India Econ May04 PDF

India Economy Panorama
Gaurav Kapur
Economist
ABN AMRO Bank, India
May 2004
Contents
Birds Eye View
The First Decade of Reforms
Macro Balance-Sheet
Outlook
Economy0
Panorama India / Economics
Largest Democracy, 2nd Largest Muslim population
Demographics
Political System
Location: South Asia
Gained independence in 1947
Neighbouring Countries: China & Pakistan
Largest democracy in the world
Population (2001): 1027 m, 54% of which are below
25 years Has a federal structure with each state having its own
legislative assembly
Area: 3.3 m sq. km
National elections held every 5 years, next in 2004
No of States and UTs: 35
No of national political parties: 7
No. of Dominant Languages: 18
Currently a coalition led by BJP is in power, National govt
Dominant Religions: Hindu (82%), Muslim (12%), led by Hon Mr. Atal Bihari Vajpai
Sikh & Christian (2% each)
Securities Market Macro-economic Perspective

Leading Stock Exchanges: NSE & BSE GDP : $525bn
No of listed companies: Nearly 6000 Growth Rate : 6%
Market Capitalisation (FY03): $120 bn GDP (PPP adjusted): $2.9 tr
Settlement Cycle: T+2 GDP shares - Agri 22.1% Ind 21.8%, Services 56.1%
Market Cap/ GDP: 25% Trade - Exports: $62 bn Imports: $75 bn
Net FII investment: $24 bn since 1993 Current a/c Balance (% of GDP): 0.8
Debt Market: total outstanding debt $180 bn, largely Forex Reserves: $117.9 bn
dominated by G-Sec
Economy0
PPP Adjusted GDP for 2002 (in $ tr)
12
9.8
10
8
6 5.1
4 3.2 2.9
2.1
1.4 1.4 1.4
2
0
US
UK
Italy
India
France
Germany
Japan
China
Economy0
Birds Eye View
23 member coalition (5 yrs) government
forex management practices amongst the best - IMF
220 of Fortune 500 outsource their work to India
worlds largest irrigated area, conducive climate
lowest cost producer of aluminium, steel, copper, cement
largest milk and tea producer, consumer in the world
world's largest manufacturer of two-wheelers, CD-ROMs
consumes a fifth of worlds gold output
Economy0
Birds Eye View (contd.)
largest number of pharma plants outside USA
90% of worlds diamonds polished (80% by caratage)
railways- largest employer (1.7m), largest network (63m m)
70,000 bank branches, deposits 60% of GDP
150,000 post office branches
ranked 6th in satellite launches
800 movies per year, overshadows Hollywood
currently worlds largest single highway project (13,000 km)
Economy0
Birds Eye View
Macro Balance-Sheet
Outlook
Economy0
Then and Now
Then Now
GDP Growth (yoy %) 1.3* 6.0+
Industrial Growth (yoy %) -1.3 6.7
Inflation (%) 16 5.3
Export Growth (%) negative 15
Foreign Currency Reserve ($ bn) 5.8 117.9
Current Account Deficit (% of GDP) 3.1 -0.8
External Debt ($ bn) 83.6 112.1
Debt Service Ratio 35.3 16
Fiscal Deficit (% of GDP) 7.8 4.8
Foreign Direct Investment negligible 4-5 bn
*The figure refers to FY92
Economy0
GDP Growth
Among the Top 10 fastest growing economies over the past 20 years
12
10
0
FY52 FY04
-2
-4
-6
Economy0
Household savings (as % of GDP)
24
21
18
15
12
9
6
3
0
FY51 FY03
Economy0
Reserves and Foreign Debt ($ bn)
120 Foreign Exchange Reserves External Debt

110
100
90
80
70
60
50
40
30
20
10
0
Mar-90 Dec-03
Economy0
The Twin Deficits - Yin and Yang
8 9
6 . 4
7 6. 6.
1 9
.7 5 .8 .6 .7 5.
5 5 5
6 .1 9
5 4.
5 fiscal
4
3 7
1. 2 1.
4 1
2 1 1. 1 1.
.4 . 5
1 0 0 .2
current account -0 .78
0 -0
-1 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03
-2
Economy0
First decade of reforms
mainly about industry, trade, banking, insurance
privatisation coupled with private/foreign entry
reduced subsidies and price fixation, more market play
labour, agriculture untouched
infrastructure opened up
Economy0
Birds Eye View
Macro Balance-Sheet
Outlook
Economy0
Current Strengths and Weaknesses
Growth Fiscal Situation
Trade Debt
External Debt
Inter-state Disparity
Demography
Poverty
Knowledge base
Economy0
10
9
8 CY2003 growth - near top among
7
6 peers...
5
4
3
2
1
0
In d ia
C h in a
In d o n e s i a
M a la y s ia
K o rea
S i n g a p o re
T h a i la n d
T aiw an
20 Agriculture Industry Services GDP 10.4
15
8.4
10
GDP components 6.2 6.3 6.4
5 5.3 5.35.2 5.7
agriculture volatile, 0 5.4 4.8
services steady -5 3.4 3.5
1.5 2.3
-10
FY01Q1
FY01Q2
FY01Q3
FY01Q4
FY02Q1
FY02Q2
FY02Q3
FY02Q4
FY03Q1
FY03Q2
FY03Q3
FY03Q4
FY04Q1
FY04Q2
FY04Q3
Economy0
services share 56% - leapfrogging past industrial phase?
1990-91 Agriculture
31%
Services Industry
44% 25%
Agriculture
2002-03
22%
Services Industry
56% 22%
Economy0
-3
-1
1
3
5
7
9
11
13
Apr-02
May-02
Jun-02
Jul-02
Aug-02
Mining
Sep-02
Oct-02
Nov-02
Dec-02
Jan-03
Feb-03
Economy0
Manufacturing
Mar-03
Apr-03
But, industry showing broad based recovery
May-03
Panorama
Jun-03
Jul-03
Electricity
Aug-03
Sep-03
Oct-03
Nov-03
Dec-03
IIP (rhs)
Jan-04
Feb-04
1
2
3
4
5
6
7
8
India / Economics
Industry Growth Snapshot
Third Quarter Corporate Sector Performance

Profit
Sector (figs in %) Sales growth
growth
Engineering 22.4 51.2
Pharmaceuticals 11.9 -2.4
Automobiles 26.3 47.0
Oil & Gas 10.4 36.0
IT, Telecom, Media 8.5 19.9
Banks & Financial Institutions 0.7 20.0
Commodity 23.5 166.1
Power 10.4 132.4
Textiles 9.2 24.2
FMCG & Durables 7.2 19.7
Miscellaneous 36.7 57.3
Total 14.0 40.0
Economy0
45
6.3
GDP Growth 5.6 40
5.4
Trade ratio has risen
Trade to GDP ratio (rhs) 5.0 35
30
dramatically in last twenty
3.8
3.5 3.6
25 years more openness
20
15
10
5
1950s 1960s 1970s 1980s 1990s FY02 FY03
Trade Deficit ($ m) (lhs)
Exports growth (%) (rhs)
Imports growth (%) (rhs)
2500 50
2000 40
Exports (sans IT) 1500 30
clipping over 10% 1000 20
growth 500 10
0 0
-500 -10
Aug-02
Aug-03
Apr-02
Apr-03
Jun-02
Oct-02
Jun-03
Oct-03
Dec-02
Feb-03
Dec-03
Feb-04
Economy0
Exports are diversifying...
(figures in $bn) FY93 FY02 % change
Ores and Minerals 0.7 1.2 75
Leather and Goods 1.2 1.9 59
Chemicals 1.2 4.3 250
Agriculture and Allied 3.0 5.9 99
Engineering 2.3 6.9 196
Garments and Textiles 4.7 10.1 114
Other Manufacturing 3.7 10.0 169
A major component of Chemicals is drugs and pharma

The fastest growth was in Engineering and in Drugs and Pharma
Economy0
Currency
43.3
Rupees U turn Against
43.8
44.3
Dollar
44.8
45.3
45.8
46.3
46.8 Up 2.7% in FY03
47.3
47.8
48.3
9.4% in FY04
48.8
49.3
01-Jan-02 30-Apr-04
GBP/USD EUR/USD JPY/USD INR/USD

105
103
101
99
97
95
93
91
89
Others have gained 87
85
much more against 83
81
the dollar 79
02-Jan-03 30-Apr-04
Economy0
Currency volatility
INR/USD least volatile
Annual Volatility (in %)

2004
2001 2003
2000 2002 (Jan-Apr)
INR/USD 2.1 1.7 4.9

2.4 1.6
USD/EUR 11.9 9.9 13.0

12.4 9.1
JPY/USD 10.4 8.8 9.5

10.0 9.9
INR/EUR 12.5 10.0 13.5

13.6 9.7
Economy0
Debt
110 Long term Short term Debt service ratio (%, rhs) 40
100
35 Foreign debt constant for a
90
80 30 decade
70 25
60
20
50
15
Debt service has declined
40
30 10
20
5
10
0 0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Contingent liabilities 80
14 Total domestic liabilities (rhs)
70
12
Domestic debt ballooning 60
10
50
8
40
Contingent liabilities 6 30
rising, and quality of
4 20
debt deteriorating
2 10
0 0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Economy0
Public Savings
30
Household Savings
25 Private Corporate
Households save, but the
20 government dis-saves
15
10
5
0
-5
FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03
15.7
15.3 15.3
15.1
14.6 14.7 14.6 14.6
Tax receipts stagnant at 14.2 14.3 14.3 14.4
15% of GDP
13.4
Brazil - 31%, Korea - 27%,

Turkey - 33%, Czech Republic
- 40%
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
Economy0
0
10
20
30
40
50
60
70
80
90
100
Egypt
India
Phillipines
Morocco
Panama
(months)
Tunisia
Bulgaria
Croatia
Costa Rica
Vietnam
reserves/imports
Russia
Thailand
Mexico
El Salvadore
Romania
-8
-6
-4
-2
0
2
4
6
8
10
Dominican Republic
India Kazakhstan
Economy0
Debt and reserves comparison
Morocco
Russia
Panorama
Thailand
Egypt
Bulgaria
Croatia
Phillipines
Romania
Kazakhstan
Mexico
Tunisia
Vietnam
Panama
Gross Debt (%of GDP)
Costa Rica
Dominican Republic
El Salvadore
India / Economics
Inflation
9
8 Trend line
7
6
FY04, WPI averaged at
5 5.3%inflation under
4
3
control
2
1
22-Nov-00
07-Jul-00
16-Jul-03
02-Jan-99
20-May-99
25-Aug-01
10-Jan-02
28-May-02
05-Oct-99
20-Feb-00
09-Apr-01
13-Oct-02
28-Feb-03
01-Dec-03
17-Apr-04
Primary articles Energy
140 Manf. pdts Overall Inflation (rhs) 9
120 8
100 7
80 6
60 5
Core inflation picking up 40 4
both by cost push and 20 3
0 2
demand-pull factors...
-20 1
-40 0
May-01
May-02
May-03
Sep-01
Sep-02
Sep-03
Jan-01
Mar-01
Nov-01
Jan-02
Mar-02
Nov-02
Jan-03
Mar-03
Nov-03
Jan-04
Mar-04
Jul-01
Jul-02
Jul-03
Economy0
Interest rates
12.5 Yield on GOI paper 10 yr Mat 9
11.5 8
Inflation (yoy variation in
10.5 WPI) (right-axis) 7
soft interest rates inflation
9.5 6
slightly picking up...
8.5 5
7.5 4
6.5 3
5.5 2
4.5 1
02-Jan-99 17-Apr-04
364-day 91-day Bank rate Repo rate Mibor
7.5
7.0
Declining interest rates on 6.5
money market instruments... 6.0
5.5
5.0
4.5
4.0
01-Feb-03 16-Sep-03 30-Apr-04
Economy0
Birds Eye View
Macro Balance-Sheet
Outlook
Economy0
Economy numbers
FY02 FY03 FY04 FY05

Indicators
Actuals Actuals Provisional Forecasts
Real GDP growth rate 5.6 4.0 8.1 6.5
Inflation (year-average) 3.6 3.4 5.3 4.5
Interest (year-end) 7.3 6.1 5.15 5.8
Rupee-US$ rate (year-end) 48.8 47.5 43.39 42.5
Exports ($ bn) 44.9 53.0 61.0 67.0
Imports ($ bn) 57.6 65.5 82.5 95.0
Forex Reserve ($ bn) 54.0 74.8 112.7 130.0
Fiscal Deficit (% of GDP) 6.1 5.9 5.0 5.5
Current account balance
0.2 0.78 0.5 -0.6
(% of GDP)
Economy0
Outlook
Improvement in Indo-Pak relations

Indias role post Cancun
Elections 2004 (followed by bold decisions?)
An assertive, and more productive industry
Capacity to digest huge forex inflows?
Will fiscal stress spill out to a currency crisis?
Outsourcing trend to continue
Economy0

India Econ May04 PDF

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India Economy Panorama

Birds Eye View

The First Decade of Reforms

Securities Market Macro-economic Perspective

23 member coalition (5 yrs) government

forex management practices amongst the best - IMF

220 of Fortune 500 outsource their work to India

worlds largest irrigated area, conducive climate

lowest cost producer of aluminium, steel, copper, cement

largest milk and tea producer, consumer in the world

world's largest manufacturer of two-wheelers, CD-ROMs

consumes a fifth of worlds gold output

largest number of pharma plants outside USA

90% of worlds diamonds polished (80% by caratage)

railways- largest employer (1.7m), largest network (63m m)

70,000 bank branches, deposits 60% of GDP

150,000 post office branches

ranked 6th in satellite launches

800 movies per year, overshadows Hollywood

currently worlds largest single highway project (13,000 km)

The First Decade of Reforms

120 Foreign Exchange Reserves External Debt

mainly about industry, trade, banking, insurance

privatisation coupled with private/foreign entry

reduced subsidies and price fixation, more market play

labour, agriculture untouched

The First Decade of Reforms

Growth Fiscal Situation

Third Quarter Corporate Sector Performance

(figures in $bn) FY93 FY02 % change

Ores and Minerals 0.7 1.2 75

Leather and Goods 1.2 1.9 59

Chemicals 1.2 4.3 250

Agriculture and Allied 3.0 5.9 99

Engineering 2.3 6.9 196

Garments and Textiles 4.7 10.1 114

Other Manufacturing 3.7 10.0 169

A major component of Chemicals is drugs and pharma

GBP/USD EUR/USD JPY/USD INR/USD

INR/USD least volatile

Annual Volatility (in %)

INR/USD 2.1 1.7 4.9

USD/EUR 11.9 9.9 13.0

JPY/USD 10.4 8.8 9.5

INR/EUR 12.5 10.0 13.5

Brazil - 31%, Korea - 27%,

364-day 91-day Bank rate Repo rate Mibor

The First Decade of Reforms

FY02 FY03 FY04 FY05

Improvement in Indo-Pak relations

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