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Indian Economy Overview

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Indian Economy Overview

August, 2014

Introduction

India is currently one of the world's most attractive investment destinations. With the opening up of foreign direct investment (FDI) in several sectors, the country is an eye-catching destination for overseas investors. The relaxation of norms by the government has also created a vast opportunity for foreign players, who are competing for a greater role in the Indian market. Sectors projected to do well in the coming years include automotive, technology, life sciences and consumer products.

The HSBC's Services Purchasing Managers' Index (PMI) touched a 17 month high at 54.4 points in June 2014 as compared to 50.2 points in May 2014, which is a positive sign for the services sector in India.

Also, India made its entry into the club of the top 15 ultra-high-net-worth households (more than US$ 100 million in private financial wealth) in 2013 obtaining the 13th rank with 284 such households.

Further, there has been marked improvement in the hiring scenario in the country, as Naukri Job Speak Index for May 2014 showed a 14 per cent increase in hiring activity when compared to May 2013.

Furthermore, the US$ 1.2 trillion investment that the government has planned for the infrastructure sector in the 12th Five-Year Plan is set to help in further improving the export performance of Indian companies and the Indian growth story, which will consequently improve the overall Indian economy.

Market size

India holds a 6.4 percent share of global gross domestic product (GDP) on purchasing power parity (PPP) basis and presently is the third biggest economy in the world in terms of PPP, according to a World Bank report.

The industrial sector in India looks positive as industrial production grew at a 13-month high rate of 3.4 per cent in April 2014, driven mainly by electricity generation and manufacturing, as indicated by the Index of Industrial Production (IIP).

The trade and external sector showed improvement as exports posted double-digit growth in May, 2014, the highest in six months, as shipments of key commodities registered strong increases.

According to a latest report by PricewaterhouseCoopers (PwC), India is all set to become the world's third largest economy by the year 2030.

Key Developments/Investments

According to an HSBC report, Indian equities markets have seen foreign institutional investors (FII) net inflow of US$ 2.3 billion in May 2014, taking the total to US$ 7.8 billion so far in 2014. The report also quoted that India is still the most loved market in this region. There has been a number of investments and major developments in India in the recent past. Some of them are as follows:

Overseas investors have invested around US$ 20.4 billion in the Indian market in the first half of 2014, mainly on hopes of a stable and reform-oriented government at the Centre. FIIs have helped in pushing up the benchmark BSE sensex by over 20 per cent in the first six months of the year.

Six qualified institutional placements (QIPs) launched in India during April-June 2014 raised Rs 12,151 crore (US$ 2.01 billion) compared with Rs 1,222 crore (US$ 201.9 million) raised in the same quarter in 2013.

Japan's Isuzu Motors aims to sell 50,000 pickup vehicles in India in the next few years to gain market leadership. The company, which has a fully owned subsidiary in Chennai, has earmarked Rs 3,000 crore (US$ 495.66 million) for a 120,000-units-per-year manufacturing facility close by.

Venture capital (VC) investments in India surged during the first half of 2014, reflecting optimism about India's entrepreneurial ecosystem. Investments in early stage companies and startups grew nearly 40 per cent as compared with the same period in 2013, according to data released by Ernst & Young (EY).

Private equity (PE) firm SAIF Partners plans to make up to eight investments in FY 15 across different sectors, in an effort to significantly ramp up its investment pace in India and plan for more exits through the public market.

Sovereign wealth funds (SWFs) and overseas pension funds plan to invest in India, driven by likelihood of economic recovery under a new stable government. At least three sovereign funds from West Asia have invested over US$ 5 billion in the past eight months.

Government Initiatives

India has become a promising investment destination for foreign companies looking to do business here, after the new government led by Mr Narendra Modi, Prime Minister of India took over, according to Mr Nitin Nohria, Dean, Harvard Business School (HBS). The Government of India has taken several initiatives to improve the Indian economy, which has been responsible for a number of positive outcomes.

  • India's foreign exchange reserves rose by US$ 857 million for the week ending on June 27, 2014, to touch US$ 315.78 billion, while foreign currency assets rose by US$ 851 million to reach US$ 288.81 billion. This can be attributed to the RBI announcing a few measures in its bi-monthly monetary policy which included a hike in the foreign exchange remittance limit to US$ 125,000 from the previous limit of US$ 75,000.
  • The Ministry of Development of North Eastern Region (DoNER) has sanctioned seven new projects worth Rs 87.88 crore (US$ 14.52 million) in FY 15, which include projects for road construction, irrigation scheme and renewal of electric installations.
  • In order to better the ways of doing business, the Government of India has extended the validity period of an industrial licence to three years from two years, with a provision for further extension by two years.

Road Ahead

The total value of India's listed companies is expected to cross the US$ 1.5 trillion mark within the next 12 months as India enters the top 10 club of countries by market capitalisation.

Also, India could become the world's seventh biggest nation in terms of private wealth, with a 150 per cent increase in total, from US$ 2 trillion in 2013 to US$ 5 trillion by 2018, as per a recent study by the Boston Consulting Group (BCG).

Thus, the Government of India's initiatives for improving trade and infrastructure can go a long way in improving the country's overall economy and make it a force to reckon with in the global economic scenario.

Exchange Rate Used: INR 1 = 0.0165 as on August 26, 2014

References: Press Information Bureau (PIB), Media Reports, Department of Industrial Policy and Promotion (DIPP), Securities and Exchange Board of India (SEBI)