India The Incredible Investment Destination by Ministry of Finance PDF

Table of Contents
Macroeconomic Environment
Capital Markets Public Finances
External Finances Structural Factors
Department of Economic Affairs, Government of India
Indias robust macroeconomic performance

Key Parameters Real GDP (INR billion)1 Real Per Capita GDP (INR) 1 Investment / GDP (%)2 Exports (US $ bn)1 General Government Gross Debt 2005-06 32,542 33,548 35.8 103 77.4 28.0+ 151# 9.1 2011-12 52,220 46,221 37.6** 303 64.9** 63.7++ 294 ## 46.8 Change 60% higher 38% higher 5% higher 194 % higher 16% lower 127% higher 94% higher 414 % higher
(% GDP) 1
Workers Remittances (US$ bn) 2 Gross International Reserves (US$ bn) 1 Foreign Direct Investment inflow (US $ bn) Foreign Direct Investment outflow (US $ bn)
6.1
25.8**
323% higher
Sources: 1 Reserve Bank of India data (as on March 2012) 2 IMF WEO Database April 2012 ** For FY 2010-11 + for calendar year 2006 ++ for calendar year 2011 # As on 31 March 2006 ## As on 30 March 2012
Indias key strengths

Good growth prospects supported by ongoing economic liberalisation and strong domestic demand Stable financial system Strong external liquidity position High degree of political stability
Vibrant, transparent and high-yielding capital markets

High savings and investment ratios Strong and competitive private sector Low susceptibility to event risk Steadily rising government revenues Healthy sectoral diversity of economy Largely local currency denominated debt Conducive investment climate Strong financial regulatory framework High growth in exports Strong demographic advantage Highly educated work force Innovative society
4
Faster and more stable real GDP growth

India demonstrates faster and stable growth than most other countries in the Dow Jones list of emerging economies Average Annual Real GDP Growth Rate in % (2006-11) 10.9 8.4 7.2 7.1 5.9 5.4 4.8 4.8 4.8 4.7 4.6 4.2 4.2 4.2 4.1 3.8 3.8 3.2 3.0 2.6 2.1 0.2
5
Country
Country Russia Turkey Mexico Taiwan, China Czech Republic Thailand Hungary Peru Malaysia Argentina Brazil Chile South Africa Philippines Korea Egypt Colombia China India Poland Morocco Indonesia
Std. Dev. Of Real GDP Growth Rate (2006-11) 6.0 5.3 4.4 4.4 4.1 3.7 3.6 3.2 3.2 3.2 2.8 2.7 2.6 2.3 2.2 2.1 2.1 2.1 1.9 1.9 1.7 0.7
China India Peru Argentina Indonesia Egypt Morocco Colombia Philippines Poland Malaysia Chile Brazil Taiwan, China Turkey Korea Russia South Africa Thailand Czech Republic Mexico Hungary
Source: IMF World Economic Outlook (April 2012)
Increasing share in world GDP

Among emerging markets, India is next only to China with respect to share in world GDP
Share in world GDP (PPP), 2011
2011 GDP PPP (USD bn)
India 6%
China 14% Other emerging and developing economies 29% Advanced economies 51%
6,000 5,000 4,000 3,000 2,000 1,000 0
Indias economy ranks 3rd largest in the world
Source: IMF World Economic Outlook Report, 2011
Source: IMF World Economic Outlook (April 2012)
* USA GDP is $15094 bn
** Chinas GDP is $11316 bn
and it has been increasing steadily

Indias share in world GDP (% of world total) (PPP current USD)
India is expected to become the second largest economy in the long run
$ trillion
60 50 40 30 20
GDP PPP (US trillion)
7
6 5 4 3 2 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f 2016f 2017f
US China India Japan Russia Brazil
10
UK
0
Source: IMF World Economic Outlook (Apr 2012)
Source: 2050 Report, PriceWaterhouseCoopers, 2011
Savings and Investment rates are among highest in the world

Savings and investment that drive economic growth are higher in India compared to other emerging economies
Savings (% of GDP) 2011
60
50
40 30 20 10 0
32
Source: IMF WEO, April 2012
Gross Domestic Investment (% of GDP) 2011

60 50 40 30 20 10 0
34
7
Source: IMF WEO, April 2012
Strong growth fundamentals

Long term industrial output continues to strengthen
200 Industrial production (2004-05 = 100)
with robust consumption

300000 250000 200000 150000 100000 50000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
Source: CMIE Business Beacon
Passenger car and van sales
180
160 140 120 100 80
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
positive business sentiment

PMI Manufacturing and Services 65 60 55 50 Manufacturing 45 40 May-11 May-12 Mar-11 Mar-12 Apr-11 Jul-11 Feb-11 Nov-10 Dec-10 Aug-11 Sep-11 Nov-11 Dec-11 Feb-12 Jan-11 Jun-11 Jan-12 Apr-12 Oct-11
Increasing rate of contraction Increasing rate of growth
and strong export growth

Exports (USD million)
30000
25000
20000
Services
15000
10000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
Source: HSBC Markit
8
Domestic consumption driven economy

Indian consumers are most optimistic about the state of the economy
Consumer confidence index score 145 125 105 85 65 45 25 60 58 53 50 49 45 45 123 119 118 118 110 110 107 107 105 95
Optimism
Pessimism
39 37 32
According to the latest global consumer confidence findings (for the first quarter in 2012) from Nielsen, optimism over job prospects and state of personal finances are up from last quarter as Indian consumers continue to be the most confident across the globe for the ninth consecutive quarter, rising one index point to 123 in Q1 2012 over the previous quarter
Nielsen Global Consumer Confidence Report, Q1 2012
Consumer confidence has been consistently above the world average

140 130 120 110 100 India World
Optimism Pessimism
90 80 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1
Nielsen Global Consumer Confidence Index (various reports)
Focus on infrastructure investment

Infrastructure investment has grown massively since 2006 supported by increased private sector participation
12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1.3% 1.7% 2.2% 2.4% 2.6% 2.9%
Government policy initiatives will drive further development supporting GDP growth targets
Private (%of GDP) Public (% of GDP)

5%
3.3%
12th 5 Year Plan: Emphasis on Infrastructure Investment The 12th plan targets infrastructure investments of US$1 trillion with around 50% of investment expected to come from the private sector First Infrastructure Debt Fund for Rs. 8000 crores launched in March 2012 Promoting Public-Private Partnerships (PPPs) India has been highly successful in promoting PPPs; more than 700 PPP projects currently being carried out across the country The government provides financial assistance to PPP projects through the India Infrastructure Finance Company (IIFC). Since its inception in April 2006, the company has sanctioned loans to the tune of Rs 585.68 billion to 267 infrastructure projects. The government is expanding PPP eligible sectors and developing a comprehensive policy on PPPs, which is likely to be announced this year More sectors added as eligible sectors for Viability Gap Funding under the Scheme Support to PPP in infrastructure in Budget 2012-13 Draft policy on PPP under discussion PPP in defence PSUs Improving Investment Environment Unlocks New Funding Sources Incentives have been put in place to encourage investment in infrastructure: Raising corporate bond limit for FIIs to US$45 billion from US$20 billion (Sept10 to Nov 11) Allowing tax free bonds to be issued by various Government undertakings in the railways, ports, housing and highways development sectors in 2011/12 To boost infrastructure investment, withholding tax on interest income has been reduced from 20% to 5% for loan agreements and long term infrastructure bonds in foreign currency (Budget 2012-13)
4.8% 4.9% 5.0% 5.1% 5%
3.9%
4.1%
4.2%
Source: Secretariat for Infrastructure
Broad-based investment enables growth across sectors

Indexed infrastructure investment growth (FY 2007= 100)
1,000 190 170 150 130 110 90 FY07
Power Finished steel Cement Crude oil Coal Freight traffic Fertilizers Telecom (RHS)
900
800
700 600 500 400 300 200 100 0
FY08
FY09
FY10
FY11
FY12
Source: Economic Survey 2011-12
10
Initiatives in infrastructure sector

Indias emphasis on physical infrastructure: 12th Plan envisages investing USD 1 trillion in infrastructure projects
Dedicated Railway Freight Corridors

Eastern and Western Corridors Increase carrying capacity and speed
Delhi-Mumbai Industrial Corridor Nine mega industrial zones of about 200-250 sq. km Six-lane intersection free expressway 4000 MW power plant Urban Infrastructure Jawaharlal Nehru National Urban Renewal Mission Metro rail projects in major cities (Mumbai, Hyderabad, Chennai, Bangalore) in various stages of
implementation
Highways Target of covering a length of 8,800 kilometers under National Highway Development Project in 2012-13 Electricity 20000 MW generation capacity added in FY12. Power capacity added in FY07 was 6853 MW. 16 Ultra Mega Power Plants (UMPP) (4000 MW each) planned
First unit of the Mundra UMPP commissioned in March 2012

Target of electrification of 100,000 villages under the Bharat Nirman project achieved Civil Aviation Direct import of Aviation Turbine Fuel permitted for Indian carriers as actual users External Commercial Borrowings to be permitted for working capital requirement of airline industry for a period
of one year, subject to a total ceiling of USD 1 billion
11
Investor protection and transparency

India compares well with the advanced economies in investor protection
Protecting investors score (1-10 scale) (10=best)
8.7 8.3 8
7.7
6.3
5.7
5.3
5.3
5.3
5.3
Better
Source: World Economic Forum Global Competitiveness Report 2011-2012
25
26
30
33
41
45
48
49
51
12
56
61
62
63
80
86
94
95
96
99
117
120
Better
Source: World Bank, Doing Business Report 2012
4.7
4.7
4.3
Transparency level for conducting business in India is superior to many other EMEs
Strength of auditing and reporting standards rank (1 = best)
Favourable tax regime and conducive regulatory environment

Among emerging markets India has one of the most favourable tax regimes, a very crucial factor for business growth
Most favourable tax rate score (10 = least tax)

9 8 7 6 5 4
3
2 1 0
Source: Economic Freedom of the World Report, 2011
and compares favorably with three of four other BRICS nations in the ease of starting a business
Number of days to start a business
119
29 19
30
38
South Africa
India
Russia
China
Brazil
13
Source: World Bank, Doing Business Report 2012
Macroeconomic Environment Capital Markets Public Finances External Finances Structural Factors
14
Capital Markets
Well developed financial markets

In terms of financial market development India ranks much better than most EMEs
Financial Market Development Rank (1=best)
126 127
92 80 53 55 83 68 69 71
62
63
34 21 3 4 24
37
38
43
48
50
Source: World Economic Forum Global Competitiveness Report 2011-12
15
Capital Markets
Potential for growth (Market cap)

Future potential for increasing market cap remains attractive as many corporates are yet to be represented in the equity space
SOUTH AFRICA
MALAYSIA TAIWAN UK KOREA THAILAND USA
INDIA
JAPAN BRAZIL INDONESIA RUSSIA MEXICO CHINA 0.00 0.50 1.00 1.50 2.00 2.50
Market Cap to GDP ratio (2011)
Source: IMF, WFE
16
Capital Markets
High yielding equity market

USD 100 invested in Dec 2001 would have yielded USD 385 by Dec 2011!
MSCI India USD Index performance

700
INDIA BRAZIL INDONESIA
600
CHINA
KOREA
SOUTH AFRICA
500
TAIWAN
400
300
200
100
0 Dec-1994 May-1995 Oct-1995 Mar-1996 Aug-1996 Jan-1997 Jun-1997 Nov-1997 Apr-1998 Sep-1998 Feb-1999 Jul-1999 Dec-1999 May-2000 Oct-2000 Mar-2001 Aug-2001 Jan-2002 Jun-2002 Nov-2002 Apr-2003 Sep-2003 Feb-2004 Jul-2004 Dec-2004 May-2005 Oct-2005 Mar-2006 Aug-2006 Jan-2007 Jun-2007 Nov-2007 Apr-2008 Sep-2008 Feb-2009 Jul-2009 Dec-2009 May-2010 Oct-2010 Mar-2011 Aug-2011 Jan-2012

India has been amongst the best performing markets in its peer group , since liberalization Indian equities have delivered a CAGR of 14% over the last two decades
Source: Bloomberg
17
Capital Markets
Indian equity markets: Market cap of Indian companies

157 companies are valued over USD 1 billion each
Market capitalisation of Indian companies in 2011
120
114
100 Total market cap of Indian companies is USD 1.2 trillion as of 2011 80
No. of companies
60
40
23
20
20
Source: Bloomberg
18
Capital Markets
Indian equity markets: Market cap of top 20 PSUs

Multiple central public sector enterprises (PSEs) feature amongst the largest companies in India
Top Central Public Sector Enterprises
Sr. No.
Company
Market Cap. (US$ mn)
Sr. No.
Company
Market Cap. (US$ mn)
ONGC
42,953
11
Oil India
5,135
Coal India
39,169
12
Hindustan Copper
5,113
NTPC
25,485
13
NHPC
4,702
MMTC
18,387
14
Power Finance
3,839
NMDC
13,248
15
Bharat Petroleum
3,551
BHEL
12,541
16
REC
3,152
Indian Oil
12,438
17
NALCO
2,823
GAIL
9,336
18
Neyveli Lignite
2,671
Power Grid
8,978
19
Petronet LNG
2,346
10
SAIL
7,314
20
Bharat Electronics
2,277
Source: Bloomberg
19
Capital Markets
FII inflows
Significant FII inflows in equity and debt
35000 30000 25000 20000 15000 10000 5000 0
Equity Debt
2008
2001
2002
2003
2004
2005
2006
2007
2009
2010
2011
-5000
-10000
-15000
*2012 Data is up to 28 May 2012 Figure in USD million

Source: SEBI
20
2012 *
Capital Markets
India: Favoured FII investment destination

FII inflows (equity)
YEAR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 TOTAL
INDIA 1586 2748 707 6673 8623 10702 8372 17824 -12173 17626 28711 -543 90856
INDONESIA 91 428 872 1121 2199 3403 1878 3551 1870 1385 2331 2600 21729
KOREA 10127 5790 -2259 11794 9316 -2764 -11808 -29221 -33368 24827 18595 -6716 -5687
TAIWAN 3021 7494 -110 15887 8054 19185 17108 2244 -15377 13720 8689 -9340 70575
SOUTH AFRICA 2474 3466 -622 -1 5208 7330 10998 8890 -5565 8988 4834 -2002 43998
BRAZIL -1161 460 -460 2509 662 2208 1170 -1924 -12019 10028 3600 3623 8696
Amount in USD million
Source: J P Morgan / MSCI /Exchange / Regulatory websites
21
Capital Markets
Surge in IPO issuances

India has performed very well by the number of issues among BRIC nations
400
350 300 250 200 150 100 50 0 2007-08 2008-09
Number of IPOs in BRIC
India China Russia Brazil
2009-10
2010-11
2011-12
IPOs Year 2007-08 2008-09 2009-10 2010-11 2011-12 *Amount in USD billion Number 32 57 35 24 85
India Amount* 1.25 7.63 5.03 0.59 10.65 Number 238 343 190 54 117
China Amount* 33.03 69.30 44.83 6.98 58.63 Number 4 5 0 2 9
Russia Amount* 0.19 0.51 1.58 1.93 Number 7 12 10 3 52
Brazil Amount* 2.07 5.29 14.54 4.53 22.99
Source: Bloomberg
22
Capital Markets
Equity derivatives Asian leadership

Asian markets have been witnessing faster growth in derivatives. CAGR for Asia was 30% as compared to 15% for Americas and 23% for Europe
America
7000 6000
Asia
Europe
5000
4000 3000 2000 1000 0
2007
2000
2001
2002
2003
2004
2005
2006
2008
2009
2010
Number of contracts in million

Source: WFE
23
2011
Capital Markets
Growing derivatives market

Indian derivatives market is growing at a compounded annual growth rate of 45%
Contracts in million
Source : Futures and Options Intelligence
24
Capital Markets
India: Rapidly growing

Both the number of contracts traded and their turnover have seen a sharp growth over the years
Figures are for equity derivatives in terms of number of contracts traded
Source: SEBI, WFE
25
Capital Markets
Robust growth in corporate bond issuance

India has a developing corporate bond market with increasing corporate bond issuances
Corporate bond issuances (in Rs crore)
350000
300000
250000
200000
150000
100000
50000
0 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Source: SEBI
26
Capital Markets
M&As reflect the vibrancy of Indian corporate sector

Indias developed market features
Top 10 M&A Deals since 2007 by size Value ($bn) 12.2 10.8 10.7 8.6 (4 deals) 7.2 6.0 5.0 2.6 Year Target Target Nationality Target Business Description Steel Telecom Telecomm, Oil & Gas Oil & Gas Aluminium Telecom Telecomm. Acquirer Acquirer Nationality Acquirer Business Description
2007 2007 2010 2011 2011 2007 2011 2009
Corus Hutchison Essar Zain Africa BV Cairn India Reliance Industries Novelis Inc Vodafone Essar Tata Teleservices Ltd Abbot Point Port Atlas Energy Inc (Marcellus Shale )
Tata Steel Vodafone Bharti Airtel Ltd Vedanta Plc British Petroleum Hindalco Industries Vodafone Group (Plc) NTT DoCoMo Inc
Steel Telecom Telecom Oil & Gas Oil & Gas
Telecom Wireless telecommunications.
1.9 1.7
2011 2010
Shipping & Ports Marcellus Shale
Mundra Port SEZ Ltd Reliance Industries Ltd
Shipping & Ports Production and distribution process for synthetic textiles
The top ten M&A deals in India since 2007 totaled nearly $66bn and occurred in developed business sectors including
telecommunications, oil & gas, engineering, and manufacturing

M&A deals in the software industry since 2007 totaled above $205mn promoting a more developed and technical business
environment
Source: Grant Thornton Dealtracker India (various issues)
27
Capital Markets
Recent initiatives in Capital Markets

Development of Corporate Bond Market Dedicated trading platforms for small and medium scale enterprises Reducing transaction cost in Securities markets QFI access to Indian Equity Markets, corporate bonds and mutual fund debt schemes Liberalisation in ECBs: Permitting External Commercial Borrowings (ECB) to part finance Rupee debt of existing power projects Financial Stability and Development Council (FSDC) Financial Action Task Force (FATF) Permitting two-way fungibility in Indian Depository Receipts Reduction in the rate of long-term capital gains tax in the case of other non-resident investors, including Private Equity from 20% to 10% on the same lines as applicable to FIIs
Providing the levy of Securities Transaction Tax (STT) at the rate of 0.2 per cent on sale of unlisted securities in the course of IPO
Tax exemption to Angel investors investing in in start-up companies Extending the lower rate of withholding tax to funds raised through long term infrastructure bonds in addition to borrowing under a loan agreement Removal of Restriction on Venture Capital Funds to invest only in nine specified sectors Financial Sector Legislative Reforms Commission (FSLRC)
Rajiv Gandhi Equity Saving Scheme

Mandatory offer of electronic voting facility Income tax exemption to the Beneficial Owners Protection Fund (BOPF) set up by the Depositories
28
29
Public Finances
Unlocking latent potential of Indian PSUs

Key features of Indias disinvestment policy
Objective is to unlock value from Policy for disinvestment1 Eligible PSEs for listing include
PSEs while still maintaining ultimate control (min >51%) of company

Currently 249 PSEs are controlled by
government; 50 are already listed on domestic stock exchange, roughly 75 are ready for listing
Unlocking Value
those with no accumulated losses and have earned net profit in three preceding consecutive years Disinvestment is a cabinet level decision
Greater Public Wealth
Massive Efficiency Gains

Privatizes public sector
Provides direct opportunity to public
for purchasing shares , garnering broader acceptance for policy initiative

Waiting for the opportune time to
management through introduction of independent board of directors and compensation in line with global best practices
Doing so enhances management
disinvest means that the country can maximize public valuations
and raises accountability and transparency through market discipline
Note 1 For full list of policy requirements, see 50th Public Enterprises Survey 2009-2010
30
Public Finances
Opportunity to reap high yields

Disinvestment of PSUs has the potential to unlock significant value
Top 10 PSUs by potential realizable value Min. stake expected to be Potential held by the Realizable Value govt. (%) (USD million)
51 51 51 51 51 7,791.67 15,275.91 8,537.48 8,886.44 5,166.72
Data as of January 2012

Oil & Natural Gas Corporation Ltd. Coal India Ltd. NTPC Ltd. M M T C Ltd. National Mineral Development Corp. Bharat Heavy Electricals Ltd.
Market Capitalization (USD million)

42,953 39,169 25,485 18,387 13,248
Govt. Stake (%)

69.14 90 84.5 99.33 90
12,541
67.72
51
2,096.86
Indian Oil Corporation Ltd.
12,438
78.92
51
3,472.69
Gail (India) Ltd. Power Grid
9,336 8,978
57.34 69.42
51 51
591.90 1,653.75
SAIL
Total
7,314
85.82
51
2,546.73
56,020.15
Note: Realizable value of PSUs = Value of government stake minimum stake expected to be held by the government (% of GDP)
31
Source: Department of Disinvestment
Public Finances
India: Planned disinvestments

Details of proposed disinvestments
Company Name Bharat Heavy Electricals Hindustan Copper Steel Authority of India RINL Hindustan Aeronautics Oil India Neyveli Lignite National Aluminium Company Ltd. MMTC Ltd.
Offering Details (%) 5% GoI Disinvestment 10% GoI Divestment and 10% Fresh Issue
Indicative Divestment Size (USD million) 622* 520*
5% GoI Divestment and 5% Fresh Issue 365* 10% GoI Divestment 10% GoI Divestment No announcement No announcement 10 9.33 NA NA NA NA 273 160
NHPC Ltd.
NMDC Ltd. MOIL Ltd. Andrew Yule & Co. Ltd. Engineers India Ltd. Rashtriya Chemicals & Fertilizers Ltd.
10
10 10 10 10 12.5
416
1249 79 13 158 76
(*) Note: Values based on current market cap as on January 12, 2012.
32
Public Finances
Declining sovereign debt

Decline in government debt is forecasted to continue
Gross general government debt (% GDP)
85 80 75
70
65 60 55 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11F 2011-12F 2012-13F 2013-14F 2014-15F 2015-16F
Source: IMF World Economic Outlook, April 2012
Indias debt continued to decline even during the crisis year and after
Change in general government debt (% of GDP) 2006-2012 20 10 0 -10 -20 -30 -40
33
Public Finances
Benign profile of government debt

The maturity periods of central government debt are spread out, making the debt position comfortable
Maturity Buckets Less than 1 year 1-5 years 5-10 years 10-20 years 20 years and above
End-Dec 2011 (% of total) 3.68 25.28 34.30 21.03 15.72
End-Mar 2012 (% of total) 3.49 26.66 34.71 22.01 13.12

Source: Public Debt Management Report, MoF, May 2012
Maturity trends of dated securities (% of outstanding stock maturing in a particular year) 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 FY13 FY14 FY15 FY16 FY17
Source: Public Debt Management Report, MoF, May 2012
34
Public Finances
Low leverage and diversified sources for financing debt

India can afford materially more debt than its peers
Well developed local capital markets: Exposure to interest rate/FX risk is greatly mitigated by deep domestic markets that provide the government access
to long-dated local currency funding

Rapidly growing non- traditional sources of funding: Pension funds can invest 55% of their total assets in government securities, providing the government a large,
permanent, cheap and long-dated source of funding

Bank investment in government securities: Banks are not overly exposed to the government sector with approximately 21%-23% of total assets invested in
government paper
Domestic financing is well-spread among different financial institutions

2010 ownership of Central and State Government securities
Others 2.4%
Financial Institutions 2.4% Insurance Companies 20.8%
Rapidly developing domestic financial markets ensure easy access to financing

Financial market development* (rank, 1 = best) 127
Primary Dealers 0.1%
43 21 3
Scheduled Commercial Banks 59.1%
48
Mutual Funds 0.2% Provident Funds 4.9% Reserve Bank of India 10.1%
4 South Africa India Brazil China Russia
Malaysia
Source: RBI Database on Indian Economy (Table 123)
Source: World Economic Forum - Global Competitiveness Report 2011/12; *Four major markets-bond (government and corporate), equity, foreign exchange, and derivatives
35
36
External Finances
CAD funds the savings-investment gap

Indias CAD is better than some of the developed economies
Current Account Deficit(% of GDP) 4 2 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -2 -4 23 -6 -8 -10
Source: IMF World Economic Outlook, April 2012 Source: IMF World Economic Outlook, April 2012
Indias CAD funds the savings-investment gap, propelling the economy on a high growth path
Savings and Investment (% of GDP)
Australia India New Zealand 2011
38
33
28
Investment Savings
18
Indias low external debt means that even a relatively high CAD may not pose a solvency problem 21 20 19 18 17 16 15
External Debt(% of GDP)
CAD itself is projected to decline substantially in the coming years

3.2 3 2.8 2.6 2.4 2.2 Current Account Deficit (% of GDP)
2006
2007
2008
2009
2010
2011
2012
2 FY13 FY14 FY15 FY16
Source: External Debt report end- Dec 2011, EDMU, Ministry of finance
Source: IMF Article 4 Assessment 2012
37
External Finances
India: Increasing foreign assets

Indias net foreign assets are higher than most other EMEs Sovereign net foreign assets (% of GDP)
100 80 60 40
20
0 -20
10.5
Source: Fitch Ratings, March 2012
and high foreign exchange reserves

309.7 279.0 304.8 251.9 199.1 141.5 112.9 76.1 54.1 151.6 294.0
Forex reserves (USD bn)
38
Source: RBI
External Finances
Steadily rising external trade

India outperforms other fast growing economies in terms of change in openness
External Trade (% of GDP)
60.0 50.0 40.0 30.0 74 20.0 10.0 0.0 74 40 40 97 170
Percentage change in trade openness between 1991 and 2010
India
Mexico
China
Brazil
Russia
South Africa
Source: World Bank GDI Database
Source: World Bank GDI Database
Exports crossed USD 300 billion in 2011-12..

Exports (US $ billion)
..and real exports have proven relatively resilient

Volume of exports of goods and services (% change) 30
303.7
India 252.0 20 163.0 103.1 126.3 10 183.1 178.3
FY06
FY07
FY08
FY09
FY10
FY11
FY12
0 2006 2007 2008 2009 2010 2011 2012
Source: RBI, Ministry of Commerce
Source: IMF World Economic Outlook , April 2012
39
External Finances
Trade growth is higher than world average

Indias export growth in both merchandise and services has consistently outperformed world growth
% Change in merchandise exports
40 30 20 10 0 -10 -20 -30
World Exports India Exports
% Change in commercial services exports

70
60 50 40 30 20 World India
10
0 -10 -20
40
External Finances
Well diversified commodity exports and destination

High diversification of export products reduces risks to exports
2010/11 export share
Agricultural & allied products Ores & minerals

Agricultural & allied products Ores & minerals Leather & leather manufactures Chemicals
Leather & leather manufactures Chemicals

Engineering goods Textiles Other manufactured goods Petroleum & crude Other commodities
Engineering goods
Textiles Other manufactured goods Petroleum & crude Other commodities
Source: Department of Commerce
Regions vulnerable to recent financial woes purchase only a third of Indian exports
whereas a decade ago those regions purchased almost half
2010/11 export share (by region)

Other Asia 22%
Rest 9%
EU 19%

Other Asia 20%
Rest 11%
EU 24%
North America 11% Africa 6% ASEAN 11%
West Asia and North Africa 22%
West Asia and North Africa ASEAN 13% Africa 6% 4%
North America 22%
41
External Finances
India continues to be a preferred destination for FDI

FDI has continued to post healthy growth for over a decade
FDI (USD mn)
60,000 50,000 40,000 30,000 20,000 10,000 0 FY 00-01 FY01-02 FY02-03 FY03-04 FY04-05 FY05-06 FY06-07 FY07-08 FY08-09 FY09-10 FY10-11 FY11-12
Rapidly rising FDI reflects investor confidence in India
Sources: Department of Industrial Policy and Promotion
Outward FDI from India has also been increasing, reflecting the global ambitions of Indian companies
Outward FDI (USD bn)
USD Billion 25
20
15
10
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
42
External Finances
India ranks among the best in investment surveys

High business sophistication compared to other EMEs
Business sophistication ranking (1=best) 120
Better
Median: 52
100 80 60 40 20 0
Sources: Global Competitiveness Index; WEF
India is an attractive destination for FDI

1.9 FDI Confidence Index 2012 India ranked 2nd in the world, an improvement from its 3rd rank in 2010
1.7
1.6 1.5 1.5 1.5 1.5 1.5 1.4 1.4
Brazil
Germany
Australia
US
Singapore
43
Sources: ATKearney FDI Confidence Index, 2012
South Africa
Malaysia
China
India
UK
Better
44
Structural Factors
Rapidly increasing per capita income

After 1991, the increase in per capita income has been rapid
Per capita income ( in Rs)
1,00,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0
The average percentage change in income has been next only to China and is forecasted to grow rapidly
Percentage change in per capita income 2006-2011 and 2012-17 forecast (PPP constant )
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2006-11 2012-17f
45
Structural Factors
India: Growing domestic demand

Increasing per capita income will lead to an increasing share of India in world consumption
Percentage Share of global middle class consumption 2000-2050
Today India comprises about 5% of global middle class consumption while Japan, the United States, and the European Union cover fully 60%. By 2025, those numbers are expected to equalize; by 2050, they will be flipped. Middle-class demand is expected to grow from US$ 21 trillion in 2009 to US$ 56 trillion by 2030, with 80% of that growth coming from Asia. By 2050 India will comprise about 40% of global middle class consumption
46
Source: WEF Future of Manufacturing Report, 2012
Structural Factors
Favourable demographics
Improving human development translating into higher life expectancy
Average life expectancy
66 48
and favorable demographics
Average age in 2020 (years)
64
37 62 60 58 29
56
54 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Indian Chinese Japanese
Source: UNDP; Human Development Trend Data
Sources: United Nations
Indias consistent improvements in wealth levels have translated into gains in human development indicators
1.8
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0
India improving at a rate much better than any EME
Average annual increase in HDI (2000-2011)
47
Source: UNDP; Human Development Trend Data
Structural Factors
India: Growing scientific pool

2011-12
Quality of education system
Quality of math and science education
Malaysia Taiwan, China India Indonesia Czech Republic China
Score 1-10 (best) 5.1 5.8 4.4 4.2 4.1 4.7 3.9 3.8 3.7 3.7 3.6 3.5 3.4
Rank 14 19 38 44 49 54 55 61 71 72 77 80 82
Score 1-10 (best) Taiwan, China Korea Malaysia China India Hungary Russia Poland Indonesia Thailand Morocco Czech Republic Colombia 5.1 5.2 5 4.3 4.7 4.6 4.3 4.3 4.3 4.2 4.1 4.1 3.7
Rank 5 12 23 31 32 37 50 52 53 60 65 66 83
Source:
The Global Competitiveness Report 2011 2012, World Economic Forum
Korea Philippines Poland Colombia Thailand Hungary Russia
Argentina
Chile Morocco Turkey Mexico Brazil Peru South Africa Egypt
3.4
3.4 3.3 3.3 3.1 3 2.6 2.3 2.3
86
87 93 94 107 115 128 133 135
Turkey
Argentina Philippines Chile Mexico Brazil Egypt Peru South Africa
3.4
3.2 3.1 2.8 2.8 2.7 2.4 2.4 2.1
103
113 115 124 126 127 132 135 138
48
Structural Factors
Sound financial sector

Indias banking sector benefits from strong asset quality..
Non performing loans (% of total loans) (2011)
12 10 8 6 4
2
0
Source: IMF FSI Data; *2010 data
as well as increasing profitability

Return on equity
15 14 13 12 11 10 9 8
1Q09 3Q09 1Q10 3Q10 1Q11 14.3
and solid capitalization levels.

Capital Adequacy Ratio (%)
14.0 13.0 12.0 11.0
12.3 13.0
13.2
13.6
13.5
10.9
10.6
10.8 10.2
10.0 9.0 8.0

2007 2008 2009 2010 2011Q1
Source: IMF FSI Data Source: IMF FSI Data
49
Structural Factors
Stable monetary aggregates and banking sector

Growth levels of monetary aggregates are relatively stable in India
25% 20% 15% 10% 5% 0%
2006-07 Source: RBI 2007-08 2008-09 2009-10 2010-11 Source: RBI, Ministry of Finance
Loan to deposit ratio is stable and healthy

Loan to deposit ratio (%) 74 72
Narrow Money
22%
M3
72
76
20%
21% 16%
21%
19% 16% 16%
15%
10%
2008
2009
2010
2011
And the Indian economy is not overbanked or subject to some of the systemic problems faced by other emerging and developed economies
2010 Domestic credit to private sector (% GDP)
49
Russian
Czech
Peru
Korea
Mauritius
Vietnam
Belgium
Iceland
Latvia
Chile
Kazakhstan
Colombia
Lithuania
Germany
Saudi Arabia
Costa Rica
South Africa
50
Source: World Bank
Netherlands
Denmark
Italy
Mexico
China
Brazil
Lebanon
Panama
Estonia
France
Ukraine
Maldives
Bulgaria
Greece
Israel
Poland
Finland
Thailand
Hungary
Austria
Japan
Slovenia
Portugal
India
UK
Romania
Malaysia
Sweden
Spain
USA
Tunisia
Croatia
Ireland
Structural Factors
Soundness of banking system
Indian Banks have been at the top among EMEs for 2010 in terms of soundness as per the Global Competitiveness Report 2011 South Africa Chile Peru Brazil Czech Republic Malaysia India Turkey Mexico Colombia Thailand Philippines Taiwan, China Poland China Morocco Hungary South Korea
2011-12 Value [1-7 (best)scale ] 6.6 6.5 6.2 6.2 6 5.9 5.8 5.8 5.6 5.6 5.6 5.6 5.5 5.4 5.3 5.3 5.2 4.7 Rank 2 6 15 16 25 28 32 33 40 42 43 46 51 60 64 65 75 99
Source: (i) The Global Competitiveness Report 2011 2012, World Economic Forum Notes : 1 = Insolvent and may require a government bailout 7 = Generally healthy with sound balance sheet
Egypt Argentina Indonesia

Russia
4.6 4.6 4.5

4
102 108 112

129
51
Structural Factors
Legal protection to borrowers and lenders
India was amongst the top ranked countries listed on Dow Jones emerging economies in terms of the Degree of legal protection of borrowers and lenders right on a 1 10(best) scale for 2011
2011-12 Value
Source: (i) The Global Competitiveness Report 2011 2012, World Economic Forum
Malaysia South Africa Poland India Peru Korea Hungary China Czech Republic Mexico Columbia Thailand Taiwan, China Turkey Argentina Chile Russia Brazil Philippines Egypt Indonesia Morocco
[0 10 (best)scale] 10 9 9 8 7
7 7 6 6 5 5 4 4 4 4 4 3
Rank 1 8 8 20 39 39 39 60 60 76
76 89 89 89 89 89 105 105 105 105 105 105
3 3 3 3 3
52
Structural Factors
Transparency in governance
2011-12 Score 1-10 (best) 5.8 5.3 5 4.8 4.7 4.6 4.4 4.4 4.4 4.3 4.2 4.2 4.2 4.1 4.1 4 4 3.8 3.7 3.6 3.4 3.3 Rank 5 14 26 34 41 44 55 58 62 65 70 75 78 81 87 93 96 108 115 120 128 132
India ranks better than most of its peers in transparency of government policymaking.
Source:
The Global Competitiveness Report 2011 2012, World Economic Forum
Taiwan, China Chile Malaysia South Africa China Turkey Peru India Morocco Colombia Mexico Thailand Brazil Hungary Indonesia Poland Czech Republic Egypt Russia Philippines Korea Argentina
53

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Table of Contents

Capital Markets Public Finances

External Finances Structural Factors

Department of Economic Affairs, Government of India

Indias robust macroeconomic performance

Department of Economic Affairs, Government of India

Indias key strengths

Vibrant, transparent and high-yielding capital markets

Faster and more stable real GDP growth

Source: IMF World Economic Outlook (April 2012)

Increasing share in world GDP

6,000 5,000 4,000 3,000 2,000 1,000 0

Indias economy ranks 3rd largest in the world

Source: IMF World Economic Outlook Report, 2011

Source: IMF World Economic Outlook (April 2012)

* USA GDP is $15094 bn

** Chinas GDP is $11316 bn

and it has been increasing steadily

GDP PPP (US trillion)

US China India Japan Russia Brazil

Department of Economic Affairs, Government of India

Source: 2050 Report, PriceWaterhouseCoopers, 2011

Savings and Investment rates are among highest in the world

Source: IMF WEO, April 2012

Gross Domestic Investment (% of GDP) 2011

Source: IMF WEO, April 2012

Strong growth fundamentals

with robust consumption

Passenger car and van sales

positive business sentiment

and strong export growth

Source: HSBC Markit

Domestic consumption driven economy

Nielsen Global Consumer Confidence Report, Q1 2012

Consumer confidence has been consistently above the world average

90 80 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1

Department of Economic Affairs, Government of India

Nielsen Global Consumer Confidence Index (various reports)

Focus on infrastructure investment

Private (%of GDP) Public (% of GDP)

4.8% 4.9% 5.0% 5.1% 5%

Source: Secretariat for Infrastructure

Broad-based investment enables growth across sectors

Source: Economic Survey 2011-12

Initiatives in infrastructure sector

Dedicated Railway Freight Corridors

First unit of the Mundra UMPP commissioned in March 2012

of one year, subject to a total ceiling of USD 1 billion

Department of Economic Affairs, Government of India

Investor protection and transparency

Source: World Economic Forum Global Competitiveness Report 2011-2012

Favourable tax regime and conducive regulatory environment

Most favourable tax rate score (10 = least tax)

Source: Economic Freedom of the World Report, 2011

Department of Economic Affairs, Government of India

Well developed financial markets

Financial Market Development Rank (1=best)

Source: World Economic Forum Global Competitiveness Report 2011-12

Department of Economic Affairs, Government of India

Potential for growth (Market cap)

Market Cap to GDP ratio (2011)

Source: IMF, WFE

Department of Economic Affairs, Government of India