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International Investing: India

Economic Overview: India possesses a diverse economy that ranges from traditional village farming to advanced technology. Its major challenge is a huge and growing population, posing social, economic and environmental problems.

Services are the major source of economic growth, and the country has become a major exporter of software services, using large numbers of well-educated, English-speaking professionals. About three-fifths of the work force is in agriculture, and the government has launched an economic reform program that includes developing basic infrastructure in rural areas.

The government has scaled back controls on foreign trade and investment, raising the limits on foreign direct investment in a few key sectors such as telecommunications. Growth of more than 8 percent in each of the last three years has raised inflation concerns. Privatization of government-owned industries is stalled in political debate.

What to Watch: Mumbai has 1.2 billion potential customers — the world's largest democratic market — but less than 5 percent of its retail business is in the organized sector.

No wonder large players like Wal-Mart and Tesco want to enter the Indian market.

Even as India is poised for a retail revolution, it’s causing some social disturbances.

Traders in the northern city of Bhubaneshwar recently vandalized a newly opened store, their anger directed toward the entry of big companies into the country's largely unorganized retail sector.

By contrast, organized retail has been the livelihood for 600 workers in a factory in Karur in southern India. For the last six years, the factory has been making kitchen linen for export to Wal-Mart stores.

In those years their wages have more than doubled. And now, the proprietor wants to double his company's production capacity, with a new division making linen for stores in India.

In fact, by 2011, thousands of stores are expected to open across India. Global giants like Wal-Mart, and Indian companies like the Future Group and Reliance plan to invest about $25 billion. The big attraction: The country’s organized retailing sector is expected to grow from roughly $12.5 billion now to $55 billion. That growth is expected to add about 25 million new jobs to the Indian economy. But if India is to embrace the retail revolution, the opposing voices will first need convincing there is a benefit.

New Delhi: Real estate here is the largest sector for foreign investment. While mature housing markets are not an investor's favorite bet, India still promises high returns — but not without the hiccups of an emerging market.

The first realty company to be included in India's National stock exchange's “Nifty Fifty” index has set a revenue target of $750 million for 2007. It’s just one example of the booming Indian realty market, which is fueled by demand for retail and office space, but mainly housing.

The country is facing a shortage of 22 million housing units, and the realty market is expected to grow at 33 percent for the next five years to $90 billion.

Indian regulations allow foreign investors to have a slice of the action only through an institutionalized fund — Greenfield projects with a lock-in period of at least three years.

More than $5 billion in foreign investment has found its way into the Indian real estate market over the last year. Funds like Morgan Stanley, Merrill lynch and Tricon Capital are projecting returns of better than 25 percent to their investors.

Sanjay Verma, executive managing director, South Asia, for Cushman Wakefield, said investors are interested in the market because of the potential for high returns, but also because other developed markets are not offering as much in returns in the current market.

There is a flip side to the real estate business in India, though. The country began to get organized only a few years ago and still leaves much to be desired in the area of transparency. This has held back several funds from fully investing the money raised. This year the Jones Lang Lasalle global transparency report has rated India ahead of China -- from opaque to semi-opaque -- as big developers are now getting their act together to draw in the dollars.

India

2000
2006
Population 1.0 billion 1.1 billion
Economy
GNI Atlas method (current US$) 456.8 billion 906.5 billion
GNI per capita Atlas method (current US$) 450.0 820.0
GDP (current US$) 460.2 billion 906.3 billion
GDP growth (annual %) 4.0 9.2
Inflation GDP deflator (annual%) 3.5 5.3
Agriculture value added (% of GDP) 23.4 17.5
Industry value added (% of GDP) 26.2 27.7
Services etc. value added (% of GDP) 50.5 54.7
Exports of goods and services (% of GDP) 13.2 N/A
Imports of goods and services (% of GDP) 14.2 N/A
Gross capital formation (% of GDP) 24.8 N/A
Revenue excluding grants (% of GDP) 11.9 N/A
Cash surplus/deficit (% of GDP) -3.9 N/A
States and Markets
Time required to start a business (days) N/A 35.0
Market capitalization of listed companies (% of GDP) 32.2 90.4
Military expenditure (% of GDP) 3.1 N/A
Fixed line and mobile phone subscribers (per 1 000 people) 35.4 N/A
Internet users (per 1 000 people) 5.4 N/A
Roads paved (% of total roads) 47.5 N/A
High-technology exports (% of manufactured exports) 5.0 N/A
Global Links
Merchandise trade (% of GDP) 20.4 32.5
Net barter terms of trade (2000 = 100) 100.0 N/A
Foreign direct investment net inflows (BoP current US$) 3.6 billion N/A
Long-term debt (DOD current US$) 95.6 billion N/A
Total debt service (5 of exports of goods services and income) 14.5 N/A
Official development assistance and official aid (current US$) 1.5 billion N/A
Workers' remittances and compensation of employees received (US$) 12.9 billion 25.7 billion
Source: World Development Indicators database, April 2007