Transcript FDI Strategy Paper

18/07/2015
1
India’s Competitiveness as a
Business Destination
Rajeeva Ratna Shah
Secretary
Department of Industrial Policy and Promotion
Ministry of Commerce & Industry
Government of India
November 13, 2003
18/07/2015
2
India – Land of Opportunities
Fourth largest
Economy (PPP) A safe place
to do business
Largest reservoir
of skilled/semiskilled manpower
Long-term sustainable
Competitive advantage
- High growth rate
economy
Largest
democracy –
political stability &
consensus on
reforms
Second Largest
Emerging Market
Liberal &
transparent
investment
policies
Highest returns on
investment; India
19.33%, China
14.25%, Thailand
13.3%
3
Strong Macro-Economic Performance

Sustained Economic growth;









7% Current Year
8% Next quinqennium / decade
Over 6% - Next 50 Years – Goldman Sachs
Exports growth - over 19 % in 2002-03;
Non Oil imports growing at 31%-Economic vibrancy
Positive balance of trade with USA and China
FII Investment – over US$ 5 billion so far this year
Developed Banking system moving rapidly towards ICT
integrated core banking/net banking
Mature Capital Market – NSE third largest, BSE fifth largest
in terms of number of trades
18/07/2015
4
Sustained Economic Growth
(Base year: 1993-94 )
9
8
7.8
7
6.5
GDP Growth Rate (%)
7
6.1
5.6
6
4.8
5
4.4
4.4
4
3
2
1
0
1996-97
18/07/2015
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
Forecast)
5
Growing Foreign Exchange Reserves
100
46.64
42.5
80
33.5
35.5
43.6
47.5
75.43
37.2
38
40
17
22
26
56
49
45.35
42
35
54.15
60
20
48.8
91.35
28
42.26
21
30
14
7
0
0
1995-96
18/07/2015
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
(as on
17/10)
6
Select Indicators
India: Average Annual Rate of Inflation (%age)
External Debt / GDP Ratio (%age)
22.4
22.2
21
20
00-01
India
8.4
01-02
02-03
1=Low
10= High
00-01
India
7.4
Brazil
7.5
USA
7.4
Mexico
6.6
01-02
USA
7.2
Brazil
6.4
Czrch
6.3
M exico
6.3
02-03
Czrch
5.9
China
4.8
China
4.2
Availability of Qualified Engineers
18/07/2015
99-00
1=Low
10= High
99-00
Availability of Skilled Labour
7
Economic Liberalization

Fiscal Policy Reforms :



Industrial Policy Reforms :








Interest rates brought down – Bank rate/Prime lending rate lowered
Banking Sector reforms – prudential norms stiffened
Securatization Act for better security for creditors
Competition law enacted. Competition Commission constituted
Independent regulators in place for Insurance sector (IRA) and Capital Markets
(SEBI)
Exchange Controls relaxed;

18/07/2015
Most items on Open General License, Quantitative Restrictions lifted;
Monetary Policy and Financial Sector Reforms :


Capacity licensing dispensed with
Compulsory licensing only in 6 sectors: restrictions on grounds of national
security, public health, public safety
FDI policy being progressively liberalized
Trade policy Reforms :


Stable tax regime with just 3 rates for both Excise as well as Customs duties
Full National treatment for foreign Cos. incorporated in India
Profits and dividends can be freely repatriated;
8
Fiscal Consolidation


Fiscal Responsibility and Budget Management Act;
Current account surplus for the last 2 years.


Enlarging the tax base;



Customs and Central Excise accounted for 61.5% in 2001
against 78.3% in 1990
Bank deposits are 48% of GDP, net NPLs are just 2.3 %
of assets;
Reduction in Bank Rates


18/07/2015
Surplus projected for 2003 & 2004 (EIU Business India
Intelligence 8.10.2003)
Bank rate reduced from 11 per cent to 6 per cent over the last
five years with concomitant reduction in CRR to 4.5 per cent
(w.e.f June 2003).
The prime lending rates (PLRs) of public sector banks range
from 9.0-12.25 per cent.
9
Taxation Reforms


Rationalization of tax structure and re-engineering of
tax system;
Indirect Taxes



Direct Taxes

18/07/2015
Reduction in peak customs tariffs from more than 300%
and 22 major basic ad valorem rates in 1990-91 to 25% with
only 3 rates in 2003-04.
Overhaul of excise regime with introduction of a single
CENVAT and a peak basic rate of 16% CENVAT plus 8 SED
as of now.
 In 1990-91 there were 19 basic ad valorem duty rates
with a peak basic rate of 110%
Corporate tax rates rationalized and brought down to 35 per
cent plus 5 per cent surcharge for domestic companies and
40 per cent for foreign companies.
10
Infrastructure Development

US$ 12 billion Highways Development Programme;





18/07/2015
Over 13,000 Kms of Highways being developed.
US$ 22 billion ‘Sagar Mala’ programme to develop
ports and shipping sector
Modernization of Airports at New Delhi & Mumbai.
World’s Fastest growing telecom market with
unified licensing regime and world class
international and domestic connectivity;
The Electricity Act, 2003 enables captive
generation and trading in electricity;
11
Brand India

R&D base for 100 of Fortune 500 companies;


Large pool of World class scientific and technical manpower;





GE’s largest R&D Center outside US;
Indian Institutes of Technology;
Indian Institutes of Management.
S&T policy aims at R&D investments of 2% of GDP by 2007
Among the only three Asian countries with super computing
competence
Strong base for manufacturing;







18/07/2015

Bharat Forge world’s largest forging facility
Most major MNC’s like Volvo,GM,GE, Chrysler, Ford,Toyota, Unilever,
Cliariant, Cummins, Delphi sourcing high quality components and
hardware from India
Essel Propack worlds largest manufacturer of laminated tubes(30% of
global market/70% Indian,Chinese market).
Hyundai Motors India – Global base for manufacturing small cars;
Indica(100% indigenous car) being exported to Europe as Rover City.
India exporting steel worth more than US$1 billion to China
Hero Honda world’s largest manufacturer of motorbikes
Precision Automation & Robotics India (PARI) - 20 Fortune 500 clients
12
Competitive Entrepreneurship





Prevalence of foreign technology licensing – Rank 1
Availability of scientist and engineers –
Rank 2
Quality of management schools –
Rank 9
Firm level innovation –
Rank 12
Firm level technology absorption –
Rank 16
(Source: Global Competitiveness Report, 2002-03)

18/07/2015
India amongst the leading entrepreneurial hotbeds globally
(Red Herring Clubs India with Israel)
13
The Emerging Market: India Traditional
& Emerging Focus
Traditional MNC
Business
Model
Some MNCs?
Local
Firms
Future
Opportunity?
5-10 million, Rich
PPP>$10,000, 50-60 m
PPP $ 3-10,000, 150m
PPP $ 2-3,000, 150m
PPP>$ 2000, 500m
18/07/2015
© C.K. Prahalad
14
India a Preferred VC Destination in Asia-2001
Country
Amt. Invested ($min)
No. of Companies
Australia
$ 1,228.8
213
South Korea
$ 1,228.1
169
India
$ 907.6
101
China
$ 628.0
23
Hong Kong
$ 247.5
33
Taiwan
$ 235.7
18
Singapore
$ 186.2
38
Malaysia
$ 65.1
11
Thailand
$ 35.7
10
New Zealand
$ 30.9
17
Indonesia
$ 20.0
3
Philippines
$ 4.8
3
$ 0.0
1
18/07/2015
Sri Lanka
Source : AVCJ
15
Investing in India – Entry Routes
Investing in India
Automatic Route
General rule
No prior permission
required
Inform Reserve Bank
within 30 days of
inflow/issue of share
18/07/2015
Prior Permission
By exception
Prior Government
Approval needed.
Decision generally
Within 4-6 weeks
16
Manufacturing Sectors with 100% FDI
under ‘Automatic Route’











18/07/2015
Cars and motor vehicles
Refrigerator and fire fighting
equipments
Food processing
Electronic Hardware
Iron and steel
Private Oil Refineries
Agriculture tools and
implements
Fertilizers and pesticides
Pollution control equipments
Tyres and tubes
Packaging products











Construction Machinery
Domestic air conditioners
Electric motors, industrial
electric furnaces
Mining and Querying
Machinery
Steam engines and turbines
Non-metallic mineral products
Rice, oil mill machinery
Chemical machinery
Drugs and pharmaceuticals
except those requiring
industrial licensing
Medical equipments
Office computing and
accounting machinery
17
Infrastructure Sectors with 100% FDI
Under ‘Automatic Route’









18/07/2015
Electricity Generation (except Atomic energy)
Electricity Transmission
Electricity Distribution
Mass Rapid Transport System
Roads and Highways
Toll Roads
Vehicular Bridges
Ports and Harbors
Hotel and tourism
18
Services Sector with 100% FDI under
Automatic Route












18/07/2015
Advertising and films
Computer related services
Research and development services
Construction and related engineering services
Pollution control and Management services
Urban Planning and Landscape services
Architectural services
Health related and social services
Travel related services
Road transport services
Maritime transport services
Internal waterways transport services
19
Sectors with Restrictions on FDI

Sectors with limits on FDI Caps







Sectors where FDI is prohibited



18/07/2015
Private Banking ( 49%)
Insurance (26%)
Domestic Airlines (40%)
Basic and mobile services (49%)
Print Media (26%)
Defence production (26%)
Gambling, betting, lottery
Retail Trade
Agriculture Plantation, except tea plantation
20
‘Dreaming with BRICs: The Path to
2050’- by Goldman Sachs

BRICs (Brazil, Russia, India & China) economies could
be larger than G-6 in less than 40 years;


India has potential to growth rate higher than 5% over
the next 30 years and close to 5% as late as 2050;



18/07/2015
By 2025 over half of G-6 size against less than 15% at present;
Only India among BRICs to have growth rates significantly
above 3% by 2050;
Indian economy can overtake Italy by around 2017,
Germany by around 2027 and Japan by 2032;
India has the potential to raise its per capita income in
US$ terms by 35 times by 2050.
21
India: FDI Outlook






18/07/2015
Rated as the best BPO destination; AT KEARNEY
Best technology licensing regime - UNCTAD’s Global
Competitiveness Report, 2003;
Rated among the most favourite investment
destinations (UNCTAD, JETRO, JBIC, Deutsche Bank,
EIU, etc.)
Major destination for foreign venture capital funds
(Far Eastern Economic Review)
Sixth most attractive investment destination –
ATKEARNEY Business Confidence Index, 2003
Also among the top 10 Tourist Destinations.
22
Skilled knowledge Workforce

India’s competitive edge is its
manpower







18/07/2015
Over 380 universities (11200
colleges)
1500 research institutions
Over 200,000 engineering graduates
Over 300,000 post graduates from
non-engineering colleges
2,100,000 other graduates
Around 9,000 PhDs
Knowledge workers in software and
service industry increased from
6,800 in 1985-86 to 650,000 in
2003
23
ICT India’s Strengths



IT Industry US $ 14 billion; growing at 50%
p.a.
 Exports US $ 10 billion
 2008 exports target : US $ 60 billion , to be
35% of India’s total exports;
Job creation: a million direct & 2-3 Million
indirect;
High quality standards;


18/07/2015
62 SEI/CMM level 5 companies, two third of world’s
total.
250 Fortune 500 companies clients of Indian firms;
24
India - The Back Office hub
India has become the most
preferred destination –
Outsourcing trend increasing


Customer needs are being met





18/07/2015
GE,TI, Intel, CISCO, Microsoft, Dell,
Sun Micro, Oracle, LG, Ford, American
Express and other financial sector
companies;
Large pool of skilled English speaking
workforce – skills and scalability,
24x7 support
Productivity and quality enhancement
Conducive policy environment and
Government support
Highly improved telecom
infrastructure
Call center career is aspirational
unlike a low choice in the West
Indian ITES-BPO Industry
3000
2400
2500
US$ Million

2000
1495
1500
1000
930
565
500
0
1999-2000
2000-01
20001-02
2002-03
25
Cost savings by off shoring BPO services to
India
Key opportunity areas
Impact*
Overall cost saving
Per cent


Insurance
10.0-15.0

Retail financial
services / Retail
banking
Pharmaceuticals

8.0-12.0**


5.0-6.5

Telecom
1.5-2.5


Automotive
Airlines
18/07/2015
1.0-2.0
0.8-1.8

40-60% cost
saving for
processes
offshored



Claims processing
Servicing
Call centre operations
Call centre operations
Loan processing
(consumer, corporate,
mortgage)
Research and
development
Call centre operations
Billing
Engineering and
design
Accounts payable/
receivable
Revenue accounting
Call centre operations
Frequent flyer
programmes
26
Country Advantage Likely to be Comoditized
Country advantage
(45-55% savings)
100
60-65
10-15
Original
Cost
base
Factor
Cost
Savings
Additional
Telecom
& management costs
Task migration
18/07/2015
Vendor advantage
(30-40% savings)
45-55
Off-shore
Location
cost
8-13
5-7
ConsoliTask
ation,
Reengi
Standar- neering
Dization
& superior
skills
Task level
improvement
Does not
Include gains from
Over-delivery and
continuous
improvement
3-5
Economies of
scale
15
Process
Reengine
-ering
30-35
New cost
base
Task aggregation
And process level
improvement
27
Biotech- India’s inherent strengths
 Rich Biodiversity
 Large reservoirs of valuable diagnostic and clinical
data
 Vibrant and inventive pharmaceutical industry
 World class network of educational and research
institutions
 Known strengths in mathematics, logic and
computational skills
 Super Computing and Software strengths enable
extensive use of bio-informatics in new drug
discovery
18/07/2015
28
Global Business Leaders - Bullish On India’s Potential
“India is a developed
country as far as
intellectual capital is
concerned”
JACK WELCH, GE
“India can be a major
part of Dell’s operations
and we are looking to
capitalize on India’s
human capital”
MICHAEL DELL, DELL
18/07/2015
“We are expanding
our presence in India
to take advantage of
the ample R&D talent
available”
JOHN CHAMBERS, CISCO
“India is handling the
most sophisticated
projects in the world..I
am impressed with the
quality of work”
BILL GATES, MICROSOFT
29
Thank You
Visit us at www.dipp.nic.in
E-mail at [email protected]
18/07/2015
30
18/07/2015
31