indian economy reveiw

8/4/2019 Indian Economy Reveiw

http://slidepdf.com/reader/full/indian-economy-reveiw 1/42

1 © Confederation of Indian Industry

IndianEconomyReview

By

Mr T KannanPast Chairman, CII Southern Region

August 7, 2004Coimbatore




Agenda

1) Economy Review

2) Stock Market Review

3) Export Import situation

4) Oil Price review

5) Cement Price Review

6) Commodity Price Review

7) Infrastructure development

8) Consumer Behaviour




I

ECONOMY




Gross Domestic Product The Indian Economy posted arobust GDP growth of 8.2% in2003-2004. Agriculture output during Q4 -2004 although lower than Q3 buthigher than Q1 & Q2. Industry posts higher growth over previous quarters.

Services sector growth dipsfurther to 7.6% in Q4 2004Inflation Manufacturing sector registeredthe highest levels of inflation withthe rates surging above 6.0 % in thefirst quarter 2004-05. Index for Fuel, Power, Lights &Lubricants category posts a hike

due to fuel price rise.

Quarterly GDP Performance: 2003-04

1.7%

7.4%

16.9%

10.5%

5.8%

3.0%

6.5%

7.9%7.6%

9.8%9.0%

7.5%

8.2%

10.4%

8.4%

5.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Q1 Q2 Q3 Q4

0%

2%

4%

6%

8%

10%

12%

Agriculture Growth Rate Industry Growth Rate

Services Growth Rate Quartlery GDP Growth Rate( RHS)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

2003 2004

Manufactured Products

Fuel Power, Light & Lubricants

Primary Articles

Overall Inflation rate




Foreign exchange

reserves at $119 billion,adequate for import cover of 17.5 months.

Fiscal deficit the onlyworrying factor. Gross fiscal

deficit high at 10% andcentre fiscal deficit at 4.4%.

Central Government's Fiscal Deficit: The worrying factor

0

20000

40000

60000

80000

100000

120000

140000

160000

1 9 9 5 - 9

6

1 9 9 6 - 9

7

1 9 9 7 - 9

8

1 9 9 8 - 9

9

1 9 9 9 - 0

0

2 0 0 0 - 0

1

2 0 0 1 - 0

2

2 0 0 2 - 0

3

2 0 0 3 - 0

4

2 0 0 4 - 0

5 B E

R u p e e s

0

1

2

3

4

5

6

7

P e r C e

Fiscal Deficit FD as % of GDPSource: Union Budget 2004-05

Forex Reserves

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

Feb-

03

Mar-

03

Apr-

03

May-

03

Jun-

03

Jul-

03

Aug-

03

Sep-

03

Oct-

03

Nov-

03

Dec-

03

Jan-

04

Feb-

04

Mar-

04

Apr-

04

May-

04

Jun-

04

U S $ i n m n




Sectoral Perfomance: Services, Intermediate & Capital Goods recorded high growth

28.6% 26.3% 25.0% 21.9% 21.7%10.0%

42.9%

10.5%

41.7%

28.1%

43.5%

13.3% 33.3%

28.6%

63.2%

33.3%

50.0%

34.8%

76.7%66.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Services Consumer

Non-Durables

Intermediate

Goods

Consumer

Durables

Capital Goods Basic Goods Electricity

Excellent High Low/ NegativeSource: CII Survey

Based on Growth Rates in Production for 2003-04

%Share

o f

Ind us tries




• Expected GDP growth for 2004-05 around 7%

• Clear overall demand growth

• Order books of companies better than before

companies have a strong outlook

• Rising rural demand – The recent budget

announcements to give further boost

• Upturn in investment cycle: manufacturing

Economy: The Good News




GDP projections

200

600

1000

1400

1800

2200

2 0 0 3 - 0 4

2 0 0 4 - 0 5

2 0 0 5 - 0 6

2 0 0 6 - 0 7

2 0 0 7 - 0 8

2 0 0 8 - 0 9

2 0 0 9 - 1 0

2 0 1 0 - 1 1

2 0 1 1 - 1 2

2 0 1 2 - 1 3

2 0 1 3 - 1 4

6% growth 7.2% growth 8% growth

$ billion

Nominal GDP: 2003-04 to 2013-14

Exchange rate assumption: $ 1 = Rs 45, GDP deflator assumed to be 5%

$ 600 billion

$ 2.1 trillion$ 1.9 trillion

$ 1.7 trillion

• Minimum of 7% growth for doubling real GDP in 10 yrs• Aim to sustain 8 % growth

• With 8% growth, GDP to cross US $ 2 trillion in 10 years

• At 8 %, per capita income to double in eleven years




(%)Low High

GDP 6.6 7

Agriculture 0 2Industry 7 7

Services 9.2 9.2

2004-05

ECONOMIC FORECAST FOR 2004-05

Given the state of the monsoon, 2% agriculture growth andhence 7% GDP growth seems to be unlikely

CII forecast for this fiscal




State of Monsoons• As on July 21 2004, 17 of a total of meteorological 36 sub-divisions had

deficient/scanty rainfall. As on July 14, this figure was at 16.

• Though this is not as high as the no. of deficient/scanty sub-divisions in the

drought year 2002 (22 of 36), it is still much worse than other years.

• The extent of deficiency in regions classified as ‘deficient’ last week, hasdeteriorated now in several regions including Gujarat,West Rajasthan,

Himachal Pradesh, Punjab,Telangana etc.

No. of sub-

divisions

1999 2000 2001 2002 2003 2004

Excess 6 17 17 0 11 4Normal 22 13 11 14 20 15

Total 28 30 28 14 31 19Deficient 8 6 8 18 5 17Scanty 0 0 0 4 0 0

Total 8 6 8 22 5 17

Total 36 36 36 36 36 36




II

STOCK MARKETREVIEW




Stock Market- Success storyIndia’s Attractiveness – Proved !

(as per MSCI data)

Performance Index of India thebest among emerging markets.

India ahead in terms of liquidity. Low P/E and higher dividend

yield: indicating that Indianstocks will provide good returns.

Emerging Markets Growth Index Performance (July 30, 2004)

9.418

29.12

129.468

31.281

104.248

171.823190.754

0

20

40

60

80100

120

140

160

180

200

CHINA INDIA INDONESIA KOREA MALAYSIA BRAZIL RUSSIASource: MSCI, Cygnus Research

Volume Traded (in Thousand) as on May 2004

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

India

South Korea

China

Hong Kong

Thailand

Malaysia

Brazil

South Africa

Mexico

India ahead in terms of

Indian Equity Market Attractiveness: Proved

0

5

10

15

20

25

30

35

China

Sanghai

Composite

KOSPI

Index -

South Korea

Taiwan

Taiex Index

Philippines

Composite

Sensex -

India

Kuala

Lumpur

Index -

Malaysia

Thai SET-50

Index -

Thailand

Nifty - India

P/E

Dividend Yield (%)




Reasons for recent turmoil

• Political Uncertainty kept the markets searching for a new direction.• FII become Net sellers during the month , PSU’s lose over Rs 2,30,000 Crores in Market Cap.• Slow-Down in Chinese economy hits Asian markets.• Fears over increasing Oil Prices kept the market bearish.

4000

5000

6000

Apr-04 May-04 Jun-04 Jul-04

BSE Sensex Movement: Largest Fall in History

NDA Government fell: Market sentiments pulldown sensex by 800 Points

Partial roll-back of transaction tax and good corporate earnings




Resource Mobilization through IPO’s & PublicIssue

Sectors Expected to Shine: IT/ITES, Auto Components,Media & Entertainment, Pharmaceuticals, Telecom.

Power 500Power Grid Corp. of India

IT & Software5000TCS

Telecom1200-1500Hutch

Media &Entertainment100UTV SoftwareCommunications.

Power 1500-2000NTPC

Sector Issue Size (Rs.Crores)

Company Name




IIIEXPORT - IMPORT




Exports during April, 2004 was 20 % higher than that of April,2003.

Imports during April, 2004 were 20.8 % over that of April,2003. Trade deficit for April, 2004 is estimated at US $ 1737.29 million which is higher than theUS $ 1409.60 million deficit during April, 2003.

Export Import Trend of India

0

10000

20000

30000

40000

5000060000

70000

80000

90000

100000

Q1

2001-02

Q3 Q1

2002-03

Q3 Q1

2003-04

Q3

Export Import

Rs. Crores




IV

OIL PRICES REVIEW




•World Oil Prices at 21 – year high of $43 per barrel on July 30th

2004.

•Fear over supply cut from Yukos

(supplies 2% of world’s output )which is facing a financial crisis.

•Oil Industry in Norway-Worldsthird largest oil exporter faces

strike which has reduced theproduction by 3.75 lakh barrel.

•Political disturbances in Nigeria,Middle east and Venezuela alsosnags supply.

•Refinery bottlenecks &historically low US gasolineinventories.

Global Price Scenario – Issues and TrendsOil Price Movement: 21-year High Prices in July '04

18.00

23.00

28.00

33.00

38.00

Jan Feb Mar Apr May June July

$ p e r b a r r e l

2002 2003 2004

World Oil Demand & Supply

7677

78

79

80

81

82

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04

M i l l i o n

B a r r e

l s P e r

D

a y

( m b p

d )

Total Demand Total Supply




Indian Price Scenario – Recent price hikes

Petrol and diesel prices

hiked from 31st July, 2004 :

•Revision of prices based on

new pricing mechanism(mean of past year’s pricesand last three months prices)has resulted in reducing the

impact on consumerssubstantially.

• Increase in prices of petrol

and diesel by Rs 0.57 andRs 0.92 per litre respectively.

•Kerosene (SKO) pricesremain untouched.

Variation in prices in different metros due to different

tax structures.Revised Petrol Prices

38.83

36.69

36.61

33.71

41.53

39.53

39.26

36.28

0 5 10 15 20 25 30 35 40 45

Mumbai

Chennai

Kolkata

Delhi

Rs./Ltr.

Revised Diesel Prices

27.43

24.23

23.99

21.73

26.27

25.95

23.66

29.54

0 5 10 15 20 25 30

Mumbai

Chennai

Kolkata

Delhi

Rs./Ltr.

Old Revised




Indian Price Scenario

Impact on Govt and Industry:

• Excise duty cuts to reduce government revenues by Rs 3000 crore leading toincreased government borrowing.• Further upward pressure on inflation (6.5% week-ended July 30th); higher transportation costs raising prices of primary articles and manufactured

products.• Price hikes and duty cuts will help Oil companies reduce costs and boostmarketing margins.•Oil PSU margins are estimated to get eroded by Rs 216 crores in Apr-Jun2004 vis-à-vis Rs 360 crores in Jan-Mar 2004.

1stQ FY05 Pe rformance of OMCs

14553.4313835.7

31547.2

527.05 413.9

1850

13660.1013116.00

247.30 147.00

1472.20

35984.50

0

5000

10000

15000

20000

25000

30000

35000

HPCL BPCL IOC

R s c

Sales 4QFY04 Net Profit 4QFY04 Sales 1QFY05 Net Profit 1QFY05




Future Oil Price Outlook

Global energy demand to rise 54% by 2025-US EIA

Growth in global oil demand in excess of 2 million barrels per day

(about 2.6%) is expected for 2004 and 2005

U.S. petroleum demand is projected to increase by 380,000 barrels

per day, or 1.9 percent, in the current year and by an additional

300,000 barrels per day, or 1.4 percent, in 2005.

Motor gasoline demand growth is still projected to average about 2

percent per year through 2005, buoyed by growth in real disposable

income and non-farm employment and growing consumer confidence.

Summer 2004 demand growth for motor gasoline is projected to be

approximately 1.4 percent, about equal to the average for the previous

five summers (despite a projected year-to-year 17-percent increase in

real fuel costs per mile.




V

CEMENT PRICEREVIEW




Outlook - Cement industry

• Rise in prices of cement by Rs 5 per bag (for ACC) is due to risein price of Coal.

• Interest rate on housing loan reduced by 25 basis points whichmight fuel the growth of construction.

• Better realization have led rise in profits of cement companies.

• Cement manufactures tops in terms of capacity utilization incement industry – 100%.

• Demand from gulf also fuels the prices.

• Retailing and BPO infrastructure to push up cement demand.




Prices and factors

Trend of Cement prices (Apr - June 04)

120

130

140

150

160

170

180190

2/4/2004 23/4/2004 30/4/2004 7/5/2004 28/5/2004 4/6/2004 25/6/2004

North South East West Central

Consumption of cement in southern region has been declining in therecent months due to rainy season.The high price of cement in the north is due to the high prices of power and fuel.International prices of non-coking coal have nearly doubled in the last

12 to18 months.The cement cartel, which took the price in the country to a five-year high.




Monthwise Cement Consumption & YoY

growth rates

-10

-5

0

5

10

1520

Jun-04Feb-04Oct-03Jun-03Feb-03Oct-02

G r o w t h R a t e s ( % )

0

2

4

6

8

1012

M i l l i o n T o n n e s

Volumes % yoy

Trend in dispatches

Cement Exports* & YoY growth rates (%)

00.2

0.4

0.6

0.8

1

1.2

Apr-03 Jun-03 Aug-03 Oct-03 Dec-03 Feb-04 Apr-04 Jun-04

C e m e n t i n M n T n

-20

0

20

40

60

80

G r o w t h r a t e ( % )

Cement exports YoY growth rate* Includes clinker

Trend in Exports

Domestic cementdespatches in April 2004 fellby 7.5%, on month-on-

month basis, to 10.45mnton as compared to 11.3mnton in the previous month.

Major contributor countriesfor Exports are Nepal, SouthAfrica and Sri Lanka•U.A.E, Sri Lanka,Bangladesh, Oman andNepal have been the major contributors to clinker exports.




VI

COMMODITYREVIEW




Commodity Price Review

-1%83.5784.76Agriculture Index

6%206.78195.68Crude Oil Index

7%200.23187.60Energy index

-3%106.80109.68Metal Index

3%146.11141.35Commodity Index

Changesin theQuarter JunDecIndices

80

85

90

95

100

105

110

Mar-04 Apr-04 May-04 Jun-04

100

120

140

160

180

200

220

240

C o m m o

d i d y ,

C r u d e o i l a n d E n

e r g y I n

Metal Index Agriculture Index Commodity Index

Energy index Crude Oil Index

• Launch of Nickel, Copper and tin contracts on 27th May 2004 atMCXIndia.

• NCDEX launches rubber, jute, guar, pepper and chana (gram) on April12th and wheat contracts (July 6th), Castor Seed (22nd July).



28 © Confederation of Indian IndustryCommodity Price Review

• Slow down of Chinese overheated economyNickel• China's robust demand for stainless steel has been a major factor driving nickel demand.• Terrorist threat-giant mine on the island of Sulawesi• Mismatch between supply and demand of nickel – there is a gap of 20000 tonne this year Lead

• The threat of prolonged strike action at Zellidja SA's lead smelter in Morocco is underpinning prices at a time of extremely tight market supplies, and is likely to create further price spikes in the base metal• U.S., Doe Run shuts its 137,000 tons-a-year Glover primary lead smelter from Dec. 1, and then closed itsHerculaneum plant for two weeks of maintenance at the end of April• The global refined lead market could see a supply deficit of up to 100,000 metric tons in 2004

500

1000

1500

2000

2500

3000

3500

Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04

-2000

4000

10000

16000

Copper Aluminum Zinc Lead Tin (RHS) Nickel (RHS)




Aluminum Price Movement

90011001300150017001900

J a n - 9

6

J a n - 9

7

J a n - 9

8

J a n - 9

9

J a n - 0

0

J a n - 0

1

J a n - 0

2

J a n - 0

3

J a n - 0

4

Tin price Movement

1500

35005500

7500

9500

11500

J a n - 9 6

J a n - 9 7

J a n - 9 8

J a n - 9 9

J a n - 0 0

J a n - 0 1

J a n - 0 2

J a n - 0 3

J a n - 0 4

3750

5750

7750

9750

1175013750

15750

J a n - 9 2

J a n - 9 3

J a n - 9 4

J a n - 9 5

J a n - 9 6

J a n - 9 7

J a n - 9 8

J a n - 9 9

J a n - 0 0

J a n - 0 1

J a n - 0 2

J a n - 0 3

J a n - 0 4

Nickel Price Movement Zinc Price Movement

750

950

1150

1350

1550

1750

J a n - 9 2

J a n - 9 3

J a n - 9 4

J a n - 9 5

J a n - 9 6

J a n - 9 7

J a n - 9 8

J a n - 9 9

J a n - 0 0

J a n - 0 1

J a n - 0 2

J a n - 0 3

J a n - 0 4




Reason for changes in Energy Index

•Rise in demand from US, European and Japanese economiesfuels the demand. China is importing oil to power its manufacturingand to make gas for its booming car market.

•Demand for Oil in US further increases due to unusually coldwinter

•Low US gasoline inventories

•Political disturbances in Nigeria, Middle east and Venezuala alsosnags supply

•Political uncertainty and unrest in the Persian gulf and middle east

fuels the prices

•Oil Industry in Norway-Worlds third largest oil exporter facesstrike which has reduced the production by 3.75 lakh barrel.



31© Confederation of Indian Industry

-6.781.181.1Ending stocks

22.810.570.7Exports

3.316.957.18Consumption9.386.57.11Production

%

Change2002-032003-04In Lac Tonnes

Rubber

The prices of Rubber have beenshowing an upward trend.

Reasons:•Scarcity of raw material is themain driving force behind thisuptrend.

•Low arrivals increases the prices.

•Early arrival of Monsoon causesthe prices to increase as tapping

becomes difficult.

Rubber Prices

5000

5500

6000

6500

7000

May June July




Indian Cotton Prices

Cotton pricesReasons for softening of

prices Record domestic production Huge subsidies granted by

the US resulted in massiveincreases in output,lowering world prices.

Lower imports by China.

Outlook Cotton prices are likely to

firm up in the near future onexpectation of good buyingby mills & exporters,reduced inflows and spreadofferings by some ginnersand stockists.

Daily Prices of Varities of Cotton in India

4000

5000

6000

7000

13/07/200419/06/200427/05/20044/5/2004

R s

/ q t l

Desi J-34 LRA S-6 Sourc e: Cline




VII

INFRASTRUCTUREDEVELOPMENT




Infrastructure holds the key to achieve targeted 7% GDP growth

Quantum of InvestmentsPower & Telecom to get morethan 70 % of investments andNorth India to receive most of

these investmentsSouthern Region to get29.4% of the total investmentsin Pipeline project, sanctioned

till 2008.Bangalore and Hyderabad toget 18.04% of the total outlayfor Airport infrastructuredevelopment.

FI’s to pool in Rs 40,000 Cr for infrastructure projectsFDI in Telecom raised to 74%and 49% for Aviation.

4131.194936.40Total Infrastructure

674.00868.00Telecom

855.001035.00Oil & Gas

1305.001440.00Power

229.00256.00Ports/ Shipping

111.19136.40Airports

484.00607.00Railways

473.00594.00Road

(2002-07)

Investments inOngoingProjects

Govt Target(Rs. Bn)

Percentage of Remaining Investment (%)

2 .69

11.4 4 11.71

5.54

3 1.58

20 . 6 9

16 .3 1

0

5

10

15

2 0

2 5

3 0

3 5

Road Airports Power Telecom



35

© Confederation of Indian Industry

ROADSRoad Projects under Execution : 24286 kms

Non NHDP

Projects, 10000

kms

Port

ConnectivityCorridors, 400

kms

Golden

Quadrilateral,

5846 kmsNorth-South-

East-w est

Corridors, 7300

kms

Union Budget 2004-05• Introduction of more road projects onannuity basis to encourage private sector participation.• Funding of infra projects made easier.• Companies implementing infrastructureprojects allowed to issue infrastructurebonds which are exempt from capitalgains tax.

Total estimated cost for Road Projectstill 2007 is Rs. 1180bn

2675*16244322 ANDHRA PRADESH

N.A 19.22800 TAMIL NADU

11.733.61600KERALA

16.2420.32269KARNATAKA

WORLD BANK FUNDING

(Rs. Bn)

PROJECT COST

(Rs. Bn)LENGTH (Kms)SOUTHERN STATES



36


AIRPORTS & PORTSProposed investments in airport projects in Southern States.

2.710.54.2Coimbatore

1.612.6Trichy

7.340.311.6Hyderabad

84.50.513Bangalore

FY-06FY-05FY-04 (Rs. Bn)

Expected Capex(Rs. Bn)Cost Incurred

COST(Rs. Bn)PROJECTS

PORTS• The total outlay for Ports Development is Rs. 163.115bn in the Tenth Plan.

• The sector is likely to attract investment of Rs100bn-120bn from domestic andforeign majors over the next three years.

• Private Sector leads the race as it contributes approx.69% of the investments to bemade in comparison to Government Support of 31%.

AIRPORTS



37


PIPELINES

9%ESSAR

19%BPCL87%46%21%GAIL

52%32%RELIANCE

4%2%18%IOCL

% of Total% of Total% of TotalCOMPANIES

550584554711Total KM to be

FY-07(E)FY-06(E)FY-05(E)

PIPELINE PROJECTS

•Build-out of 18,671km of domestic oil & gas pipeline network over FY2004-2008•Estimated Pipeline project to be executed in Southern Region from 2004 to 2007is 5490 kms.•Transportation of petroleum products through pipeline will reduce the cost and willmake it cheaper by 70% by road and 50% by Railways.



38


POWER

The Tenth Plan envisages acapacity addition of 41,110MW by 2007. Plans for

addition of 27852MW, or 70%of the total targeted addition,have already been firmed up.Of the total capacityaddition, 62% would be inthermal plants, and 35% inhydropower plants.

Electric power survey has projected a peak Demand of 115705 MW by theend of 10th Plan.The country would need additional 55158 MW.Current Financial and State of preparedness, suggests capacity addition of only 41110 MW by the end of 10th Plan, leaving a deficit of 14038 MW.



39


Utilisation of Hydro Power generation is better in developed nations.Huge potential lies in Hydro power in India.Operating Cost is lower in Hydro power (Rs. 0.60/unit) compared to thermalpower (Rs.1.60/unit)Emerging Economies prefer Thermal Power generation than Hydro power -

• Short lead time• Low initial capital investment

Power: Continued……



40


VIIICONSUMER

BEHAVIOUR

Consumer Spending Patterns in 2002 and 2003



41


p g

( as % of Total Income)

2%

1.00%

2.00%

3%

3.00%

5.00%

3.00%

6.00%

7.00%

5.00%

7.00%

9.00%

47%

1.0%

1.0%

2.0%

3.0%

3.0%

4.0%

4.0%

5.0%

7.0%

7.0%

9.0%

12.0%

42.0%

0% 10% 20% 30% 40% 50%

Home Appliances

Home Textiles

Footwear

Entertainment

Vacation

Consumer Durable

Movies & Theatres

Savings & Investments

Books & Music

Clothing

Personal Care Items

Eating Out

Grocery

2002 2003

Consumer

spendingPattern

(Source: Data fromKSA Technopak,

Analysis by Cygnus)



42


Thank You

indian economy reveiw

Documents