Presentation on theme: "June 2008 India – Country Presentation by Claudio Maffioletti, General Manager THE INDO-ITALIAN CHAMBER OF COMMERCE AND INDUSTRY."— Presentation transcript:
June 2008 India – Country Presentation by Claudio Maffioletti, General Manager THE INDO-ITALIAN CHAMBER OF COMMERCE AND INDUSTRY
MACROECONOMIC DATA AND INDO-ITALIAN TRADE RELATIONS
INDIAN ECONOMY: MACRO DATA 2 nd most populous country (1.2 billion) Parliamentary democracy 10 th most industrialized country 4 th largest economy (PPP terms) GDP: € 515 billion (2005-06) GDP growth: +10% in 2006-07 (forecast) + 8% in the last 4 years Literacy rate: 65.4% (Mar06) Forex reserves: € 124 billion (Nov06) Inflation: + 5.2% (Dec06)
The Indian Growth Average annual growth rates (1995 - 2005) GDP +6.5% Services +7.8% Industry+6.6% Agriculture +2.1%
An extraordinary sequence of figures: 46% of the population in the age group of 15-44 years. 500 million under 25 years of age. Large English-speaking middle class. Over 250 universities. Over 13,000 higher educational institutions. 2.46 million graduates (300,000 engineers and 150,000 IT professionals) every year. Demographic Data
Economic Climate Openness to the market and to investment Infrastructure requirements - € 237 billion Important liberal economic reforms Policy of incentives for investment (SEZ – Special Economic Zones) Huge consumer base Cost leverage Vibrant capital market Close network of economic treaties and trade agreements
Major Indian Imports Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic
Major Indian Exports Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic
Major Italian Exports to India Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic
Principali prodotti indiani esportati in Italia Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic
Italian Companies in India More than 100 Italian companies have subsidiaries, joint ventures or a presence in India. Eight Italian banks are present in India with representative offices handling: ●Correspondent banking and trade finance ●Assistance to Italian companies Italy ranks 11 th for Foreign Direct Investments (FDI) in India accounting for only 1.42% of the total investments. Trade with Italy accounts for only 3% of India’s international trade. 20% increase in trade between the two countries in 2006.
Challenges 1 Red tape: slows down the liberalization process (India ranks 88 th in “Starting a business”, below Russia and above China and Brazil). Poor infrastructure: airports, power, ports and roads are inadequate and constitute limits to development. Restrictive labor laws. Considerable social inequalities. Uneven geographical development. Sources: NASCOM, Economist, World Bank – Doing Business 2007; Tata Statistical Outline of India 2005-2006
Challenges 2 Complexity of legal processes: India ranks 33 rd in “Protecting investors”, whereas the other BRIC economies are ranked 60 th (Brazil), 60 th (Russia) and 83 rd (China) respectively. Strong political opposition to privatization is providing a platform for cautious and systematic reforms. Complex and bureaucratic tax system. Poverty still high: 19.3% of the Indian population lives below the poverty line. Sources: NASCOM, Economist, World Bank – Doing Business 2007; Tata Statistical Outline of India 2005-2006
Business Presence in India The possible options are: Liaison or representative office Branch office Subsidiary or Joint Venture
Liaison / Representative Office Carries out promotional activities without performing any trade transaction as the principal party. Cannot earn income in India or carry out any income-earning activity. Does not pay income tax. Is legally a part of its parent company.
Branch Office Can carry out most activities except manufacturing and processing. Can therefore carry out trading activities and earn a profit. Has to pay income tax on the profit earned as a foreign enterprise. Foreign enterprises are subject to higher tax rates on their net profit as compared to Indian companies. Foreign enterprises are not entitled to the tax concessions available to Indian companies – including foreign subsidiaries.
Subsidiary - Joint Venture Has limited liability. Is regarded as an Indian company for all regulatory purposes. Can do whatever an Indian company can. Pays tax at rates 10% lower than those applicable to foreign enterprises. Is legally independent of the holding company: the holding company, therefore, is not liable for the liabilities of the subsidiary
Extent of Holding In many sectors, a foreign company can hold up to 100% of the share capital of an Indian company. For some sectors the current regulations provide limits: ●74% in Banking ●74% in Telecommunications ●26% in Defense Production
Production and Marketing 1 A foreign company looking to set up a manufacturing firm can set up a wholly owned subsidiary. Generally the Automatic Route will apply. For a foreign company looking to perform a trading operation, FDI is not freely permitted.
Production and Marketing 2 The key elements of the current policy are: Up to 51% foreign holding is permitted in single-brand retail outlets. This policy is likely to be further liberalized in the future. For multi-brand outlets foreign holding cannot exceed 49%. Up to 100% investment under the automatic route is permitted for: ●export-oriented trade ●wholesale/cash-and-carry trade
Royalty, Trademarks and Brands Royalty up to € 1.5 million on a lump-sum basis 8% on overseas sales 5% on domestic sales The limit applies to the net-of-tax amounts and the percentage to the value (the import component in the product price is not considered) Trademarks and Brands up to 2% on overseas sales 1% on domestic sales
Company Structure Minimum authorized capital required INR 100,000 (approx. € 1.750) for a private limited company INR 500,000 (approx. € 8.750) for a public limited company Minimum number of directors and shareholders 2 shareholders and 2 directors for a private limited company. 7 shareholders and 3 directors for a public limited company.
Repatriability 100% of the Profit or the Capital is repatriable
Taxes 1 Corporate tax Tax for a company is 33.99% Tax for a foreign company is 43% The rate for SME’s (taxable profit less than INR 10.0 million) is 30.90%. Excise (residual rate 16.0%). Service tax (prime rate 12.36%).
Benefits Profits of STPI units (for IT/ITeS companies) presently enjoy tax concessions. Profits of SEZ units are tax-exempt. Services exports are exempt from service tax (subject to prescribed conditions). Exports are exempt from excise, octroi and VAT. Units set up in backward areas enjoy some income tax and VAT concessions (In these cases, however, the infrastructural limitations present in such areas must be seriously considered).
Suggestions 1 Timing is relative…sooner or later India will be a world power Time to obtain an internet connection 1 week Time to have a fully established liaison office 2 months Meetings take place according to “IST” Indian Standard Time
Suggestions 2 Be always on the alert, but never too rigid It is important to explain exactly what you want. Devote a lot of time to the details during the starting stage. Maintain your patience, even if a certain degree of pressure is necessary. Check the progress of the operations at least on a weekly basis. Constantly discuss the operating procedures. Insist that the service or the delivery comply with the initially fixed conditions.
Suggestions 3 Your network matters: you need to have strong Indian partners Without local knowledge and help you can get lost quickly. To avoid red tape, find a partner who knows the ins and outs. Professionalism is required in personal relations, although a certain degree of informality is appreciated. Do not rely only on one partner. Build a network with several players. Spend most of your time in building long-lasting relationships.
So…is it worthwhile to invest in India? If one considers that… Average GDP growth from 1995: + 6.5% Growth forecast for the next 10 years: + 5.9% An economy based on fast-growing domestic consumption Very wide gap between demand (high) and supply (low) Many similarities (economic, political, geographic and cultural) …there can only be one answer!