EMERGING MARKETS-INDIA

India country profile■ India is the world's largest democracy and

according to UN estimates, its population is expected to overtake China's in 2028 to become the world's most populous nation.

■ As a rising economic powerhouse and nuclear-armed state, India has emerged as an important regional power.

■ But it is also tackling huge, social, economic and environmental problems.

■ Home to some of the world' s most ancient surviving civilizations, the Indian subcontinent - from the mountainous Afghan frontier to the jungles of Burma - is both vast and diverse in terms of its people, language and cultural traditions.

India country profile (contd.)

Characteristics of the Indian EconomyLow per capita income■ In India, the national income and per capita income is very low and it

is considered as one of the basic features of underdevelopment. ■ As per World Bank estimates, the per capita income of India stood at

only $ 720 in 2005. ■ Keeping aside a very few countries, this per capita income figure of

India is the lowest in the world and it is even lower than China and Pakistan.

Excessive dependence of agriculture and primary producing■ Indian economy is characterised by too much dependence on

agriculture and thus it is primary producing. ■ Out of the total working population of our country, a very high

proportion of it is engaged in agriculture and allied activities, which contributed a large share in the national income of our country.

■ In 2004, nearly 58 per cent of the total working population of our country was engaged in agriculture and allied activities and was contributing about 21.0 per cent of the total national income.

High rate of population growth■ In India, the rate of growth of population has been gradually

increasing from 1.31 per cent annually during 1941-50 to 2.5 per cent annually during 1971-81 to 2.11 per cent annually during 1981-91 and then finally to 1.77 per cent during 2001-2011.

■ The prime cause behind this rapid growth of population is the steep fall in its death rate from 49 per thousand during 1911-20 to 7.1 per thousand in 2011.

■ On the other hand, compared to its death rate, the birth rate of our population has gradually declined from 49 per thousand during 1911-20 to 21.8 per thousand in 2011.

Existence of chronic unemployment and under-employment■ During the 5 year period of 1990-95, new entrants to the labour force

are estimated to be around 37 million. ■ To put it in another way we can guess that total burden of

unemployment during this Eighth Plan would be around 65 million which is a matter of serious concern for the economy of our country.

■ The incidence of unemployment on CDS basis increased from 7.31 per cent of labour force in 1999-2000 to 8.28 per cent of labour force in 2004-05.

Poor rate of capital formation

■ Capital deficiency is one of the characteristic features of the Indian economy.

■ Both the amount of capital available per head and the present rate of capital formation in India is very low.

■ Consumption of crude steel and energy are the two important indicators of low capital per head in the under-developed countries like India.

Inequality in the distribution of wealth■ Another important characteristic of the Indian economy is the mal-

distribution of wealth: ■ The report of the Reserve Bank of India reveals that nearly 20 per

cent of the households owing less than Rs 1000 worth of assets possess only 0.7 per cent of the total assets.

■ Moreover, 51 per cent of the households owing less than Rs 5000 worth of assets possessed barely 8 per cent of the total assets.

■ Lastly, the top four per cent households possessing assets worth more than Rs 50,000 held more than 31 per cent of the total assets.

Low level of technology

■ Prevalence of low level of technology is one of the important characteristics of an underdeveloped economy like India.

■ The economy of our country is thus suffering from technological backwardness.

■ Obsolete techniques of production are largely being applied in both the agricultural and industrial sectors of our country.

Under-utilisation of natural resources■ In respect of natural endowments India is considered as a very rich

country. Various types of natural resources, viz., land, water, minerals, forest and power resources are available in sufficient quantity in the various parts of the country.

■  A huge quantity of mineral and forest resources of India still remains largely unexplored. Until recently, India was not in position to develop even 5 per cent of total hydropower potential of the country.

Lack of infrastructure

■ Lack of infrastructural facilities is one of the serious problems from which the Indian economy has been suffering till today.

■ These infrastructural facilities include transportation and communication facilities, electricity generation and distribution, banking and credit facilities, economic organisation, health and educational institutes etc.

■ The two most vital sectors, i.e. agriculture and industry could not make much headway in the absence of proper infrastructural facilities in the country. 

Low level of living

■ The standard of living of Indian people in general is considered as very low. Nearly 25 to 40 per cent of the population in India suffers from malnutrition.

■ The average protein content in the Indian diet is about 49 grams only per day in comparison to that of more than double the level in the developed countries of the world.

■ In 1996 the daily average calorie intake of food in India was only 2,415 in comparison to that of 3,400 calories per day in various developed countries of the world. 

Poor quality of human capital

■ Indian economy is suffering from its poor quality of human capital. Mass illiteracy is the root of this problem and illiteracy at the same time is retarding the process of economic growth of our country.

■ As per 2001 census, 65.3 per cent of the total population of India is literate and the rest 34.7 per cent still remains illiterate.

■ In most of the developed countries like U.S.A., U.K., Canada, Australia etc. the level of illiteracy is even below 3 per cent.

■ Moreover, the problem of illiteracy in India makes way for conservatism and this is going against the economy of the country.

Demographic characteristics

■ The demographic characteristics of India are not at all satisfactory rather these are associated with high density of population, a smaller proportion of the population in working age group of 15-60 years and a comparatively larger proportion of population in the minor age group of 0-15 years.

■ As per 2011 census, the density of population in India was 382 per sq km. as compared with world density of population of 41 per sq km.

Inadequate development of economic organisation■ In India the development of financial institutions is .still inadequate in

the rural areas. ■ There is the urgent need to develop certain credit agencies for

advancing loan to small farmers on easy terms as well as to provide long term and medium term loan to industries.

■ For protecting poor tenants from the clutches of landlords, proper enforcement of tenancy legislation is very much necessary.

■ All these require maintenance of honest and efficient administrative machinery which India is lacking very much.

INDIA ON GROWTH PATH SUPPORTED BY KEY REFORMS AND HIGHER INVESTMENTS

2006-07 2007-08 2008-09 2009-10PE

2010-11 2011-12 2012-13(1R)

2013-14(AE)

2015E

9.79.2

6.8

8.49.3

6.7

4.5 4.7

6.4

GDP growth at factor cost ( per cent)

2006-07 2007-08 2008-09 2009-10PE

2010-11 2011-12 2012-13(1R)

2013-14(AE)-2

0

2

4

6

8

10

12

14

GDP at factor cost Agriculture, forestry & fishingIndustry Services

GDP and components – growth ( per cent)

According to the World Bank, Indian economy is estimated to expand 6.4 per cent during FY15Higher investment in the infrastructure sector, key reforms in taxation, coal mining auctions, among others would boost the economyCurrent decrease in crude prices would support narrow deficitsThe government plans to spend USD1 trillion on infrastructure during FY12–17

Growth in the Indian economy is mainly supported by growth in the service and industry sectorsThe government would introduce Goods and Services Tax (GST), which would create substantial savings for companies on logistics. This would positively affect on industrial productionMajor contributors were the finance and real estate sectors, which witnessed double-digit growth in the last 7–8 years

COUNTRY TO RECORD HIGHEST FOODGRAIN PRODUCTION IN FY 2014

FY09 FY10 FY11 FY12 FY13 FY14*0

20

40

60

80

100

120

0

50

100

150

200

250

300

99 89 96 105 105 10681 81 87 95 94 96

15 15 18 17 18 20

234218

244 259 257 264

Rice Wheat Total Pulses Total Foodgrains (RHS)

Production of major agricultural crops (in Million Tonnes)

Scanty rainfall in FY10 affected foodgrain production. Orissa, Jharkhand and Bihar faced a deficit of 55 per cent, 47 per cent and 28 per cent, respectivelyFoodgrain production increased at a CAGR of 2.4 per cent from 234 million tonnes in FY09 to an estimated 264 million tonnes in FY14Major growth was observed in production of pulses, which rose at CAGR of 6.1 per cent from 15 million tonnes in FY09 to an estimated 20 million tonnes in FY14India ranks second in the production of rice, sugarcane, potatoes, wheat, garlic and tomatoesDuring FY13, Indian household spent USD20.3 billion on food, indicating good business opportunityThe country has estimated highest ever foodgrain production of 264 million tonnes during FY14

IMPROVING TRADE BALANCE (1/2)

FY09 FY10 FY11 FY12 FY13 FY140

100

200

300

400

500

600 -200-180-160-140-120-100-80-60-40-200

185 179251 306 300 313304 288

370489 491 450

-118 -110 -119

-183 -190

-137

Exports Imports Trade balance (RHS)

Export-import and trade balance (USD Billion)

FY09 FY10 FY11 FY12 FY13 FY14

94 87 106 155 164 165

210 201264

334 327 285

Oil imports Non-Oil imports

Oil and non-oil imports (USD Billion)

Lower demand in the US and Europe affected exports negatively, widening trade deficits in FY13

During FY09–14, exports rose at a CAGR of 11 per cent, while imports rose at a CAGR of 8.2 per cent

India’s trade balance reached a negative USD190 billion in FY13, which improved 27.8 per cent to a negative USD137 billion in

FY14

Decreasing crude prices by more than half in six months would support India to narrow trade deficit as oil imports comprise ~37 per

cent of the total imports

IMPROVING TRADE BALANCE (2/2)

40.3

13.06.8

6.5

3.8

29.7Oil and MineralsPrecious or semi-precious StonesNuclear reactorsElectrical MachineryOrganic ChemicalsOthers

Top five Importing commodities ( per cent) (FY 2014)

20.6

13.3

4.13.8

3.8

54.4

Oil and MineralsPrecious or semi-precious StonesVehicles and parts other than railNuclear reactorsOrganic ChemicalsOthers

Top five exporting commodities ( per cent) (FY 2014)

During 2013, India’s petroleum imports comprised 20 per cent from Saudi Arabia, 22 per cent from other Middle East countries and

14 per cent from Iraq

Of the total exports, oil contributes ~21 per cent

During FY14 export of oil and minerals increased to USD64.7 billion from USD62.1 billion a year earlier

The automobile industry contributed 4.1 per cent to total exports. India is the seventh largest producer of automobiles in the world

INCREASING FOREIGN CURRENCY ASSETS

FY08 FY09 FY10 FY11 FY12 FY13 FY14 Nov'14

299

242 255275 261 261

278 293Foreign Currency Assets (USD Billion)

The fall in oil prices from USD113 per barrel in January 2013 to USD51 per barrel as of January 2015 has helped India to increase

foreign currency assets to USD293 billion as of November 2014

Moreover, Indian currency got strengthened against USD in FY14 compared to FY13 when it was trading at all time high of ~INR69

per 1USD

Rapidly rising exports compared with imports has supported a rise in foreign assets. Exports rose at a CAGR of 11 per cent during

FY09–14, while imports increased at a CAGR of 8.2 per cent for the corresponding period

IIP GEARING TOWARD THE RIGHT AND POSITIVE DIRECTION

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Apr to Nov'14

8.5

2.8

10.4 10.5

8.2

2.9

1.1

-0.1

2.2

Industrial Production – General Index ( per cent) Index of Industrial Production (IIP) strengthened 1.9 per

cent for the period of April to October 2014

Electricity grew the most (10.7 per cent) for April to

October 2014, followed by basic goods (7.6 per cent)

Although there are small positive changes in IIP, heavy

positive changes are expected due to key reforms under

approval and increasing investment in infrastructure

IIP for the month of November, 2014 increased

drastically by 3.8 per cent

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Apr to Oct'14

-4-202468

1012

General index Mining Manufacturing Electricity Basic goods

Index of Industrial Production four out of nine components ( per cent)

GROWTH OF EIGHT CORE SECTOR NECESSARY FOR OVERALL GROWTH IN INDUSTRIAL PRODUCTION

FY09 FY10 FY11 FY12 FY13 FY14 Apr to Nov'14

3

5.5

6.6

5

6.5

2.6

9.4Total production growth (per cent) in core infrastructure commodities Eight core infrastructure industries reported a growth

of 4.3 per cent during April to October 2015

The highest growth was reported by Electricity (10.5 per

cent), followed by Coal of (8.5 per cent)

These eight industries contribute ~38 per cent to the

industrial production

The thermal power sector witnessed increased

investment as India targeted capacity addition of 174.9

GW by 2022

FY11 FY12 FY13 FY14 Apr to Oct'14-20

-10

0

10

20

30

40

Coal Crude oil Natural Gas Refinery Products Fertilizers Steel Cement Electricity

Production growth ( per cent) in eight core infrastructure commodities

RISING INVESTMENTS IN INFRASTRUCTURE AND DEVELOPMENT PROJECTS

Road and Highways

Outlay of USD3.8 billion is planned for highways for the current year Infrastructure development worth USD19 billion is planned during 2012–17 Completed 100 public private partnership projects (PPPs) and 165 more PPPs are under construction Investment of USD31 billion in national highways is expected in the next five years

Railways

Indian Railways plans to award projects worth USD1 trillion through the PPP model Budget 2015 lays emphasis on diamond quadrilateral network of high-speed rails to connect major

metro cities and business centres Projects worth USD40 billion have been approved for establishing rail connectivity between major

ports

Construction

Investment worth USD1 trillion is planned for the infrastructure sector during FY2012–17 Investment worth USD650 billion is estimated in the urban infrastructure over the next 20 years The government is under process to launch urban development mission to develop 500 cities with a

population of more than 100,000

Thermal Power and Renewable Energy

The government is targeting a capacity addition of 88.5 GW by 2017 and 86.4 GW during 2017–22 in the thermal power sector

The government aims to have 20,000 MW of solar power by 2022

Emerging Market: India

■ India ranks among the well known emerging markets in the global economic scenario.

■ Since the economic liberalization policies were undertaken in the 1990s, emerging market India has really prospered which has helped to boost the Indian economy to a great extent.

■ According to the recent survey, there are around 28 emerging markets in the world out of which India ranks in the second place.

■ The main factors behind this booming emerging market are the economic liberalization and the perfect competition market, the high standard of living and per capita income, the development of medical facilities and infrastructure, the increase in foreign investments and so on.

Emerging Market: India (contd.)

■ Over the few years, there has been a significant growth of the Indian market which has resulted in the high Gross Domestic Product (GDP).

■ The average annual growth rate ranges between 6 to 7 %. The growth rate of GDP was around 6.7 % during the financial year 2008-09.

■ Currently, India is the 4th largest economic system in the world in terms of the purchasing power parity.

■ The recent economic development has also put a positive impact on the various sectors.

■ There has been a significant development in the agricultural, service and industrial sector in the country.

■ To complement the rapid pace of economic growth, the service sector contributes around 54 % of the annual Gross Domestic Product.

Emerging Market: India (contd.)

■ The increase in foreign investment has also cast a favorable effect on the emerging market in India.

■ Due to the increase in demand, well known global companies are investing in the Indian market.

■ The foreign institutional investments (FII) amount has reached around US$ 10 billion mark.

■ In case of the Foreign direct investments (FDI, there has been a significant increase of around 85.1 % from US$ 25.1 billion to US$ 46.5 billion.

India Market Entry

■ India GDP has registered 6.7% growth in the period 2008-09. ■ India has the ability to sustain the growth rate of 8 to 10% in the

coming years. ■ The current growth rate and the projected figures serve as perfect

bait for the foreign investors.

Factors dominating India Market EntryThe real worth of the Indian Market can be illustrated in the following manner:■ Finding good partners who know local market well and are completely acquainted

with procedural issues■ Smart planning■ Identifying the target market■ Promotion of products and services■ Contacting apt agents and distributorsWith these, the foreign investors also need to explore various market options in India that include forming subsidiary relationship or a joint venture with an India-based company. It also comprises setting up of a branch office or a liaison office. 

Steps for India Market Entry

■ Identifying potential of the particular market in India■ Developing a fair knowledge of the market■ Creating strategies for market entry

While venturing into Indian market, it is very important for any investor to develop a basic knowledge of the potential of the concerned market in India.

Obstacles on the Path to the Market Entry in India

■ Rigid and complex social framework•Indian Bureaucracy•Infrastructure issues

Strong financial

regulatory system

RBI is among the best central banks in the world It controls the monetary policy of India and acts as a watchdog over the banking system SEBI acts as the regulator of the twin stock exchanges – the BSE and NSE Indian regulatory system was applauded for its strong mechanisms that weathered the 2008 global

crisis

Robust Indian banking system

Indian banking system is a huge network of 151 commercial banks with more than 100,000 branches Seventeen Indian banks rank in the top 500 global banks list, with SBI at the top among the Indian

banks In line with the recent ‘Jan Dhan Yojna’ initiative, more than 110 million new bank accounts were

opened A strong banking system creates a strong investment environment and increases liquidity

Prominent stock exchange

BSE is the world’s largest stock exchange in terms of number of listed companies; NSE takes the third spot in terms of number of transactions

India entered the elite club of world’s 10 largest stock markets In 2014, net foreign investment in equity and debt markets was USD16.1 billion and USD26.3 billion,

respectively

Ease of doing business

India currently ranks 142 on the Ease of Doing Business list The new government has set up a mandate to rise to the 50th place on this list in the next two years New measures taken by the government to facilitate business like digitisation and a one-stop

licensing system would significantly boost India’s ranking Rise in investment interests from global companies is a sign of improvement in the economy and the

process

CONDUCIVE ENVIRONMENT FOR INVESTMENT