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Doing Business in India 2009

The India Story September 2009

Agenda : The India Story

Section 1 : Macro Economic Profile Section 2 : Policy Announcements Section 3 : Challenges Section 4 : Investment Opportunities Section 5 : PwC India Markets & Industries

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18 September 2009 Slide 5

Macro Economic Profile

ia vis--vis other Emerging Markets: Inherent Strengths:

Low dependence on exports and relatively high share of services in GDP - Historically services tend to be less affected than manufacturing in cyclical downturns Strong rural income and consumption - Buoyed by six years of 4.4% agro growth coupled with consistent scaling up rural development programmes - Increasing share of income from non-farm activities High domestic savings rate (37.7%) which has risen consistently over the last 5 years

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Macro Economic Profile

India vis--vis other Emerging Markets : Inherent Strengths


Positive investment climate: India continues to retain its position as a preferred destination for investments.
- Gross capital formation rises from 25.5% in 2002-03 to 39.1% in 200708 - Growth of 85.1 % in FDI flows in 2008-09: highest increase across all countries ( UNCTAD study)

Favorable Demographic Trends


- Higher propensity to consume, greater risk taking capacity, growing skill sets - Rising level of urbanisation and affluence levels : sustainable impact on demand creation

Together these factors support an early mitigation of the ill-effects of the global crisis
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Macro Economic Profile

Prime Ministers 100 day Vision

Fresh stimulus for various initiatives to assist return to high growth trajectory (9-10%) Tackling job losses especially in textile and diamond sectors Emphasis on welfare policies in social sector Blueprint for implementation of election promises Modernisation of security and intelligence mechanisms

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Agenda : The India Story

Section 2 : Policy Announcements

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Policy Announcements

Policy Announcements: Monetary Measures

Reductions in cost of borrowing since mid September 2008- improved market liquidity & credit flows
- Repo reduced by 425 bps to 4.75% and reverse repo rate by 275 bps to 3.25% - CRR lowered by 400 bps from 9% to 5.0% - SLR cut from 25% to 24% for the first time in 11 years

Together, measures added to over Rs 5,600 billion (USD 110 billion) actual /potential liquidity

The accommodative monetary policy stance of the RBI has been accompanied by a large fiscal thrust provided by the Government
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Policy Announcements

Policy Announcements: Fiscal Measures

The Government has implemented a number of fiscal stimulus packages since October 2008
- Implementation of Sixth Pay Commission salary hikes - Farm Debt Waiver - Increase in oil, food and fertiliser subsidies - Focus on most stressed sectors- infrastructure, exports, housing and small enterprises - Reduction in central excise duties applicable to non petroleum products as well as lowering of service tax

Overall fiscal stimulus estimated to be around 3.5% of GDP

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Policy Announcements

Policy Announcements : Fiscal Measures contd

Budget 2009-10 has sought to increase plan expenditure by over Rs 400 billion over 2008-09 estimates - Focus on Government flag ship programmes to benefit the common man National Employment Guarantee Scheme (NREGS) Jawaharlal Nehru National Urban Renewal Mission (JNURM) Bharat Nirman for building rural infrastructure

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Policy Announcements

Other Developments

Direct Tax Code GST Other initiatives Opening up of FDI Public Sector Disinvestment Trade Agreements, WTO

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Policy Changes and Announcements

Direct Tax Code

New direct tax code released for public and stakeholders discussion Single code for all direct taxes and compliance procedures Objective of simplification/ rationalisation of tax structure and rates Tax rates rationalisation and reduction Minimising of tax exemptions Anti-avoidance (GAAR) rules proposed

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Policy Announcements

Goods and Service Tax (GST)

Budgetary announcement to introduce the GST Number of steps to be implemented - Constitutional amendment - Framework for implementation- systems, reporting mechanisms etc.

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Policy Announcements

Other initiatives

Competition Act - Government has established Competition Commission of India - Regulations proposed for automatic approval to large mergers and acquisitions (M&As) if these do not harm the consumers interest.

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Policy Announcements

Other initiatives

Limited Liability Partnership Act - The LLP shall be a body corporate and a legal entity separate from its partners. The LLP will have perpetual succession; - Liable to the full extent of its assets - The liability of the partners being limited to their agreed contribution - Partner would not be liable on account of the independent or unauthorised actions of other partners or their misconduct - The liabilities of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP

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Policy Announcements

Other initiatives

- Mutual rights ,duties of partners of an LLP inter se and those of the LLP and its partners be governed by an agreement between partners or between the LLP and the partners. - The Act provides flexibility to devise the agreement as per their choice - Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be resident in India - Tax Provisions: 30% with no DDT; as compared to Corporate @25%+ DDT

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Policy Announcements

Other initiatives

Companies Amendment Bill 2009- Some salient features - Reintroduced in Parliament in Aug 2009 - Corporate sector in India to operate in a regulatory environment of best international practices - Basic principles for all aspects of internal governance of corporate entities - Shareholders democracy with protection of rights of minority stakeholders, - Responsible self-regulation with disclosures and accountability - Shares with differential voting rights to be done away - Valuation of non-cash considerations for allotment of shares through independent valuers - One-Person Company (OPC) - Easy transition of companies operating under the Companies Act, 1956, to the new framework as also from one type of company to another.

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Policy Announcements

Proposed hikes in FDI caps

Phased increase in FDI limits in banks and greater entry of foreign banks with tighter regulation of investing foreign banks and other foreign entities FDI in multi-format retail, starting with food retailing FDI limit in defence industries to 49 % from 26 % and allow up to 100 % on a case by case basis Proposal to raise foreign equity share in insurance to 49 %. - consider allowing 100 % foreign equity in a special category of insurance companies

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Policy Announcements

Sectors attracting Highest FDI Equity Inflows


April 2000-June 2009

Rank 1 2 SERVICES SECTOR (financial & non-financial)

Sector

% age to total Inflows (in terms of rupees) 23% 10%

COMPUTER SOFTWARE & HARDWARE TELECOMMUNICATIONS (radio paging, cellular mobile, basic telephone services) HOUSING & REAL ESTATE CONSTRUCTION ACTIVITIES (including roads & highways)
Source: Government of India, Ministry of Commerce and Industry

3 4 5

8% 7% 6%

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Policy Announcements

Public Sector Disinvestment

The Government disinvestment strategy seeks to: - Revitalise the disinvestment programme and generate at least Rs. 250 billion per year. - Complete the process of selling of 5-10 % equity in previously identified profit making non-navratnas. - List all unlisted public sector enterprises and sell a minimum of 10 % of equity to the public. - Auction all loss making PSUs that cannot be revived. - Allow negative bidding in the form of debt write-off for those in which net worth is zero.

Disinvestment viewed as a tool for mobilisation of resources for faster return to fiscal consolidation
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Policy Announcements

India and Trade Developments

Resumption of Doha round of trade talks - Unanimous affirmation on the need to conclude the Doha Round within 2010 Indias recent FTAs with: - South Korea : Slashes tariffs, encourages investment and promotes exchange of skills to double commerce over next decade - ASEAN : Eliminates tariffs on ~ 4,000 products - consumer electronics, pharmaceuticals, machinery, metals and readymade garments Expect bi lateral trade to increase from current USD 40 billion to USD 50 billion in 2010.

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Agenda: The India Story

Section 3 : Challenges

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Challenges

The Economy: Challenges

Early return to high growth trajectory of 9% + remains a challenge - Sharp dip in growth rate of private consumption - Slowdown in gross fixed capital formation - Transmission of Monetary Policy insufficient - Poor Monsoons (inflationary pressures, brake on rural incomes, shortfall in hydro power generation) - Moderation of capital flows as global deleveraging process continues - Delayed revival of advanced countries will have negative effect on exports
Speed of return to high growth path in short run will depend on revival of global economy and Governments capacity to push through reforms in the months ahead
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Challenges

The Economy: Challenges

contd

Inflation Risks: - Steady increase in WPI and continuing high CP levels coupled with trends in global commodity prices in Q1 2009-10 suggest upside risks to inflation - Increase in MSP seen as a measure to support farmers in a below normal monsoon year could stoke inflationary pressures. - Deficiency in monsoons could affect inflation outlook more than growth prospects. - Recognising the imminent signs of inflationary pressures the RBI has upped its inflation projections to 5% for the fiscal year end from its previous forecast of 4% in April 2009. Progressive diversification towards non-farm activities and their rising share in total agro income is likely to moderate the monsoon impact Need to address concerns in medium term through productivity gains and efficient supply management
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Challenges

Challenges before Industry

Decline in flow of credit to SMEs Strong linkages with export sector has affected industrial growth in the face of contraction in external demand Technological breakthrough for product development, including patent protection, hindrance in attracting sizeable investment into R&D in many industries Delayed payments after delivery, frequent disruptions in the availability of power, and lack of stable demand have affected performance of the manufacturing sector

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Challenges

Challenges before Industry

Over medium term, productivity growth of manufacturing sector needs to catch up with other Asian economies - needs emphasis on quality, flexible labour laws, improved infrastructure and supportive policy environment

RBI has set up an Industry Monitoring Group to periodically assess developments in industry
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Challenges

Services Sector Challenges

A number of services where India enjoys a competitive advantage experience lack of clear policy thrust. Health Care Services: Despite high quality, riddled with regulations. Education: Multiple regulatory points and a lack of credible accreditation systems hamper growth potential Professional Services like legal, postal , accountancy and insurance : Need further liberalisation to harness their potential

Availability of these services at affordable costs while enhancing their global competitiveness must be given importance in India's development process
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Agenda : The India Story

Section 4: Investment Opportunities

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Investment Opportunities

Investment Opportunities
Source: The Investment Commission, Government of India

Industry
Power

Market
Over 90,000 MW of new

Expected Investment
Total investment opportunity of about US$ 200 billion over a seven year horizon A corresponding investment is required in transmission and distribution networks

generation capacity is required.

Telecommunications

Projected growth of 30-40% p.a. DOT has announced for auction and allotment of Spectrum for 3G services

Investment opportunity across many areas: Telecom Devices and Software for Internet, Broadband and Direct to Home Services. Set Top boxes, Gateway exchange, Modem, Mobile handsets and consumer premise equipments, Gaming devices, EPABX, Telecom Software Telecom Services for voice and data via a range of technologies Applications and Content development ranging from gaming to education

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Investment Opportunities

Investment Opportunities (contd.)


Industry
Infrastructure Roads

Market
Annual growth projected at 12-

Expected Investment
Over $50-60 billion investment is required.

15% for passenger traffic, and 15-18% for cargo traffic

Infrastructure

Ports

Traffic estimated to reach 960 million tonnes by 2013-14 Containerised cargo is expected to grow at 17.3%

Investment need of $13.5 billion in the major ports under National Maritime Development Programme (NMDP) to boost infrastructure at these ports in the next nine years

Investment need of $4.5 billion for improving Minor Ports

Source: The Investment Commission, Government of India


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Investment Opportunities

Investment Opportunities (contd.)


Industry
Infrastructure Civil Aviation & Airports

Market
Passenger traffic is projected to grow at

Expected Investment
Estimated investment over $15 billion for airport development over the next 5 years

a CAGR of over 15% in the next 5 years


Cargo traffic to grow at over 20% p.a.

over the next five years Services Insurance


Indian Insurance market is expected to

be around $25 billion by 2010

Total estimated investment opportunity of $4-5 billion

Source: The Investment Commission, Government of India


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Investment Opportunities

Investment Opportunities (contd.)


Industry
Natural Resources Coal

Market
Demand for coal expected to increase to 800 MMT p.a. by 2012

Expected Investment
US$ 30-40 billion investment opportunity over the next 10 years to: Explore and develop new coal mines

Pharmaceuticals & Biotechnology

The domestic market expected to double

Major opportunities:
Marketing of Patented Drugs Contract Research and

in the next 5 years to over $10 billion


The Biotech industry is projected to grow

at a CAGR of 39%; India expected to have a significant share of the global market

Manufacturing (CRAM)
IT enabled services including

clinical/ market data analysis


Clinical Trials: Revenues to grow

from $70 billion (2002) to $1-1.5 billion by 2010 driven by a 60% cost advantage and large gene pool for trials

Source: The Investment Commission, Government of India


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Investment Opportunities

Investment Opportunities (contd.)


Industry
Healthcare

Market
The industry is expected to grow at 15% p.a. Medical tourism is expected to become a $2 billion industry Significant growth in healthcare BPO

Expected Investment
Investment opportunity of over $25 billion

Source: The Investment Commission, Government of India


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Investment Opportunities

Outbound Investments of Indian Companies

Mixed response to current investments in other countries


- Slowdown in the investee country - Investments made in boom time

Indian companies continue to look abroad


- Security for assets - New markets - Technologies

PricewaterhouseCoopers LLP

18 September 2009 Slide 41

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