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INDIAN GROWTH STORY WILL IT HELP SUSTAIN THE
SHIPPING BOOM?

• By Ravi K Mehrotra CBE
• Chairman
• Foresight Group, London

At Indian Shipping Summit Grand Hyatt Hotel,
Mumbai on Tuesday 30th October 2007
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When I visited China in late 1980s
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When I visited China in 2007
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When I visited India in late 1980s
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When I visited India in the present day
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WHAT DO THE PREVIOUS FOUR IMAGES TELL US?

• India in 1980
• Ahead of China esp. in free enterprise and per
  capita earnings

• China in 1980
• Still struggling with Communist Egalitarian past
  and lack of enterprise

• India in 2007
• Full of vigour but political system still trapped
  in clanship management of the Nation instead of
  taking charge of enterprise
• Very poor infrastructure

• China in 2007
• Government took charge of enterprise in late
  1980s, transforming China into a modern
  industrial nation which increased per capita
  income by a factor of 6
• Very good infrastructure

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Booming Indian Economy Is it for real and
sustainable?

• Grown more than 8 in real terms over the last
  five years
• Moved to a higher growth of 9-10 of GDP and it
  is expected to continue for the foreseeable
  future in spite of poor infrastructure
• In April 2007 its economy crossed USD 1 trillion
  and it is the 10th largest economy in the world
• Indian foreign trade has quadrupled since 2004.
  2004 at 105 billion April 2007 at 305 billion
• Its industrial production, at best, used to be
  6-7 until 2004. Now it is 11-14 and expected
  to grow to 16-18
• At present, political governance is only feasible
  with coalition government. Coalition Parties
  cannot agree on common program for
  infrastructural growth, currently infrastructure
  investment is below 8 of GDP. Therefore growth
  in India will not be uniform

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Why is India still growing and will continue to
grow in the near future?
Six reasons why the Indian Economy will continue
to grow in near future

• Last few years growth of back office operations
  and software development increased the number of
  middle-class in India. Which fuelled the
  internal consumption and it is still growing.
• 2) This increase in internal consumption helped
  the well established Indian industrial companies
  with surging demands and liquidity
• 3) Another support came from the Government
  opening up of Stock Exchanges to foreign
  competition. Therefore, Indian owners out of
  necessity had to inject equity in their companies
  in fear of being bought out by others.

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Six reasons why the Indian Economy will continue
to grow in near future (continued)

• With increased liquidity industrial companies
  which started growing but not to take head-on
  competition with Chinas manufacturing. But
  industrial development of high tech nature such
  as intelligent automotive parts and complicated
  forgings for industrial production.
• With 25 million Indians living abroad provided
  another leg to Indias growth story. Their 50
  billion dollars plus remittances and investments
  helped authorities to relax control on imports in
  the country. This provided Industrial companies
  to upgrade their machinery.
• 6) Final support came from growth in export based
  oil refining capabilities. Located close to Gulf
  cheap labour helped towards a huge surplus of
  oil refining capacity, thus helping to subsidise
  its own oil import bill.

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The We can do it Mentality

• Future world economy growth will be driven by
  China India
• Economic growth, whether it is 3.0 or 5.6 of
  world GDP, will largely depend upon how these two
  countries decide to develop their economies over
  the next 10 years
• Driven by the mentality of
  has receded any risk of meltdown in India.
• Influence of other leading economies of the world
  to interfere in these two countries is receding.
  In fact they are developing methods to insulate
  their own economies from any negative effect
• Future of economic growth in the world over the
  next ten years is assured due this new
  mentality

we can also do it
we can also do it
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Total GDP and PPP GDP 2006/7
The total GDP data shown here measured in current
US dollars use annual, market exchange rates.
This means that the values and derived rankings
are subject to greater volatility due to
variations in exchange rates. Inter-country
comparisons based on GDP at market prices should,
therefore be treated with caution.
The PPP method eliminates the effects of
differences and changes in relative price levels.
Source IMF, World Economic Database, 2007
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GDP Growth 2000 to 2050
Source Goldmann Sachs The Path to 2050
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World Market Shares for Manufactured Exports
Source World Bank and IFC India Investment
Climate and Manufacturing Industry, November 2004
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Infrastructure ) Investments
Source China Statistical Yearbook, RBI, Morgan
Stanley Research
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China vs. India FDI Attractiveness
Source FDI Confidence Index. A.T. Kearney.
October 2004. Volume 7
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What are the fundamental difference in these two
economies?

• It is focusing on manufacturing
• In this during the next 10 years they will try to
  go up the value chain
• This they will achieve without loosing ground on
  existing manufacturing strengths thanks largely
  to untapped labour from interior of China
• Due to the development of excellent
  infrastructure of roads, railways and power,
  interior of China will become basic manufacturing
  base.
• These new bases will simply feed high tech
  coastal cities
• This is a very sensible decision as instead of
  overcrowding coastal belt (big cities) they can
  move low tech manufacturing to interior who, in
  turn, will feed high tech manufacturing bases in
  the coastal cities.

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• Initial Growth in India came from back office
  work call centres and software supplies
• This created huge growth in middle classes in
  India which boomed internal consumption
• Government of India opened Stock Exchanges for
  international investors.
• This helped to provide growth in orders for
  finished goods. Liquidity in manufacturing
  industry increased.
• Owners of industry had to inject more equity to
  prevent buy-outs. This, in addition to healthy
  sales, provided huge liquidity to industry to
  modernise their plants and expand
  internationally.
• This has helped India increase rapidly its
  industrial production from 6-7 to 11-14 in
  2007. World trade has also jumped from 0.6 to
  1.5 in 2006. In US dollar-terms, it is 400
  billion per year and rising by 30
• Today 25 million Indians live abroad and a lot of
  them remit their surpluses to India, especially
  from the Arab countries. This has helped India
  to ease import restrictions which resulted in 47
  billion negative trade balance compared to
  Chinas 175 billion surplus.

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Possible Future Hurdles?

• Biggest problem for China India is energy
  security. Shortage of raw materials especially
  petroleum products will become scarcer and
  scarcer. How the world will handle this
  situation?
• It is expected the oil consumption from present
  84 mmbbls/day will increase to 120 mmbbls/day by
  2025. How this will be achieved?
• Lots of deep water exploration will be required?
  Do we have the technology?
• What will be the oil price in 2025? Any guess?
• Leaving aside other requirements, how the world
  will mine 10 billion tons of coal and how will it
  produce 2 billion tonnes of steel?
• What will be the further effect on the climate of
  our planet by producing and consuming all this
  raw material?
• How will the world be able to produce safe food
  and water for human consumption?

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Summary

• By 2025 at least 60 of world population will be
  living in developed or newly developed world.
• To sustain the wellbeing of the majority of the
  worlds population political leaderships will
  have to learn to compromise?
• World technology has to improve fast to provide
  alternatives for fast depleting reserves in the
  world such as oil, base metals and coal
• Earlier China Indian economies were mainly
  agricultural and self-sufficient in food, as they
  are getting more industrialised both countries
  will develop food shortages, how will world food
  production meet these shortages? Asia is already
  the only continent which consumes more food than
  its land can produce
• Climate change will remain a big issue for some
  time until technology finds answers.
• Water shortage is another crisis. How the world
  will cope with it?

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Conclusion

• The Indian economy will develop fast
• Indias growth will be complementary to Chinas
  not competitive
• Indias growth will be focussed on internal
  consumption to become the back office of the
  world.
• Chinas growth will continue to be based on
  manufacturing exports
• China has provided the base of shipping growth in
  the past few years
• With Indias substantially increased imports of
  oil and coal will help this shipping boom to
  prolong, increase in food imports will add to
  more growth in shipping.
• It is only the southern hemisphere which is
  capable of meeting these gigantic food shortages
  of the future, shipping will get further boosts
  from these tonne-miles.
• The only dark cloud on the horizon will be if we,
  the ship owners, go and build too many new ships
  and create our own problems

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As you know I regularly speak at Cambridge
University.

• My nature is to always ask a question to my
  audience, so this year my question to you is-

Is this Indian economic boom going to help
shipping?
If yes, then which sector of shipping?
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INDIAN GROWTH STORY WILL IT HELP SUSTAIN THE
SHIPPING BOOM?
By Ravi K Mehrotra CBE Chairman Foresight Group,
London
At Indian Shipping Summit Grand Hyatt Hotel,
Mumbai on Tuesday 30th October 2007