Indian Economy and Business Opportunities for the Israeli Business Community

1. Indian Economy and Business Opportunities for the Israeli Business Community

2. OVERVIEW • Warm and Multifaceted relations - Underpinning for bilateral economic and trade cooperation. • Modern democratic societies. • Growing warmth and comfort in relations. • People to people contacts. • Israelis visit India - large numbers, extended stays.(40,000 last year). • Nearly 70,000 strong Indian origin Jewish community - important foundation.

3. BILATERAL TRADE • Positive atmosphere. • Significant growth from less than $ 200 million in 1992 to over $ 2.7 billion in 2006. • Target - $ 5 billion in a couple of years.

4. Bilateral Trade Figures for January-September 2007 (as received from Israel’s Ministry of Industry and Trade)

5. Bilateral Exchanges A new momentum with a series of decisions and agreements. During the last two years : Prime Minister Mr. Ehud Olmert, as the then Vice Prime Minister and Minister of Industry, Trade, and Labor of Israel, in December 2004. Mr. Kapil Sibal, Minister for Science and Technology and Ocean Development, May 2005. Dr. Y.S. Rajasekhara Reddy, Chief Minister of Andhra Pradesh, July 2005. Mr. Kamal Nath, Commerce & Industry Minister of India, November 2005. Mr. Sharad Pawar, Minister of Agriculture, Food & Civil Supplies, Consumer Affairs and Public Distribution, in November 2005 and most recently from May 10-12, 2006 along with 3 Chief Ministers and 7 State Agriculture / Irrigation Ministers. Mr. Eliyahu Yishai, Minister of Industry, Trade & Labour of Israel, December 3-8, 2006. Mr. Shivraj Singh Chouhan, Chief Minister of Madhya Pradesh, January 29-February 1, 2007. Mr. Shaul Mofaz, Minister of Transport & Road Safety of Israel, March 19-22, 2007. Dr. Ashwani Kumar, Minister of State of Industry of India, August 4-7, 2007 Dr. Mukul Sangama, Dy. Chief Minister of Meghalaya, October 30 – Nov. 5, 2007 Mr. Meir Sheetrit, Minister of Interior, November 6-8, 2007

6. JOINT STUDY GROUP REPORT • Released By Mr. Ehud Olmert and Mr. Kamal Nath in November 2005. • Identifies the Potential Areas for Future Cooperation and Mechanisms for Realizing the Agreed Goals.

7. JSG Recommendations • Promote Negotiations on Preferential Trade Agreement Between India and Israel; • Mutual Recognition Agreements to Overcome SPS/ TBT Barriers in Each Other’s Country; • Greater Cooperation Between the Customs Authorities of Both the Countries to Facilitate Smooth Trade; (IV) Full Utilization of the India-Israel Industrial R&D Fund; • EXIM Bank and its counterpart In Israel to Finalise the Financial Protocol to Ensure Timely Payments to the Israeli Exporters Particularly Working With the State Governments and Local Bodies;

8. JSG Recommendations continued • Establish Investment Dialogue to Facilitate Investments in Both the Countries; • Exchange Information Concerning Civil Public Procurement as per Rules; (VIII)Establish a Joint Working Group For Liberalization Of Trade in Services; • Facilitate Joint Business Website to sensitise the Business Communities about the Rules And Procedures in Each Other’s Country; • Expedite Negotiations on Bilateral Shipping Agreement; (XI)Facilitate Opening Of Bank Branches in Each Other’s Countries.

9. Israeli Companies in India • Israeli companies making major strategic decisions. • Moving away from a buyer-seller relationship. • Setting up R&D and development centres or production units. • A number of Israeli companies have facilities in India or are getting work done in India:

10. India-Israel Cooperation in Agriculture • Extensive. • 3-year comprehensive Work Plan for cooperation in the field of agriculture signed in May, 2006. (agriculture research, energy efficient greenhouses, irrigation, input delivery mechanisms, dairy development, recycling of wastewater, exchange of genetic material, higher education and training). • Several Israeli companies are active in India. • JVs for manufacture of drip irrigation systems and in the areas of floriculture and horticulture.(Olive plantations in Rajasthan)

11. Science and Technology • Wide-ranging cooperation. • Comprehensive S&T agreement reached during Israeli Science Minister Zandberg’s visit toIndia in December 2003. • Bilateral India-Industrial R&D Fund: • $ 1 million each by Israel and India. • India willing to contribute $25 million to this fund over a period of time. • The first three calls for proposals closed successfully. • The fourth call is open now.

12. India’s Advantages • Emergence of India's services sector, and creation of a technology hub serving the entire globe. • Advantages of speed and cost in research and development, process development, design, project management, etc. • Increasingly being leveraged by world corporations.

13. India: Astounding Demographics 20 33 120 404 613 9 17 74 285 710 DEMOGRAPHIC TRANSFORMATION OF INDIA Growth in the higher income categories of India’s population is creating an affluent section with high purchasing power Annual Household Income (in USD) 2 Rich (Above 115,000) 9 High Income (57,000 – 115,000) Population (million) 48 Consuming class (23,000 – 57,000) 221 Working class (10,200 – 23,000) 726 Needy (Below 10,200) 2005-06 2009-10(E) 2001-02 * In PPP terms Increasing per capita income and a growing middle class is driving a high level of consumerism in India Increasing per capita income coupled with an emerging middle class has provided the necessary impetus to consumerism in India Source: RBI Statistics

14. Young Population • One billion people - greatest strength. • Some 20% of the world’s population under the age of 24. • 70% of India’s population is less than 36 years old. • Literacy rate of 70%.

15. India’s Demographic Dividend Youngest workforce in the world… % SHARE OF AGE GROUP

16. Skilled Human Resources • Over 380 universities, 11,200 colleges, 1500 research institutes. • India adds each year 3 million graduates, 700,000 post graduates and 1,500 doctorates to its knowledge capital. • The largest English speaking IT talent pool in the world - over 120,000 trained IT professionals. • Some of the best engineering and management institutes.

17. Free Trade Agreements • SAFTA – FTA: On January 1, 2006, SAFTA (South Asian Free Trade Area) came into being – a leap forward from the previous SAPTA. • India-ASEAN FTA may soon become a reality • With Singapore and Thailand, agreements already in place. • Engaging with the Latin American countries through MERCOSUR. • With the South African countries through SACU (South African Customs Union).

18. Economic Reform • Indians recognize the value of globalization. • Direct and indirect taxes - rationalised. • Special tax breaks in certain sectors like power, electronics, telecom, software, hydrocarbons, R&D and exports. • Government divesting its stake in public sector.

19. India’s Economic Growth • The 4th largest economy in terms of purchasing power parity after the US, China and Japan. • India is among the group of 12 countries with a trillion dollar economy. • Among the fastest-growing economies. • Average annual growth rate has been 6.5% over the past decade.

20. India: Among the Top-15 Countries in terms of GDP at constant prices The Indian economy has witnessed unprecedented growth…. Booming services and industry sectors are providing the required impetus to economic growth India’s GDP has witnessed high growth, and was the second fastest growing GDP after China in 2006-07 Fastest GDP growth of 9.4 percent in 2006-07, since last 18 years (at constant prices) Indian economy is expected to be 3rd largest in terms of PPP – USD 4.5 trillion by the end of 2007 Contribution of Services - increased from 48 percent to 55 percent Growth in sectors at Current Prices (2006-07): Industry: 16.2% Services: 16.3% Agriculture: 10.2% The sound performance of each industry segment is leading to the overall robust performance of the Indian economy Estimated growth rate in various GDP sectors for Q1 (2007-08) is: Industry – 15.9 percent, Agriculture – 11.4 percent and Services – 15.7 percent Source: MOSPI Statistics

21. Projections for India’s Economic Growth • Projections for the coming decades continue to be optimistic. • BRICS report of Goldman Sachs predicts a sustained rate of over 5% growth for India during the next thirty years. • Morgan Stanley believes that India can grow at over 7% for the next ten years.

22. India: Robust Economic Platform India’s strong economic performance has been the major contributor towards increased Forex reserves …at present level of Forex reserves, the country has adequate cover for 12 months of imports Steadily increasing Forex reserves offer adequate security against any possible currency crisis or monetary instability India’s Forex reserves are in excess of external debt… Falling Dollar inflates the India’s external debt Forex reserves witnessed an increase of 200 percent for the period 1990-2007 Increased confidence of investors in Indian companies has led to a surge in cross border borrowing by corporate houses …the decreasing external debt to GDP ratio indicates that India has a sound economic platform Source: RBI Statistics

23. India: Surging Exports Exports have recorded a growth of 25% during the last three years. Services sector has been a major contributor to increased exports from India Quality and cost advantage are the two important parameters leveraged by the Indian producers to increasingly market products and services Acceptance of Indian products along with the cost advantage has provided an edge to Indian companies * - 2007-08 provisional data for period of April to July only Indian companies have chalked out extensive plans to increase their presence abroad India’s global economic engagement in 2006, covering both merchandise and services trade, was close to US$ 440 billion. Petroleum products are the major contributors towards India’s growing imports Product imports by India mainly include petroleum products and minerals * - 2007-08 provisional data for period of April to July only Source: Ministry of Finance (August Report)

24. India: Vibrant Capital Market 10/9/2007 Crossed 18,000 mark 09 July 2007 Crossed 15,000 mark 07 February 2006 Crossed 10,000 mark 30 December 1999 Crossed 5,000 mark 23 stock exchanges with over 9000 listed companies. Bombay Stock Exchange is the second largest in the world after NYSE. Sensex – The Bombay Stock Exchange index has risen 18 times from 1990s to reach 18,000 mark in October 2007. India is among the major destinations across the globe for inflow of US Dollar i.e. FIIs Sensex has risen 18 times in the period 1990-2007 Emergence of industry and confidence of local investors along with the FIIs has led to increased movement of the Sensex FIIs have infused large investments into the Indian stock market Encouraging industry performance Increased local investors’ confidence

25. Foreign Direct Investment • India rated as the second most attractive destination for investment according to the World Investment Report 2005 of UNCTAD. • One of the most liberal FDI policies in the world. • FDI trebled to US$ 11.4 billion in the first half (H1) of 2007, from US$ 3.6 billion in H1 2006.

26. India: Attractive Investment Destination 180 percent Increase With improved performance on PE ratio and ROE, Indian markets have attracted large investments India is ranked second in AT Kearney’s FDI confidence index Electronic equipment, manufacturing and telecom have witnessed significant FDI inflow FDI inflow for the period 2006-07 witnessed a growth of 180 percent over the same period last year Large FII activity in India has led to an upsurge in the Sensex Source: DIPP (June Report), SEBI

27. Mergers/Acquisitons andInvestments Abroad • Increased confidence in the global arena • (Mergers/Acqusitions in Israel: Naan-Dan-Jain Irrigation, Alliance Tyre Company, Pharmaceutical sector, and some others in the offing).

28. India: Vibrant Economy Driving M&A Activities • Growth Drivers: • Globalisation and increased competition • Concentration of companies to achieve economies of scale • Lower interest rates and vibrant global markets • Cash Reserves with corporates In 2006, there were a total of 480 M&A deals and 302 private equity deals… • Trends: • Ratio of the Size of acquisition to the size of acquirer has grown from 10 percent in 2004 to 25 percent in 2006. • Cross-border deals are growing faster than domestic deals • Private Equity (PE) houses have funded projects as well as made a few acquisitions in India … Average deal size close to USD 36 million… …Average private equity investment deal size increased to USD 26.02 million in 2006 from USD 16.4 million in 2005 Indian companies have clocked M&A deals approximately worth USD 31 billion during the first eight months in 2007 Source: Dealtracker Grant Thornton, Economic Times

29. Major M&A Deals Undertaken Abroad by India Inc. Tata Steel buys Corus Plc USD 12.1 billion Hindalco acquired Novelis Inc. USD 6 billion Essar Steel acquired Algoma Steel USD 1.58 billion Suzlon Energy Ltd. acquires REpower USD 1.6 billion United Spirits Ltd. acquired Whyte & Mackay USD 1.1 billion

30. Major M&A and Investments Announcements in India Vodafone buys Hutch USD 11 billion Plans to spend on its development operations in India over the next four years USD 1.7 billion Plans investment in private equity, real estate, and private wealth management USD 1 billion Aditya Birla Group increased its stake in Idea Cellular by acquiring 48.14-percent stake USD 0.98 billion Renault, Nissan and Mahindra & Mahindra have initiated a Greenfield automobile plant project in Chennai. USD 0.905 billion Mylan Laboratories acquired a majority stake in Matrix Laboratories USD 0.74 billion

31. Market Size • Consumer, infrastructure, transportation, energy, environment, healthcare, education, hi-tech sectors - market that exceeds tens of billions of dollars in each sector. • The fastest-growing car market in the world. • Spending through credit cards has doubled during the past two years.

32. IT Industry • With a CAGR of 28% during the last 5 years, India has emerged as the fastest growing IT Hub in the world. • The IT industry's contribution to GDP rose from 1.2 % in 1999-2000 to an estimated 5.2% in 2006-07. • According to NASSCOM, gowing at the rate it is now, the total IT industry can touch US$ 100 billion by 2010. • Revenues - US$ 47.8 billion in 2006-07. • The software and services exports from India amounted to US$ 31.4 billion during 2006-07, up 33% from the previous year. • In terms of quality, 82 companies certified at SEI CMM Level 5 - higher than any other country in the world.

33. Telecom Industry • One of the fastest growing sectors. • With share of 12-15 %, second-largest in terms of approved FDI. • Investments up to US$ 25 billion over the next five years (E&Y study). • Teledensity increased by nearly 48% in the last 12 months from 12.80% to 22.52%. • 256 million telephone subscribers (November 2007). (Projection: 500 million by the year 2010) • With 8.05 million added in October 2007, there are close to 220 million mobile phone subscribers. • 2.69 million Broadband connections (Oct.2007) (Projection: 20 million connections by 2010)

34. Biotechnology • Over 30% growth for past 3 years. • With over 325 companies, revenues of US$ 2 billion and exports of US$ 1.2 billion in 2006-07. (US$ 5 billion in revenues estimated by 2010) • Investments crossed US$ 580 million in 2006-2007 with companies like Jubilant, AstraZeneca, GE Healthcare and Biocon. • One of the most favoured destinations for collaborative R&D, bioinformatics, contract research and manufacturing and clinical research. • The Contract Research Organizations (CRO) market in India is worth US$ 250 million and is growing at 30-40 % per year.

35. Pharmaceuticals • US$ 4.5 billion pharmaceutical industry growing at 8-9%. • With 60% of bulk drugs production being exported, global recognition as a producer of low-cost high quality bulk drugs and formulations. • Ranked 4th globally in terms of volume and 13th in terms of value, India has the highest number of manufacturing plants approved by the United States Food and Drug Administration (USFDA).

36. Automotive Industry • One of the fastest-growing manufacturing sectors and a globally competitive one. • Outsourcing centre for manufacture of auto parts for Ford, Daimler Chrysler, Fiat, Volvo and Renault, etc. • Toyota -India a global hub for transmission systems. • Volvo and GM - purchasing offices. • Rising share of Indian auto parts exports - to Original Equipment Manufacturers (OEMs).

37. Agriculture and Food Processing • With 601 million tonnes, one of the world’s largest food producers. • Largest producer of milk and dairy products. • Second-largest producer of fresh fruits and vegetables. • Third-largest producer of food grains in the world. • Largest producer, consumer and exporter of spices. (more than 50 types of spices with annual production of 3.02 million tonnes). • Total Food market - USD 91.66 billion (estimated to double by 2015). • The processed food market - $30 billion. • India needs $28 billion of investment to raise food processing levels by 8-10 %. • 60 Agri Export Zones and 53 Food Parks approved to enable small and medium food and beverage units.

38. Infrastructure • Forecast for requirements: $320 billion in the next five years. • Highways: India undertaking the world’s largest highway project of 14000 km. $39 Billion • Ports and Airports undergoing modernization and upgradation.Ports : $11 Billion;Airports - $ 9 billion • Rail: $5.7 Billion • Communications : $69.2 Billion • Electricity (108,000 MW of additional power by next decade), water & gas supply : $31.5 billion

39. REAL ESTATE • Annual growth rate of 30%. • Investment of $16 billion expected over the next five to six years in Real Estate. ($7-$8 billion in next 18-30 months). • Returns in India range in 12-15% compared to 3-4% in more advanced countries. • 100% FDI allowed under automatic route in townships, housing, built-up infrastructure and construction-development project, subject to certain conditions. • Venture funds can invest in local real estate. Over 30 foreign funds have applied to start operations in India. • Real Estate Mutual Funds (REMF) can invest directly or indirectly in real estate property.

40. Additional Potential Areas of Cooperation • Israel and India are major knowledge centres.  • Non-conventional energy. • Nanotechnology • Venture capital funding • High-end security software development • IT products and Telecom software • Medical Equipment • Environmental Technologies (including water management and non-conventional energy) • Homeland Security

41. Thank You