Transcript India – The place to do business

Investing in India
1
Jan 07
Contents
•
Prospects
• Policies & Procedures
• Problems
2
Prospects
Healthy macro-economic fundamentals
 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 India3
… contd
 Inflation moderate and averaging 4-5% pa
 Forex reserves of about $ 170 bn, i.e.
equivalent to almost 15 months of imports
 Gross fiscal deficit to GDP ratio declining
and currently at 3.8%
 External debt to GDP ratio also declining and
in 2005-06 at 15.8%
*Source – Reserve Bank of India4
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
5
Foreign investment
(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 equity upto Nov 2006 $7.3 billion .Expected to
be US$ 12 billion in 2006-07.
Source – Reserve Bank of India
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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
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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
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Basis for optimism
Supply side
 Adequate availability of manpower and skills
 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 ,while of China would
grow by 94 million and of USA by 11million.Other
majors like Japan, Germany ,UK and France would
experience a decline.
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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
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Cost competitiveness
Average annual pay for various jobs in India and China (US$)
Position
India
China
HR manager
15,100
32,000
Marketing manager
14,300
25,800
Project manager
10,000
23,400
Software developer
10,300
13,400
Financial analyst
8,400
13,200
Accountant
5,700
9,000
Sales
representative
4,700
5,100
Production worker
1,900
2,300
Source – FICCI Compilation
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Demand side Expanding domestic market
Distribution of households by annual household
incom e 1989-90 to 2009-10
100%
80%
14.2
28
27
60%
42
48.4
37.4
40%
36.3
36
58.8
20%
34.6
21.7
15.6
2005-06 (Est.)
2009-10
(Proj.)
0%
1989-90
Below US$ 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 12
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 13
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
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Demand Side Contd.
• Along with expanding domestic market ,
export orientation developing in almost
all economic activities – external trade
already 36% of GDP.
• India becoming a hub for export of
manufacturing and services –
particularly to developed countries
where input costs are fast rising.
15
Sectors with Potential
1. Automobiles and auto ancillary
2. Information technology and IT enabled services
3. Pharmaceuticals
4. Biotechnology
5. Food processing
6. Telecommunications
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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)
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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
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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 – SIAM
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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
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Information technology and ITeS
Look at India for
Software product development
Embedded software
Offshore product development / R&D
outsourcing
IT application solutions
ITeS
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Pharmaceuticals
Indian pharma industry
 Size of the industry – US$ 8 billion
 Retail
sales account for US$ 5 billion and
exports account for US$ 2.5 billion (2004)*
 The
industry accounts for 8% of the global
market in volume terms and 1.5% in value
terms
 India
currently exports pharma products to
over 200 countries
 Strong
branded generics market
Source – Industry estimates and *Lupin Investor Presentation October 200522
Pharmaceuticals
Indian pharma industry
Export of
domestically
produced
generics

Off-shoring
location for R&D
Off-shoring location
for Manufacturing /
support services
IPR introduced with effect from January 2005

Generics opportunity in US and other developed
country markets

Sourcing base for global markets with low costs, skill
and scalability

Strong research capabilities
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Pharmaceuticals
Look at India for
 Large potential domestic market
 The industry's current valuation stands at over US$
8.0 billion and according to McKinsey this figure is
set to increase to US$ 25 billion by 2010
 India’s per capita spending on pharmaceutical drugs
is one of the lowest in the world - only US$ 3 – Japan
(412), Germany (222), USA (191)
 Leveraging India’s advantages in global markets
 Collaborative research, custom synthesis, drug
development, in-licensing, clinical trials support, API
supply, contract manufacturing etc.
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Healthcare
 The Indian healthcare industry is presently
estimated to be around US$ 18.7 billion – 65% of
the market is in the private sector
 Industry is growing @ 13% annually and is
expected to grow @ 15% over the next few years
 Industry is expected to touch US$ 45 billion by
2012
 This growth is likely to require an additional
750,000 beds, 520,000 doctors and an overall
investment of US$ 26 – US$ 28 billion of which
80% has been projected as the share of the
private sector
Source – CII-McKinsey study 2004
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Biotechnology
Indian Biotech Products & Services:
$1500m
R&D Products & Services
Ag Biotech
Industrial Biotech
Medical Biotech
$750m
$ 150
$ 150
$ 100
$ 350
$150m
2002
2005
2007
The Indian Biotech business stands at US$750 m today...
…and is expected to be $1500 m by 2007…
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Biotechnology
Huge potential from large base of skilled
technical personal and the lower costs
Number of biotechnology firms in India have
increased exponentially over the years
Developing
biotech
based
therapeutic
products takes 10-15 years and costs $ 500
million to $1 billion. Similar product
development cost in India is $ 250 million or
even lower
Opportunity for new investments is estimated
to be in the $ 1.5 to $ 2 billion range
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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
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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
29
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
30
US$32 billion between 2005 and 2010
Policy and ProceduresCalibrated 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
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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
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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
33
Other Policy Measures
Industrial Licensing almost done away with – Now
limited to Tobacco & Cigarettes, alcohol, explosives
and hazardous chemicals and production for
defense
Reservation for production by Small scale units
reduced from over 800 to about 300 items
Internal Taxation both direct and indirect being
visited year after year for rationalization,
simplification and reduction
Integration of domestic market fast taking place with
removal of geographical trade barriers, introduction
of VAT and proposed phasing out of CST
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Problems 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.
35
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.
36
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.
37
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
38