Overseas Market Profiles

Major Economic Indicators

Sources: CEIC, IMF, Ministry of Commerce and industry and Ministry of Statistics and Program Implementation

Latest Development

• India’s economy expanded 7.8% year-on-year (YoY) in the first quarter of 2011, after a revised YoY growth of 8.3% in the last quarter of 2010.
• Inflation rose 8.7% YoY in April 2011, down slightly from 9% in the previous month. In early May 2011, the Reserve Bank of India (RBI, the country’s central bank ) raised the benchmark repo rate  to 7.25%
• India has recently signed free trade agreements (FTAs) with Singapore, Thailand, Indonesia, the ASEAN, South Korea and Japan. The Indian government expects these FTAs will help double exports to US$450 billion by FY2013-14.
• In the first four months of 2011, India was the fourth largest export market for Hong Kong. Hong Kong’s total exports to India surged 38% YoY to US$4.1 billion.

Current Economic Situation

India’s economy expanded 7.8% year-on-year (YoY) in the first quarter of 2011, after a revised YoY growth of 8.3% in the last quarter of 2010. Despite a slight slowdown, the latest government forecast of FY2011-12 is still optimistic, with a robust growth of 9%.

Wholesale prices (a more popular proxy of Indian inflation) rose 8.7% YoY in April 2011, down slightly from 9% in the previous month. Food price inflation, as measured at the wholesale price level, also moderated to 7.7% YoY as of end-April. Stemming the inflation is one of the major challenges for the Reserve Bank of India (RBI, the country’s central bank). In early May 2011, RBI raised the key interest rates by a sharper than expected 0.5%, lifting the benchmark repo rate (the rate at which RBI lends to the banking sector) to 7.25% and the reverse repo rate to 6.25%. RBI expects wholesale prices to rise 8% in FY2011-12 while its target is to keep inflation within a 4-4.5% range, and thus the tightening policy is expected to continue.

India’s exports gained 43.8% YoY in March 2011 while imports grew 17.3% YoY. In FY2010-11, Indian exports surged 38% to US$246 billion, making it the fastest annual growth since 1947. The Indian government attributed the strong performance to the recovery of external demand and more liberal trade regime. India has recently signed free trade agreements (FTAs) with Singapore, Thailand, Indonesia, the ASEAN, South Korea and Japan. According to Indian government, these FTAs will help double export to US$450 billion by FY2013-14.

Industrial output grew 7.3% YoY in March 2010, up from 3.7% in February. Production of capital goods and durables goods posted a strong growth in the period, both surging more than 12% YoY. According to the Society of Indian Automobile Manufacturers, the number of vehicles produced grew 27.5% to 17.9 million in FY2010-11, with passenger vehicles surging 33% and commercial vehicles gaining 27% in the same period.

India holds a dominant share of the global offshore IT and ITES (IT-enabled services) market. Together, it is estimated that the industry contributes to 5-7% of India's GDP. The export of IT/ITES services is mainly to the US and the UK, accounting for some 60% and 20% shares respectively of such service exports. India’s economy depends heavily on service industries for expansion and though IT/ITES constitutes only a relatively small share of the overall economy, 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, with the latest retail market size estimated to reach US$435 billion. With the world’s second largest population (over 1.2 billion), India has a huge consumer base with increasing discretionary spending. A study by McKinsey suggested the economic boom in recent years had created a massive middle class dwelling in major cities. India is expected to become the world’s fifth largest consumer economy by 2025.

Retail channels in India have been fast modernising, with many malls and hypermarket adding sale spaces every year. Organised retail now accounts for 7% of India’s retail market and is expected to reach 20% by 2020. Hypermarkets have gained prominence in the retail market. About 30% of organised retail sells clothing, which shows promising growth in recent years.

Foreign direct investment (FDI)

In FY2010-11 (April 2010 - March 2011), India's FDI inflow amounted to US$19.4 billion, down 25% from the year-earlier period. The inflow was mainly from Mauritius (US$6.9 billion; 36% of total), Singapore (US$1.7 billion; 9%), and Japan (US$1.6 billion; 8%). During the same period, the services sector attracted the highest FDI inflow (US$3.4 billion), followed by telecommunications (US$1.7billion) and automobile (US$1.3 billion).

India's economic policies are designed to attract significant capital inflows into the country on a sustained basis and to encourage technology collaboration between Indian and foreign firms. Almost all sectors are opened to foreign investment with varying percentage of foreign ownership allowed, except for atomic energy, lottery business, gambling and betting, and some forms of retail trading. For example, FDI is allowed up to 51% in retail trade in single brand products in India, while multiple-brand retail is still currently closed to FDI. Under India's foreign investment policy, two routes are available for foreign investors, depending upon the industry and the levels of investment contemplated:

1) Automatic Route

Foreign investment proposals under the automatic route will not be subject to any government approval, provided the requisite documents are filed with the Reserve Bank of India within 30 days of receipt of funds. Qualified sectoral investment includes hotels & tourism, and courier services, etc.

2) Foreign Investment Promotion Board (FIPB)

All other proposals for foreign investment, which are not covered under the automatic approval route, are considered for approval, on merits, by the FIPB.

Special Economic Zones (SEZs)

India’s government implemented the SEZ Policy in 2000, and passed the SEZ Act, 2005 to facilitate the establishment of SEZs in selected areas. Within these SEZs, special incentives, such as market access, tax exemptions and fast-track single window clearance are provided to investors. As of end-May, more than 584 SEZs had been approved and notified under the SEZ Act 2005, with total employment of around 300,000 people. Exports from the functioning SEZs amounted to Rs 2,20,711 crore (approximately US$46 billion) in 2009-10, up 121% YoY.

Trade Policy

India’s government has embarked on economic liberalisation since 1991 and continued to work towards a more open trade regime. There has been elimination of quantitative restrictions, simplification of import licence application and reduction of import tariffs. Since 1992, the government has loosened the licensing requirement for imports of capital goods. In March 2001, the government abolished the system of special import licences and the restricted list of imports, leaving only a small negative import list.

The Foreign Trade Policy 2004-09 is the major policy governing foreign trade in India. In general, no restriction is imposed on the import and export of most products except for those on the small negative import list. Nevertheless, all second-hand products except for second-hand capital goods shall be subject to licences, certificates, permits or authorisation for import as stated in the Trade Policy. On the other hand, liberalisation of trade practices has also been achieved through the signing of FTA, as aforementioned.

Hong Kong's Trade with India

In the first four months of 2011, India was the fourth largest export market for Hong Kong. Hong Kong’s total exports to India surged 38% to US$4.1 billion for that period. Major export items included pearls, precious & semi-precious stones (50.5% share), telecommunications equipment & parts (22.5%), silver & platinum (8.1%), computers (2.8%), and musical instruments & parts/accessories; sound recordings (1.5%).

On the other hand, India was Hong Kong's eighth largest source of imports in the first four months of 2011. Hong Kong's imports from India gained 22% to US$3.7 billion for the period. Major import items included pearls, precious & semi-precious stones (75.0% share), jewellery (11.6%), telecommunications equipment & parts (2.9%), leather (2.6%), and textile yarn (0.9%).

India's Economic Involvement in Hong Kong

Many Indian companies have established offices in Hong Kong. As of June 2009, there were 7 Indian companies with regional headquarters in Hong Kong, 14 with regional offices, and 18 with local offices. The range of businesses includes trading, banking, IT and logistics.

Indian companies in Hong Kong include Union Bank of India, ICICI Bank, Bank of India, Air India, GATI, Globe7, Infosys Technology and Titan Industries Ltd. Union Bank of India, one of the largest state-owned banks in India, inaugurated its first full-service branch in Hong Kong in August 2008 to take advantage of the growing trade between India and the Chinese mainland. GATI is the first Indian logistics company that set a foothold in Hong Kong in 2005 and aimed to seize the opportunities to establish its gateway to Southern China and transshipment hub between China and India through its Hong Kong operation. Globe7, a subsidiary of the Indian-based Northgate Technologies which specialises in digital information and online communication, has set up office in Hong Kong to bring cutting edge global communications technologies and consumer products to the region. Many Hong Kong-based Indian firms also act as intermediaries for trade between the Chinese mainland and the Middle East and African countries.

Tourists from India to Hong Kong grew by 1.8% YoY to 144,057 in the first four months of 2011, accounting for 1.1% of the total visitors to Hong Kong.