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India

India

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Published by genuineamit

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Published by: genuineamit on Apr 05, 2010
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10/29/2010

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1
 Exporting to India
Exporting to
 
India
Country Overview
In recent years India has experienced dramatic and sustained economic growth averaging a little over 8%.In 2007 the economy grew by 9% which was slightly lower than 2006 and 2007 with rates of 9.7% and9.1% respectively. Due to a global slowdown it is expected that the growth rate for 2008 will fall slightly to8% with Industrial and service sectors being the real drivers of the economy. The industrial and servicesectors are expected to grow at about 11% in 2008 compared to 3% for agriculture.Contrary to global trends it appears that Indian entrepreneurs are investing in expanding their manufactur-ing and service sector capabilities. Sectors that have witnessed growth include: consumer goods, highlevel technology, industrial products, healthcare, financial services and basic industries. In addition, to thisboth the private and government sectors have committed to large scale infrastructure projects that areaimed at developing much of the country. Moreover, India is increasingly integrated to the global economyespecially as a major centre for outsourcing activities primarily for high cost European firms. Various eco-nomic commentators and reports expect India to be the third largest economy in the world by 2050 afterChina and the USA.With such opportunities in a dynamic market it is not a surprise that India is the largest foreign market forDubai based exporters. Factors that have led to India becoming a target export market is the opening upof its economy which until 1991 was largely closed to foreign imports. Second, India’s rapidly growing mid-dle class segment which is a major attraction for exporters because not only is the size increasing but so itits purchasing power. Third, the rate of urbanisation has increased leading to changes in lifestyles andconsumer habits along with the ease of finance which has fuelled the current consumer boom. As a resultof this the demand for convenience foods, quality clothing, cars, electrical appliances, toys, communica-tion and leisure goods has increased rather substantially and is expected to be grow even further. Surpris-ingly, the change in consumer habits has also impacted the large rural sector who now also demand elec-trical appliances, communication equipments (largely mobile phones), quality clothing and leisure goods.One negative impact of a fast growing economy is that it has led to an increase in the inflation rate from3.8% in 2003 to its 6.4% in 2007. With a booming economy and relatively high world commodity prices itis expected that in 2008 inflation in India will exceed 5%. Accordingly wholesale prices have also in-creased from 4.4% in 2006 to 5.4% in 2007. In the first half of 2008 the wholesale price index fell slightlyto 4.75% and is expected to fall further to reflect the drop in international commodity prices.
November 2008
2008 2007 2006 2005 2004 2003GDP (US$ bn)
1,232.9 1,098.9 877.2 783.1 669.4 573.2
GDP Per Capita (US$)
1,082 978 792 717 623 542
Real Annual GDP Growth (%)
7.9 9.2 9.7 9.1 7.9 6.9
Current Account Balance US$m
-37,865 -19,345 -9,800 -10,285 781 8,773
Goods and Services Exports as % of GDP
20.6 21.2 22.7 20.2 17.4 14.8
Inflation (%)
Source: EIU/IMF, 2008 figures are forecasted5.2 6.4 6.2 4.2 3.8 3.8
Current Account Balance as % of GDP
-3.1 -1.8 -1.1 -1.3 0.1 1.5
 
2
 Exporting to India
Dubai’s Trade with India
India has been a historical trading partner with the UAE and is currently the largest target market for Dubaibased exports. The value of exports to India has increased considerably over the last four years fromabout AED 1.5 billion in 2004 to AED 11.4 billion in 2007. The forecast is that in 2008 the exports to Indiawill exceed AED 12 billion. The largest component of exports is gold and precious stones which reflectsan opening up of the Indian jewellery market. Another important export to India is scrap metal along withfinished metal products. The importance of scrap metal exports has increased in line with rising commod-ity prices and a booming construction sector in India. Our expectations is that the construction sector willcontinue to grow over the next few years to meet the increasing demand from an ever increasing popula-tion. However, the rate of growth will slowdown somewhat as investors exit the market and the gap istaken up by end users. Other exports to India include waste paper and wood, plastics and oil based prod-ucts.
Key Opportunities
With the booming urban property market one would assume that the market opportunities do not lie in ruralareas. However, this is not the case especially as the majority of the population live in rural areas and withincreasing literacy and employment prospects their disposal income is also rising. Moreover, the influence ofmass media has impacted on their buying behaviour leading to a demand for products which would previ-ously not have been target at this group.India has 500 million people who are under the age of 25 and this offers a number of opportunities to export-ers. Most exporters cannot target the entire population due to the wide disparities in income and wealth.Therefore, exporters have tended to target the 200 million or so middle class individuals. However, the mid-dle class tend to dispersed throughout the country and hence distribution is a major problem due to poor in-frastructure and communication links. Therefore, it is no surprise that the most successful exporters havebeen those that have developed a wide local distribution coverage for their products either through their ownnetwork or agents. In the near future hundreds of western style shopping malls have been planned howeveruntil they are built the consumer goods market relies on the 12 million retail and wholesale outlets.
 
3
 Exporting to India
In addition to the sectors identified in the table on the previous page we believe that Dubai based firms haveexport opportunities in the following sectors:
Food processing
The Indian process sector is growing at an incredible 12% per year largely due to changes in lifestyle andconsumer habits brought about due to rapid urbanisation. Even though India is a major food producer itsshare of world trade is less than 1.5%. The current market size of the food processing industry is about AED12 billion an increase of 22% compared to the previous year. Most of this demand is satisfied through domes-tic production however with rapid increase in consumer appetite we estimate that imports will increase consid-erably over the next few years.
Medical equipment and Healthcare
With a population of over one billion and growth rate of 1.6% per year it is only natural that the demand forhealthcare will increase over time. One interesting change in recent years has been that a growing and afflu-ent middle class segment is looking for international providers of healthcare. At the same time the demand forprivate medical insurance has increased by more than 35%. Two patterns in healthcare have emerged of latefirst there are now more private sector owned and managed hospitals leading to a demand for medical equip-ment. Second, more people are traveling abroad for medical treatment. The market for medical equipment iscurrently worth AED 8.4 billion with growth rate of about 10% per year. Imports account for 62% of the marketwith European and North American firms being the largest suppliers.
Pollution Control Equipment
India has a high proportion of small scale producers many of whom have no pollution control equipment. As aresult of this the government has classified 17 sectors as major polluters and hence this is the fast growingindustry in the country. Currently, the market is worth AED 17 billion with imports accounting for 40% of theindustry.
Computers and Associated Equipment
India is one of the largest business process outsourcing centres in the world and hence there is a strong de-mand for computers and associated equipment. The market is currently worth AED 27 billion of which a fifth ismade up of imports. We believe that opportunities exist for exporters to supply high end severs which are re-quired to meet the needs of the software development sector along with the business process outsourcingcompanies.
Education Services
India has over 300 hundred universities and 1,600 colleges in addition to various training centers all of whichoffer a wide range of courses. Nevertheless, it appears that the current supply of educational institutions can-not meet the demand for academic courses. Currently, there are almost 10 million students enrolled in Indianinstitutions and with a growing middle class population this number is expected to increase. Moreover, thequota system makes it difficult for many students to obtain a place at university despite their academic stand-ing leaving them with little choice other than to go to foreign universities. The traditional markets for Indianstudents have been the USA, UK, Australia and Canada however a large proportion of these students wouldbe willing to study at international universities in Dubai.
Market Entry
Whether an exporter wishes to establish their own office or use the services of an agent/distributor it is impor-tant to take a regional approach. The vast size of the country with its problematic infrastructure makes it verydifficult if not possible to target the entire country. Due to the traditional and historical trading relationship withIndia Dubai based exporters will find strong interest from potential agents/distributors. However, we believethat exporters need to verify and conduct appropriate due diligence on their potential partners. Important fac-tors when selecting an agent include: financial stability and strength, marketing know how, regional coverage,industry expertise and market reputation. Exporters should not discount small distributors as they can be veryflexible in their approach to the product or service. This is especially important for exporters who have littleexperience of foreign trade. Moreover, small distributors tend to have a presence in very specific regions withconsiderable market experience. It is important that an exporter does not enter into an agreement simply dueto the initial eagerness shown by the distributor or by their persistence. Some distributors represent so manyfirms that they are not able to provide adequate support to exporters. Therefore, it is important that exportersdevelop an objective measure to select a distributor that best meet their short and medium term needs.

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