Wednesday, October 28

The Indian Market

Growth Opportunities in India

Pan Global currently has a particular focus on opportunities in India, where we believe the Company has superior growth opportunities.  While India’s growth has declined along with other major emerging markets, management believes the India growth story remains intact: India is poised for high GDP growth that will be sustained for decades to come.  The India growth story is frequently compared to China, which has sustained high (10%) annual growth for three decades (http://business.time.com/2013/04/28/the-real-reason-to-worry-about-china/), whereas India’s take-off growth began at a later stage – after the currency crisis of 1991 the Indian government undertook a series of pro-growth reforms that led to a jump in annual GDP growth from approximately 3% to the high single digits.

During the last decade India’s growth has average approximately 8% per year (http://www.ey.com/Publication/vwLUAssets/Hitting_the_sweet_spot/$FILE/Hitting_the_sweet_spot.pdf).  Setting aside the continuing effects of the global financial crisis of 2008, India is poised to outperform global growth expectations in the coming years.  Whereas China is at the pinnacle of its growth, India is at the cusp of a macro growth stage.  A key driving factor of take-off growth, and one often overlooked, is the so-called “demographic dividend”.  India, unique among emerging markets and aged developed economies such as Europe, North America and Japan, has a population comprised of 50% under the age of 25.  No other major emerging market has the same demographic profile.  Historically, such a “demographic dividend” tends to drive growth and investment at accelerated rates.  In fact, the demographic dividend is one of the major factors that helped to sustain China’s last three decades of hyper growth.  Whereas India is just now reaching its demographic dividend, China’s is in the past – China’s working age population is expected to peak during the next two-three years, at which stage China’s hypergrowth of 10% per year will come to an end.  While there is no assurance that India can meet China’s growth accomplishments, India is the only major emerging market that has the basic building blocks of the next big growth story.

In addition to the driving demographic dividend, India has a number of other factors that, in the opinion of management, will drive growth and create significant investment opportunities for Pan Global in the areas in which the Company intends to operate:

  1. India daily faces up to 20% electrical power generation shortages in various regions.  The government is desperately encouraging public and private power generation, but demand is increasing by 10%+ annually and supply fails to keep up.  Many industrial and commercial power consumers are already paying electricity well in excess of the cost of various renewable energy technologies.  Such customers, which include large Indian conglomerates and well-known international companies operating in India, are willing to adopt renewable energy at costs that significantly exceed power costs abroad but which are lower than the grid electricity prices they face in India.
  2. The Indian government has adopted policies to promote renewable energy technologies, including solar, wind , biomass and others.   The Jawaharlan Nehru National Solar Mission is targeting 20 GW of solar PV capacity by 2020 (http://www.pvgroup.org/NewsArchive/ctr_032024); various Indian states with hydro power potential have completed resource assessments and have adopted hydro power generation policies to develop not only traditional large-scale hydro dam projects, but more significantly, smaller scale small- and mini-hydro plans, where Pan Global intends to concentrate.  Small- and mini-hydro projects typically require no dams or reservoirs; therefore they are significantly more environmentally sustainable than traditional large scale hydro power projects: they have minimal impact on the hydrology and surrounding terrain.  India has potential for up to 20,000 MW of small- and mini-hydro resources, whereas to date less than 1,000 MW has been installed (http://www.esha.be/fileadmin/esha_files/documents/publications).  The Indian government and various states have also adopted policies to encourage wind power, whose cost is now competitive with grid electricity prices.
  3. With oil prices trending at about $100 per barrel and international coal prices at highs, India’s current account deficit and its currency has faces significant pressure.  There is very little possibility that the world can supply the oil, natural gas and coal resources that emerging behemoths such as China, India and other new and large energy consumers require; therefore, many of these countries will be forced to choose alternative development paths wherein renewable energy technologies are the key component of power generation.  Fossil fuel prices are poised to remain at high levels – marginal costs of the last barrel of oil is in excess of $80; natural gas prices have come down but will likely not remain so as marginal costs are in excess of $8/MMBT in North America.  India’s coal import prices have increased significantly in recent years.  Renewable energy technology such as solar, small-hydro and wind have reached the so-called “grid-parity”, where they are competitive with traditional fuel and power generation sources in the absence of subsidy.
  4. India is one of the prime agricultural regions of the world.  It grows enough food to feed its own population.  However, like many other agricultural growing regions, India agriculture faces significant water shortages and demands to increase yields to meet the needs of a growing population.  India’s water tables are falling and global-warming induced annual stress from extreme weather events are increasingly hindering crop production.  A nascent area of opportunity in India is to grow certain crops under controlled growing conditions, which significantly increase yields while using only 10% of the water resources.  Controlled growing conditions means growing using hydroponic greenhouses, which requires significant up front capital investment; it is a well-tested growing technology in Europe and North America, and thus far in India only a few limited growers have taken up the challenge.  Pan Global management believes there is a significant opportunity for the Company to lead the development of a professional controlled growing operation in India.  We believe we would be the first professional organization to undertake such a task, but it would be done with the help of the Indian government and various state governments, who are keen to encourage the development of such agricultural technologies.
  5. India has significant undeveloped geothermal power production resources at approximately 10 GW as estimated by the Geological Survey if India.  To our knowledge, only three licenses have been issued for less than 50 MW.  Pan Global management believes geothermal power development in India is a major sustainable energy growth opportunity.  Thus far, only one project has been announced – the National Thermal Power Corporation (NTPC), a  state owned body, has announced the preliminary development of a project in conjunction with the Chhattisgarh Renewable Development Agency (CREDA); additional opportunities are available to those willing to assume the development work.
  6. As much as 50% of greenhouse gasses are generated from the operation of our built environment, such as our buildings, commercial, industrial and residential.  There is a significant green building trend across the globe, wherein developers seek to build buildings that significantly reduce their environmental impact in terms of energy use and waste output.  This trend is evident in Europe, North America and Japan; however, less well known is that India has a nascent green building trend.  The LEED building program (Leadership in Energy and Environmental Design), a North America certification process, has certified more than 1,000 building in India to date; the government and trade associations are encouraging more such green building design.  Pan Global seeks to be a leader in green building design in India in the residential and commercial markets.

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