Brief Economic Overview

The Indian economy has witnessed phenomenal growth during the last decade. The country posted decent growth during the recent slowdown and is among one of the countries to lead the recovery path. The growth in real Gross Domestic Product (GDP) stood at 6.9 percent in 2009-2010(as per Central Statistical Organization-CSO). The GDP growth projection for 2010-2011 is 7.1 percent(as per Central Statistical Organization-CSO). The key drivers of India’s growth include a booming domestic marked by increasing consumption and a surge in investment, supported by certain inherent fundamental strengths such as favorable demographics.
However, burgeoning inflationary pressures are posing as an area of concern for the government. Rising inflation has led to stringent controls in the domestic financial environment. The Reserve Bank of India (RBI), India’s central bank, has given high precedence to uphold price stability, contain inflation expectations and sustain the growth momentum.

Transforming the domestic market (as per NCAER)

  • Favorable Demographics: India, where about 50 percent of the population is below 25 years of age, has one of the youngest populations in the world compared to the aging populations of the US, China, Japan, and the UK.
  • Increased Urbanization: By 2025, due to migration and population growth, the urban population is estimated to account for 37 percent of the total population. By the same time, the Indian consumer market is likely to largely be an urban affair with 62 percent of consumption in urban areas versus 38 percent in rural India.
  • Rise of the Middle Class: The middle class (including aspirers), which, in 2005, accounted for 45 percent of total households is expected to rise to 68 percent by 2025.
  • Increased Consumption: Aggregate consumption in India is expected to grow four-fold in real terms from USD 420.7 billion in 2006 to USD 1.73 trillion by 2025.

Foreign trade (as per Directorate General of Foreign Trade)

In the last five years, India’s exports witnessed robust growth to reach a level of around USD 185 billion in 2008–09 from USD 63 billion in 2003–04. India’s share of global merchandise trade was 0.83 percent in 2003 which rose to 1.45 percent in 2008 as per WTO estimates. India’s share of global commercial services export was 1.4 percent in 2003 which also rose to 2.8% in 2008, and at the same time, its share in goods and services increased to 1.64% in 2008 from 0.92 percent in 2003.

Foreign reserves (as per Directorate General of Foreign Trade)

India’s foreign exchange reserves stood at USD 283.5 billion at the end of December 2009 as against USD 252 billion in 2008, making it the third largest stock of reserves among the emerging market economies.

Mergers & Acquisitions (M&A) and PrivateEquity deals (From EMIS – EmergingMarket Information Service)
The total number of M&A Deals announced during the 12 months of 2009 stands at 330 with a total announced value of USD 11.96 billion as against 454 deals with a total announced value of USD 30.95 billion in 2008 and 676 deals amounting to USD 51.11 billion in 2007. There were 174 domestic deals in 2009-2010 (both acquirer and target being Indian) with an announced value of USD 6.70 billion and 156 cross-border deals with an announced value of USD 5.26 billion.

Foreign direct investments inflows

  • India’s favorable regulatory regime continues to attract foreign investment. According to the global survey of corporate investment plans carried out by KPMG International, released in June 2008, India is likely to see the largest growth in its share of foreign investment and become the world leader for investment in manufacturing in the next 5 years. Corporate investment strategists from over 300 of the largest multinational companies in 15 major economies participated in the survey. The results showed a move away from investment in the US, Japan, Singapore and the UAE, and a big increase in flows to Brazil, Russia, India and China (BRIC).
  • Foreign direct investments (FDI) into India went up from USD 4,029 million in 2000-2001 to USD 33,053 million in 2009-2010 (upto Feb ’10), one of the highest among emerging economies. Cumulative amount of FDI inflows from April 2000 to March 2009 amount to USD 89, 840 million(as per Economic Survey of India 2009-2010).

Portfolio investments in India

  • India has been a preferred emerging capital market for foreign capital inflows in the last decade. Net investment by Foreign Institutional Investors (FIIs) into India touched USD 65,636 million from April 2000 to February 2010(as per Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, April 30, 2010).

Capital market

  • The Indian capital market has witnessed transformation over the last decade and India is now placed among the most mature of the world.
  • The BSE Index has a market capitalization (as of December 31, 2009) of USD 13.14 trillion, the highest among major Asian economies including Japan, China, Malaysia, and Hong Kong(as per Bloomberg).
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