India’s Economic Potential is not

Overstated
 Overview
We are united & governed
We have changed & regulated
We are now growing….
12/07/21
We would take you through, India’s Economic
performance in 3 phases.
Phase 1: Before 1990-1991
Phase 2: After 1991-2009
Phase 3: Future forecasts
Our basis of projection on the economic
potential include economic indicators such has
GDP, Per-capital income & Inflation.
We have also considered factors such has forex
reserves, FII Inflow, FDI , PPP& other
Investments in the country. We would also give
an insight on the various sectors contributing
towards India’s growth in the economy.
India's Economic potential is not overstated 2
 Believe it or not!!!
 In the year 1700, India's share in the World production was 22.6%. The other
super power at that time was china and its share was better than India at
23.1%. The US had no prominent share in world trade.

 In 1990, China account for 11%, India is less than 5% and USA 21% .

1700

Source: Goldman sacs, IMF

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 Believe it or not!!!
 Note that we were at our best in the comity of nations when we were fully
globalised and when we closed ourselves, where did we stand, when we had a
crisis in 1991?

15% of the world population

7.5% of world's land
What was our share of contribution to the world trade? …. less than half
a percent!!!

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 Phase I
Overview 43 Years
Positive Implications
One party system
Indicators:
GDP Growth 10 Prime Ministers
Forex reserves
FII Flow
FDI One Direction
Per Capital Income
Inflation Over 3% GDP growth

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Overview:
 During the last forty years we had adopted economic strategy of planned
growth which was popularly known as "License Raj“

 Five-Year Plans of India resembled central planning in the Soviet Union.

 Steel, mining, machine tools, water, telecommunications, insurance, and

electrical plants, among other industries, were effectively nationalized in the
mid-1950s.

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Positive Implications:
 Industrial production base was widened.

 We succeeded in developing a pool of technically trained manpower on a

scale, which has no parallel in the world through Institutions like IITs , IISc and
IIMs.

 In Banking system, we had a combination of intervention plus free flow of

market forces and these measures have made our banking system more
reliable today.

 We saw PSUs owned by central & state government contributing to the growth
of our economy. LIC alone contributed 5% of GDP. However, the growth of PSU
was not impressive.

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Phase I: Results

 GDP was around 4.9%

 Forex reserves was less than USD1
billion
 FII Flow stood around USD 1 million
 FDI stood around USD 97 million
 Per-Capital income was around USD 390
 Inflation was around 9%

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 Phase II 19 Years
6 Governments
7 Prime Ministers
“If August 15, 1947 marked the
Indian Independence - from
One Direction
political slavery to colonial
Over 8% GDP growth
power,

I think the August of 1991 could

be marked as the beginning of
Indian Economic Freedom.”

GDP Growth Forex FII Flow FDI Per Capita Inflation

1990 4.9 percent < USD 1 billion USD 1 million USD 97 million USD 390 9 percent
(1993)

2008* 8.7 percent USD 309 billion as on USD 16.1 billion in USD 12.7 billion in USD 740 7.4 percent as
28/03/2008 2007-08 2007-08 till on
December 29/03/2008

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 Phase II 19 Years
6 Governments
Economic Indicators: 7 Prime Ministers

GDP
One Direction
Snapshot on Indian Economy
Forex reserves & FII Over 8% GDP growth
Foreign Trade
FDI & Capital market

Drivers of Growth:

Agriculture – Industry - Services

Human Capital

GDP Growth Forex FII Flow FDI Per Capita Inflation

1990 4.9 percent < USD 1 billion USD 1 million USD 97 million USD 390 9 percent
(1993)

2008* 8.7 percent USD 309 billion as on USD 16.1 billion in USD 12.7 billion in USD 740 7.4 percent as
28/03/2008 2007-08 2007-08 till on
December 29/03/2008

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India’s GDP on an impressive growth

• India gross domestic product (GDP) means the total value of all the services
and goods that are manufactured within the territory of the nation within the
specified period of time.

• The economy of India is the twelfth biggest in comparison to that of others in

the whole world, for it has approximately GDP of US$ 1.09 trillion in 2009.

• The country has the second fastest major growing economy in the whole
world with the GDP growing at the rate of over 6% in 2008 - 2009 next to
China.

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Rise in GDP

India’s GDP rose from 495$ billion in 2002 to 1242$ billion in 2008.
A massive 40% increase in the total valuation which indicates India is growing at
a faster rate.

Source: Ministry of Finance, RBI

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 Comparative analysis

Before LPG After LPG initiation

Source: RBI, IMF

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Rank Country GDP (PPP -
Billion $)
1 U.S.A. 13, 820
India is the 4th largest country in terms
2 China 6,473 of Purchasing power parity whereas
3 Japan 4,262 China stands 2nd in the World economy.
4 India 2,816
5 Germany 2, 816

Rank Country GDP (Real

growth rate)
India ranks 28th , growing at a real 1 Bhutan 21.4%
growth rate of 7.4% whereas China 2 Macau 15%
ranks 17th
3 Qatar 13.4%
17 China 9%
28 India 7.4%

Source: IMF, UN
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Snapshot on the Indian Economy

 India ranks 2nd in terms of total population next to China. However the
population growth rate is around 1.55% which is healthier.
 India ranks 2nd in terms of productive labor force next to China.
 India ranks 12th in terms of Ideal Investment destination whereas China
stands 4th .
 India ranks 89th in terms of population below poverty line which was around
25% which stood at 36% before 1991.
 India ranks 92nd in terms of Inflation rate (consumer prices) which is around
8% whereas China at 125th is around 6%.
 India ranks 113th with regards to the unemployment rate at less than 7%
whereas China is at 153rd at 5%.
 India ranks 168th with the literacy rate around 65% which was under 40%
before 1991.

Source: IMF
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India: Robust Economic Platform
India's Forex Reserves: 2001-08 (Till 28 March 2008)
350
309
300
Steadily increasing In 2007-08 (till 28 March),
250
Forex reserves offer 199 Forex reserves witnessed

USD Billion
adequate security 200
141 152 a growth of approx. 55%
against any possible 150 112 over 2006-07.
currency crisis or 100
54
75
monetary instability 50
0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
(Till 28
March) India’s Forex
reserves are in
External Debt-to-GDP Ratio excess of
22 21.1
external debt…
20.4

19
17.8
17.3
Increased confidence 16.4 …the decreasing
15.8
Ratio

of investors in Indian 16 external debt to GDP

companies has led to a ratio indicates that India
surge in cross border 13 has a sound economic
borrowing by platform
corporate houses
10
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Source: RBI
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India: Glimpse on Forex reserves

Foreign Exchange Reserves (FER) is the

surplus money or capital that a country
parks or maintains in the foreign
country in form of currency, bond and
other kind of securities.

India has witnessed a whopping 152%

increase in its Foreign exchange reserve

Large reserves of foreign currency allow a government to manipulate

exchange rates - usually to stabilize the foreign exchange rates to provide a
more favorable economic environment.

The greater a country's foreign reserves, the better position it is in to defend

itself from speculative attacks on the domestic currency.

Source: RBI
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India: Surging Exports
India's Exports: 2002-08
Services sector has 140 126 124
120 Quality and cost advantage
been a major 103
100 84 are the two important
contributor to

USD Billion
80 64 parameters leveraged by the
increased exports 60
53
Indian producers to
from India 40
20
increasingly market products
0 and services
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
(April-
De ce m be r)*
Acceptance of
Indian products
along with the cost
advantage has
India's Imports: 2002-08
provided an edge to
250
Indian companies
191 192
200
150
USD Billion

150
112
100 78 Petroleum products are the
Product imports 62
major contributors towards
by India mainly 50
India’s growing imports
include petroleum 0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
products and (April-
minerals De ce m be r)*

Source: RBI
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India: Attractive Investment Destination

With improved performance on

PE ratio and ROE, Indian
markets have attracted large
investments

India is ranked 2nd in AT

Kearney’s FDI confidence
index (2007)

FDI inflow for the period 2006-07 witnessed a growth of

185 percent over the same period last year

Source: RBI
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India: Sectors attracting highest FDI

India: Regions attracting FDI

Source: RBI
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 India: Vibrant Capital Market
Sensex – The Bombay Stock Exchange index rise 20 times from 1990s to
reach 20,000 mark in November 2007.
India is among the 2 50 0 0
major destinations 11 December
across the globe for 2007 Crossed
20,000 mark
inflow of US Dollar 20000

150 0 0
Sensex has risen 07 February 2006
20 times in the 30 December 1999 Crossed 10,000 mark
period 1990-2007 Crossed 5,000 mark
10 0 0 0

50 0 0

Emergence of
industry and
confidence of local 0
investors along
with the FIIs has led
to upsurge of the
Sensex
FIIs have infused Increased local
large investments Encouraging
investors’
into the Indian industry
Source: RBI confidence
stock market performance

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India: Company Overview

>BSE lists more than 6000 companies.

Only NYSE has more.

>100 of the Fortune 500 companies

have R & D facilities in India

>India is one of six countries that

launches satellites.

>India is one of only 3 countries that

makes supercomputers (US and Japan are
the other two).

>India has the second largest community

of software developers, after the U.S.

Source: RBI, IMF

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India: Corporate perspective

“We came to India for the costs, stayed for the quality and are now
investing for innovation”.
- Dan Scheinman, Cisco System Inc.

“India is a developed country as far as intellectual capital is

concerned”.
- Jack Welch, Ex CEO of General Electric

“By 2032, India will be among the three largest economies in the
world.”
- BRIC Report, Goldman Sachs

Source: FORBES, Goldman Sacs

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India: Drivers of growth
Agriculture>>>

 India ranks 2nd world wide in farm output.

 Two thirds of India’s workforce still earn their livelihood directly or indirectly
through agriculture.
 Despite improvements, average yield in India ranges from 30-50% of the
highest average yield in the world.
 Despite recession, the country’s agri-exports have registered a 25 per cent
growth in 2008-09.
 India has a share of 7% ($ 80 billion) in floriculture exports
 Agriculture accounts for about 17% of GDP

Source: RBI
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India: Drivers of growth
Industry>>>

India ranks 14th in the world in factory output.

Manufacturing growth rate 8.4%.
Economic reforms led to more private sector participation, an expansion in the
production of consumer goods and both domestic and foreign competition.
Industry accounts for 28% of the GDP and employs 17% of the work force.

Source: RBI
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India: Drivers of growth
Services>>>

India is 15th in services output.

The growth rate which was 4.5% in 1951-80 increased to 7.5% in 1991-2000.
Recent growth rate is around10.7%.
Fastest growing services are –business services, information technology enabled
services, business process outsourcing contributing about one third of total output
of services in 2000.
India’s IT industry is an important contributor to BOP.
Its share in GDP was 15% in 1950 which is now about 55%.

Source: RBI
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 Phase III
Drivers of growth

India opens up
Over the next 41 Years
The rise of the Financial sector Multi-party System
Back-office to the world
The Golden Quadrilateral
The great migration
The land factor
One Direction
10 Things to be addressed
Future projections One of the Supreme Power in the
World Economy

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 Drivers of growth
•India opens up
•The rise of the Financial sector
•Back-office to the world
•The Golden Quadrilateral
•The great migration
•The land factor
Source: IMF, BRIC - GS
12/07/21
• India began to unshackle its closed economy by
gradually lowering its very high trade barriers and
boosting exports.
• Average tariffs fell to below 15% from as high as
200% as the country began to re-integrate into the
global economy.
• The impact of opening up has been significant.
Exports have risen 14 times as India has rapidly
gained trade share.
• This development has been most evident in the past
three years, when trade has grown, on average, 25%
a year.
India's Economic potential is overstated 29
 Drivers of growth
•India opens up
•The rise of the Financial sector
•Back-office to the world
•The Golden Quadrilateral
•The great migration
•The land factor
Source: IMF, BRIC - GS
12/07/21 India's Economic potential is overstated
• Private sector has grown by an average of 32% over
the past two years.
• Increased financial intermediation improves
resource allocation by effectively channeling savings
into investment and raising productivity.
• Assuming that policies to open up the financial
sector remain on track, including the entry of foreign
banks starting from 2009, we expect financial
deepening to continue and to contribute to increases
in productivity in the medium term.
30
 Drivers of growth • The success of the IT industry in India has had a
material impact on productivity.
•India opens up
• It has provided powerful incentives for students to
•The rise of the Financial sector
invest in IT skills. This has created a pool of
•Back-office to the world technology-skilled labor that firms in other
•The Golden Quadrilateral industries can tap into.
•The great migration
•The land factor • The rapid spread of mobile phones from a very low
base provided a fillip to communications, further
boosting productivity.

• Today, India is the fastest-growing market for

mobile phones, with average growth rates of over
80% every year since 2000.

• India’s technology spending is still low and there

remains substantial scope for catch-up and
productivity gains.

Source: IMF, BRIC - GS

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 Drivers of growth • In the last 50 years, the government has built just
334 miles of four-lane roads.
•India opens up
•The rise of the Financial sector • The Golden Quadrilateral is of 3,625 miles of four-
•Back-office to the world and six-lane highways. The highway connects the
four largest cities: Delhi in the north with Kolkata in
•The Golden Quadrilateral
the east, Chennai in the south and Mumbai in the
•The great migration west.
•The land factor
• GQ runs through 13 states and 17 other cities with a
million or more inhabitants since 2007.

• More importantly, the highways will open up and out

the closed worlds of India's villages. They will
facilitate increased rural-urban migration, and when
migrants return to their villages, they bring back
new views and aspirations, encouraging others to
follow in their footsteps.

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 Drivers of growth • The 21st century is set to become India's urban
century., with more people living in cities and towns
•India opens up than in the countryside for the first time in its
history. India has 10 of the 30 fastest growing cities
•The rise of the Financial sector in the world and is witnessing rapid urbanization.
•Back-office to the world
•The Golden Quadrilateral • The growth is happening not in large cities, but in
•The great migration small and mid-sized towns. In 1991, India had 23
•The land factor cities with a million or more people. A decade later,
it had 35.

• According to GS projections, another 140mn rural

dwellers will move to urban areas by 2020, while a
massive 700mn people will have moved to urban
areas by 2050

Source: IMF, BRIC - GS

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 Drivers of growth
• When land moves from low productivity agriculture
to urban use and higher productivity sectors, overall
•India opens up productivity improves.
•The rise of the Financial sector
•Back-office to the world • India will need investments in agriculture to boost
•The Golden Quadrilateral productivity, especially in rural connectivity,
storage, etc., to improve the yield of remaining
•The great migration
agricultural land.
•The land factor
• The creation of new Special Economic Zones (SEZs)
has the potential to transform the productivity of
agricultural land. Ideally, India should develop
economy-wide infrastructure and the necessary
investment climate.

Source: IMF, BRIC - GS

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Ten things for India to focus…

 Improve governance
 Raise educational achievement
 Increase quality and quantity of universities
 Control Inflation
 Introduce a credible fiscal policy
 Liberalize financial markets
 Increase trade with neighbours
 Increase agricultural productivity
 Improve infrastructure
 Improve Environmental Quality

12/07/21 India's Economic potential is overstated 35

Future projections

BRIC Estimates

Equity Indices
Policy rates
Inflation
Exchange rate performance

Future Forecast

GDP: Rapid growth potential

Real GDP growth rate
Largest economies
Projected population growth rate
Urbanization bonus

12/07/21 India's Economic potential is overstated 36

G
S Among the BRICs, India’s policy Among the BRICs, India is
rate is moderate next to china having a healthier growth
& which is beneficial in the long indices in the Equity Market.
run.
U
N

E
S
T
I
M Among the BRICs, India is
A Among the BRICs, India holds
having Inflation at a pretty
T the highest appreciation which
decent rate unlike the alarming
E is favorable to Importers
trend like that of Russia.
S

Source: IMF, BRIC - GS

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 Among the BRICs, India is
F projected to have a rapid
U growth in terms of GDP and the
T rapid potential would spread
U for a longer term.
R
E

F
O
R
E
C
A India is stated to attain this level
S due to the productive workforce it
T would generate since 2015 and
goes on up to 2050. Thanks to
productive population!!!

Source: IMF, BRIC - GS

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F
U
T
U
R
E

F
O
R
E
C
A
S
T

Source: IMF, BRIC - GS

12/07/21 India's Economic potential is overstated 39
Thank you

By
Gaurav
Gokul
Niven
Ragesh
Vipin