Demystifying The Indian Tiger P.R. Ramash Deloitte India
description
Transcript of Demystifying The Indian Tiger P.R. Ramash Deloitte India
Demystifying the Indian Tiger
2
The politics of investment
3 ©2009 Deloitte Touche Tohmatsu India Private Limited
The politics of investment…
• Election results were one of the biggest surprises of the year.
• 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.
• Result: a stable government for the next 5 years
• The New Government to have more policy headroom as it would have more bargaining power due its dominant position in the coalition.
• 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 term
4 ©2009 Deloitte Touche Tohmatsu India Private Limited
The election manifesto was high on reforms
• Plans to add atleast 12,000-15,000 MW of power capacity per annum
• Increased allocation to renewable energy sources like Nuclear and Hydro.
• Pace of Oil and Gas exploration to be increased. Move to make India energy sufficient country.
• Strong emphasis on education with a focus impetus on rural education.
• High spending in core areas like Education, Health, Agriculture, Social Security and Infrastructure.
• Increase the spread of IT and Broadband technology
• PSU disinvestment would be pursued• Encouraging labour intensive, export driven
manufacturing segments by formulating conducive Foreign investment policies.
Sector focus• Road Transport / ighways
‒ Accelerate pace of awarding projects‒ Clear existing backlog
• Aviation‒ Inject capital to airline industry‒ Allow FDI in domestic carriers
• Telecom‒ 3G and Wimax auction
• Steel‒ Production Target: 120 mt (2012)
• O&G‒ Deregulation‒ Transparent oil subsidy mechanism
• Commerce‒ Check falling exports
‒ Ink FTA with Asean and South Korea• Power
‒ New capacity addition‒ Nuclear power
5 ©2009 Deloitte Touche Tohmatsu India Private Limited
List of pending reforms / legislation
Reform Details
The Insurance Reform Bill Increase Cap on FDI in insurance from 26% to 49%
The Pension Fund Regulatory &Development Authority Bill
Liberalize and Regulate new pension scheme ascompared to the existing Scheme
Labor Laws Amendment Bill Applications to some provisions of labor laws toLabor Laws Amendment Bill companies with 500 or fewer employees to be limited
IFRS Expected 1 April 2011
The Direct Taxes Code Bill, 2009 Expected 1 April 2011
The Companies Bill Expected
6 ©2009 Deloitte Touche Tohmatsu India Private Limited
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” Kamal Nath - 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
7
Strengths
©2009 Deloitte Touche Tohmatsu India Private Limited
Why India?The Value Proposition
Pull Factors• Availability of skilled talent pool• Low cost manpower• Availability of resources• Strong economic fundamentals• Large domestic market• Enabling institutional and
regulatory environment• Progressive reform process
8
“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)
©2009 Deloitte Touche Tohmatsu India Private Limited
StrengthsAdapting to Local Conditions
9
(Source: IBEF)
Developing processes and allocating resources for clearances and approvals
Developing processes and allocating resources for clearances and approvals
Workable solutions to investing in physical infrastructureWorkable 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
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
©2009 Deloitte Touche Tohmatsu India Private Limited
StrengthsAbility to Leverage Opportunities In India
10
Colgate: worldwide sales rose by 4.5 per cent, subsidiary in India recorded 26 per cent growth
ABB: Parent sales growth 11 per cent while in India subsidiary grew by 15 per cent (FY 2008)
OpportunityOpportunity
Using Indian operations to boost global revenuesUsing Indian operations to boost global revenues
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)
©2009 Deloitte Touche Tohmatsu India Private Limited
StrengthsUtilising In-born Strengths
11
(Source: IBEF)
Corporate Social ResponsibilityCorporate Social Responsibility
Well- trained sales forceWell- trained sales force
Customer care initiativesCustomer care initiatives
Leveraging brand strengthsLeveraging brand strengths
Volvo: Provides driver training, preventive maintenance and service agreementsWorks closely with customers to improve vehicle utilisation and returns
Pfizer: Sales force automation tool ‘Optima’ implemented across entire salesorganisation to plan customer contacts and implement marketing programmes
‘Leaders Academy’- comprehensive management development programme
Novartis: Dedicated sales force for targeting disease segments more prevalent
Pfizer: Corex and Becosules are leaders in respective segments
Novartis: Joint Effort to Eradicate Tuberculosis, “Glivec International Patient AssistanceProgramme,” Comprehensive Leprosy Care Programme
©2009 Deloitte Touche Tohmatsu India Private Limited
StrengthsUtilising In-born Strengths
12
(Source: IBEF)
Wide product portfolioWide product portfolio
Creation of effective distribution network/dealer networkCreation of effective distribution network/dealer network
Launching high quality, best in design, technology rich products Launching high quality, best in design, technology rich products
Innovative promotion and advertising initiatives
Innovative promotion and advertising initiatives
Whirlpool India: initiated Six-Sigma program in 1999Initiative extended from sales and marketing to customer focusQuality consciousQuality conscious
Volvo: FM range of trucks launched recently in India are already Euro III compliant
Pfizer: OTC segment brand-building supported by good ads. Campaign for Gelusil tablets won award for Creative Excellence at 36th ABBY
Whirlpool India: Shift in strategy from premium-player to a mass-player. Has introduced products in all price categories
Novartis: Process of expanding business into new markets. Planning to enter Tier-II and Tier-III cities and rural markets
Threats
13
©2009 Deloitte Touche Tohmatsu India Private Limited
However threats remain…Infrastructure
India's infrastructure need in next few years is estimated at over US$ 340 billion
Power: Total investment opportunity of aboutUS$ 150 billion to generate an additional78,000 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 portsin the next 9 years
Infrastructural Constraints Particulars
Electrical Connection (days to establish) 82
Value Lost to Outages (as % of sales) 9.00
Value Lost to Failures (% of sales) 87.00
Telephone Outages (days) 64
Value Lost to Outages (as % of sales) 62.00
(Source: Deloitte Report on Infrastructure Opportunities in India)
14
15 ©2009 Deloitte Touche Tohmatsu India Private Limited
Threats…Operational Issues
Starting a Business (Days)
Dealing with Licenses (Days)
Registering Property (Days)
Trading Across Borders (Days)
Enforcing Con-tracts (Days)
Closing a Business (Months)
Paying Taxes (Hours)
48
363
32 20
241
28.8
584
71
270
6736
425
120
264China
India
Time DelaysTime Delays
(Source: World Bank, ISI Emerging Markets)
Delays in providing Posco a mining license
Delays in project implementation for Mittal Steel in Jharkhand
16 ©2009 Deloitte Touche Tohmatsu India Private Limited
Threats …Operational Issues Possible Agency Approvals Required
Registrar of Companies
District Industry Center
Secretariat of Industrial Assistance
State Infrastructure Corporation
Department. of Town and Country Planning
Local authority/District Collector
Municipal and local authorities
Chief Inspector of Factories
Pollution Control Board
Electricity Board
Chief Inspector of Boilers
State Finance Corporations
State Industrial Development Corporations
Sales Tax Department
Central and State Excise Depts.
State Director of Mines and Geology
Regional Office of Bureau of Indian Standards
Quality Marking Center of State Government
Inspector of Weights and Measures
Regional Office of Director General of Foreign Trade
Starting a Business
(2005)
Dealing with Licenses
(2005)
Registering Property (2005)
Enforcing Con-tracts (2005)
0
5
10
15
20
25
30
35
40
45
13
30
3
25
11
20
6
40China India
Nu
mb
er
of
Pro
ce
du
res
Red TapismRed Tapism
(Source: World Bank, http://dipp.nic.in/invindia/appclea.htm)
17 ©2009 Deloitte Touche Tohmatsu India Private Limited
Threats…Regulatory Issues
Labour Laws
Labour Laws
Difficulty of Hir-ing Index
Rigidity of Hours Index
Difficulty of Fir-ing Index
Rigidity of Em-ployment Index
Hiring cost (% of salary)
Firing costs (weeks of wages)
0102030405060708090
100
11
40 4030 30
90
56
40
90
62
12.3
79
China
India
Ind
ex
Va
lue
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
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: BBC)
(Source: World Bank)
18
Outlook
©2009 Deloitte Touche Tohmatsu India Private Limited
Outlook
• India’s growth is at a premium to most economies.
• Incremental returns are likely to be driven by earnings growth.
• With a GDP expectation of 8%, corporate earnings are likely to grow at double digits.
• Fall in oil prices will lead to annual saving of about $20bn or 2% of GDP.
• Decline in interest rates to boost investment and consumption.
• Lower commodity prices are likely to improve profit margins meaningfully.
• Stable central government can put in place much needed reforms, bolster public spending
1919
20
Strategy inputs
21 ©2009 Deloitte Touche Tohmatsu India Private Limited
Inputs to your strategyAbility to Leverage Opportunities in India
• Cater to a large domestic market
• Localisation of the supply chain
• Utilise India as a base for developing products for the global market
• Set up R&D Centers
• Set up Service Centers
• Avail investment incentives on offer
• Use Indian operations to boost global revenues
Entry Options for MNC’s
• Acquisitions
• Master Franchisee Agreements
• Alliances
• Supplier Contracts
• Greenfield Investments
• Joint Ventures
©2009 Deloitte Touche Tohmatsu India Private Limited
Success of JVs in India
22
Today, companies seem satisfied with how the JV collaborations are progressing• Indian partners have realized the inherent conflicts of JVs• A thorough research goes in identifying the right partner
• Manufacturing, purchasing, and product adaptation are considered the most successful JV collaboration areas
• The major problem area seems to be in research and development (R&D).
• For JVs to work well, there needs to be equality in the relationship
• Protection of intellectual property is an advantage in India
Global companies are attracted to India because of its skilled workforce, its low wages, and its growing domestic market. Many have sought to navigate with the help of a local partner
Source: IBM Inside India Study Survey 2007
23
Some operational aspects
©2009 Deloitte Touche Tohmatsu India Private Limited
Exchange control regulations
24
• FDI up to 100 percent permitted under automatic route in most sectors subject to some exclusions, sectoral caps, conditions (e.g. retail, defence, telecom)
• Import of components is allowed without any restrictions
• Payment for Brand name/ trade mark royalty subject to:
‒ Without technology transfer – up to 1% of domestic sales & 2% of exports
‒ With technology transfer – up to 5% of domestic sales & 8% of exports
• Lump sum payment on account of foreign technology collaboration up to USD 2 million under automatic route
©2009 Deloitte Touche Tohmatsu India Private Limited
WHT and Service tax implications• Intellectual Property Rights
‒ Designs‒ Patents‒ Trade Marks ‒ Other Intangible Property
• Technical Know-how/ Consultancy
• Management Support
• Cross Charges for:‒ Expatriate Employees‒ Common Group Costs‒ Advertisement/ Publicity‒ Infrastructure Sharing
28
Payments by Indian Partner to Foreign Partner
Service Tax Implications under Reverse Charge Mechanism
Availability of Tax credits could be explored
Payments by Foreign Partner to Indian Partner
Service Tax Implications
Availability of exemption benefit on ‘export of services’ could be explored
©2009 Deloitte Touche Tohmatsu India Private Limited
Free trade agreements
29
• Offer concessional/ exemption customs duty benefits on imports from contracting countries
• Concessions range
• Rules of Origin to be satisfied:‒ Products Wholly Produced or Obtained
in Exporting Contracting State‒ Non-Qualifying Operations‒ Products Not Wholly Produced or
Obtained in Exporting Contracting State‒ Single Contracting State Content –
Value Addition, Change in Tariff Heading‒ Regional Cumulation – Value Addition
Existing FTAs Proposed FTAs
Afghanistan Australia
Bangladesh Europe
Bhutan Gulf Cooperation Council
Chile Indonesia
China Japan
Korea Malaysia
Maldives New Zealand
Mauritius South East ASEAN Nations
Myanmar South Africa Customs Union
Nepal
Pakistan
Singapore
Sri Lanka
Thailand
©2009 Deloitte Touche Tohmatsu India Private Limited
Preferred locations for manufacturing• EOU/ STP/ EHTP/ FTZ
‒ 100% export profits exempt from tax for 10 years‒ Sunset clause: March 31, 2010
• SEZ‒ 100% export profits exempt from tax for first 5 years‒ 50% for next 5 years ‒ 50% for next 5 years subject to transfer to special reserve
• Special deduction for setting up manufacturing units in Notified areas (J&K, Himachal Pradesh, Uttarakhand)
‒ 100% for first 5 years‒ 30% for remaining 5 years
• Additional R & D deduction‒ 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
31 ©2009 Deloitte Touche Tohmatsu India Private Limited
How does India figure?
• Highly educated workforce:‒ English is lingua franca‒ We even have a God for education!
• High savings – Natural thriftiness. A value for money proposition always finds success
• Entrepreneurial talent:‒ A nation of shopkeepers and businessmen‒ Increasingly Indian operations a source
for the global talent pool• Rule of Law – The judiciary seen as the
bedrock of our democracy. Stable Government.
• Large domestic market Advantage India Advantage India
©2009 Deloitte Touche Tohmatsu India Private Limited
Contact details William BlommeISG Leader
Partner – Audit
Tel: + 32 2 800 22 05
Fax: + 32 2 800 20 05
E-mail: [email protected]
Erwin VanderveldePartner – Laga Lawyers
Tel: + 32 2 800 70 76
Fax: + 32 2 800 70 03
E-mail: [email protected]
Bart LiebenDirector – Laga Lawyers
Tel: + 32 2 800 70 39
Fax: + 32 2 800 70 01
E-mail: [email protected]
Bart VerhelstPartner – International Corporate Tax
Tel: + 32 2 800 86 51
Fax: + 32 2 800 86 01
E-mail: [email protected]
32
Julien PauwelsDirector – International Indirect Tax
Tel: + 32 2 600 66 25
Fax: + 32 2 600 66 11
E-mail: [email protected]
Hilde WittemansPartner – Financial Advisory Services, M&A
Tel: + 32 2 600 62 30
Fax: + 32 2 600 62 01
E-mail: [email protected]
Patrick JouckenPartner - Consulting
Tel: + 32 2 749 57 52
Fax: + 32 2 749 56 70
E-mail: [email protected]
P.R. RameshManaging 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: [email protected]
©2009 Deloitte Touche Tohmatsu India Private Limited33
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms and their respective subsidiaries and affiliates. As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other's acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names "Deloitte," "Deloitte & Touche," "Deloitte Touche Tohmatsu," or other related names. Services are provided by the member firms or their subsidiaries or affiliates and not by the Deloitte Touche Tohmatsu Verein.
Deloitte Touche Tohmatsu India Private Limited makes no representation as to the sufficiency of the information contained herein for your purpose. The information should not be viewed as a substitute for other forms of analysis that management should undertake and is not intended to constitute legal, accounting, tax, investment, consulting or other professional advice or services. Prior to making decisions or taking actions that might affect your business, you should consult a qualified professional advisor. Your use of the analysis and information contained herein is at your own risk.
Deloitte Touche Tohmatsu India Private Limited will not be liable for any direct, indirect, incidental, consequential, punitive or other damages, whether in an action of contract, statute, tort (including without limitation, negligence) or otherwise, relating to the use of the analysis and information contained herein. The information contained in this report is provided “as is” and Deloitte makes no express or implied representations or warranties regarding the result of the information.