in 2025
 India’s workforce (20-59 age group) would
go up by around 263 million by 2050
 Today’s youth would drive tomorrow’s
boom
Unmatched demography
Growth in global working-age population (15-64) in millions
Size of 20-59
age group in
2005
(in million)
Size of 20-59
age group in
2050
(in million)
Growth of 20-59
age group (in
million)
India
550
813
263
United States
166
177
11
Japan
75
61
-14
Germany
49
41
-8
United Kingdom
34
31
-3
France
34
33
-1
China
768
862
94
Source – United Nations
Expanding domestic market
Distribution of households by annual household
incom e 1989-90 to 2009-10
100%
80%
14.2
28
27
60%
42
48.4
37.4
40%
36.3
36
58.8
20%
34.6
21.7
15.6
2005-06 (Est.)
2009-10
(Proj.)
0%
1989-90
Below US$ 1000 ( Low)
2001-02
US$ 1000 - US$ 2000 ( Lower middle)
Above US$ 2000 ( Middle high)
Total number of households to increase from 188.2
million in 2001-02 to 221.9 million by 2009-10
Source – NCAER
Untapped market potential
Figures for
2005
Penetration rate
(per 1000 people)
Market size
(Annual sales in Mn)
India
China
India
China
Passenger
cars
10
14
1.1
3.2
Motorcycles
39
59
5.8
10.5
Cellular
subscribers
69
301
28
59
Internet
subscribers
6
85
1.1
17
Televisions
104
416
12
87
While the absolute size of the market is large, penetration rates
are still low – untapped potential
Source – Morgan Stanley
Untapped market potential
Penetration rates for non-durable products
Figures for 2004
Unit
India
China
Skin care
US$ spending
per person
0.3
2.3
Detergents
US$ spending
per person
1.4
3.4
Shampoo
US$ spending
per person
0.3
0.2
Toothpaste
US$ spending
per person
0.4
0.5
Soft drinks
Litres per
person
1.3
4.3
Bottled water
Litres per
person
1.2
7.5
Source – Morgan Stanley
Large intellectual capital base
Annual additions to the stock of science and
engineering graduates
750000
700000
690000
650000
600000
530000
550000
470000
500000
420000
450000
400000
350000
350000
300000
India
C hina
J a pa n
US A
E uro pe a n
c o m m unit y
Source – Morgan Stanley
India - An emerging hub for
knowledge based industries
 India has potential to attain leadership position
in
sectors
like
pharma,
chemicals,
biotechnology,
avionics,
nanotechnology,
material sciences
 Over 100 MNCs have set up their R&D centers in
India
Cost competitiveness
Average annual pay for various jobs in India and China (US$)
Position
India
China
HR manager
15,100
32,000
Marketing manager
14,300
25,800
Project manager
10,000
23,400
Software developer
10,300
13,400
Financial analyst
8,400
13,200
Accountant
5,700
9,000
Sales
representative
4,700
5,100
Production worker
1,900
2,300
Source – FICCI Compilation
Sectors with Potential
1. Automobiles and auto ancillary
2. Information technology and IT enabled services
3. Food processing
4. Telecommunications
Automobiles and Auto ancillary
Largest three wheeler manufacturer in the world
Second largest two wheeler manufacturer in the
world
Third largest car market in Asia
Fifth largest commercial vehicle manufacturer in
the world
All major MNC auto companies present –
Daimler Chrysler, Suzuki, Ford, Fiat, Hyundai,
General Motors, Volvo, Yamaha, Mazda
India exports automobiles to critical markets
Automobiles and Auto ancillary
India's automobile sector - Trends
Number in million
12
10
8
6
4
2
0
2001-02
2002-03
2003-04
2004-05
2005-06
Automobile production
5.32
6.28
7.24
8.46
9.74
Automobile domestic sales
5.23
5.94
6.91
7.9
8.91
Automobile exports
0.18
0.31
0.48
0.63
0.81
Auto production includes commercial vehicles, passenger vehicles, two and three wheelers
Source – Society of Indian Automobile Manufacturers (SIAM)
Automobiles and Auto ancillary
Production
CAGR 2001-02
to 2005-06
Domestic Sales
CAGR 2001-02
to 2005-06
Exports
CAGR 2001-02
to 2005-06
Commercial
Vehicles
24.5%
24.3%
35.9%
Passenger
Vehicles
18.2%
14.1%
34.8%
Two Wheelers
15.5%
13.8%
48.9%
Three Wheelers
19.5%
15.8%
49.3%
All Automobiles
16.3%
14.3%
44.6%
Source – FICCI computation based on data provided by SIAM
Automobiles and Auto ancillary

The growth of the automobile industry has been accompanied
by growth in the auto components industry

Indian auto component manufacturers are today globally
competitive and are making significant inroads in the global
market
2001-02
2002-03
2003-04
2004-05
2005-06
Output
($ Mn)
4470
5430
6730
8700
10000
Exports
($ Mn)
578
760
1020
1400
1800
Investment
($ Mn)
2300
2645
3100
3950
4400
Export / Output
13%
14%
15%
16%
18%
Source – Auto Component Manufacturers Association (ACMA)
Automobiles and Auto ancillary
The BIG opportunity !!!
 Car ownership in India is 10 per thousand inhabitants
– Brazil (122), Russia (160), UK (400), Japan (502),
USA (745)
 Auto ancillary output projected to go up from US$ 10
billion in 2005-06 to US$ 40 billion by 2015
 Auto ancillary exports
crossed the US$ 1 billion
mark in 2003-04 and projected to touch US$ 25 billion
by 2015
 With
design,
engineering
and
components
manufacture facilities India can be an important R&D
hub
Source – Industry Estimates
Information technology and ITeS
Industry snapshot
CAGR of over 28% since 1999-2000
Contribution to GDP up from 1.9% in 1999-2000 to
nearly 4.8% in 2005-06
Currently employs 878,000 people, added 120,000
during the last fiscal
Clocked 31% growth in 2005-06,
registering
revenues of US$ 29.6 billion, up from US$ 22.5
billion in 2004-05
Exports grew by 33% in 2005-06,
revenues witnessed a growth of 24%
domestic
Information technology and ITeS
35
29.6
30
22.5
25
20
15
13.3
10
10
4.6
6.3
3.1 4
5
4.8
6
0
IT services
exports
ITES-BPO
exports
ES+products
exports
2004-05
All figures are in US$ billion
Domestic
market
Total market
size
2005-06
Source – NASSCOM
IT-ITeS exports projected to reach
US$ 60 billion by 2010
Information technology and ITeS
Look at India for
Software product development
Embedded software
Offshore product development / R&D
outsourcing
IT application solutions
ITeS
Food Processing
India - One of the largest food producers of
the world
 Output of the organized segment - US$
34,827 million
 Marine and Spices together contribute more
than 70% of export earnings
Investment requirement is around US$ 15
billion
 The Indian scientific and research talent - a
knowledge source that can be tapped for
advantage
Food Processing - Projections
2003-04
($ billion)
2014-15
($ billion)
Total food consumption
205
Processed foods
126
274
Primary processed food
79
136
Value added food
48
138
Share of value added
products in food
consumption
16%
50%
Excluding consumption of alcoholic beverages and out-of-home
consumption
Telecommunications
The 6th largest network in the world with a
wide range of services including basic,
cellular, internet, paging, VSAT, etc.
Network growing at an annual average rate
of approximately 22 percent for basic
services and more than 100 percent for
cellular and internet services
The current tele-density of approximately 14
percent is to be increased to 22 percent (250
million telephone connections) by 2007
Investment requirement of approximately
US$32 billion between 2005 and 2010
Growth of
Telecommunication Network (In Million)
Fixed Line
Cellular Phones
2001-02
39.1
6.4
2002-03
41.5
13.0
2003-04
42.6
33.6
2004-05
45.9
52.2
2005-06
41.5
98.7
2006-07
40.8
123.4
(Till Aug)
Source – TRAI
Growth of
Telecommunication Network (In Million)
180
160
140
120
100
80
60
40
20
0
140.2
76.2
45.6
164.2
98.1
54.5
2001- 2002- 2003- 2004- 2005- 200602
03
04
05
06 07 (Till
Aug)
Total Phones
Issues needing to be addressed
Making the growth process more
inclusive
•
Growth has been urban centric.
–
–
8 large metros witnessing the revolution in manufacturing
and services, though there are over 750 towns and cities.
Rural areas which have about 60% of the population remain
largely unaffected by the progress. Agriculture , their main
stay is growing slowly at about 2% p.a.
Making the growth process more
inclusive (contd.)
•
Growth has not been accompanied by significant new
employment opportunities.
–
–
–
–
Agriculture growth at 2% p.a. is supporting over 600 million
persons, but with only 20% share of GDP – consequently
farm employment not growing.
Services growth at 7% plus for last decade , accounting for
54% of GDP, employs only 20% of work force
Manufacturing growing at 8% plus , is also not labour
intensive in view of the need to remain globally competitive
and because of easier availability of capital. Rigidity in labour
laws contributing to higher capital intensity.
Population increase of about 100 million in last 5 years ,
which has seen about 50 million new jobs, largely in the
unorganized sector.
Growth being constrained by
inadequate infrastructure
•
•
•
•
•
An estimate that GDP rate of growth being limited by one
percent on account of inadequate electricity – admitted
energy shortage of 12% and peak time shortage of 20% need for an additional 90 Giga Watts capacity over next 5
years.
Transaction costs high due to capacity constraints at ports
resulting in delays.
Highways network expanding but grossly inadequate – Public
Private Partnership Models evolved.
Railways network large but expanding very slowly – need for
high capacity and high speed passenger and freight trains.
Estimated capital requirement in infrastructure US $ 320
billion during 2007-12. FDI seen as a major avenue.
Future Growth Dependant on
Continued Availability of Skills
•
•
•
Indian comparative advantage of high skills and low
wages could become minimal if continuous augmenting
of skill training facilities is not kept up.
While at the top good technocrats are available, skill
shortage at the shop floor level likely to arise in five
years time particularly in IT , ITeS and many
manufacturing operations.
Private sector involvement in capacity building is a must
and ways and means to devise it still not in place. s