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INTRODUCTION

Prior to understanding the economic progress of India, it is vital to first identify the current
economic status of India so that it is easy to retrace the process leading to the current status. India
presently enjoys the status of an attractive emerging market. However, this status has been the result
of numerous economic reforms adopted over the years. India intent to open its markets to foreign
investment can be traced back to the economic reforms adopted during two prime periods- pre-
independence and post independence.

Pre- independence, India was the supplier of foodstuff and raw materials to the
industrialised economies of the world and was the exporter of finished products- the economy
lacked the skill and means to convert raw materials to finished products. Post independence with
the advent of economic planning and reforms in 1951, the traditional role played changes and there
was remarkable economic growth and development. International trade grew with the establishment
of the WTO. India is now a part of the global economy. Every sector of the Indian economy is now
linked with the world outside either through direct involvement in international trade or through
direct linkages with export and import transactions of other sectors in the economy.

Development pattern during the 1950-1980period was characterised by strong centralised


planning, government ownership of basic and key industries, excessive regulation and control of
private enterprise, trade protectionism through tariff and non-tariff barriers and a cautious and
selective approach towards foreign capital. It was a quota, permit, licence regime which was guided
and controlled by a bureaucracy trained in colonial style. This inward thinking, import substitution
strategy of economic development and growth was widely questioned in the 1980’s. India’s
economic policy makers started realising the drawbacks of this strategy which inhibited
competitiveness and efficiency and produced a much lower growth rate that was expected.

Consequently economic reforms were introduced initially on a moderate scale and controls
on industries were substantially reduced by 1985 industrial policy. This set the trend for more
innovative economic reforms and they got a boost with the announcement of the landmark
economic reforms in 1991. After nearly five decades of insulation from world markets, state
controls and slow growth, India in 1991 embarked on an accelerated process of liberalization. The
1991 reforms ensured that the way for India to progress will be through globalization, privatisation,
and liberalisation. In this new regime, the government is now assuming the role of a promoter,
facilitator and catalyst agent instead of the regulator and controller of economic activities.

India has a number of advantages which make it an attractive market for foreign capital
namely, political stability in democratic polity, steady and sustained economic growth and
development, significantly huge domestic market, access to skilled and technical manpower at
competitive rates, fairly well developed infrastructure. FDI has attained the status of being of global
importance because of its beneficial use as an instrument for global economic integration.
Economic Reforms Of 1991

India has been having a robust economic growth since 1991 when the government of India
decided to reverse its socially inspired policy of a retaining a larger public sector with
comprehensive controls on the private sector and eventually treaded on the path of liberalization,
privatisation and globalisation.

During early 1991, the government realised that the sole path to India enjoying any
status on the global map was by only reducing the intensity of government control and
progressively retreating from any sort of intervention in the economy – thereby promoting free
market and a capitalist regime which will ensure the entry of foreign players in the market leading
to progressive encouragement of competition and efficiency in the private sector. In this process,
the government reduced its control and stake in nationalized and state owned industries and
enterprises, while simultaneously lowered and deescalated the import tariffs. All of the reforms
addressed macroeconomic policies and affected balance of payments. There was fiscal
consolidation of the central and state governments which lead to the country viewing its finances as
a whole. There were limited tax reforms which favored industrial growth. There was a removal of
controls on industrial investments and imports, reduction in import tariffs. All of this created a
favorable environment for foreign capital investment. As a result of economic reforms of 1991,
trade increased by leaps and bounds. India has become an attractive destination for foreign direct
and portfolio investment.
FOREIGN DIRECT INVESTMENT

Nature of FDI

FDI include the following:


 Reserve bank of India’s automatic approval for equity holding upto 51%
 Foreign investment board’s discretionary approval route for larger projects with equity
holding greater than 51%
 Acquisition of shares (since 1996)
 RBI’s non-resident Indian schemes
 External commercial borrowings (ADR/GDR route)

Foreign Direct Investment and Indian Policy

Emerging markets pose a significant potential for foreign investment both direct and
portfolio. Foreign direct investment (FDI) is defined as the investment of foreign assets into
domestic structures, equipment and organizations. However, it doesn’t include foreign
investment in the stock markets. FDI is thought to be more beneficial to a country than its
investment in equity of its corporations because equity is considered to be potential ‘hot money’,
which can leave at the first sign of trouble. On the other hand FDI is durable and generally useful
whether things go well or badly.

China currently ranks first among the top ten countries for foreign direct investment among
developing countries in 2001. Mexico, Singapore, Brazil are also among the top ten. India although
is also an attractive destination for foreign investment, it is not in the front line. This is a stark
reality despite the fact that the Indian economic, political and social conditions stable.

India is one of the largest economies of the world. Its strategic location in the sub-continent
provides it with continued access to South–Asian markets and middle-east markets. The country
also enjoys a huge consumer markets. Fast moving consumer goods find a significant market share
in India, providing a market conducive to trade and finance.

India is also an attractive destination for foreign investment because of its access to skilled
labour at competitive costs. Being the one of the largest manufacturing sectors of the world, it has a
market conducive to trade and production. India also has in place well established legal and
accounting system to ensure proper administration of foreign capital to key sectors. Also, the
stability of the political environment is another factor which makes India an attractive destination
for foreign capital.
Why FDI?

 Traditionally, foreign investment is seen as a way of filling in gaps between the domestically
available supplies of savings, foreign exchange, government revenue, and human capital
skills and the desired level of these resources necessary to achieve growth and development
targets.
 Factories set up by MNC’s act as a nucleus of growth. An industrial enterprise established
by a foreign company gives birth to several other enterprises which would supply inputs to
the parent company.
 FDI can generate healthy competition in the recipient countries.
 Location advantage: in particular include natural resources and highly cost effective skilled
labour force.
 FDI often depends on a country’s political attempts to reduce risks.

Mechanics of FDI:

Foreign investment in India is permitted through the following modes:


 Through the route of foreign collaborations
 Through Joint ventures and technical collaborations
 Through capital markets via euro issues
 Through private placement or preferential allotment

Although, the Government of India has permitted FDI in crucial sectors such as power, aviations,
telecommunications etc., the following sectors cannot benefit from inflows of FDI:
 Arms and Ammunition:- National defence and security is solely within the control,
regulation and supervision of the Central Government
 Atomic Energy: Due to its impact on national security, this subject is under the sole control
of the Central Government. The Constitution of India stipulates 3 lists for legislation of
numerous subjects namely the Central list, State list and the Concurrent List. Atomic
Energy finds a mark on the Central List and the Central Government has so sole control on
legislation.
 Railway Transport
 Coal and Ignite
 Mining of Iron, Manganese, Chrome, Gypsum, Sulphur, Gold, Diamonds, Copper and Zinc.

Implications of Foreign Direct Investment

Foreign direct investment affects economic growth through increased investment in the
country. An increase in the inflows of FDI would essentially increase foreign savings and
consequently would result in increased investment in the country. Another direct consequence of
enhanced inflows of FDI is the positive impact on improvement in technology and infrastructure.
FDI potentially brings new and emerging technologies to emerging and developing markets, and
this can contribute to economic growth and development in the long run. Improved Technology also
enhances the productivity of domestic enterprises and industries, thereby leading to efficiency and
creation of competitive and open markets in sectors originally within the folds of state and central
control.
Policy Regime

Control and restraints on foreign investment has long been the subject of controversy and
major political debate in India. India drafted two major legislations which directly address the issue
of foreign capital namely the Foreign Exchange Regulation Act (FERA) and the Foreign Exchange
Management Act (FEMA). The policy framework for FDI is as follows:
 FDI in priority sectors like power and telecommunications enjoy automatic approval from
the FIPB
 All other proposals for foreign investment have to go through the FIPB approval route.
 To provide enhanced and sustained access to foreign capital and to encourage modernisation
of traditional and small scale industries, FDI up to the sectoral cap of 24% is permitted in
traditional and small scale industries.
 The Reserve Bank of India (RBI) – the apex central bank of India, grants automatic approval
for all industries with respect foreign technology agreements and collaborations.
 The licensing requirement which required industrial enterprises to apply for and obtain
industrial licences was abolished to enhance competition and promote efficiency.
 Majority investment by foreign parties is permitted. The FERA imposed equity
participation limits on foreign corporations. The new FEMA has retrospectively altered this
policy. As a result equity participation up to 51 % is permitted by foreign corporations.

FDI Culture

Many economists in the country have now realized the advantages of FDI to India. While
the achievements of the Indian government are to be lauded, a willingness to attract FDI has
resulted in what could be termed an “FDI Industry”. While researching the economic reforms on
FDI, it was discovered that there exists a plethora of boards, committees, and agencies that have
been constituted to ease the flow of FDI. A call to one agency about their mandate and scope
usually results in the quintessential response to call someone else. Reports from FICCI and the
Planning Commission place investor confidence and satisfaction at an all time high; citizens too
deserve to be clued in on them government bodies are doing.

Factors Influencing FDI

A. Supply Factors

 Production Costs: firms seek competitive advantage through low production costs.
MNC’s locate production facilities in low wage countries.
 Logistics: MNC’s seek to invest on subsidiaries in foreign markets, if the cost of
shipping material is high.
 Natural Resources: MNC’s tend to utilise FDI to access natural resources that are
critical to them. Natural resources attract many a company into international markets.
 Key Technology: technology and business have been inter wined since the industrial
revolution. The connection between the two became even stronger in the information
age, particularly with the advent of electronic business exchanges. Technology
influences every aspect of global market place.
B. Demand Factors

 Customer Access: certain international businesses need to be physically present in


foreign markets to serve customer better.
 Competitive Advantage: a company enjoying great reputation may seek to establish
subsidiaries in overseas countries to encash on its brand equity. An owner of a valuable
trademark, brand name or technology may choose to operate in foreign countries rather
than export to them.
 Follow The Clients: often, clients of a company attract FDI. If one of the clients build a
foreign facility, the company may decide to locate one factory of its own nearby, thus
enabling it to continue to supply its customer promptly and efficiently.
 Follow The Rivals: competitor analysis indicates geographic, strengths and weaknesses
of individual rivals. From such analysis, firms can choose market for investments.

C. Political factors

 Economic priorities: developing countries want MNC’s to invest in infrastructure


development areas but the international businesses seek to invest in consumer goods
industries.
 Avoidance of trade barriers: for the reason above, MNC’s were avoiding investment in
India till 1991.
 Development incentives: many governments offer attractive incentives, particularly to
the developing countries.
FDI IN INDIA

The strong macroeconomic fundamentals, growing size of the economy and improving
investment climate has attracted global corporations to invest in India. A major outcome of the
economic reforms process aimed at opening up the economy and embracing globalization has led to
tremendous increase in Foreign Direct investment inflows into India.

According to AT Kearney, India ranks second in the world in terms of attractiveness for
FDI. AT Kearney’s 2007 Global Services Location Index ranks India as the most preferred
destination in terms of financial attractiveness, people and skills availability and business
environment. Similarly, UNCTAD’s World Investment Report, 2005 considers India the 2nd most
attractive investment destination among the Transnational Corporations (TNCs). The positive
perception as a result of strong economic fundamentals driven by 16 years of reforms has helped
FDI inflows grow at about 20 times since the opening up of the economy to foreign investment
since August 1991.

The major sources of FDI in India are through both the equity route, which accounted for
82% of the total FDI inflows in India. Reinvested earnings of FDI companies accounted for 15 % of
the total Direct Investment. Acquisitions accounted for 32% of total FDI.

Mauritius has been the major route for FDI inflows into India due to the Mauritius’s stature
with India as a tax haven and most volume of FDI inflows through Mauritius has been from the
USA and the major investor (FDI) in India for the last 16 years has been USA.

How FDI can come into India??

Automatic route

(a) New Ventures

 FDI up to 100% is allowed under the automatic route in all activities/sectors except a small
list that require approval of the Government.
 FDI in sectors/activities under automatic route does not require any prior approval either by
the Government or RBI.
 The investors are required to notify the Regional office concerned of RBI within 30 days of
receipt of inward remittances and file the required documents with that office within 30 days
of issue of shares to foreign investors.
 An investor can make an application for prior Government approval even when the proposed
activity is under the automatic route
 Whenever any investor chooses to make an application to the FIPB and not to avail of the
automatic route, he or she may do so.
 Investment in public sector units as also for EOU/EPZ/EHTP/STP units would also qualify
for the Automatic Route. Investment under the Automatic Route shall continue to be
governed by the notified sectoral policy and equity caps and RBI will ensure compliance of
the same.

(b) Existing Companies

Besides new companies, automatic route for FDI/NRI/OCB investment is also available to
the existing companies proposing to induct foreign equity. For existing companies with an
expansion programme, the additional requirements are that (i) the increase in equity level must
result from the expansion of the equity base of the existing company without the acquisition of
existing shares by NRI/OCB/foreign investors, (ii) the money to be remitted should be in foreign
currency and (iii) proposed expansion programme should be in the sector(s) under automatic route.
Otherwise, the proposal would need Government approval through the FIPB. For this the proposal
must be supported by a Board Resolution of the existing Indian company. For existing companies
without an expansion programme, the additional requirements for eligibility for automatic approval
are (i) that they are engaged in the industries under automatic route, (ii) the increase in equity level
must be from expansion of the equity base and (iii) the foreign equity must be in foreign currency.

The earlier SEBI requirement, applicable to public limited companies, that shares allotted on
preferential basis shall not be transferable in any manner for a period of 5 years from the date of
their allotment has now been modified to the extent that not more than 20 per cent of the entire
contribution brought in by promoter cumulatively in public or preferential issue shall be locked-in.

Government Approval

For the following categories, Government approval for FDI/NRI/OCB through the FIPB
shall be necessary: -
 All proposals that require an Industrial Licence which includes (1) the item requiring an
Industrial Licence under the Industries (Development & Regulation) Act, 1951; (2) foreign
investment being more than 24 per cent in the equity capital of units manufacturing items
reserved for small scale industries; and (3) all items which require an Industrial Licence in
terms of the locational policy notified by Government under the New Industrial Policy of
1991.
 All proposals in which the foreign collaborator has a previous venture/tie up in India.
 All proposals relating to acquisition of shares in an existing Indian company in favour of a
foreign/NRI/OCB investor.
 All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is
not permitted.

RBI has granted general permission under Foreign Exchange Management Act (FEMA) in
respect of proposals approved by the Government. Indian companies getting foreign investment
approval through FIPB route do not require any further clearance from RBI for the purpose of
receiving inward remittance and issue of shares to the foreign investors. Such companies are,
however, required to notify the Regional Office concerned of the RBI of receipt of inward
remittances within 30 days of such receipt and to file the required documents with the concerned
Regional Offices of the RBI within 30 days after issue of shares to the foreign investors.
INDIA: SECTOR SPECIFIC POLICY FOR FOREIGN DIRECT INVESTMENT
Sector/Activity FDI Entry Route Other Conditions
Cap/Equity
Airports
(a) Greenfield projects 100% Automatic Subject to sectoral regulations
notified by Ministry of Civil
Aviation
(b) Existing projects 100% FIPB Subject to sectoral regulations
beyond 74% notified by Ministry of Civil
Avation
Construction 100% Automatic minimum capitalization of US$ 10
Development projects million for wholly owned
including housing, subsidiaries and US$ 5 millionfor
commercial premises, joint venture. The funds would
resorts, educational have to be brought within six
institutions, recreational months of commencement of
facilities, city and business of the Company
regional level
infrastructure,
townships
Petroleum & Natural Gas
(a) Other than Refining 100% Automatic Subject to sectoral regulations
and including market issued by Ministry of Petroleum
study and formulation; and Natural Gas; and
investment/financing; in the case of actual trading and
setting up infrastructure marketing of petroleum products,
for marketing in divestment of 26% equity in
Petroleum & Natural favour of India partner/public
Gas sector) within 5 years.
(b) Refining 26% in Subject to sectoral policy
case of FIPB
PSUs
Automatic
100% in
case of
Private
companies
Telecommunication
(a) Basic and cellular; 74% (including Automatic Subject to guidelines
Unified Access FDI, FII, NRI, upto 49% notified in the PN 5/2005
Services, FCCBs, ADRs, Series
National/International GDRs, convertible
Long Distance, V-Sat, preference shares, FIPB
Public Mobile Radio and proportionate beyond 49%
Trunked Services foreign equity in
(PMRTS), Global Indian
Mobile Personal promoters/investing
Communications Company
Services (GMPCS) and
other value added
telecom services
(b) ISP with gateways, 74% Automatic Subject to licencing and
radio-paging, end-to- up to 49% security requirements
end bandwidth FIPB notified by the
beyond 49% Department of
Telecommunication

(c) ISP without 100% Automatic Subject to the condition


gateway, infrastructure up to 49% that such companies shall
provider providing dark divest 26% of their equity
fibre, electronic mail FIPB in favour of Indian public
and voice mail beyond 49% in 5 years, if these
company are listed in
other parts of the world.
Also subject to licensing
and security
requirements, where
required.
(d) Manufacture of 100% Automatic Subject to sectoral
telecom equipment requirements
Power including Subject to provisions of
generation ( Except the Electricity Act 2003
Atomic energy);
regulations
transmission,
distribution and Power
Trading
Ports 100% Automatic Subject to sectoral
regulations
Roads & Highways 100% Automatic Subject to sectoral
regulations
Shipping 100% Automatic Subject to sectoral
regulations
FDI Inflows (as per international best practices)

FISCAL YEAR EQUITY Reinvested Other Total YOY


(APRIL-MARCH) earnings+ capital+ FDI growth
inflows (%)
FIPB Equity capital
Route/ of
RBI's unincorporated
Automatic bodies#
Route/
Acquisition
Route
1991(August)-2000 15483 - - - 15483 -
(March)
2000-01 2339 61 1350 279 4029 -
2001-02 3904 191 1645 390 6130 (+) 52
2002-03 2574 190 1833 438 5035 (-) 18
2003-04 2197 32 1460 633 4322 (-) 14
2004-05 3250 528 1904 369 6051 (+) 40
2005-06 5540 435 2760 226 8961 (+) 48
2006-07 (P)* 15585 896 5828 517 22826 (+) 146
2007-08 (P)* 24575 2292 7168 327 34362 (+) 51
2008-09 23885 334 3004 203 27426 -
(April-Dec)
Cumulative Total 99332 4959 26952 3382 134625 -
(From August
1991-January 2009)
SOURCE: DIPP, Federal Ministry of Commerce and Industry, Government of India

FDI Policy

• FDI up to 100% is allowed under the automatic route in all activities/sectors except the
following which will require approval of the Government.
• Activities/items that require an Industrial Licence.
• Proposals in which the foreign collaborator has a previous/existing venture/tie up in India in the
same or allied field.
• All proposals relating to acquisition of shares in an existing Indian company by a foreign/NRI
investor.
• All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not
permitted
Liberalization of FDI
Beside 100 percent relaxation of FDI in real estate, the government policies on FDI also
offer opportunities for foreign investors to invest in different sectors. This includes 100 percent in
power trading, processing, development of new airports, laying of natural gas pipelines, petroleum
infrastructure and warehousing of coffee and rubber. Limit for telecoms services firms have been
raised from 49 per cent to 74 per cent.
Another cap to the retailing industry in India is allowing 51% FDI in single brand outlet.
The government is now set to initiate a second wave of reforms in the segment by
liberalizing investment norms further. And this has also brought about a conspicuous interest by
towards investments in the Indian hospitality sector. Industry reports suggest the inflow of about
US$ 500 million into the real estate sector over the past six months and is expected to rise to a
massive $ seven to eight billion over the next 18-30 month.
INDIA AT A GLANCE

General Information

• India is a Union of States with parliamentary system of Government


• Land area: 3.29 million square kilometers
• Capital: New Delhi
• Population: 1.027 billion (March 1, 2001)
• Climate: mainly tropical with temperature ranging from 10o – 40o C in most parts
• Time zone: GMT + 5 1/2 hours
• Major international airports: New Delhi, Mumbai, Chennai, Kolkata, Bangalore,
Hyderabad, Thiruvananthapuram
• Major ports of entry: Chennai, Ennore, Haldia, Jawaharlal Nehru, Kolkata, Kandla, Kochi,
Mormugoa, Mumbai, New Mangalore, Paradip and Tuticorin, Vizag

Macro-economic Indicators

Population 1,112 Million


GDP at Factor Cost (constant prices-1999- Rs. 33,51,653 crore (Est.)
2000) in 2008-09
GDP at Factor Cost (current prices) in Rs. 49,89,804 crore (Est.)
2008-09
Composition of GDP Services: 56%
Industry: 22%
Agriculture: 18.5%
Per Capita Income(constant prices) in Rs. 25,661 (Est.)
2008-09
Per Capita Income(current prices) in 2008- Rs.38,084 (Est.)
09
Industrial growth (April-December 2008- 3.2 Per cent
09)
Inflation (during the week ended February 2.43 Per cent
28, 2009)
Broad Money (M3) growth (y-o-y) 18.7 per cent (as on January 16, 2009)
Forex Reserves (in the week ended US $249.3 billion
February 27,2009)
Cumulative amount of FDI inflows (April US$ 21,159 million (Rs 92,326 crore)
2008 to December 2008)
Exchange rate INR/1 USD Rs 51.58 (As on March 03, 2009)
Food grain stocks(as on December 01, 35.18 million tonnes
2008)
Exports (April- January, 2008-09) US $ 144266 million (Rs.645572 crore)
Imports (April- January, 2008-09) US$ 243358 million(Rs.1090182 crore)
Average literacy rate (census 2001) 64.84%
Life expectancy for males 63.87 years
Life expectancy for women 66.91 years

Basic Economic Statistics

• GDP at current prices (2007-08): $ 1.16 trillion


• GDP (PPP) (2006) = US $4156 (5th largest in the world)
• GDP growth rate (2007-08) : 9%
• Exchange rate: Rs.49.77/$ (as on October 29, 2008)
• Foreign Exchange reserves: US $273.89 billion (as on 17.10.2008)
• Exports (2007-08): US $159 billion, Growth Rate: 25.8 %
• Imports (2007-08): US $239.65 billion, Growth Rate : 29%
• Foreign Direct Investment (2007-08): US $32.44
• Portfolio Investment (2007): US $17.23 billion

Investment Outlook

A number of studies in the recent past have highlighted the growing attractiveness of India as an
investment destination. According to the study by Goldman Sachs, Indian economy is expected to
continue growing at the rate of 5% or more till 2050. Indian economy is slated to become the fourth
largest economy by 2050. Some other conclusions are listed below:

• 2nd most attractive destination - ATKEARNEY Business Confidence Index, 2007


• India can sustain 10% growth rate-OECD Survey, 2007
India is the second most attractive location for foreign direct investment-UNCTAD's World
Investment Report, 2008
• Price Water House Coopers report, March 2008 states that India will be 90% of the US
economy by 2050

Doing Business in India

India - with its consistent growth performance and abundant highly skilled manpower provides
enormous opportunities for investments. India is the largest democracy and tenth largest economy
in the world. India is the fourth largest economy in the world in terms of purchasing power parity.
India has a federal system of Government with clear demarcation of powers between the Central
Government and the State Governments. India provides a liberal, attractive, and investor friendly
investment climate.

India has the most liberal and transparent policies on foreign direct investment (FDI) among
major economies of the world.
• 100% FDI is allowed under the automatic route in all sectors/activities except in few areas,
which require prior approval of the Government.
• Under automatic route, investors are required to only notify the Reserve Bank of India within
30 days of receipt of inward remittances.

India has liberalized and simplified foreign exchange controls.

•Rupee is freely convertible on current account.


•Rupee is almost fully convertible on capital account for non-residents.
•For FDI- Profits earned, dividends and proceeds out of the sale of investments are fully
repatriable.
•There are some restrictions for resident Indians on capital account on incomes earned in
India.

Indian economy has been growing at an average growth rate of about 8.8% per annum over
the last three years; the growth rate in 2007-08 was 9%.

•Imports in 2007-08 grew by 29% and exports by 25.8%.


•Manufacturing sector grew by 8.8% and services by 12% in 2007-2008.
•India has a large middle class and 55% of its population is below the age of 25.
•High economic growth and rising per capita income has resulted in high growth in the
domestic market, which is the prime growth engine for Indian economy.

CUMULATIVE FDI EQUITY INFLOWS


In Rs In US$ in million
Cumulative amount of FDI inflows (From April 2000 to 3,93,020 89,819
March 2009)
Amount of FDI inflows during 2008-9 (From April 2008 105,673 23,885
to January 2009)
Cumulative amount of FDI Inflows (Up to April 2009) 404,728 92,158

FDI Equity Inflows (2008-09)


MONTHS In Rs crore In US$ Million
April 2008 15005 3749
May 2008 16563 3932
June 2008 10244 2392
July 2008 9627 2247
August 2008 9995 2328
September 2008 11676 2562
October 2008 7284 1497
November 2008 5305 1083
December 2008 6626 1362
January 2009 13347 2733
Year 2008-09 (Up to January 2009) 105673 23885
Year 2007-08 (Up to January 2008) 58203 14466
YOY Growth (%) (+) 81 (+) 65

Top ten investing (FDI Equity) countries (In Rs. crore)


COUNTRY 2005- 2006-07 2007-08 2008-09 Cumulative % with
06 (from (From April total
April- 2000 to (inflows in
March, April terms of
2009) 2009) rupees)
Mauritius 11441 28759 44483 50794 168485 44%
(2570) (6363) (11096) (11208) (38305)
USA 2210 3861 4377 8002 28303 7%
(502) (856) (1089) (1802) (6404)
UK 1164 8389 4690 3840 23002 6%
(266) (1878) (1176) (864) (5246)
Singapore 1218 2662 12319 15727 34467 9%
(275) (578) (3073) (3454) (7934)
Netherlands 340 2905 2780 3922 15957 4%
(76) (644) (695) (883) (3611)
Japan 925 382 3336 1889 12041(2694) 3%
(208) (85) (815) (405)
Germany 1345 540 2075 2750 9580 3%
(303) (120) (514) (629) (2191)
France 82 528 583 2098 5489 1%
(18) (117) (145) (467) (1229)
Cyprus 310 266 3385 5983 11140 3%
(70) (58) (834) (1287) (2491)
UAE 219 1174 1039 1133 4146 1%
(49) (260) (258) (257) (948)
Total FDI 24613 70630 98664 122919 404728 -
inflows* (5546) (15726) (24579) (27309) (92158)

There has been an increase in foreign direct investment during 2008-09 over the previous
year, it said. With regard to foreign institutional investors, the survey said that there are signs that
FIIs who had recorded net outflows in 2008-09 may have returned to the Indian market in the last
two months.
In a recent UNCTAD study on assessing the impact of the current financial and economic
crisis on global flows, it was found that India achieved a growth of 85.1 per cent in foreign direct
investment flows in 2008, the highest increase across all countries, the survey said.
According to this study, FDI investments into India went up from $25.1 billion in 2007 to
$46.5 billion in 2008 even as global flows declined from $1.9 trillion to $1.7 trillion during the
period.
The survey has also suggested that FDI limit in defence industries be raised to 49 per
cent(from 26 per cent) and allow up to 100 per cent FDI on a case by case basis, in high technology,
strategic defence goods, services and systems that can help eliminate import dependence. Besides,
the survey also suggested increasing FDI cap in the insurance sector from existing 26 per cent to 49
per cent and for specialised insurance companies 100 per cent.
Investment Opportunities
According to a survey by Coller Capital's latest Global Private Equity Barometer, which
captured the views of institutional investor in 102 private equity investors around the world, India
will offer the most attractive investment opportunities for GPs over the next three years.

Sector-wise FDI Inflows ( From April 2000 to January 2009)


SECTOR AMOUNT OF FDI INFLOWS
In Rs Million In US$ Million PERCENT OF
TOTAL FDI
INFLOWS (In
terms of Rs)

Services Sector 787420.81 18118.40 22.39


Computer Software & hardware 391109.74 8876.43 11.12
Telecommunications 275441.38 6215.55 7.83
Construction Activities 213595.12 5029.01 6.07
Automobile 146799.41 3310.23 4.17
Housing & Real estate 217936.02 5118.85 6.20
Power 137089.37 3129.66 3.90
Chemicals (Other than Fertilizers) 87008.07 1964.06 2.47
Ports 63290.50 1551.88 1.80
Metallurgical industries 109563.20 2612.85 3.11
Electrical Equipments 57379.63 1324.92 1.63
Cement & Gypsum Products 70781.19 1621.03 2.01
Petroleum & Natural Gas 94417.17 2244.17 2.68
Trading 62416.85 1480.94 1.77
Consultancy Services 48647.43 1112.92 1.38
Hotel and Tourism 52500.05 1217.50 1.49
Food Processing Industries 34362.49 760.32 0.98
Electronics 33914.75 748.57 0.96
Misc. Mechanical & Engineering 28310.13 648.86 0.80
industries
Information & Broadcasting (Incl. 52115.90 1194.20 1.48
Print media)
Mining 21204.94 522.86 0.60
Textiles (Incl. Dyed, Printed) 26736.94 611.03 0.76
Sea Transport 17653.81 402.59 0.50
Hospital & Diagnostic Centres 27241.42 644.73 0.77
Fermentation Industries 27743.46 658.04 0.79
Machine Tools 10955.32 247.88 0.31
Air Transport ( Incl. air freight) 10552.19 240.71 0.30
Ceramics 17462.43 409.92 0.50
Rubber Goods 11392.76 247.60 0.32
Agriculture Services 7937.13 188.39 0.23
Industrial Machinery 13748.27 316.97 0.39
Paper & Pulp 18612.76 429.06 0.53
Diamond & Gold Ornaments 11014.62 248.15 0.31
Agricultural Machinery 6649.12 148.37 0.19
Earth Moving Machinery 5749.34 134.22 0.16
Commercial, Office & Household 5798.71 132.74 0.16
Equipments
Glass 5683.60 126.51 0.16
Printing of Books (Incl. Litho 6066.23 135.80 0.17
printing industry)
Soaps, Cosmetics and Toilet 4984.88 114.54 0.14
Preparations
Medical & Surgical Appliances 8087.87 177.42 0.23
Education 14374.11 309.09 0.41
Fertilizers 4282.17 96.59 0.12
Photographic raw Film & Paper 2580.20 63.90 0.07
Railway related components 3281.85 75.11 0.09
Vegetable oils and Vanaspati 3769.18 83.69 0.11
Sugar 1836.64 41.58 0.05
Tea & Coffee (Processing & 3774.81 84.28 0.11
warehousing coffee & rubber)
Leather, Leathergoods & Piackers 1621.56 36.74 0.05
Non-conventional energy 3640.58 86.84 0.10
Industrial instruments 1368.36 29.47 0.04
Scientific instruments 511.44 11.64 0.01
Glue and Gelatine 385.80 8.44 0.01
Boilers & steam generating plants 238.67 5.40 0.01
Dye-Stuffs 406.48 9.52 0.01
Retail Trading (Single brand) 1074.67 25.18 0.03
Coal Production 614.10 15.42 0.02
Coir 50.17 1.12 0.00
Timber products 139.59 3.10 0.00
Prime Mover (Other than electrical 178.30 3.72 0.01
generators
Defence Industries 6.87 0.15 0.00
Mathematical, Surveying & drawing 50.35 1.27 0.00
instruments
Misc. Industries 180561.54 4162.55 5.19
Sub Total 3517310.79 81010.63 100.00
Stock Swapped (from 2002 to 2008) 145466.35 3391.07 -
Advance of Inflows (from 2000 to 89622.22 1962.82 -
2004)
RBI's NRI Schemes 5330.60 121.33 -
Grand Total 3757729.96 86395.85 -
The 10 sectors attracting highest FDI into India are
1. Services
2. Computer
3. Telecommunications
4. Construction
5. House and Retail Estate
6. Automobile
7. Power
8. Metallurgy
9. Petroleum (Oil) & Natural Gas
10. Chemicals

The Population Advantage


The population of India and China which have (till recently) been a problem for the two
countries has now proved to be a blessing in disguise. The growth that both these countries are
seeing now is because of their large young working population. Mature markets across the world
are aware about the importance of having a young and working population and its effect on
economy. It is a well known fact that a good well educated young working class can lift a nation
against all odds and vice a versa.

In any country, more critical for economic growth, however, is the rate of growth in the
labor force, best estimated by projecting growth in the “working-age” population (age 15-60).
India’s advantages are amplified, here. The growth in India’s working age population is expected to
exceed its already rapid population growth until 2015. India’s working age population increases
until at least 2045, while China’s working age population declines from 2020 to 2050.

We are of the opinion that India is likely to transform into an affluent nation in one
generation or in the next thirty years. Leader Prospects’ observes that any entity planning to start
business in India, is going to have distinct advantages over other countries when it comes to
building a good workforce over coming years.
FDI Status in Different States of India

FDI in different states in India have increased steadily since the early 1990s when the Indian
economy was opened up to foreign investments. Delhi, Maharashtra, Karnataka and Tamil Nadu are
among the leading states that have attracted maximum FDI.
The status of FDI in different states of India, during the period beginning from the year January
2000 to October 2006 corroborates the growth of Indian states in sync with the Indian economy.
Some of the states in India which have witnessed a massive upsurge in FDI Inflows include Delhi
(USD 6,780 million), Maharashtra (USD 5,650.1 million), Karnataka (USD 1,876.1 million), and
Tamil Nadu (USD 1,876.1 million). Other states which are in the receipt of FDI Inflows in India
include West Bengal, Gujarat, Haryana, Andhra Pradesh, Kerala, and Uttar Pradesh.

FDI in Maharashtra -
Foreign Direct Investment on Maharashtra covers Mumbai, Dadra and Nagar Haveli, and Daman &
Diu. The total FDI Inflows in Maharashtra economy from January 2000 to October 2006 was
estimated to be around Rs. 25,685.45 crores which is approximately USD 5,650.1 million.

FDI in West Bengal -


Foreign Direct Investment in various states in and around West Bengal covers West Bengal,
Sikkim, and Andaman & Nicobar Islands. The FDI Inflows in these states from January 2000 to
October 2006 was around Rs. 1,523.83 crores which comes to around USD 334.8 million.

FDI in Karnataka -
Foreign Direct Investment on Karnataka from January 2000 to October 2006 has accounted for Rs.
8,485.38 crores which approximately comes to around USD 1,876.1 million.

FDI in Gujarat -
Foreign Direct Investment on Gujarat from January 2000 to October 2006 was estimated to be
around Rs. 4,112.73 crores which comes to around USD 898.8 million. Gujarat ranks six in terms of
FDI Inflows in India.

FDI in Haryana -
The total Foreign Direct Investment Inflows in Haryana, Delhi, and parts of Uttar Pradesh has been
estimated to be around Rs. 30,673.73 crores which is approximately USD 6,780.0 million from
January 2000 to October 2006. Haryana ranks first in terms of receiving FDI Inflows in India.

FDI in Delhi -
Foreign Direct Investment Inflows on Delhi economy has been estimated to be around Rs.
30,673.73 crores which roughly comes to USD 6,780.0 million from January 2000 to October 2006.

FDI in Tamil Nadu -


Foreign Direct Investment Inflows on Tamil Nadu and Pondicherry has been accounted for Rs.
8,485.38 crores which comes to around USD 1,876.1 million from January 2000 to October 2006.
Tamil Nadu ranks third in terms of FDI Inflows in India.

FDI in Andhra Pradesh -


Foreign Direct Investment Inflows on Andhra Pradesh has been estimated to be around Rs. 4,825.36
crores which is approximately USD 1,061.4 million as has been calculated between January 2000
and October 2006. Andhra Pradesh ranks fifth as a recipient of FDI Inflows in India.

FDI in Kerala -
Foreign Direct Investment Inflows in Kerala has also covered regions in Lakshadweep and has been
estimated to be around Rs. 339.77 crores which is approximately USD 75.1 million from January
2000 to October 2006.

FDI in Uttar Pradesh -


Foreign Direct Investment Inflows on Uttar Pradesh and Uttaranchal was Rs. 15.27 crores which
comes to around USD 3.3 million from January 2000 to October 2006.

Impact of FDI on Maharashtra Economy

Impact of FDI on Maharashtra Economy has been very strong as foreign direct investments
have introduced innovative technologies in various industrial units in the state.

Advantages of Maharashtra Economy-


 Maharashtra offers a business-friendly environment, excellence in infrastructure, highly-skilled
and trained workforce, and effective policies in the industrial units.
 The Jawaharlal Nehru Port Trust (JNPT) provides effective communication network with
markets of Southern, Northern & Western India.
• During 2002-2006, Mumbai was estimated to touch 8.4 percent GSDP growth.
• Increase in the growth rate of agriculture can make the state achieve 10 percent growth rate.
• The industrial and service sectors have contributed largely in the robust growth of the state's
economy.
• Mumbai executes around 70 percent of India's stock transactions and is claimed to be the
commercial capital of India.
• Sectors which have been heavily benefited from foreign investments in Maharashtra include
Engineering, Electronics Hardware, Automobiles and Auto Components, Consumer
Durables, Chemicals, Petrochemicals, Pharmaceuticals, Information Technology and
Biotechnology.

FDI Inflows in Maharashtra-


• The Konkan railway project has attracted huge foreign direct investments. Maharashtra has
ranked first in terms of attracting maximum foreign direct investments in executing various
projects
• FDI Inflows in Maharashtra has brought in innovative technologies in the industrial units in
the state
• Foreign Direct Investment in the state has raised the competitiveness of the business units in
Maharashtra.
• Foreign Direct Investment Inflows has increased investment from the domestic market to a
great extent.
• The export-market has got a real boost up from the FDI Inflows in the state and has also got
a bonus of accessibility in the global markets.
• FDI Inflows have also bridged the gap in the foreign exchange system which was a major
issue of concern
Impact of FDI on Gujarat Economy

Impact of FDI on Gujarat Economy has been positive for it has led to the all round
development of the state. Impact of FDI on Gujarat Economy has proved to be beneficial for the
various industries in the state have grown, developed and also expanded.

Factors attracting foreign direct investment in Gujarat:


 The state provides extensive network of railways.
 Gujarat has the highest number of airports in the country.
 The state provides excellent network of roads.
• Professional services to the investors are provided in Gujarat.
• The state is highly industrialized.
• Location wise, Gujarat has a strategic location providing easy access to the African, western,
and Middle East markets.
• Skilled manpower is abundantly available in Gujarat.

Industries attracting foreign direct investment in Gujarat are:


• Oil and gas
• Infrastructure
• Food processing industries
• Information technology
• Gems and jewelry
• Biotechnology
• Chemicals
• Textiles

Amount of foreign direct investment in Gujarat:


The regional office of Reserve Bank of India in Ahmedabad received US$ 970.3 million as
foreign direct investment for the state during January 2000 to December 2006. The total percentage
of foreign direct investment that the regional office of Reserve Bank of India in Ahmedabad
received came to 3.7% out of the total foreign direct investment in India during this period.

Advantages of foreign direct investment in Gujarat:


Foreign direct investment in Gujarat has led to the growth in trade and exports in the state.
FDI inflows in Gujarat have led to rapid development in the industrial sector in this state. With
increasing volumes of Foreign Direct Investments (FDI) Gujarat has emerged as one of the most
rapidly developing states in India.

Impact of FDI on Delhi Economy

The Impact of FDI on Delhi Economy has been impressive leading to substantial growth in
sectors like IT, real estate, retail and tourism. Delhi has ranked second only to Mumbai, among the
Indian cities in terms of FDI inflows during 2000 to 2006.
Delhi is the national capital of India. It is situated in the northern part of the country. Delhi serves as
the gateways to all the northern states such as Jammu and Kashmir, Haryana, Punjab, Rajasthan,
Uttar Pradesh, Uttaranchal, and Himachal Pradesh.
Impact of FDI on Delhi Economy - Investment Overview
• The inflow of FDI influences the economic growth of Delhi.
• The investments have helped in creating a strong base for the latest technology.
• The amount of FDI inflows to Delhi during the period 2000 to 2006 was Rs 318.61 billion,
which is just next to Mumbai.
• Delhi was able to attract a high FDI inflow in the realty sector, as the central government
has allowed 100% FDI, pertaining to integrated townships, on the condition that the
construction area should be equal to 100 acres.

Impact of FDI on Delhi Economy - Economic Overview


• The economic analysis of the sectoral growth reveals that the contribution of the primary
sector such as agriculture, fishing, livestock, forestry, mining and quarrying, and the
secondary sector, such as manufacturing activities has decreased
• The tertiary sector including services like commercial trade, business services, tourism and
hospitality, transportation, communication, banking and insurance, real estate, public
administration, etc has contributed to the major development of Delhi
• The primary sector contributed around 3.85% in the period 1993-94, which by the year
2004-05 came down to 0.97%
• The contribution of the secondary sector in the period 1993-94 was 25.20%, which was
reduced to19.92% by 2004-05
• The contribution of the tertiary sector was 70.95% in 1993-94, which was increased to
79.11% by the year 2004-05

Impact of FDI on Delhi Economy - Development in Major Sectors


• Information Technology and ITES
• Real estate.
• Retail and Leisure
• Hotel and Tourism
• Healthcare Hub and Medical Tourism
• Transport and Logistics
• Financial Services

Impact of FDI on Uttar Pradesh Economy

Improved facilities in Uttar Pradesh have helped in attracting Foreign Direct Investments
(FDI) in recent years. FDI is being encouraged in Uttar Pradesh to ensure the economic
development of the state.

Advantages of Uttar Pradesh in terms of Attracting Foreign Direct Investments-


Considering the investment proposals achieved by the state, it can be inferred that the investment
climate in the state is quite encouraging. In 2004, the state received investment proposals amounting
to USD 3.09 billion, in 2005 it amounted to USD 7.22 billion, and in 2006 it stood at USD 5.31
billion
• Uttar Pradesh has an abundance of land and water
• Adequate power supply is available in this state.
• Land is available at competitive rates.
• Special facilities are available for both foreign investors as well as NRI investors.
• Various state financial institutions are being set up to provide institutional finance.
• Single table clearance system through Udyog Bandhu.
• Uttar Pradesh has special industrial areas for setting up of software technology parks,
electronic city, toy city, plastic city,
• integrated agro park, leather parks, chemical complex and textile city.
• The state also has a large number of foreign banks.

FDI Inflows in Uttar Pradesh Economy-


There is a lot of scope for NRI investments in the state of Uttar Pradesh. The Indians have
achieved an excellence by honing their entrepreneurial skills and abilities which led to a remarkable
achievement of the Indians in every field of human activity in the overseas countries. The state
government has decided to improve the environmental conditions of the state in order to attract
more NRI investors for industrial developments. With regard to this, policies and systems are being
reviewed in order to create a conductive environment for foreign direct investments in Uttar
Pradesh. Projects entailing large-scale investments such as power, roads, bridges etc. are in need of
foreign investments. The state government has set an organized plan to attract foreign investments
in the state and aims at making Uttar Pradesh one of the leading states in Indian economy.

STATEMENT ON RBI’s - Regional Office2 State covered Amount of FDI %age with
RBI’S REGIONAL Inflows FDI inflows
OFFICES (WITH (in rupee terms)
STATE Rupees US$ in
COVERED) in million
RECEIVED FDI crores
EQUITY
INFLOWS1 (from
April 2000 to
December 2009)
S. No.
1 MUMBAI MAHARASHTRA 168,442.62 37,803.12 35.89
, DADRA &
NAGAR HAVELI,
DAMAN & DIU
2 NEW DELHI DELHI, PART 91,077.15 20,144.47 19.40
OF UP AND
HARYANA
3 BANGALORE KARNATAKA 29,789.25 6,736.95 6.35
4 AHMEDABAD GUJARAT 27,927.48 6,328.95 5.95
5 CHENNAI TAMIL NADU, 23,819.42 5,299.34 5.07
PONDICHERRY
6 HYDERABAD ANDHRA 20,043.49 4,531.91 4.27
PRADESH
7 KOLKATA WEST BENGAL, 5,506.61 1,297.84 1.17
SIKKIM,
ANDAMAN &
NICOBAR
ISLANDS
8 JAIPUR RAJASTHAN 2,201.99 465.46 0.47
9 CHANDIGARH` CHANDIGARH, 1,987.79 434.22 0.42
PUNJAB,
HARYANA,
HIMACHAL
PRADESH
10 PANAJI GOA 1,844.88 399.48 0.39
11 KOCHI KERALA, 1,396.41 310.48 0.30
LAKSHADWEEP
12 BHOPAL MADHYA 841.73 186.65 0.18
PRADESH,
CHATTISGARH
13 BHUBANESHWAR ORISSA 794.60 171.00 0.17
14 GUWAHATI ASSAM, 262.26 60.31 0.06
ARUNACHAL
PRADESH,
MANIPUR,
MEGHALAYA,
MIZORAM,
NAGALAND,
TRIPURA
15 KANPUR UTTAR 220.70 47.52 0.05
PRADESH,
UTTRANCHAL
16 PATNA BIHAR, 1.78 0.39 0.00
JHARKHAND
17 REGION NOT INDICATED3 93,206.44 21,103.67 19.86

India's Outward Foreign Direct Investment

As an outcome of liberalization policies, India's outward foreign direct investment


witnessed an unprecedented rise in recent period. India's overseas investments that began with
Information Technology and related services sectors has over the years spread to wider areas like
manufacturing and financial and non-financial areas. According to a Reserve Bank of India
report, number of proposals approved for outward FDI from India in joint ventures and WOSs
increased from 1214 in 2003-04 to 1817 in 2006-07. The amount of approved proposals increased
from $ 1466 million in 2003-04 to $ 15060 million in 2006-07.

APPROVED PROPOSALS (In US$ Million)


No. of Amount of approved proposals
Year proposals
Equity Loan Guarantee Total
2003-04 1214 822.40 229.90 413.83 1466.13
2004-05 1281 2010.03 384.39 409.91 2804.33
2005-06 1395 1887.78 629.74 337.32 2854.84
2006-07 1817 11244.96 1475.28 2339.76 15060.00
Apr.-Dec. 2007 1595 11324.99 1331.77 5780.50 18437.26
Apr.-Dec. 2006 1268 4594.09 1270.70 2079.75 7944.54

The amount of outward FDI from India according to the RBI report, increased from $ 1495
million in 2003-04 to $ 12880 million in 2006-07. Equity accounted for 90 percent of the total
investments and the remaining 10 percent by way of loans in 2006-07. Inflows from India's
outward FDI are in the form of dividend, royalty, license fee, brand fee, technical knowhow fee,
repayment of loans etc. During 2006-07 total inflows from outward FDI amounted to $ 295
million.

ACTUAL OUTFLOWS (In US$ Million)


Year Equity* Loan Guarantee Invoked Total
2003-04 1234.25 260.93 - 1495.18
2004-05 1365.59 402.79 - 1768.38
2005-06 3858.46 1008.10 3.00 4869.56
2006-07 11599.01 1281.07 - 12880.08
2007-08 (April- 9096.50 1017.72 - 10114.22
December)
2006-07 (April- 8097.27 876.07 - 8973.34
December)

INFLOWS FROM INDIA'S OUTWARD FDI (In US$ Million)

Year Dividend Others@ Total


2006-07 21.96 272.75 294.71
2007-08 (April-December) 29.41 307.68 337.09
2006-07 (April-December) 20.15 274.33 294.48
@ Others include dividend, royalty, licence fee, brand fee, technical know-how fee,
repayment of loan, etc.
Figures are provisional

The sectoral pattern of outward FDI is led by manufacturing during first nine months of
fiscal 2007-08 with $ 7634 million followed by non-finacial services' $ 1677.71 million and $
620.48 milliion. Of the total investmemnts 96 percent were of large investments (4 5 million and
above). Sectorwise 43 percent were bin manufacturing folowed by non-fimnancfinancial services
( 10 percent) and ytrading ( 4 percent).

SECTORAL PATTERN OF OUTWARD FDI DURING APRIL-DECEMBER 2007


(In US$ Million)

Total
Month
Sector Approvals
April May June July Aug. Sept. Oct. Nov. Dec
Trading 54.22 28.25 46.74 40.57 - 24.17 114.98 311.55 - 620.48
Manufacturing 149.10 549.00 4122.00 495.40 219.52 1339.11 256.93 345.09 157.78 7634.00
Non Financial
66.79 234.20 61.20 23.63 364.91 420.61 139.50 248.07 118.78 1677.71
Services
Others 52.47 396.90 883.30 172.60 67.20 77.67 4554.26 596.99 879.84 7681.09
Financial - - - - - - 7.00 25.46 - 32.46
Total 322.60 1208.00 5113.00 732.20 651.63 1861.56 5072.67 1527.16 1156.40 17645.74
EXAMPLE: SECTORS

Indian Automobile Sector

• Qualitative improvement. We expect the plunge in commodity prices since 1HFY09 to


raise auto sector margins from 4QFY09 and the 200bps lower auto-loan rates to increase
demand. We recommend choosing stocks with healthy cash flows and sound business
fundamentals.

• Better margins. Lower commodity prices should reduce raw material costs and result in an
improvement in EBITDA margins from 4QFY09, in our view.

• Stimuli to help. Measures such as lower interest rates and excise duties should spur month-
on-month growth in auto volumes, in our view. We, however, are concerned about the
economic slowdown and credit availability. Rural-focused and low-price point products are
best positioned to grow through this downturn.

• Focus on cash flow and dominant market position. Our stock picks are those companies
with strong cash flows, good return ratios, dominant market shares, and with capacity
expansion completed or nearing there (operating/financial leverage).

All-time highs in fuel prices and inflation have not dulled demand for automobiles. The last
quarter has seen a substantial growth in sales of passenger cars and commercial vehicles on a year-
on-year basis. Over the past year, the automobile industry has achieved a turnover of $34 billion,
and the auto component industry has reached a turnover of $10 billion. In addition, India's tire
industry has registered a turnover of almost $3 billion. The contribution of the automotive industry
to GDP rose from 2.77 percent in 1992-1993 to 5 percent in 2006- 2007. Both passenger car and
commercial vehicle sales are up.

It employs 13 million people either directly or indirectly. India's automobile market expects
to launch 12 new models by the end of this year, spanning everything from small and affordable
cars to SUVs. As a result by 2010, India's capacity could triple to 3.1 million vehicles a year, which
is about the same as China's market size today. The government's Automotive Mission Plan calls for
automotive sales to more than quadruple and for the auto sector's employment to grow from around
13 million to 25 million people by the year 2016. India's low-cost manufacturing advantage
combined with a robust vendor base for components make a compelling case for it to be a global
leader in small cars.

Domestic Sales: The cumulative growth of the passenger vehicles segment during
April- January 2007 was 21.07 per cent. Passenger cars grew by 22.82 per cent, utility vehicles by
12.45 per cent, multi purpose vehicles by 23.13 per cent.

The commercial vehicles segment grew at 37.37 per cent, Growth of medium and heavy
commercial vehicles was 38.69 per cent and light commercial vehicles recorded an encouraging
growth of 35.52 per cent. The two wheeler market grew by 13.23 per cent during April- January
over the same period last year. Motorcycles grew by 15.42 per cent, scooter grew by 2.06
per cent and mopeds registered a growth of 5.74 per cent

R&D Intensity (%) of Indian Automotive Sector by Segments, 2000–2007

Export: Automobile exported registered an overall growth rate of 28.49 per cent during April-
January 2007 as compared to the same period last year.

The passenger vehicles exported grew by 14.46 per cent, commercial vehicles exported increased
by 25.27 per cent and two wheeler exported grew by 23.60 per cent

Industry structure: Industry has a mix of large domestic private players such as Tata, Mahindra,
Ashok Leyland, Bajaj, Hero Honda and major international players like General Motors (GM),
Ford, Daimler chrysler, Toyota, Suzuki. Honda, Hundai and Volvo.
Advantage India

 Technological advantage
 Cost competitiveness
 Skilled manpower
 Well developed, globally competitive auto ancillary industry
 Established automobile testing and R & D centers
 Among the lowest -cost producers of steel in the world
 Leading Edge
o Second largest two- wheeler manufacturer in world
o World’ largest motorcycle manufacturer Hero Honda is in India.
o Fourth largest car market in Asia
o Fifth largest commercial vehicle manufacturer in world

Major Recent Policy Measures/ Initiatives for the Indian Automotive Sector

Policy Remarks/ Details

Quantitative import restrictions dismantled in


early 2001.

Through appropriate support measures, the Advancing the 1990’s FDI liberalization,
March 2002 Auto Policy aims to make India a This Policy allows 100% automatic foreign
global hub for automotive components and a ownership.
regional hub for
Small cars, and promises to encourage the R&D
and vehicle designing.
In 2003 a Core‐Group on Automotive Research o The 2006 technology roadmap identified the
(CAR), involving the government, industry and priority topics for R&D.
academia, was formed (under TIFAC, DSIR,
Delhi) o The consortium technology projects
involve the research institutes, and
Tech‐intensive SMEs & automotive firms.
Since July 2004, 150% deduction of R&D Currently this Scheme is valid till
expenses from taxable income has been allowed March 2012.

o The National Automotive Testing and R&D o Expected to harness the Indian strengths
Infrastructure Project, NATRIP was approved in automotive engineering, IT and electronics;
in July 2005 to enhance and upgrade the testing thus to encourage the
and validation infrastructure, and establish automotive exports, including OEM/ Tier
centers of Level exports and outsourcing of design &
Excellence for automotive R&D. engineering private investment in
R&D/innovation.
o It involves an investment of approx. $380
million(Rs. 17.18 billion, of which the Industry o It would spur the systems solution
would contribute Rs. 1.18 billion) over a 6‐year capabilities of Indian auto component
period. Firms and Indo‐foreign JVs (Singh, 2008).
o In February 2006 India became a contracting o The 1998 GTR Agreement aims at
party (voting member) of the 1998 GTR developing through wide participation the
Agreement. The exposure to frontier Global Technical Regulations (GTRs) for
technologies would facilitate global integration automotive products, bearing on the
of the Indian automotive industry. vehicle safety, fuel efficiency and
Emissions.
o India has formed six ‘WP.29 India Working
Groups’ for different auto component o At present India is not a signatory to the
categories. 1958 Agreement, which imposes reciprocity for
any Regulation adopted by
a contracting party; India is an Observer,
and is assessing the option of signing it
NATRIP‐VCA MoU: In October 2006 the o So far India had no homologation (vehicle
NATRIP Implementation Society has signed a road‐worthiness) certification agency which is
Memorandum of Understanding with the globally accepted. The
Vehicle Certification Authority (VCA) of U.K. automotive exporters have to send the
for the issue of certificates in India after the products abroad for testing and approval—costly
testing at NATRIP Centres. (Note: Tata Motors and irksome, especially
have also entered into an agreement with the for iterative product/ process development.
VCA for certification.)
o It shall reduce the cost of certification.
The ‘Automotive Mission Plan (AMP) 2006‐ o The AMP 2006–2016 targets $40‐45 billion
2016’ launched in January 2007 recommends: automotive exports in 2016, including $20‐ 25
billion component exports and $2–2.5 billion
o setting up of Automotive training Institute and outsourcing of engineering services, like IT‐
Auto Design Centre, Special Auto Parks and intensive designing & styling. It also targets $145
auto component virtual SEZs; Technology billion total automotive turnover in 2016.
Modernization Fund, with special emphasis on
SMEs.

o enhancing exports and related infrastructure


and streamlining training/research institutions in
and
around auto hubs; and.

o encouragement to establishing Development


Centers for SMEs.

Investment opportunities

 Establishing Research & Development centers


 Establishing engineering centers
 Passenger car segment
 Two- wheeler segment
 Heavy truck segment
Policy initiatives

 The Indian auto Industry with a turnover of US$ 12 billion and auto parts Industry with a
turnover of US$ 3 billion offer excellent scope of FDI
 Automatic approval for foreign equity investment upto 100% of manufacturer of automobile
and component is permitted
 The Automobile Industry is delicensed
 Import of component in freely allowed

IT and ITeS: The ideal workstation

Over the past decade, the Information Technology (IT) industry has become one of the
fastest growing industries in India. The IT industry has two major segments, software development
and IT enabled Services (ITeS)/ Business Processes Outsourcing (BPO). India has emerged as a
preferred base for ITeS and investments in this sector are poised to continue to grow rapidly over
the next few years.

India exports IT products and IT enabled services to over 133 countries around the world,
and 80 out of the world’s 117 SEI CMM level – five companies are from India. CRIS INFAC
expects the export revenues of the Indian IT services industry to touch USD15.6 billion in 2005-06,
registering a growth of 31 per cent over 2004-05. The export revenues of the IT-enabled Services
(ITES) sector, on the other hand, are expected to increase by around 41 per cent to reach USD7.1
billion in 2005-06.

According to NASSCOM, 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, in the current fiscal (2008-09), exports were likely to touch US$ 47 billion. In 2007- 08, exports
stood at US$ 31.4 billion.

According to a study done by Off shoring Research Network (ORN), US-based healthcare
companies are expected to send more information technology projects to India, in order to bring
down their costs of operations. As per a NASSCOM report, the medical transcription industry will
be worth US$ 798.1 million by 2010 and could employ as many as 50,000 people.
As per a report by Deutsche Bank Research, India is also likely to retain its tag as the back
office of the world, amid competition from its neighbouring country China. 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.

Policy initiatives

The Government of India is taking proactive measures to encourage investments


in the IT sector. Significant measures and incentives include:

• Single-window clearance facility


• Income tax holiday
• Customs duty exemptions
• Continuing strengthening of communications infrastructure

Software Technology Parks of India (STPI) and Hardware Technology Parks of India
(HTPI) provide infrastructure support to this sector. The last few years have also witnessed the
growth of Special Economic Zones (SEZs). It is expected that SEZs would provide further impetus
to this sector. State governments too are demonstrating a proactive approach towards attracting and
facilitating ITeS investments and are providing support for the development of special infrastructure
for the ITeS industry. They are also focusing on development of Tier-II cities to meet the needs of
the ITeS industry, which will provide a wider location choice and enable geographical expansion.

State governments are also undertaking measures to continually enhance the Pool of well-
educated and skilled human resources by facilitating the Establishment and growth of educational
institutions offering special curriculum and certification for a range of IT skills. The government
initiatives on issues such as enhancing infrastructure and trained human resources are laying the
foundation for providing sustained benefits to this sector. FDI upto 100 per cent is permitted in the
ITeS sector under the automatic route without any prior approval.
Investment Opportunities

ITeS exports of India are estimated to cross USD 20 billion by 2009. 46 per cent of the US
Fortune 500 companies are stated to see India as a potential Outsourcing hub. North America
continues to dominate the export revenue mix, followed by Western Europe. Asia Pacific is the
other significant region with Japan being the Single largest market.

Intel President Paul Otellini says India can emerge as the leader in globaI IT economy. New
markets aggressively being explored by Indian companies are South Korea, South Africa and the
Latin American countries. The industry is also looking at providing increasingly higher value-added
services, on a much larger scale.

According to business intelligence analysts, the ITeS- BPO market will be one of the fastest
growing segments within the IT industry. The ITeS- BPO industry Which notched up revenues of
around USD 773 billion in 2002 is expected to step up turnover to over USD 1 trillion by 2006.

Off shore contact centers will be the fastest growing segment and high end services such as
equity research support, insurance claims processing and technology research and development will
see rapid expansion over the next few year.
Conclusion

Present day India enjoys the status of an emerging market. Skilled and managerial labor and
technical man-power are such as that they match the best available in the world. A combination of
these factors contributes to India having a distinct and a cutting edge in the globe. India has been
termed as the ‘stealth’ miracle economy of the new millennium. 1 It is among the largest economies
in the world. GDP shoots up to 10.4%. There has been the entry of many multinational corporations
(MNC’S). There has been the advent of outsourcing which has put India on the global map.
1