India Growth 1990-2005

The Indian Economy

Economic Section -- Embassy New Delhi

Prepared by Economic Affairs

Key Social Indicators 1980s

1990s

latest

Population (millions)

685

845

1090

Poverty Incidence (% pop.)

44.5

36

25

Teledensity (per 100 pop.)

0.37

0.8

12

Literacy

44

52

66

Infant Mortality (per 1000 births)

115

79

60

prevalance of HIV (millions)

n.a

3.5

6

Sources: CMIE, RBI

India Economic Facts GDP is $752 billion; world's 10th largest economy in terms of GDP. Economic liberalization began in 1991; continues at a slow pace. India is slowly integrating with global markets. Since the 1990s, the middle class has grown and poverty levels have fallen. GDP growth has fallen only slightly to 6.4% (2000-2005) from 6.7% (19941999). Tariffs are still among the world's highest (average 22%). Challenges ahead: reduce poverty, accelerate pace of reform, reduce fiscal deficit, upgrade infrastructure. India's successes: IT, pharma & biotech, telcom, science and technology skills, manufacturing gaining competitiveness. Two-way U.S.-India trade tops $25 billion a year, was $10 billion in 1997. India's GDP grew at an impressive 7.8% during 2005-2006.

English and education versus higher income Speak Hindi

Read Hindi

Speak English NO

YES

YES NO

YES NO

NO

Class Poor Middle Class Upper Class Total Source: New Delhi, B.K. Sharma

Read English

Read Hindi 4% 37% 11.5% 51.5%

Read English 2% 23% 10% 35%

Sectors of the Indian Economy 1990

2004 3.0%

30.8%

26.2%

39.5% 54.1% 16.7% 29.1%

0.6% Services

Agriculture

Manufacturing

IT/Software

Source: CMIE, RBI, World bank

Nominal and Per Capita GDP Fiscal year end March

600

400

200

0 1996

1997

1998

1999

2000

2001

Nominal GDP USD billions

Source: Central Statistical Office

2002

2003

2004

Per Capita GDP US $

2005

Real GDP Growth Rates Fiscal year end March

10 8 6 4 2 0 20

06

05

04

03

02

01

00

99

98

97

96

07

20

20

20

20

20

20

20

19

19

19

19

95

93

94

19

19

19

92

91

19

19

(e st

Source: Reserve Bank of India, Economic Survey, 2005-2006

)

factor cost %

GDP at Factor Cost by Sector (1999-2000 Bare Year Prices) % Agriculture, forestry, fishing Mining and quarrying Manufacturing Electricity, gas & water supply Construction Trade, hotels, transport, and communication Financing, insurance, real estate, & services GDP 0 Source: The Economic Times, CMIE, CSO

2

4

6

8

10

12

14

Comparative Growth Rate of GDP % per annum China Korea Indonesia

2002

Malaysia

2003

Philippines

2004

Thailand

2005

Bangaladesh

2006

India Pakistan 0

2

4

6

8

Source: Asian Development Outlook, World Economic Outlook

10

Sources of Government Revenue Fiscal year 2006

excise duty 27.0% corporate tax 30.0%

other sources 0.3% income tax 17.5%

service tax 7.8% customs collections 17.4%

Source: India Ministry of Finance, India Budget 2006-2007

Expenditure of General Government Combined Center and State -- 2005 interest 26.5%

defense 16.4% other 25.4%

subsidies 9.4% education 10.5% Source: IMF

health 4.9%

other social services 6.8%

Tax Revenues as Percent of GDP Fiscal Year end March

30 25

Fiscal gap

20 15 10 5 0

0 20

0 20

6

5

4

3

2

Total revenue and grants

0 20

0 20

0 20

Source: IMF

1

9

0

0 20

0 20

9 19

Tax revenues

Total expenditure and net lending

Government Expenditure

% total expenditure 35 30 25 20 15 10 5 0

20

05

04

03

02

01

00

99

98

97

96

95

94

93

92

91

06

20

20

20

20

20

20

19

19

19

19

19

19

19

19

19

r (p oj

subsidies

interest on debt

)

Source: IMF

defense

Gross Domestic Savings and Investment % GDP 2002 China Korea Indonesia Malaysia Philippines Thailand Bangaladesh India Pakistan Sri lanka 0

10

20 Investment

Source: Asian Development Outlook 2002

30 Savings

40

50

General Government Debt Fiscal year end March

100 80 60 40 20 0 20 05

04

02

01

00

03

20

20

20

20

20

99

97

98

19

19

19

r (p oj .)

Debt Stock/ GDP ratio Source: IMF

External Debt/GDP

GOI Fiscal Deficit: States vs. Center 14

% GDP

12 10 8 6 4 2 0 20 04

03

02

States

20

20

01

00

Source: Indian Ministry of Finance

20

20

99

97

96

95

98

19

19

19

19

19

94

93

19

19

92

91

19

19

Center

Government Debt/GDP Ratio 2003-2007

120 115 110 105 100 95 90 85 2003

2004

2005 Base Case

Source: IMF

2006

Reform Case

2007

Composition of India's 2004 Sovereign Debt IMF 1.0%

IDA 19.6 %

Bilateral 19.2%

IBRD 7.0%

Other Multilateral 4.6% Short-term 3.0%

Private 45.5% Source: IBRD

India’s External Debt US $ billions

Fiscal year end March

140 120 Multilateral

100

Bilateral IMF

80

Trade Credit Commercial Borrowing

60

NRI & FC Deposits Russian Rupee Debt

40

Short-term debt

20 0 91

90

05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92

19

19

19

Source: Reserve Bank of India; Finance Ministry

Gross Nonperforming Loans % of Total Loans

20

15

10

5

0 1997

1998

1999

Public sector banks

Source: IMF

2000

2001

2002

2003

Private sector banks

2004

2005

Foreign banks

Indian Saving and Investment % of GDP 30 25 20 15 10 5 0 1996

1997

1998

1999

2000

2001

Private Domestic Savings Source: IMF, Ministry of Finance

2002

2003

2004

Private Domestic Investment

Bet You Didn't Know (Part One) India is one of only three countries that makes supercomputers (the US and Japan are the other two). India is one of six countries that launches satellites. The Bombay stock exchange lists more than 6,000 companies. Only the NYSE has more. Eight Indian companies are listed on the NYSE; three on the NASDAQ. By volume of pills produced, the Indian pharmaceutical industry is the world's second largest after China. India has the second largest community of software developers, after the U.S. India has the second largest network of paved highways, after the U.S. India is the world's largest producer of milk, and among the top five producers of sugar, cotton, tea, coffee, spices, rubber, silk, and fish. 100 of the Fortune 500 companies have R&D facilities in India.

Current Account Goods and Services-- Fiscal year end March 100

US $ billions

80 60 40 20 0 1982 1992 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 imports Source: IBRD

exports

Current Account balance 10

Fiscal year end March

US $ billions

8 6 4 2 0 -2 -4 -6 -8 20

20

20

20

20

19

19

19

19

19

19

19

19

04

03

02

01

00

99

98

97

96

95

94

92

92

Source: IBRD, CMIE

Sources of Real GDP Growth Fiscal Year End March

14 12 10 8 6 4 2 0 -2 -4

Services

05

Source: CSO, RBI, CMIE

04

Industry

20

20

03

01

00

99

98

02

20

20

20

20

19

19

97

96

19

19

Agriculture

Foreign Institutional Investment 2004

FII $ 2,000 millions

Sensex Thousands 7

1,500 6 1,000 500

5

0 4 -500 3 Dec

Nov

Oct

Sep

Aug

Jul

Jun

May

Apr

Mar

Feb

Jan

-1,000

FII Investments

Source: Reserve Bank of India; SFBI; ABN-AMRO

Sensex average

U.S. Investment in India Calendar Year

US $ billions 5 4 3 2 1 0

20

20

Source: SIA, Ministry of Commerce and Industry

Portfolio

05

03

02

04

20

20

01

00

98

97

99

20

20

19

19

19

96

95

19

19

FDI

Market Capitalization of Listed Companies 2002 % GDP India Brazil China Egypt Kenya Malaysia Mexico Poland Turkey USA 0

20

40

Source: World bank, IMF

60

80

100

120

140

160

Domestic Listed Companies 2003

India Brazil China Egypt Kenya Malaysia Mexico Poland Turkey USA 0

1

2

3 Thousands

Source: World Bank. IMF

4

5

6

Bet You Didn't Know (Part Two) Two million people of Indian origin live in the U.S. Indian-born Americans are among the most affluent and best educated of the recent immigrant groups in the U.S. Thirty percent of the R&D researchers in American pharmaceutical companies are Indian Americans. Nearly 49% of the high-tech startups in silicon Valley and Washington, D.C. are owned by Indians or Indian-Americans. There are over 700 companies in Silicon Valley owned by Indian-Americans. India sends more students to U.S. colleges than any country in the world. In 2004-2005, over 80,000 Indian students entered the U.S. China sent only 65,000 students during the same time. In a case decided by the U.S. Supreme Court, an Indian-American woman scientist, Dr. Ananda Chakrabaty, won the argument that persons may be granted patents for useful manufacture of living organisms. She defeated the U.S. Patent Office, that argued that living things may not be patented, thus establishing the legal foundation for the biotech industry, (Diamond vs. Chakrabaty, 1980). Dr. Chakrabaty invented a microbe that eats oil spills.

Indian Rupees to 1 USD Monthly Average - December 50

40

30

20

10 0 20

20

20

20

05

04

03

02

01

99

98

97

96

00

20

20

19

19

19

19

95

94

19

19

Source: Reserve Bank of India

Indian Rupees to 1 USD Monthly average 50 40 30 20 10 0 n

pr A ar M b Fe n Ja ec D ov N ct O p Se ug A ly Ju ne Ju ay M pr A ar M b Fe

Ja

Source: Reserve Bank of India, CMIE

World's Ten Wealthiest Countries GDP USA Japan Germany Britain France Italy China Spain Canada India 0

1

2

3

4

5

6

7

$US (In Trillions) Source: World Bank

8

9

10

11

12

Forex Reserves Increase and Import Cover US$bn

Mnths

200

18

180

16

160

14

140

12

120

10

100

8

80 6 60 4

40

2

20

0

Reserves Months of Import Cover

Source: DGCI&S; RBI; Citigroup

FY07E

FY06

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

FY96

FY95

FY94

FY93

FY92

FY91

0

Foreign Exchange Reserves 160

US $ billions

Fiscal Year end March

140 120 100 80 60 40 20 0 06 20 ar M 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 19 91 19 90 19 89 19 88 19 87 19 86 19 85 19

SDRs Gold

Source: Reserve Bank of India

Foreign Currency Assets

Exports by Commodity A China-India Comparison

China

India

Agricultural products

22.2

7.9

Fuels and mining products

18.1

6.4

Manufactures

397.0

48.0

4.8 19.6 187.8 79.0 105.8

2.9 7.3 6.1 13.5 18.2

437

62

Of which Iron and steel Chemicals Machinery and transport equipment Textiles and clothing Others Total (2003, US$bn) Source: WTO

Share of World Output Select Asian Developing Countries -- 2004 % China India South Korea Indonesia Taiwan Thailand Philippines Malaysia Hong Kong Vietnam Singapore 0

2

4

6 1982

Source: IMF

8 1992

10 2004

12

14

Total pop. of India

Rural India 91 Total female workers

248

Total female non-workers

Female non-workers Female

Urban India 36

121 Main workers

Total female workers

Total female non-workers

Source: 2001 Census of India (millions)

Marginal workers Total female workers

Comparative Export of High-Technology Manufactured Goods India Brazil China Egypt Kenya Malaysia Mexico Poland Turkey USA 0

10

20

30

40

50

60

% of High-technology Manufactured Goods Source: Dun & Bradstreet

Comparative Annual Wages in Manufacturing India Brazil China Egypt Malaysia Mexico Poland Thailand Turkey USA 0

10

20 Thousands

Source: Dun & Bradstreet

30

40

India’s Share of World Exports % of Global Trade

1 0.8 0.6 0.4 0.2 0 20 04

03

02

01

00

20

20

20

20

99

98

90

95

19

19

19

19

85

80

70

75

19

19

19

19

Source: IBRD; WTO

Comparative Customs Duty Rates India and other Developing Countries % India Pakistan Brazil China Indonesia Thailand South Korea 0 Source: IMF

10

20 All goods

30 Agriculture

40

50

Manufacturing

India’s Top Trade Partners - Exports 2004-2005 France 2.1% Other 44.2%

Singapore 5.0% Italy 2.9% Belgium 3.2% Japan 2.6%

Germany 3.5% UK 4.7%

Hong Kong 4.8%

UAE 9.4% USA 17.5%

Source: India Trade promotion Organization

India’s Top Trade Partners - Imports 2004-2005

Other 60.7% Malaysia 2.1% Japan 2.8% Belgium 4.3%

Singapore 2.4% Switzerland 5.4% Australia 3.3% Germany 3.6% UK 3.2% USA 5.9%

Source: India Trade promotion Organization

China 6.3%

Commodity Composition of Trade Others 25.0%

EU 21.0% Japan 3.0% ASEAN 5.0%

China 5.0%

NE 10.0%

USA 18.0% Middle East 13.0%

Direction of Exports, FY04

Composition of Exports, FY04 Leather 3.0% Chemicals 10.0%

Ores 4.0%

Agricultural 12.0%

Commodities 4.0% Oil 6.0 % Other goods 6.0%

Engineering 18.0% Gems, jewelry 17.0%

Source: DGCI&S

Textiles 10.0%

Readymades 10.0%

U.S. Business Complaints Excessive government interference. High tariffs and excessive indirect taxes Differential tax rates for foreign companies. Restrictions on foreign investment. Substandard infrastructure. Questions about ‘sanctity of contract.’ Weak enforcement of intellectual property rights.

Estimated Trade Losses Due To Copyright Piracy And Piracy Levels In-Country

Motion Pictures Losses Pakistan Indonesia India Russia China

12.0 32.0 360.0 275.0 280.0

Records & Music Business Software

Piracy Losses Piracy Levels Levels NA 70.0 100% 92% 27.6 80% 55% 102 50% 80% 411.9 66% 95% 202.9 85%

Losses 14.0 100.0 520.0 800.0 1488.0

Piracy Levels 82% 87% 73% 87% 90%

(Cost in millions of U.S. dollars)

Source: International Intellectual Property Alliance

Entertainment Books Software Losses Piracy Losses Levels NA NA 52.0 NA NA 32.0 59.5 86% 90.0 255.8 73% 42.0 510.0 90% 50.0

Total Losses 148.0 191.6 483.8 1784.7 2530.0

Principal Products of U.S.-India Merchandise Trade Top ten products in 2005 -- US $ millions U.S. Imports from India

Amount

U.S. Exports to India

Amount

Gems and jewelry

4,730

Airplanes/aircraft machinery

467

Womens/girls blouses

336

Fertilizers

413

Mens/boys shirts

294

Ferrous waste/scrap

126

Petroleum oils

303

Bituminous coal

150

Shrimps/prawns

290

Transmission apps

107

Sweaters/pullovers

271

Industrial oils

99

Cashew nuts

261

Almonds

94

Womens/girls skirts

281

Jewelry and parts

101

Industrial oils

249

Digital data processors

87

Toilet/kitchen linen

247

Parts for boring machinery

86

All other

11,447

All other

5,235

Total

18,709

Total

6,965

Source: US International Trade Commission

U.S.-India Trade in Services: 2003 US $ millions Service Type

U.S. exports

U.S. imports

Education

1,457

3

Travel

1,180

723

Business/prof/technical

353

420

Freight

170

81

Telcom

129

428

Royalties and license fees

115

8

Intra-company services

110

262

Port services

83

66

Financial services

56

19

Passenger fares

26

167

Film/TV/tape rentals

14

0

Insurance

5

5

Other

14

2

Total Services

3,728

2,184

Sources: US International Trade Commission

U.S. - India Trade in Goods 20

15

10

5

0

Source: International Trade Commission

05

Imports from India

20

04

02

01

03

20

20

20

20

00

99

20

19

98

96

95

94

93

92

97

19

19

19

19

19

19

19

Exports to India

U.S. - India Trade in Services 5 4 3 2 1 0

Source: International Trade Commission

05

Imports from India

20

04

02

03

20

20

20

01

99

98

00

20

20

19

19

97

96

19

19

95

93

92

94

19

19

19

19

Exports to India

Total U.S. Trade with India 20

US$ billions

15

10

5

0

Total imports from India

Source: International Trade Commission

05 20

04 20

03 20

02 20

01 20

00 20

99 19

98 19

97 19

96 19

95 19

94 19

93 19

92 19

Total exports to India

Top Ten Reasons Favoring FDI in Retailing •

Experience of other countries shows that retailing has attracted significant FDI.

•

FDI would bring technical know-how and skill.

•

It would speed up the growth of organized retailing, set up supply chaings and lead to implementation of Information Technology.

•

Joint ventures would ease capital constraints of existing organized retailers.

•

Domestic retailers would get access to global best management practices.

•

Sourcing from India would increase.

•

There will be more investment in upstream activities and allied sectors.

•

Competition would drive down prices.

•

Protection leads to inefficiency.

•

FDI would lead to development of different retail formats and modernization of the sector.

Source: FDI in Retail Sector, India 2005

States Attracting Highest FDI Flows in India (2000-2003) 2000 2001 2002 2003 Amount % Share Amount % Share Amount % Share Amount % Share Delhi 24576 30.6 69183 18.9 29943 18.5 21047 22 Maharashtra 35789 44.5 29917 43.7 48657 30.1 10228 10.7 Karnataka 5826 7.2 13104 8.3 8929 5.5 9991 10.5 Tamil Nadu 5519 6.87 7427 4.7 13412 8.3 8055 8.4 Chandigarh 8426 5.2 Gujurat 10426 10.9 Andra Pradesh 2517 3.13 3398 2.1 (Amount in INR millions)

Source: World Bank

Sectoral FDI Equity Caps Sector Retailing (single-brand only)

FDI cap in % 51

Real Estate

0

Small Scale Industries New print media Insurance Defense Industry Sector Refining with Public Cos Private Sector Banking Domestic Airlines Telecommunications Trading Internet service provider Mining

24 26 26 26 26 74* 49 74 51 74 74

Oil marketing

100

*Includes FDI and FII

Source: Ministry of Commerce and Industry

More Economic Data and Forecasts A 36% surge in imports at US$106bn resulted in India's trade deficit touching a record high of US$26.5bn in FY05 compared to US$14.3bn in FY04. The predicted trade deficit for FY06 is US$30.9bn. Citigroup estimates that the value of Indian currency is expected to decline by 15% over the next 4 years. India's savings rate has risen to 28.1%, while investments have risen by 26.3%. Non-agricultural sector growth may trend to 9% in the coming years. In FY04, India committed more revenue to subsidies (nearly US$1bn) than it did to non-capital defense expenditures. Almost 55% of India's tax revenue in FY04 was collected from excise duties and customs collections. India's FY06 budget targets a fiscal deficit of 4.3% of GDP. In India, services account for nearly 50% of GDP.

Bottlenecks to Growth 100

%

(Survey responses by country for each perceived ‘bottleneck’ category)

80 60 40 20 0

Business Regulation

Tax and Customs

Corruption Brazil China

Source: World Bank Investment Climate Surveys

India

Economic Freedom?

Brazil China Egypt India Indonesia Malaysia Mexico Pakistan Philippines Russia South Korea Thailand

Political Freedom Free Not Free Not Free Free Partly Free Not Free Free Not Free Free Not Free Free Free

Source: Economic Times

Days taken to start a business 152 41 43 89 151 30 58 24 50 36 22 33

Competitiveness ranking 57 46 62 55 69 31 48 91 76 70 29 34

Corruption ranking 59 77 102 90 133 64 64 39 102 71 47 90

Time Taken to Register Property Norway China Pakistan S.A. Average Sri Lanka India Malaysia 0

20

40

60

80

No. of Days Source: World Bank

100

120

140

160

Land Cost Relative to Income Level (Ratio of land cost/sq.m to GDP per capita in 1999, indexed to New Delhi - 100) 120 100 80 60 40 20 0 ip

l

ei

ou

a

or e

Land Cost

i ba um M hi el D ew N re lo ga an B

Ta

Se

rt

ap

ka

ng

Ja

Si

o ky To ok gk an B ey r dn pu Sy m Lu

la ua K

Source: World Bank

Start-up Times for New Businesses Australia USA England Nepal Pakistan Malaysia Belgium Bangladesh China Sri Lanka India 0

20

40

60

Days to Set Up Source: World Bank

80

100

Time to Enforce a Contract Tunisia China Malaysia Nepal Bangladesh S.A. Average Pakistan India Sri Lanka 0

100

200

300

No. of Days Source: World Bank

400

500

Bankruptcy Recovery Rate (Cents on the Dollar, Recovered From Insolvent Firm) Best Recovery Japan Pakistan Malaysia China Sri Lanka Nepal Bangladesh S.A. Average India 0

20

40

60

Recovery Rate Source: World Bank

80

100

Real Interest Rate Prime Lending Rate minus WPI % 14 12 10 8 6 4 2 0 06

04

03

05

20

20

20

20

02

01

99

98

97

96

95

00

20

20

20

19

19

19

19

19

94

93

92

91

19

19

19

19

Source: Reserve Bank of India

Time To Go Through Insolvency Shortest Time Ireland Sri Lanka Malaysia China Pakistan Bangladesh S.A. Average Nepal India 0

2

4

6 Years

Source: World Bank

8

10

12

Rigidity of Employment Index Least Rigid Hong Kong Malaysia Bangladesh China Sri Lanka S.A. Average Nepal India Pakistan 0

20

40

60

Rigidity Index Source: World Bank

80

100

Problem: The Transformed Relationship is incomplete. Solution: Grow the economic and commercial relationship.

CEO Forum

Economic Commercial Strategy Private Sector Involvement

Energy Dialogue Economic Dialogue

Strategic Trade

Finance Dialogue Trade Policy Dialogue Commerce: High Tech Cooperation Financial Intel Unit WTO and USTR

Standards and Trade Facilitation

High Tech Trade