stuff to read while we wait for our NRDate:05/05/2005 URL: https://www.thehindubusinessline.com/2005/05/05/stories/2005050500071100.htm
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Commodities: India still off from being next China
G. Chandrashekhar
Mumbai , May 4
WILL India be the next China for commodities? This is the multi-billion dollar question everyone in the global marketplace is asking.
Rapid economic growth in recent years (GDP growth more than 6 per cent) has made India one of the fastest growing significant economies.
With higher incomes placing purchasing power in the hands of a 100-crore strong population that is growing at 1.8 per cent a year, demand for all kinds of goods and services is set to expand robustly.
At present, unlike China, India's share in the global commodity markets - both agricultural and industrial, especially of energy products and base metals - is not big enough to make a major price impact. One exception is, of course, bullion.
India currently accounts for only around 3 per cent of the global oil demand and 2 per cent of the global copper demand. China accounts for 8 per cent of the global demand; for copper, the demand is as high as 22 per cent.
In the gold market, India accounts for about 20 per cent of the world demand and remains a key area for physical buying support on price corrections.
In case of agricultural commodities, India's production base is large, but international trade volumes are rather modest.
India is the world's largest producer of milk, the world's second largest producer of rice and wheat after China and the world's third largest producer of cotton after China and the US; but, foreign trade (export and import) in these commodities is rather limited. However, in vegetable oil, India is the world's largest importer (with 4.5-5.0 million tonnes annually), as is the case with pulses (close to 2 million tonnes).
Despite a modest share in the industrial products market, the prospects for growth for the industrial commodities complex remain considerable.
According to international India watchers, despite a slowdown in industrial production, the domestic economy continues to grow robustly, while import and corporate borrowing demand growth suggests a positive outlook.
In addition, large infrastructure works are being undertaken across the country, covering rail, road, energy and ports.
The ongoing Golden Quadrilateral project is an excellent example of road connectivity to the four corners of the country. Port modernisation and involvement of the private sector in infrastructure development are key growth drivers.
While the current phase of expansion is relatively modest when compared to China, there is no denying the fact that there is huge potential to develop significantly over the years.
A recent sectoral study of India conducted by consultants McKinsey has suggested that global steel consumption would increase to around 80-100 million tonnes by 2015, up from 33 million tonnes in 2003, due to robust demand growth from infrastructure, construction, manufacturing and automotive.
Power generation capacity is expected to increase from around 1,05,000 MW in 2002 to 2,54,000 MW by 2015.
Finally, liberalisation measures in commodity trading are likely to see an increasing impact of the Indian market on the global commodity markets. Indian corporates are now in a position to hedge their price risks in the international commodity exchanges. Online trading at the three nationwide multi-commodity futures exchanges allows domestic hedging, while some of the established commodity-specific exchanges are gearing up to meet the needs of the expanding market.
So, will India be the next China for commodities? "The answer is probably no; or at least not yet," said Ms Ingrid Sternby, an analyst with Barclays Capital. She says without substituting for China, India will have an increasingly important role to play in the coming years.
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