George Koshy
Independent Consultant
to AMT
What’s Important to Know About
Doing Business in India
Market Update Breakfast - India
September 12, 2006
Engineering Industry Snapshot
12 September 2006
George Koshy
June 2004
Major Cities of India
National Capital Region
Population – 14 million
Area – 1483 sq.km
Key Industries – Electronics, BPO
International Airport - Yes
Mumbai
Population – 16.3 million
Area – 437 sq.km
Key Industries – Financial Services,
Engineering, Film
International Airport - Yes
Kolkata
Pune
Kolkata
Population – 10.5 million
Area – 1036 sq.km
Key Industries – Automotive, Tea, Textile
International Airport - Yes
Pune
Population – 4.5 million
Area – 240 sq.km
Key Industries – Engineering, Automotive,
IT
International Airport - Yes
Hyderabad
Population – 5.5 million
Area – 220 sq.km
Key Industries – IT/ BPO, Pharmaceuticals
International Airport - Yes
Bangalore
Population – 6.5 million
Area – 366 sq.km
Key Industries – IT/ BPO, Aerospace, Silk, Coffee
International Airport - Yes
Chennai
Population – 6.9 million
Area – 584 sq.km
Key Industries – Automotive, Hardware
manufacturing,
International Airport - Yes
Major Industrial Areas
Pune
Kolkata
Advantage India
 Skilled English speaking technical manpower at competitive labour cost.
(India produces 65,000 engineers each year).
 100 percent FDI allowed in most manufacturing sectors .
 Indigenous availability of raw materials.
 Over 2500 companies have ISO 9000 certification.
 Large domestic market (India’s middle class families equal the entire population of the United
States) with rising disposable income.
 Time difference with major world economies allowing for 24/7 off shoring.
 Diversified industrial base with supporting ancillary industries.
 Many leading world class companies have a manufacturing base in India:
US: GM, GE, Ford, Caterpillar, etc. East Asia:Toyota, Sony, Honda, LG, Hyundai,
Europe: Siemens, Philips, Daimler Chrysler, Fiat, Lafarge; Other major MNCs include ABB,
Electrolux, Volvo.
Engineering Industry Profile
 India has a strong engineering and capital goods base.
 The Indian capital goods sector is characterized by a large variety of products (almost all
major capital goods are domestically manufactured) – a legacy of the import substitution
policy.
 The range of machinery produced in India includes heavy electrical machinery, textile
machinery, machine tools, earthmoving and construction equipment, mining equipment, road
construction equipment, material handling equipment, oil & gas equipment, sugar
machinery, food processing and packaging machinery, railway equipment, metallurgical
equipment, cement machinery, rubber machinery, process plants & equipment, paper & pulp
machinery, printing machinery, dairy machinery, industrial refrigeration, industrial furnaces
etc.
 With total exports of US $ 126.7 billion, and total imports of US$ 182.3 billion in 2005 the
engineering industry in India accounts for broadly 18% of exports and employs around 11%
of the workforce. (Source: World Bank)
Machine Tools Industry
 Machine Tool Industry is the backbone of the industrial engineering sector.
 India is a design house, a tooling centre, a components base and a manufacturing hub.
 During the last four decades, the machine tool industry in India has established a fairly
robust base and there are around 125 machine tool manufacturers in the organized sector as
also around 300 units in the small ancillary sector.
 Indian machine tools are today manufactured to the international standards of
quality/precision and reliability using Computerized Numerically Controlled (CNC)
Machine Tools.
 A number of collaborations have also been approved for importing the latest technology in
the field of modern machine tools and the industry is now exporting conventional as well as
NC/CNC high-tech machine tools.
 The sector is delicenced and import is permitted. There is a gap in technology for Special
Purpose Machines and also some categories of CNC Machine Tools. Import of technology is
encouraged to bridge this gap.
The Opportunity – What The Markets Are
Looking For…..
 State of the art CNC machines and accessories at an affordable price.
 Adaptation of indigenously available equipment such as Hydraulic, chip conveyers,
electrical equipment etc to reduce the impact of high import duty.
 Prompt local service support and supply of spare parts as and when required
 Frequent follow-up visits and technology transfers from the parent company which will
develop a long term relationship.
Doing Business In India
The Theoretical: Governed by The Government Of India Policy towards
Foreign Direct Investment (FDI)
Broadly the (FDI) policy is industry specific and the government looks at the following
8 parameters when determining what policy should be adopted for a particular sector:
 Foreign currency regulations
 Industrial regulations and administrative controls
 Regulations for managing business enterprises:
 Regulations concerning taxation
 Regulations covering capital markets
 Regulations concerning business and trade practices and anti trust matters
 Trade regulations – conditions regulating export and import of goods and
services
 Intellectual Property Regulations
Doing Business In India
Practically……….
 Multiple legislation…no single window except for the IT/ BPO sector.
 Federal legislation and local state legislation – 28 states and 7 Union Territories.
 Dealing with a bureaucratic system with inherent limitations.
 Loads of paperwork.
 Highly price sensitive but increasingly technology driven market.
 Multi skilled, multi linguist, multi cultural workforce that is mobile.
 IPR challenges and brand imitation.
 Crumbling public infrastructure Vs state of the art private development.
Doing Business In India
On the lighter side…..
 In India there are always three sides to a story…..yours…..mine……and…..the right one!
 Everything is relative and Relative.
 Business !! create an obligation and business will follow!
 People tell you what they want you to hear……they put a “spin” onto the response to point you
to the direction they want you to take.
 I.S.T…..Indian Standard Time or humorously referred to as Indian Stretchable Time.
Entry Options
1. Engage a good and well connected agent who has branch offices with technical staff at all
major industrial hubs.
Train the representatives of the chosen agents for technical selling of your products.
(Agency commission on machine tools ranges from 8 – 12 % of which half is towards sales
commission and the balance towards after sales service.)
2. Set up a wholly owned subsidiary or a joint venture with a reputed local partner.
Basic Laws You Should Be Aware Of When
Doing Business in India
Tax Laws: Direct Tax, Indirect Tax, VAT
Tax Rates:
Income Tax - 35.77% , VAT – 4% or 12%, Service Tax – 12%, Excise Duty – 8%, 16% and 24%
Customs Duty – Peak rate of 15%.
R&D cess:
The Research & Development Act, 1986 provides for a levy of 5% on all payments made for the
import of “technology”, which includes import of designs, drawings, publications and services of
technical personnel.
Employment laws: Labor law is still very much anti employer;
however this is changing with the rapid growth of the economy.
Environmental Laws: Still evolving
Take Aways….
DO’s
DONT
Have a physical presence.
Remote control – It does not work.
Choose a trusted tax and legal advisor.
Assume that the Big 4 are the obvious
choice.
Have a mix of local and expatriate
management.
Send in people who are not technology
savvy.
Be prepared to wait for various approvals
and government clearance.
Fall prey to the “friendly consultant” who
offers to “do the needful” in obtaining
approvals.
Setup your back office and support
infrastructure right the first time around.
Neglect business support functions. It may
take 5 years for the law to catch up with
you…but it will.
Be prepared for moderate attrition.
Assume money can't get you the best talent.
Thank You