Planning Commission, Planning Process & the Big Picture

Presentation to Intel Capital CEOs Summit 24th May 2006

Member Secretary Planning Commission Government of India http://planningcommission.gov.in

Rajeeva Ratna Shah

India Land of Opportunities

Largest democracy political stability & consensus on reforms

Fourth largest Economy (PPP) A safe place to do business

Largest reservoir of skilled/semi-skilled manpower

Second Largest Emerging Market

Liberal & transparent investment policies

Long-term sustainable Competitive advantage - High growth rate economy

Highest returns on investment; India 19.33%, China 14.25%, Thailand 13.3%

Strong Macro-Economic Performance

Sustained Economic growth; 8.0 % - Outlook for Current Year 8.0 % + - Next quinqennium / decade Over 6.0% - Next 50 Years Goldman Sachs Exports growth - over 20% in 2005-06 Non Oil imports growing at 32%-Economic vibrancy FII Investment over US $10.5 billion in 2005-06 Developed Banking system moving rapidly towards ICT integrated core banking/net banking Mature Capital Market NSE third largest, BSE fifth largest in terms of number of trades
3

Sustained Economic Growth

10 9 8

(Base year: 1993-94)

8.8 7.8 6.5 4.8 6.1 5.2 4.4 3.7

8.5

8.5

GDP Growth Rate (%)

7 6 5 4 3 2 1 0

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

Growing Foreign Exchange Reserves

160 140

151.6 56
46.64 42.5 43.6 48.8 47.5

141.5
45.35 43.5 49 44 42 35

120

Foreign Exchange Reserves (US$ billion)

37.2 35.5 33.5

113

100 80 60 40 20 0

76.1 54.15 26 30 38 42.26

28 21 14 7 0

17

22

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

Exchange Rate (Rs/US$)

5

Indias External Sector

Foreign Trade Item Total Merchandize 2003 -04 2004 -05 ($ Million)
63,843 80,540 1,00,660

2005-06

2004-05 over 2003-04

2005-06 over 2004-05

(Percentage Variation)
26.15 24.98

Exports
Total Merchandize
78,149 1,06,451 1,40,225 36.21 31.72

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

Economic Liberalization
Fiscal Policy Reforms : Stable tax regime with just 3 rates for both Excise as well as Customs duties Full National treatment for foreign Cos. incorporated in India Industrial Policy Reforms : Capacity licensing dispensed with Compulsory licensing only in 6 sectors: restrictions on grounds of national security, public health, public safety FDI policy being progressively liberalized Trade policy Reforms : Most items on Open General License, Quantitative Restrictions lifted; Monetary Policy and Financial Sector Reforms : Interest rates brought down Bank rate/Prime lending rate lowered Banking Sector reforms prudential norms stiffened Securatization Act for better security for creditors Competition law enacted. Competition Commission constituted Independent regulators in place for Insurance sector (IRA) and Capital Markets (SEBI) Exchange Controls relaxed; Profits and dividends can be freely repatriated;

Rapidly Improving Infrastructure

Invested US$
US$ 11 bn in Golden Quadrilateral and North-South & EastWest Corridor projects under NHDP* 3.1 bn port modernization program to significantly reduce turnaround time international airports to cope with increasing passenger and cargo traffic Fastest growing telecom market with a unified licensing regime and world class international and domestic connectivity The Electricity Act, 2003 enables captive generation and trading in electricity Power sector to generate 100,000 MW and improve T&D through FDI
* NHDP: National Highway Development Project Source: Ministry of Commerce and Industry
8

New

Worlds

Investment Requirement in Infrastructure upto 2012

Power Generation $ 143 bn Roads $ 50 bn Transmission & Distribution $ 116 bn

Coal $ 26 bn

Cross-Country Pipelines $ 10 bn

Investment Requirement in Energy & infrastructure up to 2012

Refineries $ 22 bn

Oil & Gas $ 100 bn

Ports $ 20 Billion

LNG Terminals $ 10 bn

Railways $ 15 Billion
9

National Highways

National Highway Development Programme

NHDP-III : 4-laning of 10,000 km through BOT (Toll) NHDP-IV: 2-laning of 20,000 km NHDP-V: 6-laning of 6500 km through BOT (Toll) NHDP-VI: Development of 1000 km of Expressways through PPP NHDP VII: Ring roads, Grade separators, Interchanges

Model Concession Framework for National Highways Restructuring of NHAI to make it multi-disciplinary National Highways Financing Plan (Rs.224 crore or $50 bn) approved by Committee on Infrastructure (CoI) Private participation to be encouraged for operation, maintenance and tolling of National Highways
10

Railways
Largest passenger carrying network of the world (carrying 5.6 bn nearly the world population/year. Growth rate (freight 11%; passenger 7% and earnings 16%) Operating ratio 83.8% - comparable with American railroads A rapidly liberalising government monopoly having various sub-sectors viz. Container movement Wagon manufacture Multimodal logistic parts Passenger amenities & services Locomotives manufacture Hire axle load wagon design (32.5 tons/axle) Electronic instrumentation for control and safety
11

PPPs in

Technology import for indigenization in areas of interest

Railways Vision for XIth Plan

Vision for XIth Plan double freight traffic from 624 miillion tonnes to 1,200 million tonnes a) Introduction of double stock containers b) Construction of worlds longest corridors 2,770 kms. Freight Corridor Mumbai Delhi Howrah 5,000 kms. of feeder routes 3, 000 kms. upgradation of minerals tracks (from 20.30 tons/axle -> 25 tons/axle)

12

Airports
Liberalized Civil Aviation Regime conducive for PPPs and FDI both Statutory Economic Regulator Model Concession Agreement On the anvil Civil Aviation Policy Signing of Concession Agreements for Delhi and Mumbai as PPPs. Bangalore & Hyderabad as Greenfield 100% Private Airports. Modernization of 35 non-metro Airports in Tier-II cities (Total programme Rs.40,000 crore or $9.0 billion) Opening up of Air Space
(i) Open Skies Agreement with USA. (ii) 23 Bilateral Agreements with countries of Europe, Africa and Asia Pacific Region

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

13

Ports

Model concession framework All new berths to be constructed through PPPs International experts to prepare Master Plans for Major Ports National Plan for Maritime Development of the Major Ports (Target 2016) : Raise capacity from 600 million tons to 2000 m. tons; Rs.55,000 cr Ports; Rs.45,000 cr. Shipping Phased transfer of present container berths to PPPs Plan for dredging of Major Ports COI report on rail-road connectivity Greater autonomy to Port Trusts Rationalization of customs procedures and CFS
14

Enabling Framework for PPP

Model
concession agreements for development of Highways, Airports and Ports

Independent economic regulator for airports Scheme for financing viable infrastructure
projects through SPV

Scheme for support to PPP in infrastructure

15

Competitive Entrepreneurship
Prevalence of foreign technology licensing Availability of scientist and engineers Quality of management schools Firm level innovation Firm level technology absorption Company spending on R&D Rank 1 Rank 2 Rank 9 Rank 12 Rank 16 Rank 32

(Source Global Competitiveness Report, UNCTAD 2003)

India amongst the leading entrepreneurial hotbeds globally (Red Herring Clubs India with Israel)
16

Intellectual Property Rights-Initiatives

Modernization/revamping Intellectual Property IP; of legislations on

IPR Laws are TRIPS compliant;

Intellectual Property Appellate functional from 15th September 2003;

Tribunal

Major initiative underway at modernizing IP administration;

Computerization of IP administration; Digital database library of patent, trademark & design records;

For more information visit www.ipindia.nic.in

17

Foreign Investment Flows to India

($ Million)

Item (a) Direct Investment Equity Reinvested Earnings Other Capital (b) Portfolio Investment Total (a) + (b)
Source : RBI May, 2006

2002-03 5,035 2,764 1,833 438 979 6,014

2003-04

2004-05 2005-06 (P) (Apr-Feb) (P) 4,322 5,653 5,970 3,778 1,508 367 9,313 14,966 4,510 1,257 203 11,526 17,496 1,460 633

2,229

11,377 15,699

External Debt $ 119.8 billion at end March 2005 Debt:GDP ratio declined from 28.7% in 1990-91 to 17.3% in 2005

18

Policy on FDI
FDI up to 100% allowed under the automatic route in development of townships, housing, built up infrastructure and construction development projects except: Sectors attracting compulsory licensing Equity limits under sectoral policies Transfer of shares to non-residents under certain circumstances Investor having existing venture in same field under certain circumstances FDI in domestic airlines increased to 49% FDI in Telecom services increased to 74% Fresh guidelines for investment with previous joint ventures issued Transfer of shares from residents shareholders put on automatic route National Treatment to investment Bilateral Investment Protection Agreement with 57 countries 19

Special Economic Zones

Policy
Duty free zones, deemed foreign territories FDI up to 100% permitted manufacturing activities in almost all

Transfer of goods from DTA to SEZ treated as exports. Units to be net foreign exchange earner within 5 years. No export commitments. No limits on DTA sales Can be set up in the public, private or joint sector Single window Clearance System
20

Special Economic Zones

Incentives for Developer
Income tax exemption for any block of 10 years in 15 years. Full freedom in allocation of developed plots to approved SEZ units on conventional basis Full authority to provide utility services on conventional lines Foreign investment permitted

Incentives for Units

100% Income tax exemption for first 5 years, 50% for next 5 years and 50% of the ploughed back export profits for next 5 years Domestic sales (DTA) permitted on payment of applicable custom duty (net foreign earning) 100% FDI under automatic route (except arms/ammunitions etc) No cap on foreign investments for SSI reserved items Enhanced limit of Rs.2.4 crore per annum allowed for managerial remuneration

21

Investment Facilitation
Foreign Investment Implementation Authority (FIIA) - to sort out any operational difficulty and facilitate implementation;
FDI In India - Policies and Procedures
Also available in Spanish, German, French & Italian.

An Empowered Sub-Committee of the National Development Council set up on Creating an investorfriendly climate;
To focus on removing regulatory barriers to investments.

Web site www.dipp.nic.in

On-line chat, bulletin board and e-mail;
22

India: FDI Outlook

On the Policy front, while our FDI policy is already very liberal, the policy is being further progressively rationalised Equity cap in civil aviation (air transport), has recently been raised as a measure of further liberalisation of policy Some of the independent assessments in this include In UNCTADs Propsects for Foreign Direct Investment and strategies of Transitionals Corporation 2005-08, India is ranked second, ahead of US (third) as the most attractive business location A.T. Kearneys FDI Confidence Index 2005 places India at second place up from third last year India continues to be the most attractive location for off shoring of service activities according to A.T. Kearneys Annual Survey for 2005

23

India: FDI Outlook

Rated as the best BPO destination Best technology licensing regime
Competitiveness Report, 2003 - AT KEARNEY

- UNCTADs Global

Rated among the most favourite investment destinations (UNCTAD, JETRO, JBIC, Deutsche Bank, EIU, etc.) Major destination for foreign venture capital funds (Far Eastern Economic Review)
KEARNEY Business Confidence Index, 2003

Sixth most attractive investment destination Also among the top 10 Tourist Destinations

AT

24

The Cost Advantage

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

35 30
(U $/hour W S orked)

2003
25 20 15 10 5 0
Indonesia

2009

Average of the eleven studied LCC countries: * 2003: ~$2.10/hr * 2009: ~$3.00/hr * +6.5% p.a.

U K

C hina

India

H ungary

Italy

Thailand

C anada

P oland

S pain

C zech. R ep.

M alaysia

Taiwan

France

Japan

B razil

K orea

U S

Expected change 03-09

$/hour: CAGR(%):

0.30 0.47 0.56 0.88 0.82 0.71 0.83 1.13 1.15 1.77 1.82 1.73 3.02 1.97 2.64 2.24 2.27 2.94 1.93 3.48 3.86 10 8 7 8 6 5 5 6 6 7 7 4.5 4.5 2.5 2.5 2 2 2.5 1.5 2.5 2
Source: EIU; Euromonitor; S&P DRI; U.S. Deptt. of labour; BCG analysis

Germ any

R ussia

M exico

25

The Demographic Dividend

Age groups 80+ 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 -60 -40 -20 0 20 40 Mn people

India demographics Profile (2002)

Age groups 80+ 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4
60

China demographics Profile (2020)

Age groups 80+ 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

France demographics Profile (2025)

-60

-40

-20

20

40

60

-3

-2

-1

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

Mn people
20-35 age group: 11 mn people (~17%)
26

20-35 age group: 325 mn people (~25%)

Global Workforce The Future

27

Skilled Knowledge Workforce

Indias competitive edge is its skilled manpower
Over 380 universities (11,200 colleges) 1500 research institutions Over 200,000 engineering graduates Over 300,000 post graduates from non-engineering colleges 2,100,000 other graduates Around 9,000 PhDs

Knowledge workers in software and service industry increased from 6,800 in 1985-86 to 650,000 in 2003
28

ICT Opportunities
Multi purpose smart cards with PKI protection Health informatics and telemedicine network Setting up a submicron fab facility Collaborative ICT research in language technologies / next generation communication/ Internet technologies Joint Software development in super computing applications in fluid dynamics, structural mechanics, bioinformatics, nanoinformatics, etc
29

India - The Backoffice hub

India has become the most preferred destination Outsourcing trend increasing GE, TI, Intel, CISCO, Microsoft, Dell, Sun Micro, Oracle, LG, Ford, American Express and other financial sector companies; Customer needs are being met Large pool of skilled English speaking workforce skills and scalability, 24x7 support Productivity and quality enhancement Conducive policy environment and Government support Highly improved telecom infrastructure Call center career is aspirational unlike a low choice in the West
Indian ITES-BPO Industry

30

The Total Advantage

Average suitable* Graduate Talent Pool for Offshore IT & ITES BPO (000)
16% 3%
210 1,029

100%

4% 7% 8% 10% 11%
727 654 514 427

4%
232

5%
293

4%
285

242

6,386

28 %

1,773

India***

China

Russia

Philippines

Turkey**

Thailand** Poland

Brazil

Mexico

Indonesia

18 other Lowwage countries

* Graduates with skills to be directly employed (does not consider willingness and accessibility of talent) ** Number derived via extrapolation *** As of 2003 Source: HR interviews; country labour and graduation statistics; McKinsey Global Institute

Total supply of suitable low-wage talent (28 countries)

31

Cost Savings by Off shoring BPO Services to India

Impact* Overall cost saving Insurance
Retail financial services / Retail banking Pharmaceuticals

Key opportunity areas

Per cent 10.0-15.0 8.0-12.0** 5.0-6.5

Telecom

1.5-2.5 1.0-2.0 0.8-1.8 40-60% cost saving for processes offshored

Automotive Airlines

Claims processing Servicing Call centre operations Call centre operations Loan processing (consumer, corporate, mortgage) Research and development Call centre operations Billing Engineering and design Accounts payable/ receivable Revenue accounting Call centre operations Frequent flyer programmes

32

Country Advantage Likely to be Comoditized

Country advantage (45-55% savings)
100 60-65 10-15 45-55 8-13

Vendor advantage (30-40% savings)

Does not Include gains from Over-delivery and continuous improvement

5-7

3-5

15

30-35

Original Cost base

Factor Cost Savings

Additional Telecom & management costs

Off-shore Location cost

ConsoliTask ation, Reengi Standar- neering Dization & superior skills

Economies of scale

Process Reengine -ering

New cost base

Task migration

Task level improvement

Task aggregation And process level improvement

33

Joint Venturing Opportunities in Biotech

Indias inherent strengths
Rich Biodiversity Large reservoirs of valuable diagnostic and clinical data Vibrant and inventive pharmaceutical industry World class network of educational and research institutions Known strengths in mathematics, logic and computational skills Super Computing and Software strengths enable extensive use of bio-informatics in new drug discovery

Opportunities
Joint Ventures in Biotech based new drugs / pharmaceuticals
34

Positive Perception about High tech Future

U SA

Overall High Tech Production Capability Index

France

50

China

40 30 20 10 0

U K

Thailand
Present 2017

India

Philippines

Indonesia Israel

M alaysia

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

Potential to compete Globally

35

Thank You