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Destination India Story of Success_____ January 23, 2006

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Page 1: Destination India

Destination India

Story of Success_____ January 23, 2006

Page 2: Destination India

2©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

India today is fast changing – setting the pace for growth and stability…

• Slow rate of growth

• Bureaucratic

• Protected and slow

• Small consumer markets

• Underdeveloped infrastructure

• One of the fastest growing world economies

• Reasonably proactive

• Opening up of sectors for investment

• Promising consumer markets

• Significant investment in infrastructure creation for industry

YESTERDAY

TODAY

Page 3: Destination India

3©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

Page 4: Destination India

4©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

0 5,000 10,000 15,000 20,000 25,000

RussiaIndia

MexicoBrazilChina

CanadaItaly

FranceUK

Germany

JapanUS

GDP (US$bn)

Year 2000 vs. Year 2020 predictions

India emerging as one of the top global economies

Page 5: Destination India

5©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

Opportunity niches

A Few Specific Sectors of Interest

Page 6: Destination India

6©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

India is one of the fastest growing automotive markets in Asia Pacific…

Sales of passenger cars by country - 2003-2008

4.5 4.7 4.6 4.5 4.6 4.6

2.0 2.3 2.6 2.9 3.4 4.10.91.0 1.1 1.2

1.51.6

1.31.1 1.2 1.3

1.31.4

0.40.6 0.6 0.7

0.80.9

1.01.1

1.21.3

1.41.4

10.110.8

11.311.9

13.014.1

0

2

4

6

8

10

12

14

16

2003 2004 2005 2006 2007 2008

Mil

lio

n u

nit

s

Japan ChinaIndia South KoreaThailand Others

Note: "Others" includes Malaysia, Indonesia, Philippines, Taiwan and Vietnam

Source: EIU, "World automotive outlook", 2004

Extra 3 million units expected from China and

India

Page 7: Destination India

7©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

…driven by growing economies and low vehicle penetration levels

Vehicle penetration vis-à-vis GDP

Source: Autodata Presentation from Mr. W. Vahland -Volkswagen do Brasil - 10/16/2000

0

5

10

15

20

25

30

35

40

0 100 200 300 400 500 600 700 800

China Thailand

Mexico

Argentina

South Korea

Taiwan

Greece Portugal

SpainNew Zealand

Italy

Australia

England

Belgium’

NorwayDenmark

Germany

Canada

Japan

Switzerland

USA

Pe

r c

ap

ita

GD

P (

US

$ 1

,00

0)

Brazil

France

India

Penetration levels in India are less than 10 per 1000

population

Vehicle population expected to grow with GDP, leading to high demand potential in

these countries

Page 8: Destination India

8©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

In sum, India is emerging as a key growth area for the automotive industry in the Asia Pacific region

• Low penetration levels

• Growing economies

• High export potential

• Mature markets stagnating

• Shift in investment to Asia

Pacific countries

Demand side growth

Supply side growth

Page 9: Destination India

9©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

The Indian infrastructure industry is witnessing rapid growth

Prospects in the longer term remain Positive. Industry projected to further grow by 7-8% annually - faster than the country’s projected GDP growth

• Indian Engineering and Construction industry

recorded a CAGR of 8.4% over the last two decades

• The industry is widely expected to continue its growth performance in the medium term

…Thrust area for the Indian government

…Witnessing Abundance of Opportunity

Construction & Infrastructure Development viewed as a major growth engine of the Indian Economy

Select top companies ruling High volume projects, entry of Several New and Small Players Entry of International players, alliances & JV’s

…Growing and Gaining complexity

Booming Indian Economy, Improved Living conditions, Policy & Taxation reforms, Rise in Gross Capital Formation

Global Engineering & Construction spending growth‘03-’04 ‘04-’07

Page 10: Destination India

10©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

Opportunity Areas for Engineering Firms

Sector Opportunity Areas

Oil & Gas

•Upstream

•Refining

•Petrochemicals & Fertilizers

•Pipeline, Tankage, and

Terminal

• NELP – Investment in the range of $100-150 bn expected in next 10-15 years. Indian & foreign companies to particiapte

• Industry research shows that additional refining capacity of around 110 mn tonnes will be required in India by 2010.

• Indian companies like IFFCO planning to expand capacity in India

• Crude, product and gas pipeline as well as tank farms are likely to attract large investments.

LNG terminals – huge potential in India

Power Demand supply gap widening - Government plans “Power to all” within another decade

Major capacity addition likely in the next 10 years – over 100,000 MW is planned to be added

Thrust on Hydel – since very low potential has been tapped

Page 11: Destination India

11©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

Urban Infrastructure

Another area where the demand far outstrips supply is the urban infrastructure amenities. The government is stressing on large capacity addition in various segments of the sector. Urban transportation, water supply and housing are some of the key areas. Other than a huge plan outlay, private participation is also considerable

Special Economic Zone development is also an area to look out for

Ports An increase in port capacity from 334 MT to 470 MT by the end of the Tenth Five Year Plan envisaged. Investments of around Rs 163 bn planned.

Airports Privatization and upgradation of four metro airports planned. A number of airports, including international airports at Hyderabad and Bangalore, to be built. Investment of over Rs 164 bn proposed

Opportunity Areas for Engineering Firms … cont’d

Roads Investments upwards of USD55 billion planned. Plans are on to build or widen 14,162 kms and 105,000 of roads by the central sector (NHAI) and state sector respectively.

Opportunities in O&M of road projects also substantial

Infrastructure investment in the next 3 years estimated at around INR 4,000 bn of which Engineering & Construction is expected to be around INR 2,600 bn

Sector Opportunity Areas

Page 12: Destination India

12©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

IT & IT-enabled sectors

IT industry is one of the fastest growing industries in India – grown at a CAGR of 29% over the last 5 years

Industry like to maintain high growth and is expected to generate revenues of USD 62 bn by 2008 and USD 148 bn by 2012 (NASSCOM-KPMG estimates)

In India the IT sector employs around 650,000 people currently, which is likely to increase to 2 million by 2010

Government backing for the sector

Infrastructure support through setting up of technology parks and continuing strengthening of communication facilities

100% FDI allowed in the sector through the automatic route

India exports IT products and IT enabled services to 133 countries

220 of the Fortune 500 companies outsource their software from india

Huge export potential yet to

be tapped Lower cost

High end research, analytics and design, large pool of skilled technical personnel available

O pportunitiesIT & ITeS Sectors

India seen as an outsourcing hub

Higher value added services planned and new markets

aggressively targeted

Page 13: Destination India

13©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

Pharmaceuticals & Biotechnology

India is the world’s fourth largest pharmaceuticals producer – 8% of global production volume and 1.5% by value

Major manufacturing base for generic drugs

Indian pharmaceuticals manufacturers have a huge cost advantage over their developed country counterparts – almost one-twentieth of the cost

Exports are a vital component of growth strategy of pharma companies

Exports have grown by over 20% in the last five years – the US is the largest export market

Biotechnology market also growing rapidly

According to market analysts, the Indian biotech market, estimated at USD 0.5 billion in 2003 is expected to grow to around USD 5 billion by 2010

Government providing extensive policy and infrastructural support to both sectors

Rapid growth and large

export potential

Generic drug market growing

High end research,, large pool of skilled manpower available

O pportunitiesPharma & Bio Tech

Major cost advantage

Page 14: Destination India

14©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

Page 15: Destination India

15©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

Opportunity niches

India – An enabling business environment

Page 16: Destination India

16©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

Page 17: Destination India

17©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

FDI – Financial collaboration

100% FDI permitted in most sectors

No prior approval necessary; Only post-facto filings

FDI should be brought through normal banking channels

Investment represented by fresh issue of shares

Automatic Route

Prior Approval

Generally, applicable in following cases:• Certain cases where

FDI is regulated• Investor has existing

joint venture / collaboration in same field existing prior to 13 Jan 2005

• Acquisition of existing shares in financial services sector

Applications processed by Foreign Investment Promotion Board [FIPB]

Negative List

FDI not allowed in certain sensitive sectors e.g.:• Agriculture• Atomic energy• Railway Transport• Real Estate (except

townships/ industrial parks, etc)

IT ITES Textiles Pharma Oil & Gas AMC NBFC Integrated township development Industrial parks Industrial model towns Hotels and tourism SEZ’sAtomic energyRailway transportLottery business, gambling and betting

FDI in select sectors

FDI is permitted up to 100% under automatic route in Indian companies in the petrochemicals sector other than products requiring industrial approval [Hydrocyanic acid and its derivatives and Phosgene and its derivatives]

Page 18: Destination India

18©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

Page 19: Destination India

19©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved. Slide | 19

Overview of tax regime in India

Indian tax regime

Income tax

Foreign Trade Policy

Customs Duty

Service tax

R&D cess

Cenvat (Excise) Duty

Sales tax/ Value Added Tax (“VAT”)

Indirect taxes

Page 20: Destination India

20©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

India has not only established its leadership in the software sector, but also proved its pre-eminence in the fields of aeronautics and aerospace, thanks to a strong industrial and engineering base, built over the last four decades

- Mr. Dominique Paris, Sr VP, Snecma (France)

I'm amazed at the kind of engines and the number of engines that are made in India- Mr. David Friedman, Managing Director, Ford India

India in the eyes of MNCs - that have chosen India …

There is a high potential of very good technical people in India and the cost to the company is almost a fourth

-Mr. Hans Juffermans, Technical Director (R&D operations), Akzo Nobel India

The driving reason why GE has come to India is not the cost, but the talent pool- Mr. Guillermo Wille, Managing Director, John F. Welch Technology Centre, India

Working with our Indian partners, we intend to increase our presence on the world market-Mr. Philippe Camus, CEO, EADS

Page 21: Destination India

21©2006 KPMG, the Indian member firm of KPMG International, a Swiss cooperative. All rights reserved.

Thank you!