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India : Parameters for Growth By Dr. Ajay Dua Secretary to Govt. of India India : Parameters for Growth By Dr. Ajay Dua Secretary to Govt. of India Ministry of Commerce & Industry, New Delhi E-mail: ajay. [email protected] in

 Healthy macroeconomic fundamentals Growth § Average annual growth rate* l In the 50 Healthy macroeconomic fundamentals Growth § Average annual growth rate* l In the 50 s, 60 s and 70 s – 3. 5% l In the 80 s – 5. 7% l During 1990 -2005 – 6. 0% l During the last three years – 8% § India is now targeting a growth of 9% plus over the next 5 years *Source – Reserve Bank of India

 Healthy macroeconomic fundamentals Fiscal deficit Source – Reserve Bank of India Healthy macroeconomic fundamentals Fiscal deficit Source – Reserve Bank of India

 Healthy macroeconomic fundamentals External debt Source – Reserve Bank of India Healthy macroeconomic fundamentals External debt Source – Reserve Bank of India

 Healthy macroeconomic fundamentals Forex reserves (All figures are in US$ billion) Source – Healthy macroeconomic fundamentals Forex reserves (All figures are in US$ billion) Source – Reserve Bank of India

Healthy macroeconomic fundamentals Inflation (All figures are in %) Source – Reserve Bank of Healthy macroeconomic fundamentals Inflation (All figures are in %) Source – Reserve Bank of India

Composition of GDP (All figures are in %) 199091 199596 200001 200506 Agriculture 32 Composition of GDP (All figures are in %) 199091 199596 200001 200506 Agriculture 32 28 24 20 Industry 27 28 26 26 Services 41 44 49 54 Source – Reserve Bank of India

External trade (All figures are in US$ billion) Source – DGCI&S External trade (All figures are in US$ billion) Source – DGCI&S

Foreign investments (All figures are in US$ billion) FDI in 2006 -07 is expected Foreign investments (All figures are in US$ billion) FDI in 2006 -07 is expected to touch US$ 12 billion Source – Reserve Bank of India

Calibrated globalization § Reduction in import tariffs § Liberalization of FDI regime § Fully Calibrated globalization § Reduction in import tariffs § Liberalization of FDI regime § Fully convertible current account § Moving towards fuller capital account convertibility § Complying with WTO norms to plug into the global economy

 Calibrated globalization § Reduction in collection rates Source – Economic Survey 2005 -06 Calibrated globalization § Reduction in collection rates Source – Economic Survey 2005 -06

Calibrated globalization Pre 1991 1997 2000 Post 2000 FDI allowed selectively up to 40% Calibrated globalization Pre 1991 1997 2000 Post 2000 FDI allowed selectively up to 40% Up to 51% under ‘automatic route’ for 35 priority sectors Up to 74/51/50% in 111 sectors under ‘automatic route’ 100% in some sectors Up to 100% under Liberalization of FDI policy in India ‘automatic route’ in all sectors except a –ve list More sectors opened; equity caps raised; conditions relaxed

Buoyant corporate performance Source – CMIE Buoyant corporate performance Source – CMIE

Striking future projections What Goldman Sachs says - § India likely to show the Striking future projections What Goldman Sachs says - § India likely to show the fastest growth over the next 30 to 50 years § Growth could be higher than 5% over the next 30 years and close to 5% as late as 2050 § India’s GDP will exceed Italy’s in 2016, France’s in 2019, Germany’s in 2023 and Japan’s in 2032 § India to become the world’s 3 rd largest economy by 2032

Unmatched demography § Over 1 billion population – 52% below the age of 25 Unmatched demography § Over 1 billion population – 52% below the age of 25 § Median age of India’s population would remain 25 even as late as in 2025 § India’s workforce (20 -59 age group) would go up by around 263 million by 2050 § Today’s youth would drive tomorrow’s boom

Unmatched demography Growth in global working-age population (15 -64) in millions Size of 20 Unmatched demography Growth in global working-age population (15 -64) in millions Size of 20 -59 age group in 2005 (in million) Growth of 20 -59 age group (in million) age group in 2050 (in million) India 550 813 263 United States 166 177 11 Japan 75 61 -14 Germany 49 41 -8 United Kingdom 34 31 -3 France 34 33 -1 China 768 862 94 Source – United Nations

 Expanding domestic market Total number of households to increase from 188. 2 million Expanding domestic market Total number of households to increase from 188. 2 million in 2001 -02 to 221. 9 million by 2009 -10 Source – NCAER

Untapped market potential Figures for 2005 Penetration rate (per 1000 people) Market size (Annual Untapped market potential Figures for 2005 Penetration rate (per 1000 people) Market size (Annual sales in Mn) India China Passenger cars 10 14 1. 1 3. 2 Motorcycles 39 59 5. 8 10. 5 Cellular subscribers 69 301 28 59 Internet subscribers 6 85 1. 1 17 Televisions 104 416 12 87 While the absolute size of the market is large, penetration rates are still low – untapped potential Source – Morgan Stanley

Untapped market potential Penetration rates for non-durable products Figures for 2004 Unit India China Untapped market potential Penetration rates for non-durable products Figures for 2004 Unit India China Skin care US$ spending person 0. 3 2. 3 Detergents US$ spending person 1. 4 3. 4 Shampoo US$ spending person 0. 3 0. 2 Toothpaste US$ spending person 0. 4 0. 5 Soft drinks Litres person 1. 3 4. 3 Bottled water Litres person 1. 2 7. 5 Source – Morgan Stanley

Large intellectual capital base Annual additions to the stock of science and engineering graduates Large intellectual capital base Annual additions to the stock of science and engineering graduates Source – Morgan Stanley

India - An emerging hub for knowledge based industries § India has potential to India - An emerging hub for knowledge based industries § India has potential to attain leadership position in sectors like pharma, chemicals, biotechnology, avionics, nanotechnology, material sciences § Over 100 MNCs have set up their R&D centers in India

Cost competitiveness Average annual pay for various jobs in India and China (US$) Position Cost competitiveness Average annual pay for various jobs in India and China (US$) Position India China HR manager 15, 100 32, 000 Marketing manager 14, 300 25, 800 Project manager 10, 000 23, 400 Software developer 10, 300 13, 400 Financial analyst 8, 400 13, 200 Accountant 5, 700 9, 000 Sales representative 4, 700 5, 100 Production worker 1, 900 2, 300 Source – FICCI Compilation

Sectors with Potential 1. Automobiles and auto ancillary 2. Information technology and IT enabled Sectors with Potential 1. Automobiles and auto ancillary 2. Information technology and IT enabled services 3. Food processing 4. Telecommunications

Automobiles and Auto ancillary à Largest three wheeler manufacturer in the world à Second Automobiles and Auto ancillary à Largest three wheeler manufacturer in the world à Second largest two wheeler manufacturer in the world à Third largest car market in Asia à Fifth largest commercial vehicle manufacturer in the world à All major MNC auto companies present – Daimler Chrysler, Suzuki, Ford, Fiat, Hyundai, General Motors, Volvo, Yamaha, Mazda à India exports automobiles to critical markets

Automobiles and Auto ancillary Auto production includes commercial vehicles, passenger vehicles, two and three Automobiles and Auto ancillary Auto production includes commercial vehicles, passenger vehicles, two and three wheelers Source – Society of Indian Automobile Manufacturers (SIAM)

Automobiles and Auto ancillary Production CAGR 2001 -02 to 2005 -06 Domestic Sales CAGR Automobiles and Auto ancillary Production CAGR 2001 -02 to 2005 -06 Domestic Sales CAGR 2001 -02 to 2005 -06 Exports CAGR 2001 -02 to 2005 -06 Commercial Vehicles 24. 5% 24. 3% 35. 9% Passenger Vehicles 18. 2% 14. 1% 34. 8% Two Wheelers 15. 5% 13. 8% 48. 9% Three Wheelers 19. 5% 15. 8% 49. 3% All Automobiles 16. 3% 14. 3% 44. 6% Source – FICCI computation based on data provided by SIAM

 Automobiles and Auto ancillary The growth of the automobile industry has been accompanied Automobiles and Auto ancillary The growth of the automobile industry has been accompanied by growth in the auto components industry [ Indian auto component manufacturers are today globally competitive and are making significant inroads in the global market [ 2001 -02 2002 -03 2003 -04 2004 -05 2005 -06 Output ($ Mn) 4470 5430 6730 8700 10000 Exports ($ Mn) 578 760 1020 1400 1800 Investment ($ Mn) 2300 2645 3100 3950 4400 Export / Output 13% 14% 15% 16% 18% Source – Auto Component Manufacturers Association (ACMA)

Automobiles and Auto ancillary The BIG opportunity !!! o Car ownership in India is Automobiles and Auto ancillary The BIG opportunity !!! o Car ownership in India is 10 per thousand inhabitants – Brazil (122), Russia (160), UK (400), Japan (502), USA (745) o Auto ancillary output projected to go up from US$ 10 billion in 2005 -06 to US$ 40 billion by 2015 o Auto ancillary exports crossed the US$ 1 billion mark in 2003 -04 and projected to touch US$ 25 billion by 2015 o With design, engineering and components manufacture facilities India can be an important R&D hub Source – Industry Estimates

Information technology and ITe. S Industry snapshot èCAGR of over 28% since 1999 -2000 Information technology and ITe. S Industry snapshot èCAGR of over 28% since 1999 -2000 èContribution to GDP up from 1. 9% in 1999 -2000 to nearly 4. 8% in 2005 -06 èCurrently employs 878, 000 people, added 120, 000 during the last fiscal èClocked 31% growth in 2005 -06, registering revenues of US$ 29. 6 billion, up from US$ 22. 5 billion in 2004 -05 èExports grew by 33% in 2005 -06, domestic revenues witnessed a growth of 24%

Information technology and ITe. S All figures are in US$ billion Source – NASSCOM Information technology and ITe. S All figures are in US$ billion Source – NASSCOM IT-ITe. S exports projected to reach US$ 60 billion by 2010

Information technology and ITe. S Look at India for @Software product development @Embedded software Information technology and ITe. S Look at India for @Software product development @Embedded software @Offshore product development / R&D outsourcing @IT application solutions @ITe. S

Food Processing èIndia - One of the largest food producers of the world è Food Processing èIndia - One of the largest food producers of the world è Output of the organized segment - US$ 34, 827 million è Marine and Spices together contribute more than 70% of export earnings èInvestment requirement is around US$ 15 billion è The Indian scientific and research talent - a knowledge source that can be tapped for advantage

Food Processing - Projections 2014 -15 ($ billion) Total food consumption 2003 -04 ($ Food Processing - Projections 2014 -15 ($ billion) Total food consumption 2003 -04 ($ billion) 205 Processed foods 126 274 Primary processed food 79 136 Value added food 48 138 Share of value added products in food consumption 16% 50% Excluding consumption of alcoholic beverages and out-of-home consumption

Telecommunications èThe 6 th largest network in the world with a wide range of Telecommunications èThe 6 th largest network in the world with a wide range of services including basic, cellular, internet, paging, VSAT, etc. èNetwork growing at an annual average rate of approximately 22 percent for basic services and more than 100 percent for cellular and internet services èThe current tele-density of approximately 14 percent is to be increased to 22 percent (250 million telephone connections) by 2007 èInvestment requirement of approximately US$32 billion between 2005 and 2010

Growth of Telecommunication Network (In Million) Fixed Line Cellular Phones 2001 -02 39. 1 Growth of Telecommunication Network (In Million) Fixed Line Cellular Phones 2001 -02 39. 1 6. 4 2002 -03 41. 5 13. 0 2003 -04 42. 6 33. 6 2004 -05 45. 9 52. 2 2005 -06 41. 5 98. 7 2006 -07 40. 8 123. 4 (Till Aug) Source – TRAI

Growth of Telecommunication Network (In Million) Growth of Telecommunication Network (In Million)

Issues needing to be addressed Making the growth process more inclusive • Growth has Issues needing to be addressed Making the growth process more inclusive • Growth has been urban centric. – – 8 large metros witnessing the revolution in manufacturing and services, though there are over 750 towns and cities. Rural areas which have about 60% of the population remain largely unaffected by the progress. Agriculture , their main stay is growing slowly at about 2% p. a.

Making the growth process more inclusive (contd. ) • Growth has not been accompanied Making the growth process more inclusive (contd. ) • Growth has not been accompanied by significant new employment opportunities. – – Agriculture growth at 2% p. a. is supporting over 600 million persons, but with only 20% share of GDP – consequently farm employment not growing. Services growth at 7% plus for last decade , accounting for 54% of GDP, employs only 20% of work force Manufacturing growing at 8% plus , is also not labour intensive in view of the need to remain globally competitive and because of easier availability of capital. Rigidity in labour laws contributing to higher capital intensity. Population increase of about 100 million in last 5 years , which has seen about 50 million new jobs, largely in the unorganized sector.

Growth being constrained by inadequate infrastructure • • • An estimate that GDP rate Growth being constrained by inadequate infrastructure • • • An estimate that GDP rate of growth being limited by one percent on account of inadequate electricity – admitted energy shortage of 12% and peak time shortage of 20% need for an additional 90 Giga Watts capacity over next 5 years. Transaction costs high due to capacity constraints at ports resulting in delays. Highways network expanding but grossly inadequate – Public Private Partnership Models evolved. Railways network large but expanding very slowly – need for high capacity and high speed passenger and freight trains. Estimated capital requirement in infrastructure US $ 320 billion during 2007 -12. FDI seen as a major avenue.

Future Growth Dependant on Continued Availability of Skills • • • Indian comparative advantage Future Growth Dependant on Continued Availability of Skills • • • Indian comparative advantage of high skills and low wages could become minimal if continuous augmenting of skill training facilities is not kept up. While at the top good technocrats are available, skill shortage at the shop floor level likely to arise in five years time particularly in IT , ITe. S and many manufacturing operations. Private sector involvement in capacity building is a must and ways and means to devise it still not in place. s