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Table of Contents

Macroeconomic Environment

Capital Markets Public Finances

External Finances Structural Factors

Department of Economic Affairs, Government of India

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Macroeconomic Environment

India’s robust macroeconomic performance
Key Parameters Real GDP (INR billion)1 Real Per Capita GDP (INR) 1 Investment / GDP (%)2 Exports (US $ bn)1 General Government Gross Debt 2005-06 32,542 33,548 35.8 103 77.4 28.0+ 151# 9.1 2011-12 52,220 46,221 37.6** 303 64.9** 63.7++ 294 ## 46.8 Change 60% higher 38% higher 5% higher 194 % higher 16% lower 127% higher 94% higher 414 % higher

(% GDP) 1
Workers Remittances (US$ bn) 2 Gross International Reserves (US$ bn) 1 Foreign Direct Investment inflow (US $ bn) Foreign Direct Investment outflow (US $ bn)

6.1

25.8**

323% higher

Sources: 1 Reserve Bank of India data (as on March 2012) 2 IMF WEO Database April 2012 ** For FY 2010-11 + for calendar year 2006 ++ for calendar year 2011 # As on 31 March 2006 ## As on 30 March 2012

Department of Economic Affairs, Government of India

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Macroeconomic Environment

India’s key strengths
   

Good growth prospects supported by ongoing economic liberalisation and strong domestic demand Stable financial system Strong external liquidity position High degree of political stability


           

Vibrant, transparent and high-yielding capital markets
High savings and investment ratios Strong and competitive private sector Low susceptibility to event risk Steadily rising government revenues Healthy sectoral diversity of economy Largely local currency denominated debt Conducive investment climate Strong financial regulatory framework High growth in exports Strong demographic advantage Highly educated work force Innovative society

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Department of Economic Affairs, Government of India

9 8.4 4.8 4.2 2.1 0.1 3. Government of India Source: IMF World Economic Outlook (April 2012) .2 2.1 3.8 2.6 4.6 3.8 4.0 5.1 2.2 3.7 0.9 1.1 5.4 4.2 3.9 5.Macroeconomic Environment Faster and more stable real GDP growth India demonstrates faster and stable growth than most other countries in the Dow Jones list of emerging economies Average Annual Real GDP Growth Rate in % (2006-11) 10.8 4. China Turkey Korea Russia South Africa Thailand Czech Republic Mexico Hungary Department of Economic Affairs.4 4.3 2.2 4.6 2.1 1.2 5 Country Country Russia Turkey Mexico Taiwan.2 4.6 2. Of Real GDP Growth Rate (2006-11) 6.2 4.4 7.1 2.7 2.0 2.3 4.9 1. Dev.7 4.2 7.7 China India Peru Argentina Indonesia Egypt Morocco Colombia Philippines Poland Malaysia Chile Brazil Taiwan.8 3.2 3. China Czech Republic Thailand Hungary Peru Malaysia Argentina Brazil Chile South Africa Philippines Korea Egypt Colombia China India Poland Morocco Indonesia Std.7 3.8 3.

Government of India 6 Source: 2050 Report.000 5. 2011 .000 4.000 2. 2011 2011 GDP PPP (USD bn) India 6% China 14% Other emerging and developing economies 29% Advanced economies 51% 6.000 3.000 0 India’s economy ranks 3rd largest in the world Source: IMF World Economic Outlook Report. PriceWaterhouseCoopers.Macroeconomic Environment Increasing share in world GDP Among emerging markets. India is next only to China with respect to share in world GDP Share in world GDP (PPP). 2011 Source: IMF World Economic Outlook (April 2012) * USA GDP is $15094 bn ** China’s GDP is $11316 bn …and it has been increasing steadily India’s share in world GDP (% of world total) (PPP current USD) India is expected to become the second largest economy in the long run $ trillion 8 60 50 40 30 20 GDP PPP (US trillion) 7 6 5 4 3 2 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f 2017f US China India Japan Russia Brazil 10 UK 0 Source: IMF World Economic Outlook (Apr 2012) Department of Economic Affairs.000 1.

April 2012 .Macroeconomic Environment Savings and Investment rates are among highest in the world Savings and investment that drive economic growth are higher in India compared to other emerging economies Savings (% of GDP) 2011 60 50 40 30 20 10 0 32 Source: IMF WEO. April 2012 Gross Domestic Investment (% of GDP) 2011 60 50 40 30 20 10 0 34 7 Department of Economic Affairs. Government of India Source: IMF WEO.

Macroeconomic Environment Strong growth fundamentals Long term industrial output continues to strengthen… 200 Industrial production (2004-05 = 100) … with robust consumption… 300000 250000 200000 150000 100000 50000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Source: CMIE Business Beacon Passenger car and van sales 180 160 140 120 100 80 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Source: CMIE Business Beacon … positive business sentiment PMI Manufacturing and Services 65 60 55 50 Manufacturing 45 40 May-11 May-12 Mar-11 Mar-12 Apr-11 Jul-11 Feb-11 Nov-10 Dec-10 Aug-11 Sep-11 Nov-11 Dec-11 Feb-12 Jan-11 Jun-11 Jan-12 Apr-12 Oct-11 Increasing rate of contraction Increasing rate of growth … and strong export growth Exports (USD million) 30000 25000 20000 Services 15000 10000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Source: CMIE Business Beacon Source: HSBC Markit 8 Department of Economic Affairs. Government of India .

Government of India 9 Nielsen Global Consumer Confidence Index (various reports) .Macroeconomic Environment Domestic consumption driven economy Indian consumers are most optimistic about the state of the economy Consumer confidence index score 145 125 105 85 65 45 25 60 58 53 50 49 45 45 123 119 118 118 110 110 107 107 105 95 Optimism Pessimism 39 37 32 According to the latest global consumer confidence findings (for the first quarter in 2012) from Nielsen. optimism over job prospects and state of personal finances are up from last quarter as Indian consumers continue to be the most confident across the globe for the ninth consecutive quarter. rising one index point to 123 in Q1 2012 over the previous quarter Nielsen Global Consumer Confidence Report. Q1 2012 Consumer confidence has been consistently above the world average 140 130 120 110 100 India World Optimism Pessimism 90 80 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 Department of Economic Affairs.

3% 12th 5 Year Plan: Emphasis on Infrastructure Investment ■ The 12th plan targets infrastructure investments of US$1 trillion with around 50% of investment expected to come from the private sector ■ First Infrastructure Debt Fund for Rs.1% 5% 3.Macroeconomic Environment Focus on infrastructure investment Infrastructure investment has grown massively since 2006 supported by increased private sector participation 12.0% 0.0% 1. 8000 crores launched in March 2012 Promoting Public-Private Partnerships (PPPs) ■ India has been highly successful in promoting PPPs.0% 6.0% 10.9% 4. housing and highways development sectors in 2011/12 To boost infrastructure investment.0% 5.4% 2. the company has sanctioned loans to the tune of Rs 585.8% 4. which is likely to be announced this year ■ More sectors added as eligible sectors for Viability Gap Funding under the Scheme ‘Support to PPP in infrastructure’ in Budget 2012-13 ■ Draft policy on PPP under discussion ■ PPP in defence PSUs Improving Investment Environment Unlocks New Funding Sources ■ Incentives have been put in place to encourage investment in infrastructure: – Raising corporate bond limit for FIIs to US$45 billion from US$20 billion (Sept’10 to Nov 11) – Allowing tax free bonds to be issued by various Government undertakings in the railways.1% 4. ports.000 190 170 150 130 110 90 FY07 Power Finished steel Cement Crude oil Coal Freight traffic Fertilizers Telecom (RHS) 900 800 700 600 500 400 300 200 100 0 ■ FY08 FY09 FY10 FY11 FY12  Source: Economic Survey 2011-12 10 Department of Economic Affairs.3% 1. more than 700 PPP projects currently being carried out across the country ■ The government provides financial assistance to PPP projects through the India Infrastructure Finance Company (IIFC). Since its inception in April 2006. withholding tax on interest income has been reduced from 20% to 5% for loan agreements and long term infrastructure bonds in foreign currency (Budget 2012-13) ■ 4. ■ The government is expanding PPP eligible sectors and developing a comprehensive policy on PPPs.6% 2.0% 8.7% 2.9% Government policy initiatives will drive further development supporting GDP growth targets ■ Private (%of GDP) Public (% of GDP) 5% 3.0% 2.2% Source: Secretariat for Infrastructure Broad-based investment enables growth across sectors Indexed infrastructure investment growth (FY 2007= 100) 1.9% 5.68 billion to 267 infrastructure projects.0% 4.2% 2. Government of India .

000 villages under the Bharat Nirman project achieved  Civil Aviation  Direct import of Aviation Turbine Fuel permitted for Indian carriers as actual users  External Commercial Borrowings to be permitted for working capital requirement of airline industry for a period of one year. Power capacity added in FY07 was 6853 MW. Government of India 11 .800 kilometers under National Highway Development Project in 2012-13  Electricity  20000 MW generation capacity added in FY12. Bangalore) in various stages of implementation  Highways  Target of covering a length of 8.Macroeconomic Environment Initiatives in infrastructure sector India’s emphasis on physical infrastructure: 12th Plan envisages investing USD 1 trillion in infrastructure projects  Dedicated Railway Freight Corridors  Eastern and Western Corridors  Increase carrying capacity and speed  Delhi-Mumbai Industrial Corridor  Nine mega industrial zones of about 200-250 sq.  16 Ultra Mega Power Plants (UMPP) (4000 MW each) planned  First unit of the Mundra UMPP commissioned in March 2012  Target of electrification of 100. subject to a total ceiling of USD 1 billion Department of Economic Affairs. Chennai. km  Six-lane intersection free expressway  4000 MW power plant  Urban Infrastructure  Jawaharlal Nehru National Urban Renewal Mission  Metro rail projects in major cities (Mumbai. Hyderabad.

Macroeconomic Environment Investor protection and transparency India compares well with the advanced economies in investor protection Protecting investors score (1-10 scale) (10=best) 8.3 5. Doing Business Report 2012 5 5 5 4.3 5.7 7 6.7 5.7 4.3 5.3 4 Transparency level for conducting business in India is superior to many other EMEs Strength of auditing and reporting standards rank (1 = best) .7 4. Government of India 56 61 62 63 80 86 94 95 96 99 117 120 Better Source: World Bank.3 Better Source: World Economic Forum – Global Competitiveness Report 2011-2012 1 25 26 30 33 41 45 48 49 51 12 Department of Economic Affairs.7 8.3 8 7.3 6 6 6 6 5.

a very crucial factor for business growth Most favourable tax rate score (10 = least tax) 9 8 7 6 5 4 8 3 2 1 0 Source: Economic Freedom of the World Report.Macroeconomic Environment Favourable tax regime and conducive regulatory environment Among emerging markets India has one of the most favourable tax regimes. Government of India Source: World Bank. 2011 …and compares favorably with three of four other BRICS nations in the ease of starting a business Number of days to start a business 119 29 19 30 38 South Africa India Russia China Brazil 13 Department of Economic Affairs. Doing Business Report 2012 .

Macroeconomic Environment Capital Markets Public Finances External Finances Structural Factors Department of Economic Affairs. Government of India 14 .

Capital Markets Well developed financial markets In terms of financial market development India ranks much better than most EMEs Financial Market Development Rank (1=best) 126 127 92 80 53 55 83 68 69 71 62 63 34 21 3 4 24 37 38 43 48 50 Source: World Economic Forum – Global Competitiveness Report 2011-12 Department of Economic Affairs. Government of India 15 .

50 2. Government of India 16 . WFE Department of Economic Affairs.Capital Markets Potential for growth (Market cap) Future potential for increasing market cap remains attractive as many corporates are yet to be represented in the equity space SOUTH AFRICA MALAYSIA TAIWAN UK KOREA THAILAND USA INDIA JAPAN BRAZIL INDONESIA RUSSIA MEXICO CHINA 0.50 1.00 1.00 2.50 Market Cap to GDP ratio (2011) Source: IMF.00 0.

Capital Markets High yielding equity market USD 100 invested in Dec 2001 would have yielded USD 385 by Dec 2011! MSCI India – USD Index performance 700 INDIA BRAZIL INDONESIA 600 CHINA KOREA SOUTH AFRICA 500 TAIWAN 400 300 200 100 0 Dec-1994 May-1995 Oct-1995 Mar-1996 Aug-1996 Jan-1997 Jun-1997 Nov-1997 Apr-1998 Sep-1998 Feb-1999 Jul-1999 Dec-1999 May-2000 Oct-2000 Mar-2001 Aug-2001 Jan-2002 Jun-2002 Nov-2002 Apr-2003 Sep-2003 Feb-2004 Jul-2004 Dec-2004 May-2005 Oct-2005 Mar-2006 Aug-2006 Jan-2007 Jun-2007 Nov-2007 Apr-2008 Sep-2008 Feb-2009 Jul-2009 Dec-2009 May-2010 Oct-2010 Mar-2011 Aug-2011 Jan-2012   India has been amongst the best performing markets in its peer group . Government of India 17 . since liberalization Indian equities have delivered a CAGR of 14% over the last two decades Source: Bloomberg Department of Economic Affairs.

Capital Markets Indian equity markets: Market cap of Indian companies 157 companies are valued over USD 1 billion each Market capitalisation of Indian companies in 2011 120 114 100 Total market cap of Indian companies is USD 1. Government of India 18 .2 trillion as of 2011 80 No. of companies 60 40 23 20 20 0 Source: Bloomberg Department of Economic Affairs.

113 3 NTPC 25.702 4 MMTC 18.823 8 GAIL 9.152 7 Indian Oil 12.277 Source: Bloomberg Department of Economic Affairs.438 17 NALCO 2. (US$ mn) 1 ONGC 42.336 18 Neyveli Lignite 2.671 9 Power Grid 8.Capital Markets Indian equity markets: Market cap of top 20 PSUs Multiple central public sector enterprises (PSEs) feature amongst the largest companies in India Top Central Public Sector Enterprises Sr.953 11 Oil India 5.541 16 REC 3.135 2 Coal India 39.346 10 SAIL 7.169 12 Hindustan Copper 5. Company Market Cap. Company Market Cap.839 5 NMDC 13.387 14 Power Finance 3.314 20 Bharat Electronics 2. Government of India 19 .248 15 Bharat Petroleum 3.978 19 Petronet LNG 2. No.485 13 NHPC 4.551 6 BHEL 12. (US$ mn) Sr. No.

Capital Markets FII inflows Significant FII inflows in equity and debt 35000 30000 25000 20000 15000 10000 5000 0 Equity Debt 2008 2001 2002 2003 2004 2005 2006 2007 2009 2010 2011 -5000 -10000 -15000 *2012 Data is up to 28 May 2012 Figure in USD million Department of Economic Affairs. Government of India Source: SEBI 20 2012 * .

Government of India 21 .Capital Markets India: Favoured FII investment destination FII inflows (equity) YEAR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 TOTAL INDIA 1586 2748 707 6673 8623 10702 8372 17824 -12173 17626 28711 -543 90856 INDONESIA 91 428 872 1121 2199 3403 1878 3551 1870 1385 2331 2600 21729 KOREA 10127 5790 -2259 11794 9316 -2764 -11808 -29221 -33368 24827 18595 -6716 -5687 TAIWAN 3021 7494 -110 15887 8054 19185 17108 2244 -15377 13720 8689 -9340 70575 SOUTH AFRICA 2474 3466 -622 -1 5208 7330 10998 8890 -5565 8988 4834 -2002 43998 BRAZIL -1161 460 -460 2509 662 2208 1170 -1924 -12019 10028 3600 3623 8696 Amount in USD million Source: J P Morgan / MSCI /Exchange / Regulatory websites Department of Economic Affairs.

03 69.59 10.19 0.98 58.30 44.25 7. Government of India 22 .83 6.03 0.54 4.93 Number 7 12 10 3 52 Brazil Amount* 2.65 Number 238 343 190 54 117 China Amount* 33.63 5.99 Source: Bloomberg Department of Economic Affairs.07 5.51 1.53 22.63 Number 4 5 0 2 9 Russia Amount* 0.29 14.Capital Markets Surge in IPO issuances India has performed very well by the number of issues among BRIC nations 400 350 300 250 200 150 100 50 0 2007-08 2008-09 Number of IPOs in BRIC India China Russia Brazil 2009-10 2010-11 2011-12 IPOs Year 2007-08 2008-09 2009-10 2010-11 2011-12 *Amount in USD billion Number 32 57 35 24 85 India Amount* 1.58 1.

Capital Markets Equity derivatives – Asian leadership Asian markets have been witnessing faster growth in derivatives. CAGR for Asia was 30% as compared to 15% for Americas and 23% for Europe America 7000 6000 Asia Europe 5000 4000 3000 2000 1000 0 2007 2000 2001 2002 2003 2004 2005 2006 2008 2009 2010 Number of contracts in million Source: WFE Department of Economic Affairs. Government of India 23 2011 .

Capital Markets Growing derivatives market Indian derivatives market is growing at a compounded annual growth rate of 45% Contracts in million Source : Futures and Options Intelligence Department of Economic Affairs. Government of India 24 .

Capital Markets India: Rapidly growing Both the number of contracts traded and their turnover have seen a sharp growth over the years Figures are for equity derivatives in terms of number of contracts traded Source: SEBI. WFE Department of Economic Affairs. Government of India 25 .

Government of India 26 .Capital Markets Robust growth in corporate bond issuance India has a developing corporate bond market with increasing corporate bond issuances Corporate bond issuances (in Rs crore) 350000 300000 250000 200000 150000 100000 50000 0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Source: SEBI Department of Economic Affairs.

engineering. oil & gas.Capital Markets M&As reflect the vibrancy of Indian corporate sector India’s developed market features Top 10 M&A Deals since 2007 by size Value ($bn) 12.6 Year Target Target Nationality Target Business Description Steel Telecom Telecomm.7 2011 2010 Shipping & Ports Marcellus Shale Mundra Port SEZ Ltd Reliance Industries Ltd Shipping & Ports Production and distribution process for synthetic textiles  The top ten M&A deals in India since 2007 totaled nearly $66bn and occurred in developed business sectors including telecommunications.0 5.0 2. Oil & Gas Oil & Gas Aluminium Telecom Telecomm. and manufacturing  M&A deals in the software industry since 2007 totaled above $205mn promoting a more developed and technical business environment Source: Grant Thornton Dealtracker India (various issues) 27 Department of Economic Affairs. Acquirer Acquirer Nationality Acquirer Business Description 2007 2007 2010 2011 2011 2007 2011 2009 Corus Hutchison Essar Zain Africa BV Cairn India Reliance Industries Novelis Inc Vodafone Essar Tata Teleservices Ltd Abbot Point Port Atlas Energy Inc (Marcellus Shale ) Tata Steel Vodafone Bharti Airtel Ltd Vedanta Plc British Petroleum Hindalco Industries Vodafone Group (Plc) NTT DoCoMo Inc Steel Telecom Telecom Oil & Gas Oil & Gas Telecom Wireless telecommunications. Government of India . 1.9 1.7 8.2 6.6 (4 deals) 7.8 10.2 10.

Capital Markets Recent initiatives in Capital Markets          Development of Corporate Bond Market Dedicated trading platforms for small and medium scale enterprises Reducing transaction cost in Securities markets QFI access to Indian Equity Markets.2 per cent on sale of unlisted securities in the course of IPO Tax exemption to “Angel” investors investing in in start-up companies Extending the lower rate of withholding tax to funds raised through long term infrastructure bonds in addition to borrowing under a loan agreement Removal of Restriction on Venture Capital Funds to invest only in nine specified sectors Financial Sector Legislative Reforms Commission (FSLRC)      Rajiv Gandhi Equity Saving Scheme Mandatory offer of electronic voting facility Income tax exemption to the Beneficial Owners Protection Fund (BOPF) set up by the Depositories 28 Department of Economic Affairs. corporate bonds and mutual fund debt schemes Liberalisation in ECBs: Permitting External Commercial Borrowings (ECB) to part finance Rupee debt of existing power projects Financial Stability and Development Council (FSDC) Financial Action Task Force (FATF) Permitting two-way fungibility in Indian Depository Receipts Reduction in the rate of long-term capital gains tax in the case of other non-resident investors. including Private Equity from 20% to 10% on the same lines as applicable to FIIs    Providing the levy of Securities Transaction Tax (STT) at the rate of 0. Government of India .

Government of India 29 .Macroeconomic Environment Capital Markets Public Finances External Finances Structural Factors Department of Economic Affairs.

Government of India . garnering broader acceptance for policy initiative ■ Waiting for the opportune time to management through introduction of independent board of directors and compensation in line with global best practices ■ Doing so enhances management disinvest means that the country can maximize public valuations and raises accountability and transparency through market discipline Note 1 For full list of policy requirements.Public Finances Unlocking latent potential of Indian PSUs Key features of India’s disinvestment policy ■ Objective is to unlock value from ■ Policy for disinvestment1 – Eligible PSE’s for listing include PSE’s while still maintaining ultimate control (min >51%) of company ■ Currently 249 PSE’s are controlled by government. 50 are already listed on domestic stock exchange. roughly 75 are ready for listing Unlocking Value those with no accumulated losses and have earned net profit in three preceding consecutive years – Disinvestment is a cabinet level decision Greater Public Wealth Massive Efficiency Gains ■ “Privatizes” public sector ■ Provides direct opportunity to public for purchasing shares . see 50th Public Enterprises Survey 2009-2010 30 Department of Economic Affairs.

336 8. NTPC Ltd.541 67.546.72 Data as of January 2012 Oil & Natural Gas Corporation Ltd.92 51 3.72 51 2.91 8.438 78.42 51 51 591.82 51 2.44 5. M M T C Ltd.5 99. National Mineral Development Corp.096.67 15. 12.387 13.69 Gail (India) Ltd.886. Market Capitalization (USD million) 42.275.314 85.73 56.978 57. Coal India Ltd.15 Note: Realizable value of PSUs = Value of government stake – minimum stake expected to be held by the government (% of GDP) 31 Department of Economic Affairs.537.953 39.472.34 69.166.Public Finances Opportunity to reap high yields Disinvestment of PSUs has the potential to unlock significant value Top 10 PSUs by potential realizable value Min. Bharat Heavy Electricals Ltd. Power Grid 9.48 8.169 25.75 SAIL Total 7.020.33 90 12. stake expected to be Potential held by the Realizable Value govt. (%) (USD million) 51 51 51 51 51 7.90 1.14 90 84.248 Govt.653.86 Indian Oil Corporation Ltd.485 18. Government of India Source: Department of Disinvestment .791. Stake (%) 69.

2012.5 416 1249 79 13 158 76 (*) Note: Values based on current market cap as on January 12. Rashtriya Chemicals & Fertilizers Ltd. Offering Details (%) 5% GoI Disinvestment 10% GoI Divestment and 10% Fresh Issue Indicative Divestment Size (USD million) 622* 520* 5% GoI Divestment and 5% Fresh Issue 365* 10% GoI Divestment 10% GoI Divestment No announcement No announcement 10 9. Ltd. Engineers India Ltd. Government of India .33 NA NA NA NA 273 160 NHPC Ltd. Andrew Yule & Co. MOIL Ltd.Public Finances India: Planned disinvestments Details of proposed disinvestments Company Name Bharat Heavy Electricals Hindustan Copper Steel Authority of India RINL Hindustan Aeronautics Oil India Neyveli Lignite National Aluminium Company Ltd. 32 Department of Economic Affairs. MMTC Ltd. NMDC Ltd. 10 10 10 10 10 12.

April 2012 .Public Finances Declining sovereign debt Decline in government debt is forecasted to continue Gross general government debt (% GDP) 85 80 75 70 65 60 55 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11F 2011-12F 2012-13F 2013-14F 2014-15F 2015-16F Source: IMF World Economic Outlook. Government of India Source: IMF World Economic Outlook. April 2012 India’s debt continued to decline even during the crisis year and after Change in general government debt (% of GDP) 2006-2012 20 10 0 -10 -20 -30 -40 33 Department of Economic Affairs.

4 0. May 2012 Maturity trends of dated securities (% of outstanding stock maturing in a particular year) 1.4 1.66 34. May 2012 Department of Economic Affairs. Government of India 34 .30 21.03 15.6 1.8 0.2 0 FY13 FY14 FY15 FY16 FY17 Source: Public Debt Management Report.49 26.12 Source: Public Debt Management Report.68 25. making the debt position comfortable Maturity Buckets Less than 1 year 1-5 years 5-10 years 10-20 years 20 years and above End-Dec 2011 (% of total) 3.72 End-Mar 2012 (% of total) 3.28 34. MoF.6 0.2 1 0.Public Finances Benign profile of government debt The maturity periods of central government debt are spread out. MoF.71 22.01 13.

1% 43 21 3 Scheduled Commercial Banks 59. 1 = best) 127 Primary Dealers 0.1% 4 South Africa India Brazil China Russia Malaysia Source: RBI – Database on Indian Economy (Table 123) Source: World Economic Forum . cheap and long-dated source of funding  Bank investment in government securities:  Banks are not overly exposed to the government sector with approximately 21%-23% of total assets invested in government paper Domestic financing is well-spread among different financial institutions 2010 ownership of Central and State Government securities Others 2.traditional sources of funding:  Pension funds can invest 55% of their total assets in government securities.Public Finances Low leverage and diversified sources for financing debt India can afford materially more debt than its peers  Well developed local capital markets:  Exposure to interest rate/FX risk is greatly mitigated by deep domestic markets that provide the government access to long-dated local currency funding  Rapidly growing non.2% Provident Funds 4. and derivatives Department of Economic Affairs.Global Competitiveness Report 2011/12. permanent.4% Financial Institutions 2.1% 48 Mutual Funds 0. providing the government a large. equity.9% Reserve Bank of India 10.8% Rapidly developing domestic financial markets ensure easy access to financing Financial market development* (rank.4% Insurance Companies 20. Government of India 35 . foreign exchange. *Four major markets-bond (government and corporate).

Macroeconomic Environment Capital Markets Public Finances External Finances Structural Factors Department of Economic Affairs. Government of India 36 .

April 2012 Source: IMF World Economic Outlook. propelling the economy on a high growth path Savings and Investment (% of GDP) Australia India New Zealand 2011 38 33 28 Investment Savings 18 India’s low external debt means that even a relatively high CAD may not pose a solvency problem 21 20 19 18 17 16 15 External Debt(% of GDP) CAD itself is projected to decline substantially in the coming years 3.4 2.6 2.2 3 2. Ministry of finance Source: IMF Article 4 Assessment 2012 Department of Economic Affairs.External Finances CAD funds the savings-investment gap India’s CAD is better than some of the developed economies Current Account Deficit(% of GDP) 4 2 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -2 -4 23 -6 -8 -10 Source: IMF World Economic Outlook.Dec 2011. April 2012 India’s CAD funds the savings-investment gap.2 Current Account Deficit (% of GDP) 2006 2007 2008 2009 2010 2011 2012 2 FY13 FY14 FY15 FY16 Source: External Debt report end.8 2. Government of India 37 . EDMU.

9 76.5 112.1 141.5 Source: Fitch Ratings.1 151.External Finances India: Increasing foreign assets India’s net foreign assets are higher than most other EMEs Sovereign net foreign assets (% of GDP) 100 80 60 40 20 0 -20 10. March 2012 …and high foreign exchange reserves 309.0 Forex reserves (USD bn) Department of Economic Affairs.6 294. Government of India 38 Source: RBI .9 199.0 304.7 279.1 54.8 251.

7 India 252. Ministry of Commerce Source: IMF World Economic Outlook . Government of India 39 .0 50.and real exports have proven relatively resilient Volume of exports of goods and services (% change) 30 303.1 126.External Finances Steadily rising external trade India outperforms other fast growing economies in terms of change in openness External Trade (% of GDP) 60. April 2012 Department of Economic Affairs.1 178..0 103.0 0.0 40.0 74 40 40 97 170 Percentage change in trade openness between 1991 and 2010 India Mexico China Brazil Russia South Africa Source: World Bank GDI Database Source: World Bank GDI Database Exports crossed USD 300 billion in 2011-12.0 30.3 10 183.3 FY06 FY07 FY08 FY09 FY10 FY11 FY12 0 2006 2007 2008 2009 2010 2011 2012 Source: RBI. Exports (US $ billion) .0 74 20..0 20 163.0 10.

External Finances Trade growth is higher than world average India’s export growth in both merchandise and services has consistently outperformed world growth % Change in merchandise exports 40 30 20 10 0 -10 -20 -30 Source: IMF Article 4 Assessment 2012 World Exports India Exports % Change in commercial services exports 70 60 50 40 30 20 World India 10 0 -10 -20 Department of Economic Affairs. Government of India 40 Source: IMF Article 4 Assessment 2012 .

External Finances Well diversified commodity exports and destination High diversification of export products reduces risks to exports 2010/11 export share Agricultural & allied products Ores & minerals 2000/01 export share Agricultural & allied products Ores & minerals Leather & leather manufactures Chemicals Leather & leather manufactures Chemicals Engineering goods Textiles Other manufactured goods Petroleum & crude Other commodities Engineering goods Textiles Other manufactured goods Petroleum & crude Other commodities Source: Department of Commerce Regions vulnerable to recent financial woes purchase only a third of Indian exports… … whereas a decade ago those regions purchased almost half 2010/11 export share (by region) Other Asia 22% Rest 9% EU 19% 2000/01 export share Other Asia 20% Rest 11% EU 24% North America 11% Africa 6% ASEAN 11% West Asia and North Africa 22% West Asia and North Africa ASEAN 13% Africa 6% 4% North America 22% Source: Department of Commerce 41 Source: Department of Commerce Department of Economic Affairs. Government of India .

reflecting the global ambitions of Indian companies Outward FDI (USD bn) USD Billion 25 20 15 10 5 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: CMIE Business Beacon 42 Department of Economic Affairs.000 20.External Finances India continues to be a preferred destination for FDI FDI has continued to post healthy growth for over a decade FDI (USD mn) 60.000 10.000 50. Government of India .000 0 FY 00-01 FY01-02 FY02-03 FY03-04 FY04-05 FY05-06 FY06-07 FY07-08 FY08-09 FY09-10 FY10-11 FY11-12 Rapidly rising FDI reflects investor confidence in India Sources: Department of Industrial Policy and Promotion Outward FDI from India has also been increasing.000 40.000 30.

External Finances India ranks among the best in investment surveys High business sophistication compared to other EMEs Business sophistication ranking (1=best) 120 Better Median: 52 100 80 60 40 20 0 Sources: Global Competitiveness Index. an improvement from its 3rd rank in 2010 1.6 1. Government of India 43 Sources: ATKearney FDI Confidence Index.4 Brazil Germany Australia US Singapore Department of Economic Affairs.5 1.5 1.5 1.4 1. 2012 South Africa Malaysia China India UK Better .9 FDI Confidence Index 2012 – India ranked 2nd in the world.5 1. WEF India is an attractive destination for FDI 1.5 1.7 1.

Macroeconomic Environment Capital Markets Public Finances External Finances Structural Factors Department of Economic Affairs. Government of India 44 .

00.000 40.000 50.000 70. April 2012 The average percentage change in income has been next only to China and is forecasted to grow rapidly Percentage change in per capita income 2006-2011 and 2012-17 forecast (PPP constant ) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2006-11 2012-17f Source: IMF World Economic Outlook. the increase in per capita income has been rapid Per capita income ( in Rs) 1.000 20.000 90.000 0 Source: IMF World Economic Outlook. April 2012 Department of Economic Affairs.000 80. Government of India 45 .Structural Factors Rapidly increasing per capita income After 1991.000 10.000 60.000 30.

by 2050. • By 2050 India will comprise about 40% of global middle class consumption Department of Economic Affairs. the United States. and the European Union cover fully 60%. they will be flipped. • By 2025. Government of India 46 Source: WEF Future of Manufacturing Report. 2012 . with 80% of that growth coming from Asia. those numbers are expected to equalize. • Middle-class demand is expected to grow from US$ 21 trillion in 2009 to US$ 56 trillion by 2030.Structural Factors India: Growing domestic demand Increasing per capita income will lead to an increasing share of India in world consumption Percentage Share of global middle class consumption 2000-2050 •Today India comprises about 5% of global middle class consumption while Japan.

8 0.4 0.6 0.8 1. Human Development Trend Data Sources: United Nations India’s consistent improvements in wealth levels have translated into gains in human development indicators 1.6 1.4 1.2 0 India improving at a rate much better than any EME Average annual increase in HDI (2000-2011) 47 Department of Economic Affairs. Human Development Trend Data .Structural Factors Favourable demographics Improving human development translating into higher life expectancy Average life expectancy 66 48 … and favorable demographics Average age in 2020 (years) 64 37 62 60 58 29 56 54 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Indian Chinese Japanese Source: UNDP.2 1 0. Government of India Source: UNDP.

7 4.2 5 4.3 86 87 93 94 107 115 128 133 135 Turkey Argentina Philippines Chile Mexico Brazil Egypt Peru South Africa 3.4 3.1 5. World Economic Forum Korea Philippines Poland Colombia Thailand Hungary Russia Argentina Chile Morocco Turkey Mexico Brazil Peru South Africa Egypt 3.6 4.4 2.1 2.8 4.7 Rank 5 12 23 31 32 37 50 52 53 60 65 66 83 Source: The Global Competitiveness Report 2011 – 2012.1 103 113 115 124 126 127 132 135 138 Department of Economic Affairs.3 4.3 4.7 3.7 3.4 4.Structural Factors India: Growing scientific pool 2011-12 Quality of education system Quality of math and science education Malaysia Taiwan.3 2.8 2.8 2.2 4.2 3.4 Rank 14 19 38 44 49 54 55 61 71 72 77 80 82 Score 1-10 (best) Taiwan.1 5. China India Indonesia Czech Republic China Score 1-10 (best) 5.7 2.3 4.1 4. China Korea Malaysia China India Hungary Russia Poland Indonesia Thailand Morocco Czech Republic Colombia 5.5 3.3 3.4 2.4 3.1 3.1 3 2.2 4.8 3.7 3.4 3.3 3.6 2.6 3.3 4.1 4. Government of India 48 .9 3.

.0 8.5 10.3 13.2 10. Capital Adequacy Ratio (%) 14.0 13.2 13. Government of India .3 …and solid capitalization levels.0 13.0 9.9 10.8 10. *2010 data …as well as increasing profitability… Return on equity 15 14 13 12 11 10 9 8 1Q09 3Q09 1Q10 3Q10 1Q11 14.0 2007 2008 2009 2010 2011Q1 Source: IMF FSI Data Source: IMF FSI Data 49 Department of Economic Affairs.6 10. Non performing loans (% of total loans) (2011) 12 10 8 6 4 2 0 Source: IMF FSI Data.0 12.6 13.0 12.0 11.Structural Factors Sound financial sector India’s banking sector benefits from strong asset quality.

Ministry of Finance Loan to deposit ratio is stable and healthy Loan to deposit ratio (%) 74 72 Narrow Money 22% M3 72 76 20% 21% 16% 21% 19% 16% 16% 15% 10% 2008 2009 2010 2011 And the Indian economy is not ‘overbanked’ or subject to some of the systemic problems faced by other emerging and developed economies 2010 Domestic credit to private sector (% GDP) 49 Russian… Czech… Peru Korea Mauritius Vietnam Belgium Iceland Latvia Chile Kazakhstan Colombia Lithuania Germany Saudi Arabia Costa Rica South Africa 50 Department of Economic Affairs.Structural Factors Stable monetary aggregates and banking sector Growth levels of monetary aggregates are relatively stable in India 25% 20% 15% 10% 5% 0% 2006-07 Source: RBI 2007-08 2008-09 2009-10 2010-11 Source: RBI. Government of India Source: World Bank Netherlands Denmark Italy Mexico China Brazil Lebanon Panama Estonia France Ukraine Maldives Bulgaria Greece Israel Poland Finland Thailand Hungary Austria Japan Slovenia Portugal India UK Romania Malaysia Sweden Spain USA Tunisia Croatia Ireland .

6 5.2 6.8 5.7 Rank 2 6 15 16 25 28 32 33 40 42 43 46 51 60 64 65 75 99 Source: (i) The Global Competitiveness Report 2011 2012. World Economic Forum Notes : 1 = Insolvent and may require a government bailout 7 = Generally healthy with sound balance sheet Egypt Argentina Indonesia Russia 4.9 5.Structural Factors Soundness of banking system  Indian Banks have been at the top among EMEs for 2010 in terms of soundness as per the Global Competitiveness Report 2011 South Africa Chile Peru Brazil Czech Republic Malaysia India Turkey Mexico Colombia Thailand Philippines Taiwan.8 5.2 6 5.5 6.6 5. Government of India 51 .6 4.6 5. China Poland China Morocco Hungary South Korea 2011-12 Value [1-7 (best)scale ] 6.5 5.5 4 102 108 112 129 Department of Economic Affairs.4 5.6 5.3 5.2 4.3 5.6 4.6 6.

Government of India 52 .Structural Factors Legal protection to borrowers and lenders  India was amongst the top ranked countries listed on Dow Jones emerging economies in terms of the Degree of legal protection of borrowers and lender’s right on a 1 – 10(best) scale for 2011 2011-12 Value Source: (i) The Global Competitiveness Report 2011 – 2012. World Economic Forum Malaysia South Africa Poland India Peru Korea Hungary China Czech Republic Mexico Columbia Thailand Taiwan. China Turkey Argentina Chile Russia Brazil Philippines Egypt Indonesia Morocco [0 – 10 (best)scale] 10 9 9 8 7 7 7 6 6 5 5 4 4 4 4 4 3 Rank 1 8 8 20 39 39 39 60 60 76 76 89 89 89 89 89 105 105 105 105 105 105 3 3 3 3 3 Department of Economic Affairs.

China Chile Malaysia South Africa China Turkey Peru India Morocco Colombia Mexico Thailand Brazil Hungary Indonesia Poland Czech Republic Egypt Russia Philippines Korea Argentina Department of Economic Affairs.8 4.4 3.2 4.3 Rank 5 14 26 34 41 44 55 58 62 65 70 75 78 81 87 93 96 108 115 120 128 132  India ranks better than most of its peers in transparency of government policymaking.2 4.3 5 4.7 3.4 4.4 4.1 4 4 3.8 3.8 5.3 4. Government of India 53 .Structural Factors Transparency in governance 2011-12 Score 1-10 (best) 5.4 4. Source: The Global Competitiveness Report 2011 – 2012.7 4.1 4.6 4. World Economic Forum Taiwan.2 4.6 3.