INDIAN ECONOMY AND TRENDS - India Brand Equity Foundation

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INDIAN ECONOMY AND TRENDS October 2012

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Macroeconomic Snapshot

Growth Enablers Policy Thrust Investment Research & Development Manufacturing IPR & Innovation Consumer Markets Inclusive Growth

States of India

Outlook: Looking Ahead

Contents

INDIA-ECONOMY AND TRENDS October 2012

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Macroeconomic Snapshot … (1/6)

MACROECONOMIC SNAPSHOT

• Consumer demand to boost economic growth

• Moody’s retains “stable” outlook for India based on economic reforms announced by government

• Foreign exchange reserves at US$ 294.81 billion for the week ending September 28, 2012

• Grant Thornton Global Dynamism Index: India fifth best country in the world for dynamic growing businesses

GDP: April 2012 - June 2012 (US$ Billion)

Source: Ministry of Finance and CSO

IIP: Monthly Growth Rate (per cent)

Source: Ministry of Finance and RBI

6.5 6.5 6.5 6.5

2.4

-1.8

0.1

2.7

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

May-12 Jun-12 Jul-12 Aug-12

GDP IIP

India-Economy and Trends October 2012

19.28

28.14

31.04

35.38

44.93

67.00

0.00 20.00 40.00 60.00 80.00

Construction

Social & Personal Services

Agriculture

Manufacturing

Finance & Real Estate

Trade, Hotel & Transport

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• Government to aim for 8.2 per cent growth rate in the 12th Plan Period (2012-2017)

• Target for infrastructure investment in the Plan Period is at US$ 1 trillion

• Control fiscal deficit and regain growth momentum

• India remains among the fastest growing economies globally

GDP: April 2012- June 2012 (per cent)

Source: Business Standard

GDP: Growth Country-wise (per cent)

Source: World Bank



Country 2007 2008 2009 2010 2011

India 9.8 3.9 8.2 9.6 6.9

USA 1.9 -0.4 -3.5 3 1.7

China 14.2 9.6 9.2 10.4 9.3

Japan 2.2 -1 -5.5 4.4 -0.7

Brazil 6.1 5.2 -0.3 7.5 2.7

Russia 8.5 5.2 -7.8 4.3 4.3

7.6

5.5

4

2.3

0.5

-0.4

-2 0 2 4 6 8

China

India

Russia

US

Germany

Euro zone

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Government Deficits (per cent)

Dr. Manmohan Singh, Prime Minister of India

Source: Ministry of Finance



We should accelerate

growth to reach

around 9 per cent by

the end of the 12th

Plan Period

Inflation: Price Index (per cent)

4

6

8

10

12

Apr-12 May-12 Jun-12 Jul-12 Aug-12

General Food

Fuel & Power Manufactured

Government Expenditure in US$ Billion

6.05

0.78

1.84

3.06

4.35

0

1

2

3

4

5

6

7



97.7

28 37.1

51.5

97.4

34

43.6

61.3

20

40

60

80

100

May-12 Jun-12 Jul-12 Aug-12

Fiscal Deficit Revenue Deficit


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• India was the highest recipient of FII inflows in Asia at US$11.76 billion for the January to August 2012 period

• FDI flows remained buoyant and increased compared to June to touch US$ 1.76 billion for July 2012

• Offshore bond funds have been encouraged by higher interest rates and higher foreign investment

limits in bonds by the government

Top FDI Inflows into India (per cent of Total)

(April 2000- August 2012)

Foreign Investment: FII & FDI (US$ Billion)

Source: SEBI and DIPP



1.86

1.32 1.24 1.76

-0.96

0.61 0.21

2.48

-2.0

-1.0

0.0

1.0

2.0

3.0

Apr-12 May-12 Jun-12 Jul-12

FDI FII

38

10 9 7 6

4 4 3 2 1

0

10

20

30

40

Source: SEBI and DIPP

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• Remittances from Non-resident Indian’s (NRIs) may touch US$ 75 billion in fiscal 2012-13 • NRIs deposited US$ 7.37 billion in domestic banks during the April-July 2012-six times more than for

same period of previous year • NRI remittances had jumped 19 per cent in 2011-12 to touch US$ 66 billion

Top Recipients of International Remittances (US$ Billion) Exchange Rate Comparison

Source: CBEC



NRI Deposits Rise

69.00 70.35

69.95

69.30

68.8

82.50 86.00 86.20 86.30

88.05

51.50

53.10 55.55

54.90 55.85

40.0

50.0

60.0

70.0

80.0

90.0


Euro Pound Dollar

64

62

24

23

14

0 10 20 30 40 50 60 70

India

China

Mexico

Philippines

Egypt

Source: World Bank and The Wall Street Journal

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• Target of US$500 billion exports by 2015 achievable: Government • Export target for 2012-13 at US$ 360 billion • Focus also on improving trade with developing countries • Share of South-South trade in global trade flows at 42 per cent

Total Trade (US$ Billion) Trade: Export & Import (US$ Billion)

Source: Ministry of Finance, and CSO



24.46 25.68

25.07 22.44

22.3

37.95 41.94

35.37

37.93

38.01

20

25

30

35

40

45


Exports Imports

62.41

67.62

60.44 60.37

60.31 60

61

62

63

64

65

66

67

68

69


Source: Ministry of Finance, and CSO

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Macro-Economic Snapshot


States of India


Contents


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Growth Enablers: Policy Thrust … (1/7)

• 51 per cent FDI in multi-brand retail allowed, subject to state governments’ permission • 100 per cent FDI already permitted in single brand retail • Up to 74 per cent FDI allowed in broadcasting sector • Foreign airlines can invest up to 49 per cent in domestic airlines • 49 per cent foreign investment (26 per cent FDI, 23 per cent foreign institutional investors) allowed in

power trading corporations

• Cabinet approves FDI in Insurance to 49 per cent from current level of 26 per cent subject to approval by Parliament

• 26 per cent FDI allowed in pension funds and linked to insurance sector. If Parliament approves hike in

insurance to 49 per cent then FDI levels in pension will also increase to 49 per cent automatically

Welcoming Foreign Direct Investment (FDI)

GROWTH ENABLERS


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• Reduction in withholding tax from 20 per cent to 5 per cent on foreign currency borrowing to help draw low cost funds into India

• Advance Pricing Agreement (APA) notified: Will allow companies to have an advance pricing agreement with Central Board of Direct Taxes for calculating prices of products between parent and subsidiary companies in international transactions

Business Friendly


GROWTH ENABLERS

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• Reserve Bank of India (RBI) relaxes guidelines for Indian companies to raise money overseas through External Commercial Borrowings (ECB) that will allow companies to either repay Rupee loans or fund new capital expenditure in Rupees

• RBI also allowed refinancing of bridge finance, or short-term credit taken by companies in the

infrastructure sector for importing capital goods, with an ECB under the automatic route • Infrastructure sector can seek trade credit, or short term loan, for up to a maximum period of five

years for importing capital goods, up from one-to-three years previously

External Commercial Borrowings


GROWTH ENABLERS

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• Subsidy disbursements: Direct cash transfers to beneficiaries to cut system leakages and reduce outgo • Fiscal consolidation urged Disinvestment • Approval for stake sale in four public sector units, many more in offing

Tax Breaks • Rajiv Gandhi Equity Saving Scheme launched. Will provide tax benefits for investments in mutual funds

and exchange traded funds, besides blue chip shares

Reforms Unleashed


GROWTH ENABLERS

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Growth Enablers: Policy Thrust- Infrastructure … (5/7)

• Infrastructure projects to be expedited: Single window mechanism for review and issue of clearances for major projects

• Special cell for petroleum and natural gas sector • Land policy being finalised to address infrastructure sector’s land acquisition concerns

Pushing Infrastructure for Growth


GROWTH ENABLERS

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Growth Enablers: Policy Thrust - Information Technology … (6/7)

• To increase revenues of IT and ITeS (Information Technology Enabled Services) Industry from US$ 100 billion currently to US$ 300 billion by 2020 & expand exports from US$ 69 billion currently to US$ 200 billion by 2020

• Promote innovation and R&D in cutting edge technologies and develop applications and solutions in location based services, mobile value added services, cloud computing, social media and utility models

• To provide fiscal benefits to small and medium sector units and startups for adoption of IT in value creation

• To create a pool of 10 million additional skilled manpower in Information Communication Technology (ICT) sector

Information Technology Policy 2012 Announced


GROWTH ENABLERS

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Growth Enablers: Policy Thrust- Aviation … (7/7)

• India looks to allow unlimited flights from ASEAN capitals to New Delhi under “India-ASEAN Open Sky Agreement”

• Likely to be extended to cities like Mumbai,

Chennai, Kolkatta • Unlimited flights to 18 tourist destinations in

India to continue

Creating a Regional Hub Air Travel Market* (US$ Billion)

Source: Euromonitor and The Wall Street Journal

* Forecast for 2016


GROWTH ENABLERS

176

64

53

44

41

37

30

29

28

24

0 50 100 150 200

USA

China

UK

Japan

Canada

India

Australia

Germany

Russia

France

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States of India


Contents


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Growth Enablers: Investment

• ONGC Videsh Limited (OVL) bought US energy company Hess Corp’s stake in a producing Azerbaijan field and the Baku-Tbilisi-Ceyhan pipeline for US$ 1 billion

• Indian Oil Corporation (IOC) setting up first refinery overseas in Sri Lanka with an investment of around US$ 4 billion.

• Oil India is in talks with Carrizo Oil & Gas to soon acquire stake in Niobrara Shale in North Eastern Colorado

• Oil and Natural Gas Corporation (ONGC), IOC and Oil India Limited (OIL) have made a joint US$5 billion bid for buying stake in six Canadian oil sands assets of US energy giant Conoco Phillips

Indian companies invest in energy sector


GROWTH ENABLERS

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States of India


Contents


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Growth Enablers: Research & Development (R&D)

• The US$ 14.2 billion engineering R&D market in India to touch US$ 42 billion by 2020 clocking a CAGR of 14 per cent*

• Indian R&D service providers grew 16 per cent in 2011-12, captive centres of MNCs grew at a CAGR

of 11 per cent • Chinese telecom equipment Huawei will invest US$ 150 million in its R&D centre in Bengaluru • Google’s India hub is the largest outside US, supports 750 million advertisements across 40 languages a

month

Growth in R&D


GROWTH ENABLERS

* Zinnov Management Consulting study

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States of India


Contents


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Growth Enablers: Manufacturing

• Volkswagen Group owned Scania AB and the world’s largest truck maker Daimler to roll out trucks for domestic market

• American car maker, Ford Motor Company, to invest over US$ 2 billion in a new factory in Gujarat and export Indian built engines to Europe

• Commercial vehicle maker, Eicher Motors, signs a joint venture agreement with US-based Polaris Industries to foray into personal vehicles

• Czech car maker Skoda to increase presence in India

• Yamaha Motor Co, Japan to use India as a key hub for motorcycles and scooters

• Honda of Japan to set up diesel engine plant in Rajasthan in fiscal 2012-13

Automobile Industry Takes Wings in India


GROWTH ENABLERS

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States of India


Contents


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Growth Enablers: IPR & Innovation … (1/2)

• India’s drug industry moving towards patents while strengthening the generic industry • India launches campaign to garner up to US$ 40 billion generic drug market that will emerge as several

patents end over the next three years • Piramal Healthcare to launch an orthopedic drug – its first patented product in Europe


GROWTH ENABLERS

Source: Euromonitor and The Wall Street Journal

Period Country

2005-10 India

2008 alone South Africa

2000-07 Argentina

2004-08 Colombia

2003-08 Brazil 278

438

951

1,426

3,488

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Growth Enablers: IPR & Innovation … (2/2)

• Infosys has filed 159 patents in the US Patent & Trademarks Office during the last five years. Company spends 2.1 per cent of revenues in R&D

• Tata Consultancy Services filed for 43 patents while Wipro and HCL Technologies applied eight and four patents, respectively

Geographical Indication (GI) • European Trade Council & German Tea Association to confer the GI status to “Darjeeling Tea” which

means blenders cannot mix other varieties and brand them as “Darjeeling Tea”

Information Technology


GROWTH ENABLERS

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States of India


Contents


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Growth Enablers: Consumer Markets

• Arvind Lifestyle Brands, a subsidiary of the denim major Arvind, acquired business operations of British fashion retailers Debenhams, Next and American lifestyle brand Nautica in India from Planet Retail

• Tata Sons acquired electronics and durables retailer Infiniti Retail Ltd and the Indian subsidiary of

Australian retail chain Woolworths, for A$35 million • The personal computer market in India registered an increase of 15.7 per cent at 2.86 million units

during April-June 2012 over the corresponding period of 2011


GROWTH ENABLERS

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States of India


Contents


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Growth Enablers: Inclusive Growth … (1/2)

• By 2025, the Indian rural market is expected to grow more than tenfold to become a US$ 100 billion opportunity: Hindustan Unilever

• Per capita monthly consumption in rural India grew 19 per cent during 2009-10 to 2011-12 outpacing

growth in spending by urban India for the first time • Over the years production of vegetables, fruits and livestock, which are priced higher, have gone up

faster than food grains, delivering higher incomes to farmers • Rapid rise in rural wages: rates have risen by about 20 per cent year-on-year for the last three years* • Rural poverty dropped to 26 per cent in 2011-12 says census data on household expenditure from 41

per cent in 2004-05 due to rise in wages, government transfers and higher farm produce prices


GROWTH ENABLERS

*Morgan Stanley

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Growth Enablers: Inclusive Growth … (2/2)

• Mutual funds to partner public sector banks to seek higher rural participation to meet regulations announced by the Securities & Exchange Board of India (SEBI) to move beyond traditional urban markets

MNCs tap rural India • Hindustan Unilever (HUL) to source 100 per cent tomatoes locally in 3 years. Ties up with

Maharashtra to provide technical expertise to farmers

• McDonalds potato supplier, McCain Foods India, to double crop area to 8,000 acres in Gujarat

Rural participation in markets


GROWTH ENABLERS

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States of India


Contents


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States of India

• Odisha emerged as a favourite destination with 27 per cent share in the total FDI proposed in 2011-12

• 10-fold increase in investment inflows witnessed across states in terms of average investment commitments by foreign firms during January 2008 - May 2012

• “Emerging Kerala”: Information technology and tourism fastest growing sectors in Kerala


STATES OF INDIA

Top 10 Investment Destinations (January 2008-

May 2012) US$ Billion

State Number of

Proposals

Proposed

Investment

Orissa 587 198.47

Chhattisgarh 997 136.96

Gujarat 2002 115.56

Madhya Pradesh 957 103.33

Andhra Pradesh 1776 101.80

Maharashtra 3277 90.74

Karnataka 941 87.19

West Bengal 813 87.05

Jharkhand 225 47.76

Tamil Nadu 1132 38.95

Source: Business Line

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States of India


Contents


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OUTLOOK: LOOKING AHEAD

• Government looks to unleash the next set of reforms to achieve over 8 per cent growth in the 12th Plan Period which commenced in April 2012

• Direct cash transfer of subsidies through the Unique Identification Number to benefit economy as it will eliminate wastage of subsidised items and control government expenditure

• The final draft of the Companies Bill 2011 stipulates that companies, subject to certain levels of profit, turnover or net worth, have to spend about 2 per cent of their average profit over three years towards Corporate Social Responsibility activities

• Government is expected to give a boost to commodity markets which will benefit farmers

• Capital market reforms to reassure FIIs who have heavily invested in the offing and is expected to benefit people across the country

• Amendment to the Pension Fund Regulatory Development Authority Bill will encourage foreign investments in the pensions sector and establish strong oversight over pension and social security products


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