India’s Competitiveness as a Business Destination: 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


India – Land of Opportunities: India – Land of Opportunities Largest democracy – political stability & consensus on reforms Liberal & transparent investment policies Highest returns on investment; India 19.33%, China 14.25%, Thailand 13.3% Fourth largest Economy (PPP) - A safe place to do business Largest reservoir of skilled/semi-skilled manpower Long-term sustainable Competitive advantage - High growth rate economy


Strong Macro-Economic Performance: 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


Slide5: Sustained Economic Growth (Base year: 1993-94 )


Slide6: Growing Foreign Exchange Reserves Foreign Exchange Reserves (US$ billion) Exchange Rate (Rs/US$)


Slide7: India 8.4 Brazil 7.5 USA 7.4 Mexico 6.6 Czrch 6.3 China 4.2 Select Indicators


Economic Liberalization : Economic Liberalization Fiscal 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 Industrial Policy 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 : Most items on Open General License, Quantitative Restrictions lifted; Monetary Policy and Financial Sector 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; Profits and dividends can be freely repatriated;


Fiscal Consolidation: Fiscal Consolidation Fiscal Responsibility and Budget Management Act; Current account surplus for the last 2 years. Surplus projected for 2003 & 2004 (EIU Business India Intelligence 8.10.2003) 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 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.


Taxation Reforms: Taxation Reforms Rationalization of tax structure and re-engineering of tax system; Indirect Taxes 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% Direct Taxes 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.


Infrastructure Development: Infrastructure Development US$ 12 billion Highways Development Programme; 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;


Brand India: Brand India R&D base for 100 of Fortune 500 companies; GE’s largest R&D Center outside US; Large pool of World class scientific and technical manpower; 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; 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


Competitive Entrepreneurship: 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) India amongst the leading entrepreneurial hotbeds globally (Red Herring Clubs India with Israel)


Slide14: The Emerging Market: India Traditional & Emerging Focus 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 Traditional MNC Business Model © C.K. Prahalad


India a Preferred VC Destination in Asia-2001: India a Preferred VC Destination in Asia-2001 Source : AVCJ


Investing in India – Entry Routes: Investing in India – Entry Routes Automatic Route Prior Permission Investing in India General rule No prior permission required Inform Reserve Bank within 30 days of inflow/issue of share By exception Prior Government Approval needed. Decision generally Within 4-6 weeks


Manufacturing Sectors with 100% FDI under ‘Automatic Route’: Manufacturing Sectors with 100% FDI under ‘Automatic Route’ 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


Infrastructure Sectors with 100% FDI Under ‘Automatic Route’: Infrastructure Sectors with 100% FDI Under ‘Automatic Route’ 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


Services Sector with 100% FDI under Automatic Route: Services Sector with 100% FDI under Automatic Route 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


Sectors with Restrictions on FDI: Sectors with Restrictions on FDI Sectors with limits on FDI Caps Private Banking ( 49%) Insurance (26%) Domestic Airlines (40%) Basic and mobile services (49%) Print Media (26%) Defence production (26%) Sectors where FDI is prohibited Gambling, betting, lottery Retail Trade Agriculture Plantation, except tea plantation


‘Dreaming with BRICs: The Path to 2050’- by Goldman Sachs: ‘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; By 2025 over half of G-6 size against less than 15% at present; India has potential to growth rate higher than 5% over the next 30 years and close to 5% as late as 2050; 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.


India: FDI Outlook: India: FDI Outlook 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.


Skilled knowledge Workforce: Skilled knowledge Workforce India’s competitive edge is its manpower 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


ICT India’s Strengths: 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; 62 SEI/CMM level 5 companies, two third of world’s total. 250 Fortune 500 companies clients of Indian firms;


India - The Back Office hub: India - The Back Office hub India has become the most preferred destination – Outsourcing trend increasing GE,TI, Intel, CISCO, Microsoft, Dell, Sun Micro, Oracle, LG, Ford, American Express and other financial sector companies; Customer needs are being met 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


Cost savings by off shoring BPO services to India: Impact* Insurance Retail financial services / Retail banking Pharmaceuticals Telecom Airlines Automotive 0.8-1.8 1.5-2.5 5.0-6.5 8.0-12.0** 10.0-15.0 Key opportunity areas 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 Overall cost saving Per cent 1.0-2.0 40-60% cost saving for processes offshored Cost savings by off shoring BPO services to India


Slide27: Country Advantage Likely to be Comoditized Task aggregation And process level improvement 45-55 15 30-35


Biotech- India’s inherent strengths : 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


Global Business Leaders - Bullish On India’s Potential: Global Business Leaders - Bullish On India’s Potential “India is a developed country as far as intellectual capital is concerned” “India can be a major part of Dell’s operations and we are looking to capitalize on India’s human capital” “We are expanding our presence in India to take advantage of the ample R&D talent available” “India is handling the most sophisticated projects in the world..I am impressed with the quality of work”


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