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					National Accountants Conference 2005

 “Doing Business in India”

               R. L. Narayan
         High Commissioner of India

        Kuala Lumpur, 23 November 2005
    Agenda

       Economic Overview
       Knowledge-driven Economy
       Financial and Credit Overview
       Financial Markets
       Government Policy – Reform Agenda
       Macro-economic and Political Outlook
       Trade and Investment Opportunities

2      India-Malaysia Trade and Economic Ties
    Economic Overview
       Strong macro-economic fundamentals
       Impressive sustained 7 to 8% growth in the economy
       Double digit industrial growth rate
       Increasing private sector driven economic growth – contributing
        75% of the country’s industrial GDP
       Economic resurgence largely attributed to the demands emanating
        from over 300 mn strong new and steadily growing middle class.
       India has irreversibly embraced globalization and competition
       Overseas Indian investments have exceeded US$4 bn in the last
        two years.
       India’s GDP is likely to cross US$10 trillion by 2038 and US$27
        trillion by 2050 making India the third largest economy in the
        world after China and the US, according to the Goldman Sachs’
        Report.
       In terms of Purchasing Power Parity (PPP), India today is the
        fourth largest economy behind USA, China and Japan.
                                        3
3
    Economic Overview Continued ….

       Exports registering over 20% annual growth; US$75 bn in
        2004
       Net aggregate profit of the top 1,500 Indian companies
        increased by more than 150% over the last two years.
       India’s forex reserves at US$131 billion is the 6th largest in the
        world.
       Services sector accounting for 50% of GDP, 25% of
        employment and 40% of capital formation, continues its
        upward spiral and is the economy’s prime mover.
       Phenomenal growth in software and IT-enabled services sector
        major contributor to India’s economic growth in recent years.
       By 2008, Indian software exports are estimated to reach
        US$50 billion, IT-enabled services US$17 billion and e-
        commerce US$17 billion.
       Currently, 220 of the Fortune 500 companies outsource their
        software related work to India.
4
    The Bangalore Phenomenon




5
    Knowledge-driven Economy
       India, the world’s fastest growing knowledge-based economy
       India’s demographic trends a source of great strength
       550 million of India’s billion-plus population or over 55% are below
        the age of 25
       Although demographic growth rate is less than 2%, India’s work
        force will continue to grow for another 20 years or beyond
       India’s 300 universities, 2,000 research institutes and a strong
        network of higher educational and technical institutions annually
        produce over 7 million graduates, 300,000 non-engineering post
        graduates, 200,000 engineers and some 9,000 PhDs
       IT work force today is 650,000; projected to exceed 2 mn by 2010
       Over 1 mn biotech professionals to be employed in next 5 years
       According to Upnishads, “Pursuit of gyana is the greatest dharma”

                  “Knowledge management is not new to us!”
6
    Financial / Credit Overview
                                                           Indian Prime Lending Rate (%)                                                                                              Moody’s long term foreign currency rating

                                   18                                                                                                                               14
                                                15.5                 16                                                                                                              A3
                                   16                                        15                                                                                     12                       Baa1
                                                           14                       13.5
                                   14                                                          13                                                                                                     Baa3        Baa3
                                                                                                        12                                                          10




                                                                                                                                                 Credit Score
                Lending Rate (%)




                                                                                                                11.5     11
                                   12                                                                                           10.5                                         8
                                                                                                                                            10
                                   10                                                                                                                                                                                       B1
                                                                                                                                                                             6
                                       8                                                                                                                                                                                                  B2
                                                                                                                                                                             4
                                       6                                                                                                                                                                                                              B2      Caa1
                                                                                                                                                                             2
                                       4
                                                                                                                                                                             0
                                       2
                                       0
                                             94

                                                     95

                                                                96

                                                                        97

                                                                                98

                                                                                         99

                                                                                                   00

                                                                                                           01

                                                                                                                    02

                                                                                                                            03

                                                                                                                                       04
                                           19

                                                   19

                                                              19

                                                                      19

                                                                              19

                                                                                       19

                                                                                                 20

                                                                                                         20

                                                                                                                  20

                                                                                                                          20

                                                                                                                                     20
                                                                     Political risk score                                                                                                             Country Risk Score
                             90                                                                                                                                              80
                                            76.5       74.0
                             80                                                                                                                                                      68.0
                                                                68.0      66.5                                                                                               70             62.0
                             70                                                      63.5       60.5                                                                                                58.0
                                                                                                         57.0                                                                60                            55.0
    Political Score




                                                                                                                                                                                                                   51.0



                                                                                                                                                           Political Score
                             60                                                                                   52.5        51.5
                                                                                                                                                                             50                                            45.0      43.0      42.0
                             50                                                                                                        42.5                                                                                                            38.0
                                                                                                                                                                             40
                             40                                                                                                                                                                                                                                30.0
                                                                                                                                                                             30
                             30
                             20                                                                                                                                              20
                             10                                                                                                                                              10
                                   0                                                                                                                                             0




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7
                                                           India well-positioned versus other emerging market economies
         Cost & Foreign Exchange Analysis
                               Inflationary Historical Evolution                                                                                                           Rs / US$ Historical Evolution

    16                                                                                                                 49.0

    14                                                                    Onion crisis                                 48.0

    12                                                                                                                 47.0

    10                                                                                                                 46.0
                                                                                         Fuel Price Hike
    8                                                                                                                  45.0

    6                                                                                                                  44.0

                                                                                                                       43.0
    4
                                                                                                                       42.0
    2
                                                                                                                       41.0




                                                                                                                              Nov-02




                                                                                                                                                                                                      Aug-03
                                                                                                                                                                                                               Sep-03


                                                                                                                                                                                                                                 Nov-03




                                                                                                                                                                                                                                                                                                         Aug-04
                                                                                                                                                                                                                                                                                                                  Sep-04


                                                                                                                                                                                                                                                                                                                                    Nov-04
                                                                                                                                       Dec-02




                                                                                                                                                                                                                                          Dec-03




                                                                                                                                                                                                                                                                     Apr-04
                                                                                                                                                                  Apr-03




                                                                                                                                                                                                                        Oct-03




                                                                                                                                                                                                                                                                                                                           Oct-04
                                                                                                                                                                                                                                                                              May-04
                                                                                                                                                                           May-03
                                                                                                                                                Jan-03




                                                                                                                                                                                                                                                                                       Jun-04
                                                                                                                                                                                    Jun-03




                                                                                                                                                                                                                                                   Jan-04
                                                                                                                                                         Mar-03




                                                                                                                                                                                                                                                            Mar-04
    0




                                                                                                                                                                                                                                                                                                Jul-04
                                                                                                                                                                                             Jul-03
                                                                                                       FY04E

                                                                                                               FY05E
                                                                   FY99

                                                                          FY00

                                                                                 FY01

                                                                                         FY02

                                                                                                FY03
                                                    FY97

                                                            FY98
         FY91

                FY92

                        FY93

                               FY94

                                      FY95

                                             FY96




                                                           WPI     CPI


                • Cost inflation on downward trend    • Rupee strengthening versus the
                • Manufacturing labour costs continue   US$
                  to be competitive                   • 12-month US$ forecast of 43.00
                • Some upward pressure in service     • Expected due to increased
                       sector                                                                                                              remittances, software exports,
                •      Cost pressures from oil price                                                                                       closure of informal remittance
                       mitigated by customs duty / tax                                                                                     channels
8
                       reductions
         Indian Capital/Bank Markets
    Overview                                              Sources of Financing



    – Relatively strong capital market culture as         – Capital and bank markets present an important
      compared to other emerging markets                    source of financing for mature Energy
    – $10 bn retail savings per annum                       businesses
                                                               Capital markets accessed by several gas
    – Increasing Foreign Institutional Interest
          Cumulative investment of $27 bn amounting to
                                                                 distribution and power companies
           12% of market capitalization                          (Indraprastha gas, GAIL etc)
                                                               ONGC completed India’s largest secondary
          10% share of daily trading volumes on BSE &

           NSE                                                   offering in 2004 ($2.3 bn)

    – Growing access to international capital – average   – Structured financing increasingly providing an
      overseas offerings of $1 bn/year overall $9 bn to     alternative funding source to Energy and
      date                                                  Infrastructure companies
                                                                Petronet LNG refinanced its sponsor
    – Deepening bond and debt market
                                                                  guaranteed construction loan aggregating
         Increasing liquidity and duration
                                                                  $200 MM ( equivalent) in the domestic loan
         New investors classes emerging; private
                                                                  market for its 5 MMTPA regassification
          sector mutual funds and insurance companies
                                                                  project
    – Capital Market development a Government priority          Indian bank loan market has seen
         Tax law changes to make equity investments
                                                                  securitisation of gas receivables and limited
           attractive                                             recourse financings for the road sector
         Emergence of SEBI as a strong market

           regulator
9
     Government Policy – Reform Agenda

                                        Electricity Bill
                                        Asset Reconstruction and Securitization Bill (SRAFESI)
     Key legislation                    Fiscal Responsibility and Budget Management
       passed in
     last two years                     Sick Industries Cos. Act changed to replace BIFR with the National Co. Law
                                         Tribunal
                                        New Telecom Policy – Unified License Scheme
                                        Continuation of tariff reduction – peak import tariff down from 25% to 20%
         Other
     liberalisation                     Free Trade Agreement with Thailand; CECA with Singapore
                                        74% FDI ownership in banking permitted but restriction likely to change
                                        Equity market offering in 7 PSU’s raised US$3.5 bn between March – June
                                         2004; offerings included GAIL, IPCL, Dredging Corporation Ltd, Power
     Privatisation
                                         Trading Corp., CMC, IBP and ONGC
                                        NTPC IPO also raised more than US$1bn in September 2004
                                        Implementation of VAT
     New Reforms
10
           Source: India Economy Overview, 16th November 2004
                  Economic Overview –
                  a comparative analysis
                                                            GDP Growth (%)                                                                    GDP by Activity
                      10      9.4                                                                                          100%
                                     8.5
                       9                    8.0
                                                                 7.5                                                           80%
                       8
                                                          7.0                                 7.0
                       7
     GDP Growth (%)




                                                   6.0
                       6                                                             5.5             5.5                       60%
                                                                               5.0             5.0
                                                                         4.8
                       5                                                                                   4.1 4.2
                                                                                                                     3.7
                       4                                                                                                       40%
                       3

                       2                                                                                                       20%
                       1
                       0
                                                                                                                               0%
                                    China                India            Indonesia           Malaysia      Mexico
                                                                                                                                     FY80           FY90        FY02   FY05E

                                                                                                                                            Agriculture    Industry    Services
                                                  2004E                2005E          2006E



                      • Historically stable, steady GDP growth                                                             • Services         have    become     an
                                                                                                                                 increasingly important part of the
                      • Attractive economic growth predicted
                                                                                                                                 economy
                           going forward
                      •    Stable growth path expected to continue
                                                                                                                           •     Manufacturing seeing a resurgence
                                                                                                                                 (Auto, Engineering, Textiles)
                      •    Broad-based expansion
                                                                                                                           •     Move toward service sector implies
                                                                                                                                 higher margin / growing energy
                                                                                                                                 needs
11
                        India’s Economic Scorecard
                                                                Performance Parameters


                                                                                                   Forex Reserves

Good                                                                                                    Current Account

                                                                                                      Service sector growth
      Future Outlook




                                                                       Overall GDP External Debt

                                                                 Financial Reforms Savings

                                                                  New investments Inflation
                                                                                Industrial Growth
                                                                     Economic Reforms
                        Internal Debt
                                                                  FDI flows
                         Fiscal Deficit
                                          Agricultural Growth

                                                            Current performance
                       Bad                                                                           Good


 12
          Economic Outlook for 2005-06

     Key Highlights


        Lower agricultural growth in FY05 is likely to result in headline GDP growth of
         around 6% to 7% compared with 8% in FY04-05
        Given the changing composition of GDP and continuation of key growth
         drivers, however, the India story is fundamentally strong, and non-farm
         growth should average 7% plus in the coming years
        In 2005-06, we could see more investments taking place - in both
         infrastructure and corporate capex
        Consumption-led growth coming mainly from the urban centers, led by high
         growth in the service sector, the spread of consumer credit and outsourcing
         jobs are also likely to be key drivers in 2005-06
        Relatively range-bound currency and interest rates should also help
        Potential risks include the continuation of high oil prices or the re-occurrence
         of a severe EL Nino, which could affect agriculture growth even in FY06
13
             Energy Demand
                 Historic and Forecast India Energy Consumption                                                                      Per Capita Energy Consumption (2002)
             1,800
                                                                                                                        400
                                                                             1,606
             1,600
                                                                                                                        350      339.1

             1,400
                                                               1,278
                                                                                                                        300




                                                                                           Primary Energy Consumption
             1,200
                                             1,022
                                                                                                                        250
             1,000
     Mmboe




                                 767                                                                                                         191.1
              800                                                                                                       200

                                                                                                                                                           149
              600                                                                                                       150
                     438
                                                                                     333                                                                                 97.1
              400                                                                                                       100
                                                                       267
                                                     200
              200                      133                                                                                                                                            48.7
                            67                                                                                          50                                                                       33.3
                                                                                                                                                                                                            13.3
                0
                       1990        2000         2010               2015         2020                                     0




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               • India’s energy consumption expected                                                                          • India’s population of c. 16% or world
                     to grow at the second fastest rate                                                                         population represents less than 2%
                     after China, at 2.3%                                                                                       of energy consumption
14            Source: EIA
             Longer Term Outlook
                             FDI Policy                                        Globalisation
                 Foreign investment will be actively                       Tariff barriers and controls
                                                                         to be increasingly eliminated,
                 sought in the Energy, Infrastructure              full currency convertibility likely in three
                          & Logistics sector                                           years



        Financial Sector
              Poised for
                                                                                                     Capital
           changes. New                                                                              Markets
     investor class in Insurance                     Expected Drivers                   The capital markets to be the
     Companies, Mutual Funds                                                       main source of funding for the economy.
      Universal Banks, Pension                       Over Next 5 Years                   Deepening of debt markets
                Funds                                                                     is a priority with the RBI.




                          Consumer Finance
                              Growth
                                                                             Infrastructure
                           Availability of cheaper
                                                                         Infrastructure spending to
                             credit to increase
                                                                             drive credit growth
                            penetration, to drive
                          consumption-led growth


15
     Trade and Investment
     Opportunities
        Several recent initiatives announced by Government of India

        A liberal, transparent and investor-friendly FDI Policy

        Up to 100% investment allowed in most sectors under the
         Automatic Approval Route, including infrastructure, power,
         roads, highways, ports, pharmaceuticals, housing, transport
         sectors etc., to name a few

        Sectors offering promising investment prospects include the
         manufacturing sector (apparel industry, auto-components,
         electrical and electronic products and specialty chemicals),
         infrastructure sector (estimated to absorb US$150 billion FDI
         in the next 10 years), tourism, etc.


16
      Requirement Investment Climate
      – Substantial Infrastructure
               GoI Infrastructure Investment projected up to 2012
                 Energy                                                    Other
            Power Generation                                            Power T & D
               $143 Bn                                                    $116 Bn


                 Oil & Gas                                                 Roads
                 $100 Bn                                                   $40 Bn


                Refineries                                                  Coal
                 $22 Bn                                                    $26 Bn


             LNG Terminals                                                  Ports
                $10 Bn                                                     $20 Bn

              Cross Country
                                                                          Railways
                Pipelines
                                                                           $15 Bn
                 $10 Bn


17   Energy a key focus for investment requirements, Infrastructure / “enabling” investment also important
     Our Value Proposition

        India has a large pool of English-speaking technicians. There are
         more English-speaking Indians than the English!
        We offer abundant availability of intelligent skilled people, with 7
         million fresh graduates every year
        We have half of world’s CMM Level 5 companies
        We have the largest number of listed companies in the world:
         8,000
        We have the 3rd largest shareholding population in the world
        Cost of labor in India is 20-30% of total cost as compared to 70-
         80% at developed nations
        And, finally, India’s USP and biggest assets are its vibrant
         democracy and the well-established rule of law
18
     India-Malaysia Trade and
     Economic Relations
        Malaysian business community has a unique advantage in economically
         engaging India in a sustained manner

        Indissoluble historical and cultural links - over 2 million Persons of Indian
         Origin in Malaysia

        Malaysia is India’s second largest trading partner in the ASEAN; two-way
         trade in 2004 was US$4.3 billion. Both countries now moving on a fast
         track towards a Comprehensive Economic Cooperation Agreement (CECA)

        Malaysian companies actively involved in national highway and other
         infrastructure development projects in India

        Malaysia well-positioned to take advantage of the numerous infrastructure
         development projects to be implemented in India during the next decade

         “Prospects are indeed exciting. Time to leverage our respective strengths,
         synergize our mutual complementarities and build a strategic economic
19
         partnership!”
     The Way Forward……
                “Your country and mine
                are positioned at that
                opportune point where
                our mutual economic
                self-interests converge
                and collude strongly,
                and collide not at all.”

                 - Dato’ Seri Abdullah Ahmad Badawi
                           Prime Minister of Malaysia




20
Thank You

				
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