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Is India the Next China?

 

 

New forecast from the World Bank show India will be a bright spot amid gloomy outlook for developing countries. With a population of 1.2 Billion people and the World’s fourth largest economy, India has managed to develop its Agriculture sector into a power house that is now a net exporter. Life expectancy have doubled, health conditions have improved and a sizeable middle class has emerged. India is now home to globally recognize pharmaceutical, steel companies, information and space technologies and a growing voice on the international stage.

A report by economist Richard Haussmann at Harvard University ‘s Center for International Development predicts a 7% annual growth rate through 2024 would continue placing it ahead of China.

The Indian Economy has expanded 7.3% in the first Quarter revised down from 7.7% in the previous Quarter but in line with the market expectation. The Manufacturing sector surged 12.6% while farm output shrank 1%. GDP Annual Growth Rate in India has averaged 6.04% from 1951 to 2015 reported by the Ministry of Statistics and Programmed Implementation.

This hence begs the question, what factors are driving the India’s Economy to such heights.

An expanding Manufacturing sector.

The Prime Minister of India, Narendra modi launched the “Make in India” initiative to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. The Government of India have set a target of increasing the contribution of Manufacturing output to 25% of the GDP by 2025 from the current 16%.

India’s manufacturing sector could touch USD 1 trillion by 2025.In major boost to the “make in India ” initiative, the Government of India has received investment proposals of over $ 3.05 billion by end of August last year. India has since become the most attractive destination for investments in the manufacturing sector.

Below are some of the major investments and developments in this sector.

· Canada’s Magna International Incorporated has started production at two facilities in Gujarat’s Sanand, which will supply auto parts to Ford Motor Co in India and will employ around 600 people at both units.

 

·  Swedish home furnishing brand Ikea has made a long-term plan of opening 25 stores in India by making an investment worth Rs 12,500 crore (US$ 1.9 billion).

 

· Siemens has announced that it will invest € 1 billion (US$ 1.13 billion) in India to add 4,000 jobs to its existing workforce of 16,000 in the country.

 

· US-based First Solar Inc and China’s Trina Solar have plans to set up manufacturing facilities in India. Clean energy investments in India increased to US$ 7.9 billion in 2014, helping the country maintain its position as the seventh largest clean energy investor in the world.

 

· Samsung Electronics has invested Rs 517 crore (US$ 77.82 million) towards the expansion of its manufacturing plant in Noida, Uttar Pradesh (UP). “Samsung India Electronics is committed to strengthen its manufacturing infrastructure and will gradually expand capacity at this plant to meet the growing domestic demand for mobile handsets, as per the company.

 

· Shantha Biotechnics Private Limited has started building a facility to manufacture Insuman, an insulin product to treat diabetes. Sanofi SA, which acquired Shantha Biotechnics, will invest Rs 460 crore (US$ 69.24 million) to build the facility.

 

· BMW and Mercedes-Benz have intensified their localization efforts to be part of ‘Make in India’ initiative. "The localization efforts will reduce the waiting period and accelerate the servicing process of our cars as we had to (previously) depend on our plants overseas for supply and will help us on the pricing front.”

 

· Suzuki Motor Corp plans to make automobiles for Africa, the company’s next big bet, as well as for India at its upcoming factory in Hansalpur, near Ahmedabad, Gujarat.

 

· Taiwan-based HTC has decided to manufacture products in India. HTC is believed to have partnered GDN Enterprises, which has an assembly set up in Noida.

 

· Foxconn is planning an aggressive expansion in India, building up to 12 new factories and employing as many as one million workers by 2020

 

· The State Government of Tamil Nadu has signed investment agreements worth Rs 2, 42,160 crore (US$ 36.45 billion) during a two-day Global Investors Meet in September 2015. - See more at: http://www.ibef.org/industry/manufacturing-sector-india.aspx#sthash.ZxhGczNj.dpuf

The Government has also showcased India as a business friendly destination to attract foreign business to invest and manufacture in the country. For instance the government has cleared land allotment for 130 industrial units across the state with investments of $943.13 million, 2)

This sector is estimated to grow at 9.5% in 2015-2016 up from 5.5% a year ago

An expanding agricultural sector.

Agriculture, along with fisheries and forestry is one of the largest contributors to the GDP. This amounts to 15.35% right behind the manufacturing sector. India is the largest producer, consumer and export of spice products in the world. Agricultural exports consists of 10% of the country’s export and is the fourth largest exported principal commodity.

Over the recent past, multiple factors have worked together to facilitate growth in the agriculture sector in India. These include growth in household income and consumption, expansion in the food processing sector and increase in agricultural exports. Rising private participation in Indian agriculture, growing organic farming and use of information technology are some of the key trends in the agriculture industry.

 

In the budget 2016-2017 the government proposed several measures to improve agriculture and increase farmer’s welfare such as; 2.85 million hectares of land is to be brought under irrigation. They set aside $2.85 million to enable that.


Other Steps taken by the government include improving soil fertility on a sustainable basis through the soil health card scheme and to support the organic farming scheme, improve access to irrigation through ‘Pradhanmantri Gram Sinchai Yojana’; enhance water efficiency through `Per Drop More Crop’; continued support to Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the creation of a unified national agriculture market to boost the incomes of farmers. http://www.ibef.org/industry/agriculture-india.aspx

The growth is projected at 11% against a decline of 0.2% a year ago.

A decline in the crude oil has reduced their energy bill

. India, which is one of the biggest importers of crude oil in the world, is one of the biggest beneficiaries of the fall in crude oil prices,” says Sakthi Prakaash, the lead research analyst at Wealth Rays Securities, a broking, research, and corporate advisory firm based in Bangalore.

 This oversupply is helping reduce the country’s Import bill and by extension reduces the trade and fiscal deficits for the country as oil makes more than a third of India’s total import.

Due to this the inflation has declined, enabling the Reserve Bank of India on January 16 to cut its interesting rate (the repo rate) by 25 basis point to 7.75%. This in turn brings down the cost of borrowing. Further rate cuts are expected this year, bringing down the cost of borrowing, which encourages consumer spending and brings the price of loans down for businesses.

That being said, there are a couple of issue that still portray India in a negative light. Corruption, Political turmoil and black market are some of the factors affecting the growth in India. Poor infrastructure to support the growing market, as well as proper channels to boost young entrepreneurs. (According Apple’s CEO, the Indian age Demographic is 27) .

 

In conclusion. India is quickly becoming a force to be reckoned with.

 

 

 
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