This blog looks at the growth opportunities that India offers to global companies interested in expanding their businesses beyond their traditional markets. It outlines the country’s economic resilient landscape, analyzes the existing challenges & opportunities and the growth potential, and makes recommendations to prospective companies planning to enter the market. The blog concludes that gaining a good understanding of the market, developing the appropriate go-to-market strategies, and taking a long-term view as essential prerequisites to succeed.
Uncertainties cloud the present global economic scene and the recovery journey seems long and arduous. Economies, such as India and china, which weathered the Lehman crisis fairly well, have now slowed down. India, whose GDP was growing at around 9 percent in recent years, finds it a challenge to maintain the growth tempo. Economists have scaled down the country’s near-term growth projections closer to 6 percent. While the European debt crisis continues to negatively influence the country’s economy, its present malaise is also due to domestic factors. The country’s fiscal and current account deficits are at their all-time high. On the external trade front, the country is running a massive trade deficit, which in turn has weakened the domestic currency. With the country having to import not only crude oil and gas to meet almost 80 percent of the country’s energy needs but also other manufactured items, such as plant machinery and equipment and consumer & professional electronic goods, India does not have sufficient fiscal and monetary bandwidth to effectively address these challenges in the near-term. These factors working in conjunction with the supply side constraints (demand outstripping supplies) contribute to high inflation, which in turn has forced the country’s central banker to keep the interest rates high. High interest rates dampen the investment sentiments, contributing further to slowing down of production capacity expansion.
On one hand, the problems that beset the country are in a way the direct result of the robust growth that the country had witnessed in recent years and on the other India’s rather late quest to enter the industrial era. The country’s saga of industrialization began only about sixty years ago. The emphasis then was in establishing basic process industries, such as aluminum, cement, fertilizers, steel, and others that catered largely to meet the basis needs. The priority was right, but the country, having missed the advantages of discovery- and invention-based growth, which the developed countries enjoyed, had to depend heavily on imported ‘know-how,’ and thus lacked the entrepreneurial force. Additionally, the country did not have access to the capital and therefore had to rely on government funding. This economic phase lasted for almost forty years and only in mid-nineties, after India launched its economic reform measures, the economic upturn began to manifest. Industries that catered to the aspiration wants such as automotive, white goods, entertainment electronics, and world-class communication infrastructure began to take roots in the country. While the country and its industrial expansion are still caught in the catch-up game, India’s middle class population has expanded and so too their aspiration needs.
Presently, people have greater disposable incomes which results in higher discretionary spending. With the country having only recently entered the economic growth-cycle phase and built up the required momentum, there is a pent up demand for almost everything. However, the country does not have adequate manufacturing industrial base to meet these demands and therefore it resorts to importing a broad portfolio of manufactured items, such as machinery, capital equipment, telecommunication equipment, and such others.
India, because of the rapid economic growth that it had experienced in recent years, has become a demand-centric economy, which in turn means that it has to expand the production capacities in almost all industrial sectors and infrastructure such as roadways, airports, seaports, and railroad. According to industry analysts, the country needs to invest almost $1 trillion in building the necessary infrastructure. In order to support the growing needs of its economy, the country has to expand its electric power generating capacity by over 100,000 MW in the next five years. In addition, the production capacities in various segments such as cement, chemicals and petrochemicals, petroleum, and steel will have to go up substantially to keep pace with the economic growth.
All these require massive capital apart from access to technology. In a globally integrated economy, India thus finds it expedient to rely on the flow of capital and technology from global companies and this call for balancing its finances, both internal and external.
In order to achieve at least current account balance if not trade balance, the country’s economic policies increasingly encourage global companies to invest in production facilities in India while allowing them to repatriate freely profits, royalties, etc. Global companies, which look for growth opportunities, would thus find India, a country with excellent growth prospects both in the near and long-term, an attractive market.
The following would illustrate on one hand the massive investments likely to happen in the coming years and the resulting growth opportunities that India offers to companies:
- According to industry sources, India’s per capita consumption of steel is around 50 kg per year compared to world average of 210 kg per year. This is despite India being the fourth largest producer of steel. Based on capacity addition planned, soon India would emerge as the world’s second largest steel producer.
- In terms of per capita energy consumption, India’s per capita energy consumption is little over 300 kilogram oil equivalent compared to China’s 1,200 kilogram oil equivalent. In terms of electric power per capita consumption, it is around 600 kilowatt-hour (kWh) in India compared to world average of around 2,530 (kWh). The electric power industry would expand the generation capacity by around 100,000 MW in the next five years and depends to a very significant extent on importing the required power plant equipment.
- Despite India being the second largest cement producer, the per capita consumption of cement compared to the world average is low. It is little over 150 kg per capita, compared to the world average of over 350 kg per capita. The cement industry’s production capacity, which presently is around 330 million tons per annum, would almost double by 2020.
- India remains one of the largest consumers of electronic products globally and the demand would touch $400 billion by 2020, with most of it being met through imports. If the trend continuous, then electronic imports bill may exceed oil imports bill by 2020.
While most countries presently face challenges arising from excess production capacities and slackening demand, India, with an economy where demand exceeds supply, is uniquely placed. The country offers excellent growth opportunities to companies, but to succeed they must be willing to understand the market and its nuances. Those who enter the market with long-term goals and strategies can confidently look forward to succeed in the market and emerge ultimate winners. Gaining a good understanding of the market upfront, developing the appropriate go-to-market strategies, and taking a long-term view are essential prerequisites to succeed!
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