INDIA – ECONOMIC OUTLOOK
India offers today a market of extraordinary potential, perhaps unique in the global scenario for the vast range of entry strategies that it offers, though still remaining significantly complex. The growth rate of India’s economy is among the highest globally, second only to China among emergent economies.
Economic statistics for 2012 point, however, to a number of weaknesses in the Indian economy: both trade and budget deficits still hover around 5% and 6% of GDP respectively; GDP growth should clock at little above 5% in the fiscal year 2012-2013 (as against 6.2% in 201102012 and 9.3% in 2010-2011); in the first nine months of 2012 the influx of FDI fell by 20%; inflation risk remains high.
However, the economic reforms initiated in September 2011 – addressing sectors such as large-scale distribution, banking, civil aviation, energy prices, broadcasting – and particularly the ‘governance reform process’ aimed at reducing red-tape and simplifying approval procedures for large investments, should lead, in the medium term, to a new phase of sustained growth. The IMF World Economic Outlook estimates for India a GDP growth of 6% in 2013. The Indian Planning Commission on its part sets an average target of 8% growth in the quinquennium 2012-2017.
According to the goal set by the Indian Government for 2025, the share of GDP growth contributed by the manufacturing sector will rise from 16% to 25%, creating at the same time 100 million new jobs. India has also launched in recent years a series of industrial plans aimed at filling the gaps existing in the sectors of energy and infrastructure. Major plans include a Solar Mission and a Wind Mission in renewable energy, while infrastructure upgradation will require an estimated investment of 1000 billion $ for the same period 2012-2017. Most of these fund will be mobilized through Public-Pivate-Partnerships. Other highly strategic sectors that are of interest to Italian companies seeking overseas opportunities, are mechanics and mechatronics, the automobile segment (small cars and components) and food technology, specifically food conservation and processing.
BILATERAL ECONOMIC RELATIONS
A. BILATERAL TRADE
In the 20 years between 1991 and 2011, bilateral trade grew by 12 times, from 708 million to 8.5 billion EUR. According to Italian Statistics (ISTAT), in 2011 total bilateral trade grew by 18,2% (+10,4% Italian export to India and +25,1% Indian export to Italy), confirming Italy as India’s 4th EU trade partner after Germany, Belgium and the UK. The Goverments of the two countries have set a target of billion EUR by 2015.
Machines and appliances top the list of Italian export to India with a share of 44,4% in 2011; conversely, textiles and apparel constitute over 25% of India’s export to Italy in the same period.
The year 2012 witnessed a contraction in bilateral trade, for the first time since 2009. Total bilateral trade with India (source ISTAT / EUROSTAT) was reduced by 17.7% in the first nine months of 2012, with a decrease of 11% in Italian exports and 22% in imports from India. Italy however remains India’s fourth trade partner among EU countries (after Germany, Belgium, United Kingdom) and fifth importer of goods from the subcontinent (after the United Kingdom, Germany, Belgium and the Netherlands).
A National Export Plan prepared by ICE - the Agency for Promotion and internationalization of Italian firms - (link http://mefite.ice.it/agenda/VisualizzaEvento.aspx?Nav=3&Month=01 / 2013 & IdNotizia = 6646 & Id_Notizia = 6646), forecasts that in the coming years Asia will be the main engine, if not the only one, of world trade. According to a recent report by HSBC, India, the continent's third-largest economy, will dictate the pace of this trend in the next five years and Indian imports would be expected to grow at an average annual rate of 7%, the highest among emerging countries. Italy accounts today for only 1% of total imports from Asia and just a little over 1% from India. Conversely, India’s share of Italian trade is placed just below 1%. These data help us understand the quantum of untapped potential.
B. FOREIGN DIRECT INVESTMENT FLOWS
As per Eurostat sources, Italy has invested 694 million euros in India in 2011, almost three times more than in 2010. If we consider the cumulative investment as of December 2011, Italy had invested in India 2.58 billion euros or 5.6% of total EU FDI in India (as against 35.5% UK, 27 % Germany and 7.5% France, while the Netherlands is at par with Italy).
Inward EU flow data for 2011 place India’s investment at 957 million Euro, of which 6.7% (66 million) in Italy, which thus emerges and the second EU destination after the United Kingdom (with a share of nearly 68%.) In 2010, Indian investments into Italy totalled 90 million euros.
Considering the cumulative Eurostat data for the period 2000 to 2011, the Italian share of the total stock of Indian investments in the EU is 2.3% (approximately € 240 million), after the United Kingdom (33.6%), Germany (3.5%) and France (3.2%). These figures are still quite small in absolute terms, but are certainly destined to grow, given the increasing propensity of large conglomerates in India to look overseas for investment opportunities or acquisitions outside national borders. Based on Eurostat data, the stock of Indian investments in the EU has shown an impressive growth over the last seven years, from 584 million euros in 2004 to 10 billion in 2011.
For completeness of information, it should be noted that the investment data released by the Indian Department of Industry underestimate significantly the quantum of Italian investment when compared with those from Eurostat. For example, in 2011 the Italian FDI in India would have amounted to $ 134 million and would have declined by 26.9% compared to the previous year, only to grow again in early 2012. When taking into account the cumulative investment since 2000, on the basis of data provided by the Indian Department of Industry, Italy ranks 14 in the list of foreign investors, with a total direct investment of just over one billion dollars, compared with 17 billion of the UK, 8 of Holland, the 6.5 of Cyprus, 5 of Germany and about 3 of France, on a par with Spain.
C. PRESENCE OF ITALIAN COMPANIES IN INDIA
We can estimate a total number of about 400 Italian legal entities and factories in India. The presence of Italian companies in India can take many forms, such as wholly owned subsidiary, joint ventures with Indian companies, representative offices, commercial agents and other (technical collaborations, Indian companies set up by Italian citizens).
Subsidiaries and joint ventures account for about 60% of Italian companies, and tend to be evenly distributed, with a slight preference for fully controlled subsidiaries. The JV route is generally preferred by small and medium-sized enterprises that enter the Indian market for the first time. Having an Indian partner may be a strategic move to act effectively in the local context and to relate to local customers. In addition, in some areas, the solution of the JV is necessary due to statutory caps on foreign investment such as defence, multi-brand distribution, press, civil aviation, telecom, banking and insurance, etc.
Location-wise, Italian companies in India are concentrated in the industrial triangle of Delhi-Gurgaon-Noida (over 100 companies) and in the axis Mumbai-Pune (over 100 companies). The third and fourth poles of attraction are found in Chennai, the state capital of Tamil Nadu (about 35 companies) and Bangalore, the capital of the State of Karnataka (about 20 companies). Significantly lower is the Italian presence in the city of Kolkata, where there is only a handful of Italian firms. The State of Gujarat, thanks to its infrastructure and investment-friendly policy, is fast becoming an important center of attraction for productive investment, both domestic and foreign.
Auto and auto-components have historically represented the main sector of investment for Italian companies in India. Still, more than 16% of the Italian presence in India belong to the automotive industry. Services account for about 20% of the total, mainly in transport, consulting and financial services. The Italian manufacturing sector in India is thus represented: 15% Machinery (which is also the the first item of Italian exports to India) followed by textiles and clothing with 12%. Another 12% of Italian companies are found in engineering, infrastructure and construction, a sector clearly destined for further growth (Editor's note: estimates by Italian Embassy Commercial Office as on December 2011).
A list of the major Italian groups in India includes Fiat (comprising Fiat Auto, New Holland and Magneti Marelli), Ferrero, Perfetti Van Melle, Lavazza, Piaggio, Prysmian, Maire Tecnimont, Techint, Luxottica, Assicurazioni Generali, Danieli, Artsana / Chicco, Oerlikon Graziano, Brembo, OBS (Coin / Costco), Bauli, Finmeccanica, StMicroelectronis, Snamprogetti / Saipem, Salini / Todini, Bonfiglioli, etc.. The presence of large Italian industrial groups certainly acts as a driving force for our small and medium enterprises whose presence in India is steadily growing.
MAJOR PROMOTIONAL EVENTS - YEAR 2013
- Participation @ Aeroindia 2013 (Bangalore, 6-10 February 2013)
- Participation @ India Design Forum 2013 (Mumbai, 15-16 March 2013) and second edition of the "Roundtable on Indo-Italian design" - in collaboration with ICE, Altagamma, CII
- Launch of a permanent field test facility for Italian agricultural machinery "Italian Agricultural Machinery Demonstration Field" (Ludhiana, Punjab March 15 to 17) - in collaboration with the Indo-Italian Chamber of Commerce, UNACOMA, Emilia Romagna region, Unioncamere Emilia Romagna, State of Punjab
- Roundtable on Renewable Energy (New Delhi, 18-19 April 2013, on the sidelines of 4th Clean Energy Ministerial) - in collaboration with the Indo-Italian Chamber of Commerce
- Roadshow on the LEGEM project - eco-friendly energy efficient urban district, designed by a group of Italian companies and architectural firms, coordinated by the Infrastructure Club of the Indo-Italian Chamber of Commerce with support from Confindustria (Ahmedabad and New Delhi - April 2013, Chennai and Mumbai - September 2013)
- Event on Machinery Sector - in collaboration with ICE and Indo-Italian Chamber of Commerce (date to be decided)
- Event on attracting investments to Italy - in collaboration with ICE and Indo-Italian Chamber of Commerce (date to be decided)
INSTITUTIONAL DIALOGUE:
INDIA-ITALY JOINT COMMISSION ON ECONOMIC COOPERATION
The Bilateral institutional dialogue on issues of economic interest is held regularly in the framework of the India-Italy Joint Economic Commission, co-chaired by the respective Ministers of Commerce and Industry. The 18th session was held at New Delhi on December 14, 2009 . It is a wide-range tool to address issues and develop modalities of bilateral cooperation in a vast array of subjects, ranging from trade promotion to industrial cooperation in various sectors (tourism, infrastructure, civil aviation, agriculture, design, textiles to name a few), protection of industrial property rights, financial cooperation and business visas.
The 19th session of the India-Italy Joint Economic Commission should be held in Italy, based on the principle of alternation, in 2013.
LINKS to REPORTS / USEFUL DOCUMENTS
Dossier "Destination India" (enter)
Country Report (in Italian language)
LINKS to USEFUL WEBSITES / INTERNATIONAL DOCUMENTS
EU - India relations
EU Assistance programmes with India
EU Trade relations with India
IMF Country information: India
WTO – RTA Database, India
World Bank, India
WHO, India
OECD, India
FAO, Country profiles
Asian Development Bank, India
UNdata – Country Profile – India
Unctad – Country Fact Sheets India
World Bank - Doing Business in India 2013
World Bank - India Economic Update 2012
UNCTAD - World Investment Report 2012
IMF - World Economic Outlook update 2013
UNDP - Human Development Report 2011
UNDP - Human Development Reports – India
Italian Diplomatic Network
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