INDIAN ECONOMY-2010

1. Indian Economy Overview

   July 2010

   According to the estimates by the Ministry of Statistics and Programme Implementation, the Indian economy has registered a growth of 7.4 per cent in 2009-10, with 8.6 per cent year-on-year (y-o-y) growth in its fourth quarter. The growth is driven by robust performance of the manufacturing sector on the back of government and consumer spending. GDP growth rate of 7.4 per cent in 2009-10 has exceeded the government forecast of 7.2 per cent for the full year. According to government data, the manufacturing sector witnessed a growth of 16.3 per cent in January-March 2010, from a year earlier. Economic activities which showed significant growth rates in 2009-10 over the corresponding period last year were mining and quarrying (10.6 per cent), manufacturing (10.8 per cent), electricity, gas and water supply (6.5 per cent), construction (6.5 per cent), trade, hotels, transport and communications (9.3 per cent), financing, insurance, real estate and business services (9.7 per cent), community, social and personal services (5.6 per cent). The Gross National Income is estimated to rise by 7.3 per cent in 2009-10 as compared to 6.8 per cent in 2008-09. The per capita income is estimated to grow at 5.6 per cent in 2009-10. India’s industrial output grew by 17.6 per cent in April 2010. The manufacturing sector that accounts for 80 per cent of the index of industrial production (IIP) grew 19.4 per cent in April 2010, as against 0.4 per cent a year-ago. Capital goods production grew by 72.8 per cent against a contraction of 5.9 per cent a yearago. Consumer durables output continued to grow at a fast pace of 37 per cent, mirroring higher purchase of goods such as televisions and refrigerators. The Economic scenario The number of registered foreign institutional investors (FIIs) was 1710 as on May 31, 2010 and the total FII inflow in equity during January to May 2010 was US$ 4606.50 million while it was US$ 5931.80 million in debt. Net investment made by FIIs in equity between June 1, 2010 and June 14, 2010 was US$ 530.05 million while it was US$ 875.73 million in debt. As on June 4, 2010, India's foreign exchange reserves totalled US$ 271.09 billion, an increase of US$ 9.88 billion over the same period last year, according to the Reserve Bank of India's (RBI) Weekly Statistical Supplement. Moreover, India received foreign direct investment (FDI) worth US$ 25,888 million during April-March, 2009-10, taking the cumulative amount of FDI inflows during August 1991 - March 2010 to US$ 1, 32,428 million, according to the Department of Industrial Policy and Promotion (DIPP). The services sector comprising financial and non-financial services attracted 21 per cent of the total FDI equity inflow into India, with FDI worth US$ 4,392 million during April-March 2009-10, while construction activities including roadways and highways attracted second largest amount of FDI worth US$ 2,868 million during the same period. Housing and real estate was the third highest sector attracting FDI worth US$ 2,844 million followed by telecommunications which garnered US$ 2,554 million during the financial year 2009-10. Exports from India were worth US$ 16,887 million in April 2010, 36.2 per cent higher than the level in April 2009, which touched US$ 12,397 million, according to the Ministry of Commerce and Industry. India's imports during April 2010 were valued at US$ 27,307 million representing a growth of 43.3 per cent over April 2009. India's logistics sector is witnessing increased activity—the country's major ports handled 560,968 metric tonnes (MT) of cargo during April-March 2009-10, an increase of 5.74 per cent over previous year traffic, according to revised estimates released by the Ministry of Shipping. Foreign tourist arrivals in India during the month of May 2010 were 345,000, an increase of 15.5 per cent over May 2009. Foreign tourist arrivals during January-May 2010 were 2.263 million, an increase of 11.3 per cent over the corresponding period last year. Foreign exchange earnings during May 2010 were US$ 951 million, an increase of 42.2 per cent over May 2009. Foreign exchange earnings during January-May 2010 were US$ 5822 million, an increase of 38.3 per cent over the corresponding period last year, according to data released by the Ministry of Tourism. The total telephone subscriber base in the country reached 638.05 million in April 2010, taking the overall tele-density to 54.10, according to the figures released by the Telecom Regulatory Authority of India (TRAI). Also the wireless subscriber base increased to 601.22 million. According to the latest statistics from the Association of Mutual Funds in India (AMFI), the assets under management (AUM) of mutual funds were worth US$ 170.46 billion in May 2010 as compared to US$ 135.58 billion in May 2009. As per NASSCOM’s Strategic Review 2010, the BPO sector continues to be the fastest growing segment of the industry and is expected to reach US$ 12.4 billion in 2009-10, growing at 6 per cent. According to data released by Society of Indian Automobile Manufacturers (SIAM), the total number of vehicles including passenger cars, commercial vehicles, two wheelers and three wheelers produced in 2009-10 was 14,049,830, as compared to 11,172,275 produced in 2008-09. According to the Gem and Jewellery Export Promotion Council, the exports of gems and jewellery from India including rough diamonds, rose by 57.08 per cent during April-May 2010 to touch US$ 5551.24 million. According to the Ministry of Civil Aviation, domestic airlines carried 211,380 passengers between January-May 2010, an increase of 21.95 per cent over 173,340 passengers carried in the same period last year. The number of corporate merger & acquisitions (M&As) and private equity (PE) transactions, have more than doubled during January-May 2010. 439 M&A and PE deals valuing over US$ 30 billion took place between January-May 2010 as compared to 179 deals worth US$ 8.1 billion in the corresponding period in 2009. The HSBC Markit Business Activity Index, which measures business activity among Indian services companies, based on a survey of 400 firms, rose to 62.1 in April 2010, its highest since July 2008, and compared with 58.1 in March 2010. Agriculture Agriculture is one of the strongholds of the Indian economy and accounted for 15.7 per cent of the country's gross domestic product (GDP) in 2008-09, and 10.23 per cent of the total exports. Moreover, it provided employment to 58.2 per cent of the work force. Production of foodgrains during 2009-10 is estimated at 216.85 million as per second Advance Estimates In the Union Budget 2010-11, the Finance Minister, Mr Pranab Mukherjee made the following announcements for the agriculture sector. US$ 86.89 million is provided to increase the Green Revolution to the eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern up, West Bengal and Orissa. US$ 65.17 million has been provided to organise 60,000 pulses and oil-seed villages in rain-fed areas in 2010-11 and provide an integrated intervention for water harvesting, watershed management and soil health to improve productivitiy of the dry land farming areas. Banks have been consistently meeting the targets set for agricultural credit flow in the past few years. For the year 2010-11, the target has been set at US$ 81.47 billion. In addition to the 10 mega food park projects already being set up, the government has decided to set up five more such parks. External commercial borrowings are available for cold storage for preservation or storage of agricultural and allied products, marine products and meat. Growth potential story The data centre services market in the country is forecast to grow at a compound annual growth rate (CAGR) of 22.7 per cent between 2009 and 2011, to touch close to US$ 2.2 billion by the end of 2011, according to research firm IDC India’s report published in March 2010. The report further stated that the overall India data centre services market in 2009 was estimated at US$ 1.39 billion. According to a report by research and advisory firm Gartner published in March 2010, the domestic BPO market is expected to grow at 25 per cent in 2010 to touch US$ 1.2 billion by 2011. Further, the BPO market in India is estimated to grow 19 per cent through 2013 and grow to US$ 1.8 billion by 2013. According to the report, the domestic India BPO services market grew by 7.3 per cent year-on-year in 2009. The BMI India Retail Report Quarter 3, 2010 released in May 2010, forecasts that total retail sales will grow from US$ 353.0 billion in 2010 to US$ 543.2 billion by 2014. According to a report titled 'India 2020: Seeing, Beyond', published by domestic broking major, Edelweiss Capital in March 2010, stated that India's GDP is set to quadruple over the next ten years and the country is likely to become an over US$ 4 trillion economy by 2020. India will overtake China to become the world's fastest growing economy by 2018, according to the Economist Intelligence Unit (EIU), the research arm of London-based Economist magazine.