Indian Economy Overview

Indian Economy Overview

Indian Economy has been witnessing a phenomenal growth since the last decade. After seeing a growth rate in excess of 9 per cent for the last 3 Years, it is still holding its ground in the midst of the current global financial crisis.

Pegging India’s growth rate in the current Year at between 7 and 8 per cent economists have reiterated that India would continue being the second fastest growing economy in the world despite the ongoing global economic slowdown.

Though the global financial crisis have affected the Indian equity and foreign exchange markets, the macroeconomic brunt of the meltdown is not much due to the overall strength of the domestic demand and the largely domestic nature of its investment financing.

Further, according to the International Monetary Fund’s (IMF) prediction in October 2008, India is likely to grow at 7.8 per cent in 2008, and 6.3 per cent in 2009.

In spite of the global financial crisis, companies from developed economies such as Germany have shown confidence in India’s economic future and are interested in growing their business in the country.

Showing faith in India’s robust future, around 94 per cent German companies plan to increase their businesses with the subcontinent.

After the signing of the US-India civil nuclear deal, India will now be partnering several countries for nuclear fuel technology projects, and this will further boost the Indian Economy.

India and Russia signed 10 agreements in Dec 2008, including a pact on civil nuclear cooperation.

The 2008 – 2009 Fiscal

• In 2007 – 2008, India’s per capita income is estimated to be around US$ 740. Further, India’s per capita income is expected to increase to US$ 2,000 by 2016 – 2017 and US$ 4,000 by 2025. This growth rate will, consequently, propel India in to the middle – income category.
• Foreign institutional investments (FII) in India became positive in November 2008, after net selling by them in September and October 2008 due to redemption pressures from abroad.
  As per SEBI data, FIIs continued to flow into India with 120 new FIIs registering themselves during September and November 2008, since the global meltdown started in September.
  Even though some FIIs had pulled out, many FIIs see long – term value in India. Moreover, during the same period, 358 new sub – accounts were registered, which was the highest within three months, in 2008.
• In 2007 – 2008, India’s FDI touched US$ 25 billion, up 56 per cent against US$ 15.7 billion in 2006 – 2007.
  FDI equity inflows between April – September 2008 were US$ 17.21 billion, a growth of 137 per cent over the same period last Year.
• In the first half of the current fiscal, the money supply increased by 6.6 per cent against 8.2 per cent last Year (from end of March 2008 end to end of September 2008).
• The growth in the gross tax collection is was 25 per cent till September 2008, against 24.5 per cent in September 2007.
• Total foreign investment inflow during the first half of 2008 – 2009 was US$ 13.8 billion in September 2008.
• Exports during 2007 – 2008 grew by 23.02 per cent to total US$ 155.51 billion as against US$ 126.41 billion in the corresponding period last Year.
  The cumulative value of exports for the period between April – September, 2008 was US$ 94973 million compared to US$ 72556 million.

The Rural India Growth Story

The Indian growth story is spreading to the rural and semi – urban areas as well. In i08 the rural market has grown at an impressive rate of 25 per cent compared to the 7 – 10 per cent growth rate of the urban consumer retail market.

Further, the rural market will grow to a potential of US$ 1.9 billion by 2015 from the current US$ 487 million.

The rural India success story is being replicated across a range of sectors in the rural markets. After several global corporations like Microsoft, Intel, and Shell, many other major multinational companies (MNCs) and domestic players are keen to foray into the rural Indian market to capitalize on its growing opportunities.

Advantage 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 the world’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.
• 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. In June 2007, the aggregate deposits of commercial banks were about US$ 445 billion (50 per cent of GDP) and the total bank credit stood at US$ 320 billion (36 per cent of GDP).
  NPA (non – performing assets) levels of banks in India are under 3 per cent, one of the lowest among emerging nations.
• According to a study, India’s consumer market will be the worlds 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.

Growth Potential of India

• Special Economic Zones (SEZs) are set to see major investments after the straightening out of certain regulatory tangles. India has approved 513 SEZs till August 2008, of which 250 have been notified.
  Investments are expected to cross US$ 45.73 billion by December 2009, providing incremental employment to 800,000 people.
• India’s telecom services industry revenues are projected to reach US$ 54 billion in 2012, up from US$ 31 billion in 2008.
  India saw a 23 per cent increase in IP (Internet Protocol) addresses with 2.6 million connections in the third – quarter ended September 2008.
• The government is planning to set up a special corpus of around US$ 10.48 billion for infrastructure projects.
• The retail business in India is expected to grow at 13 per cent annually from US$ 322 billion in 2006 – 2007 to US$ 590 billion in 2011 – 2012.
  The unorganized Indian retail sector is expected to grow at about 10 percent per annum to reach US$ 496 billion in 2011 – 2012.
• India is likely to emerge as the next global hub for innovation and join the club of developed nations, with the country aiming to increase its research and development (R&D) expenditure in the coming Years.
  India is targeting to increase its R&D spend to two per cent of the GDP by 2012 under the 11th Five Year Plan, from less than one per cent earlier.
• Corporate India registered US$ 3.4 billion as mergers and acquisitions (M&As) during November 2008, as against US$ 850 million in November 2007. The figure stood at US$ 2.13 billion in October 2008.

Future Perfect

The Planning Commission has ruled out any changes in the average 9 per cent gross domestic product growth target of the 11th Five Year Plan, although there might be ‘some significant reduction in growth’ in 2009 as a result of the global financial crisis.

India offers huge investment opportunities in various sectors and investments are likely to pour into these sunshine sectors :

• The realty sector is likely to increase at the rate of 30 per cent annually during the next 10 Years, drawing US$ 30 billion as foreign investment.
• The Indian IT market is projected to see 18 per cent growth in 2008, touching US$ 38 billion.
• According to a McKinsey study, “The market size for the food consumption category in India is expected to grow from US$ 155 billion in 2005 to US$ 344 billion in 2025 at a compound annual growth rate of 4.1 percent”.
• According to the India Retail Report 2009, the Indian retail industry is likely to touch US$ 390.68 billion by 2010.
• The Indian pharmaceutical industry is projected to grow to US$ 25 billion by 2010 whereas the domestic market is likely to more than triple to US$ 20 billion by 2015 from the current US$ 6 billion to become one of the leading pharmaceutical markets in the next decade.
• Agricultural production is likely to increase significantly during fiscal Year 2009. Centre for Monitoring Indian Economy (CMIE) has projected a growth of 3.2 per cent during fiscal Year 2009, for the GDP of agriculture and allied sectors.
  This would be the fourth straight Year of positive growth in agricultural production, with the first 3 Years clocking an average growth of 5.5 per cent. The allied sectors comprising livestock, forestry and logging, and fishing are likely to see a growth of 4.8 per cent during fiscal Year 2009.

Trade Relations of India

India’s trade relations with several countries have received an impetus with the numerous bilateral pacts and trade agreements signed recently.

• The government is likely to sign a free trade agreement (FTA) with the Association of Southeast Asian Nations (ASEAN).
  With lower tariff barriers, trade between India and ASEAN is expected to increase significantly from the present US$ 28 billion annually.
• India – African bilateral trade is projected to grow by over nine times from US$ 26 billion now to US$ 150 billion by 2012, according to an estimate by a leading business chamber.
• Spain, which has a strong industrial base in the automotive and infrastructure sectors, has witnessed a five – fold increase in its investments in India in 2008.
  Spanish investment in India in the first three quarters of 2008 calendar Year was US$ 158 million (or 114 million euros) – an increase of 500 per cent from the previous Year.
• India has emerged as Dubai’s second biggest trading partner during the first nine months of 2008 with imports from India worth US$ 10 billion and re – exports to India worth US$ 8 billion.
• India and Turkey aim to double bilateral trade to US$ 6 billion by 2010.
• India and Singapore will be signing an agreement on IP rights’ cooperation. Singapore ranks fourth in terms of FDI in India during the period 1991 – 2008.
• India and Syria have signed a revised double taxation avoidance agreement for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income.
• The bilateral trade between UK and India has touched US$ 17.44 billion in 2007 – 2008. India’s economic ties with the UK are also through the 52 listed companies with a combined market capitalization of US$ 15.71 billion on the London Stock Exchange. In 2007 – 2008, Indian firms invested in 1,573 projects in the UK.
• India and Canada have set off ten joint initiatives worth US$ 17 million in the field of science and technology, and next – generation research.
• India has become the 10th largest trading partner of Australia, with bilateral investment touching US$ 2 billion.
• Non – Oil Bilateral trade between India and Oman in the first quarter of 2008 registered an impressive growth of 35 – 40 per cent.
• Italy is looking forward to widening business opportunities in India, especially in West Bengal. Bilateral trade between the two countries added up US$ 100 million in 2007.