gujarat technological university in partial … pdf 2012/755 - russia.pdf2 students declaration we...

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AGLOBAL / COUNTRY STUDY AND REPORT

ON

RUSSIA

SUBMITTED TO

Gujarat Technological University

In Partial Fulfillment of theRequirement of the Award for the Degree of

Master of Business Administration

Under the Faculty Guide:Mr. Sunil Prajapati, MS. Selvy Palmer and Ms. Sashikala

Munka

Submitted by:Enrollment No. 107550592062 to 107550592121

MBA SEMESTER -IV

Sardar Patel College of Administration & Management (SPCAM-MBA)Approved by All India Council for Technical Education (AICTE), New DelhiAFFILIATED WITH GUJARAT TECHNOLOGICAL UNIVERSITY,

AHMEDABADSPEC Campus, Vidhyanagar-Vadtal Road Bakrol-388315, Anand (Gujarat)

May, 2012

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STUDENTS DECLARATION

We enrollment no. 107550592062 to 107550592121 Students of SARDAR PATEL COLLEGE

OF ADMINISTRATION & MANAGEMENT (SPCAM-MBA) Bakrol,, hereby declare that the

report for A GLOBAL / COUNTRY STUDY REPORT ON Spain is a result of our own work

and our indebtedness to other work publications, references, if any, have been duly

acknowledged.

Place : .. Date :

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PREFACE

In today’s competitive environment, survival of the fittest is the new motto. That is why it’s

necessary that the theoretical knowledge is accompanied by practical knowledge. In an MBA

programmer, project study forms an important and an integral part. It helps in bridging the gap

between the two main important aspects the theoretical as well practical knowledge.

“Knowledge and Human Power are synonyms”, once said the great philosopher Francis Bacon.

However based on the experience within today’s global markets, he would probably say, “The

ability to capture, communicate & leverage knowledge to solve problems is human power”. This

raises the question how exactly one can best capture, communicate & leverage knowledge,

especially within world of system engineering.

With the help of the county report we can get the information about the both country and the

position of the both country and make compare both the country so we can say that which

country is good and which country are linked with which country.

So the country report is also helpful to show the country’s economy and all the rank like GDP

and all that. With help of the country we get the information about the import and export of that

country with other country and which things are more import and export form the country.

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ACKNOWLEDGEMENT

We have the pleasure to present herewith the study work on economic policy of Argentina.

Working on this project has been a great learning experience. Numerous individuals helped us a

lot with all sort of queries that we had and without the help of them, we would never be able to

complete this Country Project. We would like to use this opportunity to thank them.

We are extremely indebted to our guides (Mr. Sunil Prajapati, MS. Selvy Palmer and Ms.

Sashikala Munka) who have taken great pains to provide us guidance to make this project. She is

always there to help us a lot by giving her valuable guidelines and suggestions to complete this

study from start to end. She is the person who inspired us to explore such an emerging sector of

economy. She inspired us to be systematic in our work. She explained that how to go ahead for

studying such topic and also explained the technical and other dimensions of the same. We want

to thank our Director General-SPEC, Dr. T. D. Tiwari for giving us an opportunity to work

on this task.

Lastly, we express our gratitude to the faculty of SPCAM and want to thanks GTU for giving us

a chance to work on such practical task. We are aware that there are a number of people who

have helped us to do this project but we may have failed to make a mention of them. We take

this opportunity to express our sincere gratitude to all those for their assistance and support.

Thanking All,

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Table of Content

Sr. No Particular Total No. of Pages Semester

Part-I Economic Overview of theSelected Country

9-28 III

1 Demographic profile ofSpain

Economic Overview ofSpain

Overview of different sector Overview of Business and

Trade at International Level Present trade relation and

business volume of differentproduct with India

III

Part II PART – II INDUSTRY /SECTOR / COMPANY SPECIFICSTUDY

29-198 IV

2 Banking Sector in Spain Retail Sector in Spain Information Technology

Sector in Spain Logistic Sector in Spain Import and Export in Spain Media and Advertisement

sector in Spain Rural Sector in Spain Transportation Sector in

Spain

IV

3 Conclusion 199-204 IV

4 Bibliography 205-208 IV

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List of TableTable.No

Particular Pages No.

1 Major food retailers operating in Russia 46

2 Food retailers operation in India 47

3 Food & beverage production in Russia and India 50`

4 Production of wheat in Russia and India 51

5 Contribution in GDP by the agriculture sector 51

6 Food production and nutrition 52

7 The history of information systems in business 70

8 The BPO growth 84

9 Software export growth 85

10 Comparative position of logistic industry 92

11 Logistic comparison 93

12 Overall comparison 94

13 Traditional fulfillment versus e-fulfillment of Russia 98

14 Description of border control in the Russiafederation

100

15 Russia state bodies in the border control process 102

16 Estimate of business space in logistic sector of India 103

17 Russian- Indian trade turnover in 2006-2011 109

18 India export (2006-07) 116

19 Advertising as country a percent of GDP 120

20 Growth of Indian advertising industry in 2006-2010 127

21 Forecaste growth of various segment of the media 128

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industry in India till 2010

22 Russia’s trade indicators at a 2010 130

23 Russian foreign trade in good 137

24 India-Russia Trade data 140

25 Rural population of Russia 149

26 Railways, passengers carried 173

27 Railways, Goods transported 174

28 International tourism, expenditure for passengertransport

175

29 Motor vehicle per 1000 people 175

30 The past review of the pharma sector 182

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List of Graph

Graph. No Particular Pages No.

1 Comparative position of banking sector withIndia

34

2 Stock market comparatives 35

3 Structure of logistic industry 91

4 Logistic performance index 92

5 Customs 92

6 Infrastructure 92

7 International shipments 92

8 Logistic competence 93

9 Tracking and tracing 93

10 Timelines 93

11 Growth rate by segment in Russia andworldwide, 2011-15

135

12 Russian Foreign trade in good 138

13 Russia’s Agricultural output 151

14 Distribution of major non-agriculturalestablishment in rural India during 2005

160

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PART- I

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DEMOGRAPHIC PROFILE OF RUSSIA

Population

138,739,892 (July 2011 est.)

Geography

Area: 17 million sq. km. (6.5 million sq. mi.); about 1.8 times the size of the United States.

Cities: Capital--Moscow (pop. 10.4 million). Other cities--St. Petersburg (4.6 million),Novosibirsk (1.4 million), Nizhniy Novgorod (1.3 million).

Terrain: Broad plain with low hills west of Urals; vast coniferous forest and tundra in Siberia;uplands and mountains (Caucasus range) along southern borders.

Climate: Northern continental.

Age structure

0-14 years: 15.2% (male 10,818,203/female 10,256,611)

15-64 years: 71.8% (male 47,480,851/female 52,113,279)

65 years and over: 13% (male 5,456,639/female 12,614,309) (2011 est.)

Median age

total: 38.7 years

male: 35.5 years

female: 41.9 years (2011 est.)

Population growth rate

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-0.47% (2011 est.)

Birth rate

11.05 births/1,000 population (2011 est.)

Death rate

16.04 deaths/1,000 population (July 2011 est.)

Net migration rate

0.29 migrant(s)/1,000 population (2011 est.)

Urbanization

urban population: 73% of total population (2010)

rate of urbanization: -0.2% annual rate of change (2010-15 est.)

Sex ratio

at birth: 1.06 male(s)/female

under 15 years: 1.06 male(s)/female

15-64 years: 0.92 male(s)/female

65 years and over: 0.44 male(s)/female

total population: 0.85 male(s)/female (2011 est.)

Infant mortality rate

total: 10.08 deaths/1,000 live births

male: 11.58 deaths/1,000 live births

female: 8.49 deaths/1,000 live births (2011 est.)

Life expectancy at birth

total population: 66.29 years

male: 59.8 years

female: 73.17 years (2011 est.)

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Total fertility rate

1.42 children born/woman (2011 est.)

HIV/AIDS - adult prevalence rate

1% (2009 est.)

HIV/AIDS - people living with HIV/AIDS

980,000 (2009 est.)

HIV/AIDS - deaths

NA

Major infectious diseases

degree of risk: intermediate

food or waterborne diseases: bacterial diarrhea

Vector borne disease: tick-borne encephalitis

Note: highly pathogenic H5N1 avian influenza has been identified in this country; it poses anegligible risk with extremely rare cases possible among US citizens who have close contactwith birds (2009)

Nationality

noun: Russian(s)

adjective: Russian

Ethnic groups

Russian 79.8%, Tatar 3.8%, Ukrainian 2%, Bashkir 1.2%, Chuvash 1.1%, other or unspecified12.1% (2002 census)

Religions

Russian Orthodox 15-20%, Muslim 10-15%, other Christian 2% (2006 est.)

Note: estimates are of practicing worshipers; Russia has large populations of non-practicingbelievers and non-believers, a legacy of over seven decades of Soviet rule

Languages

Russian (official), many minority languages

Literacy

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definition: age 15 and over can read and write

total population: 99.4%

male: 99.7%

female: 99.2% (2002 census)

School life expectancy (primary to tertiary education)

total: 14 years

male: 14 years

female: 15 years (2008)

Education expenditures

3.9% of GDP (2006)

Maternal mortality rate

39 deaths/100,000 live births (2008)

Health expenditures

5.4% of GDP (2009)

Physicians density

4.3089 physicians/1,000 population (2006)

Hospital bed density

9.66 beds/1,000 population (2006)

Economic Overview of Russia

Economic Overview

Russia has undergone significant changes since the collapse of the Soviet Union, moving from a

globally-isolated, centrally-planned economy to a more market-based and globally-integrated

economy. Economic reforms in the 1990s privatized most industry, with notable exceptions in

the energy and defense-related sectors. The protection of property rights is still weak and the

private sector remains subject to heavy state interference. Russian industry is primarily split

between globally-competitive commodity producers - in 2009 Russia was the world's largest

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exporter of natural gas, the second largest exporter of oil, and the third largest exporter of steel

and primary aluminum - and other less competitive heavy industries that remain dependent on

the Russian domestic market. This reliance on commodity exports makes Russia vulnerable to

boom and bust cycles that follow the highly volatile swings in global commodity prices. The

government since 2007 has embarked on an ambitious program to reduce this dependency and

build up the country's high technology sectors, but with few results so far. The economy had

averaged 7% growth since the 1998 Russian financial crisis, resulting in a doubling of real

disposable incomes and the emergence of a middle class. The Russian economy, however, was

one of the hardest hit by the 2008-09 global economic crisis as oil prices plummeted and the

foreign credits that Russian banks and firms relied on dried up. The Central Bank of Russia spent

one-third of its $600 billion international reserves, the world's third largest, in late 2008 to slow

the devaluation of the ruble. The government also devoted $200 billion in a rescue plan to

increase liquidity in the banking sector and aid Russian firms unable to roll over large foreign

debts coming due. The economic decline bottomed out in mid-2009 and the economy began to

grow in the first quarter of 2010. However, a severe drought and fires in central Russia reduced

agricultural output, prompting a ban on grain exports for part of the year, and slowed growth in

other sectors such as manufacturing and retail trade. Russia's long-term challenges include a

shrinking workforce, a high level of corruption, difficulty in accessing capital for smaller, non-

energy companies, and poor infrastructure in need of large investments.

GDP (purchasing power parity):

$2.23 trillion (2010 est.)

GDP (official exchange rate):

$1.46 trillion (2010 est.)

GDP - real growth rate:

4% (2010 est.)

GDP - per capita (PPP):

$15,900 (2010 est.)

GDP - composition by sector :

services: 59.1% (2010 est.)

Labor force:

75.49 million (2010 est.)

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country comparison to the world: 7

Unemployment rate:

7.96% (2010 est.)

Population below poverty line:

13.1% (2009)

Investment (gross fixed):

21.9% of GDP (2010 est.)


Budget:

revenues: $262 billion

expenditures: $341.1 billion (2010 est.)

Taxes and other revenues:

17.9% of GDP (2010 est.)


Budget surplus (+) or deficit (-):

-5.4% of GDP (2010 est.)


Public debt:

9% of GDP (2010 est.)


Inflation rate (consumer prices):

6.9% (2010 est.)


Exports:

$400.1 billion (2010 est.)


Imports:

$248.7 billion (2010 est.)

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Meaning of trade and commerce

COMMERCE: Commerce refers to all those activities which help directly or

indirectly in the distribution of goods to the ultimate consumer.

TRADE: The action of buying and selling goods and services.

OVERVIEW

Russia's overall trade surplus in 2009 was $112 billion--compared with $180

billion in 2008 and $129 billion in 2007. In 2010 the trade surplus increased to

$152 billion and continued to grow in 2011 to reach $118 billion by July 2011

(versus $96.4 billion at the same time in 2010), although import growth was

beginning to outpace export growth. World prices continue to have a major effect

on export performance, since commodities--particularly oil, natural gas, metals,

and timber--comprise nearly 90% of Russian exports. Russian GDP growth and the


Stock of direct foreign investment – at home:

$297.4 billion (31 December 2010 est.)


Stock of direct foreign investment - abroad:

$274.6 billion (31 December 2010 est.)


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surplus/deficit in the Russian Federation state budget are closely linked to world

oil prices.

Statistics

GDP: $1.465 trillion (2010) (nominal; 10th)

$2.222 trillion (2010) (PPP; 6th)

GDP growth: 4.9% (2011 est.)

GDP by sector: agriculture: (4%), industry (36.8%), services (59.1%)

(2010 est.)

Average net salary: 700 $, monthly (2010)

Main industries:

complete range of mining and extractive industries producing coal, oil, gas,

chemicals, and metals; all forms of machine building from rolling mills to high-

performance aircraft and space vehicles; defense industries including radar, missile

production, and advanced electronic components, shipbuilding; road and rail

transportation equipment; communications equipment; agricultural machinery,

tractors, and construction equipment; electric power generating and transmitting

equipment; medical and scientific instruments; consumer durables, textiles,

foodstuffs, handicrafts

Ease of Doing Business Rank: 123rd

Exports: $376.7 billion (2010 est.)

Export goods :

petroleum and petroleum products, natural gas, metals, wood and wood

products, chemicals, and a wide variety of civilian and military manufactures

Main export partners:

Netherlands 10.62%, Italy 6.46%, Germany 6.24%,

China 5.69%, Turkey 4.3%, Ukraine 4.01% (2009)

Imports $237.3 billion (2010 est.)

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Import goods:

machinery, vehicles, pharmaceutical products, plastic,

semi-finished metal products, meat, fruits and nuts,

optical and medical instruments, iron, steel

Main import partners:

Germany 14.39%, China 13.98%, Ukraine 5.48%, Italy 4.84%, US 4.46% (2009)

Gross external debt: $471.6 billion (2010 est.)

Oil production

10.12 million bbl/day (2009) - country comparison to the world: 1

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Public finances

Public debt: 9.5% of GDP (2010 est.)

Revenues: $202.7 billion (2009 est.)

Expenses: $301.4 billion (2009 est.) Foreign reserves:

US$502.496 billion (April 2011)

Overview of Different Economic Sectors in Russia

Industry

Russia's industrial growth per year (%), 1992–2010

Russia is one of the most industrialized of the former Soviet republics. In the 2000s,Russia's industry, due to increasing demand and improved state finances, emerged from a deep

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crisis caused by the dissolution of the Soviet Union. However, years of low investment continueto leave their mark on the industry's capabilities and a lot of its equipment is in need ofmodernization.

Besides its resource-based industries, Russia has developed large manufacturingcapacities, notably in machinery. The defense and aircraft industries are important employers andare able to offer internationally competitive products for export.

Defense industry

Russia's defense industry employs 2.5 – 3 million people, accounting for 20% of allmanufacturing jobs. Russia is the world's second largest conventional arms exporter after theUnited States. The most popular types of weaponry bought from Russia are Sukhoi and MiGfighters, air defense systems, helicopters, battle tanks, armored personnel carriers and infantryfighting vehicles. The research organization Centre for Analysis of Strategies and Technologiesranked the air defense system producer Almaz-Antey as the industry's most successful companyin 2007, followed by aircraft-maker Sukhoi. Almaz-Antey's revenue that year was $3.122 billion,and it had a work force of 81,857 people.

Aircraft industry

Aircraft manufacturing is an important industry sector in Russia, employing around355,300 people. The Russian aircraft industry offers a portfolio of internationally competitivemilitary aircraft such as MiG-29 and Su-30, while new projects such as the Sukhoi Super jet 100are hoped to revive the fortunes of the civilian aircraft segment. In 2009, companies belonging tothe United Aircraft Corporation delivered 95 new fixed-wing aircraft to its customers, including15 civilian models. In addition, the industry produced over 141 helicopters. It is one of the mostscience-intensive hi-tech sectors and employs the largest number of skilled personnel. Theproduction and value of the military aircraft branch far outstrips other defense industry sectors,and aircraft products make up more than half of the country's arms exports.

Space industry

Space industry of Russia consists of over 100 companies and employs 250,000 people.The largest company of the industry is RKK Energia, the main manned space flight contractor.Leading launch vehicle producers are Khrunichev and TsSKB Progress. Largest satellitedeveloper is Reshetnev Information Satellite Systems, while NPO Lavochkin is the maindeveloper of interplanetary probes.

Automotive industry

A Lada Kalina Super 1600, painted in khokhloma national ornaments. Lada is the brandof AvtoVAZ, the largest Russian car manufacturer in the Russian automotive industry.

Automotive production is a significant industry in Russia, directly employing around600,000 people or 0,7% of the country's total work force. In addition, the industry supportsaround 2–3 million people in related industries. Russia was the world's 15th largest car producerin 2010, and accounts for about 7% of the worldwide production. In 2009 the industry produced

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595,807 light vehicles, down from 1,469,898 in 2008 due to the global financial crisis. Thelargest companies are light vehicle producers AvtoVAZ and GAZ, while KAMAZ is the leadingheavy vehicle producer. 11 foreign carmakers have production operations or are constructingplants in Russia.

Electronics

Russia is experiencing a re-growth of Electronics and Microelectronics, with the revivalof JCS Mikron. An example of a successful Russian consumer electronics company isTelesystems, whose products are sold in over 20 countries.

Telecommunications

Russia's telecommunications industry is growing in size and maturity. As of 31December 2007, there were an estimated 4,900,000 broadband lines in Russia. Over 72% of thebroadband lines were via cable modems and the rest via DSL.

In 2006, there were more than 300 BWA operator networks, accounting for 5% of marketshare, with dial-up accounting for 30%, and Broadband Fixed Access accounting for theremaining 65%. In December 2006, Tom Phillips, chief government and regulatory affairsofficer of the GSM Association stated:

"Russia has already achieved more than 100% mobile penetration thanks to the hugepopularity of wireless communications among Russians and the government's good workin fostering a market driven mobile sector based on strong competition."

While there is a lot of interest in a national broadband network, as of January 2007 therestill wasn't one.

The financial crisis, which had already hit the country at the end of 2008, caused a sharpreduction of the investments by the business sectors and a notable reduction of IT budget madeby government in 2008–2009. As a consequence, the IT market in Russia in 2009 declined bymore than 20% in ruble terms and by one third in euro terms. Among the particular segments, thebiggest share of the Russian IT market still belongs to hardware.

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Agriculture

Russia comprises roughly three-quarters of the territory of the former Soviet Union.Following the breakup of the Soviet Union in 1991 and after nearly ten years of decline, Russianagriculture begun to show signs of improvement due to organizational and technologicalmodernization. Northern areas concentrate mainly on livestock, and the southern parts andwestern Siberia produce grain. Restructuring of former state farms has been an extremely slowprocess. The new land code passed by the Duma in 2002 should speed restructuring and attractnew domestic investment to Russian agriculture. Private farms and garden plots of individualsaccount for over one-half of all agricultural production.

Trade

Russian current account due to trade surplus

In 1999, exports were up slightly, while imports slumped by 30.5%. As a consequence,the trade surplus ballooned to $33.2 billion, more than double the previous year's level. In 2001,the trend shifted, as exports declined while imports increased. World prices continue to have amajor effect on export performance, since commodities, particularly oil, natural gas, metals, andtimber comprise 80% of Russian exports. Ferrous metals exports suffered the most in 2001,declining 7.5%. On the import side, steel and grains dropped by 11% and 61%, respectively.

Most analysts predicted that these trade trends would continue to some extent in 2002. Inthe first quarter of 2002, import expenditures were up 12%, increased by goods and a rapid riseof travel expenditure. The combination of import duties, a 20% value-added tax and excise taxeson imported goods (especially automobiles, alcoholic beverages, and aircraft) and an importlicensing regime for alcohol still restrain demand for imports. Frequent and unpredictablechanges in customs regulations also have created problems for foreign and domestic traders andinvestors. In March 2002, Russia placed a ban on poultry from the United States. In the firstquarter of 2002, exports were down 10% as falling income from goods exports was partlycompensated for by rising services exports, a trend since 2000. The trade surplus decreased to$7 billion from well over $11 billion the same period last year.

Foreign trade rose 34% to $151.5 billion in the first half of 2005, mainly due to theincrease in oil and gas prices which now form 64% of all exports by value. Trade with CIScountries is up 13.2% to $23.3 billion. Trade with the EU forms 52.9%, with the CIS 15.4%,Eurasian Economic Community 7.8% and Asia-Pacific Economic Community 15.9%.

Russia is China’s eighth largest trade partner and China is now Russia’s fourth largesttrade partner.

China now has over 750 investment projects in Russia, involving $1.05 billion. China’scontracted investment in Russia totaled $368 million during January–September 2005, twice thatin 2004.

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Information technology

Russia has more academic graduates than any other country in Europe

The IT market is one of the most dynamic sectors of the Russian economy. Russiansoftware exports have risen from just $120 million in 2000 to $1.5 billion in 2006. Since the year2000 the IT market has demonstrated growth rates of 30–40 percent a year, growing by 54% in2006 alone. The biggest sector in terms of revenue is system and network integration, whichaccounts for 28.3% of the total market revenues. Meanwhile the fastest growing segment of theIT market is offshore programming. The industry of software development outsourcing crossedthe mark of $1 billion of total revenues in 2005 and reached $1.8 billion in 2006. Market analystspredict this indicator to increase tenfold by 2010. Currently Russia controls 3 percent of theoffshore software development market and is the third leading country (after India and China)among software exporters. Such growth of software outsourcing in Russia is caused by a numberof factors. One of them is the supporting role of the Russian Government. The Government haslaunched a program promoting construction of IT-oriented technology parks (Technoparks) –special zones that have an established infrastructure and enjoy a favorable tax and customsregime, in seven different places around the country: Moscow, Novosibirsk, Nizhny Novgorod,Kaluga, Tumen, Republic of Tatarstan and St. Peterburg Regions. Another factor stimulating theIT sector growth in Russia is the presence of global technology corporations such as Intel,Motorola, Sun Microsystems, Boeing, Nortel and others, which have intensified their softwaredevelopment activities and opened their R&D centers in Russia.

Nanotechnology

In its push to diversify Russia's research and development in emerging technologies, ThePutin government has announced a massive $7 billion investment program in nanotechnology.As part of the program, during 2007, $5 billion is being invested into a new state corporation,Rosnanotech that will be responsible for overseeing and coordinating research in the area.

In criticism of the initiative, it has been noted that the Russian nanotech program willreceive three times more state funding than the rest of Russia's scientists put together.

Apart from public funding, Mikhail Prokhorov, a leading Russian metals and bankingtycoon, has announced the creation of a $17.5 billion holding company that will focus on high-tech investments, including alternative energy and nanotechnology.

Construction market

Russian construction industry has survived its most difficult year for more than a decade.The 0.8% reduction recorded by the industry for the first three quarters of 2010 looks remarkablyhealthy in comparison with the 18.4% slump recorded last year, and construction firms are nowmuch more optimistic about the future than they were just a few months ago. The mostsuccessful of them have concluded contracts worth billions of dollars and are planning to take onemployees and purchase new building machinery. The downturn served to emphasize theimportance of the government to the construction market.

Introduction

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India-Russian relations refer to the bilateral relations between the Republic of India and the

Russian Federation. During the Cold War, India and the Soviet Union (USSR) enjoyed a strong

strategic, military, economic and diplomatic relationship. After the collapse of the USSR, Russia

inherited the close relationship with India.

India is the second largest market for the Russian defense industry. In 2004, more than 70% of

the Indian Military's hardware came from Russia, making Russia the chief supplier of defense

equipment. More recently, the defense relationship has been strained due to repeated price

growths by Russia over the sale of the aircraft carrier.

India has an embassy in Moscow and 2 Consulates-General (in Saint Petersburg and

Vladivostok). Russia has an embassy in New Delhi and 4 Consulates-General (in Chennai,

Hyderabad, Kolkata, Mumbai).

Military relations

The Prime Minister of India, in collaboration with External Affairs Ministry, handles key foreign

policy decisions. Shown here is the current Prime Minister, Manmohan Singh with the former

President of Russia, Vladimir Putin.

Defence relations between India and the Russian Federation have a historical perspective. The

Soviet Union was an important supplier of defence equipment for several decades, and that

relationship was inherited by Russia after the break-up of the Soviet Union. Today, the

cooperation is not limited to a buyer-seller relationship but includes joint research and

development, training, service to service contacts, including joint exercises. The last joint naval

exercises took place in April 2007 in the Sea of Japan and joint airborne exercises were held in

September 2007 in Russia.The last military exercise between Russian and Indian army units

were held in Uttarakhand in October 2010. However, the bilateral relations seem to be strained

with Russia cancelling both its 'Indra' series of military exercises with India for the year 2011.

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Economic relations

Bilateral trade turnover is modest and stood at US$ 3 billion in 2006–07, of which Indian exports

to Russia were valued at US$ 908 million. The major Indian exports to Russia are

pharmaceuticals; tea, coffee and spices; apparel and clothing; edible preparations; and

engineering goods. Main Indian imports from Russia are iron and steel; fertilizers; non-ferrous

metals; paper products; coal, coke & briquettes; cereals; and rubber. Indo-Russian trade is

expected to reach US$10 billion by 2010.

In February 2006, India and Russia also set up a Joint Study Group to examine ways to increase

trade to US$ 10 billion by 2010 and to study feasibility of a Comprehensive Economic

Cooperation Agreement (CECA). The group finalized its report after its fourth meeting in

Moscow in July 2007. It has been agreed that a Joint Task Force would monitor the

implementation of the recommendation made in the Joint Study Group Report, including

considering CECA.

Cooperation in the Energy sector

Pratibha Patil with President of Russia Dmitry Medvedev in India on 5 December 2008.

Energy sector is an important area in Indo-Russian bilateral relations. In 2001, ONGC-Videsh

Limited acquired 20% stake in the Sakhalin-I oil and gas project in the Russian Federation, and

has invested about US $ 1.7 billion in the project. The Russian company Gazprom and Gas

Authority of India Ltd. have collaborated in joint development of a block in the Bay of Bengal.

Kudankulam Nuclear Power Project with two units of 1000 MW each is a good example of Indo-

Russian nuclear energy cooperation. Both sides have expressed interest in expanding cooperation

in the energy sector.

In December 2008, Russia and India signed an agreement to build civilian nuclear reactors in

India during a visit by the Russian president to New Delhi.

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Space Cooperation

In November 2007, the two countries have signed an agreement on joint lunar exploration. These

space cooperation programmes are under implementation. Chandrayaan-2 is a joint lunar

exploration mission proposed by the Indian Space Research Organisation (ISRO) and the

Russian Federal Space Agency (RKA) and has a projected cost of 425 crore (US$90 million).

The mission, proposed to be launched in 2013 by a Geosynchronous Satellite Launch Vehicle

(GSLV) launch vehicle, includes a lunar orbiter and a rover made in India as well as one lander

built by Russia.

Science and Technology

The ongoing cooperation in the field of science & technology, under the Integrated Long-Term

Programme of cooperation (ILTP) is the largest cooperation programme in this sphere for both

India and Russia. ILTP is coordinated by the Department of Science and Technology from the

Indian side and by the Russian Academy of Sciences and Russian Ministry of Industry &

Science and Technology from the Russian side. Development of SARAS Duet aircraft,

semiconductor products, super computers, poly-vaccines, laser science and technology,

seismology, high-purity materials, software & IT and Ayurveda have been some of the priority

areas of co-operation under the ILTP. Under this programme, eight joint Indo- Russian centers

have been established to focus on joint research and development work. Two other Joint Centres

on Non-ferrous Metals and Accelerators and Lasers are being set up in India.

Cooperation in the sphere of Culture

India–Russia relations in the field of culture are historical. Five Chairs relating to Indology have

been established in Moscow, Saint Petersburg, Kazan and Vladivostok. Days of Russian Culture

were held in India in November 2003, in Delhi, Kolkata and Mumbai. "Days of Indian Culture"

in Russia were organized from September- October 2005 in Russia.

There is a Hindi Department, in the University of Moscow.

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Business infrastructure

The Forum discussions is usually focused on ways to develop cooperation in oil and gas,

engineering, automobile manufacture, metallurgy, infrastructure, power generation, chemical

industry, telecommunications and information technologies, innovations and new technologies,

etc.

In 2008 the Council of Chief Executive Officers was set up with the mandate to develop a

roadmap for increasing partnership and cooperation between the two countries at business level.

Mr. Vladimir Evtushenkov, the Chairman of Board of Directors of AFK Sistema is the co-

chairman of the Council from the Russian side and Mr. Mukesh Ambani, Chairman of Reliance

Industries Ltd, – from the Indian side.

Growth of Russian-Indian trade

Trade and economic cooperation between Russia and India is developing dynamically. The

Federal Customs Service of Russia reported a 7,5% increase in Russian-Indian trade in 2009

from the 2008 figure to USD7.46 billion. In January-February 2010, it grew by 40%, with a 40%

increase in Russian exports and in imports.

In 2009, machinery and equipment accounted for 51% of total Russian exports to India and

amounted to US$3.03 billion; fertilizers for 13% (US$0.8 billion), ferrous metals and related

products for 9% (US$530 million).

Major import items in 2009 were pharmaceuticals (30%, US$464 million), machinery and

equipment, transport vehicles and instruments (18%, US$268 million), agricultural produce and

food (11%, US$165 million) and textiles (10%, US$156 million).

India manufactures a wide range of competitive machinery and equipment needed by Russia.

The low volume of Russian imports of the above products in previous years could be explained

by a lack of information about Indian producers.

28

Current situation: Investments and projects

Russian companies Silovye Mashiny (Power Machines) and Technopromexport provide

technical assistance and supply equipment for the construction of the Sipat thermal power plant

(TPP) in Chattisgarh (three power units of 660 MW each), the Barh TTP in Bihar (3 x 660 MW),

and the Obra TTP in Uttar Pradesh (5 x 200 MW). Recently, the construction of the Teri

hydropower plant in Uttranchal was completed (4 x 250 MW) with Russian assistance.

Russia’s AFK Sistema holding a controlling stake (74%) in the Indian telecommunications

company Sistema Shyam Telelink Ltd is building a mobile phone network under brand “MTS”.

Sistema is planning to invest up to US$7 billion in this project. The Pan-Indian telecom network

is to be commissioned in the coming years.

In 2010 a joint venture between Russia’s major truck manufacturer Kamaz and Vectra Group in

Hosur (Tamilnadu) started assembling Kamaz-6540 dump trucks with a gross weight of over 25

metric tons. It is planned that in three to four years 30% to 40% of all components for these

vehicles will be produced in India.

Russian heavy tractor manufacturer Promtractor is also setting up an assembling plant in India.

In February 2008, Bank VTB, a state-controlled foreign trade bank and one of the largest banks

in Russia, opened an operating branch in New Delhi. We expect that this year one more Russian

bank, the largest in Russia state-run savings bank Sberbank will also open its branch in India.

Russian-Indian company was set up in Orissa for the production of titanium products. It is

planned that the company will annually produce 40,000 metric tons of titanium dioxide, 132,000

metric tons of titanium tetrachloride, 10,000 metric tons of titanium sponge and 108,000 metric

tons of titaniferous slag. The project is partially financed from India’s rupee debt to Russia.

Russian companies participate in roads (Centrodorstroy) and gas pipelines (Stroytransgas)

construction projects. The consortia with Russian OJSC Transstroy is fighting for the Rs12,000

crore tender for construction of 71 km of Metro line in Hyderabad.

29

PART-II

30

BANKING SECTOR OF RUSSIA

Introduction

Russian Banking System – the Current State and the Prospects for the Future

Developments

Banking market

The Russian banking sector has developed rapidly in recent years, reflecting the

strengthening Russian economy. Increasing disposable incomes, greater confidence in banks and

increased financial awareness within the population were among the main factors contributing to

this growth. However, the global financial crisis has had a significant impact on the sector.

According to the Central Bank of Russia, net profit within the banking sector decreased

to RUB 96.4 billion in January – November 2009 (compared to RUB 314 billion in 2008). In the

same period, the total assets of all Russian banks increased by 2.4% to RUB 28,691.9 billion,

while in 2008 there was a 39.2% increase and the capital base grew by 21.8% to RUB 4,642.7

billion. At the same time, as a result of high interest rates bank deposits made by Russian

individuals rose by 18.5% in 2009, to RUB 6,998.8 billion.

The top five banks control 47.9% of the assets. The government backs up the

consolidation of the banking sector to increase its effectiveness. Starting 1 January 2010, Russian

banks are supposed to have equity capital exceeding RUB 90 million, and from 2012 the level is

set to increase to RUB 180 million. Hence the number of banks is expected to decrease in the

near future because of capital insufficiency.

Central Bank of Russia

The principal function of the Central Bank is to protect the rouble and ensure its stability;

it is the sole issuer of rubles. The Central Bank sets and pursues a single state monetary policy

and exchange rate policy; manages currency circulation; acts as the lender of last resort for credit

institutions and manages the bank refinancing system; sets the rules for conducting banking

operations; manages most categories of state budget accounts; issues licenses’ to, regulates and

supervises all credit institutions in Russia; and promotes and monitors the proper functioning of

31

payment systems. The Central Bank cooperates with international banking institutions, including

the IMF and the World Bank. It also collaborates on the domestic financial market with the

Federal Insurance Supervisory Service and the Federal Service for Financial Markets to

exchange information and to maintain adequate surveillance over the financial market in general.

The State Dumas is currently considering a proposal to unite the supervisory functions of these

three institutions under one regulatory body. At the end of April 2010 the Central Bank cut the

refinancing rate for the thirteenth time, bringing it to 8% (from a figure of 13% at the beginning

of 2009). The easing of the interest rate is intended to help revive the lending process.

Federal Service for Financial Markets

The Federal Service for Financial Markets (FSFM) is the federal executive body that

regulates and supervises

activity in the financial markets, including stock exchanges. It also regulates the

investment of pension savings. The FSFM’s key objectives are to maintain stability in the

financial markets, make the markets more efficient and attractive to investors, increase market

transparency and reduce investment risks. It regulates the activities of financial market players

and establishes the conditions for issuing and trading securities.

Commercial banks

The banking sector had been developing rapidly, faster than the economy as a whole, and

was one of the most attractive sectors for investment. However, the financial crisis had a marked

impact on the sector: the banks faced liquidity problems, an outflow of funds, and the level of

bad debts increased. The efforts of the Russian Government helped to prevent the collapse of the

banking system. The level of government support provided to banks is considered to be one of

the strongest in the world. In 2009, RUB 280 billion was allocated to support the banking system

(in 2008 over RUB 2 trillion was provided). The total amount of overdue debt reached RUB

1,043.4 billion, of which the Top-20 banks account for 64%. Non-performing loan rates are

expected to continue rising well into 2010. The proportion of overdue loans in the total loan

portfolio reached 5.2%.

Securities

32

The Russian securities market is represented by two major stock exchanges: the Russian

Trading System (RTS) and the Moscow Interbank Currency Exchange (MICEX). RTS is for

trading shares, while MICEX is for trading bonds. The RTS stock exchange is Russia’s leading

stock exchange in terms of product offerings. It also calculates the RTS Index, widely used as an

indicator for the Russian securities market. MICEX organises stock transactions and foreign

exchange trading and develops the derivatives market. MICEX is the largest exchange in Russia,

the CIS and Eastern Europe.

Pensions and pension funds

These are regulated by the Federal Service for Financial Markets. In 2009, a significant

pension payments increase took place: the base pension was increased by 8.7% in March and

31.4% in December; the insured part – by 17.5% in April and 7.5% in August. In 2010

approximately 10% of GDP will be assigned to pensions.

The Pension Fund’s budget spending in 2010 will be RUB 4.3 trillion (USD 149.4

billion, or EUR 99.6 billion). Pension payments are to grow by 46% on average.. The 26%

Unified Social Tax that employers previously paid on salaries is replaced by insurance payments

to three funds: the Pension Fund (20%), the Health Insurance Fund (FOMS, 3.1%), and the

Social Security Fund (2.9%). The change came into force on 1 January 2010. As of 1 January

2011, the tax rates will grow to 26%, 5.1% and 2.9% respectively, increasing the social security

tax burden for employers to 34% overall. The Law contains provisions on lowering the tax pay

for some types of payees.

Role of Banking Sector in Russian Economy

The Bank of Russia is the sole issuer of currency. Pursuant to Article 4 of the Bank of

Russia Law, the Bank of Russia performs the following functions:

— In collaboration with the federal government it elaborates and implements a single state

monetary policy;

— It is the sole issuer of cash and organizer of cash circulation;

33

— It approves the graphic designation of the ruble as a sign;

— It is the creditor of last resort for credit institutions and it organizes the credit institution

refinance system;

— It sets the settlement rules in the Russian Federation;

— It sets the rules for conducting banking operations.

— It efficiently manages the Bank of Russia international reserves;

— It takes the decision on the state registration of credit institutions, issues banking licenses to

credit institutions and suspends and revokes them;

— It supervises the activities of credit institutions and banking groups;

— It registers securities issues by credit institutions in compliance with federal laws;

— It organizes and exercises foreign exchange regulation and control pursuant to federal

legislation;

— It sets the procedure for effecting settlements with international organizations, foreign

states and legal entities and natural persons;

— It sets accounting and reporting rules for the Russian banking system;

— It sets and publishes official exchange rates of foreign currencies against the ruble;

— It takes part in the compiling of Russia’s balance of payments forecast and organizes the

compiling of Russia’s balance of payments;

— It performs other functions in compliance with federal laws.

Core Banking Activities Include

34

Interest calculations

Processing of cash deposits and withdrawals

Processing of incoming and outgoing remittances, cheques, etc.

Customer management

Customer account management

Definition of the bank’s products (product management) including such things as

minimum balances, interest rates, number of withdrawals, etc.

Interest rate definition

Customer’s standing instructions

Maintaining records of all financial transactions

Government Spending/Taxation

The Russian federal budget ran growing surpluses from 2001-2007, as the government

taxed and saved much of the rapidly increasing oil revenues. The government overhauled its tax

system for both corporations and individuals in 2000-2001, introducing a 13% flat tax for

individuals and a unified tax for corporations, which improved overall collection. Responding to

demands from the oil sector, the government reduced the tax burden on oil production and

exports, but only marginally. Tax enforcement of disputes continues to be uneven and

unpredictable. In 2007 the federal budget surplus was 5.5% of GDP, and in 2008 the government

ended the year with a surplus of 4.1% of GDP. Although the government revised its budget

projections during 2009 to reflect lower oil prices and the effects of the economic crisis, it ended

the year with a budget deficit amounting to 7.9% of GDP, which it financed from the Reserve

Fund, one of the government’s two stabilization funds. The government’s anti-crisis package in

2008 and 2009 amounted to about 6.7% of GDP, according to World Bank estimates.

Gross Domestic Product

Tighter credit, collapsing global demand, global uncertainty, and rising unemployment

hurt investment and consumption, and led Russia to have -7.9% GDP growth in 2009--a sharp

35

contrast to the pre-crisis performance of 8.1% in 2007. However, 2010 saw Russia’s economy

return to growth with a 3.8% increase in GDP. Russia’s Economic Development Ministry

predicts that the nation’s GDP will grow 4.2% in 2011.

Graph 1 Comparative Position of Banking Sector with India

Currency comparatives

The Indian Rupee exchange rate depreciated 1.41 percent against the US Dollar during the last

month. During the last 12 months, the Indian Rupee exchange rate depreciated 8.63 percent

against the US Dollar. Historically, from 1973 until 2012 the USDINR exchange averaged 30.49

reaching an historical high of 53.72 in December of 2011 and a record low of 7.19 in March of

1973. The Indian Rupee spot exchange rate specifies how much one currency, the USD, is

currently worth in terms of the other, the INR. While the Indian Rupee spot exchange rate is

quoted and exchanged in the same day, the Indian Rupee forward rate is quoted today but for

delivery and payment on a specific future date.

36

The Russian Ruble exchange rate appreciated 1.08 percent against the US Dollar during the last

month. During the last 12 months, the Russian Ruble exchange rate depreciated 3.99 percent

against the US Dollar. Historically, from 1993 until 2012 the USDRUB exchange averaged

22.90 reaching an historical high of 36.37 in February of 2009 and a record low of 0.98 in

August of 1993.

Graph 2 Stock market comparatives

The SENSEX, a major stock market index which tracks the performance of large companies

based in India, declined 204 points or 4.50 percent during the last month. During the last 12

months, the SENSEX declined 825 points or 4.50 percent, reaching an high of 19701.73 points

in April of 2011 and a low of 15175.08 points in December of 2011. Historically, from 1979

until 2012 the SENSEX market value averaged 5137.07 points reaching an historical high of

21004.96 points in November of 2010 and a record low of 113.28 points in December of 1979.

37

The INDEXCF, a major stock market index which tracks the performance of large companies

based in Russia, rallied 43 points or 9.69 percent during the last month. During the last 12

months, the INDEXCF declined 173 points or 9.69 percent, reaching an high of 1855.97 points

in April of 2011 and a low of 1327.19 points in September of 2011. Historically, from 1997 until

2012 the INDEXCF market value averaged 710.11 points reaching an historical high of 1969.91

points in December of 2007 and a record low of 18.53 points in October of 1998.

Present Position And Trend Of Banking Services

With India During Last Years

RUSSIA Present Position:

The Russian economy gradually returned to a positive growth path and worked hard to overcome

the aftermath of the global crisis. This also had a favorable impact on banks’ activities. Lending

to the economy picked up and the quality of the loan portfolio stabilized and gradually improved

from the third quarter onward. This was an important factor, which contributed to a significant

increase in profitability of banking. The profits that the banks earned in 2010 proved to be the

highest in the last decade and helped offset the losses incurred during the crisis.

The amount of “bad” debt in bank portfolios remains fairly large. Another pressing problem is

non-core assets. The Russia’s system of banking regulation and supervision based on legal

38

requirements and the objectives set forth in the Russian Banking Sector Development Strategy

until 2015, which has been approved by the Russian Government and the Bank of Russia.

INDIA PRESENT POSITION

The Banking sector in India has always been one of the most preferred avenues of employment.

In the current decade, this has emerged as a resurgent sector in the Indian economy. As per the

McKinsey report ‘India Banking 2010’, the banking sector index has grown at a compounded

annual rate of over 51 per cent since the year 2001, as compared to a 27 per cent growth in the

market index during the same period. It is projected that the sector has the potential to account

for over 6.1 per cent in 2012 of GDP with over Rs. 1.7271 trilion in market cap, and to provide

over 1.5 million jobs.

Policies And Norms Of Russia For Import / Export Including Licensing / Permission,

Taxation Etc

1. Customs policy

2. Import restrictions

3. Customs duties

4. Temporary import relief

5. Customs duties incentives

6. Documentation and procedures

7. Warehousing and storage

8. Re-exports

1. Customs policy

Russia’s customs policy has seen several important areas of development:

• Lowering customs duty on technological equipment imports;

• Simplifying the customs clearance process;

• Tighter customs control after the customs clearance of goods;

• Further development of customs integration between Russia, Belarus and Kazakhstan.

39


Certain imports to Russia require permits, certification (e.g., of conformity, sanitation), licences

and other approvals, which should be submitted to the customs authorities during the customs

clearance process. Russia imposes an anti-dumping duty on certain goods (e.g., metal pipes from

Ukraine).

3. Customs duties

Classification of goods

The Russian tariff classification system is based on the internationally adopted Harmonized

Commodity Description and Coding System.

Valuation rules

The customs valuation procedure is established in line with GATT/WTO principles. The customs

value is generally equivalent to the DAF/Russian border transaction value of the goods

concerned.

Rates

Import duty applies to most goods. The majority of customs duty rates in Russia are ad valorem

(i.e., a percentage of the goods’ customs value). There are also specific duties for certain types of

imports, calculated by volume, weight or quantity. Some duties have a combined rate

incorporating the two and, therefore, the tax base may vary. Base customs duty rates vary

widely, from 100% but not less than EUR 2 per litre on spirits to 0% for some printed matter and

certain priority imports. Zero duty applies, for example, to a wide range of equipment and

machinery. On average, duty rates fall between 5% and 20% of the customs value of goods. The

base rates specified in the law apply to countries that enjoy Most Favoured Nation status.

40

Free trade agreements

Russia has adopted free trade agreements with countries of the Commonwealth of Independent

States (CIS). Goods originating from CIS countries (e.g., the Ukraine) are exempt from customs

duty for import to Russia (subject to certain conditions). Russia, Belarus and Kazakhstan form a

Customs Union, and goods originating from these countries are not subject to customs duty

within this Customs Union.

Excise tax

Certain categories of goods are subject to excise tax for import to Russia (e.g., alcoholic

beverages, cigarettes, etc.) Generally, excise tax rates are specific (i.e., based on the volume,

weight or other characteristics of goods).

Import VAT

For most goods, the import VAT rate is 18% of the customs value, inclusive of customs duty and

excise (if any). Food, a certain range of children’s goods and a limited range of other goods may

be subject to 10% or 0% VAT.

Customs processing fees

Customs processing fees are established as a flat fee and vary from approximately

EUR 12 to EUR 2,400 per customs declaration depending on the customs value of imported

goods.

Payments

Customs payments are generally paid before or when submitting customs declarations to

customs.

4. Temporary import relief

Goods may be imported under a temporary import customs regime, normally for a period of up

to two years. Generally, goods are permitted for temporary importation if it is possible to identify

them upon their re-export. Temporary importation requires permission from the customs

41

authorities. Upon expiry of the temporary importation period, goods are moved out of Russia or

placed under another customs regime (e.g., release for free circulation). Temporary importation

requires periodic customs payments of 3% per month of the total customs payments due had the

goods been imported for free circulation. Upon export of the goods, these customs payments are

not refunded. Customs has the right to require a security for customs payments (e.g., a deposit,

pledge, bank guarantee, etc.) Goods that qualify as fixed assets for production purposes may be

admitted and subject to a 3% monthly customs payment for a temporary import period of 34

months if the Russian user does not yet have property rights (e.g., for leasing). After this period,

the goods are considered released for free circulation.


Charter capital contributions Fixed production assets imported by a foreign investor as a charter

capital contribution are free from customs duty. The goods must not be excisable and should be

imported within the timeframe established for the formation of the charter capital. Customs

authorities can check to ensure the correct use and further disposal of goods exempted from

customs duty.

VAT exemption

VAT exemption is also available for imported technological equipment; the list of eligible

equipment is approved by the Russian Government.

Tolling

Goods imported into Russia for processing may be placed under an inward processing

(IPR) procedure (subject to certain conditions). Under IPR, goods (e.g., raw materials) imported

for processing are eligible for full exemption from customs duty and import VAT, provided the

processed/finished goods are subsequently moved out of Russia within a deadline agreed on with

customs. No export customs duty is charged upon the export of finished goods from Russia. IPRs

must be authorised by customs. Only a Russian company may apply for an IPR.

42

Special economic zones

A number of special economic zones (SEZ) with a free customs regime have been established in

Russia. Generally, foreign goods imported to and used within the SEZ are eligible for exemption

from import customs duty and VAT. When foreign goods or products of their processing are

subsequently released into free circulation to the rest of Russia, import customs duty and VAT

are payable. If the goods manufactured in a particular SEZ are exported to foreign countries, they

are subject to export duty, if applicable. Foreign goods that were imported into the SEZ but not

processed may be re-exported without paying export customs duty.


Registration of importers and exporters

There is no established procedure for registering importers and exporters with customs.

However, in practice certain documents may be required by customs prior to importation (charter

documents, tax registration certificates, etc.)

Documentation

Russian customs regulations establish a comprehensive list of documents required for customs

clearance purposes. In practice, the set of documents to be submitted to the customs authorities

may vary depending on the character of imported/exported commodities, conditions of the

transaction, etc.

Customs value declarations

The customs value of imported goods is declared in a customs value declaration in which the

customs value should be properly supported by appropriate documents. The list of such

documents may vary depending on the terms of a particular transaction. While Russian customs

regulations provide a general list of documents required to confirm the declared customs value,

43

the list is not exhaustive. If the customs authorities disagree with the customs value declared by

an importer, they may adjust it.


Goods which are subject to customs control (e.g., imported goods which have not yet

cleared through customs) can be temporarily stored at special warehouses before being released

by customs. The storage period should not exceed two months, but an importer can ask the

customs authorities to extend it to up to four months. Warehouses for temporary storage are

usually located near customs offices.

8. Re-exports: Goods which have been imported into Russia may be re-exported provided they

have not been released for free circulation in Russia. They are re-exported without payment of

export customs duty.

Present Trade barriers for import / Export

Russia has the following restrictions on market access for foreign financial companies and

institutions:

1 The above mentioned quota of 12% for foreign capital participation in the banking system;

2. The 49% threshold of foreign capital for insurance companies, if they intend to engage in life

insurance, compulsory insurance, compulsory state insurance and insurance for the government

procurement;

3. The total quota for the participation of foreign capital in the insurance sector is not more than

15% (the current value is less than 10%);

4. The requirement for a special type of legal persons to provide services in the banking and

insurance sectors; it is impossible to operate in Russia through the offices of foreign companies;

such operations may only be conducted by a business entity registered in Russia. For credit

institutions, the Central Bank should, in principle, allow the establishment of a credit

44

organization with foreign investments, i.e. participation of each non-resident must be specifically

agreed upon with the Central Bank;

5. Complex, long and expensive procedure for issuing licenses for new branches of banks with

foreign participation;

6. Qualification requirements for foreign entrepreneurs (presenting proof of skills and

qualifications),as well as quantitative limits on the composition of the governing body of the

credit institution: Russian citizens should constitute 50% of the collective governing body of the

credit organization, while in the key positions in the insurance company, Russian citizens should

comprise not less than 49%. In addition, in the insurance companies, the positions of director

general and chief accountant must be occupied by citizens of the Russian Federation.

7. National discrimination: special requirements, creating less favorable conditions for foreign

companies as compared with the Russian services providers: i.e. the minimum charter capital in

the insurance companies with foreign investment is 250 000 of minimum monthly wage, which

is significantly higher than the same requirement for Russian companies; the charter capital of

insurance companies with foreign participation should be fully paid in cash by foreign parties,

while, for the Russian insurers this requirement is not mandatory

Potential for import / export in India

Enhancing trade and economic cooperation between India and Russia is a key priority for the

political leadership of both the countries. Bilateral trade has witnessed a positive growth despite

the international financial and economic crisis and is on course to meet the target of USD 10

billion turnover by 2010.

In recognition of the potential for enhanced cooperation, the Indo-Russian Inter-Governmental

Commission on Trade, Economic, Scientific, Technological and Cultural Cooperation (IRIGC)

at its 15 session held on October 21, 2009, set a revised target of bilateral trade turnover of USD

20 billion by 2015. Indian investments in Russia are estimated to be about USD 6.5 billion, bulk

of which are in the energy sector, while Russian investments in India total about USD 1 billion,

primarily in telecommunications sector

45

A Joint Task Force is simultaneously monitoring the recommendations of a Joint Study Group to

enhance trade and conclude, in future, a Comprehensive Economic Cooperation Agreement

between the two countries. The Indo-Russian Forum for Trade & Investment has evolved into a

platform for facilitating corporate interaction with a regular periodicity between the two

countries.

The President of the Russian Federation H.E. Mr. Dmitry Medvedev paid an official visit to

India on 21-22 December 2010 at the invitation of the Prime Minister of the Republic of India

H.E. Dr. Manmohan Singh for the 10th Annual Summit meeting under the India Russia Strategic

Partnership.

During the visit, the following IGA/MOUs, inter alia, were signed between the Governments of

India & Russia:Inter-Governmental Agreement between the Government of the Republic of

India and the Government of the Russian Federation for Enhancement of Cooperation in Oil and

Gas Sector.

MOU between Ministry of Communications & Information Technology (Department of

Information Technology) of the Republic of India and the Ministry of Telecom and Mass

Communications of the Russian Federation on Cooperation in Information Technology.

Memorandum of Understanding on cooperation in the Pharmaceutical Sector between the

Ministry of Chemicals & Fertilizers of the Government of India and the Ministry of Trade &

Industry of the Government of Russian Federation.

According to RBI figures, India’s cumulative investments in to Russian economy amounted to

USD 4.23 billion (from 1 April 1960 to 30 June 2010) whereas Russian cumulative investments

into Indian economy amounted to Rs. 2142 crores (from 1 April 1991 to 31 March 2010).

Additionally, ONGC Videsh Limited has also acquired Imperial Energy

Major investments from India to Russia are of:

(i) ONGC Videsh Ltd. in Sakhalin-1 Project and Imperial Energy.

(ii) ICICI Bank for opening subsidiary ICICI Bank Eurasia

(iii) SBI and Canara Bank for opening JV Commercial Bank of India Ltd

(iv) TATA Motors- Assembly of small capacity lorries and buses

(v) SUN Group-Food processing industry and real estate.

46

(vi) Carborandum Universal- production of abrasives

(vii) Tata Tea

Major investments from Russia to India are of:

(i) AFK Sistema in Sistema Shyam Telelink Services.

(ii) India-Russia JV for production of titanium products in Orissa

(iii) Opening of branches by VTB and Sber Bank

(iv) Joint venture automotive company between Russian Kamaz Inc and India’s Vectra Group

Retail SectorFood Retailers

The biggest food retailer in Russia is X5 RETAIL GROUP, majority owned by oligarch

Mikhail Friedman’s Alfa Group. The company was formed by the merger of soft discount

chain Pyaterochka and supermarket chain Perekrestok in 2006. Based in St. Petersburg, it

runs over 1,500 outlets spread across Moscow and the Urals. After the Kopek buy, the

retailer received the go-ahead to acquire Moscow-based grocer Ostrava. X5 has adopted

the inorganic route to growth, beginning with its acquisition of Paterson supermarket

chain in December 2009.

MAGNIT OJSC is Russia’s second-biggest food retailer, which runs an expanding

network of hypermarkets and discount groceries. Established in 1994, chief executive

Sergei Galitskiy is the majority shareholder in the company.

Food retailer O’KEY, Russia’s third biggest grocer by sales, listed its global depository

receipts in London recently. The company, which has been pursuing an aggressive

expansion strategy over the past five years, operates more than 50 stores spread across 18

cities.

Russian food retailer DIXY GROUP, which runs discount chains, is controlled by Igor

Kesayev through his Mercury Holdings. At the beginning of 2010, the company had 552

stores, an improvement from the 492 outlets it had a year ago.

Supermarket chain SEVENTH CONTINENT, based in Moscow, is majority-owned by

Alexander Zanadvorov. The retailer took control of mid-sized Fiserv’s Bank early last

year to develop it as the company’s in-store bank.

47

Privately-held hypermarket chain Lenta, based in St. Petersburg, is embroiled in a

shareholder dispute. Established in 1993, the company now runs some 36 stores in

Russia. U.S. businessman August Meyer has a 36% stake in the company, while private

equity firm TPG holds about 35% and European Bank for Reconstruction and

Development owns around 11%.

Medium-sized retailer Victoria is planning to come out with an initial public offering this

year, which would make it the fifth listed food retailer in Russia. Victoria runs about 230

stores in Moscow, Kaliningrad, and St. Petersburg, and is 35% owned by businessman

Vlasenko.

White goods retailers

M.Video, a consumer electronics retailer, offers televisions, DVD players, and video

cameras, among other similar goods. Chief Executive Alexander Tynkovan is the

controlling shareholder of the number one electronics retailer in Russia.

From its humble beginnings 17 years ago, the company currently runs 184 retail outlets.

M.Video, which is listed on the Mice stock exchange, faces direct competition from

Metro AG’s household appliances unit Media Market.

Unlisted competitors Mir and Tekhnosila are currently undergoing bankruptcy

proceedings.

Moscow-based OOO Eldorado, which sells consumer electronics goods and household

appliances, was established in 1994. Czech investment company PPF took over Eldorado

in 2009, as the retailer defaulted on a $500 million loan taken against a controlling stake

in the firm.

Table 1 Major food retailers operating in Russia

Name of Company FY 2009 Sales ($

bn)

Market Share Listed/Unlisted

X5 Retail Group $8.7 billion 26.3% Listed

Magnit OJSC $5.4 billion 16.2% Listed

Auchan $4.9 billion 15.3% Unlisted

48

Tab

le 2

Maj

or

Table 2 food retailers operation in India

Source:http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCMQFjAA&url=http%3A%2F%2Fwww.ncap.res.in%2Fcontract_%2520farming%2FResources%2F3.%2520P.G.%2520Chengappa.pdf&ei=VfecT5WBM8emrAezyulD&usg=AFQjCNFJfRN2TdtZmyRHmqxTMMs1nkBQSA

Metro AG $4.2 billion 12.8% Listed

O’Key $2.1 billion 6.4% Listed

Kopeika $1.7 billion 5.4% Unlisted

Lenta $1.7 billion 5.3% Unlisted

Dixy $1.6 billion 5.1% Listed

Seventh Continent $1.3 billion 4.1% Listed

Victoria $1.0 billion 3.1% Unlisted

49

Economy of Russia

Economic Overview

Russia has undergone significant changes since the collapse of the Soviet Union, moving

from a globally-isolated, centrally-planned economy to a more market-based and

globally-integrated economy. Economic reforms in the 1990s privatized most industry,

with notable exceptions in the energy and defense-related sectors.

The protection of property rights is still weak and the private sector remains subject to

heavy state interference. Russian industry is primarily split between globally-competitive

commodity producers - in 2009 Russia was the world's largest exporter of natural gas, the

second largest exporter of oil, and the third largest exporter of steel and primary

aluminum - and other less competitive heavy industries that remain dependent on the

Russian domestic market.

This reliance on commodity exports makes Russia vulnerable to boom and bust cycles

that follow the highly volatile swings in global commodity prices. The government since

2007 has embarked on an ambitious program to reduce this dependency and build up the

country's high technology sectors, but with few results so far.

The economy had averaged 7% growth since the 1998 Russian financial crisis, resulting

in a doubling of real disposable incomes and the emergence of a middle class. The

Russian economy, however, was one of the hardest hit by the 2008-09 global economic

crisis as oil prices plummeted and the foreign credits that Russian banks and firms relied

on dried up.

Foreign forays into the retail segment

Since the beginning of the last decade, global retailers have been trying to gain a toehold

in the lucrative Russian consumer market. Slowing sales in Western markets have lured

big international players to seek expansion in fast-growing emerging markets such as

Russia. While the likes of Wal-Mart seem to have given up for the time being, others

such as France’s Aachen and Germany’s Metro have been hugely successful.

50

Germany’s Metro AG was among the early birds to arrive in Russia, setting up its first

Moscow store in 2001. The retailer, which runs Metro Cash & Carry, and Real and Media

Market household appliances stores, operates more than 70 outlets in Russia.

Around the same time when French retailer Carrefour decided to call it quits in 2009,

fellow supermarket chain Aachen not only decided to stay entrenched in Russia but has

been on an expansion drive ever since. Aachen started operations in 2002 and currently

runs more than 30 hypermarkets.

Perhaps the most high-profile exit from Russian retail market was Wal-Mart’s recent

decision to abandon its plans to expand in Russia. The world’s biggest retailer had

planned to grow its business in Russia through the acquisition of local players.

Apparently, Wal-Mart was eyeing retail chain Kopek, which was later acquired by X5

Retail Group. Another potential acquisition target, privately-held Lento, found itself

entangled in a shareholder dispute. Close on the heels of these corporate developments,

Wal-Mart said it was closing its Moscow office, citing lack of opportunities for

acquisitions.

For now, Wal-Mart seems to have shifted its focus to other emerging markets such as

South Africa, by recently moving to acquire a majority stake in retailer Massmart

Holdings. Swedish furniture retailer IKEA, which runs 12 stores in Russia since 2000,

has often complained of increased bureaucratic interference and corruption and has said it

has no plans to open new stores in the country in the next few years.

Despite the procedural hassles involved in setting up a business in Russia, many global

retailers seem to have realized that Russia is too big a market to be ignored. Finnish

retailer Kesko Oyjsaid it intends to launch its food business in Russia in 2010.

The company, which currently runs more than 10 hypermarkets selling building materials

in Russia, also anticipates making acquisitions to expand its presence in the country.

U.S.-based footwear retailer Collective Brands Inc. and apparel retailer Limited Brands,

known for its lingerie brand Victoria’s Secret, have their plans chalked out for the

Russian market.

Japanese clothing retailer Unable, a unit of Fast Retailing, which set up shop in Russia in

2010, expects to open more stores in the country. And McDonald’s has a come a long

way since setting up shop 20 years back, with almost 80%

51

According to a review by McKinsey, business processes should be thoroughly overhauled

and dated store formats need to be replaced. The report points out that although Russia

has made good progress in adopting modern store formats, they reflect a meager 11% of

the jobs in the retail sector and 35% of retail sales in Russia.

To put things in perspective, modern formats contribute 82% and 86% of retail sales in

France and Germany respectively. To make the system work more effectively, Russia

needs to boost the productivity of the sector. Staffing levels in Russian stores should be

brought in sync with customer traffic, as is the case with retailers based in the United

States. Employing part-time labor will help bring down the operating costs of retailers.

Russian stores also need to make full use of information technology to streamline their

operations.

Table 3 Food and Beverage production in Russian and India

Russia India

Position 12 3

Nos. of listed company in F&B

Sector

7 229

Top 3 domestic companies

based on revenues

Baltika Brewery-Cls: $3.7

billion USD

Wimm-Bill-Dann Foods-Cls:

$2.8 billion USD

Unimilk Ojsc-Brd: $1.6 billion

USD

Ruchi Soya Industries: $2.7

billion USD

United Breweries Holdings:

$1.2 billion USD

United Spirits Limited: $1.2

billion USD

Top 3 products exported and

their value

Wheat: $3.6 billion USD

Sunflower Oil: $467 million

USD

Barley: $416 million USD

Rice milled: $2.3 billion USD

Cotton: $2.1 billion USD

Cake of Soybean: $1.6 billion

USD

Source:- www.imap.com

52

Table 4 PRODUCTION OF WHEAT IN RUSSIA AND INDIA

Russia (Production in Int$

Million)

India (Production in Int $

Million)

Year 2005 2006 2007 2005 2006 2007

Wheat 4628 4382 4771 10164 10251 11242

Table 5 CONTRIBUTION IN GDP BY THE AGRICULTURE SECTOR

IN PERCENTAGE (%) IN MILLION

DOLLARS

NOMINAL

GDP

PPP

NOMINAL

GDP

PPP GDP

SECTOR

NOMINAL

GDP

PPP GDP

SECTOR

INDIA 18.1 18.5 303382 1,676,143 4060392

RUSSIA 4.2 4 77717 88918 1850401 2222957

53

Table 6 Food production and nutrition

Number of people undernourished in

1999/2001:

India 213.7

Mio.

Russia 6.2 Mio.

Proportion of undernourished in total

population in 1999/2001: India 21% Russia 4%

Dietary energy supply in total population

(kcallperson/day) 1999/2001: India 2492 Russia 2944

Crop and livestock production 1983-1992

(average annual growth rate): India 3.9% Russia 11.0%

Crop and livestock production 1993-2002

(average annual growth rate): India 2.1% Russia -2.2%

Per capita food production 1983-2002

(average annual growth rate): India 1.2% Russia 0

Statistical Appendix:

(Source:- FAO 2004: State of Food and Agriculture. New York)

Generally, if goods are exported or imported between a foreign company and a Russian

company, the Russian company is responsible for the customs clearance procedures.

In order to import goods into Russia and clear them through customs, an importer has to

make all customs payments due under the

Import Export Policy of Russia

54

Chosen customs regime and comply with other customs legislation requirements (e.g.,

certification requirements

The import of certain goods (e.g., pharmaceuticals, meat, etc.) requires licenses

Russia has several special economic zones that offer customs benefits

1. Customs policy


• Lowering customs duty on technological equipment imports;

• Simplifying the customs clearance process;

• Tighter customs control after the customs clearance of goods;

• Further development of customs integration between Russia, Belarus and Kazakhstan.


Certain imports to Russia require permits, certification (e.g., of conformity, sanitation), licenses

and other approvals, which should be

Submitted to the customs authorities during the customs clearance process. Russia imposes an

anti-dumping duty on certain goods

(e.g., metal pipes from Ukraine).

3. Customs duties


The Russian tariff classification system is based on the internationally adopted

Harmonized Commodity Description and Coding System.

Valuation rules:-The customs valuation procedure is established in line with GATT/WTO

principles. The customs value is generally equivalent tothe DAF/Russian border transaction

value of the goods concerned.

Rates

Import duty applies to most goods. The majority of customs duty rates in Russia are ad

valorem (i.e., a percentage of the goods ‘Customs value).

There are also specific duties for certain types of imports, calculated by volume, weight

or quantity. Some duties have a combined

Rate incorporating

The two and, therefore, the tax base may vary. Base customs duty rates vary widely, from

100% but not less than EUR 2 per liter on spirits to 0% for some printed matter and

certain priority imports.

55

Zero duty applies, for example, to a wide range of equipment and machinery. On average,

duty rates fall between 5% and 20% of the customs value of goods. The base rates

specified in the law apply to countries that enjoy Most Favored Nation status.

Certain raw materials and handmade goods from “developing” and “least developed”

countries may be imported at 75% of the base rates or zero rates, respectively. Goods

originating in other countries will be subject to duty at double the base rates.

The following goods are exempt from customs duty: transit goods; goods imported by

individuals for personal use (worth not more than approximately EUR 1,500 and

weighing less than 35 kg); cultural valuables; means of transport involved in the

international movement of goods and passengers; humanitarian aid and some others.

Free trade agreements

Russia has adopted free trade agreements with countries of the Commonwealth of

Independent States (CIS). Goods originating from CIS countries (e.g., the Ukraine) are

exempt from customs duty for import to Russia (subject to certain conditions). Russia,

Belarus and Kazakhstan form a Customs Union, and goods originating from these

countries are not subject to customs duty within this Customs Union.

Excise tax

Certain categories of goods are subject to excise tax for import to Russia (e.g., alcoholic

beverages, cigarettes, etc.) Generally, excise tax rates are specific (i.e., based on the

volume, weight or other characteristics of goods).

Import VAT

For most goods, the import VAT rate is 18% of the customs value, inclusive of customs

duty and excise (if any). Food, a certain range of children’s goods and a limited range of

other goods may be subject to 10% or 0% VAT.

Customs processing fees

Customs processing fees are established as a flat fee and vary from approximately EUR

12 to EUR 2,400 per customs declaration depending on the customs value of imported

goods.

Payments

Customs payments are generally paid before or when submitting customs declarations to

customs.

56

Customs duties incentives

Charter capital contributions fixed production assets imported by a foreign investor as a

charter capital contribution are free from customs duty. The goods must not be excisable

and should be imported within the timeframe established for the formation of the charter

capital. Customs authorities can check to ensure the correct use and further disposal of

goods exempted from customs duty.

VAT exemption:

VAT exemption is also available for imported technological equipment; the list of

eligible equipment is approved by the Russian Government.

Tolling :-

Goods imported into Russia for processing may be placed under an inward processing

(IPR) procedure (subject to certain conditions). Under IPR, goods (e.g., raw materials)

imported for processing are eligible for full exemption from customs duty and import

VAT, provided the processed/finished goods are subsequently moved out of Russia

within a deadline agreed on with customs.

No export customs duty is charged upon the export of finished goods from Russia. IPRs

must be authorized by customs. Only a Russian company may apply for an IPR.

Special economic zones:-

A number of special economic zones (SEZ) with a free customs regime have been

established in Russia. Generally, foreign goods imported to and used within the SEZ are

eligible for exemption from import customs duty and VAT.

When foreign goods or products of their processing are subsequently released into free

circulation to the rest of Russia, import customs duty and VAT are payable. If the goods

manufactured in a particular SEZ are exported to foreign countries, they are subject to

export duty, if applicable. Foreign goods that were imported into the SEZ but not

processed may be re-exported without paying export customs duty.



57

There is no established procedure for registering importers and exporters with customs.

However, in practice certain documents may be required by customs prior to importation

(charter documents, tax registration certificates, etc.)

Documentation :-

Russian customs regulations establish a comprehensive list of documents required for

customs clearance purposes. In practice, the set of documents to be submitted to the

customs authorities may vary depending on the character of imported/exported

commodities, conditions of the transaction, etc.

Customs value declarations :-The customs value of imported goods is declared in a

customs value declaration in which the customs value should be properly supported by

appropriate documents. The list of such documents may vary depending on the terms of a

particular transaction. While Russian customs regulations provide a general list of

documents required to confirm the declared customs value, the list is not exhaustive. If

the customs authorities disagree with the customs value declared by an importer, they

may adjust it.

5. Re-exports

Goods which have been imported into Russia may be re-exported provided they have not

been released for free circulation in Russia. They are re-exported without payment of

export customs duty.

Objectives

This unit helps you to understand:

• What is trade policy?• Kinds of trade policy• Phases of liberalization in trade policies in the process of economic development

• Trends in India's Exim policies• Salient features of Current Export - Import Policy (2002-07)

EXPORT IMPORT POLICY 2002-2007: OBJECTIVES

Import Export Policy of India

58

This policy came into force with effect from 151 April, 2002 and shall remain in force up

to 31st March 2007 and will be co-terminus with the Tenth Five Year Plan (2002-2007)

The principal objectives, of this Policy are :

i. To facilitate sustained growth in exports to attain a share of at least 1% of global

merchandise trade

ii. To stimulate sustained economic growth by providing access to essential raw materials,

intermediates, components, consumables and capital goods required for augmenting

production and providing services.

iii. To enhance the technological strength and efficiency of Indian agriculture, industry and

services, thereby improving their competitive strength while generating new employment

opportunities, and to encourage the attainment of internationally accepted standards of

quality.

iv. To provide consumers with good quality goods and services at internationally

competitive prices while at the same time creating a level playing field for the domestic

producers.

Some key provisions of the EXIM Policy 2002-2007 have been given in Sections 7.6 -

7.10.

GENERAL PROVISIONS REGARDING IMPORTS... AND EXPORTS

Some of the general provisions regarding imports and exports as outlined in the policy

are as given below:

1) Exports and Imports free unless regulated: Exports and 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.

2) 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 is granted on application by the competent

authority in accordance with the procedure specified in the Handbook of Procedures

(Vol. I).

3) 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

59

imports require a license/certificate/ permission, the actual user alone may import such

goods unless the actual user condition is specifically dispensed with by the licensing

authority

4) Export of Imported Goods: Goods imported, in accordance with this Policy, can be

exported in the same or substantially the same form without a license/certificate/

permission provided that the item to be imported or exported is not mentioned as

restricted for import or export. Exports of such goods imported against payment in freely

convertible currency are permitted against payment in freely convertible currency.

5) Free movement of export goods: Consignments of items meant for exports shall not be

withheld / delayed for any reason by any agency of the Central/ State Government. In

case of any doubt, the authorities concerned may ask for an undertaking from the

exporter.

6) Registration-cum-Membership Certificate: Any person, applying for (i) a license/

certificate/ permission to import/ export, [except items listed as restricted items] 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 of Procedures (Vol.]) unless specifically

exempted under the Policy.

PROMOTIONAL MEASURES

Some of the key promotional measures undertaken by the Government under this policy

are as given below

1) Central Assistance to States: The State Governments are encouraged to fully participate

in encouraging exports from their respective states. For this purpose, suitable provisions

are made in the Annual Plan of the Department of Commerce for allocation of funds to

the states on the twin criteria of gross exports and the rate of growth of exports from

different states. The States utilize this amount for developing complementary and critical

'infrastructure

2) Market Access Initiative :Financial assistance is made available under the scheme to the

export promotion councils, industry and trade associations and other eligible entities, as

may be notified from time to time, on the basis of the competitive merits of proposals

received in this regard for the following purposes which inter-alia includes:-

60

• Marketing studies on country product focus approach basis.

• Setting up of common showrooms under one roof and warehousing facility in the

identified centers onthe basis of marketing studies in important cities abroad.

Participation in sales promotion campaigns through international departmental stores.

• Publicity campaign for launching identified products in selected markets.

3) Participation in international trade fairs, seminars, buyers sellers meet.

• Promotion of select brands.

• Transport subsidies for select agriculture products.

• Registration charges for product registration abroad for pharmaceuticals, bio-

technology and agro chemicals and testing charges for engineering products.

• Inland freight subsidies for units located in North East, Sikkim and Jammu

&Kashmir.

• Setting up of "business center" in Indian missions abroad for visiting Indian

exporters/businessmen.

4) Brand Promotion and Quality: The Central Government aims to encourage

manufacturers and exporters to attain internationally accepted standards of quality for

their products. The Central Government extends support and assistance to trade and

industry to launch a nationwide programmed on quality awareness and to promote the

concept of total quality management.

5) Status Certificate: Merchant as well as Manufacturer Exporters, Service Providers,

Export Oriented Units (EOU's)/ Units Located in Export Processing Zones (EPZ's)/

Special Economic Zones (SEZ's) / Agra Export Zone (AEZ's)/ Electronic Hardware

Technology Parks (EHTPs)/ Software Technology Parks (STPs) shall be eligible for such

recognition.

The applicant is required to achieve the prescribed average export performance level:

Category Average FOB/ FOR value

during the preceding three

licensing years (in Rupees)

FOB/ FOR during the

current licensing year

(in Rupees)

Export House 15 Crore 45 Crore

61

Trading House 100 Crore 300 Crore

Star Trading House 500 Crore 1500 Crore

Superstar Trading

House

2000 Crore 6000 Crore

The status holders are eligible for the following special facilities:

• License/certificate/permissions and Customs clearances for both imports and exports on self-declaration basis;

• Fixation of Input-Output norms on priority;

• Priority finance for medium and long term capital requirement as per conditions notified byRBI;

• Exemption from compulsory negotiation of documents .through banks. The remittance,however, would continue to be received through banking channels;

• 100% retention of foreign exchange in EEFC account;

• Enhancement in normal repatriation period from 180 days to 360 days.

6) Electronic Data Interchange: In an attempt to speed up the transactions, reduce physicalinterface and to bring about transparency in various activities related to exports, electronic datainterchange is encouraged. Applications received electronically are cleared within 24 hours.

EXPORT PROMOTION CAPITAL GOODS SCHEME

EPCG Scheme: The scheme allows import of new capital goods including CKD/SKD

thereof as well as computer software systems at 5% Customs duty subject town export

obligation equivalent to 5 times CIF value of capital goods to be fulfilled over a period of

8 years reckoned from the issuance of license over a period of 8 years.

Eligibility: The scheme covers manufacturer exporters with or without supporting

manufacturer(s)/vendor(s), merchant exporters tied to supporting manufacturer(s) and.

service providers.

Conditions for Import of Capital Goods: Import of capital goods is subject to Actual

User condition till the export obligation is completed.

DEEMED EXPORTS

62

"Deemed Exports" refers to those transactions it which the goods supplied do not leave thecountry.

The following categories of supply of goods by the main/ sub-contractors are regarded as"Deemed Exports" under this Policy, provided the goods are manufactured in India:

(a) Supply of goody, against Advance License/DFRC under the Duty Exemption / RemissionScheme.

(b) Supply of goods to Export Oriented Units (EOL's) or units located in Export ProcessingZones (EPZs) or Special Economic Zone (SEZs) or Software Technology Parks (STPs)or Electronic Hardware Technology Parks (EHTPs);

(c) Supply of capital goods to holders of licenses under the Export Promotion Capital Goods(EPCO) scheme;

(d) Supply of goods to projects financed by multilateral or bilateral agencies/funds as notified bythe Department of Economic Affairs, Ministry of Finance under InternationalCompetitive Bidding in accordance with the procedures of those agencies/funds, wherethe legal agreements provide for tender evaluation without including the customs duty;

(e) Supply of capital goods, including in unassembled/ disassembled condition as well as plants,machinery, accessories, tools, dies and such goods which are used for installationpurposes till the stage of commercial production and spares to the extent of 10% of theFOR value to fertilizer plants.

(f) Supply of goods to any project or purpose in respect of which the Ministry of Finance, by anotification, permits the import of such goods at zero customs duty coupled with theextension of benefits under this chapter to domestic supplies;

(g) Supply of goods to the power and refineries not covered in (0 above.

(h) Supply of marine freight containers by 100% EOU (Domestic freight-containersmanufacturers) provided the said containers are exported out of India within 6 months or suchfurther period as permitted by the Customs. (i) Supply to projects funded by UN agencies.

(j) Supply of goods to nuclear power projects through competitive bidding as opposed tointernational competitive bidding.

The benefits of deemed exports are available under paragraph (d), (e), (f) and (9)

above only if the supply is made under the procedure of International Competitive

Bidding (ICB).

Deemed exports are eligible for any/all of the following benefits in respect of

manufacture and supply of goods qualifying as deemed exports subject to the terms and

conditions as given in Handbook (Vol. I):-

(a) Advance License for intermediate supply/ deemed export.

(b) Deemed Exports Drawback.

63

(c) Refund of Terminal Excise duty.

Full text of the EXIM POLICY 2002-2007 as well as the Handbook of Procedures is available onDGFT website dgft.delhi.nic.in. For details you may visit this website.

Transportation and logistics

After 1991, India’s trade with Russia had been taking place through Novorossiisk and

St. Petersburg. Throughout the 1990s, Novorossiisk registered long queues and excessivedemand on limited facilities – the result of diversion of Russia-bound traffic fromUkrainian ports. St. Petersburg became the preferred port of entry – however, it wasextremely expensive and Customs’ procedures were difficult to deal with.

Although ice-cutters and convoys ensure that both ports were accessible all year round,

the problem of winter freezing added a further complication to commerce. The heavy

costs of demurrage at Russian ports and expensive and unreliable warehousing has-been a

problem that has encouraged trade through third countries.

As a result, goods bound for Russia pass through alternative routes – undermining

bilateral trade. Such routes also include agents in Dubai and Hamburg – who act as

importers who re-export the goods to Russia as part of a general trade in goods with a

number of countries.

Goods also pass through Tallinn and Riga.

The Russian side expressed that Russian companies are also facing problems in terms of

handling facilities and turn-around time at some Indian ports. Indian side expressed that

major steps have been taken to upgrade the facilities and required infrastructure at the

Indian ports to modernize them.

As far as both Russian and Indian companies prefer to transport cargo through the ports

of the third countries, Russia and India should examine this practice more carefully in

order to understand the reasons of this.

Russian side informed that this year Russian Government will consider a bill on the

Special Economic Zones (SEZ) in Ports. It is expected that in 2007, the related legislation

will come into force.

Present Trade Barriers of Import/Export

64

This type of SEZ will help to upgrade the infrastructure of the main Russian ports due to

the investment of residents of this zones. Hence the problems connected with the queues

and limited facilities in Novorossiisk and St. Petersburg will be gradually surmounted.

Technical Barriers to Trade (TBT) -Certification, Standards and Regulations

The differences in technical product requirements, first of all in mandatory requirements,

and the nation-specific conformity-rating rules and procedures may impose significant

barriers in international trade, which are regarded as a special area of trade restrictions,

the so-called "Technical Barriers to Trade(TBT)" or "Sanitary and Phytosanitary

measures(SPS)", and are governed by special-purpose WTO agreements such as

Agreements on Technical Barriers and Trade and Agreements on Sanitary

andPhytosanitary Measures.

The JSG notes that the health and safety standards should be based on the relevant

international standards, guidelines and recommendations to improve the compatibility of

technical regulations and standards between both countries.

India expressed its view that the Russian Authorities may recognize and technically

collaborate with the official export inspection agency of India or any other certifying

agency in India for issuing the health and safety certificates for Indian exports to Russia.

In India, there are over 100 specific commodities (including food preservatives and

additives, milk powder, infant milk foods, certain types of cement, household and similar

electrical appliances, gas cylinders, tires, and multi-purpose dry cell batteries)that the

Bureau of Indian Standards (BIS) must certify before the products are allowed to enter

the country.

A system now exists by which foreign companies can receive automatic certification for

products made outside India, provided BIS has first inspected and licensed the production

facility (at the manufacturer’s expense).Licensing fees include the cost of the initial

inspector's visit and tests, an annual fee of approximately $2,000 and a marking fee that

ranges from 0.2 percent to 1 percent of the value of certified goods imported into or

produced in India. Potential Russian exporters could be made aware of these

requirements.

Other Non Tariff barriers to trade

65

All trade from Russia, outside the debt repayment depends on the opening of a letter of

credit (LC) on a Russian bank. Traditionally, the Central Bank of Russia does not

guarantee the status of any of its banks to evoke trust in India. At the same time, Indian

banks refuse to accept letters of credit and open correspondent accounts to the Russian

commercial banks without such guarantees.

Many companies, both Indian and Russian, complain that such situation creates barriers

to increase trade between the two countries by increasing costs and time of provision of

financial services. It was noted that the two central banks have facilitated the process of

acceptance of guarantees of Russian banks and a list of top 10 Russian banks has been

circulated to Indian banks.RBI has also proposed to Indian Banks Association (IBA) to

send a delegation of Indian banks to Russia to have discussions with Russian banks.

Removal of informal barriers to trade:

i. Identifying a list of banks in consultation with the Reserve Bank of India and the Central

Bank of Russia for opening of Letter of Credit (Loc).

ii. Consider the possibility of Mutual Recognition Agreements on Conformity Assessment

and Equivalence, and Agreement on Health and Safety Standards for various categories

of goods, in line with the WTO norms.

iii. Collaboration between the concerned technical Bodies of the Indian and Russian side to

consider identification and mutual recognition of certificates issued by the certification

agencies.

iv. Simplification and shortening of procedures for certification.

v. Providing incentives for the development of reliable warehousing at major ports.

Business opportunities of Retail Sector in India

Retail and real estate are the two booming sectors of India in the present times. And ifindustry experts are to be believed, the prospects of both the sectors are mutually

Business Opportunities of India in Russia(In Retail Sector)

66

dependent on each other. Retail, one of India’s largest industries, has presently emergedas one of the most dynamic and fast paced industries of our times with several playersentering the market. Accounting for over 10 per cent of the country’s GDP and aroundeight per cent of the employment retailing in India is gradually inching its way towardbecoming the next boom industry.

As the contemporary retail sector in India is reflected in sprawling shopping centers,multiplex- malls and huge complexes offer shopping, entertainment and food all underone roof, the concept of shopping has altered in terms of format and consumer buyingbehavior, ushering in a revolution in shopping in India. This has also contributed to largescale investments in the real estate sector with major national and global playersinvesting in developing the infrastructure and construction of the retailing business. Thetrends that are driving the growth of the retail sector in India are

Low share of organized retailing Falling real estate prices Increase in disposable income and customer aspiration Increase in expenditure for luxury items

Another credible factor in the prospects of the retail sector in India is the increase in theyoung working population. In India, hefty pay-packets, nuclear families in urban areas,along with increasing working-women population and emerging opportunities in theservices sector. These key factors have been the growth drivers of the organized retailsector in India which now boast of retailing almost all the preferences of life - Apparel &Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home & Office Products,Travel and Leisure and many more. With this the retail sector in India is witnessing arejuvenation as traditional markets make way for new formats such as departmentalstores, hypermarkets, supermarkets and specialty stores.

The retailing configuration in India is fast developing as shopping malls are increasinglybecoming familiar in large cities. When it comes to development of retail space speciallythe malls, the Tier II cities are no longer behind in the race. If development plans till2007 is studied it shows the projection of 220 shopping malls, with 139 malls in metrosand the remaining 81 in the Tier II cities. The government of states like Delhi andNational Capital Region (NCR) are very upbeat about permitting the use of land forcommercial development thus increasing the availability of land for retail space; thusmaking NCR render to 50% of the malls in India.

India is being seen as a potential goldmine for retail investors from over the world andlatest research has rated India as the top destination for retailers for an attractiveemerging retail market. India’s vast middle class and its almost untapped retail industryare key attractions for global retail giants wanting to enter newer markets. Even thoughIndia has well over 5 million retail outlets, the country sorely lacks anything that canresemble a retailing industry in the modern sense of the term. This presents internationalretailing specialists with a great opportunity. The organized retail sector is expected togrow stronger than GDP growth in the next five years driven by changing lifestyles,burgeoning income and favorable demographic outline.

Business opportunities of Retail Sector in Russia

67

Altogether, the retail growth in the coming years is expected to be stronger than GDP

growth. The government has relatively less regulations for consumer-based economy, and

Russia’s political stability and unexplored business opportunities make Russia all the

more attractive for western players. 28

Moscow and Saint Petersburg still account for the lion’s share of retail spending and sales

growth, with about 38 percent of the country’s total.29 As market saturation in tier-one

cities increases though, some domestic retailers have successfully branched out into

second-tier locales. Kazan, Yekaterinburg, Samara, Nizhny Novgorod, Perm, Voronezh,

Chelyabinsk, and Novosibirsk all have healthy retail investment, with domestic retailers

leading the way.

Russia’s X5 Retail Group has nearly doubled its presence in Yekaterinburg with its

Pyaterochka discount store chain, and Paterson invested approximately $35 million to

expand its supermarket chain into Tolyatti, Samara, Chelyabinsk, Ufa, and Kazan. 30

According to a report from real estate consultants Cushman & Wakefield, published On

October 26, 2007,“Russia will create more new shopping center space during The second

half of 2007 and all of 2008 than any other country inEurope.”32The report in particular

points to a booming market in the regions as a catalyst forth country's retail explosion.33

rapidly rising incomes are driving a consumer boom To follow the one that kicked off in

Moscow some years ago. According to the report, More than 4.6 million square meters of

new shopping space is set to hit the market in The 18 months running up to the end of

2008.

Tim Gosling, head of research at Cushman & Wakefield Stiles &Riabokobylko,

said:"Development has really taken off across the Russian regions this year, with quality

developers such as BV Development and The Regions rolling out shopping centers to up

the stakes in the Major regional cities.”

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Introduction of MIS

MIS refers broadly to a computer-based system that provides managers with the

tools for organizing, evaluating and efficiently running their departments. In order to

provide past, present and prediction information, an MIS can include software that helps

in decision making, data resources such as databases, the hardware resources of a system,

decision support systems, people management and project management applications, and

any computerized processes that enable the department to run efficiently.

The History of Management Information Systems

Before the concept of management information systems was created, computer

scientists were just programmers creating applications fo3r science and math

calculations. As computer usage evolved in fields of business and data management,

software applications were needed to process non-scientific data. A field of study would

be needed to bridge the gap between computer programmers and the business world to

create information-based applications for business and networks.

Mainframe Processing of Data

In 1939, Dr. John V. Atanasoff and his assistant Clifford Berry, constructed the first

electronic digital computer. Their machine, the Atanasoff-Berry-Computer (ABC)

provided the foundation for the advances in electronic digital computers. These

computers processed binary bits of information and performed mathematical

computations for science projects.

The invention of the first mainframe computer led to a career field established as

Computer Science. The category of Computer Science was given because computer

usage was strictly related to the science field and the processing of scientific data.

Creation of Business Applications for Industry

In 1952, the evolving punch card system created by IBM would change the way

government, business and education would perceive the way that data was to be

processed. Punch cards allowed mainframes to read and extract data from computers by

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reading whole punches. Programmers wrote programs on a mainframe for punch card

operations in which the punch card would be read into the program by a card reader to

update a database. The database could be a business application, a scientific application

or any application.

Business applications were difficult for computer scientists because many didn't have a

background in business. The programmers usually had to call in business people and

write down notes of how business managers and executives wanted the computer to

process information. The computer programmer usually wrote the program without

understanding of business concepts at all.

In the late 1950s and 1960s, computers would start to integrate into other areas of society.

Accounting, retail sales, transportation and media services would benefit from the advent

and use of computers.

There was still a language barrier between programmers and business people who wanted

certain applications developed for their business or operation. That would begin to

change in 1970.

Creation of the Management Information Systems Field (1970)

With the advent of computer programs for business applications, it became apparent that

the communication gap that existed between computer programmers and business people

had to be solved. Business people wanted programmers to come up with the ultimate

solution for their problems and programmers had a hard time explaining to management

what was possible and what was not, technically, possible.

The solution was to design a course of study which merged information technology,

business and computer programming. This field was called, Management Information

Systems (MIS). The idea was to create a workforce who could bridge the communication

and technical gaps between management and computer programmers.

The first courses were taught in as business courses in select colleges in America. The

courses started off as electives in the area of business. As the 1970s closed, colleges and

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business schools would create full four-year programs designed for studies in the field of

information systems.

Management Information System Networks

From 1980 to the present, there has been an explosion of technology in the field of

information systems. The integration of the personal computer (PC) into the workplace

and homes has made information readily available to all people. The creation of wide

area networks, the Internet and distributed processing have changed the way people

obtain information.

The concept of Management Information Systems has expanded to include data mining

(databases of archived information), data retrieval sciences (critical business data stored

on microchips) and technology used in everyday devices such as cell phones, wireless

devices that require the passage of important data as well as integrated software for

common functions.

The world is living in the Age of Information. Computers have assisted countries into

transforming themselves from the industrial revolution into the information age by

merging concepts through various management information system applications.

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Table 7 The History of Information Systems in Business

Year Main activities Skills required1970s Mainframe computers were used

Computers and data were centralized

Systems were tied to a few business functions:payroll, inventory, billing

Main focus was to automate existing processes

Programming in COBOL

1980s PCs and LANs are installed

Departments set up own computer systems

End-user computing with Word Processors andSpreadsheets makes departments less dependenton the IT department

Main focus is automating existing processes

PC support, basicnetworking

1990s Wide Area Networks (WANs) becomecorporate standards

Senior management looks for system integrationand data integration. No more stand-alonesystems.

Main focus is central control and corporatelearning

Network support, systemsintegration, databaseadministration

2000s Wide Area Networks expand via the Internet toinclude global enterprises and business partners– supply chain and distribution

Senior management looks for data sharingacross systems.

Main focus is efficiencies and speed ininventory, manufacturing, distribution

Network support, systemsintegration

**(Source- Ehow.com)

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MANAGEMENT INFORMATION SYSTEM IN RUSSIA

Human Capital in IT Sector

Russia’s greatest asset for future IT sector development is its highly educated

technical labor force. The legacy of the Soviet education system, which intensively

emphasized math and science, remains strong today. Despite the country’s low income

per capita and troubled development history, its people are among the best educated in

the world. One anecdotal but telling piece of evidence is the 2006 results of the

International Olympiad in Informatics. The Soviet team placed third with three gold

medals and one bronze, behind only the Chinese and the Polish teams.

This deep and broad talent pool is all the more attractive because it is cheap to

mobilize. The average monthly wage in Moscow is officially only around 17,000 rubles

($630); elsewhere, it is less. A large portion of the population has been left behind by the

new prosperity. IT specialists do relatively better than average, but generally only make

15-20 percent as much as their US counterparts. Moreover, Russian IT specialists have a

reputation for reliability because most have memories of days when good jobs were

difficult to find. According to the latest figures, the Russian software industry has the

highest productivity of any major industrial sector in the country, and it is the most

internationally competitive. Almost all of this success is due to the sheer skill of the

workers.

Despite these formidable strengths, there is one potential weakness in the Russian

IT labor market. Profound mathematical and engineering training is almost always an

asset when dealing with IT, but it does not always translate directly into expertise on

specific systems, many of which have their own, sometimes arbitrary, peculiarities. As a

result, although Russians tend to be quite adept at dealing with computational and

networking systems in general, there remains an abundant pool of mid-to-high skilled

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workers with extensive knowledge of individual software firms but little understanding of

the IT industry in general. This generates good employees, but does not augur well for

the development of the IT sector as a whole.

This talented but directionless labour pool has become a major source of

programming and engineering talent for US and European firms. Roughly 30,000

Russians are engaged in the IT off-shoring market at present, and that figure is set to

grow into the indefinite future. Present growth rates stand at 40 percent per year.

Moreover, the Russian education system graduates roughly 100,000 new programmers

each year, resulting in a huge domestic surplus. Among the US firms that have

capitalized on this vast pool of talent are IBM, one of the first western companies to

recruit Russian talent, Microsoft, Cisco and Google, which opened two research and

development centers in Russia in the past year and acquired one Russian search company

to form the core of its operations there. For its part, IBM alone maintains four research

centers in Russia, employs more than 200 programmers and engineers and has injected

$40-60 billion in research funding alone.

Software

While the hardware sub-sector in Russia is average, software is a different story

altogether. With its massive reservoir of programming talent, Russian software

manufacturers are growing quickly and with strong indications of even greater future

success.

The software field’s major players are now many, but the more influential among

them are Parus, Galactica, Diasoft, Optima and Sterling. Each of these firms produce,

among other types, enterprise resource planning software for Russian firms in the

banking, power generation and oil production industries. This type of software is

currently the major revenue earner for the domestic Russian markets, reflecting

businesses’ rapid rush to integrate IT into their operations. Kaspersky Lab is a further

software firm of note; its anti-virus, anti-spyware and anti-intrusion products are sold

worldwide. While domestic software is almost always adequate and generally cheaper

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than Western equivalents, having foreign software systems is often seen as an indicator of

compatibility with Western business norms and therefore can help attract foreign

investors.

With domestically obtained profits providing an ample safety net, many Russian

software makers are expanding into the international market. During 2006, estimates

indicate that Russian firms exported $2 billion in software, a figure expected to grow to

$12-14 billion by 2010 even with some reduction in the past few years’ impressive 80

percent growth rates in foreign sales.

IT Hardware

The hardware market is more important in Russia than in most other countries of

comparable size, wealth or development. The industry consensus is that Russian-made

PCs and networking technologies are not far behind Western models, the best estimate

being about one model year. A full 50 percent of Russian IT spending goes to hardware,

and 80 percent of that is spent on desktop PCs. This percentage is likely to decline over

the next five years, because the present high figures are a result of many Russian firms

and local government offices buying their first IT systems in the past several years.

Indeed, the most recent figures point to just such a slow down. From 2004 to 2005, the

PC market declined from 32 percent to 22 percent. Predictably, laptop sales doubled in

share of total spending from 8 percent to 19 percent during 2005, and IDC Corporation

predicts an average of 17 percent growth in this market until 2010.

The dominant players in the Russian market are R-Style, Aquarius Group,

Kraftway, Formoza, DEPO and K-Systems. Known as “red assemblers,” these companies

generally buy most of the basic components from abroad. However, foreign PC retailers

captured only six percent of the Russian market among them in 2005. In deed, the only

domestic champion component maker is the Micron Chip Factory. This company’s recent

success has led it to seek larger global market share under the Sitronics brand.

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Internet-Specific Technologies

In 2005, the Economist Intelligence Unit ranked Russia number 52 out of 65

countries, behind India and Saudi Arabia, in terms of IT sector development potential. In

2002, Russia ranked number 42 out of 60 countries according to the same measurement.

Despite this gloomy assessment, some sectors of the digital economy in Russia have

shown strong and consistent growth. In 2004, communications showed $19 billion in

revenues, while the IT sector generated $9-10 billion, together constituting about five

percent of Russia’s GDP.

Broadband

Revenues from broadband services in Moscow alone are estimated to have grown

by 45 percent to $195 million by the end of 2006 from a year earlier. More than 800,000

Moscow households were broadband customers by mid-2006, up 18 percent in six

months. Another million had adopted the technology by the year’s end. The present

penetration rate stands now at 26 percent of households. Moscow accounts for more than

25 percent of all broadband subscribers in Russia, with the national penetration rate at 3.5

percent as of the end of summer 2006; however, this is expected to expand rapidly in the

larger cities. As of mid-2006, about 57 percent of Moscow broadband connections were

made via Ethernet technology, about 37 percent via ADSL technology and about six

percent via cable TV networks.

Wireless Internet

By November 2006, Golden Technologies had emerged as the undisputed leader

of wi-fi Internet access in the Moscow area. The company claims to have built roughly

5,000 hotspots, which together cover a circle in central Moscow with a radius of up to

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five kilometers from Red Square. Market indicators suggest this is just the beginning,

with analysts expecting market volume to double in 3-4 years to about $70 million.

Golden Technologies itself aims to capture 15 percent to 20 percent of the market with

350,000 to 400,000 subscribers by 2010.

Just as the first wi-fi networks become accepted, WIMAX technology is already

in the planning phases for rollout in Moscow. Comstar UTS has applied for frequencies

in the 2.5 to 2.7 gigahertz range to build a WiMAX network in several Russian regions,

but will concentrate first on Moscow. Ultimately, every Russian city with more than a

million residents will have a Comstar WIMAX network at its center, probably by 2015.

However, these initiatives are still young and should pick up as new enterprises with

similar goals enter the market.

Internet Penetration and Use

According to the Public Opinion Foundation, which has the latest available

Internet use data, there are a total of 27 million Russian Internet users, constituting about

20 percent of the country’s population. Of these, 9.1 million uses the Internet daily while

another 4.9 million use it weekly; the rest connect either monthly or once every three

months. The Russian Internet audience is ranked number 23 in the world, just after Brazil

but generally well above most countries except northern European and the native

English-speaking countries. Although Russia’s Internet audience has grown from 8.7

million total users in 2002, the proportions of use frequency have held more or less

constant, with roughly one-third of all users being daily users in any given observation

period.

Levels of wealth, population and technological sophistication are highly divergent

from region to region and between the cities and the countryside. Indeed, although

Moscow holds only about nine percent of Russia’s roughly 142 million people, almost 17

percent of all Russian Internet users, or just more than 4.5 million people, are also

Muscovites. The following table lists the absolute and relative distribution of Internet

users throughout Russia’s federal administrative regions: There are three basic

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trajectories followed by Russia’s different regions since 2002. Moscow’s and St.

Petersburg’s Internet user population, as percentage of the total population, has nearly

doubled from 27 percent to 52 percent and from 13 percent to 31 percent, respectively.

The percentage of Internet users among the total has quadrupled in the Far East, from six

to 25 percent. In the Central, Southern, Ural, Volga Basin and Siberian regions, the

percentage has tripled, from around 6-8 percent to 17-20 percent.

Nearing Saturation

Findings from the “Expert Committee” of the [Russian] National Institute for

Regional Researches and Political Technologies” report on Information and

Communications Technologies (ICT) diffusion and ERussia’s progress, follow. The

number of PC users in Russia increased by 10 percent since the end of 2005. A robust 25

percent of Russian urbanites use computers on a regular basis (multiple times weekly).

The Internet was classified as “indispensable” by 13 percent of Russians, and one-third of

all urbanites use it multiple times weekly. Dial-up connections are still the norm for 57

percent of Russians, but broadband connections are increasing rapidly, moving from 13

percent to 39 percent in the past year. Moreover, the Russian appetite is still vibrant. For

every one Russian Internet user, there are two who expressed a desire for regular access.

Of course, Moscow and St.

Petersburg will soon reach a critical saturation point, which is currently estimated

to be near 88-90 percent of the population, if observations in highly digitized countries

like Denmark and South Korea are any indicators. However, it will take at least another

decade and quite possibly longer, before the other regions reach this point. Indeed,

massive Wi-fi rollout may be necessary to achieve this. It is important to remember that

almost two thirds of all Russian homes still lack a fixed telephone line, and tens of

thousands of villages and far flung towns have no telecommunications infrastructure at

all.

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Government Influence in the IT Sector

It is hard to overestimate the influence that the Russian government has over the

revenues and, to a lesser extent, the direction of the Russian IT sector. Unfortunately,

according to one IT sector CEO, “The development of the IT sector has so far not been

on the [Russian] government’s list of priorities.”

Russia was a relatively late entrant into the information revolution. When the

Soviet Union collapsed in 1991, the new Russian Federation inherited an antiquated

system that was designed for and adapted to the needs of the military-industrial

apparatus. Thus, it is unsurprising that considerable changes were necessary before

Russians could even begin to participate in the IT revolution. The real boom began

roughly in 2000, when recovery from the 1998 crash took hold. Rapid economic growth

and increased government spending helped to fuel the growth of new firms and the

creation of new ones. Since then, growth in the Russian IT sector has varied between 20-

25 percent per year compared to roughly 5.5— 6.0 percent in the US. In 2004, the federal

government spent more than $640 million on IT products and services while other levels

of government spent just below $1.2 billion. In 2005, RAND analysts estimate that the

federal government itself spent $1.2 billion.

The Ministry of Information Technologies and Communications has initiated the

process of forming a joint stock company, the Russian Investment Fund for Information

and Communication technologies. Several different ministries and other independent

government agencies will also participate in the establishment of this fund. The start up

costs, $54 million, will be totally provided by the Russian Investment Fund.

MinInformSvyaz will be a shareholder on behalf of the Russian Federation.

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Information Technology and Russia's Future

Russia’s extremely strong economic growth is one of the country’s recent major

accomplishments. Undoubtedly, the natural resources sector has played a significant role

in this achievement. However, economic growth based solely on the natural resources

sector is neither sufficient nor sustainable. We are entering the era of the global

information society, where knowledge is the core resource and mechanism of accelerated

development. Russia’s continued economic growth will depend on the successful

development of the innovative industries of the nation’s economy, particularly innovative

infrastructure.

The advanced development of high-tech industries, including the Information and

Communication Technology Sector (ICT), is also a key condition for a strong and

growing economy. In most developed countries, ICT represents 8-12% of a country’s

GDP and is one of the leading sectors in terms of capitalization of the global economy.

This sector’s role will only strengthen with time. Alongside oil & gas, Russia’s ICT is

one of the two drivers of economic development. Since 2000, this sector has developed

four times faster than the average performance of the Russian economy. ICT has

demonstrated rapid, steady and stable growth in all of its segments. The implementation

of a number of key national projects and other large-scale government programs will also

encourage the development of innovative industries.

The task of developing innovative sectors of the economy is one of Russia’s top

priorities. The Strategy for the Development of Russia’s Information Society, approved

in 2007 by the Security Council of the Russian Federation, serves as a basis for

government policies and priorities for the development of the innovation economy. The

Strategy is designed to facilitate a qualitative breakthrough in three key areas: national

information and communication infrastructure; creation of a scientific and technical basis

for innovations; and provision of sufficient, affordable and secure ICT-services.

The Russian IT market is growing fast, but the numbers of problems that have come to the

forefront are proving to be a serious threat.

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It seems clear to both financial institutions and independent analysts that the

Russian information technologies market has recovered completely from the 2008

financial crisis. Russian Minister of Communications Igor Shchegolev has reported that

the country’s information technologies market saw a growth spurt of 14.6 percent in

2011, and the Ministry of Economic Development predicts that the market will grow by

15.8 percent in 2012, and by 18.1 percent in 2013.

The stock analysis center In fin wrote in a recent analytical report entitled

“Targeting the IT Market” that the market could very soon return to the volumes and

growth rates witnessed before the crisis hit, as long as nominal GDP grows by 18.5

percent annually and the ruble continues to strengthen.

Currently Russian IT companies control 1 percent of the global market for

information technology product and services, worth roughly $16 to 20 billion. The

Ministry of Economic Development forecasts that the volume of the Russian IT market

will hit $32 million by 2013. But behind these positive numbers are questions about the

sector’s overall potential. In 2011 the World Economic Forum rated Russia 77th in the

world for growth in the information and communications technologies sector and

3rd among resource-oriented countries. Today Russia exports at most $1.5 billion of IT

services, and no more than 300,000 people work in the country’s IT industry.

The future is in the clouds

Hardware continues to dominate the Russian IT market, making up more than 50

percent of the sector. In contrast, hardware is only 30 percent of the European IT market.

The rest of the segment there belongs to IT services (50 percent) and software (20

percent).

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“This is the heritage of the past,” said Konstantin Chernyshov, a chief analyst at

Uralsib financial corporation, discussing the situation in Russia. “Many Russian

companies started making or assembling hardware, but this share is shrinking gradually

as more and more companies are switching to making software and other high marginal

segments.”

One place Russian companies hope to compete with international players is in

cloud technology.

Although this sector is fairly small at the moment, Chernyshov believes its growth

rates will blow away similar figures across the entire IT services market in the period up

to 2015. The Russian government is a major promoter of cloud technology. One project

in the works is a national cloud service for organizing inter-departmental computerized

interaction. It will also provide state and municipal services to the public. Market

intelligence firm IDC predicts that the value of the cloud services market in Russia in

2015 will reach $1.2 billion. In 2010, the market was valued at just $35 million.

Cloud technology is one of 15 priority areas supported by the Skolkovo

Innovation Center, the government’s “Silicon Valley” rising outside of Moscow. Cloud

technology is part of Skolkovo’s information technologies cluster along with multimedia

search systems, video and audio processing and recognition, mobile applications,

complex engineering solutions, green information technologies, wireless sensor networks

and more.

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MANAGEMENT INFORMATION SYSTEM IN INDIA

The Information Technology (IT) Sector has been one of the hotshots of Indian

economy. Remarkable transformation and growth of the economy has created

opportunities both in exporting software and services and in the domestic market. The

Indian IT & ITES Sector has grown considerably over the last decade to contribute over

6% of the country’s GDP.

The revenue amassed by Indian information technology sector is estimated to

have grown by over 5% to reach $73.1 billion in 2009-10. Growth in Indian information

technology in the world market is primarily dominated by IT software and services,

including system integration, IT consulting, application management, custom

applications, infrastructure management, software testing and web development.

Competitive factors such as skilled workers, adequate telecommunication networks, and

an improving policy and regulatory environment have enabled both domestic and foreign

firms to rapidly expand in the internationally competitive IT services sector.

The Indian Software and Services export is estimated to grow at 5.5% and to

generate export revenue of $49.7 billion in year 2009-10. The IT services exports is

estimated to be $27.3 billion in 2009-10 as compared to US $ 25.8 billion in 2008-09,

showing a growth of 5.8%. Its-BPO exports are estimated to grow from $11.7 billion in

2008-09 to $12.4 billion in 2009-10, a year-on-year growth of 6%. Though the United

States & United Kingdom still remains the dominant market, accounting for about 79%,

for the Indian IT-BPO industry, the Continental Europe and Asian markets are catching

up as they witness higher growth in demand.

In contrast, the IT hardware segment has lagged and has focused very largely on

the domestic market, which remains heavily dependent on imports of components and

finished IT goods. Government is actively pursuing measures to stimulate the growth of

Electronics Hardware Manufacturing Industry in the country.

India is regarded as the premier destination for the global sourcing of IT-ITeS,

accounting for almost 51% of the global sourcing market size of $94 billion in 2009.

India now has a 62% share of the global technology services market (IT Services,

Engineering Services and R&D) of about $58 billion and a 32% share of the Global

83

Business Outsourcing Market of about $37 billion. With the BPO going strong for the

past few years, the Knowledge Process Outsourcing (KPO), which may be called the

highest level of the BPO, is still at a nascent stage of development in the country. It is

expected that emergence of the KPO market will offer high-value services in off shoring

and help the Indian Its Industry to climb the global value and knowledge chain.

The team at Ventures Middle East has brought a report a report on the

Information Technology Industry in India 2010, which provides a comprehensive

understanding of the entire market dynamics of the Information technology sector to

assist players interested in assessing the market opportunities in this robust and dynamic

market. Besides providing detailed analysis of the Indian Electronics & IT hardware and

Software & Services Sectors.

The report also conducts a scrutiny of the various political, economic, social,

technological, legislative and environmental trends impacting the sector. It provides a

complete technology road map on how the Indian IT sector has evolved over the years

and detailed information about the policies and events.

The key highlight of the report is that it presents a complete and coherent

competitive overview of the Indian Information Technology. Along with a detailed

profile of top players in the industry, the report further details various business models

adopted by the leading players in the sector. This study is a critical guide to

understanding the forces that produce the changes in the IT/Its Market and in making

informed decisions on the industry.

84

Graph Comparisons

(Amt in billions)

Country Name Total GDP amt Percentagecontribution

IT contribution toGDP amt.

Russia 1479.82 1% 14.7928

India 1729.01 6% 103.7406

Interpretation

In FY 2011, the IT sector contribution is 1% in GDP of Russia. While India IT sectorcontribution is 6% in GDP of India. IT contribution is 103.74 billion in total GDP of India andRussia`s IT contribution is only 14.79 billion. India sees in strong position.

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Table 8 BPO growth

Country name Total BPO growth Total percentage

Russia 7.5 billion 2.27%

India 50 billion 37%

Interpretation

Total Business out sourcing in the FY 2011 by Russia is 7.5 billion where as India`s BPO is 50billion. And both country, Russia and India total contribution is 2.27% and 37% of total

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Table 9 Software Export Growth

Country Name Total growth

Russia 14 billion

India 49.7 billion

Interpretation

The total export of the software is 14 bn by Russia and by India; it is 49.7 bn. India hasmore influential at global level for export of software.

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Comparison between RUSSIA & INDIA

RUSSIA

Russian software industry has the highest productivity of any other major industrial

sector in the country

Russian programmers is the major source for the US and Europeans firms. Roughly

30000 Russian are engaged in the IT off-shoring market at present and it does grow into

indefinite future.. Every year 1,00,000 programmers educate from Russia, resulting huge

domestic surplus. Russians get job in the IBM, Cisco, Google, Microsoft and they are

open their research centre in Russia as well.

During 2006, estimates indicate that Russian firms exported $2 billion in software, a

figure expected to grow to $12 to14 billion by 2010. It seems that 80% growth rates in

foreign sales.

Russian IT market saw a growth 14.6% in 2011 ,15.8% in 2012 and 18.1% in

2013(expected)

Currently the IT sector provide 1% of global market of IT product and services, worth

roughly $16 to 20 billions

World economic forum rates 77th in the world for growth in information and

communications technology.

Russia exports at most &1.5 billon of IT services.

Russian Top IT company is YENDEX.

INDIA

The information technology sector has been one of the impressive sectors of Indian

economy. The Indian it growth considerably over the last decade to contribute over 6% of

the country`s GDP

World economic forum rates 50th in the world for growth in information and

communications technology.

88

The Indian Software and Services export is estimated to grow at 5.5% and to generate

export revenue of $49.7 billion in year 2009-10. The IT services exports is estimated to

be $27.3 billion in 2009-10 as compared to US $ 25.8 billion in 2008-09, showing a

growth of 5.8%. Its-BPO exports are estimated to grow from $11.7 billion in 2008-09 to

$12.4 billion in 2009-10, a year-on-year growth of 6%.

India is regarded as the premier destination for the global sourcing of IT, accounting for

almost 51% of the global sourcing market size of $94 billion in 2009. India now has a

62% share of the global technology services market (IT Services, Engineering Services

and R&D) of about $58 billion and a 32% share of the Global Business Outsourcing

Market of about $37 billion.

TCS is the largest provider of information technology services in Asia and second largest

provider of business process outsourcing services in India. AND in India the 2nd largest

is Infosys Technologies

The Indian top ten IT companies growth over financial year10-financial year11 is

between 11.10% to 11.40%.over financial years.

Indian IT firms scope in Russia

CHENNAI, MARCH 21. Indian software companies with their creative

technology are a boon to the Russian market. Russia wants to tap its human resources

potential and develop the country as a hi-tech nation. The Russian economy is also divers

financial yearing away from the core business of oil into other industries. So it has chosen

software sector to develop, says Hans Kuepper, Associate Director, Ernst & Young (CIS)

B.V. Transaction Advisory Services, Moscow.

Calling upon Indian software industries to do businesses in Russia, Mr. Kuepper

said that Indian companies had enormous opportunities in Russia. The very low cost

structure and high literacy rates in Russia were added advantages.

Mr. Kuepper, who was in Chennai to attend the Indiasoft seminar, told

presspersons that Russian industries were willing to grow both organically and

inorganically.

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Russia wanted Indian companies set up offices there and also acquire companies

in their host land. He said the cost of acquisition was generally 30 per cent below the

global evaluation rate.

He said experienced global players could enter the Russian market & develop the

outsourcing services industry.

In 2003, The Russian IT market was estimated at around $ 6 billion. In 2004, It

had projected a 24 percent growth. It had relatively a low PC penetration of less than 11

per cent. Hardware distribution revenues with 60 per cent, which is followed by system

integration, dominated the current market and software segments.

Mr. Kuepper said Russia had drawn up a three-point development programmed

for developing IT sector in its country. First, it wanted to set up a technology park and

provide a special economic zone for software exports.

Second, it wanted to be called as "E-Russia". Under E-Russia programmed, the

country planned to invest $ 2.4 billion. The third programmed would include lower the

tax burden on the IT companies. Enable them, Russian IT market reach $ 40 billion by

2010.

On the language issue,Russian speak English but for better performance in russi

market , Indian software companies look see into their local language.

A few Indian companies had set up their offices in CIS countries. Among them

are ONGC, Sun Group, Ranbaxy, Agio and Mittal Steel.

90

Introduction of Logistic Industry:

The international practice demonstrates that the most part of border-crossing procedures can be

facilitated. In 1997, the Commission on International Trade and Investment Policy (International

Chamber of Commerce) has developed the International Custom Guidelines for replacement

procedures of physical customs control by pre-entry and post-audit documentary control.

Currently, trading and customs operations need electronic documents. Applying of electronic

instruments allows to accelerate, facilitate international trade and to reduce costs of cargoes

registration in port’s check points.

Electronic Logistics Services proceed from a principle of “Single Window” in accordance of

which the required information is put once into an appropriate data base. This way the

information became available for the concerned participants of the system. The most highly

integrated systems have originated from the port administrations. The European port industry is a

dynamic one. Practice of electronic services in EU ports is highly developed.

The current ports issues are multiple and complex. The global market space, with powerful and

relatively independent players, extensive business networks and complex Logistics systems

create a high degree of uncertainty in the European port industry. The main question faced

European port Authorities now is how to respond effectively to market dynamics. The focus of

port competition is gradually changing.

Logistics Industry Overview (Russian Perspective):

Russia became a participant of European Electronic Logistic System slightly more 10 years ago.

Since 1994, the international cooperation on Electronic Logistics Service development in

Northern Europe3 is carried out within the frames of TEDIM program. One of the Russian major

projects in this sphere is “Kaliningrad transit”. It provides, in particular, introduction of

Electronic Logistics Service on railway check points.

Introduction of Electronic Logistics Service in Russia requires the complex solution, which

includes the technical standard development of electronic documents, the appointment of the

Ministries and the Departments to be involved in the system of Electronic Logistics, the

compatibility of Russian and international models of Electronic Logistics, the financing actions

91

for introduction of Electronic Logistics model in Russia, the adaptation of legal base on

Electronic Logistics.

The paper investigates the main directions of Electronic Logistics development in Russia. It not

only identifies key market tendencies in trade and logistics, but also analyses how the economic

and logistics trends affect European ports.

Logistics Industry Overview (Indian Perspective):

The Indian Logistics Industry was estimated at $90bn in FY 2007, and is expected to

touch $125bn by FY 2013. Logistics' cost in India is over 13% of GDP as compared to less

than10% of GDP in almost the entire Western Europe and North America, and this is attributed

tounder developed trade and inadequate logistics infrastructure in the country. Total merchandise

exports of India during FY 2007 stood at $126.4bn while merchandise imports stood at

$185.7bn. Foreign trade is expected to increase going ahead, which would provide substantial

opportunities to the players in the Logistics sector.

India at present is the world's fifth largest energy consumer and is expected to go past Japan and

Russia to become the world's third largest energy consumer by FY 2030. However, India's per

capita energy consumption is lower in comparison with China and the US. This low per capita

consumption is an indicator of the expected future growth of energy consumption in India.

During FY 2007, oil imports constituted around 35% of India's total imports, and around 37% of

India's merchandise imports during April-December 2007. Apart from the import of crude oil

and natural gas, India's import of chemical has also been rising over the years. Maritime

transport constitutes around 95% of India's total international trade in volume terms, and 70% in

value terms.

The domestic Logistics market can be divided into four segments namely, Rail, Road, Air and

Port. The Indian freight transport system is estimated to carry around 1,000 billion tone km, of

which the share of Road transport is 60-65%, Rail 30-32% and Coastal Shipping 6-7%.

(Source: International Business Conferences, Indian Maritime 2007).

92

This is in stark comparison to the European Union, where the modal share of Coastal Shipping is

more than 40%.

Structure of Logistic industry:

Graph- Structure of Logistic industry:

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Comparative position of Logistic Industry:

Table-10 Comparative position of Logistic Industry:

Country LPI Customs Infrastructure International

shipments

Logistics

competence

Tracking

& tracing

Timeliness

India 3.12 2.7 2.91 3.13 3.16 3.14 3.61

Russian

Federation 2.61 2.15 2.38 2.72 2.51 2.6 3.23

Graph-4 LPI: (Logistics Performance Index)

Graph-5 Customs:

Graph-6 Infrastructure:

Graph-7 International shipments:

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Graph-8 Logistics competence:

Graph-9 Tracking & tracing:

Graph-10 Timeliness:

Table-11 Logistic Comparison:

Russian Federation India

Clearance time with physical inspection (days) 4.62 3.45

Clearance time without physical inspection (days) 2.57 1.92

Physical inspection (%) 44.2 13.63

Multiple inspections (%) 10.05 6.2

Lead time export for port/airport, median case (days) 3.98 2.34

Lead time import for port/airport, median case (days) 2.88 5.31

Number of agencies - exports 5.83 3.43

Number of agencies - imports 5.17 3.71

Typical charge for a 40-foot export container or asemi-trailer (US$)

1,310.37 660.3

Typical charge for a 40-foot import container or a 1,144.71 1,266.94

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semi-trailer (US$)

Table-12 Overall Comparison:

Level of Fees and Charges

Based on your experience in international logistics, pleaseselect the options that best describe the operationallogistics environment in your country of work

Percent of respondentsanswering high/very high



Port charges are 36.36% 52.63%

Airport charges are 33.33% 38.89%

Road transport rates are 50% 31.58%

Rail transport rates are 10% 38.89%

Warehousing/trans loading charges are 44.44% 26.32%

Agent fees are 30% 5.56%

Quality of Infrastructure

Evaluate the quality of trade and transport relatedinfrastructure (e.g. ports, roads, airports, informationtechnology) in your country of work

Percent of respondentsanswering low/very low

Percent of respondentsanswering low/very low


Ports 18.18% 52.63%

Airports 33.33% 44.44%

Roads 20% 63.16%

Rail 0% 52.63%

Warehousing/trans loading facilities 30% 68.42%

Telecommunications and IT 55.56% 5.26%

Competence and Quality of Services

Evaluate the competence and quality of service deliveredby the following in your country of work




Road 10% 26.32%

Rail 10% 26.32%

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Air transport 22.22% 38.89%

Maritime transport 18.18% 33.33%

Warehousing/trans loading and distribution 10% 10.53%

Freight forwarders 27.27% 42.11%

Customs agencies 27.27% 27.78%

Quality/standards inspection agencies 0% 21.05%

Health/SPS agencies 12.50% 10.53%

Customs brokers 27.27% 42.11%

Trade and transport associations 20% 33.33%

Consignees or shippers 0% 22.22%

Efficiency of Processes

Evaluate the efficiency of the following processes inyour country of work

Percent of respondentsanswering often or nearlyalways



Clearance and delivery of imports 27.27% 36.84%

Clearance and delivery of exports 70% 88.89%

Transparency of customs clearance 0% 50%

Provision of adequate and timely information onregulatory changes

27.27% 36.84%

Expedited customs clearance for traders with highcompliance levels

9.09% 27.78%

Sources of Major Delays

How often in your country of work, you experience Percent of respondentsanswering often or nearlyalways



Compulsory warehousing/trans loading 50% 29.41%

Pre-shipment inspection 50% 18.75%

Maritime transshipment 45.45% 35.29%

Criminal activities (e.g., stolen cargo) 10% 12.50%

Solicitation of informal payments 72.73% 50%

Changes in the Logistics Environment Since 2005

Since 2005, have the following factors improved orworsened in your country of work

Percent of respondentsanswering improved ormuch improved

Percent of respondentsanswering improved ormuch improved


Customs clearance procedures 18.18% 64.71%

Other official clearance procedures 10% 41.18%

Trade and transport infrastructure 27.27% 64.71%

Telecommunications and IT infrastructure 66.67% 88.24%

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Need for new technologies in logistics:

The need of facilitating the organization of the international goods flows on the basis of

electronic information systems has arisen over twenty years ago. During the period large-scale

investments the perfection of communications, first of all, in the large handling centers,

especially ports, have been carried out. But new information systems are originally developed

separately in each sector (each mode) of transport services (motorway/railway/maritime/inland

water transportation). Specific modal systems were created in each sector by means of its own

software. The port administrations had the most highly integrated systems uniforming

technology of information interchange, including the boundary, customs and logistics control. As

it is known, port’s logistic centers are the most developed organizations in this field.

Export- Import Policy (1997-2002) of Russia & India:

Export Import Policy or better known as Exim Policy is a set of guidelines and instructions

related to the import and export of goods. The Government of India notifies the Exim Policy for

a period of five years (1997-2002) under Section 5 of the Foreign Trade (Development and

Regulation Act), 1992. The current policy covers the period 2002-2007. The Export Import

Policy is updated every year on the 31st of March and the modifications, improvements and new

schemes became effective from 1st April of every year. All types of changes or modifications

related to the Exim Policy is normally announced by the Union Minister of Commerce and

Industry who co-ordinates with the Ministry of Finance, the Directorate General of Foreign

Trade and its network of regional offices.

Canalization is an important feature of Exim Policy under which certain goods can be imported

only by designated agencies. For an example, canalized import items like gold, in bulk, can be

Private logistics services 60% 87.50%

Regulation related to logistics 55.56% 35.29%

Incidence of corruption 18.18% 33.33%

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imported only by specified banks like SBI (State Bank of India) and some foreign banks or

designated agencies.

New logistic technologies allow improve the process of cargo delivering. Increasing customer

demands push the 3PL service industry (Third Party Logistics) forward. At the same, the time

market to innovative forms of non-asset based logistics service provision, i.e. 4PL (Fourth Party

Logistics), is opened. The rise of 4PLs changed a whole range of business models, often poorly.

Customers seem to be the main obstacle. Nevertheless, non-asset based 4PLs were emerged.

They will not take over the role of major player in the European logistics market from the asset-

based 3PLs. Asset-based full service providers install the IT control systems themselves.

Moreover, many European logistics users prefer to keep control on the design of the supply chain

instead of being totally dependent on 4PLs.

Finally, joint using of logistics and electronic data exchange technologies have led to occurrence

of the electronic logistics services and its suppliers in the form of the centers and agencies of

electronic logistics. It can be organizations of various patterns of ownership.

The international practice demonstrates that the most part of border procedures can be facilitated.

In 1997, the Commission on International Trade and Investment Policy (International Chamber

of Commerce) has developed special International Custom Guidelines to increase an efficiency

of moving goods through frontiers. The document focuses on replacement procedures of physical

customs control by pre-entry and post-audit documentary control. At the same time, persons and

entities filling the customs declaration have got an option between the electronic or the paper

form of documents, and also a place of the customs clearance.

Such approach is fixed in the new Customs Code of the Russian Federation (2004) and in the

project “Concepts of Russian Customs Service development for 2010”. It extends on a risks

management system (RMS), a practice of modern information technologies adoption,

preliminary informing of Customs Bodies on moved goods, etc.

The modern risks management system promotes transition to paperless technologies in customs

sphere. In EU countries introduction of risk management system required from 8 till 15 years.

But now high efficiency of this system is come out. So, in Sweden nearby 2000 employees of

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customs administration put in order 5.5 million documents. At the same time, 68000 customs

officials make out 2.5 million documents in Russia. Therefore, transition to electronic documents

becomes the urgent requirement of modern trading and customs operations development.

Large flows of maritime cargoes contribute to the development of the world trade and economy.

Ports play the indispensable role in world commerce. International Association of Ports and

Harbors (IAPH) encourages ports to apply IT technologies to facilitate cross-border procedures.

IAPH continues to work together with international organizations concerned with the

simplification and harmonization of international trade procedures, such as WCO (World

Customs Organization) in the context of improving Customs procedures and UN/CEFACT

(United Nations Center for Trade Facilitation and Electronic Business) in the sphere of

promoting Information Technology (IT) in port’s documents turnover.

Electronic Logistics Services as a tool of facilitating international trade:

Inculcating conception of electronic document circulation provides special organization of

electronic documents transfer and storage. It has named by Electronic Logistics Service similarly

to logistical activity on the organization of the goods traffics and storage processes.

Table-13 Traditional fulfillment versus e-fulfillment of Russia

Traditional fulfillment E-fulfillment

Orders Predictable, large Variable, small

Order cycle time Weekly Daily, hourly

Customer Strategic Unknown

Customer service Reactive, rigid Responsive, flexible

Replenishment Scheduled Real-time

Distribution model Supply-driven (push) Demand-driven (pull)

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Demand Stable, consistent Seasonal, fragmented

Shipment type Containers, pallets Small package, express

Destinations Concentrated Dispersed

Warehouse models Storage, order-picking Transformation, consolidation

Transportation model Dedicated, load driven Shared services, netw. Driven

Client value 1) Cost, 2) speed, 3) quality 1) Quality, 2) Reliability

Source: Factual Report on the European Port Sector 2004-2005. European Sea Port Organization.

Brussels. P.19, www.espo.be/downloads/archive/dac5f5da-3b43-4cce-a661-9d1c4c2369a4.pdf

“Single Window” principle:Electronic logistics services proceed on the principle of “Single Window”. It means that all

necessary information can be entered into the information system only once. It immediately gets

to all interested participants of the system, first of all to the border control bodies. The system of

“Single Window” unites in the uniform information data system of all control bodies and other

participants of transportation (declarants, transport companies, logistical operators, etc.).

Accordingly, the reliability of the information raises and time for its transfer and processing is

decreased. Besides, application of such system increases a transparency of activity of the

companies participating in the external economic operations. It allows improve collecting of

taxes and duties and lower risks under the customs clearance procedures.

Russian–European Co-operation in the sphere of Electronic Logistics:

The EU remains the most important trading partner of the Russian Federation. However, the

significant trade misbalance exists between the trading partners. Economic development in

Russia and new EU countries is expected to grow in the future. The enlargement of the EU might

imply a move of global plants to the European

Union and a move from manufacturing activities from Western Europe towards the low-cost

regions in Eastern Europe. This tendency will generate larger bi-directional East-West flow

within the European Union of raw materials and consumer products. Rail and feeder shipping are

expected to play a key role in accommodating these flows. Northern ports, in particular Hamburg

and Baltic Sea ports, are likely to benefit the most from EU enlargement, whereas new

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development opportunities might arise for secondary port systems in the Adriatic and the Baltic

Sea.

European rail logistics are highly complex. In recent years following rail liberalization,

initiatives have emerged that should lead to real pan-European rail services on a nestopshop

basis. Hub-based networks have complemented the existing blend of direct shuttles, inter-port

shuttles and block trains. Smaller container ports tend to seek connection to the extensive

hinterland networks of the large ports by installing shuttle services either to rail platforms in the

big container ports or to rail hubs in the hinterland. Logistics zones in the hinterland are

increasingly competing with sea ports for what the location of European distribution facilities

and VAL are concerned. Shortage of industrial premises, high land prices, congestion problems,

the inland location of the European markets and severe environmental restrictions are some of

the well-known arguments for companies not to locate in a seaport.

A number of land-based and maritime transport corridors will become more important in the

future (e.g. the Eurasian land-bridge system, north-south corridors in Europe, “Kaliningrad

transit”). The development of European axes and sea motorways is enhanced by the EU’s policy

as regards the creation of TEN-T and initiatives of rail operators, mega carriers and other market

players to extend their European transport networks.

There are several types of control on the process of crossing the border by goods or transport

vehicles, and all of them are conducted by different Government structures. Due to non-

harmonized activity of those structures, delays in moving goods and cargoes through the border

take place.

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Table-14 Description of border control in the Russian Federation

Crossing of border at export-import transactions provides the organization of the control over the

goods, the certain requirements to their certification and licensing, and also to vehicles.

Systematized description of the boundary control is contained in the table 4.1.

According to the international law (for example Kyoto Convention, 1999) it is supposed

selective inspection of cargoes at customs.

Connecting Federal Customs Service of RF to Lithuanian segment of the new computer system

of transit traffics ЕU (NCTS) depends on Russian institutional structure. The problem is what

body of electronic logistics system will prosecute the general subjects (introduction strategy, the

standards statement, development of statutory acts) and who will organize turnover and storage

of electronic documents. At the moment control services on boundary transitions are

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subordinated to different state bodies. It is sensible to distinguish the following government

structures involved in the control process at the border (see Table 4.2).

Table 15: Russian State bodies involved in the border control process

Effective activity of all participants of electronic logistic services system is possible in the case

of their coordinated interaction at all levels – federal, regional and at the level of border

checkpoints. Technical providing with modern computer networks and the software according to

the international standards of electronic documents is necessary for logistic business.

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Business Opportunity in future for India:

Table-16 Estimate of Business Space in Logistics Sector of India

India's strategic location, between Middle East and South East Asia, presents itself as a country

with immense business opportunities. Its neighbors include Pakistan, China, Nepal, Sri Lanka

and Bangladesh. The countries labor advantage adds to this. India has vast reserves of technical

and scientific manpower, backed by engineering and management institutes of excellence. India's

skilled labor is in great demand in the world's premier organizations. Both skilled and unskilled

labor is easy to find and wage rates are highly competitive compared to international levels.

Language is not a barrier as the professional work force is conversant in English and the main

transactions and procedures are done in the same language. The government also provides a

number of incentives and facilities for exporters. India's rich resource and production base

provides significant opportunities for investors to establish export units.

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Introduction of the Entrepreneurship in Russia

When, in the early 1990s, Russia and other East European countries embarked on a path

of economic and political reforms, there was a worldwide expectation that the state-socialist

system along with its ideological underpinnings would now be a thing of the past, relegated to

the darkest pages of our history books. In their stead, capitalism and democracy would in due

course prevail, eventually guaranteeing both economic and social well-being for the new

democracies in Eastern Europe. A special role in this process was assigned to entrepreneurship,

as it was believed that entrepreneurs and the capabilities embodied in them could serve as key

prerequisites for a modern capitalist economy and modern social life to emerge. On the eve of

the reforms, hopes were running high that entrepreneurship in Russia would develop

spontaneously, as soon as the state withdrew itself from its position controlling the economy, and

most of the property, until now concentrated in the hands of the state, would be privatised.

Such hopes reflected the neo-liberal ideology prevailing in many Western countries at the

time. Responding to a slowdown in capitalist economies, politicians in the West turned to the

entrepreneurs for a number of reasons. Faced with increasing global competition and calls for

greater flexibility on the market, entrepreneurial qualities such as risk -taking, creativity, and

innovation were deemed critical to keep the economy afloat. It was also believed that

entrepreneurs, by starting new businesses and expanding the sphere of private economic

activities, through their very existence would contribute to job creation and thus promote the

stability and sustainability of capitalist form of development.

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Entrepreneurship role in the economy of Russia.

The center will be hosting its annual conference, “Entrepreneurs as Leaders in Business

and Society,” on June 23, offering a platform for participants to share their best practices and

learn first-hand how the role of entrepreneurs in the economy helps shape Russia’s society for

the better by creating national wealth and spreading entrepreneurial spirit. The center’s unique

model for this conference helps put the focus on networking and peer-to-peer learning, which has

proven invaluable to sharing best practices.

Mr. Sedov sees the role of entrepreneurs in the economy as being crucial to Russia’s

economic growth and social development. In his estimation, the opportunity for Russia’s

entrepreneurship is “basically incredible” with the center working to foster this potential through

programs focusing on networking and more hands-on training to help business-owners

successfully manage growth.

Structure, Functions and Business Activities of entrepreneurship in Russia

OPORA RUSSIA Russian Organization for Small and Medium Entrepreneurship is one

of the most major unions of the entrepreneurship in Russia. The Organization works efficiently

in a whole range of the areas to execute its key tasks covering representation of the interests of

small and medium business in Russia and in the other countries. Our goals including

improvement of the existing legislation in Russia, protection of the entrepreneurs’ rights and

interests are within interaction with the various authorities.

OPORA RUSSIA representatives are the members of several tens of the governmental

and interdepartmental structures engaged in the different areas, for instance: Government

Commission for Small and Medium Entrepreneurship in Russia; Government Commission for

Legislative Drafting Activity; Government Commission for Administrative Reforms;

Government Commission for Transport and Communications; Expert Council for

Entrepreneurship Development under the Russian Ministry for Economic Development; Public

Advisory Council under FAS of Russia, etc.

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Comparative Position of Entrepreneurship of Russia with India and Gujarat

India

New Delhi: India’s entrepreneurial culture has become the strongest among G-20 nations with a

substantial decline in costs and time for starting new businesses in the country, a global study by

Ernst & Young said on Thursday.

The report, however, said that efforts were still needed to lower the business costs, for further

simplification of procedures and to make India even more favourable business destination.

Ernst & Young (E&Y) said that the report, prepared on the basis of a survey of 1,000

entrepreneurs across the G-20 nations, has substantiated India’s premier position as an emerging

hub for entrepreneurial activity and innovation.

It said that 98% of the entrepreneurs surveyed believed that Indian culture encourages

entrepreneurship, as compared to 80% for the rapid growth markets and 72% for the mature

economies.

The study has been released ahead of a G-20 Summit in Cannes, France, to be attended by the

leaders of the G-20 nations, including Prime Minister Manmohan Singh.

The G-20 is a block of the world’s 20 leading economies including the US, UK, France,

Germany, Japan, China, Russia and India.

The report, released at the G-20 Young Entrepreneurs Summit in France, found that the costs of

starting a business in India has declined by 5.5% since 2005.

Besides, time to start a business in India has fallen from 56.5 days in 2005 to 29 days in 2010.

However, 71% of the respondents from India recommended a further simplification of

procedures to start a business.

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In the survey, 80% of Indian entrepreneurs reported improved access to funding, including bank

loans. However, it cautions that steadily rising interest rates could weigh on lending growth in

the future.

A large majority (80%) opined that funding from private equity has improved by over 500%

since 2005, while about two-third of respondents (67%) said that initial public offerings have

improved the access to funds.

The report also said that an active role of media and direct involvement of families have also had

a strong impact in improving the perception of entrepreneurship in India in the last five years.

“We have always known India to be a hotbed of entrepreneurship, despite the hurdles in its

business and regulatory environment.

“Indian entrepreneurs have made their mark both in India as also at a global level,” Farokh

Balsara, partner and national leader at Ernst & Young Entrepreneur of the year programme said.

Russia

Entrepreneurship and small businesses started to emerge in the Soviet Union after the

economic reconstruction that took place in the late 1980s and at the beginning of the 1990s. The

changes in the Soviet system led to the privatization of government-owned companies and

created new possibilities for individuals to launch entrepreneurial activities (Ageev et al., 1995;

Hisrich and Grachev, 1993; McCarthy et al., 1993). The changing situation gave an impetus to

academic research related to entrepreneurship and small businesses in the former Soviet Union

and in today's Russia. Research related to this topic is of real value, since it increases our

understanding of entrepreneurial activities in transitional countries adapting to a free market

economy. In a practical sense, it may also help local firms to develop their operations by

revealing opportunities and constraints in the market. For foreign firms, a better understanding of

entrepreneurship and small businesses in Russia may make it possible to develop new strategies

for survival in the Russian market and for cooperation with Russian firms. However, although

changes in Russian government policy and in the economic environment have led to expectations

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of increasing entrepreneurial activity (Seawright et al., 2008), entrepreneurship and small

businesses in Russia lag behind the leading transitional countries in Eastern Europe (Kihlgren,

2003).

Now that entrepreneurship and small businesses in Russia have been of academic interest

for over fifteen years, it is time to gather together current knowledge on the phenomenon and to

suggest further directions for research. This is all the more important in view of the fragmented

nature of the literature, mainly due to the wide scope of the phenomenon. Hence, the objective of

this paper is to conduct a systematic review of the empirical literature related to entrepreneurship

and small businesses in Russia.

Present Position and Trend of Business (import / export) with India / Gujarat during last 3

to 5 years

According to the Federal Customs Service of Russia, the volume of Russian-Indian trade in

2010 increased by 14.4% compared with 2009 and amounted to 8535 million U.S. dollars.

In 2010, India was the 18th among foreign trade partners of Russia, including 17th of exports

and 24th in imports. The share of India in Russian foreign trade turnover is 1.4%.

Russia is the 29th among foreign trade partners of India, including 37th of exports and 25th in

imports. The share of Russia in foreign trade circulation of India is 1%.

110

Table 17 Russian-Indian trade turnover in 2006-2011

(according to the Federal Customs Service of Russia)

(billion US dollars)

2006 2007 2008 2009 2010 January-

August

2011

TURNOVER 3,9 5,3 6,9 7,5 8,5 5,2

Dynamics in

%

125,8 136,5 130,4 107,6 114,4 98,4

EXPORT 2,9 4,0 5,2 5,9 6,3 3,5

Dynamics in

%

126,4 137,1 130,4 113,5 107,7 87,6

IMPORT 1,0 1,3 1,7 1,5 2,1 1,7

Dynamics in

%

124,1 134,6 130,3 89,3 140,5 131,1

BALANCE 2,0 2,7 3,5 4,4 4,2 1,8

In the structure of Russian export to India

in the first half of the year 2011 machinery and technical products (codes 84-88, 90) were

41,7% (954,2 million US dollars) of overall supply volume, rough diamonds (code 71) - 13,7%

(341,5 million US dollars), fertilizers (code 31) - 11,4% (283,3 million US dollars), oil and gas

(code 27) - 8,9% (221,8 million US dollars), ferrous metals and articles thereof (codes 72-73) -

7,6% (191,1 million US dollars). Taken together, these product groups amounted to 80% of

Russian export to India.

In the structure of Russian import from India

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in the first half of the year 2011 pharmaceutical products (code 30) amounted to 25,9%

(326,0 million US dollars) of overall supply volume; machinery, equipment, vehicles and tools

(codes 84-87, 90) - 18,5% (235,5 million US dollars), agricultural and food products (codes 03,

06-10, 12-17, 20-21, 23-24) - 20,7% (266,4 million US dollars), as well as textile materials and

products, clothes (codes 50-63) - 11,5% (104,3 million US dollars). Taken together, these

product groups account for about 75% of Russian import from India.

Policies and Norms of Russia for Import or export to the India including licensing /

permission, taxation etc

Government Policy on SMEs and Entrepreneurship

Similar to most other economies emerging from the Soviet system, the creation of the

private sector and the development of entrepreneurship was a new phenomenon for the Russian

population. The first resolution of the Council of Ministers on ‘Primary measures on

development and state support of small entrepreneurship in Russia’ was issued in 1993 and was

followed by the Federal Law in 1995 which approved state support for small enterprises via

regional, sectoral and municipal programmes of development. There have also been numerous

presidential decrees, governmental resolutions and programmes all aimed at creating better legal

conditions for small entrepreneurship. However, in practice, the vast majority failed to be

implemented. A study evaluating the effectiveness of the 1995 Federal Law on SME support

indicated that nearly 80 per cent of this law was never implemented, due both to the lack of its

practical applicability as well as the absence of implementation mechanisms (OECD 2000, p.50).

In a study of barriers to Russian SMEs, Radaev (2003) identified uncertainty of the federal SME

policy, the lack of policy coordination at both the federal and regional levels, the lack of special

purpose funding and conservatism in financial support policy2 among the main reasons for the

breakdown in Russian SME policy in the late 1990s. In addition, the 1998 financial crisis had a

significant negative impact on both SME support and development. Instead of assisting SMEs, in

the aftermath of the crisis the state largely curtailed its support programmes.

112

Interestingly, until recently, small enterprises3 were the only legally qualified private

entity explicitly defined in Russian legislation. The definition for medium-sized enterprise was

missing. This situation changed in 2007 with the Federal Law ‘On Development of Small and

Medium Entrepreneurship’, which for the first time provided a clear definition of different types

of SMEs including micro- (less than 15 employees), small (between 16 and 100 employees) and

medium-sized (between 101 and 250 employees) enterprises. This law also sets two other criteria

for SMEs: 1) the independence criterion – i.e. the total percentage of shares owned by the state,

local government, large companies, foreign individuals and companies should not exceed 25 per

cent; and 2) an upper limit for annual turnover - which should not exceed a limit set by the

federal authorities for each SME category once in five years.4 The law further differentiates

between the following categories of SMEs: legal entities, individual entrepreneurs5 and farmers.

The 2007 law on SME development envisaged the following primary support policy

measures: special taxation regimes, simplified accounting, financial support, business

infrastructure development, including the creation of business incubators and provision of

counselling services, transfer of state and regional property to start-ups at favoured conditions,

and allocation of state orders to SMEs. This is truly an admirable list of support that the

government has identified yet it is too early to declare if this new initiative will be successfully

implemented and have a more substantial impact on SMEs as compared with the previous

efforts.

Tax policy

According to the World Bank’s 2008 Doing Business tax survey, Russia is ranked 130

out of the 178 participating countries in terms of the quality of its tax regime. The total tax rate

as a proportion of profit that normally a medium-sized business would pay has been steady at the

level of 51.4 per cent over 2006-2008. Following the 2001 tax reform a profit tax rate was

reduced from 35 to 24 per cent, but at the same time all sorts of tax privileges were abolished

(Radaev 2003, p. 120). A large number of SMEs pay taxes in accordance to special tax regimes,

namely a simplified tax system (UNS), introduced in 1995, and a single tax on businesses’

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imputed income (ENVD), introduced in 19986. Whereas entrepreneurs have discretion over the

adoption of a simplified tax system, a single tax (ENVD) is compulsory for a number of business

activities subject to regional law.7 which in practice results in the discretion of regional

authorities as to which tax regime an SME is able to adopt.

Many entrepreneurs find the ENVD system to be inefficient since it is based not on actual

income but on imputed income8. (Zlobin et al. 2005). However, in light of the mandatory nature

of the ENVD, businesses do not have the freedom to transfer to a simplified or standard tax

system. Prior to 2003, regional authorities set a base yield for various types of business activities,

subject to an ENVD. Consequentially, this gave them significant power over the calculation of

the ENVD providing ample opportunities for corrupt behaviour to flourish. Furthermore,

following the tax code amendments in January 2002, social tax was excluded from the single tax,

significantly increasing the overall tax burden on small firms. This caused many small firms to

partly move to the shadow economy to an overall drop in tax collection. As a result, regional

authorities raised the base yield in the vain hope to compensate for the losses, which only

increased the incentives for businesses to retreat further into the shadows to avoid the growing

tax burden.

A new tax policy, which was introduced on 1 January 2003 and revised in 2006, aimed at

addressing some of the aforementioned deficiencies, in particular freeing small businesses from

the social tax, simplifying accounting, and centralizing the setting of a base yield used in

calculation of the imputed income. Thus, the regional authorities were no longer allowed to set a

base yield. However, in spite of this improvement, municipal authorities have gained some

discretionary power to regulate a coefficient which is used to correct a base yield, taking into

consideration some particularities of businesses such as the range of goods sold, seasonality of

operations and location9. The declared objective was to create opportunities to reduce the tax

burden for businesses facing the least favorable conditions. However, in reality, this approach

has allowed municipal authorities to pursue a differential policy towards SMEs favoring well-

connected business owners.

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According to OPORA’s 2006 survey data10, 61 per cent of the interviewed entrepreneurs

paid a single tax on imputed income. Half of these respondents believed that the overall tax

burden had increased since the municipalities have obtained some discretionary power over the

ENVD. A similar percentage of entrepreneurs stated that if given the option, they would transfer

to a simplified tax system

Policies and Norms of India for Import or export to the Russia including licensing /

permission, taxation etc

Exim Policy, also known as the Foreign Trade Policy is announced every 5 years by

Ministry of Commerce and Industry, Government of India. It is updated every year on the 31st of

March and all the amendments and improvements in the scheme are effective from the 1st of

April. Exim policy deals in general provisions pertaining to exports and imports, promotional

measures, duty exemption schemes, export promotion schemes, special economic zone programs

and other details for different sectors. The Government announces a supplement to this policy

each year. The Government of India also releases the Hand Book of Procedures detailing the

procedures to be followed for each of the schemes mentioned in the Exim Policy.

New Foreign Trade Policy

Trade is not an end in itself, but a means to economic growth and national development. The

primary purpose is not the mere earning of foreign exchange, but the stimulation of greater

economic activity.

For India to become a major player in world trade, an all encompassing, and comprehensive

view needs to be taken for the overall development of the country's foreign trade.

While increase in exports is of vital importance, we have also to facilitate those imports which

are required to stimulate our economy. Coherence and consistency among trade and other

economic policies is important for maximizing the contribution of such policies to development.

115

Thus, while incorporating the existing practice of enunciating an annual Foreign Trade Policy, it

is necessary to go much beyond and take an integrated approach to the developmental

requirements of India's foreign trade.

The Foreign Trade Policy is built around two major objectives. These are:

To double our percentage share of global merchandise trade within the next five years;

and

To act as an effective instrument of economic growth by giving a thrust to employment

generation.

CVD is exempted on duty free import of trimmings, embellishments and consumables.

GEMS AND JEWELLERY

Import of gold of 18 carat and above shall be allowed under the replenishment scheme

Duty free import entitlement of consumables for metals other than Gold, Platinum shall be 2% of

FOB value of exports during the previous financial year.

Duty free import entitlement of commercial samples shall be Rs 100,000.

Duty free re-import entitlement for rejected jewellery shall be 2% of the FOB value of exports

Cutting and polishing of gems and jewellery, shall be treated as manufacturing for the

purposes of exemption under Section 10A of the Income Tax Act

Potential for import / export in India /Gujarat Market

India imports and exports goods on a grand scale, and that trend is growing every year as

their population and level of technological sophistication increases. Every country engages in the

importation of products that they need and want from other nations and they in turn export the

products and raw materials that they have in abundance for financial gain.

116

India Imports Potential

The nation of India is the seventh largest in the world in land mass, number ten in the

world for the size of their economy by GDP, and the fourth largest international economy in

purchasing power parity.

India’s monthly imports during October 2011 were recorded at US$39.51 billion,

showing a development of 21.72 percent over the level of US$32.46 billion experienced in

October last year. The swelling value of imports for the period of April-October this fiscal was

US$273.47 billion as against US$208.82 billion over the same period last year, recording an

increase of 30.96 percent.

Oil imports during October 2011 were recorded at US$10.08 billion, which is 20.73 percent

higher than oil imports valued at US$8.35 billion in the equivalent period last year. Oil imports

during April-October this fiscal were valued at US$81.92 billion which is 40.82 percent higher

than the oil imports of US$58.18 billion in the equivalent period last year.

Non-oil imports during October 2011 were estimated billion in October 2010. Non-oil

imports during April – October this fiscal were recorded at US$191.55 billion, which is 27.15

percent higher than the US$150.65 billion recorded over the same time-frame last year.at

US$29.44 billion which is 22.07 percent higher than non-oil imports of US$24.12

India’s trade deficit for April-October this fiscal is estimated at US$93.69 billion, which is

slightly higher than the deficit of US$85.65 billion recorded during April-October 2010.

India Exports Potential

Dec. 7 – The value of India’s exports throughout October 2011 were recorded at

US$19.87 billion, good for a 10.82 percent increase over the level of US$17.93 billion during

October 2010. The increasing value of exports for the period of April-October this fiscal year

117

was US$179.78 billion against US$123.17 billion over the same stage last year, recording

growth of 45.96 percent.

Table 18 Indian exports (Year 2006-07)

Crop India’s Export (Value)

Value in Lakh

RupeesValue in thousand $ US

Fruits 700281 155617.771

Vegetables 1593231 354051.111

Ginger 39752 8833.332

Turmeric 164802 36622.222

Sesame 932713 207268.883

Soyameal 4070124 904471.114

Cotton 5351095 1189131.115

Total 285198 2855995.42 (or 2.855 billion $ US)

Business Opportunities in future

It may be noted that clothing sector would offer higher gains than the textile sector, in the post

MFA regime. Countries like Mexico, CBI countries, many of the African countries emerged as

exporters of readymade garments without having much of textile base, utilizing the preferential

tariff arrangement under the quota regime. Besides, countries like Bangladesh, Sri Lanka, and

Cambodia emerged as garment exporters due to cost factors, in addition to the quota benefits.

Thus, it may be concluded that these countries are likely to lose their market share in the future

scenario.

118

Estimated Gains in USA and EU For China and India(US $ Billion)

MarketsTextiles Clothing Total

Present (2003) Future (2014) Present (2003) Future (2014) 2014

Gains in China India China India China India China India China India

USA 3.6 1.5 13.0 5.0 12.0 2.3 67 13 80 18

(20) (8.4) (32) (13.5) (16.9) (3.2) (42) (8) (40) (9)

EU 2.8 1.9 12 8 12.3 3.0 60 16 72 24

(5.3) (3.2) (12) (8) (12.2) (3.0) (30) (8) (24) (8)

It may be said that countries like China, USA, India, Pakistan, Uzbekistan and Turkey have

resource based advantages in cotton; China, India, Vietnam and Brazil have resource based

advantages in silk; Australia, China, New Zealand and India have resource based advantages in

wool; China, India, Indonesia, Taiwan, Turkey, USA, Korea and few CIS countries have

resource based advantages in manmade fibers. In addition, China, India, Pakistan, USA,

Indonesia have capacity based advantages in the textile spinning and weaving.

China is cost competitive with regard to manufacture of textured yarn, knitted yarn fabric and

woven textured fabric. Brazil is cost competitive with regard to manufacture of woven ring yarn.

India is cost competitive with regard to manufacture of ring-yarn, O-E yarn, woven O-E yarn

fabric, knitted ring yarn fabric and knitted O-E yarn fabric. According to Werner Management

Consultants, USA, the hourly wage costs in textile industry is very high for many of the

developed countries. Even in developing economies like Argentina, Brazil, Mexico, Turkey and

Mauritius, the hourly wage is higher as compared to India, China, Pakistan and Indonesia.

From the above analysis, it may be concluded that China, India, Pakistan, Taiwan, Hong Kong,

Brazil, Indonesia, Turkey and Egypt would emerge as winners in the post quota regime. The

market losers in the short term (1-2 years) would include CBI countries, many of the sub-

Saharan African countries, Asian countries like Bangladesh and Sri Lanka.

119

The market losers in the long term (by 2014) would include high cost producers, like EU, USA,

Canada, Mexico, Japan and many east Asian countries. The determinants of increase / decrease

in market share in the medium term would however depend upon the cost, quality and timely

Review of Indian Textiles and Clothing Industry The textiles and garments industry is one of the

largest and most prominent sectors of Indian economy, in terms of output, foreign exchange

earnings and employment generation. Indian textile industry is multi-fiber based, using delivery.

In the long run, there are possibilities of contraction in intra-EU trade in textile and garments,

reduction of market share of Turkey in EU and market share of Mexico and Canada in USA, and

thus provide more opportunities for developing countries like India.

It is estimated that in the short term, both China and India would gain additional market share

proportionate to their current market share. In the medium term, however, India and China would

have a cumulative market share of 50 percent, in both textiles and garment imports by USA. It is

estimated that India would have a market share of 13.5 percent in textiles and 8 percent in

garments in the USA market. With regard to EU, it is estimated that the benefits are mainly in

the garments sector, with China taking a major share of 30 percent and India gaining a market

share of 8 percent. The potential gain in the textile sector is limited in the EU market considering

the proposed further enlargement of EU. It is estimated that India would have a market share of 8

percent in EU textiles market as against the China’s market share of 12 percent.

120

ADVERTISING AND MEDIA INDUSTRY

INTRODUCTION OF ADVERTISING AND MEDIA INDUSTRY AND ITS ROLE INRUSSIA

Russia is one of the largest countries in the world, spanning 11 time zones and bordering

14 nations. Over 400 British companies operate in Russia, benefiting from long term

opportunities that this country has to offer, and it is not only large multinationals which are

having business success. In 2007 Russia was second only after India with higher scores on

market attractiveness and time pressure and much lower score on market saturation

(http://www.atkearney.com/shared_res/pdf/GRDI_2007.pdf).

In the Four years preceding the financial crisis of 2008 Russia experienced unparalleled

growth that helped boost, among other things, computer ownership, internet subscription rates,

and advertising in the media. The crisis also coincided with, and significantly contributed to, the

rapid ascent of online media and of new communication tools. All four factors—the boom, the

crisis, the new ruling tandem, and the explosion of online communication—have had a

significant impact on the media and on news consumption in Russia.

The Russian media market is one of the fastest growing in the world.

In 2010, the Russian media market grew by 13% and is now worth USD 20.5bn, while

the global media market increased by only 4.6%. In Europe, the Middle East and Africa

(EMEA), only Turkey, at 14%, demonstrated a higher growth rate than Russia.

We predict that the Russian media market in 2011-2015 will grow at an 11.7% compound

annual advance, compared to the global CAGR of 5.7%, 5.2% for EMEA and 10.1% for Central

and Eastern Europe (CEE).

121

1.2 ROLE OF ADVERTISING AND MEDIA INDUSTRY IN RUSSIA:-

The media’s most obvious economic role is as a sector of the economy. Media companies

employ people. They buy and sell products and services. They even pay taxes.

Here is a table that compares Russia with several Western countries:

Table 19 Advertising as Country a percent of GDP

Country Growth (in percentage)

United States 1.37

Switzerland 1.00

United Kingdom 0.98

Germany 0.85

Russia 0.60

India 0.45

Table 1.2

Clearly, Russia’s advertising expenditures pale in comparison. Interestingly, the same is true

when Russia is compared with other post-communist countries:

122

Thus, the Russian economy is fastest growing economy in advertising and media sector.

The expenditure in this sector is not the least but it is less than most of the other countries. So,

the growth of this sector in this country is seems to be high in present and in future also.

STRUCTURE, FUNCTION AND ACTIVITIES OF ADVERTISING INDUSTRY

The radical change of the media system in post-Soviet Russia has become a revolutionary

and innovative process. Actual signs of new reality, however, began to emerge in the opposite

direction, from? Bottom-up? To The top. Newly set-up newspapers, small-sized TV channels,

radio stations, or cable companies created a true critical mass that is nowadays influencing a

broad political background, and also culture, traditions, values, and lifestyles.

The break of the Soviet print media pyramid has led to the emergence of relatively

isolated and independent newspaper markets. Today, regional and local newspapers

provide readers with a complete package of local news, soft entertainment, and

advertising.

The modern Russian newspaper market has changed enormously. From 1993 to 1997, the

Russian print media showed a 45% growth in the number of publications. Entirely new

types of newspapers like business dailies and glossy magazines were established.

Another key media sector, the Russian television, is also rapidly developing. Currently

there are about 800 TV stations all over Russia, including about 300 owned completely or

partly by the state and nearly 500 private stations.

TV in Russia is the most powerful medium, with 94% of Russians watching TV every

day. An average time spent for watching TV is about 3 to 3,5 hours per day. 99% of

households in Russia have at least one TV set; about two-thirds have color TV sets, and

45% still possess black-and white sets.

The media can themselves constitute a vital segment of a country’s economy.

They can intangibly encourage growth by promoting good governance and empowering

citizens.

They can be the brokers of commerce by bringing together buyers and sellers through

advertising content.

123

And, they can multiply the money of their advertisers.

The Russian media can be broken down and categorized in the following ways:

By Distribution Method:

• Electronic media - television, radio

• Internet

• Paper publications

• Outdoor advertising

Table 1.3

By Content:

• Government resources offering official information (the “ORT”, RTR, “Rossiya,” and

“Kultura” television programs, regional, state-owned television and radio companies such

as “Mayak,” and newspapers such as “RossiiskayaGazeta,”)

• Business and financial information (“Vedomosti” and “Kommersant”, and Prime-

TASS, Interfax, and RBC information agencies)

• Entertainment media (televisions stations, radio stations, written publications, and

Internet sites)

• Advertising publications

By Ownership Structure

• State companies (televisions stations, radio stations, periodicals).

• Media companies owned by industrial groups (Gazprom, Joint Shareholder Financial

Group,

• Private companies

124

SWOT analysis of Advertising and Media industry:

STRENGTHS

1. Experienced senior management Team.

2. Robust IT system.

3. Clear and well defined advertising policy

4. Process innovation.

5. Clarity and good understanding of vision.

6. High online and print advertisement rates

7. A large contact database and a sustainable financial operating model.

WEAKNESSES

1. Limited resources.

2. Outdated publishing software and equipment.

3. Attracting/Holding on to the staff till the time we become established players.

4. Refine the processes for growth.

OPPORTUNITIES

1. Huge Potential Market.

2. Scope of introducing livelihood related services.

3. Financial crunch is helping organisation to be cost conscious and effective.

4. A growing economy

THREATS

1. Financial crisis.

2. Increasing competition..

3. Political instability

4. Poor banking infrastructure.

125

COMPARATIVE POSITION OF ADVERTISING AND MEDIA INDUSTRY WITH

INDIA/GUJARAT

During the last 10 years, Russia has demonstrated stable and mostly positive growth rates.

Many Russian industries recovered from the 2008 crisis faster than the global average, and in

2010, the Russian media sector outperformed even optimistic growth predictions. We are

expecting that this impressive growth will continue and will lead to a rise in the importance of

the Russian market within the global media industry.

Russia India

In 2010, Russia’s media market was thethirteenth largest in the world, and weexpect it to maintain that position over thenext five years. Already by 2014, theRussian media market will outstrip Spainand become the fourth biggest market inEMEA.

Indian media industry is expected to grow atan annual average growth rate of 14% overthe 5 years next. India, the ratio ofadvertising expenditure to GDP is about0.4%. In 2011-12 India was ranked 131stout of 179th countries, which was a setbackfrom the preceding year.

In 2010, the Russian share of the EMEAregional media market was 4%, and 43% inCEE. We predict that by 2015, the Russianshare of the market will increase to 6% inEMEA and 48% in CEE.

The Russian media are in the early phase of

a new cycle of development. The digital

switch-over from terrestrial broadcasting is

due to be completed only in 2015. Indian

Entertainment and Media industry will

grow by 10.5% by 2013.

In 2012 Russia will overtake the UKand Germany as EMEA’s largest TVadvertising market with USD 6.1bn. By2015 Russia will be the fifth-largest TVadvertising market in the world, behindonly the US, Japan, the PRC, and Brazil.

Indian media market pain a very rosy

picture for Indian advertising with a 20%

year on year growth in 2008.

Ta

126

PRESENT POSITION OF IMPORT/EXPORT WITH INDIA/GUJARAT

The following data shows the import and export of Russian country. ($ mln.)

Year Export Import Turnover Balance1994 67826 50452 118278 17374

1995 82913 62603 145516 20310

1996 90563 68092 158655 22471

1997 89008 71983 160991 17025

1998 74884 58015 132899 16869

1999 75666 39537 115203 36129

2000 105565 44862 150427 60703

2001 101603 53764 155367 478392002 107247 60966 168213 462812003 135929 75436 211365 604932004 183185 94834 278019 883512005 245255 125123 370378 1201312006 303926 164692 468618 1392342007 355175 223058 578233 132117

Export and Import of Russia in 2009 on India:In Jan-Dec. 2009, the total turnover of the Russia in India was 47455 Mill. US dollar.

While the export and import was 34804 and 12651 Mill. US dollar. In Jan-Dec. 2009 the totalturnover was 51113 Mill. US dollar.While export and import was 40734 and 10388 Mill.USdollar respectively

.Thus, the present position and trend of Russia shows the progress of the advertising andmedia sector in Russia as well as good opportunity to establish the business in Russia also.

INDIA’S EXPORT FROM 2006-2012:-

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POLICIES AND NORMS OF THE RUSSIA FOR ADVERTISING SECTOR FORIMPORT/EXPORT LICENSING/PERMISSION, TAXATION ETC.

Since 1991 the Russian government has frequently tried to minimize its budget deficits

by failing to pay for wages and pensions. Weak tax administration, a cumbersome tax

system with high rates that invite tax evasion, falling industrial output, the use of barter

in the economy, and blunt refusal to pay by large, politically powerful firms has

weakened the government's ability to meet its obligations.

Russia continues to maintain a number of barriers with respect to imports, including

tariffs and tariff-rate quotas, discriminatory and prohibitive charges and fees, and

discriminatory licensing, registration and certification regimes.

In addition to tariffs, there are two types of charges applied to imports, the ubiquitous

Value Added Tax (VAT) and selective excise taxes.

PRESENT TRADE BARRIERS FOR IMPORT/EXPORT

• Major barriers to the Russian market remain its distance from the U.S. and itserratic

transition from a socialist, centrally planned economy to a more open,Market-oriented

one.

• European and Asian companies remain tough competitors for Russian firms, due to their

proximity to Russian markets and their long-standing relations with Russian

organizations and companies.

• Government bureaucracy, poorly established rule of law and corruption affect such areas

as establishing a business, tax collection, dispute settlement, property rights, product

certification and standards, as well as Russian Customs clearance.

• Finding qualified local partners and employees is a difficult process. The pool of

managers who understand Western accounting and business practices remains limited, as

well as the pool of qualified, experienced Russians proficient in English.

• Adequate financial resources for Russian buyers still remain a problem, but it is not as

acute as it was in years past. There are more foreign banks operating in Russia and more

cash circulating within the economy due to the Russian oil and Gas boom.

128

POTENTIAL FOR IMPORT/EXPORT IN GUJARAT/INDIA

India recorded one of the highest growths in the world growing at 11.2% in 2010. The

E&M industry in 2010 stood at INR 646.0 billion as compared to INR 580.8 billion in 2009. This

was lower than our projected growth rate of 15.1% for last year. The other two key industry

segments-- television (15.4% growth as compared to 15.6% projected) and print (10.7% as

compared to 8.5% projected)--showed good growth.

Table 20 GROWTH OF INDIAN ADVERTISING INDUSTRY IN 2006-2010

IINR

BILLION

2006 2007 2008 2009 2010 CAGR%

Television

advertising

% change

66.2 78.0

17.8

84.2

7.9

89.0

5.7

101.5

14.0

11.3

Print

advertising

% change

78.0 94.0

20.5

103.5

10.1

100.0

-3.4

113.5

13.5

9.8

Radio

advertising

% change

5.0 6.9

38.0

8.3

20.3

9.0

8.4

10.8

20.0

21.2

Internet

advertising

% change

1.6 2.7

68.8

5.0

85.2

6.0

20.0

7.7

28.3

48.1

Film

advertising

% change

10.0 12.5

25.0

15

20.0

12.5

-16.7

14

12.0

8.8

Total

% change

160.8 194.12

20.7

216.0

11.3

216.5

0.2

247.5

14.3

11.4

INR billion 2006 2007 2008 2009 2source: PwC Analysis and Industry Estimates

Table 4.4

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BUSINESS OPPORTUNITIES IN FUTURE

The media and entertainment sector consists of the creation, aggregation and distribution

of content, products and services, news and information, advertising and entertainment through

various channels and platforms. The media and entertainment industry is one of the fastest

growing industries in the world especially in INDIA. Ever evolving technologies, extensive use

of media by corporate provide both opportunities and challenges to the media and entertainment

industry.

Future Trends:

The Indian Media and Entertainment industry is forecasted to grow at an annual growth rate of

19 per cent to reach Rs 83,740 crores by 2010.

Table 21The forecasted Growth of various segments of the Media industry in India till 2010

Radio 32%

Music 1%

Television 24%

Film Industry 18%

Print Media 12%

Table 5.1

In Moscow and St. Peters burg the advertisement tax rate is 5%, levied on the cost of

advertising goods and services, excluding VAT. There are abundant opportunities to reach

customers through Russia's vigorous print media. Russia also has a large number of popular

general interest newspapers and magazines, several of which have national circulation. In

Moscow and St. Petersburg, there is high quality English and German language daily or weekly

newspapers that reach the high-income foreign business and government communities.

130

Taxation policy for advertising industry

The entertainment and media industry has witnessed positive growth in the past years. In order to

further propel the pace of growth and in the light of changing market trends and technologies, the

government of India, through its various regulatory bodies, over the years, has been endeavoring

to bring about regulatory changes to allow foreign direct investments, etc. within diverse sectors

of this industry.

On the tax front, there have been significant developments in terms of amendments in existing

tax laws, new laws like the Direct Taxes Code or the proposed Good and Services Tax (GST),

landmark judgments, notifications, etc., impacting the industry at large.

Some of the key tax and regulatory developments for major sectors of the industry are

highlighted below

Direct tax issuesTaxability of income of telecasting companies: Foreign telecasting companies (FTCs) in

India derive Income primarily from two sources:

1. Advertising revenues2. Subscription revenues

Import and Export related matters

Rich in natural resources, Russia has the largest natural gas reserves in the world, the second

largest coal reserves and the eighth largest oil reserves. All these resources constitute a major

portion of Russia’s exports. In fact, 80% of Russia’s exports constitute oil, natural gas, metals,

timber, and defense equipment. Russia uses these reserves to secure both its economic and

political interests.

The EU is by far Russia’s biggest trading partner, accounting for 46.8% of its overall trade in

2010, and by far the most important investor for Russia. It is estimated that up to 75% of foreign

direct investment (FDI) in Russia came from EU member states.

131

Russia WTO accession

Russia is the only major international economy that is not yet a member of the WTO, a matter of

fundamental importance for Russia’s economic modernization for sustainable growth should

Russia become a member, it will greatly benefit from the multilateral trading system of the

WTO.

From a broader systemic view, Russia would have to implement a number of legislative changes

to bring its judiciary and regulatory system in line with WTO guidelines. In this regards, a

number of new developments that concerns the trade regime have taken place with the

introduction of the customs union between Russia, Kazakhstan and Belarus as of 1stjan 2010

Table 22 Russia’s trade indicators at a 2010:

Current account balance: US $281.7 billion or 4.9% of GDP

Trade to GDP ratio: 43.3%

Total value of exports: US $ 429.4 billon

Primary export: oil, natural gas, metals, timber

Primary exports partners: EU (44.8%), United States (6.0%) China (5.8%), Turkey

(4.9%), Ukraine (3.7%)

Total value of imports: US $ 247.7 billion

Table 5.2

132

Russia - Future Prospectus

The Russian economy faces serious challenges. Russian industry is not likely to regain an

important role in a global economy that demands peak efficiency. Consequently, the export of

primary commodities and raw materials is likely to remain the bulwark of economic

development. Primary commodity markets are relatively more susceptible to fluctuations than

are industrial markets. Russia is likely to continue to be influenced by economic trends that it

cannot control. International investors, including the major investment banks, commercial

investors, and companies interested in expanding their businesses in world markets have

remained on the sidelines, scared off by Russia's long-standing problems with capital flight,

reliance on barter transactions, corruption of government officials, and fears of organized crime.

The Russian government and leading economists in the country have developed a consensus on

the need for various kinds of administrative changes. Failures such as corruption are not moral

failures, but a failure of administrative structure. There is a consensus that the country needs to

strengthen the institutional and legal underpinnings of a market economy. Improving the legal

and regulatory structure would provide a reliable framework for improving governance,

strengthening the rule of law, reducing corruption, and attracting the long-term capital needed for

deep restructuring and sustained growth. The country also needs to improve its tax system to

encourage greater tax compliance and a realistic appreciation in the population that the people

must pay for the costs of a modern society. The government must avoid pressures to use central

bank money to finance its budget deficit. Further reforms are needed in the banking sector,

including a legal framework to make it easier to close down troubled banks.

Any measures aiming to reduce poverty levels among workers are primarily associated with the

increase in the official wages drawn by the lower paid workers, the majority of which are

women, and also with the identification and taxation of income in Russia's informal sector.

A positive sign was that in mid-year 2000, the Russian government adopted an official

development strategy for the period 2000-10. The strategy identified economic policy directed at

ensuring equal conditions of market competition, protecting ownership rights, eliminating

administrative barriers to entrepreneurship, making the economy more open, and carrying out tax

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reform. The strategy identified the creation of an effective state performing the function of a

guarantor of external and internal security and also of social, political, and economic stability.

The strategy spoke of a "new social contract" between the more active sections of Russian

society and the reformed government.

India vs. Russia Trade Relations

India and Russia have established a new milestone in bilateral trade and economic

relations, with India giving its consent to Russia's accession to the World Trade Organization

(WTO) and both sides setting up a Joint Study Group (JSG) to finalize a roadmap for increasing

the bilateral trade turnover to US $ 10 billion by 2010. The Protocol on Completion of Bilateral

Negotiations on the Accession of Russia to the WTO and the Memorandum of Understanding

(MOU) on Cooperation between the Ministry of Commerce & Industry of India and the Ministry

of Economic Development and Trade of the Russian Federation were signed here this evening by

Shri Kamal Nath, Minister of Commerce and Industry on behalf of the Government of India and

by Mr. German Gref, Minister for Economic Development and Trade, on behalf of the

Government of Russian Federation respectively.

Shri Kamal Nath said that India was looking forward to Russia's early accession to the WTO for

further cooperation in the multilateral trade forum on the basis of mutual benefit. The finalization

of the Protocol marks the completion of bilateral negotiations with the Russian Federation in

connection with their accession to the WTO. (As per the WTO accession procedures, the

member seeking accession is required to negotiate bilaterally with each member country of the

WTO).

The MOU provides for the setting up of a Joint Study Group (JSG) with a view to examining the

feasibility of signing a Comprehensive Economic Cooperation Agreement (CECA) between

India and Russia, besides envisaging increase in bilateral trade turnover to US $ 10 billion by

2010. The JSG is expected to prepare by the end of 2006 a roadmap for achieving a significant

increase in mutual trade turnover by diversifying and strengthening bilateral relations in a wide

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range of areas, particularly trade in goods and services, investment and economic cooperation.

The JSG, to be co-chaired by the Commerce Secretary from the Indian side and his counterpart

from the Russian side, is expected to specifically suggest measures to arrest the decline in India's

exports to Russia. Even though bilateral trade is increasing - with growth of 11% in two-way

trade in 2004-05 --India's exports to Russia had been declining over the last few years. (Indo-

Russian bilateral trade in 2004-05 was of the order of Rs.8369.85 crore i.e., US $ 1862.81

million (US $ 1.8 billion). Of this, India's exports to Russia amounted to Rs.2684.33 crore i.e.,

US $ 597.43 million and India's imports from Russia valued at Rs.5685.52 crore i.e., US $

1265.38million.

Earlier, Shri Kamal Nath had a bilateral meeting with Mr. Gref during which trade issues were

discussed. Shri Kamal Nath requested for early finalization and signing of the draft inter-

governmental agreement regarding higher off take of Indian tobacco by Russia through the

purchase of cigarettes / tobacco or procuring of cigarettes from a joint venture proposed to be set

up in Russia by any Indian company which would procure tobacco from India. He also requested

Mr. Gref to accord protection to "Darjeeling tea" as a geographical indication and to recognize

"Assam", "Nilgiri" and "Indian tea logo" as labels/well known original brands and requested

facilitating setting up of joint ventures between Indian tea companies and Russian business

houses in order to augment the export of quality tea from India.

Cooperation in diamond trade between Russia and India also figured in the discussions given the

fact that India is the largest processing centres of rough diamonds and Russia is one of the

world's largest producers of rough diamonds and, therefore, cooperation in this sector though

direct trade would be mutual advantage to both countries. The Protocol for cooperation in

diamonds was signed during the visit of President Putin to India in October 2004. In this context,

Shri Kamal Nath urged the Russian Minister to expedite the decision agreed by both sides for

inclusion of MMTC in the list of regular participants for auction and tenders for selling of rough

diamonds by Alrosa (Russian diamond mining company) as also to explore the action taken by

the Russian side for setting up a joint venture by Alrosa with MMTC for manufacturing jewelery

in India. The Indian side requested Russia to expedite the release of payment due to the Indian

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exporters and delink this issue from the overall settlement of state credit. The issue of early

conclusion of simplified visa procedure agreement to enhance trade and economic cooperation

also figured in the deliberations.

Potential opportunity of Advertising and Media sector in Russia

During the last 10 years, Russia has demonstrated stable and mostly positive growth rates.

Many Russian industries recovered from the 2008 crisis faster than the global average, and in

2010, the Russian media sector outperformed even optimistic growth predictions. We are

expecting that this impressive growth will continue and will lead to a rise in the importance of

the Russian market within the global media industry. Below we have outlined key trends in the

Russian media sector to illustrate our vision of prospects for this dynamic market.

The Russian media market is one of the fastest growing in the world.

In 2010, the Russian media market grew by 13% and is now worth USD 20.5bn, while the

global media market increased by only 4.6%. In Europe, the Middle East and Africa

(EMEA), only Turkey, at 14%, demonstrated a higher growth rate than Russia.

We predict that the Russian media market in 2011-2015 will grow at an 11.7% compound

annual advance, compared to the global CAGR of 5.7%, 5.2% for EMEA and 10.1% for

Central and Eastern Europe (CEE).

The importance of the Russian market in the broader EMEA regional media industry will

grow.

In 2010, Russia’s media market was the thirteenth largest in the world, and we expect it

to maintain that position over the next five years. Already by 2014, the Russian media

market will outstrip Spain and become the fourth biggest market in EMEA.

In 2010, the Russian share of the EMEA regional media market was 4%, and 43% in

CEE. We predict that by 2015, the Russian share of the market will increase to 6% in

EMEA and 48% in CEE

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Graph 11 Growth rate by segment in Russia and worldwide, 2011-2015, %

Growth by segment in Russia, 2010-2015, mill. USD

Graph 5.3

In five years, the Russian media market will grow 1.7 times and will be worth USD

35.7bn. All media segments will demonstrate positive growth in 2011-15

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INTRODUCTION OF IMPORT EXPORT POLICY OF RUSSIA

Introduction

Foreign economic relations of all countries in the world play an important role in worldeconomic development – they can produce positive circumstances for every nation. Russia is notan exception. Russian foreign trade has a thousand-year old history. The beginnings of Russianforeign trade involved famous trading practices “from the Varangian to the Greek”. Throughoutof all Russian history foreign trade its regulation was of paramount importance to the state: fromthe collection of duties in the times of first Russian principalities up to the period when theDumas decided upon the questions of foreign relations including foreign trade.

In the first decade of the twentieth century, Russia was the first exporter of grain (more than 30%of world exports). The country had a surplus trading balance and its share in world trade wasequal to 3,6%. Russia exported wood, flax, sugar, oil, furs, and manganese ore among otherresources. It is interesting to notice that the main trading partner of Russia was Germany (38% oftrade turnover in the year 1913) though Russia had trading contacts with 31 countries around theglobe (Vneshnaja Torgovlja Rossii…Undated).

As of today, the following essential steps towards the harmonization of Russian law principleswith those of WTO have been taken:

1. The principle of free trade has been recognized, including the right of legal entities andindividuals to close export/import deals;

2. The Customs Tariff has been declared the main regulating instrument of foreign trade,suggesting the minimization of the usage of all other regulation mechanisms;

3. The most favoured nation principle in foreign trade has been recognized, which regime isnow applied to over 120 partner states, including all major international trade players;

4. The principle of national treatment of imported products has been recognized, providinga unified approach to domestic and imported goods as far as their certification (awardedon the basis of their conformity to Russian standards) and domestic taxation is concerned;

5. The principle of national treatment in intellectual property rights has been recognized,referring to the country’s legal obligation to equally protect residents’ and non-residents’intellectual rights;

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Russian foreign trade in goods: structure, recent dynamics and problems

The liberalization of Russia’s external economic activity in the 1990’s resulted in the removal ofbarriers impeding the entrance of national manufacturers to foreign markets and the penetrationof imported goods and foreign investment into the domestic market. This led to a substantialincrease in external turnover. Since the earliest 1990’s, Russian exports and imports weregrowing. After a temporary reduction in 1997–1998 due to the financial crisis (which, at thesame time, increased the competitiveness of Russian goods), there was a new upsurge in thecountry’s external turnover.

Table No: 23 Russian foreign trade in good(According to the balance of payments methodology, U.S. $ bin)

year export Import1992 53.6 431993 59.6 44.31994 67.5 50.51995 81.1 611996 88.6 68.81997 88.3 73.71998 74.6 59.81999 75.1 40.22000 105 44.92001 101.9 53.82002 107.3 612003 135.9 76.12004 183.2 97.42005 243.8 125.42006 303.9 164.72007 355.2 223.1

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Graph 12 Russian foreign trade in good

Description:

Rapid exports growth was primarily driven by a significant increase in world prices for rawCommodities. During the 2000’s, oil prices continued to make record gains, with a historicalpeak in the summer of 2008. Slightly behind time wise, natural gas prices were going up at thesame pace. A$1 per barrel raise in oil prices has been estimated to increase the value of Russianexports by about $2.2–2.3 bin.

Another factor to stimulate exports was the weakening of state regulation mechanisms, whichwas particularly true for the 1990’s. For example, in 1993, 77% of all exports of commoditieswere licensed trade, while by 1996 this figure was reduced to 12%. In 1996, the abolition ofexport duties also took place.

Almost in step with exports, imports grew in the 1990’s, this growth stemming from theliberalization of trade and the opening of the previously closed Soviet/Russian market. In the2000’s, imports lagged behind exports in terms of dynamics but still continued to grow, whichshould be attributed to both disposable incomes growth and the strengthening of the rouble. Inthe future, exports are expected to fall due to reduction and stabilization of oil prices, whileimports are predicted to keep growing, subject to Central Bank’s consistent monetary policy.

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Role of import export policy in the Economy of Russia

While analyzing the Russian transformation to the market structures and processes it is crucial tounderstand the situation facing the Russian Federation when it emerged as a newly independentstate and embarked on radical economic reforms in the wake of the Soviet collapse. It must benoted that the crisis of the Soviet system had its roots in the long-term secular decline in growthrates experienced by the USSR from the 1950s onwards. Among other factors precipitating thefinal breakdown of the Soviet command economy were external shocks, ill conceived reforms andgrowing political unrest (Arbatov, Feygin et al. 2005). The year of 1991 saw the polityfragmenting and the economy in free-fall, whereas the real GDP that year declined by aboutbetween 8 and 21% – owing to the chaotic economic and political situation of the time. Thestatistics vary widely (See Leppänen 2004; BOFIT Russia Review 2005; Goskomstat, etc).Nevertheless, the fact is that the Russian GDP started to decline dramatically.

According to Ahrend, the Soviet state budget deficit was pushed from 20% in 1992 to 9% of theGDP by the second half of 1992 and to 3% of the GDP by 1993 by rising subsidies to backcontrolled prices, falling production and collapsing tax discipline. As the easiest way to financethe deficit was printing money, its supply swelled and wrecked the remnants of the system ofprice controls. The combination of price-controls and monetary incontinence meant that very highinflation coexisted with the shortages produced by price controls (Ahrend 2005:6).

Faced with such an acute crisis at the end of 1991, the Russian authorities opted for a “big bang”program of economic transformation, involving the rapid liberalisation of prices and trade, as wellas large-scale privatisation. Some researchers suggest that it would have been better to choose amore gradualist approach at that time. However, as others rightfully note, in regard of the erosionof central authority and the decay of the Soviet economic institutions, it was not at all clear if suchan approach would be feasible, let alone desirable due to the collapse of the system of fixedprices. On 2 January 1992 some 90% of retail and 80% of producer prices were freed. The mainexceptions were energy, some raw materials and some basic foodstuffs. At the same time, externalliberalization was under way (Ahrend 2005:7).

Gross Domestic Product

Tighter credit, collapsing global demand, global uncertainty, and rising unemploymenthurt investment and consumption, and led Russia to have -7.9% GDP growth in 2009--a sharpcontrast to the pre-crisis performance of 8.1% in 2007. However, 2010 saw Russia’s economyreturn to growth with a 3.8% increase in GDP. Russia’s Economic Development Ministrypredicts that the nation’s GDP will grow 4.2% in 2011.

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Comparison between Import Export of Russia and India

Table no:24

INDIA - RUSSIA TRADE DATA

YearIndia’s Importfrom Russia in

US$ billion

India’s export toRussia in US$

billion

Total trade inUS$ billion

2001 1.081 0.555 1.636

2002 1.117 0.543 1.660

2003 1.628 0.515 2.143

2004 2.735 0.584 3.319

2005 1.554 0.631 2.185

2006 2.314 0.784 3.098

2007 2.987 0.968 3.955

2008 4.011 1.309 5.320

2009 5.231 1.715 6.946

2010 5.936 1.523 7.460

Source: State Customs Committee of the Russian Federation

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India and Russia have established a new milestone in bilateral trade and economic relations, withIndia giving its consent to Russia's accession to the World Trade Organization (WTO) and bothsides setting up a Joint Study Group (JSG) to finalise a roadmap for increasing the bilateral tradeturnover to US $ 10 billion by 2010. The Protocol on Completion of Bilateral Negotiations onthe Accession of Russia to the WTO and the Memorandum of Understanding (MOU) onCooperation between the Ministry of Commerce & Industry of India and the Ministry ofEconomic Development and Trade of the Russian Federation.

The above diagram shows the total trade between Russia & India. The data of total trade from2001 to 2010.

In 2001 total trade between Russia & India was 1.636, in 2002 it was 1.66, in 2003 the tradewas2.143, in 2004 it was 3.319 it was decrease2.185 in 2005, after the year data increasedconsistently. It shows the healthy trade between Russia & India.

Its good opportunities to India and Russia for develop their trade relation.

In 2001 India import 1.081 us $ billion which increase over a period of time. In 2005 Indiaimport 2.987 Us $ billion from Russia. It reach at import of 5.936 Us $ billion from Russiawhich shows good & healthy trade relation between India and Russia.

India mostly imports agriculture products, mining, machinery, Medicine and biotechnology etcfrom Russia.

India’s exports from Russia are comparatively low from the import From Russia.

Though financial crisis in Russia, it develop its economy very rapidly and it become 1st exportcountry of grains.

India exports 0.555 US$ billion in 2001, and it increase with the period of time but the growthrate of export is low. In 2005 it increased by 0.968 US$ billion. In 2010 it increase 0.5 times thenin 2005 which is 1.523 US$ billion.

Major areas, where Indian exports to Russia can be improved are:

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agriculture and allied products - edible fruits & nuts, products of animal origin, Beverages(Teaand Coffee etc.) and Tobacco; animal and vegetable fats and oils; material based manufactureslike metal and metal articles thereof (e.g. iron and steel and articles thereof); cotton and textilesincluding Ready Made Garments.

Leather exports and exports of collared precious and semi-precious stones, precious metaljewellery, have vast potential in Russian market.

Policies And Norms Of Russia For Import / Export Including Licensing / Permission,Taxation Etc

Documentation and procedures


There is no established procedure for registering importers and exporters with customs.However, in practice certain documents may be required by customs prior to importation (charterdocuments, tax registration certificates, etc.)

Documentation

Russian customs regulations establish a comprehensive list of documents required for customsclearance purposes. In practice, the set of documents to be submitted to the customs authoritiesmay vary depending on the character of imported/exported commodities, conditions of thetransaction, etc.

Customs value declarations

The customs value of imported goods is declared in a customs value declaration in which thecustoms value should be properly supported by appropriate documents. The list of suchdocuments may vary depending on the terms of a particular transaction. While Russian customsregulations provide a general list of documents required to confirm the declared customs value,the list is not exhaustive. If the customs authorities disagree with the customs value declared byan importer, they may adjust it.

2. Temporary import reliefGoods may be imported under a temporary import customs regime, normally for a period of upto two years. Generally, goods are permitted for temporary importation if it is possible to identifythem upon their re-export. Temporary importation requires permission from the customs

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authorities. Upon expiry of the temporary importation period, goods are moved out of Russia orplaced under another customs regime (e.g., release for free circulation). Temporary importationrequires periodic customs payments of 3% per month of the total customs payments due had thegoods been imported for free circulation. Upon export of the goods, these customs payments arenot refunded. Customs has the right to require a security for customs payments (e.g., a deposit,pledge, bank guarantee, etc.) Goods that qualify as fixed assets for production purposes may beadmitted and subject to a 3% monthly customs payment for a temporary import period of 34months if the Russian user does not yet have property rights (e.g., for leasing). After this period,the goods are considered released for free circulation.


Certain imports to Russia require permits, certification (e.g., of conformity, sanitation), licencesand other approvals, which should be submitted to the customs authorities during the customsclearance process. Russia imposes an anti-dumping duty on certain goods (e.g., metal pipes fromUkraine).

4. Customs duties


The Russian tariff classification system is based on the internationally adopted HarmonisedCommodity Description and Coding System.

Rates

Import duty applies to most goods. The majority of customs duty rates in Russia are ad valorem(i.e., a percentage of the goods’ customs value). There are also specific duties for certain types ofimports, calculated by volume, weight or quantity. Some duties have a combined rateincorporating the two and, therefore, the tax base may vary. Base customs duty rates varywidely, from 100% but not less than EUR 2 per litre on spirits to 0% for some printed matter andcertain priority imports.

Excise tax

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Certain categories of goods are subject to excise tax for import to Russia (e.g., alcoholicbeverages, cigarettes, etc.) Generally, excise tax rates are specific (i.e., based on the volume,weight or other characteristics of goods).

Import VATFor most goods, the import VAT rate is 18% of the customs value, inclusive of customs duty andexcise (if any). Food, a certain range of children’s goods and a limited range of other goods maybe subject to 10% or 0% VAT.

Customs processing feesCustoms processing fees are established as a flat fee and vary from approximatelyEUR 12 to EUR 2,400 per customs declaration depending on the customs value of importedgoods.


Charter capital contributions fixed production assets imported by a foreign investor as a chartercapital contribution are free from customs duty. The goods must not be excisable and should beimported within the timeframe established for the formation of the charter capital. Customsauthorities can check to ensure the correct use and further disposal of goods exempted fromcustoms duty.

VAT exemption

VAT exemption is also available for imported technological equipment; the list of eligibleequipment is approved by the Russian Government.

Special economic zones

A number of special economic zones (SEZ) with a free customs regime have been established inRussia. Generally, foreign goods imported to and used within the SEZ are eligible for exemptionfrom import customs duty and VAT. When foreign goods or products of their processing aresubsequently released into free circulation to the rest of Russia, import customs duty and VATare payable. If the goods manufactured in a particular SEZ are exported to foreign countries, theyare subject to export duty, if applicable.

6. Customs policy


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• Lowering customs duty on technological equipment imports;• Simplifying the customs clearance process;• Tighter customs control after the customs clearance of goods;• Further development of customs integration between Russia, Belarus and Kazakhstan.


Goods which are subject to customs control (e.g., imported goods which have not yet clearedthrough customs) can be temporarily stored at special warehouses before being released bycustoms. The storage period should not exceed two months, but an importer can ask the customsauthorities to extend it to up to four months. Warehouses for temporary storage are usuallylocated near customs offices.

3.2 Present Trade Barriers for Import Export

The Russian government eliminated the import tariff on small aircraft with up to 19 seatsfor a period of nine months as of July 16, 2008. According to the Ministry ofTransportation, the measure will be extended after nine months.

In September 2008, the government announced that the import tariff for aircraft with upto 50 seats would be cancelled as of January 1, 2009, and that import tariffs for aircraftwith 115-160 seating capacity would also be temporarily cancelled, so long as the aircraftwere not more than ten 10 years old and were imported into Russia prior to 2011 underleasing contracts for no longer than five years. Neither of the decrees finalizing theseproposals has yet been issued.

There are significant barriers in the provision of satellite telecommunications services inRussia. In particular, satellite regulation is not transparent. The legal requirements andadministrative responsibilities associated with the provision of these services appear to bediscriminatory, with the Russian government demonstrating a preference for Russiansatellite communications systems, which puts competing satellite systems at adisadvantage.

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Current Russian legislation restricts foreign investment in the aerospace industry to lessthan 25% of an enterprise.

Potential for import / export in India

Indian side notes that the current level of exports from India to Russia is far below potential.Major areas, where Indian exports to Russia can be improved are: agriculture and allied products- edible fruits & nuts, products of animal origin,Beverages (Tea and Coffee etc.) and Tobacco; animal and vegetable fats and oils; material basedmanufactures like metal and metal articles thereof (e.g. iron and steel and articles thereof); cottonand textiles including Ready Made Garments, manmade staple fibres and filaments; chemicalsand plastics- organic and inorganic chemicals; machinery and transport equipment, etc. Indianexporters could also export certain niche products such as Tea, “processed fruit” products, dairy,including processed dairy products, meat products etc. In the case of pharmaceutical productsand diagnostic equipment, for unusual reasons (linked to cost and the value of the distributionnetwork used by Indian products) there are specific advantages in case of exports to Russia.Further considering India’s strength globally, Leather exports and exports of colored preciousand semi-precious stones, precious metal jewellery, have vast potential in Russian market.Details regarding some of the specific potential sectors are as follows:

Pharmaceuticals

In the case of pharmaceuticals, Indian strengths include good reputation of drugs in variousgroups, drugs prepared from herbs, substantial market share, value for money and the ramifiednetwork of representative offices and distributors in Russia.

Tea

India is one of the largest producers and exporters of Tea. ‘Darjeeling’ tea from India finds aniche market. However, Indian tea suffers from negative image in Russian market, which isexplained by the fact that large amounts of poor quality teas from third countries are blended andsold as India tea and also teas with low real Indian tea content are named and sold as Indian tea,in Russia.

Coffee

Russia has great potential to source green coffee as well as roasted coffee from India. This isevident from the fact that imports of green coffee have shown steady increase over the yearsfrom 2347 MT in 2001-2002 to 5449 MT in 2005-2006.

Agriculture products and processed food

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Russia is a major importer of potatoes, mangoes, fresh and dried grapes and groundnuts. Indiahas a potential to export these crops as well as food grains, fruits and vegetables like papaya,pineapples, grapes, barley, maize, rice, fresh tomatoes, cucumber, green chillies, dry onions,carrots, cabbage, banana, lemon, lime, apple, pears, green cardamom, pepper and gherkins toRussia. Russia is the biggest importer of gherkins from India and EU is no longer the majorsupplier of frozen gherkins to Russia. India has great potentials for export of flowers also.

Tobacco

Traditionally, India has been one of the leading exporters of Tobacco to Russia. Russian importsof tobacco have increased manifold to 300 million. Kg. Tobacco production in India hasincreased manifold during the last five years. Especially, India is now in a position to supplybulk quantities of tobaccos suitable to Russian manufacturers at right price and there is scope forincreasing the share of India in the Russian imports of un-manufactured tobacco to around 15%from the present share of 9%.

Ready Made Garments (RMG)

India’s strengths include the image of Indian goods as low cost, good quality and reliable.However, the major obstacle to increase in trade volume is transportation cost. The latterprovides great advantages to Turkish, Chinese and European textile and clothing manufacture.However, as the Russian demand is expanding for good quality clothing and apparel, there aregood opportunities for Indian RMG exports due to wide range and pallete of Indian production intextiles and clothing, limited local availability of textiles in Russia, the limited colour rangeoffered by competitors and the Indian design expertise.

Leather

India’s strengths in this area include availability of good quality fashion gloves, premiumquality leather footwear and high end finished leather.

Machinery

Exports of engineering goods and services from India have reached to USD 19.18 billion in2005-2006 and registered a robust growth of 24.68%. Similarly, Russian imports are led bymachinery (41% in 2005).The main thrust products for Russia from India are: Compressionignition and electrical ignition type IC Engines; Refrigeration in air-conditioning; parts forexcavating machinery; Seamless pipes and tubes of iron and steel; Welded pipes and tubes ofiron and steel; Tube or pipe fittings of iron and steel; Handsaws and blades for saws; grindingstones and grinding wheels etc. Indian goods have established good reputation in packagingmachinery also, for pharmaceuticals and food processing.

Automobiles

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There is a large potential for supplying automobile parts from India to Russia, and assemblingIndian cars in Russia. Major Indian companies, such as Mahindra and Tata Motors have recentlydemonstrated their interests in the Russian market. Intensification of cooperation in this area formutual advantage would help.

Major investments from Russia to India are of:

(i) AFK Sistema in Sistema Shyam Telelink Services.(ii) India-Russia JV for production of titanium products in Orissa(iii) Opening of branches by VTB and Sber Bank(iv) Joint venture automotive company between Russian Kamaz Inc and India’s Vectra Grou

Business Opportunities for Russia In Future

Oil and Gas Equipment and Services: Russia is one of the world’s leading producers ofoil and gas. Canadian oil services companies are experiencing substantial growth in Russia andthere is considerable potential for further growth in the development of offshore deposits offRussia’s Arctic Shelf and in the Sakhalin region.

Metals, Minerals and Related Equipment and Services: Canadian equipment andservices providers have established an excellent reputation for providing reliable, leading-edgetechnologies and equipment. With a number of major Russian mining companies looking toexpand and diversify, opportunities are arising in mining services (e.g. surveying and extractionplans for mineral deposits).

Agriculture, Food and Beverages: Increasing per capita consumption of fish andseafood products and growing demand for greater variety and quality of food products includingmeat represent excellent opportunities for Canadian suppliers. A priority is to secure predictablemarket access for Canadian suppliers.

Agriculture, Technology and Equipment: Russian demand for agricultural machineryand equipment is expected to increase sharply over the next few years. While Canadianmachinery is frequently more expensive than Russian alternatives, Canada’s strong reputation forhigh quality and reliability, comfort, labour-saving features and high productivity bodes well.

Building Products and Construction: With demand for new housing expected toresume its growth with the economic recovery and to outstrip supply and growing interest inhigh-quality, less expensive wood frame alternatives to traditional brick and cement, growthopportunities for Canadian suppliers are tremendous. Opportunities are also emerging in large-

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scale construction projects related to the APEC 2012 Summit in Vladivostok and the 2014Olympic Winter Games in Sochi.

Rural Sector in Russia

Table 25 RURAL POPULATION OF RUSSIA;

YEAR PERCENTAGE OF POPULATION

2004-2005 27.1

2005-2006 27.12

2006-2007 27.14

2007-2008 27.16

2008-2009 27.18

2009-2010 27.2

The Rural population (% of total population) in Russia was at 27.20 in 2010,

The Rural population (% of total population) in Russia was 27.18 in 2009,

The Rural population (% of total population) in Russia was reported at 27.16 in 2008,

The Rural population in Russia was last reported at 3,85,56,000 in 2010, and was3,85,54830.00 in 2009 .The Rural population in Russia was reported at 3,85,53,620.00 in 2008,About three-fourths of Russia's people live in urban areas.

Approximately 35 cities in Russia have populations over 500,000. Two of the largest cities inthe country are St. Petersburg with over 5,000,000 people and Moscow with over 8,000,000.

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AGRICULTURE DEVELOPMENT IN RURAL RUSSIA:

The agriculture in the Russian Empire throughout the 19th-20th centuries represented

a major world force yet it lagged behind other developed countries. Russia was amongst the

largest exporters of agricultural produce, especially wheat, while the Free Economic

Society made continuing efforts to improve farming techniques.

Following the breakup of the Soviet Union in 1991, large collective and state farms – thebackbone of Soviet agriculture – had to contend with the sudden loss of state-guaranteedmarketing and supply channels and with a changing legal environment that created pressure forreorganization and restructuring.

Climatic and geographic factors limit Russia's agricultural activity to about 10 percent ofthe country's total land area. Of that amount, about 60 percent is used for crops. in the Europeanpart of Russia, the most productive land is in the Central Chernozem Economic Region and theVolga Economic Region, which occupy the grasslands between Ukraine and Kazakhstan. Morethan 65 percent of the land in those regions is devoted to agriculture.

In the mid-1990s, about 15 percent of the working population was occupied inagriculture, with the proportion dropping slowly as the younger population left rural areas toseek economic opportunities elsewhere

Like the rest of the economy, the Russian agricultural sector has experienced a long,severe recession in the 1990s. Even before the dissolution of the Soviet Union, the output ofgrains and other crops began to decline, and it decreased steadily through 1996 because of theunavailability of fertilizers and other inputs, bad weather, and major readjustments during theperiod of transition.

In 1995 overall agricultural production declined 8 percent, including a drop of 5 percentin crop production and 11 percent in livestock production. That year Russia suffered its worstgrain harvest since 1963, with a yield of 63.5 million tons.

The most dramatic declines occurred in livestock production. Farmers reduced theirholdings of animals as the price of grains and other inputs increased. As meat prices rose, thecomposition of the average consumer's diet included less meat and more starches and vegetables.Reduced demand in turn exacerbated the decline in livestock production.

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FINANCIAL CRISIS AND IT’S EFFECT ON AGRICULTURE OUTPUT:

Since its 1998 financial crisis, Russia's economy has strengthened significantly, growingat roughly 6.7% annually between 1999 and 2005 - propelled largely by a boom in oil and gasmarkets. This growth fueled demand for higher value food products while oil and gas relatedrevenues also allowed the state to increase its role in other sectors, including agriculture.

Following a period of decline, agricultural output has shown positive growth in recentyears. Currently, agriculture accounts for about 11% of total employment and 5% of the nation'sGDP. Agriculture has important implications for the welfare of Russian society; some 18% ofthe population lives below the poverty line, and food and beverages account for 38% ofexpenditures for low income households. Agriculture's contribution to the overall economy hasbeen falling as agriculture has been growing more slowly than non-agricultural sectors.

Graph 13 Russia’s Agricultural OutputAnnual % Change

Figure:1.5 shows impact of financial crises on agriculture output (Source: OECD).

The use of mineral fertilizer and other costly inputs plummeted, driving yieldsdownward. Most farms could no longer afford to purchase new machinery and other capitalinvestments. After about ten years of decline, Russian agriculture began to show signs of modestimprovement. As in Ukraine, the transition to a more market-oriented system has introduced theelement of fiscal responsibility, which has resulted in increased efficiency as farmers try tomaintain productivity while struggling with resource constraints. Official data indicate arebound in Russian grain yield in recent years, and although the bumper harvests of 2001, 2003,and 2004 are due in large part to favorable weather, most analysts agree that the gradualimprovement will continue

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COMPARISSON OF GDP, EMPLOYEEMENT BETWEEN INDIAAND RUSSIAN AGRICULTURE:

INDIAN SCENARIO:

At present, in terms of agricultural production, the country holds the second position allover the world. In 2007, agriculture and other associated industries such as lumbering andforestry represented around 16.6% of the Gross Domestic Product of the country. In addition, thesector recruited about 52% of the entire manpower. Agriculture in India is a major economicsector and it creates plenty of employment opportunities as well. Regardless of the fact that therehas been a gradual slump in its contribution to the gross domestic product of the country, Indiaagriculture is currently the biggest industry in India. On the whole, it has a key role in thesocioeconomic growth of the country.

In terms of agricultural contribution, the following states in India are the most developed states:

A PunjabA Uttar PradeshA Madhya PradeshA HaryanaA BiharA Andhra PradeshA MaharashtraA West Bengal

RUSSIA SCENARIO:

Russia is one of the world's leading importers of food, partly because of its arid climate,inconsistent rainfall. Lack of investment during the Soviet era that contributed to inefficiencies infood production and running down of livestock numbers. Agricultural production accounts foronly 7% of Russia's GDP and employs around 12% of the labour force. In contrast, the industrialsector accounts for 40% of GDP and has been growing at 7% annually

Russia is divided into seven federal districts:

Central, Northwest, Southern, Volga, Urals, Siberian, and Far East. Fourdistricts--Central, Southern, Volga, and Siberian--account for 90 to 95 percent of thecountry's grain output, and the Ural district accounts for most of theremainder. Roughly 60 percent of Russia's spring wheat is produced in the Ural,

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Siberian, and Far East districts and an additional 35 percent in the Volga districtdirectly east of the Urals

REASON FOR UNDERDEVELOP RURAL AGRICULTUREINRUSSIA:

A Substantial decrease of gross output of agricultural production due to soil erosiondecline of soil fertility,

A Neglible state support, inefficient management and due to climatic change,resulting droughts in cereals and potatoes-growing areas;

A Rapid increase of fuel and energy prices and direct and indirect energy expenditures;

A Imbalance between relatively low prices for agricultural products and high prices forEnergy and other agricultural inputs;

A Decline in agricultural profitability;

A Rates of production growth are behind the rates of resource consumption growth;

A The understanding of the need for urgent measures to improve the living standards ofpeople in rural areas,

A Passing of new land code and implementation of wholesale markets, regional land banks,new tax and credit policy;

A Large scale leasing of machinery for farmers and agricultural firms;

A Development of new federal and regional systems of technologies and agriculturalMachinery considering the transition to market economy;

A Creation of machinery and technology stations for rendering services and effectiveuse of agricultural techniques;

A Utilization of existing worldwide experience in agriculture technology and managementincluding international and bilateral co-operation.

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Major Indian exports to Russia (Values in Million USD)

Table: 4India’s export to the Russia

Major Russian exports to India: (Values in million USD)

Products/commodities/raw materials 2001 2002 2003 2004 2005

ARTICLES OF FOOD AND AGRICULTURAL RAW

MATERIALS

2.5 6.7 4.0 2.6 1.1

MINERAL PRODUCTS 12.3 13.8 61.8 121.5 58.8

NO COMMODITY 2001-02 2002-03 2003-04 2004-05 2005-06

1 DRUGS, PHARMACEUTICALS &FINE CHEMICALS

100.87 106.96 139.95 172.22 237.41

2 COFFEE 66.79 46.21 46.02 40.47 67.39

3 TEA 84.5 59.33 56.59 52.09 49.85

4 TOBACCO UNMANUFACTURED 21.54 24.09 20.87 31.62 39.27

5 PROCESSED FRUITS &JUICES 1.2 3.11 5.73 11.62 31

6 TRANSPORT EQUIPMENT 5.67 14.27 5.7 13.92 29.72

7 COTTON YARN, FABRICS & MADEUPS

26.62 15.57 17.89 13.72 29.56

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PEARLS NATURAL 3.4 20.2 1.9 10.9 22.1

PRODUCTION OF THE CHEMICAL INDUSTRY,

RUBBER

165.2 109.6 112.4 100.8 234.9

FUEL_ENERGY GOODS 5.5 2.9 50.6 93.6 33.5

MACHINERY AND TRANSPORT EQUIPMENT 549.7 861.6 1525 1654 1008

MISCELLANEOUS MANUFACTURED ARTICLES 165.1 304.2 367.8 149.1 292.3

METALS AND ITS PRODUCTS 92.8 143.2 248.6 307 525.8

WOOD, PULP AND PAPER PRODUCTS 148.1 193.7 182.7 192.4 169.5

RURAL DEVELOPMENT POLICY IN RUSSIA:

Confession of the strategic role and multifunctionality of agriculture in national economic Increase in competitiveness and effectiveness of agriculture Increase in alternative jobs (diversification) Improved management of rural development Improved access to the markets for rural population Development of civic society institutions

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BARRIERS FOR TRADEING:

Transportation and logistics

Language and Information barriers

Non Tariff barriers of trade

Tariff related Barriers

SAILENT FEATURES OF INDIAN AGRICULTURE POLICY:

1. Over 4 per cent annual growth rate aimed over next two decades..2. Greater private sector participation through contract farming.3. Price protection for farmers.4. National agricultural insurance scheme to be launched.5. Dismantling of restrictions on movement of agricultural commodities throughout the

country.6. Rational utilisation of country's water resources for optimum use of irrigation potential.7. High priority to development of animal husbandry, poultry, dairy and aquaculture.8. Capital inflow and assured markets for crop production.9. Exemption from payment of capital gains tax on compulsory acquisition of agricultural

land.10. Minimise fluctuations in commodity prices.11. Continuous monitoring of international prices.12. Plant varieties to be protected through a legislation.13. Adequate and timely supply of quality inputs to farmers.14. High priority to rural electrification.15. Setting up of agro-processing units and creation of off-farm employment in rural areas.

AGRICULTURE AND RURAL DEVELOPMENT IN RUSSIA ANDINDIA:

RUSSIA INDIA

Industrial and agricultural productionbroke down in Russia after 1990. The recoverystarted in1999, but it will need growth rates fordecades to join developmental paths leading toa satisfactory status private business farms areoperating 80% of the agricultural area but areproducing less than 50% of food.

India´s population has increased fromindependence (1947) by today from 350million to 1 billion. Currently in (2010)population of India is 121crore. 70% of totalIndian population is depending on agriculture.

It was the achievement of Indian

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India is totally different from Russiareferring climate, population growth anddensity, culture and history, property rights onland and many others aspects. Russia hasachieved a much higher level of economic andagrarian development than India despite thelong crisis in the nineties.

Russia has achieved a much higherlevel of economic and agrarian developmentthan India despite the long crisis in thenineties. Nevertheless there are not onlydifferences, but some Interesting similarities.In both countries, a large part of the populationis engaged in subsistence and marketproduction on very small areas and plots,mostly smaller than one ha. The existence of alarge part of population depends on their ruralsubsistence economy.

Agriculture and rural area in RussiaAgriculture accounts for about 7% of grossdomestic product and 10% of nationalemployment in Russia. More than 27% ofRussia´s population is living in the countrysideand therefore more or less affected byagriculture. Migration inflow to rural areasduring the 1990-ies was replaced with anoutflow since 2001. Nearly 500.000 mostlyyoung people annually leave the rural areasearching for a better life in towns. Thisdevelopment seems to reflect the raise ofRussia´s economy since 1999. Livingconditions of rural residents are stillinconvenient. The infrastructures do not meetmodern and convenient standards.

For example, 400.000 rural houses arenot equipped with modern techniques andservices. Only 40% have running water, only31% have sewage systems, 40% centralheating and 19% have hot water. 35% ofvillages have no access to telephone lines andthe same amount have no covered roadways

farmers to boost the agricultural production toanAmount that made sure a sufficient supply withfood for the grown population. 1947 India hadFive million farms. 30 years later there hadbeen 90 million farms and now there are some115 million farms.

The population growth and thedivision of land among the heirs account forthis Increase of farms. Today, every fourthfarmer in the world is an Indian farmer. 20% ofall farms Animals are living in India. India isthe biggest producer of milk, fruit, nuts and teain the world, the second largest provider ofvegetables, wheat, sugar and fish and the thirdlargest producer of Rice and tobacco.

The agriculture in India is stilldominated by big landowners stemming fromthe higher castes. The main cause of thedeterioration of small peasants´ livingconditions and their social position is surelythe population growth. The equal division ofland among the heirs reduces the agriculturalarea that remains in the hands of a family.

The Green Revolution was very oftencritized in the first decade. It was alleged thatthe new technologies might damage thesituation of the poor farmers who werebelieved to be unable to pay for theimprovements and to use them effectively ontheir small areas and plots.

But in fact the Green Revolution cameout as a success story for most parts of Indianagriculture. The new technologies could spreadeverywhere in India, to most of thegeographical regions and social levels of.Nowadays even smaller farmers have themeans and possibilities to work with highyielding varieties, chemical plant protectiveagents and fertilizers. Even the use of tractorsfor bigger farms and the use of electricity have

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and railways progressed.

The 1970s and the 1980s were said tobe successful periods of Green Revolutionwhich made India self-sufficient in food grainproduction. Very often it is maintained thatIndia has raised its Agricultural production notonly to provide the growing populationsufficiently, but also has successfully extendedthe per capita consumption and hasadditionally boosted the export.

From generation to generation thefarms get smaller and smaller. Hence, manypeople are forced to become tenants to get landnext to their own property, if they have at allsmall areas or plots on their own. Due to thehigh demand on land the big landowners canclaim high payments so that many tenants seethemselves caught in a trap of growing debts.

If they cannot pay back their debts theyoften have to work on the plantationsadditionally to their payments or they lose alltheir own land falling in a position of merelandless laborers with huge duties. More than30% of rural population are landless and forcedto work as poor laborers.

These 79% of all farms cultivate only onethird of the agricultural land of India. 13% ofthe farms have between 2 and 4 ha andcultivate 23% of the total area. Only 2% of thefarms have more than 10 ha and cultivate 17 %of the soils. The small size of the holdingsindicates the scarcity of land and property, thepoverty of people and the severe livingconditions, the dependence on land owners andmoney lenders.

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COMPARISION OF INDIAN – RUSSIAN AGRICULTURE:

It is, of course, difficult to compare agriculture and rural development of Russia andIndia. First of all, the physical and climatic conditions are extremely different. Russia belongsmore to the moderate and cold climate zones whereas India is a part of the tropical climate zone.Russia´s climate is divided in a northern zone where agriculture is scarcely present or not at all,in a western zone with sufficient precipitation and cold winters, and an eastern zone with coldand dry winters. Temperatures in summer and winter are quite different.

The next big difference between Russia and India concerns the different amount ofpopulation density and population growth. The total land area of Russia is 6.5 times larger thanthe area of India while India´s population is around 7 times bigger than Russia´s population. Byadding these numbers the result of the different man-land ratio between the countries is 1:14.

But the productivity differences in favour of India only concern the area productivity, notthe labour and capital productivity. The labour productivity of a Russian farmer is several timeshigher. This is especially due to an higher use of modern technologies.

It is to surmise that the small farms and the large-scale farms in Russia have betterequipment and organizational structures than Indian farmers. Especially, conditions such as thesocial frame of Russian agriculture and the size of available land are much more convenient thanin India.

The Russian gross domestic product per capita is three times higher than that of India andthis difference is reflected in the differences of their agricultural productivity. These relations arenot really affected and decreased by the higher growth rates in India in the last 15 years, whileRussia´s economy and agriculture declined in that period. Russia has achieved a higher level ofeconomic development, a fact with a long tradition that goes back to the 19th century or evenbefore.

RUSSIA AS MEMBER OF WORLD TRADE ORGANISATION:

It took nearly 20 years, but Russia finally gained approval to join the World TradeOrganization.

- “Lower Import Tariffs, Fewer Subsidies and Reduced Export Duties:- Liberalization of Trade in Services:- Improved Intellectual Property Protection:- Transparency Commitments:

NON-FARM DEVELOPMENT OF RURAL SECTOR IN INDIA:

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Graph 14 Distribution of major Non-agricultural establishments in rural India during 2005

Source: Economic Census All-India Report (2005), Govt. of India, Ministry of Statistics and ProgrammerImplementation.

Above chart indicates that in rural sector of India not only agriculture is developed butalso retail trade and manufacturing are also developed as business

A Around 41.89 million persons worked in rural non-agricultural establishments of rural areaswhich constitute 46.55 % of the total employment in non-agricultural sectors including both ruraland urban areas

DEVELOPMENT OF CASH & CARRY BUSINESS, SUPERMARKETS AND MINIMARKETS,

STORE, MORDERN TRADE IN RURAL AREA:

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Russia

Rural Russia Urban Russia

Retailbusinesses

Cash&carry

Minimarket,food store,

Openmarket

Cash&carry

Minimarket,food store,

Openmarket

2009 27% 57% (36%) 48% (10%) (28%)

2010 51% 16% (18%) 17% 10% 12%

Table:6 table shows comparison of retail sector growth in urban and rural Russia

From above description we can say that rural market of Russia also creating newopportunities not only for agriculture but also retail trade also, here rural and urban sectorscomparison is given in the table

From above chart we can clearly identify that cash and carry markets in rural Russia hasbe emerge as vast opportunity for the retailers it is showing tremendous growth from 27% to51%, and also other minimarket and food stores are growing average rate in rural markets ofRussia compare to urban sector, And as per the data of 2005 in India also a retail trade isgrowing by 39% for non food items (no agriculture has been involved) , which are such a bigsign for rural developments

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In 2011, two of the biggest retail chains announced plans for further expansion in smallcommunities. Expanding the modern trade universe in rural Russia will offer tremendouspotential for FMCG-businesses to establish positions in the rural market.

And while the establishment of a strong market position in the rural landscape can bechallenging due to logistical distribution difficulties, rural Russia is not an isolated part of themarket. Market concentration levels in rural Russia, as well as the main market players for themajority of categories analyzed by Nielsen, are generally similar to the urban market, indicatingthat rural Russia is aligned with—not separate from—urban Russia.

Potential Areas for Investment

Investment in Russia

The areas where Indian companies have invested or shown significant interest are

A Power sector - Indian side does not generally get to know any information on investmentpossibilities related to energy sphere in Russia especially in government/large enterprisesin the area of E&P, pipeline, petrochemical and gas processing plants and LNG whereIndian investment can flow to Russia

A Health care and pharmaceuticals- Such Indian companies as Ranbaxy, Dr.Reddy's Lab,Unique Pharmaceuticals Laboratories also work in Russia through their representativeoffices

A Automotive industry- Tata Motors is considering the construction of an assembling plantin the territory of Russia. Other Indian auto manufacturers may also want to have theirproduction facilities in Russia

A Chemical production and fertilizers - Fertilizers (and other products) are maincommodities exported from Russia to India. Indian direct investments in the industry arespread throughout the world. India is a stable consumer of fertilizers

A Metallurgy and mining - Russian experts keep providing consulting services to Indiansteel, coal and energy companies therefore, this area could be attractive for Indiancompanies.

Investments in India

The areas that are the most interesting for Russian companies are:

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A The sector having the largest potential for absorption of FDI in India is theInfrastructure sector.

A India is strong in the area of IT and telecommunications,

A 100% foreign investment is permitted in most areas of agricultural products

A Processing in India With the opening of India’s power sector investment opportunitieshave now become available in generation , transmission, distribution and trading ofelectricity.

Transportation Sector in Russia

Introduction: The Transport Sector

The Transport Sector is of key importance to the economic well-being of our countries ofoperation. It represents the lifeblood of the economy, moving people and goods to those placeswhere market forces require them to be, thereby enabling enterprises to compete on the domesticand international markets. An efficient transport sector is therefore of critical importance toallow the efficient functioning of the market; any infrastructure transaction which providessupport for private and entrepreneurial initiatives and assists in making a competitiveenvironment and raising productivity thereby contributes to the Bank’s transition impactobjectives. As a consequence transport operations may achieve transition impact through twomodes:

1) Transition impact is normally achieved through the design, structuring andimplementation of the transport project, the nature of support provided to the Borrowerand the conditions attached to the financing. The transition impact will typically relate tothe undertaking of identified actions by the financed party related to transition objectives.To maintain the likelihood that the transition objectives are achieved requires setting theobjectives and conditions in line with the incentives for compliance by the client and theleverage of the Bank to request and monitor compliance. This approach works best wherethere is a strong alignment between the transition objectives targeted by the Bank and theinterests and perceptions of those parties able to influence and achieve the transitionobjectives; and

2) The transport sector in our countries of operation is frequently in poor state of repair andoften not suited to, and hampering the development of, the free-market economy. To acertain extent, almost all well designed transport projects will therefore have some impacton the level and quality of market development through their physical and economicimpact (contributing to the more efficient functioning of the market, by removingexcessive time delays, transport costs and barriers to competition, thereby enabling widerparticipation in the market economy and consequently rendering that economy lessvulnerable to distortion or manipulation). In some cases such impact will be sufficientlyimportant for the project selection itself to warrant explicit recognition in the assessment

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of the transition impact potential, for example where the market development concernssubstantial regional integration and facilitation of trade dimensions within a region wherethis is of strategic importance to the transition process (Central Asia, Caucasus andSouth-East Europe are examples).

As a consequence projects may be selected on the basis of transition impact arising out ofeither, or a combination, of the two modes described above.

Investment in transport represents a significant proportion of the overall wealth of acountry, yet it is often difficult to monetize the full economic benefits of investment in transportinfrastructure, such as the improvements in the environment arising from the construction of aring road, or the enhancement to property values. As a consequence a number of approaches totransport infrastructure financing must be adopted to optimize transition impact.

Russian Transportation Sector Overview:KEY SUB-SECTOR OVERVIEW:Road Infrastructure

The roads portfolio amounts to a total commitment of EUR 1.8 billion, comprising 33 signedprojects in 16 of the Bank’s countries of operation. Of those projects, over 70% have involvedthe rehabilitation of existing roads in poor condition and the provision of town centre by passesproviding environmental and health and safety benefits. The average project size has been large,mainly because of the amounts needed to reconstruct and develop the road networks in theBank’s countries of operation, particularly in Russia, Kazakhstan and Ukraine and in particularthe regional Silk Road route, in respect of which the Bank has provided loans in support ofprojects with a volume of €480 million. Private sector opportunities have been slow to emergelargely because of the need to develop appropriate legislative and institutional frameworks. As aconsequence, the roads portfolio currently is dominated by sovereign financing. These projectsinvolve financing of rehabilitation, upgrading and new construction, typically for roads locatedon strategic European corridors (i.e. the Trans-European Network (“TENs”) or major road axessuch as the Silk Road and the Trans –Siberian Highway.

Railways

The scale of EBRD involvement to date in the railway sector reflects its significance tolocal economies and international trade: railways carry more than half of long-distance freight inthe region (in Russia more than 70 per cent) and a significant share of the intercity passengermarket(typically around a third); the national railway is usually among the six biggest enterprises in anyof the Bank’s countries of operation.

Ports and Shipping

1. Ports

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The significance of port development derives from the ports’ importance as facilitators oftrade and maritime transport, which has significant environmental benefits compared toalternative modes of transport. The ports in the Bank’s countries of operations faced fundamentalchanges in cargo and passenger flows following the break-up of the established trade flows underthe Soviet regime, leaving the ports with significantly less traffic volume and/or ill-equipped tohandle their new cargos in an efficient manner. Due to their organizational structure as publicinstitutions and decreasing funding from public budgets coupled with little access to alternativefinancing sources, they had little flexibility and resources to adapt to these fundamental changes.Operational and financial performances were weak due to lack of market incentives and werefurther hampered by corruption and obsolete management practices. The industry is alsofrequently characterized by corrupt practices/smuggling.

2. Shipping:The Bank’s shipping strategy is set out in greater detail in the Shipping Operations

Policy approved by the Board 31 October 2001. For the sake of completeness, a summary of thatstrategy is set out below for information. The Shipping Operations Policy remains, however, thedefinitive document.

The shipping industry in the Bank’s countries of operation has undergone significantstructural changes which have affected, and will continue to affect the future development of theindustry. The most notable developments are the privatization of formally state-ownedcompanies; financing of fleet renewal funded by private sector sources and increasedcompetition from foreign ship owners following liberalization of seaborne export trade.

The Aviation Sector

1. Air transport:The end of the communist block left airlines in the Bank’s countries of operation

laden with fleets of soviet-type aircraft, operating an inefficiently run network, seriously over-staffed and with commercial and management cultures inherited from the command economy.The end of state subsidies, the adjustment of air fares to levels reflecting the true cost ofoperations and the population’s lack of disposable income led to a massive drop in air traveldemand all across the region. Whilst the Western European air transportation sector wasderegulated, thus giving rise to the development of the low cost airlines, there has been unevenprogress in Central and Eastern Europe towards deregulation and opening to competition. Lackof reform and fear of losing control over national flag carriers has resulted in central andlocal/regional governments retaining a majority shareholding or significant influence in mostairlines. Foreign airlines have sparingly taken direct capital interest (Ukraine Airlines, LOT), andhave exercised their growing influence through commercial and technical arrangements. Accessto financial markets has generally been non-existent, with very few airlines seeking listing on

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local stock exchanges. Most airlines remain undercapitalized and dependent upon inadequate andexpensive short-term credit to finance their development.

2. Space Transportation and infrastructure:The end of the Cold War has prompted significant cooperation between leading

western aerospace companies and their counterparts in Ukraine and the Russian Federation inmarketing launch vehicles or jointly producing satellites. The space infrastructure of the formerCIS countries is aging, thus prompting the need to renew satellites covering the region as satellitecoverage is essential to maintain access to telecommunications and media in remote regions. Thetraditional satellite manufacturers in Ukraine or the Russian Federation have tried to respond tothe demand in association with Western equipment manufacturers who provide some of thecritical parts (e.g. antennas, transponders). Space infrastructure will, however, likely remainunder state ownership.

Municipal Transport

Transfer of the commercialization approach pioneered in the water/waste-water sector tooperating companies in the urban transport sector, such that:

1 transport companies operate under transparent contractual relationships with authority, withclearly defined rights and obligations, and good corporate governance;

2 where a local authority sets fares below full cost recovery levels, the authority makespayments to the operator for services rendered (whether a public or a private operator) undera Public Service Contract (PSC), rather than on the basis of blanket subsidies.

Support for private sector participation where appropriate and feasible for urban transportservices, rolling stock provision, street infrastructure provision and maintenance, and parkinginfrastructure and management;

Grounding of urban infrastructure investments (e.g. roads, bridges, track renewal) on thebasis of sound economic priorities, taking into account traffic management improvements,and based on sound environmental and public consultation procedures;

Application of EBRD public procurement rules in a sector which is subject to non-transparent and corrupt practices;

Support to local authorities and local transport companies to improve regulatory,institutional, operational and financial performance.

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Indian Transportation Sector Overview:

Road sector in India

Second largest road system in the world at 3.3mn km

NH Density on Area at 3.7 km vis-à-vis 6.5 km and 26.1 km of Total Road

Network per 1000sqkm of land area in China and US respectively

NH Density on Population at 0.01 km vis-à-vis 0.05 km and 0.84 km of Total Road

Network per1000 people in China and US respectively

Quality of roads at 87th position in the world, way below China, Pakistan &

SriLanka

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Ports in India

Growth in Cargo traffic at a CAGR of ~10% in the past five years

~80% of the total traffic comprises dry & liquid bulk, remaining being generalincluding containerized cargo

12 Major ports and ~187 non-major ports in India

Major ports handle ~70% of total volume of cargo

Capacity expansion plan of Rs.558 bn till FY14 under the NMDP, 2005

Capacity expected to increase 2.14x from 736.9 mn tons to 1.5 bn tons by 2014

Airports in India

Rapidly Expanding market

At ~25% p.a one of the fastest growing aviation markets in the world despiteglobal slowdown

Airlines are competitive and consolidation is bearing fruit

Over 400 new aircrafts have been ordered since 2005

Airport Infrastructure

Govt encouraging Pvt Sector participation to augment infrastructure to meetincreasing air traffic

Bangalore & Hyderabad airports now fully operational

Delhi/ Mumbai Airports are still under development by private developers

5 greenfield airports planned under BOT –yet to take off

Modernization of non-metro airports by AAI –flip-flops on bids seen

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Railways in India

Remarkable turnaround by Indian Railways has breathed new life–into this life lineof Indian transportation

Railway intends to spend USD 55 bn into various development schemes

Safety–37% Capacity increase–24%, Roling stock–18%, Dedicated freightcorridor–10%, Metro rail projects–9%

Surplus land utilization will also bring in more funds for investment

Inland Waterway Transport in India

India has 14,500 km of navigable waterways comprising of rivers, canals,backwaters, creeks

5,700 km out of 14,500 km of IW is navigable by mechanized vessels

Presently, navigation restricted to only a few stretches such as

~45 MT of cargo (2.5 bn tones-km of traffic)

~70% of traffic in terms of tone-km contributed by iron ore export throughrivers in Goa

Central Inland Water Transport Corporation (CIWTC) has been a Principaloperator of vessels (barges) on IWs

IWT modal share 0.3% in transport

New Draft Maritime Policy vision–IWT Modal share of 2% by 2025

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Comparative position of Transportation sector:

Transportation stats: India vs. Russia

Indian Transportationstats

Russian Transportation stats

Aircraftdepartures

214,300 329,400

Ranked 19th. Ranked 11th. 54% more than IndiaAir transport,freight >million tonsper km

773.22 million tons/km 1,541.22 million tons/km

Ranked 29th in 2005. Ranked 16th in 2005. 99% more thanIndia

Airports >With pavedrunways >1524 to 2437m

78 122

Ranked 8th. Ranked 5th. 56% more than IndiaAirports >With pavedrunways > 914to 1523 m

74 100

Ranked 7th. Ranked 4th. 35% more than IndiaAirports >With unpavedrunways >1524 to 2437m

9 120

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Ranked 33rd. Ranked 1st. 12 times more than IndiaContainer porttraffic

4,938,226 TEU 1,802,645 TEU

Ranked 17th in 2005.174% more than Russia

Ranked 31st in 2005.

Driving side ofthe road > Leftor right

Left side Right side

Investment intransport withprivateparticipation >current US$(per $ GDP)

0.2 $ per $1,000 of GDP 0.4 $ per $1,000 of GDP

Ranked 51st in 2000. Ranked 48th in 2000. 93% more thanIndia

Merchantmarine > Shipsby type

bulk 100, cargo 82,chemical tanker 15,combination bulk 2,combination ore/oil 2,container 10, liquefiedgas 10, passenger/cargo5, petroleum tanker 75,roll on/roll off 1, short-sea passenger 2,specialized tanker 1

barge carrier 1, bulk 22, cargo 553,chemical tanker 12, combination bulk21, combination ore/oil 36, container30, multi-functional large-load carrier1, passenger 38, passenger/cargo 3,petroleum tanker 167, refrigeratedcargo 21, roll on/roll off 20, short-seapassenger 7, specialized tanker 1

Merchantmarine > Total> Dwt

14,339,440 Dwt 5,747,083 Dwt

Ranked 13th in 2007.150% more than Russia

Ranked 31st in 2007.

Motor vehicles 12 motor vehicles per100 p

124 motor vehicles per 100 p

Ranked 104th. Ranked 58th. 9 times more than IndiaPorts andharbors

Chennai (Madras),Cochin, JawaharalNehru, Kandla, Kolkata(Calcutta), Mumbai

Aleksandrovsk-Sakhalinskiy,Arkhangel'sk,Astrakhan', De-Kastri, Indigirskiy,Kaliningrad, Kandalaksha, Kazan',

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(Bombay),Vishakhapatnam

Khabarovsk, Kholmsk, Krasnoyarsk,Lazarev, Mago, Mezen', Moscow,Murmansk, Nakhodka, Nevel'sk,Novorossiysk, Onega, Petropavlovsk-Kamchatskiy, Rostov, Shakhtersk,Saint Petersburg, Sochi, Taganrog,Tuapse, Uglegorsk, Vanino,Vladivostok, Volgograd, Vostochnyy,Vyborg

Rail usage >Passenger-kmof railtransport,

575.7 164.26

Ranked 2nd. 3 timesmore than Russia

Ranked 4th.

Speed limit >Within Towns

50-60 60

Travel services> % ofcommercialservice exports

16.83 % 27.98 %

Ranked 125th in 2003. Ranked 105th in 2003. 66% morethan India

Vehicleabundance

2.5 per square km 5.66 per square km

Ranked 85th. Ranked 66th. 126% more than IndiaWaterways >A note

3,631 km navigable bylarge vessels

routes with navigation guides servingthe Russian River Fleet - 95,900 km;routes with night navigational aids -60,400 km; man-made navigableroutes - 16,900 km (Jan 1994)

(Source: CIA World Factbook)

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1) Railways, Passengers carried ( million passenger-km) 2010

India Russia903465 139028

Table No. 26 Railways, Passengers carried (million passenger-km) 2010

Conclusion:

From the above graph we come to know that in India the railway passenger carried more than theRussian passenger carried per kilometer. In India there are 903465 people carried per km. where,in Russia there are only 139028 people carried in railway transportation.

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2) Railways, Goods transported ( million ton-km )

Year Russia India2008 2400000 5213712009 1865305 5514482010 2011308 600548

Table No.27 Railways, Goods transported ( million ton-km )

Conclusion:

The above graph represents that in Russia there are more transportation of goods by railway thanIndia. But in Russia the scenario of goods transportation is decrease year to year, where in Indiathere is continuously increase in goods transportation by railway.

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3) International tourism, expenditures for passengertransport ( current US $ )

Table No. 28 International tourism, expenditures for passenger transport

( current US $ )

Year Russia India2008-09 2766000000 21970000002009-10 3477000000 3118000000

Conclusion:

The above graph represents the expenditure of passenger transportation in Russia and India. InRussia the expenditure in more than India. Means the Russian government spends more moneyin passenger transportation.

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4) Motor vehicles (per 1000 people )

Year Russia India2008 264 172009 271 18

Table No.29 Motor Vehicle per 1000 people

Conclusion:

From the above graph we can find out that the motor vehicle per 1000 people in Russia is morethan India. The difference between to country is very high because in 2010 in Russia there are271 motor vehicle per 1000 people where in India there are only 18 vehicles.

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Trade Opportunities for India:

Potential for the export of various vehicles, two wheelers, auto parts,

Strong potential for a few trans shipment hubs

Rising need of infrastructure of jetties and cargo handling equipments

Potential for Eco-tourism

Increasing demand for the machinery for railways.

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Introduction of the Pharmaceutical Industry

RUSSIA

The presence of foreign manufacturers is increasing in Russia. A number of agreements

have been made in 2011 between domestic and foreign companies that will benefit the Russian

pharmaceutical market. Company to contribute $1.2 billion over five years to the Russian

economy. These include a joint-venture between India's Aurobindo Pharma and Russia's OJSC

Diod; a licensing agreement between Norgine and Nycomed that gives the latter exclusive rights

to commercialise MoviPrep in Russia; investment by Rusnano, Russia’s government investment

company, in Cleveland BioLabs' new subsidiary, Panacela Labs, which will develop a portfolio

of new preclinical drug candidates in Russia.

INDIA

The Indian pharmaceutical market is highly competitive and remains dominated by low

priced, domestically-produced generics. Despite having the second largest population in the

world and a growing middle class with high healthcare expectations, India accounts for less than

2% of the world pharmaceutical market in value terms. In one of the world's better performing

economies, spending on pharmaceuticals accounts for less than 1% of GDP and average per

capita spending remains one of the lowest levels in the region. India’s biopharmaceutical sector

is currently experiencing double-digit growth and this is expected to continue, driven by the

vaccines market. Growth drivers include education and increased awareness of disease

prevention, higher disposable income and government participation in immunisation

programmes.

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Structure of Pharmaceutical Industry

Fitch Ratings' outlook on the Indian pharmaceutical sector for 2012 or the financial year

to end-March 2013 (FY13) is stable. The agency expects credit profiles to remain stable, should

long-term earnings and profitability prospects remain intact with moderate capex.

"Aggregate disclosed value of merger & acquisitions (M&A) deals in the

pharmaceuticals sector surged from a meagre US$ 1.2 billion in FY10 to US$ 4 billion in FY11,

reflecting a jump of more than 230 per cent," as per an Ernst & Young (E&Y) report. M&A has

emerged as one of the key strategies in the last two to three years to gain a foothold in emerging

markets with several big ticket acquisitions, the report added.

Domestic pharmaceutical retail market clocked a robust 15 per cent growth during 2011,

mainly driven by therapies like anti-diabetic, vitamin, anti-infectives and dermatology. The

domestic pharmaceutical retail reached a new milestone by recording overall sales of Rs 60,000

crore (US$ 12.20 billion) for the year 2011.

Functions and Business Activities of a Pharmaceutical Industry

Pharmaceutical company is made up of a number of functional divisions and each of

these departments is responsible for one area of the activities. The departments of pharmaceutical

company are followed as:

Research and Development

Regulatory Affairs

Production

Quality Control

Quality Assurance

Sales & Marketing

Research and Development

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Research departments are responsible for finding compounds which can be developed

into new and better medicines. Development staff must then go through all the processes that are

necessary to produce a new medicine from the original research idea.

Regulatory

Regulatory department is responsible for liaising with regulatory authorities, with

regard to approval of application and type of license.

They also submit annual reports and supplements to the regulatory agencies and have an

advisory role with regard to providing information on country-specific regulations.

Quality Assurance

QA is the most vital function of Total Quality Management (TQM) in pharmaceutical

industry. QA functions as the company's internal quality auditing and compliance.

Production

Once the drug is approved by the regulatory board, the regulatory department will give

the Master Formulation Record to the production department. The production department is

involved in the preparation of a pharmaceutical product, from receipt of materials, through

processing, packaging and repackaging, labeling and relabeling, to completion of the finished

product.

Quality Control

The term quality control refers to the sum of all procedures undertaken to ensure the

identity and purity of a particular pharmaceutical or the process of Checking or testing, that

specifications are met, or the regulatory process through which the industry measures actual

quality performance, compares it with standards, and acts on the difference.

Sales & Marketing

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Every Pharmaceutical company will have their own marketing and sales strategies to

introduce the drugs into the market. A drug company employee regularly visits physicians and

office practices and apart from that, they will take care of retail, distributor and wholesale sales

and provides information on the company's products usually putting a negative 'spin' on

competitors' products.

Comparative Position of Pharmaceutical sector between India and Russia

THE PHARMACEUTICAL SECTOR IN INDIA

The Pharmaceutical sector in India is highly fragmented with more than 10,000 listed and

unlisted companies. India is one of the fastest-growing pharmaceutical markets in the world, and

its market size has nearly doubled since 2005. The total turnover of the Indian Pharma sector is

estimated to be close to US$ 21 bn of which around US$ 9 bn comes from exports while the rest

comes from domestic sales. US is the topmost destination for Indian Pharma exports followed by

Russia, Germany and Austria. A region-wise segregation of Indian exports has been shown

below.

3

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Table 30 THE PAST REVIEW OF THE PHARMA SECTOR

Name ofCompany

What is itinto?

Net Sales (In RS. CR.) Net Profit (In Rs. Cr.) 6 Yearavg.NPM2005 2010

5 YearsCAGR 2005 2010

5 YearCAGR

RanbaxyLaboratoriesLtd.

Formulation& API 5247.9 8882.1 11.10% 235.8 1357.3 41.90% 4.80%

Dr. Reddy'saboratoriesLtd.

Formulation& API 1832.7 6988.6 30.70% 27.1 569.9 83.90% 7.10%

Cipla Ltd.Formulation& API 2181.3 5359.5 19.70% 409.6 1081.5 21.40% 18.80%

SunPharmaceutical Inds. Ltd

Formulation& API 1191.1 3904 26.80% 390.3 1349.9 28.20% 36.50%

GlaxosmithklinePharmaceuticals Ltd.

Formulations 1485.3 2111.6 7.30% 306.3 581.4 13.70% 25.10%

AventisPharma Ltd.

Formulations 807.8 1085 6.10% 145.1 155 1.30% 16.80%

Jubilant LifeSciencesLtd. CRAMS 1167.8 3781.3 26.50% 113.2 424.4 30.20% 11.20%Divi'sLaboratoriesLtd. CRAMS 347.4 929.3 21.80% 66 344.2 39.10% 28.50%

As seen in the above table, Dr. Reddy’s Laboratories Ltd. has clocked the highest Net

Sales CAGR of ~31% over the last 6 years. Its Net Profit has also grown strongly with a 5 year

CAGR of close to 84%. However, its Net Profit margin is quite low at 7%. In terms of volume,

Cipla is the market leader with a 5.3% market share in India.

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Sun Pharma enjoys the highest Net Profit margins with a 6 year average of 36.5%. This is

because of the strong brand it has created and its strong presence especially in the CNS therapy

area.

What is the future Outlook for the Pharma sector in India?

The Pharma sector in India is expected to show robust growth in the next few years

driven by growth in all 3 segments viz.

Domestic Formulations which are expected to grow at ~15%

Exports which will see huge growth due to the patent cliff in 2012 and emerging markets

like Brazil, Mexico, South Africa driving growth

CRAMS which is expected to grow at a rate of around 13% globally.

Indian companies have the largest number of US FDA (Food and Drug Administration)

approved facilities outside US. They have made regulatory filings for around 70% of the drugs

that are going off patent in 2012. Besides many companies have sizable US exposure in their

overall revenue.

Given below are the business model and the assessment for a few Pharma companies

At we have assigned colour codes to the 10 YEAR X-RAY and Future Prospects of the

companies, as Green (Very Good), Orange (‘Somewhat Good’) and Red (Not Good).

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Companies Business Model Business Mix 10 Years X-RAY Future Prospect

Sun Pharma

Primary Focus onDomestic mkt andUSA. Forcus onhigh marginchronictherapie(CNS,CVS, Injectible)

DomesticFormulations:40%API: 10%,Caraco:14%Taro:27%, RowExports: 7%

Green Green

Cipla

Brand presence inthe domestic mkt,Focus acrosstherapies.

DomesticFormulations:44%ExportFormulations:44%Export API: 9%,Licensing Income:3%

Green Green

Dr. Reddy

Renewed focus ondomestic mkt,Key focusgeographies:USA, Russia.Strong APIplayes. NoTherapy focus

DomesticFormulations: 17%API:27%Russia:13%,USA:20% Germany: 8%

Orange Orange

Divis

High end CRAMSplayer. ProvidesAPI for bothGeneric andpatentedmolecules as wellas batch quatitiesof API used forclinical trials

Generics API:47%, CCS: 47%Catenoids: 6%

Green Green

While investing, one must always invest in the stocks of a company that operates in an

industry with bright long-term prospects. Further, the company’s 10 YEAR X-RAY and future

prospects should also be Green. The table given above gives you a list of few companies from

the Pharma Industry that you could consider investing in. But, you need to invest in these stocks

at the right price

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THE PHARMACEUTICAL SECTOR IN RUSSIA

The pharmaceutical market as a whole saw compound annual growth rates of 14.2

percent in the period of years from 2006 to 2010. The most profitable subsector on the

pharmaceutical market was the “therapeutic treatment” category, where revenues stood at USD 4

billion, or about 46.9 percent of the total market size.

Analysts believe that the expansion of the market can soon accelerate, forecasting a compound

annual growth rate of 20.9 percent for the next five years.

Overview

The pharmaceutical industry in Russia has seen considerable expansion in the past

several years, with double-digit growth rates.. As mentioned earlier, the size of the market was

USD 8.6 billion in 2010, and the compound annual growth rate for the past four years was 14.2

percent. By comparison, the pharmaceutical markets in France and Germany had compound

annual growth rates of only 1.8 percent and 3.4 percent from 2006 to 2010.

In 2010 alone, the Russian pharmaceutical market expanded by 17 percent. Today,

Russia accounts for 4.4 percent of the European pharmaceutical market. By comparison,

Germany’s share of the European market is 17.8 percent.

Market participants

The largest participant on the Russian pharmaceutical market is Novartis. Its share of the

Russian market is estimated at 4.9 percent. Novartis International AG is a multinational

pharmaceutical company based in Basel, Switzerland, ranking number three in sales in the

world-wide industry, with sales of 36.173 billion in 2008. The company recorded revenues of

USD 44.267 billion in 2009. The company’s number one market was Europe, with revenues of

USD 10.467 billion, or 37 percent of its sales.

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Overview

The Russian pharmaceutical industry is highly fragmented, and the largest four market

participants taken together constitute only 16.4 percent of the market. The market participation

of large international players does not change the dynamics of the industry. The market can be

characterized by a high degree of rivalry.

Market segments

Market segments in the Russian pharmaceutical sector were distributed as follows:

therapeutic purposes medication: 46.9 percent; alimentary/metabolism: 17.8 percent; central

nervous system: 12.3 percent; respiratory: 11.5 percent, cardiovascular: 8.3 percent, oncology:

3.2 percent.

Shares by country comparison

Germany: 19.4 percent

France: 18.7 percent

United Kingdom: 13.4 percent

Russia: 4.4 percent

Rest of Europe: 44.2 percent

Buyers

Most buyers of pharmaceuticals in Russia are actual providers of health care services,

including hospitals, managed care organization, and state agencies. The second distinct group

includes drug retailers. The wide spectrum of potential buyers reduces the leverage that each

individual buyer can exert In 2009, company Pfizer generated at a minimum 10 percent of its

revenue from three wholesalers, namely McKesson, Cardinal Health, and Ameri source Berge .

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Suppliers

The suppliers working with the Russian pharmaceutical market include manufacturers of

active ingredients used in the medication. These producers form a subsector of the chemical

market sector. As such, a host of big pharmaceutical manufacturers in Russia invest in

production facilities and enterprises that guarantee the creation of fine chemicals

Newcomers

Market entry can be long, costly, and involve considerable risk. The ability of companies

to sustain their operations and remain profitable is directly tied to their technical know-how.

Competent employees are absolutely indispensible for successful market entry. The relatively

high pay for skilled workers adds to the high fixed costs on the market.

Recent developments

The market for ready-to-use drugs declined by 1.1 percent in October 2010 in relation to

September. The volume of the market has been estimated at RUR 20.1 billion. Year-on-year

growth in this segment was only 0.1 percent.

The commercial market for drugs in general expanded by 3.6 percent on a year-on-year

basis in the first ten months of 2010. The actual prices on pharmaceutical products grew 4.4

percent. In October, the average price of drugs on the Russian market rose by 5.4 percent

compared to September.

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Present Position and Trend of Business for import / export in India

Years Domestic Market Export Import

2005-06 39989 21230 4515

2006-07 45367 25666 5867

2007-08 50946 29354 6734

2008-09 55454 39821 8648

2009-10 60154 42154 9828

2010-11 62055 45215 10222

Exports of Indian Pharmaceutical Products to Top 20 Countries in 2009-10

S. No. Importing country Amount (US$ million)

1 USA 1791.0

2 UK 263.9

3 Germany 243.6

4 South Africa 226.8

5 Russia 221.4

6 Brazil 165.0

7 Nigeria 154.1

8 Kenya 137.3

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9 Netherlands 131.7

10 Turkey 119.0

11 Canada 108.0

12 Viet Nam 102.8

13 China 100.4

14 Ghana 99.6

15 France 98.0

16 Israel 97.0

17 Spain 94.5

18 Sri Lanka 92.4

19 Italy 91.2

20 Ukraine 90.5

Source: Directorate General of Commercial Intelligence and Statistics (DGCIS) Kolkata

Key Strength of Pharmaceutical Sector in India

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Low cost of innovation and manufacturing costs

Low cost scientific pool on shop floor leading to high quality documentation. A proven track

record in design of high tech manufacturing facilities.

Excellent regulatory compliance capabilities for operating these assets.

Recent success track record in circumventing and formulation patents.

About 95% of the domestic requirement being met through domestic production.

India is regarded as high-quality and skilled producer in the world.

It is not only an API and formulation manufacturing base, but also as an emerging hub for:

contract research-Bio-technology-Clinical trials and clinical data management.

The country has the distribution of proving quality healthcare at affordable process.

Policies and Norms of Russia for Pharmaceutical Industry for Export and

Import including Licensing and Taxation

Truly impressive growth prospects combined with the country’s larger social, economic

and national security priorities provide context for recent government activity in the

pharmaceutical sector. In the past year, a flurry of state-led initiatives has been launched to

refashion and rebalance the market. The most prominent measures include:

The Strategy of Pharmaceutical Industry Development 2020 (Pharma 2020)

Largely at the behest of President Dmitry Medvedev and with the support of Prime

Minister Vladimir Putin, last autumn the Ministry of Industry and Trade unveiled a policy,

dubbed Pharma 2020, to restructure and revitalize the domestic pharmaceutical industry.

This policy calls for up to 50% of all medicines sold in Russia to be manufactured

domestically by 2020 and encourages local producers to increase the share of innovative

drugs in their portfolio to 60

Ministry of Industry and Trade’s Registry of Innovative Pharmaceutical Projects

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In October 2011, the Ministry of Industry and Trade issued a decree establishing

the Registry of Innovative Pharmaceutical Projects. Projects approved for the registry

will receive government funding, as much as 50% of their development cost, and other

forms of state support. The ministry declared that around 230 billion rubles ($7.67 bln)

are to be invested in this initiative and stated that 36 billion rubles ($12 bln) have already

been invested.

Ministry of Health’s List of Strategic Medicines

At a meeting with domestic pharmaceutical producers in December, Minister of Health

and Social Development Tatiana Golikova presented the List of Strategically Important

Drugs that should be produced in Russia.

Price Regulations for Essential Drugs

On August 8, 2009, Prime Minister Putin signed Government Decree No. 654 which

established a price regulation system for the Essential Drugs List (EDL). The Ministry of

Health developed a new methodology to determine prices of medical products included on

the EDL, which gives considerable preferences and pricing advantages to domestic

producers.

Pricing and Preferential Memorandum of Understanding (MOU) Signed Between the

Ministry of Health and Local Producers

Signed in December 2009, this MOU is designed to ensure the support for (and

non-discrimination against) local producers in state purchasing of medicines. In exchange,

local producers agreed to maintain their current prices and the availability of those

medicines most in demand through 2010.

Draft Legislation on Medicines Turnover

This draft legislation introduces significant restrictions and requirements for the activities

of medical representatives, clinical trials, amendments to the registration process and associated

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costs, and state and regional powers’ authority over the prices of medicines included into the

Essential Drug List would establish, for the first time, pricing regulations on essential medicines

that would limit wholesaler and retail margins.

FAS Investigation of the Pharmaceutical Wholesale and Retail Markets

The FAS intends to conduct a thorough review of the pharmaceutical wholesale market

in 2011, similar in scope and depth to the agency’s ongoing investigation of the retail market. To

date, the retail sector has taken much of the blame for excessive pricing.

Policies and Norms of India for Pharmaceutical Industry for Export and

Import including Licensing and Taxation

Exports and Imports free unless regulated

Exports and 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 there under, the provisions

of this Policy and the terms and conditions of any license/certificate/permission granted to him,

as well as provisions of any other law for the time being in force.

Interpretation of Policy

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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), the said question or

doubt shall be referred to the Director General of Foreign Trade whose decision thereon shall be

final and binding.

Principles of Restriction

DGFT may, through a notification, adopt and enforce any measure necessary for:-

Protection of patents, trademarks and copyrights and the prevention of deceptive

practices.

Protection of national treasures of artistic, historic or archeological value.

Conservation of exhaustible natural resources.

Terms and Conditions of a License / Certificate / Permission

Every license/certificate/permission shall be valid for the period of validity specified in the

license/ certificate/permission and shall contain such terms and conditions as may be specified

by the licensing authority which may include:

The quantity, description and value of the goods;

a. Actual User condition;

b. Export obligation;

c. The value addition to be achieved; and

d. The minimum export price.

License/ Certificate/ Permission not a Right

No person may claim a license/certificate/ permission as a right and the Director General

of Foreign Trade or the licensing authority shall have the power to refuse to grant or renew a

license/certificate/permission in accordance with the provisions of the Act and the Rules made

there under.

Penalty

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If a license/certificate/permission holder violates any condition of the license/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.

Registration -cum-Membership Certificate

Any person, applying for (I) a license/ 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 granted by the

competent authority in accordance with the procedure specified in the Handbook unless

specifically exempted under the Policy.

Present trade Barriers of Import export of pharmaceuticals products

Trade barriers are hampering Indian pharmaceutical companies' bid to wrench open the

Rs 6,400 crore (Rs 64 billion) Pakistan pharmaceutical market.

The industry, under the aegis of the Federation of Indian Chambers of Commerce and

Industry, has initiated talks with Indian and Pakistan government officials to remove trade

barriers between the countries for the drug sector.

The Pakistan pharmaceuticals industry, which is highly import dependent for active

pharmaceutical ingredients, sources huge stock of APIs from developed countries at higher costs.

This is despite cheaper and quality products available in neighbouring India.

To meet the high demand for APIs, Pakistan is forced to buy Indian products by paying

two or three times more as the goods come through Singapore and Dubai owing to the trade

barriers.

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At present, there are over 100 importers and 310 licensed or registered manufacturing

units of pharmaceutical products in Pakistan including 27 multinationals that have more than 60

per cent of the market share.

The estimated share of US companies is 20 per cent of registered companies in Pakistan.

Approximately one-third of Pakistan's total consumption of pharmaceuticals is imported and is

expected to increase further.

A recent survey on the availability of essential drugs in Pakistan conducted by the

National Technical Information Service in nine different cities and towns revealed that 47 of 478

essential drugs were not available in the market.

Potential for Import Export In India

The domestic pharma market is currently US $ 10 bn in size and is expected to reach

~US$ 20 billion by 2015 and establish its presence amongst the world’s leading 10 markets.

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Currently, India is the 4th largest market in the world in terms of volume and 12th in terms of

value.

Based on the different therapeutic areas, the Pharmaceutical market can be broadly

divided into 2 categories – Acute and Chronic.

Acute Segment – It includes diseases that usually last for a short duration and includes

therapies like anti-infectives, pain-killers or analgesics etc.

Chronic segment – It includes diseases that are recurring in nature and include lifestyle

diseases. This includes therapies like anti-diabetics, cardiovascular (CVS), cancer etc.

In most cases, ailments in the chronic segment ensure regular consumption of medicines

for the lifetime of the patient. Anti-infective is the largest contributor (17%) to the domestic sales

followed by Cardiovascular and Gastrointestinal. The highest growth has been shown by Anti-

diabetics followed by Neurology (CNS) and Cardiovascular.

Business Opportunities in Future

Overall growth outlook for the Indian drugs and pharmaceutical industry appears

positive. Pharma manufacturers are likely to benefit from rise in demand for generic products.

Some of the factors that would drive growth in the domestic pharma industry are:

1) Low cost operations

2) Research-based processes

3) Improvements in API and

4) Availability of skilled manpower.

The domestic formulations and bulk drugs markets are currently facing price pressure, as

benefits of cheaper drugs have been shifted to end-users and trade channels. Hence,

consolidation, partnership and alliances are expected to gather momentum in the near future. Off

patenting of branded drugs would increase demand for generic drugs.

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THE GROWTH DRIVERS OF THE PHARMA SECTOR

Increasing incomes & healthcare spends to spur domestic growth

With increasing affordability, shifting disease patterns and healthcare reforms, the total

consumer spending on healthcare products and services in India has grown at a CAGR of more

than 14% since 2000. According to a research report by the Mckinsey Global Institute, spending

on healthcare in India will witness the highest growth rate among all spending categories over

the next two decades. Healthcare spend is expected to grow to 13% of average household income

by 2025 from 7% in 2005. This will be driven largely by increase in per capita disposable

income which is expected to increase to US$765 in 2015 from US$463 in 2005.

The domestic pharma market will thus continue to grow rapidly (~15% sales CAGR over 2009-

13) buoyed further by stronger penetration of semi-urban/rural areas and rising share of chronic

therapies. McKinsey estimates the domestic pharmaceutical market will more than double to

achieve sales worth US$ 20bn by 2015.

Significant patent expiries in developed markets present good growth opportunities for

Indian generic companies:

A slew of patents will expire in the US and EU over 2011-15, including top-selling

brands Lipitor, Nexium, Zyprexa and Plavix. Over this period, products with estimated annual

sales of ~US$ 80 bn in the US alone will lose patent exclusivity, and this will translate into an

estimated incremental generic sales opportunity of US$ 18 billion 60% of current US generic

drug market); a similar incremental opportunity in developed European markets exists as well. A

big share of this revenue will go to companies that secure high-margin first-to-file (FTF) sales

which offer marketing exclusivity for 180 days. It is estimated that Indian companies can take

about 20% of this S18 bn new market.

Emerging markets to become the next destinations for pharma companies

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“Pharmerging” markets, including the BRIC countries, South Africa, Mexico, Turkey,

Poland, Indonesia and Romania, are growing faster than developed markets. According to IMS, a

well-known industry research firm, “Pharmerging” markets will increase their share in global

pharma from 16% in 2009 to around 25% in 2014-15. Indian generics are replicating their

domestic success in markets like Russia, Brazil and Mexico which like India are branded in

nature.

M&A a potential catalyst

With higher growth prospects in emerging markets, many multinational branded drug

companies are trying to expand their presence in generic pharmaceuticals. This has increased

their interest in generic companies with an established product portfolio and sales/distribution

network in emerging countries including India. The acquisitions of Ranbaxy (by Daiichi Sankyo)

and Piramal (by Abbott) are a case in point. This is expected to continue.

FUTURE OUTLOOK FOR THE PHARMA SECTOR IN INDIA

The Pharma sector in India is expected to show robust growth in the next few years driven by

growth in all 3 segments viz.

Domestic Formulations which are expected to grow at ~15%,

Exports which will see huge growth due to the patent cliff in 2012 and emerging markets

like Brazil, Mexico, South Africa driving growth,

CRAMS which is expected to grow at a rate of around 13% globally.

Indian companies have the largest number of US FDA (Food and Drug Administration)

approved facilities outside US. They have made regulatory filings for around 70% of the drugs

that are going off patent in 2012. Besides many companies have sizable US exposure in their

overall revenue.

200

Conclusion

201

The question of how the economic crisis will affect Russia’s foreign policy remains open. Thesigns for Moscowar distinctly mixed and Russia’s external posture in the medium term is far forpredetermined. Recent assertiveness not withstanding, the crisis has created incentives thatwould appear to lead the Russian towards increased corporation, with the wets especially oneconomic issues.

If the Russians response to the incentives and shows signs of willingness to cooperate on theseissues, the Obama administration should use the opportunity to put economic cooperation higheron the bilateral agenda. Improved commercial ties are intrinsically in the united states’ interests,open up space for dialogue on more sensitive issues, and provide a stronger foundation for thebilateral relationship.

In this unit we have discussed the role of EXIM Policy in a nation's economy. There are differentphases with reference to the EXIM Policy of a country. J.N. Bhagwati and A. Krueger haveidentified five such phases. The unit elaborates on the phases of changes in India's Exim Policywhich have taken place over last five decades. The current Export Import Policy (2002-2007)carne into force with effect from 1st April 2002 and shall remain in force for a period of fiveyears i.e. up to 31st March 2007. The unit has discussed objectives and various key aspects ofthis policy. (Though this policy is valid for a period of 5 years, some changes are made by theGovernment over period of time keeping in view the economic conditions and industry'sdemand)

In this Global Country Report We have included

Economy of Russian Country

Structure & Functions & Activities

Comparison between the Retail Sector of India and Russia

Food and Beverage production in Russian and India

Business Opportunities of India in Russia

Import Export Policy of Russia

Import Export Policy of India

EXPORT IMPORT POLICY 2002-2007: OBJECTIVES

GENERAL PROVISIONS REGARDING IMPORTS... AND EXPORTS

PROMOTIONAL MEASURES

202

Present Trade Barriers of Import/Export

a) Transportation and logistics

b) Technical Barriers to Trade (TBT) -Certification, Standards and Regulations

c) Removal of informal barriers to trade:

Present Position & Trend of Business

Food production and nutrition of India and Russia

Main volumes of goods are transported by sea. Logistic technologies are developed in the global

scale. Port industry increases rapidly. Modern forms of port competitions lead to regulating their

trade, informational, technological operations. Electronic Logistic Services allow to resolve

complex problems of international trade. The principle of “Single Window” is a mean of

application ELS idea. European countries and RF are involved in joint “Single Window” projects

through TEDIM Programme, in particular. “Kaliningrad transit” is an object of both EU and

Russian attention. Russia reaches great success in ELS implementation.

The main priority of information policy is perfection of executive, legislative and judicial bodies’

interaction, and also federal, regional and local institutions on the basis of the general protected

information environment. The inter-departmental electronic system of federal governmental

bodies should provide an interaction of the state information networks, an automated data

exchange at the inter-departmental level according to requirements and national standards of

"electronic government”. However, it is the first stage of electronic logistical services

introduction in Russian Federation only, including the Customs activity.

For the complex decision of electronic exchange problems it is necessary to provide systematical

consecutive resolving measures on:

• Developing technical standards of electronic documents,

• Appointment of ministries and departments involved in system of electronic logistics,

• Organization of "step-by-step" planning,

• providing compatibility of the Russian and international models of electronic logistics,

• financing application of the electronic logistics model,

203

• lending private companies for purchasing of program and technical equipment,

• Preparation and acceptance of a uniform package of documents or the law on

electronic logistics.

In our argument, we defined what should be considered new advertising and

entertainment; we determined that technology is the driving force behind an arms race between

consumers and advertisers. We determined that the prevalence of consumer-generated

advertising and fan culture, which are forms of entertainment, have impacts on both consumers

and companies. We determined that consumers are gaining more control over advertisers, which

forces companies to change their advertising strategies.

In our argument, we aimed to analyze the impact of new forms of advertising on current society.

We determined that technology is causing an arms race between consumers and advertisers.

Furthermore, we determined that amateur-generated advertising and fan culture provides

opportunities to change creative motivations, which leads to an increasing dependence on the

consumer to create content for the advertiser. Lastly, we determined that technology caused

consumers to have more power to dictate what ads they wanted to see, thus forcing advertisers to

change their advertising strategies and business models. This is the present. With the increased

prevalence of entertainment, what will happen to advertising in the future? Will all

advertisements become entertainment? Will the line between advertising and entertainment

permanently blur? At this point, we cannot tell; however, we know that structural forces will

play an incredibly large role in the process of change.

Russia's economy continues to grow on the basis of strong demand for energy and other naturalresources. This resource-based growth has also caused the appreciation of the ruble. As a resultof this economic growth, Russia is expected to continue to experience stronger food demand andprices for higher value food products, particularly livestock products. This in turn may help boostagricultural output, which has been stagnant for several years.

The unemployment rate in urban areas in 2009 was 7.5 per cent, while in rural areas itwas as high as 11.3 per cent. Additionally, life expectancy in rural areas is traditionally lower: In2008, urban life expectancy was 68.5 years, whereas rural life expectancy was only 66 years

204

However, the agriculture sector still faces challenges. While the economy is growing, theenergy boom has also resulted in a sharp increase in fuel costs. Producers face a significantprice-cost squeeze and the government has introduced a subsidy for this input. The appreciationof the ruble is also undermining the competitive position of Russian exports on internationalmarkets.

Increasing tax receipts from a stronger economy allow Russia to become moreinterventionist and direct more funds towards some sectors, including agriculture. Policy andbudgetary support that distorts input and output prices and, therefore, production and trade,continues to make up a significant share of Russia's policy set. The ruble's ongoing appreciationand increased energy revenues leave room for increased support, but the World TradeOrganization (WTO) and the Organization for Economic Cooperation (OECD) accession will bea factor.

The performance and size of agricultural organizations is changing, with successful,modernizing producers now developing within this group. Agro-holdings are being createdamong these organizations, often through takeover of insolvent farms by non-agricultural oragribusiness investors. Agro-holdings can be highly diversified and vertically integrated

The Pharmaceutical industry of both country India and Russia has a different standing in

Todays scenario. Pharmaceutical market as a whole saw compound annual growth rates of 14.2

percent in the period of years from 2006 to 2010. The most profitable subsector on the

pharmaceutical market was the “therapeutic treatment” category, where revenues stood at USD 4

billion, or about 46.9 percent of the total market size.

The Pharmaceutical sector in India is highly fragmented with more than 10,000 listed and

unlisted companies. "Aggregate disclosed value of merger & acquisitions (M&A) deals in the

pharmaceuticals sector surged from a merger US$ 1.2 billion in Financial Year 2010 to US$ 4

billion in FY 2011, reflecting a jump of more than 230 per cent,"

Thus, Indian Pharmaceutical Sector is having strong base to produced varieties of drugs

and medicines to Export to the Russia which increases the revenue of the country and that helps

in improving the balance of payment.

205

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