2011 India Attractiveness EY

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its true potential

foreign direct investors and second, the perceptions and outlook of India and its peers for a representative panel of 505 international decisi

India Pvt Ltd), Christoph Remund (Chief Executive Officer, DHL Global Forwarding), Siddhartha Roy (Economic Advisor, TATA Group), e to thank all the decision-makers and Ernst & Young professionals who have taken the time to share their thoughts with us.

and institutional communities who expressed their views on the opportunities and challenges of India: Gautam Bhandari (Managing dire

Services Pvt Ltd), Hari Bhartia (President,

The success of this survey is directly attributable to their participation and commitment. lum (Managing director India, Schneider Electric India Pvt Ltd), Siraj A Chaudhry (Chairman, Cargill India Private Limited), Kamesh Goyal (Managing directorFront picture from second Hooghly River bridge in Kolkata, India.

Ernst & Young's 2011 India attractiveness survey

Introduction Executive summary FDI in numbers

2 4 89 10 13 18 24 29

anging face of investment in India India compared with its peers FDI to India: the big picture

oral and business activity trends Indian state success stories

n city success stories

The perception of investors and executivesIntroduction Most attractive FDI regions in 2010 Investors go East for larger returns

32

33 33 36 37 38 o unleash the potential in its markets Business activities shifting to serve local market Where to focus to improve attractiveness 40 42 44 45

Key lessons and actions for India

4647 50 52

lish infrastructure corridors

op the skills to sustain a global R&D center Reach out to new investors

Methodology Ernst & Young in India

54 56

Reaching towards its true potential Ernst & Young's 2011 India attractiveness survey

Introduction

a stronger collaboration between the Indian Government and foreign and domestic corporations will be important. Such collab

8% annually and the number of people in the Indian middle class set to treble over the next 15 years, meaning a correspon

already been made and the vast majority of businesses which have entered the Indian market in the last decade are plannin

hose consumption is driving the gly well-educated, yet relatively low-cost labor force. This is a key advantage that, in the future, will set India apart from most

clude expanding and modernizing infrastructure, with an emphasis on developing infrastructure corridors that can connect majo businesses that already operate in the larger metropolises. In addition, further investment to make high-quality education av

December 2010, we interviewed more than 500 business leaders about the potential of the Indian market. A large majority

This report is the first of a series of ongoing studies into the attractiveness of the Indian subcontinent, which is designed to support both business leaders in their investment decisions, as well as Indian national and state governments in

EMEIA Deputy Area Managing Partner, Markets, Ernst & Young

Jay D. Nibbe

National Leader Markets, Ernst & Young Private Limited, India,

Farokh Balsara

1 Oxford Analytica Daily Brief. .

Ernst & Young's 2011 India attractiveness survey Reaching towards its true potential 2

India offers great economic opportunities for global investors

Jyotiraditya Madhavrao ScindiaMinister of state for commerce and industry, Government of India

nd which we will be reaped in the next decade is what will give us sustainable competitive advantage. We also have tremendous economie d close to 8.9%. Hopefully, we'll close 2010 at a GDP growth rate of 8.5%. The basic economic fundamentals are strong and there is a

at I think is going to be our long staying competitive advantage is our human resource base. We have a well trained manpower ba le our efforts to appropriately train the millions of new entrants into the economy. These factors are the foundation based on which

d. Many multinational companies have found that to be the case in the recent past. The economic pyramid of India is becoming fl

ment over the next five year plan will come from private sources and represents a great opportunity for global investors. I also

st of the world. India is already a world leader in IT. Manufacturing is only 16% of our GDP, which clearly is below our potential and new policy to enable the country to raise itself from the present level of share of manufacturing from 16% to 25% of GDP over the nex My advice for potential investors: If you're not here, you're going to miss the

tive summary

Ernst & Young's 2011 India attractiveness survey Reaching towards its true potential 4

FDI to India: a story of growth

list of industries in which FDI can be approved through streamlined procedures. On average, between 2003 and 2010, the nu e on the country's growing domestic market. A significant 75% of investors who are already operating in India are considering inc

A transformation in investment mix

communications, consumer products, financial services and construction sec

anging. While the software and IT sector remains one of India's engines of growth, other sectors are catching up. In part, th vesting in India, which are now focusing more of their activities g. Since 2003, the share of FDI projects implemented by North American otive, g by more than one-third in six years. The decline in the share of jobs created has been even sharper. However, this has been m

Outlook and opportunities

re increasing operations in India by expanding their facilities or headcounts. However, in order to attract more investment, e-level policies and incentives is needed. average foreign investor will be interested in marketing products and services to those increasingly wealthy citizens living n

although often less educated - is more abundant, and land prices are lower.

cy, accountability, judicial independence and predictability, and institutional stability, will stand a very good chance of attract is potential new investment. Further, land concessions or tax incentives and a good price-quality ratio for labor are areas perc

e states that possess an abundance of high quality, low-cost labor should take more action to publicize this among foreign inves

as well as internationally, are also highlighted by a majority of survey respondents as key factors common to high-performing

2.

fDi Intelligence. *Full year 2010 interim data as of 13 January, 2011.

Reaching towards its true potential Ernst & Young's 2011 India attractiveness survey 5

Jammu & KashmirSrinagar

IndiaStates and Union territories indicative only

Himachal Pradesh Punjab ShiChandigarh

UttaranchalDehradun

Haryana Delhi RajasthanJaipur

Arunachal Pradesh Sikkim Uttar PradeshLucknow Gangtok Itanagar

Assam BiharPatna Dispur Shillong

NagalandKohima Imphal

Meghalaya Tripura est Bengal

Manipur

GujaratGandhinagar

Madhya PradeshBhopal

JharkhandRanchi

Agartala Aizawl

Mizoram

ChhattisgarRaipur

Kolkata

OrissaBhubaneshwar

MaharashtraMumbai Hyderabad

Arabian sea

GoaPanaji

Andhra Pradesh

Andaman & Nicobar islands

KarnatakaBangaluru Chennai Bay of Bengal Port Blair

Lakshadweep

Tamil Nadu Kerala

Thiruvananthapuram

Ernst & Young's 2011 India attractiveness survey Reaching towards its true potential 6

Capital: New Delhi Geographically: India consists of 29 states and six union territories.

he north, Afghanistan and Pakistan to the north-west, Myanmar and Bangladesh to the east and Sri Lank

Figure 1: India fact file

Land area Capital Population Languages

3.29 million sq km New Delhi 1.16 billion Hindi (official language of the Union), English (business language)

Major Amritsar, Bangalore, Chennai, Goa, Guwahati, Hyderabad, Kochi, Kolkata, Mumbai, New Delhi, Thiruvananthapuram international airports Major New Mangalore, Kolkata, Kandla, Kochi, Chennai, Ennore, Haldia, Mormugao, Paradip, Tuticorin, Vishakapatnam seaports Major cities New Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Jaipur, Chandigarh Time zone 5 hours 30 minutes ahead of Greenwich Mean Time (GMT) Indian rupee (INR) Currency unit

7 Reaching towards its true potential Ernst & Young's 2011 India attractiveness survey

FDI in numbers

8 Ernst & Young's 2011 India attractiveness survey Reaching towards its true potential

The changing face of investment in India

have reduced the involvement of the state and extended the list of industries in which FDI can be approved through streamlined proce

grew from less than 0.03% in 1991 to 3.5% in 2008, before falling in 2009 as a result of the global financial crisis. As borne out by our

h as print media (26%), insurance (26%), cable network broadcasting (49%), private sector banking (74%) and telecommunications Figure 2: FDI as a share of GDP3,5 3,0 2,5 2,0 National stock exchange strated operation Unified exchange rate Asian financial crisis Insurance sector liberalisation SEZ Act notification. FDI ceiling lifted for various sectors

to invest in FII allowed government bonds

Improvement in US ties Growth decelerates

1,5

Global financial crisis

1,0Economic reform 0,5

I

,

dustry, where India is recovering from a shortage of private transport pre-li