India 4th largest economy but has low per capita income: Survey

India has become the fourth largest economy in the world due to a strong economic growth but still has a low per capita income, the Economic Survey revealed today.

“India has emerged as the fourth largest economy globally with a high growth rate and has improved its global ranking in terms of per capita income. Yet, the fact remains that its per capita income continues to be quite low,” it said.

“India has moved up the ranks, but is still the poorest among the G-20,” the survey added.

The per capita income of India stood at $ 1,527 in 2011, it said. “...this is perhaps the most visible challenge. Nevertheless, India has a diverse set of factors, domestic as well as external, that could drive growth well into the future,” the survey said.

Between 1980 and 2010, India achieved a growth of 6.2 per cent, while the world as a whole registered a growth rate of 3.3 per cent. As a result, India’s share in global GDP more than doubled from 2.5 per cent in 1980 to 5.5 per cent in 2010, it said.

Consequently, India’s rank in per capita GDP showed an improvement from 117 in 1990 to 101 in 2000 and further to 94 in 2009. China, however, improved its rank from 127 to 74 during the same period.

G-20 or the Group of 20 nations was formed in 1999 after the East Asian crisis as a forum of finance ministers and central bank governors.

Meanwhile, the survey said any slowdown in eurozone, which accounts for 19 per cent of the global GDP, could impact the Indian economy. The International Monetary Fund (IMF) has forecast that the eurozone is likely to go through a mild recession in 2012.

Pre Earnings Report March 2010

Macro Economic Trend

We expect GDP growth for FY10 at 7-7.5% with the economic recovery continuing to gain momentum, as indicated by the continual uptrend in industrial production (16.7% in January and 17.6% in December) and the sustained increase in bank credit growth at 16.74% for FY10 ahead of RBI estimates. Furthermore, exports grew for the fourth straight month in February. However, inflation remains a key concern in the near term with the 9.9% WPI inflation in February 2010 exceeding the 8.5% baseline projection of the RBI.

Automobiles

The Automobile sector is expected to post a good show in the March 2010 quarter. The sector continued to traverse on its growth trajectory on the back of the success of its new product launches, improved consumer sentiments, and increase in the disposable income. Moreover, as the commodity prices remained stable in this quarter, the margins should replicate the Q3’10 level.

Banking

We foresee an increase in the credit off-take in the Banking sector in the near term, primarily on the back of an increase in the economic activity and an increasing penetration of the country's Banking industry. However, we expect an increase in the banks’ cost of funds in the light of the recent hike in the CRR and repo rates. Further, RBI has mandated a coverage ratio of 70% that is to be met by all banks by September 2010, which will lead to an increase in the provisioning expenses.

Cement

As the construction season is at its peak, the cement industry has been able to pass on the recent hike in excise duty and rising input costs partially to the end-consumers in the form of higher realisations. The prices were hiked by Rs.8-11 per 50 kg bag in March'10, over and above the Rs.4-10 per bag increase in January–February'10. The industry also reported a strong volume growth between January and March'10.

Construction

Backed by robust order books, the Construction sector will return to its growth trajectory in Q4’10. Besides, with the Government reiterating its stand on infrastructure development in Budget 2010- 11, a steady stream of order inflow is expected for the Construction sector. The Government has allotted Rs. 1.73 tn for infrastructure development and increased its allocation for developmental programmes.

FMCG

The FMCG sector is presently experiencing an upsurge in demand from rural as well as urban consumers. Consequently, we foresee a healthy top-line growth in FMCG companies in Q4’10. However, high inflation is a concern with respect to the top-line growth. Despite rising volumes, FMCG companies are foreseen to experience contracting margins during the quarter, owing to high raw material costs and increased advertising expenditure. Nevertheless, the Government has included initiatives in the Union Budget 2010-11 to drive the demand in the near-to-medium term.

Industrial Machinery

The Industrial Machinery sector is expected to show ~10-12% growth for the March 2010 quarter. The capital goods companies continued to witness robust order inflow during the quarter on the back of the Government of India’s (GoI’s) ongoing plans of revamping the Power sector of the country and the continuously recovering industrial activity. The GoI plans to establish an integrated National Power Grid in the country by 2012 with generation capacity of close to 200,000 MW and inter-regional power transfer capacity of 37,700 MW.

Information Technology

The IT industry’s net sales are expected to grow ~8% during the March 2010 quarter due to the increase in business volumes, following the acquisition of new clients primarily driven by improvement in demand outlook especially in the US and the UK. The growth will be driven by volume than pricing gains as post the economic downturn the clients of IT companies have become increasingly cost-conscious. As a result, the IT companies are trying to increase business volumes.

Oil And Gas

Crude oil prices declined more than 9% in January’10 but turned around sharply in the next two months to finish 5.54% up YTD in March’10, averaging nearly USD 76 /barrel for the quarter. The International Energy Agency expects global oil demand to average at 86.3 mb/d in the March’10 quarter, up 0.3 mb/d compared with the previous quarter.

Metals and Mining

The major metal categories, copper, aluminum and steel are undergoing a period of high demand and escalating prices. However, the increasing inventories of these metals restrict a further sharp price appreciation in the near term. The Transportation, Building & Construction and Electrical sectors are on a growth trajectory, bringing forth opportunities for the Metal industry. Moreover, the Government has emphasized on infrastructure development in the Budget 2010-11, which works to augment the revenue in the near-to-medium term.

Pharmaceuticals

Sales in the drugs and pharmaceuticals industry is expected to grow at a healthy pace in Q4’10, driven by a jump in the export volume, despite the appreciating rupee. Additionally, the domestic demand for drugs is expected to aid the top-line growth in the near term. However, we believe that profitability will remain muted owing to an increase in raw material prices and strengthening of rupee against the dollar.

Power

We expect power generation to maintain robust growth of 7-8% in FY11, driven by a healthy growth in nuclear and thermal power generation as fuel supply improves. Coal availability is likely to improve with production in India expected to grow at a healthy pace in FY11, while imports are also expected to rise strongly. Furthermore, Indian public and private entities are acquiring coal mines abroad to ensure an enhanced supply of coal.

Real Estate

Residential real estate sales have picked up in the last six months, especially in the low-cost and mid-income housing categories. Going forward, we expect these segments to continue to drive sales, especially due to market expansion by developers in the Tier-2 and Tier-3 cities. Even though some banks have increased the interest rate on loans by 25-50 bps, demand is still foreseen to head north.

Telecommunications

The Telecommunication sector is undergoing a period of declining revenues and profits as a result of the hyper-competition among the incumbents and new entrants. This scenario is likely to deteriorate in Q4’10 as the adoption rate of the new billing plans, including the pay-per second plan, increases. Besides, the new subscribers are largely rural customers or are those with multiple SIMs, thereby recording low usage. Moreover, we expect the initial spurt in subscriber additions of new entrants witnessed in Q3’10 and even in January’10 to have mellowed down as promotional plans terminate

Market Share in Aviation Industry in India

Competitive Analysis:

The aviation landscape in India has undergone considerable change ever since the liberalization of the sector in the early 1990s. A subsequent wave of low cost carriers entering the industry in 2003 further transformed the scenario.With over 10 carriers in operation the sector has become highly competitive. Customers are getting improved connectivity at more affordable prices. The extreme price competition together with high cost of operations has also resulted in the industry suffering losses over the past two years.

Losses in FY2008 have been projected at around USD 1 billion.33 The large losses have meant that the industry has to consolidate to sustain operations. In 2007, the sector went through a bout of mergers that involved 6 players combining to form 3 large industry players. This ncludes the merger of the state-owned carriers, Indian Airlines and Air India to form NACIL. Jet Airways acquired Sahara Airlines and rebranded the airline as a value carrier. Kingfisher took ver Deccan Aviation to form a new airline that provides both premium and low cost services under a single umbrella. The combined share of the 3 carriers was around 74.5 percent. These mergers have,however, not prevented full service carriers from losing market share to the low cost operators.

The industry continues to suffer losses with Jet Airways being the only carrier that managed to make profits, primarily on account of customer loyalty, quality of service and efficient operations. The increase in share of LCCs is mainly due to their enhanced network in tier II and tier III cities. The LCCs have also been operating hopper flights (i.e. flights that touch down in more than two cities) that account for between 25 and 30 percent of the total services for smaller players.Meanwhile full service carriers have been focused on point to point services.
The underdeveloped air transport infrastructure has been imposing significant costs on the airlines with congestion, long delays and inconvenience to passengers. Government, in recent
years, has sought significant investments in development and modernization of airports to upgrade and expand facilities. This has provided private consortiums led by Indian nfrastructure developers such as GVK and GMR the opportunity to build and operate airports
in Mumbai and New Delhi respectively. The state-owned Airports Authority of India (AAI) plans to invest over USD 2.5 billion in the modernization of Chennai and Kolkata airports as well as 35
non-metro airports. The development of Greenfield airports and modernization of existing ones provide private Indian as well as foreign players opportunities to expand India. Global airport
operators such as Changi Airport and Partners, Hochtief Airport, Aeroports De Paris, Fraport AG, TAV Investment Construction Corp, Airports Company of South Africa, Malaysia Airport and Flughafen Munchen of Munich are some of the players that hope to participate in the development and modernization of airports in India. The Airports Authority of India (AAI), however, remains the dominant operator in the country.

The growth in the Aviation sector has also provided increased opportunities in the area of support services. Airlines and aircraft manufacturers such as Boeing have been investing in MRO services. Meanwhile, several local and global airlines are drawing expansion plans for the cargo services space.

FII in India

As the fourth-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI); India has strengths in information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. Despite a surge in foreign investments, rigid FDI policies resulted in a significant hindrance. However, due to some positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing Asia Pacific Region. India has a large pool of skilled managerial and technical expertise. The size of the middle-class population stands at 50 million and represents a growing consumer market.

India's recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. In March 2005, the government amended the rules to allow 100 per cent FDI in the construction business. This automatic route has been permitted in townships, housing, built-up infrastructure and construction development projects including housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, and city- and regional-level infrastructure.

A number of changes were approved on the FDI policy to remove the caps in most sectors. Fields which require relaxation in FDI restrictions include civil aviation, construction development, industrial parks, petroleum and natural gas, commodity exchanges, credit-information services and mining. But this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas such as insurance and retailing. FDI inflows into India reached a record US$19.5bn in fiscal year 2006/07 (April-March), according to the government's Secretariat for Industrial Assistance. This was more than double the total of US$7.8bn in the previous fiscal year. The FDI inflow for 2007-08 has been reported as $24bn and for 2008-09, it is expected to be above $35 billion. A critical factor in determining India's continued economic growth and realizing the potential to be an economic superpower is going to depend on how the government can create incentives for FDI flow across a large number of sectors in India.

Share of top five investing countries in FDI inflows. (2000–2007)

Rank	Country	Inflows (Million USD)	Inflows (%)
1	Mauritius	85,178	44.24%
2	United States	18,040	9.37%
3	United Kingdom	15,363	7.98%
4	Netherlands	11,177	5.81%
5	Singapore	9,742	5.06%