India’s Relations with SAARC, ASEAN & the EUIndia’s upcoming service sector

Globalization & Regionalization (Economic)University of WroclawMeha Lodha6th January 2010

Contents

Introduction India & Regional Organizations

SAARC ASEAN EU

India’s Service Sector

Introduction

Facts

Mixed Economy Population 1.17 billion - 1/6th of world’s population 1.3% annual population growth 66% Literacy rate 22% below Poverty Line 7.8% Unemployment Rate 1.064 males/female Life expectancy 65 years

From 1991...

From socialist inspired economy to market based system

Economic liberalisation Automatic approval of FDI in many sectors Constant economic growth Increasing life expectancy, literacy rates Privatization, foreign competition

India and SAARC

South Asian Association for Regional Cooperation

Economic and political organization Established 1985 Bangladesh, Bhutan, Maldives, Nepal,

Pakistan, India, Sri Lanka & Afghanistan SAPTA enforced in 1995 SAFTA – No customs duty by 2016 Keen interest – Ch, J, SK, USA

Share of SA Regional GDP

SAARC Economic Indicators

Source: World Development Indicators 2007 and World Development Report 2008.

Far from successful Political differences, low trade and investment flows Intra-regional trade barriers – low intra-SAARC trade High protectionism by India SAFTA restrictions reduce scope of integration

India and ASEAN

India & ASEAN

Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Burma, Laos, Cambodia

1992 Sectoral dialogue partner (trade, investment, tourism, science & technology)

1995 Full dialogue partner 1996 ASEAN Regional Forum Since 2002 Summit Level Meetings Aug 2009 FTA signed Singapore – Single largest ASEAN investor in India ASEAN 600 m, India 1 b population ASEAN +6

AIFTA

ASEAN-India Free Trade Area Effect from 1st Jan 2010 ASEAN’s seventh largest trading partner Lift import tariff on >80% of traded products

between 2013 and 2016 5% tariff on sensitive goods 2016 Tariffs maintained on 489 very sensitive goods

India’s trade with ASEAN (B$)

11.4

24.4

36.132.6

21.7

44.1

27.0

0

5

10

15

20

25

30

35

40

45

50

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Exports Imports Growth (%) in total trade

Source: Ministry of Commerce & Industry, GOI 

India and the EU

India & the EU

One of the 1st countries to develop relations with EU EU is India’s largest trading partner (20%) EU is the largest exporting destination of India’s

exports (21%) followed by the US (15%), UAE (9.5%) and China (6.5%)

Exports – Diamonds, petroleum products, textiles, leather

Imports – Aircrafts, machinery, Only 1.98% of EU’s imports EU has plan to pursue FTA with India

India’s trade with EU (B$)

-2.6

18.8 19.7

26.9

31.1

15.1

28.7

-5

0

5

10

15

20

25

30

35

40

45

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Exports Imports Growth (%) in total trade

Source: Ministry of Commerce & Industry, GOI 

Services

Export interest for India IT services & BPO Health Services (including

doctors, nurses, telemedicine, etc)

Engineering services (including consultancy)

Architectural services Banking services Audio – Visual services

Import interest for India Banking & insurance Retail Telecommunications Education Environmental services Legal Services

Source: FICCI (FEDERATION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRY)

FDICumulative FDI (from April 2000 to January 2008)

20,984

10,227

4,221

2,8162,563

638

590

0 5,000 10,000 15,000 20,000 25,000

Mauritius

EU

USA

Singapore

Japan

Switzerland

U.A.E

Cou

ntri

es

Cumulative FDI (From April 2000 to Januray 2008)

Source: DIPP

$ Million

,

EU, 19.52

,

Mauritius, 40.05

USA, 8.06

Singapore, 5.37

Switzerland, 1.22

Others, 19.77U.A.E, 1.13

Japan, 4.89

% share in cumulative FDI Inflows (From April 2000 to January 2008)

Top 5 sectors attracting FDI inflows from EU

Ranks Sector

Amount of FDI inflows

Sector’s share in total FDI inflows

From E.U

In US$  

1

Services Sector

2,417.32 35.92(Including Financial & Non-Financial)

2 Computer Software & Hardware 366.89 5.49

3Automobile Industry (Including Passenger Cars Etc.) 359.19 5.33

4 Chemicals (Other Than Fertilizers) 322.68 4.93

5 Electronics 241.33 3.83

Total of above 3,707.41 55.5

India’s investments in EU Largest overseas investment destination UK is the sought after destination in EU Food, beverages, pharmaceuticals, engineering

Year Growth (%) Value($ million)

2002-03   83.1

2003-04 297.4 330.15

2004-05 -50 164.5

2005-06 265.76 600.1

2006-07 687.3 4729.99

Growth Rate and Value of India’s Direct Investment in EU

Arcelor Mittal

Largest steel company in the world 2006 Mittal Steel (India) take over of Arcelor

(Luxembourg) Opposition from France, Luxembourg & Spain Threat of trade war between India and France European Commission approval – no change in

European Economic Area Market Structure

India’s Service Sector

Leading exporters of commercial services, growth 2000 - 2007

IT & BPO

Share in exports – 1% in 1990 to 18% in 2001

Bangalore (India’s Silicon Valley)

Chennai India and EU – Joint

R&D

Particulars FY 2004 FY 2005 FY 2006FY2007

E

IT Services 10.4 13.5 17.8 23.7

- Exports 7.3 10.0 13.13 18.1

- Domestic 3.1 3.5 4.5 5.6

ITES-BPO 3.4 5.2 7.2 9.5

- Exports 3.1 4.6 6.3 8.3

- Domestic 0.3 0.6 0.9 1.2

Engineering services, R&D and Software

products 2.9 3.9 5.3 6.5

- Exports 2.5 3.1 4.0 4.9

- Domestic 0.4 0.7 1.3 1.6

Hardware 5.0 5.9 7.0 8.2

Total IT industry 21.6 28.4 37.4 47.8

- Exports 13.4 18.2 24.1 31.9

- Domestic 8.3 10.2 13.2 15.9

USD billion

Thank You!

G-20

Since 1999 Organization of important

industrialized and developing economies to discuss key issues in global economy

India - Founding member and chair country in 2002

IBSA

Since 2003 India, Brazil, South Africa South-South Cooperation Agriculture, trade, transport,

science & technology, defense and others

Bay of Bengal Initiative for MultiSectoral Technical and

Economic Cooperation Since 1997 Create enabling

environment for rapid

economic development

Asian Development Bank

Fighting poverty in Asia and the Pacific

India - founding member India received micro finance

support for private enterprises

2009 - $ 2.9 b fund for proposed projects in India

India’s Exports

0%

20%

40%

60%

80%

100%

ASEAN EU Countries (27) NE Asia North America WANA

WANA 19 18 16 17 16 14 13 13

North America 13 16 18 18 19 22 21 22

NE Asia 16 15 16 16 15 15 13 14

EU Countries (27) 21 21 23 22 23 23 23 24

ASEAN 10 10 10 10 9 9 8 7

2007-2008

2006-2007

2005-2006

2004-2005

2003-2004

2002-2003

2001-2002

2000-2001

Sources

http://dipp.nic.in/fdi_statistics/india_FDI_September2009.pdf

http://www.economywatch.com/foreign-direct-investment/fdi-india/

http://business.mapsofindia.com/fdi-india/