indian economy 2009

1. Indian Economy Overview-P22. Trade and External Sector-P7-----FDI-P11-----FII-P173. Domestic Investments-P234. Indian Investments Abroad-P285. Agriculture-P336. Manufacturing-P397. Infrastructure-P41-----Ports-P46-----Power-P52-----Railways-P58-----Roads-P63-----Services-P688. Consumer Markets-P729. Marketing and Strategy-P7910. Rural Market-P8611. Urban Market-P9112. Economic Survey highlights 2007-08-P97

Developed By-P.B.Bhanja

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Indian Economy Overview

Last Updated: January 2009 [TOP]

Indian economy has been witnessing a phenomenal growth since the last decade. After seeing a growth rate in excess of 9 per cent for the last 3 years, it is still holding its ground in the midst of the current global financial crisis.

Pegging India's growth rate in the current year at between 7 and 8 per cent, the Union Finance Minister, Mr P Chidambaram, has reiterated that India would continue being the second fastest growing economy in the world despite the ongoing global economic slowdown. Though the global financial crisis have affected the Indian equity and foreign exchange markets, the macroeconomic brunt of the meltdown is not much due to the overall strength of the domestic demand and the largely domestic nature of its investment financing.

Chidambaram has further assured that by the second half of the next fiscal, the economy would pick up and the government’s ‘stimulus measures’ would encourage growth and ensure "brisk” economic activities in the last few months of this fiscal year.

Bob Buckle, an APEC Rim trade (based on rich nations) economist has stated that with India and China posting good growth rates, the world may come out of recession more easily.

Further, according to the International Monetary Fund’s (IMF) prediction in October 2008, India is likely to grow at 7.8 per cent in 2008, and 6.3 per cent in 2009.

As a measure to boost the economy and to ensure a 7 per cent growth, the government announced an approximately US$ 6.46 billion fiscal stimulus package, on December 7, 2008. The package entailed additional spending and excise duty cuts for increasing consumption.

According to stock market regulator Security and Exchange Board of India (SEBI), the Indian stocks would be the first to bounce back in the current global financial crisis. SEBI is likely to initiate steps to limit over-leveraged hedge funds with the aim of bringing in more solidity to the unstable market.

Leading global agencies have reiterated faith in the Indian economy. According to Crisil, a leading rating agency, India's retail securitisation market is better placed than the US, exhibiting more stability with few rating downgrades. "Investors in securitised paper in India have no reason to fear crippling losses of the kind that have hit their US counterparts," a Crisil release said.

Further, as per a survey in Deutsch business magazine, Wirtschafts Woche, in spite of the global financial crisis, companies from developed economies such as Germany have shown confidence in India's economic future and are interested in growing their business in the country. Showing faith in India's robust future, around 94 per cent German companies plan to increase their businesses with the subcontinent, the survey stated.


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After the signing of the US-India civil nuclear deal, India will now be partnering several countries for nuclear fuel technology projects, and this will further boost the economy.

India and Russia signed 10 agreements in December 2008, including a pact on civil nuclear cooperation.

Thorium Power, a US firm, and Punj Lloyd will be forming a nuclear fuel technology joint venture (JV). The JV will offer thorium fuel technology for light water reactors (LWR) in India.

The 2008-09 Fiscal

Subsequent to three years of plus 9 per cent growth in gross domestic product (GDP), India's growth rate in the current year is likely to come down to a more modest level of 7–8 per cent.

Foreign institutional investments (FII) in India became positive in November 2008, after net selling by them in September and October 2008 due to redemption pressures from abroad.

As per SEBI data, foreign institutional investors (FIIs) continued to flow into India with 120 new FIIs registering themselves during September and November 2008, since the global meltdown started in September. Even though some FIIs had pulled out, many FIIs see long-term value in India. Moreover, during the same period, 358 new sub-accounts were registered, which was the highest within three months, in 2008.

Foreign direct investment (FDI) in India from March-September 2008 increased by 137 per cent to US$ 17.21 billion, due to the inflows into construction, real estate, services, computer hardware and software firms. The government has also stated that the country would attract US$ 35 billion of FDI in the current year to March 2009.

In August 2008, the average inflation stood near 12.5 per cent, which fell sharply in the third week of December, at 6.84 per cent, which was the lowest in the last 9 months. It was lower than Reserve Bank of India’s (RBI’s) target of 7 per cent for 2008–09.

In the first half of the current fiscal, the money supply increased by 6.6 per cent against 8.2 per cent last year (from end of March 2008 end to end of September 2008).

Net bank credit to the government and commercial sector increased by 6.8 per cent and 7.8 per cent, respectively.

Growth in net foreign exchange assets of the banks slowed to 6.0 per cent compare to 11.0 per cent in the previous year. However, the non-monetary liabilities went.

The central bank pumped in more money into the banking system, cutting CRR levels from 9.00 per cent to 5.5 per cent. Repo rate was also brought down to 7.5 per cent from 9 per cent.

The growth in the gross tax collection is was 25 per cent till September 2008, against 24.5 per cent in September 2007.

Total foreign investment inflow during the first half of 2008-09 was US$ 13.8 billion in September 2008.

India’s forex totalled to US$ 251.3 billion in the first week of November 2008.


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India’s cumulative value of exports for the period between April-September, 2008 was US$ 94973 million compared to US$ 72556 million. Exports during September, 2008 added up to US$ 13748 million which was 10.4 per cent higher than US$ 12455 million during September 2007.

The rural India growth story

The Indian growth story is spreading to the rural and semi-urban areas as well.

In 2008, the rural market has grown at an impressive rate of 25 per cent compared to the 7–10 per cent growth rate of the urban consumer retail market. Further, according to international consultancy firm Celent, the rural market will grow to a potential of US$ 1.9 billion by 2015 from the current US$ 487 million.

The rural India success story is being replicated across a range of sectors in the rural markets. After several global corporations like Microsoft, Intel, and Shell, many other major multinational companies (MNCs) and domestic players are keen to foray into the rural Indian market to capitalise on its growing opportunities.

Further, venture capitals have started investing in technology firms focussed in rural areas. Firms like Avishkaar India Micro Venture Capital Fund, Acumen Fund, and Rural Innovations Network (RIN) are focussing on rural markets.

Per Capita Income

In 2007–08, India's per capita income is estimated to be around US$ 740. Further, India's per capita income is expected to increase to US$ 2,000 by 2016-17 and US$ 4,000 by 2025. This growth rate will, consequently, propel India into the middle-income category.

Advantage India

According to The World Fact Book, India is among the world's youngest nations with a median age of 25 years as compared to 43 in Japan and 36 in USA. Of the BRIC—Brazil, Russia, India and China—countries, India is projected to stay the youngest with its working-age population estimated to rise to 70 per cent of the total demographic by 2030 - the largest in the world. India will see 70 million new entrants to its workforce over the next 5 years.

India has the second largest area of arable land in the world, making it one of the world's largest food producers - over 200 million tonnes of foodgrains are produced annually. India is the world's largest producer of milk (100 million tonnes per annum), sugarcane (315 million tonnes per annum) and tea (930 million kg per annum) and the second largest producer of rice, fruit and vegetables.

With the largest number of listed companies - 10,000 across 23 stock exchanges, India has the third largest investor base in the world.

India's healthy banking system with a network of 70,000 branches is among the largest in the world. In June 2007, the aggregate deposits of commercial banks were about US$ 445 billion (50 per cent of GDP) and the total bank credit stood at US$ 320 billion (36 per cent of GDP). NPA (non-performing assets) levels of banks in India are under 3 per cent, one of the lowest among emerging nations.


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According to a study by the McKinsey Global Institute (MGI), India's consumer market will be the world's fifth largest (from twelfth) in the world by 2025 and India's middle class will swell by over ten times from its current size of 50 million to 583 million people by 2025.

Growth potential

Special Economic Zones (SEZs) are set to see major investments after the straightening out of certain regulatory tangles. According to India's Commerce Secretary, Mr G K Pillai, India has approved 513 SEZs till August 2008, of which 250 have been notified. Investments are expected to cross US$ 45.73 billion by December 2009, providing incremental employment to 800,000 people. In December 2008, the government has cleared 22 proposals for setting up Special Economic Zones (SEZs). The proposals included a major foreign direct investment (FDI) project a by Dubai-based developer.

According to the CII Ernst & Young report titled 'India 2012: Telecom growth continues,' India's telecom services industry revenues are projected to reach US$ 54 billion in 2012, up from US$ 31 billion in 2008. India saw a 23 per cent increase in IP (Internet Protocol) addresses with 2.6 million connections in the third-quarter ended September 2008.

The government is planning to set up a special corpus of around US$ 10.48 billion for infrastructure projects.

According to a report by Research on International Economic Relations (ICRIER), the retail business in India would grow at 13 per cent annually from US$ 322 billion in 2006–07 to US$ 590 billion in 2011–12. The unorganised Indian retail sector is expected to grow at about 10 percent per annum to reach US$ 496 billion in 2011–12. Despite the steady expansion of organised retailers, according to a study by Indian Council for Research on International Economic Relations (ICRIER), a Delhi-based think tank.

According to a study by Evalueserve, a global research and analytics firm, India is likely to emerge as the next global hub for innovation and join the club of developed nations, with the country aiming to increase its research and development (R&D) expenditure in the coming years. India is targetting to increase its R&D spend to two per cent of the GDP by 2012 under the 11th Five-Year Plan, from less than one per cent earlier.

Corporate India registered US$ 3.4 billion as mergers and acquisitions (M&As) during November 2008, as against US$ 850 million in November 2007. The figure stood at US$ 2.13 billion in October 2008.

Future perfect

The Planning Commission has ruled out any changes in the average 9 per cent gross domestic product growth target of the 11th Five-Year-Plan, although there might be ‘some significant reduction in growth’ next year as a result of the global financial crisis.

India offers huge investment opportunities in various sectors and investments are likely to pour into these sunshine sectors:

The realty sector is likely to increase at the rate of 30 per cent annually during the next ten years, drawing US$ 30 billion as foreign investment.

The Indian IT market is projected to see 18 per cent growth in 2008, touching US$ 38 billion.


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According to a McKinsey study, "The market size for the food consumption category in India is expected to grow from US$ 155 billion in 2005 to US$ 344 billion in 2025 at a compound annual growth rate of 4.1 percent."

According to the India Retail Report 2009, compiled by research group Images F&R Research, the Indian retail industry is likely to touch US$ 390.68 billion by 2010.

According to a McKinsey study, the Indian pharmaceutical industry is projected to grow to US$ 25 billion by 2010 whereas the domestic market is likely to more than triple to US$ 20 billion by 2015 from the current US$ 6 billion to become one of the leading pharmaceutical markets in the next decade.

According to a monthly review by the Centre for Monitoring Indian Economy (CMIE), agricultural production is likely to increase significantly during fiscal year 2009. CMIE has projected a growth of 3.2 per cent during fiscal year 2009, for the GDP of agriculture and allied sectors. "This would be the fourth straight year of positive growth in agricultural production, with the first three years clocking an average growth of 5.5 per cent," CMIE stated. The allied sectors comprising livestock, forestry and logging, and fishing are likely to see a growth of 4.8 per cent during fiscal year 2009.

Trade and External Sector



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One of the factors responsible for the tremendous growth of the Indian economy has been its booming foreign trade.

Foreign investment was the biggest source of accrual to India's foreign exchange reserves in 2007-08 at US$ 44.8 billion, as against US$ 15.6 billion in the previous fiscal. Portfolio investment inflow amounted to US$ 29.3 billion as against US$ 7.1 billion in the previous fiscal, whereas foreign direct investment (FDI) pumped in US$ 15.5 billion as against US$ 8.5 billion in the previous fiscal.

During the April-November period of 2008-09, India attracted total foreign investments of US$ 12.034 billion. FDI stood at US$ 23.331 billion, however, there was a net outflow of portfolio investments (including FIIs) of US$ 11.297 billion.

In November-end 2008, the country's forex stood at almost US$ 247.686 billion. Trade deficit during October 2008 at US$ 10.5 billion was higher by US$ 4.0 billion than US$ 6.5 billion in October 2007. The overall trade deficit during April-October 2008 widened to US$ 73.1 billion, an increase of US$ 27.4 billion (60.1 per cent) over the trade deficit of US$ 45.7 billion a year ago.

Estimated Capital Inflows in 2008-09

According to the economic outlook for 2008-09 released by the Prime Minister's Economic Advisory Council, total capital inflows in 2008-09 are estimated at US$ 70.9 billion. Aggregate FDI inflows are estimated at US$ 19.7 billion and portfolio inflows are likely to touch US$ 4.1 billion. Net inflows on account of loans are expected to be US$ 34 billion. Net banking capital inflow and inflows under "other capital" are likely to be more than adequate to finance the enlarged Capital Account Deficit (CAD), leaving about US$ 29 billion to accrue in the foreign exchange reserves of the RBI.

In its August report, the Reserve Bank of India (RBI) had stated that FDI inflows in the first quarter of 2008-09 had touched US$ 10.073 billion, almost a billion more than the total FDI inflows (US$ 8.961 billion) in 2005-06. Given the global economic slowdown, the target, however, may not be met.

FDI

In 2007-08, India's FDI touched US$ 25 billion, up 56 per cent against US$ 15.7 billion in 2006-07. According to a report by the National Council of Applied Economic Research (NCAER), foreign investments in India grew three-fold in FY 2008 as against the capital inflow in the corresponding period last fiscal. The report stated, "In the first nine months of 2007-08, the net capital flows rose to US$ 83 billion from US$ 30 billion the country received during the corresponding period of the previous year."

FDI equity inflows between April–September 2008 were US$ 17.21 billion, a growth of 137 per cent over the same period last year. Inflow of FDI equity for the month of September 2008 alone was US$ 2.56 billion, a growth of 259 per cent over the same month in last year. Further, October 2008 has witnessed FDI inflows of US$ 1.49 billion, thereby increasing the FDI equity inflows for the period April-October 2008 to US$ 18.7 billion.

In November 2008, FDI inflows were US$ 1.083 billion, increasing the cumulative FDI inflows for the period April-November 2008 to US$ 23.33 billion.


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Exports

Exports during 2007-08 grew by 23.02 per cent to total US$ 155.51 billion as against US$ 126.41 billion in the corresponding period last year.

The latest provisional figures as per the Commerce Ministry show that the country's exports during November 2008 were valued at US$ 11.505 billion, while cumulative value of exports for the period April- November, 2008 was US$ 119.301 billion as against US$ 99.912 billion, registering a growth of 19.4 per cent over the same period last year.

The competitive advantage that India enjoys across a range of sectors has led to rapid increase in India's exports.

According to the Gem and Jewellery Export Promotion Council (GJEPC), India's gems and jewellery exports rose nine per cent to US$ 13. 587 billion during April-December 2008 as compared with US$ 12. 485 billion in the same period last year.

India's tea exports are projected to grow by more than 17 per cent and touch 210 million kg in 2008-09. The country's tea exports have already surged to 105.56 million kg during January-July, 2008 as compared to 88.86 million kg, in the same period a year back. In value terms also, the shipments during the first seven months of 2008 touched US$ 255.18 million as compared to US$ 187. 08 million for the corresponding period last year.

Indian cashew exports recorded a value increase of 36 per cent in the first three quarters of the current fiscal, 2008-09. According to figures released by the Cashew Export Promotion Council, about 82,921 tonnes of cashew valued at US$ 468. 64 million were exported during the first nine months of the current fiscal as against 86,312 tonne valued at US$ 343. 82 million during April-December in 2007-08.

India's tobacco exports, the third largest in the world, surged by 68 per cent to touch US$ 454. 54 million in the first eight months of 2008-09 on better price realisation.

India's soymeal exports rose sharply by more than 53 per cent during the first three quarters of 2008-09. Exports of soymeal, which is widely used for human consumption and poultry feed, during April - December 2008 went up to more than 3 million tonnes against more than 2 million tonnes recorded during the same period in 2007-08.

India's iron ore exports doubled in November as compared to October. As per data compiled by Federation of Indian Mineral Industries (FIMI), the total quantity of iron ore shipped in November was 8.74 million tonnes, against 4.13 million tonnes in October.

India's total export of spices is likely to touch US$ 1.2 billion in 2008-09. India's natural rubber exports have surged 38 per cent in the April-July 2008,

to touch US$ 51.2 million. Export of leather and leather products from the country reached US$ 3.47

billion in 2008-09 According to a macro-track report by the National Council of Applied Economic

Research (NCAER), India's share in global service exports will increase to 6 per cent by 2012 from the current 2.7 per cent.

India exported 1.40 million tonnes of oilmeal in the first three months of the current financial year, up 70 per cent from the same period last year.

Foreign Exchange


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India's foreign exchange reserves touched US$ 247.686 billion in November 2008. Foreign currency assets stood at US$ 238.968 billion as on November 28, 2008.

External Sector

India's Balance of Payments (BoP) accounts for July-September 2008 reiterates India's growing trade interactions with the world.

On BoP, India's merchandise exports registered a growth of 24.6 per cent in July-September 2008, as compared with 16.7 per cent in the same period of the previous fiscal. Import payments, on BoP basis, recorded 45 per cent growth in July-September 2008 against 22.2 per cent in the same period of the previous fiscal.

Invisible receipts comprising services, current transfers and income rose by 33.9 per cent in July-September 2008, mainly due to increase in receipts under private transfers along with steady growth in software services exports, business and professional services, travel and transportation. At the same time, invisible payments reflected outbound tourist traffic from India, rising payments towards transportation, domestic demand for business- related services and investment income payments in the form of interest payments and dividends.

Net invisibles (invisibles receipts minus invisibles payments) amounted to US$ 26.1 billion in July-September 2008 (as compared to US$ 16.9 billion in July-September 2007). At this level, net invisibles surplus financed 67.5 per cent of trade deficit in Q2 of 2008-09 (79.8 per cent in Q2 of 2007-08).

India's trade relations with several countries have received an impetus with the numerous bilateral pacts and trade agreements signed recently.

The government is likely to sign a free trade agreement (FTA) with the Association of Southeast Asian Nations (ASEAN). With lower tariff barriers, trade between India and ASEAN is expected to increase significantly from the present US$ 28 billion annually.

India-African bilateral trade is projected to grow by over nine times from US$ 26 billion now to US$ 150 billion by 2012, according to an estimate by a leading business chamber.

Spain, which has a strong industrial base in the automotive and infrastructure sectors has witnessed a five-fold increase in its investments in India in 2008. Spanish investment in India in the first three quarters of 2008 calendar year was US$ 158 million (or 114 million euros)— an increase of 500 per cent from the previous year.

India has emerged as Dubai's second biggest trading partner during the first nine months of 2008 with imports from India worth US$ 10 billion and re-exports to India worth US$ 8 billion.

India and Turkey aim to double bilateral trade to US$ 6 billion by 2010. India and Singapore will be signing an agreement on IP rights' cooperation.

Singapore ranks fourth in terms of FDI in India during the period 1991-2008. India and Syria have signed a revised double taxation avoidance agreement

for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income.

According to Andrew Cahn, CEO of UK Trade & Investment (UKTI), a British Government body that draws UK's overseas investments, the bilateral trade between UK and India has touched US$ 17.44 billion in 2007-08. India's economic ties with the UK are also through the 52 listed companies with a


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combined market capitalisation of US$ 15.71 billion on the London Stock Exchange. In 2007-08, Indian firms invested in 1,573 projects in the UK.

India has signed a bilateral investment promotion and protection agreement (BIPA) with Syria, and is in the process of signing similar pacts with a host of countries.

India and Canada have set off ten joint initiatives worth US$ 17 million in the field of science and technology, and next-generation research.

India has become the 10th largest trading partner of Australia, with bilateral investment touching US$ 2 billion.

Non-oil bilateral trade between India and Oman in the first quarter of 2008 registered an impressive growth of 35-40 per cent.

Italy is looking forward to widening business opportunities in India, especially in West Bengal. Bilateral trade between the two countries added up US$ 100 million in 2007.

Foreign Trade Policy for 2008-09

Continuing with the government policy of integrating trade with the overall development of Indian economy, the annual supplement 2008-09 to Foreign Trade Policy 2004-09 introduced new incentives.

Focus Market schemes (FMS)-aimed at promoting exports to certain countries by offsetting high freight cost and other externalities—has been expanded to include 10 more countries. Simultaneously, FMS would be calibrated with the Focus Product scheme (FPS)—aimed at giving a thrust to manufacture and export of certain industrial products which could generate large employment per unit of investment.

This is done to ensure that products with general high export intensity, not covered under FPS and which have low penetration in non-FMS countries, would be considered for export incentive as a focus product for that particular country.

Government Initiatives

In order to promote trade, the government has announced many innovative steps in the final annual supplement to FTP 2004-09:

Extension of Duty Entitlement Pass Book scheme (DEPB) till May 2009 Interest at 6 per cent for late refunds Cutback of customs duty payable under EPCG scheme from 5 per cent to 3

per cent Lowering of average export obligation under EPCG scheme Extension of income tax exemption to 100 per cent Export Oriented Units

(EOUs) beyond 2009 Additional duty-free credit of 2.5 per cent under Vishesh Krishi and Gram

Udyog Yojana (VKGUY) Additional credit of 5 per cent for sports and goods industries under Focus

Product Scheme Special focus initiative for IT sector Ensuring zero-rating of exports for domestic taxes Enhanced incentive of 2.5 per cent under Focus Product Scheme Addition of 10 more countries in the Focus Market Scheme Inclusion of IT and ITES and R&D in natural sciences under the Industrial Park

Scheme


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Establishment of Export Promotion Councils for Telecom sector

Besides the above initiatives, the government has taken several measures to boost exports during times of a global meltdown.

The government has established a US$ 1.02 million fund to promote the country's exports through Indian missions abroad. The focus of the fund is on boosting exports of India's small and medium enterprises in new and emerging markets like Africa and Latin America. Termed the 'Challenge fund', the money will be released as part of the Market Access Initiative (MAI) scheme of the commerce department.

The government has released US$ 163. 9 million towards payment of pending claims of Terminal Excise Duty, Duty Drawback and Central Sales Tax.

To help out exporters, the government, in a fiscal stimulus package announced in the first week of December 2008, permitted EXIM Bank to obtain from RBI a line of credit of US$ 1.03 billion. This will be used to provide pre-shipment and post-shipment credit, in rupees or dollars, to Indian exporters at competitive rates.

The government has provided an interest subvention of 2 per cent upto March-end on pre and post-shipment export credit for labour intensive exports such as textiles, leather, gems & jewellery, marine products and SME sector, subject to minimum interest rate of 7 per cent.

The government has also promised to provide additional funds of US$ 226. 80 million to ensure full refund of terminal excise duty/CST.

Exchange rate used: 1 USD = 48.6793 INR

Foreign Direct Investment

Last Updated: March 2009 [TOP]

With continued liberalisation of the foreign direct investment (FDI) policy, procedural relaxations, the sustained growth in the economy, and a favourable investment regime, a horde of global corporations are keen on investing in India. India continues to be regarded as one of the fastest expanding economies and the growth outlook for 2008–09 has been projected at a high sub-eight per cent by different rating agencies.

Further, according to a report by the Centre for Monitoring Indian Economy (CMIE), "Our close monitoring of projects through the CMIE CapEx service shows acceleration in the announcement of fresh investment." The CaPex service, with new projects worth US$ 44.89 billion in July, said that on an average, the monthly capturing of fresh investments was US$ 15.32 billion in 2005–06, which increased to US$ 25.18 billion in 2006–07, and to US$ 32.97 billion in 2007–08. In the first quarter of 2008–09, CMIE CapEx service received projects worth US$ 117.70 billion, averaging at US$ 39.14 billion, the report informed.

In spite of the global meltdown, in fiscal year 2007–08, about US$ 32.4 billion as foreign investment had poured into India. The country posted a 45 per cent growth in foreign direct investment (FDI) with US$ 23.3 billion between April-December 2008, over the same period last year. The FDI inflows between April-November 2008 stood at US$ 19.79 billion.


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FDI inflows between April-October 2008 were US$ 18.70 billion, as against the US$ 9.27 billion received during same period last year. Inflow of FDI equity for the month of September 2008 alone was US$ 2.56 billion, a growth of 259 per cent over the same month in last year. Further, October 2008 has witnessed FDI inflows of US$ 1.49 billion, thereby increasing the FDI inflows for the period April-October 2008 to US$ 18.7 billion, according to Commerce Minister, Mr Kamal Nath.

According to the Reserve Bank of India's (RBI) monthly bulletin, NRIs have pumped in US$ 513 million (on net basis) in NRI deposits in September 2008, which is the highest since December 2006.

The government has in February 2009 approved 29 foreign direct investment (FDI) proposals worth US$ 118.95 million including an US$ 70.49 million hotel project of AAPC Singapore Pte Ltd, a hotel management company this month.

The Foreign Investment Promotion Board (FIPB) has cleared around 30 proposals accounting for more than US$ 1.21 billion in the last few months. The approvals for such proposals went up about 50 per cent in 2008 as against 2007.

India: A much favoured destination

India has been rated as the fourth most attractive investment destination in the world, according to a global survey conducted by Ernst and Young in June 2008. India was after China, Central Europe and Western Europe in terms of prospects of alternative business locations. With 30 per cent votes, India emerged ahead of the US and Russia, which received 21 per cent votes each.

As per the global survey of corporate investment plans carried out by KPMG International, released in June 2008, (a global network of professional firms providing audit, tax, and advisory services), India will see the largest overall growth in its share of foreign investment, and it is likely to become the world leader for investment in manufacturing. Its share of international corporate investment is likely to increase by 8 per cent to 18 per cent over the next five years, helping it rise to the fourth, from the seventh position, in the investment league table, pushing Germany, France and the UK behind.

According to the AT Kearney FDI Confidence Index 2007, India continues to be the second most preferred destination for attracting global FDI inflows, a position it has held since 2005. India topped the AT Kearney's 2007 Global Services Location Index, emerging as the most preferred destination in terms of financial attractiveness, people and skills availability and business environment.

India is emerging as the most favoured investment destination for many countries.

The US Consul General, Aileen Crowe Nandi has said, "India is emerging as the most favoured destination for overseas investment and an important trading partner for the US."

A recent survey conducted by the Japan Bank for International Cooperation (JBIC) shows that India has become the most-favoured destination for long-term Japanese investment.


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In recent times, Japanese corporations have bought varying amounts of equity stakes in Indian firms, particularly, in the automobile sector and also machine tools, electronics and IT. In terms of cumulative FDI inflow, Japan is the fifth largest investor and Japan's FDI in India is estimated to be around US$ 5.5 billion over five years from 2006 to 2010.

Further, according to Tourism Minister Anil Sarkar, Australia and many South-Asian countries such as Cambodia, Vietnam and Thailand have plans for investing in the tourism sector in the Indian state of Tripura.

In terms of FDI equity inflows during April to October, the largest investments came from Mauritius (US$ 7.69 billion), Singapore (US$ 1.90 billion), U.S.A (US$ 1.25 billion), Cyprus (US$ 827 million), Netherlands (US$ 740 million), U.K ( US$ 701 million), Germany (US$ 538 million), France US$ 295 million), Japan (US$ 223 million), and UAE (US$ 186 million).

Sector-wise FDI

The sectors bagging the maximum amount of FDI equity during April to October, 2008 are the Services Sector (US$ 3.35 billion), Computer Hardware and Software (US$ 1.52 billion), Telecommunications (US$ 1.99 billion), Construction Activities (US$ 1.74 billion), & Housing and Real Estate (US$ 1.82 billion) .

Now, global investors are also evincing interest in other sectors like telecommunication, energy, construction, automobiles, electrical equipment apart from others.

Investment in the Indian realty market is set to increase to US$ 20 billion by 2010.

Many big names in international retail are also entering Indian cities. Global players such as Wal Mart, Marks & Spencers, Rosebys etc., have lined up investments to the tune of US$ 10 billion for the retail industry.

According to Mines Minister, Mr Sis Ram Ola, "FDI of about US$ 2.5 billion per annum is expected in the mining sector from the fifth year of implementation of the new National Mineral Policy (NMP)."

The surge in mobile services market is likely to see cumulative FDI inflows worth about US$ 24 billion into the Indian telecommunications sector by 2010, from US$ 3.84 billion till March 2008.

Aggressive Investment Plans

The surging economy has resulted in India emerging as the fastest growing market for many global majors. This has resulted in many companies lining up aggressive investment plans for the Indian market.

Footwear retail company, Pavers England Footprint, has plans to invest US$ 10 million for setting up 1,000 stores in India by 2013. Moreover, the company also plans to invest US$ 3 million on an R&D facility in Chennai.

General Motors India plans to invest US$ 500 million, in addition to US$ 1 billion it has already committed to invest in India. General Motors will also invest US$ 200 million in its Talegaon plant near Pune for its powertrain project.


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American Tower Corporation (ATC) plans an investment of about US$ 500 million to buy a stake in an Indian telecom tower company.

Norway-based Telenor has acquired Unitech Wireless with a US$ 1.23 billion investment for a 60 per cent stake.

Leading global multiplex player Cinepolis plans to start its India operations with an investment of US$ 350 million.

Finnish engineering and technology group, Metso started the development of its 49-acre multi-functional industrial facility, in Rajasthan, with an investment of around US$ 33.28 million over two years.

Swiss processing and packaging major, Tetra Pak International SA, plans to invest US$ 100.85 million in its second plant in Maharashtra.

Japanese telecom major, NTT DoCoMo, will be buying 27.31 per cent equity capital of Tata Teleservices for around US$ 2.48 billion.

The Goldman Sachs Group will be making an overall investment of almost US$ 100 million in its wholly owned non-banking financial company, Pratham Investments and Trading Private Ltd.

Ford India’s plans to expand its capacity in India will continue as per schedule. The expansion programme entails doubling its car manufacturing capacity to 200,000 units per year and an engine manufacturing facility with a capacity of producing 250,000 engines annually. The project will be completed by early 2010.

All Green Energy India, a subsidiary of Singapore-based All Green Energy Pvt Ltd, will be investing around US$ 96.30 million for the development of 10 biomass-based renewable energy projects over the next three years.

StarragHeckert, a global company in the field of milling machine centres for the aerospace, transport (automotive), energy and precision machinery markets, is planning to invest US$ 31 million in two phases.

Socomec UPS India, part of Socemec, France, will be investing US$ 5.02 million over the next three years. Targetting a 10 per cent share of the US$ 600 million - UPS market in India, Socomec has inked alliances with 24 new business partners.

A joint venture by Punj Llyod and US-based Thorium Power will see an investment of around US$ 1 billion for exploring commercial nuclear power opportunities.

Singapore-based Universal Success Enterprises Ltd (USEL) has signed three pacts with the Gujarat government for infrastructure projects and will be investing about US$ 17.5 billion for the same.


The government has taken significant steps to make foreign direct investment simpler, and render caps on FDI redundant.

In a recent move, the government has announced that equity investments coming through companies with Indians having majority ownership and control would be taken as fully domestic equity.

With the changes in the FDI policy, sectors like retail, telecom and media amongst others would benefit greatly.

The change in FDI norms will bring much respite to retailers who can now raise funds through stake sale in subsidiaries, and also build closer alliances with their foreign partners.


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Furthermore, with the revised FDI norms, extensive re-organisation of company finances across many sectors would be seen and companies would now be subject to further dividend distribution tax of 15 per cent, including surcharges.

Additionally, the government has made new amendments to these revised norms.

Even indirect foreign investment would not be allowed in sectors where foreign investment is barred, like multi-brand retail, agriculture, lottery and atomic energy.

The Department of Industrial Policy and Promotion (DIPP) and the Finance Ministry are planning to remove the cap on FDI in single-brand retail and permit up to 100 per cent foreign investments as against the 51 per cent currently.

The government is also considering the removal of the incentive cap in wind energy which is restricted to projects up to 49 MW, presently.

The Reserve Bank of India (RBI) will now permit FDI up to 49 per cent in credit information companies with voting rights up to 10 per cent.

The government is now planning to permit FDI in investment companies as well.

The government has also proposed wide-ranging modifications in the guidelines FDI over various sectors.

Investment by Indian companies in which foreign firms have beneficial investment will account as direct FDI.

Direct investments made by NRIs to account as FDI.

Looking ahead

With the government planning more liberalisation measures across a broad range of sectors and continued investor interest, the inflow of FDI into India is likely to further accelerate.

The Union Commerce and Industry Minister in India, Mr Kamal Nath, has assured that India will not be greatly affected by the current global meltdown and has expressed confidence about achieving the FDI target set for this year.



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Foreign Institutional Investors


India's exceptional growth story and its booming economy have made the country a favourite destination with foreign institutional investors (FIIs). It has continued to attract investment despite the Satyam non-governance issue and the global economic contagion impact on Indian markets.

The INSTANEX FII INDEX in India launched by Instanex Capital Consultants Pvt. Ltd., Mumbai, tracks the price performance of the portfolio of listed Indian equity shares owned by FIIs. The Index comprises of the top 15 companies by value of FII holdings. Reviews are conducted quarterly and companies are deleted from the Index if they are not among the top 20 FII holdings. According to the Index, in March, FIIs have increased their investing activity and out of the 15 components, 13 showed the heightened interest of the FIIs.

According to Mr Gautam Chand, CEO of Instanex, said FIIs are the largest institutional investors in India with holdings valued at over US$ 751.14 billion as on December 31, 2008. "They … determine the direction of the market. They are also the most successful portfolio investors in India with 102 per cent appreciation since September 30, 2003.

According to the data given by the Securities and Exchange Board of India (SEBI), the FII investments in equities as on March 17, 2009 stood at US$ 50950.20 million and in debts, equalled US$ 6541.50 million at exchange rate of 1 USD = 40.34 INR. As per SEBI, number of registered FIIs stood at 1626 and number of registered sub-accounts stood at 4972 as on March 17, 2009.


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As many as 330 FIIs have registered with SEBI since January 31, 2008, taking the total number of FIIs in India to 1,609 as on January 31 this year. Even the FII sub-accounts have gone up over 30 per cent to 4,938 compared with 3,795 in January last year. In fact, this year, 45 new FIIs have registered with SEBI, according to data given by the regulator. Majority of these FIIs are from the US and Europe. There are also FIIs based out of Mauritius. FIIs that have registered those from other countries include Canada, the UAE, Japan, Australia, Taiwan and Singapore. Some pension funds also feature in the list of the FIIs that have registered in 2009. Among them are Llyods TSB Pension Trust, Stagecoach Group Pension Scheme and Trustees of The Mine Workers Pension Scheme from UK. 30 new FIIs and 104 new sub-accounts had registered till February last week in 2009.

FII holdings in Indian markets reached US$ 88 billion in December 2008, according to the Bombay Stock Exchange Chairman, Mr Jagdish Capoor. Since then, foreign institutional investors (FIIs) have started looking at India as an attractively-valued market despite the Satyam scandal.

Some of the FIIs such as Citi and Macquarie have increased the weightage for India, while Credit Suisse has said that the Indian market can go up by 30-40 per cent in 2009. This weightage helps investors decide the markets to invest. Generally, FIIs decide their allocations for the year in January.

Debt instruments (government securities, commercial papers, and corporate bonds) attracted US$ 426.18 million in first 11 trading sessions of 2009 from FIIs. FIIs have been finding investment in debt a more attractive proposition than equity.

Seventy eight private equity players expected to raise US$ 24 billion in 2009 for investing in India—thrice that of last year—when 30 private equity players raised US$ 9.2 billion, according to a Preqin research report. This also includes real estate funds. Meanwhile, 117 Pan-Asian private equity (PE) players—with India as focus—aim to raise funds worth US$ 59 billion, says UK-based Preqin, an alternative assets research and consultancy group.

According to the Preqin report, PEs including Macquarie State Bank of India Infrastructure Fund with US$ 1,500 million, Trump Organization India Fund and Walton Street Capital India Fund I with US$ 1,000 million investment each in real estate sector are some recent notable examples.

According to C G Srividya, Partner, Specialist Advisory Services, Grant Thornton, "In 2008, PE investments in India was close to US$10 billion, but the total amount raised for 2008 would be 2-3 times of what has been invested. Besides, India is a growth story while everywhere else, there is recession."

Earlier, cash as a percentage of total assets under management (AUM) was just above 6 per cent in January 2008 and rose to 18 per cent in November 2008.

On March 16, 2009, 24 bidders were allocated investments of US$ 5.8 billion, the highest ever investment allocation by FIIs in India as compared to the net investment of FIIs in 2008 of US$ 2.39 billion. Since January 2009, FII's net investment in debt instrument has declined by US$ 125.4 million due to impact of the global slowdown. As per the Securities and Exchange Board of India (SEBI), US$ 8 billion was available for allocation to FIIs and their sub-accounts in an open bidding platform.


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Standard Chartered Bank got the maximum bids of US$ 1.05 billion, followed by Barclays Bank US$ 998.81 million, Kotak Mahindra UK US$ 818.86 million and Deutsche Bank International Asia US$ 700.14 million, and JP Morgan Chase Bank, US$ 532.5 million. The bids have to be executed in the next 45 days. According to market experts, this bidding should kick off a sound FII investment trend in the near future, as the US markets continue to weaken and yields of Indian public sector units (PSU) and corporate debt papers remain attractive. FIIs will invest in attractive PSU bonds floated by quasi-government entities like Power Finance Corporation and Rural Electrification Corporation.

Investment banks (i-banks) are now looking at smaller venture capital deals in the US$ 2 million – US$ 7 million range. i-banks are now willing to work on lower margins. Venture capital firms say the number of deals they are getting from i-bankers currently has gone up significantly. According to Sachin Maheshwari, principal at Draper Fisher Jurvetson, only 2-3 out of 10 deals came from i-bankers earlier, but about 5-6 currently come through this route. Further, as per deal tracking firm, Venture Intelligence, there were 82 PE deals worth US$ 1.4 billion from October 2008-February 2009.

The mutual fund industry comprises of 35 fund houses. According to Grant Thornton India, the total number of private equity deals announced in 2008 stood at 312, with the total announced value at US$ 10.59 billion. Quite unlike in 2007 and 2008, when real estate and IT and ITES sectors enjoyed most of the attention, 2009 is witnessing a broad-basing of sectors on the PE radar. Investments in sectors such as healthcare, education, consumer goods and infrastructure are expected to be more attractive, given their relatively strong domestic demand, even as export-oriented businesses face impact of recession in US and Europe. Funds are also increasingly buying stake in agro-based companies.

Mutual fund houses have been net sellers in February 2009. However, they were bullish on some select market heavyweights such as HDFC, Reliance Industries (RIL), Larsen and Toubro (L&T) and Infosys during the month. The funds are looking up once again currently.

Earlier, as per data available with the Bombay Stock Exchange, on December 4, 2008, FIIs invested US$ 61.83 million in equities showing confidence in the Indian stock market. Simultaneously, the upgradation of India's sovereign ratings combined with the improvement in the macro-economic situation and growth fundamentals has led to a significant increase in FII investments in the debt market. Total investment in the country's debt market till November 2008 amounted to US$ 6.38 billion as against US$ 2.80 billion by the end of November 2007.

Some Investment Highlights

The Indian growth story has continued despite the Satyam non-governance issue and the global economic slowdown. It has attracted global majors like CLSA, HSBC, Citigroup, Crown Capital, Fidelity, Goldman Sachs, Morgan Stanley, UBS, T Rowe Price International, Capital International and ABN Amro among others to enter the Indian financial market.

The recent interest from foreign institutional investors in the stock of Housing Development Finance Corporation (HDFC) seems to have boosted the housing finance company's stock price. FIIs Europacific and Growth Fund of America Inc picked up stake in the company in March 2009. Other FIIs such as


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Citigroup, CMP Asia, DB International, Merrill Lynch, Aberdeen Asset Management, Copthal Mauritius Investment, JP Morgan and Government of Singpaore already hold stakes in the company.

Fidelity FID Funds Mauritius has bought a substantial stake in UTV Software in March 2009 for approx. US$ 2.34 million.

Baring PE Fund has bought major stakes in Mphasis, a leading software company in India in March 2009 for approx US$ 25.55 million.

Kotak Mahindra's investment banking business signed an exclusive alliance with GCA Savvian Group Corp., a medium-sized Japanese bank run by bankers pooled from Goldman Sachs, KPMG, Credit Suisse and Merrill Lynch and Co. Inc., for international mergers and acquisitions (M&A) in the so-called India-Japan corridor.

In March 2009, FII Kotak Mahindra UK Ltd, bought a large stake in NIIT from another FII, Swiss Finance Corporation Mauritius Ltd for over US$ 897,414.

HSBC Bank Mauritius Ltd bought over 51,000 shares of Intellivisons Software for US$ 144.94 billion.

In January 2009, Avendus helped One97 Communications raise US$ 8.6 million from Intel Capital.

Goldman Sachs picked up an 8.16 per cent stake in New Delhi Television Ltd (NDTV) and a minority stake in Sterling & Wilson Pvt. Ltd.

London-based private equity firm, Greater Pacific Capital, is planning to launch a new fund with a corpus of US$ 750 million to invest in India and China. The company, which started operations in 2005, initially launched a fund with a corpus of US$ 345 million. Eighty per cent of the fund has already been invested in India and China.

Nomura Holdings, the largest Japanese securities firm, launched its equity sales, trading and investment banking operations in India though its subsidiary Nomura Financial Advisory and Securities. Nomura has integrated the franchises of failed US investment bank, Lehman Brothers units in India, which it had acquired in October 2008.

Morgan Stanley is putting US$ 19.72 million into its Indian retail stock broking and portfolio management services firm Morgan Stanley India Financial Services (MSIFS). The firm recently launched private wealth management services, primarily for the high-net worth individuals (HNI) and non-resident Indians (NRI).

Jefferies India Pvt Ltd, a subsidiary of the US-based Jefferies Group, announced it had received a category-1 merchant banking licence from SEBI. The licence allows investment banks to offer M&A, private equity and capital markets advisory services to private and public companies in India, in addition to cross border M&A and international capital markets services.

Recent deals by Blackstone in Nuziveedu Seeds (US$ 50 million) and Morgan Stanley, through its Asia fund, for a minority stake in Biotor Industries (US$ 37.8 million) are instances of continued interest of FIIs in Indian markets.

Goldman Sachs announced infusion of US$ 72.96 million of capital in its wholly-owned NBFC Pratham Investments and Trading Private Ltd. In March of last year, Goldman Sachs had infused US$ 22.75 million as capital in Pratham Investments after acquiring it.

Morgan Stanley Mauritius acquired a huge stake in Infrastructure Development Finance Corp (IDFC) from Goldman Sachs in March 2009 for US$ 11.61 million.

RREEF Alternative Investments, the global alternative investment management business of Deutsche Bank, plans to invest over US$ 1 billion in the country.

Private equity firm Blackstone has taken up a 26 per cent stake in MTAR Technologies for US$ 65 million.


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Citigroup, Morgan Stanley, Goldman Sachs and BSMA have picked up a combined stake of over seven per cent in Gitanjali Gems at US$ 23.51 million.

Fidelity Investments International has picked up close to seven per cent equity in Transport Corporation of India (TCI) for US$ 10.72 million.

JP Morgan Chase has invested approx. US$ 51.37 million in BPTP Ltd, a Delhi-based real estate company.

Buying into the Indian Dream

In spite of the global meltdown, FIIs continue to buy into the Indian dream. As many as 120 new foreign institutional investors have registered in India since the global financial crisis broke out in September. These include American Airlines, International Finance Corporation, University of Southern California, Bank of Korea, the Bill & Melinda Gates Foundation, and Warburg Pincus International.

The confidence that FIIs have in the Indian market can be ascertained by big-ticket deals of global investors like Donald Coxe, the global portfolio strategist for BMO Capital Markets. Coxe travelled across India in mid-November with a group of influential fund managers who manage over US$ 1.5 trillion in assets. BMO itself manages assets worth US$ 375 billion.

"India will be out of the emerging markets basket in the next cycle and your companies will have PE ratios in line with mature markets. We want to be here for that," said Coxe.

Similarly, Mark Mobius of Templeton Asset Management, world's best emerging markets investor is also bullish on India. Mobius, who manages US$ 24 billion, said that he was buying Indian stocks, especially consumer stocks, as it is a large market not highly linked with the global market.

There is positive feedback from other big players in the FII segment as well.

According to Mr Moses Harding, Executive Vice-President, IndusInd Bank, "The increase in limits for FII investment in corporate bonds from US$ 6 billion to US$15 billion, announced by the Government earlier this month, should encourage more FII inflows into the bond market".

Norway's sovereign wealth fund (SWF) has indicated that it would rejig its investment strategy to include markets like India. The US$ 314-billion Norwegian fund will begin investing in real estate next year in India, China and Egypt.

Venture capital (VC) firms such as Avishkaar India Micro Venture Capital Fund, Acumen Fund and Rural Innovations Network have begun investing in rural-centric technology, with increased focus on rural markets.

Private equity firm, Blackstone, has picked up a majority stake in a new venture consisting of the domestic IT business of CMS Computers, its card printing, printing solutions and ATM cash management business.

Leading private equity investor, Actis, has closed a US$ 2.9-billion private equity fund, of which about US$ 1 billion is likely to be invested in Indian companies over the next four years.

Reliance Industries Ltd has signed a US$ 400-million financing facility with global financial services firm, JP Morgan, for its capital expenditure programme.



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FIIs are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs can acquire shares/debentures of Indian companies through the stock exchanges in India.

The ceiling for overall investment for FIIs is 24 per cent of the paid-up capital of the Indian company, and limit is 20 per cent of the paid-up capital in the case of public sector banks. The ceiling of 24 per cent for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect.

To further increase FII participation in the Indian market, the government and SEBI have taken several measures:

The Government of India has again reviewed the External Commercial Borrowing (ECB) policy and has increased the cumulative debt investment limit from US$ 6 billion to US$ 15 billion for FII investments in Corporate Debt.

Allowed foreign individuals, corporates and other investors such as hedge funds to register directly as foreign institutional investors.

Foreign institutional investors (FIIs) will be one of the biggest gainers in the financial sector from the reduction in service tax announced in the Interim budget 2009-10. As a result, FIIs will see their brokerage costs come down because of the lower service tax. According to PricewaterhouseCoopers' Prasad Paranjpe, "Unlike corporates registered here, FIIs do not have any output service tax liability in India against which service tax payments can be offset. So, the two-percentage-point reduction will result in an equivalent cost saving."

SEBI has FII investment limit in government securities being increased to US$ 5 billion from US$ 3.2 billion.

Institutional investors—including FIIs and their sub-accounts—have been allowed to undertake short-selling, lending and borrowing of Indian securities from February 1, 2008.

SEBI has simplified the registration norms for FIIs and sub-accounts. Significantly, it has allowed investment managers, advisors or institutional

portfolio managers in the NRI category to be registered as FIIs. In October 2008, SEBI did away with the 70:30 ratio of FII investment in equity

and debt, respectively. FIIs can now invest in equity and debt in any ration they seem fit.



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Domestic Investments


A Sustained Deluge

India's economy has been seeing tremendous growth since the last decade. After a growth rate in excess of 9 per cent for the last 3 years, it is still holding its ground in the midst of the current global financial crisis.

Pegging India's growth rate in the current year at between 7 and 8 per cent, the erstwhile Union Finance Minister, Mr P. Chidambaram, has said that India would continue being the second fastest growing economy in the world. As a measure to boost the economy and to ensure a 7 per cent growth, the government announced a US$ 6.27 billion fiscal stimulus package on December 7, 2008.

As a reiteration of this optimism, domestic investments continue to pour into various sectors, with both the public and private sector making investments to start new enterprises and ramp up existing firms.

This increase in investments is across varied industrial sectors like retail, real estate, steel, infrastructure, automobiles and telecommunication among others.

According to a study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the Indian power sector received investments worth US$ 44.76 billion in the first half of 2008, accounting for almost 30.9 per cent of the overall investments in the corporate sector.

After the power sector, the other sectors that attracted huge investments were realty, steel, retail and telecom, the report revealed, stating, "These sectors together saw capex (capital expenditure) plans worth US$ 145.38 billion during the period."

The realty sector was second, with US$ 34.68 billion for the next two to five years. It was followed by the steel sector with investments worth US$ 24.80 billion from companies like Tata Steel, Vedanta Resources, Bhushan Steel and JSW Steel among others. The retail sector, with a growth rate of around 25 per cent, received investments worth US$ 20.47 billion for the same period. The telecom sector had also attracted huge investments. "The sector attracted US$ 20.44 billion by major telecom players like Reliance Communication, Airtel and Quippo Telecom Infrastructure."


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A report by ASSOCHAM's research bureau revealed that the Indian economy is witnessing a fusillade of investments with five states, notably Maharashtra, Andhra Pradesh, Orissa, West Bengal and Rajasthan, counting as top preferred investment destinations by private players. The capacity expansion plans announced by Indian corporates were worth US$ 243 billion in the first six months of the current calendar year, as against US$ 131.32 billion between July-December 2007 according to the report on state-wise investments.

Maharashtra tops the chart with investment commitments worth US$ 27.76 billion in sectors like power, real estate, automobiles, ports and shipping. While the announcement by Tata Power for investment of US$ 5.77 billion to raise power generation capacity to 12,861 MW for the next five years was one of the investment highlights, Reliance Industries announced its plan for setting up a semi conductor plant and other micro-technology units with investments worth US$ 5.01 billion for the next 10 years.

Andhra Pradesh saw the second highest investment announcements with investment proposals by major industry groups like Reliance Industries, Hindujas Group, Videocon Industries Ltd and GAIL India taking it to a neat US$ 24.57 billion figure. Overall, the state received a share of 10.11 per cent of the total planned investments.

National Aluminium Cooperation (NALCO) made the third largest announcement in Orissa worth US$ 3.23 billion towards a Greenfield aluminium and captive power plant. The State of West Bengal also saw big ticket announcements worth US$ 19.26 billion for steel, manufacturing and hospitality sector.

Haryana has seen investments amounting to US$ 8.32 billion in the industrial sector over the last three years. Projects worth another US$ 16.67 billion are on the anvil.

A total of 24 states were tracked by the research bureau. Apart from these investment plans, expenditure worth US$ 15.73 billion is in the offing for sectors including steel, cement, hospitality and telecom.

However, Gujarat stole a march over all other states with massive investments announced during the Vibrant Gujarat Global Investors Summit held in January 2009.

Gujarat will be receiving a humongous US$ 244.80 billion as investment for various projects. Indian as well as foreign investors signed over 8,500 MoUs during the Summit.

Investments by the Government

V K Kaul, the Managing Director of Dedicated Freight Corridor Corporation of India Limited (DFCCIL), announced that construction work on the dedicated freight corridor project will start in early 2009 with an initial investment of US$ 154.74 million for the 100 km stretch on the eastern corridor. The entire project, which will cover over 2,762 km, will entail an overall investment of over US$ 5.78 billion to US$ 7.64 billion. The commissioning of the critical stretches of the entire project will be over by 2015-16.

Power Grid Corporation of India Ltd (PGCIL) plans to spend US$ 1.43 billion to develop the transmission system related to the 4,000-MW Sasan Ultra Mega Power Project (UMPP) in Madhya Pradesh. This investment is part of the US$


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11.24 billion outlay for increasing the inter-regional transmission capacity planned by PGCIL.

The government has decided to set up 30 Greenfield mega food parks (MFP) during the Eleventh Plan, with each park receiving an investment of US$ 51.39 million.

The Cabinet Committee on Economic Affairs (CCEA) has ap proved four laning and six laning of various sections of national highways 18 and 47 at a cost of US$ 630.80 million.

The government plans to invest around US$ 20.45 billion in the infrastructure sector within the next two years, and is considering asking the Infrastructure Investment Finance Company Ltd (IIFCL) to create a corpus of over US$ 8.16 billion, or the same.

According to Power Minister Mr Sushil Kumar Shinde, the power sector has set aside investments worth US$ 45.69 billion for the development of power plants with 70,000 Mw aggregate capacity, over the next three years.

The railways is expected to tie up a loan of US$ 7.59 billion from the World Bank and the Asian Development Bank (ADB) for the construction of about 76 per cent of the proposed 2,739-km dedicated rail freight corridor (DFC).

In the annual investment plan for ports during 2008-09, the total projected investment is worth US$ 746.64 million. This includes major investments by the Dredging Corporation of India at US$ 100.78 million and Sethusamudram Corporation at US$ 322.14 million.

The Punjab government is planning a US$ 1.01 billion investment for developing the infrastructure of Mohali. The projects include the building of educational institutions, hotels, an IT Tower, and roadways amongst others.

The Kerala State Electricity Board (KSEB) has proposed an overall capital investment of around US$ 278.27 million for areas like generation, transmission and distribution sectors in 2009-10. The outlay is for five in-progress projects, 16 new schemes and seven wind and other non-conventional energy projects.

Indian Railways plans an investment of US$ 437.25 million per annum to raise its consumption of stainless steel and add brand new alloy-made wagons and coaches.

Further, southern railway is planning to invest around US$ 136.43 million over the next 10 years in port connectivity projects at Chennai, Tuticorin, Mangalore, Ennore and Cochin.

Public Sector Investments

Some of major investments that have been lined up for the next few years by the government and public sector enterprises include:

The government of Karnataka has signed two separate MoUs with NTPC and Bharat Heavy Electricals (Bhel) for establishing thermal power plants of 4,000 MW at Kudigi (Bijapur district), and 2,400 MW at Edlapur and Yermarus (Raichur). Additionally, in partnership with NTPC, it will also be setting up 500 MW wind energy farms at different six locations. The Kudigi project will involve an investment of US$ 4.06 billion and the wind energy projects will see an investment of US$ 508.35 million.

Chennai Petroleum Corporation (a group company of Indian Oil) will be investing around US$ 772.67 million for the augmentation of its diesel and petrol refining capacity by 2011. An additional US$ 528.17 million will be invested for the upgradation to Euro IV norms in petrol and diesel by April 2010.


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The Karnataka Power Corporation Limited (KPCL) and Bharat Heavy Electricals Limited (BHEL) will together partner financial institutions to propose a joint venture (JV) company with the aim to develop power generation in Karnataka. The company plans to take up two projects with a shared power generation capacity of 1,980. The KPCL-BHEL combine will own 52 per cent stake in the JV.

Singareni Collieries Company Limited (SCCL) is planning to establish a 600MW merchant power plant in the Adilabad district with an investment of US$ 610.36 million. The project is likely to be completed by 2012.

The Hyderabad based Navayuga Engineering Company Limited (NECL) has inked a MoU with the Orissa government for setting up an all-weather, alongside berthing, mechanised port at Astaranga in the Puri district of Orissa. The total investment outlay is US$ 1.22 billion.

Oil and Natural Gas Corp (ONGC), plans to set up a US$ 891.59 million project in Tripura to increase the state's gas output.

GAIL India Ltd will be investing US$ 1.01 billion over the next 3-4 years to develop a CNG corridor across India. "We have identified 230 cities for retailing compressed natural gas (CNG) to automobiles and pipe cooking gas to households," said company Chairman U D Choubey.

NTPC has announced an investment of US$ 1.22 billion in super thermal power projects in Madhya Pradesh, Uttar Pradesh and Chattisgarh.

Life Insurance Corporation of India (LIC) will be investing US$ 6.31 billion in equities and corporate bonds over the next four months.

Private Capital Investment

Vedanta Resources will be going ahead with its US$ 10.18 billion investments lined up in plans for Orissa despite the global slowdown.

Hindustan Construction Company has signed a MoU with the Gujarat Government to set up a 'Water Front City' at Dholera with an investment of US$ 8.14 billion. The project entails the development of a new city built over 4,000 acres and would take over 12 years for completion.

The Gujarat NRE Coke Group plans to invest around US$ 611.50 million in Gujarat over the next four to five years for setting up a coke plant, a coal preparatory plant, and waste heat based power plant.

Indian private life insurers have pumped in US$ 610.76 million of extra capital during 2008-09 to boost the insurance business. It is likely that they may put in a further US$ 407.16 of additional capital before the end of the 2008-09 fiscal.

Bombardier Transportation Inc inked a MoU with the Gujarat government for making Metro Vehicle cars at the Savli facility, with an investment of US$ 50.75 million.

Tata Chemicals is planning to set up a manufacturing plant for customised fertilisers in Uttar Pradesh, with an investment of around US$ 10.15 million.

Ennore Coke Ltd is planning to set up a 1 million-tonne plant with an estimated investment of over US$ 205.87 million. The project is likely to start in 2009.

SatNav Technologies, a provider of navigation and global positioning system (GPS) technologies, will be making an incremental investment of US$ 10.15 million by March 2010.

Fortis Healthcare is going ahead with its expansion plans with an investment of US$ 500 million, which would be spent mainly on acquisitions.

Cafe Coffee Day is planning an investment of US$ 24.45 million-US$ 30.53 million for expanding the number of its cafes to around 1,000 from the current 700, over 2009.


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RSB Metaltech Private Ltd., an automotive component and system manufacturer, has inked a MoU with the Orissa government for establishing a Greenfield integrated aluminium project in Orissa, with an investment of US$ 1.30 billion in the first phase.

Oriental Green Power is planning to establish eight biomass-based power plants across India with an investment of US$ 203.50 million-US$ 223.85 million. The proposed plants will come up in Tamil Nadu, Andhra Pradesh, Maharastra, Punjab and Rajasthan over the next two years.

Anil Ambani's Reliance Communications (RCOM) is planning to invest US$ 1 billion for its 3G (third generation) telecom services. RCOM is planning to start the services across India covering the top 50 cities.

Special Economic Zones

Special economic zones (SEZs) are set to see major investments after certain regulatory tangles have been straightened. According to India's Commerce Secretary, Mr G K Pillai, India had approved 513 SEZs till August 2008, of which 250 had been notified. Investments are expected to cross US$ 45.73 billion by December 2009, providing incremental employment to 800,000 people.

Some major investments in upcoming SEZs are:

Tata Realty and Infrastructure is planning to invest more than US$ 686.05 million to build an IT SEZ in a joint venture with the Tamil Nadu government.

Infrastructure Leasing and Financial Services, in a tie-up with Maharashtra Industrial Development Corp (MIDC), will be investing about US$ 1.82 billion in SEZs in Maharashtra.

State-run trading firm, MMTC Ltd, has invited bids to set up SEZs in various sectors. MIDC will be developing 22 SEZs in Maharashtra.

AMRL International Tech City plans to invest around US$ 162.78 million for the development of a multi-product SEZ in Tamil Nadu.

Further, in December 2008, the government cleared 22 proposals for setting up SEZs.

Among the important SEZ projects that received formal approval are:

A 1,054 hectare multi-product SEZ by GVK Perambalur Pvt Ltd. A petroleum and petrochemical SEZ by Nagarjune Oil Corporation. A 222-hectare port based SEZ in Maharashtra by JSW Jaigarh Port Pvt Ltd. A formal approval was also given to a 48 hectare IT/ITeS SEZ in Tamil Nadu. A textile park in Punjab by Ishan Developers and Infrastructure Pvt Ltd. Hindustan Newsprint Paper and Pulp SEZ in Kerala. A pharma SEZ by Dr Reddy's Lab Ltd in Andhra Pradesh.


Indian Investments Abroad


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A large number of Indian companies have been reaching out for overseas destinations, either through mergers and acquisitions or direct investments in order to access high-growth markets, technology and knowledge, attain economies of size and scale of operations, to tap global natural resource banks and leverage international brand names for their own brand building.

TCS, India's largest software exporter is focussing on emerging markets for growth opportunities, while Moser Baer PhotoVoltaic (MBPV) plans to enter the US market and expand its presence in Europe by the end of the year.

According to data released by the Reserve Bank of India, total direct investment abroad stood at US$ 46,194.35 million as of March 2008.

According to RBI data, during the second quarter of the current fiscal, outward foreign direct investment (FDI) grew 5.4 per cent to US$ 3.13 billion as against US$ 2.97 billion in the corresponding period last year. Data on FDI in overseas joint ventures (JVs) and wholly-owned subsidiaries (WOSs) reveals that 1,180 proposals amounting to US$ 5.62 billion were cleared for investment abroad in joint ventures (JVs) and wholly owned subsidiaries (WOSs) during the quarter, as against 452 proposals amounting to US$ 4.23 billion during July-September 2007.

Equity accounted for 51.6 per cent of the investment, followed by loans at 29.1 per cent and guarantees at 19.4 per cent, during July-September, 2008. However, during the corresponding quarter of the previous year, (July-September 2007), equity constituted 74.3 per cent of the proposals for investment, while guarantees and loans formed 13.8 per cent and 12 per cent, respectively.

FDI Outflows

According to the RBI report, actual outward FDI during 2007-08 totalled US$ 17.43 million, a rise of 29.6 per cent over US$ 13.45 million, in the previous year. Of the total investments, 81.6 per cent were in the form of equity and the remaining 18.4 per cent in the form of loans. Almost 35 per cent of the proposals for outward FDI were directed towards Singapore, around 23 per cent to Netherlands, followed by British Virgin Islands with seven per cent. Equity accounted for 61.2 per cent of the proposals for investment, loans for 11.4 per cent, and guarantees for 27.4 per cent. During 2007-08, automatic route covered 99.6 per cent of the proposals, involving 96.4 per cent of the amount of investments. The remaining was through approval route. Inflows from India's outward FDI amounted to US$ 916 million in FY 2008, registering a 76.7 per cent growth over the previous year's figure of US$ 518 million.

During the first half of 2008-09, 2,000 proposals amounting to US$ 8.94 billion were cleared for investments abroad in JVs and WOSs, as against 1,049 proposals amounting to US$ 11.39 billion during the corresponding period last year.

Considering the sectoral pattern, during July-September 2008, almost 94 per cent of the total outward FDI proposals of US $5.62 billion were for investments.

A sector-wise break up reveals that 46 per cent of the proposals were in manufacturing, followed by non-financial services at 10 per cent, trading at 2 per cent and the balance was 'others'. Comparing the corresponding quarter of the


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previous year, 63 per cent of the proposals were in manufacturing sector, followed by non-financial services at 25 per cent, trading at 2 per cent and the rest being 'others'. Within the manufacturing sector, the proposals were primarily in construction, software development, drugs, telecom products and textiles. Proposals in trading covered activities, such as real estate development and mining. Investment proposals in non-financial services included activities, such as education. The category of 'others' comprised activities such as, consultancy, oil exploration, shipping, stock-broking and IT-enabled services.

Mergers and Acquisitions

A significant part of Indian overseas investment has gone into acquisitions abroad.

In its latest report, Grant Thornton, a global consultancy firm, stated that 'The total number of M&A deals during the first 11 months of 2008 stood at 433, with an announced value of US$ 31.95 billion. The number of outbound deals has far exceeded the domestic ones in terms of value break up'. According to Grant Thornton's Special Advisory Services official, for the month of November alone, there were 26 M&A deals with a total announced value of US$ 3.40 billion, which is higher than October 2008 at US$ 2.13 billion and comparatively higher than November 2007 levels at US$ 850 million. Out of the 15 cross-border deals in November, eight were outbound wherein Indian companies acquired business abroad with a value of US$ 0.04 billion. The most important acquisition has been that of UK-based Axon Group by HCL Tech for about US$ 658 million.

Also, the total number of PE deals during January-November 2008 stood at 295, with a total announced value of US$ 10.11 billion. Further, as many as 21 PE transactions were confirmed during November with an announced value totalling US$ 449 million.

As per KPMG's EMIAT study, in an analysis of deals between developing and developed economies since 2003, it was revealed that there were 322 completed deals wherein Indian buyers had bought companies in the major developed economies. Against this, there were 340 concluded deals in which companies from developed countries acquired Indian companies.

Among the notable acquisitions are:

Reliance ADAG is acquiring 51per cent stake in UK-based currency exchange and money transfer firm No 1 Currency to foray into the international forex business and to tap into the 1.6 million non-resident Indians (NRI) population.

HBL Power Systems Ltd is in the process of setting up a joint venture company in the Kingdom of Saudi Arabia (SA) with Advance Electronics Company Ltd (a government partner) and Abdullah H. Al Shuwayer & Sons T&C Company Ltd as local partners. The joint venture, named Gulf Batteries Company Ltd, will set up a unit to manufacture industrial batteries in the eastern province of KSA at an estimated cost of $28 million. HBL Power Company will have 40 per cent of joint venture equity.

Tata Communications has bought the 30 per cent stake in Neotel that was previously held by Eskom and Transnet. "This reaffirms Tata Communications commitment to its expansion and investment plans in the emerging regions of Asia, Africa and the Middle East, said N Srinath, managing director and CEO, Tata Communications. Oil and Natural Gas Corporation (ONGC) has taken control of Imperial Energy Plc for £1.3 billion ($1.9 billion) after 96.8 per cent of the London-listed firm's shareholders accepted the takeover offer made by


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the state-owned explorer's overseas arm, ONGC Videsh Ltd (OVL).Godrej Consumer Products (GCPL) expanded its presence in the South African market this year by acquiring Kinky hair brand. This is the second company acquired by GCPL in South Africa after Rapidol—a marketer of permanent hair colorant—in 2006.

Ranbaxy Fine Chemicals (RFCL) has bought the US-based speciality chemicals major Mallinckrodt Baker, which is a part of the US$ 10 billion healthcare giant Covidien, in a deal estimated at US$ 340 million.

Indian apparel sourcing company Techno Life style has bought German retailer Wehmeyer for an undisclosed amount. Wehmeyer has a consolidated turnover of US$ 187.71 million and 43 retail outlets.

DTH company, Spize TV, has acquired France Telecom's European DTH operations called WorldTV Europe. An investment of US$ 15 million would be made to amalgamate the operations of Spize TV and WorldTV. An overall investment worth US$ 50 million would be made, over the next 2–3 years, for its European DTH operations.

Pharma major, Lupin, has bought a majority stake in Pharma Dynamics (PD), which is the sixth largest generic drug company in South Africa. Though the amount of the deal was not revealed, sources said the deal amounted to about US$ 24 million. Earlier, Lupin Limited had acquired over 30 per cent stake in Generic Health Pty Ltd of Australia, after acquiring Hormosan Pharma, a Germany-based company and Kyowa Pharmaceuticals, a Japanese firm, in 2007.

Zydus Cadila has bought Etna Biotech, which is a subsidiary of the Dutch biopharma company, Crucell, in its sixth overseas acquisition during the last five years. The company has not divulged the details of the deal. The new acquisition will help the company in its efforts at vaccine research and development.

Reliance-ADAG is picking up 26 per cent stake with management control in a full-fledged financial services company in Saudi Arabia.

Quatrro BPO Solutions has acquired UK-based Babel Media. This is Quatrro's sixth acquisition and industry experts peg the deal in the range of US$ 25-30 million.

Reliance Industries USA has acquired a polyester manufacturing facility in North Carolina for about US$ 12.2 million from Unifi Kinston. It plans to invest US$ 215 million in that company.

The Essar group-owned, Aegis BPO, plans to acquire Philippines-based BPO, PeopleSupport, for US$ 250 million.

Ruia-owned, Dunlop India, has bought Schlegel, UK's second largest auto component manufacturing company.

Tanti group of companies, jointly with Bahrain-based Arcapita Bank, has acquired Honiton Energy Holdings, a Chinese wind energy firm. The joint venture partners will invest US$ 2 billion by 2012.

Systems integrator, Allied Digital Services, has acquired 80.5 per cent stake in EnPointe Global Services, a subsidiary of the Nasdaq-listed Enpointe Technologies, for US$ 24 million.

Major investments

India's foreign investments are testimony to the continued growth in the Indian economy and Indian companies.

Tata Communications (TCOM, earlier VSNL) is investing US$ 430 million for developing a data centre in Singapore and completing its Tata Global Network


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(TGN)—intra-Asia cable system. Of the $430 million, around $180 million will be invested in the data centre, called the Tata Communications Exchange, which will be operational by early 2010. The investment in Asia, part of the company's $2-billion capex for FY09-11, has been funded through a combination of debt and internal accruals.

Many Indian companies including Infosys, IBM Daksh and Firstsource are investing into the Egyptian information and communications technology (ICT) segment. The segment has maintained a 20 per cent growth rate and attracted local and foreign investments of more than US$ 8 billion over the past three years. According to Information Technology Industry Development Agency (ITIDA), Indian FDI in Egypt stands at $800 million and is distributed over 200 Egyptian companies.

Punjab National Bank plans to expand its operation in the UK, besides eyeing a US$ 5-million profit from the country's operations. The bank already has three branches in the UK and will open one in Birmingham next month. Over the next financial year, it plans to open additional branches in Manchester, Wolverhampton and London.

Essar Steel Holdings, a part of the Essar Group, plans to invest US$ 1.6 billion for the development of an integrated steel plant, with a capacity of 2.5 million tonnes, in Minnesota, over the next five years.

National Aluminium Company Ltd (Nalco) has plans of setting up a US$ 2.08 billion smelter project at Indonesia.

Tata Chemicals will be investing US$ 16.63 million (S$ 25 million) in JOil (Singapore), which is a jatropha seeding company based in Singapore.

Essar Exploration & Production (EEPL), has become the first Indian oil company to enter Australia by buying two offshore petroleum exploration blocks.

As part of a 50:50 consortium, ONGC Videsh (OVL) has won an oil block in Colombia through an auction. The consortium will be making an investment of US$ 23 million in its first phase of exploration.

Carborandum Universal Ltd (CUMI), a part of the Murugappa Group, has entered into an agreement with Volgograd region administration in Russia for building a 100,000-tonne silicon carbide fusion plant. The group will be investing US$ 50 million in the plant, though its subsidiary Volzhsky Abrasive Works. With this agreement, CUMI will globally emerge as one of the biggest producers of silicon carbide and bonded abrasives.

ADA Group company Reliance Communications (RCom) plans to set up WiMax networks across 50 countries by 2011.

Tata Communications plans to invest more than US$ 2 billion by 2011. Tata Steel plans to build a plant in Vietnam, and the proposed 4.5-million

tonne, US$ 5 billion steel plant would be built through a joint venture with Vietnam Steel and Vietnam Cement Industries. The first phase of the complex is scheduled to be commissioned by the end of 2010.

Indian fertiliser companies are planning to invest around US$ 5 billion in overseas joint ventures over the next three years.

HCL BPO is looking for acquisitions of platform-based BPO firms in the US, UK and Australia with revenues of up to $250 million. Last year, the BPO arm of HCL Technologies had acquired two firms—UKbased Liberata Financial Services

Favourable Policy Changes

In a bid to give further impetus to overseas investments, the Reserve Bank of India (RBI) has further liberalised overseas investment norms for both direct and portfolio investment with the following steps:


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Raising the overall limit for overseas investment by domestic mutual funds from US$ 5 billion to US$ 7 billion.

Hiking the overseas investment limit from 300 per cent of the net worth to 400 per cent of the net worth in the energy and natural resources sectors, such as oil, gas, coal and mineral ores.

Hiking the limit on overseas portfolio investment by Indian companies from 35 per cent of their net worth to 50 per cent of their net worth.

Allowing Indian residents to remit up to US$ 200,000 per financial year, from US$ 100,000 previously, for any current or capital account transaction or a combination of both.

Allowing mutual funds to make an aggregate investment to the tune of US$ 5 billion in overseas avenues, from an earlier cap of US$ 4 billion.

RBI has exempted Indian corporates from seeking prior permission of the Central Government for international competitive bidding (ICB) in forex.

Looking Ahead

With more mergers and acquisitions, Indian companies would be getting direct access to new and more extensive markets, and new products and technologies, which would enable them to increase their existing customer base and market hold. This would otherwise take years to develop through the organic route.

In a bid to increase business and strengthen their global presence, more overseas investments by leading Indian firms are on the anvil.

Agriculture


Agriculture is one of the strongholds of the Indian economy and it accounts for 18.5 per cent of the gross domestic product (GDP). Agriculture draws its significance from the vital supply and demand links with the manufacturing sector and is a source of livelihood for the rural population of India.

The year 2007–08 was a year of record food grain production and procurement. Food grain production increased to an all-time record level of 230.67 million tonnes during


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2007–08. The production of the kharif crop suffered due to erratic rains and floods, the present rabi production is likely to be better and thus the overall food grain production in 2008–09 is likely to be even higher. Similarly, oilseeds, milk, fruits and vegetables, and fish production has been growing over the past few years to reach new levels.

The average growth rate of agriculture and allied sectors during the last two years i.e., 2006–07 and 2007–08 has been more than 4 per cent as compared to the average annual growth of 2.5 per cent during the 10th Five-Year Plan.

The current revival in agriculture sector has been possible mainly due to a number of initiatives taken in the recent years. While public sector investment in the farm sector has grown from 1.8 per cent of sectoral gross domestic product (GDP) in 2000–01 to 3.5 per cent in 2006–07, private sector investment has increased from 8.9 per cent in 2003–04 to 9.9 per cent in 2006–07.

Crop Production [Million tonnes]

Rice 96.4

Wheat 78.4

Coarse cereals 40.7

Pulses 15.1

Oilseeds 28.8

Cotton [million bales] 25.8

Production of major crops increased to record levels this year.

According to a Rabobank report titled "Indian agri-biotech sector: Emerging scenario, issues and challenges", the agri-biotech sector in India has been growing at a whopping 30 per cent since the last five years, and it is likely to sustain the growth in the future as well. The report further states that agricultural biotech in India has immense potential and India can become a major grower of transgenic rice and several genetically engineered vegetables by 2010.

The food processing sector, which contributes 9 per cent to the GDP, is presently growing at 13.5 per cent against 6.5 per cent in 2003–04, and is going to be an important driver of the Indian economy.

Production

India has become the world's largest producer across a range of commodities due to its favourable agro-climatic conditions and rich natural resource base.

India is the largest producer of coconuts, mangoes, bananas, milk and dairy products, cashew nuts, pulses, ginger, turmeric and black pepper. It is also the second largest producer of rice, wheat, sugar, cotton, fruits and vegetables.

According to a monthly review by the Centre for Monitoring Indian Economy (CMIE), agricultural production is likely to increase significantly and has projected a growth of


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3.2 per cent during fiscal year 2009, for the GDP of agriculture and allied sectors. The allied sectors comprising livestock, forestry and logging, and fishing are likely to see a growth of 4.8 per cent during fiscal year 2009.

Some of the highlights of advance estimates of the production of major crops are:

India's coffee production is likely to increase by 12 per cent next year to 293,000 metric tonnes in the year beginning October 2008 compared with the 262,000 tonnes forecast for this year.

Moreover, the coffee cultivation in non-traditional areas has expanded by 8 per cent to cross 50,000 hectares in 2008–09 compared to previous year’s levels. In India, the non-traditional coffee growing areas are in Visakhapatnam and east Godavari districts in Andhra Pradesh, southern districts in Orissa (bordering Andhra Pradesh) and north-eastern states.

The tea production in the country increased from 981 million kg as compared to 945 million kg in 2007. The total production is expected to cross 1000 million kg this year. The total tea export during January-December 2008 touched 196 million kg compared with 178.75 million kg in the same time of the previous year.

Soybean production is likely to touch an all-time high of 12 million tonnes in 2008–09, 20 per cent higher than the previous year.

Exports

According to the government's agri-trade promotion body, APEDA, India's exports of agricultural and processed food products posted a 38 per cent increase in the 2007–08 fiscal, bolstered by an increase in shipments of coarse cereals like maize, jowar and barley. According to official data, India exported about 17.5 million tonnes of agricultural and processed foods worth about US$ 6.39 billion in FY 2007–08 against 10.9 million tonnes valued at about US$ 4.37 billion in the previous year.

Industry sources believe that for the current financial year, export in value terms could grow by 20 per cent. APEDA feels the exports will grow due to higher demand from Asian and African markets that are aggressively procuring relatively cheaper products from countries such as India.

At present, around 70 per cent of the country’s agricultural and processed food exports are to developing countries in the Middle East, Asia, Africa and South America.

India’s overseas shipments of coffee rose by 9.6 per cent to 300,000 bags even as global coffee exports decreased by 1 per cent. India exported 227,000 bags of Robusta variety of coffee and 81,581 bags of mild coffee during the current coffee year that runs from October to November, according to the International Coffee Organisation.

India's natural rubber exports have increased by 38 per cent in the April-July 2008–09. Total exports increased to 23,998 tonnes during April-July as against 14,816 tonnes in the corresponding period of the previous financial year.

Spice exports registered a 17 per cent increase in revenue in rupee value and five per cent in quantity this year compared to last year. In dollar terms, the increase is six per cent. Against the target of US$ 871.74 million from exports


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of 425,000 tonnes of spices, shipments during April-January 2008–09 stood at 372,125 tonnes valued at US$ 856.73 million. According to industry experts, the shortfall is likely to be easily accomplished.

India exported 1.40 million tonnes of oil meal in the first three months of the current financial year, up 70 per cent from the corresponding period last year.

Jain Irrigation Systems Ltd (JISL), a fruit and vegetable processing company which processes over 350,000 tonnes of fruits and vegetables in a year has bagged an order worth approx. US$ 54.16 million from its European customer for supply of dehydrated white onion in 2009.

Cashew exports touched US$ 413.21 million, an increase of 40.2 per cent during the April-November period of 2008–09.

Horticulture

India is the second largest producer of both fruits and vegetables in the world and the National Horticulture Mission (NHM) aims at doubling horticulture production by 2012. Under the NHM, US$ 220.66 million has been earmarked for horticulture development during this year.

The Indian state of Gujarat is striving to become a horticulture hub. With a two-fold increase in the land already allotted to horticulture, the state government now plans to bring in another 20 million hectares.

In the North-East states of Nagaland, Manipur and Meghalaya, cultivation of the jatropha shrub, (a cash crop yielding the promise of oil for production of bio-diesel, grown primarily in wastelands) is becoming increasingly popular. Around 4,000 cultivators in Nagaland and Manipur have taken up jatropha as an alternative crop. Jatropha is also widely cultivated across the western border of West Bengal, Jharkhand, Orissa, and across Chhattisgarh.

Tanflora, Asia’s largest rose production farm, is a equal joint venture between Tamil Nadu state government-owned TIDCO and MNA & Associates.

Tanflora, which has marketing tie-ups with major importers and auction centres in Japan, Europe, Australia, Middle and Far East countries, is the first project to be declared as the country’s agri-export zone for cut roses.

Its production is expected to touch 25 million roses during the current year (12 million in 2008). Moreover, from US$ 1.60 million revenues in 2007–08, Tanflora is hoping to double it by March 31, 2009. It is looking at US$ 8.02 million revenue by 2010.

The Cabinet has given its nod for establishment of the Indian Grape Processing Board (IGPB) at Pune, to foster sustainable development of the wine industry.

The Government will allocate US$ 1.18 million for a period of over three years to IGPB which will focus on research and development, quality upgradation market research and information, domestic and international promotion of Indian wine.

Investments

India is expected to spend around US$ 14.05 million for the development of organic spices by 2012, particularly on turmeric, chilli, and ginger.


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Andhra Pradesh Jute Development Centre Ltd (APJDC) will be setting up a jute park spread over 150-acre land in Visakhapatnam, with an investment of US$ 20.49 million. It plans to give up to a total of 5 per cent equity to jute farmers in the region.

The West Bengal Financial Corporation (WBFC) is setting up of small and medium enterprises in sectors such as agro-based businesses and floriculture. It has sanctioned about US$ 43.22 million for 2008–09.

The Horticulture Department of Andhra Pradesh Government has announced an action plan for 2008–09 with an investment of US$ 152.30 million for the development of nurseries in the public and private sectors and increasing productivity of crops.

The Andhra Pradesh government has sanctioned US$ 773.68 million) for the Pranahita-Chevella Lift Irrigation Scheme. to irrigate an area of 1.22 million acres in the drought prone areas of the Telangana region.

Tata Chemicals has firmed up plans to set up a manufacturing plant for customised fertilisers at Babrala in Uttar Pradesh. The company will invest close to US$ 10.02 million in this facility having a production capacity of 20 tonne per hour.

Agro-based companies

In 2008, Indian agro-based companies attracted a host of private equity players, who saw potential in this space on the back of strong demand and the sector's insulation from the credit-induced economic crisis in the West.

The Mahindra & Mahindra (M&M) group’s agri-business initiative, Mahindra ShubhLaabh Services (MSSL), has tied-up with the Netherlands-based HZPC, the world’s largest seed potato supplier.

Blackstone invested US$ 50 million in Hyderabad-based Nuziveedu seeds, one of the largest hybrid seeds companies in India.

Morgan Stanley picked up a minority stake for US$ 36.51 million in castor oil maker, Biotor Industries, through its Asia fund.

Chennai-based Sree Ramcides, a 36-year old, family-run agro solutions company attracted US$5 million from ePlanet Ventures in December.

According to a recent report by research firm Four-S Services, the lack of big integrated players in the agri-business, has opened up opportunities for private equity (PE) players to invest in various areas including agri-biotech and seeds, food processing, organic farming, crop protection, integrated cold chain management and logistics and distribution.


Government has been taking various progressive measures to accelerate the growth of this sector. Some of the recent initiatives taken by the government include:

In the 2008–09 budget, the government has given a US$ 12.23 billion waiver of farm loans.

Giving a nod to the National Policy on Biofuels under which India will aim to raise blending of biofuels with petrol and diesel to 20 per cent by 2017. This will provide a major boost to the bio-diesel sector. It has also approved the setting up of National Bio-fuel Coordination Committee and Bio-Fuel Steering Committee.


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Allowing private sector companies engaged in business of warehousing or transport of food grains in procurement operations on behalf of the Food Corporation of India (FCI).

A weather-based agricultural insurance scheme is rolled out across select districts in 12 states during the Rabi season.

Construction of seven Modern Terminal Markets with modern infrastructure facilities that will help farmers realise maximum returns for their produce, remove middlemen and ensure lower prices for end-consumer.

The government has already approved 60 Agricultural Export Zones (AEZs). Besides, four zones have been identified to provide US$ 12.1 million worth of funds under a scheme called Assistance to States for Infrastructure Development of Exports.

The Government will provide an additional US$ 6.17 billion for new farm initiatives launched by states to double the growth rate in agriculture to 4 per cent over the 11th Plan period.

The National Food Security Mission was launched in 2007, with an outlay of US$ 979.51 million over the 11th Plan (2007–2012). It aims at enhancing the production of rice, wheat and pulses by 10 million tonnes, 8 million tonnes and 2 million tonnes, respectively by the end of the 11th Plan.

The Rashtriya Krishi Vikas Yojana was also launched in 2007. Under this the States are being provided with US$ 5.01 billion over the 11th Plan period for investment in various projects based on local requirements.

Road ahead

Agriculture is set to play a more dynamic role in the economy, with the government's increased focus on the sector. A progressively larger number of states have been amending their Agricultural Produce Marketing Committee (APMC) Act, along the lines of the Model APMC Act, to allow farmers to directly sell their produce to the buyers.

In the 2008–09 budget, the government has taken many steps to aid the growth of the sector and focus on the achievement of self-sufficiency in food grains. Agriculture credit is likely to touch US$ 49.05 billion in 2008, and agriculture share in total investment is up from 10.2 per cent in 2003–04 to 16 per cent for the 11th Plan.

Significantly, services related to agro and allied sectors have been thrown open to 100 per cent foreign direct investment (FDI) through the automatic route.



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Manufacturing


Along with this, India offers abundant engineering and technical manpower, producing annually about 400,000 graduate engineers.

Moreover, according to a study by ASSOCHAM, India will emerge as the fourth strongest economy among the G-20 countries after China, Russia and South Korea from the global crisis, given its robust forex reserves, high GDP growth rate and various fiscal and monetary measures taken to tackle the downturn.

Global Manufacturing Exports Hub

According to a CII-Mckinsey report, manufacturing exports could increase from US$ 48 billion in 2003 to US$ 300 billion in 2015, simultaneously increasing India’s share in world manufacturing trade from 0.8 per cent to 3.5 per cent.

According to a report by KPMG titled 'Manufacturing India @ 75’, Indian manufacturing should aim for a five per cent global share by 2022. The report


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envisions India at the forefront of global manufacturing and trade of goods, a leader in skill-intensive sectors and a global hub of research & development (R&D) and design.

Going Global

Indian manufacturers, with the tremendous expertise gained in the domestic market, are spreading their wings to reach out to global markets. Indian corporates have been busy taking aggressive steps through both acquisitions and Greenfield investments abroad. All these initiatives are likely to boost brand India in the global arena.

Bharat Forge after multiple acquisitions has emerged as the world's second-largest manufacturer of axle beams, crankshafts, and other forged auto components. Similarly, Tata Steel after the acquisition of Corus has become the fifth largest steel producer in the world. Suzlon is the world's largest wind turbine generator (WTG) manufacturer. Ranbaxy Laboratories, India's largest pharmaceutical company, manufactures generic drugs in 11 countries, distributes and markets them directly in 49, and counts on foreign markets for 80 per cent of its revenue.


The Government has taken several initiatives to accelerate growth in this sector and improve competitiveness of Indian industry in general and manufacturing in particular:

Implementation of technology upgradation schemes for various sectors such as small scale industries, textiles, food processing among others.

Implementation of industrial infrastructure upgradation programmes on cluster basis.

Easier access to inputs at competitive prices and rationalisation and reduction in duty rates.

Encouragement to foreign technology collaborations and liberalisation of FDI in manufacturing activities.

Launch of 'Visionary Leadership in Manufacturing’ programme to generate 300 visionary leaders in manufacturing in the next three years.

Implementation of Special Economic Zones Act. Starting the construction of Delhi-Mumbai Industrial Corridor in cooperation

with Japan External Trade Organisation (JETRO).

To further encourage manufacturing growth, the government plans to set up Manufacturing Investment Regions (MIRs) on the lines of Petroleum and Petrochemicals Investment Regions (PCPIR).

Looking Ahead

According to the response of more than 340 of the world's largest international manufacturing companies from Europe, Americas and Asia Pacific in a study by global consultancy major, Capgemini, India is set to threaten China as the world's backyard for manufacturing in the next three to five years. It says companies are planning to offshore manufacturing activities primarily to India that will surpass its IT and BPO activities.


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Infrastructure


The key to sustaining India's growth rate during a global meltdown lies in developing India's infrastructure. Keeping this in mind, the government is targeting an investment of US$ 20.38 billion over the next two years in the infrastructure sector. The scheme aims to take up infrastructure projects under public-private partnership with minimal private investment. The government has asked the Infrastructure Investment Finance Company Ltd (IIFCL) to put together a corpus of over US$ 8. 15 billion for this purpose.

This is in addition to the US$ 320 billion that the government plans to invest for the upgradation of ports, railroads, highways and airports over the next 15 years.

Ports

The government has identified 276 projects entailing an investment of US$ 12 billion. These include development of new berths, expansion and upgradation of existing berths, deepening of channels, equipment modernisation and upgradation of rail and road connectivity.


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According to the Planning Commission, there is an investment opportunity of US$ 25 billion by 2011-12 in India's shipping and ports sectors, as the country seeks to double its ports capacity to 1,500 million tonnes (major ports capacity to 1,000 million tonnes and non-major ports to 500 million tonnes capacity).

Segment-wise, while the ports sector would provide a US$ 13.75 billion investment opportunity, shipping and inland waterways are likely to present a US$ 11.25 billion investment opportunity.

Airports

The government plans to attract private players through public-private partnerships (PPP) for the development of over 300 airports and airstrips.

The Civil Aviation Ministry plans to develop 35 Greenfield airports across India by 2010 with an investment of US$ 35 billion for the proposed airports.

Railroads

The Indian Railways has taken up the most ambitious ever annual plan for fiscal 2008-09, entailing an enormous investment of US$ 7.91 billion, registering a 21 per cent increase over the previous year. The plan includes a total budgetary support of US$ 1.66 billion including US$ 163.33 million to be provided from the Central Road Fund. The plan envisages enhancement of rail capacity, modernisation of the railways, throughput enhancement on high density network routes, traffic facility works and expansion and development of the network.

Roads

During 2007-08, an amount of US$ 1.86 billion had been provided for the national highways and for state roads. Of this amount, US$ 1.5 billion is for national highways and US$ 0.36 billion for state roads. An amount of US$ 0.04 billion has also been allocated during 2007-08 for the development of state roads.

Growth Potential

According to the consultation paper circulated by the Planning Commission, a massive US$ 494 billion of investment is proposed for the Eleventh Plan period (2007-12), which would increase the share of infrastructure investment to 9 per cent of GDP from 5 per cent in 2006-07. This translates into an additional annual investment of roughly US$ 40 billion.

For this, the government has already taken many proactive measures like opening up a number of infrastructure sectors to private players, permitting foreign direct investment (FDI) into various sectors, and introducing model concession agreements.

Some of the projects planned during the Eleventh Plan period include:

Electricity

Adding power generation capacity of about 70,000 MW


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Providing electricity to all un-electrified hamlets and all rural households through the Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY).

National Highways

Six-laning 6,500 km of Golden Quadrilateral and selected national highways Four-laning 6,736 km on North-South and East-West Corridors Four-laning 12,109 km of national highways Widening 20,000 km of national highways to two lanes Developing 1,000 km of expressways Developing 8,737 km of roads, including 3,846 km of national highways, in the

North East

Rural Roads

Constructing 1, 65,244 km of new rural roads, and renewing and upgrading existing 1, 92,464 km covering 78,304 rural habitations

Railways

Constructing dedicated freight corridors between Mumbai-Delhi and Ludhiana-Kolkata.

10,300 km of new railway lines; gauge conversion of over 10,000 km. Upgrading 21 railway stations. Introduction of private entities in container trains for rapid addition of rolling

stock and capacity.

Ports

Capacity addition of 485 million metric tonnes (MT) in major ports, 345 million metric tonnes (MT) in minor ports.

Airports

Upgrading 4 metro and 35 non-metro airports. Building 3 airports in North East. Upgrading CNS/ATM facilities.

Telecom and IT

Reaching a telecom subscriber base of 600 million, with 200 million rural telephone connections.

Attaining a broadband coverage of 20 million and 40 million internet connections.

Irrigation

Development of 16 million hectares through major, medium and minor irrigation works.


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According to a report by Cushman and Wakefield, the Indian logistics industry is expected to grow at 15 - 20 per cent per annum to touch US$ 385 billion by 2015. 110 logistics parks across 3,500 acres at an estimated cost of US$ 1 billion are expected to be functional by 2012. Around 45 million sq ft of warehousing space will be ready in the next four years.

Major Investments

Total investment in infrastructure during the Eleventh Plan period is estimated to be around US$ 494.43 billion. Spending by the centre is expected to amount US$ 166.59 billion, while US$ 128.95 billion is expected to be invested by the state governments. Total public sector investment is expected to be around US$ 296.11 billion. Private investment is expected to account for over 65 per cent of total investment in telecom, ports and airport sectors during the Eleventh Plan.

The central public sector enterprises in infrastructure sectors have also recorded a 32.69 per cent jump in their planned investments to US$ 37.04 billion for 2008-09 over 2007-08.

Moreover, the World Bank has said that it will lend US$ 14 billion to India by 2012 for infrastructure development.

Some major investments include:

The Cabinet Committee on Economic Affairs has approved six highway projects worth US$ 977. 41 million of National Highway Development Programme, covering 639 km across Orissa, Madhya Pradesh, Maharashtra, Tamil Nadu and Andhra Pradesh.

The Power Grid Corp has cleared US$ 2.23 billion as investment in a range of projects in the current fiscal. The investment entails a common scheme for network for all the four regions, and would cost approximately US$ 1.67 billion.

Singapore-based Universal Success Enterprises Ltd (USEL) has signed three pacts with the Gujarat government to invest US$ 17. 74 billion in infrastructure projects. USEL has identified thermal power generation, seaports and mixed-use industrial and urban development as focus areas in India.

The Reliance Anil Dhirubhai Ambani Group (ADAG) has signed three accords worth US$ 2.14 billion with the Gujarat government. The investments would be made for building a port jetty in Saurashtra, a major power plant and three cement factories.

The Andhra Pradesh government has announced a US$ 787.10 million modernisation programme to boost its irrigation potential. It will divert 160 TMC of water from the Pranahita river to an area of 12,20,000 acres in the drought-prone areas in the Telangana region.

Kolkata will be getting an underwater rail connection with the extension of the Kolkata metro to its neighbouring city Howrah, through a tunnel under the Hooghly river. The project will connect Howrah and the information technology suburb of Salt Lake.

Sical Logistics is planning an investment worth US$ 358.71 million for the development of a nation-wide multi-modal logistics network, with cargo terminals and rail lines.


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Steel Authority of India (SAIL) and Larsen & Toubro (L&T) have signed a Memorandum of Understanding (MoU) for setting up a joint venture (JV) company to develop captive and independent power plants.

Vedanta Resources Group's subsidiary, Sterlite Energy, is planning to invest US$ 2.26 billion to construct a 1,980-megawatt (MW) thermal power project in Punjab.

Southern Railway is planning an investment of around US$ 137.35 million for port connectivity projects at Chennai, Tuticorin, Mangalore, Ennore and Cochin, over the next 10 years.

Investment in Rural Infrastructure

Improvement in rural infrastructure is one of the chief indicators of a nation's development and the government has started a special programme, Bharat Nirman, for the improvement of India's rural infrastructure. Bharat Nirman targets providing electricity to the residual 1,25,000 villages and to 23 million households; connecting the residual 66,802 habitations with all-weather roads; constructing 1,46,185 km of new rural roads network; providing drinking water to 55,067 uncovered habitations, and providing irrigation to an additional 10 million hectares besides connecting the remaining 66,822 villages with telephones. Out of the total projected investment of US$ 301.37 billion to be incurred by the centre and the states in the Eleventh Plan, US$ 85.53 billion would be spent entirely towards improvement of rural infrastructure.

The government is also likely to announce a new package for rural roads by providing an additional US$ 1.02 billion under the existing Bharat Nirman programme. As per the new package, all villages with a population of 500 or more people, and hills and tribal areas with a population of 250 or more people will be provided with roads.

The current scheme covers only villages with a population of 1,000 people and hills and tribal areas with 500 residents.

The Road Ahead

The Eleventh Plan targets a growth rate of 9 per cent with emphasis on a broad-based and comprehensive approach that would lessen inequalities across regions and communities and improve the quality of life for all. Initiatives such as the National Highways Development Programme (NHDP), the Airport Financing Plan, and the National Maritime Development Programme and the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) are efforts in the same direction.

To enhance liquidity and check depreciation of the rupee, the finance ministry has modified norms to permit companies in the mining, exploration and refineries sectors to bring in up to US$ 500 million in external commercial borrowing (ECB). Earlier, the limit was US$ 50 million. Further, the ministry has stated a five-fold increase in the figure that companies building roads, ports and other infrastructure projects are allowed to bring in from overseas.

Given these initiatives, the Indian infrastructure story will continue its successful run in the years to come.



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Ports


The Indian coastline is dotted with 12 major ports and 187 minor ports. A majority of the country's international trade is carried out through maritime transport, with major ports handling about 74 per cent of the total sea-borne traffic.

By 2012, the Indian government targets increasing the cargo handling capacity of major ports by two folds to reach 1.5 billion metric tonnes (MT). The investments to achieve this would be around US$ 25 billion, and would be through public-private partnerships. According to Crisil research estimates, ports will grow by 160 per cent over the 2007–08 and 2011–12 period.

The Indian government has set up the National Maritime Development Plan (NMDP) to improve facilities at India's 12 major ports and it plans an expenditure of around US$ 12.4 billion.

Under the plan, India's foremost container port, Jawaharlal Nehru, will be seeing a massive expansion and upgradation drive, with around US$ 1.78 billion slated for the development of port infrastructure, including the deepening and widening of its main navigational channel, over the next five years.

Further, by November 2009, the first phase of the international container transhipment terminal (ICTT) project at Vallarpadam is likely to be completed, and Kochi port will soon emerge as a transhipment hub for India. The construction work for the first phase of the international container transhipment terminal (ICTT) project is rolling speedily at Vallarpadam. This will make Kochi an important shipping centre, reducing India’s dependence on foreign ports for transshipment.


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India is also likely to emerge as a major destination for container operations. The liberalisation of the economy has lead to a rapid growth of the container trade. The container trade went up to 7.2 million TEUs by 2007 from 2.47 million TEUs in 2000.

Port Traffic

According to the Indian Ports Association, the 12 major ports together handled a total of 519.24 million tonnes (MT) of cargo in 2007–08, an increase of 11.94 per cent over 463.78 MT handled in 2006–07. Further, the total cargo traffic handled by the 12 ports during April–September 2008–09 has been 261.73 MT as against 244.14 MT in the corresponding period last fiscal.

Cargo throughput at the 12 ports has been rising by a compound annual growth rate of 9.5 per cent over the past three years.

Container throughput at India's 12 major ports increased by 19.03 per cent year-on-year for the fiscal year 2008. The 12 major ports handled 6.60 million TEUs (Twenty-Foot equivalent Units) in the 12 months till March 2008. Navi Mumbai's Jawaharlal Nehru port (Nhava Sheva) handled 4.06 million TEUs, which was above 61 per cent of the overall throughput.

Container throughput at Jawaharlal Nehru port increased by 23 per cent year-on-year, establishing it as India's largest and busiest port.

India’s overall container traffic posted a year-on-year growth of 19 per cent during the 2007–08, with the throughput touching 6.7 million TEU at its ports.

During April to June 2008, container throughput at Indian ports totalled to 1,056,556 TEUs, exhibiting a growth of 12.18 per cent year on year. If the current growth rate of 19 per cent is maintained, India's container throughput is likely to reach 21 million TEUs per year by 2016.

Further, according to a study by ICRA, driven by a buoyant world economy and high growth in merchandise exports, the Indian port traffic is estimated to grow at the rate of 10–12 per cent per annum during 2007–12. The overall port traffic at both major and minor ports are estimated to grow from 588.63 MT in 2006–07 to 1008.95 MT by 2012.

This projected increase in port traffic will in turn necessitate capacity expansion of the ports. Already, 276 projects entailing an investment of US$ 13.70 billion have been identified. These include development of new berths, expansion and upgradation of existing berths, deepening of channels, equipment modernisation and upgradation of rail and road connectivity.

Non-Major Ports

India has 187 non-major or minor ports which come under the jurisdiction of the respective state governments. The share of non-major ports in cargo traffic has increased from less than 10 per cent in 1990 to the current level of 26 per cent.


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The cargo handling capacity of India's non-major ports, both existing and new ones such as Mundra, Pipavav and Kakinada, is projected to rise to 839.16 MT a year from the existing 228.31 MT during the 11th plan (2007–2012).

Furthermore, several states have drawn up major capacity expansion plans to meet the expected surge in port traffic over the next five years. These include 214 mtpa in Gujarat, 92 mtpa in Andhra Pradesh, 104 mtpa in Maharashtra, 49.15 mtpa in Tamil Nadu, 28.9 mtpa in Kerala, 55 mtpa in Orissa and 46 mtpa in Karnataka among others.

Moreover, the Investment Commission expects an investment of US$ 7.7 billion in minor ports.

Shipbuilding

India presently finds a place among the leading shipbuilding nations in the world with a share of 1.2 per cent in the global shipbuilding market. The Indian ship building industry comprising 27 shipyards including eight public sector and 19 private sector shipyards is on a roll driven by the booming maritime trade. According to a FICCI report, the ship building industry has witnessed an unprecedented growth in demand for building new vessels which has led to a 359 per cent increase in the turnover of shipyards from US$ 216.60 million to US$ 778.90 million in the last five years.

By 2012, it is likely to corner around 3 per cent of the global share with an annual turnover of US$ 3.72 billion. Moreover, as per a report prepared by I-Maritime Consultants, India's share in global shipbuilding is expected to be around 15 per cent, by 2020 from 0.4 per cent in 2007.

The Union Minister of Shipping, Road Transport and Highways, Mr T R Baalu has said, "We have already held interactions with the stakeholders and are formulating a new modified Shipbuilding Subsidy Scheme and would be circulating our proposal for comments of appraising agencies and Ministries very soon." He also said that his Ministry is making efforts to restructure the taxes and fiscal structure to remove the bottlenecks being faced by the shipbuilding industry.

Under the NMDP, the government has already decided to develop two international size shipyards for which the modalities are being finalised with the respective State Governments. Further, the shipping industry is to be developed under a Special Economic Zone (SEZ) approach to set up ancillary industries next to shipyards.

The closure of yards in Europe and other developed regions has given Indian shipbuilders an opportunity to capture a higher share of the international shipbuilding market. It is estimated that the strong demand for cargo ships—coupled with the inability of market leaders China, Japan and South Korea to meet requirements—has propelled the flow of jobs to India.

The labour cost per worker in India being comparatively lower, apart from skilled welders and fitters, India has world-class naval engineers and architects. These, along with top-class management, are expected to be the growth drivers of the Indian shipbuilding industry.

Buoyed by this estimated surge in demand, many shipbuilders like ABG, Bharati, Larsen& Toubro, Pipavav, Mundra, the Pawan Kumar Ruia Group, Dolphin Offshore,


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Gujarat Shipbuilding, Mercator Mech Marine and Startek Marine among others are lining up huge investments into this segment.

Larsen and Toubro Ltd has chosen Kattupalli port, in Thiruvallur district, near Chennai, as the location to build the over US$ 425.97 million mega- shipbuilding yard.

Gujarat-based Adani group is setting up a ship building and repair yard at a cost of about US$ 212.98 million.

ABG Shipyard, a leading private shipyard, has decided to set up a greenfield shipyard in south Gujarat with an investment of US$ 255.58 million. The new shipyard will be set up over 300 acres.

Indian shipping companies are bullish on their expansion plans. Key shipping companies, such as Shipping Corporation of India (SCI), Great Eastern (GE) and Essar, have already placed orders worth US$ 3.3 billion for 58 ships in Korea and China.

SCI has placed orders for 32 ships worth US$ 1.87 billion, and will be further welcoming bids for its US$ 3 billion order of 40 ships. GE has placed an order worth US$ 780 million for 14 ships, while Essar has ordered 12 ships worth US$ 630 million. The ships are to be delivered during 2009–12.

As per Industry reports, 40 per cent of Indian fleets will have to be replaced over the next 4–5 years in order to comply with the International Maritime Organisation's (IMO) regulations.

Investments in Indian Ports

According to the planning commission there is an investment opportunity of US$ 25 billion by 2011–12 in India's shipping and ports sectors, as the country seeks to double its ports capacity to 1,500 MT (major ports capacity to 1,000 MT and non-major ports to 500 MT capacity).

Segment-wise, while ports sector would provide an US$ 13.75 billion investment opportunity, shipping and inland waterways are likely to present an US$ 11.25 billion investment opportunity.

In the annual investment plan for ports during 2008–09, the total projected investment is worth US$ 756 million. This includes major investments by the Dredging Corporation of India at US$ 102.06 million and Sethusamudram Corporation at US$ 326.70 million.

Private investment is in sharp focus with port capacity expected to double from 660 million tonnes in 2005–06 to 1,225 million tonnes by 2013–14.

Jurong Port Authority of China has firmed up plans to set up a greenfield port on the east coast with Sical Logistics, involving an initial investment of US$ 319.48 million.

The Irish Port Authority is likely to invest in Jaigarh Port in Maharashtra. The international container transhipment terminal (ICTT) project, being

developed at Vallarpadam, Kochi, will be the largest single player among the container terminals planned in India and the first to operate in a SEZ in India.

The Port of Rotterdam Authority, which manages Europe's biggest port—The Port of Rotterdam—plans to set up a company in partnership with a local private firm to manage ports in India.


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AllCargo Global Logistics, a multi-modal logistics service provider, has firmed up plans to set up two greenfield ports on both coasts of the country for an estimated investment of US$ 425.97 million.

Maruti Suzuki India Ltd (MSIL) and Mundra Port and Special Economic Zone Ltd (MPSEZL) signed an agreement for a mega car terminal, expected to be operational by December 2008, at Mundra in Kutch district of Gujarat. The initial investment is pegged at US$ 21.29 million.

Public sector logistics major, Container Corporation of India (Concor) is eyeing offshore business opportunities to tap offshore businesses by securing ports and shipping facilities. Concor is also looking to build the Marauli port in Gujarat.

Tuticorin Port Trust (TPT) is planning to invest US$ 1.10 billion to create additional capacity and infrastructure projects through the public-private partnership (PPP) mode by 2012.

UK-based Investment Company, 3i Group Plc. will be acquiring 24 per cent equity worth US$ 204.82 million at Krishnapatnam Port Co. Ltd, or KPCL, which will be setting up a seaport on the eastern coast. The 3i Group has also sought India’s Foreign Investment Promotion Board’s (FIPB) approval to invest a further US$ 165.52 million in KPCL. The port project is estimated to cost about US$ 2.06 billion.

German bank, Norddeutsche Landesbank, has business worth US$ 843.88 million (€600 million) from Indian companies in core sectors including shipping.

According to Crisil research estimates, eight infrastructure sectors, including ports, are expected to draw more than US$ 330.30 billion investment in India over the 2007–08 and 2011–12 period.

Hazira Port, (a joint venture between Royal Dutch Shell and French oil major Total), will be developing its present liquefied natural gas (LNG) import terminal in Hazira (Surat) into a US$ 500 million multi-cargo port.

Gujarat Pipavav Port Ltd (GPPL) would be investing a further US$ 53. 63 million for the dredging of a 14.5-metre draft to enhance accessibility to the port. Further, according to Philip Littlejohn, Managing Director of GPPL, "We have presently undertaken construction of an additional container yard to support a container cargo volume of 600,000 TEUs a year, expected to be completed by December 2008 and we intend to construct container yards for supporting container cargo volume of additional 670,000 TEUs by December 31, 2009."

Eredene Capital Plc, a UK-based company will be investing US$ 7.34 million in a new Container Freight Station (CFS) near the Ennore port.

Oceanic Shipyard Limited (OSL), a 50:50 joint venture company by Apeejay Shipping Limited and Mumbai-based Bharti Shipyard Limited, is likely to commission its ship building yard and oil rig manufacturing unit in Orissa by early 2011, and is investing US$ 639. 33 million in the two projects. The projects are likely to be developed in three phases over a period of five years and US$ 412.45 million will be invested in the first phase.


The Indian government has prioritised the expansion and modernisation of ports as part of its initiatives in the upgradation of India’s infrastructure.


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A comprehensive National Maritime Development Policy has been formulated to facilitate private investment, improve service quality and promote competitiveness, and US$ 11.33 billion has been allocated for the same.

A further investment of over US$ 9.07 billion will be made for 111 Shipping Sector Projects by 2015.

The Ministry of Shipping is launching 10 major expansion projects in 2008–09 at an estimated investment of US$ 1.06 billion with 60 per cent of investments allocated for the Chennai mega container terminal.

100 per cent foreign direct investment (FDI) under the automatic route is permitted for port development projects.

100 per cent income tax exemption is provided for a period of 10 years for port developmental projects.

Tariff Authority of Major Ports (TAMP) regulates the ceiling for tariffs charged by major ports/port operators (not applicable to minor ports).

Government has opened up all the areas of port operation for private sector participation.

Increasing the rail connectivity of ports with the domestic market. Setting up a deep draft port in West Bengal with the facility to receive vessels

requiring a minimum draft of 17 metres. The Gujarat government has taken new initiatives for the Sagarkhedu

programme (launched for the all round development of the coastal areas) to develop ship-building/repairing yards, private ports, jetties, captive jetties, VTMS system, training and introduction of new marine courses and implementation of schemes relating to RO-RO ferry services at 22 coastal areas of the state. With the target of completing the programme for ports and shipping sector under the National Maritime Development Programme (NMDP), the Ministry of Shipping is considering raising the cap on new infrastructure investments made by major ports from their own reserves by 10 times. Ports will be now able to invest around US$ 103.03 million from the present US$ 10.30 million.

Looking ahead

Traffic at the ports has been growing at a brisk pace and therefore, increasing cargo handling capacities of the ports is crucial to India. To meet this demand, India's ports are likely to increase cargo handling capacity to 1,855 million tonnes (MT) by 2012 from the present 758 MT now, with an investment of about US$ 20.61 billion, as foreign trade expands. Private firms are likely to invest about 65 per cent of this amount.

To achieve the projected traffic target of 615.70 million tonnes (MT) to be handled at major ports by 2011–12, it is estimated that capacity of about 800.41 MT would be needed. Therefore an additional capacity of around 403 MT has to be built up by 2011–12, against the current capacity of 397 MT.

Though the Indian shipbuilding industry is still in a budding stage it is estimated to corner a share of about 3 per cent with an annual turnover of US$ 3.71 billion by 2012.

Exchange rate used: 1 USD = 48.2835 INR1 USD = 0.710997 EUR


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Power


As the Indian economy continues to surge ahead, its power sector has been expanding concurrently to support the growth rate. The demand for power is growing exponentially and the scope of growth of this sector is immense.

The government targets providing electricity for all by 2012. Power Minister, Sushil Kumar Shinde has said, "So far, 53,000 villages have been electrified and by 2012 everyone will get electricity." Under the Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY), the Ministry of Power plans to electrify 120,000 villages in the current Five Year Plan (2007–12). Rural Electrification Corporation (REC) is the nodal agency for the implementation of RGGVY.

This fiscal, the government has already provided electricity connections to 18-lakh below-the-poverty-line (BPL) households. The target for this fiscal is 50 lakh households. It has earmarked a total capital subsidy of US$ 6.88 billion for providing electricity connections and for the distribution of infrastructure to the rural household. "A subsidy of US$ 5.84 billion has been provided for the XIth plan period for rural electrification. During the previous five-year-plan period, we got a subsidy of US$ 1.04 billion," Chairman and Managing Director, Rural Electrification Corporation (REC), P Uma Shankar Shankar, said.

Further, according to the Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, India will be adding 11,000 megawatts of power generation capacity by March 2009. Presently, India has a capacity of about 145,600 MW.

The World Bank has sanctioned a US$ 400-million loan to India's Power Grid Corporation. The bank has been contributing effectively in the transmission sector in India and largely to the development and strengthening of the Power Grid Corporation of India. This loan, the fifth since 1993, will help strengthen the company's assets which have grown 10-fold to US$ 8.9 billion and revenues eight-fold to US$ 1.3 billion. During the same period, the company's transmission networks have in fact, grown thrice over.

Now many Indian power corporations are leaving global footprints.


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Bharat Heavy Electricals (BHEL) has got an important contract from Sultanate of Oman to develop a series of 126 mega watt gas turbine generators for the power projects planned by the Petroleum Development Oman (PDO). The business is likely to be worth US$ 412. 88 million, and will be executed over the next 6–7 years.

Crompton Greaves, a power solutions provider, has plans to buy US or Europe-based manufacturers of power and industrial systems.

Capacity

India's total installed capacity of electricity generation has expanded from 105,045.96 MW at the end of 2001–02 to 145,554.97 MW at the end of September 2008. In fact, India ranks sixth globally in terms of total electricity generation.

Source-wise, thermal power plants account for an overwhelming 64.6 per cent of the total installed capacity, producing 92,892.64 MW of electricity. Within this group, coal, gas and oil-based thermal power plants account for 53.3 per cent, 10.5 per cent and 0.9 per cent, respectively.

Hydel power plants come next with an installed capacity of 36,347.76 MW, accounting for 24.7 per cent of the total installed electricity generation capacity.

Simultaneously, the total transmission lines network has been growing at a robust pace to expand the transmission network. Total transmission lines have increased from 150,642 circuit km (ckm) at the end of 2001–02 to 198,089 ckm at the end of 2006–07 and are further expected to expand to 293,372 ckm at the end of March 2012.

Besides thermal and hydel power, renewable energy sources contribute 7.7 per cent to the total power generation in the country producing 12,194.57 MW of electricity.

Nuclear energy makes up the balance 2.9 per cent contributing 4,120 MW of power.

Total Installed Capacity (As on October 31, 2008)

Sector MW %age

State Sector 76,035.57 52.5

Central Sector 48,470.99 34.0

Private Sector 22246.05 13.5

Total 1,46,752.81

Source: CEA

Growth Potential

According to a report by KPMG and CII, India's energy sector will require an investment of around US$ 120 billion–150 billion over the next five years.

With a targeted gross domestic product (GDP) growth rate of 8–10 per cent and an estimated energy elasticity of 0.8 per cent, India's energy requirement is expected to


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grow at 6.4–8 per cent, implying an almost five-fold increase in India's energy requirement in the next 25 years. Consequently, there is a need to increase the electricity generation capacity to sustain the growth momentum.

The government has revised its target of power capacity addition to 90,000 MW in the 11th Five-Year-Plan (2007–12), up by 11,423 MW from the earlier estimate of 78,577 MW to sustain the growth momentum of the economy.

Of the earlier projected capacity of 78,577 MW, projects worth 63,312 MW are currently being implemented. Of these, 18,177 MW are in the private sector. This, however, does not include captive generation projects, and projects whose benefits will be taken into account during the 12th plan period (2012–17), such as the three ultra-mega-power projects.

The projects currently being implemented include 32 coal blocks having total extractable reserves of 9,916 million tonnes (MT), and having the capacity to feed 29,000 MW. These have been allotted to various state and central public sector units and Independent Power Producers (IPPs).

Further, according to the Planning Commission estimates, renewable projects (RE) projects worth US$ 16.50 billion, for the generation of 15,000 MW power, would come up in the 11th Plan.

Nuclear Power Generation

Subsequent to the Indo-US nuclear deal and India getting clearance from the Nuclear Suppliers Group (NSG), nuclear power generation is likely to throw up an opportunity of US$ 10 billion in the next five years, according to a JP Morgan estimate. India will now also be partnering several countries for nuclear fuel technology projects.

France on September 30, 2008, became the first country to sign a civil nuclear agreement with India. The agreement on the development of nuclear energy for peaceful purposes will facilitate wide-ranging bilateral civil nuclear cooperation.

India and Russia signed 10 agreements in December 2008, including a pact on civil nuclear cooperation.

Thorium Power, a US firm, and Punj Llyod will be forming a nuclear fuel technology JV. The JV will offer thorium fuel technology for light water reactors (LWR) in India.

As per the JP Morgan report, the Nuclear Power Corporation of India Ltd (NPCIL), a public sector undertaking spearheading India's nuclear power programme, is likely to undertake 6800 MW of planned future projects which would translate into orders of US$ 10 billion over the next five years. GMR and Reliance Power have also expressed interest in nuclear power.

As part of the Eleventh Five-Year-Plan, NPCIL will be commencing work on 12 reactors including eight pressurised heavy water reactors (700 MW each), three fast breeder reactors and one advanced heavy water reactors by early 2009. NPCIL will be developing a series of nuclear reactors with capacities between 1,000 MW to 1,650 MW at 5-6 sites along the country's coastline. The sites for the same have already been identified.

India will also be exploring export opportunities and is planning to set up nuclear power reactors abroad. Three Indian public sector companies—the Nuclear Power Corporation, BHEL and NTPC—will be setting up a company for the export of nuclear power reactors.


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The government has taken several proactive steps to open the sector for the private players and realise the full potential of the country in the power sector.

Introduction of the Electricity Act 2003 and the notification of the National Electricity and Tariff policies.

Constitution of Independent State Electricity Regulatory Commissions in the states.

Unbundling of the State Electricity Boards (SEBs) into generation, transmission, and distribution companies for better transparency and accountability.

Allowing the private sector to set up coal, gas or liquid-based thermal projects, hydel projects and wind or solar projects of any size.

Allowing foreign equity participation up to 100 per cent in the power sector under the automatic route.

Deregulation of the ancillary sectors such as coal. Providing income tax holiday for a block of 10 years in the first 15 years of

operation and waiver of capital goods' import duties on mega power projects (above 1,000 MW generation capacity).

The government has also taken up some ambitious programmes like the Ultra Mega Power Projects (UMPP), Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY), Accelerated Rural Electrification Programme and the goal of Power for All by 2012 among others to rapidly increase the installed capacity as well as expanding the network of people who have access to electricity.

Under the newly formulated CERC tariff guidelines for 5 years (2009–14) a 'special allowance' can be availed of by any thermal generating station if it meets the requirement of expenses including renovation and modernisation (R&M), apart from the expense needed for the useful life for a unit.

Investments

A recent study titled “Powering India: The Road to 2017” by consultancy major McKinsey estimates India's power demand to increase from the present 120 gigawatt (GW) to 315–335 GW by 2017—100 GW higher than the current estimates—if India continues to grow at an average of 8 per cent over the next 10 years. This would require a five- to ten-fold rise in power production, entailing investments worth US$ 600 billion over the next ten years.

Out of US$ 132.13 billion of total corporate announcements made in the first half of calendar year 2008, power sector attracted the maximum number of investment announcements totalling to US$ 40.84 billion between January to June 2008, according to an ASSOCHAM study.

India's largest power utility, National Thermal Power Corporation (NTPC) would be investing up to US$ 36 billion by 2012 to transform itself into an integrated regional energy player and have an installed capacity of over 50,000 MW.

The country's largest hydel power company National Hydro Power Corporation (NHPC) plans to double the power generation to over 10,000 MW by 2011–12.

Damodar Valley Corporation (DVC) plans to add 5,000-MW generation capacity in the Twelfth Plan (2007–12) at an investment of US$ 4.16 billion.

The Tamil Nadu Electricity Board (TNEB) has inked a joint venture agreement with Bharat Heavy Electricals Ltd (BHEL) for setting up a 2 × 800 MW thermal power plant in Tuticorin district of Tamil Nadu with an investment of around


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US$ 1.79 billion . The first phase of the project is likely to be completed by March 2012 and the second phase by September 2012.

The Orissa government has cleared several power projects. The projects include the Astaranga Power Company's 2600 MW thermal power project with an investment of US$ 2.30 billion ; NTPC's proposal to invest US$ 4.09 billion for a 3200 MW coal-based mega power plant; Kalinga Energy's proposal to set up a 1000 MW thermal project at Babudhakuli with an investment of US$ 879.03 million and Venture Ltd's proposal to set up a 1200 MW captive thermal project in Dhenkanal with US$ 1.03 billion.

The Power Grid Corporation of India Ltd (PGCIL) is planning to invest US$ 1.45 billion for the development of a transmission system associated with the 4,000-MW Sasan Ultra Mega Power Project (UMPP) in Madhya Pradesh.

Indian Renewable Energy Development Agency (IREDA), an enterprise under the Ministry of New and Renewable Energy (MNRE), will be investing around US$ 3.50 billion to fund renewable energy (RE) sector projects during the 11th Five-Year-Plan.

Haryana is planning an added capacity of 5000 Mega Watt (MW) by 2012 to its current capacity of 4,600 MW, with US$ 5.15 billion as investment.

Private sector investments

Reliance Energy Limited, India's largest integrated private sector power utility company, plans to invest US$ 12.50 billion over the next five years to add 15,000 MW of power generation capacity.

Reliance Infrastructure's Dahanu Thermal Power Station has been adjudged the winner of the CII's (Confederation of Indian Industry) prestigious National Award for Excellence in Water Management for the Year 2008.

Essar is planning to invest about US$ 1 billion to set up a 1200 MW power project in Gujarat.

Lanco plans to install 3000 MW hydro-power stations by 2015 with US$ 3.75 billion worth of investment.

B C Jindal group plans to invest US$ 4.16 billion to produce 5,000 MW power. Consumer electronic maker Videocon plans to invest US$ 5.21 billion on

building thermal power projects aggregating 5,000 MW. Oriental Green Power, which is a renewable energy generation company, is

planning to develop eight biomass-based power plants with an investment of US$ 206.39-US$ 226.99 million. Each plant will have a power generation capacity of up to 8 mega watts (MW), and are likely to come up in Punjab, Tamil Nadu, Andhra Pradesh, Maharastra, and Rajasthan, over the next two years.

Tata Consultancy Services (TCS) has set up a joint venture company along with NTPC Ltd, NHPC Ltd and PFC, to set up an energy exchange. The company-'National Power Exchange Ltd'-will operate the power exchange at the national level. The Tata group has majority stake of 50.02 per cent in the company and NTPC Ltd, NHPC Ltd and PFC have16.67 per cent equity each.

PLG Power Limited will be investing US$ 103.14 million to start a project at Sinnar near Nashik to manufacture Solar Photovoltaic Modules.

In partnership venture with Bharat Electronics Ltd (BEL), Bharat Heavy Electricals Ltd (BHEL) is planning to set up an integrated photovoltaic facility with an investment of around US$ 1.23 billion.

GVK Power and Infrastructure (GVKPIL) is planning an investment of US$ 49.45 million for its 600 MW coal -based thermal power plant power unit in Punjab.


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The Power Grid Corporation of India Ltd (PGCIL) is planning plans to invest US$ 1.45 billion for the development of a transmission system associated with the 4,000-MW Sasan Ultra Mega Power Project (UMPP) in Madhya Pradesh.

Indian Renewable Energy Development Agency (IREDA), an enterprise under the Ministry of New and Renewable Energy (MNRE), will be investing around US$ 3.50 billion to fund renewable energy (RE) sector projects during the 11th Five- Year-Plan.

Haryana is planning an added capacity of 5000 Mega Watt (MW) by 2012 to its current capacity of 4,600 MW, with US$ 5.15 billion as investment.

Gujarat Alkalies and Chemicals Limited (GACL) will be setting up a 100 MW gas-based power plant at Dahej, in collaboration with the Gujarat State Petroleum Corporation (GSPC), with an estimated cost of more than US$ 80.32 million.

Looking ahead

To feed its rapidly growing economy India is planning to get an additional 60,000 MW of electricity from various hydro-power projects by the end of 2025. India's Minister of State for Power, Jairam Ramesh has said that the country seeks to generate 50,000 MW of hydro-power through its domestic resources by 2025. The river-intensive Indian state of Arunachal Pradesh alone would produce 25,000 MW of entire domestic hydel power production, while the other 25,000 MW would be generated from new hydel power projects in Jammu and Kashmir, Sikkim, Uttarakhand and Himachal Pradesh.

The residual 10,000 MW would be sourced from Bhutan. Further, India has also entered into a memorandum of understanding (MoU) with the Government of Myanmar to develop hydro-power projects in the Chindwin basin, with the 1,200 MW Tamanthi project. Power flow between India and Nepal is also expected to go up once the latter start to generate 10,000 MW of hydel-power within the coming decade and trade it with India. India is also likely to raise the proportion of hydel power in the hydel-thermal mix from the present 25:75 to a more desirable 40:60 over the coming 25 years.



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Railways

Last Updated: February 2009 [TOP]

On Track

Indian Railways is the world's fourth largest rail network, the second largest in Asia, and the second largest rail network under a single management. It is also the world's fourth largest freight carrier. Its recent successes following its remarkable turnaround to profitability have both intrigued and amazed management experts and generated a lot of interest in premier global business schools like Harvard and Wharton.

Indian Railways has been recording impressive growth rates - both on the physical and financial front. For 2007-08, the cash surplus before dividend and net revenue are estimated at US$ 6.17 billion and US$ 4.53 billion, respectively, placing it in a much better position than many of the Fortune 500 companies. In fact, bolstered by its aggressive marketing policy, it had already created a fund worth US$ 5.78 billion in the last financial year (2007-08).

The Railway Ministry has taken up the most ambitious ever annual plan for 2008-09, entailing an enormous investment of US$ 7.91 billion, registering a 21 per cent increase over the previous year. The plan includes a total budgetary support of US$ 1.66 billion including US$ 163.33 million to be provided from the Central Road Fund. The annual plan will have Internal and External Budgetary Resources (IEBR) funding of 79 per cent. The plan envisages enhancement of rail capacity, modernisation of the railways, and throughput enhancement on high density network routes, traffic facility works and expansion and development of the network.

According to the Railways Minister Mr Lalu Prasad, Railways' profits in 2008-09 will cross US$ 20.447 billion.

Buoyed by record US$ 5.28 billion earnings in the last fiscal, Railways has set a target of achieving US$ 21.11 billion by the first half of 2009. It is now aiming at bettering that with 8.6 crore tonnes of incremental loading in 2008-09.

Freight and Passenger Traffic

The booming passenger and freight traffic has helped the Indian Railways in sustaining its growth momentum in 2008-09.

In spite of the global recession, the freight traffic of Railways sustained its growth during the last few months of 2008.

The Railways has registered 13.87 per cent growth in its revenue, amounting to US$ 11.83 billion during the period between April-December 2008-09. The overall revenue earnings from goods increased by 14.53 per cent to reach US$ 7.99 billion during this period.

Freight loading during November and December 2008 increased by 1.29 per cent and 3.08 per cent to reach 66.62 million tonnes and 72.13 million tonnes respectively, over the same period last year.


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The Railways boosted its freight revenue by increasing its axle loading, improving customer services and implementing an inventive pricing strategy by following a differential pricing policy for freight traffic. Particularly, for iron ore loading, the Railways offered massive discounts to reduce inflation-related pressures on steel companies. Further, it also announced a 40 per cent discount on iron ore for exports.

As per a Railways statement,"The total passenger revenue earnings during first nine months of the financial year 2008-09 stood at US$ 3.33 billion compared to US$ 2.98 billion during the same period last year, registering an increase of 11.81 per cent."

Almost 5,319 million passengers travelled on the Railways during April-December 2008, an increase of 6.60 per cent against 4,990 million passengers during the same period last year.

The revenue earnings from other coach-related activities totalled US$ 195.70 million during April-September 2008 US$ 185.11 million, an increase of 5.73 per cent.

The overall sundry earnings went up to US$ 104.10 million during April-September 2008, posting a growth of 12.07 per cent.

Infrastructural Expansion

The Railways has lined up massive plans for the upgradation and expansion of its infrastructure, for which it has decided to invite Public Private Partnership (PPP) in the non - core sector for setting up of logistic parks, warehouses, budget hotels, wagon investment schemes, wagon leasing schemes, along with the development of more than 7000 agricultural outlets throughout the country. The Railways Minister has announced plans to invest US$ 42.22 billion for the modernisation, capacity increase and completion of new projects during the 11th Five Year Plan. Southern Railway is planning an investment of around US$ 137.44 million for port connectivity projects at Chennai, Tuticorin, Mangalore, Ennore and Cochin, over the next 10 years.

V K Kaul, the Managing Director of Dedicated Freight Corridor Corporation of India Limited (DFCCIL), announced that construction work on the dedicated freight corridor project will start in early 2009 with an initial investment of US$ 154.74 million for the 100 km stretch on the eastern corridor. The entire project, which will cover over 2,762 km, will entail an overall investment of over US$ 5.78 billion to US$ 7.64 billion. The commissioning of the critical stretches of the entire project will be over by 2015-16.

Further, the Railways is expected to get a loan of US$ 7.61 billion from the World Bank and the Asian Development Bank (ADB) for the construction of about 76 per cent of the proposed 2,739-km dedicated rail freight corridor (DFC).

For 2008-09, the railways has plans to spend US$ 7.66 billion for improving the infrastructure, which targets the upgradation and acquiring new assets of rolling stock.

Some of the ongoing projects are:

Indian Railways has undertaken the construction of a dedicated freight corridor, with an investment of US$ 81.92 million slated for 2008-09 and US$ 614.40 million for 2009-10.


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Rail renewal over 2941 kilometres (kms), which will require 3,39,288 tonnes of rail steel, and sleeper renewal over 2382 kms.

Renewal of 44.5 million of PSC sleepers has been set for open line works. During 2008-09, the total production of steel bridge girders is likely to touch

8615 tonnes. Production of 3000 coaches in 2008, showing an increase of 12.5 per cent

over the previous year. Production of wheels and axles went up by around 60 per cent in 2008

compared to last year. Setting up a 1000 MW thermal power plant through a JV with NTPC at Nabi

Nagar, Bihar with an investment of US$ 1.09 billion. Setting up a factory at Madhepura for producing 100 electric locomotives per

year through JV route. A train wheel factory has been set up at Bela, Bihar. The Bela factory will

produce one lakh wheels annually.

Moving ahead, the Railways has the following plans for 2009-10 and beyond:

The network of the Railways in Mumbai is being further improved and the requirement of funds for these works in 2009-10 is US$ 102.69 million.

Railway electrification target for the Eleventh Plan has been raised to 3500 Kms.

US$ 368. 61 million will be invested during 2009-10 for upgrading signalling systems.

Indian Railways is planning to spend US$ 573.12 million to improve telecommunication works till 2011-12.

The Railways Ministry has invited applications for the setting up of multi-modal logistic parks planned to be set through PPPs. The Railway Board invited expressions of interest (EoI) for these projects. It entails the building of logistic parks along the 3,300-km Dedicated Freight Corridor (DFC), planned by the Railways. There would be around 20 logistic parks, estimated to be built with an investment of about US$ 2.05 billion. The project also consists of a few mega multi-modal logistic parks as hubs offering state-of-the-art integrated logistic facilities.

The Indian Railways also has plans to set up key infrastructure facilities like freight nodal points, Container Park and a coaching complex in Paradeep, in order to cater to the proposed Petroleum, Chemical and Petrochemical Investment Region (PCPIR) in the region. Railways will also improve connectivity in the Paradeep region which includes the 82-km Paradeep-Haridaspur broad gauge line, with an investment of US$ 118.62 million.

The Railways' plan to attract about US$ 24.63 billion in the next five years through public private partnerships, so as to complement its efforts to modernise, upgrade and expand its infrastructure. In 2008-09 alone, Railways plans to attract US$ 6.15 billion of private investment.

The Railways also plans to open the marketing, operation and maintenance of the luxury train segment to private players to take advantage of the demand for such trains.

The government also plans to set-up a new wheel factory at Chapra, a diesel locomotive factory at Marora, an electric locomotive factory at Madhepura, and a coach factory at Rae Bareli (at a combined cost of US$ 974.18 million) making ‘India a manufacturing hub for southern Asia and Africa’ in railway equipment.

Kolkata will be getting an underwater rail connection with the extension of the Kolkata metro to its neighbouring city Howrah, through a tunnel under the


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Hooghly River. The project is estimated to cost US$ 986.4 million and will connect Howrah and the information technology suburb of Salt Lake.

Foreign Investments

To add further momentum to the high-speed passenger corridor project, the Railway Ministry has signed a memorandum of understanding (MoU) with its French counterpart, SNCF International. Indian Railways has signed similar agreements with the railways of Austria, Germany, Italy, Russia, South Africa and China for technical help and cooperation.

With huge investment projects being thrown open for the private sector, an increasing number of global players have evinced interest in taking part in this emerging segment.

Missouri-based American Railcar Industries (ARI) has entered into a strategic pact with auto component major Amtek in a 50:50 joint venture for manufacturing railcars.

Bombardier Transportation will set up a Greenfield plant to make rail cars in Vadodara.

GE Equipment Services (GEES) has entered India by picking up a 15 per cent equity stake in Titagarh Wagons.

Amsted Rail, the world's largest producer of rail cast wheels, will set up a cast wheel manufacturing unit.

A consortium of RITES Ltd (India) - PCI (Japan) - PBI (USA) - SYSTRA (France) has bagged the contract to provide consultancy services to Bangalore Metro Rail Corporation.

Siemens Transportation System has tied with public sector enterprise RITES for railway wagon production.

Further, many players like Mitsubishi Corporation, Siemens, Alstom, Itochu, Toshiba, Kawasaki, Terry Farrell and Partners, Von Gerkan, Marg und Partner, Aedas Ltd, Hellmuth, Obata and Kassabaum Inc and Arep Ville France among others have all shown keen interest to participate in various segments of railways.

Innovative Initiatives

The Railways is in a dynamic phase of growth with new initiatives planned to increase its revenue and optimally utilise its resources.

For the training of railway managers to meet future challenges, Indian Railways is planning to set an international management institute in New Delhi. The International Railway Strategic Management Institute will come up in collaboration with the International Union of Railways (UIC), and US$ 4.64 million has already been sanctioned for it.

The Railways has decided to increase its income through advertising on all Rajdhanis, with the cost of advertising being around US$ 1.26 million per train.

Development of agri-retail hubs, cold storage houses, multi-purpose warehouses on surplus land with the Railways.

Development of 100 budget hotels with private participation in the vicinity of railway stations.


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Introducing new generation trains that would be fuel-efficient, recyclable and have low-emission to generate certified emission reduction credits.

Introducing marketing rights for advertising on railway tickets and reservation charts.

Installation of Wi-Fi for providing wireless access at 500 stations. Establishment of integrated logistic parks on unused lands. Along with these, the Railways has adopted many new measures like Dynamic

Pricing Policy, Tariff Rationalization, Non-Peak Season Incremental Freight Discount Scheme, Empty flow Direction Freight Discount Scheme, Loyalty Discount Scheme and Long-term Freight Discount Scheme among others to boost its capacity utilisation levels.

Sustaining the Turnaround

With a growth rate of 12 per cent, Indian Railways is the world's second busiest railway after China in terms of passenger-km and the third busiest overall. With further growth of the economy, the estimated traffic level by the end of 2011-12 is expected to be about 8.4 billion passengers and 1.1 billion tonnes of freight per year.

Against the in-house manufacturing capacity of 2500 passenger cars and 350 locomotives per annum, 4500 passenger cars and 700 locomotives are required to meet the future traffic needs.

In an encouraging development, the Cabinet Committee for Economic Affairs cleared the Chennai metro rail project, estimated to cost US$ US$ 2.99 billion. The total length of the rail would be 45 km. Of this, 21 km would be elevated and 24 km underground. The rail will run along two corridors – Anna Salai and Poonamallee high road – connecting Washermanpet to the airport and the Central railway station to St.Thomas Mount, respectively. The project is expected to be complete by 2014-15.

In another development, India will have its first monorail in Mumbai soon. The 19.54-km-long monorail which will connect south Mumbai to the eastern suburbs (Jacob Circle to Chembur via Wadala), is expected to be complete in a period of 30 months and greatly reduce the burden on the existing railway network. Malaysian-based Scomi Engineering in collaboration with Larsen & Toubro will execute the US$ 5.03 billion project.


Roads


Indian Roadways: OnThe Fast Lane

In a large country like India, an extensive and efficient transport system is imperative to its sustained economic development and national integration. India has the world's second largest road network, aggregating over 3.34 million kilometers (kms).

The road network comprises of 66,590 kms of national highways which connect the state capitals, ports and big cities. They account for only about 2 per cent of the country's total length of roads, but carry about 40 per cent of the total traffic. The


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state highways comprise of about 1,28,000 km, whereas the major district roads have a total length of 4,70,000 km and facilitate the linkage between the main roads and rural roads. The other district and rural roads have a length of 26,50,000 km, and provide accessibility to villages.

According to the Planning Commission, the road freight industry will be growing at a compound annual growth rate (CAGR) of 9.9 per cent from 2007-08 to 2011-12. A target of 1,231 billion tonne kms (BTK) has been put on road freight volumes for the period between 2011-12.

According to Crisil Research estimates, Indian roadways is among the eight infrastructure sectors expected to draw more than US$ 337.49 billion investment in India over the 2007-08 and 2011-12 period. The report further forecasts that during the specified period, Indian roadways is likely to grow at an amazing 100 per cent.

Growth Potential

The Indian government has launched the ambitious National Highway Development Programme (NHDP) involving a total investment of US$ 54.1 billion up to 2012. It has also started the Bharat Nirman Programme that aims to cover every village having a population of over 1,000 or over 500 in hilly and tribal areas, with all-weather roads. To achieve this, 146,185 kms of road length is proposed to be constructed by 2009.

For the roads and bridges sector, the Eleventh Five Year Plan envisages a total investment of approximately US$ 78.5 billion over the five-year period starting from 2007-08. Of this, the shares of the centre, the states and the private sector are expected to be 34.2, 31.8 and 34 per cent, respectively.

The Eleventh Five Year Plan places high priority on the upgradation of India's infrastructure, and the expeditious completion of works approved under the different phases of the NHDP. According to the consultation paper circulated by the Planning Commission, a massive US$ 494 billion of investment is proposed for the Eleventh Plan Period (2007-12), which will increase the share of infrastructure investment to 9 per cent of GDP from 5 per cent in 2006-07. This translates roughly into US$ 40 billion annual additional investment.

For this, the government has already enacted many proactive measures like opening up a number of infrastructure sectors to private players, permitting foreign direct investment (FDI) into various sectors, and introducing model concession agreements.

Some of the projects planned during the Eleventh Plan period include:

National Highways:

Six-laning 6,500 km of the Golden Quadrilateral and selected national highways

Four-laning 6,736 km on North-South and East-West corridors Four-laning 20, 000 km of national highways Widening 20,000 km of national highways to two lanes Developing 1000 km of expressways Developing 8,737 km of roads, including 3,846 km of national highways, in the

North East


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Rural Roads:

Constructing 1, 65,244 km of new rural roads, and renewing and upgrading existing 1, 92,464 km covering 78,304 rural habitations.

As part of a larger plan to improve the country's infrastructure, the government has given the nod to 10 road projects which will be built in public-private partnership at an estimated cost of US$ 2.48 billion. The projects are aimed at four-laning of national highways in eight states, including Pune-Sholapur section of NH-9 in Maharashtra involving an estimated cost of US$ 218 million, Coimbatore-Mettupalayam section of NH-67 in Tamil Nadu involving US$ 118.16 million and Patna-Buxar section in Bihar for US$ 382.93 million.

Other approved projects are Khagaria-Bhaktiarpur in Bihar, Goa-Panaji, Kuttipuram-Edapally in Kerala and Armur-Adloor Yellareddy section in Andhra Pradesh. The Public-Private Partnership Appraisal Committee has also approved four-laning of Muzzafarnagar-Nepali farm section of NH-58 in Uttar Pradesh and Uttarakhand from Nepali to Dehradun. The Chennai port to Maduravoyal (NH4) in Tamil Nadu has also been cleared under the four-lane elevated road project and will be executed at an estimated cost of US$ 317.88 million.

The Hyderabad Urban Development Authority (Huda) will be investing about US$ 1.26 billion for an eight-lane access-controlled expressway. This is a part of the Outer Ring Road (ORR) project, and it will carried out in three phases. Five agencies are working on this project and it is likely to be completed by 2010.

Huda will also lay out 33 radial roads with an investment of US$ 633. 88-845.13 million for improving the transport system in Hyderabad.

Under the Special Accelerated Road Development Programme in the North East (SARDP-NE), the Cabinet Committee on Economic Affairs (CCEA) has agreed to the modifications to Phase A of the SARDP-NE, to facilitate road linkage to Sittwe port of Myanmar, with an investment of US$ 1.24 billion.

It also gave the nod to an alternative highway between Siliguri and Gangtok with paved shoulders under Phase 'A' of SARDP-NE. An added investment of US$ 21.13 million has been allocated for the upgradation of certain important stretches of NH 31 A. Approval for an alternative alignment of the four-lane NH 37 to bypass Kariranga and the modification of the four-laning of 315 km from Nagaon to Dibrugarh, has also been given by the government.

Private Sector Investments

According to a KPMG report - 'Opportunities in Infrastructure and Resources in India' - investments of the order of US$ 500 billion are expected to take place in the coming years for developing roads and infrastructure. Increased resource requirement along with concern for managerial efficiency and consumer responsiveness has led to major involvement of the private sector via both construction contracts and build-operate-transfer (BOT) based on either toll or annuity basis.

Reliance Energy has three contracts to four-lane 400 km of highway and is already working on four-laning five national highway projects in Tamil Nadu, covering 400 km and at an estimated cost of over US$ 762.42 million.


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L&T inter-state Road Corridor Limited is executing the four-laning of the 76-km highway between Palanpur and Swaroopgunj on the East-West Corridor.

The consortium of Maytas Infra Private Limited and Nagarjuna Construction Company Ltd will four-lane the highway from Tindivanam and Pondicherry, at an estimated cost of US$ 70.09 million.

Lanco Infratech has the contract to four-lane two highways in Karnataka at an estimated cost of US$ 247.41 million.

DS Construction will develop the Gwalior-Jhansi section on NH-75 which includes four-laning at a cost of US$ 159.9 million.

Era Constructions India Limited along with Karam Chand Thapar & Bros Limited will construct a section of the Delhi-Haryana Border to Rohtak. It is also involved in the construction of a four-lane Gwalior by-pass at a cost of US$ 73.8 million.

Jaiprakash Associates Ltd (JAL) is implementing the Taj Expressway project, which envisages a six-laned 165 km stretch connecting Greater Noida to Agra at a cost of US$ 554.93 million.

Madhucon Projects has ongoing BOT projects with four toll-based road projects.

Public Private Partnership

Many road projects with public-private partnerships are also on the anvil.

The Public-Private Partnership Appraisal Committee (PPPAC) gave the nod to infrastructure projects worth US$ 5.98 billion on November 2008, which included 21 highway projects to be taken up under NHDP Phase III and V. Since its foundation in January 2006, the PPPAC has granted approval to 87 projects, which includes 77 highway projects.

International Participation

With emerging investment opportunities, Indian road construction projects have become a preferred investment option for large foreign players.

International companies like Emirates Trading Agency (Dubai), Deutsche Bank, IJM Corporation, Berhad (Malaysia) and the Isolux Corsan Group (Spain) are partnering with Indian companies with equity stakes between 10 to 51 per cent. These projects include the conversion of 882 km of four-lane national highways into six lanes at a total cost of US$ 2.30 billion. More such mammoth projects are slated for the next financial year, wherein about 2000-2500 kms of four-lane highways will be widened.

American construction major Star Universal Resource Company has signed a Memorandum of Understanding (MoU) with the Government of Sikkim for the construction of an underground expressway between Sikkim and West Bengal. The proposed road, with ten tunnels and as many bridges, will cost US$ 327.80 million and is slated to be built in four years.

Furthermore, companies such as Turkey's Limak, Thailand's Italthai, Korea's Baelim, Russia's Dyckerhoff, Germany's Widmann AG, Malaysia's IJM Construction, SDN and Road Builders and Japan's Kajima and Taisei are undertaking projects floated by the National Highway Authority of India (NHAI) and other state governments.



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To attract more investment into India's burgeoning infrastructure that is projected to attract US$ 500 billion as investments by 2012, the government has taken a number of progressive reform initiatives.

Allows 100 per cent FDI under the automatic route in all road development projects.

With incentives like 100 per cent income tax exemption for a period of 10 years, the NHAI provides grants/viability gap funding for marginal projects, and formulation of model concession agreements among others.

Private parties allowed to develop service and rest areas along the roads entrusted to them.

Investors in identified highway projects permitted to recover investment by way of collection of tolls for specified sections and periods.

As a step to improve the viability of road projects to be implemented on PPP mode, the Cabinet Committee on Economic Affairs (CCEA) has agreed upon the National Highways Fee (Determination of Rates and Collection) Rules, 2008. The Rules will establish uniformity in fee rate for public funded and private investments projects.

The government has also announced an increase in the overseas borrowing amount of infrastructure sectors, to US$ 500 million from US$ 100 million.

The government has taken steps to provide cheaper loans for highway projects and in the process will be expediting projects worth more than US$ 12. 70 billion under separate phases of the NHDP.

The Ministry of Shipping and Road Transport is mulling over having a ‘green corridor' in highways solely for farmers with ‘no toll' charges. The green corridor would link rural roads with National Highways and is likely to be developed along with the six-lane project under the National Highways Development Programme.

Looking Ahead

According to a consultation paper by the Planning Commission, investment in the roads sector during the Eleventh Plan is projected at US$ 93.11 billion. While approximately US$ 46.05 billion is projected to be invested in national highways, US$ 34.65 billion will be spent for state roads, US$ 10.97 billion in rural roads, and US$ 1.42 billion in roads in the North-East. Significantly, the private sector is projected to invest US$ 33.61 billion, accounting for 36.1 per cent of the total investment.

A target of 3,519 kms has been fixed by NHAI for the completion of construction across various phases of NHDP during 2008-09.The planned completion dates for other phases of NHDP being executed by the National Highways Authority of India (NHAI) are:

NHDP Phase-II - December, 2009 NHDP Phase-III - December, 2013 NHDP Phase-V - December, 2012 NHDP Phase-VI - December, 2015 NHDP Phase-VII - December, 2014

The Asian Development Bank (ADB) is extending a US$ 420 million loan to the Indian state of Bihar for the upgradation and expansion of the state highway network, over a period of 25 years.


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The Bihar State Highways Project will be upgrading around 820 kilometers of roads under the state government's highway development program. An additional US$ 1 million technical assistance will also be provided for the improvement of road sector institutions. The Government of India has also granted US$ 48 million for the project.

Further, the roads of Delhi will be getting a facelift, keeping the 2010 Commonwealth Games in mind. The Municipal Corporation of Delhi (MCD) plans to spend a massive US$ 1.24 billion for the year 2009-2010 for upgrading the city's roads and infrastructure.

With massive investments and large projects on the anvil, Indian roadways will be playing a significant role in the Indian growth story.


Services


The services sector is one of the most important segments of Indian economy in terms of its contribution to the gross domestic product (GDP) in recent years. It has been at the forefront of the rapid growth of the Indian economy, contributing nearly 63 per cent of the GDP in 2007-08. The sector has come to play an increasingly dominant role in the economy accounting for 59.6 per cent of the overall average growth in GDP in the last eight years between 2000-01 and 2007-08.

Further, Dun & Bradstreet said in its 'Economy Outlook 2009-10' report that the services sector will retain its importance in GDP and its contribution is expected to reach 58 per cent in 2009-10.

As per the Central Statistical Organisation, the services sector has continued to grow even in the third quarter of 2008-09, registering a 9.3 per cent increase over the corresponding period of 2007-08.

Community, social and personal services posted a robust 17.3 per cent growth in the third quarter against 5.5 per cent in the corresponding period a year ago.

Financing, insurance, real estate and business services also grew by 9.5 per cent as against 11.9 per cent.

Apart from higher contribution to GDP, the sector has also been recognised globally as the prime driver of accelerated and diversified growth of the economy.


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Indicators

Lead indicators suggest that the pace of expansion in the services sector activity is likely to be sustained even in the next financial year.

Foreign tourist arrivals (FTAs) during February 2009 stood at 5,02,000, compared to 4,87,000 in January 2009.

Railways freight traffic increased to 751.30 million tonnes during April-February 2008-09 from 715.33 million tonnes carried during the corresponding period last year.

Mobile subscriber base in the country grew by 13.45 million in February 2009. Cargo handled at major ports during April–September 2008–09 has been

261.73 MT as against 244.14 MT in the corresponding period last fiscal.

Further, the sector is set to be benefitted by the recent government incentives announced as a part of the third stimulus package. The government's announcement to cut service tax across the board from 12 per cent to 10 per cent is expected to benefit the consumers as well as the services sector.

The prospects for growth in the Indian services sector over the next year continues to be robust, according to a survey by KPMG, conducted across the BRIC (Brazil, Russia, India and China) countries. The survey revealed that Indian companies had the most positive outlook on profits among the BRIC countries with nearly 60 per cent expecting an increase in levels of business activity and 58 per cent expecting an increase in revenue. Also, Indian companies were the second most optimistic lot compared to others with regard to expecting an increase in new business over the next year.

Exports

The growth of the Indian services sector has not been confined to the domestic market alone. It is also reflected on its trade front. India's share in the global trade of services has increased from 2 per cent in 2004 to 2.7 per cent in 2006. Particularly impressive has been the broad-based growth of services on the trade front, which is expected to continue even in the next fiscal.

Information Technology

Exports for the Information Technology (IT) and Business Process Outsourcing (BPO) sectors are expected to touch US$ 60 billion–US$ 62 billion in 2010-11, according to the National Association of Software and Service Companies (NASSCOM).

In its 'Strategic Review 2009' titled 'The IT-BPO Sector in India', NASSCOM has said in the current fiscal (2008-09), exports were likely to touch US$ 47 billion. Exports stood at US$ 31.4 billion in 2007-08.

A vertical break-up of India's IT- BPO exports sector shows Banking and Financial Services Institutions (BFSI) accounted for 41 per cent of the export pie in 2007-08, while telecom and manufacturing contributed 20 per cent and 17 per cent, respectively.

Healthcare


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Experts believe that the outsourcing of healthcare services from the US to India would continue. The US-based healthcare companies are expected to send more information technology projects to India, in order to bring down their costs of operations, according to a study done by Offshoring Research Network (ORN), in alliance with Duke University and research firm PricewaterhouseCoopers.

Despite global economic downtrend, the medical transcription (MT) industry is looking for a further growth buoyed by a report of the NASSCOM stating that recession has not hit the healthcare industry. As per a NASSCOM report, the MT industry will be worth US$ 798.1 million by 2010 and could employ as many as 50,000 people.

India is also likely to retain its tag as the backoffice of the world currently, amid competition from its neighbouring country China, as per a report by Deutsche Bank Research. At present, India is in a comfortable position as the share of IT and IT-based services in China's export revenues comes to only just above three per cent, compared to over 26 per cent in India.

Investments

The sector that bagged the maximum amount of foreign direct investment (FDI) equity during April- October 2008 is the services sector (US$ 3.35 billion).

The surge in mobile services market is likely to see cumulative FDI inflows worth about US$ 24 billion into the Indian telecommunications sector by 2010, from US$ 3.84 billion till March 2008.

The sector is also set to witness an increase in investments, with the government approving 513 special economic zones (SEZs) till August 2008, of which majority of them are for IT and information technology enabled services (ITeS) sectors.

Some of the major investments in the offing for the service sector include:

Information Technology

Tata Consulting Services has signed a US$ 100 million agreement to provide IT services to a UK-based telecom company 4U Group.

ITES

Chicago-based Global Hyatt Corporation has outsourced part of its financial and accounting transaction services to Genpact.

In another major deal, the US$ 30 billion pharma company AstraZeneca has outsourced its end-to-end maintenance services for a variety of corporate services (such as human relations, finance) to Bangalore-based Infosys.

Tourism/Hospitality

The US$ 3 billion Lulu Group has entered into a management contract with Marriot Hotels to run the 20-story 300-room business hotel property now under construction


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in Kochi. The hotel is coming up as part of the US$ 239.31 million hypermarket-multiplex-airlines tower complex, which is being built by the Dubai-based group.

Legal services

UK-based Clifford Chance, the world's largest law firm, and AZB & Partners, an Indian law firm, have entered into an informal tie up which will involve client referral arrangements, joint training, consultation and marketing.

At present, foreign law firms are not allowed to operate in India and the Bar Council of India prohibits joint ventures between foreign and domestic law firms. But, global entities are opting for tie-ups with Indian partners, as they are increasingly looking at establishing an India presence, in anticipation of a possible opening up of the local legal services industry to foreigners.

Retail

Trent, the retail arm of the Tata group, has formed a joint venture with Inditex Group to develop and promote the foreign company's Zara stores in India. Inditex is a leading fashion retailer based in Spain. The partnership plans to open its first store next year in New Delhi, Mumbai and other major cities of India.



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Consumer Markets


Sustained Momentum

As rapid socio-economic changes sweep across India, the country is witnessing the creation of many new markets and a further expansion of the existing ones. With above 300 million people moving up from the category of rural poor to rural lower middle class between 2005 and 2025, rural consumption levels are expected to rise to current urban levels by 2017. Such developments in India's markets are expected to create major opportunities for Indian companies and multinationals (MNCs) alike and further fuel consumer demand in India.

Despite the gloom in the global markets, India will continue to be the second fastest growing economy in the world and according to the Indian Minister for Commerce and Industry, Mr Kamal Nath, the Indian economy may well grow at over 7 per cent in 2008-09.

According to a study by the McKinsey Global Institute (MGI), Indian incomes are likely to grow three-fold over the next two decades and India will become the world's fifth-largest consumer market by 2025, moving up from its position in 2007 as the 12th-largest consumer market.

Further, according to the National Council for Applied Economic Research (NCAER) estimates, by 2012, only 14 per cent households in India will have annual household incomes of less than US$ 921.66, from 58 per cent in 1995-96 and 25 per cent currently.

In an analysis (carried out by Economic Times) of the top 50 consumer goods and services firms, it was seen that the June quarter of 2008-09 saw a sales growth of 24 per cent (year-on-year) compared to last year. The firms included in the analysis were from sectors like automobiles, textiles, fast moving consumer goods (FMCGs), consumer durables and retail among others. Sales of daily consumption items went up by 5-10 per cent and the FMCG business increased by 18.8 per cent, while the


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consumer durable segment also recorded strong volume growth in the second quarter of the 2008-09 fiscal.

Moreover, approximately 315 hypermarkets are expected to come into existence in tier-I and tier-II cities across India by the end of 2011, riding on the boom in organised retail sector, says a joint study by consultancy firm KPMG and industry body, ASSOCHAM. The study states that 212 Indian towns are capable of sustaining the development of such hypermarkets in 2008.

Despite the prevailing gloom across global markets, Indian consumers and companies continue to be a confident, optimistic lot, with most Indian companies denying any cutbacks from consumers.

"At both Big Bazaar and ezone, we've seen good growth of about 25 to 30 per cent on a same-store basis," said Manoj Kumar, CEO of Future Group's ezone. In fact, expensive products like LCD televisions and laptops are witnessing higher growth than their cheaper counterparts.

On similar lines, V Ramachandran , LG Electronics' Sales and Marketing Director, said, "We have not witnessed any pressure so far. In fact the festival period saw a growth of 40-50 per cent."

Mayank Pareek, Executive Officer, Marketing and Sales, Maruti Suzuki India, said, "We've seen four distinct phases in 2008. April to June went okay; August to October saw some weakening. Then October was huge, with the highest ever retail sales. Then again November sales dropped only to again rise in December".

In the FMCG sector players continue to report good sales figures. Marico's CEO-Consumer Products, Saugata Gupta, said, "In our categories, we've seen no drop."

Rural Consumers

Rural India has provided a beacon of hope to India Inc amidst the prevailing economic slowdown. Buoyed by a plenteous harvest, liberal loan-waivers and a growing middle class, the rural consumer is spending like never before, with FMCG, cars, two-wheelers and consumer durables accounting for a significant part of his spending. Dr Rajesh Shukla, senior fellow at the National Council for Applied Economic Research (NCAER) said, " Most corporate who have expected sales of 30-40 per cent from the smaller markets now hope to net in more than 60 per cent of their sales turnover from rural India."

FMCGs have seen over 20 per cent demand in rural markets ahead of the 17-18 per cent growth in urban India. According to AC Nielsen, mainstay categories like hair oils, toothpastes, shampoos, skin creams and lotions, and even candies saw more growth in rural markets than urban.

Beverage major Coca-Cola India has already introduced a large-scale retail programme tailor-made for tier II and tier III towns. Similarly, LG, Samsung, Sansui, Philips, Maruti, M&M, Tata Motors, Hero Honda, Nestle and P&G are other major corporates who are increasing their rural focus.

The growing consumption is the result of a growing middle class base in these areas. The overall number of rural households is estimated to grow to 153 million in 2009-


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10 from 135 million in 2001-02. Further, as per an NCAER report, compared to urban areas, the ‘lower middle income' group in rural areas has nearly doubled. This major consumer base accounts for 41 per cent of the Indian middle class having access to 58 per cent of the total disposable income.

The mobile boom has now also hit rural India. According to a report jointly released by the Confederation of Indian Industry (CII) and Ernst & Young, of the next 250 million Indian wireless users, around 100 million (40 per cent) are expected to be from rural areas. Further, by 2012, rural India will have an over 60 per cent share of the total telecom subscriber base. Mobile phones in rural India increased by around 13.72 per cent to touch 70.83 million in the quarter-ending June 2008.

FMCG

The FMCG sector has been registering double-digit growth in sales since the last couple of years. Currently estimated at US$ 17.44 billion, it is the one of the most promising sectors in India.

In spite of the economic slowdown, the Indian FMCG industry is likely see robust 15 per cent growth in the third quarter of 2008-09 against the corresponding period last year.

Adi Godrej, Chairman of the Godrej Group, said, "The overall FMCG market, both urban and rural, have recorded robust growth rates."

"I think the Indian FMCG industry's sales growth should be good in Q3. My expectation is that the industry will register a 25 per cent sales growth in Q3 2008-09," he further said.

According to a FMCG sectoral report by Angel Broking, an analyst firm, companies will be seeing profits in terms of margin expansions due to the correction in global commodity prices.

Further, IDFC SSKI Securities has predicted a revenue growth of 18 per cent in the third quarter of 2008-09.

In rural areas, companies like ITC, Godrej Agrovet and DCM Shriram among others are growing rapidly in rural areas and, in fact, may outdo their urban counterparts like Reliance Fresh and the Future Group-owned Food Bazaar chain.

Tremendous growth is being recorded by value-added and aspirational products. These products are estimated to propel the FMCG industry to grow by 16 per cent (in sales) during 2008-09, compared to 14.5 per cent during 2007-08.

Another promising trend is the growth of 'out-of-home consumption', which is emerging as a new section in the FMCG sector. With changing lifestyles, the concept of three core meals fast vanishing, companies like Coca Cola India, ITC, and Dabur are venturing into this market and are bringing out new product packaging for the segment.

Significantly, several Indian FMCG companies have also been aggressively exploring global markets through both acquisitions and alliances. In 2008, four major


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acquisitions were made by three firms—Godrej Consumer Products (GCPL), Emami and Dabur.

In the past three years, they have acquired about 15 companies and have spread their presence in more than a dozen countries.

Luxury Products

With the rapidly increasing number of millionaires in India, the market for luxury brands is growing annually at a compound average growth rate (CAGR) of about 35 per cent.

According to a FICCI-Yes Bank report, India is set to become a manufacturing hub for global luxury brands over the next four to five years. The report stated that with the core strengths in India's manufacturing sector, the manufacture of luxury items in India can grow to US$ 500 million. The luxury products market in India was estimated in excess of US$ 500 million and is likely to grow at a CAGR of 28 per cent to reach US$ 1.2 billion by 2010. The market is expected to double by 2015, touching US$ 2.5 billion.

Global brands like Louis Vuitton and Frette are planning to set up their manufacturing base in India.

Car imports fell in 2008, with consumers choosing to buy Indian made models by foreign car makers. From 5,000 units in 2006, 7,500 luxury cars were sold in 2008. The market is likely to further grow to 10,000 units by 2010. Leading luxury car makers like Mercedes-Benz India, BMW and Audi are expecting improved sale figures in 2009.

Industry experts believe that the top-end consumer electronics segment in India is growing by 8-10 per cent annually.

Consumer Durables

A combination of changing lifestyles, higher disposable income, greater product awareness and affordable pricing have been instrumental in changing the pattern and amount of consumer expenditure leading to robust growth of consumer durables industry.

According to a snap poll carried out by the Confederation of Indian Industry (CII), 92 per cent the CEOs surveyed were expecting sales to increase by 10 per cent during 2008-09.

A flurry of hi-technology durables are expected to be introduced in the US$ 4.09 billion Indian durables market by March-April in 2009. Samsung, LG, Haier and Videocon are among companies planning new product launches in the coming months.

Korean major Samsung is planning to launch LCD-led live emitting diode (LED) TVs at US$ 1433, and Blu-ray technology home theatres and cameras in 2009.


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Pranay Dhabhai, Director and CEO , Haier Appliances India, said, "For the coming season, we plan to import 'dual-tech' larger capacity (two-door, four-door and six-door refrigerators) from our US-based factory. Besides, we will also launch ACs with a new look and feel."

Videocon Industries will also launch high-end LCD TVs and plasma TVs, along with air conditioners with technological compressors and new designs.

Similarly, LG Electronics India is also planning to introduce air conditioners with new technology compressors and revamped designs.

Shantanu Das Gupta, Vice President-marketing, Whirlpool of India Limited (WIL) revealed, "We plan to increase WIL's market share across the four categories of home appliances to 20 per cent plus by 2010 with more emphasis on washing machines, air conditioners and microwaves where we are not as strongly positioned as in the refrigerator category." "In the product development area the investment in India, across all category, will be in the region of US$ 25-30 million in the next two years," added Dasgupta.

Whirlpool is targeting a 22 per cent share of the US$ 430.23 million washing machine market in India by the end of 2009 and is launching a range of new products with an investment of US$ 4 million for the same.

Automobiles

Presently, India is the second largest two-wheeler market in the world, the fourth largest commercial vehicle market, the 11th largest passenger car market and is expected to be the third largest automobile market by 2030.

During April 2008, sales rose by more than 17 per cent in the car segment, while sales in the utility-vehicle segment rose by 31 per cent, compared to the corresponding month last year.

Maruti Suzuki, India's leading automaker registered a 20 per cent net sales growth for the June 2008 quarter and it also posted 12 per cent growth in volume terms. Even Hero Honda registered double digit growth in its volume shipment.

Even though the auto industry witnessed slowdown in more recent times, car sales from manufacturers to dealers were expected to stage a recovery in January 2009, after dealers took on new stocks after selling off a huge inventory pile-up during December 2008.

In January 2009, big auto companies registered positive car sales, reviving hopes of an upturn in demand. Maruti Suzuki India achieved its highest-ever domestic and total sales in January this year. Maruti's dispatches to domestic dealers increased 5.6 per cent to 67,005 units during the month. Its last biggest dispatch of 65,216 cars took place way back in November 2007. Maruti posted retail sales of 76,700 vehicles in December, its highest ever, clearing the stocks piled up at dealerships.

In the luxury segment, even with the global auto industry being affected by the economic slowdown, luxury cars have posted high double digit growth in India in 2008.


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Mercedes Benz India has registered robust growth in 2008 with 3,625 cars (46 per cent growth), 240 trucks (53 per cent growth) and 16 bus chassis.

BMW India sold over 2,500 units in 2008 against an estimated 2,000 units. Similarly Audi India registered a growth of 201 per cent at 1,050 units in 2008 against 349 units in 2007.

Global auto makers are still bullish on India. Describing India as one of the promising emerging markets Toyota Motor Corporation is going ahead with its US$ 655.60 million second plant at Bidadi, near Bangalore.

To drive sales, Daimler Motors, Skoda Auto and Volkswagen, are entering the US$ 4.50 billion auto loan market in the country. Indian auto majors, Bajaj Auto, Tata Motors and M&M are already offering loans through their own finance subsidiaries.

Consumer Electronics

The rapidly growing consumer electronics market in India has spurred many leading manufacturers of the world to get into partnerships with local companies to set up shop in the country. Companies planning to enter India include Japanese testing firm Saki, Hong Kong's surface mount technology (SMT) company WKK, Singapore's Mydata (SMT) and USA's Indium (solder paste).

iSuppli, an electronics market research firm, has projected that the Indian audio/video consumer electronics industry will grow to US$ 6.59 billion by 2011, growing at a CAGR of around 10 per cent.

Growth of Niche Segments and E-commerce

Companies offering niche services within lighting - for example energy-efficient lighting - and interior design are witnessing growth and are looking at fresh investments. The energy-efficient lighting solutions market witnessed 30 per cent growth in the year 2008. Companies like Philips Consumer Lifestyle and Bajaj Lighting are looking at continued investments in the segment.

Likewise, the US$ 307.37 million modular kitchen segment is seeing a growth of 40 per cent. Amongst many other companies, H&R Johnson, a leading tile manufacturer, is also planning to foray into the market and launch a new kitchens division.

As broadband connectivity grows in India – according to the Telecom Regulatory Authority of India (TRAI) India had 4.73 million broadband internet connections at the end of August 2008 – online purchasing is growing. According to a global online survey by A C Nielsen, a staggering 78 per cent of Indians (who access internet) make purchases online, with credit cards being the preferred mode of payment. Online shopping has opened up new avenues and the survey found that books (46 per cent), electronic equipments (29 per cent), tours and hotel reservations (24 per cent), videos/DVDs/games (23 per cent), event tickets (23 per cent), clothing/accessories/shoes (21 per cent), and music (20 per cent) are some of the categories in which Indians made online purchases.

In fact, Indians have emerged as the third biggest credit card users globally for online purchases.


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Consumer Confidence

The Indian consumer remains one of the most upbeat globally.

The Nielsen Global Consumer Confidence study, conducted by Nielsen, a market research company revealed that Indians are "the most optimistic lot globally who think that their country will be out of the economic recession in the next twelve months," stated the biannual report. India was at the top of the survey with 114 points, a remarkable 30 points above the global average of 84, and 51 per cent of the Indians surveyed believed that they would be out of the recession in 12 months.

Furthermore, Indian consumers are also becoming more aware about the finer nuances of nutritional panels and labels. According to the Nielsen global online consumer survey, carried out by Nielsen in April 2008, around 59 per cent Indians said that they noticed packaged goods' labels containing nutritional information. With 59 per cent, India tops in the Asia-Pacific region in its understanding of nutritional labels. The online consumer survey was carried out in 51 markets from Europe, Asia-Pacific, North America and West Asia.


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Marketing and Strategy


With market liberalisation, increasing consumerism and the entry of more foreign players, Indian markets are seeing revolutionary changes. The Indian consumer is rapidly evolving and is now being encouraged to see shopping as an experience and is spoiled for choice by a host of international brands selling their products at competitive prices. The spending pattern of the Indian consumer is also changing rapidly. The relative importance of basic necessities such as food and apparel is declining whereas for categories like communications and healthcare, it is rising.

According to a study by the McKinsey Global Institute (MGI), India's middle class will swell by more than ten times—from its current size of 50 million, to 583 million people—by 2025. And over 23 million Indians—more than the present population of Australia today—will be counted as billionaires. By 2025, India will also become the 5th largest consumer market, surpassing Germany, moving up from the 12th position it occupied in 2007. The Boston Consulting Group (BCG) forecasts that Indian household spend is going to reach nearly US$ 325 billion by 2015 compared to US$ 150 billion in 2007.

Although much of the new wealth and consumption will be created in urban areas, rural households will also benefit enormously considering rural incomes have been rising.

In the seventh annual Global Retail Development Index (GRDI) conducted in 2008, India stood second as the most attractive destination for retail investment. It is estimated that the Indian retail market will increase from US$ 330 billion in 2007 to US$ 427 billion by 2010 and US$ 637 billion by 2015. Organised retailing comprises just 4.6 per cent of the currently estimated Indian retail market. However this segment grew nearly 40 per cent in 2007 and is estimated to increase to 22 per cent by 2010.

The Indian Direct Selling Association (IDSA) estimates the industry turnover to grow two-fold in the next five years to touch US$ 1.27 billion. It is, presently, growing at over 10 per cent.

Rural Market—The Next Big Opportunity

The rural market offers great untapped potential. In 2008, the rural market has grown at an impressive rate of 25 per cent compared to the 7-10 per cent growth rate of the urban consumer retail market. Further, according to international consultancy firm Celent, the rural market will grow to a potential of US$ 1.9 billion by 2015 from the current US$ 487 million.

According to recent studies conducted by the National Council of Applied Economic Research (NCAER), rural India is home to 720 million consumers across 627,000 villages. Today, the rural market accounts for a hefty share in most market


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segments- 55 per cent of LIC policies, 70 per cent of toilet soaps, 50 per cent of TV, fans, bicycles, tea and wrist watches.

Major corporations have tasted phenomenal success with innovative strategies such as smaller packaging, customised development and positioning and a good distribution network.

Also rural India is less affected by the global slowdown. Consequently, an increasing number of marketers are targeting it.

The trend-setters in this segment too are the usual suspects: FMCGs, cars, two-wheelers and consumer durables.

FMCG is clocking over 20 per cent demand in rural markets, ahead of the 17-18 per cent growth coming from urban India. Core categories such as hair oils, toothpastes, shampoos, skin creams and lotions, and even candies showed better growth in rural markets than urban, according to AC Nielsen. Says Dabur CEO Sunil Duggal, “Close to 50 per cent of our sales come from rural and semi-urban markets.”

The rural middle class has been steadily growing. The middle to high income households in rural India are now 17 per cent of the total rural population and are growing at 7 per cent. “The gap between the urban and rural spend is huge. Better than expected rainfall has got consumer-goods makers revising their sales targets for the countryside upwards. Most corporates, who have expected sales of 30-40 per cent from the smaller markets, now hope to net in more than 60 per cent of their sales turnover from rural India,” says Dr Rajesh Shukla, senior fellow at NCAER.

NCAER estimates project that by 2012, only 14 per cent households in the country will have annual household incomes of less than US$ 871. That number was 58 per cent in 1995-96 and is 25 per cent currently.

Coca-Cola has already rolled out a large-scale retail programme to tap potential in tier II and tier III towns. The program, called Parivartan, focuses on inculcating knowledge of best practices in the retail business. Dabur India has rolled out specific programmes for each of its brands.

LG, Samsung, Sansui, Philips, Maruti, M&M, Tata Motors, Hero Honda, Nestle and P&G are other major corporates who have ramped up their rural focus for the second half.

Rural India may offer a business opportunity worth US$ 23 billion for the insurance companies if the segment can be wooed with innovative saving schemes at affordable premiums. Companies have launched affordable endowment life insurance plans such as MetLife India Insurance Company Ltd's, 'MetSuvidha'.

Even white goods companies are looking at the rural market as a saviour in these recessionary times. The US$ 40-billion global white goods major LG Group expects rural consumers to push its revenues in India this year.

The company, which has expanded its focus areas to the rural markets, now expects 40 per cent contribution from rural sales to its turnover this year, as the rural sector is growing at a pace faster than urban sector resulting in higher disposable incomes and, thus, mounting purchasing power.


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The company hopes to alter its portfolio and model mix for the rural market, and ensure that all segments are represented at the entry level.

Innovative Marketing

In a highly competitive environment, marketers have to keep looking for an increasing number of innovative methods to increase sales. For instance, Goldplus from Tata, the jewellery retail venture of Titan Industries that specifically targets the small-town consumer, actually takes key influencers on a drive, all the way from small towns and villages, to the chain’s district outlet. It does this in its endeavour to compete with the local jeweller in smaller towns. The experience does not end there.

After showcasing the store, screening audio-visuals and even encouraging visitors to check the purity of the gold they possess, the group is served snacks and then dropped back home.

Goldplus has quietly notched up US$ 77.47 million worth of revenues and is growing at upwards of 50 per cent annually.

Brand Extensions

In a bid to garner higher market share and sustain long-term growth, FMCG companies such as Coca-Cola, Nestle, PepsiCo, Dabur, Marico and Godrej have adopted a brand extension strategy amid negative factors such as high inflation and the global financial crisis.

According to marketing research company IMRB, the FMCG companies launched 251 products (223 variants and 28 brands) in calendar year 2007 as against 191 (173 variants and 18 brands) in 2006. The industry pegs the number of variants and extensions launched this year to be in line with 2007.

According to Ramesh Srinivas, KPMG India’s National Industry Director (Consumer Markets), “There has been evidence of downtrading in the FMCG sector, especially the mid-level brands. Companies are likely to leverage their strong brands by introducing variants across high-end and low-end ranges.”

For instance, Nestle launched a record number of variants this year—from its Maggi Cuppa Mania (the instant cup noodles), Maggi Pichkoo (a tomato ketchup pouch pack) to Maggi Bhuna Masala (a readymade cooking aid). It also introduced NesVita Pro-Heart, a fat-free packaged milk product in Delhi/NCR region.

Dabur too unveiled a pudina variant of its popular Hajmola brand apart from extending its Gulabari skin-care range.

Among the other launches, GlaxoSmithKline Consumer Healthcare India introduced Eno Orange.

Industry observers also feel that for most of the brand variants, manufacturers need to marginally tweak the production line to accommodate the new product as against a new brand which may require more infrastructure.


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In terms of categories, brand extensions in personal-care, household-care and processed foods drove growth in the FMCG sector.

Analysts believe that most of the new launches next year will also happen under these categories.

In the processed foods segment, ‘health and wellness’ has been the major theme playing out, with most players rolling out products around this platform.

Media and Communication Channels

Word-of-mouth remains the most important influence in the buying decision of the Indian consumer - a fact confirmed by 85 per cent users who participated in a recent global Nielsen Internet survey. Among the top ten countries that attach maximum importance to the recommendation of the fellow consumer, India ranks fourth while Hong Kong tops the list.

Newspaper (77 per cent) is the second most trustworthy advertising medium; TV ranks fifth in terms of trustworthiness at 65 per cent. For the internet users, online opinions are at the third position with a 73 per cent vote. According to Radio Audience Measurement data, 49 per cent listeners access radio from their mobile phones. Fostered by its increasing popularity, private FM is especially emerging as a preferred communication channel for the marketers in India.

While dominant communication channels in India include print, TV and radio, digital media advertising (internet, mobile and digital signage) is expected to emerge as the medium of choice for advertisers. Of the available media, it was the fastest growing segment in 2008. Its better return on investment and the comparative ease with which its efficacy can be measured will ensure that the trend continues, say analysts.

Viraj Malik, MD, Percept Knorigin (digital advertising arm of Percept), says that earlier, internet advertising was used by BFSI (Banking, Financial Services and Insurance companies) and .com companies only. In the last 6 months, other consumer-oriented brands have also started using the medium.

“In 2009, video ads will the most popular form of online advertising as more and more brands are willing to put video ads on the internet,” Malik envisages. Knorigin grew 82-100 per cent in 2008 and Malik expects it to grow at the same pace in 2009.

Rising interest in social networking in 2008 has made brands think seriously about online advertising. According to a FICCI-PwC report, it is expected to touch US$ 212.91 million in 2011 from the current US$ 58.1 million.

Malik adds that while volumes in internet advertising will grow as compared to mobile advertising, the mobile medium will see some interesting options. The 3G roll out will drive the use of content-rich applications. This will open up more options for mobile advertising.

Analysts believe that mobile marketing will be a much bigger opportunity in the next 2 years than the internet has been in the past 10 years. This will come from a mix of three primary streams—SMS advertising, mobile internet advertising and mobile invertising (permission-based advertising).


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According to analysts, in 2009, operators will focus on value-added services and data services to distinguish from and compete with new operators. This will open a platform for mobile advertisers. Mobile number portability rollout, 3G services, and the green signal for MVNOs will leverage mobile advertising on the same account.

Moreover, the 2009 general elections are likely to be an inflection point for the usage of mobiles in many different ways, just as the 2008 US elections were a defining moment in the use of internet and mobile services.

Moreover, as recessionary trends lead to tightening of advertising budgets across the board, the online medium, which boasts of a higher return on investment and is far more measurable, is expected to get renewed attention from marketers.

What makes the case stronger for the web is the fact that it is far cheaper than traditional media like television and print. Consider this: Google, which controls a major chuck of the online advertising market, says that the last few months have seen many new advertisers in the space. According to Narasimha Jayakumar, Business Head, Travel, Google India, in the travel vertical, budget hotels, travel companies and offline travel agencies have started advertising online.

“There is more efficiency in the medium as it is measurable and you pay per click. Moreover, it is more targeted,” he added. Despite its advantages, Internet advertising constitutes a very small chunk of the overall ad pie in India, due to low penetration levels. But, industry experts opine that this is set to change.

Marketers are not shying away from using social networking sites to promote their products. For instance, FMCG company Marico has just launched a co-branding exercise with a games application of Games2win on Orkut for its premium hair-care brand Hair & Care.

“There has been a general awakening across markets with respect to the online medium as companies try to engage more with their customers,” said Kaizad Pardiwalla, President OgilvyOne. However, according to industry experts, the decision to sign up or sign out will vary according to product categories.

With the rise of Web 2.0 and the growth of user-generated content and social networks, advertisers have found a new mode called viral advertising to get their message across. The digital answer to word of mouth, viral advertising entails companies or marketers making messages so funny and interesting that consumers want to forward them to their friends and family.

'Bluecasting' or advertising via Bluetooth is also growing rapidly.

Celebrity Advertising and Recall Value

As opposed to celebrity-fatigue in some developed societies, celeb-endorsement in India ensures high recall. A Celebrity Endorsement Survey conducted by IMRB (India Market Research Bureau) and public relations firm IPAN states that 86 per cent Indians remember advertisements because of the celebrities that endorse them. Since 2003, celebrity endorsement volume on television has gone up by more than six times.


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A study by AdEx India, a division of TAM Media Research said there was a 49 per cent growth in celebrity endorsement ad volumes on TV during 2007 compared to 2006. Bollywood, with an 81 per cent share of the audio-visual media endorsement pie, outshone other domains in terms of star-power. Cricket came second with a 14 per cent share.

Increasing Ad Spends

In spite of the global recession, companies are hiking ad spends in order to attract more customers. Consumer products and telecom are leading the pack followed by realty and retail sectors. ITC, Dabur, LG and Samsung top the consumer goods majors who are upping their ad spends.

Dabur which dropped ad spends by 50 basis points in the third quarter, is increasing them by 2 percentage points in the January-March quarter to support new products launches.

Coca-Cola, one of the biggest advertisers globally, recently rolled out a new variant of Fanta nationally and picked up sponsorship for the GMR-owned IPL team, Delhi Daredevils. April-May being peak season for beverage companies, spends naturally go up during the quarter.

Cosmetics player Emami group is also likely to hike the ad spends especially since the company plans to launch new products in the April-June quarter.

Electronics and durables maker LG plans to spend US$ 77.47million this year – a 10 per cent increase over the previous year. Of this, US$ 46.49 million would be spent above-the-line.

Samsung would hike ad spends by 10-15 per cent this year. The company spends 4-5 per cent of its annual revenues on A&P. The company is planning to back its new product launches mainly in refrigerators, ACs and LCD TVs by strong campaigns.

Brand Consciousness

A Nielsen Global Luxury Brands study (March 2008) reveals that India has the third highest brand-conscious population in the world - with only Greece and Hong Kong ahead of it. Thirty five per cent of Indian consumers, who participated in the survey, showed inclination towards buying branded products, while it was 46 per cent in Greece and 38 per cent in Hong Kong.

This rise in brand conscious has engineered a noticeable change in the luxury landscape in India. Growing at an annual average rate of 26 per cent, India has been identified as a significant driver in the global luxury market. India is the third highest buyer of Gucci products, the sixth highest for Calvin Klein, ninth for Diesel and tenth for Fendi. Calvin Klein (34 per cent), Gucci (25 per cent), Diesel (24 per cent), Christian Dior (16 per cent), and DKNY (10 per cent) are the top brands that Indian consumers spend on. The local designer brands too score well in the index with 40 per cent, which is the sixth highest percentage globally.

Packaging and Design

Both packaging and design are increasingly being seen as potent marketing tools for product differentiation and communication with the consumer. The visual appeal of aesthetic designs and packaging particularly matters in high-end product segments.


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Growth in the retail sector has further revealed packaging as an effective brand communicator at the time of buying. Convenient packaging assures consumers of the product quality and helps boost sales. The recent Asian Paints campaign marks a new trend among advertisers, who are now looking to attract consumers with try-vertising—or mainstream advertising that encourages them to try the sample or smaller-sized product—while also building brand image.

In rural and semi-urban areas smaller packaging in product segments like shampoos, biscuits, washing powders, snack items, toilet soaps, and coffee sachets, have spelt great success for companies.


Rural Market


A silent revolution


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The Indian growth story is now spreading itself to India's hinterlands. Rural India, home to about two-thirds of the country’s 1,145 million population, is not just witnessing an increase in its income but also in consumption and production.

The recent interim Budget's focus on extending the National Rural Employment Guarantee Act (NREGA) to all states with a US$ 5.83 billion outlay for 2009-10 would benefit the rural economy as industry and services tend to have a better employment multiplier compared to the agriculture sector. According to a National Council of Applied Economic Research (NCAER) analysis, the combined share of industry and services in rural GDP has risen to 58.4 per cent in the current fiscal from 48.6 per cent in 1999-2000 on the back of strong growth in these sectors in the past five years.

The rural economy got a further boost with the farmer loan waiver of US$ 13.86 billion and the ambitious Bharat Nirman Programme with an outlay of US$ 34.84 billion for improving rural infrastructure, road connectivity and digital access to villages for marketers.

Additionally, the rural economy has not been impacted by the global economic slowdown, according to a recent study by the Rural Marketing Association of India (RMAI). Significantly, the rural markets are also offering great opportunities to marketers who are trying to find a way out of the current economic crisis.

The study found that the rural and small town economy which accounts for 60 per cent of India’s income has remained insulated from the economic slowdown as employment opportunity and income streams are intact and growing steadily with consistent demand for goods and services.

The study further reveals that rural incomes are on the rise driven largely due to continuous growth in agriculture for four consecutive years. A record harvest of 230 million tonne food grains last year coupled with a sharp increase of 40 per cent in minimum support price of wheat and paddy over a two-year period has resulted in farmer incomes rising sharply.

According to a McKinsey survey conducted in 2007, rural India would become bigger than the total consumer market in countries such as South Korea or Canada in another twenty years. And it would grow almost four times from its existing size in 2007, which was estimated at US$ 577 billion. As per the cellphone-user statistics provided by the Cellular Operators Association of India (COAI), the B and C circles in India are outrunning major cities in terms of subscriber additions.

Therefore, after several global corporations like Microsoft, Intel and Shell, many other major multinational companies (MNCs) and domestic players are keen to foray into the rural Indian market to capitalise on its growing opportunities.

Rural consumers

According to recent studies conducted by the NCAER, rural India, home to 720 million consumers across 627,000 villages, offers a huge consumer base for the companies to capture.

Significantly, the RMAI in its study has also revealed that there has been no impact of the economic slowdown on the rural economy.


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Higher disposable surplus among consumers in these markets is leading to smart buying, especially in categories including house construction materials, apparels and durables. Most companies are looking at the huge potential offered by the rural markets and shifting their focus from the already saturated urban markets. In fact, an AC Nielsen study for the April-September 2008 period reveals that in sectors, including skin creams and lotions, hair oils, toothpaste and candies, volume and value growth in rural markets have been significantly higher than urban markets.

The rural India success story is being replicated across a range of sectors in the rural markets.

FMCG

The rural consumers spend around 13 per cent of their income, the second highest after food (35 per cent), on fast moving consumer goods (FMCG), as per a RMAI study.

Significantly, sector analysts predict that a combination of higher advertising spends, more product launches and increased level of localised promotions and growth in rural markets, is expected to lead consumer products companies to a steady 15-18 per cent topline growth during October-December 2008.

The FMCG industry in India was worth around US$ 16. 03 billion in August 2008, and the rural market accounted for a robust 57 per cent share of the total FMCG market in India, overtaking the urban market (43 per cent).

According to a study by AC Nielsen, for the April-September 2008 period, the FMCG market especially in the skin creams and lotions, hair oils, toothpaste and candies categories witnessed a significantly higher volume and value growth than urban markets. Most FMCG companies are now working on increasing their distribution in smaller towns and focussing on marketing and operations programme for semi-urban and rural markets.

Industry analysts state that the increased consumption is also the result of a growing middle class base in these markets. The total number of rural household is expected to rise to 153 million in 2009-10 from 135 million in 2001-02, suggesting a huge market.

Retail

According to a report—India Retail Report 2009—by Images FR Research, "India's rural markets offer a sea of opportunity for the retail sector. The urban-retail split in consumer spending stands at 9:11, with rural India accounting for 55 per cent of private retail consumption." Rural India accounted for almost half of the Indian retail market, which was worth about US$ 266.05 billion in September 2008. With most of the retail markets getting saturated in tier-I and tier-II cities, the next phase of growth is likely to be seen in the rural markets.

Major domestic retailers like AV Birla, ITC, Godrej, Reliance, and many others have already set up farm linkages. Hariyali Kisan Bazaars (DCM) and Aadhars (Pantaloon-Godrej JV), Choupal Sagars (ITC), Kisan Sansars (Tata), Reliance Fresh, Project Shakti (Hindustan Unilever) and Naya Yug Bazaar are established rural retail hubs.


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Also, buoyed by the success of Hindustan Unilever's innovative rural distribution model (Project Shakti) led by women's self-help groups, the Anglo-Dutch consumer goods major, Unilever is exporting the project to several developing world markets.

In order to capture the growing rural consumers, Goldplus from Tata, a jewellery retail venture of Titan Industries, adopted an innovative marketing strategy by driving small town consumers all the way from towns and villages to the chain's district outlet to showcase them the store and its product offerings.

Pharmaceuticals

The Indian pharmaceuticals market is regarded as one of the fastest growing in the world. According to a report by Mckinsey—Indian Pharma 2015—the rural and tier-2 pharma market will account for almost half of the growth till 2015. Almost 45 per cent of the growth will take place in tier-2 markets. The tier-2 market will grow to 44 per cent by 2015, amounting to US$ 8.8 billion.

This growth can be further augmented with the government allocating US$ 2.35 billion for the National Rural Health Mission (NRHM) in the interim budget 2009. This will translate into improving rural health infrastructure on the ground and increased supply of medicines to the health centres in the rural areas. Several drug companies such as Cipla, Lupin, Ipca, Hetero and Emcure that supply into the Centre’s health programmes are expected to reap benefits from this government announcement.

Telecommunication

A Gartner forecast revealed that Indian cellular services revenue will grow at a compound annual growth rate (CAGR) of 18.4 per cent to touch US$ 25.6 billion by 2011, with most of the growth coming from rural markets. Also, a joint Confederation of Indian Industries (CII) and Ernst & Young report reveals that of the next 250 million Indian wireless users, approximately 100 million (40 per cent) are likely to be from rural areas, and by 2012, rural users will account for over 60 per cent of the total telecom subscriber base in India. Mobile phones in rural India also grew by close to 13.72 per cent to reach 70.83 million in April–June 2008. CII also estimates the number of subscriber addition in rural areas to exceed the additions in metros by 2012 as about 120 million new users are expected to adopt wireless telephony in rural areas as compared to about 62 million in the metros.

According to the Indian Communications and IT Minister, Mr A Raja, India will have 200 million rural telecom connections by 2012.

The Telecom Regulatory Authority of India (TRAI) has recently released draft recommendations on rural telephony for overcoming various constraints coming in the way of increasing telecom penetration in rural India. As on December 2008, the rural teledensity was 12.62 per hundred of population.

Telecom service provider Tata Teleservices Limited, which expects around 60-70 per cent of additions in subscriber base to come from rural areas, has announced that the company will be investing additional US$ 6.77 million in Gujarat to set up 100 cell sites by August 2009.

Vihaan Network Ltd, a group company of Shyam Group, has launched the world’s first zero opex GSM systems powered by solar energy rather than conventional sources,


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which would reduce the cost of setting up telecom infrastructure by as much as 50 per cent. Experts believe this reduction will become increasingly vital as rural telephony increases.

Bharat Sanchar Nigam Limited (BSNL) is likely to connect 148,000 villages with high-speed internet connectivity by March 2009. BSNL also plans a US$ 125.38 million spend on its rural telecom infrastructure in West Bengal, over the next one year.

Airtel has tied up with IFFCO to reach farmers directly. Farmers will receive free voice messages on farming techniques, weather forecasts, dairy farming, rural health initiatives, etc. Airtel's new initiative will offer mobile handsets bundled with Airtel mobile connection ranging from US$ 30.71 to US$ 36.84.

Reliance Communication has also targetted the rural segment in a big way with its low tariff initiative like the Grameen Programme for rural subscribers.

Automobiles

Presently, India is the second largest two-wheeler market in the world, the fourth largest commercial vehicle market, the 11th largest passenger car market in the world, and is expected to be the seventh largest automobile market by 2016. However, the automobile market remains untapped in rural India which has a strong purchasing power. Sensing a huge opportunity many automobile companies are trying to woo the rural consumer.

Passenger car and two-wheeler companies are driving on rural roads to push sales. While growth in urban markets has been flat or negative, the rural markets are booming, insulated from economic downturn. Rural markets' share in Maruti's overall sales during April-January 2009 has gone up to 8.5 per cent from 3.5 per cent in the same period last year.

Mahindra & Mahindra is also bullish on the rural and semi-urban markets, with its utility vehicle, Scorpio clocking 60-65 per cent sales from the rural markets as against 20 per cent earlier. TVS Motor also echoed the sentiment, which registers around 50 per cent of its sales from the rural and semi-urban markets.

The importance of rural India remains the same for Hero Honda, the biggest bike maker. Recognising its potential, the company has set up a dedicated 'rural vertical' under the theme 'Har Gaaon...Har Aangan' to penetrate untapped rural and upcountry markets. Similarly, Hyundai Motors India has introduced a new marketing initiative—'Ghar Ghar Ki Pehchaan'—to tap the India rural car market. Maruti Suzuki has also launched a pan-India campaign—'Mera Sapna Meri Maruti'—to reach out to consumers in rural areas.

Auto companies are also being helped in this rural push by their growing partnerships with public sector banks, all of which enjoy a good presence in the rural belt and have a ready list of potential customers.

Consumer durables

The rural market is growing faster than the urban markets, although the penetration level in rural area is much lower. A survey carried out by RMAI has revealed that 59 per cent of durables sales come from rural markets. The study further stated that


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during April-October 2008, the television segment in the rural and small towns witnessed a growth of 29 per cent, microwave ovens 26 per cent, air conditioners 17 per cent, washing machines 15 per cent and refrigerators 12 per cent. This growth is on the back of entry-level products and largely driven by rural and semi-urban markets.

Besides the strong growth of consumer goods in rural areas, the mobile revolution is also sweeping the hinterland of the country, which is completely changing the way one connects with rural consumers. Mobile connectivity is helping marketers transcend the traditional forms of communication with them.

Further, many leading consumer durable companies are now increasing their presence in rural India. Recently, LG has set up 45 area offices and 59 rural and remote-area offices. Samsung has also rolled out its 'Dream Home' road show which was to visit 48 small towns in 100 days in an effort to increase brand awareness of its products.

Road ahead

The development of rural infrastructure is an important priority for the government and out of the total projected investment of US$ 283.83 billion to be incurred by the centre and the states in the Eleventh Plan; US$ 80.82 billion would be spent entirely towards improvement of rural infrastructure.

As per RMAI, the rural per capita consumption of FMCGs would equal to current urban levels by 2017. Industry analysts also expect the FMCG sector in rural areas to grow 40 per cent against 25 per cent in urban. The telecom industry is also expected to grow from 100 million connections to 300 million by 2012. Further, the semi-urban and rural life insurance market is expected to rise from US$ 5 billion to US$ 20 billion by 2012.

According to international consultancy firm Celent, rural markets in India will grow to a potential of US$ 1.9 billion by 2015 from the current US$ 487 million. Rural markets are growing at double the pace of urban markets and for many product categories, rural markets account for well over 60 per cent of the national demand.


Urban Market


With incomes rising in India, spending and consumption are also on the rise with an increasing number of people purchasing many more items, going beyond the basic necessities. As more areas get urbanised, the country will see the creation of many new markets and further expansion of the existing ones.

According to a new study, 'The Next Urban Frontier: Twenty Cities to Watch', co-authored by National Council of Applied Economic Research's (NCAER) Rajesh Shukla and Future Capital Research's Roopa Purushothaman, India is likely to see rapid urbanisation, with around 45 per cent of Indians living in urban areas by 2050, up from 30 per cent in 2007-08.


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Further, according to a study by the McKinsey Global Institute (MGI), Indian incomes are likely to grow three-fold over the next two decades and India will become the world's fifth-largest consumer market by 2025. In the given scenario, urban markets will continue to fuel the Indian economy for quite some time to come.

India has not been greatly impacted by the prevailing global downturn. Recently, the Indian Commerce Minister, Mr Kamal Nath, reiterated that despite the gloom in the global markets, India will continue to be the second fastest growing economy in the world and the Indian economy may well grow at over 7 per cent in 2008-09.

Indian consumers and companies continue to be a confident, optimistic lot, with most Indian companies saying that there have been no cutbacks from consumers.

Retail

According to the recent report by McKinsey & Company: 'The Great Indian Bazaar, Organized Retail Comes of Age in India', India's overall retail sector is likely to grow to US$ 419.93 billion by 2015. Another McKinsey report 'The rise of Indian Consumer Market', estimates that the Indian consumer market is likely to grow four times by 2025.

In another joint study conducted recently by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and KPMG, the following findings were revealed:

The total size of the retail market in India in 2008 was estimated at US$ 353 billion.

The annual growth of the retail market in India is expected to be around 8 per cent.

The total retail market size in India is likely to touch US$ 416 billion by 2010. The present share of organised retail sector is estimated at 7 per cent. The estimated annual growth of organised retail sector is 40 per cent. The size of the organised retail sector by 2010 is expected to reach US$ 51

billion. The estimated share of organised retail in total retail by 2010 is 12 per cent. The expected investment into modern retailing formats over the coming 4-5

years is around US$ 25-30 billion.

Despite the economic slowdown plaguing the western countries, retailers are still optimistic about the Indian growth story.

In fact, with 30-40 per cent drop in retail rentals, Indian retailers are a happy lot. Retailers are also foreseeing further drops in rentals in 2009 and they are optimistic about their expansion plans for 2009.

Aggressive marketing efforts and expansion plans by leading retailers are on.

S T Dupont, a French luxury brand (which sells men's luxury leather goods, cigarette lighters, pens, watches and fragrances) will soon enter India. By 2011, Dupont will have around 8-9 retail outlets in India.

Mahindra & Mahindra (M&M) has entered the retail sector with the introduction of its specialty format, Mom & Me, to sell infant care and maternity products.


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Retailers such as Spencer's Retail, Future Group, Shoppers Stop, Westside, Wills Lifestyle, Bata India, and Raymond have plenty of expansion plans for 2009.

In West Bengal, leading retailers like the Future Group and Spencer's Retail will be expanding and upgrading their present stores in 2009. Others like Wills Lifestyle, Turtle Ltd, and Bisk Farm, are planning to set up new stores, particularly in the suburbs.

Urban Market

Consumer Durables

The Indian consumer durables market seems to be relatively untouched by the economic slowdown.

"At both Big Bazaar and ezone, we've seen good growth of about 25 to 30 per cent on a same-store basis,"said Manoj Kumar, CEO of Future Group's ezone. In fact, expensive products like LCD televisions and laptops are witnessing higher growth than their cheaper counterparts.

On similar lines, V Ramachandran, LG Electronics' sales and marketing director, said, "We have not witnessed any pressure so far. In fact, the festival period saw a growth of 40-50 per cent."

Whirlpool is also on the expansion mode and is targeting a 22 per cent share of the US$ 423. 28 million washing machine market in India by the end of 2009, and is launching a range of new products with an investment of US$ 4 million for the same.

Moreover, a large number of hi-technology durables are expected to flood the US$ 4.03 billion Indian durables market by March-April in 2009. Samsung, LG, Haier and Videocon are among companies planning new product launches in the coming months.

Korean major Samsung is planning to launch LCD-led live emitting diode (LED) TVs at US$ 1410.72, and Blu-ray technology home theatres and cameras in 2009.

Pranay Dhabhai, Director and CEO , Haier Appliances India, said, "For the coming season, we plan to import 'dual-tech' larger capacity (two-door, four-door and six-door refrigerators) from our US-based factory. Besides, we will also launch ACs with a new look and feel."

Videocon Industries will also launch high-end LCD TVs and plasma TVs, along with air conditioners with technological compressors and new designs.

Similarly, LG Electronics India is also planning to introduce air conditioners with new technology compressors and revamped designs.

Automobiles

Even though the auto industry witnessed slowdown in more recent times, car sales from manufacturers to dealers was expected to stage a recovery in January 2009, after dealers took on new stocks after selling off a huge inventory pile-up during December 2008.

In fact, despite dipping sales figures, Indian carmakers will be launching 50 new models in 2009. The new entrants include M&M's Xylo, Fiat's Linea sedan, Tata's Nano and Maruti Suzuki's Ritz among many others.

Moreover, global auto makers are still bullish on India. Describing India as one of the promising emerging markets, Toyota Motor Corporation is going ahead with its US$ 644.69 million second plant at Bidadi, near Bangalore.


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Ford India's plans to expand its capacity in India will also continue as per schedule.

In the luxury segment, even with the global auto industry being affected by the economic slowdown, luxury cars have posted high double digit growth in India in 2008.

From 5,000 units in 2006, 7,500 luxury cars were sold in 2008. The market is likely to further grow to 10,000 units by 2010. Leading luxury car makers like Mercedes-Benz India, BMW and Audi are expecting improved sales figures in 2009.

FMCGs

ASSOCHAM has said that the FMCG sector will grow at 25 per cent, in spite of the current economic turmoil.

In fact, players continue to report good sales figures. Marico's CEO-consumer products, Saugata

Gupta, said, "In our categories, we've seen no drop."

Across urban markets, there has been a tremendous growth in the sales of value-added and aspirational products. These products are expected to drive the FMCG industry to grow by 16 per cent during 2008-09, against 14.5 per cent during 2007-08.

Another promising trend is the growth of 'out-of-home consumption' which is emerging as a new section in the FMCG sector. With changing meal-time habits and the concept of three core meals fast vanishing, companies like Coca Cola India, ITC, and Dabur are venturing into this avenue and are bringing out new packaging for products in this segment.

Luxury Products

According to a FICCI-Yes Bank report, the luxury products market in India is estimated in excess of US$ 500 million and is likely to grow at a CAGR of 28 per cent to reach US$ 1.2 billion by 2010. The market is expected to double by 2015, touching US$ 2.5 billion.

About eighteen months after foreign direct investment (FDI) was allowed in single-brand retail, around 37 foreign brands have made a foray into India and many are planning to set up shop here.

Benetton India's Managing Director, Sanjeev Mohanty, said, "India remains the most important destination for international brands outside their home markets due to its solid economic fundamentals and growth opportunities."

Brands like Damro, ETAM, Zegna, Fendi, Nike, Llardo, Rino Greggio and Lee Cooper were amongst the first brands to get FDI permission under the single-brand retail window. While many others like Armani, Dolce & Gabbana, Louis Vuitton, Salvatore Ferragamo, sportswear retailer Puma, Lerros and S Oliver, luggage brand Piquadro, Marks & Spencer, La Perla, Jimmy choo and Toy Watch have also forayed into India. At the same time, some brands are also waiting for the government to allow 100 per cent FDI in retail.


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Consumer Electronics

The rapidly growing consumer electronics market in India has spurred many leading manufacturers of the world to get into partnerships with local companies to set up shop in the country. Companies planning to enter India include Japanese testing firm Saki, Hong Kong's surface mount technology (SMT) company WKK, Singapore's Mydata (SMT) and USA's Indium (solder paste).

According to a report by Marketsmonitor, 'Booming Consumer Electronics Market in India', the Indian consumer electronics industry is expected to grow at a rate of 10 per cent to 12 per cent in the coming years.

Further as per the report:

There will be an increase in volume sales of washing machines in the fully automatic category during 2008-09 to 2011-12.

In the television market preference is changing from CRT technology to Flat Panel Display Televisions (FPTV).

Sales figures for frost-free refrigerators are growing rapidly compared to the direct-cool category.

The AC market is expected to grow at 30 per cent to 35 per cent in the coming years.

MP3 players and digital video appliances are expected to grow at a double-digit rate.

Direct Selling

The direct selling market in India will benefit from the global recession with the segment posting 20 per cent growth annually to reach an expected US$ 1 billion by 2012.

Leading direct selling companies like Amway India and Oriflame Cosmetics are planning to cover more areas in the country.

Entertainment

With rising stress levels in urban lifestyles, fun is a very serious business in Indian cities. The repertoire is wide, from TV to music, cinema to reading, new age engagements like gaming and net-based activities, fitness, and even religion. The Indian media and entertainment industry has the potential to touch US$ 200 billion by 2015.

The number of TV channels is increasing rapidly. FM channels are proliferating small towns too. The spawning of multiplexes in India has spread to tier II and III cities like Ludhiana, Lucknow, Moradabad, Indore, Nashik, Aurangabad, Kanpur and Amritsar. Big players in the segment are Adlabs, Cinemax, Inox, Fame and PVR Cinemas.

Fast Food Market

With world cuisine at their doorsteps, urban Indians are indulging their taste buds like never before. The US$ 2 million restaurant market in India is growing at 28 per cent a year.


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Many domestic and global restaurateurs are on an expansion mode.

With the increasing competition in large cities, dining chains and restaurants like Pizza Hut, Domino's, Nirula's and KFC are now bullish on setting up their stores in smaller cities and tier II and III markets.

Future Group and its private equity arm Indivision India Partners have acquired a controlling 50 per cent plus equity stake in the multi-cuisine lifestyle restaurants chain, Blue Foods.

Cafe Coffee Day is planning an investment of US$ 24.11-30.14 million for expanding its number of cafes to around 1,000 from the current 700, over 2009.

E-commerce

The increase in the PC and internet penetration along with the growing preference of Indian consumers to shop online has given a tremendous boost to e-tailing–the online version of retail shopping. Several online retailers are reporting good business in categories like travel, art, books and music. E-tailing in lingerie and fresh fruit businesses is also doing well.

According to TRAI there were 5.45 million broadband subscribers in India on December 31, 2008, up from 5.28 million in November.

Further, the WiMAX Forum has projected that India will have more than 27.5 million WiMAX subscribers by 2012, accounting for almost 20 per cent of the global WiMAX subscriber base.

Road Ahead

The Indian consumer remains one of the most upbeat globally.

The Nielsen Global Consumer Confidence study, conducted by Nielsen, a market research company revealed that Indians are "the most optimistic lot globally who think that their country will be out of the economic recession in the next twelve months," stated the biannual report.

In fact, it is widely believed that the Indian market will fuel the growth of MNCs in the coming years. While most leading companies are cutting costs in the US and Europe, they see India as a strategic market, which can fuel their growth.



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Economic Survey highlights 2007-08


A report on the state of India's economy with suggested policy prescriptions in areas ranging from government finances to external trade was tabled in the Parliament, by Finance Minister P Chidambaram.

The Economic Survey for 2007-08, authored by the Chief Economic Advisor Arvind Virmani, comes against the backdrop of India's growth slowing down this fiscal after posting a 9.6 per cent expansion in 2006-07 and fears of US recession.

The Economic Survey has:

Set a target of 9 per cent GDP growth during the 11th Plan (2007-2012) Projected that inflation would stand at 4.4 per cent during the current fiscal Forecast a lower agriculture growth at 2.6 per cent in 2007-08 as against 3.8

per cent in 2006-07, and a slow down in manufacturing sector growth at 9.4 per cent in the current fiscal from 12 per cent in FY07.

Other highlights of the Economic Survey:

Current inflation level is positive Inflation projected at 4.4 per cent in 2007-08; Inflation led by food items Rupee up 9.8 per cent vs. Dollar, since April '07 Economy slows down to 8.7 per cent in 2007-08, compared to 9.6 per cent in

previous fiscal


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Government projects lower agriculture growth at 2.6 per cent in 2007-08 from 3.8 per cent in 2006-07

Manufacturing sector to grow at 9.4 per cent in current financial year, lower from 12 per cent in 2006-07

Government sets target of 9 per cent GDP growth during 11th Five Year Plan (2007-2012)

Outlook for exports in 2008-09 may not be as bright due to global slowdown and exchange rate development

Foreign reserves at US$ 290.8, up by US$ 91.6 billion from a year ago Total foodgrains production marginally high at 219.3 million tons in 2007-08

from 217.3 million tons last year The agriculture, forestry and fishing sector is estimated to grow at 2.6 per

cent during 2007-08, as against the previous year's growth of 3.8 per cent Talent shortage leading to high attrition and rising wages, contributing to

cost-push inflation The Economic Survey favours liberalising debt and currency markets; removal

of constraints on agriculture and urban land supply Export growth at 20.3 per cent in 2007 Number of telephone connections at 272.88 million as on December 31, 2007;

tele-density at 23.9 per cent The government has set an ambitious target of providing 200 million

telephone connections in the rural areas by the end of 2012 The rate of growth of per capita income has sharply climbed to 7.2 per cent

p.a. - implying that average income can virtually double in a decade India April-Nov '07 FDI at US$ 11.14 billion; Raise FDI in insurance, retail Food procurement, distribution spend up in FY07-08 Greater debt and equity issues in primary market


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indian economy 2009

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