1. Bonn-Rhein-Sieg University of Applied sciences
Case Study: India
Location Analysis
INTERNATIONAL ECONOMICS
-Global Economics-
-Global Economics-
Sub. By : Divyanshu Singh and
Igor Dobrosavljevic
Sub. To : Prof. Dr. Wiltrud Terlau
WS 2011,MBA-NGO Management

2. Background Analysis
INDIA'S ECONOMY HAS MADE great strides in the years since
independence.
The economy had stagnated since the late nineteenth century, and
industrial development had been restrained to preserve the area as a market
for British manufacturers.
.In fiscal year 1950, agriculture, forestry, and fishing accounted for
58.9 % of the gross domestic product and for a much larger proportion of
employment. Manufacturing, which was dominated by the jute and cotton
textile industries, accounted for only 10.3 % of GDP at that time.
In the late 1980s, however, India relied on foreign borrowing to
finance development plans to a greater extent than before. As a result, when
the price of oil rose sharply in August 1990, the nation faced a balance of
payments crisis. The need for emergency loans led the government to make a
greater commitment to economic liberalization than it had up to this time. In
the early 1990s.

3. As India moved into the mid-1990s, the economic outlook was
mixed. Most analysts believed that economic liberalization would continue,
although there was disagreement about the speed and scale of the measures
that would be implemented. It seemed likely that India would come close to or
equal the relatively impressive rate of economic growth attained in the 1980s,
but that the poorest sections of the population might not benefit.
The Indian economy has continued to recover robustly in 2010-11,
recording one of the fastest growth rates in the world and climbing back to
near pre-crisis levels. Real gross domestic product (GDP) growth in the (Q2)
of the current fiscal, year-on-year was 8.9 per cent and the first quarter (Q1)
GDP growth also stands revised to 8.9 per cent.

4. Economic Indicators
Economic Indicators
2005-2009 avg 2010 2011 2012
GDP (% growth, real) 8.5 9.6 8.5 8.60
Inflation (%, year-end) 7.2 10.0 8.4 6..2
Fiscal Balance (% GDP) -4.5 -5.0 -5.4 -5.3
Exports (% growth) 18.1 30.4 10.5 10.5
Imports (% growth) 22.9 26.9 10.5 10.5
Current Account (% of GDP) -1.5 -2.6 -2.9 -2.7
Reserves (month of imports) 8.8 7.4 6.7 6.1
External Debt (% of GDP) 16.4 14.7 13.3 12.4
Debt Service Ratio 10.16 8.1 7.8 7.1
Currency (per USD, year-end) 44.5 45.7 46.9 48.0
Source : EIU, EDC Economics

6. Macroeconomic Indicators at a Glance

7. Contribution of Indicators
Services 55.2%
Agriculture 18.5%
Industries 26.3%
*2010 est.

8. Economic Policies :
Fiscal Policy (1)
• Combined fiscal deficit in India
• Even before the recent setback: very high by international standards contribute
to the persistence of an interest rate differential with the rest of the world,
>constrains progress towards full capital account convertibility.
• self imposed rule based fiscal correction needs to be consolidated and carried
forward.
Fiscal Policy (2)
• Sustained interest rate differential also connected with the existence of a
persistent inflation differential with the rest of the world.
• A key challenge is to further reduce inflation expectations toward international
levels

9. Monetary Policy (1)
• A continuous need to adapt monetary management to the emerging needs
of a fast growing and increasingly open economy.
• Financial deepening and increasing monetisation.
• expansion of monetary aggregates departs from their traditional relationship
with real GDP growth.
• task of monetary management: manage such growth without endangering price
or financial stability.
Monetary Policy (2)
• Further development of financial markets
• Large capital inflows in recent years
• Reserve Bank’s ability to manage the impossible trinity
• Issues for monetary policy
• current account balance as a good guide to evaluation of the appropriate level
of an exchange rate?
to what extent should the capital account influence the exchange rate?
implications of large current account deficits for the real economy?

10. Industries:
Industrialization in India:
Since independence to 1980: During this period there was restrictive
growth of private sector and government's permission was required to set up
any private enterprise in India. Despite this the GDP grew at a rate of 1.4% per
annum from 1940 – 1970.
1980 to mid-1990s: Post 1980s India saw liberalization and achieved
further impetus in Mid-1991. The nation witnessed historical upsurge in per
capita GNP. In 1994-95 the industrial output-growth registered 8.4% growth
and the exports rose by 27%. This resulted in a 10% drop in inflation in the
mid-1990s
1990s to 2000s: Since its liberalization policy, India has opened several
public sector enterprises. The exports saw a 17% rise in 1994 and 28% in 1995-
96. Over 90% of India's imports are backed by export revenues. At present the
current account arrears is less than 1% of GDP and foreign-exchange profits
are soaring at $20 billion. The food stocks have witnessed an all-time increase of
37m tonnes.

11. Major Industries in India
Textile Industry:
-shares 35% of the gross export income.
-industry provides job opportunity to over 35 million individuals.
-has 4 per cent share in GDP.
-adding 14% of value addition in merchandizing sector.
Food Processing Industry:
-accounts less than 1.5% inspite of being one of the key food
producing nations worldwide
-provides job opportunities to 1.6 million people
-by the GDP estimates, the approximate expansion of this sector is
between 9-12%
Chemical Industry:
-it amounts to 12.5% of the entire industrial output of India and
16.2% of its entire exports
-Indian Chemical industry generates around 70,000 commercial goods.

12. Cement Industry:
-have 115 cement plants and around 300 small cement plants
-the capacity of Indian cement industry at 159.38 million tonnes
Steel Industry:
-Steel Industry is a 400 years old
-registering 4% growth in 2005-06.
-India steel industry is the 10th largest in the world which is evident
from its Rs 9,000 crore of capital contribution
Software Industry:
-Compounded Annual Growth Rate (CAGR) of 42.3%. In the year 2008,
the industry grew by 7% as compared to 0.59% in 1994-95.
Mining Industry:
-the GDP contribution of the mining industry varies from 2.2% to
2/5% only
Petroleum Industry:
-petroleum industry started its operations in the year 1867 and is
considered as the oldest Indian industry.

13. Current Issues
Major Political Issues in India:
 - Education in India
 - Border Issues
 - Pollution
 - Languages
 - Women in India
 - Poverty
 - Corruption
 - Economic Instability

14. Peculiarities
Income & Poverty
• Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per capita
income by 2016-17
• Increase agricultural GDP growth rate to 4% per year to ensure a broader spread of benefits
• Create 70 million new work opportunities.
• Reduce educated unemployment to below 5%.
Infrastructure
• Ensure electricity connection to all villages and BPL households by 2009 and round-the-clock power.
• Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and tribal areas) by
2009, and ensure coverage of all significant habitation by 2015
• Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012
Environment
• Increase forest and tree cover by 5 percentage points.
• Attain WHO standards of air quality in all major cities by 2011-12.
• Treat all urban waste water by 2011-12 to clean river waters.
• Increase energy efficiency by 20 percentage points by 2016-17
.

15. Future Challenges
Nowadays India is among the fastest growing countries
The future of Indian economy:
- Bright, because of its huge human resources (Young population)
- Rapidly upcoming service sector
- Availability of large number of competent professionals
- Increasing impact of consumerism
- Interest of foreign entrepreneurs in India
- Existence of four hundred million middle class people. (and growing)
-India's long term challenges include widespread poverty, inadequate physical
and social infrastructure, limited non-agricultural employment opportunities,
insufficient access to quality basic and higher education, and accommodating
rural-to-urban migration.

16. Challenges for India
Rising competition
In the next ten years, China will replace India in its number 1
position in the global ITES-BPO industry.
Rising costs and low efficiency in many cities like Bangalore will
make software outsourcing less attractive in 2006. The giants may show a drop
in earnings.
In d ia ’s terrib le In frastru ctu re w ill continue to bead ragion the
potential of India givin gother countries the competitive advantage.
Other competing countries providing low-cost outsourcing options
will exert a downward push on costs – East Europe, Latin America, South
Africa

17. Infrastructure
India’s ability to develop infrastructure is far outpaced by
neighboring China
Metro cities are getting saturated and costs are rising -- Tier II towns
need to develop infrastructure but India’s track record does not bode well for
fast development.
Human resources and training
The demand-supply gap in India for knowledge workers is being felt
now in Bangalore but may peak India wide in 2008-2009
The education system needs transformation to produce people with
skill sets that match industry needs.
The transition to knowledge processing will be a much bigger
challenge for the Indian company and employee than it was for BPO services.
The typical college graduate many not have background or flexibility to
understand global issues required by this type of service.

20. Exchange Rate:

21. Interest Rate GDP Growth
GDP of Major Countries Unemployment Rate

22. Inflation Rate Debt to GDP
Government Budget Current Account to GDP

23. Population of Major Countries

24. Public Debt

25. World Corruption Map:

26. India: 3.3
China: 3.5

29. Location Evaluation : I
Quantitative Location Factors Weighting Points Result
Economic Policy INDIA CHINA INDIA CHINA
GDP per Head/ Growth Rate 3 3 3 9 9
Inflation Rate 2 1.5 2 3 4
Unemployment Rate 3 2 3 6 9
Public Debt in % of GDP 2 1.5 2 3 4
Tax Quota in % of GDP 2 1 2 2 4
Cost / Return Situation
Unit Wage Costs 3 2 2 6 6
Corporate Taxes 3 2.5 3 7.5 9
Profits 3 2 3 6 9
Innovation Ability
R&D Expenditures 2 0.5 3 1 6
Patents 2 1 3 2 6
Privately Owned Firms 2 1 1 2 2
• Points: 0 (Not acceptable) to 3 (remarkable good)
• Weight: 2 (important) or 3 (very important)
47.5 64
Altogether:

30. Location Evaluation : II
Quantitative Location Factors Weighting Points Result
Regulation / Bureaucracy INDIA CHINA INDIA CHINA
Low / Rules / Requirements 3 1 1 3 3
Market Access Barriers 3 2 1 6 3
Infrastructure
Transport 2 0.5 2 1 4
Telecommunication 2 1 2 2 4
Energy 2 1 1 2 2
Labor Market
Flexibility / Mobility 2 1 2 2 4
Training / Mobility 3 1 2 3 6
Social Indicators
Political Stability 2 1 2 2 4
Social Stability 2 1 1 2 2
Cultural Openness 2 0.5 1 1 2
• Points: 0 (Not acceptable) to 3 (remarkable good)
• Weight: 2 (important) or 3 (very important)
24 34
Altogether:

31. “Thank You”