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Plann ing Com m ission, Plann ing

Proc ess & t he B ig Pic t u re

Presentation to Intel Capital CEOs Summit

24 th May 2006

Rajeeva Rat n a ShahMember Secretary

Planning CommissionGovernment of India

http://planningcommission.gov.in

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St rong Mac ro-Ec onom ic Per form anc e Sustained Economic growth;

8.0 % - Outlook for Current Year

8.0 % + - Next quinqennium / decade

Over 6.0% - Next 50 Years Goldman Sachs

Exports growth - over 20% in 2005-06

Non Oil imports growing at 32%-Economic vibrancy FII Investment over US $10.5 billion in 2005-06

Developed Banking system moving rapidly towards

ICT integrated core banking/net banking

Mature Capital Market NSE third largest, BSE fifthlargest in terms of number of trades

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Sust a ined Ec onom ic Grow t h(Base year: 1993-94)

7.8

4.8

6.56.1

4.4

5.2

3.7

8.88.5 8.5

0

1

2

3

4

5

6

7

8

9

10

1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

GD

P

Growth

Rate

(%)

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Grow ing Foreign Exchange Reserves

2226

30

113

141.5

151.6

76.1

17

42.26

38

54.15

4443.5

45.35

48.846.64

43.642.5

37.2

35.5

33.5

47.5

0

20

40

60

80

100

120

140

160

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

0

7

14

21

28

35

42

49

56

E

xchangeRate(Rs/US$)

Fo

reignExchan

geReserves(US$billion)

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Indias External SectorForeign Trade

Item 2003 -04 2004 -05 2005-062004-05

over 2003-04

2005-06

over 2004-05

($ Million) (Percentage Variation)Total

Merchandize

Exports

63,843 80,540 1,00,660 26.15 24.98

Total

Merchandize

Imports

78,149 1,06,451 1,40,225 36.21 31.72

Foreign Exchange Reserves Less than $ 1 billion in 1991 $54.7 billion in April 2002 $151.6 billion in April, 2006

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Ec onom ic L ibera l iza t ion Fiscal Policy Reforms :

Stable tax regime with just 3 rates for both Excise as well as Customsduties

Full National treatment for foreign Cos. incorporated in India

Industrial Policy Reforms :

Capacity licensing dispensed with Compulsory licensing only in 6 sectors: restrictions on grounds of

national security, public health, public safety

FDI policy being progressively liberalized

Trade policy Reforms : Most items on Open General License, Quantitative Restrictions lifted;

Monetary Policy and Financial Sector Reforms :

Interest rates brought down Bank rate/Prime lending rate lowered

Banking Sector reforms prudential norms stiffened Securatization Act for better security for creditors

Competition law enacted. Competition Commission constituted

Independent regulators in place for Insurance sector (IRA) and Capital

Markets (SEBI) Exchange Controls relaxed;

Profits and dividends can be freely repatriated;

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Rapid ly Im proving In fras t ruc t ure

Invested US$ 11 bn in GoldenQuadrilateral and North-South & East-West Corridor projects under NHDP*

US$ 3.1 bn port modernizationprogram to significantly reduceturnaround time

New international airports to copewith increasing passenger and cargotraffic

Worlds Fastest growing telecommarket with a unified licensing regimeand world class international anddomestic connectivity

The Electricity Act, 2003 enablescaptive generation and trading inelectricity

Power sector to generate 100,000 MWand improve T&D through FDI

* NHDP: National Highway Development Project

Source: Ministry of Commerce and Industry

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Transmission &Distribution

$ 116 bn

Inves t m ent Requ irem ent in Inf rast ruc t u reupt o 2012Pow er Generation

$ 143 bn

Roads$ 50 bn

Refineries

$ 22 bnCoal

$ 26 bnInvestment

Requirement

in Energy &infrastructure

up to 2012 Oil & Gas$ 100 bn

Cross-CountryPipelines

$ 10 bn

Ports$ 20 Bil l ion LNG Terminals$ 10 bn Railways$ 15 Bil l ion

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Nat ional H ighw ays National Highway Development ProgrammeNHDP-III : 4-laning of 10,000 km through BOT (Toll)NHDP-IV: 2-laning of 20,000 km

NHDP-V: 6-laning of 6500 km through BOT (Toll)NHDP-VI: Development of 1000 km of Expressways

through PPP

NHDP VII: Ring roads, Grade separators, Interchanges Model Concession Framework for National Highways Restructuring of NHAI to make it multi-disciplinary

National Highways Financing Plan (Rs.224 crore or $50bn) approved by Committee on Infrastructure (CoI)

Private participation to be encouraged for operation,maintenance and tolling of National Highways

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Rai lways Largest passenger carrying network of the world (carrying 5.6

bn nearly the world population/year. Growth rate (freight 11%; passenger 7% and earnings 16%)

Operating ratio 83.8% - comparable with American railroads

A rapidly liberalising government monopoly having PPPs invarious sub-sectors viz.

Container movement

Wagon manufacture Multimodal logistic parts

Passenger amenities & services

Technology import for indigenization in areas of interest

Locomotives manufacture

Hire axle load wagon design (32.5 tons/axle)

Electronic instrumentation for control and safety

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Ai t

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Liberalized Civil Aviation Regime conducive for PPPs and FDIboth

Statutory Economic Regulator

Model Concession Agreement

Civil Aviation Policy

Signing of Concession Agreements for

Delhi and Mumbai as PPPs.

Bangalore & Hyderabad as Greenfield 100% Private

Airports. Modernization of 35 non-metro Airports in Tier-II cities

(Total programme Rs.40,000 crore or $9.0 billion)

Opening up of Air Space (i) Open Skies Agreement with USA.

(ii) 23 Bilateral Agreements with countries of Europe, Africa andAsia Pacific Region

Fleet Expansion of Flagship Carriers : - Air India = 68 - Indian =43

Ai rpor ts

On the anvil

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Enabl ing Fram ew ork for PPP Model concession agreements for

development of Highways, Airports and

Ports

Independent economic regulator for airports

Scheme for financing viable infrastructureprojects through SPV

Scheme for support to PPP in infrastructure

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Com pet i t i ve Ent repreneursh ip Prevalence of foreign technology licensing Rank 1 Availability of scientist and engineers Rank 2

Quality of management schools Rank 9

Firm level innovation Rank 12

Firm level technology absorption Rank 16

Company spending on R&D Rank 32(Source Global Competitiveness Report, UNCTAD 2003)

India amongst the leading entrepreneurial hotbedsglobally (Red Herring Clubs India w ith Israel)

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Intellectual P roperty Rights-Initiatives

Modernization/revamping of legislations onIntellectual Property IP;

IPR Laws are TRIPS compliant; Intellectual Property Appellate Tribunal

functional from 15th September 2003;

Major initiative underway at modernizing IPadministration;

Computerization of IP administration;

Digital database library of patent, trademark &design records;

For more information visit www.ipindia.nic.in
http://www.ipindia.nic.in/http://www.ipindia.nic.in/

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Foreign Investment Flows to India

($ Million)

Item 2002-03 2003-04 2004-05

(P)

2005-06 (P)(Apr-Feb)

(a) Direct Investment 5,035 4,322 5,653

3,778

1,508

367

9,313

14,966

5,970

Equity 2,764 2,229 4,510

Reinvested Earnings 1,833 1,460 1,257

Other Capital 438 633 203

(b) Portfolio Investment 979 11,377 11,526

Total (a) + (b) 6,014 15,699 17,496Source : RBI May, 2006

External Debt $ 119.8 billion at end March 2005

Debt:GDP ratio declined from 28.7% in 1990-91 to 17.3%in 2005

P li FDI

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Policy on FDI

FDI up to 100% allowed under the automatic route in

development of townships, housing, built up infrastructure andconstruction development projects except:

Sectors attracting compulsory licensing

Equity limits under sectoral policies Transfer of shares to non-residents under certain

circumstances

Investor having existing venture in same field under certain

circumstances FDI in domestic airlines increased to 49%

FDI in Telecom services increased to 74%

Fresh guidelines for investment with previous joint venturesissued

Transfer of shares from residents shareholders put on automaticroute

National Treatment to investment Bilateral Investment Protection Agreement with 57 countries

Special Economic Zones

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Policy Duty free zones, deemed foreign territories

FDI up to 100% permitted in almost all

manufacturing activities

Transfer of goods from DTA to SEZ treated asexports.

Units to be net foreign exchange earner w ithin 5years. No export commitments.

No lim its on DTA sales Can be set up in the public, private or joint sector

Single w indow Clearance System


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Incentives for Developer

Income tax exemption for any block of 10 years in 15 years. Full freedom in allocation of developed plots to approved SEZ

units on conventional basis

Full authority to provide utility services on conventional lines Foreign investment permitted

Incentives for Units

100% Income tax exemption for first 5 years, 50% for next 5years and 50% of the ploughed back export profits for next 5years

Domestic sales (DTA) permitted on payment of applicable

custom duty (net foreign earning) 100% FDI under automatic route (except arms/ammunitions

etc)

No cap on foreign investments for SSI reserved items

Enhanced limit of Rs.2.4 crore per annum allowed formanagerial remuneration

Investment Facilitation

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Investment Facilitation

Foreign Investment Implementation Authority (FIIA)- to sort out any operational difficulty and facilitateimplementation;

FDI In India - Policies and Procedures

Also available in Spanish, German, French & Italian.

An Empowered Sub-Committee of the NationalDevelopment Council set up on Creating an investor-friendly climate;

To focus on removing regulatory barriers to investments.

Web site www.dipp.nic.in

On-line chat, bulletin board and e-mail;

India: FDI Outlook
http://www.dipp.nic.in/http://www.dipp.nic.in/

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India: FDI Outlook

On the Policy front, while our FDI policy is already very

liberal, the policy is being further progressivelyrationalised

Equity cap in civil aviation (air transport), has recently

been raised as a measure of further liberalisation ofpolicy

Some of the independent assessments in this include -

In UNCTADs Propsects for Foreign Direct Investment andstrategies of Transitionals Corporation 2005-08, India isranked second, ahead of US (third) as the most attractivebusiness location

A.T. Kearneys FDI Confidence Index 2005 places India atsecond place up from third last year

India continues to be the most attractive location for offshoring of service activities according to A.T. KearneysAnnual Survey for 2005

India: FDI Outlook

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India: FDI Outlook

Rated as the best BPO destination - AT KEARNEY

Best technology licensing regime - UNCTADs GlobalCompetitiveness Report, 2003

Rated among the most favourite investmentdestinations (UNCTAD, JETRO, JBIC, Deutsche Bank, EIU, etc.)

Major destination for foreign venture capitalfunds (Far Eastern Economic Review)

Sixth most attractive investment destination ATKEARNEY Business Confidence Index, 2003

Also among the top 10 Tourist Destinations

The Cost Advantage

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The Cost Advantage

0

5

10

15

20

25

30

35

Indonesia

China In

dia

Russia

Thailand

Malaysia

Mexico

Poland

Brazil

Hungary

Czech.Rep.

Taiwan

Korea S

pain Italy

France UK

Canada

Japan US

Germany

2003 2009

(US$/hourWorked

)

Expectedchange 03-09

22.51.52.5222.52.54.54.5776655687810

3.863.481.932.942.272.242.641.973.021.731.821.771.151.130.830.710.820.880.560.470.30CAGR(%):

$/hour:

Average hourly compensation of production workers, including benefits (2003 vs.2009)

Source: EIU; Euromonitor; S&P DRI; U.S. Deptt. of labour; BCG analysis

Average of the eleven studied LCC countries:* 2003: ~$2.10/hr

* 2009: ~$3.00/hr* +6.5% p.a.

The Demographic Dividend

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The Demographic Dividend

India demographics Profile (2002)

-60 -40 -20 0 20 40 60

0-4

5-9

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

70-74

75-79

80+

Age groups

Mn people

20-35 age group:

325 mn people (~25%)

France demographics Profile (2025)

-3 -2 -1 0 1 2 3

0-45-9

10-1415-1920-2425-2930-3435-39

40-4445-4950-5455-5960-6465-69

70-7475-79

80+

Age groups

Mn people

20-35 age group:

11 mn people (~17%)

China demographics Profile (2020)

-60 -40 -20 0 20 40 60

0-45-9

10-1415-1920-2425-29

30-3435-3940-4445-4950-54

55-5960-6465-6970-7475-79

80+

Age groups

Mn people

20-35 age group:308 mn people (~21%)

Gl b l W kf Th F t

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Global Workforce The Future

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Sk i l l ed K now ledge Work forc e Indias competitive edge is its

skilled manpower Over 380 universities (11,200

colleges) 1500 research institutions

Over 200,000 engineeringgraduates

Over 300,000 post graduates fromnon-engineering colleges

2,100,000 other graduates

Around 9,000 PhDs

Knowledge workers in softwareand service industry increased

from 6,800 in 1985-86 to 650,000in 2003

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India - The Backoffice hub

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India The Backoffice hub

India has become the most

preferred destination Outsourcing trend increasing GE, TI, Intel, CISCO,

Microsoft, Dell, Sun Micro,Oracle, LG, Ford, American

Express and other financialsector companies;

Customer needs are being met Large pool of skilled English

speaking workforce skillsand scalability, 24x7 support

Productivity and qualityenhancement

Conducive policy environment

and Government support Highly improved telecom

infrastructure Call center career is

aspirational unlike a low

choice in the West

Indian ITES-BPO Industry

The Total Advantage

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The Total Advantage

* Graduates with skills to be directly employed (does not consider willingness and accessibility of talent)** Number derived via extrapolation

*** As of 2003Source: HR interviews; country labour and graduation statistics; McKinsey Global Institute

Average suitable* Graduate Talent Pool for Offshore IT & ITES BPO (000)

India*** China Russia Phili-

ppines

Turkey** Thailand** Poland Brazil Mexico Indo-

nesia

Total

supply of

suitablelow-wage

talent (28countries)

1,773

11%

10%

8%7%

5%4%

4%4%

3%

16%

6,386

18

other

Low-wage

countries

28 %727

654

514

427

293

285

242 232

210

1,029

100%

Cost Savings by Off shoring BPO

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Services to India

Key opportunity areasImpact*Overall cost saving Per cent

Claims processing

Servicing

Call centre operations Call centre operations

Loan processing(consumer, corporate,mortgage)

Research anddevelopment

Call centre operations

Bil l ing

Engineering and design Accounts payable/

receivable

Revenue accounting

Call centre operations Frequent flyer

programmes

Insurance

Retail financialservices / Retailbanking

Pharmaceuticals

Telecom

Airlines

Automotive

0.8-1.8

1.5-2.5

5.0-6.5

8.0-12.0**

10.0-15.0

1.0-2.0

40-60% cost savingfor processes

offshored

Country Advantage Likely to be

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Comoditized

Task aggregationAnd process level

improvement

45-55

15 30-35

Country advantage(45-55% savings)

Vendor advantage(30-40% savings)

Original

Costbase

Factor

CostSavings

Additional

Telecom& manage-ment costs

Off-shore

Locationcost

Consoli-

ation,Standar-Dization& superiorskills

Task

Reengineering

Econo-

mies ofscale

Process

Reengine-ering

New cost

base

Task m igration Task level

improvement

100 60-65

10-15 8-135-7

3-5

Does notInclude gains fromOver-delivery and

continuousimprovement

Joint Venturing Opportunities in

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Biotech

Indias inherent strengths

Rich Biodiversity

Large reservoirs of valuable diagnostic and clinical data

Vibrant and inventive pharmaceutical industry

World class network of educational and research institutions

Known strengths in mathematics, logic and computationalskills

Super Computing and Software strengths enable extensive

use of bio-informatics in new drug discovery

Opportunities

Joint Ventures in Biotech based new drugs / pharmaceuticals

Positive Perception about High techF t

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Future

0

10

20

30

40

50

USA

UK

Thailand

Philippines

Malaysia

Israel

Indonesia

India

France

China

Present

2017

Potential to compete Globally

Source: 2003 Report on Indicators of Technology Based Competitiveness of 33 nations, Technology Policy andAssessment Center, Georgia Institute of Technology

Overall High TechProduction Capability

Index

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Thank You

05 shah

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