Download Knowledge-driven Economy - Malaysian Institute of Accountants

National Accountants Conference 2005
“Doing Business in India”
R. L. Narayan
High Commissioner of India
Kuala Lumpur, 23 November 2005
Agenda
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Economic Overview
Knowledge-driven Economy
Financial and Credit Overview
Financial Markets
Government Policy – Reform Agenda
Macro-economic and Political Outlook
Trade and Investment Opportunities
India-Malaysia Trade and Economic Ties
Economic Overview
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Strong macro-economic fundamentals
Impressive sustained 7 to 8% growth in the economy
Double digit industrial growth rate
Increasing private sector driven economic growth – contributing
75% of the country’s industrial GDP
Economic resurgence largely attributed to the demands emanating
from over 300 mn strong new and steadily growing middle class.
India has irreversibly embraced globalization and competition
Overseas Indian investments have exceeded US$4 bn in the last
two years.
India’s GDP is likely to cross US$10 trillion by 2038 and US$27
trillion by 2050 making India the third largest economy in the
world after China and the US, according to the Goldman Sachs’
Report.
In terms of Purchasing Power Parity (PPP), India today is the
fourth largest economy behind3 USA, China and Japan.
Economic Overview Continued ….
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Exports registering over 20% annual growth; US$75 bn in
2004
Net aggregate profit of the top 1,500 Indian companies
increased by more than 150% over the last two years.
India’s forex reserves at US$131 billion is the 6th largest in the
world.
Services sector accounting for 50% of GDP, 25% of
employment and 40% of capital formation, continues its
upward spiral and is the economy’s prime mover.
Phenomenal growth in software and IT-enabled services sector
major contributor to India’s economic growth in recent years.
By 2008, Indian software exports are estimated to reach
US$50 billion, IT-enabled services US$17 billion and ecommerce US$17 billion.
Currently, 220 of the Fortune 500 companies outsource their
software related work to India.
The Bangalore Phenomenon
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Knowledge-driven Economy
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India, the world’s fastest growing knowledge-based economy
India’s demographic trends a source of great strength
550 million of India’s billion-plus population or over 55% are below
the age of 25
Although demographic growth rate is less than 2%, India’s work
force will continue to grow for another 20 years or beyond
India’s 300 universities, 2,000 research institutes and a strong
network of higher educational and technical institutions annually
produce over 7 million graduates, 300,000 non-engineering post
graduates, 200,000 engineers and some 9,000 PhDs
IT work force today is 650,000; projected to exceed 2 mn by 2010
Over 1 mn biotech professionals to be employed in next 5 years
According to Upnishads, “Pursuit of gyana is the greatest dharma”
“Knowledge management is not new to us!”
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Financial / Credit Overview
Moody’s long term foreign currency rating
Indian Prime Lending Rate (%)
Lending Rate (%)
16
14
16
15.5
15
14
13.5
14
A3
Baa1
12
13
12
12
11.5
11
10.5
10
10
8
Credit Score
18
Baa3
10
6
Baa3
8
B1
6
B2
4
B2
Caa1
2
4
0
2
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
0
Political risk score
76.5
74.0
80
68.0
66.5
63.5
70
60.5
60
50
57.0
52.5
51.5
42.5
40
30
20
10
58.0
55.0
51.0
45.0
50
43.0
42.0
40
38.0
30.0
30
20
In
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M
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ay
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o
Al
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ria
M
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Ru
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Ni
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Ec
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do
r
In
do
ne
si a
Vi
et
na
m
Al
ge
ria
In
di
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Ru
ss
ia
Ve
ne
zu
el
a
o
Vi
et
na
m
0
M
ex
ic
M
al
ay
s ia
62.0
10
0
7
60
68.0
Ec
ua
do
r
Ve
ne
zu
el
a
In
do
ne
si a
Ni
ge
ri a
80
70
Political Score
Political Score
90
Country Risk Score
India well-positioned versus other emerging market economies
Cost & Foreign Exchange Analysis
Inflationary Historical Evolution
Rs / US$ Historical Evolution
49.0
16
Onion crisis
14
48.0
47.0
12
10
46.0
Fuel Price Hike
8
45.0
6
44.0
4
43.0
WPI
Oct-04
Nov-04
Sep-04
Jul-04
Aug-04
Jun-04
Apr-04
May-04
Jan-04
Mar-04
Dec-03
Oct-03
Nov-03
Sep-03
Jul-03
Aug-03
Jun-03
Apr-03
May-03
Jan-03
Mar-03
Nov-02
FY05E
FY04E
FY03
FY02
FY01
FY00
FY99
FY98
FY97
FY96
FY95
FY94
FY93
FY92
41.0
FY91
0
Dec-02
42.0
2
CPI
• Rupee strengthening versus the
• Cost inflation on downward trend
US$
• Manufacturing labour costs continue
• 12-month US$ forecast of 43.00
to be competitive
• Expected due to increased
• Some upward pressure in service
•
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sector
Cost pressures from oil price
mitigated by customs duty / tax
reductions
remittances, software exports,
closure of informal remittance
channels
Indian Capital/Bank Markets
Overview
– Relatively strong capital market culture as
compared to other emerging markets
– $10 bn retail savings per annum
– Increasing Foreign Institutional Interest
 Cumulative investment of $27 bn amounting to
12% of market capitalization
 10% share of daily trading volumes on BSE &
NSE
– Growing access to international capital – average
overseas offerings of $1 bn/year overall $9 bn to
date
– Deepening bond and debt market
 Increasing liquidity and duration
 New investors classes emerging; private
sector mutual funds and insurance companies
– Capital Market development a Government priority
 Tax law changes to make equity investments
attractive
 Emergence of SEBI as a strong market
regulator
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Sources of Financing
– Capital and bank markets present an important
source of financing for mature Energy
businesses
 Capital markets accessed by several gas
distribution and power companies
(Indraprastha gas, GAIL etc)
 ONGC completed India’s largest secondary
offering in 2004 ($2.3 bn)
– Structured financing increasingly providing an
alternative funding source to Energy and
Infrastructure companies
 Petronet LNG refinanced its sponsor
guaranteed construction loan aggregating
$200 MM ( equivalent) in the domestic loan
market for its 5 MMTPA regassification
project
 Indian bank loan market has seen
securitisation of gas receivables and limited
recourse financings for the road sector
Government Policy – Reform Agenda
Key legislation
passed in
last two years
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Electricity Bill
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Asset Reconstruction and Securitization Bill (SRAFESI)
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Fiscal Responsibility and Budget Management
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Sick Industries Cos. Act changed to replace BIFR with the National Co. Law
Tribunal
Other
liberalisation
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New Telecom Policy – Unified License Scheme
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Continuation of tariff reduction – peak import tariff down from 25% to 20%
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Free Trade Agreement with Thailand; CECA with Singapore
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74% FDI ownership in banking permitted but restriction likely to change
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Equity market offering in 7 PSU’s raised US$3.5 bn between March – June
2004; offerings included GAIL, IPCL, Dredging Corporation Ltd, Power
Privatisation
New Reforms
Trading Corp., CMC, IBP and ONGC
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NTPC IPO also raised more than US$1bn in September 2004
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Implementation of VAT
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Source: India Economy Overview, 16th November 2004
Economic Overview –
a comparative analysis
GDP Growth (%)
GDP Growth (%)
10
9
8
7
6
GDP by Activity
100%
9.4
8.5
8.0
7.5
80%
7.0
7.0
6.0
4.8
5
4
3
5.0
5.5
5.0
5.5
60%
4.1 4.2
3.7
40%
2
1
0
20%
China
India
2004E
Indonesia
2005E
Malaysia
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FY80
going forward
Stable growth path expected to continue
Broad-based expansion
FY90
Agriculture
2006E
• Historically stable, steady GDP growth
• Attractive economic growth predicted
•
•
0%
Mexico
• Services
•
•
FY02
Industry
FY05E
Services
have
become
an
increasingly important part of the
economy
Manufacturing seeing a resurgence
(Auto, Engineering, Textiles)
Move toward service sector implies
higher margin / growing energy
needs
India’s Economic Scorecard
Performance Parameters
Forex Reserves
Current Account
Future Outlook
Good
Overall GDP External Debt
Service sector growth
Financial Reforms Savings
New investments Inflation
Industrial Growth
Economic Reforms
Internal Debt
FDI flows
Fiscal Deficit
Agricultural Growth
Bad
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Current performance
Good
Economic Outlook for 2005-06
Key Highlights
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Lower agricultural growth in FY05 is likely to result in headline GDP growth of
around 6% to 7% compared with 8% in FY04-05
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Given the changing composition of GDP and continuation of key growth
drivers, however, the India story is fundamentally strong, and non-farm
growth should average 7% plus in the coming years
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In 2005-06, we could see more investments taking place - in both
infrastructure and corporate capex
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Consumption-led growth coming mainly from the urban centers, led by high
growth in the service sector, the spread of consumer credit and outsourcing
jobs are also likely to be key drivers in 2005-06
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Relatively range-bound currency and interest rates should also help
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Potential risks include the continuation of high oil prices or the re-occurrence
of a severe EL Nino, which could affect agriculture growth even in FY06
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Energy Demand
Historic and Forecast India Energy Consumption
Per Capita Energy Consumption (2002)
1,800
400
1,606
1,600
350
1,400
1,022
1,000
767
800
600
438
333
400
267
200
200
67
Primary Energy Consumption
1,278
1,200
Mmboe
339.1
300
250
191.1
200
149
150
97.1
100
48.7
133
33.3
50
13.3
0
• India’s energy consumption expected
to grow at the second fastest rate
after China, at 2.3%
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Source: EIA
In
di
a
Ch
in
a
Br
az
il
Gas
0
W
es
te
rn
Oil
2020
M
al
ay
s ia
2015
Eu
ro
pe
2010
Ru
ss
ia
2000
US
1990
• India’s population of c. 16% or world
population represents less than 2%
of energy consumption
Longer Term Outlook
FDI Policy
Foreign investment will be actively
sought in the Energy, Infrastructure
& Logistics sector
Globalisation
Tariff barriers and controls
to be increasingly eliminated,
full currency convertibility likely in three
years
Financial Sector
Poised for
changes. New
investor class in Insurance
Companies, Mutual Funds
Universal Banks, Pension
Funds
Consumer Finance
Growth
Availability of cheaper
credit to increase
penetration, to drive
consumption-led growth
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Expected Drivers
Over Next 5 Years
Capital
Markets
The capital markets to be the
main source of funding for the economy.
Deepening of debt markets
is a priority with the RBI.
Infrastructure
Infrastructure spending to
drive credit growth
Trade and Investment
Opportunities
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Several recent initiatives announced by Government of India
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A liberal, transparent and investor-friendly FDI Policy
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Up to 100% investment allowed in most sectors under the
Automatic Approval Route, including infrastructure, power,
roads, highways, ports, pharmaceuticals, housing, transport
sectors etc., to name a few
Sectors offering promising investment prospects include the
manufacturing sector (apparel industry, auto-components,
electrical and electronic products and specialty chemicals),
infrastructure sector (estimated to absorb US$150 billion FDI
in the next 10 years), tourism, etc.
Requirement Investment Climate
– Substantial Infrastructure
GoI Infrastructure Investment projected up to 2012
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Energy
Other
Power Generation
$143 Bn
Power T & D
$116 Bn
Oil & Gas
$100 Bn
Roads
$40 Bn
Refineries
$22 Bn
Coal
$26 Bn
LNG Terminals
$10 Bn
Ports
$20 Bn
Cross Country
Pipelines
$10 Bn
Railways
$15 Bn
Energy a key focus for investment requirements, Infrastructure / “enabling” investment also important
Our Value Proposition
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India has a large pool of English-speaking technicians. There are
more English-speaking Indians than the English!
We offer abundant availability of intelligent skilled people, with 7
million fresh graduates every year
We have half of world’s CMM Level 5 companies
We have the largest number of listed companies in the world:
8,000
We have the 3rd largest shareholding population in the world
Cost of labor in India is 20-30% of total cost as compared to 7080% at developed nations
And, finally, India’s USP and biggest assets are its vibrant
democracy and the well-established rule of law
India-Malaysia Trade and
Economic Relations
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Malaysian business community has a unique advantage in economically
engaging India in a sustained manner
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Indissoluble historical and cultural links - over 2 million Persons of Indian
Origin in Malaysia
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Malaysia is India’s second largest trading partner in the ASEAN; two-way
trade in 2004 was US$4.3 billion. Both countries now moving on a fast
track towards a Comprehensive Economic Cooperation Agreement (CECA)
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Malaysian companies actively involved in national highway and other
infrastructure development projects in India
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Malaysia well-positioned to take advantage of the numerous infrastructure
development projects to be implemented in India during the next decade
“Prospects are indeed exciting. Time to leverage our respective strengths,
synergize our mutual complementarities and build a strategic economic
partnership!”
The Way Forward……
“Your country and mine
are positioned at that
opportune point where
our mutual economic
self-interests converge
and collude strongly,
and collide not at all.”
- Dato’ Seri Abdullah Ahmad Badawi
Prime Minister of Malaysia
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Thank You