INDIA - ECONOMY AND TRENDS - ibef.org · PDF fileINDIA-ECONOMY AND TRENDS April 2012 . 3 ......

INDIA - ECONOMY AND TRENDS April 2012

2

Macroeconomic snapshot

Enablers of Indian Growth story

Sector update Automotive Energy, Oil and Gas Healthcare and Pharmaceuticals Retail and Consumer Goods Technology, Telecommunications & Information

Technology

Road ahead Future Outlook

Contents

INDIA-ECONOMY AND TRENDS April 2012

3

Macroeconomic Snapshot … (1/7)

India-Economy and Trends April 2012

MACROECONOMIC SNAPSHOT

• GDP to grow at 7 per cent in 2012-13

• Sustained growth even in the light of global economic slowdown cues.

• An average growth of 8.4 per cent is expected from 2013-14 to 2015-16.

Gross Domestic Production

Source: PMEAC, ADB, IMF, Economist Intelligence Unit

Quarterly GDP Growth Rate

Per cent

Source: Economic Survey 2011-12, *Economist Intelligence Unit

Annual Sector Growth Rate

Per cent

Source: Economic Survey 2011-12

0

2

4

6

8

10

12

20

08

Q1

Q2

Q3

Q4

20

09

Q1

Q2

Q3

Q4

20

10

Q1

Q2

Q3

Q4

20

11

Q1

Q2

Q3

Q4

*

0

5

10

15

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Agriculture

Manufacturing

Trade, Transport, Communication

Finance, Insurance, Real Estate and Business Services

4


• Private consumption along with investment will drive economy in the next fiscal.

• Trend of share of food of beverages in consumption is reducing while share of furniture, transport, communication and recreational services is increasing.

Private Consumption

Source: Central Statistical Organisation (CSO), Economist Intelligence Unit

Private Consumption Split

Per Cent (2010-11)

Source: Central Statistical Organisation (CSO)

Private Consumption

Per cent Growth

Source: Economic Survey, 2011-12


-

2.00

4.00

6.00

8.00

10.00

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Private Consumption

32.1

8

11.1 4.6 4.8

20.4

2.9

16.2

Food, Beverages & Tobacco

Clothing & Footwear

Rent, Fuel & Power

Furniture

Medical Care

Transport and Communication

Recreation, Education &Cultural ServicesMisc. Goods & Services


5


• Total foreign investment is estimated to be USD 46 bn in 2011-12.

• Service sector continues to be the highest attractor of foreign investment followed by the telecommunications sector.

• Gross fixed investment is estimated to cross USD 616 bn in 2011-12.

Investment

Gross Fixed Investment

Per cent of GDP

Source: World Bank

Foreign Investment

USD bn

Source: Department of Industrial Policy & Promotion (DIPP).

*expected as per actual till January 2012


-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

11

-12

*

FDI FII

30

31

32

33

34

35

36

37

38

39

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11


6


• While government expenditure is driving growth, it is expected to maintain level as a percentage of GDP.

• Fiscal deficit was 5.9 per cent of GDP in 2011-12.

• Fiscal deficit is targeted to be 5.1 per cent of GDP for 2012-13.

Government Expenditure


USD bn

Source: Economic Survey, 2011-12, USD 1 = Rs. 51


Per cent of GDP

Source: Central Statistical Organisation (CSO),

Economist Intelligence Unit


- 2.0 4.0 6.0 8.0

10.0 12.0 14.0 16.0 18.0

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

11

-12

20

12

-13


0

50

100

150

200

250

300

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

11

-12


7



After two years of fiscal expansion, fiscal consolidation has been resumed by partial rollback of stimuli

With the amended Fiscal Responsibility and Budget Management (FRBM) Act, stress is being laid on the Government (Centre and States) towards fiscal responsibility and adoption of Medium Term Expenditure Framework for performance linked planned

expenditure


8


• Both exports and imports have been registering growth.

• While global trade decreased by 2.0 per cent, Indian exports grew by 23.5 per cent

• Exports stood at USD 78 bn in the third quarter with imports at USD 114 bn.

• Export of services continues to drive economic growth.

Trade

Goods Trade

Per cent share of sectors


Goods Trade

USD bn

Source: Economic Survey 2011-12, *Estimated based on actual till December 2011



9.9 2.8

65.8

20.9

0.5 Agriculture andAllied

Ores and Minerals

Manufactued Goods

Crude & PetroleumProducts

Others

0

100

200

300

400

500

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12*

Exports Imports


9


• Inflation is showing signs of slowing down to an average of 8.4 per cent and is expected to dip further to an average of 7.5 in 2012-13.

Inflation Inflation

Per cent change in Whole-sale Price Index



Source: Economist Intelligence Unit

0

2

4

6

8

10

12

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12


10

Contents





Technology


11

Growth Enablers … (1/10)

• Continued focus on inclusive growth and reduction of regional, social and economic disparities

• To aid the inclusive growth, Twelfth Five Year Plan (2012-17) stresses on increase in infrastructure investment

• India continues to be a young country with an expected addition of 63.5 mn to the working age group between 2011 and 2016.

Human Development Median Age in 2025

Year

Source: World Population Prospects, 2010, UN

ENABLERS OF INDIAN GROWTH STORY

34

40

28

39

31

0

10

20

30

40

50

Brazil Russia India China Mexico


12


• On the Human Development front, India has been growing at 1.56 per cent while the global average is at 0.66 percent

• Continued stress on health of population has resulted in performance improvements in all health indicators

Human Development Health Indicators


Indicator 1981 1991 2010

Crude Birth Rate (per

1000) 33.9 29.5 22.1

Infant Mortality Rate (per

1000) 110 80 47

Life Expectancy at Birth

(Years) 55.4 59.4 63.5

Total Fertility Rate (per

woman) 4.5 3.6 2.6



13


• Services sector has been flourishing and is a major driver of economic growth

• Contributes to 57 per cent of GDP

• Over the last decade, services sector has been the largest attractor of FDI with over 20 per cent of all FDI flowing into the sector

Flourishing Services Sector Sector Growth

Per cent


-

2.0

4.0

6.0

8.0

10.0

12.0

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Agriculture Industry Services



14


• Service sector is also the major contributor for external remittances both labour and non-labour

• Services sector growth would continue to be the major enabler of economic growth

Flourishing Services Sector Sector Growth

Per cent

Source: Department of Industrial Policy & Promotion (DIPP)

20.37

8.35

7.25

7.23

56.8

Services

Telecom

Hardware and software

Housing and Real Estate

Others



15


• Strong manufacturing sector with consistent growth

• The growth in the sector fueled consistent growth of exports

• Goods exports are expected to cross USD 400 bn by 2013-14

• Adding impetus to the economy along with the services sector

• Increasing share of Indian goods in the global market

Booming Manufacturing Sector Industrial Production

Index, 100:1993-94

Source: Central Statistical Organisation (CSO),

Economist Intelligence Unit

100

110

120

130

140

150

160

170

180

20

09

3Q

TR

4Q

TR

20

10

1Q

TR

2Q

TR

3Q

TR

4Q

TR

20

11

1Q

TR

2Q

TR

3Q

TR



16


Goods Exports

USD bn


-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Share in World Exports

Per Cent

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

20

00

20

09

20

10

20

11



17


• Product, process and organisational innovation are driving profitability and competitiveness of India in the global scenario

• Over 80 per cent of large firms and SMEs have achieved greater competitiveness, profitability, market share and reduction of costs due to Innovation.

• 37.3 per cent of firms have introduced breakthrough innovation, while 76.4 per cent have introduced incremental innovation.

• 63 per cent of the breakthrough innovation is „new to the world‟, while 39.5 per cent of incremental innovation is „new to the world‟.

• Public Private Partnerships (PPP) have emerged as a tool for effecting Innovation and it is expected that this trend will continue in future.

Innovation

Intellectual Property and other enabling

policies Industry centric

education system

Global R&D collaborations

Government Partnerships

Innovation Enablers

Source: National Knowledge Commission; World Bank; UNDP



18


• Global economic slowdown has stressed Government expenditure and house-hold savings

• High saving rate of India makes the economy more resilient to renewed bouts of uncertainty in the global economy and would continue to remain robust in medium to long term

• India has the third highest saving rate as a per cent of GDP in the world

• Robust financial institutions and optimal fiscal policy maintains this resilience in the economy

Savings


Saving Rate – 2011

Per cent of GDP


0

10

20

30

40

50

60

UK

USA

Bra

zil

Me

xico

Ru

ssia

Ind

ia

Ch

ina



19


• India has transformed into cleantech centre raking up investments of USD 10.3 bn in 2011-12 at an annual growth of 52 per cent

• Solar energy registered a seven-fold increase in investments growing from USD 0.6 bn in 2010-11 to USD 4.2 bn in 2011-12

• Power from wind grew from 18 MW in 2010-11 to 2,777 MW in 2011-12

• India has exceeded the target of grid connected capacity of 12.4 GW from renewable energy, set by eleventh five year plan by 1.8 GW to be 14.2 GW of online capacity

• Number of schemes are established for financing climate sustainability and clean technologies

Sustainable Development

Source: Bloomberg New Energy Finance

Key Government Initiatives to Provide Thrust to Sustainable Development

National Solar Mission

Deploy 20,000 MW of solar electricity capacity by 2020

National Mission for Enhanced Energy Efficiency

Institutional mechanisms for energy efficiency markets

National Mission for Sustainable Habitat

Introduction of sustainable transport, energy-efficient buildings and sustainable waste management in cities

National Water Mission

Integrated management of water resources and increase of water use efficiency by 20 per cent by 2017

National Mission for Green India

Afforest an additional 10 mn hectare by 2020

National Mission for Sustainable Agriculture

Enhancing productivity and resilience of agriculture

National Mission on Strategic Knowledge for Climate Change

Identifies challenges arising from climate change, promotes the development Knowledge on Climate Change



20


• State governments in India are taking proactive steps towards ensuring a developmental and business friendly climate

• Gujarat is fast becoming a hub for auto and auto ancillaries with a number of global auto giants setting manufacturing units in the state

• Tamil Nadu is fast becoming a hi-tech hub with a number of chip manufacturing facilities being setting up in the state along with number of industry specific R&D facilities being lined up for implementation

• Bihar is focusing on development of unsaturated opportunities in rural businesses

• Madhya Pradesh is gearing up to be the centre for minerals with large mining deposits

Proactive State Governments



21

Contents





Technology


22

Automotive

SECTOR UPDATE

Jaguar Land Rover will be setting up an engine manufacturing facility in India.

Mercedes is planning to set up two new production lines at its plant near Pune with an investment of approximately US$ 68 mn.

Asia Motor Works Ltd plans to raise US$ 100 mn to fund its expansion in the next two to three years.

Audi India is planning to expand its capacity at Aurangabad plant by the end of this year.

Yokohama Rubber plans to construct a new passenger car tyre plant in Haryana at an investment of US$ 53 mn.

Source: Deloitte Research, information as available during last 3 months


23

Automotive - Future Outlook

Stability of fuel prices and interest rates are

expected to help in industry growth.

5 years extension of 200 per cent weighted deduction of R&D expenditure under IT Act and also the introduction of weighted deduction of 150 per cent for expenditure on skills development are expected

to help the auto industry improve its products and performance.

Passenger car sales is expected to grow at an average 14.3 per cent

Increase in Customs Duty on Cars and MUVs valued above USD 40,000 from 60 per cent to 75 per cent are expected to encourage local manufacturing and increase employment.

Budget Provisions and Future

Outlook

Source: Union Budget 2012-13, SIAM, Economic Intelligence Unit

SECTOR UPDATE


24

Energy, Oil and Gas

Essar power

BASF India Ltd

BASF India Limited will invest

around US$ 194 mn in a new

chemical production site at Dahej

Petroleum, Chemicals and

Petrochemicals Investment Region

in Gujarat

ABB

Swiss engineering company ABB

has signed a deal worth more than

US$ 900 mn to develop India's

electricity supply

Trafigura Pte Ltd

Trafigura Pte Ltd has announced

investment of US$ 250 mn in the

Nagarjuna Oil Corporation Limited

oil refinery being constructed in

Tamilnadu

Essar Power plans to enter the

electricity distribution business and

has applied for licenses in various

states

ONGC

ONGC plans to invest over US$

6.6 bn in the next fiscal year in

exploration and production of oil

and gas.


SECTOR UPDATE


25

Energy, Oil and Gas - Future Outlook

Source: Economic Intelligence Unit , Mar 2012

Indian

Energy, Oil &

Gas

Industry

Coal consumption is expected to rise from an estimated 327,000 ktoe in 2011 to 490,000 ktoe in 2020, an average annual growth of 4.6 per cent.

Consumption of natural gas is expected to grow at an average annual rate of 9.2 per cent during 2012-20.

Consumption of oil is expected to rise

from an estimated 179,000 kilotonnes

oil equivalent (ktoe) in 2011 to

267,000 ktoe in 2020.

Electricity consumption in India is expected to increase by an average of 5 per cent a year during 2012-16.

SECTOR UPDATE


26

Healthcare and Pharmaceuticals


Apollo Hospitals is likely to invest

approx. US$ 139 mn for adding

1,000 beds by the end of next fiscal.

German drug firm MERCK KGAA

expects its sales revenue to grow

by 20 per cent in the next three

years in India.

Cipla

Ranbaxy Laboratories Ltd has

opened a manufacturing plant in

Morocco.

QED Clinical Services

UK based QED Clinical Services

has expanded its operations to

India with establishment of a

subsidiary at Ahmedabad.

Roche Holding AG

Swiss drug maker Roche Holding

AG is in plans to offer locally

branded cheaper versions of two of

its cancer drugs by early 2013 in

Indian market.

Panacea Biotec

Panacea Biotec has set up a new

pharmaceutical manufacturing

facility at

Himachal Pradesh.

MERCK KGAA Ranbaxy Laboratories Apollo Hospitals

SECTOR UPDATE


27

Healthcare and Pharmaceuticals - Future Outlook

Source: Deloitte Research, EIU, Union Budget 2012-13

SECTOR UPDATE


Five-year extension to the 200 per cent R&D tax deduction in Union Budget 2012-13 is expected to encourage

companies to invest more in research and development.

Hospitals are likely to benefit from the increased rate of 150 per cent investment-linked deduction for capital

expenditure.

It is expected that the total annual healthcare expenditure will more than double in US dollar terms to US$ 228 bn by 2016.

Increases in personal income, government healthcare outlays and private domestic investment, combined with higher life expectancy, are expected to push up per-head healthcare spending to US$177 in 2016 from US$ 82 in

2011.

28

Retail and Consumer Goods


SECTOR UPDATE


Panasonic will invest US$ 220 mn in a plant to be set up at Haryana.

Home appliances maker Whirlpool plans to invest approximately

US$ 39 mn in India.

Amazon.com Inc is setting up its first "fulfillment center" in India.

German retailer Metro Cash & Carry plans to open 7-8 stores in India every year for the next four years at an investment of approx. US$ 105 mn.

Starbucks Coffee and Tata Global Beverages have formed a 50-50

joint venture to open cafes across India.

29

Retail and Consumer Goods - Future Outlook

The Future

Major domestic conglomerates, such as Reliance Industries, the Tata Group and the Aditya Birla Group are expected to maintain

ambitious expansion plans during 2012-16.

Mobile wallet services, which enable mobile money payments, and the growth of such other

innovative services is expected to lead to growth in mobile (m)-

commerce. .

Multinational retail giants are attracted to India‟s long-term

potential and are pursuing opportunities in the wholesale

cash-and-carry sector.

Retail sales (in volume terms)

are forecast to grow by an annual average of 9.1 per cent during 2012-16 on the back of

stronger income growth, increasing urbanisation and

rising number of stores.

Source: Economic Intelligence Unit,- India Consumer Goods & Retail Report, Feb 2012

SECTOR UPDATE


30

Technology, Telecommunications & Information Technology

Tech Mahindra announced its buyout of IT outsourcer Satyam

Computer creating a new enterprise in the sector with annual

revenue of US$ 2.26 bn.

Two factories of Siemens Ltd set up at an investment of US$ 40.5

mn in Goa have started production.

Chinese telecom company HUAWEI has commenced manufacturing

in Chennai and has announced a fresh US$ 150 mn investment to set

up a R&D campus in Bengaluru.

For the first time in India, high-speed Internet services using fourth-

generation (4G) have been started by Bharti Airtel


SECTOR UPDATE


Nokia plans to revamp its business in India by infusing fresh

investment of US$ 49.8 mn in the next three years.

31

Technology, Telecommunications & Information Technology

– Future Outlook

Source: Economic Intelligence Unit

Information Technology

Telecommunications & Technology

IT Services & Hardware

• Spending on Information Technology (IT) is expected to grow substantially in 2011-15, by an average of 20.6 per cent a year in US dollar terms.

• The software industry is expected to embrace higher value added sub-sectors, such as IT consultancy and engineering offshoring. It is likely to eventually expand strongly into the areas of R&D and new-technology development.

• By 2015, telecommunications and technology spending is forecast to reach US$ 70.5 bn.

• The government‟s push to increase mobile penetration rates will also generate increased demand for telecoms equipment; domestic demand for telecoms equipment is forecast to grow by around 1.1 per cent a year in the next few years.

• IT services spending is forecast to rise from US$ 8.4 bn in 2011 to US$16.7 bn in 2015. This rate of growth will be close to that forecast for hardware spending, which will rise from US$18.4 bn in 2011 to US$ 45 bn in 2015.

SECTOR UPDATE


32

Contents





Technology


33

The Road Ahead

ROAD AHEAD

• Savings and capital formation are expected to rise in the coming year.

• With the easing of inflationary pressures in the months to come, there could be a reduction in policy rates by the RBI, which would encourage investment activity that could have a positive impact on growth.

• Preliminary calculations suggest that the growth rate of GDP in 2013-14 will be 8.6 per cent.

• A conducive environment for private sector participation in infrastructure sector with a transparent and credible regulatory mechanism is expected to reduce the pressure on public-sector funding.

• The National Manufacturing Policy, as a first dedicated policy measure for manufacturing is expected to provide a major impetus to the manufacturing sector.


Source: Economic Survey, 2011-12

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