FOCUS on INDIA FOCUSFOCUS Onon INDIAINDIA
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FOCUS ON INDIA FOCUSFOCUS onon INDIAINDIA General information Economy India is a country of diverse ethnic groups, geographic character, cul- Since 1997, Indian economy has been growing 7% on average, with ture and religion, with 16 official languages. The population (about 8.5% GDP growth in 2006, 9% in 2007, and 7.3% in 2008. This trend was 1,160,000,000) represents over 15% of the world’s inhabitants. Occu- supported by an increase in exports of average 26.4% in US dollars in pying just 2.4% of the world's land area, it ranks among the highest the period 2004/05 to 2007/08. Foreign trade also increased from population densities on Earth, with 1,6% annual growth rate. India’s 23.7% of GDP in 2003/04 to 35.5% in 2007/08. population is very young, as more than a third is younger than 15-years old, and more than half are under the age of 25, which is India’s median The main growth drivers were agriculture, services, manufacturing with age. an average yearly growth of 9.5% in the last three years, along with communication and construction sectors, which grew by 26% and About 30% of the population lives in towns and cities, the remaining 13.5% per annum respectively. Other factors contributing to keep India 70% live in more than 550,000 villages. Great distances separate the among the fastest growing economies despite the financial crisis are most populous cities, and they are mainly covered by the railway net- manufacturing expansion and export of software services thanks to a work, which is claimed to be the 4th largest in the world. large number of skilled English speaking workforce. 8 Infodent International 2/09 FOCUS ON INDIA Some fiscal packages were announced at the beginning of 2009 pro- sectors account for 25% of the GDP, employing almost 58% of the total viding tax relief to boost demand and increase expenditure on public workforce as the largest economic sector. projects. However, according to a country briefing released by “The Economist”, new stimulus spending combined with slower govern- The industrial production has been constantly growing since 2002/03, ment revenue growth will make the Indian budget deficit reach 7.2% with a top rate of 11.5% in 2006/07. The largest sector is the textile in- of GDP in fiscal year 2009/10 (April-March), and the forecast for the real dustry, followed by automobile sector supported by the strength of GDP growth expects a decrease to 5% in 2009/10. Indian labor and capital. Mining sector, manufacturing, and electricity, gas and water supply recorded growth rates of 5%, 8.8% and 7% re- In spite of financial uncertainty and slowdown, FDI (Foreign Direct In- spectively. vestments) inflows during April-November, 2008 were US$ 23.3 billion, recording a growth of 45% over the same period in 2007. The domestic The service sector has the largest share in the GDP (54%), with com- investment rate as a proportion of GDP increased from 27.6% in munication, financial and trade services, community services, hotels 2003/04 to 39% in 2007/08. In the same period, gross domestic savings and restaurants among the fastest growing segments, while Indian IT rate rose from 30% to 37.7% and tax to GDP ratio increased from 9% to is expanding through internationally renowned companies in software 12.5%. engineering. As regards the sectors of Indian economy, agriculture and related Infodent International 2/09 9 FOCUS ON INDIA The services sector is supported Indian imports’ compo- by a relatively qualified work- sition mirrors the trans- force at lower costs as compared formations occurring in to western standards even if the country’s economy. such outsourcing seems to have Increased purchasing become less convenient than power changed some some years ago pushing the trends in consumers’ market to further develop other demand, influencing sectors such as high-tech many sectors of the in- research, designing and dustry. Industrial ma- projecting activities. chines imports rose to $ 45,175 million, an in- Foreign Trade crease of almost 70%. The demand for quality products also pushed India has progressively increased imports of electric and trade with foreign countries, from about $ 141,992 billion (2003/04) up electronic equipment, which registered an increase of about 30% rising to $ 414,000 billion (2007/08). In this period imports were always higher up to $ 20,650 million. Foreign Direct Investment registered $19 billion than exports, reaching almost $ 240,000 billion in 2007/08, an increase in 2007. of 29% on the previous year, while exports grew by 26%. In dollar terms, Asia & Asean accounted for 51.5% of India’s total ex- Market access ports, followed by Europe (23%) and America (17%). India’s imports were highest from Asia & Asean (62.5%) then from Europe (20%) and According to data released by the US Commercial Service, 71% of the America (9%), during the same period. Indian population is under the age of 35, and approximately 200 mil- lion people belong to a middle-income consumer group with increas- UK is the main European market for Indian products, mainly oil, textile ing purchasing power. However it is important to keep in mind that and machinery, followed by the Netherlands who increased imports about 40% of India’s 1.2 billion people live on less than $1 per day. from India by over 90%, 47% in oil and its derivations. Jewelry and textile are the main exported items towards important markets such as The greatest part of Indians lives in rural areas, but urban population is USA and Hong Kong. UAE and Singapore mainly import oil and growing, and is expected to reach 410 million in 2011, concentrating derivates from India, while iron accounts for about 50% of exports on larger cities and metropolis. The increase in purchasing power for towards China (the third Indian trade partner). the urban middle class has not always been accompanied by an equal growth in rural markets, often claiming to have been “forgotten” in the Major economic indicators 2005-2006 2006-2007 2007-2008 GDP (value) Billion US$ 695.52 805.6 911.7 1,171.2 GDP (variation) % 7.5 9.4 9,6 9,0 Private Expenditure % of GDP 58.7 57.4 55,8 55,3 Public Expenditure % of GDP 10.7 10.4 10,3 10,1 Gross Fixed Investment % del PIL 26.1 31 32,5 33,9 Export Million US$ 83,502 103,075 126,276 159,089 Export (var.) % 30.7 23.4 22.5 26 Import Million US$ 111,472 149,144 185,081 238,605 Import (var.) % 42.5 33.8 24.1 28.9 Trade balance Million US$ -27,970 -46,069 -58,805 -79,516 Industrial Production Index (var.) % 8.5 7.9 10.5 9.9 Inflation Rate % 3.8 4.2 6.2 6.4 Exchange Rate 1 USD = INR Rupie 45.3 44.1 45.3 41.3 Source: www.ice.gov (based on data collected by the Center for Monitoring Indian Economy, The Economist Intelligence Unit, Reserve Bank of India, Deutsche Bank). 10 Infodent International 2/09 FOCUS ON INDIA country’s efforts towards economic development. However, in latest urban areas, and two-thirds in rural areas. The World Bank Report “India years income and literacy levels have slowly been growing in rural areas too, as well as the availability of products due to the adaptation of dis- - Private services for the poor” (2005) shows that poor are concentrated tribution channels to serve the needs of the rural market. in rural areas in the north, where they are predominantly engaged in agricultural activities. On average, the poor suffer from higher disease Market access in India has in some cases been hampered as foreign prevalence, they are less literate and have less access to health facilities, companies overlooked the fact that, for many product categories, only clean water and sanitation than the general population. More than 65% a fraction of India’s population can be regarded as potential customers, of households belonging to scheduled cases and tribes live below the and having overestimated it, they were then disappointed with the re- poverty line. sults of their products’ launch. Some major problems relate to the lack of a developed infrastructure that make distribution difficult, thus re- The Indian healthcare system is still affected by infrastructural deficien- ducing demand for some products especially in rural areas. Moreover, cies and great variation in the quality of care delivered. local competition and the different attitude of Indian population to- wards spending are other factors to be examined together with sales Healthcare provision is based on an integrated network starting from channels and marketing practices. sub-centers and progressively stepping to upper levels: primary health centers, community health centers, district hospitals and multi specialty As regards the degree of market openness, many tariff and non-tariff tertiary care hospitals, providing different level of care to the popula- barriers remain, even if reforms introduced in the early 1990’s have pro- tion. gressively reduced duties. Reforms are still widely needed in customs tariffs, tax system and entry barriers for business activities, especially The primary healthcare system is based on the primary health center concerning private investment in infrastructure. Appropriate tax re- (PHC), targeted to cover a population of 30,000 (or 20,000 in remote or forms can positively affect the investment climate, as India needs rural areas), PHCs are hubs for five or six subcenters covering three or higher foreign direct and institutional investment to improve the gen- four villages each, and they act as referral centers for the community eral business environment with spillover effects on technology, human health centers (CHCs), 30-bed hospitals, and higher-order public hos- capital formation and efficiency of resource use.