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Macroeconomic Environment
Macroeconomic Environment
(% GDP) 1
Workers Remittances (US$ bn) 2 Gross International Reserves (US$ bn) 1 Foreign Direct Investment inflow (US $ bn) Foreign Direct Investment outflow (US $ bn)
6.1
25.8**
323% higher
Sources: 1 Reserve Bank of India data (as on March 2012) 2 IMF WEO Database April 2012 ** For FY 2010-11 + for calendar year 2006 ++ for calendar year 2011 # As on 31 March 2006 ## As on 30 March 2012
Macroeconomic Environment
Good growth prospects supported by ongoing economic liberalisation and strong domestic demand Stable financial system Strong external liquidity position High degree of political stability
4
Department of Economic Affairs, Government of India
Macroeconomic Environment
Country
Country Russia Turkey Mexico Taiwan, China Czech Republic Thailand Hungary Peru Malaysia Argentina Brazil Chile South Africa Philippines Korea Egypt Colombia China India Poland Morocco Indonesia
Std. Dev. Of Real GDP Growth Rate (2006-11) 6.0 5.3 4.4 4.4 4.1 3.7 3.6 3.2 3.2 3.2 2.8 2.7 2.6 2.3 2.2 2.1 2.1 2.1 1.9 1.9 1.7 0.7
China India Peru Argentina Indonesia Egypt Morocco Colombia Philippines Poland Malaysia Chile Brazil Taiwan, China Turkey Korea Russia South Africa Thailand Czech Republic Mexico Hungary
Department of Economic Affairs, Government of India
Macroeconomic Environment
India 6%
China 14% Other emerging and developing economies 29% Advanced economies 51%
India is expected to become the second largest economy in the long run
$ trillion
60 50 40 30 20
7
6 5 4 3 2 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f 2017f
10
UK
0
Source: IMF World Economic Outlook (Apr 2012)
Macroeconomic Environment
50
40 30 20 10 0
32
34
7
Department of Economic Affairs, Government of India
Macroeconomic Environment
180
160 140 120 100 80
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
Source: CMIE Business Beacon
25000
20000
Services
15000
10000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
Source: CMIE Business Beacon
8
Department of Economic Affairs, Government of India
Macroeconomic Environment
Optimism
Pessimism
39 37 32
According to the latest global consumer confidence findings (for the first quarter in 2012) from Nielsen, optimism over job prospects and state of personal finances are up from last quarter as Indian consumers continue to be the most confident across the globe for the ninth consecutive quarter, rising one index point to 123 in Q1 2012 over the previous quarter
Optimism Pessimism
Macroeconomic Environment
Government policy initiatives will drive further development supporting GDP growth targets
3.3%
12th 5 Year Plan: Emphasis on Infrastructure Investment The 12th plan targets infrastructure investments of US$1 trillion with around 50% of investment expected to come from the private sector First Infrastructure Debt Fund for Rs. 8000 crores launched in March 2012 Promoting Public-Private Partnerships (PPPs) India has been highly successful in promoting PPPs; more than 700 PPP projects currently being carried out across the country The government provides financial assistance to PPP projects through the India Infrastructure Finance Company (IIFC). Since its inception in April 2006, the company has sanctioned loans to the tune of Rs 585.68 billion to 267 infrastructure projects. The government is expanding PPP eligible sectors and developing a comprehensive policy on PPPs, which is likely to be announced this year More sectors added as eligible sectors for Viability Gap Funding under the Scheme Support to PPP in infrastructure in Budget 2012-13 Draft policy on PPP under discussion PPP in defence PSUs Improving Investment Environment Unlocks New Funding Sources Incentives have been put in place to encourage investment in infrastructure: Raising corporate bond limit for FIIs to US$45 billion from US$20 billion (Sept10 to Nov 11) Allowing tax free bonds to be issued by various Government undertakings in the railways, ports, housing and highways development sectors in 2011/12 To boost infrastructure investment, withholding tax on interest income has been reduced from 20% to 5% for loan agreements and long term infrastructure bonds in foreign currency (Budget 2012-13)
3.9%
4.1%
4.2%
900
800
700 600 500 400 300 200 100 0
FY08
FY09
FY10
FY11
FY12
10
Department of Economic Affairs, Government of India
Macroeconomic Environment
Delhi-Mumbai Industrial Corridor Nine mega industrial zones of about 200-250 sq. km Six-lane intersection free expressway 4000 MW power plant Urban Infrastructure Jawaharlal Nehru National Urban Renewal Mission Metro rail projects in major cities (Mumbai, Hyderabad, Chennai, Bangalore) in various stages of
implementation
Highways Target of covering a length of 8,800 kilometers under National Highway Development Project in 2012-13 Electricity 20000 MW generation capacity added in FY12. Power capacity added in FY07 was 6853 MW. 16 Ultra Mega Power Plants (UMPP) (4000 MW each) planned
11
Macroeconomic Environment
7.7
6.3
5.7
5.3
5.3
5.3
5.3
Better
25
26
30
33
41
45
48
49
51
12
Department of Economic Affairs, Government of India
56
61
62
63
80
86
94
95
96
99
117
120
Better
Source: World Bank, Doing Business Report 2012
4.7
4.7
4.3
Transparency level for conducting business in India is superior to many other EMEs
Strength of auditing and reporting standards rank (1 = best)
Macroeconomic Environment
3
2 1 0
and compares favorably with three of four other BRICS nations in the ease of starting a business
Number of days to start a business
119
29 19
30
38
South Africa
India
Russia
China
Brazil
13
Department of Economic Affairs, Government of India
Source: World Bank, Doing Business Report 2012
Macroeconomic Environment Capital Markets Public Finances External Finances Structural Factors
14
Capital Markets
126 127
92 80 53 55 83 68 69 71
62
63
34 21 3 4 24
37
38
43
48
50
15
Capital Markets
SOUTH AFRICA
MALAYSIA TAIWAN UK KOREA THAILAND USA
INDIA
JAPAN BRAZIL INDONESIA RUSSIA MEXICO CHINA 0.00 0.50 1.00 1.50 2.00 2.50
16
Capital Markets
600
CHINA
KOREA
SOUTH AFRICA
500
TAIWAN
400
300
200
100
0 Dec-1994 May-1995 Oct-1995 Mar-1996 Aug-1996 Jan-1997 Jun-1997 Nov-1997 Apr-1998 Sep-1998 Feb-1999 Jul-1999 Dec-1999 May-2000 Oct-2000 Mar-2001 Aug-2001 Jan-2002 Jun-2002 Nov-2002 Apr-2003 Sep-2003 Feb-2004 Jul-2004 Dec-2004 May-2005 Oct-2005 Mar-2006 Aug-2006 Jan-2007 Jun-2007 Nov-2007 Apr-2008 Sep-2008 Feb-2009 Jul-2009 Dec-2009 May-2010 Oct-2010 Mar-2011 Aug-2011 Jan-2012
India has been amongst the best performing markets in its peer group , since liberalization Indian equities have delivered a CAGR of 14% over the last two decades
Source: Bloomberg
17
Capital Markets
120
114
100 Total market cap of Indian companies is USD 1.2 trillion as of 2011 80
No. of companies
60
40
23
20
20
Source: Bloomberg
18
Capital Markets
Sr. No.
Company
Sr. No.
Company
ONGC
42,953
11
Oil India
5,135
Coal India
39,169
12
Hindustan Copper
5,113
NTPC
25,485
13
NHPC
4,702
MMTC
18,387
14
Power Finance
3,839
NMDC
13,248
15
Bharat Petroleum
3,551
BHEL
12,541
16
REC
3,152
Indian Oil
12,438
17
NALCO
2,823
GAIL
9,336
18
Neyveli Lignite
2,671
Power Grid
8,978
19
Petronet LNG
2,346
10
SAIL
7,314
20
Bharat Electronics
2,277
Source: Bloomberg
19
Capital Markets
FII inflows
Significant FII inflows in equity and debt
Equity Debt
2008
2001
2002
2003
2004
2005
2006
2007
2009
2010
2011
-5000
-10000
-15000
Source: SEBI
20
2012 *
Capital Markets
YEAR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 TOTAL
INDIA 1586 2748 707 6673 8623 10702 8372 17824 -12173 17626 28711 -543 90856
INDONESIA 91 428 872 1121 2199 3403 1878 3551 1870 1385 2331 2600 21729
KOREA 10127 5790 -2259 11794 9316 -2764 -11808 -29221 -33368 24827 18595 -6716 -5687
TAIWAN 3021 7494 -110 15887 8054 19185 17108 2244 -15377 13720 8689 -9340 70575
SOUTH AFRICA 2474 3466 -622 -1 5208 7330 10998 8890 -5565 8988 4834 -2002 43998
BRAZIL -1161 460 -460 2509 662 2208 1170 -1924 -12019 10028 3600 3623 8696
21
Capital Markets
400
350 300 250 200 150 100 50 0 2007-08 2008-09
2009-10
2010-11
2011-12
IPOs Year 2007-08 2008-09 2009-10 2010-11 2011-12 *Amount in USD billion Number 32 57 35 24 85
India Amount* 1.25 7.63 5.03 0.59 10.65 Number 238 343 190 54 117
Source: Bloomberg
22
Capital Markets
America
7000 6000
Asia
Europe
5000
4000 3000 2000 1000 0
2007
2000
2001
2002
2003
2004
2005
2006
2008
2009
2010
23
2011
Capital Markets
Contracts in million
24
Capital Markets
25
Capital Markets
350000
300000
250000
200000
150000
100000
50000
Source: SEBI
26
Capital Markets
Corus Hutchison Essar Zain Africa BV Cairn India Reliance Industries Novelis Inc Vodafone Essar Tata Teleservices Ltd Abbot Point Port Atlas Energy Inc (Marcellus Shale )
Tata Steel Vodafone Bharti Airtel Ltd Vedanta Plc British Petroleum Hindalco Industries Vodafone Group (Plc) NTT DoCoMo Inc
1.9 1.7
2011 2010
Shipping & Ports Production and distribution process for synthetic textiles
The top ten M&A deals in India since 2007 totaled nearly $66bn and occurred in developed business sectors including
environment
Source: Grant Thornton Dealtracker India (various issues)
27
Department of Economic Affairs, Government of India
Capital Markets
Development of Corporate Bond Market Dedicated trading platforms for small and medium scale enterprises Reducing transaction cost in Securities markets QFI access to Indian Equity Markets, corporate bonds and mutual fund debt schemes Liberalisation in ECBs: Permitting External Commercial Borrowings (ECB) to part finance Rupee debt of existing power projects Financial Stability and Development Council (FSDC) Financial Action Task Force (FATF) Permitting two-way fungibility in Indian Depository Receipts Reduction in the rate of long-term capital gains tax in the case of other non-resident investors, including Private Equity from 20% to 10% on the same lines as applicable to FIIs
Providing the levy of Securities Transaction Tax (STT) at the rate of 0.2 per cent on sale of unlisted securities in the course of IPO
Tax exemption to Angel investors investing in in start-up companies Extending the lower rate of withholding tax to funds raised through long term infrastructure bonds in addition to borrowing under a loan agreement Removal of Restriction on Venture Capital Funds to invest only in nine specified sectors Financial Sector Legislative Reforms Commission (FSLRC)
28
Department of Economic Affairs, Government of India
Macroeconomic Environment Capital Markets Public Finances External Finances Structural Factors
29
Public Finances
government; 50 are already listed on domestic stock exchange, roughly 75 are ready for listing
Unlocking Value
those with no accumulated losses and have earned net profit in three preceding consecutive years Disinvestment is a cabinet level decision
management through introduction of independent board of directors and compensation in line with global best practices
Doing so enhances management
Note 1 For full list of policy requirements, see 50th Public Enterprises Survey 2009-2010
30
Department of Economic Affairs, Government of India
Public Finances
12,541
67.72
51
2,096.86
12,438
78.92
51
3,472.69
9,336 8,978
57.34 69.42
51 51
591.90 1,653.75
SAIL
Total
7,314
85.82
51
2,546.73
56,020.15
Note: Realizable value of PSUs = Value of government stake minimum stake expected to be held by the government (% of GDP)
31
Department of Economic Affairs, Government of India
Source: Department of Disinvestment
Public Finances
Company Name Bharat Heavy Electricals Hindustan Copper Steel Authority of India RINL Hindustan Aeronautics Oil India Neyveli Lignite National Aluminium Company Ltd. MMTC Ltd.
Offering Details (%) 5% GoI Disinvestment 10% GoI Divestment and 10% Fresh Issue
5% GoI Divestment and 5% Fresh Issue 365* 10% GoI Divestment 10% GoI Divestment No announcement No announcement 10 9.33 NA NA NA NA 273 160
NHPC Ltd.
NMDC Ltd. MOIL Ltd. Andrew Yule & Co. Ltd. Engineers India Ltd. Rashtriya Chemicals & Fertilizers Ltd.
10
10 10 10 10 12.5
416
1249 79 13 158 76
(*) Note: Values based on current market cap as on January 12, 2012.
32
Department of Economic Affairs, Government of India
Public Finances
70
65 60 55 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11F 2011-12F 2012-13F 2013-14F 2014-15F 2015-16F
Indias debt continued to decline even during the crisis year and after
Change in general government debt (% of GDP) 2006-2012 20 10 0 -10 -20 -30 -40
33
Department of Economic Affairs, Government of India
Public Finances
Maturity Buckets Less than 1 year 1-5 years 5-10 years 10-20 years 20 years and above
Maturity trends of dated securities (% of outstanding stock maturing in a particular year) 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 FY13 FY14 FY15 FY16 FY17
Source: Public Debt Management Report, MoF, May 2012
34
Public Finances
government paper
43 21 3
Scheduled Commercial Banks 59.1%
48
Mutual Funds 0.2% Provident Funds 4.9% Reserve Bank of India 10.1%
Malaysia
Source: World Economic Forum - Global Competitiveness Report 2011/12; *Four major markets-bond (government and corporate), equity, foreign exchange, and derivatives
35
Macroeconomic Environment Capital Markets Public Finances External Finances Structural Factors
36
External Finances
Indias CAD funds the savings-investment gap, propelling the economy on a high growth path
Savings and Investment (% of GDP)
38
33
28
Investment Savings
18
Indias low external debt means that even a relatively high CAD may not pose a solvency problem 21 20 19 18 17 16 15
External Debt(% of GDP)
2006
2007
2008
2009
2010
2011
2012
Source: External Debt report end- Dec 2011, EDMU, Ministry of finance
37
External Finances
20
0 -20
10.5
38
Source: RBI
External Finances
India
Mexico
China
Brazil
Russia
South Africa
303.7
India 252.0 20 163.0 103.1 126.3 10 183.1 178.3
FY06
FY07
FY08
FY09
FY10
FY11
FY12
39
External Finances
10
0 -10 -20
40
Source: IMF Article 4 Assessment 2012
External Finances
Engineering goods
Textiles Other manufactured goods Petroleum & crude Other commodities
Regions vulnerable to recent financial woes purchase only a third of Indian exports
Rest 9%
EU 19%
Rest 11%
EU 24%
41
External Finances
Outward FDI from India has also been increasing, reflecting the global ambitions of Indian companies
Outward FDI (USD bn)
USD Billion 25
20
15
10
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
42
Department of Economic Affairs, Government of India
External Finances
Better
Median: 52
100 80 60 40 20 0
1.7
1.6 1.5 1.5 1.5 1.5 1.5 1.4 1.4
Brazil
Germany
Australia
US
Singapore
43
South Africa
Malaysia
China
India
UK
Better
Macroeconomic Environment Capital Markets Public Finances External Finances Structural Factors
44
Structural Factors
1,00,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0
The average percentage change in income has been next only to China and is forecasted to grow rapidly
Percentage change in per capita income 2006-2011 and 2012-17 forecast (PPP constant )
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2006-11 2012-17f
45
Structural Factors
Today India comprises about 5% of global middle class consumption while Japan, the United States, and the European Union cover fully 60%. By 2025, those numbers are expected to equalize; by 2050, they will be flipped. Middle-class demand is expected to grow from US$ 21 trillion in 2009 to US$ 56 trillion by 2030, with 80% of that growth coming from Asia. By 2050 India will comprise about 40% of global middle class consumption
Department of Economic Affairs, Government of India
46
Structural Factors
Favourable demographics
Improving human development translating into higher life expectancy
Average life expectancy
66 48
64
37 62 60 58 29
56
54 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Indian Chinese Japanese
Indias consistent improvements in wealth levels have translated into gains in human development indicators
1.8
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0
47
Department of Economic Affairs, Government of India
Structural Factors
Score 1-10 (best) 5.1 5.8 4.4 4.2 4.1 4.7 3.9 3.8 3.7 3.7 3.6 3.5 3.4
Rank 14 19 38 44 49 54 55 61 71 72 77 80 82
Score 1-10 (best) Taiwan, China Korea Malaysia China India Hungary Russia Poland Indonesia Thailand Morocco Czech Republic Colombia 5.1 5.2 5 4.3 4.7 4.6 4.3 4.3 4.3 4.2 4.1 4.1 3.7
Rank 5 12 23 31 32 37 50 52 53 60 65 66 83
Source:
Argentina
Chile Morocco Turkey Mexico Brazil Peru South Africa Egypt
3.4
3.4 3.3 3.3 3.1 3 2.6 2.3 2.3
86
87 93 94 107 115 128 133 135
Turkey
Argentina Philippines Chile Mexico Brazil Egypt Peru South Africa
3.4
3.2 3.1 2.8 2.8 2.7 2.4 2.4 2.1
103
113 115 124 126 127 132 135 138
48
Structural Factors
2
0
13.2
13.6
13.5
10.9
10.6
10.8 10.2
49
Department of Economic Affairs, Government of India
Structural Factors
Narrow Money
22%
M3
72
76
20%
21% 16%
21%
15%
10%
2008
2009
2010
2011
And the Indian economy is not overbanked or subject to some of the systemic problems faced by other emerging and developed economies
2010 Domestic credit to private sector (% GDP)
49
Russian
Czech
Peru
Korea
Mauritius
Vietnam
Belgium
Iceland
Latvia
Chile
Kazakhstan
Colombia
Lithuania
Germany
Saudi Arabia
Costa Rica
South Africa
50
Department of Economic Affairs, Government of India
Netherlands
Denmark
Italy
Mexico
China
Brazil
Lebanon
Panama
Estonia
France
Ukraine
Maldives
Bulgaria
Greece
Israel
Poland
Finland
Thailand
Hungary
Austria
Japan
Slovenia
Portugal
India
UK
Romania
Malaysia
Sweden
Spain
USA
Tunisia
Croatia
Ireland
Structural Factors
Indian Banks have been at the top among EMEs for 2010 in terms of soundness as per the Global Competitiveness Report 2011 South Africa Chile Peru Brazil Czech Republic Malaysia India Turkey Mexico Colombia Thailand Philippines Taiwan, China Poland China Morocco Hungary South Korea
2011-12 Value [1-7 (best)scale ] 6.6 6.5 6.2 6.2 6 5.9 5.8 5.8 5.6 5.6 5.6 5.6 5.5 5.4 5.3 5.3 5.2 4.7 Rank 2 6 15 16 25 28 32 33 40 42 43 46 51 60 64 65 75 99
Source: (i) The Global Competitiveness Report 2011 2012, World Economic Forum Notes : 1 = Insolvent and may require a government bailout 7 = Generally healthy with sound balance sheet
51
Structural Factors
India was amongst the top ranked countries listed on Dow Jones emerging economies in terms of the Degree of legal protection of borrowers and lenders right on a 1 10(best) scale for 2011
2011-12 Value
Source: (i) The Global Competitiveness Report 2011 2012, World Economic Forum
Malaysia South Africa Poland India Peru Korea Hungary China Czech Republic Mexico Columbia Thailand Taiwan, China Turkey Argentina Chile Russia Brazil Philippines Egypt Indonesia Morocco
[0 10 (best)scale] 10 9 9 8 7
7 7 6 6 5 5 4 4 4 4 4 3
Rank 1 8 8 20 39 39 39 60 60 76
76 89 89 89 89 89 105 105 105 105 105 105
3 3 3 3 3
52
Structural Factors
Transparency in governance
2011-12 Score 1-10 (best) 5.8 5.3 5 4.8 4.7 4.6 4.4 4.4 4.4 4.3 4.2 4.2 4.2 4.1 4.1 4 4 3.8 3.7 3.6 3.4 3.3 Rank 5 14 26 34 41 44 55 58 62 65 70 75 78 81 87 93 96 108 115 120 128 132
India ranks better than most of its peers in transparency of government policymaking.
Source:
Taiwan, China Chile Malaysia South Africa China Turkey Peru India Morocco Colombia Mexico Thailand Brazil Hungary Indonesia Poland Czech Republic Egypt Russia Philippines Korea Argentina
53