emerging markets in india
Rajeshreddy
globalperspectivesessayreport.docxglobal perspectives(mgmt-(8110)SEC-7(SEM-2019’FALL’) ASSIGNMENT-Research Essay
Research topic-EMERGING MARKET IN INDIA
Thesis statement - “My research paper will focus upon different aspects of Emerging market as well as its impact on Indian economy. “As proposed in essay proposal I will first focus on the concept of Emerging markets and how they are having an impact on global businesses.
· What is Emerging Market?
= After a proper research I figured that emerging markets concept reside in developing countries. Wherein these emerging or underdeveloped economies are making a shift from their traditional economies which was originally residing on resource based industries like agriculture, oil or export of raw materials. These economies are growing at a very fast pace to more productive capacities where they are attracting foreign capital and are rapidly industrializing. Critically, they are moving to free/ mixed economies and are becoming more integrated with the global economy with its increase in trade volume, increase in liquidity, equity market. Not only this, they are also focusing on improved infrastructure: as at present they do not have such robust infrastructure to support fast-paced growth. Some other general indicators are high growth rate, competitiveness, high ROI with high risk rate, unified currency and stocks, low-to-middle per capita income and are some social instability. (Sraders, 2018) (Chappelow, 2019) (Amadeo, 2019)
Some of the characteristics of emerging markets are given below: -
1)Low to middle average per capita Income-Emerging markets have low to middle average per capita income depicting low living standards and a lot of scope for improvement. Unemployment usually in these economies is more and more and more people are deployed on single task, thus, resulting in lower wages for the workforce.
2)High potential for growth-These economies has high potential for growth, their market requires lot of capital investment. These market owing to their scope for high growth attract more of foreign investment. These economies provide higher-than-average returns for investors.
3)High volatility- These economies are highly volatile, they are very much subjected and vulnerable to social, political and economical changes. As these economies are very much reliant on agriculture and resource based they can be severely impacted by natural disaster, external price shocks and domestic policy instability leading a groundwork for future development.
4)Currency Swings- Emerging markets face more volatile to currency swings in comparison to U.S dollar that’s because they do not have enough power to influence such movements. These fluctuations also result in commodities swing as of oil and food.
5)High growth rate associated with High risk- These economies owing to huge potential are growing fast and are rapidly industrializing resulting in higher growth rate even in comparison to some of the developed economies. For e.g.: -growth rate in 2018 for U.S, Mexico, Japan was 3% whereas in Egypt, Bolivia and Malaysia was 4%, However, surprisingly it growth stood 7% for China, Vietnam and India.
China and India are the one that are said to be the main powerhouse in the emerging economies. Together they contribute for the 40% of the world’s labor force and population and are actively engaged in attracting foreign direct investment. (Amadeo, 2019)
According to Morgan Stanley Capital International Emerging Market Index there are 24 countries that can deemed as emerging markets whereas, according to International Monetary Fund there are around 23 countries. This difference is because all these organizations has been taking different basis for their research on emerging markets. Moreover, a country can be upgraded from or downgraded to Frontier’s nation list {a subset of emerging markets that are in its infant stage of economic development}
· The term “emerging market economy” was first used in 1981 by Antoine W. Van Agtmael of the International Finance Corporation of the World Bank. Today around 80% of world’s economy is comprised of emerging markets that are playing a huge role in stimulating economic growth. (Chappelow, 2019)
(https://www.focus-economics.com/blog/posts/how-will-emerging-markets-perform-in-2016)
Some of the top emerging markets are China, India, Russia, South Africa, Brazil, Mexico. There has been a major shift of investment or industrialization from western countries to the east i.e.- especially to Asia Pacific due to availability of low waged labour and population. Nowadays, many big Trans-national company has their manufacturing or operating units established in these countries. These countries are making big development in service, technological and manufacturing sector.
· When talking about INDIA as an emerging market it comprises of all the characteristics that a prominent emerging market is required to have. It has an average per capita income of around $ 2,000 which comes in the range of low to middle income and has annual growth rate of more than 4% and its share in the global GDP accounts for 7% (India's per-capita income rises 10% to ₹10,534 a month in FY19, 2019) (Holmes, 2017)
There has been noticeable shift of Indian economy residing on agricultural sector and now being backed up with the service sector.
But still most of the population is engaged in agricultural sectors which is depicted below table:-
(http://www.defproac.com/?p=1673)
India has one of the youngest population in the world where its 65% of the workforce is below the age of 35 which is one the most trigging factor in its future economic development. Many Trans national companies like- Toyota, Hyundai and Volvo has their manufacturing unit established in India owing to low wages and less cost of raw material as well as mouldable policies due to less strict rules and legal structure. Companies like ASDA, BT and Virgin media has their call centers due to evolving IT hub in the nation. (Case study: emerging and developing country - India, n.d.) Looking upon the figures of trade India’s import are more than its exports and is facing a fiscal deficit. Imports as of 2018-19 were $514 billion and Exports were $330 billion (Rastogi, 2019)Nations exports figure witnessed 9.06% growth and imports witnessed 10.41% growth. Its major export destinations are ASEAN, South Asia, North East Asia.
Some other interesting that back India as one of the promising emerging markets are its ranks in varied areas: -Global competitiveness -51st, Financial market sophistication-17th, Banking sector ranked 24th in the world, Business Sophistication-44th and in Innovation it is being ranked 39th and 11th for it consumer market.
7 out of 15 top IT outsourcing companies are based in India. (India, a fast-emerging economy, n.d.).
· Major sectors that has significantly helped India in becoming a prominent economy for investment are (1) Telecommunication Industry (2) Automotive Industry (3) Pharmaceutical and biotechnology industry (India, a fast-emerging economy, n.d.)
Telecommunication Industry- Telecommunication Industry is one of the strongest industry in India. Nation has 604.21 million internet subscribers and India it is ranked as second largest market in terms of total internet users.
There has been huge FDI investment in this sector which totalled to US$32.83 billion till march 2019. Not only this, in 2018 it became the world’s fastest growing market for mobile applications and its is estimated that its contribution to the nations GDP is expected to rise to 8.2% in 2020. Upcoming 5g technologies is said to contribute $2.2. trillion to the global economy in next 15 years.
What is more that it is even employing 4 million people in this industry with the 51.50% rate of market penetration. There has been such a big boom in the industry over the years and it is expected only to rise. (Telecom Industry in India, 2019) (Growth of Telecom Industry in India - Infographic, 2019) (Telecom industry may contribute 8.2% to GDP by 2020 by leveraging 5G, 2019). Government has also been actively taking the industry to forefront by coming out with new National Telecom Policy of 2018 that is expected to attract US$100 billion investment in the sector by 2022 and it has also removed the FDI cap from 74% to 100%. (Telecom Industry in India, 2019)
{https://www.investindia.gov.in/sector/telecom}
Automotive Industry- India being so populace holds so many growth opportunities for any industry. Same is the scenario with automobile industry where world’s leading manufacturers are making a shift to Indian economy just because of lower wages, easy accessible raw material and various government initiatives attracting capital investment. Indian auto industry became 4th largest in the world in year 2017 with the increment in sales by 9.5% and it also became the world 7th largest manufacture of commercial vehicles in 2018. Projections are made that that next decade is going to see huge growth on the baseline of domestic manufacturing 30.92 million vehicles only in 2019. Looking onto the export side it was also on the growth side rising by 14.5% in FY 2019.FDI in this industry from year 2010 to 2019 accounts for $21.38 billion. As far as the government initiatives is concerned it is planning to set up R&D centers costing US$ 388.5 million to equip industry to be on par with the international standards. Government of India approved the FAME-II scheme requirement of (US$ 1.39 billion) for FY20-22. (Automobile Industry in India, 2019) (Shivanshu Gupta, 2018)
Pharmaceutical and biotechnology Industry- Indian Pharma industry is deemed to be setting a new high of USD 38 billion dollars by 2030. Government is fueling the industry growth by promoting innovation by having research ecosystems with competitive tax breaks on R&D investments and technological transfers by simplifying regulatory framework. (Indian Pharma industry aspiring to grow to $120-130 billion by 2030: IPA, 2019). At present this industry is valued to be $11 billion and is expected to be even more bigger in coming years. But it is also facing some challenges like unstable pricing and policy environment, lack of capabilities in the innovation space as well as external market and quality compliances by FDA. (Rees, 2019) Pharma exports as of FY2019 was US$17.15 billion. This all due to the demand of Indian pharma for around 50% of global vaccines, 40% of the generic demand in US & 25% of all medicines in UK. Pharmaceutical is estimated to be the worth of US$33 billion in 2017 and is projected to rise with the growth rate of 22.4% from 2015-20. (Indian Pharmaceutical Industry, 2019)
· Brief introduction that Indian economy is facing in being a Emerging Market:
1)Environmental challenges
2)Unemployment
3)National Infrastructure
4)Shifting of FDI interest
All the economies that are an emerging markets and holds the prospects for becoming developed economy are facing these challenges. Environmental challenges because they are mostly reliant on use of natural resources resulting in environmental dis-balance and making ecological crisis. As far as the Unemployment is concerned, the unemployment rate in India is 6.8% that too because of shift from the traditional economies to service based economies leaving the people employed in resource based industries unemployed due to their inability to cope up with the technological advancements. Indian economy is working and still has to work on it national infrastructure like road, buildings, internet, electricity in rural areas. Poor regulatory framework and lack in legal policy framework has lead to many hurdles in maintains a good reputation thus distracting and fearing TNS companies in making investment in the Indian economy. On an whole, it can be said in coming few years these emerging economies can be superpower and be the hub of initiating innovations and setup base for various million dollar industries.
References Amadeo, K. (2019, july 11). Emerging Market Countries and Their Five Defining Characteristics. Retrieved from www.thebalance.com: https://www.thebalance.com/what-are-emerging-markets-3305927 Automobile Industry in India. (2019, september). Retrieved from www.ibef.org: https://www.ibef.org/industry/india-automobiles.aspx Case study: emerging and developing country - India. (n.d.). Retrieved from www.bbc.co.uk: https://www.bbc.co.uk/bitesize/guides/zgwm4j6/revision/1 Chappelow, J. (2019, october 4). Emerging Market Economy. Retrieved from www.investopedia.com: https://www.investopedia.com/terms/e/emergingmarketeconomy.asp Growth of Telecom Industry in India - Infographic. (2019, october 21). Retrieved from www.ibef.org: https://www.ibef.org/industry/telecommunications/infographic Holmes, F. (2017, june 15). One Easy Way To Invest In The 'Asian Century'. Retrieved from www.forbes.com: https://www.forbes.com/sites/greatspeculations/2017/06/15/one-easy-way-to-invest-in-the-asian-century/#41b9a9b6364b India, a fast-emerging economy. (n.d.). Retrieved from www.iccrindia.net: http://www.iccrindia.net/economy/ Indian Pharma industry aspiring to grow to $120-130 billion by 2030: IPA. (2019, june 19). Retrieved from economictimes.indiatimes.com: https://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/indian-pharma-industry-aspiring-to-grow-to-120-130-billion-by-2030-ipa/articleshow/69861213.cms?from=mdr Indian Pharmaceutical Industry. (2019, september). Retrieved from www.ibef.org: https://www.ibef.org/industry/pharmaceutical-india.aspx India's per-capita income rises 10% to ₹10,534 a month in FY19. (2019, may 31). Retrieved from www.livemint.com: https://www.livemint.com/politics/policy/india-s-per-capita-income-rises-10-to-rs-10-534-a-month-in-fy19-1559318636062.html Rastogi, V. (2019, july 4). India’s Export and Import Trends 2018-19. Retrieved from www.india-briefing.com: https://www.india-briefing.com/news/indias-export-import-trends-2018-19-18958.html/ Rees, V. (2019, october 28). The potential of the Indian pharmaceutical industry. Retrieved from www.europeanpharmaceuticalreview.com: https://www.europeanpharmaceuticalreview.com/article/103336/the-potential-of-the-indian-pharmaceutical-industry/ Shivanshu Gupta, N. H. (2018, july). The future of mobility in India’s passenger-vehicle market. Retrieved from www.mckinsey.com: https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/the-future-of-mobility-in-indias-passenger-vehicle-market Sraders, A. (2018, December 31). What Are Emerging Markets? Characteristics and List in 2019. Retrieved from www.thestreet.com: https://www.thestreet.com/markets/emerging-markets/what-are-emerging-markets-14819803 Telecom Industry in India. (2019, september). Retrieved from www.ibef.org: https://www.ibef.org/industry/telecommunications.aspx Telecom industry may contribute 8.2% to GDP by 2020 by leveraging 5G. (2019, june 4). Retrieved from economictimes.indiatimes.com: https://economictimes.indiatimes.com/industry/telecom/telecom-news/telecom-industry-may-contribute-8-2-to-gdp-by-2020-by-leveraging-5g/articleshow/70071849.cms
