Introduction to India s Economy and Business Environment. University of Chicago GSB August 2004, Presented by

Transcription

1 Introduction to India s Economy and Business Environment University of Chicago GSB August 2004, Presented by

2 Overview of Presentation Part I: Macroeconomic and Socio-Political Overview Basic Economic Data and Indicators Socio-Political Trends and Developments Risks and Opportunities Part II: India s s Business Environment Foreign Direct Investment Outsourcing and Off-shoring Trends Business Ranking

3 Overview of Presentation cont d Part III: India s s Corporate Sector General Overview Some recent developments Focus on Telecommunications and IT

4 Part I: Macroeconomic and Socio-Political Overview GDP Composition by Origin, 2003 GDP Composition by Expenditure, 2003 % of GDP % 20% Private Consumption 61% 47% 24% Government Spending 11.4% Gross Fixed Investment 24% Agriculture Industry Services Others Exports 20.1% Imports 17.5%

5 Recent Economic Performance Indian Economy fuelled primarily by domestic drivers, esp. private consumption Economy grew by 10.4% in 4Q2003 Overall growth for 2003 estimated at 8.5% Growth powered by favourable monsoon last year agriculture sector grew by 16% Alternative Growth driver: shifting from agriculture to services More importantly: sustainable with little threat of overheating

6 Key Economic Indicators 12% 10% 8% 6% 4% 2% 0% Real GDP Growth Growth of Fixed Investment Average Lending Rate Private Consumption Growth Consumer Price Inflation

7 The Story behind the numbers India s s GDP grew by 10.4% in 4Q2003, surpassing even that of China In contrast to China, India is able to sustain 7-8% GDP growth without overheating because: Robust private consumption and less reliance on exports India s s growth the culmination of protracted process of liberalization and reforms, compared to China s big bang approach More sound corporate sector Benign inflation outlook, but high cost of funds

8 Structural Transformation Agriculture still the largest component of India s s GDP but services sector gaining importance Growth in Services Rising Investment Growth of Middle Class VIRTUOUS GROWTH CYCLE Higher Profits Greater Private Consumption Impetus for Economic Reforms

9 Recent Socio-Political Developments Implications for business and the economy India s s General Elections, May 2004: Upset victory by Congress Party Good for Business? The previous BJP government seen to be pro-urban, pro-rich rich policy will a Congress-led government lead to economic back-tracking?

10 Little danger to economic reform process Congress victory not a rejection of pro-urban, anti-rural rural policies per se PM Manmohan Singh s s credentials as an economic reformist Electoral politics driven more by local-level level ordinary people issues, rather than big picture issues Water Land Employment Healthcare Education Roads Law and Order Justice and Corruption Foreign Direct Investment Privatization and trade liberalization Hydrocarbon reforms Telecoms regulation and competition policies Use of IT in government

11 Macro Upsides and Downsides Upside Prospects Major FDI surge for 2004 and beyond: the world s s second preferred emerging market destination for FDI after China Benign inflation outlook providing stable basis for growth Improving relations with Pakistan Energy sector reforms: bringing the private sector back in

12 Macro Upsides and Downsides Reforms proceeding with caution: Caps on foreign investments in key sectors increased: Telecoms: 49% 74% Insurance: 40% 49% Aviation: Aviation: 26% 49%

13 Macro Upsides and Downsides Downside Risks cont d Slowing reforms? Congress constrained by coalition politics Onerous labour regulation: impact on productivity and profitability Inadequate infrastructure, esp. ports increasing the cost of inventory and credit Extremist dangers? E.g. ultra-leftist leftist guerilla group, the People s s War

14 Part II: India s s Business Environment Projected Annual Avg FDI, (US$ Billion) India Singapore Russia Finland Switzerland Mexico Brazil Sweden Italy Hong Kong Spain Ireland Canada Germany Netherlands UK France China US$9.8bn US$67.4bn Belgium-Luxembourg US Source: EIU figures, 2004

15 Asia riding the worldwide FDI recovery Global FDI poised for 2004 recovery: FDI inflows into Asia and Australasia to top US$129 billion (+16.5% from 2003) Story of 2 Asian Giants: China, 2003: US$53.5bn vs India, 2003: US$6bn But significant amount of round-tripping Must be put in context!

16 Good performance, all things considered Inflow of US$35 billion FDI in spite of: unfriendly FDI policy regime Poor infrastructure Excessive bureaucracy Inter-departmental wrangling Strong potential: Highly-skilled but low-cost English-speaking speaking workforce Leveraging on its outsourcing and off-shoring prowess, especially in IT sector Going beyond just call centres : : developments in R&D, distribution and logistics, financial services

17 India s s Attractiveness % Respondents China Japan India New EU members Brazil New Consumer Markets Low-cost Labour New Partnership possibilities New Corporate Markets Access to skilled workforce Opportunities in outsourcing Acquisition opportunities R&D activities Supply Chain efficiencies Source: World Investment Prospects, 2004

18 Part III: India s s Corporate Sector General Overview India s s corporate sector in ascendancy Booming economy Record stock market levels: Market Capitalization reached US$292 billion, triple its level four years ago Quality revenue and earnings growth upgrade in ratings by credit agencies Financial liberalization easier access by Indian companies to global funds In 1H2004, Indian companies have raised US$1.6bn on global capital markets

19 India s s Corporate Sector: General Overview Comparison: , 03, Indian companies only managed to raise only US$370m total Strong corporate growth + Improved Access to capital markets + Soaring business confidence Globalization of the Indian Firm

20 Indian Companies: Overseas Ambitions Indian companies are starting to flex their muscles in overseas markets: Infosys Technology s s US$20m plan to set up its consulting arm in the US Tata Motors purchased South Korea s s Daewoo Commercial Vehicle for US$105m Energy Sector: Indian Oil Corporation has set aside US$2bn for overseas acquisitions State-owned Oil and Natural Gas Corporation has announced plans to acquire Shell s s 50% stake in an oil block in Angola for US$600m

21 Sun Pharmaceutical (India s fourth-largest): plans to complete acquisition of US-based Caraco Pharmaceutical Laboratories + further acquisition Wockhardt: setting up its own sales and marketing division in the US, adding to R&D and trials India s Pharmaceutical Boom Ranbaxy (India s top drug company): recently bought RPG Aventis of France US expansion plans: Nicholas Piramal India and Zydus Cadila Zydus Pharmaceutical US Strides Arcolab JV with US partner

22 Not just high tech sectors India s s construction companies are also flourishing: Bharat Heavy Electricals, KEC, Voltas Power plants Transmission Lines Pipelines Roads Dams Malaysia Central Asia Middle East Africa US

23 IT & Telecoms Sector: Living with China Industry experts estimate that India and China jointly account for up to 25% of global IT & telecoms sector but are they rivals or partners?

24 Powerful manufacturing base Software/services sector plagued by lack of Englishskilled workforce and state controls State-owned monopoly carriers + openness to foreign technology China Synergy and Convergence India Robust software industry Smaller manufacturing base Liberalized the service sector early; tight controls on domestic production

25 Opportunities for Partnership Indian companies in China: Satyam Computer, Wipro Indian IT/Telcos are filling the gap in China s customer care market segment INDIA CHINA China s equipment makers meeting the India s excess demand for hardware/infrastructure Chinese companies in India: ZTE, Legend

26 End of Presentation