Macro Business Environment in India &

1. Macro Business Environment in India & Opportunities for Investment Gopal Krishna Chicago , October, 2007

2. Largest Democracy

3. 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)

4. Stable Democratic System • Democracy • Gradual incremental policy changes • Broad consensus across parties and civil society. Prior to 1990s 1990s 2000-2005 • Gradual liberalization • Industrial licensing dismantled • Trade liberalization – tariff/tax reduction • Opening up of FDI • Government regulation to facilitation • Completion of integration with global economy • Financial/capital markets reforms as consolidation • Tariff down to 10%. • To reach ASEAN levels by 2010 • Bilateral Comprehensive Economic Partnership Agreements with EU, Japan, ASEAN etc in pipeline • Closed economy • Centralized planning • Government permission necessary for Setting up industrial plant • Import of capital goods / technology • Expansion of capacity • Key sectors of economy reserved for public sector only

5. India - a strong and vibrant economy

6. 250 220 192 200 141 150 100 75 42 50 32 22 20 5.8 6.4 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 FY08 (till Aug) 16 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 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 Macroeconomic stability Forex Reserves (USD bn) • Steady increase in forex reserves. Trends in Inflation- WPI (%YoY) • Moderate inflation over last few years % Source: Reserve Bank of India, CMIE

7. Robust GDP growth Real GDP growth (%) 9.4 10 9 14 8 12 11 7 10 10.9 5.3 6 8 5 7 4 6 5.15 3 4 2 2 1 0 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 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 Industry growth (%) Services growth (%) Economy – high growth rates (%) Source: Reserve Bank of India, CMIE

8. 18000 15726 16000 14000 12000 USD million 10000 8000 6000 4000 2000 97 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 Economy – high growth rates leading to increasing FDI Increasing FDI trend Svgs & Cap Formation % of GDP ( Current prices) FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 40 33.8 32.4 35 26.3 30 23.1 25 20 15 10 5 0 Goss domestic savings Gross domestic capital formation Source: RBI, DIPP Source: Reserve Bank of India

9. 150 160 140 110 120 100 85 (%) 80 65 50 60 45 40 35 30 40 20 12.5 10 20 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 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 Peak Custom Duty Tax/ GDP ratio Source: Reserve Bank of India 18 16.95 17 16 15 (%) 14.52 14.2 14 15.43 13.38 13 12 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

10. 100 86.5 90 80 70 % 54.2 60 50 43.4 40 33 26.8 30 23.3 19.54 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 FII Investments 12 10.2 10 9.3 10 8 USD Billion 6 4 2.4 2.3 2.2 2 1.8 1.7 1.6 1.5 2 0.6 4 mn 0 -0.4 -2 FY93 FY94 FY95 FY96 FY97 FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 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 India’s market cap to GDP ratio crossed 100% this fiscal year Source: Reserve Bank of India Equity Market Reforms • SEBI – Independent Regulator • Corporatization and Demutualisation Scheme of 19 stock exchanges to make them “for profit” entity : FDI flow started in BSE , NSE • Screen-based nation-wide trading • Scripless settlement • Electronic transfer of securities Source: Reserve Bank of India, SEBI Handbook

11. Macroeconomic stability - Stable currency Rupee exchange rate 60 47.68 50 45.94 45.29 42.04 ( INR / USD) 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

12. Gross NPAs declining trend 16 14.4 12.7 14 11.4 12 10.4 8.8 10 Gross NPA (%) 7.2 8 5.1 6 3.3 4 2 0 Market share in outstanding credit 2006 1998 2000 2001 2002 2003 2004 2005 March 31, 1996 March 31, 2006 PSU Banks 6% Private Sector Banks 82% 9% 73% 21% 9% Foreign Banks 2,500,000 2,109,049 2,000,000 INR Crore 1,500,000 Deposits 598,485 1,000,000 324,079 Advances 500,000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 Developments in Banking Sector • Improved banking governance exhibited by declining Gross NPAs • Share of private sector banks increased from 9% in 1996 to 21% in 2006 Banking Business growing over the years • Banking business growing consistently • Deposits grew by 17% CAGR (1998-06) • Advances grew by 21% CAGR (1998-06) Source: RBI

13. Going Forward

14. 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

15. Investment Opportunities

16. 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

17. 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

18. India’s ROE quite high relatively 4.0 3.5 India Indonesia 3.0 China Singapore 2.5 P/B (2007) (x) Malaysia Taiwan Philippines 2.0 Thailand Hong Kong 1.5 Korea 1.0 1 2 1 4 1 6 1 8 2 0 2 2 2 4 2 6 2 8 RoE (2007) (%) Source: Prowess, CLSA Asia-Pacific Markets P/B = Price to Book value 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

19. Indian firms seek global reach USD 12.1 billion Acquisition made Tata Steel world’s fifth largest steel producer globally Tata Steel bought Corus Plc USD 6 billion Acquisition made Hindalco the world's largest aluminum rolling company Hindalco acquired Novelis Inc. USD 1.6 billion Acquisition made Suzlon world's third largest wind power company Suzlon Energy Ltd. acquired REpower USD 0.5 billion Acquired German’s third largest generic companies Dr. Reddy’s acquired Betapharm USD 0.5 billion Acquisition made United Spirits world's second largest spirit company United spirits acquired W&M

20. 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

21. Infrastructure Opportunities

22. 450 417 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2007 (YTD) 2010E 400 350 300 250 193 Mobile subscribers in mn 200 166 150 96 100 52 33 50 13 6 4 3 1 2 0 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 Infrastructure Opportunities : Indian Telecom Industry Growth of Indian telecom (wireless) sector….. Source: Credit Suisse, Press, Analyst Reports, TRAI

23. Infrastructure Opportunities : Indian Telecom Industry (contd.) led by conducive regulatory framework…… 18 160 NTP-99 147 16 15.3 140 14.5 Lowering of ADC from 30% to 10% of Sector Revenues 14 120 12 Mobile Subscribers Base (millions) 100 3rd & 4th Cellular operator 89.5 10 WLL Introduced 80 Effective Mobile Tariffs (Rs/min) 8 7.2 51.5 60 6 4.2 33.3 40 3.1 4 3.1 1.9 20 1.2 2 1 6.4 0.9 3.6 1.2 1.9 0.9 12.8 0 0 Mar-01 Mar-98 Mar-99 Mar-00 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

24. Airlines Sector Performance 80 32 35 70 30 23.7 60 21.5 25 50 20 40 Units Units 70 15 11.6 30 50 10 40 20 32 25 5 22 10 19 17 0 0 2003-04 2004-05 2005-06 2006-07 International Domestic % Growth Infrastructure Opportunities : Civil Aviation • 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

25. 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

26. Urban Infrastructure, Railways, 2 11 Roads, 63 Civil Aviation, 2 Ports, 8 Number of projects Urban Infrastructure, Railways, 0.22 0.10 Civil Aviation, 0.42 Roads, 2.99 Estimated Value (USD Billion) Ports, 4.65 Significant plans to improve the country’s infrastructure Public – Private participation being encouraged PPP Projects Awarded Source : Ministry of Commerce, Government of India Source: World Bank report and PPPinindia.com – the study did not include Power sector

27. Thank You www.dipp.gov.in