Catching the Indian Tiger -

1. Demystifying the Indian Tiger

2. The politics of investment 2

4. Most polarized verdict given by the Indian population since 1991, bringing Congress backed UPA into power with an almost majority. Congress had its best show since 1991.

5. Result: a stable government for the next 5 years

6. The New Government to have more policy headroom as it would have more bargaining power due its dominant position in the coalition.

7. Since the Communist Left front is not a part of the Government, the current Government can go in for reforms which were stuck due to Left’s opposition in the last term3

9. Accelerate pace of awarding projects

10. Clear existing backlog

11. Aviation

12. Inject capital to airline industry

13. Allow FDI in domestic carriers

14. Telecom

15. 3G and Wimax auction

16. Steel

17. Production Target: 120 mt (2012)

18. O&G

19. Deregulation

20. Transparent oil subsidy mechanism

21. Commerce

22. Check falling exports

23. Ink FTA with Asean and South Korea

24. Power

25. New capacity addition

26. Nuclear power

27. Plans to add atleast 12,000-15,000 MW of power capacity per annum

28. Increased allocation to renewable energy sources like Nuclear and Hydro.

29. Pace of Oil and Gas exploration to be increased. Move to make India energy sufficient country.

30. Strong emphasis on education with a focus impetus on rural education.

31. High spending in core areas like Education, Health, Agriculture, Social Security and Infrastructure.

32. Increase the spread of IT and Broadband technology

33. PSU disinvestment would be pursued

34. Encouraging labour intensive, export driven manufacturing segments by formulating conducive Foreign investment policies.4

35. List of pending reforms / legislation 5

36. Stated intention to execute “Fiscal prudence and disinvestment of public sector units, all these issues will be tackled by the Finance Minister in the Budget” Prime Minister Manmohan Singh “The government would speed up its rural electrification programme under which it has brought electricity to over 61,000 villages against targeted 1.18 lakh” Power Minister Sushilkumar Shinde “In the past, there has been enough planning. Now thoughts have to be transformed into action. In a few weeks, a new model will be found so that India can build the highest number of road kilometers. We have to see that all the outlays are utilized” KamalNath - Union Minister for Road Transport and Highways “The issue of deregulation is being discussed and would be put up before cabinet for a decision” Petroleum & Natural Gas Minister Murli Deora “India will intensify its global economic engagement in sync with the country's profile and the Government will take "every possible step" to give a fillip to the industry.” Commerce and Industry Minister Anand Sharma “By the end of this year, process for auctioning 3G spectrum would be completed. Mobile Number Portability, which would allow users to switch operators without changing numbers will begin in October.” Communication & IT Minister A Raja 6

37. Strengths 7

39. Low cost manpower

40. Availability of resources

41. Strong economic fundamentals

42. Large domestic market

43. Enabling institutional and regulatory environment

44. Progressive reform process “Indian economy is now ranked 12th largest in the world in terms of GDP……It is projected that it will be the 8th largest economy in the next 20 years with a GDP larger than that of Italy, France and Germany by 2025” CII-AT Kearney ‘MNC Survey’:70% MNCs surveyed say “high likelihood” of making additional medium and long term investments in India 3 out of every 4 MNCs state performance in India ‘met’ or ‘exceeded’ expectations(Source: IBEF) 8

45. StrengthsAdapting to Local Conditions 9 Workable solutions to investing in physical infrastructure McDonald's: unique cold chain network ensures food products move from farms to fork absolutely fresh and at the lowest possible cost Reverse osmosis water treatment plant in every restaurant to provide pure water Developing processes and allocating resources for clearances and approvals (Source: IBEF)

46. StrengthsAbility to Leverage Opportunities In India 10 Opportunity Suzuki: India remained the only major market to grow and saw first half sales moving up by as much as 24% at 4.7 lakh units (Oct 2009) ABB: Parent sales growth 11 per cent while in India subsidiary grew by 15 per cent (FY 2008) Using Indian operations to boost global revenues Colgate: worldwide sales rose by 4.5 per cent, subsidiary in India recorded 26 per cent growth

47. StrengthsUtilising In-born Strengths 11 Well- trained sales force Pfizer: Sales force automation tool ‘Optima’ implemented across entire sales organisation to plan customer contacts and implement marketing programmes ‘Leaders Academy’- comprehensive management development programme Novartis: Dedicated sales force for targeting disease segments more prevalent Corporate Social Responsibility Novartis: Joint Effort to Eradicate Tuberculosis, “Glivec International Patient Assistance Programme,” Comprehensive Leprosy Care Programme Leveraging brand strengths Pfizer: Corex and Becosules are leaders in respective segments Customer care initiatives Volvo: Provides driver training, preventive maintenance and service agreements Works closely with customers to improve vehicle utilisation and returns (Source: IBEF)

48. StrengthsUtilising In-born Strengths 12 Launching high quality, best in design, technology rich products Volvo: FM range of trucks launched recently in India are already Euro III compliant Quality conscious Whirlpool India: initiated Six-Sigma program in 1999 Initiative extended from sales and marketing to customer focus Innovative promotion and advertising initiatives Pfizer: OTC segment brand-building supported by good ads. Campaign for Gelusil tablets won award for Creative Excellence at 36th ABBY Creation of effective distribution network/dealer network Novartis: Process of expanding business into new markets. Planning to enter Tier-II and Tier-III cities and rural markets Wide product portfolio Whirlpool India: Shift in strategy from premium-player to a mass-player. Has introduced products in all price categories (Source: IBEF)

49. Threats 13

50. However threats remain…Infrastructure India's infrastructure need in next few years is estimated at over US$ 340 billion Power: Total investment opportunity of about US$ 150 billion to generate an additional 78,000 MW in the next five years Road infrastructure: To develop 8,737 km of highways Urban infrastructure: Expected spend of US$ 50 bn over next 5 years Ports: Need of US$ 12.4billion in major ports in the next 9 years (Source: Deloitte Report on Infrastructure Opportunities in India) 14

51. Threats…Operational Issues 15 Time Delays Delays in project implementation for Mittal Steel in Jharkhand Delays in providing Posco a mining license (Source: World Bank, ISI Emerging Markets)

52. Threats …Operational Issues 16 Red Tapism (Source: World Bank, http://dipp.nic.in/invindia/appclea.htm)

53. Threats…Regulatory Issues 17 India: Industrial Disputes Act (IDA), 1947: requires firm employing more than 100 workers to get state government permission before retrenching workers 45 laws at national level and close to four times that at state government level to monitor functioning of labour markets Labour Laws (Source: BBC) World Bank: India Rigidity of Hiring and Firing Rank: 48. China: 30, Korea: 34, Norway: 30, Singapore: close to 0 In 2004, 482 cases of major work stoppages in India, for China is close to zero (Source: World Bank)

54. Outlook 18

56. Incremental returns are likely to be driven by earnings growth.

57. With a GDP expectation of 8%, corporate earnings are likely to grow at double digits.

58. Fall in oil prices will lead to annual saving of about $20bn or 2% of GDP.

59. Decline in interest rates to boost investment and consumption.

60. Lower commodity prices are likely to improve profit margins meaningfully.

61. Stable central government can put in place much needed reforms, bolster public spending19 19

62. Strategy inputs 20

64. Localisation of the supply chain

65. Utilise India as a base for developing products for the global market

66. Set up R&D Centers

67. Set up Service Centers

68. Avail investment incentives on offer

70. Master Franchisee Agreements

71. Alliances

72. Supplier Contracts

73. Greenfield Investments

74. Joint Ventures21

76. The major problem area seems to be in research and development (R&D).

77. For JVs to work well, there needs to be equality in the relationship

79. A thorough research goes in identifying the right partner22

80. Some operational aspects 23

82. Import of components is allowed without any restrictions

83. Payment for Brand name/ trade mark royalty subject to:

84. Without technology transfer – up to 1% of domestic sales & 2% of exports

85. With technology transfer – up to 5% of domestic sales & 8% of exports

86. Lump sum payment on account of foreign technology collaboration up to USD 2 million under automatic route24

88. India is a signatory to, and compliant with, the Agreement on Trade Related Intellectual Property Rights.

89. Well-known international trademarks have been protected in India

90. Major Indian laws governing protection of Intellectual Property rights

91. The Trade Marks Act, 1999

92. The Patents Act, 1970

93. The Copyright Act 1957, and

94. The Designs Act, 2000 25

95. Options for control 26

96. Funding options 27 Apart from the above, local borrowing by the Indian company is also an option. This may be done either by securing local assets or under a parent company guarantee. However, the rate of interest under the local borrowings tends to be higher than the rate of interest on an ECB.

98. Designs

99. Patents

100. Trade Marks

101. Other Intangible Property

102. Technical Know-how/ Consultancy

103. Management Support

104. Cross Charges for:

105. Expatriate Employees

106. Common Group Costs

107. Advertisement/ Publicity

108. Infrastructure Sharing28

110. Concessions range

111. Rules of Origin to be satisfied:

112. Products Wholly Produced or Obtained in Exporting Contracting State

113. Non-Qualifying Operations

114. Products Not Wholly Produced or Obtained in Exporting Contracting State

115. Single Contracting State Content – Value Addition, Change in Tariff Heading

116. Regional Cumulation – Value Addition29

118. 100% export profits exempt from tax for 10 years

119. Sunset clause: March 31, 2010

120. SEZ

121. 100% export profits exempt from tax for first 5 years

122. 50% for next 5 years

123. 50% for next 5 years subject to transfer to special reserve

124. Special deduction for setting up manufacturing units in Notified areas (J&K, Himachal Pradesh, Uttarakhand)

125. 100% for first 5 years

126. 30% for remaining 5 years

127. Additional R & D deduction

128. 150% deduction for all capital & revenue expenditure (excluding Land & Building)Note:Eligibility conditions ,as set out under Income Tax Act ,are required to be complied with to claim the above benefits 30

131. Large domestic market 31 Advantage India

132. Julien Pauwels Director – International Indirect Tax Tel: + 32 2 600 66 25 Fax: + 32 2 600 66 11 E-mail: jpauwels@deloitte.com Hilde Wittemans Partner – Financial Advisory Services, M&A Tel: + 32 2 600 62 30 Fax: + 32 2 600 62 01 E-mail: hwittemans@deloitte.com Patrick Joucken Partner - Consulting Tel: + 32 2 749 57 52 Fax: + 32 2 749 56 70 E-mail: pajoucken@deloitte.com P.R. Ramesh Managing Director – Audit Plot No. 12 Dr. Annie Besant Road Opp. Shivsagar Estate Worli Mumbai-400018 Tel: + 91 22 666 79000 Fax: + 91 22 666 79025 E-mail: pramesh@deloitte.com Contact details William Blomme ISG Leader Partner – Audit Tel: + 32 2 800 22 05 Fax: + 32 2 800 20 05 E-mail: wblomme@deloitte.com Erwin Vandervelde Partner – Laga Lawyers Tel: + 32 2 800 70 76 Fax: + 32 2 800 70 03 E-mail: evandervelde@deloitte.com Bart Lieben Director – Laga Lawyers Tel: + 32 2 800 70 39 Fax: + 32 2 800 70 01 E-mail: blieben@deloitte.com Bart Verhelst Partner – International Corporate Tax Tel: + 32 2 800 86 51 Fax: + 32 2 800 86 01 E-mail: bverhelst@deloitte.com 32

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