INDIAINDIA
Business Business Environment, Environment,
Opportunities andOpportunities and
IFC’s Role IFC’s Role Iyad Malas
Director, South Asia Department
Frankfurt, October 7, 2005
India – The Growth India – The Growth EnablersEnablers
EconomicEconomic• High growthHigh growth• Strong Capex Growth Strong Capex Growth • Comfortable BOP positionComfortable BOP position• Well developed entrepreneurial Well developed entrepreneurial
classclass• Booming stock market Booming stock market • Increasing international Increasing international
competitivenesscompetitiveness• Resilient economyResilient economy
Political• Strong democracy• Stable secular state• Strong judiciary• Liberalized economy• Reform oriented policy
Geo-political Abundant natural resources
Cultural• Education base• Skilled, low cost work force• Performance oriented• Engg /IT/ English language skills
Demographic• Vast working population• 54% of population < 25 years old• Large domestic market• Size of the Indian middle class larger than that in the entire Europe
GROWTH
Macro TrendMacro Trend
Strong BOP PositionStrong BOP Position
Liberalization firmly on path•Tariff rationalization and tax reforms•Financial sector reforms•Power sector reforms•Telecom sector reforms•Infrastructure development – roads, ports•Capital market rationalization
Favorable indicators•Prime lending rates have fallen from 16% in Nov. 1996 to 10.5% in September 2005•Stable / appreciating currency•Record FDI (US$ 5bn), and •FII (US$8.5 bn) inflows (Jan. to Aug. 2005)
India's Foreign Exchange Reserves($ billion)
144
19
0
35
70
105
140
1993 (March) 2005 (Aug)
India's GDP Projections, US$ Bn (Source: Goldman Sachs)
27,803
4690
7000140002100028000
2000 2050
CAGR 6%
India to be third largest economy by 2050
Robust Financial MarketsRobust Financial Markets
Well-functioning financial markets ensure Well-functioning financial markets ensure liquidity and availability of capitalliquidity and availability of capital
Equity markets-6,897 scrips listed as of Aug 2005, with market capitalization of $ 460 bill-Electronic settlement, increasingly effective regulator, corporate governance
laws-Record of $ 7 billion raised through public issues in 2004
Growing debt and derivatives segments-Average daily turnover for wholesale debt markets (2004-05) of US$ 700 million-Turnover for derivates segment in excess of US$ 27 billion
But Structural Constraints But Structural Constraints RemainRemain • Pressures of Coalition Govt – second generation Pressures of Coalition Govt – second generation
reforms stalled (particularly disinvestment)reforms stalled (particularly disinvestment)• High fiscal deficits crowd out public and private High fiscal deficits crowd out public and private
investment investment • Private investment only 15% of GDP (public 8%)Private investment only 15% of GDP (public 8%)• FDI flows less than 1% of GDPFDI flows less than 1% of GDP• Industry contributes < 25% of GDP Industry contributes < 25% of GDP • Only 7% of total employment in organized sectorOnly 7% of total employment in organized sector• Huge Regional disparities Huge Regional disparities • Severe Infrastructure bottlenecksSevere Infrastructure bottlenecks• Widespread govt. ownership in business, Widespread govt. ownership in business,
dominance in banking dominance in banking
Business Environment -Not Business Environment -Not EasyEasy
DOING BUSINESS REPORT 2005-06 ranks DOING BUSINESS REPORT 2005-06 ranks India 116 out of 155 countries on the “ease India 116 out of 155 countries on the “ease of doing business” because:of doing business” because:
• Rigidities in labor and land marketsRigidities in labor and land markets• Import tariffs, complex tax regimesImport tariffs, complex tax regimes• Excessive regulation increases costs of doing Excessive regulation increases costs of doing
businessbusiness
Possible Risks to InvestmentPossible Risks to Investment
Short to Medium TermShort to Medium Term• Rising crude oil prices (India imports 2/3 of oil Rising crude oil prices (India imports 2/3 of oil
needs)needs)• Global opposition to outsourcingGlobal opposition to outsourcing• Infrastructure bottlenecksInfrastructure bottlenecks
Long TermLong Term• Inflation and interest ratesInflation and interest rates• Policy risk – reforms slowdownPolicy risk – reforms slowdown• Income /regional disparitiesIncome /regional disparities• High fiscal deficitsHigh fiscal deficits• Infrastructure bottlenecksInfrastructure bottlenecks
Still, Indian Industry is Still, Indian Industry is GainingGaining
• Hero Honda is the largest manufacturer of Hero Honda is the largest manufacturer of
motorcycles in the worldmotorcycles in the world
• Fifteen of world’s major automobile firms now Fifteen of world’s major automobile firms now
source components from Indian firmssource components from Indian firms
• Essel Propack is the world’s largest laminated Essel Propack is the world’s largest laminated
tubes manufacturer tubes manufacturer
• Moser Baer is the world’s third largest optical Moser Baer is the world’s third largest optical
media producermedia producer
• TISCO is the lowest cost producer of hot-rolled TISCO is the lowest cost producer of hot-rolled
steel globallysteel globally
Still, Indian Industry is Still, Indian Industry is GainingGaining
• Bharat Forge has the world’s largest single Bharat Forge has the world’s largest single
location factorylocation factory
• India is one of the largest diamond cutting India is one of the largest diamond cutting
and polishing centers. 9 out of every 10 and polishing centers. 9 out of every 10
stones sold in the world pass through Indiastones sold in the world pass through India
• 100 of the Fortune 500 firms have R&D 100 of the Fortune 500 firms have R&D
facilities in India (Delphi, Eli Lilly, GE, HP, facilities in India (Delphi, Eli Lilly, GE, HP,
Heinz, Daimler Chrysler, Microsoft, Intel, Heinz, Daimler Chrysler, Microsoft, Intel,
Motorola, Dell etc)Motorola, Dell etc)
Broad-Based Growth Across Broad-Based Growth Across SectorsSectors
• IT, ITES and BPOIT, ITES and BPO – on track to reach US$ 50 billion of – on track to reach US$ 50 billion of exports by 2008exports by 2008
• Pharmaceuticals and biotechnologyPharmaceuticals and biotechnology – robust export-led – robust export-led growthgrowth
• TextilesTextiles – well-positioned to capture post-MFA growth – well-positioned to capture post-MFA growth along with Chinaalong with China
• Auto and Auto ancillariesAuto and Auto ancillaries – exports to grow ten-fold to – exports to grow ten-fold to $15 billion by 2009$15 billion by 2009
• Construction/Building Materials - Construction/Building Materials - growth driven by growth driven by infrastructure/housinginfrastructure/housing
Broad-Based Growth Across Broad-Based Growth Across SectorsSectors
• ManufacturingManufacturing – some of the largest and lowest – some of the largest and lowest cost (TISCO, Hindalco) producers in the worldcost (TISCO, Hindalco) producers in the world
• RetailRetail and distributionand distribution – second most attractive – second most attractive retail market in the worldretail market in the world
• Engineering based manufacturing - Engineering based manufacturing - capital capital goods industry driven by strong capex goods industry driven by strong capex
Alternative to China for cos looking Alternative to China for cos looking
to source merchandise globallyto source merchandise globally
India has Benefited from the India has Benefited from the Outsourcing WaveOutsourcing Wave
0
10
20
30
40
50
FY9
7
FY9
8
FY9
9
FY0
0
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5E
FY0
6E
FY0
7E
FY0
8E
FY0
9E
Software/ I T BPO/I TES
IT/ I TES exports (US$bn)
0
1
2
3
FY9
7
FY9
8
FY9
9
FY0
0
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5E
FY0
6E
FY0
7E
FY0
8E
FY0
9E
Auto component exports (US$bn)
Source: CLSA Research
India has Benefited from the India has Benefited from the Outsourcing WaveOutsourcing Wave
0
2
4
6
8
FY9
7
FY9
8
FY9
9
FY0
0
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5E
FY0
6E
FY0
7E
FY0
8E
FY0
9E
Pharma exports (US$bn)
0
10
20
30
FY9
7
FY9
8
FY9
9
FY0
0
FY0
1
FY0
2
FY0
3
FY0
4
FY0
5E
FY0
6E
FY0
7E
FY0
8E
FY0
9E
Fabrics Ready made garments
Textiles exports (US$bn)
Source: CLSA Research
IFC Strategic FocusIFC Strategic Focus
Private InfrastructurePrivate Infrastructure• Power generation, distribution, transmissionPower generation, distribution, transmission• Mobile telecomsMobile telecoms• SEZs/ports/airportsSEZs/ports/airports• Water and SanitationWater and Sanitation
Manufacturing and Service Companies Manufacturing and Service Companies • New Growth Sectors: IT, Pharma, Auto PartsNew Growth Sectors: IT, Pharma, Auto Parts• Achieving international competitivenessAchieving international competitiveness• Bring FDI into India through MNCsBring FDI into India through MNCs• Take Indian companies abroadTake Indian companies abroad
AgribusinessAgribusiness Financial InstitutionsFinancial Institutions• Second tier banksSecond tier banks• Micro and SME FinanceMicro and SME Finance
IFC’s India PortfolioIFC’s India Portfolio
• IFC’s 3rd largest exposure with $1.27 billion invested in 79 IFC’s 3rd largest exposure with $1.27 billion invested in 79
companies, and $353 million mobilized through syndicationscompanies, and $353 million mobilized through syndications
• Long-term presence – investor since 1956Long-term presence – investor since 1956
• IFC has played a significant role in creating leading financial IFC has played a significant role in creating leading financial
institutionsinstitutions
• India portfolio has doubled since 2001India portfolio has doubled since 2001
• Record Commitments of $413 million in FY 2004-05Record Commitments of $413 million in FY 2004-05
• Expect to continue to invest $400 - $500 million paExpect to continue to invest $400 - $500 million pa
$3.2 bn Invested in India Since $3.2 bn Invested in India Since 19581958
Outstanding Portfolio: $1.27 billion
Syndications: $353 million
General Manufacturing
& Services 37%
Oil Gas & Mining
9%
Financial Institutions
31%
Others 3%
Infrastructure, Power & Telecom
20%
For more information, please For more information, please contact:contact:
International Finance CorporationInternational Finance CorporationIyad MalasIyad Malas
Director, South Asia DepartmentDirector, South Asia Department
Email: [email protected] Email: [email protected] Website: www.ifc.org/southasiaWebsite: www.ifc.org/southasia
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Gate No.3, Niti MargGate No.3, Niti Marg
ChanakyapuriChanakyapuri
New Delhi 110 021New Delhi 110 021
Telephone: (011) 5111-1000Telephone: (011) 5111-1000
Facsimile: (011) 5111-1002Facsimile: (011) 5111-1002
Godrej Bhavan, 3rd FloorGodrej Bhavan, 3rd Floor
Murzban RoadMurzban Road
Fort, Mumbai 200 001Fort, Mumbai 200 001
Telephone: (22) 231-1235Telephone: (22) 231-1235
Facsimile: (22) 231-1236Facsimile: (22) 231-1236
THANK YOU
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