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									Macro Business Environment in India      &
          Opportunities for Investment




                  Gopal Krishna
              Chicago , October, 2007
Largest Democracy
Stable Democratic System


 Sub-continental Nation – Religious, Ethnic & Linguistic diversity

 Federal structure:

   – 28 states

   – 18 languages

 Multi-party system:

   – Changes in government through elections both at Centre and state levels

   – Coalition governments at Centre for over 10 years

   – Strong independent judicial system

   – Free vibrant, strong media (mushrooming growth in print as well as electronic
    media)




                                                                                     3
Stable Democratic System


 Democracy

   – Gradual incremental policy changes

   – Broad consensus across parties and civil society.



 Prior to 1990s                           1990s                                      2000-2005

  Closed economy                          Gradual liberalization                    Completion of integration with global
  Centralized planning                    Industrial licensing dismantled             economy

  Government permission necessary f or    Trade liberalization – tarif f /tax       Financial/capital markets ref orms as
   Setting up industrial plant               reduction                                 consolidation

  Import of capital goods / technology    Opening up of FDI                         Tarif f down to 10%.

  Expansion of capacity                   Government regulation to f acilitation    To reach ASEAN levels by 2010

  Key sectors of economy reserved f or                                               Bilateral Comprehensive Economic
   public sector only                                                                  Partnership Agreements with EU,
                                                                                       Japan, ASEAN etc in pipeline




                                                                                                                               4
India - a strong and vibrant economy
Macroeconomic stability

Forex Reserves (USD bn)
250
                                                                                                                                                                                                                                                220                Steady increase in forex reserves.
                                                                                                                                                                                                                                    192
200

                                                                                                                                                                                                            141
150


100                                                                                                                                                                                  75

                                                                                                                                                         42
50                                                                                                                           32
                                                                  20                          22
          5.8                         6.4
 0




                                                                                                                                                                                                                                                FY08 (till Aug)
          FY91

                        FY92

                                      FY93

                                                    FY94

                                                                  FY95

                                                                                FY96

                                                                                              FY97

                                                                                                            FY 98

                                                                                                                            FY 99

                                                                                                                                            FY 00

                                                                                                                                                        FY 01

                                                                                                                                                                        FY 02

                                                                                                                                                                                    FY 03

                                                                                                                                                                                                FY 04

                                                                                                                                                                                                            FY 05

                                                                                                                                                                                                                        FY 06

                                                                                                                                                                                                                                    FY 07
Trends in Inflation- WPI (%YoY)

  16                                                                                                                                                                                                                                                               Moderate inflation over last few years
  14                                    13.7
  12
  10
      8
      6
                                                                                                                                                                                                                                                5.4
      4                                                                                                                       4.4

      2
      0
                 FY91

                               FY92

                                             FY93

                                                           FY94

                                                                         FY95

                                                                                       FY96

                                                                                                     FY97

                                                                                                                    FY 98

                                                                                                                                    FY 99

                                                                                                                                                FY 00

                                                                                                                                                                FY 01

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                                                                                                                                                                                        FY 03

                                                                                                                                                                                                    FY 04

                                                                                                                                                                                                                FY 05

                                                                                                                                                                                                                            FY 06

                                                                                                                                                                                                                                        FY 07




                                                                                                                                                                                                                                                                                                             6
Economy – high growth rates



      Robust GDP growth


      Real GDP growth (%)

 10                                                                                                                              9.4
  9                                                                                                                                      14
  8
                                                                                                                                         12                                                                                                                                  11
  7
  6     5.3                                                                                                                              10                                                                                                                                  10.9

  5                                                                                                                                      8
                                                                                                                                                     7
  4                                                                                                                                      6
  3                                                                                                                                                  5.15
                                                                                                                                         4
  2
  1                                                                                                                                      2

  0                                                                                                                                      0




                                                                                                                                                                                                 FY 98

                                                                                                                                                                                                         FY 99
                                                                                                                                                                                                                 FY 00
                                                                                                                                                                                                                         FY 01
                                                                                                                                                                                                                                 FY 02
                                                                                                                                                                                                                                         FY 03
                                                                                                                                                                                                                                                 FY 04

                                                                                                                                                                                                                                                         FY 05
                                                                                                                                                                                                                                                                 FY 06
                                                                                                                                                                                                                                                                         FY 07
                                                                                                                                              FY91
                                                                                                                                                      FY92
                                                                                                                                                             FY93

                                                                                                                                                                    FY94
                                                                                                                                                                            FY95
                                                                                                                                                                                   FY96
                                                                                                                                                                                          FY97
                                                                 FY 99
                                                                         FY 00



                                                                                         FY 02

                                                                                                 FY 03




                                                                                                                                 FY 07
                                                         FY 98




                                                                                 FY 01




                                                                                                         FY 04
                                                                                                                 FY 05

                                                                                                                         FY 06
                                    FY95

                                           FY96
        FY91

               FY92

                      FY93
                             FY94




                                                  FY97




                                                                                                                                                                           Industry growth (%)                           Services growth (%)


Source: Reserve Bank of India, CMIE




                                                                                                                                                                                                                                                                                    7
 Economy – high growth rates leading to increasing FDI



                               Increasing FDI trend                                                                                                            Svgs & Cap Formation % of GDP ( Current prices)

                18000                                                                                                                                           40                                                                                                                 33.8
                                                                                                                                                 15726
                16000                                                                                                                                           35                                                                                                              32.4
                                                                                                                                                                    26.3
                14000
  USD million




                                                                                                                                                                30 23.1
                12000
                                                                                                                                                                25
                10000
                                                                                                                                                                20
                8000
                                                                                                                                                                15
                6000
                4000                                                                                                                                            10
                2000                                                                                                                                             5
                         97
                   0                                                                                                                                             0




                                                                                                                                                                                   FY93




                                                                                                                                                                                                               FY97

                                                                                                                                                                                                                      FY98




                                                                                                                                                                                                                                                    FY02




                                                                                                                                                                                                                                                                                  FY06
                                                                                                                                                                     FY91

                                                                                                                                                                            FY92



                                                                                                                                                                                          FY94

                                                                                                                                                                                                 FY95

                                                                                                                                                                                                        FY96




                                                                                                                                                                                                                               FY99

                                                                                                                                                                                                                                      FY00

                                                                                                                                                                                                                                             FY01



                                                                                                                                                                                                                                                           FY03

                                                                                                                                                                                                                                                                  FY04

                                                                                                                                                                                                                                                                         FY05
                                                                         FY 98
                                                                                 FY 99
                                                                                         FY 00
                                                                                                 FY 01
                                                                                                         FY 02
                                                                                                                 FY 03
                                                                                                                         FY 04
                                                                                                                                 FY 05
                                                                                                                                         FY 06
                                                                                                                                                  FY 07
                        FY91
                               FY92
                                      FY93
                                             FY94
                                                    FY95
                                                           FY96
                                                                  FY97




                                                                                                                                                                             Goss domestic savings                           Gross domestic capital formation

Source: RBI, DIPP                                                                                                                                         Source: Reserve Bank of India




                                                                                                                                                                                                                                                                                          8
  Trade liberalization – reduction in tariffs


  Despite a secular reduction in peak tariffs, the tax to GDP ratio is still showing an upward trend


   Trend in Reserve Bank of India Duty
      Source: Peak Custom                                                                                                                               Tax/ GDP ratio

       160   150

       140

       120          110                                                                                                                                 18
                                                                                                                                                                                                                                                                                 16.95
       100                                                                                                                                              17
                           85
 (%)




        80                                                                                                                                              16
                                   65
        60                                             50                                                                                               15




                                                                                                                                                  (%)
                                                               45 40                                                                                                                                                                            14.52
                                                                                       35                                                               14                               14.2
        40                                                                                     30                                                               15.43
                                                                                                               20                                                                                                              13.38
                                                                                                                              12.5 10                   13
        20
                                                                                                                                                        12
        0




                                                                                                                                                                    FY92




                                                                                                                                                                                          FY95
                                                                                                                                                             FY91



                                                                                                                                                                           FY93

                                                                                                                                                                                  FY94



                                                                                                                                                                                                 FY96

                                                                                                                                                                                                        FY97



                                                                                                                                                                                                                       FY 99




                                                                                                                                                                                                                                                 FY 02




                                                                                                                                                                                                                                                                         FY 05
                                                                                                                                                                                                               FY 98



                                                                                                                                                                                                                                FY 00

                                                                                                                                                                                                                                        FY 01



                                                                                                                                                                                                                                                         FY 03

                                                                                                                                                                                                                                                                 FY 04



                                                                                                                                                                                                                                                                                 FY 06

                                                                                                                                                                                                                                                                                         FY 07
             FY91

                    FY92

                           FY93

                                  FY94

                                         FY95

                                                FY96

                                                       FY97

                                                              FY 98

                                                                      FY 99

                                                                              FY 00

                                                                                      FY 01

                                                                                              FY 02

                                                                                                      FY 03

                                                                                                              FY 04

                                                                                                                      FY 05

                                                                                                                              FY 06

                                                                                                                                      FY 07




                                                                                                                                              Source: Reserve Bank of India
  Source: FICCI conference, March 14 – 15 th 2007


ASEAN levels committed to be reached by 2010




                                                                                                                                                                                                                                                                                                 9
Capital Markets playing an increased role in the economy

                                              Market Capitalisation as Percent of GDP (As at end-March))
 Improving ratio of market cap / GDP
                                                              100
                                                                  90                                                                                                                                                                    86.5
                                                                  80
                                                                  70
                                                      %           60             54.2
                                                                  50                                                                                                                                         43.4
                                                                  40                                                                              33
                                                                                                                                                                                   26.8
                                                                  30                                                                                                                         23.3
                                                                     19.54
                                                                  20
                                                                  10
India’s market cap to GDP ratio                                    0




                                                                          FY91

                                                                                 FY92

                                                                                        FY93

                                                                                                FY94

                                                                                                              FY95

                                                                                                                       FY96

                                                                                                                              FY97

                                                                                                                                      FY 98

                                                                                                                                                  FY 99

                                                                                                                                                                  FY 00

                                                                                                                                                                           FY 01

                                                                                                                                                                                   FY 02

                                                                                                                                                                                             FY 03

                                                                                                                                                                                                             FY 04

                                                                                                                                                                                                                        FY 05

                                                                                                                                                                                                                                FY 06

                                                                                                                                                                                                                                        FY 07
crossed 100% this fiscal year
                                          Source: Reserve Bank of India

Equity Market Reforms                        FII Investments

   SEBI – Independent Regulator                             12
                                                                                                                                                                                                                     10         10.2
                                                             10                                                                                                                                                                             9.3
   Corporatization and Demutualisation
                                               USD Billion




                                                              8
    Scheme of 19 stock exchanges to
    make them “for profit” entity : FDI                       6

    flow started in BSE , NSE                                 4
                                                                                                                     2.4                                  2.3             2.2
                                                                                                        2                     1.7                                                    1.8
                                                                                 1.6      1.5
   Screen-based nation-wide trading                          2
                                                                                                                                                                                                     0.6
                                                                   4 mn
                                                              0
   Scripless settlement                                                                                                              -0.4FY 99

                                                                                                                                                          FY 00


                                                                                                                                                                          FY 01

                                                                                                                                                                                     FY 02

                                                                                                                                                                                                     FY 03


                                                                                                                                                                                                                     FY 04

                                                                                                                                                                                                                                FY 05
                                                                                                                              FY 98
                                                                       FY93

                                                                                 FY94




                                                                                                       FY96

                                                                                                                     FY97
                                                                                         FY95




                                                                                                                                                                                                                                           FY 06
                                                             -2
   Electronic transfer of securities
                                          Source: Reserve Bank of India, SEBI Handbook                                                                                                                                                             10
Macroeconomic stability - Stable currency


                                                                      Rupee exchange rate

                                           60

                                           50                                                                                       47.68           45.94                   45.29




                            ( INR / USD)
                                                                                                            42.04
                                           40                                               35.47
                                                                             31.39
                                           30

                                                17.94
                                           20

                                           10

                                           0
                                                FY91

                                                        FY92

                                                               FY93

                                                                      FY94

                                                                             FY95

                                                                                     FY96

                                                                                            FY97

                                                                                                    FY 98

                                                                                                            FY 99

                                                                                                                    FY 00

                                                                                                                            FY 01

                                                                                                                                    FY 02

                                                                                                                                            FY 03

                                                                                                                                                    FY 04

                                                                                                                                                            FY 05

                                                                                                                                                                    FY 06

                                                                                                                                                                            FY 07
                                                                                                            INR/ USD

                      Source: RBI




High Degree of autonomy of India’s Central Bank

   Credible independent Central Bank
   Sound professional management




                                                                                                                                                                                    11
Developments in Banking Sector

                                          Gross NPAs declining trend
                                                                                      16         14.4

   Improved banking governance                                                       14
                                                                                      12
                                                                                                        12.7
                                                                                                               11.4
                                                                                                                           10.4




                                                                   Gross NPA (%)
    exhibited by declining Gross NPAs                                                 10                                          8.8
                                                                                                                                             7.2
                                                                                        8
                                                                                        6                                                            5.1
                                                                                                                                                             3.3
                                                                                        4
                                                                                        2
                                                                                        0
                                                                                                 1998   2000   2001        2002   2003      2004     2005   2006


                                          Market share in outstanding credit
   Share of private sector banks                               March 31, 1996                                         March 31, 2006
                                                                                                                                                       PSU Banks
    increased from 9% in 1996 to 21%
                                                                                                                      6%
                                                                                                                                                       Private
    in 2006                                               82%
                                                                                                 9%                                      73%           Sector Banks
                                                                                                                 21%
                                                                                                9%                                                     Foreign Banks




                                          Banking Business growing over the years
 Banking business growing                                2,500,000
                                                                                                                                         2,109,049
    consistently                                          2,000,000

     –
                                              INR Crore




         Deposits grew by 17% CAGR
                                                                                      598,485




                                                          1,500,000                                                                                    Deposits
                                                                                   324,079




         (1998-06)                                        1,000,000
                                                                                                                                                       Advances

     –   Advances grew by 21%                              500,000

                                                                   0
         CAGR (1998-06)                                                            1998 1999 2000 2001 2002 2003 2004 2005 2006
                                                                                                                                                                       12
                                        Source: RBI
Going Forward
Going forward
Goldman Sachs has revised its timelines for India’s GDP exceeding the G6’s GDP



 India’s GDP (in US$ terms) will surpass that of the US before 2050, to make it the second largest economy




                                       Italy France/UK Germany           Japan                       US
     New India
     Projection




                   Cars indicate when Indian US$GDP exceeds that of the Country

              2005           2010           2015           2020          2025        2030   2035   2040   2045   2050
              Source: Goldman Sachs, Global Economic Paper No 152, 22 January 2007




                                                                                                                        14
Investment Opportunities
Investor-friendly, liberal open-market economy




          Government is focused on improving the business and investment environment
                 –    No licensing required, except in five sectors

                 –    100% FDI permitted in manufacturing (except atomic energy)

                 –    100% FDI permitted in most service sectors

                 –    Investments, dividends, fees are freely repatriable

                 –    Foreign investments allowed in capital markets

         •   State Government compete for Investor Friendly Image




 Source: Reserve Bank of India
                                                                                        16
Investor-friendly, liberal open-market economy
Large skill and intellectual capital base


 Over 2.5 million graduates added every year
    –   Most of them English-speaking

    –   300,000 Engineers

    –   150,000 IT professionals




 Strong emphasis on human resource development
    –   Skills missions being launched

    –   Up gradation of workers training

    –   Increased public spending in Education and health




                                                            17
Firms in India – globally competitive
91 percent of MNC’s make profits in India compared to 45- 50 percent in China


   69% of survey respondents report higher profitability averages in India
    than they do globally



                                 India’s ROE quite high relatively


                                  4.0



                                  3.5                                                                        India
                                                                                                                     Indonesia

                                  3.0
                                                                                 China
                                             Singapore
                P/B (2007) (x)




                                  2.5
                                                                               Malaysia
                                                 Philippines                       Taiwan
                                  2.0

                                                                           Hong Kong        Thailand

                                  1.5
                                                    Korea

                                  1.0
                                        12              14              16             18              20   22       24          26   28


                                                                                         RoE (2007) (%)

                                  Source: Prowess, CLSA Asia-Pacific Markets


              P/B = Price to Book value                                                                                                    18
Indian firms seek global reach



       Tata Steel bought         USD 12.1    Acquisition made Tata Steel world’s
           Corus Plc              billion    fifth largest steel producer globally




      Hindalco acquired                      Acquisition made Hindalco the world's
                             USD 6 billion
         Novelis Inc.                        largest aluminum rolling company




      Suzlon Energy Ltd.         USD 1.6     Acquisition made Suzlon world's third
      acquired REpower           billion     largest wind power company




         Dr. Reddy’s             USD 0.5     Acquired German’s third largest
      acquired Betapharm         billion     generic companies




        United spirits           USD 0.5     Acquisition made United Spirits world's
        acquired W&M             billion     second largest spirit company




                                                                                       19
India- Attractive location for R&D
MNCs finding location of R&D in India : Increases global competitiveness



         Large R&D facility of major MNCs
            –   Microsoft

            –   IBM

            –   ADOBE

            –   SAP

            –   Sony Ericsson

            –   Dell

            –   The DaimlerChrysler

            –   Boeing

            –   Texas Instruments




                                                                           20
Infrastructure Opportunities
Infrastructure Opportunities : Indian Telecom Industry

                     Growth of Indian telecom (wireless) sector…..

                                          450
                                                                                                                                         417
                                          400



               Mobile subscribers in mn
                                          350
                                          300
                                          250
                                                                                                                           193
                                          200                                                                     166
                                          150
                                                                                                          96
                                          100
                                                                                                  52
                                          50                                              33
                                                1      2      3      4      6      13
                                            0




                                                                                                                                           2010E
                                                1998

                                                       1999


                                                              2000

                                                                     2001

                                                                            2002

                                                                                   2003


                                                                                           2004

                                                                                                   2005


                                                                                                           2006


                                                                                                                    2007


                                                                                                                            2007 (YTD)
               And participated by global majors …..success stories
               Company                                               Investors                                    Direct stake (%)

               Bharti Airtel                                         SingTel                                                              35


               Spice Telecom                                         Telekom Malaysia                                                     49


                 Hutchison Essar                                     Vodafone                                                             67


                 Tata Tele                                           Temasek Holdings                                                    9.9


                 Aircel Limited                                      Maxis Communications                                                 74

              Source: Credit Suisse, Press, Analyst Reports, TRAI

                                                                                                                                                   22
Infrastructure Opportunities : Indian Telecom Industry (contd.)



                 led by conducive regulatory framework……

                                                 18                                                                                                         160




                                                                                                                                                                  Mobile Subscribers Base (millions)
                                                                     NTP-99                                                                           147
                                                 16   15.3                                                                                                  140
                                                               14.5
                                                 14
                                                                                                                               Lowering of                  120
             Effective Mobile Tariffs (Rs/min)




                                                                                                                               ADC from
                                                 12                                                                            30% to 10%                   100
                                                                                      3rd & 4th                                of Sector     89.5
                                                 10                                   Cellular                                 Revenues
                                                                                                         WLL                                                80
                                                                                      operator           Introduced
                                                 8
                                                                              7.2                                                    51.5                   60
                                                 6
                                                                                      4.2
                                                                                                                        33.3                                40
                                                 4                                                 3.1       3.1
                                                                                                                          1.9
                                                 2                                                                                    1.2                   20
                                                                                                   6.4                                         1      0.9
                                                      0.9      1.2        1.9         3.6
                                                                                                              12.8
                                                 0                                                                                                        0
                                                 Mar-98      Mar-99     Mar-00      Mar-01    Mar-02       Mar-03      Mar-04      Mar-05    Mar-06    Dec-06


                                                                         Effective mobile tariff                   Mobile Subscriber Base



                                             Going forwards – key issues …..

                                                 •     Adequate availability of spectrum - A constrain in India
                                                 •     Infrastructure requirement - 350,000 telecom towers by
                                                       2010, as against 125,000 in 2007
                                                 •     To achieve 500 mn subscribers base by 2010 will require
                                                       significant investment in telecom equipment
                                                       manufacturing space



                                                                                                                                                                                                       23
Infrastructure Opportunities : Civil Aviation


 Airlines Sector Performance

          80                                                 32        35
          70                                                           30
                                              23.7
          60                        21.5                               25
          50
                                                                       20
  Units




                                                                            Units
          40
               11.6                                               70   15
          30                                      50
                                      40                               10
          20
                      32
          10   17              19            22         25             5

          0                                                            0
                2003-04         2004-05       2005-06   2006-07

                      International        Domestic      % Growth




 Delhi-Mumbai being modernized through PPP
 New private international airport at Bangalore, Hyderabad become operational- 2008
 USD 85 bn to develop Airport infrastructure
 Boeing and Airbus have a combined order book of 400 aircraft from India at present

                                                                                       24
Infrastructure Opportunities : Power / Roads / Ports
Infrastructure: USD 475 bn in investments planned in next five years




                                         Power

                                            Energy shortage at 7.7% / Peak shortage of 12.3%

                                            Ongoing projects: 52000 MW: Investment US$ 60 bn

                                            Private Ultra Mega Power Projects (4000 MW / USD 4 bn each) thr’
                                             Competitive Bids

                                         Roads

                                            Annual growth 12 -15% in passenger traffic and 15 -18% for cargo

                                            Investment Opportunities US $ 30 billion till 2012

                                         Ports

                                            960 million tonnes of traffic by 2013-2014

                                            7.7 % p.a. growth expected in cargo handling till 2013-2014

                                            Investment opportunities: US $ 20 bn till 2012



                                                                                                                25
Significant plans to improve the country’s infrastructure
Public – Private participation being encouraged



  PPP Projects Awarded



Urban Infrastructure,                                       Railways, 2
                          11
                                                            Roads, 63
      Civil Aviation, 2


                 Ports, 8                                                 Urban Infrastructure,
                                                                                                                                 Railways,
                                                                                               0.22
                                                                                                                                 0.10
                                       Number of projects
                                                                                   Civil Aviation,
                                                                                               0.42                              Roads,
                                                                                                                                 2.99



 Source : Ministry of Commerce, Government of India
                                                                                                              Estimated Value
                                                                                                                 (USD Billion)
                                                                                             Ports,
                                                                                               4.65




                                                                           Source: World Bank report and PPPinindia.com
                                                                           – the study did not include Power sector




                                                                                                                                             26
Thank You




 www.dipp.gov.in

								
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