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Focus on: India 2
3. Providing services for
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Focus on: India
fund administrators,
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as recognise
by Wall Stree
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Economy
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expanded by
The Indian economy grew by just 3.3% in 2012, the slowest pace in
a decade and well below the previous norm of 9% in the years leading
up to the global financial crisis.
The USA and UAE buy 27% of India’s
13.9%
exports. The economy continues to run
a huge trade deficit with China which
13.1%
accounts for 11.9% of imports but just
4.7% of exports, of which refined
4.7%
petroleum oil63.8% and diamonds
(16%)
4.5%
(11%) are the major contributors.
Key indicators
• economic growth moderated to
4.4% in April-June, down from 4.8%
in the previous three-month period
and below consensus expectations
• agriculture sector expansion of 2.7%
due to a better monsoon and a sharp
pickup in government spending
(10.5% year on year) were the major
growth drivers
• however, output in both the mining
and manufacturing sectors contracted
year on year
•
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the consumer price measure of
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in 2013
11.9%
6.1%
forecast growth
in 2014
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the
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5.8%
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in 2013
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inflation ticked back up to 9.8%
in major markets
in September from 9.5% in August remains a key
2%
5.2%
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trade partner
as retail prices for food and fuel
8.4%
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The rupee has fallen by approximately
25% against the US dollar since May
this year, fuelling close to double-digit
inflation and swelling the current
account deficit.
3.3%
Export destinations (2012)
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Focus on: India 3
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emerging economies. Despite this, Indian
gather pace this year, with expansion of
exporters are recovering their zeal, helped
5.8% forecast, picking up to 6.1% in 2014
by improving business and consumer
and 6.7% in 2015. Whilst an improvement
Combined global
sentiment in the United States. Exports are
on 2012, growth is forecast to remain well
forecast to expand by 12.3% this year,
below pre-crisis levels threatening job
rising to 12.9% in 2014 although a further
creation prospects for the millions of
slowing of global growth is a significant
young Indians entering the labour market.
in
downside risk.
Reforms have been made to free up keyfinancial services
2012
sectors such as aviation and retail to
foreign investment and the new
global accountancy
Companies Bill should increase
organisations
transparency. However,
as recognised
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forecast growth
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in 2013
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The global economy is adjusting to the
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5.8%
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The outlook for the Indian economy remains difficult. When working
4.7%
for the IMF in 2005, the new head of the Reserve Bank of India, 67.7%
63.8%
4.5%
Raghuram Rajun, warned of the looming danger of the global financial
crisis. His fears were dismissed, but the hope is that he will prove as
shrewd in the months to come as he battles the twin dangers of a sliding
rupee and slower growth.
Ranked in
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Combined global
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2012
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Economy
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Focus on: India
Focus on: India 4
glob
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Providing
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and mutual funds inhabitants and growing
fund administrators,
Business growth and investment
The tough economic outlook has undoubtedly dampened Indian business optimism
over recent quarters and this has clear knock-on effects for growth: the more confident
executives are in the economy, the more likely they are to invest in the growth of their
operations. Indian business optimism has averaged net 70% over the past four quarters,
well below pre-crisis levels (97% in 2007) and down even on the 2009 figure (83%).
special purpose vehicles
However, it remains well above the BRIC average (33%).
Business leaders expect to increase investment in plant and machinery over the next
12 months which should add to the long-term potential of the Indian economy. 2013
average investment expectations stand at net 43%, above the BRIC average (38%) but
still below pre-crisis levels (56%). Indian businesses are also bullish about the growth
of their own operations. Over the past four quarters, net 73% of business leaders have
indicated that they expect profits to rise. This is up from 72% in 2012 is and well above
the BRIC average (58%).
Over
60%
0% Economy $1.8trn
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400
business
Net
of businesses
of ourpercentage12 months) expecting an increase
member firms’
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interviews
Net percentage of business leaders indicating
optimism for their economy (next 12 months)
mber firms’
100%
of businesses
80%
70%
ncial services
60%
50%
expect to optimistic
for economic
3.3%
3.3%
increase outlook
38%
40%
30%
2007
Talent
India
2008 2009 2010 2011 2012 2013
shortage
hampers
Source: Grant Thornton IBR 2013
needs to create
growth
in 2012
in 2012
BRIC average
100
million jobs
India
BRIC
of our member firms’
90%
$1
43% 70%
43%
interviews
70% for econom
gross
expect to optimisti
pect
optimistic
expect to
of businesses
of businesses
operate in financial services
operate in financial services
investment
Above the
100%
400
business
interviews
400
business
43%Economy domestic product
70% gross top clients
top clients
lients expanded by by
expanded
90%
1.2 billion inhab
80%
70%
increase
increase
increase outlook
for economic
investment
investment
outlook
Above the
60%
Above
38% the
50%
40%
Talent
shortage
hampers
30%
38%
India average
BRIC
BRIC average
needs to create
Talent100
India
growth
20%
million jobs
shortage
India
hampers
BRIC
10%
growth
2007 2008 2009 2010 2011 2012 2013
Source: Grant Thornton IBR 2013
needs to create
100
million jobs
Focus on: India 5
6. Focus on: India
Economy
expanded by
3.3%
of our member firms’
43% 70% g
optimistic
top clients
of businesses
expect to for economic
increase outlook
operate in financial services
investment
Above the
38%
Employment and the demographic transition
India is expected to become the most populous country in the world by
2030, adding some 230m people of working age to the population. Rising
rates of higher education mean not all of these people will need a job
straight away but this may be mitigated partially by higher rates of
women entering the workforce.
in 2012
Either way, the economy will probably
need to create 100m jobs over the
next decade alone to satisfy these
additional hands*.
Leaving aside potential social unrest, the
danger if these jobs are not created, is that
India will lose the benefits of its
demographic transition – a one-off boost
to growth as the proportion of people of
working age rises (and peaks) relative to
the proportion of dependents (those too
young or old to work). The UN estimates
that India’s dependency ratio will bottom
out in 2040, from which point the
proportion of people of working age
(15-64) will begin shrinking relative to
the proportion of the population (0-14 and
65+) they have to provide for. Creating
enough jobs for India’s new workers over
this period will therefore decide the
trajectory of India’s growth path.
The hiring plans of Indian businesses
are encouraging. Expectations fell sharply
during the financial crisis, slipping to just
28% in 2009, but have since recovered.
Across 2013, net 68% of companies have
indicated that they expect to add to their
workforces, up from 64% in 2012 and
well above the BRIC average (31%).
However, Indian businesses are generally
unimpressed by the standard of applicants:
58% say a lack of skilled workers is
hindering their expansion plans, quite
some way above the BRIC average (40%).
Population projections for India
Talent
1990
41.4
shortage
hampers
growth
58.6
BRIC average
India
needs to create
100
million jobs
2010
35.2
64.8
2030
52
31.9
68.1
2050
32.3
67.7
Dependents (0-15 and 65+)
Working age (16-65)
Source: UN Population Division (2012)
* The Economist - ‘Wasting time’; 11 May 2013
Focus on: India 6
7. Focus on: India
Net percentage of business leaders expecting an increase (next 12 months)
Inflation and other growth constraints
Inflation remains a major concern. It not only eats into disposable
income and so dampens consumer spending but it also dissuades saving
meaning gold imports have soared, further widening the current account
deficit. Compounding this, a sinking rupee increases import prices.
Consumer prices rose by 9.8% in September, up from 9.5% in August
and the Reserve Bank of India has raised interest rates to 7.75%.
For businesses which import, higher
inflation means higher input prices; selling
prices must be raised to keep turning over
a profit; and wages must be raised to keep
workers happy and productive. If wages
do not keep pace with prices, then demand
is likely to fall, acting as a further brake on
growth. In India, net 64% of business
leaders indicated an intention to raise
prices in 2013, well above the BRIC
average (39%). And 30% expect
to raise worker salaries above the
prevailing rate of inflation, double the
BRIC average. This suggests a real danger
of a ‘wage-price spiral’ taking hold: a
vicious cycle where salaries rise to meet
price increases forcing businesses to raise
prices further to maintain real profits and
so on.
The more positive news from the fall
in the rupee is that exports become
relatively cheaper. And Indian businesses
appear prepared to take advantage:
37% expect to increase exports over the
next 12 months, well above the BRIC
average (24%).
Aside from inflation, Indian businesses
are also having to contend with a range of
other growth impediments, from a
shortage of finance (64%), a lack of skilled
workers (58% - see previous page),
regulations and red tape (57%), a lack
of demand (53%) and poor quality
infrastructure (47%). In all these areas,
business leaders in India feel more
constrained than BRIC peers.
64
39
37
30
24
15
Selling prices
Staff real salaries
India
BRIC
Exports
Source: Grant Thornton IBR 2013
Net percentage of businesses citing issue as a constraint on growth (next 12 months)
64
58
Cost of finance
57
Lack of skilled workers
42
Bureaucracy
47
40
37
53
40
Lack of demand
26
ICT infrastructure
47
26
Transport infrastructure
India
BRIC
Focus on: India 7