Fdi

Designed, Developed & Maintained by FICCI-BISNET INVESTMENT FOREIGN INVESTMENT Continuous liberalization in FDI policy and simplification of procedures are contributing immensely to attracting increased FDI into India. The fact that the government is now annually conducting a review of the FDI Policy & Procedures has given an added confidence to the foreign investors that their concerns are addressed on a continuous basis. FDI equity inflow during the financial year 2006-07 at nearly US $ 16 billion (US $ 15.7 billion) has been 2.8 times more than the inflow (US$5.5 billion) received during the previous year. This is the highest FDI equity inflow into the country during any financial year since the commencement of economic reforms. FDI equity inflow in the month of March 2007 was US$3.8 billion which is the highest inflow received so far in a single month. Major investment (US$ 6,363 million - or $ 6.3 billion) during the financial year 2006-07 came from Mauritius. U.K., U.S.A., Netherlands & Singapore are the other major countries from where inflows have been received. These five countries together have contributed 83% of the total FDI equity inflows during 2006-07 as compared to 67% in 2005-06. Mauritius accounts for 51% in the total FDI inflows during the year 2006-07 compared to 46.4% in 2005-06. Contribution of U.K. has been 15% in 2006-07 compared to 4.8% in 2005-06. USA has invested 7% during 2006-07 compared to 9.1% in 2005-06. Both, the Netherlands and Singapore have contributed 5% each during 2006-07 compared to 1.4% and 5%, respectively, in the previous year. The five sectors which have attracted highest FDI into India during 2006-07 are Services, Electrical Equipments (including computer software & electronics), Construction Activities, Telecommunications and Real Estate. The Construction and Rear Estate Sectors have together received US$ 1.45 billion during the year 2006-07 which is about 12% compared to 3.4% of the total FDI inflows received during the year 2005-06. The Services sector has received 38% during the year 2006-07 compared to 10.5% in the previous year. The share of the Electrical Equipment sector has been 22% in the year 2006-07 compared to 26.1% in 2005-06 and the Telecommunication sector has received 4% in 2006-07 compared to 12.2% in 2005-06.

The cumulative FDI equity inflows in India during the period August 1991 to March 2007 stood at US$ 54,628 million. The top ten investing countries with respect to FDI equity inflows are Mauritius, USA, UK, Netherlands, Japan, Singapore, Germany, France, South Korea, and Switzerland. Indian Investments Abroad India's largest aluminium producer, Hindalco Industries, announced the acquisition of Novelis of US for nearly $3.43 billion in cash. Hindalco's purchase would include $2.4 billion of Novelis debt. The acquisition would require approval of 66 per cent of Novelis' shareholders. Novelis with revenue of $8.4 billion in 2005, operates in 11 countries and has approximately 12,500 employees. Hindalco, a flagship company of the Aditya Birla Group, had revenue of approx. $2.6 billion in 2006. With acquisition of Novelis, Hindalco will be the world's largest aluminum rolling company, and one of the biggest producers of primary aluminum in Asia. Mahindra & Mahindra (M&M), one of India's leading auto manufacturers, has entered into an agreement with Renault, a French auto maker and Nissan, one of Japan's leading car manufacturer to set up an auto manufacturing facility in Chennai at a total investment of USD 889 million. The plant will have a total capacity to manufacture 400,000 cars per annum. The Mahindra-Renault joint venture will manufacture Renault's mid-sized car Logan; while Nissan will manufacture its compact car model. M&M will have a 50 percent stake in this joint venture; while Renault and Nissan will own the balance stake. Tata Motors has entered into a joint venture with Italian auto major, Fiat to manufacture pick-up trucks at the latter's manufacturing unit in Argentina. The facility, which has an annual capacity of 20,000 units, will start production by 2008. It will primarily cater to Central and South America and select European markets. The trucks will be sold under the Fiat brand. The total investment for the project is expected to be close to USD 80 million. After becoming one of the largest global producers of cathode ray tubes (CRT), consumer electronics major Videocon Industries is beefing up its presence in LCD (liquid crystal display) panel manufacturing. The company has announced investments worth euro 1.06 billion (Rs 6,100 crore) to set up a greenfield LCD panel manufacturing facility in Italy. Satyam Computer Services, a leading global IT services company, has signed an estimated $200 million (around Rs 900 crore) five-year contract with California-based Applied Materials, a global leader in manufacturing microchips. Satyam will provide application development, maintenance, and support (ADMS) besides business transformation core technology services to the US-based company through a managed

services delivery model. Satyam has provided ADMS and Engineering Services to Applied Materials for more than five years prior to this contract. Tata Steel's wholly owned arm Tata Metaliks Ltd announced a Rs 150 crore joint venture with $10 billion Kubota Corporation of Japan and Metal One Corporation to manufacture pipes used in transporting water on March 29,2007. The project cost will be US$ 35.02 million (Rs 150 crore) which would be funded in a 1:1 debt equity ratio. Metaliks will hold majority stake of 51 per cent in the project, followed by Kubota who will hold 44 per cent and Metal One Corporation with a share of five per cent. Electrical equipment major, Havell's Group has acquired Europe's most popular company, Sylvania, headquartered in Frankfurt in Germany for an acquisition price of US $ 300 million. Sylvania has an annual sales turnover of US $ 600 million. With the latest acquisition, Havell's will catapult into a US $ one billion company in size. Havell's has mobilized US $ 160 million debt on the strength of Sylvania's balance sheet and its projected cash flows. Another US $ 105 million has been mobilized in loans on the strength of Havell's guarantees. This portion of cash would be converted into Havell's equity. The Havell's group has also taken over US $ 35 million worth liabilities of Sylvania. Ahmedabad-Based domestic pharma major Zydus Cadilla, which recently got overseas drug maker certification from Japan's health ministry, is scouting for partners in the country. The company is in talks with 2-3 pharma companies and has earmarked an investment of about $25 million for its expansion plans in Japan. Nicholas Piramal India Ltd (NPIL) has entered into a Plant Screening Agreement with US-based Napo Pharmaceuticals Inc to discover diabetes therapeutic agents. NPIL will utilise its high throughput screening facility and natural product chemistry expertise along with biological testing capabilities to identify active compounds from Napo's library of medicinal plant extracts from tropical regions. NPIL and Napo will jointly own the products developed under the agreement. Himatsingka Seide on has signed an agreement to acquire 70% equity in Giuseppe Bellora SpA, Italy. The acquisition is in line with the company's strategy to acquire highend distribution networks in the global home-textile segment. Bellora, a pan-European luxury brand in the bed linen segment, has presence in up-market departmental stores including Harrods in London and La Rinascente in Milan. It also has exclusive stores across Europe.

The Pune-based Autoline Industries has acquired a 51 per cent stake in the Belgian special purpose vehicles maker, Stokota for US$ 15.60 million (Rs 66.8 crore). Autoline, which is already contract manufacturing Stokota's tippers, dumpers and tankers in India, will fund the deal through a mix of internal accrual, debt and equity. Autoline will provide 80% of the components to Stokota's European operations based in Poland and will continue to assemble vehicles for the Indian, Middle Eastern and North African markets. Stokota also has a manufacturing facility in China, which caters to Australia, US and South-East Asia.

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Designed, Developed & Maintained by FICCI-BISNET ECONOMY POTENTIAL FOR INVESTMENT IN INDIA India presents a vast potential for overseas investment and is actively encouraging the entrance of foreign players into the market. India is also one of the few markets in the world which offers high prospects for growth and earning potential in practically all areas of business Huge investment potential exists in the Media and Entertainment industry, which is all set to more than double its revenues and touch US$ 23.34 billion (Rs. 100,000 crore) by 2011 at the CAGR of 18 per cent.

The Indian pharmaceutical industry is another promising sector of the Indian economy. India holds fourth position in terms of volume and thirteenth position in terms of value of production in pharmaceuticals. It is estimated that by the year 2010, the Indian pharmaceutical industry has the potential to achieve over Rs. 1,00,000 crore in formulations and bulk drug production. Steel sector also holds huge investment potential as the government aims to achieve production level of 110 million tonnes by 2019-20. According to the Union Commerce and Industry Minister, retailing is a sunrise sector. Organised retail sector is expected to generate 10 to 15 million jobs over the next 5 years, and that the value of the organised retail sector in India by 2010 would be around Rs.2,00,000 crore or US $ 45 billion. The Infrastructure sector including roads, power, railways, aviation require an enormous amount of $320-350 billion by 2012 to raise rate of investment in key areas at par with economic growth and 20 per cent of which will have to be chipped in by the private sector. Huge private sector funding is required since public investment in the area is constrained by limitations on the government-borrowing programme imposed by the FRBM Act and demand for investment by other growing sectors of the economy. The Indian real estate industry is poised to emerge as one of the most preferred investment destinations for global realty and investment firms. The industry is poised to experience a landscape change and the key trends that will shape the business in the next three to five years are enlargement of project size with focus on product differentiation and quality, expansion in geographical coverage from metros to smaller cities, shift from regional developers to national developers, movement of construction giants up the value chain and the emergence of strong real estate capital market. According to a study done by FICCI and E&Y, the demand for office space is set to expand significantly in the next few years. The demand will primarily be driven by the IT and ITeS industry, which according to the Ernst and Young estimates would require an additional office space of more than 367 million sq. ft. up to the year 2012-13. The domestic real estate sector may emerge a US$ 50 billion industry by 2010 and prove one of the most attractive sectors for foreign investments. An industry research by financial services firm India Infoline (IIL) said the real estate sector, which was growing at 33 per cent CAGR (compound annual growth rate), could be a $50 billion industry in the next four years, if the institutional participation supported its growth. Huge investment potential exists in the upcoming Knowledge Process Outsourcing (KPO) sector. According to the Ministry of Communication and IT, India is likely to

capture around 15 per cent of the over US$ 54 billion dollar knowledge process outsourcing (KPO) industry worldwide by 2010.

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Designed, Developed & Maintained by FICCI-BISNET KNOW INDIA General Profile Location: The Indian peninsula is separated from mainland Asia by the Himalayas. The Bay of Bengal in the east, the Arabian Sea in the west, and the Indian Ocean to the south surround the Country. Area: 3.3 Million sq km Geographic Coordinates: Lying entirely in the Northern Hemisphere, the Country extends between 8° 4' and 37° 6' latitudes north of the Equator, and 68°7' and 97°25' longitudes east of it. Capital: New Delhi Border Countries: Afghanistan and Pakistan to the north-west; China, Bhutan and Nepal to the north; Myanmar to the east; and Bangladesh to the east of West Bengal. Sri Lanka is separated from India by a narrow channel of sea, formed by Palk Strait and the Gulf of Mannar.

Coastline: 7,516.6 km encompassing the mainland, Lakshadweep Islands, and the Andaman & Nicobar Islands. Climate: The climate of India can broadly be classified as a tropical monsoon one. But, in spite of much of the northern part of India lying beyond the tropical zone, the entire country has a tropical climate marked by relatively high temperatures and dry winters. There are four seasons - winter (December-February), (ii) summer (March-June), (iii) south-west monsoon season (June-September), and (iv) post monsoon season (OctoberNovember) Natural Resources: Coal, iron ore, manganese ore, mica, bauxite, petroleum, titanium ore, chromite, natural gas, magnesite, limestone, arable land, dolomite, barytes, kaolin, gypsum, apatite, phosphorite, steatite, fluorite, etc. Political Profile Government Type: Sovereign Socialist Democratic Republic with a Parliamentary system of Government. Administrative Divisions: 29 States and 6 Union Territories. Constitution: The Constitution of India came into force on 26th January 1950. Executive Branch: The President of India is the Head of State, while the Prime Minister is the Head of the Government and runs office with the support of the Council of Ministers who form the Cabinet. Legislative Branch: The Federal Legislature comprises of the Lok Sabha (House of the People) and the Rajya Sabha (Council of States) forming both the Houses of the Parliament. Judicial Branch: The Supreme Court of India is the apex body of the Indian legal system, followed by other High Courts and subordinate Courts. Demographic Profile Population (as on March 2001): 1028.5 Million Males: 532.1 Million Females: 496.4 Million Density of Population (2001): 324 persons per square kilometer Life expectancy at Birth (2001- 2006)

Males: 63.9 years Females: 66.9 years Literacy Rate: 64.84 percent Males: 75.26 percent Females: 53.67 percent Economic Profile GDP at Factor Cost (current prices) 2006-2007: US$ 840.11 billion (Est.) Per Capita income (current prices) 2006-2007: US$ 657.83 (Est.) GDP composition by sector: Services 55.1%, Agriculture 18.5%, and Industry 26.4% GDP- Real Growth Rate: 8.6 per cent (October-December 2006) Forex Reserves: US$ 191.92 billion (at the end of March 2007) Exports: US$ 124629.48 million (April 2006-March 2007, Prov.) Imports: US$ 181368.26 million (April 2006-March 2007, Prov.) Cumulative FDI Inflows: US$ 54,628 million (August 1991 to March 2007) Top Investing Countries: Mauritius, the USA, Japan, the Netherlands, UK, Germany, Singapore, France, south Korea, Switzerland Top Sectors Attracting highest FDI inflows: Electrical equipments, services sector (financial and non financial), telecommunications, transportation industry, fuels, chemicals, construction activities, drugs and pharmaceuticals, food processing, cement and gypsum products.

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INSIDE THIS ISSUE

01 MAIN

02 TRADE & ECONOMY

03 INVESTMENT UPDATE

04 NEWSMAKERS

05 INFOTECH

06 CULTURE

07 TRAVEL

08 CALENDAR

HIGHLIGHTS India’s External Engagement a Whopping 500 Billion MORE [+] The Spice Route MORE [+] Gujarat, A Celebration of Life MORE [+]

03. INVESTMENT UPDATE FDIs to be doubled by 2010-11 Deputy Chairman Planning Commission, Dr. Montek Ahluwahlia announced that Foreign Direct Investments (FDI‚s ) which currently are estimated at $10billion would be doubled by mid of 11th plan period to ensure that the current flip of infrastructural development attains vigorous peace.

Inaugurating the ASSOCHAM, MIT India, ICICI & IFMR sponsored Consortium Summit, Dr. Ahluwahlia said that the 11th Plan approach document paper aims at accelerating the GDP Growth rate of 9.5% by mid of 11th plan period to make sure that the GDP growth rate of 8.5% on an average is achieved by the end of next plan period. The government expects the 10th plan GDP growth rate on an average rate of 7.5%, he added. "So far the direct investments from overseas institutions in the stock market through listed companies are estimated at $10billion and with the increased focus of UPA

government for the development of Indian infrastructure like roads, ports, airports, communications and the like would be doubled with more reform oriented policies to increase the inflow of investors." said Dr. Ahluwahlia. He, however, admitted that power sector which is suppose to have attracted a large amount of private investment has failed to so and its aggregate technical losses increased to 38% which ideally should have been at 6%. The government, therefore, would do its best to accelerate public private investment in the power sector during the 11th plan period so that it becomes a driving engine to fuel higher growth rate for Indian economy, pointed out Dr. Ahluwahlia. The government, according to Deputy Chairman of Planning Commission would make the regulatory mechanism more effective and user friendly so that public private investment that flow towards the infrastructure developments in the years to come are properly and gainfully utilized without developing leakage‚s in the value chain processes of the system. On labour Laws, Dr. Ahluwahlia said that flexibility was essential and called for but given the current political realities, higher and fire system cannot be put into place even in areas where a particular section of society is wanting it to happen. The Union Labour Ministry, however, is working on a direction to evolve flexible labour laws with consensus with all constituents of the UPA government without creating any political disharmony, hinted Dr. Ahluwahlia. Among the leading luminaries that participated in the summit include president ASSOCHAM, Mr. Anil K Agarwal, Industrialist Adi Godrej, Power Secretary Mr.R V Shahi, Mr. Arun Firodia, Mr. Kamal Meattle, Chief Minister of Delhi Mrs. Sheila Dixit, Dr. Kirt Parikh and the like.

Industry says yes to 49 per cent FDI in retail According to the latest findings of industry chamber Assocham, an overwhelming majority of domestic firms are keen in allowing 49% FDI in a calibrated manner in retailing, instead of 100 per cent foreign equity. In a note submitted to the commerce and industry ministry, Assocham suggested the government to first consult the domestic industry before finalising and announcing entry of overseas mega malls in the country. In response to an Assocham questionnaire circulated to domestic players, one of the leading retailing firms, which runs value-buying chains through out the country and is expanding very fast, wanted a period of two to three years for the domestic industry to consolidate. Many of the retail firms in the domestic sector favoured export commitments on the FDI investments by as much as 20 times. According to Assocham, the domestic players suffer

from the lack of infrastructure,the biggest bottleneck being the prohibitive prices of large retail spaces in central locations in large Indian cities. This is primarily because the private holdings are fragmented and the impact of the Urban Land Ceiling Act. The pro-tenancy Rent Control Acts have distorted the property markets in cities leading to exceptionally high prices. A plethora of bureaucratic hurdles and high capital cost also place domestic retailing firms at a disadvantage against the international players, which have over the years , placed efficient chains in order at a low capital cost. It is estimated that for opening a single store in the country as many as 13 licences are required. "Absence of single-window clearance, coupled with other issues like lack of property infrastructure, works as a major impediment to growth of retailing", Assocham said.

India to sign pacts with patent offices abroad The Union Cabinet has approved a proposal to sign an agreement with patent offices across the world to allow patent examiners to access the Traditional Knowledge Digital Library (TKDL) created by the National Institute of Science Communication and Information Resources (NISCAIR) on India's traditional medicine systems. The signing of the pact is expected to benefit the country immensely as it could help prevent scientists abroad from getting patents on various medical remedies that are already known to Ayurveda and other traditional medicine systems of India. This is because once the pact is signed, the patent offices across the world will be obliged to refer to the TKDL to assess whether the remedy is new or is based on knowledge already available in the Indian systems of medicines, as and when scientists apply for such patents. The data relating to only 7,000 formulations each in Unani and Siddha, and 1,500 postures in yoga remained to be included and the entire process was expected to be completed by December next year. The data are being made available in five international languages ò English, German, French, Spanish and Japanese. A salient feature of the pact will be that the patent offices will be able to use the digital library only for patent search and examination. The patent examiners will not be able to disclose the information to any third party unless it is essential for the purpose of patent search and examination. New Mining Policy to Attract large Investment: Minister

Minister for Mining Mr. Sis Ram Ola, has announced that his Ministry is formulating a new Mining Policy which aims at attracting domestic and foreign investments to the tune of 1,00,000 cr. and generate direct and indirect employment for about 5 lakh skilled and unskilled labour force by 2011. Up to March 2006, the government has approved a good deal of proposals for exploration of mining potential which cover the area of 2,78,773 sq. km. In addition, various state governments between 1995-96 also leased out licences for mining exploration which cover the additional area of 2,88,135 hectare. Mr. Ola also announced that his Ministry had signed Memoranda of Understanding to attract investments in the domestic mining sector from countries like Australia, Canada, China, Iran, South Afriac, Mozambique and Kazakstan. These countries have in principal agreed to transfer their technological know-how to India to adequately exploit the potential of domestic mining sector. The Minister also said that Ministry of Mines in collaboration with Geological Survey of India have been undertaking effective mapping exercise of potential areas in which mineral wealth is supposed to be preserved. The findings of the mapping exercise would also be made public so that potential investors know of it and come forward for exploration of such areas in near future. Dr. Ghosh announced that the new guidelines formulated by the Ministry in consultation with Ministry of Mines have been sent to the Prime Minister’s Office for necessary approval. The PMO which is currently examining the new guidelines would send them back to the Ministry of Environment & Forests with its approval in next 3 weeks time after which the government would come out with the relevant notifications, he added. The new guidelines for according environmental and forests clearances have been amply reformed and rationalised to suit the current spirit of liberalisation so that mining sector contribution significantly goes up to national GDP. EMC to double India investment to $500m Storage and information management giant EMC Corporation will invest $250 million in India until 2010 as part of a recent revision of its India strategy, the company announced.The hiked investments signal India‚s growing importance as a research and development location as well as core market to consume EMC products, he said. EMC has invested $850 million worldwide in 2004, which was raised to $1 billion in 2005. The company estimates global investments worth $1.2 billion in 2006, of which the $250 million investment in India is part. The company is present in more than 80 countries. All the investments in India are being done in the technology development work such as Information management, storage and infrastructure development that EMC does from around the world and to set up a centre for excellence for e-governance. The Indian operations have yielded 350 major customers in India, which had a key role to play in the decision to double planned investments here. Some of this money will be used to expand the sales and marketing as well. The US firm will also double its 1,600-strong India workforce by 2008 as it boosts its operations in Asia’s third-largest economy.

UBS to invest $40m in Hyderabad service centre The Union Bank of Switzerland (UBS) is investing Swiss francs 50 million ($40 million)in the UBS India Service Centre in Hyderabad. The financial major's 11.5 acre centre will focus on knowledge services such as research and analytics, business process offshoring such as transaction and data processing and IT infrastructure support. UBS has already recruited 180 people in the city and by the end of the second phase of development will have a seat capacity of 1,500. Twenty FDI proposals cleared Based on the recommendations of the Foreign Investment Promotion Board (FIPB) in its meeting held on 13th June, 2006, Finance Minister, Shri P. Chidambaram has approved 20 proposals of Foreign Direct Investment amounting to Rs.762.12 crore. These proposals relate to Ministries/Departments; namely Commerce, Heavy Industries, Information & Broadcasting, Industrial Policy & Promotion, Telecommunications, Urban Development and Economic Affairs. The major investment proposals pertain to the sectors like Wholesale Trading, Industry, Information & Broadcasting, Urban Development, Infrastructure and NBFC activities.

MAIN I TRADE & ECONOMY I INVESTMENT UPDATE I NEWSMAKERS I INFOTECH I CULTURE I TRAVEL I CALENDAR BACK TO TOP HTML Attachment [ Scan and Save to Computer ] Financial Daily from THE HINDU group of publications Thursday, Dec 18, 2003 -------------------------------------------------------------------------------Home News Update News Corporate

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The Hindu Business Line The Sportstar Frontline The Hindu eBooks Opinion - Economy `India rising' — Will it ride the demographic wave? S. D. Naik In about 50 years, India's surging population may be more a boon than a bane, if a recent Goldman Sachs projection comes true. With a surplus of working age people vis-à-vis current G-6 biggies such as the US and Japan, India could benefit fro m low labour costs, and even become one of the three richest economies! For this fairy-tale scenario to materialise, however, concerted efforts to develop human capital have to begin now, says S. D. Naik.

O VER the last few months there has been a sudden surge of optimism about the growth prospects of the economy. The Reserve Bank of India has upgraded its GDP forecast for 2003-04 to 6.5-7 per cent, the CII projects it at 7.2 per cent and the Finance Ministry's mid-year review, released on November 14, estimates it will cross 7 per cent. Even the usually conservative Centre for Monitoring Indian Economy (CMIE) has now upgraded its forecast to 7.4 per cent. More important, most economists in India and abroad believe that the annual GDP growth rate of over 7 per cent is likely to sustain over a longer period. While the IT sector has helped India achieve global recognition, its manufacturing sector is also showing signs of a remarkable turnaround. It is set to enter a growth phase. Many Indian companies have gone for acquisitions abroad and increased their exports significantly. The Finance Minister, Mr Jaswant Singh, stated at the recent India Economic Summit that India was on the verge of "explosive growth". Business Week speaks of India rising. The global business community is now looking at India with new respect. The most optimistic and much talked about long-term projection about the economy has come from Goldman Sachs, in an economic research paper titled "The path to 2050" released in the first week of October.

While comparing the growth prospects of the leading emerging market economies — Brazil, Russia, India and China (BRIC) — with those of the G-6 (the US, the UK, France, Germany, Italy and Japan), the paper says that the combined size of the BRIC economies will exceed that of G-6 in dollar terms by 2039 (at present, they account for just 15 per cent of the combined GDP of the G-6). Of the present G-6, only the US and Japan will find place among the six largest economies in dollar terms by 2050. China will be the largest, followed by the US, India, Japan, Brazil and Russia. According to the paper, about one-third of the rise in the dollar GDP of BRIC economies will come from appreciating currencies, and two-thirds from faster economic growth. This is, of course, based on the assumption that these economies will continue to pursue progressive economic policies and develop economic institutions to support growth. What the paper says about India is quite flattering. It says that, among the BRIC economies, India has the potential to grow even faster than China over the next 30 years and 50 years and that by 2010 India's growth rate should exceed that of China. What is the basis for this highly optimistic projection about India? It is driven largely by what the financial services firm calls the `demographic dividend' India is likely to reap over the coming decades because of the sharp surge in its working population. It is estimated that by 2020 the US will be short of 17 million people of working age, China 10 million, Japan 9 million and Russia 6 million. Against this, India will have a surplus of 47 million working age people. The implication of this is that India will continue to have a competitive advantage in labour costs that can be sustained through 2050 even as the country becomes one of the three richest economies in the world in terms of gross GDP. For a country that has been struggling for decades to step up the rate of growth, provide job opportunities to the growing army of unemployed and improve the standard of living of millions condemned to live below the poverty line, these projections appear too good to be true. For decades, economists and sociologists have argued that the country's huge population base and its high rate of growth have acted as a drag on the rate of growth of the economy and per capita income. Now, suddenly, the current stage of demographic transition is being seen as an opportunity to leapfrog to a higher economic growth trajectory. Not surprisingly, the Goldman Sachs projections have created a stir in India and abroad. Economists have been debating whether the projected surge in working age population will prove to be a boon or a bane. The final outcome would depend on whether we

succeed in providing health, education and employment opportunities to our growing population. According to Mr Arun Maria, Chairman, Boston Consulting Group, to ride the huge demographic wave and not be swamped by it, India needs a dynamic education system. Dr Shankar Acharya points out in a recent article, that the `demographic dividend' in the Goldman Sachs paper refers to only the supply of labour, while nothing is mentioned about the demand for it. He says that in 1999-2000, while the labour force grew at over two per cent a year, employment growth was just one per cent per annum even as the economy grew at a relatively higher 6.5 per cent per year. Consequently, the backlog of unemployed and underemployed has only increased over this period. Professor Arvind Panagariya refers to the huge surplus labour force in Indian agriculture that needs to be provided with alternative job opportunities in industry. Today, 65 per cent of India's labour force is in agriculture, in comparison to China's 25 per cent. Industrial output in India accounts for about 27 per cent of GDP, compared to almost 50 per cent in China. He, therefore, argues that only rapid industrial growth, which could pull labour from underemployment in agriculture into high productivity jobs in industry, can lead to the speedy transformation of the economy. Unfortunately, there has been a significant increase in joblessness over the past decade in spite of the relatively higher output growth and a slower growth in labour force. Moreover, the increase in the percentage of unemployed in the country is accompanied by a further deterioration in the quality of employment in the recent period with largescale underemployment and casualisation of labour. At this rate, the Tenth Plan target of creating 10 million jobs every year also appears elusive. The recent violence over the railway recruitment tests for class IV jobs in Assam and Maharashtra indicates the shrinking employment opportunities and growing social tensions. There were 74 lakh applicants for 20,000 jobs that were available after a long gap. For every lower level job advertised by the government, at least 10,000 applications are received. Thanks to the demographic wave, the country is facing a paradoxical situation. On the one hand, there is a scramble for the seats available in IITs, IIMs, engineering and medical colleges and, on the other, most graduates, except those coming out of the few centres of excellence, find it difficult to find suitable jobs. There is also a growing mismatch between the jobs created and the skills required to perform those jobs. For instance, today more jobs are being created in the IT sector and business process outsourcing (BPO) activities.

However, people seeking jobs in these sectors should have a few years of college education and some training in computer operations. At present, only 6-7 per cent of the college-going-age students are in college, and even fewer can afford technical and engineering education. Even more important, the country has to seriously address the challenge of human development, if it has to find a place among developed nations, at least by 2030, if not by 2020. As of now we have a huge backlog of illiteracy. Even our relatively poor literacy rate of 65 per cent is misleading as it includes even those who have learnt only to sign their names. Almost 50 per cent of the population above the age of 25 has had no proper schooling; only 25 per cent has completed primary education and only eight per cent has completed secondary education. In absolute terms, some 300 million people are illiterate and 220 million live below the poverty line. Compare this with China, with whom we want to compete in the coming years. In 2001, China's per capita income was $890, nearly double that of India's $450. Adjusting for purchasing power, the Chinese were nearly 70 per cent wealthier than Indians. Only five per cent of Chinese now live below the poverty line compared to India's 29 per cent. China's share in world exports is nearly seven time that of India's. China's GDP growth over the last 25 years was over eight per cent per annum against India's 5.5 per cent. In terms of human development, China is far ahead of India with much higher levels of life expectancy, literacy and living conditions. The UNDP's Human Development Report (HDR) 2003 ranks India 127 out of 175 countries in its Human Development Index (HDI). The rank of a nation is determined on the basis of a composite index, which combines per capita income, life expectancy and the level of literacy. For the first time, the latest HDR also refers to the disparities among Indian States. It bemoans the fact that India contains regions of intense poverty relieved little by overall national growth. It has also vividly brought out how the States that are backward in literacy and health-care have also lagged in economic growth. The country will, no doubt, need massive investments in agriculture, infrastructure, industry, R&D, housing construction and tourism to generate more job opportunities for the growing labour force. At the same time, unless concerted efforts are made simultaneously to develop human capital, the country cannot hope to make rapid economic progress.

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The Hindu Business Line Sportstar Frontline The Hindu eBooks The Hindu Images Opinion - Economy Economy on song... But there are jarring notes too Manoranjan Sharma The dynamic and multi-faceted Indian economy has struck a purple patch. But despite the reasonably sanguine mood, daunting challenges remain and these must be addressed if the expectations of the future are to be met, says Manoranjan Sharma

T HE deregulation of the Indian economy, which started in the 1980s, received an impetus in 1991. While the balance of payments crisis may have provided the immediate trigger, there were structural and deeper long-term reasons underlying a paradigm shift of the economy in 1991. The post-Independent economic history can easily be broken into three periods — 1951-79, 1980-91 and 1992-2003. Against the background of stagnation in 1900-50, India's GDP grew a modest 3.5 per cent in 1951-79 — a growth rate derisively dismissed by Professor Raj Krishna as the `Hindu rate of growth'. During 1980-91, the country achieved a GDP growth little in excess of 5 per cent, whereas postreforms (1992-2003), it was about 6 per cent. Significantly, the data released by the IMF recently show that India recorded a whopping 46 per cent-plus growth in per capita income during 1992-2002, whereas the growth was negative in most countries — the US (-4.3 per cent), China (-6.6), Malaysia (-12.7), Singapore (-24.2), Indonesia (-36), Korea (-50.3), Taiwan (-50.6), Hong Kong (-51.4) and Thailand (-61.8). Explanatory factors for the increase in per capita income stress "convergence" of appropriate policies — free flow of capital to the poorer countries, imitation of technological changes of the richer countries by the poorer ones, and positive cascading effects of information and communication technology (ICT) — which slash transaction costs and increase output for firms across sectors. Thus this period, which marks a decisive break with the past, saw India exploring new avenues that led to the global information superhighway. But even by the high standards of the post-reforms phase, there is little doubt that the dynamic and multi-faceted Indian economy has struck a purple patch, irrespective of the criterion adopted. The economy usually expands at a more rapid pace during the second half of the year. Hence, the soaring of GDP by a record 8.4 per cent in July-September 2003 and, more important, the likelihood of all three segments of the economy — agriculture, industry and services — growing by 7 per cent in FY 2004 makes the realisability of 7 per cent GDP growth in 2003-04 a certainty. The acceleration in macroeconomic growth is clearly manifest in the current account bouncing back from a deficit of $317 million to a surplus $524 million, the Sensex rising to a new 46-month high, and the country becoming Asia's second-best performer for the year — the ONGC IPO at $2 billion, tipped to be the largest ever pure equity mop-up by an Indian company in both the domestic and international markets, may well be the biggest by any company in 2004. Industrial growth spurted by 7.4 per cent in November 2003, aided by a near-double-digit manufacturing growth rate. While India has to traverse some way before it can become a global manufacturing hub, low interest rates, increasing demand and enhanced productivity propelled corporate profitability and growth.

The ascendancy of the professional middle-class and the emergence of the new entrepreneurial class are no longer issues of debate. The many arrows that point upwards include the recent $10 billion exports of information technology software, sale of components by Indian firms to 15 of the world's major automobile manufacturers; emergence of the pharmaceutical industry as the fourth-largest in the world in terms of volume of production with a growth rate of 10 per cent a year; one of the three countries, apart from the US and Japan, to build supercomputers; and one of the six countries to launch communication satellites. Clearly, then, the `feel-good' factor is driven by forces that transcend cyclical factors, such as agricultural rebound and stock market boom. Structural factors such as steady southward movement of interest rates, industrial resurgence across key segments, infrastructural improvement and demographic change have lent a steadying impact to something intangible, which is distinctly palpable in the air. Improvement across the development spectrum is also vindicated by a business confidence survey by ET-NCAER in October 2003 covering 580 companies. According to the survey, the second half of the 1990s and the new millennium were characterised by sweeping changes in scale of operation, adoption of technology, restructuring of marketing chains, introduction of IT and labour restructuring. Across sectors, over 91 per cent of the companies above Rs 500 crore in size effected changes relating to reduction of labour force and restructuring of the workforce to ramp up productivity. Against this backdrop, interest in India perked up with the FIIs pumping in $7.4 billion ($6.5 billion in equity and $1.9 billion in debt). High GDP growth together with modernising infrastructure and the outsourcing revolution suggest that such inflows would not remain a flash in the pan and can reasonably be sustained over the mediumterm. No wonder, then, that international rating agency Standard & Poor's raised the outlook on India's long-term foreign currency rating from `negative' to `stable' on the back of improving external finances. It, however, retained the local currency outlook constant at `negative', citing a bloated deficit and poor reforms. The theoretical underpinning of the all-pervading `feel-good' factor was provided by a recent report, `The Path to 2050' (October 2003), by Dominic Wilson and Roopa Purushothaman of Goldman Sachs. The report argues that by 2050, BRIC (Brazil, Russia, India and China) would have a combined economic weighting larger than the current six largest economies (the US, Japan, Germany, the UK, France and Italy). Among the BRIC economies, India has the potential to grow even faster than China over the next 30 years and by 2010 India's growth rate should exceed that of China. The basis for this projection about India is driven largely by what is called the `demographic dividend' India is likely to reap over the coming decades because of the sharp surge in its working population. In a similar vein, Roger Bootle (Money for Nothing: Real Wealth, Financial Fantasies and the Economy of the Future, Nicholas Brealey Publishing) contended that the opening up of India and China, in conjunction with the potential for gains from developments such as biotechnology, would usher in "the greatest increase in prosperity in our history."

Against this backdrop it is hardly surprising that the debate about India shining moved to central focus. This is good as far as it goes. But does it go far enough? Certainly not if the recent study on corporate investment intentions, published in the December 2003 monthly bulletin of the Reserve Bank of India is any indication. The study revealed successive declines of 23.6 per cent and 9.1 per cent in capital expenditure in corporate investment in 2001-02 and 2002-03, respectively. Continuation of this trend could further restrict corporate investment. Year 2003 The year gone by was characterised by a turnaround in financial performance, diversified industrial growth, growth of business process outsourcing (BPO), return of manufacturing, spate of takeovers by Indian companies of small/medium-size foreign firms, foreign exchange reserves breaching the $100-billion mark, buoyant capital flows, a healthy stock market and rising business confidence. Exports for November 2003, on top of a healthy 19 per cent growth for 2002-03 despite a weak global demand and a stronger rupee, grew at 13.74 per cent with cumulative exports during April-November 2003 placed at 9 per cent. India's exports of engineering goods surged by a record 35 per cent during April-July 2003. Robust growth of 26 per cent in non-oil imports, particularly capital goods and intermediates, strongly suggests fresh investments and capacity expansions powering the economy. To be sure, these are clear indications of the resurgence and renaissance of India — an India that seems to have come of age. But despite the reasonably sanguine mood, consider the following dissonance: A GDP growth of even 8 per cent in 2003-04 would imply a simple average of only 5.8 per cent between 1999-2000 and 2003-04 vis-à-vis 6.7 per cent in 1993-94 and 1997-98. Apart from the reliability of data about the rapid growth in services, there are also the issues of banks continuing to park their funds in government securities, the sustainability of the rise in the Index of Industrial Production (IIP), moderate rise in core infrastructure industries, uncertain merchandise growth and the fear of rising inflation. Further, high fiscal deficit and low domestic investment continue to cause concern and consternation. While the Tenth Plan estimated fiscal deficit of the Centre and the States at 8.8 per cent and the Eleventh Finance Commission had pegged it at 6.5 per cent by 2004-05, it was perilously close to 10 per cent in 2002-03. As the former RBI Governor and Chairman of the 12th Finance Commission, Dr C. Rangarajan, pointed out, "failure to step up expenditure on necessary items (such as physical and social infrastructure) or failure to achieve fiscal consolidation will dampen the growth momentum." The road ahead

There are many daunting challenges hampering the ushering in of a "new deal". In the ultimate analysis, the crux of the issue lies in a revival of investment (particularly in manufacturing), a transformation of agriculture, check on deficits of the Central and State governments, privatisation, change in labour laws, availability of efficient and sufficient infrastructure at reasonable cost, rise in per capita income, reduced regional disparities and a sharper focus on employment, health, education and gender equality. So, where do we go from here? What policy options and instruments do we have at this defining moment of history? Decisive action on what Prof Amartya Sen (India: Economic Development and Social Opportunity) called "the central issue" of "expand(ing) the social opportunities open to the people" is needed to transform the socio-economic milieu. This is a tall order, particularly when, as demonstrated by the recent FAO (Food and Agriculture Organisation) report entitled `State of Food Insecurity in the World, 2003', over a fifth of India's population still suffers from chronic hunger. What is even more galling is that the incidence of hunger over three reference periods — 1990-92, 1995-97 and 1999-2001 — registered an initial decline from 214.5 million to 194.7 million, before a near total reversal increased the number of the undernourished to 213.7 million. Without quibbling over the details of various surveys, it can safely be maintained that the grim employment scenario reveals a rapid erosion of opportunities, a decline in self-employment and the growing "casualisation" of labour. All this necessitates discernible improvement of the thrust on compelling socio-economic issues, such as basic employment, education, health, women's empowerment and so on, to improve the quality of life of the teeming population. Midcourse corrections needed to reach a new renaissance require coordinated and concerted action with a sense of urgency to meet the challenges of the present and the expectations of the future. (The author is chief economist, Canara Bank, Bangalore.)

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