Incredible India: The Good, the Bad, the Ugly, and the Beautiful
By Arthur Visser, Bishop & Associates Inc.

The Good
It is tempting to compare India with China. However, the similarities between the countries probably end at the fact that they both count over one billion inhabitants and boasted very good GDP growth rates in recent years, and probably will continue to do so for the immediate years ahead. The truth is, India will never be another China, and China is not India.

It makes more sense to value each country for its own potential and unique business opportunities. Since 1991, India has been on the right track by deregulating parts of its economy; some steps involved opening the country to international trade and investments (FDI), privatization of state monopolies, tax reforms, and by taking inflation-controlling measures. This has basically turned India into a market economy, although it is clear there is still a lot of work ahead.

Currently there are various plans on a national basis, but also on a state level, to boost India’s economy by:  

• Improving the infrastructure

• Reducing the energy import dependence

• Attracting more foreign capital

Infrastructure improvements are on top of the wish list for businesspeople who are active in India, or those who are planning to start or expand business in the country. The government is working frantically on improvements, but it seems nearly impossible to catch up on 60 years of underinvestment in just a decade. Evidence of these good intentions is exemplified by the launch of the “Indian Railway Vision 2020” in December 2009 by the Ministry of Railways. Massive investments in India’s railway infrastructure may offer abundant opportunities for connector manufacturers as long as the bidding process is open to everybody. Most railway businesses in India are state-owned.

India’s need for energy is increasing rapidly, and its growth is only sustainable when there is enough energy at hand to run the machines. To lower its dependence on oil imports, India has launched various initiatives to boost the use of renewable energy sources such as wind energy and solar power. India is now a major player in the wind-energy market and the Indian wind-power company Suzlon is one of the top three global market leaders in this sector, with almost 9% of the world’s total wind installations. The market for solar power installations is still small in India, but the country has built up a significant solar industry, producing an annual capacity of 700MW in solar panels, of which almost 90% is now exported.

Last but not least, India is attracting increasingly large sums of Foreign Direct investments (FDI), which is a sign that companies and investors are taking an interest in the developments in India.  

FDI Flows in India
2000-2010

The growth prospects for the Indian economy (GDP growth) are still around 8.6% per year in the period from 2012 to 2015. Effectively, these are the highest expected growth numbers for that period for any economy worldwide, including China. Of course, as always, it all depends... how will the rest of the world develop, how will the Indian government manage the country’s potential, and how fast can changes be implemented to facilitate this growth?

India’s GDP Growth Forecast
2011-2015

 
Source: © Economist

As a very rough indicator, historic long-term growth rates for the connector industry are about twice the long-term growth rate of the economy in a given region. In the case of India, this means we could expect growth rates for the connector industry around 16% to 18% per year for the next five years. Pretty good!

The Bad
India’s dependence on energy (read: oil) imports is particularly critical when oil prices are rising as they have done over the past year (see graph). Plotting the trend in the global connector market against the price of oil (in this case Brent Crude) shows some similarity between the two. Although this doesn’t prove there is a correlation between oil price development and connector market trends, oil prices tend to increase in anticipation (expected demand) of a growing economy. If the expectations turn out correct, the subsequent actual economic growth will, in turn, drive connector demand.

Growth in emerging economies like India is very dependent on oil imports. What we may experience, therefore, is that the current growth in India is eventually capped by increasingly high oil prices, if these are sustained over a longer period. And this, in return, may affect the connector market in India in a negative way. This may seem contradictory, but it really isn’t. Considering the rising oil prices, this may be a sign of increased economic growth, which will eventually cool down precisely because of the higher oil prices. Of course, spikes in oil prices (up or down), and economic growth and recessions, may occur due to a complexity of other factors, as we all know all too well, so this really is a very abstract illustration of the situation. Citigroup believes that oil price increases of 10% may cut 0.5% off India’s GDP! And it is clear that this, in turn, will affect the connector market in India.

The graph also shows the gold price vs. the connector market trend, and it seems to have no correlation at all with global connector market growth. Even though market prices of precious metals do influence connector prices in the market, it does not seem to affect market growth at all.

Oil Prices vs. Connector Market Growth
2002-2010

Unemployment is another factor that may spoil the party for India. The lack of a broad-based industrial sector that can employ millions of jobless farm workers, combined with their increased aspirations and high inflation, which is raising food prices by nearly 20% over a relatively short period of time, make the situation particularly delicate in the short to medium term. Economic growth is currently generated by non-labor-intensive services, and with unemployment hovering around 10%, this means that, for a country with nearly 1.2 billion inhabitants, literally millions of people are without a job. It is exactly this same lack of a solid and growing manufacturing base that is also holding back the growth of the connector market in India. If the conditions were ideal, a proper infrastructure and a growing middle class with higher disposal incomes would thrive, and the manufacturing base and the connector market could grow at a spectacular rate.

Both oil prices and unemployment levels have now reached a point where they can start seriously hurting the Indian economic motor.

The Ugly
While a lack of infrastructure is the number one culprit according to most businesses in India, corruption seems to be rife as well. It has been a problem for years, and strong economic growth in India seems to be fertile ground for even bigger scams. This is most likely the most “ugly” of potential inhibitors to further growth of the Indian economy, manufacturing base, and thus, the Indian connector market.

The Beautiful
Luckily there is always the Taj Mahal! Unmatched in beauty and splendor, this symbol of India’s rich culture and high potential provides a feeling that in the end, all will be well. And as someone recently said, “if it is not well, it is not the end!”

On the basis of thorough research of the local industry, including international and local connector manufacturers, Bishop & Associates has recently published a new Research Report of the Indian Connector Market. The report illustrates clearly which industries are beginning to develop and how the connector industry in India differs from other regions in the world in terms of end-use equipment and overall product mix.

Based on the research data, Bishop & Associates developed three possible growth scenarios for the Indian Connector Market. The Indian connector market may well reach a five-year compound average growth rate between 2009 and 2014 of 14.5% to 23.4%, depending on the growth scenario that will develop. Whatever the outcome, the Indian connector market will be worth well over $1.1 billion by 2014, and that alone justifies a closer look at the market.

Click here to order the report.

Arthur Visser Managing Director—Europe, Bishop & Associates Inc. Arthur Visser started his career in 1987 at Océ Corporate headquarters in Venlo, the Netherlands, as a product engineer assigned to provide support to the American Océ organization. In 1988, he joined OMRON Corporation at its European headquarters in the Netherlands as the European product manager responsible for industrial automation systems and components. In 1993, Arthur moved to OMRON Electronics in Brussels as a key account sales engineer, and in 1995 became the product and marketing director. In 1998, he joined the connector manufacturer HARTING as managing director for its Belgian subsidiary. Arthur became an independent consultant, based in Brussels, in 2003. Arthur has a bachelor of science degree in airplane engineering, degrees in marketing and finance, and a master’s degree in e-media enterprising. His native tongue is Dutch, but he also speaks English, French, German, and Russian.