seervice sector india nd china

7/27/2019 SeErvice Sector India Nd China

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INDIA & CHINA

China and India are the largest,

agrarian economies in the world,accounting for a substantial share of

the world poorest people.


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INTRODUCTION

The rate at which China and India have beengrowing since the early 1990s has been a majortopic of discussion around the world. Both countriesare home to nearly a billion people and they

experience tremendous GDP growth each year.

One of the main factors that make India and Chinaan interesting comparison is the fact that although

they are similar in many ways, their differenceshave led each of the take different paths towardseconomic development.


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INDIA AND CHINA

COMPARISON OF KEY INDICATORS

Indicators India China

Size of Population 1.1 Billion 1.3 Billion

Type of Government Democracy Communist State

GDP Growth (2007) 9.3%

11.4%Manufacturing as a % of GDP 16% 53.3%1

Services as a % of GDP 51.5% 41.2%

FDI Inflows (2006 2007) $67.72 Billion

(predicted)

$699.5 Billion

Indias growth has been spurred by the service sector as opposed to itsmanufacturing sector. Indias service sector comprises approximately 52% ofits GDP while Chinas is significantly lower, at 41%.


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INDIA OPENS ITS ECONOMY

India is viewed as a rising economic superpower today, but as recentlyas 1991, it was in dire financial straits. Economic liberalization openedIndias doors to foreign investors.

Before India began welcoming foreign trade and investors, its economicgrowth rate hovered around 3%. Three years after the 1991 reforms, the

rate of growth jumped to 7% and since then, the country hasexperienced an overall 6 - 7% growth rate.

India had only $1 billion in foreign currency at the time of the reforms;today, it has an astounding $239.4 billion. (31 December 2007 est.).

India is playing an increasingly important role in information technologyinnovation. Motorola, Hewlett-Packard, Cisco Systems,Microsoft andother technology giants rely on their Indian employees to design softwareplatforms and futuristic multimedia features for next-generation devices.


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CHINA OPENS ITS ECONOMY To get rich is glorious, declared Chinas leader in 1977,

signifying the opening of the worlds most populous country tointernational trade. In China today, there is no question thatcommunist ideology takes a backseat to capitalism for economicgrowth.

For the past two decades, Chinas average annual economic growthhas been an incredible rate of 9.5%. If this rate continues, Chinaseconomy could be 75% bigger than the U.S. economy by 2050.

China is the worlds largest manufacturer of consumer electronics.China impacts our lives in some fashion every day, as consumers,sellers, employees, employers, manufacturers, etc. China leads theworld in the number of clothes made and toys assembled. Chinamakes more than 40% of all the furniture sold in the United States.


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SERVICE INDUSTRY

INDIA


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OVERVIEW OF SERVICES The Indian information technology (IT) industry has

been the source of much discussion on the successfulgrowth of a knowledge industry in a largely poor,developing country.

IT in India is spread across four key sectors- IT services;IT enabled services (ITES), software, and e-business.These sectors combine for a 2008 annual revenueforecast of $87B, (NASSCOM) with numerous analystssuggesting higher revenue.

The rapid growth of IT in India, software was a small$150MM industry in 1991, but grew to $5.7B in 2000.Anannual growth rate of 50% . (NASSCOM).


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FACTORS LEADINGTO GROWTHIN

SERVICES

Passive Role of Government

Indias IT industry has flourished with minimal intervention or support from thecentral government.

The Indian IT industry did not face a rigorous process for starting newcompanies. IT also faced limited labour restrictions on hours and overtime,

while having the opportunity early in its development to receive foreign directinvestment

English

At least 70MM individuals (Torreblanca) speak English at a professional level

in India.

Indias IT industry has matured from software to business process off shoring(BPO), English has again been a comparative advantage as the sheernumber of employable English speakers has made India a key FDIdestination.


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Education

India has only 4% engineers, while Germany and China have 20% and 33%respectively.

IT required large numbers of technical graduates, especially relatively inexpensive,English speaking ones, which has been a major advantage for India, despiteoverall shortcomings in the education system.

Entrepreneurship

While the heavily regulated post-Independence economy in India was notconducive to entrepreneurship, IT beginning in 1980s was an exception.

Starting a software company was comparatively easy to manufacturing or othercapital intensive industries. As multinationals began using India for IT services

Clusters of high tech areas formed in cities like Bangalore and Hyderabad,essentially creating natural high tech zones that pulled in greater amounts ofinvestment.


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OVERVIEW OF SERVICES

One of Chinas fastest growing service industries is thesoftware industry. The Chinese software industry is inherentlydifferent than Indias and will likely take different paths. Themajority of Chinese software services producers are domesticcompanies with domestic consumers.

Chinese firms comprise about a third of the domestic softwaremarket, with the government pushing for a 60% domination by2010. China is also experiencing growth in other knowledge

based service sectors.

China is racing India in the IT enabled services/ Back OfficeOperations industry.


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FACTORS LEADINGTO GROWTHIN

SERVICES

English

The recent emergence of English education in China is likelyattributed to the growth of the service sector. Because the governmentunderstands the importance of English-language knowledge tosuccess in the Knowledge based service sector.

Education

To take advantage of the large technically educated labour pool, manyAmerican educated and trained Chinese entrepreneurs are movingback to China to develop ITES/BPO companies.

Salaries amongst IT professionals in China are less than a sixth ofthose in the United States. China, spent 2.3% of GDP on education,compared to 5.1 % by the United States in the same year.


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OBSTACLESTO GROWTHIN

SERVICESIN CHINA

IPR violations

Despite the efforts in education andinfrastructure that China has started, one ofthe largest drawbacks is the constant threat ofintellectual property rights violations in China.


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RECOMMENDATIONSFOR CHINASSOFTWARE

INDUSTRY/ITES GIVEN INDIAS SUCCESSES

Recommendation 1: Become More Export Oriented

The first recommendation that China should adopt to improve its softwaresector is to develop a more export oriented growth strategy. Beingdomestically focused could leave the industry susceptible to internalshocks.

The high tech development zones should provide technical assistance onexporting guidelines and globalization to help companies export abroad.

Recommendation 2: Create A Better IPR Regulatory Environment

China needs to focus on improving its protection of IPR and target pirating.A first step towards this goal is through the creation of an IT/Off shoringTrade Association similar to Indias NASSCOM.

The creation of this type of organization would allow companies to sharebest practices to increase efficiency and, apply more pressure to increasecompliance with international IPR standards


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INFRASTRUCTURE

WITHFOCUSON

THE POWER SECTOR

INDIA

& CHINA


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INTRODUCTION

The East Asian region including China and India isprojected to experience stronger growth inelectricity consumption than any other region of theworld. Total electricity consumption is projected to

grow by more than 3 trillion-kilowatt hours between1995 and 2015, a growth rate above 5 percent peryear, with China alone accounting for more thanhalf the growth.

China and India are more heavily dependent oncoal for electricity generation than are the otherdeveloping Asian nations. The relative shares for oiland nuclear power are expected to decline


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INTRODUCTION

At the time of Indias independence, India andChina were at par with respect to overallinfrastructure development. Now Chinas per capitaconsumption of steel is five times that of India and

that of energy if three times.

The success of reforms in the power sector inChina paves the way for India in understanding the

formulation and implementation issues relating tothe same. China is a very relevant case study forIndia because of various similarities viz. population,size, demographics.


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THE CHINESE

POWER SECTOR

China has the world's fastest growing electric power. Percapita consumption in China is currently only 6% that of theUnited States.


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THE DEMAND SUPPLY SITUATION

Strong projected growth in electricity demand in Chinaresults from two factors.

Increased need for rural electrification. Although nearly 90percent of the rural households in China had access toelectric power at the end of 1993, some 120 million peoplewere still without electric power. The Chinese governmentplans to increase electrification to 95 percent by 2000.

The Chinese government is working to keep electric power

growth in line with economic growth. China's annual averageratio accounted for only 1.24 percent of GDP from 1980 to1999. Hence, China is heavily investing in power projects.Growth in electricity generation averaged 8% per annumduring the last 15 years.


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ENERGY SUPPLYPTIONS

Chinas installed power generating capacitywas 250 GW in 1997 of which 77% wasthermal and 23% was hydro. Nuclear

capacity occupied only a fractional share ofthe total power generated.

1.) Thermal Power,

2.) Hydroelectric Power,

3.) Nuclear Power.


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THERMAL POWER

Coal-fired power plants provide more than 90% ofthermal generation, with oil based generationaccounting for most of the balance. The share ofnatural gas-based power generation is negligible andis expected to remain so even if the countrysucceeds in implementing its challenging gas importprojects.

The power sectors use of coal amounted to 370million tons, which is more than one-third of the totalcoal consumption in the country.


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THERMAL POWER

Although government policy emphasizes the addition oflarger, more efficient units of 300 MW and 600 MW, overhalf of the existing capacity is still in units below 200 MW.Only 15% of installed capacity are in units of larger than

300 MW, compared to 60-80% in industrialized countries.

New plants being built by the local governments are inunit sizes of 50 MW or less. The main reason is that these

small units are easier to finance. At the same time, theseunits consume 60% more coal per unit of electricityproduced compared to units of 300 to 600 MW.


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HYDROELECTRIC POWER Hydropower is the least-cost generation source in China. It

serves, and will serve, a major role in meeting the base-loadpower generation needs of the country. The generation cost isabout $0.03 / kWh.

The country has a hydroelectric potential of 670 GW, of which380 GW is considered suitable for exploitation. This capacitymay generate up to 1900TWh per year. By the end of 1996,56 GW of installed hydro capacity were in operation, reflectingapproximately 14.7 percent of the exploitable resource. Theinstalled capacity is expected to increase to 100 GW by 2010.

The Three Gorges project on the Yangtze River involvesconstruction of the world's largest dam, with its 26 hydropowergenerating units (700 megawatts each) slated to provide atotal of 18 gig watts generating capacity by 2009.


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NUCLEAR POWER

Nuclear power represents a relatively minor, but growing, share ofChinas electric generating capacity, with two plants currently inoperation: Qinshan at Hangzhou Bay in Zhejiang province (288megawatts) and a plant at Daya Bay in Guangdong province(1812 megawatts).

China has plans for 9 additional units, totalling 8 gig watts. By2015, output from nuclear plants is projected to increase 9-foldover 1996 levels, accounting for about 4.5 percent of China'selectric power generation. Under construction are two 600-

megawatt units at the Qinshan plant and two 1,000-megawattunits at a new plant, Lingao, near Hong Kong.

G CO S O


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ENERGY CONSUMPTION

PROJECTIONS FOR CHINA

If electricity demand grows, as expected, at 8 to 9% per annum,China would need to add about 18-20 GW of capacity per year.

Even with a growth rate of 7% (low-case scenario), the growth inChinas power generating capacity will be about 16 GW per year.This still accounts for more than 20% of the worlds new

capacity.

The projected huge increase in overall energy usage by 2020(162 percent), a massive investment in energy infrastructure fornatural gas, nuclear, hydroelectric (e.g., Three Gorges Damproject), and other renewable is a must.

The large annual increases in energy demand in Asia will mostlikely be met by rapid increases in coal and oil imports. In 1992,China was a net oil exporter, but it is expected that by 2010,China will become the second largest importer of oil in Asia.


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THE INDIAN

POWER SECTOR

Indias power sector has grown many fold in size andcapacity. India consumes two-thirds more energy per dollar ofgross domestic product (GDP) as the world average. Indiaconsumes only about 18 percent of the energy per person asthe world average.


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THE DEMAND SUPPLY SITUATION

The power sector has been characterized byshortage in supply vis--vis demand. From 1998,there has been peaking shortage of 18% and

energy shortage of 12%.

The transmission and distribution losses in Indiaare among the highest in the world. Against the

normal world average of 8-10%, the figures havebeen about 23%, which is alarmingly high.


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ENERGY SUPPLY OPTIONS

Coal currently accounts for 78% of fuel use at Indias electricpower stations. As in China, Indias high coal use is a reflection ofits ample coal reserves. Renewable energy (almost entirelyhydropower) is the next largest source of electricity supply in India.

Renewable energy (almost entirely hydropower) is the next largestsource of electricity supply in India. In1995, renewable accountedfor 14% of Indias electricity generation. Natural gas (at about 5%),oil (at 2%), and nuclear energy (at just under 2%) provided theremaining fuels to Indias electricity industry.

A wind-energy rush began in 1994 as the government opened up

the power grid to independent developers and offered taxincentives for renewable energy development. Indeed, India is nowsecond only to Germany in the number of annual wind-powerinstallations.

ENERGY CONSUMPTION


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ENERGY CONSUMPTION

PROJECTIONS FOR INDIA

Electricity demand in India is projected to growdramatically over the next 20 years. With about 6percent of total world coal reserves, India, like China,relies on coal for much of its energy supply. Although

coal's share of India's electricity generation is projectedto drop slightly, from 77 percent in 1995 to 64 percent in2015.

The contribution of natural gas in electricity generationis projected to rise from only 4 percent in 1995 to 12percent by 2015.


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WORLD ENERGY CONS. FOR ELECTRICITY GENERATION

BY REGIONAND FUEL


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LEADING ELECTRIC POWER COMPANIESIN ASIA


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PETROLEUM

INDIA& CHINA


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PETROLEUM CONSUMPTION

IN CHINA From 1993 China began to become a net importer of energy

resources, with yearly petroleum import increasing around10m tons and the amount tending to grow on an annual basis.

China will still be short of 8 percent energy by 2010 and about24 percent by 2040, of which petroleum shortage may reachseveral hundred million tons. Dependence on imports had

jumped from 6.6 percent in 1995 to 25 percent in 2000. Thefigure is expected to rise to 30 percent by 2010 and further totop 50 percent by 2020.

The country plans to increase its proven oil reserve by fourbillion tons and crude oil production by 10 million tons in thenext five years, mainly by stepping up exploration andexploitation efforts in the western regions and its offshoreareas


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PETROLEUM CONSUMPTION

INDIA India's oil import bill has swelled 52 per cent to $44.64

billion in 2005-06 on the back of high global oil prices.

India imported 99.4 million tones of crude oil for $38.77

billion and 11.67 million tones of petroleum products for$5.86 billion in 2005-06.

In 2006- 2007 the import bill of PETROLEUM, CRUDE &PRODUCTS was $52.11 billion according to latest

Petroleum Ministry data.

LPG demand was up 0.6 per cent to 10.3 million tonesand petrol consumption rose 4.8 per cent to 8.64 milliontones


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INDIA & CHINA

Quick Facts In Figures

E


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ECONOMY

INDIA CHINA

GDP (purchasing power

parity):$2.965 trillion (2007 est.) $7.043 trillion (2007 est.)

GDP (official exchange

rate):

$894.1 billion (2007 est.) $2.879 trillion (2007 est.)

GDP - real growth rate: 8.5% (2007 est.) 11.4% (official data) (2007 est.)

GDP - per capita (PPP): $2,700 (2007 est.) $5,300 (2007 est.)

GDP - composition by

sector:

agriculture: 16.6%

industry: 28.4%

services: 55% (2007 est.)

agriculture: 11%

industry: 49.5%

services: 39.5%

note: industry includes

construction (2007 est.)

Labour force: 516.4 million (2007 est.) 803.3 million (2007 est.)Labour force - by

occupation:

agriculture: 60%

industry: 12%

services: 28% (2003)

agriculture: 43%

industry: 25%

services: 32% (2006 est.)

Unemployment rate: 7.2% (2007 est.) 6.1% unemployment in urban areas;substantial unemployment and

underemployment in rural areas (2006 est.)


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ECONOMY

INDIA CHINA

Population below poverty

line:

25% (2002 est.) 8% note: 21.5 million rural

population live below the

official "absolute poverty"

line (approximately $90 per

year); and an additional 35.5

million rural population

above that but below the

official "low income" line(approximately $125 per

year) (2006 est.)

Household income or

consumption by

percentage share:

lowest 10%: 3.6%

highest 10%: 31.1% (2004)

lowest 10%: 1.6%

highest 10%: 34.9%

(2004)Distribution of family

income - Gini index:

36.8 (2004) 46.9 (2004)

Inflation rate (consumer

prices):

5.9% (2007 est.) 4.7% (2007 est.)

Investment (gross fixed): 31.8% of GDP (2007 est.) 42.2% of GDP (2007 est.)


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ECONOMYINDIA CHINA

Public debt:

58.8% of GDP (federal and

state debt combined) (2007

est.)

18.9% of GDP (2007 est.)

Agriculture -

products:

rice, wheat, oilseed, cotton,

jute, tea, sugarcane,

potatoes; cattle, water

buffalo, sheep, goats,

poultry; fish

rice, wheat, potatoes, corn, peanuts, tea, millet,

barley, apples, cotton, oilseed; pork; fish

Industries:

textiles, chemicals, food

processing, steel,

transportation equipment,

cement, mining, petroleum,machinery, software

mining and ore processing, iron, steel,

aluminium, and other metals, coal; machine

building; armaments; textiles and apparel;

petroleum; cement; chemicals; fertilizers;

consumer products, including footwear, toys, andelectronics; food processing; transportation

equipment, including automobiles, rail cars and

locomotives, ships, and aircraft;

telecommunications equipment, commercial

space launch vehicles, satellites

ECONOMY


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ECONOMYINDIA CHINA

Industrial production growth

rate:

10% (2007 est.) 12.9% (2007 est.)

Electricity - production: 661.6 billion kWh (2005) 2.866 trillion kWh (2006)

Electricity - production by

source:

fossil fuel: 81.7%

hydro: 14.5%

nuclear: 3.4%

other: 0.3% (2001)

fossil fuel: 80.2%

hydro: 18.5%

nuclear: 1.2%

other: 0.1% (2001)

Electricity - consumption: 488.5 billion kWh (2005) 2.859 trillion kWh (2006)Electricity - exports: 67 million kWh (2005) 11.27 billion kWh (2006)

Electricity - imports: 1.764 billion kWh (2005) 5.39 billion kWh (2006)

Oil - production: 834,600 bbl/day (2005 est.) 3.71 million bbl/day

(2006)

Oil - consumption:

2.438 million bbl/day (2005 est.) 7 million bbl/day (2006)

Oil - exports: 350,000 bbl/day (2005 est.) 375,800 bbl/day (2006)

Oil - imports: 2.098 million bbl/day (2004 est.) 3.646 million bbl/day

(2006)

Oil - proved reserves: 5.848 billion bbl (1 January 2006

est.)

16.3 billion bbl (1 January

2006 est.)


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ECONOMYINDIA CHINA

Natural gas - production: 28.68 billion cu m (2005 est.) 58.6 billion cu m (2006est.)

Natural gas - consumption: 34.47 billion cu m (2005 est.) 55.6 billion cu m (2006

est.)

Natural gas - exports: 0 cu m (2005 est.) 2.874 billion cu m (2006)

Natural gas - imports: 5.793 billion cu m (2005) 976 million cu m (2006)Natural gas - proved

reserves:

1.056 trillion cu m (1 January

2006 est.)

2.45 trillion cu m (2006

est.)

Current account balance: -$18.53 billion (2007 est.) $363.3 billion (2007 est.)

Exports: $140.8 billion f.o.b. (2007 est.) $1.221 trillion f.o.b. (2007

est.)Exports - commodities: petroleum products, textile

goods, gems and jewellery,

engineering goods, chemicals,

leather manufactures

machinery, electrical

products, data processing

equipment, apparel,

textile, steel, mobile

phones


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ECONOMY

INDIA CHINA

Exports - partners: US 17%, UAE 8.3%, 7.8%,

4.3% (2006)

US 21%, Hong Kong 16%, Japan

9.5%, South Korea 4.6%,

Germany 4.2% (2006)

Imports: $224.1 billion f.o.b. (2007

est.)

$917.4 billion f.o.b. (2007 est.)

Imports -

commodities:

crude oil, machinery,

gems, fertilizer, chemicals

machinery and equipment, oil

and mineral fuels, plastics, LED

screens, data processing

equipment, optical and

medical equipment, organicchemicals, steel, copper

Imports - partners: China 8.7%, US 6%,

Germany 4.6%,

Singapore 4.6%,

Australia 4% (2006)

Japan 14.6%, South Korea

11.3%, Taiwan 10.9%, US 7.5%,

Germany 4.8% (2006)


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ECONOMYINDIA CHINA

Economic aid - recipient: $1.724 billion (2005) $1.757 billion (2005)

Reserves of foreign exchange

and gold:

$239.4 billion (31 December

2007 est.)

$1.493 trillion (31 December 2007

est.)

Debt - external: $165.4 billion (30 June 2007) $363 billion (31 December 2007

est.)

Stock of direct foreign

investment - at home:

$67.72 billion (2006 est.) $699.5 billion (2006 est.)

Stock of direct foreign

investment - abroad:

$21.11 billion (2006 est.) $75 billion (2006 est.)

Market value of publicly

traded shares:

$818.9 billion (2006) $2.426 trillion (2006)

Currency (code): Indian rupee (INR) Renminbi (RMB); note - also

referred to by the unit yuan (CNY)

Currency code: INR CNY

Exchange rates: Indian rupees per US dollar -

41.487 (2007), 45.3 (2006),

44.101 (2005), 45.317

(2004), 46.583 (2003)

yuan per US dollar - 7.61 (2007),

7.97 (2006), 8.1943 (2005), 8.2768

(2004), 8.277 (2003)

Fiscal year:1 April - 31 March calendar year


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seervice sector india nd china

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