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Macro Business Environment in India &Opportunities for Investment in Creative Industry
Ajay Shankar
Berlin, September 22, 2007
Largest Democracy
3
Stable Democratic System
Sub-continental Nation – Religious, Ethnic & Linguistic diversity
Federal structure:
– 28 states
– 18 languages
Multi-party system:
– Changes in government through elections both at Centre and state levels
– Coalition governments at Centre for over 10 years
– Strong independent judicial system
– Free vibrant, strong media (mushrooming growth in print as well as electronic media)
4
Stable Democratic System
Gradual liberalization
Industrial licensing dismantled
Trade liberalization – tariff/tax
reduction
Opening up of FDI
Government regulation to facilitation
Closed economy
Centralized planning
Government permission necessary for
Setting up industrial plant
Import of capital goods / technology
Expansion of capacity
Key sectors of economy reserved for
public sector only
1990s
Completion of integration with global
economy
Financial/capital markets reforms as
consolidation
Tariff down to 10%.
To reach ASEAN levels by 2010
Bilateral Comprehensive Economic
Partnership Agreements with EU,
Japan, ASEAN etc in pipeline
2000-2005Prior to 1990s
Democracy
– Gradual incremental policy changes
– Broad consensus across parties and civil
society.
India - a strong and vibrant economy
6
Macroeconomic stability
Trends in Inflation- WPI (%YoY)
Forex Reserves (USD bn)
Steady increase in forex reserves.
Moderate inflation over last few years
5.8 6.420 22
3242
75
141
192
220
0
50
100
150
200
250
FY
91
FY
92
FY
93
FY
94
FY
95
FY
96
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08 (till Aug)
13.7
4.45.4
0
2
4
6
8
10
12
14
16
FY
91
FY
92
FY
93
FY
94
FY
95
FY
96
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
Source: Reserve Bank of India, CMIE
%
7
Economy – high growth rates
Robust GDP growth
Real GDP growth (%)
5.3
9.4
0
1
2
3
4
5
6
7
8
9
10
FY
91
FY
92
FY
93
FY
94
FY
95
FY
96
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
7
5.15
10.9
11
0
2
4
6
8
10
12
14
FY
91
FY
92
FY
93
FY
94
FY
95
FY
96
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
Industry growth (%) Services growth (%)
Source: Reserve Bank of India, CMIE
(%)
8
Economy – high growth rates leading to increasing FDI
Increasing FDI trend
Source: RBI, DIPP Source: Reserve Bank of India
US
D m
illio
n
97
15726
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY
91
FY
92
FY
93
FY
94
FY
95
FY
96
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
Svgs & Cap Formation % of GDP ( Current prices)
23.1
26.3
33.832.4
0
5
10
15
20
25
30
35
40
Goss domestic savings Gross domestic capital formation
FY9
1
FY
92
FY
93
FY
94
FY
95
FY
96
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
•Trade liberalization: Import tariff to reach ASEAN level by 2010
• CEPA being negotiated with EU, Japan etc.
9
Credible independent Central Bank
Sound professional management
High Degree of autonomy of India’s Central Bank
Macroeconomic stability - Stable currency
Rupee exchange rate
Source: RBI
( IN
R /
US
D)
INR/ USD
17.94
31.3935.47
42.04
47.68 45.94 45.29
0
10
20
30
40
50
60
FY
91
FY
92
FY
93
FY
94
FY
95
FY
96
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
Going Forward
11
Going forward
Source: Goldman Sachs, Global Economic Paper No 152, 22 January 2007
India’s GDP (in US$ terms) will surpass that of the US before 2050, to make it the second largest economy
Goldman Sachs has revised its timelines for India’s GDP exceeding the G6’s GDP
New IndiaProjection
Italy France/UK Germany Japan US
Cars indicate when Indian US$GDP exceeds that of the Country
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Investment Opportunities
13
Large skill and intellectual capital base
Investor-friendly, liberal open-market economy
Strong emphasis on human resource development
– Skills missions being launched
– Up gradation of workers training
– Increased public spending in Education and health
Over 2.5 million graduates added every year
– Most of them English-speaking
– 300,000 Engineers
– 150,000 IT professionals
14
Firms in India – globally competitive
69% of survey respondents report higher profitability averages in India
than they do globally
RoE (2007) (%)
Taiwan
Thailand
Singapore
Philippines
Malaysia
Korea
India
Indonesia
Hong Kong
China
1.0
1.5
2.0
2.5
3.0
3.5
4.0
P/B
(20
07)
(x)
12 1 4 1 6 1 8 2 0 2 2 2 4 2 6 2 8
India’s ROE quite high relatively
Source: Prowess, CLSA Asia-Pacific Markets
P/B = Price to Book value
91 percent of MNC’s make profits in India compared to 45- 50 percent in China
15
Indian firms seek global reach
Tata Steel bought Corus Plc
Hindalco acquired Novelis Inc.
Suzlon Energy Ltd. acquired REpower
Dr. Reddy’s acquired Betapharm
United spirits acquired W&M
USD 12.1 billion
USD 6 billion
USD 1.6 billion
USD 0.5 billion
USD 0.5 billion
Acquisition made Tata Steel world’s
fifth largest steel producer globally
Acquisition made Hindalco the world's
largest aluminum rolling company
Acquired German’s third largest
generic companies
Acquisition made United Spirits world's
second largest spirit company
Acquisition made Suzlon world's third
largest wind power company
16
MNCs finding location of R&D in India : Increases global competitiveness
India- Attractive location for R&D
Large R&D facility of major MNCs
– Microsoft
– IBM
– ADOBE
– SAP
– Sony Ericsson
– Dell
– The DaimlerChrysler
– Boeing
– Texas Instruments
Creative Industries in India
Strength of Creative Industry
India’s strengths in the Creative Sector: Its diversity in terms of content. Its spread in terms of the market.
Rich tradition provides a store house of content. Advantage of a multi cultural, multi lingual, multi religious
pluralistic heritage that enables it to understand varied markets with ease.
Indian writers in English gaining international acclaim- Nobel Prize, Booker Prize
Films, literature, music that would appeal to a niche audience in Western as well as South East Asian nations are being produced.
FDI Policy in Creative Industry
Liberal policy with regards to FDI ushering the growth of Creative Industries.
• FDI up to 100% under automatic route in the Advertising industry.
• 100% FDI under automatic route in production and distribution of Films.
• FDI up to 26% is allowed through FIPB route in print media (newspapers & periodicals dealing with news/ current affairs).
• 100% FDI is allowed through FIPB route in publishing of scientific magazines/ specialty journals/ periodicals.
FDI Policy in Creative Industry …contd.
Liberal policy with regards to FDI ushering the growth of Creative Industries.
• FDI + FII up to 20% is allowed through FIPB route in broadcasting FM radio.
• FDI + FII up to 49% is allowed through FIPB route in cable network.
• FD + FII up to 49% is allowed through FIPB route in DTH.
• 100% FDI is allowed in uplinking of non-news and current affair TV channel.
• 26% FDI/FII is allowed in uplinking of news and current affair TV channel.
Initiatives in Creative Industry
Signing co-production treaties with other countries.
Tax incentives to investors investing in multiplexes.
Broadband has been introduced to create more demand for content.
Fight Against Piracy
Strong IPR Regime
TRIPS compliant IPR law
Public consensus on adherence to IP
Anti – piracy campaign over TV, radio and hoardings.
Aggressive measures against all forms of piracy will continue to help limit losses in distribution 1589 raids conducted in 2005
Promotion, public awareness and enforcement of copyright law.
Supporting International copyright conventions such as IFPI (International Federation of the Phonographic Industry).
Promoting digital technologies to assist rights owners.
Indian Film Industry
No. of Film Produced 1041(2005) Hollywood produces about 500 films per year
Industry expected to have a growth rate of more than 20% over next five years
Global spread in terms of the market A Karan Johar Film can find an audience in the affluent Indian
Diaspora in the UK and the US. Tamil Films find a niche audience in Malaysia and Singapore Bengali films, literature and music have an eager audience in
Bangladesh. India also has a growing young population that will spend freely
on entertainment.
Indian Television Industry
Number of Channels: Estimated 300 (2005)
No. of cable & satellite connected homes: 55 million (2005) Projected to grow 10.7 billion by 2010
The television industry is projected to grow @ 24% to reach US$ 10.7 billion in 2010
Huge potential in Regional Programming, Dubbed Foreign Content, Niche Channels, Digitalization of Cable TV
Music Industry
Indian music industry: Estimated US$175 million (2005) Projected to grow 185 million by 2010
338 licenses given for FM radio channels in 91 big and small towns to private players: major growth opportunity to music industry
Specialized music stores- such as Planet-M and Music World by music production companies coming up in towns and cities
Potential of growth due to deluge of FM radio channels, rising popularity of remixes, organized retailing in music, overseas potential.
Print Media
Reach of Print Media: 200 million
Reach of Newspapers: 176 million
Reach of magazines: 69 million
Size of the Indian print media industry : US$ 2.7 billion (2005) Projected to grow 4.8 billion by 2010
Growth potential due to rising literacy market, expansion from regional to pan India level by regional players
Thank You
www.dipp.gov.in