Download State of Indian Economy

Indian Economy
January 2011
Agenda
 India’s recent economic performance
 Global economic crisis – Impact, response & results
 Current economic challenges
 Near term economic outlook
 India as an investment destination
India’s recent economic performance
2003-04 to 2007-08 : Strong growth
GDP growth in %
IIP growth in %
12.0
14.0
9.0
7.5
10.0
5.8
4.4
8.0
3.8
4.0
11.6
12.0
6.0
8.2
8.5
7.0
5.7
5.0
4.0
2.0
8.4
2005-06
8.5
8.0
2.7
2.0
0.0
Average growth GDP : 8.8%
2007-08
2006-07
2003-04
2002-03
2001-02
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
0.0
2000-01
6.0
9.7
2004-05
9.5
10.0
Average growth IIP : 8.7%
India’s recent economic performance
2003-04 to 2007-08 : Strong growth
Foreign trade in $ Mn
Foreign investments in $ Mn
300000
40000
35000
250000
30000
200000
150000
100000
50000
0
25000
Exports
Imports
20000
15000
10000
FDI
Portfolio
Investment
5000
0
Average growth FDI : 56.2%
Average growth Exports : 25.4%
Imports : 32.7% Portfolio Investments on the rise
India’s recent economic performance
2008-09 and 2009-10 :
Moderation in growth followed by recovery
Impact of global crisis on India was through two channels –
Real channel and financial channel
18
16
GDP growth in 2008-09-6.7%
GDP growth in 2009-10-7.4%
16.1
14.5
14
13.0
12
10
7.8
8
9.2
7.5
8.6
6.1
6
6
5.8
4
0
8.9
8.8
8.5
6.5
5.8
4.9
2
8.6
3.4
0.5
0.3
Q1 08-09 Q2 08-09 Q3 08-09 Q4 08-09 Q1 09-10 Q2 09-10 Q3 09-10 Q4 09-10 Q1 10-11 Q2 10-11
Year of global crisis
Recovery on course
GDP
Manufacturing
India’s recent economic performance
2008-09 and 2009-10 :
Moderation in growth followed by recovery
Impact of global crisis on India was through two channels –
Real channel and financial channel
80
60
40
20
Exports
Imports
-40
-60
Exports saw negative growth for 13 months
Growth in imports also weakened
Nov'10
Oct'10
Sept'10
Aug'10
Jul'10
Jun'10
May'10
Apr'10
Mar'10
Feb'10
Jan'10
Dec'09
Nov'09
Oct'09
Sep'09
Aug'09
Jul'09
Jun'09
May'09
Apr'09
Mar'09
Feb'09
Jan'09
Dec'08
Nov'08
Oct'08
Sep'08
Aug'08
Jul'08
Jun'08
-20
May'08
0
India’s recent economic performance
2008-09 and 2009-10 :
Moderation in growth followed by recovery
Impact of global crisis on India was through two channels –
Real channel and financial channel
40000
30000
20000
10000
Nov'10
Oct'10
Sept'10
Aug'10
Jul'10
Jun'10
May'10
Apr'10
Mar'10
Feb'10
Jan'10
Dec'09
Nov'09
Oct'09
Sep'09
Aug'09
Jul'09
Jun'09
May'09
Apr'09
Mar'09
Feb'09
Jan'09
Dec'08
Nov'08
Oct'08
Sep'08
Aug'08
-10000
Jul'08
0
-20000
-30000
FDI
Portfolio Investments
Total foreign Investments
FDI has been largely stable; Portfolio flows have shown volatility
impacting exchange rate and stock market
India’s response to the crisis
As a result of the global crisis there was…
 Moderation in export growth, which eventually turned negative
for 13 months beginning October 2008
 Both industrial production and GDP growth lost some
momentum
 Sell off pressure from the foreign institutional
investors affecting stock market and exchange rate
To cushion economic activity both government and RBI came out
with a series of measures
 Fiscal measures – 3 stimulus packages were announced in quick
succession (Dec ‘08, Jan’09 and Feb’09) with various elements
 Monetary measures – RBI introduced cuts in key policy
rates, injected liquidity in the system, relaxed ECB norms
India is returning to the pre-crisis growth trajectory
Current economic challenges
While India is moving back to its pre-crisis growth
trajectory, a significant pressure point in the economy is
 Inflation
o Headline inflation in Dec 2010 was 8.43%
o Getting generalized. Price rise phenomenon is
extending from primary goods to non-food manufactured goods
 Inflation is hurting
o Common man – Household budgets have been hit with prices of
cereals, pulses, fruits & vegetables, milk, edible oil increasing
o Industry – Raw material prices are increasing at a fast
clip, companies renegotiating long term wage contracts
 Inflation is the result of both supply shocks and policy shocks
Near term economic outlook
Macro
variable
2010-11
Forecast
Factors to look out for
GDP
growth
8.5%
Still uncertain global environment. Question over
growth trajectory of EU, USA and China (-)
India’s high fiscal deficit (-)
Investment demand remains robust (+)
Normal monsoon (+)
Industrial
growth
10%
Domestic demand is holding at strong levels (+)
Normal monsoon (+)
High inflation could moderate real wages and
consumption (-)
Aggressive monetary tightening by RBI (-)
Inflation
6% by
March
2011
Normal monsoon (+)
Restrictive monetary policy (+)
Slow global growth could cap commodity prices (+)
Base effect (+)
Deregulation of diesel prices (-)
Near term economic outlook
Macro
variable
Exports
2010-11
Forecast
$ 216 billion
against
$ 176 billion in
2009-10
Factors to look out for
Still uncertain global environment (-)
Diversifying trade destinations. Latin America,
Asia, Africa could reduce downside risks (+)
Talks for greater engagement with Japan, EU
etc. (+)
Foreign
FDI – $ 50 billion Strong macro fundamentals. Resilient economy
investments against $ 31.7
(+)
billion in 2009-10 Continuation of accommodative monetary
policies in developed countries (+)
Portfolio inflows - Shock emanating from EU to financial markets
$ 25 billion
could increase risk aversion towards EMEs (-)
against $ 32.4
billion in 2009-10
India as an investment destination
Huge Domestic Market
India’s market potential is yet to be fully tapped
Middle Class – Annual Income of Rs. 2 to 10 lakh
2005
5% of the
population
comprised the
middle class
2025
41% of the
population would
comprise the middle
class
Source: McKinsey Global Institute
RURAL MARKET – Lent
support to companies
during the crisis period
YOUTH MARKET – Young
nation , high awareness
levels , driving demand
in urban centres
With income level rising,
discretionary spending
will increase – INDIA TO
BE THE 5th LARGEST
CONSUMER MARKET BY
2025
India as an investment destination
Human Capital
Demographic Dividend
India is among the world’s
youngest countries
Median age would be 25 years
even in 2025
Over 60
6.9%
India has third largest pool of
scientific and technical manpower
in the world
Between 15-59
58.7%
0-15 years
Large English
Speaking
Population
34.3%
Strong
Intellectual Base
India as an investment destination
Cost Competitiveness
Source : Prices and Earnings 2009, UBS
India ranked FIRST in
AT KEARNEY Global Services Location Index 2009 &
AT KEARNEY Global Retail Development Index 2009
India as an investment destination
Pro Investment Environment
 Government taking all steps to improve investment environment
FDI Policy
 Share of FDI approvals through automatic route increased from an average
21.6% during 2000-03 to 71.6% in 2008
 Consolidated FDI Policy announced in March 2010
 6 discussion papers dealing with issues like FDI in defense, in retail, voting
rights in banks in line with shareholding to be released - Defense and retail
papers are already out and stakeholder consultation in going on
SEZ Policy
 India is the first promoter of Export Processing Zones in Asia.
 Asia’s first EPZ set up in Kandla, 1965
 Today there are 575 formally approved SEZs in India with total investment of
Rs 1,28,390 crore and total employment of 4,89,831 as on December 31, 2009
 Last year SEZs accounted for about a quarter of India’s total exports
India as an investment destination
Investments in Infrastructure
 Government committed to overcome ‘Infrastructure Deficit’
 Investment in infrastructure in past five years doubled from 4% to 8% of GDP
 The Eleventh Five Year Plan (2007-12) target of US$ 500 billion investment
in infrastructure will be met. US$ 1 trillion investment proposed for 2012-17
Goods and Services Tax : April 2012
 Introduction of GST will lead to uniformity in tax regime and will lead to ONE
INDIA MARKET
New Direct Tax Code : April 2012
 Will do away with exemptions and bring down tax rates
India as an investment destination
India’s Global Integration
 13
Free Trade Agreements and Preferential Trade Agreements signed –
ASEAN, Sri Lanka, Singapore, South Korea, Thailand, Chile etc
 Talks for greater engagement with countries such as Japan, EU ongoing
 These have a stimulating effect
on foreign investments by increasing the
size of the potential market. These offer opportunities for achieving
greater economies of scale
 You can have access to a wider resource base and new business
opportunities
India as an investment destination
Sectors to look out for
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Infrastructure
Defense
Pharmaceuticals
Entertainment
Auto and auto ancillary
Telecommunications
Agriculture
Healthcare
Education
Real Estate
Thank you
FICCI
Federation House, 1, Tansen Marg, New Delhi – 110001
[email protected]
www.ficci.com