Introduction to India's Economy and Business Environment

Overview of Presentation cont’d• Part III: India’s s Corporate Sector• General Overview• Some recent developments• Focus on Telecommunications and IT

The Story behind thenumbers…• India’s s GDP grew by 10.4% in 4Q2003,surpassing even that of China• In contrast to China, India is able to sustain7-8%GDP growth without overheatingbecause:• Robust private consumption and less reliance onexports• India’s s growth the culmination of protractedprocess of liberalization and reforms, compared toChina’s ‘big bang’ approach• More ‘sound’ corporate sector• Benign inflation outlook, but high cost of funds

Structural Transformation• Agriculture still the largest componentof India’s s GDP…• …but services sector gaining importanceGrowth inServicesRising InvestmentGrowth of MiddleClassVIRTUOUSGROWTH CYCLEHigher ProfitsGreater PrivateConsumptionImpetus for EconomicReforms

Recent Socio-PoliticalDevelopmentsImplications for business and the economy• India’s s General Elections, May 2004: Upsetvictory by Congress Party Good forBusiness?• The previous BJP government seen to bepro-urban, pro-rich rich policy will aCongress-led government lead toeconomic ‘back-tracking’?

Macro Upsides and Downsides• Upside Prospects• Major FDI surge for 2004 and beyond: theworld’s s second preferred emerging marketdestination for FDI after China• Benign inflation outlook providing stable basisfor growth• Improving relations with Pakistan• Energy sector reforms: bringing the privatesector back in

Macro Upsides and Downsides• Reforms proceeding with caution:• Caps on foreign investments in keysectors increased:•Telecoms: 49% 74%•Insurance: 40% 49%•Aviation: Aviation: 26% 49%

Macro Upsides and Downsides• Downside Riskscont’d• Slowing reforms? Congress constrained bycoalition politics• Onerous labour regulation: impact onproductivity and profitability• Inadequate infrastructure, esp. ports increasing the cost of inventory and credit• Extremist dangers? E.g. ultra-leftist leftist guerillagroup, ‘the People’s s War’

Asia riding the worldwide FDIrecovery• Global FDI poised for 2004 recovery: FDIinflows into Asia and Australasia to topUS$129 billion (+16.5% from 2003)• Story of 2 Asian Giants:China, 2003:US$53.5bnvsIndia, 2003:US$6bnBut significantamount of‘round-tripping’Must be put incontext!

Good performance, all thingsconsidered…• Inflow of US$35 billion FDI in spite of:• ‘unfriendly’ FDI policy regime• Poor infrastructure• Excessive bureaucracy• Inter-departmental wrangling• Strong potential:• Highly-skilled but low-cost English-speakingspeakingworkforce• Leveraging on its outsourcing and off-shoringprowess, especially in IT sector• Going beyond just ‘callcentres’: : developments inR&D, distribution and logistics, financial services

India’s s Attractiveness% RespondentsChinaJapanIndiaNew EUmembersBrazilNew Consumer Markets4929154Low-cost Labour50029123New Partnershippossibilities20512143New Corporate Markets2337154Access to skilledworkforce6730102Opportunities inoutsourcing16146124Acquisition opportunities1528229R&D activities1152463Supply Chain efficiencies1761093Source: World Investment Prospects, 2004

Part III: India’s s Corporate SectorGeneral Overview• India’s s corporate sector in ascendancy• Booming economy Record stock market levels:Market Capitalization reached US$292 billion,triple its level four years ago• Quality revenue and earnings growth upgradein ratings by credit agencies• Financial liberalization easier access by Indiancompanies to global fundsIn 1H2004, Indian companieshave raised US$1.6bn onglobal capital markets

• India’s s Corporate Sector: General Overview• Comparison: 2001-03, 03, Indian companies onlymanaged to raise only US$370m totalStrong corporate growth+ Improved Access tocapital markets+ Soaring businessconfidenceGlobalization ofthe Indian Firm

Indian Companies: OverseasAmbitions• Indian companies are starting to flex theirmuscles in overseas markets:• Infosys Technology’s s US$20m plan to set up itsconsulting arm in the US• Tata Motors purchased South Korea’s s DaewooCommercial Vehicle for US$105mEnergy Sector:• Indian Oil Corporation has set aside US$2bn foroverseas acquisitions• State-owned Oil and Natural Gas Corporation hasannounced plans to acquire Shell’s s 50% stake inan oil block in Angola for US$600m

Sun Pharmaceutical(India’s fourth-largest):plans to completeacquisition of US-basedCaraco PharmaceuticalLaboratories + furtheracquisitionWockhardt: setting up itsown sales and marketingdivision in the US, addingto R&D and trialsIndia’sPharmaceuticalBoomRanbaxy (India’s top drugcompany): recently boughtRPG Aventis of FranceUS expansion plans:•Nicholas Piramal Indiaand Zydus Cadila ZydusPharmaceutical US•Strides Arcolab JV withUS partner

Not just high tech sectors…India’s s construction companies are alsoflourishing:Bharat HeavyElectricals,KEC, VoltasPower plantsTransmission LinesPipelinesRoadsDamsMalaysiaCentral AsiaMiddle EastAfricaUS

IT & Telecoms Sector: Living withChina• Industry experts estimate that India andChina jointly account for up to 25% ofglobal IT & telecoms sector…• …but are they rivals or partners?

•Powerful manufacturing base•Software/services sector plagued by lack of Englishskilledworkforce and state controls•State-owned monopoly carriers + openness to foreigntechnologyChinaSynergy and ConvergenceIndia•Robust software industry•Smaller manufacturing base•Liberalized the service sector early; tight controls ondomestic production

Opportunities for PartnershipIndian companies inChina: SatyamComputer, WiproIndian IT/Telcos are filling thegap in China’s customer caremarket segmentINDIACHINAChina’s equipmentmakers meeting theIndia’s excess demandforhardware/infrastructureChinese companies inIndia: ZTE, Legend

End of Presentation