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Indian Economy Overview

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Indian Economy Overview

November, 2014


India has become one of the most attractive destinations for investment owing to favourable government policies and reforms in the past few months. The approval of foreign direct investment (FDI) in several sectors have allowed investments to pour into the economy. According to the data provided by Department of Industrial Policy and Promotion (DIPP), the cumulative amount of FDI inflows in the country in the period April 2000-September 2014 was US$ 345,073 million.

Growth in India is expected to rise to 5.6 per cent in 2014 and pick up further to 6.4 per cent in 2015 as both exports and investment will increase, according to the World Economic Outlook (WEO) report released by International Monetary Fund (IMF).

Sectors projected to do well in the coming years include automotive, technology, life sciences and consumer products. Engineering and research and development (ER&D) export revenue from India is expected to reach US$ 37-45 billion by 2020, from an estimated US$ 12.4 billion in FY14, according to Nasscom.

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

Indian markets grew by 19 per cent in the first half of FY15, the best performance by any market during this period, globally. The rise was primarily due to strong inflows from foreign institutional investors (FIIs). As of September 26, FIIs had invested Rs 61,024 crore (US$ 9.86 billion) this financial year, while mutual funds had put in Rs 15,298 crore (US$ 2.47 billion) during the same period, according to Securities and Exchange Board of India (SEBI) data.

Foreign exchange (Forex) reserves increased by US$ 60.5 million to reach US$ 319 billion in the week ended August 29, 2014, according to data released by the Reserve Bank of India (RBI). Also, foreign currency assets rose by US$ 75 million to touch US$ 291.39 billion.

India has contributed 10.25 per cent of the overall 3.9 per cent rise in the global market capitalisation (market cap) this year, which has made it the second-highest contributor in the world. The valuation of Indian equities remains attractive, with a market cap-to-gross domestic product long-period average of 72 per cent.

Indian employees are expected to see a salary hike of 10.8 per cent in 2015, according to the Towers Watson 2014-15 Asia-Pacific Salary Budget Planning Report. The report indicated that due to increased economic growth, Indian employees at both ends of the hierarchy - top management and blue collar staff - are likely to see the highest comparative pay increase in 2015.

Key developments/investments

In the past few months, there have been quite a few investments in several sectors of the Indian economy. This has led to some major changes and developments in the country. Some of these major developments/investments are as follows:

  • Venture capital (VC) investments in India have already breached the billion dollar mark this year. There were 189 early-stage deals in the first nine months of 2014 worth US$ 1.09 billion, according to Ernst & Young (EY).
  • India's drugs and pharmaceuticals industry is expected to grow at a compound annual growth rate (CAGR) of 14 per cent to reach a turnover of Rs 2.91 trillion (US$ 47.05 billion) by 2018. This growth is aided by the rapidly growing domestic market and the newly emerging export opportunities.
  • The output of eight core sector industries in India grew by 5.8 per cent in August 2014 as compared to 2.7 per cent in July 2014, on the back of good expansion in steel, coal, cement and electricity generation. The eight industries constitute 38 per cent of the Index of Industrial Production (IIP).
  • The total approximate earnings of Indian Railways during the period April 1-September 30, 2014 were Rs 73,403.67 crore (US$ 11.87 billion) compared to Rs 65,525.85 crore (US$ 10.59 billion) during the same period last year, which is an increase of about 12.02 per cent.
  • Private equity (PE) giant Surbana plans to invest around Rs 300 crore (US$ 48.51 million) in the food park promoted by Keventer Group in Bengal, making it the biggest FDI in the food processing sector in India.
  • Indian firms are expected to raise US$ 13-14 billion through global bonds in 2014 on the back of improved economic outlook and reforms to ease the raising of funds aboard, according to Moody's. The oil and gas, metals and mining, and telecommunications sector issued 67 per cent and 76 per cent of the foreign currency bonds from Indian non-financial companies in 2013 and 2014, respectively.

Government Initiatives

India has become a promising investment destination for foreign companies looking to do business here. Mr Narendra Modi, Prime Minister of India, has launched the 'Make in India' initiative with the aim to give the Indian economy global recognition. This initiative is expected to increase the purchasing power of the common man, which would further boost demand, and hence spur development, in addition to benefiting investors.

The steps taken by the government in recent times have shown positive results as India's gross domestic product (GDP) at factor cost at constant (2004-05) prices for Q1 of 2014-15 is estimated at Rs 14.38 trillion (US$ 232.63 billion), as against Rs 13.61 trillion (US$ 220.12 billion) in Q1 of 2013-14, registering a growth rate of 5.7 per cent.

Based on the recommendations of the Foreign Investment Promotion Board (FIPB), the Government of India has approved 14 proposals of FDI amounting to Rs 1,528.38 crore (US$ 247.19 million) approximately. Out of the 14 approved proposals, six of them belonged to the pharmaceutical sector which was the highest number of approvals for any sector.

Road Ahead

Only India is anticipated to witness better growth momentum among the BRIC bloc whereas other member countries are expected to see stable growth momentum, according to Organisation for Economic Cooperation and Development (OECD).

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 in 2018, as per a recent study by the Boston Consulting Group (BCG).

Furthermore, the new 'Make in India' initiative is expected to be a vital component in India's quest for achieving wholesome economic development.

Exchange Rate Used: INR 1 = 0.016 as on November 27, 2014

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

Indian Economy Trends presentation

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