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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: [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 Healthy macroeconomic fundamentals Fiscal deficit India's Gross Fiscal Deficit to GDP ratio (%) 7 6 5 4 3 2 1 0 4.8 199798 5.1 199899 5.3 5.6 6.2 5.9 4.5 199900 200001 200102 200203 200304 4.1 4.1 2004- 200505 06 (RE) (Prov) 3.8 200607 (BE) Source – Reserve Bank of India Healthy macroeconomic fundamentals External debt External debt to GDP ratio (%) 35 30 28.7 25 21.1 20.4 20 17.8 17.3 2003-04 2004-05 15.8 15 10 5 0 1990-91 2001-02 2002-03 2005-06 Source – Reserve Bank of India Healthy macroeconomic fundamentals Forex reserves (All figures are in US$ billion) 180 165.4 160 146 140 120 100 80 54.1 60 40 20 17 2.2 0 1990-91 1995-96 2001-02 2005-06 18-Aug-06 Source – Reserve Bank of India Healthy macroeconomic fundamentals Inflation 10 (All figures are in %) 8.7 7.2 8 5.4 6 4.4 4 2 0 1992-98 2000-01 2003-04 2005-06 Wholesale price index Source – Reserve Bank of India Composition of GDP (All figures are in %) 1990-91 1995-96 2000-01 2005-06 Agriculture 32 28 24 20 Industry 27 28 26 26 Services 41 44 49 54 Source – Reserve Bank of India External trade (All figures are in US$ billion) 300 240 250 200 150 100 50 18 24 42 69 32 37 140 100 96 45 51 0 1990-91 1995-96 Exports Imports 2000-01 2005-06 Total trade Source – DGCI&S Foreign investments (All figures are in US$ billion) 25 19.7 20 12.5 15 10 5 2.1 2.7 4.8 5.9 3.3 7.2 2.6 0 1995-96 2000-01 Foreign direct investment 2005-06 Portf olio investments Total f oreign investment FDI in 2006-07 is expected to touch US$ 12 billion Source – Reserve Bank of India Calibrated globalization Reduction in import tariffs Liberalization of FDI regime Fully convertible current account Moving towards fuller account convertibility capital Complying with WTO norms to plug into the global economy Calibrated globalization Reduction in collection rates Customs duty collection rate (Import revenue / Value of imports) 50 47 Percent 40 29 30 22 21 20 16 15 14 12 200102 200203 200304 200405 10 0 199091 199596 199900 200001 Source – Economic Survey 2005-06 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 Liberalization of FDI policy in India 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 More sectors opened; equity caps raised; conditions relaxed Buoyant corporate performance 38.9 40 35 30 26.6 25.2 25 16.6 20 5 15.4 14.4 15 10 16.8 11.2 8.6 10.8 9.9 0.8 2.4 0 -1.1 -5 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 Distribution of households by annual household incom e 1989-90 to 2009-10 100% 80% 14.2 28 27 60% 42 48.4 37.4 40% 36.3 36 58.8 20% 34.6 21.7 15.6 2005-06 (Est.) 2009-10 (Proj.) 0% 1989-90 Below US$ 1000 ( Low) 2001-02 US$ 1000 - US$ 2000 ( Lower middle) Above US$ 2000 ( Middle high) Total number of households to increase from 188.2 million in 2001-02 to 221.9 million by 2009-10 Source – NCAER 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 Penetration rates for non-durable products 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 Source – Morgan Stanley Large intellectual capital base Annual additions to the stock of science and engineering graduates 750000 700000 690000 650000 600000 530000 550000 470000 500000 420000 450000 400000 350000 350000 300000 India C hina J a pa n US A E uro pe a n c o m m unit y Source – Morgan Stanley 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 competitiveness Average annual pay for various jobs in India and China (US$) Position India China HR manager 15,100 32,000 Marketing manager 14,300 25,800 Project manager 10,000 23,400 Software developer 10,300 13,400 Financial analyst 8,400 13,200 Accountant 5,700 9,000 Sales representative 4,700 5,100 Production worker 1,900 2,300 Source – FICCI Compilation Sectors with Potential 1. Automobiles and auto ancillary 2. Information technology and IT enabled services 3. Food processing 4. Telecommunications Automobiles and Auto ancillary Largest three wheeler manufacturer in the world Second largest two wheeler manufacturer in the world Third largest car market in Asia Fifth largest commercial vehicle manufacturer in the world All major MNC auto companies present – Daimler Chrysler, Suzuki, Ford, Fiat, Hyundai, General Motors, Volvo, Yamaha, Mazda India exports automobiles to critical markets Automobiles and Auto ancillary India's automobile sector - Trends Number in million 12 10 8 6 4 2 0 2001-02 2002-03 2003-04 2004-05 2005-06 Automobile production 5.32 6.28 7.24 8.46 9.74 Automobile domestic sales 5.23 5.94 6.91 7.9 8.91 Automobile exports 0.18 0.31 0.48 0.63 0.81 Auto production includes commercial vehicles, passenger vehicles, two and three wheelers Source – Society of Indian Automobile Manufacturers (SIAM) Automobiles and Auto ancillary Production CAGR 2001-02 to 2005-06 Domestic Sales CAGR 2001-02 to 2005-06 Exports CAGR 2001-02 to 2005-06 Commercial Vehicles 24.5% 24.3% 35.9% Passenger Vehicles 18.2% 14.1% 34.8% Two Wheelers 15.5% 13.8% 48.9% Three Wheelers 19.5% 15.8% 49.3% All Automobiles 16.3% 14.3% 44.6% Source – FICCI computation based on data provided by SIAM Automobiles and Auto ancillary The growth of the automobile industry has been accompanied by growth in the auto components industry Indian auto component manufacturers are today globally competitive and are making significant inroads in the global market 2001-02 2002-03 2003-04 2004-05 2005-06 Output ($ 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) 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 R&D hub Source – Industry Estimates 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, revenues witnessed a growth of 24% domestic Information technology and ITeS 35 29.6 30 22.5 25 20 15 13.3 10 10 4.6 6.3 3.1 4 5 4.8 6 0 IT services exports ITES-BPO exports ES+products exports 2004-05 All figures are in US$ billion Domestic market Total market size 2005-06 Source – NASSCOM IT-ITeS exports projected to reach US$ 60 billion by 2010 Information technology and ITeS Look at India for Software product development Embedded software Offshore product development / R&D outsourcing IT application solutions ITeS 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 Food Processing - Projections 2003-04 ($ 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 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 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 40.8 123.4 (Till Aug) Source – TRAI Growth of Telecommunication Network (In Million) 180 160 140 120 100 80 60 40 20 0 140.2 76.2 45.6 164.2 98.1 54.5 2001- 2002- 2003- 2004- 2005- 200602 03 04 05 06 07 (Till Aug) Total Phones 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