2nd April 1. The Indian Economy 1.1 Steady Economic Growth [Growth of the Indian Economy] Indian economy has continued to expand each year, but it showed a rapid growth particularly over the past 10 years and the result which came out is that the real GDP was doubled. In 2011, surpassing Japan, India became the third largest in the world in purchasing power parity-based GDP. In 2014 the GDP purchasing power parity is 4 trillion $788 billion in Japan and 7 trillion $277 billion in India. According to the research report ,“The World of 2050” of PwC, the India purchasing power parity-based GDP of 2050,reveals that India will surpass US and would become the second largest in the world. Now the world economy has greatly changed and the Indian economy is at the centre. [Changes in real GDP (1980-2014 years)] (1 billion Indian rupees) [Source: IMF world Economic Outlook, October 2014] [Changes in the Industrial structure] Whereas the contribution to the real GDP growth in each industry had greatly increased the proportion of the service industry, but since the year 2000 the average is about 65% in the industrial sector without no change from the 50’s which remains just under 30% in recent years. This means that two-thirds of today’s economic growth has been brought by the service industry. In the background, the service sectors have developed. The introduction of services such as IT has increased in the course of production of manufacturing industry as a new service by technological innovation has emerged. It increased the service demand from consumers at home and abroad, privatization, deregulation, direct investments and the progress in economic reform and trade liberalization. Among them the development of the IT industry is remarkable. Samsung, Ericsson, Motorola, Dell, Nokia and many other IT-related companies in India has become a leading research and development centers in the world. In a service-oriented economic growth of India, according to the industrial structure, the manufacturing shares of the south-east Asian countries like China, Thailand, and Indonesia are more compared to India. From 1990 to 2013 the rate of increment shown by these countries are, China from 41% to 44%, Indonesia from 39% to 46% whereas India has shown no change which is from 25% to 27%. On the other hand the share of the entire service industry from 1990-2013 (the tertiary industry) in China is from 31% to 46% and although there is rise in India from 41% to 57%, it has become the largest. Thus in recent years in the Indian economy, the manufacturing industrial growth rate has risen, although considered basically a service-oriented industrial structure. [Industrial structure of each country (in 2013)] (%) 57 60 50 44 43 46 46 45 40 40 30 20 25 18 10 12 14 10 0 第一次産業 第二次産業 インド 中国 タイ 第三次産業 インドネシア Source: World Bank 1.2 The ties with World Economy in-depth [Situation of foreign trade] On the other hand however the fiscal balance of fiscal year 2014 has recorded a deficit of 9 trillion 298 billion rupees and this amount is increasing year by year. Elimination of chronic budget deficit has become a long-standing challenge in the country. Income level is still low which also means that to break away from the budget deficit which is partly a weakness of tax collection infrastructure. However the services exports centered on such outsourcing and information communication, due to an increase in remittances from Indians in overseas, the current account deficit will not fall within a manageable range. Against the background of the expectations of the Indian economy, which also accelerated the inflow of direct investment in addition, the securities investment and the stability of capital account structure is increasing. Cannot deny the likely short-term funds which is unwinding and exiting quantitative easing in many western countries, but current foreign currency reserves from overseas stock investment balance is more than four times the short-term external debt which is poor external liquidity and relatively optimistic. [US and economic relations with China] Versus US relationship Once India and the United States were told to be “cats and dogs”, but is now having a best friend relationship. Each speculation for the reason of this change is mentioned. For India, the United States is a necessary presence in economic liberalization in the 1990s. On the other hand for the United States, there is a speculation that incorporate into India was transformed into a post cold war to the global strategy that was present in the huge market that cannot be ignored in the Indian economy. US president Barrack Obama visited Mumbai in 2010 which is the heart of the Indian economy. He visited Mumbai for the “US-India relations which is United States 21st century’s (missing) partner relationships to decide” and to promote the positioning and strengthening of a strategic relationship with India. During this visit, among 200 people of the top economic associations of the world, each association from the United States and India negotiated at $10 billion (about 8,100 billion) was enacted. In addition in June 2011, the United States and India’s economic ministers held an annual economic consultation. India’s financial, retail, manufacturing sectors made sure to continue the efforts for the open market infrastructure sector. Here the discussions towards the modernization of India’s financial structure and funding for the development of the infrastructure has to deepen such as the entry of US retailer Wal Mart in India. The United States suggesting possibilities to express support for India aims to become a permanent member of the UN Security Council which has build up a solid relationship between the two countries. [Changes in the Balance of Payments (1997-2014)] (One billion US dollars) 600 400 200 0 中国 -200 インド -400 アメリカ -600 -800 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 -1000 Source: IMFWorldEconomicOutlook,October2014 China relationship China’s export has increased to about $48.4 billion which is about 31 times in 2013 from $1.6 billion of 2000. Imports grew from about $ 1.4 billion to $17 billion which is about 13 times. India exports share of the foreign total exports of China in 2013 is from 0.1% in 2000 to 2.2%, while imports from the same market share which is smaller has greatly increased from 0.1% to 0.9%. China vs India exports (US billion dollars) 600 500 484.3 400 300 31Doubl 200 100 15.6 0 2000年 2013年 Source: UN Comtrade Database China vs India import value (US billion dollar) 200 150 169.7 13倍 100 50 13.5 0 2000年 2013年 Source: UN Comtrade Database As the trade relation between India and China has deepened it has also increased the friction between the two countries. In recent years the biggest factor in trade for both the countries has soared. India has rushed to the development of infrastructure such as power and communication and is due to increase the imports of manufacturing equipments from China over the supply capacity and cost competitiveness of manufacturing industry. This resulted to the medium trade deficit of recent India bulge to $35 billion. This became a source of concern for the Indian side. For this reason, both the countries announced the “Trade and Economic Development Five Year Plan” in 2014 which was co-operation towards the correction of the above trade imbalance. 3rd April 2. Recent Indian Economy 2.1 Economy after the collapse of Lehman Brothers Indian Economy has been the healthiest economic growth in the world. Despite the decline after the collapse of Lehman Brothers, a result that struck the bold economic measures of fiscal year 2013 by 5.1% in fiscal year 2014 continued to be 6.9% of the economic growth. India is basically a real economic zone. Even as the salary income rises there is not much real estate investment as China. The 2050 has also appeared GDP prediction of the second largest in the world after China. Already the fourth largest in the world at purchasing power parity it has become a huge market, second to Japan. Increase in middle income is supporting the growth of its economy. No unified definition for the middle classes and annual household disposable income is more than 5,000 US dollars and less than 35,000 US dollars in 2001. The income of 0.6 Million people in 2001, 180 million people in 2005, 560 million people in 2010 is expected to exceed china by 2020. Mobile phone subscribers are also increasing at a pace of 12 million in every month. A contract of 800 million and 86.3 million cases were made in 2013. In addition half of India’s population is below 25 years. After getting married and then having a children and then buying a house, refrigerator, TV etc. has created demand one after the other but there is not enough supply according to the demand. India Government announced that during the period of 2014, October-December the real growth rate of Gross Domestic Product (GDP) has increased at a rate of 7.5% during 11/2014. It is a high level increase but slightly lower than the market expectations. It doesn’t mean that Indian economy is growing well. Source: EuromonitorInternational Mitsui Sumitomo created it based on the data. The annual household disposable income is income more than 5,000 US dollars and less than 35,000 US dollars and middle income. The above graph is limited to showing past performance and forecasts but does not guarantee the future investment performance,etc. （http://www.smbcnikko.co.jp/inv/item/inv/inv_115/toku1.html） As a concern in respect to the Indian economy firstly the inflation will be raised. The Government alarmed when the price rises to lessen the strong personal consumption. Among the “Survey Report on Overseas Business Operations by Japanese Manufacturing companies 2014 fiscal foreign direct investment survey results (26 th)” of the Japan Bank for International Co-operation have been cited out of concern. Suzuki, Honda and Hyundai car raised the price of some models a few percent which is a policy that corresponds to the rise in price of raw materials prices. Until now the rise of the grocery has been noted but if the car price increases then there is a possibility that the brake will also be applied to the purchasing willingness of middle and high income people. The budget deficit has also been questioned. The Government in order to suppress the rise of food and gasoline prices is spending a lot of subsidies. Although the amount which was decreased in fiscal year 2011 budget proposal is similar to that which have been incorporated. Also it is certainly a large demand for more spending in India. However elements engineered in India, declined the bond prices and increasing the number of deficits to rise various mortgage rates and adverse the economic recovery. The fiscal deficit of 2015 has reduced to 3.9% of GDP in India is reduced from 4.1% of 2014. 2.2 Economic Stimulus of Government To curb inflation and to accelerate the monetary policy of India the interest rates are hiked. The Reserve Bank of India (RBI) has raised the repo rate (the main lending rates for banks) in March 2010 to 5.0 percent which is a policy interest rate and the reverse repo rate (the interest at the time of depositing the surplus funds of commercial banks to RBI) was raised to 3.5%. On July 27, the interest hike was carried out for the fourth time in four months. The rising of the rates is pretty fast in developing countries which are clearly reflected over the inflation of the RBI. On the same day RBI has published planning 8 times to increase the frequency of policy meetings to four times a year. It seems to change the interest rate by the extraordinary meeting, reducing the flexible monetary changes in policy and implementation. On the other hand the fiscal policy in India now suffers the large fiscal deficits. During the global recession of 2008-2009, India similar to other countries will ride out the crisis to increase the fiscal stimulus such as infrastructure investment. As a result the budget deficit has swelled up to 7.8% of the temporary GDP in February 2009 and led up to reveal a policy of S&P which was reviewing the local currency of the government bond ratings. However most recently in addition to such auction of third generation mobile frequency band has been successful, even sale of the state owned company shares, owned by the government are progressing sequentially. Possible and received additional revenue based on deficit reduction efforts by the Economic growth and the Government causing a big mess will be considered. Finally about the monetary policy and the future outlook of the economy. Firstly, is the economy which is believed to strengthen the future expansion pace to settle things. In addition, the banking system was not hit by the recent financial crisis as well as impact from the economic trends in Europe and the United States because it is an economy of less domestic demands which is why a stable growth out of India is expected. Gradually including the wholesale price inflation rate, the decline due to economic expansion inflation pressure continues to be the future and the last repo rate of RBI which is expected to correct inflation. 3. Poor Layer in India 3.1 The poor and the Indian Economy The view which has been expressed is that the Indian economy is really poor. As a result of the increase in income in recent years, creates a huge demand for daily necessities and basic service is poor. The middle-class group living above the subsistence level is not rich who are to join the ranks of modern consumer society. The rise of the poor is not a new story but under the economic situation which turned out after the collapse of the Lehman Brothers have influenced it a lot which is clear from this scenario. Due to less scars on the Indian economy, the government could overcome its failures. th 7 April 3.2 Less affected by the poor crisis IT industry has created a direct employment of 1.8 million people in the past decade and the industries supporting the IT industry like transportation and security has created the employment of 6.5 million people in such a sector. These industries are for them who lies below the high school level.The fact is that the economic expansion in the growth of India is driven by the bottom layer. But they are almost immune consumers and sluggish consumption occasionally occurs. If there are no stock holdings then there is nothing to fall into stock prices. Because of the large number of condominium in cities like Mumbai and New Delhi, entire India has suffered of serious housing shortage. Since the construction companies are building only luxury properties, so the standard price range of the properties is missing. In 2008, the Development Authorities of New Delhi got 500,000 applications and got 5,000 lottery buyers against that application. Based on these circumstances, the Government of India has recently launched a large-scale economic stimulus as a measure to expand the domestic demand. 3.3 Consideration of the Government of India for the poor. The Indian Government is concerned about the poor. To boom the Indian economy, the industry has asked for monetary stimulus measures by the Reserve Bank of India (RBI) which they have refused. It is determined by the RBI who is aiming for the growth of more than 10% of the India voters which make up most percentage of the poor but the risk is also too high. At the expense of the high growth, the price of daily necessities such as rice and flour is soaring and this could have a negative impact on people’s life. In 2004 election, despite the economy being strong, the centre ruling coalition NDA (National Democratic Alliance) was knocked out by Bharatiya Janata Party (BJP). BJP’s election slogan the “Shining India” won the antipathy of the poor. Their main concern is that whether India is growing much faster than other countries or not and the life five years ago is getting better or not. 3.4 Private Effort In India it is said that the so-called poor (whose 1 day income is less than $1) is about 394,800,000 of the population. Business activities were considered poor in India by companies and organizations. Decent employment should be given to the poor who can be an easy task and which will increase their independence step by step and make them self-supporting. For example by lending a small business fund and providing a business that can be simple, such as animal husbandry. The centre of the farmers in a village should have internet equipped personal computers to understand the price quotations of the transactions well. This grass root activity which is a boggling activity as well, but if it is possible to involve billion units of the poor, then it can be a major force. 3.5 Increased Investment to the poor. Like in India, rather than to depend on the support activities of the poor, it would be better for the companies to invest aggressively for the poor. For the purpose of lending to the poor, NPOs have been active since 1996. Although there are 410,000 borrower of the NPO, the company began the poor lending business from 2006 and has succeeded in collecting 6.8 million people of the borrower. Even by looking at this comparison the difference is evident and the big difference is by simply holding the funds. Companies that are lending business to the poor is scheduled to further expand the business which has been planned to commercialization in other countries that faces a lot of poor people. While in Japan corporate company funds and rich investment destination is not worth to advance projects targeting poor around the world. 4. Future Issues of the Indian Economy Consumption is not only a good thing but rather there is also the aspect of increasing the future risk and to organize the major risk include the following. 4.1 Infrastructure Development It can be said that the delay of infrastructure policy is the biggest problem that prevents the Indian advancement. Comparing China with India, a population almost antagonistic, even though the land area of India is one-third of China but the road pavement rate of India is only two-thirds of China. This shows that there is great growth rate potential in India as China’s infrastructure development progresses. Road Pavement Rate % 120 100 80 60 40 20 100 98.5 83.9 80.4 80.4 79.2 71.8 57 53.8 25.6 0 Source: CIA [WorldFact Book2013] India World Bank [WorldDevelopmentIndicators2009] than Thailand World Bank [WorldDevelopmentIndicators2011] than Power consumption of India for power supply is said to have been doubles over the next 10 years. Nevertheless the amount of power generation has not met the peak demand in past 10 years. The Fukushima accident of the nuclear power plant in 2011 is also reported in India. The Indian government announced that “nuclear power generation in India is 100% safe and have worked to subside”. Whereas media have emphasized the opacity of constitution of the nuclear industry. The Prime Minister has expressed the future Nuclear Regulatory Commission reinforced with public nuclear information. 4.2 Budget Deficit India finance has continued to deficit. In addition to sluggish growth of tax revenue, it can be said that for the financial support of the necessities of life as poverty reduction which has been carried out. In addition, it has become a result of economic measures to deal with the collapse of Lehman Brothers and also to expand the budget deficit. However as the economy has turned to high growth trajectory, budget deficit has begun to reduce. This in addition increases the tax revenue which puts a brake to the spending increase. However the amount of budget deficit is still higher than the previous level which was there before the shock of the Lehman Brothers. If there is increment in prices of daily necessities goods such as food then there is potential to develop it into a serious deficit again. However in 2014, the real economic growth rate of 6.9% less than the nominal growth rate and 6.8 % less than the Indian economy has been growing at a high pace, given that the tax revenue is linked to the size of the economy. If the economic growth is substantially achieved then the deficit problem is also reduced. [Changes in Budget Deficit] 10,000 12 9,000 10 8,000 7,000 8 6,000 5,000 6 4,000 4 3,000 2,000 財政赤字（10億ルピー） 財政赤字（対GDP比） （％） 2 1,000 0 2000年 2001年 2002年 2003年 2004年 2005年 2006年 2007年 2008年 2009年 2010年 2011年 2012年 2013年 2014年 0 Source: IMF World Economic Outlook, October 2014 4.3 Trade Balance India had once taken a policy for trade to import limited things that cannot be procured in the country. For example, the license system and import quotas because it had been strictly regulated by means of high tariffs and the trade have remained small. However since 1991, trade liberalization and World Trade Organization of 1995 (WTO: World Trade Organization) have given accession to the diversification of trade and the transaction value have soared. In 2013, the total exports is 3,186 billion and total import is 4,662 which is 15 to 16 times more, compared to 1995. One the other hand, since the value of import has remained higher than the value of exports so the Trade Balance of India has become a permanent deficit. Increase in such trade deficit can be found in the increase in the demand for crude oil which accounts for the large proportion of the value of imports. The crude oil is dependent on imports, in addition to the increase in volume of imports and due to the impact of international crude oil price rise the deficit started expanding. 2013 export increases 3.8% from the previous year which accounts to 3,186 one hundred million US dollars increase whereas the import which is now 4,662 billion US dollars have decreased. For trade deficit which is said to challenge 2013 has significantly reduced from 1,903 billion in fiscal year 2012 to 1,385 billion US dollars which have been recovered from the deficit. Although still in the trade deficit, the measures of the government, such as the development of the export industries is warranted. [Trends in India Trade Balance] (100 ten thousand US dollars) 600,000 500,000 400,000 300,000 輸出 200,000 輸入 100,000 貿易収支 0 -100,000 2007年 2008年 2009年 2010年 2011年 2012年 2013年 -200,000 -300,000 Source: Reserve Bank of India 4.4 Future Prospects In addition the Indian economy has many of the poor, inflation risks and the current account deficit and is also facing various problems such as Budget Deficit. However India has continued with the economic growth at a fast pace with sophisticated industries such as export-oriented manufacturing industry with the rise of advances because the international competitiveness is growing. The concern with these issues is to inhibit the economic growths which are not made larger. One of the most important issues in the Indian Economy is the development of infrastructure. The root cause of this problem is the lack of financial resources. It has been clear to everyone that the infrastructure is an urgent issue to break the supply constraints, but had no funds for solving this problem. Resources are ensured to perform the maintenance of the infrastructure. The infrastructure not only creates demand, results of international competitiveness of the country is also enhanced which leads to accelerate the growth. From the situation described above, according to the 2015 budget proposal, the stance to promote the aggressive infrastructure development from the financial side has been hammered out clearly. Public fixed capital investment has become 3 trillion 1,789 billion rupees which is an increase of about 8,084 billion rupees from the previous year. Especially the distribution focuses on the transport and energy sector and establishes a total length of 100000 km of roads throughout India as per the transportation plan. This also has continued to population growth with a focus on young people with high quality workforce including abundance of educated layer. However at present there is no rural youth employment because of the time being hard to get rid of the risk factor.