Investing in India
India as an investment destination
29 February 2012
Why India
India- Compared to the Globe
India is the ninth largest economy in the
world and the fourth largest in terms of PPP
India is the ninth largest economy in the world
Rank
Country
India is the fourth largest economy in the world by GDP (PPP exchange rates)
Economy size 2010
(US$ trillion)
Rank
GDP (PPP*) 2010
(US$ trillion)
1
US
14.53
1
US
14.5
2
China
5.88
2
China
10.1
3
Japan
5.46
3
Japan
4.3
4
Germany
3.29
4
India
4.1
5
France
2.56
5
Germany
2.9
6
UK
2.25
6
Russia
2.2
7
Brazil
2.09
7
UK
2.2
8
Italy
2.06
8
Brazil
2.2
9
India
1.63
9
France
2.1
10
Canada
1.58
10
Italy
1.8
Source: IMF
*PPP - Purchasing power parity
External Debt to GDP ratio
Portugal
Austria
Finland
Greece
Spain
Germany
US
Japan
Russia
India
Brazil
China
Investment as a percentage of GDP
239%
234%
217%
191%
182%
170%
48.2% 48.7%
36.8%
37.6%
100%
23.0%
21.8%
50%
37%
21%
19%
9%
0%
30%
60%
China
India
Spain
21.4%
22.7% 20.2%
20.3%
Russia
Japan
19.9%
20.2%
Italy
2010
90% 120% 150% 180% 210% 240% 270% 300% 330%
Source: CIA World Factbook (accessed 3 January 2012)
Page 4
Country
Source: IMF
India as an Investment destination
19.8%
19.3%
Brazil
2011E
21.2%
19.2%
19.1%
17.3%
France Germany
15.8%
15.8%
US
15.0%
14.1%
UK
World Economy: India stands tall on the
savings front
India’s position among BRIC nations
India compared with the developed world
India has one
of the leading
savings rate
across the
world. It
outperforms
various
developed
world nations
with a savings
rate (as a
percentage of
GDP) at 34.2%
Gross national savings (% of GDP) – 2010
53.4
34.2
23.8
23.0
34.2
18.6
India
18.4
Japan Germany France
Spain
16.9
Italy
25.1
12.5
11.8
US
UK
17.0
China
India
Russia
Brazil
Unemployment rate – 2010
Spain
India
India
10.0%
10.0%
France
9.8%
US
9.6%
Russia
Italy
7.5%
8.4%
Brazil
UK
6.7%
7.9%
Germany
7.1%
China
Japan
4.1%
5.1%
0%
Source: IMF
Page 5
India’s
unemployment
rate is higher
when
compared to
BRIC nations
as well as the
developed
economies
such as the US
and France.
20.1%
5%
10%
15%
20%
25%
0%
2%
4%
Source: IMF
India as an Investment destination
6%
8%
10%
12%
World Economy Outlook: India continues its
stable positioning
20.00
Real GDP growth (% change)
15.00
10.00
5.00
0.00
-5.00
US
-10.00
2007
Eurozone
2008
2009
Japan
2010
China
India
2011
2012
Russia
2013
Brazil
2014
UK
2015
2016
Source: IMF
►
The world output is expected to be sluggish due to slower recovery in advanced economies and large increase in
fiscal and financial uncertainty across the countries. According to the IMF, the world economy is expected to grow at a
rate of 4% in 2012.
►
Advanced economies are projected to expand at a slow pace in 2012 with the US expected to grow at 1.8% and
Japan’s GDP expected to grow by 2.3% after the mild recovery from the aftermath of March 2011 earthquake. Eurozone is expected to grow at 1.4% in 2012 owing to the current debt crisis.
►
Growth for the emerging market economies is expected to remain robust. Among the BRIC economies India and
China have maintained a stable position, driven by buoyant exports and strong domestic demand. IMF projects China
and India to grow at 9.0 % and 7.5% respectively in 2012.
Page 6
India as an Investment destination
Indian economic overview
Growth outlook
Growth rate (%)
FY10
FY11
FY12E
8.0
8.5
7.1
- Agriculture and allied activities
0.4
6.6
3.1
- Industry
8.0
7.9
5.2
- Services
10.1
9.4
9.0
Private final consumption expenditure
7.3
8.6
7.0
Government final consumption expenditure
16.4
4.8
4.0
Gross fixed capital formation
7.3
8.6
8.6
Wholesale price index
3.6
9.9
8.4
Index of industrial production
5.3
8.2
5.6
Exports
(2.6)
41.3
19.5
Imports
(3.9)
22.5
27.4
Corporate PAT
28.4
9.1
(6.2)
GDP (at factor cost)
Source: CMIE Monthly Review of Indian Economy (2011 – December)
*CMIE projections
India’s economic growth slipped to 6.9% in the second quarter of FY12 mainly due to poor
manufacturing performance and declining output of the mining industry.
Page 8
India as an Investment destination
Robust forex reserves
BSE Sensex (as at month-end)
Net FII investments
15,548
15000
20,000
US$ million
13000
10,963
11000
19,000
9,260
7,934
6,631
6,427
9000
7000
18,000 17,823.40
18,327.76
4,243
3,702
3000
17,000
1,751
16,000
291
1000
-1000
18,197.20
17,705.01
-2,716-2,484
18,078.00
18,197.20
18,078.00
17,705.01
Foreign exchange reserves in India
320
314 312
300
293
284 283
292
297
17,194.00
16,676.75
16,123.46
16,453.76
16,453.76
16,123.46
15,454.92
15,454.92
14,000
Source: Securities and Exchange Board of India
Note: FII inflows have fallen in 2011 under the impact of inflation, corruption scandals
and expected lacklustre performance of Indian equities
298
16,676.75
15,000
-520
-676
-3000 -1,985-2,014
US$ billion
18,845.87
17,194.00
5000
280 274 276
19445.22
19,135.96
18,503.28
299 302
316
Source: BSE website
Significant
depreciation of
Indian Rupee
Forex markets
319319
312
316 314
130
305
297
USD-INR
125
294
JPY-INR
120
EUR-INR
115
110
105
100
260
95
90
85
80
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
240
Currencies rebased to 100 at end of March 2009
Source: RBI
Page 9
Source: Oanda website
India as an Investment destination
Indian Rupee
joined the elite
group of unique
currencies
in 2010
FDI inflows – India the third most attractive
FDI destination in the world
FDI in India (US$ billion)
40
► Renewed momentum in FDI in FY12: During FY12 (Apr-Oct),
the FDI inflow into India has witnessed a remarkable comeback
growing y-o-y by 45.3%. The government is likely to ease FDI
norms in single brand retail (plans to increase FDI cap to 100%
from 51%), thereby promoting retail FDI.
►
►
►
Investment momentum: During the period 2003-2010, the value
of investment proposals into India increased at a CAGR of
approximately 47.4%.
Sustained growth during 2011: During 2011 (till September),
India has received 3,116 investment proposals amounting to
US$288.7 billion.
Procedural reforms: The Government has allowed Foreign
Investment Promotion Board (FIPB) to clear FDI proposals up to a
limit of INR12 billion. Earlier investments above INR6 billion were
put before Cabinet Committee of Economic Affairs (CCEA) for
approval.
27.9
22.8
25
20
15
10
9.0
5
0
FY06
FY07
FY08
FY09
FY10
FY11P*
FY12P
(Apr-Oct)
Source: RBI Bulletin
FDI includes credit portion of direct investment in equity, reinvested earnings and inter company
debt transactions
*Provisional
Number of proposed investments and their value
450
400
5,218
350
300 3,991
250
200
150
100
50
58.1
25.8
0
6,338
2003
2005
2004
4,336
4,085
6,371
7,000
6,000
3,116
3,475
3,818 342.4
4,000
390.2
258.0
3,000
2,000
187.5
233.8
1,000
80.2 133.3
2006
5,000
0
2007
Proposed investment
2008
2009
2010
2011
Till
Sep
Number of proposals
Source: Department of Industrial Policy & Promotion, Government of India
*Includes Industrial Entrepreneur Memoranda, Letters of Intent and Direct Industrial Licenses
*Exchange rate =INR 52 /US$ (for 2011 proposed investment)
Page 10
India as an Investment destination
Number of deals
► Key causes: The decline in FDI can be attributed to delay in
government approvals for projects, land acquisition issues and
macroeconomic factors such as interest rates and inflation.
30.4
30
US$ billion
► Decline in FDI inflow during FY11: FDI in India stagnated
during FY10 witnessing a y-o-y decrease of 0.20%. It witnessed
a steeper 19.6% decline during FY11.
37.8
35
US$ billion
► Top global destination for FDI: According to UNCTAD’s ‘World
Investment Prospects Survey ‘2011-2013’, India is the third most
attractive destination for FDI (after China and US) in the world.
37.8
34.8
FDI Equity – leading sectors and countries of
origin
Break up of FDI by sectors
FY11
►
FY10
5.8%
6.4%
5.6%
6.9%
11.0%
Services Sector*
Telecommunications
4.7%
8.6%
54.8%
17.5%
►
►
Automobile Industry
9.9%
52.0%
Power
Housing & Real
Estate
16.8%
►
►
Others**
Source: Department of Industrial Policy & Promotion, Government of India
Services sector continues to be the favorite investment
destination for foreign investors. The sector attracted US$3.3
billion FDI in FY11 (US$4.2 billion during FY10).
During FY11, services sector share in FDI stood at 17.5%
followed by telecommunications (9%) and automobile
industries (7%)
In FY11, metallurgical industries witnessed the highest growth
(171%) in attracting FDI over FY10 followed by petroleum and
natural gas sector (111%) and chemicals (10%).
In the period Apr-Oct 2011, India received FDI equity inflows
of US$20.3 billion.
Between Apr-Oct 2011, services sector had the largest share
in inbound FDI with a share of 16.9%. It is followed by drugs &
pharmaceuticals (15.2%) and telecommunications sector
(9.7%).
Break up of FDI by countries of origin
FY11
8.8%
FY10
►
9.4% 4.7%3.6%
8.0% 6.2%
6.0%
7.7%
Mauritius
Singapore
Japan
Netherlands
41.0%
36.0%
►
►
USA
35.0%
33.7%
Others
►
Source: Department of Industrial Policy & Promotion, Government of India
Mauritius has been the largest source of FDI inflows in India
for many years. Cumulative FDI inflows from Mauritius
reached US$61.2 billion in October 2011 since April 2000.
(US$7.0 billion in FY12 – Apr-Oct).
Singapore remained the second largest source of FDI in India
in FY10 and FY11 (US$3.3 billion during FY12 – Apr-Oct).
During FY12 (Apr-Oct), UK has emerged as the third largest
source of FDI in India. Between Apr-Oct 2011, India has
received US$2.6 billion from the country (US$755 million in
FY11).
Another key trend is the emergence of Japan as the fourth
largest source of FDI in India. Between Apr-Oct 2011, India
has received US$1.8 billion from the country (US$1.6 billion
in FY11).
*Services includes financial and non-financial services, **Others includes computer software and hardware, petroleum and natural gas, chemicals, pharmaceuticals, hotel and tourism
and other sectors
Page 11
India as an Investment destination
Recent FDI (Equity) investments in India
Major announcements
Period
Amount of
FDI equity
inflows
(US$
million)
Insurance
►
Nippon Life, Japan’s largest insurance company has acquired 26% stake in Reliance Life for a sum of INR30.6 billion.
Oil & Gas
►
BP has recently announced a partnership with Reliance Industries Limited (RIL), wherein BP would take a 30% stake
in RIL’s 23 Oil and Gas blocks at a consideration of US$7.2 billion.
Renewable energy
July-Sep 2011
5,695
Apr-June 2011
13,441
Jan–Mar 2011
3,390
Oct–Dec 2010
5,034
Jul-Sep 2010
5,233
Apr-June 2010
5,772
Jan–Mar 2010
4,968
►
GE plans to invest US$50 million in its maiden renewable energy project in India with Greenko Group, a green energy
developer.
Technology
►
Japan’s SoftBank Corp has invested US$200 million in InMobi, an independent mobile advertising network provider.
Cross Sector
►
International Finance Corporation (IFC), the private sector funding arm of the World Bank Group, plans to invest upto
US$1 billion in India during FY12. It plans to focus on infrastructure, clean energy, energy efficiency and other
investments in socially important sectors such as water and healthcare.
Mining
►
Odisha government is expected to renew the MoU with South Korean steel major, Posco. Posco will set up a US$12
billion 12-mtpa steel mill in the state.
►
Anglo-Australian mining giant, Rio Tinto has proposed to invest upto US$2 billion with local partners in India to develop
iron ore mines in the Indian state of Odisha over the next few years.
Financial Services
►
Life Healthcare, South Africa’s second largest hospital chain, is acquiring a 26% stake in Max Healthcare for INR5.16
billion, making it one of the largest foreign investment deals in the Indian healthcare sector
Automotive
Oct–Dec 2009
Jul–Sep 2009
5,596
8,235
►
Force Motors has announced plans to invest INR7.5 billion in new product development and capacity augmentation.
►
Volkswagen plans to invest INR17.28 billion in India over the next few years on tooling and vendor development
►
Honda Motorcycles has announced new unit in Karnataka
►
Ford has announce d new unit in Gujarat
Source: Department of Industrial Policy &
Promotion, Government of India
Page 12
India as an Investment destination
Outward FDI – leading sectors and
destinations
US$ billion
India: outward FDI
20
18
16
14
12
10
8
6
4
2
0
Break up of outward FDI by sector
FY11
Financial, Insurance, Real
Estate and Business Services
32.3%
18.8
16.7
Manufacturing
16.2
13.5
11.3%
10.4
34.7%
5.0
1.5
FY04
8.1%
1.8
FY05
FY06
FY07
FY08
FY09
FY10
FY11
Wholesale, Retail, Trade,
Restaurants and Hotels
Agriculture, Hunting, Forestry
and Fishing
13.6%
Others
Source: RBI
Source: RBI
► Indian companies invested US$16.7 billion in overseas
joint ventures and wholly-owned subsidiaries during FY11
(compared to US$10.4 billion in FY10).
► Approximately 56% of the investment was financed
through equity component and 44% through loans.
Break up of outward FDI by destination
FY11
Mauritius
19.6%
30.1%
Netherlands
► Services sector (including financial, insurance, real estate
and business) witnessed the highest outward FDI
(US$5.8 billion) in FY11.
► Mauritius received the largest Indian outward FDI of
approximately US$5 billion in FY11. Together, Mauritius,
Singapore, Netherlands, United States, and United Arab
Emirates accounted for 71% of total outward FDI.
Page 13
Singapore
8.8%
United States of America
United Arab Emirates
8.0%
22.5%
4.7%
3.1%
Source: RBI
India as an Investment destination
3.2%
United Kingdom
Cyprus
Others
Growth driver: exports
Merchandise exports expected to reach US$500 billion in FY14
US$ billion
India’s exports – Goods and services
450
400
350
300
250
200
150
100
50
0
FY03
FY04
FY05
FY06
FY07
FY08
Services
FY09
FY10
Goods
FY11P FY12P
(AprJun)
Source: RBI and Ministry of Commerce
*Provisional
Composition of services exports FY11 (P)
► IT services leader: India is a leading exporter of IT services in the world (55%
share in global sourcing industry). During FY11, India’s services exports are
estimated to be US$132 billion.
► US top IT services export destination: The US and the UK together account
for a dominant share of India’s IT-BPO exports (US$50 billion in 2010) at
approximately 61.5% and 18%, respectively.
► Merchandise exports cross US$200 billion mark: During FY11, India’s
merchandise exports are estimated to have crossed the US$200 billion mark,
with exports of US$250.5 billion.
► UAE top merchandise destination: UAE continued to be India’s top
destination for merchandise exports in FY11 with 13.7% share followed by the
US (10.2%), China (7.8%) and Hong Kong and Singapore with a share of
4.1% each.
► Global position: India accounts for approximately 1.4% of world merchandise
trade. The government aims to double its share in global trade of goods and
services by 2020 and expects the merchandise exports to reach US$500
billion in FY14.
Composition of merchandise exports FY11(P)
14.7%
Engineering goods
12.3%
16.5%
Petroleum products
44.7%
Travel
Transportation
Gems & Jewellery
8.9%
Software services
18.2%
10.8%
Business Services
Textiles
23.9%
7.1%
Others
11.6%
Source: RBI
Page 14
4.1%
14.7%
Chemicals & related products
12.5%
Source: DGFT
India as an Investment destination
Agri & allied products
Ores and minerals
Others
Growth driver: investments
Projects completed
9
INR trillion
6
1,128
1,109
960
5
1,271
699
836
1,114
808
5.7
4
800
6.2
3.9
3
4.6
2
400
3.8 3.1
3.1 3.1
2.3
1
2.2
0
INR billion
33.6 32.2
32.0 32.0
30.5 31.8
1.1 1.1
0.7
0.8
25.0
10.0
5.0
0.0
Private corporate sector
GFCF as % of GDP
0.6 0.6
0.7
0.8
200
100
0
4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12
Number of projects completed
►
India has maintained an average of approximately 30% in Gross
Fixed Capital Formation as a percentage of GDP between FY02
and FY11.
►
Projects worth approximately INR1.4 trillion were completed in the
first half of FY12.
►
Approximately INR5.3 trillion worth of projects are expected to be
completed in FY12.
20.0
15.0
0.9
0.0
35.0
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
►
Four sectors, primarily electricity, petroleum products, steel,
and road transport are projected to witness substantial
amount of projects being completed during FY12.
Source: CMIE
Note: Data after FY04 is adjusted with base year as 2004-05
Page 15
300
305 303
0.6
400
1.2
Value of projects
40.0
348 376
348 376
0.2
30.0
24.7
22.9 23.6
Household sector
Public sector
0.8
Number of new projects
Trends in share of gross fixed
capital formation (GFCF)
28.7
1.0
500
454
1.4
0.4
0
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
528
1.2
4Q091Q102Q103Q104Q101Q112Q113Q114Q111Q122Q12
Value of projects
499
428
1,200
1,060
600
566
1.4
INR trillion
1,319
8.4
7
1.6
Number of deals
8
1,600
1,356
Number of deals
New projects announced
India as an Investment destination
Growth driver: consumer spending
Increasing middle class
Distribution of income by households* in India
Urban population
Rural population
3%
2%
9%
8%
8%
5%
15%
23%
16%
1%
2%
3%
11%
1%
1%
3%
7%
19%
14%
27%
26%
44%
68%
41%
29%
12%
2009-10
INR million
Less than 0.075
0.30-0.50
Above 1.50
2019-20
0.075-0.15
0.50-1.00
0.15-0.30
1.00-1.50
Less than 0.075
0.30-0.50
Above 1.50
11%
3%
2%
3%
4%
4%
12%
3%
15%
Source: Ambit research
Page 16
4%
0.075-0.15
0.50-1.00
0.15-0.30
1.00-1.50
People preferences in saving options 2010
Distribution of consumption expenditure 2010
Approximately
40% of the
expenditure
goes in food,
beverages
and tobacco
2019-20
Saving pattern
Consumption pattern
39%
INR million
2009-10
Food, beverages and tobacco
Clothing and Footwear
Household goods
Housing
Health
Transport
Communication
Education
Leisure
Hotels and catering
Miscellaneous goods
27%
8%
Bank Deposits
40% of the
people prefer
Real Estate as
their saving
option
Stocks and MF
5%
Insurance and pensions
20%
Real Estate
Gold
40%
Source: ENAM Research
India as an Investment destination
Growth driver: consumer spends
India expected to become the world's fifth-largest consuming country by 2025
Trends in public and private consumption
Government consumption expenditure
Private consumption expenditure
Consumption as % of GDP
60000
INR billion
50000
40000
30000
20000
10000
0
FY05
FY06
Source: RBI and CMIE
FY07
FY08
FY09
FY10
70.5
70
69.5
69
68.5
68
67.5
67
66.5
66
65.5
►
By 2025, India is expected to become the world's fifthlargest consuming country from its twelfth position in
2010
►
India has approximately 222 million households, with
more than 30% of the population living in 5,000 cities
and towns.
►
13 million people enter India’s urban work force each
year.
►
According to the recent global survey of online
consumers, conducted in more than 51 nations
worldwide, the Indian consumers were found to be the
most optimistic.
►
Significant rural consumption is also a key driver for
India’s growth as it constitutes 70% to the total
population.
►
Approximately 56% of the national income is
generated through rural customers.
►
Consumer durables form an important part of the rural
consumption. Out of the total consumer durables
demand in India, 59% is generated through rural
customers. In addition, they contribute around 53% to
the total FMCG sales.
FY11
Consumption to boom across categories
Units
2010
2020
CAGR (2010-20)
Organised Retail
US$ bn
24
266
27%
Air Conditioners
Mn p.a.
3
18
22%
Home Mortgage*
US$ bn
88
646
22%
Cars
Mn p.a.
2
12
20%
Mn
subscribers
24
116
17%
Refrigerators
Mn p.a.
6
25
16%
Packed foods
US$ bn
22
89
15%
2-Wheelers
Mn p.a.
9
35
14%
HPC Products
US$ bn
10
34
13%
Digital Pay TV**
Source: ENAM Research
*Mortgage expressed as total housing loan outstanding
**DTH is expressed as total subscriber base
Page 17
India as an Investment destination
Growth enabler: changing demographics
India has low median age
Age group
1400
1%
1%
2%
Indicating favorable demographics (age groups)
1200
Millions
1000
410
300
800
600
290
375
410
415
400
200
12%
12%
0
2001
0-19
2013
20-34
11%
3%
3%
2%
4%
3%
5%
3%
5%
3%
6%
5%
6%
5%
7%
7%
8%
7%
9%
-8%
9%
9%
8%
9%
8%
8%
8%
35 & above
Female
50
45
40
35
30
25
20
15
10
5
0
828.95
506
2025
Page 18
50-54
40-44
30-34
20-24
10-14
0-4
3%
3%
4%
2021
2001
4%
5%
4%
6%
5%
6%
6%
8%
7%
9%
7%
9%
8%
9%
9%
9%
10%
9%
12%
9%
13%
8%
11%
►
In 2010, India had a dependency
ratio of 56% against China
(39%), the US (50%) and the UK
(51%).
►
By 2030, India will have a lower
dependency ratio of 45% against
China (49%), US (61%) and UK
(61%).
516.41
2000
Source: CLSA research
60-64
3%
3%
Male
645.09
China Russia
2%
Total employment in India (millions)
Low median age
US
70-74
1%
1%
2%
Source: India Labour Report, 2009
Source: ENAM Research
India
80+
UK
337.88
2004-05
2009-10
2015-16
2020-21
2025-26
Source: India Labour Report, 2009; Ministry of Labour
India as an Investment destination
Growth enabler: stable government
The Eleventh Plan progress report
Achievements
Shortfalls
Telecom
Health
899.8
36.2%
Infra
100%
Education
15%
511.8
99.9%
600
Energy
62,374
Health
100%
57,776
25%
12%
167.41
32.1%
Telecom
subscribers
(millions)
Rural tele-density
Target
Clean water for all
(% coverage)
Port capacity
addition (MTPA)
Achievement
Sector
Plan target
Achievement
Telecom
Telecom subscriber
base of 600 million
899.78 million subscribers
(Aug 2011).
Rural tele-density of
25%.
Rural tele-density of 36.2%
(Aug 2011).
Health
Clean water for all
Industry
Easing FDI norms
Out of 55,067 uncovered
habitations, only 384 remain
uncovered
FDI upto 100% allowed in
many sectors
Page 19
Target
GER higher
education
Achievement
Total Fertility
Rate (% states
~TFR 2.1)
Sector
Plan target
Infrastructure
2,000 new railway lines to be
constructed
771 new lines constructed till FY10
Capacity addition of 511.80
MTPA at ports
Capacity addition of 167.4 MTPA
(32.7%) achieved till Sep 2011
Total capacity addition of 62,374
MW
57775.62 MW (92.6%) added till
Sep 2011.
Electrification of 1,18,499 villages
99,148 villages electrified (Sep
2011)
Energy
Education
Despite significant achievements, government
needs to relook its development priorities in
shortfall areas
Energy capacity
addition (MW)
Health
Shortfall
Literacy rate of 80%
74% (Census 2011)
30 new central universities to be
set up
16 central universities set up till
now
Sex ratio of 935 females per 1000 Sex ratio of 914 (Census 2011)
males in 0-6 years age group.
India as an Investment destination
Growth enabler: robust financial institutions
Maintaining stability
►
►
►
►
►
►
Banking infrastructure in India
no. of branches of SCBs (As on 31 March 2011)
India has a strong and stable financial market, regulated by RBI.SEBI, the
strong and independent capital markets regulator is committed to develop
and regulate markets in a systematic way.
45,460
India’s capital markets are well established with a presence of 20 stock
exchanges that constitute the market for securities issued by the
government and the corporate entities.
The Multi-Commodity Exchange of India (MCX) is among the top three
bullion exchanges and top four energy exchanges of the world. NSDL, the
first and largest depository for equity market in India manages more than10
million demat accounts.
The Indian banking sector regulated by the Reserve Bank of India (RBI)
consists of the public sector banks (26), private banks (21) and foreign
banks (32) with a total asset size of approximately INR65 trillion at endFY11 (US$1.4 trillion).
Public sector banks dominate the banking industry with 74% of the assets
held as of FY11. However private sector banking is growing at a rapid pace
with 11,968 branches at the end of FY11. RBI has recently come out with
new banking licenses which will promote private banking in the country.
►
Gross NPAs of India’s Scheduled Commercial Banks (SCBs) have declined
from 15.7% of net advances in FY97 to 2.24% in FY11. The credit-deposit
ratio of Indian SCBs stood at 75.22 as on 16 December 2011 (74.18 as on
18 November 2011). Bank credit and deposits have grown (y-o-y) by 17.1%
and 18.0% respectively as of December 2011.
►
The Government has made provision for recapitalization of banks worth
INR65 billion in FY12 budget, to enable banks to maintain a minimum Tier I
capital adequacy ratio of 8%.
Foreign
Banks
316
BSE is the world’s largest stock exchange in terms of number of listed
companies and the NSE is the world's third largest stock exchange in terms
of number of transactions.
SCBs credit to GDP ratio
60%
49.0%
44.3%
50%
40%
30%
32.2% 33.1%
28.1%
52.0% 53.1% 55.3% 53.9%
37.1%
20%
10%
0%
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
Credit – deposit ratio of SCBs
80
70
60
50
40
30
20
10
0
70.1
53.8
56.9
62.6
55.9
73.5
74.6
FY10
FY11
75.7
72.4
72.2
75.2
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12*
*As of 16 December 2011
Source: RBI, NSDL website
Page 20
Public sector
banks
Private Sector
Banks
11,968
India as an Investment destination
Inflation above sustainable levels, RBI stops
rate hikes
Wholesale price index
12%
10%
10.3% 9.8%
10.6%
8%
9.7%
8.6%
8.5%
9.4%
8.6% 7.5%
8.4%
9.8%
9.1%
8.3%
9.4%9.2% 9.7%
8.7%
► WPI in Jan 2012 stood at 6.6% y-o-y, lower than that in Dec
2011 (7.5%).
9.7%
9.1%
7.5%
6.6%
6%
► RBI has revised policy rates regularly to suck out excess
liquidity from the financial system using its monetary policy.
► In October 2011, it increased the repo rate by 25 basis
points to 8.5%. In December 2011, the repo rate remained
at the same level as in October and November 2011.
4%
► In line with RBI’s hardening monetary stance, average
base rates of banks have also been continuously rising.
2%
0%
Source: Central Statistical Organization
Note: Base year for calculation of WPI is 2004-05
Hike in Repo
8.5%
8.0%
Monetary policy action
11.0%
7.5%
10.5%
7.0%
10.0%
9.5%
6.5%
9.0%
6.0%
8.5%
5.5%
CRR
8.0%
5.0%
Repo
7.5%
4.5%
Source: RBI
Page 21
Average base rates
7.0%
Source: CMIE
India as an Investment destination
SBI
PNB
ICICI
HDFC
M&A activity – inbound deals dominate the
landscape
Number of deals and value
1,391
1,600
1,409
1,314
60
1,196
963
1,153
US$ billion
1,201
66
40
45
544
45
39
20
400
31
0
►
62
674
8
CY02
6
6
CY03
CY04
CY05
19
CY06
CYC07
Value of deals
CY08
CY09
CY10
CY11
Number of deals
Source: Thomson ONE Banker; Ernst & Young research
M&A activity in India picked up strong pace in 2010, however witnessed a decline in
2011 due to the volatility in the markets and cautious approach of the companies.
►
800
727
►
1,200
0
Number of deals
80
►
►
►
During 2011, 963 deals worth US$39.3 billion (By value: Inbound – 62%; Outbound –
24%; Domestic – 14%) were announced.
During 2011, oil and gas sector attracted 23.2% of the total M&A deal value followed
by telecommunications services (14.5%) and industrial products (8.2%).
Australia has emerged as the top destination for outbound M&A activity from India
accounting for approximately 38.9% of total outbound deals (by value) during 2011,
followed by US (14.4%) and UK (10.9%).
UK, US and Germany have emerged as the top M&A investors (by value) in India.
Major deals during 2011 include:
• Outbound: Mundra Port & Special Economic Zone Ltd {MPSEZ} – Abbot Point
Coal Terminal (US$1.9 billion)
• Domestic: Sesa Goa Ltd - Cairn India Ltd (US$1.5 billion)
• Inbound: Reliance Industries Ltd – BP PLC (US$7.2 billion)
• Inbound: Vodafone Essar Ltd. – Vodafone Group Plc (US$5 billion)
% Break-up of number of deals
2010
2002
2011
8%
19%
22%
30%
Outbound
Inbound
Outbound
57%
Domestic
62%
50%
Outbound
Inbound
Inbound
Domestic
Domestic
21%
31%
Source: Thomson One Banker
Page 22
India as an Investment destination
PE activity touched US$9.5 billion in 2011
20
18
16
14
12
10
8
6
4
2
0
Average deal size
516
600
60
365
400
334
296
282
17.2
9.5
10.5
7.4
300
180
7.0
200
100
3.5
US$ million
500
Number of deals
US$ billion
PE/VC activity in India
2007
2008
Value of deals
2009
2010
►
30
29
23
15
2011
2006
2007
2008
2009
2010
2011
Number of deals
Source: VCCEdge; AVCJ; Ernst & Young research
PE activity witnessed tremendous increase in the number of deals in 2011 compared to 2010:
►
There were 516 PE deals worth US$9.5 billion in 2011.
►
Average deal size stood at US$25 million in 2011.
Sectoral distribution of PE investments – by value,
2011
7%
Major deals during 2011 include:
►
25
0
Note: In 2011, deal value was not disclosed for 134 deals
Source: VCCEdge; AVCJ; Ernst & Young research
►
39
30
0
2006
53
45
9%
4%
3%
15%
Goldman Sachs invested US$204 million in ReNew Wind Power Pvt. Ltd. (Sep 2011)
►
Blackstone Group invested US$200 million in Manyata Promoters Pvt. Ltd. (July 2011)
►
Apollo Management invested US$290 million in Welspun Corporation (June 2011)
►
Macquarie SBI Infrastructure Fund invested US$200 million in GMR Airports Holding
Limited (Apr 2011)
►
Bain Capital and GIC invested US$850 million in Hero Honda (Feb 2011)
Infrastructure
5%
4%
Real Estate
Financial services
MapleTree India China invested US$156.6 million in Assetz Global Technology Park
(November 2011)
►
7%
Technology
Retail and consumer products
16%
Industrial products
Healthcare
29%
Metals and mining
Media and entertainment
Others
Source: Factiva; ISI Emerging Markets; VC Circle; Mergermarkets
Page 23
India as an Investment destination
Process of investing into India
Foreign investment – Indian scenario
Foreign
Investments
Foreign Direct
Investments
Automatic
Route*
Government
Route*
Foreign Portfolio
Investments
FIIs
Indi, NRIs,
PIOs
Foreign Venture
Capital
Investments
Other
Investments
SEBI regd.
FVCIs
G-Sec, NCDs,
etc
VCF,
IVCUs
FIIs
Investment on
non-repatriable
Basis
NRIs,
PIOs
NRIs,
PIOs
*Foreign Direct Investments (FDI) can be made in India under two routes i.e. Automatic Route and Government Route. Under the Government Route, prior
approval is required to be obtained from Foreign Investment Promotion Board (FIPB) for making foreign investments into India. Under the Automatic Route no
approval is required for making investments into India.
Further, the FDI Policy also provides for sectoral caps on the limit of foreign investments for certain sectors – telecom services (74%), banking (74%), airline (
49% to 74%), insurance ( 26%)
FDI is not permitted in certain sector such as lottery, gambling, real estate business, etc
Page 25
India as an Investment destination
Forms of business presence in India
Foreign
Company
Operates as a
foreign company
Liaison
Office
Project
Office
Establishes an
Indian company
Branch
Office
Joint
Ventures
Other forms of business
►
►
►
Franchisee and distributor arrangements (no direct presence)
Foreign technology collaborations (no direct presence)
Limited Liability Partnership (‘LLP’)
Page 26
India as an Investment destination
Wholly Owned
Subsidiary
Investment instruments
Investment in India can be made through following instruments
Equity Capital
Carries voting rights
Can have differential rights
Fully Convertible
Debentures (“FCD”)
Tax break for interest cost
Fully Convertible
Preference Capital
Carries preferential right in
dividend with restrictions
on dividend rate
Foreign investment in Non-convertible, Optionally convertible
or Partially convertible Preference shares/ Debentures would
generally be considered as debt and shall require compliance
with ECB guidelines
Page 27
India as an Investment destination
Tax Environment in India
Overview of Direct Taxes in India
Tax
Nature of levy
Rate *
On Indian entity
Corporate Tax Rate
Tax on net income
Indian Co’s. – 30%
Minimum Alternate Tax
Payable if tax on total income under normal
provisions is lower than book profits disclosed
in financials (after prescribed adjustments)
18.5% of book profits
Dividend Distribution Tax
(DDT)
Tax on declaration/distribution/payment of
dividend
15% (paid by the Indian company declaring dividend)
Exempt in the hands of shareholders. Further, depending on
the jurisdiction, credit for DDT may be available, so net
effective tax rate may be reduced to zero
Capital Gains
Tax on transfer of capital assets
Capital gains on listed securities traded on recognized
stock exchange:
Long term capital gains (LTCG): Nil
Short term capital gains (STCG): 15%
Other Capital Gains:
LTCG : 20% (subject to indexation)
STCG :
Foreign Co’s – 40%
Depending on the jurisdiction from where investments are
made, tax on capital gains in on repatriation may be
reduced to zero
On repatriation
*excluding surcharge (applicable if total income exceeds INR10 million; 5% for domestic companies and 2% for foreign companies), and
education cess @3% levied on tax plus surcharge
Page 29
India as an Investment destination
Overview of Indirect Taxes in India
Indirect tax
Taxing Authority
Applicable on
General Effective Rate
Customs Duty
Central Government
Import of goods from outside
India
Current peak effective Customs duty
is 26.85%
Excise Duty
Central Government
Manufacture of goods in
India
10.30%
Value Added Tax (VAT)
State Governments
Sale of goods within the
state
Varies from state to state; generally
ranges between 4% to 15%
Central Sales Tax
(CST)
Central Government
Inter-state sale of goods
2%/ 3% / 4%/ 12.5%/15%
Service Tax
Central Government
Provision of specified
categories of services
10.30%
Entry Tax/ Octroi
State Governments/
Local Authorities
Entry of goods into a State/
local area for consumption,
use or sale
Varies from state to state
Research &
Development Cess
Central Government
Import of technology into
India under foreign
collaboration
5%
Page 30
India as an Investment destination
Recent regulatory updates
Direct Taxes Code Bill, 2010
►
Government of India’s (GoI’s) objective to revise, consolidate
and simplify direct tax laws
Ambiguity
►
Direct Taxes Code Bill (DTC 2010) was placed before the
Indian Parliament on 30 August 2010
►
DTC 2010 is proposed to be implemented with effect from 1
April 2012
Constraints with
The Current
Income Tax
Act
Inconsistent
interpretation
Provide stability on tax
regime based on
principles of taxation on
best international
practices
Complexity
Increased
litigation
Improve efficiency
by eliminating
distortion in tax
structure
Conflicting
judgments
Increased
compliance
Thrust for DTC
Simplify the tax
structure for the
average tax payer
Remove
ambiguity to
foster voluntary
compliance
Key proposals impacting international transactions
►
►
Introduce moderate
level of taxation and
expand the tax base
►
►
►
Page 32
Modification of residence rule
Introduction of Controlled Foreign Company (CFC) rules
Specific provision dealing with indirect transfer of shares
Introduction of Branch Profit Tax
General Anti Avoidance Rules (GAAR) to be legislated
India as an Investment destination
Goods and Services Tax
►
At present, various Indirect taxes are
levied at both Central and State level
►
Under the current system, not all kinds of
Indirect taxes are creditable against each
other, leading to tax cascading
►
►
►
Less tax cascading
Increased investment
Improved competitive position of Indian producers
A system of unified Goods and Service
Tax (GST), has been proposed to bring a
fundamental shift in the way business
transactions are taxed in India
Improved cash flow position
GST is proposed as a comprehensive
value added tax levied on the supply of
all goods and services (except for a
negative list)
Broader base, lower taxes
It is proposed that various State and
Central level Indirect taxes such as
Excise duty, State level taxes on sale of
goods, Service tax would be subsumed
under GST
►
GST is expected to have a dual structure
with Centre and State levying taxes on
the same supply of goods/ services
►
GST is expected to reduce tax cascading
and accordingly, the overall incidence of
taxes
Page 33
Simpler and rational tax structure
Improved administration (simplicity and lower
cost of administration)
Advantages of GST
India as an Investment destination
Incentives under State Industrial Policy
►
►
State Governments in order to promote
industries in their respective states provide
certain additional incentives over and above
incentives provided under the Indirect tax laws
Exemption/ deferral from Value Added Tax or flow back of
input credit for a initial period of years, capital subsidy, etc,
subject to certain specified conditions
These incentives are primarily based on following
criteria:
►
►
►
►
►
Benefits available - Illustrative
Exemption from Entry tax
Amount of investment;
Employment;
Location; and
Nature of Project
Exemption/ concessional rate of electricity duty / electricity
generation tax/ electricity fees
These incentives are usually available in respect
of new industrial projects/ substantial expansion
of existing plant/ unit
Please note that the availability and extent of the
benefits under State industrial policies vary
greatly from State to State
Waiver/ concessional rate of stamp duty
Reservation of products for exclusive manufacture by the
SSI
Other incentives such as concessional rates for land in
identified areas may also be granted on case to case
basis
Page 34
India as an Investment destination
National Manufacturing Policy
►
For sustainable growth of the manufacturing sector, Government of India has recently introduced
the National Manufacturing Policy, 2011 (NMP)
Objectives
Proposed Policy Instruments
Increase manufacturing growth to 12-14%
Leveraging
infrastructure
deficit &
government
procurement
Increase the rate of job creation
Creation of appropriate skill sets
Increase domestic value addition
Enhancement of global competiveness of
Indian manufacturing
Simple and
expeditious exit
mechanism for
closure of sick units
while protecting the
labour interests
Development of
Special Focus
sectors and
implementation of
supporting Trade
Policy
Incentives for
Small and
medium Sector
Enterprises
(SMEs)
Ensuring sustainability of growth particularly
with regard to the environmental impact
Page 35
Rationalization
and simplification
of business
regulations
India as an Investment destination
Industrial
training and
skill upgradation
measures
Financial
& institutional
mechanisms for
technology
development
(including green
technology)
Sector overview
Roads and highways
Overview
Sector fundamentals
►
India has the world’s second largest road network comprising a total length of 4.24 million km and accounting for 87.4% of passenger and
60% of freight traffic respectively.
►
As of October 2011, the total length of National Highways (NH) length was 66,800 km accounting for only 2% of the country’s total road
length and approximately 40% of the total traffic.
►
In order to improve the road infrastructure, the Government of India (GoI) has undertaken several initiatives such as the launch of National
Highway Development Program (NHDP), Pradhan Mantri Gram Sadak Yojana (PMGSY) and Special Accelerated Road Development
Program in the North East (SARDP-NE).
►
Several policy measures such as standardization of bidding documents, model concession agreements, project restructuring and viability
gap funding have been announced to promote public private partnership (PPP) and to increase the financial viability.
Investment scenario
►
The Ministry of Road Transport and Highways (MoRTH) has set a
target to construct 20 km of national highway everyday.
►
Total investment in the 12th Five Year Plan is estimated to be US$100
120
Investments in Roads and highways
(US$ billion)
107
billion as against US$61 billion in the 11th Five Year Plan.
►
Private investment is expected to cross US$40 billion in the 12th plan
80
as against US$10 billion in the 11th plan.
►
61
During the 11th Plan, NHAI awarded 12,138 km of projects worth
US$18 billion to the private sector.
►
Companies had the opportunity to bid for around 20,236 km of road
40
28
length, which were yet to be awarded under the NHDP as of
November 2011.
►
Foreign players including ITD Cementation, Berhad (Malaysia), Isolux
Corson and IJM Corporation have entered the road sector.
Page 37
0
10th Five Year Plan 11th Five Year Plan 12th Five Year Plan
India as an Investment destination
Roads and highways
Opportunities
►
Since 2005, as a policy decision all projects under the NHDP are awarded on a PPP basis through competitive bidding, providing a
substantial opportunity for private players
►
Many NH stretches have already been awarded to private companies on a Build-Operate-Transfer (BOT) basis.
►
100% income tax exemption for a period of 10 years is provided to attract private investors
►
To attract foreign investment, 100% FDI under the automatic route is permitted for all road development projects
►
In the 12th Five Year Plan, private sector is expected to provide 40% of the total investment in the sector, creating a significant opportunity
for private players.
NHAI Work
Plans
Mega projects
Expressways
►
Estimated investment requirement of US$75 billion to develop 36,765 km under NHAI work plan
►
An investment of approximately US$45 billion on four-laning of 50,000 km of national highways
►
16,000 km of NH have been four-laned, while another 10,500 km is under implementation, all through PPP
►
Ten mega national highway projects (worth more than US$1 billion each) have been identified to be developed
through PPP
►
New expressway program outlined to build 18,637 km of greenfield national expressways by 2022
►
1,000 km of expressways are expected to be completed over the next 4 years at an estimated cost of US$5 billion by
private players on BOT basis
State
highways and
rural roads
Page 38
►
In PPP, around 149 private state road projects involving a total cost of US$15 billion are in pipeline.
►
World Bank and Asian Development Bank approved projects include the Karnataka State Highway Improvement
Project-II, Madhya Pradesh State Roads Project-III and the North-Eastern State Roads Investment Program.
►
Private investment of around US$2 billion has been mobilized by states and another US$12 billion is under way
India as an Investment destination
Railways
Overview
Sector fundamentals
►
Indian Railways (IR) constitutes the third largest rail network in the world spanning over 64,000 km.
►
The IR carries approximately 35% of country’s freight traffic .
►
In 2010-11, IR’s total earnings increased by 8.5% y-o-y to INR945 billion, freight accounted for 70% of it.
►
Freight traffic doubled from 493 million tonnes (mt) in 2001-02 to 924 mt in 2010-11.
►
Freight and passenger traffic are expected to grow to 2,200 mt and 15 billion respectively by 2019-20.
Investment scenario
►
Investments in Railways
(US$ billion)
Total investment in 12th Five Year Plan is estimated to be US$64
billion as against US$44 billion in the 11th Five Year Plan.
►
During the 11th Five Year Plan, IR garnered only 4% of the total
80
investment of US$44 billion through PPP projects.
►
64
Investment of approximately US$35 billion are planned for rail-based
mass transport projects by 2021 including US$6 billion for Mumbai
60
monorail and US$1.2 for Bengaluru monorail project.
►
IR’s port connectivity projects received US$800 million in private
44
40
investment through PPP.
►
The Vision 2020 document of IR estimates that a total investment of
US$300 billion is required till 2019-20.
22
20
0
10th Five Year Plan11th Five Year Plan12th Five Year Plan
Page 39
India as an Investment destination
Railways
Opportunities
►
IR considers PPPs as the most proffered route for areas such as world-class railway stations, high speed corridors, multi-functional
complexes, ports and other connectivity works.
►
Special freight terminal operator scheme, private freight terminal scheme and the revised 3i investment policy are expected to attract private
participation.
►
At present, metro projects in Mumbai, Chennai, Jaipur, Bengaluru, Delhi and Gurgaon are under development
entailing a cumulative investment of US$12 billion
Mass Rapid Transport
System (MRTS)
Dedicated Freight
Corridors (DFC)
Modernization of
Stations
High speed rail corridor
►
Metro rail in seven more cities are at planning stage including Ahemdabad, Chandigarh, Kanpur, Kochi, Ludhiana,
Lucknow and Pune.
►
Besides metro systems, light rail and monorail are planned in Mumbai, Delhi, Ahemdabad and Kolkata.
►
Eastern corridor (1,839 km) and Western corridor (1,534 km) entails an investment of US$10 billion.
►
Four new freight corridors- east-west (Kolkata-Mumbai); north-south (Delhi-Chennai); east cost (KharagpurVijayawada) and south (Chennai-Goa) are at preliminary survey stage.
►
Once the projects are open for bidding, they will provide substantial opportunity for private players.
►
50 railway stations are planned to be developed as world-class stations through PPP mode
►
Six High speed passenger corridors has been planned at an approximate cost of US$ 20 billion each
►
These include Delhi-Chandigarh-Amritsar, Pune-Mumbai-Ahemdabad, Hyderabad-Vijaywada-Chennai, ChennaiBengaluru-Ernakulam, Howrah-Haldia and Delhi-Agra-Lucknow-Varanasi-Patna
Container train
operations
►
IR initiated PPP in container train operations in 2006
►
Till date, 15 companies have obtained licenses to run container trains, 180 rakes have been procured, nine inland
container depots have started operations and 15 more are under construction
►
Page 40
Private sector has invested approximately US$1.2 billion so far for container train operations
India as an Investment destination
Construction
Overview
Sector fundamentals
►
►
►
►
►
The Indian construction industry is among the top 10 construction industries globally with a value of US$130 billion in FY11
The construction sector accounted for 8.1% of Indian GDP in FY11
Most construction projects are now implemented through the Engineering, Procurement and Construction (EPC) mode.
The Indian EPC sector has over 150 local and global participants and a multitude of stakeholders
The various operational segments on which EPC industry is dependent are explained below
Segment
Insight
Infrastructure
Increasing opportunities in the sector have attracted new entrants
Building
construction
Highly unorganized and dominated by local contractors. Foreign players only operate as PMCs, architects and
consultants
Oil & Gas EPC
There is high competition from foreign participants, especially for offshore contracts
Power EPC
Dominated by equipment manufacturers, especially from South-East Asia
Specialized EPC
This space comprises players who have carved a niche for themselves in segments such as hydel-tunneling, marine
construction, power transmission, equipment supply or industrial construction.
Investment scenario
►
►
►
The government of India has planned an investment of US$1 trillion to be spent on infrastructure development in the 12th Five year plan (201217), reflecting a growth of more than 100% over 11th Five Year Plan in which government planned investment of US$500 billion.
Around 50% of investment in 12th plan is expected to come from private sector in areas such as roads, power, ports, water and sanitation,
telecom, oil and gas etc.
The estimated opportunity size for EPC sector from infrastructure sector alone come out to US$370 billion (~42% of total spend on
infrastructure) through 2012-17.
Page 41
India as an Investment destination
Construction
Opportunities
Power
Roads and bridges
►
Construction intensity in power sector projects is around 38% which would create an opportunity of US$104
billion through 2012-17 for construction players
►
Indian has world’s second largest road network, comprising a length of 4.2 million km, accounting for 87.4%
of passenger traffic and 60% of freight traffic.
Total investment in 12th plan is expected to be US$107 billion
Construction intensity in roads and bridges sector is around 65% which would create an opportunity of
~US$69 billion through 2012-17 for construction players.
►
►
►
Irrigation
►
►
Railways
►
►
Page 42
The 12th five year plan envisages an investment of US$87 billion for irrigation sector.
Construction intensity in irrigation sector is around 75% which would create an opportunity of US$65 billion
through 2012-17 for EPC players.
Indian Railways network spans over 64,000 route km, making it the world’s third largest rail network in terms
of size.
Total investment in 12th plan is expected to be US$64 billion.
Construction intensity in railways sector is around 78% which would create an opportunity of ~US$50 billion
through 2012-17 for construction players.
India as an Investment destination
Logistics
Overview
Sector fundamentals
The Indian logistics industry recorded revenues of US$82.10 billion in 2010, registering a 9.2% growth, y-o-y.
It is further expected to cross the US$200 billion figure by 2020.
The share of the organized segment is less than 5% ,which provides enough scope for consolidation.
The key drivers for the industry include:
► Strong growth in demand from sectors such as retail, automotives, pharmaceuticals, food processing and textiles.
► Increasing Government investments in infrastructure sector
Government has planned investment of around US$1 trillion in infrastructure development during the Twelfth Five-Year Plan (2012–2017),
approximately double the investment in infrastructure during Eleventh Five-Year Plan.
Incentives for investors
Government provides incentives such as 100% FDI for establishment of free trade warehousing zones (FTWZ), income tax (Section 80IA)
exemptions for the users of FTWZ, 100% deduction of certain capital expenditure for cold-chain and warehousing facilities etc.
►
►
►
►
►
►
►
Investment scenario
Between 2003 and 2010, the number of FDI projects in transportation and warehousing sector have increased by 7% annually.
The number of new FDI projects in the sector have more than trebled during 2003–08.
►
►
FDI projects and jobs creation in Transportation and
warehousing sector
60
18,000
40
12,000
55
20
14
28
46
26
0
51
6,000
37
22
14
0
Number of new FDI projects
Number of jobs created
Source: FDI Database
Page 43
Sector/activity
% of FDI cap
Route
Courier services
Storage and warehousing
Ports and harbours
Pipeline transport, ocean and water
transport, inland water transport
Scheduled air transport service
100%
100%
100%
100%
Government
Automatic
Automatic
Automatic
49%
Automatic
Non-scheduled air transport
service/cargo airlines
74%
Automatic up to 49%;
Government route beyond
49% and up to 74%
Source: Department of Industrial Policy and Promotion
India as an Investment destination
Logistics
Opportunities
►
GST to boost warehousing
sector
►
►
►
3PL and 4PL: emerging formats
►
►
Encouragement to
private sector for
infrastructure
development
►
►
►
►
Other emerging
opportunities
►
Page 44
Goods and Service tax (GST), likely to be implemented in April 2012, will facilitate re-aligning/merging small
warehouses into large centralized distribution centers.
With Government of India’s (GoI’s) focus on improving agri-logistics in India, the cold chain industry is also
expected to reach INR400 billion by 2015, growing at a CAGR of 20%–25%.
This will offer significant investment opportunities for global established players with capital and experience
in managing complex supply chains.
With rise in competition, domestic players will have to focus on cost reduction and advanced supply chain
management solutions.
Need for end-to-end logistics outsourcing will witness growth of third party (3PL) and fourth party logistics
(4PL) market.
3PL market is expected to grow at a CAGR of 25%–30% between FY10–FY13.
GoI is encouraging private participation either directly or through public-private-partnership (PPP) model in
various infrastructure development projects including container rail, ports, airports, dedicated rail freight
corridors, multi-modal transport system, logistics parks etc.
The contribution of the private sector in total infrastructure investment is expected to be 36% and 50%
during Eleventh and Twelfth Five-Year plan, respectively.
With growing Indian EXIM trade and focus on improving airport infrastructure, the air cargo industry is
expected to witness growth at 8.5% per annum for the next five years.
Growing competition is increasing the need to reduce logistics costs. As a result there is a shift from manual
operations to electric equipment. This provides a boost to material handling equipment used by logistics
industry such as forklifts, pallet trucks, order picker, overhead travelling cranes etc.
The need to provide better customer service and improve the efficiency of production, reverse logistics
industry (repairing failed components to serve as spare parts, recovering unsold stock, improving old
products, reusing/ redeveloping returned material) seems to be another upcoming segment.
India as an Investment destination
Power
Overview
Sector fundamentals
Demand-supply gap
(billion units, VI-XI Five Year Plans)
►
Generation mix (%, as of 31 December 2011)
Total: 186,654.6 MW
2.6%
►
10.8%
►
Thermal
20.8%
266.4
►
Renewable
65.9%
►
168.1
►
Hydro
►
830.3
► 620.9
559.4
►
746.5
►
► 559.4
517.4
395.9
►
► 245.4
156.8
►
Nuclear
447.3
►
VI
VII
VIII
Demand
IX
X
Availability
Source: Central Electricity Authority (CEA)
XI*
* 2009-10
India has the fifth-largest generation
portfolio worldwide (dominated by coal) and
a vast power transmission network of
around 267,000 circuit kilometer (ckm).
Energy generation grew at a CAGR of 5.2%
between 2001—02 and 2010—11, reaching
811.1 billion units in 2011.
The country faces an average power
shortage of 10% and peak-hour shortage of
around 12%, exerting significant pressure
on the PLF* of generation units.
*PLF: Plant Load Factor
Investment scenario
FDI inflows, Power sector, India (INR billion)
2009-10
2010-11
2011-12*
61.4
2007-08
57.9
2008-09
2009-10
65.8
2010-11
April'00Nov.'11
321.2
11th Five Year Investment Plan
Power sector (INR billion)
► 1,11
1.3
► 1,17
0.9
► 1,25
9.6
► 1,44
9.7
2011-12F
►
Page 45
100% FDI permitted in all segments
►
No requirement of licenses to set up new
power plants
►
Duty free import of equipment permitted for
Mega Power Projects (MPPs)
►
Most project execution through
international competitive bidding
►
Heightened support by the government;
recently asked Coal India (CIL) to import
coal and sign a 20-year fuel supply
agreements with developers
►
Estimated investment of US$600 billion in
the power sector by 2017
1,59
4.7
* April-November
Source: Department of Industrial Policy and Promotion
►
Source: Planning Commission of India
India as an Investment destination
Power
Opportunities
►
Generation
capacity
expansion across
fuel types to meet
future demand
Transmission
capacity ramp-up
to evacuate power
from mega and
ultra mega
projects
Modernizing and
upgrading
distribution sector
and improve
electrification
rates
►
►
►
►
►
►
►
►
►
Equipment and
machinery
shortage
Page 46
►
►
Increasing energy demand to spur investments in creating new power generation infrastructure
With coal expected to be the mainstay for generation, there are significant opportunities in thermal generation,
with a focus on supercritical technology.
With a potential of 150 GW, hydro power is expected to witness high growth, with only 39 GW being exploited so
far.
Lucrative destination for investment in nuclear power, largely encouraged by the waiver from the nuclear supplier
group (NSG) and the Indo-US nuclear deal.
Opportunities exist to meet the need of connecting mega and ultra mega coal-based power projects in the coastal
regions and hydro projects in the north-east region to the deficit areas.
With high T&D losses, significant investment opportunities prevail in creating high voltage transmission line
infrastructure, which is more efficient, reliable and has a higher transmission capacity.
Private participation is expected to grow as a result of the introduction of tariff-based competitive bidding; several
projects backed by private investments coming up during the Twelfth Five Year Plan (2012—2017).
India has high average aggregate commercial and technical (AT&C) losses of around 28% due to the obsolete
distribution infrastructure and inadequate monitoring systems in place. In addition, the country has an
electrification rate of around 66%, indicating significant opportunities for players to develop grass-root distribution
infrastructure.
Open access across states for entities consuming more than 1MW of power has further made the distribution
sector attractive. Moreover, the government is encouraging a distribution franchisee model, post the unbundling
of state utilities.
Heightened demand and significant investments across the power sector to spur demand for power equipment
and machinery.
BHEL, the leading equipment supplier, is planning to ramp up capacity to 20 GW by the end of 2012, to meet the
100,000 MW target set in the Twelfth Five Year Plan
With BHEL facing issues such as long lead time and higher initial costs as compared to competitors, there are
significant opportunities that exist for private and foreign players to increase their penetration into the market.
India as an Investment destination
Cleantech
Overview
Sector fundamentals
►
►
►
►
Growth of renewable energy installed capacity in India
(GW)
Renewable energy (RE) accounts for ~10-12% of a total of
187 GW of power generation capacity installed in India.
Favorable government policy for renewable energy sector are
the key drives for growth.
Further, the existing wide gap between installed renewable
generation capacity and its estimated potential is positive
attribute for the sector.
Off-grid renewable energy is seen as key solution to give
access to reliable power to remote/rural areas.
CAGR
21%
14.4
20.0
16.9
11.2
9.3
FY07
FY08
FY09
FY10
FY11
Source: MNRE
Includes wind, solar, biomass (incl. bagasse), and small hydro. Excludes large hydro.
Investment scenario
►
►
►
►
India has attracted US$1.3 billion foreign direct investment (FDI) in
the non-conventional energy sector, from April 2000 to November
2011.
The Government of India (GOI) allowed 100% FDI in the renewable
energy sector in December 2009.
Foreign players are also allowed to set up renewable power
generation projects on a build-own-operate (BOO) basis in the
country.
To expand the investor base and boost RE generation, the GOI
launched a generation-based incentives (GBI) scheme for gridinteractive wind and solar energy projects.
Investors in the RE sector are also provided relief in customs duty,
excise duty and sales tax.
Foreign direct investment in renewable
energy
$479.9
500
400
(US$ million)
►
300
200
$85.3
100
$43.2
$2.1
0
2006-07
Source: Financial Express
Page 47
India as an Investment destination
2007-08
2008-09
2009-10
Cleantech
Opportunities
►
Enabling mandatory
requirements
Jawaharlal Nehru
National Solar
Mission (JNNSM)
jumpstarting activity
in solar sector
►
►
►
►
Tax/excise breaks for
electric vehicles (EVs)
►
►
►
Enabling policy for
biofuels
Page 48
►
►
The National Action Plan on Climate Change (NAPCC) stipulates minimum renewable energy purchase
obligation (RPO) target of 5% of total grid purchase in 2010, increasing by 1% each year for 10 years.
To enhance compliance with the RPOs, a tradable market based instrument in the form of renewable energy
certificates (RECs) has been launched. One certificate represents 1 MWh of electricity generated from
renewable sources.
The JNNSM targets to install 20 GW of solar energy capacity in India by 2022. The current installed capacity
is only 0.4 GW.
The JNNSM aims to capitalize on the vast solar energy potential of India which has more than 300 sunny
days in an year with average solar radiation levels of 4 – 7 kWh/sq meter. This translates to a potential
capacity of more than 100 GW.
The GOI plans to establish a ‘National Mission for Hybrid and Electric Vehicles’ to promote sustainable
transportation system in the country.
The GOI has exempted certain parts of hybrid vehicles from basic customs duty and countervailing duty
(CVD). The excise duty on the development and manufacture of hybrid vehicle kits has been reduced from
10% to 5%.
The GOI is also planning to launch, in the 12th five-year plan, an INR7.4 billion electric vehicle fund to
support research and development in the sector.
The GOI launched the National Policy on Biofuels, with the objective of achieving energy security and
reducing vehicle emissions and to curb air pollution.
The policy targets 20% blending of biofuels, by 2020.
The policy promotes development of biofuels from non-food feedstocks, raised on land not suited for
agriculture, thus avoiding a fuel vs. food debate.
India as an Investment destination
Technology
Overview
Sector fundamentals
►
►
►
Aggregate revenue for Indian IT industry in FY2012 is estimated to be around US$100 billion out of which IT services and software
(excluding hardware) contributed $88 billion. Export revenue (offshore ) for IT-BPO services is estimated to be US$69 billlion, 68.5% of total
IT-BPO market. The IT-BPO industry currently accounts for approximately 25% of India’s total exports and 11% of total services revenue.
BFSI vertical is estimated to be the largest contributor to IT-BPO export revenue with its share at 41.2%, telecom share slipped to 19% in
FY12 from the previous year. Emerging verticals such as retail, healthcare, media and utilities continue to record fast growth
IT-BPO service providers continue to focus on transformative services, new business models, verticalised solutions, services around
disruptive technologies such as cloud, analytics while continuing their focus on operational efficiency and non-linearity to increase global
competitiveness.
Investment scenario
►
►
►
►
The Indian IT industry has been attracting considerable amount of FDI in the recent years. For the eight months between January to August
of 2011 the total FDI investment in technology was US$3.6 billion, a growth of 75% over the prior year. Investments are being made in the
four principal sectors of the Indian information technology industry — online businesses, IT services, IT-based services and software.
Software Technology Parks (STP) have been a major initiative in India to drive in FDI in the computer software industry. These STPs
provide highly developed infrastructure and facilities that attract foreign investors. According to the ‘Special Economic Zone (SEZ) Rules,
2006’, in case a SEZ is proposed to be set up exclusively for electronic hardware and software, including ITeS, there shall be a minimum
built up processing area 1,00,000 square meters.
Indian IT organizations are investing to move away from a labor based model to developing technology platform that will offer increased
revenue leverage and increase IP base of the industry.
India’s infrastructure development is expected to give a major thrust to growth of the industry. The Indian government is planning
investments of around US$ 1 Trillion between 2013-2017 on infrastructure development.
Page 49
India as an Investment destination
Technology
Opportunities
►
Government
initiatives
►
►
►
High value add
services for BPO
►
Page 50
With increasing competition in the core services especially in voice-based services higher value services
broadly termed KPO (eg- analytics, legal process outsourcing) is one of the fastest growing areas in the
Indian ITeS industry with an yearly growth rate of around 20%.
Many core BPO and integrated BPO vendors are slowly shifting their portfolio to KPO services to increase
margins.
►
Tier II/III locations account for around 30% of all operational IT SEZs and account for around 8% of the ITBPO industry revenue. The move towards these cities while help reduce cost also helps the IT vendor to
focus on SMBs – India presents a huge base of around 46 million SMBs that are rapidly increasing IT
adoption. Additionally it also gives access to large source of untapped labour pool.
►
According the World Economic Forum report the competitiveness of India’s overall infrastructure as
compared to key offshoring market is competitive. One major driver for the increasing competitiveness is the
improved quality of infrastructure projects due to Public-Private partnership model throughout the country.
Growth of Tier-II/III
cities as alternative
delivery location
Increasing
infrastructure
competitiveness
Significant government investments in various e-governance initiative expected to drive domestic ICT
demand
The central government has directed states to increase their IT budget to 3% of total budget from the current
1.3% to 1.5%
Government is one of the biggest consumers of IT-BPO services accounting for about 16.5% of total
domestic spending
India as an Investment destination
Financing infrastructure projects in India
The infrastructure projects in India have traditionally been financed through budgetary allocations and grants by central or state
governments.
Over the past two decades, the Indian government has set-up specialized institutions to deal with infrastructure financing.
Infrastructure Development Financial Corporation (IDFC)
► IDFC, a 40% state owned institution was incorporated in 1997 as a dedicated institution for financing infrastructure in India.
► IDFC operates on a commercial basis to finance viable projects in power, telecommunications, roads, ports, and urban services.
► It provides direct lending, purchase of loans, and co-financing; take-out financing, standby finance, and refinancing of longer maturities,
partial credit guarantees and other forms of credit-enhancement for infrastructure projects, securitization of infrastructure loans and
market making for these loans and mezzanine finance.
India Infrastructure Finance Company Limited (IIFCL)
► IIFCL was incorporated in January 2006 under the Companies Act 1956 as a wholly Government owned Company.
► IIFCL is a dedicated institution purported to assume an apex role for financing and development of infrastructure projects in India.
► The company renders financial assistance through direct lending to eligible projects, refinance to banks and FIs for loans with tenor of
five years or more, and by any other method approved by GOI.
Funds for infrastructure projects for 2010-12
India Infrastructure Fund
Infrastructure debt finance
► India Infrastructure Fund (IIF) is a
SEBI-registered domestic venture
capital fund focused on long-term
equity investments in a diversified
portfolio of infrastructure projects.
► IIF has been sponsored by
Infrastructure IDFC, Citigroup Inc and
IIFCL as founder investors.
► The Fund is managed by IDFC Project
Equity Company Limited, a subsidiary
of IDFC.
► The GOI provided for setting up of
Infrastructure Debt Funds (IDF) in
the 2010-11 budget.
Source of fund
Commercial Banks
2,020
► Indian government is planning to
launch a $10-billion infrastructure
debt fund (IDF) in 2012 with
support of local and international
institutional investors.
NBFCs
1,007
Insurance companies
423
ECBs
505
Debt Funds
3,955
Equity
1,847
Source: RBI
Page 51
Estimated availability1
India as an Investment destination
1. In INR billion
Other sectors
Banking
Automobiles
Market landscape:
►
►
►
►
Indian automobile industry had a
turnover of US$73billion for the year
ending 31 March 2011.
The production of vehicles registered a
growth in excess of 25% during FY09–
11.
India acting as a sourcing base with
more than 35 International Purchasing
Office in India
By 2020, the vehicle production is
likely to treble from the levels in 2009
and the size of the component sector
likely to grow from US$30–110billion.
Market landscape
►
►
Public sector banks dominate with
deposit market share of more than
75%.
But banking penetration remains low.
►
Total loans as a % of GDP: 30%
(2010)
►
Population with access to bank
accounts: 40% (2010)
Regulatory environment
►
Reserve Bank of India (RBI) reviews
and refines the regulatory and
supervisory policies for the sector.
Regulatory environment:
►
Foreign direct investment (FDI) up to
100% is allowed under automatic
route.
Page 52
India as an Investment destination
Insurance
Market landscape
►
Total penetration of insurance
(premium as a percentage of GDP)
has increased from 1.90% in 19992000 to 6.72% in 2009-10.
Regulatory environment
►
Insurance Regulatory and
Development Agency (IRDA) regulates
the insurance and reinsurance
business in India.
Thank you
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