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 high-
end 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.

Best viewed in 800 x 600, true colors, Internet Explorer version 5.0 or above & Netscape
7.1 or above. DISCLAIMER

HTML Attachment [ Scan and Save to Computer ]

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.

Best viewed in 800 x 600, true colors, Internet Explorer version 5.0 or above & Netscape
7.1 or above. DISCLAIMER

HTML Attachment [ Scan and Save to Computer ]

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 (October-
November)

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.
Best viewed in 800 x 600, true colors, Internet Explorer version 5.0 or above & Netscape
7.1 or above.
DISCLAIMER

HTML Attachment [ Scan and Save to Computer ]

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
Markets
Info-Tech
Marketing
Money & Banking
Agri-Biz & Commodities
Industry & Economy
Logistics
Opinion
Variety
Corporate Results
Columns
Index
Archives
Features

Investment World
eWorld
Catalyst
Mentor
Life
Canvas
Praxis
Urban Pulse
Brand Quest
Stocks

Quotes
SE Diary
Scoreboard
Open-End Mutual Fund
Port Info

Ships in Ports

Archives

Yesterday
Datewise
Resources
Group Sites
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 large-
scale 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.
Article E-Mail :: Comment :: Syndication

Stories in this Section

Check on promoters

--------------------------------------------------------------------------------
`India rising' — Will it ride the demographic wave?
--------------------------------------------------------------------------------
All those fishing rods in the recovery pool
--------------------------------------------------------------------------------
Why bite more than what can be chewed
--------------------------------------------------------------------------------
A fashion tag called corporate governance
--------------------------------------------------------------------------------
When accounting for `goods', don't ignore the `bads'
--------------------------------------------------------------------------------
Keep the torch of sound accounting practices burning
--------------------------------------------------------------------------------
A knowledge narrative
--------------------------------------------------------------------------------
Politics by performance
--------------------------------------------------------------------------------
HSBC acquiring UTI Bank: A palace coup
--------------------------------------------------------------------------------
ITI clarifies
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | The Hindu eBooks |
Home |
Copyright © 2003, The Hindu Business Line. Republication or redissemination of the
contents of this screen are expressly prohibited without the written consent of The Hindu
Business Line

--------------------------------------------------------------------------------
HTML Attachment [ Scan and Save to Computer ]

Financial Daily from THE HINDU group of publications

Friday, Feb 13, 2004

--------------------------------------------------------------------------------

Home
News Update
News

Front Page
Corporate
Markets
Info-Tech
Marketing
Money & Banking
Agri-Biz & Commodities
Industry & Economy
Logistics
Government
Opinion
Variety
Columns
Index
Archives
Features

Investment World
eWorld
Catalyst
Mentor
Life
Canvas
Praxis
Urban Pulse
Brand Quest
Stocks

Quotes
SE Diary
Scoreboard
Open-End Mutual Fund
Cross Currency

Rates

Shipping

Ports

Archives

Yesterday
Datewise
Resources

Group Sites

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 post-
reforms (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 medium-
term. 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.)

More Stories on : Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Stories in this Section
US and the shifting stand on Libya

--------------------------------------------------------------------------------
Unhealthy prescription
--------------------------------------------------------------------------------
Economy on song... But there are jarring notes too
--------------------------------------------------------------------------------
In the grip of election fever
--------------------------------------------------------------------------------
Defence budget: More power to the arsenal
--------------------------------------------------------------------------------
e-stamping out the spammers
--------------------------------------------------------------------------------
The mystique of marketing
--------------------------------------------------------------------------------
Nuclear transfers
--------------------------------------------------------------------------------
Foreign cigarettes
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The
Hindu Images | Home |
Copyright © 2004, The Hindu Business Line. Republication or redissemination of the
contents of this screen are expressly prohibited without the written consent of The Hindu
Business Line

--------------------------------------------------------------------------------

HTML Attachment [ Scan and Save to Computer ]

[ Parliament ] [ Prime Minister's Office ] [ Ministries & Govt. Deptts. ] [ States & UTs ]
[ Task Force ] [ Committees ] [ NGOs ]
[Economic Advisory Council to the PM] [Committee on Infrastructure] [National
Knowledge Commission] [Contact Us] []

Chairman
Dr. Manmohan Singh
Prime Minister of India

About Us

National Plans

State Plans

Reports

Data & Statistics

News & Events

Sitemap

Dy. Chairman
Shri Montek S. Ahluwalia
Profile Articles

Members
[For Profile Click the icon]

Shri M.V. Rajashekharan Minister of State

Dr. Kirit Parikh
Prof. Abhijit Sen
Dr. V.L. Chopra
Dr. Bhalchandra Mungekar
Dr.(Ms.) Syeda Hameed
Shri B.N. Yugandhar
Shri Anwar-ul-Hoda

Member Secretary
Sh. Rajeeva Ratna Shah
Version: HINDI || TEXT

Committee on Information, Communication and Entertainment

– Sub Group on “Going Digital”

Towards Faster and More Inclusive Growth

An approach to the Eleventh Five Year Plan 2007-2012

Report of the Oversight Committee to

Monitor implementation of Reservation in
Higher Educational Institutions

Approach to Regulation of Infrastructure Report of High Level Committee on

National Mineral Policy

PRADHAN MANTRI
GRAM SADAK YOJANA
NATIONAL POLICY ON
VOLUNTARY SECTOR English (PDF)
Hindi (PDF)

Hot Links

India-US Economic Dialogue

(Co-Chaired by Montek Singh Ahluwalia, Dy. Chairman, Planning Commission and
Allan Hubbar, Assistant to the President of the US & Director, National Economic
Council, US)

- 10th Five Year Plan (2002-07)

- Approach Paper (10th FYP)
Task Force on Employment Opportunites by Sh. M.S. Ahluwalia (PDF - Full Report)
Five Year Plans
1st to 9th Planning Commission's Project (PCPPF)..: ZIP(MS Word) | PDF
National Development Council Meetings >> Special Group on Targeting Ten Million
Employment... (PDF)
National Human Development Report 2001 Indian Planning Experience
A Statistical Profile (PDF)
Annual Plans Annual Reports
Mid-Term Appraisal of
10th Five Year Plan (2002-07)
Internship Scheme/ Summer Internship Scheme:
MS Word | PDF
India Infrastructure Past Composition
Circulars/Vacancy Report on FDI (PDF)
Programme Evaluation Organisation Programme Outcome and Response Monitoring
Division
New websites Officials
Working Groups Steering Committees
Press Releases Publications
I.A.M.R. Tenders
Send Suggestions India Vision 2020 (PDF)
Important External Links

[ Contact the Content Manager of this Website ]

Copyright & Disclaimer | Best viewed in 800x600 pixels

PLANNING COMMISSION Government of India. Yojana Bhavan, Sansad Marg, New
Delhi - 110001.
Contents provided and maintained by Planning Commission Site designed and hosted by
National Informatics Centre
Contact the Webmaster mailto:plancom@yojana.nic.in

Attachments Attachment scanning provided by:

Files:

fdi1.pdf (61k) Scan and Save to Computer

fdi5.pdf (115k) Scan and Save to Computer
fdi6.pdf (2.0MB) Scan and Save to Computer
HDR05_chapter_1.pdf (1.2MB) Scan and Save to Computer
HDR05_chapter_2.pdf (694k) Scan and Save to Computer
HDR05_chapter_3.pdf (794k) Scan and Save to Computer
HDR05_chapter_4.pdf (845k) Scan and Save to Computer
HDR05_chapter_5.pdf (545k) Scan and Save to Computer

DeleteReplyForwardSpamMove...
Previous | Next | Back to Messages Save Message Text | Full Headers
Check MailCompose Search Mail: Search MailSearch the Web

Move Options
[New Folder]
Forward Options
As Inline Text
As Attachment
Reply Options
Reply To Sender
Reply To Everyone
Address Book Shortcuts
Add Contact
Add Category
View Contacts
View Lists
Quickbuilder
Import Contacts
Addresses Options
Addresses Help
Calendar Shortcuts
Add Event
Add Task
Add Birthday
Day
Week
Month
Year
Event List
Reminders
Tasks
Sharing
Calendar Options
Calendar Help
Notepad Shortcuts
Add Note
Add Folder
View Notes
Notepad Options
Notepad Help
Advanced Search
Advanced Search

Copyright © 2007 Yahoo Web Services India Pvt Ltd. All rights reserved. Copyright/IP
Policy - Terms of Service - Help
NOTICE: We collect personal information on this site. To learn more about how we use
your information, see our Privacy Policy