Current Economic Situation

Domestic economy

India's real GDP in first three quarters in 2008 recorded a year-on-year (YoY) growth of 8.3%, or an 11.1% annualised growth, after growing 9.3% in 2007. However, with the global economic downturn, its growth in 2009 is expected by the IMF to slow to 5.1%, slashing an earlier forecast of a 6.9% growth.

India is less export-reliant compared to many other Asian economies, with private consumption contributing some 60% of the GDP. However, India is not entirely immune from the global economic downturn, and its manufacturing sector was under some pressure. Industrial output shrank by 0.3% in October 2008, the first contraction in 15 years. India's manufacturing sector accounts for some 25% of GDP, while its services sector contributes around 60%. Nonetheless, its service sector, including outsourcing services, is also under pressure.

India holds a dominant share of the global offshore IT and ITES (IT-enabled services) market, of which about 65% is in IT and 46% is in ITES. Together, they contributed to about 5% of India's GDP. The export of IT/ITES services is mainly to the US and the UK. India's economy depends heavily on service industries for expansion and though IT/ITES constitutes only a relatively small share, it has been India's fastest growing sector for the past few years.

India is riding on a retail boom bolstered by its fast expanding middle class and young consumers, which is expected to grow from an estimated US$333 billion in 2007 to reach US$453 billion by 2010. With the world's second largest population (over 1.1 billion), India has a very huge consumer base with increasing discretionary spending. A study by McKinsey suggested the economic boom in recent years had created a massive middle class centred in the cities. India is expected to become the world's fifth largest consumer economy by 2025.

Over 95% of India's retail sector is unorganised and consists predominantly of small retailers. The retail market situation is changing in favour of more organised retail, with many malls being built. Organized retail accounts for about 5% of the total market and is expected to grow at a compound annual growth rate (CAGR) of 40% as India's indigenous retailers race to increase the number of stores. International retailers such as Walmart and Carrefour are joining forces with local partners to capture the market. Under India's current laws, single-brand retailers can own a 51% majority stake in a joint venture with an Indian partner and 100% foreign ownership is allowed only under the cash-and-carry wholesale model, as in the case of German wholesaler Metro.

To shore up economic growth, India's government has unveiled a series of stimulus packages. Measures are undertaken to ease the flow of credit, raise the credit targets of Public Sector Banks, increase the loan guarantee cover to small companies, recapitalize state-run banks by providing Rs200 billion (US$4.2 billion) to support credit growth, and generate additional infrastructure investment of Rs750 billion (US$15.6 billion) by issuing debt.

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