Bonn-Rhein-Sieg University of Applied sciencesCase Study: IndiaLocation Analysis INTERNATIONAL ECONOMICS -Global Economics- -Global Economics- Sub. By : Divyanshu Singh and Igor Dobrosavljevic Sub. To : Prof. Dr. Wiltrud Terlau WS 2011,MBA-NGO Management
Background Analysis INDIAS ECONOMY HAS MADE great strides in the years sinceindependence. The economy had stagnated since the late nineteenth century, andindustrial development had been restrained to preserve the area as a marketfor British manufacturers. .In fiscal year 1950, agriculture, forestry, and fishing accounted for58.9 % of the gross domestic product and for a much larger proportion ofemployment. Manufacturing, which was dominated by the jute and cottontextile industries, accounted for only 10.3 % of GDP at that time. In the late 1980s, however, India relied on foreign borrowing tofinance development plans to a greater extent than before. As a result, whenthe price of oil rose sharply in August 1990, the nation faced a balance ofpayments crisis. The need for emergency loans led the government to make agreater commitment to economic liberalization than it had up to this time. Inthe early 1990s.
As India moved into the mid-1990s, the economic outlook wasmixed. Most analysts believed that economic liberalization would continue,although there was disagreement about the speed and scale of the measuresthat would be implemented. It seemed likely that India would come close to orequal the relatively impressive rate of economic growth attained in the 1980s,but that the poorest sections of the population might not benefit. The Indian economy has continued to recover robustly in 2010-11,recording one of the fastest growth rates in the world and climbing back tonear pre-crisis levels. Real gross domestic product (GDP) growth in the (Q2)of the current fiscal, year-on-year was 8.9 per cent and the first quarter (Q1)GDP growth also stands revised to 8.9 per cent.
Contribution of IndicatorsServices 55.2%Agriculture 18.5%Industries 26.3% *2010 est.
Economic Policies :Fiscal Policy (1)• Combined fiscal deficit in India• Even before the recent setback: very high by international standards contribute to the persistence of an interest rate differential with the rest of the world, >constrains progress towards full capital account convertibility.• self imposed rule based fiscal correction needs to be consolidated and carried forward.Fiscal Policy (2)• Sustained interest rate differential also connected with the existence of a persistent inflation differential with the rest of the world.• A key challenge is to further reduce inflation expectations toward international levels
Monetary Policy (1)• A continuous need to adapt monetary management to the emerging needs of a fast growing and increasingly open economy.• Financial deepening and increasing monetisation.• expansion of monetary aggregates departs from their traditional relationship with real GDP growth.• task of monetary management: manage such growth without endangering price or financial stability.Monetary Policy (2)• Further development of financial markets• Large capital inflows in recent years• Reserve Bank’s ability to manage the impossible trinity• Issues for monetary policy• current account balance as a good guide to evaluation of the appropriate level of an exchange rate?to what extent should the capital account influence the exchange rate?implications of large current account deficits for the real economy?
Industries: Industrialization in India: Since independence to 1980: During this period there was restrictivegrowth of private sector and governments permission was required to set upany private enterprise in India. Despite this the GDP grew at a rate of 1.4% perannum from 1940 – 1970. 1980 to mid-1990s: Post 1980s India saw liberalization and achievedfurther impetus in Mid-1991. The nation witnessed historical upsurge in percapita GNP. In 1994-95 the industrial output-growth registered 8.4% growthand the exports rose by 27%. This resulted in a 10% drop in inflation in themid-1990s 1990s to 2000s: Since its liberalization policy, India has opened severalpublic sector enterprises. The exports saw a 17% rise in 1994 and 28% in 1995-96. Over 90% of Indias imports are backed by export revenues. At present thecurrent account arrears is less than 1% of GDP and foreign-exchange profitsare soaring at $20 billion. The food stocks have witnessed an all-time increase of37m tonnes.
Major Industries in IndiaTextile Industry: -shares 35% of the gross export income. -industry provides job opportunity to over 35 million individuals. -has 4 per cent share in GDP. -adding 14% of value addition in merchandizing sector.Food Processing Industry: -accounts less than 1.5% inspite of being one of the key food producing nations worldwide -provides job opportunities to 1.6 million people -by the GDP estimates, the approximate expansion of this sector is between 9-12%Chemical Industry: -it amounts to 12.5% of the entire industrial output of India and 16.2% of its entire exports -Indian Chemical industry generates around 70,000 commercial goods.
Cement Industry: -have 115 cement plants and around 300 small cement plants -the capacity of Indian cement industry at 159.38 million tonnes Steel Industry: -Steel Industry is a 400 years old -registering 4% growth in 2005-06. -India steel industry is the 10th largest in the world which is evident from its Rs 9,000 crore of capital contributionSoftware Industry: -Compounded Annual Growth Rate (CAGR) of 42.3%. In the year 2008, the industry grew by 7% as compared to 0.59% in 1994-95.Mining Industry: -the GDP contribution of the mining industry varies from 2.2% to 2/5% onlyPetroleum Industry: -petroleum industry started its operations in the year 1867 and is considered as the oldest Indian industry.
Current Issues Major Political Issues in India: - Education in India - Border Issues - Pollution - Languages - Women in India - Poverty - Corruption - Economic Instability
PeculiaritiesIncome & Poverty• Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per capita income by 2016-17• Increase agricultural GDP growth rate to 4% per year to ensure a broader spread of benefits• Create 70 million new work opportunities.• Reduce educated unemployment to below 5%.Infrastructure• Ensure electricity connection to all villages and BPL households by 2009 and round-the-clock power.• Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and tribal areas) by 2009, and ensure coverage of all significant habitation by 2015• Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012Environment• Increase forest and tree cover by 5 percentage points.• Attain WHO standards of air quality in all major cities by 2011-12.• Treat all urban waste water by 2011-12 to clean river waters.• Increase energy efficiency by 20 percentage points by 2016-17.
Future Challenges Nowadays India is among the fastest growing countriesThe future of Indian economy:- Bright, because of its huge human resources (Young population)- Rapidly upcoming service sector- Availability of large number of competent professionals- Increasing impact of consumerism- Interest of foreign entrepreneurs in India- Existence of four hundred million middle class people. (and growing)-Indias long term challenges include widespread poverty, inadequate physicaland social infrastructure, limited non-agricultural employment opportunities,insufficient access to quality basic and higher education, and accommodatingrural-to-urban migration.
Challenges for IndiaRising competition In the next ten years, China will replace India in its number 1position in the global ITES-BPO industry. Rising costs and low efficiency in many cities like Bangalore willmake software outsourcing less attractive in 2006. The giants may show a dropin earnings. In d ia ’s terrib le In frastru ctu re w ill continue to bead ragion thepotential of India givin gother countries the competitive advantage. Other competing countries providing low-cost outsourcing optionswill exert a downward push on costs – East Europe, Latin America, SouthAfrica
Infrastructure India’s ability to develop infrastructure is far outpaced byneighboring China Metro cities are getting saturated and costs are rising -- Tier II townsneed to develop infrastructure but India’s track record does not bode well forfast development.Human resources and training The demand-supply gap in India for knowledge workers is being feltnow in Bangalore but may peak India wide in 2008-2009 The education system needs transformation to produce people withskill sets that match industry needs. The transition to knowledge processing will be a much biggerchallenge for the Indian company and employee than it was for BPO services.The typical college graduate many not have background or flexibility tounderstand global issues required by this type of service.