ECONOMIC AND INVESTMENT SCENARIO INDIA UP. Economic Profile of India

Transcription

1 Chapter - 2 ECONOMIC AND INVESTMENT SCENARIO INDIA UP GENERAL INDIAN ECONOMY India is the fourth largest economy in the world, and has the second largest GDP among developing countries, based on purchasing power parity. Until the economic reforms in 1991, the Indian economy was characterized by highly regulated business environment with high tariffs. Later due to economic reforms that were highly supported by successive governments have ensured India's position in the global map as the favoured investment destination with open and liberal police. External trade has been liberalized, tariffs steadily lowered, import controls progressively reduced and tax rates have been rationalized and are at present are lowest ion the world. There exits today, a strong political consensus on the current economic policies not only at the centre level but amongst all the states that ensured continuation and strengthening of investor friendly policies. The brief economic profile of India is given in the following Table. Economic Profile of India Parameter Value GDP US $ 480 bn GDP Growth Rate 5.2% Per Capita Income US $ 486 Exports US $ 43 bn Imports US $ 48 bn FDI US $ 3.9 bn Inflation 4% Interest Rate 12%+ INVESTMENT SECRETIVENESS OF INDIA If size of the market and growth potential are two important factors in attracting investments in an economy, then India potential is widely acknowledged. It is a well known fact that India has been one of the fastest growing economies over the past decade, averaging around 6 per cent GDP growth second only to China. As per Global Competitiveness Report 2000, India has improved its position from 52 to 49

2 out of 59 Countries. The noteworthy feature is that India is ranked No. 5 as far as export promotion is concerned in the growth competitiveness ranking. Among the other growth competitive advantages that India enjoys are with respect to investment rate (14), financial risk rating (14) stock market (18) and national savings rate(20) In the current competitiveness advantages that India enjoys is licensing of technology where it has been ranked first. India has fared well in indices like availability of suppliers (8), median income tax rate (3), value added tax rate (12), top marginal tax rate (12) etc. This clearly shows that India is in good company in as far as tax reforms are concerned and are more or less in line with international rates except for import tariff. The growth competitive disadvantages include intellectual property protection (48) starting a new business (39), capital account restrictions (57), and foreign access to capital market (57) import fees (59), average tariff rate (59) and access to foreign capital markets (59) These areas need reform especially with respect to average tariff rate and intellectual property protection. Overall there are several good reasons for investing in India as enumerated below. One of the largest agencies in the world Strategic location access to the vast domestic and South Asian market A large and rapidly growing consumer market up to 300 million people. Vibrant capital market with over 9,000 listed companies and market capitalization of US 154 billion (March 1996). A long history of stable parliamentary democracy. Independent judiciary, sophisticated legal and accounting system. India has third largest pool of engineers, technicians & skilled manpower and relatively low wages rates. India merges as a leader in labour attributes. Competitive and Scientific tax system with the lower marginal rates of taxation.

3 Rupee is convertible on Current Account at market determined rate. Well developed agriculture & diversified industrial base already existing Well developed R&D infrastructure and technical and marketing services. Unexpected investment potential. Apart from the above, there are several other good reasons that make India as favoured destination across and globe. Foreign exchange controls have been relaxed. Full repatriation of profits is allowed. Trade policy is characterized by rationalized tariff levels and a drastic reduction in quantitative restrictions. There has been drastic reduction in tariffs from the peak time of 350% to less than 40% Further decreases are planned. India along with 110 other countries ratified the results of the Uruguay Round by signing the Final Act at March on April 15, Most sectors have been put on automatic route with Industrial licensing being limited to :- Industries reserved for public sector Industries of Strategic, social or environmental concern. Manufacture of Items reserved for the small scale sector by non small scale industry units or units in which foreign equity is more than 24 percent. All other industries are exempt from industrial licensing, subject to certain restrictions in metropolitan areas. India welcomes foreign investment in virtually all sectors except defence, railway transport and atomic energy. No government approval is required for FDI except for the small negative list notified by the government. CURRENT FDI STATUS INDIA The cumulative FDI approvals since 1991 in India have been of the order Rs billion. The sectors which have attracted high FDI inflows are Power, Oil, Telecommunications, Computer Software & Hardware, Transportation and Service sectors. The table below summarizes FDI approvals by various sectors during

4 Sector wise break-up of FDI & Technical Collaborations Approved Sector Total No. of approvals Amount (Rs. In billion) Fuels (Power & Oil) Telecommunications Electrical equipment (including S/W and elec. Transportation Service Metallurgical industries Chemicals (other than fertilizers) Food Processing Industries Hotel & Tourism Textiles (including dyed & printed) Drugs & Pharmaceuticals Trading Others Source: SIA News letter April 2002 ( August 91 to March 2002) Percentage share For the year 2001, the top five states attracting highest FDI approvals are Gujarat, Maharastra, Delhi, Karnataka and Tamilnadu. The table below summarized state wise FDI inflows since 1991.

5 State wise break up of FDI Approvals ( ) Rank State No. of approvals Amount of FDD (Rs. In billion) Percent with total FDI 1 Maharashtra Delhi Tamil Nadu Karnataka Gujarat Andhra Pradesh Madhya Pradesh West Bengal Orissa Uttar Pradesh Others Total Source: SIA News letter (* Figures for August 1991 to March 2002) From the above table, it is evident that, Maharashtra and Delhi are leading destination in India, as far as FDI is concerned. As per the recent survey by FICCI (March 20022) on FDI ranking by States, ranking of states more or less coincide with FDI approvals ranking. These presumption are important, in the sense as a powerful indicator as to which state can expect to attract higher FDI inflows in the near future. The critical response system as suggested by FICCI include, concrete image building and perception changing exercise for India and drastically improving infrastructure facilities. INVESTMENT ATTRACTIVENESS OF UP Uttar Pradesh is the most populous state the country accounting for 16.9 per cent of the country's population (2001 census) and 9.4% of the country's GDP. It compares with the 9th most populous country of the world. Some of the notable features of the UP economy are enumerated below. UP accounts for around 66%% of the total exports from the country In software UP is the second largest exporter in the country after Bangalore exporting software worth Rs. 45 Bn through 670 companies in

6 With a fast emerging middle class of nearly 15 million people, it is one of the largest untapped markets available to industry. Availability of Large, inexpensive and disciplined labour force available UP has more than 0.69 million industrial units in operation out of which 2616 are large and medium sized units providing employment to around 2.9 million people. UP is the home to not only the traditional industries like Brass ware Carpets, Perfumes, Silk, Hand looms, and Handicraft but also the modern industries like electronics, software and automobiles. etc. Though, basically an agrarian economy (agriculture accounting for 54 % of the State Domestic Product, state has made strides in the Industrial Sector Opportunities in the agricultural sector are fast shrinking and Industry provides the desired channels for overall economic growth, much needed revenues for developmental programmes and employment generation. UP state is now emerging as major destination for investors both Indian and foreign. It has attracted the 3 highest number of industrial Entrepreneur memorandums and the 5 highest letter of intents. The state has 379 numbers of projects worth Rs billion (Approx. US$13 Bn) under various stages of implementation. These projects account for 4% of the fatal country's proposed investment in various projects. The table below summarised the distribution of investment proposed announced and under implementation) in UP and their relative share in India.

7 Distribution of Investment - Industry wise as on July 2002 Sectors All India Uttar Pradesh Percentage share of UP Rs. Bn No.s Rs. Bn Nos. Food & Beverages Food Products Fertilizers Organic Chemicals Petroleum Products Electrical Machinery Electronics Automobile Electricity generation Electricity distribution Hotels & Tourism Road Transport , Railway Transport Misc. Services Commercial complexes All industries , Source : CMIE, August 2002 UP is currently accounting for around 4.2% of the country's investment. Out of Rs Bn of investment in UP, 31% of the projects are in announcement stage, 25% in proposal stage and 44% of them are under implementation stage. The projects under implementation relate to electrical appliances, Compact Discs, TV receivers, Leather products, Consumer electronics, Software development, Auto ancillaries and depressed food segments besides several infrastructure projects including roads, industrial parks, integrated townships etc. In UP the major share of the investment is accounted by Noida/Greater Noida and Ghaziabad region. This belt together is accounting for around 25% share of the total investment in UP. The major units coming up in this region relate to Electronics software development, footwear, printing services, appears, ago and food processing industry and other infrastructure projects like hotels, commercial complexes, industrial parks, R&D and roads projects etc. Recently Reliance Group of Industries has laid foundation stone for setting up a power project worth Rs. 10,000 Cr. in Dadri, distt. Ghaziabad.

8 RECENT GOVERNMENT INITIATIVES TO BOOST FDI AND EXPORTS Recent years have witnessed, number of stamps taken by government to boost FDI and exports as mentioned earlier. The SEZ Policy is the latest and most ambitious of export boosting efforts, but it goes much further, in that it seeks to radically change the environment for exports and FDI, by offering a hassle free business friendly environment and world class infrastructure over an unprecedented large geographical area. It allows government to experiment with radical economic reform on a localized basis, introducing reforms that are difficult to implement at the national level, given the country's large size and social disparities. The most notable feature of this policy is working along with state government and encouraging them to take the lead role in export promotion. UP is the first state in the country to formulate and implement SEZ Act (Annexure VII) The state Government policy on SEZ and various notifications are given as Anneure VI & VIII respectively.