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INDIA BUSINESS INDIA IN IN BUSINESS

Preferred Partner: Investor Friendly Destination Dynamic Business Investment Destination

September 2011

Investment and Technology Promotion Division Ministry of External Affiars Government of India

Investment and Technology Promotion Division Ministry of External Affiars Government of India

Shri S.M. Krishna Honble Minister of External Affairs Government of India

Message
I am very pleased to learn that the ITP Division, Ministry of External Affairs is bringing out its annual publication on Indias investment potential, India in Business. In recent times, India has been rated as the second most preferred investment destination globally. Global perception of India has seen a major shift after the country initiated progressive reforms across different sectors of the economy in the early nineties. The crossover to a market led growth strategy, with a greater role for the private sector in the important areas of the economy, has helped India emerge as the fourth largest global economy on a purchasing power parity basis in just over a decade. The Indian economy registered an average growth rate of around 8 percent in the last decade, and is expected to grow by around 8.5 percent in 2011-12. The Indian growth story over the last decade has been remarkable, opening up new opportunities in various sectors. Combined with conducive global socio-economic factors, strong macroeconomic fundamentals and a robust institutional framework, the Indian economy is today poised to achieve its true potential. India boasts of a well-diversified industrial base, which profits from self-reliance in all the core industries. Immense business opportunities lie untapped in sectors such as IT, biotechnology, telecommunications, financial services, retail, manufacturing, infrastructure, energy, hospitality and tourism, entertainment, and education: the list is endless and so are the possibilities. The resilience of our economy is evident from the fact that the impact of the global financial crisis has been far less severe in India than other countries. Creating an investor friendly environment has been one of the major themes with which the economic reforms have been taken forward by the Government. Foreign Direct Investment (FDI) is now permitted in most sectors under the automatic route. With the liberalisation of the FDI policy, India is now viewed as a preferred investment destination. This document has been created with the keen intent of providing an overview of Indias economic growth, sectoral developments, legal and regulatory framework, and potential business and investment opportunities that India offers to the global community. I hope that the readers will find it useful and informative.

S.M. Krishna

Investment and Technology Promotion Division Ministry of External Affiars Government of India

Shri Manbir Singh Secretary (Economic Relations) Ministry of External Affairs

The strong growth patterns that have marked our economy in the past decade have generated keen investor interest in India. In the context of a growing and booming Indian economy propelled by investment inflows, a comprehensive guide to investment, we believe, is at the core of facilitating this inflow. The purpose of this document, published by the Investment and Technology Promotion (ITP) Division of the Ministry of External Affairs, is to provide such a guide for potential investors across the globe. The ITP Division has been created to give a definite direction and focus to the economic diplomacy strategy of the Ministry of External Affairs. The Division has been actively engaged in promotion and facilitation of trade, investment, and technology transfer into and from India. The Division has also set up a website, www. indiainbusiness.nic.in, which aims to provide up-to-date information and assistance to those seeking to do business with India. Each chapter in the present publication attempts to give information on specific aspects of investing in India, providing a starting point for prospective investors. Indias reformist environment has played a pivotal role in shaping much of its growth trajectory. As is well known, the investment environment in any country is largely defined by the regulatory policies and procedures. Therefore, the publication provides details on certain tax and regulatory aspects that have a bearing on investment inflows. The FDI regime in India has been progressively liberalized, with restrictions on foreign investments gradually being removed, and procedures being simplified. This publication also covers the legal, administrative and compliance aspects of FDI. A brief overview of the business environment of India is also provided, with profiles of around 24 key sectors, and a summary of the market conditions, key demand drivers and trends in the sector, and a snapshot of investment opportunities. Profiles of each of the States of India, covering key statistics, and unique investment opportunities in each State, are also included. I compliment the ITP Division and KPMG on this valuable and timely publication, which I am sure, will prove useful to its readers.

Manbir Singh

Investment and Technology Promotion Division Ministry of External Affiars Government of India

KNOWLEDGE PARTNER

Table of contents

India Profile Overview of the Indian Economy Tax/Regulatory Framework Sector Profiles State Profiles

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2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

1. India profile
Location: The Indian peninsula is separated from mainland Asia by the Himalayas in the north, the Bay of Bengal in the east, the Arabian Sea in the west and the Indian Ocean to the south. Area: 3.28 million square kilometers.
Geographic coordinates: Lying entirely in the northern hemisphere, the mainland extends between latitudes 8 4 and 37 6 north and longitudes 68 7 and 97 25 east and measures about 3,214 km from north to south between the extreme latitudes and about 2,933 km from east to west between the extreme longitudes. It has a land frontier of about 15,200 km. The total length of the coastline of the mainland, Lakshadweep Islands and Andaman & Nicobar Islands is 7 ,516.6 km.

Capital: New Delhi Natural Resources: coal (fourth largest reserves in the world), iron ore, manganese,
mica, bauxite, rare earth elements, titanium ore, chromite, natural gas, diamonds, petroleum, limestone, arable land

Population (as per 2011 census): 1,189 million (estimated) Males: 532.1 million Females: 496.4 million Currency Unit: Indian Rupee (`) Principal Markets for Exports: US, UAE, Hong Kong, UK, China, Singapore, Belgium,
Japan, Italy, Bangladesh, Sri Lanka, France, Netherlands, Republic of Korea, Indonesia, Saudi Arabia, Germany, Spain, Malaysia

Principal Markets of Imports: US, China, Belgium, Switzerland, UK, Germany, Spain, Australia, Republic of Korea, Indonesia, UAE, Malaysia, Singapore, South Africa, Hong Kong, Italy, France, Russia, Saudi Arabia, Sweden Administrative Divisions: India comprises 28 States and 7 Union Territories. The States are: Andhra Pradesh, Assam, Arunachal Pradesh, Bihar, Chhattisgarh, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu and Kashmir, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Orissa, Punjab, Rajasthan, Sikkim, Tamil Nadu, Tripura, Uttarakhand, Uttar Pradesh and West Bengal. The Union Territories are: Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu, National Capital Territory of Delhi, Lakshadweep and Puducherry. Executive Branch: The President of India is the Head of State, while the Prime Minister
is the Head of the Government and runs this office with the support of the council of Ministers.

Legislative Branch: The Federal Legislature comprises of the Lok Sabha (House of
the People) and the Rajya Sabha (Council of States), together forming the Houses of Parliament.

Judiciary Branch: The Supreme Court of India is the apex body of the judicial system, followed by High Courts and subordinate courts.

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2. Overview of the Indian Economy


Robust growth
The economy registered a growth of 8.5 percent in 2010-2011 and is further expected to grow by around 9 percent in 2011-2012. The India growth story over the last decade has been implausible, with nominal Gross Domestic Product (GDP) nearly trebling from less than USD 0.5 billion in 2000 to USD 1.3 trillion in 2010 and capital markets growing at a Compound Annual Growth Rate (CAGR) of 18 percent over December 2000 to December 2010. Fueled by strong domestic demand, accommodative policies, increasing private investment and a reform focused Government, economic growth throughout this dazzling decade has been cushioned by rising growth in savings and investments.

Led by the services sector


The service sector currently contributes a staggering 54.7 percent to Indias GDP as compared to 19 by Agriculture and 26.3 by Industry. The sector also attracts the largest amount of foreign investment inflow, accounting for almost 21 percent of total Foreign Direct Investment (FDI) inflows from April 2000 to April 2011. Furthermore, the surge of the service sector has been integral to the paradigm shift regarding India being witnessed in the global community, where India is now seen as a pioneer in knowledge and technology oriented services.

Robust Economic Growth

Service Led Growth

Source: Ministry of Commerce, Economic Survey 2010-2011

Source: Calculations based on CSO data

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... and strong industrial growth driven by a sophisticated manufacturing base and growing industrial demand
Robust domestic activity within the Indian economy has fuelled strong industrial demand and production where industrial output showcased sharp recovery from 2.5 percent in 2008-09 to 8.2 percent in 2010-11.

Expanding economic potential in India has translated into skyrocketing cross-border interest in investing in India
The trade and external sectors of the country have over time witnessed a strong impetus, which is indicative of the global euphoria surrounding Indias growth. The total FDI inflow into India from April 2000 to April 2011 amounts to USD 1,97 ,935 million, with Mauritius, Singapore, and the US being the three largest sources of foreign investment. Furthermore, a high return environment led India to be ranked second in global FDI in 2010. The country is expected to retain its position among the top five attractive destinations for international investors during 2010-12, according to the United Nations Conference on Trade and Development (UNCTAD) in a report on world investment prospects titled World Investment Prospects Survey 2009-2012.

Growth in the Index of Industrial Production

Total FDI Inflows in India (USD billion)

Source: CSO

Source: Department of Industrial Policy and Promotion

Country-wise FDI Inflows (Equity)

Source: Department of Industrial Policy and Promotion

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Advantage India Worlds largest democracy Independent judiciary Abundant natural resources and diverse climatic conditions Healthy macro economic conditions Sophisticated financial sector Cost competitiveness: Low labor costs Huge untapped market potential High demographic dividends Investor friendly policies and incentive based schemes Progressive simplification and rationalization of direct and indirect tax structures Full current account convertibility Compliance with World Trade Organisation (WTO) norms

In the course of emerging as the preferred investment destination for many economies, India has also gradually established a strong position as an export hub. Home to a large base of skilled talent, the Indian economys expanding capacity to produce and export high value products led to a 37 growth in .5 exports, amounting to USD 245.8 billion, for the fiscal year 20102011. The figure, which comfortably exceeded the export target of USD 200 billion set by the Ministry of Commerce and Industry, was majorly powered by the engineering goods sector. Indias notable rise on the world canvas has been driven by a combination of factors mentioned above. Supported by strong fundamentals such as the abundance of skilled manpower, increasing government spending, a sophisticated financial market, a mature judiciary and strong investor protection, the India growth story has opened opportunities across myriad sectors for investors across the globe. The following pages will provide an overview of some of these and other key sectors along with brief highlights on opportunities that characterise each sector.

Economic profile
Indicators GDP (At constant prices 2004-05) 2010-11 GDP (At current market prices) 2010-11 Amount USD 1,084 billion USD 1,750 billion Services 54.7 USD 1211.7 USD 314.6 billion USD 245.8 billion USD 350.7 billion USD 1,97,935 Million USD 30,380 million Agriculture 19.0 Industry 26.3

GDP Composition by sector (%) 2010 Per Capita Income (2010-11) Forex Reserves (As on July 8, 2011) Exports (April 2010-March 2011) Imports (April 2010-March 2011) Cumulative FDI inflows (April 2000 to April 2011) FDI Inflows (April 2010-March 2011)

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Share of top investing countries in FDI equity inflows


Country Mauritius Singapore U.S.A. U.K. Netherlands Japan Cyprus Germany France U.A.E. 2009-10 (April-March) 10,376 2,379 1,943 657 899 1,183 1,627 626 303 629 2010-11 (April-March) 6,987 1,705 1,170 755 1,213 1,562 913 200 734 341

(Figures in USD million) %age to total FDI inflows 42% 9% 7% 5% 4% 4% 4% 2% 2% 1%

Cumulative inflows (April '00 to April '11) 54,227 11,895 9,449 6,639 5,700 5,276 4,812 2,999 2,264 1,890

Important Web Links


ITP Website: http://www.indiainbusiness.nic.in/about.htm Web Links (Directory) to Key Government Ministries: http://www.goi.in/ Planning Commission: http://planningcommission.nic.in/ RBI: http://www.rbi.org.in/home.aspx SEBI: http://www.sebi.gov.in/ FICCI: http://www.ficci.com/ CII: http://www.cii.in/

Sectors attracting highest FDI Equity Inflows


Sector 2009-10 (AprilMarch)
4,353 2010-11 (AprilMarch) 3,403

(Figures in USD million) %age to total Inflows (In terms of USD) 21%

Assocham: http://www.assocham.org/ IBEF: http://www.ibef.org/ Invest in India: http://www.investinginindia.in/

Cumulative Inflows (April '00 - April '11)

Services Sector (financial & non-financial) Computer Software & Hardware Telecommunications (radio paging, cellular mobile, basic telephone services) Housing & Real Estate Construction Activities (including roads & highways) Automobile industry Power Metallurgical Industries Petroleum & Natural Gas Chemicals (other than fertilizers)

27,007

919

784

10,723

8%

2,554

1,665

10,589

8%

2,844

1,127

9,632

7%

2,862

1,125

9,178

7%

1,208 1,437 407 272 362

1,331 1,252 1,105 574 398

5,927 5,900 4,235 3,153 2,892

5% 5% 3% 2% 2%

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3. Tax/Regulatory Framework

3.1 Regulatory framework for investment in India


Governing Laws
The objective of Indias FDI Policy issued by the Government is to invite and encourage foreign investments in India. The Government issues its Consolidated FDI Policy every half year with effect from 1 April and 1 October. The legal, administrative and compliance aspects of FDI in an Indian Company, including modes (e.g. Equity, Compulsorily Convertible Preference Shares, Compulsorily Convertible Debentures, American Depository Receipts / Global Depository Receipts, etc.), are embedded in the Foreign Exchange Management Act, 1999 (FEMA) and in Regulations notified and monitored by the Reserve Bank of India (RBI). Apart from investments in an Indian company, the FDI and Foreign Exchange Regulations are also relevant for transfer of shares in an Indian Company between Residents and NonResidents. These are subject to detailed guidelines, valuation norms, compliances and approval requirements as stipulated. Apart from Direct FDI, the FDI Policy also contains rules to determine Indirect FDI in an Indian Company where an Indian Company with FDI invests therein.

For the purpose of FDI in an Indian Company, the following categories assume relevance: Sectors in which FDI is prohibited; and Sectors in which FDI is permitted - Investment under Automatic Route; and - Investment under Prior Approval Route i.e. with prior approval of the Government through the Foreign Investment Promotion Board (FIPB).

Automatic Route
Under the Automatic Route there is no requirement of any prior regulatory approval. Only post facto filing by the Indian Company to the RBI through an Authorised Dealer (Banker) is required as follows: Filing an intimation within 30 days of receipt of FDI; and Issuing the equity shares / equity convertible instruments within 180 days from the receipt of application money. Filing the prescribed form within 30 days of issue to foreign investors.

Prior Approval Route FDI Routes


A diagrammatic representation of the FDI routes is given below: FDI in the following cases generally requires prior approval of the Government / FIPB: - Proposals falling outside notified sectoral caps for the Automatic Route but within the ceilings permitted under the Approval Route; - Proposals for FDI in sectors / activities in which FDI is permitted only under the Prior Approval Route; - Proposals requiring issue of shares against a non-cash consideration as stipulated; - FDI in any defunct Indian Company, i.e. a Company with no operations and no downstream investments;.

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- FDI in any Holding Company which will undertake downstream investment in operating Companies; and - Proposals for issue of warrants / partly paid by shares. Approval is granted by the FIPB on a case to case basis after examining the proposal for investment. Following FIPB approval, prescribed filings as applicable under the Automatic Route are also required to be carried out by the Indian Company under the Prior Approval Route

Issue and Transfer of Instruments and Pricing Guidelines


The Indian Companies can issue the following equity shares / equity convertible instruments subject to sectoral caps, timelines and pricing norms as prescribed below: Equity shares; Fully compulsorily and mandatorily convertible debentures; Fully, compulsorily and mandatorily convertible preference shares; Foreign Currency Convertible Bonds (FCCB); and Depository Receipts (American Depository Receipts (ADRs) and Global Depository Receipts (GDR)). Foreign investors can also invest in Indian Companies by purchasing or acquiring existing shares / convertible instruments from Indian shareholders or from other non-resident shareholders.

Sectoral Guidelines
The sectoral lists for FDI falling under the Automatic Route, Prior Approval Route and prohibited list are revised on a regular basis by the Government depending upon industry needs. The FDI is also subject to other relevant sectoral laws or regulations of the relevant industry regulator.

Recent Developments in FDI


(a) Discussion Paper on FDI in Multi-Brand Retail Trading The Government of India released a discussion paper on FDI in Multi-Brand Retail Trading for public comments. Currently, FDI in Multi-Brand retailing is prohibited in India. FDI in Single Brand Retailing is permitted to the extent of 51 percent under the Prior Approval Route, and FDI in cash and carry wholesale trading is permitted, to the extent of 100 percent under the Automatic Route. (b) Discussion Paper on FDI in Defence Sector The discussion paper suggests liberalisation of the FDI cap in the sector from 26 percent to 74 percent with the Approval Route, i.e. with prior approval of the Government. The paper also outlines the current policy as well as the rationale and benefits arising out of the liberalisation proposed. (c) Press Release for FDI in Limited Liability Partnerships The Cabinet Committee on Economic Affairs (CCEA) on 11 May 2011 approved the proposal to amend the policy on allowing FDI in Limited Liability Partnerships (LLPs) in a calibrated manner beginning with Open Sectors, i.e. sectors where monitoring is not required, subject to the following conditions: 1. FDI in LLPs will be allowed under the Government Approval Route in those sectors / activities where 100 percent FDI is allowed under the Automatic Route and there are no FDIlinked performance related conditions. 2. The LLPs with FDI will not be allowed to operate in Agricultural / Plantation Activities, Print Media or Real Estate. 3. The LLPs with FDI will not be eligible to make any downstream investments. 4. FDI in LLPs will be subject to conditions surrounding funding, ownership and management.

Pricing Guidelines
Any issue or transfer of equity shares / equity convertible instruments is subject to pricing or valuation norms. With an intention to provide better valuation based on performance, the revised FDI Policy permits the option of using a conversion formula for such convertible instruments subject to FEMA/ Securities and Exchange Board of India (SEBI) guidelines on pricing.

Manufacturing Items Reserved for Micro and Small Enterprises


Any industrial undertaking which is not a Micro or Small Enterprise (MSE), but manufactures items reserved for the MSE sector, would require prior FIPB approval where foreign investment is more than 24 percent in the equity capital. Such an undertaking would also require an Industrial Licence for such manufacture. The issue of an Industrial Licence is subject to a few general conditions and the specific export obligation is to be achieved within a maximum period of three years from the date of commencement of commercial production.

External Commercial Borrowings / Foreign Currency Convertible Bonds / Foreign Currency Exchangeable Bonds
Overseas loans in foreign currency by Indian Companies / Entities from Foreign Lenders are governed by the guidelines on External Commercial Borrowings (ECB) issued by the RBI under Foreign Exchange Regulations. The ECB Policy stipulates detailed guidelines for eligible borrowers, recognised lenders, amount and maturity period, all-in-cost interest ceilings, end-use, compliances, etc. Issue of any non-convertible, optionally convertible or partially convertible preference shares or debentures to non-residents is considered as ECB from a foreign exchange regulation perspective and needs to comply with ECB guidelines.

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An Indian Company can also raise funds by issuing FCCBs or Foreign Currency Exchangeable Bonds (FCEBs). The FCCBs are convertible into ordinary shares of the issuing company in any manner, either in whole or in part. In the case of FCEBs, equity shares of another Indian Company (Offered Company being a listed company, engaged in a sector eligible to receive FDI and eligible to issue or avail of FCCB or ECB) are issued on conversion. The issuer company should be part of the promoter group of the Offered Company. The policy for ECBs is also applicable to FCCBs and FCEBs and accordingly all norms applicable for ECBs also apply to them as well.

Sub-account means any person resident outside India, on whose behalf investments are proposed to be made in India by a FII and who is registered as a sub-account under these regulations. Entities eligible to register as sub-accounts are Broad Based Funds, Broad Based Portfolios, Proprietary Funds of the FII, University Funds, Foreign Corporates, Endowments, Foundations, Charitable Trusts, Charitable Societies, Sovereign Wealth Funds and Foreign Individuals satisfying the prescribed conditions. FIIs / sub-accounts can invest in Indian equities, debentures, warrants of companies (listed on a recognised stock exchange or to be listed on a recognised stock exchange in India), units of a scheme floated by domestic mutual funds including Unit Trust of India, dated Government securities, derivatives traded on a recognised stock exchange, commercial papers, security receipts and debt instruments within the ceiling / framework prescribed. The FIIs can also access the FDI route for investments in an Indian company subject to compliance with the FDI Policy.

American Depositary Receipts or Global Depositary Receipts


A company can issue ADRs or GDRs if it is eligible to issue shares to persons resident outside India under the FDI Policy subject to compliance with framework stipulated in this regard. In general, unlisted companies which have not yet accessed the ADR or GDR route for raising capital would require prior or simultaneous listing in the domestic market. Unlisted companies which have already issued ADR / GDR in the international market have to list in the domestic market on making profit or within three years of such issue, whichever is earlier.

Investment as Foreign Venture Capital Funds


A Foreign Venture Capital Investor (FVCI) which is eligible and registered with SEBI can invest in an Indian Venture Capital Fund / Indian Venture Capital Undertaking. It can also set up a domestic asset management company to manage the funds. All such investments are allowed under the Automatic Route subject to SEBI and RBI regulations and the FDI Policy.

Portfolio Investment in India


Foreign Institutional Investors (FIIs) who are eligible and apply / register with SEBI are eligible to invest in India under the Portfolio Investment Scheme (PIS) within prescribed guidelines, ceilings and parameters. Eligible Institutional Investors that can register with SEBI as FIIs include Pension Funds, Mutual Funds, Investment Trusts ,Banks, Charitable Societies, Foreign Central Bank, Sovereign Wealth Funds, University Funds, Endowments, Foundations, Charitable Trusts, Insurance Companies, Re-insurance Companies, Foreign Government Agencies, International or Multilateral Organisations/ Agencies, Broad based Funds, Asset Management Companies, Investment Managers / Advisors, Institutional Portfolio Managers and Trustees of Trusts. An application for registration as a FII can be made in two capacities, namely as an investor or for investing on behalf of the applicants sub-accounts.

Investment by Non-resident Indians


Non-resident Indians (NRIs) / Persons of Indian Origins (PIOs) can invest in the shares or convertible debentures of an Indian Company on a repatriation basis on the Indian stock exchange under PIS subject to limits and conditions. NRIs / PIOs can also invest in the shares or convertible debentures of an Indian Company (not engaged in the sectors of agricultural or plantation activities, real estate business, construction of farm houses or dealing in Transfer of Development Rights) on a non-repatriation basis subject to conditions. NRIs / PIOs are also eligible to invest in dated Government securities, mutual funds, bonds, etc. on a repatriation and nonrepatriation basis as per the scheme / framework stipulated. NRIs / PIOs can also invest in proprietary / partnership firms within the compliance framework stipulated.

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Calculation of Total Foreign Investment


The FDI Policy also provides the methodology for calculation of Total Foreign Investment in an Indian Company for the purpose of sectoral cap and approval requirements. For this purpose all types of foreign investments, i.e. FDI; FII holdings as on 31 March; NRIs; ADRs; GDRs; FCCBs; FCEBs; and fully, compulsorily and mandatorily convertible preference shares are to be considered. Total Foreign Investment is equal to Direct Foreign Investment plus Indirect Foreign Investment in an Indian Company. Direct investments are all specified types of foreign investment made directly by a non-resident entity into the Indian Company; and Indirect foreign investments are investments in an Indian Company made through investing Indian Companies which are owned or controlled by non-resident entities, to be calculated as per the prescribed methodology. These provisions are far-reaching in terms of scope, coverage, and computation and go beyond the pro-rata methodology. The entry level guidelines or conditions for FDI in an Indian Company have been expressly clarified to extend to indirect foreign investment as well, i.e. downstream investments by Indian entities owned and controlled by non-resident entities. For foreign investments into an Indian Company engaged only in the activity of investing in the capital of other Indian Company/ies or a Company which does not have any operations and also does not have any downstream investment, prior Government approval is required. For all cases of transfer of ownership or control of Indian Companies in specified or controlled sectors from resident Indian citizens or entities to non-resident entities, prior Government approval will be required. For downstream investments a notification to the Government within the prescribed timeframe and parameters is required. The investing Indian Companies cannot leverage funds from the domestic market for the purpose of downstream investment. Surplus retained by Indian entities can be utilised for undertaking downstream investments. FVCIs are also allowed to invest as non-resident entities in other companies subject to the FDI Policy.

Departments are considered and approved by the RBI with prior permission of the Government. The application needs to be filed with the RBI through an Authorised Dealer (Banker). The LO / BO approval of RBI is location specific and subject to guidelines issued in this regard. There are eligibility criteria and procedural guidelines for establishment of LOs by foreign entities in India. Following setup in India, the LO / BO faces various registrations and compliance obligations including obtaining a Unique Identification Number from the RBI. In view of the sizeable paperwork and time frame obligations, the entire process needs to be carefully planned and implemented.

Liaison Office
An LO can act as a channel of communication or carry out representation / liaison between the head office or group companies and parties in India. A LO is not permitted to undertake any income generating, commercial or trading or industrial activity, directly or indirectly. The LO is obliged to maintain itself and meet its expenditure through inward remittances from the head office. A LO is generally approved only for a specified period which is subject to renewal. In certain sectors (Financial Sector), the LO is obliged to upgrade into a Company (wholly owned Subsidiary or Joint Venture (JV)) following the initial approval period. The LOs of foreign banks obtaining prior approval from RBI under the Banking Regulation do not need separate RBI approval under the foreign exchange regulations. Similarly foreign insurance companies are permitted to set up LOs without RBI approval subject to necessary approval from the Insurance Regulatory and Development Authority of India.

Branch Office
A Foreign Company is permitted to establish a BO in India to undertake prescribed commercial activities and this is generally suitable for manufacturing and trading companies wanting to market / sell their products in India or IT Enabled / Consultancy Firms wanting to render services in India. The activities permitted for a BO does not include manufacturing (unless set up in a Special Economic Zone (SEZ), for which setup and operation is governed under separate regulations) and domestic / retail trading. No prior approval is required to set up a BO in SEZ to undertake manufacturing or service activity provided 100 percent FDI under the Automatic Route is allowed in this sector and subject to other conditions. The BOs of foreign banks obtaining prior approval from RBI under the Banking Regulation do not need separate RBI approval under the Foreign Exchange Regulations. The Bankers / Authorised Dealers are now authorised to deal with the closure applications of such BOs of Foreign Companies in India.

Investment Vehicles for Foreign Investors Choice of Vehicle


Depending upon its business needs, a Foreign Company can choose between setting up a Liaison Office (LO), a Branch Office (BO) or a Project Office (PO) or incorporating / investing in an Indian Company under FDI Guidelines.

Eligibility criteria for Foreign Companies wanting to set-up Liaison Office / Branch Office in India
A Foreign Company can establish a LO or a BO in India with prior approval from the RBI if it is engaged in a sector where 100 percent FDI is permitted under the Automatic Route as per the FDI policy. Other cases and those of Non-Governmental Organisations (NGOs), Not for Profit Organisations, Government Bodies, and

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Project Office
Foreign Companies undertaking projects in India and satisfying prescribed requirements can set up POs for the purpose of executing the project. The requirement of obtaining prior RBI approval for a PO that meets specified conditions has been dispensed with and only post facto filings are obligated. Similarly a PO can be wound up without any specific approval by relevant filings through Bankers. A PO can only undertake activities relating to and incidental to the execution of specific projects in India and has to be wound up following the completion of the project. A PO is permitted to open, hold and maintain one or more foreign currency accounts subject to prescribed conditions / parameters. A PO is allowed to remit intermittent surplus to its head office.

Local Indian Subsidiary or Joint Venture Company


Subject to FDI Guidelines and Foreign Exchange Regulations discussed above, a Foreign Company can set up its own wholly owned Indian Subsidiary or Joint Venture Company with an Indian or Foreign Partner. A Subsidiary or a Joint Venture Company can be formed either as a Private Limited Company or a Public Limited Company. A Private Limited Company is obliged to restrict the right of its members to transfer the shares, can have only 50 shareholders and is not allowed to have direct access to deposits from the public. It is also subject to fewer corporate compliance requirements as compared to a public company, which is eligible for listing on stock exchanges.

Comparative Summary
A comparative summary of previously discussed business entities is as follows:
Particulars
1. Setting up requirements (General)

Liaison office
Prior approval of RBI required.

Branch office

Project office

Subsidiary / Joint Venture

Prior approval of RBI required.

Prior RBI approval not required if certain conditions are fulfilled. Permitted if the Foreign Company has a secured contract from an Indian Company to execute a project in India.

For activities / sectors under the Automatic Route, only post facto filings with the RBI obligated by the investee Indian Company. For For others, obtain prior Government/ FIPB approval and then comply with post facto filings. Subject to Sectoral policy in FDI guidelines / framework.

2. Permitted activities

Only a liaison, representation, and communication role is permitted. No commercial or business activities or other activities giving rise to any business income can be undertaken. Local expenses can be met only out of inward remittances received from abroad from head office through normal banking channels. Requires registration and periodic filing of accounts / other documents.

Only activities listed / permitted by RBI can be undertaken. Local manufacturing and domestic / retail trading are not permitted.

3. Funding for local operations

Local expenses can be met through inward remittances from head office or from earnings from permitted operations. Requires registration and periodic filing of accounts / other documents.

Local expenses can be met through inward remittances from head office or from earnings from permitted operations.

Funding may be through equity or other forms of permitted capital infusion, borrowings (local / overseas norms) or internal accruals.

4. Compliance requirements under Companies Act 5. Compliance requirements under Foreign Exchange Management Regulations 6. Permanent Establishment (PE) / taxable presence

Requires registration and periodic filing of accounts / other documents. Compliance certificates stipulated for various purposes.

Required to comply with substantial higher statutory compliance and filing requirements.

Required to obtain and file an Annual Activity Certificate from the Auditors in India with the Authorised Dealer / Banker with a copy to the Income Tax Authorities. LO generally does not constitute PE / taxable presence under Double Taxation Avoidance Agreements (DTAAs) due to limited scope of activities in India. No tax liability as generally it cannot / does not carry out any commercial or income earning activities. Annual filing of information with the Income Tax Authorities within 60 days from the end of the financial year. Generally constitutes a PE and is a taxable presence under DTAA as well as domestic income tax provisions.

Required to file periodic and annual filings relating to receipt of capital and issue of shares to foreign investors.

Generally constitutes a PE and is a taxable presence under DTAA as well as domestic income tax provisions.

It is an independent taxable entity and does not constitute a PE of the Foreign Company per se unless deeming provisions of the DTAA are attracted.

7. Compliance requirements under Income Tax Act

Obliged to pay tax on income earned and required to file returns of income in India. No further tax on repatriation of profits.

Obliged to pay tax on income earned and required to file returns of income in India. No further tax on repatriation of profits.

Liable to tax on global income on net basis. Dividend declared is freely remittable but subject to Dividend Distribution Tax (DDT)#.

#DDT is currently levied at 15 percent (plus applicable surcharge and education cess) on dividends declared / distributed / paid by the Indian Company. Limited inter-corporate dividend set-off rules apply. Pursuant to DDT, dividends are tax free for all shareholders.

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Repatriation of Foreign Exchange


India does not have full capital account convertibility as yet. However, there have been significant relaxations in the recent past for withdrawal of foreign exchange for both current account and capital account transactions. The payments due in connection with foreign trade, other current business, services, etc. are regarded as current account transactions and are generally permissible. As per the Current Account Transaction Rules, the withdrawal of foreign exchange for current account transactions is regulated as follows:

3.2 Direct Taxes


India follows a residence based taxation system. Broadly, taxpayers may be classified as residents or non-residents. Individual taxpayers may also be classified as residents but not ordinarily resident. The tax year (known as the financial year) in India runs from 1 April to 31 March of the following calendar year for all taxpayers. The previous year basis of assessment is used, i.e. any income pertaining to the tax year is offered to tax in the following year (known as the assessment year). Generally, the global income of domestic companies, partnerships and local authorities is subject to tax at flat rates, whereas individuals and other specified taxpayers are subject to progressive tax rates. Foreign Companies and non-resident individuals are also subject to tax at varying rates on specified income which is received / accrued or deemed to be received / accrued in India.

Prescribed Schedule
Schedule I

Withdrawal for
Transactions prohibited Transactions which require prior approval of the Central Government

Approving Authority

N.A

Schedule II

Concerned Ministry or Department of Government

Schedule III

Transactions which require prior approval of the RBI

RBI

Residential status Individual


Depending upon the period of physical stay in India during a given tax year (and the preceding ten tax years), an individual may be classified as a resident or a non-resident or a not ordinarily resident in India.

In the case of certain transactions listed in Schedules II and III, prior approval is not required if the payment is made out of foreign exchange funds held in Exchange Earners Foreign Currency (EEFC) account of the Remitter. Remittances for all other current Account transactions can generally be made directly through the Authorised Dealers (Bankers) without any specific prior approval. Some of the relevant Current Account payments are discussed below.

Company
A resident company is a company formed and registered under the Companies Act, 1956 or one whose control and management is situated wholly in India. An Indian Company (being a company formed and registered under the Companies Act, 1956) by definition is always a resident. A non-resident company is one whose control and management is situated wholly outside India. Consequently, an Indian Company that is wholly owned by a foreign entity but managed from India by foreign individuals / companies is also considered as a resident Indian company.

Dividends: Dividends declared by an Indian Company can be freely remitted overseas to foreign shareholders without any prior approval or dividend balancing requirement. Foreign technology collaboration: The Governments liberalised
policy now permits payments for royalty, lump-sum fees for transfer of technology and payments for use of trademark / brand name under the Automatic Route without any restrictions / ceilings. An independent reporting mechanism is proposed to be put in place to monitor remittances / compliance.

Kinds of taxes Corporate income tax Indian Company


A resident company is taxed on its global income. Income tax @ 30 percent is levied on income earned during a tax year as per the rates declared by the annual Finance Act. Surcharge @ 5 percent is chargeable, in the case of companies other than a Foreign Company, if the total income exceeds `10 million. Education cess is applicable at 3 percent on income tax (inclusive of surcharge, if any). Further, a company is required to pay the other taxes e.g. Minimum Alternate Tax (MAT) at 20.007 percent (including education cess and surcharge) on the adjusted book profits in the case that the book profits are less than the taxable income of the Company and DDT at 16.22 percent (including education cess and surcharge) on the dividend declared, distributed or paid. Dividend income received by an Indian Company from the Foreign Companies would be taxed at 16.22 percent provided it holds at least 26 percent in nominal value of equity share capital of the foreign company.

Consultancy services: Remittances up to USD 1 million per


project (USD 10 million for specified infrastructure projects) can be made without any prior approval of the RBI. However, no such prior approval is necessary if the remittance exceeding this ceiling is made out of an EEFC account of the Remitter.

Import of goods: Payments in connection with import of goods


and services in the ordinary course of business are generally permissible and can be undertaken freely through direct filing of required documents with the Authorised Dealer / Banker, subject only to the period of settlement, rate of interest, advance that can be made, etc.

Netting off overseas receivable and payables: Generally, netting off of foreign exchange receivables against foreign exchange payables is not permitted. Specific relaxation exists in the regulations for some cases like units in SEZs. The RBI can also give case specific approvals for netting off based on industry requirement / practice and internal norms.

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Tonnage Tax Scheme for Indian Shipping Companies


Tax is levied on the notional income of the Indian shipping company arising from the operation of ships at normal corporate tax rates. The notional income is determined in a prescribed manner on the basis of the tonnage of the ship. Shipping companies can opt for the scheme or taxation under normal provisions. Once the scheme has been opted for, it would apply for a mandatory period of ten years and other tax provisions would not apply.

The length of time of an assets holding determines whether the gain is short-term or long-term. Long-term capital gains arise from assets held for 36 months or more (12 months for shares, units, etc.) and are eligible for indexation benefit. Gains arising from transfer of long-term capital assets are taxed at special rates / eligible for certain exemptions (including exemption from tax where the sale transaction is chargeable to STT). Short-term capital gains arising on transfer of assets other than certain specified assets are taxable at normal rates.

Securities Transaction Tax (STT)


STT is levied on the value of taxable securities transactions at specified rates. The taxable securities transactions are Purchase / Sale of equity shares in a company or a derivative or a unit of an equity-oriented fund entered into in a recognised stock exchange; and Sale of a unit of an equity-oriented fund to the mutual fund.

Taxability of non-resident Indians


Non-resident Indians are also liable to tax in India on a gross basis depending upon the type of income received.

Foreign nationals
Foreign nationals are liable to tax in India depending upon their residential status. Indian tax law provides an exemption of income earned by employees of a foreign enterprise for services rendered in India, subject to the following conditions: The foreign enterprise is not conducting any trade or business in India; The individuals stay in India does not exceed 90 days; The payment made is not deducted in computing the income of the employer. Remuneration received by a person employed on a foreign ship is exempt from tax provided his/her stay in India does not exceed 90 days.

Wealth Tax
Wealth tax is leviable on specified assets at 1 percent on the value of the net assets as held by the taxpayer (net of debts incurred in respect of such assets) in excess of the basic exemption of `3 million.

Tax rates Personal taxes


Individuals (excluding women and senior citizens) are liable to tax in India at progressive rates of tax as follows:
Total Income
Up to `180,000 (a)(b)(c)

Basic Tax Rates (d)(e)


NIL

Foreign Companies
A non-resident company is taxed at 42.02 percent on income which is received / accrued or deemed to accrue / arise in India.

`180,001 to `500,000

10%

Modes of taxation Gross basis of taxation


Interest and Royalties / Fees for Technical Services (FTS) earned by non-residents are liable to tax on a gross basis at 21.012 and 10.506 percent (including surcharge and education cess) respectively.

`500,001 to `800,000

20%

`800,001 and above

30%

(a) In the case of a resident woman below the age of 60 years, the basic exemption limit is `190,000 (b) In the case of a resident individual of the age of 60 years or above but below 80 years, the basic exemption limit is `250,000 (c) In the case of a resident individual of the age of 80 years or above, the basic exemption limit is `500,000 (d) Surcharge is not applicable (e) Education cess is applicable @ 3 percent on income tax

Presumptive basis of taxation


Foreign Companies engaged in certain specified business activities are subject to tax on a presumptive basis.
Activity Basis of taxation
Deemed profit of 10% of revenues Deemed profit of 10% of revenues Deemed profit of 5% of revenues Deemed profit of 7.5% of freight revenues

Effective tax rate (including education cess and surcharge)


4.2024%

Oil and gas services Execution of certain turnkey contracts

Capital gains tax The profits arising from the transfer of capital assets are liable to be taxed as capital gains. Capital assets include all kinds of property except stock-in-trade, raw materials and consumables used in businesses or professions, personal effects (except jewellery), agricultural land and notified gold bonds. 13 | India in Business

4.2024%

Air transport

2.1012%

Shipping operations

3.1518%

Type of income
Interest on foreign currency loan Royalties and technical services fee approved by the Government or in accordance with the industrial policy Long term capital gains

Foreign companies#

Other non-residents*

20 percent

20 percent

10 percent

10 percent

20 percent

20 percent

Any other income

40 percent

30 percent

# Surcharge of 2 percent (if the total income exceeds `10 million) plus education cess of 3 percent on income tax including surcharge is to be levied. * Education cess of 3 percent on income tax is to be levied.

Head office expenditure


Foreign Companies operating in India through a branch are allowed to deduct executive and general administrative expenditure incurred by the head office outside India. However, such expenditure is restricted to the lower of: Five percent of adjusted total income (as defined); or Expenditure attributable to the Indian business. In cases where the adjusted total income for a year is a loss, the expenditure is restricted to 5 percent of the average adjusted total income (as defined).

Carry forward of losses and unabsorbed depreciation - Subject to the fulfilment of prescribed conditions
Business loss (including that of speculation business), unabsorbed depreciation, and capital loss (long-term as well as short-term) can be carried forward and set off as per the prescribed provisions of the law.

Corporate reorganisations
Corporate re-organisations, such as mergers, demergers and slump sales, are either tax neutral or taxed at concessional rates subject to the fulfilment of the prescribed conditions.

Grouping / consolidation
No provisions currently exist for the grouping / consolidation of losses of entities within the same group.

Limited Liability Partnerships


The Limited Liability Partnership Act was introduced in 2008 in India. Subsequently, the Finance Act, 2009 introduced the tax treatment for LLPs. LLPs are subject to Alternate Minimum Tax from the financial year 2011-12 while provisions dealing with DDT do not apply to an LLP . The conversion of a private company or unlisted public company into an LLP is exempt from tax subject to prescribed conditions.

Taxation on transfer of shares of a closely held company without any consideration


With effect from 1 June 2010, the transfer of shares of closely held company without or for inadequate consideration to a firm or to a closely held company is taxable in the hands of recipient of shares. The taxable income for the recipient will be the fair market value of the shares if the transfer is without consideration or if the difference between the fair market value and consideration exceeds the threshold of `50,000. The computation of fair market value of the shares has been prescribed.

Foreign Institutional Investors


To promote the development of Indian capital markets, qualified FIIs / sub-accounts registered with the SEBI and investing in listed Indian shares and units are subject to tax as per the beneficial regime as follows:
Interest 20 percent

Withholding of taxes
Generally, incomes payable to residents or non-residents are liable to withholding tax by the payer (in most cases individuals are not obliged to withhold tax on payments made by them). Except where preferential tax rates are provided for under a DTAA, payments to Foreign Companies / non-residents are subject to the following withholding tax rates:

Long-term capital gains #

NIL

Short- term capital gains # # Subject to payment of STT

15 percent

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In addition, there is a surcharge of 2 percent in the case of companies and education cess of 3 percent. The rate of tax on other short-term capital gains is 30 percent plus surcharge (if applicable) and education cess.

Anti-Avoidance Measures
A toolbox of anti-avoidance measures has been introduced from 1 June 2011 in respect of transactions with persons in jurisdictions notified by the Central Government which do not effectively exchange information with India.

Return of Income
Every company and every other taxpayer whose taxable income exceeds the minimum amount not chargeable to tax is required to file a return of income in a prescribed form. The return of income is required to be filed before the prescribed dates of the assessment year.

Tax Incentives Special Economic Zones


In 2000, the Special Economic Zone Scheme was introduced in the erstwhile Export Import Policy with the objective of providing an internationally competitive and hassle free environment for exports through integrated world class infrastructure. The Scheme is administered by the Ministry of Commerce through the concerned Development Commissioner. The Scheme is operated through the Special Economic Zone Act, 2005 and Special Economic Zone Rules, 2006. Units set up in SEZs A unit which sets up its operations in SEZ is entitled to claim tax holiday for a period of 15 years commencing from the year in which such unit begins to manufacture or produce articles or things or provide services. The benefits are available against export profits. However, with effect from financial year 2011-12, MAT and DDT provisions are applicable to the SEZ units. SEZ developer A 100 percent tax holiday (on profits and gains derived from any business of developing an SEZ) for any ten consecutive years out of 15 years has been provided to undertakings involved in developing SEZs notified on or after 1 April 2005 under the SEZ Act, 2005. However, with effect from financial year 2011-12 MAT and DDT provisions are applicable to the SEZ developers. Offshore Banking Units (OBUs) and International Financial Services Center units (IFSCs) set up in SEZs OBUs and IFSCs located in SEZs are entitled to tax holidays of 100 percent of income for the first five years and 50 percent for next five consecutive years.

Assessment Procedure
The Tax Officers conduct the audits of the income disclosed by the taxpayers and recompute the tax liability based on their findings. The taxpayer, if aggrieved by the decision of the Tax Officer, has an option to file an appeal to the first appellate authority, i.e. Commissioner of Income-tax (Appeals). Similarly, the taxpayer can file an appeal before the Income-tax Appellate Tribunal, High Court and Supreme Court.

Dispute Resolution Mechanism


In order to facilitate expeditious resolution of transfer pricing disputes and disputes relating to taxation of foreign companies, an alternate dispute resolution mechanism has been provided in the form of the Dispute Resolution Panel (DRP) effective from 1 October 2009.

Relief from Double Taxation


India has entered into DTAA with more than 80 countries. Generally, provisions of DTAAs prevail over the domestic tax provisions. However, the domestic tax provisions may apply to the extent that they are more beneficial to the taxpayer. Currently, India has also signed Tax Information Exchange Agreement with some territories for eg. Bermuda, Isle of Man, Bahamas, etc.

Authority for Advance Rulings (AAR)


A scheme of advance rulings is available to an applicant (who may be either a non-resident or a resident who has entered into a transaction with a non-resident) with respect to any question of law or fact in relation to the tax liability of the non-resident, arising out of a transaction undertaken or proposed to be undertaken. The advance rulings are binding on the tax authorities as well as the applicant. Further, a suit can be filed before the High Court against the AAR order. Advance rulings help non-residents and residents having transactions with a non-resident in planning their income tax affairs well in advance and bring certainty in determination of income tax liability. They also help in avoiding long drawn and expensive litigation in India.

In-house research and development


A weighted deduction at the rate of 200 percent of the scientific research expenditure incurred (excluding expenditure on the cost of land or buildings) on an in-house research and development facility is provided to a taxpayer engaged in the business of manufacture or production of any article or thing other than a prohibited article or thing listed in the Eleventh Schedule.

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Tax holiday in respect of infrastructure projects


Undertakings engaged in prescribed infrastructure projects are eligible for a tax holiday for a consecutive period of ten years.

Compliance Requirements
The Transfer Pricing Regulations have prescribed an illustrative list of information and supporting documents required to be maintained by taxpayers entering into an international transaction. Currently, the mandatory documentation requirements are applicable only in cases where the aggregate value of the international transactions exceed `10 million. Further, every entity entering into an international transaction is required to file a transfer pricing audit certificate (Form 3CEB).

Tax holiday in respect of power projects


A tax holiday of 10 years in a block of 15 years is available to undertakings set up before 31 March 2012 with respect to generation / generation and distribution of power, laying of a network of new lines for transmission or distribution, undertaking a substantial renovation (more than 50 percent) and modernisation of the existing network of transmission or distribution lines.

Transfer Pricing Audits


Transfer pricing matters are dealt with by specialised Transfer Pricing Officers duly guided by Directors of International Taxation, being part of the Indian tax administration. In accordance with the internal administrative guidelines issued to the Revenue Authorities, all taxpayers reporting international transactions with associated enterprises exceeding `150 million are subject to a mandatory transfer pricing audit.

Transfer Pricing in India Scope and Applicability


The price of any transaction between associated enterprises , either or both of whom are non-resident for Indian income tax purposes, shall be computed having regard to the arms length price. Two enterprises are considered to be associated enterprises if there is direct / indirect participation in the management or control or capital of an enterprise by another enterprise or by same persons in both the enterprises. The Income-tax Act, 1961 also defines specific situations wherein two enterprises shall be deemed to be associated enterprises.

Safe Harbor Rules


The Central Board of Direct Taxes has been empowered to introduce Safe Harbour provisions aimed at minimising disputes relating to transfer pricing matters. Safe Harbour has been defined to mean circumstances in which the Revenue Authorities shall accept the transfer prices declared by the taxpayers - i.e. such taxpayers would not be subject to transfer pricing scrutiny. Detailed rules to operationalise the Safe Harbour provisions are currently awaited.

Determination of Arms Length Price


The Indian Transfer Pricing Regulations require the arms length price in relation to an international transaction to be determined by any one of the following methods, being the most appropriate method (MAM). Comparable uncontrolled price (CUP) method; Resale price method (RPM); Cost plus method (CPLM); Profit split method (PSM); and Transactional Net Margin Method (TNMM). In a case where more than one price is determined by the MAM, the arms length price shall be taken to be the arithmetical mean of such prices. Currently, the Transfer Pricing Regulations provide for an arms length variation of +/-5 percent to the value of the international transaction. Going forward such percentage will be notified by the Central Government.

Advance Pricing Agreements


Currently, the Indian transfer pricing provisions do not contain any provisions relating to Advance Pricing Agreements; however, this is proposed to be introduced in the Direct Taxes Code, 2010 (DTC).

Mutual Agreement Procedure


The taxpayers can choose a Mutual Agreement Procedure (MAP) to resolve bilateral international tax/ transfer pricing issues with certain foreign jurisdictions depending on the provisions in the relevant DTAAs. The Revenue Authorities have issued notifications whereby, subject to the satisfaction of certain conditions and depending on the relevant foreign jurisdiction, the taxpayers choosing the MAP process may not need to pay the tax demand until the closure of the MAP proceedings, subject to the furnishing of a bank guarantee.

NEW DIRECT TAXES CODE 2010 - Proposed


The DTC aims to replace the Income-tax Act, 1961 and the Wealth-tax Act, 1957 Several proposals of the DTC are path. breaking and aim to bring changes to the ways we have traditionally understood tax laws in India.

Income shall be deemed to accrue in India if it accrues, whether directly or indirectly, through or from the transfer of a capital asset situated in India; Income from transfer of shares or interest in a foreign company by a non-resident outside India will not be deemed to accrue in India if the fair market value of the assets owned in India (directly or indirectly) by that company does not exceed 50 percent of the fair market value of the total assets owned by that company; Further, it is provided that proportionate gains would be taxable in India where any income is deemed to accrue to a non-resident by way of transfer of shares or interest in a foreign company; PE has been defined in the same way as in DTAA and includes one day service PE, (substantial) equipment PE and insurance agent PE; In relation to availability of Foreign Tax Credit, it has been clarified that: - Foreign Tax Credit to be available to a person resident in India; and - Foreign Tax Credit to be restricted to the amount of Indian income tax payable on (a) income taxed outside India and (b) the total income of the taxpayer. The Central Government may prescribe methods for computing the foreign tax credit, the manner of claiming credit and such other particulars as are necessary for the relief or avoidance of double taxation. Income of FIIs from transfer of any security will be taxable as capital gains; For non-residents, head office expenditure shall be restricted to one-half percent of the total sales, turnover or gross receipts; and DTC also proposes to introduce a CFC regime in India.

General provisions
The DTC 2010 is proposed to come into force on 1 April 2012, if enacted. The concept of previous year replaced with a new concept of financial year which inter alia means a period of 12 months commencing from the 1st day of April

Corporate Tax Tax rates for domestic companies


Category Income tax MAT Rates as per DTC 30 percent Levied at 20 percent of the adjusted book profits in the case of companies where income tax payable on taxable income according to normal provisions of the DTC is lower than the tax @ 20 percent on book profits 15 percent

DDT

Provision pertaining to non-residents


Category Foreign company As per DTC 30 percent Additional branch profits tax of 15 percent (on post tax income) for income attributable directly or indirectly to Permanent Establishment (PE) of foreign companies in India

A foreign company is considered to be a resident in India if its place of effective management is situated in India. Place of effective management of the company means - The place where the board of directors of the company or its executive directors, as the case may be, make their decisions; or - In a case where the board of directors routinely approve the commercial and strategic decisions made by the executive directors or officers of the company, the place where such executive directors or officers of the company perform their functions. Persons other than individuals and companies are considered to be resident in India if their place of control and management at any time in the year is situated wholly or partly in India The rule is that the provisions of domestic law or DTAA, whichever are more beneficial, shall apply, except where provisions relating to (a) General Anti-Avoidance Rules (GAAR), (b) levy of Branch Profits Tax, or (c) Controlled Foreign Companies (CFCs) apply. 17 | India in Business

General Anti-Avoidance Rules


GAAR provisions empower the Tax Authorities to declare any arrangement as an impermissible avoidance arrangement provided it has been entered into with the objective of obtaining tax benefit and satisfies any one of the following conditions: - It is not at arms length; - It represents misuse or abuse of the provisions of the DTC; - It lacks commercial substance; and - It is carried out in a manner not normally employed for bona fide business purposes. An arrangement would be presumed to be for obtaining tax benefit unless the taxpayer demonstrates that obtaining tax benefit was not the main objective of the arrangement; The Tax Officer is to determine the tax consequences on invoking GAAR by reallocating the income or regarding/ recharacterising the arrangement; GAAR to override DTAA provisions.

Personal Taxation
New beneficial tax slabs are proposed to be introduced which will reduce the tax burden for individuals. A peak rate of 30 percent applicable on income exceeding `1 million; The category of not ordinarily resident abolished and only two categories of taxpayers are proposed, viz. residents and nonresidents. The additional condition of 729 days retained only to ascertain the taxability of overseas income; and A citizen of India or person of Indian origin living outside India and visiting India will trigger residency by staying in India for more than 59 days.

CENVAT
CENVAT, also known as excise duty, is applicable on manufacture of goods in India. It is payable by the person undertaking the manufacturing activity. It is recoverable from the buyer of the goods. The applicable CENVAT rate on the manufacture of any goods in India is based on the universally accepted HSN code assigned to the said goods. The generic CENVAT rate is 10.30 (including 2 percent E-Cess and 1 percent SHE-cess). The CENVAT paid on raw materials used in the manufacture of finished products is available as set-off against the CENVAT liability on manufacture of such finished goods, subject to satisfaction of prescribed procedures. The benefit of set-off is also available on the service tax which has been paid on services used by the manufacturer.

Wealth Tax
Every person, other than a NPO, is liable to pay wealth tax at the rate of 1 percent on net wealth exceeding `10 million.

3.3 Indirect Taxes


Customs Duty
Customs duty is applicable on import of goods into India. It is payable by the importer of the goods. Customs duty comprises of the following elements: Basic Customs Duty (BCD); Additional Customs Duty (ACD) (this is levied in lieu of CENVAT, i.e. excise duty,and is applicable on goods manufactured in India); Education Cess (E-cess); Secondary and Higher Education cess (SHE-cess); and Special Additional Duty (SAD) (this is levied in lieu of Value Added Tax (VAT), applicable on sale of goods in India). The applicable customs duty rate on the import of any goods into India is based on the universally accepted Harmonised System of Nomenclature (HSN) code assigned to the said goods. The generic BCD rate is 10 percent at present and the effective customs duty rate (i.e. the aggregate of the abovementioned components, i.e. BCD, ACD, SAD and cesses) with BCD at 10 percent is 26.85 percent (with ACD at 10 percent, SAD at 4 percent and cesses at 3 percent). The ACD paid as part of customs duty would be available as a CENVAT credit (set-off) to the manufacturers / service providers using the imported goods as inputs in their manufacturing / for provision of services. The SAD paid as part of customs duty would be available as credit to the manufacturer. For a trader, this SAD is available as a cash refund (subject to the prescribed procedure) if State VAT has been paid on subsequent sales of the imported goods.

Service Tax
Service tax is applicable on provision of specified categories of services. Currently, more than 115 services are covered within the service tax net. Service tax is applicable across the whole of India, except the State of Jammu and Kashmir. The generic service tax rate is 10.30 (including 2 percent E-Cess and 1 percent SHE-cess). Generally, the service tax is payable by the service provider except in certain specified categories where the recipient is liable to pay it. Also, in cases of import of services, where the service provider is a non-resident, the service recipient in India would become liable to discharge the service tax liability on a reverse charge basis. The service tax law also provides for zero rating of services which are exported outside India. The service tax paid on the services received can be used as setoff against the liability of service tax on provision of services. The benefit of set-off is also available on CENVAT which has been paid on raw materials / capital goods used by the service provider.

Central Sales Tax (CST)


India has both Central and State level indirect tax levies on sale or purchase of goods. Sale transactions which involve movement of goods within the same State are subject to levy of local State VAT, whereas sales which involve inter-State movement of goods are subject to CST in terms of the provisions of the Central Sales Tax Act, 1956. The rate of CST is equivalent to the VAT rate prevailing in the State from where the movement of goods has commenced. There is a concessional rate of 2 percent, if the buyer can issue a declaration in Form C subject to fulfilment of specified conditions. CST paid by the buyer while procuring the goods is not available as set-off for payment against any liability and hence is a cost to the business.

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Other Local Taxes


Besides the abovementioned taxes, there are certain local taxes applicable within specific areas of certain identified cities, towns, villages, etc., e.g. Agricultural Produce Market Cess and Mandi Tax, entertainment tax on entertainment activities, luxury tax on luxury, etc. Such taxes are generally levied on the removal of goods from the specified locations. No set-off of such taxes paid is available and hence such taxes would form part of the cost of procurement.

Foreign Trade Policy (FTP) Research and Development Cess (R&D Cess)
R&D Cess is leviable at the rate of 5 percent on import of technology directly or through deputation of foreign technical personnel under a foreign collaboration. Where the importer of the technology in India is liable for payment of service tax liability under the categories of Consulting Engineers services or Intellectual Property Right services on the import of the technology then the R&D Cess paid is available as deduction from such service tax liability. The FTP is outlined by the Ministry of Commerce and provides a broad policy framework for promoting exports and regulating imports into the country. The FTP outlines various export promotion schemes for enterprises in designated areas such as Software Technology Parks and Export Oriented Units which enable them to procure the raw materials free from customs duty / CENVAT. The FTP also outlines various export promotion schemes providing benefits such as import of goods at Nil or concessional customs duty rates if the goods manufactured / services provided are exported subject to fulfilment of prescribed export obligations. Such schemes inter alia include: Export Promotion Capital Goods (EPCG) Under the EPCG Scheme, capital goods (including secondhand capital goods) can be imported at a concessional customs duty rate of 3 percent or at Nil rate (depending on the capital goods imported) with the export obligation of eight times the amount of duty saved over a period of eight years. Served From India Scheme (SFIS) Under the SFIS, service providers exporting their services are allowed to import goods without payment of Customs duty against a SFIS issued to them. The value of SFIS issued is up to 10 percent of the realisations from service exports in the current / previous financial year. Duty Free Import Authorisation (DFIA) Under the DFIA Scheme, the raw materials can be imported without payment of customs duty, if the goods manufactured using the imported raw materials are exported subject to fulfilment of specified conditions.

VAT
VAT is applicable on sale of goods where the movement of goods from the sale is within the same State. Each State has different laws for levy of VAT and schedules of rates on various goods. It is pertinent to note that the VAT paid to vendors for procurement of goods can be availed as input tax credit (set-off) against discharge of VAT or CST liability on sale of goods. Certain VAT / CST incentives are available to units set up in specified backward areas of the States. Such incentives are in the nature of a concessional rate of VAT / CST or in the nature of remission of the VAT / CST charged.

Entry Tax
Entry tax is levied on the entry of specified goods into a State for use, consumption or sale there. The entry tax rates vary from State to State and are applicable only on specified goods. Certain States provide for a set-off of entry tax paid against the VAT payable on the sale of goods in such State.

Goods and Services Tax (GST)


he Indian indirect tax system as enumerated above is complicated and multi-layered with levies both at the Central and State levels with various inefficiencies, cascading effect of taxes, multiplicity of tax rates, etc. With a view to reducing the complexities and streamlining various indirect taxes at the Central and the State levels, an Empowered Committee has been set up to look into various aspects of integrating the multiple indirect taxes into a common goods and services tax.

Octroi
Octroi is levied on the entry of specified goods into a specified municipal limit / local areas (for e.g. Mumbai) for use, consumption or sale there. Presently, Octroi is levied only in certain areas of the State of Maharashtra. The Octroi rates vary from Nil to 7 percent across municipal areas and also depends upon the nature of the goods. No set-off of Octroi paid is available against any liability and hence is a cost to the business.

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As per the current discussions, India is proposing to implement a dual GST structure comprising of the Central GST (CGST) to be levied by the Centre and State GST (SGST) to be levied by the States. Integrated GST, which is combination of CGST and SGST, would be applicable on all inter-State transactions of goods and services and would be levied by the Central Government. Inter-State stock transfers would be treated at par with inter-State sales for the levy of GST. The salient features of GST are as follows: GST is a broad based and single unified consumption tax on supply of goods and services; GST would be levied on the value addition at each stage of supply chain; Full input credit of the taxes paid in the supply chain would be available. However, there would be no cross credit available between CGST and SGST; GST proposes to subsume the following taxes: - Central taxes CENVAT, CVD, SAD, service tax, surcharges, cesses, etc.; and - State taxes VAT, entertainment tax; luxury tax; taxes on lottery, betting and gambling; State cesses and surcharges, entry tax, etc. Exports would be zero rated. The tax rate structure recommended by the Central Government is as follows:

Types of companies
The Companies Act provides for incorporation of different types of companies, the most popular ones engaged in the commercial activities being the private limited and public limited companies (liability of members being limited to the extent of their shareholding). Private company A private company is required to be incorporated with a minimum paid-up capital of `100,000 and two subscribers. Broadly, the Companies Act: Restricts the companys right to transfer its shares Limits the number of the companys members (shareholders) to 50 Prohibits any invitation to the public to subscribe for any of the companys shares or debentures Prohibits any invitation or acceptance of deposits from persons other than the companys members, directors or their relatives. The balance sheet and profit and loss account of the company have to be filed with the ROC. Public company A public company is a company which is not a private company. A public company is required to be incorporated with a minimum paid-up capital of `500,000 and seven subscribers. A private company which is a subsidiary of another company which is not a private company shall be a public company. The profit and loss accounts and balance sheet, along with the reports of the directors and auditors, of a public company are required to be filed with the ROC and are available for inspection to the public at large. Listed public companies are additionally regulated by the SEBI and have listing agreements with the stock exchange on which they are listed. A private company is a more popular form as it is less cumbersome to incorporate and also has less stringent reporting requirements. Usually, foreign corporations set up their subsidiary companies as private companies.

Goods
Year Year 1 Year 2 Year 3 Lower Rate 6% 6% 8% Standard Rate 10% 9% 8% Services 8% 8% 8%

The above rates are to be levied as CGST and SGST rates each, i.e. the lower rate in Year 1 will be CGST 6 percent and SGST 6 percent. Therefore, the lower GST rate for Year 1 will be 12 percent.

The levy was earlier scheduled to be introduced from 1 April 2010. This deadline has been postponed on several occasions and currently the proposed date of ushering in this new system is in the financial year 2012 13.

Incorporation of Company
A company is formed by registering the Memorandum and Articles of Association with the State Registrar of Companies of the State in which the main office is to be located. While the Memorandum specifies the objectives and purposes for which the Company has been formed, while the Articles lay down the rules and regulations for achieving those objectives and purposes. The ROC will give the certificate of incorporation after the required documents are presented along with the requisite registration fee, which is scaled according to the share capital of the company, as stated in its Memorandum.

3.4 Other Laws


Company Law
Indian company law is predominantly modeled on the English law. The Companies Act, 1956 governs the incorporation, operation, governance and closure of companies in India. The administration of the Company Law is under the Ministry of Company affairs through the Company Law Board (CLB) and Registrar of Companies (ROC). A National Company Law Tribunal has been proposed to be set up which is to take over the functions of the CLB.

20 | India in Business

Share capital
The issue of shares symbolises the payment of share capital in a company. The share capital is required to be stated in the companys Memorandum of Association (MOA). The nominal or authorised share capital is the amount of capital stated in the MOA that the company is authorised to issue. The paid-up share capital is the amount of capital which is subscribed by the shareholders.

Visa Regulations Business visa


A business visa may be granted to a foreign national who desires to visit India to establish an industrial/business venture or to explore possibilities to set up an industrial/business venture in India; A business visa is issued from the country of origin or from the country of habitual domicile of the foreign national, provided the period of residence of the foreign national in that particular country is more than two years. If the period of permanent residence of the applicant in that particular country is less than two years, a business visa may be granted only after personal interview, review of documentation and prior clearance from the embassy/mission of the country where the foreign national has a permanent residence; The guidelines issued by the Ministry of Home Affairs (MHA), Government of India, provides various illustrative scenarios under which business visas may be granted to the foreign nationals; and Business visa with multiple entry facility can be granted up to a maximum period of five years and in the case of US nationals up to a maximum period of ten years. Generally, a stay stipulation of six months is prescribed for each business visit.

Management
The Act lays down specific provisions with respect to managing the affairs of a company so as to protect the interest of its shareholders and investing public.

Directors
A public company is required to have a minimum of three directors and a private company is required to have a minimum of two directors. Directors are under a statutory duty to ensure that companys funds are used for legitimate business purposes.

Wholetime/ Managing Directors


Every public company or a private company which is a subsidiary of a public company with a paid-up share capital of `50 million must have a managing or whole time director or a manager. An approval from the Central Government (Department of Company Affairs) is required if the remuneration proposed to be paid to such wholetime/ managing director is more than what is prescribed in Schedule XIII of the Act.

Employment visa
An employment visa may be granted to a highly skilled and/ or a qualified foreign national who desires to come to India for employment. Employment visas are not granted for jobs for which large numbers of qualified Indians are available and for those jobs which are routine/ordinary/secretarial in nature; An employment visa may be granted to a foreign national only if his/her salary is in excess of USD 25,000 per annum. However, this salary limit is not applicable to ethnic cooks, language (other than English) teachers/translators, and staff working for a high commission/consulate in India. A foreign national who desires to come to India for honorary work (without salary) with a Non-Governmental Organisation may be granted an employment visa; An employment visa is issued from the country of origin or from the country of habitual domicile of the foreign national, provided the period of residence of the foreign national in that particular country is more than two years; The guidelines issued by the MHA, Government of India, provide various illustrative scenarios under which employment visas may be granted to the foreign nationals; A change of employer is generally not permitted on an employment visa. However, the MHA, Government of India may on the merits of each case and in deserving cases permit such change; and Multiple entry employment visas may be granted for a maximum period of five years. The employment visa can be extended in India on a year to year basis beyond the initial visa validity period, up to a total period of five years from the date of issue of the initial employment visa.

Board meetings
Board meetings are required to be held every three months. The Board may delegate its powers to borrow, invest funds and make loans, up to certain specified limits, to the committee of directors or managing directors.

Audit of accounts
Auditors of a company are appointed/ re-appointed in the Annual General Meeting (AGM) of a company. Their tenure lasts till the conclusion of the next AGM. The company in a general meeting may remove auditors before the expiry of their term in office. Auditors are required to make a report to the members of the company in respect of the accounts (balance sheet, profit and loss account) examined by them at the end of each financial year.

Winding up of companies
Under the Companies Act, winding up can be done in two ways, i.e. winding up by Tribunal and voluntary winding up.

21 | India in Business

Entry (X) visa


An entry (X) visa is granted to the spouse and dependents of a foreign national who desires to visit India or is already in India on any other type of visa, i.e. business, employment, etc. An entry (X) visa may also be granted to a foreign national of Indian origin and his/her spouse/dependents who desire to visit India for meeting relatives, holidays, sightseeing, etc. The validity of the entry (X) visa is co-terminus with the visa of the principal visa holder or a shorter duration but limited to five years from the date of initial issue. Foreign nationals holding entry (X) visas cannot accept any employment in India or undertake/engage in any business/ economic activity in India. Conversion of the entry(X) visa of the spouse of the employee on an intra-company transfer to employment visa may be permitted in India with the prior approval of the MHA.

Project visas can be extended in India only with the prior approval of MHA. Project visas would be project specific and would be restricted to the location of the project. A foreign national coming on a project visa is disqualified from taking up employment in the same Indian company for a period of two years from the date of commissioning of the project. However, the foreign national may be granted a non-extendable business visa to attend any emergent maintenance/commissioning issues in the Indian company.

Conference visa
A conference visa may be granted to a foreign national who intends to visit India with the sole objective of attending a conference, seminar or workshop (event) and is of assured financial standing.

Tourist visa Project visa


The MHA, Government of India, within the employment visa regime introduced a new visa regime known as Project Visa which has initially been made applicable to the foreign nationals employed in the power and steel sector. The number of project visas that may be granted per power and steel project is subject to a ceiling. Project visas would be only issued to skilled/ highly skilled foreign nationals and not to semi-skilled and unskilled foreign nationals. However, project visas may be granted to two chefs and two interpreters per project. A tourist visa is generally granted to a foreign national whose primary objective of visiting India is sightseeing, recreation, casual visit, etc., and does not involve any economic or business activity. The visa-on-arrival has been extended to citizens of 11 countries, namely Japan, Singapore, Finland, Luxembourg, New Zealand, Cambodia, Laos, Vietnam, the Philippines, Myanmar and Indonesia.

4. Sector Profiles

Automotive
Sector Overview
In the last two decades, Indias automobile sector has evolved from being a closed market to allowing an automatic approval of foreign equity of up to 100 percent. The industry currently accounts for approximately 4 percent of Indias GDP and has created over 200,000 jobs. Demographically and economically, Indias automotive industry is well-positioned for growth, servicing both domestic demand and, increasingly, export opportunities. - Indias export market has increased at a CAGR of 24.5 percent during FY05 - FY11 and is considered as a hub for major global companies such as Audi, BMW, Ford Motors and General Motors. As per the Automotive Mission Plan 2006-16, the size of the Indian automotive industry is expected to be over USD 120 billion by 2016. In FY11, the industry witnessed sales of 17 million units, of .9 which the domestic market constituted sales of 15.5 million units, while the remaining 2.3 million units were constituted by the export market. - The passenger car segment has contributed the most to the overall demand, followed by commercial vehicles large goods vehicles and heavy commercial vehicles. The increasing penetration of global Original Equipment Manufacturers (OEMs) such as Mercedes Benz, BMW, Volvo, General Motors, Ford and others displays a strong confidence in Indian automobile industry.

Automobile Domestic Sales FY05 - FY11

Automobile Export Sales FY05 - FY11

Source: SIAM

Source: SIAM

23 | India in Business

Demand Drivers
Driven by a combination of factors such as growth in the domestic economy, supportive Government policies and stagnation in large global markets, the industry is now poised to become a significant regional player, with the potential of playing a key role in the global market as well. Growth in income levels, easy availability of financing options and shrinking replacement cycle are driving the growth in the domestic automotive market in India. It is believed that with the existing low penetration level there is room for new players to enter into the compact car segment. Indias car per capita ratio (expressed in cars per 1,000 populations) is currently among the lowest in the worlds top ten auto markets.

Useful Web Links


1. Society for Indian Automobile Manufacturers: www.siamindia.com 2. Department of Heavy Industries: www.dhi.nic.in 3. Automotive Component Manufacturers Association of India: www.acmainfo.com 4. Department of Industrial Policy & Promotion: www.dipp.nic.in

Key Trends
Currently the industry is witnessing heavy traction with new global players entering the small and compact category and existing players expanding their presence. Many global players are entering the Indian automotive market through various modes such as mergers, joint ventures and acquisitions to harness growth. The Indian players are also going beyond the domestic boundaries for technical alliances and sourcing options. The luxury car segment which was at a nascent stage is steadily evolving in India. Confidence of the luxury car OEMs in India is evident from their new model launches and capacity expansion plans in the country. India is being considered as a global sourcing hub by many global OEMs and auto component players. The sector is witnessing an increase in the shift of manufacturing plants and units of global car manufacturers from overseas to India due to inherent low-cost advantage, healthy domestic demand and the availability of a skilled workforce. With the announcement of the special tax rates for hybrid and electric vehicles, there is a gradual shift towards the green revolution. Cities such as Chennai, Pune and Gurgaon are emerging as hubs for auto and auto ancillary units.

Opportunities
The country offers several advantages to international manufacturers who wish to make the country their production hub. It offers expertise, low production costs and millions of potential customers. The scale, quality and diversity of growing talent pool in India offers significant opportunities to a global enterprise which knows how to leverage this talent to global advantage. Government initiatives in the form of tax reductions on the development and production of hybrid vehicles are likely to provide more opportunities to the global players to foray the Indian automotive market. Steady growth is expected in the rural market, which provides an opportunity for players to increase their penetration levels.

Biotechnology
Sector Overview
In FY 2010, the biotech industry recorded revenues of USD 3 billion with a year-on-year (y-o-y) growth of 23 percent over FY 2009. Revenues from biotech exports constituted 53 percent of the biotech industrys revenues in FY 2010. Domestic business accounted for the remaining 47 percent share of the total revenue and recorded a growth of 34 percent over FY 2009. The industry is expected to reach USD 15 billion by 2015 backed by various Government initiatives. Biopharma accounts for more than 60 percent of the total revenue (USD 1.95 billion) - comprising vaccines, therapeutic drugs, insulin, animal biologicals, statins and diagnostics. Vaccines is the largest sub-segment of biopharma with sales worth USD 481.5 million.

Indian Biotech Industry, Market Size

Biotech industry segment revenue percent share, FY 2010

Source: IBEF_November 2010,

Source: BioSpectrum-ABLE Biotech Industry Survey, June 2010

Demand Drivers
As per the Department of Industrial Policy and Promotion (DIPP), the drugs and pharmaceuticals sector attracted FDI worth USD 1.67 billion between April 2000 and March 2010. Areas such as agriculture and plant biotechnology, animal biotechnology, stem cell biology, human genetics and genome analysis among others offer huge scope for potential investment. The private equity funding in biotechnology industry in 200910 was estimated at USD 200 million with 40 percent being invested into the Biopharma segment. The Government of India has approved the National Biotechnology Development Strategy. The Government allocated USD 375 million for biotech R&D in 2009, which was around 30 percent of the total budget allocation for this sector. Public-private partnerships (PPPs) in the biotech industry are also increasing. For example, the Department of Biotechnology has tied up with the UK-based Wellcome Trust to enhance biomedical research in India.

Opportunities
Biosimilars: The use of biologics in various therapeutic areas such as cancer and auto-immune diseases is increasing and their genericisation is expected to bring a number of opportunities for Indian players in this space. Stem cell therapy: Stem cell therapy holds potential for the treatment of diseases such as Parkinsons disease, Alzheimers disease, etc. The Government and a number of institutions e.g. National Centre for Biological Sciences, are focusing on basic and applied research in stem cell technology to gauge its efficacy and benefits. India is the second country after the US to allow human clinical trials for drugs using stem cell research. Clinical research: India is emerging as a major clinical trials destination on account of its high skills and low cost. The Indian players are moving beyond participation in phase II and phase III trials and are signing contracts for research in drug discovery and pre-clinical stages.

Useful Web Links


1. Official website of Department of Biotechnology: www.dbtindia.nic.in

25 | India in Business

Cement
Sector Overview
India is a leading cement producer in the world with an installed capacity of 236 MT (FY10). - The sector is expected to add an additional capacity of 92.3 MT by 2013. About 200.7 MT of cement was produced in FY10, and grew at a CAGR of 9.9 percent during the period FY05-FY10. - Further, production is expected to grow at a CAGR of about 10.5 percent during FY10-FY14. The cement industry in India can be divided into the five geographical zones of India north, south, east, west and central based on localised variations in the consumer profile and supply-demand scenario. The industry comprises around 365 mini and 148 large cement plants, including public sector units. Large cement plants contribute about 95 percent to the installed capacity, while mini plants accounts for the rest. Commercial real estate: With the economic recovery in place, the demand for commercial real estate has picked up as business prospects have improved. The demand for office space in India is driven by increasing multinational companies and the growth of the services sector which accounts for a major portion of GDP A rebound in tourism and business travel . has also put emphasis on construction of hotels in the country.

Key Trends
Between April 2000 and February 2011 total FDI in the cement sector was USD 2.3 billion, comprising 1.8 percent of total FDI inflows received in the country during the same time period. National average cement prices rose from about USD 3 per 50 kg bag in FY05 to USD 5 per 50 kg bag in FY10. However, prices are expected to stabilise or decline in the near future, as supply rises as a result of capacity expansions and players focus on captive power generation to reduce input costs. Cement industry is using superior technology for producing eco-friendly cement by utilising solid waste. About 93 percent of total cement industry is based on modern dry process technology.

Cement sector growth statistics

Opportunities
The Indian Government plans to increase its investment in infrastructure to USD 1.02 trillion in the Twelfth Five Year Plan (201217) as compared with USD 514 billion expected to be spent on infrastructure development under the Eleventh Five Year Plan (20072012). The Union Government has allocated a sum of USD 42.8 billion for infrastructure sector in 2011-12, an increase of 23.3 percent over 2010-11. This also amounts to 48.5 percent of total plan allocation.
Source: Economic survey, CMA, IBEF

Formal approval has been granted to 584 SEZ proposals and 377 have already been notified as SEZs, as of 6 April 2011. Commercial real estate demand from the IT and Information Technology Enabled Services (ITeS) sector, organised retailing, shopping malls, and multiplexes will increase with growing population and present an opportunity for cement companies.

Demand Drivers
Infrastructure development: Cement demand is directly linked to a countrys economic activities and has a strong correlation with GDP The Governments focus on infrastructure . development through development projects in roads, irrigation, railways, ports, power, etc. will accelerate demand for cement. Housing demand: Housing demand constitutes more than 50 percent of cement demand and will be a major growth driver. Growing urbanisation, increasing income levels, increased access to credit and higher employment rates have made housing properties increasingly affordable and a number of planned investments in the sector which are driving cement demand.

Useful Web Links


1. Cement Manufacturers Association: www.cmaindia.org 2. Department of Industrial Policy & Promotion: www.dipp.nic.in

26 | India in Business

Chemical
Sector Overview
The Indian chemical industry is the 12th largest in the world and third largest in Asia, in terms of volume. The industry is estimated to be around USD 35 billion (2010) and contributes around 3 percent to the countrys GDP . The industry constitutes of: - Basic chemicals - Inorganic chemicals, Petrochemicals, Fertilisers and Other industrial chemicals - Speciality chemicals Adhesive sealants, Industrial gases, Catalysts, Plastic additives - Knowledge chemicals Agrochemicals, Pharmaceuticals, Other biochemicals

Key Trends
The Indian chemical industry is highly fragmented and is currently going through a major restructuring and consolidation phase. Global chemical companies are moving from the west to east and setting up their manufacturing and R&D facilities in India. Investment intentions of around USD 112.1 billion have been expressed in the chemicals sector from August 1991 to August 2010. This accounts for 7 percent of total investment .17 intentions in the country. Cumulative FDI in the chemical sector has been estimated at USD 2.8 billion between April 2000 and February 2011.

Opportunities Indian chemical industry - segment wise


There are significant opportunities to increase chemical consumption in India owing to low (relative to global consumption) per capita chemical consumption in India Development of the Petroleum, Chemicals and Petrochemicals Investment Region policy would likely to boost investment in the sector. The Ministry of Chemicals and Fertilisers has approved investments of around USD 35 billion for three regions under this policy. India has significant opportunities in specialty chemicals. The specialty chemicals market is expected to grow from USD 18 billion in 2006 to USD 40 billion by 2013. Research & Development in the chemical sector has opportunities with Government promoting these efforts. The Central Government has planned to lend USD 3.12 million in 20092010 to the Central Institute of Plastic Engineering & Technology to promote R&D efforts.

Source: IBEF

Demand Drivers
Per capita consumption of chemicals is very low in India compared to the world average. Multi-national Corporations (MNCs) are viewing the India as an attractive destination to source their chemicals requirements. Favourable Government policies - 100 percent FDI is permitted - Manufacturing of most chemical products is de-licensed, except for hazardous chemicals and a few special drugs - Majority of the chemical items can be freely imported or exported

Useful Web Links


1. Department of Chemicals, Government of India: www.chemicals.nic.in

27 | India in Business

Civil Aviation
Sector Overview
The civil aviation sector in India offers one of the largest investment opportunities amongst segments of infrastructure, given that private investment is expected to be approximately 10 times in the XI Plan compared to what it was in the X Plan (similar figures for roads and ports are 5 and 1.8 times respectively).

Planned investment in Civil Aviation Infrastructure

Planned investment in Civil Aviation Infrastructure

Note: Investment plans at 2006-07 prices for airport infrastructure; 1 USD = `45, figures in the chart have been rounded off Source: Planning Commission of India, KPMG Analysis

Demand Drivers
Increased availability of private capital from players such as GMR and Reliance is a major driver in this sector. Furthermore, the Governments plan to ensure approximately USD 18 billion in the XII Plan (2012-17) from public as well as private sources will give a major boost to this sector. Domestic as well as international business travel and increasing tourism are the key drivers for the booming civil aviation sector. The increase in the air freight market both domestic and international including transportation of bulk-cargo such as telecom-IT products, pharmaceuticals, high-value garments/ accessories and perishable items is another key driver.

Opportunities
PPP-based Greenfield/Brownfield projects related to development and management of airports and related infrastructure offer attractive opportunities. The overall growing market will create opportunities in Maintenance, Repair and Overhaul (MRO), ground handling, airport modernization, air traffic management solutions, etc. Also, the currently discussed policy guidelines on allowing foreign carriers to take equity in Indian airlines, if implemented, would open up a plethora of investment opportunities. Further, there are opportunities in capacity building due to shortage of infrastructure for training of pilots, Air Traffic Control, cabin crew, flight engineers and airport managers. Opportunities in general aviation (choppers, business jets, charter services) are also likely to increase at a fast pace with growing bottomlines of corporates and high net worth individuals.

Key Trends
Private investments in airport infrastructure is expected to increase by a staggering ~880 percent from ~ USD 0.53 billion in the X Plan to ~ USD 5.2 billion in the XI Plan, forming ~ 65 percent of the total planned investment in the XI Plan period. While passenger traffic is expected to increase at 12-13 percent CAGR (2009-10 to 2014-14), freight movement is likely to increase by 10-11 percent CAGR during the same period. The fleet size of scheduled airlines likely to double from 500 to 1000 by 2020.

Useful Web Links


1. Ministry of Civil Aviation: www.civilaviation.nic.in

28 | India in Business

Defence
Sector Overview
India has evolved as a lucrative defence market globally with a mega acquisitions programme coupled with the Governments proactive stance, a healthy foreign supplier base mix and an increasing number of deal closures seen over the past few years. Large numbers of tie-ups have been forged by large Indian manufacturing/technology companies with global Aerospace and Defence companies in the recent past, to enable them to gain a foot in the door in the Aerospace and Defence manufacturing sector. Global engineering companies are also now looking at India for establishing partnerships/collaboration /joint ventures. Increasing collaboration between foreign and domestic players for the development of joint manufacturing and sourcing capabilities to take advantage of Indias high tech, low cost manufacturing base should help India develop as a Defence sourcing base.

Demand Drivers
The Government is taking steps in the modernisation of equipment backed by a substantial budget. - Modernisation of the Indian Armed Forces is considered to be lagging behind by up to ten years, highlighting the immediate need for modernisation of equipment. Offsets Policy to Indigenise the Defence Industry - Offsets were introduced in India in DPP 2005 as a policy to promote the indigenisation of the Indian Defence industry. The offset policy: - Promotes step change in Indian defence manufacturing capabilities. - Requires foreign companies to assess India as a sourcing centre and strategic hub. - Promotes investment in defence manufacturing, export of Indian defence equipment and investment in R&D in defence.

Indias defence equipment requirement

Source: KPMG Thoughtleaderhsip0070 Paper, Opportunities in the Indian Defence Sector, January 2010

29rights reserved. | India in Business All

2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.

Key Trends
Major Indian players diversifying into defence and aerospace:
Indian Partner
Tata Group

Foreign Partners
Sikorsky Aircraft Corporation Israel Aerospace Industries EADS Thales Boeing

Products
S-92 Helicopter Cabins Manufacturing and defence products Advanced tactical communication systems Optronic solutions for multi-role combat aircraft Aerospace component work Manufacture high-end defence electronics P 81 Reconnaissance planes, Naval Systems Upgrade of T-72 Tanks Aircraft engine components Fleet refuellng tankers, Naval System Commercial aerospace projects Simulators Armoured vehicles Developing and providing communications technology Manufacturing cabinets for housing critical equipment on Boeing's P-B1 aircraft Manufacture small plane engines Component design, manufacturing, assembly and engine enhancement upgrade programs Developing manufacturing processes and capabilities for production of military hardware for Boeing

Larsen & Toubro

EADS Boeing Raytheon Pratt & Whitney Fincanteri

Wipro Mahindra Group

BAE Systems Lockheed Martin UK Information system BAE Systems

Precision Electronics Dynamatic Technologies Hindustan Aeronautics Ltd.

Raytheon Boeing Honeywell Rolls-Royce Boeing

Source: KPMG Analysis

Opportunities
Rising Defence Spending Presents a Significant Growth Opportunity in India: - Defence will remain a priority sector for spending by the Indian Government because of the past conflicts and continued threats from terror strikes and hostile neighboring countries. - With an aim of achieving self-reliance in the sector, the Indian Government has initiated procurement programmes encouraging the Indian companies to look for technical partners. This is resulting in global primes having to rethink their India strategy, to eventually carve out their market share by partnering with the Indian companies.

KPMG research indicates that deals worth USD 24.66 billion (approximately) have been signed by the Indian Ministry of Defence with global integrators in the past 48 months and deals worth another USD 41.99 billion (approximately) are in the process of getting signed. Transfer of technology and capacity building presents an opportunity to become a part of the global supply chains of major Defence equipment producers by leveraging the cost arbitrage in component designing and manufacturing in India.

Useful Web Links


1. Ministry of Defence, Government of India: www.mod.nic.in 2. Defence Research and Development Organisation (DRDO): www.drdo.gov.in 3. Defence Ordnance Factories: www.obfindia.gov.in

30 | India in Business

Education
Sector Overview
The Indian Education Sector (IES) is by far the largest capitalised space in India, with USD 30 billion of Government spend (3.7 percent of GDP; at global average). There is a large network of approximately 1 million schools and 25,000 higher education institutes. Over 50 percent of IES is private, compared to 32 percent in US and 25 percent in China. Education and skill development has received high priority in the Eleventh Five Year Plan of India, both to meet the needs of a growing economy and to promote social equality. Valued at USD 50 billion in 2008, the Indian education sector is expected to grow at a 12 percent CAGR to USD 80 billion by 2012.

Demand Drivers Market Size and Growth Drivers*


Segment 2008E 2012E CAGR USD billion Growth Drivers** Key recent Government Initiatives Announced/Planned Right to Education Act Key Regulatory Bodies***

K-12 (School)

20

34

14%

Largest population globally in the K-12 age group Increasing preference for private schools

Ministry of Human Resource Development (MHRD)

Establishment of 6000 high quality model schools, about 2500 of these would be through PPP

State/Central Government and State level education departments

Potential opportunity - PPP to manage public schools

Central Board of Secondary Education (CBSE), Council for the Indian School Certificate Examinations (CISE), State Board - depending on curriculum affiliation Foreign Education Bill passed by cabinet**** MHRD

Higher Education (HE)

20

32

12%

India - one of the largest importers of education (USD 13 billion spent every year outside the country for HE) Low GER of 12% National Knowledge Commission estimates the need for 1,500 universities to attain GER of at least 15% by 2015 Engineering followed by MBA and medical degrees have maximum demand in India

Setting up of 30 Central Universities Establishment of 8 Indian Institute of Technology (IITs), 7 Indian Institute of Management (IIMs) and 5 Indian Institutes of Science Education and Research*****

University Grant Commission All India Council For Technical Education

State Directorates

Medical Council of India, Dental Council of India, All India Council for Technical Education, Nursing Council of India, Bar Council etc. - depending on the HE stream National Council of Higher Education and Research (NCHER) is likely to replace all the above boards for Higher Education as a single regulatory body Vocational Training 1.5 3.6 25% Courses in IT, Retail, Banking and Financial Services, Aviation and English training are in demand Established National Skill Development Centre (NSDC) with a mandate to skill 150 million people by 2022 National Council for Vocational Training

State Council for Vocational Training All India Council For Technical Education Lack of supply capacity to train "PPP mode to: Upgrade 1396 ITIs Set up 125 new polytechnics Set up 500 new ITIs - in Industrial Clusters/ SEZs on a demand-led basis" None Department of Technical Education

Coaching Classes

6.4

11.2

15%

High teacher - pupil ratio in school Increasing competition putting pressure on students to join coaching classes for entrance test preparation

None

* IDFC-SSKI, Press Articles, KPMG Analysis, Netscribes Research ** IDFC SSKI Report (Revenue Figures) *** Crisil Research Educational Services Annual review, Eleventh five year Plan,

IDFC SSKI, Press Articles **** Note-The bill is yet to be passed in Parliament ***** 11th FYP document

31 | India in Business

Key Trends
The NSDCs growing role in fostering Vocational Education, a first of its kind venture with a PPP focused on fostering skill , development sector and funding. In recent times NSDC has signed/invested/partnered with more than 20 companies to help them scale up. NSDCs target is to contribute significantly (30 percent) to the overall target of training 500 million people by 2022. The Ministry of Human Resource Developments focus on vocationalisation of secondary education- the Central Government has announced phase wise introduction of vocational courses in Class IX and Xth. This represents a pragmatic shift in approach with emphasis on facilitating exposure to students of vocational courses. There is a growing K-12 & pre-school segment with the private sector capitalizing upon the middle income groups rise. The Indian Government has kept a target of reaching 30 percent GER by 2022, and to meet this numbers of schools and teachers need to be more than double from existing levels. Major global institutes entering India through joint ventures and alliances: - Pearson Tutorvista: UKs Pearson Plc has invested USD 127 million in Bangalore-based education firm TutorVista, thereby increasing its stake to 76 percent. - Manipal - City & Guilds: Formed JV called Indiaskills to provide skills-based qualifications in industries like retail, hospitality, banking and English language. - Pearson Educomp: A 50:50 JV to offer vocational education, leveraging Educomps learning network and Pearsons education content to provide 500,000 persons ready to deploy to the industry annually by 2012. - Lancaster University has partnered with the GD Goenka Institute, Gurgaon to offer joint programmes. - Kolkattas Globsyn Group and UKs Conventry University have partnered to develop a one-year validation programme on the lines of UKs master level management programmes. - Aptech Computer Education has entered into an alliance with Middlesex University to provide advance entry to students of Aptech Certified Computer Professional Course in the final year of B.Sc. (Honours) at the Universitys London, Dubai or Mauritius Campus.

Opportunities
National Knowledge Commission Report suggests India will need more than 1500 additional universities, which will require fresh investment of close to USD 30-40 billion. Indias higher education sector also offers large potential in India. Rising income levels and easy availability of financing options is likely to drive this space in India Establishment of offshore campus: The union cabinet has cleared the bill regulating the entry of Foreign Educational Institutions, but is yet to be passed by Parliament.The bill would allow these institutions to set up campuses in India. Establishment of innovation universities: India plans to establish 14 world class innovation universities and is seeking guidance from the worlds top institutions to be its mentors. Vocational education skilled: The 11th Five Year Plan - India has a target of creating 15 million skilled labour annually. By 2022, the youth population of India is likely to exceed 500 million and India is expected to account for 25 percent of the global labour force. This reflects a pragmatic approach towards scaling up the vocational education framework in India. With growing demand in this space, vocational skills education providers are also exploring opportunities through PPPs and collaborations with Indian companies- City & Guilds, Pearson, TAFE Victoria and others. Information and communication (ICT) penetration in institutes: - IT tools for student services management including applications for admissions, curriculum, etc. - Tools for delivering education programme modules electronically. Others: Several overseas education providers are pursuing opportunities to collaborate with Indian education providers for: - Joint delivery of courses - Content development - Teacher training and development - Joint Research

Useful Web Links


1. Website of Ministry of Education: www.education.nic.in/ 2. Department of Industrial Policy and Promotion: www.dipp.nic.in

Food Processing
Sector Overview
India is one of the worlds largest producers of wheat, milk, spices, fruits, vegetables, tea, rice and sugarcane. The Indian food processing industry was estimated to account for a 32 percent share in the entire food industry in 2007 . Indias food industry was valued at USD 180 billion, while the food processing industry was estimated at USD 70 billion in 2009.

Opportunities
Rising urbanisation and disposable incomes, the lifestyle of consumers, travel and exposure to global cuisines and a greater willingness to experiment have led to an increase in demand for processed and ready-to-eat food. Investments worth USD 30 billion are required to increase the output by 10 percent through 2015. The low shelf life of fresh produce and the high levels of wastages necessitates investment in supply chain infrastructure including bulk warehousing, food logistics, cold chain infrastructure, etc. There is also considerable scope to use sophisticated techniques and applications in areas such as demand forecasting, data integration, fund-flow management and information sharing to improve supply chain management. Potential global outsourcing hub - India has abundant resources in terms of raw material for food production, including fruits, vegetables, spices, dairy products and edible oils. The varied agro-climatic conditions within the subcontinent also provide for a diversity in cropping patterns that is critical to grow a wide variety of agricultural produce. The presence of a skilled workforce and low labour costs are key factors to be considered while establishing production bases.

Demand Drivers
Rising income levels in India - The consistent rise in the middle class income has resulted in a consuming class with higher disposable income. India is one of the biggest emerging markets, with a population of over 1 billion and a middle class of over 250 million. Changing food habits: With growing affluence, the incidence of eating out has increased in urban India. There is a growing trend towards a balanced and health conscious diet in the new generation of consumers. Growing need for convenience food Increased income levels, urbanization and a greater proportion of urban working women are India is leading to increased convenience-seeking behaviour of Indian consumers. There has been an increasing demand for processed and convenience foods such as ready-to-eat, ready-to-cook, ready-to-serve and ready-to heat categories. Growth of organised retail Organised retail with modern supply chain and temperature controlled stocking is expected to lead to increased distribution of processed foods.

Useful Web Links


1. Ministry of food processing industries: http://www.mofpi.nic.in/ 2. Agricultural and processed food products export development authority: http://www.apeda.com 3. Marine products Export Development Authority: www.mpeda. com 4. Department of Industrial Policy & Promotion: www.dipp.nic.in

Key Trends
Cumulative FDI inflow in the processed food industry from April 2000 to August 2010 was USD 3.9 billion. Contract farming initiatives leading to greater private sector involvement. WTO norms requiring traceability have resulted in tighter control of the supply chain and the need for corporations to monitor the quality of produce procured. PPPs in food production have been enabled through policy initiatives such as the mega food parks and tax concessions provided by policies to control rising levels of food inflation.

33 | India in Business

Gems and Jewellery


Sector Overview
The Indian Gems and Jewellery industry is the leading foreign exchange earner and one of the fastest growing industries in the country. The sector is divided into segments such as gold, diamond, costume jewellery and platinum, and lightweight Italian jewellery. The market is highly fragmented across the value chain. Currently, there are approximately 300,000 Gems and Jewellery players, with the majority of them being small players. - Modern retail players have only 4 6 percent share, which is one of the lowest as compared to Apparel (20 percent), Footwear (35 percent), Books and Music (11 percent) and Consumer Durables and Information Technology (7 percent) In 2009, the domestic market size of the Gems and Jewellery industry was USD 18-20 billion, while the export market was USD 25 billion. On the back of increasing Government efforts and incentives coupled with private sector initiatives, by 2015, the domestic market is expected to reach a size of USD 35-40 billion, while the export market is expected to reach a size of USD 58 billion.

Opportunities
The jewellery retail sector is likely to become much more organised in the coming years, and chain specialists are expected to expand into smaller towns and cities across the country. International brands, which were earlier confined to the luxury segment, are planning to enter the regular markets in real and costume jewellery. For instance, Thailand-based Pranda is planning to increase its presence in India. The Gems and Jewellery Export Promotion Council has initiated India International Jewellery Show Signature to promote India as the preferred source for jewellery and eventually build the India brand. The initiative is likely to bolster both the domestic and export Gems and Jewellery market. To bolster the export and import markets, the Government has formulated new rules for faster clearance of import and export consignments of specific goods including Gems and Jewellery.

Demand drivers
The rich tradition/heritage of using ornaments and jewellery is driving the demand in the sector. Gold is being increasingly looked upon as a hedging option against inflation and market fluctuations. The emergence of large retailers and brands is fuelling the growth of the industry. Rising income levels and economic prosperity drive the demand for organised branded jewellery in India.

Key Trends
With increases in the gold prices, platinum and good-quality imitation jewellery are becoming popular for daily wear and consumers are getting more conscious of style and design. Newer ways of segmentation and usage are attracting new consumers and creating new occasions as well daily wear and usage for working women.

Useful Web Links


1. Gem and Jewllery Export Promotion Council (GJEPC): http://gjepc.org/gjepc/ 2. Department of Industrial Policy & Promotion: www.dipp.nic.in

34 | India in Business

Healthcare
Sector Overview
The Indian healthcare industry is currently estimated at USD 40 Billion. The industry is expected to grow to approximately USD 79 billion by 2012 and approximately USD 280 billion by 2020. The average CAGR for the next ten years, therefore, has been estimated at around 21 percent.

Key Investment Trends


There has been a remarkable increase in the investment inflow in healthcare from USD 34.2 billion in 2006 to an estimated USD 78 billion in 2012. There has also been an increase in FDI with many foreign players making a foray into the market through joint ventures with local healthcare units. For example, Singapores Pacific Healthcare made its first foray into the Indian market, opening an international medical centre, which is a joint venture with Indias Vitae Healthcare, in the Indian city of Hyderabad.

Healthcare Industry

Opportunities
Existing Gaps in Demand and Supply - Infrastructure - Almost 3.1 million additional beds are likely to be required by 2018. - Manpower - At six doctors per 10,000 people, the number of qualified doctors in the country is not sufficient for the growing requirements of Indian healthcare. Moreover, the rural doctors to population ratio is six times lower than in urban areas. In light of the various Government initiatives to ensure healthcare penetration to the rural population, very substantial human resource capital is likely to be required in the domain. Health Insurance - The sector is expected to see an increase in the penetration from the current 10 percent-15 percent to almost 50 percent at a CAGR of 24 percent. Medical Tourism - India is emerging as a major medical tourist destination with the medical tourism market expected to reach USD 2 billion by 2012. PPP - The Government is liaising with private firms to ensure better healthcare facilities and take up initiatives. Telemedicine - Telemedicine has great scope in India where only 25 percent of specialist physicians reside in semi-urban areas and merely 3 percent in the rural areas.

Source: IBEF

The sector has registered a robust growth of 9.3 percent from 2000 to 2009. This growth rate is comparable to the sectoral growth rate of Brazil, Russia and China as well. The growth in the sector is primarily driven by healthcare facilities in the private and public sectors, medical diagnostics and pathlabs and the medical insurance sector. It is reported that diagnostics would contribute USD 2.5 billion to the healthcare industry by 2012.

Demand Drivers
Increasing Indian population of about 1 billion, expected increase in population from about 1.1 billion in 2009-2010 to 1.4 billion by 2026. Growing general awareness, literacy rates and patient preferences in healthcare decisions. Changing lifestyle patterns are creating a market for preventive and curative care opportunities. Greater acceptability among citizens about health insurance. Increase in private and Government spending in the healthcare sector also supported by liberalised foreign investment climate. Tax benefits - lower tariffs, higher depreciation on medical equipment, income tax exemption for five years to hospitals in rural areas.

Useful Web Links


1. Website of Ministry of Health and Family Welfare: www.mohfw.nic.in/ 2. Department of Industrial Policy & Promotion: www.dipp.nic.in

35 | India in Business

Insurance
Sector Overview
The insurance sector in India is regulated by the Insurance Regulatory and Development Authority (IRDA). The Indian insurance sector is still dominated by public sector organisations in both life and non-life insurance segments (premium terms). However, the private insurers have been growing at a faster rate than public sector undertakings. Entry of new players has resulted in intense competition and has benefited the policyholders. As of March 2011, there are 23 Life Insurance, 24 Non-life Insurance and 1 Reinsurance companies (General Reinsurance Corporation of India) operating in India. Total premiums surpassed the USD 63 billion mark in 2009-10 with a CAGR of 24.5 percent from 2004-05 to 200910. - Life: India is the fifth largest life insurance market and has grown at a healthy rate of 19.7 percent in FY10. With total market size of USD 56 billion, the life insurance industry grew at a CAGR of 26.2 percent from 2004-05 to 2009-10. - Non-life: The non-life insurance industry grew at a CAGR of 14.5 percent from 2004-05 to 2009-10. It covers segments like auto, marine, fire, health and engineering among others. Rising investments in infrastructure initiatives are driving demand for insurance and reinsurance. Export of software, petroleum products, chemical and textile goods has created opportunities for marine cargo and aviation insurance.

Key Trends
To capitalise on the opportunities present in the Indian Life Insurance business, major international players have entered in the Indian market. Except for LIC, Reliance Life Insurance and Sahara Life Insurance Company, the other 20 private Life Insurers have JVs with foreign partners. In March 2011, Nippon Life (Japan) picked up a 26 percent stake in Reliance Life, valuing it at USD 2.6 Billion. To increase market penetration various distribution channels have emerged, which include bancassurance, direct selling agents, brokers, online distribution etc. Agents remain the dominant channel of distribution; however, with recent regulatory changes in September 2010 which have impacted commission pay out to agents, bancassurance is fast gaining momentum.

Opportunities
Currently FDI up to 26 percent is allowed under the Automatic Route. The Government is planning to raise the FDI limit to 49 percent, which would help inject funds for expansion plans, technical knowledge and expertise into the domestic market and change the insurance landscape significantly. IRDA is in process of finalising the norms for initial public offers (IPOs) for insurance companies. In a sector where none of the players are listed, the IPOs of insurance companies could be a milestone in the future growth of the sector. The insurance industry is all set to see some level of consolidation. New rules from the IRDA on mergers and acquisitions (M&A) will be paramount in shaping the future of the industry.

Insurance : Key Statistics


Growth (%) Life Insurance Premium Non-Life Insurance Premium Total Insurance Premium Number of registered Insurers No. of policies issued by Life Insurers (million) No. of policies issued by Non Life Insurers (million) Source: IRDA

2006

2007

2008

2009

2010

27.8 14.1 25.8 32

47.4 22.3 43.4 35

29 11.7 26.6 42

10.1 9.1 10 44

19.7 14.1 19 47

35.5

46.2

50.9

50.9

53.2

51.1

46.7

57.2

67.1

67.5

Useful Web Links


1. Insurance Regulatory & Development Authority (IRDA): http:// www.irda.gov.in

Demand Drivers
Favourable demographics growing middle class, increasing working population, rising household savings, increasing purchasing power. Awareness of personal financial security, under penetrated market, increasing product understanding and segment based product development. Increasing demand for better healthcare, fast progress in medical technology, launch of new innovative products and emergence of new distribution channels.

36 | India in Business

IT-ITeS
Sector Overview
The IT-ITeS industry acts as a growth catalyst for Indian economy, contributing 6.4 percent to Indias GDP . Direct employment in the IT-ITeS sector grew 9 times in the last decade, from 284,000 in 2000 to 2,540,000 in FY 2011. Total employment (direct and indirect) in Indias IT-ITeS sector is estimated to reach 10.8 million in FY 2011. India is widely recognised as an exporter of IT-ITeS services while the domestic market has also begun to show increased traction. IT-ITeS exports were at USD 59.4 billion in FY 2011, which accounted for 67 percent of overall IT-ITeS revenues. The domestic IT-ITeS market is expected to reach USD 29 billion in FY 2011 from a market size of USD 24 billion in FY 2010, recording a y-o-y growth of 21 percent.

Key Facilitators of Indias Growth


Enabling Government policies: Both Central and State governments have encouraged setting up of Special Economic Zones (SEZs) which provide tax benefits to companies. Companies operating in SEZs are only required to pay Minimum Alternate Tax (MAT) which is lesser than the corporate tax rate. IT/ITeS has reaped benefits from the SEZ policy, as almost 54 percent of total formal approvals for SEZs to date are for the IT-ITeS sector. Cost advantages: India has flourished on the basis of its low-cost advantage. Rising wages in Tier I cities has increased the attractiveness of Tier II and III cities in India. Vendors are increasingly shifting operations to these emerging low cost destinations in India. India continues to hold a dominant position due to its combination of skills, current scale of operations and future scalability. Availability of required infrastructure: There has been a significant improvement in Indias state of Infrastructure; grade-A office space now stands at 26 million sq. feet in 2010. Nearly 45 percent of total centres in India were set up in Tier II locations which have lower real estate and labour costs. Highly qualified talent pool: India holds a threefold advantage in terms of availability, cost and quality of talent. It accounts for 32 percent of the total ready-to-hire graduates churned out globally. MNCs such as Adobe, Microsoft, Google, Intel, etc. have started witnessing a significant number of patents coming from their Indian research centres.

Indias IT/ITeS Sector

Key Investment Trends


IT-ITeS accounted for more than 10 percent of Indias total FDI in the last decade. In 2010, IT-ITeS accounted for nearly onefourth of total 309 Venture Capital/PE deals with nearly USD 8 billion invested by VC/PE over past decade. M&A activity involving Indian IT-ITeS players also witnessed a growth of over 50 percent from 83 deals in 2006 to 126 deals in 2010. Some of the key deals in 2010 include: - Acquisition of Intelligroup by NTT Data Corp for approximately USD 199 million in the enterprise applications space - Acquisition of Spheris India by Cbay Systems for approximately USD 116.3 million in the clinical documentation technology and services space - Acquisition of Venture Infotek by Atos Origin for a valuation of approximately USD 99 million in the hi-tech transactional services and electronic payments space - Acquisition of DecisionOne Corp by Glodyne Technoserve for USD 104 million in the technology infrastructure management services space

Source: NASSCOM Strategic Review 2011

Demand Drivers
Growth Verticals: Emerging verticals such as Healthcare, Utilities, Government, and Retail are showing increase in IT budgets as well as the percentage of work outsourced. Focus on R&D/Innovation: Companies are shifting their growth strategies from linear to non-linear business models by making investments on technologies such as Cloud Computing, Virtualisation, etc. Companies are also making investments in other technology areas such as Mobile Applications, Social Media Tools, Unified Communication & Collaboration tools, etc. New Adopters: With the help of as a service offerings and open platforms, SMEs are more likely to make investments in cost-effective products and solutions.

37 | India in Business

Opportunities
New verticals and geographies: Significant opportunities exist in terms of new verticals such as Healthcare, Retail, Public Sector, Travel and Tourism and emerging markets like Asia Pacific, Central and Eastern Europe and Latin America to drive the future growth. R&D product innovation: Emergence of platform solutions and innovations in technology such as Cloud Computing, Virtualisation, Open Source Software and Service Oriented Architecture. New service segments: Segments such as Rural BPOs, Mobility solutions, Embedded Systems, KPO, LPO, ER&D service exports, Infrastructure Management, etc. are recording significant growth. Focus on SME segment: Through initiatives such as flexible pay-per-use/outcome-based pricing models, shift to Tier II/III cities to gain operational efficiency. Government: With projects such as National Knowledge Networks, e-Panchayat, e-Governance, UID, Geographic Information System, etc., the Government sector is coming up as a major opportunity area for IT vendors.

Useful Web Links


1. Official website of Department of Information Technology: http://www.mit.gov.in 2. Official website of National Association of Software and Service Companies: http://www.nasscom.in/Default.aspx

2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Media & Entertainment


Sector Overview
The Indian Media and Entertainment Industry was estimated at USD 13.7 billion in 2010 and is expected to grow at a CAGR of 14 percent to reach USD 26.9 billion by 2015. The industry recovered in 2010, attaining a y-o-y growth rate of 11 percent compared to a mere 1.4 percent in 2009. The market With more than a 1000 movies made each year, 720 plus television channels, 62,000 newspapers and over 600 million mobile subscribers, India is a large media consuming market, making it of strategic interest to global players. Television and Print are the largest sectors of the industry, contributing about 74 percent of the total revenues. In the past few years, regional media has been a key growth driver of the industry. Established national players are increasing their regional footprints. The Indian media industry has also witnessed rapid growth in digital media and digital distribution platforms: digital cable, Direct-to-Home (DTH) and Internet Protocol Television, digitisation of film prints and digitisation of music libraries and sales of online and mobile music. Under-penetrated market - Low media penetration in rural areas and small towns. The overall media reach in rural areas is 56 percent. - Only 38 percent of the literate population reads any daily newspaper or magazine; the reach in urban areas is 58 percent and 30 percent in rural areas. - The need to capitalise this untapped market has been a key driver for the growth in regional markets

Key Trends
Investment inflow The FDI in the overall Indian Information and broadcasting sector (including print media) totalled USD 309 million by the end of 2010. M&A (2010)
Target Firm

Acquirer/ Investor

Deal Value (USD mn)

Astro All Asia Networks Plc

Sun Direct TV Private Limited Jagran Media Network Private Limited The Indian Film Company Limited NDTV Lifestyle Holdings Private Limited

88

Blackstone

50

Demand Drivers
Favourable demographics - A young population with increasing spending power, higher disposable incomes and rising consumerism are some of the key drivers. - The deprived classs share of the population is expected to be reduced to 35 percent by 2015 from 54 percent in 2005. - Indias per capita income has grown from USD 446 in FY2003 to USD 1211.7 in FY2010 - Increasing spend towards discretionary items Discretionary spending is expected to increase to 61 percent by 2015 from 52 percent in 2005 Liberal foreign investment regime - Foreign investment norms across media segments:
Percentage of FDI permitted
100 percent (26 percent in the case of news and current affairs channel) 100 percent

Viacom18 Media Pvt. Ltd

NA

Astro All Asia Networks

40

Opportunities
The Indian film industry is one of the worlds largest, with more than 1000 movie releases and over 3 million movie goers annually. The Indian film industry stood at USD 1.8 billion in 2010. The industry is projected to grow at a CAGR of 10 percent and reach USD 2.8 billion by 2015. While television (USD 6.2 billion) and print (USD 4 billion) continue to dominate the Indian Media & Entertainment industry, sectors such as digital advertising and gaming, with CAGR (2007-10) of 39 percent and 32 percent respectively, also show tremendous potential in the coming years. The advertising industry is expected to grow from USD 5.6 billion in 2010 to USD 11.4 billion in 2015 at a CAGR of 15 percent. The ad spend as a percentage of GDP is 0.41 percent in India compared to 1.08 percent in the US and world average of 0.8 percent, leaving immense potential for growth.

Media Segments

Television channels

Films

DTH and cable network FM Radio broadcasting

49 percent (FDI + FII) 20 percent (FDI + FII)

Useful Web Links


1. Official Website of Ministry of Information and Broadcasting: www.mib.nic.in 2. Department of Industrial Policy and Promotion: www.dipp.nic.in

News print media

26 percent (FDI + FII); 100 percent for facsimile editions of newspapers

39 | India in Business

Metals & Mining


Sector Overview
India produces 87 minerals, which include four fuels, 10 metallic, 47 non-metallic, 3 atomic and 23 minor minerals (including building and other materials). The wide availability of the minerals in the form of abundant rich reserves was very conducive for the growth and development of the mining sector in India. India is the worlds second largest producer of chromites, third-largest producer of coal, fourth-largest producer of iron ore and fifth-largest producer of manganese ore. The mineral production index (base 1993-94=100) was estimated to be at 208.8 in 2010-11, a 7 percent increase .4 from the 2009-10 level. The value of exported minerals from India in 2009-10 is estimated at around USD 27 billion (`127831cr ) and has grown at CAGR of 12.5 percent between 2005-2006 to 200910. The value of imported minerals in 2009-10 is estimated at around USD 110.7 billion (`524830 cr) and has grown at a CAGR of 21.1 percent between 2005-2006 to 2009-10 Increased connectivity between mines and demand centres, through Favourable Government policies: - 100 percent FDI is permitted for mining of metals. - The Government is planning to come up with a new National Mining Policy, with the objective of better regulating and promoting investment in the sector.

Key Trends
Cumulative FDI in the metallurgical industries and mining sector has been estimated at USD 4.1 billion and USD 797 .8 million respectively between April 2000 and February 2011. Research and development spend is increasing in the industry, as players are focusing on improving technology to produce better grade products and reduce costs. Indias mining sector is highly fragmented, with a large number of small and inefficient mines. 95 percent of operating mines in India produce only about 50 percent of the countrys mineral output. Delay in getting environmental clearances is one of the areas concerns for new mining projects. However, to expedite the approval process, the Government in its new draft mining bill proposes to make State Governments responsible for getting initial environment clearance for projects on behalf of the companies. Increased infrastructure development, such as roads, highways and ports, leads to an improved connectivity between mines and end-users, facilitating evacuation of mined ores at lower cost and higher capacity.

Export Import value of ores and minerals

Opportunities
India is rich in mineral resources and untapped metal reserves potential is estimated at around 82 billion tonnes, leading to opportunities for new mining capacity additions in iron ore, bauxite, coal and gold.
Source: Ministry of Mines, Annual Report 2010-11

Demand Drivers
Infrastructure development projects such as bridges and urban construction, power projects, railways, and airport modernisation provide lucrative business opportunities for iron & steel, zinc and aluminium. The Government has huge plans for coal based power generation capacity additions that will be likely to boost coal demand. Strong growth in the Indian automobile sector is to drive demand for both steel and aluminium. India is strategically located, with its proximity to developed European markets and developing south east Asian markets, to export steel and aluminium.

There are significant opportunities to increase metals consumption, as per capita metal consumption in India is far below the world average. For example, Indias per capita steel consumption is 49 kg as compared to the global average of 198 kg in 2008.

Useful Web Links


1. Ministry of Mines: www.mines.nic.in 2. Department of Industrial Policy & Promotion: www.dipp.nic.in

40 | India in Business

Oil & Gas


Sector Overview
India is the fifth largest consumer of energy. Oil and gas accounts for 42 percent of Indias primary energy consumption. Petroleum products and natural gas together contributed to around USD 30.8 billion (2.8 percent) to the countrys total GDP in 200809. Oil constitutes 30 percent of Indias total imports (2009-10). Petroleum products constitutes 17 percent of Indias total exports (2009-10). As of April 2010, India has 20 refineries with a total capacity of 185.4 mtpa From 2005-06 to 2009-10, consumption of petroleum products increased at 5 percent p.a and gas consumption at 10.4 percent p.a.

Key Trends
Nine rounds of the Government launched New Exploration licensing policy (NELP) have been completed. In the first eight rounds spanning 2000-2010, Production Sharing Contracts for 234 exploration blocks have been signed. Investment commitment under NELP is about USD10 billion on exploration, against which actual expenditure so far under NELP amounts to USD 5.53 billion. In addition to this an investment of USD 6.95 billion has been made on the development of discoveries. The Petroleum and Natural Gas Regulatory Board (PNGRB) has launched a aggressive plan for laying gas transmission and distribution networks across the country. Petrol prices have been decontrolled with effect from June 2010. Partial deregulation for Liquefied Petroleum Gas (LPG) and Diesel could be done very soon, leading to investments in retail. Cumulative FDI in the oil and gas sector has been estimated at USD 3.1 billion between April 2000 and February 2011.

Petroleum Products and Natural Gas Consumption

Opportunities
India has significant potential to explore new oil and gas reserves, as 36 percent of the countrys sedimentary basin is either poorly explored or unexplored. In October 2010 NELP IX was launched, which received 74 bids for 33 oil & gas exploration blocks. India has huge potential to develop unconventional sources of hydrocarbon including shale gas and coalbed methane. The first round of bidding for shale gas blocks is expected to launch by the end of this year. Significant opportunities exist in gas transmission pipelines and City Gas Distribution (CGD) network, as the PNGRB is likely to increase CGD coverage to 250 cities by 2020. India is expected to witness significant LNG capacity additions over the next five years. Indias Liquefied Natural Gas capacity is expected increase from 12.5 mtpa in 2010 to around 35 mtpa by 2016. India is emerging as refining hub, with significant capacity additions being planned over next few years. By 2015, Indias refining capacity is likely to reach around 260 mtpa. Opportunity also exists for oil and gas value chain players. These players could include upstream service providers and manufacturers of steel pipelines, LPG cylinders, valves, tankers, Compressed Natural Gas (CNG) kits and retailers (petrol, auto-LPG, CNG).

Source: PPAC

Demand Drivers
Demand for petroleum products and natural gas is increasing owing to population growth and rapid urbanisation. This in turn has led to increasing power requirements and fuel requirements (given rising vehicle penetration). With energy security becoming a major concern, the Government of India is keen to have investor friendly policies, in order to provide an impetus to exploration activities. India is blessed with a vast coastline, proximity to oil producing countries, and local talent and is thereby favourably located to emerge as an export refinery hub. Owing to the recent availability of domestic gas, expectations of shale gas and increased production from new finds, the demand for natural gas has seen an upsurge given constraints on domestic coal production and its carbon impact.

Useful Web Links


1. Ministry of Petroleum and Natural Gas: http://petroleum.nic.in/ 2. Department of Industrial Policy & Promotion: www.dipp.nic.in

41 | India in Business

Pharmaceutical
Sector Overview
The Indian pharmaceutical industry ranks 3rd in terms of volume and 14th in terms of value globally. Domestic Market: The Indian drug consumption market is strongest among the emerging markets and is backed by a combination of sustainable factors like a growing population, improving healthcare awareness and increasing per capita income along with Government reforms. - Active Pharmaceutical Ingredients (APIs): India ranks among top five API producers, accounting for ~ 6.5 percent of the worlds API production - Formulations (Generics): The domestic formulation market was estimated at USD 8.7 billion in 2009-10 and is expected to maintain a growth rate of 12-14 percent till 2014. Exports: The exports market is a key driving force, accounting for ~ 62 percent of the total market in 2009-10. Contract Research and Manufacturing Services (CRAMS): The market was estimated at ~ USD 4.2 billion in 2010. Biotechnology: It was estimated at USD 3 billion in FY 2010. India now has the infrastructure and capabilities to expand in this segment, with players such as Biocon, Panacea and Serum Institute of India. Discovery research: Indian companies are moving up the value chain with over 60 New Chemical Entities under various stages of development by leading players like Glenmark and Dr Reddys Laboratories. Structured distribution networks: Most Indian players have a strong distribution network and foreign players are likely to invest in Indian players to gain entry into this highly fragmented market. Stringent compliance: India has the highest number of US Food and Drug Administration approved plants (over 120) outside the US. Most Indian players adhere to international regulatory and quality standards such as Good Manufacturing Practice (GMP), International Organization for Standardization (ISO), International Conference on Harmonisation (ICH), Good Laboratory Practice (GLP), and Good Clinical Practice (GCP), thus making India an attractive destination for investment by foreign players and a good fit for the CRAMS industry. Tax reforms: Impending tax reforms by the Government of India such as the Direct Tax Code and Goods and Services Tax reform are expected to give a boost to the industry by doing away with multiple Central and State taxes.

Opportunities
Increasing genericisation - Approximately USD 150 billion worth of drugs is expected to go off-patent by 2015. The value of these drugs going offpatent is expected to peak in 2012. - There is an unprecedented global wave of genericisation and India is well positioned to leverage this opportunity, as is witnessed by the increasing Abbreviated New Drug Application (ANDA) filings and improving compliance standards. Indias share is ~ 31 percent of the total ANDA filings globally. - Governments worldwide are promoting the use of generic drugs to counter soaring healthcare expenditures through various reforms. Mergers and acquisitions - Multinational players are making their presence felt in India in numerous ways; new players are entering the market, old players are increasing their stake, M&As are on the rise; and there is a trend of alliances for marketing and research. - The pharma, biotech and healthcare sectors saw inbound M&A deals to the tune of 52 percent of the total M&A deal value in 2010. There has been an increase in the number of in-licensing and out-licensing deals and collaborative research.

Indian Pharmaceutical Industry

Source: Crisil Research

Useful Web Links


1. Department of Pharmaceuticals: http://pharmaceuticals.gov.in/

Demand Drivers
Rich product portfolios: Most of the sourcing agreements between global and Indian players are to leverage the rich product portfolios. An example is Pfizers commercialisation deal with Aurobindo (75 drugs and 12 injectables and with Strides (sterile products). Another example is the GSK-Dr. Reddys deal where GSK will gain exclusive access to Dr. Reddys portfolio of ~100 branded products for emerging markets.

2. Department of Industrial Policy & Promotion: www.dipp.nic.in

42 | India in Business

Ports
Sector Overview
The Indian coastline, dotted by 13 major ports and about 176 nonmajor ports, offers immense investment opportunities, given the fact that ~ 95 percent (by volume) of Indias export-import trade occurs through ports.

Planned Investment in Port Infrastructure

Petroleum Products and Natural Gas Consumption

Source: Planning Commission, KPMG Analysis Note: Investment plans at 2006-07 prices; 1 USD = `45, figure in chart rounded off; * Based on estimations in Maritime Agenda 2010-20 from Ministry of Shipping

Demand Drivers
Growing export-import as well as domestic trade, particularly that in the container segment, which is growing at ~ 15 percent, is one of the key drivers. The Shipping Ministrys proposal to invest over USD 34 billion across the ports sector in the XII Plan would provide the much needed step increase in investment in the sector. Infrastructural developments like those of the Delhi-Mumbai Industrial Corridor and coastal area-specific power and steel plants and refineries constitute another set of demand drivers. The growing realisation of the significance of coastal shipping as a cost-effective and environment-friendly means of transportation is also a driving force in the development of ports. The States of Gujarat, Maharashtra, Andhra Pradesh and Orissa have the highest number of operational and proposed Greenfield ports, totalling over 40 projects. Certain States have been able to score over others by focusing on key issues including land acquisition, tax incentives, water and power connectivity and attractive concession fee/periods. The port sector is increasingly witnessing the development of port-based industrial clusters and SEZs, such as the one at Mundra Port. Also, SEZs have been notified near the selected major ports of Cochin, Kandla and New Mangalore.

Opportunities
The key opportunities within the port sector lie in port development and management, EPC (port construction, dredging etc.), and port-related services such as pilotage, towage, and Container Freight Stations.

Key Trends
Private investments are expected to increase from USD 4 billion in X Plan to over USD 7 billion in XI Plan, constituting 80 percent of total planned investments in the XI Plan. While the overall port capacity is projected to increase from ~ 960 million tonnes in 2009-10 to over 2,600 million tonnes in 2016-17 growing at CAGR ~ 15.2 percent (2009-10 to 2016, 17), the traffic is also estimated to increase from ~ 850 million tonnes in 2009-10 to over 2,000 million tonnes in 2016-17 , growing at CAGR ~ 13.2 percent (2009-10 to 2016-17).

Useful Web Links


1. Department of Shipping: http://shipping.nic.in 2. Indian Ports Association: http://www.ipa.nic.in 3. Department of Industrial Policy & Promotion: www.dipp.nic.in

43 | India in Business

Power
Sector Overview
India ranks fifth in the world in terms of total installed power generation capacity. As on 31 December 2010, the total installed capacity for power generation is 169.7 GW. Around 54 percent of this comes from coal, 22 percent from hydro, 10 percent from gas and the remaining 13 percent is contributed by diesel and renewables. From 2004-05 to 2009-10, peak electricity demand in India is increasing at 6.2 percent per annum and supply is increasing at 5.9 percent per annum.

Opportunities
Currently India ranks as one of the lowest in terms of per capita consumption of power, at approximately 717 Kwh as compared to the world average of 2490 Kwh (2007-08). However, with economic development the peak demand for electricity is expected to increase at 7 percent per .7 annum from 2008-09 to 2021-22. This is expected to open up opportunities for players in this sector. India is currently marked by a demand supply mismatch where it faces a 14 percent peak power deficit. To meet this gap, more power generation capacity is required, which is likely to unlock many opportunities. As reported in the 17th Electricity Power Survey of India, Indias peak load demand is expected to more than double from 100 GW in 2006-07 to 218 GW by the end of twelfth plan (2016-17). India has significant potential for renewable energy. Government of India estimates have projected a renewable energy requirement of 100 GW by 2031- 32.Solar energy alone has a potential of producing more than 100 GW of power, less than one percent of which is exploited. There are opportunities in transmission network ventures additional 60,000 circuit kilometres of transmission network is expected by 2012.

Peak Demand Supply Gap in India (in GW)

Source: CEA

Useful Web Links Demand Drivers


Robust economic growth along with rapid industrialisation and urbanisation is leading to growing demand for energy. Increasing importance of clean energy and concerns over energy security are pushing the scope for development of renewable energy in India. Favourable regulatory policy and Government initiatives: - 100 percent FDI is allowed (except for nuclear power). - Income tax holidays are allowed for a block of ten years in the first 15 years of operation. - Government initiatives like the Ultra Mega Power Projects, Accelerated Rural Electrification Programme, Rajiv Gandhi Grameen Vidhyutikaran Yojana, and the goal of Power for All by 2012 are likely to rapidly increase the installed capacity of power generation, transmission and distribution. 1. Official website of Ministry of Power, Government of India: http://powermin.nic.in/ 2. Official website of Central Electricity Authority: http://www.cea.nic.in/ 3. Department of Industrial Policy & Promotion: www.dipp.nic.in

Key Trends
Cumulative FDI in the power sector has been estimated at USD 5.8 billion between April 2000 and February 2011. Investment in power sector is expected to increase from USD 73 billion in the Tenth Fife Year Plan to USD 167 billion during the Eleventh Five Year Plan. Power generation capacity additions by private players have grown rapidly and their share in the total capacity is likely to go up from less than 10 percent in the Tenth Five Year Plan to 32 percent during the Eleventh Five Year Plan (2007-2012).

Retail
Sector Overview
Retail is one of the fastest growing sectors in India, especially over the last few years. With growing market demand, the industry is expected to grow at a pace of 25-30 percent annually. The retail sales account for 33 percent of Indias GDP and employees number over 38 million people in India, accounting for 8.5 percent of the total employed population in the country. Retail in India is highly fragmented, consisting predominantly of independent and owner-managed shops. Organised retail accounts for less than 10 percent of retail sales but is growing at more than 20 percent y-o-y. 100 percent FDI is allowed in cash-and-carry wholesale formats and up to 51 percent in trade of Single Brand products.

Opportunities
The retail boom, which has so far been concentrated in the metros, is beginning to percolate down to smaller cities and towns. The rural market is projected to dominate the retail industry landscape in India by 2012 with total market share of above 50 percent. India has one of the largest numbers of retail outlets in the world. The sector is witnessing exponential growth, with retail development taking place not only in major cities and metros, but also in Tier II and Tier III cities Retail companies are expected to tap the rural segment as their key driver of growth as it accounts for two fifths of the retail consumption pie. The organised Indian retail industry has also begun witnessing an increased level of activity in the private label space, which is expected to grow further in the near future. Development of India as a sourcing hub shall further make India an attractive retail opportunity for global retailers. Retailers, such as Tesco, J.C. Penney, etc. are stepping up their sourcing. Retail franchising has been growing at a very fast pace, with over 600 franchisors and more than 40,000 franchisees across the country.

Demand Drivers

Useful Web Links


1. Department of Industrial Policy & Promotion: www.dipp.nic.in

Key Trends
Increasing awareness of Indian consumers As a result of the increasing literacy, exposure to the West, and satellite television, there is a significant increase in consumer awareness among the Indians. Changes in consumer needs, attitudes and behaviour The growth of modern retail is connected to consumer needs, attitudes and behaviour. Rising income levels, education and global exposure have contributed to the evolution of the Indian middle class. Increased credit friendliness The boom in financing and easy availability of credit has resulted in an increase in spend on housing and consumer durables such as two-wheelers and cars. The use of plastic money (credit and debit cards) has increased significantly in the last three-four years.

45 | India in Business

Roads and Highways


Sector Overview
The road sector forms the backbone of domestic infrastructure in India, given that the share of highways in domestic freight movement has jumped from a low of 11 percent of 82 million tonnes in 1950-51 to 61 percent of 2,555 million tonnes in 2007-08. This massive dependence of the economy on road infrastructure has resulted in a manifold increase in investment in the sector.

Planned investement in Road infrastructure

XI Five Year Plan - Public vs. Private Investment

Source: Planning Commission, KPMG Analysis Note: Investment plans at 2006-07 prices, includes road bridges; 1 USD = `45

Demand Drivers
The Governments focus on developing road infrastructure has been the prime driving force in the sector. In the XII Plan, an expenditure of ~ USD 140 billion is estimated to come from public/private sources. Increasing demand in Tier II cities is creating multiple consumption hubs instead of the conventional demand islands in select metropolitan cities, thus resulting in the need for improved and efficient road transportation. Driven by an uptrend in organised retailing, the increasing need for last mile reach, feasible only via extensive road networks, is driving the development of state and rural roads.

Opportunities
Given the huge investment space to private sector, opportunities in highway and expressway development are immense. Particularly, most of the projects under Phase III (~ 9,100 km, `1,041 Billion) of the National Highway Development Programme are expected to be awarded on a Build-Operate-Transfer basis during 2010-15.

Useful Web Links


1. Department of Road Transport and Highways: http://morth.nic.in

Key Trends
Private financing has been increasing: against USD 2 Billion of private funding in the X Plan, a sum of ~ USD 10 Billion is expected in the XI Five Year Plan illustrating a five-fold rise in funding in the sector. The sector is witnessing increased focus on the construction of expressways in an attempt to provide dedicated road connectivity between near-placed important cities. A total of ~18,600 km of Greenfield national expressways is planned till 2022.

46 | India in Business

Telecom
Sector Overview
The Indian telecommunications sector has witnessed a steady growth over the years, stimulating developments such as rollout of newer circles by operators, successful auction of 3G and the Broadband Wireless Access spectrum. Indian telecom revenues including the services and equipment sector are projected to reach USD 45 billion by 2012. Wireless subscribers contribute more than 790 million out of 826 million total subscribers as of Feb, 2011. Broadband subscribers have risen from 2.2 million in Feb 2007 to 11.4 million by Feb 2011

Key Trends
The Indian telecom sector has attracted USD 1.33 billion as FDI during April-January 2010-11. The cumulative FDI from April 2000 to January 2011 is USD 10.26 billion. The rural subscriber base is expected to become nearly half of the total base by 2014. 3G service revenue in India is expected to grow at a CAGR of around 130 percent during the FY 2010-2013. Capital expenditure is to decline in the short term, driven by the higher spectrum cost of 3G allocations and slower traffic growth in the wireless segment. Low operational costs due to infrastructure sharing and outsourcing contracts enabled operators to reduce tariffs in this highly competitive market.

Total Subscribers & Teledensity

Opportunities
The wireless subscriber base is expected to exceed 1 billion by 2014, with urban subscribers contributing around 572 million and rural subscribers contributing 468 million. The share of VAS in wireless revenue is likely to increase to 12-13 percent by 2011 and 20 percent by 2013 The Indian telecom equipment market is expected to be worth around USD 77 USD 111 billion by 2015. The number of telecom towers is expected to reach 571,000 by 2015.

Source: Telecom Regulatory Authority of India *Figures are available till January, 2011

Useful Web Links Demand Drivers


Progressive regulatory frameworks such as 100 percent FDI in telecom manufacturing, 3G spectrum auctions, Mobile Number Portability and Universal Service Fund implementation, etc. have facilitated strong competition and provide an attractive business environment for the telecoms sector. Growing population and increasing disposable income have also led to an increase in uptake of mobile services, taking the countrys mobile penetration to more than 65 percent. Low mobile tariffs due to high competition have given a chance to customers to access telecom services. Availability of low priced handsets has also propelled the adoption of wireless services across the country. Emergence of telecom manufacturing in India is expected to provide a huge thrust to the indigenous telecom sector. Increasing focus on the unsaturated rural market by telecom players is expected to increase rural penetration from 39 percent as of Feb 2011 to more than 50 percent in next few years. 1. Ministry of Communication and Information Technology: http://www.dot.gov.in/ 2. Department of Telecommunications: http://www.dot.gov.in/osp/osp.html

47 | India in Business

Textile
Sector Overview
The Indian textile industry stood at USD 55 billion in 2009-10, of which 64 percent was contributed by the domestic market. - The industry contributes nearly 14 percent to Indias industrial production, 4 percent to the GDP and 17 percent , to the nations total export earnings. The Indian textile industry is globally recognised with many distinctions: - India is the largest exporter of yarn in the world, with a global cotton yarn exports share of 25 percent. - It accounts for 12 percent of the global production of textile fibres and yarn. - The industry is ranked second, in terms of spindleage, next only to China. - It has the highest loom capacity, including handlooms, with a global share of 61 percent. The industry is the second largest provider of employment after agriculture: - Nearly one in every six households in the country depends on this industry, either directly or indirectly, for its livelihood.

Key Trends
Textile in India is a traditional, robust and well established industry, witnessing considerable demand from the domestic as well as global market. India has a strong raw material production base and a vast pool of cheap labour that helps meet the incremental demand of the textile industry. Cloth production grew by 5.8 percent in February 2010 over February 2009, with the hosiery sector (9.1 percent), followed by powerloom sector (5.9 percent), leading the growth. Cloth production has witnessed an annual growth of 3.5 percent on an average since 2000. - The powerloom sector has been the major driver of this growth. It accounts for nearly 63 percent of the total cloth production in the country. The production of yarn and fabric has witnessed annual growth of 1.9 percent and 2.7 percent respectively since 2000, with man-made yarn driving the growth. Globally, the shelf life of apparels is shrinking from five to six months to around two months. This is likely to benefit the Indian SME apparel manufacturers by providing them the flexibility to deliver custom-made orders at low cost. With FDI allowed under the Automatic Route for the spinning, weaving, processing, garments and knitting sectors, the industry has attracted FDI worth USD 1.1 billion as of October 2010.

Export Revenues

Opportunities
Source: Ministry of Textiles

There is rising domestic demand, especially in the kids garment category. Government policies are shifting from being regulatory to supportive. Initiatives such as the TUFS, the Integrated Skill Development Scheme and SITP will aid development of the sector. The Working Group for the Eleventh Five Year Plan (2007-2012) has estimated that the technical textiles market will grow from USD 5.29 billion in 2006-07 to USD 10.6 billion in 2011-12. The Government is establishing Centres of Excellence around specific textile sectors to foster research-driven growth. The current manufacturing capacities cannot suffice for the growth in demand. Hence, capital investments in textile machineries to enhance production are expected to increase.

Demand Drivers
Increase in domestic demand: Consumer preferences of Indians are shifting towards branded readymade garments. The increase in disposable income is enabling them to purchase readymade garments and hence increasing demand for such garments. Rise in exports: There has been a rising demand for Indian textiles and apparel products from the US and EU markets, which together account for nearly 75 percent of the total demand. - Exports to the US increased by 27 percent after the Multifiber Arrangement was abolished in 2005. Supportive Government policies: Initiatives such as the Technology Upgradation Fund Schemes (TUFS), the Integrated Skill Development Scheme and the Scheme for Integrated Textile Park (SITP) will aid development of the sector.

Useful Web Links


1. 2. Ministry of Textiles: http://texmin.nic.in/ Apparel Export Promotion Council: http://www.aepcindia.com/ 48 | India in Business

Tourism
Sector Overview
India continues to be a favoured tourist destination for leisure as well as business travel. Foreign tourist arrivals have increased at a CAGR of 7 percent .3 between 2005 and 2010. Foreign exchange earnings have also increased, at a CAGR of 13.6 percent over the same period. The direct contribution of the travel and tourism industry to GDP is expected to be around USD 34 billion (1.9 percent of total GDP) in 2011 while the total contribution is expected at USD 79.7 billion (4.5 percent of GDP) in 2011. The Indian hotel industry, being a direct beneficiary of the growth in the economy and the tourism industry, has also recorded strong growth over the past few years. Outbound travel is also becoming affordable given the affluent middle class and availability of attractive tour packages. The number of Indian nationals on outbound tours increased from 7 million in 2005 to 11.07 million in 2009. .18 Several initiatives by the Ministry of Tourism, such as the visit India year 2009 campaign, promotion of niche products like wellness tourism, and extensive road shows in partnerships with stakeholders in major overseas source markets, have contributed to a positive growth in the recent past.

Key Trends
As per WTTC estimates, capital investment in travel and tourism was USD 22.9 billion in 2010, an increase of about 18.7 percent over 2009. Travel and tourism investment is estimated at USD 26.7 billion or 4.7 percent of total investment in 2011. Capital investment is expected to rise by 8.7 percent per annum to reach USD 72.8 billion in 2021. During the Eleventh Five Year Plan, the tourism sector under the Central Plan was allocated an outlay of about of about USD 912 mn at constant prices, of which around 58 percent has been spent over the years FY08-FY10. An outlay of about USD 210 million has been approved for 201011.

Tourism sector growth

Opportunities
Government expenditure on the industry is rising from a low base. The Ministry of Tourism has sanctioned 875 tourism projects in the Eleventh Five Year plan (up to September 2010), entailing a total investment of about USD 551 million. This is about 37 percent higher than the USD 402 million spent over the entire Tenth Five Year Plan. Medical tourism is a major growth driver as India enjoys considerable cost advantages vis--vis the Western world. As a comparison: a liver transplant costs around USD 300,000 in the US; in India, a new liver transplant can cost just USD 69,000. Medical tourism in the country is expected to grow at 29 percent to reach USD 2.4 billion by 2012. The Ministry of Tourism has been promoting new tourism products such as rural tourism, cruise tourism, adventure tourism, medical tourism, wellness tourism, eco-tourism, and heliport tourism that are expected to increase the inflow of tourists in the country.

Source: Ministry of Tourism

Demand Drivers
The Government has been focused on upgradation of physical infrastructure as well as tourism infrastructure in the region. Upgradation of national highways to expressways, connecting major cities and towns in India, has created integrated tourist circuits. Further, new airports in various cities are expected to improve connectivity between major city centres in the country. Domestic tourism has grown on the back of rising affordability and affinity for leisure travel. As per the World Travel and Tourism Council (WTTC), domestic tourism and travel spending has increased at a CAGR of 12.6 percent over the period 2005-10 to reach USD 67 billion in 2010. .06

Useful Web Links


1. Ministry of Tourism: http://tourism.nic.in/

49 | India in Business

50 | India in Business

5. State Profiles
Andhra Pradesh
Socio-Economic Overview
Andhra Pradesh, located in the southern part of India, is the fourth-largest state in India after Rajasthan, Madhya Pradesh and Maharashtra. Geographical Area: 275,100 sq km Capital: Hyderabad Administrative districts (number): 23 Key languages: Telugu, Hindi, English and Tamil Gross State Domestic Product (GSDP): `4,113.5 billion (USD 86.7 billion) for the year 2009-2010 and has grown at a CAGR of 14.5 percent over 2006-2010 Per Capita Net State Domestic Product: `44,081 (USD 930) for the year 2009-2010 and has grown at a CAGR of 13.4 percent over 2006-2010

Advantage Andhra Pradesh


Hub for knowledge-based industries: The State has emerged as a hub for the knowledge-based industry including Biotechnology, IT, and Pharmaceuticals, with the presence of over 70 of the 500 top global corporations in the State. Policy and fiscal incentives: The State offers extensive fiscal and policy incentives for businesses under the Industrial Investment Promotion Policy 2010-2015. Facilitating infrastructure: The State has well developed infrastructure, connectivity, power supply, airport, IT and port infrastructure. Rich labour pool: The state has a large pool of skilled workforce, making it an ideal destination for the knowledge sectors. The state also has a large pool of semi-skilled and unskilled labour, particularly in the 15 to 49 age group.

Break-up of Investments by Sector Andhra Pradesh

Useful Web links


Government of Andhra Pradesh: http://www.aponline.gov.in/apportal/index.asp Commissionerate of Industries: http://www.apind.gov.in/

Contact Details
Andhra Pradesh Industrial Development Corporation Limited Parisrama Bavan, 5-9-58/B, Fateh Maidan Roa, Hyderabad 500 004, A.P (INDIA). . Phone: +91-40-23235253-56. Fax: +91-40-23235516, 23236756. E-mail: apidc@ap.gov.in Web site: www.apic.org, www.apidc.gov.in Commissioner of Industries Chirag Ali Lane, Abids, Hyderabad 500 001 Phone: +91-040-23441666 Source: CMIE, IBEF Fax: +91-040-23441611 E-mail: comm._ind@ap.gov.in Website: www.apind.com

Source: CMIE, IBEF

Sectoral Trends
Investment: Andhra Pradesh has outstanding investments of USD 146.1 billion as of March 2010. Key sectors: IT/ITeS, Biotechnology, Agro and Food processing industry FDI: The state received foreign investment inflows amounting to USD 4.8 billion between April 2000 and May 2010.

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Arunachal Pradesh
Socio-Economic Overview
Arunachal Pradesh, located in the far northeast bordering the states of Assam and Nagaland to the south, and shares international boundaries with China in the north, Bhutan in the west and Burma in the east. Geographical Area: 83,743 sq km Capital: Itanagar Administrative Districts (number): 16 Key languages: Assamese, Bengali and Hindi GSDP: `45.36 billion (USD 0.98 billion) for the year 2008-2009 and has grown at a CAGR of 15.8 percent over 2006-2009 Per Capita Net State Domestic Product: `33,302 (USD 721.7) for the year 2008-2009 and has grown at a CAGR of 14.3 percent over 2006-2009

Advantage Arunachal Pradesh


International trade opportunities: A suitable geographical location of the state provides opportunities for international trade with countries like Bhutan, Myanmar and China. It is well connected by roadways with 6 national highways connecting rest of India the bordering countries. Rich and varied agro-climatic conditions: Topography and agro-climatic conditions of the state offers immense opportunities for horticulture and growing fruits, vegetables, spices, aromatic and medicinal plants among others. Facilitating industrial infrastructure: With 12 industrial estates, across the districts the state government has notified integrated infrastructure development centres, industrial growth centres and industrial areas in order to support the states infrastructure. Policy and Fiscal Incentives: The State Government promotes business in the state and offers many fiscal and policy incentives. The state also has sector specific policies for industries that are related to power and agriculture.

Break-up of Investments by Sector Arunachal Pradesh

Useful Web links


Government of Arunachal Pradesh: http://arunachalpradesh.nic.in State Departments: http://arunachalipr.gov.in/StateDepData.htm
Source: CMIE, IBEF

Sectoral Trends
Investment: Arunachal Pradesh has outstanding investments of USD 23.7 billion as of March 2010. Key Sectors: Art and Craft, Weaving, Cane and Bamboo, Carpet Weaving, Wood Carving, Ornaments, Tourism, Horticulture and Saw mills and Plywood FDI: The state received foreign investment inflows amounting to USD 64 million between April 2000 and May 2010.

52 | India in Business

Assam
Socio-Economic Overview
Assam is located to the South of the Eastern Himalayas; the State is a gateway to Northeast India. Geographical Area: 78,438 sq km Capital: Dispur Administrative districts (number): 27 Key languages: Assamese, Bodo and Bengali GSDP: `880.2 billion (USD 18.6 billion) for the year 2009-2010 and has grown at a CAGR of 11.1percent over 2006-2010 Per Capita Net State Domestic Product: `26,242 (USD 553) for the year 2009-2010 and has grown at a CAGR of 9.3 percent over 2006-2010

Advantage Assam
Largest economy in Northeast India: The State is the largest economy and the most industrially advanced State in the Northeast India. Availability of natural resources: The State has abundant natural resources such as natural oil and gas, rubber, tea, and minerals such as granite, limestone and kaolin and also water resources. Location advantage: The state is Indias gateway to the neighbouring countries of Myanmar, China, Bangladesh, Nepal and Bhutan, providing a vital link for trade with the Southeast Asian countries. Availability of skilled workforce: Apart from having numerous educational institutions, a significant portion of the city population in the age group of 15 to 25 years is computer literate.

Sectoral Trends
Investment: Assam has outstanding investments of USD 11.4 billion as of March 2010. Key sectors: Tea, Coal and Oil & Gas, Sericulture FDI: The state received foreign investment inflows amounting to USD 4.8 billion between April 2000 and May 2010.

Useful Web links


Government of Assam: http://assamgovt.nic.in

Contact Details Break-up of Investments by Sector Assam


Assam Industrial Development Corporation Ltd. R.G. Barua Road, Guwahati 781 024 Phone: +91-361-2201215, 2202216 Fax: +91-361-2202017 E-mail: aidcltd1@sancharnet.in

Source: CMIE, IBEF

53 | India in Business

Bihar
Socio-Economic Overview
Bihar is located in Eastern India and is one of the most denselypopulated States in the country. Geographical Area: 94,163 sq km Capital: Patna Administrative Districts (number): 38 Key languages: Hindi, English, Urdu and Bhojpuri GSDP: `1,550.5 billion (USD 32.7 billion) for the year 20092010 and has grown at a CAGR of 18.2 percent over 2006-2010 Per Capita Net State Domestic Product: `14,654 (USD 309) for the year 2009-2010 and has grown at a CAGR of 16.9 percent over 2006-2010

Advantage Bihar
High economic growth: The economy of the State has grown at around 16.7 percent from 2005-06 to 2009-10. The State provides investment opportunity in sectors like agro and food processing, power, sugar, manufacturing, leather and tourism. Policy and fiscal incentives: The State offers extensive fiscal and policy incentives for businesses under the Industrial Policy 2006. Location advantage: The State is in proximity to the Eastern and Northern Indian markets. Access to the ports such as Kolkata and Haldi and accessibility of raw-material sources and mineral reserves from the neighbouring states are likely to be advantages for the State. Rich labour pool: The State has a large pool of industrial labour, making it ideal for a wide range of industries. The state also has institutes like the National Institute of Technology and Indian Institute of Technology, which are sources of skilled manpower for enterprises.

Sectoral Trends
Investment: Bihar has outstanding investments of USD 23.7 billion as of March 2010. Key Sectors: Food processing and Chemical and Power FDI: The state received foreign investment inflows amounting to USD billion between April 2000 and May 2010.

Useful Web links


Government of Bihar: http://gov.bih.nic.in/

Break-up of Investments by Sector Bihar

Contact Details
Udyog Mitra Indira Bhawan Ramcharitra Singh Path Patna 800 001 Phone: +91-0612-2232695 E-mail: udyogmitrabihar@yahoo.co.in Website: www.industries.bih.nic.in

Source: CMIE, IBEF

54 | India in Business

Chhattisgarh
Socio-Economic Overview
Chhattisgarh is located in central India. It shares borders with the states of Madhya Pradesh, Maharashtra, Uttar Pradesh, Bihar, Orissa, and Andhra Pradesh. Geographical Area: 1,35,191 sq km Capital: Raipur Administrative districts (number): 18 Key languages: Chhattisgarhi, Hindi and English GSDP: `1,078.5 billion (USD 22.7 billion) for the year 20092010 and has grown at a CAGR of 20.6 percent over 2006-2010 Per Capita Net State Domestic Product: `38,534 (USD 813) for the year 2009-2010 and has grown at a CAGR of 18.6 percent over 2006-2010

Advantage Chhattisgarh
Availability of mineral resources: The State has significant limestone, rock phosphate, coal, iron-ore, copper, manganese, mica, bauxite, and asbestos and also has proven diamond reserves along with potential gold reserves. Policy and fiscal incentives: The State offers fiscal and policy incentives for businesses under its Industrial Policy, 2009. Additionally, the state offers certain well drafted policies for energy, minerals and IT/ITeS sectors. Power Surplus: The State is presently one of the few states in India offering surplus power, mainly owing to the presence of coal. The State is an ideal location for setting up pit head-based thermal power plants. Availability of a rich labour pool: The State has a high worker participation rate, with most of the labour force falling in the age group of 15 to 39 years. The State also enjoys the lowest losses in terms of man-days attributed to labour problems in India.

Sectoral Trends
Investment: Chhattisgarh has outstanding investments of USD 24.3 billion as of March 2010. Key sectors: Mining and Power, Iron and Steel and Cement FDI: The state received foreign investment inflows amounting to USD 23.6 billion between April 2000 and May 2010.

Useful Web links


Government of Chhattisgarh: http://chhattisgarh.nic.in/ Chhattisgarh State Industrial Development Corporation Limited: http://www.csidc.in

Break-up of Investments by Sector Chhattisgarh Contact Details


Chhattisgarh State Industrial Development Corporation B-4, M.R. colony Shailendra Nagar, Raipur 492 001, Chhattisgarh, India Phone: +91-771-429024, 420094 Fax: +91-771-429025

Source: CMIE, IBEF

55 | India in Business

Goa
Socio-Economic Overview
Goa is located in the western region of India. Goa shares borders with Karnataka and Maharashtra. Geographical Area: 3,702 sq km Capital: Panaji Administrative Districts (number): 2 Key languages: Konkani, Marathi, Portuguese, Hindi and English GSDP: `172.2 billion (USD 4.3 billion) for the year 2007-2008 and has grown at a CAGR of 13.9 percent over 2006-2008 Per Capita Net State Domestic Product: `105,582 (USD 2,622) for the year 2007-2008 and has grown at a CAGR of 15.9 percent over 2006-2008

Advantage Goa
Significant presence in tourism, mining and pharmaceuticals: Tourism is the key revenue generator in the State. Additionally, the State contributes highly to Indias iron ore exports. It is also a growing base for the pharmaceuticals industry and an emerging place for IT and biotechnology sectors. Policy and fiscal incentives: The State offers fiscal and policy incentives for businesses under its Industrial Policy, 2003. Additionally, the State offers certain well drafted policies and incentives for IT and biotechnology sectors. Good infrastructure facilities: The state offers well developed physical, social and industrial infrastructure and connectivity as well as international airport and port infrastructure. Availability rich labour pool: The State has high a literacy rate, attracting players from the pharmaceuticals, biotechnology and IT related industries.

Sectoral Trends
Investment: Goa has outstanding investments of USD 1,893 million as of March 2010. Key Sectors: Tourism, Fishery, Mining FDI: The state received foreign investment inflows amounting to USD 698 billion between April 2000 and May 2010.

Useful Web links


Government of Goa: http://www.goa.gov.in/ Goa Industrial Development Corporation: http://www.goaidc.com/home.html

Break-up of Investments by Sector Goa

Goa Chambers of Commerce and Industry: http://www.goachamber.org/

Source: CMIE, IBEF

56 | India in Business

Gujarat
Socio-Economic Overview
Gujarat has a strategic location with access to major ports of UK, Middle East, Africa, East Asia and Australia. In India, the State attracts the fourth most FDI destination and accounted for nearly 5 percent of FDI inflow in India during the period April 2000 to January 2011. Geographical Area: 196,024 sq km Capital: Gandhinagar Administrative districts (number): 26 Key languages: Gujarati GSDP: `3800.96 billion (USD 80.2 billion) for the year 20092010 and has grown at a CAGR of 13.8 percent over FY 20062010 Per Capita Net State Domestic Product: `49,251 (USD 1067) for the year 2008-2009 and has grown at a CAGR of 12.9 percent over FY 2006-2009

Advantage Gujarat
Political and Social Stability - The Government is putting high impetus on industrial and service sector growth, which is facilitating a friendly investment climate in Gujarat. State of infrastructure - The State has a better infrastructure as compared to the other States - 42 ports, 13 domestic airports and one international airport. It also has extensive road and rail networks. The State has a proactive Government taking strides in ports, power and water to create critical infrastructure. High level of industrialisation and urbanisation - As of 2009, Gujarat contributes 16 percent to the industrial production of the country. The investment in the State increased from USD 14 billion in 2003 to USD 243 billion in 2009. It has emerged as an industrial hub as Indias most industrialised State and pays approximately 27 percent of the tax of India. Conducive Government Polices - It is the only State where the Government has framed policies in almost all key sectors such as industry, power, ports, road, IT, agriculture, minerals and tourism.

Sectoral Trends
Investment: Gujarat has outstanding investments of USD 257 .3 billion as of March 2010. Key sectors: Oil & Gas, Pharmaceuticals and Power FDI: During April 2000 March 2010, the FDI inflows in Gujarat were USD 6.6 billion.

Useful Web links


Government of Gujarat: http://www.gujaratindia.com/ Industrial Extension Bureau, Gujarat: http://www.indextb.com/

Break-up of Investments by Sector Gujarat (2010)

Source: CMIE, IBEF

57 | India in Business

Haryana
Socio-Economic Overview
Haryana is an industrial State, emerging as a base for the knowledge-industry including IT and biotechnology. It is bordered by Punjab, Himachal Pradesh and Rajasthan. Geographical Area: 44,212 sq km Capital: Chandigarh Administrative Districts (number): 21 Key languages: Hindi and Punjabi GSDP: `2,095.1 billion (USD 44.2 billion) for the year 20092010 and has grown at a CAGR of 18.5 percent over 2006-2010 Per Capita Net State Domestic Product: `77 ,878 (USD 1,642.3) for the year 2009-2010 and has grown at a CAGR of 16.8 percent over 2006-2010

Advantage Haryana
High level of industrialisation: The State has emerged as a hub for the automotive and IT-ITeS sector with a large presence of MNCs; 93 of Fortune 100 companies have their corporate offices and production bases in Haryana. Strategic location: Around 40 percent of the National Capital Region of Delhi falls in Haryana. Given this proximity, the availability of skilled and manpower and professionals is high. State of infrastructure: The State has reliable infrastructure facilities in relation to well-developed industrial estates and developed commercial markets. The State has one of the highest per capita incomes, raising the potential for property development and retailing.

Sectoral Trends
Investment: Haryana has outstanding investments of USD 85.1 billion as of March 2010. Key Sectors: Food Grain, Exports, Automotives FDI: The State received foreign investment inflows amounting to USD 23.7 billion between April 2000 and May 2010.

Useful Web links


Government of Haryana: http://haryana.gov.in/ Investment Promotion Center, Government of Haryana: www.haryanainvest.org

Contact Details
Haryana State Industrial Development Corporation (HSIDC) Plot number C-13&14, Sector 6, Panchkula 134 109 Phone: +91-172-2590481-83, 2590312 Fax: +91-172-2590474 Website: http://www.hsiidc.org/hfi.htm E-mail: hsiidc@chd.nic.in

Break-up of Investments by Sector Haryana

Source: CMIE, IBEF

58 | India in Business

Himachal Pradesh
Socio-Economic Overview
Himachal Pradesh, a State in northern India, has a population of over 6.1 million. It is bordered by Jammu & Kashmir, Haryana, Uttar Pradesh and China. Geographical Area: 55,673 sq km Capital: Shimla Administrative districts (number): 12 Key languages: Hindi, Pahari and Punjabi GSDP: `422.8 billion (USD 8.9 billion) for the year 2009-2010 and has grown at a CAGR of 13.3 percent over 2006-2010 Per Capita Net State Domestic Product: `49,211 (USD 1037 for the year 2009-2010 and has grown at a CAGR of 9.7 .7) percent over 2006-2010

Advantage Himachal Pradesh


Availability of natural resources: The State has abundant natural resources suitable for the growth of industries like agro-based, pharma, etc. High level of industrialisation and urbanisation: As of December 2010, there are 460 medium and large scale industries with a total investment of about USD 2.68 billion in the state. Himachal Pradesh has emerged as a hub for industries, especially textile, pharmaceuticals and packaging. Policies and incentives: High focus from Government on providing various incentives, for a conducive environment for the industrial sectors. State of infrastructure: Along with well developed industrial, social and physical infrastructure systems the State has a strong hydro power base.

Sectoral Trends
Investment: Himachal Pradesh has outstanding investments of USD 16.3 billion as of March 2010. Key sectors: Agro-based industry, Pharmaceuticals and Tourism FDI: The State received foreign investment inflows amounting to USD 772 million between April 2000 and May 2010.

Useful Web links


Government of Himachal Pradesh: http://himachal.nic.in/welcome.asp Department of Industries, Government of Himachal Pradesh: http://himachal.gov.in/industry/welcomelat.htm

Break-up of Investments by Sector Himachal Pradesh

Source: CMIE, IBEF

59 | India in Business

Jammu & Kashmir


Socio-Economic Overview
Jammu and Kashmir is the northern most State of India, consisting of three regions Jammu, the Kashmir Valley and Ladakh. Geographical Area: 222,236 sq km Capital: Srinagar (summer capital), Jammu (winter capital) Administrative Districts (number): 22 Key languages: Urdu, Kashmiri, Dogri and Hindi GSDP: `317 billion (USD 7 billion) for the year 2007-2008 .9 .8 and has grown at a CAGR of 9.4 percent over 2006-2008 Per Capita Net State Domestic Product: `24,214 (USD 601.2) for the year 2007-08 and has grown at a CAGR of 7 .8 percent over 2006-2008

Advantage Jammu & Kashmir


Tourist destination: Being a naturally pollution free state, tourism in Jammu & Kashmir holds the potential of emerging as the bulwark of the rural economy. Floriculture & horticulture: Jammu & Kashmir has an agroclimatic condition best suited for horticulture and floriculture. The State is also blessed with rich resources of water, agro, forests, herbs and minerals, which sets the base for a robust industrial sector. Setting up of business: The cost of setting up operations is lower, coupled with an industrial policy that offers incentives through a single-window clearance mechanism. Availability of skilled labour: The State has an abundance of skilled weavers and designers of textile products.

Sectoral Trends
Investment: Jammu & Kashmir has outstanding investments of USD 16.9 billion as of March 2010. Key Sectors: Horticulture and Floriculture, Handicrafts, Tourism, IT and ITeS

Useful Web links


Government of Jammu and Kashmir: http://jammukashmir.nic.in/ J&K SIDCO: http://www.jksidco.org/

Break-up of Investments by Sector Jammu & Kashmir

60 | India in Business

Jharkhand
Socio-Economic Overview
Located in Eastern India, Jharkhand was carved out of southern Bihar in the year 2000 to form a separate State. It hosts around 40 percent of Indias mineral wealth. Geographical Area: 79,714 sq km Capital: Ranchi Administrative districts (number): 24 Key languages: Hindi, Santhali, Urdu, Bengali GSDP: `830.8 billion (USD 17 billion) for the year 2009-2010 .5 and has grown at a CAGR of 10.9 percent over 2006-2010 Per Capita Net State Domestic Product: `21,465 (USD 452.7) for the year 2008-09 and has grown at a CAGR of 7 .2 percent over 2006-2009

Advantage Jharkhand
Extensive mineral reserves: Jharkhand has around 40 percent of Indias mineral wealth and is one of the largest producers of coal, mica and copper in India. This poses immense potential for industrialisation. Policy initiatives: The State provides a range of fiscal and policy incentives to industries and has specific policies for IT and SEZ. Strategic location: Jharkhand enjoys a location-specific advantage owing to its proximity to large markets in Eastern India and the ports of Kolkata and Haldia.

Useful Web links


Government of Jharkhand: http://jharkhand.gov.in/ Department of Industries, Government of Jharkhand: http://www.jharkhandindustry.in/

Sectoral Trends
Investment: Jharkhand has outstanding investments of USD 110.5 billion as of March 2010. Key sectors: Pharmaceuticals and Biotechnology, Engineering and Cement industry FDI: Bihar and Jharkhand together received FDI inflows of USD 0.4 million from April 2000 to May 2010.

Break-up of Investments by Sector Jharkhand

Source: CMIE, IBEF

61 | India in Business

Karnataka
Socio-Economic Overview
Karnataka, located in the southern region of the country, is Indias ninth most populous State. Geographical Area: 191,791 sq km Capital: Bangalore Administrative Districts (number): 29 Key languages: Kannada, Tulu, Kodava, Hindi and English GSDP: `2,984.6 billion (USD 62.9 billion) for the year 20092010 and has grown at a CAGR of 12.9 percent over 2006-2010 Per Capita Net State Domestic Product: `45,199 (USD 953.2) for the year 2009-2010 and has grown at a CAGR of 12.0 percent over 2006-2010

Advantage Karnataka
IT hub: Being the science capital of India, Karnataka is known for its knowledge-based industries like IT, biotechnology and engineering and leads in IT and ITeS exports. Policy and fiscal incentives: The State has well drafted sector-specific policies for biotechnology, IT, business process outsourcing (BPO) and textiles. It has one of the most congenial industrial environments in the country, facilitated by a large pool of human resources and a single window clearance system. Sound infrastructure: The State has well-developed social, physical and industrial infrastructure. It has five airports and substantial port infrastructure. High economic growth: The State is targeting about 9 percent annual growth during the Eleventh Five Year Plan period (2007-12).

Sectoral Trends
Investment: Karnataka has outstanding investments of USD 149.9 billion as of March 2010. Key Sectors: IT and ITeS, Biotechnology, Telecom and Electronics FDI: The State received foreign investment inflows amounting to USD 7 billion between April 2000 and May 2010. .2

Useful Web links


Government of Karnataka: http://www.karnataka.gov.in Karnataka Udyog Mitra: http://www.kumbangalore.com/

Contact Details Break-up of Investments by Sector Karnataka


Directorate of Industries & Commerce Government of Karnataka 2nd Floor, Khanija Bhavan, Race course Road Bangalore 560 001, India E-mail: commissioner@karnatakaindustry.gov.in Website: www.karnatakaindustry.gov.in

Source: CMIE, IBEF

62 | India in Business

Kerala
Socio-Economic Overview
Kerala is located in the southern most part of the west coast of the country and has the highest literacy rate (in the country) at 93.1 percent. Geographical Area: 38,863 sq km Capital: Thiruvananthapuram Administrative districts (number): 14 Key languages: Malayalam, Hindi, Tamil and English GSDP: `1,898.4 billion (USD 41.1 billion) for the year 2008-09 and has grown at a CAGR of 14.8 percent over 2006-2009 Per Capita Net State Domestic Product: `49,316 (USD1,068.7) for the year 2008-2009 and has grown at a CAGR of 14.3 percent over 2006-2009 leading agricultural States in the country. The State has also been promoting knowledge-based industries such as IT/ITeS, computer hardware and biotechnology. State of infrastructure: Kerala has a well developed social, physical and industrial infrastructure with a good network of airports and ports.

Useful Web links


Government of Kerala: http://www.kerala.gov.in Department of Industries: http://www.keralaindustry.org/

Contact Details
Directorate of Industries & Commerc (DI&C) Vikas Bhavan P .O Thiruvananthapuram Kerala 695 033 Phone: +91-471-2302774 Fax: +91-471-2305493 E-mail: tvm_dindust@sancharnet.in Website: www.keralaindustry.org Kerala State Industrial Development Corporation (KSIDC) Keston Road, Kowdiar, Thiruvananthapuram, Kerala 695 003 Phone: +91-471-2318922 Fax: +91-471-2315893 E-mail: info@ksidc.org Cochin Office, II Floor, Choice Towers, Manorama Junction, Kerala 682 016 Phone: +91-484-2323010 Fax: +91-471-2323011 E-mail: ksidcko@vsnl.net.in Website: www.ksidc.org

Sectoral Trends
Investment: Kerala has outstanding investments of USD 46.6 billion as of March 2010. Key sectors: Coir, IT and Tourism FDI: The State received foreign investment inflows amounting to USD 332 million between April 2000 and May 2010.

Break-up of Investments by Sector Kerala

Source: CMIE, IBEF

Advantage Kerala
Tourist attraction: Kerala is becoming increasingly popular as a tourist destination. Triruvananthapuram, Thekkady, Kovalam, Palakkad and Ponmudi, amongst others, are the popular tourist centres. Literacy rate: High literacy rates have ensured the availability of skilled manpower and the presence of renowned institutions such as the National Institute of Technology, Calicut. Agriculture and IT centre: Kerala is marked by an abundance of natural and mineral resources and is accordingly one of the 63 | India in Business

Kerala Industrial Infrastructure Development Corporation (KINFRA) TC 31/2312, KINFRA House, Sasthamangalam, P .O Thiruvananthapuram 695 010 Phone: +91-471-2726585 Fax: +91-471-2724773 E-mail: kinfra@vsnl.com Website: http://www.kinfra.org/ Kerala Bureau of Industrial Promotion (K-bip) TC IX/2197 Kurups Lane, Sasthamangalam P .O Thiruvananthapuram 695 010 Phone: +91-471-2311882 Fax: +91-471-2311883 E-mail: bureau@vsnl.com

Madhya Pradesh
Socio-Economic Overview
Madhya Pradesh is located in central India. Geographical Area: 308,000 sq km Capital: Bhopal Administrative Districts (number): 50 Key languages: Hindi, Marathi and English GSDP: `1,944.27 billion (USD 41.0 billion) for the year 20092010 and has grown at a CAGR of 13.4 percent over 2006-2010 Per Capita Net State Domestic Product: `24,146 (USD 509.2) for the year 2009-2010 and has grown at a CAGR of 11.5 percent over 2006-2010

Advantage Madhya Pradesh


Agriculture and forest resources: Madhya Pradesh is marked by an abundance of natural resources, as nearly 31 percent of the States area is under forest cover. Favourable soil and climatic conditions in the region have also helped in making the State a leading producer of coarse cereals and oilseeds. Central location: Being centrally located, companies located in the region have easy access to key consumer markets and major cities like Delhi, Mumbai, Kolkata and Chennai. Mineral resources: The State has rich mineral resources, with the largest reserves of diamonds and copper in India. It also has reserves of coal, coal-beds, methane, manganese and dolomite. Industrial base: The state is a manufacturing base for a number of large and medium size industries from various sectors like automobiles, auto-components, cement, and consumer goods among others.

Sectoral Trends
Investment: Madhya Pradesh has outstanding investments of USD 78.4 billion as of March 2010. Key Sectors: Auto and auto components, Textiles and Agrobased industries FDI: The state received foreign investment inflows amounting to USD 206 million between April 2000 and May 2010.

Useful Web links


Government of Madhya Pradesh: http://www.mp.gov.in/ Madhya Pradesh State Industrial Development Corporation Ltd (MPSIDC): http://www.mpsidc.org/

Break-up of Investments by Sector Madhya Pradesh

Source: CMIE, IBEF

64 | India in Business

Maharashtra
Socio-Economic Overview
Located in the western region of India, Maharashtra is the third largest State in India in terms of its area and second largest in terms of population. Geographical Area: 307 ,713 sq km Capital: Mumbai Administrative districts (number): 35 Key languages: Marathi, Konkani, Hindi and English GSDP: `8,319.7 billion (USD 175.4 billion) for the year 20092010 and has grown at a CAGR of 17 percent over 2006-2010 .3 Per Capita Net State Domestic Product: `64,953 (USD 1,369.7) for the year 2009-2010 and has grown at a CAGR of 15.9 percent over 2006-2010

Advantage Maharashtra
Labour availability: With a literacy rate of 76.9 percent, Maharashtra has a large pool of skilled and industrial labour, making it a suitable destination for knowledge-based and manufacturing sectors. Trade and commerce hub: Mumbai being the trade and commerce capital of India, Maharashtra has emerged as a key hub for the IT and ITeS, electronics and captive business outsourcing industries. Infrastructure: The State has a well developed social, physical and industrial infrastructure, with a good network of road, rail, port and air connectivity. Exports: The States total exports were USD 49.3 billion during 2008-09. The Government has identified the IT and ITeS, biotechnology and food processed industries for export promotion.

Sectoral Trends
Investment: Maharashtra has outstanding investments of USD 212.4 billion as of March 2010. Key sectors: Pharmaceuticals and biotechnology: IT and electronics, and Engineering FDI: The state received foreign investment inflows amounting to USD 40.2 billion between April 2000 and May 2010.

Useful Web links


Government of Maharashtra: http://www.maharashtra.gov.in/ Maharashtra Industrial Development Corporation: http://www.midcindia.org/

Break-up of Investments by Sector Maharashtra

Source: CMIE, IBEF

65 | India in Business

Manipur
Socio-Economic Overview
Manipur is a hill state situated in the eastern-most corner of Northeast India. It is the land of jewels with diverse culture in martial arts, dance, theatre and sculpture. Geographical Area: 22,327 sq km Capital: Imphal Administrative Districts (number): 9 Key languages: Meeteilon (Manipuri), Hindi and English GSDP: `63.4 billion (USD 1.37 billion) for the year 2008-2009 and has grown at a CAGR of 7 percent over 2006-2009 .8 Per Capita Net State Domestic Product: The Per Capita NSDP for Manipur amounts to `21,062 (USD 456.4) for the year 2008-2009 and has grown at a CAGR of 5.8 percent over 2006-2009

Advantage Manipur
Conducive agricultural environment: Manipur has a conducive agricultural environment owing to varied agroclimatic conditions for growing various horticultural crops. Medicinal and aromatic plants: Manipur grows a variety of rare and exotic medicinal and aromatic plants. Link with southeast Asian countries: The town of Moreh offers a feasible land-route between India and Mynamar and is a gateway to other Southeast Asian countries. Infrastructure: The State has a good infrastructure network with three national highways. Imphal is a beautiful tourist destination blessed with a variety of attractions such as lakes, parks and mountains.

Sectoral Trends
Investment: Manipur has outstanding investments of USD 4.3 billion as of March 2010. Key Sectors: Khadi and village industry, Handloom, Sericulture FDI: The state received foreign investment inflows amounting to USD 64 million between April 2000 and May 2010.

Useful Web links


Government of Manipur: http://manipur.gov.in/ Invest in Manipur: http://investinmanipur.nic.in/

Break-up of Investments by Sector Manipur

Source: CMIE, IBEF

66 | India in Business

Meghalaya
Socio-Economic Overview
Meghalaya is a State in north-eastern India. It shares its border with Assam in the north and Bangladesh in the south. Geographical Area: 22,429 sq km Capital: Shillong Administrative districts (number): 7 Key languages: English, Khasi, Pnar and Garo GSDP: `96.1 billion (USD 2.1 billion) for the year 2008-2009 and has grown at a CAGR of 14.2 percent over 2006-2009 Per Capita Net State Domestic Product: `33,674 (USD 729.8) for the year 2008-2009 and has grown at a CAGR of 13.0 percent over 2006-2009

Advantage Meghalaya
Rich natural resources: The State has abundant natural resources medicinal plants, forests, coal, limestone, granite, industrial clay among others. Conducive agricultural environment: Meghalaya has favourable agro-climatic conditions which support agriculture, horticulture and forestry. Skilled labour: With a literacy rate of 62.6 percent, Meghalaya has a strong higher education infrastructure. Institutional support: Meghalaya provides excellent institutional support through many Central and State Government agencies, like the North East Council and Meghalaya Industrial Development Corporation.

Sectoral Trends
Investment: Meghalaya has outstanding investments of USD 2.5 billion as of March 2010. Key sectors: Floriculture, Medicinal plants and bamboo, and Hydroelectric power

Useful Web links


Government of Meghalaya: http://meghalaya.nic.in/ Industries Department, Government of Meghalaya: http://megindustry.gov.in/

Break-up of Investments by Sector Meghalaya

Source: CMIE, IBEF

67 | India in Business

Mizoram
Socio-Economic Overview
Mizoram is a hilly state, at an altitude on 1,000 metres, located in North East India. Geographical Area: 21,081 sq km Capital: Aizawl Administrative Districts (number): 8 Key languages: Mizo and English GSDP: `38.09 billion (USD 825.47 million) for the year 20082009 and has grown at a CAGR of 8.77 percent over 20062009 Per Capita Net State Domestic Product: `30,292 (USD 656.48) for the year 2008-2009 and has grown at a CAGR of 5.96 percent over 2006-2009

Useful Web links


Government of Mizoram: http://mizoram.nic.in/ Invest in Mizoram: http://investinmizoram.nic.in/

Contact Details
Mizoram Industrial Development Corporation M.G. Road Upper Khatla Aizawal 796 001 Phone: +91-389-2323217 2326240 , E-mail: zidco@sancharnet.in

Sectoral Trends
Key Sectors: Horticulture Industry

Advantage Manipur
Abundant Natural Resources The State contributes 14 percent to the countrys total bamboo production. This is ideal for setting up agricultural and forestry produce-based industries. Easy Trade Access Mizoram shares its borders with Myanmar and Bangladesh, offering a gateway to trade with Southeast Asian countries. Policy Incentives Mizoram offers incentives for promotion of export-oriented industries. The improved road, rail and air connectivity is also contributing towards the growth of trade. Easy availability of labour - The State has a literacy rate of 88.8 percent, offering a skilled workforce which is well versed in English.

68 | India in Business

Nagaland
Socio-Economic Overview
The state of Nagaland is one of the north-eastern states, bordering the Indian states of Assam, Arunachal Pradesh and Manipur as well as Indias neighbour Myanmar. Geographical Area: 15,527 sq. km. Capital: Kohima Administrative districts (number): 11 Key languages: English GSDP: `59.8 billion (USD 1.3) for the year 2006-2007 and has grown at a CAGR of 8.9 percent over 2005-2007 Per Capita Net State Domestic Product: `20,892 (USD 463) for the year 2006-2007 and has grown at a CAGR of 3.1 percent over 2005-2007

Advantage Nagaland
Institutional support and fiscal incentives: The State provides institutional support through agencies such as the North East Council, Nagaland Industrial Development Council, etc., policy/fiscal incentives for most of the dominant industries and also facilitates development of infrastructure including SEZs. Skilled manpower: A high literacy rate of 67 percent .1 coupled with over 80 percent of the population capable of speaking English ensures availability of skilled labour. Favourable natural conditions: Favourable agro-climatic conditions and availability of natural resources such as minerals and hydropower additionally place Nagaland in an advantageous position.

Sectoral Trends
Investment: Nagaland has outstanding investments of USD 665 million as of March 2010. Key sectors: Bamboo, Agriculture and food processing and Hydropower Other sectors: Other key industries in the State include horticulture, minerals and petrochemicals, tourism, handlooms and handicrafts, sericulture, IT and medicinal plants. FDI: The state received foreign investment inflows amounting to USD 64 million between April 2000 and May 2010.

Useful Web links


Government of Nagaland: http://www.nagaland.nic.in

Contact Details
Nagaland Industiral Development Corporaion Ltd IDC House, Dimapur 797 112 Nagaland Phone: +91-3862-230571/72/72 Fax: +91-3862-226473 E-mail: nidc@nagaind.com

Break-up of Investments by Sector Nagaland

Source: CMIE, IBEF

69 | India in Business

Orissa
Socio-Economic Overview
Orissa is an Eastern coastal state of India sharing borders with Jharkhand, West Bengal, Chhattisgarh and Andhra Pradesh. Geographical Area: 1,55,707 sq km Capital: Bhubaneswar Administrative Districts (number): 30 Key languages: Oriya, Hindi and English GSDP: `1509.46 billion (USD 31.83 billion) for the year 20092010 and has grown at a CAGR of 17 percent over 2006-2010 .8 Per Capita Net State Domestic Product: `32,814 (USD 691.99) for the year 2009-2010 and has grown at a CAGR of 16.9 percent over 2006-2010 Rich Resources: The State has one of the richest reserves of minerals in India which it uses to its advance to develop a globally recognised mining industry. Rich Labour Pool: Per the Census 2001, there are nearly 14.3 million workers in the state. The availability of this vast labour pool helps the State support its labour-intense mineral-based industries. Robust Power Infrastructure: Orissa boasts of a robust power infrastructure that is capable of supporting its industrial power requirements. Easy Investment Policies: The State has enacted the Orissa Industries (Facilitation) Act, 2004, a single-window clearance system to attract domestic and international investments. Orissa boasts of seven industrial zones, ten SEZs (another five been notified, as of June 2010) and 84 industrial estates.

Sectoral Trends
Investment: Orissa has outstanding investments of USD 203.9 billion as of March 2010. Key Sectors: Iron and Steel, Ferroalloy, Aluminium and Mining, Services and Power/ Electricity FDI: The state has received foreign investment inflows amounting to USD 246 million between April 2000 and May 2010.

Useful Web links


Government of Orissa: http://orissa.gov.in/Portal/default.asp

Contact Details
Industrial Promotion and Investment Corporation of India (IPICOL) IPICOL House, Janpath Bhubaneshwar 751 002 Orissa, India Phone: +91-674-2542601-03, 2542607-08 Fax: +91-674-2543766 E-mail: info@teamorisa.org Website: www.teamorissa.org Industries Department Government of Orissa Bhubaneshwar 731 022 Orissa, India Phone: +91-674-2536640, 2390253 Fax: +91-674-2536819, 2396299 E-mail: indsec@ori.nic.in Website: http://as.ori.nic.in/diorissa/ Directorate of Industries Kila Maidan Cuttack 753 001 Orissa, India Phone: +91-671-2301892 Fax: +91-671-2301227 E-mail: diorissa@ori.nic.in Website: http://as.ori.nic.in/diorissa/

Break-up of Investments by Sector Orissa

Source: CMIE, IBEF

Advantage Orissa
Vast Coastline: Orissa has a vast coastline of nearly 450 kms with one major (Paradeep) and 12 minor ports. The state exploits this to its advantage to export its mineral-based outputs, globally. - Exports have drastically increased from USD 1.2 billion in 2004-05 to USD 3.0 billion in 2008-09. Mineral (52.4 percent) and metallurgical products (32.9 percent) are the leading contributors to exports.

70 | India in Business

Punjab
Socio-Economic Overview
Punjab lies in the northern part of the Indian Peninsula and as its borders the State has the Pakistani province of Punjab to its west, Jammu and Kashmir in the north, Himachal Pradesh in the northeast, Haryana in the south and southeast and Rajasthan in the southwest. Geographical Area: 50,362 sq km Capital: Chandigarh Administrative districts (number): 20 Key languages: Punjabi, Hindi, Urdu and English GSDP: `1,923.6 billion (USD 40.6 billion) for the year 20092010 and has grown at a CAGR of 14.8 percent over 2005-2010 Per Capita Net State Domestic Product: `61,035 (USD 1,287 for the year 2009-2010 and has grown at a CAGR of 13 .1) percent over 2005-2010

Advantage Punjab
High level of urbanisation: Chandigarh has one of the best electricity distribution systems in India. Under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), a total of six projects costing USD 153 million have been sanctioned for Amritsar and Ludhiana. Five of these projects will be located in Amritsar. Rich labour pool: The state has a large pool of skilled labour. The state has 6 universities and 232 graduate colleges. The state is encouraging private participation in technical and vocational education. State of infrastructure: The state has well-developed social and industrial infrastructure. It also has good road, rail and air connectivity. The telecommunications and utilities infrastructure is also well-developed.

Sectoral Trends
Investment: Punjab has outstanding investments of USD 35.7 billion as of March 2010. Key sectors: Textile, Light Engineering Goods, and Automotive and Automotive Components FDI: The State received foreign investment inflows amounting to USD 0.8 billion between April 2000 and May 2010.

Useful Web links


Government of Punjab: http://punjabgovt.nic.in Department of Industries: http://www.pbindustries.gov.in/

Contact Details
The Punjab State Industrial Development Corporation Ltd Udyod Bhawan, 18, Himalaya Marg, Sector 17 , Chandigarh (India) Phone: +91-172-2702881-84, 2702791 Fax: +91-172-704145 E-mail: psidc@chd.nic.in, psidc@dot1.net.in Website: http://pujabgovt.nic.in/Industry/PSIDC.htm#9

Break-up of Investments by Sector Punjab

Source: CMIE, IBEF

71 | India in Business

Rajasthan
Socio-Economic Overview
Rajasthan is one of the largest States of India, bordering six major states of Northern, Western and Central India. Geographical Area: 342,239 sq km Capital: Jaipur Administrative Districts (number): 33 Key languages: Hindi, Marwari and Jaipuri (Dhundhari) GSDP: `2197 billion (USD 46.34 billion) for the year 2009.69 2010 and has grown at a CAGR of 11.31 percent over 20062010 Per Capita Net State Domestic Product: `28,885 (USD 609.13) for the year 2009-2010 and has grown at a CAGR of 9.91 percent over 2006-2010

Advantage Rajasthan
Stable Law and Order: Rajasthan has a good law and order situation, which provides a favourable industrial-relations environment with negligible incidents of labour unrest. Progressive Government Policies: The State offers various policy and fiscal incentives to promote commerce in the State, particularly in sectors such as tourism, biotechnology, IT and ITeS. Large Base of Resources: It provides a variety of unexploited resources such as agricultural and mineral resources. Rich Tourism: The strong cultural context, rugged forts, the Thar Desert, bird sanctuaries, national parks and unique handicrafts make Rajasthan an attractive destination for tourists.

Sectoral Trends
Investment: Rajasthan has outstanding investments of USD 53.6 billion as of March 2010. FDI: The State received foreign investment inflows amounting to USD 470 million between April 2000 and May 2010.

Useful Web links


Government of Rajasthan: http://www.rajasthan.gov.in/ Rajasthan State Industrial Development & Investment Corporation Department Ltd (RIICO): http://www.riico.co.in/

Break-up of Investments by Sector Rajasthan

Source: CMIE, IBEF

72 | India in Business

Sikkim
Socio-Economic Overview
Sikkim is a mountainous state in the Eastern Himalayan region of India which is bordered by Nepal in the west, China to the north and the east and Bhutan in the southeast. Within India, West Bengal is situated to the south of Sikkim. Geographical Area: 7 ,096 sq km Capital: Gangtok Administrative districts (number): 4 Key languages: Nepali and English GSDP: `26.12 billion (USD 0.56 billion) for the year 2008-2009 and has grown at a CAGR of 12.6 percent over 2005-2009 Per Capita Net State Domestic Product: `37 ,553 (USD 813.8) for the year 2008-2009 and has grown at a CAGR of 12.1 percent over 2005-2009

Advantage Sikkim
Policy and fiscal incentives: The State provides various incentives and concessions to industries for investment through the North East Industrial Investment Promotion Policy, 2007 . Institutional support: Various central and State Government agencies of the state viz., the North East Council, Ministry of Development of North Eastern Region, Commerce and Industries Department, extend excellent institutional support. Facilitating infrastructure: The state is well connected by roads (National Highway - 31A) and the connectivity through rail and air is also developing. Sikkim is one of the States with highest tele-density and is also developing optical-fibre connectivity for greater transmission bandwidths and high data rate. Rich labour pool: Sikkim offers a rich pool of quality employable graduates due to the high literacy rate (68.7 percent compared to 64.8 percent of all States) and initiatives such as the setting up of Sikkim Manipal University and the Sikkim University.

Sectoral Trends
Investment: Sikkim has outstanding investments of USD 4.7 billion as of March 2010. Key sectors: Tourism, Agriculture, Handlooms and handicrafts and Hydroelectric power FDI: The State of Kolkata (cumulative of West Bengal, Sikkim, Andaman and Nicobar Islands) received foreign investment inflows amounting to USD 1.5 billion between April 2000 and December 2010.

Useful Web links


Official website of government of Sikkim: http://www.sikkim.gov.in/ Commerce and Industry Department, Sikkim: http://sikkimindustries.nic.in/index.htm

Break-up of Investments by Sector Sikkim

Contact Details
Sikkim Industrial Development and Investment Corporation Limited Tashiling Secretariat Gangtok 737 103 Phone: +91-3592-202851 Fax: +91-3592-202851

Source: CMIE, IBEF

73 | India in Business

Tamil Nadu
Socio-Economic Overview
Tamil Nadu lies in the southernmost part of the Indian Peninsula and is bordered by the states of Puducherry, Kerala, Karnataka and Andhra Pradesh. Tamil Nadu is the eleventh-largest and the seventh-most populous state in India. Geographical Area: 130,058 sq km Capital: Chennai Administrative Districts (number): 32 Key languages: Tamil and English GSDP: `3,795.03 billion (USD 80.03 billion) for the year 2009-2010 and has grown at a CAGR of 12.7 percent over FY 2006-2010 Per Capita Net State Domestic Product: `45,058 (USD 976.48) for the year 2008-2009 and has grown at a CAGR of 12.5 percent over FY 2006-2009

Advantage Tamil Nadu


High level of industrialisation and urbanisation: Tamil Nadu has the highest rate (43.86 percent as per the census 2001) among all States and is home to several flourishing industrial sectors. Rich labour pool: The State has a large skilled, English speaking workforce. Tamil Nadu is among the States with the highest standards of education and literacy. Political and social stability: The State has a stable political environment with single-party Government. It also has a decent standard of living with a low crime rate. State of infrastructure: Chennai hosts a developed infrastructure system and has been rated better than many other big cities in various independent site evaluation studies.

Sectoral Trends
Investment: Tamil Nadu has outstanding investments of USD 135.4 billion as of March 2010. Key Sectors: IT/ITeS, Automotives, Textiles FDI: The state received foreign investment inflows amounting to USD 5.7 billion between April 2000 and May 2010.

Useful Web links


Government of Tamil Nadu: http://www.tn.gov.in/ Tamil Nadu Industrial Department Corporation Limited: http://www.tidco.com/

Contact Details
Tamil Nadu Industrial Development Corporaiton Ltd. (Govt. of Tamil Nadu Enterprise) 19-A, Rukmani Lakshmipathy Salai, Egmore, Chennai 600 008, India Phone: +91-44-28588364, 28553866 Fax: +91-44-8553867 Website: http://www.tidco.com/ Tamil Nadu Industrial Investment Corporation (TIIC) 692, Anna Salai, Nandanam, Chennai 600 035 Phone: +91-44-24331485, 24331498, 24331203 E-mail: tiicltd@vsnl.com Website: http://www.tiic.org State Industrial Promotion Corporation of Tamil Nadu Ltd (SIPCOT) 19A, Rukmani Lakshmipathi Road, Egmore, Chennai 600 008 Phone: +91-44-28554787 28554623, 28554816 , E-mail: sipcot@md3.vsnl.net.in Website: www.sipcot.com

Break-up of Investments by Sector Tamil Nadu

Source: CMIE, IBEF

74 | India in Business

Tripura
Socio-Economic Overview
Tripura lies in North-East India surrounded by Assam and Mizoram on the east and Bangladesh on the north, south, and west. Geographical Area: 10492 sq km Capital: Agartala Administrative districts (number): 4 Key languages: Bengali and Kokborok/Tripuri GSDP: `10,821 crore (USD 2686.8 million) for the year 20072008 and has grown at a CAGR of 9.3 percent over 2005-2008 Per Capita Net State Domestic Product: `28,806 (USD 715) for the year 2007-2008 and has grown at a CAGR of 8 percent over 2005-2008

Advantage Tripura
Natural Resources: Tripura is endowed with natural resources like natural gas, oil, rubber, tea and bamboo. International Trade: Tripura is well connected with northeastern states and Bangladesh and could be the potential gateway for international trade between Bangladesh and North East India. Abundant Electricity: The State is presently power-surplus (outside the six-hour peak period). The power tariffs are much lower compared to other states. Availability of Skilled Manpower: As the majority of Tripuras population falls under the working age group, this, coupled with a literacy rate of 73.2 percent, higher than the national average rate, provides a large pool of talented manpower.

Sectoral Trends
Investment: Total outstanding investments in the state have been estimated at USD 4.3 billion, as on March 2010. Key Sectors: Natural gas, Rubber, Tea, Food processing FDI: Cumulative FDI inflows in north-eastern states including Tripura have been estimated at USD 64 million between April 2000 and May 2010.

Useful Web links


Government of Tripura: http://tripura.nic.in/ Department of Industries and Commerce: http://tripuraindustries.in/index.html

Break-up of Investments by Sector Tripura

Source: CMIE, IBEF

75 | India in Business

Uttar Pradesh
Socio-Economic Overview
Uttar Pradesh is amongst the most populous states of India, consisting of more than 16 percent of the countrys population. Though it is not an industrial powerhouse, it is the base of a large number of small scale industrial units in India. Geographical Area: 240,928 sq km Capital: Lucknow Administrative Districts (number): 70 Key languages: Hindi, English and Urdu GSDP: `4913.02 billion (USD 103.60 billion) for the year 20092010 and has grown at a CAGR of 12.14 percent over 20062010 Per Capita Net State Domestic Product: `21,874 (USD 462.28) for the year 2009-2010 and has grown at a CAGR of 10.46 percent over 2006-2010

Advantage Uttar Pradesh


Robust Infrastructure: Uttar Pradesh has well-developed infrastructure providing connectivity via four National Highways, six airports and rail links to all major cities. Progressive Government Policies: The State Government has also provided a range of subsidies, fiscal and policy incentives to businesses under the Industrial and Service Sector Investment Policy, 2004. Large Workforce Base: Uttar Pradesh is home to a large base of skilled, semi-skilled and unskilled labour, making it an ideal destination for all kinds of sectors Stable Political Scenario: It has a stable political scenario with a single-party Government committed towards creating a rich business climate through several policies and incentives.

Sectoral Trends
Investment: Uttar Pradesh has outstanding investments of USD 85.2 billion as of March 2010. Key Sectors: Manufacturing, Cement and Sugar FDI: The state received foreign investment inflows amounting to USD 113 million between April 2000 and May 2010.

Useful Web links


Government of Uttar Pradesh: http://www.upgov.nic.in/ U.P Industries, Government of Uttar Pradesh: . http://upgov.nic.in/indusdev/ Uttar Pradesh State Industrial Development Corporation Limited: http://www.upsidc.com/

Break-up of Investments by Sector Uttar Pradesh

Source: CMIE, IBEF

76 | India in Business

Uttarakhand
Socio-Economic Overview
Uttarakhand, constituting the northern boundary of the country, shares borders with Tibet in the north and Nepal in the east and inter-State boundaries with Himachal Pradesh in the west and northwest and the Gangetic plains of Uttar Pradesh in the south. Geographical Area: 53,483 sq km Capital: Dehradun Administrative districts (number): 13 Key languages: Hindi, Garhwali and Kumaoni GSDP: `468.72 billion (USD 9.9 billion) for the year 2009-2010 and has grown at a CAGR of 15.7 percent over 2006-2010 Per Capita Net State Domestic Product: `42,031 (USD 886.4) for the year 2009-2010 and has grown at a CAGR of 14 percent over 2006-2010

Advantage Uttarakhand
Abundant natural resources: Uttarakhand has abundant natural resources because of its hills and forests which provide a wide variety of flora and fauna. It has abundant water resources, favouring hydro power generation. The agro-climatic conditions also favour horticulture-based industries. Abundant labour pool: The average level of literacy in the state is higher than the national average. A large pool of talented human resources is available here as Uttarakhand has some of the leading educational institutions in the country. Political and social stability: The State has a stable political environment with successive Governments that have been committed towards creating a progressive business environment. This has enabled a decent standard of living for its people. Policy and fiscal incentives: The State Government is keen to promote business in the State. It offers a wide range of benefits in terms of tax exemptions, interest incentives, financial assistance, subsidies and concessions through its various departments and schemes.

Sectoral Trends
Investment: Uttarakhand has outstanding investments of USD 19.9 billion as of March 2010. Key Sectors: Agro and food processing, Floriculture and horticulture and Tourism FDI: The State received foreign investment inflows amounting to USD 113 million between April 2000 and May 2010.

Useful Web links


Government of Uttarakhand: http://uk.gov.in/ State Infrastructure and industrial Development Corporation of Uttarakhand (SIDCUL): http://www.sidcul.com/sidculweb/home.aspx

Break-up of Investments by Sector Uttarakhand

Source: CMIE, IBEF

77 | India in Business

West Bengal
Socio-Economic Overview
West Bengal is located in Eastern India and to its northeast lie the states of Assam and Sikkim and the country of Bhutan, and to its southwest lies the state of Orissa. To the west, it borders the states of Jharkhand and Bihar, and to the northwest, Nepal Geographical Area: 88,752 sq km Capital: Kolkatta Administrative Districts (number): 19 Key languages: Bengali, English and Hindi GSDP: `3,539.7 billion (USD 76.7 billion) for the year 2008-09 and has grown at a CAGR of 15.6 percent over 2006-2010 Per Capita Net State Domestic Product: `41,617 (USD 877 for the year 2009-2010 and has grown at a CAGR of 14.2 .6) percent over 2006-2010 Competitive cost of operation: Kolkata, which is a metropolitan city, has a lower cost of business operation as compared to the other cities such as New Delhi, Bangalore, Chennai, Hyderabad and Mumbai. This makes Kolkata an attractive destination to set up a business. Geographical advantage: West Bengal has a distinct location advantage as it is the gateway to the east. It is the traditional domestic market for Eastern India, the northeast and the land-locked countries of Nepal and Bhutan. The State is also an entry point to markets in Southeast Asia, via the northeastern States. Excellent connectivity: West Bengal is well connected by all means of transport and provides excellent connectivity, both domestic and international. Major stretches of the golden quadrilateral project also pass through the northern districts of the State.

Sectoral Trends
Investment: West Bengal has outstanding investments of USD 120 billion as of March 2010. Key Sectors: Tea and jute, Iron and steel Information technology and Leather FDI: The State received foreign investment inflows amounting to USD 1.4 billion between April 2000 and May 2010.

Useful Web links


Government of West Bengal: http://www.wbgov.com/ West Bengal Industrial Development Corporation Ltd: http://www.wbidc.com/

Contact Details Break-up of Investments by Sector West Bengal


West Bengal Industrial Development Corporation Ltd. 5, Council Street House Koltaka 700 001 Phone: +91-33-22105361-65 E-mail: wbidc@vsnl.com Webstie: www.wbidc.com West Bengal Small Industries Development Corporation Ltd. Shilpa Bhavan, 31 Black Burn Lane, Kolkata 700 012 Phone: +91-33-22367241 West Bengal Industrial Infrastructure Development Corporation P-34, CIT Road, Kolkata 700 014 Phone: +91-33-22160362 E-mail: iidc@vsnl.net Website: www.wbiidc.org West Bengal Tourism Development Corporation Ltd. Netaji Indoor Stadium Kolkata 700 001 Phone: +91-33-22107250

Source: CMIE, IBEF

Advantage West Bengal


Abundant natural resources: West Bengal has abundant natural resources of minerals and suitable agro-climatic conditions for agriculture, horticulture and fisheries. West Bengal also has a prosperous hinterland of rich minerals along with the States of Jharkhand, Bihar and Orissa. The Raniganj coal belt accounts for over 30,147 million metric tonnes of quality coal.

78 | India in Business

Delhi (Union Territory, Country Capital)


Socio-Economic Overview
Delhi is the capital of India and one of the largest metropolises in India. Geographical Area: 1,483 sq km Administrative districts (number): 9 Key languages: English, Hindi, Punjabi, Bihari and Haryanvi GSDP: `1,659.5 billion (USD 36 billion) for the year 2008-2009 and has grown at a CAGR of 16.2 percent over 2006-2009 Per Capita Net State Domestic Product: `88,421 (USD 1,916) for the year 2008-2009 and has grown at a CAGR of 13.2 percent over 2006-2009

Advantage Delhi
Seat of Government: Delhi, being the seat of the Central Government, enjoys a strategic position in terms of formulations of policies and is also an important centre for trade and commerce. Policy and fiscal incentives: The State offers lucrative fiscal and policy incentives for businesses under its Industrial Policy, 2010-2021. Good infrastructure facilities: The State offers well developed physical, social and industrial infrastructure and connectivity owing to the considerable infrastructure development that has happened in the region over the last 20 years. Availability of a rich labour pool: The state has a large pool of skilled and semi-skilled workforce in the age group of 15 to 49 years.

Sectoral Trends
Investment: Delhi has outstanding investments of USD 24.3 billion as of March 2010. Key Sectors: Banking and Construction FDI: The state received foreign investment inflows amounting to USD 23.6 billion between April 2000 and May 2010.

Useful Web links


Government of Delhi: http://delhigovt.nic.in/index.asp Delhi State Industrial and Infrastructure Development Corporation (DSIIDC): www.dsiidc.org/

Break-up of Investments by Sector Delhi

Source: CMIE, IBEF

79 | India in Business

80 | India in Business