indian economy outperforming other major economies - a perspective by capitalheight

8/8/2019 Indian Economy Outperforming Other Major Economies - A Perspective by CapitalHeight

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Indian econom

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CONTENTS

Introduction

Economic Prospects for 2010

GDP growth in India

Mergers & Acquisitions in India

FII & FDI investment in India

Rural India growth story

Growth potential

India & China: A Comparison

A Comparison with BRIC andMajor economies




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Introduction The economy of India is the eleventh largest economy in the world by nominal GDP and

the fourth largest by purchasing power parity (PPP). Following strong economic reforms

from the socialist inspired economy of a post-independence Indian nation, the country

began to develop a fast-paced economic growth, as free market principles were initiated

in 1990 for international competition and foreign investment. India is an emerging

economic power with a very large pool of human and natural resources, and a growing

large pool of skilled professionals. Economists predict that by 2020, India will be among

the leading economies of the world. India has witnessed unprecedented levels of economic expansion, along with countries

like China, Russia, Mexico and Brazil. India, being a cost effective and labor intensive

economy, has benefited immensely from outsourcing of work from developed countries,

and a strong manufacturing and export oriented industrial framework. With the

economic pace picking up, global commodity prices have staged a comeback from their

lows and global trade has also seen healthy growth over the last two years.

India was under social democratic-based policies from 1947 to 1991. The economy was

characterized by extensive regulation, protectionism, public ownership, pervasive

corruption and slow growth. Since 1991, continuing economic liberalization has moved

the country toward a market-based economy. A revival of economic reforms and better

economic policy in 2000s accelerated India's economic growth rate. In recent years,

Indian cities have continued to liberalize business regulations. By 2008, India had

established itself as the world's second-fastest growing major economy. But the year

2009 was not really good for the Indian equity market and the whole economy was also

going into recession




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Economic Prospects for 2010

The year 2009 saw a significant slowdown in India's GDP growth rate to 6.8% as well as

the return of a large projected fiscal deficit of 6.8% of GDP which would be among the

highest in the world. The global economy seems to be recovering after the recent

economic shock. The Indian economy, however, was hit in the latter part of the global

recession and the real economic growth witnessed a sharp fall, followed by lower

exports, lower capital outflow and corporate restructuring. It is expected that the global

economies will continue to sustain in the short-term, as the effect of stimulus programsis yet to bear fruit and tax cuts are working their way through the system in 2010. Due to

the strong position of liquidity in the market, large corporations now have access to

capital in the corporate credit markets.

India's Economic Outlook Projection

Year 2007 2008 2009 2010

GDP Growth 9.40% 7.30% 5.40% 8.00%

CPI 6.40% 9.30% 5.50% 4.90%

In order to sustain economic growth during the time of the worst recession, government

authorities in India have announced the stimulus packages to prop up economic growth.

To finance the stimulus packages, the Indian government has raised over $100 billion

over the last four quarters in a way to finance the stimulus package. The country’s

public debt, according to the RBI, has surged to over 50% of the total GDP and the RBI

has started printing new currency notes.

Central Government Debt

In Rs. Crores Q3 2008 Q3 2009 % of GDP

Public Debt 2,099,286.23 2,505,450.74 50.71%

1. External Debt 237,351.77 294,941.67

2. Internal Debt 1,861,934.46 2,210,509.07




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India is a fascinating country from an economic standpoint because it is so diverse. In

India, you see many of the more traditional industries such as village farming, fishing,

and handicrafts that are blended with modern sectors such as telecommunications,

transportation, and tourism. Today, nearly 50% of the people work in the agriculture,

fisheries, and farming sectors and with the Progressive Alliance or UPA, India’s

government has been able to boost the rural economy by developing basic facilities and

infrastructure. With this, the quality of life for the poor people living and working in rural

areas has improved significantly.

Some of the other areas that have changed to improve India’s economy includes the

government reducing controls on foreign imports and exports, loosening controls for

investments, and allowing higher limits for Foreign Direct Investment in a few of the

primary sectors. While this country has experienced growth and economic

improvements, fast tariff growth in some of the more sensitive sectors to include

agriculture, fisheries, and farming could cause challenges for foreign access to the

country’s huge and expanding market.

However, the service sector is greatly expanding and has started to assume an

increasingly important role. The fact that the Indian speaking population in India is

growing by the day means that India has become a hub of outsourcing activities for

some of the major economies of the world including the United Kingdom and the United

States. Outsourcing to India has been primarily in the areas of technical support and

customer services.

Other areas where India is expected to make progress include manufacturing,

construction of ships, aviation, pharmaceuticals, biotechnology, tourism,

nanotechnology, telecommunications and retailing. Growth rates in these sectors are



expected to increase dramati

we have to see tremendous g

GDP Growth in

The Gross Domestic Product

in the last reported quarter.

Growth was 8.37 percent rea

2006 and a record low of 5.5

encompasses traditional villa

of modern industries, and a

economic growth, accounting

of its labor force. The econo

the decade since 1997, reduc

India GDP Growth Rate Char

cally. Also we must not forget the infrastru

rowth in the coming years in this particular

India

(GDP) in India expanded at an annual rate

From 2004 until 2010, India's average

ching an historical high of 10.10 percent i

0 percent in December of 2004. India's di

e farming, modern agriculture, handicraft

multitude of services. Services are the

for more than half of India's output with les

y has posted an average growth rate of

ing poverty by about 10 percentage points.

and Historical Data:


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cture sector as

sector.

of 8.80 percent

quarterly GDP

September of

verse economy

, a wide range

ajor source of

s than one third

ore than 7% in




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Top Ten Acquisition made by Indian Companies

ACQUIRER TARGET COMPANYCOUNTRY

TARGETED

DEAL VALUE

($ ML)INDUSTRY

Tata Steel Corus Group UK 12,200 Steel

Hindalco Novelis Canada 5,982 Steel

Ranbaxy Daiichi Sankyo Japan 4,500 Pharmaceutical

ONGC Imperial Energy UK 2,800 Oil and Gas

Tata Motors Jaguar & Land Rover Ford Motor 2,300 Automobile

Sterlite Asarco USA 1,800 Mining

Suzlon Repower Germany 1,700 Energy

Videocon Daewoo Korea 729 Electronics

Dr. Reddy Betapharm Germany 597 Pharmaceutical

Suzlon Hansen Group Belgium 565 Energy

HPCL Kenya Petroleum Kenya 500 Oil and Gas

Ranbaxy

LabsTerapia SA Romania 324 Pharmaceutical

Tata Steel Natsteel Singapore 293 Steel

Videocon Thomson SA France 290 Electronics

VSNL Teleglobe Canada 239 Telecom




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The above data evidently shows that Indian companies have grown really quick and

provides sufficient opportunity to the FIIs and FDIs to invest their money in the Indian

companies which has resulted in the rapid growth of our economy.

FII Investment in India

One of the factors responsible for the tremendous growth of the Indian economy has

been its booming foreign trade. Through or previous report we have tried to establish

the fact that the FIIs are reportedly increasing their investment in Indian equity market.

The investment by the FIIs has helped boost the growth of our Indian companies by

providing them the capital they require for carrying out their long term projects. The

investment by our companies, in their respective sectors has helped in the progress of

our Indian economy.

FDI Investment in India

Improving global sentiment and a growing conducive environment in India are

increasingly facilitating foreign investors’ role in the country currently. Several other

factors being attributed to the revival in FDI in the country include liberal investment

policies and reforms, innovative and technologically advanced products being

manufactured in India and low cost and effective solutions.

India has been ranked at the third place in global foreign direct investments, following

the economic meltdown, and will continue to remain among the top five attractive

destinations for international investors during the next two years, according to UNCTAD.

The Indian retail market, which is the fifth largest retail destination globally, has been

ranked the most attractive emerging market for investment in the retail sector by A T




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Kearney's annual Global Retail Development Index (GRDI), in 2009. A recent Ernst &

Young study predicts Mumbai and Bangalore to be the next global centers of

investment along with Shanghai.

The Rural India Growth Story

The Indian growth story is spreading to the rural and semi-urban areas as well. The next

phase of growth is expected to come from rural markets with rural India accounting for

almost half of the domestic retail market, valued over US$ 300 billion. Rural India is set

to witness an economic boom, with per capita income having grown by 50 per cent over

the last 10 years, mainly on account of rising commodity prices and improved

productivity. Development of basic infrastructure, generation of employment guarantee

schemes, better information services and access to funding are also bringing prosperity

to rural households.

Advantages to India

According to the World Fact Book, India is among the world's youngest nations with

a median age of 25 years as compared to 43 in Japan and 36 in USA. Of the

BRIC—Brazil, Russia, India and China—countries, India is projected to stay the

youngest with its working-age population estimated to rise to 70 per cent of the total

demographic by 2030, the largest in the world. India will see 70 million new entrants

to its workforce over the next 5 years.

India has the second largest area of arable land in the world, making it one of theworld's largest food producers. Over 200 million tonnes of food grains are produced

annually. India is the world's largest producer of milk (100 million tonnes per annum),

sugarcane (315 million tonnes per annum) and tea (930 million kg per annum) and

the second largest producer of rice, fruit and vegetables.




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With the largest number of listed companies - 10,000 across 23 stock exchanges,

India has the third largest investor base in the world.

India's healthy banking system with a network of 70,000 branches is among the

largest in the world.

According to a study by the McKinsey Global Institute (MGI), India's consumer

market will be the world's fifth largest (from twelfth) in the world by 2025 and India's

middle class will swell by over ten times from its current size of 50 million to 583

million people by 2025.

India, which recorded production of 22.14 million tonne of steel during April-August

2009, is likely to emerge as the world's third largest steel producer in the current

year.

India continues to be the most preferred destination—among 50 top countries—for

companies looking to offshore their information technology (IT) and back-office

functions, according to global management consultancy, AT Kearney.

The Indian stock markets have risen to be amongst the best performers globally

across the emerging and developed markets in 2009 year-to-date, according to an

analytical study by MSCI indices.India has reclaimed its position as the most attractive destination for global retailers

despite the downturn, according to the Global Retail Development Index (GRDI)

brought out by US-based global management consulting firm, A T Kearney.

Growth potential

According to the CII Ernst & Young report titled 'India 2012: Telecom growth

continues,' India's telecom services industry revenues are projected to reach US$ 54

billion in 2012, up from US$ 31 billion in 2008. The Indian telecom industry




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Registered the highest number of subscriber additions at 15.84 million in March

2009, setting a global record.

A McKinsey report, 'The rise of Indian Consumer Market', estimates that the Indian

consumer market is likely to grow four times by 2025, which is currently valued at

US$ 511 billion.

India ranks among the top 12 producers of manufacturing value added (MVA)—

witnessing an increase of 12.3 per cent in its MVA output in 2005-07 as against 6.9

per cent in 2000-05—according to the United Nations Industrial Development

Organization (UNIDO).In textiles, the country is ranked fourth, while in electrical machinery and apparatus it

is ranked fifth. It holds sixth position in the basic metals category; seventh in

chemicals and chemical products; 10th in leather, leather products, refined

petroleum products and nuclear fuel; twelfth in machinery and equipment and motor

vehicles.

In a development slated to enhance India's macroeconomic health as well as energy

security, Reliance Industries (RIL) has commenced natural gas production from its

D-6 block in the Krishna-Godavari (KG) basin.

India has a market value of US$ 270.98 billion in low-carbon and environmental

goods & services (LCEGS). With a 6 per cent share of the US$ 4.32 trillion global

market, the country is tied with Japan at the third position.

PE players are planning to raise funds for the infrastructure sector. Presently,

around US$ 1.42 billion is being raised by India-dedicated infrastructure funds,

according to data released by Preqin, a global firm that tracks PE and alternative

assets.

Infrastructure, including roads, power, highways, airports, ports and railways, has

emerged as an asset class with long-term growth that can provide relatively stable




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returns, said an Assocham-Ernst & Young survey on Private Equity in Indian

Infrastructure: Strengthening the Nexus.

With the availability of the 3G spectrum, about 275 million Indian subscribers will use

3G-enabled services, and the number of 3G-enabled handsets will reach close to

395 million by 2013-end.

India & China: A Comparison

Ten years ago, it was unthinkable to compare China with India. The emergence of India

and China as major global players heralds new realities. Both countries have

transformed the global political architecture increasingly shifting power from West to the

East. The question issue here is the nature of the India’s economic growth and its

potentials to outperform China.

According to Economist Intelligence Unit (EIU), India is the second largest growing

economy after China. But EIU forecasts that India will surpass China as the fastedgrowing major economy by 2018. And as against the estimation of the Indian

government which has projected the Indian economy to grow by 7.2 percent this fiscal,

EIU has estimated the growth to be 7.7 percent. The growth for the next five years is

estimated to be on the average of eight percent as against the 9 percent in the year

2011-2012.

Two years ago the view that India might have a more competitive economy than China

was met with incredulity. To-day comparison of the two countries offers valuable

insights for the global economy. A fundamental distinction is that China’s growth stems

from resource accumulation while India’s is rooted in increasing efficiency.




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China’s economic superpower ambition has flaws, including graft and waste. India, in

contrast, enjoys many hidden, long-term advantages. Although India’s literacy rate ismuch lower than China’s, its technical and management institutes are far better than

such schools in China. It is estimated that that only 10 per cent of Chinese engineers

have the skills required to work in a global company, while the comparable number for

India is 25 per cent.

A comparison with BRIC & Other Major Economies

CountryGDP

Bn US$GDP

GrowthInterest

RateInflation Unemployment

CurrentAccount

China 4909 10.30% 5.31% 3.50% 4.20% 70500.00

India 1296 8.80% 5.00% 11.25% 8.00% -13.00

Russia 1231 5.20% 7.75% 6.10% 6.80% 33318.00

USA 14256 1.70% 0.25% 1.10% 9.60% -123.00

UK 2175 1.20% 0.50% 3.10% 7.80% -10.00

Brazil 1572 1.20% 10.75% 4.49% 6.70% -3000.00

Europe 12456 1.00% 1.00% 1.60% 10.00% -25.00

Japan 5068 0.37% 0.10% -0.90% 5.20% 1047.00

This table clearly shows that India is the Second fastest budding economy in terms

of GDP growth rate. India’s interest rates are lowest among the BRIC countries

making it easier for the people to borrow money in India. The money borrowed

eventually gets invested and thus help in boosting the Indian economy.

Unemployment rate in India is less than United States as well as Europe and is

giving close competition to United Kingdom.




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