INDIA ECONOMIC DEVELOPMENT AND BUSINESS OPPORTUNITIES

1
INDIAECONOMIC DEVELOPMENTANDBUSINESS
OPPORTUNITIES
Arun Maira The Boston Consulting Group
Barcelona November 22, 2004
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INDIA PAST, PRESENT, FUTURE
Phase 1 The Past
Phase 2 The Present
Phase 3 The Future
12th largest economy
3rd largest economy
17th largest economy
US Mn
30000
CAGR 3.9
CAGR 5.1
Expected CAGR 9
25000
15000
10000
5000
2000
1000
CAGR(1) 8
400
0

• Tenth five year plan (2002-2007)
• Note CAGR Compounded Annual Growth Rate
• Source Industry estimates

3
INDIA HAS REGISTERED THE FASTEST GROWTH AMONG ALL
MAJOR DEMOCRACIES IN THE RECENT DECADE Phase 2
India has the fastest growth among all
democracies having GDP gt 100 Billion
Annual GDP growth rate
Mexico
India
Finland
France
Germany
Source 2002 World Development Indicators Report
(data for 1990-2000, average annual percentage
growth)
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BY 2050, INDIA IS PROJECTED TO BE THE 3RD
LARGEST ECONOMY IN THE WORLD
Largest economies in 2050
GDP in 2050 (US Bn)
Huge gap between three largest economies and the
next few
India to overtake France in 2018
Source Goldman Sachs Economic Paper 99, BCG
Analysis
5
POPULATION IN SOME COUNTRIES IS RAPIDLY
AGEINGProblem Most Pronounced in the Developed
World
...this will have several socio-economic
implications (select examples)
Shortage in workforce Potential decline in
growth rates Increase in wage rates for
workers Pressure on social security and pension
systems Increase in services to the older
population
Source Scarpetia and Blöndal United Nations
Population Division, World Population Prospects,
The 1998 Revision BCG analysis
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THE FUTURE DEMOGRAPHIC MAP
Potential surplus population in working age group
(2020)
Germany
-3 Mn
UK
-2 Mn
Russia
Czech Republic
0Mn
-6Mn
-1Mn
Turkey
Ireland
Iraq
-17Mn
2Mn
China
-3 Mn
France
-10 Mn
US
-9 Mn
Japan
2Mn
Israel
Pakistan
Iran
5Mn
-3 Mn
Spain
0Mn
-2 Mn
19Mn
3Mn
Philippines
7Mn
Italy
47Mn
Bangladesh
5Mn
4Mn
Egypt
Mexico
India
4Mn
Vietnam
1Mn
Malaysia
5Mn
3Mn
Indonesia
Brazil
Note Potential workforce surplus is calculated
keeping the ratio of working population (age
group 15 59) to total population constant and
under the assumption that this ratio needs to be
broadly constant to support economic growth.
Therefore, India will have 47 Million more people
in the working age group/total population by 2020
compared to today, while France will have a
deficit of 3 Million people in the working age
group compared to today. Source U.S. Census
Bureau BCG Analysis
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INDIA WILL CONTINUE TO HAVE A GROWING POPULATION
TILL 2050 AND BEYOND
Projected population growth rates
Net population Bn people
India Continuing to grow upto 2050
China Declining after 2032
Brazil Declining after 2050
0.2
G6Declining after 2050
Russia Already declining
0.1
Source Goldman Sachs Economic Paper 99, BCG
Analysis
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IN 2010-2030, LARGEST SHARE OF INDIAS POPULATION
WILL BE IN THE WORKING AGE GROUP Resulting in a
Favourable Demographic Bulge
India Demographic Profile (2020)
China Demographic Profile (2020)
France Demographic Profile (2025)
Age group
Age group
Age group
20
40
60
20
40
60
1
2
3
Mn people
Mn people
Mn people
20 - 35 age group 325 mn people (25 )
20 - 35 age group 308 mn people (21 )
20 - 35 age group 11 mn people (17 )
Female Male
Source CII Conference 2002 CSFB Report UN
Population Division BCG Analysis
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ECONOMIC GROWTH BECOMING MORE INCLUSIVE
Level of affluence steadily increasing in India
Distribution of people by income group (1995 vs
2002 vs 2007)
Number of people (million)
1099
998
886
Middle to High
Additional 283 mn people from '95 to '07
Lower Middle
Additional 185 mn people from '95 to '07
Low
Note Categorisation of households on the basis
of income (Rs pa) at 1995 prices Low lt22,550
Lower middle 22,501-45,000 Middle to high
gt45,001 Source Statistical Outline of India, 2002
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DEMAND ALSO RISING IN RURAL INDIA
Rural India consuming a high share of many non
essential consumer goods
Share for 2000
Rural
Urban
Source NCAER 1999-00 Literature review
Source NCAER 1999-00 Literature review
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INDIA TO BE 3RD LARGEST ECONOMY, BUT WITH
RELATIVELY LOW PER CAPITA INCOMEPattern of
Growth Not Witnessed By Any Other Country
GDP vs GDP per capita in 2050
GDP vs GDP per capita in 2002
GDP (US Bn)
GDP (US Bn)
China
US
US
India
Italy
Germany
France
Japan
Germany
India
Russia
China
Japan
UK
Brazil
Italy
Brazil
France
Russia
UK
GDP per capita (US)
GDP per capita (US)
Bubble size corresponds to GDP size
Source Goldman Sachs Economic Paper 99, BCG
Analysis
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TWO INDIAS ONE COMPETING INTERNATIONALLY THE
OTHER BEHIND
IMPLICATIONS
"COMPETITIVE INDIA" PROVIDES OPPORTUNITIES IN
INTERNATIONAL TRADE AND BUSINESS LARGE POOL OF
LOW COST RESOURCES YET TO BE TAPPED THE
CHALLENGE AND BENEFITS OF 'INCLUSIVE DEVELOPMENT'
POOL OF LOW COST RESOURCES
INDIA SHINING
THE WORLD
EXTENSION OF BENEFITS OF GLOBALISATION
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INDIA OFFERS EXCEPTIONAL VALUE AT SIGNIFICANT
COST ADVANTAGESComparison of Manpower Costs
Comparative salaries of an IT engineer
Comparative salaries of an MBA
pa
pa
80,000
7,500
Source Literature Survey
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INDEPENDENT SOURCES CONFIRM INDIA IS BEST IN
QUALITY AND QUANTITY OF PEOPLE FOR GLOBAL SERVICES
Surplus
India
Indonesia
Mexico
Philippines
Brazil
Projected workforcein 2020
Malaysia
Israel
Ireland
Turkey
Russia
China
Shortfall
High

• People strength
• Productivity/quality
• English language skills (1)
• Cost

Low

• Note Pakistan, Bangladesh and Vietnam have not
  been represented for lack of reliable data on
  productivity and cost of service employees
• Over 50 of shortages expected from English
  speaking countries
• Source World Competitiveness Yearbook 2001,
  Britannica yearbook, Literature search BCG
  analysis

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SOMEDAY REAPING WHAT YOU SOW
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INDIA EMERGING AS THE " SERVICE CAPITAL OF THE
WORLD "
India already providing knowledge-based services
in several sectors
Remotely delivered services
Import of customers to service in India
Transaction processing
Design and analysis
Research and development
Valueadded tourism
Leisure tourism
Industry
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Information Tech Pharma/Healthcare Education
Services Auto/ engineering Chemicals Financial
Services
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Source BCG Analysis