Indian Economy Overview

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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.
Bob Buckle, an APEC Rim trade (based on rich nations)
economist has stated that with India and China posting good
growth rates, the world may come out of recession more easily.
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.
According to stock market regulator Security and Exchange
Board of India (SEBI), the Indian stocks would be the first to
bounce back in the current global financial crisis. SEBI is likely
to initiate steps to limit over-leveraged hedge funds with the
aim of bringing in more solidity to the unstable market.
Leading global agencies have reiterated faith in the Indian
economy. According to Crisil, a leading rating agency, India's
retail securitisation market is better

placed than the US, exhibiting more stability with few rating
downgrades. "Investors in securitised paper in India have no
reason to fear crippling losses of the kind that have hit their US
counterparts," a Crisil release said.

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.
• The growth in the gross tax collection is was 25 per cent
till September 2008, against 24.5 per cent in September
2007.
• Total foreign investment inflow during the first half of
2008-09 was US$ 13.8 billion in September 2008.
• India’s forex totalled to US$ 251.3 billion in the first week
of November 2008.
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.
• According to a study by the McKinsey Global Institute
(MGI), India's consumer market will be the world's fifth
largest (from twelfth) in the world by 2025 and India's
middle class will swell by over ten times from its current
size of 50 million to 583 million people by 2025.
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.
Despite the steady expansion of organised retailers,
according to a study by Indian Council for Research on
International Economic Relations (ICRIER), a Delhi-based
think tank.
• 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.

Future perfect
The Planning Commission has ruled out any changes in the
average 9 per cent gross domestic product growth target of the
11th Five-Year-Plan, although there might be ‘some significant
reduction in growth’ next year as a result of the global financial
crisis.
India offers huge investment opportunities in various sectors
and investments are likely to pour into these sunshine sectors:
• The realty sector is likely to increase at the rate of 30 per
cent annually during the next ten years, drawing US$ 30
billion as foreign investment.
• The Indian IT market is projected to see 18 per cent
growth in 2008, touching US$ 38 billion.
• According to a McKinsey study, "The market size for the
food consumption category in India is expected to grow
from US$ 155 billion in 2005 to US$ 344 billion in 2025 at
a compound annual growth rate of 4.1 percent."
• According to the India Retail Report 2009, compiled by
research group Images F&R Research, the Indian retail
industry is likely to touch US$ 390.68 billion by 2010.
• According to a McKinsey study, the Indian pharmaceutical
industry is projected to grow to US$ 25 billion by 2010
whereas the domestic market is likely to more than triple
to US$ 20 billion by 2015 from the current US$ 6 billion to
become one of the leading pharmaceutical markets in the
next decade.
• According to a monthly review by the Centre for
Monitoring Indian Economy (CMIE), agricultural production
is likely to increase significantly during fiscal year 2009.
CMIE has projected a growth of 3.2 per cent during fiscal
year 2009, for the GDP of agriculture and allied sectors.
"This would be the fourth straight year of positive growth
in agricultural production, with the first three years
clocking an average growth of 5.5 per cent," CMIE stated.
The allied sectors comprising livestock, forestry and
logging, and fishing are likely to see a growth of 4.8 per
cent during fiscal year 2009.