The Indian Economy - A Snapshot
Global Financial & Economic Crisis - Indian Response

The Indian economy is set to grow between 7 per cent and 7.5 per cent in the current fiscal, according to Dr C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council (PMEAC). The mid-year review has projected a growth rate of 7.75 per cent for the fiscal.

India's gross domestic product (GDP) grew by 7.9 per cent during July-September 2009, up from 6.1 per cent in the previous quarter, as per data released by the Central Statistical Organisation (CSO). According to the latest estimates available on the Index of Industrial Production (IIP), the index of mining, manufacturing and electricity, registered growth rates of 9.5 per cent, 9.2 per cent and 7.5 per cent, respectively in Q2 of 2009-10, as compared to the growth rates of 3.8 per cent, 4.9 per cent and 3.2 per cent in these industries in Q2 of 2008-09. The key indicators of construction sector, namely, cement and finished steel registered growth rates of 12.6 per cent and 2.1 per cent, respectively in Q2 of 2009-10, as against the growth rates of 5.2 per cent and 3.8 per cent, respectively in Q2 of 2008-09.

The Economic scenario

Overseas investors have infused US$ 816.69 million into the stock market in the first trading week of 2010, reflecting a positive start for the year after record inflows in the last year. FIIs were net investors of US$ 973.22 million in debt instruments in the first trading week of the year, according to the data released by Securities and Exchange Board of India (SEBI). The wealth of foreign institutional investors (FIIs) in leading Indian companies now stands at more than double the level a year ago, vindicating India's image of being a safe and lucrative investment destination.

Consumers in India continued to be optimistic slightly more than what they were six months ago, as per a latest MasterCard Worldwide Index of Consumer Confidence survey. "In India consumers are more optimistic than six months ago (68.0) and a year ago (63.9)," said the study. Additionally, India ranks second with 117 points in consumer confidence in the fourth quarter of 2009, according to the Nielsen Global Consumer Confidence survey. The survey results indicate that the recovery from the global economic downturn is faster in India as compared with other countries in the world.

Global ratings firm Moody's has upgraded long-term foreign currency (FC) deposit ratings of 14 Indian banks, including the country's largest bank. State Bank of India (SBI), by one notch to Ba1 from Ba2 with a stable outlook. This reflects a slight improvement in the credit quality of the rated entities. This move has come in wake of the revision in India's sovereign outlook by the ratings firm. Among the banks which would be benefited by the ratings decision include Axis Bank, Bank of Baroda, Bank of India, Canara Bank, Central Bank of India, Export-Import Bank of India, HDFC Bank, ICICI Bank, IDBI Bank, Oriental Bank of Commerce, Punjab National Bank, State Bank of India, Syndicate Bank and Union Bank of India.

India's local currency rating outlook has been raised to 'positive' from 'stable' by Moody's Investors Service on the back of the country's demonstrated resilience to the global crisis and expectation that it will resume its high growth path. The global credit rating major also held out the possibility of upgrade of the local currency bond rating.

Simultaneously, the agency also raised the ceiling on banks' foreign currency deposits to 'Ba1' from 'Ba2' to reflect the robust external position of India better. Both 'Ba1 and 'Ba2' ratings, according to Moody's definition, fall in the speculative grade category.

Of the more than 200 companies from over 50 countries that form part of the World Economic Forum's Global Growth Companies (GGC) Community, India today has the second largest representation, with a total of 18 GGCs. Indian GGCs come from every sector, with a strong representation in information technology and electronics, retail, consumer goods and banking.

The GGC Community was formed to engage high-growth companies with the potential to be tomorrow's industry leaders and drive economic and social change.

India ranks 49 among 133 countries in 2009-10 in the global competitiveness index (GCI) prepared by the World Economic Forum (WEF), an improvement of one position from last year. India's position is a result of mixed performance across 12 categories covered by the GCI.

India's trade confidence remains higher than the regional average as small and mid-market business in India continue to be optimistic about their trade outlook, as indicated by the latest HSBC Trade Confidence Index, which covers a total of 12 markets, including key economies in the Asia-Pacific region. The businesses surveyed continued to be confident with an Index of 117, an increase over the second quarter index of 115.

The prospect of a global economy recovery has driven confidence across the board, supported by a sustained confidence in the domestic economy, says a survey conducted in September by JP Morgan Asset Management, in association with ValueNotes, a market research company.

• Net capital inflows into India during the current fiscal will be about US$ 50 billion, said Dr C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council (PMEAC), on the sidelines of an OECD-India symposium co-hosted by the Organisation for Economic Cooperation and Development and ICRIER. The year 2008-09 saw a net capital outflow from the economy.
• After purchasing 200 tonne gold from IMF, India has now the highest gold reserves as a percentage of total forex reserves, among the BRIC nations. India has US$ 17.5-billion worth gold reserves, which is 6.66 per cent of its total forex reserves estimated at US$ 262.9 billion as on November 13, 2009.
• According to data released by the market regulator SEBI, FIIs transferred a record US$ 17.46 billion in domestic equities during the calendar year 2009. This FII investment in 2009 proved to be the highest ever inflow in the country in rupee terms in a single year, breaking the previous high of US$ 14.96 billion parked by foreign fund houses in domestic equities in 2007.
• During the October-December period in 2009-10, FIIs made a net buy of shares worth US$ 5.19 billion, according to data compiled from market regulator, SEBI. In the quarter, December attracted the highest inflow of US$ 2.2 billion, followed by October US$ 1.95 billion and November US$ 1.18 billion. FIIs poured a net US$ 1.26 billion in debt instruments during the said period.
• Indian companies have raised about US$ 2.6 billion from the international market through external commercial borrowings and foreign currency convertible bonds (FCCBs) in October to fund overseas acquisitions and import capital goods and modernisation and lending. This is highest amount raised in a month by Indian companies through ECB\FCCB route after the financial crisis intensified on collapse of Lehman Brothers in September 2008.
• Exports from India are estimated at US$ 14.6 billion in December 2009, 9.4 per cent higher than the level in November 2009, according to Mr Anand Sharma, Union Commerce and Industry Minister. Export growth in December was driven by sectors such as pharmaceuticals, engineering and auto components he added.
• In November 2009, India's containerised volume reported a double-digit growth of 15 per cent year-on-year, according to a report by the domestic brokerage India Capital Markets Pvt. Ltd.
• India's logistics sector is witnessing increased activity-the country's major ports have posted a 12.8 percent year-on-year (y-o-y) rise in cargo volumes in November 2009. The Public Private Partnership Appraisal Committee (PPAC) has approved four projects worth over US$ 897.7 million to be developed through the public-private partnership (PPP) mode in a move to boost capacity at the major ports in the country.
• Foreign tourist arrivals in India in the peak tourism season of 2009-10 is set to witness a growth of 25 per cent over the same period of 2008-09, according to Mr Vijay Thakur, President, Indian Association of Tour Operators (IATO).
• The recovery of the Indian economy, as was broadly expected, worked well for the advance tax figures for the third installment that was payable by December 15, 2009. The all India direct tax collection between April and December 2009, which includes corporate and personal taxes, increased 8.1 per cent to US$ 48.39 billion, according to figures that are currently with the income-tax (I-T) department.
• The domestic mutual fund (MF) sector registered positive growth in November 2009. According to the latest statistics from the Association of Mutual Funds in India (AMFI), the assets under management (AUM) of top fund houses have increased by two to 10 per cent.
• Independent investment bank Rothschild sees potential for M&A activity in banking, telecom and aviation in India driven by consolidation in these sectors.
• India is likely to emerge as a major hub for production of quality steel products, as per Ratan Jindal, vice-chairman, managing director and CEO of Jindal Stainless Steel (JSL). The International Steel Exhibition 'Indinox', to be held at Ahmedabad in January, will portray India as a major destination for manufacturing steel products.
• The Indian drug retail market grew by a 29.24 per cent in value terms in October 2009 over the year ago period, more than double the average monthly revenue growth rate of 13-14 per cent in the recent past, as per market research firm ORG IMS.
• The country's IT exports under the Software Technology Parks of India (STPI) scheme logged an estimated US$ 46.25 billion in the first half of the current financial year, with Bangalore accounting for over 30 per cent of the total export basket.
• India's iron ore exports more than doubled to 9.3 million tonne in October 2009 as compared to 4.4 million tonne in the same month a year ago on the back of increase in demand from Chinese steel producers, as per a joint study by a group of iron ore exporters.
• India's pharmaceutical industry is the third largest in terms of volume. The Indian US$ 20 billion pharmaceutical industry has shown tremendous progress in terms of infrastructure development, technology base creation and a wide range of products, as per the Ministry of Chemicals and Fertilisers.
• India has joined an elite group of six countries which have successfully decoded the human genome indigenously. The discovery, which was announced by the Council of Scientific and Industrial Research (CSIR), will bring pharmaceutical companies a step closer to designing drugs accounting for the specific characteristics of the Indian physiology.
• India leads the top real estate investment markets in Asia for 2010, according to a study by PricewaterhouseCoopers (PwC) and Urban Land Institute, a global non-profit education and research institute.
• A new survey undertaken by Manpower Inc, a world leader in the employment services industry, found that Indian employers are most optimistic about adding staff.
• India's life insurance sector is expected to grow by almost 15 per cent in the current financial year and touch a total premium income of US$ 50 billion, according to Life Insurance Council secretary general S B Mathur.
• India which retained its numero uno position in world milk production this year as well, is estimated to have produced 110 million tonnes of milk in 2008-09.
• The mobile subscriber base in the country crossed the 500-million mark to touch 506 million in November 2009, according to the figures released by the Telecom Regulatory Authority of India (TRAI).
• The country's infrastructure sector accelerated by 5.3 per cent in November 2009, backed primarily by growth in steel and cement production in the month. The six core sectors, which contribute 26.7 per cent to the overall Index for Industrial Production (IIP), had grown 0.8 per cent in the corresponding month of 2008.
• According to data released by Society of Indian Automobile Manufacturers, car sales in November stood at 1.33 lakh units in the domestic market, up from 83,121 in the same month last year.
• Accordiing to the Gem and Jewellery Export Promotion Council, the exports of gems and jewellery from India, the world's largest supplier, rose 45 per cent over December 2008 to touch US$ 1.89 billion in December 2009.
• Merger and acquisition (M&A) volumes have touched US$ 74.5 billion till January 13, 2010-the next highest Year To Date (YTD) level in ten years since 2000.

The rural India growth story

Estimated at close to 350 million, the bottom-of-pyramid (BOP) consumer segment is the biggest and perhaps the fastest growing in the country with about 40 million families making the jump from poverty to the BOP club every year. Consumer product makers such as GlaxoSmithKline, Nestle, Coca-Cola, PepsiCo, Hindustan Unilever, Marico, Godrej and Dabur are rushing to the bottom-of-the-pyramid market with custom-made products six years after management guru CK Prahalad said consumers with incomes less than $2 a day can be a profitable segment for marketers.

Major fast moving consumer goods (FMCG) companies like Hindustan Unilever (HUL), Marico, Godrej Consumer Products, Dabur and even brewers like Sab Miller have stepped up hiring in small towns and rural India-primarily appointing sales staff to increase visibility and connect, and simultaneously boost sales.

Growth potential story

• A report from the Automotive Component Manufacturers Association of India (ACMA) estimates the turnover of the auto component industry in India will touch US$ 40 billion by 2015-16. By then India's share in the global auto component market is likely to grow from the current per cent to nearly per cent.
• Ernst and Young has forecast the passenger car market in India to grow by 12 per cent annually over the next five years from the present figure of 1.89 million units to reach 3.75 million units by 2014.
• Small and medium enterprises (SMEs) are expected to contribute 22 per cent to India's Gross Domestic Product (GDP) by 2012, up from about 17 per cent at present, according to a survey by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).
• The healthcare industry in the country, which comprises hospital and allied sectors, is projected to grow 23 per cent per annum to touch US$ 77-billion mark by 2012 from the current estimated size of US$ 35 billion, according to a Yes Bank and ASSOCHAM report.
• India's domestic business processing outsourcing (BPO) market, that has close to 500 players, will grow at a compound annual growth rate (CAGR) of 33.3 per cent, to reach revenues of US$ 6.82 billion by 2013, up from US$ 1.62 billion in 2008, according to a report by information technology research firm IDC India.
• India is targeting annual foreign direct investments worth US$ 50 billion by 2012 and would double the inflows by 2017.
• As per a study conducted by the Indian Council for Research on International Economic Relations (ICRIER), the retail sector is expected to contribute to 22 per cent of India's GDP by 2010.

Exchange rate used: 1 USD = 46.25 INR (as on December 2009)

Source: www.ibef.org