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India: A Growth Story - Sitesh Mukherjee May 2012.

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Presentation on theme: "India: A Growth Story - Sitesh Mukherjee May 2012."— Presentation transcript:

1 India: A Growth Story - Sitesh Mukherjee May 2012

2 India since liberalization Earlier (in 1991)Now Per capita GDP (PPP)US $ 915.6US $ 3650 FDIUS $ 0.13 billionUS $ 44.8 billion (2010) Market capitalization of listed companies US $ 47.7 billionUS $1,015.37 billion Foreign exchange reserveUS$ 0.8 billionUS$ 291.8 billion Per capita electricity consumption 295.02 kWh778.91 kWh Oil imports1.19 million barrels/day 3.116 million barrels/day (2010) Tele-density (telephones per 100 individuals) 0.69 (in 1991) 12 (in 2006) 78.66 (168 % in urban areas, 38 % in rural area) Number of passenger cars0.18 million2.9 million (2010-2011)

3 Pre 1990s Post 1990s Post independence – command and control economy -- building large projects Steel, mining, telecom, insurance, and electrical plants, among others were effectively nationalized by mid-1950s Protectionism with strong emphasis on import substitution Hindu rate of growth at 3.6 per cent from 1950 -1980; and 5.6 per cent from 1980-1991 ‘License Raj’ in core sectors Dominant public sector (state monopoly in infrastructure, electricity, telecom) High trade barriers New Industrial policy – dismantled licence raj Constant growth post liberalization (~6.5 % from 1991 to 1999; ~7.45% from 2000-11) Allowing entry of private sector (in electricity, infrastructure, etc.) Banking sector reforms (entry of private and foreign banks) Capital market reforms (SEBI, creating a more liquid market) Commencement of dis-investment in PSUs Trade liberalization -- tariff and customs duties reduction Reducing direct tax rates Economy opened up to foreign investment

4 Investment in India 4

5 FDI in India  Phase 1 (1948-1969): FDI in protected industries (such a fertilisers and machine tools)  Phase 2 (1969 – 1991): FERA1973 restricting equity to 40% and 74% for technology intensive; export intensive and core sectors  Phase 3 (1991 – 2000): FDI under automatic route (till specified limits) for specified high priority industries such as electrical equipment, pharma, chemicals. Onerous conditions for foreign JVs imposed (press note 18)  Phase 4 (2000 – date): All activities under automatic route except those in negative list (such as atomic energy, railway transport, lottery business) and those for which limits are specified such as defence (26% govt. route); telecom (74 %). FEMA 2000 replaced FERA  FEMA facilitates external trade and payments, vests the RBI and FIPB with the authority to permit FDI through approval route (for those other than under automatic route). Violation under FEMA were civil offences (unlike FERA)

6 FDI in India (contd.)  India is the 4 th largest destination for FDI  Current largest Investors - Mauritius (38%), Singapore (10%), UK (9%), Japan (7%) and US (6%)  Highest inflow sectors: services, telecommunications, power, computer software and hardware and housing and real estate  More Recent Changes  Annual Consolidated FDI Policy  Single brand retail – 100% FDI permitted under Government route  FDI in LLP

7  Who can Invest?  Foreign companies (most common entity structure)/ entities including individuals and partnerships;  Foreign Institutional Investors (FIIs)  Foreign Venture Capital Investors (FVCIs)  Qualified Foreign Investors (QFIs)  What can you invest in?  Indian companies (most common)  Partnerships and proprietorships – with prior approval  Permitted Instruments:  Equity Shares  Compulsorily Convertible Preference Shares (CCPs)  Compulsorily Convertible Debentures (CCDs)  Share Warrants and Partly Paid Shares - Permitted but with prior Government (FIPB) approval Who can invest into India? 7

8  Governed by RBI's ECB Guidelines  Eligible borrowers - companies registered under Companies Act, 1956  Recognised lenders - international banks, multilateral financial institutions and government owned development financial institutions, shareholders  ECB allowed only for permissible end use such as capital goods and infrastructure projects  Indian companies in infrastructure sector may raise ECBs in Renminibi, subject to annual cap of US$ 1 billion, with prior RBI approval  Maturity term - minimum of 3 years and 5 years for ECBs under US$ 20 million and more than US$ 20 million respectively  All-in-cost includes rate of interest, along with fee and expenses  Enhanced all-in-cost ceilings valid upto 30 September, 2012  350 basis points plus 6 month LIBOR for maturity between 3-5 years  500 basis points plus 6 month LIBOR for maturity term over 5 years External Commercial Borrowings 8

9 Telecommunication  One of the fastest growing telecom market in the world  78.66% tele-density  Subscriber base of 951.34 million  FDI in 2011-2012 stood at USD 1,992 million  74 % FDI permitted in telecom services (up to 49% under automatic route)  100 % FDI permitted in telecommunication infrastructure  Circles opened up in 1994, heavily regulated and state monopoly previously  Telecom Regulatory Authority of India (set up in1997) to regulate telecom services  TDSAT set up in 2000 to adjudicate disputes

10  National Telecommunication Policy 1999  Migration from fixed license fee to revenue sharing  Multiple fixed line providers permitted in each circle  Developments from 2000 onwards  Policy for additional licenses in basic and mobile services  Ceiling on Domestic and International leased line  Mobile number portability permitted  2G spectrum allocation (and cancellation of licenses by the Supreme Court)  Roll out of 3G and 4G spectrum  Draft National Telecom Policy-2012  Recognises Right to Broadband‘ as basic necessity; spectrum sharing; and to introduce full mobile number portability  M&A norms relaxed to encourage consolidation Telecommunication: Regulatory Reforms

11 Electricity  100 % FDI in electricity sector (except for nuclear generation)  49% FDI permitted in power exchanges  5 th largest generation capacity - 201.63 GW (as on may 2012)  Demand to increase by 274% by 2012  Investment of more than $ 200 b required  Significant private participation in generation; Private participation in transmission and distribution gradually increasing  Electricity Act, 2003  Generation de-licensed  Transmission, distribution and trading are licensed  National Electricity Policy and National Tariff Policy  Regulatory Commissions at State and Central level established

12 Electricity (Contd.)  Conventional energy sources (coal, gas and hydro)  56.4% power reliant on coal based thermal power plants  Move towards competitive bidding  Key concern: coal shortage; gas unavailability  Non-conventional energy sources (solar, wind, bio-power)  MNRE forecasts a 763% growth in the next decade  National scheme for solar power (JNNSM); national scheme for bio-power being considered; no central scheme for wind yet  Set up under negotiated route (feed-in tariff under state policies) or competitive bidding  Renewable energy certificates  Accelerated depreciation, single window clearance, customs and excise duty exemption

13 Electricity (Contd.)  Electricity Markets  Open access for consumers above 1 MW  Most electricity purchased under long term PPAs  Short term market being developed -- CERC Power Market Regulations, 2010 sought to promote and regulate inter-state electricity transactions in various contracts, including bilateral contracts and those transacted through traders and exchange  Renewable purchase obligations (RPOs) for discoms and CPPs -- RECs introduced in 2010 to help meet RPOs  Developments  FDI in the nuclear energy sector being contemplated  Off-shore wind energy being considered  Smart Grid Task Force set up in 2010 to co-ordinate smart grid activities in India

14 Oil & Gas 100 % FDI permitted Government's Hydrocarbon Vision 2025 – energy security through indigenous production and investment abroad 80 percent of India's oil imported; Key players are government companies (ONGC, GAIL), but private presence increasing Title over hydrocarbons vests with the Government Upstream sector – Exploration and Production Regulated by Directorate General of Hydrocarbon (under the Petroleum Ministry) - independent regulator being considered Natural gas exploration through the New Exploration and Licensing Policy -- international competitive bidding (10 th round bidding likely in 2012)

15 Oil & Gas (Contd.) Upstream sector – Exploration and Production (contd. ) CBM exploration under the CBM policy though international competitive bidding (similar to NELP) PSC (under NELP and CBM policy): Contract based on production sharing and not profit sharing Contractor recovers costs from annual production Key benefits for gas exploration: customs duty exemption; no payment of signature, discovery or production bonus; no minimum expenditure commitment during the exploration period Shale gas – policy for bidding expected in early 2013. Will be followed by first round of bidding

16 Oil & Gas (Contd.) Midstream and downstream activities GAIL and ONGC own most of the transportation pipelines Govt. promoting CGD network on PPP based PNGRB regulates refining, processing, storage, transportation, distribution, marketing and sale Open competitive bidding for laying transportation and distribution networks Open access to natural gas pipelines (regulations for petroleum pipelines in draft form); exclusivity period for city gas distribution (open access thereafter) LNG imports and gas marketing under open general license 0% import duty on LNG imports under consideration

17 Roads, airports and sea ports  Huge scope for investments in roads, airports and seaports (construction & modernisation)  100 % FDI permitted in for roads & highways; seaports and airports RoadsAirportsSeaports 100% FDI permitted 2 nd largest road network globally (4.2 million kms) NHAI – regulator National Highway Development Project- investment of US$ 50 billion to award concessions/contracts by 2012 PPP models (BOT, Annuity, EPC) Viability gap funding scheme Jawaharlal Nehru National Urban Renewal Mission 100% FDI permitted (for brownfield airports - 74% automatic, 26 approval) Projected need of 400 airports by 2020 (currently ~90 airports) Greenfield policy for new airports AERA – regulates tariff for aeronautical services by airports PPP projects – competitive bidding – 30+30 years period Govt has entered into concession and state support agreement 100% FDI permitted 12 major ports and 187 minor ports, 7,517 km long Indian coastline TAMP - regulates tariff ceiling for major ports Policy for Prevention of Monopoly at Major Ports Aimed at increasing capacity from 561 million tonnes (MT) in 2009-10 to 1,215 MT by 2019-20 Draft Port Regulatory Authority Bill – replace TAMP; bring all ports within its purview; transparent tariff for all ports to enhance competition & efficiency

18 Anti-corruption trends in India  Rank 95 out of 183 on Transparency International's Corruption Perceptions Index  Prevention of Corruption Act 1988 prohibits:  public officials from receiving "any gratification" for performing/ refraining from any official act  any person from receiving/giving "any gratification" for illegally influencing a public officer to perform /refrain from any official act  Increased focus on anti-corruption activities in India in light of:  2G scam case – high ranking public officials, politicians and industrialists arrested  Commonwealth games  Adarsh land scam case  Illegal mining cases  Role of the Supreme Court and higher judiciary  Citizen's uprising against corruption -- Lokpal Bill

19  Lack of transparency  Resource constraints and allocation  Concentration of growth dividend  Populist economics and fiscal imprudence  Policy uncertainty  Inclusive development  Strengthening governance structures Deficiencies and Challenges

20 "The present stage of development unfolds a design for tomorrow. The way ahead will not be easy. But the prospect is hopeful." -- B.G. Verghese, 1964

21 Thank you These are presentation slides only and are intended solely for private circulation. The information within these slides does not purport to be comprehensive or provide legal advice and should not be used as the basis for giving definitive advice without checking the primary sources. This presentation is the copyright of Trilegal and may not be circulated, reproduced or otherwise used without the prior permission of Trilegal. © Trilegal

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