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Investing in India India as an investment destination

Investing in India India as an investment destination. 29 February 2012. Why India. India- Compared to the Globe. India is the ninth largest economy in the world and the fourth largest in terms of PPP. India is the ninth largest economy in the world.

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Investing in India India as an investment destination

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  1. Investing in IndiaIndia as an investment destination 29 February 2012

  2. Why India

  3. India- Compared to the Globe

  4. India is the ninth largest economy in the world and the fourth largest in terms of PPP India is the ninth largest economy in the world India is the fourth largest economy in the world by GDP (PPP exchange rates) Source: IMF *PPP - Purchasing power parity Source: CIA World Factbook (accessed 3 January 2012) Source: IMF

  5. World Economy: India stands tall on the savings front India compared with the developed world India’s position among BRIC nations India has one of the leading savings rate across the world. It outperforms various developed world nations with a savings rate (as a percentage of GDP) at 34.2% Gross national savings (% of GDP) – 2010 Unemployment rate – 2010 India’s unemployment rate is higher when compared to BRIC nations as well as the developed economies such as the US and France. Source: IMF Source: IMF

  6. World Economy Outlook: India continues its stable positioning Source: IMF • The world output is expected to be sluggish due to slower recovery in advanced economies and large increase in fiscal and financial uncertainty across the countries. According to the IMF, the world economy is expected to grow at a rate of 4% in 2012. • Advanced economies are projected to expand at a slow pace in 2012 with the US expected to grow at 1.8% and Japan’s GDP expected to grow by 2.3% after the mild recovery from the aftermath of March 2011 earthquake. Euro-zone is expected to grow at 1.4% in 2012 owing to the current debt crisis. • Growth for the emerging market economies is expected to remain robust. Among the BRIC economies India and China have maintained a stable position, driven by buoyant exports and strong domestic demand. IMF projects China and India to grow at 9.0 % and 7.5% respectively in 2012.

  7. Indian economic overview

  8. Growth outlook Source: CMIE Monthly Review of Indian Economy (2011 – December) *CMIE projections India’s economic growth slipped to 6.9% in the second quarter of FY12 mainly due to poor manufacturing performance and declining output of the mining industry.

  9. Robust forex reserves BSE Sensex (as at month-end) Net FII investments Source: BSE website Source: Securities and Exchange Board of India Note: FII inflows have fallen in 2011 under the impact of inflation, corruption scandals and expected lacklustre performance of Indian equities Significant depreciation of Indian Rupee Foreign exchange reserves in India Forex markets Indian Rupee joined the elite group of unique currencies in 2010 Currencies rebased to 100 at end of March 2009 Source: RBI Source: Oanda website

  10. FDI inflows – India the third most attractive FDI destination in the world FDI in India (US$ billion) • Top global destination for FDI: According to UNCTAD’s ‘World Investment Prospects Survey ‘2011-2013’, India is the third most attractive destination for FDI (after China and US) in the world. • Decline in FDI inflow during FY11: FDI in India stagnated during FY10 witnessing a y-o-y decrease of 0.20%. It witnessed a steeper 19.6% decline during FY11. • Key causes: The decline in FDI can be attributed to delay in government approvals for projects, land acquisition issues and macroeconomic factors such as interest rates and inflation. • Renewed momentum in FDI in FY12: During FY12 (Apr-Oct), the FDI inflow into India has witnessed a remarkable comeback growing y-o-y by 45.3%. The government is likely to ease FDI norms in single brand retail (plans to increase FDI cap to 100% from 51%), thereby promoting retail FDI. Source: RBI Bulletin FDI includes credit portion of direct investment in equity, reinvested earnings and inter company debt transactions *Provisional Number of proposed investments and their value • Investment momentum: During the period 2003-2010, the value of investment proposals into India increased at a CAGR of approximately 47.4%. • Sustained growth during 2011: During 2011 (till September), India has received 3,116 investment proposals amounting to US$288.7 billion. • Procedural reforms: The Government has allowed Foreign Investment Promotion Board (FIPB) to clear FDI proposals up to a limit of INR12 billion. Earlier investments above INR6 billion were put before Cabinet Committee of Economic Affairs (CCEA) for approval. Till Sep Source: Department of Industrial Policy & Promotion, Government of India *Includes Industrial Entrepreneur Memoranda, Letters of Intent and Direct Industrial Licenses *Exchange rate =INR 52 /US$ (for 2011 proposed investment)

  11. FDI Equity – leading sectors and countries of origin • Services sector continues to be the favorite investment destination for foreign investors. The sector attracted US$3.3 billion FDI in FY11 (US$4.2 billion during FY10). • During FY11, services sector share in FDI stood at 17.5% followed by telecommunications (9%) and automobile industries (7%) • In FY11, metallurgical industries witnessed the highest growth (171%) in attracting FDI over FY10 followed by petroleum and natural gas sector (111%) and chemicals (10%). • In the period Apr-Oct 2011, India received FDI equity inflows of US$20.3 billion. • Between Apr-Oct 2011, services sector had the largest share in inbound FDI with a share of 16.9%. It is followed by drugs & pharmaceuticals (15.2%) and telecommunications sector (9.7%). Break up of FDI by sectors FY11 FY10 Source: Department of Industrial Policy & Promotion, Government of India Break up of FDI by countries of origin • Mauritius has been the largest source of FDI inflows in India for many years. Cumulative FDI inflows from Mauritius reached US$61.2 billion in October 2011 since April 2000. (US$7.0 billion in FY12 – Apr-Oct). • Singapore remained the second largest source of FDI in India in FY10 and FY11 (US$3.3 billion during FY12 – Apr-Oct). • During FY12 (Apr-Oct), UK has emerged as the third largest source of FDI in India. Between Apr-Oct 2011, India has received US$2.6 billion from the country (US$755 million in FY11). • Another key trend is the emergence of Japan as the fourth largest source of FDI in India. Between Apr-Oct 2011, India has received US$1.8 billion from the country (US$1.6 billion in FY11). FY11 FY10 Source: Department of Industrial Policy & Promotion, Government of India *Services includes financial and non-financial services, **Others includes computer software and hardware, petroleum and natural gas, chemicals, pharmaceuticals, hotel and tourism and other sectors

  12. Recent FDI (Equity) investments in India Major announcements Insurance • Nippon Life, Japan’s largest insurance company has acquired 26% stake in Reliance Life for a sum of INR30.6 billion. Oil & Gas • BP has recently announced a partnership with Reliance Industries Limited (RIL), wherein BP would take a 30% stake in RIL’s 23 Oil and Gas blocks at a consideration of US$7.2 billion. Renewable energy • GE plans to invest US$50 million in its maiden renewable energy project in India with Greenko Group, a green energy developer. Technology • Japan’s SoftBank Corp has invested US$200 million in InMobi, an independent mobile advertising network provider. Cross Sector • International Finance Corporation (IFC), the private sector funding arm of the World Bank Group, plans to invest upto US$1 billion in India during FY12. It plans to focus on infrastructure, clean energy, energy efficiency and other investments in socially important sectors such as water and healthcare. Mining • Odisha government is expected to renew the MoU with South Korean steel major, Posco. Posco will set up a US$12 billion 12-mtpa steel mill in the state. • Anglo-Australian mining giant, Rio Tinto has proposed to invest upto US$2 billion with local partners in India to develop iron ore mines in the Indian state of Odisha over the next few years. Financial Services • Life Healthcare, South Africa’s second largest hospital chain, is acquiring a 26% stake in Max Healthcare for INR5.16 billion, making it one of the largest foreign investment deals in the Indian healthcare sector Automotive • Force Motors has announced plans to invest INR7.5 billion in new product development and capacity augmentation. • Volkswagen plans to invest INR17.28 billion in India over the next few years on tooling and vendor development • Honda Motorcycles has announced new unit in Karnataka • Ford has announce d new unit in Gujarat Source: Department of Industrial Policy & Promotion, Government of India

  13. Outward FDI – leading sectors and destinations India: outward FDI Break up of outward FDI by sector FY11 Source: RBI Source: RBI Break up of outward FDI by destination • Indian companies invested US$16.7 billion in overseas joint ventures and wholly-owned subsidiaries during FY11 (compared to US$10.4 billion in FY10). • Approximately 56% of the investment was financed through equity component and 44% through loans. • Services sector (including financial, insurance, real estate and business) witnessed the highest outward FDI (US$5.8 billion) in FY11. • Mauritius received the largest Indian outward FDI of approximately US$5 billion in FY11. Together, Mauritius, Singapore, Netherlands, United States, and United Arab Emirates accounted for 71% of total outward FDI. FY11 Source: RBI

  14. Growth driver: exportsMerchandise exports expected to reach US$500 billion in FY14 • IT services leader: India is a leading exporter of IT services in the world (55% share in global sourcing industry). During FY11, India’s services exports are estimated to be US$132 billion. • US top IT services export destination: The US and the UK together account for a dominant share of India’s IT-BPO exports (US$50 billion in 2010) at approximately 61.5% and 18%, respectively. • Merchandise exports cross US$200 billion mark: During FY11, India’s merchandise exports are estimated to have crossed the US$200 billion mark, with exports of US$250.5 billion. • UAE top merchandise destination: UAE continued to be India’s top destination for merchandise exports in FY11 with 13.7% share followed by the US (10.2%), China (7.8%) and Hong Kong and Singapore with a share of 4.1% each. • Global position: India accounts for approximately 1.4% of world merchandise trade. The government aims to double its share in global trade of goods and services by 2020 and expects the merchandise exports to reach US$500 billion in FY14. Source: RBI and Ministry of Commerce *Provisional Source: RBI Source: DGFT

  15. Growth driver: investments New projects announced Projects completed • India has maintained an average of approximately 30% in Gross Fixed Capital Formation as a percentage of GDP between FY02 and FY11. • Projects worth approximately INR1.4 trillion were completed in the first half of FY12. • Approximately INR5.3 trillion worth of projects are expected to be completed in FY12. • Four sectors, primarily electricity, petroleum products, steel, and road transport are projected to witness substantial amount of projects being completed during FY12. Trends in share of gross fixed capital formation (GFCF) Source: CMIE Note: Data after FY04 is adjusted with base year as 2004-05

  16. Growth driver: consumer spendingIncreasing middle class Distribution of income by households* in India Urban population Rural population INR million INR million Consumption pattern Approximately 40% of the expenditure goes in food, beverages and tobacco 40% of the people prefer Real Estate as their saving option Source: Ambit research Source: ENAM Research

  17. Growth driver: consumer spendsIndia expected to become the world's fifth-largest consuming country by 2025 • By 2025, India is expected to become the world's fifth-largest consuming country from its twelfth position in 2010 • India has approximately 222 million households, with more than 30% of the population living in 5,000 cities and towns. • 13 million people enter India’s urban work force each year. • According to the recent global survey of online consumers, conducted in more than 51 nations worldwide, the Indian consumers were found to be the most optimistic. • Significant rural consumption is also a key driver for India’s growth as it constitutes 70% to the total population. • Approximately 56% of the national income is generated through rural customers. • Consumer durables form an important part of the rural consumption. Out of the total consumer durables demand in India, 59% is generated through rural customers. In addition, they contribute around 53% to the total FMCG sales. Source: RBI and CMIE • Source: ENAM Research • *Mortgage expressed as total housing loan outstanding • **DTH is expressed as total subscriber base

  18. Growth enabler: changing demographicsIndia has low median age Age group 80+ Indicating favorable demographics (age groups) • In 2010, India had a dependency ratio of 56% against China (39%), the US (50%) and the UK (51%). • By 2030, India will have a lower dependency ratio of 45% against China (49%), US (61%) and UK (61%). 20% growth 70-74 60-64 50-54 Millions 40-44 30-34 20-24 10-14 0-4 Source: ENAM Research Female Male 5% growth Source: India Labour Report, 2009 Source: CLSA research Source: India Labour Report, 2009; Ministry of Labour

  19. Growth enabler: stable governmentThe Eleventh Plan progress report Achievements Shortfalls Telecom Health Infra Energy Education Health Despite significant achievements, government needs to relook its development priorities in shortfall areas

  20. Growth enabler: robust financial institutionsMaintaining stability Banking infrastructure in India no. of branches of SCBs (As on 31 March 2011) 45,460 • India has a strong and stable financial market, regulated by RBI.SEBI, the strong and independent capital markets regulator is committed to develop and regulate markets in a systematic way. • India’s capital markets are well established with a presence of 20 stock exchanges that constitute the market for securities issued by the government and the corporate entities. • BSE is the world’s largest stock exchange in terms of number of listed companies and the NSE is the world's third largest stock exchange in terms of number of transactions. • The Multi-Commodity Exchange of India (MCX) is among the top three bullion exchanges and top four energy exchanges of the world. NSDL, the first and largest depository for equity market in India manages more than10 million demat accounts. • The Indian banking sector regulated by the Reserve Bank of India (RBI) consists of the public sector banks (26), private banks (21) and foreign banks (32) with a total asset size of approximately INR65 trillion at end-FY11 (US$1.4 trillion). • Public sector banks dominate the banking industry with 74% of the assets held as of FY11. However private sector banking is growing at a rapid pace with 11,968 branches at the end of FY11. RBI has recently come out with new banking licenses which will promote private banking in the country. • Gross NPAs of India’s Scheduled Commercial Banks (SCBs) have declined from 15.7% of net advances in FY97 to 2.24% in FY11. The credit-deposit ratio of Indian SCBs stood at 75.22 as on 16 December 2011 (74.18 as on 18 November 2011). Bank credit and deposits have grown (y-o-y) by 17.1% and 18.0% respectively as of December 2011. • The Government has made provision for recapitalization of banks worth INR65 billion in FY12 budget, to enable banks to maintain a minimum Tier I capital adequacy ratio of 8%. Public sector banks Private Sector Banks 11,968 Foreign Banks 316 Credit – deposit ratio of SCBs *As of 16 December 2011 Source: RBI, NSDL website

  21. Inflation above sustainable levels, RBI stops rate hikes Wholesale price index • WPI in Jan 2012 stood at 6.6% y-o-y, lower than that in Dec 2011 (7.5%). • RBI has revised policy rates regularly to suck out excess liquidity from the financial system using its monetary policy. • In October 2011, it increased the repo rate by 25 basis points to 8.5%. In December 2011, the repo rate remained at the same level as in October and November 2011. • In line with RBI’s hardening monetary stance, average base rates of banks have also been continuously rising. Source: Central Statistical Organization Note: Base year for calculation of WPI is 2004-05 Hike in Repo Average base rates Monetary policy action Source: RBI Source: CMIE

  22. M&A activity – inbound deals dominate the landscape Number of deals and value • M&A activity in India picked up strong pace in 2010, however witnessed a decline in 2011 due to the volatility in the markets and cautious approach of the companies. • During 2011, 963 deals worth US$39.3 billion (By value: Inbound – 62%; Outbound – 24%; Domestic – 14%) were announced. • During 2011, oil and gas sector attracted 23.2% of the total M&A deal value followed by telecommunications services (14.5%) and industrial products (8.2%). • Australia has emerged as the top destination for outbound M&A activity from India accounting for approximately 38.9% of total outbound deals (by value) during 2011, followed by US (14.4%) and UK (10.9%). • UK, US and Germany have emerged as the top M&A investors (by value) in India. • Major deals during 2011 include: • Outbound: Mundra Port & SpecialEconomic Zone Ltd {MPSEZ} –Abbot Point Coal Terminal (US$1.9 billion) • Domestic: Sesa Goa Ltd - Cairn India Ltd (US$1.5 billion) • Inbound: Reliance Industries Ltd – BP PLC (US$7.2 billion) • Inbound: Vodafone Essar Ltd. – Vodafone Group Plc (US$5 billion) Source: Thomson ONE Banker; Ernst & Young research % Break-up of number of deals 2010 2002 2011 Source: Thomson One Banker

  23. PE activity touched US$9.5 billion in 2011 PE/VC activity in India Average deal size • PE activity witnessed tremendous increase in the number of deals in 2011 compared to 2010: • There were 516 PE deals worth US$9.5 billion in 2011. • Average deal size stood at US$25 million in 2011. • Major deals during 2011 include: • MapleTree India China invested US$156.6 million in Assetz Global Technology Park (November 2011) • Goldman Sachs invested US$204 million in ReNew Wind Power Pvt. Ltd. (Sep 2011) • Blackstone Group invested US$200 million in Manyata Promoters Pvt. Ltd. (July 2011) • Apollo Management invested US$290 million in Welspun Corporation (June 2011) • Macquarie SBI Infrastructure Fund invested US$200 million in GMR Airports Holding Limited (Apr 2011) • Bain Capital and GIC invested US$850 million in Hero Honda (Feb 2011) Note: In 2011, deal value was not disclosed for 134 deals Source: VCCEdge; AVCJ; Ernst & Young research Source: VCCEdge; AVCJ; Ernst & Young research Sectoral distribution of PE investments – by value, 2011 Source: Factiva; ISI Emerging Markets; VC Circle; Mergermarkets

  24. Process of investing into India

  25. Foreign investment – Indian scenario Foreign Investments Foreign Direct Investments Foreign Portfolio Investments Foreign Venture Capital Investments Other Investments Investment on non-repatriable Basis NRIs, PIOs Automatic Route* Government Route* FIIs Indi, NRIs, PIOs SEBI regd. FVCIs G-Sec, NCDs, etc VCF, IVCUs FIIs NRIs, PIOs *Foreign Direct Investments (FDI) can be made in India under two routes i.e. Automatic Route and Government Route. Under the Government Route, prior approval is required to be obtained from Foreign Investment Promotion Board (FIPB) for making foreign investments into India. Under the Automatic Route no approval is required for making investments into India. Further, the FDI Policy also provides for sectoral caps on the limit of foreign investments for certain sectors – telecom services (74%), banking (74%), airline ( 49% to 74%), insurance ( 26%) FDI is not permitted in certain sector such as lottery, gambling, real estate business, etc

  26. Forms of business presence in India Foreign Company Operates as a foreign company Establishes an Indian company Liaison Office Project Office Branch Office Joint Ventures Wholly Owned Subsidiary Other forms of business • Franchisee and distributor arrangements (no direct presence) • Foreign technology collaborations (no direct presence) • Limited Liability Partnership (‘LLP’)

  27. Investment instruments Investment in India can be made through following instruments Equity Capital Carries voting rights Can have differential rights Fully Convertible Debentures (“FCD”) Tax break for interest cost Fully Convertible Preference Capital Carries preferential right in dividend with restrictions on dividend rate Foreign investment in Non-convertible, Optionally convertible or Partially convertible Preference shares/ Debentures would generally be considered as debt and shall require compliance with ECB guidelines

  28. Tax Environment in India

  29. Overview of Direct Taxes in India

  30. Overview of Indirect Taxes in India

  31. Recent regulatory updates

  32. Direct Taxes Code Bill, 2010 • Government of India’s (GoI’s) objective to revise, consolidate and simplify direct tax laws • Direct Taxes Code Bill (DTC 2010) was placed before the Indian Parliament on 30 August 2010 • DTC 2010 is proposed to be implemented with effect from 1 April 2012 Ambiguity Complexity Improve efficiency by eliminating distortion in tax structure Provide stability on tax regime based on principles of taxation on best international practices Constraints with The Current Income Tax Act Inconsistent interpretation Increased litigation Thrust for DTC Simplify the tax structure for the average tax payer Remove ambiguity to foster voluntary compliance Increased compliance Conflicting judgments • Key proposals impacting international transactions • Modification of residence rule • Introduction of Controlled Foreign Company (CFC) rules • Specific provision dealing with indirect transfer of shares • Introduction of Branch Profit Tax • General Anti Avoidance Rules (GAAR) to be legislated Introduce moderate level of taxation and expand the tax base

  33. Goods and Services Tax • At present, various Indirect taxes are levied at both Central and State level • Under the current system, not all kinds of Indirect taxes are creditable against each other, leading to tax cascading • A system of unified Goods and Service Tax (GST), has been proposed to bring a fundamental shift in the way business transactions are taxed in India • GST is proposed as a comprehensive value added tax levied on the supply of all goods and services (except for a negative list) • It is proposed that various State and Central level Indirect taxes such as Excise duty, State level taxes on sale of goods, Service tax would be subsumed under GST • GST is expected to have a dual structure with Centre and State levying taxes on the same supply of goods/ services • GST is expected to reduce tax cascading and accordingly, the overall incidence of taxes Advantages of GST

  34. Exemption/ deferral from Value Added Tax or flow back of input credit for a initial period of years, capital subsidy, etc, subject to certain specified conditions Incentives under State Industrial Policy Exemption from Entry tax Benefits available - Illustrative • State Governments in order to promote industries in their respective states provide certain additional incentives over and above incentives provided under the Indirect tax laws • These incentives are primarily based on following criteria: • Amount of investment; • Employment; • Location; and • Nature of Project • These incentives are usually available in respect of new industrial projects/ substantial expansion of existing plant/ unit • Please note that the availability and extent of the benefits under State industrial policies vary greatly from State to State Exemption/ concessional rate of electricity duty / electricity generation tax/ electricity fees Waiver/ concessional rate of stamp duty Reservation of products for exclusive manufacture by the SSI Other incentives such as concessional rates for land in identified areas may also be granted on case to case basis

  35. National Manufacturing Policy Leveraging infrastructure deficit & government procurement Rationalization and simplification of business regulations Increase domestic value addition Creation of appropriate skill sets Ensuring sustainability of growth particularly with regard to the environmental impact Increase manufacturing growth to 12-14% Enhancement of global competiveness of Indian manufacturing Increase the rate of job creation • For sustainable growth of the manufacturing sector, Government of India has recently introduced the National Manufacturing Policy, 2011 (NMP) Simple and expeditious exit mechanism for closure of sick units while protecting the labour interests Proposed Policy Instruments Objectives Development of Special Focus sectors and implementation of supporting Trade Policy Financial & institutional mechanisms for technology development (including green technology) Incentives for Small and medium Sector Enterprises (SMEs) Industrial training and skill up-gradation measures

  36. Sector overview

  37. Roads and highwaysOverview Sector fundamentals • India has the world’s second largest road network comprising a total length of 4.24 million km and accounting for 87.4% of passenger and 60% of freight traffic respectively. • As of October 2011, the total length of National Highways (NH) length was 66,800 km accounting for only 2% of the country’s total road length and approximately 40% of the total traffic. • In order to improve the road infrastructure, the Government of India (GoI) has undertaken several initiatives such as the launch of National Highway Development Program (NHDP), PradhanMantri Gram SadakYojana (PMGSY) and Special Accelerated Road Development Program in the North East (SARDP-NE). • Several policy measures such as standardization of bidding documents, model concession agreements, project restructuring and viability gap funding have been announced to promote public private partnership (PPP) and to increase the financial viability. Investment scenario • The Ministry of Road Transport and Highways (MoRTH) has set a target to construct 20 km of national highway everyday. • Total investment in the 12th Five Year Plan is estimated to be US$100 billion as against US$61 billion in the 11th Five Year Plan. • Private investment is expected to cross US$40 billion in the 12th plan as against US$10 billion in the 11th plan. • During the 11th Plan, NHAI awarded 12,138 km of projects worth US$18 billion to the private sector. • Companies had the opportunity to bid for around 20,236 km of road length, which were yet to be awarded under the NHDP as of November 2011. • Foreign players including ITD Cementation, Berhad (Malaysia), Isolux Corson and IJM Corporation have entered the road sector.

  38. Roads and highwaysOpportunities • Since 2005, as a policy decision all projects under the NHDP are awarded on a PPP basis through competitive bidding, providing a substantial opportunity for private players • Many NH stretches have already been awarded to private companies on a Build-Operate-Transfer (BOT) basis. • 100% income tax exemption for a period of 10 years is provided to attract private investors • To attract foreign investment, 100% FDI under the automatic route is permitted for all road development projects • In the 12th Five Year Plan, private sector is expected to provide 40% of the total investment in the sector, creating a significant opportunity for private players. NHAI Work Plans • Estimated investment requirement of US$75 billion to develop 36,765 km under NHAI work plan • An investment of approximately US$45 billion on four-laning of 50,000 km of national highways • 16,000 km of NH have been four-laned, while another 10,500 km is under implementation, all through PPP Mega projects • Ten mega national highway projects (worth more than US$1 billion each) have been identified to be developed through PPP Expressways • New expressway program outlined to build 18,637 km of greenfield national expressways by 2022 • 1,000 km of expressways are expected to be completed over the next 4 years at an estimated cost of US$5 billion by private players on BOT basis State highways and rural roads • In PPP, around 149 private state road projects involving a total cost of US$15 billion are in pipeline. • World Bank and Asian Development Bank approved projects include the Karnataka State Highway Improvement Project-II, Madhya Pradesh State Roads Project-III and the North-Eastern State Roads Investment Program. • Private investment of around US$2 billion has been mobilized by states and another US$12 billion is under way

  39. RailwaysOverview Sector fundamentals • Indian Railways (IR) constitutes the third largest rail network in the world spanning over 64,000 km. • The IR carries approximately 35% of country’s freight traffic . • In 2010-11, IR’s total earnings increased by 8.5% y-o-y to INR945 billion, freight accounted for 70% of it. • Freight traffic doubled from 493 million tonnes (mt) in 2001-02 to 924 mt in 2010-11. • Freight and passenger traffic are expected to grow to 2,200 mt and 15 billion respectively by 2019-20. Investment scenario • Total investment in 12th Five Year Plan is estimated to be US$64 billion as against US$44 billion in the 11th Five Year Plan. • During the 11th Five Year Plan, IR garnered only 4% of the total investment of US$44 billion through PPP projects. • Investment of approximately US$35 billion are planned for rail-based mass transport projects by 2021 including US$6 billion for Mumbai monorail and US$1.2 for Bengaluru monorail project. • IR’s port connectivity projects received US$800 million in private investment through PPP. • The Vision 2020 document of IR estimates that a total investment of US$300 billion is required till 2019-20.

  40. RailwaysOpportunities • IR considers PPPs as the most proffered route for areas such as world-class railway stations, high speed corridors, multi-functional complexes, ports and other connectivity works. • Special freight terminal operator scheme, private freight terminal scheme and the revised 3i investment policy are expected to attract private participation. • At present, metro projects in Mumbai, Chennai, Jaipur, Bengaluru, Delhi and Gurgaon are under development entailing a cumulative investment of US$12 billion • Metro rail in seven more cities are at planning stage including Ahemdabad, Chandigarh, Kanpur, Kochi, Ludhiana, Lucknow and Pune. • Besides metro systems, light rail and monorail are planned in Mumbai, Delhi, Ahemdabad and Kolkata. Mass Rapid Transport System (MRTS) Dedicated Freight Corridors (DFC) • Eastern corridor (1,839 km) and Western corridor (1,534 km) entails an investment of US$10 billion. • Four new freight corridors- east-west (Kolkata-Mumbai); north-south (Delhi-Chennai); east cost (Kharagpur-Vijayawada) and south (Chennai-Goa) are at preliminary survey stage. • Once the projects are open for bidding, they will provide substantial opportunity for private players. Modernization of Stations • 50 railway stations are planned to be developed as world-class stations through PPP mode High speed rail corridor • Six High speed passenger corridors has been planned at an approximate cost of US$ 20 billion each • These include Delhi-Chandigarh-Amritsar, Pune-Mumbai-Ahemdabad, Hyderabad-Vijaywada-Chennai, Chennai-Bengaluru-Ernakulam, Howrah-Haldia and Delhi-Agra-Lucknow-Varanasi-Patna Container train operations • IR initiated PPP in container train operations in 2006 • Till date, 15 companies have obtained licenses to run container trains, 180 rakes have been procured, nine inland container depots have started operations and 15 more are under construction • Private sector has invested approximately US$1.2 billion so far for container train operations

  41. Construction Overview Sector fundamentals • The Indian construction industry is among the top 10 construction industries globally with a value of US$130 billion in FY11 • The construction sector accounted for 8.1% of Indian GDP in FY11 • Most construction projects are now implemented through the Engineering, Procurement and Construction (EPC) mode. • The Indian EPC sector has over 150 local and global participants and a multitude of stakeholders • The various operational segments on which EPC industry is dependent are explained below Investment scenario • The government of India has planned an investment of US$1 trillion to be spent on infrastructure development in the 12th Five year plan (2012-17), reflecting a growth of more than 100% over 11th Five Year Plan in which government planned investment of US$500 billion. • Around 50% of investment in 12th plan is expected to come from private sector in areas such as roads, power, ports, water and sanitation, telecom, oil and gas etc. • The estimated opportunity size for EPC sector from infrastructure sector alone come out to US$370 billion (~42% of total spend on infrastructure) through 2012-17.

  42. ConstructionOpportunities Power • Construction intensity in power sector projects is around 38% which would create an opportunity of US$104 billion through 2012-17 for construction players • Indian has world’s second largest road network, comprising a length of 4.2 million km, accounting for 87.4% of passenger traffic and 60% of freight traffic. • Total investment in 12th plan is expected to be US$107 billion • Construction intensity in roads and bridges sector is around 65% which would create an opportunity of ~US$69 billion through 2012-17 for construction players. Roads and bridges Irrigation • The 12th five year plan envisages an investment of US$87 billion for irrigation sector. • Construction intensity in irrigation sector is around 75% which would create an opportunity of US$65 billion through 2012-17 for EPC players. Railways • Indian Railways network spans over 64,000 route km, making it the world’s third largest rail network in terms of size. • Total investment in 12th plan is expected to be US$64 billion. • Construction intensity in railways sector is around 78% which would create an opportunity of ~US$50 billion through 2012-17 for construction players.

  43. LogisticsOverview Sector fundamentals • The Indian logistics industry recorded revenues of US$82.10 billion in 2010, registering a 9.2% growth, y-o-y. • It is further expected to cross the US$200 billion figure by 2020. • The share of the organized segment is less than 5% ,which provides enough scope for consolidation. • The key drivers for the industry include: • Strong growth in demand from sectors such as retail, automotives, pharmaceuticals, food processing and textiles. • Increasing Government investments in infrastructure sector • Government has planned investment of around US$1 trillion in infrastructure development during the Twelfth Five-Year Plan (2012–2017), approximately double the investment in infrastructure during Eleventh Five-Year Plan. • Incentives for investors • Government provides incentives such as 100% FDI for establishment of free trade warehousing zones (FTWZ), income tax (Section 80IA) exemptions for the users of FTWZ, 100% deduction of certain capital expenditure for cold-chain and warehousing facilities etc. Investment scenario • Between 2003 and 2010, the number of FDI projects in transportation and warehousing sector have increased by 7% annually. • The number of new FDI projects in the sector have more than trebled during 2003–08. Source: Department of Industrial Policy and Promotion Source: FDI Database

  44. LogisticsOpportunities GST to boost warehousing sector • Goods and Service tax (GST), likely to be implemented in April 2012, will facilitate re-aligning/merging small warehouses into large centralized distribution centers. • With Government of India’s (GoI’s) focus on improving agri-logistics in India, the cold chain industry is also expected to reach INR400 billion by 2015, growing at a CAGR of 20%–25%. • This will offer significant investment opportunities for global established players with capital and experience in managing complex supply chains. 3PL and 4PL: emerging formats • With rise in competition, domestic players will have to focus on cost reduction and advanced supply chain management solutions. • Need for end-to-end logistics outsourcing will witness growth of third party (3PL) and fourth party logistics (4PL) market. • 3PL market is expected to grow at a CAGR of 25%–30% between FY10–FY13. Encouragement to private sector for infrastructure development • GoI is encouraging private participation either directly or through public-private-partnership (PPP) model in various infrastructure development projects including container rail, ports, airports, dedicated rail freight corridors, multi-modal transport system, logistics parks etc. • The contribution of the private sector in total infrastructure investment is expected to be 36% and 50% during Eleventh and Twelfth Five-Year plan, respectively. Other emerging opportunities • With growing Indian EXIM trade and focus on improving airport infrastructure, the air cargo industry is expected to witness growth at 8.5% per annum for the next five years. • Growing competition is increasing the need to reduce logistics costs. As a result there is a shift from manual operations to electric equipment. This provides a boost to material handling equipment used by logistics industry such as forklifts, pallet trucks, order picker, overhead travelling cranes etc. • The need to provide better customer service and improve the efficiency of production, reverse logistics industry (repairing failed components to serve as spare parts, recovering unsold stock, improving old products, reusing/ redeveloping returned material) seems to be another upcoming segment.

  45. PowerOverview Sector fundamentals Demand-supply gap (billion units, VI-XI Five Year Plans) Generation mix (%, as of 31 December 2011) • India has the fifth-largest generation portfolio worldwide (dominated by coal) and a vast power transmission network of around 267,000 circuit kilometer (ckm). • Energy generation grew at a CAGR of 5.2% between 2001—02 and 2010—11, reaching 811.1 billion units in 2011. • The country faces an average power shortage of 10% and peak-hour shortage of around 12%, exerting significant pressure on the PLF* of generation units. Total: 186,654.6 MW * Source: Central Electricity Authority (CEA) * 2009-10 *PLF: Plant Load Factor Investment scenario 11th Five Year Investment Plan Power sector (INR billion) FDI inflows, Power sector, India (INR billion) • 100% FDI permitted in all segments • No requirement of licenses to set up new power plants • Duty free import of equipment permitted for Mega Power Projects (MPPs) • Most project execution through international competitive bidding • Heightened support by the government; recently asked Coal India (CIL) to import coal and sign a 20-year fuel supply agreements with developers • Estimated investment of US$600 billion in the power sector by 2017 * * April-November Source: Department of Industrial Policy and Promotion Source: Planning Commission of India

  46. PowerOpportunities Generation capacity expansion across fuel types to meet future demand • Increasing energy demand to spur investments in creating new power generation infrastructure • With coal expected to be the mainstay for generation, there are significant opportunities in thermal generation, with a focus on supercritical technology. • With a potential of 150 GW, hydro power is expected to witness high growth, with only 39 GW being exploited so far. • Lucrative destination for investment in nuclear power, largely encouraged by the waiver from the nuclear supplier group (NSG) and the Indo-US nuclear deal. Transmission capacity ramp-up to evacuate power from mega and ultra mega projects • Opportunities exist to meet the need of connecting mega and ultra mega coal-based power projects in the coastal regions and hydro projects in the north-east region to the deficit areas. • With high T&D losses, significant investment opportunities prevail in creating high voltage transmission line infrastructure, which is more efficient, reliable and has a higher transmission capacity. • Private participation is expected to grow as a result of the introduction of tariff-based competitive bidding; several projects backed by private investments coming up during the Twelfth Five Year Plan (2012—2017). Modernizing and upgrading distribution sector and improve electrification rates • India has high average aggregate commercial and technical (AT&C) losses of around 28% due to the obsolete distribution infrastructure and inadequate monitoring systems in place. In addition, the country has an electrification rate of around 66%, indicating significant opportunities for players to develop grass-root distribution infrastructure. • Open access across states for entities consuming more than 1MW of power has further made the distribution sector attractive. Moreover, the government is encouraging a distribution franchisee model, post the unbundling of state utilities. Equipment and machinery shortage • Heightened demand and significant investments across the power sector to spur demand for power equipment and machinery. • BHEL, the leading equipment supplier, is planning to ramp up capacity to 20 GW by the end of 2012, to meet the 100,000 MW target set in the Twelfth Five Year Plan • With BHEL facing issues such as long lead time and higher initial costs as compared to competitors, there are significant opportunities that exist for private and foreign players to increase their penetration into the market.

  47. CleantechOverview Sector fundamentals Growth of renewable energy installed capacity in India (GW) • Renewable energy (RE) accounts for ~10-12% of a total of 187 GW of power generation capacity installed in India. • Favorable government policy for renewable energy sector are the key drives for growth. • Further, the existing wide gap between installed renewable generation capacity and its estimated potential is positive attribute for the sector. • Off-grid renewable energy is seen as key solution to give access to reliable power to remote/rural areas. CAGR 21% Source: MNRE Includes wind, solar, biomass (incl. bagasse), and small hydro. Excludes large hydro. Investment scenario Foreign direct investment in renewable energy • India has attracted US$1.3 billion foreign direct investment (FDI) in the non-conventional energy sector, from April 2000 to November 2011. • The Government of India (GOI) allowed 100% FDI in the renewable energy sector in December 2009. • Foreign players are also allowed to set up renewable power generation projects on a build-own-operate (BOO) basis in the country. • To expand the investor base and boost RE generation, the GOI launched a generation-based incentives (GBI) scheme for grid-interactive wind and solar energy projects. • Investors in the RE sector are also provided relief in customs duty, excise duty and sales tax. (US$ million) Source: Financial Express

  48. CleantechOpportunities Enabling mandatory requirements • The National Action Plan on Climate Change (NAPCC) stipulates minimum renewable energy purchase obligation (RPO) target of 5% of total grid purchase in 2010, increasing by 1% each year for 10 years. • To enhance compliance with the RPOs, a tradable market based instrument in the form of renewable energy certificates (RECs) has been launched. One certificate represents 1 MWh of electricity generated from renewable sources. Jawaharlal Nehru National Solar Mission (JNNSM) jumpstarting activity in solar sector • The JNNSM targets to install 20 GW of solar energy capacity in India by 2022. The current installed capacity is only 0.4 GW. • The JNNSM aims to capitalize on the vast solar energy potential of India which has more than 300 sunny days in an year with average solar radiation levels of 4 – 7 kWh/sq meter. This translates to a potential capacity of more than 100 GW. Tax/excise breaks for electric vehicles (EVs) • The GOI plans to establish a ‘National Mission for Hybrid and Electric Vehicles’ to promote sustainable transportation system in the country. • The GOI has exempted certain parts of hybrid vehicles from basic customs duty and countervailing duty (CVD). The excise duty on the development and manufacture of hybrid vehicle kits has been reduced from 10% to 5%. • The GOI is also planning to launch, in the 12th five-year plan, an INR7.4 billion electric vehicle fund to support research and development in the sector. Enabling policy for biofuels • The GOI launched the National Policy on Biofuels, with the objective of achieving energy security and reducing vehicle emissions and to curb air pollution. • The policy targets 20% blending of biofuels, by 2020. • The policy promotes development of biofuels from non-food feedstocks, raised on land not suited for agriculture, thus avoiding a fuel vs. food debate.

  49. Technology Overview Sector fundamentals • Aggregate revenue for Indian IT industry in FY2012 is estimated to be around US$100 billion out of which IT services and software (excluding hardware) contributed $88 billion. Export revenue (offshore ) for IT-BPO services is estimated to be US$69 billlion, 68.5% of total IT-BPO market. The IT-BPO industry currently accounts for approximately 25% of India’s total exports and 11% of total services revenue. • BFSI vertical is estimated to be the largest contributor to IT-BPO export revenue with its share at 41.2%, telecom share slipped to 19% in FY12 from the previous year. Emerging verticals such as retail, healthcare, media and utilities continue to record fast growth • IT-BPO service providers continue to focus on transformative services, new business models, verticalised solutions, services around disruptive technologies such as cloud, analytics while continuing their focus on operational efficiency and non-linearity to increase global competitiveness. Investment scenario • The Indian IT industry has been attracting considerable amount of FDI in the recent years. For the eight months between January to August of 2011 the total FDI investment in technology was US$3.6 billion, a growth of 75% over the prior year. Investments are being made in the four principal sectors of the Indian information technology industry — online businesses, IT services, IT-based services and software. • Software Technology Parks (STP) have been a major initiative in India to drive in FDI in the computer software industry. These STPs provide highly developed infrastructure and facilities that attract foreign investors. According to the ‘Special Economic Zone (SEZ) Rules, 2006’, in case a SEZ is proposed to be set up exclusively for electronic hardware and software, including ITeS, there shall be a minimum built up processing area 1,00,000 square meters. • Indian IT organizations are investing to move away from a labor based model to developing technology platform that will offer increased revenue leverage and increase IP base of the industry. • India’s infrastructure development is expected to give a major thrust to growth of the industry. The Indian government is planning investments of around US$ 1 Trillion between 2013-2017 on infrastructure development.

  50. Technology Opportunities Government initiatives • Significant government investments in various e-governance initiative expected to drive domestic ICT demand • The central government has directed states to increase their IT budget to 3% of total budget from the current 1.3% to 1.5% • Government is one of the biggest consumers of IT-BPO services accounting for about 16.5% of total domestic spending • With increasing competition in the core services especially in voice-based services higher value services broadly termed KPO (eg- analytics, legal process outsourcing) is one of the fastest growing areas in the Indian ITeS industry with an yearly growth rate of around 20%. • Many core BPO and integrated BPO vendors are slowly shifting their portfolio to KPO services to increase margins. High value add services for BPO Growth of Tier-II/III cities as alternative delivery location • Tier II/III locations account for around 30% of all operational IT SEZs and account for around 8% of the IT-BPO industry revenue. The move towards these cities while help reduce cost also helps the IT vendor to focus on SMBs – India presents a huge base of around 46 million SMBs that are rapidly increasing IT adoption. Additionally it also gives access to large source of untapped labour pool. Increasing infrastructure competitiveness • According the World Economic Forum report the competitiveness of India’s overall infrastructure as compared to key offshoring market is competitive. One major driver for the increasing competitiveness is the improved quality of infrastructure projects due to Public-Private partnership model throughout the country.

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