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So, what is the ballyhoo all about? Simply put: Corporate India is forging ahead, and Brand India is gaining worldwide visibility. India’s media planners are making a conscious effort in promoting India’s strengths through campaigns such as ‘Incredible India’, and there is a concerted effort by the government and private sector in the ‘India Everywhere’ slogan that has made impressions in places as far flung as Davos and Tokyo. Today, the Indian voice seems to have acquired a stentorian tone that has begun to carry considerable weight in international political and social forums that will eventually trickle down, affect, and benefit all Indians and those connected with India. Although the major source of economic growth is services, which account for half of India’s output with less than one quarter of its labour force, about three-fifths of the work force is in agriculture, and the government has articulated an economic reform programme that includes developing basic infrastructure to improve the lives of the rural poor and boost economic performance. Moreover, the healthy growth rate of the economy has helped in reducing poverty by about 10 percentage points in the last decade.
Economic deregulation has aided in attracting much needed foreign capital and lowering interest rates since the start of liberalisation 15 years ago. India now figures among the most attractive destinations for foreign investment: According to a survey of global investor confidence by AT Kearney, India is the second most attractive country in the world for foreign direct investment. This new found economic fascination with India is not only restricted to foreign multinational companies. Incidentally, this statement itself shows how the dynamics in Indian business have changed: A couple of decades ago, ‘multinational’ would have automatically implied a foreign company; today, though, as many Indian firms are multinational corporations in themselves, it has become necessary to differentiate. Expatriate Indians are moving back in droves, returning home, so to speak, and not out of any notion of nostalgia, but because India is the place to be as it figures among the countries to look out for in the future—and the future, it seems, is closer to the present. In the past, students who headed West for higher education also saw it as an opportunity to work there subsequently; many did. But, those numbers are on the decline, and the once pervasive ‘brain drain’ effect has given way to the more recent ‘reverse brain drain’ effect. Furthermore, there are a great number of foreign students and interns eager to spend time in India. As Canadian High Commissioner to India David Malone simply states: “It is now increasingly becoming an advantage for students in the West including Canada to demonstrate on their résumés a knowledge of India. This actually helps them in getting jobs with multinational companies. At any given time, there are many Canadian interns in India, and there are Canadian government programmes that support this.”
At the same time, going global seems to be the mantra of corporate India in the new millennium, as Indian companies have entered into an acquisition spree on an unprecedented scale. During the 90s, better managed Indian companies, geared up for the liberalised era, and orchestrated a turnaround in their sagging fortunes by retrenching and restructuring, thereby becoming globally competitive. They also started adopting an export-oriented outlook, hitherto unknown in the Indian manufacturing scenario barring a handful of majors. Many Indian conglomerates have international manufacturing standards and have showed a remarkable resilience to international competition. What is more, corporate India’s hunger is not just being determined by profitability, it is now driven by ambitious targets such as being world leaders, prestige, and so on. For instance, Indian conglomerate Tata’s Tata Tea that acquired UK’s Tetley—double the size of Tata Tea—in 2000 was a strategic step towards sheer global domination in this beverage: It is now the second largest tea company in the world. Moreover, the Tata’s hotel division’s acquisition of the uber-luxurious Pierre in New York and the landmark Ritz-Carlton in Boston can be seen as victories as much for prestige as for sheer monetary dividends. Despite the fact that these ambitions would in all probability eventually affect bottom-lines favourably, the paradigm shift in mindset is clear and is what that makes this attitudinal change remarkable. Tata Steel acquired NatSteel Asia, Singapore’s largest steel company, in 2004, and in a very recent development, it acquired Anglo-Dutch steel major Corus, which has catapulted Tata Steel into the league of top five global steel producers. Add to all this the fact that Tata Steel has been ranked the best steel company in the world by World Steel Dynamics, a leading steel information service provider, and we can gauge the level of competence that Indian firms are achieving. Indeed, Tata Steel’s selection as the topmost of 23 world-class steel makers is evidence of the success of the radical changes made by dynamic Indian corporations to keep them vibrant, competitive, sustainable, and, perhaps, ahead of times. In February 2007, Hindalco Industries of the Aditya Birla Group announced an agreement to acquire Novelis, the largest flat-rolled aluminium maker in the world, which will catapult the group to the Fortune 500 list three years ahead of its target. The deal, when consummated in the second quarter this year, will make Hindalco the fifth largest integrated aluminium player globally and the world’s largest flat-rolled aluminum maker. While Moser Baer has gone on to become the largest manufacturer of CDRs and RWs in the world, Essel Packaging is the second largest packaging company globally. Essel Propack is currently the world’s largest manufacturer of laminated tubes, and Bharat Forge has emerged as the second largest forging company in the world and has the largest single location forging capacity. It is common knowledge that Hero Honda is the world’s largest manufacturer of motorbikes. The Indian automotive sector is growing at 20 percent per annum, and about 20 percent of Indian production is exported to developed countries. Given the recent success of the auto manufacturing industry, it is felt that the experience can also be replicated for IT hardware, too. If India can successfully make satellites and the vehicles for launching them (in 2008, when the first Indian scientific mission to the moon Chandrayaan-1 zooms into space at the head of an Indian built PSLV, India will join the very elite club of space-faring nations that have the wherewithal to undertake such complex and challenging space missions), surely it will do well in hardware. Some are of the opinion that with both domestic and global demand as robust drivers, India has the potential of building a US$100 billion plus hardware industry over the next decade. Without a reference to the pharmaceutical industry, any mention about India’s potential would be incomplete. Today, the country is globally recognised as a producer of low-cost, high-quality bulk drugs, and formulations. Globally, it ranks fourth in terms of volume and thirteenth in terms of value. In recent times, pharmaceutical giants such as Ranbaxy, Cipla, Cadilla, and Dabur have embarked on a rapid modernisation plan. Additionally, the government has set up a corpus fund for research and development as an incentive for further growth in this sector. However, India’s manufacturing sector is not only about high and mighty corporations. In this sector, small scale industries (SSIs) also play an important role. Presently there are about 3,500,000 SSI units in India, producing about 8000 different items. SSIs contribute 34 percent to national exports and provide direct employment to over 20 million people. According to a CII-McKinsey report, India’s exports of manufacturing products are likely to reach US$300 billion in 2015, from US$48 billion in 2003.
An even more startling and extraordinary development in the Indian corporate scenario is the dramatic change in purpose that one is witnessing in many Indian public sector enterprises (PSEs). These state enterprises—formerly, the epitome of sluggishness and slothfulness—seem to have almost reinvented themselves and are eagerly entering the fray for overseas acquisitions; for instance, the State Bank of India (SBI) has started acquiring stakes in banks and financial companies abroad in recent years; the bank took a majority stake in a bank each in Indonesia (76 percent), Kenya (76 percent), and Mauritius (51 percent) in 2005. Indian PSEs are now progressively embarking on a spate of cross border mergers and acquisitions (M&As), especially in strategically important natural resource projects such as the oil and gas sector. Indian oil giants, such as the Oil and Natural Gas Corporation (ONGC) through its overseas arm ONGC Videsh Ltd (OVL), have invested in overseas acreages to garner equity oil. ONGC has been very aggressive and, according to a recent report by the Federation of Indian Chambers of Commerce and Industry (FICCI), has alone invested 40 percent of what India Inc. spent on M&As in the first half of 2006. OVL has invested in oil fields across the globe: Africa, Australia, Cuba, Latin America, Russia, and Vietnam. Gas Authority of India acquired stakes in gas companies in Egypt and China in 2004–05, and an exploration and production foray in Myanmar. Steel Authority of India is acquiring coal blocks in Australia, Canada, and Russia. Indian PSEs are also tying up with major international players for mutual gains; OVL has entered into a joint venture with the LN Mittal group, forming ONGC Mittal, which recently signed a pact with Nigeria for lifting rights for 32.5 million metric tonnes of crude oil annually. ONGC has also tied up with local players, like Russia’s Rosneft, and has signed a memorandum of understanding with PetroEcuador for oil exploration in Ecuador, and is currently seeking an alliance with Venezuelan state-owned oil company Petróleos de Venezuela. The Indian Oil Corporation (IOC) and Oil India Limited (OIL) consortium and OVL each won an onshore block each during Libya’s latest licensing round. IOC-OIL was awarded a block in the Sirte Basin, and OVL secured a block in the Ghadames Basin. The Mineral and Metal Trading Corporation of India and Bharat Petroleum have tied up for international trading in petro-products. RITES, an Indian PSE established under the aegis of Indian Railways, has bagged rehabilitation projects in Afghanistan, Angola, Colombia, and Mozambique, and is investing equity in a Tanzanian Railway Corporation project. Container Corporation of India and IRCON, India’s 3rd largest construction company, are planning joint bids for rail lines and container depots in Jordan, Mozambique, Nigeria, and Saudi Arabia. India’s National Thermal Power Corporation, the ninth largest thermal power company in the world, has a unique gas for power barter agreement with the UAE to undertake its largest power plant project ever, in exchange for gas for its power plants.
In 2004, Indian companies spent US$2 billion to pick up 46 foreign companies. In 2005, the government lifted the US$100 million cap on foreign M&As, and corporate India acquired stakes in 104 companies, spending more than US$3.5 billion. In the first half of 2006, India Inc. picked up 76 companies for US$5.2 billion (more than the entire investment in 2000–05). According to FICCI, one-third of the total 306 cross border acquisitions by India Inc. from January 2000 to July 2006 were carried out by 15 Indian companies. Businesses in the US account for 32 percent of the total cross border deals, with the UK coming in second. And, if the last few years have witnessed increasing Indian M&As abroad, so too has there been an increase in setting up greenfield projects. In June 2006, Jindal Steel & Power Limited (JSPL) announced that it had been granted mining rights for 20 billion tonnes of iron ore reserves from the El Mutun Mines in Bolivia. The company plans to invest US$2.3 billion over the next 8 years in creating an ultra modern and environment friendly integrated steel plant in Bolivia, which would be capable of producing 1.7 million tonnes per annum (mtpa) of long products of steel, and will also have a 6 mtpa direct reduced iron/sponge iron plant and a pellet plant of capacity 10 mtpa. The company will set up supporting infrastructure such as a 400 MW power plant. JSPL emerged as the only company that met the qualifying criteria set by the Bolivian Government for this international tender. Currently, JSPL operates the world’s largest coal-based sponge iron plant in India. Bajaj Auto, India’s largest exporter of 2- and 3-wheelers (75,297 units exported in 2005–06), has set up a joint venture in Indonesia to assemble 3-wheelers and motorcycles to cater to the expanding southeast Asian market. The company also plans to set up manufacturing facilities in Brazil and Nigeria. Mahindra & Mahindra (M&M), ranked amongst the largest tractor companies in the world with production of 110,000 units annually, has two facilities in the US, one in Texas and the other in Georgia. The Georgia assembly and distribution centre was set up in 2002 and has doubled production capacity to 10,000 units annually. M&M is planning facilities in China, Indonesia, Russia, and South Africa as well. In 2003, M&M received the coveted Deming Application Prize—considered the Nobel Prize for manufacturing—for establishing Total Quality Management in all business operations, and is the only tractor company in the world to achieve this honour. The Minda group, a leading Indian automotive component manufacturer, has set up a facility in Indonesia to cater to the needs of 2-wheeler manufacturers in the southeast Asian region. Sundram Fasteners Ltd has set up a greenfield project in China. Tata Steel is setting up a US$120 million greenfield ferro-chrome plant in South Africa. Suzlon, a young ‘green’ energy company and one of the fastest growing wind energy companies in the world, has captured the largest market share in Asia and features among the top ten in the world; in 2005, it was ranked the fifth leading wind turbine manufacturer in the world. The company has built some of the largest wind parks in Asia and is currently building what will count among the world’s largest wind parks at 1,000 MW. In IT, Infosys has set up many ‘onshore’ centres overseas, including a 200-people software development centre in China in 2004. Currently, the Nasdaq-listed firm employs 10,000 people in over 30 offices worldwide. Tata Consultancy Services (TCS)—India’s largest IT services firm, employing 28,000 people of 30 nationalities with software development centres in nine countries outside India—has a presence in 34 countries across 6 continents, and provides a comprehensive range of services across diverse industries; the company claims seven of the Fortune Top 10 companies as its customers. Moreover, the reputation of Indian firms for apprenticeship, and even full-time careers, among foreign nationals is gaining considerable ground as opposed to in the past when those who ventured out to India, probably, did more so for the ‘exotic’ appeal of a distant land rather than the intrinsic value of training; for e.g., Infosys announced in 2006 the arrival of 126 new recruits from various top-ranked universities in the US as the first batch of the Infosys Global Talent Programme. These new recruits, the largest group of foreign nationals recruited to work in India to date, begin their six-month, customised education programme at the Infosys Global Education Centre in Mysore. At present, nearly 3 percent or about 1800 employees of Infosys’ total employee strength of about 55,000 comprise non-Indians.
Many other acquisitions, such as French firm RPG (Aventis)—ranked fifth in the French generic pharmaceutical market with a market share of over 6 percent—by Ranbaxy Laboratories, or Austrian semiconductor design firm NewLogic by Wipro, have set the tone and pace for corporate India’s global ambition and integration. With deep pockets and brimming with newfound confidence, the acquisitions have been far and wide: auto industries in Korea and Sweden, software companies in the UK and the US, metal and mining units in Bulgaria and Singapore, and an array of oil fields from Brazil to Sudan.
The objective of the 11th Five-Year Plan is “faster and more inclusive growth”, with a growth rate of approximately 10 percent by the end of the plan period, growth rate of 4 percent in the agriculture sector, faster employment creation, reducing disparities across regions, and ensuring access to basic physical infrastructure and health and education services to all. Improvement in GDP growth rate from 7.5 percent in 2004–05 to 9 percent (quick estimate) in 2005–06 and to 9.2 percent (advance estimate) in 2006–07 achieved an average growth rate of 8.6 percent in the three years, making India one of the fastest growing economies in the world (growth of GDP at constant prices in excess of 8.0 percent has been achieved by the Indian economy in only five years of recorded history, and two out of these five are in the last three years); furthermore, Indian exports have been growing at 20 percent annually during the last three years. The Indian engineering and construction industry posted a compound annual growth rate (CAGR) of 8.4 percent of the last two decades. No wonder, with such impressive figures, India has changed gear and moved into the fast lane. The next generation of economic reforms is expected to accelerate the momentum even further with new policy initiatives that will fuel even higher growth. Already the world’s fourth largest economy in terms of purchasing power parity, KPMG has projected that India’s GDP would be the third largest in the world by 2020.
Today, India is the second largest food producer in the world, with an annual production of over 210 million tonnes. The country ranks first in the world in production of milk, tea, and sugarcane. It is the second largest producer of fruits, vegetables, rice, wheat, tobacco, and groundnuts and is among the top five producers of coffee, spices, cereals, and oilseeds. The allied sector of food processing is one of the top ranking industries in the country. It ranks fifth in size worldwide, employs an estimated 1.8 million workers, accounts for 14 percent of the total industrial output and 18 percent of the GDP. With India poised to achieve leadership position in meat production and distribution, and 20 percent annual growth rate in fruit processing, one can look forward to an exponential growth in food processing, packaging, as well as in the allied sectors of storage, transport, and distribution. With the rapid expansion of IT and wireless connectivity in rural areas, India is poised for a major transformation in the countryside. In India where dairy cooperatives, for instance, produce 18 million litres of milk every day and employ approximately 11 million people, IT can only but enhance the productivity by disseminating key logistical figures at the touch of a button. Also, virtual class rooms and virtual healthcare processes that have been initiated will benefit rural India immensely.
Within industry, manufacturing growth has accelerated steadily from 8.7 percent in 2004–05 to 9.1 percent in 2005–06 and to 11.3 percent in 2006–07, and construction growth has been in double digits in each of the last three years. Substantive commercial bank credit flows to the housing and real estate and retail sectors continue to provide support to the boom in construction and consumer durables. India’s merchandise exports (in US dollar terms and customs basis) have been recording annual growth rates of more than 20 percent since 2002-03. In 2005-06, such exports grew by 23.4 percent to reach US$105 billion, well past the US$92 billion target set for that period. The good news is that the growth of the Indian manufacturing sector will not only reflect in greater consumer preferences but also greater employment generation and poverty alleviation. The Planning Commission of India in the 11th Plan has earmarked US$70 billion for modernisation of airports, ports, highways, and railways to make India a world-class manufacturing hub with the best of infrastructure facilities. Indian Railways has set a target for freight loading of 785 million metric tonnes (mt) for 2007–08, and a target of 1,100 mt freight loading and 8.4 billion passengers in the terminal year of the 11th Plan. Construction of the Eastern and Western dedicated freight corridors at a cost of US$6.8 billion will commence in 2007–08 for completion during the 11th Plan. The country being favourably positioned in the international maritime route connecting the West and the East (critical points between the Atlantic and Pacific oceans are the Panama Canal and the Straits of Malacca), the maritime route connecting Europe with the Far East can be substantially decongested through land bridges across the Indian Peninsula. The land bridges, if serviced by fast rail connections, can turn out to be a cheaper alternative, and in this context, port connectivity through a railway network has immense potential. The Indian aviation industry, both passenger and cargo, is also booming with a year on year double digit growth topping 25 percent in the last three years.
In the services sector, growth has increased from 9.6 percent in 2004–05 to 9.8 percent in 2005–06 and to 11.2 percent in 2006–07. The IT industry and, in particular, the software industry is one of the fastest growing sectors of the Indian economy; the Indian IT industry registered a CAGR of 29 percent over the last five years. JP Morgan has said that the continued strength of the services sector has proved to be the biggest surprise. According to a National Association of Software Services Companies (NASSCOM)-KPMG estimate, the industry is likely to maintain a high growth rate and expected to generate revenues of US$62 billion by 2008 and US$142 billion by 2012. The sector currently employs around 700,000 people and is likely to employ 2 million by 2010. Over a short period of a decade and a half, the country has produced such astonishing success stories like Infosys, Satyam, TCS, and Wipro in the field of software technology. The impact of the Indian IT industry on the overall global economy and businesses is significant: India exports IT products and IT enable services to 133 countries, and 220 of the Fortune 500 companies outsource their software from India. Services exports grew by 71 percent in 2004-05 to US$46 billion, and 75 percent to US$32.8 billion in April-September 2005. In 2004-05, software service exports grew by 34.4 percent to US$17.2 billion and by 32 percent to US$10.3 billion in the first half of 2005-06. As Indian businesses themselves start to use India’s IT enabled service skills for their own business processes, the multiplier effect in productivity, efficiency, and output will be dramatic. Biotechnology is another dynamic sector, and if IT has its Infosys and TCS, biotechnology has the potential of springing up its share of pleasant surprises such as Biocon—a leading Indian biotechnology company—in years to come.
The Indian telecommunications industry has also come of age. The total number of phone connections in India crossed the 100 million mark in 2005 becoming the fifth largest network in the world. According to the ‘Indian Telecom Sector Analysis (2006-07)’ report by Research and Markets, China is currently the biggest market in Asia Pacific with a subscriber base of 48 percent of the total subscribers in Asia Pacific, compared to India’s share of only 6.4 percent; however, the report adds that India’s mobile phone subscriber base is currently growing at a rate of 82.2 percent. Market research organisation CMS, in a report ‘Worldwide Mobile Market Forecasts 2006-11’, forecasts that by 2011, Asia Pacific will account for approximately 50 percent of the world’s entire mobile subscriber base, with a staggering 1.067 billion subscribers between India and China. Mobile phone subscribers rose in India by a record 6.6 million in October 2006—a world record, surpassing China—securing the country’s position as the world’s fastest-growing mobile phone market, and the total number of mobile phones, including GSM and CDMA, in India stood at about 136 million at the end of October 2006. New Delhi gained membership of the very exclusive club of global cities with more than 10 million mobile subscribers in October 2006; meanwhile, India’s financial centre, Mumbai, is likely to make its entry into this elite club very soon, already enjoying a subscriber base of well over 9 million. With Delhi’s entry into the global league, the total number of cities with more than 10 million mobile subscribers in the world goes up to 12.
India is currently one of the world’s fastest-growing travel markets in both directions. Revenue from foreigners travelling to India is expected to reach US$6 billion this year and to grow to US$24 billion by 2015 according to the World Travel & Tourism Council. Indians travelling both in India and abroad are expected to spend US$25 billion this year and US$63 billion by 2015. Traditionally, visitors to India were mainly tourists, but now, it’s corporate rather than leisure travel that’s booming.
All said and done, India is firmly poised to emerge as one of the important ‘knowledge economies’ of the world in the near future, and in this endeavour, IT and biotechnology are destined to play a crucial role. Like all knowledge economies, India has a good number of top-of-the-line educational institutions that can match the best in the world. Also, by any measure, the Indian market presents lucrative and diverse opportunities. While many of the world’s traditional markets are saturated, India’s infrastructure, transportation, technology, energy, healthcare, and environmental requirements are expected to make business worth billions of dollars.
The future will also see an increase in Indian global M&As and greenfield projects with proactive changes in economic policies and regulatory relaxations being introduced by the government. Furthermore, a Reserve Bank of India (RBI) Committee on fuller capital account convertibility has recommended that the limits for corporate investments abroad should be raised in phases from the current 200 percent of net worth to 400 percent. Allowing full convertibility of the rupee by 2011 would also eliminate an important obstacle in India’s integration with the global economy. And, with the manufacturing and the services sector becoming a major driving force for the Indian economy, one can only concur that India can aim towards a nominal growth rate of 12 percent, and the stage is set to remake the India of tomorrow.
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