Macro Business Environment in India &Opportunities for Investment in Creative Industry

Ajay Shankar

Berlin, September 22, 2007

Largest Democracy

3

Stable Democratic System

Sub-continental Nation – Religious, Ethnic & Linguistic diversity

Federal structure:

– 28 states

– 18 languages

Multi-party system:

– Changes in government through elections both at Centre and state levels

– Coalition governments at Centre for over 10 years

– Strong independent judicial system

– Free vibrant, strong media (mushrooming growth in print as well as electronic media)

4

Stable Democratic System

Gradual liberalization

Industrial licensing dismantled

Trade liberalization – tariff/tax

reduction

Opening up of FDI

Government regulation to facilitation

Closed economy

Centralized planning

Government permission necessary for

Setting up industrial plant

Import of capital goods / technology

Expansion of capacity

Key sectors of economy reserved for

public sector only

1990s

Completion of integration with global

economy

Financial/capital markets reforms as

consolidation

Tariff down to 10%.

To reach ASEAN levels by 2010

Bilateral Comprehensive Economic

Partnership Agreements with EU,

Japan, ASEAN etc in pipeline

2000-2005Prior to 1990s

Democracy

– Gradual incremental policy changes

– Broad consensus across parties and civil

society.

India - a strong and vibrant economy

6

Macroeconomic stability

Trends in Inflation- WPI (%YoY)

Forex Reserves (USD bn)

Steady increase in forex reserves.

Moderate inflation over last few years

5.8 6.420 22

3242

75

141

192

220

0

50

100

150

200

250

FY

91

FY

92

FY

93

FY

94

FY

95

FY

96

FY

97

FY

98

FY

99

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08 (till Aug)

13.7

4.45.4

0

2

4

6

8

10

12

14

16

FY

91

FY

92

FY

93

FY

94

FY

95

FY

96

FY

97

FY

98

FY

99

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

Source: Reserve Bank of India, CMIE

%

7

Economy – high growth rates

Robust GDP growth

Real GDP growth (%)

5.3

9.4

0

1

2

3

4

5

6

7

8

9

10

FY

91

FY

92

FY

93

FY

94

FY

95

FY

96

FY

97

FY

98

FY

99

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

7

5.15

10.9

11

0

2

4

6

8

10

12

14

FY

91

FY

92

FY

93

FY

94

FY

95

FY

96

FY

97

FY

98

FY

99

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

Industry growth (%) Services growth (%)

Source: Reserve Bank of India, CMIE

(%)

8

Economy – high growth rates leading to increasing FDI

Increasing FDI trend

Source: RBI, DIPP Source: Reserve Bank of India

US

D m

illio

n

97

15726

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

FY

91

FY

92

FY

93

FY

94

FY

95

FY

96

FY

97

FY

98

FY

99

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

Svgs & Cap Formation % of GDP ( Current prices)

23.1

26.3

33.832.4

0

5

10

15

20

25

30

35

40

Goss domestic savings Gross domestic capital formation

FY9

1

FY

92

FY

93

FY

94

FY

95

FY

96

FY

97

FY

98

FY

99

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

•Trade liberalization: Import tariff to reach ASEAN level by 2010

• CEPA being negotiated with EU, Japan etc.

9

Credible independent Central Bank

Sound professional management

High Degree of autonomy of India’s Central Bank

Macroeconomic stability - Stable currency

Rupee exchange rate

Source: RBI

( IN

R /

US

D)

INR/ USD

17.94

31.3935.47

42.04

47.68 45.94 45.29

0

10

20

30

40

50

60

FY

91

FY

92

FY

93

FY

94

FY

95

FY

96

FY

97

FY

98

FY

99

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

Going Forward

11

Going forward

Source: Goldman Sachs, Global Economic Paper No 152, 22 January 2007

India’s GDP (in US$ terms) will surpass that of the US before 2050, to make it the second largest economy

Goldman Sachs has revised its timelines for India’s GDP exceeding the G6’s GDP

New IndiaProjection

Italy France/UK Germany Japan US

Cars indicate when Indian US$GDP exceeds that of the Country

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Investment Opportunities

13

Large skill and intellectual capital base

Investor-friendly, liberal open-market economy

Strong emphasis on human resource development

– Skills missions being launched

– Up gradation of workers training

– Increased public spending in Education and health

Over 2.5 million graduates added every year

– Most of them English-speaking

– 300,000 Engineers

– 150,000 IT professionals

14

Firms in India – globally competitive

69% of survey respondents report higher profitability averages in India

than they do globally

RoE (2007) (%)

Taiwan

Thailand

Singapore

Philippines

Malaysia

Korea

India

Indonesia

Hong Kong

China

1.0

1.5

2.0

2.5

3.0

3.5

4.0

P/B

(20

07)

(x)

12 1 4 1 6 1 8 2 0 2 2 2 4 2 6 2 8

India’s ROE quite high relatively

Source: Prowess, CLSA Asia-Pacific Markets

P/B = Price to Book value

91 percent of MNC’s make profits in India compared to 45- 50 percent in China

15

Indian firms seek global reach

Tata Steel bought Corus Plc

Hindalco acquired Novelis Inc.

Suzlon Energy Ltd. acquired REpower

Dr. Reddy’s acquired Betapharm

United spirits acquired W&M

USD 12.1 billion

USD 6 billion

USD 1.6 billion

USD 0.5 billion

USD 0.5 billion

Acquisition made Tata Steel world’s

fifth largest steel producer globally

Acquisition made Hindalco the world's

largest aluminum rolling company

Acquired German’s third largest

generic companies

Acquisition made United Spirits world's

second largest spirit company

Acquisition made Suzlon world's third

largest wind power company

16

MNCs finding location of R&D in India : Increases global competitiveness

India- Attractive location for R&D

Large R&D facility of major MNCs

– Microsoft

– IBM

– ADOBE

– SAP

– Sony Ericsson

– Dell

– The DaimlerChrysler

– Boeing

– Texas Instruments

Creative Industries in India

Strength of Creative Industry

India’s strengths in the Creative Sector: Its diversity in terms of content. Its spread in terms of the market.

Rich tradition provides a store house of content. Advantage of a multi cultural, multi lingual, multi religious

pluralistic heritage that enables it to understand varied markets with ease.

Indian writers in English gaining international acclaim- Nobel Prize, Booker Prize

Films, literature, music that would appeal to a niche audience in Western as well as South East Asian nations are being produced.

FDI Policy in Creative Industry

Liberal policy with regards to FDI ushering the growth of Creative Industries.

• FDI up to 100% under automatic route in the Advertising industry.

• 100% FDI under automatic route in production and distribution of Films.

• FDI up to 26% is allowed through FIPB route in print media (newspapers & periodicals dealing with news/ current affairs).

• 100% FDI is allowed through FIPB route in publishing of scientific magazines/ specialty journals/ periodicals.

FDI Policy in Creative Industry …contd.

Liberal policy with regards to FDI ushering the growth of Creative Industries.

• FDI + FII up to 20% is allowed through FIPB route in broadcasting FM radio.

• FDI + FII up to 49% is allowed through FIPB route in cable network.

• FD + FII up to 49% is allowed through FIPB route in DTH.

• 100% FDI is allowed in uplinking of non-news and current affair TV channel.

• 26% FDI/FII is allowed in uplinking of news and current affair TV channel.

Initiatives in Creative Industry

Signing co-production treaties with other countries.

Tax incentives to investors investing in multiplexes.

Broadband has been introduced to create more demand for content.

Fight Against Piracy

Strong IPR Regime

TRIPS compliant IPR law

Public consensus on adherence to IP

Anti – piracy campaign over TV, radio and hoardings.

Aggressive measures against all forms of piracy will continue to help limit losses in distribution 1589 raids conducted in 2005

Promotion, public awareness and enforcement of copyright law.

Supporting International copyright conventions such as IFPI (International Federation of the Phonographic Industry).

Promoting digital technologies to assist rights owners.

Indian Film Industry

No. of Film Produced 1041(2005) Hollywood produces about 500 films per year

Industry expected to have a growth rate of more than 20% over next five years

Global spread in terms of the market A Karan Johar Film can find an audience in the affluent Indian

Diaspora in the UK and the US. Tamil Films find a niche audience in Malaysia and Singapore Bengali films, literature and music have an eager audience in

Bangladesh. India also has a growing young population that will spend freely

on entertainment.

Indian Television Industry

Number of Channels: Estimated 300 (2005)

No. of cable & satellite connected homes: 55 million (2005) Projected to grow 10.7 billion by 2010

The television industry is projected to grow @ 24% to reach US$ 10.7 billion in 2010

Huge potential in Regional Programming, Dubbed Foreign Content, Niche Channels, Digitalization of Cable TV

Music Industry

Indian music industry: Estimated US$175 million (2005) Projected to grow 185 million by 2010

338 licenses given for FM radio channels in 91 big and small towns to private players: major growth opportunity to music industry

Specialized music stores- such as Planet-M and Music World by music production companies coming up in towns and cities

Potential of growth due to deluge of FM radio channels, rising popularity of remixes, organized retailing in music, overseas potential.

Print Media

Reach of Print Media: 200 million

Reach of Newspapers: 176 million

Reach of magazines: 69 million

Size of the Indian print media industry : US$ 2.7 billion (2005) Projected to grow 4.8 billion by 2010

Growth potential due to rising literacy market, expansion from regional to pan India level by regional players

Thank You

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