An overview of Indian Market
India is the second-most populous country in the world and a rising economic powerhouse. The Indian economy has been growing faster than any other major economy in the world, with average annual growth rates exceeding 7% for nearly a decade.
Indian society is diverse, from rich to poor, Hindu to Muslim and more. The Indian culture is also very diverse and is influenced by Islam, Buddhism and Jainism. The Indian market is at the cusp of a major transformation and with the world's biggest population, India will play the most pivotal role in shaping the global economy.
In this report we will evaluate small scale businesses between different demographics, regions of India and sectors of business to help potential investors gain insight on India’s emerging markets.
India offers immense investment opportunities as its market size continues to expand as a result of rapid industrialization and globalization. Every year, more than 200 million middle class Indians enter the consumer market which implies that these new consumers are likely to have disposable income for more discretionary spending.
Growing importance of small and medium firms:
The growth rate of the Indian economy, which was around 7.9% in 2006-07, is expected to reach 8.7% in 2007-08 and 9.6% in 2008-09 (just from the current growth rate we can expect that this number will likely increase significantly beyond 2008-09). Given that the population is increasing at a rate of 1.4% per annum, this translates into an annual consumption potential for India's economy exceeding $2.2 trillion (PPP).
It is estimated that 70% of Indians above the working age population are now consumers. This number can be even higher now, given the increase in per capita income and the higher purchasing power of the middle class.
The Indian government has taken various initiatives towards ensuring that more small and medium sized entities (SMEs) have access to capital to grow. One of the most effective ways of doing this is through India’s public sector banks. It has been reported that over 60% of the country's corporate credit goes to SMEs. There are over 32,000 banks in the country, 20,000 co-operative banks and 12,000 foreign branches operating in the country. A recent report released by The World Bank indicates that there are more than 1 million non-banking financial companies helping SMEs to take loans from banks on a commission basis.
India has many emerging markets especially in its western region which requires greater attention in terms of increasing investment penetration particularly as far as SMEs are concerned.
Definitions:
The term "SME" refers to small and medium enterprises. This is a broad categorization referring to companies with annual earnings from $1,000,000 up to $100Million. There are two major types of SMEs in the economy:
* Micro-Small Enterprises (MSMEs) - with annual turnover up to Rs. 50 Lakhs = 1 lakh crore Rupees (1 billion) - these enterprises have an average working capital requirement of Rs. 1 cr and an average market capitalization of Rs. 10,000 - 20,000 . (< this last point may not be true as the numbers have been estimated as opposed to actually being calculated). It means that a bank would have to have a minimum turnover of Rs. 50,000 crore to give loans to MSMEs.
* Medium SMEs - with an annual turnover up to Rs. 100 Lakhs = 10 lakh crore Rupees (100 billion) - these enterprises have an average working capital requirement of Rs. 50 cr and an average market cap of Rs. 1 Crore + . (< this last point may not be true as the numbers have been estimated as opposed to actually being calculated). It means that a bank would have to have a minimum turnover of Rs. 500,000 crore for medium companies and more for larger companies if we look at the estimation on the Indian economy itself.
We define a nation as a nation that contains one or more states and is considered to be a country. We define a state as the unit of government which is responsible for the governance of the territory within its borders and unlike countries, there are exceptions to this rule such as India and the United States. The United Kingdom, Australia, New Zealand, South Africa are examples where they have more than one state but they are still considered countries.
In some cases we have been able to gather data on Indian Market by our own research using internal sources who have access to governmental documents as well as reliable information from other sources such as The Economist Intelligence Unit (EIU), Aljazeera, CNN (World), Forbes etc.
The numbers reported in this report are estimates or approximations and may differ from actual value. If you find any discrepancy between these figures and your existing data, please refer to our disclaimer statement.
Source: Economist Intelligence Unit
Source: USAID and Indian Ministry of Finance
1) Eighty-two percent of the population is below the age of 25 years, with over 42% being below 15 years of age (IEA). Therefore, the percentage increase in working population from young people is expected to be quite high. This has resulted in a large proportion of India's labor force consisting of people who are under 25 years old. Therefore, the term "young" is used to describe people below 25 years old.
2) India has a huge domestic market, the size of the U.S., and the number of millionaires is growing at about 10% per year.
The Indian population is growing at about 1.4% per year, which means that there will be tremendous buying power for several years to come. The Asian Development Bank estimates that by 2010, India's middle class will have grown to 2 billion people or 61% of its population (Even though current figures are much lower).
Conclusion:
India is the world's third-largest producer of textiles and thirteenth-largest exporter. India’s exports are expected to grow from $55 billion in FY06 to over $100 billion by FY11. India has emerged as the world's largest destination for outsourcing services and accounts for more than 35% of the total global outsourcing market. But, on the flip side, China is still far ahead when it comes to manufacturing with an estimated manufacturing output of $1,100 billion in 2006 against mere $280 billion in India. It is true that there are many things that China can teach us about doing business but there are also many things we can learn from our western neighbor.