New France1 Project

8/13/2019 New France1 Project

http://slidepdf.com/reader/full/new-france1-project 1/60

1

COUNTRY PROFILE: FRANCE

COUNTRY

Formal Name: French Republic (République Française).

Short Form: France

Capital: Paris.

Currency: euro

PROFILE

Geography of France

France possesses a large variety of landscapes, ranging from coastal plains in the north and west,

where France borders the North Sea and the Atlantic Ocean, to the mountain ranges in the south (the

Pyrenees) and the southeast (the Alps), of which the latter contains the highest point of Europe the

Mont Blanc a 4810 m.

In between are found other elevated regions such as the Massif Central or the Vosges mountains and

extensive river basins such as those of the Loire River, the Rhone River, the Garonne and Seine.



2

Geography Area: 551,670 sq. km. (220,668 sq. mi.);

largest west European country, Cities: Capital -Paris.

Major cities --Marseille, Lyon, Toulouse, Strasbourg, Nice, Rennes, Lille, Bordeaux.

Terrain: Varied.

Climate: Temperate.

Major Cities: The country‘s capital Paris, the only French city with more than 1 million inhabitants,

has a population of 2,142,800in the city proper (as of 2004) and 11,330,700 in the metropolitan area

(2003 estimate). Greater metropolitan Paris encompasses more than 15 percent of the country‘s total

population. The second largest city is Marseille, a major Mediterranean seaport, with about 795,600

inhabitants.

Other major cities include Lyon, an industrial center in east-central France, with

468,300inhabitants, and the second largest metropolitan area in France, with 1,665,700 people.

Further important cities include: Toulouse, 426,700, a manufacturing and European aviation center in

southwestern France; Nice, 339,000, a resort city on the French Riviera; Nantes, 276,200, a seaport

and shipbuilding center on the Atlantic coast; Strasbourg, 273,100, the principal French port on the

Rhine River and a seat of the European parliament Montpellier, 244,700, a commercial and

manufacturing city in southern France; and Bordeaux,229,500, a major seaport in south-western

France and the principal exporting center for key French vineyard regions. According to the 1999

decadal census, more than 25 additional French cities had populations surpassing 100,000.

Indo-French bi-lateral trade has seen an overwhelming growth over the last two decades.

France, a developed country in the continental Europe draws its economic strengths from the farm

sector . India‘s export-import trade with France has been hovering around 9% during the mid

2000amongst all European Union countries. Interestingly, trade with other western European

countries like Germany, England and Italy is more than with France while, ironically, France has

been always a great market opportunity for Indian merchandise.



3

France is the world‘s fourth largest exporter of goods and second largest exporter of

agriculture products. Under the unified efforts of Federation of Indian Chamber of Commerce &

Industry (FICCI) and UBIFRANCE, Indo-French bilateral trade is expected to reach three times by

the end of 2012. India‘s trade with France has to be diversified broadly and more commodity groups

must be identified and brought into export basket. The present paper seeks to analyse the Indo-Frenchtrade with the help of the trade data and attempts to build prognosis about the future trade growth

trajectories between the two countries.

People

Language: French. Education: Years compulsory--10. Literacy--99%.

Work force (2009): 28.3 million (preliminary): Services--75%; industry and construction--21.7%;

agriculture--2.9%.

Population

65,312,249 (July 2011 est.)

The metropolitan France population is 62,814,233

Age structure

0-14 years: 18.5% (male 6,180,905/female 5,886,849)

15-64 years: 64.7% (male 21,082,175/female 21,045,867)

65 years and over: 16.8% (male 4,578,089/female 6,328,834) (2011 est.)

Median age

total: 39.9 yearsmale: 38.4 years

female: 41.5 years (2011 est.)

Population growth rate

0.5% (2011 est.)

Birth rate

12.29 births/1,000 population (2011 est.)



4

Death rate

8.76 deaths/1,000 population (July 2011 est.)

Net migration rate

1.46 migrant(s)/1,000 population (2011 est.) 4

Urbanization

urban population: 85% of total population (2010)

rate of urbanization: 1% annual rate of change (2010-15 est.)

Sex ratioAt birth: 1.051 male(s)/female

under 15 years: 1.05 male(s)/female

15-64 years: 1 male(s)/female

65 years and over: 0.72 male(s)/female

total population: 0.96 male(s)/female (2011 est.)

Infant mortality rate

total: 3.29 deaths/1,000 live births

male: 3.61 deaths/1,000 live births

female: 2.96 deaths/1,000 live births (2011 est.)

Life expectancy at birth

total population: 81.19 years

male: 78.02 years

female: 84.54 years (2011 est.)

Total fertility rate

1.96 children born/woman (2011 est.)



5

Nationality

Noun: Frenchman(men),

Frenchwoman(women)

adjective: French

Ethnic groups

Celtic and Latin with Teutonic, Slavic, North African, Indochinese, Basque minorities overseas

departments: black, white, mulatto, East Indian, Chinese, Amerindian

Religions

The French government does not keep statistics as to religion. The 2003 CIA World Factbook lists

the religion of France as:

Roman Catholic 83%-88%,

Protestant 2%,

Jewish 1%,

Muslim 5%-10%,

Unaffiliated 4%

Overseas departments:

Roman Catholic, Protestant, Hindu, Muslim, Buddhist, pagan

Languages

French (official) 100%, rapidly declining regional dialects and languages (Provencal, Breton,

Alsatian, Corsican, Catalan, Basque, Flemish)

Overseas departments: French, Creole patois, Mahorian (a Swahili dialect)

Literacy

definition: age 15 and over can read and write total population: 99% male: 99% female: 99%

(2003 est.)

School life expectancy (primary to tertiary education)

Total: 16 years

male: 16 years



6

female: 16 years (2008)

Education expenditures

5.6% of GDP (2007)

Maternal mortality rate

8 deaths/100,000 live births (2008)

Health expenditures

3.5% of GDP (2009)

I nternational rankings

evelopment Index, 2001: 17th (out of 175)

world-wide press freedom index Rank 11 out of 139 countries



7

INTRODUCTION

India‘s relation with France started soon after India‘s independence in 1947. The

diplomatic ties were established in the same year. The relationship soon became so well

established that Pondicherry, an erstwhile French colony was amicably handed over to the

government of India on November, 1,1954, without any military intervention from France.

Over the years, the trade relations with France became further strengthened. In 2003, France

has become the largest supplier of nuclear power for and remains a large military and

economic trade partner of India French investments in India during the last 15 years have

brought US $1.76 billion into Indian market. The trade relations generated a business of

around US$ 6.2 billion in 2005-06.( Economy Survey of India,2005-06).

In contrast to the early years of 70s and 80s wherein France was ridden with trade

deficit, the 1990 saw France emerging as a strong trading country with favourable trade

surpluses. By 1995, France had a trade surplus of $34 billion ( www.wikipedia.com). With a

thrust on producing capital goods for exports, France could not keep pace with demand of

consumer goods on the domestic front. As a result of which its dependencies on imports of

consumer goods started increasing. On the other hand, prior to early 1990s, India‘s foreign

trade was restricted and based on import substitution policy. But with the enactment of

Foreign Trade Regulations Act, 1992, there was more thrust on the promotion of foreign

trade. Foreign trade has been regarded as an engine of growth. India‘s share in global trade,

which has hitherto been hovering around two percent, has to be enhanced to ensure the

advantages of externalities to the economy ( Singh, 2001) foreign India being a country with

labour intensive industries could seek the opportunities emerging and India has been duly

capitalizing on it.

At the time of independence, India‘s trade was almost exclusively with UK because

UK had created colonial companies in India which largely facilitated the trade between the

two countries. India‘s trade remained mostly undiversified until 1973. However, when UK

became the member of EU in 1973, India‘s geographical direction of trade started

diversifying to other western European countries like Germany and France. Trade with

France has been increasing ever since but it has not been increasing at the level or to the

extent to which India is capable of bringing it. There is a lot of potential to bring India‘s

foreign trade to higher levels with France particularly in the consumer goods and food



8

processing segments. In order to analyse India‘s prospects of foreign trade with France the

present study is aimed to obtain the following objectives.

Economic Overview of the France

France is the fifth economic power in the world. Its per capita income from goods and

services is among the highest in Europe, and its labor productivity is one of the best in the

world.

The internationalization of the French economy is an established fact. It can be

measured by the dynamic nature of its trade with Europe and the rest of the world. It can also

be seen in capital movements: France is both a major investor in other countries and favoured

destination for international investment.

France is the world‘s number six economic power in terms of GDP. The country‘s

assets range from transport, telecommunications, food industries and pharmaceutical products

through banking, insurance and tourism to traditional luxury goods (leather goods, ready-to-

wear fashion, perfumes, fine wines and spirits, etc.).



9

Overview of Industries trade and Commerce GDP (purchasing power parity):

$2.145 trillion (2010 est.)

country comparison to the world: 10



note: data are in 2010 US dollars

GDP (official exchange rate):


GDP - real growth rate:

1.5% (2010 est.)

Exports:

$517.2 billion (2010 est.)


$475.9 billion (2009 est.)

Exports - commodities:

machinery and transportation equipment, aircraft, plastics, chemicals, pharmaceutical

products, iron and steel, beverages

Exports - partners:

Germany 16.4%, Italy 8.2%, Belgium 7.7%, Spain 7.6%, UK 6.8%, US 5.1%, Netherlands

4.2% (2010)

Imports:

$588.4 billion (2010 est.)


$535.8 billion (2009 est.)

Imports - commodities:

machinery and equipment, vehicles, crude oil, aircraft, plastics, chemicals

Imports - partners:

Germany 19.3%, Belgium 11.4%, Italy 8%, Netherlands 7.5%, Spain 6.8%, China 5.1%, UK

5% (2010)



10

Reserves of foreign exchange and gold:

$166.2 billion (31 December 2010 est.)


$133.1 billion (31 December 2009 est.)

Debt - external:

$5.633 trillion (30 June 2011)


$4.698 trillion (30 June 2010)

Stock of direct foreign investment - at home:

$1.161 trillion (31 December 2010 est.)


$1.128 trillion (31 December 2009 est.



11

Objectives of the study

To study India‘s Trade with France, to examine the growth prospects of India‘s

foreign trade with France and to suggest on the basis of findings of the study, various

measures which would fillip and elevate trade relations with France.

The data pertaining to commodity Exports and Imports from France retrieved from

the Export and Import Data Bank of DGFT do actually belong to 99 major commodity groups

codified as per ITC (HS) code, but due to the constraint of time and space, only major

commodity groups were taken for research analysis. The selection of the major commodity

groups was done objectively on the basis of their import and export value. Highly valued

commodity groups were taken for research analysis. The selection, in this regard, was done

separately for imported commodities and exported commodities. 24 commodity groups from

the export basket and 17 commodity groups from import segment were finally chosen for

analysis. The minimum export and import value for a commodity group to qualify for

separate analysis was fixed at Rs. 100 crores. The remaining 75 commodity groups in exports

and 82 commodity groups in imports were treated in aggregate, and separate analysis was

conducted under the heading ―Miscellaneous Group‖.

The data for the purpose was taken from 1997-98 to 2004-05. The year 1997-98

(initial year for analysis) was purposely chosen as it was deemed that by then the

liberalization policies in all areas particularly those concerning with foreign trade policies had

started blooming. Thus the data selected was processed and with the use of regression

analysis, Compound Annual Growth Rates (CAGR), of selected commodities (based on high

value) in the import as well as in the export segment were computed. Besides, a comparative

analysis was performed with regard to India‘s export growth with France in contrast to

India‘s export growth with world.



12

Trade with France

France occupies an important position in the EU and has been an important source of

imports for India. Major imports from France include Aircraft, spacecraft and parts thereof,

Engineering goods including electrical machinery, Nuclear Reactors, Iron and Steel;

optical/surgical instruments, capital goods and organic chemicals. On the other hand, the

major exports to France are Readymade Garments, Articles of Leather and Raw Hides,

Footwear and other such articles.

France is the world's fourth largest exporter of goods and the second largest provider

of services and agriculture. France is the largest producer and exporter of farm products in

Europe Forging inwards into the European Union is now the objective of all countries as

trade with affluent Europe is always a major attraction for all developing countries including

India. As a matter of fact, trade with France has to be taken with all seriousness to ensure that

France should work as a gateway for Indian merchandise to continental Europe. The

following suggestions are put forth:

1. India export growth with France has been growing at around 11 percent whileas the

imports from France have been growing at approximately 13 percent. This growth has tofurther enhanced.

2. The export basket to France has to further diversified to other commodity groups as

exports to France should not be confined to readymade garments, leather and footwear only

but it should include more and more Engineering, IT and IT enabled products as well.

3. Owing to more focus on the production of capital goods, the food processing industry in

France continues to be in the infancy stage and there is open opportunity for

India to venture into processed food exports.

France along with Germany has been the main architect of European Union and shall

continue to be so (Fontaine, 2005) and nevertheless, European Union is a major market

opportunity for all countries in the world and India should capitalise on its relations with

France which would serve as a threshold for furthering its reach of exports to other countries

of Europe.



13

Moreover, Government of India has to use a multi-pronged approach to enhance trade

with a major trading partner of Europe. The following suggestions are put forth in this regard.

1. Organic Presence. Establishing an organic presence in France through the creation of

chain outlets in the form of marketing office, branch office for ensuring speedy transmission

of information on latest market trends and potential customers. This would result in greater

Indian competitive strength.

2. Hormonisation of Standards. The fundamental contention between the EU and the

developing countries is the Standards. Under the EU-India Standards and Quality

Programme, modernization of Indian testing laboratories took place. India should ensure to

export only that merchandise which would bear those standards and certification as is

acceptable to the requirements under France

3. India as Brand. Indian Industry associations particularly CII and ASSOCHAM should

make coherent efforts to create a brand name for India in France which would be ensured

only through quality products and services.

4. Conducting Industry Exhibitions. Industry exhibitions should conducted in major cities

of France, to promote the latest Indian product lines and Indian industry should also

participate in the trade fairs organized by France in major cities.

5. Need for enhanced role for Indian High Commission. The economic and trade section

in the Indian high commission need to upgraded by (2002-03), 18.13% (2003-04), 30.64%

(2004-05). However, France‘s share in India‘s total trade has by and large been growing. It

was 1.75% in 2000-01, 1.88% in 2001-02, grew to 1.90% in 2002-03, came down to 1.67%

in 2003-04, went again high in 2004-05, when it was 1.83% (Table 3 ). Nevertheless, India‘s

total trade with France has never been favorable because the overwhelming imports of

Aircraft, spacecraft & parts thereof, Engineering goods, Nuclear Reactors, Iron & steel,

capital goods. All these imports far outdo the exports to France. The whole country of France

in general particularly the Paris in particular, being the hub of fashionware, India can further

capitalize on readymade Garments and unwoven fabrics by further promoting Indian fabrics

and readymade garments across France so that this major export item from India finds further

augmentation of the staff for collecting relevant information about domicile changing trade

laws having implication for exports from India into France.



14

6. Revamping Trading Houses. The export trading houses should be revamped to ensure

more focus on the opportunities offered by French market

Business Opportunities In Future

At the invitation of the Prime Minister of India, the President of the French Republic

paid a working visit to India from 4 to 7 December, 2010. Mr. Nicolas Sarkozy and Dr.

Manmohan Singh had detailed and useful discussions on bilateral, regional and international

issues of mutual interest.

Reaffirming their shared vision and values inspired by multilateralism, justice,

freedom, equality and fraternity, France and India reiterated their determination and

confirmed their commitment to work together towards peace and global security.

As the Strategic Partnership between France and India enters its 12th year, the French

President and the Prime Minister of India, recognizing India‘s growing role on the

international stage, have shown their determination to give a new impetus to the Indo-French

Strategic Partnership.



15

Relation between India and France

1. Global and regional challenges

France and India would like to work together to make the G20 as effective as possibleand help it find its place within an international system that will better reflect today‟s world

and challenges.

Monetary instability, major macroeconomic imbalances, volatility of the price of

commodities including agricultural food products, development gap especially infrastructure

and lack of food security are tangible threats which our two countries refuse to ignore. The

G20 has become and must remain the premier forum for international economic cooperation

with a view to laying new foundations for strong, sustainable and balanced growth and the

international economic system. In respect of multilateral trade, the two countries are looking

forward to the ambitious, comprehensive and balanced conclusion of the Doha Development

Round of Negotiations in 2011.

India and France reiterated the need for in-depth reform of the United Nations,

including of its Security Council, to make it more representative of today‘s world. France

reaffirmed its support for India to become a permanent member of an expanded Security

Council without further delay.

With the French Presidency of the G20 which has just started, India‟s dual

participation in the G20 and the Security Council for the 2010/2011 timeframe present an

historic opportunity to step up joint work in these two bodies. Both countries will look to all

members and groupings, including G20, to make clear support for reform of the Security

Council.

France and India reaffirm their wish to continue and expand their dialogue and

concrete cooperation in multilateral bodies, especially in UNSC during the 2011-2012

biennum, so as to address threats such as regional crises, terrorism, climate change and

proliferation of weapons of mass destruction and their delivery systems, as well as to promote

arms control and global disarmament.

International Terrorism is a common threat that needs to be countered jointly. Today,

it has become one of the core issues in our bilateral strategic cooperation. International cross-



16

border terrorism needs to be addressed at the global multilateral level by supporting

initiatives in the framework of the United Nations such as the draft Comprehensive

Convention on International Terrorism. We need to work together in international bodies like

the FATF to counter financing of terrorism and money laundering.

France and India reaffirm their determination to work for peace, democracy and

development in Afghanistan. The French President and the Indian Prime Minister welcome

their countries‟ contribution and efforts towards the reconstruction and security of

Afghanistan. The two countries underline the need for adequate development of the Afghan

National Security Forces to enable Afghanistan to defend its sovereignty and independence.

They expressed concern at the continuing existence of safe havens and sanctuaries for

terrorist groups beyond Afghanistan‟s borders and resurgence of terrorist groups. They agree

that terrorism must be combated firmly by the international community. The two countries

call on the neighbors of Afghanistan to play a constructive role conducive to the country‟s

stabilization and development in its regional environment.

India and France have pledged to enhance cooperation at bilateral and global level to

effectively address climate change. The two countries have decided to pursue this objective

by working to achieve ambitious outcomes in Cancun in the form of balanced operationaldecisions on mandated issues in accordance with the Bali Road Map. France and India have

also reaffirmed their determination to continue to work in the framework of the bilateral

working group on environment established in 2008 which is to convene in Paris in the first

quarter of 2011.

Recognizing India‟s non-proliferation record as well as its willingness to further

contribute to global non-proliferation efforts and with a view to enhancing the international

non-prolif eration regime, France favors and will jointly work with India towards India‟s

increased participation with international nonproliferation initiatives and full membership of

multilateral export control regimes NSG, MTCR, AG, WA in a manner consistent with

procedures and objectives of these groups.

In the context of their shared commitment to universal and general disarmament and

to the reinforcement of the non-proliferation regime, India and France affirm the need for a

meaningful dialogue among all states possessing nuclear weapons, in particular those holding

the largest arsenals, to build trust and confidence and promote international stability, peace



17

and security. They support international cooperative efforts to reduce the risk of terrorists

acquiring nuclear weapons or material. The two countries reiterate their support to starting

immediate negotiations in the Conference of Disarmament for a multilateral treaty banning

the production of fissile material for use in nuclear weapons or other nuclear explosive

devices.

France and India reaffirmed their commitment to diplomacy to resolve the Iranian

nuclear issue, and discussed the need for Iran to take constructive and immediate steps to

meet its obligations to the IAEA and the UN Security Council.

India and France also expressed concern about the situation in the Korean peninsula

and urged DPRK to comply with UNSC and IAEA BoG resolutions.

France and India will continue to support the development of relations between the

EU and India more so when India and EU are enhancing cooperation as reflected in the

deepening of the strategic relationship as well as the entry of the Lisbon Treaty into Force.

The two countries welcome the holding of the EU-India Summit on 10 December 2010 in

Brussels and call for renewed efforts to achieve the mutually beneficial conclusion of the EU-

India Broad-based Trade and Investment Agreement.



18

2. Indo-French Strategic Partnership

Civil nuclear energy

The two States welcome the entry into force on 14 January 2010 of the India-France

Cooperation Agreement on the Development of Peaceful Uses of Nuclear Energy and the

signing of Agreements on the protection of Confidentiality of Technical data and information

relating to cooperation in the peaceful uses of nuclear energy, and concerning intellectual

property rights on the development of the peaceful uses of nuclear energy which supplement

it.

Noting the innovative, broad-based and dynamic nature of their partnership in the

field of civil nuclear energy cooperation, France and India welcome the progress towardsfurther strengthening cooperation between the two countries including in research and

development and in setting up joint nuclear power projects. In this context the signing of the

General Framework Agreement between NPCIL and AREVA represents a significant

milestone.

Following India‟s enactment of civil nuclear liability legislation, both countries stand

ready to further exchange views on this issue so as to ensure the appropriate framework for

the sound development of their cooperation.

The "Commissariat à l‟Energie Atomique et aux Energies Alternatives – CEA" for

France and the "Department of Atomic Energy – DAE" for India have concluded on

December 6 a Cooperation Agreement in the field of Nuclear Science and Technology for

peaceful Uses of Nuclear Energy with the aim to establish a general framework to enhance

their collaboration and signed a specific implementing agreement in the field of education

and research.

The CEA expressed its interest in cooperating with India‟s Global Centre for Nuclear

Energy Partnership (GCNEP), as a means to contributing to multilateral cooperative efforts to

promote peaceful uses of nuclear energy.



19

The fi ght against terr orism

Terrorism strikes not only the people and the interests of our two countries but also

imperils peace and stability of our respective regions and the world. We reaffirm our

irrevocable condemnation of this scourge in all its forms and our will to intensify our

cooperation to counter it.

Since our Joint Statement of 25 January 2008, we have aimed at intensifying bilateral

consultations and exchanges with the objective of better assessing these threats and sharing

relevant information. Today, we have decided to make this cooperation a priority of the Indo-

French security relationship.

With the tragic losses suffered in the November 2008 terrorist attacks in Mumbai particularly in mind, we call for the active prosecution of the authors of such crimes and their

accomplices, and urge that they be brought to justice expeditiously.

In our common fight against terrorism, we will continue to enhance our operational

cooperation as far as possible and will seek to ensure that the widest possible measure of

mutual legal assistance is rendered, and that extradition requests are processed expeditiously.

Our two governments will coordinate their endeavors in international bodies such asthe Financial Action Task Force in order to define common positions and promote concrete

initiatives.

In the pursuance of our efforts to strengthen the international legal framework against

terrorism, we resolve to intensify our efforts to urgently conclude the Comprehensive

Convention on International Terrorism at the United Nations. France and India call on all

countries to become part, as a matter of urgency, of all international counter-terrorism

conventions.

Both sides reiterated the importance of adhering to sanctions regime against Al Qaeda

and Taliban as established by UNSCR and subsequent Resolutions and the need to preserve

its credibility.Security and defense France and India reaffirm their common interest in

continuing to strengthen their defense relationship, which is an important pillar of their

Strategic Partnership and reflects their common determination to work for global peace and

security.



20

The two States agree to continue and intensify their cooperation on counter piracy and

maritime security. France and India recognize the need for an intensified cooperation in

combating piracy in the Gulf of Aden and other areas.

The two states welcome the ongoing exercises between their Navies (Varuna) and Air

Forces (Garuda) and have confirmed their interest towards extension of their cooperation

through exercises between the two Armies.

The two States also welcome the on-going efforts and future prospects for joint

programmes in defense industry, which would include joint research and development and

transfer of technology. In this regard and as a first step, the two States expect to launch soon

the SRSAM and Kaveri program. Discussions concerning the upgrading of Mirage 2000

aircraft are expected to be finalized soon.

Space Cooperation

Acknowledging the essential nature of cooperation in the field of space, which is a

key sector for scientific cooperation between the two countries, India and France intend to

broaden the scope of their exchanges and further develop their joint efforts in this field. In the

spirit of the Framework Agreement signed between Indian Space Research Organization

(ISRO) and French National Space Agency (CNES) on a wide range of issues related to use

of space for peaceful purposes, they applaud the Space establishments of both nations for the

progress made in developing the Megha-Tropiques and SARAL satellites, due to be launched

in 2011 timeframe.

The two governments reaffirm their determination to pursue space cooperation in the

fields of Earth Observation for climate change studies and space exploration.

India and France also acknowledged the ascending trend of the industrial cooperation

over the years nurtured by space industries of both countries. In this regard, they gladly

welcome the recent breakthroughs made by Astrium and Antrix Corporation in the joint

development and marketing of communications satellites, following their 2005 Agreement.

They also welcome continuing this promising collaboration in the coming years.



21

3. Bilateral cooperation

Development of economic and trade exchanges

France and India welcome the outstanding development of their bilateral economic

exchanges in recent years. The two countries welcome the contracts signed in the latter part

of 2010 for aircraft leasing, satellite launching, biometric technology, energy and urban

transportation.

Aware of the potential for the development of their bilateral exchanges and

investments, and confident about the opportunities afforded by the dynamism of their

economies – ranking among the leading global economies – the two governments reiterate

their objective of doubling their trade exchanges in a balanced way despite the crisis, over the period 2008-2012.

Beyond that, the liberalization of exchanges provided for by the EU-India Broad-

based Trade and Investment Agreement, combined with ongoing cooperation in the field of

civil nuclear energy and the resumption of aviation industry contracts, will further boost trade

between the two countries.

France and India welcome the significant development of cross-investments betweenthe two countries and large-scale investment by India-based French companies in the car

industry, building materials, electrical equipment, public water utilities and rail transport.

They also welcome prospects for Indian investments in France.

They welcome the private sector's involvement in boosting bilateral trade and call on

the Indo-French CEOs Forum to continue to play a decisive role in identifying new avenues

for cooperation and facilitating the business climate between the two countries.



22

Cooperation in the field of Agricultu re and Food Processing

France and India recognize the strategic importance of the agricultural and food

processing sector in addressing the needs for affordable, healthy, high quality and sustainable

food products in both countries.

They express in particular their will to double and balance exchanges of agricultural

products as part of comprehensive cooperation including food products logistics, the

distribution sector and agrifood research.

The two sides expressed satisfaction at the on-going cooperation between the two

countries through the Indo-French Joint Working Group on Agriculture. The areas identified

for further cooperation include strengthening the post-harvest management capacities (e.g.cold chains, storage...), wine/Vineyards, research and training and exchange programmes,

animal identification and tracing and genetic improvement of dairy cattle breeds.

Cooperation i n the fi eld of sustainable development (town planning, transport, housing)

Both parties expressed their commitment to the continuation of bilateral exchanges in

the field of standards, best practices and capacity building in order to further enhance

cooperation between Indian and French institutional structures as well as business

partnerships.

Cooperation i n the field of human exchanges

France and India, reiterating the importance they attach to encouraging people to

people contacts and human exchanges in accordance with the joint declarations of 25 January

2008 and 30 September 2008, reaffirm their determination to cooperate closely in the field of

migration, with a view to encourage legal and orderly migration of students, professionals

and skilled workers to each other‟s country, depending on opportunities available, to assure

the return to their country of illegal migrants who have been properly identified as their

nationals and to combat irregular migration.



23

Welcoming the preliminary talks held in New Delhi in November, 2009 and which

led to beginning of negotiations on a bilateral partnership agreement on migrations under this

comprehensive approach to migration, the two States agreed to swiftly launch these

negotiations between the two countries based on a draft text submitted by France with a view

to conclude them as soon as possible.

University and scientif ic cooperation

The two States reaffirm their determination to pursue efforts in order to ensure that

human exchanges permeate and stimulate all areas of bilateral cooperation, including in the

fields of research, education and cultural exchanges. They encouraged the trend of increasing

number of Indian students studying in France and French students studying in India. More

than 200 framework agreements for promoting student mobility have been signed by French

and Indian higher education institutions. The five scholarship programmes established under

the "Quai d‟Orsay / Entreprises" scheme have helped welcome 101 Indian students to the

best schools and universities in France since 2006. A total of almost 400 scholarships were

awarded in 2009. France and India call for an increase in bilateral student exchanges and

pledge to facilitate the academic stays of French students in India and Indian students in

France.

France and India support the launch of an ambitious cooperation at the Indian Institute

of Technology (IIT) Rajasthan, which is to allow a consortium of French higher education

institutions, to initiate a partnership and joint workson sustainable development and on green

accounting project. This project will ultimately make it possible to incorporate the

environment into the daily business of enterprises and to develop the territory and urban

heritage targeted by decentralized cooperation actions.

Recognizing the essential contribution of education and scientific research to global

prosperity and stability, they welcome the success of the Franco-Indian Centre for Advanced

Research (CEFIPRA) which has been steering closely science and technology-related

projects since 1986. They welcome the ambitious initiatives envisaged to increase its

outreach and develop its partnerships. They further reiterate their common determination to

strengthen Indo-French cooperation in the field of innovation. They welcomed research

collaborations in the areas of solar thermal technology, ICT in health lab, systems and

designs for automobiles and aerospace, robotics and control systems, art, culture and heritagerestoration.



24

India and France recognize that with the 21st century being hailed as the century of

knowledge, alliances in the knowledge economy will be critical for both countries, especially

by leveraging Information and Communication Technology. Based on their shared endeavour

to strengthen democracy, transparency and accountability, France and India wish to start an

initiative on Democratizing Information and Open Government as a way to use Information

and Communication Technology to modernize the relationship between the State and the

citizen.

The two governments welcome the action of the French Development Agency (AFD)

which contributes through concessional financing for supporting projects in the field of

renewable energies and energy efficiency, sustainable forest management and biodiversity

conservation. As a key instrument of our cooperation in the field of sustainable development,

the AFD‟s level of intervention is to increase significantly over the next few years. 80

Cul tur al exchanges

France and India welcome the holding of the cross cultural seasons Bonjour India and

Namaste France which meet the desire for understanding and exchange on the part of the

Indian and French peoples. They welcome the launching of the news channel France 24 in

India. They reaffirm their determination that an Indian Cultural Centre should be established

at 3 Avenue de Lowendal in Paris and intend to finalize the necessary arrangements to that

end.

The two governments welcome the signing of the film Co-Production Agreement

which is to inspire our future joint co-operation projects in the film industry and will be

viewed as an example in terms of co-production



25

In-depth PESTLE insights

Overview

The economy is buoyed by the services sector, but rising current account deficit andinflation remain aconcernThe French economy is one of the largest economies in the EU,

with a GDP of $1.5 trillion (constant prices, 2000).Although the economy shrank by 2.6% in

2009, it rebounded with a growth of 1.5% in 2010. The country‘s well-

developedinfrastructure and strong services sector are supporting the economy. The services

segment contributed around 82.1% of the GDP in 2010. It rose from €1.43 trillion in 2006 to

more than €1.58 trillion in 2010, and is expected to reach around €1.78 trillion by the end of

2013.

However, the economy faces huge challenges in the form of weak government

finances, rising inflation, and widening current account deficit. The total budget deficit for

2010 was €136.5bn ($194bn), around 9% of the GDP. Inflation has been on the rise after it

fell to 0.1% in 2009, increasing to 1.6% in 2010. It is expected to grow to 1.8% in 2011. The

current account deficit as apercentage of GDP was 2.7% in 2008, 2.9% in 2009, and 3.3% in

2010. In the present economicsituation, the state's deteriorating financial condition is putting

additional pressure on the economy.

France scores high on human development, but rising unemployment is a concern

France ranks high in terms of social development. On the UN Development Programme's

(UNDP) Human Development Index for 2010, the country ranked 14th among 169 countries.

Like most European nations, France is also facing the challenges of ensuring social security

for an aging population. The unemployment rate in the country is inching towards 10% after

averaging 9.6% for 2009 and 2010. Income inequality in the country has increased and the

education system has failed to meet the changing requirements.

The country's minimum wage has consistently risen, but labor productivity has not

increased by the same proportion. This has made wage hikes unrealistic. Moreover, the

government has initiated new measures to address unemployment-related issues arising out of

the present economic crisis. The government‘s attempts to initiate labor reforms have beenmet with public protests, which could result in political instability. The pension system was



26

revamped in 2003, but the employability of the older population is still limited. The

government plans to increase retirement age from the current 60 to 62 by 2018 under the new

Pension Act. The need to increase the contribution period is being felt, but the government‘s

efforts in this direction have met with resistance.

Measures to encourage innovation underway, but R&D expenditure remains low

France has been traditionally known as a technologically advanced nation. The

country‘s total expenditure on research and development (R&D) has been steadily declining

as a percentage of GDP from 2001, and is far below the projected EU target of 3%. However,

France has been proactive in innovation by introducing research tax credit, innovation

clusters , and reforms to its university system. The country‘s €35bn Special Investment Plan

has also played an important role in attracting capital, jobs, and talent into the country. There

has been a steady increase in the number of public-private laboratories in the country,

reaching 214 in 2009. Under its higher education reforms, 90% of the universities in the

country will be autonomous by the end of 2011. The Special Investment Plan covers three

priority areas: healthcare, nutrition, and biotechnology; environmental urgency and eco-

technology; and information, communication, and nanotechnology.

Overview

France is open to FDI, but labor market rigidities could hinder investment France has

been slowly liberalizing its economy by doing away with restrictions on investment in

formerly government dominated sectors. As a member of the EU, it provides a reasonably

hospitable climate for foreign investment. The country attracted inward foreign direct

investment (FDI) of $65bn in 2009, with nearly 22,645 foreign companies operating in the

country and employing nearly three million people. The number of projects originating in

emerging countries increased by52% compared to 2009. In 2010, foreign companies based in

France created two million jobs. However, the government is yet to dispense with its

interventionist practices, and there are deterrents in the form of a lack of fiscal freedom or

investment freedom. There are plans to exert tighter control over companies in which the

state still hasa stake. In April 2011, a mandatory bonus scheme suggested by President

Sarkozy was slammed by both unions and companies, many of which see it as unnecessary

state intervention in employer-employee relations.



27

Growth in green fuels is a positive development, but lack of growth in green taxes

will affect sustainability The French government has attached great significance to

environmental concerns; in fact, the Environment Charter forms a part of the French

constitution. France‘s environmental laws have influenced EU environmental laws to a great

extent. France has stabilized its greenhouse gas emissions in accordance with the UN

Framework Convention on Climate Change(UNFCCC). In 2010, more than 100 billion litres

of bio fuel were produced globally, out of which nearly 85% of production was from

developed and emerging countries. It was largely dominated by the US (46%), Brazil (29%),

and France (nearly4%).

France‘s greenhouse gas emissions are 5.6% below the ceiling set by the Kyoto

Protocol for 2008 – 12. Despite these successes, a lot of work still needs to be done to reduce

the energy intensity of the economy and integrate environmental concerns into the energy,

transport, and agriculture sectors. The proposed changes under environmental tax reforms are

yet to be fully implemented. In March 2010, the government dropped its proposed carbon

taxation. The Organisation for Economic Co-operation and Development (OECD) has also

called on France to consider increasing taxes on coal, natural gas, home heating oil, and

diesel in order to improve its environmental profile.



28

Rank & Value according to different sector

Indicator value rank

1st pillar: Institutions

1.01 Property rights ....................................................... 5.7 ............18

1.02 Intellectual property protection ............................... 5.6 ..............9

1.03 Diversion of public funds ........................................ 4.8 ............29

1.04 Public trust in politicians ......................................... 3.4 ............44

1.05 Irregular payments and bribes ................................ 5.4 ............32

1.06 Judicial independence ............................................ 4.9 ............37

1.07 Favoritism in decisions of government officials ....... 3.7 ............391.08 Wastefulness of government spending ................... 3.1 ............77

1.09 Burden of government regulation ........................... 2.7 ..........126

1.10 Efficiency of legal framework in settling disputes .... 4.4 ............37

1.11 Efficiency of legal framework in challenging regs. ... 4.5 ............27

1.12 Transparency of government policymaking ............. 4.6 ............47

1.13 Gov‘t services for improved business performance 3.6 ............70

1.14 Business costs of terrorism .................................... 5.2 ............93

1.15 Business costs of crime and violence..................... 5.3 ............47

1.16 Organized crime ..................................................... 5.8 ............39

1.17 Reliability of police services .................................... 5.3 ............33

1.18 Ethical behavior of firms ......................................... 5.4 ............23

1.19 Strength of auditing and reporting standards ......... 5.3 ............34

1.20 Efficacy of corporate boards .................................. 5.2 ............21

1.21 Protection of minority shareholders‘ interests ......... 4.6 ............42

1.22 Strength of investor protection, 0 – 10 (best)* .......... 5.3 ............65

2nd pillar: Infrastructure

2.01 Quality of overall infrastructure ............................... 6.4 ..............5

2.02 Quality of roads ...................................................... 6.5 ..............1

2.03 Quality of railroad infrastructure .............................. 6.3 ..............4

2.04 Quality of port infrastructure ................................... 5.4 ............26

2.05 Quality of air transport infrastructure....................... 6.2 ............10



29

2.06 Available airline seat kms/week, millions* ........ 3,717.5 .......8

2.07 Quality of electricity supply ..................................... 6.7 ..............9

2.08 Mobile telephone subscriptions/100 pop.* ......... 105.0 ........74

2.09 Fixed telephone lines/100 pop.* ........................... 55.9 ...........7

3rd pillar: Macroeconomic environment

3.01 Government budget balance, % GDP* .................. 5.3 ..........114

3.02 Gross national savings, % GDP* .......................... 18.8 ..........75

3.03 Inflation, annual % change* .................................... 2.3 ..............1

3.04 General government debt, % GDP* ..................... 86.3 ........130

3.05 Country credit rating, 0 – 100 (best)* ...................... 85.2 ..........16

4th pillar: Health and primary education

4.01 Business impact of malaria .............................. n/appl. ........1

4.02 Malaria cases/100,000 pop.* ................................ (NE) ...........1

4.03 Business impact of tuberculosis ............................. 6.3 ...........26

4.04 Tuberculosis cases/100,000 pop.* ......................... 9.3 ...........28

4.05 Business impact of HIV/AIDS ................................. 5.7 ...........47

4.06 HIV prevalence, % adult pop.* ............................... 0.4 ..........78

4.07 Infant mortality, deaths/1,000 live births* ................ 3.4 ..........17

4.08 Life expectancy, years* ......................................... 81.4 ........11

4.09 Quality of primary education ................................... 4.6 ..........37

4.10 Primary education enrollment, net %* .................. 98.5 ........22

5th pillar: Higher education and training

5.01 Secondary education enrollment, gross %* ........ 113.2 ........8

5.02 Tertiary education enrollment, gross %*................ 54.5 ........45

5.03 Quality of the educational system ........................... 4.2 ..........41

5.04 Quality of math and science education .................. 4.9 ..........25

5.05 Quality of management schools ............................. 5.6 ............8

5.06 Internet access in schools ...................................... 4.4 ..........59

5.07 Availability of research and training services ........... 5.4 ..........15

5.08 Extent of staff training ............................................ 4.3 ..........41



30

6th pillar: Goods market efficiency

6.01 Intensity of local competition .................................. 5.5 ............28

6.02 Extent of market dominance .................................. 4.3 ............33

6.03 Effectiveness of anti-monopoly policy ..................... 4.9 ............20

6.04 Extent and effect of taxation ................................... 2.8 ..........128

6.05 Total tax rate, % profits* ....................................... 65.7 ........128

6.06 No. procedures to start a business* .......................... 5 ..............29

6.07 No. days to start a business* .................................... 7 ..............25

6.08 Agricultural policy costs.......................................... 4.0 ...........60

6.09 Prevalence of trade barriers ................................... 4.7 ...........35

6.10 Trade tariffs, % duty* .............................................. 0.9 .............6

6.11 Prevalence of foreign ownership ............................. 5.6 ...........18

6.12 Business impact of rules on FDI ............................. 4.6 ...........71

6.13 Burden of customs procedures .............................. 4.6 ...........39

6.14 Imports as a percentage of GDP* ........................ 30.8 .......114

6.15 Degree of customer orientation .............................. 4.7 ...........58

6.16 Buyer sophistication ............................................... 3.8 ...........43

7th pillar: Labor market efficiency

7.01 Cooperation in labor-employer relations ................. 3.3 ..........137

7.02 Flexibility of wage determination ............................. 5.1 ............62

7.03 Hiring and firing practices ....................................... 2.5 ..........141

7.04 Redundancy costs, weeks of salary* ....................... 12 ............51

7.05 Pay and productivity ............................................... 3.9 ...........66

7.06 Reliance on professional management ................... 5.0 ...........34

7.07 Brain drain ............................................................. 3.7 ...........50

7.08 Women in labor force, ratio to men* ..................... 0.88 .........33

8th pillar: Financial market development

8.01 Availability of financial services ...........................5.6 ...........25

8.02 Affordability of financial services ................. .......5.0 ...........28

8.03 Financing through local equity market .................... 4.7 ...........12

8.04 Ease of access to loans ......................................... 3.0 ...........61

8.05 Venture capital availability ....................................... 2.8 ...........57



31

8.06 Soundness of banks .............................................. 5.4 ..........54

8.07 Regulation of securities exchanges ........................ 5.1 ..........30

8.08 Legal rights index, 0 – 10 (best)* ................................. 7 .............43

9th pillar: Technological readiness

9.01 Availability of latest technologies ............................ 6.3 ..........16

9.02 Firm-level technology absorption ............................ 5.5 ..........35

9.03 FDI and technology transfer ................................... 4.8 ..........59

9.04 Individuals using Internet, %* ............................... 79.6 ........16

9.05 Broadband Internet subscriptions/100 pop.* ........ 36.1 ..........7

9.06 Int‘l Internet bandwidth, kb/s per user* ................ 78.6 ........19

9.07 Mobile broadband subscriptions/100 pop.*.......... 44.0 ........18

10th pillar: Market size

10.01 Domestic market size index, 1 – 7 (best)* ................. 5.7 ............8

10.02 Foreign market size index, 1 – 7 (best)* .................... 6.0 ..........13

11th pillar: Business sophistication

11.01 Local supplier quantity ........................................... 5.2 ..........26

11.02 Local supplier quality .............................................. 5.5 ..........15

11.03 State of cluster development .................................. 4.5 ..........30

11.04 Nature of competitive advantage ............................ 5.5 ..........15

11.05 Value chain breadth ................................................ 5.4 ............9

11.06 Control of international distribution ......................... 4.4 ..........33

11.07 Production process sophistication .......................... 5.4 ..........19

11.08 Extent of marketing ................................................ 5.6 ..........11

11.09 Willingness to delegate authority ............................ 3.5 ..........88

12th pillar: Innovation

12.01 Capacity for innovation ........................................... 5.0 ..........10

12.02 Quality of scientific research institutions ................. 5.5 ..........15

12.03 Company spending on R&D ................................... 4.6 ..........19

12.04 University-industry collaboration in R&D ............4.4 ..........33

12.05 Gov‘t procurement of advanced tech products ...... 3.8 ..........49

12.06 Availability of scientists and engineers .................... 4.9 ..........22

12.07 PCT patents, applications/million pop.* .............. 110.2 ......14



32

PESTLE highlights

Political landscape

Generalities

• France is a democratic republic,

• The Prime Minister of France is head of the government,

• The Executive power is done by the government,

• The legislative power is vested by the government, the Senate and the National

Assembly,

• The judiciary power is independent of the executive and legislative ones,

• Since about 50 years, the country has been governed either by a left-wing coalition

recently or a right-wing.

France has improved its rankings in the Worldwide Governance Indicators for 2009

on the parameters of voice and accountability and rule of law. France has a percentile rank of

90.5 on voice and accountability as of 2009, which is an improvement over its 2002 score of

83.2. Despite attempts to decentralize power, France remains a highly centralized country

with an elite group being dominant in the state and corporate sectors. Corruption is perceivedto be widespread in French politics.

– Climate change agenda

– Fuel prices

– Expansion of EU

Business politics in France

About external affairs, on May 29/2005, French voters in the referendum on the Treaty

establishing a Constitution for Europe turned down the proposed charter.

One of the great questions of current French politics is economic liberalism, as opposed to

government intervention in the economy

Social pressure groups

• Workers' unions:

• Employers' unions

• Students' unions

• Peasants' unions



33

Economic landscape

The government plans to reduce its budget deficit by limiting total spending

to€286.4bn in 2011, with the anticipated economic growth of 2% in 2011 also helping to

close its budget gap.

– Changes in disposable income

– Exchange rates

– Taxation

– Economic growth around the world

Overview

France‘s share in exports in the eurozone fell by 16% during 1999 – 2007, and exports

from the country declined by 4.6% in 2010 to $595bn. Declining exports are expected to

affect the prospects of the French economy in the near term.

France is the sixth largest economy in the world in USD exchange-rate terms,

In 2012, the country has a GDP (gross domestic product) of 1.7 trillion euros.

Social landscape

France has Europe's second-highest birth rate, and has shown an upward trend since

the 1990s. France's birth rate of around two children per woman in 2010 makes it one of only

two European countries that could maintain their current population based on present trends.The problem of an aging population is becoming more apparent. Additional government

expenditure between now and 2050 due to increased pensions, healthcare, and dependency

care related to the aging population is predicted to be more than 4% of GDP.

– Demographic changes

– Attitudes to environmental issues

– The ethical consumer

– Aging population



34

Technological landscape

France has a favorable innovation climate, which is reflected in the large number of

patents received. In 2010, the total number of patents received from the US Patent and

Trademark Office (USPTO) reached 124,723, which indicates the country‘s strong support

for innovation and R &D. The government‘s interventionist attitude, as seen in the case of

Internet advertising, and the ongoing withdrawal of business-friendly schemes like the Young

Innovative Company (YIC) concept will affect industrial growth, and could reduce

investments in the country.

– Demand for alternative fuels

– Advances in manufacturing

– The driverless car

The French budget plan for in industrial research and innovation is about 648 115

796. There was a priority given to scientific research, technological development, industrial

restructuring, and the development of national energy sources. The establishment of a

ministry of research and industry by the socialist shows their commitment to the belief that

basic research is closely linked to industrial prowess. The social and cultural roots of

research in France have long kept the French scientific community away from the question of

the use and economic exploitation of knowledge. The globalization of exchanges and

cooperation, which has been accelerated by the speed of electronic data transfer as well as by

the support of the European Union to R & D projects, has changed this tradition.



35

Legal landscape

Foreign investments increased by 22% in 2010, with 782 projects leading to nearly

32,000 jobs, an increase of 6% compared to 2009. Many of these projects were related to the

renewable energy sector. In 2010, foreign companies based in France created two million

jobs. Many of the government‘s tax and labor reforms have been met with cynicism and

public protests. The government is planning to increase weekly working hours to 39 from the

current 35 and abolish the wealth tax l'impôt de solidarité sur la fortune. However, these

moves are bound to face public outrage and demonstration.

(schwab, 2013-13) (V.sutharaman, 2012) (2013) (Henry, 2012) (medabesh, et al.) ()

– Employment law

– Environmental regulations

Environmental landscape

France has played an active role in the preparation of global agreements on

environmental protection and sustainable development and in the strengthening of

international environmental governance. As part of its global environmental partnership, the

country initiated the Global Forest Partnership in May 2010 with Norway. In March 2011, the

European Commission decided to take France to the EU Court of Justice for its poor

adherence to EU industrial emissions regulations. The EU alleged that France has at least 62

factories that have not received environmental authorization from the EU.

– Increased awareness of environmental issues concerning waste and

carbon footprint

Environment Scanning and Competitiveness of the Auto and Auto Components sector



36

GAP Analysis of automobile industry

France was a pioneer in the automotive industry and is the 10th-largest automobile

manufacturer in the world by 2011 unit production and the third-largest in Europe (after

Germany and Spain).

France is home to two major automaking companies - PSA Peugeot Citroën (owner of

the Peugeot and Citroen marques) and Renault S.A. (owner of the Renault marque and of

Dacia of Romania, and Renault Samsung Motors of South Korea). The France-based Renault

Trucks is a major producer of commercial vehicles and is owned by Volvo AB. Both PSAPeugeot Citroën and Renault produce a large number of vehicles outside of France.

French-designed cars have won the European Car of the Year and World Car of the

Year awards numerous times. The Citroën DS took third place in Car of the Century award

and has been named the most beautiful car of all time by Classic & Sports Car magazine.

Overview of French automobile industry

2010: WITH A RETURN TO GLOBAL GROWTH, FRENCH MANUFACTURERS’

PRODUCTION REACHED NEW HEIGHTS

With a return to world growth, French manufacturers rubbed out the sharp falls posted

in 2008 and 2009associated with the economic and financial crisis. Compared to 1997,

production grew by 57% to nearly 6.4 million vehicles, reaching new heights. More than ever

before, this growth has its roots outside Western Europe. After a drop of 350,000 vehicles in

2009, production grew by 800,000 to over 2.7 million; in 1997, figures stood at only 659,000

vehicles.

These areas where the level of vehicle ownership is generally much lower than in

Western Europe represent markets of large potential within which investments must continue

and increase. The market in Western Europe, a mature automobile zone, remains the base

market for French manufacturers. Figures grew by 380,000 over the period, to 3.7 million

vehicles. In France, numbers rose to 430,000 vehicles and a rise in market share helped limit



37

the downturn elsewhere in Europe. To weather the development of overseas competition,

French manufacturers continued to invest in France, in research and development and also

plants.

After the historic fall in 2009 caused by the economic and financial crisis, world

GD P growth return to the high levels it enjoyed until 2007.

Similarly to previous years, the development differed between OE CD countries

where GDP rose by 3% and developing countries (+7 to 8%), steered by China and India in

Asia and also Brazil and Argentina in South America. The recoveries in Eastern Europe,

particularly in Russia did not erase the drop in 2009. The price of raw materials grew

throughout 2010 and with increases noted since early 2011, the high prices of 2008 were

nearly reached, as with oil for example.

These developments have limited consumer purchasing power; consumers have been

affected in developed countries by the effects of this crisis, with the high unemployment

levels affecting their confidence. For businesses, a return to investment began.

In this context of a collapse of Western Europe‘s base marketing terms of the levels

observed prior to the crisis, French automobile manufacturers must deal with consumer

decisions about what to buy, the rising cost of raw materials for manufacturing processes,

dearer money worsened by the crisis and maintaining the euro at a high level in terms of

other main countries. Despite everything, they must continue to meet society‘s demands,

which require considerable research and development expenditure. Furthermore, this crisis

highlighted the entire automobile branch upstream through suppliers and downstream with

transportation and the sale/maintenance of vehicles.

In this economic and financial environment, in 2010 the world‘s automobile market

reached a new high of 75 million vehicles; supported for the most part by the strong growth

of developing countries. In Western Europe, new car markets fell due to the end of the

different government plans for scrap incentives, whilst commercial vehicle markets returned

to growth. French manufacturers managed to raise their penetration in a context of increased

competition while continuing to manage their stocks.



38

In Eastern Europe, the industry returned to growth, driven by Russia and Turkey.

However, to satisfy vehicle ownership requirements, French manufacturers continued to

develop commercially and industrially in this area whose opportunities should eventually

grow. The PSA Peugeot Citroën and Mitsubishi plant in Russia produced its first vehicles and

Renault is developing a strategic partnership with the Russian manufacturer AvtoVAZ, now

part of Nissan. In Asia, the car market continued to develop strongly. Beyond China, the

world‘s leading automobile market since 2009,growth was observed in many other countries

such as India, Thailand and Indonesia. Market opportunities for French manufacturers grew

healthily in this area, and today exceed 1.2 million vehicles. The search for investment (PSA

Peugeot Citroën with its partners in China and Renault in India) and renewed, adapted

vehicle ranges should support this future growth.

In Latin America where markets have reached all new highs, French manufacturers‘

sales have enjoyed strong growth at nearly650,000 vehicles, for the first time exceeding those

destined for Eastern Europe, including Turkey. New investments have been voted by the

French companies to attempt to return to automobile development in this region. Finally,

French manufacturers have managed to sell 200,000vehicles in Africa.



39

Fig. 1

Fig. 2



40

Overview of the Automobile and Auto Components Sector

The liberalisation of the Indian industry saw significant growth in the Indian

Automotive Industry. Today, the Indian Automotive Industry is a significant contributor to

the Indian economy, contributing nearly 5% to the country‘s GDP and about 17-18% to the

kitty of indirect taxes to the Government, while investment outlay stood over Rs. 83,500

crore in 2008-09. With its wide penetration and strong influence on the country‘s economic

and industrial development, the auto sector is indeed one of the major drivers of our

economy. Moreover, economic liberalization coupled with its technological, cost and

manpower advantage have made India one of the prime business destination for many global

automotive players. With its strong influence on the country‘s economic and industrial

development it is indeed one of the major drivers of our economy. Moreover, economic

liberalization coupled with its technological, cost and manpower advantage have made India

one of the prime business destination for many global automotive players. The sector has

moderate direct employment and significant indirect employment; it is estimated that the

sector provides direct and indirect employment to over 13 million people.

Product categories of the Automobiles Segment

The Automobile segment comprises of the following four broad categories of vehicles

• Passenger Vehicles

• Commercial Vehicles

• Three-wheelers

• Two-wheelers

Two-wheelers, being the most popular means of personal transport, alone account for about

75% of the total automobile production in India, while passenger vehicles account for nearly

16% of the production. However, owing to their lower sales realisations, two wheelers

account for only around32% of the sales in terms of value while passenger vehicles account

for around 62% of the same.



41

Value Chain of the Automobiles Segment

The Automobile segment, comprising of the OEMs, is at the topmost Tier of the

Automotive Industry with a wide network of Tier I, II, III level suppliers supporting the

OEMs for end product production.In terms of activity, Manufacturing is the most key

function in the Automobile segment, owing tonearly 60-70% of the manpower engaged in

this activity at the manufacturer‘s end (directemployment). Indirect employment generated by

this sector is considerable as personnel are employedin functions such as sales, finance,

insurance, etc. In terms of criticality, capturing the customers ‗requirements and translating

them into products that would sell in the market is the most challenging part of the value

chain. In fact, players who are able to develop expertise in this area command a significant

edge in the market and this is one of the key reasons why foreign players have been able to

make place in the Indian market. Increasing consumer discerns and growing cost

competitiveness has forced OEMs to manage the brand and outsource the rest. This has also

resulted in increased tierisation of the automotive industry.



42

Demand drivers for Automobile Segment

One of the key reasons for the rapid growth in the Automobile segment has been the

strong influence of several favourable drivers of demand. While some of the demand driversare off-shoots of favourable growth in the Indian economy, others have come by due to the

comprehensive development of the Automobile segment.

• Increase in income levels and thus purchasing power: Increase in disposable incomes

have made cars affordable to a larger section of the population. While the ratio of car prices

to average monthly salaries was around 36 - 48 months in the past, it has dropped

significantly to less than 24 months currently. This is also a result of decreasing automobile

prices with increasing efficiency in production and stiff competition in the market.

• Gradual shift to higher segment passenger vehicles: B and C segments have emerged as

high growth segments over the last few years. In 2001-02, the A segment accounted for

around 28% of sales while in 2004-05 it accounted for only 14%. At the same time, the

demand for premium vehicles has also grown significantly, though the volumes are still low

compared with other segments. The trend in segmental sales is poised to undergo a sea

change with the launch of high volume selling Tata Nano and other players eyeing to get into

the ultra low-cost segment.

• Availability of a wider range of products: The number of players as well as the number of

products in the auto OEM space has increased, thus making more number of product options

available to the end customer. While even till late 80‘s there were 8-10 major OEMs, today

there are more than 30 OEMs with a wide variety of offerings in the market. The current

market offers more than 75 options in two-wheelers, more than 30 in hatchbacks, close to 50

in sedans and luxury cars, more than 50 in SUVs, and close to 10 options in sports cars.

• Availability of low-cost finance: Decline in interest rates and easy finance options have

also enabled rapid increase in vehicle sales. It is seen that more than 90% of the

vehicles(passenger vehicles) are currently sold under the financing route.



43

• Emergence of tier 2 cities and non metros: There has been a gradual shift in vehicle sales

to smaller cities; markets other than the top 20 cities account for almost half the share of

vehicles sold.

• Decrease in product life cycles: The product life cycle had decreased from an average of

61months to about 51 months between 2002 and 2005 and continues to decrease further.

Also, purchases for replacement of existing vehicles have been increasing. Coping with the

changing market requirements, OEMs have also been forced to reduce their new product

introduction timelines in order to maintain their market shares.

• Emergence of two-vehicle families: With rising disposable income levels and changing

lifestyles, especially in the key urban centres in India, the trend of two-vehicle families has

been increasing and purchases are being made persons who already own vehicles. This has

led to high demand of automobiles. Also, it is observed that consumers have a tendency to

upgrade their vehicles during replacement leading to a shift to higher categories.



44

Key Success Factors of the Automobile Segment

• Widespread sales and service network : With a wide variety of options available in the

market, meeting the key customer requirements becomes essential to maintaining one‘s position. With increasing average trip lengths both in the intra-city and the inter-city

applications, a widespread sales, distribution and service setup has become one of the

topmost preferences in the buying behavior and thus enables higher sales and provides a

competitive edge. For e.g. Maruti has used its wide service network as a point of

differentiation over competitors.

• One-stop easy solutions: With financing emerging as the key route for the customer

buying an automobile, automobile companies have started their own financing companies and

tied up with banks to provide easy and one stop solutions for vying customers. Companies are

also tying up with financial institutions having rural presence to provide additional financing

options to customers in such areas.

• Ability to enhance and vary product mix: Customer demands for more options in each

category of vehicles mandate manufacturers to offer multiple products. Also, it is to be

ensured that the changing customer demands continue to be met. Thus, the ability to meet

these market requirements enables higher sales volumes and better capacity utilization by

using common manufacturing capacity.

• Balance between outsourcing and in-house production: The make-or-buy decision for

components and aggregates is critical to the costing of the product. In fiercely competitive

industry, such decisions have a significant impact on the margins. However, the quality of the

product should not be overlooked while deciding on outsourcing.

• Efficient operations: Intense competition requires existing players to initiate steps to

reduce the cost of production. Effective and successful operation methods such as platform

commonality, reduction in vendor base and workforce rationalization, if developed and

maintain can even be one‘s competitive edge.



45

• Human resources: With more advanced manufacturing technology being adopted by auto

OEM‘s, the requirement of skilled personnel, especially at the operator level is key to higher

productivity and quality of output. Similarly with sophisticated products being launched in

the market, there is an acute need for skilled service personnel at the field level.

• Correlation with the economy: A slowdown in the economy is a serious concern for the

automobile segment as the sales are hugely correlated with the economic activity in the

country and purchasing capacity of the customers. For example, the recent economic

downturn severely affected the sales of auto OEM‘s and sales between September 2008 to

December 2008 dropped by about 13%. Though sales have picked up, such a slowdown may

lead to lower investments in infrastructure, which in turn will affect the industry demand.

• Increase in input material prices: In the recent past, cost of most of the key raw

materials(especially metals) for the Automotive Industry has gone up significantly. Higher

steel prices have especially been a key concern (metal prices dropped in early 2009, though

now it is improving). The Automotive Industry has tackled rising raw material prices both by

passing part of the costs through price hikes and also by optimizing their selling &

advertising costs.

• Higher inflation and increase in fuel prices: Higher inflation and the constantly

increasing fuel prices considerably affect the demand for automobiles in the near term, since

these directly increase the running cost of vehicles for the customer and thus also have a

negative impact on the demand for vehicles.

• Rise in interest rates: Easy availability of low cost finance is one key demand driver for

the automobile segment, but the increasing interest rates have a dampening effect on the

demand.

• Low availability of skilled human resources: One of the key areas in the automobile

segment where significant gaps exist is the availability of skilled manpower. The problem is

not so much in terms of quantity, but more in terms of quality of manpower available. More

so, the problem is destined to aggravate going forward considering the kind of growth and

development that is foreseen for the Indian automobile segment.



46

Auto Components Segment

Product categories of the Auto Components Segment

In terms of production of auto components, Engine & engine parts alone account for 31% of

the production value of auto components, while Engine & engine parts and Transmission &

steering parts together account for about 50% of the same. The total production value was

estimated at about Rs.680 billion in 2008-09, of which the organized sector accounted for Rs.

523 billion and the SSI sector accounted for Rs. 156 billion.

Demand drivers for Auto Components Segment

• Growth in Domestic Automobile demand: In 2007-08, about 80% of the sales of auto

components were domestic. Thus the demand of the Auto Component segment is primarily

linked to the growth of the Automobiles segment, i.e. to auto OEM‘s in India. The demand

for Auto Components is, therefore, largely driven by domestic OEM demand and its

corresponding demand drivers.

• Exports fuelled by Industry's capability to manufacture and supply quality productsat internationally competitive prices: Development of the Automotive Industry in India

with the rise of competition has forced the component industry to shed all fat and become

most cost competitive. Moreover, availability of good technical manpower (at a similar cost

in comparison with other competing countries) and promotion of use of advanced technology

by the Government have helped the industry improve the quality of output. Combination of

being cost competitive and a producer of quality products have drawn the attention of other

countries to the extent that India is being made the global sourcing hub by many

multinational companies. In 2007-08 about 20% components and aggregates were exported.

Component and aggregate exports have been increasing at a 5 year CAGR (year 2002-03 to

2007-08) of about 32%. Thus, the industry‘s unique capability has become one of the key

drivers of Auto Component exports from India. However, it also needs to be noted that global

recession has seriously impacted the auto component industry as exports have been hit.



48

Key Risk Factors of the Auto Components segment

• State of the Global economy: Export of auto components one of the key sources of

demand for the auto component segment. Thus the slowdown in the overall global economy,

which in turn leads to a reduction in the number of vehicles sold world-wide, and which in

turn affects the global demand for auto components, is a key concern for the auto component

segment.

• Spurious Parts: The present size of the replacement market is Rs. 16,500 crore of which

the genuine replacement parts account for Rs. 11,200 crore and spurious parts account for the

around Rs. 5,300 crore, i.e. over 32% of the total replacement market. This in turn eats into

the share of business of auto component manufacturers.

• Increase in input material prices: Raw material cost accounts for about 60% of the sales

by EM‘s. Auto Component manufacturers are extremely sensitive to input material prices

since they are correspondingly always under immense pressure from the OEMs on the pricing

front and are under threat of losing business to competitors and work with very low margins.

In such a situation, any increase in input prices eats up into their margins.

• Low availability of skilled human resources: As in the automobile segment, the low

availability of skilled human resources is a cause of concern for the auto component segment

too. Lack of skilled human resource affects the quality of products, which enhances the risk

of losing business.



49

Enabler Segments

The automotive landscape has several underlying support systems which, though not directly

linked to the industry, are support areas or ―enablers‖ of growth. Key enabler segments for

the core segments of the Automotive Industry include Auto insurance, Financiers, Mechanics,

and Auto Dealers etc. The enablers may be categorised as

(1) Industry-related support areas or ―Industry enablers‖

(2) Market-related support areas or ―Market-enablers‖. The key enablers, supporting

the overall growth of the industry.

The enabler segments are associated with providing indirect employment to personnel in the

Auto Industry. At an industry level, the employment in these industries constitutes about 60%

to 70% of the total employment in the Automotive Industry in India11. It is estimated that

about 80 lakh to 90 lakh persons are currently employed in these enabler industries.



50

Drivers of competitiveness of the Automobile and Auto Components Sector

Following are the key drivers of competitiveness of the Automobile and Auto Components

Sector.

• Access to new technologies: In addition to matching competitor‘s new products and

upgraded machinery, technology is also critical, especially with stricter emission norms going

forward. The requirement of updated technologies has driven domestic players into

acquisition or collaborations or JVs with global majors. Moreover, at a time when a

substantial portion of Indian customers is looking to upgrade to higher segments, be it

passenger cars or two wheelers, companies with latest technologies and latest models are

bound to attract more attention.

• Investments in Research and Development: Investments in R&D are critical for retaining

and enhancing the competitiveness of the French automobile and auto components sector.

This competitiveness depends on the capacity as well as the speed of players in the industry

to innovate and upgrade.

• Availability of trained human resources: The availability of trained manpower at

competitive costs is one of the contributors to India emerging as one of the favourite

investment destinations for foreign manufacturers. This is one of the major contributors to

players such as Volkswagen, Nissan, BMW and Renault-Nissan, having set up manufacturing

Operations.

• Cost competitiveness: As both the Automobile and the Auto Components Sectors are very

sensitive to costs, there are several underlying drivers of cost competitiveness which are vital

to the performance of the Industry domestically as well as when compared with other

competing countries.



51

Future Outlook for the Automobile and Auto Components sector

The French Automotive Industry has recently been significantly affected by the high interest

rates and tight credit, overall slowdown in the economic activity, lower consumer confidence

and prevailing uncertainty in the job market. Sales dropped by about 13% between September

2008 and December2008 and exports were also affected during this period. But the industry

has again picked up momentum considerably.

The long-term outlook of the industry still remains optimistic due the strong

underlying industry and economy fundamentals. The Indian Economy, even on a

conservative estimate, is likely to grow at 6-6.5% (various economic estimates) over the next

few years. At the same time, India‘s focus on infrastructure, rising disposable incomes,

lowering age of first time car and two wheeler users, shorter replacement cycles, lower car

penetration all point towards the fact that the long-term growth of the industry in a steadily

growing economy can be expected to be nearly 10%. It is also expected that input costs

pressures could moderate and there will thus be a downward trend in commodities‘ prices

another boost for the Automotive Industry.

Moreover, in recent years several global brands have established their base in India.

India is not only being seen as a huge potential market but also as a favourable destination

capable of developing into global manufacturing hub. Developments of such an order will

mandate conscious monitoring and development in several support areas on the market as

well as the industry side.

Using the expected growth rates for passenger vehicles, M&HCV‘s, LCV‘s, three

wheelers and two wheelers and the average prices of these vehicles, it is estimated that the

Indian Automotive Industry which has seen significant growth in the past, is expected to

grow at the rate of about 13% per annumover the next decade to reach a size of around USD

165 - 175 billion by 2022. Also, since the auto sector has deep linkages the growth of the auto

sector will tremendously boost the share of manufacturing in GDP, exports and employment.



52

Trends in the Automobile and Auto Components sector

The Automotive Industry being one of the key industries in India has received due

attention and concerted efforts are being made for the rapid development of the Industry.

These are well supported by various Government initiatives towards the development of the

Indian Automotive Industry. Key initiatives include the formulation of the Automotive

Mission Plan, Project NATRIP, reduction of excise duty on small motor vehicles, Inspection

and Maintenance Policy, Scrapping regulations, etc.

• Product Trends: The Automobiles have been undergoing transformation in many ways

and development of today‘s products highlight the following key trends even going ahead

Increasing Electronic Content: With more and more stringent norms for safety and

emission, and with more features being demanded by the customer, the designers have been

forced to increase the electronic content in the car in the form of Electronic Control Units

(ECUs), various sensors such as lambda sensors and wheel speed sensor etc. This is likely to

go up further with future customer and regulatory requirements.

Complicated Engine Designs: In a race to improve efficiency without compensating power

coupled with escalating emission requirements have been making engine design,

development and testing the most challenging task in the development of a vehicle. This has

led to more stringent design specifications of engine components – which now require high

precision, high technology manufacturing processes, to an extent that some of the parts

cannot be made in India and necessarily have to be imported. This also led to significant

increase in the import content of the cars as well.

Plastics emerging as a replacement to Metals: Plastics over the period of time have found

more and more applications in Automobiles. With a content of nearly 2% by weight in the re-

1990 times to a current content of nearly 11-12%, plastics have emerged as a substitute to

metals in many applications. The application of plastics till now had been in areas where the

function was not load-bearing such as replacement of metallic fuel tubes, metallic fuel tank to

plastic tank. However, going forward plastics are poised to replace even load-bearing

functional or structure parts such as frames for Front End Modules, Plastic clutch systems,

Brake pedals etc.



53

Hybrid Vehicles: Hybrid vehicles are an attempt towards reducing the dependence on fossil

fuels. Most vehicle manufacturers are working for the development of several types of

hybrids namely,

Hybrid of conventional fuels + electric power

Hydrogen + CNG, referred as Hythane Vehicles

Hydrogen + Electric

These vehicles are also expected to be cleaner that conventional vehicles

• Regulatory Trends:

Emission: Since the adoption of emission norms in 1991, the French Automobile industry

has been made to keep pace with the changing emission norms in line with those being

adopted in the European countries. Continuing the trend, the adoption of Euro IV norms for

11 mega cities are to be implemented from 2010 onwards, with the other cities having to

comply with Euro-III norms. This is further likely to be upgraded in a similar manner to Euro

V in major cities and Euro IV in other cities by2014-15. In addition to the above, two-

wheelers which were out of the scope of these emission norms are soon likely to be covered

with the introduction of emission norms for two-wheelers.



54

Market Trends

Introduction of Low Cost Vehicles: Introduction of vehicles such as Tata Ace in the

commercial category and Tata Nano in the passenger car category, have created a unique

space for low cost vehicles in the market and has set the tone and market expectations for

value products. This has further heightened competition and increased pressure on the

margins for several players and auto component manufacturers. Introduction of Tata Nano is

also seen as a threat to the two-wheeler as well as the used car market space.

Entry of foreign players into the market: With players such as Volkswagen, BMW,

Renault, Nissan entering the French market and with other existing players planning for

expansion, the French Automobile Industry is poised to witness tough competition. Foreign

players are introducing internationally test new vehicles models at a rapid rate which is

gradually raising the bar of customer expectations in terms of features and quality. French

players will need to bring in a paradigm shift in order to compete with the large foreign

players both in terms of cost and quality.

Shift towards high-end cars: Although small and medium car market has remained

dominant consistently, recent trends have been seen in terms of shift towards high-end cars at

a faster rate.



55

SWOT analysis of automobile industry

Strengths

Your strengths are usually easy to identify, through your continuing dialogue with customers

and suppliers. Your records (eg sales) will also help to indicate areas where you are

particularly strong (eg rising sales for a particular product).

For most businesses, strengths will fall into four distinct categories.

Sound finances may give you advantages over your competitors.

Important factors might include:

• Positive cash flow.

• Growing turnover and profitability.

• Skilled financial management, good credit control and few bad debts.

• A strong balance sheet.

• Access to extensive credit, a strong credit rating, and a good relationship with the

bank and other sources of finance.

Marketing may be the key to your success.

• Market leadership in a profitable niche.

• A good reputation and a strong brand name.

• An established customer base.

• A strong product range.

• Effective research and development, use of design and innovation. • A skilled sales force.

• Thorough after -sales service.

• Protected intellectual property (eg registered designs, patented products).



57

Weaknesses

Your weaknesses are often known but ignored. A SWOT analysis should be the starting point

for tackling underperformance in your business

Poor financial management may result in situations where:

• Insufficient funds are available for investment in new plant or product development.

• All available security, including personal assets and guarantees, is already pledged for

existing borrowings.

• Poor credit control leads to unpredictable cash flow.

Lack of marketing focus may lead to:

• Unresponsive attitudes to customer requirements.

• A limited or outdated product range.

• Complacency and a failure to innovate.

• Over -reliance on a few customers.

Management and personnel weaknesses are often hard to recognize, except with hindsight.

Familiar examples are:• Failure to delegate and train successors.

• Expertise and control locked up in a few key personnel.

• Inability to take outside advice.

• High staff turnover.

Inefficient production, premises and plant can undermine any business, however hard people

work.

Typical problems include:

• Poor location and shabby premises.

• Outdated equipment, high cost production and low productivity.

• Long leases tying the business to unsuitable premises or equipment.

• Inefficient processes.



58

Opportunities

External changes provide opportunities that well managed businesses can turn to their

advantage.

Changes involving organisations and individuals which directly affect your business may

open up completely new possibilities. For example:

• Deterioration in a competitor‘s performance, or the insolvency of a competitor.

• Improved access to potential new customers and markets (eg overseas).

• Increased sales to existing customers, or new leads gained through them.

• The development of new distribution channels (eg the Internet).

• Improved supply arrangements, such as just-in-time supply or outsourcing non-core

activities.

• The opportunity to recruit a key employee from a competitor.

• The introduction of financial backers who are keen to fund expansion.

The broader business environment may shift in your favour. This may be caused by:

• Political, legislative or regulatory change.

For example, a change in legislation that requires customers to purchase a product.

• Economic trends.

For example, falling interest rates reducing the cost of capital.

• Social developments.

For example, demographic changes or changing consumer requirements leading to an

increase in demand for your products.

• New technology.



59

Threats

Threats can be minor or can have the potential to destroy the business.

Changes involving organizations and individuals that directly affect your business can have

far-reaching effects. For example:

• Improved competitive products or the emergence of new competitors.

• Loss of a significant customer.

• Creeping over -reliance on one distributor or group of distributors.

• Failure of suppliers to meet quality requirements.

• Price rises from suppliers.

• Key personnel leaving, perhaps with trade secrets.

• Lenders reducing credit lines or increasing charges.

• A rent review threatening to increase costs, or the expiry of a lease.

• Legal action (eg being sued by a customer).

The broader business environment may alter to your disadvantage. This may be the result of:

• Political, legislative or regulatory change.

For example, new regulation increasing your costs or requiring product redesign.

• Economic trends.

For example, lower exchange rates reducing your income from overseas.

• Social developments.

• New technology.

For example, technology that makes your products obsolete or gives competitors an

advantage.



Bibliography

economic times. http://economictimes.indiatimes.com/configspace/ads/defaultinterstitial.html.

[Online]

2013. france_india realation. 2013.

Henry, Laurence. 2012. India's international trade policy. 2012.

Http://economictimes.indiatimes.com. [Online]

medabesh, Dr. ali and Shafi, Dr. Mohammad. Indo-French Bi-Lateral Trade.

schwab, klaus. 2013-13. The Global competitivenes report. 2013-13.

V.sutharaman. 2012. The automobile industy - Evolution & current state. 2012.

New France1 Project

Documents

Transcript of New France1 Project