opportunities in india

1

Contents

Contents ...................................................................................................................... 1

Foreword ..................................................................................................................... 2

FDI India Inc. - Then ................................................................................................... 3

FDI India Inc. - Now .................................................................................................... 4

FDI Synopsis of Germany in India ............................................................................... 6

Regulatory Framework & Entry Options For German Firms ...................................... 11

India Opportunities for German Investors - Segmentation and Opportunity ............. 16

Industrial Machinery .................................................................................. 17

Textile Machinery Industry ........................................................................ 19

Process Plant Equipment .......................................................................... 21 Earthmoving, Construction & Mining Equipment ..................................... 22

Heavy Electrical & Power Generation Equipment .................................... 24

ESDM & Computer Hardware .................................................................. 26

The Smart City Initiative ........................................................................................... 28

Country Profile .......................................................................................................... 30

State Profiles and Incentives .................................................................................... 33

Maharashtra ............................................................................................. 33

Tamil Nadu ............................................................................................... 36

Karnataka ................................................................................................. 39

Gujarat ..................................................................................................... 42

Delhi, Haryana & NCR ............................................................................. 45

Case studies ............................................................................................................. 49

Case Study 1 - WÜRTH............................................................................ 50

Case Study 2 - STEAG ............................................................................ 52

Case Study 3 - ZEPPELIN ....................................................................... 54

Case Study 4 - BURGMANN .................................................................... 57

Conclusion ................................................................................................................ 59

Appendix ................................................................................................................... 60

About Geovadis ....................................................................................... 60

Sources .................................................................................................... 60

2

Foreword German FDI in India continues to move from strength to strength. Currently weighing in as the 7th largest foreign investor in India1, Germany’s position highlights not only great co-operation now, but great potential for the future. These are exciting times for both nations, due to the ambitious and very real economic philosophy of Narendra Modi’s “Make in India,” “Skill India” and “Digital India” initiatives. It has been decades since India has enjoyed a stable majority government, giving it now the luxury of undertaking mass reforms to transform the Indian investment landscape for FDI.

Being the 2nd most populous country in the world upheld by backbone of an enviable growth rate, the belief in the India growth story has never been more potent. From a foreign investor standpoint, India is coming off not only a record quarter of FDI flows, but has also attracted the highest inflow of FDI in the world - registering a handsome US$3 billion more than China.2 India’s rank for ease of conducting business has jumped 12 spots, and the IMF has given India the prestigious distinction of being the brightest spot in the global economy.3

From a German perspective, collaboration on Indian soil has yielded some major success stories - in particular in areas where German knowledge in high-tech manufacturing is sought. With wages on the rise, India can no longer rely on its traditional labor cost advantage to remain globally competitive. India must protect its reputation as a major global industrial hub with high technology that drives cost savings from the factory floor to finished products. Given Germany’s reputation for being a powerhouse in R&D with acute technical capabilities, the potential to collaborate is high.

Instances of high-tech manufacturing in FDI can be found across a diverse range of sectors from pharmaceuticals to ceramics. However, there are certain key sectors that we feel present greater opportunity than others in that they display large degree of technological gaps that German industry can help to address. Our report is divided to highlight specific areas of opportunity, and to provide a critical analysis of geographic locations where these advantages can be sustained. Furthermore, we will offer insight into various Indo-German success stories via case studies, that will offer potential market entry strategies for German small to medium enterprises (SMEs).

Disclaimer: Market Opportunities in India for German Enterprises is a Geovadis report. Lead author: Kunal Saigal, as part of his MBA program study at the IBUH School of Business, Berlin. Copyright © 2016 by Geovadis All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of Geovadis, except in the case of brief quotations, and only if accompanied by proper source citation. For permission requests, write to Geovadis, addressed “Attention: Permissions Coordinator,” at [email protected].

3

FDI India Inc. - Then The recently elected Narendra Modi government has been anything but subtle about their ambitious plans to unlock a number of Indian commercial sectors to foreign direct investment (FDI). Set against a backdrop of decades of protectionist and cumbersome FDI policy, the global investment community has long waited for India to be truly ‘open for business’.

Predominantly a socialist economy since its 1947 independence, despite the touted ‘great reforms of 1991’ - where the world was promised access to India’s vast market - rhetoric has not matched practice. Rather, we witnessed the delicate unwrapping of the Indian market by a series of clumsy hands, courtesy of a legacy of unstable coalition governments, red tape, self-interest lobbying and creaky infrastructure.

The FDI landscape in India did not see radical transformation until recently, as it was embroiled in a battle between Indian federalism versus local suspicion, which resulted in substantial uncertainty about foreign investment policies. The federal government is theoretically in charge of establishing the legal framework for India to implement FDI reforms. However, the states of India have the ultimate say in whether and how these federal FDI guidelines are implemented within the parameters of state laws and regulations. Hypnotized by the notion that FDI brings no true economic benefit and steals local jobs, the federal government’s liberalization policies were kept at arm’s length by the states. At the same time, no state government wanted to challenge powerful lobbies and to agitate key vote banks such as farmers and trade unions by announcing sweeping reforms. Both instinct and interest were driven politically and not economically.

As the trickle down effects of even the meager FDI flows in the 90s grew towards the new millennium, the handful of neo-liberal FDI policies announced by the ruling governments were increasingly supported with a more transparent legal and procedural framework. Where once FDI in a majority of sectors was completely off limits for foreigners, and approval of others required a lengthy and bureaucratic approval process, the gradual liberalisation of FDI gained momentum through the turn of the century. By the early 2000s the term “FDI” had shed the negative connotation that political parties in opposition to the government had ascribed to it. With the realization that there were substantial economic gains to be made, policy measures in support of FDI were streamlined.

By 2011, many sectors which were previously either off-limits or capped with low levels of maximum permissible foreign ownership, were extensively opened up to FDI.

4

FDI India Inc. - Now Results of the 2014 Indian general election led to the formation of the first single-party majority government at the federal level in over two decades under the Bhartia Janta Party (BJP). From a foreign investor perspective, a non-coalition government would help to reduce the arm-twisting power that smaller regional parties had previously exercised by defying pro-FDI reforms. The mood in all sections of the Indian economy was nothing short of euphoric.

Over the past two years, the ruling BJP has been swift in pushing through key reforms. With a clear focus on boosting foreign investments, the BJP has implemented FDI related Reforms and liberalization in 15 major economic segments in addition to a host of others. These segments include:

Limited liability partnerships, downstream investment and approval conditions

Investment by companies owned and controlled by Non-Resident Indians (NRIs)

Establishment and transfer of ownership and control of Indian companies

Agriculture and animal husbandry

Plantation

Mining and mineral

Defense

Broadcasting

Civil aviation

Increase of sectoral cap

Construction development sector

Cash and carry wholesale trading / Wholesale trading

Single brand retail trading and duty-free shops

Banking-private sector

Manufacturing sector (ESDM)

The primary focus of these reforms is to create greater opportunity and to simplify the process of foreign investment. By permitting more FDI proposals on an automatic route, instead of a government approval route requiring in-depth government review, immense time and energy of foreign investors is preserved. 4 In addition, the generous increase of sectoral caps allows foreign investors to substantially scale up operations.

Such reforms have quickly borne fruit, snapping a three-year southward economic trend. Already, a 50% rise in FDI was seen in India’s manufacturing sector during 2014-15 - a tribute to the success of Modi’s “Make in India” manufacturing initiative.

5

FDI into India increased by 37% to US$39.32 billion during 2015, which can be attributed to the ease in doing business stemming from recent reforms, according to the Economic Survey of India, 2015-2016.5

The largest beneficiary of these developments was the manufacturing sector, which increased to US$9.6 billion, and which comprised 38% of total FDI received. It is worth pointing out that it is the first time in three years that FDI in manufacturing registered a positive increase. Due to the BJP’s push toward making India a global manufacturing powerhouse through a focus on high-tech, FDI growth in this sector is of supreme importance.

Even greater than manufacturing, the financial services sector soared even higher, witnessing an almost 200% rise in flows. The other major growth sector was another high-tech industry: the computer software and hardware industry, which experienced a 130% rise in FDI from US$934 million to US$2.15 billion between FY14

and FY15. Clearly, the data indicates that the Indian federal government's efforts to improve the ease of doing business and to relax FDI regulations is yielding results.6

According to a report released by Grant Thornton India, the total value of merger and acquisition (M&A) and private equity (PE) deals in the month of August 2015

were valued at US$2.6 billion (151 deals), which is a 62% increase in volume as compared to August 2014. The report further states that with the recent “Make in India” push in 2016, coupled with “recent FDI norms and the much awaited GST will perhaps be a game changer and will further accelerate the deal activity from an inbound investment, domestic M&A and PE perspective."7

From an FDI perspective, Geovadis suggests that Snohomish County would find benefits from marketing particularly at the Final Goods Production and Primary and Secondary Operation of Technical Facilities stages of the value chain, with a particular focus on the environmentally friendly power generation, storage and distribution lead market. These stages of the chain would benefit from close proximity to the area’s clean tech research universities and industry clusters, as well as benefiting from the area’s extensive experience with high-tech manufacturing. Additionally, the area’s proximity to Canada and shipping routes to Asia, might also benefit Logistics.

6

FDI Synopsis of Germany in India Cumulative FDI Inflows

1. Cumulative FDI inflows (including equity, re-invested earnings & other capital) from April 2000 to October 2015: US$398.5 billion.

2. Cumulative FDI Equity Inflows (remittance-wise) from April 2000 to October 2015 were US$270.39 billion. Out of this, FDI inflows from Germany (which ranks 7th) has contributed US$8.36 billion, representing 3.09% of cumulative FDI inflows into India between 2000 and April 2016.

3. Historic German FDI Equity Inflow Since Liberalization (From April 2000 To October 2015)

Rank: GERMANY ranks 7th

Percentage share of total FDI inflows: 3.09%

Total FDI Inflows from GERMANY: are US$8.36billion

4. Recent German FDI Equity Inflow From April 2015 To October 2015

Rank: GERMANY ranks 6th

Percentage share of total FDI inflows: 3.30%

Total FDI Inflows from GERMANY: are US$721.02 million:

7

5. Financial Year Inflows Of Foreign Direct Investment (Amount of FDI inflows):8

Financial Year (April-March)

FDI equity inflows From GERMANY

FDI equity inflows from all Countries

Total FDI inflows (including equity, re-invested earnings & other capital)

Rs. in crores

US$ in million

Rs. in crores US$ in million

(US$ in million)

2000-01 539.84 123.34 10,733 2,463 4,029 2001-02 519.04 113.48 18,654 4,065 6,130 2002-03 684.05 143.91 12,871 2,705 5,035 2003-04 373.40 81.17 10,064 2,188 4,322 2004-05 663.18 145.35 14,653 3,219 6,051 2005-06 1,344.53 302.82 24,584 5,540 8,961 2006-07 539.82 119.95 56,390 12,492 22,826 2007-08 2,074.65 513.61 98,642 24,575 34,843 2008-09 2,749.73 629.22 142,829 31,396 41,873 2009-10 2,980.04 626.14 123,120 25,834 37,745 2010-11 907.88 199.74 97,320 21,383 34,847 2011-12 7,451.69 1,621.95 165,146 35,121 46,556 2012-13 4,684.30 859.62 121,907 22,423 34,298 2013-14 6,093.24 1,038.42 147,518 24,299 36,046 2014-15 6,904.01 1,124.86 189,107 30,931 44,291 2015-16 (up to Oct.15)

4,580.12 721.02 140,799 21,874 30,592

Cumulative Total (April 2000-October 2015)

43,089.53 8,364.60 1,374,337 270,508 398,445

6. Sectoral German FDI Inflows In FDI Equity Since Liberalization (from April 2000 to October 2015) (Amount of FDI equity inflows):

Rank Sector Amount of FDI equity inflows

% age of FDI equity inflows from GERMANY

Rs. in

crores US$ in million

1 Automobile Industry 9,962.30 1,759.62 21.04 2 Misc. Mechanical & Engineering Industries 5,715.14 1,274.22 15.23 3 Services Sector9 5,097.73 1,016.02 12.15 4 Chemicals (Other Than Fertilizers) 3,093.07 637.18 7.62 5 Trading 2,940.64 553.73 6.62 Total of Above 26,808.88 5,240.77 62.66

8

7. Recent Sectoral German FDI Inflows In FDI Equity Over Last 5 Years (from April 2010-2015 September) All figures quoted in US$ million10

RANK (cum. FDI inflow ‘10-‘15)

SECTOR 10-‘11 (April-March)

11-‘12 (April-March)




15-16 (Ap’15-Sep. ‘15)

#1 ($21,214)

Services: (Financial & Non Financial)

$3,296

$5,126

$4,660

$2,225

$4,443

$1,464

#6 ($8,083)

Construction: (Development, Housing, Infrastructure)

$1,663

$3,141

$1,206

$1,226

$769

$81

#4 ($8,616)

Telecommunication (Mobile, Paging, Radio, Cellular Services)

$1,665

$1,997

$93

$1,307

$2,895

$659

#5 ($8,490)

Computer Software & Hardware

$780

$796

$435

$1,126

$2,296

$3,057

#7 ($7,452) Pharmaceuticals & Drugs

$209

$3232

$1,008

$1,279

$1,498

$226

#2 ($8,967)

Chemicals ( Non-Fertilizer)

$2,354

$4,041

$268

$878

$763

$393

#9 ($5583)

Power

$1,272

$1,652

$526

$1,066

$707

$360

#3 ($8,824)

Automobile

$1,299

$923

$895

$1,517

$2,726

$1,464

#10 ($5,449)

Metallurgical Industries

$1,098

$1,786

$1,385

$568

$359

$253

#11 ($4,924)

Hotel & Tourism

$308

$993

$3,190

$433

#8 ($7,097) Trading

$718

$1,343

$2,728

$2,308

Services show the most stable to positive inflow growth in FDI. The automobile industry shows the most promising growth trajectory as does the software and hardware industry. The metallurgical industries show the most sluggish downward growth trend. Because the chemical industry had two bumper years which account for a bulk of why they rank #2, overall they appear to be “false favorites.” However, it is worth examining recent policy measures relating to each of these sectors to consider their future degree of relative (un)attractiveness.

9

8. Top FDI Inflows Received From Germany By Company (remittance-wise) (through Indian companies, from Apr. 2000 to Oct. 2015)11:

Sl. No

Name of Indian Company

FDI Route

Name of Foreign Collaborator

RBI Regional Office

Item of Manufacture Amount of FDI Inflows

(In Rs crore)

(In US$ million)

1 Siemens Ltd Rbi Siemens Aktiengesellschaft

Region Not Indicated

Electrical & Electronic Engg 5,140.42 1,146.04

2 Daimler India Commercial Vehicles Pvt Lt

Rbi Daimler AG Chennai Manufacture Of Motor Vehicles For The Transport Of Goods, Manufacture Of Special Purpose Heavy Motor

2,075.98 377.38


Rbi Daimler AG Chennai Manufacture Of Commercial Vehicles Such As Vans, Lorries, Over-The-Road Tractors For Semi-Trailers; Etc:

1,485.99 236.80

4 Vai Metals Technologies Pvt Ltd

Rbi Siemens Vai Metals Technologies Gmbh

Mumbai Other Specialized Construction Activities

1,028.41 165.77

5 Man Force Trucks Pvt Ltd

Rbi Man Truck & Bus AG


Mfg Of Heavy Commercial Vehicles

1,016.51 186.84



933.89 152.24

7 Micro Inks Ltd Fipb Mhm Holding Gmbh


Mfg Printing Inks/ Pkg Inkd, Resins, Enamels Adhesives

847.82 190.95

8 Apollo Energy P Ltd

Rbi Dky Inil Health Holding

New Delhi Manufacture Of Power Capacitors

736.72 151.80



584.25 93.85

10 Sigma Freudenberg Nok Pvt Ltd

Rbi Freudenberg SE Region Not Indicated

Manufacture Of Oil Seals For Automotive

571.20 92.02

11 Bajaj Allianz Lic Ltd.

Rbi Allianz SE Mumbai Insurance Carriers, Life 509.88 118.75

12 Man Force Trucks Pvt Ltd

Rbi Man Truck & Bus AG

Mumbai Manufacture Of Motor Vehicles For The Transport Of Goods, Manufacture Of Special Purpose Heavy Motor

475.17 85.52

13 Metro Cash & Carry India Pvt. Ltd

Rbi Metro Cash & Carry International Gmbh

Bangalore Wholesale Trade Via E-Commerce Excluding Activities Of Commission Agents

400.00 62.70

14 Volkswagen Finance Pvt Ltd

Rbi Volkswagen Financial Services AG

Mumbai Other Business Services Not Elsewhere Classified Or Included

397.78 73.02

15 Metro Cash & Carry (I) P. Ltd.

Fipb Metro Cash & Carry International Gmbh

Bangalore Trading 381.16 89.01

10

16 Triveni Polymers Pvt Ltd

Rbi Gerresheimer Glas Gmbh


Mfg Of Primary Plastic Packaging Products

375.38 69.11

17 Bajaj Allianz Lic Ltd.

Rbi Allianz SE Mumbai Insurance Carriers, Life 302.72 74.23

18 Daimler Financial Services India Private

Rbi Daimler AG Chennai Financial Leasing 290.00 46.21

19 Indian Oil Tanking Ltd.

Fipb Oil Tanking India Gmbh

Mumbai Construction And Maintenance Not Elsewhere Classified

285.71 66.54

20 Continental Automotive Components (India

Rbi Continental Automotive Gmbh

Bangalore Manufacture Of Diverse Parts And Accessories For Motor Vehicles Such As Brakes, Gearboxes, Axles, Etc.

281.60 44.87

21 Man Trucks India Pvt Ltd(Man Force Truck

Rbi Man Nutzfahrzeuge Ag (Now Known As Man Truck)

Mumbai Manufacture Of Motor Vehicles For The Transport Of Goods, Manufacture Of Special Purpose Heavy Motor

260.00 42.70

22 Neo Structo Construction Ltd

Rbi Bilfinger Berger Industrial Services Gmbh


Maintenance, Mfg,Installation Services In Process Industry

258.55 51.38


Rbi Metro Cash And Carry International Gmbh

Bangalore Wholesale Trade In Cereals And Pulses Other Than By Procurement Agencies

250.00 40.57


Rbi Metro Cash & Carry International Gmbh

Bangalore Wholesale Trade In Cereals And Pulses Other Than By Procurement Agencies

250.00 46.49

25 Continental Automotive Components (India

Rbi Continental Automotive Gmbh

Bangalore Manufacture Of Laboratory And Scientific Instruments N.E.C. (Includes Manufacture Of Non-Optical Mic

236.16 43.35

11

Regulatory Framework & Entry Options For German Firms FDI in India is divided into sectors that fall under the “automatic approval route” and “government approval route.” The automatic route connotes sectors for which there is no requirement of any prior governmental regulatory approval - only post facto filing / intimation with the RBI as under:

Filing of an intimation with the RBI, in the prescribed format, within 30 days of receipt of investment money in India

Filing of prescribed documents and particulars of issue of shares within 30 days of issue of shares to foreign investors

FDI by a foreign company/investor in an Indian company in most of the business/commercial sectors now falls under the automatic approval route, meaning that very few cases/transactions now require prior Government/Foreign Investment Promotion Board (FIPB) approval.

If the FDI exceeds the ceiling (cap) fixed by the Government of India, then, the application for Foreign Investment Approval needs to be submitted to the FIPB.

In addition, certain FDI flows are usually considered to be ‘non automatic’ and require FDI in sectors/transactions to have prior government approval, falling under the government approval route. Such approval is granted by the Government of India, Ministry of Finance and FIPB. FDI in the following activities/sectors generally requires prior approval of the government:

Where more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the Small Scale sector

Proposals in which the foreign collaborator has an existing financial/technical collaboration in India in the ‘same’ field as per the Press Notes 1 and 3 of 200512

12

For all proposals falling outside notified sectoral caps or under sectors in which FDI is not permitted under the automatic approval route, FDI policy is reviewed on an ongoing basis and changes in sectoral policy / sectoral equity caps are notified through Press Notes.

Once the relevant sector has been identified, the firm must decide how it would like to establish itself within India. There are several options available to German firms interested in entering the Indian market.

13

Incorporating A Company In India

It can be a private or public limited company. Both wholly owned & joint ventures are allowed. A private limited company requires minimum of two shareholders.

Under RBI approval. RBI decides the application in consultation with Government of India.

1) As an Indian Company

A foreign company can commence operations in India by incorporating a company under the Companies Act, 1956 through Joint Ventures or Wholly Owned Subsidiaries. Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the FDI policy. Details of the FDI policy, sectoral equity caps and procedures can be obtained from Department of Industrial Policy & Promotion, Government of India.

2) As a Wholly Owned Subsidiary Company

Foreign companies may set up a wholly owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy. For registration and incorporation, an application has to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.

3) As a Joint Venture With An Indian Partner

Foreign Companies may set up their operations in India by forging strategic alliances with Indian partners. Joint Venture may entail the following advantages for a foreign investor:

Established distribution/ marketing set up of the Indian partner

Available financial resource of the Indian partners

Established contacts of the Indian partners which may help to smooth the process of setting up of operations

4) As a Foreign Company

Foreign Companies can set up their operations in India through:

Liaison Office/Representative Office

Project Office

Branch Office

14

Such offices can undertake any permitted activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

a) Liaison office/ Representative office: A liaison office acts as a channel of communication between the principal place of business or head office and entities in India. A liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and to providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between the parent company and companies in India. The approval for establishing a liaison office in India is granted by the RBI.

b) Project Office: Foreign companies planning to execute specific projects in India can set up temporary project/site offices in India. The RBI has now granted general permission to foreign entities to establish project offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of a specific project. Project offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.

c) Branch Office: Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up branch offices in India for the following purposes:

Export/Import of goods

Rendering professional or consultancy services

Carrying out research work, in which the parent company is engaged.

Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

Representing the parent company in India and acting as buying/selling agents in India.

Rendering services in Information Technology and development of software in India.

Rendering technical support to the products supplied by the parent/ group companies.

Foreign airline/shipping company.

A branch office is not allowed to carry out manufacturing activities on its own, but is permitted to subcontract these to an Indian manufacturer. Branch offices established with the approval of the RBI may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines. Permission for setting up branch offices is granted by the RBI.

15

Branch Office on "Stand Alone Basis": Such branch offices are isolated and restricted to a Special Economic Zone (SEZ) 13, and no business activity/transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India. No approval shall be necessary from the RBI for a company to establish a branch/unit in an SEZ to undertake manufacturing and service activities subject to specified conditions or market entry into India14

Bearing this in mind, there are 14 core steps required of German companies to set themselves up in India which can be classified as the following:

Steps German Firms Must Take To Invest In India

1. Identification of structure 2. Central Government approval if required 3. Setting up or incorporating the structure 4. Inflow of funds via eligible instruments and following pricing guidelines 5. Meeting reporting requirements of the RBI and respective Act15 6. Registrations/obtaining key documents like Personal Account Number (PAN)

etc. 7. Project approval at state level 8. Finding ideal space for business activity based on various parameters like

incentives, cost, availability of manpower etc. 9. Manufacturing projects are required to file Industrial Entrepreneur’s

Memorandum (IEM). Some of the industries may also require an industrial license

10. Construction/renovation of unit 11. Hiring of manpower 12. Obtaining licenses if any 13. Other state & central level registrations 14. Meeting annual requirements of a structure, paying taxes etc. 16

Limited Liability Partnerships

Allowed under the Government route in sectors which has 100% FDI allowed under the automatic route and without any conditions.

16

India Opportunities for German Investors - Segmentation and Opportunity

Under the ‘Make in India’ initiative, the Government of India aims to attract foreign capital into industrial corridors and hubs for high-tech manufacturing projects. To achieve this, a number of policies have been taken to improve the business climate, to strengthen the infrastructure for intellectual property rights and to raise permissible limits for FDI. With the growth of the Indian economy - expected to exceed 7% growth for the coming couple of years, and poised to overtake China - India emerges as a profitable investment destination for EU companies.

Factors like growth of middle class population, rising disposable incomes, increase in adoption of advanced technology, rollout of new telecommunications networks, and many laptop and tablet/mobile distribution schemes by state and central governments, are set to propel the ESDM industry in India to a high growth trajectory. This increasing Indian electronics market demand is expected to reach US$400 billion by 2020.17 Current domestic electronics production growth is in range of 5-10%. At this rate, domestic manufacturers will be able produce as much as US$100 billion worth of electronics out of a total domestic demand of US$400 billion by 2020. This US$300 billion demand-supply gap will have to be met by imports, which will lead to a situation where the electronics import bill for the country will exceed the oil import bill.

The capital goods industry, a US$32 billion industry in India, covers several subsectors in the Indian manufacturing space. Significant manufacturing is carried out in the subsectors of electrical engineering, power plant equipment, construction, infrastructure, process plant equipment and construction equipment sectors as well. Today, the capital goods sector is a robust, multilevel, diversified segment of the Indian industry environment, playing a critical role in driving growth, creating jobs and boosting exports. However, stagnation in technological advances hinders economic strides and efficient achievement gains.

The following are specific areas of opportunity where German high-tech manufacturing knowledge and capabilities can fill specific gaps within the India market via FDI. For all sectors highlighted, FDI is allowed 100% in all activities/sectors as specified in the consolidated FDI Policy under the automatic route without prior approval either of the Government or the Reserve Bank of India.

17

Industrial Machinery

--- 100% FDI allowed through automatic route ---

Industry definition

The machine tool industry is comprised of manufacturers of the following types of machinery and its accessories:

Metal cutting machinery such as lathes, milling machines, drilling / boring machines

Metal forming machinery such as presses, punches, forges jigs and fixtures etc.

Based on technology, machine tools can be classified into Computerized Numerically Controlled (CNC), Numerically Controlled (NC) and Conventional.

The machine tool component industry includes manufacturers of the following systems:

CNC systems. A CNC system is a form of programmable automation in which the machine tool is controlled by a program in computer memory.

Servo motors. A servo motor is an automatic device which uses error-sensing feedback to correct the performance of a mechanism. The term applies to systems where the feedback or error-correction signals help control mechanical position or other parameters.

Spindles, bearings, guide ways and ballscrews

Cast iron products such as beds, columns and saddles

Hydraulic systems. Hydraulic machinery refers to the machines and tools which use fluid power to do work.

The Indian machine tools industry is a strategically key industry for German firms. Consisting of approximately 200 machine tool manufacturers in the organized sector and around 400 small scale units across India, the industry lacks the design and engineering capability to undertake high precision computerized CNC machining work. 18 Due to technology gaps in the field of metal cutting machine tools, metal forming machines, special technologies and critical components development, the import of technology as well as R&D initiatives are presently being utilized in an effort to bridge the gaps.

With Germany being the world leader in machine tool exports, German firms are in a strong position to augment the Indian machine tool industry with their proven expertise. Advances in machine tool technology have fundamentally changed the nature of the product itself. The shift to computer-based - and particularly microcomputer-based - numerical controls has considerably increased the versatility

18

and flexibility of machine tools, simplified programming and allowed for more functions to be controlled automatically. Several machine tool groups, each representing one specific function, converged into multi-purpose machines. Technical strides in this industry can be sustained and integrated into Indian manufacturing through German technical knowhow.

The Verein Deutscher Werkzeugmaschinenfabriken (VDW) - the German Machine Tool Builders Association - has identified the following current developments in machine tool technology that would provide German manufacturers with opportunities in India: 19

Investment Opportunities

High performance machining

Reduction of machining time by increase of cutting speeds.

Dry machining

Reduction or elimination of coolants in machining to limit environmental damage

Micro-processing

Metal-cutting and non-metal-cutting processes for generation of miniaturized components, partially having geometric dimensions in the micron and surfaces

Rapid prototyping: Rapid realization of prototypes and preproduction series of new products for geometrical and functional testing

19

Textile Machinery Industry

--- 100% FDI allowed through automatic route --- Industry Definition

The textile machinery segment is comprised of the following types of machinery and accessories: Ginning & pressing machines

Spinning & allied machines

Synthetic filament yarn machines

Weaving and allied machines

Processing machines

Hosiery/RMG machines

Textile testing equipment

Multiple segments (combination of the above)

Sorting machinery

Carding machinery

Accessories and parts Others

The textile machinery industry is a significant component of the Indian capital goods industry. This industry comprises of over 1,446 machinery and components manufacturing units, with over 600 units producing complete machinery, and other units are mainly involved in the production of parts and accessories for textile machinery. The Indian textile machinery industry takes place in both in the organized and the unorganized sectors. In the organized sector, in addition to the public limited companies, machinery is manufactured in independent units which have collaborative joint ventures with the foreign entities. In the unorganized sector, there are small-scale industrial units down to tiny units engaged in the production of accessories related to the operation and maintenance of textile machinery. Spurred by galloping domestic demand for textiles and apparel ( which has grown at over 13% per year for the last five years), with the new textile policy in place the government hopes to achieve an ambitious target of US$650 billion by 2024-2025 for the domestic textile industry. The textile machinery market is set to double over the next 7 years. However, at present, many textile manufacturing companies do not currently work to full capacity - or even to the optimum capacity level - except for units in the spinning sector where the machinery is of international standards. In the other sectors, Indian-manufactured machinery for weaving, knitting and wet-processing in most cases lack the standard of quality and performance to compete with European manufacturers. This lack of quality and performance is due to insufficient in-house

20

R&D, and to the absence of large foreign/domestic players in weaving and processing machineries. The following areas of technological gaps in the Indian textile machinery industry could provide opportunity for German high tech companies: Investment Opportunities

Shuttleless weaving machinery (rapier or jet)

Knitting sector (circular knitting and flat knitting) machinery

Processing machines

Special purpose finishing machines

Knitting and garmenting machineries

Critical components machines including auto-coners and rotor spinning machines with automation control

Wider width processing machines, etc.

21

Process Plant Equipment


Industry Definition

The process plant equipment industry is comprised of the following types of machinery and accessories:

Tanks

Pressure vessels

Evaporators

Stirrers

Heat exchangers

Towers & columns

Crystallizers

Furnaces

Process plant equipment is utilized in the energy, gas, oil, refinery, chemical & petrochemical, fertilizer, paper & pulp, sugar, cement, and dairy industry sectors.

There are over 200 units engaged in the manufacturer of process plant machinery in India, out of which 65% are small- and medium-sized manufacturers. The sector today is equipped with state of the art processes to engineer and fabricate complex process equipment utilizing different materials . The plant sizes of these companies within India have increased over time, and now some are comparable - or even larger than - global companies.

However, domestic industry lacks knowhow on process technology, which results in this sector being dependent on Overseas Process Licensors (OPLs). China, on the other hand, has attempted to develop or acquire its own process technology knowhow, by setting up research institutes and labs, and by acquiring such expertise from other regions. At operational levels, Indian welding, forming and machining technologies could be improved to enhance domestic productivity.

The following technological gaps in the Indian process plant equipment industry could provide opportunity for German companies:


Subsea equipment

Oil well drilling

Process gas boilers for ethylene

Gas crackers, etc.

22

Earthmoving, Construction & Mining Equipment


Industry Definition

The earthmoving, construction and mining equipment industry is comprised of the following types of machinery and its accessories:

Backhoe loaders

Compactors

Mobile cranes

Pavers

Batching plants

Crawler cranes

Transit mixers

Concrete pumps

Tower cranes

Hydraulic excavators

Dumpers

Mining shovels

Walking draglines

Dozers

Wheel loaders

Graders

Drilling equipment

Currently, the Indian market consists of 20 large domestic and global manufacturers, and 200 small- and medium-sized manufacturers of earthmoving and mining machinery. 20 In India, open cast mining is much more popular than underground mining, therefore much of the equipment specifically required for open cast mining, like dumpers, dozers, shovels, draglines and excavators, is manufactured in India.

It is worth mentioning that India is the second largest market for backhoes in the world, and is expected to grow at annual CAGR of 11% for the next few years. 21 Opportunity also presents itself in the earthmoving equipment segment which boasts the largest product lines. The Indian market for this is in the top three across the world.

23

Based on Indian Ministry of Public Enterprises forecasts looking forward at the next 20 years, there is a need to develop indigenous capability in respect of the following product groups in order to be able to meet market demand: 22


Electric dump trucks ~ 190 ton - 240 ton

Rope shovels ~ 42 cum.

Walking draglines ~ 72m - 33m Cum.; 150m - 50m cum.

Hybrid Drive Loaders ~ l0 cum. bucket

2,500 HP electronically controlled emission compliant engines

Long-wall mining systems

Continuous miners for underground mines

24

Heavy Electrical & Power Generation Equipment


Industry Definition

The heavy electrical and power generation equipment industry comprises of two broad segments:

Generation equipment: Boilers Turbines Generators

Transmission & distribution (T&D):

Transformers Cables Transmission lines Switch gears Capacitors Energy meters Instrument transformers Surge arrestors Stamping and lamination Insulators Insulating material Industrial electronics Indicating instruments Winding wire

The heavy electrical and power generation equipment segment constitutes about 69% of aggregate production in the capital goods industry. The Government of India has de-licensed the electrical machinery sector and has allowed 100% FDI. By 2022, the installed power capacity in India is expected to reach 350 gigawatts (GW) from 243 GW in 2014, driven by increasing industrialization and economic development. The total market size of electrical machinery in India is anticipated to reach US$100 billion by 2022 from US$24 billion in 2013. 23

The generation equipment market constitutes 15% of the total sector and is expected to expand at a compound annual growth rate (CAGR) of 12.7 % over FY12–22. 24 The transmission and distribution component constitutes the remaining 85% of this sector, and has expanded at a CAGR of 6.7% over FY07-13. Boilers (16%), cables (15%) and transmission lines and conductors (12%) account for a large portion of this revenue.

The sector boasts of a diversified, matured and strong manufacturing base backed by a robust supply chain. The presence of major foreign players, either directly or through technical collaborations with Indian manufacturers, is a testimony of unique advantages India holds in this sector.

25

With many bilateral nuclear agreements in place, India is expected to become a major hub for the manufacture of nuclear reactors and associated components. Foreign participation in the development and financing of generation and transmission assets, in engineering services, in equipment supply and in technology collaboration in nuclear and clean coal technologies is also expected to increase

With state-of-the-art technology in most sub-sectors at par with global standards, major export markets for Indian electrical equipment exist on all continents all over the world. German collaboration in the following areas has been identified:


Nuclear reactors & components Rotating machines (motors, AC generators, generating sets) & parts Switchgear and controlgear Transformers & parts Cables Industrial electronics Boilers & parts Transmission line towers, etc.

26

ESDM & Computer Hardware

(100% FDI through automatic route)

Industry Definition:

The Electronics System Design & Manufacturing (ESDM) sector covers electronic hardware products relating to: 25

IT and office automation

Telecom components

Consumer electronics

Electronic components

Avionics

Solar photovoltaic components

Strategic electronics

Nano-electronics

Medical electronics

Space & defense related items

Design related activities like product design: chip design, VLSI, board design, embedded systems, etc.

IT and ESDM are among the fastest growing production and export segments in India. With complete de-licensing of the electronics industry with the exception of aerospace and defense electronics, and with the liberalization in foreign investment and export-import policies of the entire economy, this sector is not only attracting significant attention as an enormous market, but also as a potential production base for international companies.

In FY2015 the computer hardware industry in India generated US$5.3 billion in FDI inflows, of which US$50 million of these flows were accounted for by Germany. The huge market for computer hardware in India, coupled with the availability of a skilled workforce, has boosted the inflow of FDI. High growth prospects, in terms of increased consumption in India, as well as increasing demand for exports - paired with ease in recruiting and laying-off employees and tax benefits - are expected to lead to continuing FDI in this sector.

In terms of production, the ESDM sector is currently in nascent stages in India. Most current demand is met through imports. Trends in consumption patterns indicate a huge demand-supply gap and it will be unsustainable to keep pace with the demand unless the supply aspect is taken care of in an economical fashion. Consider the following statistics key areas for opportunity have been identified for

27

German investors.

India currently contributes just 1.3% of global electronics hardware production and given the fact that India is ranked 4th Globally in manufacturing competitiveness index, it is imperative that there is a shift in production patterns into the country.

Electronics imports are third highest in the country next to crude oil and gold, indicating a huge opportunity for import substitution.

35% of electronics products manufactured by India belong to low value added category, indicating a gap in the high end R&D and production area. 26

Expected electronic market in India by 2O2O27

Telecommunications equipment (US$34 billion)

Laptops, desktops, tablets (US$34 billion)

LED (US$35 billion)

Consumer electronics (US$29 billion)

Set top boxes (US$10 billion)

Automotive electronics (US$10 billion)

Medical electronics (US$8.5 billion)

The following areas of opportunity are based on projections of expected Indian electronic market growth by 2020 through data provided by the indian Department of Electronics & Information Technology:


Setting up of Electronics Manufacturing Clusters

Semiconductor wafer fabrication (FAB)

Electronic components

Semiconductor design.

Electronics manufacturing services (EMS)

Telecom products.

Industrial/consumer electronics

Data centers

Animation, visual effects, gaming & comics (AVGC)

28

The Smart City Initiative Experiencing a major demographic shift, the bulk of India’s population will look to migrate from villages into cities in search of new opportunity. This new mass-migration of urban dwellers will be supported by the “Smart City” initiative, which aims to upgrade and build 100 cities stressing urban mobility, low-cost housing, and sanitation and sewerage in particular. 28 Geovadis had the opportunity to conduct an exclusive interview with one of the chief economic advisors for urban development for Prime Minister Modi, Dr. Kumar V. Pratap. Dr. Pratap shed light on what implications this initiative holds for German investors, and he identified three major areas for Indo-German collaboration in high-tech functions to serve the Smart City initiative.

Construction and housing

In order to house what is projected to become the world’s most populous nation, the basic building blocks of any smart city would be the creation of homes and apartments built with the utilization of environmentally friendly technologies, sustainable amenities and non-traditional building materials. The undertaking of this would open massive opportunities for construction machinery, sanitation equipment, waste and water management equipment, and other capital goods in which German manufacturers excel.

Energy and renewable energy

With the creation of smart cities, the energy upon which they run will be generated through technologically advanced methods. With high unmet current demand and an estimated future market demand of 900 GW by 2032, India’s power generation, transmission and distribution systems are undergoing a massive transformation in capacity and technology absorption. 29 A “Smart Grid” is being proposed to supply the smart cities with electricity, while technology breakthroughs in thermal, hydro and nuclear power capacity are being sought. India has been doubling its capacity and investment in renewable energies every year for the last three years. Dr. Pratap additionally indicates that the Indian federal government has targeted the development of 100 GW of new solar energy and 60 GW of new wind energy capacity by 2020; a huge jump from the current levels. The immense technical knowhow, expertise and knowledge possessed by German manufacturers could play a key role in India achieving its proposed targets.

29

Green capital goods

With its committed mission for clean and green products, India in general and smart cities in particular will require machinery and equipment to assist its cities and local industrial firms to effectively reduce their pollutants and waste. Effluent treatment, water management, carbon mitigation and air pollution control are a few of the key areas within this sector which beckon German skill sets. These requirements, in conjunction with the Modi government's “Clean India” initiative, serve two sets of very important nationwide goals. Earlier this year saw the German government announce an interest in developing three smart cities - Kochi, Bhubaneswar and Coimbatore30 - by equipping and collaborating with Indian players to develop smart solutions. Germany has already been engaged in a wide variety of project areas which aid smart cities via sustainable mobility, waste and water management systems as well as efficient energy solutions.

30

Country Profile India is the seventh largest and 2nd most populous nation in the world, and is comprised of 29 states and seven union territories. Rich in natural resources and abundant in manpower, India offers many advantages to foreign investors. With the 4th highest purchasing power parity globally, India has been an attractive destination for investors for several years now. There over a 1,000 Germans firms presently operating on Indian soil with a majority carrying out a strategy of scaling international operations through expansionary means. India is a key FDI destination for German firms on many fronts.

Geographic advantage

With its location in southern Asia, India shares its border with China, Bhutan and Nepal in the northwest, Myanmar and Bangladesh in the east, and Afghanistan & Pakistan to the northwest. The emerging and established markets of Middle Eastern and Southeast Asian countries are also in close proximity.

India is connected to the sea on three different fronts by the Bay of Bengal, Arabian Sea and Indian Ocean - a feature that aids global trade in many respects. India’s landmass spans a total of 3.3 million square kilometers comprised of 90% land area, and its coastline spreads over of 7,517 kilometers.

Socioeconomic strength

India has a massive middle class which is expanding at a very rapid pace. This expansion offers a large and lucrative market for German products and services. According to a study carried out by McKinsey in 2010, at the current growth rate India’s average household income will triple over the next two decades and India will become the world’s fifth largest consumer economy by the year 2025. 31

India also boasts very impressive manpower resources and is home to one of the most developed higher education systems across the globe. The size of India’s education system ranks third in the world, after the United States and China.

Education and Manpower

The literacy rate in India is 74%, with English being both understood and commonly used as a medium of spoken and written communication. One of India’s biggest assets is the enormous size of its young and working population. The proportion of population in the working age-group 15-59 years is expected to rise from 57.7% in 2001 to 64.3% by 2026. 32

India had 409 university-level institutions in 2008-09. The total number of colleges is 25,990 and that of polytechnics is 1,742.

31

Total annual enrolment for various postgraduate courses is as high as 18.6 million nationwide.

India has 1,522 degree-granting engineering colleges with an annual student intake of 582,000.

The number of students enrolled each year to become doctors is as large as 273,366.

AT Kearny India FDI Confidence Index33

Throughout India there are certain common stumbling blocks which hinder FDI: poor infrastructure, corruption, political instability and a complicated tax system. Despite these issues, given the immensely diverse geographic and economic climate of India, we find a great amount of disparity in attractiveness across states. As states often compete within one another to attract FDI, there are certain states and sectors within India which we feel are better poised to serve and facilitate the interests of German investment, despite the aforementioned common pool of problems.

Our study has identified five states or regions which we feel are best suited to sustain and advance German investments. This identification is based on the following criteria:

The five states must be the ones which have shown the most cumulative FDI inflows over the last five years from 2010 to 2015.

These five states must have a very robust infrastructure development with respect to transportation, power and water relative to other states across the nation.

The five states must have a proven track record of attracting existing high-tech manufacturing support, or they must present unique features which will complement FDI in high-tech manufacturing.

From the perspective of a German firm which might be making their first foray into the Indian market, it is important to familiarize oneself with the economic, geographic characteristics and respective incentives each state offers in support of high-tech manufacturing. The following section will provide a brief overview of these key aspects.

YEAR FDI CONFIDENCE INDEX & RANK RANK 2015 1.79 / 2.50 11 2014 1.81 / 2.50 7 2013 1.85 / 2.50 5 2012 1.73 / 2.00 2 2011 N/A 2010 1.64 / 3.00 3

32

Recent FDI in main regions34

German Investment In India Region-Wise (All figures in US$ million) 35

HEAD OFFICE STATES COVERED 2013-14 %OF FLOW

2014-2015

%OF FLOW

Chennai Tamil Nadu & Pondicherry $570.66 50.45% $302.68 26.91% Mumbai Maharashtra $125.84 12.1% $531.50 47.25% New Delhi Delhi, part of Haryana &

UP $102.85 9.90% $142.98 12.71%

Bangalore Karnataka $44.39 4.28% $48.99 4.36% Kolkata W.Bengal, Sikkim $30.64 2.95% $8.02 0.71% Chandigarh Punjab, Haryana,H.P. $11.7 1.13% N/A N/A Ahmedabad Gujarat $3.71 0.36% $3.52 0.31% Panaji Goa $0.83 0.08% $0.23 0.02% Hyderabad Andhra Pradesh $0.73 0.07% $9.04 0.80% Patna Bihar, Jharkhand $0.71 0.07% $1.55 0.14% Bhubaneswar Orissa $0.67 0.06% $1.12 0.10% Bhopal M.P., Chhatisgarh $0.20 0.02% n/a n/a Kochi Kerala, Lakshadweep n/a n/a $0.14 0.01%

33

State Profiles and Incentives Maharashtra

Situated along the lower west coast of India, Maharashtra is overall India’s most lucrative FDI destination, attracting over 30% of all FDI in the nation, and attracting the highest German FDI inflows over the last two years (FY 2013-2015). Maharashtra is India’s third largest and second most populous state.

The state boasts a highly progressive government, taking measures to facilitate industrial infrastructure, and serving as home to a large number of diverse industries and a well-developed service sector. Often dubbed the “Financial and Trade” capital of India, Maharashtra is also host to a plethora of specialized institutes that offer skilled resources for industries and services sector.

Maharashtra has always led the country's industrial development, and it continues to attract the largest proportion of both domestic and foreign industrial investments. The state has established strengths in every sector, including engineering, automobiles and auto components, chemicals, drugs and pharmaceuticals, textiles, information technology and biotechnology. It offers the

34

finest infrastructure, excellent educational facilities, quality trained manpower, a professional work ethic and a conducive business environment. In addition, the rich heritage, trade, culture, history and growing economy of the state are major tourist draws. Some key facts about Maharashtra reveal that it has:

The largest state economy in the country

One of the most attractive investment destinations in the country, accounting for 27% of exports

A high literacy rate of 77%

12% of country‘s universities, 17% of medical colleges, 13% of engineering colleges, 19% of management institutions

Produced 169,000 technocrats every year

ESDM in Maharashtra & Incentives

Maharashtra accounted for a significant share (30.49%) of the industrial output of India’s machinery, computer, electronics, optical products and equipment manufacturing sector in 2012-13. The state’s well established ESDM hubs are located in Pune, Talegaon and Khed. The foremost ESDM centre at Pune enjoys excellent connectivity to the Jawaharlal Nehru Port and Mumbai Port Trust depots, helping the state to maintain its status as an export hub for companies located there.

A sector of great focus for Maharashtra is the government plans to set up three brownfield Electronic Manufacturing Clusters (EMCs) at Pune, Aurangabad and Navi Mumbai. Eight electronic manufacturing clusters have been established in the state by the Government of India, as the Indian market for ESDM is poised to grow to US$400 billion by 2020. All units within these clusters will be eligible for benefits under the Modified Special Incentive Package Scheme (M-SIPS). The scheme aims to promote large scale manufacturing, and provides incentives across the value chain. Progressive policies aimed at improving the competitive advantage of the Maharashtra ESDM business include:

MAJOR CITIES PROS CONS

Mumbai Pune Nagpur Thane

Most heavily invested state for German and global FDI (30%).

Strategically located on coastline and borders many states One of the lowest labor dispute states in the country Hub for skilled manpower (1,000+ engineering institutes,

100+ computer science application training centers, 700+ institutes for industrial manpower training

Well connected infrastructure -7 airports (3 intl.), dedicated freight corridor – rail, port & road.

Particular importance given to promotion of ESDM via setting up of 3 EMC brownfield areas and 8 ESDM manufacturing clusters

Maximum power distribution towards manufacturing

High tariffs for power and power cuts

Political instability

Tough land acquisition laws

High levels of corruption

35

Fiscal Support

Capital expenditure subsidy of 25% in non-SEZs and 20% within SEZs

Reimbursement of CVD/excise for capital equipment for non-SEZ units

Reimbursement of federal taxes and duties for 10 years in select high-tech units like FABs (semiconductor manufacturing plants)

VAT & CST abatement

Stamp duty exemption

Electricity duty exemption

Fiscal incentives of up to 100% of the fixed capital investment for Ultra and Mega projects

10% additional incentive on top of the above-mentioned incentive is provided by the state if the project creates double the employment required for the eligibility

Non Fiscal Support

Skill development

Single window clearance (SWC)

Investor facilitation cell

Investor aftercare cell

Preference to domestically manufactured goods in government procurement

36

Tamil Nadu

Tamil Nadu, located in south India, is bounded on the north by Andhra Pradesh and Karnataka, on the south by the Indian Ocean, on the east by the Bay of Bengal, and by Kerala on the west. Tamil Nadu boasts a vibrant culture rich in history and natural bounty in the form of many beaches and very pleasant weather. The state is developing rapidly on all fronts - whether it is economy, social, human resource, culture, and so on. Tamil Nadu is one of the top three Indian states in terms of FDI, receiving the highest foreign investment in sectors like automobiles, information technology, power, telecommunications, and others. Tamil Nadu has an enrolment of over 182,000 graduate engineers from 553 engineering colleges, 120,000 diploma holders from 501 polytechnic institutes, 905,000 science and arts graduates, and over 35,000 software engineers. 36

In total, Tamil Nadu received FDI between 2014-15 of US$3.8 billion; a growth of over 80% from FDI of US$2.1 billion registered in 2013-2014. Cumulative FDI inflows from April 2011 to April 2015 have been recorded at US$11 billion, indicating a

37

growth of about 70% in a period of four years. Currently, Tamil Nadu is ranked #3 in terms of FDI flows accounting for 7% of total FDI in India in 2015

Among the Indian States, Tamil Nadu is now ranked:37

First in the number of factories

First in the number of workers employed in the manufacturing sector

Third in gross industrial output

Third in net value addition

In 2014, more than 3,000 foreign joint ventures and 100 foreign subsidiaries had manufacturing bases in Tamil Nadu, with FDI of over $ 10.0 billion. Tamil Nadu is increasingly becoming the choice destination for foreign investors, which provides them with a global reach. A comparison of the total operating costs across various investment destinations in India would place Tamil Nadu ahead of the rest, and in a very favorable position to offer investors opportunities they would find hard to resist. Chennai serves as the most cost effective production base in Tamil Nadu for export markets by many multinational corporations.

ESDM Incentives Tamil Nadu

Encouragement to FDI, SEZs

100% FDI is permitted in the electronics hardware manufacturing sector under the automatic route.

100% income tax exemption to SEZ units on export profits for five years, and 50% for the following five years, under National Policy on Electronics.

Modified-Special Incentive Package Scheme (M-SIPS)

25% of capital expenditure if the ESDM unit is in non-SEZ, and 20% of capital expenditure if the ESDM unit is within SEZ. This capital expenditure subsidy is available for investments made within 10 years from the date of approval of the project.

MAJOR CITIES PROS CONS Chennai Coimbatore Madurai Tiruchirappalli

An economic powerhouse on a high growth trajectory

A global industrial and manufacturing hub Renewable energy capital of India Innovation and knowledge hub of India Robust urban and social infrastructure with

world class civic amenities Strong tourism footprint Path-breaking policy initiatives and investor

facilitation framework New paradigm for industrial growth Vision 2023 for inclusive growth and

development

Losing out to rivals states as an attractive destination

Sky-high land prices due to mass urbanization

Lack of infrastructure outside of main cities makes it hard to attract migrant workers

Lack of transparency amongst approval processes & delays

38

Reimbursement of CVD/excise on capital equipment for non-SEZ units.

Reimbursement of federal taxes and duties (like custom duties, excise duties and service tax) for 10 years in select high-tech units like FABs, semiconductor logic and memory chips and LCD fabrication.

EMC Scheme

For Greenfield EMCs: Financial assistance of 50% of the project cost subject to a ceiling of US$7.5 million for every 100 acres of land.

For Brownfield EMCs: Financial assistance of 75% of the project cost subject to a ceiling of US$7.5 million.

Electronic Hardware Technology Park (EHTP) Schemes:

An EHTP unit may import free of duty all types of goods, including capital goods as required by it for manufacture, services, production and processing.

EHTP provides benefits, such as duty waivers and tax incentives to companies which replace certain imports with local manufacturing.

Semiconductor Policy

Special incentives have been designed to attract investments for setting up semiconductor fabrication and other micro and nanotechnology manufacturing industries.

The government has provided two options for setting up a project. For setting up semiconductor fabrication units and ecosystem units in SEZs, the government will fund 20% of the capital expenditure and for non SEZs 25% + exemption from CVD (Countervailing Duty).

39

Karnataka

Karnataka is a state in southwest India with Arabian Sea coastlines. The capital, Bengaluru (formerly Bangalore), is a high-tech hub known for its shopping and nightlife. Karnataka has long been the IT hub of India and a favorite amongst the expat community. Its capital, known as the “Garden City,” takes its name after the lush environment and tropical weather of the state.

Historically, Karnataka is the third largest recipient of FDI in the country after Delhi and Maharashtra from FY 2000-2015. Between April 2014 and November 2015, the state received FDI totaling US$6.71 billion, constituting 12.04% of the country’s total FDI.

Karnataka is the “Knowledge Hub of Asia” with 201+ engineering colleges, 114+ medical colleges/institutions, 50 universities and 13 international schools, as well as more than 370 world renowned high-end research and development organizations.

40

The World Economic Forum has identified Karnataka among the top-four innovation hubs in the world. Karnataka has been ranked 1st in India for a healthy business climate and for investment attraction by World Bank's Investment Climate Index.

Incentives For High Tech Related Investment Karnataka

The machine tool sector in Karnataka forms the backbone of manufacturing operations in various industries and is supported by a large base of micro, small and medium enterprises (MSMEs). The machine tools sector supports key industries such as automotive, aerospace and defense, textile, heavy engineering and steel, etc.

Karnataka produces a majority of India's machine tools, with the Bangalore area alone producing about 60% of the machine tools produced in India, at an estimated value of US$324.61 million.

Another very important sector is the IT and ESDM sector, where Karnataka has a 40% share of national IT exports and a 38% share of national electronics and hardware exports. For the period 2012-13, electronics and software represented 60% of the state's total exports. The state is home to the fourth largest technology cluster in the world after Silicon Valley, Boston and London. Support for both segments can be found through a variety of incentives, some of which include:

Post-performance Incentives and Subsidies

High-value-added ESDM manufacturing requires creation of Intellectual Property (IPR) which needs to be protected in the form of patents, both in India as well as abroad. Karnataka has a target to file 3,000 domestic and 2,000 international patents in ESDM by 2020. The government shall reimburse up to 50% of the actual application costs (including filing fees, attorney fees, search fees, maintenance fees), with a maximum of US$1,503 for filing a domestic patent and up to US$7,518 for filing an international patent. This reimbursement shall be payable 75% after the

MAJOR CITIES PROS CONS Bengaluru Mysore Hubli-Darwar Mangalore

Investor friendly single window clearance to ensure fast track approval for FDI

Vibrant expat community Good law and order situation making it

conductive for FDI Provides excellent logistic support and

connectivity to investors Ranks among the top 5 industrially

developed states One of the biggest and fastest

expanding markets in the country Highly skilled manpower is abundantly

available. The tech hub of India

Poor infrastructure (power, water, land availability)

Poor supply chain management ecosystem

Poor conversion rate of promises made to foreign investors

Overcrowding in established hubs

41

patent is filed and the remaining 25% after the patent has been granted. The patent filing incentives provided by the government of Karnataka shall be in addition to any existing scheme of the Government of India.

Marketing Incentives to Karnataka

For export promotion of ESDM products, and to assist in building brand equity of Karnataka ESDM companies as credible players internationally, the government shall provide reimbursements of 50% of the actual costs (including travel) incurred in international marketing, sales promotion, trade show participation, webinars, market research etc. by Karnataka ESDM companies. This reimbursement will be subject to a maximum of US$15,037 per year per company.

Deemed Export Incentives (for domestic sales)

For sales within Karnataka of ESDM products, ESDM companies will be eligible for interest-free loans against the eligible gross VAT under the Industrial Policy 2009 – 14. For domestic sales outside Karnataka (inter-state sales), the state will reimburse 95% of Central Sales Tax, until Goods and Services Tax is implemented, paid by the eligible ESDM units during the first 5 years of their operations.

R&D Grant

The Karnataka Government shall give R&D grants in the form of reimbursement equaling up to 20% of the actual R&D expenses (including manpower costs) incurred annually by Karnataka ESDM Companies, subject to a maximum of 2% of their annual turnover. The R&D grant shall be subject to a maximum of US$150,375 per company per year, and shall be in addition to any similar benefits announced by the Government of India.

Incentive for Capital Investment in ESDM sector

To attract investments in ESDM sector, the Karnataka Government will provide up to 10% capital subsidy, or US$751,879 - whichever is lower - to Karnataka ESDM companies (both for ESDM manufacturing as well as R&D units), and will be given to the first two anchor units in each Greenfield Cluster. This incentive is intended to act as a strong pull factor for investors to set up their ESDM design, R&D and/or high-tech manufacturing facilities within the state.

In addition to the above, fiscal incentives and concessions as per Karnataka Industrial Policy 2009-14 will be extended to ESDM units covered under this policy.

42

Gujarat

Gujarat is the home state of India’s present Prime Minister Narendra Modi. Gujarat boasts a rich and varied cultural heritage that is reflected in its art, music, cuisine, literature and religious traditions. It is India’s westernmost state and is also amongst its most industrialized. The business reforms which took place in Gujarat over the last half-decade became the blueprint which many states in India are now trying to replicate. Gujarat boasts the title of being the easiest state in which to conduct business, and is further transforming itself to compete with its peer states for increasing FDI.

Located along 1,600 km of coastline, Gujarat is well connected to major port trading countries and regions such as the United States, Canada, Europe, Australia and Africa. Gujarat is the leading industrialized state of India, and it is one of the most preferred investment destinations in India - providing opportunities in almost all the sectors of the economy, particularly in IT, tourism, textiles and the agricultural sector.

43

Gujarat hosts a variety of multinational corporations, private sector companies, public sector enterprises and a large number of medium and small scale units. It is a manufacturing powerhouse with world-class production capabilities in textiles, petrochemicals, pharmaceuticals and agro-based products. The state is also known for its entrepreneurial spirit, as well as for its robust social and physical infrastructure.

Gujarat is rich in bio-resources, and it has a forest cover of 1.88 billion hectares. Gujarat has 10.7 million hectares of highly diversified cropping area, and it is a leading producer of horticultural crops. Moreover, the state is rich in mineral resources like limestone, lignite and bauxite. It is also a leading producer of cement and soda ash, and has the largest diamond processing industry in the country. Thus, its geographic diversity and strategic location has made Gujarat home to an incredible diversity of people.

Gujarat Incentives For ESDM

State Government Incentives for clusters and anchor units:

Assistance of up to 25% of the project cost to greenfield EMCs, subject to a ceiling of US$15 million.

Special Incentive Package for two anchor units (with investments more than US$15 million) in each of the greenfield EMCs.

Registration/Stamp duty concession

ESDM units which intend to establish/expand/diversify will qualify for 100% exemption in stamp duty and registration fee in lease/sale/transfer of land for the first transaction.

Uninterrupted availability of power & power tariff subsidy to ESDM units.

MAJOR CITIES PROS CONS Ahmedabad Surat Vadodara Rajkot

The state provides extensive network of railways, and has the highest number of airports in the country

Only state with a power generation surplus

Gujarat provides extensive professional services to foreign investors

The state is highly industrialized Location wise, Gujarat has a strategic

location, providing easy access to the African, western, and Middle-Eastern markets

Skilled manpower is abundantly available in Gujarat

Poor quality of life in cities

Infrastructure constraints

Legacy of communal strife

44

Power Tariff Subsidy

If required, dedicated additional feeders would be provided both to the greenfield as well as brownfield EMCs.

Power Tariff Subsidy of US$0.015 per unit of electricity will be available for the period of 5 years.

Only units purchasing electricity from the state electricity/power distribution licensee will be eligible for this subsidy. Units generating power from its captive power plant or getting electricity through open access will not be eligible for the subsidy.

Mega ESDM Projects

Projects generating employment of more than 500 persons and fresh investment of greater than US$35.57 million (excluding the cost of land) will be considered Mega Projects. A special package of incentives will be offered on a case-by-case basis for Mega Projects.

The ESDM industry will be declared an essential service under Gujarat Essential Services Maintenance (ESMA) Act. The State Labor and Employment Department will make necessary amendments to the ESMA to include ESDM Industry in the List of Essential Services.

45

Delhi, Haryana & NCR

The National Capital Region (NCR) is a metropolitan city and region that includes Delhi, the capital of India, plus the surrounding urban areas in the neighboring states of Haryana, Uttar Pradesh and Rajasthan. The NCR is India's largest - and world's second largest - urban agglomeration, with a population of over 54 million inhabitants. The NCR ranks behind only Maharashtra in India for attracting FDI inflows.

Each of the three states which form the NCR boast very strong ties towards the development of high-tech manufacturing, making the NCR a bedrock for diverse FDI activity. Haryana, for instance, is home to more than 400 IT and ITeS companies. Haryana produces 50% of India’s cars, 33% of its two wheelers, 80% of its excavators and 52% of its cranes. Haryana is also responsible for being a nationwide leader in scientific goods, sanitary ware. 38 The city of Gurgaon has emerged as a preferred destination for the IT industry in north India. During 2011-12, the state registered IT / ITeS exports worth US$5.2 billion.

46

The state of Uttar Pradesh (UP) is home to the largest number of engineering graduates in the field of IT. UP’s electronics and communication field has approximately 36 universities, 3,104 colleges, 1,500 information technology institutes, 197 business schools and 320 engineering colleges, and is home to many premier institutions such as the Indian Institute of Technology (IIT), the Indian Institute of Management (IIM), the Indraprastha Institute of Information Technology (IIIT), and the Banaras Hindu University (BHU). 39 Current policy initiatives in FDI reflect the determination of the state government to make UP an electronics manufacturing hub.

Delhi NCR Incentives

As the NCR is a combination of three separate states, each state brings with it unique sets of incentives for foreign investors within their established defined SEZs.

In Delhi the sectors recognized for the establishment of SEZs comprise information technology-enabled services, electronic hardware and software, nanotechnology, biotechnology, gems and jewelers, non-conventional energy equipment, fashion and garments (without dyeing) and higher technical education institutes. Industries that present environmental issues may not be established inside SEZs and environmental clearance is a must for all projects except those dealing with information technology enabled services.

Other incentives offered by NCR SEZs include

Exemption from customs and excise duties.

100% income tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for the first five years, 50% for the five years thereafter, and 50% of the ploughed back export profit for the next five years.

Exemption from minimum alternate tax, exemption from dividend distribution tax, exemption from service tax, and exemption from central sales tax (CST) on inter-state purchases of goods.

MAJOR CITIES PROS CONS New Delhi Gurgaon Noida Faridabad

Capital region of India Geographically central and very well

connected Education hub Stable law & order Leader in tertiary services World class connectivity, infrastructure

and airports

Local government can be seen as unprogressive

Most polluted city in the world

High land prices Electricity supply issues

47

Incentives For ESDM Uttar Pradesh

The following incentives target the establishment of EMCs, and of individual ESDM units setting up in the EMCs, within UP for period ending on 31st March, 2019. These incentives are applicable to the first three EMCs in the state, which may further be extended to other EMCs to be decided by the empowered committee constituted under the policy.

A capital subsidy of 15% on fixed capital, other than land, subject to maximum of US$750,000 shall be provided. This subsidy shall be given only to the companies operating in EMCs and admissible on the capital evaluated by the relevant banks/financial institutions. This subsidy shall be provided to first 10 companies on the basis of their date of commencement of commercial operation (i.e. when the first business transaction takes place).

An interest subsidy of 5% per annum for a period of 7 years on the rate of interest paid on the loans obtained from scheduled banks/financial institutions shall be reimbursed subject to a maximum of US$150,375 per annum per unit.

100% stamp duty exemption of purchase/lease of land for the establishment of EMCs.

Reimbursement of up to 50% of actual filing costs subject to a maximum of US$1,503 for domestic and US$7,518 for international patents applicable for MSME units.

100% tax reimbursement on VAT/CST subject to a maximum of 100% of fixed capital investment other than land (such as building, plant, machinery, testing equipment, etc.) for a period of 10 years. This reimbursement shall be done through vouchers issued to the beneficiary, who shall then submit the same for redemption claim.

Rebate of 25% on the prevailing sector rates shall be provided either to EMC Special Purpose Vehicles (SPVs) or the companies within the EMC on purchase of land from state agencies.

State Government shall provide a subsidy equivalent to 50% of the grant provided by the Government of India under National Policy on Electronics, 2012 in terms of the cost incurred in developing infrastructure facilities (roads, power, water, testing facilities, social infrastructure, etc.) for EMC development. This subsidy shall be applicable for first three EMCs in the state. 40

Industrial promotion subsidy equivalent to 50% of the incentives applicable for new units (setting up in EMC) would be provided to existing units, if additional capital investment for capacity enhancement to the extent of 25% or more on the existing capacities of ESDM units is made in a period of 3 years. This subsidy will be applicable for first 10 units to be considered on the basis of their date of commencement of commercial operation.

Incentives In Haryana

Haryana is the home to a number of key high-tech related clusters.

Haryana has 10 notified brownfield EMCs for the national Managed Services, Infrastructure and Projects (MSIP) scheme

48

Gurgaon is the Business Process Management (BPM) Capital of the World, with 5% of the global BPM workforce. Gurgaon has more than 450 IT/ ITeS units offering employment for 253,000 people and 4,000 foreign workers

The automotive cluster in Gurgaon and the surrounding areas produce 50% of the cars made in India

Gurgaon’s medical & scientific instruments cluster is the largest such cluster in India, with over 1,200 units at Ambala41

In order to attract and capitalize on foreign investment, the state of Haryana offers a wide variety of incentives to foreign investors. The following processes are excused from payment of any tax, duty, fees, cess or any other levies under any existing state law.

Any goods exported out of or imported into state SEZs

Inter-unit transaction of goods within SEZs

Goods from SEZs sent for value addition to the domestic tariff area and returned to the SEZs thereafter

Services that provide value addition to a product within the SEZs

ESDM & IT Support

Relaxation in Floor Area Ratio (FAR) shall be permitted up to 100% for IT units and in all IT parks

The IT software industry will be totally exempted from payment of sales tax. The applicable rate of sales tax on computers and computer peripherals shall be reduced to 0.25%

Special incentives have been proposed for creation of mega projects/mother units in the ESDM sector at par with incentives proposed in extremely backward blocks (D Category)

50% top up infrastructure support by the state over and above those admissible under the DEITY Scheme

49

Case studies Seeing is believing, which is why - rhetoric and policy reforms aside - we highlight some particularly relevant and recent successful German FDI ventures into India. Compiled with information shared by the Indian Equity for Brand Foundation (IEBF), we learn from these case studies the unique advantages and opportunities that India has to offer for German investors, how they were established, the manner in which they grew, what future plans lay in store and their keys to success. From a German manager's perspective, the insights that these case studies offer are useful, as they bring the vision of conducting business in India a little closer to mind from a practical perspective. With the recent FDI reforms and a plethora state specific incentives, we illustrate through four case studies why India is a truly attractive destination for German investors.

50

Case Study 1 - WÜRTH

Background

The Würth Group is the world market leader in its core business: the trade in assembly and fastening material. The group currently consists of over 400 companies in more than 80 countries, and has over 69,000 employees on its payroll. 31,000 of these employees are full-time sales representatives. According to its preliminary annual financial statement, the Würth Group generated total sales of €11.05 billion in the business year 2015. 42 Globally, Würth is a direct sales organization, which services a variety of industries and sectors, and caters to their assembly and maintenance needs. Its key divisions are automobiles, metals and wood.

Indian operations

The Würth Group started India operations in 1994-95 after the Indian economy was partly liberalized in Mumbai (1994). It was followed by three more companies, Bettina Wuerth India in Kolkata (2003), Reinhold Wuerth India in Chennai (2003) and Marion Wuerth India in Delhi (2004). In order to further strengthen and maximize the group’s growth, the four companies merged together as Wuerth India Pvt Ltd in January 2015. Currently the group has 41 branches spread across the country that include sales offices and warehouses to ensure better market penetration in close proximity to its large Indian customer base. Over the past decade, the number of employees increased from 26 to 1,100 in 2014. 43

Initially the group was largely focused on the automobile sector, especially in the direct aftermarket segment, which includes authorized and private garages. The fast-growing automobiles market and the potential for aftermarket and assembly products for the sector were the main reasons for the group to enter India. Recently, there has been a focused approach to key account sales (i.e. OEMs), with Tata Motors becoming a larger customer.

The product range includes fastening and connection parts, chemical technical products, electrical, pneumatic and hand tools and retrieval systems. The group’s expectations about India have been exceeded in recent years, encouraging them to introduce their metal, construction, hospitality and wood product ranges in India as well. Though the company found India challenging in the initial years of operations due to import restrictions and low level of indigenization of products, today India is a key growth market for the company. With the relaxation of import duties and increased product localization, there has been a significant growth in recent years.

From the Würth Group’s perspective, within the Asia region, China is looked at as being a high volume, low cost manufacturing location, whereas India is perceived as relatively higher skilled with a potential for higher quality workmanship.

51

Keys to success

The Würth Group sees the keys to success in India to be the ongoing growth of Indian economy, low manpower costs and an increasing degree of product localization. Other important factors include the group’s ‘multiplication strategy’ and its sales force incentive schemes. Through these policies, the group has generated a healthy competition amongst Würth companies within the country. The profitability of Indian operations is higher compared to other countries. As a direct sales organization, manpower costs of the sales force personnel form a significant proportion of its overall costs. In India, these costs are only 22% of overall costs (in comparison, in Japan’s Würth Group companies, manpower costs account for 50-60%). Würth feels comfortable doing business in India as India is a democratic country with a well established banking and judicial system.

Future plans

India is perceived to be a high-growth market over the next 5 years, and significant investments are being planned. While China received a lot of attention 5 years ago, India is receiving similar attention today, and specific growth plans for India are being made. The Würth Group is projecting to have employee turnover of 14,750 by 2020 in order to ensure an excellent service all over India. The plan is to grow organically. 44

Würth: At a glance

Started India operations in 1995-96 and currently there are 41 branches of the Würth Group in India.

For Wurth, India is a key growth market and Indian operations have exceeded the parent’s expectations.

Factors for success: Growth of Indian economy, low cost of labor and increasing degree of product localization.

Future plans: Organic growth, more investments and ramp up the sales force to 14,750 by 2020. 45

52

Case Study 2 - STEAG

Background

STEAG encotec GmbH, headquartered in Essen, is a wholly owned subsidiary of STEAG AG which in turn is one of four divisions in the RAG Group. The company has more than 60 years of experience in power generation and plant construction, and has project experience in more than 40 countries, with around 6,400 employees globally. STEAG encotec is a specialist in planning, construction and operation of power plants, energy and environmental protection systems, as well as being a supplier of related IT systems and services. The company had sales of €324 million in 2014. Apart from STEAG’s business in power generation the group is also involved in coal mining and trading, chemicals (under the name Degussa) and real estate. 46

Indian operations:

STEAG encotec (India) Pvt Ltd was incorporated in the year 2001 as a wholly owned subsidiary of STEAG encotec GmbH (Germany). Indian operations have approximately 1,000 employees working in Delhi, Hazira and other sites. STEAG in India has its activities spread across three areas: engineering services, operation and maintenance of power plants and IT. The company provides inputs for simulation of plant conditions using its software Ebsilon, as well as software to optimize the efficiency of power plants. Its customers in India include large public sector undertakings such as Bharat Heavy Electricals Ltd. (BHEL) and National Thermal Power Corporation (NTPC).The company also has a strong IT division. Its engineers and developers do software development work, not just for India, but also its German parent.

STEAG has recognized India as a key growth market. India has planned significant investment in power infrastructure over the next decade, and this offers opportunities to the company for providing its services. 47 The power business contributes to a large part of the engineering sector, and with an estimated 900 GW of unmet electricity generation demand to be faced by 2032, STEAG’s engineering sector is likely to be a major beneficiary. The company sees its current operations in India as a means to understand the Indian market, and as a necessary prelude to making decisions on investing directly in power plants in India.

Keys to Success

STEAG has been leveraging its global experience in the power sector for providing services in India. This global experience enables the company to better understand the growing requirements of Indian clients compared to its competition, and to provide customized solutions. Clients appreciate the company for this expertise, and this has contributed to the firm’s success in India.

STEAG India has participated in international projects in sync with the parent company, and benefits from the provision of key resources for their projects including support for the IT products of its sister company STEAG KETEK IT GmbH. The company has leveraged the skilled resources available in India, not just in its

53

operations in India but also in other foreign locations. The parent company supports the Indian subsidiary with technical backstopping and training where necessary.

Future plans

With growth averaging 8% over the last few years, the economy of India is booming. STEAG estimates that an advanced and reliable infrastructure could even boost Indian growth by two additional percentage points. Because expansion of infrastructure has been unable to keep pace with the speed of development, however, action is urgently needed to pick up the pace. The Indian government is planning to invest some €450 billion in its domestic infrastructure post-2015. A major portion of the scheduled investment will go to the energy sector. 48

STEAG encotec India aims to grow in all the three segments of its operations in the future. The company believes that India has significant growth potential which the company can tap. It sees India as a long-term investment destination and wants be a long-term player in the sector. STEAG’s Indian subsidiary is also planning to integrate itself more actively with the international activities of the parent, and to leverage its more than 60 years of experience in the power generation sector.

STEAG: at a glance

Started Indian operations in 2001: currently there are 1,000 employees.

For STEAG India is a high-growth market, a source for high skilled staff and a long-term story.

Factors for success: Leveraging global experience and the technical knowledge of local manpower.

Future plans: Tap into the energy demand for India, expand advisory roles.

54

Case Study 3 - ZEPPELIN

Background

ZEPPELIN MOBILE SYSTEME GmbH (ZMS) is headquartered in Friedrichshafen, and is one of the leading shelter system manufacturers in the world. ZMS is a descendant of Zeppelin GmbH Group, originally Zeppelin Luftschiffbau, which manufactured airships for transatlantic travel during the period between World War I and World War II. Apart from shelter systems, ZMS manufactures mobile medical systems, mobile communication systems, mobile service systems, mobile de-mining systems and vehicle bodies and special conversions. It is certified to DIN EN ISO 9001 and ANS/ASQC 094, possesses several welding approvals and various approval certificates, including DIN 18800-7, DIN 729 and DIN 4113 for metal-active-gas welding.

Indian Operations

Zeppelin Mobile Systems India Ltd. (ZMI), located in the industrial town of Noida is a 74% subsidiary of Zeppelin Mobile Systeme GmbH, Germany. ZMS entered India in 1994 as it saw significant potential in the Indian market. ZMI was formed to sell products manufactured by ZMS, primarily shelters for telecommunications and defense. The company was essentially a trading office for ZMS for the first three years, obtaining orders for shelters from Indian defense public sector undertakings (PSUs). In 1997 ZMI established a factory to supply indigenous components along with imported panels to its Indian clients. Soon it started manufacturing complete shelters in India. ZMI designs and commissions sophisticated polyurethane foam based shelters and structures for the telecommunications sector and shelters for radar for the defense sector. It is one of the top two telecommunications shelter manufacturers in India. ZMI also deals with other products requiring the use of polyurethane foam, such as refrigerated bodies, ambulances and mobile hospitals.

Zeppelin Silos & Systems GmbH (Friedrichshafen) acquired the Indian company Alpha in January 2009, via its Indian subsidiary Zeppelin Systems India Pvt. Ltd. “With this acquisition,” said Kerstin Kleemann (Managing Director of Zeppelin Systems India Pvt. Ltd), “Zeppelin continues its successful strategy of thinking global and acting local.” 49 As result of this acquisition, Zeppelin is now able to offer its clients additional products and services in Zeppelin's traditional fields of expertise, such as silos, solids handling systems and engineered solutions for logistic operations.

55

Keys to Success

ZMI considers adherence to quality, technological support from the parent and localizations of designs to suit the Indian environment as key reasons for success in India. Other reasons include continuous on-time delivery and superior customer service.

ZMS provides its Indian subsidiary complete technological support through its well-established design center, large well-equipped facility and superior technology. According to company sources, Zeppelin shelters come with the company’s authenticated certification and require practically no maintenance. The company considers superior product quality a key reason for receiving orders from all of India’s biggest telecommunications players. Zeppelin India is an ISO - 9001-2000 Company.

ZMI manufactures shelters in India tailored to its clients’ requirements. This has helped it attain the preferred supplier status from some of the big telecommunications players in India like Bharti, Reliance, Hutch and Idea. Similarly, refrigerated/insulated bodies are being manufactured as per original German design features, but suitably tropicalized for Indian weather and road conditions.

Zeppelin’s quality and sturdy design have enabled ZMI to attract export orders as well. Its first export order was from Kuwait, where the company won an order for shelters despite facing competition from four other local shelter suppliers. In the last few years, the company added Saudi Arabia, Bahrain, Maldives, Bhutan and Afghanistan to its export list. Also, ZMI has started receiving enquiries about its products from players in Kenya, Mali, Bangladesh and other new locations. 20% of the company’s revenue in the year 2005 - 06 came from exports.

Future plans

ZMI plans to achieve significant growth in the domestic Indian market, in addition to seeking new markets to Southeast Asia. The company aims to achieve growth by introducing better technology and new products. ZMI has entered into manufacturing insulated bodies. These bodies are suitable for carrying perishables such as ice cream, chocolates, meat, flowers and medicines for the cold chain industry. In addition the company plans to enter into the mobile hospitals market, providing medical aid to far-flung villages which cannot be not served by high tech health centers after natural disasters like the earthquakes.

Zeppelin India: At a glance

Started operations in 1994. Currently there are 65 employees providing high quality engineering design services for shelters, chemical, petrochemical,

56

fertilizers, oil and gas, pharmaceutical and other process industries in the areas of process design and basic engineering, detail engineering, HSE management and special projects.

Factors for success: Commitment to quality, strong parent-company support, on-time delivery, customer service and products tailored to suit client requirements.

Future plans: Grow in domestic Indian market as well as expand into southeast Asian markets. Introduce superior technology for shelters and new products like refrigerated bodies and mobile hospitals.

57

Case Study 4 - BURGMANN

Background

Burgmann GmbH is one of the 10 independently operated business groups in the Freudenberg group, which was established in 1884. The product range of Burgmann includes mechanical seals, gas-lubricated seals, seal supply systems, magnetic couplings, stuffing box packaging, automotive seals, rotary kiln sealing systems, gas-lubricated mechanical seals for pumps, agitators and compressors. Burgmann has 16 sales offices in Germany and more than 40 subsidiaries and joint ventures globally. The company had 3,200 employees and a turnover of around US$450 million globally in 2004.

Indian Operations

Burgmann India Private Limited was established in 1994 as an Indo-German joint venture between A.K. Engineering of Balwa Group and Burgmann GmbH. The Indian company manufactures state-of-the-art mechanical seals and sealing systems for industries such as refineries, petrochemicals, power, aerospace and marine. Burgmann India has a manufacturing plant in Mumbai and 16 sales and service centers across the country.

Burgmann considers India to be one of the most important markets in the world today in terms of global outsourcing, manufacturing and design. The growing Indian market, availability of skilled human resources and the stable political system in the country are some of the key factors that the company considered before deciding to invest in India. When it comes to its relationship with its local partner, the company has been realistic in its expectations and has placed a high level of trust and commitment on the partner firm. Growth of the company in the last 10 years has exceeded the expectations of the parent. The company has been successful in making India the manufacturing hub of critical components for Burgmann subsidiaries across the globe.

Burgmann has an excellent track record of executing orders with the highest precision in the shortest possible time. According to Umar Balwa, Managing Director of Burgmann India, “The Indian subsidiary is one of the most respected companies in the whole Burgmann group. The company is also considered to be the most dynamic and effective subsidiary.” 50

Keys to success

Burgmann is one of the world leaders in their field, and the company invests a considerable amount of money annually in R&D. Burgmann has transferred this technology and knowhow to its Indian subsidiary. This technology transfer has helped the company to offer products which are superior in quality and performance compared to that of competitors. Burgmann has invested in a custom-made Enterprise Resource Planning (ERP) package to increase overall efficiency. Using the package, orders are monitored at every stage - from the enquiry level to the

58

final dispatching stage. This ERP package has brought about considerable efficiencies within all the key processes and functions. Commitment from the parent company to India is critical to the Burgmann group’s global strategy. Burgmann India also receives considerable assistance from the parent for employee training. To improve performance, 20 employees from India are given special training every year in Germany.

Future plans

Burgmann India has set ambitious targets for the future. The company plans to become the largest subsidiary in the Burgmann group. It also plans to make Indian operations the headquarters of Asia Pacific region.

Burgmann India: At a glance

Started manufacturing in India in 1994 as a joint venture between A.K. Engineering of Balwa Group and Burgmann GmbH.

For Burgmann, India is one of the most respected operations within the group.

Factors for success: Dynamic Indian partners, technically skilled manpower, superior technology, commitment from the parent company, ERP implementation.

Future plans: Become the largest subsidiary in the group, and make India operations the headquarters for Asia Pacific region.

59

Conclusion With all eyes on India, immense responsibility rests upon the present Indian regime to live up to the expectations of foreign investors. The flurry of major reforms introduced by the newly elected BJP government needs to be backed up with solid support on the ground. Desire for improved physical infrastructure, an easily understood uniform single tax system, greater ease in doing business and a more proactive transparent approach by bureaucrats will go far in attracting further FDI inflows into India. Nevertheless, the India of today has come leaps and bounds with respect to courting FDI and making foreign investment a top priority.

The five states of Maharashtra, Tamil Nadu, Karnataka, Gujarat and Delhi & NCR have historically played host to more FDI than the other remaining 24 states of India, and are best poised to continue doing so given the variety of incentives and ambitious goals that state and the federal governments have set forth.

With the wealth of opportunities that recent liberal Indian FDI reform has created, the foundation has been laid for German firms specializing in a host of highly technical business activities to find sustainable lucrative prospects in India. Granulation of specific high-tech sectors paint a compelling picture for German FDI in ESDM, machine tools, heavy machinery, process and plant equipment, textile machinery and the earthmoving and mining industry. Through the successful planting of seeds of investment in Indian soil today, German firms can be confident of positive returns for many years to come through the dual spheres of serving the domestic Indian growth story and utilizing India as a competitive manufacturing hub.

With Germany’s strength in technologically advanced manufacturing and path breaking R&D, as well as India’s abundance of skilled manpower and intense need for innovation across multiple segments of the manufacturing base, a strong foundation for bilateral co-operation exists between the two nations. The effect of initiatives such as “Make in India’, “Skill India” and “Smart Cities” has the potential to reap handsome rewards for investors who are savvy enough to partake.

60

Appendix About Geovadis

Our mission is to provide refreshing new solutions to the traditional world of FDI.

Geovadis offers FDI consulting services, such as strategy, marketing or lead generation support to investment promotion agencies, and also helps companies investing abroad with various market entry related activities like export promotion, location analysis, site selection or M&A.

While we deeply believe in the strength of our traditional hands-on approach to FDI, we differentiate ourselves from our competition by combining these methods with state-of the-art tools and solutions.

Founded in 2012, with team members in Spain, Finland and Germany, Geovadis is a young and dynamic company striving to change the way FDI is done.

Sources

1 Department Of Industrial Policy & Promotion, QUARTERLY FACT SHEET, FACT SHEET ON FOREIGN DIRECT INVESTMENT (FDI) From APRIL, 2000 to DECEMBER, 2015 2 Financial Times, http://www.ft.com/intl/cms/s/3/fdd0e3c2-65fc-11e5-97d0-1456a776a4f5.html#axzz466a7fy6P,September 29, 2015 3 Economic Times, http://articles.economictimes.indiatimes.com/2016-01-07/news/69590042_1_global-growth-7-8-growth-world-bank-group, Jan 7, 2016 4 Reserve Bank of India, https://www.rbi.org.in/scripts/FAQView.aspx?Id=26, Updated upto February 10, 2015 5 Economic Survey of India, 2015-2016, February 26, 2016 6 Indian Express, http://indianexpress.com/article/business/business-others/govt-initiatives-help-revive-FDI-inflow-after-3-year-slump-up-54-in-fy15/, August 31, 2015 7 Economics Times, http://articles.economictimes.indiatimes.com/2016-01-26/news/70091743_1_private-equity-deal-deal-activity-gdp, January 26, 2016 8 DIPP 9 Fin.,Banking,Insurance,Non Fin/Business,Outsourcing,R&D,Courier,Tech. Testing and Analysis, Other 10 Source: RBI Department of Industrial Policy & Promotion Govt. Of India 11 FDI ROUTE: RBI-automatic approval, FIBP-required govt. approval 12 Press Note No. 1 (2005 Series), http://commerce.nic.in/pressrelease/pressrelease_detail.asp?id=1722, 12th January 2005: Prior approval of the Government would be required only in cases where the foreign investor has an existing joint venture or technology transfer/trademark agreement in the ‘same’ field.

Even in cases where the foreign investor has a joint venture or technology transfer/ trademark agreement in the ‘same’ field prior approval of the Government will not be required in the following cases:

1. Investments to be made by Venture Capital Funds registered with the Security and Exchange Board of India (SEBI); or

2. where in the existing joint-venture investment by either of the parties is less than 3%; or 3. where the existing venture/ collaboration is defunct or sick. Insofar as joint ventures to be entered into after the date of this Press Note are concerned, the joint venture

agreement may embody a ‘conflict of interest’ clause to safeguard the interests of joint venture partners in the event of one of the partners desiring to set up another joint venture or a wholly owned subsidiary in the ‘same ‘ field of economic activity.

These guidelines would come into force with immediate effect. 13 SEZs are regions within countries where tax is reduced, bureaucratic regulation is lowered, and incentives are offered so that more companies are attracted to the area. Numerous financial and regulatory incentives are provided to developers of SEZs, as well as units within these zones. In addition to the incentives offered by Central SEZ Policy, state policy offers several additional incentives to the units within these zones. 14 Registrar of Companies Department of Company Affairs Ministry of Finance

Disclaimer: Market Opportunities in India for German Enterprises is a Geovadis report. Lead author: Kunal Saigal, as part of his MBA program study at the IBUH School of Business, Berlin. Copyright © 2016 by Geovadis All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of Geovadis, except in the case of brief quotations, and only if accompanied by proper source citation. For permission requests, write to Geovadis, addressed “Attention: Permissions Coordinator,” at [email protected].

http://articles.economictimes.indiatimes.com/2016-01-07/news/69590042_1_global-growth-7-8-growth-world-bank-group

http://articles.economictimes.indiatimes.com/2016-01-07/news/69590042_1_global-growth-7-8-growth-world-bank-group

https://www.rbi.org.in/scripts/FAQView.aspx?Id=26

http://indianexpress.com/article/business/business-others/govt-initiatives-help-revive-fdi-inflow-after-3-year-slump-up-54-in-fy15/

http://indianexpress.com/article/business/business-others/govt-initiatives-help-revive-fdi-inflow-after-3-year-slump-up-54-in-fy15/

http://articles.economictimes.indiatimes.com/2016-01-26/news/70091743_1_private-equity-deal-deal-activity-gdp

http://articles.economictimes.indiatimes.com/2016-01-26/news/70091743_1_private-equity-deal-deal-activity-gdp

http://commerce.nic.in/pressrelease/pressrelease_detail.asp?id=1722

61

15 Reserve Bank of India Act, 1934, https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RBIAM_230609.pdf, Reserve Bank of India Act, 1934 is the legislative act under which the Reserve Bank of India was formed. This act along with the Companies Act, which was amended in 1936, were meant to provide a framework for the supervision of banking firms in India. 16 Make In India. Foreign Direct Investment, http://www.makeinindia.com/policy/foreign-direct-investment 17 Uttar Pradesh Electronics Department Manufacturing policy 2014, http://deity.gov.in/sites/upload_files/dit/files/UP%20Electronics.pdf 18 Defining the role of Government in Trans-Nationalization efforts of SMEs in machine Tool Sector, April 2008, http://www.dsir.gov.in/reports/ittp_sme/MachineTools310708.pdf 19 VDW-German Machine tool Builders’ Association, http://www.dsir.gov.in/reports/ittp_sme/MachineTools310708.pdf 20 Ministry of Heavy Industry & Public Enterprise, published report 2012-2013 21 Indo-Italian Chamber of Commerce, June 2010, http://www.legemcity.com/pdf/9.pdf 22 Department of Heavy Industry, 12th FYP Working Group Report on Capital Goods, http://dhi.nic.in/writereaddata/Listofeligibletechnologiesunderdhicgscheme.pdf 23 India Brand Equity Foundation, http://www.ibef.org/industry/indian-electrical-machinery-industry-analysis-presentation 24 India Electrical Equipment Industry Mission plan 2012-2022, 7th October 2011. 25 This is not the complete list and any queries related to items falling under the scope of ESDM sector will be decided by the Department of Electronics & Information Technology, Ministry of Communications and Information Technology. 26 Confederation of Indian industry, 7-8th March 2016, http://www.happeningharyana.org/wp-content/uploads/2016/03/Sub%20Committee%20Brochure%20-%20IT%20ITeS%20ESDM.pdf 27 Department of Electronics & information Technology ( Deity), http://deity.gov.in/content/fact-sheet-esdm-industry 28 Embassy Of India, Berlin, Press release, https://www.indianembassy.de/pdf/Press_Release_Smart_Cities_Mission_Statement.pdf 29 Make In India, http://www.makeinindia.com/article/-/v/defense-indigenisation-the-way-forward 30 The Indian Express, http://indianexpress.com/article/india/india-news-india/the-chosen-six-indian-cities-european-fix/ 31 “The Bird of Gold” McKinsey & Company, www.mckinsey.com/.../McKinsey/.../The%20bird%20of%20gold/MGI_Ris… May 3rd, 2007. 32 UNFPA-Demographics of Ageing population India, http://www.isec.ac.in/BKPAI%20Working%20paper%201.pdf 33 AT Kearney confidence Index, https://www.atkearney.com/research-studies/foreign-direct-investment-confidence-index/2015 34 The Hindu, 27th February 2016, http://www.thehindu.com/news/national/karnataka/karnataka-ranks-third-in-FDI-flow-economic-survey/article8287373.ece 35 Indo German Investments and Co-operations, Annual Review 2015, page 103. 36 Electronic manufacturing Cluster,-Tamil Nadu, November 2015, http://environmentclearance.nic.in/writereaddata/FormB/TOR/PFR/13_Nov_2015_131902113YZ9F6Y9PDETAILEDPROJECTREPORT.pdf 37 Industries Department report Govt. Of Tamil Nadu, 2014, http://ficci.in/SEDocument/20304/TN_Industrial_Policy_2014.pdf 38 Enterprises Promotion Policy-Workshop on Industrial reforms, 2015,http://www.happeningharyana.org/Intro_HaryanaEnterprisesPromotionPolicy2015.pdf 39 Uttar Pradesh Electronics Manufacturing policy 2014, http://www.uplc.in/docs/UPECL-1.pdf 40 Note: The above incentives shall also be applicable to the e-waste recycling companies which are going to be established in the EMCs. 41 Global Investors Summit Gurgaon 7-8th March, 2016,http://www.happeningharyana.org/wp-content/uploads/2016/03/Sub%20Committee%20Brochure%20-%20IT%20ITeS%20ESDM.pdf 42 Wurth Group, https://www.wuerth.com/web/en/wuerthcom/unternehmen/zahlenundfakten/zahlen.php 43 Wurth India, https://www.wuerth.in/en/globaltemplate/company/wuerth_india/wuerth_india.php 44 https://eshop.wuerth.in/en/US/INR/ 45 http://www.paulwurth.com/The-Group/International-Presence/Asia/PAUL-WURTH-INDIA-PVT.-LTD 46 Steag press release, 21st April, 2015, http://www.steag-energyservices.com/es_presse_detail+M5e840642ee8.html 47 Steag India, http://www.steag.in/about-us 48 Steag Enotec India, http://www.steag-energyservices.com/indien+M52087573ab0.html 49 ZEPPELIN systems, http://www.zeppelin-india.com/company_history.html 50 CNBC Moneycontrol, http://www.moneycontrol.com/india/newsarticle/news_print.php?autono=237181&sr_no=1

https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RBIAM_230609.pdf

http://www.mckinsey.com/.../McKinsey/.../The%20bird%20of%20gold/MGI_Ris…









opportunities in india

Documents