Dr Rajiv Kumar

Chief Economist

Confederation of Indian Industry

15 September 2005

High Level Conference onAsian Economic Integration:

Vision of a New Asia

GDP AggregatesGDP fc

Constant

prices

Agriculture Industry Services

Growth growth Growth Growth

% % % %

1990-91 5.57 4.11 7.74 5.32

1991-92 1.3 -1.55 -0.55 4.8

1992-93 5.12 5.79 3.96 5.35

1993-94 5.9 4.12 5.21 7.67

1994-95 7.25 5.01 10.18 7.08

1995-96 7.34 -0.87 11.64 10.46

1996-97 7.84 9.61 7.08 7.2

1997-98 4.79 -2.43 4.28 9.83

1998-99 6.51 6.2 3.75 8.35

1999-00 6.06 0.31 4.79 10.06

2000-01 4.37 -0.11 6.55 5.49

2001-02 5.79 6.28 3.61 6.76

2002-03 3.98 -6.98 6.57 7.91

2003-04 8.51 9.6 6.62 9.06

2004-05 6.91 1.15 7.68 8.94

Year

So

un

d M

acro

eco

no

mic

s

�In

flatio

n

-2 0 2 4 6 81012141997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

May-05

%

WP

IC

PI In

d W

ork

ers

-10 -5 0 5

10

15

20

25

Jun-91

Dec-92

Jun-94

Dec-95

Jun-97

Dec-98

Jun-00

Dec-01

Jun-03

Dec-04

%

IIP

IIP M

an

f

YO

Y G

row

th

IIP-

IIPM

an

f

Capital Markets

0

400,000

800,000

1,200,000

1,600,000

2,000,000

2,400,000J

an

-94

Ja

n-9

5

Ja

n-9

6

Ja

n-9

7

Ja

n-9

8

Ja

n-9

9

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Rs. Crore

0

4000

8000

12000Index

BSE Mkt. Cap BSE sensex Nifty

Cap

ital M

ark

ets

01002003004005006007008009002-Apr-90

1-Apr-91

1-Apr-92

1-Apr-93

1-Apr-94

3-Apr-95

1-Apr-96

1-Apr-97

1-Apr-98

1-Apr-99

3-Apr-00

2-Apr-01

1-Apr-02

1-Apr-03

1-Apr-04

1-Apr-05

Ind

ex

Han

gS

eng

BS

E S

nesex

ST

IN

ikkei

Corporate Performance

22.5

31.8

0

4

8

12

16

20

24

28

32

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05*

%

Manfg. Services IIP gr.

� Corporate sales

Source: CMIE

* Apr-Dec

Business Outlook

� Expectation and trend in new orders

0

50

100

Past Six Months Next Six Months

% o

f to

tal r

esp

on

den

ts

Increase DecreaseNo Change

Source: CII Business Outlook Survey

Sound Macroeconomics

� External sector

-20

0

20

40Mar-98

Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

%

-2

-1

0

1

2

3

4

% GDP

Current Account % GDP Export Gr Imports Gr

Sound Macroeconomics

1521 17

22 26 3035

40

51

72

107

136

0

20

40

60

80

100

120

1401

99

3-9

4

19

94

-95

19

95

-96

19

96

-97

19

97

-98

19

98

-99

19

99

-00

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

Forex Reserves

� Forex Reserves

$ Bn

Fo

reig

n In

vestm

en

t

-2000 0

2000

4000

6000

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05*

$ M

n

FD

IF

II

* 2004-05 is for A

pr-F

eb

10.9 Bn $

�GDP forecast

�Backed by good agriculture prospects,

continued momentum in industry and services

Sound Macroeconomics

% 2002-03A 2003-04A 2004-5F 2004-05 A 2005-06 F

Agriculture -5.2 9.6 1 1.1 3

Industry 6.4 6.6 7.6 8.3 8.1

Services 7.1 9.1 8.3 8.6 8.3

GDP 4 8.5 6.5 6.9 7.2

�BRIC Economies

Sound Macroeconomics

0

2

4

6

8

101999

2000

2001

2002

2003

2004

2005

2006

%

Brazil Russia India China World

Strong Fundamentals

50’s

5.9

4.6

5.8

4.13.5

3.8

00’s

90’s

80’s

70’s

60’s

Reaching Higher

Deepening Democracy

….

Openness

36.2

19.4

0

5

10

15

20

25

30

35

401991

1993

1995

1997

1999

2001

2003

%

Total Invisibles Exports Imports

(Export+Imports+Invisible) % of GDP

Continued Reforms

•Rupee made fully convertible on current account Mar-93

•Capital account convertibility for foreigners and NRIs

•Abolition in Industrial licensing except for a few strategic

sectors

•Rationalization of Direct and Indirect taxes :

Implementation of VAT …creating ground for GST

•Removal of all quantitative restrictions on imports and

decontrol of interest rates

•Greater autonomy for PSUs

Continued Reforms

•Portfolio investments by FIIs allowed both in Equity and

Debt markets

•FDI allowed in most sectors including insurance, and limits

raised in telecom, refining, banking

•The Fiscal Responsibility and Budget Management (FRBM)

Act notified in 2004

•Banking sector reforms

-Entry of private banks

-Conditions for foreign banks liberalized

•Financial sector reforms

-RBI Autonomy

-Creation of regulators SEBI, IRDA, TRAI

The demographic bonus

China 2020

Note: females on the left, males on the right scale

0 70

0 - 4

5 - 9

10 - 1415 - 1920 - 2425 - 29

30 - 3435 - 39

40 - 4445 - 49

50 - 5455 - 59

60 - 6465 - 6970 - 7475 - 79

80+

070 0 60

0 - 45 - 9

10 - 1415 - 1920 - 2425 - 2930 - 3435 - 3940 - 4445 - 4950 - 5455 - 5960 - 6465 - 6970 - 7475 - 79

80+

060

India 2020

The demographic dividendJapan 2020

females on the left, males on the right scale

India 2020

millions of people

80+

0 60

0 - 45 - 9

10 - 1415 - 1920 - 2425 - 2930 - 3435 - 3940 - 4445 - 4950 - 5455 - 5960 - 6465 - 6970 - 7475 - 79

060

0 - 45 - 9

10 - 1415 - 1920 - 2425 - 2930 - 3435 - 3940 - 4445 - 4950 - 5455 - 5960 - 6465 - 6970 - 7475 - 79

80+

08 80

1950

2050F

Dependency ratio

-2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5

Voice &

Accountblty

Political Stability

Regltry Qualy

Rule of law

Contrl of Corrptn

Scale

BRZ CHN IND RUS

Governance Source: World Governance

Indicators, World Bank, 2004

Investor Confidence

India climbed up 3 places in one year, to be the 3rd most favoured FDI destination

Constraints

Oil Price Rise & ImportsCrude oil price

Petroleum crude

& products imports

$/barrel Rs.crore

Mar-92 13123.12

Mar-93 4637.77

Mar-94 14.85 4398.89

Mar-95 18.37 5020.07

Mar-96 19.81 8049.97

Mar-97 22.84 9746.08

Mar-98 15.69 6941.78

Mar-99 13.05 6682.31

Mar-00 28.82 22269.13

Mar-01 28.79 14964.47

Mar-02 21.6 15910

Mar-03 34.02 23308

Mar-04 35.23 26600

Mar-05 49.65

Jun-05 53.05 41743.22

Year

Declin

ing

Tra

de B

ala

nce

-20000

-15000

-10000

-5000 0

5000

Mar-91

Mar-92

Mar-93

Mar-94

Mar-95

Mar-96

Mar-97

Mar-98

Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

RsCR

Fiscal BalanceGDPfc

(at current prices)

Gross fiscal

deficit % of GDP

Year Rs.crore Rs.crore % Rs.crore %

1991-92 589086 30844 5.24 16261 2.76

1992-93 673221 35909 5.33 18574 2.76

1993-94 781345 55257 7.07 32716 4.19

1994-95 917058 48028 5.24 31029 3.38

1995-96 1073271 50253 4.68 29731 2.77

1996-97 1243546 56062 4.51 32654 2.63

1997-98 1390148 73205 5.27 46449 3.34

1998-99 1598127 89560 5.60 66976 4.19

1999-00 1761838 104716 5.94 67596 3.84

2000-01 1902999 118816 6.24 85234 4.48

2001-02 2081474 140955 6.77 100162 4.81

2002-03 2254888 145072 6.43 107880 4.78

2003-04 2519785 123272 4.89 98262 3.90

2004-05 2830465 139231 4.92 85165 3.01

Central govt. revenue deficit

Performance of Central Sector Projects

2005 2004 2003

1 Ahead 16 28 32

2 On Schedule 65 73 77

3 Delayed 125 112 95

4 Without O.D.C and D.O.C 121 73 60

5 Total 327 286 264

6

Cost Overrun of Delayed

Projects (Rs crore) 25,388 26,689 27,674

7

Cost Overrun of Delayed

Projects (% of original

cost) 45.2 51.8 53.6

O.D.C

D.O.C

Source

: Original Date of Commissioning

: Date of Commissioning

: Ministry of Statistics & Programme Implementation, GOI

March

(No. of projects)

Thank You

Infrastructure Opportunity

$ 150 bn Investment for developing infrastructure

Infrastructure Opportunity� Airports

Modernization of 4 metro and 28 non metro airports

Encouragement of pvt. Participation

� Power

Require to add about 59,000 MW in 11th Plan (2007-08 to 2011-12)

Reforms: Electricity Act 2003

� Telecom

200 mn. telephone users by 2007

40 mn. Internet users by 2010

� Roads

NHDP underway $4.9Bn

� Ports

Ports operating almost at capacity

‘Saagarmala’ project ($ 22 bn)

FDI Policy

Activities for which an automatic route is not

available; government approval is required:

.Airports (beyond 74 %)

.Petroleum Sector-LNG transportation and

private sector oil refining

.Investing companies in Infrastructure & Services

Sector (49% equity cap)

.Defence & Strategic industries (26% equity cap)

.Atomic Minerals (74% equity cap) subject to

joint venture with Central/ State PSUs.

FDI Policy

Print Media (26% equity cap in News & Current

Affairs; no equity cap for technical, scientific

magazines, etc.)

.Broadcasting (equity caps also apply)

.Trading (other than up to 51% FDI in export

trading)

.Courier Services

.Establishment & Operation of satellites (74%

equity cap)

.Tea

FDI Policy

Automatic route is available but equity cap

applies:

.Private Sector Banking (74%)

.Insurance (26% equity cap)

.Basic & cellular telecommunications services

(74%)

.Domestic Airlines (49% equity cap subject to no

direct or indirect equity participation by foreign

airline)

FDI Policy

.ISPs with gateways, radio-paging & end-to-end

bandwidth (up to 49%)

.Coal & lignite mining (74%)

.Export Trading (up to 51%)

.Mining of diamonds and precious stones (74%)

FDI Policy

.Other sector-specific restrictions imposed under

the FDI Policy:

• Lock-in period for original investments in (a)

basic value-added telecommunications services;

(b) townships; housing; built-up infrastructures;

and construction development projects; (c)

defence sector.

• 26% divestment condition in (a) e-commerce;

(b) email, voice mail, etc.; (c) trading in petroleum

/ petroleum products; (d) tea sector.

• Minimum capitalisation requirement condition

in (a) NBFC Sector; (b) townships; housing; built-

up infrastructures; and construction development

projects.

Net Invisible Inflows

-5000

0

5000

10000

15000

20000

25000

30000

1979

-80

1981

-82

1983

-84

1985

-86

1987

-88

1989

-90

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

$ Bn.

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5% of GDP

Net Inv. Earnings % GDP

Net Invisible Inflows

-5000

0

5000

10000

15000

20000

25000

30000

1979-80

1981-82

1983-84

1985-86

1987-88

1989-90

1991-92

1993-94

1995-96

1997-98

1999-00

2001-02

2003-04

$ Mn

-2000

0

2000

4000

6000

8000

10000$ Mn

Misc. Earnings Net Inv. Earnings

0 2 4 6 8

10

12

Mar-01

Jun-01

Sep-01

Dec-01

Mar-02

Jun-02

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Sep-04

Dec-04

Mar-05

Jun-05

%

IIP

IIP M

an

f

IIP-

IIPM

an

f

YO

Y G

row

th