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Investing in India. Jan 07. Contents. Prospects Policies & Procedures Problems. Prospects. Healthy macro-economic 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%

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contents
Contents
  • Prospects
  • Policies & Procedures
  • Problems
prospects
Prospects

Healthy macro-economic 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

slide4
… contd
  • Inflation moderate and averaging 4-5% pa
  • Forex reserves of about $ 170 bn, i.e. equivalent to almost 15 months of imports
  • Gross fiscal deficit to GDP ratio declining and currently at 3.8%
  • External debt to GDP ratio also declining and in 2005-06 at 15.8%

*Source – Reserve Bank of India

external trade
External trade

(All figures are in US$ billion)

Source – DGCI&S

slide6

Foreign investment

(All figures are in US$ billion)

FDI equity upto Nov 2006 $7.3 billion .Expected to be US$ 12 billion in 2006-07.

Source – Reserve Bank of India

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
basis for optimism
Basis for optimism

Supply side

  • Adequate availability of manpower and skills
  • 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 ,while of China would grow by 94 million and of USA by 11million.Other majors like Japan, Germany ,UK and France would experience a decline.
large intellectual capital base
Large intellectual capital base

Annual additions to the stock of science and engineering graduates

Source – Morgan Stanley

cost competitiveness
Cost competitiveness

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

Source – FICCI Compilation

demand side expanding domestic market
Demand side -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

demand side contd
Demand Side Contd.
  • Along with expanding domestic market , export orientation developing in almost all economic activities – external trade already 36% of GDP.
  • India becoming a hub for export of manufacturing and services – particularly to developed countries where input costs are fast rising.
sectors with potential

Automobiles and auto ancillary

  • Information technology and IT enabled services
  • Pharmaceuticals
  • Biotechnology
  • Food processing
  • Telecommunications

Sectors with Potential

automobiles and auto ancillary
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 ancillary1
Automobiles and Auto ancillary

Source – FICCI computation based on data provided by SIAM

automobiles and auto ancillary2
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 – SIAM

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

Look at India for

  • Software product development
  • Embedded software
  • Offshore product development / R&D outsourcing
  • IT application solutions
  • ITeS
pharmaceuticals
Pharmaceuticals

Indian pharma industry

  • Size of the industry – US$ 8 billion
  • Retail sales account for US$ 5 billion and exports account for US$ 2.5 billion (2004)*
  • The industry accounts for 8% of the global market in volume terms and 1.5% in value terms
  • India currently exports pharma products to over 200 countries
  • Strong branded generics market

Source – Industry estimates and *Lupin Investor Presentation October 2005

pharmaceuticals1
Pharmaceuticals

Indian pharma industry

Off-shoring location

for Manufacturing /

support services

Export of

domestically

produced

generics

Off-shoring

location for R&D

  • IPR introduced with effect from January 2005
  • Generics opportunity in US and other developed country markets
  • Sourcing base for global markets with low costs, skill and scalability
  • Strong research capabilities
pharmaceuticals2
Pharmaceuticals

Look at India for

  • Large potential domestic market
  • The industry's current valuation stands at over US$ 8.0 billion and according to McKinsey this figure is set to increase to US$ 25 billion by 2010
  • India’s per capita spending on pharmaceutical drugs is one of the lowest in the world - only US$ 3 – Japan (412), Germany (222), USA (191)
  • Leveraging India’s advantages in global markets
  • Collaborative research, custom synthesis, drug development, in-licensing, clinical trials support, API supply, contract manufacturing etc.
healthcare
Healthcare
  • The Indian healthcare industry is presently estimated to be around US$ 18.7 billion – 65% of the market is in the private sector
  • Industry is growing @ 13% annually and is expected to grow @ 15% over the next few years
  • Industry is expected to touch US$ 45 billion by 2012
  • This growth is likely to require an additional 750,000 beds, 520,000 doctors and an overall investment of US$ 26 – US$ 28 billion of which 80% has been projected as the share of the private sector

Source – CII-McKinsey study 2004

biotechnology

$1500m

R&D Products & Services

Ag Biotech

Industrial Biotech

$750m

Medical Biotech

$ 150

$ 150

$150m

$ 100

$ 350

2002

2005

2007

Biotechnology

Indian Biotech Products &Services:

The Indian Biotech business stands at US$750 m today...

…and is expected to be $1500 m by 2007…

biotechnology1
Biotechnology
  • Huge potential from large base of skilled technical personal and the lower costs
  • Number of biotechnology firms in India have increased exponentially over the years
  • Developing biotech based therapeutic products takes 10-15 years and costs $ 500 million to $1 billion. Similar product development cost in India is $ 250 million or even lower
  • Opportunity for new investments is estimated to be in the $ 1.5 to $ 2 billion range
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

telecommunications
Telecommunications
  • 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
policy and procedures calibrated globalization
Policy and Procedures- 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 globalization
Calibrated globalization
  • Reduction in collection rates

Source – Economic Survey 2005-06

calibrated globalization1
Calibrated globalization

Pre 1991 1991 1997 2000 Post 2000

FDI allowed

selectively

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

other policy measures
Other Policy Measures
  • Industrial Licensing almost done away with – Now limited to Tobacco & Cigarettes, alcohol, explosives and hazardous chemicals and production for defense
  • Reservation for production by Small scale units reduced from over 800 to about 300 items
  • Internal Taxation both direct and indirect being visited year after year for rationalization, simplification and reduction
  • Integration of domestic market fast taking place with removal of geographical trade barriers, introduction of VAT and proposed phasing out of CST
problems needing to be addressed
Problems 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.
slide36
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.
slide37
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.
slide38
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