Demystifying the Indian Tiger<br />
The politics of investment<br />2<br />
The politics of investment…<br /><ul><li>Election results were one of the biggest surprises of the year.
Most polarized verdict given by the Indian population since 1991, bringing Congress backed UPA into power with an almost m...
Result: a stable government for the next 5 years
The New Government to have more policy headroom as it would have more bargaining power due its dominant position in the co...
Since the Communist Left front is not a part of the Government, the current Government can go in for reforms which were st...
The election manifesto was high on reforms<br />Sector focus<br /><ul><li>Road Transport / ighways
Accelerate pace of awarding projects
Clear existing backlog
Aviation
Inject capital to airline industry
Allow FDI in domestic carriers
Telecom
3G and Wimax auction
Steel
Production Target: 120 mt (2012)
O&G
Deregulation
Transparent oil subsidy mechanism
Commerce
Check falling exports
Ink FTA with Asean and South Korea
Power
New capacity addition
Nuclear power
Plans to add atleast 12,000-15,000 MW of power capacity per annum
Increased allocation to renewable energy sources like Nuclear and Hydro.
Pace of Oil and Gas exploration to be increased. Move to make India energy sufficient country.
Strong emphasis on education with a focus impetus on rural education.
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Demystifying The Indian Tiger P.R. Ramash Deloitte India

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  • Issues in R&D JV in IndiaIndian partners think foreign companies withhold important knowledge and technology.Protection of intellectual property is an advantageIn India, IP is, on the whole, respected, and lawful rights are enforced. Major violators of IP rights are prosecuted. Our interviewees feel that India understands the value of IP and honors it by paying royalties or licensing fees, and they believe that this is an advantage India has over China.Developing India’s own R&D capabilitiesIndia’s ability to perform its own automotive R&D is perceived as a gap between India’s domestic companies and the international automotive companies they compete with, especially in the areas of powertrain and alternative fuels. Indian executives report that this gap is large and may take more than five years to overcome.The cost of running full-scale R&D programs is beyond the grasp of some Indian original equipment manufacturers (OEMs) and many suppliers. Also many Indian OEMs and suppliers have relied on their foreign partners for technology for so long that they have not developed their own competencies.Strengthening India’s supply baseIf India is to compete with established global manufacturers and suppliers on the world stage, then it needs to get on par with those competitors in terms of scale, quality, and delivery capability. Right now India is still catching up to the global multinationals.
  • Demystifying The Indian Tiger P.R. Ramash Deloitte India

    1. 1. Demystifying the Indian Tiger<br />
    2. 2. The politics of investment<br />2<br />
    3. 3. The politics of investment…<br /><ul><li>Election results were one of the biggest surprises of the year.
    4. 4. Most polarized verdict given by the Indian population since 1991, bringing Congress backed UPA into power with an almost majority. Congress had its best show since 1991.
    5. 5. Result: a stable government for the next 5 years
    6. 6. The New Government to have more policy headroom as it would have more bargaining power due its dominant position in the coalition.
    7. 7. Since the Communist Left front is not a part of the Government, the current Government can go in for reforms which were stuck due to Left’s opposition in the last term</li></ul>3<br />
    8. 8. The election manifesto was high on reforms<br />Sector focus<br /><ul><li>Road Transport / ighways
    9. 9. Accelerate pace of awarding projects
    10. 10. Clear existing backlog
    11. 11. Aviation
    12. 12. Inject capital to airline industry
    13. 13. Allow FDI in domestic carriers
    14. 14. Telecom
    15. 15. 3G and Wimax auction
    16. 16. Steel
    17. 17. Production Target: 120 mt (2012)
    18. 18. O&G
    19. 19. Deregulation
    20. 20. Transparent oil subsidy mechanism
    21. 21. Commerce
    22. 22. Check falling exports
    23. 23. Ink FTA with Asean and South Korea
    24. 24. Power
    25. 25. New capacity addition
    26. 26. Nuclear power
    27. 27. Plans to add atleast 12,000-15,000 MW of power capacity per annum
    28. 28. Increased allocation to renewable energy sources like Nuclear and Hydro.
    29. 29. Pace of Oil and Gas exploration to be increased. Move to make India energy sufficient country.
    30. 30. Strong emphasis on education with a focus impetus on rural education.
    31. 31. High spending in core areas like Education, Health, Agriculture, Social Security and Infrastructure.
    32. 32. Increase the spread of IT and Broadband technology
    33. 33. PSU disinvestment would be pursued
    34. 34. Encouraging labour intensive, export driven manufacturing segments by formulating conducive Foreign investment policies.</li></ul>4<br />
    35. 35. List of pending reforms / legislation<br />5<br />
    36. 36. Stated intention to execute<br />“Fiscal prudence and disinvestment of public sector units, all these issues will be tackled by the Finance Minister in the Budget” Prime Minister Manmohan Singh<br />“The government would speed up its rural electrification programme under which it has brought electricity to over 61,000 villages against targeted 1.18 lakh” Power Minister Sushilkumar Shinde<br />“In the past, there has been enough planning. Now thoughts have to be transformed into action. In a few weeks, a new model will be found so that India can build the highest number of road kilometers. We have to see that all the outlays are utilized” KamalNath - Union Minister for Road Transport and Highways<br />“The issue of deregulation is being discussed and would be put up before cabinet for a decision” Petroleum & Natural Gas Minister Murli Deora<br />“India will intensify its global economic engagement in sync with the country&apos;s profile and the Government will take &quot;every possible step&quot; to give a fillip to the industry.” Commerce and Industry Minister Anand Sharma<br />“By the end of this year, process for auctioning 3G spectrum would be completed. Mobile Number Portability, which would allow users to switch operators without changing numbers will begin in October.” Communication & IT Minister A Raja<br />6<br />
    37. 37. Strengths<br />7<br />
    38. 38. Why India?The Value Proposition<br />Pull Factors<br /><ul><li>Availability of skilled talent pool
    39. 39. Low cost manpower
    40. 40. Availability of resources
    41. 41. Strong economic fundamentals
    42. 42. Large domestic market
    43. 43. Enabling institutional and regulatory environment
    44. 44. Progressive reform process </li></ul>“Indian economy is now ranked 12th largest in the world in terms of GDP……It is projected that it will be the 8th largest economy in the next 20 years with a GDP larger than that of Italy, France and Germany by 2025”<br />CII-AT Kearney ‘MNC Survey’:70% MNCs surveyed say “high likelihood” of making additional medium and long term investments in India <br />3 out of every 4 MNCs state performance in India ‘met’ or ‘exceeded’ expectations(Source: IBEF)<br />8<br />
    45. 45. StrengthsAdapting to Local Conditions<br />9<br />Workable solutions to investing in physical infrastructure<br />McDonald&apos;s: unique cold chain network ensures food products move from farms to fork absolutely fresh and at the lowest possible cost<br /> Reverse osmosis water treatment plant in every restaurant to provide pure water<br />Developing processes and allocating resources for clearances and approvals<br />(Source: IBEF)<br />
    46. 46. StrengthsAbility to Leverage Opportunities In India<br />10<br />Opportunity<br />Suzuki: India remained the only major market to grow and saw first half sales moving up by as much as 24% at 4.7 lakh units (Oct 2009)<br />ABB: Parent sales growth 11 per cent while in India subsidiary grew by 15 per cent (FY 2008) <br />Using Indian operations to boost global revenues<br />Colgate: worldwide sales rose by 4.5 per cent, subsidiary in India recorded 26 per cent growth<br />
    47. 47. StrengthsUtilising In-born Strengths<br />11<br />Well- trained sales force<br />Pfizer: Sales force automation tool ‘Optima’ implemented across entire sales<br />organisation to plan customer contacts and implement marketing programmes <br />‘Leaders Academy’- comprehensive management development programme<br />Novartis: Dedicated sales force for targeting disease segments more prevalent<br />Corporate Social Responsibility<br />Novartis: Joint Effort to Eradicate Tuberculosis, “Glivec International Patient Assistance<br />Programme,” Comprehensive Leprosy Care Programme<br />Leveraging brand strengths<br />Pfizer: Corex and Becosules are leaders in respective segments <br />Customer care initiatives<br />Volvo: Provides driver training, preventive maintenance and service agreements<br />Works closely with customers to improve vehicle utilisation and returns<br />(Source: IBEF)<br />
    48. 48. StrengthsUtilising In-born Strengths<br />12<br />Launching high quality, best in design, technology rich products <br />Volvo: FM range of trucks launched recently in<br /> India are already Euro III compliant <br />Quality conscious<br />Whirlpool India: initiated Six-Sigma program in 1999<br />Initiative extended from sales and marketing to customer focus<br />Innovative promotion and advertising initiatives<br />Pfizer: OTC segment brand-building supported by good ads. <br />Campaign for Gelusil tablets won award for Creative Excellence at 36th ABBY<br />Creation of effective distribution network/dealer network<br />Novartis: Process of expanding business into new markets. <br />Planning to enter Tier-II and Tier-III cities and rural markets<br />Wide product portfolio<br />Whirlpool India: Shift in strategy from premium-player to a mass-player. Has introduced products in all price categories<br />(Source: IBEF)<br />
    49. 49. Threats<br />13<br />
    50. 50. However threats remain…Infrastructure<br />India&apos;s infrastructure need in next few years is estimated at over US$ 340 billion<br />Power: Total investment opportunity of about<br />US$ 150 billion to generate an additional<br />78,000 MW in the next five years <br />Road infrastructure: To develop 8,737 km of <br />highways<br />Urban infrastructure: Expected spend of <br />US$ 50 bn over next 5 years<br />Ports: Need of US$ 12.4billion in major ports<br />in the next 9 years<br />(Source: Deloitte Report on Infrastructure Opportunities in India)<br />14<br />
    51. 51. Threats…Operational Issues<br />15<br />Time Delays<br />Delays in project implementation for Mittal Steel in Jharkhand <br />Delays in providing Posco a mining license <br />(Source: World Bank, ISI Emerging Markets)<br />
    52. 52. Threats …Operational Issues<br />16<br />Red Tapism<br />(Source: World Bank, http://dipp.nic.in/invindia/appclea.htm)<br />
    53. 53. Threats…Regulatory Issues<br />17<br />India: Industrial Disputes Act (IDA), 1947: requires firm employing more than 100 workers to get state government permission before retrenching workers<br />45 laws at national level and close to four times that at state government level to monitor functioning of labour markets<br />Labour Laws<br />(Source: BBC)<br />World Bank: India Rigidity of Hiring and Firing Rank: 48. China: 30, Korea: 34, Norway: 30, Singapore: close to 0<br />In 2004, 482 cases of major work stoppages in India, for China is close to zero <br />(Source: World Bank)<br />
    54. 54. Outlook<br />18<br />
    55. 55. Outlook<br /><ul><li>India’s growth is at a premium to most economies.
    56. 56. Incremental returns are likely to be driven by earnings growth.
    57. 57. With a GDP expectation of 8%, corporate earnings are likely to grow at double digits.
    58. 58. Fall in oil prices will lead to annual saving of about $20bn or 2% of GDP.
    59. 59. Decline in interest rates to boost investment and consumption.
    60. 60. Lower commodity prices are likely to improve profit margins meaningfully.
    61. 61. Stable central government can put in place much needed reforms, bolster public spending</li></ul>19<br />19<br />
    62. 62. Strategy inputs<br />20<br />
    63. 63. Inputs to your strategy<br />Ability to Leverage Opportunities in India<br /><ul><li>Cater to a large domestic market
    64. 64. Localisation of the supply chain
    65. 65. Utilise India as a base for developing products for the global market
    66. 66. Set up R&D Centers
    67. 67. Set up Service Centers
    68. 68. Avail investment incentives on offer
    69. 69. Use Indian operations to boost global revenues</li></ul>Entry Options for MNC’s<br /><ul><li>Acquisitions
    70. 70. Master Franchisee Agreements
    71. 71. Alliances
    72. 72. Supplier Contracts
    73. 73. Greenfield Investments
    74. 74. Joint Ventures</li></ul>21<br />
    75. 75. Success of JVs in India<br />Global companies are attracted to India because of its skilled workforce, its low wages, and its growing domestic market. Many have sought to navigate with the help of a local partner<br /><ul><li>Manufacturing, purchasing, and product adaptation are considered the most successful JV collaboration areas
    76. 76. The major problem area seems to be in research and development (R&D).
    77. 77. For JVs to work well, there needs to be equality in the relationship
    78. 78. Protection of intellectual property is an advantage in India</li></ul>Source: IBM Inside India Study Survey 2007<br />Today, companies seem satisfied with how the JV collaborations are progressing<br /><ul><li>Indian partners have realized the inherent conflicts of JVs
    79. 79. A thorough research goes in identifying the right partner</li></ul>22<br />
    80. 80. Some operational aspects<br />23<br />
    81. 81. Exchange control regulations<br /><ul><li>FDI up to 100 percent permitted under automatic route in most sectors subject to some exclusions, sectoral caps, conditions (e.g. retail, defence, telecom)
    82. 82. Import of components is allowed without any restrictions
    83. 83. Payment for Brand name/ trade mark royalty subject to:
    84. 84. Without technology transfer – up to 1% of domestic sales & 2% of exports
    85. 85. With technology transfer – up to 5% of domestic sales & 8% of exports
    86. 86. Lump sum payment on account of foreign technology collaboration up to USD 2 million under automatic route</li></ul>24<br />
    87. 87. Intellectual property rights<br /><ul><li>India has a well-established statutory, administrative and judicial framework to safeguard Intellectual Property rights
    88. 88. India is a signatory to, and compliant with, the Agreement on Trade Related Intellectual Property Rights.
    89. 89. Well-known international trademarks have been protected in India
    90. 90. Major Indian laws governing protection of Intellectual Property rights
    91. 91. The Trade Marks Act, 1999
    92. 92. The Patents Act, 1970
    93. 93. The Copyright Act 1957, and
    94. 94. The Designs Act, 2000 </li></ul>25<br />
    95. 95. Options for control<br />26<br />
    96. 96. Funding options<br />27<br />Apart from the above, local borrowing by the Indian company is also an option. This may be done either by securing local assets or under a parent company guarantee. However, the rate of interest under the local borrowings tends to be higher than the rate of interest on an ECB.<br />
    97. 97. WHT and Service tax implications<br /><ul><li>Intellectual Property Rights
    98. 98. Designs
    99. 99. Patents
    100. 100. Trade Marks
    101. 101. Other Intangible Property
    102. 102. Technical Know-how/ Consultancy
    103. 103. Management Support
    104. 104. Cross Charges for:
    105. 105. Expatriate Employees
    106. 106. Common Group Costs
    107. 107. Advertisement/ Publicity
    108. 108. Infrastructure Sharing</li></ul>28<br />
    109. 109. Free trade agreements<br /><ul><li>Offer concessional/ exemption customs duty benefits on imports from contracting countries
    110. 110. Concessions range
    111. 111. Rules of Origin to be satisfied:
    112. 112. Products Wholly Produced or Obtained in Exporting Contracting State
    113. 113. Non-Qualifying Operations
    114. 114. Products Not Wholly Produced or Obtained in Exporting Contracting State
    115. 115. Single Contracting State Content – Value Addition, Change in Tariff Heading
    116. 116. Regional Cumulation – Value Addition</li></ul>29<br />
    117. 117. Preferred locations for manufacturing<br /><ul><li>EOU/ STP/ EHTP/ FTZ
    118. 118. 100% export profits exempt from tax for 10 years
    119. 119. Sunset clause: March 31, 2010
    120. 120. SEZ
    121. 121. 100% export profits exempt from tax for first 5 years
    122. 122. 50% for next 5 years
    123. 123. 50% for next 5 years subject to transfer to special reserve
    124. 124. Special deduction for setting up manufacturing units in Notified areas (J&K, Himachal Pradesh, Uttarakhand)
    125. 125. 100% for first 5 years
    126. 126. 30% for remaining 5 years
    127. 127. Additional R & D deduction
    128. 128. 150% deduction for all capital & revenue expenditure (excluding Land & Building)</li></ul>Note:Eligibility conditions ,as set out under Income Tax Act ,are required to be complied with to claim the above benefits<br />30<br />
    129. 129. How does India figure?<br /><ul><li>Highly educated workforce:</li></ul>English is lingua franca<br />We even have a God for education!<br /><ul><li>High savings – Natural thriftiness. A value for money proposition always finds success
    130. 130. Entrepreneurial talent:</li></ul>A nation of shopkeepers and businessmen<br />Increasingly Indian operations a source for the global talent pool<br /><ul><li>Rule of Law – The judiciary seen as the bedrock of our democracy. Stable Government.
    131. 131. Large domestic market </li></ul>31<br />Advantage India <br />
    132. 132. Julien Pauwels<br />Director – International Indirect Tax<br />Tel: + 32 2 600 66 25<br />Fax: + 32 2 600 66 11<br />E-mail: jpauwels@deloitte.com<br />Hilde Wittemans<br />Partner – Financial Advisory Services, M&A<br />Tel: + 32 2 600 62 30<br />Fax: + 32 2 600 62 01<br />E-mail: hwittemans@deloitte.com<br />Patrick Joucken<br />Partner - Consulting<br />Tel: + 32 2 749 57 52<br />Fax: + 32 2 749 56 70<br />E-mail: pajoucken@deloitte.com<br />P.R. Ramesh<br />Managing Director – Audit<br />Plot No. 12<br />Dr. Annie Besant Road<br />Opp. Shivsagar Estate<br />Worli Mumbai-400018<br />Tel: + 91 22 666 79000<br />Fax: + 91 22 666 79025<br />E-mail: pramesh@deloitte.com<br />Contact details <br />William Blomme<br />ISG Leader<br />Partner – Audit<br />Tel: + 32 2 800 22 05<br />Fax: + 32 2 800 20 05<br />E-mail: wblomme@deloitte.com<br />Erwin Vandervelde<br />Partner – Laga Lawyers<br />Tel: + 32 2 800 70 76<br />Fax: + 32 2 800 70 03<br />E-mail: evandervelde@deloitte.com<br />Bart Lieben<br />Director – Laga Lawyers<br />Tel: + 32 2 800 70 39<br />Fax: + 32 2 800 70 01<br />E-mail: blieben@deloitte.com<br />Bart Verhelst<br />Partner – International Corporate Tax<br />Tel: + 32 2 800 86 51<br />Fax: + 32 2 800 86 01<br />E-mail: bverhelst@deloitte.com<br />32<br />
    133. 133. 33<br />Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms and their respective subsidiaries and affiliates. As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other&apos;s acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names &quot;Deloitte,&quot; &quot;Deloitte & Touche,&quot; &quot;Deloitte Touche Tohmatsu,&quot; or other related names. Services are provided by the member firms or their subsidiaries or affiliates and not by the Deloitte Touche Tohmatsu Verein.<br />Deloitte Touche Tohmatsu India Private Limited makes no representation as to the sufficiency of the information contained herein for your purpose. The information should not be viewed as a substitute for other forms of analysis that management should undertake and is not intended to constitute legal, accounting, tax, investment, consulting or other professional advice or services. Prior to making decisions or taking actions that might affect your business, you should consult a qualified professional advisor. Your use of the analysis and information contained herein is at your own risk.<br />Deloitte Touche Tohmatsu India Private Limited will not be liable for any direct, indirect, incidental, consequential, punitive or other damages, whether in an action of contract, statute, tort (including without limitation, negligence) or otherwise, relating to the use of the analysis and information contained herein. The information contained in this report is provided “as is” and Deloitte makes no express or implied representations or warranties regarding the result of the information.<br />
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