Indian Economic & Investment

Scenario
May 2010
 Economic Snapshot
India’s GDP witnessed
high growth and was
the second fastest
growing GDP after
China

Indian economy is the

4th largest in terms of
PPP – USD 3.5 trillion
in 2009

The sound performance

of each industry
segment is leading to
the overall robust
performance of the
Indian economy

2
 India: Astounding Demographics

Growth in the higher

DEMOGRAPHIC TRANSFORMATION OF INDIA
income categories of Annual Household Income
India’s population has (in USD)
created an affluent 2 9 20 Rich (Above 115,000)
Population (million)

section of society, 9 17 33 High Income (57,000 – 115,000)

which has significant
level of purchasing 48 74 120 Consuming class (23,000 – 57,000)
power 221 285 404 Working class (10,200 – 23,000)

726 710 613 Needy (Below 10,200)

2001-02 2005-06 2009-10(E)
* In PPP terms

Increasing per capita

income and large Increasing per capita income coupled
population moving into with an emerging middle class has
middle class has led to provided the necessary impetus to
high level of consumerism in India
consumerism in India

3
 India: Pacing Ahead to Emerge as a Major Economy in the World
Based on Financial Attractiveness, Business
Environment, people skills and availability

India has been ranked

superior to other major
countries by many
prominent surveys…

AT Kearney placed India

among the top three in
its FDI confidence
index…

… the retail market

along with the services Projected GDP Growth Rates for Select Upcoming Economies
8
sector has been
attracting the interest of
major players
GDP Growth Rate (%)

India is expected to
outperform its rivals in 4
the BRIC, in terms of
GDP growth rates,
2
from 2015 onwards…

0
2005-10 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50

Brazil China India Russia

4
 India: Vibrant Capital Market

Market Capitalization (Free Float) of Sensex is 1,278,490 Crores

India is among the
major destinations
across the globe for
inflow of US Dollar i.e.
FIIs

FIIs augmented support

1/12/2007 by infusing large
Crossed 14,000 mark investments in Indian
stock market
2/7/2006
Crossed 10,000 mark

12/30/1999 Resilient Industry

Crossed 5,000 mark performance
Emergence of industry
and confidence of local
investors along with the
FIIs has led to increased
movement of sensex
Increased local
investors’ confidence

5
Sectoral deployment of bank credit

6
 India: Attractive Investment Destination

With improved performance, Indian markets have attracted large investments

India is ranked third
in AT Kearney FDI
confidence index.
China and USA
being ranked first
and second
respectively.

Services & computer

hardware & software
topped the list of
inward FDI

Mauritius has been the

largest contributor
towards FDI into
India…..

7
Road to Recovery

India appears to be on the path to recovery evidenced by surprisingly strong Q2 GDP numbers of 7.9% and 16.7% y-o-y IIP growth in
January. Q3 GDP dropped to 6% given the impact of the drought but we expect Q4 GDP to rebound strongly.

The industrial sector as a whole accounts for 25% of the economy and was the main factor in driving GDP growth lower in 2008 and
2009. We believe, the reverse to be true for 2010.

The services purchasing managers index (PMI) continues to show improvement and paints a very encouraging picture of economic
activity. The 60.9 PMI figure for February, is up more than 5 points since November 2009, 20 points since the low in February 2009 and
above the average of 57.9 since it began in December 2005. This supports the strong manufacturing PMI figure for February and is the
main reason for our expectation of a rebound in Q4 GDP.

The following indicators continue to point to an economic recovery already underway:

Motor vehicle sales continue to show a strong growth.

Cement production continues to show improvement in its 3 month moving average growth rate.

Manufacturing Purchasing Managers Index (PMI) has also shown a significant improvement over the last few
months. Since a January 2009 low of 44.4 it has bounced to cycle high of 58.5 in February. PMI modestly dropped to 57.8 in March,
although it was encouraging to see a renewed bounce in export orders to 57.1 from 56.6.

Industrial Production growth has eased slightly, but still registered a very strong 16.7% y-o-y in January 2010.
Capital goods production, in particular, rose by an extraordinary 56% y-o-y, pointing towards strong fixed capital formation and a
vigorous recovery in real investment growth. December 2009 growth was revised up 80bps from 16.8%. The indices of industrial
production for mining, manufacturing and electricity sectors grew 14.6%, 17.9% and 5.6% y-o-y respectively.

8
 RBI - Macro Economic Outlook
The growth outlook for the Indian economy in the near term remains positive on account of the following factors:
(a) Expectations of satisfactory rabi output, which may offset, partially, the decline in kharif output;
(b) Expectations that the industrial sector would remain buoyant;
(c) Increase in corporate sales and profitability;
(d) Pick-up in order books and capacity utilization as per different survey results;
(e) Turnaround in exports with improving global conditions;
(f) Pick-up in lead services indicators for transportation, Telecommunication and construction, and Revival in credit demand from
the private sector.
Notwithstanding the overwhelming positive sentiments about stronger growth in the near term, certain downside risks remain:
a) The revival in growth of agriculture during 2010-11 hinges on the assumption of normal monsoon, which entails the usual
uncertainties;
b) While investment demand is showing signs of picking up, it is still much below the rate of growth in the pre-global crisis period;
c) the private consumption demand, which accounts for about 60 per cent of aggregate demand, needs to gain significant
momentum;
d) Decline in saving rate last year, led by sharp decline in public sector savings;
e) global economic recovery, though clearly visible, is still weak and thus has implications for sustaining the growth in Indian
exports; and
f) The rising inflation, which may push costs through demand for higher wages and increase in input costs.

9
Potential Sectors for investment
Banking and financial sector:

Several factors favor high growth

Demographic profile favors higher retail offtake - 54% of the population is in the 15-35 years age group

Capital expenditure by the government and private industry expected to grow at a high rate

Economic growth of about 14% p.a. in nominal terms

SME lending, a largely untapped market, presents a significant opportunity

SMEs account for 40% of the industrial output and 35% of direct exports

Regulatory and technological enablers leading to high growth

The banking system is technologically enabled with RTGS and check truncation in place

Improved asset management practices - Gross NPAs to Advances ratio reduced from 24-25% in 1993 to 2.5% in 2006-07

Investment opportunity across all segments in the banking and financial

services sector

Low penetration in the pension market makes it a lucrative business segment

Foreign banks likely to be allowed to acquire local banks after March 2009 when the next stage of banking reforms is propose

Policy:

Reserve Bank of India (RBI), India’s central bank, is the regulator for the banking and financial services industry

RBI approval is required for all foreign investment in this sector

Foreign banks can do business in India either by setting up branches or through a wholly owned subsidiary, after approval by RBI

Indian private banks can be 74% foreign owned, with a 5% cap on ownership by any one entity

10
Real Estate and Construction
Potential

Several factors are expected to contribute to the rapid growth in real estate

Large demand-supply gap in affordable housing, with demand being fuelled by tax incentives and a growing middle class with higher
savings

Increasing demand for commercial and office space especially from the rapidly growing retail, IT/ITeS, and hospitality sectors

The recently announced JNNURM expected to provide further impetus

Investment opportunities exist in almost every segment of the business

Housing: about 25 million new units expected to be built in 7 years

Office space for IT/ITES: 150 million sq. ft. across urban India by 2010

Commercial space for organized retailing: 220 million sq. ft. by 2010

Hotels and Hospitality: Over 100,000 new rooms in the next 5 years

Investment opportunity of over US$75 billion in the next 5 years

Policy

100% FDI is allowed in real estate development subject to minimum scale norms of either:

25 acres in case of serviced plots or integrated townships; or

50,000 square meters of built-up area for construction development projects

Initial investment is locked-in for a 3 year period
11
Power Sector
Potential

Large demand-supply gap - All India average energy shortfall of 9% and peak demand shortfall of 14%

The implementation of key reforms is likely to foster growth in all segments

Unbundling of vertically integrated SEBs

“Open Access” to Transmission and Distribution networks

Select distribution circles to be franchised/privatized

Tariff reforms by regulatory authorities

Opportunities in Generation for:

Ultra Mega Power Plants (UMPP) – 9 projects of 4000 MW each

Coal-based plants at pithead or coastal locations (imported coal)

Natural gas/CNG-based turbines at load centers or near gas terminals

Hydel power potential of 150,000 MW is untapped as assessed by the Government of India

Renovation, modernization, up-rating and life extension of old thermal and hydro power plants

Opportunities in Transmission network ventures - additional 60,000 circuit km of Transmission network expected by 2012

Private sector participation possible through JV and 100% equity mode

Total investment opportunity of about US$ 150 billion over a 5 year horizon
Policy

100% FDI permitted in Generation, Transmission & Distribution – the Government is keen to draw private investment into the sector.

Policy framework: Electricity Act 2003 and National Electricity Policy 2005Incentives: Income tax holiday for a block of 10 years in the
first 15 years of operation; waiver of capital goods import duties on mega power projects (above 1,000 MW generation capacity)

Independent Regulators: Central Electricity Regulatory Commission for central PSUs and inter-state issues. Each state has its own
12Electricity Regulatory Commission.
Auto Components
Potential

India amongst the most competitive manufacturers of auto components, especially:

Metal intensive components: forgings, stampings, castings

Skilled labor-intensive components: machining, wiring-harness, other electrical components

Hi-tech components: electronic fuel injectors

Opportunity to address the global auto components market while leveraging India’s large and
growing domestic market

Opportunity to set up R&D centers in India

Indian technical skills acknowledged as among the best in the world

High level of sourcing of auto components from low cost countries (LCC’s) to act as a driver
for growth

Potential of over US$5 billion for investment in India
Policy

100% FDI allowed through the automatic route

13
IT & IT Enabled Services
Potential

India’s inherent IT capabilities - talented workforce and world-class companies

Availability of technically skilled and English-speaking labor force at a fraction of the cost compared to US and Europe

Quality orientation, project and process management expertise

Enhanced global service delivery capabilities of Indian companies through a combination of greenfield initiatives, M&A, alliances and partnerships with local
players

International recognition of India’s strengths

Increasing awareness among global companies about India’s capabilities in higher, value added activities and in the global delivery model

Leading international companies have identified custom application development and maintenance as priority areas due to a high offshoreable component

High growth of domestic IT & ITeS market due to several regulatory and technological factors:

Increased investments by enterprises in IT infrastructure, applications and IT outsourcing

Demand for domestic BPOs has been largely driven by faster GDP growth and by sectors such as telecom, banking, insurance, retail, healthcare, tourism and
automobiles.

Opportunity to supply to the global market in addition to serving the growing domestic demand
Policy

100% FDI is permitted in this sector under the automatic route

SEZs, EOUs and Software Technology Parks have been set up across India – income tax exemptions are available for units in
these designated areas/zones

IT Act, 2000 legalizes the acceptance of electronic records and digital signatures providing a legal backbone to e-commerce

14
 Thank you

15