Economic Environment and Policy Session-2: Macroeconomic Environment in India

EEP Session-2

Contents of this presentation

Macroeconomic Environment in India
1. Macroeconomic factors influencing business 2. An Anatomy of Indian Economy 3. SWOT Analysis of Indian Economy

EEP Session-2

1. Macroeconomic factors influencing business

EEP Session-2

1.1 Macroeconomic Analysis SWOT analysis PEST analysis Five forces analysis

EEP Session-2

1.2 SWOT analysis Strengths (internal) Weaknesses (internal) Opportunities (external) Threats (external)

EEP Session-2

1.3 PEST Analysis Political factors Economic factors Socio-cultural factors Technological factors

EEP Session-2

1.4 Political/Legal Factors

Political ideology of the government Legislation and Acts Anti Monopolies legislation Environmental protection laws Taxation policy Employment laws National Public policy Global Public Policies

EEP Session-2

1.5 Economic Factors

Economic growth Inflation Employment Disposable income Business cycles Availability and cost of energy Availability and prices of raw materials
EEP Session-2 8

1.6 Socio-Cultural Factors

Demographic factors Role of women Extent of Poverty Extent of Inequality Regional Disparities Caste and creed Race and religion Food habits
EEP Session-2 9

1.7 Technological Factors New discoveries and innovations Speed of technology transfer Rates of obsolescence Internet connections Information and Communications Technology (ICT)

EEP Session-2

10

1.8 Five forces analysis

Potential entrants
Threat of entrants

Suppliers
Bargaining power

COMPETITIVE RIVALRY

Buyers
Bargaining power

Threat of substitutes

Substitutes

Source: Adapted from M. E. Porter, Competitive Strategy,

11

EEP Session-2

2. An Anatomy of Indian Economy

EEP Session-2

12

2.1 Indian Economy General-2005

Area (million sq.Kms) 3.3 [7th of 205] Population (million) 1095 [2nd of 205] Nominal GDP (US$ billion) 806 [10th of 195] GDP PPP adjusted (US$ billion) 4156 [4th of 224] GDP PPP per capita (US$) 3678 [48th of 223] GDP nominal per capita (US$) 736 [149th of 195] Economic freedom index 1.5 [123rd of 156] Poverty ratio (%) 20% Poor People-Ratio in the world 41% [1st of 80] Technological achievement index 0.2 [59th of 68] Average years of schooling 5.1 [65th of 100] Literacy rate 61 [144th of 174] English speaking (million) 100 [2nd of 52] English as first language (000) 179 [13th of 62]
EEP Session-2 13

2.2 Indian Economy-People 2005 Age 0-14 years 31.2% [97th of 226] Age 15-64 years 63.9% [126th of 226] Age 65 years & over 4.9% [127th of 225] Urbanization 28% [172nd of 199] Persons per room 2.7 [2nd of 60] Hindus (million) 800 [1st of 165] Muslim (million) 138 [3rd of 165] Roman Catholic (mln) 17 [15th of 170] Religion Hindu 80.5% [2nd of 17] Religion Muslim 13.4% [61st of 100] Roman Catholic 1.6% [124th of 170]
EEP Session-2 14

2.3 Indian Economy-Agriculture 2005

Arable cropland (million hectares) 169.7 Banana production (million tons) 11 Cereal production (million tons) 121 Cotton production (000 bales) 12.5 Corn production (million tons) 13 Rice production (million tons) 89 Wheat production (million tons) 67 Meat production (million tons) 4.6 Root production (million tonnes) 29.9 Agricultural tractors (million) 2.5 [3rd of 148] [1st of 48] [46th of 149] [3rd of 109] [8th of 17] [3rd of 16] [4th of 17] [7th of 149] [4th of 149] [2 of 190]

EEP Session-2

15

2.4 Indian Economy-Energy 2005

CO2 Emissions (000 tons) 1,008 [5th of 178] Water Available (000 cubic meters) 1.56 [3rd of 141] Coal production (million tons) 359 [5th of 31] Oil Production (Million tonnes) 38.01 [24th of 48] Oil consumption (million tons) 119.3 [6th of 63] Oil Exports (000 bbl/day) 350 [28th of 77] Oil Imports (Million bbl/day) 2.1 [8th of 71] Nat. gas reserve (bln cubic feet) 542.4 [3rd of 72] Nuclear power generation (terawatt-hours)17.8 [8th of 29] Nuclear reactors operable 14 [9th of 29] Electricity generation (billion kwh) 668 [5th of 133] Electric power consumption (bln kwh) 494 [7th of 132] Electric power T&D loss 26.3% [2nd of 132]
EEP Session-2 16

2.5 Business Environment 2005

Corruption index 2.9 [9th of 160] No. of procedures to register property 6 [8th of 167] No.of start-up procedures to register a business 11 [6th of 171] Time required to build a warehouse 270 days [8th of 168] Time required to enforce a contract 1,420 days [4th of 171] Time required to register property 62 days [6th of 167] Time required to start a business 35 days [4th of 171] Time to prepare and pay taxes 264 hours [80th of 169] Time to resolve insolvency 10 years [2nd of 151] Trademarks, nonresidents 5,393 [18th of 99] Trademarks, residents 60,985 [8th of 98]

EEP Session-2

17

2.6 Indian Industry 2005

Car production (lakhs) 7.1 Manufactures imports (% of merch. Imports) 52.4 % Manufacturing value added (2000 US$ bln) 91 Manufacturing value added (current US$ bln) 115 Motor vehicle production (lakhs) [16th of 49] [100th of 155] [6th of 155 [7th of 167]

8.9 [14th of 35]

Heavy truck production (000) 110 [6th of 36] Ores & metals exports (% of goods exports) 6.9% [25th of 154] Ores & metals imports (% of goods imports) 5.0% [10th of 155] Patent applications, nonresidents (Number) 10,671 [10th of 96] Patent applications, residents (Number) 6,795 [10th of 97] Textiles and clothing (% of manufacturing) 24.4% [7th of 101]

EEP Session-2

18

2.7 Transportation and Internet 2005

Aircraft departures (000) 214.3 Airports with paved runways 74 Highways (million Kms.) 3.3 Motor vehicles (per 100 people) 12 Waterways (000 kms.) 14.5 Broadband subscribers (million) 1.3 Internet bandwidth (000 Mbps) 20 Internet Hosts (million) 1.5 Internet Service Providers 43 Internet charge (US$/month) 6.78 Secure Internet servers (million) 825 Internet users (million) 60
EEP Session-2

[19th of 155] [7th of 117] [1st of 181] [104th of 134] [9th of 106] [22nd of 117] [8th of 167] [22nd of 227] [7th of 229] [70th of 180] [9th of 183] [3rd of 195]
19

2.8 Indian Labour and Immigration 2005

INDIAN LABOR Economic activity (Men aged 65 plus) 52.67% [54th of 162] Female economic activity growth 4% [3rd of 156] Unemployment rate 7.8 % [101st of 182] Workers' remittances paid (US$ Bln) 1.0 [31st of 149] Workers remittances received (US$ Bln) 23.7 [1st of 156] IMMIGRATION Immigrants as percentage of total population 0.517 [65th of 195] Number of immigrants (million) 5.7 [8th of 195] Immigration to the USA 2004 (million) 1.25 [4th of 10] International migration stock (% of population) 0.52% [77th of 205] International migration stock (million) 5.7 [8th of 205] Refugees (000) 186 [1st of 110]

EEP Session-2

20

2.9 Indian Labour and Immigration 2005

INDIAN LABOR Economic activity (Men aged 65 plus) 52.67% [54th of 162] Female economic activity growth 4% [3rd of 156] Unemployment rate 7.8 % [101st of 182] Workers' remittances paid (US$ Bln) 1.0 [31st of 149] Workers remittances received (US$ Bln) 23.7 [1st of 156] IMMIGRATION Immigrants as percentage of total population 0.517 [65th of 195] Number of immigrants (million) 5.7 [8th of 195] Immigration to the USA 2004 (million) 1.25 [4th of 10] International migration stock (% of population) 0.52% [77th of 205] International migration stock (million) 5.7 [8th of 205] Refugees (000) 186 [1st of 110]

EEP Session-2

21

2.10 Indian Fiscal Situation and Media

Fiscal Situation: Tax revenue (% of GDP) 10.2 Taxes on exports (% of tax revenue) 0.06 Goods & services Tax (% of total) 31.4 Goods & services Tax (% value added) 5.3 Taxes on income (% of total taxes) 43.9 Taxes on intnl trade (% of revenue) 13.8 Total tax rate (% of profits) 81.1 INDIAN MEDIA Average cost of local call (US$) 0.02 Cinema attendance (billion) 2.9 Films produced (number) 946 Newspapers (number) 5.221 Televisions (million) 63 Radios (million) 116 [81st of 98] [21st of 36] [54th of 98] [74th of 89] [22nd of 98] [22nd of 86] [14th of 171] [136th of 151] [1st of 78] [1st of 50 [1st of 67 [4th of 215 [4th of 221]

EEP Session-2

22

3. A SWOT Analysis of the Indian Economy

EEP Session-2

23

3.1 Strengths of Indian Economy

Fourth largest economy in terms of PPP-adjuste GDP after USA, China and Japan Sustained high growth in the recent past High percentage of cultivable land Youngest labor force, relatively skilled, and peaceful industrial relations Largest pool of technical manpower Largest English speaking population Huge domestic market with second largest population, democratic system, independent judiciary, free press, vibrant NGOs Rich natural resources, well established financia system, dynamic private sector and wide spread infrastructure
EEP Session-2 24

3.2 Weakness
Poor performance of agriculture High dependence of agriculture on monsoons Growing infrastructure constraints High energy intensity High inflation High interest rates Weak regulatory institutions Outdated laws on business Inflexible Land and Labor markets High fiscal deficit and public debt
EEP Session-2 25

 Rising and diversified export markets Manageable current account deficit Rapid growth of IT and BPO sector bringing valuable foreign exchange. Largest exporter of computer and software services ($31.3 billion in 2006).

3.3 Opportunities

major exporter of services (11th largest with a share of 2.5% world market) and exports of software services $ 40.3 billion during 2007-08)
Large stock of wealth of non-residents Indians Liberal trade and foreign investment policies Substantial inflow of direct foreign investment in recent years Indian firms are going abroad and taking over foreign companies. Overseas direct investment from India

Low debt services (amortization plus interest payments) ratio to gross current A/C earnings.
EEP Session-2

increased from $ 13.5 billion in 2006-07 to US $ 17.9 billion in 2007-08.

26

3.4 Threats
Global financial turmoil and recession in USA and developed countries Still dependence on imports of pulses and edible oil Hardening of international prices of crude oil and edible oil Growing import bill Fleeing of foreign institutional investment (FIIs) in 2008 Significant depreciation of Indian rupee in 2008
EEP Session-2 27

Thank you Have a Good Day

EEP Session-2

28