India : Parameters for Growth By Dr. Ajay Dua Secretary to Govt. of India Ministry of Commerce & Industry, New Delhi

Healthy macroeconomic fundamentals Growth  Average annual growth rate* In the 50s, 60s and 70s – 3.5% In the 80s – 5.7% During – 6.0% During the last three years – 8%  India is now targeting a growth of 9% plus over the next 5 years * Source – Reserve Bank of India

Fiscal deficit Healthy macroeconomic fundamentals Source – Reserve Bank of India

Healthy macroeconomic fundamentals External debt Source – Reserve Bank of India

Healthy macroeconomic fundamentals Forex reserves (All figures are in US$ billion) Source – Reserve Bank of India

Healthy macroeconomic fundamentals Inflation (All figures are in %) Source – Reserve Bank of India

Composition of GDP Agriculture Industry Services (All figures are in %) Source – Reserve Bank of India

External trade (All figures are in US$ billion) Source – DGCI&S

Foreign investments (All figures are in US$ billion) Source – Reserve Bank of India FDI in is expected to touch US$ 12 billion

Calibrated globalization  Reduction in import tariffs  Liberalization of FDI regime  Fully convertible current account  Moving towards fuller capital account convertibility  Complying with WTO norms to plug into the global economy

Calibrated globalization  Reduction in collection rates Source – Economic Survey

Calibrated globalization FDI allowed selectively up to 40% Up to 51% under ‘automatic route’ for 35 priority sectors Up to 74/51/50% in 111 sectors under ‘automatic route’ 100% in some sectors Pre Post 2000 Up to 100% under ‘automatic route’ in all sectors except a –ve list More sectors opened; equity caps raised; conditions relaxed Liberalization of FDI policy in India

Buoyant corporate performance Source – CMIE

Striking future projections What Goldman Sachs says -  India likely to show the fastest growth over the next 30 to 50 years  Growth could be higher than 5% over the next 30 years and close to 5% as late as 2050  India’s GDP will exceed Italy’s in 2016, France’s in 2019, Germany’s in 2023 and Japan’s in 2032  India to become the world’s 3 rd largest economy by 2032

Unmatched demography  Over 1 billion population – 52% below the age of 25  Median age of India’s population would remain 25 even as late as in 2025  India’s workforce (20-59 age group) would go up by around 263 million by 2050  Today’s youth would drive tomorrow’s boom

Unmatched demography Growth in global working-age population (15-64) in millions Size of age group in 2005 (in million) Size of age group in 2050 (in million) Growth of age group (in million) India United States Japan Germany United Kingdom France3433 China Source – United Nations

Expanding domestic market Total number of households to increase from million in to million by Source – NCAER

Untapped market potential Figures for 2005 Penetration rate (per 1000 people) Market size (Annual sales in Mn) IndiaChinaIndiaChina Passenger cars Motorcycles Cellular subscribers Internet subscribers Televisions While the absolute size of the market is large, penetration rates are still low – untapped potential Source – Morgan Stanley

Untapped market potential Figures for 2004UnitIndiaChina Skin careUS$ spending per person DetergentsUS$ spending per person ShampooUS$ spending per person ToothpasteUS$ spending per person Soft drinksLitres per person Bottled waterLitres per person Source – Morgan Stanley Penetration rates for non-durable products

Large intellectual capital base Source – Morgan Stanley Annual additions to the stock of science and engineering graduates

India - An emerging hub for knowledge based industries  India has potential to attain leadership position in sectors like pharma, chemicals, biotechnology, avionics, nanotechnology, material sciences  Over 100 MNCs have set up their R&D centers in India

Cost competitiveness Average annual pay for various jobs in India and China (US$) PositionIndiaChina HR manager15,10032,000 Marketing manager14,30025,800 Project manager10,00023,400 Software developer10,30013,400 Financial analyst8,40013,200 Accountant5,7009,000 Sales representative 4,7005,100 Production worker1,9002,300 Source – FICCI Compilation

Sectors with Potential 1.Automobiles and auto ancillary 2.Information technology and IT enabled services 3.Food processing 4.Telecommunications

Automobiles and Auto ancillary  Largest three wheeler manufacturer in the world  Second largest two wheeler manufacturer in the world  Third largest car market in Asia  Fifth largest commercial vehicle manufacturer in the world  All major MNC auto companies present – Daimler Chrysler, Suzuki, Ford, Fiat, Hyundai, General Motors, Volvo, Yamaha, Mazda  India exports automobiles to critical markets

Automobiles and Auto ancillary Auto production includes commercial vehicles, passenger vehicles, two and three wheelers Source – Society of Indian Automobile Manufacturers (SIAM)

Automobiles and Auto ancillary Production CAGR to Domestic Sales CAGR to Exports CAGR to Commercial Vehicles 24.5%24.3%35.9% Passenger Vehicles 18.2%14.1%34.8% Two Wheelers15.5%13.8%48.9% Three Wheelers19.5%15.8%49.3% All Automobiles16.3%14.3%44.6% Source – FICCI computation based on data provided by SIAM

Automobiles and Auto ancillary Output ($ Mn) Exports ($ Mn) Investment ($ Mn) Export / Output13%14%15%16%18% Source – Auto Component Manufacturers Association (ACMA)  The growth of the automobile industry has been accompanied by growth in the auto components industry  Indian auto component manufacturers are today globally competitive and are making significant inroads in the global market

Automobiles and Auto ancillary The BIG opportunity !!!  Car ownership in India is 10 per thousand inhabitants – Brazil (122), Russia (160), UK (400), Japan (502), USA (745)  Auto ancillary output projected to go up from US$ 10 billion in to US$ 40 billion by 2015  Auto ancillary exports crossed the US$ 1 billion mark in and projected to touch US$ 25 billion by 2015  With design, engineering and components manufacture facilities India can be an important R&D hub Source – Industry Estimates

Information technology and ITeS Industry snapshot  CAGR of over 28% since  Contribution to GDP up from 1.9% in to nearly 4.8% in  Currently employs 878,000 people, added 120,000 during the last fiscal  Clocked 31% growth in , registering revenues of US$ 29.6 billion, up from US$ 22.5 billion in  Exports grew by 33% in , domestic revenues witnessed a growth of 24%

Information technology and ITeS All figures are in US$ billion Source – NASSCOM IT-ITeS exports projected to reach US$ 60 billion by 2010

Information technology and ITeS Look at India for  Software product development  Embedded software  Offshore product development / R&D outsourcing  IT application solutions  ITeS

Food Processing  India - One of the largest food producers of the world  Output of the organized segment - US$ 34,827 million  Marine and Spices together contribute more than 70% of export earnings  Investment requirement is around US$ 15 billion  The Indian scientific and research talent - a knowledge source that can be tapped for advantage

Food Processing - Projections ($ billion) ($ billion) Total food consumption205 Processed foods Primary processed food79136 Value added food48138 Share of value added products in food consumption 16%50% Excluding consumption of alcoholic beverages and out-of-home consumption

Telecommunications  The 6th largest network in the world with a wide range of services including basic, cellular, internet, paging, VSAT, etc.  Network growing at an annual average rate of approximately 22 percent for basic services and more than 100 percent for cellular and internet services  The current tele-density of approximately 14 percent is to be increased to 22 percent (250 million telephone connections) by 2007  Investment requirement of approximately US$32 billion between 2005 and 2010

Growth of Telecommunication Network (In Million) Fixed LineCellular Phones (Till Aug) Source – TRAI

Growth of Telecommunication Network (In Million)

Issues needing to be addressed Making the growth process more inclusive Growth has been urban centric. –8 large metros witnessing the revolution in manufacturing and services, though there are over 750 towns and cities. –Rural areas which have about 60% of the population remain largely unaffected by the progress. Agriculture, their main stay is growing slowly at about 2% p.a.

Making the growth process more inclusive (contd.) Growth has not been accompanied by significant new employment opportunities. –Agriculture growth at 2% p.a. is supporting over 600 million persons, but with only 20% share of GDP – consequently farm employment not growing. –Services growth at 7% plus for last decade, accounting for 54% of GDP, employs only 20% of work force –Manufacturing growing at 8% plus, is also not labour intensive in view of the need to remain globally competitive and because of easier availability of capital. Rigidity in labour laws contributing to higher capital intensity. –Population increase of about 100 million in last 5 years, which has seen about 50 million new jobs, largely in the unorganized sector.

Growth being constrained by inadequate infrastructure An estimate that GDP rate of growth being limited by one percent on account of inadequate electricity – admitted energy shortage of 12% and peak time shortage of 20% - need for an additional 90 Giga Watts capacity over next 5 years. Transaction costs high due to capacity constraints at ports resulting in delays. Highways network expanding but grossly inadequate – Public Private Partnership Models evolved. Railways network large but expanding very slowly – need for high capacity and high speed passenger and freight trains. Estimated capital requirement in infrastructure US $ 320 billion during FDI seen as a major avenue.

Future Growth Dependant on Continued Availability of Skills Indian comparative advantage of high skills and low wages could become minimal if continuous augmenting of skill training facilities is not kept up. While at the top good technocrats are available, skill shortage at the shop floor level likely to arise in five years time particularly in IT, ITeS and many manufacturing operations. Private sector involvement in capacity building is a must and ways and means to devise it still not in place. s