Category: Economy

With the historic agreement made between Iran and the P5+1 countries in Vienna on 14 July 2015, Iran will hopefully transform into a peaceful State to live in, and the rest of the world will breathe easy without the nuclear power threat from Iran. This pact officially brings the end of the economic sanctions on Iran after demonstrating a peaceful nuclear research project that meets International Atomic Energy Agency (IAEA) standards. Iran has assured that it does not seek nuclear arms but demands the ability to enrich uranium to make nuclear fuel for energy-producing reactors and medical applications.

Iran is a member of a number of international organizations such as the G-15, G-24, G-77, IAEA, IBRD, IDA, IDB, IFC, ILO, IMF, OIC, OPEC, UN, WHO, International Maritime Organisation, Interpol, and currently it has gained an observer status at the WTO too. Thus, after signing the Joint Comprehensive Plan of Action (JCPA) in July, understanding its obligations towards all these international organisations, Iran’s own people, and the whole world, Iran has now set its goal to establish a new world order based on world peace, global collective security and justice.

Iran has a mixed economy: a mixture of central planning, State ownership of oil and other large enterprises, village agriculture, and small-scale private trading and service ventures. It is ranked as an upper-middle income economy by the World Bank. However, the economic sanctions by the Western countries against Iran, such as the official ban on Iranian crude oil, have affected its economy tremendously. Due to these sanctions, Iran saw a steep fall in the value of Rial. However, 2015 seems like an era of a new Iran following the successful implementation of the 2015 Nuclear and Sanctions Relief Deal made by the P5+1 and Iran.

Being one of the world’s oldest civilizations, Iran is a country with diversity comprising a multiple number of religious and ethnic groups that are unified through a shared Persian language and culture. Initially, Zoroastrianism was the dominant religion in Iran which was eventually replaced with Islam after the fall of Sassanid Empire by the Muslims. Iran was predominantly a Sunni State until the 16th century when the Safavid dynasty forcibly got almost the entire country converted to Shia Islam. In the present day Iran, Shia Islam is the official State religion as about 90% to 95% of the country’s population officially are Shia; and about 4–8% of the population are Sunni Muslims, mainly Kurds and Balochs; the rest 2% are non-Muslim religious minorities such as Christians, Jews, Bahais, Mandeans, Yezidis, Yarsanis and Zoroastrians.

Having a dominant geopolitical position and culture in the world, Iran’s culture is vastly influenced by that of Greece, Macedonia, and Italy to the West; Russia to the North; the Arabian Peninsula to the South; and to some extent by South and East Asia to the East. Iranian art has many disciplines such as architecture, painting, weaving, pottery, calligraphy, metalworking, stonemasonry, jewel designing, etc. Iran takes pride having one of the largest jewel collections in the world.

1979 Iran Revolution: The Onset of Iran-Us Clash

Ayatollah Ruhollah Khomeini, the Shiite revolutionary Muslim cleric, had worked for years and overthrew King Pahlavi (Shah), the then Iran ruler who was a dictator. Khomeini replaced the pro-Western policies of Iran with sole Islamic ones, which gradually developed more anti-America sentiments in Iran.

The US got restless seeing the rising power of the Muslim country. It provided shelter to the fleeing Shah in US. Some of the supporters of Khomeini stormed the US embassy in Tehran, taking dozens of Americans hostages demanding death to Shah who was hiding in the US. But America was desperate to gain back the Shah power in Iran, which would end their newly developed powerful foe in the Middle East. The then American President did not handover Shah to Iran, and Iran did not release the US hostages until Shah died, and in 1980 a new US President took oath. Thus, America and Iran started keeping hostile attitude towards each other which has been continuing till now.

Will the JCPA be Helpful for Iran’s Development?

The sanctions imposed by the United Nations, the United States and the European Union on Iran had created innumerable problems for Iranian manufacturers. The country had seen little economic development in these many years. The great damages that Iran’s economy experienced under the sanctions are expected to be recovered gradually with the implementation of the Joint Comprehensive Plan of Action. A sanctions-free Iran will help the Iranian firms to have access to raw materials and investment that will create competition in the market.

The tourism industry of Iran witnessed a sharp decline during Iran’s war with Iraq. However, it recovered post-war. The most popular tourist destinations in Iran are Isfahan, Mashhad and Shiraz. In the early 21st century, the tourism industry faced serious limitations in infrastructure, communications, industry standards and personnel training which gradually are fading away. Iran has been rated among the 10 most tourism-friendly countries in the world. Also, domestic tourism in Iran is one of the largest in the world. With so many sanctions, Iran lacked efficient planning schemes in every economic segment including the tourism sector. Now hopefully there will be better schemes and planning to attract the world population to visit Iran to bloom its tourism industry.

Iran possesses 10% of the world’s proven oil reserves and 15% of its gas. It is OPEC’s (petroleum-exporting nations’) second-largest exporter and the world’s fourth-largest oil producer. Iran has the second-largest proved gas reserves in the world after Russia, and third-largest natural gas production in the world after Indonesia and Russia. With the less number of or no sanctions in the country, now Iran may achieve more in energy with the assurance that its efforts and achievements are only for the peaceful purposes.
The education system of Iran is centralized. Its K-12 education is supervised by the Ministry of Education, and higher education is supervised by the Ministry of Science and Technology. The adult literacy rate has significantly improved in 2015, which is expected to reach an even greater height with a peace-prevailed sanctions-free Iran.

The stereotyped image of Iran as having a conservative culture is probably because the more traditional Iranian people normally dress conservative; especially the females do not expose their body parts and they cover their hair. They do not consume alcohol, pork, and feel comfortable with their own sex rather than the opposite sex. They stay away from dancing at mixed gatherings (male–female), and they observe religious holy days and mourning rituals. However, decades of westernization and modernization created some modern and ultra-modern groups in Iran who would easily fit into any modern setup anywhere. Now, after the West has shown cooperation with Iran, it won’t stay cut from the rest of the world and more westernisation, modernisation, and easier life of people can be expected in the traditionally conservative country.

Background of Iran’s Nuclear Power

Iran has developed a number of indigenous Unmanned Aerial Vehicles (UAV) over the years. Fotros (UCAV) is considered the largest in Iran’s arsenal of unmanned aerial vehicles. The types of armed forces in Iran are the regular forces of Islamic Republic of Iran Army, Islamic Republic of Iran Air Force, Islamic Republic of Iran Navy and the Revolutionary Guards. Iran supports the military activities of its allies in Syria, Iraq, and Lebanon (Hezbollah) with thousands of rockets and missiles. After the 1979 Revolution, Iran has developed its own military industry, produced its own tanks, armoured personnel carriers, guided missiles, submarines, military vessels, guided missile destroyer, radar systems, helicopters and fighter planes to overcome foreign restrictions and bans. The country also has development weapons including the Hoot, Kowsar, Zelzal, Fateh-110, Shahab-3 and Sejjil missiles, and a variety of unmanned Aerial Vehicles. Developed and produced domestically, Fajr-3 (MIRV) is currently Iran’s most advanced ballistic missile, which is a liquid fuel missile with an undisclosed range.

Iran’s nuclear program had become the subject of contention with the international community since 2005, following the earlier quotes of Iranian leadership that favoured the use of an atomic bomb against Iran’s enemy countries, especially Israel. All over the world, a number of countries have shown concerns that Iran’s nuclear program could transform civilian nuclear technology into a weapons program. Subsequently, the UN Security Council imposed sanctions against Iran which had further isolated Iran politically and economically from the rest of the global community. As of 2009, Iran maintains diplomatic relations with 99 members of the United Nations, but not with the United States or Israel.

Interpretation of Iran and P5+1 Agreement 2015

The contentious agreement between Iran and the P5+1 would lead to peace, security, and positive developments in the entire Middle East. This agreement has been seen as the best way to prevent war, and to empower Iran towards maintaining peace and harmony of the entire human race. However, this is not something guaranteed because if the agreement does not work the right way, it may empower Iran in the negative direction, which could subsequently be a threat for the entire world.

The agreement actually does not suspend Iran’s nuclear program, it only prevents Iran from getting nuclear weapons in a verifiable way. Whenever required – the IAEA feels it necessary – the IAEA can submit a request of access to a site of concern, and if Iran doesn’t provide access within 14 days, the Joint Commission formed by all the P5+1 and Iran will take up the matter and decide on a course of action within no more than seven additional days. Then, Iran has three days to comply with that decision. In the deal, for the P5+1, the biggest objective is to prevent Iran from getting nuclear weapons; and for Iran, the biggest objective is to get the sanctions lifted. Iran stands to gain up to $100 billion in sanctions relief under this deal, but this relief is not complete, immediate or unconditional.

The agreement is not subject to danger as:

• Only a certain number of nuclear-related sanctions are to be lifted in 2016, while many of the other financial restrictions will remain in place.
• The lifting of sanctions will be gradual and not immediate.
• Sanctions relief is dependent on the IAEA verifying that Iran is in full compliance with its obligations under the agreement.

The Bottomline

Iran has long been facing international criticism for not adhering to the requirements of the United Nations Security Council’s resolutions regarding its nuclear facilities and its uranium enrichment programme. However, the 2015 agreement between the P5+1 and Iran has eased conditions a little. Iranians are expecting an improvement in living standards and a better access to foreign investment as soon as the sanctions keep getting lifted. Among many of the impressive achievements of Iran in the recent past according to the UNDP HDI, Iran has achieved a much better position regarding its people’s ‘long and healthy life’, ‘access to knowledge’ and ‘decent standard of living’, which is on the verge of an even nicer State with the success of the 2015 agreement.

IN BOXES:

What is NPT?
NPT stands for Non-Proliferation Treaty. The international treaty prevents the spread of nuclear weapons and weapons technology, and it promotes cooperation in the peaceful uses of nuclear energy. NPT’s goal is to achieve nuclear disarmament.

What is IAEA?

International Atomic Energy Agency (IAEA) is an international organization associated with the promotion of peaceful use of nuclear energy, and prevention of use of nuclear energy for any military purposes, including nuclear weapons. Though IAEA is independently established, it reports to both the United Nations General Assembly and UN Security Council. IAEA headquarters is in Vienna, Austria.

What is P5+1?

P5+1 refers to a group of 6 world powers (countries) with diplomatic efforts with Iran regarding its nuclear program. It was formed in 2006. These 6 world powers refer to the UN Security Council’s five permanent members, viz. Russia, China, France, UK, and US (P5), plus Germany.

With a promise of million dollar investment in India, United Arab Emirates, the business capital of the world is all set to plant its investment seeds in one of the fastest growing economies of the world

Indian Prime Minister, Narendra Modi’s two day visit to the UAE captivated the well-heeled Emirates to commit an investment target of $75 billion. As professed by Modi’s political stage last year, he is definitely not leaving any stone unturned which can help India emerge as an economical powerhouse with assured development across sectors.

Strengthening the Indo-UAE bond

Both the nations are trying to fill the void created over 34 years, after which India could materialize a visit to the UAE. Modi’s visit to a progressive and capital-friendly nation, the UAE could be an answer to India’s imperative economic expansion. Bestowing his trust in the UAE government Narendra Modi said, “The UAE is an economic success story that has attracted people from all over the world, and it has also emerged as an important logistics hub.”This being Indian Prime Minister’s maiden visit to an Islamic country, many neighbors were closely monitoring it to there benefit. As the joint statement calling Modi’s visit to have marked the beginning of a new and comprehensive partnership between the UAE and India, we hope to see more of Gulf investments coming up anytime in India.

Global success stories

UAE’s strong infrastructure, political stability and economic progress are some of the major points of attraction for people to seek business opportunities from across the world. It has successfully attained the throne of a thriving international centre for trade. India on the other hand is looming as one of the major world powers with significant contribution to the advancement of global peace and stability.
The ongoing dynamics between the two nations is definitely a strong mechanism of rapidly expanding economic union, making India to be UAE’s second largest trading partner and on the other hand, the UAE not only as India’s third largest trade partner but also a gate pass to the economic epicenter of the world.

Ensuring peace

The world heard a joint message which came loud and clear from the Dubai cricket stadium, when Narendra Modi said,“We have raised our voice against terrorism in unison from this soil. This is significant.”
In a statement delivered by the country heads, both UAE and India seem to have come down on the nations sponsoring terror arms and services against others. In a recent move, the Middle East tweaked its strategic realities and true to his style, Modi had studied it well in advance.
It was clear from the UAE’s backing India’s concern on terror, as it deep down underlines terrorism being one of the many challenges faced by the Gulf nations at a time when they are on the rising road. Both the nations collectively want to eradicate the problem of terrorism which is advancing due to the misuse of religion by groups and countries to incite hatred and hence justifying the horrific acts of gruesome killing of innocent people.
You call it Narendra Modi’s charisma or a tactful move, a month after Indian Prime Minister, Modi’s highly successful Gulf visit, UAE has come out with an early support finalization of the Indianproposed Comprehensive Convention on International Terrorism (CCIT) treaty at the United Nations. UAE has asserted India that it will find ways to encourage other countries reach a consensus soon.

Energy, the preeminent one

India is in need to secure its energy supplies and consolidate economic relations with the GCC region- Bahrain, Kuwait, Oman, Qtar, Saudi Arabia, and the UAE. As the UAE alone stands out to be the third largest trading partner of India in 2014-15, just after US and China, it’s important to brace the investment relations with the UAE at a high pace now.
One of the many agendas of Modi visiting the UAE was to renew the energy tie-up with the nation, which includes UAE’s participation in the calculated petroleum reserves, upstream and downstream petroleum sectors, and the joined efforts with other countries.

A boost to trade & Investments

Just at the time when people in India started questioning the current government’s credibility in the realm of economics, Modi has planned a trade upscale of 60 percent in the coming five years.
UAE seems to have been fully convinced with the idea of India standing out as a global power in the upcoming decade as it has recently agreed upon a huge investment amount in the Indian sub-continent.
Though the $75 billion UAE-India Infrastructure Investment Fund can also prove to be the best channel through which UAE can co-invest in India’s National Investment and Infrastructure Fund (NIIF). As per the joint statement issued by both the countries this will “support investment in India’s plans for rapid expansion of next generation infrastructure, especially in railways, ports, roads, airports and industrial corridors and parks.”
Many GCC countries are nowadays eyeing India as one of the potential investment destinations in Asia. India’s plan for rapid expansion of next generation infrastructure is one of the key reasons for it to plan large investment chunks from the cash-rich gulf nations. UAE at the same time looks out for cheap human resources from India to help them convert the world-class country blueprint with top-notched facilities in the information technology, construction and transportation to become a reality.
The UAE will also be inviting the Indian companies to invest in the Small and Medium Enterprises and help Dubai to be amongst the favorite place for those looking to start their own business ventures without needing a local Emiarti partner in order to create a hassle-free business environment.
The two countries also talked about cooperating with each other to promote scientific tie-ups in diverse sectors like renewable energy, sustainable development, arid agriculture, desert ecology, peaceful use of nuclear energy and urban development.

ADIA’s role as an Investor

With Indian Prime Minister, Narendra Modi announcing an investment potential of $1 trillion in India, the Abu Dhabi Investment Authority (ADIA) is speculating the economical mutiny to plan a calculated investment in the country.
ADIA is one of the world’s largest sovereign wealth funds, which has already invested in a couple of sectors in the growing economy (India). In an attempt to widen the scope of investment by the ADIA in India, Modi said that, “I will send my commerce minister to try and find solutions to the problems faced by some UAE investors.”
From the administrator’s vision, India’s economy will continue to grow at an impressive pace in 2015. Some of the crucial concerns raised by the investors in the UAE are:

• Single window clearance was the primary one as it is critical to simplify the cumbersome processes for doing business in India.
• The Indian government should play the part of a key partner to create a more business-friendly environment for the investors.
• There should be an online process of applying for industrial license and industrial entrepreneur memorandum. Thus, the UAE’s $800 billion wealth fund authority has India in its list of countries to tap for its infrastructure needs.

Defence & Security alliances

According to Stockholm International Peace Research Institute, the UAE spent $14.4 billion on its defence preparations. UAE and India have joined hands to draw benefit out of their training and security programs to bilaterally help both of them.
Time and again there are serious security issues reported in the region, and the UAE being aleading nation in the GCC, is taking the initiative of stabilizing the force. Last year, India’s most powerful vessels anchored in the Dubai ports for a joint exercise with the Emiratis in the Persian Gulf. Soon after Modi’s visit, both the nations released a joint statement clearly indicating that defence will play an integral part of the future ties with the UAE along with energy and finance sectors.
UAE was the world’s fifth largest importer of weapons for five years till 2013, though it is still in urgent need of a competent manpower system.
It is, therefore essential for both the nations to support each other in the critical areas that are of national concern like security.

The Syrian war started in 2011 when antigovernment demonstrations – part of the Arab Spring – turned violent and a fight broke between the rebels and the regime. More than 11 million people have been displaced because of the war, as Syrians have been fleeing in thousands every day to escape bombing and being killed. However, it took the world four years to take a shocking note of the refugee crisis, when the lifeless body of Alan Kurdi – the three-year-old Syrian boy – was found on the Turkish shore of the Mediterranean Sea. The war is getting worse and deadlier day-by-day, with Douma – a town a few miles from Damascus, the capital city of Syria – recently declaring itself a United Nations disaster zone. The group of seven leading economies (G7), some European countries and the Gulf States have promised to help UN aid agencies with $1.8 billion to resolve the worst refugee crisis in 70 years.

Under pressure from International Monetary Fund (IMF), Greece and other European Union countries trying to resolve Greece’s debt crisis agreed in Brussels on July 13 on new austerity measures to solve the staring problem. The Greek debt crisis started in late 2009 when Greek announced that its budget deficit would be 12.9 per cent of GDP, more than four times the EU’s three per cent limit. The crisis had started much earlier in 2001 as Greece adopted the Euro as its currency. Similar to other Eurozone countries, Greece benefited as interest rates became lower, and investment capital and loans started flowing in. However, the Greek government misreported the government debt levels and deficits, and when finally it admitted the lie, other Eurozone countries and International Monetary Fund tried in vain to bail it out. On June 30, Greece failed to repay its loan to IMF (the first developed country to fail). Things may turn for better after Greece Parliament’s passing a second batch of crucial bailout reforms on July 22.

BRICS, the group of emerging economies, has come up with the New Development Bank (NDB) in Shanghai.

Backed by Brazil, Russia, India, China and South Africa – together known as BRICS countries, the bank aims at lending money to the developing countries, which are seeking financial support in infrastructure development projects.

The bank is seen as an alternative to the World Bank and the International Monetary Fund, although the group claims to be a non-rival.

South Korea’s quarterly growth slowed more than expected. It is considered the lowest in more than two years with consumption battered by an outbreak of Middle East Respiratory Syndrome.

Asia’s fourth-largest economy has recorded a mere 0.3 per cent growth in the last quarter. According to the bank, the private consumption turned sour as spending on services took a dip as an outcome of a severe-drought-hit agriculture. South Korea relies heavily on export and tourism, and has faced poor demand as well as sluggish consumption due to MERS breakdown, which resulted in enormous travel cancellations by foreign countries.

Though South Korea has stepped up its efforts to lure Asian tourists, stability in the economic growth is yet to come.

IMAX has filed an application with the Hong Kong Stock Exchange (HKEx) for an initial public offering (IPO) of its China unit in Hong Kong (IMAX China Holding), as it plans to participate in the world’s fastest growing movie markets. Imax made about 30% profit last year through its China unit, which is not surprising as since 2012 it has nearly doubled its number of theatres in the Greater China region. Currently, IMAX has 239 theatres in China, Hong Kong and Taiwan, and it plans to build 219 more theatres in China itself. China is a critical growth market for IMAX, and if plans go well it will be the largest market for the company.

There are a total of 934 IMAX theatres in 62 countries.

China is a $10.35 trillion economy making it the second-largest economy in the world, USA being the first with $17.41 trillion size and owning approximately 22.44 percent of the gross world product. In 2014, China’s box office revenues increased by 36% to $4.8 billion. IMAX is already listed on the New York Stock Exchange, and after its announcement of an IPO in Hong Kong, its shares jumped up 9%. IMAX tickets are on the higher side as the experience it promises is extraordinary. Each ticket costs $24 or about Rs. 1500.

The IMAX Experience

IMAX is an acronym for Image MAXimum; and is used for both IMAX Corporation (a Canadian company) and a motion picture film format and a set of cinema projection standards created by IMAX Corporation. IMAX is capable of recording and displaying images of far greater size and resolution than the conventional film systems. IMAX is the most widely used system for special-venue film presentations.

IMAX management has been signalling for some time now that it wanted to list its Chinese subsidiary on the Hong Kong Stock Exchange. IMAX China Holdings is incorporated under the laws of the Cayman Islands, and the China subsidiary is being used to oversee the expansion of IMAX’s business throughout Greater China.

A Strategic Move

Before the IPO, in a strategic move, IMAX sold its 20% stake for $80 million to two companies, CMC Capital Partners which is a media-and-entertainment-focused investment fund, and FountainVest Partners which is a China-focused private equity firm. These investments were strategic as IMAX not only found partners for its operations in China, it also received on-the-ground guidance in China which is important to grow in the Chinese market.

As per Chinese rules, it’s mandatory for any foreign firm to work under a Chinese firm, thus the stake selling was done as a key prerequisite for completing an eventual IPO in China. As per the deal, IMAX would expand its screen counts in China, and would screen both Hollywood and Chinese movies to satisfy the local regulations and the market demands.

IMAX is known in the market for its giant-screen experiences in the film sector. Fox had introduced in 1929, the first 70 mm film format, Fox Grandeur, which wasn’t successful. Later, in 1950s Cinemascope and VistaVision with 35 mm films and multi-projector systems such as Cinerama were introduced. In 1967, a company called Multiscreen was founded to cater to the demands of a better visual experience through multi-projector and multi-screen systems. This company later changed its name to IMAX and in the course of time developed its current giant 2D and 3D screens with high cinematic techniques.

Avago Technologies Ltd. has struck a landmark deal (the largest ever in the semiconductor or the high-tech industry) with its competitor Broadcom Corp., in which Avago will pay the Broadcom shareholders $37 billion ($17 billion in cash and $20 billion in shares). To raise the required $17 billion in cash, Avago will seek $9 billion in cash from various banks—it worked with the following during the deal: Deutsche Bank AG, Bank of America Corp., Barclays PLC, Credit Suisse Group AG and Citigroup Inc.; the rest of the amount would come from its own reserve. The deal should be closed by the first quarter of 2016, subject to regulatory review. Broadcom has agreed to pay $1 billion as breakup fee, if the deal is not completed.

The combined company is to be called Broadcom Limited and will have an enterprise value of $77 billion with expected revenues of $15 billion per annum. The current Broadcom investors will have a 32% stake in the combined company. In case any investor wants, they can choose to sell their shares at $54.50 per share.
Broadcom co-founder Henry Samueli (with a net worth of $2.6 billion) will be a Board of Director and the Chief Technology Officer in the new company, while the other co-founder Henry Nicholas (net worth of $2 billion) will be strategic advisor to the CEO of Avago, 63-year-old Hock Tan.
Broadcom is renowned for its unparalleled engineering prowess, which is going to be combined with Avago’s heritage of technology given its earlier associations with HP, AT&T and LSI Logic. Hock Tan believes that the merger with Broadcom would increase their scale and presence in the new chip markets, including the traditional end-markets for semiconductors. Individually, Avago or Broadcom can’t compete with rivals Intel or Qualcomm; however, after the merger their prospects are stronger.

The merger of their individual technologies and specialties would render them a leader in the wired and wireless communication semiconductors. The new company would manufacture processors for smartphones of Apple Inc. and Samsung Electronics Co. Under the leadership of Hock Tan, the combined company is being surmised to become the world’s greatest semiconductor company.

In 2009, during the global financial crisis, Avago went public and listed its shares on Nasdaq. In six years now, its shares have increased 800% in value, excluding dividend payments. From $15 a share in 2009, the stock closed on May 28, 2015 at $142.38 a share.

In the last three years, Avago has purchased five companies, together valued at $8 billion, including LSI Corp. for $6.6 billion and Emulex Corp. for $600 million. The rapid-fire M&As have raised the market value of Avago by more than $25 billion in the last three years.

In March 2015, NXP Semiconductors had bought its competitor Freescale Semiconductor in a similar deal of cash and stock—a total of $11.8 billion. Further, Intel Corp. was also reported to be a bidder for Altera Corp. (which has a roughly $14 billion market value), and NVDIA and Qualcomm are also building up their plans on M&A. Intel and Qualcomm reportedly bid for Broadcom too.

In 1961, HP created its semiconductor products division. In 1999, this division separated from HP as a part of Agilent Technologies. In 2005, KKR and Silver Lake Partners bought this division for $2.6 billion and created Avago Technologies, and made Hock Tan the CEO of Avago. It is into the business of making chips for computers, smartphones, devices for automobiles, and other industrial equipment and wireless networks.

Adani Group is mulling a foray into defence and aerospace production, keeping pace with several other big industrial groups’ drives into the “Make-in-India” initiative. Big defence spending is in the offing as defence is being seen as a sunrise sector. The place pitched for the possible manufacturing is an obvious choice: Mundra in Gujarat (it is the country’s largest private port and SEZ), utilizing its sea and land linkages.

Adani executives—including Karan Adani, the elder son of Gautam Adani, the chairman of the Adani Group—have met delegates from large overseas defence companies that have experience in manufacturing a range of defence equipment to explore how international and domestic tie-ups can be materialized.

The Adani executives have been conducting high-level meetings for the past few weeks, and have also been making exploratory calls to almost all global defence and aerospace manufacturers having liaison Adani Group is mulling a foray into defence and aerospace production, keeping pace with several other big industrial groups’ drives into the “Make-in-India” initiative launched by offices in New Delhi. At least two top Adani executives have been given the responsibility of foraging the potential collaborators and report success.

The following companies may be Adani Group’s future partners in defence manufacturing: Saab—Swedish aerospace and defence company, founded in 1937 and originally manufacturing aircrafts; Finmeccanica—Italy’s leading industrial group and one of the main global players in aerospace, defence and construction; Textron—an American industrial conglomerate founded in 1923 and manufacturing aircrafts.

Saab mainly produces fighter aircrafts and submarines, and is keen on establishing a manufacturing unit in India, ultimately targeting to win the Rs. 60,000-crore P-75I submarine (Scorpène-class submarines, a class of diesel-electric submarines) contract and the light Gripen fighter jet production contract.

Finmeccanica operates in seven sectors: aeronautics, helicopters, defence systems, electronics, space, transportation and security. It manufactures through its companies AgustaWestland, Alenia and Oto Melara.

Textron manufactures Bell Helicopters (famous for mission-critical helicopter operations all around the world) and Cessna Aircrafts (light and mid-size business jets). Textron is also being considered for a howitzer guns contract for the Indian army; it will be a $700-million contract.
Adani Group’s focus, as obvious from the exploratory discussions, is on “Make-in-India” projects, and the Group is looking forward to transforming its large land holding in Mundra into a defence manufacturing hub.

In March 2015, the Adani Group registered a new entity—Adani Defence Systems and Technologies Ltd (ADSTL)—and in April 2015, it applied to the Department of Industrial Policy and Promotion (DIPP) for a licence to manufacture helicopters under ADSTL.

Adani Group is an Indian multinational conglomerate company headquartered in Ahmedabad, in the State of Gujarat, India. Its diversified verticals include resources, agri-business, logistics and energy sectors including power generation, gas distribution and coal mining.

Some other large conglomerates have already set their sights on the defence and aerospace sector, due to the huge potential it offers as India’s defence needs are large and expanding, and it is counted as one of the biggest spenders in the defence and aerospace sector in the world. The Adani Group is the latest to turn in this direction, others being Larsen & Toubro, the Reliance Group of Anil Ambani, Mahindra & Mahindra, and the Tatas.

The Adani Group is cashing in on the fact that its SEZ and port would prove to be a unique advantage for defence manufacturing, as large-scale and high-end transportation and production can occur at the same place, though a thorough market analysis is still underway and a final decision will be taken after positive reports.

With an annual defence budget of about $40 billion of which 60 per cent (i.e. $24 billion) is being spent on purchase of defence equipment, India is the world’s largest defence importer, as the domestic defence manufacturing is still developing.

Forecast by the International Monetary Fund (IMF) is a fulfilment now as India’s economy is growing faster than China’s. India has been moving in the opposite direction while many countries around the world are dealing with low growth. It’s definitely a special moment for India with so much growth prospect in front of it!

Observing India’s third-quarter GDP growth and comparing it with that of China’s in the fiscal 2014–2015, the IMF had foretold in March 2015 itself that India would surpass China’s economy and soon become the fastest growing economy in the world.

Amid the shaky period of the global economy, India held its ground. Indian rupee gained in value against the strong US dollar this year, while the currencies of Brazil, Turkey and South Africa experienced losses. The Central Statistics Office (CSO) of India numbers showed 7.5% GDP for January–March 2015 quarter. On the other hand, China had a 7% growth rate for the same period.

China has been showing a slowdown in its economy consecutively in the third and fourth quarters of fiscal 2014–2015, while India is benefited by the lower oil prices and policy reforms of its comparatively new government led by Prime Minister Narendra Modi. China is most likely to have a slow GDP growth in the coming time, which would give a huge scope to India to grow faster than China and other peer economies.

Various Sectors of the Indian Economy that Have Shown Growth

The tremendous economic growth in India has been possible due to the contribution of a number of different sectors of the Indian economy. These sectors of the economy have been showing a continuous growth that finally has led India to register itself as the ‘fastest growing economy in the world’. The new policy reforms by the Modi government have brought improved business confidence that boosted economic activities in India. The budget approved by the Union government of India is moving in the right direction containing a number of promising elements for economic growth of the country. However, the challenge remains on the practical implementation.

By emerging as a prominent sector of the Indian economy in terms of contribution to national and states’ incomes, trade flows, foreign direct investment (FDI) inflows, and employment, the Services sector has contributed hugely in India’s growth. Finance, insurance and real estate have performed strongly for quite some time now. These services have grown by 11.5%. The Manufacturing sector has shown a growth of 7.1%; services such as trade, hotels, transport and communications have experienced a growth rate of 14.1%.

India’s Finance Secretary, Rajiv Mehrishi, has talked about the greater job opportunities in India. By improvement in the Manufacturing sector’s growth, India is able to create more jobs. A positive phase has just started; way to go!

Sectors that Have Lagged Behind in Positive Growth

In the fourth quarter of 2014–2015 fiscal, the Mining and Quarrying sector’s output reduced to 2.3% as compared to a growth of 5.4% during the fourth quarter of 2013–14 fiscal. The Agriculture sector showed a 0.2% growth in fiscal 2014–15 as against 3.7% in fiscal 2013–2014. Below-average rain damaged crops which subsequently brought the growth down.

Structural reforms in India may lead to productivity gains in such sectors. Reforms in education, labour, and product markets, etc. may help in raising labour force participation and productivity for better growth prospects.

“India is a ‘bright spot’ in a ‘cloudy global horizon’. The country’s young population and progress on structural reforms would help the economy to ‘fly’ in the coming years.”
– Christine Lagarde (Managing Director, IMF)

“India has the potential to make 9–10% its new normal in the years to come.”
– Arun Jaitley (Finance Minister, India)

“I would say (the economy is) picking up. We see some signs of capital investment picking up. There is a continuing need, which the government is trying to address, of putting some of the stalled projects back on track. But we have to work (on) bottlenecks and areas where we need reforms to ensure that growth is strong and sustainable.”
– Raghuram Rajan (Governor, Reserve Bank of India)

“We believe that countries that invest in people’s education and health, improve the business environment, and create jobs through upgrades in infrastructure will emerge much stronger in the years ahead. These kinds of investments will help hundreds of millions of people lift themselves out of poverty.”

– Jim Yong Kim (President, World Bank Group)