Download - Chicago 10 oct2007
Macro Business Environment in India &Opportunities for Investment
Gopal KrishnaChicago , October, 2007
Largest Democracy
3
Stable Democratic System
Sub-continental Nation – Religious, Ethnic & Linguistic diversity
Federal structure:
– 28 states
– 18 languages
Multi-party system:
– Changes in government through elections both at Centre and state levels
– Coalition governments at Centre for over 10 years
– Strong independent judicial system
– Free vibrant, strong media (mushrooming growth in print as well as electronic
media)
4
Stable Democratic System
Gradual liberalization
Industrial licensing dismantled
Trade liberalization – tariff/tax reduction
Opening up of FDI
Government regulation to facilitation
Closed economy
Centralized planning
Government permission necessary for Setting up industrial plant
Import of capital goods / technology
Expansion of capacity
Key sectors of economy reserved for public sector only
1990s
Completion of integration with global economy
Financial/capital markets reforms as consolidation
Tariff down to 10%.
To reach ASEAN levels by 2010
Bilateral Comprehensive Economic Partnership Agreements with EU, Japan, ASEAN etc in pipeline
2000-2005Prior to 1990s
Democracy
– Gradual incremental policy changes
– Broad consensus across parties and civil society.
India - a strong and vibrant economy
6
Macroeconomic stability
Trends in Inflation- WPI (%YoY)
Forex Reserves (USD bn)
Steady increase in forex reserves.
Moderate inflation over last few years
5.8 6.420 22
3242
75
141
192
220
0
50
100
150
200
250
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
FY08 (till A
ug)
13.7
4.45.4
0
2
4
6
8
10
12
14
16
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
Source: Reserve Bank of India, CMIE
%
7
Economy – high growth rates
Robust GDP growth
Real GDP growth (%)
5.3
9.4
01
2345
6
78
9
10
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
7
5.15
10.9
11
0
2
4
6
8
10
12
14
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
Industry growth (%) Services growth (%)
Source: Reserve Bank of India, CMIE
(%)
8
Economy – high growth rates leading to increasing FDI
Increasing FDI trend
Source: RBI, DIPP Source: Reserve Bank of India
USD
mill
ion
97
15726
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
Svgs & Cap Formation % of GDP ( Current prices)
23.126.3
33.832.4
05
10152025303540
Goss domestic savings Gross domestic capital formation
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
9
Source: Reserve Bank of India
Trade liberalization – reduction in tariffs
Despite a secular reduction in peak tariffs, the tax to GDP ratio is still showing an upward trend
Trend in Peak Custom Duty
ASEAN levels committed to be reached by 2010(%
)
14.213.38
14.52
16.95
15.43
12
13
14
15
16
17
18
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY 9
8
FY 9
9
FY 0
0
FY 0
1
FY 0
2
FY 0
3
FY 0
4
FY 0
5
FY 0
6
FY 0
7
Tax/ GDP ratio
(%)
150
110
85
6550 45 40 35 30
2012.5 10
0
20
40
60
80
100
120
140
160
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
Source: Reserve Bank of IndiaSource: FICCI conference, March 14 – 15 th 2007
10
Capital Markets playing an increased role in the economy
Improving ratio of market cap / GDP
Equity Market Reforms
SEBI – Independent Regulator
Corporatization and Demutualisation Scheme of 19 stock exchanges to make them “for profit” entity : FDI flow started in BSE , NSE
Screen-based nation-wide trading
Scripless settlement
Electronic transfer of securities
Market Capitalisation as Percent of GDP (As at end-March))
Source: Reserve Bank of India
India’s market cap to GDP ratio crossed 100% this fiscal year
FII Investments U
SD
Bill
ion
4 mn
1.6 1.52 2.4
1.72.3 2.2 1.8
0.6
10 10.29.3
-0.4
-2
0
2
4
6
8
10
12
FY93
FY94
FY95
FY96
FY97
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
%
19.54
54.2
3326.8 23.3
43.4
86.5
0102030
4050
6070
8090
100
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
Source: Reserve Bank of India, SEBI Handbook
11
Credible independent Central Bank Sound professional management
High Degree of autonomy of India’s Central Bank
Macroeconomic stability - Stable currency
Rupee exchange rate
Source: RBI
( IN
R /
US
D)
INR/ USD
17.94
31.3935.47
42.0447.68 45.94 45.29
0
10
20
30
40
50
60
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
12
Developments in Banking Sector
Banking business growing consistently
– Deposits grew by 17% CAGR
(1998-06)
– Advances grew by 21% CAGR (1998-06) Source: RBI
Deposits
Advances598,
485
2,109,04932
4,07
9
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
1998 1999 2000 2001 2002 2003 2004 2005 2006
INR
Cro
re
Banking Business growing over the years
14.412.7
11.4 10.48.8
7.25.1
3.3
02468
10121416
1998 2000 2001 2002 2003 2004 2005 2006
Gro
ss N
PA
(%)
Gross NPAs declining trend
Improved banking governance exhibited by declining Gross NPAs
Market share in outstanding credit
March 31, 1996 March 31, 2006
9%
9%
82%21%
6%
73%
PSU Banks
Private Sector Banks
Foreign Banks
Share of private sector banks increased from 9% in 1996 to 21% in 2006
Going Forward
14
Going forward
Source: Goldman Sachs, Global Economic Paper No 152, 22 January 2007
India’s GDP (in US$ terms) will surpass that of the US before 2050, to make it the second largest economy
Goldman Sachs has revised its timelines for India’s GDP exceeding the G6’s GDP
New IndiaProjection
Italy France/UK Germany Japan US
Cars indicate when Indian US$GDP exceeds that of the Country
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Investment Opportunities
16
Investor-friendly, liberal open-market economy
Source: Reserve Bank of India
Government is focused on improving the business and investment environment
– No licensing required, except in five sectors
– 100% FDI permitted in manufacturing (except atomic energy)
– 100% FDI permitted in most service sectors
– Investments, dividends, fees are freely repatriable
– Foreign investments allowed in capital markets
• State Government compete for Investor Friendly Image
17
Large skill and intellectual capital base
Investor-friendly, liberal open-market economy
Strong emphasis on human resource development
– Skills missions being launched
– Up gradation of workers training
– Increased public spending in Education and health
Over 2.5 million graduates added every year
– Most of them English-speaking
– 300,000 Engineers
– 150,000 IT professionals
18
Firms in India – globally competitive
69% of survey respondents report higher profitability averages in India than they do globally
RoE (2007) (%)
Taiwan
Thailand
Singapore
Philippines
Malaysia
Korea
India
Indonesia
Hong Kong
China
1.0
1.5
2.0
2.5
3.0
3.5
4.0
P/B
(200
7) (x
)
12 1 4 1 6 1 8 2 0 2 2 2 4 2 6 2 8
India’s ROE quite high relatively
Source: Prowess, CLSA Asia-Pacific Markets
P/B = Price to Book value
91 percent of MNC’s make profits in India compared to 45- 50 percent in China
19
Indian firms seek global reach
Tata Steel bought Corus Plc
Hindalco acquired Novelis Inc.
Suzlon Energy Ltd. acquired REpower
Dr. Reddy’s acquired Betapharm
United spirits acquired W&M
USD 12.1 billion
USD 6 billion
USD 1.6 billion
USD 0.5 billion
USD 0.5 billion
Acquisition made Tata Steel world’sfifth largest steel producer globally
Acquisition made Hindalco the world's largest aluminum rolling company
Acquired German’s third largestgeneric companies
Acquisition made United Spirits world's second largest spirit company
Acquisition made Suzlon world's third largest wind power company
20
MNCs finding location of R&D in India : Increases global competitiveness
India- Attractive location for R&D
Large R&D facility of major MNCs
– Microsoft
– IBM
– ADOBE
– SAP
– Sony Ericsson
– Dell
– The DaimlerChrysler
– Boeing
– Texas Instruments
Infrastructure Opportunities
22
Infrastructure Opportunities : Indian Telecom Industry
Growth of Indian telecom (wireless) sector…..
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2007
(YTD
)
2010
E
1 2 3 4 6 1333 52
96
166193
417
0
50
100
150
200
250
300
350
400
450
Mob
ile s
ubsc
riber
s in
mn
And participated by global majors …..success stories
Aircel Limited Maxis Communications 74
Tata Tele Temasek Holdings 9.9
Hutchison Essar Vodafone 67
Spice Telecom Telekom Malaysia 49
Bharti Airtel SingTel 35
Direct stake (%)InvestorsCompany
Source: Credit Suisse, Press, Analyst Reports, TRAI
23
Infrastructure Opportunities : Indian Telecom Industry (contd.)
Effec
tive
Mob
ile T
ariff
s (Rs
/min
)
Mobile Subscribers Base (m
illions)
NTP-99
3rd & 4th Cellularoperator
7.2
3.14.2
3.11.9
1.2
14.515.3
10.9 1.2 1.9 3.6 6.4
12.8
33.3
51.5
89.5
147
0
2
4
6
8
10
12
14
16
18
Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Dec-060
20
40
60
80
100
120
140
160
0.9
Lowering of ADC from 30% to 10% of Sector Revenues
Effective mobile tariff
Mobile Subscriber Base
WLLIntroduced
led by conducive regulatory framework……
Going forwards – key issues …..
• Adequate availability of spectrum - A constrain in India
• Infrastructure requirement - 350,000 telecom towers by 2010, as against 125,000 in 2007
• To achieve 500 mn subscribers base by 2010 will require significant investment in telecom equipment manufacturing space
24
Infrastructure Opportunities : Civil Aviation
Delhi-Mumbai being modernized through PPP
New private international airport at Bangalore, Hyderabad become operational- 2008
USD 85 bn to develop Airport infrastructure
Boeing and Airbus have a combined order book of 400 aircraft from India at present
25221917
7050
4032
32
23.721.5
11.6
01020304050607080
2003-04 2004-05 2005-06 2006-0705101520253035
International Domestic % Growth
Units
Units
Airlines Sector Performance
25
Infrastructure Opportunities : Power / Roads / PortsInfrastructure: USD 475 bn in investments planned in next five years
Power
Energy shortage at 7.7% / Peak shortage of 12.3%
Ongoing projects: 52000 MW: Investment US$ 60 bn
Private Ultra Mega Power Projects (4000 MW / USD 4 bn each) thr’ Competitive Bids
Roads
Annual growth 12 -15% in passenger traffic and 15 -18% for cargo
Investment Opportunities US $ 30 billion till 2012
Ports
960 million tonnes of traffic by 2013-2014
7.7 % p.a. growth expected in cargo handling till 2013-2014
Investment opportunities: US $ 20 bn till 2012
26
Roads, 63
Ports, 8
Civil Aviation, 2
Urban Infrastructure,11
Railways, 2
Number of projects
Railways,0.10
Urban Infrastructure,0.22
Civil Aviation, 0.42
Ports,4.65
Roads, 2.99
Estimated Value
(USD Billion)
PPP Projects Awarded
Source : Ministry of Commerce, Government of India
Source: World Bank report and PPPinindia.com
– the study did not include Power sector
Public – Private participation being encouraged
Significant plans to improve the country’s infrastructure
Thank You
www.dipp.gov.in