Economic Analysis: India

Dr. Rana Singh Associate Professor www.ranasingh.org

2/17/2014

India Land of Opportunities

Fourth largest Economy (PPP) - A safe place to do business Largest democracy political stability & consensus on reforms

Largest reservoir of skilled/semiskilled manpower

Liberal & transparent investment policies

Long-term sustainable Competitive advantage - High growth rate economy

Second Largest Emerging Market

2

Global Business Leaders -On India

India is a developed country as far as intellectual capital is concerned JACK WELCH, GE

We are expanding our presence in India to take advantage of the ample R&D talent available

JOHN CHAMBERS, CISCO

India can be a major part of Dells operations and we are looking to capitalize on Indias human capital
2/17/2014

India is handling the most sophisticated projects in the world.I am impressed with the quality of work BILL GATES, MICROSOFT
3

MICHAEL DELL, DELL

Indian Economy An Overview

Economic Growth

Sustained economic performance

Average since 1991 2004-05 2005-06 Forecast till 2050 Goldman Sachs

6.2% 6.9% 7.5-8.0 % (estimated) 5 % p.a.

Services account for over 50% of GDP Manufacturing sector grew at 9% in 2004-05

Trade (2004-05)

Exports growth 24% in 2004-05 reaching US$80 billion Imports growth 35% reaching US$106 billion
Foreign Investment - US$16 billion in 2003-04

Investment

Mature Capital Markets

NSE third largest, BSE fifth largest in terms of number of trades

Well developed banking system

4

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Economic Reforms

Rationalisation of direct and indirect tax structure

Peak Custom duty: 15% Corporate Tax: 30% Tariff to be aligned with ASEAN levels

Policies on outward investments also liberalised Rupee made fully convertible on trade account Fiscal Responsibility & Budget Management Act
2/17/2014

5th among the top reformers in 2003: World Bank

5

Revenue deficit to be brought to zero by 2008

Economic Reforms-contours

Industrial Policy Reforms

Industrial delicensing and deregulation Licensing limited to only 6 sectors: on security, public health & safety considerations Liberal policy on technology collaboration

Trade Policy Reforms

Most items on Open General License, Quantitative Restrictions lifted Progressive reduction in customs duty Imports grew at 34% in 2004-05 to reach US$105 billion To double Indias share in global merchandise trade in 5 years

Foreign Trade Policy

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Not Just Knowledge Based Sectors

Second most attractive destination for manufacturing

AT Kearney FDI Confidence Index 2004 Indian industry is equally competitive in a wide range of manufacturing activities

Automobile sector: Major MNCs sourcing high quality components and hardware from India

Volvo, GM, GE, Chrysler, Ford,Toyota, Unilever, Clariant, Cummins, Delphi

Bharat Forge: worlds largest single location forging facility, supplier to Toyota, Honda, Volvo, Cummins, Daimler Chrylser Hero Honda: worlds largest manufacturer of motorbikes Moser-baer: worlds third largest producer of optical media and lowest cost manufacturer of CD-Recorders Tata Steel: Worlds lowest cost producer of hot-rolled steel

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Skilled Knowledge Workforce

Indias competitive edge - its highly skilled manpower

Over 380 universities (11,200 colleges) Over 1500 research institutions Over 2,00,000 engineering graduates Over 3,00,000 post graduates from nonengineering colleges Over 21,00,000 other graduates Around 9,000 Ph. Ds

2/17/2014

Knowledge workers in software and service industry increased from 56,000 in 1990-91 to 6,50,000 in 2003;

to reach 2 millions by 2008

Competitiveness Indicators
Rank out of 102 countries

Availability of scientist and engineers Quality of management schools State of cluster development Technological sophistication Sophistication of financial markets Foreign ownership restrictions

3 8 17 25 37 41
9

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(Source: WEFs Global Competitiveness Report, 2003-04)

Competitiveness Indicators-contd..
Rank out of 102 countries

6 Governments prioritization of ICT 12 Quality of scientific research institutions 20 Government intervention in corporate investment 34 Quality of educational system 36 Ease of access to loans 38
Prevalence of foreign technology licensing
10

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(Source: WEFs Global Competitiveness Report, 2003-04)

Global Competitiveness Rankings

1 2 3 4 5 6 7 8 9 10

Finland United States Sweden Taiwan Denmark Norway Singapore Switzerland Japan Iceland

11 United Kingdom 12 Netherlands 13 Germany 14 Australia 15 Canada

19
30 46

Israel
Ireland China

55 India
2/17/2014

SOURCE: World Economic Forum,

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Global Competitiveness Report 2004-2005

Liberalisation of FDI Policy

More sectors opened Equity caps raised Conditions relaxed FEMA enacted Up to 100% Under Automatic Route in all sectors except a small negative list
up to 74/51/50% in 111 Sectors Under Automatic Route 100% in some sectors Up to 51% under Automatic Route for 35 Priority Sectors Allowed selectively up to 40%

Pre 1991
2/17/2014

1991

1997

2000

Post 2000
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Investing in India Entry Routes

Investing in India

Automatic Route
General rule

Prior Permission (FIPB)

By exception

No prior permission required Inform RBI within 30 days of inflow/issue of share

2/17/2014

Prior Government Approval needed. Decision generally Within 4-6 weeks

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Automatic Route

FDI in activities under the Automatic Route DOES NOT require any prior approval; Investor is ONLY required to inform the RBI after the investment has been made: With in 30 days of inward remittances, and Within 30 days of issue of shares to non-residents.

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Policy on FDI

FDI up to 100% under Automatic Route in all activities except

Sectors attracting compulsory licensing Equity limits under sectoral policies Transfer of shares to non-residents under certain circumstances Investor having existing venture in same field under certain circumstances

National Treatment to investment; Bilateral Investment Protection Agreement with 57 countries.

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Manufacturing Sector: 100% FDI under Automatic Route

FDI up to 100% allowed under automatic route in almost all activities Some of these activities are: (illustrative list)

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Cars and motor vehicles Food processing Electronic Hardware Refrigerator and fire fighting equipments Iron and steel Private Oil Refineries Industrial Machinery Fertilizers Pollution control equipments Tyres and tubes Packaging products

Construction Machinery Domestic air conditioners Electric motors, industrial electric furnaces Mining and Quarrying Machinery Steam engines and turbines Non-metallic mineral products Oil mill machinery Chemical machinery Drugs & pharmaceuticals and pesticides except those requiring industrial licensing 16 Medical equipments

Infrastructure Sectors: 100% FDI Under Automatic Route

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Electricity generation (except atomic energy) Electricity transmission Electricity distribution Mass Rapid Transport System Roads and Highways Toll Roads Vehicular bridges Ports and Harbors Hotel and tourism Townships, housing, built up infrastructure and construction development

17

Recent FDI Policy Initiatives

FDI up to 100% allowed under the automatic route in development of townships, housing, built up infrastructure and construction development projects. FDI in domestic airlines increased. FDI in Telecom services increased. Fresh guidelines for investment with previous joint ventures issued. Transfer of shares from residents shareholders put on automatic route.
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Foreign Technology Collaboration Policy

Foreign technology agreements allowed under Automatic route:

Lump sum fees not exceeding US$ 2 Million; Royalty @ 5% on domestic sales and 8% on exports, net of taxes; Royalty up to 2% on exports and 1% also permitted for use of Trade Marks and Brand name, without any technology transfer;

Wholly owned subsidiaries can also pay royalty to their parent company; Payment of royalty without any restriction on the duration allowed. 2/17/2014

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Exchange Controls & Taxation

All investments can be on repatriation basis; Original investment, profits and dividend can be freely repatriated; Foreign investor can acquire immovable property incidental to or required for their activity; Companies incorporated in India treated as Indian companies for taxation; Double Taxation Avoidance Agreement with 65 countries
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Indias Outward Investment Policy

Liberalisation initiated in 1992. Policy progressively liberalized Indian Corporates allowed to invest overseas up to 100% of net worth. Increasing overseas investment by Indian Corporates

Over US$3 billion in 2002-03 & 2003-04 Over 55% of investment in manufacturing Over 100 major acquisitions by Indian corporates in the last 2 years Indians among the top 10 investors in UK
21

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India: FDI Outlook

Third most attractive investment destination AT Kearney Business Confidence Index, 2004

Up from 6th most attractive destination in 2003

Among the top 3 investment hot spots for the next 4 years

UNCTAD & Corporate Location April 2004

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Most Preferred Off shoring destination - AT Kearneys 2004 Offshore Location Attractiveness Index

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Public Private Partnership

Infrastructure projects might not be financially viable on their own; Public Private Partnership to bring in private sector resources and techno-managerial capabilities; Viability Gap Funding for

Roads, railways, seaports, airports; Power Water supply, sewerage, solid waste disposal in urban areas; International convention centres.

Funding in the form of capital grant, Operation & Management support, interest subsidy, etc. 2/17/2014 Support linked with predefined milestones.

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Telecommunications
60

Among the fastest growing telecom markets

50

470,000 km of optical fibre cable laid

40

No. in million

19.5

Cellular phones increasing by over 2 million every month

To reach 200 million in 3-4 years

20 million broadband subscribers and 40 million internet subscribers by 2010.

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17.7 28.2

Broad Band Policy envisages:

20

10
1.5 1.6 2.4 3.1

5 10.5 5.5

2000 2001 2002 2003 2004

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Tele-density of 9, expected to be 20 in next three years; Investment Opportunities

Setting up manufacturing base. Telecom & Value added service

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Power

Policy & Incentive

FDI up to 100% is permitted on the automatic route in all segments except atomic power Ten-year tax holiday for generation and distribution or transmission and distribution of power

Share of Installed Capacity

Nuclear 2% Hydro+ Wind 28%

Institutional Reforms

The Electricity Act 2003 enacted; allows trading in power and further deregulation; Independent Regulator in most states

Thermal 70%

Investment Opportunities

Additional capacity required 1,00,000 MW till 2012 Investment US$120 billion needed; Financial closure for over 4000 MW capacity 2/17/2014 achieved in last one year

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Roads

Policy:

FDI up to 100% is permitted for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels. Ten year tax holiday for road and highway projects;

Investment Opportunities

India has a road network of 3.3 million kilometers Highways: 25,000 km of highways under development

Investment US$24 billion envisaged

Many more opportunities in the States; Different schemes available (BOT Toll based, 2/17/2014 Annuity, SPV)

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Special Economic Zones

Policy

Incentives

2/17/2014

Duty free zones, deemed foreign territories FDI up to 100% permitted in almost all manufacturing activities Transfer of goods from DTA to SEZ treated as exports, Units to be net foreign exchange earner within 5 years. No export commitments No limits on DTA sales

For developer: Income tax exemption or a block of 10 years in 15 years For units: 100% Income Tax exemption for first 5 years, 50% for next 2 years Exemption from indirect taxes; excise, sales, services tax, etc. Freedom to raise ECB with out any maturity restrictions New Law on SEZ on the anvil

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ICT Advantages
IT Exports In US $ Billion
14 12 12 10 10 8 8 6.2 6

IT Industry US$ 16.5 billion *

Exports US$12 billion, growing at 32%* 2008 exports target : US$60 billion, to be 35% of Indias total exports 62 SEI/CMM level 5 companies, i.e. two third of worlds total, are Indian 250 Fortune 500 companies clients of Indian firms R&D base of over 100 FORTUNE 500 companies

High quality standards

0 2000-01 2001-02 2002-03 2003-04

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Investment Opportunities
Collaborative ICT research 28 Joint Software development in a variety of applications * NASSCOM

Auto Component Industry

Fast Growing Industry

Approx. US$ 8.7 billion industry in 2004-05 Annual growth rate 30% US$17billion by 2012 (AT Kearney study)

High degree of export orientation

60% of exports to US and Europe

Top global vehicle manufacturers/ tier 1 suppliers sourcing components from India:

General Motors, Daimler Chrysler, Volvo, Cummins, Ford, Fiat, Renault, Toyota Motors
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Opportunities to leverage on low cost, highskilled manpower to reduce cost of

Textiles

Indian textiles sector:

Turnover US$37 billion; Exports US$13 billion; Investments of US$11 billion in the last five years;

India is 2nd largest producer of cloth and 3rd largest producer of cotton yarn;
Textiles sector has the potential to reach US$85 billion by 2010

Exports can reach US$50 billion Garments to account for 50% of exports;
30

2/17/2014

Investment required US$30 billion

Biotechnology
Indias inherent strengths

Rich Biodiversity Large reservoirs of valuable diagnostic and clinical data Vibrant and inventive pharmaceutical industry; World class network of educational and research institutions Known strengths in mathematics, logic and computational skills Super Computing and Software strengths enable extensive use of bio-informatics in new drug discovery

Opportunities :
Biotech based new drugs / pharmaceuticals 2/17/2014 Bio-technology parks get all facilities of 100% EOU

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Fiscal Reforms

Rationalisation of tax structure both direct and indirect Progressive reduction in peak rates of duties; Direct and indirect taxes further reduced this year

Peak Custom duty reduced to 15% Corporate Tax reduced to 30% Tariff to be aligned with ASEAN levels

Value Added Tax introduced from 1st April 2005 Rupee made fully convertible on trade account
2/17/2014

India among the top reformers in 2003: World Banks Doing Business in 2005

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Made in India

Third most attractive destination for manufacturing

ATKearneys FDI Confidence Index 2004

Indian industry equally competitive in a wide range of manufacturing skill-intensive products:

Apparels, electrical and electronics components; speciality chemicals; pharmaceuticals; etc.

Automotive components: Major MNCs & their OEMs sourcing high-quality components from India

Volvo, GM, GE, Chrysler, Ford, Toyota, Unilever, Cliariant, Cummins, Delphi

Indian companies now having manufacturing presence in multiple countries

Over 55% of approved outward investment by India companies in manufacturing activities

34

2/17/2014

Human Resources

Indias competitive edge - its highly-skilled manpower

Over 380 universities (11200 colleges) 1500 research institutions Over 200,000 engineering graduates Over 300,000 post graduates from non-engineering colleges 2,100,000 other graduates Around 9,000 PhDs

Knowledge workers in software industry increased from 56,000 in 1990-91 to 650,000 in 2003;

to reach 2 million by 2008

Due to its young demographic profile, India would continue to be surplus in working population for a longtime

2/17/2014

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Civil Aviation

Investment Policy

In the airports, FDI up to 100% permitted In domestic airlines, FDI up to 49% permitted subject to no direct or indirect equity participation by foreign airlines

100% investment by NRIs

Investment Opportunities

Modernisation of International airports at Delhi, Mumbai, Chennai and Kolkata Modernisation of non -metro airports Private sector participation is allowed in support services and aircraft manufacture
36

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Civil Aviation
Project on Offer
Development of Metro and non Metro Air ports
1. Modernisation of Chennai Airport US $ 444 million US $ 177 million US $ 666 million US $ 555 million US $ 888 million US $ 340million US $ 340 million

2. Modernisation of Kolkatta Airport 3. Modernisation of Delhi Airport

4. Modernisation of Mumbai Airport

5. Development of 25 non Metro Airports 6. Development of Greenfield Airport at Goa 7. Development of Greenfield Airport at Pune

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Civil Aviation
Airports Traffic Projections
Passenger By 2010: 90-100 million (59 million domestic passengers & 35 million intl. Passengers) Cargo By 2010: 3360 thousand tonnes Airports Traffic Projections

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Ports

Policy & Incentives

FDI up to 100% permitted for construction and maintenance of ports and harbours. Ten year tax holiday 12 major ports, 185 minor ports 12 private/ captive projects with investment of US$ 600 million completed 24 projects with investment of US$1.6 billion under implementation/award

Public-private partnership

Investment requirement of US$22 billion to develop maritime sector

Ports & Shipping Inland waterways

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Tourism
Investment Policy FDI up to 100% is allowed under the automatic route in townships, housing, built-up infrastructure and construction development projects including housing, commercial, premises, hotels, resorts, hospitals, educational institutions, recreational facilities etc. Projects on Offer International Trade cum Convention Centre , Jaipur

Offered to private sector for designing, finance, construct, operate and maintain the facility Estimated cost Us $ 22 million Time frame for implementation 18 months Private sector would require to restore the Fort and develop interior & surroundings of the fort, would be provided for long term lease Estimated cost Us $ 5.5 million Time frame for implementation 18 months Land would be acquired and offered on long term lease Estimated cost Us $ 5.5 million excluding land cost Time frame for implementation 18 months

Development of Tijara Fort, Alwar

Championship Golf Course, Udaipur, Jodhpur or Jaipur

International Convention Centre , Bangalore

Karnataka Govt would acquire the land for investors Facilities to be provided in convention Centre : Exhibition space of 50000 sq Mt, food court, Conference Hall & suites, Convention Centre, shopping malls, health club, golf 2/17/2014 course, % & 7 star hotels, handicraft village, multiplexes etc. Estimated cost Us $ 111 million

40

Urban Infrastructure
FDI Policy FDI upto 100% is allowed in townships, housing, built-up infrastructure and construction development projects Opportunities Us$ 26 billion proposed to be invested in next 5 years in urban infrastructure in 60 cities as a part of National Urban Renewal Mission

The Mission covers physical infrastructure such as water, lighting, sanitation, energy & housing.

2/17/2014

CII

41

Petroleum Refining
Status

Total 18 refineries with production of 116 million tonnes (April- Feb. 2004-05) in terms of crude through put.

by the year 2006-07 demand is expected to increase to 155 million tonnes per annum.

FDI Policy

FDI is permitted up to 100% under automatic route in private sector Indian companies

Investment opportunities

Additional refining capacity of about 110 million tonnes per annum excluding EOUs is planned for implementation by the end of tenth plan( 2002-07)

Investment requirement of over US $ 22 billion.

Opportunity for the transfer of technologies for upgrading the bottom of the barrel and to meet the predominant demand for middle distillates and also to improve the quality of petroleum products to make them environment-friendly and globally competitive.

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Banking Sector
Status No of Scheduled Banks: 362( As on March 2003) *

Indian Private Sector Banks: 30 (market share: 10%) Foreign Banks: 36 (market share: 12%)

FDI Policy FDI up to 74% from all sources under automatic route is permitted in Private Sector Banks subject to conformity of guidelines issued by RBI Foreign Bank can also establish as branch or Wholly owned subsidiary

2/17/2014

* Source: Indian bank Association http://www.indianbanksassociation.org/home/

43

Textiles

Indian textiles sector:

Turnover US$37 billion; Exports US$13 billion; Investments of US$11 billion in the last five years;

India is 2nd largest producer of cloth and 3rd largest producer of cotton yarn; Textiles sector has the potential to reach US$85 billion by 2010

Exports can reach US$50 billion Garments to account for 50% of exports;

Investment required US$30 billion

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Pharmaceuticals

Indian Pharmaceutical : A US $ 4 billion industry (retail sales) Exports: US $ 3.18 billion (2003-2004) The country ranks 4th worldwide accounting for 8% of worlds production by volume and 1.5% by value.

Opportunities Due to rising costs of R&D overseas, greater tendency towards outsourcing and networking. Increasing competence in molecular biology, immunology and biotechnology Potential for clinical research and initiating clinical trials An efficient and cost effective source for procuring generic drugs especially the drugs going off patent in the next few years.

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Power
Projects on offer Bairabi dam Hydro Electric project (80mw) Mizoram

Ministry of environment and forests has granted environment clearance to the project. CEA has issued techno economic clearance of the project Ministry of environment and forests has granted environment clearance to the project. Techno economic clearance of the project has been accorded Environment and forest clearances are yet to be obtained. Techno economic clearance of the project has be accorded

Athirapilly Hydro Electric project (160 MW) Kerala

Matnar Hydro Electric Project (60 MW) Chhattisgarh

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Power
Projects on offer
Private

Sector Hydro Electric

Projects

Dhamwari Sunda (70 MW) Himachal Pradesh by M/s Dhamwari Power Company Ltd economic clearance of the project has been accorded Alliain Duhangan (192 MW), Himachal Pradesh , by M/s A.D. Hydro Power Ltd Karcham Wangtoo (100 MW) Himachal Pradesh by Karcham Hydro Corporation Ltd. Srinagar (330 MW), Uttaranchal by M/s Alaknanda hydro Power Co. Ltd.
47

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Impact of the Reversing Reforms of 91

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1980s

Efforts towards deregulation and liberalization had started in the 80s Reforms got jump started by the crises in the middle of 1991 There were fears that India would default on its international dues Or else would default for want of critical imports

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From crises to reforms

Balance of Payment crises led to the initialization of the 91 reforms The 91 reforms completely reversed those being pursued until the 80s Import substitution- Industrialization and self reliance were overthrown by reforms that preached deregulation and liberalization

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1991 reforms

Licences for domestic manufacturing were abolished Private sector were allowed to enter reserved public sector areas Import tariffs were reduced drastically Rupee was devalued

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The 90s saw..

Simplification and rationalization of the excise tax structure, though with some loopholes Freedom for interest rates Public sector banks gave way to the entry of private banks SEBI catching ground as regulatory body for the stock market Transparency and e-trading in stock markets

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Phasing out of reforms

While many drastic changes were brought about, controls were not dropped completely Conditions apply to many reforms that are being eased out slowly Subsidies are being restrained but not very successfully Privatization of the PSEs did not keep up its initial pace APM is being dismantled slowly

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Reforms in hind sight

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Impact of the reforms

Impact on the following are considered to assess the reversing reforms

Poverty Education & health Employment & wages Economic growth Industry Agriculture Foreign trade & BOP

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Poverty faster decline over 1990s

Percentage Population below Poverty Line
50 40 30 20 10 0 All India Rural Urban
56

1983-84 1987-88 1993-94 1999-00

Source: Dubey Amaresh and Phil Crook (2001)

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Education - continued progress in literacy

80 70 60 50 40 30 20 10 0 Males Females Persons
57

1951 1961 1971 1981 1991 2001

2/17/2014

Source: Census of India

Health inadequate progress

160 140 120 100 80 60 40 20 0

1951 1971 1981

1991 2000

While health has improved, progress has been inadequate as compared to the earlier decade Expenditure on health and education has reduced since the reforms

Infant Mortality Rate

2/17/2014 Source:

Economic Survey of India, various years

58

Employment - grew faster

Employment in organized manufacturing industries grew faster in the 90s than in the 80s

68 66 64 62 60 58 56

Manufacturing employment

1981

1989

1991

1999

2/17/2014

Source: Ministry of Labour (DGE&T)

59

Wages

Real wage rates have improved for agricultural labour

Rural Males
1983 - 1993-94 1993-94 199900

Rural Females
1983 - 1993-94 1993-94 199900

Manual work (agriculture) Casual labour (agriculture) Casual labour (non-agriculture)

2.74 2.75 2.39

2.77 2.79 3.70

3.09 3.09 4.08

2.93 2.94 4.07

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Source: Sundaram, EPW- August 2001

Economic Growth
7 6.11 6 5 4 3 2 1 0
5.04

1951-79
3.5

1980-91 1992-00

Accelerated growth of the 80s was not sustainable This was reflected by the 91 crises The 91 reforms have placed the economy at a higher growth path of over 6 percent during 1992-2000

GDP growth rate

Source: 2/17/2014 India Development Report, 2002
61

Industry growth and structure

Growth in manufacturing over 1991-2001 higher than five decades preceding it Growth in registered manufacturing was more employment generating Labour intensive industries such as textiles were the key employment generators Chemicals and related products manufacturing had the highest share in value added

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Agricultural exports have increased

3,500 3,000 2,500 2,000 1,500 1,000 500 0

Agricultural Exports (Rs. Million)

1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 (P)

2/17/2014

Source: Ministry of Agriculture

63

Agriculture - value added has been increasing

GDP from agriculture (Rs. Billion)
2,884 2,761 2,541 2,519 2,420 2,694

2,903

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

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1999-00

Source: CSO

64

But agri-growth rate has declined

Average annual growth rates of index of agricultural production Year All crops Food Non-food Grains grains Oilseeds Cotton Sugarca ne

1981-91

3.5

2.9

4.8

7.0

2.8

2.6

1992-99

2.6

2.7

2.5

1.9

3.2

2.4

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65

Source: India Development Report, 2002

Foreign trade

Growth of exports in the 70s was largely obtained through various export incentives Accelerated growth in terms of exports + invisibles is apparent in the 90s

50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0

1970-71 1990-91

1980-81 2000-01

44318

18234 13510

1841
Total exports

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Balance Of Payment

Strength of the financial sector is reflected that India was able to withstand the East Asia financial crises very well In November 2001 forex reserves stood at US $ 47 billion In January 2003 forex reserves stood at US $ 72 billion Also, less than half this amount is in the form of portfolio investment

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Persisting issues

Policy makers and government have realized that the benefit of reform carried out are stagnating This shows up in

Decelerating growth of agricultural Stagnation of export in the past two to three years Fiscal imbalance, even with some reduction in subsidies and APM

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Global Perspective

1.
2. 3.

Global market overview

Global rankings Market overview

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69

1. Global market overview - July 2004

During the month July 2004 IBM-PLI recorded 961 investment project announcements worldwide, expected to create around 80,000 jobs.
July 2003 July 2004

Number of projects
of expected job Share of Estimation investment projects by region creation
37% Americas 25%

1,038

961

88,344 Share of investment 80,000 projects by region

North America Latin America & Carribean Europe (W)
2% 6% 15% 3% 1% 3% 0% 2% 13% 14% 34% 11% 29% 19% 35%

34% EMEA 31%

Europe (E) Middle East Africa Asia (Developing)

AsiaPacific

29% 43%
Outward FDI projects Inward FDI projects

Asia (Developed) Oceania

2% 3%

6%

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70

2. Global rankings - July 2004

Top 10 countries: inward investments United States 2. China 3. India 4. Japan 5. United Kingdom 6. Brazil 7. Australia 8. Russian 2/17/2014 Federation
1.

Top 10 regions: inward investments

1.

Top 10 countries: outward investments United States 2. Japan 3. United Kingdom 4. India 5. Germany 6. France 7. Canada 8. Australia 9. Hong Kong 10. Italy
1.
71

2.

3.

4.

5. 6. 7.

Shanghai, China Guangdong, China Karnataka, India Tamilnadu, India California, USA Jiangsu, China Adhra Pradesh,

3. Market overview Manufacturing

Americas
Countries 1. United States 2. Brazil 3. Mexico Top Sectors 4. 1. Chemicals Columbia 2. 5. Motor vehicles Argentina 3. Food & Beverages 4. Rubber &
2/17/2014

EMEA
Countries 1. Russian Fed.

(Europe Middle

Asia-Pacific
Countries 1. China 2. Japan 3. India 4. Thailand Top Sectors 5. 1. Malaysia Chemicals Project s 70 22 20 8

Project s 56 17 10 2 15

East and Africa)

Project s 12 12 12

2. Romania 3. UK Top Sectors

2 13 12 7

4. 1. Poland Motor vehicles9 1 5. Hungary 8 7 2. Food & Beverages 3. Chemicals 1 7 1 0

5 39 20
18 11
72

2. Motor vehicles
3. Food & Beverages 4. Electrical Machinery

4. Machinery

3. Market overview Services centers

Top countries for shared services and contact centers
Countries 1. India Projects 19

2. United States
Companies 4. China

Top Project Announcements 3. Philippines 4

Destination 3 country India United States (Louisiana) Job announcement 1,750 1,500
73

11

1. Effective Teleservices Inc 2. Direct General Corp

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3. Market overview R&D

Top countries for R&D (incl.
software development) Countries 1. India 2. China 3. United States 5. Taiwan Companies Projects 28 13 10 5

4. Japan 7 Top Project Announcements Destination country India India Job announcement 5,000 Up to 3,000

1. Wipro Technologies 2. Tata Group

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3. Microsoft

United States 3,000* 74 *The new hires for the 12 months that end June 30, 2005, will fill both newly created positions and jobs vacated by others. (WA)

INDIA IN THE GLOBAL ECONOMY

Indias global ranking in terms of GDP- on PPP basis-has shot up from the 8th position in 1991 to the 4th position in 2001 Indias annual average GDP growth of 5.6% in the nineties was next only to China and Korea RBI report projects growth rate to be significantly higher than 6% in 2003-04 Tenth 5 year plan targets annual growth of 8% between 2002-07 India, today has over US$ 85 billion in foreign exchange reserves which offers import cover for 15 months one of the highest among developing economies

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WHERE TO INVEST SECTORS TO LOOK OUT FOR

CHEMICALS & PHARMACEUTICALS OIL & GAS INFRASTRUCTURE BIOTECHNOLOGY ENGINEERING INDUSTRY MINING TEXTILES & APPAREL GEMS & JEWELLERY TELECOMMUNICATIONS AGRO & FOOD PROCESSING INFORMATION TECHNOLOGY
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Sustained Competitiveness
Facilitating Conditions
Continuous support for basic research Effective patent protection Effective, efficient and predictable regulatory environment Transparent business environment Market based on competition and free choice

Incentive to Innovation
Cluster of Innovation Incentive to R&D Innovation Law Industrial Policy Free trade
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Vocation
Agribusiness Aeronautics Oil in deep waters Biotechnology / Genomics and Health Science

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Innovation is the pillar of competitiveness

Prosperity

There are no low

technology profile
sectors, only low
Competitiveness
(Productivity)

technology profile industries

M. Porter

Innovative technological capacity

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INDIA - HUMAN DEVELOPMENT PERSPECTIVE

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The Birth of Human Development Concept (1990 UNDP)

Basic assumptions under this concept

The true wealth of a country is its people. There are not developed and underdeveloped countries, but developed and underdeveloped people. The best strategy to increase national income is not to accumulate capital, but to develop people.

Exactly Defined as Process of enlarging peoples choice

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Therefore
Growth Advocates: Expanding income is an end in itself Growth does trickle down HD Advocates: income is a means; enhancing peoples capabilities the end Simultaneous expansion of choices in other dimensions social, cultural, political - and economic not accept trickle down as automatic

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Is Income Enough for Well-being?

Economic growth is needed, but public policy is needed to translate growth into HD. How?
1) 2) 3) 4)

Emphasis on investment in health, education, skills of people More equitable distribution of assets and income Well structured public expenditures Empowerment of people to participate

Otherwise the growth is voiceless, rootless, ruthless, futureless, discriminating, etc.

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HOW TO MEASURE HUMAN DEVELOPMENT?

Index HDI
GDI

What it measures
Average achievements in a country in three basic dimensions of HD
Adjusts the average achievement of the HDI to reflect the inequalities between men and women Focuses on womens opportunities rather than their capabilities

GEM

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Human Development Index (HDI)

Introduced in 1990, the HDI measures a country's achievements in three aspects of Human Development:

Longevity: measured by life expectancy at birth; Knowledge: measured by a combination of the adult literacy rate (2/3) and the combined gross primary, secondary, and tertiary enrolment ratio (1/3); Standard of living: measured by GDP per capita (Purchasing Power Parity of US$).

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Construction of the HDI

1 Fixed minimum and maximum values are established for each of these indicators:
1) 2) 3) 4)

life expectancy at birth: 25 and 85 years; adult literacy rate (age 15 and above): 0% and 100%; combined gross enrollment ratio: 0% and 100%; GDP per capita (PPP$): $100 and $40,000 (PPPUS$).

For each component, individual indices are computed according to the general formula: Index=(actual value minimum value) / (maximum value minimum value) The Education Index is compiled as 2/3(adult literacy index) + 1/3(gross enrolment index)

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Construction of the HDI ( Contd)

4.The GDP index is calculated using adjusted per capita (PPP$). In the HDI income serves as a surrogate for all the dimension of human development not reflected in a long and healthy life and in knowledge. Income is adjusted because achieving a respectable level of human development does not require unlimited income. Accordingly, the logarithm of the income is used. 5.The HDI is a simple average of the life expectancy index, educational attainment index and adjusted GDP per capita PPP US$ index, and is derived by dividing the sum of these three indices by 3.

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Uses of HDI: Focus on human outcomes, not economic data

Comparisons within and between countries of the same level of development, as well as neighbors If properly disaggregated, to monitor inequalities, recommend targeting, evaluate progress over time To determine priorities for policy intervention For lobbying policy makers who make budgetary allocations (needs to be understood and used by civil society) To question national policy choices - how two countries with the same level of income per person can end up with such different HD outcomes.

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Similar HDI, different income, 1997

Real GDP per capita (PPP $) 15,930 Country HDI value 0.894

Spain

Singapor e Georgia Turkey

Morocco Lesotho
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28,460 1,960 6,350

3,310 1,860

0.888 0.729 0.728

0.582 0.582
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HDI trends in 2004 (2002)

The top and the bottom of the Index remain unchanged from last year: Norway is on top and Sierra Leone is on the bottom Top 5 countries: Norway (0.956), Sweden (0.946), Australia (0.946), Canada (0.943), Netherlands (0.942) Bottom 5 Countries : Burundi (0.339), Mali (0.326), Burkina Faso (0.302), Niger (0.292), Sierra Leone (0.273) India : 1975 0.411, 1980 0.437, 1990 0.514, 1995 0.548, 2000 0.579 and 2002- 0.595 (Rank 127)

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HDI trends in 2005 (2003)

The top and the bottom of the Index (177 ): Norway is on top and Niger is on the bottom Top 5 countries: Norway, Iceland, Australia, Luxemburg, Canada

Bottom 5 Countries : Chad, Leone, Niger

India : .602 (Rank 127)

Mali, Burkina Faso, Sierra

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HDI trends

The CIS is the only region to witness an overall decline in its HDI. Nearly all the countries saw a sizeable deterioration in their income indicator, with the notable exception of Poland. Roughly half of the countries in Latin America and the Caribbean recorded either a decline or stagnation in income during the 1990s. East Asia and the Pacific region continues to forge ahead, with virtually every country making progress compared with 1990. Lao, China, Thailand and Malaysia all moved ahead in the HDI rankings. In South Asia, too, there were HDI improvements across the board.

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S&E Job Growth Projected to Exceed Overall Job Growth Rate

Projected Increase in Employment, Percent Change from 2000 to 2010 100 90 80 70 60 50 40 30 20 10 0 All Occupations
2/17/2014 SOURCE: National Science Foundation, Science and Engineering Indicators 2004.

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15

All S&E Occupations

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Number of S&E Doctoral Degrees Awarded Growing Faster Worldwide Than in US

Compounded Annual Growth Rate of S&E Doctoral Degrees Awarded, 19912001

China Taiwan South Korea Japan United Kingdom France India Germany United States 0 0.05 0.1 0.15 0.2 0.25
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2/17/2014 SOURCE: National Science Foundation, Science and Engineering Indicators 2004.

TO CONCLUDE

What should we do ?
-

Reduction in economic and social inequalities of macro and microeconomic variables Promotion of Equality of opportunities for all people across the nations, regions, people societies, cultures and genders Focus on contributing to the overall GDP of the Indian Economy Emphasis on crystallizing and outperforming international benchmarks in all sectors of the economy Aim at achieving excellence in all spheres of operations Earnest endeavours on Invention, Innovation, R& D, and patents of state of the art technology, products, systems and processes Nurture high ambition and aspiration levels in Individual, organizational and international domains Focus on Technology related areas and its overall contributions to Quality of life so as to maximize Indias Ranking on HDI Frontier Adherence to Sterling Benchmarks of behaviors based on universal ethics and values Commitment to preserve the environmental sustainability in the long run
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