India Calling 2009 Kpmg

India Calling 2009 India - Europe Business Partnership Summit September 30 - October 03, 2009, Brussels KPMG IN INDIA

Contents Foreword

02

Executive Summary

04

Global Economic Overview

08

India EU Overview

12

Sector Overview

36

? India - A Global Manufacturing Hub

38

? Alternate Energy

42

? Agriculture and Food Processing

46

? Education

52

? Energy (Oil, Gas and Power)

58

? Environment and Technology Transfer

64

? Fashion (Luxury Brands)

68

? Financial Services

74

? Gems and Jewellery

80

? IT-ITeS

86

? Infrastructure

92

? Media and Entertainment

98

? Pharmaceutical, Biotech and Healthcare

106

? Retail

112

? Telecommunications

118

? Travel and Leisure

124

Doing Business in India - Regulatory Framework on Investment in India

130

Conclusion

154

Acknowledgments

156

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 01 India Calling 2009

Foreword

02

Foreword It is with great pride that we introduce to you this Knowledge Paper. In fact, it is a research document that goes beyond its purpose of being a mere backgrounder. The Knowledge Paper by KPMG aims to enlighten the reader on specific areas of IMAGE OF GUL

collaboration between India and the European Union. Apart from providing a brief overview of India and EU, it brings to you a wealth of information on various sectors that can benefit from a joint India-EU partnership. It is indeed an exhaustive and crisp manuscript aimed at appraising the reader of the possibilities of a collaborative way forward. It is our belief that both India and EU have immense scope for establishing a synergistic relation, with India as a budding market and the EU as a mature and diverse economy. The EU has much to gain from India’s demographic advantage and burgeoning middle class. It can benefit from a wide spectrum of unexplored opportunities in India. The performance of the Indian economy in the global context has been noteworthy. The country is meeting the challenges of the global economic slowdown with remarkable resilience. India, emerging as a strong and pro business economy, is forging ahead with recent revolutionary regulatory reforms such as Direct Tax Code, Goods and Services Tax and the 3G Auction Telecom Policy which would unleash India’s unrealized entrepreneurial and innovative spirit. India can derive benefits from the technological expertise of the EU. The region is renowned for its hi-tech infrastructure and R&D activities. A talented, techno-savvy pool of skilled professionals abound in the region. In our view, this Knowledge Paper provides an appropriate backdrop to the flagship India Calling conclave of the Indian Merchants’ Chamber (IMC) . The conference enjoys the support of many official bodies such as the Ministry of Overseas Indian Affairs, Ministry of Commerce, Embassy of India in Brussels, (Belgium), Embassy of Belgium in India and EU Commission and Consulate Generals of all EU Countries and we express our sincere gratitude to them. It is noteworthy that the conference has come at a time when the world economy continues to be in turmoil, although some green shoots of recovery are visible. It is only collaborative efforts by countries that can lead to a sustainable economic recovery. The India Calling (2009) is one such effort which aims to nurture and deepen the alliance between India and the member countries of the EU. The backgrounder is a step in this direction. It does the spadework and prepares the participants towards achieving a joint partnership. We sincerely hope that the document will prove useful to a diverse readership of investors, businessmen, applied researchers and policy makers.

Gul Kripalani

Russell Parera

President Indian Merchants’ Chambers

Chief Executive Officer KPMG in India

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 03 India Calling 2009

Executive Summary

04

Executive Summary

The year gone by has posed newer challenges in the global arena…. While 2008 witnessed global economies experiencing a downturn, industry stakeholders across the world started bracing challenges and risks posed by the downturn by fostering innovation and competitiveness, contributing to business growth and delivering through collaborative efforts. In fact, the crisis has presented an opportunity for greater global collaboration since it is only joint effort that can finally pull the world economy out of a recession. Fostering deeper ties between the emerging/developing countries and the developed countries can play a significant role in this regard.

…necessitating the need for global collaboration…. Furthering such a relation between India and the European Union is a case in point. As two of the world’s leading democracies, India and the European Union, both share common values and beliefs that make them natural partners. Both also seek ways to take advantage of globalization through developing skills and strategic partnerships. The demographic profile of the two regions also provides ample opportunities to draw potential benefits from a synergistic relationship. The ongoing negotiations for the India-EU FTA also aim to nurture a healthy strategic partnership among all stakeholders.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

05 India Calling 2009

A strong domestic market, with relatively low dependence on exports, combined with high savings, has made India one of the leading performers in this slowdown. India’s strong fundamentals and inherent advantages continue to present immense opportunities for the EU nations. The Indian Government, through the Union Budget 2009-10 and the recently announced Foreign Trade Policy has sent positive signals to the world about its pro-business and pro-growth approach. Greater thrust on infrastructure (physical & social) and skill development has been high on the Government’s agenda.

…through industry opportunities and potential partnerships… The Indian manufacturing sector has emerged in its own right. Numerous SMEs have transformed into large businesses on the back of growth in the domestic market, opening up of the economy and the availability of capital financing. A number of companies from various countries are increasingly setting up their manufacturing units in India due to the cost and market advantages available to them. Similarly, Indian companies are making forays in foreign lands for access to new markets and technology. The EU nations, on the other hand, present vast opportunities in terms of diverse cultures, changing consumer demands, advanced technology and forthcoming regulatory environment conducive to do business. All these factors can potentially be tapped by Indian players, enabling them to gain access to wider markets. The diversity within the respective regions is also a similarity that exists between India and the EU. The EU comprises 27 nations, while India consists of 28 states. ‘Unity in Diversity’ therefore holds very well for both the regions. Due to this characteristic, both India and the EU face similar challenges in areas of policy making and execution of the same. Additionally, India’s demographic dividend can fill the EU’s labor supply gap, thereby, ensuring a steady supply of young professionals to EU member countries.

Sectoral opportunities identified… Even as the EU continues to be India’s largest trading partner and biggest foreign investor1, there is immense scope for greater engagement between the two, especially in certain key sectors. To further demonstrate the partnership potential, sectoral opportunities have been identified, namely -- agro and food processing, diamond, gems and jewellery, education, fashion, financial services, IT/ITeS, infrastructure, energy, pharmaceutical, biotech and healthcare, retail, tourism and hospitality, telecom, media and entertainment. These sectors highlight the key strengths India and the EU present for each other in terms of labor, talent, cost advantage as well as demand potential in their respective domestic markets. In most of these sectors, Foreign Direct Investment (FDI)is allowed through the automatic route in India, thereby smoothening the road for prospective investors. In case of many such sectors, the EUs technical expertise and India’s burgeoning market present an opportunity for collaborative ventures. For instance, in environment technology, the EU and India can compliment each other. The former has already entered the sector in a

1.

Ministry of Commerce, Government of India

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

06

big way and the latter’s demand for such technology will escalate as it rapidly industrializes. Similarly, the fashion industry of the EU is renowned for its designer appeal and the emerging middle class in India is increasingly becoming brand conscious. The IT/ITeS sector is extremely well-developed in India and due to its cost and skill advantage the country has become an outsourcing destination for foreign companies. The pharmaceutical sector can benefit from EU’s R&D experience and capabilities and India’s highly skilled and young research professionals. India’s low financial services penetration and EUs developed industry can gain immensely from each other.

…thereby, strengthening the Indo-EU partnership… Hence, it is the confluence of such demand supply patterns in the above identified sectors that will catalyze the partnership to sustain over a longer time horizon. India and the EU must therefore effectively utilize the opportunities available and develop stronger ties. IMC along with KPMG believe that closer economic openness between India and the European Union is in the long term economic and strategic interest of both the regions.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 07 India Calling 2009

The Global Economic Overview

08

The Global Economic Overview Introduction The year 2008 may go down in history as an exceptional phase in the global economic diaspora. The unprecedented crisis occurred in an era when the integration of the world economy had catapulted to newer heights. Originating in the financial sector, it soon resulted in a deep recession in the developed world. The collapse of the real estate sector, followed by fallout of the liquidity constrained financial institutions, attenuating international capital flows and a marked decline in consumer and producer confidence derailed the global economy from a reasonably fast growth trajectory. However, Governments around the globe fostered measures to improve credit conditions. For instance, the US Federal Reserve established enhanced facilities to access liquidity; the Governments in both the US and the EU region injected capital into banks and guaranteed deposits of some large financial institutions. Similarly, Central Bank authorities globally resorted to measures to respond to this crisis. One could say that India was comparatively less impacted by the crisis- this can be attributed to India’s domestic driven market as against export oriented economies such as China, Taiwan, Singapore, etc. India’s export to GDP ratio stands at 24 percent compared to 234 percent for Singapore, 74 percent for Taiwan and 36 percent for China1. Additionally, the Indian banking system has been quite robust and was able to withstand the liquidity crunch.

Revival Measures by Nations Impacted by the Sub-prime

Iceland

Netherlands

UK

Russia Denmark Germany

Ireland

Belgium USA

Greece Spain

Bail-out Nationalisation

Australia

Deposit guarantee Extra Government funding Interest rate cut

Source: www.federalreserve.gov, Aug 21, 2009; www.cfr.org, 2009

1.

EIU Estimates as on August 2009 – includes services

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

09 India Calling 2009

Global equity markets that had crashed, losing close to USD 3 trillion in 20082, are slowly on the mode to recovery. With the resultant downward adjustments in growth forecasts, demand-side pressures on inflation too have reduced. Further, significant decline in crude oil prices from a high of USD 147 per barrel to around USD 40 per barrel2, has subsided inflationary pressures. This, in turn, appears to have helped Central Banks ease monetary policies and boost liquidity into the system to help prevent further damage to the financial system. While uncertainties around the globe with problems as acute as banks collapsing have undoubtedly impacted industries, many companies have taken adequate measures and tapped opportunities which have enabled them to overcome the crisis.

Is the Worst Behind Us?... Real GDP Growth (%)

2008

2009E

2009E*

Global (Mkt exchange rates)

1.9

-3.1

1.3

USA

1.1

-2.9

1.0

Eurozone

0.7

-4.5

-0.7

Japan

-0.7

-7.0

1.0

China

9.0

6.8

7.3

India**

9.0

6.7

6.0

*EIU Estimates, ** RBI Source: EIU as on June 2009

Improvement in growth in the developing economies is also reflected in moderate improvement in global trade. Global imports of business, professional and technical services (including information-technology services outsourced to places like India) have been 4 percent higher in the first quarter of 2009 than a year earlier3. Positive economic growth forecasts and expectations of the current economic downturn bottoming out soon are gradually reviving risk appetite. Additionally, stimulus measures taken by Governments have helped in reviving consumer demand and sentiments. For instance, a USD 35 billion4 stimulus plan is currently being implemented by the Indian Government comprising infrastructure spending, tax cuts and various other incentives to increase spending while sustaining growth. Further, the recent Union Budget announced in India with increased Government spending is likely to facilitate flow of money in the market, which is likely to boost demand for goods and services. Consequently, the rally in global markets that began in early March has continued well beyond most people’s expectations, delivering positive returns YTD. India is up 62 percent, outperforming other emerging markets2.

2. 3.

Bloomberg WTO, Economist June 2090

4.

India Strategy, ENAM, 16 April 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

10

0

10

20

30

40

50

60

70

Source: Bloomberg, August 2009

Thus, the global economy is moving through an inflection point and according to analysts around the globe most economies are likely to ‘exit’ the recession by the end of this year or early next year.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 11 India Calling 2009

Indo-EU Overview

12

Indo-EU Overview Crisis has necessitated collaboration between global economies… Prospects for global collaboration have never been better than in the current scenario. In an increasingly competitive and uncertain business environment, there exists an urgent need for closer collaboration. A global crisis of this stature can only be solved with close global cooperation. One such relationship that can be further developed is the one between India and the European Union.

Demographic synergies between EU and India The EU and India can draw great synergies from the demographic trends that exist in each of these regions.

Demographics (2008)

Working Population (aged 15-64)

40

1.12

523

1200 1000 800

25.3

600

0.5

224

400 200

Median Age in Yrs

Labor Force in Million EU27

Population in Billion

0 1950

2000 EU27

India

2025

2050

India

Source: CIA World Factbook

!

Greater synergies can be drawn if professionals from India can move to the EU countries. This will fill the labor supply gap, thereby ensuring a steady supply of young professionals to EU member countries

!

India’s emergence as a knowledge economy in addition to the rising consumer market will only further aid this synergy

!

Increased migration to EU will also assist India to sustain the flow of inward remittances, which have been playing a crucial role in financing India's trade deficit. According to the World Bank, India's inward remittances were USD 52 billion in 2009, equivalent to 3.3 percent of its GDP, and 15 percent of the global total

!

Greater access to EU's labor market by the Indian manpower will help diversify the source of remittances, and expand the diaspora network which can help deepen economic and strategic linkages between India and the EU

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

13 India Calling 2009

Relations between India and EU continue to blossom… India-EU FTA1 India’s relations with the EU date back to as early as 1962, when India established diplomatic ties with the European Economic Community (EEC). Further, talks on an India-EU FTA commenced in 2007. Economic Perspective: !

The agreement (FTA) is perceived as a conduit for promoting trade and investment across various sectors of the economy

!

To achieve this objective, six rounds of negotiations have been alternately held at Brussels and New Delhi respectively, the 6th Round was held during March 17-19, 2009 The negotiations cover: Trade in Goods

-

Trade in Services

-

Investment, Sanitary and Phytosanitary Measures

-

Technical Barriers to Trade

-

Rules of Origin

-

Trade Facilitation and Customs Cooperation, Competition

-

Trade Defence mechanism

-

Government Procurement

-

Dispute Settlement

-

IPR & GIs

-

!

India’s trade with the EU has the potential to reach USD 572 billion by 2015 once the FTA with the 27-nation bloc gets implemented

!

In 2007-08 India’s bilateral trade with the EU stood at USD 73 billion

Framework for cooperation on mobility The Lisbon summit in 2000 opened doors for increased political dialogues and cooperation between India and the EU. A number of agreements seeking to cooperate on issues related to science and technology, health, education, terrorism and cultural exchange have been signed since then. Currently, negotiations for an FTA are in progress in order to promote trade and investment between the two entities. This is also time to take this cooperation to a new level, where mobility of professionals and service providers is facilitated. Such a ‘framework on cooperation on mobility’ will culminate into a win-win situation for both the negotiating parties for the following reasons – !

Demographics: EUs demographic profile suggests an increasingly ageing population, where there will be a shortage of a young workforce. India on the other hand enjoys the

1.

www.euractiv.com, May 26, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 14

advantage of a young demographic profile. Hence, a smooth flow of professional will provide the EU member countries with a young and productive workforce, while providing employment opportunities to a vast Indian population !

The Lisbon Strategy: The ‘Lisbon Strategy’ aims at transforming EU into the world’s most competitive and dynamic knowledge based economy. To attain this objective, the EU plans to further develop the channels of education, innovation and development through research

!

India is emerging as a knowledge and service driven economy and skilled professionals and researched from India can aid the EU in fulfilling its goals. India also has a comparative advantage in the export of Mode 4 (movement of natural persons) type of services. In a globalized era, excellence can be achieved only through international cooperation and therefore mobility of professionals is essential

!

Free Trade: The tenets of free trade should not merely be restricted to goods and services, but should be expanded to incorporate free market access to labor

!

Prevent unlawful migration: An open migration policy will also go a long way promoting legitimate migration to the EU

Thus, the framework must incorporate issues of demand skill development; market calibrated migratory flows; social security coordination; new modes of mobility including temporary and circular migration.

The ‘EU Blue Card’2 The EU council has already taken some steps in this direction by adopting the ‘Blue Card Directive’ in May 2009. The ‘EU Blue Card’ will facilitate access to the labor market to their holders (the validity will be between 1 and 4 years, with the possibility of renewal); and will entitle them to a series of socio-economic rights (including recognition of qualifications and social security provision), and favourable conditions for family reunification and movement across the EU. Through the Blue Card initiative, the EU hopes sustain its international competitiveness, and ensure that it continues to remain a major global economic, technological, and strategic power in the twenty-first century.

2. DNA India, Eu’s Blue Card Directive: Can India make the most of the opportunity, Asher & Nandy, August 5, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

15 India Calling 2009

EU Snapshot Country (GCI Rank)

Highlights

Agriculture

Industry

Austria (14)

? Center for communication, trade and

? Contributes to 1.9% of GDP

? Contributes to 30% of GDP

? Small and fragmented farms, production

? Few large and greater number of small

cultural exchange in Europe ? Capital city Vienna is home to

is relatively expensive

international organizations like the International Atomic Energy Agency (IAEA), United Nations Industrial Development Organization (UNIDO), & OPEC

? Major Products – Wheat, rye, oats,

barley, corn, potatoes, sugar beets and turnip

and medium enterprises ? Chief industrial products - Pig iron, crude

steel, rolled steel, motor vehicles, cement & fertilizers ? Main Manufacturing Products - textiles,

metals, alcoholic beverages, leather, paper, sugar, glass, porcelain etc.

? 12th richest country in the world ? Tourism is an important industry

accounting for 10% of the GDP, employing about 8% of the population ? Financial service sector is of importance

and employs about 70% of the population Belgium (19)

? Founding member of the EU.Enjoys a

federal form of Government

? Contributes to 1% of GDP & employs

around 2% of the labor force

? Located at the cross-roads of Central

Europe, referred to as the ‘Gateway to Europe’ ? Strongly globalized economy which

boasts of a highly developed transport network ? Skilled and highly educated workforce

which is considered as one of the most productive in the world ? Highly service-oriented economy

? Northern Flanders is the major area of

cultivation ? Small family farms have disappeared,

while large agribusinesses are thriving ? Due to technological advancement and

scientific crop research, yields have augmented ? Chief Products - barley, corn, potatoes,

sugar beets, wheat, and assorted fruits and vegetables

moderately advanced private sector and a number of strategic sectors under state control

? Known for its iron and steel industries,

although these have declined. Nonetheless, still remains the 18th largest steel producer in the world ? Antwerp in Belgium is world famous for

polishing the most high-valued diamonds in the world ? The sector is mainly dominated by light

manufacturing and refining chemical, automotive assembly, and petroleum refining

and the economy is heavily dependant on foreign trade ? Represents a mixed economy with

employs almost a quarter of the workforce

? US companies have invested heavily in

? Maintains an anti-protectionist policy

Bulgaria (76)

? Contributes to 24% of the GDP and

? Private farm holdings are small and

require technical equipment ? The country is renowned for sheep’s milk,

cheese, wine, rose attar, vegetables, fruits, medicinal herbs and natural yogurt

? Industry plays a significant role

contributing to 28% of the GDP ? The country produces a significant

amount of minerals, metals and electricity ? While textiles is the oldest industry in

Bulgaria, other industries such as pharmaceuticals, food processing and tobacco processing are also important foreign exchange earners Cyprus (40)

? Market economy dominated by services

sector which contributes to 78% of the GDP ? Tourism, financial services and real

estate are the major sectors

? The economy has shifted from agriculture

to light manufacturing ? Not self-sufficient in food and has few

natural resources

? Contribution to GDP is about 20% and

employs almost a fifth of the workforce ? Key Industries – Tourism, food

processing, cement, ship repair, chemicals etc.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 16

GDP Estimates* (%)

1.6

GDP Composition by Sector (%): A:I:S** 1.9 : 30.6 : 67.4

GDP Per Capita (PPP) (USD)

39,200

FDI:GDP*** (% for 2008)

3.3

Foreign Trade

Trade Relationship with India

? Other EU members are major

trading partners, especially Germany ? US is an important trading

partner outside the EU

1.3

1.0 : 24.2 : 74.9

37,500

11.6

? Almost 80% of the trade is with

EU member states. Germany, France, Netherlands and UK are the main trading partners. ? Outside the EU, US is an

important partner

6.0

4.6 : 28.7 : 66.7

12,900

17.9

? Chief Exports - Light industrial

products, foods and wine ? Chief Imports - Machinery,

equipment, chemicals, fuel, plastics and raw materials

3.6

2.6 : 19.1 : 78.3

28,600

8.5

? More than 50% of the trade is

with EU member countries and the Middle East ? Chief Exports - Potatoes,

pharmaceuticals and clothing ? Chief Imports - Consumer

goods, petroleum, machinery and transport equipment

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

17 India Calling 2009

Country (GCI Rank)

Highlights

Agriculture

Industry

Czech Republic (33)

? One of the most stable and prosperous

? The sector comprises about 2% of the

? Contributes to almost 40% of the GDP,

states of central and eastern Europe ? An open investment climate has enabled

the country to transit from a communist to a capitalist economy ? Enjoys a relatively low cost structure and

well-qualified labor force making it an attractive destination for foreign investors

economy and employs almost similar percent of the work force

employing almost similar percent of the total workforce

? Small private farms were taken over by

? Manufacturing is a major economic

the Government to create state-owned cooperatives

activity, especially the production of automobiles, machine tools, and engineering products

? The sector suffers from high labor,

machinery, fertilizer and other agriculture input costs

? Produces world famous beer and wine

Denmark (3)

? Modern market economy with high

dependence on foreign trade

? The sector is extremely high-tech.

Contributes to about 1% of the GDP

? Government has provided many welfare

measures ? Economy is fairly stable with equitable

distribution of income and comfortable standard of living ? Fiscal position is amongst the strongest

in the EU ? Has few natural resources. Self-

sufficient in energy

? Climate is extremely conducive to

agricultural production, thereby enabling the country to export produce substantially ? Agriculture and industrial sector are

closely linked. Food and wood based industries depend heavily on agriculture, while requiring high technology to process them. The fishing industry is also extremely large

? The small scale and corporate sector is

technologically advanced and up-to-date ? The industrial sector contributes to

almost a quarter of the GDP ? The manufacturing sector’s main areas of

activity include food products, chemicals, machiner metal products, electronic and transport equipment, beer and paper and wood products

? Most flexible labor market in Europe

Estonia (32)

? Enjoys one of the highest per capita

? Contributes to about 3% of the GDP and

income levels in Central Europe

employs nearly 5% of the workforce

? Boasts of a strong electronics and

? Chief Products – cereals, potatoes, fruits,

vegetables, fish and animal products

telecom sector policies

? Highly industrialized, free market

economy ? Per capita output equals that of UK,

France, Germany and Italy ? Ratio of exports to GDP is as high as

? World leader in telecommunication

equipment

participation of Scandinavian investors ? Traditional industries include oil shell

? Climatic conditions impede the growth of

? Comprises almost a third of the GDP, but

agriculture beyond self-sufficiency levels

employs less than 20% of the labor force

? Forestry is an important exchange earner

and source of employment for the rural population ? Finland’s fur industry is also world

37%

? Progressed due to substantial

mining shipbuilding, electric motors, cement etc.

? Has pursued relatively sound fiscal

Finland (6)

? Contributes almost a third of the GDP

famous

? Key industries include metals,

engineering, telecommunications and electronics. Also specializes in environmental technology ? The country holds a leading position in

the building of icebreakers, luxury liners and other specialized ships

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 18

GDP Estimates* (%)

3.9

GDP Composition by Sector (%): A:I:S** 2.6 : 38.7 : 58.7

GDP Per Capita (PPP) (USD)

26,100

FDI:GDP*** (% for 2008)

5.0

Foreign Trade

Trade Relationship with India

? Chief exports include

machinery and transport goods and raw materials ? Chief imports comprise raw

materials, chemicals, machinery and transport goods ? Member EU countries (esp.

Germany) are the major trading partners of the country

(0.6)

1.4 : 25.9 : 72.7

37,400

3.4

? Is a net exporter of food and

energy and enjoys surplus Balance of Payments (BoP) ? Chief Exports - machinery,

instruments and food products ? Chief Imports - raw materials,

semi-manufactured goods for industry, chemicals and grains ? US is the largest non-EU trading

partner

(3.0)

2.9 : 32.3 : 64.8

21,200

8.5

? The country has strong trade

ties with Finland, Sweden and Germany ? Chief Exports - Machinery,

equipment, food products and metals ? Chief Imports - Textiles,

machinery, mineral fuels and chemicals 1.5

2.8 : 33.2 : 64.0

37,200

-1.6

? The country is known for it’s

high-tech exports such as mobile phones ? Depends heavily on imports of

raw materials, energy and components of manufactured goods ? Major trading partners are

the EU member countries, the US and China

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

19 India Calling 2009

Country (GCI Rank)

Highlights

Agriculture

Industry

France (16)

? Fifth largest economy in the world,

? Contributes to about 2% of the GDP

? Fourth leading industrial power in the

largest country in the EU

? Heavily subsidized sector

? Member of the G8

? Accounts for 22% of the total agriculture

? Transitioning to a capitalist economy ? Strong Government. Presence in Power,

Public Transport and Defense

output of the EU ? Self-sufficient in basic food production ? Endowed with favourable climate, rich

? Highest number of tourist arrivals and

third largest forex earner through tourism

soil and skilled farm labor ? Major Exports – Wheat, beef, pork,

poultry, dairy products, sugar and wine ? Major Imports – Cotton, tobacco &

vegetable oil Germany (7)

? Largest economy in the EU and 5th

largest in the world in terms of GDP (PPP) ? An export-dependent economy and top-

most exporter in the world, with exports valued at more than a trillion dollars ? World’s 3rd largest automobile maker

after the US and Japan

? Accounts for a miniscule share of the

GDP (less than a percent) ? Ranks as the 3rd largest agriculture

producer in the EU and is able to provide for 90% of the country’s need through domestic production ? Chief Products – Potatoes, wheat, barley,

? Tourism is an important industry

sugar beet, fruits and cabbage

world ? Contributes to about 20% of the GDP ? Transiting towards privatization ? Government control over automobile,

aeronautics, defense, energy industries ? Key Industries – Telecommunication,

defense & aerospace, shipbuilding, automobile, construction, food processing, chemicals, tourism and textiles

? Comprises about 30% of the GDP and

employs almost a quarter of the workforce ? Large and healthy manufacturing sector,

excelling in the production of automobiles, machine tools, precision instruments and high quality customized machinery and chemicals

generating about 8% of the GDP

Greece (67)

? Capitalist economy with public sector

accounting for 40% of the GDP ? Tourism is a significant industry

contributing to 15% of the GDP ? Immigrant make up one fifth of the work

force ? Foreign investment in the country

increased after it joined the EU

? The sector suffers from lack of natural

resources and 70% of the land cannot be cultivated due to poor soil conditions ? Low rainfall, rural landownership and

migration of workers from rural to urban areas further impede growth of the sector ? Major producer of cotton and tobacco ? Famous for it’s olives and exports of olive

oil ? Grapes, tomatoes, melons, peaches are

? Contributes to about 23% of the GDP and

employing approximately a similar ratio of workforce ? Shipping has been the most profitable &

important industry due to the business know-how of the ship-owners ? The Greek owned maritime fleet is the

largest in the world ? Key industries – Ship building, Textile

production, food processing, cement and construction

also important exports Hungary (62)

? Landlocked country in eastern Central

Europe

and employs nearly 5% of the workforce

? Fairly open economy and undertook

economic reforms in the 1990s. The private sector is dominant contributing to more than 80% of the GDP ? Shifting to an increasingly service-based

economy

? Sector contributes about 3% to the GDP

? Majority of the cultivated landholdings

are privately owned ? Self-sufficient economy in agricultural

production and contributes significantly to exports ? Has several wine regions producing

? Contributes to more than 30% of the

GDP and almost a third of the workforce is engaged in this sector ? Manufacturing is mainly concentrated in

heavy machinery ? Mining, machinery, electronics,

chemicals and foodstuffs are important industries for the economy

world famous wines ? Important Products – Corn, wheat, sugar

beet, barley, potatoes, sunflower and fruits

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 20

GDP Estimates* (%)

0.7

GDP Composition by Sector (%): A:I:S** 2.2 : 20.3 : 77.4

GDP Per Capita (PPP) (USD)

32,700

FDI:GDP*** (% for 2008)

4.2

Foreign Trade

Trade Relationship with India

? Key Export Partners -

Germany, Spain, Italy, U.K., U.S.A. ? Major Import Partners -

Germany, Belgium, Italy, Spain, Netherlands, U.K., U.S.A

1.3

0.9 : 30.1 : 68.0

34,800

0.7

? Chief Exports - Machinery,

vehicles, chemicals, metals and electronics ? Chief Imports - Machinery,

vehicles, chemicals and textiles ? Major Trading partners -

France, U.S., U.K., Italy, Netherlands and Belgium

2.8

3.5 : 23.4 : 73.1

32,000

1.5

? Chief Exports - Foodstuffs,

manufactured goods, beverages & fuels ? Chief Imports - Chemicals,

fuels manufactures ? Key Trading Partners are

members of the EU

(1.5)

3.2 : 31.9 : 65.0

19,800

4.1

? Chief Exports - Machinery &

equipment, food products ? Chief imports - Machinery, fuel

and electricity ? Most of the trade occurs with

EU member countries

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

21 India Calling 2009

Country (GCI Rank)

Highlights

Agriculture

Industry

Ireland (22)

? Transformed itself from a largely

? Contributes to about 5% of the GDP and

? Contribution to GDP is 50%, employing a

agricultural to a technologically advanced economy ? Is a small trade dependent economy with

GDP growth averaging 8% for the period 1995-2007

employs nearly 6% of the workforce ? Conducive climatic conditions have

enabled agriculture to prosper in the country

quarter of the workforce ? Manufacturing sector is extremely high

tech and much of it is owned by multinationals

? Extremely reliant on EU subisdies

? Export sector dominated by foreign

multinationals has been the driver of economic growth ? Has significant reserves of zinc, lead

ores and natural gas Italy

? Diversified industrial economy

comprising of a developed industrial northern part dominated by private enterprises and a less developed, welfare dependent agricultural south ? Large number of small & medium

enterprises and family-owned firms ? Tourism is the most profitable and the

fastest growing sector

? Contributes to nearly 2% of the GDP

? Comprises about a quarter of the GDP

? The agriculture sector is hugely

? Manufacturing is mainly dominated by

supported by the Common Agricultural Policy (CAP) of the EU, which provides subsidies & incentives to sustain prices ? Is not self-sufficient in agriculture

products due to only 5% of the available land under cultivation ? Is a world leader in olive oil production ? Major Exports – Rice, tomatoes and wine ? Major Imports – Meat, dairy products

Latvia (54)

? Has been the fastest growing economy

in Europe ? Most of the companies have been

privatized

? Latvia is a low-lying country with large

forests that supply timber for construction and paper industries ? Agricultural land decreased giving way to

? Foreign investment is still modest in

comparison to other EU countries

industrial production ? Although contributing to merely 3% of

SMEs ? Known for fashion houses like Versace,

Fendi, Gucci, Prada, Gabbana, Armani etc. The fashion industry is crucial to the economy ? Chief Industries – Iron and steel,

chemicals, textiles, automobiles, home appliances, clothing & footwear ? Major Exports – precision machinery,

motor vehicles (luxury, utility), electronic goods and chemicals ? Contribution to GDP is about 22% and

employs nearly a quarter of the work force ? Chief Products – Transport equipment,

agricultural machinery, synthetic fibres, pharmaceuticals and processed foods

the GDP, agriculture eploys almost four time the work force ? Chief Products – Beef, pork, milk eggs,

fish, vegetables and grain Lithuania (44)

? A majority of the state-owned entities

have been privatized ? The country has been greatly aided by

foreign govt. and business support to make the transition from a communist to a capitalist economy. ? Infrastructure is well developed and

modern ? Highly dependent on foreign markets ? Enjoys low labor costs and a highly

educated workforce along with a good geographic location in Northern Europe

? The sector contributes to nearly 4% of

the GDP and employs almost 14% of the labor force ? Chief Products – Butter, cheese, fish,

milk, pet food, sugar beet, wheat and potatoes

? Contributes to about a third of the GDP ? Due to low wages, many foreign

companies relocated their manufacturing plants in the country ? Chemicals such as nitrogen and

phosphate fertilizers are produced on a large scale and is the most profitable industry in the country ? Wood and paper processing industry,

metal cutting, electric motors, refrigerators and freezers and textiles are other important industries

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 22

GDP Estimates* (%)

(1.7)

GDP Composition by Sector (%): A:I:S** 5.0 : 46.0 : 49.0

GDP Per Capita (PPP) (USD)

46,200

FDI:GDP*** (% for 2008)

-4.4

Foreign Trade

Trade Relationship with India

? Chief Exports - Machinery,

computers, chemicals, live animals and animal products ? Chief Imports - Data procesing

equipment, petroleum, textiles and clothing ? Major Trading Partners are

the EU member countries

(0.7)

2.0 : 26.7 : 71.3

31,000

0.5

? Entirely dependant on imports

for it’s energy requirements ? Most of the trade is with EU

member countries ? US is an important non-EU trade

partner

(5.0)

3.3 : 22.3 : 74.4

17,800

4.2

? Chief Exports - Textiles,

machinery and equipment, wood products and metals ? Chief Imports - Machinery,

chemicals, fuels and vehicles

3.2

4.3 : 32.8 : 62.8

17,700

3.8

? Chief Exports - Mineral

products, textiles, machinery, wood products and chemicals ? Chief Imports

- mineral products, transport equipment, chemicals and metals

? Major trading partners are

Russia, Belarus and other EU member countries

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

23 India Calling 2009

Country (GCI Rank)

Highlights

Agriculture

Industry

Luxemburg (25)

? High-income economy with low inflation

? Contribution to GDP is less than a

? Contribution to GDP is about 13%

and low unemployment ? One of the smallest nation in the world,

it depends on foreign and cross-border workers for 60% of the labor force ? Banking and Financial Services is the

most important sector contributing to 28% of the GDP

percent and is based on small family owned farms ? A small fraction of the population is

engaged in agriculture, most foodstuffs are imported ? Most of the agriculture products are

exported

? World’s 2nd largest investment fund

? Has few domestic energy sources ? The financial services industry has grown

in recent years, but is not fully modernized

Netherlands (8)

food needs, has limited fresh water supplies

? Chief Crops – Potatoes, cauliflower,

foreign trade. The country bnefits from it’s location, reserves of limestone and a skilled workforce

grapes, wheat, barley and tomatoes

? Economy is noted for stable industrial

relations, moderate unemployment and a current a\c surplus ? Serves as a transportation hub for

Europe ? One of the leading European nations for

attracting FDI

? A highly mechanized agriculture sector

that provides large surpluses for the food processing industry and exports ? Employs only 3% of the labor force and

contributes to 2% of the GDP ? The nation’s extensive waterways and

network of dams allow for easy irrigation and have led to highly fertile soils ? The activity is divided into 3 broad areas

? One of the four largest investors in the

US. ? Location of the country gives primary

access to UK and Germany ? The port of Rotterdam is the largest port

in Europe Poland (53)

? Malta produces only about 20% of its

? Malta's economy is highly dependent on

heavily dependant on foreign trade

– crop production, dairy and livestock production & horticulture

? Has provided a natural network of east-

west trade links to Europe

? Due to it’s location the country is a major

port and ships products to Europe from Africa and Middle East ? Major Industries - Shipbuilding and

repair, construction, electronics, and textiles

? Many manufacturing industries are

based on the processing of raw materials or semi-finished materials into finished products ? Diversified industry ranging from

manufacturing, mining and energy production to construction & chemical manufacturing ? Major industries – Food processing,

chemicals, petroleum refining and electrical machinery

and tulips

more than 15% of the total workforce

including iron, zinc, copper and rock salt

economy

? Known for exports of cut flowers, bulbs

? Accounts for 4% of the GDP, but employs

? Rich in natural mineral resources

? Services sector forms backbone of the

pepper, potatoes & dairy products

transition from a centrally planned economy to a primarily capitalist economy growing economies in Europe

rubber manufacturing companies have set up their plants

? Chief Products – Tomatoes, cucumber,

? The country has successfully made the

? Considered to be one of the fastest

? Major foreign-owned chemical and

are particularly crucial and most of the banks are foreign owned

? The sector is small but diverse

? Prosperous, open economy which is

diversified into chemicals, rubber etc.

? Banking, insurance and financial services

centre after the U.S. and the most important private banking centre in the Euro Zone Malta (54)

? Initially dominated by steel, but has

? Leading producer of rye, potatoes,

apples, pork and milk ? Structural problems, surplus labor,

inefficient small farms & lack of investment afflict the sector Net exports of fruits, vegetables, meat ? and dairy products

? Contributes to about one third of the

GDP, employing almost 30% of the workforce ? Mining of mineral wealth is the most

important industrial activity ? Undertook reforms in the 1990s which

led to privatization of small and medium state owned companies ? The manufacturing sector has also

undergone a transformation since the reforms in the 1990s

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 24

GDP Estimates* (%)

3.6

GDP Composition by Sector (%): A:I:S** 0.4 : 13.6 : 86.0

GDP Per Capita (PPP) (USD)

81,100

FDI:GDP*** (% for 2008)

145.2

Foreign Trade

Trade Relationship with India

? Has close trade and financial

ties with other EU members, especially, Germany, France, Belgium, Netherlands and U.K.

2.5

14 : 18.0 : 80.6

24,200

10.7

? Chief Exports - Machinery and

transport equipment, manufactures ? Chief Imports - Food, tobacco,

transport equipment and machinery ? Major trading partners are

Singapore, US, Germany, France and Italy 1.8

20 : 24.4 : 73.6

40,300

0.1

? Major Trading Partners -

Germany, UK, France, Belgium China & US

4.8

4.0 : 31.3 : 64.7

17,300

3.1

? Chief Exports - Machinery,

transport equipment, food and live animals ? Chief Imports - Chemicals,

machinery ? Major Trading Partners -

Germany, Italy, France, Russia and China

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

25 India Calling 2009

Country (GCI Rank)

Highlights

Agriculture

Industry

Portugal (43)

? Diversified and increasingly service-

? Contribute to 3% of the GDP, but employs

? Contributes to a quarter of the GDP,

based economy

10% of the workforce

? Undergone successive liberalization of

the key areas of the economy including financial and telecommunicating sectors

Romania (68)

? Began it’s transition from communism in

? Chief Products – tomatoes, fruits, grapes,

cereals, corn, wheat and olives

? Contributes to 8% of the GDP, but

employs almost 28% of the labor force

1989 ? Due to it’s high growth, it is referred to

? Comprises of both formal and informal

sector

as the ‘Tiger of the East’ ? Well-endowed with natural resources

and has large reserves of petroleum, timber, natural gas, iron ore, coal and salt

? Agricultural reforms in 1991 and

nationalization policies did not help in increasing the growth of the sector

Also has large facilities for hydropower. ?

healthcare, taxation, pension & social welfare since it’s separation from the Czech Republic in 1993 ? Embraced privatization on a large scale.

The Government introduced conducive policies to attract foreign investment on a massive scale. Labor market reforms and a flat 19% tax rate was introduced to attract FDI

? Accounts for 36% of the GDP, employing

about a quarter of the workforce ? Manufacturing sector is dominated by

machine building, metals, chemical and textiles ? Foreign investment is a key issue in the

country for the development of the domestic industry nonferrous metals, chemicals, food processing, machinery, mining and textiles

manufacturing of goods, primarily in SMEs ? Undergone significant reforms in

machinery, cement, automotive electronics, textiles, leather and footwear

? Key Industries – Iron and steel,

Economic strength lies in processing & ?

Slovakia

employing 30% of the workforce ? Key Industries – Oil, petrochemicals,

? More than one third of Slovak’s territory

is cultivated ? Contributes to 2.6% of the GDP, but

employs double the amount of workforce at about 4% ? The southern part of the country is known

for it’s rich farmlands and fertile plains ? Primary Products – Sugar beet, potatoes,

wheat, grapes and animal products

? The industrial sector is a large sector of

the economy contributing to a third of the GDP ? A large number of enterprises have been

privatized ? FDI has been chiefly concentrated in

telecommunications, banking, distribution channels and production of electricity, gas and water ? Key Industries – Automotive,

? The banking sector is dominated by

engineering, electronics and information technology

foreign companies ? Foreign investment in the automotive

and electronics sector has been large Slovenia (42)

? Model of economic success & stability

for the European nations ? Has an excellent infrastructure, well-

educated work force and strategic location ? Taxes remain relatively high as compared

to other EU countries

? Due to the mountainous terrain of the

country and forests covering almost 50% of the area, agriculture sector is small Dairy farming and livestock rearing ? dominate the sector The sector contributes to 2% of the GDP ? and employs almost a similar ration of the work force

? Contributes to about a third of the GDP ? Slovenian firms specialize mainly in mid

to high tech manufacturing ? Chief industries – Ferrous metallurgy,

aluminium products, lead and zinc smelting, automobiles and electric power equipment

Major Products – Cereals such as corn ? and wheat, potatoes, sugar beet and fruits

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 26

GDP Estimates* (%)

0.2

GDP Composition by Sector (%): A:I:S** 30 : 25.6 : 71.5

GDP Per Capita (PPP) (USD)

22,000

FDI:GDP*** (% for 2008)

1.5

Foreign Trade

Trade Relationship with India

? Chief Exports - Clothing,

footwear, machinery and chemicals ? Chief Imports - Transport

equipment, chemicals and agriculture products ? EU member countries and the

US are the major trading partners 7.6

8.1 : 36.0 : 55.9

12,200

6.7

? Chief exports - Textiles and

footwear, metals and metal products ? Chief Imports - Chemicals,

minerals and fuels ? Major Trading Partners -

Italy, Germany, UK, Turkey, France, Hungary, China and the US

6.4

2.6 : 33.4 : 64.0

21,900

3.6

? Chief Exports - Vehicles,

machinery, electrical equipment ? Chief Imports - Machinery,

transport equipment and intermediate manufactured goods ? Major

trading partners are the EU member countries, Russia and South Korea

4.3

2.2 : 34.2 : 63.6

29,500

3.3

? Trade is mainly oriented

towards EU economies ? Chief Exports - manufactured

goods, machinery and transport equipment ? Chief Imports - Fuels,

lubricants, food, chemicals and manufactured goods

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

27 India Calling 2009

Country (GCI Rank)

Highlights

Agriculture

Industry

Spain (29)

? A constitutional monarchy with a

? Comprising about 3% of the GDP,

? Contributes to 29% of the GDP with a

hereditary monarch and a parliament with two chambers ? Due to conservative rules and practices,

the Spanish banking system is credited as one the most solid and well-equipped systems in the European world, especially in the wake of the recent crisis

agriculture is mainly dependant on rainfall ? Chief Products – Grains, vegetables,

olives, wine, grapes, sugar beet, beef, pork, poultry and dairy products

and welfare state. Modern distribution and communication systems and a skilled labor force are the key strengths of the economy Extensive dependence on foreign trade ? Timber, hydropower and iron ore ?

economy, although the importance of services is augmenting increasingly being employed in large MNCs as compared to the SMEs ? Chief Industries – Metalworking,

services are increasingly contributing the growth of the economy Successful mix of high tech capitalism ?

? Continues to be the driving force of the

? Greater number of people are

? Tourism, finance and construction

Sweden (4)

quarter of the population employed in this sector

shipbuilding and data processing equipment ? Agriculture accounts for only a percent of

the GDP ? Cultivation occurs mainly in the Southern

plains ? Livestock and animal products are chief

? Privately owned firms account for 90% of

the industrial output ? The engineering sector is vital to the

economy contributing to almost 50% of the total output and exports

items of exports along with mink fur coats

? Chief Industries – motor vehicles,

? Contributes to less than a percent of the

? Comprises about 22% of the GDP

constitute most important resources

pharmaceuticals, telecommunications and forestry

Services sector is becoming increasingly ? important Deregulation, globalization and ? technology sector growth have been key productivity drivers in the economy UK (12)

? Second largest economy in the EU ? A leading financial and trading center in

the world

GDP ? Highly mechanized contributing to almost

? Has huge coal, natural gas and oil

resources

80% of the domestic food needs ? Employs only 2% of the work-force

? Services sector is extremely important to

the economy and banking insurance and business services account for a large share of the GDP

? Chief Products - Cereals, oilseeds,

potatoes and vegetables

? Industrial base is extremely diversified

with industries ranging from aerospace to chemicals ? Engineering & allied industries are

significant contributors to the GDP ? Major industries – Machinery, Ship-

building, aircraft, chemicals, oil production

? British insurance firms dominate the

maritime insurance market ? London is the chief international center

for buying and selling currencies and world center for financial services

Bilateral Trade (USD mn)

Harveyballs

<=0 1 - 4,000 4,001 - 8,000 8,001 - 12,000

Note: *Estimates for 2008; **A:I:S == Agriculture: Industry: Services; ***Calculated as Net flows of direct investment capital by non-residents into the country/Gross domestic product (GDP) at current market prices in USD; GCI Ranking = Global Competitiveness Index (2008-09) of the World Economic Forum amongst a total of 134 countries

>= 12,001

Source: CIA; Eurostat; Foreign Commonwealth Office Website, UK; Department of Commerce, Government of India, EIU, Viewswire

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 28

GDP Estimates* (%)

1.1

GDP Composition by Sector (%): A:I:S** 3.6 : 28.9 : 67.5

GDP Per Capita (PPP) (USD)

34,600

FDI:GDP*** (% for 2008)

4.2

Foreign Trade

Trade Relationship with India

? Major Exports - machinery,

motor-vehicles, pharmaceuticals and medicines ? Major Imports - Fuels,

chemicals, semi-finished goods and foodstuffs ? Major Trading Partners are

the EU member countries, esp. France, Germany, UK, Italy and the Netherlands

0.7

1.5 : 28.9 : 69.6

38,500

9.1

? Chief Exports - Cars,

engineering products, steel, electronic devices, communications equipment and paper products ? Exports of the service industry

(IT and telecommunications) have also increased ? Chief Imports - Machinery,

petroleum, petroleum product

0.7

0.9 : 22.8 : 76.2

36,600

3.6

? Due to its high dependence on

foreign trade, the country has fewer restrictions on trade and investment ? The EU member countries are

the chief trading partners of the UK

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

29 India Calling 2009

India Snapshot (GCI Rank: 50) Advantage India !

Fastest growing Economy: Fifth largest economy in terms of GDP (PPP). Second fastest growing economy in the world after China

!

Favorable Demographics: About 64.3 percent of the population falls under the working age group and 30 percent comprises of children3. Highly skilled, English speaking and technical manpower is available at lower costs

!

Thriving Services Sector: Chief source of economic growth in recent years, contributing to over half of the country’s GDP, while employing only one-third of labor force

!

World’s Largest Democracy: A stable democracy based on the parliamentary system of governance and an independent judiciary and free press make India better off than it’s counterparts

!

Principal Exports: Petroleum products, textile goods, gems and jewellery, engineering goods, machinery and instruments, pharma and fine chemicals, metals, transport equipments, iron ore, primary and semi-finished iron and steel4

!

Principal Imports: Petroleum crude and products, electronic goods, transport equipments, gold, iron and steel, precious and semi-precious stones, organic chemicals, coke, coal and briquettes, etc4.

India’s GDP Growth

GDP Composition by Sector (2008-09)

12

% Growth

10

9.5

9.7

Agriculture 17%

9

8

6.7 6.0

6

Services 57%

4

Industry 26%

2 0 2005-06

2006-07

2007-08

2008-09

2009-10E

Source: Economic Survey, Ministry of External Affairs, Government of India

Forex Reserves

FDI Inflows 30

350 300

USD Mn

27.3 24.5

25

250

20

200

15

150

CAGR 65% 15.7

10

100

5

50

3.7

5.5

4.4

0

0 2004-05

2005-06

2006-07

2007-08

* Apr – Mar (13 Mar 2009) Source: Reserve Bank of India (RBI)

2004-05

2008-09*

2005-06

2006-07

2007-08

2008-09

2009-10 (Apr - May)

Source: Department of Industrial Policy & Promotion

3. 4.

Censusindia.gov.in Ministry of Commerce and Industry

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 30

Towards Increased Global Integration through Trade5 India's Exports to the Eu27: !

EU continues to be India’s foremost trading partner and biggest foreign inward investor; one-fifth of India’s exports are destined to the EU

!

In terms of value, India’s merchandise exports to the EU have more than doubled between 2000-01 and 2007-08, registering a compounded annual growth rate (CAGR) of 18 percent

USD Bn

India’s Exports to EU in Tandem with Total Exports 180 160 Total Exports CAGR 140 Indo-EU27 CAGR 120 100 80 63.8 52.7 60 44.6 43.8 40 14.5 11.9 20 10.7 10.2 0 2000- 01 2001- 02 2002- 03 2003- 04

163.0 : 20% : 18%

126.3 103.1 83.5

18.2

2004- 05 2005- 06

India's Exports to EU

34.5

26.8

23.2

2006- 07 2007- 08

India's Total Exports

Source: Ministry of Commerce & Industry

Leading Export Destinations within the EU

Country

Major Exports 2007-08

UK

Mineral Fuels, apparels, machinery and mechanical appliances, gems and jewellery and footwear

Germany

25 20

Mineral Fuels, iron and steel, electrical machinery, organic chemicals and apparels

% Share

Netherlands

Percentage Share of India’s Top 5 Export Destinations in the EU

Electrical machinery, apparel, organic chemicals iron and steel and apparels

Belgium

Gems and jewellery, iron and steel, organic chemicals, machinery and mechanical appliances

Italy

Iron and steel, vehicles, apparel, footwear and machinery

21.5

19.4

17.8 15.2

15 10

14.8

13.8

12.2

12.2

11.3

8.2

5 0

UK

Netherlands 2000-2001

Germany

Belgium

Italy

2007-2008

Source: Ministry of Commerce & Industry

!

In value terms, UK, Netherlands, Belgium, Germany, Italy, France, Spain, Sweden, Greece and Denmark are the top 10 destinations of India’s exports within the EU

!

While the share of most EU countries has remained more or less stable since 2000-01, that of Netherlands has almost doubled from 8.23 percent to 15.15 percent in 2007-08 with steady rise in export of textiles, electronic goods chemicals, edible fruits and nuts etc.

5.

Data obtained from Ministry of Commerce and Industry

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

31 India Calling 2009

India Imports from the EU27:

Country

Major Imports 2007-08

Germany

Machinery, Electrical Equipment and Precision instruments

Eu’s Share in India’s Total Imports 300 250

UK

Aircraft, Mechanical Appliances, Electrical equipment

200 USD Bn

France

Diamonds, Machinery, Precision Instruments

Italy

Diamonds

Machinery, Mechanical Appliances, Articles of Iron and Steel and Organic Chemicals

111.5

100

0

10.7 2000-01

78.2

61.4

51.4

50.5

12.8

15.1

2002-03

2003-04

10.7 2001-02

Total Imports from the World

19.3 200-05

2005-06

38.4

29.8

26.0

2006-07

2007-08

India's Imports from EU

Source: Ministry of Commerce & Industry

!

The import basket from the EU mainly comprises machinery, aircraft, iron and steel, ships and precision instruments. Their share in the import basket has also increased between 2000-01 and 2007-08

!

It is important to note that imports of precious stones (rough diamonds) have declined steeply from 45.27 percent in 2000-01 to 13.13 percent by 2007-08 indicating diversification of India’s import basket

Leading EU Source Countries for India !

In value terms, Germany, France, UK, Belgium, Italy, Sweden, Netherlands, Spain, Finland and Austria are the most significant sources of imports for India. Apart from the UK and Belgium, the share of all other countries in India’s import basket from the EU has increased

Percentage Share of Top 5 EU Source Countries 35 30 25 % Share

Belgium

185.6 149.2

150

50

251.6

Total Imports CAGR : 25% Indo-EU27 CAGR : 33%

20 15 10 5 0

Germany

France 2000-01

UK

Belgium

Italy

2007-08

Source: Ministry of Commerce & Industry

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

32

FDI – Driving Globalization… FDI Inflows (Apr’00 – May’09)

!

EU is India’s largest source of FDI and accounts for almost 20 percent of total FDI inflows to India

From EU: 17.6 !

Between April 2000 and March 2009, Foreign Direct Investments (FDI) from the EU into India have been to the tune of USD 18 billion6

!

Five countries from the EU (UK, Netherlands, Cyprus, Germany, France and Sweden) are the largest investors in India. More than 90 percent of the total investments from the EU mainly come from these countries, with UK and Netherlands making up more than half of the share

Other Nations: 76.7

!

While 2008 saw unprecedented Indian investments in the EU. Indian FDI in the EU soared from zero in 2004 to USD 3.4 billion in 20087

Source: Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce and Industry

!

Corporate India is steadily showing growth across the globe. Major drivers that have encouraged European acquisitions by Indian companies have been – to serve new markets and customers, map out value chains in the most efficient locations globally and to access technological and natural resources

6. 7.

Department of Industrial Policy and Promotion LiveMint, June 8, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

33 India Calling 2009

Key Inbound Deals between Jan 2008 - August 2009 Target Industry Sector

Target Name

Acquirer Name

Acquirer Country

Announced Total Value (USD million)

Deal Type

Announce Date

ACQ

10/29/2008

Unitech Wireless

Communications

Telenor Asa

NO

1249.31

ACQ

01/24/2008

Sweta Estates Pvt Ltd

Financial

Ashmore Group Plc.

GB

550.00

ACQ

04/19/2008

Fresenius Kabi Oncology Ltd

Consumer, Non-cyclical

Fresenius Se

GE

285.56

ACQ

10/04/2008

Cambridge Solutions Ltd

Technology

Xchanging Plc

GB

195.65

DIV

04/24/2008

Parryware Roca Pvt Ltd

Industrial

Roca Sanitario Sa

SP

174.13

ACQ

03/10/2009

Radhakrishna Hospitality Ser

Consumer, Non-cyclical

Sodexo

FR

125.00

DIV

12/04/2007

Shree Digvijay Cement Co

Industrial

Cimpor-cimentos De Portugal

PO

99.89

ACQ

03/10/2008

Thomas Cook (India) Limited

Consumer, Cyclical

Thomas Cook Group Plc

GB

86.63

ACQ

04/24/2008

Hindustan Oil Exploration Co

Energy

Eni Spa

IT

81.54

ACQ

03/05/2008

Ramprastha Promoters And Dev

Financial

Deutsche Bank Ag-registered

GE

80.00

ACQ

01/21/2008

Golden Gate Properties Ltd

Financial

Deutsche Bank Ag-registered

GE

70.00

DIV

04/29/2009

Eagleburgmann India Pvt Ltd

Industrial

Burgmann Industries Gmbh & C

GE

70.00

ACQ

05/21/2008

Hsbc Investdirect India Ltd

Financial

Hsbc Holdings Plc

GB

67.24

ACQ

01/22/2008

Boc India Limited

Basic Materials

Linde Ag

GE

66.91

ACQ

12/11/2007

Boc India Limited

Basic Materials

Linde Ag

GE

64.93

DIV

12/02/2008

Man Force Trucks Private Ltd

Consumer, Cyclical

Man Se

GE

59.82

ACQ

06/10/2008

Bosch Chassis Systems India

Consumer, Cyclical

Robert Bosch Gmbh

GE

57.93

ACQ

04/23/2008

Fresenius Kabi Oncology Ltd

Consumer, Non-cyclical

Fresenius Se

GE

52.70

DIV

01/04/2008

Hdfc Standard Life Insurance

Financial

Standard Life Plc

GB

50.68

ACQ

12/15/2008

Lifetree Convergence Ltd

Communications

Tecnomen Lifetree Oyj

FI

45.35

Source: Bloomberg

Key Outbound Deals between Jan 2008 - August 2009 Target Name

Target Country

Target Industry Sector

Acquirer Name

Acquirer Industry Sector

Announced Total Value (USD million)

Deal Type

Announce Date

ACQ

08/26/2008

Imperial Energy Corp Plc

GB

Energy

Oil & Natural Gas Corp Ltd

Energy

2607.16

DIV

06/24/2008

Intergen Nv

NE

Utilities

Gmr Infrastructure Ltd

Industrial

1100.00

ACQ

09/26/2008

Axon Group Plc

GB

Technology

Hcl Technologies Ltd

Technology

731.12

DIV

09/01/2008

Repower Systems Ag-reg'd

GE

Industrial

Suzlon Energy Limited

Industrial

394.30

DIV

06/11/2009

Vs Dempo & Co Pvt Ltd

IN

Basic Materials

Sesa Goa Ltd

Basic Materials

367.61

DIV

06/05/2008

Repower Systems Ag-reg'd

GE

Industrial

Suzlon Energy Limited

Industrial

322.26

DIV

07/10/2008

Aviva Global Services

GB

Financial

Wns Holdings Ltd-adr

Consumer, Non-cyclical

227.40

DIV

03/07/2008

Multiple Targets

Industrial

Infrastructure Dev Finance

Financial

205.00

DIV

01/24/2008

Global Trade Finance Ltd

IN

Financial

State Bank Of India

Financial

131.88

ACQ

07/07/2008

Honiton Energy Ltd

GB

Energy

Multiple Acquirers

DIV

04/30/2008

Klopman Group

IT

Consumer, Cyclical

S. Kumars Nationwide Ltd

Consumer, Cyclical

109.00

DIV

08/05/2008

Piaggio Aero Industries Spa

IT

Industrial

Tata Group

Diversified

108.27

ACQ

04/04/2008

Religare Hichens Harrison

GB

Financial

Religare Enterprises Limited

Financial

98.76

ACQ

03/19/2008

Elsamex Sa

SP

Industrial

Infrastructure Leasing & Fin

Financial

78.35

ACQ

05/26/2008

Reliance Vanco Group Ltd

GB

Communications

Reliance Communications Ltd

Communications

76.90

ACQ

06/11/2008

Franco Tosi Meccanica Spa

IT

Industrial

Gammon India Ltd

Industrial

62.22

ACQ

07/31/2008

Geiger Technik Gmbh

GE

Consumer, Cyclical

Sintex Industries Limited

Diversified

54.57

DIV

04/24/2008

Brand Guru

Consumer, Cyclical

Bombay Rayon Fashions Ltd

Consumer, Cyclical

51.70

DIV

08/21/2008

Dawnay Day Av Financial Serv

IN

Financial

New Silk Route

Financial

45.97

DIV

04/29/2008

Bolix Sa

PD

Industrial

Berger Paints India Limited

Basic Materials

38.60

110.00

Source: Bloomberg

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 34

Tapping Industry Potential Global recessionary trends have given rise to tremendous business opportunities which can be jointly tapped between nations to overcome the crisis. Massive infrastructure spends are paving the way for business opportunities ensuring that potential exists across a multitude of sectors. Governments’ estimates also suggest that these sectors will require huge investments in the coming years which can only be met through closer ties. Further, the Indian Government's decision of allowing privatization in more sectors indicates investment prospects across industries. Several promising economic sectors exist in India and the EU with potential investment opportunities. The same have been highlighted in the following sections.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

SECTOR overview

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 37 India Calling 2009

India - A Global Manufacturing Hub

38

India - A Global Manufacturing Hub

Manufacturing sector in India Though India’s growth story has by and large been characterized by growth in the services sector, there has been resurgence in the manufacturing sector in recent times. In the last 34 years, after a decade of moderate growth, the sector is back into the limelight. Numerous SMEs have become large firms on the back of growth in the domestic market, opening up of the export market and the availability of capital financing. Today, India’s manufacturing sector is making a global mark and is leading its way forward.

According to a UNIDO analysis based on 2007 figures mentioned in the International Yearbook of Industrial Statistics 2009: !

India ranks among the top 12 producers of manufacturing value added (MVA)

!

In textiles, the country is ranked fourth after China, US and Italy

!

In electrical machinery and apparatus, it is ranked fifth

!

It holds sixth position in the basic metals category

!

Ranked seventh in chemicals and chemical products

!

Ranked tenth in leather, leather products, refined petroleum products and nuclear fuel

!

Ranked twelfth in machinery and equipment

Source: IBEF

Moreover, India’s low cost, skilled manpower and proximity to Asian markets are attracting a number of companies, spanning diverse industries; making India a global manufacturing powerhouse.

A number of favorable factors have positioned India as a global manufacturing hub, with a number of companies and manufacturers worldwide offshoring their production and technological capabilities to India. Key focus sectors and global company presence:

North Cluster: Delhi, Gurgaon, Noida, Ghaziabad, Ludhiana

West Cluster: Maharashtra and Gujarat

South Cluster: Chennai, Andhra Pradesh, Tamilnadu. Karnataka

Key Global Players

Sector

Activity

Hyundai

Automobile

Export hub for small cars – (Chennai)

Magna International Inc

Automotive components Plans Manufacturing facilities

Robert Bosch

Automotive components Manufacturing facilities

Airbus

Aviation

Centre for design and development of its long haul A 350 plane

Samsung

Electronics

Manufacturing plant

Louis Vuitton and Frette

Luxury brands

Plans to setup a manufacturing base in India

Cryolor Asia Pacific

Oil & Gas

Manufacture storage equipment for liquefied gases

LG

Telecom

Mobile handsets

Source: Company Websites, KPMG Analysis

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

39 India Calling 2009

Favorable factors India has the essential ingredients to transform herself into a global Manufacturing Hub. The country has considerable prowess in managing the outsourced business model through which she has gained acceptance for her skills globally. India has a well entrenched and fast growing manufacturing sector which needs to innovate and invest continually to maintain the pace of growth.

!

Growing domestic Market: India, with a GDP growth rate of 6-8 percent annually, in spite of the tough global economic climate, is seen as an emerging market with tremendous potential1 -

Proximity to Asian markets: Proximity to growing Asian markets makes India an attractive production and distribution destination for companies worldwide

!

Strong pool of labor: NASSCOM estimates an approximate 4,00,000 diploma & degree engineers graduating in 2009 -

Low cost skilled labor: India’s low-cost advantage is largely attributed to availability of low-wage skilled labor

-

English Speaking Professionals: The fact that most of this skilled labor is English speaking, gives India an edge over other developing nations

!

Emulation of global best practices in production: Over the decade, with a large amount of FDI flowing into India, global best practices in various industries have been imported which have improved productivity of labor and resources -

Japanese Manufacturing principles: The concept of Just-in-time, Kanban, kaizen, Total Productive Maintenance (TPM) had proved successful in shop floors

Challenges & Issues A few bottlenecks exist that restrict India’s capacity and potential for emerging as a global manufacturing hub: !

Under-developed infrastructure

!

High tax levels

!

Erratic supply of water and electricity in many areas

!

A high cost of capital

!

Continuous up gradation of technical and managerial skills.

Efforts have been made since to eliminate these constraints. Such initiatives include the setting up of Special Economic Zones (SEZs), projects to improve infrastructure like the National Highway Development Programme, the New Telecom Policy to reduce telecommunications costs, and increase privatization in the power sector.

1.

EIU, July 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

40

India’s strong capabilities Indian manufacturing sector does not solely compete as a low-cost location. India’s competence also lies in providing greater value by virtue of better quality, design and innovation. !

Research and Development2 -

India’s attractiveness as an R&D location is already an established fact: more than 125 Fortune 500 companies have already setup their R&D bases in India1. Indian companies are already drawing on local engineering design capability where in the past they relied on imported auto design.

!

Sourcing3 -

Large auto and engineering companies have set up their International Purchase Offices (IPOs) in India to source the components from this region. This number is expected to double by the year 20104. The OEMs in India include firms like General Motors, Ford Motor Company, Cummins International, Bosch, Volkswagen, BMW, MAN (trucks) and JCB (earthmoving equipment) amongst others

?

-

!

Testing and Certification3 -

Leading retail player like Wal-Mart & Tesco source their requirements from India

Indian expertise in the automotive sector is coming handy for global car companies like Japanese manufacturers Nissan, Toyota and Honda and the German luxury car makers like BMW and Volkswagen to test their vehicle performance and get international certification

2. 3.

KPMG, India Automotive Study, 2007 IBEF

4.

www.osec.ch

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 41 India Calling 2009

Alternate Energy

42

Alternate Energy

Factors

Statistics

Renewable Energy Installed capacity

13,500-14,000 MW

Wind Energy installed capacity

~10,000 MW

Small Hydro Installed Capacity

~2300 MW

Major Players in India and Europe

Suzlon, First Solar, Gamesa, Vestas etc.

Source: Infraline

India has emerged in the forefront of various forms of renewable energy, with approximately 13,500-14000 MW1 of installed capacity available from renewable sources, of which wind comprises approximately 9700 MW2. This is only likely to increase, given that in recent times, the issue of climate change has come to the fore-front of thought across the world. India also has a high renewable energy potential: approximately 45,000 MW of wind power, 18,000 MW from biomass-based sources and close to 15,000 MW of small hydro resources (defined as plants each of less than 25 MW capacity)3 as the table below indicates. In addition, given the country’s latitudinal location, the country receives large amounts of sunshine, for around 250-300 days per year, indicating that the country can potentially meet its entire power requirement until the year 2022 through solar power alone4.

Grid Interactive Renewable Power Sector

Installed Capacity till January 2009 (MW)

Potential (MW)

Total Capacity expected by 2012 (MW)

Target as per 11th plan (MW)

Approx Investment required from 2007-2012 (USD Mn)

Biomass Power (Agro residues)

18,000

683

500

1,069

488

Wind Power

45,000

9,756

10,500

17,592

15,402

Small Hydro Power

15,000

2,345

1,400

3,376

2,053

Cogeneration - bagasse

5,000

1,034

1,200

1,815

1,097

Waste to Energy

2,700

59

400

443

293

Solar Power

-

2

50

136

-

Geothermal

-

-

-

-

-

Tidal / Ocean

-

-

-

-

-

85,700

13.,879

14,050

24,431

19,333

Total

Source: MNRE, CleanTech VC and PE Investments in India, KPMG analysis

In fact, the possibility of supplementing conventional sources of energy with renewables has a larger scope in countries like India, which already suffer from enormous energy shortages. The peak shortage for power has been estimated to be as high as 13-14 percent5 in the country and large areas go without power for long period or face load-shedding for as much as 16 hours a day, particularly in the summer months.

1. 2.

InfraLine The Hindu Business Line, Indian wind power producers add nearly 1,500 MW of wind power capacity in 2008-09 representing investments of over Rs 90 billion, April 11, 2009

3. 4. 5.

MNRE, CleanTech VC and PE Investments in India, KPMG analysis Renewable energy: An overview and a look at the potential, July 29, 2009, MNRE Ministry of Power

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

43 India Calling 2009

Indeed, a few tentative steps have been

In addition, India is also looking at alternate sources of energy. These include bio-diesel

taken by the Government in this regard. In

through jatropha and karanja plantations, hydrogen-fuelled vehicles and the usage of Gas

order to boost renewable energy generation,

Hydrates.

the Electricity Act 2003 has asked the state utilities to purchase a certain percentage of

Jatropha has demonstrated considerable potential as a bio-energy source. There are several

their energy from renewable sources-

advantages of the plant, which include:

referred to as Renewable Purchase

!

It can grow on almost any kind of soil, including marginal/saline/acidic/alkaline soils

!

It grows rapidly, even without much care and irrigation

!

Suits dry-land farming and can survive drought

Obligation (RPO). Although many states have indeed specified varying percentages of energy to be purchased in accordance with the obligation, in its current form the obligation may not lead to the desired effect,

Gas hydrates, meanwhile, are a potential fuel of the future. These hydrates are a naturally

since no penalties have been specified if a

occurring ‘ice like’ combination of natural gas and water, typically found below the ocean

state fails to meet these obligations.

floor and Polar regions. Currently, there is no commercial technology in existence that can be used to extract natural gas from these hydrates. However, given India’s large potential

In addition to the RPO, certain subsidies

(estimated at ~2000 tcf)6 in the Krishna Godavari, Mahanadi and Andaman basin, this

have been specified for renewable energy

appears to be an area of technology leadership for India. Accordingly, the National Gas

production, given the environment-friendly

Hydrate Programme (NGHP) had been initiated in 1997 and two areas in the Indian waters,

nature of renewables and the fact that

one along the East Coast and the other on the West Coast have been identified as ‘Model

‘distributed power generation’ possesses

Laboratory Areas’ for further R&D work.

some advantages over a centralized system. However, in the long run, if renewable

Technical collaboration in the field of Hydrogen vehicles provides another opportunity for

energy sources are to supplement

Indo-EU partnerships.

conventional sources, the costs of production from renewables must come

Major Countries for Solar and Wind Power*

down and be more competitive with those based on conventional fuels i.e. achieve grid parity.

Germany Wind (20%), solar

In India, ambitious targets have been set for energy production from renewables. The Ministry of New and Renewable Energy

UK Wind (3%), solar

(MNRE) has envisaged an increase in total renewable energy capacity from the current levels of around 13,500 MW to around

Italy Wind (3%), solar

25,000 MW by 2012 and further to about 54,000 MW by the end of 13th Plan period (2022).

Spain Wind (14%), solar

Of this, wind-based generation is expected to retain its prominent position as the single largest contributor in the renewable portfolio mix. However, solar energy is also expected

Source: Global Wind Report 2008 by Global Wind Energy Council (GWEC) * Figures in brackets indicate percentage of the Global wind installed capacity (2008)

to develop to a significant extent, particularly as the costs of solar power reduce from their current levels. Accordingly, a “National Mission on Solar Energy” has been launched, with a goal to generate at least 10 percent of India's power from solar energy over the next several years.

6.

The Financial Express, India has 2,000 trn cubic ft prognostic gas hydrates pool, February 2008

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 44

India Advantage Features Key Industry Trends

EU Advantage Advantage

Features

? Concerns on Climate Change: Global

Advantage

Key Industry Trends

? Rising Demand: EU imports nearly 50 percent

of its energy consumption; expected to rise to 70 percent in the next 20-30 years indicating increasing dependence on imports7 Renewables could help meet this demand to some extent, without the need for imports

warming and climate change issues rising in public consciousness; favourable for Renewables ? Volatility in the Prices of Conventional Fossil

Fuels (crude oil, natural gas) means that Renewables may emerge as a viable alternative

? Research & Development (R&D): EU firms

are aiming to develop new, alternative and efficient sources of energy and spending on R&D

? Decreasing Prices due to improvements in

Technology such as larger size wind turbines, thin-film solar etc.

? EU has committed to reduce emissions.

Target to reducing emissions by 20 percent and raising Renewables proportion of energy consumption to 20 percent by 20207 Key Drivers

? Concerns on Climate Change and the need

? Climate Change concerns: Demand for

Key Drivers

Renewables likely to increase in line with Climate Change concerns

to reduce dependence on fossil fuels ? Government Regulations: The Electricity Act

? Government Incentives to be important. The

2003 prescribes that a certain percentage of energy purchased should be from Renewable sources; launch of initiatives such as the ‘National Solar Mission’

reduction of support in Spain, for example, in likely to result in a sharp fall in addition of Renewable Energy capacity ? Decreasing Costs: due to increased scale and

? Govt Incentives: The Central and many State

new technologies

Governments have outlined the incentives they would provide for Renewable Energy, including feed-in tariffs, capital subsidies, tax concessions etc.

? Investments in new sources of

Renewables –Geothermal, tidal etc.

? Decreasing Costs will be the main driver.

Achievement of grid-parity in the long run is needed Source: 7. European Monitoring Centre on Change (EMCC) Dossier on the European energy sector, March 31, 2008

Areas for Collaboration: In EU Opportunities

? Indian firms

In India can leverage the R&D skills and initiatives of EU

firms could set up subsidiaries abroad/ acquire firms or establish JVs to cater to large markets in the EU as companies such as Suzlon have been doing

? Cultural

differences have lead to very different market conditions, which Indian firms need to understand

? Sector likely

for Renewables in India, particularly solar

? Good engineering

? Indian firms

Challenges

? Large potential

to see increasing competition

? Over-capacity

in solar PV has led to fall in prices and margins at a global level

talent to support R&D initiatives

? Governments

increasing focus on Renewables means low base has the potential to expand rapidly

? Technologies

? Regulations

for hydrogen fuel, gas hydrates, etc.

still evolving in India

? Land acquisition

and related issues an emerging problem even in the Renewable sector

? Lack of

grid connectivity, access to finance could hold back development

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 45 India Calling 2009

Agriculture and Food Processing

46

Agriculture and Food Processing India Industry Profile: Parameters

Statistics

Overall Indian Food Market Size (2008)

USD 182 billion1

Food Processing Industry Size – 2008

USD 67 billion2

Growth in 2007-08

13.1 percent3

CAGR (2008-2015)

20 percent3

FDI Inflows: Apr 2000 – 2009

USD 750 million4

Exports of processed food – 2006-07

USD 20.5 billion3

Foreign Player Presence

Unilever, Cadbury Schweppes, PepsiCo, Nestle, Hershey, Perfetti, etc.

Source: 1. India Food Report, 2008 2. Ministry of Food Processing Industries 3. Indian MSME Ecosystem, November 2008 4. Directorate General of Commercial Intelligence and Statistics (DGCIS)

Key Markets in India

Northern region accounts for 28% of packaged food consumption in India. North Indian cuisine is distinguished by the proportionally high use of dairy products; milk, paneer, ghee (clarified butter), and yoghurt (yogurt, yoghourt) are all common ingredients. Gravies are typically dairy-based. Other common ingredients include chilies, saffron, and nuts.

Western region accounts for 30% of packaged food consumption in India. Western India has three major food groups: Gujarati, Maharashtrian and Goan. Coastal regions diet includes fish, breads and rice. Gujarati cuisine is predominantly vegetarian. Goan cuisine is influenced by the Portuguese colonization of Goa

South India region accounts for 25% of packaged food consumption in India. South Indian cuisine is distinguished by a greater emphasis on rice as the staple grain, the ubiquity of sambar and rasam, a variety of pickles and coconut. The dosa, poori, idli, vada, bonda and bajji are typical South Indian favorites. Hyderabad is very well-known for its biryani.

DELHI

KOLKATA

MUMBAI

BANGALORE HYDERABAD

Eastern region accounts for 17% of packaged food consumption in India. East Indian cuisine is famous for its desserts, especially milk based sweets. Fish and shellfish are commonly consumed in the eastern part of India. Rice is the staple grain in Eastern India. A regular meal consists of lentils, fish, and vegetables

Source: Euromonitor, Packaged Food India, May 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

47 India Calling 2009

Business Climate in India's Agriculture and Food Processing Parameter

Details

FDI Regulations

? FDI up to

100 percent is permitted under the automatic route

in food infrastructure (food park, cold chain/warehousing) ? No FDI

is permitted into Retail sector except for Single Brand

Product Retailing. This policy is uniform for all retailing activities ? FDI policy

for manufacture of items reserved for the SSI sector

is uniform for all items ? FDI up to

100 percent is permitted through the automatic

route for distillation and brewing of alcohol subject to licensing by the appropriate authority ? Automatic

approval of 100 percent equity for most processed

food items. ? Most of

the processed food segments are exempt from

industrial licensing, with the exception of beer and alcoholic drinks and items reserved for Small Scale Sector, like bakery, bread and vinegar among others Constraints/Challenges

? Poor infrastructure ? Inadequate ? Inefficient

in terms of cold storage, warehousing, etc.

quality control and testing infrastructure

supply chain and the involvement of middlemen

? High transportation ? Affordability,

and inventory carrying cost

cultural and regional preference of fresh food

? High taxation ? High packaging

cost

Source: Indian MSME Ecosystem, Lotus Knowlwealth Analyst Report, March 2008

Key Markets in the EU Region

Key Bilateral Investments

Key Markets in the EU Region

Promoter - Country

Project Details

Heinz (IT) and Glaxo

In 1994, Heinz acquired the Family Product Division of Glaxo with brands such as Complan, Glucon-D, Nycil and Sampriti

Perfetti Van Melle

Subsidiary holds 25 percent market share in the Indian sugar confectionery market

Source: Company websites

Account for 70 percent of consumption of processed food

UK Germany France

Italy

Spain

Source: www.foodprocessing.de

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 48

India Features Key Industry Trends

EU Advantage Advantage

Features

? Increasing

integration and collaboration across players in the value chain, to garner mutual benefits

Key Industry Trends

? Growing

demand in the organic food market and immense opportunities for exports

? Rising demand

Advantage ? Backward

integration witnessed with many retailers having integrated with supermarkets to develop their own brands

? Increase

in Organic, Natural, Functional and Health Foods

in the branded packaged food

? 70 percent

of the turnover is realized in France, Germany, Italy, Great Britain and Spain3

industry

? Market

trends demand innovation in products and processes

? Mechanization

and automation of food production is speeding up

Key Drivers

? Increasing

spends on health and nutritional

Key Drivers

? Organized

? Markets

retail and private level penetration

foods ? Urbanization

and rising number of nuclear families and working women

? Organized

retail and private label penetration

Competitive

? Abundant

availability of raw material

Competitive

Advantage

? Priority

sector status for agro-processing given by the central Government

Advantage

? Vast network

? Price pressures

create a continual search for new market potentials at home and abroad

of manufacturing facilities all over

? One can

enter into the European market by starting up a new company or diversifying an existing company. In case of foreign producers, one can begin through exports to the region. There are relatively very few restrictions

the country ? Vast domestic

market

? Cost of

production in India is lower by about 40 percent over a comparable location in EU and 10-15 percent over UK1

Government Incentives2

in Europe are mature. Quality and safety issues are given high importance

? Income

Tax rebate is allowed, 100 percent of profits for 5 years and 25 percent of profits for the next 5 years, for new industries to process, preserve and package fruits and vegetables

? Investment-linked

tax incentives for setting up cold chain infrastructure and warehousing facilities

? Customs

duty on food processing machinery and parts reduced from 7.5 percent to 5 percent, dairy machineries are completely exempted from Central Excise Duty

? Custom

duty on Packaging Machines to be reduced from 15 percent to 5 percent

Government Incentives4

? Deregulation

- removing regulations from the statute book, leading to greater liberalization of previously regulated regimes

? Consolidation

- bringing together different regulations into a more manageable form and restating the law more clearly. By improving transparency and understanding, it should reduce compliance costs

? Rationalization

- using ‘horizontal’ legislation to replace a variety of sector specific ‘vertical’ regulations and resolving overlapping or inconsistent regulations

? Customs

Duty on refrigerated vans reduced from 20 percent to 10 percent

? Abolishment

of excise duty on milk, ice cream, preparations of meat, fish and poultry, pectin, ectatesand food mixes

? Reduction

in excise duties on various other

products Source: 1. Lotus Knowlwealth Analyst Report, March 2008 2. Ministry of Food Processing Industries

Source: 3. www.foodprocessing.de 4. Better Regulation Task Force, Government of UK © 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

49 India Calling 2009

Areas for Collaboration:

Opportunities

For India

For EU

? The European

? Large crop

packaged foods and meats market is fragmented, with the top three players holding an aggregate share of less than 10 percent of the total market by volume5

? The processed

food industry in EU is developed

? Even during

the slowdown period the sales in the top 5 consuming countries have shown a rise which shows the steadiness of the industry

? Technology

transfers from EU countries as they are well

developed Challenges

? Higher

cost of manufacturing

? High capital ? Labeling

Player Strategies

expenditure

? Setting

of SEZ/AEZ and food parks for providing added incentive to develop Greenfield projects

? Integration

of development in contemporary technologies such as electronics, material science, bio-technology etc. offer vast scope for rapid improvement and progress

? Developing

supply chain, warehousing and cold storage opportunities

? High duty

structure – 36 percent on machinery6

? Poor infrastructure

laws in the EU are very strict and requires attention

? Exporting

and material base offering a vast potential for agro processing activities

is generally preferred by Indian companies as the cost of setting up unit in EU are higher

? Limited

awareness, restricted only to metros and Tier-I cities

? Setting

up a 100 percent subsidiary has been widely used by many companies to enter into the Indian market

Source: 5. Datamonitor 6. The Indo-Italian Chamber of Commerce and Industry

Success Stories: Company Name

Success Story

Perfetti Van Melle

? 100 percent

subsidiary of the global Italian conglomerate, started operations in India in 1992 with the setting up of its factory

? It launched

its first brand in the Indian market in 1994, the popular brand Center Fresh. Today as a confectionery company of notable repute, it leads the Indian sugar confectionery market with more than 25 percent of the value share of the market

? The company ? Perfetti

strives to leverage the international brand portfolio in India, while adapting flavors and blends to the local tastes

Van Melle has doubled its turnover and is amongst the top players in confectionary market

KEY SUCCESS FACTORS: ? Innovative

products: Perfetti Van Melle has introduced several innovations in its products, cases in point being Center Shock, Alpenliebe Swirl and Happydent Gum

? Constant

Re-invention of Brands: The company continually works towards developing its brands and goes to the extent of reinventing the same if the situation demands. An example is the brand Cofitos that was re-launched at a lower price point because of the market demands

Source: IBEF, Company Website

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

We want to improve agricultural productivity. We want to get more of the agricultural dollar into the hands of the farmer. We want India to do more food processing and value-added agriculture. And we are going to be working with India very closely. – Hillary Clinton U.S. Secretary of State Source: www.ap-foodtechnology.com, July 20, 2009, 'Clinton backs Indian food processing industry expansion' © 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 50

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 51 India Calling 2009

Education

52

Education India Industry Profile: Parameters

Statistics

Industry Size – 2009 (Private Spend on Education)

USD 50 billion (2008) USD 80 billion (2012)

Education Spend (% of GDP)

3.7 percent (10th Five-Year Plan(FYP)) 6 percent (Proposed in 11th FYP)

Target Population (5 - 24 years)

445 million ( 2008) 486 million( 2025E)

Schools and Institutions

A network of ~1.3 million schools, ~20,000 Higher Education Institutions (HEIs) and 350 Universities

Key Private Players

Educomp, Everonn, NIIT, Kidzee, Career-Launcher, Core Projects

CAGR -14%

Source: IDFC-SSKI, 'Indian Education Long way from graduation' 16 January 2009, ICICI Securities, Education Services, February 2008; business.gov.in

Prestigious Institutes in India

Roorkee

Delhi

Shillong Kanpur

Ahmedabad

Lucknow

Indore

Kolkatta

Guwahati

Kharagpur

Mumbai

Bangalore Kozhikode

Chennai

Indian Institute of Technology (IITs) Indian Institutes of Management

Source: www.indiaedu.com, IIM websites

Business Climate in India's Education Sector: Parameter

Details

FDI Regulations

? FDI in education,

including higher education, has been allowed under the automatic route without any sectoral cap since 2000

Constraints / Challenges

? Educational

institutes in India are to be run as ‘not-for-profit’ centers under a society (registration under the Societies Registration Act 1860) or a public trust (Registration Act 1908)

? K12 institutes

are required to be affiliated to education boards; either central boards like ICSE and CBSE or a state board

? Regulations

may differ from state to state

Note: K12 = Kindergarten to Grade 12 Source: IDFC-SSKI, Indian Education Long way from graduation, January 16, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

53 India Calling 2009

Key Bilateral Investments Promoter - Country

Project Details

UK India Education and Research Initiative

? The initiative is for – Higher Education and Research, Schools and

Professional and Technical Skills development ? UK has pledged USD 34.5 million through contributions by the

Department for Innovation and Skills, Foreign and Commonwealth Office, the British Council and devolved authorities of Northern Ireland, Scotland and Wales. Department of Science and Technology (DST), Government of India has also pledged similar funding for science related collaboration ? The first ever India-UK Virtual Graduate Research School (VGRS) has

been established to drive collaborative fundamental research programs, research training and technology transfer between the UK and India Indo-German Training Centre (IGTC)

? With an aim to provide training based on practical and theoretical

Indira Gandhi National Open University (IGNOU)

? IGNOU plans to open centres in the UK and Germany. It has signed a

IIM Ahmedabad(A) and Essec, France

? IIMA and French business School ESSEC have collaborated for a double-

IIT Madras

? IIT – M is a flagship project under Indo-German cooperation for higher

learning, IGTC was established in Mumbai in 1991 followed by the IGTC, Chennai in 2005 and the IGTC, Bangalore in 2008

memorandum of understanding with UK-based Lincoln University.

degree program for a limited number of students. The post-graduate double-degree program would be open to select five students in a year from both the management schools at the same tuition fees

education. Erasmus Mundus Association of India (EMAI)

? EMAI was established with an objective to promote EU as a centre of

Sarva Siksha Abhiyan (SSA)

? EC* signed an agreement with the Government of India (GoI) in

Pearson Plc -UK

? British education and publishing firm Pearson Plc. plans to invest USD

excellence in the field of higher education in India

November 2001 to support SSA programme, the national initiative for Universalisation of Elementary Education. About USD 284.5 million were committed for 7 years of implementation.

30 million in India to acquire stake in two Indian education companies-

USD 17.5 million for a 50 percent interest in New Delhi-based Educomp Solutions Ltd.'s vocational training business and

-

USD 12.5 million for a 17.2 percent stake in TutorVista Global Pvt. Ltd., an online tutoring firm in Bangalore

*EC= European Commission Source: Institution Websites, The Hindu Business Line, Pearson to invest in India, June 2009; UK - India Education and Research Initiatives; www.diplomatist.com

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 54

Key Education Institutes in the EU FINLAND - University of Helsinki - University of Tampere - University of Jyväskylä

NORWAY - Universitetet i Oslo - Universitetet I Bergen - Universitetet i Stavanger SWEDEN - Stockholm University - Umeå University - University of Gothenburg

GERMANY - Universität Hamburg - Universität Heidelberg - Universität Leipzig

UK - University of Cambridge - University of Oxford - London Business School - Imperial College - University of Manchester - University of Edunburgh

SPAIN - Universidad Complutense de Madrid - Universidad Politécnica de Valencia - Universidad de Granada - IE Business School - IESE

FRANCE - INSEAD - Université de Nantes - Université de Poitiers - Université d’Orléans - École Normale Supérieure

ITALY - University of BOLOGNA - Politecnico di MILANO - SapienzaUniversity of Rome

SWITZERLAND - ETH Zurich - EPFL Source: The Google College Rankings; 01 May 2009, QSTopmba.com

India Advantage Features Key Industry Trends

EU Advantage Advantage

Features

? Government

is encouraging PublicPrivate–Partnership in the sector

? Demand

for skilled workers across sectors is fuelling the market for vocational training institutes

? The e-learning

market comprising of: digital content in private schools, Information, Communication and Technology (ICT) program for Government schools and online education market is gaining importance

? Foreign

universities are offering online courses to Indian students

Source: india.gov.in

Key Industry Trends

Advantage ? There has

been a rise in the number of years of compulsory education, and some countries require pupils to continue beyond the compulsory age in order to obtain a certificate of basic education

? Higher

education has seen a massive rise in the number of students, in the younger age groups and female students in particular

? Long-term

demographic projections of the EU population show a fall of around 11 percent in the age group of 5-9 years in the region, by 2020. In the age group of 10-14 years, the projections show an extreme situation with some countries set to experience a decline in the population by over 40 percent

Source: European Commission, Key data on Education in Europe, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

55 India Calling 2009

India Advantage Features Key Drivers

EU Advantage Advantage

Features

Advantage ? Education

represents almost 11 percent of EU public expenditure

Key Drivers

? Government

is treating education as a priority for achieving rapid and inclusive growth

? In most

of the European countries, a large degree of autonomy is granted to schools for the use of public funds

? Average

household spending on education is estimated to increase 5.4 percent over 2005-25

? A target

population of around 445 million in the age group of 5- 24 years in 2008 is expected to increase to ~486mn by 2025E, far exceeding the combined target population in China (354million) and the US (91million)

? Increased

Government focus on ICT@ school and National skill Development Mission

? Increased

demand for skilled labor from booming service sector in the country

? The 11th

FYP has proposed an almost 10-fold increase in outlay for higher and technical education

Government Incentives

? Increase

Government

expenditure on education to 6 percent

of GDP

? EU launched

the Erasmus Mundus programme, a project to ensure that European Universities are recognised as centres of excellence across the world and to enable partnerships between European universities and other countries

Incentives

? Tax Benefits:

Under the provisions of certain tax treaties between India and foreign countries, income earned by foreign professors/ teachers who visit India for the purpose of teaching at a university or other approved institution, is exempt from tax in India

? Education

ministers from EU Member States have set themselves 13 specific areas for improvement in national systems, including education and training of teachers, key competences, language learning, ICT, maths, science and technology, active citizenship and social cohesion

? Government

is likely to allow the IITs and IIMs to open campuses in foreign countries

Source: 11th Five Year Plan document; ICICI Securities, Education Services, February 2008

Source: The Education, Audiovisual and Culture Executive Agency (EACEA), Press Releases etc.

Areas for Collaboration:

Opportunities

In EU

In India

? Collaborate

? Large untapped

with EU institutes to get the expertise and enhance skill development in the country

? Establish

presence in EU to offer courses in Indian history, culture, art, dance etc.

? Belgium’s

market for e-learning, ESL and vocational training is well-developed. India can enter into JVs with the country for its expertise.

Challenges

? Language

constraints especially in Italy, France , Spain and

market in India

? About 1.5

lakh students from India go abroad for higher education and this number is rising by 35 percent annually

? During

2007-08, about 1,700 students went to France, while 4,500 students opted for Germany as their educational destination

? At present,

only two percent of Indian schools are equipped with computers offering room for growth

? Indian Education

Sector is highly regulated

Germany ? Cost of

studying in Europe is high

Source: The Education, Audiovisual and Culture Executive Agency, Key Data on Education in Europe 2009, July 2009; Datamonitor, Belgium Education, December 2008

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 56

FDI must come into India. Entry into the education sector must neither be limited nor over-regulated. I want the system to be accessible from outside too – Kapil Sibal Human Resource Development Minister, India

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

Source: The Times of India, FDI in education top priority Kapil Sibal, June 25, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 57 India Calling 2009

Energy (Oil, Gas and Power)

58

Energy (Oil, Gas and Power) India Industry Profile: Parameters

Statistics

Oil & Gas Industry Size

USD 110 billion

Crude Oil Production

34.1 million tonnes

Crude Oil Reserves

726 million tonnes

Natural Gas

1055 billion cubic metres

Gross Crude Oil Imports

USD 68.2 billion*

Petroleum Exports

USD 26.9 billion*

Central Government subsidies for Oil and Gas

USD 18.2 billion*

EU players in India (Oil and Gas)

BP, BG Group, Shell, Cairn, Gaz de France, Total among others

Power Generation Growth 2008-09

724 billion units

Installed Capacity (June 2009)

148,265 MW

Transmission Lines (March 2009)

222,746 circuit kms

Ultra Mega Power Projects (UMPP)

Sasan, Mundra, Tilaiya, Krishnapatnam

EU Players in India (Power)

Alstom, Areva T&D among others

Note: *Oil & Gas data for 2007-08 Source: Ministry of Petroleum, IBEF, Ministry of Power, Press Articles

Key Oil & Gas Basins in India

Barmer Fields

KG Basin

Cambay Basin

Cauvery Basin

Source: Ministry of Petroleum

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

59 India Calling 2009

Business Climate in India's Energy Parameter

Details

FDI Regulations1

? Hundred

percent FDI in private refineries, petroleum products, exploration, gas pipelines; 49 percent in state-owned refineries

? In the power

sector, 100 percent foreign equity participation in all segments excepting atomic energy

Constraints / Challenges

? Challenges

around land acquisition, obtaining approvals and clearances have delayed a number of projects

? The Transmission

and Distribution (T&D) sector is characterized by huge

losses ? In power,

actual capacity additions remain far behind the planned capacity

additions ? Domestic

reserves / production not sufficient to meet demand, necessitating reliance on imports and consequent concerns over ‘energy security’

? Intense

competition from China in terms of acquisition of oil assets abroad

Source: 1. IBEF, Power – Market & Opportunities, July 2008

Key Bilateral Investments Promoter - Country

Project Details

BP – UK

In 1989, BP formed a Joint Venture (JV) with Tata's to form Tata BP Solar

Cairn – UK

Partner with ONGC for Barmer fields in Rajasthan

Norsk Hydro – Norway

In 2007, ONGC tied up with Norsk Hydro Produksjon AS, to develop Deepwater Oil & Gas blocks off the Indian coasts

Shell – Netherlands

Shell sells lubricants in India; Earlier it had a JV with BPCL

ONGC

Formed a JV in 2005 with Mittal Investment Sarl’s E&P blocks abroad

Source: Bloomberg, Company websites

Key Markets in the EU Region

UK 10% Germany 12.9% France 9%

Italy 9.4%

Spain 7.1%

Source: EUROPA, Datamonitor Oil & Gas Country Reports, May 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 60

India Advantage Features Key Industry Trends

EU Advantage Advantage

Features

Recent increase in Production: Gas from Reliance’s KG Basin fields and Cairn India’s Barmer fields

Key Industry Trends

?

Setting up UMPPs: Four projects have been allocated so far; more are planned

?

? EU has

committed to reduce emissions. Target to reducing emissions by 20 percent and raising renewables proportion of energy consumption to 20 percent by 20203

Private sector involvement: Private sector is expected to play an increasingly important role

?

Demand: Large scale domestic demand in line with robust GDP growth

Key Drivers

? Hydrocarbon

Discoveries: Significant discoveries of oil and gas recently and large planned capacity additions in power will help balance the demand supply gap, leading to development of transmission and distribution infrastructure

Competitive Advantage

? Favourable

Location: close to oil-producing regions of the Middle East helps the country emerge as a refining hub

Demand: EU imports nearly 50 percent of its energy consumption; expected to rise to 70 percent in the next 20-30 years indicating increasing dependence on imports3 & Development (R&D): EU firms are aiming to develop new, alternative and efficient sources of energy

Nuclear deal: Post the Nuclear Suppliers Group (NSG) waiver, India has entered into bilateral nuclear deal with France, and others (Russia, Kazakhstan)

? Domestic

? Rising

? Research

?

Key Drivers

Advantage

? Market

Liberalisation: Has fostered consumer-friendliness- open access allowed and no bundling of networks - Consumers are free to choose their energy supplier in many countries

? Demand

for Gas and Renewables likely to increase in line with Climate Change concerns

Competitive Advantage

? Lower construction

and operating costs, availability of skilled and cheap manpower

Service providers such as Schlumberger, Baker Hughes etc are located in Europe and service the oil and natural gas industry worldwide

?

Key Market: For exports of petroleum products

?

R&D: In the fore-front of technological change

?

Government Incentives

? New Exploration

Licensing Policy (NELP): Allocates oil and gas blocks through a competitive bidding process, thereby, providing a level playing field to the Public and the Private sector

Government Incentives

? Is targeting

reduction in greenhouse gas emissions by 20 percent and raising renewables proportion of energy consumption to 20 percent by 20203

? Petroleum

and Natural Gas Regulatory Board (PNGRB): Regulates downstream activities

? Power

Projects: Special incentives granted for Mega Power Projects (over 1000 MW thermal and 500 MW hydro capacities respectively) and Ultra Mega Power Projects (~4000 MW each)2

Source: 2. IBEF, Power Market and Opportunities, December 2008

Source: 3. European Monitoring Centre on Change (EMCC) Dossier on the European energy sector, March 31, 2008

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

61 India Calling 2009

Areas for Collaboration: In EU Opportunities

In India

India as a Refining Hub: Environmental concerns in EU, US has meant that new capacity addition has occurred in emerging economies such as India

?

export petroleum based products, including petrochemicals to the European market

? India needs

deepwater exploration technology

- ONGC has entered into a JV with Statoil and Norsk Hydro to explore the KG Basin; was earlier looking to rope in BP and others

? India can

? Indian and

? NELP and

CBM: The NELP continues to attract substantial investments and interest

? Indian service

- Cairn India, BG and BP have won E&P and Coal Bed Methane (CBM) blocks

European firms can collaborate for building refineries across the world contractors (L&T, Punj Lloyd, etc) could undertake contracts across the world, including Europe

? Power:

? India is

also a supplier of relatively low-cost manpower to European firms

- European firms can invest across the Power sector - Areva has signed a MoU to supply nuclear fuel and reactors to India - European players such as Alstom, Areva T&D, ABB etc. provide power generation and transmission equipment ? Outsourcing:

Opportunities also exist in outsourcing certain

activities ? - Shell

has established a Technology and Shared Services centre in India

Challenges

? The presence

? Foreign

? EU also

? Extent of

of firms like BP, Shell, Total and others act as a significant barrier to entry has many restrictions regarding environmental impact

bidders under NELP tend to face stiff competition from domestic companies

? Gaining

Player Strategies

Reliance Industries Ltd.4

?

? RIL has

announced its entry into United Kingdom’s (UK) petroleum trading business and has incorporated a whollyowned subsidiary in London

? Aims to

tap emerging opportunities in the global markets

seismic studies conducted in India is low

captive coal blocks in India is a challenge

Cairn Energy ? Cairn India has been actively exploring hydrocarbons in the country. The company has partnerships with ONGC, Videocon, Tata, Marubeni and ENI BG ? The joint

operator of the Panna-Mukta-Tapti fields has a strong presence in India, through its E&P division and subsidiaries Gujarat Gas and Mahanagar Gas

Source: Company Websites 4. www.mydigitalfc.com, RIL enters petroleum trading with arms in UK, Singapore, September 9, 2008

Success Stories: Company Name

Success Story

Cairn India

? Cairn has ? Cairn’s

been operating in India for over a decade. Has interest in 14 blocks

big oil discovery in Rajasthan- is the biggest in India in the past two decades

? Production

of crude oil is expected to commence from the Mangala, Bhagyam and Aishwarya (MBA) fields shortly. Peak production is expected to be ~175,000 barrels / day

? Cairn is ? Cairn’s

likely to pay a royalty of USD 1.6 million (INR 8 Crores) to the Govt. per day at peak production

operations are quite profitable; its operating cost is less at USD five per barrel on average

? Some concerns ? Another

expressed over the crude oil quality of Barmer crude (highly waxy)

issue is the decline in its producing fields of Ravva and Cambay

Source: Cairn Corporate Presentation, May 2009; Reinitiating Coverage, Cairn India Ltd., First Global India Research, June 3, 2009; Govt. losing lakhs daily as Cairn output gets delayed, Daily News and Analysis, June 1, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 62

Oil and gas, railways and power sector, despite confronting pressures of huge subsidies burdens, have announced the highest investments plans in fiscal 2008-09, which is a matter of great satisfaction and others need to emulate them. – Sajjan Jindal Assocham President

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

Source: The Economic Times, Oil PSUs ahead in investment announcements in ‘08-09, June 26, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 63 India Calling 2009

Environment Technology Transfer

64

Environment Technology Transfer

Over 150 countries have signed the Montreal Protocol; a landmark international agreement to restore the Earth’s deteriorating stratospheric ozone layer. The global success of this effort to protect stratospheric ozone requires that the world’s developed and developing countries eliminate emissions to the atmosphere of most ozone-depleting substances (ODS), which include chlorofluorocarbons (CFCs) and other chlorinated and brominated compounds. Achieving this goal in many economic sectors requires momentous industrial change, including the development, installation, and use of new technologies. Since many of these technologies are widely available only in a relatively few countries, and since the global market has been slow in bringing these technologies to some parts of the world, deliberate and active international technology transfer programs are needed if ODS emissions are to be eliminated1.

Stages of Technology Transfer An ODS-consuming enterprise decides to switch to non-ODS or ODS-conserving technologies: !

Enterprise becomes aware of the potential for technological change in their operations

!

Enterprise is motivated to act

Non-ODS technologies are evaluated and specific options are selected: !

Non-ODS technologies are identified

!

Non-ODS technologies are evaluated

!

Appropriate / preferred non-ODS technology is selected

A project is designed and financing is obtained: !

Project proposal is prepared

!

Project receives approval from Implementing Agency

!

Project receives approval from Executive Committee of the Multilateral Fund

!

Funds are disbursed for the project

The new technology is acquired, installed, and used: !

Technology is purchased or acquired

!

Non-ODS technology is delivered and installed on the “shop floor”

!

Non-ODS technology is adapted to local conditions and put into use

Source: Report on Environmental Technology Transfer to Developing Countries, ICF Consulting

Opportunity for India: It is a well known fact that India is expected to become one of the fastest growing economies in the world. While it is appreciated that this growth will bring lot of prosperity to the country, on the other hand, India will increase its energy consumption to be able to achieve this feat. This means that the country’s carbon emissions, which are one of the lowest in the world on a per-capita basis, could multiply exponentially in years to come. According to The Energy and Resources Institute (TERI), India will emit five times the

1.

Report on Environmental Technology Transfer to Developing Countries, ICF Consulting

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

65 India Calling 2009

current emissions by 2035 and the investment needed to modify the energy consumption patterns will approximately be four to seven times that in a ‘Business as Usual’ scenario2.

Advantages of Environment Technology: !

Environmentally-friendly technologies are less polluting, use less resources, and recycle more wastes and products than their alternatives

!

Europe is already a proven leader in usage of environment-friendly technologies. According to a report by the European Commission in 2006, the estimated turnover of eco-industries in the EU-25 was around USD 320 billion (Euro 227 billion) while goods and services provided by eco-industries represent around 2.2 percent of EU-25 GDP3.

Areas for Collaboration: !

Both India and Europe can leverage each others’ position to strengthen their current relationship

!

India, which is on the threshold to witness rapid industrial growth, will need considerable investments in environmental technology, which Europe has already pioneered in

!

This in turn, will enable both the economies to assist in the overall global objective of reduction in carbon emissions

2. 3.

Indian Express, Trillions needed for India's growth to be carbon neutral, July 13, 2009 www.euractiv.com

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 66

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 67 India Calling 2009

Fashion (Luxury Brands)

68

Fashion (Luxury Brands) India Industry Profile: Parameters

Statistics

Industry Size – 2007

USD 0.8 billion1

Expected Growth for the next 5 years

25 percent1

Share of Global Market

0.4 percent1

Number of Luxury brands (2008)

25 (8 in 2005)2

Foreign Player Presence

Armani, Gucci, Louis Vuitton Moet Hennessy (LVMH), Prada, Jimmy Choo, Dolce and Gabbana, Versace, Chanel, Cartier, Llardo, Valentino, Christian Dior, Longines, Zara, FCUK, Hugo Boss, Hermes, etc.

Source: 1. Business India, December 14, 2008 2. Milano Fashion Global Summit, Value Partners India, November 2008

Key India Markets: Delhi - Political Capital of India - Luxury Consumers: Politicians, Bureaucrats, Businessmen and Senior Executives Chandigarh

Mumbai - Commercial Capital of India and home to Bollywood - Luxury Consumers: Filmstars, CEO’s and Executives, Socialites

Delhi

Jaipur

Ahmedabad Bangalore - IT Capital of India with an elite group of CEO’s and top level executives - Luxury industry still to make an impact

Surat

Kolkatta

Mumbai Pune

Hyderabad Chennai - Currently untapped has huge potential - Luxury consumers: Filmstars, Politicians and Businessmen

Bangalore Kochi

Coimbatore Chennai

Luxury Ready Cities Luxury Ready by 2010-11 Luxury Ready 2015-20

Source: KPMG Analysis

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

69 India Calling 2009

Business Climate in India's Fashion Industry Parameter

Details

FDI Regulations

? Government

Constraints / Challenges

? Poor infrastructure ? Entry of

recently allowed 51 percent FDI in single -brand stores for luxury retailing

various brands in the last couple of years has increased competition

? Luxury hotels

are key point of sales in India where rentals are very high, thus impacting the profitability of a company

? Currently,

there are only two luxury retail malls in India. One in Delhi and another in Bangalore. Mumbai, the financial capital of India and with the highest spend potential does not have a luxury retail mall. This is both a challenge and an opportunity

? Counterfeiting ? Competition

is a key point of concern for luxury brands

from other emerging destinations for low cost manufacturing

Source: IBEF, KPMG Analysis

Comparison between Mono stores in EU and India (in EUR): Revenue per sq. mt.

15,000-40,000

5,000-14,000

COGS

35-40%

45-60%

Rent (per sq mt.)

10-20% (1,500 – 4,000)

20-35% (1,000 – 3,000)

Personnel

15-25%

8-12%

Margin at store level

25-40%

(-20)-12%

Source: Milano Fashion Global Summit, Value Partners India, November 2008

Key Bilateral Investments Promoter - Country

Project Details

S. Kumars: Escada (GR), Alfred Dunhill (UK)

Manufacturing and retailing rights (May 2007)

TSG International Marketing: Moschino (IT), Alberta Ferretti (IT) and Jean Paul Gautier (FR)

Distribution tie-up (early 2007)

Gavin Fashions: Pal Zileri (IT), with others in the pipeline

Franchising (2008)

Sports Station India (SSIPL): Aigner, Salvatore Ferragamo (IT), Fratelli Rossetti (IT)

Distributing tie-up (April 2004 and 2006 respectively)

Murjani group: Gucci (IT), Jimmy Choo (UK), FCUK (UK)

Master Franchisors (February 2006)

Jashanmal group: Burberry (UK)

JV (November 2008)

Forbes Gokak: Trussardi (IT), Daks (UK), Saville Row (UK)

Licensee (Feb 2006, Feb 2002, Feb 2005)

Tata Group: Inditex

JV to open Zara stores (February 2009)

Blue Clothing Company and Versace (IT), Cadini (IT), Corneliani (IT) and Sisley(IT)

Franchisee to open four stores in India (March 2008)

Source: Company Websites, Luxury in 2007 and Beyond, Images Yearbook, Vol. IV, No.1

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 70

Key Markets in the EU Region UK - London - Alfred Dunhill - Burberry - Jimmy Choo - FCUK France - Paris - Jean Paul Gautier - Louis Vuitton Italy - Milan - Armani - Moschino - Alberta Ferretti - Pal Zileri - Aigner - Gucci - Versace - Trussardi

London Paris

Milan

Fashion Capitals

Source: KPMG Analysis

India Advantage Features Key Industry Trends

EU Advantage Advantage

Features

Market driven by niche segment, thereby, minimal impact of slowdown on purchases

Key Industry Trends

? Due to

Key Drivers

-

Competitive

? Italy and

?

Advantage current economic scenario fashion industry across EU has taken a dip

Brands like Cartier, Hermes, Hugo Boss, Longines and Christian Dior are estimating a 30 percent sales growth in the current slowdown3

?

India’s luxury fashion industry is in its nascent stage and is on the wish list of many brands

?

Luxury malls like DLF's Emporio Mall in Delhi and UB City Mall in Bangalore are the latest formats of luxury retailing in India

?

Key Drivers

? One of

the fastest growing millionaires club; expected to reach 411,000 by 20174

? Industry

largely driven by Bollywood

? Changing

lifestyle a rising brand awareness driving the shift from unbranded to branded

Competitive

? Ability to

manufacture at comparatively low cost

Advantage

? Increasing

presence of high street malls in major

cities ? Well developed

Advantage

France are recognized across the world for their fashion industry

? Shopping

media industry for advertising

and marketing

destinations for celebrities from across the globe

? Paris is

known as the design and fashion capital

? Home to

maximum number of luxury fashion brands like Versace, Armani, LVMH, Jimmy Choo, Gucci to name a few

? Switzerland

known for its luxury watch industry

Source: 3. Economic Times, India home to fastest growing number of millionaires, October 17, 2008 4. Barclays Wealth Insights, May 2008

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

71 India Calling 2009

Areas for Collaboration: In EU Opportunities

In India

Leading Indian designers have set shops in western countries which enables them to showcase their creations at a global level

?

Indian fashion is accepted across the world

?

Margin at store levels in the range of 25-40 percent as compared to 20-12 percent in India5

?

Challenges

? Competition

with leading global brands

? Operating

cost in European countries is comparatively higher than that in India

? Demand

for fashion brands rising steadily

India being a low-cost destination, companies can outsource manufacturing of products

?

Design process outsourcing gaining momentum as Indian creations are gaining world-wide recognition

?

Sixty percent of European brands are still not present in India and providing an early entry advantage6

?

? FDI limit

of 51 percent which leaves international brands with limited market entry options

? Infrastructure ? Threat from

Player Strategies

Ritu Beri’s label is available at Liberty’s in London

?

Tarun Tahiliani’s label is available at Whistles in London

?

bottlenecks

cheap counterfeit products/replicas

The most common modes of entry are through JVs or Franchising

?

Kimono by Kiran Uttam Ghosh is available at RCKC in London

?

Source: 5. Milano Fashion Global Summit, Value Partners India, November 2008 6. Luxury in 2007 and Beyond, Images Yearbook, Vol. IV, No.1

Success Stories: Company Name

Success Story

LVMH

? Entered

India in 2002, with other leading brands like Dior, Tag Heuer and Fendi. Has over 60 brands under its umbrella

? Louis Vuitton

and Fendi were two of the first foreign brands permitted to take a 51 percent stake in their local distributors

? Strong

presence in India, which allows them to negotiate over real estate and advertising space. For instance, purchased bulk ad space in ‘Vogue’ – a fashion magazine for its brands at a discounted rate

? Has recently

acquired space in Emporia Mall in Delhi for LV and Dior, planning to acquire more space for other brands like Fendi and

Celine ? Only luxury-goods

conglomerate to build up a group presence in India. Closest competitor being Italian brand Gucci, the anchor of Gucci Group which is dependent on its local distributor, the Murjani Group, instead of leveraging its multi-brand structure

Source: Luxeplosion

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 72

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 73 India Calling 2009

Financial Services

74

Financial Services India Industry Profile: Parameters

Banking

Insurance

Mutual Fund

Industry Size (2008)

USD 1081 bn

Life = USD 48.6 bn Non-Life = USD 8.7 bn

USD 98.7 bn

Expected Industry Size (2012)

USD 2130.1 bn

Life = USD 80-100 bn (2013) Non-Life = USD 18.3 bn (2013)

USD 192.8 bn

Major Foreign Players In India

France's Societe Generale, Barclays, BNP Paribas

Aviva, Standard Life, Bajaj Allianz,

Bajaj Allianz, Fidelity, ING, HSBC etc.

Major Indian Players in EU

State Bank of India (Germany, Belgium, France), Bank of Baroda (Belgium), ICICI(UK and Belgium)

NA

NA

Note: 1) For banking, Industry size represents total assets and penetration in the form of total bank loans as percent of GDP 2) For Insurance, Industry size represents total premiums and penetration in the form of premiums as percent of GDP 3) For Mutual Funds, Industry size represents total assets under management (AUM) and penetration in form of AUM as percent of GDP 4) Mutual fund expected industry size for 2012 converted on the basis of 2009 conversion rate Source: AMFI, IRDA, RBI, BMI, Credit Suisse Report, Centrum Banking sector Report, June 2009, CRISIL Banking Outlook

Key India Markets:

Chandigarh

Lucknow Agra Patna

Guwahati

Udaipur

Ahmedabad Bhubaneswar

Goa

Pune

Hyderabad

Kochi

Tamil Nadu

Opportunities for microfinance & agri-credit services

Source: Press Releases, KPMG Analysis

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

75 India Calling 2009

Business Climate in India's Financial Service Sector Parameter FDI Regulations

Details ? Foreign

banks can do business in India either by setting up branches or through a wholly-owned subsidiary, after approval from the Reserve Bank of India (RBI), India’s central bank

? Indian private

banks are allowed 74 percent foreign ownership, with a 5 percent cap on ownership by any one entity

? The cap

on foreign companies’ equity stakes in insurance joint ventures is 26 percent, but is expected to rise to 49 percent

? Foreign

equity (FDI) in Non Banking Finance Companies (NBFC) is allowed up to 100 percent under the automatic route subject to minimum capitalization norms

Constraints / Challenges

? Regulatory

Other Incentives

? Like domestic

? Volatile

barriers for entry of foreign players in banking and insurance sector

financial market

banks, foreign banks are allowed to undertake various banking activities in India (e.g. wholesale, retail, private banking, investment banking, foreign exchange, etc.)

? Government

has put major thrust on financial inclusion which has helped expand the reach of financial services

Source: RBI, Ministry of Overseas Indian Affairs, Global Research 2009, Ministry of Commerce, European Commission

Key Bilateral Investments Promoter - Country

Project Details

Incofin – Belgium

Belgium microfinance company Incofin acquired a 34 percent stake in India-based NBFC Asomi Finance Private Ltd. in June this year

Allianz Global Investors (Allianz GI) – Germany

Since 2001, Bajaj Group and Allianz Group have launched insurance joint ventures namely Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance

Swiss Re – Switzerland

Religare and Swiss Reinsurance Company formed an insurance JV in June this year

BNP Paribas – France

BNP Paribas acquired a majority stake in Geojit in October 2006

Deutsche Krankenversicherung AG(DKV) – Germany

Apollo Hospitals Enterprise Limited and DKV formed a 74:26 joint venture in January 2008

Bank Sarasin & Co – Switzerland

In June this year, Bank Sarasin & Co has announced plans to enter the Indian financial service sector

Source: Merger Market, Company websites

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 76

Key Markets in the EU Region

Netherlands UK Germany

Belgium France

Switzerland

Indian Banks Operating in the EU Region EU-based Banks Operating in India India EU-based Banks Planning to Enter India Source: Company Websites

India Advantage Features Key Industry Trends

EU Advantage Advantage

Features

Rise in entry of foreign players in financial service sector

Key Industry Trends

?

Advantage

Indian banks venturing into new opportunities like insurance and mutual fund

? Consolidation

in the market through M&A among commercial banks within the national markets

?

Key Drivers

? Low penetration ? Rising income

Competitive Advantage

of financial services

on exports and high reliance on

domestic market

? High savings

Key Drivers

? Within

Competitive

? Leading

Advantage

? Western

to sub-prime loans

financial service centre centre for Islamic banking

? Favourable

rate

? Advanced

Source: Analyst Reports (Business Monitor International March 2009, Cygnus Business Consulting & Research, January - March 2009); CII; IBA, CRISIL

in product offerings

Europe, the UK is the largest centre for cross-border banking

levels

? Low dependence

? Low exposure

? Sophistication

tax and regulatory environment

technology

Source: UKinvest.gov, Centre for Economic Policy Research

Areas for Collaboration: In EU Opportunities

In India

Largest commercial banking industry, especially the UK

? Low retail

The UK, is the second largest insurance industry in the world after the US

? Opportunity

? ?

Highest insurance penetration

?

credit penetration of 10 percent

in booming sectors such as SME finance, agriculture and rural finance, institutional finance, trade finance and private equity

? Opportunities

in the domestic insurance market, with health insurance industry expected to grow at a CAGR of 25 percent to reach nearly USD 5.7 billion by FY15

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

77 India Calling 2009

Areas for Collaboration: In EU Challenges

In India

Current economic downturn

? Tough regulatory

Difference in market structures and lending practices across Europe

? Limited

geographic reach and distribution

? Lack of

investor education and awareness

Entering into EU by expanding their branch network and setting up wholly- owned subsidiaries

? Entering

Entering through joint ventures and acquisitions

? Entering

? ?

Player Strategies

?

?

environment

into India through acquisitions, joint ventures and wholly-owned subsidiaries by setting up private equity funds

? Offshoring

of banking and financial services to India

Source: Centrum Banking sector Report, June 2009, Ministry of Commerce, Government of India, Centre for Economic Policy Research

Success Stories: Company Name

Success Story

HSBC Holdings

? HSBC entered ? Second

the Indian Market in 1959

largest foreign bank in terms of branch network

? Has product

offerings across the financial spectrum in segments including private equity, audit service, investment banking, insurance, software development and asset management

? The bank ? One of

has leveraged upon its global experience to innovate products and services to suit local requirements

the first banks to start the innovative product offering - floating interest rate home loans

? Has plans

to grow its retail customer base and product base

Source: Company website, IBEF, RBI

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 78

The Indian markets have shown early signs of recovery and India will become one of the world's economic engines. Hence, it is a very important market for us and we have strengthened our presence in India through this launch. – Mr Fidelis M Goetz, Head of Private Banking - Bank Sarasin &

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

Source: The Hindu Business Line, Swiss Sarasin Group to Enter Indian Market, June 23, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 79 India Calling 2009

Gems and Jewellery

80

Gems and Jewellery India Industry Profile: Parameters

Statistics

Domestic Industry Size – 2008

USD 16.1 billion

Expected size of industry (2015)

USD 30 billion

Exports (2008)

USD 20.8 billion

Export of cut and polished diamonds (2008)

USD 14.2 billion

Export of gold jewellery (2008)

USD 5.6 billion

Export of coloured gemstones (2008)

USD 276.4 million

Source: IBEF, CII-Indian MSME Ecosystem, Gems & Jewellery, February 2009

Key India Markets: Delhi Silver Jewelry and articles Jaipur Polishing precious and semi-precious gemstones Surat Diamond processing center

Delhi

Kolkata Light weight plain gold jewelry

Jaipur

Mumbai Machine made jewelry

Surat

Hyderabad Precious and semi-precious studded jewelry

Kolkatta

Mumbai

Nellore Captive source for hand made jewelry

Hyderabad Nellore

Trichur Gold jewelry and diamond cutting

Trichur

Coimbatore

Coimbatore Casting Jewelry Source: KPMG Analysis

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

81 India Calling 2009

Business Climate in India's Gems and Jewelry Sector: Parameter

Details

FDI Regulations

? Allowance

Government Regulations

? Reduction

of 100 percent through automatic route

of value addition norms for gold and silver jewellery exports from 7 percent to 4.5 percent

? Abolishing

duty on polished diamonds in 2007

? Import duty

exemption on rough Cubic Zirconia

? Reduction

of import duty on cut and polished Cubic Zirconia and rough Coral from 10 percent to 5 percent

? Gold, silver

and platinum jewellery exporters are allowed to import/procure duty free inputs for manufacturing

Constraints / Challenges

? Highly unorganized ? Small firms

market – accounting for 96 percent of the total market

lack technological and export information expertise

? Since majority

of the raw material needs to be imported, companies normally stock huge quantities of inventory resulting in high inventory carrying costs

? China, Sri

Lanka and Thailand's entry into the small diamond segment

Source: Ministry of External Affairs, Government of India, Foreign Trade Policy, August 2009

Key Bilateral Investments Promoter - Country

Project Details

Morellato & Sector Group, Italy1

Joint Venture with Gitanjali Gems in November 2007

Mariella Burani Fashion Group, Italy 2

50:50 JV with Gitanjali Gems in December 2007

Cartier, France 3

JV with Navratna Bharat Retail Pvt. Ltd. in May 2008

Source: 1. Diamond News, December 20, 2007 2. International Business Times, November 21, 2007 3. Diamond World News Service, May 10, 2008

Key Markets in the EU Region UK Key Jewellery consumption centre and large trading centre for diamonds

Belgium Key gemstone processing destination Large trading centre for diamonds

France Key Jewellery consumption centre

UK Italy Key Jewellery fabrication and consumption centre

Belgium France Italy

Turkey Key Jewellery fabrication centre

Source: KPMG Analysis

Turkey

India Calling 2009 82

India Advantage Features Key Industry Trends

EU Advantage Advantage

Features

? Branded

jewellery is likely to be the fastestgrowing segment in domestic sales

Key Industry Trends

Advantage ? Growing

demand for coloured stones across

Europe Consumers are very design, brand and quality conscious

?

Turkey is one of the major manufacturing destinations in Europe

?

Key Drivers

? Growing

organised retail sector

? Increase

in income levels

Key Drivers

? Increasing

levels of disposable income

? Increasing

promotion of jewellery products

? Growing

branding and brand promotion activities (GBP 50 mn spent in UK alone in 2005)4

? Proactive

industry trade associations and reputed international jewellery fairs

? Italy, UK

and Turkey are the top 3 jewellery consumers in Europe, cumulative they account for over 11 percent of global consumption4

Competitive Advantage

? India boasts

of around 450,000 goldsmiths, 100,000 gold jewellers, 6,000 diamond processing players and 8,000 diamond jewellers

? Low-cost

Competitive

?

Advantage

?

destination

consumer of gold in the world – around 20 percent of the global consumption Largest diamond cutting and polishing centre in the world - nearly 9 out of 10 diamonds sold worldwide are cut and polished in India

Government Incentives

Design and technological expertise, for instance, Italy is known for its strength in design and use of advanced equipments and machineries Antwerp in Belgium is known as the trading hub for diamonds

? Largest

? Dedicated

Proximity to Western Markets

?

SEZ’s for Gems and Jewellery sector

? Rough coloured

precious gems stones are exempt from customs duty

? Duty-free

import of consumables for metals other than gold and platinum, up to 2 percent of freight on board value of exports

Government Incentives

? The European

Union has reduced tariffs on gems and jewellery originating from India under its Generalised System of Preferences (GSP), which has been extended for the period from January 1, 2009 until the end of 20115

? Import of

gold of 18 carat and above under the replenishment scheme

? No import

duty on polished diamonds

? Export of

coloured gemstones on a consignmentbasis has been allowed

? Interest

subvention of 2 percent on pre-shipment credit extended to March 2010

? Excise duty

on branded jewellery to be reduced from 2 percent to Nil

? Customs

duty on unworked Corals to be reduced from 5 percent to Nil

Source: Ministry of External Affairs, Government of India; IBEF; CII-Indian MSME Ecosystem; Gem & Jewelry, February 2009

Source: 4. The Gems and Jewellery Export Promotion Council 5. DNA Money, July 25, 2008

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

83 India Calling 2009

Areas for Collaboration: In EU Opportunities

In India

Europe’s technical expertise holds immense opportunities for Indian firms

? Since there

The same is applicable for designing; countries like Italy and France are well-known for their superior designs

? Demand

?

?

is no cap on FDI, companies can manufacture at lower cost in India

for branded jewellery in India is on the rise and with the Government abolishing excise duty on branded jewellery, the segment is expected to witness growth

Strategic alliances can also provide Indian companies with easy access to Western countries

? Growing

Increasing acceptance of Indian jewellery in overseas markets due to the widely dispersed Indian Diaspora

? Demand

?

retail segment provides immense opportunity for branded jewellery

?

Indian gems and jewellery exports to EU, comprising jewellery, pearls, precious and semi-precious stones and metals, estimated at USD 2.7 billion (2007) is expected to grow as EU reduces its tariffs6

for fashionable, lightweight and innovative designs in which EU companies hold expertise

?

Challenges

Current challenges are with respect to slowdown in the Western countries

?

Due to lack of demand in Europe and US; the major markets for the Indian gems and jewellery industry, exports have fallen by 4.6 percent for the period April 2008 to February 20097

?

? India accounts

for 95 percent of diamonds polished in the world in terms of pieces

? Gems and

Jewellery industry in India is highly unorganised and fragmented with around 96 percent of total players being family-owned businesses

? Small firms

lack technological expertise

? Infrastructure ? Unusual

bottlenecks

increase in price of gold and rough diamonds

? Threat from

Sri Lanka and Thailand, on account of their entry into the small diamond segment

Player Strategies

Indian players have generally followed the joint venture approach

? Joint Venture

Strategic acquisition is considered by companies to enhance capabilities and technical expertise, expand operations geographically and benefit from other well established brands in the diamond and jewellery businesses

? JV approach

?

?

approach is considered to be most preferable by foreign players while entering into India

is expected to provide international firms with local expertise and access to local distribution networks

Source: 6. Thaindian News, July 29, 2008 7. Livemint, July 21, 2009

Success Stories: Company Name

Success Story

JV between Morellato & Sector Group, Italy and Gitanjali Gems

? Investment

in the India arm - Morellato India Pvt. Ltd. in the range of USD 15-20 million

? The venture

would distribute watch and jewellery brands of the Italian group in India

? The company ? Morellato, ? Company

plans to assemble products in India through technical support from Morellato

Miss Sixty and Just Cavalli, are the three brands that company is looking to assemble in India

plans to operate through self-owned as well as franchise route in India

Source: Analyst Report, Commerce Ministry, Government of India

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 84

India is an important partner for Rio Tinto. More than 90 per cent of the Argyle production is cut and processed here. More than 60 per cent produce of Diavik mine in Canada is cut and polished here. When we talk about diamond mine, India comes first in our mind.” – Bruce Cox Managing Director, Rio Tinto Diamonds

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

Source: Business Standard, India key to our future plans, August 11, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 85 India Calling 2009

IT-ITeS

86

IT-ITeS India Industry Profile: Parameters

Statistics

Industry Size

USD 64.0 billion (2008) USD 71.7 billion (2009E) USD 137 billion (2013E)

CAGR -16.4%

IT -BPO Exports

USD 40.9 billion (2008) USD 47.3 billion (2009E)

Contribution to GDP

5.5 percent (2008) 5.8 percent (2009E)

Expected growth rate (2008 to 2013)

16.4 percent

Regulatory

Indian IT-ITeS faces minimal regulatory restrictions, coupled with a range of several fiscal incentives

Employment

~ 2 million

Key Players

Indian -TCS, Wipro, Infosys Technology, Tech Mahindra,HCL Technologies Foreign - IBM, Cognizant, Accenture, Microsoft, Dell, Oracle, Xansa, Capgemini, SAP, etc.

Source: NASSCOM Strategic Review -2009

Leading IT-BPO service delivery locations constitute over 97 percent of total IT-BPO revenues in India

Delhi-Gurgaon Noida

17%

17%

Mumbai 15%

Pune 15%

Bangalore 36%

Hyderabad 14% Chennai 15% IT-ITeS Hubs in India

Source: NASSCOM Strategic Review -2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

87 India Calling 2009

Business Climate in India's IT-ITeS Parameter

Details

FDI Regulations

? Hundred

Constraints / Challenges

? Global slowdown

percent FDI permitted through automatic route

especially in US and UK which account for about 80 percent of industry’s exports

? Meltdown

in BFSI* sector which accounts for ~40 percent of revenues

? Increasing

competition from other low-cost countries like Philippines, Malaysia, China and Eastern Europe

? Forex fluctuations

impact industry’s revenues; one-third of which come from

exports ? IT spending

growth is seen as easing further in 2009, this in turn, could put pressure on IT companies while trying to negotiate new contracts or renew existing ones

* BFSI: Banking, Financial Services and Insurance Source: NASSCOM

Key Bilateral Investments Promoter - Country

Project Details

HCL- Axon UK

HCL AXON is a fully-owned subsidiary of India –based HCL Technologies Ltd., formed after the reverse merger of the HCL SAP practice and UK’s AXON Group plc in December 2008

SAP - Germany

SAP Labs India is one of the four global development hubs of Germany–based SAP that contribute to all areas of the SAP product value chain- Research & Breakthrough Innovation, Product Development, Global Services & Support and Customer Solutions & Operations

Xansa -UK

UK-based IT company Xansa employs ~ 3,000 people in India and has plans to increase its staff count to 10,000 in the next 5 years

Infosys –Royal Phillips (UK)

In June 2007, Infosys Technologies Ltd. received a USD 250 million BPO contract from Royal Philips Electronics N.V. in a unique deal in which Infosys also acquired Philips' services delivery centers in India, Thailand, and Poland for USD 28 million

TCS

In May 2009, TCS bagged an IT outsourcing contract from service automaker Volkswagen in Germany and in April 2009, TCS won a USD 80 million outsourcing contract from UK’s state-owned Child Maintenance and Enforcement Commission (CMEC)

Capgemini – France

France based Capgemini employs over 18,000 people in India

WNS

WNS acquired UK-based auto insurance claims processing firm Call 24/7 in April 2008 In July 2008, WNS acquired UK insurance major Aviva’s BPO business Aviva Global Services (AGS) for around USD 228 million

Source: UKIBC, Company Websites, Indiatimes Infotech April 2009, www.vccircle.com

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 88

Key Markets in the EU Region Share from Europe

Companies Infosys

25.3%

TCS

29.5%

Wipro

26.0%

Tech Mahindra

66.8%

HCL

30.2%

Source: Annual Reports, OneSource

India Advantage Features Key Industry Trends

EU Advantage Advantage

Features

? Indian IT

industry has evolved from being an outsourcing destination for non-core services to becoming a partner for new age technology solutions

Key Industry Trends

Advantage ? Central

and Eastern Europe are fast emerging

regions ? Western

Europe accounts for ~37 percent of the global spend on IT services

? Exports

form the backbone of this sector, generating two-thirds of total revenues

? India’s share

from Continental Europe has been growing at CAGR 50 percent (2004-08)

? BFSI continues

to be the largest industry vertical but increased growth is coming from hitech/telecom and manufacturing

? The number

of UK organisations near-shoring or off-shoring leapt from 47 percent to 57 percent in 2007 — with all of them offshoring some or all of that work to India

? The industry

is dominated by large integrated players and is fairly balanced in terms of Indian and foreign players presence

? Players

are targeting new verticals like retail, healthcare and new geographies like Latin America, Middle East to diversify their business model

Key Drivers

? Enhancing

efficiencies and domestic shortage of qualified personnel are emerging as strategic drivers

Key Drivers

? European

market is comparatively unexplored by Indian IT firms

? Economic

downturn is likely to support further growth in IT outsourcing services in the region

? India accounts

for over 28 percent of the total suitable talent pool

? Global quality

? Cost remains

the primary motivation for IT outsourcing in Europe

and security standards

? Industry

? Some recent

changes in the labor laws and Government regulations by many European countries is likely to boost R&D offshoring

? Emerging

?

is supported by strong fundamentals and robust enabling environment facilitated by Government and NASSCOM initiatives

Domestic and SMB (Small and Medium Business) market

Competitive Advantage

? Abundant

talent and cost advantage

Competitive

-

Advantage

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

89 India Calling 2009

India Advantage Features Government Incentives

EU Advantage Advantage

Features

? Tax holiday

benefit is given to the sector under the Software Technology Park of India (STPI) and the Export Oriented unit (EoU) schemes

Advantage -

Government Incentives

? Government

has introduced the SEZ scheme which seeks to provide benefits similar to sections 10A and 10B

? The International

Cooperation and Bilateral Trade (ICBT) division of Department of Information Technology has been set up to promote international cooperation in the emerging and frontier areas of information technology under bilateral, multilateral or regional framework

Source: NASSCOM Strategic Review 2009, Business India, December 2008

Areas for Collaboration: In EU Opportunities

In India

BBC has reported that 30 percent of European companies intend to outsource some of their operations

? Low penetration

Furthermore, Gartner forecasts that IT outsourcing in Europe will reach USD 90.9 billion in 2009

? Research

?

?

of PCs and internet provide opportunity for IT companies to explore further

and Development off-shoring in India is poised for the next phase of growth

? Small and

medium businesses (SMBs) are one of the most important segments that IT companies are trying to serve

? India accounts

for over 28 percent of the total suitable talent pool across all the low-cost locations. The talent pool is growing steadily with 3.5 million additions expected in FY2009

? *KPO, LPO,

Challenges

Clients are more interested in nearshoring to the Central and Eastern European region than offshoring to India

?

? Language

and ESO services provide significant cost arbitrage

and cultural compatibility issues

East European countries like Poland, Romania and Hungary are emerging as competitors due to their cultural and geographical proximity to Europe

?

Rising wage costs in India

?

STPI* benefits have been extended by just one year

?

Player Strategies

All major Indian IT players like TCS, Infosys, HCL and Wipro have presence in Europe

?

Acquisitions -Players focus on acquiring firms and adopt niche skills For e.g.: HCL acquired Axon

?

Setting up Offices/Centers- Indian players have set up offices in Eastern Europe where German and French speaking labor supply is abundant and to gain easy access to Europe For e.g.:

?

-

Wipro has a 250-seater office in Bucharest

-

Infosys has 450-seater centre in Czech Republic

? Establish

Centers - SAP and Temenos were the first two European companies to establish their captive development centres in India. While there were just four captive development centres of European software product firms in India in 2001, the number has touched 18 in 2008.

? Outsource

– To bring in cost efficiencies European firms continue to outsource process or part of process to India For e.g.

- Lloyds TSB plans to outsource a major part of its IT division, replacing 80 percent of its local IT workforce with top Indian tech outsourcing firms such as Wipro and TCS

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 90

-

Barclays (BCS) is likely to move its global infrastructure and service delivery (GISD) to India

- Germany based Infineon Technologies AG has awarded multi-year contract to TCS to operate and maintain solutions for its Supply Chain Management landscape Note:*LPO –Legal Process Outsourcing; ESO – Engineering Services Outsourcing; KPO – Knowledge Process Outsourcing * STPI – Software Technology Park Source: Crisil Reserach 2008, NASSCOM, Company Websites

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 91 India Calling 2009

Infrastructure

92

Infrastructure India Industry Profile: Parameters

Statistics

Industry Size

USD 500 billion to be spent during the XIth plan

Infrastructure Investment as a percentage of GDP

XIth plan to see investment of about 7.53 percent of GDP

Key Players

Aviation: Jet Airways, Kingfisher, NACIL, SpiceJet etc. Roads, Ports, Shipping, Railways: L&T Ltd., GVK, GMR, IRB Infrastructure: Reliance ADAG, Nagarjuna, HCC, Gammon, CONCOR, GE Shipping, Shipping Corporation of India etc.

EU players present in India

Airport: Siemens, Fraport AG, South Africa Airport Company, Unique Zurich Roads: Emirates Trading Agency Ports: DP World, Maersk, PSA Singapore, P&O Ports Water Sanitisation: Veolia

Source: Company Websites; Planning Commission; CLSA report on Infrastructure, April 2009

Presence of EU Players in India

Delhi - Fraport

Gujurat: PPP Projects for Port Developmentl Mumbai: PPP Projects for Roads, Ports & Metro Rail

Bangalore - Seimens & Unique Zurich

Kolkata Nagpur - Veolia

Hyderabad Airport Airport Projects: Siemens, Unique Zurich, Fraport Water Sanitisation Veolia Dedicated Western and Eastern Freight Corridor PPP initiatives in India

Source: Press Releases, KPMG Analysis

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

93 India Calling 2009

Business Climate in India's Infrastructure Sector Parameter FDI Regulations

Details ? Airports:

100 percent under automatic route for Greenfield airports, 100 percent for existing airports with FIPB approval for investment beyond 74 percent

? Air Transport:

49 percent FDI, 100 percent NRI Investment allowed

? Ports: 51

percent under automatic route for support services to water transport such as operations and maintenance of piers, loading and discharging of vehicles and 100 percent under automatic route for construction and maintenance of ports and harbours

? Railways: ? Roads:

100 percent under automatic route for railway related components

100 percent under automatic route

? Inland waterways

and transport: 100 percent under automatic route

? Urban infrastructure:

Constraints / Challenges

? Land acquisition

100 percent under automatic route

for new infrastructure projects

? Lack of

proper dispute resolution mechanism

? Lack of

skilled manpower

? Delay in

implementation of projects due to political constraints

Source: DIPP; CLSA Report on Indian Infrastructure, April 2009

Key Bilateral Investments Promoter - Country

Project Details

Fraport AG – Germany

Holds 10 percent stake in a consortium with GMR, Eraman Malaysia and AAI which is developing the Delhi airport since 2004

Siemens Project Ventures – Germany

In a consortium with L&T, Unique Zurich since 1999

Unique (Flughafen Zürich AG) - Zurich Airport, Switzerland

Since 1999, holds 17 percent stake in a consortium with L&T, Siemens project ventures, AAI and KSIIDC; which is developing the Bangalore International Airport Ltd.

Veolia Water – France

Entered India in the mid-90s; provides services in the areas of drinking water production and distribution to towns like Jamshedpur, Chennai and Nagpur, and to the state of Karnataka

EADS – France

Owns a 100 percent subsidiary since 2006 and plans to set-up a technology center. Also plans to invest in India’s defense sector

GMR – India

Appointed to modernize the Istanbul airport in 2007

IL&FS – India

Set up an office in London in January this year to tap on financing opportunities

Source: Company websites

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 94

Key Markets in the EU Region (PPP initiatives in CEE and other EU Regions providing greater opportunity for investments)

Estonia Latvia Lithuania Poland Germany France

Czech Republic Slovakia Slovenia

Romania Bulgaria

Greece

Source: Report on PPP Initiatives in CEE Countries, 2008

India Advantage Features Key Industry Trends

EU Advantage Advantage ? Increased

Features

Government’s focus on infrastructure

Advantage

Key Industry Trends

opportunities for private sector investments in various infrastructure projects

? Increase

in infrastructure development in Central and Eastern Europe

? Increased

Key Drivers

? Increased

involvement of private companies in infrastructure development

? Boost to

PPP developments through involvement of private players

Key Drivers

? Large scale

infrastructure development planned throughout Europe

Competitive

? High technical

? Capacity

additions in to meet the growth in trade, and other industries

Competitive

? Low cost

of labor

Advantage Government Incentives

capabilities

Advantage ? Model Concession

Agreements for development

in roads and ports ? Tax holiday

Source: Planning Commission

? Encouraging

Government

private sector investment

Incentives

for infrastructure development Source: European Commission

Areas for Collaboration: In EU Opportunities

In India

EU’s trans-European infrastructure plan by 2020 includes rail road, inland waterway network as well as 294 seaports and 366 airports

?

Estimated investment of USD 793 billion ( Euro 556 billion)

?

Road and airport development in Central and Eastern Europe

?

? Road, port,

airport

? Urban infrastructure

like water sanitization, waste disposal

etc. ? Inland waterways ? Defense

Transportation infrastructure in Spain, France and Germany

?

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

95 India Calling 2009

Areas for Collaboration: In EU Challenges

In India

Dealing with certain Governments could be a challenge

? Slow pace

Obtaining Financing for large Projects could be difficult under current market conditions

? Obtaining

? ?

of approvals and consequent delays

finance is a lengthy process

Regulatory delays could hamper projects

?

Slow pace of privatization especially in Germany

?

Source: Planning Commission – India, CLSA Report on Indian Infrastructure, April 2009; Report on PPP Initiatives in CEE Countries, 2008

Success Stories: Company Name

Success Story

Fraport AG

? The company

holds 10 percent stake in a consortium with GMR, Eraman Malaysia and AAI which is developing the Delhi airport

? Its significant

experience in airport development and management globally has been leveraged in the Delhi airport project

? The company

has entered India by setting up a subsidiary to provide services in the areas of drinking water production and distribution

? Has presence

in Jamshedpur, Chennai and Nagpur, and also provides services in the state of Karnataka

? It is providing

solutions for water network for 24 hour water supply, re-furbish old network, improve drinking water plants etc.

Veolia Water

? Seeking

more such investments in India

Source: Company websites

d partnership and a member firm of the KPMG network of independent member firms affiliated with perative. All rights reserved.

As per the Joint Action Plan of 2004 both India and EU have agreed to set up an expert group to identify policy level changes required to promote PPP. This is expected to help in exchange of information and experiences and also enhance infrastructure investments.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 96

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 97 India Calling 2009

Media and Entertainment

98

Media and Entertainment India Industry Profile: Parameters

Statistics

Industry Size – 2008

USD 11.7 billion

Industry Size – 2013

USD 21.0 billion

CAGR (2009-13)

12.5 percent

Advertising-to-GDP Ratio

0.47 percent

Number of Television Households (2008)

123 million

Foreign Players in India

BBC, News Corp, Viacom, Disney, Sony Pictures Entertainment, Turner, Discovery, etc.

Source: FICCI – KPMG, Media and Entertainment Industry Report, 2009

Key Markets in India

Pathankot Amritsar Jallundar Ludhiana Dehradun Delhi Siligudi Jaipur

Ahmedabad Jamnagar Mumbai - Media and Entertainment Hub of India - Home of Bollywood, Hindi film industry - CAS implemented zone Hyderabad - Home of Tollywood, Telugu Film Industry - Cinema of Andhra Pradesh, movies made in Telugu Language Chennai - Tamil Film Industry aka Kollywood

Mumbai

Surat

Kolkatta

Nashik Pune

Belgaum Mysore Cochin

Berhampur

Hyderabad Chennai

Major Film Hubs Mandatory CAS Implemented Zone Few cities expected to get FM Radio licenses in Phase 3 of FM Radio Policy Key cities for multiplex expansion plans by players

Source: Company Website; FICCI – KPMG, Media and Entertainment Industry Report, 2009; Telecom Regulatory Authority of India, Consultancy Paper on Issues Relating to 3rd Phase of Private FM Radio Broadcasting

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

99 India Calling 2009

Business Climate in India's Media and Entertainment Sector: Parameter FDI Regulations

Details ? FDI limit

of 100 percent is permitted in television channels other than news and current affairs

? FDI limit

of 49 percent for cable network and direct – to – home players

? FDI limit

of 100 percent is permitted in film industry and advertising through the automatic route

percent FDI1 allowed in the facsimile edition of foreign newspaper and magazines

? Hundred

? FDI limit

Constraints / Challenges

of 20 percent is permitted in FM Radio sector

? Entertainment ? Antiquated

tax rates vary from state to state

Indian Cinematograph Act

? Inadequate

facilities e.g. shooting floors, dubbing studios, equipment, exhibition centres – is compounded due to TV industry competing for the same limited resources

? Home video

piracy and illegal movie and music downloads affect legitimate revenue collections

? Leakages

on account of under declaration of subscribers by cable operators

Source: FICCI – KPMG, Media and Entertainment Industry Report, 2009 1. The Financial Express, 100 percent FDI in fax edition of foreign newspapers, January 15, 2009

Key Bilateral Investments Promoter - Country

Project Details

UTV Software Communication– India

Acquired UK-based gaming firm Ignition Entertainment in 2006

Bennet Coleman – India

In June 2008, acquired UK-based Virgin Radio for USD 105 million

Zee TV – India

Operates television channels in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Netherland, Poland, Portugal, Spain, Sweden and UK. In UK, Zee offers channels via Sky Digital

Sun TV – India

Operates television channels in Denmark, France, Germany, Italy, Netherlands, Norway, Sweden and UK

JCDecaux – France

Has limited presence in India, with offices in Mumbai, Delhi and Bangalore

Aegis Group - UK

In July 2009, acquired Indian marketing firm Communicate2 and IMCS

Financial Times – UK

Has got approval from the Foreign Investment Promotion Board to induct Foreign equity up to 100 percent for facsimile edition in India

BBC - UK

Operates news and entertainment channels in India

Prime Focus – India

In 2006, acquired 55 percent stake in VTR Group, a European media company and Clear Post Production, a visual effects company

Source: Company Websites; FICCI – KPMG, Media and Entertainment Industry Report, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 100

Key Markets in the EU Region Germany Contributed 22% of the total industry value in 2008 UK Contributed 21% of the total industry value in 2008 Belgium Contributed 6.5% of the total industry value in 2008 France Contributed 13% of the total industry value in 2008 Spain Spain, France UK and Germany are key markets for Animated Content Italy Contributed 10% of the total industry value in 2008 Luxembourg RTL Group, leading media company having 42 television channels and 32 radio stations Source: Datamonitor, Media in Europe, Oct, 2008; Association of Commercial Television in Europe, Fact Book, 2008

India Advantage Features Key Industry Trends

EU Advantage Advantage

Features

? Conversion

from analog to digital contents:digital TV distribution platforms – IPTV, DTH; digitalisation of music libraries and sales of online and mobile music; digitalisation of films

? Animation

Key Industry Trends

Advantage ? Gaining

popularity for online media, especially in Print Media

? European

Media players are targeting key niche markets and regional markets

? Home video

sales proved to be the most profitable for European Films entertainment market, generating total revenues of USD 14.2 billion in 2008

and Gaming are emerging sectors in

India ? Narrowcasting:

providing niche content. For e.g.: rising number of niche TV channels, cross over content in music and films as well as large number of magazine launches in the niche genres

? Regionalisation:

providing local content in local language. Tier II and Tier III towns are emerging as important growth centres. For e.g.: growth in regional channels and city-specific channels, English Newspaper players are foraying in Hindi and vernacular languages

Key Drivers

? Favourable

consumer demographics

Key Drivers

-

? Expansion

into under penetrated segments: Low penetration levels within the M&E industry (across segments), offers huge underlying potential for growth

? Corporatisation

of Indian players and entry of

foreign players ? Convergence

of media platforms

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

101 India Calling 2009

India Advantage Features Competitive Advantage

EU Advantage Advantage

Features

? Liberal

foreign investment regimes in various sectors like, Print, Television, Films, etc.

Advantage

Competitive

-

Advantage

? India has

cost advantage in producing animated content. For e.g.: A 22-24 minute series can cost up to USD 0.25- 0.3 million in Europe where as in India the same can be done in approximately USD 60,000

Government Incentives

? As a relief

measure for the Hindi Film Industry, Maharashtra Government has included the audio-video piracy under the Maharashtra Prevention of Dangerous Activities (MPDA) Act. Additionally the state Government is creating an anti-piracy cell to oversee the enforcement related to the act

? Formation

of The Association of Commercial Television (ACT) in Europe, represents the business interests of the commercial television sector in the EU region

Government Incentives

? Appointment

of the Telecom Regulatory Authority of India (TRAI) in 2004 as a regulator for the television industry (with its scope increased to cover broadcasting and cable services)

? Granting

Industry status to Indian Film Sector in 2000 and permitting FDI up to 100 percent in film related activities

? Providing

Entertainment Tax exemptions to multiplexes

? Roll out

of Phase II of the Radio licensing policy in 2005, with a number of reforms including a more rational license fee structure

? The Government

has given permission to private broadcasters to set-up hubs for satellite uplinking

Source: FICCI – KPMG, Media and Entertainment Industry Report, 2009; Thaindian News, 16 July 2009; Televisionpoint.com, Animation India: Building on age-old storytelling skills

Source: Datamonitor, Media in Europe, Oct 2008; Datamonitor, Movie and Entertainment in Europe, June 2009; ACT website

Areas for Collaboration: In EU Opportunities

In India

India is considered as the animation off-shoring hub. Europe is major consumer of animated content, Indian companies can target entering into co-production agreements with European counterparts instead of providing off-shore services2

? Indian Animation

The Government of India has co-production agreement treaties with Italy, UK, France and Germany1. The advantages of such treaties for film makers of both countries are generally in terms of access to technical expertise, production standards, tax benefits and access to finance

? Off-shored

?

?

industry is projected to reach USD 401 million in 2009 from USD 397 million in 2008 and is expected to grow at 17.3 percent CAGR to 2013 due to growing domestic demand and increase in off-shore service1

production comprise of almost 70 percent of total revenues, North America and Europe being the key markets for Indian companies

? Growth

in number of niche channels in categories like News, Kids, Infotainment, Spiritual and Lifestyle

? Opportunity

for production and co-production of Films in India

Source: 1. FICCI – KPMG, Media and Entertainment Industry Report, 2009 2. CRISIL Research, Animation Industry set to Accelerate, Mar, 2008

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 102

Areas for Collaboration:

Challenges

Player Strategies

In EU

In India

? Indian animation

? Animation industry in India is faced with the challenge of

companies face significant competition from countries like South Korea, China, Philippine and Taiwan2 who also offshore animated content to European markets

has partnered with Lionsgate films to produce / co-produce three films2

shortage of skilled animators ? The entertainment

industry is losing ~ USD 4 billion in revenues and over 800,000 jobs annually due to audio-video piracy3

? Crest animation

? Financial

? UTV Software

? BBC operates

Communication entered UK gaming market via the acquisition route

Times, has got approval from the Foreign Investment Promotion Board to launch its facsimile edition in India television channels in India

? Indian broadcasting

companies have entered European markets via distribution partnerships

Source: 2. CRISIL Research, Animation Industry set to Accelerate, Mar, 2008 3. Thaindian News, July 16, 2009

Animation consumers and exporters

Canada

Europe USA

China

South Korea Japan

India

Taiwan Phillipines

Animation Consumers Consumers/Exporters Majorly Exporters

Source: Media & Entertainment - Animation Industry set to Accelerate, CRISIL, March 2008

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

103 India Calling 2009

Success Stories: Company Name

Success Story

Zee Entertainment Enterprise (ZEE)

? Television

Broadcasting across foreign shores

? ZEE offers

four channels across UK and Europe reaching over 10 million households, having a viewership of over 1 million

Source: Company Website (www.zeeuk.com)

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India is one of the few countries where economic growth will be led by domestic consumption. With a low ad spend to GDP ratio of 0.47 percent, a growing consumer class and middle class, young population, low media penetration and increasing discretionary spending; India continues to be an attractive market for media and entertainment. – Dr. Amit Mitra Secretary General, FICCI Source: www.indiantelevision.com, Indian media and entertainment industry set to touch USD 22 billion by 2013, February 17, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 104

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 105 India Calling 2009

Pharma, Biotech and Healthcare

106

Pharma, Biotech and Healthcare India Industry Profile: Parameters

Statistics

Size of the Industry (FY08E): Pharma Healthcare delivery (2007) Biotechnology

USD 16.6 billion USD 36.6 billion USD 2.5 billion

Expected Industry size Pharma (2013) Healthcare delivery (2012) Biotechnology (2015)

USD 37.1 billion USD 64.2 billion USD 13-16 billion

Pharma Exports FY08 (E)

USD 8.9 billion

Foreign Player Presence

GlaxoSmithKline, AstraZeneca, Sanofi Aventis, Novartis, Solvay

Total FDI Inflows from April 2000 to April 2009 in the Drugs and Pharmaceutical Sector

USD 1,458.78 million

Source: Crisil Research Pharmaceuticals Annual Review December 2008, Crisil Research Hospitals Annual Review May 2008, BioSpectrum Industry Overview July 2008

Key Pharma Clusters in India

Baddi

Agra

Ahmedabad

Lucknow

Gandhinagar

Baroda Vapi / Valsad

Mumbai

Berhampur

Hyderabad

Source: KPMG Analysis

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

107 India Calling 2009

Business Climate in India's Pharma Sector: Parameter

Details

FDI Regulations

? Hundred

Constraints / Challenges

? India introduced

Central Drugs Control Administration

percent FDI under automatic route for drugs and pharmaceuticals

product patents in 2005, however the intellectual property infrastructure has to yet fully evolve and the issue on data exclusivity yet to be resolved

? Domestic

pharma manufacturing industry is highly fragmented

? Domestic

retail distribution market is multi-layered and highly fragmented

? Central

Authorities - approval of new drugs, clinical trials in India, lay down standards for drugs, quality control of imported drugs

? State authorities ? Drug Controller

- regulate the manufacture, sale and distribution of drugs

General of India - approval of licenses of specified

categories National Pharmaceutical Pricing Authority (NPPA) and Drug Price Control Order (DPCO) Good Manufacturing Practices (GMP)

? NPPA fixes/

revises prices of controlled bulk drugs and formulations in India under the Drugs (Prices Control) Order, 1995

? Currently

74 drugs are under price control

? Proposal

to bring 200 essential drugs under the purview of the DPCO

? All drugs

must adhere to quality standards as per the Indian Drug & Cosmetics Act, 1940

Source: DIPP, Crisil Research Pharmaceuticals Annual Review December 2008

Key Bilateral Investments Promoter - Country

Project Details

GSK (UK) - Dr Reddy’s

GSK is expected to gain exclusive access to Dr. Reddy’s 100 branded product pipeline for the emerging markets

Solvay (Belgium)- Dishman

Contract manufacturing of intermediates and APIs since 2001

Nutritional Products AG (Switzerland)– Wockhardt

Signed an in-licensing agreement in January this year, to market the former’s osteoporosis product

Zydus Cadila – Etna Biotech (Italy)

Zydus acquired Etna in November 2008, to gain access to the latter’s research platform for developing new vaccines and technology

Lupin – Hormosan Pharma GmbH (Germany)

Lupin acquired Hormosan in July 2008 to strengthen its presence in Europe and for marketing support

Siro Clinpharm- Omega Mediation (Germany and four other countries)

Siro acquired Omega in April 2008 to gain access to access to operational infrastructure in five European countries and Israel and to gain access to Omega’s customer base of pharma and biotech companies in Europe

Acambis plc (UK) - Bharat Biotech International Limited

Signed a manufacturing & marketing agreement in November 2005, for Acambis investigational vaccine against Japanese Encephalitis

Source: Company Websites, IBEF Biotech Market and Opportunities Report 2008

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 108

Key Markets in the EU Region

Germany Accounts for 30.8 percent of European generics market's value

UK Accounts for 17.5 percent of European generics market's value

France Accounts for 9.3 percent of European generics market's value

Spain Accounts for 3.7 percent of European generics market's value

Italy Accounts for 1.9 percent of European generics market's value

Source: Datamonitor, Media in Europe, Oct, 2008; Association of Commercial Television in Europe, Fact Book, 2008

India Advantage Features Key Industry Trends

EU Advantage Advantage

Features

? Increasing

potential of domestic drug consumption market

Key Industry Trends

? Indian pharma

companies penetrating regulated and semi-regulated markets

Advantage ? Increased

focus on cutting down healthcare expenditure by governments in EU markets and private healthcare payers

? Increasing

genericisation

? Indian Pharma

emerging as an attractive outsourcing destination in areas of Contract Research And Manufacturing Services (CRAMS) and clinical research outsourcing

? Indian biotechnology

industry is a sunrise sector – India is ranked among the top 12 biotech destinations globally and is third biggest in Asia Pacific by number of biotech companies1

? Healthcare

delivery market is rapidly transforming as penetration of corporate players increases bringing in international standards of quality

Key Drivers

? Domestic

Key Drivers

? European

Competitive

? Historically

Competitive

? EU pharma

Advantage

market to report robust growth with rising income levels, improving living standards, improved medical infrastructure, increasing health insurance penetration and the growing number of organised retail chains

strong chemistry and process reengineering skills due to existence of Process Patents till 2005

? Highly skilled

technically qualified talent pool of English speaking manpower

Advantage

generics markets are driven by a series of growth factors such as favorable government support, significant patent expiries and an ageing population, is projected to grow at an attractive rate markets are among the largest pharma markets in the world

? Rich experience

and strong expertise in new molecular entity research and development

? Recognition

to Product Patents from 2005 has increased confidence of Global Pharma

Source: 1. Mergent- The Asia Pacific Biotechnology Sectors December 2008

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

109 India Calling 2009

India Advantage Features Competitive Advantage

EU Advantage Advantage

Features

Advantage

? Highest number of US FDA approved plants

outside the US ? Adherence

to international regulatory and quality standards like US FDA, ISO, ICH, GLP, GCP

? Low cost

destination for drug development and manufacturing

Government Incentives

? Five-year tax holiday for hospitals set up in Tier

II and III cities between April 2008 and March 20132

Government

–

Incentives

? Government policies on FDI and tax promote

foreign players foray into the country ? A tax deduction to the tune of 150 percent on

R&D spent ? Exemption of clinical trials from service tax ? National Biotechnology Development Strategy

to give a major boost to the sector, resolve the challenges faced by it, provide a uniform regulatory system and provide incentives to investors and financial support to undertake research ? Biotech cluster development has been

recognised as an important strategy to promote innovation and technology and product development Source: 2. Livemint, Hospitals to get 5-years tax break, March 2008

Areas for Collaboration: In EU Opportunities

In India

Increasing generics penetration in the European markets which India can leverage on with its high quality- low cost manufacturing capabilities

?

Outsourcing (CRAMS and clinical research services): Indian companies have progressed from being the ‘Vendor of Choice’ to being considered as the ‘Partner of Choice’ and are acquiring better technologies and developing expertise in niche segments and pursuing acquisitions to boost capabilities with newer technologies, service portfolios, production sites and clients

?

India’s Bio-services’ offerings (includes clinical research and contract research and custom manufacturing) to European companies

?

? Collaborations

in both pharma and biotech between Indian and European companies in the area of new molecular entity research and development in the form of in-licensing, outlicensing and joint development

? Strong

potential of Indian drug consumption market: The future demand is expected to be driven by favorable socioeconomic drivers and tilting profile towards chronic therapeutic segments like anti-diabetic, cardiac and oncology

? Healthcare

delivery: With a demand-supply gap and poor bed density ratio, an immediate need exists to add about ~1.2 million beds and another 1.66 million beds during 2008 to 2026 requiring an investment of ~USD 42 billion by 2017 and additional ~USD 55 billion during 2018 to 2026

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 110

Areas for Collaboration: In EU Challenges

In India

Generics market is intensely competitive leading to serious price erosion

?

Prevailing credit crunch has caused many companies across manufacturing and supply chain to reduce inventory levels leading to an overall reduction in demand and orders

?

? Domestic

drug consumption market

- Further strengthening of the intellectual property regime is required - Uncertainty in terms of price controls; the Indian pricing authority is considering expanding the scope of drugs under price control ? Healthcare

delivery

- Shortage of medical professionals due to a gap between demand and supply Player Strategies

Companies are entering the Indian market by setting up their offices, acquiring Indian assets or increasing stake in existing investments

?

Companies are also increasingly partnering with Indian companies in the area of product development and manufacturing or even setting up their own R&D centres and other offshoring units

?

? Acquisition

of European companies is one of the most sought after strategy by Indian companies to again access to the latter’s niche technologies, product portfolios, distribution networks, marketing dossiers and manufacturing facilities

Source: Analyst Report, Commerce Ministry, Government of India

Success Stories: Company Name

Success Story

GlaxoSmithKline (GSK)

? UK-based

GSK Plc. owns ~51 percent share in GSK Pharma India

? GSK India

product portfolio includes prescription medicines and vaccines across therapeutic areas such as anti-infectives, dermatology, gynaecology, diabetes, cardiovascular disease and respiratory diseases

? GSK Pharma ? Has 400

has a field strength of 2100 people of which 1700 are in mass markets

area business managers

? Has 100-125

contract field force to facilitate the company to enter rural markets

? In the process

of foraying into Tier 5 towns

Source: Company Website, Karvy Equity Research July 2009

India is a natural aspirant, for becoming the global hub for pharmaceutical and biotech manufacturing, because of our large talent pool of engineers and scientists. Dr Kiran Mazumdar Shaw Chairman and Managing Director, Biocon Limited Source CII-KPMG Pharma Summit 2008 Report titled “India Pharma Inc- An Emerging Global Pharma Hub”

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 111 India Calling 2009

Retail

112

Retail India Industry Profile: Parameters

Statistics

Industry Size – 2007-08

USD 345 billion

Share of organized retail in the total retail market (2007-08)

USD 20 billion

Expected growth rate (2008 - 2013)

12.5 percent

Expected growth rate of organized retailing (2008 - 2013)

18.9 percent

Foreign Player Presence

Walmart, Tesco, Metro AG, Gap, Shoprite, DKNY, Marks & Spencer, Mc Donalds, Guess, Home Depot, staples, Benetton, Body Shop

Regulatory

Hundred percent FDI is permitted in cash and carry format with restrictions upto 51 percent in single brand retailing. FDI in multibrand retailing is still restricted

Source: Crisil Research, Press Articles

Key Markets in India

NCR NCR and Mumbai are the key regions with ~50% of the organized retail activity

Ahmedabad Kolkata Mumbai Pune

Bangalore, Hyderabad, Gurgaon and Mumbai have emerged as favorite destinations among European Players such as Metro AG, Tesco Marks and Spencer and Lerros India that have set up operations in most of these cities

Hyderabad Bangalore

Ahmadabad, Bangalore, Hyderabad, Chennai, Kolkata and Pune are emerging as promising cities for retailing

Chennai

Source: EuroMonitor, Retailing in India, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

113 India Calling 2009

Business Climate in India's Retail Sector: Parameter FDI Regulations

Details ? Cash and ? In 2006,

Constraints / Challenges

carry retailing permits 100 percent FDI

the Government permitted 51 percent FDI in single-brand retailing

? Owing to

restrictions in FDI, international retailers have not been able to move into India as swiftly as they would have liked

? Existing

supply chain has too many intermediaries. Various strategies are to be implemented to improve core business processes, such as logistics, innovation, transparency, distribution and inventory, management of point sale (POS) data

? Despite

rapid growth expected in organised retail, small independent grocery retailers still remain the most important channel and opposition from small retailers against large domestic corporate entry into retailing is on the rise

? Trained

manpower shortage in India

? Counterfeit

products are present across a wide range of products particularly in packaged food, alcoholic drinks, cosmetics and toiletries, apparel and pharmaceutical products

? Infrastructure

bottlenecks need to be overcome. Transportation, including railway systems, highways have to meet global standards. Airport capacities, power supply. warehouse facilities and timely distribution are other areas which need to be enhanced

? The percentage

of shrinkage in retail sales is the highest in world. Total shrinkage in India in 2008 stood at USD 2.5 billion, equivalent to 3.10 percent of retail sales

Source: EuroMonitor Retailing in India, 2009, KPMG Analysis, Global Retail Theft Barometer 2008 Survey

Key Bilateral Investments Promoter - Country

Project Details

Fabindia Overseas - India

Acquired a 25 percent stake in UK's bohemian women’s wear retailer EAST in January 2009

Bombay Rayon Fashion -India

Acquired a 70 percent stake in Birmingham-based DPJ Clothing Ltd. in 2007

Metro AG- Germany

Entered India in 2003 operating through cash and carry business

Tesco - UK

Tie up to develop the Indian company's Star Bazaar (Tata’s) hypermarkets in 2008

Carrefour- France

Plans wholesale operations in India by 2010 and has initiated discussions with over 600 suppliers

Gautier- France

Entered into a joint venture with Ebony Retail in 2008, to set up exclusive home decor stores. The stores will be operational by 2010

Marks and Spencer-UK

Tie up with Planet Retail in 2007 and has 14 franchisee stores In 2008, the UK retailer signed a Joint Venture (JV) with Reliance Retail that aims to open at least 50 new stores by 2013

Pearl Europe- Netherlands

Formed a 50-50 JV with Reliance Retail in 2008 and plans to open 500 outlets in India over seven years

Lee Cooper-UK

Entered into an equal JV with Indus League Clothing (Pantaloons Retail), in September 2006

Spar- Netherlands

Entered in to a 51:49 JV with Solutions Integrated Marketing Services in 2004

Source: Company Websites © 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 114

Key Markets in EU

Latvia - 13 Lithuania - 16

Hungary - 27 Slovenia - 9

The eastern European countries have emerged as windows of opportunity in retailing and have been occupied key position in the world’s top 30 retail markets as per the global retail development Index, 2009

Romania - 23

Bulgaria - 21

Country, Rank

Source: AT Kearney, Global Retail Development Index (GRDI), 2009

India Advantage Features

EU Advantage Advantage

Features

Emerging Industry Trends Retail Verticals

? Rising health,

Key Industry Trends

fitness and wellness retailing

? Big players

are getting bigger. Some retail chains have already left the region

? Private

labeling and value retaliating have emerged as strong verticals as consumers become price conscious

? Increasing

popularity of home décor and furnishing stores

? The untapped

and non-discretionary nature of food and grocery makes it an attractive investment segment

? Retailers

have also started to focus more on cost optimization, given the current slowdown in demand. Cost cutting, inventory management outsourcing to low cost destinations are the flavors of the season

? Beauty

products, fashion accessories and jewellery segments are other under-penetrated potential retail opportunities

Retail Formats

Advantage

? Cash and

carry is an attractive option for foreign retailers as 100 percent FDI is permitted only through this format.

? Direct retailing

and internet retailing are emerging as attractive non-store based retail formats

Key Drivers

? Rising urbanization ? Increase

and internationalization

in income leading to rise in purchasing

power ? Young population

willing to experiment with

new trends Source: KPMG Analysis

Source: KPMG Analysis

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

115 India Calling 2009

India Advantage Features

EU Advantage Advantage

Competitive

? Low-cost

Advantage

? Competitive

Features

Advantage

Competitive

destination

? Retailers

in developed markets are strong players and have already witnessed slowdown in the past. Their maturity and experience to deal with fall in demand makes them less vulnerable to the recessionary phase.

Advantage

and efficient workforce

? Low penetration

of organized retail can provide early mover advantage

? Large and

untapped rural market

? Retailers

in Europe use innovative designs and systems which capture customer data and help to improve quality in product and service as well as manage inventory

? Developed

market players also have the infrastructure advantage. Supply chain infrastructure and distribution channels coupled with excellent logistics

Government Incentives

? Octroi has

been abolished in many states to boost trade in retail

? Labor laws

in India are under the scanner for higher liberalization, with the Government relaxing certain norms / permitting flexibility in the laws for emerging retail hubs such as Bengaluru and Hyderabad

? The Government

is releasing large tracts of undeveloped land for retail development in the Mumbai and National Capital Region

Source: KPMG Analysis, Press Releases etc.

Source: KPMG Analysis, Press Releases

Areas for Collaboration: In EU Opportunities

In India

Partner with European players and leverage on their experience and expertise with respect to various formats, segments, and technological know-how

?

India is a low-cost destination for manufacturing and could be leveraged as the sourcing hub by European retailers

?

? India is

ranked as one of the most attractive markets for retail investment

? The country,

with its young and increasingly urban population, cost advantages, under-penetrated retail segments, provides an ideal location for foreign companies to invest in

? Increasing

interdependence between countries has led to increased awareness about international brands and products and thus created a huge market for international brands

? The entry

of global players in the Indian market is also expected to boost healthy competition which will eventually lead to better practices in terms of price and quality in the industry

Player Strategies

Fab India in UK

JV- Marks and Spencer and Reliance Retail

? Indian ethnic wear chain, Fabindia picked up a 25 percent

? Marks and

stake in the UK-based women’s wear, retailer EAST. The synergy between the two is apparent not only in the product but also in the approach and sourcing. Brand EAST also stands to gain in India as well as in other emerging markets such as Dubai, Qatar and Bahrain where Fabindia is already present.

Spencer entered into a JV with Reliance retail to set up stores in India. Marks and Spencer had the retail capability to operate in India, but would need capabilities from a domestic partner in three specific areas: property, logistics & supply chain, and experience of the Indian market place, which were suitably provided by Reliance Retail

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 116

Areas for Collaboration:

Player Strategies

In EU

In India

? Fabindia employs joint venture route in most markets. It has

Cash and Carry the Metro way

around 35 joint venture companies in different states, with weavers and craftsmen holding 51 percent stake in each of these companies. These joint ventures ensure investment back into the supply base, making it easier for weavers to access funds and design inputs Bombay Rayon’s forward integration ? Bombay Rayon’s, a leading manufacturer of fashion fabrics

and garments has acquired UK- based DPJ Clothing, an apparel wholesale retailing & distribution. The acquisition helped Bombay Rayon to expand its customer base in the European region for its designer garments and also get a headway for outsourcing and distributing the other related products in that region

? Metro AG

entered India using the wholesale cash and carry format, in which 100 percent FDI is permissible. The company purchases most of its merchandise from India suppliers and has created a very efficient distribution network

Sourcing from India- Tesco ? Tesco Plc

has set up a shared services centre in India which provides IT and business services. The Bangalore centre also offers business process

? Services

to Tesco operations, particularly in the financial processing area. Tesco leverages the low cost advantage of India for sourcing cheap but quality products. Tesco sources USD 72 million worth of textiles from India annually

Source: KPMG Analysis, IBEF, Press Releases, IBEF-UK companies in India

Success Stories: Success Story ? METRO

Group was quick to recognize the potential of the Indian market. Metro Cash and Carry was the first international retailing company to set up operations in India through the cash and carry format

? The company

forayed into the Indian market in 2003 by setting up whole sale operations in Bangalore. After a two-year orientation phase in the market, it expanded its presence in India and started a store in Hyderabad. The year, 2008 saw further expansion with stores being set up in Kolkata (West Bengal) and in Mumbai. More stores are planned in other regions – with 34 cities numbering more than one million inhabitants, the rest of India has vast potential

? Metro’s

entry in India has also helped the domestic market. The company is making a significant contribution to the development and expansion of the country’s retail infrastructure. Besides bringing in superior technology, better inventory management and production planning processes have also been introduced. The company also cooperates closely with local producers; thereby, creating employment opportunities and using local resources more efficiently. It purchases up to 90 percent of its merchandise from suppliers and producers in the region it operates

? The success

of Metro’s cash and carry operations in India has led to a number of global players foraying into India using the cash and carry format. Players such as Walmart and Tesco have already entered the Indian market using this format while Carrefour is looking at plans to set up its first wholesale cash & carry outlet in the National Capital Region in 2010

Source: Company Website

India is a very exciting opportunity for Marks & Spencer and a market where there is the potential for M&S to become a major retail brand Sir Stuart Rose Marks & Spencer chief executive Source Timesonline, Marks & Spencer plans 50 stores in India with Reliance Industries joint venture, April 2008

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 117 India Calling 2009

Telecommunications

118

Telecommunications India Industry Profile: Parameters

Statistics

Total Telecom Subscribers

452.91 million

Wireless Subscribers

415.25 million

Wireline Subscribers

37.66 million

Monthly Net Adds

11.44 million

Teledensity

38.88 percent

Broadband Subscribers

6.40 million

Telecom Equipment Industry

USD 23.61 billion

Source: TRAI, Press Release, May 2009; Voice & Data, Strong & Steady, July 04, 2009

Key Markets in India

Delhi

Uttar Pradesh (W)

Rajasthan

Bihar

Gujarat

Madhya Pradesh Kolkata

Mumbai Goa

Pune

Hyderabad Bangalore Chennai

Metros Tier I Emerging Tier II & Tier III City/State

Source: KPMG Analysis, Company websites, TRAI website

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

119 India Calling 2009

Business Climate in India's Telecommunication Sector: Parameter

Details

FDI Regulations

? Seventy-four ? Hundred

percent FDI permitted in telecom manufacturing

? EU is one

Constraints / Challenges

? Very low

percent FDI permitted for telecom services

of India’s largest sources of FDI in Indian telecom

Average Revenue Per User (ARPU) – INR 204 for GSM, INR 99 for

CDMA ? Falling

mobile tariffs

? Intense

competition due to number of players in the market

? Regulatory

issues that need to be dealt with before a foreign player can enter

the market ? High costs

associated with setting up network and infrastructure

? Heavy taxation

Any other relevant parameters

? Upcoming

on the Indian telecom industry

implementation of MNP and MVNO will open up the market to new

entrants ? Upcoming

3G spectrum allocation will also expand the market

Source: KPMG Analysis, TRAI Performance Indicators, Centad

Key Bilateral Investments Promoter - Country

Project Details

Vodafone - UK

In February 2007, Vodafone entered the Indian market by acquiring a majority stake in Hutchison Essar

Virgin Mobile - UK

In March 2008, Virgin Mobile started offering services through Tata Teleservices

Telenor – Norway

In October 2008, Telenor acquired Unitech Wireless

Alcatel-Lucent - France

In September 2005, Alcatel formed a JV with CDOT for the development of Broadband Wireless Access solutions like WiMAX

Bharti Airtel – India, British Telecom – UK, Plus 14 more players

In May 2008, Bharti signed an agreement along with 15 international players to build the Europe India Gateway cable system from India to the United Kingdom via the Middle East

Source: KPMG analysis

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 120

Key Markets in EU Germany Highest contributor towards telecom revenues in EU (20%) UK Contributed 13% of the telecom revenues in EU Belgium Contributed 3% of the telecom revenues in EU France Contributed 13% of the telecom revenues in EU Spain Contributed 11% of the telecom revenues in EU The EU telecom market is extremely mature with very high teledensity

Italy Contributed 16% of the telecom revenues in EU Source: KPMG Analysis

India Advantage Features Key Industry Trends

EU Advantage Advantage

Features

? Large untapped ? Data services ? Foreign

Key Drivers

market in rural India

Key Industry Trends

likely to grow the market

? Mature

focus on increasing rural

subscriber base; High mobile

subscribers

Key Drivers

connectivity ? Implementation

market

? Low fixed-line

players entering India in a big way

? Government

? Rollout

Advantage

? Innovative

products and services

? High network

quality and coverage

of MNP and MVNO

of 3G, BWA and Wimax

? Telecom

manufacturing an emerging industry

Competitive

? Low cost

destination

Advantage

? BSNL/ MTNL

Competitive

looking at foreign participation for their 3G services

? EU is a

world leader in the mobile communications sector

Advantage

? Advanced

technical expertise

? Changing

demographics and increasing disposable income

Government Incentives

? Subsidies

for developing rural telecom infrastructure

Government

-

Incentives

?

? Policies

for developing the Next Generation Networks (NGN)

? Network

expansion to cover 90 percent geographical areas by 2010

? Providing Source: KPMG Analysis

incentives for infrastructure sharing Source: KPMG Analysis

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

121 India Calling 2009

Areas for Collaboration: In EU Opportunities

In India

Infrastructure cost management

? Developing

advanced technologies and networks

Providing value added services for Indian population in EU

? Developing

the market for revenue-rich data services

JVs and Acquisitions by Indian companies

? Developing

a market for value added services

? ? ?

? MTNL/BSNL ? Offshoring

Challenges

EU is already a leader in terms of products, innovation and quality of service

?

inviting foreign participation in their 3G services

of telecom manufacturing

? Tough regulatory

environment

? High taxation ? Large geographical ? Spectrum ? Lack of

Player Strategies

constraints

ancillary infrastructure

Providing Indian content VAS targeted at Indian population

? Entering

Identifying acquisition targets

? Leveraging

? ?

spread

India through JVs with existing players

from key EU learnings (network rollout, developing data services, QoS)

Source: KPMG Analysis

Success Stories: Company Name

Success Story

Vodafone Essar

? Entered ? Within

the market with a focus on rural growth and expansion

the first year itself, the Indian operations helped Vodafone witness a 16 percent growth in revenues

? Also introduced

the ‘magic box’ handsets - base level handsets bundled with connections and special call rates. This move was primarily to tap the low level income segment

? Vodafone’s

strategy to tap the rural market also enabled it to set up a JV (Indus Towers) with Bharti and Idea cellular for tower sharing

? Recently

Vodafone has managed to enhance its network coverage in seven regions which was made possible by Nokia Siemens networks

? Vodafone

announced that it intends to continue investing in India due to the massive potential in terms of the rural customer base that remains untapped due to lack of towers

Source: Company Website

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 122

This [acquisition of Unitech Wireless] marks the formal entry of Telenor into the world's fastest growing mobile market and we are now embarking on an operational phase and the preparations for the launch of our services Jon Fredrik Baksaas Telenor Group President and CEO Source Telenor company website, March 21, 2009

We have to keep in mind that in the world landscape, India is a country which apparently is holding up pretty well in recession. It may have less growth but it is pretty robust. So it is going to be a very important platform for us Vittorio Colao Vodafone Chief Executive Officer

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

Source Moneycontrol, India remains important platform:- Vodafone, May 21, 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 123 India Calling 2009

Travel & Leisure

124

Travel & Leisure India Industry Profile: Parameters

Statistics

Industry Size – 2007-08 Travel & Tourism Hospitality

USD 36.2 billion USD 3.8 billion

Growth rate Travel & Tourism: 2008 to 2018E Hotels: 2006-07 to 2007-08

9.4 percent 12 percent

Share of premium segment hotel 2007-08

USD 2.3 billion (60 percent)

Foreign Player Presence

InterContinental Hotels Group, Accor, Hilton Group Plc, Kempinski Hotels & Resorts

Regulatory

Hundred percent FDI subject to sectoral policy regulation

Share of EU in tourist arrivals (2006)

UK, Germany & France account for 24 percent of total tourist arrivals

Source: CRISIL, Hotels 2008-12, December 2008; Technopak, International Hospitality Fair, February 2009

Key Markets in India

Chandigarh Ludhiana Delhi NCR Agra Guwahati Jaipur

Ahmedabad Kolkatta

Mumbai

Bhubaneshwar

Pune

Goa Hyderabad

Metros Tier I cities

Bengaluru Chennai

Emerging Tier II & III cities Intercontinental

Kochi

Hilton Hotel Plc Accor

Source: Assocham & Company Websites

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

125 India Calling 2009

Business Climate in India's Travel & Leisure Sector: Parameter

Details

FDI Regulations

? FDI allowed

Constraints / Challenges

? No uniformity

Future Outlook

in all construction development projects including construction of hotels and resorts, and recreational facilities in taxes & high tax structures

? Poor on-ground

infrastructure

? Industry

status to tourism in few states only

? Security

concerns

? Tourism

is a primary catalyst for growth of demand in hospitality

? On an average

5 million foreign tourist visited India every year since 2006, this number is expected to touch 11 million by 2011

? In 2007,

UK and US were the leading nationalities that arrived into India with a share of 17 and 16 percent respectively

? Domestic

tourist count is expected to increase 12 percent annually until 2011 from the 529 million tourists in 2007

? Medical

tourism is expected to further enhance industry potential

? India is

still facing a shortfall of 150,000 rooms across categories indicating untapped opportunities

Source: KPMG Analysis, CRISIL, Hotels 2008-12, December 2008; Technopak, International Hospitality Fair, February 2009

Key Bilateral Investments Promoter - Country

Project Details

InterContinental Hotels -UK

Tie-up with Emaar MGF since 2007, for management of hotels in India

Hilton Group Plc –UK

In April 2008, tied-up with DLF to jointly develop hotels in India

Accor – France

In November 2006, entered into an equal JV with Emaar MGF for development of hotels in India

Taj Hotels

UK India Business Council in June this year, announced Taj as its ‘official hospitality partner’

Kempinski Hotels – Switzerland

International marketing and distribution partner for The Leela Group hotels since 1987

Source: Company websites

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 126

Key Markets in EU Germany , Berlin London One of the major business hotel market Paris Highest number of inbound visitors France Spain Switzerland Italian Cities receives up to 40 million visitors a year and Rome is the major attraction, the others being Venice ,Milan, Florence and Moscow Turkey, Istanbul One of the fastest growing hotel market Source: HVS, Market Snapshot - Milan Italy, July 2009

EU Advantage

India Advantage Features Key Industry Trends

Advantage

Features

? Budget

and premium segments to drive growth in future

? More 3-4

Key Industry Trends

Advantage ? Emerging

low cost brands targeting business

travellers

star hotels to come up in tier II & III

? Development

cities

of extended stay and service

apartments

? Premium

hotels to grow in markets of excess demand, such as the metros and Tier 1 cities

? Changing

business model from franchisee to management contracts

Key Drivers

? The hospitality

sector contributed 1.56 percent (USD 1.07 Billion) of the total FDI inflow between 2000 and 2008

Key Drivers

travellers are the key demand drivers in cities like Milan (60-70 percent), London, etc.

income levels and Government spending is likely to boost tourism

? Poland,

Ireland and Scotland are emerging as outsourcing destinations, in turn creating demand for hotels

? Emergence

of new form of tourism such as medical tourism, MICE* and Religious tourism

Incentives

? Government

of India has introduced a new category of visa - ‘Medical Visa’ (M’-Visa)

? Incentives

at the Central and the State level

is key catalyst for destinations such as Paris, Switzerland

? Business

? Increasing

Government

? Tourism

Government Incentives

? Germany’s

National Tourism Board promoting Germany by focusing the country’s palaces, Parke and Gardens

? Turkey’s

government has reduced VAT for tourism from 18 to 8 percentage to boost tourism

? Italy has

re-launched ‘Choose Italy’ website to attract more tourist

Source: KPMG Analysis, Technopak, International Hospitality Fair, February 2009 * Meeting Incentive, Conference and Exhibitions

Source: HVS, Market Snapshot - Milan Italy, July 2009; Kuzeybati, Reduced VAT & Transfer Tax lead to Turkish property investment boom, April 2009

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

127 India Calling 2009

Domestic tourist arrivals in India

12

30%

10

25%

8

20%

6

15%

4

10%

2

5%

0

2003

2004

2005 Tourists

2006

2007

2008

2011

0%

million tourists

million tourists

Foreign tourist arrivals in India

800 700 600 500 400 300 200 100 0

20% 16% 12% 8% 4% 2003

2004

2005 Tourists

Growth

Source: CRISIL Monthly Report, June 2009

2006

2007

2011

0%

Growth

Source: CRISIL Monthly Report, June 2009

Areas for Collaboration: In EU Opportunities

In India

Management partnership with European hotel players to expand in European countries such as Russia which is facing a shortfall in room inventory

?

Acquisition of a hotel property in European markets

?

? Establish

franchisee or management contracts with Indian hotel players

? Partner

with real-estate players for development of hotels in

India

Tie-ups with travel agencies to promote Indian Medical tourism

?

Challenges

?

Several European markets face low occupancies during winter season

? High land

Player Strategies

?

prices: Land prices in India constitute almost 25 percent of the cost of property, whereas, it accounts for only 15 -20 percent of project cost overseas

Indian players can enter the European markets with a management tie-up

? Currently

the players like Intercontinental and Accor have entered into a management contract with Indian players

Source: KPMG Analysis

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 128

The primary reasons as to why medical tourism would flourish in India include much lower medical treatment costs for various ailments, such as bone narrow transparent, by-pass surgery, knee surgery and liver transplant as compared to western countries. Venugopal Dhoot President Assocham

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

Source ASSOCHAM, Medical Tourism forex earnings to grow INR 8000 crore from 2012, May, 2008

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 129 India Calling 2009

Doing Business in India

130

Doing Business in India India Industry Profile:

Foreign direct investment in India The objective of India’s Foreign Direct Investment (FDI) policy is to invite and encourage foreign investments in India. Since 1991, the guidelines and the regulatory process has been substantially liberalised to facilitate foreign investment in India. The administrative and compliance aspects of FDI including the modes / instruments of investments in an Indian Company (e.g. Equity, Compulsorily Convertible Preference Shares, Compulsorily Convertible Debentures, ADR / GDR, etc) are embedded in the Foreign Exchange Regulations prescribed and monitored by the Reserve Bank of India (RBI). The Foreign Exchange Regulation also contains beneficial schemes / provisions for investments by Non-Resident Indians / Person of Indian Origin within the overall framework / policy. For the purpose of FDI in an Indian Company, the following categories assume relevance: ? Sectors in which FDI is prohibited ? Sectors in which FDI is permitted

-

Investment under Automatic Route; and

-

Investment under Prior Approval Route i.e. with prior approval of the Government through the Foreign Investment Promotion Board (FIPB)

The following diagram depicts the FDI policy in India: Foreign Investment

Automatic Route

Investment in Sectors requiring prior Government approval

Previous venture in India in the same field as stipulated

Prior Approval Route (FIPB)

FDI in excess of 24% for manufacturing items reserved for small scale sector

Investment exceeding sectoral caps for Automatic Route to the extent permitted

Apart from fresh investments in an Indian company, the above is also relevant for transfer of shares, etc which are subject to detailed guidelines / instructions and approval requirements to the extent applicable.

Automatic Route The Automatic Route connotes no requirement of any prior regulatory approval but only post facto filing / intimation with the RBI through Authorized Dealer / Bankers as under: ? Filing of an intimation by the Indian Company with the RBI, in the prescribed format,

within 30 days of receipt of FDI in India; and ? Filing of prescribed form and documents by the Indian Company with the RBI within 30

days of issue of shares to foreign investors FDI by a Foreign Company / Investor in an Indian Company in most of the business / commercial sectors now falls under the Automatic Route and very few cases / transactions require prior Government / FIPB approval.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

131 India Calling 2009

Prior Approval Route

? existing joint venture / collaboration is defunct or sick.

FDI in sectors / transactions requiring prior Government Approval is

? existing joint ventures in specified sectors which inter alia

categorized as that falling under the Prior Approval Route. Such

includes the information technology sector

approval is granted by the Government of India, Ministry of Finance, An existing venture for this purpose has been clarified to mean a

the Foreign Investment Promotion Board (FIPB).

venture existing as on January 12, 2005. Consequently, only a FDI in the following activities / sectors generally requires prior

foreign investor who has entered into a technical and/ or financial

approval of the government:

collaboration prior to 12 January 2005 and subsisting on that date

? Where more than 24 percent foreign equity is proposed to be

inducted for manufacture of items reserved for the Small Scale

would require prior approval of the FIPB for making further investment in the same field.

sector ? Proposals in which the foreign collaborator has an existing

Portfolio investment in India

financial / technical collaboration in India in the ‘same’ field as

Foreign Institutional Investors (FII) registered with SEBI and Non-

per the Press Notes 1 and 3 of 2005.

resident Indians are eligible to invest in India under the Portfolio

? All proposals falling outside notified sectoral caps or under

Investment Scheme within prescribed guidelines and parameters.

sectors in which FDI is not permitted under the Automatic Investment by FIIs are primarily governed by the Securities and

Route.

Exchange Board of India (Foreign Institutional Investors) Regulations, FDI policy is reviewed on an ongoing basis and changes in sectoral

1995, (‘SEBI Regulations’). Eligible Institutional Investors that can

policy / sectoral equity caps are notified through Press.

register as FIIs include Asset Management Companies, Pension

An application is required to be filed with the Secretariat for

Companies, Re-insurance Companies, Incorporated/Institutional

Funds, Mutual Funds, Banks, Investment Trusts, Insurance Industrial Assistance (SIA) / Department of Industrial Policy and

Portfolio Managers, Investment Manager / Advisor, International or

Promotion setting out the details of investment, business plan,

Multilateral organisation, University Funds, Endowment

financials of the foreign company, etc. Along with the application, a

Foundations, Charitable Trusts and Charitable Societies, Foreign

declaration as to whether the applicant has or had any previous

Government Agencies, Sovereign Wealth funds, Foreign Central

financial / technical collaboration or trade mark agreement in India in

Bank, Broad based Fund, Trustee of a Trust.

the same field for which approval has been sought is required to be submitted in compliance with the Press Notes 1 and 3 of 2005.

Sub-account means any person resident outside India, on whose behalf investments are proposed to be made in India by a foreign

Approval is granted by the Foreign Investment Promotion Board

institutional investor and who is registered as a sub-account under

(‘FIPB’) on a case to case basis after examining the proposal for

these regulations. Entities eligible to register as sub-account are

investment. Post FIPB approval, prescribed filings as applicable

braid based funds, portfolio which is broad based, proprietary funds

under the automatic route are also required to be carried out by the

of the FII, foreign corporate and foreign individuals satisfying the

Indian Company under the Prior Approval Route.

prescribed conditions, etc.

Previous Venture conditions / criteria for FDI as per Press Notes 1 and 3 of 2005 In case, a foreign investor with an existing venture or collaboration

Conceptually, an application for registration as an FII can be made in two capacities, namely as an investor or for investing on behalf of its sub-accounts.

(technical and / or financial) with an Indian partner as on 12 January

SEBI grants registration as FII based on certain criteria, namely

2005 in a particular field proposes to invest in another proposal in

constitution and incorporation of FII, being regulated in home

the same field in India, such additional investment is permissible

country, track record, previous registration with any Securities

only subject to a prior FIPB approval wherein both parties are

Commission, legal permissibility to invest in securities as per the

obliged to submit / demonstrate that the new venture does not

norms of the country of its incorporation, fit and proper person, etc.

prejudice the earlier venture.

SEBI grants registration to the FII and sub-account which is

The FIPB approval, however, is not applicable under the following circumstances:

permanent unless suspended or cancelled by SEBI, subject to payment of fees and filing information every three years. The approval of the sub-account is co-terminus with that of the FII.

? investment by a venture capital fund registered with the

Securities and Exchange Board of India (SEBI); existing joint venture has less than 3 percent investment by ? either party;

FIIs / sub-accounts can invest in Indian equities, units, exchange traded derivatives, commercial papers and debt. FIIs can also invest in security receipts of Asset Reconstruction Companies on its own behalf.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 132

A FII can invest any portion of its portfolio in debt instruments as the

terms of scope, coverage, computation and go beyond the pro-

requirement to maintain 70:30 (equity: debt) investment limit by

rata methodology which was hitherto being applied in most

pure equity FIIs has been removed by SEBI subject to limits being

cases

sanctioned by SEBI. The entry level guidelines / conditions for FDI in an Indian Company have been expressly clarified to extend to downstream investments

Foreign Investment Policy on FII investment

as well. Further, prior Government approval followed by notification

FII investments in India are subject to the following policy / limits: i)

As per RBI, no single FII / sub-account can acquire more than 10 percent of the paid-up equity capital or 10 percent of the paid-up value of each series of convertible debentures issued by the Indian company. In case of foreign corporate or individuals, each such sub-account shall not invest more than 5 percent of the total issued capital of that company

ii)

All FIIs and their sub-accounts taken together cannot acquire more than 24 percent of the paid-up capital or paid up value of each series of convertible debentures of an Indian Company.

has been stipulated for Foreign Investments in an Indian Company which is an Investment Company or which does not have any operation. Prior Government approval has also been stipulated for transfer of ownership or control of Indian Companies in specified / controlled sectors from resident Indian citizens / entities to Nonresident entities. For downstream Investment by an operating-cum-holding company with foreign investment as stipulated, a notification to the Government is stipulated within the prescribed timeframe / parameters.

The investment can be increased upto the sectoral cap / statutory ceiling, as applicable to the concerned Indian

iii)

Investment as Foreign Venture Capital Funds

company. This can be done by passing a resolution by its

A SEBI registered Foreign Venture Capital Investor (FVCI) with

Board of Directors followed by passing of a special resolution

specific approval from the RBI under FEMA regulations can invest in

to that effect by its General Body. Also, in certain cases, the

Indian Venture Capital Undertakings (IVCU) or Indian Venture Capital

permissible FDI ceiling subsumes or includes a separate sub-

Fund (IVCF) or in a Scheme floated by such IVCF’s subject to the

ceiling for the FII Investment as per stipulation which needs to

condition that the IVCF should also be registered with SEBI and

be complied with

compliance with the underlying framework / guidelines.

FIIs/sub-accounts can transact in dematerialized form through

The FVCI can purchase equity / equity linked instruments / debt /

a recognized stock broker and on a recognized stock exchange

debt instruments, debentures of an IVCU or of a VCF through initial

and are required to give or take delivery of securities. Further,

public offer or private placement in units of schemes / funds set up

short selling is permitted within prescribed parameters /

by a VCF. The purchase, sale of shares, debentures, and units can be

norms. FIIs /sub-accounts can also lend or borrow securities in

at a price that is mutually acceptable to the buyer and the seller.

the Indian market under a scheme framed by SEBI iv)

FIIs can buy / sell securities on Stock Exchanges in most sectors except those prohibited. They can also invest in listed and unlisted securities outside Stock Exchanges subject to prescribed guidelines / compliances / approvals

Calculation of Total Foreign Investment The Government Press Notes 2, 3 and 4 of 2009 lay down the guidelines / methodology for calculation of Total Foreign Investment in an Indian Company for the purpose of sectoral cap and approval requirements which means Direct as well as Indirect Foreign Investments in an Indian company as under: ? Direct investment i.e. all specified types of foreign investment in

an Indian company; and ? Indirect foreign investment i.e. investments in an Indian

company through investing Indian companies which are ‘owned or controlled’ by non-resident entities to be calculated as per the prescribed methodology. These provisions are very complex in

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

133 India Calling 2009

Sector-wise regulation in foreign investment (illustrative) Automatic route specified activities subject to sectoral cap and conditions (if any)# Airports Greenfield 100% Existing 74% Air transport services –scheduled Non resident Indians 100% FDI 49% Air transport services – non scheduled / chartered and cargo airlines Non resident Indians 100% FDI 74% Air transport services – others Helicopter services / seaplane services (specified) 100% Alcohol distillation and brewing 100% Banking (private sector) 74% / 100% Civil Aviation Services Ground Handling services Non resident Indians 100% FDI 74% Maintenance and repair organisations, flying training institutes; and technical training institutions 100% Coal and lignite mining (specified) 100% Coffee, rubber processing and warehousing 100% Construction development projects (specified) 100% Drugs and Pharmaceuticals including those involving use of recombinant DNA technology 100% Floriculture, horticulture, development of seeds, animal husbandry, pisciculture, aqua-culture, cultivation of vegetables and mushrooms (specified) and services related to agro and allied sectors 100% Hazardous Chemicals (specified) 100% Industrial explosives manufacture 100% Industrial parks 100% Insurance 26% Mining covering exploration and mining of diamonds, and precious stones, gold, silver and minerals) 100% Non banking finance companies (specified) 100% Petroleum and Natural gas Refining (private companies) 100% Other specified areas 100% Power including generation (except atomic energy), transmission, distribution and Power Trading 100% Special Economic Zones and Free Trade Warehousing Zones (setting up of Zone and setting up of units in these Zones) 100% Telecommunication Basic / cellular services unified access services, value added and other specified services 49% ISP with gateways, radio paging, end to end bandwidth 49% ISP without gateway 49% Infrastructure provider (specified), electronic mail and voice mail 49% Manufacture of telecom equipment 100% Trading Wholesale / cash & carry 100% Trading for exports 100%

Prior approval from FIPB where investment is above sectoral cap for activities listed below# Existing Airports beyond 74% up to 100% Asset reconstruction companies 49% Broadcasting FM Radio 20% Cable network 49% Direct-To-home(DTH) 49% Setting up hardware facilities 49% Uplinking a news and current affairs TV channel 26% Uplinking a non-news and current affairs TV channel 100% Cigar and cigarettes manufacture 100% Commodity Exchanges 49%# Courier services other than those under the ambit of Indian Post Office Act, 1898 100% Credit Information Companies 49%# Defense production 26% Investment companies in infrastructure / services sector (except telecom) 100% Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities 100% Petroleum and natural gas – Refining (PSU) 49% Print Media Publishing of newspapers and periodicals (including foreign news papers subject to prescribed condition) dealing with news and current affairs 26% Publishing of scientific magazines / specialty journals / periodicals 100% Satellite Establishment and Operation 74% Tea Sector – including tea plantation 100% Telecommunication Basic / cellular services unified access services, value added and other specified services beyond 49% up to 74% ISP with gateways, radio paging, end to end bandwidth beyond 49% up to 74% ISP without gateway, infrastructure provider (specified), electronic mail and voice mail beyond 49% up to 100% Trading Trading of items sourced from Small Scale sector 100% Test marketing of such items for which a company has approval for manufacture 100% Single brand product retailing 51%

Prohibited list

Agriculture [excluding floriculture, horticulture, development of seeds, animal husbandry, pisciculture, aqua-culture, cultivation of vegetables and mushrooms (specified) and services related to agro and allied sectors ) and plantations (other than tea plantations). Atomic energy Business of chit fund Gambling and Betting Housing and real estate business Lottery business Nidhi Company Retail Trading (except 51% in single brand product retailing) Trading in Transferable Development Rights

# Certain sectoral cap include investments by NRI / FII / FVCI investments and need to be read with various underlying Press Notes / Notifications / Conditions as stipulated

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 134

Investment vehicles for foreign investors Branch office

Choice of vehicle Depending upon its business needs, a foreign company can choose

A Foreign Company is permitted to establish a Branch office (BO) in

between setting-up a liaison office, a branch office, a project office

India to undertake prescribed commercial activities and is generally

or incorporating an Indian company, either its wholly owned

suitable for manufacturing and trading foreign companies wanting to

subsidiary or joint venture with an Indian / Overseas partner.

market / sell their products in India or IT Enabled / Consultancy

Liaison office

operation of BO is regulated by the RBI on similar lines as that of LO

Firms wanting to render services in India. The opening and A liaison office (LO) is permitted to act as a channel of

including obtaining of a prior approval but excluding the period and

communication / carry out a liaison / representation role between

upgrade obligation.

the head office / group companies and parties in India. It is not permitted to undertake any commercial/ trading/ industrial activity,

The activities permitted for a BO do not include manufacturing

directly or indirectly. The LO is obliged to maintain itself and meet its

(unless setup in Special Economic Zone which set-up and operation

expenditure through inward remittances from the Head Office. A LO

is governed under that separate regulations) and retail trading.

is generally approved only for specified period which is subject to renewal and in certain sectors, the LO is obliged to upgrade into a Company (wholly owned subsidiary / joint venture) post the initial approval period.

As per the Draft RBI circular referred earlier, the RBI has clarified its internal norms that the foreign entity proposing to set-up a BO in India needs to have a successful profit making track record during immediately preceding 5 years in the home country. Further, a net

Establishing an LO requires prior approval of RBI which is location

worth of not less than USD 100,000 is also required. Approval for

specific and subject to guidelines issued in this regard. The RBI also

BO is location specific and various criteria apply to the same.

monitors its activities on an ongoing basis primarily by seeking an annual compliance / activity certificate for the LO’s operation from

Project office Foreign companies undertaking projects in India and satisfying

its Auditors in India.

prescribed requirements can set up project/ site offices (PO) for the A draft circular was issued by the Reserve Bank of India (RBI) in May

purpose of executing the project.

2008 and is placed in the public domain which laid down the eligibility criteria and procedural guidelines for establishment of

The requirement of obtaining prior RBI approval for PO that meets

liaison offices by foreign entities in India. As per the draft guidelines

specified conditions has been dispensed with. A PO can only

the foreign entity needs to have a successful profit making track

undertake activities relating to and incidental to the execution of

record during immediately preceding 3 years in the home country.

specific projects in India and has to wind up post the completion of

Further, a net worth of not less than USD 50,000 is also be required.

the Project.

Through this draft Circular, the RBI had also proposed certain

A PO can is now permitted to open foreign currency accounts

procedural changes to the application procedure and to delegate

subject to prescribed conditions / parameters.

certain powers to Authorised Dealers regarding extension of validity period of liaison offices of foreign entities and closure of their liaison

Local Indian Subsidiary or Joint Venture Company

offices in India.

Subject to Foreign Direct Investment Guidelines and Foreign Exchange Regulations, a foreign company can set-up its own wholly

The foreign exchange provisions for LO and the proposed

owned Indian Subsidiary or Joint Venture Company with an Indian or

amendments do not fully apply to applications for banks (which are

Foreign Partner.

covered and need approval under the banking regulations from the RBI) and insurance companies (which are permitted to set-up liaison

Subsidiary or a Joint Venture Company can be formed either as a

office under general permission subject to necessary approval from

Private Limited Company or a Public Limited Company. A private

Insurance Regulatory and Development Authority of India).

limited company is obliged to restrict the right of its members to transfer the shares, can have only 50 shareholders and is not

Post set-up in India, various registrations and compliance obligations entail on the LO, and in view of sizeable paperwork and time frame obligations, the entire process needs to be carefully planned and implemented.

allowed to have access to deposits from public directly. It is also subject to less corporate compliances requirements as compared to a public company which is eligible for listing on stock exchanges. A company is regulated inter alia by the Registrar of Companies (ROC) under the Companies Act, 1956. The table bellow highlights certain key differences between a private and public company

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

135 India Calling 2009

Sr. No.

Particulars

Private Company

Public Company

1.

Minimum number of shareholders

Two

Seven

2.

Maximum number of shareholders

Fifty

Unlimited

3.

Minimum number of directors

Two

Three

4.

Maximum number of directors

Seven

Twelve (can be increased with Government approval)

5.

Minimum paid - up capital requirement in general

INR 1,00,000 (Approx. USD 2,200)

INR 5,00,000 (Approx. USD 11,000)

A private company can commence business immediately on obtaining a Certificate of Incorporation from the Registrar of Companies (ROC). A public company is required to obtain a “Certificate of Commencement of Business” by filing additional documents with the ROC.

Limited Liability Partnership The Limited Liability Partnership Act, 2008 has introduced a new form of business structure in India i.e. a Limited Liability Partnership (LLP). LLP is alike a private limited company having a distinct legal entity separate from its partners. It has perpetual succession and a common seal unlike a traditional partnership firm. LLP adopts a corporate form combining the organizational flexibility of partnership with advantage of limited liability for its partners. Currently there are no specific guidelines for foreign investment in LLP. However, like Partnership Firms, this should need prior approval of the Reserve Bank of India.

Comparative summary A comparative summary of previously discussed business entities is as under: Particulars

Representative / Liasion

Branch office

Project office

Subsidiary / joint venture

Prior approval of RBI

Prior approval not required if

If activities / sectors falls

certain conditions are fulfilled

prior approval but only post

office 1. Setting- up requirements

Prior approval of RBI

under Automatic Route, no facto filings with the RBI is obligated. Otherwise obtain Government/ FIPB approval and then comply with post facto filings

2. Permitted activities

Only liaison / representation /

Activities listed / permitted by

Permitted if the foreign

communication role is

RBI can only be undertaken.

company has a secured

permitted. No commercial or

Local manufacturing and retail

contract from an Indian

business activities or

trading is not permitted

company to execute a project

otherwise giving rise to any business income can be

in India

Any activity specified in the memorandum of association of the company. Wide range of activities permissible subject to FDI guidelines / framework

undertaken

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 136

Particulars

Representative / Liasion office

Branch office

Project office

Subsidiary / joint venture

3. Funding for local Operations

Local expenses can be met

Local expenses can be met

Local expenses can be met

Funding may be through

only out of inward

through inward remittances

through inward remittances

equity or other forms of

remittances received from

from Head Office or from

from Head Office or from

permitted capital infusion or

abroad from Head Office

earnings from permitted

earnings from permitted

borrowings (local as well as

through normal banking

operations

operations

overseas per prescribed

channels 4. Limitation of liability

5. Compliance requirements under Companies Act

norms) or internal accruals

Unlimited liability in India

Unlimited liability in India

Unlimited liability in India

Liability limited to the extent

within overall liability

within overall liability

within overall liability

of equity participation in the

obligation of Foreign Company

obligation of Foreign Company

obligation of Foreign Company

Indian Company

Requires registration and

Requires registration and

Requires registration and

Required to comply with

periodical filing of accounts /

periodical filing of accounts /

periodical filing of accounts /

substantial higher statutory

other documents

other documents

other documents

compliance and filings requirements As compared to LO / BO

6. Compliance Requirements

Required to file an Annual

Required to file an Annual

Compliance certificates

Required to file Periodic and

under Foreign Exchange

Compliance Certificate from

Activity / Compliance

stipulated for various

Annual filings relating to

Management Regulations

the Auditors in India with the

Certificate from the Auditors

purposes

receipt of capital and issue of

RBI

in India with the RBI

No tax liability as generally it

The company is obliged to pay

The company is obliged to pay

Liable to tax on global income

cannot / does not carry out

tax on income earned and

tax on income earned and

on net basis. Dividend

any commercial or income

required to file return of

required to file return of

declared is freely remittable

earning activities. May be

income in India. No further tax

income in India. No further tax

but subject to distribution tax

advisable to file an Income-

on repatriation of profits

on repatriation of profits

of 16.995 percent on

tax return. May be liable to

which are permissible in both

which are permissible in both

Dividends declared /

Fringe Benefit Tax (FBT) and

cases. Liable to FBT and

cases. Liable to FBT and

distributed / paid pursuant to

obliged to file FBT Return

obliged to file FBT Return

obliged to file FBT Return

which dividend is tax free for

annually if it has employee

annually if it has employee

annually if it has employee

all shareholders – limited

base in India. The FBT levy is

base in India. The FBT levy is

base in India. The FBT levy is

inter-corporate dividend set-

proposed to be abolished from

proposed to be abolished from

proposed to be abolished from

off apply. Liable to FBT and

Financial year 2009-10

Financial year 2009-10

Financial year 2009-10

obliged to file FBT Return

7. Compliance Requirements under Income Tax Act

shares to foreign investors

annually pursuant to employee base in India. The FBT levy is proposed to be abolished from Financial year 2009-10 8. Permanent Establishment (PE)

LO generally do not constitute

Generally constitute a

Generally constitute a

It is an independent taxable

PE / taxable presence under

Permanent Establishment (PE)

Permanent Establishment (PE)

entity and does not constitute

Double Taxation Avoidance

and are a taxable presence

and are a taxable presence

a PE of the Foreign Company

Agreements (DTAA) due to

under DTAA as well domestic

under DTAA as well domestic

per se unless deeming

limited scope of activities in

income-tax provisions

income-tax provisions

provisions of the DTAA are

India

attracted

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

137 India Calling 2009

Transfer Pricing in India India introduced detailed transfer pricing regulations in the Income

Determination of arm’s length price

Tax Act, 1961 (Act), as an anti - avoidance measure aimed to ensure

The Indian transfer pricing regulations require arm’s length price in

that fair and equitable proportion of profits arising from cross border

relation to an international transaction to be determined in

transactions between related entities are received in India.

accordance with the most appropriate method from out of the following prescribed methods:

The Indian transfer pricing provisions are generally in line with the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrators issued by Organisation for Economic Co - Operation and Development (“OECD Guidelines”) albeit with some significant differences such as a wider definition of the term associated enterprise; and the concept of arithmetical mean as opposed to internationally followed statistical measures of median / arm’s length

? Comparable uncontrolled price (CUP) method; ? Resale price method (RPM); ? Cost plus method (CPLM); ? Profit split method (PSM); and ? Transactional Net Margin Method (TNMM)

range. The regulations also prescribe rigorous mandatory documentation requirements and impose steep penalties for non -

Unlike the OECD guidelines, there is no order of preference

compliance.

prescribed, although in practice transfer pricing authorities do

Since its introduction in April 2001, the transfer pricing regulations

before accepting a profit-based approach. The choice of the most

have assumed great importance in the Indian taxation arena, with

appropriate method is required to be made having regard to factors

attempt to use traditional methods such as CUP, RPM and CPLM,

the Indian Revenue Authority setup special infrastructure for

which inter alia include nature and class of transaction, the classes

enforcement and administration of transfer pricing matters.

of associated enterprises undertaking the transaction, the functions

Separate transfer pricing officers have been appointed to audit

performed by them etc.

taxpayers having related party international transactions. Section 92 of the Act provides that the price of any transaction between associated enterprises, either or both of whom are non resident for Indian income - tax purposes (international transaction), shall be computed having regard to the arm’s length price. Two enterprises are considered to be associated if there is direct / indirect participation in the management or control or capital of an enterprise by another enterprise or by same persons in both the enterprises. Further, the transfer pricing regulations have prescribed certain other conditions that can trigger an associated enterprise relationship. Significant conditions among these include: ? Direct / indirect shareholding giving rise to 26 percent or more of

Compliance Requirements The burden of proving that the international transactions comply with the arm’s length principle lies with the taxpayer. Further the Act requires every person entering into an international transaction to maintain prescribed information and documents relating to international transactions. The prescribed documentation includes details of ownership structure, description of functions performed, risks undertaken and assets used by respective parties, discussion on the selection of most appropriate method and economic analysis resulting into determination of arm’s length price. Failure to maintain the prescribed documentation can result in penalties up to 2 percent of the value of the international transactions. Further, failure to furnish

voting power;

the prescribed documentation within the prescribed time limit can ? Dependency relating to source of raw materials / consumables

as well as dependency relating to customer(s) for manufactured

result in penalties that can extend up to 2 percent of the value of the international transactions.

/ processed goods, price and other conditions being influenced by the other contracting party;

In addition to maintaining the prescribed documentation, taxpayers

? Authority to appoint more than 50 percent of the board of

directors or one or more of the executive directors; ? Dependency in relation to intellectual property rights (know -

how, patents, trademarks, copyrights, trademarks, licenses,

are also required to obtain a certificate (detailing the particulars of international transactions) from an accountant and file the same with the Revenue Authorities on or before the due date of filing return of income. Penalty of INR 100,000 can be levied for non filing of the certificate by the prescribed date.

franchises etc) owned by either party; and ? Dependency relating to borrowings i.e. advancing of loans

Transfer Pricing Assessments

amounting to not less than 51 percent of total assets or

Transfer pricing matters are dealt by specialised Transfer Pricing

provision of guarantee amounting to not less than 10 percent of

Officers. In accordance with the past internal administrative

the total borrowings

guidelines of the Revenue Authorities, all taxpayers reporting

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 138

international transactions with associated enterprises exceeding INR

Judicial Guidance

150 million are subjected to a mandatory transfer pricing audit. To

Over the past eight years, four years of audits have been completed.

the extent of transfer pricing adjustments made as a result of the

A lot has been debated on several key issues relating to the

audit, taxpayers lose any tax exemption to which they are otherwise

interpretation and implementation of the transfer pricing principles

entitled to. Further, there are potential penalties to the extent of

in the Indian context. Several of the issues saw divergent positions

one - time to three - times of the incremental tax arising as a result

being adopted by the tax payers and the Revenue Authorities –

of any adjustment.

selection of comparables with related party transactions, use of multiple year data, risk / working capital adjustments, need to demonstrate tax avoidance motive before initiating transfer pricing

Dispute Resolution Mechanism In order to facilitate expeditious resolution of transfer pricing disputes and disputes relating to taxation of foreign companies, an alternate dispute resolution mechanism is provided in the form of Dispute Resolution Panel (DRP) [a collegium comprising of three Commissioners of Income - tax]. Under the proposed mechanism, the Assessing Officer (AO) is required to forward the draft of the

inquiry for a tax holiday entity, etc. Several of these issues were escalated in appeal before the tribunal benches and high courts and even though in the past 18 months there have seen several decisions from the judiciary; these are certainly not the last word and a lot more is yet to come. The judicial guidance on a wide range of transfer pricing related issues is evolving rapidly.

proposed assessment order to the taxpayer, which the taxpayer may accept or lodge an objection with the DRP within 30 days. The DRP

Transfer Pricing and Customs Valuation

upon hearing both sides shall issue necessary directions to the AO

The Indian Revenue Authorities set up a Joint Working Group,

for completing the assessment, within a period of 9 months from

comprising of transfer pricing and customs officers. Considering the

the end of the month in which the draft order is forwarded to the

lack of synchronization between customs valuation procedure and

taxpayer. Such directions of the DRP would be binding on the AO.

transfer pricing regulation under Act, this initiative was undertaken

Any appeal against the order passed by the AO in pursuance of the

by the Revenue Authorities in order to bring greater harmonization,

directions issued by the DRP shall be filed by the taxpayer directly

coordination and communication between the two departments as

with the Income - tax Appellate Tribunal.

regards valuation of imported goods.

Safe Harbour The Central Board of Direct Taxes (CBDT) has been empowered to formulate Safe Harbour Rules to reduce the disputes and judgmental errors relating to transfer pricing matters.

Advance Pricing Agreements Currently, the Indian transfer pricing provisions do not provide any facility for advance pricing agreements (APAs) as prevalent in some other jurisdictions. To mitigate disputes and uncertainty on transfer pricing issues, it is expected that the Government in the near future, may provide for legislative amendments to enable APAs. Towards this objective consultation discussions have already been held with the Industry and the consultants.

Mutual Agreement Procedure The taxpayers can choose Mutual Agreement Procedure (MAP) to resolve bilateral transfer pricing issues with certain foreign jurisdictions depending on the provisions in the relevant Double Taxation Avoidance Agreements (DTAAs). The Revenue Authorities have issued notifications whereby subject to the satisfaction of certain conditions and depending on the relevant foreign jurisdiction, the taxpayers choosing the MAP process may not need to pay the tax demand until the closure of the MAP proceedings.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

139 India Calling 2009

Direct Taxes In India, under the constitution taxes can be levied by the Central

India adopts the self-assessment tax system. Taxpayers are required

and the State Governments, and by the local government bodies.

to file their tax returns by specified dates. The Tax Officer may

Principal taxes, including Income-tax, Custom Duties, Central Excise

choose to make a scrutiny assessment to assess the correct

Duty and Service Tax are levied by the Central Government. On the

amount of tax by calling for further details.

other hand, States levy taxes like State Excise Duties, Value-Added Tax, Sales Tax and Stamp Duties. Local government bodies levy

Generally, taxpayers are liable to make Income-tax payments as

Octroi Duties and other taxes of local nature like Water tax,

advance tax, in three or four installments, depending on the

Property Tax, etc. Income is taxed in India in accordance with the

category they belong to, during the year in which the income is

provisions of the Income-tax Act, 1961. The Ministry of Finance

earned. Balance tax payable, if any, can be paid by way of self-

(Department of Revenue) through the Central Board of Direct Taxes

assessment tax at the time of filing the return of income. Employed

(CBDT), an apex tax authority implements and administers direct tax

individuals are subject to tax withholding by the employer on a ‘pay-

laws.

as-you-earn’ basis. Certain other specified incomes are also subject to tax withholding at specified rates.

India has embarked on a series of tax reforms since the early 1990s. The focus of reforms has been on rationalization of tax rates and simplification of procedures.

Residential status Individual

India follows a ‘residence’ based taxation system. Broadly, taxpayers

Depending upon the period of physical stay in India during a given

may be classified as ‘residents’ or ‘non-residents’. Individual

tax year, an individual may be classified as a resident or a non-

taxpayers may also be classified as ’residents but not ordinary

resident or a ‘not ordinarily resident’ in India.

residents’. Company The ‘tax year’ (known as the financial year) in India, runs from 1 April

A resident company (also referred to as an Indian Company) is a

to 31 March of the following calendar year for all taxpayers. The

company formed and registered under the Companies Act, 1956 or

‘previous year’ basis of assessment is used i.e. any income

one whose control and management is situated wholly in India. An

pertaining to the ‘tax year’ is offered to tax in the following year

Indian company by definition is always a resident.

(known as the assessment year). A non-resident company is one, whose control and management are Taxable income has to be ascertained separately for different

situated wholly outside India. Consequently, an Indian company that

classes of income (called as ‘heads of income’) and is then

is wholly owned by a foreign entity but managed from India by

aggregated to determine total taxable income. Income tax is levied

foreign individuals / companies is also considered as a resident

on ‘taxable income’, comprising of income under the following

Indian company.

categories, referred to as ‘Heads of Income’: Kinds of taxes

? Salaries

Corporate income tax

? Income from house property

Income-tax is levied on income earned during a tax year as per the

? Profits and gains of business or profession

rates declared by the annual Finance Act.

? Capital gains and ? Income from other sources.

Minimum Alternate Tax (MAT)

Generally, the global income of domestic companies, partnerships and local authorities are subject to tax at flat rates, whereas individuals and other specified taxpayers are subject to progressive tax rates. Foreign companies and non resident individuals are also subject to tax at varying rates on specified incomes which are received / accrued or deemed to be received / accrued in India. Agricultural income is exempt from Income-tax at the central level but is taken into account for rate purposes. Income earned by specified organisations e.g. trusts, hospitals, universities, mutual funds etc., is exempt from Income-tax, subject to the fulfillment of

With a view to bring zero tax paying companies having book profits, under the tax net, the domestic tax law requires companies to pay MAT in lieu of the regular corporate tax, in a case where the regular corporate tax is lower than the MAT. However, MAT is not applicable in respect of: ? Income exempt from tax (excluding exempt long-term capital

gains from tax-year ending 31 March 2007) ? Income from units in specified zones including Special Economic

Zones (SEZs) or specified backward districts ? Income of certain sick industrial companies.

certain conditions.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 140

MAT is levied at 15 percent (plus applicable surcharge and education cess) of the adjusted book profits of companies where the tax payable is less than 15 percent of their book profits. Surcharge is applicable at 10 percent in the case of companies other than a foreign company, if the adjusted book profits are in excess of INR 10,000,000. Education cess is applicable at 3 percent on income-tax (inclusive of surcharge, if any). A tax credit is available being the difference of the tax liability under MAT provisions and regular provisions, to be carried forward for set off in the year in which tax is payable under the regular provisions. However, no carry forward shall be allowed beyond the tenth assessment year succeeding the assessment year in which the tax credit became allowable.

Dividend Distribution Tax (DDT) Dividends paid by an Indian company are currently exempt from Income-tax in the hands of the recipient shareholders in India; however, the company paying the dividends is required to pay DDT on the amount of dividends declared. The rate of tax is 16.995 percent (inclusive of surcharge and educational cess). DDT is a tax payable on the dividend declared, distributed or paid. An exemption from this tax has been granted in case of dividends distributed out of profits of SEZ developers. Domestic companies will not have to pay DDT on dividend distributed to its shareholders to the extent of dividend received from its subsidiary if: ? The subsidiary has paid DDT on such dividend received; and ? Such a domestic company is not a subsidiary of any other company.

A company would be subsidiary of another company if such a company holds more than half in nominal value of equity share capital of the company.

Tonnage Tax Scheme for Indian Shipping Companies Indian shipping companies are taxed on a presumptive basis. Tax is levied on the notional income of the shipping company arising from the operation of ships at normal corporate tax rates. The notional income is determined in a prescribed manner on the basis of the tonnage of the ship. Tax is payable even in the case of loss. The scheme is applicable to shipping companies that are incorporated under the Indian Companies Act (with its effective place of management in India) with at least 1 ship with minimum tonnage of 15 tonnes and holding a valid certificate under the Merchant Shipping Act, 1959. Shipping companies have an option to opt for the scheme or taxation under normal provisions. Once the scheme has been opted for, it would apply for a mandatory period of 10 years and other tax provisions would not apply.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

141 India Calling 2009

Fringe Benefit Tax (FBT) FBT has been abolished by the Finance Act 2009 with effect from 1 April 2009.

Securities Transaction Tax (STT) STT is levied on the value of taxable securities transactions at specified rates. The taxable securities transactions are – ? Purchase / Sale of equity shares in a company or a derivative or a unit of an equity-

oriented fund entered into in a recognized stock exchange ? Sale of unit of an equity-oriented fund to the mutual fund

Transaction

Purchase/Sale of equity shares, units of equity oriented mutual fund (delivery based)

Sale of equity shares, units of equity oriented mutual fund (non-delivery based)

Sale of Derivatives (on the premium amount)

Sale of an option in securities

Sale of derivatives (where the option is exercised)

Sale of unit of an equity oriented fund to the mutual fund

Rates

0.125%

0.025%

0.017%

0.017%

0.125%

0.25%

Paid by

Purchaser/ seller

Seller

Seller

Seller

Purchaser

Seller

Wealth Tax Wealth tax is leviable on specified assets at 1 percent on the value of the net assets plus surcharge and cess as held by the assessee (net of debts incurred in respect of such assets) in excess of the basic exemption of INR 3,000,000.

Tax rates Personal taxes Individuals (excluding women and senior citizen) are liable to tax in India at different rates of tax as under:

Individual Income Slab

Effective Tax rate (including educational cess of 3 percent)

Upto USD 3,300

NIL

USD 3,300 to USD 6,250

10.3%

USD 6,250 to USD 10,400

20.6%

Above USD 10,400

30.90%

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 142

Women Income Slab

Effective Tax rate (including educational cess of 3 percent) #

Upto USD US$ 4,000 4,000

NIL

US$ 4,000 USD 4,000 to to US$ USD6,250 6,250

10.3%

US$ 6,250 USD 6,250 to to US$ USD10,400 10,400

20.6%

Above USD US$ 10,400 10,400

30.90%

Senior Citizens (Individuals of the Age of 65 years or more) Income Slab

Effective Tax rate (including educational cess of 3 percent)

Upto USD 5,000

NIL

USD 5,000 to USD 6,250

10.3%

USD 6,250 to USD 10,400

20.6%

Above USD 10,400

30.90%

Note: Income slabs rounded off to nearest US-$ 100, US$ 1 = INR 48. The closing rate as per Economic Times dated 6 July 2009.

The Finance Act 2009 has removed surcharge on all the non corporate taxpayers.

Capital gains tax Capital Gains arising from the transfer of capital assets (e.g. shares, stocks, immovable property, etc.) are liable to capital gains tax. The length of time of holding of an asset determines whether the gain is short term or long term. Long term capital gains arise from assets held for 36 months or more (12 months for shares, units, etc). Gains arising from transfer of long-term capital assets are taxed at special rates / eligible for certain exemptions (including exemption from tax where the sale transaction is chargeable to STT). Short-term capital gains arising on transfer of assets other than certain specified assets are taxable at normal rates. The following figure shows the rates of capital gains tax:

Type of gain

Tax rate in case of transfer of assets subject to payment of Securities Transaction Tax (STT)

Tax rate in case of transfer of other assets

Long-term capital gains

NIL

20 percent

Short-term capital gains

15 percent

Normal Tax Rates applicable to corporates/ individuals

# Corporate tax rates are given under the head 'Companies' and individual tax rates are given under head 'Personal taxes'

Taxability of non resident Indians Non-resident Indians are also be liable to tax in India on a gross basis depending upon the type of income received.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

143 India Calling 2009

Foreign nationals Indian tax law provides for exemption of income earned by foreign nationals for services rendered in India, subject to prescribed conditions. For example: ? Remuneration from a foreign enterprise not conducting any business in India provided

the individual’s stay in India does not exceed 90 days and the payment made is not deducted in computing the income of the employer ? Remuneration received by a person employed on a foreign ship provided his stay in

India does not exceed 90 days.

Companies A resident company is taxed on its global income. A non-resident company is taxed on income which is received / accrued or deemed to accrue / arise in India. The scope of Indian income is defined under the Act. The tax rates for the tax year 2009-10 are given in the table below: Type of Company

Effective tax rate (including surcharge and educational cess)

Domestic company

33.99 percent#

Foreign company

42.23 percent

# Income-tax 30 percent plus surcharge of 10 percent (if the total income exceeds USD 0.2 million) thereon plus education cess of 3 percent on Income-tax including surcharg * Income-tax 40 percent plus surcharge of 2.5 percent thereon plus education cess of 3 percent on Income-tax including surcharge

A company is additionally required to pay the other taxes e.g. STT, MAT, Wealth tax, DDT etc.

Modes of taxation Gross basis of taxation Certain specific incomes streams earned by non-residents are liable to tax on gross basis in certain cases, i.e. a specified rate of tax is applied on the gross basis and no deduction of expenses is allowed. The details of nature of income and applicable rate of tax are as under:

Income stream

Rate of tax

Interest

21.11 percent

Royalties

10.55 percent

Fees for technical services

10.55 percent

The rates are in the case of a foreign company and are inclusive of surcharge of 2 and a half percent and education cess of 3 percent on tax and surcharge in respect of agreements made on or after 1 June 2005 respectively.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 144

Presumptive basis of taxation Foreign companies engaged in certain specified business activities are subject to tax on a presumptive basis i.e. income is recognized at a specific percentage of gross revenue and thereafter tax liability is determined by applying the normal tax on deemed income. Certain activities taxed on a presumptive basis along with the basis of taxation are set out below: Activity

Basis of taxation

Oil and gas services

Deemed profit of 10 percent of revenues

4.223%

Execution of certain turnkey contracts

Deemed profit of ten percent of revenues

4.223%

Air transport

Deemed profit of 5% of revenues

2.115%

Shipping operations

Deemed profit of 7.5% of freight revenues

3.167%

Effective tax rate (including surcharge of 2.5% and education cess of 3%)

Deductions allowable from business income Generally, all revenue expenses incurred for business purposes are deductible from the taxable income. The requirement for deductibility of expenses is that the expenses must be wholly and exclusively incurred for business purposes; that the expenses must be incurred or paid during the previous year and supported by relevant papers and records. Expenses of a personal or a capital nature are not deductible. Income tax paid is not allowable as a deduction. Depreciation on specified capital assets at prescribed rates is also deductible. Expenditure incurred on taxes (excluding Income-tax) and duties, bonus or commission to employees, fees under any law, interest on loans or borrowings from public financial institutions and interest on loans and advances from scheduled banks is deductible only if it is paid during the previous year, or on or before the due date for furnishing the return of income. However, interest on capital borrowed for acquisition of assets acquired for extension of existing business is not allowed as a deduction until the time such assets are actually put to use. Employee’s contributions to specified staff welfare funds – that is, provident funds, gratuity funds, etc. – are allowed only if actually paid on or before the applicable due date. However, employer’s contributions to these funds are deductible even if paid before the due date of filing of the return of income. Salaries, interest, royalties, technical service fees, commissions or any other amount payable outside India or in India to a non-resident (other than a foreign company) or a foreign company or a resident, or any sums payable to resident contractor / sub-contractor, on which the applicable withholding tax has not been withheld or after deduction has not been paid are not deductible. Such amounts are deductible in the year in which the withholding tax is paid. Where, in respect of these payments, tax has been deducted in the relevant year but paid in the subsequent year within the prescribed time limit, such payments made are deductible in the relevant year. However, if the tax so paid in the subsequent year is not paid within the prescribed time limit, the deduction is allowed only in the subsequent year. Similarly, any payment made to residents for interest, commission or brokerage, rent, royalty, fees for professional or technical services, contract / sub-contract payments, where taxes have not been withheld or after withholding have not been paid as per prescribed regulations, will be disallowed in the hands of the payer. The deduction for such a sum will be allowed in the year in which the withholding taxes are paid.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

145 India Calling 2009

? Head-office expenditure

Foreign companies operating in India through a branch are allowed to deduct executive and general administrative expenditure incurred by the head office outside India. However, such expenditure is restricted to the lower of: - Five percent of adjusted total income (as defined) or - Expenditure attributable to the Indian business. In cases where the adjusted total income for a year is a loss, the expenditure is restricted to 5 percent of the average adjusted total income (as defined). Bad debts ? Bad debts written off are tax deductible. Provision for doubtful debts is not tax deductible. Banking companies are allowed a deduction for provisions for bad and doubtful debts upto 7.5 percent of total income or 10 percent of its assets classified as doubtful assets restricted to the provision for doubtful debts made in the books. Banks incorporated in a country outside India and public financial institutions are allowed a deduction for provisions for doubtful debts up to 5 percent of income, as specifically defined for this purpose. Bad debts actually written off by banks and public financial institutions, in excess of the accumulated provision for doubtful debts, are deductible. Depreciation ? Depreciation allowance on various assets is available at specified rates on the written down value of the asset based on a block asset concept. Further, in case of manufacturing or production activities, additional depreciation is allowable at the rate of 20 percent of the cost of new plant and machinery (other than ships or aircraft) acquired and installed during the year. Assets used for less than 180 days in the year of acquisition are entitled to half of the normal depreciation allowance. Depreciation not set off against current year’s income can be carried forward as unabsorbed depreciation, for set off against any future income for unlimited period. Amortization Expenses ? Indian companies are allowed to claim certain preliminary expenses such as expenditure in connection with preparation of feasibility report, project report, legal charges for drafting Memorandum and Articles of Association of the company etc. as specified, and incurred before commencement of his business, or after commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting up a new industrial unit. A deduction shall be allowed of an amount equal to 1/5th of such expenditure for each of the five successive previous years beginning with the previous year in which the business commences or, the previous year in which the extension of industrial undertaking is completed or the new industrial unit commences production or operation.

Grouping / consolidation No provisions currently exist for the grouping / consolidation of losses of entities within the same group.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 146

Type of income

Foreign companies#

Other non-residents*

Type of income

Foreign companies#

Other non-residents*

Interest on foreign currency loan

21.115 percent

20.60 percent

Winnings from horse races

31.67 percents

30.90 percent

Royalties and technical services fee approved by the Government or in accordance with the industrial policy

10.55 percent

10.30 percent

Winnings from lotteries and crossword puzzles

31.67 percent

30.90 percent

Long term capital gains

21.115 percent

20.60 percent

Any other income

42.23 percent

30.60 percent

# Effective tax rate including surcharge of 2.5 percent and education cess of 3 percent * Effective tax rate including education cess of 3 percent.

Carry forward of losses and unabsorbed depreciation Subject to the fulfillment of prescribed conditions:? Business loss can be carried forward for eight consecutive financial years and can be

set off against the profits of subsequent years. Losses from a speculation business can be set off only against gains from speculation business for a maximum of four years ? Unabsorbed depreciation may be carried forward for set-off indefinitely ? Capital losses may also be carried forward for set-off for eight subsequent financial

years subject to fulfillment of certain conditions. Long-term capital losses can be set off only against long-term capital gains, whereas short- term capital losses can be set off against short-term as well as long-term capital gains. These losses cannot be set off against income under any other head ? Carry back of losses or depreciation is not permitted.

Corporate reorganizations Corporate re-organizations, such as mergers, demergers and slump sales are either tax neutral or taxed at concessional rates subject to the fulfillment of prescribed conditions. ? Merger

Mergers are tax neutral, subject to the fulfillment of following conditions: -

All assets and liabilities are transferred to transferee company

-

Transferee company should issue shares to the shareholders of the transferor company as consideration for merger

-

Transferee company continues to hold at least 3/4th of the book value of assets of

-

Business of the transferor company is continued for at least 5 years

-

Transferee company shall achieve minimum production level of 50 percent of the

the transferor company for a minimum period of 5 years

installed capacity within 4 years of the merger and maintain the minimum level of production until the end of fifth year. Upon fulfillment of the above conditions, the losses and the depreciation of the transferor company are available for carry forward and set off to the transferee company.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

147 India Calling 2009

The profits or gains arising from a Slump Sale in excess of its

? Demerger

Demergers are also tax neutral, subject to certain conditions.

net worth are deemed to be income chargeable to tax as capital

The conditions in relation to the method of demerger are

gain /loss arising from transfer of a long term capital asset

relatively more restricted than in the case of mergers. For e.g., it

provided the undertaking is held for at least three years. If

is provided that the entire assets and liabilities of the relevant

undertaking is held for less than three years, the gain / loss shall

undertaking must be demerged, shares must be issued to the

be treated as short term capital gain / loss.

shareholders of the transferor company in the transferee company and the assets and liabilities must be transferred at

The Limited Liability Partnerships

book value in order for mergers to be tax neutral. Further, losses

The Finance Act 2009 has introduced the tax treatment for the

related and attributable to the undertakings transferred are also

Limited Liability Partnerships which are recently introduced by the

allowed to be carried forward in the hands of transferee

Limited Liability Partnership Act, 2008 in India. The terms ‘Firm’,

company

‘Partner’ and ‘Partnership’ has amended and an LLP defined under the LLP Act has been put on par with a partnership firm under the Indian Partnership Act, 1932 (General Partnership) for the purpose of

Tax Neutrality ? If the transferee company is an Indian company, then, subject to

income-tax. Consequently, provisions relating to interest and

the fulfillment of prescribed conditions, transactions pursuant to

remuneration to partners would apply to a LLP, while provisions

merger / demerger are entitled to various other tax concessions,

applicable to companies such as MAT, DDT, etc. will not apply to an

including the following:

LLP.

-

No capital gains to the shareholders in transferor company

Foreign Institutional Investors (FII)

-

No capital gains to the transferor company

To promote the development of Indian capital markets, qualified FIIs

-

Merger / demerger expenses shall be allowed to be

/ sub accounts registered with the Securities and Exchange Board

-

amortized 1/5th every year for a period of five years

of India (SEBI) and investing in listed Indian shares and units, are

Pursuant to restructuring, various tax incentives hitherto

subject to tax as per beneficial regime as under:

available to the transferor company will be available to the transferee company

Interest

20 percent

Long-term capital gains #

NIL

Short- term capital gains #

15 percent

Slump Sale ? Slump Sale refers to the transfer of one or more undertaking/s by way of sale for a lump sum consideration without values being assigned to the individual assets and liabilities comprised in the undertaking/s. The term ‘undertaking’ for this purpose has been defined under the Act in an inclusive manner and means: -

Any part of an undertaking or

-

A unit or division of an undertaking or

-

A business activity taken as a whole

# Subject to payment of Securities Transaction Tax (STT)

In addition, there is a surcharge of 2.5 percent in case of companies and 10 percent in case of non-corporate where the income exceeds INR 1,000,000 and education cess of 3 percent. Additionally, capital gains earned by an FII are not subject to withholding tax in India.

The rate of tax on other short-term capital gains is 30 percent plus surcharge and education cess; and on long-term capital gains (if not

but does not include individual assets or liabilities or any

exempt) is 10 percent plus surcharge and education cess.

combination thereof not constituting a business activity. To qualify as a Slump Sale, it is necessary to ensure that: -

All the assets and liabilities relating to the business activity

The Finance Act 2009 has removed surcharge of 10 percent.

Relief from Double Taxation

are transferred

For countries that have Double Tax Avoidance Agreements (DTAAs)

-

The transfer is on a going concern basis

with India, bilateral relief is available to a resident in respect of

-

The transfer is for a lump sum consideration i.e. no part of

foreign taxes paid. Generally, provisions of DTAAs prevail over the

the consideration should be attributed to any particular asset

domestic tax provisions. However, the domestic tax provisions may

or liability.

apply to the extent that they are more beneficial to the taxpayer.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 148

The DTAAs would also prescribe rates of tax in the case of dividend income, interest, royalties and fees for technical services which should be applied if the rates prescribed in the Act are higher. Business income of a non-resident may not be taxable in India if the nonresident does not have a permanent establishment in India.

For countries with no DTAA with India, a foreign tax credit is available under Indian domestic tax law to a resident taxpayer in respect of foreign taxes paid. The amount of credit allowable should be the lower of the tax suffered in the foreign country or the Indian tax attributable to the foreign income. Currently, there is no carry forward / carry back of excess tax credits. Also, there are no detailed rules for availing foreign tax credit but is governed by the DTAA’s clauses. With effect from 1 June 2006, a statutory recognition has also been given to agreements entered into between specified Indian association and a non-resident specified association for grant of double taxation relief, for avoidance of double taxation, for exchange of information for the prevention of evasion or avoidance of income tax or for recovery of income tax. It is also clarified that a higher charge of tax on the foreign entity will not be considered as discrimination against such an entity.

The Central Government may enter into agreement with the Government of any specified territory outside India for the purpose of double tax relief and specified purposes in the same manner as with the Government of any country outside India.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

149 India Calling 2009

Special Economic Zones (SEZs) biological agents or for producing bio-gas or making pellets or

Units set up in SEZs A unit which sets up its operations in SEZ is entitled to claim

briquettes for fuel or organic manure, for the first 5 consecutive

Income-tax holiday for a period of 15 years commencing from the

years.

year in which such unit begins to manufacture or produce articles or things or provide services. The benefits are available against export

Commercial production or refining of mineral oil A 100 percent tax holiday to undertakings (excluding undertakings

profits, as under:

located in North eastern region) engaged in commercial production of mineral oil for the first 7 consecutive years. An undertaking,

Deduction of 100 percent for the first 5 years;

which is wholly owned by a public sector company or any other Deduction of 50 percent for the next 5 years (unconditional);

company in which a public sector company or companies hold at least forty-nine percent of the voting rights, engaged in refining of

Deduction of 50 percent for the next 5 years (subject to conditions

mineral oil set up before 31 March, 2012 will be entitled to a 100

for creation of specified reserves).

percent tax holiday for the first 7 consecutive years provided it has been notified by the Indian Government before 31 May, 2008.

SEZ developer A 100 percent tax holiday (on profits and gains derived from any

In-house research and development

business of developing an SEZ) for any 10 consecutive years out of

A deduction is available of one and one-half times of the scientific

15 years has been extended to undertakings involved in developing

research expenditure incurred (excluding expenditure on cost of land

SEZ’s notified on or after 1 April, 2005 under the SEZ Act, 2005.

or building) on an in-house research and development facility as approved in bio-technology or in the manufacture or production of

Offshore Banking Units (OBU) and International Financial Services

drugs, pharma, electronic equipments, computers, telecom equipments, chemicals, or other specified articles. The weighted deduction is available on such expenditure incurred up to 31 March,

Center units (IFSC) set up in SEZs

2012.

OBUs and IFSCs located in SEZs are entitled to tax holiday of 100 percent of income for the first 5 years and 50 percent for next 5

A deduction is available of 150 percent of the scientific research

consecutive years.

expenditure incurred (excluding expenditure on cost of land or

Export oriented Units (EOU)

in the business of manufacture or production of any article or thing

building) on an in-house research and development facility engaged Undertakings set-up in Export Processing Zones (EPZ) / Free Trade

other than prohibited article or thing listed in the Eleventh Schedule

Zones (FTZ) or Electronic Hardware Technology Park (EHTP) or

The weighted deduction will be available from 1 April 2010.

Software Technology Park (STP) or 100 percent EOUs, are eligible for a deduction of 100 percent on the profits derived from exports for 10

Capital expenditure incurred in specified industries

consecutive years beginning from the year in which such

The Finance Act, 2009 has introduced a deduction in respect of

undertaking begins manufacturing or commences its business

entire capital expenditure (excluding expenditure on cost of land or

activities. Such a deduction would be available only up to financial

goodwill or financial instrument) incurred by the taxpayer engaged in

year 2010-2011.

following businesses:

Food processing

? Setting up and operating cold chain facilities for specified

A 100 percent tax holiday to undertakings from the business of

products

processing, preservation, and packaging of fruits or vegetables or

? Warehousing facilities for storage of agricultural produce

meat and meat products or poultry or marine or dairy products or

? Laying / operating cross-country natural gas or crude or

from the integrated business of handling, storage, and

petroleum oil pipeline network for distribution / storage

transportation of food grains for the first 5 consecutive years and thereafter, 30 percent (25 percent for non-corporate entities) for the

Deduction to the expenditure incurred prior to commencement of

next 5 consecutive years.

operation of the above specified business will be allowed, if the

Business of collecting and processing biodegradable waste

of commencement of operation. The deduction will be allowed to

A 100 percent tax holiday to undertakings from the business of

the taxpayer in the year of commencement of operation.

expenditure was capitalised in the books of the taxpayer on the date

collecting and processing or treating of bio-degradable waste for generating power or producing bio-fertilizers, bio pesticides or other

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 150

Industrial parks, model towns, and growth centers

Tax holiday in respect of hospitals / hotels / convention centres’

For developers of industrial parks

? A 100 percent tax holiday for the first 5 consecutive years to

Hundred percent tax holiday is available to developers of industrial

an undertaking deriving profits from the business of operating

parks for any 10 consecutive assessment years out of 15 years

and maintaining a hospital located anywhere in India (subject

beginning from the year in which the undertaking or the enterprise

to exclusions), provided the hospital is constructed and has

develops, develops and operates or maintains and operates an

started or starts functioning at anytime before 31 March,2013

industrial park, provided the date of commencement (i.e. the date of

? A tax holiday for the first 5 consecutive years to an

obtaining the completion certificate or occupation certificate) of the

undertaking deriving profits from the business of a hotel or

industrial park is not later than 31 March, 2011.

from the business of building, owning and operating a

Tax holiday in respect of infrastructure projects

centre is constructed and has started or starts functioning

convention centre, in specified areas, if such hotel / convention Undertakings engaged in prescribed infrastructure projects are eligible for a consecutive 10 year tax holiday as set out below:

before 31 March, 2010 ? A tax holiday for the first 5 consecutive years to an

undertaking deriving profit from the business of a hotel located ? A 10 year tax holiday in a block of 20 years has been extended to

in the specified district having a World Heritage Site, if such

undertakings engaged in developing / operating and maintaining

hotel is constructed and has started or starts functioning

/ developing, operating and maintaining any infrastructure facility

before 31 March, 2013

such as roads, bridges, rail systems, highway projects including housing or other activities being an integral part of the project, water supply projects, water treatment systems, irrigation projects, sanitation and sewerage systems or solid waste management system ? A 10 year tax holiday in a block of 15 years has also been

extended to undertakings involved in developing / operating and maintaining,/ developing, operating and maintaining, ports, airports, inland waterways, inland ports or navigational channels in the sea ? A similar tax holiday (10 years out of a block of 15 years) has

been extended to undertakings engaged in the business of laying and operating cross country natural gas distribution network, including pipe lines and storage facilities being an integral part of such a network. Since the Finance Bill, 2009 has proposed to introduce this incentive in a modified form (given above under the heading “Capital expenditure incurred in specified industries”) the same has been proposed to be discontinued Tax holiday in respect of power projects Undertakings engaged in prescribed power projects are eligible for a consecutive 10 year tax holiday as set out below: ? A tax holiday of 10 years in a block of 15 years has also been

extended to undertakings set up before 31 March, 2010 with respect to the following: - generation / generation and distribution of power - laying of network of new lines for transmission or distribution - undertaking a substantial renovation (more than 50 percent) and modernization of the existing network of transmission or distribution lines.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

151 India Calling 2009

Indirect taxes The Ministry of Finance, Government of India (Department of

(Service tax at 10 percent, Education Cess at 3 percent of Service

Revenue) through the Central Board of Excise and Customs

tax and Secondary and Higher Education cess at 1 percent of

(‘CBEC’), the apex Indirect tax authority, implements and

Service tax) on the gross amount charged for services provided.

administers Central Excise, Customs and Service tax laws.

Presently, more than 100 taxable services are notified under Chapter

Circulars, notifications and clarifications issued by the CBEC

V of the Finance Act, 1994 which is the governing legislation for

supplement these Indirect tax laws.

Service tax. Export of Services

Customs duty Customs duty is a federal levy payable on the import of goods into India. The rate of Customs duty is based on the tariff classification

As per the Export of Service Rules, 2005 (the Export Rules), Service tax is not applicable on ‘export’ of taxable services.

of goods being imported in terms of the Customs Tariff Act, 1975

Export Rules prescribe three different categories under which

(Customs Tariff) [which is aligned with the Harmonized System of

taxable services may be classified depending on their nature, in

Nomenclature (‘HSN’) followed internationally]. Further, various

order to determine whether provision of the same to an offshore

concessions/ exemptions are available depending on the nature of

service recipient would qualify as an export of service. The essential

goods, their intended use, status of the importer, country of export

concept of ‘export’ is based on zero-rating principles adopted by

etc.

several countries around the world.

The general effective rate of Customs duty on import of capital goods is 21.52 percent and for other goods is 24.42 percent, and

Import of Services

comprises of various duties and cesses levied on a cumulative basis

As per the Taxation of Services (Provided from outside India and

[Basic Customs Duty is usually levied at the rate of 7.5 percent on

Received in India) Rules, 2006 (the Import Rules), where any taxable

capital goods and at 10 percent on other goods; Additional Customs

service is provided by a service provider based outside India to a

Duty in lieu of Excise duty (‘CVD’) at 8.24 percent; Additional Duty

service recipient located in India, liability to discharge Service tax

of Customs in lieu of local sales tax (‘ADC’) at 4 percent; Education

devolves upon the recipient of such services in India under the

Cess (including the Secondary and Higher Education Cess) at 3

reverse charge mechanism, subject to the satisfaction of specified

percent].

conditions.

Import-export policy

Cenvat credit

Import of goods into India and export of goods from India is

In order to reduce the cascading effect of both Excise duty and

regulated by the Foreign Trade Policy (the Policy) which is framed by

Service tax, the Cenvat Credit Rules, 2004 provide for Cenvat credit

the Ministry of Commerce and Industry, Government of India. The

of Excise duty paid on inputs and capital goods and Service tax paid

Policy remains in force for five years and is periodically amended.

on input services that are used in the manufacture of excisable

The Policy provides for various exemptions and concessional

goods or for provision of taxable services. Such credit may be used

schemes which may be availed for the import and export of goods.

to discharge an output Excise duty or Service tax liability. Further, Cenvat credit is also available in respect of specified

Excise duty

components of the import duties paid (Generally CVD and ADC in

Excise duty is a federal duty levied on manufacture of goods in India

case of manufacture and any CVD in case of services) where such

and is payable upon clearance of the goods from designated

imported goods are used in the manufacture of excisable goods /

establishments (factories, warehouses etc.). Excise duty is levied

provision of taxable services in India.

as per the provisions of the Central Excise Act, 1944 (the Excise Act) at the rates prescribed in the Central Excise Tariff Act, 1985 (Excise Tariff). The Excise Tariff is also aligned with the HSN.

Value Added tax (VAT) / Central Sales tax (CST) VAT and CST are levied on the sale of movable goods in India

The duty is usually levied at the rate of 8.24 percent (Excise Duty at

including various intangibles (e.g. Patent, Trade Mark etc.).

8 percent, Education Cess at 2 percent of Excise Duty and Secondary and Higher Education cess at 1 percent of Excise duty.

VAT VAT is a State specific levy on sale of goods within a State in India. VAT is generally payable at the rates of 4 percent (on specified

Service tax Service tax is a federal levy on provision of notified taxable services in India. Service tax is currently leviable at the rate of 10.30 percent

products including industrial inputs, information technology products, capital goods, etc.) or 12.5 percent (residual rate

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 152

applicable to most of the goods), though higher rates are also

R&D Cess paid is available as deduction with respect to Service

prescribed for specified goods.

tax payable for Consulting Engineer’s services and Intellectual Property Right related services.

Further, subject to prescribed conditions, VAT paid on inputs may be available as credit for set-off against output VAT or CST liability of the dealer.

Octroi duty Octroi duty is a local authority levy, which is levied on entry of goods into a municipal/ local area for use, consumption or sale.

CST

This levy is presently applicable only in certain municipalities.

Where a sale transaction entails the movement of goods from one State in India to another, the transaction would qualify as an inter-

Goods and Service tax – Proposed

state sale and would be chargeable to CST under the Central Sales

In the Union Budget 2009-10, the Government of India has

Tax Act, 1956 (‘the CST Act’). In case the purchaser can issue the

signaled its intention to facilitate the introduction of dual GST

required statutory declaration forms, CST would be levied at a

regime comprising of Central GST and State GST with effect from

concessional rate of 2 percent, else the VAT rate applicable on local

1 April 2010. Central government and State governments would

sale of goods in the dispatching State, would be applicable on such

legislate, levy and administer Central and State GST respectively.

sales.

However, the road map for its implementation is still to be

Further, it is pertinent to note that the CST is a non-creditable levy

released.

and cannot be off-set against an output VAT or CST liability. It may be noted that CST is intended to be phased out on introduction of Goods and Service Tax (‘GST’) which is proposed to be introduced from April 2010. Entry tax Entry tax is a State levy on the entry of specified goods into a State for consumption, use or resale within a specified jurisdiction. Entry tax is payable by the person bringing such goods into the local area/ State (typically referred to as ‘importer’). Typically, most States allow a set-off of the Entry tax paid against the output VAT payable on the sale of goods. Alternately, a refund is provided for in case the goods are sent out of the local area/ State in the same condition. The rate of Entry tax on different products varies from State to State, and generally ranges between 2 percent to 15 percent. It may be noted that the constitutionality of Entry tax laws in various states is under review before the Supreme Court of India and developments with respect to the same need to be monitored closely. Research and Development Cess (R&D Cess) R&D Cess is leviable at the rate of 5 percent on import of technology under a foreign collaboration. The term ‘foreign collaboration’ has been defined to include Joint ventures, partnerships, etc. Import of any designs/ specifications from outside India or deputation of foreign technical personnel, under a foreign collaboration, would also be liable to R&D Cess.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved. 153 India Calling 2009

Conclusion

154

Conclusion

The 21st century has given rise to a set of unique challenges for the globalizing and crisishit world. Nonetheless, the ascent of information and communication technology, scientific progress and ever-expanding business frontiers has opened a Pandora’s Box of immense and diverse opportunities for economic agents. Countries should derive benefits from this dynamic business environment and collaborate and cooperate with each other. One such partnership that the Knowledge Paper endeavors to highlight is between India and the member countries of the EU. The paper identifies certain key sectors where specific industrial strengths of India and the EU countries complement each other. There are strong opportunities for Indo-EU partnerships in a number of sectors like agriculture and food processing, banking and financial services, fashion and luxury, gems and jewellery, IT/ITeS, travel and tourism and media and entertainment. Furthermore, negotiations for a Free Trade Agreement between the two regions are likely to conclude successfully and will High

open up newer areas of mutual interest.

Medium, owing to regulatory constraints Bilateral Opportunity

Key Countries in the EU

Sector: Segments

Growth Drivers

Consumer Markets: Agriculture and Processed Food

UK, Germany, France, Italy, Spain

Changing consumption patterns

Fashion

UK, France, Italy

Brand conscious market

Gems and Jewellery

UK, Belgium, Italy, France

Design and quality expertise

Retail

Latvia, Hungary, Romania, Bulgaria, Slovenia, Lithuania

Rising organized retail penetration

Netherlands, UK, Germany, Belgium, France, Switzerland

Untapped potential in SME finance, insurance, rural finance etc.

Financial Services: Financial Services

Information, Communication and Entertainment: IT-ITeS

UK, Germany, France

Changing global IT needs, R&D offshoring

Telecom

Germany, UK, Belgium, France, Italy, Spain

Value added services, rural connectivity

Media and Entertainment

UK, Belgium, France, Spain, Italy, Luxembourg, Germany

Rising convergence of media platforms

Travel and Leisure

Germany, UK, Italy, France, Spain, Switzerland

Emergence of medical, religious tourism etc.

Education

UK, Norway, Italy, Spain, France, Finland, Sweden

Increasing demand for skilled services from services sector

Energy

UK, Spain, Germany, Italy, France

Rising global energy needs

Pharma, Biotech and Healthcare

Germany, UK, Spain, France, Italy

Changing disease profile, rising aging population

Ports/Roads/Railways

Bulgaria, Greece, France, Germany, Slovenia, Czech Republic, Estonia, Latvia, Lithuania, Poland,

Capacity additions to meet growth in trade and industries etc.

Infrastructure:

Romania, Slovakia

+ India’s

Demographic Dividend

Rising Domestic Consumption Market

Stable and Burgeoning Economy

Expected Bilateral trade: USD 572 billion by 2015*, leading to long-term sustainable partnership Source: *www.europarl.europa.eu

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

155 India Calling 2009

In the global context, India offers a distinctive and compelling package: business and political stability, opportunities of a vibrant emerging market, a cultural climate that fosters growth and a demographic advantage. Similarly, the EU has long been acknowledged for its conducive business environment. Most of the EU nations offer regulatory policies and regulatory standards which are among the worlds finest. In fact, regulation in a liberalized framework is an area of concern for both regions and each can benefit from the other’s experience. India and EU share common goals of arriving as competitive and dynamic knowledge based economies on the world map. EU can take advantage of India’s demographic dividend and India can adopt technical expertise from the skilled and experienced labour force of the EU. These synergies will not only help both India and the EU in riding out the downturn but also assist in developing a long-term sustainable focus in business partnerships between the two regions. Apart from highlighting the sectors in which India and EU can have a win-win partnership, the Knowledge Paper also sheds light on the regulatory framework for investment in India. This is presented with the aim of providing a brief overview for investors aiming to benefit from India’s growth story. India is increasingly looking at ‘governance’ reforms and a move to develop a Unique Identification Code for its massive population, along with greater focus on e-governance is a case in point. A number of tax reforms such as the implementation Goods and Services Tax are in the offing. Similarly, foreign investment norms are being increasingly liberalized and offer vast scope for businesses to benefit from a ‘slowly but steadily’ opening economy. In short, this knowledge book aims to take Indo-EU economic and business partnership to still greater heights.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.

India Calling 2009 156

Acknowledgements We would like to acknowledge the contribution of the Ministry of Overseas Indian Affairs, Government of India , Embassy of India in Brussels, (Belgium), Embassy of Belgium in India and EU Commission and the Consulate Generals of all EU Countries and we express our sincere gratitude to all of them. In addition, we would like to acknowledge the collective and individual contributions to this document from Kiran Nanda, Director, Indian Merchants' Chamber and the Economic Research & Training Foundation team at IMC. This report would not have been possible without the commitment and contributions from Bhavna Doshi, Mrugen Trivedi from the Tax Team and Preeti Sitaram, Ranjeet Javeri, Rajiv Parekh, Kunal Jain, Neha Dayal, Sidharth Balakrishna, Parnika Patil, Pallavi Phatak, Ruchika Anand, Rajiv Somani, Nandita Kudchadkar, Mehul Desai, Nitin Dehadraya, Asmita Deshmukh, Sonia Topiwala and Suman Lala from the Research Analytics and Knowledge team from KPMG in India. We would also like to express our thanks to Nisha Fernandes, Design Cell for her valuable inputs on Global Branding and Regulatory Compliance and Remedios D’silva, Senior Graphic Designer, Design Cell for designing this Knowledge Paper from KPMG in India.

© 2009 KPMG, an Indian registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, Swiss cooperative. All rights reserved.