India Economic News
No. 03/11 March, 2011
Contents
Indian Economy Set To Grow By 8.6 Per Cent In 2010-11
Growth May Return To 9% In 2011-12
Direct Taxes Have Grown By 20% This Year: Finance Minister
India’s Domestic Market For Information Technology Set To Grow Three Times Faster
Nasscom Pegs IT-BPO Exports At $175 Bn By 2020
Mobile Data Traffic Set To Grow Many Folds: Cisco
Computer Market Grew 30% In 2010
Food Processing Sector Gets $ 127.5 Mln FDI
IEX Launches Trading In Energy Certificates
New India-Europe Undersea Cable System Launched
Aspirational Goods To Drive FMCG Growth: Study
Essar To Buy Shell's Stanlow Refinery For $350 Mn
Jubilant Foodworks Ties Up With Dunkin Donuts
Dassault Plans MRO Facility In Hyderabad
Bosch Software Arm To Invest $ 66.14 Mln In 2 Years
INDIAN ECONOMY SET TO GROW BY 8.6 PERCENT IN 2010-11
The Indian economy is set to grow by 8.6 per cent in 2010-11, as compared to 8 per cent in 2009-2010, according to data released by the Central Statistics Office (CSO) on February 7, 2011.
The farm sector growth is estimated to increase by 5.4 per cent in the current fiscal year, as against the expansion of 0.4 per cent in the previous fiscal year, on the back of robust monsoon rains. The manufacturing sector is estimated to grow by 8.8 per cent and overall services sector growth is seen at 9.6 per cent.
Per capita income in real terms (at 2004-05 prices) is predicted to increase by 6.7 per cent to US$ 794.5 in 2010-11 compared to the previous fiscal years US$ 744.4. At current prices, per capita income is estimated at US$ 1203.3 in this fiscal, registering an increase of 17.3 per cent from the previous fiscal years US$ 1025.97.
GROWTH MAY RETURN TO 9% IN 2011-12
The Finance Ministry expects the Indian economy to return to the nine per cent growth path from the next financial year on a sustained basis. At the same time, it maintains that ongoing political crises in West Asia, an uncertain global recovery and any abnormal weather condition may spoil the exuberance.
An economic recovery will also enable the government to continue with its fiscal consolidation process, as fiscal deficit stands revised at 4.8 per cent of gross domestic product (GDP) for the current financial year against the Budget estimates of 5.5 per cent, according to the Economic Survey for 2010-11. This may enable the government to further prune fiscal deficit below the target of 4.8 per cent in the next financial year, set by the Thirteenth Finance Commission.
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The Finance Ministry expects the Indian economy to do better in the years to come, as the rates of investments and savings will rise after the government further pulls out of stimulus gradually. However, it noted that skilled training of the workforce and the country’s innovative capacity was of much greater importance to Indian growth at this point of time than investment and savings rates. (Business StandardFebruary 26, 2011)
DIRECT TAXES HAVE GROWN BY 20% THIS YEAR: FINANCE MINISTER
Direct taxes have registered a growth of 20% during the current year so far with the collections reaching nearly $ 74.07 billion (till mid-February).
Giving this information, Finance Minister, Mr. Pranab Mukherjee, said that this sustained growth has been possible due to rationalization of tax structure and improvement in tax administration. He was speaking at a function at which he released a commemorative coin in the denomination of Rs 150 to mark the completion of 150 years of Income Tax collections.
Releasing the coin, the Finance Minister said that Income Tax was introduced for the first time in 1860 imposing duties on profits arising from property, professions, trades and offices. It was passed by the Legislative Council of India and received the assent of the governor-general on July 24, 1860. This Act was the precursor to the modern income tax law in the country.
Direct taxes are now the major resource provider to the Centre for developmental work. The Finance Minister said that direct taxes collections have grown at an average annual rate of 24% in the last five years and that direct taxes share in GDP has also increased from 4.1% to 6.1%. (The Times of India:February 26, 2011)
INDIA’S DOMESTIC MARKET FOR INFORMATION TECHNOLOGY SET TO GROW THREE TIMES FASTER
For India’s top technology firms focused on the markets of US and Europe, the country’s $15-billion-plus domestic market for IT services is the latest battleground. In a year when top markets for software exports are recovering and expected to grow at less than 5%, India’s domestic market for IT is set to grow three times faster, mainly on the back of higher government spending on IT and new outsourcing projects from local banks.
“We will be looking at IT to aid customer acquisition and financial inclusion. The attempt will be to take banking to remote areas using technology services,” says Mr. Pushpinder Singh, DGM-IT, Bank of India.
Indian government departments and public sector units are going to spend the most on IT this year. The biggest driver for higher government spending on IT and related areas is India’s UID project, which according to CLSA Research will lead to $10 billion worth of investments in IT consulting, system integration, and computer hardware over the next five to six years. CLSA sees a $1-billion business opportunity for consultants in the first five years and a need to raise manpower by 15% for their services. Some 18,000 systems specialists and programmers will drive a $2.4-billion pie for integration of UID into existing software systems.
“As this sets in, business process re-engineering (BPR) activities should pick up, as the full benefits of UID for businesses become clear. We expect 36,000 people to join the BPR wave around UID, creating a $6-billion market over the first five years,” CLSA researchers said in their report last year.
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“Apart from UID, IT hardware growth will get a fillip with $1.1 billion worth of equipment sold to the government and another $1.8 billion of incremental demand from the private sector and government-owned companies,” the report adds. What’s critical is that vendors like IBM, TCS, Infosys and Wipro see newer opportunities emerging even during a global slowdown in software spending because state-owned enterprises like BSNL and ONGC — and other ministries too — seek to become more efficient.
Experts tracking this sector say India Post, Indian Railways and LIC will spend $3 billion on information technology this year, and the government’s share of total IT spend in India will cross 10% over the next two years from 6% right now. Mr. Praveen Bhadada, Manager Consulting, Zinnov Management Consulting said: “In the 10th five-year-plan (2002- 2007) 0.3% was spent on IT. In the 11th five-year-plan, IT spend increased to 0.5 %. If we extrapolate this, government is going to spend about 2 % on IT. If today, $1.5 billion is spent annually, it could easily go up to $ 7-8 billion over the next three to five years.”
For one, India’s department of posts (DoP) is set to spend up to $1 billion on its IT-led business revamp over the next five years with top tech firms like IBM, TCS, Infosys and Wipro pursuing several outsourcing contracts for helping the postal department automate and integrate its business processes with a standard software solution. Accenture is in the process of developing a plan for this revamp. (The Economic Times:February 24, 2011)
NASSCOM PEGS IT-BPO EXPORTS AT $175 BN BY 2020
Having touched export revenues of $59 billion last year, the IT industry is estimated to have grown by 19 per cent in this financial year, aggregating revenues worth $76 billion.
Indian information technology (IT) and business process outsourcing (BPO) exports were expected to grow three-fold to $175 billion in revenues by the end of this decade, the country’s apex software industry body said.
“The new mantra is to innovate, redesign and reinvent. We have an opportunity of tapping $175 billion in export revenues by 2020. The only constraint to tap this opportunity is not the demand but our ability to address it,” said, Nasscom President Mr. Som Mittal.
The addressable market size is expected to triple from $500 billion to about $1.6 trillion in 2020. But most importantly, 80 per cent of the incremental growth will be driven by opportunities outside the current core markets, verticals and customers.
Hence the theme of the forum, named ‘Drivers of the Decades’, seems appropriate as the industry emerges from one of its worst crises. The three-day event will see discussions on issues like demographic shifts, innovation and inclusion.
In spite of a few hurdles, the biggest success for India has been its growing importance as a global outsourcing hub. “We always talk about multinational companies. With presence in 52 countries, 200 cities, 400 delivery centers, 10 companies listed on overseas stock exchanges, and 400 of the Fortune 500 firms being the customers, Indian firms are certainly multinational,” said Mr. Mittal.
With India’s share in the global sourcing market touching 55 per cent in 2010, the success of its business model is clearly established. According to research done by Everest Group, an advisory firm on global services, offshore centric services provider like TCS, Infosys, Wipro and others managed to grow their market share even during the slowdown. These players increased their revenue by 20.8 per cent. Whereas traditional global services provider’s revenue slipped by 1.2 per cent. (Business Standard:February 08, 2011)
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MOBILE DATA TRAFFIC SET TO GROW MANY FOLDS: CISCO
Mobile data traffic in India will grow 114-fold to 338,911 terabytes by 2015, which is equivalent to 85 million DVDs each month, or 934 million text messages each second, according to Cisco VNI Global Mobile Data Traffic Forecast. At present, mobile data traffic is at 2,971 terabytes — equivalent to 1 million DVDs a month, or 8 million text messages each second.
There will be 1,067 million mobile-connected devices (devices other than phones and modems) in 2015 which is 0.8 per capita. The number of smart phones in use will grow four-fold between 2010 and 2015, reaching 101 million. Mobile-connected tablets will grow to 9.9 million and mobile-connected laptops will reach 65 million.
Mr Suraj Shetty, Vice-President, worldwide service provider marketing, Cisco said, “Consumers and business users continue to demonstrate a healthy demand for mobile data services. The fact that global mobile data traffic increased 2.6-fold from 2009 to 2010, nearly tripling for the third year in a row, confirms the strength of the mobile Internet. The seemingly endless bevy of new mobile devices, combined with greater mobile broadband access, more content, and applications of all types — especially video — are the key catalysts driving this remarkable growth.” (The Hindu Business Line:February 07, 2011)
COMPUTER MARKET GREW 30% IN 2010
India's personal computer market grew 30% in 2010 — the highest since 2007, research firm IDC revealed. Hewlett Packard emerged the top company in India, leading in both notebook and desktop categories. HP regained market leadership after two quarters with a 17.3% market share, taking the pole position from Dell Inc that got 14.2% of the market.
Taiwan’s Acer followed the two with 11.5% market share. Notebooks were the hottest selling category with sales growing by 49% between October and December 2010 compared to the previous year. More than 1million notebooks were sold in the 2010 fourth quarter. HP grabbed the largest market share of 26.2% while Dell and Acer secured second and third places.
Nearly 250,000 personal computers were shipped to Indian consumers, pushing up the overall sales by 26%. IDC India’s lead PC analyst Mr. Sumanta Mukherjee noted sales in 2010 to be far better than ‘dismal’ 2009. “Consumers are the main architects of this recovery, supported by renewed buying sentiments displayed by the SMB and government segments,” he said. He warned that sales of Atom processor-based mini notebooks could come under increasing pressure, as competitive offerings of rivals start becoming available in March 2011.
“Emergence of media tablets will also impact this category in the long run,” he said. Around 145,000 desktop PC units were sold in the fourth quarter last calendar year, a 14% increase over 2009. HP held the lead in desktop PC sales with 10.86% of the market, followed by HCL with 10.78% and Acer at the third spot. (The Economic Times:February 17, 2011)
FOOD PROCESSING SECTOR GETS $ 127.5 MLN FDI
The food processing sector attracted $ 127.5 mln of foreign direct investment (FDI) in the first eight months of the fiscal year.
In the thick of the recent food inflation, the government had also widened the scope of service tax exemption to include foodgrains and pulses in addition to fruits, vegetable, eggs and milk, the Minister said. The Centre is keen on projecting FDI in the food processing industries, where 100% FDI is already allowed. (contd on next page)
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Besides attracting FDI through schemes like MegaFoodPark, the government has also extended several fiscal incentives during this financial year to enhance FDI in food processing sector, including full exemption from excise duty for specified equipments to preserve, store or transport apiary, horticultural, dairy, poultry, aquatic and marine produce and meat and its processing products.
Project imports status, with concessional rate of basic customs duty of 5%, has been granted for the initial setting up or substantial expansion of a cold storage, cold room (including farm pre-coolers) for preservation or storage or an industrial unit for processing of agricultural,apiary, horticultural, dairy, poultry, aquatic and marine produce and meat.
While truck refrigeration units manufacturing refrigerated vans/trucks have been fully exempted from basic customs duty, exemption from service tax has been provided to a host of services. These include ‘erection, commission or installation’ of mechanized foodgrains handling equipment for setting up or substantial expansion of cold storage and machinery/equipment for initial setting up or substantial expansion of units for processing of agricultural, dairy, poultry , aquatic, marine or meat products. (Economic Times:February 23, 2011)
IEX LAUNCHES TRADING IN ENERGY CERTIFICATES
The Indian Energy Exchange (IEX), country’s leading electricity exchange, launched trading in renewable energy certificate (REC) on 23rd February.
The company received total buy bid of 125 non-solar REC and 11 solar REC received in the first trading session worth Rs 200,000. Five portfolios participated in the first bid on the first day. IEX conducts bid in REC on every last Wednesday of the month.
This is a milestone in the history of renewable energy in India. It will create new opportunities for renewable and co-generation power plants and has been possible only because of the Central Electricity Regulatory Commission (CERC)’s prompt and positive response towards the mechanism.
Various other statutory bodies like National Load Dispatch Centre (NLDC), Forum of Regulators (FOR), Ministry of Power (MoP) and Ministry of New and Renewable Energy (MNRE) have also come together to provide a strong support for the mechanism. RECs represent the attributes of electricity generated from renewable energy sources. (Business Standard:February 24, 2011)
NEW INDIA-EUROPE UNDERSEA CABLE SYSTEM LAUNCHED
Bharti Airtel, in collaboration with 16 other global telecom companies, announced the launch of Europe India Gateway (EIG) cable system that will enhance bandwidth between Europe and India.
The 15,000-km cable has received investment of around $700 million and has a capacity of 3.84 terabits per second.
EIG stretches from Mumbai to London, with landings en route in the UAE, Oman, Saudi Arabia, Djibouti, Egypt, Libya, Monaco & Marseilles, Gibraltar and Portugal. Apart from the segment of EIG in Egypt, the remaining cable is now available for commercial use.
With the launch of EIG, Bharti Airtel added a third cable to its existing infrastructure on India-Middle East-Europe route.
The deployment of EIG will also boost the connectivity requirements of the African continent by complementing the largest existing submarine cable in Africa, the EASSy cable, in which Airtel has investments. (contd on next page)
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Mr Ajay Chitkara, CEO – Global Data Business, Bharti Airtel, said: “It has been our endeavor at Bharti Airtel to create flexible and robust undersea cable infrastructure for our customers. Both EIG and IMEWE land in our landing station in Mumbai. The extra capacity and reliability provided by EIG will help us meet the surging bandwidth requirements witnessed by the Middle East and Africa.”
When fully activated with the Egypt link, the EIG will be the first direct high-bandwidth optical fibre system from the UK to India. Bharat Sanchar Nigam Ltd is also part of the consortium. (The Hindu Business Line:February 24, 2011)
ASPIRATIONAL GOODS TO DRIVE FMCG GROWTH: STUDY
Aspirational products such as chocolates, cold cream, fragrances and breakfast cereals will drive the future of the consumer products industry in India, says a new study by The Nielsen Company. Product innovation, portfolio expansion and aggressive distribution across channels and geographies have helped companies popularize categories such as impulse, health and wellness, lifestyle and convenience, says the Nielsen study on fast moving consumer goods.