Global Perspectives
National Economic Profiles from IIC Partners
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India
KTA Associates
MUMBAI India is the worlds fastest growing major economy, with a GDP growth rate of 9.2 per cent and a domestic market of a billion-plus people. About 65 per cent of the population is of working age the youngest in the world and foreign exchange reserves are close to $200 billion US.
Geographically India has abundant natural resources such as coal (fourth-largest reserves in the world), iron ore, manganese, mica, bauxite, titanium ore, chromium, natural gas, petroleum, diamonds and limestone.
Indias major exports are textiles, jewelry, engineering goods and software, as well as financial, research, and technological services, while crude oil, machineries, fertilizers, and chemicals are the major imports.
In 2006 exports reached $112 billion US, against imports of $190 billion. Indias not just poised but has arrived with an elephant dance on the International platform, says Keyur Thakore. Today, any globally competitive company wishing to leap frog into the next decade cannot give India a pass. So much so that senior executives and fresh graduates have made India a must-have experience on their resums. If this sounds like hyperbole, Thakore has statistics in abundance to prove his case and a global perspective to leaven his view. Hes the founder of the Mumbai-based executive search firm KTA Associates and a long-time member of the global search organization IIC Partners, with offices in 40 countries worldwide.
He says India continues to receive massive doses of foreign direct investment (FDI). In fiscal 2006, FDI inflows (equity only) from April 2006 to February 2007, were worth $11.89 billion, compared to $ 4.31 billion during same period of 2005, according to government data. The sectors that account for these investments are software, financial services, manufacturing, telecom, energy, services, electrical equipment and transportation.
INDUSTRY SECTORS
IT and ITES (information technology enabled services), with an estimated growth rate of 31 per cent, are expected to account for 5.4 per cent of Indias GDP, with exports touching $31.3 billion US in fiscal 2007. BPO (business process outsourcing) to India from international clients could exceed $100 billion US by 2015. Most of the worlds biggest technology companies including IBM, Microsoft, Dell, HP and Bell Labs have major and expanding presences in India.
With the end of world export quotas, the textile and apparel industry is on the threshold of breakthrough and exports currently at $17 billion US are expected to rise further. The industry accounts for 14 per cent of the industrial production and nearly 30 per cent of exports.
The Indian automotive industry has grown at a CAGR (compound annual growth rate) of 14 per cent over the last five years, with total sales of vehicles reaching nearly nine million units in 2005-06. The Indian domestic passenger car market is expected to grow at a CAGR of 10-15 per cent for the next eight to ten years with annual sales of more than three million cars.
With a large, educated and empowered population under 35 years old, its not surprising that all the worlds leading auto brands are betting big on the great Indian auto bazaar, Thakore says. This enthusiasm is not confined to the automobile market but also extends to the auto ancillary industry which has the potential to grow into a $33 $40 billion business by 2015, from the current base of $10 billion US.
Indias component exports have consistently grown faster than domestic sales. Currently, exports account for around 15 per cent of domestic industrys total sales and have touched the $2 billion US mark. The entry of multinational carmakers and their efforts at localization have helped the industry grow. Toyota, Hyundai, GM, Ford, Volvo and Delphi are all naming Indian vendors.
The Indian telecom network, with 189 million connections, is the fifth largest in the world and the second largest among the emerging economies of Asia. Today, it is the fastest growing market in the world. The total subscriber base is expected to reach 250 million in 2007. The wireless subscriber base accounts for 54.6 per cent of the total telephone subscriber base and is expected to surpass 2.5 million new subscribers per month in 2007. This has also had a positive impact on telecom equipment, with annual sales touching $10 billion US.
DEMOGRAPHICS
With about 35 per cent of the population under age 15, India is one of the youngest countries in the world. About 59 per cent of the population is literate, this includes 70.2 per cent of males and only 48.3 per cent of females.
Despite its large and rapidly growing industrial output, India is still an agrarian country, Thakore says. About 60 per cent of the population is involved in agriculture with about 12 per cent in industry and 28 per cent in services. But the contribution of these sectors to the economy is reversed. Agriculture production accounts for only 19 per cent of GDP, while services contribute 60 per cent. Industrys share in the GDP is close to 20 per cent. But manufacturing remains the main driver of economic growth.
The rate of unemployment is around 7.8 per cent and inflation is 5.3 per cent. The exchange rate is around 43 rupees for every US dollar.
Since overthrowing the shackles of License Raj (business licensing and red tape) in the early 1990s, India has torched a blistering growth rate, helped by successive pro-reformist governments, a naturally entrepreneurial mindset and successive deregulation and liberalization of various sectors.
WAGES AND SALARIES
In the late 1990s, senior management enjoyed the highest salary increases across all surveyed employee groups. But since 2000, staff members at the professional/supervisor/technical level have received the highest increase, and this is expected to continue. This group received a salary increase of 16 per cent in 2006 as compared to 15.4 per cent in 2005. On average, employees in India received a salary increase of between 11.9 per cent and 16 per cent in 2006, on par with last years increases (official survey figures).
| Employee group |
2006 Increase |
2007 Projection |
| Senior/Top Management |
13.9% |
14.2% |
| Middle Management |
15% |
15.1% |
| Professional/Supervisor/Technical |
16% |
15.8% |
| Clerical/Support |
13.5% |
13.6% |
| Manual |
11.9% |
12.2% |
Industry wise break up of Pay Packets
| Industry |
2006 Increase |
2007 Projection |
| Insurance |
17.1% |
16.1% |
| Banking & Financial Services |
17% |
16.5% |
| IT Enabled Services |
15.6% |
14.8% |
| Information Technology |
15.4% |
15.2% |
| Telecommunication |
15.1% |
15.7% |
| Healthcare and Medical Products |
12% |
12.7% |
| Not-for-Profit |
11% |
11% |
Increasing Market Orientation
With pressure growing to retain key talent, an increasing number of organizations are ensuring their pay is competitive by closely monitoring market movements. Locally-owned organizations are awarding higher salary increases than multinational companies in India. While official figures speak of locally-owned organizations seeing an overall salary increase of 14.9 per cent, and multinationals an overall increase of 14.3 per cent, the reality is different - in actual practice compensation packages have increased at an average of not less than 40 per cent in most industry sectors. This highlights alignment of compensation practices of organizations to global standards in a bid to strengthen their reward management practices and focus on pay for performance to attract and retain talent and enhance overall productivity.
ISSUES AND PRIORTIES FOR INDIA
As India prepares to become an economic superpower, it is expediting much needed socio-economic reforms and taking steps to overcome institutional and infrastructure bottlenecks inherent in the system as the availability of both physical and social infrastructure is central to sustainable economic growth. Currently, the Indian economy is facing these challenges:
Sustaining the growth momentum and achieving an annual average growth of 7-8 per cent in the next five years.
Simplifying procedures and relaxing entry barriers for business activities.
Checking the growth of population. Due to a high population growth, gross national income per capita remains very poor.
Boosting agricultural growth through diversification and development of agro processing.
Expanding industry fast, by at least 10 per cent per year to integrate not only the surplus labour in agriculture but also the unprecedented number of women and teenagers joining the labour force every year.
Developing world-class infrastructure for sustaining growth in all the sectors of the economy.
Allowing foreign investment in more areas.
Implementing fiscal consolidation and eliminating the revenue deficit through revenue enhancement and expenditure management.
Empowering the population through universal education and health care.
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