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1. Indian Economy Overview-P2


2. Trade and External Sector-P7
-----FDI-P11
-----FII-P17
3. Domestic Investments-P23
4. Indian Investments Abroad-P28
5. Agriculture-P33
6. Manufacturing-P39
7. Infrastructure-P41
-----Ports-P46
-----Power-P52
-----Railways-P58
-----Roads-P63
-----Services-P68
8. Consumer Markets-P72
9. Marketing and Strategy-P79
10. Rural Market-P86
11. Urban Market-P91
12. Economic Survey highlights 2007-08-P97

Developed By-P.B.Bhanja
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Indian Economy Overview

Last Updated: January 2009 [TOP]

Indian economy has been witnessing a phenomenal growth since the last decade.
After seeing a growth rate in excess of 9 per cent for the last 3 years, it is still
holding its ground in the midst of the current global financial crisis.

Pegging India's growth rate in the current year at between 7 and 8 per cent, the
Union Finance Minister, Mr P Chidambaram, has reiterated that India would continue
being the second fastest growing economy in the world despite the ongoing global
economic slowdown. Though the global financial crisis have affected the Indian
equity and foreign exchange markets, the macroeconomic brunt of the meltdown is
not much due to the overall strength of the domestic demand and the largely
domestic nature of its investment financing.

Chidambaram has further assured that by the second half of the next fiscal, the
economy would pick up and the government’s ‘stimulus measures’ would encourage
growth and ensure "brisk” economic activities in the last few months of this fiscal
year.

Bob Buckle, an APEC Rim trade (based on rich nations) economist has stated that
with India and China posting good growth rates, the world may come out of
recession more easily.

Further, according to the International Monetary Fund’s (IMF) prediction in October


2008, India is likely to grow at 7.8 per cent in 2008, and 6.3 per cent in 2009.

As a measure to boost the economy and to ensure a 7 per cent growth, the
government announced an approximately US$ 6.46 billion fiscal stimulus package,
on December 7, 2008. The package entailed additional spending and excise duty cuts
for increasing consumption.

According to stock market regulator Security and Exchange Board of India (SEBI),
the Indian stocks would be the first to bounce back in the current global financial
crisis. SEBI is likely to initiate steps to limit over-leveraged hedge funds with the aim
of bringing in more solidity to the unstable market.

Leading global agencies have reiterated faith in the Indian economy. According to
Crisil, a leading rating agency, India's retail securitisation market is better placed
than the US, exhibiting more stability with few rating downgrades. "Investors in
securitised paper in India have no reason to fear crippling losses of the kind that
have hit their US counterparts," a Crisil release said.

Further, as per a survey in Deutsch business magazine, Wirtschafts Woche, in spite


of the global financial crisis, companies from developed economies such as Germany
have shown confidence in India's economic future and are interested in growing their
business in the country. Showing faith in India's robust future, around 94 per cent
German companies plan to increase their businesses with the subcontinent, the
survey stated.

Developed By-P.B.Bhanja
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After the signing of the US-India civil nuclear deal, India will now be partnering
several countries for nuclear fuel technology projects, and this will further boost the
economy.

India and Russia signed 10 agreements in December 2008, including a pact on civil
nuclear cooperation.

Thorium Power, a US firm, and Punj Lloyd will be forming a nuclear fuel technology
joint venture (JV). The JV will offer thorium fuel technology for light water reactors
(LWR) in India.

The 2008-09 Fiscal

Subsequent to three years of plus 9 per cent growth in gross domestic product
(GDP), India's growth rate in the current year is likely to come down to a more
modest level of 7–8 per cent.

• Foreign institutional investments (FII) in India became positive in


November 2008, after net selling by them in September and October 2008
due to redemption pressures from abroad.

As per SEBI data, foreign institutional investors (FIIs) continued to flow into India
with 120 new FIIs registering themselves during September and November 2008,
since the global meltdown started in September. Even though some FIIs had pulled
out, many FIIs see long-term value in India. Moreover, during the same period, 358
new sub-accounts were registered, which was the highest within three months, in
2008.

• Foreign direct investment (FDI) in India from March-September 2008 increased


by 137 per cent to US$ 17.21 billion, due to the inflows into construction, real
estate, services, computer hardware and software firms. The government has
also stated that the country would attract US$ 35 billion of FDI in the current
year to March 2009.
• In August 2008, the average inflation stood near 12.5 per cent, which fell
sharply in the third week of December, at 6.84 per cent, which was the lowest
in the last 9 months. It was lower than Reserve Bank of India’s (RBI’s) target of
7 per cent for 2008–09.
• In the first half of the current fiscal, the money supply increased by 6.6 per
cent against 8.2 per cent last year (from end of March 2008 end to end of
September 2008).
• Net bank credit to the government and commercial sector increased by 6.8 per
cent and 7.8 per cent, respectively.
• Growth in net foreign exchange assets of the banks slowed to 6.0 per cent
compare to 11.0 per cent in the previous year. However, the non-monetary
liabilities went.
• The central bank pumped in more money into the banking system, cutting CRR
levels from 9.00 per cent to 5.5 per cent. Repo rate was also brought down to
7.5 per cent from 9 per cent.
• The growth in the gross tax collection is was 25 per cent till September 2008,
against 24.5 per cent in September 2007.

Developed By-P.B.Bhanja
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• Total foreign investment inflow during the first half of 2008-09 was US$ 13.8
billion in September 2008.
• India’s forex totalled to US$ 251.3 billion in the first week of November 2008.

India’s cumulative value of exports for the period between April-September, 2008
was US$ 94973 million compared to US$ 72556 million. Exports during September,
2008 added up to US$ 13748 million which was 10.4 per cent higher than US$
12455 million during September 2007.

The rural India growth story

The Indian growth story is spreading to the rural and semi-urban areas as well.

In 2008, the rural market has grown at an impressive rate of 25 per cent compared
to the 7–10 per cent growth rate of the urban consumer retail market. Further,
according to international consultancy firm Celent, the rural market will grow to a
potential of US$ 1.9 billion by 2015 from the current US$ 487 million.

The rural India success story is being replicated across a range of sectors in the rural
markets. After several global corporations like Microsoft, Intel, and Shell, many other
major multinational companies (MNCs) and domestic players are keen to foray into
the rural Indian market to capitalise on its growing opportunities.

Further, venture capitals have started investing in technology firms focussed in rural
areas. Firms like Avishkaar India Micro Venture Capital Fund, Acumen Fund, and
Rural Innovations Network (RIN) are focussing on rural markets.

Per Capita Income

In 2007–08, India's per capita income is estimated to be around US$ 740. Further,
India's per capita income is expected to increase to US$ 2,000 by 2016-17 and US$
4,000 by 2025. This growth rate will, consequently, propel India into the middle-
income category.

Advantage India

• According to The World Fact Book, India is among the world's youngest
nations with a median age of 25 years as compared to 43 in Japan and 36 in
USA. Of the BRIC—Brazil, Russia, India and China—countries, India is
projected to stay the youngest with its working-age population estimated to
rise to 70 per cent of the total demographic by 2030 - the largest in the
world. India will see 70 million new entrants to its workforce over the next 5
years.
• India has the second largest area of arable land in the world, making it one of
the world's largest food producers - over 200 million tonnes of foodgrains are
produced annually. India is the world's largest producer of milk (100 million
tonnes per annum), sugarcane (315 million tonnes per annum) and tea (930
million kg per annum) and the second largest producer of rice, fruit and
vegetables.
• With the largest number of listed companies - 10,000 across 23 stock
exchanges, India has the third largest investor base in the world.

Developed By-P.B.Bhanja
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• India's healthy banking system with a network of 70,000 branches is among


the largest in the world. In June 2007, the aggregate deposits of commercial
banks were about US$ 445 billion (50 per cent of GDP) and the total bank
credit stood at US$ 320 billion (36 per cent of GDP). NPA (non-performing
assets) levels of banks in India are under 3 per cent, one of the lowest among
emerging nations.
• According to a study by the McKinsey Global Institute (MGI), India's
consumer market will be the world's fifth largest (from twelfth) in the world
by 2025 and India's middle class will swell by over ten times from its current
size of 50 million to 583 million people by 2025.

Growth potential

• Special Economic Zones (SEZs) are set to see major investments after the
straightening out of certain regulatory tangles. According to India's
Commerce Secretary, Mr G K Pillai, India has approved 513 SEZs till August
2008, of which 250 have been notified. Investments are expected to cross
US$ 45.73 billion by December 2009, providing incremental employment to
800,000 people. In December 2008, the government has cleared 22
proposals for setting up Special Economic Zones (SEZs). The proposals
included a major foreign direct investment (FDI) project a by Dubai-based
developer.
• According to the CII Ernst & Young report titled 'India 2012: Telecom growth
continues,' India's telecom services industry revenues are projected to reach
US$ 54 billion in 2012, up from US$ 31 billion in 2008. India saw a 23 per
cent increase in IP (Internet Protocol) addresses with 2.6 million connections
in the third-quarter ended September 2008.
• The government is planning to set up a special corpus of around US$ 10.48
billion for infrastructure projects.
• According to a report by Research on International Economic Relations
(ICRIER), the retail business in India would grow at 13 per cent annually from
US$ 322 billion in 2006–07 to US$ 590 billion in 2011–12. The unorganised
Indian retail sector is expected to grow at about 10 percent per annum to
reach US$ 496 billion in 2011–12. Despite the steady expansion of organised
retailers, according to a study by Indian Council for Research on International
Economic Relations (ICRIER), a Delhi-based think tank.
• According to a study by Evalueserve, a global research and analytics firm,
India is likely to emerge as the next global hub for innovation and join the
club of developed nations, with the country aiming to increase its research
and development (R&D) expenditure in the coming years. India is targetting
to increase its R&D spend to two per cent of the GDP by 2012 under the 11th
Five-Year Plan, from less than one per cent earlier.
• Corporate India registered US$ 3.4 billion as mergers and acquisitions (M&As)
during November 2008, as against US$ 850 million in November 2007. The
figure stood at US$ 2.13 billion in October 2008.

Future perfect

The Planning Commission has ruled out any changes in the average 9 per cent gross
domestic product growth target of the 11th Five-Year-Plan, although there might be
‘some significant reduction in growth’ next year as a result of the global financial
crisis.

Developed By-P.B.Bhanja
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India offers huge investment opportunities in various sectors and investments are
likely to pour into these sunshine sectors:

• The realty sector is likely to increase at the rate of 30 per cent annually
during the next ten years, drawing US$ 30 billion as foreign investment.
• The Indian IT market is projected to see 18 per cent growth in 2008, touching
US$ 38 billion.
• According to a McKinsey study, "The market size for the food consumption
category in India is expected to grow from US$ 155 billion in 2005 to US$ 344
billion in 2025 at a compound annual growth rate of 4.1 percent."
• According to the India Retail Report 2009, compiled by research group
Images F&R Research, the Indian retail industry is likely to touch US$ 390.68
billion by 2010.
• According to a McKinsey study, the Indian pharmaceutical industry is
projected to grow to US$ 25 billion by 2010 whereas the domestic market is
likely to more than triple to US$ 20 billion by 2015 from the current US$ 6
billion to become one of the leading pharmaceutical markets in the next
decade.
• According to a monthly review by the Centre for Monitoring Indian Economy
(CMIE), agricultural production is likely to increase significantly during fiscal
year 2009. CMIE has projected a growth of 3.2 per cent during fiscal year
2009, for the GDP of agriculture and allied sectors. "This would be the fourth
straight year of positive growth in agricultural production, with the first three
years clocking an average growth of 5.5 per cent," CMIE stated. The allied
sectors comprising livestock, forestry and logging, and fishing are likely to see
a growth of 4.8 per cent during fiscal year 2009.

Developed By-P.B.Bhanja
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Trade and External Sector

Last Updated: January 2009 [TOP]

One of the factors responsible for the tremendous growth of the Indian economy has
been its booming foreign trade.

Foreign investment was the biggest source of accrual to India's foreign exchange
reserves in 2007-08 at US$ 44.8 billion, as against US$ 15.6 billion in the previous
fiscal. Portfolio investment inflow amounted to US$ 29.3 billion as against US$ 7.1
billion in the previous fiscal, whereas foreign direct investment (FDI) pumped in US$
15.5 billion as against US$ 8.5 billion in the previous fiscal.

During the April-November period of 2008-09, India attracted total foreign


investments of US$ 12.034 billion. FDI stood at US$ 23.331 billion, however, there
was a net outflow of portfolio investments (including FIIs) of US$ 11.297 billion.

In November-end 2008, the country's forex stood at almost US$ 247.686 billion.
Trade deficit during October 2008 at US$ 10.5 billion was higher by US$ 4.0 billion
than US$ 6.5 billion in October 2007. The overall trade deficit during April-October
2008 widened to US$ 73.1 billion, an increase of US$ 27.4 billion (60.1 per cent)
over the trade deficit of US$ 45.7 billion a year ago.

Estimated Capital Inflows in 2008-09

According to the economic outlook for 2008-09 released by the Prime Minister's
Economic Advisory Council, total capital inflows in 2008-09 are estimated at US$
70.9 billion. Aggregate FDI inflows are estimated at US$ 19.7 billion and portfolio
inflows are likely to touch US$ 4.1 billion. Net inflows on account of loans are
expected to be US$ 34 billion. Net banking capital inflow and inflows under "other
capital" are likely to be more than adequate to finance the enlarged Capital Account
Deficit (CAD), leaving about US$ 29 billion to accrue in the foreign exchange
reserves of the RBI.

In its August report, the Reserve Bank of India (RBI) had stated that FDI inflows in
the first quarter of 2008-09 had touched US$ 10.073 billion, almost a billion more
than the total FDI inflows (US$ 8.961 billion) in 2005-06. Given the global economic
slowdown, the target, however, may not be met.

FDI

In 2007-08, India's FDI touched US$ 25 billion, up 56 per cent against US$ 15.7
billion in 2006-07. According to a report by the National Council of Applied Economic
Research (NCAER), foreign investments in India grew three-fold in FY 2008 as
against the capital inflow in the corresponding period last fiscal. The report stated,
"In the first nine months of 2007-08, the net capital flows rose to US$ 83 billion from

Developed By-P.B.Bhanja
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US$ 30 billion the country received during the corresponding period of the previous
year."

FDI equity inflows between April–September 2008 were US$ 17.21 billion, a growth
of 137 per cent over the same period last year. Inflow of FDI equity for the month of
September 2008 alone was US$ 2.56 billion, a growth of 259 per cent over the same
month in last year. Further, October 2008 has witnessed FDI inflows of US$ 1.49
billion, thereby increasing the FDI equity inflows for the period April-October 2008 to
US$ 18.7 billion.

In November 2008, FDI inflows were US$ 1.083 billion, increasing the cumulative
FDI inflows for the period April-November 2008 to US$ 23.33 billion.

Exports

Exports during 2007-08 grew by 23.02 per cent to total US$ 155.51 billion as against
US$ 126.41 billion in the corresponding period last year.

The latest provisional figures as per the Commerce Ministry show that the country's
exports during November 2008 were valued at US$ 11.505 billion, while cumulative
value of exports for the period April- November, 2008 was US$ 119.301 billion as
against US$ 99.912 billion, registering a growth of 19.4 per cent over the same
period last year.

The competitive advantage that India enjoys across a range of sectors has led to
rapid increase in India's exports.

• According to the Gem and Jewellery Export Promotion Council (GJEPC),


India's gems and jewellery exports rose nine per cent to US$ 13. 587 billion
during April-December 2008 as compared with US$ 12. 485 billion in the
same period last year.
• India's tea exports are projected to grow by more than 17 per cent and touch
210 million kg in 2008-09. The country's tea exports have already surged to
105.56 million kg during January-July, 2008 as compared to 88.86 million kg,
in the same period a year back. In value terms also, the shipments during the
first seven months of 2008 touched US$ 255.18 million as compared to US$
187. 08 million for the corresponding period last year.
• Indian cashew exports recorded a value increase of 36 per cent in the first
three quarters of the current fiscal, 2008-09. According to figures released by
the Cashew Export Promotion Council, about 82,921 tonnes of cashew valued
at US$ 468. 64 million were exported during the first nine months of the
current fiscal as against 86,312 tonne valued at US$ 343. 82 million during
April-December in 2007-08.
• India's tobacco exports, the third largest in the world, surged by 68 per cent
to touch US$ 454. 54 million in the first eight months of 2008-09 on better
price realisation.
• India's soymeal exports rose sharply by more than 53 per cent during the first
three quarters of 2008-09. Exports of soymeal, which is widely used for
human consumption and poultry feed, during April - December 2008 went up
to more than 3 million tonnes against more than 2 million tonnes recorded
during the same period in 2007-08.

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• India's iron ore exports doubled in November as compared to October. As per


data compiled by Federation of Indian Mineral Industries (FIMI), the total
quantity of iron ore shipped in November was 8.74 million tonnes, against
4.13 million tonnes in October.
• India's total export of spices is likely to touch US$ 1.2 billion in 2008-09.
• India's natural rubber exports have surged 38 per cent in the April-July 2008,
to touch US$ 51.2 million.
• Export of leather and leather products from the country reached US$ 3.47
billion in 2008-09
• According to a macro-track report by the National Council of Applied
Economic Research (NCAER), India's share in global service exports will
increase to 6 per cent by 2012 from the current 2.7 per cent.
• India exported 1.40 million tonnes of oilmeal in the first three months of the
current financial year, up 70 per cent from the same period last year.

Foreign Exchange

India's foreign exchange reserves touched US$ 247.686 billion in November 2008.
Foreign currency assets stood at US$ 238.968 billion as on November 28, 2008.

External Sector

India's Balance of Payments (BoP) accounts for July-September 2008 reiterates


India's growing trade interactions with the world.

On BoP, India's merchandise exports registered a growth of 24.6 per cent in July-
September 2008, as compared with 16.7 per cent in the same period of the previous
fiscal. Import payments, on BoP basis, recorded 45 per cent growth in July-
September 2008 against 22.2 per cent in the same period of the previous fiscal.

Invisible receipts comprising services, current transfers and income rose by 33.9 per
cent in July-September 2008, mainly due to increase in receipts under private
transfers along with steady growth in software services exports, business and
professional services, travel and transportation. At the same time, invisible payments
reflected outbound tourist traffic from India, rising payments towards transportation,
domestic demand for business- related services and investment income payments in
the form of interest payments and dividends.

Net invisibles (invisibles receipts minus invisibles payments) amounted to US$ 26.1
billion in July-September 2008 (as compared to US$ 16.9 billion in July-September
2007). At this level, net invisibles surplus financed 67.5 per cent of trade deficit in
Q2 of 2008-09 (79.8 per cent in Q2 of 2007-08).

India's trade relations with several countries have received an impetus with the
numerous bilateral pacts and trade agreements signed recently.

• The government is likely to sign a free trade agreement (FTA) with the
Association of Southeast Asian Nations (ASEAN). With lower tariff
barriers, trade between India and ASEAN is expected to increase significantly
from the present US$ 28 billion annually.

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• India-African bilateral trade is projected to grow by over nine times from US$
26 billion now to US$ 150 billion by 2012, according to an estimate by a
leading business chamber.
• Spain, which has a strong industrial base in the automotive and infrastructure
sectors has witnessed a five-fold increase in its investments in India in 2008.
Spanish investment in India in the first three quarters of 2008 calendar year
was US$ 158 million (or 114 million euros)— an increase of 500 per cent from
the previous year.
• India has emerged as Dubai's second biggest trading partner during the first
nine months of 2008 with imports from India worth US$ 10 billion and re-
exports to India worth US$ 8 billion.
• India and Turkey aim to double bilateral trade to US$ 6 billion by 2010.
• India and Singapore will be signing an agreement on IP rights' cooperation.
Singapore ranks fourth in terms of FDI in India during the period 1991-2008.
• India and Syria have signed a revised double taxation avoidance agreement
for the avoidance of double taxation and for the prevention of fiscal evasion
with respect to taxes on income.
• According to Andrew Cahn, CEO of UK Trade & Investment (UKTI), a British
Government body that draws UK's overseas investments, the bilateral trade
between UK and India has touched US$ 17.44 billion in 2007-08. India's
economic ties with the UK are also through the 52 listed companies with a
combined market capitalisation of US$ 15.71 billion on the London Stock
Exchange. In 2007-08, Indian firms invested in 1,573 projects in the UK.
• India has signed a bilateral investment promotion and protection agreement
(BIPA) with Syria, and is in the process of signing similar pacts with a host of
countries.
• India and Canada have set off ten joint initiatives worth US$ 17 million in the
field of science and technology, and next-generation research.
• India has become the 10th largest trading partner of Australia, with bilateral
investment touching US$ 2 billion.
• Non-oil bilateral trade between India and Oman in the first quarter of 2008
registered an impressive growth of 35-40 per cent.
• Italy is looking forward to widening business opportunities in India, especially
in West Bengal. Bilateral trade between the two countries added up US$ 100
million in 2007.

Foreign Trade Policy for 2008-09

Continuing with the government policy of integrating trade with the overall
development of Indian economy, the annual supplement 2008-09 to Foreign Trade
Policy 2004-09 introduced new incentives.

Focus Market schemes (FMS)-aimed at promoting exports to certain countries by


offsetting high freight cost and other externalities—has been expanded to include 10
more countries. Simultaneously, FMS would be calibrated with the Focus Product
scheme (FPS)—aimed at giving a thrust to manufacture and export of certain
industrial products which could generate large employment per unit of investment.

This is done to ensure that products with general high export intensity, not covered
under FPS and which have low penetration in non-FMS countries, would be
considered for export incentive as a focus product for that particular country.

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Government Initiatives

In order to promote trade, the government has announced many innovative steps in
the final annual supplement to FTP 2004-09:

• Extension of Duty Entitlement Pass Book scheme (DEPB) till May 2009
• Interest at 6 per cent for late refunds
• Cutback of customs duty payable under EPCG scheme from 5 per cent to 3
per cent
• Lowering of average export obligation under EPCG scheme
• Extension of income tax exemption to 100 per cent Export Oriented Units
(EOUs) beyond 2009
• Additional duty-free credit of 2.5 per cent under Vishesh Krishi and Gram
Udyog Yojana (VKGUY)
• Additional credit of 5 per cent for sports and goods industries under Focus
Product Scheme
• Special focus initiative for IT sector
• Ensuring zero-rating of exports for domestic taxes
• Enhanced incentive of 2.5 per cent under Focus Product Scheme
• Addition of 10 more countries in the Focus Market Scheme
• Inclusion of IT and ITES and R&D in natural sciences under the Industrial Park
Scheme
• Establishment of Export Promotion Councils for Telecom sector

Besides the above initiatives, the government has taken several measures to boost
exports during times of a global meltdown.

• The government has established a US$ 1.02 million fund to promote the
country's exports through Indian missions abroad. The focus of the fund is on
boosting exports of India's small and medium enterprises in new and
emerging markets like Africa and Latin America. Termed the 'Challenge fund',
the money will be released as part of the Market Access Initiative (MAI)
scheme of the commerce department.
• The government has released US$ 163. 9 million towards payment of pending
claims of Terminal Excise Duty, Duty Drawback and Central Sales Tax.
• To help out exporters, the government, in a fiscal stimulus package
announced in the first week of December 2008, permitted EXIM Bank to
obtain from RBI a line of credit of US$ 1.03 billion. This will be used to
provide pre-shipment and post-shipment credit, in rupees or dollars, to Indian
exporters at competitive rates.
• The government has provided an interest subvention of 2 per cent upto
March-end on pre and post-shipment export credit for labour intensive
exports such as textiles, leather, gems & jewellery, marine products and SME
sector, subject to minimum interest rate of 7 per cent.
• The government has also promised to provide additional funds of US$ 226. 80
million to ensure full refund of terminal excise duty/CST.

Exchange rate used: 1 USD = 48.6793 INR

Developed By-P.B.Bhanja
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Foreign Direct Investment

Last Updated: March 2009 [TOP]

With continued liberalisation of the foreign direct investment (FDI) policy, procedural
relaxations, the sustained growth in the economy, and a favourable investment
regime, a horde of global corporations are keen on investing in India. India continues
to be regarded as one of the fastest expanding economies and the growth outlook for
2008–09 has been projected at a high sub-eight per cent by different rating
agencies.

Further, according to a report by the Centre for Monitoring Indian Economy (CMIE),
"Our close monitoring of projects through the CMIE CapEx service shows acceleration
in the announcement of fresh investment." The CaPex service, with new projects
worth US$ 44.89 billion in July, said that on an average, the monthly capturing of
fresh investments was US$ 15.32 billion in 2005–06, which increased to US$ 25.18
billion in 2006–07, and to US$ 32.97 billion in 2007–08. In the first quarter of 2008–
09, CMIE CapEx service received projects worth US$ 117.70 billion, averaging at US$
39.14 billion, the report informed.

In spite of the global meltdown, in fiscal year 2007–08, about US$ 32.4 billion as
foreign investment had poured into India. The country posted a 45 per cent growth
in foreign direct investment (FDI) with US$ 23.3 billion between April-December
2008, over the same period last year. The FDI inflows between April-November 2008
stood at US$ 19.79 billion.

FDI inflows between April-October 2008 were US$ 18.70 billion, as against the US$
9.27 billion received during same period last year. Inflow of FDI equity for the month
of September 2008 alone was US$ 2.56 billion, a growth of 259 per cent over the
same month in last year. Further, October 2008 has witnessed FDI inflows of US$
1.49 billion, thereby increasing the FDI inflows for the period April-October 2008 to
US$ 18.7 billion, according to Commerce Minister, Mr Kamal Nath.

According to the Reserve Bank of India's (RBI) monthly bulletin, NRIs have pumped
in US$ 513 million (on net basis) in NRI deposits in September 2008, which is the
highest since December 2006.

The government has in February 2009 approved 29 foreign direct investment (FDI)
proposals worth US$ 118.95 million including an US$ 70.49 million hotel project of
AAPC Singapore Pte Ltd, a hotel management company this month.

The Foreign Investment Promotion Board (FIPB) has cleared around 30 proposals
accounting for more than US$ 1.21 billion in the last few months. The approvals for
such proposals went up about 50 per cent in 2008 as against 2007.

India: A much favoured destination

India has been rated as the fourth most attractive investment destination in the
world, according to a global survey conducted by Ernst and Young in June 2008.
India was after China, Central Europe and Western Europe in terms of prospects of

Developed By-P.B.Bhanja
13

alternative business locations. With 30 per cent votes, India emerged ahead of the
US and Russia, which received 21 per cent votes each.

As per the global survey of corporate investment plans carried out by KPMG
International, released in June 2008, (a global network of professional firms
providing audit, tax, and advisory services), India will see the largest overall growth
in its share of foreign investment, and it is likely to become the world leader for
investment in manufacturing. Its share of international corporate investment is likely
to increase by 8 per cent to 18 per cent over the next five years, helping it rise to
the fourth, from the seventh position, in the investment league table, pushing
Germany, France and the UK behind.

According to the AT Kearney FDI Confidence Index 2007, India continues to be the
second most preferred destination for attracting global FDI inflows, a position it has
held since 2005. India topped the AT Kearney's 2007 Global Services Location Index,
emerging as the most preferred destination in terms of financial attractiveness,
people and skills availability and business environment.

India is emerging as the most favoured investment destination for many countries.

The US Consul General, Aileen Crowe Nandi has said, "India is emerging as the most
favoured destination for overseas investment and an important trading partner for
the US."

A recent survey conducted by the Japan Bank for International Cooperation (JBIC)
shows that India has become the most-favoured destination for long-term Japanese
investment.

In recent times, Japanese corporations have bought varying amounts of equity


stakes in Indian firms, particularly, in the automobile sector and also machine tools,
electronics and IT. In terms of cumulative FDI inflow, Japan is the fifth largest
investor and Japan's FDI in India is estimated to be around US$ 5.5 billion over five
years from 2006 to 2010.

Further, according to Tourism Minister Anil Sarkar, Australia and many South-Asian
countries such as Cambodia, Vietnam and Thailand have plans for investing in the
tourism sector in the Indian state of Tripura.

In terms of FDI equity inflows during April to October, the largest investments came
from Mauritius (US$ 7.69 billion), Singapore (US$ 1.90 billion), U.S.A (US$ 1.25
billion), Cyprus (US$ 827 million), Netherlands (US$ 740 million), U.K ( US$ 701
million), Germany (US$ 538 million), France US$ 295 million), Japan (US$ 223
million), and UAE (US$ 186 million).

Sector-wise FDI

The sectors bagging the maximum amount of FDI equity during April to October,
2008 are the Services Sector (US$ 3.35 billion), Computer Hardware and Software
(US$ 1.52 billion), Telecommunications (US$ 1.99 billion), Construction Activities
(US$ 1.74 billion), & Housing and Real Estate (US$ 1.82 billion) .

Developed By-P.B.Bhanja
14

Now, global investors are also evincing interest in other sectors like
telecommunication, energy, construction, automobiles, electrical equipment apart
from others.

• Investment in the Indian realty market is set to increase to US$ 20 billion by


2010.
• Many big names in international retail are also entering Indian cities. Global
players such as Wal Mart, Marks & Spencers, Rosebys etc., have lined up
investments to the tune of US$ 10 billion for the retail industry.
• According to Mines Minister, Mr Sis Ram Ola, "FDI of about US$ 2.5 billion per
annum is expected in the mining sector from the fifth year of implementation
of the new National Mineral Policy (NMP)."
• The surge in mobile services market is likely to see cumulative FDI inflows
worth about US$ 24 billion into the Indian telecommunications sector by
2010, from US$ 3.84 billion till March 2008.

Aggressive Investment Plans

The surging economy has resulted in India emerging as the fastest growing market
for many global majors. This has resulted in many companies lining up aggressive
investment plans for the Indian market.

• Footwear retail company, Pavers England Footprint, has plans to invest US$
10 million for setting up 1,000 stores in India by 2013. Moreover, the
company also plans to invest US$ 3 million on an R&D facility in Chennai.
• General Motors India plans to invest US$ 500 million, in addition to US$ 1
billion it has already committed to invest in India. General Motors will also
invest US$ 200 million in its Talegaon plant near Pune for its powertrain
project.
• American Tower Corporation (ATC) plans an investment of about US$ 500
million to buy a stake in an Indian telecom tower company.
• Norway-based Telenor has acquired Unitech Wireless with a US$ 1.23 billion
investment for a 60 per cent stake.
• Leading global multiplex player Cinepolis plans to start its India operations
with an investment of US$ 350 million.
• Finnish engineering and technology group, Metso started the development of
its 49-acre multi-functional industrial facility, in Rajasthan, with an
investment of around US$ 33.28 million over two years.
• Swiss processing and packaging major, Tetra Pak International SA, plans to
invest US$ 100.85 million in its second plant in Maharashtra.
• Japanese telecom major, NTT DoCoMo, will be buying 27.31 per cent equity
capital of Tata Teleservices for around US$ 2.48 billion.
• The Goldman Sachs Group will be making an overall investment of almost
US$ 100 million in its wholly owned non-banking financial company, Pratham
Investments and Trading Private Ltd.
• Ford India’s plans to expand its capacity in India will continue as per
schedule. The expansion programme entails doubling its car manufacturing
capacity to 200,000 units per year and an engine manufacturing facility with a
capacity of producing 250,000 engines annually. The project will be
completed by early 2010.

Developed By-P.B.Bhanja
15

• All Green Energy India, a subsidiary of Singapore-based All Green Energy Pvt
Ltd, will be investing around US$ 96.30 million for the development of 10
biomass-based renewable energy projects over the next three years.
• StarragHeckert, a global company in the field of milling machine centres for
the aerospace, transport (automotive), energy and precision machinery
markets, is planning to invest US$ 31 million in two phases.
• Socomec UPS India, part of Socemec, France, will be investing US$ 5.02
million over the next three years. Targetting a 10 per cent share of the US$
600 million - UPS market in India, Socomec has inked alliances with 24 new
business partners.
• A joint venture by Punj Llyod and US-based Thorium Power will see an
investment of around US$ 1 billion for exploring commercial nuclear power
opportunities.
• Singapore-based Universal Success Enterprises Ltd (USEL) has signed three
pacts with the Gujarat government for infrastructure projects and will be
investing about US$ 17.5 billion for the same.

Government Initiatives

The government has taken significant steps to make foreign direct investment
simpler, and render caps on FDI redundant.

In a recent move, the government has announced that equity investments coming
through companies with Indians having majority ownership and control would be
taken as fully domestic equity.

With the changes in the FDI policy, sectors like retail, telecom and media amongst
others would benefit greatly.

The change in FDI norms will bring much respite to retailers who can now raise funds
through stake sale in subsidiaries, and also build closer alliances with their foreign
partners.

Furthermore, with the revised FDI norms, extensive re-organisation of company


finances across many sectors would be seen and companies would now be subject to
further dividend distribution tax of 15 per cent, including surcharges.

Additionally, the government has made new amendments to these revised norms.

Even indirect foreign investment would not be allowed in sectors where foreign
investment is barred, like multi-brand retail, agriculture, lottery and atomic energy.

• The Department of Industrial Policy and Promotion (DIPP) and the Finance
Ministry are planning to remove the cap on FDI in single-brand retail and
permit up to 100 per cent foreign investments as against the 51 per cent
currently.
• The government is also considering the removal of the incentive cap in wind
energy which is restricted to projects up to 49 MW, presently.
• The Reserve Bank of India (RBI) will now permit FDI up to 49 per cent in
credit information companies with voting rights up to 10 per cent.

Developed By-P.B.Bhanja
16

The government is now planning to permit FDI in investment companies as well.

The government has also proposed wide-ranging modifications in the guidelines FDI
over various sectors.

• Investment by Indian companies in which foreign firms have beneficial


investment will account as direct FDI.
• Direct investments made by NRIs to account as FDI.

Looking ahead

With the government planning more liberalisation measures across a broad range of
sectors and continued investor interest, the inflow of FDI into India is likely to further
accelerate.

The Union Commerce and Industry Minister in India, Mr Kamal Nath, has assured
that India will not be greatly affected by the current global meltdown and has
expressed confidence about achieving the FDI target set for this year.

Exchange rate used: 1 USD = 51.92 INR

Developed By-P.B.Bhanja
17

Foreign Institutional Investors

Last Updated: March 2009 [TOP]

India's exceptional growth story and its booming economy have made the country a
favourite destination with foreign institutional investors (FIIs). It has continued to
attract investment despite the Satyam non-governance issue and the global
economic contagion impact on Indian markets.

The INSTANEX FII INDEX in India launched by Instanex Capital Consultants Pvt. Ltd.,
Mumbai, tracks the price performance of the portfolio of listed Indian equity shares
owned by FIIs. The Index comprises of the top 15 companies by value of FII
holdings. Reviews are conducted quarterly and companies are deleted from the
Index if they are not among the top 20 FII holdings. According to the Index, in
March, FIIs have increased their investing activity and out of the 15 components, 13
showed the heightened interest of the FIIs.

According to Mr Gautam Chand, CEO of Instanex, said FIIs are the largest
institutional investors in India with holdings valued at over US$ 751.14 billion as on
December 31, 2008. "They … determine the direction of the market. They are also
the most successful portfolio investors in India with 102 per cent appreciation since
September 30, 2003.

According to the data given by the Securities and Exchange Board of India (SEBI),
the FII investments in equities as on March 17, 2009 stood at US$ 50950.20 million
and in debts, equalled US$ 6541.50 million at exchange rate of 1 USD = 40.34 INR.
As per SEBI, number of registered FIIs stood at 1626 and number of registered sub-
accounts stood at 4972 as on March 17, 2009.

As many as 330 FIIs have registered with SEBI since January 31, 2008, taking the
total number of FIIs in India to 1,609 as on January 31 this year. Even the FII sub-
accounts have gone up over 30 per cent to 4,938 compared with 3,795 in January
last year. In fact, this year, 45 new FIIs have registered with SEBI, according to data
given by the regulator. Majority of these FIIs are from the US and Europe. There are
also FIIs based out of Mauritius. FIIs that have registered those from other countries
include Canada, the UAE, Japan, Australia, Taiwan and Singapore. Some pension
funds also feature in the list of the FIIs that have registered in 2009. Among them
are Llyods TSB Pension Trust, Stagecoach Group Pension Scheme and Trustees of
The Mine Workers Pension Scheme from UK. 30 new FIIs and 104 new sub-accounts
had registered till February last week in 2009.

FII holdings in Indian markets reached US$ 88 billion in December 2008, according
to the Bombay Stock Exchange Chairman, Mr Jagdish Capoor. Since then, foreign

Developed By-P.B.Bhanja
18

institutional investors (FIIs) have started looking at India as an attractively-valued


market despite the Satyam scandal.

Some of the FIIs such as Citi and Macquarie have increased the weightage for India,
while Credit Suisse has said that the Indian market can go up by 30-40 per cent in
2009. This weightage helps investors decide the markets to invest. Generally, FIIs
decide their allocations for the year in January.

Debt instruments (government securities, commercial papers, and corporate bonds)


attracted US$ 426.18 million in first 11 trading sessions of 2009 from FIIs. FIIs have
been finding investment in debt a more attractive proposition than equity.

Seventy eight private equity players expected to raise US$ 24 billion in 2009 for
investing in India—thrice that of last year—when 30 private equity players raised
US$ 9.2 billion, according to a Preqin research report. This also includes real estate
funds. Meanwhile, 117 Pan-Asian private equity (PE) players—with India as focus—
aim to raise funds worth US$ 59 billion, says UK-based Preqin, an alternative assets
research and consultancy group.

According to the Preqin report, PEs including Macquarie State Bank of India
Infrastructure Fund with US$ 1,500 million, Trump Organization India Fund and
Walton Street Capital India Fund I with US$ 1,000 million investment each in real
estate sector are some recent notable examples.

According to C G Srividya, Partner, Specialist Advisory Services, Grant Thornton, "In


2008, PE investments in India was close to US$10 billion, but the total amount raised
for 2008 would be 2-3 times of what has been invested. Besides, India is a growth
story while everywhere else, there is recession."

Earlier, cash as a percentage of total assets under management (AUM) was just
above 6 per cent in January 2008 and rose to 18 per cent in November 2008.

On March 16, 2009, 24 bidders were allocated investments of US$ 5.8 billion, the
highest ever investment allocation by FIIs in India as compared to the net
investment of FIIs in 2008 of US$ 2.39 billion. Since January 2009, FII's net
investment in debt instrument has declined by US$ 125.4 million due to impact of
the global slowdown. As per the Securities and Exchange Board of India (SEBI), US$
8 billion was available for allocation to FIIs and their sub-accounts in an open bidding
platform.

Standard Chartered Bank got the maximum bids of US$ 1.05 billion, followed by
Barclays Bank US$ 998.81 million, Kotak Mahindra UK US$ 818.86 million and
Deutsche Bank International Asia US$ 700.14 million, and JP Morgan Chase Bank,
US$ 532.5 million. The bids have to be executed in the next 45 days. According to
market experts, this bidding should kick off a sound FII investment trend in the near
future, as the US markets continue to weaken and yields of Indian public sector units
(PSU) and corporate debt papers remain attractive. FIIs will invest in attractive PSU
bonds floated by quasi-government entities like Power Finance Corporation and Rural
Electrification Corporation.

Developed By-P.B.Bhanja
19

Investment banks (i-banks) are now looking at smaller venture capital deals in the
US$ 2 million – US$ 7 million range. i-banks are now willing to work on lower
margins. Venture capital firms say the number of deals they are getting from i-
bankers currently has gone up significantly. According to Sachin Maheshwari,
principal at Draper Fisher Jurvetson, only 2-3 out of 10 deals came from i-bankers
earlier, but about 5-6 currently come through this route. Further, as per deal
tracking firm, Venture Intelligence, there were 82 PE deals worth US$ 1.4 billion
from October 2008-February 2009.

The mutual fund industry comprises of 35 fund houses. According to Grant Thornton
India, the total number of private equity deals announced in 2008 stood at 312, with
the total announced value at US$ 10.59 billion. Quite unlike in 2007 and 2008, when
real estate and IT and ITES sectors enjoyed most of the attention, 2009 is witnessing
a broad-basing of sectors on the PE radar. Investments in sectors such as
healthcare, education, consumer goods and infrastructure are expected to be more
attractive, given their relatively strong domestic demand, even as export-oriented
businesses face impact of recession in US and Europe. Funds are also increasingly
buying stake in agro-based companies.

Mutual fund houses have been net sellers in February 2009. However, they were
bullish on some select market heavyweights such as HDFC, Reliance Industries (RIL),
Larsen and Toubro (L&T) and Infosys during the month. The funds are looking up
once again currently.

Earlier, as per data available with the Bombay Stock Exchange, on December 4,
2008, FIIs invested US$ 61.83 million in equities showing confidence in the Indian
stock market. Simultaneously, the upgradation of India's sovereign ratings combined
with the improvement in the macro-economic situation and growth fundamentals has
led to a significant increase in FII investments in the debt market. Total investment
in the country's debt market till November 2008 amounted to US$ 6.38 billion as
against US$ 2.80 billion by the end of November 2007.

Some Investment Highlights

The Indian growth story has continued despite the Satyam non-governance issue
and the global economic slowdown. It has attracted global majors like CLSA, HSBC,
Citigroup, Crown Capital, Fidelity, Goldman Sachs, Morgan Stanley, UBS, T Rowe
Price International, Capital International and ABN Amro among others to enter the
Indian financial market.

• The recent interest from foreign institutional investors in the stock of Housing
Development Finance Corporation (HDFC) seems to have boosted the housing
finance company's stock price. FIIs Europacific and Growth Fund of America
Inc picked up stake in the company in March 2009. Other FIIs such as
Citigroup, CMP Asia, DB International, Merrill Lynch, Aberdeen Asset
Management, Copthal Mauritius Investment, JP Morgan and Government of
Singpaore already hold stakes in the company.
• Fidelity FID Funds Mauritius has bought a substantial stake in UTV Software in
March 2009 for approx. US$ 2.34 million.
• Baring PE Fund has bought major stakes in Mphasis, a leading software
company in India in March 2009 for approx US$ 25.55 million.

Developed By-P.B.Bhanja
20

• Kotak Mahindra's investment banking business signed an exclusive alliance


with GCA Savvian Group Corp., a medium-sized Japanese bank run by
bankers pooled from Goldman Sachs, KPMG, Credit Suisse and Merrill Lynch
and Co. Inc., for international mergers and acquisitions (M&A) in the so-called
India-Japan corridor.
• In March 2009, FII Kotak Mahindra UK Ltd, bought a large stake in NIIT from
another FII, Swiss Finance Corporation Mauritius Ltd for over US$ 897,414.
• HSBC Bank Mauritius Ltd bought over 51,000 shares of Intellivisons Software
for US$ 144.94 billion.
• In January 2009, Avendus helped One97 Communications raise US$ 8.6
million from Intel Capital.
• Goldman Sachs picked up an 8.16 per cent stake in New Delhi Television Ltd
(NDTV) and a minority stake in Sterling & Wilson Pvt. Ltd.
• London-based private equity firm, Greater Pacific Capital, is planning to
launch a new fund with a corpus of US$ 750 million to invest in India and
China. The company, which started operations in 2005, initially launched a
fund with a corpus of US$ 345 million. Eighty per cent of the fund has already
been invested in India and China.
• Nomura Holdings, the largest Japanese securities firm, launched its equity
sales, trading and investment banking operations in India though its
subsidiary Nomura Financial Advisory and Securities. Nomura has integrated
the franchises of failed US investment bank, Lehman Brothers units in India,
which it had acquired in October 2008.
• Morgan Stanley is putting US$ 19.72 million into its Indian retail stock
broking and portfolio management services firm Morgan Stanley India
Financial Services (MSIFS). The firm recently launched private wealth
management services, primarily for the high-net worth individuals (HNI) and
non-resident Indians (NRI).
• Jefferies India Pvt Ltd, a subsidiary of the US-based Jefferies Group,
announced it had received a category-1 merchant banking licence from SEBI.
The licence allows investment banks to offer M&A, private equity and capital
markets advisory services to private and public companies in India, in
addition to cross border M&A and international capital markets services.
• Recent deals by Blackstone in Nuziveedu Seeds (US$ 50 million) and Morgan
Stanley, through its Asia fund, for a minority stake in Biotor Industries (US$
37.8 million) are instances of continued interest of FIIs in Indian markets.
• Goldman Sachs announced infusion of US$ 72.96 million of capital in its
wholly-owned NBFC Pratham Investments and Trading Private Ltd. In March
of last year, Goldman Sachs had infused US$ 22.75 million as capital in
Pratham Investments after acquiring it.
• Morgan Stanley Mauritius acquired a huge stake in Infrastructure
Development Finance Corp (IDFC) from Goldman Sachs in March 2009 for
US$ 11.61 million.
• RREEF Alternative Investments, the global alternative investment
management business of Deutsche Bank, plans to invest over US$ 1 billion in
the country.
• Private equity firm Blackstone has taken up a 26 per cent stake in MTAR
Technologies for US$ 65 million.
• Citigroup, Morgan Stanley, Goldman Sachs and BSMA have picked up a
combined stake of over seven per cent in Gitanjali Gems at US$ 23.51 million.
• Fidelity Investments International has picked up close to seven per cent
equity in Transport Corporation of India (TCI) for US$ 10.72 million.

Developed By-P.B.Bhanja
21

• JP Morgan Chase has invested approx. US$ 51.37 million in BPTP Ltd, a Delhi-
based real estate company.

Buying into the Indian Dream

• In spite of the global meltdown, FIIs continue to buy into the Indian dream.
As many as 120 new foreign institutional investors have registered in India
since the global financial crisis broke out in September. These include
American Airlines, International Finance Corporation, University of Southern
California, Bank of Korea, the Bill & Melinda Gates Foundation, and Warburg
Pincus International.
• The confidence that FIIs have in the Indian market can be ascertained by big-
ticket deals of global investors like Donald Coxe, the global portfolio strategist
for BMO Capital Markets. Coxe travelled across India in mid-November with a
group of influential fund managers who manage over US$ 1.5 trillion in
assets. BMO itself manages assets worth US$ 375 billion.
• "India will be out of the emerging markets basket in the next cycle and your
companies will have PE ratios in line with mature markets. We want to be
here for that," said Coxe.
• Similarly, Mark Mobius of Templeton Asset Management, world's best
emerging markets investor is also bullish on India. Mobius, who manages US$
24 billion, said that he was buying Indian stocks, especially consumer stocks,
as it is a large market not highly linked with the global market.

There is positive feedback from other big players in the FII segment as well.

• According to Mr Moses Harding, Executive Vice-President, IndusInd Bank,


"The increase in limits for FII investment in corporate bonds from US$ 6
billion to US$15 billion, announced by the Government earlier this month,
should encourage more FII inflows into the bond market".
• Norway's sovereign wealth fund (SWF) has indicated that it would rejig its
investment strategy to include markets like India. The US$ 314-billion
Norwegian fund will begin investing in real estate next year in India, China
and Egypt.
• Venture capital (VC) firms such as Avishkaar India Micro Venture Capital
Fund, Acumen Fund and Rural Innovations Network have begun investing in
rural-centric technology, with increased focus on rural markets.
• Private equity firm, Blackstone, has picked up a majority stake in a new
venture consisting of the domestic IT business of CMS Computers, its card
printing, printing solutions and ATM cash management business.
• Leading private equity investor, Actis, has closed a US$ 2.9-billion private
equity fund, of which about US$ 1 billion is likely to be invested in Indian
companies over the next four years.
• Reliance Industries Ltd has signed a US$ 400-million financing facility with
global financial services firm, JP Morgan, for its capital expenditure
programme.

Government Initiatives

Developed By-P.B.Bhanja
22

FIIs are allowed to invest in the primary and secondary capital markets in India
through the portfolio investment scheme (PIS). Under this scheme, FIIs can acquire
shares/debentures of Indian companies through the stock exchanges in India.

The ceiling for overall investment for FIIs is 24 per cent of the paid-up capital of the
Indian company, and limit is 20 per cent of the paid-up capital in the case of public
sector banks. The ceiling of 24 per cent for FII investment can be raised up to
sectoral cap/statutory ceiling, subject to the approval of the board and the general
body of the company passing a special resolution to that effect.

To further increase FII participation in the Indian market, the government and SEBI
have taken several measures:

• The Government of India has again reviewed the External Commercial


Borrowing (ECB) policy and has increased the cumulative debt investment
limit from US$ 6 billion to US$ 15 billion for FII investments in Corporate
Debt.
• Allowed foreign individuals, corporates and other investors such as hedge
funds to register directly as foreign institutional investors.
• Foreign institutional investors (FIIs) will be one of the biggest gainers in the
financial sector from the reduction in service tax announced in the Interim
budget 2009-10. As a result, FIIs will see their brokerage costs come down
because of the lower service tax. According to PricewaterhouseCoopers'
Prasad Paranjpe, "Unlike corporates registered here, FIIs do not have any
output service tax liability in India against which service tax payments can be
offset. So, the two-percentage-point reduction will result in an equivalent cost
saving."
• SEBI has FII investment limit in government securities being increased to US$
5 billion from US$ 3.2 billion.
• Institutional investors—including FIIs and their sub-accounts—have been
allowed to undertake short-selling, lending and borrowing of Indian securities
from February 1, 2008.
• SEBI has simplified the registration norms for FIIs and sub-accounts.
• Significantly, it has allowed investment managers, advisors or institutional
portfolio managers in the NRI category to be registered as FIIs.
• In October 2008, SEBI did away with the 70:30 ratio of FII investment in
equity and debt, respectively. FIIs can now invest in equity and debt in any
ration they seem fit.

Exchange rate used: 1 USD = 50.5898 INR

Developed By-P.B.Bhanja
23

Domestic Investments

Last Updated: January 2009 [TOP]

A Sustained Deluge

India's economy has been seeing tremendous growth since the last decade. After a
growth rate in excess of 9 per cent for the last 3 years, it is still holding its ground in
the midst of the current global financial crisis.

Pegging India's growth rate in the current year at between 7 and 8 per cent, the
erstwhile Union Finance Minister, Mr P. Chidambaram, has said that India would
continue being the second fastest growing economy in the world. As a measure to
boost the economy and to ensure a 7 per cent growth, the government announced a
US$ 6.27 billion fiscal stimulus package on December 7, 2008.

As a reiteration of this optimism, domestic investments continue to pour into various


sectors, with both the public and private sector making investments to start new
enterprises and ramp up existing firms.

This increase in investments is across varied industrial sectors like retail, real estate,
steel, infrastructure, automobiles and telecommunication among others.

According to a study by the Associated Chambers of Commerce and Industry of India


(ASSOCHAM), the Indian power sector received investments worth US$ 44.76 billion
in the first half of 2008, accounting for almost 30.9 per cent of the overall
investments in the corporate sector.

After the power sector, the other sectors that attracted huge investments were
realty, steel, retail and telecom, the report revealed, stating, "These sectors together
saw capex (capital expenditure) plans worth US$ 145.38 billion during the period."

The realty sector was second, with US$ 34.68 billion for the next two to five years. It
was followed by the steel sector with investments worth US$ 24.80 billion from
companies like Tata Steel, Vedanta Resources, Bhushan Steel and JSW Steel among
others. The retail sector, with a growth rate of around 25 per cent, received
investments worth US$ 20.47 billion for the same period. The telecom sector had

Developed By-P.B.Bhanja
24

also attracted huge investments. "The sector attracted US$ 20.44 billion by major
telecom players like Reliance Communication, Airtel and Quippo Telecom
Infrastructure."

A report by ASSOCHAM's research bureau revealed that the Indian economy is


witnessing a fusillade of investments with five states, notably Maharashtra, Andhra
Pradesh, Orissa, West Bengal and Rajasthan, counting as top preferred investment
destinations by private players. The capacity expansion plans announced by Indian
corporates were worth US$ 243 billion in the first six months of the current calendar
year, as against US$ 131.32 billion between July-December 2007 according to the
report on state-wise investments.

Maharashtra tops the chart with investment commitments worth US$ 27.76 billion in
sectors like power, real estate, automobiles, ports and shipping. While the
announcement by Tata Power for investment of US$ 5.77 billion to raise power
generation capacity to 12,861 MW for the next five years was one of the investment
highlights, Reliance Industries announced its plan for setting up a semi conductor
plant and other micro-technology units with investments worth US$ 5.01 billion for
the next 10 years.

Andhra Pradesh saw the second highest investment announcements with investment
proposals by major industry groups like Reliance Industries, Hindujas Group,
Videocon Industries Ltd and GAIL India taking it to a neat US$ 24.57 billion figure.
Overall, the state received a share of 10.11 per cent of the total planned
investments.

National Aluminium Cooperation (NALCO) made the third largest announcement in


Orissa worth US$ 3.23 billion towards a Greenfield aluminium and captive power
plant. The State of West Bengal also saw big ticket announcements worth US$ 19.26
billion for steel, manufacturing and hospitality sector.

Haryana has seen investments amounting to US$ 8.32 billion in the industrial sector
over the last three years. Projects worth another US$ 16.67 billion are on the anvil.

A total of 24 states were tracked by the research bureau. Apart from these
investment plans, expenditure worth US$ 15.73 billion is in the offing for sectors
including steel, cement, hospitality and telecom.

However, Gujarat stole a march over all other states with massive investments
announced during the Vibrant Gujarat Global Investors Summit held in January
2009.

Gujarat will be receiving a humongous US$ 244.80 billion as investment for various
projects. Indian as well as foreign investors signed over 8,500 MoUs during the
Summit.

Investments by the Government

• V K Kaul, the Managing Director of Dedicated Freight Corridor Corporation of


India Limited (DFCCIL), announced that construction work on the dedicated
freight corridor project will start in early 2009 with an initial investment of

Developed By-P.B.Bhanja
25

US$ 154.74 million for the 100 km stretch on the eastern corridor. The entire
project, which will cover over 2,762 km, will entail an overall investment of
over US$ 5.78 billion to US$ 7.64 billion. The commissioning of the critical
stretches of the entire project will be over by 2015-16.
• Power Grid Corporation of India Ltd (PGCIL) plans to spend US$ 1.43 billion to
develop the transmission system related to the 4,000-MW Sasan Ultra Mega
Power Project (UMPP) in Madhya Pradesh. This investment is part of the US$
11.24 billion outlay for increasing the inter-regional transmission capacity
planned by PGCIL.
• The government has decided to set up 30 Greenfield mega food parks (MFP)
during the Eleventh Plan, with each park receiving an investment of US$
51.39 million.
• The Cabinet Committee on Economic Affairs (CCEA) has ap proved four laning
and six laning of various sections of national highways 18 and 47 at a cost of
US$ 630.80 million.
• The government plans to invest around US$ 20.45 billion in the infrastructure
sector within the next two years, and is considering asking the Infrastructure
Investment Finance Company Ltd (IIFCL) to create a corpus of over US$ 8.16
billion, or the same.
• According to Power Minister Mr Sushil Kumar Shinde, the power sector has set
aside investments worth US$ 45.69 billion for the development of power
plants with 70,000 Mw aggregate capacity, over the next three years.
• The railways is expected to tie up a loan of US$ 7.59 billion from the World
Bank and the Asian Development Bank (ADB) for the construction of about 76
per cent of the proposed 2,739-km dedicated rail freight corridor (DFC).
• In the annual investment plan for ports during 2008-09, the total projected
investment is worth US$ 746.64 million. This includes major investments by
the Dredging Corporation of India at US$ 100.78 million and Sethusamudram
Corporation at US$ 322.14 million.
• The Punjab government is planning a US$ 1.01 billion investment for
developing the infrastructure of Mohali. The projects include the building of
educational institutions, hotels, an IT Tower, and roadways amongst others.
• The Kerala State Electricity Board (KSEB) has proposed an overall capital
investment of around US$ 278.27 million for areas like generation,
transmission and distribution sectors in 2009-10. The outlay is for five in-
progress projects, 16 new schemes and seven wind and other non-
conventional energy projects.
• Indian Railways plans an investment of US$ 437.25 million per annum to
raise its consumption of stainless steel and add brand new alloy-made
wagons and coaches.
• Further, southern railway is planning to invest around US$ 136.43 million
over the next 10 years in port connectivity projects at Chennai, Tuticorin,
Mangalore, Ennore and Cochin.

Public Sector Investments

Some of major investments that have been lined up for the next few years by the
government and public sector enterprises include:

• The government of Karnataka has signed two separate MoUs with NTPC and
Bharat Heavy Electricals (Bhel) for establishing thermal power plants of 4,000
MW at Kudigi (Bijapur district), and 2,400 MW at Edlapur and Yermarus

Developed By-P.B.Bhanja
26

(Raichur). Additionally, in partnership with NTPC, it will also be setting up 500


MW wind energy farms at different six locations. The Kudigi project will
involve an investment of US$ 4.06 billion and the wind energy projects will
see an investment of US$ 508.35 million.
• Chennai Petroleum Corporation (a group company of Indian Oil) will be
investing around US$ 772.67 million for the augmentation of its diesel and
petrol refining capacity by 2011. An additional US$ 528.17 million will be
invested for the upgradation to Euro IV norms in petrol and diesel by April
2010.
• The Karnataka Power Corporation Limited (KPCL) and Bharat Heavy
Electricals Limited (BHEL) will together partner financial institutions to
propose a joint venture (JV) company with the aim to develop power
generation in Karnataka. The company plans to take up two projects with a
shared power generation capacity of 1,980. The KPCL-BHEL combine will own
52 per cent stake in the JV.
• Singareni Collieries Company Limited (SCCL) is planning to establish a
600MW merchant power plant in the Adilabad district with an investment of
US$ 610.36 million. The project is likely to be completed by 2012.
• The Hyderabad based Navayuga Engineering Company Limited (NECL) has
inked a MoU with the Orissa government for setting up an all-weather,
alongside berthing, mechanised port at Astaranga in the Puri district of
Orissa. The total investment outlay is US$ 1.22 billion.
• Oil and Natural Gas Corp (ONGC), plans to set up a US$ 891.59 million
project in Tripura to increase the state's gas output.
• GAIL India Ltd will be investing US$ 1.01 billion over the next 3-4 years to
develop a CNG corridor across India. "We have identified 230 cities for
retailing compressed natural gas (CNG) to automobiles and pipe cooking gas
to households," said company Chairman U D Choubey.
• NTPC has announced an investment of US$ 1.22 billion in super thermal
power projects in Madhya Pradesh, Uttar Pradesh and Chattisgarh.
• Life Insurance Corporation of India (LIC) will be investing US$ 6.31 billion in
equities and corporate bonds over the next four months.

Private Capital Investment

• Vedanta Resources will be going ahead with its US$ 10.18 billion investments
lined up in plans for Orissa despite the global slowdown.
• Hindustan Construction Company has signed a MoU with the Gujarat
Government to set up a 'Water Front City' at Dholera with an investment of
US$ 8.14 billion. The project entails the development of a new city built over
4,000 acres and would take over 12 years for completion.
• The Gujarat NRE Coke Group plans to invest around US$ 611.50 million in
Gujarat over the next four to five years for setting up a coke plant, a coal
preparatory plant, and waste heat based power plant.
• Indian private life insurers have pumped in US$ 610.76 million of extra capital
during 2008-09 to boost the insurance business. It is likely that they may put
in a further US$ 407.16 of additional capital before the end of the 2008-09
fiscal.
• Bombardier Transportation Inc inked a MoU with the Gujarat government for
making Metro Vehicle cars at the Savli facility, with an investment of US$
50.75 million.

Developed By-P.B.Bhanja
27

• Tata Chemicals is planning to set up a manufacturing plant for customised


fertilisers in Uttar Pradesh, with an investment of around US$ 10.15 million.
• Ennore Coke Ltd is planning to set up a 1 million-tonne plant with an
estimated investment of over US$ 205.87 million. The project is likely to start
in 2009.
• SatNav Technologies, a provider of navigation and global positioning system
(GPS) technologies, will be making an incremental investment of US$ 10.15
million by March 2010.
• Fortis Healthcare is going ahead with its expansion plans with an investment
of US$ 500 million, which would be spent mainly on acquisitions.
• Cafe Coffee Day is planning an investment of US$ 24.45 million-US$ 30.53
million for expanding the number of its cafes to around 1,000 from the
current 700, over 2009.
• RSB Metaltech Private Ltd., an automotive component and system
manufacturer, has inked a MoU with the Orissa government for establishing a
Greenfield integrated aluminium project in Orissa, with an investment of US$
1.30 billion in the first phase.
• Oriental Green Power is planning to establish eight biomass-based power
plants across India with an investment of US$ 203.50 million-US$ 223.85
million. The proposed plants will come up in Tamil Nadu, Andhra Pradesh,
Maharastra, Punjab and Rajasthan over the next two years.
• Anil Ambani's Reliance Communications (RCOM) is planning to invest US$ 1
billion for its 3G (third generation) telecom services. RCOM is planning to
start the services across India covering the top 50 cities.

Special Economic Zones

Special economic zones (SEZs) are set to see major investments after certain
regulatory tangles have been straightened. According to India's Commerce
Secretary, Mr G K Pillai, India had approved 513 SEZs till August 2008, of which 250
had been notified. Investments are expected to cross US$ 45.73 billion by December
2009, providing incremental employment to 800,000 people.

Some major investments in upcoming SEZs are:

• Tata Realty and Infrastructure is planning to invest more than US$ 686.05
million to build an IT SEZ in a joint venture with the Tamil Nadu government.
• Infrastructure Leasing and Financial Services, in a tie-up with Maharashtra
Industrial Development Corp (MIDC), will be investing about US$ 1.82 billion
in SEZs in Maharashtra.
• State-run trading firm, MMTC Ltd, has invited bids to set up SEZs in various
sectors. MIDC will be developing 22 SEZs in Maharashtra.
• AMRL International Tech City plans to invest around US$ 162.78 million for
the development of a multi-product SEZ in Tamil Nadu.

Further, in December 2008, the government cleared 22 proposals for setting up


SEZs.

Among the important SEZ projects that received formal approval are:

• A 1,054 hectare multi-product SEZ by GVK Perambalur Pvt Ltd.

Developed By-P.B.Bhanja
28

• A petroleum and petrochemical SEZ by Nagarjune Oil Corporation.


• A 222-hectare port based SEZ in Maharashtra by JSW Jaigarh Port Pvt Ltd.
• A formal approval was also given to a 48 hectare IT/ITeS SEZ in Tamil Nadu.
• A textile park in Punjab by Ishan Developers and Infrastructure Pvt Ltd.
• Hindustan Newsprint Paper and Pulp SEZ in Kerala.
• A pharma SEZ by Dr Reddy's Lab Ltd in Andhra Pradesh.

Exchange rate used: 1 USD = 49.0196 INR

Indian Investments Abroad

Last Updated: March 2009 [TOP]

A large number of Indian companies have been reaching out for overseas
destinations, either through mergers and acquisitions or direct investments in order
to access high-growth markets, technology and knowledge, attain economies of size
and scale of operations, to tap global natural resource banks and leverage
international brand names for their own brand building.

TCS, India's largest software exporter is focussing on emerging markets for growth
opportunities, while Moser Baer PhotoVoltaic (MBPV) plans to enter the US market
and expand its presence in Europe by the end of the year.

According to data released by the Reserve Bank of India, total direct investment
abroad stood at US$ 46,194.35 million as of March 2008.

According to RBI data, during the second quarter of the current fiscal, outward
foreign direct investment (FDI) grew 5.4 per cent to US$ 3.13 billion as against US$
2.97 billion in the corresponding period last year. Data on FDI in overseas joint
ventures (JVs) and wholly-owned subsidiaries (WOSs) reveals that 1,180 proposals
amounting to US$ 5.62 billion were cleared for investment abroad in joint ventures
(JVs) and wholly owned subsidiaries (WOSs) during the quarter, as against 452
proposals amounting to US$ 4.23 billion during July-September 2007.

Equity accounted for 51.6 per cent of the investment, followed by loans at 29.1 per
cent and guarantees at 19.4 per cent, during July-September, 2008. However,
during the corresponding quarter of the previous year, (July-September 2007),
equity constituted 74.3 per cent of the proposals for investment, while guarantees
and loans formed 13.8 per cent and 12 per cent, respectively.

FDI Outflows

According to the RBI report, actual outward FDI during 2007-08 totalled US$ 17.43
million, a rise of 29.6 per cent over US$ 13.45 million, in the previous year. Of the
total investments, 81.6 per cent were in the form of equity and the remaining 18.4
per cent in the form of loans. Almost 35 per cent of the proposals for outward FDI

Developed By-P.B.Bhanja
29

were directed towards Singapore, around 23 per cent to Netherlands, followed by


British Virgin Islands with seven per cent. Equity accounted for 61.2 per cent of the
proposals for investment, loans for 11.4 per cent, and guarantees for 27.4 per cent.
During 2007-08, automatic route covered 99.6 per cent of the proposals, involving
96.4 per cent of the amount of investments. The remaining was through approval
route. Inflows from India's outward FDI amounted to US$ 916 million in FY 2008,
registering a 76.7 per cent growth over the previous year's figure of US$ 518 million.

During the first half of 2008-09, 2,000 proposals amounting to US$ 8.94 billion were
cleared for investments abroad in JVs and WOSs, as against 1,049 proposals
amounting to US$ 11.39 billion during the corresponding period last year.

Considering the sectoral pattern, during July-September 2008, almost 94 per cent of
the total outward FDI proposals of US $5.62 billion were for investments.

A sector-wise break up reveals that 46 per cent of the proposals were in


manufacturing, followed by non-financial services at 10 per cent, trading at 2 per
cent and the balance was 'others'. Comparing the corresponding quarter of the
previous year, 63 per cent of the proposals were in manufacturing sector, followed
by non-financial services at 25 per cent, trading at 2 per cent and the rest being
'others'. Within the manufacturing sector, the proposals were primarily in
construction, software development, drugs, telecom products and textiles. Proposals
in trading covered activities, such as real estate development and mining.
Investment proposals in non-financial services included activities, such as education.
The category of 'others' comprised activities such as, consultancy, oil exploration,
shipping, stock-broking and IT-enabled services.

Mergers and Acquisitions

A significant part of Indian overseas investment has gone into acquisitions abroad.

In its latest report, Grant Thornton, a global consultancy firm, stated that 'The total
number of M&A deals during the first 11 months of 2008 stood at 433, with an
announced value of US$ 31.95 billion. The number of outbound deals has far
exceeded the domestic ones in terms of value break up'. According to Grant
Thornton's Special Advisory Services official, for the month of November alone, there
were 26 M&A deals with a total announced value of US$ 3.40 billion, which is higher
than October 2008 at US$ 2.13 billion and comparatively higher than November
2007 levels at US$ 850 million. Out of the 15 cross-border deals in November, eight
were outbound wherein Indian companies acquired business abroad with a value of
US$ 0.04 billion. The most important acquisition has been that of UK-based Axon
Group by HCL Tech for about US$ 658 million.

Also, the total number of PE deals during January-November 2008 stood at 295, with
a total announced value of US$ 10.11 billion. Further, as many as 21 PE transactions
were confirmed during November with an announced value totalling US$ 449 million.

As per KPMG's EMIAT study, in an analysis of deals between developing and


developed economies since 2003, it was revealed that there were 322 completed
deals wherein Indian buyers had bought companies in the major developed

Developed By-P.B.Bhanja
30

economies. Against this, there were 340 concluded deals in which companies from
developed countries acquired Indian companies.

Among the notable acquisitions are:

• Reliance ADAG is acquiring 51per cent stake in UK-based currency exchange


and money transfer firm No 1 Currency to foray into the international forex
business and to tap into the 1.6 million non-resident Indians (NRI)
population.
• HBL Power Systems Ltd is in the process of setting up a joint venture
company in the Kingdom of Saudi Arabia (SA) with Advance Electronics
Company Ltd (a government partner) and Abdullah H. Al Shuwayer & Sons
T&C Company Ltd as local partners. The joint venture, named Gulf Batteries
Company Ltd, will set up a unit to manufacture industrial batteries in the
eastern province of KSA at an estimated cost of $28 million. HBL Power
Company will have 40 per cent of joint venture equity.
• Tata Communications has bought the 30 per cent stake in Neotel that was
previously held by Eskom and Transnet. "This reaffirms Tata Communications
commitment to its expansion and investment plans in the emerging regions of
Asia, Africa and the Middle East, said N Srinath, managing director and CEO,
Tata Communications. Oil and Natural Gas Corporation (ONGC) has taken
control of Imperial Energy Plc for £1.3 billion ($1.9 billion) after 96.8 per cent
of the London-listed firm's shareholders accepted the takeover offer made by
the state-owned explorer's overseas arm, ONGC Videsh Ltd (OVL).Godrej
Consumer Products (GCPL) expanded its presence in the South African
market this year by acquiring Kinky hair brand. This is the second company
acquired by GCPL in South Africa after Rapidol—a marketer of permanent hair
colorant—in 2006.
• Ranbaxy Fine Chemicals (RFCL) has bought the US-based speciality chemicals
major Mallinckrodt Baker, which is a part of the US$ 10 billion healthcare
giant Covidien, in a deal estimated at US$ 340 million.
• Indian apparel sourcing company Techno Life style has bought German
retailer Wehmeyer for an undisclosed amount. Wehmeyer has a consolidated
turnover of US$ 187.71 million and 43 retail outlets.
• DTH company, Spize TV, has acquired France Telecom's European DTH
operations called WorldTV Europe. An investment of US$ 15 million would be
made to amalgamate the operations of Spize TV and WorldTV. An overall
investment worth US$ 50 million would be made, over the next 2–3 years, for
its European DTH operations.
• Pharma major, Lupin, has bought a majority stake in Pharma Dynamics (PD),
which is the sixth largest generic drug company in South Africa. Though the
amount of the deal was not revealed, sources said the deal amounted to
about US$ 24 million. Earlier, Lupin Limited had acquired over 30 per cent
stake in Generic Health Pty Ltd of Australia, after acquiring Hormosan
Pharma, a Germany-based company and Kyowa Pharmaceuticals, a Japanese
firm, in 2007.
• Zydus Cadila has bought Etna Biotech, which is a subsidiary of the Dutch
biopharma company, Crucell, in its sixth overseas acquisition during the last
five years. The company has not divulged the details of the deal. The new
acquisition will help the company in its efforts at vaccine research and
development.

Developed By-P.B.Bhanja
31

• Reliance-ADAG is picking up 26 per cent stake with management control in a


full-fledged financial services company in Saudi Arabia.
• Quatrro BPO Solutions has acquired UK-based Babel Media. This is Quatrro's
sixth acquisition and industry experts peg the deal in the range of US$ 25-30
million.
• Reliance Industries USA has acquired a polyester manufacturing facility in
North Carolina for about US$ 12.2 million from Unifi Kinston. It plans to invest
US$ 215 million in that company.
• The Essar group-owned, Aegis BPO, plans to acquire Philippines-based BPO,
PeopleSupport, for US$ 250 million.
• Ruia-owned, Dunlop India, has bought Schlegel, UK's second largest auto
component manufacturing company.
• Tanti group of companies, jointly with Bahrain-based Arcapita Bank, has
acquired Honiton Energy Holdings, a Chinese wind energy firm. The joint
venture partners will invest US$ 2 billion by 2012.
• Systems integrator, Allied Digital Services, has acquired 80.5 per cent stake
in EnPointe Global Services, a subsidiary of the Nasdaq-listed Enpointe
Technologies, for US$ 24 million.

Major investments

India's foreign investments are testimony to the continued growth in the Indian
economy and Indian companies.

• Tata Communications (TCOM, earlier VSNL) is investing US$ 430 million for
developing a data centre in Singapore and completing its Tata Global Network
(TGN)—intra-Asia cable system. Of the $430 million, around $180 million will
be invested in the data centre, called the Tata Communications Exchange,
which will be operational by early 2010. The investment in Asia, part of the
company's $2-billion capex for FY09-11, has been funded through a
combination of debt and internal accruals.
• Many Indian companies including Infosys, IBM Daksh and Firstsource are
investing into the Egyptian information and communications technology (ICT)
segment. The segment has maintained a 20 per cent growth rate and
attracted local and foreign investments of more than US$ 8 billion over the
past three years. According to Information Technology Industry Development
Agency (ITIDA), Indian FDI in Egypt stands at $800 million and is distributed
over 200 Egyptian companies.
• Punjab National Bank plans to expand its operation in the UK, besides eyeing
a US$ 5-million profit from the country's operations. The bank already has
three branches in the UK and will open one in Birmingham next month. Over
the next financial year, it plans to open additional branches in Manchester,
Wolverhampton and London.
• Essar Steel Holdings, a part of the Essar Group, plans to invest US$ 1.6 billion
for the development of an integrated steel plant, with a capacity of 2.5 million
tonnes, in Minnesota, over the next five years.
• National Aluminium Company Ltd (Nalco) has plans of setting up a US$ 2.08
billion smelter project at Indonesia.
• Tata Chemicals will be investing US$ 16.63 million (S$ 25 million) in JOil
(Singapore), which is a jatropha seeding company based in Singapore.

Developed By-P.B.Bhanja
32

• Essar Exploration & Production (EEPL), has become the first Indian oil
company to enter Australia by buying two offshore petroleum exploration
blocks.
• As part of a 50:50 consortium, ONGC Videsh (OVL) has won an oil block in
Colombia through an auction. The consortium will be making an investment of
US$ 23 million in its first phase of exploration.
• Carborandum Universal Ltd (CUMI), a part of the Murugappa Group, has
entered into an agreement with Volgograd region administration in Russia for
building a 100,000-tonne silicon carbide fusion plant. The group will be
investing US$ 50 million in the plant, though its subsidiary Volzhsky Abrasive
Works. With this agreement, CUMI will globally emerge as one of the biggest
producers of silicon carbide and bonded abrasives.
• ADA Group company Reliance Communications (RCom) plans to set up WiMax
networks across 50 countries by 2011.
• Tata Communications plans to invest more than US$ 2 billion by 2011.
• Tata Steel plans to build a plant in Vietnam, and the proposed 4.5-million
tonne, US$ 5 billion steel plant would be built through a joint venture with
Vietnam Steel and Vietnam Cement Industries. The first phase of the complex
is scheduled to be commissioned by the end of 2010.
• Indian fertiliser companies are planning to invest around US$ 5 billion in
overseas joint ventures over the next three years.
• HCL BPO is looking for acquisitions of platform-based BPO firms in the US, UK
and Australia with revenues of up to $250 million. Last year, the BPO arm of
HCL Technologies had acquired two firms—UKbased Liberata Financial
Services

Favourable Policy Changes

In a bid to give further impetus to overseas investments, the Reserve Bank of India
(RBI) has further liberalised overseas investment norms for both direct and portfolio
investment with the following steps:

• Raising the overall limit for overseas investment by domestic mutual funds
from US$ 5 billion to US$ 7 billion.
• Hiking the overseas investment limit from 300 per cent of the net worth to
400 per cent of the net worth in the energy and natural resources sectors,
such as oil, gas, coal and mineral ores.
• Hiking the limit on overseas portfolio investment by Indian companies from
35 per cent of their net worth to 50 per cent of their net worth.
• Allowing Indian residents to remit up to US$ 200,000 per financial year, from
US$ 100,000 previously, for any current or capital account transaction or a
combination of both.
• Allowing mutual funds to make an aggregate investment to the tune of US$ 5
billion in overseas avenues, from an earlier cap of US$ 4 billion.
• RBI has exempted Indian corporates from seeking prior permission of the
Central Government for international competitive bidding (ICB) in forex.

Looking Ahead

With more mergers and acquisitions, Indian companies would be getting direct
access to new and more extensive markets, and new products and technologies,

Developed By-P.B.Bhanja
33

which would enable them to increase their existing customer base and market hold.
This would otherwise take years to develop through the organic route.

In a bid to increase business and strengthen their global presence, more overseas
investments by leading Indian firms are on the anvil.

Agriculture

Last Updated: March 2009 [TOP]

Agriculture is one of the strongholds of the Indian economy and it accounts for 18.5
per cent of the gross domestic product (GDP). Agriculture draws its significance from
the vital supply and demand links with the manufacturing sector and is a source of
livelihood for the rural population of India.

The year 2007–08 was a year of record food grain production and procurement. Food
grain production increased to an all-time record level of 230.67 million tonnes during
2007–08. The production of the kharif crop suffered due to erratic rains and floods,
the present rabi production is likely to be better and thus the overall food grain
production in 2008–09 is likely to be even higher. Similarly, oilseeds, milk, fruits and
vegetables, and fish production has been growing over the past few years to reach
new levels.

The average growth rate of agriculture and allied sectors during the last two years
i.e., 2006–07 and 2007–08 has been more than 4 per cent as compared to the
average annual growth of 2.5 per cent during the 10th Five-Year Plan.

The current revival in agriculture sector has been possible mainly due to a number of
initiatives taken in the recent years. While public sector investment in the farm
sector has grown from 1.8 per cent of sectoral gross domestic product (GDP) in
2000–01 to 3.5 per cent in 2006–07, private sector investment has increased from
8.9 per cent in 2003–04 to 9.9 per cent in 2006–07.

Crop Production [Million tonnes]

Developed By-P.B.Bhanja
34

Rice 96.4
Wheat 78.4
Coarse cereals 40.7
Pulses 15.1
Oilseeds 28.8
Cotton [million bales] 25.8

Production of major crops increased to record levels this year.

According to a Rabobank report titled "Indian agri-biotech sector: Emerging scenario,


issues and challenges", the agri-biotech sector in India has been growing at a
whopping 30 per cent since the last five years, and it is likely to sustain the growth
in the future as well. The report further states that agricultural biotech in India has
immense potential and India can become a major grower of transgenic rice and
several genetically engineered vegetables by 2010.

The food processing sector, which contributes 9 per cent to the GDP, is presently
growing at 13.5 per cent against 6.5 per cent in 2003–04, and is going to be an
important driver of the Indian economy.

Production

India has become the world's largest producer across a range of commodities due to
its favourable agro-climatic conditions and rich natural resource base.

India is the largest producer of coconuts, mangoes, bananas, milk and dairy
products, cashew nuts, pulses, ginger, turmeric and black pepper. It is also the
second largest producer of rice, wheat, sugar, cotton, fruits and vegetables.

According to a monthly review by the Centre for Monitoring Indian Economy (CMIE),
agricultural production is likely to increase significantly and has projected a growth of
3.2 per cent during fiscal year 2009, for the GDP of agriculture and allied sectors.
The allied sectors comprising livestock, forestry and logging, and fishing are likely to
see a growth of 4.8 per cent during fiscal year 2009.

Some of the highlights of advance estimates of the production of major crops are:

• India's coffee production is likely to increase by 12 per cent next year to


293,000 metric tonnes in the year beginning October 2008 compared with the
262,000 tonnes forecast for this year.

Moreover, the coffee cultivation in non-traditional areas has expanded by 8 per cent
to cross 50,000 hectares in 2008–09 compared to previous year’s levels. In India,
the non-traditional coffee growing areas are in Visakhapatnam and east Godavari
districts in Andhra Pradesh, southern districts in Orissa (bordering Andhra Pradesh)
and north-eastern states.

Developed By-P.B.Bhanja
35

• The tea production in the country increased from 981 million kg as compared
to 945 million kg in 2007. The total production is expected to cross 1000
million kg this year. The total tea export during January-December 2008
touched 196 million kg compared with 178.75 million kg in the same time of
the previous year.
• Soybean production is likely to touch an all-time high of 12 million tonnes in
2008–09, 20 per cent higher than the previous year.

Exports

According to the government's agri-trade promotion body, APEDA, India's exports of


agricultural and processed food products posted a 38 per cent increase in the 2007–
08 fiscal, bolstered by an increase in shipments of coarse cereals like maize, jowar
and barley. According to official data, India exported about 17.5 million tonnes of
agricultural and processed foods worth about US$ 6.39 billion in FY 2007–08 against
10.9 million tonnes valued at about US$ 4.37 billion in the previous year.

Industry sources believe that for the current financial year, export in value terms
could grow by 20 per cent. APEDA feels the exports will grow due to higher demand
from Asian and African markets that are aggressively procuring relatively cheaper
products from countries such as India.

At present, around 70 per cent of the country’s agricultural and processed food
exports are to developing countries in the Middle East, Asia, Africa and South
America.

• India’s overseas shipments of coffee rose by 9.6 per cent to 300,000 bags
even as global coffee exports decreased by 1 per cent. India exported
227,000 bags of Robusta variety of coffee and 81,581 bags of mild coffee
during the current coffee year that runs from October to November, according
to the International Coffee Organisation.
• India's natural rubber exports have increased by 38 per cent in the April-July
2008–09. Total exports increased to 23,998 tonnes during April-July as
against 14,816 tonnes in the corresponding period of the previous financial
year.
• Spice exports registered a 17 per cent increase in revenue in rupee value and
five per cent in quantity this year compared to last year. In dollar terms, the
increase is six per cent. Against the target of US$ 871.74 million from exports
of 425,000 tonnes of spices, shipments during April-January 2008–09 stood
at 372,125 tonnes valued at US$ 856.73 million. According to industry
experts, the shortfall is likely to be easily accomplished.
• India exported 1.40 million tonnes of oil meal in the first three months of the
current financial year, up 70 per cent from the corresponding period last year.
• Jain Irrigation Systems Ltd (JISL), a fruit and vegetable processing company
which processes over 350,000 tonnes of fruits and vegetables in a year has
bagged an order worth approx. US$ 54.16 million from its European customer
for supply of dehydrated white onion in 2009.
• Cashew exports touched US$ 413.21 million, an increase of 40.2 per cent
during the April-November period of 2008–09.

Horticulture

Developed By-P.B.Bhanja
36

India is the second largest producer of both fruits and vegetables in the world and
the National Horticulture Mission (NHM) aims at doubling horticulture production by
2012. Under the NHM, US$ 220.66 million has been earmarked for horticulture
development during this year.

The Indian state of Gujarat is striving to become a horticulture hub. With a two-fold
increase in the land already allotted to horticulture, the state government now plans
to bring in another 20 million hectares.

In the North-East states of Nagaland, Manipur and Meghalaya, cultivation of the


jatropha shrub, (a cash crop yielding the promise of oil for production of bio-diesel,
grown primarily in wastelands) is becoming increasingly popular. Around 4,000
cultivators in Nagaland and Manipur have taken up jatropha as an alternative crop.
Jatropha is also widely cultivated across the western border of West Bengal,
Jharkhand, Orissa, and across Chhattisgarh.

Tanflora, Asia’s largest rose production farm, is a equal joint venture between Tamil
Nadu state government-owned TIDCO and MNA & Associates.

Tanflora, which has marketing tie-ups with major importers and auction centres in
Japan, Europe, Australia, Middle and Far East countries, is the first project to be
declared as the country’s agri-export zone for cut roses.

Its production is expected to touch 25 million roses during the current year (12
million in 2008). Moreover, from US$ 1.60 million revenues in 2007–08, Tanflora is
hoping to double it by March 31, 2009. It is looking at US$ 8.02 million revenue by
2010.

The Cabinet has given its nod for establishment of the Indian Grape Processing
Board (IGPB) at Pune, to foster sustainable development of the wine industry.

The Government will allocate US$ 1.18 million for a period of over three years to
IGPB which will focus on research and development, quality upgradation market
research and information, domestic and international promotion of Indian wine.

Investments

• India is expected to spend around US$ 14.05 million for the development of
organic spices by 2012, particularly on turmeric, chilli, and ginger.
• Andhra Pradesh Jute Development Centre Ltd (APJDC) will be setting up a
jute park spread over 150-acre land in Visakhapatnam, with an investment of
US$ 20.49 million. It plans to give up to a total of 5 per cent equity to jute
farmers in the region.
• The West Bengal Financial Corporation (WBFC) is setting up of small and
medium enterprises in sectors such as agro-based businesses and floriculture.
It has sanctioned about US$ 43.22 million for 2008–09.
• The Horticulture Department of Andhra Pradesh Government has announced
an action plan for 2008–09 with an investment of US$ 152.30 million for the
development of nurseries in the public and private sectors and increasing
productivity of crops.

Developed By-P.B.Bhanja
37

• The Andhra Pradesh government has sanctioned US$ 773.68 million) for the
Pranahita-Chevella Lift Irrigation Scheme. to irrigate an area of 1.22 million
acres in the drought prone areas of the Telangana region.
• Tata Chemicals has firmed up plans to set up a manufacturing plant for
customised fertilisers at Babrala in Uttar Pradesh. The company will invest
close to US$ 10.02 million in this facility having a production capacity of 20
tonne per hour.

Agro-based companies

In 2008, Indian agro-based companies attracted a host of private equity players,


who saw potential in this space on the back of strong demand and the sector's
insulation from the credit-induced economic crisis in the West.

• The Mahindra & Mahindra (M&M) group’s agri-business initiative, Mahindra


ShubhLaabh Services (MSSL), has tied-up with the Netherlands-based HZPC,
the world’s largest seed potato supplier.
• Blackstone invested US$ 50 million in Hyderabad-based Nuziveedu seeds, one
of the largest hybrid seeds companies in India.
• Morgan Stanley picked up a minority stake for US$ 36.51 million in castor oil
maker, Biotor Industries, through its Asia fund.
• Chennai-based Sree Ramcides, a 36-year old, family-run agro solutions
company attracted US$5 million from ePlanet Ventures in December.

According to a recent report by research firm Four-S Services, the lack of big
integrated players in the agri-business, has opened up opportunities for private
equity (PE) players to invest in various areas including agri-biotech and seeds, food
processing, organic farming, crop protection, integrated cold chain management and
logistics and distribution.

Government Initiatives

Government has been taking various progressive measures to accelerate the growth
of this sector. Some of the recent initiatives taken by the government include:

• In the 2008–09 budget, the government has given a US$ 12.23 billion waiver
of farm loans.
• Giving a nod to the National Policy on Biofuels under which India will aim to
raise blending of biofuels with petrol and diesel to 20 per cent by 2017. This
will provide a major boost to the bio-diesel sector. It has also approved the
setting up of National Bio-fuel Coordination Committee and Bio-Fuel Steering
Committee.
• Allowing private sector companies engaged in business of warehousing or
transport of food grains in procurement operations on behalf of the Food
Corporation of India (FCI).
• A weather-based agricultural insurance scheme is rolled out across select
districts in 12 states during the Rabi season.
• Construction of seven Modern Terminal Markets with modern infrastructure
facilities that will help farmers realise maximum returns for their produce,
remove middlemen and ensure lower prices for end-consumer.

Developed By-P.B.Bhanja
38

• The government has already approved 60 Agricultural Export Zones (AEZs).


Besides, four zones have been identified to provide US$ 12.1 million worth of
funds under a scheme called Assistance to States for Infrastructure
Development of Exports.
• The Government will provide an additional US$ 6.17 billion for new farm
initiatives launched by states to double the growth rate in agriculture to 4 per
cent over the 11th Plan period.
• The National Food Security Mission was launched in 2007, with an outlay of
US$ 979.51 million over the 11th Plan (2007–2012). It aims at enhancing the
production of rice, wheat and pulses by 10 million tonnes, 8 million tonnes
and 2 million tonnes, respectively by the end of the 11th Plan.
• The Rashtriya Krishi Vikas Yojana was also launched in 2007. Under this the
States are being provided with US$ 5.01 billion over the 11th Plan period for
investment in various projects based on local requirements.

Road ahead

Agriculture is set to play a more dynamic role in the economy, with the government's
increased focus on the sector. A progressively larger number of states have been
amending their Agricultural Produce Marketing Committee (APMC) Act, along the
lines of the Model APMC Act, to allow farmers to directly sell their produce to the
buyers.

In the 2008–09 budget, the government has taken many steps to aid the growth of
the sector and focus on the achievement of self-sufficiency in food grains. Agriculture
credit is likely to touch US$ 49.05 billion in 2008, and agriculture share in total
investment is up from 10.2 per cent in 2003–04 to 16 per cent for the 11th Plan.

Significantly, services related to agro and allied sectors have been thrown open to
100 per cent foreign direct investment (FDI) through the automatic route.

Exchange rate used: 1 USD = 49.90 INR

Developed By-P.B.Bhanja
39

Manufacturing

Last Updated: January 2009 [TOP]

Along with this, India offers abundant engineering and technical manpower,
producing annually about 400,000 graduate engineers.

Moreover, according to a study by ASSOCHAM, India will emerge as the fourth


strongest economy among the G-20 countries after China, Russia and South Korea
from the global crisis, given its robust forex reserves, high GDP growth rate and
various fiscal and monetary measures taken to tackle the downturn.

Global Manufacturing Exports Hub

According to a CII-Mckinsey report, manufacturing exports could increase from US$


48 billion in 2003 to US$ 300 billion in 2015, simultaneously increasing India’s share
in world manufacturing trade from 0.8 per cent to 3.5 per cent.

According to a report by KPMG titled 'Manufacturing India @ 75’, Indian


manufacturing should aim for a five per cent global share by 2022. The report
envisions India at the forefront of global manufacturing and trade of goods, a leader
in skill-intensive sectors and a global hub of research & development (R&D) and
design.

Developed By-P.B.Bhanja
40

Going Global

Indian manufacturers, with the tremendous expertise gained in the domestic market,
are spreading their wings to reach out to global markets. Indian corporates have
been busy taking aggressive steps through both acquisitions and Greenfield
investments abroad. All these initiatives are likely to boost brand India in the global
arena.

Bharat Forge after multiple acquisitions has emerged as the world's second-largest
manufacturer of axle beams, crankshafts, and other forged auto components.
Similarly, Tata Steel after the acquisition of Corus has become the fifth largest steel
producer in the world. Suzlon is the world's largest wind turbine generator (WTG)
manufacturer. Ranbaxy Laboratories, India's largest pharmaceutical company,
manufactures generic drugs in 11 countries, distributes and markets them directly in
49, and counts on foreign markets for 80 per cent of its revenue.

Government Initiatives

The Government has taken several initiatives to accelerate growth in this sector and
improve competitiveness of Indian industry in general and manufacturing in
particular:

• Implementation of technology upgradation schemes for various sectors such


as small scale industries, textiles, food processing among others.
• Implementation of industrial infrastructure upgradation programmes on
cluster basis.
• Easier access to inputs at competitive prices and rationalisation and reduction
in duty rates.
• Encouragement to foreign technology collaborations and liberalisation of FDI
in manufacturing activities.
• Launch of 'Visionary Leadership in Manufacturing’ programme to generate 300
visionary leaders in manufacturing in the next three years.
• Implementation of Special Economic Zones Act.
• Starting the construction of Delhi-Mumbai Industrial Corridor in cooperation
with Japan External Trade Organisation (JETRO).

To further encourage manufacturing growth, the government plans to set up


Manufacturing Investment Regions (MIRs) on the lines of Petroleum and
Petrochemicals Investment Regions (PCPIR).

Looking Ahead

According to the response of more than 340 of the world's largest international
manufacturing companies from Europe, Americas and Asia Pacific in a study by
global consultancy major, Capgemini, India is set to threaten China as the world's
backyard for manufacturing in the next three to five years. It says companies are
planning to offshore manufacturing activities primarily to India that will surpass its IT
and BPO activities.

Developed By-P.B.Bhanja
41

Infrastructure

Last Updated: January 2009 [TOP]

The key to sustaining India's growth rate during a global meltdown lies in developing
India's infrastructure. Keeping this in mind, the government is targeting an
investment of US$ 20.38 billion over the next two years in the infrastructure sector.
The scheme aims to take up infrastructure projects under public-private partnership
with minimal private investment. The government has asked the Infrastructure
Investment Finance Company Ltd (IIFCL) to put together a corpus of over US$ 8. 15
billion for this purpose.

This is in addition to the US$ 320 billion that the government plans to invest for the
upgradation of ports, railroads, highways and airports over the next 15 years.

Ports

The government has identified 276 projects entailing an investment of US$ 12


billion. These include development of new berths, expansion and upgradation of
existing berths, deepening of channels, equipment modernisation and upgradation of
rail and road connectivity.

According to the Planning Commission, there is an investment opportunity of US$ 25


billion by 2011-12 in India's shipping and ports sectors, as the country seeks to

Developed By-P.B.Bhanja
42

double its ports capacity to 1,500 million tonnes (major ports capacity to 1,000
million tonnes and non-major ports to 500 million tonnes capacity).

Segment-wise, while the ports sector would provide a US$ 13.75 billion investment
opportunity, shipping and inland waterways are likely to present a US$ 11.25 billion
investment opportunity.

Airports

The government plans to attract private players through public-private partnerships


(PPP) for the development of over 300 airports and airstrips.

The Civil Aviation Ministry plans to develop 35 Greenfield airports across India by
2010 with an investment of US$ 35 billion for the proposed airports.

Railroads

The Indian Railways has taken up the most ambitious ever annual plan for fiscal
2008-09, entailing an enormous investment of US$ 7.91 billion, registering a 21 per
cent increase over the previous year. The plan includes a total budgetary support of
US$ 1.66 billion including US$ 163.33 million to be provided from the Central Road
Fund. The plan envisages enhancement of rail capacity, modernisation of the
railways, throughput enhancement on high density network routes, traffic facility
works and expansion and development of the network.

Roads

During 2007-08, an amount of US$ 1.86 billion had been provided for the national
highways and for state roads. Of this amount, US$ 1.5 billion is for national
highways and US$ 0.36 billion for state roads. An amount of US$ 0.04 billion has
also been allocated during 2007-08 for the development of state roads.

Growth Potential

According to the consultation paper circulated by the Planning Commission, a


massive US$ 494 billion of investment is proposed for the Eleventh Plan period
(2007-12), which would increase the share of infrastructure investment to 9 per cent
of GDP from 5 per cent in 2006-07. This translates into an additional annual
investment of roughly US$ 40 billion.

For this, the government has already taken many proactive measures like opening
up a number of infrastructure sectors to private players, permitting foreign direct
investment (FDI) into various sectors, and introducing model concession
agreements.

Some of the projects planned during the Eleventh Plan period include:

Electricity

• Adding power generation capacity of about 70,000 MW

Developed By-P.B.Bhanja
43

• Providing electricity to all un-electrified hamlets and all rural households


through the Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY).

National Highways

• Six-laning 6,500 km of Golden Quadrilateral and selected national highways


• Four-laning 6,736 km on North-South and East-West Corridors
• Four-laning 12,109 km of national highways
• Widening 20,000 km of national highways to two lanes
• Developing 1,000 km of expressways
• Developing 8,737 km of roads, including 3,846 km of national highways, in
the North East

Rural Roads

Constructing 1, 65,244 km of new rural roads, and renewing and upgrading existing
1, 92,464 km covering 78,304 rural habitations

Railways

• Constructing dedicated freight corridors between Mumbai-Delhi and Ludhiana-


Kolkata.
• 10,300 km of new railway lines; gauge conversion of over 10,000 km.
• Upgrading 21 railway stations.
• Introduction of private entities in container trains for rapid addition of rolling
stock and capacity.

Ports

Capacity addition of 485 million metric tonnes (MT) in major ports, 345 million
metric tonnes (MT) in minor ports.

Airports

• Upgrading 4 metro and 35 non-metro airports.


• Building 3 airports in North East.
• Upgrading CNS/ATM facilities.

Telecom and IT

• Reaching a telecom subscriber base of 600 million, with 200 million rural
telephone connections.
• Attaining a broadband coverage of 20 million and 40 million internet
connections.

Irrigation

• Development of 16 million hectares through major, medium and minor


irrigation works.

Developed By-P.B.Bhanja
44

According to a report by Cushman and Wakefield, the Indian logistics industry is


expected to grow at 15 - 20 per cent per annum to touch US$ 385 billion by 2015.
110 logistics parks across 3,500 acres at an estimated cost of US$ 1 billion are
expected to be functional by 2012. Around 45 million sq ft of warehousing space will
be ready in the next four years.

Major Investments

Total investment in infrastructure during the Eleventh Plan period is estimated to be


around US$ 494.43 billion. Spending by the centre is expected to amount US$
166.59 billion, while US$ 128.95 billion is expected to be invested by the state
governments. Total public sector investment is expected to be around US$ 296.11
billion. Private investment is expected to account for over 65 per cent of total
investment in telecom, ports and airport sectors during the Eleventh Plan.

The central public sector enterprises in infrastructure sectors have also recorded a
32.69 per cent jump in their planned investments to US$ 37.04 billion for 2008-09
over 2007-08.

Moreover, the World Bank has said that it will lend US$ 14 billion to India by 2012
for infrastructure development.

Some major investments include:

• The Cabinet Committee on Economic Affairs has approved six highway


projects worth US$ 977. 41 million of National Highway Development
Programme, covering 639 km across Orissa, Madhya Pradesh, Maharashtra,
Tamil Nadu and Andhra Pradesh.
• The Power Grid Corp has cleared US$ 2.23 billion as investment in a range of
projects in the current fiscal. The investment entails a common scheme for
network for all the four regions, and would cost approximately US$ 1.67
billion.
• Singapore-based Universal Success Enterprises Ltd (USEL) has signed three
pacts with the Gujarat government to invest US$ 17. 74 billion in
infrastructure projects. USEL has identified thermal power generation,
seaports and mixed-use industrial and urban development as focus areas in
India.
• The Reliance Anil Dhirubhai Ambani Group (ADAG) has signed three accords
worth US$ 2.14 billion with the Gujarat government. The investments would
be made for building a port jetty in Saurashtra, a major power plant and
three cement factories.
• The Andhra Pradesh government has announced a US$ 787.10 million
modernisation programme to boost its irrigation potential. It will divert 160
TMC of water from the Pranahita river to an area of 12,20,000 acres in the
drought-prone areas in the Telangana region.
• Kolkata will be getting an underwater rail connection with the extension of the
Kolkata metro to its neighbouring city Howrah, through a tunnel under the
Hooghly river. The project will connect Howrah and the information
technology suburb of Salt Lake.
• Sical Logistics is planning an investment worth US$ 358.71 million for the
development of a nation-wide multi-modal logistics network, with cargo
terminals and rail lines.

Developed By-P.B.Bhanja
45

• Steel Authority of India (SAIL) and Larsen & Toubro (L&T) have signed a
Memorandum of Understanding (MoU) for setting up a joint venture (JV)
company to develop captive and independent power plants.
• Vedanta Resources Group's subsidiary, Sterlite Energy, is planning to invest
US$ 2.26 billion to construct a 1,980-megawatt (MW) thermal power project
in Punjab.
• Southern Railway is planning an investment of around US$ 137.35 million for
port connectivity projects at Chennai, Tuticorin, Mangalore, Ennore and
Cochin, over the next 10 years.

Investment in Rural Infrastructure

Improvement in rural infrastructure is one of the chief indicators of a nation's


development and the government has started a special programme, Bharat Nirman,
for the improvement of India's rural infrastructure. Bharat Nirman targets providing
electricity to the residual 1,25,000 villages and to 23 million households; connecting
the residual 66,802 habitations with all-weather roads; constructing 1,46,185 km of
new rural roads network; providing drinking water to 55,067 uncovered habitations,
and providing irrigation to an additional 10 million hectares besides connecting the
remaining 66,822 villages with telephones. Out of the total projected investment of
US$ 301.37 billion to be incurred by the centre and the states in the Eleventh Plan,
US$ 85.53 billion would be spent entirely towards improvement of rural
infrastructure.

The government is also likely to announce a new package for rural roads by
providing an additional US$ 1.02 billion under the existing Bharat Nirman
programme. As per the new package, all villages with a population of 500 or more
people, and hills and tribal areas with a population of 250 or more people will be
provided with roads.

The current scheme covers only villages with a population of 1,000 people and hills
and tribal areas with 500 residents.

The Road Ahead

The Eleventh Plan targets a growth rate of 9 per cent with emphasis on a broad-
based and comprehensive approach that would lessen inequalities across regions and
communities and improve the quality of life for all. Initiatives such as the National
Highways Development Programme (NHDP), the Airport Financing Plan, and the
National Maritime Development Programme and the Jawaharlal Nehru National Urban
Renewal Mission (JNNURM) are efforts in the same direction.

To enhance liquidity and check depreciation of the rupee, the finance ministry has
modified norms to permit companies in the mining, exploration and refineries sectors
to bring in up to US$ 500 million in external commercial borrowing (ECB). Earlier,
the limit was US$ 50 million. Further, the ministry has stated a five-fold increase in
the figure that companies building roads, ports and other infrastructure projects are
allowed to bring in from overseas.

Given these initiatives, the Indian infrastructure story will continue its successful run
in the years to come.

Developed By-P.B.Bhanja
46

Exchange rate used: 1 USD = 49.0422 INR

Ports

Last Updated: January 2009 [TOP]

The Indian coastline is dotted with 12 major ports and 187 minor ports. A majority of
the country's international trade is carried out through maritime transport, with
major ports handling about 74 per cent of the total sea-borne traffic.

By 2012, the Indian government targets increasing the cargo handling capacity of
major ports by two folds to reach 1.5 billion metric tonnes (MT). The investments to
achieve this would be around US$ 25 billion, and would be through public-private
partnerships. According to Crisil research estimates, ports will grow by 160 per cent
over the 2007–08 and 2011–12 period.

The Indian government has set up the National Maritime Development Plan (NMDP)
to improve facilities at India's 12 major ports and it plans an expenditure of around
US$ 12.4 billion.

Under the plan, India's foremost container port, Jawaharlal Nehru, will be seeing a
massive expansion and upgradation drive, with around US$ 1.78 billion slated for the
development of port infrastructure, including the deepening and widening of its main
navigational channel, over the next five years.

Further, by November 2009, the first phase of the international container


transhipment terminal (ICTT) project at Vallarpadam is likely to be completed, and
Kochi port will soon emerge as a transhipment hub for India. The construction work

Developed By-P.B.Bhanja
47

for the first phase of the international container transhipment terminal (ICTT) project
is rolling speedily at Vallarpadam. This will make Kochi an important shipping centre,
reducing India’s dependence on foreign ports for transshipment.

India is also likely to emerge as a major destination for container operations. The
liberalisation of the economy has lead to a rapid growth of the container trade. The
container trade went up to 7.2 million TEUs by 2007 from 2.47 million TEUs in 2000.

Port Traffic

According to the Indian Ports Association, the 12 major ports together handled a
total of 519.24 million tonnes (MT) of cargo in 2007–08, an increase of 11.94 per
cent over 463.78 MT handled in 2006–07. Further, the total cargo traffic handled by
the 12 ports during April–September 2008–09 has been 261.73 MT as against
244.14 MT in the corresponding period last fiscal.

Cargo throughput at the 12 ports has been rising by a compound annual growth rate
of 9.5 per cent over the past three years.

Container throughput at India's 12 major ports increased by 19.03 per cent year-on-
year for the fiscal year 2008. The 12 major ports handled 6.60 million TEUs (Twenty-
Foot equivalent Units) in the 12 months till March 2008. Navi Mumbai's Jawaharlal
Nehru port (Nhava Sheva) handled 4.06 million TEUs, which was above 61 per cent
of the overall throughput.

Container throughput at Jawaharlal Nehru port increased by 23 per cent year-on-


year, establishing it as India's largest and busiest port.

India’s overall container traffic posted a year-on-year growth of 19 per cent during
the 2007–08, with the throughput touching 6.7 million TEU at its ports.

During April to June 2008, container throughput at Indian ports totalled to 1,056,556
TEUs, exhibiting a growth of 12.18 per cent year on year. If the current growth rate
of 19 per cent is maintained, India's container throughput is likely to reach 21 million
TEUs per year by 2016.

Further, according to a study by ICRA, driven by a buoyant world economy and high
growth in merchandise exports, the Indian port traffic is estimated to grow at the
rate of 10–12 per cent per annum during 2007–12. The overall port traffic at both
major and minor ports are estimated to grow from 588.63 MT in 2006–07 to 1008.95
MT by 2012.

This projected increase in port traffic will in turn necessitate capacity expansion of
the ports. Already, 276 projects entailing an investment of US$ 13.70 billion have
been identified. These include development of new berths, expansion and
upgradation of existing berths, deepening of channels, equipment modernisation and
upgradation of rail and road connectivity.

Non-Major Ports

Developed By-P.B.Bhanja
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India has 187 non-major or minor ports which come under the jurisdiction of the
respective state governments. The share of non-major ports in cargo traffic has
increased from less than 10 per cent in 1990 to the current level of 26 per cent.

The cargo handling capacity of India's non-major ports, both existing and new ones
such as Mundra, Pipavav and Kakinada, is projected to rise to 839.16 MT a year from
the existing 228.31 MT during the 11th plan (2007–2012).

Furthermore, several states have drawn up major capacity expansion plans to meet
the expected surge in port traffic over the next five years. These include 214 mtpa in
Gujarat, 92 mtpa in Andhra Pradesh, 104 mtpa in Maharashtra, 49.15 mtpa in Tamil
Nadu, 28.9 mtpa in Kerala, 55 mtpa in Orissa and 46 mtpa in Karnataka among
others.

Moreover, the Investment Commission expects an investment of US$ 7.7 billion in


minor ports.

Shipbuilding

India presently finds a place among the leading shipbuilding nations in the world with
a share of 1.2 per cent in the global shipbuilding market. The Indian ship building
industry comprising 27 shipyards including eight public sector and 19 private sector
shipyards is on a roll driven by the booming maritime trade. According to a FICCI
report, the ship building industry has witnessed an unprecedented growth in demand
for building new vessels which has led to a 359 per cent increase in the turnover of
shipyards from US$ 216.60 million to US$ 778.90 million in the last five years.

By 2012, it is likely to corner around 3 per cent of the global share with an annual
turnover of US$ 3.72 billion. Moreover, as per a report prepared by I-Maritime
Consultants, India's share in global shipbuilding is expected to be around 15 per
cent, by 2020 from 0.4 per cent in 2007.

The Union Minister of Shipping, Road Transport and Highways, Mr T R Baalu has
said, "We have already held interactions with the stakeholders and are formulating a
new modified Shipbuilding Subsidy Scheme and would be circulating our proposal for
comments of appraising agencies and Ministries very soon." He also said that his
Ministry is making efforts to restructure the taxes and fiscal structure to remove the
bottlenecks being faced by the shipbuilding industry.

Under the NMDP, the government has already decided to develop two international
size shipyards for which the modalities are being finalised with the respective State
Governments. Further, the shipping industry is to be developed under a Special
Economic Zone (SEZ) approach to set up ancillary industries next to shipyards.

The closure of yards in Europe and other developed regions has given Indian
shipbuilders an opportunity to capture a higher share of the international
shipbuilding market. It is estimated that the strong demand for cargo ships—coupled
with the inability of market leaders China, Japan and South Korea to meet
requirements—has propelled the flow of jobs to India.

Developed By-P.B.Bhanja
49

The labour cost per worker in India being comparatively lower, apart from skilled
welders and fitters, India has world-class naval engineers and architects. These,
along with top-class management, are expected to be the growth drivers of the
Indian shipbuilding industry.

Buoyed by this estimated surge in demand, many shipbuilders like ABG, Bharati,
Larsen& Toubro, Pipavav, Mundra, the Pawan Kumar Ruia Group, Dolphin Offshore,
Gujarat Shipbuilding, Mercator Mech Marine and Startek Marine among others are
lining up huge investments into this segment.

• Larsen and Toubro Ltd has chosen Kattupalli port, in Thiruvallur district, near
Chennai, as the location to build the over US$ 425.97 million mega-
shipbuilding yard.
• Gujarat-based Adani group is setting up a ship building and repair yard at a
cost of about US$ 212.98 million.
• ABG Shipyard, a leading private shipyard, has decided to set up a greenfield
shipyard in south Gujarat with an investment of US$ 255.58 million. The new
shipyard will be set up over 300 acres.

Indian shipping companies are bullish on their expansion plans. Key shipping
companies, such as Shipping Corporation of India (SCI), Great Eastern (GE) and
Essar, have already placed orders worth US$ 3.3 billion for 58 ships in Korea and
China.

SCI has placed orders for 32 ships worth US$ 1.87 billion, and will be further
welcoming bids for its US$ 3 billion order of 40 ships. GE has placed an order worth
US$ 780 million for 14 ships, while Essar has ordered 12 ships worth US$ 630
million. The ships are to be delivered during 2009–12.

As per Industry reports, 40 per cent of Indian fleets will have to be replaced over the
next 4–5 years in order to comply with the International Maritime Organisation's
(IMO) regulations.

Investments in Indian Ports

According to the planning commission there is an investment opportunity of US$ 25


billion by 2011–12 in India's shipping and ports sectors, as the country seeks to
double its ports capacity to 1,500 MT (major ports capacity to 1,000 MT and non-
major ports to 500 MT capacity).

Segment-wise, while ports sector would provide an US$ 13.75 billion investment
opportunity, shipping and inland waterways are likely to present an US$ 11.25 billion
investment opportunity.

• In the annual investment plan for ports during 2008–09, the total projected
investment is worth US$ 756 million. This includes major investments by the
Dredging Corporation of India at US$ 102.06 million and Sethusamudram
Corporation at US$ 326.70 million.
• Private investment is in sharp focus with port capacity expected to double
from 660 million tonnes in 2005–06 to 1,225 million tonnes by 2013–14.

Developed By-P.B.Bhanja
50

• Jurong Port Authority of China has firmed up plans to set up a greenfield port
on the east coast with Sical Logistics, involving an initial investment of US$
319.48 million.
• The Irish Port Authority is likely to invest in Jaigarh Port in Maharashtra.
• The international container transhipment terminal (ICTT) project, being
developed at Vallarpadam, Kochi, will be the largest single player among the
container terminals planned in India and the first to operate in a SEZ in India.
• The Port of Rotterdam Authority, which manages Europe's biggest port—The
Port of Rotterdam—plans to set up a company in partnership with a local
private firm to manage ports in India.
• AllCargo Global Logistics, a multi-modal logistics service provider, has firmed
up plans to set up two greenfield ports on both coasts of the country for an
estimated investment of US$ 425.97 million.
• Maruti Suzuki India Ltd (MSIL) and Mundra Port and Special Economic Zone
Ltd (MPSEZL) signed an agreement for a mega car terminal, expected to be
operational by December 2008, at Mundra in Kutch district of Gujarat. The
initial investment is pegged at US$ 21.29 million.
• Public sector logistics major, Container Corporation of India (Concor) is
eyeing offshore business opportunities to tap offshore businesses by securing
ports and shipping facilities. Concor is also looking to build the Marauli port in
Gujarat.
• Tuticorin Port Trust (TPT) is planning to invest US$ 1.10 billion to create
additional capacity and infrastructure projects through the public-private
partnership (PPP) mode by 2012.
• UK-based Investment Company, 3i Group Plc. will be acquiring 24 per cent
equity worth US$ 204.82 million at Krishnapatnam Port Co. Ltd, or KPCL,
which will be setting up a seaport on the eastern coast. The 3i Group has also
sought India’s Foreign Investment Promotion Board’s (FIPB) approval to
invest a further US$ 165.52 million in KPCL. The port project is estimated to
cost about US$ 2.06 billion.
• German bank, Norddeutsche Landesbank, has business worth US$ 843.88
million (€600 million) from Indian companies in core sectors including
shipping.
• According to Crisil research estimates, eight infrastructure sectors, including
ports, are expected to draw more than US$ 330.30 billion investment in India
over the 2007–08 and 2011–12 period.
• Hazira Port, (a joint venture between Royal Dutch Shell and French oil major
Total), will be developing its present liquefied natural gas (LNG) import
terminal in Hazira (Surat) into a US$ 500 million multi-cargo port.
• Gujarat Pipavav Port Ltd (GPPL) would be investing a further US$ 53. 63
million for the dredging of a 14.5-metre draft to enhance accessibility to the
port. Further, according to Philip Littlejohn, Managing Director of GPPL, "We
have presently undertaken construction of an additional container yard to
support a container cargo volume of 600,000 TEUs a year, expected to be
completed by December 2008 and we intend to construct container yards for
supporting container cargo volume of additional 670,000 TEUs by December
31, 2009."

Eredene Capital Plc, a UK-based company will be investing US$ 7.34 million in a new
Container Freight Station (CFS) near the Ennore port.

Developed By-P.B.Bhanja
51

• Oceanic Shipyard Limited (OSL), a 50:50 joint venture company by Apeejay


Shipping Limited and Mumbai-based Bharti Shipyard Limited, is likely to
commission its ship building yard and oil rig manufacturing unit in Orissa by
early 2011, and is investing US$ 639. 33 million in the two projects. The
projects are likely to be developed in three phases over a period of five years
and US$ 412.45 million will be invested in the first phase.

Government Initiatives

The Indian government has prioritised the expansion and modernisation of ports as
part of its initiatives in the upgradation of India’s infrastructure.

• A comprehensive National Maritime Development Policy has been formulated


to facilitate private investment, improve service quality and promote
competitiveness, and US$ 11.33 billion has been allocated for the same.
• A further investment of over US$ 9.07 billion will be made for 111 Shipping
Sector Projects by 2015.
• The Ministry of Shipping is launching 10 major expansion projects in 2008–09
at an estimated investment of US$ 1.06 billion with 60 per cent of
investments allocated for the Chennai mega container terminal.
• 100 per cent foreign direct investment (FDI) under the automatic route is
permitted for port development projects.
• 100 per cent income tax exemption is provided for a period of 10 years for
port developmental projects.
• Tariff Authority of Major Ports (TAMP) regulates the ceiling for tariffs charged
by major ports/port operators (not applicable to minor ports).
• Government has opened up all the areas of port operation for private sector
participation.
• Increasing the rail connectivity of ports with the domestic market.
• Setting up a deep draft port in West Bengal with the facility to receive vessels
requiring a minimum draft of 17 metres.
• The Gujarat government has taken new initiatives for the Sagarkhedu
programme (launched for the all round development of the coastal areas) to
develop ship-building/repairing yards, private ports, jetties, captive jetties,
VTMS system, training and introduction of new marine courses and
implementation of schemes relating to RO-RO ferry services at 22 coastal
areas of the state. With the target of completing the programme for ports and
shipping sector under the National Maritime Development Programme
(NMDP), the Ministry of Shipping is considering raising the cap on new
infrastructure investments made by major ports from their own reserves by
10 times. Ports will be now able to invest around US$ 103.03 million from the
present US$ 10.30 million.

Looking ahead

Traffic at the ports has been growing at a brisk pace and therefore, increasing cargo
handling capacities of the ports is crucial to India. To meet this demand, India's ports
are likely to increase cargo handling capacity to 1,855 million tonnes (MT) by 2012
from the present 758 MT now, with an investment of about US$ 20.61 billion, as
foreign trade expands. Private firms are likely to invest about 65 per cent of this
amount.

Developed By-P.B.Bhanja
52

To achieve the projected traffic target of 615.70 million tonnes (MT) to be handled at
major ports by 2011–12, it is estimated that capacity of about 800.41 MT would be
needed. Therefore an additional capacity of around 403 MT has to be built up by
2011–12, against the current capacity of 397 MT.

Though the Indian shipbuilding industry is still in a budding stage it is estimated to


corner a share of about 3 per cent with an annual turnover of US$ 3.71 billion by
2012.

Exchange rate used: 1 USD = 48.2835 INR


1 USD = 0.710997 EUR

Power

Last Updated: January 2009 [TOP]

As the Indian economy continues to surge ahead, its power sector has been
expanding concurrently to support the growth rate. The demand for power is growing
exponentially and the scope of growth of this sector is immense.

The government targets providing electricity for all by 2012. Power Minister, Sushil
Kumar Shinde has said, "So far, 53,000 villages have been electrified and by 2012
everyone will get electricity." Under the Rajiv Gandhi Grameen Vidyutikaran Yojna
(RGGVY), the Ministry of Power plans to electrify 120,000 villages in the current Five
Year Plan (2007–12). Rural Electrification Corporation (REC) is the nodal agency for
the implementation of RGGVY.

This fiscal, the government has already provided electricity connections to 18-lakh
below-the-poverty-line (BPL) households. The target for this fiscal is 50 lakh
households. It has earmarked a total capital subsidy of US$ 6.88 billion for providing
electricity connections and for the distribution of infrastructure to the rural
household. "A subsidy of US$ 5.84 billion has been provided for the XIth plan period
for rural electrification. During the previous five-year-plan period, we got a subsidy

Developed By-P.B.Bhanja
53

of US$ 1.04 billion," Chairman and Managing Director, Rural Electrification


Corporation (REC), P Uma Shankar Shankar, said.

Further, according to the Deputy Chairman of the Planning Commission, Montek


Singh Ahluwalia, India will be adding 11,000 megawatts of power generation
capacity by March 2009. Presently, India has a capacity of about 145,600 MW.

The World Bank has sanctioned a US$ 400-million loan to India's Power Grid
Corporation. The bank has been contributing effectively in the transmission sector in
India and largely to the development and strengthening of the Power Grid
Corporation of India. This loan, the fifth since 1993, will help strengthen the
company's assets which have grown 10-fold to US$ 8.9 billion and revenues eight-
fold to US$ 1.3 billion. During the same period, the company's transmission networks
have in fact, grown thrice over.

Now many Indian power corporations are leaving global footprints.

• Bharat Heavy Electricals (BHEL) has got an important contract from Sultanate
of Oman to develop a series of 126 mega watt gas turbine generators for the
power projects planned by the Petroleum Development Oman (PDO). The
business is likely to be worth US$ 412. 88 million, and will be executed over
the next 6–7 years.
• Crompton Greaves, a power solutions provider, has plans to buy US or
Europe-based manufacturers of power and industrial systems.

Capacity

India's total installed capacity of electricity generation has expanded from


105,045.96 MW at the end of 2001–02 to 145,554.97 MW at the end of September
2008. In fact, India ranks sixth globally in terms of total electricity generation.

Source-wise, thermal power plants account for an overwhelming 64.6 per cent of the
total installed capacity, producing 92,892.64 MW of electricity. Within this group,
coal, gas and oil-based thermal power plants account for 53.3 per cent, 10.5 per
cent and 0.9 per cent, respectively.

Hydel power plants come next with an installed capacity of 36,347.76 MW,
accounting for 24.7 per cent of the total installed electricity generation capacity.

Simultaneously, the total transmission lines network has been growing at a robust
pace to expand the transmission network. Total transmission lines have increased
from 150,642 circuit km (ckm) at the end of 2001–02 to 198,089 ckm at the end of
2006–07 and are further expected to expand to 293,372 ckm at the end of March
2012.

Besides thermal and hydel power, renewable energy sources contribute 7.7 per cent
to the total power generation in the country producing 12,194.57 MW of electricity.

Nuclear energy makes up the balance 2.9 per cent contributing 4,120 MW of power.

Developed By-P.B.Bhanja
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Total Installed Capacity (As on October 31, 2008)


Sector MW %age
State Sector 76,035.57 52.5
Central Sector 48,470.99 34.0
Private Sector 22246.05 13.5
Total 1,46,752.81
Source: CEA

Growth Potential

According to a report by KPMG and CII, India's energy sector will require an
investment of around US$ 120 billion–150 billion over the next five years.

With a targeted gross domestic product (GDP) growth rate of 8–10 per cent and an
estimated energy elasticity of 0.8 per cent, India's energy requirement is expected to
grow at 6.4–8 per cent, implying an almost five-fold increase in India's energy
requirement in the next 25 years. Consequently, there is a need to increase the
electricity generation capacity to sustain the growth momentum.

The government has revised its target of power capacity addition to 90,000 MW in
the 11th Five-Year-Plan (2007–12), up by 11,423 MW from the earlier estimate of
78,577 MW to sustain the growth momentum of the economy.

Of the earlier projected capacity of 78,577 MW, projects worth 63,312 MW are
currently being implemented. Of these, 18,177 MW are in the private sector. This,
however, does not include captive generation projects, and projects whose benefits
will be taken into account during the 12th plan period (2012–17), such as the three
ultra-mega-power projects.

The projects currently being implemented include 32 coal blocks having total
extractable reserves of 9,916 million tonnes (MT), and having the capacity to feed
29,000 MW. These have been allotted to various state and central public sector units
and Independent Power Producers (IPPs).

Further, according to the Planning Commission estimates, renewable projects (RE)


projects worth US$ 16.50 billion, for the generation of 15,000 MW power, would
come up in the 11th Plan.

Nuclear Power Generation

Subsequent to the Indo-US nuclear deal and India getting clearance from the
Nuclear Suppliers Group (NSG), nuclear power generation is likely to throw up an
opportunity of US$ 10 billion in the next five years, according to a JP Morgan
estimate. India will now also be partnering several countries for nuclear fuel
technology projects.

Developed By-P.B.Bhanja
55

• France on September 30, 2008, became the first country to sign a civil
nuclear agreement with India. The agreement on the development of nuclear
energy for peaceful purposes will facilitate wide-ranging bilateral civil nuclear
cooperation.
• India and Russia signed 10 agreements in December 2008, including a pact
on civil nuclear cooperation.
• Thorium Power, a US firm, and Punj Llyod will be forming a nuclear fuel
technology JV. The JV will offer thorium fuel technology for light water
reactors (LWR) in India.
• As per the JP Morgan report, the Nuclear Power Corporation of India Ltd
(NPCIL), a public sector undertaking spearheading India's nuclear power
programme, is likely to undertake 6800 MW of planned future projects which
would translate into orders of US$ 10 billion over the next five years. GMR
and Reliance Power have also expressed interest in nuclear power.
• As part of the Eleventh Five-Year-Plan, NPCIL will be commencing work on 12
reactors including eight pressurised heavy water reactors (700 MW each),
three fast breeder reactors and one advanced heavy water reactors by early
2009. NPCIL will be developing a series of nuclear reactors with capacities
between 1,000 MW to 1,650 MW at 5-6 sites along the country's coastline.
The sites for the same have already been identified.
• India will also be exploring export opportunities and is planning to set up
nuclear power reactors abroad. Three Indian public sector companies—the
Nuclear Power Corporation, BHEL and NTPC—will be setting up a company for
the export of nuclear power reactors.

Government Initiatives

The government has taken several proactive steps to open the sector for the private
players and realise the full potential of the country in the power sector.

• Introduction of the Electricity Act 2003 and the notification of the National
Electricity and Tariff policies.
• Constitution of Independent State Electricity Regulatory Commissions in the
states.
• Unbundling of the State Electricity Boards (SEBs) into generation,
transmission, and distribution companies for better transparency and
accountability.
• Allowing the private sector to set up coal, gas or liquid-based thermal
projects, hydel projects and wind or solar projects of any size.
• Allowing foreign equity participation up to 100 per cent in the power sector
under the automatic route.
• Deregulation of the ancillary sectors such as coal.
• Providing income tax holiday for a block of 10 years in the first 15 years of
operation and waiver of capital goods' import duties on mega power projects
(above 1,000 MW generation capacity).
• The government has also taken up some ambitious programmes like the Ultra
Mega Power Projects (UMPP), Rajiv Gandhi Grameen Vidhyutikaran Yojana
(RGGVY), Accelerated Rural Electrification Programme and the goal of Power
for All by 2012 among others to rapidly increase the installed capacity as well
as expanding the network of people who have access to electricity.
• Under the newly formulated CERC tariff guidelines for 5 years (2009–14) a
'special allowance' can be availed of by any thermal generating station if it

Developed By-P.B.Bhanja
56

meets the requirement of expenses including renovation and modernisation


(R&M), apart from the expense needed for the useful life for a unit.

Investments

A recent study titled “Powering India: The Road to 2017” by consultancy major
McKinsey estimates India's power demand to increase from the present 120 gigawatt
(GW) to 315–335 GW by 2017—100 GW higher than the current estimates—if India
continues to grow at an average of 8 per cent over the next 10 years. This would
require a five- to ten-fold rise in power production, entailing investments worth US$
600 billion over the next ten years.

Out of US$ 132.13 billion of total corporate announcements made in the first half of
calendar year 2008, power sector attracted the maximum number of investment
announcements totalling to US$ 40.84 billion between January to June 2008,
according to an ASSOCHAM study.

• India's largest power utility, National Thermal Power Corporation (NTPC)


would be investing up to US$ 36 billion by 2012 to transform itself into an
integrated regional energy player and have an installed capacity of over
50,000 MW.
• The country's largest hydel power company National Hydro Power Corporation
(NHPC) plans to double the power generation to over 10,000 MW by 2011–
12.
• Damodar Valley Corporation (DVC) plans to add 5,000-MW generation
capacity in the Twelfth Plan (2007–12) at an investment of US$ 4.16 billion.
• The Tamil Nadu Electricity Board (TNEB) has inked a joint venture agreement
with Bharat Heavy Electricals Ltd (BHEL) for setting up a 2 × 800 MW thermal
power plant in Tuticorin district of Tamil Nadu with an investment of around
US$ 1.79 billion . The first phase of the project is likely to be completed by
March 2012 and the second phase by September 2012.
• The Orissa government has cleared several power projects. The projects
include the Astaranga Power Company's 2600 MW thermal power project with
an investment of US$ 2.30 billion ; NTPC's proposal to invest US$ 4.09 billion
for a 3200 MW coal-based mega power plant; Kalinga Energy's proposal to
set up a 1000 MW thermal project at Babudhakuli with an investment of US$
879.03 million and Venture Ltd's proposal to set up a 1200 MW captive
thermal project in Dhenkanal with US$ 1.03 billion.
• The Power Grid Corporation of India Ltd (PGCIL) is planning to invest US$
1.45 billion for the development of a transmission system associated with the
4,000-MW Sasan Ultra Mega Power Project (UMPP) in Madhya Pradesh.
• Indian Renewable Energy Development Agency (IREDA), an enterprise under
the Ministry of New and Renewable Energy (MNRE), will be investing around
US$ 3.50 billion to fund renewable energy (RE) sector projects during the
11th Five-Year-Plan.
• Haryana is planning an added capacity of 5000 Mega Watt (MW) by 2012 to
its current capacity of 4,600 MW, with US$ 5.15 billion as investment.

Private sector investments

Developed By-P.B.Bhanja
57

• Reliance Energy Limited, India's largest integrated private sector power utility
company, plans to invest US$ 12.50 billion over the next five years to add
15,000 MW of power generation capacity.
• Reliance Infrastructure's Dahanu Thermal Power Station has been adjudged
the winner of the CII's (Confederation of Indian Industry) prestigious National
Award for Excellence in Water Management for the Year 2008.
• Essar is planning to invest about US$ 1 billion to set up a 1200 MW power
project in Gujarat.
• Lanco plans to install 3000 MW hydro-power stations by 2015 with US$ 3.75
billion worth of investment.
• B C Jindal group plans to invest US$ 4.16 billion to produce 5,000 MW power.
• Consumer electronic maker Videocon plans to invest US$ 5.21 billion on
building thermal power projects aggregating 5,000 MW.
• Oriental Green Power, which is a renewable energy generation company, is
planning to develop eight biomass-based power plants with an investment of
US$ 206.39-US$ 226.99 million. Each plant will have a power generation
capacity of up to 8 mega watts (MW), and are likely to come up in Punjab,
Tamil Nadu, Andhra Pradesh, Maharastra, and Rajasthan, over the next two
years.
• Tata Consultancy Services (TCS) has set up a joint venture company along
with NTPC Ltd, NHPC Ltd and PFC, to set up an energy exchange. The
company-'National Power Exchange Ltd'-will operate the power exchange at
the national level. The Tata group has majority stake of 50.02 per cent in the
company and NTPC Ltd, NHPC Ltd and PFC have16.67 per cent equity each.
• PLG Power Limited will be investing US$ 103.14 million to start a project at
Sinnar near Nashik to manufacture Solar Photovoltaic Modules.
• In partnership venture with Bharat Electronics Ltd (BEL), Bharat Heavy
Electricals Ltd (BHEL) is planning to set up an integrated photovoltaic facility
with an investment of around US$ 1.23 billion.
• GVK Power and Infrastructure (GVKPIL) is planning an investment of US$
49.45 million for its 600 MW coal -based thermal power plant power unit in
Punjab.
• The Power Grid Corporation of India Ltd (PGCIL) is planning plans to invest
US$ 1.45 billion for the development of a transmission system associated with
the 4,000-MW Sasan Ultra Mega Power Project (UMPP) in Madhya Pradesh.
• Indian Renewable Energy Development Agency (IREDA), an enterprise under
the Ministry of New and Renewable Energy (MNRE), will be investing around
US$ 3.50 billion to fund renewable energy (RE) sector projects during the
11th Five- Year-Plan.
• Haryana is planning an added capacity of 5000 Mega Watt (MW) by 2012 to
its current capacity of 4,600 MW, with US$ 5.15 billion as investment.
• Gujarat Alkalies and Chemicals Limited (GACL) will be setting up a 100 MW
gas-based power plant at Dahej, in collaboration with the Gujarat State
Petroleum Corporation (GSPC), with an estimated cost of more than US$
80.32 million.

Looking ahead

To feed its rapidly growing economy India is planning to get an additional 60,000
MW of electricity from various hydro-power projects by the end of 2025. India's
Minister of State for Power, Jairam Ramesh has said that the country seeks to
generate 50,000 MW of hydro-power through its domestic resources by 2025. The

Developed By-P.B.Bhanja
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river-intensive Indian state of Arunachal Pradesh alone would produce 25,000 MW of


entire domestic hydel power production, while the other 25,000 MW would be
generated from new hydel power projects in Jammu and Kashmir, Sikkim,
Uttarakhand and Himachal Pradesh.

The residual 10,000 MW would be sourced from Bhutan. Further, India has also
entered into a memorandum of understanding (MoU) with the Government of
Myanmar to develop hydro-power projects in the Chindwin basin, with the 1,200 MW
Tamanthi project. Power flow between India and Nepal is also expected to go up
once the latter start to generate 10,000 MW of hydel-power within the coming
decade and trade it with India. India is also likely to raise the proportion of hydel
power in the hydel-thermal mix from the present 25:75 to a more desirable 40:60
over the coming 25 years.

Exchange rate used: 1 USD = 48.4399 INR

Railways
Last Updated: February 2009 [TOP]

On Track

Indian Railways is the world's fourth largest rail network, the second largest in Asia,
and the second largest rail network under a single management. It is also the world's
fourth largest freight carrier. Its recent successes following its remarkable
turnaround to profitability have both intrigued and amazed management experts and
generated a lot of interest in premier global business schools like Harvard and
Wharton.

Indian Railways has been recording impressive growth rates - both on the physical
and financial front. For 2007-08, the cash surplus before dividend and net revenue
are estimated at US$ 6.17 billion and US$ 4.53 billion, respectively, placing it in a
much better position than many of the Fortune 500 companies. In fact, bolstered by

Developed By-P.B.Bhanja
59

its aggressive marketing policy, it had already created a fund worth US$ 5.78 billion
in the last financial year (2007-08).

The Railway Ministry has taken up the most ambitious ever annual plan for 2008-09,
entailing an enormous investment of US$ 7.91 billion, registering a 21 per cent
increase over the previous year. The plan includes a total budgetary support of US$
1.66 billion including US$ 163.33 million to be provided from the Central Road Fund.
The annual plan will have Internal and External Budgetary Resources (IEBR) funding
of 79 per cent. The plan envisages enhancement of rail capacity, modernisation of
the railways, and throughput enhancement on high density network routes, traffic
facility works and expansion and development of the network.

According to the Railways Minister Mr Lalu Prasad, Railways' profits in 2008-09 will
cross US$ 20.447 billion.

Buoyed by record US$ 5.28 billion earnings in the last fiscal, Railways has set a
target of achieving US$ 21.11 billion by the first half of 2009. It is now aiming at
bettering that with 8.6 crore tonnes of incremental loading in 2008-09.

Freight and Passenger Traffic

The booming passenger and freight traffic has helped the Indian Railways in
sustaining its growth momentum in 2008-09.

In spite of the global recession, the freight traffic of Railways sustained its growth
during the last few months of 2008.

The Railways has registered 13.87 per cent growth in its revenue, amounting to US$
11.83 billion during the period between April-December 2008-09. The overall
revenue earnings from goods increased by 14.53 per cent to reach US$ 7.99 billion
during this period.

Freight loading during November and December 2008 increased by 1.29 per cent and
3.08 per cent to reach 66.62 million tonnes and 72.13 million tonnes respectively,
over the same period last year.

The Railways boosted its freight revenue by increasing its axle loading, improving
customer services and implementing an inventive pricing strategy by following a
differential pricing policy for freight traffic. Particularly, for iron ore loading, the
Railways offered massive discounts to reduce inflation-related pressures on steel
companies. Further, it also announced a 40 per cent discount on iron ore for exports.

As per a Railways statement,"The total passenger revenue earnings during first nine
months of the financial year 2008-09 stood at US$ 3.33 billion compared to US$
2.98 billion during the same period last year, registering an increase of 11.81 per
cent."

Almost 5,319 million passengers travelled on the Railways during April-December


2008, an increase of 6.60 per cent against 4,990 million passengers during the same
period last year.

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The revenue earnings from other coach-related activities totalled US$ 195.70 million
during April-September 2008 US$ 185.11 million, an increase of 5.73 per cent.

The overall sundry earnings went up to US$ 104.10 million during April-September
2008, posting a growth of 12.07 per cent.

Infrastructural Expansion

The Railways has lined up massive plans for the upgradation and expansion of its
infrastructure, for which it has decided to invite Public Private Partnership (PPP) in
the non - core sector for setting up of logistic parks, warehouses, budget hotels,
wagon investment schemes, wagon leasing schemes, along with the development of
more than 7000 agricultural outlets throughout the country. The Railways Minister
has announced plans to invest US$ 42.22 billion for the modernisation, capacity
increase and completion of new projects during the 11th Five Year Plan. Southern
Railway is planning an investment of around US$ 137.44 million for port connectivity
projects at Chennai, Tuticorin, Mangalore, Ennore and Cochin, over the next 10
years.

V K Kaul, the Managing Director of Dedicated Freight Corridor Corporation of India


Limited (DFCCIL), announced that construction work on the dedicated freight
corridor project will start in early 2009 with an initial investment of US$ 154.74
million for the 100 km stretch on the eastern corridor. The entire project, which will
cover over 2,762 km, will entail an overall investment of over US$ 5.78 billion to
US$ 7.64 billion. The commissioning of the critical stretches of the entire project will
be over by 2015-16.

Further, the Railways is expected to get a loan of US$ 7.61 billion from the World
Bank and the Asian Development Bank (ADB) for the construction of about 76 per
cent of the proposed 2,739-km dedicated rail freight corridor (DFC).

For 2008-09, the railways has plans to spend US$ 7.66 billion for improving the
infrastructure, which targets the upgradation and acquiring new assets of rolling
stock.

Some of the ongoing projects are:

• Indian Railways has undertaken the construction of a dedicated freight


corridor, with an investment of US$ 81.92 million slated for 2008-09 and US$
614.40 million for 2009-10.
• Rail renewal over 2941 kilometres (kms), which will require 3,39,288 tonnes
of rail steel, and sleeper renewal over 2382 kms.
• Renewal of 44.5 million of PSC sleepers has been set for open line works.
• During 2008-09, the total production of steel bridge girders is likely to touch
8615 tonnes.
• Production of 3000 coaches in 2008, showing an increase of 12.5 per cent
over the previous year.
• Production of wheels and axles went up by around 60 per cent in 2008
compared to last year.
• Setting up a 1000 MW thermal power plant through a JV with NTPC at Nabi
Nagar, Bihar with an investment of US$ 1.09 billion.

Developed By-P.B.Bhanja
61

• Setting up a factory at Madhepura for producing 100 electric locomotives per


year through JV route.
• A train wheel factory has been set up at Bela, Bihar. The Bela factory will
produce one lakh wheels annually.

Moving ahead, the Railways has the following plans for 2009-10 and beyond:

• The network of the Railways in Mumbai is being further improved and the
requirement of funds for these works in 2009-10 is US$ 102.69 million.
• Railway electrification target for the Eleventh Plan has been raised to 3500
Kms.
• US$ 368. 61 million will be invested during 2009-10 for upgrading signalling
systems.
• Indian Railways is planning to spend US$ 573.12 million to improve
telecommunication works till 2011-12.
• The Railways Ministry has invited applications for the setting up of multi-
modal logistic parks planned to be set through PPPs. The Railway Board
invited expressions of interest (EoI) for these projects. It entails the building
of logistic parks along the 3,300-km Dedicated Freight Corridor (DFC),
planned by the Railways. There would be around 20 logistic parks, estimated
to be built with an investment of about US$ 2.05 billion. The project also
consists of a few mega multi-modal logistic parks as hubs offering state-of-
the-art integrated logistic facilities.
• The Indian Railways also has plans to set up key infrastructure facilities like
freight nodal points, Container Park and a coaching complex in Paradeep, in
order to cater to the proposed Petroleum, Chemical and Petrochemical
Investment Region (PCPIR) in the region. Railways will also improve
connectivity in the Paradeep region which includes the 82-km Paradeep-
Haridaspur broad gauge line, with an investment of US$ 118.62 million.
• The Railways' plan to attract about US$ 24.63 billion in the next five years
through public private partnerships, so as to complement its efforts to
modernise, upgrade and expand its infrastructure. In 2008-09 alone, Railways
plans to attract US$ 6.15 billion of private investment.
• The Railways also plans to open the marketing, operation and maintenance of
the luxury train segment to private players to take advantage of the demand
for such trains.
• The government also plans to set-up a new wheel factory at Chapra, a diesel
locomotive factory at Marora, an electric locomotive factory at Madhepura,
and a coach factory at Rae Bareli (at a combined cost of US$ 974.18 million)
making ‘India a manufacturing hub for southern Asia and Africa’ in railway
equipment.
• Kolkata will be getting an underwater rail connection with the extension of the
Kolkata metro to its neighbouring city Howrah, through a tunnel under the
Hooghly River. The project is estimated to cost US$ 986.4 million and will
connect Howrah and the information technology suburb of Salt Lake.

Foreign Investments

To add further momentum to the high-speed passenger corridor project, the Railway
Ministry has signed a memorandum of understanding (MoU) with its French
counterpart, SNCF International. Indian Railways has signed similar agreements with

Developed By-P.B.Bhanja
62

the railways of Austria, Germany, Italy, Russia, South Africa and China for technical
help and cooperation.

With huge investment projects being thrown open for the private sector, an
increasing number of global players have evinced interest in taking part in this
emerging segment.

• Missouri-based American Railcar Industries (ARI) has entered into a strategic


pact with auto component major Amtek in a 50:50 joint venture for
manufacturing railcars.
• Bombardier Transportation will set up a Greenfield plant to make rail cars in
Vadodara.
• GE Equipment Services (GEES) has entered India by picking up a 15 per cent
equity stake in Titagarh Wagons.
• Amsted Rail, the world's largest producer of rail cast wheels, will set up a cast
wheel manufacturing unit.
• A consortium of RITES Ltd (India) - PCI (Japan) - PBI (USA) - SYSTRA
(France) has bagged the contract to provide consultancy services to
Bangalore Metro Rail Corporation.
• Siemens Transportation System has tied with public sector enterprise RITES
for railway wagon production.
• Further, many players like Mitsubishi Corporation, Siemens, Alstom, Itochu,
Toshiba, Kawasaki, Terry Farrell and Partners, Von Gerkan, Marg und Partner,
Aedas Ltd, Hellmuth, Obata and Kassabaum Inc and Arep Ville France among
others have all shown keen interest to participate in various segments of
railways.

Innovative Initiatives

The Railways is in a dynamic phase of growth with new initiatives planned to


increase its revenue and optimally utilise its resources.

• For the training of railway managers to meet future challenges, Indian


Railways is planning to set an international management institute in New
Delhi. The International Railway Strategic Management Institute will come up
in collaboration with the International Union of Railways (UIC), and US$ 4.64
million has already been sanctioned for it.
• The Railways has decided to increase its income through advertising on all
Rajdhanis, with the cost of advertising being around US$ 1.26 million per
train.
• Development of agri-retail hubs, cold storage houses, multi-purpose
warehouses on surplus land with the Railways.
• Development of 100 budget hotels with private participation in the vicinity of
railway stations.
• Introducing new generation trains that would be fuel-efficient, recyclable and
have low-emission to generate certified emission reduction credits.
• Introducing marketing rights for advertising on railway tickets and reservation
charts.
• Installation of Wi-Fi for providing wireless access at 500 stations.
• Establishment of integrated logistic parks on unused lands.
• Along with these, the Railways has adopted many new measures like Dynamic
Pricing Policy, Tariff Rationalization, Non-Peak Season Incremental Freight

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Discount Scheme, Empty flow Direction Freight Discount Scheme, Loyalty


Discount Scheme and Long-term Freight Discount Scheme among others to
boost its capacity utilisation levels.

Sustaining the Turnaround

With a growth rate of 12 per cent, Indian Railways is the world's second busiest
railway after China in terms of passenger-km and the third busiest overall. With
further growth of the economy, the estimated traffic level by the end of 2011-12 is
expected to be about 8.4 billion passengers and 1.1 billion tonnes of freight per year.

Against the in-house manufacturing capacity of 2500 passenger cars and 350
locomotives per annum, 4500 passenger cars and 700 locomotives are required to
meet the future traffic needs.

In an encouraging development, the Cabinet Committee for Economic Affairs cleared


the Chennai metro rail project, estimated to cost US$ US$ 2.99 billion. The total
length of the rail would be 45 km. Of this, 21 km would be elevated and 24 km
underground. The rail will run along two corridors – Anna Salai and Poonamallee high
road – connecting Washermanpet to the airport and the Central railway station to
St.Thomas Mount, respectively. The project is expected to be complete by 2014-15.

In another development, India will have its first monorail in Mumbai soon. The
19.54-km-long monorail which will connect south Mumbai to the eastern suburbs
(Jacob Circle to Chembur via Wadala), is expected to be complete in a period of 30
months and greatly reduce the burden on the existing railway network. Malaysian-
based Scomi Engineering in collaboration with Larsen & Toubro will
execute the US$ 5.03 billion project.

Exchange rate used: 1 USD = 48.9060 INR

Roads

Last Updated: January 2009 [TOP]

Indian Roadways: OnThe Fast Lane

In a large country like India, an extensive and efficient transport system is


imperative to its sustained economic development and national integration. India has
the world's second largest road network, aggregating over 3.34 million kilometers
(kms).

The road network comprises of 66,590 kms of national highways which connect the
state capitals, ports and big cities. They account for only about 2 per cent of the
country's total length of roads, but carry about 40 per cent of the total traffic. The
state highways comprise of about 1,28,000 km, whereas the major district roads
have a total length of 4,70,000 km and facilitate the linkage between the main roads
and rural roads. The other district and rural roads have a length of 26,50,000 km,
and provide accessibility to villages.

Developed By-P.B.Bhanja
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According to the Planning Commission, the road freight industry will be growing at a
compound annual growth rate (CAGR) of 9.9 per cent from 2007-08 to 2011-12. A
target of 1,231 billion tonne kms (BTK) has been put on road freight volumes for the
period between 2011-12.

According to Crisil Research estimates, Indian roadways is among the eight


infrastructure sectors expected to draw more than US$ 337.49 billion investment in
India over the 2007-08 and 2011-12 period. The report further forecasts that during
the specified period, Indian roadways is likely to grow at an amazing 100 per cent.

Growth Potential

The Indian government has launched the ambitious National Highway Development
Programme (NHDP) involving a total investment of US$ 54.1 billion up to 2012. It
has also started the Bharat Nirman Programme that aims to cover every village
having a population of over 1,000 or over 500 in hilly and tribal areas, with all-
weather roads. To achieve this, 146,185 kms of road length is proposed to be
constructed by 2009.

For the roads and bridges sector, the Eleventh Five Year Plan envisages a total
investment of approximately US$ 78.5 billion over the five-year period starting from
2007-08. Of this, the shares of the centre, the states and the private sector are
expected to be 34.2, 31.8 and 34 per cent, respectively.

The Eleventh Five Year Plan places high priority on the upgradation of India's
infrastructure, and the expeditious completion of works approved under the different
phases of the NHDP. According to the consultation paper circulated by the Planning
Commission, a massive US$ 494 billion of investment is proposed for the Eleventh
Plan Period (2007-12), which will increase the share of infrastructure investment to 9
per cent of GDP from 5 per cent in 2006-07. This translates roughly into US$ 40
billion annual additional investment.

For this, the government has already enacted many proactive measures like opening
up a number of infrastructure sectors to private players, permitting foreign direct
investment (FDI) into various sectors, and introducing model concession
agreements.

Some of the projects planned during the Eleventh Plan period include:

National Highways:

• Six-laning 6,500 km of the Golden Quadrilateral and selected national


highways
• Four-laning 6,736 km on North-South and East-West corridors
• Four-laning 20, 000 km of national highways
• Widening 20,000 km of national highways to two lanes
• Developing 1000 km of expressways
• Developing 8,737 km of roads, including 3,846 km of national highways, in
the North East

Rural Roads:

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• Constructing 1, 65,244 km of new rural roads, and renewing and upgrading


existing 1, 92,464 km covering 78,304 rural habitations.

As part of a larger plan to improve the country's infrastructure, the government has
given the nod to 10 road projects which will be built in public-private partnership at
an estimated cost of US$ 2.48 billion. The projects are aimed at four-laning of
national highways in eight states, including Pune-Sholapur section of NH-9 in
Maharashtra involving an estimated cost of US$ 218 million, Coimbatore-
Mettupalayam section of NH-67 in Tamil Nadu involving US$ 118.16 million and
Patna-Buxar section in Bihar for US$ 382.93 million.

Other approved projects are Khagaria-Bhaktiarpur in Bihar, Goa-Panaji, Kuttipuram-


Edapally in Kerala and Armur-Adloor Yellareddy section in Andhra Pradesh. The
Public-Private Partnership Appraisal Committee has also approved four-laning of
Muzzafarnagar-Nepali farm section of NH-58 in Uttar Pradesh and Uttarakhand from
Nepali to Dehradun. The Chennai port to Maduravoyal (NH4) in Tamil Nadu has also
been cleared under the four-lane elevated road project and will be executed at an
estimated cost of US$ 317.88 million.

The Hyderabad Urban Development Authority (Huda) will be investing about US$
1.26 billion for an eight-lane access-controlled expressway. This is a part of the
Outer Ring Road (ORR) project, and it will carried out in three phases. Five agencies
are working on this project and it is likely to be completed by 2010.

Huda will also lay out 33 radial roads with an investment of US$ 633. 88-845.13
million for improving the transport system in Hyderabad.

Under the Special Accelerated Road Development Programme in the North East
(SARDP-NE), the Cabinet Committee on Economic Affairs (CCEA) has agreed to the
modifications to Phase A of the SARDP-NE, to facilitate road linkage to Sittwe port of
Myanmar, with an investment of US$ 1.24 billion.

It also gave the nod to an alternative highway between Siliguri and Gangtok with
paved shoulders under Phase 'A' of SARDP-NE. An added investment of US$ 21.13
million has been allocated for the upgradation of certain important stretches of NH
31 A. Approval for an alternative alignment of the four-lane NH 37 to bypass
Kariranga and the modification of the four-laning of 315 km from Nagaon to
Dibrugarh, has also been given by the government.

Private Sector Investments

According to a KPMG report - 'Opportunities in Infrastructure and Resources in India'


- investments of the order of US$ 500 billion are expected to take place in the
coming years for developing roads and infrastructure. Increased resource
requirement along with concern for managerial efficiency and consumer
responsiveness has led to major involvement of the private sector via both
construction contracts and build-operate-transfer (BOT) based on either toll or
annuity basis.

Developed By-P.B.Bhanja
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• Reliance Energy has three contracts to four-lane 400 km of highway and is


already working on four-laning five national highway projects in Tamil Nadu,
covering 400 km and at an estimated cost of over US$ 762.42 million.
• L&T inter-state Road Corridor Limited is executing the four-laning of the 76-
km highway between Palanpur and Swaroopgunj on the East-West Corridor.
• The consortium of Maytas Infra Private Limited and Nagarjuna Construction
Company Ltd will four-lane the highway from Tindivanam and Pondicherry, at
an estimated cost of US$ 70.09 million.
• Lanco Infratech has the contract to four-lane two highways in Karnataka at an
estimated cost of US$ 247.41 million.
• DS Construction will develop the Gwalior-Jhansi section on NH-75 which
includes four-laning at a cost of US$ 159.9 million.
• Era Constructions India Limited along with Karam Chand Thapar & Bros
Limited will construct a section of the Delhi-Haryana Border to Rohtak. It is
also involved in the construction of a four-lane Gwalior by-pass at a cost of
US$ 73.8 million.
• Jaiprakash Associates Ltd (JAL) is implementing the Taj Expressway project,
which envisages a six-laned 165 km stretch connecting Greater Noida to Agra
at a cost of US$ 554.93 million.
• Madhucon Projects has ongoing BOT projects with four toll-based road
projects.

Public Private Partnership

Many road projects with public-private partnerships are also on the anvil.

The Public-Private Partnership Appraisal Committee (PPPAC) gave the nod to


infrastructure projects worth US$ 5.98 billion on November 2008, which included 21
highway projects to be taken up under NHDP Phase III and V. Since its foundation in
January 2006, the PPPAC has granted approval to 87 projects, which includes 77
highway projects.

International Participation

With emerging investment opportunities, Indian road construction projects have


become a preferred investment option for large foreign players.

International companies like Emirates Trading Agency (Dubai), Deutsche Bank, IJM
Corporation, Berhad (Malaysia) and the Isolux Corsan Group (Spain) are partnering
with Indian companies with equity stakes between 10 to 51 per cent. These projects
include the conversion of 882 km of four-lane national highways into six lanes at a
total cost of US$ 2.30 billion. More such mammoth projects are slated for the next
financial year, wherein about 2000-2500 kms of four-lane highways will be widened.

American construction major Star Universal Resource Company has signed a


Memorandum of Understanding (MoU) with the Government of Sikkim for the
construction of an underground expressway between Sikkim and West Bengal. The
proposed road, with ten tunnels and as many bridges, will cost US$ 327.80 million
and is slated to be built in four years.

Developed By-P.B.Bhanja
67

Furthermore, companies such as Turkey's Limak, Thailand's Italthai, Korea's Baelim,


Russia's Dyckerhoff, Germany's Widmann AG, Malaysia's IJM Construction, SDN and
Road Builders and Japan's Kajima and Taisei are undertaking projects floated by the
National Highway Authority of India (NHAI) and other state governments.

Government Initiatives

To attract more investment into India's burgeoning infrastructure that is projected to


attract US$ 500 billion as investments by 2012, the government has taken a number
of progressive reform initiatives.

• Allows 100 per cent FDI under the automatic route in all road development
projects.
• With incentives like 100 per cent income tax exemption for a period of 10
years, the NHAI provides grants/viability gap funding for marginal projects,
and formulation of model concession agreements among others.
• Private parties allowed to develop service and rest areas along the roads
entrusted to them.
• Investors in identified highway projects permitted to recover investment by
way of collection of tolls for specified sections and periods.
• As a step to improve the viability of road projects to be implemented on PPP
mode, the Cabinet Committee on Economic Affairs (CCEA) has agreed upon
the National Highways Fee (Determination of Rates and Collection) Rules,
2008. The Rules will establish uniformity in fee rate for public funded and
private investments projects.
• The government has also announced an increase in the overseas borrowing
amount of infrastructure sectors, to US$ 500 million from US$ 100 million.
• The government has taken steps to provide cheaper loans for highway
projects and in the process will be expediting projects worth more than US$
12. 70 billion under separate phases of the NHDP.
• The Ministry of Shipping and Road Transport is mulling over having a ‘green
corridor' in highways solely for farmers with ‘no toll' charges. The green
corridor would link rural roads with National Highways and is likely to be
developed along with the six-lane project under the National Highways
Development Programme.

Looking Ahead

According to a consultation paper by the Planning Commission, investment in the


roads sector during the Eleventh Plan is projected at US$ 93.11 billion. While
approximately US$ 46.05 billion is projected to be invested in national highways,
US$ 34.65 billion will be spent for state roads, US$ 10.97 billion in rural roads, and
US$ 1.42 billion in roads in the North-East. Significantly, the private sector is
projected to invest US$ 33.61 billion, accounting for 36.1 per cent of the total
investment.

A target of 3,519 kms has been fixed by NHAI for the completion of construction
across various phases of NHDP during 2008-09.The planned completion dates for
other phases of NHDP being executed by the National Highways Authority of India
(NHAI) are:

Developed By-P.B.Bhanja
68

• NHDP Phase-II - December, 2009


• NHDP Phase-III - December, 2013
• NHDP Phase-V - December, 2012
• NHDP Phase-VI - December, 2015
• NHDP Phase-VII - December, 2014

The Asian Development Bank (ADB) is extending a US$ 420 million loan to the
Indian state of Bihar for the upgradation and expansion of the state highway
network, over a period of 25 years.

The Bihar State Highways Project will be upgrading around 820 kilometers of roads
under the state government's highway development program. An additional US$ 1
million technical assistance will also be provided for the improvement of road sector
institutions. The Government of India has also granted US$ 48 million for the
project.

Further, the roads of Delhi will be getting a facelift, keeping the 2010 Commonwealth
Games in mind. The Municipal Corporation of Delhi (MCD) plans to spend a massive
US$ 1.24 billion for the year 2009-2010 for upgrading the city's roads and
infrastructure.

With massive investments and large projects on the anvil, Indian roadways will be
playing a significant role in the Indian growth story.

Exchange rate used: 1 USD = 47.4080 INR

Services

Last Updated: March 2009 [TOP]

The services sector is one of the most important segments of Indian economy in
terms of its contribution to the gross domestic product (GDP) in recent years. It has
been at the forefront of the rapid growth of the Indian economy, contributing nearly
63 per cent of the GDP in 2007-08. The sector has come to play an increasingly
dominant role in the economy accounting for 59.6 per cent of the overall average
growth in GDP in the last eight years between 2000-01 and 2007-08.

Further, Dun & Bradstreet said in its 'Economy Outlook 2009-10' report that the
services sector will retain its importance in GDP and its contribution is expected to
reach 58 per cent in 2009-10.

Developed By-P.B.Bhanja
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As per the Central Statistical Organisation, the services sector has continued to grow
even in the third quarter of 2008-09, registering a 9.3 per cent increase over the
corresponding period of 2007-08.

• Community, social and personal services posted a robust 17.3 per cent
growth in the third quarter against 5.5 per cent in the corresponding period a
year ago.
• Financing, insurance, real estate and business services also grew by 9.5 per
cent as against 11.9 per cent.

Apart from higher contribution to GDP, the sector has also been recognised globally
as the prime driver of accelerated and diversified growth of the economy.

Indicators

Lead indicators suggest that the pace of expansion in the services sector activity is
likely to be sustained even in the next financial year.

• Foreign tourist arrivals (FTAs) during February 2009 stood at 5,02,000,


compared to 4,87,000 in January 2009.
• Railways freight traffic increased to 751.30 million tonnes during April-
February 2008-09 from 715.33 million tonnes carried during the
corresponding period last year.
• Mobile subscriber base in the country grew by 13.45 million in February 2009.
• Cargo handled at major ports during April–September 2008–09 has been
261.73 MT as against 244.14 MT in the corresponding period last fiscal.

Further, the sector is set to be benefitted by the recent government incentives


announced as a part of the third stimulus package. The government's announcement
to cut service tax across the board from 12 per cent to 10 per cent is expected to
benefit the consumers as well as the services sector.

The prospects for growth in the Indian services sector over the next year continues
to be robust, according to a survey by KPMG, conducted across the BRIC (Brazil,
Russia, India and China) countries. The survey revealed that Indian companies had
the most positive outlook on profits among the BRIC countries with nearly 60 per
cent expecting an increase in levels of business activity and 58 per cent expecting an
increase in revenue. Also, Indian companies were the second most optimistic lot
compared to others with regard to expecting an increase in new business over the
next year.

Exports

The growth of the Indian services sector has not been confined to the domestic
market alone. It is also reflected on its trade front. India's share in the global trade
of services has increased from 2 per cent in 2004 to 2.7 per cent in 2006.
Particularly impressive has been the broad-based growth of services on the trade
front, which is expected to continue even in the next fiscal.

Information Technology

Developed By-P.B.Bhanja
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Exports for the Information Technology (IT) and Business Process Outsourcing (BPO)
sectors are expected to touch US$ 60 billion–US$ 62 billion in 2010-11, according to
the National Association of Software and Service Companies (NASSCOM).

In its 'Strategic Review 2009' titled 'The IT-BPO Sector in India', NASSCOM has said
in the current fiscal (2008-09), exports were likely to touch US$ 47 billion. Exports
stood at US$ 31.4 billion in 2007-08.

A vertical break-up of India's IT- BPO exports sector shows Banking and Financial
Services Institutions (BFSI) accounted for 41 per cent of the export pie in 2007-08,
while telecom and manufacturing contributed 20 per cent and 17 per cent,
respectively.

Healthcare

Experts believe that the outsourcing of healthcare services from the US to India
would continue. The US-based healthcare companies are expected to send more
information technology projects to India, in order to bring down their costs of
operations, according to a study done by Offshoring Research Network (ORN), in
alliance with Duke University and research firm PricewaterhouseCoopers.

Despite global economic downtrend, the medical transcription (MT) industry is


looking for a further growth buoyed by a report of the NASSCOM stating that
recession has not hit the healthcare industry. As per a NASSCOM report, the MT
industry will be worth US$ 798.1 million by 2010 and could employ as many as
50,000 people.

India is also likely to retain its tag as the backoffice of the world currently, amid
competition from its neighbouring country China, as per a report by Deutsche Bank
Research. At present, India is in a comfortable position as the share of IT and IT-
based services in China's export revenues comes to only just above three per cent,
compared to over 26 per cent in India.

Investments

The sector that bagged the maximum amount of foreign direct investment (FDI)
equity during April- October 2008 is the services sector (US$ 3.35 billion).

The surge in mobile services market is likely to see cumulative FDI inflows worth
about US$ 24 billion into the Indian telecommunications sector by 2010, from US$
3.84 billion till March 2008.

The sector is also set to witness an increase in investments, with the government
approving 513 special economic zones (SEZs) till August 2008, of which majority of
them are for IT and information technology enabled services (ITeS) sectors.

Some of the major investments in the offing for the service sector include:

Information Technology

Developed By-P.B.Bhanja
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Tata Consulting Services has signed a US$ 100 million agreement to provide IT
services to a UK-based telecom company 4U Group.

ITES

Chicago-based Global Hyatt Corporation has outsourced part of its financial and
accounting transaction services to Genpact.

In another major deal, the US$ 30 billion pharma company AstraZeneca has
outsourced its end-to-end maintenance services for a variety of corporate services
(such as human relations, finance) to Bangalore-based Infosys.

Tourism/Hospitality

The US$ 3 billion Lulu Group has entered into a management contract with Marriot
Hotels to run the 20-story 300-room business hotel property now under construction
in Kochi. The hotel is coming up as part of the US$ 239.31 million hypermarket-
multiplex-airlines tower complex, which is being built by the Dubai-based group.

Legal services

UK-based Clifford Chance, the world's largest law firm, and AZB & Partners, an
Indian law firm, have entered into an informal tie up which will involve client referral
arrangements, joint training, consultation and marketing.

At present, foreign law firms are not allowed to operate in India and the Bar Council
of India prohibits joint ventures between foreign and domestic law firms. But, global
entities are opting for tie-ups with Indian partners, as they are increasingly looking
at establishing an India presence, in anticipation of a possible opening up of the local
legal services industry to foreigners.

Retail

Trent, the retail arm of the Tata group, has formed a joint venture with Inditex
Group to develop and promote the foreign company's Zara stores in India. Inditex is
a leading fashion retailer based in Spain. The partnership plans to open its first store
next year in New Delhi, Mumbai and other major cities of India.

Exchange rate used: 1 USD = 50.1439 INR

Developed By-P.B.Bhanja
72

Consumer Markets

Last Updated: February 2009 [TOP]

Sustained Momentum

As rapid socio-economic changes sweep across India, the country is witnessing the
creation of many new markets and a further expansion of the existing ones. With
above 300 million people moving up from the category of rural poor to rural lower
middle class between 2005 and 2025, rural consumption levels are expected to rise
to current urban levels by 2017. Such developments in India's markets are expected
to create major opportunities for Indian companies and multinationals (MNCs) alike
and further fuel consumer demand in India.

Despite the gloom in the global markets, India will continue to be the second fastest
growing economy in the world and according to the Indian Minister for Commerce

Developed By-P.B.Bhanja
73

and Industry, Mr Kamal Nath, the Indian economy may well grow at over 7 per cent
in 2008-09.

According to a study by the McKinsey Global Institute (MGI), Indian incomes are
likely to grow three-fold over the next two decades and India will become the world's
fifth-largest consumer market by 2025, moving up from its position in 2007 as the
12th-largest consumer market.

Further, according to the National Council for Applied Economic Research (NCAER)
estimates, by 2012, only 14 per cent households in India will have annual household
incomes of less than US$ 921.66, from 58 per cent in 1995-96 and 25 per cent
currently.

In an analysis (carried out by Economic Times) of the top 50 consumer goods and
services firms, it was seen that the June quarter of 2008-09 saw a sales growth of
24 per cent (year-on-year) compared to last year. The firms included in the analysis
were from sectors like automobiles, textiles, fast moving consumer goods (FMCGs),
consumer durables and retail among others. Sales of daily consumption items went
up by 5-10 per cent and the FMCG business increased by 18.8 per cent, while the
consumer durable segment also recorded strong volume growth in the second
quarter of the 2008-09 fiscal.

Moreover, approximately 315 hypermarkets are expected to come into existence in


tier-I and tier-II cities across India by the end of 2011, riding on the boom in
organised retail sector, says a joint study by consultancy firm KPMG and industry
body, ASSOCHAM. The study states that 212 Indian towns are capable of sustaining
the development of such hypermarkets in 2008.

Despite the prevailing gloom across global markets, Indian consumers and
companies continue to be a confident, optimistic lot, with most Indian companies
denying any cutbacks from consumers.

"At both Big Bazaar and ezone, we've seen good growth of about 25 to 30 per cent
on a same-store basis," said Manoj Kumar, CEO of Future Group's ezone. In fact,
expensive products like LCD televisions and laptops are witnessing higher growth
than their cheaper counterparts.

On similar lines, V Ramachandran , LG Electronics' Sales and Marketing Director,


said, "We have not witnessed any pressure so far. In fact the festival period saw a
growth of 40-50 per cent."

Mayank Pareek, Executive Officer, Marketing and Sales, Maruti Suzuki India, said,
"We've seen four distinct phases in 2008. April to June went okay; August to October
saw some weakening. Then October was huge, with the highest ever retail sales.
Then again November sales dropped only to again rise in December".

In the FMCG sector players continue to report good sales figures. Marico's CEO-
Consumer Products, Saugata Gupta, said, "In our categories, we've seen no drop."

Rural Consumers

Developed By-P.B.Bhanja
74

Rural India has provided a beacon of hope to India Inc amidst the prevailing
economic slowdown. Buoyed by a plenteous harvest, liberal loan-waivers and a
growing middle class, the rural consumer is spending like never before, with FMCG,
cars, two-wheelers and consumer durables accounting for a significant part of his
spending. Dr Rajesh Shukla, senior fellow at the National Council for Applied
Economic Research (NCAER) said, " Most corporate who have expected sales of 30-
40 per cent from the smaller markets now hope to net in more than 60 per cent of
their sales turnover from rural India."

FMCGs have seen over 20 per cent demand in rural markets ahead of the 17-18 per
cent growth in urban India. According to AC Nielsen, mainstay categories like hair
oils, toothpastes, shampoos, skin creams and lotions, and even candies saw more
growth in rural markets than urban.

Beverage major Coca-Cola India has already introduced a large-scale retail


programme tailor-made for tier II and tier III towns. Similarly, LG, Samsung, Sansui,
Philips, Maruti, M&M, Tata Motors, Hero Honda, Nestle and P&G are other major
corporates who are increasing their rural focus.

The growing consumption is the result of a growing middle class base in these areas.
The overall number of rural households is estimated to grow to 153 million in 2009-
10 from 135 million in 2001-02. Further, as per an NCAER report, compared to urban
areas, the ‘lower middle income' group in rural areas has nearly doubled. This major
consumer base accounts for 41 per cent of the Indian middle class having access to
58 per cent of the total disposable income.

The mobile boom has now also hit rural India. According to a report jointly released
by the Confederation of Indian Industry (CII) and Ernst & Young, of the next 250
million Indian wireless users, around 100 million (40 per cent) are expected to be
from rural areas. Further, by 2012, rural India will have an over 60 per cent share of
the total telecom subscriber base. Mobile phones in rural India increased by around
13.72 per cent to touch 70.83 million in the quarter-ending June 2008.

FMCG

The FMCG sector has been registering double-digit growth in sales since the last
couple of years. Currently estimated at US$ 17.44 billion, it is the one of the most
promising sectors in India.

In spite of the economic slowdown, the Indian FMCG industry is likely see robust 15
per cent growth in the third quarter of 2008-09 against the corresponding period last
year.

Adi Godrej, Chairman of the Godrej Group, said, "The overall FMCG market, both
urban and rural, have recorded robust growth rates."

"I think the Indian FMCG industry's sales growth should be good in Q3. My
expectation is that the industry will register a 25 per cent sales growth in Q3 2008-
09," he further said.

Developed By-P.B.Bhanja
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According to a FMCG sectoral report by Angel Broking, an analyst firm, companies


will be seeing profits in terms of margin expansions due to the correction in global
commodity prices.

Further, IDFC SSKI Securities has predicted a revenue growth of 18 per cent in the
third quarter of 2008-09.

In rural areas, companies like ITC, Godrej Agrovet and DCM Shriram among others
are growing rapidly in rural areas and, in fact, may outdo their urban counterparts
like Reliance Fresh and the Future Group-owned Food Bazaar chain.

Tremendous growth is being recorded by value-added and aspirational products.


These products are estimated to propel the FMCG industry to grow by 16 per cent (in
sales) during 2008-09, compared to 14.5 per cent during 2007-08.

Another promising trend is the growth of 'out-of-home consumption', which is


emerging as a new section in the FMCG sector. With changing lifestyles, the concept
of three core meals fast vanishing, companies like Coca Cola India, ITC, and Dabur
are venturing into this market and are bringing out new product packaging for the
segment.

Significantly, several Indian FMCG companies have also been aggressively exploring
global markets through both acquisitions and alliances. In 2008, four major
acquisitions were made by three firms—Godrej Consumer Products (GCPL), Emami
and Dabur.

In the past three years, they have acquired about 15 companies and have spread
their presence in more than a dozen countries.

Luxury Products

With the rapidly increasing number of millionaires in India, the market for luxury
brands is growing annually at a compound average growth rate (CAGR) of about 35
per cent.

According to a FICCI-Yes Bank report, India is set to become a manufacturing hub


for global luxury brands over the next four to five years. The report stated that with
the core strengths in India's manufacturing sector, the manufacture of luxury items
in India can grow to US$ 500 million. The luxury products market in India was
estimated in excess of US$ 500 million and is likely to grow at a CAGR of 28 per cent
to reach US$ 1.2 billion by 2010. The market is expected to double by 2015,
touching US$ 2.5 billion.

Global brands like Louis Vuitton and Frette are planning to set up their
manufacturing base in India.

Car imports fell in 2008, with consumers choosing to buy Indian made models by
foreign car makers. From 5,000 units in 2006, 7,500 luxury cars were sold in 2008.
The market is likely to further grow to 10,000 units by 2010. Leading luxury car
makers like Mercedes-Benz India, BMW and Audi are expecting improved sale figures
in 2009.

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Industry experts believe that the top-end consumer electronics segment in India is
growing by 8-10 per cent annually.

Consumer Durables

A combination of changing lifestyles, higher disposable income, greater product


awareness and affordable pricing have been instrumental in changing the pattern
and amount of consumer expenditure leading to robust growth of consumer durables
industry.

According to a snap poll carried out by the Confederation of Indian Industry (CII), 92
per cent the CEOs surveyed were expecting sales to increase by 10 per cent during
2008-09.

A flurry of hi-technology durables are expected to be introduced in the US$ 4.09


billion Indian durables market by March-April in 2009. Samsung, LG, Haier and
Videocon are among companies planning new product launches in the coming
months.

Korean major Samsung is planning to launch LCD-led live emitting diode (LED) TVs
at US$ 1433, and Blu-ray technology home theatres and cameras in 2009.

Pranay Dhabhai, Director and CEO , Haier Appliances India, said, "For the coming
season, we plan to import 'dual-tech' larger capacity (two-door, four-door and six-
door refrigerators) from our US-based factory. Besides, we will also launch ACs with
a new look and feel."

Videocon Industries will also launch high-end LCD TVs and plasma TVs, along with air
conditioners with technological compressors and new designs.

Similarly, LG Electronics India is also planning to introduce air conditioners with new
technology compressors and revamped designs.

Shantanu Das Gupta, Vice President-marketing, Whirlpool of India Limited (WIL)


revealed, "We plan to increase WIL's market share across the four categories of
home appliances to 20 per cent plus by 2010 with more emphasis on washing
machines, air conditioners and microwaves where we are not as strongly positioned
as in the refrigerator category." "In the product development area the investment in
India, across all category, will be in the region of US$ 25-30 million in the next two
years," added Dasgupta.

Whirlpool is targeting a 22 per cent share of the US$ 430.23 million washing
machine market in India by the end of 2009 and is launching a range of new
products with an investment of US$ 4 million for the same.

Automobiles

Presently, India is the second largest two-wheeler market in the world, the fourth
largest commercial vehicle market, the 11th largest passenger car market and is
expected to be the third largest automobile market by 2030.

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During April 2008, sales rose by more than 17 per cent in the car segment, while
sales in the utility-vehicle segment rose by 31 per cent, compared to the
corresponding month last year.

Maruti Suzuki, India's leading automaker registered a 20 per cent net sales growth
for the June 2008 quarter and it also posted 12 per cent growth in volume terms.
Even Hero Honda registered double digit growth in its volume shipment.

Even though the auto industry witnessed slowdown in more recent times, car sales
from manufacturers to dealers were expected to stage a recovery in January 2009,
after dealers took on new stocks after selling off a huge inventory pile-up during
December 2008.

In January 2009, big auto companies registered positive car sales, reviving hopes of
an upturn in demand. Maruti Suzuki India achieved its highest-ever domestic and
total sales in January this year. Maruti's dispatches to domestic dealers increased 5.6
per cent to 67,005 units during the month. Its last biggest dispatch of 65,216 cars
took place way back in November 2007. Maruti posted retail sales of 76,700 vehicles
in December, its highest ever, clearing the stocks piled up at dealerships.

In the luxury segment, even with the global auto industry being affected by the
economic slowdown, luxury cars have posted high double digit growth in India in
2008.

Mercedes Benz India has registered robust growth in 2008 with 3,625 cars (46 per
cent growth), 240 trucks (53 per cent growth) and 16 bus chassis.

BMW India sold over 2,500 units in 2008 against an estimated 2,000 units. Similarly
Audi India registered a growth of 201 per cent at 1,050 units in 2008 against 349
units in 2007.

Global auto makers are still bullish on India. Describing India as one of the promising
emerging markets Toyota Motor Corporation is going ahead with its US$ 655.60
million second plant at Bidadi, near Bangalore.

To drive sales, Daimler Motors, Skoda Auto and Volkswagen, are entering the US$
4.50 billion auto loan market in the country. Indian auto majors, Bajaj Auto, Tata
Motors and M&M are already offering loans through their own finance subsidiaries.

Consumer Electronics

The rapidly growing consumer electronics market in India has spurred many leading
manufacturers of the world to get into partnerships with local companies to set up
shop in the country. Companies planning to enter India include Japanese testing firm
Saki, Hong Kong's surface mount technology (SMT) company WKK, Singapore's
Mydata (SMT) and USA's Indium (solder paste).

iSuppli, an electronics market research firm, has projected that the Indian
audio/video consumer electronics industry will grow to US$ 6.59 billion by 2011,
growing at a CAGR of around 10 per cent.

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Growth of Niche Segments and E-commerce

Companies offering niche services within lighting - for example energy-efficient


lighting - and interior design are witnessing growth and are looking at fresh
investments. The energy-efficient lighting solutions market witnessed 30 per cent
growth in the year 2008. Companies like Philips Consumer Lifestyle and Bajaj
Lighting are looking at continued investments in the segment.

Likewise, the US$ 307.37 million modular kitchen segment is seeing a growth of 40
per cent. Amongst many other companies, H&R Johnson, a leading tile manufacturer,
is also planning to foray into the market and launch a new kitchens division.

As broadband connectivity grows in India – according to the Telecom Regulatory


Authority of India (TRAI) India had 4.73 million broadband internet connections at
the end of August 2008 – online purchasing is growing. According to a global online
survey by A C Nielsen, a staggering 78 per cent of Indians (who access internet)
make purchases online, with credit cards being the preferred mode of payment.
Online shopping has opened up new avenues and the survey found that books (46
per cent), electronic equipments (29 per cent), tours and hotel reservations (24 per
cent), videos/DVDs/games (23 per cent), event tickets (23 per cent),
clothing/accessories/shoes (21 per cent), and music (20 per cent) are some of the
categories in which Indians made online purchases.

In fact, Indians have emerged as the third biggest credit card users globally for
online purchases.

Consumer Confidence

The Indian consumer remains one of the most upbeat globally.

The Nielsen Global Consumer Confidence study, conducted by Nielsen, a market


research company revealed that Indians are "the most optimistic lot globally who
think that their country will be out of the economic recession in the next twelve
months," stated the biannual report. India was at the top of the survey with 114
points, a remarkable 30 points above the global average of 84, and 51 per cent of
the Indians surveyed believed that they would be out of the recession in 12 months.

Furthermore, Indian consumers are also becoming more aware about the finer
nuances of nutritional panels and labels. According to the Nielsen global online
consumer survey, carried out by Nielsen in April 2008, around 59 per cent Indians
said that they noticed packaged goods' labels containing nutritional information. With
59 per cent, India tops in the Asia-Pacific region in its understanding of nutritional
labels. The online consumer survey was carried out in 51 markets from Europe, Asia-
Pacific, North America and West Asia.

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Marketing and Strategy

Last Updated: March 2009 [TOP]

With market liberalisation, increasing consumerism and the entry of more foreign
players, Indian markets are seeing revolutionary changes. The Indian consumer is
rapidly evolving and is now being encouraged to see shopping as an experience and
is spoiled for choice by a host of international brands selling their products at
competitive prices. The spending pattern of the Indian consumer is also changing
rapidly. The relative importance of basic necessities such as food and apparel is
declining whereas for categories like communications and healthcare, it is rising.

According to a study by the McKinsey Global Institute (MGI), India's middle class will
swell by more than ten times—from its current size of 50 million, to 583 million
people—by 2025. And over 23 million Indians—more than the present population of
Australia today—will be counted as billionaires. By 2025, India will also become the
5th largest consumer market, surpassing Germany, moving up from the 12th
position it occupied in 2007. The Boston Consulting Group (BCG) forecasts that
Indian household spend is going to reach nearly US$ 325 billion by 2015 compared
to US$ 150 billion in 2007.

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Although much of the new wealth and consumption will be created in urban areas,
rural households will also benefit enormously considering rural incomes have been
rising.

In the seventh annual Global Retail Development Index (GRDI) conducted in 2008,
India stood second as the most attractive destination for retail investment. It is
estimated that the Indian retail market will increase from US$ 330 billion in 2007 to
US$ 427 billion by 2010 and US$ 637 billion by 2015. Organised retailing comprises
just 4.6 per cent of the currently estimated Indian retail market. However this
segment grew nearly 40 per cent in 2007 and is estimated to increase to 22 per cent
by 2010.

The Indian Direct Selling Association (IDSA) estimates the industry turnover to grow
two-fold in the next five years to touch US$ 1.27 billion. It is, presently, growing at
over 10 per cent.

Rural Market—The Next Big Opportunity

The rural market offers great untapped potential. In 2008, the rural market has
grown at an impressive rate of 25 per cent compared to the 7-10 per cent growth
rate of the urban consumer retail market. Further, according to international
consultancy firm Celent, the rural market will grow to a potential of US$ 1.9 billion
by 2015 from the current US$ 487 million.

According to recent studies conducted by the National Council of Applied Economic


Research (NCAER), rural India is home to 720 million consumers across 627,000
villages. Today, the rural market accounts for a hefty share in most market
segments- 55 per cent of LIC policies, 70 per cent of toilet soaps, 50 per cent of TV,
fans, bicycles, tea and wrist watches.

Major corporations have tasted phenomenal success with innovative strategies such
as smaller packaging, customised development and positioning and a good
distribution network.

Also rural India is less affected by the global slowdown. Consequently, an increasing
number of marketers are targeting it.

The trend-setters in this segment too are the usual suspects: FMCGs, cars, two-
wheelers and consumer durables.

FMCG is clocking over 20 per cent demand in rural markets, ahead of the 17-18 per
cent growth coming from urban India. Core categories such as hair oils, toothpastes,
shampoos, skin creams and lotions, and even candies showed better growth in rural
markets than urban, according to AC Nielsen. Says Dabur CEO Sunil Duggal, “Close
to 50 per cent of our sales come from rural and semi-urban markets.”

The rural middle class has been steadily growing. The middle to high income
households in rural India are now 17 per cent of the total rural population and are
growing at 7 per cent. “The gap between the urban and rural spend is huge. Better
than expected rainfall has got consumer-goods makers revising their sales targets
for the countryside upwards. Most corporates, who have expected sales of 30-40 per

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cent from the smaller markets, now hope to net in more than 60 per cent of their
sales turnover from rural India,” says Dr Rajesh Shukla, senior fellow at NCAER.

NCAER estimates project that by 2012, only 14 per cent households in the country
will have annual household incomes of less than US$ 871. That number was 58 per
cent in 1995-96 and is 25 per cent currently.

Coca-Cola has already rolled out a large-scale retail programme to tap potential in
tier II and tier III towns. The program, called Parivartan, focuses on inculcating
knowledge of best practices in the retail business. Dabur India has rolled out specific
programmes for each of its brands.

LG, Samsung, Sansui, Philips, Maruti, M&M, Tata Motors, Hero Honda, Nestle and
P&G are other major corporates who have ramped up their rural focus for the second
half.

Rural India may offer a business opportunity worth US$ 23 billion for the insurance
companies if the segment can be wooed with innovative saving schemes at
affordable premiums. Companies have launched affordable endowment life insurance
plans such as MetLife India Insurance Company Ltd's, 'MetSuvidha'.

Even white goods companies are looking at the rural market as a saviour in these
recessionary times. The US$ 40-billion global white goods major LG Group expects
rural consumers to push its revenues in India this year.

The company, which has expanded its focus areas to the rural markets, now expects
40 per cent contribution from rural sales to its turnover this year, as the rural sector
is growing at a pace faster than urban sector resulting in higher disposable incomes
and, thus, mounting purchasing power.

The company hopes to alter its portfolio and model mix for the rural market, and
ensure that all segments are represented at the entry level.

Innovative Marketing

In a highly competitive environment, marketers have to keep looking for an


increasing number of innovative methods to increase sales. For instance, Goldplus
from Tata, the jewellery retail venture of Titan Industries that specifically targets the
small-town consumer, actually takes key influencers on a drive, all the way from
small towns and villages, to the chain’s district outlet. It does this in its endeavour to
compete with the local jeweller in smaller towns. The experience does not end there.

After showcasing the store, screening audio-visuals and even encouraging visitors to
check the purity of the gold they possess, the group is served snacks and then
dropped back home.

Goldplus has quietly notched up US$ 77.47 million worth of revenues and is growing
at upwards of 50 per cent annually.

Brand Extensions

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In a bid to garner higher market share and sustain long-term growth, FMCG
companies such as Coca-Cola, Nestle, PepsiCo, Dabur, Marico and Godrej have
adopted a brand extension strategy amid negative factors such as high inflation and
the global financial crisis.

According to marketing research company IMRB, the FMCG companies launched 251
products (223 variants and 28 brands) in calendar year 2007 as against 191 (173
variants and 18 brands) in 2006. The industry pegs the number of variants and
extensions launched this year to be in line with 2007.

According to Ramesh Srinivas, KPMG India’s National Industry Director (Consumer


Markets), “There has been evidence of downtrading in the FMCG sector, especially
the mid-level brands. Companies are likely to leverage their strong brands by
introducing variants across high-end and low-end ranges.”

For instance, Nestle launched a record number of variants this year—from its Maggi
Cuppa Mania (the instant cup noodles), Maggi Pichkoo (a tomato ketchup pouch
pack) to Maggi Bhuna Masala (a readymade cooking aid). It also introduced NesVita
Pro-Heart, a fat-free packaged milk product in Delhi/NCR region.

Dabur too unveiled a pudina variant of its popular Hajmola brand apart from
extending its Gulabari skin-care range.

Among the other launches, GlaxoSmithKline Consumer Healthcare India introduced


Eno Orange.

Industry observers also feel that for most of the brand variants, manufacturers need
to marginally tweak the production line to accommodate the new product as against
a new brand which may require more infrastructure.

In terms of categories, brand extensions in personal-care, household-care and


processed foods drove growth in the FMCG sector.

Analysts believe that most of the new launches next year will also happen under
these categories.

In the processed foods segment, ‘health and wellness’ has been the major theme
playing out, with most players rolling out products around this platform.

Media and Communication Channels

Word-of-mouth remains the most important influence in the buying decision of the
Indian consumer - a fact confirmed by 85 per cent users who participated in a recent
global Nielsen Internet survey. Among the top ten countries that attach maximum
importance to the recommendation of the fellow consumer, India ranks fourth while
Hong Kong tops the list.

Newspaper (77 per cent) is the second most trustworthy advertising medium; TV
ranks fifth in terms of trustworthiness at 65 per cent. For the internet users, online
opinions are at the third position with a 73 per cent vote. According to Radio
Audience Measurement data, 49 per cent listeners access radio from their mobile

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phones. Fostered by its increasing popularity, private FM is especially emerging as a


preferred communication channel for the marketers in India.

While dominant communication channels in India include print, TV and radio, digital
media advertising (internet, mobile and digital signage) is expected to emerge as the
medium of choice for advertisers. Of the available media, it was the fastest growing
segment in 2008. Its better return on investment and the comparative ease with
which its efficacy can be measured will ensure that the trend continues, say analysts.

Viraj Malik, MD, Percept Knorigin (digital advertising arm of Percept), says that
earlier, internet advertising was used by BFSI (Banking, Financial Services and
Insurance companies) and .com companies only. In the last 6 months, other
consumer-oriented brands have also started using the medium.

“In 2009, video ads will the most popular form of online advertising as more and
more brands are willing to put video ads on the internet,” Malik envisages. Knorigin
grew 82-100 per cent in 2008 and Malik expects it to grow at the same pace in
2009.

Rising interest in social networking in 2008 has made brands think seriously about
online advertising. According to a FICCI-PwC report, it is expected to touch US$
212.91 million in 2011 from the current US$ 58.1 million.

Malik adds that while volumes in internet advertising will grow as compared to
mobile advertising, the mobile medium will see some interesting options. The 3G roll
out will drive the use of content-rich applications. This will open up more options for
mobile advertising.

Analysts believe that mobile marketing will be a much bigger opportunity in the next
2 years than the internet has been in the past 10 years. This will come from a mix of
three primary streams—SMS advertising, mobile internet advertising and mobile
invertising (permission-based advertising).

According to analysts, in 2009, operators will focus on value-added services and data
services to distinguish from and compete with new operators. This will open a
platform for mobile advertisers. Mobile number portability rollout, 3G services, and
the green signal for MVNOs will leverage mobile advertising on the same account.

Moreover, the 2009 general elections are likely to be an inflection point for the usage
of mobiles in many different ways, just as the 2008 US elections were a defining
moment in the use of internet and mobile services.

Moreover, as recessionary trends lead to tightening of advertising budgets across the


board, the online medium, which boasts of a higher return on investment and is far
more measurable, is expected to get renewed attention from marketers.

What makes the case stronger for the web is the fact that it is far cheaper than
traditional media like television and print. Consider this: Google, which controls a
major chuck of the online advertising market, says that the last few months have
seen many new advertisers in the space. According to Narasimha Jayakumar,

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Business Head, Travel, Google India, in the travel vertical, budget hotels, travel
companies and offline travel agencies have started advertising online.

“There is more efficiency in the medium as it is measurable and you pay per click.
Moreover, it is more targeted,” he added. Despite its advantages, Internet
advertising constitutes a very small chunk of the overall ad pie in India, due to low
penetration levels. But, industry experts opine that this is set to change.

Marketers are not shying away from using social networking sites to promote their
products. For instance, FMCG company Marico has just launched a co-branding
exercise with a games application of Games2win on Orkut for its premium hair-care
brand Hair & Care.

“There has been a general awakening across markets with respect to the online
medium as companies try to engage more with their customers,” said Kaizad
Pardiwalla, President OgilvyOne. However, according to industry experts, the
decision to sign up or sign out will vary according to product categories.

With the rise of Web 2.0 and the growth of user-generated content and social
networks, advertisers have found a new mode called viral advertising to get their
message across. The digital answer to word of mouth, viral advertising entails
companies or marketers making messages so funny and interesting that consumers
want to forward them to their friends and family.

'Bluecasting' or advertising via Bluetooth is also growing rapidly.

Celebrity Advertising and Recall Value

As opposed to celebrity-fatigue in some developed societies, celeb-endorsement in


India ensures high recall. A Celebrity Endorsement Survey conducted by IMRB (India
Market Research Bureau) and public relations firm IPAN states that 86 per cent
Indians remember advertisements because of the celebrities that endorse them.
Since 2003, celebrity endorsement volume on television has gone up by more than
six times.

A study by AdEx India, a division of TAM Media Research said there was a 49 per
cent growth in celebrity endorsement ad volumes on TV during 2007 compared to
2006. Bollywood, with an 81 per cent share of the audio-visual media endorsement
pie, outshone other domains in terms of star-power. Cricket came second with a 14
per cent share.

Increasing Ad Spends

In spite of the global recession, companies are hiking ad spends in order to attract
more customers. Consumer products and telecom are leading the pack followed by
realty and retail sectors. ITC, Dabur, LG and Samsung top the consumer goods
majors who are upping their ad spends.

• Dabur which dropped ad spends by 50 basis points in the third quarter, is


increasing them by 2 percentage points in the January-March quarter to
support new products launches.

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• Coca-Cola, one of the biggest advertisers globally, recently rolled out a new
variant of Fanta nationally and picked up sponsorship for the GMR-owned IPL
team, Delhi Daredevils. April-May being peak season for beverage companies,
spends naturally go up during the quarter.
• Cosmetics player Emami group is also likely to hike the ad spends especially
since the company plans to launch new products in the April-June quarter.
• Electronics and durables maker LG plans to spend US$ 77.47million this year
– a 10 per cent increase over the previous year. Of this, US$ 46.49 million
would be spent above-the-line.
• Samsung would hike ad spends by 10-15 per cent this year. The company
spends 4-5 per cent of its annual revenues on A&P. The company is planning
to back its new product launches mainly in refrigerators, ACs and LCD TVs by
strong campaigns.

Brand Consciousness

A Nielsen Global Luxury Brands study (March 2008) reveals that India has the third
highest brand-conscious population in the world - with only Greece and Hong Kong
ahead of it. Thirty five per cent of Indian consumers, who participated in the survey,
showed inclination towards buying branded products, while it was 46 per cent in
Greece and 38 per cent in Hong Kong.

This rise in brand conscious has engineered a noticeable change in the luxury
landscape in India. Growing at an annual average rate of 26 per cent, India has been
identified as a significant driver in the global luxury market. India is the third highest
buyer of Gucci products, the sixth highest for Calvin Klein, ninth for Diesel and tenth
for Fendi. Calvin Klein (34 per cent), Gucci (25 per cent), Diesel (24 per cent),
Christian Dior (16 per cent), and DKNY (10 per cent) are the top brands that Indian
consumers spend on. The local designer brands too score well in the index with 40
per cent, which is the sixth highest percentage globally.

Packaging and Design

Both packaging and design are increasingly being seen as potent marketing tools for
product differentiation and communication with the consumer. The visual appeal of
aesthetic designs and packaging particularly matters in high-end product segments.

Growth in the retail sector has further revealed packaging as an effective brand
communicator at the time of buying. Convenient packaging assures consumers of the
product quality and helps boost sales. The recent Asian Paints campaign marks a
new trend among advertisers, who are now looking to attract consumers with try-
vertising—or mainstream advertising that encourages them to try the sample or
smaller-sized product—while also building brand image.

In rural and semi-urban areas smaller packaging in product segments like shampoos,
biscuits, washing powders, snack items, toilet soaps, and coffee sachets, have spelt
great success for companies.

Exchange rate used: 1 USD = 51.6648 INR

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86

Rural Market

Last Updated: March 2009 [TOP]

A silent revolution

The Indian growth story is now spreading itself to India's hinterlands. Rural India,
home to about two-thirds of the country’s 1,145 million population, is not just
witnessing an increase in its income but also in consumption and production.

The recent interim Budget's focus on extending the National Rural Employment
Guarantee Act (NREGA) to all states with a US$ 5.83 billion outlay for 2009-10 would
benefit the rural economy as industry and services tend to have a better
employment multiplier compared to the agriculture sector. According to a National
Council of Applied Economic Research (NCAER) analysis, the combined share of
industry and services in rural GDP has risen to 58.4 per cent in the current fiscal
from 48.6 per cent in 1999-2000 on the back of strong growth in these sectors in the
past five years.

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The rural economy got a further boost with the farmer loan waiver of US$ 13.86
billion and the ambitious Bharat Nirman Programme with an outlay of US$ 34.84
billion for improving rural infrastructure, road connectivity and digital access to
villages for marketers.

Additionally, the rural economy has not been impacted by the global economic
slowdown, according to a recent study by the Rural Marketing Association of India
(RMAI). Significantly, the rural markets are also offering great opportunities to
marketers who are trying to find a way out of the current economic crisis.

The study found that the rural and small town economy which accounts for 60 per
cent of India’s income has remained insulated from the economic slowdown as
employment opportunity and income streams are intact and growing steadily with
consistent demand for goods and services.

The study further reveals that rural incomes are on the rise driven largely due to
continuous growth in agriculture for four consecutive years. A record harvest of 230
million tonne food grains last year coupled with a sharp increase of 40 per cent in
minimum support price of wheat and paddy over a two-year period has resulted in
farmer incomes rising sharply.

According to a McKinsey survey conducted in 2007, rural India would become bigger
than the total consumer market in countries such as South Korea or Canada in
another twenty years. And it would grow almost four times from its existing size in
2007, which was estimated at US$ 577 billion. As per the cellphone-user statistics
provided by the Cellular Operators Association of India (COAI), the B and C circles in
India are outrunning major cities in terms of subscriber additions.

Therefore, after several global corporations like Microsoft, Intel and Shell, many
other major multinational companies (MNCs) and domestic players are keen to foray
into the rural Indian market to capitalise on its growing opportunities.

Rural consumers

According to recent studies conducted by the NCAER, rural India, home to 720
million consumers across 627,000 villages, offers a huge consumer base for the
companies to capture.

Significantly, the RMAI in its study has also revealed that there has been no impact
of the economic slowdown on the rural economy.

Higher disposable surplus among consumers in these markets is leading to smart


buying, especially in categories including house construction materials, apparels and
durables. Most companies are looking at the huge potential offered by the rural
markets and shifting their focus from the already saturated urban markets. In fact,
an AC Nielsen study for the April-September 2008 period reveals that in sectors,
including skin creams and lotions, hair oils, toothpaste and candies, volume and
value growth in rural markets have been significantly higher than urban markets.

The rural India success story is being replicated across a range of sectors in the rural
markets.

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FMCG

The rural consumers spend around 13 per cent of their income, the second highest
after food (35 per cent), on fast moving consumer goods (FMCG), as per a RMAI
study.

Significantly, sector analysts predict that a combination of higher advertising spends,


more product launches and increased level of localised promotions and growth in
rural markets, is expected to lead consumer products companies to a steady 15-18
per cent topline growth during October-December 2008.

The FMCG industry in India was worth around US$ 16. 03 billion in August 2008, and
the rural market accounted for a robust 57 per cent share of the total FMCG market
in India, overtaking the urban market (43 per cent).

According to a study by AC Nielsen, for the April-September 2008 period, the FMCG
market especially in the skin creams and lotions, hair oils, toothpaste and candies
categories witnessed a significantly higher volume and value growth than urban
markets. Most FMCG companies are now working on increasing their distribution in
smaller towns and focussing on marketing and operations programme for semi-urban
and rural markets.

Industry analysts state that the increased consumption is also the result of a growing
middle class base in these markets. The total number of rural household is expected
to rise to 153 million in 2009-10 from 135 million in 2001-02, suggesting a huge
market.

Retail

According to a report—India Retail Report 2009—by Images FR Research, "India's


rural markets offer a sea of opportunity for the retail sector. The urban-retail split in
consumer spending stands at 9:11, with rural India accounting for 55 per cent of
private retail consumption." Rural India accounted for almost half of the Indian retail
market, which was worth about US$ 266.05 billion in September 2008. With most of
the retail markets getting saturated in tier-I and tier-II cities, the next phase of
growth is likely to be seen in the rural markets.

Major domestic retailers like AV Birla, ITC, Godrej, Reliance, and many others have
already set up farm linkages. Hariyali Kisan Bazaars (DCM) and Aadhars (Pantaloon-
Godrej JV), Choupal Sagars (ITC), Kisan Sansars (Tata), Reliance Fresh, Project
Shakti (Hindustan Unilever) and Naya Yug Bazaar are established rural retail hubs.

Also, buoyed by the success of Hindustan Unilever's innovative rural distribution


model (Project Shakti) led by women's self-help groups, the Anglo-Dutch consumer
goods major, Unilever is exporting the project to several developing world markets.

In order to capture the growing rural consumers, Goldplus from Tata, a jewellery
retail venture of Titan Industries, adopted an innovative marketing strategy by
driving small town consumers all the way from towns and villages to the chain's
district outlet to showcase them the store and its product offerings.

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Pharmaceuticals

The Indian pharmaceuticals market is regarded as one of the fastest growing in the
world. According to a report by Mckinsey—Indian Pharma 2015—the rural and tier-2
pharma market will account for almost half of the growth till 2015. Almost 45 per
cent of the growth will take place in tier-2 markets. The tier-2 market will grow to 44
per cent by 2015, amounting to US$ 8.8 billion.

This growth can be further augmented with the government allocating US$ 2.35
billion for the National Rural Health Mission (NRHM) in the interim budget 2009. This
will translate into improving rural health infrastructure on the ground and increased
supply of medicines to the health centres in the rural areas. Several drug companies
such as Cipla, Lupin, Ipca, Hetero and Emcure that supply into the Centre’s health
programmes are expected to reap benefits from this government announcement.

Telecommunication

A Gartner forecast revealed that Indian cellular services revenue will grow at a
compound annual growth rate (CAGR) of 18.4 per cent to touch US$ 25.6 billion by
2011, with most of the growth coming from rural markets. Also, a joint
Confederation of Indian Industries (CII) and Ernst & Young report reveals that of the
next 250 million Indian wireless users, approximately 100 million (40 per cent) are
likely to be from rural areas, and by 2012, rural users will account for over 60 per
cent of the total telecom subscriber base in India. Mobile phones in rural India also
grew by close to 13.72 per cent to reach 70.83 million in April–June 2008. CII also
estimates the number of subscriber addition in rural areas to exceed the additions in
metros by 2012 as about 120 million new users are expected to adopt wireless
telephony in rural areas as compared to about 62 million in the metros.

According to the Indian Communications and IT Minister, Mr A Raja, India will have
200 million rural telecom connections by 2012.

The Telecom Regulatory Authority of India (TRAI) has recently released draft
recommendations on rural telephony for overcoming various constraints coming in
the way of increasing telecom penetration in rural India. As on December 2008, the
rural teledensity was 12.62 per hundred of population.

Telecom service provider Tata Teleservices Limited, which expects around 60-70 per
cent of additions in subscriber base to come from rural areas, has announced that
the company will be investing additional US$ 6.77 million in Gujarat to set up 100
cell sites by August 2009.

Vihaan Network Ltd, a group company of Shyam Group, has launched the world’s
first zero opex GSM systems powered by solar energy rather than conventional
sources, which would reduce the cost of setting up telecom infrastructure by as much
as 50 per cent. Experts believe this reduction will become increasingly vital as rural
telephony increases.

Bharat Sanchar Nigam Limited (BSNL) is likely to connect 148,000 villages with high-
speed internet connectivity by March 2009. BSNL also plans a US$ 125.38 million
spend on its rural telecom infrastructure in West Bengal, over the next one year.

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Airtel has tied up with IFFCO to reach farmers directly. Farmers will receive free
voice messages on farming techniques, weather forecasts, dairy farming, rural health
initiatives, etc. Airtel's new initiative will offer mobile handsets bundled with Airtel
mobile connection ranging from US$ 30.71 to US$ 36.84.

Reliance Communication has also targetted the rural segment in a big way with its
low tariff initiative like the Grameen Programme for rural subscribers.

Automobiles

Presently, India is the second largest two-wheeler market in the world, the fourth
largest commercial vehicle market, the 11th largest passenger car market in the
world, and is expected to be the seventh largest automobile market by 2016.
However, the automobile market remains untapped in rural India which has a strong
purchasing power. Sensing a huge opportunity many automobile companies are
trying to woo the rural consumer.

Passenger car and two-wheeler companies are driving on rural roads to push sales.
While growth in urban markets has been flat or negative, the rural markets are
booming, insulated from economic downturn. Rural markets' share in Maruti's overall
sales during April-January 2009 has gone up to 8.5 per cent from 3.5 per cent in the
same period last year.

Mahindra & Mahindra is also bullish on the rural and semi-urban markets, with its
utility vehicle, Scorpio clocking 60-65 per cent sales from the rural markets as
against 20 per cent earlier. TVS Motor also echoed the sentiment, which registers
around 50 per cent of its sales from the rural and semi-urban markets.

The importance of rural India remains the same for Hero Honda, the biggest bike
maker. Recognising its potential, the company has set up a dedicated 'rural vertical'
under the theme 'Har Gaaon...Har Aangan' to penetrate untapped rural and
upcountry markets. Similarly, Hyundai Motors India has introduced a new marketing
initiative—'Ghar Ghar Ki Pehchaan'—to tap the India rural car market. Maruti Suzuki
has also launched a pan-India campaign—'Mera Sapna Meri Maruti'—to reach out to
consumers in rural areas.

Auto companies are also being helped in this rural push by their growing
partnerships with public sector banks, all of which enjoy a good presence in the rural
belt and have a ready list of potential customers.

Consumer durables

The rural market is growing faster than the urban markets, although the penetration
level in rural area is much lower. A survey carried out by RMAI has revealed that 59
per cent of durables sales come from rural markets. The study further stated that
during April-October 2008, the television segment in the rural and small towns
witnessed a growth of 29 per cent, microwave ovens 26 per cent, air conditioners 17
per cent, washing machines 15 per cent and refrigerators 12 per cent. This growth is
on the back of entry-level products and largely driven by rural and semi-urban
markets.

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Besides the strong growth of consumer goods in rural areas, the mobile revolution is
also sweeping the hinterland of the country, which is completely changing the way
one connects with rural consumers. Mobile connectivity is helping marketers
transcend the traditional forms of communication with them.

Further, many leading consumer durable companies are now increasing their
presence in rural India. Recently, LG has set up 45 area offices and 59 rural and
remote-area offices. Samsung has also rolled out its 'Dream Home' road show which
was to visit 48 small towns in 100 days in an effort to increase brand awareness of
its products.

Road ahead

The development of rural infrastructure is an important priority for the government


and out of the total projected investment of US$ 283.83 billion to be incurred by the
centre and the states in the Eleventh Plan; US$ 80.82 billion would be spent entirely
towards improvement of rural infrastructure.

As per RMAI, the rural per capita consumption of FMCGs would equal to current
urban levels by 2017. Industry analysts also expect the FMCG sector in rural areas to
grow 40 per cent against 25 per cent in urban. The telecom industry is also expected
to grow from 100 million connections to 300 million by 2012. Further, the semi-
urban and rural life insurance market is expected to rise from US$ 5 billion to US$ 20
billion by 2012.

According to international consultancy firm Celent, rural markets in India will grow to
a potential of US$ 1.9 billion by 2015 from the current US$ 487 million. Rural
markets are growing at double the pace of urban markets and for many product
categories, rural markets account for well over 60 per cent of the national demand.

Exchange rate used: 1 USD = 51.6694 INR

Urban Market

Last Updated: February 2009 [TOP]

With incomes rising in India, spending and consumption are also on the rise with an
increasing number of people purchasing many more items, going beyond the basic
necessities. As more areas get urbanised, the country will see the creation of many
new markets and further expansion of the existing ones.

According to a new study, 'The Next Urban Frontier: Twenty Cities to Watch', co-
authored by National Council of Applied Economic Research's (NCAER) Rajesh Shukla
and Future Capital Research's Roopa Purushothaman, India is likely to see rapid
urbanisation, with around 45 per cent of Indians living in urban areas by 2050, up
from 30 per cent in 2007-08.

Further, according to a study by the McKinsey Global Institute (MGI), Indian incomes
are likely to grow three-fold over the next two decades and India will become the
world's fifth-largest consumer market by 2025. In the given scenario, urban markets
will continue to fuel the Indian economy for quite some time to come.

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India has not been greatly impacted by the prevailing global downturn. Recently, the
Indian Commerce Minister, Mr Kamal Nath, reiterated that despite the gloom in the
global markets, India will continue to be the second fastest growing economy in the
world and the Indian economy may well grow at over 7 per cent in 2008-09.

Indian consumers and companies continue to be a confident, optimistic lot, with


most Indian companies saying that there have been no cutbacks from consumers.

Retail

According to the recent report by McKinsey & Company: 'The Great Indian Bazaar,
Organized Retail Comes of Age in India', India's overall retail sector is likely to grow
to US$ 419.93 billion by 2015. Another McKinsey report 'The rise of Indian Consumer
Market', estimates that the Indian consumer market is likely to grow four times by
2025.

In another joint study conducted recently by the Associated Chambers of Commerce


and Industry of India (ASSOCHAM) and KPMG, the following findings were revealed:

• The total size of the retail market in India in 2008 was estimated at US$ 353
billion.
• The annual growth of the retail market in India is expected to be around 8 per
cent.
• The total retail market size in India is likely to touch US$ 416 billion by 2010.
• The present share of organised retail sector is estimated at 7 per cent.
• The estimated annual growth of organised retail sector is 40 per cent.
• The size of the organised retail sector by 2010 is expected to reach US$ 51
billion.
• The estimated share of organised retail in total retail by 2010 is 12 per cent.
• The expected investment into modern retailing formats over the coming 4-5
years is around US$ 25-30 billion.

Despite the economic slowdown plaguing the western countries, retailers are still
optimistic about the Indian growth story.

In fact, with 30-40 per cent drop in retail rentals, Indian retailers are a happy lot.
Retailers are also foreseeing further drops in rentals in 2009 and they are optimistic
about their expansion plans for 2009.

Aggressive marketing efforts and expansion plans by leading retailers are on.

• S T Dupont, a French luxury brand (which sells men's luxury leather goods,
cigarette lighters, pens, watches and fragrances) will soon enter India. By
2011, Dupont will have around 8-9 retail outlets in India.
• Mahindra & Mahindra (M&M) has entered the retail sector with the
introduction of its specialty format, Mom & Me, to sell infant care and
maternity products.
• Retailers such as Spencer's Retail, Future Group, Shoppers Stop, Westside,
Wills Lifestyle, Bata India, and Raymond have plenty of expansion plans for
2009.

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• In West Bengal, leading retailers like the Future Group and Spencer's Retail
will be expanding and upgrading their present stores in 2009. Others like
Wills Lifestyle, Turtle Ltd, and Bisk Farm, are planning to set up new stores,
particularly in the suburbs.
• Urban Market

Consumer Durables

• The Indian consumer durables market seems to be relatively untouched by


the economic slowdown.
• "At both Big Bazaar and ezone, we've seen good growth of about 25 to 30 per
cent on a same-store basis,"said Manoj Kumar, CEO of Future Group's ezone.
In fact, expensive products like LCD televisions and laptops are witnessing
higher growth than their cheaper counterparts.
• On similar lines, V Ramachandran, LG Electronics' sales and marketing
director, said, "We have not witnessed any pressure so far. In fact, the
festival period saw a growth of 40-50 per cent."
• Whirlpool is also on the expansion mode and is targeting a 22 per cent share
of the US$ 423. 28 million washing machine market in India by the end of
2009, and is launching a range of new products with an investment of US$ 4
million for the same.
• Moreover, a large number of hi-technology durables are expected to flood the
US$ 4.03 billion Indian durables market by March-April in 2009. Samsung,
LG, Haier and Videocon are among companies planning new product launches
in the coming months.
• Korean major Samsung is planning to launch LCD-led live emitting diode
(LED) TVs at US$ 1410.72, and Blu-ray technology home theatres and
cameras in 2009.
• Pranay Dhabhai, Director and CEO , Haier Appliances India, said, "For the
coming season, we plan to import 'dual-tech' larger capacity (two-door, four-
door and six-door refrigerators) from our US-based factory. Besides, we will
also launch ACs with a new look and feel."
• Videocon Industries will also launch high-end LCD TVs and plasma TVs, along
with air conditioners with technological compressors and new designs.
• Similarly, LG Electronics India is also planning to introduce air conditioners
with new technology compressors and revamped designs.

Automobiles

• Even though the auto industry witnessed slowdown in more recent times, car
sales from manufacturers to dealers was expected to stage a recovery in
January 2009, after dealers took on new stocks after selling off a huge
inventory pile-up during December 2008.
• In fact, despite dipping sales figures, Indian carmakers will be launching 50
new models in 2009. The new entrants include M&M's Xylo, Fiat's Linea
sedan, Tata's Nano and Maruti Suzuki's Ritz among many others.
• Moreover, global auto makers are still bullish on India. Describing India as
one of the promising emerging markets, Toyota Motor Corporation is going
ahead with its US$ 644.69 million second plant at Bidadi, near Bangalore.
• Ford India's plans to expand its capacity in India will also continue as per
schedule.

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• In the luxury segment, even with the global auto industry being affected by
the economic slowdown, luxury cars have posted high double digit growth in
India in 2008.
• From 5,000 units in 2006, 7,500 luxury cars were sold in 2008. The market is
likely to further grow to 10,000 units by 2010. Leading luxury car makers like
Mercedes-Benz India, BMW and Audi are expecting improved sales figures in
2009.

FMCGs

ASSOCHAM has said that the FMCG sector will grow at 25 per cent, in spite of the
current economic turmoil.

In fact, players continue to report good sales figures. Marico's CEO-consumer


products, Saugata

Gupta, said, "In our categories, we've seen no drop."

Across urban markets, there has been a tremendous growth in the sales of value-
added and aspirational products. These products are expected to drive the FMCG
industry to grow by 16 per cent during 2008-09, against 14.5 per cent during 2007-
08.

Another promising trend is the growth of 'out-of-home consumption' which is


emerging as a new section in the FMCG sector. With changing meal-time habits and
the concept of three core meals fast vanishing, companies like Coca Cola India, ITC,
and Dabur are venturing into this avenue and are bringing out new packaging for
products in this segment.

Luxury Products

According to a FICCI-Yes Bank report, the luxury products market in India is


estimated in excess of US$ 500 million and is likely to grow at a CAGR of 28 per cent
to reach US$ 1.2 billion by 2010. The market is expected to double by 2015,
touching US$ 2.5 billion.

About eighteen months after foreign direct investment (FDI) was allowed in single-
brand retail, around 37 foreign brands have made a foray into India and many are
planning to set up shop here.

Benetton India's Managing Director, Sanjeev Mohanty, said, "India remains the most
important destination for international brands outside their home markets due to its
solid economic fundamentals and growth opportunities."

Brands like Damro, ETAM, Zegna, Fendi, Nike, Llardo, Rino Greggio and Lee Cooper
were amongst the first brands to get FDI permission under the single-brand retail
window. While many others like Armani, Dolce & Gabbana, Louis Vuitton, Salvatore
Ferragamo, sportswear retailer Puma, Lerros and S Oliver, luggage brand Piquadro,
Marks & Spencer, La Perla, Jimmy choo and Toy Watch have also forayed into India.
At the same time, some brands are also waiting for the government to allow 100 per
cent FDI in retail.

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Consumer Electronics

The rapidly growing consumer electronics market in India has spurred many leading
manufacturers of the world to get into partnerships with local companies to set up
shop in the country. Companies planning to enter India include Japanese testing firm
Saki, Hong Kong's surface mount technology (SMT) company WKK, Singapore's
Mydata (SMT) and USA's Indium (solder paste).

According to a report by Marketsmonitor, 'Booming Consumer Electronics Market in


India', the Indian consumer electronics industry is expected to grow at a rate of 10
per cent to 12 per cent in the coming years.

Further as per the report:

• There will be an increase in volume sales of washing machines in the fully


automatic category during 2008-09 to 2011-12.
• In the television market preference is changing from CRT technology to Flat
Panel Display Televisions (FPTV).
• Sales figures for frost-free refrigerators are growing rapidly compared to the
direct-cool category.
• The AC market is expected to grow at 30 per cent to 35 per cent in the
coming years.
• MP3 players and digital video appliances are expected to grow at a double-
digit rate.

Direct Selling

The direct selling market in India will benefit from the global recession with the
segment posting 20 per cent growth annually to reach an expected US$ 1 billion by
2012.

Leading direct selling companies like Amway India and Oriflame Cosmetics are
planning to cover more areas in the country.

Entertainment

With rising stress levels in urban lifestyles, fun is a very serious business in Indian
cities. The repertoire is wide, from TV to music, cinema to reading, new age
engagements like gaming and net-based activities, fitness, and even religion. The
Indian media and entertainment industry has the potential to touch US$ 200 billion
by 2015.

The number of TV channels is increasing rapidly. FM channels are proliferating small


towns too. The spawning of multiplexes in India has spread to tier II and III cities
like Ludhiana, Lucknow, Moradabad, Indore, Nashik, Aurangabad, Kanpur and
Amritsar. Big players in the segment are Adlabs, Cinemax, Inox, Fame and PVR
Cinemas.

Fast Food Market

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With world cuisine at their doorsteps, urban Indians are indulging their taste buds
like never before. The US$ 2 million restaurant market in India is growing at 28 per
cent a year.

Many domestic and global restaurateurs are on an expansion mode.

• With the increasing competition in large cities, dining chains and restaurants
like Pizza Hut, Domino's, Nirula's and KFC are now bullish on setting up their
stores in smaller cities and tier II and III markets.
• Future Group and its private equity arm Indivision India Partners have
acquired a controlling 50 per cent plus equity stake in the multi-cuisine
lifestyle restaurants chain, Blue Foods.
• Cafe Coffee Day is planning an investment of US$ 24.11-30.14 million for
expanding its number of cafes to around 1,000 from the current 700, over
2009.

E-commerce

The increase in the PC and internet penetration along with the growing preference of
Indian consumers to shop online has given a tremendous boost to e-tailing–the
online version of retail shopping. Several online retailers are reporting good business
in categories like travel, art, books and music. E-tailing in lingerie and fresh fruit
businesses is also doing well.

According to TRAI there were 5.45 million broadband subscribers in India on


December 31, 2008, up from 5.28 million in November.

Further, the WiMAX Forum has projected that India will have more than 27.5 million
WiMAX subscribers by 2012, accounting for almost 20 per cent of the global WiMAX
subscriber base.

Road Ahead

The Indian consumer remains one of the most upbeat globally.

The Nielsen Global Consumer Confidence study, conducted by Nielsen, a market


research company revealed that Indians are "the most optimistic lot globally who
think that their country will be out of the economic recession in the next twelve
months," stated the biannual report.

In fact, it is widely believed that the Indian market will fuel the growth of MNCs in
the coming years. While most leading companies are cutting costs in the US and
Europe, they see India as a strategic market, which can fuel their growth.

Exchange rate used: 1 USD = 49.6504 INR

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Economic Survey highlights 2007-08

Last Updated: February 2008 [TOP]

A report on the state of India's economy with suggested policy prescriptions in areas
ranging from government finances to external trade was tabled in the Parliament, by
Finance Minister P Chidambaram.

The Economic Survey for 2007-08, authored by the Chief Economic Advisor Arvind
Virmani, comes against the backdrop of India's growth slowing down this fiscal after
posting a 9.6 per cent expansion in 2006-07 and fears of US recession.

The Economic Survey has:

• Set a target of 9 per cent GDP growth during the 11th Plan (2007-2012)
• Projected that inflation would stand at 4.4 per cent during the current fiscal
• Forecast a lower agriculture growth at 2.6 per cent in 2007-08 as against 3.8
per cent in 2006-07, and a slow down in manufacturing sector growth at 9.4
per cent in the current fiscal from 12 per cent in FY07.

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Other highlights of the Economic Survey:

• Current inflation level is positive


• Inflation projected at 4.4 per cent in 2007-08; Inflation led by food items
• Rupee up 9.8 per cent vs. Dollar, since April '07
• Economy slows down to 8.7 per cent in 2007-08, compared to 9.6 per cent in
previous fiscal
• Government projects lower agriculture growth at 2.6 per cent in 2007-08
from 3.8 per cent in 2006-07
• Manufacturing sector to grow at 9.4 per cent in current financial year, lower
from 12 per cent in 2006-07
• Government sets target of 9 per cent GDP growth during 11th Five Year Plan
(2007-2012)
• Outlook for exports in 2008-09 may not be as bright due to global slowdown
and exchange rate development
• Foreign reserves at US$ 290.8, up by US$ 91.6 billion from a year ago
• Total foodgrains production marginally high at 219.3 million tons in 2007-08
from 217.3 million tons last year
• The agriculture, forestry and fishing sector is estimated to grow at 2.6 per
cent during 2007-08, as against the previous year's growth of 3.8 per cent
• Talent shortage leading to high attrition and rising wages, contributing to
cost-push inflation
• The Economic Survey favours liberalising debt and currency markets; removal
of constraints on agriculture and urban land supply
• Export growth at 20.3 per cent in 2007
• Number of telephone connections at 272.88 million as on December 31,
2007; tele-density at 23.9 per cent
• The government has set an ambitious target of providing 200 million
telephone connections in the rural areas by the end of 2012
• The rate of growth of per capita income has sharply climbed to 7.2 per cent
p.a. - implying that average income can virtually double in a decade
• India April-Nov '07 FDI at US$ 11.14 billion; Raise FDI in insurance, retail
• Food procurement, distribution spend up in FY07-08
• Greater debt and equity issues in primary market

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