Q4: Explain the Emerging Sectors of Indian Economy.

Ans: There is broad consensus that the global center of economic growth is moving to Asia, and as a large emerging nation with a growing middle class, India has captured the attention of developed economies looking for new investment and trade opportunities. By some estimates, India’s economy will grow from its current $1.8 trillion GDP to be the world’s third largest in 2030, with a GDP of close to $30 trillion. A recent report by the National Intelligence Council (Global Trends 2030: Alternative Worlds) states that by 2030, “India could be the rising economic powerhouse that China is seen to be today.” Despite the interest in India’s economy, its dynamism is still often perceived in the United States as being driven by the information technology (IT) sector. However, the IT industry accounts for only 7.5 percent of India’s GDP and employs just a fraction of the population. The IT sector enables nearly every other sector in India, but it is only one of the many drivers of India’s economy. As India leapfrogs rapidly from an agrarian society to a knowledge-based economy, and fills the gaps in between, the perception that IT remains the main sector driving India’s growth is outdated. It is in this context that the Wadhwani Chair saw the need for a deeper dialogue on under-explored aspects of the emerging Indian economy. We launched a year-long public lecture series, hosting top executives from key sectors to discuss the pressing policy challenges they face. Each one of these sectors provides vital inputs into the economy, enabling business and investment to flow into and out of India, as well as within its borders, like never before. These flows are anticipated to boost job creation, human capital, and development indicators throughout the country. The lectures provided many insights into India’s economic future and clarity on the opportunities and challenges key sectors face. Here are some of the Highlights:

EMERGING SECTORS IN INDIAN ECONOMY

1. Manufacturing Sector: The government has recently set up a National Manufacturing Competitiveness Council Progressive reduction in taxes and tariffs, India emerging as a manufacturing hub manufacturing exports from India likely to grow to USD 300 billion in 2015 from USD 48 billion in 2003

2. Food processing: India is the world’s largest producer of tea, sugarcane and milk Processing industry is nascent but is growing rapidly FDI of 100% permitted except in special cases, capital goods can be imported freely All profits from exports are free of corporate tax and minimum alternate tax

3. Textiles: The second largest textile industry in the world Textiles account for 14% of India’s industrial production and 27% of export earnings National Textile Policy aims to take up the textile and apparel exports from USD 11 billion in 2004 to USD 50 billion in 2010

             4. The Indian Telecom Sector:. India is the fourth largest telecom market in     Asia after China, Japan and South Korea. The Indian telecom network is the eighth largest in the world and the second largest among emerging economies. At current levels, telecom intensiveness of Indian economy measured as the ratio of telecom revenues to GDP is 2.1 percent as compared with over 2.8 percent in developed economies (CRISIL, www.ibef.com).Indian telecom sector has undergone a major process of transformation through significant policy reforms. The reforms began in 1980s with telecom equipment manufacturing being opened for private sector and were later followed by National Telecom Policy (NTP) in 1994 and NTP'1999. Historically, the telecom network in India was owned and managed by the Government considering it to be a natural monopoly and strategic service, best under state's control. However, in 1990's, examples of telecom revolution in many other countries, which resulted in better quality of service and lower tariffs, led Indian policy makers to initiate a change process finally resulting in opening up of telecom services sector for the private sector.

5.  Healthcare: India's healthcare sector has been growing rapidly and estimated to be worth US$ 40 billion by 2012, according to Price water house Coopers in its report, 'Healthcare in India: Emerging market report 2007'. Revenues from the healthcare sector account for 5.2 per cent of the GDP, making it the third largest growth segment in India. The sector's growth will be driven by the country's growing middle class, which can afford quality healthcare. Over 150 million Indians have annual incomes of more than US$ 1,000, and many who work in the business services sector earn as much as US$ 20,000 a year. Today at least 50 million Indians can afford to buy Western medicines-a market only 20 per cent smaller than that of the UK. The growing purchasing power of Indian patients is revealed in the increased business of air ambulance services. Around 365 airlifting worth several millions of rupees happen in Delhi in a year on average. If the economy continues to grow faster than the economies of the developed world, and the literacy rate keeps rising, much of western and southern India will be middle class by 2020. To meet this demand, the country needs US$ 50 billion annually for the next 20 years, says a CII study. India needs to add 2 million beds to the existing 1.1 million by 2027, and requires immediate investments of US$ 82 billion.

Funds in the sector have been largely private. In fact, it is believed that the private sector provides 60 per cent of all outpatient care in India and as much as 40 per cent of all in-patient care. It is estimated that nearly 70 per cent of all hospitals and 40 per cent of hospital beds in the country are in the private sector, says PWC.

The opportunities presented by the healthcare sector have made it a major draw for potential investors. The healthcare sector attracted US$ 379 million in 2006 - 6.3 per cent of the total private equity (PE) investment of US$ 5.93 billion. The PE deals that the sector attracted in 2006 were as large as inputs into the automotive sector.

Medical care services provider Apollo Hospitals group will invest about US$ 235.69 million in the next 18 months to set up 15 hospitals in tier-II and tier-III cities in India. The Indian government plans to invest US$ 177.22 million across the golden quadrilateral (GQ) project, to develop nearly 140 trauma care centres on the 6,500 km long north-south and east-west corridors. Competitor Fortis Healthcare Ltd will add 28 hospitals to its 12-hospital chain by 2012. George Soros's fund Quantum and Blue Ridge bought 10 per cent in Fortis Healthcare. Manipal Health Systems raised over US$ 20 million equity from IDFC Private Equity Fund. Bangalore-based HealthCare Global Enterprises raised over US$ 10 million in equity from IDFC. Metropolis Health Services, a diagnostic chain, raised over US$ 8 million in equity from ICICI Venture. Investment firms Apex Partners, IFC and Trinity Capital have invested over US$ 200 million in hospital firms.

6.      Tourism:  India’s tourism industry is experiencing a strong period of growth,     driven by the burgeoning Indian middle class, growth in high spending foreign tourists, and coordinated government campaigns to promote ‘Incredible India’. The tourism industry in India is substantial and vibrant, and the country is fast becoming a major global destination. India’s travel and tourism industry is one of them most profitable industries in the country, and also credited with contributing a substantial amount of foreign exchange. This is illustrated by the fact that during 2006, four million tourists visited India and spent US $8.9 billion. Several reasons are cited for the growth and prosperity of India’s travel and tourism industry. Economic growth has added millions annually to the ranks of India’s middle class, a group that is driving domestic tourism growth. Disposable income in India has grown by 10.11% annually from 2001-2006, and much of that is being spent on travel. Thanks in part to its booming IT and outsourcing industry a growing number of business trips are made by foreigners to India, who will often add a weekend break or longer holiday to their trip. Foreign tourists spend more in India than almost any other country worldwide. Tourist arrivals are projected to increase by over 22% per year through till 2010, with a 33% increase in foreign exchange earnings recorded in 2004. The Tourism Ministry has also played an important role in the development of the industry, initiating advertising campaigns such as the “Incredible India” campaign, which promoted India’s culture and tourist attractions in a fresh and memorable way. The campaign helped create a colorful image of India in the minds of consumers all over the world, and has directly led to an increase in the interest among tourists. The tourism industry has helped growth in other sectors as diverse as horticulture, handicrafts, agriculture, construction and even poultry. Both directly and indirectly, increased tourism in India has created jobs in a variety of related sectors. The numbers tell the story: almost 20 million people are now working in the India’s tourism industry.

7.      Entertainment: The last decade has seen the Indian entertainment industry grow exponentially. The key drivers for this have been technology and the government’s recognition of the importance of the sector. The stage is now set for further evolution with a trend towards convergence, adding a new dimension to entertainment. The industry is expected to grow at a CAGR of 27 per cent.  Revenues are projected to increase to US$ 10 billion in 2005 from 3 billion in 2002. India is one of the most media-exposed countries when compared to its Asian counterparts due to its size and consequently a large consumer base.

Films

• The Indian film industry is largest in the world in terms of number of movies produced. India produces 800-900 movies every year in 52 languages and provides direct and indirect employment to 5 million people.

• The film Sector is one of the oldest industries in India. The first commercially successful film was made in 1913. The exports of Indian films in the last few years have seen a dramatic upward swing with the export earnings for the year 2001-02 being in the region of Rs. 9 billion.

• The Government of India has accorded industry status to the film industry and FIs are formulating funding mechanisms for financing films. Recently some major film projects have received funding from FIs and banks.

• Many large production houses are embracing a corporate structure and there is a trend towards adopting a professional approach in producing and marketing films in India and overseas.

Television

• Television is a leading entertainment medium accounting for the largest slice of the urban India’s media consumption pie (72% of total media consumption).

• Television software is also expected to grow in India as technology is affordable and manpower cost is low.

• The Government of India has liberalised the uplinking policy to allow India to develop as a centre for broadcasting.

• There has been a reduction in the rate of basic custom duties on the import of certain specified equipment for setting up an earth station for broadcasting.

Opportunities

Opportunities for this sector exist across multiple categories of the entertainment industry.

• Film distribution is turning out to be a lucrative business.

• Television software content development is expected to experience healthy growth in the coming years.

• The radio industry is witnessing several private FM channels being launched in many Indian cities.