Transcript Presentation - GOPIO Belgium

“INDIAN GROWTH STORY: WILL IT HELP SUSTAIN
THE SHIPPING BOOM?”
By Ravi K Mehrotra CBE
Chairman
Foresight Group, London
At
Indian Shipping Summit
Grand Hyatt Hotel, Mumbai
on
Tuesday 30th October 2007
When I visited China in late 1980’s
2
When I visited China in 2007
3
When I visited India in late 1980’s
4
When I visited India in the present day
5
WHAT DO THE PREVIOUS FOUR IMAGES TELL US?
India in 1980
•
Ahead of China esp. in free
enterprise and per capita
earnings
India in 2007
•
Full of vigour but political
system still trapped in
clanship management of the
Nation instead of taking
charge of enterprise
•
Very poor infrastructure
How will India’s Industrial Growth
look in 2012?
China in 1980
• Still struggling with
Communist Egalitarian past
and lack of enterprise
China in 2007
• Government took charge of
enterprise in late 1980’s,
transforming China into a
modern industrial nation
which increased per capita
income by a factor of 6
• Very good infrastructure
How did China imbibe
Entrepreneurship into their
Management?
6
Booming Indian Economy : Is it for real and
sustainable?
• Grown more than 8% in real terms over the last five years
• Moved to a higher growth of 9-10% of GDP and it is expected to
continue for the foreseeable future in spite of poor infrastructure
• In April 2007 its economy crossed USD 1 trillion and it is the 10th
largest economy in the world
• Indian foreign trade has quadrupled since 2004. 2004 at $105
billion & April 2007 at $305 billion
• Its industrial production, at best, used to be 6-7% until 2004. Now
it is 11-14% and expected to grow to 16-18%
• At present, political governance is only feasible with coalition
government. Coalition Parties cannot agree on common program
for infrastructural growth, currently infrastructure investment is
below 8% of GDP. Therefore growth in India will not be uniform
7
Why is India still growing and will continue
to grow in the near future?
Six reasons why the Indian Economy will continue to grow
in near future:
1)
Last few years growth of back office operations and software
development increased the number of middle-class in India.
Which fuelled the internal consumption and it is still growing.
2)
This increase in internal consumption helped the well established
Indian industrial companies with surging demands and liquidity
3)
Another support came from the Government opening up of Stock
Exchanges to foreign competition. Therefore, Indian owners out
of necessity had to inject equity in their companies in fear of
being bought out by others.
8
Six reasons why the Indian Economy will continue to grow
in near future (continued):
4)
With increased liquidity industrial companies which started
growing but not to take head-on competition with China’s
manufacturing. But industrial development of high tech nature
such as intelligent automotive parts and complicated forgings for
industrial production.
5)
With 25 million Indians living abroad provided another leg to
India’s growth story. Their 50 billion dollars plus remittances and
investments helped authorities to relax control on imports in the
country. This provided Industrial companies to upgrade their
machinery.
6)
Final support came from growth in export based oil refining
capabilities. Located close to Gulf & cheap labour helped
towards a huge surplus of oil refining capacity, thus helping to
subsidise its own oil import bill.
9
The ‘We can do it’ Mentality
• Future world economy growth will be driven by China & India
• Economic growth, whether it is 3.0 or 5.6% of world GDP, will
largely depend upon how these two countries decide to develop
their economies over the next 10 years
• Driven by the mentality of ‘we can also do it’ has receded any risk
of meltdown in India.
• Influence of other leading economies of the world to interfere in
these two countries is receding. In fact they are developing
methods to insulate their own economies from any negative effect
• Future of economic growth in the world over the next ten years is
assured due this new ‘we can also do it’ mentality
10
Total GDP and PPP GDP 2006/7
Total GDP
Ranking
Economy (2006)
Total PPP GDP
(millions of
US
dollars)
Ranking
Economy (2006)
13,244,550
1
United States
(millions of
intl.
dollars)
13,244,550
1
United States
2
Japan
4,367,459
2
China
4,367,459
3
Germany
2,897,032
3
Japan
2,897,032
4
China
2,630,113
4
India
2,630,113
5
United Kingdom
2,373,685
5
Germany
2,373,685
6
France
2,231,631
6
United Kingdom
2,231,631
7
Italy
1,852,585
7
France
1,852,585
8
Spain
1,225,750
8
Italy
1,225,750
9
Canada
1,269,096
9
Brazil
1,269,096
10
India (April 2007)
1,000,000
10
Russian
Federation
1,000,000
The total GDP data shown here measured in current US dollars use annual, market exchange rates.
This means that the values and derived rankings are subject to greater volatility due to variations in
exchange rates. Inter-country comparisons based on GDP at market prices should, therefore be
treated with caution.
The PPP method eliminates the effects of differences and changes in relative price levels.
Source: IMF, World Economic Database, 2007
11
GDP Growth 2000 to 2050
[2003 bn US Dollars]
45000
40000
35000
30000
25000
20000
15000
Japan
10000
Russia
Brazil
Germany
5000
0
2000
2005
2010
2015
Source: Goldmann Sachs: The Path to 2050
2020
2025
2030
2035
2040
2045
2050
12
World Market Shares for Manufactured
Exports
Percentage %
China
8
India
7
6
5
4
3
2
1
0
1995
2002
2006
Source : World Bank and IFC: India – Investment Climate and Manufacturing Industry, November 2004
13
Infrastructure *) Investments
[% of GDP]
40
35
30
25
20
15
10
5
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: China Statistical Yearbook, RBI, Morgan Stanley Research
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China vs. India – FDI Attractiveness
78%
Highly Educated Workforce
22%
Rule of Law
73%
27%
Management Talent
73%
27%
70%
Transparency
30%
66%
Cultural Barriers
43%
50%
Availability of M&A Targets
Consumer Sophistication
Competitor Presence
50%
46%
54%
45%
55%
Tax Regime
42%
58%
Quality of Life
41%
59%
41%
59%
40%
60%
39%
61%
Political/Social Stability
Economic Reform
Financial/Economic Stability
36%
64%
Production/Labor Costs
35%
65%
Government Incentives
34%
66%
Infrastructure
29%
Access to Export Markets
Market Size
71%
22%
Market Growth Potential
6%
Source: FDI Confidence Index. A.T. Kearney. October
2004. Volume 7
China
34%
57%
Regulatory Environment
India
78%
94%
15
What are the fundamental difference in
these two economies?
• It is focusing on manufacturing
• In this during the next 10 years they will try to go up the value
chain
• This they will achieve without loosing ground on existing
manufacturing strengths thanks largely to untapped labour from
interior of China
• Due to the development of excellent infrastructure of roads,
railways and power, interior of China will become basic
manufacturing base.
• These new bases will simply feed high tech coastal cities
• This is a very sensible decision as instead of overcrowding coastal
belt (big cities) they can move low tech manufacturing to interior
who, in turn, will feed high tech manufacturing bases in the
coastal cities.
16
• Initial Growth in India came from back office work call centres
and software supplies
• This created huge growth in middle classes in India which
boomed internal consumption
• Government of India opened Stock Exchanges for international
investors.
• This helped to provide growth in orders for finished goods.
Liquidity in manufacturing industry increased.
• Owners of industry had to inject more equity to prevent buyouts. This, in addition to healthy sales, provided huge liquidity
to industry to modernise their plants and expand internationally.
• This has helped India increase rapidly its industrial production
from 6-7% to 11-14% in 2007. World trade has also jumped from
0.6% to 1.5% in 2006. In US dollar-terms, it is $400 billion per
year and rising by 30%
• Today 25 million Indians live abroad and a lot of them remit their
surpluses to India, especially from the Arab countries. This has
helped India to ease import restrictions which resulted in $47
billion negative trade balance compared to China’s $175 billion
surplus.
17
Possible Future Hurdles?
• Biggest problem for China & India is energy security. Shortage of
raw materials especially petroleum products will become scarcer
and scarcer. How the world will handle this situation?
• It is expected the oil consumption from present 84 mmbbls/day
will increase to 120 mmbbls/day by 2025. How this will be
achieved?
• Lots of deep water exploration will be required? Do we have the
technology?
• What will be the oil price in 2025? Any guess?
• Leaving aside other requirements, how the world will mine 10
billion tons of coal and how will it produce 2 billion tonnes of
steel?
• What will be the further effect on the climate of our planet by
producing and consuming all this raw material?
• How will the world be able to produce safe food and water for
human consumption?
18
Summary
• By 2025 at least 60% of world population will be living in developed
or newly developed world.
• To sustain the wellbeing of the majority of the world’s population
political leaderships will have to learn to compromise?
• World technology has to improve fast to provide alternatives for
fast depleting reserves in the world such as oil, base metals and
coal
• Earlier China & Indian economies were mainly agricultural and selfsufficient in food, as they are getting more industrialised both
countries will develop food shortages, how will world food
production meet these shortages? Asia is already the only
continent which consumes more food than its land can produce
• Climate change will remain a big issue for some time until
technology finds answers.
• Water shortage is another crisis. How the world will cope with it?
19
Conclusion
• The Indian economy will develop fast
• India’s growth will be complementary to China’s not competitive
• India’s growth will be focussed on internal consumption to become
the back office of the world.
• China’s growth will continue to be based on manufacturing exports
• China has provided the base of shipping growth in the past few
years
• With India’s substantially increased imports of oil and coal will
help this shipping boom to prolong, increase in food imports will
add to more growth in shipping.
• It is only the southern hemisphere which is capable of meeting
these gigantic food shortages of the future, shipping will get
further boosts from these tonne-miles.
• The only dark cloud on the horizon will be if we, the ship owners,
go and build too many new ships and create our own problems
20
As you know I regularly speak at Cambridge
University…………….
My nature is to always ask a question to my
audience, so this year my question to you is:-
“Is this Indian economic boom
going to help shipping?”
If yes, then which sector of shipping?
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“INDIAN GROWTH STORY: WILL IT HELP SUSTAIN
THE SHIPPING BOOM?”
By Ravi K Mehrotra CBE
Chairman
Foresight Group, London
At
Indian Shipping Summit
Grand Hyatt Hotel, Mumbai
on
Tuesday 30th October 2007
22