This reeport has been carryed out by the

Indo Italian Chamber of Commerce & Industry in Mumbay (India)

on november 2006

within the Project

“Friuli Venezia Giulia – India: Imprese e Conoscenza” realized by:

REPORT ON

MECHANICAL INDUSTRY IN INDIA

CONTENTS

SECTION A: MECHANICAL SECTOR ANALYSIS

1. SECTOR ANALYSIS

2. COMMON MISTAKES IN EXPORT TO INDIA

3. OBSTACLES

4. PARAMETERS OF COMPETITION

5. COMMUNICATION AND PROMOTION

6. PENETRATION IN THE MARKET

SECTION B: GENERAL OVERVIEW

7. INFORMATION SOURCES

8. IMPORT LEGISLATION

9A. BANKING SYSTEM AND EXCHANGE POLICIES

9B.METHODS OF PAYMENT

10. LOCAL JUDICIAL SYSTEM

11. POTENTIAL BUSINESS PARTNERS

12. RISK ANALYSIS

13. LEGISLATION ON INTELLECTUAL PROPERTY RIGHTS

14. LABELLING AND PACKAGING RULES

15. MAIN EXHIBITIONS

16. LOGISTICS

EXECUTIVE SUMMARY

The idea of India is gradually changing as number of countries showing interest to invest in India is increasing. According to an AT Kearney’s FDI Confidence index, India has displaced the US as the second most favored destination in the world after China. India attracted FDI at US$7.96 billion during the first half of FY06, as against US$2.38 billion during the same period in FY05, more than 3 times growth. India’s economy is predicted to be growing over 8% in 2006 and with a billion plus population India has its wings of varied culture and business/industry scenario across the country. At the backdrop of such characteristics prospective investors in any foreign countries will be interested to know ‘Doing business in India in engineering industry’. The study aimed at highlighting macro-economic indicators of the country with its risk analysis in terms of currency, non-collection of goods and non-payment. It also discusses obstacles that the prospective investors may face and appropriate marketing strategies that they should adopt to ensure smooth landing in the country which requires a good understanding of its geographies and associated culture and business environment, least but not the last the market dynamics. While engineering industry in India follows specific classifications of industries and its associated sub-sectors, industry sectors with their sub-sectors discussed here are not exactly according to classification followed in India. As a result some of the industry sub-sectors could not be discussed with adequate data/information. Approach taken for this study was to collect information/data from various authentic sources like industry associations, trade agencies and respective ministries wherever applicable. As far as policy/regulations are concerned respective ministries’ reports and guidelines have been referred and an attempt has been made to explain them appropriately as relevant they may be. Salient points which are key findings in this report are given below.

Challenges in the market is still to find the right partner, knowledgeable about local market and procedural issues for foreign industries investment in India and can formulate the right strategies with solid foundation for setting up manufacturing base as JVs as the FDI policy may stipulate in respective sectors

Tariffs (although tariff structure has been reduced considerably since economic

reforms but issues still remain in some specific sectors) and poor infrastructure still pose a serious challenge to FDI

In addition, heavily bureaucratic investment processes, poor IPR enforcement,

government inefficiency, and corruption have also discouraged foreign investors

Winning strategy overcoming the market entry barriers for setting up an establishment- a solid regional plan analyzing the local market demand and economics that work out to be feasible in producing in India and exporting to other countries in the world leveraging conducive economic factors that otherwise become an impediment in future growth. For example what auto majors are doing in India is the right winning strategy to move up in the business plan.

While marketing products distribution strategy can really make the difference; however merit has to be given after due diligence is done and a meticulous plan should be in place. Small distributors can really make a drastic improvement in sales growth where flexible marketing strategies play an important role

A joint venture company is generally formed under the Indian Companies Act of

1956 and is jointly owned by an Indian company and a foreign company. This type of arrangement is quite common because India encourages foreign collaborations to facilitate capital investments, import of capital goods and transfer of technology.

All industrial undertakings are exempt from obtaining an industrial license to

manufacture, except for (i) industries reserved for the Public Sector, (ii) industries retained under compulsory licensing, (iii) items of manufacture reserved for the small scale sector and (iv) if the proposal attracts location restriction

Being a buyer’s market from seller’s market promotion of products matters much.

The key to gaining rural market share is increased brand awareness, complemented by a wide distribution network. Rural markets are best covered by mass media - India’s vast geographical expanse and poor infrastructure pose serious challenge for communication and hence emphasis must be given in communication problems to be really effective in selling to rural market which is opening up widely for some sectors like consumer electronics and home appliances.

India is still not holding its laws high for protecting copyright issues. As a result

cases of counterfeiting and violation of copyright act happens and probably judicial system is still not being able to curb the menace. Adjudication of cases is extremely slow.

Logistics play an important role in distributing products to all corners of the

country. Due to its vast territory challenges in implementing a smooth supply chain model is really challenging and hence outsourcing to third parties is very common and an useful and effective strategy to reach market place just in time. The study reveals some of the sectors with its end user sub-sectors as very much potential in terms of opportunities for foreign investors and they are: Automotive components (including high precision machine tools and fasteners), food processing machinery like cold chain as the retail industry is booming, commercial refrigeration, optical instruments and precision laboratory measuring equipments, lamps and related illumination parts, aeronautical industry (JVs with Indian airline companies for aircraft maintenance) and special purpose machines

SECTION A: SECTOR ANALYSIS

1. SECTOR ANALYSIS Sector 1: Mechanical Components

Definition: A mechanical component is a part/sub-system used in the assembly of mechanical systems/products. Type of Products: Components such as fan guards, heat sinks, clips, hinges, castors, shielding, stamping, card guides, injection mouldings, extrusions, brackets and general parts for electro-mechanical systems belong to this industry segment. Use: Mechanical components find wide usage in numerous industries ranging from agricultural industry to aero-space industry. These products are largely used as inputs to the capital goods industry. Hence, the demand for this sector depends on the demand for the capital goods industry. Overview Classification: For the purpose of this study, mechanical components are classified as given below, suggested by Indo-Italian Chamber of Commerce and Industry (IICI). However, the industry classification is not rigid as there may be overlapping of segments. Classification of Mechanical Components • Mechanical parts and sets (metal manufacturing on iron and non-iron alloys, stainless steel and aluminium) • Various mechanical components • Precision components • Connectors, pistons, special screws • Special equipment Industry Size & Trends The table given below presents industry size and trends by sub-segments

Industry Size & Trends Sub-segment Market size (Rs bn)

FY 2006 Market size (Rs bn) FY 2005

Growth over FY 2005

Mechanical parts and sets

107.45 81.61 31.67

Mechanical 9.03 8.26 9.3

components production Precision components 8.7 7.08 22.8 Connectors, pistons, special screws

444 338.52 31.16

Special equipment 58.3 53.00 10 Total 627.48 488.47 28.46 Source: Estimate by Cygnus Research

Sub sector: Mechanical parts and sets (metal manufacturing of iron and non-iron alloys, stainless steel and aluminium) Mechanical parts and sets segment consists of Castings and Forging Industry and Seamless Steel Pipes & Tubes.

Indian Castings and Forging Industry

Type of Products This sector includes low-tech items like castings and forgings. Use of the Products Casting products constitute essential intermediates for automobiles, industrial machinery, power plants, chemical, fertiliser plants and other engineering applications. Overview Since end of 2002, the industry picked up momentum as steel industries gradually was moving up. In 2004-05, production increased by 26.9% from 732 thousand tonnes to 929 thousand tonnes, while exports increased by 24% from US$250m to US$310m. Capacity utilisation also improved considerably from 40-50% in previous years to 85% of the additional capacity added during the last two years (1.5m approx) inclusive of overseas acquisitions. This was largely due to the revival in demand from the automotive sector and particularly the passenger car segment, which recorded an excellent performance in both domestic market and exports.

In the year 2005-06, six major companies—Ahmednagar Forgings Limited, Amforge Industries Limited, Bharat Forge Limited, Electrosteel Castings Limited, Mahindra Forgings Limited and Shree Ganesh Forgings Limited—recorded estimated sales of Rs36.95 billion, up by 26.52% over the previous year.

Indian Castings and Forging Industry Production & Export Trend: 2003-06 2003-04 2004-05 2005-06 2006 over 2005 % ChangeProduction (‘000 tonnes) 600 732 929 26.9Export (US$m) 178 250 310 24.0Source:http://www.indianforging.org/

Major Markets The industry’s major export markets are the US, Europe and China. However, only 30-35 manufacturing units are directly engaged in exports at present. Outlook The future looks encouraging for castings and forgings industry in terms of the expected surge in global demand. In 2006-07, production is expected to touch 1180 thousand tonnes while exports are expected to touch US$388 m. As a result of liberalisation, more MNCs have entered the domestic automobile market. This has opened up more business opportunities for castings and forging industry.

Seamless Steel Pipes & Tubes Type of Products This sector includes steel pipes and tubes (including stainless steel). Use of the Products In oil sector, seamless steel pipes and tubes are extensively used as line pipe, casing pipe, production tubing, drill pipe etc. In non-oil sector, these are used in a number of important industries like power equipment, automobiles, chemical plants, fertilisers, petrochemicals and industrial machinery. Overview The size of Indian seamless tube market is around 0.5m tonnes. In India, there are six manufacturers of seamless steel pipes and tubes. ISMT Limited, one of the major companies is the largest integrated manufacturer of specialised seamless tubes in the Asia-Pacific region. The industry is able to manufacture tubes up to 245mm OD and is, by and large, meeting complete requirement of bearing and high-pressure boiler industries. With the expected substantial growth in the power and automobile sectors in the future, the demand pattern may change in favour of these two sectors. In the oil sector, three units have got American Petroleum Institute's (API) certification for manufacture of line and casing pipes. Oil sector accounts for around 60% of total requirement of seamless steel pipes. Bearings, automobile and boiler sector contribute around 30% demand.

Welded Steel Pipes & Tubes Welded steel pipes and tubes consist of a wide variety of pipes and tubes like line precision pipes, tubular poles, Hamilton poles, API pipes, electric poles and light-weight galvanised pipes for sprinkler irrigation. At present, there are about 123 units engaged in the manufacture of welded steel pipes and tubes in the organised sector.

India’s manufacturing capacity of these types of pipes and tubes are adequate. The capacity utilisation for the manufacturing of welded pipes has improved substantially. Three-layer, polyethylene-coated pipes used in the oil sector are also being manufactured in the country. Stainless Steel Welded Pipes & Tubes Stainless steel pipes find application in petrochemical, fertiliser, power and nuclear plants along with other corrosion-resistant applications. Mother pipes are being manufactured by only two units and other units are engaged in the manufacture of cold drawn seamless pipes and welded stainless steel pipes. Adequate domestic capacity is available to meet the requirement of the industry in general. However, a large part of supply to industries is from unorganised market as well. Major Markets The industry’s major export markets are the US, Europe and Far East.

Sub sector: Mechanical Component Type of Products This sector includes components / machine tools produced using non-NC machines.

Use of the Products

These are used as inputs in capital goods industry. Overview The following table gives the performance of the segment for the last three years ending March 30, 2006.

In 2005-06, Non-NC Mechanical Component output was worth Rs8723.95m, up by 19.99%. Though production in 2005-06 was little lower than 2004-05 but price realisation was little more due to increase in steel pricess.

Non-NC Mechanical Component Production Trend: 2003-06

Production 2003-04 2004-05 2005-06 2006 over 2005 % Change

Quantity (numbers) 5,047 3,406 3,370 -1.06 Value (Rs m) 5,508.161 7,270.524 8,723.95 19.99 Source: Indian Machine Tools Mfrs. Association( http://www.imtma.in/)

Sub sector: Precision Components & Equipment

Type of Products This sector includes components / machine tools produced using NC machines.

Use of the Products

These products are used as inputs in capital goods industry. Overview

This segment is growing rapidly due to growth in automobile sector along with its component manufacturing facilities. Trend in the NC mechanical component production during 2003-06 is givfen in the following table.

In 2005-06, NC mechanical component output was worth Rs. 4432 m, up by 17.48% over 2004-05.

Sub sector: Connectors, Pistons, Special Screws (Auto Components other than electrical parts and other components)

Type of Products This sector includes fasteners (nuts, bolts, and screws), bearings and other auto components like pistons (including industrial pistons).

Use of the Products

These products are used as inputs in capital goods industry.

Overview

Fasteners are broadly divided according to consumer segments—automobile sector and industrial sector. Industrial fasteners are used in varied applications like construction, railways and manufacturing sector. Total demand for fasteners is almost

NC Mechanical Component Production Trend: 2003-06

Production 2003-04 2004-05 2005-06 2006 over 2005 % Change

Quantity (numbers) 2880 3755 4432 18.03Value (Rs m) 5533.37 7971.67 9364.89 17.48Source: http://www.imtma.in/

equally divided between automotive and industrial sectors. Thus, automobile sector is the largest end-user segment for fasteners.

Industrial Fasteners

Fasteners include production of nuts, bolts and screws. They are made from cold heating steel and carbon steel. A significant quantity of raw materials has been imported; however, the contribution of imports has been decreasing during the past few years. Market size and segmentation: Total market size of the fastener industry is estimated at around Rs15 billion in revenues. Fasteners market can be classified into mild steel (MS) and high tensile (HT) fasteners. MS fasteners constitute about 30% of the market size and are mainly produced by the unorganised sector, while HT fasteners are produced primarily by the organised sector. HT fasteners are further classified into standard fastener and specialised fastener segments. Specialised fasteners are mostly customised according to the requirements. There are a few thousand types of fasteners owing to the lack of standardisation in the industry. Different automobile companies have divergent specifications while industrial fasteners have numerous applications and requirements. It leads to a greater contribution from the unorganised industry. It is estimated that the unorganised sector contributes to about half of the fastener market size. Industrial Bearings Bearings are used to minimise friction between moving parts and find application in rotating parts of virtually all machines and automobiles. Bearings are produced in various sizes and shapes with the smallest bearing weighing only a few grams to the largest one weighing a few tonnes. Automobile sector is the major demand driver for the bearing industry and constitutes almost 50% of the total demand in value terms. The demand from the automobile sector is almost equally divided between OEM demand and replacement demand. Market Size and Segmentation: The total size of the bearings market by revenues is estimated in the range of Rs25-30 billion. The bearings industry consists of bimetal bearings and anti-friction bearings. The anti-friction bearings comprise Rs15-20 billion of the bearings market and bimetal bearings comprise the rest of the market. The anti-friction bearings can be further divided into ball bearings and other types of bearings like roller, needle, taper and cylindrical. The ball bearings segment is the biggest segment of the industry and comprises approximately half of the total market size in volume terms.

Imports comprise approximately 25-30% of the total market. Imported bearings are mostly of large dimensions and are not produced in the country due to relatively low demand for the specialised segments.

Auto component industry Surge in automobile industry since the nineties has led to robust growth of the auto component sector in the country. Responding to emerging scenario, Indian auto component sector has shown great advances in recent years in terms of growth, spread, absorption of newer technologies and flexibility, despite multiplicity of technology platforms and low volumes. India’s reasonably-priced skilled workforce, large population of technology workers coupled with strengths gained by the country in IT and electronics all build up an environment for significant leap in component industry. The Indian auto component sector is being seen as the next industry that has the potential to become globally competitive, after software. Indian auto component industry, with a turnover of Rs365.40 billion in the year 2004-05 and manufacturing all the key components required for vehicle manufacturing, is an important sector of the automotive industry. The Phased Manufacturing Policy (PMP) followed in the 1980s enabled the component industry to induct new technologies, new products and a much higher level of quality in their operations that enabled quick and effective localisation of the component base. Over the years, the industry has played a key role in the growth and development of the country’s automotive industry. After a lull following global economic slump, auto component industry’s growth rate bounced back to 38% in 2002-03. However, the industry could not sustain such a high growth rate and could achieve a growth rate of only 24% in 2003-04 and 16% in 2004-05. Indian auto component industry has seen major growth with the arrival of global vehicle manufacturers from Japan, Korea, the US and Europe. Due to diversities in the technological profiles of these OEMs, the sector today produces large variety of components. Today, India is emerging as one of the key auto component centres in Asia and is expected to play a significant role in the global automotive supply chain in the near future.

Auto component industry Indicators: 2002-05 2002-03 2003-04 2004-05 Output* 245 306.4 365.4 Exports* 38 46.2 62.37 Employment^ 500,000 500,000 500,000 *Rs bn ^persons Source:ACMA

Sub sector: Special Equipment & Machines

Type of Products This sector includes, process control instruments, analytical instruments, electrical test and measuring instruments, survey and geo-scientific instruments and medical instruments.

Use of the Products

Process control instruments, analytical instruments, and electrical test and measuring instruments are used for measuring and controlling temperature, pressure, strain, force, flow and level of fluids, pH and conductivity. Survey and geo-scientific instrument products are used for surveying and measuring geological variables. Medical instruments include instruments such as blood pressure monitors, digital thermometers, Nebulisers, TENS machines and body fat monitors. Overview According to estimates by Industry Chambers, at present, the total cost of production of instrumentation related products in India is around Rs50 billion per annum. Sector-wise breakup is shown in the Table. The growth rate is 10-15% per annum. This production is about 15% of the total demand; the rest is met by imports. Except for a handful of them, all companies are operating in low-end products.

Cost of annual production of instrumentation related products in India (Rs M) :2003-06

2003-042004-05 2005-06 %

Change 2005 Over 2004

2003-06 CAGR

Process Control Instruments 3337.39 3358.39 3740.52 11.38 5.87 Analytical Instruments 9108.90 9921.80 11104.90 11.92 10.41 Electrical Test & Measuring Instruments 23163.83 24055.13 27397.70 13.90 8.76 Survey & Geo-Scientific Instruments 1831.95 1843.45 4305.60 133.56 53.31 Medical Instruments 5952.57 6901.14 7508.00 8.79 12.31 Total 43394.64 46079.91 54056.72 17.31 11.61 Source: Indiastat, Cygnus Research

Process Control Instruments There are about 26 units in manufacturing process control instruments and systems in the organised sector, out of which seven units are capable of taking up complete turnkey projects for the entire instrumentation system, including software required by process

industries. The industry is in a position to meet approximately 62% of the country’s demand. Analytical Instruments The market for analytical instruments solutions in India is estimated to the tune of over Rs11.00 billion, comprising various institutions related to laboratories, pharmaceutical and biotech sector, clinical research, environmental, metallurgy, universities, petrochemicals and nuclear research. The market in India grew at around 12% in 2005-06. Considering the emerging clinical research segment in India; the growth of industries in the areas of pharmaceutical, biotech and petrochemical sectors; and demand for environment-related solutions, this growth is likely to become a minimum 15-20% in the coming years The domestic manufacturers account for only 10% while the rest is met by imports. Eyeing the potential, many leading players have already integrated India as part of their global agenda and all the top ten leading global companies have set up offices in India. While most of these companies were operating through distributors until a few years ago, now most have own subsidiaries to run Indian business. This includes companies like Thermo, Fisher, Waters, Agilent, Sartorius, Shimadsu and niche players like Dionex (liquid chromatography). Inability of the Indian manufacturers to invest heavily in high-end technologies and in R&D is the reason why most of the Indian manufacturers are keeping a low profile, note industry sources. Electrical Test & Measuring Instruments The market for Electrical Test & Measuring Instruments in India is estimated to the tune of over Rs27.4 billion. The market in India grew at around 13.9% in 2005-06. The market is expected to grow at around 15% for the next few years. Domestic manufacturers account for 30% while the rest is met by imports. In the coming years domestic manufacturers are expected to increase their market share. Survey & Geo-Scientific Instruments The market for Survey & Geo-Scientific Instruments in India is estimated to the tune of over Rs4.31 billion. The market in India grew at around 133.56% in 2005-06. The market is expected to grow at around 20% for the next few years. Domestic manufacturers account for 9% while the rest is met by imports. In the coming years domestic manufacturers are expected to increase their market share. Medical & Surgical Equipment The market for Medical & Surgical Equipment in India is estimated to the tune of over Rs7.51 billion. The market in India grew at around 8.79% in 2005-06. Indigenous manufacturers are currently in a position to manufacture a wide variety of electro-medical equipments such as electro-cardiograph (ECG machine), X-rays scanner, CT scanner,

short-wave physiotherapy unit, electro-surgical units and blood chemistry analyzers. The indigenous industry is capable of fulfilling about 35% of the demand and the rest is met by imports. End-user sub-sectors Hydraulic Machinery The Indian hydraulic industry had its beginning in the sixties and the main objective behind establishing this industry was to provide substitutes for imported machinery. Hydraulic machinery from a long time is used in heavy engineering industries (extensively like shipping, power driven machine tools, automobiles, etc.). Growing investments in every sector and the Capital Goods Index which has shown a growth rate of 13.6% in FY06 are projecting a high positive image over the demand for hydraulic machinery. Demand for hydraulic machinery for FY05 was projected to be around Rs1,483 crore (US$339.01m) which is growing at a compounded annual growth rate (CAGR) of 11.99% from 2002 till 2005. Range of product specifications in the hydraulic industry is wide and the volume of production in comparison to that is not high. Hydraulic machinery has high quality standards and therefore requirement of R&D services in this industry is very high and also demands a high investment. These things make the manufacturing of hydraulic machinery a capital-intensive one. Indian manufacturers of hydraulic machinery are going for joint ventures with foreign technology suppliers in order to obtain new technologies. These technologies are required to succeed in the market that is dominated by imports. Opportunities There is a good demand for hydraulic machinery but the Indian manufacturing base is yet to come up with a suitable technology base to manufacture heavy duty hydraulic systems. Foreign investment in this sector would be conducive for its growth. However, precision casting manufacturers in India at present are not many but with increased inflow of foreign investments more organized casting manufacturers will be operational. The current surge in automobile demand is another driving factor for a growth in demand in hydraulic machinery. Indian Pumps Industry The Indian pumps industry caters to a range of sectors from agriculture to nuclear power generation. The industry, holding €500m worth of global market share as in 2005, is expected to capture a bigger slice in 2006. Pumps Manufacturing Industry in India is growing at a rate of 10-12% per annum. Approximately 6,000 pumps are manufactured in a day in India.

This industry exports to nearly 70 countries around the world. According to industry estimates, India produces around one million pumps of various kinds. There are around 800 large, medium and small units producing pumps. Technical Sustainability: India has today become a reliable, technically competent, competitive and enterprising outsourcing option for many multinational companies in industrial pumps. This has emerged through technical collaborations and joint ventures that Indian companies have with multinational majors. In addition, various research institutes such as the Small Industries Testing and Research Centre (Si'Tarc) in Coimbatore have developed energy-efficient designs for pumps to meet the norms of Indian standards. The Indian pump industry has a record of indigenous research and development in all the three areas of technological intensities - from mass-produced pumps for agriculture to gigantic pumps for interlinking rivers, and pumps for critical services such as nuclear power generation. Growth Drivers: All the core sectors of the industry namely power, oil & gas, water & infrastructure projects, metal & mining, chemicals, drugs & pharmaceuticals, food & beverages require various types of pumps and all these industries are growing at a significant rate today in India. Textile Machinery Textile machinery manufacturing is a Rs21,024m (US$471.98m) industry in FY06. This industry derives its demand from the textile industry which is one of the oldest industries and has been a back bone for the Indian economy. Growth in Textile machinery production in India has been very dull for quite some time; this industry has seen a near to nil growth during the period of FY02 to FY04. But in January 2005 the industry had a turn around due to quota abolition that brought about a positive note in all the textile industries and prompted them to go for technologically advanced machinery for producing international quality of fabrics. As a result textile companies preferred to import textile machinery from abroad as domestically manufactured machinery were not technologically advanced like machinery manufactured in European countries. However, domestic textile machinery production has registered a growth of 9.16% and 53.36% for FY05 and FY06. These growth rates were achieved by domestic manufacturers with a shift in technology levels of machinery and the competitive prices that was offered. Demand Drivers: Growth in the demand for textile machinery is expected from the growing textile industry. Customs duties on imported textile machinery has been reduced, reduction in government restrictions on the import of used capital goods has also prompted industries to import second hand machinery from abroad with a good residual life. The existing units undertook capacity expansion that triggered a growth in textile machinery production.

Opportunities Many representatives’ offices are already there in India who are having their principals in many countries across the world. As metamorphosis has already happened in the industry in the post WTO scenario it is a matter of global market force that Indian textile industry is shaken up for technology upgradation. Under such impacting growth drivers opportunities lie either in collaborating with a good partner in India to produce textile machinery or setting up manufacturing units producing components for textile machinery as lots of imported machinery is installed. Indian machine tools industry is also shaping up and as a result setting up manufacturing units with local supply of components are also possible. Automobile Industry The Indian automobile industry which is worth Rs960 billion (US$21.94 billion) is one of the fastest growing automobile industries in the world. This industry has been registering a compound annual growth rate (CAGR) of 14.5% for the last five years (2000-05) with a projected growth in 2006 being 17%. Growing initiatives of Indian government in turning India into a hub for small car manufacturing is attracting huge foreign investments. Growth in automobile exports has been registering an average rate of 45% for the past five years (2000-05), with passenger cars and two wheelers having 22% and 60% share in it. Two Wheelers: India is the world’s largest manufacturer of two wheelers with a growth of 15.49% CAGR for the last five years (FY02-FY06). Total two wheeler production in 2005-06 was 7,600,801 (nos.). The share of the two wheelers segment in the entire Indian automobile market was 70.19% in 2005-06. An upsurge in the Indian economy has attracted more and more buyers. This has increased the number of people who can afford a two-wheeler. The intrusion of foreign and merchant bankers have resulted in easy loans for both the consumers and the entrepreneurs. The Indian two wheeler market is occupied by five players who have established themselves with a strong infrastructure, R&D and after sales service support. There are Japanese OEM’s as well as Indian OEM’s. Hero Honda is the leading motorcycle manufacturer in India followed by Bajaj Auto Limited. Passenger cars: The Indian passenger car segment has been growing at a CAGR of 18.23% during FY01-FY06. In this segment small cars occupy around 80% of the production and sales. Projected CAGR for overall passenger vehicle during 2005-2014 being 9% forecasts a healthy growth. Total 4 wheelers production in 2005-06 was 1,720,897 units. Small cars that are in the affordable price range in terms of Indian income levels, is attracting major demand, but increase in levels of disposable income with Indian customers, due to a growth in the economy is gradually increasing the sales of upper segment or luxury cars also. Maruti Udyog Limited is the leading small size car marker. There are Japanese, Korean, American and European OEMs along with Indian OEMs. Foreign manufacturers like Hyundai, GM, Toyota, Skoda, Auto, Volvo and Ford that have manufacturing facilities in India.

Commercial Vehicles: The Indian commercial vehicles market is broadly categorized into LCV & MHCV (Medium & Heavy Commercial Vehicles). This segment has been experiencing a CAGR of 24.55% (FY01-FY06). Total commercial vehicle production in 2005-06 was 391,000 units. Recent growth trends in this industry are because of increasing investments in infrastructure. Export of commercial vehicles was only 5% of the total Automobile exports (FY05), but this share is expected to grow with increasing investments in the commercial vehicles segment from global majors. Laboratory Equipment Growing awareness among public and private enterprises about the requirement of R & D facilitations in order to become more competitive in the world market is leading to an establishment of R&D units. These new R&D units and modernization of existing units are creating a higher demand for laboratory equipment. In India R&D spending is dominated by the Central Government followed by the private industry. Demand for laboratory equipment is more from the Council of Scientific and Industrial Research (CSIR), Defense Research and Development Laboratories (DRDL), Department of Space, and the Department of Atomic Energy. In private industries steel, pharmaceuticals, telecommunications, and biotechnology sectors are creating a demand for laboratory equipment. All the sectors mentioned are experiencing impressive growth rates and attracting high investments. India for many MNCs has become the major out sourcing destination for their R&D services. Companies like Nokia and Intel have already established R&D hubs which will enable requirements for laboratory equipment. Opportunities The LAB products that also have better prospects in the Indian market include: spectrophotometers, HPLC systems, RIA analyzers, electron microscopes, multi-chemistry analyzers, batch analyzers, random assay analyzers, fully automated continuous/random analyzers, ELISA readers, electrophoresis instruments, liquid chromatograph, osmometers, and blood gas analyzers. Medical Equipment

The medical equipment market is in the throes of rapid modernization. This industry is currently worth US$1.85 billion. The demand for hi-tech products is close to 80% of the overall market in India. The domestic market comprises of low-tech devices. Major international medical equipment giants are lining up their investments in India for setting up a local base. The Indian health imaging market is expected to double from the existing US$350m by 2010. X-ray, ultrasound, CT and MRI are expected to collectively account for 68.6% of the health imaging market.

Medical equipment industry is heterogeneous, comprising sub-markets, each experiencing different growths. Imported equipments are sold by authorised distributors who look after the sales and service aspects. Manufacturers can be sub-divided into Indian operations of MNC’s (Siemens, GE) and local companies. Most of the local manufacturers are in small scale sectors with a limited market reach. Apart from 6-8 major companies, no big company has a distribution or support network in India, with most of them dependent on the local dealers/ suppliers for furthering their business interest.

A number of private entrepreneurs are planning to enter the Indian healthcare sector. Growth in demand is seen for Products like Intensive Critical Care Unit (ICCU), Heart/Lung machines, linear accelerators, Doppler, ultrasound machines, MRI scanners etc. Cardiology equipment accounts for 20% of the total market followed by imaging systems with 15%. Private sector entry into the Indian insurance market has opened a vast scope for high-end medical facilities and healthcare equipment market as well.

Demand drivers for this industry

Healthcare Industry

The Indian healthcare industry has emerged as one of the largest service sectors in India. Healthcare spending in India is expected to rise by 12% per annum. An estimate suggests that by 2012 healthcare spending could contribute 8% of GDP and employs around 9m people. Rising incomes and growing literacy are likely to drive higher per capita expenditure on healthcare. The trend is shifting from infectious diseases to lifestyle diseases due to a change in lifestyle particularly in the urban and semi-urban locations.

Indian healthcare industry though huge is not enough to meet the requirements of the Indian population. There is a requirement of around US$20 billion investments in the healthcare industry. The Indian government is planning to do this invest in multiple phases, which will create a higher demand for healthcare equipment. Growth in income levels and awareness towards health in Indian population is leading to increased healthcare spending. This means more private hospitals apart from government run hospitals are yet to be established. Demand for Indian healthcare equipment is increasing in the third world because of their low cost product and services.

Opportunities An immense opportunity for foreign investment is there in the medical equipment sector. Increased spending on healthcare will drive more demand into this sector. Hi-tech equipments in the operation theatre will be more in demand. Similarly devices related to lifestyle diseases too would be on high demand.

Printing Machinery (for print media) India has more than 130,000 printing presses by the end of 2005. Though demand for printing machinery in India for FY06 is around Rs850 crore (US$210.9m), production of printing machinery for that duration is valued at Rs308.4 crore (US$69.14m). While the remaining requirement is met through imports which are of the order of about Rs 550 crore (US$123.47m). The sector that is driving the demand for printing machines is the Indian newspaper industry with a turnover of US$1.84 billion in 2004, which is growing at a CAGR of 6.9% during 2000-04. This industry has attracted capital investment of US$2.27m in two years by the end of 2004. The Indian media industry is undergoing a modernization process in order to gain from these growth opportunities. In this process they have realized the need for technically advanced printing machinery to achieve success in the tough competition. Since the machinery manufactured in India is not meeting their requirements many newspaper/media companies are importing them from Europe and Japan. According to NPES, the Association for Suppliers of Printing, Publishing, and Converting Technologies three major European manufacturers Man Ronald, Heidelberg and Koenig & Bauer AG (KBA) sold around 100 units to the Indian print industry. Mitsubishi has installed 71 units in the country. By the end of 2005, 250 new units were estimated to be in the process of import. The Indian Printing machinery manufacturers in order to sustain the competition have to improve technology wise too.. Opportunities The Indian printing machine manufacturers are not equipped with the latest technology hence large demand is catered through imports. Recently the print media has been allowed for 100% foreign direct investment and as a result the foreign print media companies are attracted towards India. This may further increase the growth in the demand for printing machines. Automotive Components Industry The Indian auto component industry has been growing at 20% CAGR for the last five years (2000-05). Projected CAGR during 2005-14 is 17%. The Indian automobile industry which is putting huge efforts in foraying into the European and American markets is facing stringent technical and safety norms. In order to fulfill these norms and also push sales in these regions they are investing heavily in acquiring high end auto components, which drives the demand for this industry. Increasing investments in production and technology levels in the automobile industry is another driving force for the creation of higher demand for auto components. Many MNCs are present in automotive component manufacturing like Delphi, Bosch, Denso, Lear, GKN, etc. Companies like Tata Motors, Bharat Forge, UCAL Fuel System, TVS Autolec Ltd. etc

are some of the automotive component manufacturers that are also investing in the overseas markets. Auto component exports were growing at 25% CAGR during 2000-05. It is projected to grow 34% during 2005-2014. The manufacturing components industry in India is fast emerging as a very cost effective, OEM/Tier1 supplier; as a result many vehicle manufacturers in the world are trying to get benefit from this. Even the Indian government is encouraging this by allowing 100% foreign direct investment in this sector. Opportunities: As per BMI Research, in the Asia/Pacific business ranking, India holds the no.1 rank in the region. The future growth potential is high; the Indian passenger car market demand is currently huge and has ample room for further volume growth. A stable market oriented economy is also conducive for a solid growth in the near future. At the backdrop of such positive vibes in the market opportunities are significant. Aeronautical Industry Aviation is the key driver to any country’s global economy. Air travel in India is no longer considered a luxury but a necessity. This has been realized by the Indian government who have designed plans and started implementing them in order to sustain the growth rate that is being achieved in recent years. These plans constitute investing Rs1500 billion (US$3.36bn) in the next five years for buying aircraft, upgrading airports, conducting research and development, improving air traffic control and fabrication of components. This will create a huge impetus in the growth of the Indian aeronautical industry. There is immense potential in India for setting up industries to build aircraft. The existing fleet with Indian Airlines, Air India, Jet Airways, Air Sahara and Deccan Airlines are limited and they are expanding their network. India is heavily dependent on foreign countries for buying and leasing civilian aircrafts such as Boeing and Airbus. Action plans are being taken by the Indian government for setting up parallel aircraft industry to design and manufacture small, medium and wide-bodied passenger aircraft as well as maintenance and overhauling facilities of aircrafts. The Hindustan Aeronautics Limited (HAL) India’s largest aeronautical organization manufactures various types of military aircraft and helicopters. Today, HAL has 16 Production Units and 9 Research and Design Centres in 7 locations in India. The Company has an impressive product track record - 12 types of aircraft manufactured with an in-house R&D and 14 types produced under license. HAL has so far manufactured 3,550 aircraft (which includes 11 designed indigenously), 3,600 engines and overhauled over 8,150 aircraft and 27,300 engines. HAL has been successful in numerous R & D programs developed for both Defence and Civil Aviation sectors. HAL has made substantial progress in its current projects:

• Dhruv, which is Advanced Light Helicopter (ALH) • Tejas - Light Combat Aircraft (LCA) • Intermediate Jet Trainer (IJT) • Various military and civil upgrades. • There are three joint venture companies with HAL: • BAeHAL Software Limited • Indo-Russian Aviation Limited (IRAL) • Snecma HAL Aerospace Pvt Ltd Apart from these three, the other major diversification projects are Industrial Marine Gas Turbine and Airport Services. Several Co-production and Joint Ventures with international participation are under consideration. HAL's supplies / services are mainly to the Indian Defence Services, Coast Guards and Border Security Forces. Transport Aircraft and Helicopters have also been supplied to Airlines as well as to various State Governments in India. The Company has also achieved a foothold in export in more than 30 countries, having demonstrated its quality and price competitiveness. Opportunities The growth in aeronautical industry is almost certain as aviation industry in India is poised to grow further. Another reason for the high growth in aviation is due to no frill airlines (low cost airlines). Due to an upsurge in air traffic in India aircraft maintenance is in great demand. It is even economical to have maintenance facility for aircrafts in India compared to other developed countries. Opportunities are envisaged in manufacturing light bodied aircraft, other aircrafts and components for aircraft maintenance. 100% FDI is allowed in airport infrastructure and 49% for civil aviation. This will create lots of opportunities for foreign investments as modern airports will have better aircraft handling and landing facilities. As a result the aeronautical industry and its allied engineering products will have a great market potential in India. Shipbuilding Industry Indian sea trade by volume and value is 90% and 70% respectively. But the priority for the shipbuilding industry has been very poor till the mid 90’s. The shipbuilding policy was liberalised in 1991 by allowing private sector participation in building all types of ships. The Indian shipbuilding industry has risen to the 8th rank globally in terms of order

book position. Indian shipbuilding industry had orders of 977,400 DWT i.e. 91 ships by the end 2005. The current order book is dominated by vessels less than 10,000 DWT. Shipbuilding order book has crossed US$1 billion of which bulk cargo occupies a major share with US$330m. Export revenue is two thirds from the total revenue and export orders are mainly from the European owners. Private and public participation in shipbuilding is equal at present but in future it is expected that private players will have a major share. This is expected on the basis of problems that public companies face like low technical efficiency, labour related issues and production performance. The three important private players in this industry are- ABG shipyard, Bharati shipyard and Chowgule shipyard. The order book of these companies by the end of 2005 was US$281.1, US$171.4m and US$111m. The Indian shipbuilding industry is facing many challenges such as lack of design and heavy engineering facilities, absence of exposure to new technologies that can be incorporated in the ships, being confined to small specialised and conventional vessels and scarcity of qualified professionals. About 80% of the raw material is imported thereby imposing higher cost of manufacturing coupled with poor infrastructure and inefficient supply chain management, impeded a healthy growth of the industry. Opportunities Future prospects for the Indian shipbuilding industry are expected to be bright with a growth in Economy, which will result in higher investments in infrastructure (logistics) making it more competitive. Valves Production Valve production in India comes from both the organized and unorganized sectors. The organized sector of the valves industry is around Rs 950 crore (US$210.9m), while the unorganized sector contributes Rs 550 crore (US$122.1m) as per 2005 figures. Valves are imported heavily from China and other countries; Import for the FY06 is around Rs 460 crore (US$103.27m), an increase of 24% to that of previous fiscal year. The import is largely for precision type of valves mainly used in process industries like Pharma, Food processing, steel, and chemical and refineries. This industry is growing at an average rate of 12%. With major expansion in core sector industries such as power, petrochemicals, oil as well as steel, the valve industry has an ample potential for growth. The other sector from which demand has been rising is from the water treatment plants, shipyards and collieries. Another area of potential demand for the valves is the replacement market. Mechanical control valves, the key actuator in industrial systems, are manufactured in only three locations worldwide. The first location is the US, and the other two are in Malaysia and India. In terms of raw material, machining and manufacturing, India and

Malaysian costs run neck and neck. Where India scores is design, with a 6% cost advantage. This makes Indian-produced mechanical control valves the cheapest in the world. Quite clearly, the country’s mechanical and eletro-mechanical manufacturing base has improved dramatically with the evolution of its tooling and machining industry. This, combined with the easy availability of key raw materials such as steel, polycarbonate, plastics, aluminium and acrylic has given India a competitive advantage. Valve manufacturing has traditionally been concentrated in certain regions of the country. A large number of small manufacturers are concentrated in Jalandhar, Agra, Nasik and Howrah. These units manufacture the entire range of valves but generally concentrate on valves used in specific sectors like water supply and small and medium sized light engineering industries. The diverse and large industrial valves segment faces a stringent quality requirement that leaves this field to a few major valve manufacturers. Such valve manufacturing facilities consist of the large companies such as Audco, Alfa Laval, Schrater Duncan, BDK Group etc. These companies manufacture the entire range of valves with each company having its own area of specialisation. And the manufacturers are those who have produced quality goods and built a brand image over the years. Opportunities Valve production in India does not have immense opportunities for foreign investment. This is due to the fact that the replacement market in India is mostly catered by unorganized or mid size valve manufacturers. However, current industrial developments in the steel industry and oil & gas explorations will certainly promote foreign collaborations in technology. Food & Food Processing Equipment Industry Food Process Industry: India, world’s second largest producer of food is one of the most favored destination for investment to many countries in the world.. Food processing is one of the largest industries in India and accounts for US$29.4 billion as in FY06. This industry ranks fifth in terms of production, consumption, export and growth prospects. This industry is estimated to grow at 9-12 per cent, on the basis of an estimated GDP growth rate of 6-8 per cent, during the tenth five-year plan period. Food processing industry is highly unorganized. Organised food processing industry is expected to grow at the rate of 30% in the next five years reaching US$2.4 billion by 2010 from the current US$674m.

Government Initiatives in attracting Investments: Indian government in order to attract investment into food processing industry, it has formulated and implemented several schemes like providing financial assistance in setting up new units and for modernizing existing units. Food processing industries were included in the list of priority sector for bank lending in 1999. Automatic approval for foreign equity up to 100

per cent is available for most of the processed food items except alcohol, beer and those reserved for small-scale sector subject to certain conditions.

Food processing equipment: Food process equipment is gaining demand with the growing investments in food process industry. Food process equipment manufacturing industry in India is not highly organized, there are no major brands in manufacturing these equipments. Major medium sized equipment manufacturing units in India are having collaboration with foreign companies in order to acquire new technologies. There is absence of high end research facilities in this industry which will help in developing technologies.

Machinery imports: Excise Duty of 16 per cent on dairy machinery has been fully waived off and excise duty on meat, poultry and fish products has been reduced from 16 per cent to 8 per cent.

Investment Opportunities: Even though food processing industry is large but share of food processed to that of total produced is only 32%, this provides good opportunities of growth to this industry. The Confederation of Indian Industry (CII) estimates that the food processing sector has the potential of attracting US$33 billion of investment in next 10 years.

FDI inflow in food processing reached US$2,804m in March ’06. In ’05-06, the sector received approvals worth US$41m. This figure is almost double the US$22m approved in '04-05. Informatics Industry/Computers Information Technology related hardware sales in India have realized its potential when there was a boom in IT. In the initial period sales of IT hardware like PC, Notebooks, Printers, Servers and networking equipment was completely dependent on the imports. However, large scale investments into IT hardware have changed the scenario and exports have reached a value of around US$1.4 billion by the end of 2005. PC sales have been experiencing a growth of 25% for the past two years and are expected to be steady over 30% till 2007. PC sales demand is deriving its demand mainly from the IT and ITES sectors and also from other industries that are having increasing applications of technologies creating a new demand which is expected to grow further. PC penetration in India is only 14 per thousand households; this shows the potential demand that is existing in the market that needs to be tapped. Exports of desktops has been growing at 25% CAGR for the past seven years (1998-2005), which is poised to grow further with the entry of new manufacturers. The printers market can be divided mainly into three segments; Dot-matrix, Inkjet and Laser printers. The printers market for FY06 has registered a growth rate of 28%, while sales of Dot Matrix, Inkjet and Laser has grown by 18%, 13% and 128% respectively for FY06. Market for these printers is expected to grow further with the increasing ERP

applications in Industry in order to increase the production levels. Further converting many manual photographic labs into digital lab has raised the demand for laser printers. Other IT hardware components like Servers, Networking equipments, UPS, Monitors, and Keyboards are growing at a compounded annual growth rate (CAGR) of 20%, 10%, 34%, 28% and 28% during 2000-05. The IT hardware market is projected to grow at much higher levels in comparison to the present growth trends. These growth trends are projected on the basis of growth in IT and ITES (IT enabled services) industries, growing applications of IT hardware in other industries for increasing production efficiency and performance efficiency, growing awareness towards computer utilization, educational institutions making computer education mandatory and above all increased internet usage in the country is gradually creating more and more demand for home PCs. Opportunities A great potential for foreign investment lies in this sector. Network equipment, PCs/notebooks/laptops, etc. will be more in demand. There is enough room for new ventures manufacturing such items and government’s thrust in IT/ITES export will further add spurt to the demand for informatics/computers. Boilers Industry Boilers are critical high-pressure equipments used in steam/power generation plants. The Indian boiler industry in FY06 is Rs39.5 billion (US$886.77m) and its production in India has grown at an average rate of 25.37% for the past five years (FY02-FY06). Though the production decreased by 1.25% in FY04, it regained its growth by 61.5% in FY06. Import of boilers has fallen by 6.86% to Rs 65.13crore (US$14.6m) (Excluding the components of boilers), while boiler exports has increased by 27.57% to Rs 54.3 crore (US$12.19m) for FY06. The boiler market is divided into two segments power plants and industrial boilers. Boilers used in power plants are above 200 TPH (tonne per hour of steam), industrial boilers range between 30 to 200 TPH, where as those that are below 30 TPH are called process boilers. Boilers can be either oil fired or solid fired (Coal). Choice of boilers depends on the availability of fuel. Demand for oil, gas and naphtha-fired boilers are high in Western India, whereas in Tamil Nadu demand is more for bagasse-fired boilers due to availability of sugarcane. Most of the major companies in boilers have acquired the latest CFBC (circulating fluidized bed combustion) technology through collaborations. There is also a growing shift towards co-generation (simultaneous production of electrical power and thermal energy) boilers.

Bharat Heavy Electricals Ltd (BHEL) manufactures power plant boilers above 200 TPH. The company has a major share in the market (which is estimated to be more than 65%). Thermax is the market leader in the small boilers segment (<30 TPH). Power sector accounts for a large part of the demand for boilers. Indian government initiative in

developing infrastructure to sustain the growth rate has allowed the entry of new players (private) into this sector. Growing investments in the power sector will further increase demand for the boilers, keeping its growth alive.

Opportunity

High growth power sector envisages a good amount of investment and technology tie-ups in boilers manufacturing. Industrial boilers (lower capacity) are mostly catered by SMEs in the domestic market. However, there is a good demand for boilers used in the power sectors and integrated steel plants.

Sector 2: Machines and Mechanical Devices

Type of Products The type of products include machines and mechanical devices for thermo-plumping and air-conditioning, concrete articles production, dishwasher, washing machine, tumble dryer and industrial use engines.

Use of the Product

Thermo-plumping and air-conditioning products are used as domestic and industrial appliances. Concrete articles are used in construction industry. Dishwashers, washing machines and tumble dryers are used in kitchens while industrial use engines (generators and turbines) are used for electric power generation and/or energy transformation.

Overview Machines and mechanical devices have a much bigger scope than indicated in the above sections – type of products and use of the product. However, for the purpose of this study, it is restricted to the above categories.

Sub sector: Thermo-plumping & Air Conditioning, Washing Machine (Household Appliances Industry)

The table given below presents the trends for household appliances.

Trends in Household Appliances 2003-04 2004-05 2005-06

Production (m units) Refrigerators 3.72 4.36 5.14 Air Conditioners 0.98 1.23 1.47 Window 0.72 0.86 1 Split 0.26 0.37 0.47 Washing Machines 1.36 1.6 1.84 VCR/ VCP 0.14 0.12 0.11 Microwave oven 0.36 0.43 0.5

Production Value (Value in Rs m) Refrigerators 44,794 50925 55533

Trends in Household Appliances 2003-04 2004-05 2005-06 Air Conditioners 41,260 47,860 56,000 Washing Machine 18,420 23,272 29,472 VCR/ VCP 690.57 676.59 669.6 Microwave Oven 4,320 4,730 5,000 Consumer Electronics 7,518 8,360 9,361 Imports of Consumer Electronics 13,284.56 20,784.67 24,417.86 Exports of Consumer Electronics 5,247.66 6,136.26 8,188.46 Source: Elcina, Indiastat & Cygnus Research Sub sector: Concrete Articles Production Machines This segment includes products such as

• ‘Horizontal’ Concrete Batching/Mixing Plants. (45, 60, 80, 120m3/hr. capacity)

• ‘Compact’ Concrete Batching/Mixing Plants. (20, 30 m3/hr. capacity) ‘Modular’ Concrete Batching/mixing Plant. (20, 30 ,45 m3/hr. capacity)

• ‘Mobile’ Concrete Batching/Mixing Plant. (12, 15, 18, 20, 25 m3/hr. capacity) • ‘Reversible’ Mobile Concrete Mixer. (8, 10 m3/hr. capacity) • ‘Stationary’ Concrete Mixer (10, 12 m3/hr. capacity) • ‘MKM’ Concrete Kerbing Machine. • Concrete Block making Machine (Stationary/Mobile)

This segment is dominated by few foreign players such as Schwing Stetter India Pvt Ltd (a 100 per cent subsidiary of the German based Schwing group of companies). The high demand for office and residential space in tier-II cities coupled with emphasis on completion of construction projects within the schedule is set to enhance the popularity and use of ready mix concrete which in turn would boost the prospects of companies like Schwing Stetter L&T, Grasim, and ACC are the major players with a pan-India presence and a market share of 75 to 80 per cent. As of 2006, the country is dotted with around 140-150 commercial RMC units. This industry employs close to 30,000-35,000 people directly and around 50,000-60,000 people indirectly. The nascent industry in India is pegged at approximately Rs 20-25 billion, growing annually at a compound rate of around 25-35 per cent, over the past four to five years. According to industry sources, the RMC segment churns out, on an average, 28,000-30,000 cubic meters of concrete everyday.. Sub sector: Industrial Use Engines (Turbines and Generator Sets) The capacity established for manufacture of various kinds of turbines such as steam and hydro turbines including industrial turbines is more than 7,000MW per annum in the country. Apart from BHEL, the public sector unit that has the largest installed capacity, there are units in the private sector manufacturing steam and hydro turbines

for power generation and industrial use. The manufacturing range of BHEL includes steam turbines up to 660MW units rating; the facilities are available for 1,000MW unit size. They have the capability to manufacture gas turbines up to 260MW (ISO) rating and gas turbine based co-generation and combined cycle systems for the industry and utility applications. Custom-built conventional hydro turbines of Kaplan, Francis and Pelton types with matching generators are also available indigenously. AC generators manufactured in India are on par with international ones and consistently deliver high quality power with high performance. Domestic manufacturers are capable of manufacturing AC generator right from 0.5KVA to 25,000KVA and above with specified voltage rating. The imports and exports during 2004-05 were Rs16.76 billion and Rs5.9 billion respectively.

End-user sub-sectors

Construction Industry India is witnessing faster growth in its demand for infrastructure and construction services. Since the existing infrastructure is far below requirement, to maintain the existing growth rates, the Indian government is increasing its focus towards developing a strong and sound infrastructure. In India construction is the second largest economic activity after agriculture which is estimated to be growing at an average rate of 9.5% during FY02 to FY06. The Indian construction industry forms around 12.8% of the GDP and 52% of gross fixed capital formation. Earlier participation of the private sector in many infrastructural projects was minimal. Government’s thrust for infrastructure has changed the scenario. It is now focusing on a private public partnership model (PPP). This has seen a number of private sector construction players investing in the sector. Infrastructure related construction industry is centred around roads, ports, power, and real estates development. Government is following the BOT (Build-Operate-Transfer) model for executing the projects. This model describes the project is to be executed and operated by the private players until they recover their investments and earn a profit. Another type of BOT contract is based on annuity, where the private firm recovers its investments and earns profits in the form of annuity paid by the government. Opportunities According to an industry estimate, India has the potential to absorb US$150 billion of foreign direct investment in the next five years in infrastructure alone. And a large part of investment is expected to be diverted towards construction activities.

Considering the present growth rate and demand for infrastructure, construction sector is expected to register higher growth rates in future. Already in airports (Greenfield and modernization) foreign companies are involved in a partnership with local companies. Household Appliances Market size & growth: Indian household appliances (Consumer durables) can be segregated into large and small household appliances. The consumer durable market in India has started experiencing its real growth with the entry of multinationals like LG Electronics, Samsung, Electrolux, etc. Consumer Durables and Electronics (used as household appliances) was one of the largest industries in India, with annual sales of US$5.8 billion in 2005. This industry sale has been growing at a compound annual growth rate (CAGR) of over 8.3% during 2000-05. Growth in sales value is lower than the sales volume which is the result of reduction in prices by the companies to sustain the growth rate in a competitive market. With a growth in production in the organized segment and domestic availability of branded products due to lowering of import duties and other liberal economic measures, the share of unorganized segment has come down sharply to only 8 to 10% from the previous 40 to 50%. Growth drivers: Growth in disposable income with the Indian consumer is one major factor in demand creation where as volatility in prices and credit facilities are other decisive factors in determining the sales of items. The Indian consumer’s higher sensitivity to prices has resulted in companies making the pricing method their best strategy. Growing Opportunities: A major proportion of population in India though residing in rural areas, their share of demand for consumer durables is so far only a quarter. The recent trends of higher growth in demand in the rural areas is an encouraging scenario for the manufacturers need to have a different strategy for rural areas in order to tap this high potential market. Large Household Appliances Refrigerators Refrigerators have been manufactured in India since 1950s. Until 1990’s over 90% of the market was controlled by traditional players, this has changed with the entry of multinationals after economic reforms in 1990’s. The refrigerators market in India has been growing at an average rate of 15% for the past five years (FY02-FY06). The size of the refrigerator market is estimated around 4.5m units in 2005-06. Domestic penetration of refrigerator is 9%, where urban areas and rural areas account for 75% and 25% of demand.

Air Conditioning Machines (AC) The annual average growth rate of AC’s currently ranges around 20%. Analysts expect the annual growth rate to register more than 25% in FY 2007 on the back of strong sales of split ACs. An AC penetration level in Indian households is only 1%. The competition in window AC and split AC segment has grown a lot more intense in the past few years. Consequently, companies have stepped up their advertising and promotional spends. Technology has also become a differentiating factor. The reduction in the excise duty in the budget 2006-07, improved the competitiveness of organised companies vis-à-vis small-scale players. Unorganised players selling unbranded ACs (assembled) occupy a sizeable market in the household segment. However, with air conditioners becoming affordable due to lowering in prices, the size of branded ACs in the Indian market is set to grow. The import of air-conditioners and refrigerators continues in small quantities mostly for private use rather than for resale or distribution. Until recently, the importation of refrigerators was restricted. But foreign firms now are allowed to establish joint ventures, 100% owned operations to manufacture AC and refrigerator products. Washing Machines & Microwave ovens The washing machines market which is an estimated Rs200 billion (US$449m) in FY06 has recorded an average growth rate of 15% for the last four years. With growing investments in this market it is expected to register a higher growth in future. The microwave oven market has been growing at a rate of 16-19%. In this market both LG Electronics and Samsung, which together account for nearly 60% of the total market are the market leaders. Small Household Appliances DVD Players DVD player sales which have registered a 28% growth in 2005 is the segment which has registered the highest growth rate among all other small household appliances. This growth was achieved from new models introduced in the market which are having advanced technology applications. Media industry is growing at 7% compound annual growth rate (CAGR) pushing the demand for DVD players through its products like movies and songs etc. The country currently is having over five million home video and DVD subscribers. With the current demand scenario, the home video segment offers ample growth opportunity. It is expected to grow over 30% in the next five years. Watches & Clocks Watch and clock with sales of 22.6mn and 28.4mn have registered a growth of 10 and 8% respectively in 2005. As only one-fourth of the population (currently over 1

billion) owns a watch, there is huge untapped potential. Around 40% of this market is unorganized with most of the major players eyeing on the urban areas leaving the rural areas for unbranded products. In Rural areas market is occupied mainly by unorganized sector. Watches and clocks imported from China has main share in rural market due to its cheaper price range compared to domestic brands. However, domestic watch manufacturers are also now introducing low price watches targeting rural markets. Quartz clocks are manufactured largely by unorganized players; however a few of them could rise to top clock manufacturers and export also. Opportunities Large household appliances sector like refrigerators/ACs is having good growth opportunities. However, Korean giants (LG and Samsung) have already established themselves in this market. But still at a competitive price if products are offered in the market with an international tag the scope for new comers still exist. Commercial Refrigeration According to Blue Star Ltd and Cygnus Research, commercial refrigeration market size was in the range of Rs11894 m and Rs12000 m. The table given below gives the trends for the years FY2004 to FY2006.

Commercial Refrigeration Market Sales (Rs. in Millions):2003-06

2003-04 2004-05 2005-06 Growth % 2005-06 over 2004-05

CAGR2003-06

2002-03

Commercial Refrigeration Cold Storages Halocarbon refrigeration systems only*

500 600 700 16.67 18.32 400

Ammonia refrigeration systems only*

750 900 1080 20.00 20.00 600

Coolers Drinking water 1100 1300 1680 29.23 23.58 900 Bottled water 450 520 680 30.77 22.93 450 Visi (display type) 2400 3200 4500 40.63 36.93 1600 Bottle (chest type) 650 710 770 8.45 8.84 600 Reach-in refrigerators 23 24 30 25.00 14.21 20Beverage / juice dispensers

115 121 135 11.57 8.35 100

Display cases 55 57 60 5.26 4.45 50Milk 160 168 195 16.07 10.40 150 Chocolate 10 15 20 33.33 41.42 10Mortuary 25 30 35 16.67 18.32 20Freezers Deep (chest type) 900 1050 1150 9.52 13.04 750 Softy ice cream 32 34 58 70.59 34.63 30

Hard ice cream (batch type)

22 23 25 8.70 6.60 20

Hard ice cream (continuous)

42 45 50 11.11 9.11 40

Blast 108 119 126 5.88 8.01 100 Spiral 41 45 50 11.11 10.43 40Transport Refrigeration & Bus AC+

300 400 550 37.50 35.40 200

Total - Commercial Refrigeration

7685 9361 11894 27.06 24.41 6080

Source: Cygnus Research & RAMA

Sector 3: Moulds Type of Products Mould is a container into which liquid is poured to create a given shape when it hardens. Moulds can be broadly categorised into plastic injection moulds, compression moulds, investment die casting moulds, blow moulds and pressure die casting moulds. Use of the Product Moulds find usage in automobile, home-appliances, engineering, oil and paint, refrigerator, irrigation and lighting applications. Overview Moulds industry can be broadly categorised into moulds for plastic products and others. Moulds for Plastic Products The chart given below depicts the classification of plastic products by type of mould processes used.

Approximate consumption of plastic in India according to various processes is as follows: Plastic Moulding by Process: 2005 Process % Share in Total Consumption in India Extrusion 75.6 Injection Moulding 18.0 Blow Moulding 5.1 Rotomoulding 1.3 Total (‘000 tonnes) 4,070 Source: Cygnus Research

Domestic The Indian plastic processing industry is dominated by a large unorganised sector, which gets excise exemption and other fiscal concessions. In the absence of these fiscal concessions, the organised sector has not grown significantly and as a result, it accounts for less than 15% share of the industry. Exports and Imports Though Indian exports of plastic products have increased over the past decade, it continues to account for only a minuscule share in the world trade. The low presence of the organised large-scale sector and consequently, low economies of scale prevent Indian players from becoming cost competitive in the international market. The key plastic products imported include plastic articles, films, sheets and plastic products for packaging purpose.

Exports and Imports of Plastics and Linoleum products Rs m 2003-04 2004-05 2005-06Exports 7,985.24 13,189.09 11,708.21Imports 4,875.95 6,213.57 8,963.4Net Exports 3,109.29 6,975.52 2,744.81Source: CSO

End-user Sub-sectors Illumination Industry (Lamps and Luminaires) The Indian lamp industry is estimated to have a turnover of Rs 4700 crore (US$1055m) in FY06. This industry is experiencing a growth rate of nearly 20% per annum over the last two to three years. Compact Fluorescent Lamp (CFL) and special kind of illuminating lamps have registered a higher growth. This industry is having export volumes that are around 15% of the total turnover. Growing interests of manufacturers and government initiatives in encouraging exports is expected to increase its percentage share. A recent surge in lifestyle has created a demand unseen so far for imported lamp fittings in the upmarket urban areas.

The lamps industry is mainly dominated by MNCs with a market share upto 60% of lamp production and 40% of luminaries and fittings. This industry is dominated by players like Philips, GE, Wipro, Osram, Bajaj Electricals Ltd., Crompton and Indo-Asian ruling the roost.

Electrification on the Indian villages through government schemes like Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) has been increasing the number of villages that

are electrified; this will create a new demand for the lamp industry. Demand for lamps that are having low power consumption (an example CFL) is increasing steadily since the power consumed for illumination in India is more than 20% of the total power produced, where as in developed countries like US it is less than 8% largely due to huge population. Opportunities Quite a lot of investment potential exists in this sector. Lamp and lamp fittings are still to take off more due to a massive boom in retail industry and change in lifestyle and corresponding investment. More growth prospects are observed in LED and CFL and luminaries.

Sector 4: Mechanical Designing

Type of Products/Services It includes mechanical designing, engineering designing, developing prototypes and final products. This also comprises computer-aided designing and computer-aided manufacturing. Use of the Product These products/services find usage in automobile, telecommunications and engineering industries. Overview India is slowly but surely attracting mechanical designing outsourcing. India's National Institute of Design churns out hundreds of highly-trained designers every year. Design firms such as Elephant Design and Lopez get high-end work from their clients. As of 2005, India's contract industrial engineering revenue was estimated at US$500m and by 2010, it is expected to grow to US$10 billion. If we include the value of embedded software used, the current value of Indian design industry services is around US$3.25 billion (with embedded software comprising 78% of the figure) and is expected to grow to US$43 billion by 2015. Share of VLSI Design, Hardware/board design and embedded software in overall revenues (India): 2005 VLSI Design US$583m 18% Hardware/ board design US$139.8m 4% Embedded Software US$2,530m 78% Total US$3.25bn 100% Note: m stands for million and bn stands for billion

In 2006, several marquee brands have invested in new design operations in India or significantly expanded existing facilities. These companies include Agilent, Via, Dell, Rambus, Windriver, Wolfson, Austria Microsystems, Tensilica and Sandisk. Not only are the captive design units expanding at a furious pace, third-party outsourced design service providers based in India are also on the go. Companies like Wipro have even made overseas acquisitions to beef up their design service offerings.

End-user Sub-sectors

Optical Instruments Optical instruments are used in industrial laboratories (like textile, steel, metallurgical industries), educational Institutions (inclusive of medical and engineering colleges), government run scientific research institutes and companies where R&D and testing operations are performed like pharmaceuticals and biotechnology. The Indian Optical instrument industry even though not new in India is controlled mainly by small & medium enterprises. Presence of big brands in this industry is seen only in certain products manufacturing. Growing requirement for technically advanced optical instruments is forcing the end users to import them because the instruments manufactured by Indian companies are not meeting their technical requirements. Many Indian optical instrument manufacturers in order to utilize the growing demand for advanced technical instruments are acquiring the technology by forming joint ventures with some leading foreign companies. As a result many Indian manufacturers in the recent years are increasing their product varieties and efficiencies and increasingly becoming export oriented. Percentage of optical instruments exported by Indian companies to the developing countries has increased from 5.3% in 1995 to 7.6% in 2004. There are big branded multinationals like Canon which are into manufacturing, specific range of high end optical instrument products. Demand for the optical instruments is increasing with growing quality norms- which are making companies to have stringent testing facilities and growing educational institutions- resulting in an increase in laboratory requirements. Increasing Investment in healthcare services is creating a higher demand for optical instruments. But still the Indian optical instrument manufacturing industry has to come up with more high end products in Indian market. Opportunities Increasing number of modern laboratories in India evokes a requirement of improved technology based optical instrument manufacturing base. Therein lies the opportunity for foreign companies to come to India and invest in the industry.

Sector 5: Iron and Steel Industry

Overview Indian iron and steel industry can be broadly divided on the basis of stages of production: one being the iron ore miners and the rest being the steel producers who manufacture steel from iron ore. Ore miners engage in mining activities while the steel producers are further classified into primary producers and secondary producers. The primary producers are further divided on the basis of method of production used for making steel. They are Blast furnace method, Electric Arc furnace (EAF) and Corex method. The secondary producers are re - rollers and stand alone producers. The stand alone producer can further be segmented into pig iron and sponge iron manufacturing units. Iron ore Industry Iron ore is the main raw material used in steel production; growth in demand for steel is increasing the demand for iron ore, whose prices in the recent times has shot up along with other raw materials like coal. India's iron ore reserves are estimated to be at 24 billion tonnes, of which a major portion has a rich iron content of about 65% as compared with Brazil's iron ore reserves which have 66% iron content. Iron ore production in India has been increasing steadily from 2003-04 onwards and has shown an estimated growth rate of 17.29% (CAGR) from 120.6mmt in 2003-04 to 165.9mmt in 2005-06. The demand for iron-ore is estimated to have increased by 12.9% (CAGR) from 52mmt in 2003-04 to 66.3mmt in 2005-06. Sponge Iron: With the growing scarcity of scraps used in steel manufacturing largely by secondary units lots of sponge iron manufacturing facilities have been installed in India in the recent past. India is the world’s largest producer of sponge iron. The growth of sponge iron production has been estimated to have increased by 18.4% from 10.30m metric tonnes in 2004-05 to 12.2m metric tonnes in 2005-06. Presently there are 227 sponge iron units installed in the country having a capacity of 18.65m metric tonnes per annum. Out of these, there are 204 coal-based units in operation with a capacity of 12.55m metric tonnes per annum. There are three gas-based units covering a capacity of 6.10m metric tonnes per annum. Pig Iron: India is a net exporter of pig iron with exporting to countries like South Korea, Thailand, Iran & Malaysia. Pig Iron has seen substantial growth during the past few years. Post-liberalization production of pig iron has increased from 1.6m metric tonnes in 1991-92 to 3.85m metric tonnes in 2005-06.

Production of Pig Iron (m tonnes) Year Main

producers Secondary producers

Grand total

Production Capacity

2000-01 0.96 2.15 3.11 4.5 2001-02 1.02 3.05 4.07 6.0 2002-03 1.11 4.18 5.29 6.0 2003-04 0.97 4.25 5.22 6.0

2004-05 0.621 2.55 3.171 6.0 2005-06 (Apr-Oct) Estimated

0.173 0.425 0.598 6.0

Source: Ministry of Steel, Government of India Steel industry: This has been one of India’s oldest industries, contributing to the country’s economy to a large extent. India with its 3.37% share in global steel production in 2005 became the eighth largest producer of crude steel in the world. Its crude steel production grew by 16.9% from 32.6m metric tonnes in 2004 to 38.1m metric tonnes in 2005 and finished carbon steel production grew by 10.66% over 2004 to 40.05m metric tonnes in 2005. Consumption of finished carbon steel in 2005 stood at 34.39m metric tonnes, which is an increase of 10.33% from 2004. The demand-supply gap remained steady from 2003-04 to 2004-05 at around 5.6m metric tonnes but in 2005-06, it has been estimated to have fallen by 24.8% to 4.26m metric tonnes The domestic demand for steel is expected to grow at a CAGR of 4.04% during 2006-09. The main reasons for growth in consumption of steel are the growth in infrastructure, construction, transportation and consumer durables in which steel is consumed as a major raw material. Steel is exported and imported by India since long. For the last three years, there has been a rising trend in the imports, which grew from 1.51m metric tonnes in 2003 to 2.1m metric tonnes in 2005, with a CAGR of 17.93%. India’s steel exports have declined by 16.1% from 5.22m metric tonnes in 2004 to 4.38m metric tonnes in 2005. The main reason for an increase in steel import is a growth in the automobile sectors mainly by the foreign manufacturers who produce vehicles and as a result import steel in huge quantities. The government plays a very crucial role in determining domestic steel prices. Although it does not directly decide the prices and regulate the industry, it acts as an enabler of prices. SAIL is the largest steel producer in the country among the state owned companies. Other large private players in integrated steel manufacturing are Essar Steel, JSW Steel Ltd., etc. The performance of the domestic major players has been robust in the last three years. The outlook for the coming years is equally positive. Growth prospects in the steel industry are also attracting global steel manufacturers. Two global steel giants Mittal and POSCO have signed a MoU with the Orissa state government to establish their production facility that signifies an important step for the Indian steel industry. Steel Products: Based on the shape and size, steel is classified into long products and flat products. Long products include bars, wire rods, structural products and railroad sections. They are used in construction and heavy engineering. Flat products include HR coils/ sheets, CR coils/ sheets and galvanised sheets. HR coils/sheets are primarily used for making pipes. CR coils/sheets are used in automobiles (cars, scooters, and motorcycles), white goods, and consumer durables. Galvanised sheets are used mainly in roofing, panelling, automobile bodies and trunks/boxes.

Demand for flat and long steel products in India for 2005-06 is estimated to be around 21.83m metric tonnes and 16.28m metric tonnes. Production capacity for flat and long steel products was 22m metric tonnes and 25m metric tonnes. Future demand for the steel products is expected to increase because of the growth in economy which is resulting in higher investments in sectors where steel products are used as raw materials.

Finished Carbon Steel

Production of Finished Carbon Steel (m tonnes) Year Main

Producers Secondary Producers

Grand Total

Capacity (Approx)

2000-01 12.51 17.19 29.7 35 2001-02 13.05 17.58 30.63 39 2002-03 14.39 19.28 33.67 39 2003-04 15.19 21.00 36.19 40 2004-05 15.575 22.825 38.400 42 2005-06 (Apr-

Oct) 7.914 12.91 20.824 45

Source: Ministry of Steel, Government of India

Steel products such as bars and rods, plates, hot rolled coil (HRC), cold rolled coil (CRC) and GP/ GC fall in the finished steel category. The production of finished carbon steel in the country totalled 29.7m tonnes in 2001-02, compared to 14.33m tonnes in 1991-92. Sales

The sales of finished carbon steel increased from 14.84m tonnes in 1991-92 to 27.35 tonnes in 2001-02. The table given below presents sales of finished steel during the fiscal years 2000-06. The wide fluctuations in sales growth show that the demand for steel in the country is erratic.

Sales of Finished Steel (m tonnes) Month Bars and

rods HR coils/

sheets HR sheets CR coils/

sheets GP/GC sheets

Finished steel

2000-01 10.53 9.50 0.52 4.54 1.78 26.87(7.44*) 2001-02 11.00 8.62 0.65 4.90 2.18 27.350 (3.1*) 2002-03 11.36 9.05 0.54 5.21 2.737 28.897 (5.6*) 2003-04 11.97 9.58 0.59 5.34 2.848 30.328 (5*) 2004-05 12.84 10.08 1.03 6.11 3.294 33.354 (9.97*) 2005-06 (Apr-May)

1.90 1.49 0.15 0.91 0.507 4.957

* Indicates percentage increase in production over previous year

Source: Ministry of Steel, Government of India

Imports & Exports

Steel is classified in the international market mainly into two standards: American Iron and Steel Institute (AISI) classification, and Unified Numbering System (UNS) classification. Both these systems use a series of 4-5 digits to classify according to the primary alloying element, the approximate content of the primary alloying element, and the approximate carbon content. In addition, there is the American National Standard Institute (ANSI) classification, which mainly deals with finished steel products. As research indicated that carbon-free steel is non existent, low-carbon steel is considered as carbon-free steel in this report.

Exports

Although steel exports began in 1964, substantial growth in export of finished steel was witnessed only in the post-liberation period. Steel exports increased from 0.9m tonnes (Rs70 billion) in 1992-93 to 3.4m tonnes (Rs258 billion) in 1997-98, overtaking sectors such as electronic goods and human-made fabrics. There has also been a qualitative change in the export of steel items. Earlier, export consisted mainly of plates, bars and rods and structural. Now steel exports comprise semis, hot-rolled coils, cold-rolled coils and galvanised sheets. The prominent export destinations for steel include the US (16.34%), Italy (7%), Spain (4.43%), South Africa (2.14%), Korea (2.7%), Iran (2.26%), Malaysia (2.06%), the Philippines (1.55%) and the UK (1.29%).

Exports of Steel Percentage Share of total value

Year Total Steel

(m tonnes)

Total Value

(Rs bn) High

carbon Products

Pig Iron Semis Stainles

s Steel

Low Carbon

Steel

Finished Carbon

Steel 2000-2001 3.000 51.745 1.3 7.7 6.5 4.3 0.01 80.199 2001-2002 3.242 44.831 2.88 7.5 8.3 2.6 0.06 78.66 2002-2003 4.966 92.540 0.5 12.6 9.2 1.7 0.03 75.97

2003-04 5.922 1,19.068 8.99 9.2 11.8 1.7 0.17 68.14 2004-05 4.777 1,83.180 1.66 3.7 4.7 1.9 0.14 87.9 2005-06

(Apr-October)

4.637 1,77.811 - - - - - -

Source: DGFT, Cygnus Research

Imports

This sector has been freed from import licensing, and the import duty is lower. On an average, India has imported 1.64m tonnes of steel every year in the last five years. Following are some of the leading suppliers of iron and steel to India: Russia (11.19%), Japan (6.16%), the US (5.9%), Germany (5.3%), China (3.7%), Romania (3.25%) and Belgium (2.7%). Steel imports largely comprise sheets, bars and rods.

Import of Steel Percentage Share

Year

Total Steel (m

tonnes )

Total Value

(Rs bn) High

carbon Products

Pig Iron Semis Stainless

Steel

Low carbon Steel

Finished Carbon

Steel 2000-01 1.632 436.960 0.007 0.12 0.12 0.78 0.10 97.97 2001-02 1.375 536.429 0.001 0.14 0.13 1.37 0.32 98.039 2002-03 1.510 536.542 0.002 0.07 0.20 0.88 0.40 98.448 2003-04 1.650 815.531 0.0003 0.12 0.21 1.42 0.54 97.707 2004-05 2.050 1,465.562 0.0001 0.34 0.64 0.9 0.48 97.639 2005-06

(Apr-Oct)

1.438 1,028.06 - - - - - -

Source: Ministry of Steel & Cygnus Research Opportunities Indian steel industry has a good potential with low per capita consumption of 32kg. In order to meet the growing domestic and international demand, the government has formulated a National Steel Policy, which has a target of 100m metric tonnes of steel production by 2020. Entry barriers to steel industry include capital expenses, long gestation period, unavailability of raw material, over supply situation and minimum economic size; each one of them impacts the investment decision. Looking to the current flow of foreign investment and upsurge in demand for automobile and components along with white goods investment in either green field steel manufacturing or steel related industries look really up.

2. COMMON MISTAKES IN EXPORT TO INDIA Mistakes occur at different stages while doing export business with the Indian importers. We found that unsuccessful companies committed mistakes in the four key steps and were negatively influenced by three important factors, as given below: Steps Influencing Factors Planning and Preparation Attributes Entering the Market Representation Developing and Sustaining the Business Thinking about the Future

Connections

Planning and Preparation Stage Entering the Indian market requires a substantial amount of preparation and patience, and takes a considerable period of time to accomplish. Time and other resources need to be invested in developing knowledge of the institutional environment. Generating credibility in the market before entry is also beneficial. Tenders and competitive contracts require considerable background work, not only with regard to the content of the tender request, but also on building relationships with key decision-makers and people to understand the tender process. Finding a partner who has knowledge of the local market and procedural issues is a must for successful business development. For Italian business men, ideally, the Indian partner should be conversant with the language and customs of Italy. Appropriate and sufficient infrastructure must be in place in India to support the business. In many cases, it is necessary to wait until the infrastructure has been developed, or else invest in developing local infrastructure to a level sufficient enough to accommodate the products or services being offered. Success in India may take longer to achieve than in other international markets. It requires a lot of preparation and investment before gains are realised, and there is relatively a high level of risk. Entering the Market Decision-making in India is slow, particularly with the public and government sectors, and it is important to assess the amount of time that obtaining an initial order is likely to take. Decision-making blockages are sometimes overcome by drawing on the influence of network links of Italian companies in India.

Some times companies have failed to understand the implications of licensing and tariffs only to make a retreat. However, some of these companies made a re-entry when restrictions on import licenses were partly or fully waived. The importance of having other critical factors, such as initial relationships with customers, solutions to bureaucratic barriers, and a period of time becoming familiar with the Indian market, cannot be undermined. Developing and Sustaining the Business in India Pricing is the key to gaining orders, and there is little doubt that Indian customers will negotiate prices aggressively. Local labour is necessary for a number of Italian companies wanting to do business in India, for tasks such as assembly, installation, and implementation. The companies generally have to rely on their agents or distributors to assist with hiring and managing local labour, in particular, with monitoring performance and dealing with local labour laws. Government involvement is considered to be both a help and a hindrance to doing business in India. State- and nationally-funded projects have led to business opportunities for many of Italian companies. Thinking about the Future Although the opportunities for future growth in India are well recognised by global companies, not all of them anticipate this market becoming a substantial part of their business, at least in the near future. At this stage, it is still considered relatively high risk and uncertain, with considerable change needed in the country to encourage further investment. Attributes Establishing credibility and reputation may involve a substantial initial investment of time and money, often before any payback is realised. Credibility and a strong reputation are achieved by the companies in a number of ways: building links with large Indian corporation or government customer (for example, one company has endorsement from one of the largest banks in India); using the links of a credible or reputable agent (or distributor/partner) or opinion-leader; leveraging from an international reputation (e.g. with world funding agencies); becoming part of a wide professional network that provides legitimacy in the market; drawing on links with international partners that conduct business in India; and leveraging from customers’ experiences with the product or service in Italy– such as professionals returning to India.

Representation Getting the right agent for a company is critical to success. A key attribute of successful agents or distributors is their connectedness with political representatives and officials, as well as with potential customers and decision-makers. Agents’ are also instrumental in sourcing skilled labour. Power and size symmetry between company and agent can help engender trust. Strengthening links with agents is best done gradually. Connections Being linked to a local network is critical for success in the Indian market. An Italian company’s access networks through their agents, distributors or partners, and, over time, build relationships and become part of the local network involved in their business. The networks include a range of stakeholders, but of primary importance are the decision makers (often policy officials) and customers. Frequent visits to India are critical, in order to build relationships, and stay informed about the business and customers in India. The frequency of visits for the New Zealand company managers varies, ranging from 2 to 8 times per year, depending on the particular needs at the time. At critical times during a tender process, for example, an Italian manager may need to make numerous visits over a short period of time. Working with large companies provides substantial opportunities for Italian companies. These arise from a range of factors: the reputation of the large company, the opportunity to tap into their business networks, including customers, and access to markets, and technical and political knowledge. In many cases, large corporations have influence at government level, and are able to lobby for industry-based regulatory changes, access tender information, or negotiate with key decision-makers. Survey feedback Survey was conducted among a few members of Indo Italian Chamber of Commerce taking a few industries and units and they are summarised below.

Generally for matured Italian companies exporting goods/services Indian companies do not have much issues as far compliance with custom procedures are concerned

New companies sometimes do not comply with export regulations (in terms of adequate documents). They should get professional support if required

Price quoted is high and that spoils the market opportunities sometimes Even free replacement is there in the contract clause but some principals charge

the courier cost and applicable duties on the parts to be supplied which causes enough dissatisfaction amongst Indian customers

3. OBSTACLES Fiscal (FDI Policy) Machine Tools

• 100% FDI allowed • Machine tools manufacturers are exempt from obtaining an industrial license to

manufacture. • Manufacturers are free to select the location of the project. • Import duties have been reduced to promote import and increase usage of machine

tools. Tax According to Deloitte, India's top income tax rate is 33 % (a top rate of 30% plus a 10% surcharge), up from the 30% reported in the 2005 Index. The top corporate tax rate has been cut to 33% (a reduced top rate of 30% plus an increased surcharge of 10%) from the 36.8% reported in the 2005 Index. In 2003, according to the Asian Development Bank, government expenditures as a share of GDP increased 1 percentage point to 29.1%, compared to the 0.4 percentage point increase in 2002. For the fiscal year ending March 31 2006 the basic corporate tax rate for domestic companies was reduced to 30%, and the surcharge was increased to 10%. The effective tax rate for domestic companies is 33.66 % (30 %, plus surcharge of 10% of the tax, plus education cess of 2% on tax and surcharge). A minimum alternate tax. (MAT) is levied at 7.5% (plus a surcharge of 10% of the tax, plus an education cess of 2% on the tax plus surcharge) of the adjusted profits of companies where the tax payable is less than 7.5% of book profits. This adds up to an effective 8.415% minimum tax rate. Foreign companies are taxed at 41.82% (40%, plus a surcharge of 2.5 % of the tax, plus education cess of 2% on the tax and its surcharge). Income of domestic shipping companies can be computed under the tonnage tax scheme. Non-residents and foreign companies engaged in shipping/aviation, oil/gas and turnkey power projects are taxed on a deemed profit basis of 7.5%, 5% and 10% respectively, resulting in effective tax rates for these companies, including surcharge and education cess, of 3.1365%, 2.091% and 4.182% respectively. Dividend Distribution Tax (DDT) is levied at 14.025% (12.5%, plus surcharge of 10% of the tax, plus education cess of 2% of tax and surcharge) on dividends distributed by a domestic company and by a domestic mutual fund to individual unit holders of non-equity mutual funds. The DDT is levied at 22.44 % (20%, plus surcharge of 10% of the tax, plus education cess of 2% on tax and surcharge) on the income distributed by domestic mutual funds to corporate unit holders of non-equity mutual funds. Securities Transaction Tax (STT) is levied at varying rates on the value of specified taxable securities transactions through a recognized stock exchange, or on the sale of units of equity-oriented mutual funds to the mutual fund. Fringe Benefit Tax (FBT) is levied on

certain fringe benefits provided to employees at 33.66% for domestic companies and 31.365 % for foreign companies. The budget proposing rates of tax effective from 1 April 2006 was issued on 28 February 2006. Communication or bringing awareness Over the years, the Indian economy has moved from being a controlled, sellers’ market to a buyers’ market. For the sellers, media availability has increased exponentially, competition is unlimited, budgets are large and expectations of advertising are high. Practically every aspect of media is available for advertising, from print to outdoor advertising to satellite channels to movie theatres. (Ref Part 6) Marketing Italian exporters generally feel that institutional and cultural factors are the principal deterrents to gaining market access in India. Obstacles to exporting include: time delays in conducting business transactions, government bureaucracy, and corruption by other government officials. Distribution: India has recently seen the emergence of mature channels of distribution and support for products such as computer hardware, software, and peripherals, ranging from commodity products to high-end IT equipment. The typical distribution structure has been two-tiered with a distributor (for the entire country) servicing dealers and retailers. Improvements in packaging technology have also had a significant influence on the models of distribution adopted by companies in India for marketing perishable and processed food items. There has been a significant expansion in distribution channels in India during the past few years. The total number of retail distribution outlets in the country is estimated at over 12 million. A firm can take its products to the user through a variety of channels. It can use different types of marketing intermediaries. It can structure its channel into a single-tier or a three-tier outfit. After deciding on the broad design of the distribution channel and the number of tiers in the channel, the number of members required in each tier and their locations, suitable dealers must then be selected. India has eleven major seaports and 139 minor working ports along its two coasts, but in terms of gross weight tonnage conveyed annually, Mumbai, Marmagao on the west coast, and Vishakhapatnam and Chennai along the east coast are the most important ports in India. Mumbai, the financial capital of the country is very important for the international cargo trade.

Customs Customs duties are levied in three ways:

• Specific rate: At the rate prescribed per unit of item i.e. weight or number of length

• Ad-valorem: duty-levied on the value of the item • Both of the above levied simultaneously

The Customs Act was formulated in 1962 to control the imports through preventing illegal imports and exports of goods. The Customs Tariff Act specifies the tariffs rates and provides for the imposition of anti-dumping and countervailing duties. With some exceptions, most tariffs are ad-valorem. Tariff rates, excise duties, regulatory duties, and countervailing duties are revised in each annual budget. From February 1, 2003, Indian Customs uses the 8-digit customs classification code based on Harmonized System of Nomenclature (HSN). Currently, Indian Customs, the Directorate-General of Commercial Intelligence and Statistics, and the Directorate General of Foreign Trade use different nomenclatures and codes for classification of imports and exports. While Customs use six-digit codes, DGCI&S uses eight-digit codes for statistical purposes. The DGFT has broadly extended the eight-digit DGCI&S codes up to 10 digits.

TYPES & LEVY OF CUSTOMS DUTIES Basic duty: All goods imported into India are chargeable to duty as prescribed in the 1st Schedule of Customs Tariff Act. This Schedule is amended from time to time of Customs Tariff Act. This duty can be levied either as a percentage of value of goods or at a specified rate. Indian government assesses a one percent customs handling fee on all imports in addition to the applied customs duty. Surcharge: It is levied at the rate of 10 % of the basic rate on all commodities except crude oil and petroleum products, GATT-bound items, gold and silver. Additional Duty: Popularly known as the countervailing duty or CVD, is levied on the cost of imported goods and is equivalent to the excise duty levied on like goods when manufactured in India. The objective is to ensure that the protection provided by the import duty to domestic industry is not eroded. Education Cess: Effective July 2004, India introduced a new education cess (duty) assessment at the rate of two % of the aggregate duty of customs (except safeguard duty, countervailing duty, and anti-dumping duty) levied on such goods. Goods bound under international commitments have been exempted from this cess.

Anti-dumping Duty: This is levied on specified goods imported from specified countries, including Italy to protect indigenous industry from injury. Safeguard Duty: The Indian government after conducting an enquiry if satisfied that any article is imported into the country in such increased quantities and under such conditions so as to cause or threatening to cause serious injury to domestic industry, then it may by notification impose a safeguard duty on that article.

COMPUTATION OF TOTAL TARIFF Total duty payable = Landed cost including CIF of the item concerned + Basic customs duty under the Customs Tariff Act + Surcharge thereon + Additional duty + Education cess. In order to give a broad guide as to classification of goods for the purpose of duty liability, the Central Board of Excises Customs (CBEC) periodically publishes a book called the "Indian Customs Tariff Guide" which contains various tariff rulings issued by the CBEC. The Act also contains detailed provisions for warehousing of the imported goods and manufacture of goods is also possible in the warehouses. The Indian government publishes customs tariffs rates on imports but there is no single official publication that has all information on tariffs and tax rates on imports. Moreover, each Indian State levies taxes on interstate trade and commerce, which creates confusion. Effective April 2005, the Indian government implemented a Value-Added tax (VAT) system meant to replace the inter-state taxes, but implementation is not yet universal in all the States. Duty exemption plan: The Duty Exemption Plan enables duty free import of inputs required for export production. An advance license is issued under the duty exemption plan. The Duty Remission Plan enables post export replenishment remission of duty on inputs used in the export product. Duty Remission plan consists of (a) DFRC and (b) DEPB. DFRC permits duty free import charges on inputs used in the export product. The government has wide discretionary power to declare full or partial duty exemptions “in the public interest” and to specify conditions such as end-use provisions. Almost half of India’s total inputs enter under concessional tariffs, though the use of exemptions is falling in tandem with the tariff-reduction program. Industries that might benefit from reduced tariff rates include the following: consumer products, processed food, footwear, toys and telecommunications products. Fertilizers, mining equipment, wood products, jewellery, camera components, paper and paperboard, ferrous waste and scrap, computers, office machines and spares, textile machinery and spare parts, hand tools, soft drinks, cling peaches, vegetable juice and canned soup would also benefit.

4. PARAMETERS OF COMPETITION

Sector: Mechanical Components • Inter-firm rivalry: Low-High – depending on product categories, the industry is

dominated by many small-scale units to only few niche players. • Barriers to entry: Low-High – however, in certain product segments, building

brand image is important. • Threat of substitutes: Low to medium depending on products. • Bargaining power of suppliers: Medium to high – depending on size and image of

the supplier. • Bargaining power of buyers: Medium to high Global MNCs present in India: Makino, DMG, Haas, Trumpf, Daewoo, Agia, Charmilles, Schuler, Cummins, Siemens, ABB Ltd are present in India either through their marketing agents, technical centres, service centres or assembly centres. Sub sector: Mechanical parts and sets • Inter-firm rivalry: Medium-High – depending on product categories, the industry is

dominated by SMEs to only a few niche players. • Barriers to entry: Low-High –however, in certain product segments, building

brand image is important. • Threat of substitutes: Low to high depending on products. • Bargaining power of suppliers: Medium to high – depending on size and image of

the supplier. • Bargaining power of buyers: Medium to high

Castings and Forging Industry Composition of the Indian forging industry: large (9-10), medium (30), small (70) and tiny (220). Major Companies • Ahmednagar Forgings Limited • Amforge Industries Limited • Bharat Forge Limited • Electrosteel Castings Limited • Mahindra Forgings Limited • Shree Ganesh Forgings Limited

• There are no foreign companies operating in forging industry in India. • Imports of forging and castings products, if any, are insignificant. Indian

industry is not only self sufficient but also exports to other countries. We believe that foreign players cannot compete with Indian companies directly. They can do so either by acquiring an Indian company or by merging with an Indian company.

• Italian exporters can export forgings to the industry only if they can sell at cheaper prices.

• There are opportunities for investing in Indian companies who want to increase investment in R&D and technology upgradation.

Seamless Steel Pipes & Tubes Composition of the Indian seamless steel pipes and tubes industry: Oligopoly with Indian Seamless Metal Tubes Ltd (ISMT), Jindal Saw Limited (JSL) and Maharashtra Seamless Limited (MSL) controlling around 80% and the rest by others and imports. Major Companies

• ISMT Limited • JSL • MSL • Man Industries (India) Limited • Surya Roshni Limited • Welspun-Gujarat Stahl Rohren Limited

• Indian imports of seamless steel pipes and tubes (HS Code 7304) constitute a

sizeable portion of 10-20%. However, major players in this segment are trying to capture market from exporters. China, Japan, France, Russia and Italy are the top five exporting countries to India. The competition among these exporters is high. Capturing the market is possible only by supplying quality pipes at below the market prices.

Sector: Machines and Mechanical devices

• Inter-firm rivalry: Medium-High – depending on product categories, the industry is

dominated by many small-scale units to only few niche players. • Barriers to entry: Low-High – however, in certain product segments, building

brand image is important. • Threat of substitutes: Low to medium depending on products. • Bargaining power of suppliers: Medium to high – depending on size and image of

the supplier. • Bargaining power of buyers: Medium to high Most of the companies operate in niche markets. For instance, Lakshmi Machine Works and Textool manufacture the complete range of textile machinery; Manugraph

Industries has expertise in printing machinery; ITW Signode and Flex Engineering are into packaging machinery; DGP Windsor and Electronica are into plastic machinery; Walchandnagar Industries is in cement machinery; Praj Industries in brewery plants; and Ion Exchange in pollution-control equipment. However, a couple of companies such as Thermax and Alfa Laval have a wide product range and their products find applications across industries. The product range of the former includes boilers, heat exchangers, chillers, environment equipment, and chemical and co-generation equipment. The latter's product profile includes separators, decanters, flow equipment, machinery for dairy, brewery and vegetable oil plants.

Thermo plumping and air conditioning: Competition The Indian air-conditioning industry showed a healthy growth rate of 25-30% for 2005 according to data collected by the Refrigeration and Air-conditioning Manufacturer’s Association. Worth approximately €1 billion, excluding the consumer refrigerator segment, the market experienced impressive growth in the commercial AC segment, which accounts for around €500m. Residential air conditioning has grown by around 25% to over €468m; the balance is accounted for by commercial refrigerator units, including deep freezers, chillers and bottle-coolers. Major Companies

• Blue Star • Batliboi Ltd • Carrier • Kirloskar McQuay • Thermax Ltd • Voltas Ltd

Home Appliances (Dishwasher, washing machine, tumble dryer, etc) Washing machine demand grew by an unprecedented 16.5% in 2004-05, owing to the stupendous growth of fully-automatic washing machines. Production increased on account of improved sales growth. However, raw material costs, which form 50-60% of net sales, also shot up in the same year. As a result, player margins remained strained. We expect the demand for washing machines to rise at a growth rate of 8-10% over the next 2-3 years. However, competitive pricing is expected to continue. Player margins are expected to remain under pressure on account of limited pricing flexibility in the face of escalating raw material costs. As of 2005, the dishwasher market in India was small at just 8,000 units. However, with more urban women balancing careers and homes, and domestic help becoming uneconomical, marketers feel that demand for dishwashers is bound to grow. One factor that might be inhibiting the growth is the price. Dishwashers are currently priced at Rs22,000-60,000 (approx US$500-1,365), which is too high for most middle-income households.

Tumble dryer market in India is at a very nascent stage. As of now, it is dispatched-to-order type market. Sector: Moulds

• Inter-firm rivalry: High – the industry is dominated by many small-scale units. • Barriers to entry: Low – however, in certain product segments, building brand

image is important. • Threat of substitutes: Low to medium depending on products. Environmental

concerns also persist. • Bargaining power of suppliers: Medium to high – depending on size and image of

the supplier. • Bargaining power of buyers: Medium to high

Sector: Mechanical Designing • Inter-firm rivalry: Low – the industry is dominated by very few firms. • Barriers to entry: Medium-High – depending on the value chain of the work they

process. • Threat of substitutes: Virtually non existing • Bargaining power of suppliers: Medium to high – being a knowledge-based

industry, it is much affected by attrition. • Bargaining power of buyers: Medium to high Automobile Designing At TCS labs in India, engineers work on virtually every aspect of car design for an array of foreign clients. In Bangalore, for example, engineers are tweaking the designs of a drive train for a passenger car to be built by a Western auto maker. Using virtual 3D prototypes, ergonomics experts run complex analyses of design changes to the car's interior, helping determine whether the steering wheel or radio controls are at an optimal distance from the driver. Bangalore-based Harita Infoserve Ltd is developing interior parts and conducting computer tests on components for General Motors Corp (GM). Plexion Technologies based in Bangalore has worked on the interior design and windows for a DaimlerChrysler (DCX) bus. Railway Coach Designing Rail Coach Factory (RCF) in Kapurthala specialises in design and manufacturing of a wide variety of air-conditioned, non-airconditioned and self-propelled coaches for broad gauge and metre gauge. Since its inception, the factory has produced more than 15,000 coaches of 51 different types, with the coach manufacturing capacity surpassing 1,000 coaches per year. The factory has successfully rolled out German designed coaches for Rajdhani and Shatabdi express trains. So far the factory has rolled out five Rajdhani rakes of German design, now running between Mumbai and New Delhi. It has also rolled out German designed Shatabdi coaches for operation at 150 kilometres per hour, to be the fastest train of Indian Railways. RCF has the latest

computer-aided design and manufacturing facilities, besides in-house capabilities in linear stress analysis of coach shell and bogie structure.

Sector: Iron & Steel: Competition In the post-liberalisation era, the Indian steel industry is influenced by global factors. The global steel demand is rising due to accelerated infrastructure activity in China, CIS countries and India. In addition, there is housing boom in the US, and white goods resurgence in Europe. In the past few years, the industry has consolidated in terms of ownership as well as mothballing of inefficient capacities. Steel prices continue to firm up. In India, China and other Asian countries, the demand is led by investment in infrastructure. In addition, demand from automobiles and white goods industries is increasing. Russia and other CIS nations are witnessing strong internal demand. Higher demand has led to fresh capacity creation. On an average, the world is increasing its capacity for steel production by about 60m tonnes per year. In India, the growth in steel production has increased by 5.85% per year in the last five years. The manufacturers with integrated production facilities such as Tata Steel and SAIL have already built a strong brand image compared to the small manufacturers with mini-blast furnaces. The small manufacturers are facing problems in selling products at a better price. As a result, their profitability is low compared to the primary manufacturers. The bulk of products of small manufacturers is consumed by small-time builders and low-cost construction projects. Now small manufacturers in the country are in a bind. Imports at subsidised rates, meanwhile, are posing a threat to the industry itself. Although steel imports from China are currently low at 3.7% of total steel imports in the country, there is a possibility that China will focus on exports after domestic demand reduces in the next four to five years.

5. COMMUNICATION AND PROMOTION According to the Advertising and Marketing (A&M) magazine, a leading trade journal, advertising is a US$3 billion industry in India today. The Indian industry grew 11.5% in 2004-05. Media accessibility has increased exponentially, competition is unlimited, budgets are large and expectations of advertising are high. Practically every aspect of media is available for advertising, from print to outdoor advertising to satellite channels to movie theatres. Italian companies have a choice of many advertising and trade promotion channels in India. The print media, almost completely controlled by the private sector, is well developed and advertising and promotional opportunities are available in a large number of newspapers including daily, weekly or monthly business publications, news magazines and industry-specific magazines.

• The Times of India and the Hindustan Times are the largest selling English-language newspapers, with a readership base across India.

• Leading business newspapers include the Business Standard and the Economic Times.

• Leading magazines include India Today, Business India, Business Today, Business World and the Outlook.

Advertising opportunities are also available on satellite and cable television channels. Doordarshan, the government-owned television network, can reach almost 90% of the population. In addition, more than 80 satellite and cable television channels, including many U.S. and international channels such as STAR TV, CNN, NBC, Discovery, National Geographic and BBC, are available for advertising. Satellite TV has grown explosively from 134m viewers in an average week in 2002 to as many as 190m viewers in 2005. Another advertising media is the radio, by which the government-owned All India Radio (AIR) reaches over 90% of the population. Private radio channels are restricted to the FM music channels and are currently available only in a few cities. Radio improved its performance in urban India (23% listen to the medium, up from 20% three years ago) mainly due to FM. Another widely accessed medium is the Internet. Today, net access is estimated by over 20m people. Internet advertising is expected to grow exponentially over the next several years. All the above media are available in English, Hindi, and a variety of regional languages. Italian companies interested in advertising in any of the above media can work through the many advertising agencies in India. Many large and reputable U.S. and other international advertising agencies are present in India in collaboration with local advertising agencies. The advertising sector in India is technologically advanced.

In addition to advertising, established public relation firms are also available to Italian companies that require such services. In public relations too, a few Italian and other international companies are present in collaboration with local partners. In India, advertising is no different from other businesses - local advertising companies that need to have access to the best global technologies and practices in their industry have global collaborations. Mumbai remains the centre of the advertising industry in India. Italian companies can select from a number of quality international trade fairs, both industry-specific and horizontal, to display and promote their products and services.

Communication and Promotion - Mechanical Components

• Through trade shows exporters can create awareness among the end-user

clients. • Costs Involved : Average costs borne by foreign exhibitor

Cost Head Cost Type of stall Two Side Open: 15 % Extra, Three Side

Open: 25 % Extra Logistics (personnel and exhibited items)

Variable

Power Connection US$450 per KVA Compressor US$450 per Connection Service Tax 12.24% Total costs excluding logistics

Two Side Open: US$1162 Three Side Open: US$1263

Source: Cygnus Research

6. PENETRATION IN THE MARKET Various types of enterprises Options for entering the Indian market include using a subsidiary relationship, a joint venture with an Indian partner, or using a liaison, project, or branch office. Structures typically used by foreign investors Using an Agent or Distributor

A company choosing to sell its products or services in India prior to establishing a branch office or a subsidiary can enter the market by appointing an agent, representative, or distributor. If the product has a wide market appeal, it is advised that regional representatives/distributors be appointed.

Establishing an Office Overseas companies are required to obtain general or special permission of the Reserve Bank of India (RBI) for carrying out any activity relating to agriculture or plantation. A foreign company or individual planning to set up business operations in India, but choosing not to establish a subsidiary or to form a joint venture with an Indian partner, can do so by establishing liaison, project and branch offices in India. Approval from the RBI is required for opening such offices. Application for setting up such offices may be submitted to RBI in form FNC 1 (forms can be downloaded from http://www.rbi.org.in/scripts/BS_ViewFemaForms.aspx). Such companies also have to register themselves with the Registrar of Companies (ROC – for contact information log on to http://www.namasthenri.com/shares/ROC.HTM) within 30 days of setting up a place of business in India. Liaison or representative office: Many foreign companies initially establish their presence in India with a liaison or representative office that is not directly engaged in commercial transactions in India. Foreign companies usually open representative/liaison offices to oversee their networking efforts, to promote awareness of their products and to explore further opportunities for business and investment. A liaison office is not allowed to undertake any commercial activity and cannot therefore earn any revenue in India. As no revenue is generated, there are no tax implications to the office in India. Such offices are not allowed to charge any commission or receive other income from Indian customers for providing liaison services. All expenses are to be borne by remittances from the head office abroad. A foreign company establishing a liaison office cannot repatriate money out of India.

India’s Foreign Exchange Management Act (FEMA) regulates the establishment and operation of a liaison office. RBI’s permission to establish liaison offices is initially granted for a period of three years and this may be extended. While registering with the ROC, along with the application form, the foreign company is required to submit copies of its memorandum and articles of association, its balance sheet and copies of any contracts that it has entered into in India. Under now-eased accounting requirements of the Department of Company Affairs, foreign companies with liaison offices in India will not be required to file a full balance sheet and a profit and loss account with the ROC, under section 594 of the Companies Act, 1956. Every year, a certificate from the auditors must be submitted to the Regional Office of RBI. The certificate should state that the liaison office has complied with the terms and conditions stipulated in the letter of approval issued by the RBI, and that all expenses of the liaison office are met from remittance funds. Branch Office: A branch office, like a liaison office, is not an incorporated company but an extension of the foreign company in India. A branch of a foreign company is limited to the following activities by the RBI: representing the parent company and acting as buying/selling agent; conducting research for the parent company, carrying out import and export trading activities; promoting technical and financial collaborations between Indian and foreign companies, rendering professional or consulting services, rendering services in Information Technology and development of software in India, and rendering technical support to the products supplied by the parent/group companies. A branch office actually does business in India and is subject to tax. However, a branch office is not allowed to carry out manufacturing and processing activities directly although it can sub-contract such activities to an Indian manufacturer. Under the Banking Regulation Act, 1949, opening of branches in India by foreign banks requires RBI permission. Remittance of net profits/surplus by Indian branches of such banks to their head offices abroad, however, require prior approval of the Exchange Control Department of the Reserve Bank. Also under the Indian Companies Act, prescribed documents need to be filed with the ROC in the state where the branch is situated, and also with the main office in New Delhi. After initial registration, every year, the accounts of the branch must be submitted to the registrar of companies. The branch office is allowed to repatriate the profits generated from the Indian operations to the parent company after payment of taxes. Branch Offices on “Stand-alone Basis” in SEZ Such Branch Offices would be isolated and restricted to the Special Economic Zone (SEZ) alone 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 RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities subject to specified conditions. Application for

setting up Liaison Office/ Project Office/ Branch Office may be submitted in form FNC 1 (available at RBI website at www.rbi.org.in). Project office: Foreign companies sometimes set up a temporary project office to undertake projects in India, awarded to the parent company. It is essentially a branch office set up for the limited purpose of executing a specific project. Approval for project offices is generally accorded for executing government-supported construction projects or where the projects are financed by Indian and international financial institutions and multilateral organisations. In exceptional cases, approval is also given for private projects. A project office is allowed to return surplus funds to the foreign country upon completion of the project. None of these entities are permitted to acquire real estate without prior RBI approval. However, they are allowed to lease property in India for a maximum period of 5 years. Basic Guidelines: There are some key practical guidelines that new companies should consider while establishing offices in India: identify the right decision-makers; keep these decision-makers and other key players briefed about their project; avoid getting into the land acquisition process from private sources; handle local labour issues carefully because Indian laws essentially prohibit firing workers. Physical infrastructure, state government support and flexibility, cost and availability of power, and the law and order situation are considered the most important parameters in choosing a location in India. Other factors include labour availability and cost, labour relations and work culture, and proximity to resources and/or markets. In the area of labour law, an employer with more than 100 workers cannot fire them without permission from a government labour commissioner. Business centres are a viable option for new companies wanting to establish a physical presence. Business centres are facilities that are ready to move in, wired for communications, and air-conditioned. Billing is normally done on a monthly basis. For long-term use, discounts are generally available. Many state governments are creating special Technology Parks for selected industry sectors like software, biotechnology, and automotive. State governments eager to attract investments to such locations often provide special support and incentives. While some foreign companies have ventured into smaller cities, the numbers are increasing slowly. Given their large size in terms of population and middle/high income households, many foreign companies have traditionally focused on Mumbai and Delhi. During the past decade or so, foreign companies have discovered other places to set up base, such as

Bangalore, Chennai and Hyderabad. Pune is also catching up fast, especially for software companies. Incorporation of a Company For registration and incorporation, an application has to be filed with the 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. For details please visit the website of Ministry of Company Affairs at http://dca.nic.in Company’s Act 1956 The incorporation of a company in India is governed by the Companies Act, 1956. It extends to the whole of India and Part II of the Act deals with the incorporation of a company and matters related to. Private Company Private company means a company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by its articles,

(a) restricts the rights to transfer its shares, if any; (b) limits the number of its members to 50, not including

• persons who are in the employment of the company; and • persons who, having been formerly in the employment of the company,

were members of the company while in that employment have continued to be members after the employment ceased; and

(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company; (d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

Public Company A public company is a company which is not a private company and has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, as may be prescribed; is a private company which is a subsidiary of a company which is not a private company. Formation of a Private Limited Company A private company can be formed either by

i. incorporation of a new company for doing a new business, or ii. conversion of existing business of a sole proprietary concern or partnership firm into a company.

Name of a Company • The name of a corporation is the symbol of its personal existence. Any suitable

name may be selected, subject, however, to specified conditions • The following guidelines would be followed while applying for registration of

name of the company:

• The promoters should select three to four alternative names, quite distinct from each other. • The names should include, as far as possible, activity as per the main

objects of the proposed company. • The names should not too closely resemble with the name of any other

registered company. • The official guidelines issued by the Central Government should be

followed while selecting the names. Besides, the names so selected should not violate the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950. Apply in form 1-A to the Registrar of Companies having jurisdiction along with a filing fee of Rs500.

Memorandum of Association An important step in the formation of a company is to prepare a document called Memorandum of Association. It is the charter of the company and contains the basic conditions on which the company is incorporated. The Memorandum contains the name, the state in which the registered office is to be situated, main objects of the company to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects, liability of the members and the authorised capital of the company. The main purpose of the memorandum is to state the scope of activities and powers of the company. Articles of Association Articles of Association of the company contain rules, regulation and bylaws for the general management of the company. It is compulsory to get the Articles of Associations registered along with the Memorandum of Association in case of a private company. The Articles are subordinate to the Memorandum of Association. Therefore, the Articles should not contain any regulation, which is contrary to provisions of the Memorandum or the Companies Act. The Articles are binding on the members in relation to the company as well as on the company in its relation to members. Registration of a Company and Issue of Capital After completion of the preliminaries as enumerated, the application with necessary documents is required to be filed with the Registrar of Companies of the State in which the company is proposed to be incorporated. These include:

• Memorandum of Association (duly stamped) and a duplicate thereof • Articles of Association (duly stamped) and a duplicate thereof • The agreement, if any, which the company proposes to enter into with any

individual for appointments as its managing or whole time director or manager. • A copy of the letter of the Registrar of Companies intimating the availability of the

proper name • Documents evidencing payment of prescribed registration and filing fee, ie a bank

draft or a treasury challan. • Documents evidencing the directorship and situation of Registered Office in Form

32 and Form 18 respectively and declaration of compliance with requirements of

the Companies Act in Form No 1 and Form 29 for giving consent to act as a Director in case of public company should be given.

Registration Fee The amount of registration fee payable is regulated with reference to the amount of authorised capital of the proposed company. Certificate of Incorporation Once the company, as per the Companies Act and the relevant rules, has complied with all requirements, the Registrar will register the company and issue a Certificate of Incorporation of company, which confirms the compliance with the requirements of the Companies Act in regard to registration of a company. It brings the company into existence as a legal entity. Issue of Share Capital After obtaining registration, the company proceeds with its business for which it requires funds. In case of a private company, the capital is to be raised by way of private arrangements whereas a public limited company can raise funds from the public. First of all, the company will issue shares to the subscribers to its memorandum and other members of the company. The issued capital must not exceed the authorised capital of the company. It is necessary for a public limited company to obtain the Certificate of Commencement of Business before commencing the business. For more details please contact Ministry of Company Affairs at http://www.dca.nic.in. Franchising Franchising has been operating in India for several decades. One well-known example of this is the Bata shoe Chain, started in the 1960s. New franchise business concepts include as diverse sectors as healthcare, pharmaceuticals, specialised food services, garments and apparel, education, entertainment, fitness and personal grooming clinics and courier services, to name a few. India does not have any specific law on franchising. Franchising is covered within the broad definition of transfer of technology contained in domestic legislations. A legal framework for new franchisers interested in setting up master franchises in India however exists, in terms of brand protection and rules regarding payment of franchise fees. Some of the features of the Indian franchising industry are as follows:

• Wide spread sectors (from education to hospitality) • Over 40,000 franchisees currently • Annual turnover from franchising – approximately $2.2 billion • Total investments made by franchisees – approximately $1.1 billion • Over 300,000 people directly employed by franchised businesses

• Variety of hybrid formats in practice • Numerous international franchises already existing and rapidly expanding

While franchising has mushroomed in India, the concept has initially functioned mainly on an agent basis. It is still evolving and being refined and will take a couple of years for franchising to become more organised in India. Franchising in India is often perceived as a tool to cover the high cost of real estate that a company interested in retailing would have to bear. As a result, if business projections are not met, franchisees can and sometimes do shift to other franchises. With minor variations, in a typical franchise operation, a company approaches an owner of prime commercial space to provide the real estate, to invest in interiors and inventories to run a franchise business, and to hire staff for the operation. Franchisees prefer to recruit staff directly, but most franchisers insist on training the staff themselves, particularly in educational and computer training academies. Usually, the two parties work out an arrangement by which the franchisee agrees to sell the company’s products on an exclusive basis. Typically, the company’s investment is reduced by about 15% if the same operation is run by a franchisee. Also, the company has no worries about hiring and dealing with staff or worker unions. The franchise agreement is a comprehensive document that specifies everything from the franchise location to the finer details of operating the franchise. There are no standard franchise agreements because every franchiser and every business is different. Many details in the agreement are settled by bargaining, but the normal clauses that should be on the checklist of every franchiser includes use of brand name, protection of intellectual property, conflict of interest, indemnity, business promotion, definition of territory, period of validity, and termination. By the same token, the franchisee will seek to ensure that the agreement maintains his/her intellectual property rights; covers training, consultation and equipment and includes a suitable indemnity clause. Franchise fee payments in hard currency are allowed. A potential franchisee must submit a proposal for a franchise operation to the government ministry that regulates the particular industry sector. Among other details, the proposal must contain the amount of franchise fee that will be paid to the franchiser. The proposal moves from the relevant ministry to the Ministry of Industry and the Foreign Investment Promotion Board. Reserve Bank of India’s approval of the franchise fee is automatic when the Ministry of Industry clears the proposal. There are value or percentage limits on approvals of franchise fees, with franchise involving advanced or high-technology, receiving the highest limits. Royalty payments ranging from 3-8% are allowed in hard currency, in addition to the franchise fee, although the norm is closer to 5%. The royalty is calculated on total turnover for the year for the franchise operation. Direct Selling Direct selling is one of the fastest growing industries in India and is an unusually good income generator for entrepreneurs from all walks of life. In addition, direct selling offers consumers a convenient and more informed way to buy, along with money-back guarantees and refund policies. According to the Indian Direct Selling Association, the

direct selling industry reported a total turnover of $545m (Rs24bn) during fiscal year 2004-05. In India, direct selling traditionally meant contracting of outside agencies by manufacturers to move surplus or promotional products or small manufacturers resorting to door-to-door selling because of their inability to compete in the retail market. It has also meant deploying direct sales employees to demonstrate products with the objective of making a spot sale. The traditional view of direct selling is changing. One of the first Indian companies to practice direct selling in India was Eureka Forbes, which sells a range of household appliances through direct selling. Though some form of direct selling had been in practice in India, a new wave of interest to sell in the Indian market through the modern concept of direct selling has begun only during the last decade.

At present, the direct selling industry employs more than 1.3m people, an increase of 100,000 from 2003-04 to 2004-05. There are about 750,000 active direct sales executives (including men, women and couples working as a team) who buy or sell products at least once every two months. The total number of product offerings increased to 380 with 2,100 variants and product categories ranging from cosmetics to kitchenware, education, home care and natural products. According to industry estimates, there are roughly 20 direct selling companies in India with nation-wide coverage and approximately 100 smaller companies with localised city-specific presence. Many Indian and multinational companies like Amway, Aero Pharma, Avon, Herbalife, Sunrider, Tupperware, Lotus Learning, Oriflame, AMC Cookware, and Time Life Asia have started operations in India through joint ventures or wholly-owned subsidiaries. Amway, with more than 200,000 distributors spread across 26 cities servicing more than 306 locations, is perhaps the largest direct selling company in India today. Tupperware entered India in 1996 and currently has more than 40,000 dealers in 40 Indian cities. Established retail companies in India have also started direct selling operations, the most prominent being Hindustan Lever Limited of the Unilever group.

Since their launch, many direct selling companies have had to rework their strategies with emphasis on the three critical Ps of marketing - product, pricing, and packaging. Once considered as the medium for sales of premium products, direct selling in India today is moving towards lower priced products to meet the demands of the price sensitive Indian consumer. Package sizes are being reduced to bring down the psychological price barrier and make the products sold through the direct selling channel more affordable. Some multinational direct selling companies have also customised products to meet the needs of Indian consumers. Major foreign direct selling companies have also established manufacturing facilities in India. Direct selling companies follow different plans of compensation for their sales force. Some follow the single level plan under which sales people earn commission on sales made by them alone, and do not earn anything on sales made by people they have introduced in the business. They may earn a one-time reward for people they help recruit. There are still some others who also compensate a sales person for the sales made by

persons recruited by the first sales person, and from the sales of the group or network recruited by the first sales person’s personal recruits. Joint Ventures/Licensing A joint venture company is generally formed under the Indian Companies Act of 1956 and is jointly owned by an Indian company and a foreign company. This type of arrangement is quite common because India encourages foreign collaborations to facilitate capital investments, import of capital goods and transfer of technology. Once a decision to go with a joint venture is made, the following practical tips will be of use to US firms: define each partner's roles and expectations because equality and trust will help keep partners together; experience is a key ingredient; there is no substitute for thorough research; and look at the long term. A foreign company invests in India either through automatic approval by the RBI or through the Foreign Investment Promotion Board (FIPB). Automatic approval by the RBI is available if the foreign direct investment in the equity of the joint venture company does not exceed 51% in Annexure III and IIIB industries; 50% in Annexure IIIA industries; and 74% in Annexure IIIC industries. FIPB approval is required for all investment proposals that are not eligible for automatic approval. The rules regarding equity limits are being constantly liberalised and revised. High-priority (Annexure III) industries: India has identified 35 industries (called Annexure III industries) where investment is sought on a priority basis. These 35 industries, as defined by the Government in Annexure III to its statement on Industrial Policy of July 24, 1991, include the following: metallurgical industries; boilers and steam generating plants; prime movers (other than electrical generators); electrical equipment; transportation equipment; industrial machinery and equipment; agricultural machinery; earth-moving machinery; industrial instruments; scientific instruments; fertilisers; chemicals; drugs and pharmaceuticals; paper, pulp and paper products; heavy-duty rubberised and plastic products; plate glass; ceramics for industrial use; cement; high-technology reproduction equipment; carbon and carbon products; pre-tensioned high pressure RCC pipes; rubber machinery; printing machinery; welding electrodes; industrial synthetic diamonds; equipment for biotechnology applications; extraction and upgrading of minor oils; prefabricated building materials; soya products; high-yield seeds and live plants; food processing; food packaging; hotels and tourism; and software development. Annexure III Part A: The following is a list of industries and items where approval for foreign equity up to 50% is automatic: mining of iron ore; mining of metal ores other than iron ore and uranium ores; mining of non-metallic minerals not elsewhere classified. Annexure III Part B industries: The following is a list of additional industries and items where approval for foreign equity up to 51% is automatic. Manufacture of food products; cotton textiles; wool, silk and human-made fibres; water-proof textile fabrics; basic

chemicals and chemical products except products of petroleum and coal; rubber, plastic, petroleum and coal products; metal products and parts except machinery and equipment; non-metallic mineral products; machinery and equipment other than transport equipment; land and water transport support services and services incidental to transport not elsewhere classified; renting and leasing; business services not elsewhere classified; health and medical services; and tourism related industry. Annexure III Part C industries: The following is a list of additional industries and items where approval for foreign equity up to 74% is automatic: mining services; basic metals and alloy industries; manufacture of medical, surgical, scientific and measuring appliances and equipment; industrial process control equipment; meters for electricity, water and gas; laboratory and scientific equipment; photographic, cinematographic and optical goods; construction of electricity generation, transmission and distribution projects; construction of hydroelectric power and industrial plants; non-conventional energy generation and distribution; construction and maintenance of ocean and inland and water transport; refrigerated cold-storage and warehousing of agricultural products. Industries reserved for the small-scale sector: About 506 items are reserved for manufacture by the small-scale sector (please log on to http://www.laghu-udyog.com/publications/reserveditems/resvex.htm for the list). A small-scale unit is defined by an investment limit of $222,222 (Rs10m) in plant and machinery. These industries and investment requirements may be revised from time-to-time. Ice cream, biscuits, farm tools, automobile component and corrugated paper and board are examples of products, which have recently been de-reserved and opened up for manufacture by non-small scale units. Foreign equity in a small-scale undertaking is permissible up to 24%. However, there is no bar on a higher foreign equity holding if the unit is willing to give up its small-scale status. Non-small scale units can also manufacture items reserved for the small-scale sector. In cases where (a) a non small-scale unit and (b) a small-scale unit with foreign investment beyond the 24% manufactures small scale reserved item(s), an industrial license carrying a mandatory export obligation of 50% of their production within a specified time frame is required. Industries subject to compulsory licensing: All industrial undertakings are exempt from obtaining an industrial license to manufacture, except for (i) industries reserved for the public sector, (ii) industries retained under compulsory licensing, (iii) items of manufacture reserved for the small-scale sector and (iv) if the proposal attracts location restriction. Industrial units exempt from obtaining an industrial license are required to file an Industrial Entrepreneur Memoranda with the Secretariat of Industrial Assistance (SIA) in the Ministry of Commerce and Industries. Only five industries are subject to compulsory licensing in India. The need for licensing is attributed to safety, environmental and defence related considerations. The licensing

authority in this case is the Ministry of Industrial Development and the industries are: distillation and brewing of alcoholic drinks; cigars and cigarettes of tobacco and manufactured tobacco substitutes; electronic aerospace and defence equipment of all types; industrial explosives including detonating and safety fuses, gun powder, nitrocellulose and matches and hazardous chemicals. Industries reserved for the public sector: Some industries are reserved exclusively for the public sector. The following industries are not available for private investment unless a specific approval is obtained: arms and ammunition and allied items of defence equipment, defence aircraft and warships, atomic energy, and railway transport. Foreign Investment Promotion Board: The FIPB in the Ministry of Finance is a high-level central agency that deals and clears proposals for investment in India. The chairman of the Board is the Secretary of the Department of Economic Affairs. Other Board members consist of the Secretaries in the Ministries of Commerce and Industries, and the Economic Relations Secretary in the Ministry of External Affairs. Other members can be co-opted from senior government officials, and professional experts from industry, commerce and banks, as and when required. Applications are received by the FIPB through the Secretaries for Industrial Assistance (SIA). The SIA was established within the Department of Industrial Policy and Promotion in the Ministry of Industry. It provides a single window for entrepreneurial assistance, investor facilitation, processing of all applications that require Government approval, assisting entrepreneurs and investors in setting up projects (including liaison with other organisations and state governments) and monitoring the implementation of projects. Applications can also be made with Indian missions abroad. Applications received by SIA are placed before the FIPB within 15 days of receipt. The Board has the flexibility to negotiate with investors. The FIPB's decisions are communicated by SIA, normally within six weeks of receipt of the application. Investment in the following areas is expected to be accorded priority in considering investment applications: items listed in the automatic approval list, where conditions for automatic approval are not met; infrastructure; items with export potential; projects with large employment potential, particularly in rural areas; items which have a direct or backward linkage with the agricultural sector; socially relevant projects such as hospitals and life saving drugs; and projects which induct new technology or infuse capital. If the US investor has written a comprehensive proposal, provided details, and the FIPB is fully satisfied that the investment meets India's industrial development goals, approval can be granted in as little as three weeks. Proposals that are badly formulated, do not meet FIPB goals, and invite objections on political, environmental or public health or welfare grounds are likely to be denied.

For more details please log on to: http://dipp.nic.in/manual/manual_11_05.pdf Selling to the Government Indian Government procurement practices and procedures often lack transparency, and standardization, which can frustrate foreign suppliers. The process is improving under the influence of fiscal reform policies such those set down in their newly-revised Defence Procurement Procedure–2005 (Capitol Procurements) guidance. (http://mod.nic.in/dpm/welcome.html). Specific price and quality preferences for local suppliers were largely abolished in 1992. Recipients of preferential treatment are now supposedly limited to the small-scale industrial and handicrafts sectors, which represent a very small share of total government procurement. There are occasional reports of government-owned companies calling in the performance bonds of foreign companies, even when there was no dispute over performance. It is not unusual for negotiations to drag on for months and be held up at more than one of the sundry levels within the Indian bureaucracy for long periods with no discernible movement or reason given for lack of progress. With this in mind, some firms seek out local representatives who are familiar with the culture and customs of India, and are familiar with ways to expedite their product or service through the maze of bureaucracy in Government ministries. When foreign financing is involved, principal government procurement agencies tend to follow multilateral development bank requirements for international tenders. However, in other purchases, current procurement practices can result in discrimination against foreign suppliers when goods or services of comparable quality and price are available locally. The Government of India regularly advertises its requirements for the purchase of supplies and new equipment. These foreign government tenders are reported by the US Department of Commerce, which then publishes them in its Economic Bulletin Board and in the National Trade Data Bank. For more information about these information services, including subscription prices, please call the US Department of Commerce Trade Information Centre at USA-TRADE, or 1-800-872-8723. Defence Sales While most of India’s defence equipment was previously purchased from non-US sources, and largely still is, India has recently expressed increased interest in US weapons systems. The Indian defence sales market today offers great potential for defence suppliers but US businesses desiring to make defence related sales to India should be aware that the process can be a daunting one. US defence suppliers should assess the merits of having some representation in India to assist in market assessments, logistical support, and after-sales contact. Those firms that have used such personnel have often found them invaluable. This representation can either be through the supplier’s own office presence in India (see above section “Establishing an Office”), or through an authorised representative. Caution must be exercised when seeking local expertise because unless strict guidelines are followed, Indian law may be broken. In November 2001, the Government of India lifted the ban on

agents in defence purchases. Regulatory provisions were announced for Indian-authorised representatives and agents, where permissible, in defence purchases. Details of these provisions are given on the website of the Ministry of Defence: http://mod.nic.in/newadditions/repagent.htm. The regulations require both the principal as well as the potential local representative to meet the provisions stipulated – it is the foreign supplier who has to make an application to the Ministry to register the relationship reached with the agent. The regulations also call for complete disclosure of the principal agent relationship in all its aspects. The process for gaining clearance from the Government of India (GOI) to hire such a representative can also be very slow. These requirements have discouraged many established local representatives in the defence business from registering as agents for new defence deals. The Office of Defence Cooperation (ODC) within the US Embassy in New Delhi is a good point of contact for US defence firms. The ODC will assist by providing contact details of Military Service offices that are the main purchasers of foreign defence goods for India and offer advice on strategies for defence related sales. ODC may also accompany US defence suppliers to an initial meeting with GOI officials as an impartial observer. The offices of the US Commercial Service in New Delhi and Chennai are also good points of contact for US defence firms initiating sales efforts in India. The tender process that the GOI uses to acquire new defence equipment is relatively slow and complex, with the average time between initial release of a request for proposal and the final contract award often taking several years. The most successful firms are those with the endurance to follow the process through and the situational awareness that comes from local representation or from contact with GOI officials. Tenders are not generally posted to the Internet, but are instead provided to those firms that are registered with the GOI. Selected tenders can be found at: http://mod.nic.in/tenders/welcome.html. One way to get registered is to meet with a representative of the appropriate Ministry of Defence office. Additional detail on the Indian acquisition process can be found in the document located at: http://mod.nic.in/newadditions/dpp02.pdf Electronic Commerce In addition to traditional selling techniques, the Internet is also gaining importance as a selling method. As the number of Internet users continues to increase with the reduction in cost of Internet access, the Indian e-tailing market also expands. E-commerce is growing at a rapid pace in India. The latest data from the Internet and Mobile Association of India (IAMAI) estimates e-commerce turnover at $268m (Rs11.8bn) in 2005, and this number is expected to double to $522m (Rs23bn) in 2006. Over 440,000 business-to-consumer (B2C) transactions are made per month through the internet. Besides buying goods, these deals include booking hotels, net banking, bill payments, stock trading, job searches and matrimonial searches.

According to IAMAI, e-ticketing for railways and airlines is the biggest contributor to B2C transactions, followed by gift items like books and videos, flowers, jewellery, watches and apparels. Other products traded through e-commerce include: Consumer electronics including mp3 players, digital cameras, DVD players and home appliances. The growth in e-commerce is due in part to the increasing number of broadband users. According to the Telecom Regulatory Authority of India’s (TRAI) quarterly performance indicators, the internet user base has grown 15% from 2004 to 2005, with private operators accounting for 2.6m users. Broadband usage has, however, had slow growth with just over 600,000 subscribers against a target of 3m by the end of 2005. TRAI pointed out that the minimum monthly tariff for broadband had come down to that of dial-up Internet charges for a month of similar usage. The demand for broadband services had increased, but the supply was still a cause of concern. The global technology research firm IDC is also upbeat on the potential for online shopping in India. Similarly, industry experts believe that online business-to-business commerce will increase substantially in India because it meets a genuine need and portals offering such services are built on strong revenue models.

7.4 FORMS OF BUSINESS PRESENCE IN INDIA FOR A FOREIGN COMPANY

A foreign company may wish to set up a business presence in India. It can do so by setting up any one of the following:

Liaison Office; Branch Office; or Company (either a joint-venture or a subsidiary)

Different regulations apply to each of the above three forms. The following summary table highlights key differences between them.

Liaison Office (LO)

Branch Office (BO)

Joint-Venture or Subsidiary Company

PERMISSIBLE ACTIVITIES

Product/Corporate Promotion YES YES YES

Business Development YES YES YES

Technical Support YES YES YES

Purchase/Sales co-ordination on behalf of the overseas parent (e.g. Italian) company

YES YES YES

Earning Income NO YES YES

Buying Products NO YES YES

Selling Products NO YES YES

Export NO YES YES

Import NO YES YES

Manufacturing NO NO YES

LEGAL, FINANCIAL & TAX ISSUES

Opening A Bank Account YES YES YES

Recruiting People YES YES YES

Owning Premises NO YES YES

Income-Tax Rate Applicable On Profit

N.A. 41.82% 33.66%

Can It Repatriate Profit N.A. YES YES

Can It Repatriate Capital N.A. N.A. YES

Minimum Authorised Capital Legally Required Minimum Paid-up Capital Legally Required

NIL NIL

INR.100,000 for a private limited company INR.500,000 for a public limited company INR.100,000 for both.

Maximum shareholding that a foreign company can have

N.A. N.A. 100% (Subject to applicable regulations)

REGULATORY PERMISSIONS/REGISTRATIONS

Permissions/Registrations Required From

Reserve Bank of

India

Reserve Bank of

India

Registrar of

Companies; Reserve

Bank of India; Foreign Investment

SECTION B: GENERAL OVERVIEW

INDIA- ECONOMIC OVERVIEW

India's economy is on the fulcrum of an ever increasing growth curve. With positive indicators such as a stable 8 per cent annual growth, rising foreign exchange reserves of close to US$ 166 billion, a booming capital market with the popular "Sensex" index topping the majestic 13,000 mark, the Government estimating FDI flow of US$ 12 billion in this fiscal, and a more than 22 per cent surge in exports, it is easy to understand why India is a leading destination for foreign investment.

• The economy has grown by 8.9 per cent for the April-July quarter of ’06-07, the highest first-quarter growth rate since '00-01.

• The growth rate has been spurred by the manufacturing sector, which has logged an 11.3 per cent rise in Q1 ’06-07, according to the GDP data released by the Central Statistical Organisation. It was 10.7 per cent in the corresponding period of the last fiscal year. The GDP numbers come just weeks after the monthly IIP growth figures have touched 12.4 per cent.

• Agriculture, which accounts for nearly a quarter of the GDP, has also grown by a healthy 3.4 per cent, unchanged from the corresponding period of last fiscal.

• Other propellers of GDP growth for the first quarter this fiscal have been the trade, hotels, transport and communications sector which grew by 9.5 per cent and construction, which grew by 13.2 per cent. In the corresponding period of last fiscal, these sectors grew by 11.7 per cent and 12.4 per cent, respectively.

• Electricity also grew by 5.4 per cent this first quarter as opposed to 7.4 per cent in the same period last year. The overall growth in this sector was fuelled by growth in July and August. The services sector also grew by 10.6 per cent in the first quarter of ’06-07. It was only 9.8 per cent last year in the same period.

• There has been exceptional growth rate in some specific industries, like commercial vehicles at 36 per cent, telephone connections, by 48.9 per cent and passenger growth in civil aviation by 32.2 per cent.

Some highlights:

• India has more billionaires than China. This year there were 15 billionaires in China but last year in India, there were 20 billionaires, according to the Forbes magazine.

• India has emerged as the world's fastest growing wealth creator, thanks to a buoyant stock market and higher earnings.

• A number of Indian companies surpassed last year's net profit in just six months of the current fiscal, reflecting an accelerated growth in corporate earnings.

• Forty-four per cent of Top 100 Fortune 500 companies are present in India.

With its manufacturing and services sector on a searing growth path, India’s economy may soon touch the coveted 10 per cent growth figure.

By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy. The transformation into a tri-polar economy will be complete by 2035, with the

Indian economy only a little smaller than the US economy but larger than that of Western Europe. By 2035, India is likely to be a larger growth driver than the six largest countries in the EU, though its impact will be a little over half that of the US. India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years. India - a growing economy

A growth rate of above 8% was achieved by the Indian economy during the year 2003-04 and in the advanced estimates for 2004-05, Indian economy has been predicted to grow at a level of 6.9 %. Growth in the Indian economy has steadily increased since 1979, averaging 5.7% per year in the 23-year growth record. In fact, the Indian economy has posted an excellent average GDP growth of 6.8% since 1994 ( the period when India's external crisis was brought under control). However, in comparison to many East Asian economies, having growth rates above 7%, the Indian growth experience lags behind. The tenth five year plan aims at achieving a growth rate of 8% for the coming 2-3 years. Though, the growth rate for 2004-05 is less than that of 2003-04, it is still among the high growth rates seen in India since independence. Many factors are behind this robust performance of the Indian economy in 2004-05. High growth rates in Industry & service sector and a benign world economic environment provided a backdrop conducive to the Indian economy. Another positive feature was that the growth was accompanied by continued maintenance of relative stability of prices. However, agriculture fell sharply from its 2003-04 level of 9 % to 1.1% in the current year primarily because of a bad monsoon. Thus, there is a paramount need to move Indian agriculture beyond its

centuries old dependency on monsoon. This can be achieved by bringing more area under irrigation and by better water management.

The main contributors to capital account surplus were the banking capital inflows, foreign institutional investments and other capital inflows. Alike current account, capital account too witnessed decline. The capital account surplus in April-September was also down by around US $ 1.5 million. Reserve money growth had doubled to 18.3% in 2003-04 from 9.2 in 2002-03, driven entirely by the increase in the net foreign exchange assets of the RBI. However, it declined to 6.4% in the current year to January 28, 2005. During the current financial year 2004-05, broad money stock (M3) (up to December 10, 2004) increased by 7.4 per cent (exclusive of conversion of non-banking entity into banking entity, 7.3 per cent) as compared with the growth rate of 10.3 per cent registered during the corresponding period of the last year. The downward trend in interest rates continued in 2004-05, with bank rate standing at 6% as on Dec 10, 2004. Banks recovery management improved considerably with gross NPAs declining from Rs 70861 crore in 2001-02 to Rs 68715 in 2002-03. During the current financial year (up to December 10, 2004) incremental gross bank credit increased by 20.5 per cent (exclusive of conversion, 16.6 per cent) as compared with a growth of 5.9 per cent in the same period of the previous year. Non-Food credit during the financial year so far, registered a growth of 20.5 per cent (exclusive of conversion, 16.5 per cent) as compared with an increase of 8.4 per cent during the same period of the last year indicated a positive outlook. Equity market return was 85% in 2003-04, second highest in Asia. With continued higher corporate earnings in 2004-05, the sensex crossed 6800 mark in March 2005 but high stock market volatility remained higher in India compared to other Asian countries. The expectation of sensex crossing 7 K mark is not yet realized. Fiscal deficit of states & center was decreasing in early 90s but due to rise in fiscal deficit in recent years, corrective measures have been adopted. The fiscal deficit decreased to 7.9% in 2004-05 from a 9.4% of GDP in 2003-04. According to recent estimates, fiscal deficit in April-October 2004 is 45.2 per cent of BE compared with 56.0 per cent of BE in the corresponding period last year.

The Three Sectors of Indian Economy Agriculture More than 58% of country's population depends on agriculture, a sector producing only 22% of GDP. The agriculture and allied sector witnessed a growth of 9.1% in 2003-04, which fell steeply to 1.1% in the current fiscal year. Favourable monsoon facilitated an impressive growth rate of 9.6% in 2003-04 on the back of negative growth in the preceding year. However, deficient rainfall from the southwest monsoon is estimated to have caused a significant decline in kharif crops production in the current year. While looking at some of the agricultural products, one finds that India is the largest producer of Tea, jute and jute like fibre. India is not only the largest producer but also largest consumer of tea in the world. India accounts for around 14% of the world trade in tea. Indian tea is exported in various forms such as bulk tea, packet tea, tea bags, instant tea etc, to more than 80 countries of the world. Among livestock cattle and buffalo are found maximum in India. Indian total milk production is highest in the world. India has also the privilege of having the 1st rank in total irrigated land in area terms in the world. Among cereals production, India is placed third, having second largest production in wheat and rice and the largest production in pulses. However, the full potential of Indian agriculture as a profitable activity hasn't been realized yet. Agriculture upliftment will not only benefit farmers and a large section of the rural poor, but also will give fillip to overall growth of the economy through the backward and forward linkages of agriculture with the rest of the economy. Priority must be given to livestock's & fisheries, horticulture, organic farming, commercial crops and agro-processing, as these are the potential areas of high growth. Further, rationalization of minimum support price regime and introduction of other risk- mitigation measures, improvements in rural infrastructure are essential for sustaining high agricultural growth. It is conceived that reforms in legislations, strengthening R&D and improvements in post harvest management technologies will give a further boost to Indian agriculture. While acceleration in agriculture growth to 4 - 4.5% is imperative, even with such growth rate; share of agriculture in total GDP is likely to reduce further. Therefore, there is a need to absorb excess agricultural labour in other sectors, notably industry. Rapid growth of agro - processing industry close to the agricultural production centers can bring about this shift without moving people from rural to urban areas. Also, public investment in agriculture needs to be augmented, especially in rural infrastructure, irrigation, and agricultural research & development. Better access to institutional credit for more farmers, is also high on priority list. The New trade policy gives focus to agriculture and all the hurdles in Indian agriculture will be crossed gradually.

Industry Index of industrial production which measures the overall industrial growth rate was 10.1% in October 2004 as compared to 6.2% in October 2003. The double digit in IIP was aided by a robust growth of 11.3% in the manufacturing sector followed by mining and quarrying and electricity generation. But industrial production saw a decline in Dec 2004 when IIP dipped to 8 %. Thus one of the critical challenges facing Indian economic policy consists in devising strategies for sustained industrial growth. Final phase-out of the MFA and India's conformity with the international intellectual property system from Jan 1st Jan 2005, have been two significant developments in the world of commerce & industry. Textile industry is the largest industry in terms of employment economy from the current US $37 billion to $ 85 billion by 2010 creation of 12 million new jobs in the textile sector and modernization & consolidation for creating a globally competitive textile industry. With the phasing out of quota regime under MFA, from Jan 1st 2005, developing countries including India with both textile & clothing capacity may be able to prosper. Automobile sector has demonstrated the inherent strengths of Indian labour and capital. The pharma industry and the IT industry are two sunrise sectors for India. Among the sectors that have experienced the greatest transformation in India, the pharmaceutical is perhaps the most significant. India's WTO involvement during the last decade has encouraged our pharma companies to adopt a strategy of R & D based innovative growth. Indian pharma exports were 14000 crore Rupees & accounts for more than a third of the industry's turnover. Apart from manufacture of drugs, the pharma industry offers huge for outsourcing of clinical research. A vast pool of scientific and technical personnel & recognized expertise in medical treatment & health care are India's strength, India can take advantages of its strength once patent protection is given to the result of the researches. By participating in the international system of intellectual property protection, India unlocks for herself vast opportunities in both exports as well as her potential to become a global hub in the area of R & D based clinical research outsourcing, particularly in the area of bio-technology. The three main sub sectors of industry viz Mining & quarrying, manufacturing, and electricity, gas & water supply recorded growths of 5%, 8.8% and 7.1% respectively. Apart from infrastructure, particularly adequate and reliable power supply at reasonable cost and transportation facilities, there is need for stepped up investment in manufacturing. Industry needs to grow rapidly not only to boost the overall growth rate in the economy but also to generate gainful employment for the existing unemployed, as well as the new entrants. In a diverse range of industrial activities, several Indian firms have succeeded in getting integrated into global production chains and realized rapid growth of exports. This experience suggests that with appropriate scale, investment and technology, rapid industrial growth is indeed possible.

Services Service sector has maintained a steady growth pattern since 96-97, except into a fall in 2000-01. Trade hotels, transport & communications have witnessed the highest growth of level 10.9% in 2004, followed by financial services (With a overall growth rate of (6.4) % and community, social & personal services (5.9)% of all the three sectors, services have been the highest contributor to total GDP growth rate. While in most parts of the developed world, the services sector's share of employment rose faster than its share of output in India there has been a relatively slow growth of jobs in the service sector. This is primarily because of the rise in labour productivity in services in sectors such as information technology that is dependent on skilled labour. Growth in tourism and tourism - related services such as hotels, holds a large potential for employment generation. IT enabled services, such as Business Process Outsourcing have been growing rapidly in the recent past and will continue to rise. India's large number of English speaking skilled manpower has made India a major exporter of software services and software workers. However, the emergence of somewhat inexplicable protectionist tendencies in some developed countries is a disturbing trend. At the same time it is important that India sees BPO in a larger perspective, than the Internet, as India's share is just $ 3.5 billion in December 2004 compared to the global market of US $ 178 billion. Also India outsourcing companies need to work more closely with their customers. In the complex BPOs, customers would like to have hybrid processes to control value. Indian companies need the right mix of domain expertise and process expertise, further, mere knowledge of English is not sufficient; management skills are also needed. Education for the offshoring industry needs to be given impetus too. The beginning of New Year saw Tsunami, a worst ever disaster, which killed thousands of people in India, Sri Lanka, Indonesia & Thailand. Many of them were international tourists. The disaster was expected to have a negative impact on India's tourism in terms of large-scale cancellations of tourists to India but nothing of that sort was seen. In fact, tourist arrivals in India rose 23.5 percent in Dec 2004 and tourist arrivals crossed 3 million mark for the first time in 2004.

7. INFORMATION SOURCES Indo Italian Chamber of Commerce 502, Bengal Chemicals Compound Veer Savarkar Marg Prabhadevi Mumbai- 400 025 Tel: 0091.22.24368186 Dir Fax: 0091.22.24382716 E-mail: iicci@indiaitaly.com Website: www.indiaitaly.com Branches: Delhi, Kokatta, Banglore, Chennai,Goa

INDIAN TRADE PROMOTION ORGANISATIONS Apex Chambers of Commerce Federation of Indian Chambers of Commerce and Industry Federation House, Tansen Marg, New Delhi - 110 001, India Tel: (91) - 11 - 23738760-70 Fax: (91) -11 - 23320714/23721504 E-mail: ficci@ficci.com Website: www.ficci.com Confederation of Indian Industry 23 Institutional Area, Lodi Road, New Delhi 110003, India Tel: (91) -11 - 24629994-7, 24626164/24625407 Fax: (91) -11 - 24626149/24633168 E-mail: ciico@ciionline.org Website: www.ciionline.org PHD Chamber of Commerce and Industry PHD House, Asian Games Village New Delhi - 110016 Tel: (91) -11 - 26863801-04 Fax: (91) -11 - 26863135 /2668392/26855450 E-mail: phdcci@del2.vsnl.net.in The Associated Chambers of Commerce and Industry of India 147 B, Gautam Nagar, Gulmohar Enclave, New Delhi 110 049, India Tel: (91) - 11 - 26512477/78/79 Fax: (91) - 11 -26512154

E-mail: assocham@sansad.nic.in Website: www.assocham.org Bombay Chamber of Commerce & Industry Mackinnon Mackenzie Building, 3rd Floor, 4, Shoorji Vallabhdas Road, Ballard Estate, MUMBAI - 400 001. INDIA Tel.: (0091-22) 22614681-84 Fax : (0091-22) 22621213 E-mail : bcci@bombaychamber.com The Indian Merchants' Chamber of Commerce Head Office IMC Bldg., IMC Marg, Churchgate, Mumbai - 400 020 India. Tel : 91-22-22046633 Fax : 91-22-22048508 / 22838281 E-Mail : imc@imcnet.org Export Promotion Councils The Federation of Indian Export Organizations "Niryat Bhawan", Rao Tula Ram Marg, Opp. Army Hospital Research & Referral, New Delhi -110057, INDIA Phone: 91-11-26150101-04 Fax: 91-11-26150066/26150077 Email : fieo@nda.vsnl.net.in Engineering Export Promotion Council World Trade Centre, 14/IB, Ezra Street Calcutta - 700 001 Tel: (91) - 33 - 263080/81/82/83/84/85 Fax: (91) - 33 - 2258968 E-Mail: eepc-ho@eepc.ho.cmc.net.in Website: http://www.eepc.gov.in Overseas Construction Council of India H-118, Himalaya House, 11th Floor, 23, Kasturba Gandhi Marg, New Delhi - 110 001 Tel: (91) - 11 - 23312936/33277550 Fax: (91) - 11 - 23312936 Website: http://www.occi.org

Basic Chemicals, Pharmaceuticals and Cosmetics Export Promotion Council Jhansi Castle, 4th Floor, 7 - Cooperage Road Bombay - 400 001 Tel: (91) - 22 - 22021288/ 22021330/ 22026549 Fax: (91) - 22 - 22026684 Website: http://www.chemexcil.com Chemicals and Allied Products Export Promotion Council World Trade Centre, 14/IB, Ezra Street Calcutta - 700 001 Tel: (91) 33 - 2267733/ 34/35, 2267082 Fax: (91) 33 - 22255070 E-Mail: capexilh@cal.vsnl.net.in Website: http://www.capexil.com Indian Chemical Manufacturers Association (ICMA) Sir Vithaldas Chambers, 16 Mumbai Samachar Marg, Mumbai - 400 023. Tele : +91-22-22047649/ 22048043/ 22846852. Fax : +91-22-22048057. Website : http://www.icmaindia.com E-mail : mail@icmaindia.com Plastics & Linoleums Export Promotion Council Centre-I, 11th Floor, World Trade Centre, Cuffee Parade, Colaba, Mumbai - 400 005 - India Tel: (91) 22 2184 4474/2218 4569 Fax : (91) 22 2218 4810 E-Mail: plexcon@giasbm01.vsnl.net.in, plexho@bom3.vsnl.net.in Website: http://www.plexcon.com Council for Leather Exports Chairman Leather Centre, 3rd & 4th Floor, 53, Sydenhams Road,I Periameret, Chennai 600 003 Tel: 91 - 44 -2589098/2582041 Fax: 91 - 44 - 2588713/2587083 Cable : LEXPROCIL E-Mail: cle@giasmdol.vsnl.net.in Website: http://www.leatherindia.com

Sports Goods Export Promotion Council 1-E/6, Swami Ram Tirth Nagar Jhandewalan Extension New Delhi - 100 055 Tel: (91) 11 -2525695/ 2529255 Fax: (91) 11 - 27532147 Website: http://www.sportsgeepc.com Gem and Jewellery Export Promotion Council Chairman Diamond Plaza, 5th Floor, 391-A, Dr. Dadasaheb Bhadkamkar Marg Bombay - 400 004 Tel: (91)-22-23871135/23888004 Fax: (91)-22-23868752 E-mail: gjepc@vsnl.com Website: http://www.gjepc.org Shellac Export Promotion Council World Trade Centre, 14/IB, Ezra Street Calcutta - 700 001 Tel: (91) 33 - 22482070 Fax: (91) 33 - 22484046 Cashew Export Promotion Council Post Box NO. 1709, Chittor Road Ernakulam South, Cochin - 682 016 Tel: (91) 484 - 2351973/2361459 Fax: (91) 484 -2370973 E-Mail: cashew@vsnl.com Website: http://www.cashewindia.org Electronics and Computer Software Export Promotion Council PHD House, Phase-II, 3rd Floor Opp. Asian Game Village New Delhi - 110 016 Tel: (91) 11 - 2696103/26960206/2654463 Fax: (91) 11 - 26853412 E-Mail: esc@giasdl01.vsnl.net.in Website: http://www.indiansources.com

Apparel Export Promotion Council 15, NBCC Towers, Bhikaji Cama Place New Delhi - 110 066 Tel: (91) 11 - 883351/26888505/26888656/26888300/26884578 Fax: (91) 11 - 26168584 E-mail: hodg@nda.vsnl.net.in Website: http://www.aepc.com Carpet Export Promotion Council 101-A/1, Krishna Nagar, Safdarjung Enclave (Behind Govt. Sr. Sec. School) New Delhi - 110 029 Tel: (91) 11 - 2602742/ 2601024 Fax: (91) 11 - 26115299/ 26847903 Website: http://www.indiancarpets.com Cotton Textile Export Promotion Council 5th Floor, Engineering Centre, 9 Mathew Road, Mumbai - 400004 (INDIA) Tel: (91)-22-23632910 to 23632913 Fax: (91)-22-23632914 Email: exprocil@bom3.vsnl.net.in Website: http://www.texprocil.com Export Promotion Council for Handcrafts 6, Community Centre, 2nd Floor, Basant Lok Vasant Vihar, New Delhi - 110 057 Tel: (91) 11 - 2687537726860087 Fax: (91) 11 - 2606144 E-Mail: secy.epch@axcess.net.in Website: http://www.epcd.asiansources.com Handloom Export Promotion Council 18, Cathedral Garden Road Nunagambakkam, Chennai - 600 034 Tel: (91) 44 - 28276043/ 28278879 Fax: (91) 44 - 28271761 E-Mail: hepccatp@vsnl.com Website: http://www.hometextilesonline.com/index1.htm The Indian Silk Export Promotion Council 62, Mittal Chambers, 6th Floor Nariman Point, Mumbai Tel: (91) 22 - 22025866, 22207662, 22049413 Fax: (91) 22 - 22874606 Website: http://www.silkepc.com

Synthetic & Rayon Textile Export Promotion Council Resham Bhawan, 78, Veer Nariman Point Road Mumbai - 400 020 Tel: (91) 22 - 22048797/ 22048690 Fax: (91) 22 - 22048358 E-Mail: srtepc@vsnl.com Website: www.synthetictextiles.org Wool & Woolens Export Promotion Council 312/714, Ashoka Estate, 24, Barakhamba Road, New Delhi-110001 Tel:91-11-23315512/23315205 Fax:91-11-23314626 Website: http://www.wwepc.com Commodity Boards Rubber Board P.B.No.1122, Kottayam, Kerela 686 002 Tel: (91)-481- 2571231,2571232, 2571235, 2571236, 2571361 Fax: (91)-481- 2571380 E-mail: rbedp@vsnl.com Website: http://www.rubberboard.com Coffee Board 1-Dr, Ambedkar Veedhi, Bangalore-560 001 Tel: (91)-80- 2257890 Fax: (91)-80- 22255557 Website: http://indiacoffee.org Tea Board 14, BTM Sarani, Brabourne Road, P.B.No.2172, Calcutta-700 001 Tel: (91)-33- 2235-1411 Fax: (91)-33-2221-5715 E-Mail: teadevex@cal.vsnl.net.in Website: http://tea.nic.in Tobacco Board P.B.No.322, G.T.Road, Guntur-522 004 Tel: (91)-863- 2358399 Fax: (91)-863- 2354232 E-mail: tobboard@vsnl.com Website: http://www.indiantobacco.com

Spices Board Sugandha Bhavan, N.H. Bypass, P.B.No.2277, Palarivattom.P.O. Cochin-682025 Tel: (91)-484- 2333610, 2333616, 2347965 Fax: (91)-484- 2331429/ 2334429 E-mail: mail@indianspices.com Website: http://www.indianspices.com SERVICE INSTITUTIONS India Trade Promotion Organisation (ITPO) Pragati Bhawan, Pragati Maidan, New Delhi - 110 001 Phone: (91) - 11 - 23371540 Fax: (91) - 11 - 23318142/ 23317896 E-Mail: itpo@giasdl01.vsnl.net.in Website: http://www.indiatradepromotion.org National Centre for Trade Information (NCTI) NCTI Complex, Pragati Maidan, New Delhi - 110 001 Phone: (91) - 11 - 23371980/81 Fax: (91) - 11 - 23371979 E-Mail: ncti@x400.nicgw.nic.in Website: http://www.nic.in/ncti Export Credit Guarantee Corporation (ECGC) Express Tower, 10th Floor, Nariman Point, Mumbai - 400 021 Phone: (91) -22 2284 5452/2284 5463/2284 5471/ 2284 5472/ Fax: (91) - 22 - 22045253, 22023267 E-Mail: ecgcedp@bom2.vsnl.net.in Website: http://www.ecgcindia.com Export Import Bank Centre one, Floor 21, World Trade Centre Cuffe Parade, Mumbai- 400 005 Phone: (91) - 22 - 22185272 Fax: (91) - 22 - 22182572 E-Mail: eximcord@vsnl.com Website: http://www.eximbankindia.com

Export Inspection Council 11th Floor, Pragati Tower 26, Rajendra Place, New Delhi - 110 056 Phone: (91) - 11 - 25730016,25712239 Indian Institute of Packaging E-2, MIDC Area, Post Box No. 9432, Andheri (East), Mumbai - 400 093 Phone: (91) - 22 - 28219803, 28216751 Fax: (91) - 22 -28375302 E-mail: iip@bom4.vsnl.net.in Website: http://iip-in.com Indian Council of Arbitration Federation House, Tansen Marg, New Delhi - 110 001 Phone: (91) - 11 - 23319251, 23719103 Fax: (91) - 11 - 23320714, 23721501 Website: http://www.ficci.com/icanet Federation of Indian Export Organisations (FIEO) PHD House, 3rd Floor, Opp. Asian Games Village, New Delhi - 16 Phone: (91) -11 -2686 4524, 26851310/12/14/15 Fax: (91) - 11 - 2686 3087/2696 7859 Email:fieo@nda.vsnl.net.in Website: http://www.fieo.com Indian Diamond Institute Katargam, GIDC, Post Box No. 508 Sumul Diary Road, Surat - 395008, Gujarat Phone: (91) - 261 - 2480809 Fax: (91) - 261 - 2481110 E-Mail: info@diamondinstitute.net Website: http://www.diamondinstitute.net The State Trading Corporation of India Ltd. Jawahar Vaypar Bhawan Tolstoy Marg, NEW DELHI-110001. Tel: (91)-11-23313177, (91) 11-23701177 Fax: (91) 11-23701123 E-mail: stcindia@vsnl.com Website : http://www.stcindia.com

Indian Investment Centre Jeevan Vihar, Parliament Street, New Delhi - 110 001 (91)-11-23733673, 23733679, 23733693 (91)-11-23732245 E-mail: iic@giasdl01.vsnl.net.in Website: http://iic.nic.in Some Important Addresses

Joint Secretary (IPP), Ministry of External Affairs, South Block, New Delhi-110011. Tel.: 23014367/301 8709 Fax: 2379 2B14, 301 4367 http://www.meadev.nic.in/

Joint Secretary (Refineries) Ministry of Petroleum Shastri Bhavan, New Delhi. Tel.: 2338 1832 Fax: 2338 3585 http://petroleum.nic.in/

Joint Secretary Secretariat for Industrial Assistance (SIA) Department of Industrial Development Ministry of Industry Udyog Bhavan New Delhi - 110 011 Tel.: 91-11-2301 1983 Fax: 91-11-2301 1034 http://indmin.nic.in/

Joint Secretary (Exploration) Ministry of Petroleum and Natural Gas Shastri Bhavan Dr. Rajendra Prasad Marg. New Delhi - 110 001 Tel.: 23386935 Fax: 23386479 http://petroleum.nic.in/

Foreign Investment Promotion Board (FIPB) Ministry of Industry New Delhi - 110 011. Tel.: 91-11-2301 1815, 2301 1983 Fax: 91-11-2301 6298 http://indmin.nic.in/

Joint Secretary (Marketing) Ministry of Petroleum and Natural Gas Shastri Bhavan Dr. Rajendra Prasad Marg New Delhi - 110 001. Tel.: 91-11-2381 052 Fax: 91-11-2384 787 http://petroleum.nic.in/

Joint Secretary Investment Promotion Cell Ministry of Power Shram Shakti Bhawan, Rafi Marg New Delhi - 110 001.. Tel.: 91-11-23714842 Fax: 91 -11 –23717519 http://powermin.nic.in/

Joint Secretary(A) Ministry of Civil Aviation B Block, Rajiv Gandhi Bhavan Safdarjung Airport New Delhi - 110 003. Tel.: 2461 0369 Fax: 2461 0354 http://civilaviation.nic.in/

Joint Secretary Department of Telecommunication Sanchar Bhavan New Delhi. Tel.:2371 7413 Fax: 2371 1514

Joint Secretary Ministry of Steel & Mines Deptt. of Mines, Udyog Bhavan New Delhi. Tel.: 2338 4741 Fax: 2338 6402

http://www.dotindia.com/ Director General (Roads) Ministry of Surface Transport Transport Bhavan 1, Sansad Marg, New Delhi - 110 001. Tel.: 91-11-2371 5159 Fax: 91-11-2371 0236

Joint Secretary Deptt. of Electronics Electronic Niketan, CGO Complex New Delhi - 110 003 Tel.: 2436 3078 Fax: 2436 3101

Joint Secretary (Ports) Ministry of Surface Transport Transport Bhavan Sansad Marg, New Delhi. Tel.: 2371 1873 Fax: 2332 8549 http://shipping.nic.in/ http://dgshipping.nic.in/

Joint Secretary (Pl) Department of Chemicals Shastri Bhavan Dr. Rajendra Prasad Marg New Delhi - 110 001. Tel.: 91-11-23385131 Fax: 91-11-23382294 http://chemicals.nic.in/

Joint Secretary (Shipping) Transport Bhavan 1, Sansad Marg, New Delhi - 110 001. Tel.: 91-11-2371 0189 Fax: 91-11-2372 2855 http://shipping.nic.in/ http://dgshipping.nic.in/

Joint Secretary Ministry of Food Processing Panchsheel Bhawan Khel Gaon Marg New Delhi - 110 049 Tel.: 91-11-2694 2476, 649 2475 Fax: 91-11-2649 3228 http://mofpi.nic.in/

Additional Director General Department of Tourism Transport Bhawan 1, Sansad Marg New Delhi - 110 001. Tel.: 91-11-2371 5717 Fax: 91-11-2371 0518 http://www.tourismofindia.com/

Export Import Bank of India (EXIM) PB 16100, Centre One World Trade Centre, Cuffe Parade Mumbai - 400 005. Tel.: 91-22-2218 5272, 2218 2255 Fax: 91-22-2218 2690 http://eximbankindia.com/

Reserve Bank of India (RBI) Exchange Control Department Central Office Building Shaheed Bhagat Singh Road PB No. 1055 Mumbai - 400 023. Tel.: 91-22-2266 3596 Fax: 91-22-2266 5330, 2266 2105, 2265 4121 http://www.rbi.org.in/

Director General, Foreign Trade (DG FT) Udyog Bhavan New Delhi - 110 001. Tel.: 91-11-2301 1777 Fax: 91 -11 -2301 1779 http://www.nic.in/eximpol

Chief Commissioner (Investment and NRIs) India Investment Centre (IIC) Jeevan Vihar, Sansad Marg New Delhi - 110 001.

The Development Commissioner Cochin Export Processing Zone Kakkanad Cochin 682 030 Tel.: 91-484-2422 571

Tel.: 91-11-2373 3673, 2373 3679 Fax: 91-11-2373 3712, 2373 2245

Fax: 91-484-2422 530

The Development Commissioner Noida Export Processing Zone Noida Dadri Road Phase II Noida - 201 305 Tel.: 91-11-2856 7270--73 (4 lines) Fax: 91-11-2856 2314

The Development Commissioner Kandla Free Trade Zone Kandla Gandhidham - 370 230. Tel.: 91-2836-52194, 52475, 52229 Fax: 91-2836 52250

The Development Commissioner Madras Export Processing Zone GST Road, N.H. 45, Tambaram Chennai - 600 045 Tel.: 91-44-2236 8232, 2236 8200 Fax: 91-44-2236 8218, 2236 8291

The Development Commissioner Santa Cruz Export Processing Zone Andheri East Mumbai - 400 096 Tel.: 91-22-2836 7143 Fax: 91-22-2837 6856

The Development Commissioner Falta Export Processing Zone 2nd MSO Building, Room No. 4 Nizam Palace, 234/4 AJC Bose Road Calcutta - 700 020 Tel.: 91-33-22472263, 2404092 Fax: 91-33-22477923

The Development Commissioner Visakhapatnam Export Processing Zone Udyog Bhawan Complex, Siripuram Junction Visakhapatnam - 530 003 Tel.: 91-891-2575449, 2554577 Fax: 91-891-2551259

Other Trade Bodies Trade Bodies URL Association of Indian Forging Industry

www.indianforging.org

Indian Machine Tool Manufacturers' Association

www.imtma.in

Automotive Component Manufacturers Association of India

www.acmainfo.com

India Brand Equity Foundation www.ibef.org Refrigeration & Airconditioning Manufacturers' Association

www.ramaindia.org

Design in India www.designinindia.net Society of Indian Automobile Manufacturers

www.siamindia.com

American Case Management Association

www.acmaweb.org

Indian Boilers Manufacturers' Association

www.ibmaindia.com

Indiastat.com www.indiastat.com Elcoma www.elcoma.com/

8. IMPORT LEGISLATION General Provisions, according to the ministry of commerce, regarding imports to India is given below: Imports free unless regulated

Imports shall be free, except in cases where they are regulated by the provisions of this Policy or any other law for the time being in force. The item wise export and import policy shall be, as specified in ITC(HS) published and notified by Director General of Foreign Trade, as amended from time to time.

Compliance with Laws Every exporter or importer shall comply with the provisions of the Foreign Trade (Development and Regulation) Act, 1992, the Rules and Orders made thereunder, the provisions of this Policy and the terms and conditions of any Licence/certificate/permission/Authorisation granted to him, as well as provisions of any other law for the time being in force. All imported goods shall also be subject to domestic Laws, Rules, Orders, Regulations, technical specifications, environmental and safety norms as applicable to domestically produced goods. No import or export of rough diamonds shall be permitted unless the shipment parcel is accompanied by Kimberley Process (KP) Certificate required under the procedure specified by the Gem & Jewellery Export Promotion Council (GJEPC).

Interpretation of Policy If any question or doubt arises in respect of the interpretation of any provision contained in this Policy, or regarding the classification of any item in the ITC(HS) or Handbook (Vol.1) or Handbook (Vol.2), or Schedule Of DEPB Rate the said question or doubt shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding. If any question or doubt arises whether a licence/ certificate/ permission has been issued in accordance with this Policy or if any question or doubt arises touching upon the scope and content of such documents, the same shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding.

Procedure The Director General of Foreign Trade may, in any case or class of cases, specify the procedure to be followed by an exporter or importer or by any licensing or any other competent authority for the purpose of implementing the provisions of the Act, the Rules and the Orders made thereunder and this Policy. Such procedures shall be included in the Handbook (Vol.1), Handbook (Vol.2), Schedule of DEPB Rate and in ITC(HS) and published by means of a Public Notice. Such procedures may, in like manner, be amended from time to time. The Handbook (Vol.1) is a supplement to the Foreign Trade Policy and contains relevant procedures and other details. The procedure of availing benefits under various schemes of the Policy are given in the Handbook (Vol.1).

Exemption from Policy/ Procedure

Any request for relaxation of the provisions of this Policy or of any procedure, on the ground that there is genuine hardship to the applicant or that a strict application of the Policy or the procedure is likely to have an adverse impact on trade, may be made to the Director General of Foreign Trade for such relief as may be necessary. The Director General of Foreign Trade may pass such orders or grant such relaxation or relief, as he may deem fit and proper. The Director General of Foreign Trade may, in public interest, exempt any person or class or category of persons from any provision of this Policy or any procedure and may, while granting such exemption, impose such conditions as he may deem fit. Such request may be considered only after consulting Norms Committee (NC) if the request is in respect of a provision of Chapter-4 (excluding any provision relating to Gem & Jewellery sector) and EPCG Committee if the request is in respect of a provision of Chapter-5 of the Policy/ Procedure. However, any such request in respect of a provision other than Chapter-4, Chapter-5 and Gem & Jewellery sector as given above may be considered only after consulting Policy Relaxation Committee.

Principles of Restriction DGFT may, through a notification, adopt and enforce any measure necessary for:- i Protection of public morals. ii Protection of human, animal or plant life or health. iii Protection of patents, trademarks and copyrights and the prevention of deceptive practices. iv Prevention of use of prison labour. v Protection of national treasures of artistic, historic or archaeological value. vi Conservation of exhaustible natural resources. vii Protection of trade of fissionable material or material from which they are derived; and viii Prevention of traffic in arms, ammunition and implements of war.

Restricted Goods Any goods, the export or import of which is restricted under ITC(HS) may be exported or imported only in accordance with a licence/ certificate/ permission or a public notice issued in this behalf.

Terms and Conditions of a licence/ Certificate/Permission Every Licence/certificate/permission/Authorisation shall be valid for the period of validity specified in the Licence/ certificate/ permission and shall contain such terms and conditions as may be specified by the licensing authority which may include: (a) The quantity, description and value of the goods;

(b) Actual User condition; (c) Export obligation; (d) The value addition to be achieved; and (e) The minimum export price.

Authorisation/Licence/Certificate/Permission not a Right No person may claim a licence/certificate/ permission as a right and the Director General of Foreign Trade or the regional authority shall have the power to refuse to grant or renew a Licence/certificate/permission/Authorisation in accordance with the provisions of the Act and the Rules made there under.

Penalty If a Licence/certificate/permission/Authorisation holder violates any condition of the Licence/certificate/ permission or fails to fulfill the export obligation, he shall be liable for action in accordance with the Act, the Rules and Orders made there under, the Policy and any other law for the time being in force.

State Trading Any goods, the import or export of which is governed through exclusive or special privileges granted to State Trading Enterprise(s), may be imported or exported by the State Trading Enterprise(s) as specified in the ITC(HS) Book subject to the conditions specified therein. The Director General of Foreign Trade may, however, grant a Licence/certificate/ permission/Authorisation to any other person to import or export any of these goods. In respect of goods the import or export of which is governed through exclusive or special privileges granted to State Trading Enterprise(s), the State Trading Enterprise(s) shall make any such purchases or sales involving imports or exports solely in accordance with commercial considerations, including price, quality, availability, marketability, transportation and other conditions of purchase or sale. These enterprises shall act in a non discriminatory manner and shall afford the enterprises of other countries adequate opportunity, in accordance with customary business practices, to compete for participation in such purchases or sales.

Importer-Exporter Code Number No export or import shall be made by any person without an Importer-Exporter Code (IEC) number unless specifically exempted. An Importer-Exporter Code (IEC) number shall be granted on application by the competent authority in accordance with the procedure specified in the Handbook (Vol.1).

Actual User Condition Capital goods, raw materials, intermediates, components, consumables, spares, parts, accessories, instruments and other goods, which are importable without any restriction, may be imported by any person. However, if such imports require a licence/ certificate/ permission, the actual user alone may import such goods unless the actual user condition is specifically dispensed with by the licensing authority.

Second Hand Goods All second hand goods, except second hand capital goods, shall be restricted for imports and may be imported only in accordance with the provisions of this Policy, ITC(HS), Handbook (Vol.1), Public Notice or a Licence/certificate/ permission/Authorisation issued in this behalf. Import of second hand capital goods, including refurbished/ re-conditioned spares shall be allowed freely. However, second hand personal computers/laptops, photocopier machines, air conditioners, diesel generating sets will only be allowed against a license issued in this behalf. Import of re-manufactured goods shall be allowed only against a licence issued in this behalf.

Import of samples Import of samples shall be governed by the provisions given in Handbook (Vol.1).

Import of Gifts

Import of gifts shall be permitted where such goods are otherwise freely importable under this Policy. In other cases, a Customs Clearance Permit (CCP) shall be required from the DGFT.

Import on Export basis New or second hand capital goods, equipments, components, parts and accessories, containers meant for packing of goods for exports, jigs, fixtures, dies and moulds may be imported for export without a Licence/certificate/permission/ Authorisation on execution of Legal Undertaking/Bank Guarantee with the Customs Authorities provided that the item is freely exportable without any conditionality/requirement of Licence/ permission as may be required under ITC(HS) Schedule II.

Re-import of goods repaired abroad Capital goods, equipments, components, parts and accessories, whether imported or indigenous, except those restricted under ITC (HS) may be sent abroad for repairs, testing, quality improvement or upgradation or standardization of technology and re-imported without a Licence/certificate/permission/ Authorisation.

Import of goods used in projects abroad

After completion of the projects abroad, project contractors may import, without a licence/ certificate/ permission, used goods including capital goods provided they have been used for at least one year.

Sale on High Seas Sale of goods on high seas for import into India may be made subject to this Policy or any other law for the time being in force.

Import under Lease Financing Permission of licensing authority is not required for import of new capital goods under lease financing.

Clearance of Goods from Customs

The goods already imported/shipped/arrived, in advance, but not cleared from Customs may also be cleared against the Licence/ certificate/ permission issued subsequently.

Execution of BG/ LUT

Wherever any duty free import is allowed or where otherwise specifically stated, the importer shall execute a Legal Undertaking (LUT)/Bank Guarantee (BG)/ Bond with the Customs Authority before clearance of goods through the Customs, in the manner as may be prescribed. In case of indigenous sourcing, the Licence/ certificate/ permission holder shall furnish LUT / BG / Bond to the licensing authority before sourcing the material from the indigenous supplier/nominated agency.

Exemption from Bank Guarantee All the exporters who have an export turnover of at least Rupees 5 crore in the current or preceding licencing year and have a good track record of three years of exports will be exempted from furnishing a BG for any of the schemes under this Policy and may furnish a LUT in lieu of BG.

Private/ Public Bonded Warehouses for Imports Private/Public bonded warehouses may be set up in the Domestic Tariff Area as per the terms and conditions of notification issued by Department of Revenue. Any person may import goods except prohibited items, arms and ammunition, hazardous waste and chemicals and warehouse them in such private/public bonded warehouses. Such goods may be cleared for home consumption in accordance with the provisions of this Policy and against Licence/certificate/ permission, wherever required. Customs duty as applicable shall be paid at the time of clearance of such goods. If such goods are not cleared for home consumption within a period of one year or such extended period as the custom authorities may permit, the importer of such goods shall reexport the goods.

Registration -cum- Membership Certificate

Any person, applying for (i) a licence/ authorisation/ certificate/ permission to import/ export, [except items listed as restricted items in ITC(HS)] or (ii) any other benefit or concession under this policy shall be required to furnish Registration-cum-Membership Certificate (RCMC) granted by the competent authority in accordance with the procedure specified in the Handbook (Vol.1) unless specifically exempted under the Policy.

Import Policy by HS Code Import Policy by HS Code is available at the link given below. http://dgft.gov.in/ (ITC (HS) Based Query on left side of the window)

Import Tariff by HS Code

Import tariff by HS Code is available at the link given below. http://www.cbec.gov.in/cae/customs/cst-0607/chap-84.pdf

9A. BANKING SYSTEM AND EXCHANGE POLICIES

Reserve Bank of India The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Subsidiaries Fully owned: National Housing Bank(NHB), National Bank for Agriculture and Rural Development(NABARD), Deposit Insurance and Credit Guarantee Corporation of India(DICGC), Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL) Majority stake: State Bank of India Banking Structure

At present the number of nationalised banks is 20. Several Foreign banks were allowed to operate as per the guidelines of RBI. At present the banking system can be classified in following categories:

Public Sector Banks

• Reserve Bank of India • State Bank of India and its 7 associate Banks • Nationalised Banks (20 in number) • Regional Rural Banks sponsored by Public sector Banks

Private Sector Banks

• Old Generation Private Banks • New Generation Private Banks • Foreign Banks in India • Scheduled Co-operative Banks • Non Scheduled Banks

Co-Operative Sector Banks

• State Co-operative Banks • Central Co-operative Banks • Primary agriculture Credit Societies • Land Development Banks • Urban Co-operative Banks • State Land Development Banks

Development Banks

• Industrial Finance Corporation of India (IFCI) • Industrial Development bank of India (IDBI) • Industrial Credit & Investment corporation of India (ICICI) • Industrial Investment Bank of India (IIBI) • Small Industries Development Bank of India (SIDBI) • National Bank for Agriculture & Rural Development (NABARD) • Export-Import Bank of India

Acts governing Banking Operations

• Companies Act, 1956:Governs banks as companies • Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980:

Relates to nationalisation of banks • Bankers' Books Evidence Act • Banking Secrecy Act • Negotiable Instruments Act, 1881 • Acts governing Individual Institutions • State Bank of India Act, 1954 • The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 • The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act,

1993 • National Bank for Agriculture and Rural Development Act • National Housing Bank Act • Deposit Insurance and Credit Guarantee Corporation Act

List of Commercial Banks

S.No Names of Commercial Banks Type of Bank

1 ABN AMRO Bank N.V. Private Foreign Bank

2 Abu Dhabi Commercial Bank Ltd. Private Foreign Bank

3 American Express Bank Ltd. Private Foreign Bank

4 Arab Bangladesh Bank Limited Private Foreign Bank

5 Allahabad Bank Nationalized Bank

6 Andhra Bank Nationalized Bank

7 Antwerp Diamond Bank N.V. Private Foreign Bank

8 Bank Internasional Indonesia Private Foreign Bank

9 Bank of America N.A. Private Foreign Bank

10 Bank of Bahrain & Kuwait BSC Private Foreign Bank

11 Barclays Bank Plc Private Foreign Bank

12 BNP PARIBAS Private Foreign Bank

13 Bank of Ceylon Private Foreign Bank

14 Bharat Overseas Bank Ltd. Indian Private Bank

15 Bank of Baroda Nationalized Bank

16 Bank of India Nationalized Bank

17 Bank of Maharashtra Nationalized Bank

18 Canara Bank Nationalized Bank

19 Central Bank of India Nationalized Bank

20 Calyon Bank Private Foreign Bank

21 Citibank N.A. Private Foreign Bank

22 Cho Hung Bank Private Foreign Bank

23 Chinatrust Commercial Bank Ltd. Private Foreign Bank

24 Centurion Bank of Punjab Limited Indian Private Bank

25 City Union Bank Ltd. Indian Private Bank

26 Coastal Local Area Bank Ltd. Indian Private Bank

27 Corporation Bank Nationalized Bank

28 Catholic Syrian Bank Ltd. Indian Private Bank

29 Deutsche Bank AG Private Foreign Bank

30 Development Credit Bank Ltd. Indian Private Bank

31 Dena Bank Nationalized Bank

32 IndusInd Bank Limited Indian Private Bank

33 ICICI Bank Indian Private Bank

34 IDBI Bank Limited Indian Private Bank

35 Indian Bank Nationalized Bank

36 Indian Overseas Bank Nationalized Bank

37 Industrial Development Bank of India Other Public Sector-Indian Banks

38 ING Vysya Bank Indian Private Bank

39 J P Morgan Chase Bank, National Association

Private Foreign Bank

40 Krung Thai Bank Public Company Limited

Private Foreign Bank

41 Kotak Mahindra Bank Limited Indian Private Bank

42 Karnataka Bank Indian Private Bank

43 Karur Vysya Bank Limited. Indian Private Bank

44 Lord Krishna Bank Ltd. Indian Private Bank

45 Mashreqbank psc Private Foreign Bank

46 Mizuho Corporate Bank Ltd. Private Foreign Bank

47 Oman International Bank S A O G Private Foreign Bank

48 Oriental Bank of Commerce Nationalized Bank

49 Punjab & Sind Bank Nationalized Bank

50 Punjab National Bank Nationalized Bank

51 Societe Generale Private Foreign Bank

52 Sonali Bank Private Foreign Bank

53 Standard Chartered Bank Private Foreign Bank

54 State Bank of Mauritius Ltd. Private Foreign Bank

55 SBI Commercial and International Bank Ltd.

wholly owned subsidiary of SBI

56 State Bank of Bikaner and Jaipur SBI Associate Bank

57 State Bank of Hyderabad SBI Associate Bank

58 State Bank of India SBI Associate Bank

59 State Bank of Indore SBI Associate Bank

60 State Bank of Mysore SBI Associate Bank

61 State Bank of Patiala SBI Associate Bank

62 State Bank of Saurashtra SBI Associate Bank

63 State Bank of Travancore SBI Associate Bank

64 Syndicate Bank Nationalized Bank

65 The Bank of Nova Scotia Private Foreign Bank

66 The Bank of Tokyo-Mitsubishi, Ltd. Private Foreign Bank

67 The Development Bank of Singapore Ltd. (DBS Bank Ltd.)

Private Foreign Bank

68 The Hongkong & Shanghai Banking Corporation Ltd.

Private Foreign Bank

69 Tamilnad Mercantile Bank Ltd. Indian Private Bank

70 The Bank of Rajasthan Limited Indian Private Bank

71 The Dhanalakshmi Bank Limited. Indian Private Bank

72 The Federal Bank Ltd. Indian Private Bank

73 The HDFC Bank Ltd. Indian Private Bank

74 The Jammu & Kashmir Bank Ltd. Indian Private Bank

75 The Nainital Bank Ltd. Indian Private Bank

76 The Sangli Bank Ltd. Indian Private Bank

77 The South Indian Bank Ltd. Indian Private Bank

78 The Ratnakar Bank Ltd. Scheduled Commercial Bank

79 The Lakshmi Vilas Bank Ltd Indian Private Bank

80 UCO Bank Nationalized Bank

81 UTI Bank Ltd. Indian Private Bank

82 Union Bank of India Nationalized Bank

83 United Bank Of India Nationalized Bank

84 Vijaya Bank Indian Private Bank

85 Yes Bank Indian Private Bank

Financial Institutions

1 National Bank for Agriculture and Rural Development

2 Export-Import Bank of India

3 National Housing Bank

4 Small Industries Development Bank of India

5 Industrial Investment Bank of India Ltd.

6 North Eastern Development Finance Corporation

Currency The Indian currency is called the Indian Rupee (INR) and the coins are called paise. One Rupee consists of 100 paise. Present denominations: At present, notes in India are issued in the denomination of Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000. These notes are called bank notes as they are issued by the Reserve Bank of India (Reserve Bank). The printing of notes in the denominations of Re.1 and Rs.2 has been discontinued as these denominations have been coinised. However, such notes issued earlier are still in circulation. The printing of notes in the denomination of Rs.5 had also been discontinued; however, it has been decided to reintroduce these notes so as to meet the gap between the demand and supply of coins in this denomination. The Reserve Bank can also issue notes in the denominations of one thousand rupees, five thousand rupees and ten thousand rupees, or any other denomination that the Central Government may specify. There cannot, though, be notes in denominations higher than ten thousand rupees in terms of the current provisions of the Reserve Bank of India Act, 1934. Coins can be issued up to the denomination of Rs.1000. Forex Control

• The Indian currency, the Rupee is convertible on current account transactions as capital account transactions carried out by foreign investors; however Indian firms and individuals remain subject to capital account restrictions.

• All investments are on repatriation basis. • Original investment, profits and dividends can be freely repatriated. • Foreign investor can acquire immovable property incidental to or required for their

activity. • When imported machinery and capital goods require down payments exceeding

USD 15,000, a bank guarantee from an international bank covering the advance remittance amount is required from importers.

• Finance measures such as exchange control management and regulation are under the responsibility of the Reserve Bank of India (RBI) vide 1973 Foreign Exchange Regulation Act (FERA) superseded by the Foreign Exchange Management Act (FEMA) of December 1999.

Foreign Exchange Management Act

• The Reserve Bank of India’s Exchange Control Department, administers Foreign Exchange Management Act, 1999, (FEMA) which has replaced the earlier Act , FERA, with effect from June 1, 2000. The new legislation is for “facilitating external trade” and “promoting the orderly development and maintenance of foreign exchange market in India”.

• In terms of Section 6(3)(b) of Foreign Exchange Management Act, 1999, Reserve Bank of India regulates transfer or issue of any security by a person resident outside India read with Notification No. FEMA 20/2000-RB dated May 3, 2000.

General Permission under FEMA Issue of Rights/ Bonus Shares

General permission is available to Indian companies to issue Right/Bonus shares subject to certain conditions. Entitlement of rights shares is not automatically available to investors who have been allotted such shares as OCBs. Such issuing companies would have to seek specific permission from RBI, Foreign Exchange Department, Foreign Investment Division, Central Office, Mumbai for issue of shares on right basis to erstwhile Overseas Corporate Bodies(OCBs).

Issue of Shares Under Merger/ Amalgamation

Where a Scheme of merger or amalgamation of two or more Indian companies has been approved by a court in India, the transferee company may issue shares to the shareholders of the transferor company, resident outside India subject to ensuring that the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the percentage specified in the approval granted by the Central Government or the Reserve Bank. This entitlement of rights shares is not automatically available to investors who have been allotted such shares as OCBs. For this specific permission from RBI is necessary.

Issue of Shares under ESOS Scheme A company may issue shares under this Scheme, to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, directly or through a Trust subject to the condition that the scheme has been drawn in terms of relevant regulations issued by the SEBI; and face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5% of the paid-up capital of the issuing company.

Issue of Shares by Indian Companies under ADR/GDR An Indian corporate can raise foreign currency resources abroad through the issue of ADRs or GDRs. Regulation 4 of Schedule I of FEMA Notification No. 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs and/ or ADRs, subject to the conditions that: • the ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Central Government thereunder from time to time. • The Indian company issuing such shares has an approval from the Ministry of Finance, Government of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/ GDRs in terms of the relevant scheme in force or notification issued by the Ministry of Finance, and

• Is not otherwise ineligible to issue shares to persons resident outside India in terms of these Regulations.

Repatriation of Investment Capital and Profits Earned in India • All foreign investments are freely repatriable except for the cases where NRIs

choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer.

• Non-residents can sell shares on stock exchange without prior approval of RBI and repatriate through a bank the sale proceeds if they hold the shares on repatriation basis and if they have necessary NOC/tax clearance certificate issued by Income Tax authorities.

• For sale of shares through private arrangements, Regional offices of RBI grant permission for recognized units of foreign equity in Indian company in terms of guidelines indicated in Regulation 10.B of Notification No. FEMA.20/ 2000 RB dated May ‘2000. The sale price of shares on recognized units is to be 3rd determined in accordance with the guidelines prescribed under Regulation 10B(2) of the above Notification.

• Profits, dividends, etc. (which are remittances classified as current account transactions) can be freely repatriated.

Transfer of Shares/ Debentures

In order to make the environment in India more attractive for foreign investors, Government has decided to simplify the procedure by placing the following under the General Permission route ( i.e. RBI route ) instead of existing Government approval route (i.e. FIPB route) for speedy and streamlined investment approvals:

• Transfer of shares from resident to non-resident (including transfer of subscribers’ shares to non-residents) other than in financial services sector provided the investment is covered under automatic route, does not attract the provisions of SEBI’s (Substantial Acquisition of Shares and Takeovers)Regulations, 1997, falls within the sectoral cap and also complies with prescribed pricing guidelines.

• Conversion of ECB/Loan into equity provided the activity of the company is covered under automatic route, the foreign equity after such conversion falls within the sectoral cap and also complies with prescribed pricing guidelines.

• Cases of increase in foreign equity participation by fresh issue of shares as well as conversion of preference shares into equity capital provided such increase within the sectoral cap in the relevant sectors, are within the automatic route and also complies with prescribed pricing guidelines.

General permission has been granted to non-residents/NRIs for transfer of shares and convertible debentures of an Indian company as under:-

• A person resident outside India ( Other than NRI and OCB) may transfer by way of sale or gift the shares or convertible debentures to any person resident outside India ( including NRIs); provided transferee has obtained

prior permission of SIA/FIPB to acquire the shares if he has a venture or tie-up in India through investment in shares or convertible debentures or a technical collaboration or a trade mark agreement or investment in the same field in which the Indian company whose shares are being transferred, is engaged.

• NRI or OCB may transfer by way of sale or gift the shares or convertible debentures held by him or it to another non-resident Indian; provided transferee has obtained prior permission of Central Government to acquire the shares if he has a venture or tie-up in India in the same field in which the Indian company whose shares are being transferred, is engaged.

• The person resident outside India may transfer any security to a person resident in India by way of gift.

• A person resident outside India may sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a registered broker.

Current Account Transactions

Prior approval of the RBI is required for acquiring foreign currency above certain limits for the following purposes:

• Holiday travel over USD 10,000 p.a. • Gift / donation over USD 5,000 / USD 10,000 per beneficiary p.a. • Business travel over USD 25,000 per person • Foreign studies as per estimate of institution or USD 100,000 per academic

year • Architectural / consultancy services procured from abroad over USD

1,000,000 per project • Remittance for purchase of Trade Mark / Franchise • Reimbursement of pre incorporation expenses over USD 100,000 • Remittances exceeding USD 25,000 p.a. (over and above ceilings

prescribed for other remittances mentioned above) by a resident individual for any current account or capital account transaction.

In certain specified cases, prior approval of the Ministry concerned is needed for withdrawal of foreign exchange, such as: -

• Remittance of freight of vessel chartered by a PSU, • Payment of import through ocean transport by a Govt. Department or a

PSU on c.i.f basis, • Multi-modal transport operators making remittance to their agents abroad.

Acquisition of Immovable Property by Non-Resident:

A person resident outside India, who has been permitted by Reserve Bank of India to establish a branch, or office, or place of business in India ( excluding a Liaison Office), has general permission of Reserve Bank of India to acquire immovable property in India , which is necessary for, or incidental to, the activity. However, in such cases a declaration, in prescribed form (IPI), is required to be filed with the Reserve Bank, within 90 days of the acquisition of immovable property. Foreign nationals of non-Indian origin who have acquired immovable property in

India with the specific approval of the Reserve Bank of India can not transfer such property without prior permission from the Reserve Bank of India.

9B.METHODS OF PAYMENT Payment System Since paper-based currency is such an important means of payment in India (19% of the money supply), collections are typically time-consuming and have a high reliance on manual processing. The clearing settlements for these payments are spread over 1,040 clearinghouses, which are local-based and confined to a specific jurisdiction. The clearinghouses are managed by either the Reserve Bank of India (RBI) or the State Bank of India (a large nationalized bank). The Reserve Bank of India (RBI), however, has been a key driver of change within banking in India. Clearing and payment systems have been gradually modernized due to the efforts of the RBI. The RBI has introduced numerous new services: MICR (magnetic ink character recognition) based check clearing, electronic clearing service (ECS), electronic funds transfer (EFT), special electronic funds transfer (SEFT), real-time gross settlement (RTGS), centralized funds management system (CFSM), and a centralized funds transfer system (CFTS). The benefits of these new services include same-day inter- and intra-city funds transfers, greater efficiency, less risk, and larger settlement capabilities. Payment against imports Payment under Letter of Credit is a universally accepted mode of payment. A Letter of Credit is a signed instrument and an undertaking by the banker of the buyer to pay the seller a certain sum of money on presentation of documents evidencing Shipment of Specified goods subject to compliance with the stipulated terms and conditions. Letter of Credit vs Bank Guarantee A letter of credit differs from a bank guarantee. An issuing or confirming obligation is independent of, and unqualified by, the contract of sale under the transaction. A commercial credit is neither a performance bond, nor it is a guarantee of the quantity or quality of the goods shipped. Letters of Credit are Separate Transactions A contract for sale of goods between the seller and the buyer incorporates mode of settlement. Letters of credit by their nature are separate from the sale contract, and banks are not concerned or bound by such sale contracts even if the credits bear reference to them. The credits stipulate documents which have to be tendered for payment and it, therefore, follows that in credit, parties deal with documents and not with goods, services or performances to which the documents relate. It is, therefore, in the interest of all the parties concerned that the conditions and terms of credit are complete and precise and bereft of excessive details.

Payment under a letter of credit does not depend on the performance obligation on the part of the exporter except those which the credit imposes. Banks accept documents under letters of credit for what those documents purport to be on their face. Contract between the buyer and the seller is obligatory between themselves. The seller (beneficiary) cannot take advantage of any contractual terms in between the buyer and the opening bank and between the opening bank and the advising/confirming bank. Letter of Credit (L/C) Parties to a Letter of Credit: The following persons are generally parties, to a letter of Credit: Beneficiary: The exporter of goods in whose favour the L/C has been established. Customer/importer: The person we intend to import the goods and instruct the bank to establish the Letter of Credit. Issuing Bank: The Banker in the importers country who opens the L/C. Correspondent Bank or Advising Bank: The banker in the exporters country, who is authorised by the issuing bank to advise the beneficiary of the Credit and to effect such payment or to accept and pay such bills of exchange or to negotiate against Stipulated documents and on Compliance of Stipulated terms and conditions specified by the importer on the exporter. Confirming Bank: The banker in the exporters’ (beneficiary) country, who at the desire of the beneficiary adds confirmation to the letter of Credit so that the beneficiary can get payment without recourse from the Confirming bank. The Confirming bank may be a correspondent bank itself or some other bank. Generally following types of Letter of Credit are in operation.

• Revocable or Irrevocable Letters of Credit • Confirmed Credit • Transferable Credit • With or without Recourse Credit • Revolving Letter of Credit • Transit Credit • Back to Back Credit • The Sight Credit • The Credit available against Time Draft (Usance Credit) • The Deferred payment Credit.

Mode of payment Payments in retirement of bills drawn under L/C as well as bills received from abroad for collection against imports into India must be received by authorised dealers, irrespective of amount, by debit to the account of the importer with themselves or by means of a crossed cheque drawn by him on his other bankers. Payment against bills should not be accepted in cash. This rule also applies to private imports where the amount involved is Rs 20,000 or more. Payment for import bills-Where the import bills are drawn in Indian Rupees (INR), an equivalent amount (plus bank charges) is debited to the account of the importer by the authorised dealer and the amount remitted to the foreign seller. In case the bills are drawn in foreign currencies, the INR equivalent is arrived at by applying the appropriate foreign exchange rate. Fixing of Re. Equivalent- In order to bring uniformity in the handling of import bills under L/C authorised dealers have been directed by the RBI for following the below procedures: Sight import bills received under L/C and conforming to credit terms, may be held in foreign currency for a maximum period of 10 days from the date of receipt of documents by the Bank. In case of non-payment by the drawee within 10 days, the importer's liability on the foreign currency bill shall be crystallised by converting the foreign currency amount in to rupee at the selling rate prevailing on the 10th day or the forward exchange contract rate where applicable. Authorised dealers shall keep a proper record of the date of receipt of documents. In case the 10th day is a holiday or a Saturday, the importer's liability in rupees shall crystallise on the next following working day. The Authorised dealer shall carry swap costs from the customer. Authorised dealer shall charge interest at the rate as prescribed by RBI for advances to non-priority sectors from time to time on rupees advances made against the import bills pending retirement by the customer. Such interest shall be recovered from the date of negotiation or the date of crystallisation of the rupee liability and thereafter penal interest shall be recovered. When the rupee liability on an import bill is crystallised at the Forward Exchange Contract Rate and it results in early/late delivery, the charges as per FEDAI rule 9 shall be levied. Authorised dealers shall charge commission/handling charges at the rate of 0.15% on the bill amount at the time of converting foreign currency into rupees (Rs) irrespective of the fact whether the bill is retired within 10 days or later.

Time limit for import remittance: The remittance against imports should be completed not later than 6 months from the date of shipment. Accordingly, deferred payment arrangements involving payments beyond 6 months are not permissible without the approval of RBI/Gol. However, no objection to importers withholding a small part of the cost of the goods not exceeding 15% towards guarantee of performance etc. Authorised dealers may make remittances of amounts so withheld provided the earlier remittance had been made through them. No interest payment should be allowed to be remitted on these withheld amounts. Sometimes, settlement of import dues may be delayed due to disputes, financial difficulties, Authorised dealers are permitted by the RBI to make remittances in such cases even if the period of 6 months expires, provided- Authorised dealer is satisfied about the bona fides of the circumstances leading to a delay in payment. No payment of interest is involved for the additional period. In case, where the overseas supplier insists on payment of interest, it may be allowed in accordance with the provisions contained in para 7A.12 up to a maximum period of 60 days beyond 180 days from the date of shipment provided the import bill is paid within that period. Remittances against import of books may be allowed without restrictions regarding time-limit, provided no interest payment is involved nor has the importer foregone any part of the discount/rebate normally allowed to importers towards compensation for delay in the settlement of dues. Interest remittance on import bills-interest accrued on usance bills under 'normal interest clause' or on overdue interest paid on sight bills for a period not exceeding 6 months from the date of shipment in respect of imports without prior approval of RBI. In case of pre-payment of usance import bills, remittances may be made only after reducing the proportionate interest for the unexpired portion of usance at the rate at which the interest has been claimed or the 'prime' rate (or its equivalent) of the country in the currency of which the goods are invoiced, whichever is higher. Where interest is not separately claimed remittances may be allowed after deducting the proportionate interest for the unexpired portion of usance at the prevailing 'prime'. However, interest under normal interest clause would mean interest at the prime rate (or its equivalent) of the country in the currency of which the goods are invoiced. Importer's documents-The importer should comply with certain obligations: submission of Exchange Control Copy of Bill of Entry for Home Consumption/Postal Wrappers to

the authorised dealer. This will act as evidence that the goods, for which the payment was made, have actually been imported into India. Authorised dealers should ensure that in all cases, including cases of advance remittances permitted (Vide para 7A, 10), these are submitted by their importer customers and are verified. In respect of imports made on Documents against Acceptance basis, since goods would normally be cleared before the due date of payment, authorised dealers should insist on production of documentary evidence of import i.e. Exchange Control Copy of Bill of Entry for Home Consumption/ postal wrappers at the time of effecting remittance of import bill. Authorised dealers should also advise this requirement to their importer customers in writing while delivering the documents against acceptance. Postal Imports Remittances against bills received for collection in respect of imports by post parcel may be made by authorised dealers, provided the goods imported are such as are normally despatched by post-parcel. In these cases the relative parcel receipts must be produced as evidence of dispatch through the post and on undertaking to submit importers should furnish post parcel wrappers within three months from the date of remittance. If the parcel has already been received in India, the parcel wrapper should be produced in support of the remittance application. Where goods to be imported are not of a kind normally imported by post parcel or where authorised dealer is not satisfied about the bona fides of the applications the case should be referred to the RBI for prior approval with full particulars together with relative parcel receipts/or wrappers.

10. LOCAL JUDICIAL SYSTEM

The Indian Legal Hierarchy is somewhat of the following nature:

• In the Metropolitan Cities on the Civil Side, the first are the Small Cases Courts and above them the City Civil Courts. On the Criminal Side there are the Metropolitan Magistrates' Courts and above them the Sessions Courts.

• In the Moffusil on the Civil Side, there are the Courts of the Civil Judge, Junior

Division, Civil Judge Senior Division, and District Courts. On the Criminal Side there are the Courts of the Judicial Magistrates and Sessions Courts. Then there are the Industrial Courts, Family Courts, Co-operative Courts and various Tribunals.

• In the Corporate Sector, there is a Company Law Board constituted by the Central

Government under the Provisions of Section 10E of the Companies Act, 1956 which has its Principal Bench in New Delhi and Regional Benches of Single as well as Double Members at New Delhi, Kolkata, Mumbai and Chennai.

• Above all the aforesaid Lower Level Courts, Tribunals and Boards, there are High

Courts in each of the States, and above the High Courts is the Supreme Court of India in New Delhi.

• India has a written Constitution and codified Central and State law. Its Judiciary is

of the highest integrity. The official language is English in the High Courts and in the Supreme Court. The Indian Legislature and Judiciary make constant efforts to bring about improvements in Courts and dispense justice speedily. On the recommendations of the General Assembly of the United Nations to consolidate and amend the law relating to domestic arbitration, international arbitration and enforcement of the foreign arbitral awards a new Arbitration and Conciliation Act has been enacted. To expedite the disposals of cases concerning the transactions related to Banks a special tribunal is being established. To facilitate foreign investment, foreign joint venture and globalization of Indian Trade & Industry, various amendments have been thought of in the existing Companies Act, 1956 and a proposal of enacting a new Take-over Code is under consideration. The Income-Tax Act, 1961, which at present is lengthy and complicated, is thought of being revised and in its place a simple Tax Law is proposed to be enacted. In short there is a general tendency towards improvement in laws and Courts.

Annexure List of Various Central Labour Acts Laws related to Industrial Relations The Trade Unions Act, 1926 The Industrial Employment (Standing Orders) Act, 1946 The Industrial Employment (Standing Orders) Rules, 1946 The Industrial Disputes Act, 1947 Laws related to Wages The Payment of Wages Act, 1936 The Payment of Wages Rules, 1937 The Minimum Wages Act, 1948 The Minimum Wages (Central) Rules, 1950 The Working Journalist (Fixation of Rates of Wages) Act, 1958 Working Journalist (Conditions of service) and Miscellaneous Provisions Rules, 1957 The Payment of Bonus Act, 1965 The Payment of Bonus Rules, 1975 Laws related to Working Hours, Conditions of Services and Employment The Factories Act, 1948 The Dock Workers (Regulation of Employment) Act, 1948 The Plantation Labour Act, 1951 The Mines Act, 1952 The Working Journalists and other Newspaper Employees' (Conditions of Service and Misc. Provisions) Act, 1955 The Working Journalists and other Newspaper Employees' (Conditions of Service and Misc. Provisions) Rules, 1957 The Merchant Shipping Act, 1958 The Motor Transport Workers Act, 1961 The Beedi & Cigar Workers (Conditions of Employment) Act, 1966 The Contract Labour (Regulation & Abolition) Act, 1970 The Sales Promotion Employees (Conditions of Service) Act, 1976 The Sales Promotion Employees (Conditions of Service) Rules, 1976 The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979 The Shops and Establishments Act The Cinema Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981 The Cinema Workers and Cinema Theatre Workers (Regulation of Employment) Rules, 1984 The Cine Workers' Welfare Fund Act, 1981 The Dock Workers (Safety, Health & Welfare) Act, 1986 The Building & Other Construction Workers (Regulation of Employment & Conditions of Service) Act, 1996 The Dock Workers (Regulation of Employment) (inapplicability to Major Ports) Act, 1997

Laws related to Equality and Empowerment of Women The Maternity Benefit Act, 1961 The Equal Remuneration Act, 1976 Laws related to Deprived and Disadvantaged Sections of the Society The Bonded Labour System (Abolition) Act, 1976 The Child Labour (Prohibition & Regulation) Act, 1986 Laws related to Social Security The Workmen's Compensation Act, 1923 The Employees' State Insurance Act, 1948 The Employees' Provident Fund & Miscellaneous Provisions Act, 1952 The Payment of Gratuity Act, 1972 Laws related to Employment & Training The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959 The Employment Exchanges (Compulsory Notification of Vacancies) Rules, 1959 The Apprentices Act, 1961 Others The Fatal Accidents Act, 1855 The War Injuries Ordinance Act, 1941 The Weekly Holiday Act, 1942 The National and Festival Holidays Act The War Injuries (Compensation Insurance) Act, 1943 The Personal Injuries (Emergency) Provisions Act, 1962 The Personal Injuries (Compensation Insurance) Act, 1963 The Coal Mines (Conservation and Development) Act, 1974 The Emigration Act, 1983 The Emigration Rules, 1983 The Labour Laws (Exemption from Furnishing Returns and Maintaining Register by Certain Establishments) Act, 1988 The Public Liability Insurance Act, 1991 Source: www.labour.nic.in/act/welcome.html

11. POTENTIAL BUSINESS PARTNERS Machine Tools, Mechanical Components Name Brief Description Web link HMT Pioneer in machine tools

business in India. Leading manufacturer of conventional and CNC machines. Revenues of Rs2902 million

www.hmtindia.com/

BFW Largest machine tools manufacturer in private sector. Collaboration with German Machine Tool manufacturing company. Manufacturer of CNC horizontal and vertical machining centers and Special Purpose Machines.

www.bfwindia.com/

ACE Designers Ltd Is a leading manufacturer of CNC turning centers and Auto lathes.

http://acemicromatic.com/

Jyoti Machine Tools Leading CNC machine tools manufacturer. Recently tiedup with French machine tools manufacturer Hurron Grafenstaden SAS to produce special purpose machine tools to be sold in Europe.

Batliboli The Batliboi Machine Tools Group consists of four divisions, Machine Tools, Special Purpose Machines, Crane Foundry and an exclusive remanufacturing and reconditioning center.

www.batliboi.com/i

Lakshmi Machine Works

Lakshmi Machine Works Limited, founded in 1962, is today one of the three in the world, who manufacture the complete range of textile spinning machinery. During 1988, LMW added to their formidable manufacturing resources, a new plant to produce CNC Machine Tools

www.lakshmimach.com/

in technical collaboration with M/s. Mori Seiki Co.Ltd., of Japan. A plant that is one of its kind in India. A state-of-art foundry was added to the facility during 1993.

Kennametal India Kennametal Inc. is a leading global supplier of tooling, engineered components and advanced materials that are consumed in production processes. Around the world, Kennametal's metal cutting tools are first or second in market share in every market it serves.

www.kennametal.com/

Other leading players in Machine Tools industry: Heavy Engineering Corporation, Motor Industries Company Ltd, Lokesh Machine Ltd, Premier Ltd, TAL Manufacturing Solutions Ltd, Godrej & Boyce Manufacturing Ltd, Mysore Kirloskar Ltd Industrial Moulds Om Enterprises The company is a leading

manufacturer of plastic injection moulds, compression moulds, investment die casting moulds, blow moulds and pressure die casting moulds for automobile, home-appliances, engineering, oil and paint, refrigerator, irrigation and lighting applications.

www.omenterprisemould.com

Alfa Plast Mould The company is a leading manufacturer of Plastic Injection Moulds, Compression Moulds, Blow Moulds, hot runner mould, Injection syringe moulds, Cap Moulds, Pet Preform moulds, PVC Pipe fitting moulds, Bottle moulds, electronic items mould, surgical mould, pharmaceutical products mould, automobile parts mould, plastic test specimen moulds, Diagnostic industries products mould, etc.

www.alfamould.co.in/

Mechanical Designing Elephant Deign Multidisciplinary design www.elephantdesign.com/

company Lopezdesign Leading design firm www.lopezdesign.com/ TCS labs Leading design & consulting

firm www.tcs.com

Iron & Steel Steel Authority of India Limited

Largest & Public Sector Company

www.sail.co.in/

Tata Steel Largest & Private Sector Company

www.tatasteel.com/

Rashtriya Ispat Nigam Limited

Leading Public Sector Company

www.vizagsteel.com

JSW Steel Ltd Leading Private Sector Company

www.jsw.in/

Essar Steel Leading Private Sector Company

www.essar.com/steel/

12. RISK ANALYSIS Country Risk Economic Overview India’s economic growth slowed slightly in the second quarter of 2006 to 8.9% year-over-year from 9.3% in the first quarter, but remained the second fastest growing economy among the world’s twenty largest economies.

• Hotel, trade, transport and communication, the largest component of GDP, rose 13.2% following a 12.9% rise.

• The second largest component, agriculture, slowed a bit to 3.4% from 5.5%, which was the fastest growth in two years.

• Manufacturing rose 11.3%, construction rose 9.5%, utilities rose 5.4%, and financial services rose 8.9%.

• The construction industry is booming as the government invests in infrastructure improvement and expansion. This, along with a good monsoon season, which has boosted incomes for farmers, is leading to record demand for financial services and loans. Although wholesale inflation has slowed from 5.5% in June to 4.56% for the week ended September 16, it remains above the government’s 4% target.

• Strong economic growth, record credit growth, high oil and commodity prices and stout consumer spending have led to a 150 basis point increase in the central bank’s key reverse repo rate to 6.0% since October 2004. The rate increases in June and July have helped the rupee to rebound from the plunge in the May-July period amid the global exodus from emerging markets. The rupee has rebounded to Rs45.01: US$1 on November 17 from RS46.95: US$1 on July 19.

• The weaker rupee has supported exports recently, but has not deterred imports, keeping the trade deficit virtually unchanged since April at around $3.9 billion. Imports, which rose 24.2% in July from a year ago, remain elevated as rising incomes spur domestic demand, while factories continue to suck in raw materials for manufacturing goods. In addition, the government’s spending on infrastructure has increased imports of steel and cement. Exports, which rose 34.8% in July, remain strong amid robust global demand for gems, textiles and other manufactured products. All of this has fuelled a surge in industrial production, which rose 12.4% in July from a year ago, the fastest growth since June 1996. Another spate of emerging market jitters, which could weaken the rupee, and high oil and commodity prices could keep inflation elevated and lead to further interest rate hikes, which could slow the economy.

• On the political front, recent polls suggest that if an election were held before the planned election in May 2009, it may be possible for the UPA, the current ruling party, to gain a majority over the opposition BJP without the need for support from the Left Front. This would allow the UPA to enact much needed reforms that the Left Front opposes, such as liberalizing labor regulations, raising foreign investment ceilings and privatizing state-owned enterprises. In addition, it would

allow the UPA to decrease the welfare spending that is so vigorously demanded by the Left Front, which has prevented India from reducing its vast public debt. The risk of going to the polls early and having an unfavorable outcome suggests that the chance of an early election is minimal. However, the risk of political upheaval must not be overlooked.

INDICATORS 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 GDP (at current prices, US$ bn)

478.3 506.1 600.7 694.7 797.6e 880.3 f

GDP Growth (at constant prices, %)

5.8 3.8 8.5 7.5 8.4e 8.0**

Agriculture 6.2 -6.9 10.0 0.7 3.9 e - Industry 2.7 7.0 7.6 8.6 8.8 e - Services 7.1 7.3 8.2 9.9 10.1 e - Sectoral Share in GDP (%) Agriculture 23.2 20.8 21.0 19.6 19.0 Industry 25.5 26.7 26.4 27.3 27.4 Services 51.2 52.6 52.5 53.2 53.6 Inflation rate (WPI, avg. %)

3.6 3.4 5.4 6.4 4.0 5.26(Oct 14)

Gross Fiscal Deficit (% of GDP)

6.1 5.9 4.5 4.0 4.1 3.8

Exchange Rate (Rs/US$

47.69 48.40 45.95 44.93 44.62 44.93 (Nov 02)

Exchange Rate (Rs/Euro

42.18 48.09 53.99 56.51 55.20 57.34 (Nov 02)

Exports (US$ bn)

43.83 52.72 63.84 83.54 102.73 59.3 (Ap-Sep)

% change -1.7 20.3 21.1 30.8 23.0 37.3 Imports (US$ bn)

51.41 61.41 78.15 111.52 142.42 83.9 (Ap-Sep)

% change 1.7 19.5 27.3 42.7 27.7 32.1 Trade Deficit (US $ bn)

-7.58 -8.69 -14.31 -27.98 -39.69 -24.6 (Ap-Sep)

Services Exports (US$ bn)

17.1 20.8 26.9 46.0 60.6 16.6 (end

Software Exports

7.6 9.9 13.3 17.7 23.6 6.4 (end

(US$ bn) Services Imports (US$ bn)

13.8 17.1 16.7 31.83 38.3 8.9 (end

Current Account Balance (US$ bn)

3.40 6.35 14.08 -5.40 -10.61 -6.1 (end-June 06)

Current Account Balance (% of GDP)

0.7 1.3 2.3 -0.78 -1.33 -

Forex Reserves (US$ bn) #

54.11 76.1 113.0 141.51 151.62 166.15 (Oct 20)

External Debt (US $ bn) #

98.84 104.96 111.72 123.2 125.18 132.13 (end

External Debt to GDP Ratio (%) #

21.1 20.4 17.8 17.3 15.8

Short Term Debt / Total Debt (%) #

2.8 4.5 4.0 6.1 7.0 7.0 (end

Foreign Investment Inflows (US$ bn)

8.15 6.01 15.7 15.37 20.24 2.55(Apr-Jul)

Of which: FDI (US$ bn) 6.13 5.04 4.32 6051 7.75 3.39 (Apr GDRs/ADRs (US$ bn)

0.48 0.6 0.46 0.61 2.55 1.55 (Apr

FIIs (net) (US$ bn)

1.51 0.38 10.92 8.69 9.93

Source: RBI Government Intervention The World Bank reports that the government consumed 12.8 percent of GDP in 2003. In the same year, according to the International Monetary Fund's Government Financial Statistics CD–ROM, India received 17.9 percent of its total revenues from state-owned enterprises and government ownership of property. Monetary Policy From 1995 to 2004, India's weighted average annual rate of inflation was 3.85 percent.

Foreign Investment According to the U.S. Department of Commerce, "India controls foreign investment with limits on equity and voting rights, mandatory government approvals, and capital controls." The Economist Intelligence Unit characterizes India as "a difficult market for foreign companies. Most economic activities are bound by restrictions, public services and infrastructure are poor, and the government continues to impede the free flow of capital across its borders." However, India is taking gradual steps to attract more foreign investment, and foreign ownership is permitted in most sectors. The U.S. Department of Commerce reports that in January 2005, "the GOI [Government of India] relaxed restrictions on new [foreign direct investment] in India by foreign partners of joint ventures. The previous rules, issued in Press Note 18 in 1998, had required a release by the Indian partner and GOI approval for any new investment, a provision often subject to abuse. The new rules maintain restrictions on the majority of existing joint ventures, but leave new ones to negotiate their own terms on a commercial basis." Sectors off-limits to foreign investment include agriculture, legal services, railways, real estate, retailing, and security services. The International Monetary Fund reports that central bank approval is required for residents to open foreign currency accounts, either domestically or abroad, and that such accounts are subject to significant restrictions. Non-residents may hold foreign exchange and domestic currency accounts, subject to approval and conditions. Some payments and transfers face quantitative limits. The IMF reports that capital transactions and some credit operations are subject to certain restrictions and requirements. Wages & Prices The government continues to influence prices on several goods and services. The Economist Intelligence Unit reports that the Essential Commodities Act of 1955 applies price controls at the factory, wholesale, and retail levels on "essential" commodities. Electricity, some petroleum products, and certain types of coal are the only items with fully administered prices. The government also controls the prices of pharmaceuticals. The government mandates minimum wages that vary by state and industry. Regulation Businesses must contend with extensive federal and state regulation. According to the U.S. Department of Commerce, "firms have identified corruption as one obstacle to…investment. Indian businessmen agree that red tape and wide-ranging administrative discretion serve as a pretext to extort money." In addition, labor laws are rigid. The Economist reports that "any company employing more than 100 people requires the permission of the state authorities to sack workers…."

Informal Market Transparency International's 2004 score for India is 2.8. Therefore, India's informal market score is 4 this year. Currency Restrictions India’s currency unit is the Rupee (INR).

The Rupee floats freely in world foreign exchange markets. Banks in India can only deal with foreign exchange when authorized by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act, 2000 (FEMA).

Taxes: (Resident and Non-resident) Foreign Institutional Investors (FIIs) are allowed to invest and operate in the Indian capital market under minimal restrictions. There are no restrictions on investment volume or the transfer of funds in and out of the country for FIIs that have been registered with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).

Preferred Method of Payment Paper-based instruments Political Climate Stable at a time of strong economic growth Political Structure Democracy: parliamentary, bicameral

legislature Postal Service India Post is the national mail service under

the Postal Service Board; it is generally reliable (visit www.indiapost.giv.in for more information).

Political & Security risk According to, RiskMap 2007, an analysis published by Control Risks, a reputed international business risk consultancy, India stood out as the most secure location for business in South Asia. On a global level, India was ranked as a low risk country. The report noted the risks posed by mass casualty terrorist attacks by Kashmir-based groups, and the spread of this threat to the high-tech hubs in the south of the country, the `low' security ranking assigned to most parts of the country affirms that it offers business a generally secure platform from which to operate. However, parts of the country such as Jammu & Kashmir, certain pockets of North Eastern states were assigned high risk. The table given below presents the number of fatalities in 2006 (as of Oct 1, 2006) due to Terrorist violence.

Fatalities in Terrorist Violence – 2006 Civilians Security Force

Personnel Terrorist Total

2001 1067 590 2850 4507 2002 839 469 1714 3022 2003 658 338 1546 2542 2004 534 325 951 1810 2005 520 216 996 1732 *2006 285 125 463 873 Source: http://www.satp.org/

Currency On August 1, 2006, Fitch Ratings-London, upgraded the Republic of India’s Long-term foreign and local currency Issuer Default Ratings (“IDRs”) to ‘BBB-’ (BBB minus) from ‘BB+’, both with stable outlooks. The Short-term foreign currency IDR is also raised to ‘F3’ from ‘B’ and the Country Ceiling is upgraded to ‘BBB-’ (BBB minus) from ‘BB+’. Indian government’s deficit which declined to 7.5% in 2005/06 from 10.1% of GDP in fiscal year 2001/02, helped the currency ratings improve. Higher growth and lower interest rates have played a part in this outcome but so, too, have much improved tax administration and some widening of the tax net. Modest tightening at the centre has been matched by parallel progress among India’s 25 states and union territories, many of which have introduced value-added tax and enacted fiscal responsibility legislation over the past year. India’s established track record of macroeconomic stability, low inflation and a high domestic savings rate, coupled with a deep domestic capital market and external capital controls, reduces the country’s currency risk. Overall risk rating The table given below gives overall risk rating for India as of May 2006. India: risk assessment Sovereign

Risk Currency risk

Banking sector risk

Political risk

Economic structure risk

May-06 BBB BBB BB BB BBB Source: Economist Intelligence Unit 2006 Non-collection of goods & Non-payment Indian Council of Arbitration, consisting of representatives from the Government of India, the Federation of Indian Chambers of Commerce and Industry, the other important Chambers of Commerce and trade associations in India as well as export promotion

councils, public sector undertakings, companies and firms, is the apex body with the objective of resolving international commercial disputes by arbitration. Its rules of arbitration are of international standard and they provide a guarantee wished for by the trade for quick and just settlement of the dispute. It maintains a panel of arbitrators consisting of Retd. Judges, Advocates, Shipping Experts, Chartered accountants, Chartered Engineers, Businessmen, Foreign Nationals and Executives having specialization in more than 20 fields. The Council has entered into arbitration service agreements with important foreign arbitral institutions in more than 30 countries to administer arbitrations under their rules if arbitration is held in India. The Council also provides arbitration services for settlement of maritime disputes arising out of charter party contracts and it has framed maritime arbitration rules for such disputes. The Ministry of Surface Transport, Government of India has recommended the use of the ICA arbitration clause in the charter party contracts so that dispute, if any, can be settled under the ICA maritime arbitration rules. Parties involved in export-import trade with Indian counterparts can also seek dispute resolution by seeking the services of another organization namely International Centre for Alternative Dispute Resolution (ICADR). This organization has been established as an autonomous organization under the aegis of Ministry of Law, Justice and Company Affairs to promote settlement of domestic and international disputes by different modes of alternate dispute resolution. ICADR has its headquarters in New Delhi and has regional office in Lucknow and Hyderabad. More information on ICADR can be obtained from the website: http://www.icadr.org/

13. LEGISLATION ON INTELLECTUAL PROPERTY RIGHTS

Intellectual Property Rights

The importance of intellectual property in India is well established at all levels- statutory, administrative and judicial. India ratified the agreement establishing the World Trade Organisation (WTO) that came into force from 1st January 1995. This Agreement, inter-alia, contains an Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).

The Agreement provides for norms and standards in respect of following areas of intellectual property

Copyrights and related rights Trade Marks Geographical Indications Industrial Designs Patents

Copyrights and related rights

India’s copyright law, laid down in the Indian Copyright Act, 1957 as amended by Copyright (Amendment) Act, 1999, fully reflects the Berne Convention on Copyrights, to which India is a party. Additionally, India is party to the Geneva Convention for the Protection of rights of Producers of Phonograms and to the Universal Copyright Convention. India is also an active member of the World Intellectual Property Organisation (WIPO), Geneva and UNESCO.

The copyright law has been amended periodically to keep pace with changing requirements. The recent amendment to the copyright law, which came into force in May 1995, has ushered in comprehensive changes and brought the copyright law in line with the developments in satellite broadcasting, computer software and digital technology. The amended law has made provisions for the first time, to protect performer’s rights as envisaged in the Rome Convention.

The Indian copyrights law, laid down in the Indian Copyright Act, 1957, fully reflects the Berne Convention on Copyrights, to which India is a party. India is also an active member of the World Intellectual Property Organization, Geneva.

The Act protects literary, artistic works and performance rights by making it unlawful to reproduce such works without the owner's permission.

The author of the work is the first owner of the copyright in the work.

Registration of the copyright is not compulsory either for acquiring copyright or for enforcing by way of suit against the infringement of the copyright.

The Copyrights Act protects the following classes of work:

Original literary, dramatic, musical and artistic works Cinematography films Sound recording

Trademarks Trademarks have been defined as any sign, or any combination of signs capable of distinguishing the goods or services of one undertaking from those of other undertakings. Such distinguishing marks constitute protectable subject matter under the provisions of the TRIPS Agreement. The Agreement provides that initial registration and each renewal of registration shall be for a term of not less than 7 years and the registration shall be renewable indefinitely. Compulsory licensing of trade marks is not permitted.

The Trade Marks Act, 1999 has been enacted to amend and consolidate the law relating to trade marks, but the said Act has not come into force yet, thus the Trade and Merchandise Marks Act, 1958 remains the Act currently in force. The Trade Marks Act, 1999 is more compliant with the Trade Related Intellectual Property Rights (TRIPS) Agreement. The new Act will bring many changes, some of which are as below-

providing for registration of trade marks for services, in addition to goods providing an Appellate board for speedy disposal of appeals providing enhanced punishment for the offences relating to trade marks filing of a single application for registration in more than one class of

goods or services increasing the period of registration and renewal from 7 to 10 years

The person claiming to be the owner of the trade mark must apply to the Registrar in the prescribed manner. The application has to be made to the Trade Mark Registry within whose territorial limits the principal place of business of the applicant is located.

An application shall not be made in respect of goods comprised in more than one prescribed class of goods.

On filing of the application, the authorities conduct a search to ensure that the proposed trademark is not similar or deceptively similar to existing and registered trademarks. Thereafter, the Registrar may refuse the application or may accept it, subject to any amendment / modification / condition / limitation, as the Registrar may deem necessary.

Upon receipt and acceptance of the registration application, the Registrar shall cause the application advertised in the prescribed manner.

If no opposition to the application is received (within generally three months from the date of the application), or if the opposition is decided in favour of the applicant, the Registrar shall register the Trade mark.

Registration of the Trade mark is not compulsory. However, without the registration the owner of the Trade mark cannot bring an action for infringement of trade mark if it is copied by others.

Geographical Indications

The Agreement contains a general obligation that parties shall provide the legal means for interested parties to prevent the use of any means in the designation or presentation of a good that indicates or suggests that the good in question originates in a geographical area other than the true place of origin in a manner which misleads the public as to the geographical origin of the goods. There is no obligation under the Agreement to protect

geographical indications which are not protected in their country or origin or which have fall en into disuse in that country.

A new law for the protection of geographical indications, viz. the Geographical Indications of Goods (Registration and the Protection) Act, 1999 has also been passed by the Parliament and notified on 30.12.1999.

Industrial Designs

Industrial designs refer to creative activity which result in the ornamental or formal appearance of a product and design right refers to a novel or original design that is accorded to the proprietor of a validly registered design. Industrial designs are an element of intellectual property. Under the TRIPS Agreement, minimum standards of protection of industrial designs have been provided for. As a developing country, India has already amended its national legislation to provide for these minimal standards.

The essential purpose of design law it to promote and protect the design element of industrial production. It is also intended to promote innovative activity in the field of industries. The existing legislation on industrial designs in India is contained in the New Designs Act, 2000 and this Act will serve its purpose well in the rapid changes in technology and international developments. India has also achieved a mature status in the field of industrial designs and in view of globalization of the economy, the present legislation is aligned with the changed technical and commercial scenario and made to conform to international trends in design administration.

A new designs law repealing and replacing the Designs Act, 1911 has been passed by Parliament in the Budget Session, 2000. This Act has been brought into force from 11.5.2001. Designs Act, 2000 is the new law relating to Industrial Designs, which repeals and replaces the earlier Designs Act, 1911.

A 'design' is defined to mean only the features of shape, configuration, pattern ornament or composition of lines or colours applied to any two or three dimensional article by any manual, mechanical or chemical, industrial process or means, which in the finished article appeal to and are judged solely by the eye; but does not include any mode or principle of construction or anything which is in substance a mere mechanical device and does not include any trade mark or property mark or artistic work. Unlike the trademark, a design covers the whole body of the goods and is part and parcel of the goods themselves.

A proprietor of new and original design can apply for registration. Functional designs are not registrable.

There are certain designs which can qualify for registration both under the Designs Act and the Copyright Act, and they cannot be applied at the same time for protection of the same subject matter.

Registration of rights gives the following rights:

Right to exclusive use of the design Right to protect the design from piracy Usage of rights even against the Government

The Controller-General of Patents Designs and Trade Marks administers the

registration of designs.

Patents

The basic obligation in the area of patents is that, invention in all branches of technology whether products or processes shall be patentable if they meet the three tests of being new involving an inventive step and being capable of industrial application. In addition to the general security exemption which applied to the entire TRIPS Agreement, specific exclusions are permissible from the scope of patentability of inventions, the prevention of whose commercial exploitation is necessary to protect public order or morality, human, animal, plant life or health or to avoid serious prejudice to the environment. Further, members may also exclude from patentability of diagnostic, therapeutic and surgical methods of the treatment of human and animals and plants and animal other than micro-organisms and essentially biological processes for the production of plants and animals.

The TRIPS Agreement provides for a minimum term of protection of 20 years counted from the date of filing.

India had already implemented its obligations under Articles 70.8 and 70.9 of TRIP Agreement.

A comprehensive review of the Patents Act, 1970 was also made and a bill to amend the Patents Act, 1970 was introduced in Parliament on 20 December, 1999 and notified on 25-6-2002 to make the patent law TRIPS compatible. Highlights of Amended Indian Patent Act

a. Conditional grant of patent [Section 47]: This empowers the Government to import, make or use any patent for its own purpose. For drugs, it also empowers import for public health distribution.

b. Revocation of patent in public interest [Section 66]: This empowers the Government to revoke a patent where it is found to be mischievous to the State or prejudicial to the public.

c. Grant of compulsory licence [Sections 82 to 94]: Chapter XVI deals with the general principles and circumstances for grant of compulsory licences in order to protect public interest particularly public health and nutrition. These provisions check the abuse of patent rights. They can be invoked if the reasonable requirements of the public with respect to patented inventions have not been satisfied, and the patented invention is not available for public at a reasonably affordable price, and if the patented invention is not worked in the territory of India. Note : [Section 92]: This provides for action in case of national emergency, extreme urgency and public non-commercial use, and can be invoked without the grace period of 3 years from grant of patent.

d. Use of invention for the purpose of Government [Sections 100 & 101]: This complements section 47.

e. Acquisition of invention and patent for public purpose [Section 102]: This empowers the Government to acquire a patent to meet national requirements.

f. Bolar provision [Section 107 (A) (a)]: This facilitates production and marketing of patented products immediately after expiry of term of patent protection by permitting preparatory action by non-patentees during life of patent.

Parallel import [Section 107(A) (b)]: This provides for import so that patented product can become available at the lowest international price.

14. LABELLING AND PACKAGING RULES The government has identified 159 specific commodities (including food preservatives, milk powder condensed milk, infant milk foods, color dyes, steel, cement, electrical appliances and dry cell batteries) that the Bureau of Indian Standards (BIS) must certify before the products are allowed to enter the country. To be certified, exporters/manufacturers must either establish a presence in India or name a local Indian representative to accept responsibility, pay an annual fee as well as a percentage of the invoice value of shipments to India, and subject all certified exports to inspection. Certifying Agency SGS, Société Générale de Surveillance, an internationally recognized laboratory, carries out inspection and certification required for importation of goods to India. At the time of customs clearance, importers of used equipment must furnish an inspection certificate issued by an internationally known inspection and certification agency from the country of origin, guaranteeing thus, quality with regard to price, for goods exceeding Indian rupees 10 million c.i.f. Imported secondhand automobiles require pres-shipment and post shipment certification. A pre-shipment inspection certificate became compulsory after 25 of October 2004 for all imports of metal scrap in unshredded, compressed or loose form.

• The import of capital goods will be on a self certification basis. • Imported goods to India are subject to the following labeling requirements: goods

must be labeled in English or Hindi with the name and address of the importer, generic or common name, net quantity in terms of standard weights and measures, in metric system, production and shelf-life dates etc...

• As a rule, shipments of goods must be marked in large lettering using indelible ink or paint directly on the container, with trade names revealing the nature of goods.

• Waterproof, zinc or tin-lined packaging is recommended for shipments of goods to India.

• Since 1 of January 2004, imports of second hand automobiles are allowed to enter India, only through customs port at Mumbai.

• Clearance of imported unshredded, compressed or loose metal scrap in loose form are authorized only at the following customs stations: Chennai, Cochin, Ennore, JNPT, Kandla, Mormugao, Mumbai, New Mangalore, Paradip, Tutirocin, Vishakhapatnam, ICD Tughlakabad New Dehli, Pipava, Mundra, Kolkatta, ICD Ludhiana, ICD Dadri Greater Noida, and ICD Nagpur.

Source: http://r0.unctad.org/trains_new/country_notes/india_2005.PDF

15. MAIN EXHIBITIONS Events:2005 & 2006 Show Name Event Description Dates Location Engimach 2005 Machinery & Machine Tools Jan 5-9,

2005Ahmedabad, India

PhotoImaging Asia 2005

“PhotoImaging Asia 2005” was billed as the largest and most comprehensive photography and imaging exhibition in South Asia.

Jan 6–9, 2005

New Delhi, India

SAARC Trade Fair

Promote trade between SAARC countries.

Jan 6–10, 2005

New Delhi, India

Auto Expo The show featured new models, components and ancillaries.

Jan 15-20, 2005

New Delhi, India

Petrotech-2005 Manufacturers/operators/service companies displayed products and service systems such as process control, refining and pipeline services, systems, products, oil field hardware, software, analytical instruments and technical literature.

Jan 16-19, 2005

New Delhi, India

Print Pack India International exhibition on printing and packaging is showcased new technologies. Packers, packaging material suppliers, packaging machine manufacturers and suppliers visited this exhibition.

Jan 18-23, 2005

New Delhi, India

Garment Technology Expo

This edition of Expo exhibited products and services related to CAD/CAM, cutting & spreading, sewing, embroidery, fusing, Laundry, steam finishing, dyeing, knitting, accessories and trims, fashion fabrics.

Jan 21-24, 2005

New Delhi, India

Build-Hardware Show

Building & construction Jan 25-28, 2005

New Delhi, India

Amtex 2005 Technology & Tools, Machinery and Machine Tool, Material Handling Equipments and

Jan 26-30, 2005

Bangalore, India

Information Technology. Tooltech 2005 International Exhibition of

Cutting Tools, Tooling Systems, Machine Tool Accessories, Metrology & CAD/CAM.

Feb 3-5, 2005

Mumbai, India

IMAT-2005 IMAT-2005 provided exposure to the latest innovations in technologies, equipment and services in machine tools and automation sector.

Jan 20-23, 2005

Mumbai, India

Tube India International 2005

Tube & Pipe industry Feb 18-20, 2005

Hyderabad, India

International Conference & Exhibition on Healthcare Sciences

Healthcare Feb 25-26, 2005

Bangalore, India

Citytech International

It was the first professionally organized event on city management technology and services. The main buyers were from the private sector, public sector, municipalities and waste generators, waste processors, equipment manufacturers. The organizer of the even is Zak Trade Fairs and Exhibitions Private Limited.

Mar 17-20, 2005

Chennai, India

Busworld India major international bus manufacturers and suppliers of accessories participated

Mar 18-20, 2005

New Delhi, India

Inoptics 2005 The exhibition showcased machinery for manufacture of frames, minerals and plastic optalmic lenses, contact lenses, lense edgers, sports goggles, safety glasses, artificial eyes and raw material.

April 3-5, 2005

New Delhi, India

Roof India 2005 Showcased the emerging trends in Roofing and Facade

May 19-21, 2005

Mumbai, India

Engineering. Toy Biz B2B Exhibition

Toys July 10-11, 2005

New Delhi, India

Asian Printing and Packaging Exhibition 2005

Printing and Packaging

August 26-30, 2005

Bangalore, India

Garmentech South-2005

Garment Technology Seo 22-25, 2005

Bangalore, India

Pharmaceutical Machinery India

Pharmaceutical Machinery & Technology

Oct 6-8, 2005

Hyderabad, India

Chemtec India Chemical Palants snd Machinery

Oct 6-8, 2005

Hyderabad, India

Engineering Expo

Engineering goods December 15 -19, 2005

Ahmedabad, India

Zak Glasstech International 2005

Glass technology and machinery

Ded 8-11, 2005

Mumbai, India

Chemical World Chemicals December 15 -19, 2005

Ahmedabad, India

AME-Apparel Machinery Exposition

Apparel Jan 5-7, 2005

New Delhi, India

Glass India Glass technology and machinery

Jan 10-11, 2006

Mumbai, India

International Mining Exhibition

Mining technology & machinery

Jan 16-18, 2006

Kolkata, India

International Machine Tools Expo

Machine Tools Jan 19-22, 2006

Chennai, India

ToolTech Machine Tools Feb 1-5, 2006

Gurgaon, India

Mega Tech Engineering Feb 2-6, 2006

Pune, India

Mumbai Motor Show

Automobiole Feb 9-12, 2006

Mumbai, India

Plast India Plastics Feb 9-14, 2006

Mumbai, India

Meditec India Healthcare Feb 19-21 Hyderabad, India India Sugar and Rice Tech-2006

Sugar and Rice Technology and machinery

Feb 23-26, 2006

Hyderabad, India

Global Bearing Conclave

Bearing Feb 23-26, 2006

Jaipur, India

Machtech Heavy Engineering Feb 24-27, 2006

Vadodara, India

ACMEE 2006 Industrial Machinery Jun 10-14, 2006

Chennai, India

Photo Expo & Sign Show

Photography Sep 1-3, 2006

Hyderabad, India

India Oil & Gas Review Expo

Oil & Gas Sep 4-5, 2006

Mumbai, India

Texworld India Textile Oct 10-13, 2006

Mumbai, India

Screen Print India Screen Printing Technology Oct 12-14, 2006

Mumbai, India

Buildtech Expo Construction Technology Oct 26-29, 2006

Pune, India

India Chem Chmeical Nov 8-10, 2006

Mumbai, India

Autoserv Automobile Nov 11-13, 2006

Chennai, India

Techmart SME Engineerring Nov 4-27, 2006

New Delhi, India

Rajkot Machine Tools Show

Machine Tools Nov 16-19, 2006

Rajkot, India

International Mining & Machinery Exhibition

Mining & Machinery Nov 22-25, 2006

Kolkata, India

International Packtech India

Packaging Technology Nov 23-25, 2006

Mumbai, India

Auto Show India Automobile Nov 24-27, 2006

Ahmedabad, india

Indplas Plastics Nov 24-27, 2006

Kolkata, India

Engineering Expo Engineering Nov 30 – Dec 4, 2006

Ahmedabad, india

Food and Beverages India

Food and Beverages

Dec 1-4, 2006

Mumbai, India

India International Hardware and Tools (IIHT) Expo 2006

Hardware and Tools Dec 15-17, 2006

Chennai, India

AUTO- Indian Automobile Trade Fair

Automobile Dec 20-24, 2006

Pune, India

Upcoming Events: 2007 Show Name Event Description Dates Location Foundrex India Foundry

Technology Feb-08 2007 Pune, India

Glasstechnology Show India

Glass Machinery and Equipment

December 8-10, 2007

Mumbai, India

India Construction & Hardware Show 2007

Machine Tools and Hardware

February, 2007 New Delhi, India

Summer Fair Cooling systems 8 -12 March 2007 New Delhi, India

16. LOGISTICS Robust logistics facility is the sine qua non for facilitating export-import trade. During 1991-2005, India’s imports went up by an average 8.8%, whereas exports registered a growth rate of about 9.27%. This would not have been possible but for the continual upgradation of logistics facilities. Logistics is one of the key economic activities throughout the world. The global logistics industry was estimated to be about US$3.5 trillion in 2005. The contribution of logistics industry to India’s GDP has gone up in the recent years from 7.4% in 1999-2000 to 9.3% in 2004-05. Cost of transportation In developed countries like the US, logistics costs comprising transportation costs account for 7-9% of the cost of the final product; warehousing cost account for about 1-2% and inventory holding costs for about 3-5%. In developing countries, logistics costs are estimated to be higher at around 15-25% of the final cost of the product due to lack of adequate logistics system. In India, logistics cost is around 13%, comparatively higher than the developed countries. Indian Seaports India has more than 6,000km of natural peninsular coastline with over 12 major ports and 187 minor/intermediate ports, which link international supply chain network. These ports, the gateways to India’s foreign trade, handle 90% of seaborne trade in the country. There has been a dramatic change in India’s maritime trade since the removal of trade barriers. Previously, Indian ports used to handle only bulk cargos like oil, fertilisers and food grains. But abolishment of trade barriers has changed the entire maritime trade scenario. Trade in consumer goods, machinery, auto components, textiles and processed foods is on the rise and there is a growing trend towards containerisation in the country. Major ports handle over 70% of India’s total port traffic The major ports in India handle over 70% of total port traffic and these ports are governed by a port trust appointed by the Government of India and tariffs are regulated by the Tariff Authority of Major Ports. In 2005-06, the major ports together have handled 423.41m tonnes of cargo traffic out of the total 604.58m tonnes of cargo from all ports in the country. In the same year, Visakhapatnam port handled 56m tonnes of cargo against 50m tonnes in 2004-05, the highest in the country. Kolkata port ranked second with 53m tonnes of cargo against 46m tonnes in 2004-05. However, in terms of port traffic growth rate, Mumbai topped with a growth rate of 25% to 44m tonnes of cargo in 2005-06 against 35m tonnes in 2004-05. Both Kolkata and Jawaharlal Nehru Port Trust (JNPT) share the second position in terms of growth rate in port traffic at 15% each.

The average output per ship berth day shot up to 9,298 tonnes in 2004-05 from 9,079 tonnes in 2003-04, while pre-berthing time at major ports has increased to six hours in 2004-05, from 4.9 hours in 2003-04. In 2004-05, the average turnaround time at major ports has improved to 3.41 days from 3.45 days in 2003-04. Ennore port recorded the lowest average turnaround time in 2004-05 with 1.68 days from 1.94 in 2003-04, while JNPT ranked second in terms of average turnaround time in 2004-05 at 1.84 days from 2.04 days in 2003-04. Air Cargo The cargo handled at Indian airports has gone up at a CAGR of 7.8% from 0.65m tonnes in 1995-96 to 1.3m tonnes in 2004-05. However, international cargo handled at Indian airports has increased at 6.8% per annum, while domestic cargo has increased at 9.9% per annum. The five major airports have accounted for about 90% of the total cargo handled in the country. During April-January 2005-06, all airports together handled 1,130,833 tonnes of cargo, which registered a growth rate of 9.4% against 1,031,224 tonnes of cargo during the same period in the previous year. However, international freight traffic has registered a growth rate of 11.4% to 754,647 tonnes against 677,460 tonnes during the same period in the previous year. Domestic freight traffic has registered a growth rate of 5.7% at 376,186 tonnes against 353,765 tonnes in same period in the previous year. Mumbai airport, the biggest of all the Indian airports, has handled around 31% of the total cargo. At present, about 50 carriers operate cargo and passenger services to and from India. The growth in airfreight cargo has improved the infrastructural facilities at many airports as there is better connectivity with many low-cost airline service providers starting operations in the domestic sector. Higher economic growth, open sky policy, higher number of export promotion zones and better infrastructural facilities have attributed to the higher growth in air cargo industry in the country. In India, cargo terminals are managed by Air India and Indian Airlines at most of the airports. However, at some airports, cargo terminals are managed by the State Trading Corporations. But new cargo terminals, which are under construction, are managed by the airports themselves, like Cochin and Chennai airports. In view of the growing air cargo and its projected growth in the country, Airport Authority of India (AAI) plans to set up cargo complexes at various airports in India. The AAI manages cargo terminals in the following airports in the country—Kolkata, Mumbai, Chennai, Nagpur, Guwahati, Lucknow and Coimbatore. Following are the various problems faced in the cargo terminals of India:

• Poor quality warehousing • Complex procedure • Participation of various intermediaries in cargo processing • Improper implementation of Electronic Data Interchange

• Varying levels of documentation and handling between airlines and shipping companies

• Uncoordinated procedures without technology interface among ground-handling agencies

• Outdated handling equipment • Absence of efficient storage systems and quick clearance of cargo • Absence of improved inventory systems • Inadequate X-ray facilities and absence of improved access to the cargo terminals.

Inland Waterways India has over 15,544km of navigated waterways including rivers, backwaters and canals, out of which only 5,200km of rivers and 485km of canals are suitable for mechanised transportation. Despite the lower cost of moving cargo by inland waterways, the share of inland waterways remains quite low. According to Inland Waterways Authority of India, about 20m tonnes of cargo is moved using the Inland Waterways Transport system, which accounts for just 0.15% of cargo transported by all inland transportation systems. At present, there are three classified national waterways: Allahabad-Haldia (Ganga-Bhagirathi-Hoogly River), Sadiya-Dhubri (Bhramaputra) and Kollam-Kottapuram (Champakara canal and Udyogmahal canal). In addition, under the Tenth Plan (2002-07) period, the Government is planning to extend the national waterway system by declaring another five waterways as national waterways. These are: Barak River, Kakinada-Mercaunam Canal integrated with Godavari and Krishna Rivers, East Coast Canal integrated with Brahmani River system, Extension of National Waterways 3, and Damodar Valley Canal. The Central Inland Water Transport Corporation was established as a public sector undertaking in May 1967. It manages running of services from Kolkata to Bangladesh and to Assam as well as lighterage services in the River Hooghly and services from Kolkata to Allahabad. It also carries out the construction and repair of small and medium sized vessels as well as repairs of ocean-moving vessels. Road Transportation India, with its 3.3m km road network, has one of the largest road networks in the world, comprising 65,569km of national highways, 128,000km of state highways and 470,000km of major district roads and the rural and other district roads of 2.65m km. Roads and railways are the two major modes of surface transportation in the country. Roads have dominated railways both in terms of passenger numbers and in terms of freight traffic. In India, road transport accounts for about 85% of passenger traffic (surface transport) and 70% of freight traffic, while railways constitute only about 15% of passenger traffic and 30% of freight traffic in the country. There has been a phenomenal growth in the registered goods vehicle from 82,000 in 1950-51 to 3,045,000 in 2001-02.

The revenue generated by road transport has gone up from Rs47 crore in 1950-51 to Rs45,000 crore in 2001-02. Road Development Projects The Government of India and the state governments are implementing various road development projects and a lot of construction activities are going on in this sector. The 5,846km Golden Quadrilateral ( National Highways connecting four metropolitan cities i.e. Delhi, Mumbai, Chennai & Kolkata having an aggregate length of 5846 Km. ) (Phase I of NHDP) is expected to be completed by Dec 2006, and the Phase II North-South-East-West corridor (7,300km) project is scheduled to be completed by the end of 2008. The Phase III, which involves upgradation of 10,000km of national highways, is expected to be completed by December 2009. In addition, the scope of NHDP has been enhanced to cover four additional phases by covering 27,500km. In the Union Budget of 2006-07, a new project known as the Special Accelerated Road Development Programme covering 7,639km of road has been approved for the North-Eastern region. Railways Indian Railways is one of the largest and busiest rail networks in the world. It is divided into passenger and freight transport. Freight constitutes over 65% of its total revenue. Indian Railways handled around 602m tonnes of freight (bulk commodities) in 2004-05. In the freight segment, 95% of revenue comes from the bulk commodities such as iron ore, cement, fertilisers, coal and food grains; coal alone constitutes about 50% of the revenue from the bulk commodities. Indian Railways covers almost all parts of the country, with routes covering a total length of 63,940km. As of 2005, Indian Railways owned a total of 216,717 wagons, 39,936 coaches and 7,339 locomotives, running a total of 14,244 trains daily. In 2004-05, coal constituted about 45% ie 271.4m tonnes of total bulk cargo handled by Indian Railways; food grains contributed 8% with 46.52m tonnes, iron and steel contributed 8% with 44.26m tonnes and cement contributed 9% with 53.77m tonnes. Warehousing In 2005, major ports in India had throughputs of 423.41m tonnes of cargo, while major airports in the country handled around 1.5m tonnes of cargo. On the other hand, road transportation in India handled over 77% of cargo, accounting for over 1,176 billion tonnes in the same year. Total costs of warehousing and material handling in India was estimated to be over Rs37,500 crore, which was more than 9% of total logistics costs in the country. In India, public as well as private sector organisations are involved in developing warehousing and storage facilities. In the public sector, there are two agencies engaged in providing large-scale warehousing/storage capacities for industrial products in the

country. They are Central Warehousing Corporation (CWC), Food Corporation of India (FCI) and 17 State Warehousing Corporations (SWC). CWC CWC is operating 517 warehouses across the country, with a storage capacity of 10.3m tonnes. It provides warehousing services for different kinds of products ranging from agricultural produce to sophisticated industrial products. Warehousing activities of CWC include food grain warehouses, industrial warehouses, custom-bonded warehouses, container freight stations, inland clearance depots and air cargo complexes. Apart from storage and handling, CWC also offers services in the area of clearing and forwarding, handling and transportation, procurement and distribution, disinfestations services, fumigation services and other ancillary activities.