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India: Surging Tide of Domestic Growth
While the engine of growth in India has been its information technology (IT) industry, a plethora of other industries are growing at breakneck speed. India is not just the “back-office” for the world; it is a surging tide of domestic growth. The country’s GDP grew at 9.3% growth in the first quarter of this year alone.
While the IT industry worth $36 billion grew 28% last year, the consumer finance industry worth $37.5 billion grew 35% on the back of increasing per capita income and low interest rates. The automotive industry worth $34 billion grew 15% and healthcare worth $22 billion grew 42%. The telecoms industry worth $20 billion grew at almost 15% and media worth almost $8 billion grew at 19%.
Some of the bellwether indicators suggest this growth is unlikely to slow down in the near future. India surpassed China as the fastest growing mobile phone market last month. According to the Telecom Regulatory Authority of India, the country added 5.9 million subscribers in August 2006 compared with 5.19 in China over the same period. It’s already the world’s largest movie producer, making 1,200 films a year that grossed $1.5 billion in 2005. With a housing demand of 90 million housing units over the next 15 years, its residential housing market that’s already worth $12 billion is growing at 30% a year.
Business is Better
While India’s growth rates are attractive to investors, India still has some way to go to make it an attractive investment environment. India ranked 134th out of 175 economies, 41 places after China, in a recent World Bank report. The rankings track indicators of the time and cost to meet government requirements in business start-up, operation, trade, taxation, and closure. They do not track variables such as market size, macroeconomic policy, infrastructure quality, currency volatility, investor perceptions or crime rates.
Doing business in India did, however, become easier in 2005, according to the report by the World Bank and the International Finance Corporation (IFC). The report called Doing Business 2007: How to Reform counted five reforms in India that reduced the time, cost, and red tape for businesses to comply with legal and administrative requirements.
India cut the start-up time to start a business to 25 days from 71 days and reduced the corporate income tax rate to 34% from 37%. Credit facilities have become easier to access. New risk management procedures in customs lowered import time by two days and exports by nine days. And reforms to stock exchange rules toughened investor protection.
Autos Motor Ahead
India’s automotive industry has benefited from favorable government investment policies and increased attention by global automakers keen to tap rising domestic demand and the growing attractiveness of the country as a manufacturing hub.
India is expected to move ahead of U.K. and Canada as a car-producing country by 2008. Its car production capacity is expected to surpass 2 million units by 2008 from the current capacity of 1.4 million units. India has already surpassed Korea to become the third largest car market in Asia-Pacific after China and Japan. During April-June 2006, for example, India’s domestic car sales were 243,000 compared with 225,000 in Korea.
In the past 18 months, some of world’s leading car manufacturers such as Detroit-based General Motors Corp., South Korea's Hyundai Motor Co, Italy’s largest maker Fiat SpA as well as Japan’s top car producers Honda Motor Co. and Nissan Motor Co., have announced investments in India worth more than $1.5 billion.
The growth in the Indian automotive market is in contrast to that in developed markets. U.S. auto sales are down more than 4% so far this year. European car sales registered the third straight monthly drop in August 2006, as sales fell 1.4% from a year earlier to 886,824 vehicles. Automobile sales in Japan fell 5.9% in August 2006, for the 14th consecutive month to touch the lowest level in 19 years.
Since only eight out of every 1,000 people in India own a car, compared with 16 in China and 500 in developed markets, it’s clear there is much headroom for growth. We have covered the automotive sector in detail in the “Special Report” section of this issue.
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Bundeep Singh Rangar
Chairman, IndusView
Bundeep.Rangar@IndusView.com
www.indusview.com |
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Volume 2 Issue 11 | 21th September 2006 |
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Industry Stories |
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Mega Deals
i-flex solutions, provider of IT solutions to the financial services industry is back to the deal street again with Oracle Corp., the world’s largest database software company, offering to acquire an additional 20% stake in i-flex. Oracle plans to spend up to $531 million (about Rs 2,452 crore) for this open offer. Among the other deals, banking was the flavour of the fortnight.
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News Makers
The fight for telecom supremacy has intensified in the Indian market, with Reliance Communication Ltd., the second largest mobile operator of India starting the commercial operations of its undersea cable from Mumbai to Egypt through its subsidiary FLAG Telecom. The commissioning of this 11,859-kilometer long cable makes FLAG Telecom Global Network the world's largest undersea cable system covering 65,000 kilometer long route. It connects 35 developed and developing economies including the U.S., the U.K., Germany, France, the Middle East, Hong Kong, Singapore, China, Japan, and of course India.
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Agents of Change: Kishore Biyani
He started with a small trouser-making unit in 1987, only to become the largest retailer of India. Today he runs a retail empire of $925 million (Rs. 4300 crore), but his kingdom is now facing the real challenge of his life as Reliance Industries, the largest private sector Indian company is entering the retail segment in a big way. While every one speculates on the outcome of the inevitable face-off, let’s look at his journey to success so far.
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Special Report: India set to become a small car hub
India has become a promising destination for small car segment globally. A number of leading automobile companies of the world are now looking at India to market and manufacture small cars in the country, and use the base for exporting to other locations as well. The names include the world’s largest automobile company General Motors Corp., Italy’s largest manufacturer Fiat SpA, Europe’s largest carmaker Wolkswagen AG, Japan’s leading automakers Toyota, Honda Motor Co., Nissan Motor Co. and Suzuki Motor etc. Global and domestic companies are expected to investment more than $5 billion in India till 2010.
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Factoids
The real estate sector is expected to have an investment boom with overseas realty funds getting lined up for India investments. The total amount of overseas funds announced so far for investment in Indian real estate has reached about $7 billion. India’s largest housing finance company Housing Development Finance Corporation (HDFC) has recently received the clearance from the government for setting up $720 million International Real Estate Fund.
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Company Watch: Kingfisher Airlines Ltd
As India continues to be one of the fastest growing aviation market with the domestic air traffic growing by about 52%, the battle for grabbing market share is at its peak among the airline companies. While the low-cost no-frills carriers are relying only on the price factor to attract passengers, Kingfisher has made a niche for itself by positioning as an airline offering almost luxury services at a cost below full-service carriers.
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Market Watch
While Sensex, the benchmark index of India, has again touched the 12,000-mark, the target of 40,000 in the long term given by Asia’s biggest independent broker Credit Lyonnais Security Asia (CLSA) has sparked a new debate. Let’s test this target on some basic parameters
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Events
The opening up of the foreign direct investment (FDI) in real estate and the resulting opportunities has evoked an enthusiastic response from the investors for this booming industry. To bring the most important decision makers and players in the Indian Real Estate market at one forum, FICCI is organising the third of its annual Real Estate Summit this year. This is a platform to meet international investors as also network with Professionals working in the Realty Sector in India.
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About IndusView
IndusView advises multinational companies on business opportunities emanating from India’s fast growing economy. It de-risks the growth ambitions of multinational companies operating as a trusted partner that understands the complexities of the Indian market and the commercial drivers of western enterprises.
IndusView provides strategic insight, competitive intelligence, research and execution capabilities to manage large vendor and corporate finance transactions.
More at www.indusview.com
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