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INDIA


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 598,966 515,000  481,400 12
         
GNI per capita
 US $ 530 480 470 160
Ranking is given out of 208 nations - (data from the World Bank)

Books on India

REPUBLICAN REFERENCE

Area (sq.km)
3,287,590

Population

1,049,700,118

Capital
New Delhi

Currency
Irdian Rupee (INR)

President
Abdul Kalam


Update No: 032 - (02/10/06)

THE POLITICS OF INVESTMENT
India, while seeking 150 billion to build power plants, ports and roads to sustain economic growth, finds itself battling political interference in business to attract money from overseas. Investors at a Merrill Lynch & Co. Conference in New York said that opposition by the communist parties to the privatization of airports and the Congress party-led ruling coalition's inability to end the distribution of free power to farmers in some provinces is making it increasingly difficult for investors to invest in such projects in India. Because politicians are talking about interfering in private market transactions, companies such as Sanderson and Stocker in Ithaca, New York, which manages $60 million in portfolio investments have decided to "trim" their positions in India Some members of Prime Minister Manmohan Singh's Congress party, have proposed that private businesses should set aside jobs for people belonging to the underprivileged sections. According to the Vice President of Sanderson and Stocker, "politicians are abandoning a meritocratic environment and they're reserving places both in education and, this was new to me, in private industry." India uses affirmative action such as educational and job quotas in state-run companies to redress centuries of caste discrimination. Recent moves to increase quotas have led to protests because of concern over the resultant drop in seats for everybody else. 
Prime Minister Singh deserves credit for starting India's economic changes in 1991 when as finance minister he dismantled decades of socialist controls on the economy and ended a system of licenses that were needed to start any business in India. However, Singh faces resistance from communist allies on speeding up economic changes. Some investors say progress has improved. According to Sarvjeev Sidhu, global head of emerging markets debt at Aegon US Investment Management LLC, "it used to be one step forward, two steps back," global head of emerging markets debt at Aegon US Investment Management LLC, Sidhu's company manages about $4 billion in emerging markets. What appears surprising to these investors is that Indian government officials attending the Merrill conference are telling investors things have changed and that overseas investors and developers would have no cause for concern. According to the Indian Power Ministry, all regulations have been comprehensively laid down, reducing any chance for future uncertainty. However, to attract investors to India, the government needs to do more than just setting up comprehensive regulations. The government should try to ensure that regulations in place are conducive to attracting investor friendly companies instead of alienating them. 

TORRID GROWTH AT 8.9%
According to a news report in the New York Times, the Indian economy grew at an unexpectedly torrid 8.9 percent annual pace in the second quarter of 2006, fuelled by a sharp turnaround in its once-listless manufacturing sector. India is now growing faster than most other economies in the world, and is close to rivaling China, whose emergence as a manufacturing center has left India racing to catch up. Now, with the government working to ease regulatory burdens for business and to upgrade the country's patchy infrastructure, Indian factories are rapidly moving ahead. Manufacturing output was 11.3 higher in the second quarter of 2006 than in the same period in 2005, exceeding even the performance of India's services sector, including its booming software and call-center businesses. The Indian Finance Minister has expressed optimism at these results and claims that these are intoxicating times for India, the kind of times, critics warn, when it is easy to get carried away. Even as the statistics grow rosier, economists are wondering whether the country can sustain such rapid expansion for long. One important danger, they say, is that the fractious left-leaning coalition that now governs the country may be losing the political will to push free-market policies that could attract more foreign investment. Those policies are becoming harder to sell to voters as the economic boom widens the gap in income between rich and poor in the country. Ifzal Ali, the chief economist of the Asian Development Bank, said recently that GDP growth figures alone do not provide an accurate idea of the kind of structural problems that the country is facing. People like Ali have a valid argument. They believe that it is not enough to sit back and enjoy the high growth rates but also confront the pressing problems of structural adjustment. 

INDIA AND THE UNITED STATES
According to Indian Defense Minister Pranab Mukherjee, the India-US civil nuclear agreement marks a turning point in the relationship between the two countries and India is looking forward to the completion of the legislative and other processes to permit the commencement of civil nuclear cooperation. The agreement pertains solely to civilian power generation, said Mukherjee, and will not in any way affect India's strategic program or its indigenous research and development program. The Defense Minister also re-iterated that India has always used such sensitive technologies with caution and care. In his words, "there has not been even one case of outward nuclear proliferation from India to any country. This is the premise on which the international community today is prepared to cooperate with us in developing civil nuclear technology." The India-US initiatives have gone beyond the realm of civil nuclear cooperation indicating greater promise for the relationship. In the last 18 months alone, India and the United States have signed an Open Skies Agreement to increase the number of flights between the two countries and enhance trade and tourism. Since then, the number of flights has increased and non-stop flights between the two countries have commenced. The two countries had also taken various India-US initiatives that will have a positive global impact in areas such as the promotion of democracy, in natural disaster management, in meeting the challenges caused by pandemics like HIV/AIDS and avian flu and in other fields. What is perhaps critical now is whether the India-US nuclear deal will actually take off in the American Congress. While the Bush administration would like the deal to go through, many remain skeptical of whether giving India out-of- the-box leverage on nuclear issues could imply an undermining of the non-proliferation regime. Yet, the fact that this debate still continues not only in India but also amongst the Indian-American community in the United States indicates the seriousness on the part of people to accept the contours of this new relationship. 

INDIA AND SRI LANKA
India recently called for a 'special effort' to strengthen the already fragile ceasefire agreement between the Sri Lankan government and the Tamil Tiger rebels and to find a negotiated political settlement based on 'maximum devolution of powers'. India India's Union Cabinet Minister of Panchayati Raj, Youth Affairs and Sports Minister Mani Shanker Aiyar is reported to have stated in Colombo that a devolution package must be put in place that could command consensus among different political parties, normalize ethnic relations and address the legitimate aspirations of all sections of Sri Lankan society. Aiyar, is a prominent front runner in the ruling Congress Party and expressed his views during a keynote address on the 'Current situation in Asia, particularly Southern Asia.' Reiterating India's commitment to Sri Lanka's independence, sovereignty and territorial integrity the visiting Indian minister said that he expected 'to discuss with President Mahinda Rajapaksa the concept of Panchayati Raj in India as Sri Lankan leaders had expressed interest in that concept'. Quoting extensively from Indian Prime Minister Manmohan Singh, Aiyar described the bilateral free trade agreement (FTA) between Sri Lanka and India as a 'huge success with win-win situation to both the countries'. 

THE INDIA-BRAZIL-SOUTH AFRICA AGREEMENT
In an effort to foster south-south cooperation, India, Brazil and South Africa have come forward with a new initiative. The emergence of the transatlantic links between India, South Africa and Latin America began when the leaders of three countries, India's Vajpayee, Brazil's Lula, and South Africa's Mbeki spearheaded a new approach to south-south cooperation at the 2003 UN General Assembly Forum, resulting in a trilateral India-Brazil-South Africa agreement (IBSA). IBSA encompasses a total population of 1.3 billion people and an economy of $1.26 trillion. The First meeting of the foreign ministers of IBSA Dialogue Forum was held in New Delhi on March 4 and 5 2004. Issues addressed included social development, disarmament, infrastructure, health care, sustainable economic development, and poverty alleviation. After successes in the Doha and Cancun rounds of the WTO summits, the heads of IBSA met for the first ever-trilateral summit recently at Brasilia just before the NAM summit. "As emerging economic giants in the developing world, India, Brazil and South Africa account for a combined gross domestic product (GDP) of over one trillion U.S. dollars and it seems set to push the number in an unexploited trilateral market" commented the South African Broadcasting Corporation. The South African Foreign Ministry spokesman Ronnie Mamoepa said, "Since its establishment in 2003, the IBSA had become instrumental in promoting closer coordination on global issues between South Africa, India and Brazil. The three have become frequent guests of the annual gathering of the Group of Eight (G8) industrialized countries". "The historic summit was the culmination of three Ministerial Trilateral Joint Commission meetings that have taken place in New Delhi (2004), Cape Town (2005) and Rio de Janeiro (2006), under the leadership of the three foreign ministers," he further said. 

ECONOMY/BUSINESS
With regard to building a Trans-Afghan Pipeline (TAP), companies from UAE, United States, Greece and Canada have shown keen interest in joining the consortium and financing the project. China and Ukraine, under certain conditions, would be willing to join TAP. From the point of view of India's participation in the project, the important question is whether India along with China has worked out new synergies in acquiring overseas energy assets. After nine meetings of the steering committee and several sessions of the technical group, the TAP has cleared many obstacles. The questions still on the table include the details of the sale and purchase agreement and the pricing formula. Formation of consortium and other practical matters must wait for mutually satisfactory solution of these questions. 

India and China have teamed up to invest US$850 million to buy a 50% stake in Omimex de Colombia Ltd, which has oil-and-gas-producing assets in the South American country and is owned by US-based Omimex Resources Inc. The two Asian firms have formed a joint-venture company, Mansorovar Energy Colombia Ltd. This is the first acquisition made jointly by ONGC's overseas arm, ONGC Videsh Ltd, with Sinopec Group, the parent of listed Sinopec Corp. India's largest refiner, Indian Oil Corp Ltd, is also in talks with Sinopec about setting up a company to purchase crude oil jointly. Talks are on for a joint bid in Kazakhstan. In the recent past, New Delhi and Beijing have worked jointly in Syria and Sudan. In the first instance of Sino-Indian cooperation, the two countries won a joint bid in December 2004 to buy PetroCanada's 37% stake in Syrian oilfields for $573 million. In March this year, the two state-run energy firms Hindustan Petroleum Corp Ltd and Sinopec Corp signed a preliminary agreement for projects in India, China and elsewhere. The two will cooperate in international trade, exploration and production, refineries and petrochemicals, and consultancy services. In January, a wide-ranging agreement was signed between India and China for the hydrocarbon sector. India's energy giant ONGC and China National Petroleum Corp signed an initial deal covering exploration and production, while state-run gas transporter GAIL (India) Ltd signed a pact with Sinopec, CNOOC (China National Offshore Oil Corp) and Beijing Gas. In January, when the agreements were signed, Mani Shanker Aiyar, then Petroleum Minister of India stated that excessive rivalry between Indian and Chinese companies for the acquisition of overseas hydrocarbon assets is to the advantage only of the seller of the asset and to the disadvantage of both our countries irrespective of who finally wins the bid.
 

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AUTOMOBILES

Automakers come knocking 

India's quest to be a leading carmaker has received a vigorous boost recently, with a parade of global companies unfurling plans to assemble cars for domestic consumption and export, the International Herald Tribune reported on September 11th.
The recent announcements - by Bayerische Motoren Werke, Suzuki, Nissan, Volkswagen, Honda and Toyota - reflect the allure of selling cars to every echelon of an increasingly affluent society.
The government recently forecast that automobile sales would leap from US$34 billion this year to US$145 billion in 2016, accounting for one-tenth of India's economic output.
At the market's top end, BMW announced that it would assemble cars in India for the first time, catering to a widening sliver of the new rich.
A US$25 million plant in the southern port of Madras will manufacture 1,000 of BMW's 3-series and 5-series models starting next year, with a peak capacity of 1,700 cars a year.
But the site, producing expensive cars and depending on existing models, is an anomaly.
So lucrative is the Indian market that most companies are inventing smaller cars to cater to value-conscious consumers - then seeking to export those made-for-India cars around the world to ensure large, cost- efficient production runs.
"Previously, they thought, 'What do we have that could fit into India?'" said Paul Blokland, an automotive expert in Bangalore who has advised Volkswagen, BMW, Hyundai and other producers on entering the Indian market. "Now, they think, 'what can we invent for India and fit into the rest of the world?'"
Honda and Toyota announced recently that they would bolster their India presence with smaller cars.
Honda said it would quadruple its Indian capacity to 200,000 cars by 2010, primarily with small cars. Toyota, which has yet to market a small car in India, said it would soon do so in the hope of seizing a 10th of the local market by 2010.
Also, Maruti Udyog, the Indian automaker jointly controlled by Nissan and Suzuki of Japan, said that it would spend about US$650 million to expand its Indian factories and build new ones, nearly doubling its capacity in the country to 1 million cars by 2010. Exports, primarily to Europe, will multiply more than tenfold in that period, to 400,000 cars a year from last year's total of 35,000.
Volkswagen has confirmed rumours that it was scouting plant locations to make its first Indian-made vehicle, also to be a small car.
These moves came a month after General Motors said it would build a US$300 million plant in India to produce a fuel-efficient hatchback called Chevrolet Spark, priced between US$6,000 and US$8,000.
The plans appear to embody what the business writers John Seely Brown, a former chief scientist at Xerox, and John Hagel, a former management consultant, have called "innovation blowback" - in which multinational companies pick up new skills in emerging markets and then apply them to their home markets.
In a recent interview, Nick Reilly, president of General Motors in Asia, said the Indian market had compelled his company to learn how to make money on small cars - a talent that could prove useful at home in the United States, where high fuel prices are making smaller cars more popular.
"If we're going to be successful in Asia, we have to be successful in small cars," he said. "And that will give us the potential products to go back into our traditional markets of Europe and the US with smaller cars, which we haven't had before."
The spurt in Indian car output adds to mounting signs of an industrial awakening. To date, the Indian economy has gained stature mostly in services, including an outsourcing industry that has generated about one million jobs.
Though impressive, that achievement has spread little opportunity among villages and small towns, where more than two-thirds of Indians live.
On a recent visit to a Hyundai factory in southern India, managers spoke of a country that was slowly changing to make itself friendly to manufacturers - and of a world that was slowly adjusting to the idea of "Made in India."
After years of resistance by unions, the government of Tamil Nadu, the state where the Hyundai plant is located, recently permitted factories to run on three-shift, 24-hour cycles. The switch made the plant the first Hyundai site in the world to operate without pause, Heung Soo Lheem, chief of India operations for Hyundai, said in an interview.
When the company started exporting the Santro hatchback to Europe, in 2003, dealers there sought a 5 per cent discount on India-made cars, which they saw as inferior.
At Hyundai's invitation, several dealers visited the factory in India; impressed by what they saw, they withdrew their request.

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FOREIGN INVESTMENT

Goldman Sachs plans India investment

Goldman Sachs Group, which ended a 10-year alliance with the Indian billionaire, Uday Kotak in March, plans to bring US$1billion in investment capital to India over the next two years, the International Herald Tribune reported on September 20th.
"That's putting our own capital to work in this market," L Brooks Entwistle, chief executive of the India business of Goldman, said. "It's investment in businesses, in companies, real estate and infrastructure."
Investment banks like Goldman and Merrill Lynch are expanding in India to profit from an economy growing at 8 per cent a year. Goldman said it would set up its own business in India after breaking with Kotak.
Merrill spent US$500m last year to double its stake in its unit in India. The firm has said it will commit more funds to expand in India and hire more experienced bankers.
"If any market of this size is expanding at a rate of 8 per cent or more, as a banker you have to be there - both to benefit as an investor and as a deal maker," said Navneet Munot, a fund manager at Birla Sunlife Asset Management in Mumbai. India is a lucrative market with adequate regulation, and "its not surprising that the big players are coming here."
Goldman has 50 people in its Mumbai office and "well over" 1,000 in the southern city of Bangalore, the hub of India's information technology industry, said Entwistle, who was named head of the firm's business in India in January.
The joint venture with Kotak's bank was Goldman's first, marking a break with 126 years of tradition at the time it was signed in 1995. Goldman sold its 25 per cent stakes in two ventures with Kotak Mahindra Bank for 3.3bn rupees, then worth US$75m, opting to build its own business in a market where announced mergers totalled US$36.7bn in 2005.
Indian companies also sold US$14.4bn of stock and equity-linked securities last year, according to data compiled by Bloomberg.

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