India : Parameters for Growth

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India Parameters for Growth
By Dr. Ajay Dua Secretary to Govt. of
India Ministry of Commerce Industry, New
Delhi E-mail ajay.dua_at_nic.in
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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
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Healthy macroeconomic fundamentals

• Fiscal deficit

Source Reserve
Bank of India
4
Healthy macroeconomic fundamentals

• External debt

Source Reserve
Bank of India
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Healthy macroeconomic fundamentals
Forex reserves
(All figures are in US billion)
Source
Reserve Bank of India
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Healthy macroeconomic fundamentals
Inflation
(All figures are in )
Source Reserve Bank of India
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Composition of GDP
(All figures are in )
Source Reserve Bank of India
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External trade
(All figures are in US billion)
Source
DGCIS
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Foreign investments
(All figures are in US billion)
FDI in 2006-07 is expected to touch US 12 billion
Source
Reserve Bank of India
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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

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Calibrated globalization

• Reduction in collection rates

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
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
Liberalization of FDI policy in India
More sectors opened equity caps raised
conditions relaxed
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Buoyant corporate performance

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
• Indias GDP will exceed Italys in 2016, Frances
  in 2019, Germanys in 2023 and Japans in 2032
• India to become the worlds 3rd largest economy
  by 2032

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Unmatched demography

• Over 1 billion population 52 below the age of
  25
• Median age of Indias population would remain 25
  even as late as in 2025
• Indias workforce (20-59 age group) would go up
  by around 263 million by 2050
• Todays youth would drive tomorrows boom

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Unmatched demography
Growth in global working-age population
(15-64) in millions
Source United
Nations
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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
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Untapped market potential
While the absolute size of the market is large,
penetration rates are still low untapped
potential

Source Morgan Stanley
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Untapped market potential
Penetration rates for non-durable products

Source Morgan Stanley
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Large intellectual capital base
Annual additions to the stock of science and
engineering graduates
Source Morgan Stanley
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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 RD centers in
  India

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Cost competitiveness
Average annual pay for various jobs in India and
China (US)
Source FICCI Compilation
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Sectors with Potential

• Automobiles and auto ancillary
• Information technology and IT enabled services
• Food processing
• Telecommunications

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Automobiles and Auto ancillary

• Largest three wheeler manufacturer in the world
• Second largest two wheeler manufacturer in the
  world
• Third largest car market in Asia
• Fifth largest commercial vehicle manufacturer in
  the world
• All major MNC auto companies present Daimler
  Chrysler, Suzuki, Ford, Fiat, Hyundai, General
  Motors, Volvo, Yamaha, Mazda
• India exports automobiles to critical markets

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Automobiles and Auto ancillary
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
Source FICCI computation based on
data provided by SIAM
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Automobiles and Auto ancillary

• 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

Source Auto
Component Manufacturers Association (ACMA)
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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
  RD hub

Source Industry
Estimates
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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, domestic revenues
  witnessed a growth of 24

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Information technology and ITeS
All figures are in US billion
Source NASSCOM
IT-ITeS exports projected to reach US 60
billion by 2010
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Information technology and ITeS

• Look at India for
• Software product development
• Embedded software
• Offshore product development / RD outsourcing
• IT application solutions
• ITeS

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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
Excluding consumption of alcoholic beverages and
out-of-home consumption
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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 US32
  billion between 2005 and  2010

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Growth of Telecommunication Network (In Million)
Source TRAI
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Growth of Telecommunication Network (In Million)
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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.

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• 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.

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• 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.

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• 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