India - Investment climate
Sanjay Grover
Table of contents
►
Some basic facts on India
►
Growth drivers
►
Conclusion
Some basic facts on India
India, land of opportunity…
“In the next 25 years, we aspire to (having) growth rates of between 9 to 10 percent annually. This will enable us to lift
millions of our people out of poverty so as to transform India into one of the largest economies in the world.”
Manmohan Singh, Prime Minister of India
Land area
India fact file
3.29m sq km
Capital
Population
Climate
New Delhi
1.2 billion
India’s climate can be classified as tropical monsoon,
having four seasons — summer (March–June), monsoon
(June–September), post-monsoon (October–November)
and winter (December– February).
Natural resources
Coal (fourth-largest reserves in the world), manganese,
bauxite, iron ore, mica, chromites, diamond, limestone,
titanium ore, natural gas, petroleum, and arable land
form India’s natural resources.
Religions
Hinduism, Islam, Christianity and Sikhism are the four
main religions followed in India. Other religions include
Buddhism, Jainism, Judaism and Zoroastrianism.
Languages
Hindi is the national language with 21 official
languages including Bengali, Telugu, Marathi, Tamil,
Urdu, and Gujarati. English is widely used in national,
political and commercial communication.
Literacy rate
74.04% (male: 82.1%; Female: 65.5%)
Labor force
478.3 million (2010)
…supported by a stable administrative
system…
Constitution of India
►Supreme law of India; the longest written constitution of any sovereign country in the world
►Lays down the fundamental political principles, establishes the structure, procedures, powers and duties of the government institutions
►Sets the fundamental rights and duties of the citizens, and highlights directive principles for the government
Executive
Legislature
Judiciary
Central-level
►President
►Vice President
►Council of Ministers
State-level
►Governor
►Council of Ministers
Central-level
►Council of States (Rajya Sabha)
►House of People (Lok Sabha)
State-level
►Legislative assembly
►Legislative council
Union Territories
►Administrators
►Supreme Court
►State High Courts
►Subordinate Courts
► Source of law
►Main sources of law in India are the Constitution, statutes
(legislation), customary law and case law.
► Administrative set up
► The President/Governor creates Ministries/Departments of the
Government on the advice of Prime Minister/Chief Minister
►Each ministry is assigned to a Minister who is assisted on
matters of policy and general administration by Secretary (Officer
from the Indian Administrative Services)
► Ministries and Departments
► There are 49 Ministries at the Central level supported by 2
independent departments and four apex offices (Planning
Commission, Cabinet Secretariat, President‟s Secretariat, Prime
Minister‟s Office).
Political units of India
Administrative units
Number
States
28
Union Territories
7
Districts
640
Towns
7,936
Villages
0.64 million
Source: Census of India, 2011
…driven by young and skilled manpower
base…
One of the world’s youngest countries..
29
43
38
38
474
318
35
25
34
37
40
40
7%
43
7%
6%
Bengali
5%
5%
Telugu
4%
Marathi
8%
25
471
3%
435
2011
World
Brazil
Russia
India
China
South
Africa
US
UK
41%
2050
20-34
35-54
Tamil
Urdu
356
14%
496
0-19
37
29
153
282
Hindi
49
45
38% growth in
working age
population (20-54
years)
Distribution of population by language
India’s median age viz-a-viz other countries (in
years)
Distribution of population by age
groups (in million)
2010
55 & above
Gujarati
Kannada
Malayalam
2050
Others
Source: United Nations, Department of Economic and Social Affairs, accessed 10 June 2012
…with a diversified manpower base
Distribution of labour force by occupation
23%
36%
2%
Distribution of population by education
4%
►
In 2050, India is projected to record the lowest
median age among the BRIC nations and
developed countries such as the US and the
UK.
►
In 2010, India had the highest dependency
ratio in comparison to the BRIC countries and
the US and the UK.
10%
Skilled worker
School till standard four
2%
18%
Businessman
School till standard nine
Petty trader
Senior/higher secondary
19% College (but not graduate)
Executive
13%
8%
Student
Graduate
Retired
12%
1%
10%
Not working
Unskilled worker
2%
34%
6%
Postgraduate
Illiterate
Literate (but not formal)
▬
By 2050, India will have a lower
dependency ratio of 48% against UK
(69%), Russia (67%), US (67%), China
(64%) and Brazil (59%).
…enabling steady macroeconomic growth...
One of the world’s fastest growing major economies
Robust forex reserves
Foreign exchange reserves in India
(US$ billion)
GDP growth rate
305
299
9,5
9,6
241
9,3
8,0
FY07
FY08
FY09
255
192
6,5
6,8
FY06
7,6
294
145
FY10
FY11E
FY12F
FY06 FY07 FY08 FY09 FY10 FY11 FY12
Source: RBI and CMIE
…enabling steady macroeconomic growth
Structural shift from an agrarian to a services driven economy
Distribution of GDP (1970–71)
Distribution of GDP (2011–12E)
15%
59%
40%
Source: RBI Bulletin
27%
14%
44%
Agriculture and allied activities
Source: RBI and CMIE
Industry
Services
Agriculture and allied activities
Industry
Services
Growth drivers
Growth drivers: exports
Merchandise exports expected to reach US$500 billion in FY14
US$ billion
India’s exports – goods and services
450
400
350
300
250
200
150
100
50
0
FY03
FY04
FY05
FY06
FY07
FY08
Services
FY09
Goods
FY10
FY11P FY12P
(AprDec)
► IT services leader: Leading exporter in the world (55% share in global sourcing
industry). During FY11, services exports are estimated to be US$133 billion.
► US top IT services export destination: The US and the UK accounted
for US$50 billion in 2010 at approximately 61.5% and 18%, respectively.
► Merchandise exports cross US$200 billion mark: During FY11, merchandise
exports growth estimated at 37.3% y-o-y to US$250 billion and during FY12
(Apr-Dec) pegged at 28% y-o-y.
► UAE top merchandise destination: UAE continued to be India‟s top
destination for merchandise exports during 9MFY12 with 11.9% share
followed by the US (11.6%), Singapore (6.1%), China (5.9%), and Hong
Kong (4.3%).
► Global position: India accounts for approximately 1.4% off global merchandise
trade with aim to double share in global trade of goods and services by 2020 and
expects the merchandise exports to reach US$500 billion in FY14.
Source: RBI and Ministry of Commerce
*Provisional
Composition of services exports 9MFY12 (P)
16,3%
Software Services
14,4%
Business Services
19,6%
Composition of merchandise exports 9MFY12 (P)
15,4%
Engineering goods
13,4%
Petroleum products
Gems & jewellery
Others
10,3%
43,7%
Transporation
12,9%
Agri & allied products
20,7%
Textiles
Travel
12,6%
Source: RBI
Chemicals & related products
9,1%
2,7%
8,7%
Source: DGFT
Others
Ores and minerals
Growth drivers: consumer spending
India expected to become the world's fifth-largest consuming country by 2025
Trends in public and private consumption
Private consumption expenditure
Government consumption expenditure
Consumption as % of GDP
60000
INR billion
50000
40000
30000
20000
10000
0
FY05
FY06
FY07
FY08
Source: RBI and CMIE
FY09
FY10
70,5
70
69,5
69
68,5
68
67,5
67
66,5
66
65,5
►
By 2025, expected to become the world's fifthlargest consuming country from its twelfth
position in 2010.
►
India has approximately 222 million
households, with more than 30% of the
population living in 5,000 cities and towns.
►
13 million people enter India‟s urban work
force each year.
►
Recent global survey of online consumers in
more than 51 nations - Indian consumers
found most optimistic.
►
Significant rural consumption also a key driver
for India‟s growth as it constitutes 70% to the
total population.
►
Approximately 56% of the national income
generated through rural customers.
►
Consumer durables form an important part of
the rural consumption. Out of the total
consumer durables demand in India, 59% is
generated through rural customers. In
addition, they contribute around 53% to the
total FMCG sales.
FY11
Consumption to boom across categories
Units
2010
2020
CAGR (2010-20)
Organised Retail
US$ bn
24
266
27%
Air Conditioners
Mn p.a.
3
18
22%
Home Mortgage*
US$ bn
88
646
22%
Cars
Mn p.a.
2
12
20%
Mn
subscribers
24
116
17%
Refrigerators
Mn p.a.
6
25
16%
Packed foods
US$ bn
22
89
15%
2-Wheelers
Mn p.a.
9
35
14%
HPC Products
US$ bn
10
34
13%
Digital Pay TV**
Source: ENAM Research
*Mortgage expressed as total housing loan outstanding
**DTH is expressed as total subscriber base
Growth drivers: consumer spending
Increasing middle class
Distribution of income by households* in India
Urban population
Rural population
3%
2%
9%
8%
8%
5%
15%
23%
16%
1%
2%
3%
11%
1%
1%
3%
7%
19%
14%
27%
26%
44%
68%
41%
29%
12%
2009-10
INR million
Less than 0.075
0.30-0.50
Above 1.50
0.075-0.15
0.50-1.00
2019-20
0.15-0.30
1.00-1.50
Less than 0.075
0.30-0.50
Above 1.50
Approximately
40% of the
expenditure
goes in food,
beverages
and tobacco
11 %
3%
2%
3%
12 %
3%
15 %
4%
Source: Ambit research
0.075-0.15
0.50-1.00
0.15-0.30
1.00-1.50
People preferences in saving options 2010
Distribution of consumption expenditure 2010
39 %
2019-20
Saving pattern
Consumption pattern
Food, beverages and tobacco
Clothing and Footwear
Household goods
Housing
Health
4 % Transport
4%
Communication
Education
Leisure
Hotels and catering
Miscellaneous goods
INR million
2009-10
27%
8%
Bank Deposits
40% of the
people prefer
Real Estate as
their saving
option
Stocks and MF
5%
Insurance and pensions
20%
Real Estate
Gold
40%
Source: ENAM Research
Growth drivers: urban population
India to lead among BRICS in urbanization
Rural and urban population in India, a comparison
Rural and urban population in India, 1990-2050
Proportion of rural and urban population in India,
1990-2050
100
2 000
80
1 500
60
1 000
40
500
20
0
1990
0
2000
2010
2020
Rural population (million)
5
2030
2050
1990
Urban population (million)
Average annual rate of change of the
proportion of urban population, BRICS (%)
2000
2010
Percentage rural (%)
►
4
2020
2030
2050
Percentage urban (%)
The percentage of urban population in India has
consistently increased from 26% in 1990 to 31% in
2010.
3
▬
2
1
►
0
1990-1995
-1
Brazil
2010-2015
Russia
2020-2025
India
2030-2035
China
2045-2050
South Africa
Source: United Nations, Department of Economic and Social Affairs, accessed 10 May 2012
This ratio is further expected to rise to 40% in
2030 and 52% by 2050 (higher than the
proportion of rural population).
India is projected to achieve the highest average
annual rate of change of proportion of urban
population among the BRICS at 1.4% in 2030-2035
and 1.2% in 2045-2050.
Growth drivers: investments
Steady GFCF amid stagnating investments
Trends in share of gross fixed
capital formation (GFCF)
INR billion
16 000
14 000
12 000
28,7
30,5 31,8
33,6 32.2
32,0 32,0
►
Projects worth approximately INR3.2 trillion were completed in
FY12.
40,0
35,0
30,0
24,7
22,9 23,6
India has maintained an average of approximately 30% in gross
fixed capital formation as a percentage of GDP between FY02
and FY11.
25,0
10 000
▬
20,0
8 000
15,0
6 000
4 000
10,0
2 000
5,0
0
►
0,0
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Household sector
Public sector
Private corporate sector
GFCF as % of GDP
Significant decline in project completion in 3Q12 due to
postponement of a large number of projects.
Approximately INR8.3 trillion worth of projects are expected to be
completed in FY13. However, delays in approval process and
land acquisition could result in postponement of these projects.
▬
Source: CMIE
Note: Data after FY04 is adjusted with base year as 2004-05
Four sectors, primarily electricity, petroleum products, steel,
and road transport are projected to witness substantial
amount of projects being completed during FY13.
New projects announced
Projects completed
7
5
4
699
898
808
586 625
5,7 6,2
3
3,9
2
800
4,6
2,3
1
1 200
3,8
3,1 3,1 3,1
400
2,5 2,1 2,5
0
0
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
Value of projects
Source: CMIE
Number of new projects
499
528
1,0
463
454
1,2
INR trillion
1 109
600
566
1,4
1 128
1 114
1 356 1 085
Number of deals
1 3191 271
6
INR trillion
1,6
1 600
376
360
348
305
303
500
411
341
0,8
0,6
0,4
400
300
1,4
0,7
0,8
1,3
1,2
1,1
0,9
0,2
0,6 0,6
200
0,7
0,8
0,5
0,0
100
0
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
Value of projects
Number of projects completed
Number of deals
18 000
►
Growth drivers: robust financial institutions
Maintaining stability
►
Strong and stable financial and capital market, regulated
by RBI and SEBI,.
►
Established capital market with 20 stock exchanges.
►
BSE : world‟s largest stock exchange in terms of number
of listed companies.
►
►
►
Banking infrastructure in India
no. of branches of SCBs (As on 31 March 2011)
NSE : world„s third largest stock exchange in terms of
number of transactions.
The Multi-Commodity Exchange of India (MCX) is the
world's largest exchange in silver and gold, second
largest in natural gas and the third largest in crude oil
futures.
Banking sector consists of 26 public sector banks, 21
private banks and 32 foreign banks with a total asset
size of approximately INR65 trillion at end-FY11 (US$1.4
trillion).
►
Public sector banks dominate with 74% of the assets
held as of FY11. Private sector banking growing at a
rapid pace with 11,968 branches at the end of FY11.
►
The government has yet again made a provision of
INR159 billion in union budget FY13 for banks‟
recapitalization. This will help to protect financial health
of public sector banks and financial institutions.
62,211
Public sector
banks
Private Sector
Banks
11,602
Foreign
Banks
317
SCBs credit to GDP ratio
60%
49,0%
44,3%
50%
40%
32,2% 33,1%
28,1%
30%
52,0%
49,7% 49,5%
50,0%
37,1%
20%
10%
0%
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
Credit – deposit ratio of SCBs
80
70
60
50
40
30
20
10
0
70,1
53,8
FY02
56,9
FY03
73,5
74,6
62,6
72,2
FY04
FY05
FY06
FY07
*As of 20 April 2012
Source: RBI; NSDL website; NSE India website; BSE India website; MCX website; SEBI website.
FY08
FY09
FY11
75,7
72,4
55,9
FY10
FY10
76,6
FY11 FY12*
Growth drivers - Foreign Trade Policy
India accounts for 1.8% of the global trade in goods and services. Foreign trade in the country is regulated by the Foreign
Trade (Development and Regulation) Act 1992. The Ministry of Commerce and Industry is the foremost body responsible
for promoting and regulating foreign trade in India.
Foreign Trade Policy
► India‟s FTP covers policies related to
fiscal incentives, rationalized procedures,
institutional changes, increased access to
global markets and diversification of its
export market.
► FTP lays special emphasis on key sectors
including agriculture, handicrafts, leather,
gems and jewelry, marine products,
handlooms, IT hardware, sports goods
and toys.
► The policy focuses on diversification to
new markets in Africa, Oceania, Latin
America and Asia.
FTP 2009-2014 targets
► Export
growth of 15% p.a. till FY11with the
aim to achieve exports worth US$200b in
FY11
► Export growth of 25% p.a. between FY12
to FY14
► Doubling India‟s current share in global
trade by 2020
Key measures in trade liberalization
the years, India has entered into numerous bilateral and regional trade agreements with key trading partners.
► India‟s tariff regime has seen a considerable decline in rates over a period of time. Tariffs have fallen from a peak rate of 350% in
1991 to 10% in 2010.
► Over
The government has continually liberalized
trade environment…
Apart from offering preferential tariffs on trade of goods among member countries, foreign trade agreements also enable wider economic
cooperation in the fields of trade in services as well as investments and intellectual property, resulting in greater trade liberalization.
Existing key trade agreements
►Comprehensive
Economic Partnership
Agreement (CEPA) with Japan
►Comprehensive Economic Co-operation
Agreement (CECA) with Singapore
►CECA with Korea
►CECA with Malaysia
►Free Trade Agreement (FTA) with Sri Lanka
►India-ASEAN trade in Goods Agreement
►India Bhutan Trade Agreement
►Agreement on South Asia Free Trade Area
executed by India, Bangladesh, Bhutan,
Maldives, Nepal, Pakistan and Sri lanka
►India Nepal trade Treaty
►Framework Agreement with Thailand
►Asia Pacific Trade Agreement with
Bangladesh, Korea, China and Sri Lanka
►Preferential Trade Agreement with
Afghanistan
►Global System of Trade Preference with 46
countries
►Preferential Trade Agreements with
MERCOSUR countries
►Preferential Trade Agreement with Chile
►Economic co-operation agreement with
Finland
Trade agreements under negotiation
►India-EU
FTA
(Services and Investment)
CECA
►India-New Zealand FTA
►India-European Free Trade Association FTA
►India-Canada FTA
►India-Mauritius Comprehensive Co-operation
and Partnership Agreement
►India-South African Customs Union PTA
►India-Sri Lanka FTA (to be expanded to
include services and investments)
►Bay of Bengal Initiative for Multi-Sectoral
Technical and Economic Co-operation
►India-Gulf Co-operation Council FTA
►India-Israel FTA
►India-Australia FTA
►India-MERCOSUR PTA
►India-Chile PTA
►India-ASEAN
FTAs under feasibility study
►The
primary objective of conducting a
feasibility study is to identify the potential
opportunities in bilateral trade, which would
benefit both the countries and create a
favorable investment environment.
►Some of the FTAs under feasibility study are:
►India-China
FTA
FTA
►India-Turkey FTA
►India-Egypt FTA
►India-Russia
Global MNCs in India
Indian unit name
Maruti Suzuki India Ltd.
Parent company
Suzuki Motor
corporation
Nokia
Communications
Parent country
Year of entry
Sector
FY11 Sales in
India
(US$ million)
Japan
1983
Automobiles
8,258
Finland
1995
Telecommunications
6,150
UK,
Netherlands
1888 (started trading),
1931 (established first
subsidiary)
Retail and consumer
products
4,492
IBM India Private Limited IBM
US
1951 (re-entry in 1992,
after an exit in the 1970s)
Information
technology
3,404
LG Electronics India Pvt.
LG
Ltd
South Korea
1997
Retail and consumer
products
2,628
Samsung India
Electronics Private Ltd
Samsung
South Korea
1995
Retail and consumer
products
2,592*
Siemens Ltd
Siemens
Germany
1957
Industrial products
2,440
Ranbaxy Laboratories
Daiichi Sankyo
Japan
2008
Pharmaceuticals
1,915
ABB Limited
ABB
Switzerland
1949
Industrial products
1,399
Nokia India Pvt Ltd
Hindustan Unilever
Limited
Unilever
* Fiscal year is
Indian companies’ overseas footprints
Company / group name
Sector
Tata Group
Diversified
Indian Oil
Oil and gas
Reliance ADAG
Diversified
Bharat Petroleum
Corporation Limited
Oil and gas
AV Birla Group
Diversified
Oil and Natural Gas Corp.
Ltd.
Oil and gas
Bharti Airtel
Telecommunicatio
ns
NTPC Limited
Power and utilities
Essar Group
Diversified
Mahindra & Mahindra
Group
Diversified
FY11 Sales
(US$
million)
77,888
69,154
59,632
34,469
28,243
26,965
13,341
12,896
10,865
8,306
Overseas engagements
Acquired JLR, Corus Steel
Holds 35% stake in Venezuelan E&P assets worth US$ 700
million
Reliance Big Entertainment signed a US$1.5 billion deal with
Steven Spielberg's DreamWorks SKG to set up a new age
DreamWorks studio.
Operates 18 exploration blocks abroad
Acquired Columbian Chemicals Company for US$ 875 million.
Hindalco Industries, a unit of the group acquired Novelis Inc
Owns overseas exploration blocks, acquired Imperial Energy
Corp PLC
Acquired Warid Telecom (Bangladesh) and Zain Telecom
(South Africa)
Owns coal mines in Indonesia and Mozambique
Acquired the Stanlow refinery from Royal Dutch Shell for
US$350 million
Acquired South Korea's SsangYong Motor Company in 2011
Conclusion
Is India an attractive
destination to invest ?
Thank you
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