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June 2008 India – Country Presentation

June 2008 India – Country Presentation. by Claudio Maffioletti, General Manager THE INDO-ITALIAN CHAMBER OF COMMERCE AND INDUSTRY. MACROECONOMIC DATA AND INDO-ITALIAN TRADE RELATIONS. INDIAN ECONOMY: MACRO DATA. 2 nd most populous country (1.2 billion) Parliamentary democracy

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June 2008 India – Country Presentation

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  1. June 2008 India – Country Presentation by Claudio Maffioletti, General Manager THE INDO-ITALIAN CHAMBER OF COMMERCE AND INDUSTRY

  2. MACROECONOMIC DATA AND INDO-ITALIAN TRADE RELATIONS

  3. INDIAN ECONOMY: MACRO DATA • 2nd most populous country (1.2 billion) • Parliamentary democracy • 10th most industrialized country • 4th largest economy (PPP terms) • GDP: € 515 billion (2005-06) • GDP growth: • +10% in 2006-07 (forecast) • + 8% in the last 4 years • Literacy rate: 65.4% (Mar06) • Forex reserves: € 124 billion (Nov06) • Inflation: + 5.2% (Dec06)

  4. The Indian Growth • Average annual growth rates (1995 - 2005) • GDP +6.5% • Services +7.8% • Industry +6.6% • Agriculture +2.1%

  5. Demographic Data • An extraordinary sequence of figures: • 46% of the population in the age group of 15-44 years. • 500 million under 25 years of age. • Large English-speaking middle class. • Over 250 universities. • Over 13,000 higher educational institutions. • 2.46 million graduates (300,000 engineers and 150,000 IT professionals) every year.

  6. Economic Climate • Openness to the market and to investment • Infrastructure requirements - € 237 billion • Important liberal economic reforms • Policy of incentives for investment (SEZ – Special Economic Zones) • Huge consumer base • Cost leverage • Vibrant capital market • Close network of economic treaties and trade agreements

  7. Major Indian Imports Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic

  8. Major Indian Exports Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic

  9. Major Italian Exports to India Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic

  10. Principali prodotti indiani esportati in Italia Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic

  11. Italian Companies in India • More than 100 Italian companies have subsidiaries, joint venturesor a presence in India. • Eight Italian banks are present in India with representative offices handling: • Correspondent banking and trade finance • Assistance to Italian companies • Italy ranks 11th for Foreign Direct Investments (FDI) in India accounting for only 1.42% of the total investments. • Trade with Italy accounts for only 3% of India’s international trade. • 20% increase in trade between the two countries in 2006.

  12. Challenges 1 • Red tape: slows down the liberalization process (India ranks 88th in “Starting a business”, below Russia and above China and Brazil). • Poor infrastructure: airports, power, ports and roads are inadequate and constitute limits to development. • Restrictive labor laws. • Considerable social inequalities. • Uneven geographical development. • Sources: NASCOM, Economist, World Bank – Doing Business 2007; Tata Statistical Outline of India 2005-2006

  13. Challenges 2 • Complexity of legal processes: India ranks 33rd in “Protecting investors”, whereas the other BRIC economies are ranked 60th (Brazil), 60th (Russia) and 83rd (China) respectively. • Strong political opposition to privatization is providing a platform for cautious and systematic reforms. • Complex and bureaucratic tax system. • Poverty still high: 19.3% of the Indian population lives below the poverty line. • Sources: NASCOM, Economist, World Bank – Doing Business 2007; Tata Statistical Outline of India 2005-2006

  14. Entry Strategy: Consumer Goods

  15. Entry strategy: Industrial Goods

  16. Business Presence in India • The possible options are: • Liaison or representative office • Branch office • Subsidiary or Joint Venture

  17. Liaison / Representative Office • Carries out promotional activities without performing any trade transaction as the principal party. Cannot earn income in India or carry out any income-earning activity. • Does not pay income tax. • Is legally a part of its parent company.

  18. Branch Office • Can carry out most activities except manufacturing and processing.Can therefore carry out trading activities and earn a profit. • Has to pay income tax on the profit earned as a foreign enterprise. • Foreign enterprises are subject to higher tax rates on their net profit as compared to Indian companies. • Foreign enterprises are not entitled to the tax concessions available to Indian companies – including foreign subsidiaries.

  19. Subsidiary - Joint Venture • Has limited liability. • Is regarded as an Indian company for all regulatory purposes. • Can do whatever an Indian company can. • Pays tax at rates 10% lower than those applicable to foreign enterprises. • Is legally independent of the holding company: the holding company, therefore, is not liable for the liabilities of the subsidiary

  20. Extent of Holding • In many sectors, a foreign company can hold up to 100% of the share capital of an Indian company. • For some sectors the current regulations provide limits: • 74% in Banking • 74% in Telecommunications • 26% in Defense Production

  21. Production and Marketing 1 • A foreign company looking to set up a manufacturing firm can set up a wholly owned subsidiary. • Generally the Automatic Route will apply. • For a foreign company looking to perform a trading operation, FDI is not freely permitted.

  22. Production and Marketing 2 • The key elements of the current policy are: • Up to 51% foreign holding is permitted in single-brand retail outlets. This policy is likely to be further liberalized in the future. • For multi-brand outlets foreign holding cannot exceed 49%. • Up to 100% investment under the automatic route is permitted for: • export-oriented trade • wholesale/cash-and-carry trade

  23. Royalty, Trademarks and Brands • Royalty • up to € 1.5 million on a lump-sum basis • 8% on overseas sales • 5% on domestic sales • The limit applies to the net-of-tax amounts and the percentage to the value (the import component in the product price is not considered) • Trademarks and Brands • up to 2% on overseas sales • 1% on domestic sales

  24. Company Structure • Minimum authorized capital required • INR 100,000 (approx. € 1.750) for a private limited company • INR 500,000 (approx. € 8.750) for a public limited company • Minimum number of directors and shareholders • 2 shareholders and 2 directors for a private limited company. • 7 shareholders and 3 directors for a public limited company.

  25. Repatriability • 100% of the Profit or the Capital is repatriable

  26. Taxes 1 • Corporate tax • Tax for a company is 33.99% • Tax for a foreign company is 43% • The rate for SME’s (taxable profit less than INR 10.0 million) is 30.90%. • Excise (residual rate 16.0%). • Service tax (prime rate 12.36%).

  27. Benefits • Profits of STPI units (for IT/ITeS companies) presently enjoy tax concessions. • Profits of SEZ units are tax-exempt. • Services exports are exempt from service tax (subject to prescribed conditions). • Exports are exempt from excise, octroi and VAT. • Units set up in backward areas enjoy some income tax and VAT concessions (In these cases, however, the infrastructural limitations present in such areas must be seriously considered).

  28. Suggestions 1 • Timing is relative…sooner or later India will be a world power • Time to obtain an internet connection • 1 week • Time to have a fully established liaison office • 2 months • Meetings take place according to “IST” • Indian Standard Time

  29. Suggestions 2 Be always on the alert, but never too rigid • It is important to explain exactly what you want. • Devote a lot of time to the details during the starting stage. • Maintain your patience, even if a certain degree of pressure is necessary. • Check the progress of the operations at least on a weekly basis. • Constantly discuss the operating procedures. • Insist that the service or the delivery comply with the initially fixed conditions.

  30. Suggestions 3 • Your network matters: you need to have strong Indian partners • Without local knowledge and help you can get lost quickly. • To avoid red tape, find a partner who knows the ins and outs. • Professionalism is required in personal relations, although a certain degree of informality is appreciated. • Do not rely only on one partner. Build a network with several players. • Spend most of your time in building long-lasting relationships.

  31. So…is it worthwhile to invest in India? • If one considers that… • Average GDP growth from 1995: + 6.5% • Growth forecast for the next 10 years: + 5.9% • An economy based on fast-growing domestic consumption • Very wide gap between demand (high) and supply (low) • Many similarities (economic, political, geographic and cultural) • …there can only be one answer!

  32. THANK YOU Claudio Maffioletti General Manager

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