India’s economic and industrial growth experienced a sharp decline in 2012, owing to the weak global economic scenario since India exports nearly 60% of its goods and services to US, Europe and Japan. Investment demand is expected to respond to a stable monetary policy regime and spur growth and business confidence in 2014. The Twelfth Fiver Year Plan (2012–2017) aims to achieve a growth of 8.0% through a combination of policy initiatives, investment plans, and export market diversification. Automotive, healthcare, infrastructure, energy, and information and communication technologies (ICT) are expected to lead industrial and economic growth during the forecast period.
Political Policy and Trends • India has a stable political regime with the government focussing on development and growth objectives through policies aimed at opening up the economy further in the medium-to-long term. • Issues such as corruption and scandals are threatening the re-election of the current government in the 2014 elections.
Foreign Relations • A major objective of the trade policy is to promote co-operation, diversification and multi-lateralisation across the globe, good relations with most trading partners, especially with the Association of South Asian Economic Nations (ASEAN) countries.
Economic Growth • The Twelfth Five Year Plan targets a growth rate of X% for 2012–2017. The Planning Commission has projected that investment in infrastructure would almost double in the Twelfth Plan to $Xbillion from $X billion in the Eleventh Plan.
Fiscal & Monetary Policy • Fiscal policy is prudent due to concerns regarding the deficit. Subsidies are being gradually phased out in an effort to control the increasing deficit. • Incentives to import capital machinery are provided through duty exemptions to promote investment and exports. • The monetary policy is moderately tight with current interest rates at X%, which are expected to be stable in the short term, although a slight reduction to promote investment in possible.
Investment and Competitiveness • There have been major investments to improve transport and production infrastructure in the recent budget in 2013. Concerns regarding corruption and institutional reliability are also being addressed to improve the business environment.
Manufacturing • The manufacturing sector accounted for X% of the GDP in 2012. • The top industries in manufacturing are textiles, food products, automotive, and metals and chemicals, with auto parts manufacturing leading the sector. • India’s cost competitiveness, its skilled workforce, and favourable government policies, have attracted many foreign investments in manufacturing. • The National Manufacturing Policy aims to increase the contribution of manufacturing to GDP from X% in 2012 to X% by 2025.
Energy • India’s energy consumption is growing, especially conventional non-renewable sources such as oil and natural gas. The energy industry suffers from underinvestment in renewable sources of energy. • The energy industry will be driven by consumption growth and better regulation and policy, but suffers from the lack of technological knowhow and infrastructure in the short-to-medium term. • The long-term outlook for renewables is positive, but adequate regulation needs to be developed to promote renewable energy.
Mining • There is excessive government involvement in the mining sector which affects competitiveness and causes inefficiencies and corruption. • Recent regulation, however, has been directed at addressing this problem and increasing private investment by providing a more competitive set-up. • The medium-term outlook for mining is positive, but concerns regarding the environment affect the sector.
Chemicals • According to the twelfth five year plan (2012–2017) industry is expected to grow at X% to reach a size of $X billion by 2018. • The government’s efforts to increase competitiveness include strengthening of infrastructure and creation of an innovation fund to promote research and development.
Healthcare • The Indian healthcare industry is highly fragmented and dominated by private participants. • Pharmaceuticals, medical devices, and insurance are the top markets in the Indian healthcare industry. • Healthcare expenditure is expected to grow by X% annually due to large investments from private participants.
ICT • The ICT industry has acted as a catalyst for growth across the Indian economy. • Telecommunications, software and services, and IT-BPO are the top markets within the Indian ICT industry. • With more attractive and investor-friendly foreign direct investment (FDI) policies, India has become one of the favourite destinations for ICT investment.
Automotive • Cars is the major segment in the Indian automotive industry with an annual growth rate of X%. By 2016, the government is targeting an annual turnover of $Xbillion, representing X% of the GDP and generating employment for X million people.
Political Framework and Regime
Despite differences with coalition partners, the government has implemented new reforms in the areas of retail and insurance, in 2012. Corruption scandals have affected the business confidence and with elections expected to be held in 2014, the scope for further reforms is limited.
Political System • India, a federal system, is a sovereign, secular, democratic republic with a parliamentary system of governance. • The Indian judicial system follows a three-tier division comprising the Supreme Court, which is the apex body, the high courts, and the lower courts.
Current Political Regime • The present government is lead by the United Progressive Alliance (UPA), whose principal party is the Indian National Congress. • Pranab Mukherjee was sworn in as the President of India in 2012.
• In the general election held in 2009, under the supervision of the Election Commission of India, for the 15th Lok Sabha, the Congress lead United Progressive Alliance won 206 parliamentary (Lok Sabha) seats. The next election is scheduled to be held in 2014. • Focus on economic reforms, scaling up anti-terrorism measures and national security, specific impetus to manufacturing, energy, and telecom, and pro-civil nuclear agreements with Western countries are some major factors that are expected to impact the business confidence and investor sentiment in 2013.
Key Political Trends
High fiscal deficit and debt burden are expected to increase the risk of a downgrade in H1 2013. The foreign direct investments (FDI) in retail and direct cash transfer of subsidies are likely to strengthen business confidence by 2014.
Timeline of Key Political Developments, India, 2008–2018 Focus on Inclusive Growth: Due importance was given to the Food Security Bill, the Right to Information Act, the Mahatma Gandhi National Rural Employment Guarantee Act, and the Women’s Reservation Bill. The Civil Liability for Nuclear Damages bill: The 123 Agreement signed between the United States of America and the Republic of India is known as the Indo-US nuclear deal. Focus on institutional and Economic Reforms: The government emphasized on transforming India into a knowledge economy by bringing in the ‘Right to Education Act’ and the ‘New Direct Tax Code’. Corruption in India is a consequence of the nexus between the bureaucracy, politics, and criminals. This has come to light in 2011–2012. The General Anti-Avoidance Rules (GAAR) is expected to be implemented from April 2014 and will come into effect from April 1, 2016. GAAR is likely to impact investors routing money into India through tax havens such as Mauritius.
Table Of Contents
Emerging Market Growth Prospects: India Table of Contents
1. Executive Summary 2. Political Overview 3. Economic Overview 4. Social Overview 5. Manufacturing 6. Automotive 7. Energy 8. Chemical 9. Healthcare 10. Information and Communications Technology (ICT) 11. Mining 12. Key Takeaways 13. The Frost and Sullivan Story