Macro Business Environment in India Opportunities for Investment
Macro Business Environment in India & Opportunities for Investment in Creative Industry Ajay Shankar Berlin, September 22, 2007
Largest Democracy
Stable Democratic System § Sub-continental Nation – Religious, Ethnic & Linguistic diversity § Federal structure: – 28 states – 18 languages § Multi-party system: – Changes in government through elections both at Centre and state levels – Coalition governments at Centre for over 10 years – Strong independent judicial system – Free vibrant, strong media (mushrooming growth in print as well as electronic media) 3
Stable Democratic System § Democracy – Gradual incremental policy changes – Broad consensus across parties and civil society. Prior to 1990 s 2000 -2005 § Closed economy § Gradual liberalization § Centralized planning § Industrial licensing dismantled § Completion of integration with global economy § Government permission necessary for Setting up industrial plant § Trade liberalization – tariff/tax reduction § Financial/capital markets reforms as consolidation § Import of capital goods / technology § Opening up of FDI § Tariff down to 10%. § Expansion of capacity § Government regulation to facilitation § To reach ASEAN levels by 2010 § Key sectors of economy reserved for public sector only § Bilateral Comprehensive Economic Partnership Agreements with EU, Japan, ASEAN etc in pipeline 4
India - a strong and vibrant economy
Macroeconomic stability Forex Reserves (USD bn) 250 220 § Steady increase in forex reserves. 192 200 141 150 100 75 50 5. 8 6. 4 42 32 22 20 0 FY 08 (till Aug) FY 07 FY 06 FY 05 FY 04 FY 03 FY 02 FY 01 FY 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY 93 FY 92 FY 91 Trends in Inflation- WPI (%Yo. Y) § Moderate inflation over last few years 16 14 13. 7 12 % 10 8 6 5. 4 4 2 0 FY 07 FY 06 FY 05 FY 04 FY 03 FY 02 FY 01 FY 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY 93 FY 92 FY 91 6
Economy – high growth rates Robust GDP growth Real GDP growth (%) 9. 4 10 9 14 8 7 6 5. 3 11 10 10. 9 (%) 5 12 4 8 7 6 3 5. 15 4 2 1 2 0 0 FY 07 FY 06 FY 05 FY 04 FY 03 FY 02 FY 01 FY 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY 93 FY 92 FY 91 Industry growth (%) Services growth (%) Source: Reserve Bank of India, CMIE 7
Economy – high growth rates leading to increasing FDI Increasing FDI trend Svgs & Cap Formation % of GDP ( Current prices) 18000 15726 26. 3 30 23. 1 14000 12000 25 10000 20 8000 15 6000 10 4000 Goss domestic savings Source: RBI, DIPP FY 06 FY 05 FY 04 FY 03 FY 02 FY 01 FY 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY 07 FY 06 FY 05 FY 04 FY 03 FY 02 FY 01 FY 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY 93 FY 92 0 FY 93 5 97 FY 91 0 FY 92 2000 33. 8 32. 4 35 FY 91 USD million 16000 40 Gross domestic capital formation Source: Reserve Bank of India • Trade liberalization: Import tariff to reach ASEAN level by 2010 • CEPA being negotiated with EU, Japan etc. 8
Macroeconomic stability - Stable currency Rupee exchange rate ( INR / USD) 60 47. 68 50 45. 94 45. 29 42. 04 40 35. 47 31. 39 30 20 17. 94 10 0 FY 07 FY 06 FY 05 FY 04 FY 03 FY 02 FY 01 FY 00 FY 99 FY 98 FY 97 FY 96 FY 95 FY 94 FY 93 FY 92 FY 91 INR/ USD Source: RBI High Degree of autonomy of India’s Central Bank § § Credible independent Central Bank Sound professional management 9
Going Forward
Going forward Goldman Sachs has revised its timelines for India’s GDP exceeding the G 6’s GDP India’s GDP (in US$ terms) will surpass that of the US before 2050, to make it the second largest economy Italy France/UK Germany New India Projection Japan US Cars indicate when Indian US$GDP exceeds that of the Country 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: Goldman Sachs, Global Economic Paper No 152, 22 January 2007 11
Investment Opportunities
Investor-friendly, liberal open-market economy Large skill and intellectual capital base § Over 2. 5 million graduates added every year – Most of them English-speaking – 300, 000 Engineers – 150, 000 IT professionals § Strong emphasis on human resource development – Skills missions being launched – Up gradation of workers training – Increased public spending in Education and health 13
Firms in India – globally competitive 91 percent of MNC’s make profits in India compared to 45 - 50 percent in China 69% of survey respondents report higher profitability averages in India than they do globally India’s ROE quite high relatively 4. 0 3. 5 India Indonesia 3. 0 P/B (2007) (x) § China Singapore 2. 5 Malaysia Taiwan Philippines 2. 0 Thailand Hong Kong 1. 5 Korea 1. 0 12 14 16 18 20 22 24 26 28 Ro. E (2007) (%) Source: Prowess, CLSA Asia-Pacific Markets P/B = Price to Book value 14
Indian firms seek global reach Tata Steel bought Corus Plc USD 12. 1 billion Hindalco acquired Novelis Inc. USD 6 billion Acquisition made Hindalco the world's largest aluminum rolling company Suzlon Energy Ltd. acquired REpower USD 1. 6 billion Acquisition made Suzlon world's third largest wind power company Dr. Reddy’s acquired Betapharm USD 0. 5 billion Acquired German’s third largest generic companies United spirits acquired W&M USD 0. 5 billion Acquisition made United Spirits world's second largest spirit company Acquisition made Tata Steel world’s fifth largest steel producer globally 15
India- Attractive location for R&D MNCs finding location of R&D in India : Increases global competitiveness § Large R&D facility of major MNCs – Microsoft – IBM – ADOBE – SAP – Sony Ericsson – Dell – The Daimler. Chrysler – Boeing – Texas Instruments 16
Creative Industries in India
Strength of Creative Industry § India’s strengths in the Creative Sector: Ø Its diversity in terms of content. Ø Its spread in terms of the market. § Rich tradition provides a store house of content. Ø Advantage of a multi cultural, multi lingual, multi religious pluralistic heritage that enables it to understand varied markets with ease. Ø Indian writers in English gaining international acclaim- Nobel Prize, Booker Prize Ø Films, literature, music that would appeal to a niche audience in Western as well as South East Asian nations are being produced.
FDI Policy in Creative Industry Liberal policy with regards to FDI ushering the growth of Creative Industries. • FDI up to 100% under automatic route in the Advertising industry. • 100% FDI under automatic route in production and distribution of Films. • FDI up to 26% is allowed through FIPB route in print media (newspapers & periodicals dealing with news/ current affairs). • 100% FDI is allowed through FIPB route in publishing of scientific magazines/ specialty journals/ periodicals.
FDI Policy in Creative Industry …contd. Liberal policy with regards to FDI ushering the growth of Creative Industries. • FDI + FII up to 20% is allowed through FIPB route in broadcasting FM radio. • FDI + FII up to 49% is allowed through FIPB route in cable network. • FD + FII up to 49% is allowed through FIPB route in DTH. • 100% FDI is allowed in uplinking of non-news and current affair TV channel. • 26% FDI/FII is allowed in uplinking of news and current affair TV channel.
Initiatives in Creative Industry § Signing co-production treaties with other countries. § Tax incentives to investors investing in multiplexes. § Broadband has been introduced to create more demand for content.
Fight Against Piracy § Strong IPR Regime § TRIPS compliant IPR law § Public consensus on adherence to IP § Anti – piracy campaign over TV, radio and hoardings. § Aggressive measures against all forms of piracy will continue to help limit losses in distribution Ø 1589 raids conducted in 2005 § Promotion, public awareness and enforcement of copyright law. § Supporting International copyright conventions such as IFPI (International Federation of the Phonographic Industry). § Promoting digital technologies to assist rights owners.
Indian Film Industry § No. of Film Produced 1041(2005) Ø Hollywood produces about 500 films per year § Industry expected to have a growth rate of more than 20% over next five years § Global spread in terms of the market Ø A Karan Johar Film can find an audience in the affluent Indian Diaspora in the UK and the US. Ø Tamil Films find a niche audience in Malaysia and Singapore Ø Bengali films, literature and music have an eager audience in Bangladesh. Ø India also has a growing young population that will spend freely on entertainment.
Indian Television Industry § Number of Channels: Estimated 300 (2005) § No. of cable & satellite connected homes: 55 million (2005) Ø Projected to grow 10. 7 billion by 2010 § The television industry is projected to grow @ 24% to reach US$ 10. 7 billion in 2010 § Huge potential in Regional Programming, Dubbed Foreign Content, Niche Channels, Digitalization of Cable TV
Music Industry § Indian music industry: Estimated US$175 million (2005) Ø Projected to grow 185 million by 2010 § 338 licenses given for FM radio channels in 91 big and small towns to private players: major growth opportunity to music industry § Specialized music stores- such as Planet-M and Music World by music production companies coming up in towns and cities § Potential of growth due to deluge of FM radio channels, rising popularity of remixes, organized retailing in music, overseas potential.
Print Media § Reach of Print Media: 200 million § Reach of Newspapers: 176 million § Reach of magazines: 69 million § Size of the Indian print media industry : US$ 2. 7 billion (2005) Ø Projected to grow 4. 8 billion by 2010 § Growth potential due to rising literacy market, expansion from regional to pan India level by regional players
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