india : parameters for growth

India : Parameters for Growth

By Dr. Ajay DuaSecretary to Govt. of India

Ministry of Commerce & Industry, New DelhiE-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

Fiscal deficit


Source – Reserve Bank of India

India's Gross Fiscal Deficit to GDP ratio (%)

4.8 5.1 5.3 5.66.2 5.9

4.5 4.1 4.1 3.8

01

2345

67

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

(RE)

2005-06

(Prov)

2006-07

(BE)


External debt


External debt to GDP ratio (%)

28.7

21.1 20.417.8 17.3

15.8

0

5

10

15

20

25

30

35

1990-91 2001-02 2002-03 2003-04 2004-05 2005-06


Forex reserves(All figures are in US$ billion)


2.217

54.1

146

165.4

0

20

40

60

80

100

120

140

160

180

1990-91 1995-96 2001-02 2005-06 18-Aug-06


Inflation(All figures are in %)

8.77.2

5.44.4

0

2

4

6

8

10

1992-98 2000-01 2003-04 2005-06

Wholesale price index


Composition of GDP

1990-91 1995-96 2000-01 2005-06

Agriculture 32 28 24 20

Industry 27 28 26 26

Services 41 44 49 54

(All figures are in %)


External trade

18 32 45

100

24 37 51

140

4269

96

240

0

50

100

150

200

250

300

1990-91 1995-96 2000-01 2005-06

Exports Imports Total trade

(All figures are in US$ billion)

Source – DGCI&S

Foreign investments(All figures are in US$ billion)


2.1 3.3

7.2

2.7 2.6

12.5

4.8 5.9

19.7

0

5

10

15

20

25

1995-96 2000-01 2005-06

Foreign direct investment Portfolio investments

Total foreign investment

FDI in 2006-07 is expected to touch US$ 12 billion

Calibrated globalization

Reduction in import tariffs

Liberalization of FDI regime

Fully convertible current account

Moving towards fuller capital account convertibility

Complying with WTO norms to plug into the global economy


Reduction in collection rates

Source – Economic Survey 2005-06

Customs duty collection rate - (Import revenue / Value of imports)

47

2922 21

16 15 14 12

0

10

20

30

40

50

1990-91

1995-96

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

Per

cen

t


FDI allowed selectively up to 40%

Up to 51% under ‘automatic route’ for35 priority sectors

Up to 74/51/50% in 111 sectors under

‘automatic route’ 100% in some sectors

Pre 1991 1991 1997 2000 Post 2000

Up to 100% under ‘automatic route’

in all sectors except a –ve list

More sectors opened; equity caps raised; conditions relaxed

Liberalization of FDI policy

in India

Buoyant corporate performance

8.6

0.8

14.416.6

11.29.9

2.4

-1.1

10.8

16.815.4

26.625.2

38.9

-5

0

5

10

15

20

25

30

35

40

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

Total number of households to increase from 188.2 million in 2001-02 to 221.9 million by 2009-10

Source – NCAER

Distribution of households by annual household income 1989-90 to 2009-10

58.834.6

21.7 15.6

27

37.436.3

36

14.228

42 48.4

0%

20%

40%

60%

80%

100%

1989-90 2001-02 2005-06 (Est.) 2009-10(Proj.)

Below US$ 1000 (Low) US$ 1000 - US$ 2000 (Lower middle) Above US$ 2000 (Middle high)

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

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


Penetration rates for non-durable products

690000

530000

350000

420000

470000

300000

350000

400000

450000

500000

550000

600000

650000

700000

750000

India China J apan USA Europeancommunity

Large intellectual capital base


Annual additions to the stock of science and engineering graduates

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 competitivenessAverage 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 Potential1. Automobiles and auto ancillary

2. Information technology and IT enabled services

3. Food processing

4. Telecommunications

Automobiles and Auto ancillaryLargest three wheeler manufacturer in the worldSecond largest two wheeler manufacturer in the

worldThird largest car market in AsiaFifth largest commercial vehicle manufacturer in

the worldAll 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

Auto production includes commercial vehicles, passenger vehicles, two and three wheelers

Source – Society of Indian Automobile Manufacturers (SIAM)

India's automobile sector - Trends

0

2

4

6

8

10

12

Nu

mb

er

in m

illio

n

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

2001-02 2002-03 2003-04 2004-05 2005-06

Automobiles and Auto ancillaryProduction

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

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)

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

Automobiles and Auto ancillaryThe 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 ITeSIndustry 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, domestic revenues witnessed a growth of 24%

Information technology and ITeS

All figures are in US$ billion Source – NASSCOM

IT-ITeS exports projected to reach US$ 60 billion by 2010

10

4.6 3.1 4.8

22.5

13.3

6.34

6

29.6

0

5

10

15

20

25

30

35

IT servicesexports

ITES-BPOexports

ES+productsexports

Domesticmarket

Total marketsize

2004-05 2005-06

Information technology and ITeS

Look at India for

Software product development

Embedded software

Offshore product development / R&D outsourcing

IT application solutions

ITeS

Food ProcessingIndia - 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 - Projections2003-04

($ 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

TelecommunicationsThe 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 (Till Aug)

40.8 123.4

Source – TRAI

45.6 54.576.2

98.1

140.2164.2

020406080

100120140160180

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07 (TillAug)

Total Phones

Growth of Telecommunication Network (In Million)

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

india : parameters for growth

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