India - Economy + Retail Market

- By Purchasing Power Parity, India should overtake Japan and become the world's 3rd biggest economy after US and China.

- Its Feb 2007 and Inflation is at 6-7% (compared with 2.8% in China) and Credit is growing at an Annual Rate of 30%, double of that of China

- Current Account Deficit is also increasing - a perfect sign of overheating

- Why aren't  Indians doing anything?  1. Demographic divident - a working population meaning lower birth rates implying structural reforms are not needed. A growing population is good only when the young are educated and can end up with jobs.  (2) India has one of the biggest budget deficits among emerging economies (as much as 8% of GDP). Private Investors are hesitant to put the money because regulators are not independent enough of populist politics to guarantee a decent return.

- Indian economy has chocked up a growth of 8% compared with 6% in 1980s and 1990s and 3.5% before that because of highly interventionist policies

- Total trade of goods and services has jumped to 45% of GDP

- Bank lending to firms and and households has expanded by 30% over the past year. Home mortgages are up by 54%. Lending on commercial property has doubled.

- India's current account deficit is even more if you exclude the remittances sent by Indians abroad. Deficit is running close to 5% of GDP.

- India has the cushion of $180 billion in forex reserves = 11 months of import and small external debt.

- Unlike China, India is heavily dependent on short-term portfolio capital inflows than longer-term. Short term accounts for 4/5ths of capital inflows in India over the last 3.5 years. This means India is viable to increasing interest rates.

- IMF forecasts budget deficit for central and state governments to fall to 6.2% of GDP in March 2007, below the 10% levels in 2001. This is because of greater fiscal prudence, less tax evasion, rising incomes, economic boom and low interest rates.

- Oil and Power subsidies amount to 1.8% of GDP.

- SEZs may erode future revenues and add to budget deficit.

- Domestic savers provide public borrowing and not foreign capital..but India's weak position means little room to spend on infra, education and health.

- 60% of India's labour force is in farming.

- India spends 4% of its GDP on Infra compared with China's 9%. In $ terms, China spends 7 times more.

- Govt spending on health accounts to only 21% of the total health spending.

- Middle class uses less public services hence a mellow cry for reforms.

- Hope the present growth doesn't breed complacency on the need for reforms.

- 260 million people still live on less than $1 a day.

India Retail Sector

- Reliance opened 9 shops around Delihi on Jan 30th 2007

- By Feb the total tally was 55 shops in 3 months under the name Reliance Fresh

- Reliance plans to invest 250 billion INR ($5.7 billion) in 5,000 shops. By 2010 it hopes to make $25 billion annually.

- Around 97% of India's sales are in small family owned shops.

- India has 12 million retailer, second only to agriculture.