Transcript Slide 1

June 2008
India – Country Presentation
by
Claudio Maffioletti, General Manager
THE INDO-ITALIAN CHAMBER OF COMMERCE AND INDUSTRY
MACROECONOMIC DATA
AND
INDO-ITALIAN TRADE
RELATIONS
INDIAN ECONOMY: MACRO DATA
2nd
most populous country (1.2 billion)
Parliamentary
10th
4th
democracy
most industrialized country
largest economy (PPP terms)
GDP:
GDP
€ 515 billion (2005-06)
growth:
•+10%
•+
in 2006-07 (forecast)
8% in the last 4 years
Literacy
Forex
rate: 65.4% (Mar06)
reserves: € 124 billion (Nov06)
Inflation:
+ 5.2% (Dec06)
The Indian Growth
Average annual growth rates (1995 - 2005)
GDP
Services
Industry
Agriculture
+6.5%
+7.8%
+6.6%
+2.1%
Demographic Data
An extraordinary sequence of figures:
 46% of the population in the age group of 15-44 years.
 500 million under 25 years of age.
 Large English-speaking middle class.
 Over 250 universities.
 Over 13,000 higher educational institutions.
 2.46 million graduates (300,000 engineers and 150,000 IT
professionals) every year.
Economic Climate
Openness to the market and to investment
 Infrastructure requirements - € 237 billion
 Important liberal economic reforms
 Policy of incentives for investment (SEZ – Special Economic Zones)
 Huge consumer base
 Cost leverage
 Vibrant capital market
 Close network of economic treaties and trade agreements
Major Indian Imports
35
+ 32%
30
25
20
+ 44%
15
+ 24%
+ 10%
+ 9%
10
5
0
Petroleum and
petroleum
Non-electrical
machinery
Electronics
Gold and Silver
Pearls-PreciousSemiprecious
2005 - 2006
32.96
12.02
9.925
8.815
8.752
2004 - 2005
28.12
10.01
8.98
7.28
8.01
Figures in million €
Source: DGCIS, Ministry of Commerce, Government of the Indian Republic
Major Indian Exports
18
16
+ 32%
+ 19%
14
+ 18%
+ 5.5%
12
- 4.5%
10
8
6
4
2
0
Machinery and
instrumental
Diamonds and Chemicals and
jewellery
related products
Textiles
Petroleum
Products
2005 - 2006
16.15
13.42
12.99
10.81
7.66
2004 - 2005
12.32
10.01
8.98
7.28
8.01
Figures in million €
Source: DGCIS, Ministry of Commerce, Government of the Indian Republic
Major Italian Exports to India
600.00
+ 31.5%
500.00
400.00
300.00
+ 64%
200.00
+ 35%
+ 6%
+ 46%
100.00
0.00
+ 27%
+ 19%
+ 22%
Power
generation
equipment
Electrical
products
Iron, steel and
by-products
Organic
chemicals
Electromedica
l & optical
devices
Plastics
Raw hides
Vehicles and
accessories
Series1
544.10
151.20
106.05
91.49
45.84
43.86
34.24
21.52
Series2
414.09
92.25
78.60
86.54
31.43
34.56
28.84
17.67
Figures in million €
Source: DGCIS, Ministry of Commerce, Government of the Indian Republic
Principali prodotti indiani esportati
in Italia
500
+ 24%
400
- 46%
300
+ 30%
200
+ 15%
+ 45%
100
0
Clothes and
accessories
Vehicles and
accessories
Cotton
Iron and steel
Organic
chemicals
2005-06
383.41
198.82
161.43
156.37
126.91
2004-05
291.14
153.44
140.01
292.03
87.61
Figures in million €
Source: DGCIS, Ministry of Commerce, Government of the Indian Republic
Italian Companies in India
 More than 100 Italian companies have subsidiaries, joint
ventures or a presence in India.
 Eight Italian banks are present in India with representative
offices handling:
●Correspondent banking and trade finance
●Assistance to Italian companies
 Italy ranks 11th for Foreign Direct Investments (FDI) in India
accounting for only 1.42% of the total investments.
 Trade with Italy accounts for only 3% of India’s international
trade.
 20% increase in trade between the two countries in 2006.
Challenges 1
 Red tape: slows down the liberalization process (India
ranks 88th in “Starting a business”, below Russia and
above China and Brazil).
 Poor infrastructure: airports, power, ports and roads are
inadequate and constitute limits to development.
 Restrictive labor laws.
 Considerable social inequalities.
 Uneven geographical development.
Sources: NASCOM, Economist, World Bank – Doing Business 2007; Tata Statistical Outline of India 2005-2006
Challenges 2
 Complexity of legal processes: India ranks 33rd in
“Protecting investors”, whereas the other BRIC
economies are ranked 60th (Brazil), 60th (Russia)
and 83rd (China) respectively.
 Strong political opposition to privatization is providing
a platform for cautious and systematic reforms.
 Complex and bureaucratic tax system.
 Poverty still high: 19.3% of the Indian population
lives below the poverty line.
Sources: NASCOM, Economist, World Bank – Doing Business 2007; Tata Statistical Outline of
India 2005-2006
Entry Strategy: Consumer Goods
Products
Importer/ Distributor
Agent
Own manufacturing
facility
Region-wise distributor
Retailer / Sub-distributor
Retailer / Sub-distributor
Retail outlet
Entry strategy: Industrial Goods
Products
New facility
Importer/
Distributor
Existing facility
Ownership of the
facility
Agent
Industrial customer
Regional distributors
Business Presence in India
The possible options are:
Liaison or representative office
Branch office
Subsidiary or Joint Venture
Liaison / Representative Office
 Carries out promotional activities without performing any trade
transaction as the principal party.
Cannot earn income in India or carry out any income-earning
activity.
 Does not pay income tax.
 Is legally a part of its parent company.
Branch Office
 Can carry out most activities except manufacturing and
processing.
Can therefore carry out trading activities and earn a profit.
 Has to pay income tax on the profit earned as a foreign
enterprise.
 Foreign enterprises are subject to higher tax rates on their net
profit as compared to Indian companies.
 Foreign enterprises are not entitled to the tax concessions
available to Indian companies – including foreign subsidiaries.
Subsidiary - Joint Venture
 Has limited liability.
 Is regarded as an Indian company for all regulatory
purposes.
 Can do whatever an Indian company can.
 Pays tax at rates 10% lower than those applicable to
foreign enterprises.
 Is legally independent of the holding company:
the holding company, therefore, is not liable
for the liabilities of the subsidiary
Extent of Holding
 In many sectors, a foreign company can hold up to
100% of the share capital of an Indian company.
 For some sectors the current regulations provide limits:
● 74% in Banking
● 74% in Telecommunications
● 26% in Defense Production
Production and Marketing 1
 A foreign company looking to set up a manufacturing
firm can set up a wholly owned subsidiary.
 Generally the Automatic Route will apply.
 For a foreign company looking to perform a trading
operation, FDI is not freely permitted.
Production and Marketing 2
The key elements of the current policy are:
 Up to 51% foreign holding is permitted in single-brand retail
outlets. This policy is likely to be further liberalized in the
future.
 For multi-brand outlets foreign holding cannot exceed 49%.
 Up to 100% investment under the automatic route is
permitted for:
● export-oriented trade
● wholesale/cash-and-carry trade
Royalty, Trademarks and Brands
Royalty
up to € 1.5 million on a lump-sum basis
8% on overseas sales
5% on domestic sales
The limit applies to the net-of-tax amounts and the percentage
to the value (the import component in the product price is not
considered)
Trademarks and Brands
up to 2% on overseas sales
1% on domestic sales
Company Structure
Minimum authorized capital required
INR 100,000 (approx. € 1.750) for a private limited company
INR 500,000 (approx. € 8.750) for a public limited company
Minimum number of directors and
shareholders
2 shareholders and 2 directors for a private limited
company.
7 shareholders and 3 directors for a public limited
company.
Repatriability
100% of the Profit or the Capital is repatriable
Taxes 1
Corporate tax
 Tax for a company is 33.99%
 Tax for a foreign company is 43%
 The rate for SME’s (taxable profit less than INR 10.0 million) is
30.90%.
 Excise (residual rate 16.0%).
 Service tax (prime rate 12.36%).
Benefits
 Profits of STPI units (for IT/ITeS companies) presently enjoy tax
concessions.
 Profits of SEZ units are tax-exempt.
 Services exports are exempt from service tax (subject to
prescribed conditions).
 Exports are exempt from excise, octroi and VAT.
 Units set up in backward areas enjoy some income tax and VAT
concessions (In these cases, however, the infrastructural
limitations present in such areas must be seriously considered).
Suggestions 1
Timing is relative…sooner or later India will be a world power
 Time to obtain an internet connection
1 week
 Time to have a fully established liaison office
2 months
 Meetings take place according to “IST”
Indian Standard Time
Suggestions 2
Be always on the alert, but never too rigid
 It is important to explain exactly what you want.
 Devote a lot of time to the details during the starting stage.
 Maintain your patience, even if a certain degree of pressure is
necessary.
 Check the progress of the operations at least on a weekly
basis.
 Constantly discuss the operating procedures.
 Insist that the service or the delivery comply with the initially
fixed conditions.
Suggestions 3
Your network matters: you need to have strong Indian partners
 Without local knowledge and help you can get lost quickly.
 To avoid red tape, find a partner who knows the ins and outs.
 Professionalism is required in personal relations, although a
certain degree of informality is appreciated.
 Do not rely only on one partner. Build a network with several
players.
 Spend most of your time in building long-lasting relationships.
So…is it worthwhile to invest in India?
If one considers that…
 Average GDP growth from 1995: + 6.5%
 Growth forecast for the next 10 years: + 5.9%
 An economy based on fast-growing domestic consumption
 Very wide gap between demand (high) and supply (low)
 Many similarities (economic, political, geographic and cultural)
…there can only be one answer!
THANK YOU
Claudio Maffioletti
General Manager