Indian Economy - News & Updates - Archive

[Bushroda]

‘India to be amongst top three generic makers in the world’
Hitesh Gajaria
Express Pharma

By 2020, global integration of most sectors in the world economy would be much more pronounced, and the pharma industry will not be an exception. In fact the Indian pharma industry, which currently has strong linkages with the global pharma market, will become even more strongly integrated. Globally the pharma market is undergoing a transformation led by change in demand patterns, realignment of supply chains, and global regulatory shifts. In order to predict the state of the Indian pharma market in 2020, it is useful to understand the current global environment of the pharma market and its key trends and analyse the implications that these factors will have on the global as well as on the domestic pharma market.

Global pharma industry—current scenario

The global pharma industry, valued at $ 607.9 billion in 2006, has been growing at a CAGR of around six-seven percent over the last three-four years. In 2006, the top three regions—North America, Europe and Japan accounted for approximately 87 percent of the total pharma market. In terms of growth, the Latin American market, which constitutes approximately five percent of the total market, grew by 13 percent. Asia, Africa and Australia collectively account for 8.5 percent of the market and achieved the second highest growth rate of 9.8 percent. Approximately 31 new molecules were launched in key global markets in 2006 and with over 2,075 molecules under development; the global R&D pipeline has grown by over 35 percent since 2003.

Global pharma industry—key trends

* Declining R&D productivity

Even though the global R&D pipeline has grown at an attractive rate, the industry is facing severe pressure on account of reducing number of blockbuster drugs coming into the market coupled with declining R&D productivity on the back of steeply rising drug discovery and development costs, as well as increasing sales and marketing expenses.

* Increasing spread of generics

There is global shift towards use of generics as governments worldwide are under tremendous pressure to curtail steeply escalating healthcare budgets. The global generics market was valued at $ 77 billion in 2006, split 60:40 between emerging and regulated markets. The US market has a share of over 28 percent of the world's generics market and is still by far the largest generics market. In Europe, Germany and UK have the highest generics penetration rate by value, of around 23 and 20 percent respectively, whereas in Japan, generics accounts for only five percent of the total market by value

* Increasing outsourcing

Multinationals are increasingly outsourcing activities such as drug development and manufacturing to low cost destinations and are increasing their focus on core functions of drug discovery, sales and marketing and brand management.

The changing paradigms

Driven largely by the increasing and ageing population globally, prospering economies, increased life expectancy and significant demographic shifts, the global pharma industry is expected to record a healthy growth of around seven to eight percent over the next decade or so. This period will also witness a major shift from the developed markets to emerging markets, from primary care classes to niche therapies and from chemistry to biotech.

Until now, a major share of the demand for drugs has been coming from North American and European regions, the two largest pharma markets of the world. However, these markets have now maturing and with the economic shifts, rapidly changing demographics as well as the significant reforms in the Asian regulatory regimes, this region is set to surpass North America and Europe to become the most lucrative drug market in the world by 2020.

According to the Economist Intelligence Unit, Asia's share in world GDP will increase from 35 percent in 2005 to 43 percent in 2020. A significant portion of this will be contributed by the two fastest growing economies—India and China. The expected economic prosperity in Asia will trigger many positive factors for the healthcare industry such as higher standards of living, increasing per capita disposable income and the improving healthcare infrastructure directly contributing to the increased affordability and access-ibility of drugs.

Current industry scenario

According to Crisil Research, the Indian pharmaceutical industry was valued at $13 billion in 2006-07. Of this, the domestic formulation segment accounted for almost 48 percent, the formulation export market accounted for about 25 percent, while the bulk drug exports segment constituted for the balance 27 percent. Currently, India ranks 13th in value terms and fourth in terms of volume.

Indian pharmaceutical industry—in a sweet spot

India is one of the fastest growing pharma markets in the world and has grown at a CAGR of almost 20 percent over the last five years. The introduction of the product patents regime in India has put the industry on a new growth trajectory. Indian pharma is making big strides in the global industry. No global company can any longer ignore India either as a competitive sourcing base for its global supply chain requirements or as a destination to capitalise on the rapidly growing domestic demand for drugs. Whether it is the potential in terms of capturing increasing generic market opportunity in the international markets, seizing a substantial share of the global outsourcing pie or building strong R&D pipelines, Indian pharma has already made its presence felt all the way and is increasingly spanning across the entire pharma value chain. Strengthening intellectual property laws and regulatory reforms are encouraging multi-nationals to take increased interest in this market and significantly increase scale of investments.

Crystal ball gazing

Each sub sector of Indian pharma market is witnessing strong tailwinds and has varying degrees of growth potential. Focusing on each sub sector will enable us to have a consolidated view of Indian pharma market in 2020.

India's per capita GDP is expected to nearly quadruple by 2020, leading to higher standards of living and increased disposable income supported by a strong middle class population and rising urbanisation (nearly 130 million additional people are expected to shift to the cities). This will also translate into increased demand for high quality healthcare and improved affordability and accessibility of medicines. While tier I cities will remain the primary markets, tier II cities and towns as well as the rural areas will also substantially contribute to the growth.

The growth in domestic drug market will be further spurred by allocation of a larger share of GDP to healthcare sector, rising levels of investments in healthcare in both private and public sectors and improving healthcare infrastructure and distribution networks. By 2020, healthcare spending as a percentage of the GDP is expected to increase from the current five percent to around eight percent. Healthcare penetration is also expected to increase considerably from the current levels.

India has achieved a strong foothold in the global generics market. While in 2002 Indian companies accounted for less than seven percent of all generic drugs approved for marketing by the US FDA, they accounted for over 20 percent in 2006. India's share in the total DMF filings has increased from a mere 14 percent in 2000 to about 50 percent in 2007 (Jan-Jun). In terms of ANDA approvals as well, India's share has gone up from a mere 15 percent in 2005 to about 25 percent in 2007 (Jan-Jun).

The increasing spread of generics is opening up a stupendous opportunity globally. Most generics markets worldwide are set to report double-digit growth and going forward generics are expected to constitute a much larger share of the total pharma market. The focus on semi-regulated markets is also increasing gradually as these markets offer attractive opportunity with favourable demographics, strengthening healthcare infrastructure supported by a regulatory environment favouring generics. Indian companies have been one of the major participants in the consolidation process of the global generics market and have spread their wings across regulated and semi-regulated markets either through buy-outs or strategic alliances. It can be predicted that by 2020, India will become one of the top three generics drug makers in the world.

The Contract Research and Manufacturing Services (CRAMS) segment is gaining traction worldwide and Indian CRAMS industry has witnessed commen-dable growth in the last few years. Given strong growth prospects, inherent competencies and conducive regulatory environment India has, by 2020, India will have successfully managed to capture a principal slice of global demand for outsourcing and the number of international companies off-shoring their global R&D and manufacturing operations to India and setting up low cost facilities here will increase substantially. India will become one of the most important constituents of the drug discovery and manufacturing value chain of the global pharma industry. This segment will be driven by India's ability to compete and preserve its inherent competencies supported by the expected improvement in IP infrastructure and the compliance with international standards.

From no where in late nineties to approximately 50 molecules under various stages of development, at present, Indian pharma industry is rapidly scaling up its presence in the innovative R&D space. Though there is a long way to go for Indian pharma companies to achieve a vital position in the global R&D landscape, companies are adopting collaborative research strategies such as in-licensing, out-licensing and joint development with international companies to ramp up their NCE/NDDS pipelines. By 2020 Indian Pharma would have gained substantial experience and expertise in the area of new drug discovery and development and certainly would have launched some of its molecules globally.

Conclusion

While growth oriented and inclusive policy regime will help sustain strong underlying growth drivers, the further strengthening of IP regime by policy makers and a forward looking regulatory regime will play a very important role in determining the success of Indian pharma industry.

2020 will definitely witness India's rightful place under the sun—being that of an important producer and consumer in the global pharma sweepstakes.

 

[Contrarian]

You know, call me whatever you want. But it does give you a kind of satisfaction when Indian companies buy British ones...

 

[Bushroda]

India's economic boom fuels investment in art by new rich

BANGALORE, India (AFP) — India's economic boom has fuelled demand for condos, cars and company stocks but some of the new wealth created in Asia's third-biggest economy is finding its way into art.

Entrepreneurs and young professionals, the biggest beneficiaries of India's financial prosperity, are buying works of art both to signal they have arrived in life and as a safe-haven investment, auctioneers and gallery owners say.

The trend was on show last week at a Bangalore sale to snap up works by modern Indian artists such as Maqbool Fida Husain, Jamini Roy, Vasudeo Gaitonde and F.N. Souza.

"The interest in art is part of the lifestyle change we are witnessing," said Maher Dadha, 54, chairman of Bid and Hammer Auctioneers, who estimated the minimum value of the combined collection at 100 million rupees.

"Wealth has percolated down and people are buying art just like they are buying penthouses," he said.

The hammer went down on a 1971 Husain watercolour on paper, entitled Shiva, at 3.4 million rupees (86,374 dollars), the top price paid at the auction. At the start of this decade, Husain's works fetched less than 600,000 rupees.

Auctions of modern and contemporary Indian art have raised millions of dollars overseas in recent years, with Christie's selling a Tyeb Mehta painting for 1.6 million dollars in 2005.

"Now it's an internal trend, where Indian art is getting recognition in India itself," said Dadha, adding that India's rich "don't blink for a moment over cost."

Economic growth running at an annual nine percent, a stock market that rose a record 47 percent last year and surging salaries for finance and technology professionals have created a middle-class clientele for art.

Collecting Indian art has been traditionally a pursuit of former maharajahs, industrial houses, overseas collectors and rich expatriates.

The local art market -- both gallery sales and auctions -- is worth between 400 and 450 million dollars and expanding as prices jump, said Arun Vadehra, owner of Vadehra Art Gallery in New Delhi and a consultant to Christie's.

Gallery sales have jumped from barely two million dollars in 2000 to 150 million dollars, said Vadehra.

"The art market is very hot," said prominent Indian art critic Ella Datta.

"The collector base is growing with lots of of people like doctors, lawyers and IT professionals who can afford art coming into the market," she said. "The vaster base should sustain the market's growth -- I don't see it crumbling."

According to Bid and Hammer, the most renowned Indian art currently delivers solid annual returns of 35 percent.

"Eight years ago, I bought a Jaya Jhaveri for a small throwaway price and today it is worth at least 100,000 rupees," said Bangalore entrepreneur Sudhir Udayakanth, 34. "Today art has become an investment," he said.

In 2006, auction house Osian's raised 1.02 billion rupees for a fund dedicated to art, luring investors with the promise of converting the country's cultural wealth into capital assets.

The fund was open to those capable of depositing at least one million rupees for three years. Osian's paid a dividend last year, becoming the world's first art fund to share income with investors before the lock-in period ends.

Indians also have access to purchasing art online, with Internet auction sites such as Saffronart opening up.

The online market is worth between 30 and 40 million dollars a year, said Dinesh Vazirani, a co-founder of Mumbai-based Saffronart.

 

[Bushroda]

Testing times ahead for surging India
By Trevor Royle, Diplomatic Editor
Sunday Herald, UK

A CONFESSION. When it comes to cricket, I fail the infamous nationality test proposed some years ago by Lord Tebbit. In a curious contribution to multi-culturalism, the Tory grandee suggested that incomers could never be counted as truly British unless they supported England at cricket. Well, count me out: whenever England play India I find myself supporting the latter because I was born there 63 years ago yesterday, which just happens to be India's Republic Day. (All right, it's also Australia Day, but only an Aussie would support Australia at anything.) Besides - as European leaders such as Gordon Brown and Nicolas Sarkozy found out during their state visits last week - India is a country well worth supporting. Yesterday, the French president was the principal guest at the Republic Day parade in Delhi, where he will have seen more military pipes and drums on show than he would ever see in Scotland. India takes the celebrations extremely seriously and it's quite something to witness the serried ranks of turbaned Sikhs and slouch-hatted Gurkhas strutting their stuff along the Rajpath ahead of the caparisoned camels of the Border Security Force.

But there's more to India than ceremony. Some 15 years have passed since India seriously embraced the free market economy and in that time the country has been transformed. Inflation has been brought under control and the economy is booming, especially in the lucrative IT sector.

From being a sickly patient dependent on state aid and dogged by massively inefficient industrial practices, India looks set fair to emerge as an economic Asian superpower second only to China. One statistic says it all: on Friday the country's largest bank, the State Bank of India, reported a 70% rise in third-quarter profits due to a huge expansion in consumer and corporate lending.
advertisement

No wonder Brown and Sarkozy were accompanied by delegations of leading business people anxious to get a slice of the action. Just as Britain and France were locked in economic rivalry in the 18th century as both countries attempted to take advantage of the collapse of the Moghul empire, so too do they see riches galore in co-operating with India's burgeoning defence, aerospace and nuclear industries today.

History has given Britain a narrow advantage, but Sarkozy is anxious to make up for lost time and ahead of his visit he let it be known that he wants France to double its trade to India within the next five years. For starters, he was keen to sign a $2 billion deal to refurbish the Indian Air Force's fleet of ageing Mirage strike aircraft, and he had good words to say about the need for a big increase in the size and complexity of India's nuclear industries as a means of solving the country's chronic energy problems.

And why not? India is a big player on the world economic scene and it can only get better for them. Every prediction points to the country overtaking Britain, Italy and France within the next 10 years to become the world's fifth-largest economy, and then it will be well placed to overtake the US by the middle of century. Its prosperity is there for all to see - new, middle-class housing, shopping malls, streets choked with modern luxury cars and airports as packed as in Europe. Young people too are feeling the benefit, especially young professional women.

Of course, there is a price to be paid for all those rapid advances. Streets choked with cars add to pollution; manufacturing industries working round the clock are not always friendly to the environment; there is still a fair bit of exploitation of the workforce; and much of the infrastructure is well past its sell-by date. Even age-old industries such as agriculture are in trouble, with falling water tables damaging crop cultivation in Andhra Pradesh and Maharashtra and driving farmers to the edge of ruin. As the novelist Arundhati Roy put it recently, it's almost as if the lights are shining so brightly that no-one notices the growing darkness.

That's both a worry and a challenge. India has made great strides and wants to continue its upward trajectory, but it needs to ensure that the new wealth trickles down to the villages and country places where people are lucky if they make the equivalent of £1 a day.

Still, optimism runs eternal in this beautiful and strangely familiar country. Who knows, India might just get the better of Australia in the fourth test at Adelaide. Come on, India!

 

[Bushroda]

Developing tastes
By Jenny Wiggins
Financial Times, UK
January 26 2008

A few months ago in Punjab, as grain farmers set fire to harvested rice fields to clear their land, Jagroop Singh spent the afternoon reflecting on his good fortune farming cows. Singh, a tall Sikh who tends his herd in a white tunic and pale pink turban on a farm near the north Indian village of Aliwal, owns 60 somewhat bony brown animals, which he keeps in an open-air shed on the edge of the fields behind his house.

Keeping cows, like farming wheat, has been an immensely profitable business during the past year, because Singh gets paid a lot more for his milk than he used to. He receives about Rs15 a litre - a third more than two years ago - from Nestle India, which collects the milk and blasts it through machines at a nearby factory, evaporating the water and creating a fine white powder.

''The prices are very good, we are very happy,'' says Singh as he looks over his herd. He's planning to build a new shed soon, as he's running out of room to house his cows. By this time next year, he aims to have 150, which would be exactly 148 more than he owned a decade ago.

Not far away, another Sikh farmer, Jatinder Singh, is equally optimistic about the future. He started his farm a decade ago with just one cow but today has 65, which are kept outdoors in concrete-paved yards and dirt paddocks. Over the next few years, he plans to breed cows and double his milk production.

But what's good for the farmers is hard on consumers. In India, where milk has traditionally been bought fresh every day and boiled to make tea and curd (this stops it going bad in a country where electricity is intermittent and many people do not have refrigerators), people are now paying around Rs24 a litre - Rs3 more than six months ago.

And milk is not the only basic foodstuff rising rapidly in price, nor India the only country in which people are spending more money on food. Bread, pasta, eggs, coffee, chicken, pork and beef - it is difficult to find a staple food that has not become more expensive over the past year, or a country in which food prices have not gone up.

British food producers increased prices by 7.4 per cent last year - the biggest annual increase since the country's National Statistics office began tracking them 15 years ago - due to big jumps in the cost of producing bread, butter, eggs, milk and meat. In Russia, prices went up so sharply - milk rose by some 30 per cent and bread went up 22 per cent - that the government froze prices towards the end of the year. This month, China warned it may take similar action after food prices soared 18 per cent last year.

The speed at which food prices rose in 2007 has shocked not just farmers and consumers, but also governments. ''Rarely has the world witnessed such a widespread and commonly shared concern on food price inflation,'' the United Nations' Food and Agriculture Organisation says.

Why are food prices going up so fast all over the world? For a start, the world's stocks of grain have been falling, partly thanks to droughts in Australia and Ukraine (both countries are among the world's-biggest wheat exporters). This has helped push up prices. Higher grain prices make food derived from animals - such as poultry, pork, eggs and milk - more expensive, because farmers who buy grain to feed their animals pass on the extra costs.

Meanwhile, biofuels are also having an effect. As global demand for non-oil-based sources of energy rises, some farmers are choosing to turn their crops into biofuels rather than food.

But the biggest cause of higher food prices is not biofuels or the fall in grain stocks: it is the remarkable changes occurring in the kinds of foods people eat, particularly in the fast-developing nations of India, China, Russia and Brazil. These changes are so big - and so swift - that their impact is being felt all over the world.

This is particularly acute in India, as is clear at New Delhi's Khan Market branch of Cafe Coffee Day. Khan Market is a dusty group of shops, boutiques and restaurants on the south side of the city that attracts affluent locals and foreigners, and Cafe Coffee Day is one of the most popular places to meet.

On a Thursday morning in October, a group of men and women in their early twenties sit outside on the cafe's balcony smoking, while inside, an older couple ignore the flat-screened television on the wall and talk over a glass-topped table. Other customers sit on cane lounge sets and read the paper or talk on their mobile phones. As the Cafe Coffee Day chain has expanded (there are now almost 500 in India), it has developed an extensive food menu. Along with a cappuccino, patrons can now order a chicken burger, a teriyaki chicken ciabatta, nachos with salsa, fish and chips, Greek salad, pasta in Alfredo sauce, apple pie, a blueberry muffin or dozens of other savoury and sweet snacks.

A few years ago, such a diverse menu would have been rare. But as Indians have become wealthier, they are travelling abroad and eating out more often, which exposes them to a wider variety of food.

''People have a lot more money to spend and people are a lot more adventurous,'' says Naresh Fernandes, editor of Time Out Mumbai. ''Until 20 years ago, we had rationing and food shortages. Going out to enjoy yourself didn't exist until recently.''

Every fortnight, two or three new independent restaurants open in Mumbai, charging between Rs500 and Rs1,000 per person for a meal; Indians can increasingly afford these prices because incomes are rising quickly. About a third of India's population live in cities. During the next 15 years, three-quarters of these are expected to earn enough money to join the country's middle class, each earning between Rs200,000 (£2,600) and Rs1m per year, according to the McKinsey Global Institute, the economic research group. Only 10 per cent of urban Indians earn this much today.

This means that by 2025, India's consumption of food and other products will quadruple to $1,500bn, creating the world's fifth-biggest consumer economy after the US, Japan, China and the UK (India now ranks 16th, trailing Spain, Canada and Italy).

The new shopping mall Select Citywalk, a concoction of steel and glass in south Delhi, shows how closely the consumption habits of Indians are starting to mirror those of people in more developed countries. Inside the mall, which is so vast that it is impossible to see from one end to the other, most of the shops are expensive international brands such as Tissot, Esprit, Lancome, Mac, Mango and L'Occitane.

Familiarity with fashionable clothing brands and restaurants is being encouraged by new magazines such as Vogue India, which declared India's ''arrival'' on the global fashion scene when it launched its first issue in September, and Time Out, which has a Delhi edition as well as a Mumbai one and shortly plans to start publishing in Bangalore.

Meanwhile, restaurants are now doing so well that many are opening up branches in different cities. Some are fast-food chains that have emulated McDonald's, which has been in India for more than a decade and is one of its most established foreign restaurants. It remains a popular destination: in the evenings its restaurants are full of families queuing for Chicken Maharaja Macs, McAloo Tikki burgers and Paneer Salsa wraps - now made with ''multi-cereal'' bread for the health-conscious diner.

But these days McDonald's is facing more competition. Newcomers include Jumbo King, which has taken a popular street food called vada pav, a spiced potato patty topped with chutney and served in a bun, and created a fast food chain around it, and Yo! China, which markets itself as ''Chinese food, Chinese prices''.

Rachna Singh, a 34-year-old doctor who lives in Delhi, is one of the new generation of Indians who eat out regularly. She and her husband, who works in IT, go to restaurants three or four times a week and prefer non-Indian food when dining out, particularly Thai, Chinese, Middle Eastern and Italian. On weekends, Singh gladly drives for an hour to eat at her favourite Thai restaurant. But she restricts her three-year-old daughter, Avaka, to once-weekly sessions of junk food such as chips.

New food that was unheard of until recently has also found its way into Singh's home. ''We didn't know what a kiwi was two or three years ago,'' she says. She has also taken to buying foods that her mother would have made when she was growing up. Indian families traditionally make roti (round flat bread) by hand with a small rolling pin. But Singh buys frozen roti and parantha, another type of bread. She swears they taste like homemade ones. ''They are excellent! You can't tell the difference.'' But she admits: ''My parents think I am crazy.''

Singh often dines with her parents, Dipak and Anju Khannee, in their home in the south Delhi neighbourhood called Greater Kailash I. On a recent evening, they sat at a long dining table laden with typical Indian dishes. Big bowls were filled with kali dhal (black lentils), paneer (Indian cheese in sauce), rasala (a salad of cucumbers, red onions and coriander); chicken, raita (a type of yogurt) and roti.

The meal is traditional, but there are some new twists. Singh's parents spoon pickle on to their plates from a store-bought jar. Singh's mother used to make this tangy condiment of peppers herself but now finds it is easier to buy it.

Does Singh ever make pickle? ''Me? No!'' she shakes her head. ''In our generation, no one would know how to make pickle. I'd rather buy 10 different kinds. It's impossible to make a small amount.''

A glass dish of butter slices sits on the table, and Singh spreads some on her roti. A generation ago her mother would have made butter at home, but these days the family buys it too. ''No one has got time or inclination to do so much stuff,'' she says, even though both she and her parents employ housekeeping staff.

Indians have typically bought their fruits and vegetables in outdoor markets, and packaged foods in small stores with limited selections of products. But supermarkets, where young professionals such as Singh can find rare fruits like kiwis and chilled foods like butter, are now popping up around the country. In Gurgaon, the booming business district on the outskirts of Delhi, where cows wander along dusty streets between newly built office blocks, shoppers walking into a Spencer's supermarket will find a pizza stand, Chinese food ''X-press'' and shelves filled with many of the same brands that they would see in London or Paris.

Lurpak butter, Red Bull energy drinks, and Tropicana orange juice are just some of the foreign brands available, and there is an entire aisle dedicated to foods such as peanut butter, pancake syrup and cranberry sauce beneath a sign saying ''Taste America at Spencer's''. Every month, 40 new Spencer's supermarkets open around the country.

India, which is still trying to lift millions of people out of poverty, is having problems satisfying its appetites. One of the reasons the Punjabi dairy farmers are doing so well is that demand for milk, and milk-derived products, is increasing so quickly that farmers can't keep up. India, despite being the world's largest producer of milk, temporarily halted exports of milk powder last summer to try and stop domestic milk prices from rising too fast after some dairy farmers were tempted by record high global prices and sold their product to exporters rather than local food producers.

Milk isn't the only hot commodity. After restarting wheat imports in 2006, for the first time since the late 1990s, India banned wheat exports last year. The country can, of course, try and produce more food. But Ajay Shankar, a government secretary in the ministry of commerce and industry, says that while India wants to increase its agricultural yields (which are low compared with the rest of the world), expanding the amount of land farmed is difficult in a country already struggling to support more than one billion people. In Punjab, the state that produces a hefty chunk of India's wheat, rice and milk, decades of intensive farming and heavy fertiliser use have taken a heavy toll on the land, and water tables are falling sharply.

Although India's economy is expanding at about 9 per cent a year, its agricultural sector is slowing, with growth declining from 4.7 per cent between 1992-1997 to just 1.5 per cent between 2002-2006.

If India can't produce enough of its own food, it will have to import more. Shankar says it is unclear how much more food India will need, but acknowledges that significant increases in imports would affect the global economy. ''If we become a major importer of food grains as some fear, clearly it will have an impact on global prices,'' he says over tea in his Delhi office.

And India is not the only country expected to import more food in coming years. Over the next decade, per capita income in China is expected to triple, which means the Chinese will be eating more - and better. They are already each eating twice as much meat as they were in 1990 and the country now accounts for one third of all meat eaten in the world, according to research by Goldman Sachs.

Even in India, with its large vegetarian population, people are eating 40 per cent more meat. In Brazil, the amount of meat eaten by each person has risen by more than one third over the past 15 years. Brazil is better placed than most countries to meet its own needs due to its fertile soils and vast land mass, but many other countries will need to find more arable land if they are to satisfy the appetites of their citizens.

For dairy farmers such as the two Singhs, the implications of these global shifts are good news: after a decade of poor returns, farming appears to have a bright future. For everybody else, it's a different story: get used to paying more for what you eat.

Jenny Wiggins is the FT's consumer industries correspondent. Additional reporting by Amy Yee.

 

[Bushroda]

The Tata Invasion
by James Surowiecki
The New Yorker
January 28, 2008

Americans are used to foreign cars—nearly half of us, after all, drive one—but no American has yet seen a vehicle bearing the brand name Tata Motors tooling along the highway. So when, a few weeks ago, news broke that this same Tata Motors, an Indian auto company, was close to buying Jaguar and Land Rover, the first reaction of many was “Who?” The implausibility of the bid was magnified when Tata rolled out its newest product, a tiny, stripped-down car that will sell for a mere twenty-five hundred dollars. The spectacle of a low-end specialist trying to buy a couple of established luxury brands looked to some like a cubic-zirconium peddler making a play for Tiffany.

There’s no denying the audacity of Tata’s bid—the company has never sold a car in the U.S.—but there’s also no denying Tata’s distinguished pedigree: the parent company of Tata Motors (called the Tata Group) started in the nineteenth century, and, in the years since, its divisions have created India’s first steel mill, provided electricity to Mumbai, started the country’s first airline, and built its first locally made trains and automobiles. Today, Tata is a huge conglomerate—ninety-eight companies producing everything from tea to steel and solar power—with annual revenues of around thirty billion dollars and a chairman whom Fortune recently named one of the twenty-five most powerful people in business.

If Tata is so powerful, why have so few Americans heard of it? In large part, because so much of its fortune has been made selling to its home market and to other developing countries, rather than to the U.S. and Europe. Historically, developing-country firms that have become global powerhouses—like Japanese companies decades ago or, more recently, Korean companies like Samsung—were companies that, in addition to dominating their domestic markets, were heavily oriented toward exports to the West. Tata—with some exceptions, such as its steel and consulting businesses—has taken a very different approach, becoming tremendously rich while selling to people who are still pretty poor.

Tata has been able to do this because of the way the global economy has changed. Even three decades ago, selling to the U.S. and Europe made sense, because that’s where all the money was. Most developing countries had only a minuscule upper class and a tiny middle class, and business conditions in these countries were difficult at best. Today, the economies of developing countries are still only a fraction of the size of Western economies, but many nonetheless have growing middle and upper classes with disposable income. And, as the business professor C. K. Prahalad argues in his book “The Fortune at the Bottom of the Pyramid,” even the poor in these countries constitute a market worth trillions of dollars. Twenty years ago, few people in India could have afforded even a twenty-five-hundred-dollar car. Today, tens of millions can.

Making money in developing countries remains challenging, of course, but meeting those challenges can actually help a company like Tata become a formidable global competitor, since figuring out how to earn a profit in markets where your selling prices are necessarily low forces a company to be innovative in thinking about how products are made and sold. That may be why a huge wave of what you might call developing-country multinationals—companies like Mittal Steel, Lenovo, Chery Automobile, and Cemex—have recently begun to move aggressively into Western markets. These are the advance guard of what’s been called “the emerging-markets century.”

The distinctive thing about this trend is that the companies involved aren’t simply making stuff abroad and then shipping it here. Instead, they’re now using their wealth to take a shortcut, by buying up Western companies. In 2005, the Chinese computer company Lenovo bought I.B.M.’s P.C. division, and the Mexican cement company Cemex acquired the British cement giant RMC. Last year, India’s Mittal Steel paid thirty-three billion for the Belgian company Arcelor, and Tata’s steel company bought the British-Dutch steel producer Corus for more than eleven billion. The acquisitions help companies avoid potential export restrictions, bring them closer to customers in the developed world, and provide a kind of instant credibility—at least, when the acquisitions are done well. (Lenovo’s ThinkPads, for instance, seem to be as well regarded as I.B.M.’s once were.) These deals are often also a way to acquire managerial and technological expertise. It may very well be true, as many have suggested, that knowing how to build a twenty-five-hundred-dollar car doesn’t mean that Tata will be able to build a seventy-thousand-dollar car. But the people at Jaguar can, and buying Jaguar will give Tata quick access to that knowledge.

This buying spree could, of course, end badly. When some Japanese companies in the nineteen-eighties went on a buying binge in the U.S., they often ended up overspending. But such an outcome wouldn’t change the fact that developing countries are now producing genuine global contenders. Globalization, it once seemed, was mainly going to give companies in the U.S., Europe, and Japan billions of new customers and plenty of cheap labor. But it has also meant that these companies have had to face many more real competitors than they once imagined. When we persuaded developing countries to open their doors to us, we also opened our doors to them. Now they’re walking through.

 

[Bushroda]

Can India grow greener?
Western leaders pressurise India on climate change, but they had the luxury of getting rich first, then clean
Randeep Ramesh
Guardian Unlimited, UK

Sans Carla Bruni, President Sarkozy's trip to India should be a "grip and grin" affair. Turning up as guest at India's Republic Day - where the country's military parades through the heart of Delhi - will ensure warm hugs and big smiles on Saturday. No doubt, there will be business deals to be struck and arms to be sold.

However, underneath the bonhomie, and close to Sarkozy's heart, lies an issue raised by Britain's environment minister, Phil Woolas, last week before Gordon Brown's visit: climate change and the role of big, poor polluters like India. In Woolas's words, the Indian government was not "putting its shoulder to the wheel" in the fight against climate change.

Sarkozy may be blunter. During his trip to China last year, he issued a not-so-veiled threat to tax imports from high carbon-emitting countries (read China), so that EU companies obliged to meet strict environmental standards could be protected. If the mercurial French leader sticks to his guns, his Delhi visit may be loveless in more ways than one.

There's no doubt India is being difficult about climate change. Delhi argues it should be able to grow its economy unhindered by the burden of sins committed by countries that industrialised centuries earlier. Indian ministers point out today that it takes 18 Indians to pollute as much as one American.

But there's no ducking the facts. India is home to a billion people and the world's fourth largest polluter. Its economic rise has seen its carbon dioxide emissions almost double since 1990.

The current globe's experiment with the environment is fraught with dramatically dangerous outcomes. The North Pole is disappearing. Glaciers are receding. Weather systems are changing, perhaps irrevocably.

The re-emergence on the world stage of China and India makes the point that climate change is linked to growth. The west got rich first and then got clean. The question is can the world re-invent ways in which countries become wealthy?

In terms of development, China is a rung above India. Beijing has dashed ahead in terms of industrialisation. Manufacturing, the dark satanic commerce that emits atmosphere-altering gases, makes up just a quarter of the Indian economy. In contrast, China is the workshop of the world - and its carbon footprint is three times that of its smaller southern neighbour.

But neither country can afford to continue their high-carbon, high-growth rise. China and India are linked in this goal: to raise billions out of poverty without destroying the earth. To achieve this aim both countries need technology and money.

The only nations on earth that have the know-how and the cash are the already industrialised countries in Europe, North America and Japan.

Will nations such as the United States invest in, create and then affordably spread technologies across the world? Given that no one has built a low-carbon economy, India and China are hedging their bets on this question.

Both nations are suspicious of entering a new age where the west has a monopoly on key technologies. They remember how bitter the fight was to get anti-retroviral drugs to fight Aids out of the hands of western multinationals and into the mouths of poor Africans. Deaths in the third world did not move governments then.

That explains to some degree the reluctance of both countries to accept binding commitments to cut carbon dioxide emissions.

Both Beijing and Delhi are unlikely to be cowed by threats. These two countries, linked by the Himalayas, understand that global inequities cannot be frozen. They are aware that neither rich nor poor can survive calamitous climate change. Both are waiting to see what the west offers up.

Trade should be part of the solution, not part of the problem. But it will have fair, not necessarily free, trade that will ensure that wealthy nations' carbon debt to the poorer parts of the world gets paid. In return China and India should accept pollution limits. Arranging this grand bargain is not going to be easy, but then making history never is.

 

[Bushroda]

Trip to India offers lessons in politics, life
By Adriana Garza
Corpus Christi Caller Times, TX
January 25, 2008

The bustling, jam-packed streets of New Dehli, the capital of India, are a far cry from Kingsville.

But for political science students, studying one of the world's fastest-growing economies is best done in person.

Five Texas A&M; University-Kingsville students spent more than two weeks of their winter break discovering the political past, present and future of India as part of a course in Asian politics through Texas A&M; University.

The course, India's Political Economy, is taught as a joint venture between A&M-Kingsville;, the Bush School of Government and Public Service at A&M; in College Station and Jawaharlal Nehru University in New Delhi.

Through the university course, the students were exposed to lectures by Indian professors and met with political and military officials. Students also kept a blog about their India experiences as part of the course. The majority of the trip was paid through an A&M-Kingsville; scholarship and other donations.

A&M-Kingsville; professor of political science Nirmal Goswami, a native of India, accompanied the Kingsville students -- all political science undergraduates.

Goswami, who has taught the course twice, encourages his students to spend some part of the college experience learning abroad. India, with its growing economy, diverse relationship with the United States and population of more than 1.1 billion, is a good place to start.

"Studying abroad provides our students with a global perspective," Goswami said, adding that because of the size and diversity of the U.S. economy, it is particularly important for Americans to familiarize themselves with the rest of the world.

It is a perspective shared by A&M-Kingsville; senior Helamán Berrios.

Reading texts about international organizations such as the United Nations, listening to lectures about urban planning in Asia and Europe and lively class discussions on comparative international politics is one thing -- visiting one of the most politically significant nations in the world and learning about its politics is quite another.

"I have learned more in this experience than in anything I'd heard or read about India," said Berrios, a senior at A&M-Kingsville.;

Berrios, a native of El Salvador whose family fled the country during political and civil upheaval when he was a child, also looked at the India trip as a means of better understanding how to fulfill his goal of one day returning to El Salvador to help that country out of economic dependence.

Berrios grew to admire the nation's economic progress, political autonomy and role in international relations and believes there are lessons to learn in India's progress for other nations who share India's poverty issues.

Other elements of life in India were unexpected, Berrios said, including the traffic-clogged streets with masses of people, cows sharing the roadways with cars and large, elaborate homes adjacent to homes made of tents.

"A lot of things about India one couldn't expect or imagine and if you could you'd still be surprised," Berrios said.

Former staff reporter and Corpus Christi native Adriana Garza is pursuing a master's degree in political science at Texas A&M; University-Kingsville.

 

[Bushroda]

India upbeat on growth, global mkts crisis a concern
By Unni Krishnan
Fri Jan 25, 2008 2:05pm IST

NEW DELHI (Reuters) - India is confident it can sustain growth of 9-9.5 percent in Asia's third-largest economy but a global financial crisis could dent expansion, Prime Minister Manmohan Singh said on Friday.

Slowing of the U.S. economy has worried investors and policymakers and concerns have also surfaced that the U.S. downturn was spreading to the 15-nation euro zone economy.

India, one of the fastest growing major economies after China, has expanded at an average 8.6 percent over the past four years.

"We are living in an increasingly inter-dependent world and the crisis in international markets can have impact on growth of emerging economies, including India," Singh told a joint news conference with visiting French President Nicolas Sarkozy.

"The economic fundamentals of India are sound and as of now we are convinced we can sustain 9-9.5 percent growth."

Singh's economic advisory panel feels a slowdown among developed economies may not have a major impact on India but pressures from high oil and food prices will make managing inflation a challenge in 2008/09.

The panel in its review of the economy said the Indian economy is much less dependent on external markets than China's, and a slowdown in exports is unlikely to be large enough to depress growth.

India's economy is largely driven by domestic demand with exports playing a relatively minor role. It grew 9.4 percent in the 2006/07 fiscal year, its strongest in 18 years and second only to China among major economies.

But annual growth dipped to 8.9 percent in the September quarter, falling below 9 percent for the first time in three quarters, as industrial output slowed due to monetary tightening designed to trim inflation.

Most forecasts peg India's growth at around 8.5 percent for the fiscal year ending March 2009, slower than the scorching 9.4 percent in 2006/07 and a unit of ratings agency Moody's forecast growth at 8.0 percent for 2008.

 

[Bushroda]

'People's Car' sign of times for automakers
By D'Arcy Jenish
Business Edge, Canada
01/25/2008

It's auto show season again - that time of year when vehicle manufacturers from around the world fill acres and acres of exhibition space in big-city convention centres with their brightest and best new products.

More than 50 concept cars and production vehicles were slated to make their world debuts at the North American International Auto Show Jan. 19 to 27 at the Cobo Center in downtown Detroit. Not only that, five Chinese manufacturers were booked to display their products.

Next month, more than 1,000 new cars and trucks will be on display at the Canadian International AutoShow at the Metro Convention Centre and the adjacent Rogers Centre in Toronto. Promoters promised that green technologies would be prominently featured, which is undoubtedly a worthy objective, but won't generate much buzz among the masses. In fact, the most exciting recent announcement came from India of all places.

Tata Motors Ltd., the sub-continent's largest automaker with 2006-07 sales of US$7.2 billion, upstaged the big car shows and the manufacturers themselves in mid-January by unveiling the Nano, or what it is calling the People's Car.

It is compact (3.1 metres long and 1.5 wide), fuel efficient, powered by an all-aluminum, two-cylinder 623 cc engine and it's inexpensive. The Nano is slated to hit the Indian market later this year with a pricetag of $2,500 and Tata has plans to launch it in Africa as well as South America.

There's no chance the vehicle will be making its debut on Canadian or U.S. roads in the near future - it wouldn't meet the safety and emissions standards of either country - but the Nano does send an important message.

"It's a signal that the automobile is becoming a product that many, many countries can build and want to build," says Peter Frise, an automotive engineer at the University of Windsor and scientific director of AUTO21, a research network of 110 Canadian industrial, government and institutional partners. "The automobile is a great product for creating jobs and many countries need car manufacturing to further their development."

In this country, the auto sector directly employs 130,000 people and many thousands more work in related industries. And we need to keep those jobs, but that is becoming more difficult all the time.

"We want a high standard of living, with a secure economy, good health care and good education for our children," Frise says. "Our economy has to generate high-value jobs and we have to compete for those jobs because every other country wants them."

He adds Canada will remain an auto-producing nation in an era of global competition only if it can stay at the forefront of research and development and that's what AUTO21 is all about.

The federal government is funding the initiative to the tune of $5.8 million annually and private-sector partners, including several automakers, parts companies and materials manufacturers like Stelco, DuPont and Alcan, are providing matching funds. That supports a network of 265 researchers at 42 academic institutions, government research facilities and private-sector labs. They are working on dozens of projects. Many are confidential for competitive reasons - manufacturers do not want to give away what could become significant competitive advantages.

Some involve manufacturing processes. Others are looking for improved materials that will deliver enhanced safety and fuel efficiency. Many are looking for ways to get more mileage out of a litre of gasoline while reducing emissions. "All aspects of the auto industry are changing," Frise says. "The status quo is not an option."

He adds that a number of AUTO21 projects have produced tangible commercial results. Canadian Auto Parts Toyota, Inc. manufactures aluminum wheels in Delta, B.C., based on AUTO21 research. In the fall of 2006, Canadian Tire stores across the country began selling the Clek Booster Seat, which enhances the safety of children in automobiles. Scientists funded by the network developed the product and a division of Magna International makes it.

"We have to concentrate our efforts at the high end of the technological scale so our workers can compete," Frise concludes.

Otherwise, Canada's automobile sector could be marginalized or greatly reduced by ferocious competition from Asia and other low-cost manufacturing centres like so many other industries.

 

[Bushroda]

Cairn hopeful on India deal
By Ed Crooks
Financial Times, UK
January 28 2008

Cairn India, which is 69 per cent owned by London-listed Cairn Energy, is close to securing approval to begin work on the pipeline to transport oil from its vast Rajasthan fields, the Indian government has said.

A senior official in India's petroleum ministry expected a deal to be signed by February 15, giving ample time for the pipeline to be completed on schedule for deliveries to begin by June next year.

His comments are encouraging for the most important asset of Cairn Energy, which releases its 2007 trading update on Thursday. The company was cautious about the news at the weekend; a pipeline deal was first reported a year ago.

But if the delays that have dogged the approval have been resolved, it will remove an uncertainty that has been hanging over the group.

Cairn's shares re-entered the FTSE 100 index in the autumn, helped by the rise in the oil price.

The company has become more positive about the production potential in Rajasthan, and Credit Suisse has suggested that peak output could be 190,000 barrels a day, up from an estimate of 150,000.

However, analysts have seen the lack of clarity over the timetable and commercial terms for building the pipeline from the field to a coastal terminal as a threat to the group's prospects.

India had been stalling over whether to allow Cairn to recover its share of the $800m cost of building the pipeline under the production sharing contract for the Rajasthan fields.

However, M. S. Srinivasan, secretary to Murli Deora, the petroleum minister, said he was "very confident we can resolve [the pipeline issue] by mid-February".

Sir Bill Gammell and Rahul Dhir, Cairn India's chairman and chief executive, lunched in London on Friday with Mr Deora, and were said by Mr Srinivasan to have come away "feeling extremely reassured".

Cairn had been close to the point where it would have had to decide whether to proceed without cost recovery for the pipeline, at an estimated cost of $150m, or to delay the date for first oil from Rajasthan, at a cost of $700m-plus a year.

Gordon Brown, the UK prime minister, is said to have intervened personally on Cairn's behalf during his recent visit to India.

Touring the world looking for foreign investment

The fact that after months of delay, the Indian government now appears to be keen to expedite a deal with Cairn India may have something to do with the fact that Murli Deora, the petroleum minister, is touring the world looking for foreign investment, writes Ed Crooks.

He was in London last week, and is in Houston today, on the road show for the seventh round of licences under India's New Exploration Licensing Policy, trying to attract investors up to and including the likes of ExxonMobil, BP and Royal Dutch Shell.

India has vast unexplored areas, but for anyone drawn by thoughts of the oil and gas that they might hold, Cairn has been a cautionary tale. After making India's biggest onshore oil find for two decades, with an estimated 3.6bn barrels of oil equivalent in place, Cairn Energy pressed ahead with its development plan to bring much-needed oil to fuel India's fast-growing economy. It took the decision to spin off its Indian business to give it local investors and a local listing. Yet it still found it very hard to secure all the approvals it needed as fast as it had hoped. The crucial "right of use" for the land to build the pipeline was given last September, but the question of cost recovery remained unresolved.

If the issue were to continue to drag on, it would leave a question in foreign oil companies' plans over whether they would receive similar treatment should they achieve similar exploration success.

 

[Bushroda]

World tour sparks rush for deal
By Ed Crooks
Financial Times, UK
January 28 2008

The fact that after months of delay, the Indian government now appears to be keen to expedite an agreement with Cairn India may have something to do with the fact that Murli Deora, the petroleum minister, and his officials are touring the world looking for foreign investment.

They were in London last week and are in Houston today, on the road show for the seventh round of licences under India's new exploration licensing policy, trying to attract investors up to and including the super-majors such as ExxonMobil, BP and Royal Dutch Shell.

India has vast unexplored areas, but for anyone drawn by thoughts of the oil and gas that they might hold, Cairn has been a cautionary tale.

After making India's biggest onshore oil find for two decades, with an estimated 3.6bn barrels of oil equivalent in place, Cairn Energy pressed ahead with its development plan to bring much-needed oil to fuel India's fast expanding economy.

It took the decision to spin off its Indian business to give it local investors and a local listing. Yet it still found it very hard to secure all the approvals it needed as fast as it had hoped. The crucial "right of use" for the land to build the pipeline was given last September, but the question of cost recovery remained unresolved.

If the issue were to continue to drag on, it would leave a question in foreign oil companies' plans over whether they would receive similar treatment should they achieve similar exploration success.

 

[Bushroda]

India sits on human capital goldmine, says Parekh
By The Editors
Financial Asia, Hong Kong
29 January 2008

Deepak Parekh, chairman of India's first housing finance company, HDFC, was the recipient of FinanceAsia's first Lifetime Achievement Award at our awards dinner on January 24. This is his keynote address.

Global markets have been fraught with uncertainty as the world ponders the fate of the US economy. A slowdown of the US economy was inevitable but the prolonged credit crunch, oil at over $100 per barrel and collapsing house prices have sent fresh fears as economists debate the dreaded “R-word” - will the US economy slip into a recession or manage to skid over?

Clearly, there are tough times ahead and amidst pandemonium in the global markets, India demonstrated resilience in its ability to meet new global challenges. To my mind, three key events of last week best demonstrate this:
- the overwhelming response to a mega IPO that re-affirmed investor confidence,
- India’s successful testimony of its manufacturing prowess as it unveiled the world’s cheapest car at $2,500 and
- the Indian prime minister’s visit to China, which re-emphasised to the world that the 21st century belongs to the two Asian giants as they seek greater economic co-operation.

But that was last week and this week came with a fresh set of shocks, collapses and rebounds. Markets are now so volatile that one has to learn to expect the unexpected. The Indian stock markets were no exception in the global meltdown earlier this week but like most markets, managed to clamour back up as sentiments improved following the Fed rate cut.

The Indian market had been enjoying a bull run over the last four years. An analyst aptly summarised the current market scenario and I quote, “India is now in a corrective phase in a bull market.”

Though market sentiment may keep shifting, it is important to note that in the Indian context, the real economy is driven by its own investment and domestic consumption and this continues to remain robust. The long-term fundamentals of the India story remain intact.

So setting aside the recent frenzy let me return to the core of the India story which dates back to over 60 years ago when, on the eve of India’s Independence, our first prime minister, Jawaharlal Nehru said: “India has made a tryst with destiny”.

It has really been over the past few years that India has begun to see that destiny come true.

From a country that was once considered a weak nation and had to convince investors of its growth prospects, India has now become a force to reckon with. Over the past four years, GDP growth has averaged 8.6% and over the last two years, growth rates have crossed the 9% mark.

Financial year 2007 was a remarkably good year with GDP clocking 9.4%. In line with expectations, the industry and services sector grew at 10.9% and 11% respectively, though agricultural growth continued to remain slack at 2.7%.

The oft-posed question for this trillion-dollar economy is whether the growth rate will slow down in line with global trends or whether India will be able to attain the much-targeted 10% growth rate?

Conservative estimates have trimmed India’s GDP forecast to 8.5%, citing the overall slowdown in global GDP growth. In the first half of the current financial year, India’s growth rate stood at 9.1%, giving little indication of an impending slowdown. The key issue is that the economy is on firm ground and the growth rate is sustainable and well-calibrated.

The breed of ‘India optimists’ continues to multiply. Today, there are over 1,250 foreign institutional investors with a cumulative investment of $67 billion. Contrary to some opinions, the restrictions on P-Notes by the regulator did not have a significant impact on FIIs investing in the Indian stock markets. Long term India players understand that it is the prerogative of a regulator to know the source and identity of money flowing into the country. The Indian stock markets have been greatly influenced by FIIs and the markets have benefited by their presence, especially in terms of improving governance standards, investor relations and valuation processes.

However, what is gratifying to note is that the Indian stock markets are no longer dominated by or heavily dependent on FIIs. Last year, FIIs pumped in an estimated $17 billion while domestic insurance companies, mutual funds and retail investors collectively invested close to $30 billion. Domestic money from insurance companies and pension funds is expected to pick up further.

Markets tend to work well when there is a diversified investor base and investors have different investment objectives and perspectives. With the mix of FIIs and domestic investors which is increasingly gaining ground, the investor base in India is becoming broadbased.

Admittedly, with the Sensex trading at a price to earnings ratio of around 20 times 2009 earnings, valuations of certain stocks may appear high, but this is a reflection of the strong growth potential. India Inc’s performance has been impressive. According to the RBI, corporate India continues to show an impressive performance with over 2,300 non-government, non-financial companies posting a growth in net profits of 34% in the first half of financial year 2008.

India has now become a magnet for foreign direct investment – a sea change from the time when FDI would only come in trickles. FDI flows have tripled from $6 billion in 2005 to $19 billion in 2007. The government has now confidently set a target of $25-$30 billion for next year. According to the World Investment Report of UNCTAD, India has emerged as the second most attractive location after China for FDI.

For India to remain a conducive FDI destination, the government will need to focus on reducing the number of sectors that require government approval, provide a level playing field in sectors with public sector dominance, open up more sectors for FDI and ensure long-term, consistent policies.

In terms of foreign investment flows, the year 2007 belonged to private equity as it emerged as the most preferred route for raising funds, with over $17 billion being invested in India Inc. These were mainly in sectors like real estate, infrastructure, financial services and information technology/IT enabled services.

With over 500 private equity firms investing or preparing to invest in India, there are concerns of overcrowding, but what this also means is that the funds will need to look at diverse sectors and new investment strategies.

While the India story is on a roll, it is imperative to prioritise certain issues that will help the country attain its growth potential.

Agricultural growth in India has been a laggard. An increase in agricultural growth will guarantee India a 10% GDP growth rate. The agricultural sector has been plagued with low investment, vagaries of weather, imbalance in fertilizer use and a distorted incentive system.

Lack of focus on the agriculture sector has serious implications – we cannot talk about inclusive growth when more than 50% of India still derives their livelihood from this sector. Further, poor and volatile performance of the agricultural sector has repercussions on the maintenance of price stability owing to supply side constraints of primary commodities. Clearly, the way forward is increased investments in food processing technologies and improving integration of the supply chain from the farm gate to the consumer’s plate.

Secondly, and an issue that is rather evident is the need to improve the country’s infrastructure. Many of you may have been witnesses to the inadequacies of infrastructure: cities bursting at their seams, power shortages, delayed flights and potholed roads/traffic jams.

The good news is that things are changing, the bad news is that it is probably not changing as fast as it should.

Over the next five years, the government has envisaged that investment in infrastructure needs to rise from 5% of GDP to at least 9%. This translates to an investment requirement of $492 billion. For instance, investment requirements in power is $161 billion, railways is $82 billion and national highways is $61 billion and telecom, state highways, rural roads require a combined amount of $150 billion.

These amounts appear intimidating owing to the sheer vastness, but to quote India’s finance minister, P. Chidambaram who said, “I can say with confidence that no country than India needs and no country than India can absorb so much funds for the infrastructure sector.”

It is ironic that a country that has a strong institutional infrastructure is grappling with physical infrastructure. The bulk of investment for infrastructure needs to be channeled into power, roads and urban infrastructure and the challenge in these sectors particularly, is that the levy and collection of adequate user charges has proved difficult. But given fiscal constraints, it is apparent that going forward, infrastructure will have to be increasingly financed through user charges and by the private sector.

The crucial issue is that the private sector will step in to fund infrastructure only if it is sufficiently incentivised. So how can this best be done? At a policy level, there needs to be an overhaul in the way some of these sectors are governed. Take the example of power – a sector that continues to be mired in regulatory turmoil. The country currently faces a 15% peak power deficit. There is a need for full-fledged reforms in distribution of power but realistically, before that happens, the state governments need to be more amenable to the privatisation process. With the government’s goal of providing “Power to All” by 2012 and with more IPOs lined up, the power sector is expected to receive large amounts of investments.

On the flip side, market-oriented reforms in the telecom sector have paid off with India now adding 7 -8 million mobile subscribers each month. Tariffs are also among the lowest in the world. Total telephone subscribers have reached over 250 million and most of this growth has happened over the last 2-3 years. Tele-density has risen from 3% in 2002 to 13% in 2006 and currently stands at 23%.

Private investments in national highways, ports, airports and railways have begun to flow, but this flow has to be a deluge, not a trickle.

But then there are the soft infrastructure issues that also pose a challenge –there is a need to increase investments in primary education and health care. Currently less than 3% of GDP is spent on education and 1% on health care. There are investment opportunities in these sectors as well but to improve soft infrastructure across the country, the government will need to undertake systemic reforms.

So far, the Indian economy has withstood the test of political coalitions, rising oil prices, spikes in inflation, appreciation in the currency and stock market corrections – still the economy has enough steam left to catapult it into the big league. This is ample testimony that India’s economic fundamentals are well entrenched.

Today, action has decisively shifted towards emerging markets with the BRIC economies alone accounting for over 10% of world GDP. For India, the change in the business environment is not entirely captured in macroeconomic numbers.

The mood of Indian business has been anything but sombre – it is almost defiant. The ambition and confidence of corporate India has grown dramatically. Indian M&A has been swelling, both inbound and outbound. Last year, M&A activity in India stood at over $50 billion with over 660 deals. Seven of these deals were over $1 billion in size.

This growth momentum is expected to continue in 2008. Besides wanting to be a part of the India story, the more pertinent question today is whether your business can afford not to be in India?

India is sitting on a human capital goldmine. It has one of the world’s youngest skilled work force. India generates over 11 million jobs annually, higher than any other emerging country. It is no wonder that India accounts for 65% of the global industry in offshore IT and 46% of the global BPO industry.

One of India’s greatest strengths is that it holds the dual advantage of a low cost, English speaking and highly skilled workforce. Every year, India produces around 2.5 million university graduates, including 400,000 engineers and 200,000 IT professionals.

Unfortunately, not all of them are directly employable. A recent study revealed that only 25% of engineering graduates and 10 to 15% of general college graduates are suitable for direct employment in the outsourcing industry. This means that the need for additional training is imperative. It is, however, ironic that in a country of over 1.1 billion people, we are increasingly struggling with skills shortage. The shortage of the talent pool gets further skewed when wage wars spiral just to attract or retain talent. So how India manages and effectively trains its human resources will determine its course of competitiveness in the global markets.

The opportunities in India are aplenty and the returns are there for all to see. Yes, investing in India requires patience and time. The reform process is irreversible, though the pace needs to increase. As the world’s largest and possibly noisiest and most opinionated democracy, consensus building is a must for change. This has its own trials and tribulations but it is a small price to pay for a free market. Nonetheless, with India’s need and capacity to absorb investments, newer opportunities will keep emerging and we are confident that global investors will continue to view India favourably in the years to come.

 

[Bushroda]

Nano is the right car at the right time
By Hamish McRae
The Independent, London
January 28, 2008

India's "one-lakh car" is an idea whose time is come. It is great step forward for the burgeoning Indian middle class, bringing safe, affordable personal transport to families.

It is also a triumph for Indian engineering, demonstrating that it is able to achieve something that the established manufacturers of the developed world have conspicuously failed to do.

And while more cars on the planet will mean more fuel consumed, this small, efficient vehicle represents a more sustainable environmental path than that chosen by the other growing economic power, China.

The new car fills the gap between a standard mini-car and a scooter or motorcycle, a gap only partly filled by a tuk-tuk, those little three-wheelers that serve as taxis not just in India but in much of south-east Asia

India's economic take-off – growth was close to nine percent last year – is lifting millions of people of out poverty into a new middle class but it is a middle class that is by Western standards still poor.

For these people, the only way of having mobility is either the scooter option, terrifying and dangerous, or scratching together enough money to buy a patched-up second-hand car.

It's the the same transition as in 1930s Britain, when the Austin 7 began to supplant the motorcycle and sidecar, or in the impoverished post-war years when the Fiat 500 and 2CV Citroen brought motoring to the masses on the Continent.

The "one-lakh car", at 100,000 rupees or about R17 500, is aimed at a similar market to that of the Austin 7 but it is much better engineered

European and Japanese manufacturers build small cars but they do not try to build really cheap ones because they can't make money out of them.

Our smallest cars, such as the Smart, are cute little jewels designed to make owners feel good rather than meeting basic motoring needs.

China has followed the West, producing relatively large cars, often rip-off copies of Western designs, so it has a less fuel-efficient car fleet than France and probably the UK.

Which leads to the environmental issue. It's easy for people in the comfortable West to voice concern at the prospect of a billion Indian people owning cars, for we are aware of the social and other costs of mass motoring. But that is also arrogant and economically illiterate.

It is arrogant to hold that hard-working Indians should not be bright enough to chose how they should spend their salaries. It is illiterate for a host of reasons.

Middle-class lifestyle

One is that it won't be a billion people because car use in India will remain far below developed-country levels for generations. Another is that if India is to retain its middle class, essential for transforming the lives of the whole society, it has to be able to offer it a middle-class lifestyle.

Another is that a more modern car fleet will be, safer, more efficient and less polluting. Still another is that when, in a decade or so, India becomes a larger economy than the UK, the energy consumption of its vehicle fleet will still in all probability be lower than ours. That is not true of China.

 

[Bushroda]

Indian BPO industry eyes $50 bn revenue
30 Jan, 2008, 0320 hrs IST, TNN

BANGALORE: The Indian BPO industry has set an aspirational target of touching $50 billion in revenue by 2012. This would be a five-fold growth over the next five years. The sector will also see an addition of 2 million people in the same period.

However, the Nasscom and Everest Group’s report — Nasscom-Everest India BPO Study, Roadmap 2012: Capitalizing on the Expanding BPO Landscape — added that there were a few challenges in achieving the goal including shortage of employable talent, lack of physical and social infrastructure especially in tier II and III cities and rising wages.

Nasscom president Som Mittal said, “the Indian BPO sector has evolved tremendously since its inception, not only in size but also in maturity - service lines, service delivery capability and footprint. This $11-billion industry today employs more that 7 lakh people across 25 countries and accounts for 40% of the global BPO offshore market. The future potential is even larger.”

The Nasscom-Everest study covered over 60% of the Indian BPO market including buyers, suppliers and captive BPO organizations. Everest Group Country Head Gaurav Gupta said, “If the sector just continues on its CAGR growth of over 35%, it will touch about $30 billion but we are aiming for $50 billion. This aspirational target can be achieved if the challenges inlcuding skills shortage and infrastructure can be overcome.”

There is headroom for further growth since the addressable market opportunity is pegged at $220-280 billion. Added Raman Roy, CMD of Quatrro, the right choices by stakeholders of the Indian BPO industry will decide and impact this potential five-fold growth. “While the aspired target is aggressive – it is definitely achievable, and will bring huge payoffs to India’s economy, employment and development,” he added.

The report has identified eight action themes to act on to reach the potential. They include protecting India’s cost advantage; creating ‘BPO hubs’ with enabling physical and social eco-system to drive BPO-led growth broader and deeper within India and increasing employability and access untapped talent pools by creating greater linkages between the current education system and the needs of the BPO industry, and facilitating the development of BPO-specific education models.

The study said, while the United States would continue to be the largest BPO opportunity for India up to 2012, there were significant untapped opportunities in Britain, Europe and Asia Pacific. It added that India would also have to gear up to face increased competition from emerging back-office services destinations like China, the Philippines and Vietnam.

The domestic BPO market with a growth rate of about 50% over the last five years has grown faster than the overall Indian BPO market to reach nearly $1.6 billion by FY08. Tapping significant opportunities for domestic businesses, such as banking, retail, insurance, media, telecom and government provides an additional $15-20 billion opportunity for the industry.