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INDIA VISION 2020: A REALITY CHECK
A Dissertation
Presented to the
Faculty of the
School of Business Administration
Kennedy-Western University
In Partial Fulfillment
Of the Requirements for the Degree of
Doctorate in
International Business Administration
by
SANDHYA
Bethesda, MD
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ABSTRACT
Introduction
Many futuristic forecasts are predicting a rapid rise in the Asia-
Pacific economy by 2020. China, India, Indonesia, Thailand and South
Korea are expected to be the major countries responsible for the growth in
the Asia-Pacific region. As per the World Bank estimates in The
Economist (1994), “today’s developing nations” are expected to control
“60%” of the global economy “by 2020”. The “richer nations”, on the other
hand, are expected have economic control of only “38%” of the future
economy as compared to the current “55%”. The forecasts may not be
correct. However it is true that China and India, the two most populous
countries of the world, accounting for almost 1/3 rd of the world’s
population, are currently in take-off phase. Both the nations are currently
growing at a very high rate and have also been showing a consistent
growth even during the adverse market conditions. Both the nations
possess good skilled resources and are also taking rapid strides in
technology in the domestic as well as international market. The current
paper concentrates on the economy of India.
Research Methodology
The current research derives evidence from information available in
various documents, archival records, interviews, direct observation,
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participant-observation. The methodology adopted in this study includes
review of data from various available documentation. This information is
further supplemented by the individual opinions of various professionals
and business owners obtained by conducting their focused interviews. The
sources of data combined together form a very exhaustive databank, and
iron out the inadequacy of the data collected from each individual method.
Finally the SWOT analysis helps in conducting an environmental scanning
of India in the current global scenario.
Observations
India has a major advantage in its people. It has a growing and
relatively young population and is scheduled to overtake China by 2030.
India thus has the potential to be the largest pool of consumers and
workers by 2030. As of 2004, India ranked 10th in the world in terms of
economy. India has been amongst the fastest growing economies in the
world and is expected to continue its performance in future too. However
in terms of PPP, the GDP remains only about half that of China and less
than 1/10th the GDP of United States.
Due to the years of insular and restrictive and insular policies, India
currently contributes only two percent of the world GDP. However it is also
true that the Indian economy has not shown any recession from 1980 to
2004. The country has recorded an average annual growth of 5.8% over
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the period. A GDP growth of 7% and an export growth of 20% were
expected even in the current year.
The research has revealed a fundamental transformation in India
due to the rising consumer spending as well as growth of various services.
Indian manufacturing industry is also increasingly catering to the various
global requirements. The infrastructure as well as communication
industries are experiencing a tremendous and consistent growth. There is
also increasing attention to improve the percent of literate population in
India.
Conclusion
A targeted approach is thus required to bring millions of families
above the poverty line. Generation of nearly ten million new employment
opportunities per annum is required in India, especially for those in the
lower income groups is required to achieve the target of 200 million
additional jobs by 2020, as set by the Vision for the nation. Illiteracy needs
to be eradicated. A concerted effort is required to raise primary and
secondary enrolment rates in educational institutions and minimize
dropouts.
The government also needs to take special measures to improve
the public health to reduce infant mortality and child malnutrition. Massive
investment is required in power generation, telecommunications and other
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physical and social infrastructure. The government also needs to
accelerate acquisition of new technology in the country, to raise the
productivity in various sectors like agriculture, industry and services.
Finally India has to become a more important player in the world economy
in terms of both trade and investments to make the vision a reality.
Thus while the huge surplus in India’s working age population has
forced the global economy to take note of India as a globally competitive
player, India is at a critical juncture where it needs to reassess its growth
model, initiate difficult policy reforms to improve and also sustain the
growth over a longer period. The nation’s greatest challenge however is
the balancing of the contribution of investment and consumption. The
country needs to improve its focus on investment and exports and reduce
the consumption. India also needs to strengthen its infrastructure, improve
public finances, reform its labor laws and also take various measures to
woo higher FDI inflows into the country and to also promote privatization.
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TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION................................................................1
Statement of the Problem.....................................................................5Purpose of the Study............................................................................6Importance of the Study.....................................................................10Scope of the Study..............................................................................12Rationale of the Study........................................................................13Definition of the Terms.......................................................................15Overview of the Study........................................................................22
CHAPTER 2: REVIEW OF RELATED LITERATURE...........................28Significant aspects of India’s economic history..............................28IDC Review..........................................................................................30Highlights of Major Indian Industries................................................32
Agriculture.........................................................................................32Automotive........................................................................................34Biotechnology....................................................................................36Cement..............................................................................................38Chemicals..........................................................................................39Engineering.......................................................................................40Entertainment and Media..................................................................41Electronics.........................................................................................41Fast Moving Consumer Goods..........................................................42Food processing................................................................................43Gems and Jewelry.............................................................................44Healthcare.........................................................................................45Information Technology, ITES (IT Enabled Services) and Knowledge Industry..............................................................................................46Infrastructure.....................................................................................47Leather..............................................................................................49Metals................................................................................................50Oil and Gas........................................................................................50Pharmaceuticals................................................................................52Power................................................................................................53Telecommunication...........................................................................53Textiles..............................................................................................54
Highlights of Other Indian Industries................................................55Defense.............................................................................................55Polymer.............................................................................................56Research and Development..............................................................56
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Real Estate........................................................................................58Banking.............................................................................................59Insurance...........................................................................................59Tourism.............................................................................................60Journalism.........................................................................................60
India Forecast as per the budget for 2006-2007...............................61Factors Influencing Businesses in India...........................................63
Demography......................................................................................63Human Development.........................................................................64Free Trade.........................................................................................64Taxation.............................................................................................65Macroeconomic data.........................................................................66India’s Strategic Partnership And Membership..................................66
Chinese Advantage over India...........................................................67Indian Advantage over China.............................................................67Steps Taken Towards Globalization..................................................68
CHAPTER 3: METHODOLOGY.............................................................70Approach.............................................................................................70Data Gathering Method.......................................................................72Databases of Study.............................................................................73Validity of Data....................................................................................75Originality and Limitation of Data......................................................76Summary..............................................................................................78
CHAPTER 4: DATA ANALYSIS............................................................81Individual Interview Results...............................................................84India – SWOT Analysis.......................................................................88
Strengths...........................................................................................89Weaknesses......................................................................................96Opportunities.....................................................................................98Threats............................................................................................114
Analysis of India’s Economic Performance....................................121Trade...............................................................................................122Labor...............................................................................................128Capital.............................................................................................133Balance of payments.......................................................................134
Potential Entry Modes in Indian Subcontinent...............................135Franchising......................................................................................135Direct marketing..............................................................................137Technology transfer.........................................................................138
Analysis of India’s Neighbors..........................................................139
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China...............................................................................................139Pakistan and Bangladesh................................................................139Nepal...............................................................................................140
Some Important Numbers................................................................141CHAPTER 5: SUMMARY, RECOMMENDATIONS AND CONCLUSIONS.....................................................................................142BIBLIOGRAPHY....................................................................................153APPENDIX: MAPS of INDIA..................................................................178
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LIST OF TABLES
1.1 Developmental Parameters at a Glance 25
2.1 Projected Capital Investments: Vision 2021 48
2.2 Factsheet 62
4.1 Challenges To India’s Development 118
4.2 India in Context: 2004 129
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LIST OF FIGURES
2.1 Trade as Percentage of GDP 28
2.2 GDP per capita growth 29
4.1 Value Chain of Gems and Jewellery Industry 105
4.2 Indian trade in goods and services 124
4.3 Indian trade by country (FY 2004) 125
4.4 Indian trade by good (FY 2004) 126
4.5 Indian Energy Consumption 127
4.6 US Employment 131
4.7 US Trade with India in Services 132
4.8 Financial Account Balances (Fiscal years) 133
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CHAPTER 1: INTRODUCTION
Globalization has been the cause of a fundamental shift in the
world economy. National economies all over the world can no longer
continue to remain relatively self-contained entities, isolated from each
other by national borders as well as other trade and investment barriers.
Distance, time zones, language barrier, or other national differences in
government regulations, cultures and business systems can no longer be
allowed to prevent international trade, if a nation truly wishes to be
economically strong. The innovations and developments in various
industries like technology and transportation are shrinking the world. Many
businesses are adopting the virtual technology offered by internet to
conduct business, thus reducing the operating costs for the business and
also reaching more customers at the same time. This has further
increased the impact of globalization.
An example quoted by Hill (2003), is a perfect representation of the
world created by globalization.
An American might drive to work in a car designed in Germany that was assembled in Mexico by DaimlerChrysler from the components made in the United States and Japan that was fabricated from Korean steel and Malaysian rubber. She may have filled the car with gasoline at a service station owned by a British multinational company that changed its name to BP to hide its national origins. The gasoline could have been made from oil pumped off the coast
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of Africa by a French oil company that transported it to the United States in a ship owned by a Greek shipping line. While driving to work, the American might talk to her stockbroker on a Nokia cell phone that was designed in Finland and assembled in Texas using chip sets produced in Taiwan that were designed by Indian engineers working at a firm in San Diego, California called Qualcomm. She could tell the stockbroker to purchase shares in Deutsche Telekom, a German telecommunications firm transformed from a former state-owned monopoly into a global company by an energetic Israeli CEO. She may turn on the car radio made in Malaysia by a Japanese firm, to hear a popular hip-hop song composed by a Swede and sung by a group of Danes in English who signed a record contract with a French music company to promote their record in America. The driver might pull into a drive-through coffee stall run by a Korean immigrant and order “single-tall-non-fat-latte” and chocolate covered biscotti. The coffee beans come from Brazil and the chocolate from Peru, while the biscotti was made locally using an old Italian recipe. After the song ends, a newspaper announcer might inform the American listener that anti-globalization protests at a meeting of heads of state in Genoa, Italy, have turned violent. One protestor has been killed. The announcer then turns to the next item, a story of how an economic slowdown in America has sent Japan’s Nikkei stock market index to 16-year lows (pg. 4).
After considering the number of Indian software engineers in United
States, it might very well be an Indian driving the car to work in United
States. As per Czinkota (2002), a World Bank survey of 150 leading US
and European hardware and software manufacturing firms indicated that
Indian programmers ranked first out of 8 nations in offshore as well as on-
site software development. The survey results show that at least “one”
amongst every “four software engineers” around “the world” is a person “of
Indian origin”. The survey results also proved that the software
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development costs in India were much less than United States. The
average annual salary of a programmer in India is about $3000. As a
result “at least two out of five Fortune 500 companies have outsourced
their technology needs to India” to benefit from “the highly skilled” and low
cost labor in India. The same survey showed that the Indian software
companies are also concentrating on software development and domestic
sales of the same.
As per many economic studies there seems to be a definite relation
between trade and economic growth of a nation. Increase in international
trade brings in positive growth for a country. As per a study conducted by
Sachs and Warner (1995), there is a strong association between
“openness” to international trade and growth “within” “developed” as well
as “developing” nations. The study was conducted on 100 countries and
spanned over a period of 20 years. The results of the study by Sachs
(1995) show that amongst “developing” nations, “the open economies
grew at a rate of 4.49 percent” annually compared to the annual growth of
just “0.69 percent” for “closed economies”. The “open economies”
amongst “developed” nations too show an annual growth rate of “2.29
percent” compared to a growth rate of just “0.74 percent” amongst “closed
economies”.
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Many futuristic forecasts are predicting a rapid rise in the Asia-
Pacific economy by 2020. China, India, Indonesia, Thailand and South
Korea are expected to be the major countries responsible for the growth in
the Asia-Pacific region. As per the World Bank estimates in The
Economist (1994), “today’s developing nations” are expected to control
“60%” of the global economy “by 2020”. The “richer nations”, on the other
hand, are expected have economic control of only “38%” of the future
economy as compared to the current “55%”. The forecasts may not be
correct. However it is true that China and India, the two most populous
countries of the world, accounting for almost 1/3 rd of the world’s
population, are currently in take-off phase. Both the nations are currently
growing at a very high rate and have also been showing a consistent
growth even during the adverse market conditions. Both the nations
possess good skilled resources and are also taking rapid strides in
technology in the domestic as well as international market. The current
paper concentrates on the economy of India.
The report on Vision 2020 (India Vision 2020, Dec 2002) created by
the Planning Commission of India is taken as a base for this paper. The
teams involved in the creation of the vision for India identified various
important engines to accelerate the economic growth of the nation. The
engines included rapidly rising education levels, accelerated rates of
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technological innovation and application, cheaper and faster
communication resulting in dissolving physical and social barriers
domestically and internationally, rapid improvement in the quality and the
quantity of information available and opening of new markets to
globalization.
Further as per same report, it is important for India for India to have
the right growth engines in the right place for rapid and sustained
economic growth to improve the nation’s overall economic rating in the
global economy.
Statement of the Problem
Will the Vision 2020 be a reality for India?
The current paper first reviews the Vision 2020 as set by Planning
Commission. The paper then addresses the problem by reviewing the
current status of the various growth engines in India. It also attempts to
draw an estimate on the future performance of the various industries
within India to confirm if there is a possibility of successful achievement of
India Vision 2020 by 2020 based on the current and the past trends.
As per a recent report in Economic Times, “the Asian economies will
generally continue to deliver strong growth” and this will continue to be
“supported by the favorable outlook for the international economy” as well
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as continued improvement in “economic management and apparent
resilience to high oil prices”. As per the same report, Ifzal Ali, the Chief
Economist of the Manila-based multilateral development bank, confirms
“that Asian economies will take strength from the continuing upswing in
the global electronics sector and fast growth expected in China and India.”
India however faces many challenges to complete its structural
transformation if it has to achieve the Vision 2020. At the outset, India
needs to consolidate the nation’s economic position by improving the GDP
of the nation. It needs to improve the investment environment to increase
the FDI by lowering the cost of doing business. The expenditure on
infrastructure improvements to support industrial growth as well as
development of the service industry and agriculture has to be improved.
The rural productivity and human development need to be advanced. The
public health and education also have to be improved and significant steps
are required to eradicate unemployment.
Purpose of the Study
As has been correctly stated by K.C.Pant, Deputy Chairman
Planning Commission of India, in the Foreword of the Report to the
Committee on the Vision 2020 (India Vision 2020, Dec 2002), “every
country” definitely “needs a vision” to focus its development efforts in the
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right direction and grow to its optimal capacity. The India Vision 2020 was
formulated after two years of deliberation by 30 national experts and after
detailed examination of various issues related to population growth, food
production, health, vulnerable sections of the population, transport,
communication, energy, self-sufficiency, water conservation and air
quality, trade investment, peace, security and governance. The Vision
2020 concludes that India has the potential to emerge as one of the
world’s leading economy by 2020.
However simply defining the vision is not equivalent to achieving
the vision. There are many milestones to be achieved between defining
the vision and actually achieving it. The uncertainty at each step becomes
all the more significant for a culturally diverse nation with a population of
more than a billion as in case of India. The study of the progress and
failure of the nation at each milestone will help the individuals as well as
organizations touched by the Indian economy to estimate the risks and
opportunities associated with their own milestones and take appropriate
measures to optimally utilize the available resources and thus improve
their growth potential. This will directly or indirectly impact Indian economy
and thus take the latter closer to or farther from achieving the targets set
in the vision.
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The current study therefore targets each individual and/or
organization observing the progress of the Indian economy as a mere
observer or as a driver. Further due to the inevitable inter-relationship
between various national economies of the world on account of
globalization, the target audience for the current study also includes other
impacted entities in the global economy and not directly associated with
India.
The study makes an attempt to consolidate the information on the
Indian economy from various academic sources and business
publications. It also reviews India’s performance almost 5 years after the
definition of the vision for India. The study further attempts to understand
the potential advantages and disadvantages that the nation possesses in
various core industries and the impact of various global factors on India’s
attaining the targets, as defined in the Vision 2020. The Planning
Commission consisting of 30 members team of experts did a very detailed
job in analyzing all the different issues and challenges the country faced in
its path towards becoming an economic superpower. They also identified
the unique strengths and weaknesses of the country and its people, as
well as identified the opportunities and the threats facing them, to help
them in forging towards success.
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The vision was however drawn in 2002, and the results of that effort
were crystallized in the form of the Vision 2020. Several domestic and
global events as well as various natural and man-made calamities
continuously challenge the process of achieving the vision. Some of them
even impact the basic parameters assumed for the vision definition.
The purpose of the current study is therefore, to analyze the
performance of the nation in the years till date, after the creation of the
vision, to verify the success or failure of the governing body of the nation
to navigate India towards success. The study also reviews the
performance of the neighboring countries that are endowed with similar
qualities and faced with similar challenges towards achieving equitable
economic success. The study further attempts to draw comparison
between the past, current and future performances of the various nations
in the Asia-Pacific region as well as other richer and developed countries
from the global arena with particular concentration on India before
concluding if the vision is still within the nation’s reach and attainable by
2020.
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Importance of the Study
A lot has been said and written about in various media on the
tremendous potential that India possesses. The domestic as well as
international image of India is also changing continuously.
Employment has nearly tripled in India in 20 years prior to the
definition of the vision for India. A repetition of the same performance can
create 150-200 million jobs by 2020 and thus fulfill one of the growth
factors identified in the vision for India. Further the Planning Commission
had also identified several potential sectors with high potential for growth
in employment. These include commercial agriculture, agro-industry, agri-
business, forestation for pulp, fuel, power, retail and wholesale trade,
tourism, housing, construction, IT & IT enabled services, transport,
communications, education, health and financial services. Each of these
sectors needs to show a consistent and rapid growth to make the Vision a
reality. However with this said, while India is going strong in many sectors,
it also seems to be lagging behind in some other sectors. Growth in the
core sectors is very important for a balanced growth of the Indian
economy.
At this point, it is important to note that India is the home for about
23% of the world’s population. The population is also expected to continue
to rise to about 1.3 billion due to the increasing lifespan of men and
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women and decreased mortality at birth, even if there is a reduction in the
number of childbirths. In a vast country like India, it is easy for the citizens
and the government to lose the focus on the vision and miss the targets
completely.
As the world is coming closer, India’s progress is closely linked to
the events in the Asia-Pacific region as well as the various global trends.
As per Vision 2020 (India Vision 2020, Dec 2002)
The World Bank estimates that India will become the fourth largest economy in the world by 2020. Liberalization of trade will open up new opportunities for export of goods, while increasing pressures on domestic industry to cope with competition from imports. The global market for textiles, clothing and agricultural products will expand dramatically, but India’s ability to export will depend on its capacity to keep pace with rising international standards of price, quality, productivity, and service (pg. 11).
The Vision 2020 talks about all of this and much more. However all
the research and effort would go in vain if the growth figures are not
achieved as per the plan. The Indians therefore, have to be prepared to
tackle the impact of the growth of other economies as well. The study of
the actual performance from 2002 till date, in the current study gives a fair
view of the nation’s performance in the years following the definition of the
Vision 2020. The available data is then extrapolated based on the various
global and national economic trends identified by various organizations, as
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well as by various business owners and an estimate is made on the
performance of the country in the coming years.
Scope of the Study
The paper does a reality check based on the current performance
of India, certain historical data, as well as the opinions of various industry
experts from various industries from within and outside India, who have
been keeping close track of Indian economy and designing and
implementing business strategies to benefit from or to benefit the Indian
economic trend. The paper then attempts to confirm or deny the possibility
of India achieving the Vision 2020.
The study uses the various figures stated in the Planning
Commission Report for India Vision 2020 as well as the data presented in
the reports submitted by IBEF as a baseline. The Vision 2020 for India
was the result of the joint efforts of the Planning Commission as well as
the team from TIFAC. The study further tracks the current and the future
trends of performance in various sectors for India in the domestic as well
as Asia-Pacific and global market. It also includes the brief insight into the
various economic trends in China, the fastest growing neighbor for India
as the analysis can potentially provide valuable insight into the impact of
the various economic trends in China on India’s growth. It can also help
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India to learn from the mistakes of its neighbor and thus perform better by
taking the necessary precautions. The past, present and the anticipated
future trade relationship of India with its neighbors as well as other
economically strong nations is also included in the study. A review of the
various statistics provided by WTO further helps in the understanding of
the trends in the Asian market as India along with China are the major
countries impacting the overall trend in this region. As per the research
data from WTO, and as stated in the Vision 2020 (India Vision 2020, Dec
2002) India is expected to be the fourth strongest economy by 2020. It is
expected to have a GDP equivalent to the current GDP of Germany.
Further China is expected to the biggest superpower and is expected to
have a GDP equivalent to the current GDP of United States by 2020.
Rationale of the Study
The Planning Commission of India did conduct a detailed and
lengthy research over a period of two years, with the help of a team of 30
experts to outline Vision 2020 to bring India in the forefront in the global
economy. However as stated by Dr.S.P.Gupta, Member, Planning
Commission of India, in the Vision 2020 (India Vision 2020, Dec 2002) the
vision statement is not a prediction of what can actually happen. It is
rather a statement of what can be possible. In the instance of India, the
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Vision 2020 (India Vision 2020, Dec 2002) can only state a target that the
nation can possibly achieve in the best-case scenario.
However with the current globalization, a nation’s economy is
continuously affected by various national and international factors. Further
the Vision 2020 for India has been defined for a broad span of 20 years. It
has been defined with the data available till 2002. While the vision does
provide a detailed insight into the various factors influencing global trade
scenario, it is also true that there are many factors and several domestic
and global business decisions, whose trends cannot be easily predicted.
Factors like oil, war, natural calamities like the Tsunami and man-made
calamities like 9/11 are enough to impact the national as well as global
resources and ultimately the global trade in a big way. The years after the
formulation of the vision have witnessed many major calamities for India,
the Asia-Pacific economy as well the Western economy. It is hence
important for every nation to do a reality check after regular intervals to
identify the various risks associated and make adequate changes in the
national strategy to keep the growth efforts on target.
The current study is one such reality check. It is an individual study
and due to lack of resources and time is obviously not as detailed and
exhaustive as the collective study conducted by the Planning Commission
or leading global organizations like the ITEB, IDC or WTO. Further the
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sources of the data accessed during the course of the study are not
always the latest. The study of the trade, growth in various sectors, and
the GDP of the nation during the years after the creation of the vision
coupled with the observations and insights of various trade analysts and
industry experts can provide a good insight into estimating the
performance of the country in the next fifteen years. These factors
together, can be helpful in the reality check of India’s progress in the
direction towards achieving the Vision 2020.
Definition of the Terms
ADB
The work of the Asian Development Bank (ADB) is aimed at
improving the welfare of the people in Asia and the Pacific, particularly the
1.9 billion who live on less than $2 a day (Asian Development Bank,
2006).
ASEAN
Association of South East Asian Nations consisting of Brunei
Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines,
Singapore, Thailand and Vietnam as its members (ASEAN Secretariat,
2005).
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BPO
Business Process Outsourcing: It involves giving a third-party the
responsibility of conducting a business activity. Examples of such activities
include customer service, payroll preparation, software development and
implementation.
CAGR
Compound Annual Growth Rate: The year over year growth rate
applied to an investment or other part of a company's activities over a
multiple-year period. The formula for calculating CAGR is (Current
Value/Base Value)^(1/# of years) – 1 (InvestWords.com, 1997-2005).
CCG
Country Commercial Guide is a U.S. Commercial Service
document describing the economic and commercial environment of India,
including best potential market sectors, trade regulations, and contact
lists, and commercial programs of the Commercial Services in the country
(India Country Commercial Guide FY 2003, 2003).
CIS
CIS stands for Commonwealth of Independent States. These are
the countries that were formed due to the dissolution of USSR (Wikipedia,
June 2006).
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CountryWatch
CountryWatch, Inc. is an information provider for schools,
universities, libraries and individuals needing up-to-date news and
information on the 192 countries of the world. CountryWatch, Inc. is a
useful resource for any public or private sector organization with overseas
operations and global interests (CountryWatch.com, 2005).
DGFT
Directorate General of Foreign Trade (National Informatics Center,
n.d.).
e-Choupal
It is an internet initiative that aims to confer the power of expert
knowledge on even the smallest individual farmer, thus enhancing his
competitiveness in the global market (ITC’s e-Choupal, n.d.).
EHTP
Electronics Hardware Technology Park (InfoDrive India - Exim
Policy 2002-2007: Definitions, Chapter 9: 9.18, n.d).
EOU
Export Oriented Unit (InfoDrive India - Exim Policy 2002-2007:
Definitions, Chapter 9: 9.19, n.d).
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EPZ
Export Processing Zone (InfoDrive India - Exim Policy 2002-2007:
Definitions, Chapter 9: 9.20, n.d).
e-Seva
It is an Andhra Pradesh state government initiative developed to
allow the citizens easy access to various public utilities like payment of
water and electricity bills, applying for driver’s license and so on
(eSevaonline, 2001).
FDI
Foreign Direct Investment is the movement of capital across
national frontiers in a manner that grants the investor control over the
acquired asset (Wikipedia, June 2006).
FICCI
Federation of Indian Chambers of Commerce and Industry is the
rallying point for free enterprises in India. It has empowered Indian
businesses, in the changing times, to shore up their competitiveness and
enhance their global reach (FICCI, 1999).
FTA
Free Trade Agreement is an agreement between member nations
to conduct free trade in the designated area as per the terms of the
agreement.
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FTZ
Foreign-Trade Zone is a specially designated area, in or adjacent to
a nation’s Customs Port Of Entry, which is considered to be outside the
Customs Territory of the country (Foreign-Trade Zone Corporation, n.d.)
GDP
Gross Domestic Product is defined as the market value of all final
goods and services produced within a country in a given period of time.
GMPCS
Global Mobile Personal Communication by Satellite is a personal
communication system providing transnational, regional or global
coverage from a constellation of satellites accessible with small and easily
transportable terminals. Whether the GMPCS satellite systems are
geostationary or non-geostationary, fixed or mobile, broadband or
narrowband, global or regional, they are capable of providing
telecommunication services directly to end users. GMPCS services
include two-way voice, fax, messaging, data and even broadband
multimedia (ITU, 2006).
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Human Development Index
The HDI is a composite of several indicators, which measure a
country's achievements in three main arenas of human development:
longevity, knowledge and education, as well as economic standard of
living. (2006 Country Review, 2006).
HINDI
It is the National Language of India.
IBEF
India Brand Equity Foundation is an initiative of the Ministry of
Commerce and Industry, Government of India, and produces a wide range
of well researched publications focused on India’s economic and business
advantages. IBEF collects, collates and disseminates accurate,
comprehensive and current information on India. In the overall nation
branding campaign for India, IBEF plays three well defined roles of Forum
for brand vision development, Coordinator of strategic marketing initiatives
and as an India Resource Centre (IBEF, 2004-06)
IDC
It is a premier global provider of market intelligence, advisory
services, and events for the information technology, telecommunications,
and consumer technology markets (IDC, 2006).
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NASSCOM
India’s National Association of Software and Services Companies.
It is India’s premier trade body and Chamber of Commerce for the IT and
services industry (NASSCOM, March 2006).
NRIs
Non-Resident Indians
PPP
Purchasing Power Parity is an estimate of the exchange rate
required to equalize the purchasing power of different currencies, given
the prices of goods and services in the countries concerned
(Enpsychlopedia.com, March 2006).
RBI
Reserve Bank of India
STP
Software Technology Park (InfoDrive India - Exim Policy 2002-
2007: Definitions, Chapter 9: 9.54, n.d).
SME
Small and Medium Enterprise
TIFAC
Technology Information, Forecasting and Assessment Council is an
autonomous organization under Department of Science and Technology.
21
It aims to keep a technology watch on global trends and formulating
preferred technology options for India. (TIFAC, n.d.)
UMI
Upper Middle Income countries
VOIP
Voice over Internet Protocol is simply the transmission of voice
traffic over IP-based networks. (Aqua Telecoms, n.d.)
WTO
World Trade Organization
Overview of the Study
This study is based on the vision defined by the Planning
Commission of India based on their joint research conducted along with
TIFAC. As per IBEF (Vision 2020, Feb, 2004) India Vision 2020 as stated
briefly is:
India 2020 will be bustling with energy, entrepreneurship and innovation. The country’s 1.35 billion people will be better fed, dressed and housed, taller and healthier, more educated and longer living than any generation in the country’s long history. A second productivity revolution in Indian agriculture will stimulate demand for consumer goods and services, giving a fillip to the urban economy and the informal sector as well as rapid expansion of the services sector. Diversification from IT to biotechnology, medical sciences and other emerging fields of technology, would widen the field of India’s international competitiveness. These developments will ensure jobs for all by 2020. Inequalities between different age groups, the sexes, income groups, communities and
22
regions will come down dramatically. India’s achievements will be fuelled by the realization that the progress of the whole ultimately depends on the progress of its weakest links. The increasingly congested urban traffic will be motorized as never before. Cell phones, computers and the Internet will permeate every aspect of life and every corner of the country. Computerization of education will dramatically improve the quality of instruction and the pace of learning, so that many students will complete the first twelve years of school curriculum in as little as eight. Computerized distance education will catch on in a big way and enable tens of thousands more students to opt for affordable higher education. Urban air pollution will come under control by strict enforcement of motor vehicle emission standards and widespread use of ethanol blended motor fuels. A massive afforestation programme will reverse the depletion of forest areas, raise the nation’s Green cover to 33 per cent of area, generate millions of rural employment opportunities, and provide abundant renewable energy from biomass power production. Rising levels of education, employment and income will help stabilize India’s internal security and social environment. A more prosperous India in 2020 will be characterized by a better-educated electorate and more transparent, accountable, efficient and decentralized government (pg 2).
As per the report generated by the Planning Commission of India
(India Vision 2020, 2002), the potential sectors for high employment
opportunities in India include “commercial agriculture, agro-industry, agri-
business, forestation for pulp, fuel, power, retail and wholesale trade,
tourism, housing, construction, IT & IT enabled services, transport,
communications, education, health and financial services” (pg 38). The
current study, therefore concentrates mainly on these sectors to identify
the documented progress as of date and the anticipated future potential in
23
each of these sectors. This study also includes some related industries
that are impacted by or that impact the potential of the above industries.
The study attempts to confirm if India is on track to achieve the goal
of 200 million jobs (India Vision 2020, Dec 2002) by 2020, as has been
stated as the target in the vision statement. It uses the developmental
parameters as stated in the Planning Commission report as a reference
point for the comparison of the current performance of India. The
developmental parameters chart as stated in Vision 2020 (India Vision
2020, Dec 2002) report by the Planning Commission of India is:
Developmental Parameters India Present
UMI Reference for India 2020
Poverty as % of population below poverty line
26.0 13.0
Income distribution (gini index 100 = equality)
37.8 48.5
Unemployment rate (% of labor force) 7.3 6.8Male adult literacy rate (%) 68.0 96.0Female adult literacy rate 44.0 94.0Net primary school enrolment ratio 77.2 99.9Public expenditure on education as % GNP 3.2 4.9Life expectancy at birth in years 64.0 69.0Infant mortality rates per 1000 live births 71.0 22.5Child malnutrition as % of children under 5 years based on weight for age
45.0 8.0
Public expenditure on health as % GNP 0.8 3.4Commercial energy consumption per capita (kg of oil equiv)
486.0 2002.0
24
Electric power consumption per capita (kwh)
384.0 2460.0
Telephones per 1000 population 34.0 203.0Personal computers per 1000 population 3.3 52.3Scientists and engineers in R&D per million population
149.0 590.0
Sectoral composition of GDP in %AgricultureIndustryServices
28.026.046.0
6.034.060.0
International trade in goods as % of ppp GDP
3.6 35.0
Foreign direct investment as % of gross capital formation
2.1 24.5
Gross FDI as % of ppp GDP 0.1 3.5
Table 1.1: Developmental Parameters at a Glance: India Present vs. UMI
Reference for India 2020 From Developmental Parameters at a
Glance: India Present vs. UMI Reference for India 2020. By India
Vision 2020, Dec 2002, Retrieved on April 30, 2006 from website
http://planningcommission.nic.in/reports/genrep/pl_vsn2020.pdf
As per the Vision 2020 (India Vision 2020, Dec 2002), growth in
food grain production can generate 20 to 30 million new on-farm
employment opportunities during the next decade.
Further development of the agri-business to its full potential can
also generate millions of additional jobs. 10-15 million additional jobs can
be generated by the development of forests over the 11th 5 year plan. The
10th 5 year plan covered the period 2002-2007 and has been put in action
25
at the same time as the creation of the vision. The SSI (small scale
industries) sector is expected to generate 36 million jobs in the 20 years
following the definition of the vision. As per the vision, the service sector is
expected to generate 120 million jobs by 2020. The vision further
anticipates the service sector to generate additional employment with a
proportionate fall in the total agriculture employment to less than 45
percent of the total by 2020.
20 million additional jobs can be expected to be generated in the
tourism industry. As per the vision, 4 million additional teachers would be
required in the primary and secondary schools to improve the teacher-
student ratio at the primary school as well as higher level and to further
improve the quality of education. The IT industry is expected to also
provide additional 2 million employment opportunities by 2010.
The above estimates for the various industries imply that the target
of generating 200 million jobs is possible, if Indians successfully meet or
exceed the target to develop the nation’s various core and other
supporting industries.
26
CHAPTER 2: REVIEW OF RELATED LITERATURE
Significant aspects of India’s economic history
India's pace of reform has been gradual, however, compared with that of South Korea and China. In 1960, India, South Korea, and China all had trade shares of roughly ten percent of GDP (Figure [2.]1). South Korea began a period of dramatic export-led growth in the 1960s-as did China two decades later-that corresponded to rapid increases in GDP per capita (Figure 2[.2]). By 2003, India had just reached the level of openness gained by South Korea in the mid-1960s and China in the mid-1980s. This comparison highlights both the lagging pace of India's development and the tremendous potential that could be unleashed should India follow in the footsteps of these other Asian countries (Wilson B.A., Keim G.N., Jan 2006, pg. 31).
Figure 2.1: Trade as Percentage of GDP from Wilson B.A. & Keim G.N.
27
(2006, January). Trade as Percentage of GDP: India and the Global
Economy. Business Economics: Washington. 41(1), pg. 28, 9p.
Retrieved April 15, 2006 from ProQuest Database
Figure 2.2: GDP per capita growth from Wilson B.A. & Keim G.N. (2006,
January). GDP per capita growth: India and the Global Economy.
Business Economics: Washington. 41(1), pg. 28, 9p. Retrieved
April 15, 2006 from ProQuest Database
As per CountryWatch (India 2006 Country Review, 2006)
India boasts the twelfth largest economy in the world and the third largest in Asia behind those of Japan and China; total GDP is approximately $570 billion. The major contributing sectors to India’s economy are the services, industry and agriculture, which respectively provide 50.7 percent, 26.6 percent and 22.7 percent to GDP. Approximately 25 percent of the population lives below the poverty line but a booming middle class is providing the impetus for consumer demand (pg 81).
28
IDC Review
As per the IDC comparison (2006), 2005 was the year for many
major economic events in India. The domestic IT market recorded a 21%
growth. The mobility, convergence and IT management services were the
main factors driving the growth. The mobile phone service attracted 25
million new customers from various income groups.
Broadband attracted 1 million internet subscribers accounting for
10% of the internet subscriber base. IT hardware commoditization
continued in 2005. Some of the lagging vendors joined hands in 2005, to
produce targeted solutions.
Large foreign investments continued towards expanding the
offshore BPO services market in India. IT services segment recorded a 27
percent growth with 16 percent expected CAGR over the next 5 years.
BPO exports recorded a 45 percent growth over the last year; the
expected CAGR for the next 5 years was 32 percent. BPO in the domestic
market grew by 100 percent.
The end-to-end services model continued to be popular in 2005.
Verticalization of the enterprise business applications continued to be the
focus of SMB. The worldwide IT spending recorded a growth of 6 percent
over the previous year.
29
Further the ICT made some important market predictions for India
in 2006 as per the IDC comparison report, 2006. As per the predictions,
India is expected to continue to record the highest domestic IT growth of
19 percent in the Asia-Pacific region compared to a 12 percent growth for
IT in China. The IT infrastructure is expected to further improve in terms of
reach and performance. Outsourcing business is expected to capture 24
percent of the IT services market.
The focus on security management was expected to increase due to
increased easy accessibility of information. The sale of digital electronics
and internet subscription was expected to grow by a 100 percent. The
growth of IP telephony was also expected to continue albeit at a slow rate.
The verticals orientation as well as popularity of industry specific solutions
was expected to continue. The worldwide focus on SMEs, global assets,
global sources for innovation and vertical specific BPO was expected to
continue to be popular.
As stated earlier, the paper concentrates on the study of industries
identified as having high employment potential in the vision for India and
some other related industries with good scope for growth.
30
Highlights of Major Indian Industries
Agriculture
As per IBEF (Agriculture, 2006), this sector brings in 25 percent of
India’s GDP and also offers employment to almost 60 percent. 13 percent
of India’s exports also come from the agriculture segment. The Indian
agriculture till some years ago was mainly consisting of foodgrains and a
few cash crops. However all that is now a thing of the past.
As per the data presented in IBEF (Agriculture, 2006), India is the
second largest producer of rice and wheat and is largest in pulses. It is
also one of the largest producers of other products like cotton, sugar,
sugarcane, peanuts, jute, tea, spices and coarse grains. The country
ranks third in the overall agricultural sector and follows USA and China.
India also accounts for 10 percent of the world’s fruit production and ranks
the highest in the production of mangoes, bananas and the scale of milk
production. It is fifth and the seventh largest producer of eggs and meat
respectively. India leads in the production of certain vegetables as well.
India is also the world’s largest producer of fish and the second largest
producer of inland fish.
The IT application, contract, corporate farming and food processing
are now opening newer business opportunities in this sector. Further as
31
per the data presented in IBEF (Agriculture, 2006), by 2003-2004, Indian
agricultural imports fell marginally from 0.9 to 0.89 percent and the exports
grew from US$ 5.9 billion to US$6.4 billion. The agricultural exports now
constitute 12 percent of the total merchandise exports. The WTO
compatible subsidies have also helped in making the country the world’s
largest exporter of foodgrains.
As per the same report, the diversification of the crop portfolio is
helping the nation to capitalize on the nation’s diverse climate and soil
conditions. The horticultural boom is also helping to alleviate poverty and
generate employment in the farming and non-farming sectors. The
floriculture industry is also growing at the rate of 17 percent annually. The
government is taking various steps to improve the growth in this sector
due to the major contribution of this sector to India’s employment and
GDP.
As per the data presented in IBEF (Agriculture, 2006), the
government is promoting increased domestic and foreign investment by
abolishing licensing for most of the food and agro-processing industries. It
is also granting automatic investment approval up to 100 percent for NRIs
and overseas corporate bodies in the food processing sector as well as
fertilizers and pesticides. Excise, import and custom duties have been
reduced substantially for food processing, process food as well as related
32
plants, equipments, raw materials and intermediaries. The schemes like
the Exim policy (2002-2007) and Vishesh Krishi Upaj Yojana (Special
Agricultural Produce Scheme) have also been promoting free export of
most agricultural products. The exporters are also provided additional
incentives like reduced marketing costs. Funds are being allocated to
setup AEZs (Agri export zones) to further promote agricultural exports.
The government is also taking steps to increase credit and reduce interest
for farmers. Steps are being taken to improve the water system and other
infrastructure development programs for this sector. Diversification into
horticulture, floriculture and oil seeds is being promoted by offering
technology and pricing support in order to increase India production
capabilities in these sectors. Incentives are also being offered to expand
R&D efforts to biotechnology, vaccines, diagnostics and farming in dry
lands and non-irrigated areas. Insurance coverage is being offered to
mitigate various risks in this sector.
Automotive
As per the latest figures available from IBEF (Automotive, January
2006), “India is the largest three wheeler market, 2nd largest two wheeler
market, 4th largest tractor market and the 5th largest commercial vehicle
33
market in the world. India is also the 4th largest passenger vehicle market
in Asia”(pg 5).
The automobile sector has been performing well domestically as
well as internationally indicating the increasing progress and incomes of
the domestic population as well as the infrastructure within the country. As
of 2003-2004, the industry consisting of the original equipment
manufacturers (OEMs) and the suppliers together has been contributing to
about 4 percent of the India’s GDP. The sector employs 0.45 million
people directly and 10 million people indirectly.
As per IBEF (Automotive, 2006), India has a major advantage in its
English speaking workforce, that is also trained in designing and
machining skills as is required by this industry. As per National Council of
Applied Economic Research (NCAER) in the IBEF report (Automotive,
2006), 80 percent of India’s population is expected to have an annual
income of US$ 980 and above by 2009-10.
The government has identified this industry as one of the target
industries for improvement as per the IBEF report (Automotive, 2006). It
intends to double the contribution of the auto industry to India’s GDP by
2010. Automatic approval is being granted for FDI up to 100 percent in
this industry. The policy is becoming more liberal with greater incentive
34
offerings in this sector. Custom duties are also being reduced in various
segments of this industry.
Further as per the estimates of Society of Indian Automobile
Manufacturers (SIAM) in the IBEF report (Automotive, 2006), an
investment of US$ 5.7 billion is expected to flow into this segment from the
various automobile manufacturers. Approximately US$ 2.3 billion is
expected to be invested in various R&D efforts in this sector. Some of the
examples of the R&D effort are the MICO Application Center for R&D (a
key global R&D competency center, from the Bosch Group), GM’s
technical center for R&D and engineering at Bangalore and FITSI (Ford
Information Technology Services India) in Chennai.
Biotechnology
In the year 2004 – 05, as per IBEF report (Biotechnology, 2006),
the Indian biotechnology grew at 36.5 percent over the previous year and
also crossed the 1 billion USD mark. Biotech exports also rose to US$ 455
million, thus contributing to almost 42 percent of the overall export
industry.
India already has, as stated in the IBEF report (Biotechnology,
2006), more than 300 institutes for biotechnology study and “a knowledge
pool of over 3 million graduates, 700,000 post graduates and 15,000
35
PhDs”. India also has access to new technology due to the presence of
many multinationals dealing with this sector.
The diagnostic market in the country is still largely import-driven. As
per the IBEF report (Biotechnology, 2006) high import duties, elaborate
custom clearance procedures, difficult logistics, slow pace of approvals
from statutory authorities and lack of a robust national laboratory network
for evaluation and approval of new products are some of the factors
slowing down the pace of indigenization.
Countries like Denmark and Netherlands have now signed MoUs
with India for technical partnering involving exchange of various experts,
performing joint training programs as well sharing intellectual property for
various biotechnology projects. As stated in the IBEF report
(Biotechnology, 2006), Bioinformatics is yet another segment with lots of
opportunities as it is set to become a US$ 120 million market by 2006.
As per IBEF report (Biotechnology, 2006), the government is
planning to introduce various policies in future, to further stimulate the
growth in this sector. Exemption of import and custom duties and tax
deduction on R&D expenditure are some of them. The government is
trying to support more biotech parks. The patent act revision in 2005 is yet
another step taken by the government in favor of development in this
36
sector. As per the same report, by 2010, the Indian biotech industry is all
set to reach a target of US$ 5 billion in revenues.
Cement
India’s average consumption of cement is still low compared to
global standards implying the increased need for improvement of
infrastructure within the country. The industry is still fragmented, as per
IBEF (Cement, 2006), however some of the domestic companies have
managed to become the most efficient companies globally due to
restructuring and use of low cost technology.
India is the second largest producer of cement in the world having a
market share of 6 percent in the production of cement. As per IBEF
(Cement, 2006), it is also the fastest growing market for cement. The
various technological restructuring of various leading firms in the country
has further improved the global cost advantage for the domestic firms. The
dry process technology used in the Indian cement industry is yet another
strength for the industry due to the resultant cost advantage over
competition.
The government is allowing 100 percent FDI in the cement sector
as well as taking steps towards easing environmental norms make India
an attractive investment destination for various investors.
37
Chemicals
This industry as per IBEF (Chemicals, 2006), includes
petrochemicals, inorganic and organic chemicals, fine and specialties,
agrochemicals and paints and dyes. This industry accounts for 3 percent
of India’s GDP, 13-14 percent of the total exports and 8-9 percent of
India’s total imports. The domestic market is responsible for almost 33
percent consumption of this industry’s output.
The industry exports are rapidly increasing and the imports are
decreasing. As per IBEF (Chemicals, 2006), “India’s capabilities across
different sectors of the chemicals industry and consistently strong
performance over the past few years signify its potential to emerge as a
significant global player in this field” (pg 6).
The government has eliminated the industrial licensing for most of
the industries with the exception of some hazardous products. The
government is also promoting production of pesticides from domestically
grown plant called Neem. It is also allowing 100 percent FDI in the
chemical sector.
The industry is characterized by organized and unorganized
players. 100 percent FDI is allowed for all chemical items except items
requiring an industrial license as well as proposals where foreign
38
collaborator has previous or existing venture tie-up in India. The exception
is also applicable to proposals related to acquisition of shares of an Indian
company by a foreign investor or proposals falling outside sectoral policy
caps.
Engineering
As per IBEF (Engineering, 2006), the engineering sector in India
employs almost 4 million skilled and semi-skilled workers directly or
indirectly. “Among the developing countries, India is a major exporter of
heavy and light engineering goods, producing a wide range of items” (pg
2). The sector is mainly dominated by organized players due to the need
high capability as well as good financial resources required to procure
and/or produce sophisticated technology. As of 2004, the total engineering
production was approximately US$ 22 billion. Indian engineering exports
to the developed countries like USA as well as the European Union
countries have increased substantially.
As per the prediction by the Engineering Exports Promotion Council
(EEPC) as is stated in IBEF (Engineering, 2006), the exports of this sector
to USA are expected to touch US $30 billion by 2008 – 09.
39
Entertainment and Media
As per the IBEF (Entertainment and Media, 2006), this sector has
outperformed the Indian economy in growth rate. As per same report,
“India is on the verge of becoming the largest digital theatre country in the
world - a revolutionary opportunity waiting to be tapped by potential
investors” (pg 11). About 90 percent of the theatres in the country require
digitization to improve the reach of more population to quality cinema. The
liberalization of the FDI and privatization by the government have
contributed substantially to the growth of this sector.
Electronics
As per IBEF (Electronics, 2006), the electronics industry worldwide
is expected to more than double its size from the period of 2005-10 and is
expected to reach a revenue of US$ 2100 billion. Despite a huge
population, India is still ranked 26th in terms of sales and 29th in production.
The customs duty on many products, specified raw materials and
capital goods has been abolished. Further the excise duty on computers
has also been removed. Further as per IBEF (Electronics, 2006), a robust
IP Act has been developed to facilitate “innovation, growth and
development” (pg 14). FDI allowance has also been increased to 100
percent for manufacture of electronics meant for exports.
40
Fast Moving Consumer Goods
The FMCG sector, as per IBEF (Fast Moving Consumer Goods,
2006), is the fourth largest contributor to the country’s GDP, has a well
developed supply chain network and is characterized by intense
competition amongst the various players. About 3 million people are
employed by this sector.
As per IBEF (Fast Moving Consumer Goods, 2006),
Demand for FMCG products is set to boom by almost 60 percent by 2007 and more than 100 per cent by 2015. This will be driven by the rise in share of middle class (defined as the climbers and consuming class) from 67 per cent in 2003 to 88 per cent in 2015. The boom in various consumer categories further indicates a latent demand for various product segments (pg 20).
As per the same report, the liberal FDI policy along with removal of
quantitative restrictions and reservation policies are having a favorable
impact on this sector and are attracting greater investment.
Further
The BRICs report indicates that India's per capita disposable income, currently at US$ 556 per annum, will rise to US$ 1150 by 2015 - another FMCG demand driver. Spurt in the industrial and services sector growth is also likely to boost the urban consumption demand (pg 20).
And
According to estimates based on China's current per capitaconsumption, the Indian FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. The dominance of
41
Indian markets by unbranded products, change in eating habits and the increased affordability of the growing Indian population presents an opportunity to makers of branded products, who can convert consumers to branded products (pg 32).
Food processing
As per IBEF(Food processing, 2006), this sector ranks 5th in terms
of production, consumption, growth and exports. As of 2003, this industry
contributed to 6.3 percent of the country’s GDP. The food processing
industry is still very nascent in India. The industry provides direct
employment to about 1.6 million workers. The industry is obviously
providing indirect employment to many more involved in the distribution of
the food products to the masses.
As per IBEF (Food Processing, 2006), India is the largest producer
of milk in the world and is also on the verge of assuming an important
position in the global dairy industry. All major grains are produced in India
and the total production is more than 200 million tones annually. It is
second largest producer of rice and has a 20 percent global market share.
India is also the third largest producer of fish and second largest producer
of inland fish. India also has access to large amount of natural resources.
The development of the agri-zones as well as a projected
investment of almost US$ 23 million in mega food parks is an indication of
government’s efforts to develop this sector. The policy is also being
42
liberalized to gradually reach a goal of 100 percent FDI allowance besides
offering income tax benefits to the investors.
Gems and Jewelry
As per the IBEF (Gems and Jewellery, 2006), the comparatively
low per capita income does not stop India from becoming the world’s
largest consumer of gold. The Indian popularity is also increasing in
jewelry manufacturing besides leading in the diamond cutting business.
The industry is largely unorganized. There is an increasing
pressure for certification and increased quality awareness of the jewelry
consumers even while the industry is experiencing fast development in the
international business.
The tightening of the certification process requirements in India as
well as the active promotion of Special Economic Zones and Jewelry
Parks in the country are some of the positive steps taken by the
government to create business environment conducive to growth and
quality production.
Healthcare
Healthcare in India, as per IBEF (Healthcare, 2006), is expected to
increase from US$ 34.9 billion in 2004 to US$ 60.9 billion by 2009. The
industry is also expected to employ around 9 million people. The
43
percentage of rich and the middle class households is expected to go from
33 percent in 2004 to 49 percent in 2010, resulting in a corresponding
increase in healthcare expenditure. The increasing health awareness and
incomes is also expected to shift the disease profiles from infectious to
lifestyle related diseases.
As per IBEF (Healthcare, 2006),
India offers highly cost-competitive medical treatment and technological advances in areas such as cardiology, cosmetic and orthopedic surgery, dentistry, eyecare and preventive health checks. India offers world class cardiac bypass surgery, hip replacements, organ transplants, cosmetic, dental surgery and vision correction (pg 7).
The FDI limit has been increased to 51 percent in the insurance
segment to attract foreign investors to this segment. Further the
healthcare is being accredited for all patients to have uniform access,
assessment, care and also to protect their rights. This can have a positive
impact on medical tourism as the patients begin to feel more protected.
Information Technology, ITES (IT Enabled Services) and Knowledge
Industry
This has been the fastest growing industries in India and the
positive growth in the IT industry has been mainly due to the exports of
software and services. About 96 percent of the export revenue comes
from these products. The ITES has been the core driver in the growth of
44
the IT industry. As per IBEF (ITES, 2006), “IT software and services in
India accounted for 2.4 per cent of the country’s GDP and 20.4 per cent of
exports in 2002-2003. It is projected to account for 7 per cent of India’s
GDP and 35 per cent of total exports by 2008” (pg 2).
Further as per IBEF (ITES, 2006), “Indian companies offer 20 per
cent higher productivity in comparison to other competing countries like
Philippines, Canada and Australia. In terms of quality of services offered,
India ranks 30 per cent higher than any other region” (pg 5).
Though this is the fastest growing industry, many people in India
and particularly the rural areas do not have access to this industry. The
lack of education as well as the bureaucracy in India is the weakness of
this industry.
The liberal FDI policies, development of specialized as well as
supporting infrastructure along with improvement of the quality and
quantity of knowledge resources have been able to impact the IT industry
in a positive way. The government’s commitment to address security
concerns has further attracted investors as well as customers to this
segment.
45
According to an IBEF estimate (Competitive Industry, 2006), just
the KPO (Knowledge Process Outsourcing) sector is expected to bring in
a revenue of US$ 12 billion by 2010.
Infrastructure
As per IBEF (Infrastructure, 2006), this sector is estimated to grow
annually at a rate of 15 percent. Further the construction sector is
expected to benefit the most from this growth.
The government has begun taking steps to liberalize the market.
Further tax breaks are offered to the private investors in this sector. As per
IBEF, (Infrastructure, 2006), the government is also planning to initiate
various innovative ways of funding like “levying a tonnage tax on ships (to
fund development of ports), and special taxes on air travel (for airports)”
(pg 3).
As per the data provided in IBEF (Infrastructure, 2006), the
following table is an indication of the available investment opportunities:
46
Table 2.1: Projected Capital Investments: Vision 2021 From Projected
47
Capital Investments: Vision 2021. By IBEF: India Brand Equity
Foundation (Feb 2006). Economy: Infrastructure Report, pg 3,
Retrieved June 14, 2006, from http://ibef.org/artdisplay.aspx?
cat_id=146&art_id=9941
Leather
As per IBEF (Leather, 2006), India is the third largest producer and
consumer of leather in the world with an output of US$ 4 billion and
exports worth US$ 2.4 billion and has the current capability to meet 10
percent of the global leather demand. Further the country ranks eight in
the world in terms of foreign exchange earnings from the leather industry.
The percentage export of value added finished products have risen
continually by huge margins and the leather exports contribute 4 percent
of the total Indian exports. The Indian leather exports are expected to
reach a US$ 5 billion by 2010.
Indian leather market had been previously dominated by the small
scale industries. This was preventing the large scale development of the
industry. De-licensing of integrated tanneries, de-reservation of leather
goods from the small scale industries, free import and export of raw, semi-
finished and finished leather, concessional duty on imported machinery
and chemicals, setting up of leather parks and design centers are some of
48
the positive steps taken by the Indian government in the development of
the leather industry.
Metals
This is a key industry due to impact on various other core industries
including engineering, electronics, and infrastructure and auto industry.
As per IBEF report (Metals, 2006), India being a net exporter of
metals, the industry is a source for building foreign reserves. India is also
a rich source of several raw materials required for this industry.
Except for the presence of several unorganized players, there are
no significant weaknesses or threats for the development of this industry.
The government is now allowing 100 percent FDI to attract investors to
this market.
Oil and Gas
As per the IBEF report (Oil and Gas, 2006), in the year 2004, oil
and gas was the source most of the energy consumed in the world.
As per IBEF (Oil and Gas, 2006), India is the sixth largest crude oil
consumer and the ninth largest crude oil importer in the world. This sector
also has 5 Indian companies appearing in the Fortune 500 list of
companies. India also ranks sixth in terms of refining capacity.
49
70 percent of the crude oil demand in the domestic market is met
thru imports. Thus the country is highly dependent on the imports.
As per IBEF (Oil and gas, 2006), “Growing energy demand of India
and necessity to service that to ensure economic growth is not
compromised, presents business opportunities in the complete value
chain of oil and gas sector” (pg 12). The average CAGR (compounded
annual growth rate) energy consumption has grown from 3.8 to 6.3 in the
period between 1999 and 2005 and has also increased the GDP
contribution of this sector.
As per IBEF (Oil and gas, 2006),
India offers favourable investment climate across all the sub-segments of oil & gas. The regulatory regime of India permits Foreign Direct Investment (FDI) into petroleum sector without any constraints. Upstream sector investments are facilitated by licensing policy (NELP) which provides a conducive regulatory framework. A Downstream Petroleum and Gas Regulatory Bill awaiting enactment will set up a regulator to regulate downstream activities (pg 8).
As per IBEF (Oil and gas, 2006),
Exploration for domestic production growth, development of discovered fields, transportation of crude oil, gas and products, refining to service the petroleum product domestic demand and exports, retailing infrastructure; prospective blocks to encourage all these sectors provide business and investment opportunities (pg 12).
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Pharmaceuticals
As per the forecast of Organization of Pharmaceutical Producers of
India (OPPI), as stated in the IBEF report (Pharmaceuticals, 2006), the
pharmaceutical market in India is set to grow to a size of US$ 25 billion by
2010. Further as per the Espicom forecast, as stated in the same IBEF
report, the pharmaceutical market in India is however set to grow to a size
of US$ 11.6 billion by 2010.
The patients in India burdened are with 80 percent of the
healthcare payments, compared to 10-30 percent in the developed
countries as per the IBEF (Pharmaceuticals, 2006). Only 30 percent of the
Indians have access to modern medicine. The annual per capita
expenditure in India is just US$ 8 compared to US$ 170 in US.
As per IBEF (Pharmaceuticals, 2006), the changing demographics
of India as well as the increasing per capita income and increasing
education, is expected to increase the reach of proper healthcare to a
much larger middle-income population of about 300 million.
The government has gradually increased the focus of new product
development, drug patenting and reducing the number of drugs under
price control. All of these acts have had a positive impact in developing
the pharmaceutical market in India.
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Power
A growing economy needs increasing quantity of electricity for use
in various developmental activities, one of them being the increasing
industrialization. The Indian economy has been growing consistently at a
rate of 6-8 percent for the past decade. Hence the per capita consumption
of electricity in India has almost doubled from 350 units in 1998 to over
600 units in 2005.
As per IBEF (Power, 2006), the power sector in India has to grow at
a rate of 10 percent for the national economy to sustain a 7 percent
annual growth. The government of India is targeting a per capita
consumption of 1000 units by 2012. The target will also help the
government achieve the target of electricity for everyone in the country.
This clearly implies the tremendous development opportunity in this
sector.
Telecommunication
As of May 2004, the tele-density in India is about 7 percent. Most of
the tele-density is in the urban areas. The tele-density in the rural areas is
just 1.5 percent. Hence there is a tremendous scope for new business,
especially in the rural areas.
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The current tele-density of just 7 percent for a populous country like
India is definitely its weakness. However the government is definitely
taking adequate steps to improve the weakness of this sector.
As stated in the IBEF report (Telecommunications, 2006), and as
quoted by Morgan Stanley in December 2003, “In our view, the
Government of India has virtually deregulated every segment of the Indian
Telecom industry over the past two years” (pg 4). Some of the steps
undertaken by the government include “Issuance of Intra-Circle Merger
and Acquisition Guidelines provide investors an opportunity to take stakes
in existing telecom operations” (pg 15). This has increased the investment
opportunities.
Textiles
This sector is an important contributor to the Indian economy. As
per IBEF (Textiles, 2006),
It contributes 20 percent of industrial production, 9 per cent of excise collections, 18 per cent of employment in industrial sector, nearly 20 percent to the country’s total export earnings and 4 per cent to the GDP. The sector employs nearly 35 million people and is the second highest employer in the country. The textile sector also has a direct link with the rural economy and performance of major fibre crops and crafts such as cotton, wool, silk, handicrafts and handlooms, which employ millions of farmers and crafts persons in rural and semi-urban areas. It has been estimated that one out of every six households in the country depend directly or indirectly on this sector (pg 3).
53
As per IBEF (Textiles, 2006),
Indian textile industry contributes about 22 per cent to the world spindleage and about 6 percent to the world rotor capacity installed. It has second highest spindleage in the world after China with an installed capacity of 38.60 million. Indian textile has the highest loomage (including handlooms) in the world and contributes about 61 per cent to the world loomage. It contributes about 12 per cent to the world production of textile fibres and yarns (including jute). It is the largest producer of jute, second largest producer of silk, third largest producer of cotton and cellulosic fibre/yarn and fifth largest producer of synthetic fibres/yarns (pg 2).
As per the same IBEF report, “In terms of high-tech shuttleless
looms, the contribution of Indian textile sector is only about 2.8 per cent to
the world loomage” (pg 2).
The government has promoted several schemes like promoting
technology upgradation as well modernization of processing facilities to
further improve the output and offer a greater value for money. Foreign
investors can now invest up to 100 percent in this sector.
Highlights of Other Indian Industries
Defense
As per the CCG (2003), India is the 12th largest military spender in
the world and has the 4th largest army and air force. The defense industry
is open to private sector participation. Foreign participation of up to 26
percent is also allowed. Israel has been a major defense equipment
54
supplier to India. After 9/11, India’s defense cooperation with United
States has also increased. There are joint military exchanges, training
programs as well as joint efforts against terrorism.
Polymer
As per a report in Chemical Week by Alperowicz N (2006), growth
in various industries like automotive, electronics, food processing,
healthcare, packaging and telecommunications have resulted in a
phenomenal growth of the Indian plastic industry. The plastic consumption
is expected to rise over the next 5 years from 5kg/capita to 12.5kg/capita.
Research and Development
India lags behind China in this sector in a big way. As per an article
appearing in the Wall Street Journal, as per the Ministry of Science and
Technology on India, as of fiscal year end of March 2005, India’s total
domestic spending on R&D rose to an estimated 9.7percent to $4.9 billion,
or 0.77 percent of GDP. This was much lower than the R&D expenditure
of 1.3 percent of GDP or $29.4 billion in China. As per an announcement
by the China’s State Council, the same article in the Wall Street Journal
states that the country would seek to boost R&D investment to 2 percent
of gross domestic product in 2010 and 2.5 percent by 2020. Tax breaks
and other tools would be used to meet that target.
55
As per the report, talented returnees in China secure backing to
build up their own lab and extend their research in one direction for 10
years.
As per Govindarajan (2006):
India has made momentous progress over the last 10 years, but it has done so primarily by reverse engineering products introduced in the West, imitating solutions invented elsewhere, and being a low-cost outsourcing hub. If the country is going to continue to grow, it will have to learn a new set of tricks. It will have to become more innovative (pg 160).
Some of the exceptional Indian success stories are:
ITC’s e-choupal project
It has transformed the rural sector with the use of the power of digital
technologies to dramatically increase farm productivity and to help
farmers realize better prices.
Aravind Eye Hospitals
They provide world-class eye care at a very low cost to millions by
fundamentally reengineering the healthcare value chain
Tata Motors
It has led the way in designing, engineering and manufacturing a high-
quality automobile, Indica, cost competitively using 100 per cent
indigenous resources;
ICICI
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It has radically changed the rules of the game in the financial services
industry through such innovations as internet banking and electronic
payment systems.
Real Estate
As per a market analysis report in Foreign Direct Investment by
Thuermer (2006), as of March 2006, the real estate industry annual
growth averaged from 10 to 12 percent. The report has been mainly
attributed this increase to the upsurge in the commercial real estate on
account of the booming business process outsourcing (BPO) in India. As
per Rajarshi Datta, senior manager of DTZ Research India, the lease
rentals and occupancies are picking up; however there is a wide gap in
the availability of quality infrastructure. The real estate demand is likely to
go up further as the outsourcing boom enters the manufacturing sector
due to the latter’s generally high real estate need. As per the same report,
DTZ research also shows that the housing sector has been growing on
average at 34 percent annually. The report states that in 2005, the
hospitality industry grew by 10 percent to 15 percent.
As per Mr. Datta, the liberalization of FDI norms in the construction
development sector has also had a significant impact on the industry
growth. He also points that the willingness of the foreign investors to
57
commit billions of dollars in this sector, coupled with their understanding
that real estate investment requires a longer-term commitment,
demonstrates the growing confidence of investors in the Indian economy.
Banking
As per CCG (2003), government is gradually liberalizing this sector.
It was controlled by various state-owned and public sector banks for so
long, resulting in poor services, low profitability and non-transparent
functioning. The foreign banks are now being allowed investment equity of
49 percent and are allowed to setup subsidiaries as an alternate to
branches of the parent company.
As per IBEF (Banking, 2004-2006),
The stalwarts of India’s financial community nodded their heads sagaciously when Prime Minister Manmohan Singh said in a speech: “If there is one aspect in which we can confidentially assert that India is ahead of China, it is in the robustness and soundness of our banking system.” Indian banks have been rated higher than Chinese banks by international rating agency Standard & Poor’s (pg 1).
Insurance
As per CCG (2003), the FDI is currently capped at 26 percent.
Increasing this limit would result in attract more foreign players and also
deepen the country’s capital markets which will further stimulate the
growth of this industry.
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Tourism
100 percent FDI is allowed with automatic approval in this industry.
As per Vision 2020 (2002), the sector employed only 5.6 of workforce,
compared to the global figure 10.8 percent in the same period.
A new health tourist sector is now coming up in the country, and
bringing in lot of revenue for the health as well as the tourism industry. As
per IBEF (Tourism and Hospitality, 2004-2006), Healthcare tourism has
the potential to develop into a US$ 1.7 billion dollar industry by 2012.
Journalism
As stated by Tom Glocer, the CEO of Reuters, in an interview with
Friedman, the author of ‘The World is Flat’, “… India is an unbelievably
rich place for recruiting people, not only with technical skills but also
financial skills …” (Friedman, 2005, pg. 17). While the wages and rents in
Bangalore, India, were less than 1/5th that in West, it is very easy to get an
electronic version of a press release and publish the story in the same
manner as it would be published from New York or London, as Bangalore
is one of the most wired places in the world. Hence the response time,
one of the critical factors in the journalism industry, is very quick in
Bangalore (India).
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Further after the exposure of several scandals in Wall Street practices,
investment banking and stockbrokerage are being separated. The
resultant pressure to constantly lower the market research costs is further
increasing the pressure on the companies to increasingly outsource some
of their analytical work to Bangalore (India). As stated by Tom Glocer, the
CEO of Reuters, “… the pay of an analyst in Bangalore is about $15000 in
total compensation, as opposed to $80000 in New York or London…
Reuters has found that its Indian employees tend to be financially literate
and highly motivated as well…” (Friedman, 2005, pg 19).
India Forecast as per the budget for 2006-2007
As per the Economist Intelligence Unit of Economist.com (March
2006), the country’s economic boom is expected to continue at a
moderate pace. The real GDP forecasted growth in 2005/06 was 7.9
percent and is expected to drop to 7.2 percent in 2006/07. The same is
expected to drop further to 6.5 percent in 2007/08. The intelligence unit
also expects a strong domestic demand for oil coupled with the high
international oil prices is expected to widen the merchandise trade deficit.
At the same time, the surplus from success in services and transfer
accounts will limit the deficit and keep the inflation under control.
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The unit feels that the budget for the current fiscal year (2006/07)
reflects increasing spending on health, education, rural development and
infrastructure. The budget has also managed to include more people in
the tax bracket. However it does not include any major liberalization
initiative.
Factsheet
As per Economic Intelligence unit of Economist.com (March 2006),
Annual data 2005(a) Historical averages (%) 2001-05
Population (m) 1,095 Population growth 1.5 GDP (US$ bn; market exchange rate)
754.8 Real GDP growth 6.6
GDP (US$ bn; purchasing power parity)
3,746 Real domestic demand growth
6.8
GDP per head (US$; market exchange rate)
689 Inflation 4.0
GDP per head (US$; purchasing power parity)
3,419 Current-account balance (% of GDP)
0.2
Exchange rate (av) Rs:US$ 44.1 FDI inflows (% of GDP) 0.9 (a) Economist Intelligence Unit estimates.
Table 2.2: Factsheet From Factsheet. By Economist Intelligence Unit,
Economist.com: Country ViewsWire, Feb 2006, Retrieved on April
30, 2006 from website
http://www.economist.com.ezproxy.apollolibrary.com/countries/Indi
a/profile.cfm?folder=Profile-FactSheet
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The Economist Intelligence Unit (Economist.com, Feb 2006)
believes that “the government is committed to stimulating the agricultural
sector”; however it has to do a balancing act between stimulating the
agricultural sector and also reducing the fiscal deficit. Disinvestment and
reduction of subsidies in the agricultural sector would take a lot of political
effort (pg 1).
Factors Influencing Businesses in India
Demography
As per CountryWatch (2006 Country Review, 2006), as of 2004, the
population of India is 1,088,056,200. Further India has a total land area of
2,973,190 Sq. Km. and 7000 km of coastline. India has 16 languages and
the national currency is INR (Indian Rupee). India shares its boundaries
with Pakistan, Bangladesh, China, Nepal, Myanmar and Bhutan. (Refer to
the Appendix for the maps of India).
Further as stated in IBEF report (Telecommunications, 2006), as
per the population projects by the Planning Commission of India, the
working population in the age group between 15-64 years is expected to
increase from 59 percent to 65 percent or 882 million by 2020. The urban
population is also expected to contribute to 40 percent of the total
population.
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As per the opinion of a well-respected economist, and as presented
in CCG (2003), the market segments are differentiated on the basis of
consumption and not income. His research indicates that a population of
about 1 million strong wealthy class belongs to the top. The middle class
segment comprises of 28 million households purchasing consumer
durables and about 90 million households purchasing non-durables.
Comfort and personal transport were rated as priority by many.
Further a huge majority of India was found to live in rural areas
consisting of 627,000 villages. The rest of the population is located in
3700 towns, out of which 300 have a population of more than 100,000
inhabitants.
Human Development
As per CountryWatch (2006 Country Review, 2006), the average
literacy rate in India is 52 percent. The life expectancy at birth is 63.23
years and the infant mortality rate is 61.47 deaths/ 1000 live births. Further
the HDI ranking for India is 127.
Free Trade
As per Mitra B.S. (Dec 2005):
The per capita income of Hong Kong is $27,179 using purchasing power parity, and India's is a meager $2,892. Two global indices-The Heritage Foundation's Index of Economic Freedom and the
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World Bank's Doing Business 2005-indicate that the divergent outcomes in Hong Kong and India are not mere coincidences. These indices show that restrictive and bureaucratic economic policies contribute to delays and bottlenecks which adversely affect the performance of businesses of all sizes. The contrast is equally glaring in the two countries' trade regimes. While Hong Kong averages close to the rich countries in all categories, India takes almost three times as long to complete import and export procedures. As for international trade, India's problems stem not from too much trade in goods and services, but too little. In 2002, India's total exports and imports stood at $87.7 billion and $74 billion respectively, in 1995 dollars. For tiny Hong Kong, the corresponding export and import figures were $321 billion and $301 billion respectively. Clearly the problem of any poor country is not that it trades too much, or is flooded by foreign imports, but that it trades too little. Even in relative terms, India's share of world trade has fallen to 0.8% today from 1.5% in 1950 (pg 3).
Taking lessons from the progress of its neighbors, India now allows
foreign investment up to 100 percent in special zones like the EPZs,
STPs, EHTPs and EOUs.
Taxation
As per Economist.com, (Feb 2006), the taxation in the
country is very high compared to international standards and is also the
major impediment to trade within the country. The current personal and
the corporation tax for the companies of Indian origin is 30 percent and for
the foreign companies, the same tax is set at 40 percent. There is also a 2
percent hypothecated tax to improving education. A 10 percent tax on
distributed profits is applicable to all companies.
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Macroeconomic data
As stated in IBEF report (Telecommunications, 2006), India has
been one of the fastest growing democracy over the past decade. Further
as quoted in the same report, as per Goldman Sachs, India is expected to
have the potential to continue to be the fastest growing economy for the
next 30-50 years and be the third largest economy over the next 50 years.
Further as per another study, the IT and the ITES sector in India is
expected to employ about 4 million people. The contribution of the IT and
the ITES sector is also expected to grow from 2.4 in 2002-2003 to 7
percent of the nation’s GDP in 2008.
India’s Strategic Partnership And Membership
As per CountryWatch Review (2006),
India's size, population and strategic location give it a prominent voice in international affairs, and its growing industrial base, military strength, and scientific and technical capacity give it added weight. It collaborates closely with other developing countries on issues from trade to environmental protection (pg 59).
Further as per Gupta A. (March 12, 2006):
It's raining trade pacts. The government has inked a Comprehensive Economic Cooperation Agreement with Singapore, free trade agreements (FTAs) with Thailand and Sri Lanka, and a South Asian Free Trade Agreement with its neighbours. On the anvil are FTAs with the Association of South East Asian Nations (ASEAN), Egypt and Chile and the Gulf Cooperation Council (pg 3).
65
Chinese Advantage over India
As per Chandler C. (September 2005), foreign investment and
manufacturing have led China's economy. India's human capital
development on the other hand, lags way behind. Further China has made
doing business easier and more lucrative. The average time to start a
business in India is 71 days. The comparative period in China is just 48
days. The average time to export goods in India is 36 days, while in China
it is 20 days. The market capitalization of listed companies in India is $387
billion and in China it is $640 billion.
Indian Advantage over China
As per Businessline (Feb 2006):
… China does not have a developed entrepreneurial class like India and, hence, it is dependent on the foreign capitalists and foreign capital compared to India, which has a burgeoning entrepreneurial class. Made in China is not same as made by China. India has a phenomenally well-developed capitalist class which can set up world-class automobile, steel, petrochemical and cement plants (pg 2).
Further India's stock market has been growing continuously in
recent years. However the picture is reverse in China. The Shanghai
Stock Market index reached more than 2,200 points in 2001. However by
April 2005, the Shanghai index slipped to 1,135 points. “The sharp decline
occurred even when the GDP was growing at 9 per cent a year.” China is
66
“a combination of excellent macroeconomic performance and dismal
microeconomic performance. The reasons are to be found in the structure
created by foreign FDI, much of which is not even listed” in the stock
exchange (pg 2).
Steps Taken Towards Globalization
As of 2002, the Indian government converted its balance of payment
position to that of an account surplus of $1.35 billion by sale of special
bonds to non-resident Indians. Further as of April 2002, state-owned
enterprises adopted an 8-digit harmonized classification code as per the
ITC import coding requirement. The Customs and DGFT was expected to
shortly follow suit in adopting the 8-digit code to eliminate classification
disputes and reduce transaction costs and time. The government also
proposed new project initiatives to provide substantial market
opportunities for generating power. The government had begun setting up
several EPZs and FTZs across the nation to attract foreign investment in a
big way.
As per Gupta A. (Mar 12, 2006):
The government has inked a Comprehensive Economic Cooperation Agreement with Singapore, free trade agreements (FTAs) with Thailand and Sri Lanka, and a South Asian Free Trade Agreement with its neighbours. On the anvil are FTAs with the Association of South East Asian Nations (ASEAN), Egypt and Chile and the Gulf Cooperation Council (pg 1).
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The rules for foreign direct investment in India have changed
frequently towards de-regulation. Foreign banks have begun setting up
subsidiaries in India, instead of branches of the parent company. Further
as per the EXIM policy of 2002 – 2007, in most instances, imports are
being permitted without license. As per CCG(2003), India had reduced
import tariff to 35% ad-valorem; the figure was still high as per
international standards.
Further as per CCG(2003), quantitative restrictions have been
removed from 715 items consisting of 342 textile products, 147 agricultural
products including alcoholic beverages and 226 other manufactured
products including automobiles in an attempt to further liberalize the trade
policy. Some of the tariff barriers on an approximate list of 300 sensitive
import items have been replaced by tariff adjustments and anti-dumping
duties. The import trends on these items are also being closely monitored.
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CHAPTER 3: METHODOLOGY
Approach
As per Stake (1995), and Yin (1994), case study evidence can be
derived from information available in various documents, archival records,
interviews, direct observation, participant-observation and physical
artifacts. The documents could include letters, memoranda, agendas,
administrative documents, newspaper articles, or any document
containing material related to the subject of investigation. The documents
can be used to corroborate the evidence from various other sources as
well as making inference about various events that impact the subject of
investigation. Archival documents can be service records, organizational
records, lists of names, survey data, and other such records. Each
document needs to be evaluated for the accuracy of the records before
using them.
Interviews are yet another important source of case study
information. They can be open-ended, focused, and structured or survey.
Open-ended interviews may propose solutions or provide insight into
events or corroborate evidence obtained from other sources. The focused
interview is used in a situation where the respondent is interviewed for a
short period of time, usually answering set questions and is used to
69
confirm data collected from another source. The structured interview is
similar to a survey, and is generally used to gather data. The questions
are detailed and developed in advance, much as they are in a survey.
Direct observation occurs when a field visit is conducted during the
case study. Participant-observation makes the researcher into an active
participant in the events being studied. Physical artifacts can be tools,
instruments, or some other physical evidence that may be collected during
the study as part of a field visit. As per Yin (1994), in certain instances, a
case researcher must start data collection before the study questions have
been defined and finalized.
Further as per Hamel (Hamel et al., 1993) and Yin (1984, 1989a,
1989b, 1993, 1994) the relative size of the sample is irrelevant. One can
use any number of cases. The goal of the study should be to establish the
parameters, which can be applied to all research. Thus one can even
select a single case for research, provided it met the established objective.
SWOT analysis further helps to create a framework to do situational
analysis of the entity being analyzed. SWOT analysis as a framework was
first described in the late 1960s by Edmund P. Learned, C. Roland
Christiansen, Kenneth Andrews and William D. Guth in Business Policy,
Text and Cases (Homewood, IL: Irwin, 1969).
70
The current research derives evidence from information available in
various documents, archival records, interviews, direct observation,
participant-observation. The researcher has been personally experienced
the development of India due to her Indian roots. The researcher has also
extensively traveled throughout India for the past several years. Further
the researcher has had first-hand experience of the industrial trends in
core industries like IT and pharmaceutical and education in India. The
researcher therefore relies on her own experience as well as the
experience and views of other people with Indian roots residing in and
outside India and closely related to the economic trends in India. The
researcher uses focused interview to obtain the views of the respondents.
All the inputs from the various sources are then combined and the SWOT
analysis framework is used to do the situational analysis of India to identify
if the country is comfortably positioned to achieve the vision set by the
Planning Commission of India.
Data Gathering Method
The case study evidence study and interview method enables the
researcher to compare the data from various sources and derive intelligent
inferences based on several facts presented in various sources.
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Further the questions used in the focused interview have been
developed in advance, based on the evidence gathered by the researcher
from various sources of documentation. The focused interview was
particularly chosen as the respondents were interviewed over the phone.
Each interview was therefore conducted for a short period of time, with the
respondent answering set questions. The responses were used by the
researcher to confirm data collected from other sources.
Databases of Study
The study included the detailed research data provided by the
expert team involved in the creation of Vision 2020. Data from various
academic texts on the subjects of International Business, International
Trade and International Finance was also included for this study. TIFAC
(Technology Information, Forecasting and Assessment Council, yet
another source for the data, is an autonomous organization under
Department of Science and Technology in India.
The study further included the data available from country
databases like CountryWatch and IBEF. The former provided country-
specific information on fundamental, demographic, socio-cultural, political,
economic, investment and environmental information related to the
country in focus (India). The latter is an initiative of the Ministry of
72
Commerce and Industry, Government of India, and produces a wide range
of well researched publications focused on India’s economic and business
advantages. IBEF collects, collates and disseminates accurate,
comprehensive and current information on India. The Country Commercial
Guide (CCG) provided by the U.S. Commercial Service was also included
in the study. The CCG described the economic and commercial
environment of India and also highlighted the potential market sectors,
trade regulations, contact lists and commercial programs of the
commercial services in the country.
NASSCOM was yet another important database used for the
study. NASSCOM is India’s National Association of Software and Services
Companies. It is India’s premier trade body and Chamber of Commerce
for the IT and services industry. Leading Indian and global trade
publications like Economic Times, Businessline and Business Today were
included in the study. The latest executive insights and the top IT
predictions provided by IDC were also included in the study. ICT is a
premier global provider of market intelligence, advisory services, and
events for the information technology, telecommunications, and consumer
technology markets. ICT is a subsidiary of IDG, the world's leading
technology media, research, and events company.
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The study further included data available in some academic texts
related to developing economies with specific focus on India. The authors
of the texts have been highly appreciated for their understanding of the
subject and their various recommendations have been adopted by various
business professionals across the world.
Validity of Data
The data from the research conducted by the Planning Commission
had been the result of the research and deliberation of a team of 30
experts from different fields over a period of more than two years. The
data had been certified by Planning Commission of India. TIFAC has been
jointly responsible for conducting the research for Vision 2020 along with
the Planning Commission of India. The other databases like IBEF, CCG,
CountryWatch and NASSCOM are all responsible organizations involved
in conducting continuous ongoing research on India as a formal activity.
The publications like “Economic Times”, “Businessline” and
“Business Today” and some others are some of the popular publications
and the opinions presented in these publications include opinions of
leading industry experts and hence can be taken as a valid data source.
Hence the data collected from all of these sources is reliable.
Further the respondents chosen for focused interviews included various
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business leaders, professionals and entrepreneurs chosen on the basis of
their current professional role and the industry that they operate in. They
have been either business owners or people from the senior management
or independent professionals and are closely associated with the changing
face of the Indian economy within the nation as well as globally. All the
respondents have been chosen from the core industries that are expected
to contribute significantly to India’s economic growth. The researcher
herself has a first hand experience of various industries included in this
research, as a past resident of India. The researcher is also a frequent
traveler of India and hence has a detailed knowledge of the various
cultures and industries and demographic trends in the country. The
researcher is also benefits from the knowledge and experiences of family
and friends residing in India and experiencing the various economic trends
in the various industries in India.
Originality and Limitation of Data
Most of the data from TIFAC, IDC, CCG, CountryWatch and
NASSCOM is original content from the primary research conducted by the
respective organizations. The analysis of the various industry experts in
the various trade journals is most often the writer’s opinion based on the
writer’s expertise and analysis of the data available from research
75
elsewhere as well as from actual trade figures and economic events
impacting the nation in the domestic and the international market. The
researcher is herself knowledgeable on the various trends within the
country and hence her views are original and generally unbiased.
Further the data from the text “The Fortune at the Bottom of the
Pyramid” by C.K.Prahlad has been the outcome of a detailed survey
conducted by a team of MBA students from University of Michigan
Business School (UMBS) across various Peru, Brazil, Nicaragua, Mexico
and India. C.K.Prahlad and his team have been widely appreciated for the
work done on this book. Several industry experts have also successfully
implemented some of the recommendations made by the writer. Hence
one can safely claim that the data presented in the book is original as well
as valid for the scope of the current study.
Now as mentioned in the earlier paragraph, India is supposed to be
a home to almost 16% of the world’s population. As of 2004
(CountryWatch), India had a population of 1.08 billion, and total land area
of almost 3 million sq kms. and a coastline of 7000 km. There are 16
languages spoken across the country. Further people from at least 3
ethnic groups and 6 religions reside in India. It would be very difficult and
very expensive and time consuming to interview a large sample of
population including each ethnic and cultural group for this study. Further
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the interviews were conducted using long distance communication
methods due to geographical limitations between India and United States.
The interview population was selected on the basis of the writer’s
perception of the knowledge of the individuals of their respective
industries. The data limitation therefore does exist in the interview method
as the researcher is unable to observer the various physical mannerisms
of the respondents as the same can provide various vital clues that can
further validate the truthfulness and validity of the responses.
Summary
The current research derives evidence from information available in
various documents, archival records, interviews, direct observation,
participant-observation. The methodology adopted in this study includes
review of data from various available documentation. This information is
further supplemented by the individual opinions of various professionals
and business owners obtained by conducting their focused interviews over
the phone.
The various data sources included for this study are reports and
articles presented by experts around the world thru various print media
and various interviews and related material presented in various academic
texts. The actual data presented in the Planning Commission Report by
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the Planning Commission of India during the creation of the India Vision
2020 as well as the information presented in Country Commercial Guide,
a service offered by the US Department of State are also included. The
research also includes a lot of interesting information from various IBEF
reports on the core industries in India. Finally individual reviews are
obtained from various industry experts, professionals and business
owners to support or oppose the other views.
The data obtained from all of the historical sources is valid, as it is
obtained from official sources of the Indian government and US
government, as well as from other journal and other academic sources
that are traceable. Further the experts’ opinions belong to people who are
known for their knowledge of the subject. The sample population
considered for the survey also represents wide range of industries that
can significantly impact the growth of the India domestically and
internationally. The researcher too has personally experienced the various
economic trends in India.
The limitation of the study is the size of the sample population as
well as the geographical distance separating the interviewer and the
interviewee. The long distance communication does not allow the
interviewer to make some observations based on the interviewee’s
reactions during the interview.
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However all the sources of data combined together form a very
exhaustive databank, and iron out the inadequacy of the data collected
from each individual method. Finally the SWOT analysis helps in
conducting an environmental scanning of India in the current global
scenario. It also helps in risk management for India.
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CHAPTER 4: DATA ANALYSIS
As stated under the section explaining the research approach, the
size of the sample can be any, as long as the study sufficiently establishes
the parameters for the research. Even a single case could be acceptable,
if it establishes the right parameters. The researcher interviewed 15
people representing different industries to further analyze the current
research subject. They were mainly from the core industries discussed in
the current paper. Each participant was interviewed for their respective
industries. The researcher tried to understand the various developments in
the core industries and further assimilate supportive data for the current
research through the observations of the participants from the sample
population.
Each interviewee was asked the following questions on one
industry as per the experience of the interviewee:
o What are major trends in the industry impacting Indian economy
and how?
o What are the significant steps taken by the Indian government
towards the development of that industry?
o How is the progress of India compared to China?
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o How is the progress of India compared to potential of the
country?
o Can India achieve the target set for the industry as per the
Planning Commission’s Vision 2020?
o What are the most common factors causing frustration within
the industry?
The interview population included the following:
o Anil Budhwani (Independent Financer)
o Anamika Mukhopadhyay (Entrepreneur – Event Management
and Turnkey Projects)
o Bhushan Kulkarni (CEO and Owner – GDI Infotech and NRI)
o Hemant Rustagi (Entrepreneur – Mutual Funds and Insurance)
o Marwah (R&D Engineer)
o Dr.Rachna Mehta (Ayurvedic Practitioner)
o Ranbir Thakur (Partner – Shivam Transport Services)
o Umesh Kadam (Project Manager – Tata Infotech)
o Umesh Kotwani (Director – Superstar Machining Solutions)
o Usha Thakur (Yoga Expert and Alternative Medicine)
o Seema Nair (Chairman – Target India Pvt. Ltd)
o Dr.Sumukh Deodhar (Dental Surgeon)
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o Shekhar Surve – (Senior Sales Manager – Godrej Chemicals)
o Vasudha Dhumal (Assistant Commissioner – Sales Tax)
o Vineet Sharma (Head Recruiting – GDI Infotech)
The sample population represented the following industries:
o Agriculture
o Auto-electricals and spare parts manufacturing
o Automobile and ancilliary industry
o Banking and Finance
o Chemicals
o Dentistry
o Direct Selling
o Engineering Services
o Healthcare, Physical Therapy and Alternative Medicine
o Insurance
o Medicine
o Mutual funds and financial investment
o R&D
o Software Industry
o Sales Tax
o Transportation
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Individual Interview Results
The review generated by combining all the individual observations
suggested that the interview population generally felt that India is definitely
being recognized as a leader in the software and IT related service
industry. As per the review, a lot of potential exists for domestic as well as
foreign businesses in the insurance sector in India. The participants felt
that more people can be provided education and employment thereafter
by establishing private vocational training institutions. This can improve
the reach of education to many more people across different economic
conditions. This can also help tremendously in improving the knowledge,
understanding and reach to remote areas even for insurance industries as
well as companies involved in direct selling.
The review also brought forth a general belief that the government
on India should promote more initiatives similar to e-Seva and e-Choupal.
This would increase the reach of internet to wider segment of people in
the rural as well as urban areas. This would also reduce the corruption
levels by improving the knowledge of the common man and reducing the
unnecessary interaction with bureaucrats and corrupt officials.
The infrastructure and the bureaucracy are the most common
causes for frustration within the nation. The Indian government needs to
take faster steps to improving the country’s infrastructure. The better
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infrastructure will improve the domestic as well as international business
for the nation. It would also help in improving the living standard across
the nation. All of these would help attract foreign businesses, investors as
well as Non-Resident Indians back to their homeland.
The improvement in the infrastructure within the country will also
have a positive impact on the agricultural industry as well, as the improved
infrastructure will improve the distribution network across the rural as well
as urban areas.
The government should offer greater incentives for NRIs as well as
students going abroad to pursue their studies. This will help to reduce and
also reverse the pace of brain drain from the country. All believed that
quality education should be the right of each and every citizen of India. A
tremendous scope also existed for offering online medical service from
India to people across the globe.
The review further suggested that the Indian government needs to
improve the budget allocated for research work. There is a shortage of
engineers entering into the R&D sector due to lack of funds and various
bureaucratic issues. Further the reach of banks is still limited to urban
areas and only some portion of the rural areas. Banks need to be
accessible to all people across the nation. The access to the banks via
internet would be the preferred as the same would improve the ease and
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flexibility of banking as improved bank access will be available to many
more people.
Tourism industry needs to be developed within the country. The
industry will help in bringing in valuable foreign currency that can be used
to improve the country’s resources.
The review also showed that India is currently believed to be a
preferred destination for outsourcing manufacturing of automobiles and
ancillary products due to availability of better English-speaking and cheap
labor as well as raw materials. India also scores in the quality of service
provided.
The review further showed that many believed that a tremendous
scope exists in the direct selling industry in India. The industry has a
potential to penetrate the remote areas of the country and improve the
availability of the various consumables as well as non-consumables. The
industry can also be a gold mine in terms of providing employment to
people.
The tax structure is however still high for many industries. The state
taxes and other taxes are also significant sources of financial expenses.
Telephony and mobile communications need to be made accessible to
more population. This can have a positive impact on the overall
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infrastructure by improving the transportation, communication as well as
distribution network within the nation.
As per Wilson B.A. and Keim G.N. (Jan 2006), from the period of
1950s to 1990s, India’s economic regulations severely restricted the
growth of private enterprises. The private enterprises could not lay off
workers or close operations even if the conditions were not favorable to
sustain business. Further the bank lending activities were driven by the
government targets; hence were highly inflexible and not in favor of private
enterprises. Several trade barriers like high tariffs, quotas and licensing
requirements further restricted foreign transactions.
All of the above resulted in a GDP growth of barely 1 percent up to
1980s. The government effort to increase fiscal spending in 1980s
improved the GDP growth in the 1990s to about 3.6 percent. However the
increased government expenditure doubled the fiscal deficit to 7 percent
of the national GDP, thus negating the positive impact of improved GDP.
The continued increase in the fiscal deficit reduced the national reserves
of foreign currency causing a severe balance of payment crisis. This
forced reduction of restrictions on capital inflows, domestic industry
regulations, exchange flexibility and liberalization of trade to improve the
nation’s cash reserves.
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India – SWOT Analysis
As stated in the section explaining the research methodology, the
current research combines the evidence from information available in
various documents, archival records, interviews, direct observation,
participant-observation. The researcher further combines her personal
experience and her knowledge of India from her Indian roots, as well as
the experience and views obtained from focused interviews of some
industry experts with Indian roots residing in and outside India and closely
related to the economic trends in India.
All the inputs from the various sources are then combined and the
following SWOT analysis is done to perform the situational analysis of
India, to identify if the country is comfortably positioned to achieve the
vision set by the Planning Commission of India.
The SWOT analysis includes the observations from the analysis of
the various core industries in India along with several other economic
factors required for the growth of the nation. It also includes the various
challenges facing India as well as the potential opportunities to overcome
the challenges and succeed in the nation’s quest for significant economic
growth.
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Strengths
India has a major advantage in its English speaking workforce, that
is also trained in designing and machining skills as is required by many
industries like Automobiles, Chemicals, Engineering and many more.
Indian workforce is also more highly regarded and valued
compared to all other competition in these sectors due to the country’s
capability to have a large number of low cost, skilled resources and overall
good quality.
The size and growth of the domestic market in India is yet another
positive point that can help India economy to overcome the Chinese
threat.
The low cost skilled labor, large domestic market with good future
growth expectations, presence of supporting industries as well as
supportive government policies are strengthening the chemical industry as
well.
The increased acceptance of Indian goods in the developed nations
like US and European Union is yet another strength of India.
The large consumer market, growing economy as well as the
popularity of the entertainment sector with the masses are one more
strength of the Indian economy.
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The next strength is the easy accessibility to wide ranging cost-
competitive raw materials, well-developed supply chain network, as well
as India’s proximity to various developing markets of the world.
India is one of the largest producers in the world for several
agricultural products like rice, wheat, pulses, cotton, sugar, sugarcane,
peanuts, jute, tea, spices and coarse grains as well as fruits, fish, poultry
and vegetables. It ranks third in the overall agricultural sector and follows
USA and China.
The huge future demand in the food processing sector as almost 70
percent of India’s population depends upon the agricultural activity for
livelihood is yet another strength.
India is also the largest producer of milk in the world and is also on
the verge of assuming an important position in the global dairy industry.
India is the second largest producer of cement and also the fastest
growing market in the world, having a market share of 6 percent in the
production of cement. It also offers the highest cost advantage to the
customers.
The low cost skilled labor, the untapped vast natural resources,
favorable government policies, the love of Indians for jewelry, as well as
the increasing acceptance of Indian jewelry exports are the indications of
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the vast potential of the gold and jewelry industry and also the Indian
economy.
India has the largest gold market in the world and the domestic
producers have a definite advantage over foreign businesses due to the
keen understanding of the cultural values, beliefs as well as the emotional
bonding of the consumers with gold. Employing almost 80 percent of the
world’s skilled diamond cutters offers the nation the rare advantage of
literally owning the diamond cutting business.
The liberal FDI policies, development of specialized and supporting
infrastructure along with improved quality and quantity of knowledge
resources as well as government’s commitment to address security
concerns are the strength of the Indian IT and ITES industry. The
continual high growth in the industry and the huge untapped market, the
cost-effective skilled resources are some more strengths of the country.
The time-zone difference is yet another strength of the ITES
industry in India as it allows the customers to have a 24X7 service.
India’s strategic advantage due to its geographical location is yet
another significant strength due to its own capability to generate huge
returns by the resultant increased demand in housing and commercial
space due to improved living standards by the initial investment made to
improve the infrastructure.
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The availability of low cost skilled labor, raw materials, institutions
supporting the development of the leather industry and the presence of
favorable policies and large and growing domestic market are the
strengths of the Indian leather industry.
India is also the third largest producer and consumer of leather in
the world and also ranks eight in the world in terms of foreign exchange
earnings from the leather industry.
A well-established and growing domestic market for metals and its
positive impact on the growth of the related industries like engineering,
electronics, and infrastructure and auto industry is again a strength of the
Indian economy. India being a net exporter of metals, the industry is a
source for building foreign reserves. India is also a rich source of several
raw materials required for this industry.
The telecom market has consistently been growing at a high growth
rate. Almost 20 percent of FDI in India is from this sector.
The labor requirement is very high in the textile industry too. The
large labor and raw material resources are major strengths of the Indian
economy propelling it towards becoming a global leader in the textile
industry.
India’s another major strength is the low cost medical care with no
compromise in quality of the treatment. The medical tourism segment is
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growing at a very rapid rate due to the low cost, high value specialist
medical care offering. Patients from developed as well as other developing
nations are coming to India for treatment from cardiac ailments to eye care
to ayurvedic healing, and the number is continuously rising. The segment
is expected to bring in annual revenue of US$ 2 billion. Many US
insurance companies are also partnering with Indian hospital chains for
treatment of the patients. The heart surgeries in India cost about one-fifth
the cost in United States. Further India, with its rich heritage of providing
alternative medical therapies offers a unique mixture of yoga, meditation,
ayurveda, allopathy and other systems of medicine. These are often very
cost effective and yet very effective in the treatment.
The Indian pharmaceutical market ranks fourth in volume, 13th in
value in the world and constitutes 1.6 percent of the world pharmaceutical
market. The Indian pharmaceutical market has witnessed several
successful new product launches in the recent years.
The nation’s strength in IT as well as a well-established
pharmaceutical industry are benefiting not just the IT and pharmaceutical
industries. It is also further making India a strong contender for attracting
investors to the biotechnology sector as well. India with its vast knowledge
base in biotechnology, is rapidly becoming the topmost vaccine producer
of the world. India’s progress in stem cell research, the resultant
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breakthroughs as well as the growth rate of over 50 percent in the
bioservices sector and 150 percent in the agribiotech are yet another
positive points in favor of the Indian economy.
The Indian biotech industry is all set to reach a target of US$ 5
billion in revenues. The size of the domestic market and the resultant
demand makes India an attractive market as well as a potential partner for
developing and manufacturing such products.
The MoUs with countries like Denmark and Netherlands for
technical partnering involving exchange of various experts, performing
joint training programs as well sharing intellectual property are some of the
strengths of the biotechnology sector as it heralds the inflow of new
technology that can further boost the nation’s progress in this sector.
India is also the fifth largest and one of the fastest growing power
markets in the world.
India also has the largest retail outlet density in the world consisting
of small, unorganized stores.
The rapid growth of India along with its strategic partnership with
US, China as well as its increasing trade relationship with European
countries as well as member countries of the ASEAN group and other
Asian countries has considerably reduced the ability of Pakistan and/or
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Bangladesh to slow down India’s economic growth. This has reduced the
security risk on the Indian borders.
Further India’s pressure on the Nepal’s monarchy to bring back
democracy in Nepal has shown India’s responsible conduct as a global
citizen, and is yet another strength of the nation.
India’s policy of self-sufficiency helped the country carve a niche for
itself even in the presence of a powerful neighbor like China and the
continuous threat to its borders from Pakistan, Bangladesh and China.
India falls in the ‘Medium Human Development’ category and is
ahead of its neighbors viz. Nepal, Bhutan and Pakistan.
Indian banking industry is more comfortably placed against China’s
baking industry. The industry is global in many ways like having
international prudential accounting norms, offering scope for disclosure
and transparency in the banking practices. Further the Indian banks are
technologically at par with their global peers. The banking system is today
becoming a picture of consolidation of several small banks to form a
nation of small number of large banks. The banks, mainly the private
players, are benefiting tremendously from the growth in the retail industry
too.
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Weaknesses
The less access to the latest technology is presently a weakness of
the auto industry as well as the textile industry and hence of the Indian
economy. However the future definitely appears to be very different.
The low density of the theatres as well as limited access to the
various entertainment media, for a huge section of population is a
weakness.
The current popularity of low cost, non-branded items and the low
per capita income is a weakness of the FMCG industry.
There is still a substantial amount of the population living on less
than US$ 2 per day, who cannot afford sufficient food. The preference for
branded products obviously comes much later and is hence currently a
weakness of the food processing sector as well.
The largely unorganized is a weakness of the gold and jewelry,
metals and the related export industry.
The current low per capita of the nation is a weakness as it restricts
the access of many people to good healthcare facilities. The limited
access to proper healthcare to many is a threat to the overall health of the
nation as the poorer segment is generally more prone to infectious
diseases that spread across to many more people quickly. Further the
budgetary constraints have reduced the capital available for healthcare
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spending in the government hospitals, thus making the healthcare further
out of reach of the poorer segment that cannot afford fees for the private
hospitals.
The lack of education compared to the need for the knowledge
resources is a weakness for the Indian economy and can restrict the
growth of the nation in IT, ITES and several other industries that are in
need of these resources.
The need to improve the infrastructure is immediate and also
immense and needs huge investment. This along with the typical
bureaucracy of the nation’s politicians is the largest weakness of India.
While the brand awareness has increased in the rural areas, the
poor rural infrastructure has resulted in a drop in the demand for some
products.
Further due to lack of credit facilities, the rural purchases are
mainly from the disposable income for the household. This further restricts
the rural purchases.
India is a growing economy and has a huge need for power.
However power is expensive and a significant amount of the current
population still lives under US$ 2 per day. The country therefore needs to
find means to make power production and distribution less expensive to
the increase its access to more number of people.
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Power theft is also still very popular in different parts of the country.
The lack of sufficiently strong anti-theft measures by the government as
well as efforts to make power less expensive and more easily available is
a weakness of the nation.
India is the largest bank of trained human resource bank available
at competitive cost. However India still lacks the speed to innovate and
market electronics with latest technology.
Hong Kong’s free trade policies against the policy of self-sufficiency
adopted by India resulted in different numbers for both the countries. The
economy of Hong Kong is today way ahead of India. The lower economic
figures of India are definitely the nation’s weakness.
India falls in the ‘Medium Human Development’ category and thus
falls behind other Asian countries in the segment like China, Sri Lanka and
Indonesia.
Customs duties have been substantially reduced, however they are
still high compared to international standards.
Opportunities
The Indian market offers low cost, highly skilled workers. The food
processing and the packaging sectors offer tremendous potential for
outsourcing and hence also offer opportunities for employment.
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IT and biotechnology are also set to reach new heights due to the
advantage of low cost, highly skilled labor.
There is a tremendous potential for investment in rural, physical
and financial infrastructure to offer the labor sufficient resources for
conducting agricultural business.
The offer of Insurance coverage to mitigate various risks in the
agriculture sector is yet another business opportunity for many investors in
the Indian economy.
The diversification of the crop portfolio is helping the nation to
capitalize on the nation’s diverse climate and soil conditions. The
horticultural boom is also helping to alleviate poverty and generate
employment in the farming and non-farming sectors. The floriculture
industry is also growing at the rate of 17 percent annually.
The agricultural sector needs to improve on the available
infrastructure for cold storage, refrigerated transportation, rapid transit,
grading, processing, packaging and quality control to maximize the
investment opportunities as well as the profitability from this sector. This is
an indication of the investment opportunities to bring about these
infrastructure changes.
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The liberal FDI policy along with removal of quantitative restrictions
and reservation policies are having a favorable impact on the FCMG
sector and are attracting greater investment.
The changing age profile of the Indian population to a relatively
young group is also increasing the overall consumption of products in the
FMCG sector. The changing lifestyle is further increasing the demand for
branded items that are ready-to-cook and ready-to-eat.
The vast pool of natural cost-effective resources along with the
changing demographics in the world’s largest domestic market and the
favorable government policies is a huge attraction in the food processing
sector too due to several profitable investment opportunities.
The continuously increasing young and prosperous consuming
class in India, with an annual income of US$ 980 and above, is expected
to further boost the sales in the domestic automobile segment. This is
particularly significant as, currently almost 23 percent of the global
population resides in India, making the country one of the most attractive
consumer market in the world.
An increased number of Indians are also traveling overseas. An
increasing population of working women has resulted in the creation of
new consumer segments like working women, young executives and
teenagers, besides increasing the overall global exposure, income and
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prosperity for the family. The same is bound to further boost the
automobile sales.
There is also an increase in the growth of the automobile
component industry as well.
The government of India has also identified automobile industry as
one of the target industries for improvement, and is targeting to double the
contribution of the auto industry to India’s GDP by 2010.
Custom duties have been reduced in various segments of this
industry.
The development of infrastructure as well as ease of financing are
expected to further boost the sales of the auto industry.
Research and engineering centers setup by leading auto
manufacturers like GM and Ford, have emerged as key technology
research centers in a short span of time for the respective organizations,
thus indicating the tremendous investment potential in the Indian
automobile segment. All sectors in this industry are expected to grow. All
of the above factors set the stage for tremendous opportunities and a
positive growth in the automobile segment.
The several MoUs with countries like Denmark and Netherlands
herald the inflow of new technology that can further boost the nation’s
progress in this sector.
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The various acquisitions in the biotechnology industry by leading
global firms in India are further opening the Indian market to vast
opportunities promising good ROI.
Several investment opportunities exist in crop biotechnology as
well.
The rapid growth in various sub-sectors in biotechnology like
vaccines, therapeutics, diagnostics as well as other biotechnologies
further implies the tremendous growth opportunities for the Indians in
biotechnology.
The demand for cement is related to the growth in the construction
sector. As the per capita income of the country continues to increase, the
demand for improved infrastructure is bound to increase. The same is
hence bound to result in lots of opportunities for increased consumption of
cement. The increased demand will further help the various firms to
improve the optimal utilization of their manufacturing capabilities and thus
help in gaining from production efficiencies as well.
India further has tremendous export opportunities due to its
proximity to various growing markets in the Asia Pacific region. The
availability of various natural resources like limestone, in abundance as
well use of cost efficient technologies offer further potential stimulus the
cement sector in the country.
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The low per capita consumption of cement coupled with the faster
growth rate is a clear indication of long term investment opportunity in this
sector that is bound to get greater returns. The industry also has a
tremendous scope for expansion as well as consolidation, thus providing
ample profitable investment opportunities.
The combination of low cost and high quality advantage for India
over other global manufacturing bases can help the country to earn a
substantial chunk of engineering business from developed countries like
United States.
The opening of the sectors like power, roads, ports, construction,
mining and pharmaceutical to private sector participation as well as
increasing the FDI limits in these industries has automatically impacted
the FDI in the engineering sector as well.
Various other initiatives like removal of tariff protection on capital
goods, delicensing of heavy electrical, as well as initiatives to improve the
quality and quantity of power generation are also improving the growth in
the engineering sector.
The progress of the engineering sector is dependent on many end
user industries for this sector including power, railways, infrastructure
development and various others. Each of these industries is on a growth
path. Since India cannot afford negative growth in any of the user
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industries stated above, the demand for engineering goods will only
continue to increase, thus offering tremendous investment opportunities in
the engineering sector.
This digitization of almost 90 percent of the theatres in the country
will only improve the occupancy rates. The resultant hike in the ticket fare
due to the digitization will only increase the profitability of the cinemas.
This sector also has a lot of opportunity to be used as a media to
promote education in the country and thus improve India’s knowledge
base. That clearly indicates the massive investment opportunities in the
entertainment and media sector in India.
The growing consumer class with increased exposure to global
trends and the increased spending of the government on defense and
aerospace indicate the tremendous opportunities in the electronics sector.
The increasing income levels of the second most populous nation is
also increasing the domestic demand for electronics. The presence of
huge local and global demand as well as access to high skilled labor at
competitive prices presents huge investment opportunities in this sector.
The low cost skilled labor, the untapped vast natural resources,
favorable government policies, the love of Indians for jewelry, as well as
the increasing acceptance of Indian jewelry exports are all indicative of the
vast investment potential in the gems and jewelry industry in India.
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India also offers significant opportunities in the improvement of
each element (as represented in the diagram below) in the overall value
chain in this industry.
Figure 4.1: Value Chain of Gems and Jewellery Industry from IBEF: India
Brand Equity Foundation (Feb 2006). Industry: Gems and
Jewellery Report, pg 6, Retrieved June 14, 2006, from
http://ibef.org/artdisplay.aspx?cat_id=438&art_id=9933
A lot of investment opportunities exist for improving the number of
healthcare facilities as well as the number of qualified healthcare
professionals like doctors and nurses available in hospitals per 1000
population. The changing demographics and the rapidly increasing per
capita income further make the investment in the healthcare sector more
attractive for foreign investors.
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A lot of demand exists in the various sub-sectors like medical
devices, diagnostics and telemedicine and teleradiology as well.
Several opportunities exist in the R&D services, software product
development and sales as well as development of offshore capabilities in
the IT and the ITES industry and Knowledge industry.
A lot of scope exists in the use of IT in the development of the rural
areas as well as development of the methods to improve the education
availability as well as the overall infrastructure in a cost-efficient and
quicker manner.
A lot of opportunity also exists in the knowledge based service
industry due to large pool of skilled, low cost, English speaking labor in
India.
In the path to rapid growth, India needs to urgently improve the
country’s infrastructure. Many other efforts across many industries may fail
to show the expected results, if the infrastructure fails. The huge
population lacking access to many basic needs further adds pressure to
improve the infrastructure. However with the right infrastructure, India can
make the most of its strategic location. The urgent and also huge need for
the improved infrastructure indicates the immediate and vast opportunities
in this sector. There are huge long term investment opportunities in so
many aspects of the infrastructure like roads, power, ports, airports and so
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many more as the nation urgently addresses the infrastructure problem
within the country. The liberalization route taken by the government is
further opening the doors to investors.
Indian leather market had been previously dominated by the small
scale industries, thus hindering standardization and large scale
production. However the favorable government policies as well as the
increasing presence of world class players in this sector signals the onset
of huge opportunities in this sector. The factors are enough for attracting
several foreign investors in this market, thus resulting in increased
employment as well as overall profitability of the industry.
The huge potential for growth in the export segment as well as the
huge domestic opportunities, as well as the overall high growth of the
Indian economy, are indicative of the potential for the leather industry.
Further the presence of several opportunities, the size of the domestic and
the global market and several favorable government policies are good
enough reasons to attract long term investors and improve the
employment opportunities in the country.
The government has gradually increased the focus of new product
development, drug patenting and reducing the number of drugs under
price control. All of these acts have had a positive impact in developing
the pharmaceutical market in India. The popularity of drug patenting as
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well as the huge size of the Indian market is further attracting more
investors.
The 100 percent FDI allowance and several favorable policies is
also further bringing in more FDI to the pharmaceutical industry. Further
global pharmaceutical companies are also benefiting from the large,
skilled, low cost knowledge pool in India and India’s success in IT, thus
increasing their attraction to the Indian market.
The growing popularity of the in-licensing deals and the role of India
in several profitable outsourcing and offshoring opportunities are only
adding to the country’s popularity with large global pharmaceutical
companies.
India is a growing economy and has a huge need for power.
However power is expensive and a significant amount of the current
population still lives under US$ 2 per day. The country therefore needs to
find means to make power production and distribution less expensive to
the increase its access to more number of people. The huge opportunity in
terms of the percentage of growth required as well as the speed of the
growth and opening of the Indian market by the government to foreign
investors is making India a very popular option for foreign investors.
Investment is required in generation, transmission, distribution as well as
power trading of electricity. The government of India is also promoting
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privatization to increase competitiveness and also improve the profitability
of the power sector.
As the telecom world over is experiencing losses, the market is
growing rapidly in India and is hence is a lucrative investment opportunity
and a strength of the Indian economy. Further the quickly expanding
Indian economy with increasing focus on the service industry, the high
percentage of the younger population, increasing per capita earnings are
all indicative of huge business opportunities in the coming years.
The abundance of raw materials and skilled labor at comparatively
low cost makes India an attractive investment destination for many
investors in the textile industry. The huge local and global market, as well
as the presence of well established supporting industries like design,
engineering and machinery, makes the market all the more lucrative for
short term as well as long term investment.
The defense sector requires large procurement of various military
hardware and software for increased defense, surveillance and strike
capability. Its requirements include sophisticated land systems, naval
systems, simulators, air force equipment as well as modern information
technology related to warfare. A good internal and external defense
mechanism for the nation will promote the nation as a safe destination for
many foreign individuals as well as organizations and will motivate them to
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come to the country for business or pleasure, thus bringing in more foreign
currency for the nation.
India can still score over China in various industries by improving its
protection of patents and other intellectual rights, both of which are the
weak points in China’s R&D sector.
Further India needs to take lessons from China in adopting
strategies to reverse the brain drain from India and attract the NRI
community across the world to come back and invest in R&D sector along
with other sectors. The Indian government, like its northern neighbor,
needs to especially target its students studying abroad to come back and
conduct R&D at home.
The real estate sector is impacted by the overall development in
many other sectors. The improved education, increased employment and
overall improved living standard always results in increase in the prices of
many non-traded products in the nation. Real estate is one such product.
India is economy currently booming as there is a rapid improvement in
many sectors. The increase in the real estate prices are hence a natural
resultant activity. The real estate boom has thus been the result of
increasing employment, improved access to modern technology and
increased urbanization.
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The low interest rates offered by banks on home loans due to the
increasing competition in the banking industry, the increased number of
nuclear families, as well as the reduction in the age of the first time home
buyers is further increasing the demand for real estate.
Further the giant leaps in the IT and the ITES are expected to
continue on their path towards massive growth even in the future. The IT
and ITES sector is spread over 2.7 million square meters across India in
2005. By 2008, the sector is expected to bring in 7 percent of India’s GDP
and 30 percent of the foreign exchange flow. The anticipated growth is
obviously going to result in a huge demand for real estate as well, thus
increasing the growth in the real estate market as well.
The liberalizing of the banking sector by the government is pointing
towards the end of the long era of various state-owned and public sector
banks, resulting in poor services, low profitability and non-transparent
functioning. The foreign banks are now being allowed investment equity of
49 percent and are allowed to setup subsidiaries as an alternate to
branches of the parent company.
A lot of Indians still do not possess any insurance coverage. This
sector therefore has a tremendous to grow. It also has a potential to offer
employment to many people from the rural areas as well due to the
various direct selling opportunities.
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The development of India’s infrastructure along with competitive
hotel rates and tax policies can help the tourism industry to offer many
more employment opportunities.
The huge labor with technical skills as well as financial skills in
India is the wealth the country can offer to the journalism industry
investors. The continuing pressure on the journalism industry to reduce
the costs as well as publishing news quickly, has opened tremendous
career opportunities in the journalism industry.
The consuming and the rich classes are predicted to expand thus
implying an increase in the demand for various consumables like “mobile
phones, televisions, scooters, cars, credit cards” and many other high
value products.
More number of rural households is coming out of the low income
bracket. The consumable purchase by the rural and urban areas was
almost equal. The rural demand for urban products is also increasing with
urbanization. The research also indicated a strong media influence on the
rural consumption patterns as the disposable incomes, access to
television as well as the literacy has increased in the rural areas.
The research also indicated that due to the rural composition of
India, all marketers and MNCs having a strong distribution in the rural area
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have had better success. Thus a lot of development opportunities exist for
various industries in the rural market.
Further unlike China, India is expected to have a growing working-
age population over the next several decades.
The reduced growth in China is expected to reduce the demand for
cement, coal, iron ore, steel and chrome. This reduced demand will drive
down the prices of these products. The reduced prices will indirectly
reduced the revenue for certain top Indian companies like Tata Steel,
Essar Steel and ONGC from these products. The reduced revenue may
however be balanced by the reduced costs for many other companies
using these products. This may further lower the prices for the consumers,
if the companies pass the lower prices to the consumers. The reduced
prices across many consumer durables can generally be expected to
increase the overall consumption or purchase of many products
throughout the country, thus impacting the GDP in a positive way.
The increased national growth may further attract greater FDI for
the nation resulting in better inflow of capital in the country.
The reduced growth of China may thus lead to increase in the
overall growth for India and provide many more opportunities in the nation.
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Threats
Approximately 60 percent of India’s workforce is dependent on
agriculture; however its contribution to India’s GDP is only 22 percent.
Further owing to the huge share of agriculture in the value added to
the Indian society, any negative impact on the growth in this sector is
bound to impact many other industries. Hence any strategy to improve the
growth in this sector as well other dependent sectors has to be
meticulously planned and implemented to prevent any boomerang effect.
India needs to further concentrate on its R&D capabilities in the
automobile industry as China is also offering low cost labor. So
maintaining a high quality along with low cost as a USP would be a
challenge for the country.
The Chinese progress in the cement industry is a threat to the
development of the Indian cement industry.
China can be a threat to the Indian chemical industry as well, due
to the availability of low cost labor in China. China is also spending
substantial resources in R&D. The chemical industry is currently
characterized by organized and unorganized players thus offering a
tremendous scope for consolidation to improve the operational efficiencies
as well as the overall output.
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China can be a source of threat to India’s plan to succeed in the
engineering sector too, again due to the former’s access to low cost and
high skilled labor as well.
The country may lose out on a lot of profitability if it fails to use
bring in new technology to improve the reach of the entertainment media
to the masses across the nation.
The increased consumer access to the global electronics market is
a threat to the domestic electronic manufacturers, as it also increases the
competition and hence the demand for speed in innovation as well as
marketing of electronics at a competitive price is important in the domestic
as well as export sector in the electronics industry.
Though India has the world’s largest consumer market, the current
popularity of low cost, non-branded items and the low per capita income is
the major threat to the growth potential of the FMCG as well as the food
processing sector.
The increasing pressure for certification and increased quality
awareness of the jewelry consumers is a threat to the fast development of
the vastly unorganized and family-dominated jewelry industry in India in
the international business.
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The lack of education in a large proportion of population is a threat
to the availability for skilled labor required for the development of the IT
and ITES sector.
The poor infrastructure can cripple the current growth of the country
and the resulting low finance can in turn be a major threat to the
development of the infrastructure industry itself.
About 40 percent of the Indian villages still do not have access to
all-weather roads.
Electricity blackouts are common and about half the population
does not have access to electricity.
Lack of access to water impacts the businesses as well as general
public in the country.
India is currently in a take-off phase and the country cannot afford
to compromise on its oil and gas supply if the growth has to continue.
However the rising cost of oil increases the national energy expenses due
to country’s dependency on the oil and gas sources outside India.
Almost 60% of the imported oil is brought from the countries of the
Middle East. Some of these countries have been experiencing political
violence for many years. Thus there is also a danger of non-availability of
oil and gas to India, and hence a potential threat to the growth of Indian
economy.
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The current low per capita is a threat to the development of the
pharmaceutical industry as many products are still under the price control
to allow access to more people to those drugs.
The current lack of inadequate modern technology can be a
potential threat to the future growth in the textile industry.
The low tele-density in India, can seriously impact future growth
opportunities, if adequate steps are not taken to improve it. India can lose
good business in the service sector, which is currently India’s fastest
growing industry.
About 80 percent of the country’s population still lives on less than
$2 per day.
Further one-fifth of the population lacks primary education. The
female population also lags behind the male population in terms of literacy
rate. As per the same report, as of 2002, the adult female literacy rate in
India was just 45 percent and was well below the corresponding adult
literacy rate of 68% in males and half the adult literacy rate for Chinese
women.
116
Table 4.1: Challenges To India’s Development from Wilson B.A. & Keim
G.N. (2006, January). Challenges to India’s Development: India
and the Global Economy. Business Economics: Washington.
41(1), pg. 28, 9p. Retrieved April 15, 2006 from ProQuest Database
The human development index has shown consistent improvement.
However India’s ranking in the World development report for 2005 still
remains much lower than China and many other nations due to the
highest concentration of people under the poverty line.
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There are only about seven personal computers per thousand
people compared to 28 computers in China and 560 in South Korea.
The Internet access is also limited to only about two percent of the
population compared to six percent in China and sixty percent in South
Korea is definitely a threat to the development of the nation.
Over-regulation, corruption and rigid labor markets are also a
problem in the country.
It takes an average of three months to start a business in India,
compared to less than a month for the same activity in South Korea.
The foreign direct investment rules also need to be more
transparent.
As per a 2004 survey by AT Kearney on FDI confidence, most
respondents considered the scale of bureaucracy to be the single most
important risk to investing in India.
As per CCG (2003), India still scored 8 on the IMF’s trade
restrictive scale of 1 to 10, with 10 being the most restrictive. Again as per
CCG (2003), the regulatory framework on the payment of franchise fees
needs to be improved to make India an attractive business destination.
The State owned banks still control about 80 percent of the banking
sector. The low participation of the private banks in the banking industry
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reduces the competition in the industry. As a result the banking profits are
weak.
As of 2003, organized retailed was expected to grow by about 30-
50 percent. However the current volume of organized retailing was still
small. Further though many leading retail chains in Europe are eyeing
India favorably, 100 percent foreign direct investment was still not
permitted in retailing.
Drawing support from various diverse groups in terms religion,
culture and economic strata within the nation for various national policies
is always a challenge in this culturally diverse country.
There are also several image and power issues within various
political parties of India. These parties in their fight for power tend to put
the welfare of the entire country and the people that elected them on the
backburner.
Tough political decisions for eliminating food and fertilizer
subsidies, improvement of rail road transportation and electrical supply,
reform of labor laws, increased fiscal responsibility and fewer government
controls are required by the government for economic reforms.
The repeated delay in the increase in the fuel prices even after
increase in the oil prices causes huge losses to the public sector oil
companies. This also results in huge subsidy burden on the government.
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The travel time between India and US ports is also another
challenge. It takes 24 days compared to just 15 days between China and
US.
Analysis of India’s Economic Performance
In the global market, trade amongst nations and effective use of
labor and capital resources give a nation a comparative advantage. The
alliances between various nations further reduce the trade barriers for the
members and may simultaneously increase the trade barriers for the non-
members. The national economy and its capability to trade is also
impacted by the security of its boundaries. Secure boundaries enable
national peace and promote the utilization of labor, capital and other
resources to promote domestic and global trade, thus improving the
national economy.
Strategic partnerships across nations can also be effectively used
to reduce the trade barriers, improve trade and also improve peace and
stability within the nation as well as across the nations’ boundaries. This
has a positive impact on the trade of various goods and services as well
as movement of people within and across the boundaries of the nation.
This further promotes trade in the domestic as well as international market
for the nation.
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According to Wilson B.A. and Keim G.N. (Jan 2006), “India's
booming knowledge-based sectors demonstrate the power of globalization
to transform developing economies. For India, however, these industries
are just part of its contribution to the global economy”(pg 1).
The current study reveals the global links of the country through
trade, labor and capital and also outlines the various challenges that India
has to overcome to become a leading global player. It has been a boom
time for the outsourcing industry in India. It has also acquired a reputation
as a major service provider in the recent years. Trade, labor and capital
are the key channels that also indicate the strength and consistency of
India’s global position.
Trade
As quoted by Ifzal Ali, Chief Economist of the ADB
Trade has long been a key driver in Asian growth. As bilateral pacts multiply, the trade arrangements Asian nations make with each other and the rest of the world could significantly shape the development of the region for years to come (Woodside, April 2006, pg 1).
Further as per the same issue, (Woodside, April 2006) "Those
countries that are first movers or that enjoy strong bargaining power, on
account of their size, may gain, but other countries, many of them poor
developing countries, risk losing"( pg 2). A proof of this is the comparison
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between the performance of the Indian and Hong Kong economy over the
past 50 years. While the unilateral trade policy adopted by Hong Kong
helped its economy to skyrocket and generate a PPP adjusted per capita
income of $27,179, India’s isolation of itself from the international
economy resulted in the stagnation of the nation’s economy.
As of 2005, PPP adjusted per capita for India was just $2,892.
Further as per Mitra B.S. (Dec 2005),
As for international trade, India's problems stem not from too much trade in goods and services, but too little. In 2002, India's total exports and imports stood at $87.7 billion and $74 billion respectively, in 1995 dollars. For tiny Hong Kong, the corresponding export and import figures were $321 billion and $301 billion respectively. Clearly the problem of any poor country is not that it trades too much, or is flooded by foreign imports, but that it trades too little. Even in relative terms, India's share of world trade has fallen to 0.8% today from 1.5% in 1950 (pg 4).
In the context of the current study of India, the review of the trade
figures of India from the millennium year however, has indicated a
consistently good trade growth.
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Figure 4.2: Indian trade in goods and services from Wilson B.A. & Keim
G.N. (2006, January). Indian trade in goods and services: India and
the Global Economy. Business Economics: Washington. 41(1),
pg. 28, 9p. Retrieved April 15, 2006 from ProQuest Database
The growth in the service trade is definitely significantly higher than
the goods trade. During the first three years of the millennium, the goods
trade increased by an average annual rate of 13 percent and the service
trade increased at an average annual rate of 9 percent. After 2003
however, the service trade figures surpassed the good trade figures and
jumped to 120 percent, while the goods trade increased by 36 percent.
The growth in the country’s trade has been the direct result of the
opening of the country’s trade barriers to the foreign market. Another
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factor responsible for the very good growth figures was India’s growth in
the hi-tech industry and outsourcing industry. The good performance of
India’s neighbor, China, also had a positive impact on India’s growth. The
increased growth in both the nations as well as the improved trade relation
between them has increased the purchase of raw materials by China from
India, thus benefiting both the nations. While the trade with China has
been growing at a very high rate, United States is India’s largest trading
partner. India also trades substantially with Europe, Middle East, Africa as
well as other Asian countries.
Figure 4.3: Indian trade by country (FY 2004) from Wilson B.A. & Keim
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G.N. (2006, January). Indian trade by country (FY2004): India and
the Global Economy. Business Economics: Washington.
41(1), pg. 28, 9p. Retrieved April 15, 2006 from ProQuest Database
Textiles, jewelry and metals are the three largest export categories
for India and oil, capital goods and jewelry are the largest import
categories for India.
Figure 4.4: Indian trade by good (FY 2004) from Wilson B.A. & Keim G.N.
(2006, January). Indian trade by good (FY 2004): India and the
Global Economy. Business Economics: Washington.
41(1), pg. 28, 9p. Retrieved April 15, 2006 from ProQuest Database
125
The foreign quotas are a reason for concern for the Indian textile
exporters. However as per many reports, China stands stronger in textile
exports compared to India, thus impacting the Indian textile exports. This
is mainly due to lack of the presence of modern technology in the Indian
textile industry. The lifting of the Multi-Fiber agreement in 2005 is
expected to further benefit China. India on the other hand, is strong as a
producer as well as a consumer in the jewelry segment. Due to its status
as a major consumer of gold, increasing demand for gold in the nation
results in increasing the global gold price.
The same applies for oil too.
Figure 4.5: Indian Energy Consumption from Wilson B.A. & Keim G.N.
126
(2006, January). Indian Energy Consumption: India and the Global
Economy. Business Economics: Washington. 41(1), pg. 28, 9p.
Retrieved April 15, 2006 from ProQuest Database
India exports about 85 - 90 million tons of crude oil in a year. The
output from India is generally energy intensive. The US department of
Energy has further predicted a 40 percent increase in India’s energy
consumption by 2025. Further review of the domestic market has shown a
rapid gain in the industrial production as well as utilization of improved
technology in production and communication as well rising transportation
needs. All of these factors have resulted in the increase in the import of
capital goods.
Labor
India has a major advantage in its people. It has a growing and
relatively young population and is scheduled to overtake China by 2030.
India thus has the potential to be the largest pool of consumers and
workers by 2030. As of 2004, India ranked 10th in the world in terms of
economy. India has been amongst the fastest growing economies in the
world and is expected to continue its performance in future too. However
in terms of PPP, the GDP remains only about half that of China and less
than 1/10th the GDP of United States.
127
Table 4.2: India in Context: 2004 from Wilson B.A. & Keim G.N. (2006,
January). India in Context: 2004: India and the Global Economy.
Business Economics: Washington. 41(1), pg. 28, 9p. Retrieved
April 15, 2006 from ProQuest Database
128
India has been providing skilled as well as non-skilled labor to the
world. Its large supply of “well-trained, English speaking, low-wage
workers and attractive national and state government incentives” is
making India an attractive destination for outsourcing and thus increasing
the employment opportunities for India. The support and IT services have
mainly benefited from this trend in India due to requirement of “minimal
infrastructure” and the country’s large “endowment of labor”. These
industries have also benefited from several “supportive government
policies” unlike many other industries.
As per a study conducted by McKinsey and Company (Wilson B.A,
Keim G.N, 2006), it estimates that
…in eight representative industries actual global offshoring in 2003 amounted to less than 10 percent of the over 18 million jobs world-wide that could potentially be offshored (Farrell et al., 2005). McKinsey expects this fraction to rise in the future, and India's large and growing supply of skilled workers makes it well poised to meet the new demand (pg. 36).
Further India’s engineering and technical schools have also played
a substantial role in churning out huge number of graduates causing
enough concern in United States. As per NASSCOM (2005), the number
of graduates from these schools has increased over the past 4 years from
135,000 to 300,000 annually. While the Indian service industry was the
major beneficiary, the overall contribution to the nation’s GDP has been
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minimal. As of 2004 fiscal year, the high-tech and the outsourcing sector
in India contributes only four percent of the GDP and employs only 0.25
percent of India’s labor force. Since most of the business of the Indian
service industry is with USA, the growth of this industry is also limited by
the size of the information, communication and technology sectors in USA.
These sectors contributed about 3.75 percent of America’s GDP and
employed about 2.75 percent of its population.
Figure 4.6: US Employment from Wilson B.A. & Keim G.N. (2006,
January). US Employment: India and the Global Economy.
Business Economics: Washington. 41(1), pg. 28, 9p. Retrieved
April 15, 2006 from ProQuest Database
130
Figure 4.7: US Trade with India in Services from Wilson B.A. & Keim G.N.
(2006, January). US Trade with India in Services: India and the
Global Economy. Business Economics: Washington.
41(1), pg. 28, 9p. Retrieved April 15, 2006 from ProQuest Database
However it is also true that as per several years of data from the
Indian Ministry of Labor, about one-fourth to one-half million workers,
mainly unskilled labor has been seen to migrate to Middle East each year.
The educated and skilled labor has been mainly migrating to countries like
USA and Canada for the past several years and thus resulting in a brain
drain in India (Wilson B.A, Keim G.N, 2006).
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Capital
As per (Wilson B.A, Keim G.N, 2006)
Although the possibilities for domestic investors to purchase foreign stocks or bonds remains severely limited, the Indian government has made greater strides in lifting restrictions on portfolio inflows. The results are striking. Since FY1992, gross portfolio investment inflows have increased ten-fold, to more than $40 billion by FY2004. Investments by foreign institutional investors have made up the largest share of portfolio investment, totaling over $8 billion (pg. 28).
Figure 4.8: Financial Account Balances (Fiscal years) from Wilson B.A. &
Keim G.N. (2006, January). Financial Account Balances (Fiscal
years): India and the Global Economy. Business Economics:
Washington. 41(1), pg. 28, 9p. Retrieved April 15, 2006 from
ProQuest Database
132
Mr. Manmohan Singh, the current Prime Minister of India, took up
the financial reins of the country as a Finance Minister in 1991, at a time
when the country faced a balance-of-payment crisis due to scant portfolio
and FDI inflows and no investment outflow. He has been mainly
responsible for the reorientation of the economic policies of the nation. He
successfully reversed the trend and is now again heading the country in
the role of the Prime Minister of India.
As per Wilson B.A and Keim G.N (2006),the FDI has been
increasing since then and was about $5 billion in 2004 or about 0.5
percent of the GDP. From the several announcements from the current
government, one can estimate that new FDI investment of about $20
billion is expected the next decade with a major concentration on the
knowledge sector.
There has also been a radical increase in the portfolio inflows. As of
2004, the gross portfolio investment inflow was $40 billion of which $8
billion comes from investment by foreign institutional investors.
Balance of payments
As of 2004, India’s trade deficit in terms of balance-of-payments
terms rose to US$17.5bn. The exports have grown by 31.3 percent and
the revenue from exports has been $78bn. The growth of 40 percent in
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imports has been mainly attributed to increased consumption as well as
the increase in the international price for oil.
Potential Entry Modes in Indian Subcontinent
The section discusses the significance and future scope of
franchising, direct marketing and technology transfers based on the
current scenario in the context of the Indian market.
Franchising
As per CCG (2003), Franchising occurs in various sectors including
“education, specialized food services, healthcare, garments and apparel,
entertainment, fitness and grooming clinics, stationery, gift shops and
courier services” (pg 30). Franchising also has tremendous scope in the
telecom and internet. Franchising offers many enthusiastic entrepreneurs
an opportunity to establish global brands in the local market. It has been
observed that the growth of franchising is closely related to the service
industry. The continued positive growth in the service sector thus spells
good news for franchising segment.
As per CCG (2003), 5 percent of India’s GDP comes from the
franchise operations. According to FICCI, “there are 600 active franchisers
and 40,000 franchisees in India” (pg 31). Further as per the FICCI
estimate, the total annual franchise sales revenue ranges between $1.6
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billion to $2.08 billion. Hence it is obvious that the franchise business is
very low in India.
About 100 million or about 10% of the population in India has a per
capita income in excess of $2800. The population percentage in excess of
$2800 gives an estimate of the percentage of potential business that is
immediately available for the franchisees. There are many other benefits
of franchise business. As per the structure, the franchise costs are shared
by the franchiser and the franchisee. Further the franchiser often takes the
responsibility of training the franchisee staff. Since the franchise brands
generally have been internationally acclaimed, the franchisee also benefits
from the exposure to international brands as well as access to global
training programs conducted by the franchisor. In a developing country
like India, all of these benefits are major plusses in favor of the franchise
business as well as the new entrepreneurs. The legal framework however
remains weak for franchising businesses in India. Improving the legal
framework will provide sufficient motivation for new as well as existing
franchisors for additional business.
As per the research conducted by the Planning Commission of India
and the report of the committee thereafter (India Vision 2020, 2002), most
of the public call offices and internet kiosks have used franchising as the
model to do business.
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Direct marketing
As per CCG (2003),
In India, direct selling has traditionally meant contracting of outside agencies by manufacturers to move surplus or promotional products or small manufacturers resorting to door-to-door selling because of their inability to compete in the retail market. It has also meant deploying direct sales employees to demonstrate products with the objective of making a spot sale (pg 33).
Another significant factor to note about direct selling in India is that
as per the same report,
According to the Indian Direct Selling Association (IDSA), which was established in 1996, the direct selling industry in India accounts forsales worth approximately USD 400 million and is estimated to be growing at 36 percent a year. Today, the direct selling industry employs more than 700,000 sales persons as compared to approximately 125,000 in 1997 (pg 33).
As per a report presented by MarketResearch.com (August 2004),
the worldwide turnover of the direct selling industry is $88billion USD. The
industry has about 49 million people working in it in different roles. Further
while the industry has a 31% average sales growth over the past decade,
the growth in the direct selling industry has actually been decreasing and
has decelerated to 1.3% over the past 5 years. The industry worldwide
also has the highest employee turnover. The same research data also
implies that about 26% of the world turnover from direct selling comes
from India. However the number of people employed in the direct selling
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industry in India is just 2.5% of the world figure and the country ranks 11th
in terms of the labor employed in the industry. This clearly indicates the
high productivity of the labor in direct selling in India. However the
legislation in this industry is still weak in India. Further different companies
follow different compensation patterns that may not always adequately
benefit the sales people.
The Indian government has to hence take adequate measures to
protect consumer interest. This will automatically increase the trust of the
consumers in the industry resulting in increased demand thus attracting
increased labor. This industry also needs to standardize operations like
employee welfare, training, and compensation to prevent undue
exploitation of the sales people by any of the companies involved in direct
selling.
Technology transfer
As per CCG (2003), RBI grants automatic approval for technical
collaborations if the lump sum payment as per the technology agreement
does not exceed US $2 million or the royalty payment to the foreign
investor does not exceed 5 percent of the domestic sales and 8 percent of
the exports, subject to a total payment of 8 percent on sales over a 10 –
year period. RBI also grants automatic approval for technical l
137
collaboration if the period of payment of royalty does not exceed 7 years
from the date of commencement of commercial production or 10 years
from the date of agreement, whichever is earlier.
Analysis of India’s Neighbors
China
While China has shown record growths in the past decade, it is
generally expected to slowdown in the coming year. There are many
reasons for the slowdown. During the process of growing, the country did
not concentrate much on the environment issues. Coal is also still a major
source of energy in the country. There have been indications in many
reports, that the country now intends to slowdown and divert resources
towards the environment and infrastructure issues as well to offer people
better standards of living. The impact of this slowdown has been
presented very well in the observations made by Gupta (Dec 2005).
Pakistan and Bangladesh
The rapid growth of India along with its strategic partnership with
US, China as well as its increasing trade relationship with European
countries as well as member countries of the ASEAN group and other
Asian countries has considerably reduced the ability of Pakistan and/or
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Bangladesh to slow down India’s economic growth. This has reduced the
security risk on the Indian borders.
Nepal
When Nepal’s monarch drove out the democratic government of
Nepal, India as a responsible global citizen issued an arms embargo
against Nepal. India has since been supporting the reformation of the
democratic government in Nepal. The development of Nepal will improve
the capability of the nation to trade with India and will provide yet another
avenue for increased economic growth in India.
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Some Important Numbers
As per Dagar S.S.et al (2006) :
23%: India's share of global consumer gold sales-jewellery, medals, bars and investment funds-by volume, followed by America at 12 % 26%: The projected increase in spending on IT solutions by the Indian small and medium business (SMB) enterprises during 2006, according to a study by US-based AMI-Partners 10.5%: The annual rental return on commercial property in India's metropolitan areas, the highest in the world, according to a study by realty firm Knight Frank India 444,753: The number of foreign visitors to India in January 2006, compared with 386,260 in the same month last year, a growth of 15.1 per cent, as per government data. Foreign exchange earnings rose 17 per cent to $632.43 million (Rs 2,846 crore approx.). An estimated 3.4 million foreign travellers visited in 2004 500: New aircraft needed by India over the next 20 years, with a total value of around $36 billion (Rs 1,62,000 crore), according to a Boeing forecast $3.3 billion (Rs 14,850 crore): The annual revenues of India's cable television market, which is the third largest in the world(pg 18).
140
CHAPTER 5: SUMMARY, RECOMMENDATIONS AND
CONCLUSIONS
China and India are the two most populous countries in Asia. The
size of the population, the vastness of the resources available at optimal
costs as the growing spending potential in both the countries, imply the
capability of these nations to influence the demand as well as the supply
of Asia as well as the entire global market. It is therefore logical to assume
that they are indeed the future of Asia, and possibly the future of the
global economy as well. The average annual GDP growth in the past 3
years in China has been 10 percent, in India has been 8% and the global
economy has been approximately 4.5 percent every year. The increasing
globalization has virtually erased the physical boundaries between various
nations. The increased trade and exchange of technological know-how
among nations coupled with the huge leaps made in the internet trade as
well as the information technology developments has led to
unprecedented global economic expansion. Since almost 40 percent of
the global population resides in China and India, these two nations are
obviously at the center of increasing global integration. The 2 nations are
also making the most of the situation by taking various steps to utilize the
141
various national resources in the most effective way to fuel their
economies.
Approximately one and a half decade ago, China and India were
economically at par with each other. However in the current scenario,
China’s GDP per capita is at US$1,700 in 2005 compared to just US$700
in India. While the Chinese economy has outperformed India by a wide
margin over the past 15 years, the future scenario may be quite different.
India is spread over 3 million square kilometres and located entirely
in the northern hemisphere. India is the also the seventh largest nation in
the world in terms of geographical size. India is also the home for people
belonging to various cultures and religions. The increasing global
integration and exposure is however impacting the customs and life-styles
of the entire Indian society in many ways.
As per the demography of India, the nation continues to be a
largely rural country. Agriculture still accounts for almost one fourth of the
economy. The service industry is the most dynamically growing industry in
India and accounts for almost half of all economic activity. Further the
popularity of India in the software industry due to the rapid strides made
by the India IT industry points towards India’s economic future in this
industry. The high skilled and low cost labor, is only strengthening India’s
competitive position in the IT industry. India therefore requires strong
142
focus with solid investment in human capital, and also the capability to
react quickly to exploit the opportunities of the global economy. However,
the major portion of the country’s population still does not have access to
more than the most basic education opportunities. The economy also
remains constrained by the dead weight of bureaucracy.
The economic reforms began in 1991 and have continued since
then. The Indian government has taken various steps including de-
licensing and deregulation in many industries earlier monopolized by the
public sector. The government has also been actively liberalizing foreign
trade through a steady reduction in tariffs and eliminating the foreign
investment limits in nearly all industries and adopting various possible
measures to attract FDI in to the country. These measures are expected
to have far reaching consequences. As of today India definitely has a
strong, vibrant and fast-growing economy that is rapidly integrating with
the global economy.
Further to India’s credit, unlike China, the economic growth in India
has also been accompanied by continued macroeconomic stability with
respect foreign exchange reserves, exchange rates, inflation and interest
rates. The country's foreign currency reserves have also been
continuously growing. The principal factors responsible for this are the
143
increasing services exports and strong capital inflows comprising FDI and
foreign portfolio investments by FIIs.
As per the various data presented in the research, as well as the
analysis of the various factors, India has a major advantage in its people.
It has a growing and relatively young population and is scheduled to
overtake China by 2030 in this factor. India thus has the rare potential to
be the largest pool of consumers as well as skilled and unskilled workers
by 2030. As of 2004, India ranked 10th in the world in terms of economy.
India has been amongst the fastest growing economies in the world and is
expected to continue its performance in future too. However in terms of
PPP, the GDP remains only about half that of China and less than 1/10th
the GDP of United States.
India currently contributes to only two percent of the world GDP
due to the several years of insular and restrictive policies. However the
Indian economy has not shown any recession from 1980 to 2004. As per
the IBEF report (India and China: New Tigers of Asia, Part II, May 2006),
the country has recorded an average annual growth of 5.8% over the
period. A GDP growth of 7% and an export growth of 20% were expected
even in the current year.
The research has also revealed a fundamental transformation in
India due to the rising consumer spending as well as growth of various
144
services due to increasing exposure to the global markets. Indian
manufacturing industry is also increasingly catering to the various global
requirements. The infrastructure as well as communication industries are
experiencing a tremendous and consistent growth. There is also
increasing attention to improve the percent of literate population in India.
This percent is absolute critical for India’s sustained growth in knowledge
and IT industries.
Further as per the India Vision 2020, if India achieves the
quadrupling of per capita income by 2020, it would attain a level of
development far higher than where China is today, and on par with upper-
middle income countries (UMI) such as Argentina, Chile, Hungary,
Malaysia, Mexico and South Africa.
However there are still many hurdles in the path for India to achieve
that target. The most apparent and immediate threat to India’s growth over
the next two years is its poor infrastructure. Even India’s strengths of a
huge skilled and semi-skilled work force, entrepreneurial expertise and
natural resources are currently being inadequately utilized because of lack
of infrastructure. India needs to urgently introduce legislations that allow
the implementation of infrastructure projects to cut through the current
maze of regulations and to acquire land quickly. Privatization of state-
145
owned assets can jump-start the infrastructure program required for
India’s modernization.
India also needs to mobilize capital more effectively and streamline
the process for the implementation of infrastructure development,
objectives that require strong government. Coalition politics, as now
prevailing in India, tend not to produce strong governments. A point to
note here is that in spite of having a coalition government as well as a
poor infrastructure, India has been able to achieve high growth in the past
three years. Hence there is hope that it may continue to do so even for the
couple of years.
Having said this, India definitely has the potential to catch up with
China. However the high unemployment level in India shows that the
country needs to definitely take immediate steps to invest in job creation.
About 20% of the population lives below the poverty line. The less job
availability impacts social stability, and also results in underutilization of
the working age population. This further restricts the nation’s capability to
improve its per capita income. India has to therefore work towards
converting its advantage of having a growing working population into a
virtuous loop, creating productive jobs for the expanding work force,
which, in turn, shall translate into higher savings, investment and
economic growth.
146
Thus as stated earlier, although the rise in the working population
will provide huge opportunities for growth, it will also present challenges in
view of the size of the population. Favorable demographic trends are not
the all encompassing factors necessary for the creation of a strong and
sustained economic growth cycle. India needs to empower the working-
age population to participate in productive activities and to initiate reforms
that would generate productive job opportunities for the population. The
job growth has been trailing the rise in working-age population over the
past few years in India. The slow investment growth may be one of the
key factors. The overall investment trend in India has been weak in the
past few years. Although the investment trend improved in the past three
years, it still seems to be lower than the required level.
India thus needs to work on stronger supply response. In the
current economic cycle, a sharp fall in real interest rates driven by high
global liquidity has boosted consumption more than investment in India.
There are many challenges emerging from this consumption-driven
growth, posing risks to macro stability. The government needs to
implement measures to stimulate the supply-side response by investing in
infrastructure, implementing labor reforms, improving the management of
government finances and strengthening the administrative framework. The
147
increased supply by increasing the manufacturing and financing, are also
important for ensuring a sustained acceleration in the growth cycle.
Another challenge to India’s growth is the potential bursting of its
asset bubble. India has experienced enormous growth in its stock and
property markets, mainly through price appreciation in response to low
real interest rates. The low interest rates are mainly due to an increase in
foreign capital inflow and a rise in import competition, which have
contributed to low inflation. However, both factors have limited lifespan.
Relatively low savings and the lack of infrastructure investment and
FDI are also limiting India’s ability to compete in the manufactured export
market. Although the strong growth in services outsourcing is a positive
development, an increased focus on manufacturing and infrastructure are
critical for India. This shift in focus is necessary for creating more
productive employment opportunities for the large proportion of the
relatively less educated section of the work force. This is especially
significant as global trade opportunities are significantly higher in
manufacturing.
A greater presence in manufacturing would require higher savings
for India to be able to invest in the much needed development of its
physical infrastructure. The capital intensity of manufacturing is
significantly higher than that for services. India may benefit due to the
148
rising proportion of the working population in the short term, however the
pace of the savings depends on the pace of structural reforms by the
government. The government may be able to accelerate the virtuous cycle
of a rising work force – productive job opportunities/higher income/higher
savings/higher investments – by undertaking large-scale privatization for
investment takeoff and job creation.
India also faces a considerable challenge in managing child
survival and health. About 47% of the children in India suffer from
malnutrition. India also accounts for 20% of the global deaths among
children under five years of age. This is the highest for any single nation.
Of every 12 children, one dies in the first five years of life.
India needs to also boost measures to ensure their young
populations have access to education. Greater emphasis needs to be on
basic education. Vocational training can be a good means to providing
employment opportunities.
India also needs a strong banking industry. A strong banking sector
is one of the key ingredients for faster and stable economic growth for
transition economies. An efficient financial sector can promote savings
and enable the flow of a larger share of savings into productive
investments. The efficiency of the banking sector will be important for the
stability of the financial system.
149
To sum it all, a targeted approach is required to bring millions of
families above the poverty line. Generation of nearly ten million new
employment opportunities per annum is required in India, especially for
those in the lower income groups is required to achieve the Vision by 2020
for the nation. Illiteracy needs to be eradicated. A concerted effort is
required to raise primary and secondary enrolment rates in educational
institutions and minimize dropouts.
The government also needs to take special measures to improve
the public health to reduce infant mortality and child malnutrition. Massive
investment is required in power generation, telecommunications and other
physical and social infrastructure. The government also needs to
accelerate acquisition of new technology in the country, to raise the
productivity in various sectors like agriculture, industry and services.
Finally India has to become a more important player in the world economy
in terms of both trade and investments to make the vision a reality.
Thus while the huge surplus in India’s working age population has
forced the global economy to take note of India as a globally competitive
player, India is at a critical juncture where it needs to reassess its growth
model, initiate difficult policy reforms to improve and also sustain the
growth over a longer period. The nation’s greatest challenge however is
the balancing of the contribution of investment and consumption. The
150
country needs to improve its focus on investment and exports and reduce
the consumption. India also needs to strengthen its infrastructure, improve
public finances, reform its labor laws and also take various measures to
woo higher FDI inflows into the country and to also promote privatization.
151
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India – Country MAP
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180