Economic Analysis of India | Business Process Outsourcing | Economies

ECONOMIC ANALYSIS of India

Global FDI trends 2000
 Record FDI flows of US$ 1.3 trillion in 2000 Developed world still favourite (over 75% of global share; mainly cross-border M&A) US$ 240 billion to developing countries Developing Asia gets US$ 143 billion, of which China and Hong Kong-China alone account for US$ 105 billion Latin America gets US$ 86 billion WHAT WE ARE REALLY LOOKING AT IS A SIGNIFICANT SHARE OF WHAT COMES TO ASIA Source: UNCTAD WIR01

% Share of Selected Countries in Total FDI Inflow in Developing Countries
1995 Brazil China India Malaysia South Korea Singapore Thailand Total Dev. Countries (US$ Bn) 4.9 31.6 1.0 5.1 1.6 7.8 1.8 113.3 1998 15.1 23.2 1.4 1.4 2.9 3.3 2.7 188.4 1999 14.1 18.2 1.0 1.6 4.8 3.2 1.6 222.0 2000 13.9 17.0 1.0 2.3 4.2 2.7 1.0 240.2

Ratio of FDI Inflow (%) to Gross Domestic Product
1995 Brazil China India Malaysia South Korea Singapore Thailand 0.8 5.1 0.6 6.8 0.4 10.5 1.2 1998 3.6 4.6 0.6 3.8 1.7 7.6 4.6 1999 5.9 4.1 0.5 4.4 2.6 8.6 3.0 2000 5.7 3.8 0.5 3.9 2.2 7.0 2.0

Sectoral Targets for Achieving 8% GDP Growth ( $7-8 Bn)
Sector
Power Financial Services LNG & Oil Exploration Food & beverage Transportation Textiles Ports Chemicals & Petrochemicals Hotels & Tourism Real Estate Roads Civil Aviation Dis-investment Total

FDI Target (US$ Bn)

Telecom

2.5 1.2 0.8 1.0 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.5 8.9

Key Economic Indicators: GDP Growth Rate (1993-94 as base year)
0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
-0 0 00

5 .5 %

 . %  . %

Growth Rate (%)

 . %

5 .5 5 % 5 .5 % 5 .5 5 %









00





- 









00

00

(A E)

- 

- 

- 

- 

-0 0

Key Economic Indicators: External sector
Foreign Exchange Reserves (US$ billion)
00 00 00 00 00 00 00 00 0 - - - - - 0 0 0 0 -0 0 0 0 0 0 -0 0 0 0 0 0 -0 0 (as on 00 -00 00) 00

 . 5 5 .5 5 5 .5  .

 .

5 5 .5 5

 .
0 0 .0 0

 .
 .

 00 00 00 00 00 0 0

 00  00

 . 

00

Exchange Rate (Rs/US$)

INDIA: TRACING FIRST GENERATION REFORMS • Industrial delicensing • Liberal FDI regime • Freedom to invest & expand • Simplification of investment procedures • Tax rationalisation • Current Account convertibility • Public sector divestment • WTO compatibility – Patents, etc.

The Reforms Process Ahead
 Public sector divestment  Cutting fiscal deficit  Amendments to crucial economic legislations  Financial sector reforms  Labour reforms  Corporate governance  Meeting all multilateral commitments in terms of GATT, GATS, TRIPS, etc.

INVESTMENT OPPORTUNITIES

INFRASTRUCTURE
INVESTMENT REQUIREMENT: US $ 347 Bn
Sector Present Capacity
0 .0 0 Lakh MW 0 0 M Lines    MT 0 0 , 0 0 0 Kms  ,  ,   Kms

Capacity Addition By 0000
 ,  ,   MW 0 0 M Lines    MT   ,   Kms  ,  Kms    Kms , 

Investment By 0000 (US $ Bn)
   0 00

Power Telecom Ports Roads a. National Highways b. State Highways c. Super N. H. Urban I nfrastructure Service

 

Source: Rakesh Mohan Committee Report (1996-2006)

Economic Scenario : Post Liberalisation
• India - One of the fastest growing economies in the world • Average GDP growth (1995 -2005) : 6.2 % per annum • Average annual growth (1995-2005) Agriculture & Allied Industry Services : : : + 2.1 % per annum + 6.6 % per annum + 7.8 % per annum

• Average Per Capita Income growth (1995 - 2005): 3.8 % per annum • Inflation down to a single digit level continuously for the last ten years • Foreign exchange reserves increased from US $ 2 b (March 1991) to US $ 145 b (September 2005) • Merchandise Exports : +20 % average rate of growth in last three years • Booming Services Exports from US $ 4.6 b in 1990-91 to US $ 51.3 b in 2004-05
11

Economic Scenario : Post Liberalization
• Balance of Payments surplus (US $ 26 b in 2004-05) • External Debt Service Ratio down from 26.2 % in 1995 to 6.2 in 2005 • Foreign Direct Investment (FDI) : Average +US $ 5 b pa in the last five years. • Foreign Portfolio Investment : US $ 11.4 b in 2003-04 and US $ 8.9 b in 2004-05 • Reforms continuing and have unleashed dynamic forces – putting the economy on a trajectory of unparalleled economic growth in the future • The Indian Government is working in close co-operation with industry and trade to mitigate the remaining problems and constraints • Broad consensus across the political spectrum on the need for and direction of the reforms. Some issues still need to be resolved 12

Share Of Services Sector In GDP On The Rise (%)

60 50 40 30 20 10 0

32. 2

4 0. 6 2 7. 2

4 3. 9 2 8. 1 2 8. 0

4 8. 9 2 7. 2 2 3. 8

5 2. 4 2 7. 1 2 0. 5

1990 91 -

1995 96 -

2000 01 -

2004 05 -

A gric ulture Indus try Serv ic es

13

Agriculture

India • the world’s most irrigated land mass • world’s 2nd largest exporter of rice & 5th largest exporter of wheat

Food production: India’s Ranking in the World

1st 2nd

Tea, Milk Rice, wheat, sugar

14

Manufacturing

• Rate of growth 2003-04 2004-05 • State-of-the-art technologies • TQM,TPM, Six Sigma & Lean Manufacturing - part of everyday practice • Diversified industrial base with supporting ancillary industries • Overseas acquisitions worth US$ 500 m 7% 9.2%

• Diversified base of world class capabilities

15

Services

• Consistent growth 2003-04 2004-05 • Sectors Driving Growth - ITES - Healthcare - Financial Services - Education 9.1% 8.9%

Source:Economic survey, 2004 - 05
16

Average GDP growth - India & the World
Average GDP Growth (1990-2001) 9.4

9.5 8.5 7.5 6.5 5.5 4.5 3.5 2.5 1.5

Growth (%)

6.2

5.5

4.9

4.7 3.3 2.9 2.9 2.0

India

Philippines

China

Thailand

Indonesia

Mexico

USA

S.Korea

Source: WDI, World Bank, 2003
17

Brazil

Rising share of India’s external trade in GDP

Target : To double share of exports from 0.7% to 1.5% of world trade

S h a re o f e xte rn a l tra d e in G D P
0 0 0 0 0 0 0 0 0    -     -     -      - 0 0 0 -0 0 00 0 0 -0  0 0 0 0 0 0 0 0 -0 0 00 0 0 -0 0 0

0 0. 0

0 0. 0

 . 

 . 

 . 

 . 

 . 

00

18

Macro Economic Indicators (2004-05)

• Land Area: • Population: • GDP: • Real GDP Growth: • Gross Domestic Savings: • Gross Domestic Investment: • Per Capita Income: • Inflation Rate:

3.29 m sq. km. 1.09 b US $ 630 b 6.9% 28.1% (2003-04) 26.3% (2003-04) US $ 580 6.4%

19

Macro Economic Indicators (2004-05)

• Exchange Rate: • Merchandise Exports: • Merchandise Imports: • Services Exports: • Foreign Direct Investment: • Foreign Portfolio Investment: • Direct Investment Abroad:

US $ 1 = 43.75 US $ 80b US $ 106b US $ 51b US $ 5.5b US $ 8.9b US $ 1.5b
20

Indian MNCs - On a global buying spree

• Number of foreign firms acquired by Indian companies during 2001 - 03 • Total worth • India - 8th largest investor in the UK • No of investments • No of Indian companies with operations in Singapore

120

US $ 1.6 b

440 1,441

21

Preferred Destination For Foreign Equity Investors
,    ,    ,    ,    ,    ,          0 ,    ,    000  000 0 0 0 0 0 0 0  0 0,0 0 0 Japan In d ia So u th K o r e a Sin g a p o r e Au s tr a lia C h in a Hong Kong Ta iw a n M a la ys ia  Sr i La n k a N e w Ze a la n d Ph ilip p in e s Th a ila n d

India attracts second highest private equity investment in Asia Total equity flow to India between 1999 and 2004 doubled
Source: NASSCOM

from US$ 5.12 billion to US$ 11.50 billion

22

FDI INFLOWS TO INDIA
0000 0000 0000 0000 0000 0000 0000 0 0 0 0 0 -0 0 0 0 0 0 -0 0  -  - 0 0 0 0 -0 0 0000

0000  0000 

*

FDI Inflows ($ million)

23

The India Advantage
Excellent network of research laboratories Well-developed base industries

Proficiency in English

Pro active policy framework

Rich biodiversity

Extensive clinical trial opportunities

Low manpower costs

Trained manpower and knowledge base
24

Demographics: A strong demand driver

25

Growing Knowledge Pool
Partnership Driver - Skilled Manpower
Global Growth in Working-Age Population ( 00 00 Over the Next ~ ) Six Years ( Mln )
Stock Position 2222 Addl working age population by 

Availability of Skilled Manpower, 0000
00 = High 0 = Low

Availability of Qualified Engineers, 0000
00 = High 0 = Low

World India Africa China S E Asia L America W Asia USA Japan
ISO: 5555 : 5555

0 ,0 0 0 000 000 000 000 000 000 000 00

00 0 00 00  00 00 00 00 0 00 . Stanley -0

Singapore USA India Germany Hong Kong Japan Taiwan Korea Mexico China

0 .0  . . . . . 0 .0 0 .0 . .

India Singapore USA Hong Kong Germany Taiwan Mexico Korea

8. 9 7. 9 7. 3 6. 9 6. 7 6. 7 6. 4 5. 8
26

W Europe 000 Source: UN, Morgan

Source: IMD Competitiveness Yearbook. 2003 China 39

The Cost Advantage

Average wage / year (in thousand US dollars)
30 25 20 15 10 5 0 2 .4 5 .88 6 .4 6 .5 7 .2 7 .2 8 8 .9 6 25 28

Source: NASSCOM

Costs for offshore work 30 - 50 % lower than in USA / Europe
27

Low Wages
Total Compensation for Work ers in Heavy Manufacturing (US$ per Hour)
25 20 15 10 5 0 USA Korea Mexico China India 5 .5 5  .   .   .  5 .5 5 Indonesia 5 5 .5 5

Source: IMD Competitiveness yearbook, 2003

28

Import duty Reductions

R e d u c tio n in P e a k C u s to m s D u tie s o n M a n u fa c tu re d
160 140 120 100 80 60 40 20 0
0000 M a r-   M a r-   M a r-   M a r00 M a r-   M a r-  w . e . f M a rc h 
29

000 000 00

in per cent

00

0 0. 0

00

00

00

India - Economic Enablers
10th largest economy in the world - 4th in terms of PPP Will overtake Japan in PPP terms by 2010, to be 3rd largest in the world Large entrepreneurial base and diversified manufacturing structure Large reservoir of skilled labour at internationally competitive cost Vast pool of scientifically and technically qualified manpower of 20m A large domestic market - 300m+ strong middle class population having substantial purchasing power Largest democratic set - up A broad based and transparent legal framework including arbitration

30

India - Economic Enablers
Vast network of bank branches, financial institutions and well-organized capital and money markets

A network of technical and management institutes of highest international standards for development of human resources

India has a record of meeting its international financial obligations as per schedule and has never been a defaulter No communication barrier, as English is the most prevalent business language Strong and vibrant small scale sector that is keen to establish strategic alliances with their foreign counterparts
31

India - Economic Enablers
Supportive infrastructure base Strategic location for third country markets, particularly in the rapidly growing south and south-east Asian countries

The strategic location of India and its easy and efficient access to the Middle East, East European countries, CIS countries, Africa, South East Asia and Asia-Pacific countries places it in a unique position as a sourcing ground for entering into strategic alliances in export-oriented industries

Foreign companies can take advantage of India’s strategic location and tap the markets of these countries. India is slowly but surely emerging as an attractive destination for foreign investment Liberalized industrial and foreign investment policies
32

India - Economic Enablers

Sector FDI Limits • Defence • Telecom • Civil Aviation • Real estate & construction sector • Integrated township development • Tea plantation up to 26 up to 74% up to 49% up to 100 % up to 100 % up to 100 %

33

The India Advantage: Infrastructure
• Road length Second largest road network in the world • Railway routes • Cargo handled • Electricity installed capacity Sixth in world electricity generation • Telephone Connections • Fixed lines (Dec, 2004) 8th largest telecom network in the world
Source: Department of Economics & Statistics, Tata Services Ltd

2.5 m km

63,000 km

298 m tonnes

126,000 MW

77 m lines

44.76 m
34

Growing IT Market Size (2002 - 03) Growth rate CAGR (since 1999) Share of IT and BPO 2008 projection US $ 24 b 28% 46% 1.4% of GDP 7%

Exports (2003 - 04) Growing at

+ US $ 12 b + 30% pa

Employment Over 650,000 Second largest employer in IT services sector
35

Opportunities in Outsourcing
• The Indian Outsourcing industry is moving up the value chain • It is BPO today but the future is for Knowledge Process Outsourcing (KPO), Financial Process Outsourcing (FPO) and Legal Process Outsourcing (LPO) • It is providing value through domain expertise rather than process expertise • India, in the new knowledge economy, is all set to emerge as a global KPO,FPO and the LPO hub • It is estimated to capture 71% of the world market by 2010 against 56 % today giving it a market of US $12 b • There are new opportunities, given that there is a serious shortage of quality teachers, in the USA
36

Opportunities in Outsourcing

• The remote education market is about US $ 15 b by 2008 • The current leaders are Engineering design – US $ 400 m, basic data search, integration and management – US $300 m and Biotech and Pharma – US $ 280 m • The Compounded estimated annual growth of KPO for India is 50 % whereas BPO will grow at about 30 % • KPO is expected to engage 250,000 people by 2010 • It will be in areas such as biotechnology,animation and graphics,design in aerospace & automotive, health care, pharma research, learning solutions, data management, customer analytics and entertainment • FPO will include insurance underwriting, risk assessment, equity research and corporate market research
37

ITES - BPO Sector
Contribution of IT Enabled Services in total IT exports  - %  0 0 0 0 -0 0 0 0 00%

0 0 0 0 -0 0 0 0  %

0 0 0 0 -0 0 0 0 00%

- ITES exports projected to touch US$ 24 b by 2008 - India offers combination of cost-quality-scale advantage
38

Opportunities in Retail Sector
The ongoing buoyancy in India’s spending, arising from the changing demographics and the resultant rise in income levels, has resulted in a distinct consumer preference for value-added products across the retail spectrum, providing a platform for the rapid growth of the retailing sector which could emerge as one of the fastest growing sector in coming years • Organized retailing industry to rise from US $ 4b to US $ 15b by 2010 The total retailing industry, estimated at US $ 200b is largely in the unorganized sector with organized retailing accounting for less than 2% (US $ 4b) The organized retailing segment to grow fourfold in 5 years According to NCAER, the Indian middle class (household income between $ 4,500 – 23,000) currently at 92m, is expected to cross 153m by 2010 Substantial mall construction: The number of malls is expected to rise from the current 40 to around 250 by 2010 Close to 50m sq. ft. of retail space is expected to be developed over the next 5 years
39

• • •

US

India is currently the world’s fastest growing economy after China
Strong GDP Growth
700
Nominal GDP (US$ Bln) Nominal GDP Real GDP Growth

India – The new Asian Powerhouse
(1)
00 00 0
Real GDP Growth(%)

Changing GDP Composition
Agriculture Industry Services

8 .5 %

600 500 400 30 0 200 100 0 FY01 FY02 FY03 FY04 $417 $438 4.4% 5 .8 % 4.0% $467 $550

7 .8% 9 8 6 .9 % 7 6 5 $631 4 3 2 1 0 FY05 FY06 P

-0 -0

• • • •

Changing composition of GDP – Reduced dependence on agriculture and growing industrial and services sector Strong outsourcing growth momentum – IT services, financial services, healthcare & manufacturing Growing Infrastructure investments and corporate Capex Strong improvement in external sector and phased fiscal deficit correction Attracting large foreign investments
(1) Source : RBI

'S ep t

Real GDP Growth (%)

0 0 0 0
FY  FY  FY  FY 

-0

FY 00

' 

-0

India – Among the strongest growing economies
Real GDP Growth(1)
10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2001
India H ong K ong

BSE Sensex vis a vis International Stock Markets

8.1% 7.5% 5.3% 5.1% 4.7%

3.8%

2002

2003
C hina Thailand

2004E

2005E
M alay ia s K orea

• •

Second fastest growing economy Fourth largest economy in the world in terms of PPP (2)

 

Indian stock index outperformed international indices: High growth prospects
- Control in inflation, - Strong Rupee, - Strong FII Inflow, - Improved corporate earnings

(1) Source: EIU (1) Source: EIU (2) Source: World Bank (2) Source: World Bank

Fiscal Deficit as %age to GDP

Booming exports
90 80 US $ billion 70 60 50 40 30 20 10 0 FY01 FY02 FY03 FY04 FY05 44.6 43.8 52.7 63.8 79.2

Strong Macro Economic Fundamentals
7 6 5 4 3 2 1 0 FY02 FY03 FY04 FY05E FY06E 6.2 5.9 4.5 4.5 4.3

Decreasing Fiscal Deficit

Increasing FDI Inflows
7000 US $ million 6000 5000 4000 3000 2000 1000 0 FY01 FY02 FY03 FY04 FY05 4031 6125 5036 4674

US$ Billion

5526

160 Forex Reserve 140 139 142 120 100 113 80 60 71 51 40 20 0 Mar-02 Mar-03 Apr-04 Mar-05 'Jan 06

Expanding Foreign Exchange Reserves

Strengthened Banking Sector
Outstanding Bank Credit
300 US $ Billion 250 200 150 100 2002 2003 2004 2005 Jan'06 136 192 253
120 100 80 60 40 20 0 FY01 FY02 FY03 FY04 FY05 47.8 57.2 65.6

(1)

Savings Deposits with Scheduled Commercial Banks
USD bln

105.4 88.2

168

Growth and Performance drivers
-

Robust retail demand Low consumer-finance penetration Positive age demographics, rising disposable incomes Favorable interest rates and easier availability Recovery in key commodity sectors – steel, textiles Improvement in corporate financial performance and business outlook RBI aligning prudential banking norms in tune with international standards Consolidation to improve intrinsic strength of the sector
-

Strengthening regulatory regime
-

Strong revaluation of banking stocks
(1) Source : RBI, Ministry of Finance, CSO

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