Graphic Era Institute of Technology, Dehradoon.

Submitted By: Vikas Kumar Gautam, Vikram Chauhan, MBA-1, B, 2007-09.

Submitted To: Mr. Praveen Singh, Project Guide, Faculty: FMA.

ITC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of India Limited'. ITC had a humble beginning and in the initial days it used to operate from a leased office on Radha Bazar Lane, Kolkata. On its 16th birthday on August 24, 1926, ITC purchased the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata. Two years later company's headquarter building; 'Virginia House' came on that plot. Progressively the ownership of the company Indianised, and the name of the Company was changed to I.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses, the full stops in the Company's name were removed effective September 18, 2001 and the Company was rechristened as 'ITC Limited'.

Some Facts:
ITC Ltd is one of India's premier private sector companies with diversified presence in businesses such as Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Greeting Cards, Safety Matches and other FMCG products. Presently, ITC has a market capitalization of nearly US $ 15 billion and a turnover of over US $ 4.75 billion. It employs over 21,000 people at more than 60 locations across India.


ITC has been rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, Among India's Most Respected Companies by Business World and among India's Most Valuable Companies by Business Today.

ITC is involved in following businesses:
Cigarettes: ITC is the market leader in cigarettes in India and has a wide range of popular brands such as Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake in its portfolio. Packaging: ITC's Packaging & Printing Business is the country's largest convertor of paperboard into packaging. It was set up in 1925 as a strategic backward integration for ITC's Cigarettes business. It offers a variety of value-added packaging solutions for the food & beverage, personal products, Cigarette, liquor, cellular phone and IT packaging industries. Hotels: ITC entered the hotels business in 1975 with the acquisition of a hotel in Chennai which was rechristened Hotel Chola. Today ITC-Welcomgroup with over 70 hotels is one of the foremost hotel chains in India. Paperboards: In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam Paperboards. ITC's Paperboards business has a manufacturing capacity of over 360,000 tonnes per year and is a market leader in India across all carton-consuming segments. Greeting, Gifting & Stationery: ITC's stationery brands "Paper Kraft" & "Classmate" are widely distributed brands across India. The Paperkraft designer stationery range consists of notepads & multi subject notebooks in hard, soft covers & multiple binding formats including spirals, wiros etc. ITC's Greeting & Gifting products include Expressions range of greeting cards and gifting products.


Safety Matches: ITC's brands of safety matches include iKno, Mangaldeep, VaxLit, Delite and Aim. The Aim is the largest selling brand of Safety Matches in India. ITC also exports premium brands to markets such as Europe, Africa and the USA. Aggarbattis: ITC has launched Mangaldeep brand of Aggarbattis with a wide range of fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Durbar, Tarangini, Anushri, Ananth and Mogra. Mangaldeep is also being exported to USA, UAE, Bahrain, Nepal, Singapore, Malaysia, Oman and South Africa. Lifestyle Retailing: ITC entered the Lifestyle Retailing business with the Wills Sport range of international quality relaxed wear for men and women in 2000. The Wills Lifestyle chain of exclusive stores later expanded its range to include Wills Classic formal wear (2002) and Wills Clublife evening wear (2003). In 2002, ITC entered into the popular segment with its men's wear brand, John Players. In 2005, ITC introduced Essenza Di Wills, an exclusive line of prestige fragrance products. Food: ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of the "Kitchens of India" brand. In 2002 it expanded into Confectionery, Staples and Snack Foods segments. ITC's brand in Food category include: Kitchens of India, Aashirvaad, Sunfeast, Mint-O, Candyman, and Bingo! Agri Exports: ITC's International Business Division (IBD) is the country's second largest exporter of agriproducts. ITC exports Feed Ingredients (Soyameal), Foodgrains (Rice, Wheat, Pulses), Coffee & Spices, Edible Nuts, Marine Products, and Processed Fruits. E-choupal: The e-Choupal model of ITC has been very effective in tackling the challenges posed by the unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others. ITC's e-Choupal won the Stockholm Challenge 2006 award is for using information technology for the economic development of rural communities.


The man behind ITC Success:
YOGESH CHANDER DEWESHWAR Born: February 4, 1947.

Y C Deveshwar is the Chairman and Chief Executive Officer of ITC Ltd. He was appointed as a Director on the Board of the Company in 1984 and became the Chairman on January 1, 1996. He was recently given a five year extension starting Feb 5th, 2007 as he turns 60 this year. GREAT JOB Mr.Deveshwar.


Yogesh Chander Deveshwar was born on 4th February, 1947. He received his Bachelor of Technology Degree in Mechanical Engineering from the Indian Institute of Technology, Delhi in 1968. He then obtained an AMP Diploma from Harvard Business School, USA. And also did a course on Advanced Training in Hoteliering and Services at Cornell University, USA.He is the person who dreaming to make ITC India's largest FMCG company.

Deveshwar joined Indian Tobacco Company in 1968 as a Management pupil and in 1972 was appointed MBO Adviser to Corporate Headquarters in Calcutta. In 1974, he took over as Factory Manager in ITC’s Packaging and Printing Plant in Madras and was appointed General Manager of ITC’s Packaging and Printing Division in 1978. He was inducted into the Company’s Board in 1984, taking charge of Welcomgroup, which is the Hotel Division of ITC. He pioneered the first private sector Degree Institute of Hotel Management - the Welcomgroup School of Hotel Administration, Manipal and received the Hotelier of the Year Award in 1986 for his outstanding contribution to this industry. In 1991 he took over as Chairman of ITC’s Indian Tobacco Division and Indian Leaf Tobacco Development Division. In November 1991 he headed Air India on lien from ITC Ltd. As Chairman and Managing Director.


In 1994 Deveshwar rejoined ITC and was appointed whole time Director and Vice Chairman of the Company. He took over as Chairman of ITC in January 1996. He received the Marketing Man of the Year Award in 1994. I think it is admirable that a company searches from within its own people and promotes them. I think it is a very encouraging trend and one that needs to be emulated and followed.

Deveshwar was appointed as Chairman of ITC on 1st January, 1996. He single handedly resurrected ITC after the BAT affair. He also explored new domains beyond tobacco and has been hugely successful. He is also a member of the National Council of Confederation of Indian Industry and a member of the Board of Governors, IIT Kharagpur and was the Vice President of the Indian Chamber of Commerce.

Honours and awards: Deveshwar has been honoured with the Business Person of the Year award by the UK Trade &
Investment by His Royal Highness Prince Andrew, the Duke of York in 2006, In January 2006, he was inducted to the prestigious Hall of Pride at the Indian Science Congress. He was also named The Manager Entrepreneur of the Year 2001 by Ernst & Young.


ITC’s Future Plans:
A few weeks from now, ITC will unleash a new ad campaign focusing on how it's saving the environment - it is carbon and water positive and will have zero solid waste in two years. ITC Chairman YC Deveshwar thinks it will revolutionise the way corporates treat the environment since his products deliver better value for money anyway. He spoke to Sunil Jain about this, the company's new growth drivers, including urban retail, and their increasing share in the company's top and bottomlines. Excerpts: Tobacco's still 70 per cent of your topline, and 83 per cent of bottomline. Most of your new initiatives, the choupal and FMCG are still loss makers, and their expansion is funded through tobacco. So when you talk of Corporate Social Responsibility - carbon and water positive, and so on - it sounds a bit hollow. It is not my remit to shut down the tobacco business as long as the law allows it - but our presence here also means tobacco is in responsible hands, it would have been smuggled in if we were not in the business! What's important are the new drivers of ITC's sales and profits. Our CSR effort is unrelated to tobacco, it is about creating value through business models that are sustainable, in paper, in our agri business through choupals, in other areas. Today, except for getting solid waste contribution to zero (where we're 90 per cent there already), we're not a drag on the environment - we replenish more water and reduce more carbon emissions than we create. We are the only Indian company to produce chlorine free paper - our water discharge is so safe, it is being used for irrigating crops. We did this in 2002 even though the tough emission norms come into effect only in December 2008. Our non-tobacco business comprised 38 per cent of net turnover in 2003-04, and this was up to over 51 per cent in the second quarter of this year. While our tobacco business grew 13 per cent last year, non-tobacco grew 53 per cent. We can be cash positive in no time, the day we decide to slow down investments. No one in the world has created 20 new brands, 13 of them big ones such as Aashirwad wheat flour where we're the number one after just three years with a 52 per cent market share.


Our market share in biscuits is today around 10 per cent. To create new brands, you have to spend like the existing number one, but without the revenue base - we've done precisely that, hence the losses. Our aim is to be the number one player in each segment. In Q2 this year, our hotel net revenues were Rs 185 crore (Rs 1.85 billion) versus Rs 267 crore (Rs 2.67 billion) for the top competitor, but our PBDIT was Rs 73 crore (Rs 730 million) versus their Rs 84 crore (Rs 840 million) - so we're getting there (our PBDIT to sales is already higher). For paperboards, paper and packaging, we were below the market leader in the September quarter (Rs 522 crore versus Rs 577 crore) but our PBDIT was higher (Rs 142 crore versus 134 crore). It does, but you have to look at the balance and at the value created. On an annualised basis, my FMCG business will be worth around Rs 2,000 crore (Rs 20 billion) by the end of the year. If you go to buy this business, you'll spend at least Rs 2,000 crore to do this. So, I've created value of Rs 2,000 crore by spending a few hundred crore rupees. Five years from now, the turnover will be Rs 5,000 crore (Rs 50 billion). I'm happy to spend up to 10 per cent of my PBDIT on creating new businesses at any point in time, today this is around 5 per cent.


ITC’s E-Choupal Movement:
e-Choupal - at a glance Milestones Commencement of initiative: 2000 • States covered: 9 • Villages covered: 38,500 • e-Choupal installations: 6500 • Empowered e-farmers: 4 million

Agenda for 2012 • States to be covered: 15 • Villages to be covered: 1,00,000 • e-Choupals to be installed: 20,000 • Farmers to be e-empowered: 10 million

Through the e-Choupal initiative, ITC aims to confer the power of expert knowledge on even the smallest individual farmer. Thus enhancing his competitiveness in the global market.


The immense potential of Indian agriculture is waiting to be unleashed. The endemic constraints that shackle this sector are well known – fragmented farms, weak infrastructure, numerous intermediaries, excessive dependence on the monsoon, variations between different agro-climatic zones, among many others. These pose their own challenges to improving productivity of land and quality of crops. The unfortunate result is inconsistent quality and uncompetitive prices, making it difficult for the farmer to sell his produce in the world market. ITC’s trail-blazing answer to these problems is the e-Choupal initiative; the single-largest information technology-based intervention by a corporate entity in rural India. Transforming the Indian farmer into a progressive knowledge-seeking netizen. Enriching the farmer with knowledge; elevating him to a new order of empowerment.

Given the low levels of literacy in the rural sector, the role of the Choupal Sanchalak, the lead farmer of the village, in facilitating physical interface between the computer terminal and the farmers is central to project e-Choupal.

E-Choupal delivers real-time information and customised knowledge to improve the farmer's decision-making ability, thereby better aligning farm output to market demands; securing better quality, productivity and improved price discovery.


The model helps aggregate demand in the nature of a virtual producers' co-operative, in the process facilitating access to higher quality farm inputs at lower costs for the farmer. The e-Choupal initiative also creates a direct marketing channel, eliminating wasteful intermediation and multiple handling, thus reducing transaction costs and making logistics efficient. The e-Choupal project is already benefiting over 3.5 million farmers. By 2012, the e-Choupal network will cover over 100,000 villages, representing 1/6th of rural India, and create more than 10 million e-farmers.

A digital transformation
ITC began the silent e-volution of rural India with soya growers in the villages of Madhya Pradesh. For the first time, the stereotype image of the farmer on his bullock cart made way for the e-farmer, browsing the e-Choupal website. Farmers now log on to the site through Internet kiosks in their villages to order high quality agriinputs, get information on best farming practices, prevailing market prices for their crops at home and abroad and the weather forecast – all in the local language. In the very first full season of e-Choupal operations in Madhya Pradesh, soya farmers sold nearly 50,000 tons of their produce through the e-Choupal Internet platform, which has more than doubled since then. The result marks the beginning of a transparent and cost-effective marketing channel. Bringing prosperity to the farmers' doorstep.

Smart Cards enable farmer identification to provide customized information on the website. Online transactions are captured to reward farmers for volume and value of usage.


Linking farmers to remunerative markets Farmers grow wheat across several agro-climatic zones, producing grains of varying grades. Though these grades had the potential to meet diverse consumer preferences, the benefit never trickled down to the farmers, because all varieties were aggregated as one average quality in the mandis. Enter ITC's e-Choupal intervention. The e-Choupal site is now helping the farmers discover the best price for their quality at the village itself. The site also provides farmers with specialised knowledge for customising their produce to the right consumer segments. The new storage and handling system preserves the identity of different varieties right through the 'farm-gate to dinner-plate' supply chain. Encouraging the farmers to raise their quality standards and attract higher prices

ITC provides the farmer appropriate documentation which records the quantity and quality of his output. Payment is instant.

ITC's mobile vans take the message of eChoupal to new villages. Thereafter, virtual helpdesks enable the farmer to find solutions to his problems through online interactions. ITC has set up VSAT links to overcome connectivity problems.


Managing risks through technology
The whats and ifs in the aqua farmers' life posed daunting odds. They were haunted by the nightmare of contaminated soil, wrong levels of salinity in the water or the killer White Spot virus, any of which could wipe out an entire shrimp crop, until the e-Choupal site provided them the support and the know-how to cope with and manage such risks. Information equips farmers with comprehensive know-how to keep abreast of food safety norms to compete in the international market. Information includes parameters for antibiotic usage, hygienic washing, sanitized dressing and air-tight packing. All these factors help to neutralize the risks involved in aqua farming. Making it economically much more attractive, benefiting hundreds of aqua farmers.

ITC’s Aqua Care Centre in Kakinada, Andhra Pradesh, has revolutionised the concept of shrimp seed testing. Its sophisticated laboratory detects the deadly White Spot virus in the shrimp seed and advises farmers on appropriate remedial action.

In the high-risk business of shrimp farming, the wealth of information provided by has proved a great boon for farmers in Andhra Pradesh. This success has encouraged ITC to plan its extension.


A dependable knowledge partner:
Coffee planters in India have for years been tossed between the highs and lows of the international coffee market. The information needed to manage risks in the volatile global coffee market, price updates and prevalent trends in coffee trading were just not available to them. Launch of has equipped India's coffee planters with appropriate knowledge base and risk management tools. has become popular among coffee growers as an effective platform for global trade.

The site arms them with the latest prices posted on commodity exchanges like CSCE in New York and LIFFE in London. Planters have access to technical analysis by experts to help them comprehend trends, trading ranges and chart patterns in simple language. 'Parity Chart' and the 'Calculator' on the site convert the coffee prices quoted in international auctions into raw coffee equivalent for the benefit of the small growers in India. Tradersnet, a special link on the site, brings together a large number of coffee planters, traders and roasters, creating a virtual market for transparent price discovery. ITC empowers Indian coffee growers with expert knowledge in logistics and risk management, thereby enabling them to face global competition.


“A quiet digital revolution is reshaping the lives of farmers in remote Indian villages. In these villages, farmers grow soyabeans, wheat and coffee in small plots of land, as they have for thousands of years. A typical village has no reliable electricity and has antiquated telephone lines. The farmers are largely illiterate and have never seen a computer. But farmers in these villages are conducting e-business through an initiative called e-Choupal, created by ITC, one of India's largest consumer product and agribusiness companies."

In addition to assisting with knowledge management through the website, ITC provides on-ground inputs to farmers on best practices, grading standards, quality policy etc.


A journey: Speech by Shri Y.C.Deveshwar, Chairman, I.T.C. Limited at the 87th Annual General Meeting of the Company held on August 12, 1998 in Calcutta.

The last year was a very rewarding one for your company. It closed with another set of new performance records. Gross turnover grew by 16% to a record of Rs. 6834 crores. Foreign exchange earned directly by your company was 20% higher at Rs. 759 crores. Net profits increased by 52% to Rs. 526 crores. Improved operations generated cash flow. The performance, on all counts, is a source of deep satisfaction for all of us in the Company as it bears handsome testimony to the quality of ITC's human capital. It is this capital that is critical to the transaction of your company into an era of progressively intensifying global competition and finally, a fully globalised economy. The calibration provided in the WTO timetable is a challenging and compelling agenda for Indian industry. If I were to set out a single key priority for Indian companies, it would be : To rapidly reposition the companies for extreme competitive preparedness and support their successful transition from an era of regulation and protection, to the fully globalised market of the 21st Century. Superior competitive capability can be the only assurance for sustainable growth and profitability. This is easier said than done. The slowdown in the economy witnessed over the last two years, and more importantly, the lack of investment sentiment, deepened by the uncertainties caused by the meltdown in south East Asia and recession in Japan and their adverse domino consequences on the world economy, makes this task even more daunting. There are limits to attaining competitiveness in isolation of the economic environment. Competitiveness of Indian industry is intertwined with the competitiveness of the country. The Urgency of catalysing and channelising investment towards upgradation of human capital, expansion and modernisation of infrastructure, and productivity enhancement in the agri-sector, cannot be overstated. The foundation of economic growth activity lies in the perception of a favourable risk reward outcome of investments, it is critical to sustain investor confidence.


The reform process therefore needs to also focus on adapting existing institutions and creating newer ones, commensurate with the rate of transition toward a market economy and the extent of globalisation. In developing economies like India, particularly in markets that are relatively shallow, small investors would shy away from volatilities caused by speculative activity and macro fund flows triggered by exogenous factors. An appropriate and effective institutional framework is necessary for orderly growth and transition towards a global economy. National Competitiveness is a subject in itself, and I am not the most competent person to deal with it. Indeed, this very topic is the theme of the silver Jubilee National Management Association to be held in September in Calcutta, providing the ideal forum at which to engage in discussion and debate. The time has come for every organisation to introspect and focus on its own contribution, in concerted harmony with the efforts of other organs of society. I will therefore today, devote my time to the task at hand of repositioning ITC for extreme Competitive preparedness, and the unfolding agenda that needs to be addressed.

i) Restructuring & Rationalising The first task which has been substantially accomplished is the retionalisation and restructuring of your Company's portfolio of businesses and investments. The decision to exit from the Financial Service and Edible Oils businesses was based on the need to focus on such businesses where the Company possessed a credible track record, and where it has the relative capacity to strengthen and nurture core capabilities over time to sustain a leadership position in the Indian global market of tomorrow. A careful analysis made it readily evident that ITC was not well positioned to add long term value in these areas. In fact, persisting with these businesses over the years had caused a substantial drain of corporate energy and shareholder value. A hard nosed, determined and responsible exit was the only answer. As the Director's Report makes explicit, in the case of Classic Finance it involved on outlay of nearly Rs.800 crores of cash, closely on the heels of the pre-deposit of Rs.350 crores relating to the excise case for the period 1983-87, completed in the preceding year. The task, required to be accomplished during the most turbulent period of your Company's history, was indeed daunting. This seemingly impossible feat was accomplished by generating internal resources through an unprecedented doubling of operating cash flows in the preceding year, supplemented by an additional Rs.240 crores last year on the one hand, and mobilising long term loan finance on the other. Such sacrifice, decisive action and capability displayed by your Company enabled the assets of these businesses to be placed in the hands of two international players of repute, namely ICICI and 18

ConAGra, paving the way for their productive utilisation. The financial collapse of Classic Finance would have caused distress and panic among lakhs of deposit holders, which would have neither been in the interest of your Company nor in the national interest. You are aware of these occurrences as we had concluded this task with your knowledge and approval in keeping with the standards of transparency expected of your Company. I would like to register handsome tribute to you, the shareholders, for your ready comprehension and co-operation in putting this unsavoury history behind us. What needs to be carried forward are the lessons on how not to conduct a business, and the principles of trusteeship for which managements are accountable. The lessons learnt are also manifest in the code of governance that is being actively refined, which I shall address later.

ii) Strategic Focus and Challenges The businesses that remain in your Company's portfolio are those where ITC has had a credible track record over long period of time, ranging from twenty five to around a hundred year. These are also the businesses that present abundant opportunities for growth in line with the growth of the Indian economy. More importantly, these are the business that can be infused with core capabilities through modernisation, scaling up, and nurturing human skills. These businesses are already at a stage what provides a platform from where strategic positioning can be accomplished for sustainable global competitiveness over the medium to long term. Strategies are already in place for inculcating internationally benchmarked operating standards, marketing orientation and the related processes to exploit the special insight into the Indian market that arises from being close to the consumer. Consumer loyalty flows from the speed and efficiency with which an organisation adapts and innovates in satisfying his/her needs. Competitive advantage therefore is derived from anticipating the future and encouraging strategic thinking capabilities in the organisation. As stated last year, the portfolio of ITC's businesses now comprises Tobacco and Cigarettes, Hotels and Tourism, Packaging and Printing, and Paperboard. It continues to be our objective to find a capable international partner for the speciality paper business of Tribeni Tissues division, as the future success of this business, in large measure, would depend upon proprietary technology more readily available with international players. We continue to encourage Exports, not only to earn valuable foreign exchange needed by the country, but also to interact with global markets to facilitate benchmarking and sighting future opportunities. The Real Estate acquired in the process of disengaging from Classic Finance can be a valuable asset, redeemable at a profit over a period of time. WE are also exploring opportunities presented by the Retailing business, that can draw upon and combine the strengths of your Company's trademarks and the services knowledge accumulated whilst growing the Hotels business. Each of your Company's businesses is in a different phase of development requiring distinctive focus and level of investment for the transition from a position of dominance in the regulated market of yesteryears, to a position of leadership in the highly competitive markets of tomorrow. Whilst possessing a conglomerate profile, the businesses are structured such that executive


management can take place in a focused manner appropriate to the dynamics of each industry. Any buyer-supplier relationship in these businesses occurs in a policy framework that provides freedom to the buyer to access the most appropriate from the general market. The in-house supplier has to earn the custom through competitively superior quality and cost. To the extent that one business is a supplier to another, it creates an opportunity for building unique strengths through closeness of interaction and common purpose. Having laid before you the policy framework and the nature of your Company's strategic thinking, I would like to touch upon the challenged inherent in repositioning these businesses for sustainable competitiveness. Apart from core capabilities required to generate superior value for the consumer, in most areas of economic activity, size would play an increasingly significant role. The largest corporations in India are tiny in the international context. You might know that no Indian private sector corporation features in the Top 500 Companies of the world. Besides the benefits of size, large corporations entering the Indian market are able to take a long term investment view, because they can service their shareholders from their established bases in other markets. In comparison, Indian business houses like your Company, do not enjoy such an advantage. Strategic moves will therefore require larger investments, gestation periods would be longer, and staying power and commitment to a business would be severely tested. Those who overcome these challenges would be handsomely rewarded, albeit over a longer time dimension. It is imperative to shed preoccupation with maximisation of tactical results and focus on investing in technologies and capabilities for tomorrow. A wholesome balance will have to be struck for profits and cash flows over their time horizons, namely, short, medium and long term. As stated last year, I would like to re-emphasise that such an approach may not be adequate by itself, without a nurturing Economic Policy framework. In today's dynamic environment, the only constant is change. Each of your Company's businesses would need to adapt to such change continuously. It would be the endeavor of your Board to keep the portfolio of businesses under periodic review. We would not hesitate to invite a partner, or even to exit a business, if it is concluded that our capabilities cannot match competitive forces in a reasonable time span. Each of the business that remains in your Company's portfolio, therefore, would have to sub serve the abiding purpose of generating value. I will now share with you some of the salient features of your Company's businesses to update your understanding. iii) ITC's Core Businesses (1) Tobacco & Cigarettes Consumer aspirations In India are progressively globalising, following the media and information revolution, and increased international travel. However, as result of prolonged punitive taxation on cigarettes, fewer than 15% of India's 200 million tobacco consumers are able to afford cigarettes. Yet, these 15% contribute more than 90% of Government revenue from the tobacco sector. Indeed, India would probably be the only country in the world where 85% of tobacco users are virtually outside the tax net. It is now a well established principle that sustainable tax buoyancy can be


realised only from an expanding tax base. The twin impact of moderation in tax rates and the aspiration of consumers to upgrade tobacco consumption can multiply the size of this industry manifold which in turn will provide a much larger tax base to yield the resources to invest in social infrastructure. It is not so widely known that nearly 85% of value addition in the cigarette industry accrues to the Exchequer at the local, state, and central levels. Any moderation in the rates of tax will create a multiplier effect, the greatest beneficiary of which will be the rural sector. India is the third largest product of tobacco in the world. Yet, its share of international tobacco trade is modest. Up gradation of tobacco consumption would provide the farmers with a larger and more secure domestic base for growing tobacco for export. The current level of foreign exchange earnings of around Rs.950 crores could be multiplied many times over. The three major strategic thrusts of your Company are: a) Focus on crop development to enhance quality and farm productivity. Your Company has nurtured a pool of trained manpower for this purpose. Investments of Rs.375 crores have been planned for leaf processing plants and modern storage facilities to improve quality, reduce waste and enhance productivity. B) Modernisation of cigarette plants by inducting contemporary technology, involving investments to the tune of Rs.900 crores over the next five years. A new, greenfield, state-of-the-art factory is being established outside Bangalore to match globally benchmarked standards. C) Brands at the upper end of the market are being stregthened in anticipation of consumer aspirations. This is an important area of investment as it takes several years to build sustainable brand equity. (2) Hotels & Tourism Travel and tourism is already the largest industry in the world. It earns over US$3700 billion in revenues and continues to grow rapidly. This sector provides the highest potential for generating employment per unit of investment and has a very large multiplier impact on the economy. Moreover, this sector generated nearly US$ 3 billion in foreign exchange earnings for India last year, at a time when tourist arrivals were a fraction of their potential. If India's share of world tourism grows from the current 0.3% to 1%, it will call for investments in the range of Rs. 20,000 crores to Rs. 50,000 crores depending on the mix of tourist arrivals, in the accommodation sector alone, indicative of the size of opportunity. The Welcomegroup chain, operated and marketed by your Company's subsidiary, ITC Hotels Ltd., it already well established. It services the up market business and leisre segments and it the revenue leader in most locations where it operates. In order to exploit the growth opportunity, aggressive investments of around Rs.1200 crores have been planned over the next five years in partnerships among your Company, ITC hotels Ltd. And other independent investors. It is expected that these investments will bring handsome rewards over the medium to long term. (3) Packaging and Printing India is yet to witness a consumer revolution. Growing incomes would give rise to a higher standard of living that will create an increasing demand for sophisticated packaging. The


Packaging and Printing division of your Company is the largest converter of paperboard into high quality printed packaging. It is a dominant supplier to the cigarette and liquor industries in India.

For these two sectors is internationally benchmarked, which has given rise to opportunities in the export market and a growing presence in the high value segments of food and personal care products. The challenge before your company is to position this business as the premier supplier of creative packaging solutions. Expansion opportunities are being explored towards this objective. (4) Paperboard ITC Bhadrachalam Paperboards Ltd. (ITC BPL) was promoted by your Company about 25 years ago. It dominated the paperboard segment of the industry in the regulated environment of yesteryears. The opening up of the economy since 1991 led to a rapid diminution in customs tariffs from 250% in the 1980s to 20% by 1995. On the other hand, progressive sophistication of the consumer goods industry is rapidly transforming the nature of demand towards high quality coated paperboards. This is a capital intensive industry. The transition from a restricted and regulated environment to a globalised environment requiring internationally benchmarked technology and products is a challenging one, involving substantial outlay and the attendant gestation. This task has become particularly onerous for ITC BPL, as the recently completed expansion and modernisation of its mill at an outlay of Rs.675 crores, has coincided with a deep supply demand adversity, intensifying price competition. On stabilisation, the mill is expected to deliver international standards of quality and cost. Such a dimension of capital intensive transition requires financial strength, staying power and determination to succeed. Such initiatives alone are not sufficient to secure the long term competitive standing of the paper industry in India. A supportive policy framework relating to fibre and farm forestry is vital. Under the circumstances, ITC BPL has approached your Company for an additional outlay of Rs.150 crores through a mix of equity and preference capital. This proposal is before you today. Subject to your approval, and various other approvals as may be necessary, your Company's shareholding together with its wholly owned investment subsidiaries, will stand enhanced from 37% to 51%. I would like to emphasise that the very scale of this project would serve as major entry barrier for competitors. Your Board recommends this investments. In time, it is expected that ITC BPL would dominate the paperboard segment in the Indian global market. Finally, I would like to deal with the subject I touched upon earlier, namely, that of corporate governance.


CORPORATE GOVERNANCE IN ITC Corporate governance refers to the structure, systems and processes in a corporation, that are considered most appropriate to enhance its wealth generating capacity. Since business organizations have to match up to both societal expectations and stakeholder aspirations, codes of corporate governance in different parts of the world vary. Despite differences in form, the fundamental objectives of all coded are broadly similar. Equally, the type of business, the state of its evolution, and the nature of its activity would also influence the form of governance. The Board of your Company bears the principal responsibility for fashioning a governance code appropriate to your Company. It is also charged with the responsibility of subjecting the code to a periodic review to keep it refurbished and contemporary. Over the last two years, your Board has evolved and adopted such a governance code and is now engaged in the process of refining it. ITC is a multi-business Company that needs to combine the governance requirements of each of its businesses and yet reflect a unity of purpose for the Company as a whole. Decision making within your Company has been broadly divided among three levels. The Board of Directors of your Company at the apex, as trustee of shareholders, bears the responsibility of strategic supervision of the Company, apart from fulfilling statutory obligations. Its composition is a balanced mix of executive and non-executive directors, with the non-executive directors constituting a fair majority. The major, responsibilities of the Board, namely audit, senior management succession and appointments to the Board, related remuneration, and legal and safety compliance are discharged on the recommendations of specific sub-committees of the Board constituted for such purposes. The constitution of these sub-committees is displayed in your Company's report and Accounts. With the exception of the Nominations Committee, where I serve as the Chairman, membership of all aforesaid sub-committees is confined to non-executive directors as measure of transparency. Over the last two years, these sub-committees have met regularly and have contributed significantly to the effective functioning of the governance code. In addition, the Board carries the responsibility of approving the strategic plans of your Company. The strategic management of your Company is delegated to the Corporate Management Committee (CMC), comprising the wholetime directors and some members of senior management. This committee is charged with the responsibility of reviewing progress of the strategic business plans of your Company and has appropriate delegated authority related to deployment of resources. The executive management of each business division is vested with a Divisional Executive Committee (DEC) headed by a Chief Executive. Each DEC is responsible for and totally focused on the management of its assigned business. Through this three-tiered interlinked governance process, a wholesome balance has been created between the need for focus and executive freedom, and the need for supervision, control, and checks and balances. Each Executive director is responsible for a group of businesses/corporate functions, apart from engaging in strategic management and supervision of the Company as a whole.


The formalised governance code prescribes the highest ethical standards in the conduct of your Company's business. I, as the Chairman of your Board, am deeply cognizant of my responsibilities in setting a personal example so that the governance code is internalized within the organization and becomes part of its culture. In the ultimate analysis, there can be no substitute for the enlightened self regulation that is expected of every member of the organization. CONCLUSION The business environment in India is being rapidly transformed. The future belongs to those who can sight and seize opportunities inherent in this change. The need to create a winning corporation dominates the consciousness of your Board, and I with to assure you that every sinew is being strained in imbuing the organisation with vitality and purpose. I look to you for your continued support in this endeavour.

The Big Picture:
ITC’s International Business Division, one of India’s largest exporters of agricultural commodities, has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others.

The Value Chain - Farm to Factory Gate:


‘e-Choupal’ also unshackles the potential of Indian farmer who has been trapped in a vicious cycle of low risk taking ability > low investment > low productivity > weak market orientation > low value addition > low margin > low risk taking ability. This made him and Indian agribusiness sector globally uncompetitive, despite rich & abundant natural resources. Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer risk management, larger investments and higher quality and productivity. Further, a growth in rural incomes will also unleash the latent demand for industrial goods so necessary for the continued growth of the Indian economy. This will create another virtuous cycle propelling the economy into a higher growth trajectory