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June 2008 India – Country Presentation by Claudio Maffioletti, General Manager THE INDO-ITALIAN CHAMBER OF COMMERCE AND INDUSTRY.

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Presentation on theme: "June 2008 India – Country Presentation by Claudio Maffioletti, General Manager THE INDO-ITALIAN CHAMBER OF COMMERCE AND INDUSTRY."— Presentation transcript:

1 June 2008 India – Country Presentation by Claudio Maffioletti, General Manager THE INDO-ITALIAN CHAMBER OF COMMERCE AND INDUSTRY

2 MACROECONOMIC DATA AND INDO-ITALIAN TRADE RELATIONS

3 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 ( )  GDP growth: +10% in (forecast) + 8% in the last 4 years  Literacy rate: 65.4% (Mar06)  Forex reserves: € 124 billion (Nov06)  Inflation: + 5.2% (Dec06)

4 The Indian Growth Average annual growth rates ( ) GDP +6.5% Services +7.8% Industry+6.6% Agriculture +2.1%

5 An extraordinary sequence of figures:  46% of the population in the age group of 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

6 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

7 Major Indian Imports Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic

8 Major Indian Exports Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic

9 Major Italian Exports to India Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic

10 Principali prodotti indiani esportati in Italia Figures in million € Source: DGCIS, Ministry of Commerce, Government of the Indian Republic

11 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.

12 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

13 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

14 Entry Strategy: Consumer Goods

15 Entry strategy: Industrial Goods

16 Business Presence in India The possible options are:  Liaison or representative office  Branch office  Subsidiary or Joint Venture

17 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.

18 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.

19 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

20 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

21 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.

22 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

23 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

24 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.

25 Repatriability 100% of the Profit or the Capital is repatriable

26 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%).

27 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).

28 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

29 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.

30 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.

31 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!

32 THANK YOU Claudio Maffioletti General Manager


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