Title: Macro Business Environment in India
1Macro Business Environment in India
Opportunities for Investment
Ajay Shankar Secretary Department of Industrial
Policy Promotion Ministry of Commerce
Industry Government of India New Delhi, August
22, 2007
2Largest Democracy
3Stable Democratic System
- Sub-continental Nation Religious, Ethnic
Linguistic diversity - Federal structure
- 28 states
- 18 languages
- Multi-party system
- Changes in government through elections both at
Centre and state levels - Coalition governments at Centre for over 10 years
- Strong independent judicial system
- Free vibrant, strong media (mushrooming growth in
print as well as electronic media)
4Stable Democratic System
- Democracy
- Gradual incremental policy changes
- Broad consensus across parties and civil society.
1990s
2000-2005
Prior to 1990s
- License Raj abolished
- Reduction in import duties
- Low interest cost
- Access to International Capital markets
- Globe is your market and your customer
- License Raj
- Unviable economies of scale
- Protective environment - high import duties
- High interest cost
- Cost plus pricing
- Highly regulatory environment
- Cost reduction initiatives
- Migration to low cost locations within India
- Divestment of non-core businesses
- Initiatives for productivity improvement
- Focus on working capital
- Best practices
- Access to global markets
- Exposed to International Markets and Competition
- Achieve viability of operations in global
environment - Change in mindset to become a global company
5India - a strong and vibrant economy
6Macroeconomic stability
- Steady increase in forex reserves.
- Moderate inflation over last few years
7Economy high growth rates
Robust GDP growth
11
12
9.4
10
10.1
9.0
10.9
10
9.8
8.5
7.5
8.4
8
8
6.5
6.4
5.8
6
5.0
6
5.8
4.4
3.8
4.6
4
4
3.4
2
2
0
0
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
98
99
00
01
02
03
04
05
06
07
98
99
00
01
02
03
04
05
06
07
Real GDP growth ()
Industry growth ()
Services growth ()
8Economy high growth rates leading to increasing
FDI
Increasing FDI trend over the last 7 years
Source DIPP
Source Reserve Bank of India
India is the 2nd most preferred destination for
FDI as per A T Kearneys FDI Confidence Index
Survey 2006
9Trade liberalization reduction in tariffs
Despite a secular reduction in peak tariffs, the
tax to GDP ratio is still showing an upward trend
ASEAN levels committed to be reached by 2010
10Capital Markets playing an increased role in the
economy
Market Capitalisation as Percent of GDP (As at
end-March))
- Improving ratio of market cap / GDP
Indias market cap to GDP ratio crossed 100 this
fiscal year
Source Reserve Bank of India
FII Investments
- Equity Market Reforms
- Market-determined prices
- Screen-based nation-wide trading
- Scripless settlement
- Electronic transfer of securities
- Rolling settlement and derivatives trading
- Corporate governance norms
11Macroeconomic stability - Stable currency
Rupee exchange rate
55
47.68
45.94
50
45.29
44.26
43.34
45
37.15
40
35
30
( INR / USD)
25
20
15
10
5
0
FY 98
FY 99
FY 00
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
INR/ USD
Source Bloomberg
High Degree of autonomy of Indias Central Bank
- Credible independent Central Bank
- Sound professional management
12Developments in Banking Sector
- Improved banking governance exhibited by
declining Gross NPAs
- Share of private sector banks increased from 9
in 1996 to 21 in 2006
Banking Business growing over the years
- Banking business growing consistently
- Deposits grew by 17 CAGR (1998-06)
- Advances grew by 21 CAGR (1998-06)
Source RBI
13Going Forward
14Going forward
- India one of the worlds three largest
economies in less that 30 years - Population will overtake that of China in 2034
- Income per capita in 2050 increases by 35 times
current levels - Goldman Sachs has revised its timelines for
Indias GDP exceeding the G6s GDP. Indias GDP
(in US terms) will surpass that of the US before
2050, to make it the second largest economy.
Source Dreaming with BRICs, Goldman Sachs
Source Dreaming with BRICs, Goldman Sachs
Fundamental changes in the economy support
Indias ability to meet BRICs projections
15Investment Opportunities
16Investor-friendly, liberal open-market economy
- India is poised at a key moment in its history
- Government spearheading reform led growth
vis-a-vis the industry - Reforms are now irreversible the pace of
reforms continues to gather momentum - Government is focused on improving the business
environment - No licensing required, except in five sectors
- 100 FDI permitted in manufacturing (except
atomic energy) - 100 FDI permitted in most service sectors
- Investments, dividends, fees are freely
repatriable - Foreign investments allowed in capital markets
- Partial capital account convertibility
Source Reserve Bank of India
17Investor-friendly, liberal open-market economy
Large skill and intellectual capital base
- Strong emphasis on human resource development
- Skills missions being launched
- Upgradation of workers training
- Increased public spending in Education and health
- Over 2.5 million graduates added every year
- Most of them English-speaking
- 300,000 Engineers
- 150,000 IT professionals
18FDI in India largely profitable
90 of MNCs make profits in India compared to 45
in China (BCG Study)
Engineering
Automotive
- General Electric
- Schneider ElectricIndia
- Saint-Gobain
- Hyundai
- Mercedes
Petrochemicals
Consumer and food
India manufacturing advantage
Pharmaceuticals
Technology
- LG Soft India
- Alcatel
- General Electric
- Aventis
- Novartis
- GlaxoSmithKleine
Telecom
Textiles
- LG Electronics
- Samsung
- KT
Note A representative list Source KPMG
Analysis, Economic Times
19Firms in India globally competitive
- Big reduction in process cost (through better
efficiencies), overheads - Improved working capital management is supporting
high cash generation - Gearing levels has declined sharply
- Indian companies have a PAT of over 10
Source Prowess, CLSA Asia-Pacific Markets
P/B Price to Book value
20Indian firms seek global reach
USD 12.1 billion
Acquisition made Tata Steel worlds fifth largest
steel producer globally
Tata Steel bought Corus Plc
USD 6 billion
Acquisition made Hindalco the world's largest
aluminum rolling company
Hindalco acquired Novelis Inc.
USD 1.6 billion
Acquisition made Suzlon world's third largest
wind power company
Suzlon Energy Ltd. acquired REpower
USD 0.5 billion
Acquired Germans third largest generic companies
Dr. Reddys acquired Betapharm
USD 0.5 billion
Acquisition made United Spirits world's second
largest spirit company
United spirits acquired WM
21US firms India an attractive location for RD
Source CLSA Asia-Pacific Markets
Japanese firms need to look!
22Challenges
23Challenges
Infrastructure
Some of the infrastructural bottlenecks are with
respect to
Indian infrastructure spending (as a percentage
of GDP) as represented by gross capital formation
in energy, airports, telecom and roads is as
follows -
- Power
- Energy shortage at 7.7 / Peak shortage at 12.3
- Ongoing projects (45000 MW), two Competitive Bid
Private Power Project (4000 MW / USD 4 bn each) - Roads
- Four-laning of Golden quadrilateral completed
- USD85bn for six-laning of the Golden
Quadrilateral - Ports
- Average capacity utilization at 95-98 percent
- USD106 bn for development of ports
USD 475 bn in investments planned in next five
years
24Infrastructure Challenges (Contd)
- Over 40 of the passenger traffic is concentrated
in the two main airports of Delhi and Mumbai - Increased congestion, limited terminal capacity,
inadequate ground handling systems are some of
the problems associated with the airlines sector - USD 85 bn to develop Airport infrastructure
- Boeing and Airbus have a combined order book of
400 aircraft from India at present
25Significant plans to improve the countrys
infrastructure
Public Private participation being encouraged
PPP Projects Awarded
Source Ministry of Commerce, Government of India
Source World Bank report and PPPinindia.com
the study did not include Power sector
26Indo Japan Ties
27Japanese FDI into India tip of the potential
iceberg!
- Japan is the fifth largest investor in India --
amounts to 5.44.percent of the cumulative inflows
of USD 56.2 billion during the period August 1991
to April 2007 - Japanese companies have made an investment of USD
353 million during the month of April 2007 alone - 856 technical collaborations approved for Japan,
accounting for 10.91percent of the total
collaboration approved from August 1991 to March
2007 - Highest technical collaboration has been in
transportation followed by electrical equipments
(including computer software electronics)
28Japanese FDI into India tip of the potential
iceberg!
Major Japanese FDI projects in India (2006-2010)
Source Japan Embassy As
reported in Japanese media
- 375 Japanese companies have 462 companies in
India - 33 of the top 100 Japanese companies are in India
- 25 of the 67 Japanese companies in Fortune Global
500 are in India - 8 out of the first 10 of 67 are in India
29Japanese FDI into India tip of the potential
iceberg!
FDI Inflows
600
500
400
Japan 2nd largest investor during April-May 2007
300
200
339.5
169
100
116.1
221.5
412.6
229.2
94.4
116
0
2000
2001
2002
2003
2004
2005
2006
2007-Jan
FDI
Source Ministry of Finance, Japan
- Japan is the fifth largest investor in India --
amounts to 5.44.percent of the cumulative inflows
of USD 56.2 billion during the period August 1991
to April 2007 - 856 technical collaborations approved for Japan,
accounting for 10.91percent of the total
collaboration approved from August 1991 to March
2007 - Highest technical collaboration has been in
transportation followed by electrical equipments
(including computer software electronics)
Beginning of new economic partnership
30Thank You
www.dipp.gov.in