Economic Analysis: India

Dr. Rana Singh

Associate Professor
www.ranasingh.org

05/12/11 1
 India – Land of Opportunities
Fourth largest
Largest
Economy
democracy –
(PPP) - A safe
political
place
stability &
to do business
consensus on
reforms

Largest
reservoir of Liberal &
skilled/semi- transparent
skilled investment
manpower policies

Long-term
sustainable Second Largest
Competitive
advantage
Emerging Market
- High growth rate
economy
2
Global Business Leaders -On India
“India is a
developed country “We are expanding our
as far as presence in India to take
intellectual capital advantage of the ample
is concerned” R&D talent available”

JACK WELCH, GE JOHN CHAMBERS, CISCO

“India can be a major “India is handling the

part of Dell’s most sophisticated
operations and we are projects in the
looking to capitalize world.I am
on India’s human impressed with the
capital” quality of work”

MICHAEL DELL, DELL BILL GATES, MICROSOFT

05/12/11 3
 Indian Economy – An Overview
 Economic Growth
 Sustained economic performance
 Average since 1991 6.2%
 2004-05 6.9%
 2005-06 7.5-8.0 % (estimated)
 Forecast till 2050 –Goldman Sachs 5 % p.a.
 Services account for over 50% of GDP
 Manufacturing sector grew at 9% in 2004-05
 Trade (2004-05)
 Exports growth 24% in 2004-05 reaching US$80 billion
 Imports growth 35% reaching US$106 billion
 Investment
 Foreign Investment - US$16 billion in 2003-04
 Mature Capital Markets
 NSE third largest, BSE fifth largest in terms of number of
trades
 Well developed banking system

05/12/11 4
 Economic Reforms
 Rationalisation of direct and indirect tax
structure
 Peak Custom duty: 15%
 Corporate Tax: 30%
 Tariff to be aligned with ASEAN levels
 Policies on outward investments also
liberalised 5th among
 Rupee made fully convertible on trade
the top
account
reformers in
 Fiscal Responsibility & Budget
Management Act
2003: World
 Revenue deficit to be brought to zero by 2008 Bank

05/12/11 5
 Economic Reforms-contours
 Industrial Policy Reforms
 Industrial delicensing and deregulation
 Licensing limited to only 6 sectors: on security,
public health & safety considerations
 Liberal policy on technology collaboration
 Trade Policy Reforms
 Most items on Open General License, Quantitative
Restrictions lifted
 Progressive reduction in customs duty
 Imports grew at 34% in 2004-05 to reach US$105
billion
 Foreign Trade Policy
 To double India’s share in global merchandise trade
05/12/11
in 5 years 6
Not Just Knowledge Based Sectors

 Second most attractive destination for manufacturing

 AT Kearney FDI Confidence Index 2004
 Indian industry is equally competitive in a wide range of
manufacturing activities
 Automobile sector: Major MNC’s sourcing high quality
components and hardware from India
 Volvo, GM, GE, Chrysler, Ford,Toyota, Unilever, Clariant,
Cummins, Delphi
 Bharat Forge: world’s largest single location forging facility,
supplier to Toyota, Honda, Volvo, Cummins, Daimler Chrylser
 Hero Honda: world’s largest manufacturer of motorbikes
 Moser-baer: world’s third largest producer of optical media and
lowest cost manufacturer of CD-Recorders
 Tata Steel: World’s lowest cost producer of hot-rolled steel

05/12/11 7
Skilled Knowledge Workforce
 India’s competitive edge - its highly
skilled manpower
 Over 380 universities (11,200 colleges)
 Over 1500 research institutions
 Over 2,00,000 engineering graduates
 Over 3,00,000 post graduates from non-engineering
colleges
 Over 21,00,000 other graduates
 Around 9,000 Ph. Ds
 Knowledge workers in software and
service industry increased from 56,000 in
1990-91 to 6,50,000 in 2003;
 to reach 2 millions by 2008

05/12/11 8
Competitiveness Indicators

Rank out of 102 countries

 Availabilityof scientist and engineers 3

 Quality of management schools 8
 State of cluster development 17
 Technological sophistication 25
 Sophistication of financial markets 37
 Foreign ownership restrictions 41

(Source: WEF’s Global Competitiveness Report, 2003-04)

05/12/11 9
Competitiveness Indicators-contd..

Rank out of 102 countries

 Prevalence of foreign technology licensing 6

 Government’s prioritization of ICT 12
 Quality of scientific research institutions 20
 Government intervention in corporate investment 34
 Quality of educational system 36
 Ease of access to loans 38

(Source: WEF’s Global Competitiveness Report, 2003-04)

05/12/11 10
 Global Competitiveness Rankings

1 Finland 11 United Kingdom

2 United States 12 Netherlands
3 Sweden 13 Germany
4 Taiwan 14 Australia
5 Denmark
15 Canada
6 Norway
7 Singapore 19 Israel
8 Switzerland
30 Ireland
9 Japan
10 Iceland 46 China

55 India

SOURCE: World Economic Forum,

05/12/11 11

Global Competitiveness Report 2004-2005

 Liberalisation of FDI Policy

More sectors opened

Equity caps raised
Conditions relaxed
FEMA enacted
Up to 100% Under
Automatic Route in
all sectors except
a small negative list
up to 74/51/50%
in 111 Sectors Under
Automatic Route
100% in some sectors
Up to 51%
under Automatic
Route for
35 Priority Sectors

Allowed selectively
up to 40%

Pre 1991 1991 1997 2000 Post 2000

05/12/11 12
 Investing in India – Entry Routes

Investing in India

Prior Permission
Automatic Route
(FIPB)

General rule By exception

No prior permission Prior Government
required Approval needed.
Inform RBI Decision generally
within 30 days of Within 4-6 weeks
inflow/issue of share

05/12/11 13
 Automatic Route

 FDI in activities under the Automatic Route

DOES NOT require any prior approval;

 Investor is ONLY required to inform the RBI after

the investment has been made:

 With in 30 days of inward remittances, and

 Within 30 days of issue of shares to non-
residents.

05/12/11 14
 Policy on FDI

 FDI up to 100% under ‘Automatic Route’ in all

activities except
 Sectors attracting compulsory licensing
 Equity limits under sectoral policies
 Transfer of shares to non-residents under certain
circumstances
 Investor having existing venture in same field under
certain circumstances
 National Treatment to investment;
 Bilateral Investment Protection Agreement with
57 countries.
05/12/11 15
 Manufacturing Sector: 100% FDI
under ‘Automatic Route’
FDI up to 100% allowed under ‘automatic route’ in
almost all activities
Some of these activities are: (illustrative list)
 Cars and motor vehicles  Construction Machinery
 Food processing  Domestic air conditioners
 Electronic Hardware
 Electric motors, industrial electric
furnaces
 Refrigerator and fire fighting  Mining and Quarrying Machinery
equipments  Steam engines and turbines
 Iron and steel  Non-metallic mineral products
 Private Oil Refineries  Oil mill machinery
 Industrial Machinery  Chemical machinery
 Fertilizers  Drugs & pharmaceuticals and
pesticides except those requiring
 Pollution control equipments
industrial licensing
 Tyres and tubes  Medical equipments
 Packaging products

05/12/11 16
Infrastructure Sectors: 100% FDI
Under ‘Automatic Route’
 Electricity generation (except atomic energy)
 Electricity transmission
 Electricity distribution
 Mass Rapid Transport System
 Roads and Highways
 Toll Roads
 Vehicular bridges
 Ports and Harbors
 Hotel and tourism
 Townships, housing, built up infrastructure
and construction development

05/12/11 17
Recent FDI Policy Initiatives

 FDI up to 100% allowed under the automatic route

in development of townships, housing, built up
infrastructure and construction development
projects.
 FDI in domestic airlines increased.
 FDI in Telecom services increased.
 Fresh guidelines for investment with previous joint
ventures issued.
 Transfer of shares from residents shareholders put
on automatic route.
05/12/11 18
 Foreign Technology Collaboration
Policy
 Foreign technology agreements allowed
under Automatic route:
 Lump sum fees not exceeding US$ 2 Million;
 Royalty @ 5% on domestic sales and 8% on
exports, net of taxes;
 Royalty up to 2% on exports and 1% also
permitted for use of Trade Marks and Brand
name, without any technology transfer;
 Wholly owned subsidiaries can also pay
royalty to their parent company;
 Payment of royalty without any restriction on
the duration allowed.

05/12/11 19
 Exchange Controls & Taxation

 All investments can be on repatriation

basis;
 Original investment, profits and dividend
can be freely repatriated;
 Foreign investor can acquire immovable
property incidental to or required for their
activity;
 Companies incorporated in India treated as
Indian companies for taxation;
 Double Taxation Avoidance Agreement
with 65 countries

05/12/11 20
India’s Outward Investment Policy

 Liberalisation initiated in 1992. Policy progressively

liberalized
 Indian Corporates allowed to invest overseas up to 100%
of net worth.
 Increasing overseas investment by Indian Corporates

 Over US$3 billion in 2002-03 & 2003-04

 Over 55% of investment in manufacturing

 Over 100 major acquisitions by Indian corporates in the last 2

years


05/12/11
Indians among the top 10 investors in UK 21
 India: FDI Outlook

 Third most attractive investment

destination – AT Kearney Business
Confidence Index, 2004
 Up from 6th most attractive destination in 2003
 Among the top 3 investment ‘hot
spots’ for the next 4 years
 UNCTAD & Corporate Location – April 2004
 Most Preferred Off shoring
destination - AT Kearney’s 2004
Offshore Location Attractiveness
Index
05/12/11 22
Public Private Partnership

 Infrastructure projects might not be financially viable on their own;

 Public Private Partnership to bring in private sector resources and
techno-managerial capabilities;
 ‘Viability Gap Funding’ for
 Roads, railways, seaports, airports;
 Power
 Water supply, sewerage, solid waste disposal in urban areas;
 International convention centres.

 Funding in the form of capital grant, Operation & Management

support, interest subsidy, etc.
 Support linked with predefined milestones.

05/12/11 23
 Telecommunications

60
 Among the fastest growing telecom
markets
50  470,000 km of optical fibre cable laid
 Cellular phones increasing by over 2 million
40
19.5 every month
No. in million

 To reach 200 million in 3-4 years

30
 Broad Band Policy envisages:
20 17.7
 20 million broadband subscribers and
28.2
 40 million internet subscribers by 2010.
10
5
 Tele-density of 9, expected to be 20 in
1.5
2.4
3.1
5.5
10.5
next three years;
0 1.6

2000 2001 2002 2003 2004  Investment Opportunities

 Setting up manufacturing base.
 Telecom & Value added service
05/12/11 24
 Power

 Policy & Incentive

 FDI up to 100% is permitted on the automatic route in
all segments except atomic power Share of Installed Capacity
 Ten-year tax holiday for generation and distribution or
Nuclear Hydro+
transmission and distribution of power Wind
2%
 Institutional Reforms 28%

 The Electricity Act 2003 enacted; allows trading in

power and further deregulation; Thermal
70%
 Independent Regulator in most states
 Investment Opportunities
 Additional capacity required 1,00,000 MW till 2012
 Investment US$120 billion needed;
 Financial closure for over 4000 MW capacity achieved
in last one year

05/12/11 25
 Roads
 Policy:
 FDI up to 100% is permitted for construction and
maintenance of roads, highways, vehicular bridges,
toll roads, vehicular tunnels.
 Ten year tax holiday for road and highway projects;
 Investment Opportunities
 India has a road network of 3.3 million kilometers
 Highways: 25,000 km of highways under
development
 Investment US$24 billion envisaged
 Many more opportunities in the States;
 Different schemes available (BOT Toll based,
Annuity, SPV)

05/12/11 26
 Special Economic Zones
 Policy
 Duty free zones, deemed foreign
territories
 FDI up to 100% permitted in
almost all manufacturing activities
 Transfer of goods from DTA to
SEZ treated as exports,
 Units to be net foreign exchange
earner within 5 years. No export
commitments
 No limits on DTA sales
05/12/11
 Incentives
 For developer: Income tax
exemption or a block of 10
years in 15 years
 For units: 100% Income Tax
exemption for first 5 years,
50% for next 2 years
 Exemption from indirect taxes;
excise, sales, services tax, etc.
 Freedom to raise ECB with out
any maturity restrictions
New Law on
SEZ on the
anvil
27
 ICT Advantages

ITExports
In US $ Billion
 IT Industry US$ 16.5 billion *
14  Exports US$12 billion, growing at 32%*
12
12
 2008 exports target : US$60 billion, to be 35%
10
10
of India’s total exports
8
8
 High quality standards
62 SEI/CMM level 5 companies, i.e. two third of
6.2
6 
4 world’s total, are Indian
2
 250 Fortune 500 companies clients of Indian
0 firms
R&D base of over 100 FORTUNE 500
2000-01 2001-02 2002-03 2003-04

companies
 Investment Opportunities
• Collaborative ICT research
• Joint Software development in a variety of
applications

05/12/11 28

* NASSCOM
 Auto Component Industry

 Fast Growing Industry

 Approx. US$ 8.7 billion industry in 2004-05
 Annual growth rate 30%
 US$17billion by 2012 (AT Kearney study)

 High degree of export orientation

 60% of exports to US and Europe

 Top global vehicle manufacturers/ tier 1

suppliers sourcing components from India:
 General Motors, Daimler Chrysler, Volvo, Cummins,
Ford, Fiat, Renault, Toyota Motors
 Opportunities to leverage on low cost, high-
skilled manpower to reduce cost of production
05/12/11 29
 Textiles

 Indian textiles sector:

 Turnover US$37 billion;
 Exports US$13 billion;
 Investments of US$11 billion in the last five years;
 India is 2nd largest producer of cloth and 3rd
largest producer of cotton yarn;

 Textiles sector has the potential to reach

US$85 billion by 2010
 Exports can reach US$50 billion
 Garments to account for 50% of exports;
 Investment required US$30 billion

05/12/11 30
 Food Processing Industries
 Third largest producer of food
 Largest milk producer
 Largest livestock population
 2nd largest in fruits & vegetables
 Tremendous opportunities
 50% of household income spent on food items
 Fast rise in demand of processed food expected with increasing
income levels and urbanisation: over 250 million strong middle
class
 A new Integrated Food Law being enacted
 Investment of US$ 28 billion required to raise food
processing from 2% to 8-10%.
 Investment opportunities in processing of fruit & vegetable,
meat, fish & poultry, milk products, packaged food &
drinks.

05/12/11 31
 Biotechnology
India’s inherent strengths
 Rich Biodiversity
 Large reservoirs of valuable diagnostic and clinical data
 Vibrant and inventive pharmaceutical industry;
 World class network of educational and research
institutions
 Known strengths in mathematics, logic and
computational skills
 Super Computing and Software strengths enable
extensive use of bio-informatics in new drug discovery

Opportunities :
 Biotech based new drugs / pharmaceuticals
 Bio-technology parks get all facilities of 100% EOU

05/12/11 32
 Fiscal Reforms
 Rationalisation of tax structure – both direct
and indirect
 Progressive reduction in peak rates of
duties;
 Direct and indirect taxes further reduced this
year
 Peak Custom duty reduced to 15%
 Corporate Tax reduced to 30% India among the
 Tariff to be aligned with ASEAN levels top reformers in
 Value Added Tax introduced from 1st April 2003: World
Bank’s Doing
2005
Business in 2005
 Rupee made fully convertible on trade
account

05/12/11 33
 ‘Made in India’

 Third most attractive destination for manufacturing

 ATKearney’s FDI Confidence Index 2004
 Indian industry equally competitive in a wide range of
manufacturing skill-intensive products:
 Apparels, electrical and electronics components;
speciality chemicals; pharmaceuticals; etc.
 Automotive components: Major MNC’s & their OEMs
sourcing high-quality components from India
 Volvo, GM, GE, Chrysler, Ford, Toyota, Unilever,
Cliariant, Cummins, Delphi
 Indian companies now having manufacturing presence
in multiple countries
 Over 55% of approved outward investment by India
companies in manufacturing activities

05/12/11 34
 Human Resources
 India’s competitive edge - its highly-skilled manpower
 Over 380 universities (11200 colleges)
 1500 research institutions
 Over 200,000 engineering graduates
 Over 300,000 post graduates from non-engineering
colleges
 2,100,000 other graduates
 Around 9,000 PhDs
 Knowledge workers in software industry increased from
56,000 in 1990-91 to 650,000 in 2003;
 to reach 2 million by 2008
 Due to its young demographic profile, India would
continue to be surplus in working population for a long-
time

05/12/11 35
 Civil Aviation
 Investment Policy
 In the airports, FDI up to 100% permitted
 In domestic airlines, FDI up to 49% permitted
subject to no direct or indirect equity participation
by foreign airlines
 100% investment by NRIs

 Investment Opportunities
 Modernisation of International airports at Delhi,
Mumbai, Chennai and Kolkata
 Modernisation of non -metro airports
 Private sector participation is allowed in support
services and aircraft manufacture

05/12/11 36
 Civil Aviation
Project on Offer

Development of Metro and non Metro Air ports

1. Modernisation of Chennai Airport US $ 444 million

2. Modernisation of Kolkatta Airport US $ 177 million

3. Modernisation of Delhi Airport US $ 666 million

4. Modernisation of Mumbai Airport US $ 555 million

5. Development of 25 non Metro Airports US $ 888 million

6. Development of Greenfield Airport at Goa US $ 340million

7. Development of Greenfield Airport at Pune US $ 340 million

05/12/11 37
 Civil Aviation
Airports – Traffic Projections

Passenger
• By 2010: 90-100 million (59 million domestic passengers & 35
million intl. Passengers)

Cargo
• By 2010: 3360 thousand tonnes Airports – Traffic Projections

05/12/11 38
 Ports
 Policy & Incentives
 FDI up to 100% permitted for construction and
maintenance of ports and harbours.
 Ten year tax holiday
 Public-private partnership
 12 major ports, 185 minor ports
 12 private/ captive projects with investment of
US$ 600 million completed
 24 projects with investment of US$1.6 billion
under implementation/award
 Investment requirement of US$22 billion to
develop maritime sector
 Ports & Shipping
 Inland waterways

05/12/11 39
 Tourism
Investment Policy
• FDI up to 100% is allowed under the automatic route in townships, housing, built-
up infrastructure and construction development projects including housing,
commercial, premises, hotels, resorts, hospitals, educational institutions,
recreational facilities etc.
Projects on Offer
• International Trade cum Convention Centre , Jaipur
 Offered to private sector for designing, finance, construct, operate and maintain the
facility
 Estimated cost Us $ 22 million
 Time frame for implementation 18 months
• Development of Tijara Fort, Alwar
 Private sector would require to restore the Fort and develop interior & surroundings of the
fort, would be provided for long term lease
 Estimated cost Us $ 5.5 million
 Time frame for implementation 18 months
• Championship Golf Course, Udaipur, Jodhpur or Jaipur
 Land would be acquired and offered on long term lease
 Estimated cost Us $ 5.5 million excluding land cost
 Time frame for implementation 18 months
• International Convention Centre , Bangalore
 Karnataka Govt would acquire the land for investors
 Facilities to be provided in convention Centre : Exhibition space of 50000 sq Mt, food
court, Conference Hall & suites, Convention Centre, shopping malls, health club, golf
course, % & 7 star hotels, handicraft village, multiplexes etc.
05/12/11
 Estimated cost Us $ 111 million 40
 Urban Infrastructure

FDI Policy
 FDI upto 100% is allowed in townships, housing, built-up
infrastructure and construction development projects

Opportunities
 Us$ 26 billion proposed to be invested in next 5 years in
urban infrastructure in 60 cities as a part of National
Urban Renewal Mission
 The Mission covers physical infrastructure such as water,
lighting, sanitation, energy & housing.

05/12/11 41
∗ CII
 Petroleum Refining
Status
 Total 18 refineries with production of 116 million tonnes (April- Feb.
2004-05) in terms of crude through put.
 by the year 2006-07 demand is expected to increase to 155 million tonnes
per annum.
FDI Policy
 FDI is permitted up to 100% under automatic route in private sector
Indian companies

Investment opportunities
 Additional refining capacity of about 110 million tonnes per annum
excluding EOUs is planned for implementation by the end of tenth
plan( 2002-07)
 Investment requirement of over US $ 22 billion.
 Opportunity for the transfer of technologies for upgrading the bottom
of the barrel and to meet the predominant demand for middle
distillates and also to improve the quality of petroleum products to
make them environment-friendly and globally competitive.

05/12/11 42
 Banking Sector

Status
 No of Scheduled Banks: 362( As on March 2003) *
 Indian Private Sector Banks: 30 (market share: 10%)
 Foreign Banks: 36 (market share: 12%)

FDI Policy
 FDI up to 74% from all sources under automatic route is
permitted in Private Sector Banks subject to conformity of
guidelines issued by RBI
 Foreign Bank can also establish as branch or Wholly owned
subsidiary

05/12/11 * Source: Indian bank Association 43

http://www.indianbanksassociation.org/home/
 Textiles
 Indian textiles sector:
 Turnover US$37 billion;
 Exports US$13 billion;
 Investments of US$11 billion in the last five years;
 India is 2nd largest producer of cloth and 3rd largest
producer of cotton yarn;

 Textiles sector has the potential to reach US$85

billion by 2010
 Exports can reach US$50 billion
 Garments to account for 50% of exports;
 Investment required US$30 billion

05/12/11 44
 Pharmaceuticals

 Indian Pharmaceutical : A US $ 4 billion industry (retail sales)

 Exports: US $ 3.18 billion (2003-2004)
 The country ranks 4th worldwide accounting for 8% of world’s production by
volume and 1.5% by value.

Opportunities
• Due to rising costs of R&D overseas, greater tendency towards outsourcing
and networking.
 Increasing competence in molecular biology, immunology and biotechnology
• Potential for clinical research and initiating clinical trials
 An efficient and cost effective source for procuring generic drugs especially
the drugs going off patent in the next few years.

05/12/11 45
 Power
Projects on offer
 Bairabi dam Hydro Electric project (80mw) –Mizoram
 Ministry of environment and forests has granted environment
clearance to the project.
 CEA has issued techno economic clearance of the project
 Athirapilly Hydro Electric project (160 MW) Kerala
 Ministry of environment and forests has granted environment
clearance to the project.
 Techno economic clearance of the project has been accorded
 Matnar Hydro Electric Project (60 MW) Chhattisgarh
 Environment and forest clearances are yet to be obtained.
 Techno economic clearance of the project has be accorded

05/12/11 46
 Power
Projects on offer

Private Sector Hydro Electric

Projects
• Dhamwari Sunda (70 MW) Himachal Pradesh
by M/s Dhamwari Power Company Ltd
economic clearance of the project has been
accorded
• Alliain Duhangan (192 MW), Himachal
Pradesh , by M/s A.D. Hydro Power Ltd
• Karcham Wangtoo (100 MW) Himachal
Pradesh by Karcham Hydro Corporation Ltd.
• Srinagar (330 MW), Uttaranchal by M/s
Alaknanda hydro Power Co. Ltd.

05/12/11 47
 Impact of the Reversing
Reforms of 91

05/12/11 48
 1980s
 Effortstowards deregulation and liberalization
had started in the 80s
 Reforms got jump started by the crises in the
middle of 1991
 There were fears that India would default on its
international dues
 Or else would default for want of critical imports

05/12/11 49
 From crises to reforms
 Balance of Payment crises led to the
initialization of the 91 reforms
 The 91 reforms completely reversed those being
pursued until the 80s
 Import substitution- Industrialization and self
reliance were overthrown by reforms that
preached deregulation and liberalization

05/12/11 50
 1991 reforms
 Licences for domestic manufacturing were
abolished
 Private sector were allowed to enter reserved
public sector areas
 Import tariffs were reduced drastically
 Rupee was devalued

05/12/11 51
 The 90s saw..
 Simplification and rationalization of the excise tax
structure, though with some loopholes
 Freedom for interest rates
 Public sector banks gave way to the entry of private banks
 SEBI catching ground as regulatory body for the stock
market
 Transparency and e-trading in stock markets

05/12/11 52
 Phasing out of reforms
 While many drastic changes were brought about,
controls were not dropped completely
 Conditions apply to many reforms that are being eased
out slowly
 Subsidies are being restrained but not very successfully
 Privatization of the PSEs did not keep up its initial pace
 APM is being dismantled slowly

05/12/11 53
 Reforms in hind sight

05/12/11 54
 Impact of the reforms
 Impact on the following are considered to assess the
reversing reforms
 Poverty
 Education & health
 Employment & wages
 Economic growth
 Industry
 Agriculture
 Foreign trade & BOP

05/12/11 55
 Poverty – faster decline over 1990s

Percentage Population below Poverty

Line

50
40
1983-84
30
1987-88
20 1993-94
10 1999-00

0
All India Rural Urban

Source: Dubey Amaresh and Phil Crook (2001)

05/12/11 56
 Education - continued progress in
literacy

80
70
60
1951
50 1961
40 1971
1981
30
1991
20 2001
10
0
Males Females Persons

05/12/11 57
Source: Census of India
 Health – inadequate progress

 While health has improved,

160
1951 progress has been inadequate
140 1971 as compared to the earlier
120 1981 decade
1991
100  Expenditure on health and
2000
80 education has reduced since
60 the reforms
40

20

0
Infant Mortality Rate

05/12/11 Source:
Economic Survey of India, 58

various years
 Employment - grew faster
 Employment in organized
Manufacturing employment
manufacturing industries 68

grew faster in the 90s 66

than in the 80s 64

62

60

58

56
1981 1989 1991 1999

05/12/11 59
Source: Ministry of Labour (DGE&T)
 Wages

 Real wage rates have improved for agricultural labour

Rural Males Rural Females

1983 - 1993-94 1993-94 – 1999-00 1983 - 1993-94 1993-94 – 1999-00

Manual work 2.74 2.77 3.09 2.93

(agriculture)

Casual labour 2.75 2.79 3.09 2.94

(agriculture)

Casual labour (non- 2.39 3.70 4.08 4.07

agriculture)

05/12/11 60
Source: Sundaram, EPW- August 2001
 Economic Growth
7  Accelerated growth of the 80s
6.11 was not sustainable
6
5.04
 This was reflected by the 91
5
1951-79
crises
4
3.5
 The 91 reforms have placed
1980-91
3
the economy at a higher
1992-00 growth path of over 6 percent
2
during 1992-2000
1

0
GDP growth rate

05/12/11Source: India Development Report, 2002 61

 Industry – growth and structure

 Growth in manufacturing over 1991-2001 higher than

five decades preceding it
 Growth in registered manufacturing was more
employment generating
 Labour intensive industries such as textiles were the key
employment generators
 Chemicals and related products manufacturing had the
highest share in value added

05/12/11 62
 Agricultural exports have increased

3,500

3,000

2,500

2,000 Agricultural
Exports
1,500
(Rs.
Million)
1,000

500

0
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01
(P)

05/12/11 Source: Ministry of Agriculture 63

 Agriculture - value added has been
increasing…

GDP from agriculture (Rs. Billion)

2,884 2,903

2,761
2,694

2,541 2,519
2,420
1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00
05/12/11 64
Source: CSO
 …But agri-growth rate has declined

Average annual growth rates of index of agricultural production

Year All crops Food Non-food Oilseeds Cotton Sugarcane
Grains grains

1981-91 3.5 2.9 4.8 7.0 2.8 2.6

1992-99 2.6 2.7 2.5 1.9 3.2 2.4

05/12/11 65

Source: India Development Report, 2002

 Foreign trade

1970-71 1980-81
 Growth of exports in the 1990-91 2000-01
70s was largely obtained 50000
44318
through various export 45000

40000
incentives 35000
 Accelerated growth in 30000

terms of exports + 25000

18234
invisibles is apparent in the 20000
13510
15000
90s 10000

5000
1841
0
Total exports

05/12/11 66
 Balance Of Payment
 Strength of the financial sector is reflected that India was
able to withstand the East Asia financial crises very well
 In November 2001 forex reserves stood at US $ 47
billion
 In January 2003 forex reserves stood at US $ 72 billion
 Also, less than half this amount is in the form of portfolio
investment

05/12/11 67
 Persisting issues
 Policy makers and government have realized
that the benefit of reform carried out are
stagnating
 This shows up in
 Decelerating growth of agricultural
 Stagnation of export in the past two to three years
 Fiscal imbalance, even with some reduction in
subsidies and APM

05/12/11 68
 Global Perspective

1. Global market overview

2. Global rankings

3. Market overview

05/12/11 69
 1. Global market overview - July
2004
During the month July 2004 IBM-PLI recorded 961 investment project
announcements worldwide, expected to create around 80,000 jobs.
July 2003 July 2004
Number of projects 1,038 961
Estimation
Share of investment of by
projects expected
region job 88,344 80,000
Share of investment projects by region
creation
35%
37% North America 19%
Americas 2%
25% Latin America & Carribean 6%

29%
Europe (W) 15%

3%
Europe (E) 11%
34%
EMEA Middle East 1%
3%
31%
0%
Africa 2%

13%
Asia (Developing) 34%

Asia- 29% 14%

Asia (Developed) 6%
Pacific 43% 2%
Oceania 3%
Outward FDI projects
Inward FDI projects

05/12/11 70
 2. Global rankings - July 2004
Top 10 countries: Top 10 regions: Top 10 countries:
inward inward outward investments
investments investments 1. United States
1. Shanghai, China 2. Japan
1. United States 2. Guangdong, 3. United Kingdom
2. China China 4. India
3. India 3. Karnataka, India
5. Germany
4. Japan 4. Tamilnadu, India
6. France
5. United Kingdom 5. California, USA
7. Canada
6. Brazil 6. Jiangsu, China
8. Australia
7. Australia 7. Adhra Pradesh,
9. Hong Kong
8. Russian India
10. Italy
Federation 8. North Carolina
Germany
9.05/12/11 9. New South 71

10. Singapore Wales, Australia

 3. Market overview – Manufacturing
Americas EMEA (Europe Middle Asia-Pacific
East and Africa)
Countries Projects Countries Projects
Countries Projects

1. United 56 1. China 70
1. Russian 12
States Fed. 2. Japan 22
2. Brazil 17 2. Romania 12 3. India 20
3. Mexico 10 3. UK 12 4. Thailand 8
Top Sectors Top Sectors Top Sectors
4. Columbia 2 4. Poland 9 5. Malaysia 5
1. Chemicals 15 1. Motor vehicles 17 1. Chemicals 39
5. Hungary 8
2. Motor vehicles 13 2. Motor vehicles 20
5. Argentina 2 2. Food & 17
3. Food & 12 Beverages 3. Food & 18
Beverages 3. Chemicals 10 Beverages
4.05/12/11
Rubber & 7 4. Electrical 1172
Plastics 4. Machinery (nec) 10 Machinery
 3. Market overview – Services
centers
Top countries for shared
services and contact
centers
Countries Projects
1. India 19
2. United States 11
Top Project
3. Philippines
Announcements
4
Companies Destination Job
4. China country 3 announcement
1. Effective Teleservices India 1,750
Inc
2. Direct General Corp United States 1,500
(Louisiana)
05/12/11 73
3. Zenta Group India 1,200
 3. Market overview – R&D
Top countries for R&D (incl.
software development)
Countries Projects
1. India 28
2. China 13
3. United States 10

Top Project Announcements

4. Japan 7
5. Taiwan 5
Companies Destination Job
country announcement
1. Wipro Technologies India 5,000
2. Tata Group India Up to 3,000
3. Microsoft United States (WA) 3,000*
05/12/11 74
*The new hires for the 12 months that end June 30, 2005, will fill both newly created positions and jobs vacated by others.
4. BearingPoint China 1,000
 INDIA IN THE GLOBAL ECONOMY

 India’s global ranking in terms of GDP- on PPP basis-has shot up from the 8th
position in 1991 to the 4th position in 2001

 India’s annual average GDP growth of 5.6% in the nineties was next only to
China and Korea

 RBI report projects growth rate to be significantly higher than 6% in 2003-04

 Tenth 5 year plan targets annual growth of 8% between 2002-07

 India, today has over US$ 85 billion in foreign exchange reserves which offers
import cover for 15 months – one of the highest among developing economies

05/12/11 75
 WHERE TO INVEST
SECTORS TO LOOK OUT FOR

 CHEMICALS & PHARMACEUTICALS

 OIL & GAS
 INFRASTRUCTURE
 BIOTECHNOLOGY
 ENGINEERING INDUSTRY
 MINING
 TEXTILES & APPAREL
 GEMS & JEWELLERY
 TELECOMMUNICATIONS
 AGRO & FOOD PROCESSING
 INFORMATION TECHNOLOGY

05/12/11 76
 What to think to attain global competitiveness

 Competitiveness is an essential factor for a more prosperous society and

requires joint and urgent action

 The government must promote a favorable business environment; the

university takes the first step toward innovation; and the private sector
invests to become competitive and develop technology

 Brazil must regulate the Law on Innovation to improve its competitiveness

on the world scene

 Patents are development indicators. Respect to patents is a legal and useful

tool to favor innovation, researchers and the society

 There must be an efficient agency, counting on adequate funding, a proper

number of qualified human resources, in addition to an independent
management system

05/12/11 77
Sustained Competitiveness

Facilitating Conditions
Continuous support for basic research
Effective patent protection
Effective, efficient and predictable regulatory
environment
Transparent business environment
Market based on competition and free choice

Incentive to Innovation Vocation

 Cluster of Innovation  Agribusiness
 Incentive to R&D  Aeronautics
 Innovation Law  Oil in deep waters
 Industrial Policy  Biotechnology / Genomics
 Free trade and Health Science

05/12/11 78
 Human Development Index vs. GDP per capita
175 countries — 2001

1.00
High HDI R2 = 0.85
(55 countries)

0.85
Human Development

0.70
Index (HDI)

0.55
Medium HDI
(86 countries)
0.40

0.25
0 Low HDI10,000
5,000 15,000Increase
20,000in countries
25,000 competitiveness
30,000 35,000 index
40,000
(34 countries)

PIB per capita (PPP – US$) — 2001

79
Source: United Nations – Human development Report 2003, A.T. Kearney analysis
 Market share in international trade

Share in world exports - % Total exports

US$ billion

1985 1994 2004

China
6.68
5.56 World 1,953.7 4,293.0 8,880.0
Latin
5.19 America North America 310.0 678.4 1,141.0
4.39
4.40
Latin America 108.5 188.3 461.0
2.82
Brazil 25.6 43.5 96.0
Mexico
1.40 2.13
1.80 Russia Mexico 26.8 60.9 189.0
1.37 1.42 2.03
1.31 1.01 1.08 Brazil
0.59 India Russia 86.7 81.1 183.0
0.47 0.82
China 27.3 121.0 593.0
North
15.9 15.8 12.8 America* India 9.1 25.0 73.0
1985 1994 2004

05/12/11 * Except Mexico 80

Source: WTO
PhD’s graduated yearly
(2004 or latest year, all fields)

China

India

Brazil

S. Korea

Canada

Mexico

Ireland

0 2000 4000 6000 8000 10000 12000 14000

PhD's graduated

05/12/11 81
Innovation is the pillar of competitiveness

Prosperity
“There are no low
technology profile
sectors, only low
Competitiveness technology profile
(Productivity) industries”
M. Porter

Innovative
technological
capacity
05/12/11 82
INDIA - HUMAN DEVELOPMENT PERSPECTIVE

05/12/11 83
 The Birth of Human Development Concept (1990 – UNDP)

 Basic assumptions under this concept

 The true wealth of a country is its people.
 There are not developed and underdeveloped countries, but
developed and underdeveloped people.
 The best strategy to increase national income is not to
accumulate capital, but to develop people.
 Exactly Defined as “Process of enlarging peoples
choice”

05/12/11 84
 Therefore
Growth Advocates: HD Advocates:
 Expanding income is an  income is a means;

end in itself enhancing people’s

capabilities the end
 Growth does trickle
 Simultaneous expansion
down of choices in other
dimensions – social,
cultural, political - and
economic
 not accept trickle down as
automatic

05/12/11 85
 Is Income Enough for Well-being?

 Economic growth is needed, but public policy is needed to

translate growth into HD. How?
1) Emphasis on investment in health,
education, skills of people
2) More equitable distribution of assets and
income
3) Well structured public expenditures
4) Empowerment of people to participate
Otherwise the growth is voiceless,
rootless, ruthless, futureless,
discriminating, etc.
05/12/11 86
 HOW TO MEASURE HUMAN DEVELOPMENT?

Index What it measures

HDI Average achievements in a country in three
basic dimensions of HD

GDI Adjusts the average achievement of the HDI to

reflect the inequalities between men and
women
Focuses on women’s opportunities rather than
GEM their capabilities

05/12/11 87
 Human Development Index (HDI)

Introduced in 1990, the HDI measures a country's

achievements in three aspects of Human
Development:
 Longevity: measured by life expectancy at birth;
 Knowledge: measured by a combination of the adult
literacy rate (2/3) and the combined gross primary,
secondary, and tertiary enrolment ratio (1/3);
 Standard of living: measured by GDP per capita
(Purchasing Power Parity of US$).  

05/12/11 88
 Construction of the HDI
1 Fixed minimum and maximum values are
established for each of these indicators:
1) life expectancy at birth: 25 and 85 years;
2) adult literacy rate (age 15 and above): 0% and 100%;
3) combined gross enrollment ratio: 0% and 100%;
4) GDP per capita (PPP$): $100 and $40,000 (PPPUS$).
2 For each component, individual indices are computed according to the
general formula:
Index=(actual value – minimum value) / (maximum value –
minimum value)
3 The Education Index is compiled as
2/3(adult literacy index) + 1/3(gross enrolment index)

05/12/11 89
 Construction of the HDI ( Contd)

4.The GDP index is calculated using adjusted per capita (PPP$). In

the HDI income serves as a surrogate for all the dimension of
human development not reflected in a long and healthy life and
in knowledge. Income is adjusted because achieving a
respectable level of human development does not require
unlimited income. Accordingly, the logarithm of the income is
used.

5.The HDI is a simple average of the life expectancy index,

educational attainment index and adjusted GDP per capita PPP
US$ index, and is derived by dividing the sum of these three
indices by 3.

05/12/11 90
 Uses of HDI: Focus on human outcomes, not
economic data

 Comparisons within and between countries of the same level of

development, as well as neighbors
 If properly disaggregated, to monitor inequalities, recommend
targeting, evaluate progress over time
 To determine priorities for policy intervention
 For lobbying policy makers who make budgetary allocations
(needs to be understood and used by civil society)
 To question national policy choices - how two countries with the
same level of income per person can end up with such different
HD outcomes.

05/12/11 91
 Similar HDI, different income, 1997

  Real GDP per Country HDI

capita (PPP $) value
Spain 15,930 0.894

Singap 28,460 0.888

ore
Georgia 1,960 0.729

Turkey 6,350 0.728

Morocc 3,310 0.582

o
Lesotho 1,860 0.582
05/12/11 92
 HDI trends in 2004 (2002)
The top and the bottom of the Index remain unchanged from
last year: Norway is on top and Sierra Leone is on the
bottom
Top  5  countries: Norway (0.956), Sweden (0.946), Australia
(0.946), Canada (0.943), Netherlands (0.942)
Bottom 5 Countries  : Burundi (0.339), Mali (0.326), Burkina
Faso (0.302), Niger (0.292), Sierra Leone (0.273)
India  : 1975 –0.411, 1980 – 0.437, 1990 – 0.514, 1995 –
0.548, 2000 – 0.579 and 2002- 0.595 (Rank 127)

05/12/11 93
 HDI trends in 2005 (2003)

The top and the bottom of the Index (177 ):

Norway is on top and Niger is on the bottom
Top  5  countries: Norway, Iceland, Australia, Luxemburg,
Canada
Bottom  5  Countries  : Chad, Mali, Burkina Faso, Sierra
Leone, Niger
India : .602 (Rank 127)

05/12/11 94
 HDI trends
 The CIS is the only region to witness an overall decline in its
HDI. Nearly all the countries saw a sizeable deterioration in
their income indicator, with the notable exception of Poland.
 Roughly half of the countries in Latin America and the
Caribbean recorded either a decline or stagnation in income
during the 1990s.
 East Asia and the Pacific region continues to forge ahead,
with virtually every country making progress compared with
1990. Lao, China, Thailand and Malaysia all moved ahead in
the HDI rankings. In South Asia, too, there were HDI
improvements across the board.

05/12/11 95
 S&E Job Growth Projected to Exceed Overall
Job Growth Rate
Projected Increase in Employment, Percent Change from 2000 to 2010

100
90
80
70
60
47
50
40
30
20 15
10
0
All Occupations All S&E Occupations

05/12/11 96
SOURCE: National Science Foundation, Science and Engineering Indicators – 2004.
 Number of S&E Doctoral Degrees Awarded
Growing Faster Worldwide Than in US
Compounded Annual Growth Rate of S&E Doctoral Degrees Awarded, 1991-
2001

China
Taiwan
South Korea
Japan
United Kingdom
France
India
Germany
United States

0 0.05 0.1 0.15 0.2 0.25

05/12/11 97
SOURCE: National Science Foundation, Science and Engineering Indicators – 2004.
 TO CONCLUDE

What should we do ?

- Reduction in economic and social inequalities of macro and microeconomic variables

- Promotion of Equality of opportunities for all people across the nations, regions, people
societies, cultures and genders
- Focus on contributing to the overall GDP of the Indian Economy
- Emphasis on crystallizing and outperforming international benchmarks in all sectors of the
economy
- Aim at achieving excellence in all spheres of operations
- Earnest endeavours on Invention, Innovation, R& D, and patents of state of the art
technology, products, systems and processes
- Nurture high ambition and aspiration levels in Individual, organizational and international
domains
- Focus on Technology related areas and its overall contributions to Quality of life so as to
maximize India’s Ranking on HDI Frontier
- Adherence to Sterling Benchmarks of behaviors based on universal ethics and values
- Commitment to preserve the environmental sustainability in the long run

05/12/11 98
05/12/11 99