India parameters for growth
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India : Parameters for Growth. By Dr. Ajay Dua Secretary to Govt. of India Ministry of Commerce & Industry, New Delhi E-mail: [email protected] Healthy macroeconomic fundamentals. Growth Average annual growth rate* In the 50s, 60s and 70s – 3.5% In the 80s – 5.7%

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India : Parameters for Growth

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India parameters for growth

India : Parameters for Growth

By Dr. Ajay Dua

Secretary to Govt. of India

Ministry of Commerce & Industry, New Delhi

E-mail: [email protected]

Healthy macroeconomic fundamentals

Healthy macroeconomic fundamentals


  • Average annual growth rate*

    • In the 50s, 60s and 70s – 3.5%

    • In the 80s – 5.7%

    • During 1990-2005 – 6.0%

    • During the last three years – 8%

  • India is now targeting a growth of 9% plus over the next 5 years

*Source – Reserve Bank of India

Healthy macroeconomic fundamentals1

Healthy macroeconomic fundamentals

Fiscal deficit

Source – Reserve Bank of India

Healthy macroeconomic fundamentals2

Healthy macroeconomic fundamentals

External debt

Source – Reserve Bank of India

India parameters for growth

Healthy macroeconomic fundamentals

Forex reserves

(All figures are in US$ billion)

Source – Reserve Bank of India

India parameters for growth

Healthy macroeconomic fundamentals


(All figures are in %)

Source – Reserve Bank of India

Composition of gdp

Composition of GDP

(All figures are in %)

Source – Reserve Bank of India

External trade

External trade

(All figures are in US$ billion)

Source – DGCI&S

India parameters for growth

Foreign investments

(All figures are in US$ billion)

FDI in 2006-07 is expected to touch US$ 12 billion

Source – Reserve Bank of India

Calibrated globalization

Calibrated globalization

  • Reduction in import tariffs

  • Liberalization of FDI regime

  • Fully convertible current account

  • Moving towards fuller capital account convertibility

  • Complying with WTO norms to plug into the global economy

Calibrated globalization1

Calibrated globalization

  • Reduction in collection rates

Source – Economic Survey 2005-06

Calibrated globalization2

Calibrated globalization

Pre 1991 1991 1997 2000 Post 2000

FDI allowed


up to 40%

Up to 51% under

‘automatic route’ for

35 priority sectors

Up to 74/51/50% in 111

sectors under

‘automatic route’

100% in some sectors

Up to 100% under

‘automatic route’

in all sectors

except a –ve list

Liberalization of

FDI policy

in India

More sectors opened;

equity caps raised;

conditions relaxed

Buoyant corporate performance

Buoyant corporate performance

Source – CMIE

Striking future projections

Striking future projections

What Goldman Sachs says -

  • India likely to show the fastest growth over the next 30 to 50 years

  • Growth could be higher than 5% over the next 30 years and close to 5% as late as 2050

  • India’s GDP will exceed Italy’s in 2016, France’s in 2019, Germany’s in 2023 and Japan’s in 2032

  • India to become the world’s 3rd largest economy by 2032

Unmatched demography

Unmatched demography

  • Over 1 billion population – 52% below the age of 25

  • Median age of India’s population would remain 25 even as late as in 2025

  • India’s workforce (20-59 age group) would go up by around 263 million by 2050

  • Today’s youth would drive tomorrow’s boom

Unmatched demography1

Unmatched demography

Growth in global working-age population (15-64) in millions

Source – United Nations

Expanding domestic market

Expanding domestic market

Total number of households to increase from 188.2 million in 2001-02 to 221.9 million by 2009-10

Source – NCAER

Untapped market potential

Untapped market potential

While the absolute size of the market is large, penetration rates are still low – untapped potential

Source – Morgan Stanley

Untapped market potential1

Untapped market potential

Penetration rates for non-durable products

Source – Morgan Stanley

Large intellectual capital base

Large intellectual capital base

Annual additions to the stock of science and engineering graduates

Source – Morgan Stanley

India an emerging hub for knowledge based industries

India - An emerging hub for knowledge based industries

  • India has potential to attain leadership position in sectors like pharma, chemicals, biotechnology, avionics, nanotechnology, material sciences

  • Over 100 MNCs have set up their R&D centers in India

Cost competitiveness

Cost competitiveness

Average annual pay for various jobs in India and China (US$)

Source – FICCI Compilation

Sectors with potential

  • Automobiles and auto ancillary

  • Information technology and IT enabled services

  • Food processing

  • Telecommunications

Sectors with Potential

Automobiles and auto ancillary

Automobiles and Auto ancillary

  • Largest three wheeler manufacturer in the world

  • Second largest two wheeler manufacturer in the world

  • Third largest car market in Asia

  • Fifth largest commercial vehicle manufacturer in the world

  • All major MNC auto companies present – Daimler Chrysler, Suzuki, Ford, Fiat, Hyundai, General Motors, Volvo, Yamaha, Mazda

  • India exports automobiles to critical markets

Automobiles and auto ancillary1

Automobiles and Auto ancillary

Auto production includes commercial vehicles, passenger vehicles, two and three wheelers

Source – Society of Indian Automobile Manufacturers (SIAM)

Automobiles and auto ancillary2

Automobiles and Auto ancillary

Source – FICCI computation based on data provided by SIAM

Automobiles and auto ancillary3

Automobiles and Auto ancillary

  • The growth of the automobile industry has been accompanied by growth in the auto components industry

  • Indian auto component manufacturers are today globally competitive and are making significant inroads in the global market

Source – Auto Component Manufacturers Association (ACMA)

Automobiles and auto ancillary4

Automobiles and Auto ancillary

The BIG opportunity !!!

  • Car ownership in India is 10 per thousand inhabitants – Brazil (122), Russia (160), UK (400), Japan (502), USA (745)

  • Auto ancillary output projected to go up from US$ 10 billion in 2005-06 to US$ 40 billion by 2015

  • Auto ancillary exports crossed the US$ 1 billion mark in 2003-04 and projected to touch US$ 25 billion by 2015

  • With design, engineering and components manufacture facilities India can be an important R&D hub

Source – Industry Estimates

Information technology and ites

Information technology and ITeS

Industry snapshot

  • CAGR of over 28% since 1999-2000

  • Contribution to GDP up from 1.9% in 1999-2000 to nearly 4.8% in 2005-06

  • Currently employs 878,000 people, added 120,000 during the last fiscal

  • Clocked 31% growth in 2005-06, registering revenues of US$ 29.6 billion, up from US$ 22.5 billion in 2004-05

  • Exports grew by 33% in 2005-06, domestic revenues witnessed a growth of 24%

Information technology and ites1

Information technology and ITeS

All figures are in US$ billion Source – NASSCOM

IT-ITeS exports projected to reach

US$ 60 billion by 2010

Information technology and ites2

Information technology and ITeS

Look at India for

  • Software product development

  • Embedded software

  • Offshore product development / R&D outsourcing

  • IT application solutions

  • ITeS

Food processing

Food Processing

  • India - One of the largest food producers of the world

  • Output of the organized segment - US$ 34,827 million

  • Marine and Spices together contribute more than 70% of export earnings

  • Investment requirement is around US$ 15 billion

  • The Indian scientific and research talent - a knowledge source that can be tapped for advantage

Food processing projections

Food Processing - Projections

Excluding consumption of alcoholic beverages and out-of-home consumption



  • The 6th largest network in the world with a wide range of services including basic, cellular, internet, paging, VSAT, etc.

  • Network growing at an annual average rate of approximately 22 percent for basic services and more than 100 percent for cellular and internet services

  • The current tele-density of approximately 14 percent is to be increased to 22 percent (250 million telephone connections) by 2007

  • Investment requirement of approximately US$32 billion between 2005 and  2010

Growth of telecommunication network in million

Growth of Telecommunication Network (In Million)

Source – TRAI

India parameters for growth

Growth of Telecommunication Network (In Million)

Issues needing to be addressed

Issues needing to be addressed

Making the growth process more inclusive

  • Growth has been urban centric.

    • 8 large metros witnessing the revolution in manufacturing and services, though there are over 750 towns and cities.

    • Rural areas which have about 60% of the population remain largely unaffected by the progress. Agriculture , their main stay is growing slowly at about 2% p.a.

India parameters for growth

Making the growth process more inclusive (contd.)

  • Growth has not been accompanied by significant new employment opportunities.

    • Agriculture growth at 2% p.a. is supporting over 600 million persons, but with only 20% share of GDP – consequently farm employment not growing.

    • Services growth at 7% plus for last decade , accounting for 54% of GDP, employs only 20% of work force

    • Manufacturing growing at 8% plus , is also not labour intensive in view of the need to remain globally competitive and because of easier availability of capital. Rigidity in labour laws contributing to higher capital intensity.

    • Population increase of about 100 million in last 5 years , which has seen about 50 million new jobs, largely in the unorganized sector.

India parameters for growth

Growth being constrained by inadequate infrastructure

  • An estimate that GDP rate of growth being limited by one percent on account of inadequate electricity – admitted energy shortage of 12% and peak time shortage of 20% - need for an additional 90 Giga Watts capacity over next 5 years.

  • Transaction costs high due to capacity constraints at ports resulting in delays.

  • Highways network expanding but grossly inadequate – Public Private Partnership Models evolved.

  • Railways network large but expanding very slowly – need for high capacity and high speed passenger and freight trains.

  • Estimated capital requirement in infrastructure US $ 320 billion during 2007-12. FDI seen as a major avenue.

India parameters for growth

Future Growth Dependant on Continued Availability of Skills

  • Indian comparative advantage of high skills and low wages could become minimal if continuous augmenting of skill training facilities is not kept up.

  • While at the top good technocrats are available, skill shortage at the shop floor level likely to arise in five years time particularly in IT , ITeS and many manufacturing operations.

  • Private sector involvement in capacity building is a must and ways and means to devise it still not in place. s

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