Professional Documents
Culture Documents
Indian Economy
Indian Economy
Indian Economy
A perspective
The views expressed in this paper are the views of the author and do not necessarily reflect the views or
policies of the Asian Development Bank (ADB), or its Board of Directors or the governments they represent.
ADB makes no representation concerning and does not guarantee the source, originality, accuracy,
completeness or reliability of any statement, information, data, finding, interpretation, advice, opinion, or view
presented.
Agenda
Indian economy today
Going forward
In Summary
2
Indian economy - The transition
Pre-reform era India today
Increasing liberalization of various
Dominance of public
sectors, with entry of new players,
sector in most industries
both domestic and foreign
3
Indian economy - Key characteristics
l Large domestic market with huge untapped potential
l 4th largest economy (purchasing power parity terms)
l Rich pool of human intellectual capital
l Quality educational institutions (IITs / IIMs)
l Third largest reservoir of engineers
l Huge entrepreneurial pool
l World-class management talent and skilled workforce
l Personnel costs are lower than Western countries
l Large English speaking population
4
Indian economy - Key characteristics
l Presence of a broad and large industrial base
l Information technology, automobile, garments and
agro-food processing
l Stable parliamentary democracy
l Independent judiciary
l Global mindset of corporate sector
l Facilitated by success of Indian IT sector
l Shift in strategy from ”lobbying” to “preparing for
globalization”
5
Rise of Indian multinational companies
Infosys
BHEL
NIIT
Tisco
Satyam Reliance L&T
Bharti ITC
Hindalco
6
Mature financial markets
l Integrated with the global financial markets
l Partial capital account convertibility
l Liberalizing inward capital flows
l Approval for ADR/ GDR issues
l Vibrant capital markets
l Entry of new players
l Increasing role of foreign institutional investors
l Introduction of new instruments
l Derivative trading
l Futures and options on indices and individual
stocks
7
Mature financial markets
l Robust banking sector
l Continued strengthening of prudential norms of
banks
l Alignment with international best practices
l Phased transition to Basle norms by 2006
l Increased adoption of internationally benchmarked
risk management practices
8
Estimated recapitalisation cost of banking
sector as % of GDP
50% 43%
40%
30%
30% 25%
20%
10%
10% 3%
0%
Indonesia China Thailand Malaysia India
9
Agenda
Going forward
In Summary
10
Strong economic fundamentals
Forex
GDP
reserves
External debt
Current
Inflation account
deficit
11
GDP growth
GDP growth rates (%)
8
6.5
6.1
6 5.4
4.8
4.0
4
0
1997-98 1998-99 1999-00 2000-01 2001-02
12
… keeping inflation under control
13
… reducing current account deficit
0
1997-98 1998-99 1999-00 2000-01 2001-02
-0.5
-0.5
-1
-1.0
-1.1
-1.5 -1.4
14
Forex reserves
Forex reserves (USD in billion)
70 64.10
60 54.10
50 42.30
38.00
40 32.50
29.40
30
20
10
0
1997-98 1998-99 1999-00 2000-01 2001-02 Oct-02
15
External debt under control
External debt / GDP (%)
30 27.9
25 24.3 23.6
22.2 22.3
20
15
10
5 1.3 1.1 0.9 0.8 0.6
0
1997-98 1998-99 1999-00 2000-01 2001-02
Total external debt / GDP
Short-term external debt/ GDP
16
External debt under control (cont.)
20 17.2
15 13.2
10.3
10 8.2
5.1
5
0
1997-98 1998-99 1999-00 2000-01 2001-02
17
Potential for further growth
While China’s per capita GDP is only 1.8 times India’s, its
penetration on the above indicators is more than 4 times
India’s, indicating the large untapped potential
18
The economic reform programme undertaken has
been far reaching and while many Asian countries
encountered severe economic and political crises,
the Indian economy exhibited resilience based on its
underlying strengths
19
Agenda
Indian economy today
Going forward
In Summary
20
Economic growth - Key focus areas
Boost investment in
the economy
Increase productivity of
Focus on key sectors
investment
21
Boost investment in the economy
l Encouraging private investment
l Introduction of private participation in numerous
sectors
l Telecom sector, Insurance, Airlines
l Disinvestment is a strategic objective of the Central
Government
l Aggressive disinvestment targets have been set by the
Government for coming years
l About USD 2.16 billion raised over last 18 months
l Various State Governments have also taken up
aggressive privatization programmes
l Andhra Pradesh, Karnataka, Punjab and Rajasthan
22
Boost investment in the economy (cont.)
l Attracting foreign capital
l Liberalizing FII investments
l Upto 49% ownership allowed
l Encourage Foreign Direct Investment
l Opening up new sectors for foreign participation
l Transparent and speedier clearances
l Raising private sector savings
l Increase household savings further
l Pension reforms - expansion of scope of private
pension funds
l Stress on private corporate sector saving
l Increase operational efficiency
23
Boost investment in the economy (cont.)
l Raising public savings
l Fiscal correction at Centre and State levels
l Introduction of Fiscal Responsibility and Budget
Management Bill in Parliament
l Eliminate revenue deficit over the medium term
l Appointment of Expenditure Reforms Commission
l Ensure better expenditure control
l Revenue mobilization
l Efforts underway to broadbase tax collection
l Rationalization of tax structure to provide greater
buoyancy without increase in rates
l Rationalization of subsidies and user charges have
been identified as key areas
l Petroleum and fertilizer sectors
24
Economic growth - Key focus areas
Boost investment in
the economy
Increase productivity of
Focus on key sectors
investment
25
Increase productivity of investment
l Encourage speedy proliferation of Information Technology
l Increase efficiency along the value chain
l Further increase efficiency of the financial system
l Improve systems for expediting debt recovery
l Foreclosure law
l Infrastructure development
l Framework in place for attracting investment in
key sectors
l Telecom, roads, railways, power and water
26
Economic growth - Key focus areas
Boost investment in
the economy
Increase productivity of
Focus on key sectors
investment
27
Focus on key sectors
l Increase contribution of ‘services sector’
l Currently contributes 54% of GDP
l India has a strong edge in knowledge based
services
l Developed infrastructure of technical & managerial
education
28
Retail financial services - Size
Retail loan disbursements
500 450.00
CAGR
CAGR32%
32%
400 350.00
(Rs. in billion)
220.00
300 260.00
180.00
200 130.00
100 230.00
170.00
130.00
0
2000 2001 2002
ICICI Bank estimates Mortgages Other retail loans
29
Consumer loans outstanding
Retail financial services - Benchmarking
GDP
(%)
400 34% 40%
300 30%
200 17% 20%
100 2% 10%
0 0%
India Thailand Malaysia Taiwan Korea USA
30
Insurance sector - Potential
l Low market penetration
l General insurance premium is 0.6% of GDP
l 2.4% for Japan and 3.1% for South Korea (Source: Swiss
Re)
l Life insurance premium is 1.8% of GDP
l 9.0% for Japan and 9.6% for South Korea (Source:Swiss
Re)
l Increased public and consumer awareness, leading to
increased demand for insurance products
l Swiss Re projects one of the highest real
growth rate of premiums in India between
2001-05
l General insurance at 7.5% p.a.
Like the financial
l Life insuranceservices sector,
the pharmaceutical
at 14.0% p.a.
industry also offers immense growth potential
31
Pharmaceutical sector
l India is already a recognized strong player in the
pharma market
l Among the top five bulk drug manufacturers in the
world
l Among top twenty pharmaceutical exporters in the
world
l Product patent regime to be introduced shortly
l Increase in R&D expenditure and improved margins
expected
l India enjoys natural advantage with low cost of
production and high intellectual capital base
… resulting in the emergence of some key sub-sectors,
where India would have a competitive advantage
32
Emergence of new pharmaceutical
markets
l Contract manufacturing
l Multinational players may outsource manufacturing
activities on account of low cost of materials in India
l Contract research
l Increasing importance of contract research due to
increasing pressure on margins
l Presently only 15-20% of research work is outsourced
l Large untapped potential
l Generic drug manufacturing
l Bulk of generic drugs used in western countries like USA
is imported
There are many other industries whose immense growth
opportunities can be harnessed
33
Agenda
Indian economy today
Going forward
In Summary
34
ICICI Bank
l Large capital base •Secondlargest
•Second largestbank
bank
in
inIndia
Indiaand
andlargest
largestin
in
l Strong human capital the
theprivate
privatesector
sector
••First
FirstIndian
Indian
l Low operating costs company
companyand andsecond
second
Asian
Asianbank
banktotolist
liston
on
l Technology focus NYSE
NYSE
l Strong corporate •OnlyIndian
•Only Indiancompany
company
relationships to
tobe
berated
ratedhigher
higher
than
thansovereign
sovereignby by
l Complete financial Moody’s
Moody’s for
forlong
longterm
term
product suite debt
debt
35
A Universal Bank
Retail Financial Services Corporate Financial Services
36
Towards leadership in retail finance…
Customized cross-selling
by leveraging relationships, brand and
technology
37
Corporate banking and structured finance
portfolio management
l Strongfocus on efficient capital utilisation and risk-
adjusted returns
38
Focus on good governance
l Pioneer in adoption of best practices in corporate
governance in India
l ICICI Bank’s corporate governance model
l Board as the nerve centre of corporate governance
ICICI Bank
39
Agenda
Indian economy today
Going forward
In Summary
40
In summary - The economy
l Re-oriented from a statist, centrally directed and
highly controlled economy to a ‘market-oriented’
economy
l Characterized by certain inherent strengths
l Large domestic market
l Rich pool of human intellectual capital
l Mature financial markets
l Sound economic fundamentals facilitating
sustainable growth
41
In summary - Opportunities
l Indian has a strong edge in knowledge based and
service industries
l Success of IT industry can be replicated in
numerous other sectors, having large untapped
potential
l Retail financial services
l Insurance
l Pharmaceuticals
42
Conclusion
43
Thank You
44