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Indian
Economy
India is currently one of the
fastest growing economies in the World with GDP growing at 9.1% in
April 2006 - September 2006 (GDP growth in Apr 2005-Mar 2006: 9.0%)
India
is the fourth largest economy (US$ 3 trillion GDP) in terms of
Purchasing Power Parity after USA, China and Japan.
Large
and growing market of 1 billion people of which 300 million are
middle class consumers. India offers a vibrant market of youth with
54% of population below the age of 25 years.
The
number of households with "high income" is expected to
increase by 60% in the next four years to 44 million households.
India
has a sound banking system coupled with a well developed, vibrant
but tightly regulated capital market.
India
has a diversified and large industrial base, which is becoming
globally competitive
India
has the largest pool of low cost skilled workers apart from second
largest pool of engineers, scientists and information technology
professionals
100%
Foreign Direct Investment is allowed on automatic basis in most of
the sectors
Special
incentives and tax-breaks are given for certain sectors/zones.
India's
economy has registered an ever increasing growth curve. India is a
leading destination for foreign investment, with several positive
indicators like a stable 8-9 per cent annual growth, rising foreign
exchange reserves of close to US$ 180 billion, a booming capital
market with the popular "Sensex" index topping the
majestic 14,000 mark, the Government estimating FDI flow of US$ 12
billion in this fiscal, and a more than 35 per cent surge in
exports.
The
economy has grown by 8.9 per cent for the April-July quarter of
'06-07, the highest first-quarter growth rate since '00-01.
The
growth rate has been spurred by the manufacturing sector, which has
logged an 11.3 per cent rise in Q1 '06-07, according to the GDP data
released by the Central Statistical Organisation. It was 10.7 per
cent in the corresponding period of the last fiscal year. The GDP
numbers come just weeks after the monthly IIP growth figures have
touched 12.4 per cent.
Agriculture,
which accounts for nearly a quarter of the GDP, has also grown by a
healthy 3.4 per cent, unchanged from the corresponding period of
last fiscal.
Other
propellers of GDP growth for the first quarter this fiscal have been
the trade, hotels, transport and communications sector which grew by
9.5 per cent and construction, which grew by 13.2 per cent. In the
corresponding period of last fiscal, these sectors grew by 11.7 per
cent and 12.4 per cent, respectively.
Electricity
also grew by 5.4 per cent this first quarter as opposed to 7.4 per
cent in the same period last year. The overall growth in this sector
was fuelled by growth in July and August. The services sector also
grew by 10.6 per cent in the first quarter of '06-07. It was only
9.8 per cent last year in the same period.
There
has been exceptional growth rate in some specific industries, like
commercial vehicles at 36 per cent, telephone connections, by 48.9
per cent and passenger growth in civil aviation by 32.2 per cent.
TRADE/ INVESTMENT
India's macro-economic fundamentals
are sound: total exports of goods and services for 2006-07 are US$
196.23 billion and the trade deficit (for both goods and services)
is US$ 16.14 billion. Furthermore, India's forex reserves continue
to be at a comfortable level and consistent with the rate of growth,
the share of external sector in the economy and the size of
risk-adjusted capital flows. The Government is focusing on
infrastructural development to attract foreign direct investment
(FDI) and India is already building more highways than any other
country in the world.
The
booming stock market in the last three years has seen the value of
foreign portfolio investments growing by about 129 per cent to US$
119 billion; a total of 992 foreign institutional investments (FIIs)
from 39 countries have invested US$ 52 billion in domestic shares.
FDI
in the country jumped 100 per cent over two years, from US$ 3.75
billion in 2004-05 to US$ 7.231 billion till November 2006.
FII
inflows in 2006-07 were around US$ 9.18 billion while the number of
registered FIIs in the current fiscal went up to 1,030 from 813 at
the beginning of the fiscal.
Economic Survey 2006-07 :
Advance estimates of gross domestic
product (GDP) for 2006-07, released by the Central Statistical
Organisation, places the growth of GDP in the current year at 9.2
per cent.
While
services maintained its vigorous growth performance, there were
distinct signs of sustained improvements on the industrial front.
The
overall macroeconomic fundamentals are robust, particularly with
tangible progress towards fiscal consolidation and a strong balance
of payments position.
With
an upsurge in investment, the outlook is distinctly upbeat.
Agriculture
One of the world’s largest food
producers (600 million tones).
World’s
largest producer of milk, sugarcane and tea.
Second
largest exporter of rice, wheat, fruits, and vegetables. India
produces 30 million tones of fruits and 59 million tons of
vegetables.
Fourteen
states, including Maharashtra, Punjab, Andhra Pradesh and Rajasthan
amended the Agricultural Produce Marketing Committee (APMC) Act IN
2006-07, which allows farmers to sell their produce directly to
buyers offering them the best price.
Agriculture
sectors such as horticulture, floriculture, development of seeds,
animal husbandry, pisciculture, aqua culture, cultivation of
vegetables, mushroom under cultivated conditions and services
related to agro and allied sectors are open to 100 per cent foreign
direct investment (FDI) through the automatic route.
Economic Survey 2006-07
estimates for agriculture sector:
Agricultural growth is pegged at 2.7
per cent.
Total
food grains production in 2006-07 estimated at 209.2 metric tonnes
(MT).
Total
water availability in reservoirs up 10 per cent to 120.2 billion
cubic meters (BCM) at the end of monsoon 2006.
Fishing,
aquaculture, and allied activities made for 5.3 per cent of the
agricultural gross domestic product (GDP).
Production
of wheat and other rabi crops brightened with welcome rain in
February 2007--sugarcane, cotton, jute and mesta to set new records
India, according to McKinsey
Research, has all the required skills in process, product, and
capital engineering, thanks to its long manufacturing history and
higher-education system. Manufacturers from across the world are thus
setting up shop in India.
India's vast domestic market and
relatively low-cost workers with advanced technical skills will make
it a manufacturing powerhouse within 5-10 years. Already, more and
more multinationals are setting up operations in India: ABB,
Honeywell and Siemens in electrical and electronic products; Cummins,
DaimlerChrysler, and Toyota in auto components and engineering; and
Degussa as well as Rohm and Hass in specialty chemicals. All these
operate in skill-intensive industries requiring advanced technical
expertise--areas in which India is likely to become a primary
sourcing and manufacturing base.
India's manufacturing output
increased 11.6 per cent in January 2007 from a year earlier,
according to a report by the Central Statistical Organisation. Going
by the report, production at factories, utilities and mines increased
10.9 per cent, following the revised 12.5 per cent gain in December
2006, going beyond analysts' expectations of a rise of 10.1 per cent.
The Index of Industrial Production
(IIP) in December 2006 went up 11.1 per cent over the corresponding
month of the previous year, according to Government data. The
manufacturing sector, which has an almost 80 per cent weightage in
the Index, went up by 11.9 per cent.
Economic Survey 2006-07
estimates for manufacturing sector:
Impressive growth in industrial
sector is propelled by the robust growth in the manufacturing sector
which continues unabated.
Year-on-year industrial growth of
10.6 per cent in the first nine months of 2006-07 was the highest
recorded since 1995-96; growth of the manufacturing sector was in
double digits.
The Eleventh Plan (2007-12) target of
10 per cent annual industrial growth appears achievable.
Industry
Diversified and large industrial
base, which is becoming globally competitive. Examples, Tata Steel
and NALCO are the lowest cost manufacturers of steel and aluminum in
the world. Moser Baer is one of the top three manufacturers of CD
ROMs in the world. Bharat Forge is one of the leading suppliers to
auto giants, such as Ford, General Motors, and Toyota.
India’s
Hero Honda is the world’s largest motorcycle manufacturer with
production of 1.7 million units. India is one of the largest markets
for motorcycles. Honda and Kawasaki have made India their global
export hub.
The
Indian companies have drawn up ambitious plans for expanding and
diversifying their manufacturing activities with about 12 billion
dollars in the next three years. Most of the companies have been
able to generate the funds from their own operations. The areas
whose output is being scaled up are automobiles, auto parts, metals,
chemicals, pharmaceuticals and electronics.
The
pharma industry of India has become a knowledge-based one and has
gained global recognition as a producer of low cost high quality
bulk drugs and formulations.
The
chemical industry is becoming competitive and has very high growth
potential for production for local market as well as exports. Bayer
AG, the German chemical and pharmaceutical company has identified
India as the outsourcing hub for basic and specialty chemicals.
There
are 150 biotechnology companies whose business is growing
exponentially.
The
auto parts industry has emerged as one of the country’s
fastest-growing manufacturing sectors and a globally competitive one
with turnover of more than US$ 5 billion. ‘Bharat Forge’ of
India is the world’s largest manufacturer of front axles for
trucks. India has emerged as an outsourcing center for auto parts
for companies such as Ford, Daimler Chrysler, Fiat Volvo and
Renault. Visteon and Delphi, the world’s largest component
manufacturers have entered India for production. Toyota has made
India as the global hub for transmission systems. Volvo and GM have
set up purchasing offices. A rising share of Indian auto parts
exports goes to original equipment manufacturers (OEMs).
The
Indian auto industry has grown to a capacity of 1.2 million units
per year. Annual Car sales are in excess of one million units.
Tata
Motors have developed cars based on indigenous design and
manufacture with 100 per cent of Indian parts and have established
themselves as one of the leaders in Indian automobile industry.
Hyundai
has made India as the hub for their worldwide exports of small cars.
The
textile industry of India, the second largest in the world, is
undergoing modernization .According to a DHL-Mckinsey Study, India’s
share in world textiles will go up from 4 per to 6.5 per cent by
2008.
India
is the second largest cement producer in the world with 110 million
tons.
India
is the world’s premier center for diamond cutting and polishing.
Nine out of every 10 stones sold in the world pass through India.
India
has a large entertainment industry, which produces 800 movies per
year overshadowing Hollywood. The turnover is in the range of US$ 6
to 7 Billion.
Indian Investment Abroad
Indian companies have started
venturing into other countries for marketing, production,
acquisition, and even research and development. Investment abroad by
Indian companies in 2002-03 was US$ 1048 million.
Cross
border M&A acquisitions by Indian firms have gone up.
Indian
firms have more than 400 investments / joint ventures in UK, mostly
tech-oriented. India is the eighth largest investor in UK.
There
are more than 1400 Indian companies operating in Singapore. Of these
more than 450 are technology enterprises.
Seven
Indian companies are listed in NYSE and three in NASDAQ. There are
over 15 companies listed in LSE.
While
the acquisition of foreign companies started off in the IT and
related services sector, it has now spread to other areas.
A.
V. Birla group has presence in 18 countries and has overseas revenue
of US$ 1.8 billion excluding their exports of US$ 900 million. Their
overseas employees total 12,000 in 20 countries.
ONGC
Videsh Ltd.(OVL) has investing nearly 3 billion dollars in
discovered / producing oil fields in Sudan, Russia and Angola and
gas fields in Vietnam. Besides, OVL has acquired exploration assets
in Myanmar, Libya, Iran, Iraq and Syria. OVL is interested in
acquisition of equity oil in Venezuela and West Africa. GAIL and IOC
have also started investment and operations outside India.
Ranbaxy,
the largest Indian pharma company, gets 70 per cent of its one
billion dollar revenue from overseas operations and 40 per cent from
USA. It exports to 70 countries, has ground operations in 25 markets
and manufacturing in seven countries including China.
Dr.
Reddy Labs acquired a US firm in May 2004 dealing with speciality
drugs.
Tata
Consultancy Services (TCS) has 28,000 employees of 30 nationalities
providing IT Solutions in 32 countries. TCS has software development
centers in 9 countries outside India.
Tata
Tea has bought Tetley of UK the biggest tea bag maker for US $ 430
million. With this acquisition, Tata Tea became the second largest
tea company in the world.
India's FDI inflows -- US$ 19 billion
in 2006-07-- constitute 2.3 per cent of the country's gross domestic
product (GDP). The directional flow of FDI into manufacturing and
export of goods and services is contributing immensely to India's
export efforts.
India received US$ 50.09 billion FDI
inflow during August 1991 - January 2007 (excluding the reinvested
retained earnings) with only Mauritius contributing 35.25 per cent
(US$ 17.66 billion) during the same period. The United States and the
United Kingdom stood second and third respectively--with FDI inflows
worth US$ 5.7 billion and US$ 3.6 billion to India.
The top five sectors which are the
highest grossers of FDI during August 1991 - January 2007 are
computer software and electronics (US$ 8.13 billion), services sector
(US$ 7.33 billion), telecommunications (US$ 3.87 billion),
transportation industry (US$ 3.58 billion), and power and oil
refinery (US$ 2.8 billion).
Remittances by overseas Indians, as
reflected in private transfers in the balance of payments, touched a
new high of US$ 8,145 million during the quarter ended December 2006
-- the highest-ever received by the country in any single quarter.
Remittances for the entire calendar year 2006 touched US$ 26.9
billion.
Foreign Trade
In the last three years, India's
exports have almost doubled and its share in world trade has
increased from 0.7 per cent to 1 per cent. The export basket has
expanded during 2006-07:
Engineering exports touched US$ 24
billion --a 40 per cent growth on top of the export earnings of US$
20 billion in 2005-06.
Exports
of machinery, instrumentation and engineering goods grew by 35 per
cent.
Merchandise
exports surged to US$ 125 billion, from US$ 63.84 billion three
years ago.
Service
exports touched US$ 71.64 billion.
Exports
of granites, marbles and stones from the country crossed US$ 948.6
million for the first time.
IT
services, BPO and electronic hardware are estimated to have touched
US$ 23.6 billion during the first nine months of 2006-07.
India's
passenger vehicle exports, dominated by cars, quadrupled during
2001-06 (from 46,028 units to 164,965 units). Total export CAGR
during 2001-06 was 41.72 per cent, with cars and jeeps clocking 33
per cent. India’s Trade April – March 2003 - 2004 (Figures in
million dollars)
Lines of Credit (LOC)
India has so far given Rs. 2730
crores and US$ 487 million as government-to-government LOCs to 36
countries. This includes 13 countries in Asia, 14 in Africa, 3 in
Latin America Caribbean and 6 in CIS region. Since 1994, Rupee credit
has been discontinued and only dollar credit is given.
A credit line of 200 million dollars
has been announced for NEPAD projects in Africa. Another LOC of 500
million dollar has been announced for TEAM-9 countries in West
Africa.
The Government-to-Government LOCs
are given with attractive concessional terms. For HIPC countries the
interest rate is fixed at 1.75 per cent payable in 20 years. For
other countries the interest rate is LIBOR Plus 0.5 per cent payable
in 8 - 15 years.
The
Exim Bank of India has extended commercial LOCs to a number of
countries and multilateral agencies. Exim Bank has operative LOCs
to 24 countries.
Quality of Indian products
It is not just the low-cost which is
driving India’s exports. Quality of some Indian products has come
to be recognized globally. Apart from the ISO certification got by
over 5000 companies, some Indian companies have won special
recognition for excellence in quality. Out of the 18 Deming Prize
Winners for Total Quality Management in the last five years, six are
Indian companies. Another 18 manufacturing plants of 10 Indian
companies have been recognized by the Japanese Institute of Plant
Management for excellence. Sundaram Fastener has been a regular
winner of annual “ Best Supplier Award “ from GM. Rane engine
valves received the best supplier award from Deutz AG, a leading
German engine manufacturer. Cooper Tireand Rubber company of India
has been awarded “ Gold World Excellence Award “ of Ford motors.
Foreign Investment - Policies
and Procedures
The Common Minimum Programme of
the government states that “FDI will continue to be encouraged and
actively sought particularly in areas of infrastructure, high
technology and exports where local assets and employment are created
on a significant scale. The country needs and can easily absorb at
least two to three times the present level of FDI inflows”.
Foreign investment can be done in
all sectors except four sectors: retail trade, housing and real
estate, agriculture and lottery and gambling. In most of the sectors
foreign investors can go through the Automatic Route without need
for any approvals. The investor has to merely keep the Reserve Bank
of India informed of the flow of funds and issue of shares. In some
sectors ( examples: courier services, gas pipelines and trading ),
prior approval is needed
There
are maximum limits on foreign investment in some sectors. Examples:
telecommunications (49%), insurance (26%), banking (74%), mining
(74%) aviation (49%),defence equipments(26%), cable
network(49%),trading (51%),print media(26%) and small-scale
industries (24%). FDI in excess of 24% is permitted in small-scale
industry at 50% export obligation.
Prior
approval of the government is needed for those cases, which need
industrial license ( examples: alcoholic beverages,
cigarettes,defence equipments, gunpowder and hazardous chemicals. )
and those involving investment beyond the maximum limits. Such cases
are cleared by the Foreign Investment Promotion Board in a
transparent, efficient, time-bound and predictable manner. The FIPB
meets once a week.
The
Department of Industrial Policy and Promotion is the nodal agency
for information and assistance to foreign investors. Their website
www.dipp.nic.in
has comprehensive information for foreign investors and gives
weekly update on proposals for foreign investment under
consideration. It also gives information on projects available for
foreign investors and contains online applications for clearances.
The
Various state governments in India offer competitive incentives and
attractions to foreign investors.
Intellectual
Property Rights Laws of India are well on track with the rest of the
world. With the third amendment to the already substantially revised
Patents Act by end 2004, India would be TRIPS-Compliant before the
deadline of 1 st January, 2005.
Capital
account convertibility for foreign investors.
Potential for investment in
India
The Government is focusing on
expansion and modernization of roads and has opened this up for
private sector participation. 48 new road projects worth US$ 12
billion are under construction. Development and upgradation of roads
will require an investment of US$ 24 billion till 2008. Private
sector participation in road projects will grow significantly.
Special incentives and tax-breaks
are given for certain sectors such as power, electronics, telecom,
software, hydrocarbons, R&D and exports.
The
railway sector will need an investment of US$ 22 billion for new
coaches, tracks, and communications and safety equipment over the
next ten years.
Upgradation
and modernization of airports will require US$ 33 billion investment
in the next ten years.
There
is potential for investment in the expansion and modernization of
ports. The government has taken up a US$22 billion ‘Sagarmala’
project to develop the Port and Shipping sector under Public-Private
Partnership. 100 percent FDI is permitted for construction and
maintenance of ports. The government is offering incentives to
investors.
The
Ministry of Power has formulated a blueprint to provide reliable,
affordable and quality power to all users by 2012. This calls for
investment of US$ 73 billion in the next five years. Opportunities
are there for investment in power generation and distribution and
development of non-conventional energy sources.
There
is potential for investment in urban infrastructure projects. Water
supply and sanitation projects alone offer scope for annual
investment of US$ 5.71 billion.
The
entire gamut of exploration, production, refining, distribution and
retail marketing present opportunities for FDI.
India
has an estimated 85 billion tones of mineral reserves remaining to
be exploited. Potential areas for exploration ventures include gold,
diamonds, copper, lead zinc, cobalt silver, tin etc. There is also
scope for setting up manufacturing units for value added products.
The
telecom market, which is one of the world's largest and fastest
growing, has an investment potential of US$ 20-25 billion over the
next five years. The telecom market turnover is expected to increase
from US$ 8.6 billion in 2003 to US$ 13 billion by 2007.
The
IT industry and IT-enabled services, which are rapidly growing offer
opportunities for FDI.
India
has emerged as an important venue for the services sector including
financial accounting, call centers, and business process
outsourcing. There is considerable potential for growth in these
areas.
Biotechnology
and Bioinformatics, which are in the government's priority list for
development, offer scope for FDI. There are over 50 R&D labs in
the public sector to support growth in these areas.
The
Indian auto industry with a turnover US $ 12 billion and the auto
parts industry with a turnover of 3 billion dollars offer scope for
FDI.
The
government is encouraging the establishment of world-class
integrated textile complexes and processing units. FDI is welcome.
While
India has abundant supply of food, the food processing industry is
relatively nascent and offers opportunities for FDI. Only 2 percent
of fruits and vegetables and 15 percent of milk are processed at
present. There is a rapidly increasing demand for processed food
caused by rising urbanization and income levels. To meet this
demand, the investment required is about US$28 billion. Food
processing has been declared as a priority sector.
The
Healthcare industry is expected to increase in size from its current
US$ 17.2 billion to US$ 40 billion by 2012.
The
Government has recently established Special Economic Zones with the
purpose of promoting exports and attracting FDI. These SEZs do not
have duty on imports of inputs and they enjoy simplified fiscal and
foreign exchange procedures and allow 100% FDI.
The
travel and tourism industry which has grown to a size of US$ 32
billion offers scope for investment in budget hotels and tourism
infrastructure.
Infrastructure
Although the infrastructure of India
has not kept pace with the times, there are ambitious plans for
expansion and modernization.
The “Golden Quadrilateral” Plan
(5850 Kms costing US$ 5.5 billion) for linking the four metropolitan
cities of Delhi, Mumbai, Chennai, and Kolkata with modern highways
is already underway. North South (Srinagar to Kanyakumari) and
East-West (Silchar to Porbendar) highways with a length of 7,000 kms
are also under construction. Another project to connect all major
cities with 10000 kms of roads costing 9 billion dollars has been
launched.
Ports
and terminals are being modernized and services are privatized.
The
“Sagar Mala” project launched for expansion and modernization of
ports, inland navigation and maritime transport. This involves an
investment of US$ 22 billion in a period of ten years. While the
Government will take care of 15% of the investment, the rest will
come from the private sector. The cargo handling capacity is
expected to increase to 565 million tones in 2006-07 from 412
million tones.
Special Economic Zones (SEZ)
The Government has allowed SEZs (the
Export Processing Zones have now become SEZs) for production and
services for exports since April 2000. A whole host of tax and other
benefits are given for units in SEZs. Even the Labour Law has been
made flexible in these zones.
There are 14 functioning SEZs and
approval has been given for another 14. These account for 22% of
annual exports. The Government is allowing opening of more SEZs. 100%
FDI is permitted.
More information on:
www.sezindia.nic.in
India micro economic data : click :
http://www.eximbankindia.com/ind-eco.pdf
Web Sources
(www.indiainbusiness.nic.in)
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