The India Growth Story


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The India Growth Story

  1. 1. The India Growth Story An analysis of the current state of affairs and the challenges ahead Sreyans Jain
  2. 2. 2Contents Description Slide GDP Growth................................................... 3 Per Capita Income.......................................... 4 Industrial Growth........................................... 5 Agricultural Growth........................................ 6 Services & IT-ITES Growth.............................. 7 Infrastructure Growth.................................... 8 Inflation.......................................................... 9 Key financial indicators.................................. 10 WEO Report................................................... 11-12 The road ahead.............................................. 13-14
  3. 3. 3GDP Growth Projected Projected Source: The Economic Survey 2010–2011 Source: IMF data 2010 COUNTRY WORLD SHARE GROWTH PROJECTIONS (IMF) 1. US 19.3% 2010 2011 2012 2. China 13.6%GDP (PPP) World 5% 4.5% 4.5% 3. Japan 5.8% India 8.6% 8.4% 8.0% 4. INDIA 5.4% 5. Germany 4.0% GDP* PPP 4,060,392 6. Russia 3.0% (in $US million) Nominal 1,537,966  Growth rate revised to 8% by RBI and 8.2% by IMF owing to mounting inflation in current fiscal *Source: IMF data 2010 and Projections
  4. 4. 4Per capita income Per Capita - WORLD(PPP) Above world GDP (PPP) per capita Below world GDP (PPP) per capita Source: The Economic Survey 2010–2011 Source: IMF data 2010 STATE PER CAPITA RANK NATION PER CAPITA RANK ^ INCOME * INCOME Goa $2,802 1st Qatar $88,559 1st Haryana $1,663 2nd World $10,886 - Maharashtra $1,563 3rd China $7,519 95th Gujarat $1350 4th India $3,319 129th  The combined wealth of Indias 55 wealthiest is $246.5 billion in 2011, ~ 1/5th of India’s GDP  37 % of India still lives below the poverty line, WB estimates 80% of India earns below $2 a day * Source: VMW Analytics services from data provided by State governments, converted to USD at `47.3617/USD for FY 10 ^ Ranking based on PPP for a list of 184 nations including Hong Kong
  5. 5. 5Industrial Growth Growth in IIP (major components) Apr-Dec 2009-10 Apr-Dec 2010-11 Source: The Economic Survey 2010–2011 *  Manufacturing sector led the growth at 12.6% & 9.9% in Q1 & Q2 2010-11  Growth largely driven by automotive, cotton textiles, leather, food products and metal products  13 fold increase in FDI inflows from $2.23 bn in 03-04 to $27.31 bn in 08-09  WIR 2010 ranks India as 2nd most attractive location for FDI for 2010-2012 • Basic goods and consumer non-durables which KEY constitute 59% of IIP have performed poorly ISSUES • FDI impacted by high inflation & political instability • Apr-Oct 2010 FDI equity inflows lower at $12.62 bn *Source : Office of the Economic Adviser, DIPP
  6. 6. 6Agricultural Growth Growth of Food grain production The total irrigation potential in the country increased from 81.1 million hectares in 1991 Transformation -1992 to 108.2 million hectares in March 2010 from agricultureIn 2008, India was ranked 2nd in terms of people involved in agriculture and allied activities to agri-business with (~583 million) people involved in agriculture India is 2nd in the world, after the US in terms of tractor usage; FAO statistics estimate less $US 85.4 million than 50% of the total agricultural area is under mechanized land preparation acquisition of 10 States account for approximately 80% of the total food grain production Agro Dutch Ind. Edible oils constituted 44.6% of the imports in 09-10, mainly from Malaysia & Indonesia by Penta Home & Vishwa Calibre • 2009-10 witnessed the worst South-west monsoon since 1972 with Builders forms KEY severe impact on kharif crops the largest deal ISSUES • Farmers pay 25 to 40 per cent of the actual cost on Fertilizers with a in the year 2010 significant subsidy burden on the Government Source: The Economic Survey 2010–2011
  7. 7. 7Services & IT-ITES Growth 76.1 Growth 63.7 19.5% Source: The Economic Survey 2010–2011 Source: Nasscom. SERVICES SECTOR • IT-ITES contribute to 6.1% of GDP, 26% of exportsServices sector • 240,000 jobs were added in FY2011 contributes to 55.2% of • 133 Patents granted to Top-5 IT Companies the GDP (63.4% including IT-ITES • 126 Cross border and Domestic M&A deals construction); for the United States it was 76.5% in 2009 • IT Services exhibited fastest growth at 22.7%Recorded 27.4% export • BPO export revenues at US $ 12.4 billion in 2010 growth in Apr-Dec 2010It contributes to 1/4th of • Domestic BPO grew 16.9%; revenues estimated total Indian employment BPO at `127 billion for 2010-11IT-BPO export revenues • Currency fluctuations, wage inflation & attrition grew at 18.7% in 2010 are major challenges Source: Nasscom Strategic Review 2011
  8. 8. 8Infrastructure Growth Road development Source: Economic Survey 2011 Source: NHAI, SBICAP Securities Research Investment on Infrastructure was 7.18% of GDP in 2008-09 in the 11th Five-year plan Crude Oil production in the FY 2010-11 was at 37.96 MMT (million metric tonne) against 33.69 MMT in 09-10 an increase of 12.67% Teledensity , a factor of telecom penetration, rose to 64.34% in Nov 2010 from a meagre 7% in March 2004 Domestic air-passenger traffic increased by 19% from 43.3million in Jan-Dec 09 to 51.53million in Jan-Dec 2010; 413 aircrafts are being operated by 12 scheduled airlines currently Nuclear power capacity is planned to be increased to 25% at 63 GW by 2032 from the present 3% US $ 4.1 billion proposed for road transport in the budget 2010-11, an increase of 13.4% over the previous FY • Capacity addition less than target in power, roads, new railway lines & doubling of railway lines ISSUES • Upward trend in cost overruns in `150crore+ infra projects partly due to rise in steel & cement prices; overruns increased by 20.7% in Oct 2010 & 14.7% in Mar 2010 against 12.06% in Mar 2009
  9. 9. 9Inflation – our biggest worry * ^  RBI has stepped in to curb inflation through monetary measures by raising repo rates as many as 10 times in the past 16 months from 5% to 7.5%  Apr-Jul 2010, WPI increased by 3.5 per cent, driven largely by food items  Aug-Nov 2010, WPI increase decelerated to 1.8 per cent, with the major driver being non-food primary articles  Dec 2010-Mar 2011, WPI increased sharply by 3.4 per cent, driven primarily by non-food manufactured products • Crude oil prices at $116+ per barrel (May-11), an all-time high KEY since Jul-08 is increasing subsidy burden substantially • Sharp increase in industrial raw materials like rubber, ISSUES minerals, fibres, coal & crude oil is translating to increase in output prices *Source: 1. National Stock Exchange, 2. RBI ^ Simple average of three spot prices; Dated Brent, West Texas Intermediate, & the Dubai Fateh
  10. 10. 10Key financial indicators Corporate income tax took over from union excise duties in 2006-07 as the single largest revenue earner Subsidies grew to 2.3% in 2008-09 against 1.4% in 04-05 mainly due to increase in global crude oil prices Average cost of borrowings rose to 7.9% (BE) in 2010- 11 against 7.2% in 2004-05 A higher than realization of non-tax revenues resulted from telecom 3G/BWA auctions External debt was $US 295.8 billion at the end of Sept 2010, a 12.8% increase over Mar-2010 Source: The Economic Survey 2010–2011
  11. 11. 11Some realities – WEO report Source: The Global Competitiveness Report 2010–2011
  12. 12. 12Some realities – WEO report contd. Source: The Global Competitiveness Report 2010–2011
  13. 13. 13The road aheadMacroeconomic stability High oil and commodity prices and the impact of the Reserve Bank’s anti-inflationary INFLATION monetary stance will moderate growth. Assuming a normal monsoon & crude oil prices averaging at $110 per barrel over the year 2011-12, growth is expected to moderate to 8% with a lower bias. The budgeted fiscal deficit gives some comfort on the demand front. However, the FISCAL reduction of the subsidy burden on diesel and cooking gas is inevitable due to increasing DEFICIT international crude oil prices. On the flip side, any adjustment in domestic retail oil prices adds to inflation in the short run. Disinvestment of ` 40,000 crores is budgeted in 2010-11. Exports showed remarkable buoyancy in the last quarter of last fiscal. The current account EXTERNAL deficit was 3.1 per cent of GDP for April-December 2010. Factoring better performance in DEBT the last quarter, CAD is now estimated to be around 2.5% of GDP for the full fiscal year.Macroeconomic conditions Political instability and high inflation have created an atmosphere of uncertainty. Stock FDI markets have under-performed, with Nifty down 13% in the last six months. The downturn is expected to continue in the medium term before the dust settles down. Sovereign debt problem in the Euro area continues and so does high commodity prices, GLOBAL especially oil prices. Possible abrupt rise in long-term interest rates expected in advanced TRADE economies with implications for fiscal adjustment. Accentuation of inflationary pressures visible in emerging market economies. The US recovery has been slower with growth at 1.8% against the forecast of 3.1% for this year. Global recovery will slacken due to these factors, impacting our economy through trade, finance & confidence channels. Growth enhancers Growth sustainers Growth moderators
  14. 14. 14The road aheadHuman capital Working age population of 672million need to be armed with skills and technical education EDUCATION to contribute significantly to the India growth story. Work still needs to be done here. LIFE Life expectancy at birth in India was 64.4 years in 2010 much below the world average ofEXPECTANCY 69.3 years necessitating greater focus on primary health care. Infant mortality rate of 50 per 1000 births (2009 estimates) is a cause for worry. Higher allocation for education and health care in the Twelth Five Year plan boosts prospects.Political conditions Coalition governments by nature have limitations in making bold policy decisions. The POLITICAL burden of frequent elections have created uncertainty besides putting additional pressure STABILITY on the exchequer. Also, defragmentation of different political interests in the state and centre bars uniformity. The 2G, CWG, Aadarsh scams have dented the political image of the country. This hasCORRUPTION impacted the economy severely leading to low investor confidence.  All sectors of the economy have sustained the changing economic environment and continue to contribute to the growth story. Slowness in one sector is compensated by continued momentum in other sectors.  In the short term and over the next two quarters growth may be impacted due to inflationary trends but the fundamentals are strong to sustain growth in the long term  The International outlook on India is improving and India is poised to grow . As the fundamentals improve India will grow well beyond 8%. Growth enhancers Growth sustainers Growth moderators
  15. 15. Thank you© June 2011. Any redistribution or reproduction of part or all of the contents in any form is prohibited other than for personal and non-commercial use only. Copying of content for personal use can be done only if you acknowledge the copyrights of various data sources mentioned on the slides as appropriate.