INDIA: THE ECONOMIC GIANT OF THE MOVE

With a huge human capital, India could easily turn its economic challenges into opportunities if the institutions of the government of India overcome hurdles such as corruption. **

By Atique Naqvi, aka Syed Atique Hussain, Boston, United States

India will be among the top 3 economic powers within the next 10-15 years. India Gate in New Delhi.

Corruption continues to be the biggest hurdle in India’s economic growth, say senior business executives surveyed by the World Economic Forum in 2017. The business-friendly government in New Delhi has taken several measures in the past few months to boost the growth of the seventh largest economy in the world, but small businesses are yet to recover from measures such as demonetization and the introduction of unified Goods and Services Tax (GST).

With 1.34 billion people, the country is on the move. A recent World Economic Forum report says globally India sits between France and Italy. “Its GDP growth recently dipped to 5.7%; still, India is growing faster than any other large economy except for China. By 2050, India’s economy is projected to be the world’s second-largest, behind only China.”

Although India houses the world’s largest youth population but isn’t yet fully capturing this potential demographic dividend – over 30 percent of India's youth are NEETs (not in employment, education or training), according to the OECD statistics.

The 2017 edition of the World Economic Forum’s Global Competitiveness Report finds that, once again, India’s executives consider corruption to be the most problematic factor they face when doing business within the country. Even foreign investors have raised concerns time and again about the bureaucratic red-tape and corruption.

On the positive side, the WEF Competitiveness Report suggests that India has again moved up the report’s rankings for the quality of institutions, continuing a recovery in this area that began in 2014 with the election of the Narendra Modi’s BJP government. “In particular, India now ranks an impressive 23rd among all countries in the Global Competitiveness Index for the perceived efficiency of public spending,” says a WEF report.

The Central Statistics Organisation (CSO) and International Monetary Fund (IMF) have both said that India is among the fastest growing economies in the world and it is expected to be one of the top three economic powers of the world over the next 10-15 years.

India's consumer confidence index stood at 128 in the second quarter of 2017, topping the global list of countries on the same parameter, as a result of strong consumer sentiment.

In terms of government revenues, the tax collection figures between April-June 2017 Quarter show an increase in Net Indirect taxes by 30.8 percent and an increase in Net Direct Taxes by 24.79 percent year-on-year, indicating a steady trend of healthy growth. The total number of e-filed Income Tax Returns rose 21 percent year-on-year to 42.1 million in 2016-17 (till 28.02.17), whereas the number of e-returns processed during the same period stood at 43 million.

Corporate earnings in India are expected to grow by over 20 percent in FY 2017-18 supported by normalization of profits, especially in sectors such as automobiles and banks, while GDP is expected to grow by 7.5 percent during the same period, according to Bloomberg consensus.

Also, India has retained its position as the third largest startup base in the world with over 4,750 technology startups, with about 1,400 new start-ups being founded in 2016, says a report by NASSCOM.

The country’s labor force is expected to touch 160-170 million by 2020, based on rate of population growth, increased labor force participation, and higher education enrolment, among other factors, according to a study by ASSOCHAM and Thought Arbitrage Research Institute.

India's foreign exchange reserves stood at US$ 399.921 billion as of October 20, 2017, as compared to US$ 367.932 billion on March 24, 2017, according to data from the Reserve Bank of India.

The merger and acquisition in the country have also increased. Lending firm InnoVen Capital says M&A activity in India has more than doubled year-on-year to reach US$ 61.26 billion in 2016-17. “Early-stage start-ups in India are expected to raise US$ 800 million in 2017, due to a greater focus on profitability and sustainable growth,” it says.

Eight Indian companies have filed documents with the Securities and Exchange Board of India (Sebi) in the last week of September 2017 for initial public offers (IPO) worth US$ 765.1 million.

Cash inflows from overseas Indians have grown too. “Remittances to India are expected to grow 4.2 percent to US$ 65 billion in 2017, making it the largest remittance recipient in the world again,” says Indian Brand Equity Foundation.

India plans to achieve 40% of its energy from renewable sources by 2030. Sea Link Bridge in Mumbai.

Also, India received the highest ever inflow of equity in the form of foreign direct investments (FDI) worth US$ 43.4 billion in 2016-17 and has become one of the most open global economies by ushering in liberalization measures, as per the mid-year economic survey of India.

On the energy front, India is also focusing on renewable sources to generate energy. It is planning to achieve 40 percent of its energy from non-fossil sources by 2030 which is currently 30 percent and also have plans to increase its renewable energy capacity from 57 GW to 175 GW by 2022.

In November, Moody’s upgraded India’s sovereign credit rating for the first time from Baa3 to Baa2. In October, the IMF said India’s growth will be slower than expected in 2018 blaming the “lingering impact” of demonetization and the GST. In December, the US rating agency Fitch also cut India’s GDP growth projection in the current fiscal to 6.7 percent from 6.9 percent.

Global and Indian economic experts see the slowdown as a very short-term snag in the Indian growth story. The Indian economy will take at least six more months to level out the ripples of demonetization and the new tax GST, they say.

THE HUGE FINANCIAL PROMISE

India's financial services story is a strong one, and it includes the capital markets, insurance sector and non-banking financial companies (NBFCs).

The country's gross domestic savings (GDS) as a percentage of GDP has remained above 30 percent since 2004. It is projected that national savings in India will reach US$ 1,272 billion by 2019. Over 95 percent of household savings in India are invested in bank deposits and only 5 percent in other financial asset classes.

The asset management industry in India is among the fastest growing in the world. Corporate investors accounted for around 46.26 percent of total assets under management in India, while High Net Worth Individuals (HNWI) and retail investors account for 28.01 percent and 22.96 percent, respectively. In the Asia-Pacific, India is among the top five countries in terms of HNWIs.

Recently, India's central bank has allowed 100 per cent foreign investment under the automatic route in ‘other financial services’.

State Bank of India (SBI) and FTSE Russell, the arm of the London Stock Exchange, has plans to jointly develop a Bond Index for global investors to benchmark Indian bond market against that of its competitors.

Mutual fund (MF) equity portfolios in India reached a record high of 46.63 million, of which 7.6 million portfolios were added between January-October 2017. The assets under management in mutual funds are set to grow from US$272 billion in FY2017 to US$333 billion in FY2018.

THE BIG GROWTH SECTORS

Media & Entertainment: The Indian media & entertainment sector is expected to grow at a Compound Annual Growth Rate (CAGR) of 13.9 percent, to reach US$ 37.55 billion by 2021 from US$ 19.59 billion in 2016, outshining the global average of 4.2 percent.

Oil & Gas: India is expected to be one of the largest contributors to non-OECD petroleum consumption growth globally. Total oil imports rose 4.24 percent year-on-year to US$ 86.45 billion in 2016-17. India’s oil consumption grew 8.3 percent year-on-year to 212.7 million tons in 2016, as against the global growth of 1.5 percent, thereby making it the third-largest oil consuming nation in the world.

India is also the fourth-largest Liquefied Natural Gas (LNG) importer after Japan, South Korea, and China, and accounts for 5.8 percent of the total global trade. Domestic LNG demand is expected to grow at a CAGR of 16.89 percent to 306.54 million standard cubic feet per day by 2021.

Renewable Energy: Total installed renewable energy capacity in India touched 58.3 GW as of September 2017, which is around 17.7 percent of total energy capacity of the country (329.3 GW).

During September 2017, total installed wind power capacity in the renewables mix stood at 32.5 GW (55.8 percent), while solar power capacity was 13.1 GW (22.5 percent). 

The Indian government has approved construction of 10 units of indigenous Pressurized Heavy Water Reactors (PHWR), with a nuclear capacity of 700 MW each, which is expected to bring substantial economies of scale and maximize cost and time efficiencies and thereby boost India’s nuclear industry.

POTASH PRICES TO AFFECT FARMERS
More than 58% of the rural household in India depend on agriculture, and the sector, along with allied industries, has a share of about 17% in India's GVA, or gross value added. And potash products are integral to India's massive farming sector.
With the annual demand of four million tons of potash, India heavily relies on imports. The Indian government which gave a subsidy of 67% until the first quarter of 2017, decided to cut the subsidy by 20% in the second quarter.
The government's move was expected to affect 263 million Indian farmers and companies. Regional and international firms dealing in potash, used for fertilizers, said they'd increase prices. In December, potash prices in Asia have increased 17% year-on-year as per PotashCorp.

** This article first appeared in Unisol magazine (Essel Group Middle East) published by Mediaquest Corp, Dubai, UAE.