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India Economy Panorama
May 2004
Gaurav KapurGaurav KapurEconomistEconomistABN AMRO Bank, IndiaABN AMRO Bank, India
0Economy Panorama India / Economics
Contents
Bird’s Eye ViewBird’s Eye View
The First Decade of ReformsThe First Decade of Reforms
Macro Balance-SheetMacro Balance-Sheet
OutlookOutlook
0Economy Panorama India / Economics
Largest Democracy, 2nd Largest Muslim population
DemographicsLocation: South AsiaNeighbouring Countries: China & PakistanPopulation (2001): 1027 m, 54% of which are below25 yearsArea: 3.3 m sq. kmNo of States and UTs: 35No. of Dominant Languages: 18Dominant Religions: Hindu (82%), Muslim (12%),Sikh & Christian (2% each)
Securities MarketLeading Stock Exchanges: NSE & BSENo of listed companies: Nearly 6000Market Capitalisation (FY03): $120 bnSettlement Cycle: T+2Market Cap/ GDP: 25%Net FII investment: $24 bn since 1993Debt Market: total outstanding debt $180 bn, largelydominated by G-Sec
Political SystemGained independence in 1947Largest democracy in the worldHas a federal structure with each state having its ownlegislative assemblyNational elections held every 5 years, next in 2004No of national political parties: 7Currently a coalition led by BJP is in power, National govtled by Hon Mr. Atal Bihari Vajpai
Macro-economic PerspectiveGDP : $525bnGrowth Rate : 6%GDP (PPP adjusted): $2.9 trGDP shares - Agri 22.1% Ind 21.8%, Services 56.1%Trade - Exports: $62 bn Imports: $75 bnCurrent a/c Balance (% of GDP): 0.8Forex Reserves: $117.9 bn
0Economy Panorama India / Economics
PPP Adjusted GDP for 2002 (in $ tr)
9.8
5.13.2 2.9 2.1 1.4 1.4 1.4
02468
1012
US
Chi
na
Japa
n
Indi
a
Ger
man
y
Italy UK
Fran
ce
0Economy Panorama India / Economics
Bird’s Eye View
• 23 member coalition (5 yrs) government
• forex management practices “amongst the best ” - IMF
• 220 of Fortune 500 outsource their work to India
• world’s largest irrigated area, conducive climate
• lowest cost producer of aluminium, steel, copper, cement
• largest milk and tea producer, consumer in the world
• world's largest manufacturer of two-wheelers, CD-ROMs
• consumes a fifth of world’s gold output
0Economy Panorama India / Economics
Bird’s Eye View (contd.)
• largest number of pharma plants outside USA
• 90% of world’s diamonds polished (80% by caratage)
• railways- largest employer (1.7m), largest network (63m m)
• 70,000 bank branches, deposits 60% of GDP
• 150,000 post office branches
• ranked 6th in satellite launches
• 800 movies per year, overshadows Hollywood
• currently world’s largest single highway project (13,000 km)
0Economy Panorama India / Economics
Bird’s Eye ViewBird’s Eye View
The First Decade of ReformsThe First Decade of Reforms
Macro Balance-SheetMacro Balance-Sheet
OutlookOutlook
0Economy Panorama India / Economics
Then and Now
Then NowGDP Growth (yoy %) 1.3* 6.0+
Industrial Growth (yoy %) -1.3 6.7
Inflation (%) 16 5.3
Export Growth (%) negative 15
Foreign Currency Reserve ($ bn) 5.8 117.9
Current Account Deficit (% of GDP) 3.1 -0.8
External Debt ($ bn) 83.6 112.1
Debt Service Ratio 35.3 16
Fiscal Deficit (% of GDP) 7.8 4.8
Foreign Direct Investment negligible 4-5 bn*The figure refers to FY92
0Economy Panorama India / Economics
GDP Growth
-6
-4
-2
0
2
4
6
8
10
12
FY04FY52
Among the Top 10 fastest growing economies over the past 20 years
0Economy Panorama India / Economics
Household savings Household savings (as % of GDP)(as % of GDP)
0
3
6
9
12
15
18
21
24
FY51 FY03
0Economy Panorama India / Economics
0102030405060708090
100110120
Mar-90 Dec-03
Foreign Exchange Reserves External Debt
Reserves and Foreign Debt ($ Reserves and Foreign Debt ($ bnbn))
0Economy Panorama India / Economics
6.9
5.75.1 4.9
5.86.4
5.6 5.7 6.1 5.9
0.41
1.71.2 1.4 1 1.1
0.5-0.2
-0.78
-2-1012345678
FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03
fiscal
current account
The Twin Deficits - Yin and Yang
0Economy Panorama India / Economics
First decade of reforms
• mainly about industry, trade, banking, insurance
• privatisation coupled with private/foreign entry
• reduced subsidies and price fixation, more market play
• labour, agriculture untouched
• infrastructure opened up
0Economy Panorama India / Economics
Bird’s Eye ViewBird’s Eye View
The First Decade of ReformsThe First Decade of Reforms
Macro Balance-SheetMacro Balance-Sheet
OutlookOutlook
0Economy Panorama India / Economics
Current Strengths and Weaknesses
Growth
Trade
External Debt
Demography
Knowledge base
Fiscal Situation
Debt
Inter-state Disparity
Poverty
0Economy Panorama India / Economics
0123456789
10In
dia
Chin
a
Indo
nesi
a
Mal
aysi
a
Thai
land
Kore
a
Taiw
an
Sing
apor
e2.3
4.85.7
8.4
10.4
5.25.4
6.2
3.4 1.5 3.5
5.36.3 6.4
5.3
-10
-5
0
5
10
15
20
FY01
Q1
FY01
Q2
FY01
Q3
FY01
Q4
FY02
Q1
FY02
Q2
FY02
Q3
FY02
Q4
FY03
Q1
FY03
Q2
FY03
Q3
FY03
Q4
FY04
Q1
FY04
Q2
FY04
Q3
Agriculture Industry Services GDP
CY2003 growth - near top amongpeers...
GDP components…agriculture volatile,services steady
0Economy Panorama India / Economics
1990-91
Services44%
Agriculture31%
Industry25%
2002-03 Agriculture22%
Industry22%
Services56%
services share 56% - leapfrogging past industrial phase?
0Economy Panorama India / Economics
But, industry showing broad based recovery
-3
-1
1
3
5
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11
13Ap
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May
-02
Jun-
02Ju
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Aug-
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Oct
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-02
Dec
-02
Jan-
03Fe
b-03
Mar
-03
Apr-0
3M
ay-0
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Jul-0
3Au
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ct-0
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ec-0
3Ja
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Feb-
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1
2
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8Mining Manufacturing Electricity IIP (rhs)
0Economy Panorama India / Economics
Industry Growth Snapshot
Third Quarter Corporate Sector Performance
Sector (figs in %) Sales growth Profitgrowth
Engineering 22.4 51.2Pharmaceuticals 11.9 -2.4Automobiles 26.3 47.0Oil & Gas 10.4 36.0IT, Telecom, Media 8.5 19.9Banks & Financial Institutions 0.7 20.0Commodity 23.5 166.1Power 10.4 132.4Textiles 9.2 24.2FMCG & Durables 7.2 19.7Miscellaneous 36.7 57.3Total 14.0 40.0
0Economy Panorama India / Economics
3.83.5 3.6
5.4
6.35.6
5.0
1950s 1960s 1970s 1980s 1990s FY02 FY035
10
15
20
25
30
35
40
45
GDP Growth
Trade to GDP ratio (rhs)Trade ratio has risendramatically in last twentyyears… more openness
Exports (sans IT)clipping over 10%growth …
-5000
5001000150020002500
Apr
-02
Jun-
02
Aug
-02
Oct-0
2
Dec
-02
Feb-
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Apr
-03
Jun-
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Oct-0
3
Dec
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Feb-
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-1001020304050
Trade Deficit ($ m) (lhs)Exports growth (%) (rhs)Imports growth (%) (rhs)
0Economy Panorama India / Economics
Exports are diversifying...
(figures in $bn) FY93 FY02 % change
Ores and Minerals 0.7 1.2 75
Leather and Goods 1.2 1.9 59
Chemicals 1.2 4.3 250
Agriculture and Allied 3.0 5.9 99
Engineering 2.3 6.9 196
Garments and Textiles 4.7 10.1 114
Other Manufacturing 3.7 10.0 169
A major component of Chemicals is drugs and pharma
The fastest growth was in Engineering and in Drugs and Pharma
0Economy Panorama India / Economics
Up 2.7% in FY03
9.4% in FY04
Others have gainedmuch more againstthe dollar
Rupee’s U turn AgainstDollar
43.343.844.344.845.345.846.346.847.347.848.348.849.301-Jan-02 30-Apr-04
7981838587899193959799
101103105
02-Jan-03 30-Apr-04
GBP/USD EUR/USD JPY/USD INR/USD
Currency
0Economy Panorama India / Economics
Currency volatility
Annual Volatility (in %)
2000 2001 2002 2003 2004(Jan-Apr)
INR/USD 2.4 2.1 1.6 1.7 4.9
USD/EUR 12.4 11.9 9.1 9.9 13.0
JPY/USD 10.0 10.4 9.9 8.8 9.5
INR/EUR 13.6 12.5 9.7 10.0 13.5
INR/USD least volatile
0Economy Panorama India / Economics
0102030405060708090
100110
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20030
5
10
15
20
25
30
35
40Long term Short term Debt service ratio (%, rhs)
0
2
4
6
8
10
12
14
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20020
10
20
30
40
50
60
70
80Contingent liabilitiesTotal domestic liabilities (rhs)
Debt service has declined
Contingent liabilitiesrising, and quality ofdebt deteriorating
Foreign debt constant for adecade
Domestic debt ballooning
Debt
0Economy Panorama India / Economics
-5
0
5
10
15
20
25
30
FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03
Public SavingsHousehold SavingsPrivate Corporate
15.315.7
15.3
14.214.6 14.7 14.6
14.3
13.4
14.314.6 14.4
15.1
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
Households save, but thegovernment dis-saves
Tax receipts stagnant at15% of GDP
Brazil - 31%, Korea - 27%,Turkey - 33%, Czech Republic- 40%
0Economy Panorama India / Economics
Gross Debt (%of GDP)
0102030405060708090
100Eg
ypt
Indi
a
Phill
ipin
es
Mor
occo
Pana
ma
Tuni
sia
Bul
garia
Cro
atia
Cos
ta R
ica
Vie
tnam
Rus
sia
Thai
land
Mex
ico
El S
alva
dore
Rom
ania
Dom
inic
an R
epub
lic
Kaz
akhs
tan
-8-6-4-202468
10
Indi
a
Mor
occo
Rus
sia
Thai
land
Egyp
t
Bul
garia
Cro
atia
Phill
ipin
es
Rom
ania
Kaz
akhs
tan
Mex
ico
Tuni
sia
Vie
tnam
Pana
ma
Cos
ta R
ica
Dom
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an R
epub
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El S
alva
dore
reserves/imports(months)
Debt and reserves comparison
0Economy Panorama India / Economics
123456789
02-J
an-9
9
20-M
ay-9
9
05-O
ct-9
9
20-F
eb-0
0
07-J
ul-0
0
22-N
ov-0
0
09-A
pr-0
1
25-A
ug-0
1
10-J
an-0
2
28-M
ay-0
2
13-O
ct-0
2
28-F
eb-0
3
16-J
ul-0
3
01-D
ec-0
3
17-A
pr-0
4
Trend line
FY04, WPI averaged at5.3%…inflation undercontrol…
Core inflation picking up…both by cost push anddemand-pull factors...
Inflation
-40-20
020406080
100120140
Jan-
01M
ar-0
1M
ay-0
1Ju
l-01
Sep-
01N
ov-0
1Ja
n-02
Mar
-02
May
-02
Jul-0
2Se
p-02
Nov
-02
Jan-
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ar-0
3M
ay-0
3Ju
l-03
Sep-
03N
ov-0
3Ja
n-04
Mar
-04
0123456789
Primary articles EnergyManf. pdts Overall Inflation (rhs)
0Economy Panorama India / Economics
Declining interest rates onmoney market instruments...
soft interest rates… inflationslightly picking up...
Interest rates
4.5
5.5
6.5
7.5
8.5
9.5
10.5
11.5
12.5
02-Jan-99 17-Apr-041
2
3
4
5
6
7
8
9Yield on GOI paper 10 yr Mat
Inflation (yoy variation inWPI) (right-axis)
4.04.55.05.56.06.57.07.5
01-Feb-03 16-Sep-03 30-Apr-04
364-day 91-day Bank rate Repo rate Mibor
0Economy Panorama India / Economics
Bird’s Eye ViewBird’s Eye View
The First Decade of ReformsThe First Decade of Reforms
Macro Balance-SheetMacro Balance-Sheet
OutlookOutlook
0Economy Panorama India / Economics
Economy numbers
Indicators FY02Actuals
FY03Actuals
FY04Provisional
FY05Forecasts
Real GDP growth rate 5.6 4.0 8.1 6.5
Inflation (year-average) 3.6 3.4 5.3 4.5
Interest (year-end) 7.3 6.1 5.15 5.8
Rupee-US$ rate (year-end) 48.8 47.5 43.39 42.5
Exports ($ bn) 44.9 53.0 61.0 67.0
Imports ($ bn) 57.6 65.5 82.5 95.0
Forex Reserve ($ bn) 54.0 74.8 112.7 130.0
Fiscal Deficit (% of GDP) 6.1 5.9 5.0 5.5Current account balance(% of GDP) 0.2 0.78 0.5 -0.6
0Economy Panorama India / Economics
Outlook
• Improvement in Indo-Pak relations
• India’s role post Cancun
• Elections 2004 (followed by bold decisions?)
• An assertive, and more productive industry
• Capacity to digest huge forex inflows?
• Will fiscal stress spill out to a currency crisis?
• Outsourcing trend to continue
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