Being the fourth largest economy in the world and has second largest GDP among developing countries , in purchasing power terms , India is poised for growth with macro –economic stability and by 2025 Indian economy is projected to be about 60% in size of the US economy.
Investment is the key element which has taken India on high growth trajectory. In this post we try to analyze current scenario of investment in 3 core sectors: infrastructure, education and security.
Infrastructure investment
India has emerged as land of opportunities for infrastructure sector. The potential is exorbitant as many sectors have opened up for participation and private investment. In the last few years a number of Road Projects have been taken up under ambitious National Highway Development Programme costing about US$ 12 billion, in which large number of foreign construction companies are participating. The telecom sector has moved forward at a brisk pace and power reforms have gained momentum while the disinvestments process has got underway in the Telecom and Oil and Gas sector. In order to have an integrated development of Transport system, National Rail Development Programme has also been launched in Dec. 2002 envisaging an investment of about US $3.5 billion.
India has been prominent in attracting most of the infrastructure projects with private participation in the region. For instance an important role behind the extensive growth of Indian IT sector and BPO’s is played by availability of robust infrastructure (telecom, power and roads) in the country. Relevant telecom facilities are an important prerequisite for the success of the software industry and over the years, the Government has taken steps to ensure that telecom remains a priority area.
Similarly, regular, reliable, uninterrupted power, a major necessity for running IT software and services businesses, has also received substantial attention from the Government. Recent steps to privatize the distribution of power and bring in greater efficiencies and customer centricity in the market have been welcomed by the ICT industry.
The overall roads and highways scenario in India has also witnessed major improvements over the last few years. Most cities and first and second tier towns are connected and interlinked to each other. Major investments have gone into the development of highways, both on the side of the central and state Governments. Clearly, the Indian Government has understood the importance of infrastructure to industries such as IT and created a conducive environment for its development and expansion.
Present meltdown
In the present economic crisis when all sectors are facing the heat of downturn, infrastructure sector comes with no exceptions. The major hindrance coming in way of growth of this sector is scarcity of funds. This holds true especially in the case of large scale, complex projects, as in case of hydro power projects, which have long gestation periods. The Government needs to consider introducing mechanisms/ instruments that allow efficient long-term funding of projects. In addition, limits on external commercial borrowings for such infrastructure projects should be removed.
In recently announced fiscal package by government, in order to boost investment in the infrastructure sector, the government authorized the state-run India Infrastructure Finance Co. Ltd (IIFCL) to raise Rs.100 billion through tax-free bonds by next March. Announcing a Rs.3,000-billion ($60-billion) stimulus package to pump prime the economy, a government statement said IIFCL, set up to finance infrastructure projects in the country, could use the fund to refinance port, highway and power projects, being developed under the public-private partnership model.
Scenario of investment in private education
Indian education system has witnessed an impressive growth path since independence. From just 0.1 Million in 1947, enrollments in the country have grown to more than 11 Million in 2005-06. The education system in the country saw a revolution with the emergence of a whole new class of education providers, including private institutes, distance education providers, self-financing courses in public institutions and foreign education providers.
Despite the fact of rising enrolment figures, the cumulative expenditure of states on educational services as a % of total expenditure has shown a decline of 18% in 2007-08. Inter-state differences in per capita education spending across states are widening. While per capita fund flow to education in 2005-06 was Rs 483 in Uttar Pradesh and Rs 487 in Bihar. It was Rs 1034 in Maharashtra and Kerala and Rs 1777 in Himachal Pradesh. A slowdown in government spending in key areas of education infrastructure in many of these states has happened despite a marked improvement in the fiscal performance of most of these states. This is in sharp contrast to the post -1997 periods when a fall in education spending could be attributed to shortage in government finances due to deteriorating fiscal health of states.
Aftermath of terrorism on India Inc
Recent terror attacks in financial of the country Mumbai will post short term impact on Indian economy according to many economist and analyst. Being the home of Asia’s oldest stock exchange, country’s central bank, capital markets regulator (SEBI) and India’s biggest corporate houses- Tata’s , Birla’s , Ambani’s , accounts for country ‘s $ 1 trillion (Rs 49.9 trillion) economy and contributes one third of its direct taxes. According to various economists though these attacks will affect country’s economy but deeper impacts will come from global slowdown.
National security is a critical factor that determines the level of investment — both domestic and foreign — along with conducive business environment, positive policy matrix and return on investment. Global investors apply these parameters diligently while making their decision on investment destinations.
In tough times like we are in currently, the portfolio investment and allocation decisions by certain global funds could be affected. However, investment decisions by various multinationals to enter a market for strategic reasons tend to be made with a longer term and global view in mind and should not get impacted, unless these attacks continue for prolonged period. While overall FDI flows at $17 bn were 137% higher in the first half of this fiscal year, the second quarter ended September 2008 has seen a slowdown of 30% in FDI flows compared to the June quarter. On the other hand, portfolio flows into India (FII) have already seen a massive outflow this fiscal year of over $9 bn through end of October, while FIIs had invested over $13 billion in the Indian markets last fiscal year.
The business confidence which was weakening due to current global turmoil will now bear the heat of this terror attack, with sentiments further going weak. The hardest hit industries will be hospitality, travel and tourism and luxury retail business. Already tourism sector is struggling to beat economic slowdown, now these terror attacks have added to their struggle with hoteliers are expecting large scale cancellation of bookings mostly from overseas visitors. This will in turn affect the aviation business which is already in battle with the slowdown. Another immediate victim of this attack would be luxury retail business. The Taj and Trident are home to around a dozen of luxury retailers including Gucci, Ferragamo, Jimmy Choo, Estee Lauder, Louis Vuitton and Fendi. Business would be impacted not only due to space but also sales because lot of sales comes from in-house guests. Most luxury brands prefer to operate out of five star hotels because India doesn’t have high quality luxury retail space.
Boom time for security industry
In the times when Indian industries are battling with wicked effects of global slowdown and recent terror attacks on Mumbai, the only industry poised to book high profits in future is Indian security industry. Private security in India will become a Rs 50,000 crore (Rs 500 billion) industry in four years as corporate have increased their spending on safeguards after the Mumbai terror strikes. The private security business, a Rs 22,000 crore (Rs 220 billion) industry now, would touch Rs 50,000 crore as security all of a sudden has become top priority for Indian Inc.
Terrorism now is a universal phenomenon and most countries are facing it. It is the other overwhelming factors that will affect investments. Yet, it’s imperative that we put in place a foolproof security system that can sense and eliminate these terrorist attacks. We also need to improve risk management systems and disaster recovery plans.
India’s position in the emerging financial and economic architecture is going to be substantial. Stakeholders of the growth are not Indians alone but the world community. That calls for a joint action against terrorism.
Investment is the key element which has taken India on high growth trajectory. In this post we try to analyze current scenario of investment in 3 core sectors: infrastructure, education and security.
Infrastructure investment
India has emerged as land of opportunities for infrastructure sector. The potential is exorbitant as many sectors have opened up for participation and private investment. In the last few years a number of Road Projects have been taken up under ambitious National Highway Development Programme costing about US$ 12 billion, in which large number of foreign construction companies are participating. The telecom sector has moved forward at a brisk pace and power reforms have gained momentum while the disinvestments process has got underway in the Telecom and Oil and Gas sector. In order to have an integrated development of Transport system, National Rail Development Programme has also been launched in Dec. 2002 envisaging an investment of about US $3.5 billion.
India has been prominent in attracting most of the infrastructure projects with private participation in the region. For instance an important role behind the extensive growth of Indian IT sector and BPO’s is played by availability of robust infrastructure (telecom, power and roads) in the country. Relevant telecom facilities are an important prerequisite for the success of the software industry and over the years, the Government has taken steps to ensure that telecom remains a priority area.
Similarly, regular, reliable, uninterrupted power, a major necessity for running IT software and services businesses, has also received substantial attention from the Government. Recent steps to privatize the distribution of power and bring in greater efficiencies and customer centricity in the market have been welcomed by the ICT industry.
The overall roads and highways scenario in India has also witnessed major improvements over the last few years. Most cities and first and second tier towns are connected and interlinked to each other. Major investments have gone into the development of highways, both on the side of the central and state Governments. Clearly, the Indian Government has understood the importance of infrastructure to industries such as IT and created a conducive environment for its development and expansion.
Present meltdown
In the present economic crisis when all sectors are facing the heat of downturn, infrastructure sector comes with no exceptions. The major hindrance coming in way of growth of this sector is scarcity of funds. This holds true especially in the case of large scale, complex projects, as in case of hydro power projects, which have long gestation periods. The Government needs to consider introducing mechanisms/ instruments that allow efficient long-term funding of projects. In addition, limits on external commercial borrowings for such infrastructure projects should be removed.
In recently announced fiscal package by government, in order to boost investment in the infrastructure sector, the government authorized the state-run India Infrastructure Finance Co. Ltd (IIFCL) to raise Rs.100 billion through tax-free bonds by next March. Announcing a Rs.3,000-billion ($60-billion) stimulus package to pump prime the economy, a government statement said IIFCL, set up to finance infrastructure projects in the country, could use the fund to refinance port, highway and power projects, being developed under the public-private partnership model.
Scenario of investment in private education
Indian education system has witnessed an impressive growth path since independence. From just 0.1 Million in 1947, enrollments in the country have grown to more than 11 Million in 2005-06. The education system in the country saw a revolution with the emergence of a whole new class of education providers, including private institutes, distance education providers, self-financing courses in public institutions and foreign education providers.
Despite the fact of rising enrolment figures, the cumulative expenditure of states on educational services as a % of total expenditure has shown a decline of 18% in 2007-08. Inter-state differences in per capita education spending across states are widening. While per capita fund flow to education in 2005-06 was Rs 483 in Uttar Pradesh and Rs 487 in Bihar. It was Rs 1034 in Maharashtra and Kerala and Rs 1777 in Himachal Pradesh. A slowdown in government spending in key areas of education infrastructure in many of these states has happened despite a marked improvement in the fiscal performance of most of these states. This is in sharp contrast to the post -1997 periods when a fall in education spending could be attributed to shortage in government finances due to deteriorating fiscal health of states.
Aftermath of terrorism on India Inc
Recent terror attacks in financial of the country Mumbai will post short term impact on Indian economy according to many economist and analyst. Being the home of Asia’s oldest stock exchange, country’s central bank, capital markets regulator (SEBI) and India’s biggest corporate houses- Tata’s , Birla’s , Ambani’s , accounts for country ‘s $ 1 trillion (Rs 49.9 trillion) economy and contributes one third of its direct taxes. According to various economists though these attacks will affect country’s economy but deeper impacts will come from global slowdown.
National security is a critical factor that determines the level of investment — both domestic and foreign — along with conducive business environment, positive policy matrix and return on investment. Global investors apply these parameters diligently while making their decision on investment destinations.
In tough times like we are in currently, the portfolio investment and allocation decisions by certain global funds could be affected. However, investment decisions by various multinationals to enter a market for strategic reasons tend to be made with a longer term and global view in mind and should not get impacted, unless these attacks continue for prolonged period. While overall FDI flows at $17 bn were 137% higher in the first half of this fiscal year, the second quarter ended September 2008 has seen a slowdown of 30% in FDI flows compared to the June quarter. On the other hand, portfolio flows into India (FII) have already seen a massive outflow this fiscal year of over $9 bn through end of October, while FIIs had invested over $13 billion in the Indian markets last fiscal year.
The business confidence which was weakening due to current global turmoil will now bear the heat of this terror attack, with sentiments further going weak. The hardest hit industries will be hospitality, travel and tourism and luxury retail business. Already tourism sector is struggling to beat economic slowdown, now these terror attacks have added to their struggle with hoteliers are expecting large scale cancellation of bookings mostly from overseas visitors. This will in turn affect the aviation business which is already in battle with the slowdown. Another immediate victim of this attack would be luxury retail business. The Taj and Trident are home to around a dozen of luxury retailers including Gucci, Ferragamo, Jimmy Choo, Estee Lauder, Louis Vuitton and Fendi. Business would be impacted not only due to space but also sales because lot of sales comes from in-house guests. Most luxury brands prefer to operate out of five star hotels because India doesn’t have high quality luxury retail space.
Boom time for security industry
In the times when Indian industries are battling with wicked effects of global slowdown and recent terror attacks on Mumbai, the only industry poised to book high profits in future is Indian security industry. Private security in India will become a Rs 50,000 crore (Rs 500 billion) industry in four years as corporate have increased their spending on safeguards after the Mumbai terror strikes. The private security business, a Rs 22,000 crore (Rs 220 billion) industry now, would touch Rs 50,000 crore as security all of a sudden has become top priority for Indian Inc.
Terrorism now is a universal phenomenon and most countries are facing it. It is the other overwhelming factors that will affect investments. Yet, it’s imperative that we put in place a foolproof security system that can sense and eliminate these terrorist attacks. We also need to improve risk management systems and disaster recovery plans.
India’s position in the emerging financial and economic architecture is going to be substantial. Stakeholders of the growth are not Indians alone but the world community. That calls for a joint action against terrorism.
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1 comment:
Markets are always unpredictable.
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