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Economic Analysis of India as a Potential Location for HelloFresh

Term Paper (Advanced seminar) 2018 33 Pages

Business economics - Economic Policy

Excerpt

Table of content

1. Introduction
1.1 Motivation
1.2 Structure of Paper

2. Short Presentation of HelloFresh

3. Country Background
3.1 General Information
3.2 Social Issues

4. Development of Macroeconomic Indicators
4.1 GDP, GDP growth, Components of GDP, GDP per capita,
Composition of GDP by sector
4.2 Inflation
4.3 Unemployment
4.4 Balance of Payment Situation
4.5 Government and Foreign Debt Situation
4.6 Exchange Rate System and Development

5. Project Specific Indicators

6. Major Potentials and Problems of India’s Economy

7. Comparative Assessment of India as a Potential Location for HelloFresh

8. Conclusion

Bibliography

Appendix

1. Introduction

India has evolved to become one of the leading industrialised economies in the world and realised remarkable socioeconomic development since its independence only seven decades ago. However, India is still facing numerous challenges hampering the economic development of this nation. Not only economic welfare, but also social, political and environmental aspects play an important role for assessing the risk and attractiveness of India for a project.

1.1 Motivation

The motivation for conducting this economic analysis has been my strong interest in examining India’s potentials for the innovative project ‘HelloFresh’. Besides the relevance for the project, I had the desire of exploring the economic situation of this emerging country more. Last but not least, I have a great personal interest in this country due to its cultural diversity and working beside my studies at Tata Consultancy Services, a subsidiary of the Indian conglomerate Tata Group, also sparked my interest to explore this country further.

1.2 Structure of Paper

This paper will conduct an economic analysis of India as a potential location for the project ‘HelloFresh’. First, a short presentation about HelloFresh will be given, followed by an illustration about the country’s background including general information and a demonstration on India’s health and educational issues. After that, the development of macroeconomic indicators for the last three years will be depicted. This includes the analysis of India’s GDP, GDP growth, composition of GDP, GDP per capita and distribution of GDP. Furthermore, the topics inflation, unemployment, India’s balance of payment situation, government and foreign debt situation will be elaborated before the exchange rate system and development will be explained. In the fifth chapter, the most important project specific indicators of the evaluation of the market entry case study will be presented, followed by the presentation about major potentials and problems of India’s economy. Finally, a comparative assessment of India as a potential location for HelloFresh will be illustrated.

2. Short Presentation of HelloFresh

HelloFresh was a small start-up and founded in 2011, in Germany. The start-up started its operations in 2012. Today, HelloFresh has operations in ten countries across three continents: The United States, Australia and Europe and operates as an internet platform. HelloFresh introduced a new business model in the food industry by supplying fresh, pre-portioned ingredients, allowing the subscribers to prepare a variety of meals at home using HelloFresh’s unique recipes. Consumers can order the meal kits by subscription and receive the delivery once a week. The biggest competitor is the American company Blue Apron, which still dominates the meal kit market in the United States. The revenue was €597m in 2016.

3. Country Background

3.1 General Information

India became independent from the UK in 1947 when British India was split into Pakistan and India,[1] and is a federal parliamentary republic today. Since 2014, Prime Minister Narendra Modi is the head of the government.[2] India is in Southern Asia and borders the countries Bangladesh, Bhutan, Burma, China, Nepal, Pakistan, the Arabian Sea and the Bay of Bengal. The country is the 8th largest country of the world by area with a total sq. km of 3.287 million which is more than one-third bigger than the USA. India is vulnerable to natural disasters and especially affected by widespread flooding from heavy monsoon rains, earthquakes and cyclones. The nation is regarded as the world's largest democracy,[3] and the second most-populous country in the world with a population of around 1.324 billion in 2016, right after China with a population of 1.79 billion.[4] India’s population is expected to overtake China's in 2024, becoming the world's most populous nation in 2024.[5] The high population density is prevalent throughout most of the country. 66.5% of the total population live in rural areas, whereas 33.5% live in urban areas. Nearly 50% of the total population are below the age of 25 and 41.08% between the age of 25-54. Only 6.24% are 65 years and over.[6]

3.2 Social Issues

Health

According to the Human Development Index, India had a rank of 131/188 in 2015,[7] giving a first impression about the less decent healthy life.[8] India had a low life expectancy at birth of 68.3 years in 2015, but experienced a sharp increase by 5.8 years from 2000.[9] Furthermore, India managed to decrease the infant mortality rate remarkably from 66.6 deaths/1.000 live births in 2000 to 34.6 in 2016.[10] Maternal mortality rate was 174 deaths/100,000 live births in 2015,[11] but the government is pursuing the ambitious target to decrease maternal mortality rate to 100 by 2020 and infant mortality rate to 28 by 2019 by further improving the public health care system.[12] However, only 39.6% of the total population have access to improved sanitation facilities.[13] According to the Environmental Performance Index, India is the second worst performer regarding air quality being ranked 177/178 in 2014.[14] India’s total health expenditure of the GDP was 4.69% in 2014, half less than the world’s average with 9.9% in 2014.[15] Public health spending was only 1.41% in 2014,[16] the lowest among the BRIC countries.[17] India has not experienced any significant increase during the last decade although India is struggling with severe health issues.[18] The private spending was 3.28% in 2014, more than twice higher than public spending. Most of the healthcare expenditure comes from private spending of households. The out-of-pocket expenses on health care are highest among the world,[19] with 62.4% of total expenditure on health. The world’s average is only 18.18%.[20] These developments cause growing inequality, poor quality of and unequal access to healthcare services.

Education

Education is critical to improve the people’s life and ensure a sustainable development. In India, 71.2% of the total population are literate.[21] Gross enrolment rate for primary education was 108.6% in 2015, higher than the world’s average of 104.3%. However, a lot of pupils do not complete their primary education.[22] Exceeding 100% is typical for gross enrolment rates as it includes over-and underaged pupils due to early or late entrants, or grade repetition.[23] India’s gross enrolment ratio for secondary education was 74% in 2015, nearly in line with the world’s average of 76.4%. To compare with Germany, it had a ratio of 102.6% in 2015, above 100%.[24] In India, gross enrolment ratio for tertiary education was very low with a ratio of 26.8% below the world’s average of 35.7%, however an increasing trend can be observed. Germany had 62.7%.[25] India’s total government expenditure on education was 3.84% of GDP, below the world’s average of 4.71% in 2013.[26] Despite the remarkable growth of the GDP during the last decade,[27] the share of the GDP dedicated to education expenditures remained low among the BRIC countries.[28] India has low educational attainment rates especially for primary education. Attainment rates are important to evaluate the human capital in which India has a low rank of 103/130 in the global human capital index 2016 and ranked lower than its BRICS peers.[29] India’s human capital is critical for productivity and economic growth. The improvement of these social issues are important pillars of the 17 SDG’s for securing a sustainable economic development in India.[30]

4. Development of Macroeconomic Indicators

4.1 GDP, GDP growth, Components of GDP, GDP per capita, Composition of GDP by sector

The GDP is an indicator mostly used to gauge a country’s economic health. India has experienced a significant growth in the GDP during the last decade. In 2013, India had a GDP of 1.857 trillion current US$ in 2013 and 2.264 trillion US$ in 2016.[31] The annual real GDP growth was 6.4% in 2013 and 7.11% in 2016,[32] which regards India as the fastest-growing G20 economy. Structural reforms and low commodity prices contributed to the GDP growth.[33] Furthermore, achievements in improving the ease of doing business including the implementation of the new Goods and Service Tax (GST) helped to boost foreign investments and productivity. Despite the high GDP and GDP growth rates, GDP per capita (PPP) grew from only US$5,250.51 in 2013 to US$6,583.37 in 2016, which is more than half under the world’s average of US$16,205.43.[34] There are three ways to determine the GDP: the expenditure approach, income approach and production approach. Regarding the expenditure approach, which will be elaborated in this part, the formula for determining the GDP is:

Abbildung in dieser Leseprobe nicht enthalten

Chart 1: Components of GDP 2016. Data based on The World Bank

In terms of the components of GDP, household final consumption expenditure (C) was 59.4% 2016, increasing from 58% in 2013.[35] However, investment (I) instead has decreased from 31.3% in 2013 to 27.1% in 2016,[36] indicating that India invested less including spending for infrastructure, education and health. Government final consumption expenditure (G) slightly increased from 10.29% in 2013 to 11.29% in 2016. Exports of goods and services (X) decreased from 25.43% in 2013 to 19.8% in 2016[37] due to poor global growth hence lower demand especially of the USA and the Eurozone,[38] with the USA being the most relevant trading partner of India.[39] In parallel, imports of goods and services (M) was -28.4% in 2013 and -20.63% in 2016,[40] caused by falling commodity prices and not by a plunge in the import volume.[41] Considering the results of the exports and imports, net exports (X – M) was -2.97% in 2013 and -1.45% 2016. India is running a trade deficit meaning that it imports more than it exports in terms of value. Regarding the composition of GDP by sector, the agriculture sector has contributed 17.4%, industry 28.8% and services 46.2% to the GDP in 2016.[42]

Abbildung in dieser Leseprobe nicht enthalten

Chart 2: GDP composition, by sector vs. Labour force – by occupation 2016. Data based on The World Bank

It can be observed, that the agriculture sector has the lowest contribution, however nearly half of the total workforce has been employed in this sector in 2016,[43] meaning that there is a maldistribution of the workforce in the least-productive sector. However, these people are very dependent on this work to overcome poverty. Services are the most important source of economic growth but has employed 30.6% of the total workforce in 2016, less than in the agriculture sector.[44]

4.2 Inflation

The Reserve Bank of India (RBI) attempts to curb high inflation and avert deflation to keep the health of its economy. The RBI set an inflation target rate of 4%, with an upper limit of 6% and lower bound of 2% in 2016 until 2021 to hold prices in limit. The inflation rate steadily decreased from 10.91% in 2013 to 4.91% in 2016, being near to the inflation target rate of 4%.[45] The high level of inflation hampered India’s economic growth and discouraged investments as it had a significant impact on household budgets and purchasing power of consumers. At the beginning of 2014, the RBI raised the repo rate from 7.75% to 8% to combat inflation.[46] The decrease can also be explained by the significant appreciation of the Rupee by 27.1%[47] from the beginning of 2013 until end of 2016 reducing the costs of imports hence the imported inflation. Furthermore, cyclical and temporary tailwinds such as the stronger currency[48] and structural factors like better food management improved by the government, also contributed to the decreasing inflation rate.[49] The fall in the price of oil[50] the biggest import of India, and fall in the food prices were big reasons for the decreasing inflation. Moreover, the dampened rise in support prices for farmers further contained inflation.[51]

4.3 Unemployment

High unemployment can decrease aggregate spending power, hems economic growth and makes households vulnerable to economic shocks.[52] The total unemployment rate is 3.6% and since 2013, there has not been a significant change with the same rate as in 2013.[53] The reason for the low unemployment rate is that a person might have been unemployed for close to half the year but would be seen as employed if he worked for 183 days or more during the year.[54] In 2012, the number of employed persons was 472.9 million and for unemployed persons 10.8 million according to ILO.[55] Youth unemployment (% of total labour force ages 15-24) has not decreased significantly from 10.8% in 2013 to 10.2% in 2017.[56] Over 30% of the youth generation aged 15-29 years are not employed, in education or in training which is exceeding the double the OECD average,[57] while the youth generation is an important driver for India’s economic development. It is expected that more than 80% of the labour force work in the informal sector where poor working conditions and low salaries are present.[58] The government sees underemployment as a more serious problem than unemployment,[59] in which people’s occupational skills are utilised inadequately.[60] The maldistribution of the workforce in less-productive sectors stresses the issue. In 2016, 45.1%, slightly less than half of total employment worked in the agriculture sector,[61] which contributed only 16.4% to the GDP.[62] This problem points out that India needs to increasingly focus on creating high-productivity jobs to enhance its economic growth.

4.4 Balance of Payment Situation

The BoP is divided into four categories: current account, capital account, financial account and net errors and omissions. India’s current account in current US$ improved from US$-49.12 billion in 2013 to US$-12.11 billion in 2016,[63] due to a lower trade deficit resulting from lower oil and commodity prices which have shrunken India’s import bills.[64] In 2013, the current account was -2.65% of the GDP in 2013 and -0.53% in 2016,[65] being under the threshold of 4% and near to 0. However, an increase in the import bills are expected due to increasing oil prices leading to a wider trade deficit which is further supported by expected weak export performance.

[...]


[1] BBC (2017)

[2] The Commonwealth (2017)

[3] BBC (2017)

[4] The World Bank (2016s)

[5] United Nations (2017a), p. 5

[6] The World Factbook (2017) / See Appendix 1 for Population Pyramid of India

[7] United Nations Development Programme (2015)

[8] United Nations Development Programme (2017a)

[9] The World Bank (2015c)

[10] The World Bank (2016l)

[11] The World Factbook (2017)

[12] The Hindu (2017)

[13] The World Factbook (2017)

[14] Environmental Performance Index (2014)

[15] The World Bank (2014a) / Recent data could not be found.

[16] The World Bank (2014)

[17] The Indian Express (2017)

[18] The World Bank (2014)

[19] Singh, A. (2017)

[20] The World Bank (2014b)

[21] The World Factbook (2017)

[22] The World Bank (2015)

[23] UNESCO Institute of Statistics (2017)

[24] The World Bank (2015a)

[25] The World Bank (2015b)

[26] The World Bank (2013)

[27] See detailed presentation about India’s GDP in chapter 4.1

[28] Shukla, S. (2017)

[29] World Economic Forum (2017a), p. 107

[30] United Nations (2017)

[31] The World Bank (2016e)

[32] The World Bank (2016f)

[33] OECD (2017a), p. 2ff

[34] The World Bank (2016g)

[35] The World Bank (2016i)

[36] The World Bank (2016h)

[37] The World Bank (2016d)

[38] Raghavan, S. (2017)

[39] World’s Top Exports (2017)

[40] The World Bank (2016j)

[41] Raghavan, S. (2017)

[42] The World Factbook (2017)

[43] The World Bank (2016b)

[44] The World Bank (2016c)

[45] The World Bank (2016k)

[46] BBC (2014)

[47] Own calculation of standard deviation based on historical exchange rate development from 2013-2017 on Onvista (2017)

[48] See Appendix 2: USD - Indian Rupee (2013-2017)

[49] The Economic Times (2017)

[50] See Appendix 3: Oil price Brent (2013-2017)

[51] The Economic Times (2017)

[52] BSE India (2017)

[53] The World Bank (2017a)

[54] Kaul. V. (2017)

[55] International Labor Organization (2017), p. 1 / The reasons for considering the numbers of 2012 is that actual numbers are not available.

[56] The World Bank (2017)

[57] Jethmalani, H. (2017)

[58] BBC (2017a)

[59] Shrivastava, A. (2017)

[60] OECD (2012)

[61] The World Bank (2016b)

[62] The World Factbook (2017)

[63] The World Bank (2016a)

[64] Rebello, J. (2016)

[65] The World Bank (2016)

Details

Pages
33
Year
2018
ISBN (eBook)
9783668628069
ISBN (Book)
9783668628076
File size
1 MB
Language
English
Catalog Number
v388442
Institution / College
Wiesbaden University of Applied Sciences
Grade
1,3
Tags
Market Entry HelloFresh India Economic Analysis Economic situation GDP Inflation Debt Situation Balance of Payments Project Macroeconomic Socioeconomic Major Potentials Major Problems

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Title: Economic Analysis of India as a Potential Location for HelloFresh