India's Economic Boom and Surge
--> Posted on 2009-08-18 11:07:45 By Har Amol Singh
Indian economy has been witnessing a phenomenal growth since the last decade. After seeing a growth rate in excess of 9 per cent for the last 3 years, it is still holding its ground in the midst of the current global financial crisis.
Pegging India's growth rate in the current year at between 7 and 8 per cent, the Union Finance Minister, Mr P Chidambaram, has reiterated that India would continue being the second fastest growing economy in the world despite the ongoing global economic slowdown. Though the global financial crisis have affected the Indian equity and foreign exchange markets, the macroeconomic brunt of the meltdown is not much due to the overall strength of the domestic demand and the largely domestic nature of its investment financing.
Chidambaram has further assured that by the second half of the next fiscal, the economy would pick up and the government’s ‘stimulus measures’ would encourage growth and ensure "brisk” economic activities in the last few months of this fiscal year.
Further, according to the International Monetary Fund’s (IMF) prediction in October 2008, India is likely to grow at 7.8 per cent in 2008, and 6.3 per cent in 2009.
As a measure to boost the economy and to ensure a 7 per cent growth, the government announced an approximately US$ 6.46 billion fiscal stimulus package, on December 7, 2008. The package entailed additional spending and excise duty cuts for increasing consumption.
Further, as per a survey in Deutsch business magazine, Wirtschafts Woche, in spite of the global financial crisis, companies from developed economies such as Germany have shown confidence in India's economic future and are interested in growing their business in the country. Showing faith in India's robust future, around 94 per cent German companies plan to increase their businesses with the subcontinent, the survey stated.
After the signing of the US-India civil nuclear deal, India will now be partnering several countries for nuclear fuel technology projects, and this will further boost the economy.
India and Russia signed 10 agreements in December 2008, including a pact on civil nuclear cooperation.
Thorium Power, a US firm, and Punj Lloyd will be forming a nuclear fuel technology joint venture (JV). The JV will offer thorium fuel technology for light water reactors (LWR) in India.
The 2008-09 Fiscal
Subsequent to three years of plus 9 per cent growth in gross domestic product (GDP), India's growth rate in the current year is likely to come down to a more modest level of 7–8 per cent.
• Foreign institutional investments (FII) in India became positive in November 2008, after net selling by them in September and October 2008 due to redemption pressures from abroad.
As per SEBI data, foreign institutional investors (FIIs) continued to flow into India with 120 new FIIs registering themselves during September and November 2008, since the global meltdown started in September. Even though some FIIs had pulled out, many FIIs see long-term value in India. Moreover, during the same period, 358 new sub-accounts were registered, which was the highest within three months, in 2008.
• Foreign direct investment (FDI) in India from March-September 2008 increased by 137 per cent to US$ 17.21 billion, due to the inflows into construction, real estate, services, computer hardware and software firms. The government has also stated that the country would attract US$ 35 billion of FDI in the current year to March 2009.
• In August 2008, the average inflation stood near 12.5 per cent, which fell sharply in the third week of December, at 6.84 per cent, which was the lowest in the last 9 months. It was lower than Reserve Bank of India’s (RBI’s) target of 7 per cent for 2008–09.
• In the first half of the current fiscal, the money supply increased by 6.6 per cent against 8.2 per cent last year (from end of March 2008 end to end of September 2008).
• Net bank credit to the government and commercial sector increased by 6.8 per cent and 7.8 per cent, respectively.
• Growth in net foreign exchange assets of the banks slowed to 6.0 per cent compare to 11.0 per cent in the previous year. However, the non-monetary liabilities went.
• The central bank pumped in more money into the banking system, cutting CRR levels from 9.00 per cent to 5.5 per cent. Repo rate was also brought down to 7.5 per cent from 9 per cent.
India’s cumulative value of exports for the period between April-September, 2008 was US$ 94973 million compared to US$ 72556 million. Exports during September, 2008 added up to US$ 13748 million which was 10.4 per cent higher than US$ 12455 million during September 2007.
The rural India growth story
The Indian growth story is spreading to the rural and semi-urban areas as well.
In 2008, the rural market has grown at an impressive rate of 25 per cent compared to the 7–10 per cent growth rate of the urban consumer retail market. Further, according to international consultancy firm Celent, the rural market will grow to a potential of US$ 1.9 billion by 2015 from the current US$ 487 million.
The rural India success story is being replicated across a range of sectors in the rural markets. After several global corporations like Microsoft, Intel, and Shell, many other major multinational companies (MNCs) and domestic players are keen to foray into the rural Indian market to capitalise on its growing opportunities.
Further, venture capitals have started investing in technology firms focussed in rural areas. Firms like Avishkaar India Micro Venture Capital Fund, Acumen Fund, and Rural Innovations Network (RIN) are focussing on rural markets.
Per Capita Income
In 2007–08, India's per capita income is estimated to be around US$ 740. Further, India's per capita income is expected to increase to US$ 2,000 by 2016-17 and US$ 4,000 by 2025. This growth rate will, consequently, propel India into the middle-income category.
Advantage India
• According to The World Fact Book, India is among the world's youngest nations with a median age of 25 years as compared to 43 in Japan and 36 in USA. Of the BRIC—Brazil, Russia, India and China—countries, India is projected to stay the youngest with its working-age population estimated to rise to 70 per cent of the total demographic by 2030 - the largest in the world. India will see 70 million new entrants to its workforce over the next 5 years.
• India has the second largest area of arable land in the world, making it one of the world's largest food producers - over 200 million tonnes of foodgrains are produced annually. India is the world's largest producer of milk (100 million tonnes per annum), sugarcane (315 million tonnes
per annum) and tea (930 million kg per annum) and the second largest producer of rice, fruit and vegetables.
• With the largest number of listed companies - 10,000 across 23 stock exchanges, India has the third largest investor base in the world.
• India's healthy banking system with a network of 70,000 branches is among the largest in the world. In June 2007, the aggregate deposits of commercial banks were about US$ 445 billion (50 per cent of GDP) and the total bank credit stood at US$ 320 billion (36 per cent of GDP). NPA (non-performing assets) levels of banks in India are under 3 per cent, one of the lowest among emerging nations.
Growth potential
• Special Economic Zones (SEZs) are set to see major investments after the straightening out of certain regulatory tangles. According to India's Commerce Secretary, Mr G K Pillai, India has approved 513 SEZs till August 2008, of which 250 have been notified. Investments are expected to cross US$ 45.73 billion by December 2009, providing incremental employment to 800,000 people. In December 2008, the government has cleared 22 proposals for setting up Special Economic Zones (SEZs). The proposals included a major foreign direct investment (FDI) project a by Dubai-based developer.
• According to the CII Ernst & Young report titled 'India 2012: Telecom growth continues,' India's telecom services industry revenues are projected to reach US$ 54 billion in 2012, up from US$ 31 billion in 2008. India saw a 23 per cent increase in IP (Internet Protocol) addresses with 2.6 million connections in the third-quarter ended September 2008.
• The government is planning to set up a special corpus of around US$ 10.48 billion for infrastructure projects.
• According to a report by Research on International Economic Relations (ICRIER), the retail business in India would grow at 13 per cent annually from US$ 322 billion in 2006–07 to US$ 590 billion in 2011–12. The unorganised Indian retail sector is expected to grow at about 10 percent per annum to reach US$ 496 billion in 2011–12.
• According to a study by Evalueserve, a global research and analytics firm, India is likely to emerge as the next global hub for innovation and join the club of developed nations, with the country aiming to increase its research and development (R&D) expenditure in the coming years. India is targetting to increase its R&D spend to two per cent of the GDP by 2012 under the 11th Five-Year Plan, from less than one per cent earlier.
• Corporate India registered US$ 3.4 billion as mergers and acquisitions (M&As) during November 2008, as against US$ 850 million in November 2007. The figure stood at US$ 2.13 billion in October 2008.
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