Saturday, May 16, 2009

India's General Elections 2009: UPA to continue in government: Advantage reforms and development!

NEW DELHI & LONDON, UK: The verdict of the people in the General Elections for the 15th Lok Sabha or the House of the People, in favour of the Indian National Congress led United Progressive Alliance (UPA) is an affirmation of its economic policies of continued liberalization.

The results so far indicate that the United Progressive Alliance (UPA) will likely form the government. The outcome will usher a new wave of confidence globally in the Indian economy with expected ramp up in economic activity, brought about by the urgent need to develop world class infrastructure, globally competitive pharmaceutical sector, telecom and augmentation of power generation.

“The government will have its task cut out with more than $700 billion worth of investments to be channeled in to India’s infrastructure, power, telecom and pharma sectors over the next five years to provide the country a strong foundation to achieve the aspirational growth of 10 percent.” says Bundeep Singh Rangar, Chairman, IndusView Advisors Ltd, the India-focused cross-border advisory firm.

The General Elections this time witnessed a three-way contest between the Indian National Congress led United Progressive Alliance (UPA), Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) and Third Front, comprising of the Communist Parties and smaller regional parties, attempting to offer another alternative.

Both the Congress and BJP led governments have successfully accelerated India’s GDP growth rate to about 7 percent today from 1.4 percent in 1991-92. This momentum peaked at 9.7 percent in the fiscal year 2006-07 before slowing down on account of the worldwide recession.

“The Government would be best served if it continued and augmented the ‘India Shining’ policies that currently sustain a Gross Domestic Product (GDP) growth of more than 7 percent as India continues to defy negative GDP growth seen in many Western economies.” says Rangar.

Investment in energy
India’s power deficit entails an estimated investment of up to $150 billion by 2012. To meet the growing demand, the government plans to add 90GW over the same period to its existing generation capacity of 145GW.

“India will become a lucrative market for nuclear energy equipment makers as soon as The United States-India Peaceful Atomic Energy Cooperation Act of 2006 between India and the US starts to show the benefits of investments coming in to the country.” says Rangar

Nuclear energy makes up only 3 percent of total installed capacity in India and its domestic uranium reserves are also limited. India’s Atomic Energy Commission estimates that domestic resources could support only 10 GW of installed nuclear capacity, signifying the potential of a multifold ramp-up.

Favourable policy initiatives could see global energy companies such as Areva SA, Alstom SA and √Člectricit√© de France (EDF) of France; the US-based General Electric Co., Russia's state-owned nuclear company Rosatom State Nuclear Energy Corp. and Toshiba Corp., a diversified Japanese conglomerate, among others vying to enter India’s nuclear energy market.

Infrastructure: Foundation of growth
India's challenge is not only to augment its antiquated infrastructure, but also to build new infrastructure to keep up with its $1 trillion economy and the aspirations of its 1.2 billion population that grows by 16 million people each year.

Recognising that good infrastructure are a vital pre-requisite to build a strong nation, infrastructure development has been accorded key priority for the 11th Five-Year-Plan for the years 2007-2012 and the 12th plan period 2012-2017 with projected investment requirement of $500 billion and $1.5 trillion respectively by the Prime Minister's Committee on Infrastructure.

“The Interim Budget for the financial year 2009-10 announced in February by the Finance Minister of the ruling United Progressive Alliance (UPA), focused on infrastructure development, easing of Foreign Direct Investments (FDIs) norms and economic stimulus packages announced last year had set the ground for how the alliance was approaching the General Elections.” said Rangar.

The government’s spotlight on Infrastructure Development heralds the importance it attaches to the sector as a means to counter the prevailing economic woes. The minster responded to an urgent demand for new infrastructure, announcing that 9 percent of the country’s GDP will be spent on infrastructure by 2014, from the current 5 percent. Estimates suggest that a third of this investment will come from private companies, paving the way for unprecedented investment opportunity.

Telecom: Dial India for growth
“India’s mobile telecommunication services sector has defied the economic recession. The incumbent mobile telecommunication service providers collectively add about 10 million new subscribers a month, which is more than the population of Finland, home country of largest mobile handset manufacturer Nokia Corp., taking the country’s total tally of wireless subscribers to 362 million.” explains Rangar.

To ensure quality service to match the growing subscriber base and achieve the target of 45 percent teledensity, the telecom sector is estimated to need about $73 billion during the next five years.

The world's fastest-growing mobile telecom services market estimated to reach a subscriber base of about 650 million by 2012, exposes the growth potential for global mobile telecom service providers who are not yet present in India.

Such service providers are missing out on opportunities to grab a share of the projected mobile services revenues of more than $37 billion by 2012 growing at a CAGR of 18 percent, while the profitability of their operations in saturated developed markets continue to be under pressure.

Of significance is the fact that the government has granted new licenses and spectrum to aspiring operators such as Datacom Solutions a subsidiary of one of India’s leading consumer durables company Videocon Industries Ltd; Loop Telecom, a BPL Mobile Communications group company; S Tel Ltd, joint venture between Skycity Foundations and Telecom Investments (Mauritius) Ltd; among others, which are likely targets -– but within the regulatory purview as an overseas entity’s stake in the domestic company cannot exceed 74 percent.

Indian pharma: Prescription for growth
The Indian Pharmaceutical sector is positioning itself to be among the top five centres of global innovation as the Department of Pharmaceuticals (DoP), Government of India outlines its roadmap for the sector up to the year 2020 (Vision 2020). It foresees investments of about $2 billion annually, under the public-private partnership model.

The initiative will open avenues of growth for global pharmaceuticals companies and fuel the next wave of mergers and acquisitions (M&As) in a market where consumer spending on healthcare increased to 7 percent in 2007 from 4 percent of the Gross Domestic Product (GDP) in 1995, and is likely to rise to 13 percent of GDP by 2015.

India also offers the benefits of low cost R&D, a domain in which it is estimated to capture about 10-20 percent share of the world’s R&D business by 2020 from less than 1 percent currently.

Expansion by global pharmaceutical companies in to emerging markets like India becomes imperative as about $103 billion worth of patented drugs will go off patent in the next few years. This will further hit the already sagging fortunes of global pharma companies which are trying to augment their revenues by acquiring or aligning with companies in the generics business.

With such sectoral growth indicators, the need of the hour is to take existing initiatives to the next level of implementation and completion, with enough scope of ramping up and innovation.

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